Chapter 8

Question 1

What are accounts receivable?

Answer 1

Accounts receivable are amounts customers owe on account. They result from the sale
of goods and services. Companies generally expect to collect accounts receivable within 30 to
60 days. They are usually the most signifi cant type of claim held by a company

Question 2

What are notes receivable?

Answer 2

Notes receivable are a written promise (as evidenced by a formal instrument) for amounts
to be received. The note normally requires the collection of interest and extends for time periods
of 60–90 days or longer. Notes and accounts receivable that result from sales transactions
are often called trade receivables.

Question 3

Whats the difference between accounts & notes receivable?

Answer 3

• acc receivable 30-60 days
• notes receivable 60-90 days or longer
• notes receivable written promise

Question 4

131.Accounts Receivable has a debit balance of $2,400, and the Allowance for Uncollectible Accounts has a credit balance of $400. A $90 account receivable is written off. What is the amount of net receivables (net realizable value) after the write-off? A.$1,910
B.$2,000
C.$2,090
D.$2,310

Answer 4

Answer: B
Chapter: 5
Explanation: Accounts Receivable –Allowance for Uncollectible Accounts= NRV($2,400 -$90) –($400 -$90) = $2,000

Question 5

132.Aurora Company received a four-month, 6% per annum, $2,800 note receivable on December 1. The adjusting entry on December 31 will
A.Debit Interest Receivable $14
B.Credit Interest Revenue $14
C.Both A and B
D.Credit Interest Revenue $168

Answer 5

Answer: C
Chapter: 5
Explanation: ($2,800x 0.06 x 4/12 x ¼) = $14

Question 6

133.If the adjusting entry to accrue interest on a note receivable is omitted, then
A.Assets, net income, and shareholders’ equity are overstated
B.Assets, net income, and shareholders’ equity are understated
C.Assets are overstated, net income is understated, and shareholders’ equity is understated
D.Liabilities are understated, net income is overstated, and shareholders’ equity is overstated

Answer 6

B

Question 7

134.Net sales total $803,000. Beginning and ending accounts receivable are $80,000 and $74,000, respectively. Calculate receivables collection period
A.10 days
B.35 days
C.34 days
D.36 days

Answer 7

Answer: B
Chapter: 5
Explanation: (365 x (($80,000+$74,000)/2)) / $803,000)= 35

Question 8

135.The journal entry to record the receivable from performing a service on account is:
A.Debit notes receivable, credit service revenue
B.Debit notes receivable, credit cash
C.Debit service revenue, credit accounts receivable
D.Debit accounts receivable, credit service revenue

Answer 8

D

Question 9

136.Under the direct write-off method, the entry to write off an uncollectible account of $3,400 includes a:
A.Debit to Accounts Receivable for $3,400
B.Credit to Uncollectible-Account Expense for $3,400
C.Debit to Uncollectible-Account Expense for $3,400
D.Debit to Allowance for Uncollectible Accounts for $3,400

Answer 9

C

Question 10

137.To record recovery of previously written-off receivables, we:
A.Debit Receivables; credit Allowance for doubtful receivables
B.Debit Allowance for doubtful receivables; credit Uncollectible account expense
C.Debit Receivables; credit Uncollectible account expense
D.Both A and C

Answer 10

C

Question 11

138.The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:
A.Matching principle
B.Historical cost principle
C.Revenue recognition principle
D.Materiality principle

Answer 11

A

Question 12

138.The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:
A.Matching principle
B.Historical cost principle
C.Revenue recognition principle
D.Materiality principle

Answer 12

A

Question 13

141.The entry to write off an uncollectible account under the allowance method for estimating uncollectible accounts:
A.Reduces total assets
B.Reduces net income
C.Has no effect on total assets or net income
D.Increases net income

Answer 13

C

Question 14

145.The biggest risk of selling on credit is:
A.The risk of posting a payment to the wrong account
B.The risk of not collecting some of the receivables
C.The risk of losing a sale
D.None of the above

Answer 14

B

Question 15

146.To record estimateduncollectible accounts under the direct write-off method, you:
A.Need to debit Allowance for Uncollectible Accounts and credit Accounts Receivable
B.Need to debit Accounts Receivable and credit Allowance for Uncollectible Accounts
C.Need to debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts
D.Do not need to recognize a journal entry

Answer 15

D

Question 16

148.The balance in Accounts Receivable was $650,000 at the beginning of the year and $350,000 at the end of the year. Sales on account during the year totaled $770,000. During the year, $80,000 in customer accounts were written off. How much cash was collected from customers during the period?
A.$570,000
B.$990,000
C.$300,000
D.$220,000

Answer 16

Answer: B
Chapter: 5
Explanation:Beginning account receivable + Sales –Customer accounts –Cash collected from customers = Ending account receivable$650,000 + $770,000 -$80,000 –Cash collected from customers = $350,000Cash collected from customers = $990,000

Question 17

150.A high accounts receivable turnover would most likely indicate that:#
A.Policies for extending credit to customers are too tight
B.Net credit sales for the year have been understated
C.The company is unsuccessful in its efforts to collect cash from customers
D.Accounts receivable balances have been overstated

Answer 17

A

Question 18

151.The net realizable value of accounts receivables is:
A.The amount of accounts receivables after the company has recorded all the write-offs
B.The difference between the Accounts Receivable account and the Uncollectible-Account Expense
C.The difference between the Accounts Receivable account and itscontra-asset account
D.The amount of accounts receivables that the company recognized initially

Answer 18

C

Question 19

152.Under the allowance method for estimating uncollectible accounts, the entry to write off an account:
A.Decreases the Accounts Receivable, thus decreasing the net realizable value of the accounts receivables
B.Decreases both the Accounts Receivable and the Allowance for Uncollectible Accounts, thus decreasing the net realizable value of the accounts receivables
C.Has no effect on the net realizablevalue of the accounts receivables
D.Increases the Allowance for Uncollectible Accounts, thus decreasing the net realizable value of the accounts receivables.

Answer 19

C

Question 20

155.What effect does the recording of an accrued revenue have on a company’s net income?
A.The adjustment increases net income for the period
B.The effect of the adjustment cannot be determined with the information given
C.The adjustment decreases net income for the period
D.The adjustment has no effect on net income

Answer 20

A

Question 21

156.An adjusting entry recorded salary expenses for the month April. These salary expenses will only be paid to the employees in May. Which statement best describes the effect of this adjusting entry on the company’s accounting equation in April? A.Assets decrease liabilities are net affected, and shareholders’ equity decreases
B.Assets are not affected, liabilities increase, and shareholders’ equity increases
C.Assets are not affected, liabilities increase, and shareholders’ equity decreases
D.Assets decrease, liabilities increase, and shareholders’ equity decreases

Answer 21

C

Question 22

157.An aging-of-accounts-receivable table indicates that the amount of uncollectible accounts is $7,200. The Allowance for Uncollectible Accounts, prior to any adjustment, has a credit balance of $2,000. The amount of the adjusting entry should be:
A.$2,000
B.$9,200
C.$5,200
D.$7,200

Answer 22

Answer: C
Chapter: 5
Explanation:$7,200 -$2,000 = $5,200

Question 23

158.An aging-of-accounts-receivable table indicates that the amount of uncollectible accounts is $7,200. The Allowance for Uncollectible Accounts, prior to any adjustment, has a credit balance of $2,000. The adjusting entry includes a:
A.Credit to Allowance for Uncollectible Accounts
B.Credit to Accounts Receivable
C.Credit to Uncollectible-Accounts Expense
D.Debit to Allowance for Uncollectible Accounts

Answer 23

A

Question 24

159.Under the allowance method, the entry to write off a $2,600 uncollectible account includes a:
A.Debit to Accounts Receivable for $2,600
B.Credit to Uncollectible-Account-Expense for $2,600
C.Credit to Allowance for Uncollectible Accounts for $2,600
D.Debit to Allowance for Uncollectible Accounts for $2,600

Answer 24

D

Question 25

160.The following item appeared on a balance sheet:Receivables, less allowance of $1,150 ........ $8,100Uncollectible-account expense for the period was $1,250. The gross balance in Accounts Receivable before the allowance was deducted is:
A.$9,250
B.$8,100
C.$9,350
D.$6,950

Answer 25

Answer: A
Chapter: 5
Explanation:$8,100 + $1,150 = $9,250