FAR THEORY - RECEIVABLES

Question 1

A note receivable due in 18 months is listed on the balance sheet under the caption

a. investments
b. long-term liabilities
c. fixed assets
d. current assets

Answer 1

a. investments

Question 2

The receivable that is usually evidenced by a formal instrument of credit is a(n)

a. trade receivable.
b. note receivable.
c. accounts receivable.
d. income tax receivable.

Answer 2

b. note receivable.

Question 3

Which of the following receivables would not be classified as an “other receivable”?

a. Refundable income tax
b. Interest receivable
c. Advance to an employee
d. Notes receivable

Answer 3

d. Notes receivable

Question 4

Notes or accounts receivables that result from sales transactions are often called

a. trade receivables.
b. merchandise receivables.
c. sales receivables.
d. non-trade receivables.

Answer 4

a. trade receivables.

Question 5

The term “receivables” includes all

a. money claims against other entities.
b. cash to be paid to creditors.
c. cash to be paid to debtors.
d. merchandise to be collected from individuals or companies.

Answer 5

a. money claims against other entities.

Question 6

When does an account become uncollectible?

a. upon receipt of a certified letter from the debtor

b. when the debtor fails to pay a note on the due date

c. when the debtor fails to pay an account according to a sales contract

d. at the end of the fiscal year

e. there is no general rule for when an account becomes uncollectible

Answer 6

e. there is no general rule for when an account becomes uncollectible

Question 7

The type of account and normal balance of Allowance for Doubtful Accounts is

a. expense, credit
b. expense, debit
c. contra asset, credit
d. liability, credit
e. asset, debit

Answer 7

c. contra asset, credit

Question 8

The two methods of accounting for uncollectible receivables are the allowance method and the

a. equity method
b. cost method
c. interest method
d. direct write-off method

Answer 8

d. direct write-off method

Question 9

The direct write-off method of accounting for uncollectible accounts

a. is not generally accepted as a basis for estimating bad debts.

b. emphasizes the matching of expenses with revenues.

c. emphasizes balance sheet relationships.

d. emphasizes cash realizable value.

Answer 9

a. is not generally accepted as a basis for estimating bad debts.

Question 10

Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited

a. when a credit sale is past due.

b. at the end of each accounting period.

c. when an account is determined to be worthless.

d. whenever a pre-determined amount of credit sales have been made.

Answer 10

c. when an account is determined to be worthless.

Question 11

An alternative name for Bad Debts Expense is

a. Deadbeat Expense.
b. Credit Loss Expense.
c. Collection Expense.
d. Uncollectible Accounts Expense.

Answer 11

d. Uncollectible Accounts Expense.

Question 12

Two methods of accounting for uncollectible accounts are the

a. direct write-off method and the allowance method.

b. direct write-off method and the accrual method.

c. allowance method and the accrual method.

d. allowance method and the net realizable method.

Answer 12

a. direct write-off method and the allowance method.

Question 13

If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is debited to write off a customer’s account as uncollectible?

a. Accounts Receivable
b. Bad Debt Expense
c. Allowance for Doubtful Accounts
d. Uncollectible Accounts Payable

Answer 13

b. Bad Debt Expense

Question 14

If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer’s account as uncollectible?

a. Interest Expense
b. Allowance for Doubtful Accounts
c. Uncollectible Accounts Expense
d. Accounts Receivable

Answer 14

d. Accounts Receivable

Question 15

One of the weaknesses of the direct write-off method is that it

a. is too difficult to use for many companies
b. is based on estimates
c. violates the matching principle
d. understates accounts receivable on the

balance sheet

Answer 15

c. violates the matching principle

Question 16

The LMN Co. uses the direct write-off method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be as follows:

a. debit Uncollectible Accounts Expense; credit Accounts Receivable

b. debit Allowance for Doubtful Accounts; credit Accounts Receivable

c. debit Accounts Receivable, credit Uncollectible Accounts Expense

d. debit Uncollectible Accounts Expense; credit Allowance for Doubtful Accounts

e. debit Sales Returns and Allowance, credit Accounts Receivable

Answer 16

a. debit Uncollectible Accounts Expense; credit Accounts Receivable

Question 17

If the allowance method of accounting for uncollectible receivables is used, what general ledger account is debited to write off a customer’s account as uncollectible?

a. Interest Expense
b. Uncollectible Accounts Expense
c. Accounts Receivable
d. Allowance for Doubtful Accounts

Answer 17

d. Allowance for Doubtful Accounts

Question 18

Allowance for Doubtful Accounts has a credit balance of P800 at the end of the year (before adjustment), and an analysis of accounts in the customers’ ledger indicates doubtful accounts of P15,000. Which of the following entries records the proper provision for doubtful accounts?

a. debit Allowance for Doubtful Accounts, P15,800; credit Uncollectible Accounts Expense, P15,800

b. debit Uncollectible Accounts Expense, P14,200; credit Allowance for Doubtful Accounts, P14,200

c. debit Allowance for Doubtful Accounts, P800; credit Uncollectible Accounts Expense, P800

d. debit Uncollectible Accounts Expense, P800; credit Allowance for Doubtful Accounts, P800

Answer 18

b. debit Uncollectible Accounts Expense, P14,200; credit Allowance for Doubtful Accounts, P14,200

Question 19

If the allowance method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer’s account as uncollectible?

a. Interest Expense
b. Accounts Receivable
c. Allowance for Doubtful Accounts
d. Uncollectible Accounts Expense

Answer 19

b. Accounts Receivable

Question 20

Allowance for Doubtful Accounts is listed on the balance sheet under the caption

a. fixed assets
b. stockholders’ equity
c. investments
d. current assets

Answer 20

d. current assets

Question 21

On the balance sheet, the amount is shown for the Allowance for Doubtful Accounts is equal to the

a. total estimated uncollectible accounts as of the end of the year

b. total of the accounts receivables written off during the year

c. Uncollectible accounts expenses for the year

d. a sum of all accounts that are past due.

Answer 21

a. total estimated uncollectible accounts as of the end of the year

Question 22

Allowance for Doubtful Accounts has a credit balance of P1,100 at the end of the year (before adjustment), and an analysis of customers’ accounts indicates doubtful accounts of P12,900. Which of the following entries records the proper provision for doubtful accounts?

a. debit Uncollectible Accounts Expense, P11,800; credit Allowance for Doubtful
Accounts, P11,800

b. debit Uncollectible Accounts Expense, P14,000; credit Allowance for Doubtful Accounts, P14,000

c. debit Allowance for Doubtful Accounts, P11,800; credit Uncollectible Accounts
Expense, P11,800

d. debit Allowance for Doubtful Accounts, P14,000; credit Uncollectible Accounts
Expense, P14,000

Answer 22

a. debit Uncollectible Accounts Expense, P11,800; credit Allowance for Doubtful
Accounts, P11,800

Question 23

Allowance for Doubtful Accounts has a credit balance of P1,500 at the end of the year (before adjustment), and an analysis of customers’ accounts indicates doubtful accounts of P17,900. Which of the following entries records the proper provision for doubtful accounts?

a. debit Allowance for Doubtful Accounts, P16,400; credit Uncollectible Accounts
Expense, P16,400

b. debit Uncollectible Accounts Expense, P16,400; credit Allowance for Doubtful
Accounts, P16,400

c. debit Uncollectible Accounts Expense, P19,400; credit Allowance for Doubtful
Accounts, P19,400

d. debit Allowance for Doubtful Accounts, P19,400; credit Uncollectible Accounts
Expense, P19,400

Answer 23

b. debit Uncollectible Accounts Expense, P16,400; credit Allowance for Doubtful
Accounts, P16,400

Question 24

What is the type of account and normal balance of Allowance for Doubtful Accounts?

a. Contra asset, credit
b. Asset, debit
c. Asset, credit
d. Contra asset, debit

Answer 24

a. Contra asset, credit

Question 25

A company uses the estimate of sales method to account for uncollectible accounts. When the firm writes off a specific customer’s account receivable

a. total expenses for the period are increased

b. total current assets are reduced

c. total current assets are reduced, and total expenses are increased

d. there is no effect on total current assets or total expenses

Answer 25

d. there is no effect on total current assets or total expenses

Question 26

The balance in Allowance for Doubtful Accounts must be carefully considered before the end of the year adjustment. When applying which method?

a. estimate based on an analysis of receivables

b. both estimates are based on sales and estimate based on an analysis of receivables

c. direct write-off method

d. estimate based on sales

Answer 26

a. estimate based on an analysis of receivables

Question 27

Donovan Company uses the estimate based on analysis of receivables to account for uncollectible accounts. The company has determined that the Irish Company account is uncollectible. To write off
this account, Donovan should debit

a. Allowance for Doubtful Accounts and credit Accounts Receivable

b. Uncollectible Accounts Expense and credit Allowance for Doubtful Accounts

c. Uncollectible Accounts Expense and credit Accounts Receivable

d. Accounts receivable and credit Allowance for Doubtful Accounts

Answer 27

a. Allowance for Doubtful Accounts and credit Accounts Receivable

Question 28

Using the estimate based on the sales method of accounting for uncollectible accounts, the entry to reinstate a specific receivable previously written off would include a

a. credit to Accounts Receivable b. credit to Bad Debt Expense
c. debit to Allowance for Doubtful Accounts
d. debit to Accounts Receivable

Answer 28

d. debit to Accounts Receivable

Question 29

Allowance for Doubtful Accounts has a debit balance of P800 at the end of the year (before adjustment), and an analysis of accounts in the customers’ ledger indicates doubtful accounts of P15,000. Which of the following entries records the proper provision for doubtful accounts?

a. debit Allowance for Doubtful Accounts, P800; credit Uncollectible Accounts Expense, P800

b. debit Uncollectible Accounts Expense, P15,800; credit Allowance for Doubtful Accounts, P15,800

c. debit Uncollectible Accounts Expense, P14,200; credit Allowance for Doubtful Accounts, P14,200

d. debit Uncollectible Accounts Expense, P800; credit Allowance for Doubtful Accounts, P800

Answer 29

b. debit Uncollectible Accounts Expense, P15,800; credit Allowance for Doubtful Accounts, P15,800

Question 30

Allowance for Doubtful Accounts has a debit balance of P1,100 at the end of the year (before adjustment), and an analysis of customers’ accounts indicates doubtful accounts of P12,900. Which of the following entries records the proper provision for doubtful accounts?

a. debit Uncollectible Accounts Expense, P11,800; credit Allowance for Doubtful Accounts, P11,800

b. debit Allowance for Doubtful Accounts, P14,000; credit Uncollectible Accounts Expense, P14,000

c. debit Allowance for Doubtful Accounts, P11,800; credit Uncollectible Accounts
Expense, P11,800

d. debit Uncollectible Accounts Expense, P14,000; credit Allowance for Doubtful Accounts, P14,000

Answer 30

d. debit Uncollectible Accounts Expense, P14,000; credit Allowance for Doubtful Accounts, P14,000

Question 31

Allowance for Doubtful Accounts has a credit balance of P1,500 at the end of the year (before adjustment), and an analysis of customers’ accounts indicates doubtful accounts of P17,900. Which of the following entries records the proper provision for doubtful accounts?

a. debit Allowance for Doubtful Accounts, P19,400; credit Uncollectible Accounts
Expense, P19,400

b. debit Allowance for Doubtful Accounts, P16,400; credit Uncollectible Accounts
Expense, P16,400

c. debit Uncollectible Accounts Expense, P19,400; credit Allowance for Doubtful
Accounts, P19,400

d. debit Uncollectible Accounts Expense, P16,400; credit Allowance for Doubtful
Accounts, P16,400

Answer 31

d. debit Uncollectible Accounts Expense, P16,400; credit Allowance for Doubtful
Accounts, P16,400

Question 32

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

a. management estimates the amount of uncollectible.

b. a customer’s account becomes past due.

c. an account becomes bad and is written off.

d. a sale is made.

Answer 32

a. management estimates the amount of uncollectible.

Question 33

The collection of an account that had been previously written off under the allowance method of accounting for uncollectible

a. requires a correcting entry for the period in which the account was written off.

b. does not affect income in the period it is collected.

c. will increase income in the period it is collected.

d. will decrease income in the period it is collected.

Answer 33

b. does not affect income in the period it is collected.

Question 34

An aging of a company’s accounts receivable indicates that P4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a P1,200 credit balance, the adjustment to record bad debts for the period will require a

a. debit to Allowance for Doubtful Accounts for P4,000.

b. credit to Allowance for Doubtful for P4,000.

c. debit to Allowance for Doubtful Accounts for P2,800.

d. debit to Bad Debts Expense for P2,800.

Answer 34

d. debit to Bad Debts Expense for P2,800.

Question 35

An aging of a company’s accounts receivable indicates that P3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a P1,200 debit balance, the adjustment to record bad debts for the period will require a

a. debit to Bad Debt Expense for P4,200.

b. debit to Bad Debts Expense for P3,000.

c. credit to Allowance for Doubtful Accounts for P4,000.

d. debit to Bad Debts Expense for P1,800.

Answer 35

a. debit to Bad Debt Expense for P4,200.

Question 36

An aging of a company’s accounts receivable indicates that P3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a P1,200 credit balance, the adjustment to record bad debts for the period will require a

a. debit to Bad Debts Expense for P1,800.

b. debit to Bad Debt Expense for P4,200.

c. debit to Bad Debts Expense for P3,000.

d. credit to Allowance for Doubtful Accounts for P4,000.

Answer 36

a. debit to Bad Debts Expense for P1,800.

Question 37

A debit balance in the Allowance for Doubtful Accounts

a. cannot occur if the percentage of receivables method of estimating bad debts is used.

b. is the normal balance for that account.

c. indicates that actual bad debt write-offs have been less than what was estimated.

d. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

Answer 37

d. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

Question 38

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.

b. debit to Loss on Credit Sales and a credit to Accounts Receivable.

c. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

d. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

Answer 38

c. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

Question 39

The balance in Allowance for Doubtful Accounts must be considered before the end of period adjustment when using the following methods?

a. Direct write-off method
b. Analysis of receivables allowance method
c. Net realizable method
d. Accrual method

Answer 39

b. Analysis of receivables allowance method

Question 40

You have just received notice that a customer with an Account Receivable balance of P100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

a. debit Bad Debt Expense and credit
Allowance for Doubtful Accounts.

b. debit Allowance for Doubtful Accounts
and credit Bad Debt Expense.

c. debit Allowance for Doubtful Accounts
and credit Accounts Receivable.

d. debit Bad Debt Expense and credit
Accounts Receivable.

Answer 40

c. debit Allowance for Doubtful Accounts
and credit Accounts Receivable.

Question 41

Tanning Company uses the percentage of receivables method for recording bad debt expenses. The accounts receivable balance is P200,000, and credit sales are P1,000,000. An aging of accounts receivable shows that 5% will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of P2,000 before adjustment?

a. Bad Debts Expense (10,000); Allowance
for Doubtful Accounts (10,000)

b. Bad Debts Expense (10,000); Accounts
Receivable (10,000)

c. Bad Debts Expense (8,000); Allowance
for Doubtful Accounts (8,000)

d. Bad Debts Expense (8,000); Accounts
Receivable (8,000)

Answer 41

c. Bad Debts Expense (8,000); Allowance
for Doubtful Accounts (8,000)

Question 42

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts

a. Total Assets are unchanged.
b. Net Income is unchanged.
c. Total Assets decrease.
d. Liabilities decrease.

Answer 42

c. Total Assets decrease.

Question 43

The amount of a promissory note is called the
a. face value
b. maturity value
c. realizable value
d. proceeds

Answer 43

a. face value

Question 44

The amount of the promissory note plus the interest earned on the due date is called the

a. face value
b. realizable value
c. net realizable value
d. maturity value

Answer 44

d. maturity value

Question 45

Interest on a note can be calculated without knowledge of the

a. notes duration
c. principal amount
b. rate of interest
d. note’s maturity date

Answer 45

d. note’s maturity date

Question 46

If the maker of a promissory note fails to pay the note on the due date, the note is said to be

a. disallowed
b. discounted
c. dishonored
d. displaced

Answer 46

c. dishonored

Question 47

The journal entry to record a note received from a customer to apply to the account is

a. debit Notes Receivable; credit Accounts
Receivable

b. debit Notes Receivable; credit Notes
Payable

c. debit Accounts Receivable; credit Notes
Receivable

d. debit Cash; credit Notes Receivable

Answer 47

a. debit Notes Receivable; credit Accounts
Receivable

Question 48

A P6,000, 30-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal entry to recognize this event is

a. debit Accounts Receivable, P6,060; credit Notes Receivable, P6,000; Credit Interest Revenue, P60

b. debit Cash, P6,060; credit Notes
Receivable, P6,060

c. debit Accounts Receivable, P6,060; credit Notes Receivable, P6,000; Credit Interest Receivable, P60

d. debit Notes Receivable, P6,060; credit
Accounts Receivable, P6,060

Answer 48

a. debit Accounts Receivable, P6,060; credit Notes Receivable, P6,000; Credit Interest Revenue, P60

Question 49

On November 1, Kim Company accepted a 3-month note receivable payment for services provided to Chu Company. The terms of the note were P8,000 face value and 6% interest. Kim Company closes its
books on December 31 and does not use reversing entries. On February 1, the journal entry to record the collection of the note should include a credit to

a. Interest Receivable for P120
b. Notes Receivable for P8,120
c. Interest Revenue for P120
d. Interest Revenue for P40

Answer 49

d. Interest Revenue for P40

Question 50

A note receivable or promissory note

a. is not a formal credit instrument.

b. may be used to settle an accounts
receivable.

c. has the party to whom the money is due as the maker.

d. cannot be factored into another party.

Answer 50

b. may be used to settle an accounts
receivable.

Question 51

When a company receives an interest-bearing note receivable, it will

a. credit Notes Receivable for the face value of the note.

b. credit Notes Receivable for the maturity
value of the note.

c. debit Notes Receivable for the maturity
value of the note.

d. debit Notes Receivable for the face value of the note.

Answer 51

d. debit Notes Receivable for the face value of the note.

Question 52

Pane Company receives a P3,000, 3-month, 6% promissory note from Dag Company to settle an open accounts receivable. What entry will Pane Company make upon receiving the note?

a. Notes Receivable (3,000); Interest
Receivable (45); Accounts Receivable
-Dag Company (3,000); Interest Revenue
(45)

b. Notes Receivable (3,000), Accounts
Receivable -Dag Company (3,000)

c. Notes Receivable (23,045); Accounts
Receivable -Dag Company (23,045)

d. Notes Receivable (3,045); Accounts
Receivable - Dag Company (3,000)
Interest Revenue (45)

Answer 52

b. Notes Receivable (3,000), Accounts
Receivable -Dag Company (3,000)

Question 53

Harper Company lends Hewell Company P20,000 on March 1, accepting a four-month, 6% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared?

a. Interest Receivable (100); Interest
Revenue (100)

b. Interest Receivable (300); Interest
Revenue (300)

c. Cash (100); Interest Revenue (100)

d. Note Receivable (20,000); Cash (20,000)

Answer 53

a. Interest Receivable (100); Interest
Revenue (100)

Question 54

Bright Co. holds Park Co.’s P20,000, 120-day, 9% note. The entry made by Bright Co. when the note is collected, assuming no interest has previously been accrued, is:

a. Cash (20,600); Notes Receivable (20,000); Interest Revenue (600)

b. Accounts Receivable (20,600); Notes
Revenue (20,000); Interest Revenue
(600)

c. Accounts Receivable (20,600); Notes
Receivable (20,000); Interest Revenue (600)

d. Cash (20,000); Notes Receivable@20,000

Answer 54

a. Cash (20,600); Notes Receivable (20,000); Interest Revenue (600)

Question 55

Receivables are usually listed in order

a. alphabetically
b. of the size
c. of the due date
d. of liquidity

Answer 55

d. of liquidity

Question 56

Accounts Receivable Turnover measures

a. the number of days outstanding

b. the efficiency of the accounts payable
function

c. the fair market value of accounts receivable

d. how frequently during the year the
accounts receivable are converted to cash

Answer 56

d. how frequently during the year the
accounts receivable are converted to cash

Question 57

The number of days’ sales in receivables

a. is an estimate of the length of time the
receivables have been outstanding

b. measures the number of times the
receivables turn over each year

c. are Net Credit Sales divided by Average
Receivables

d. is not meaningful and therefore is not used

Answer 57

a. is an estimate of the length of time the
receivables have been outstanding

Question 58

In reference to a promissory note, another word for “discount” is

a. maturity
b. purchase
c. interest
d. sale

Answer 58

c. interest

Question 59

The amount received by the endorser after discounting a note receivable at the bank is called the

a. face value
b. proceeds
c. maturity value
d. realizable value

Answer 59

b. proceeds

Question 60

A 60-day, 12% note for P10,000, dated May 1, is received from a customer on account. If the note is discounted on May 21 at 15%, the amount of interest revenue or expense to be recorded by the payee
of the note on May 21 is

a. P170 interest expense
b. P30 interest expense
c. P170 interest revenue
d. P30 interest revenue

Answer 60

d. P30 interest revenue

Question 61

A 90-day, 12% note for P20,000, dated April 10, is received from a customer on account. If the note is discounted at 15% on May 10, the due date is

a. July 10
b. July 8
c. July 9
d. July 11

Answer 61

c. July 9