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The allowance method for uncollectible accounts conforms to the expense recognition principle.

A) True
B) False

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What is the annual rate of interest being charged on a 9-month note receivable of $150,000 if the total interest is $9,000?


A) 6%
B) 8%
C) 12%
D) 10%

E) A) and D)
F) A) and C)

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Receivables might be sold ("factored") to:


A) lengthen the time to collect from customers.
B) reduce the receivables turnover ratio.
C) generate cash immediately.
D) generate a gain on sale.

E) C) and D)
F) A) and B)

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Match the term and its definition.There are more definitions than terms. -Percentage of Credit Sales Method


A) The process of removing specific customers' accounts deemed uncollectible.
B) When a company increases the amount of accounts receivable by adding the interest earned as accounts age without being collected.
C) How much money you can expect to earn over a period of time selling your goods.
D) Selling accounts receivable to another company for immediate cash.
E) Credit that a company receives when one good is exchanged for another.
F) Also known as net accounts receivable.
G) The length of the credit period and any discounts offered for prompt payment.
H) The amount of money lent.
I) A method of estimating uncollectible debts by forecasting the probability of not collecting late accounts.
J) The interest earned by money over a period of time.
K) A method of estimating uncollectible debts by looking at the historical average of credit sales not collected.
L) The account in which the estimated amount of accounts receivable expected to be uncollectible is recorded.

M) F) and J)
N) C) and H)

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Match the term and its definition.There are more definitions than terms. -Historical Percentage of Bad Debt Losses


A) The total amount of money loaned through notes that the lender has not yet collected.
B) A system used by companies to allocate their budgets over the different operating expenses.
C) The interest that a company receives during the year divided by the principal of the loan.
D) Another name for a company's total revenue,which is calculated by multiplying the quantity sold by the average price.
E) The denominator of the receivables turnover ratio.
F) The amount of interest a lender receives during a year.
G) The costs of maintaining accounts with customers who have not made recent purchases.
H) A separate record for each accounts receivable customer.
I) Used by the percentage of credit sales method to estimate bad debts.
J) The rate at which a company pays off its liabilities or debts.
K) The numerator of the receivables turnover ratio.
L) The portion of past credit sales that have not yet been collected.
M) An accounting method which involves estimating bad debts.
N) The average level of net sales revenue the firm earns each month.

O) F) and L)
P) B) and C)

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Momentum Products Inc.just recorded an adjusting journal entry for the current year's estimate of bad debts.Assuming all else is equal,this adjusting journal entry will cause:


A) the accounts receivable turnover ratio to increase.
B) net income to increase.
C) total assets to remain unchanged.
D) net accounts receivable to increase.

E) A) and C)
F) A) and B)

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Nevada Wolf,Inc.determined at the end of the year that estimated uncollectible accounts was $50,000.If the Allowance for Doubtful Accounts currently has an unadjusted debit balance of $10,000,what is the amount of bad debts to be recorded at the end of the year?


A) $55,000
B) $50,000
C) $40,000
D) $60,000

E) None of the above
F) A) and B)

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The accounting principle that governs the recording of bad debt expense in the same period as sales revenue is called the:


A) expense recognition principle ("matching") .
B) time period assumption.
C) revenue recognition principle.
D) separate entity assumption.

E) A) and B)
F) B) and C)

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Star Enterprises uses the aging of accounts receivable method.The following information comes from its accounting records:  Cash sales $100,000 Credit sales 1,600,000 Total sales 2,000,000 Credit balance in the Allowance for Doubtful Accounts 10,000 Estimated uncollectible accounts receivables 38,000\begin{array}{lr}\text { Cash sales } & \$ 100,000 \\\text { Credit sales } & 1,600,000 \\\text { Total sales } & 2,000,000 \\\text { Credit balance in the Allowance for Doubtful Accounts } & 10,000 \\\text { Estimated uncollectible accounts receivables } & 38,000\end{array} What is the estimate of bad debt expense?


A) $10,000
B) $18,000
C) $28,000
D) $38,000

E) A) and B)
F) B) and C)

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The entry to adjust the Allowance for Doubtful Accounts causes total:


A) assets to increase.
B) liabilities to increase.
C) stockholders' equity to increase.
D) stockholders' equity to decrease.

E) A) and B)
F) B) and C)

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Which of the following statements about the tradeoffs of extending credit is not correct?


A) Extending credit to at least some customers is necessary in a competitive market to avoid losing sales to competitors.
B) Even if a company were to collect in full from customers,there would be other additional costs introduced by extending credit to customers.
C) Even though additional costs are incurred if credit is extended,a company expects that the additional revenue will be more than sufficient to offset the additional costs.
D) Even if there are no bad debts from credit sales,the delayed receipt of cash will always increase additional costs beyond the increased revenue from the credit sales.

E) A) and B)
F) C) and D)

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A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:


A) Notes Receivable and a credit to Cash for $150,000.
B) Cash and a credit to Notes Payable for $150,000.
C) Cash and a credit to Interest Revenue for $9,000.
D) Interest Receivable and a credit to Interest Revenue for $4,500.

E) A) and C)
F) A) and B)

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The Allowance for Doubtful Accounts will have a debit balance before adjustments when:


A) the company increased its collection efforts.
B) the company recovered some accounts previously written off.
C) bad debts were underestimated at the end of the prior period.
D) bad debts were overestimated at the end of the prior period.

E) C) and D)
F) B) and D)

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Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?


A) The receipt of the principal payment.
B) The adjusting entry to record interest owed.
C) The receipt of an interest payment.
D) The issuance of a note.

E) C) and D)
F) A) and C)

Correct Answer

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Match the term and its definition.There are more definitions than terms. -Allowance Method


A) The total amount of money loaned through notes that the lender has not yet collected.
B) A system used by companies to allocate their budgets over the different operating expenses.
C) The interest that a company receives during the year divided by the principal of the loan.
D) Another name for a company's total revenue,which is calculated by multiplying the quantity sold by the average price.
E) The denominator of the receivables turnover ratio.
F) The amount of interest a lender receives during a year.
G) The costs of maintaining accounts with customers who have not made recent purchases.
H) A separate record for each accounts receivable customer.
I) Used by the percentage of credit sales method to estimate bad debts.
J) The rate at which a company pays off its liabilities or debts.
K) The numerator of the receivables turnover ratio.
L) The portion of past credit sales that have not yet been collected.
M) An accounting method which involves estimating bad debts.
N) The average level of net sales revenue the firm earns each month.

O) E) and K)
P) B) and L)

Correct Answer

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If a $40,000,6%,note receivable with a two-year maturity date was signed three months ago,how much interest has been earned?


A) $2,400
B) $600
C) $4,800
D) $300

E) A) and C)
F) None of the above

Correct Answer

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The Allowance for Doubtful Accounts:


A) is a contra-revenue account.
B) has a normal debit balance.
C) is not listed on the chart of accounts of a company that uses the direct write-off method.
D) is reported on the Income Statement.

E) C) and D)
F) B) and C)

Correct Answer

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Match the term and its definition.There are more definitions than terms. -Aging of Accounts Receivable


A) The process of removing specific customers' accounts deemed uncollectible.
B) When a company increases the amount of accounts receivable by adding the interest earned as accounts age without being collected.
C) How much money you can expect to earn over a period of time selling your goods.
D) Selling accounts receivable to another company for immediate cash.
E) Credit that a company receives when one good is exchanged for another.
F) Also known as net accounts receivable.
G) The length of the credit period and any discounts offered for prompt payment.
H) The amount of money lent.
I) A method of estimating uncollectible debts by forecasting the probability of not collecting late accounts.
J) The interest earned by money over a period of time.
K) A method of estimating uncollectible debts by looking at the historical average of credit sales not collected.
L) The account in which the estimated amount of accounts receivable expected to be uncollectible is recorded.

M) D) and K)
N) F) and H)

Correct Answer

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Bolster Soda had an accounts receivable turnover ratio of 9.9 this year and 11.0 last year.Castor Soda had a turnover ratio of 9.3 this year and 9.3 last year.This implies:


A) Castor's receivables turnover ratios were better than Bolster's for both years.
B) Bolster's receivables turnover ratios were better than Castor's for both years.
C) Castor has credit policies that need to be tightened.
D) Castor collected receivables more quickly than Bolster in both years.

E) A) and B)
F) B) and C)

Correct Answer

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A high receivables turnover ratio is a sign of a company's:


A) effectiveness in granting and collecting credit.
B) weakness in granting and collecting credit.
C) profitability.
D) ability to sell goods quickly.

E) B) and C)
F) A) and B)

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