Question 1

The potential advantages of extending credit include all of the following except:

Accepted Answer

A)  higher selling expenses.
B)  higher profits.
C)  higher customer satisfaction.
D)  higher revenues.E) C) and D)
F) A) and C)

Question 2

If a company did not extend credit to customers:

Accepted Answer

A)  gross revenue would increase.
B)  costs would increase but so would its revenue.
C)  costs would decrease but so would its revenue.
D)  gross profit would increase.E) A) and D)
F) None of the above

Question 3

When a company makes an adjustment in anticipation of future uncollectible receivables:

Accepted Answer

A)  it debits an asset account and credits a liability account.
B)  it debits an expense account and credits an asset account.
C)  it debits an expense account and credits a revenue account.
D)  it debits an expense account and credits a contra-asset account.E) All of the above
F) C) and D)

Question 4

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the first quarter is:

Accepted Answer

A)  $4,800.
B)  $1,200.
C)  $400.
D)  $1,600.E) None of the above
F) B) and C)

Question 5

To record estimated uncollectible accounts using the allowance method,the adjusting entry would normally be a debit to:

Accepted Answer

A)  Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B)  Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
C)  Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D)  Bad Debt Expense and a credit to Accounts Receivable.E) None of the above
F) A) and B)

Question 6

Use the information above to answer the following question.The entry made by the company to record this loan to the employee will include a:

Accepted Answer

A)  Debit to Accounts Receivable for $10,000.
B)  Credit to Sales for $10,000.
C)  Debit to Notes Receivable for $10,000.
D)  Credit to Notes Payable for $10,000.E) A) and D)
F) A) and C)

Question 7

All other things being equal,a company is better off when its receivable turnover ratio:

Accepted Answer

A)  and its days-to-collect measure are both low.
B)  is high and its days-to-collect measure is low.
C)  and its days-to-collect measure are both high.
D)  is low and its days-to-collect measure is high.E) B) and D)
F) A) and B)

Question 8

Use the information above to answer the following question.If the company is preparing financial statements 3 months after this transaction,what is the necessary adjusting entry?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) B) and D)
F) A) and D)

Question 9

The allowance for doubtful accounts will have a debit balance before adjustments,when

Accepted Answer

A)  the accountant has made a mistake.
B)  bad debts were overestimated.
C)  bad debts were underestimated.
D)  the company recovered some accounts previously written off.E) B) and C)
F) A) and B)

Question 10

Your company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category.All else equal,using the aging of accounts receivable method,the amount of the bad debt adjustment will:

Accepted Answer

A)  decline,thus increasing the ending balance of the allowance account.
B)  increase,thus increasing the ending balance of the allowance account.
C)  decline,thus reducing the ending balance of the allowance account.
D)  increase,thus reducing the ending balance of the allowance account.E) A) and B)
F) C) and D)

Question 11

Net accounts receivable is:

Accepted Answer

A)  gross accounts receivable minus cost of goods sold.
B)  gross accounts receivable minus bad debt expense.
C)  gross accounts receivable minus allowance for doubtful accounts.
D)  gross accounts receivable minus current liabilities.E) A) and B)
F) B) and C)

Question 12

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt.That customer reorganizes and now pays the $350.Your company should:

Accepted Answer

A)  debit Bad Debt Expense and credit Cash.
B)  debit Accounts Receivable and credit Bad Debt Expense and then debit Cash and credit Allowance for Doubtful Accounts.
C)  debit Cash and credit Accounts Receivable.
D)  debit Accounts Receivable and credit Allowance for Doubtful Accounts and then debit Cash and credit Accounts Receivable.E) None of the above
F) A) and D)

Question 13

The receivables turnover ratio is calculated as:

Accepted Answer

A)  the average number of days from the time a sale is made on account to the time cash is collected.
B)  the average number of days from the time a sale is made on account to the time payment is due.
C)  how many times a year receivables go uncollected.
D)  how many times,on average,the process of selling and collecting is repeated during the period.E) B) and C)
F) All of the above

Question 14

The allowance method for uncollectible accounts is required by GAAP because it conforms to the matching principle.

Accepted Answer

A) True 
 B)False

Question 15

The Dubious Company operates in an industry where all sales are made on account.Historically,Dubious has experienced a steady 1.0% of credit sales being uncollectible.Presented below is the company's forecast of sales and expenses over the next three years.  Using this information:
a.Calculate bad debt expense and net income for each of the three years,assuming uncollectible accounts are estimated as 1.0% of sales.
b.Describe the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3.
c.Suppose the company changes its estimate of uncollectible credit sales to 1.0% in Year 1,2.0% in Year 2 and 1.5% in Year 3.Calculate the bad debt expense and net income for each of the three years under this alternative scenario.
d.Describe the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2 to Year 3.
e.Explain some of the factors that might cause the estimate of uncollectible accounts to vary from year to year as in part c above.

Accepted Answer

a. <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> b.Net income increases between years...

Question 16

Which of the following statements regarding the allowance for doubtful accounts is true?

Accepted Answer

A)  Under the aging of accounts receivable method,bad debt expense is calculated and then added to the beginning balance in the allowance for doubtful accounts.
B)  The allowance for doubtful accounts is a contra-revenue account.
C)  The allowance for doubtful accounts is credited when a specific write-off is recorded.
D)  The allowance for doubtful accounts has a normal credit balance.E) B) and D)
F) B) and C)

Question 17

Plasma Inc. ,has net credit sales of $500,000 during the year.Based on historical information,Plasma estimates that 2% of net credit sales result in bad debts.At the beginning of the year,Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000.What amount of bad debt expense should Plasma recognize for the year,assuming no specific customer accounts were written off?

Accepted Answer

A)  $4,000.
B)  $6,000.
C)  $10,000.
D)  $14,000.E) None of the above
F) C) and D)

Question 18

When an adjusting entry is made in anticipation of some receivables being uncollectible,the adjustment:

Accepted Answer

A)  reduces both net income and net accounts receivable.
B)  reduces net income and increases liabilities.
C)  reduces net accounts receivable and increases liabilities.
D)  reduces net income and selling expenses.E) A) and B)
F) All of the above

Question 19

Interest on a two-month,7%,$1,000 note would be calculated as $1,000 x 0.07 x 2.

Accepted Answer

A) True 
 B)False

Question 20

If a company is overly optimistic about debt collection,the company will understate bad debt expense and:

Accepted Answer

A)  overstate net income;and days to collect will decline.
B)  overstate net income;but days to collect will increase.
C)  understate net income;and days to collect will increase.
D)  understate net income;and days to collect will decline.E) A) and D)
F) B) and C)

Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

When an adjusting entry is made in anticipation of some receivables being uncollectible,the adjustment:

Correct Answer
verified

Your company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category.All else equal,using the aging of accounts receivable method,the amount of the bad debt adjustment will:

Correct Answer
verified

The allowance method for uncollectible accounts is required by GAAP because it conforms to the matching principle.

Correct Answer
verified

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt.That customer reorganizes and now pays the $350.Your company should:

Correct Answer
verified

Which of the following statements regarding the allowance for doubtful accounts is true?

Correct Answer
verified

Use the information above to answer the following question.If the company is preparing financial statements 3 months after this transaction,what is the necessary adjusting entry?

Correct Answer
verified

To record estimated uncollectible accounts using the allowance method,the adjusting entry would normally be a debit to:

Correct Answer
verified

If a company did not extend credit to customers:

Correct Answer
verified

Correct Answer
verified
a. b.Net income increases between years...
View Answer

The receivables turnover ratio is calculated as:

Correct Answer
verified

If a company is overly optimistic about debt collection,the company will understate bad debt expense and:

Correct Answer
verified

The allowance for doubtful accounts will have a debit balance before adjustments,when

Correct Answer
verified

When a company makes an adjustment in anticipation of future uncollectible receivables:

Correct Answer
verified

Interest on a two-month,7%,$1,000 note would be calculated as $1,000 x 0.07 x 2.

Correct Answer
verified

Net accounts receivable is:

Correct Answer
verified

All other things being equal,a company is better off when its receivable turnover ratio:

Correct Answer
verified

Use the information above to answer the following question.The entry made by the company to record this loan to the employee will include a:

Correct Answer
verified

The potential advantages of extending credit include all of the following except:

Correct Answer
verified

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the first quarter is:

Correct Answer
verified

Correct Answer
verified

Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

When an adjusting entry is made in anticipation of some receivables being uncollectible,the adjustment:

Correct AnswerverifiedShow Answer

Your company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category.All else equal,using the aging of accounts receivable method,the amount of the bad debt adjustment will:

Correct AnswerverifiedShow Answer

The allowance method for uncollectible accounts is required by GAAP because it conforms to the matching principle.

Correct AnswerverifiedShow Answer

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt.That customer reorganizes and now pays the $350.Your company should:

Correct AnswerverifiedShow Answer

Which of the following statements regarding the allowance for doubtful accounts is true?

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.If the company is preparing financial statements 3 months after this transaction,what is the necessary adjusting entry?

Correct AnswerverifiedShow Answer

To record estimated uncollectible accounts using the allowance method,the adjusting entry would normally be a debit to:

Correct AnswerverifiedShow Answer

If a company did not extend credit to customers:

Correct AnswerverifiedShow Answer

Correct Answerverifieda. b.Net income increases between years...View AnswerShow Answer

The receivables turnover ratio is calculated as:

Correct AnswerverifiedShow Answer

If a company is overly optimistic about debt collection,the company will understate bad debt expense and:

Correct AnswerverifiedShow Answer

The allowance for doubtful accounts will have a debit balance before adjustments,when

Correct AnswerverifiedShow Answer

When a company makes an adjustment in anticipation of future uncollectible receivables:

Correct AnswerverifiedShow Answer

Interest on a two-month,7%,$1,000 note would be calculated as $1,000 x 0.07 x 2.

Correct AnswerverifiedShow Answer

Net accounts receivable is:

Correct AnswerverifiedShow Answer

All other things being equal,a company is better off when its receivable turnover ratio:

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.The entry made by the company to record this loan to the employee will include a:

Correct AnswerverifiedShow Answer

The potential advantages of extending credit include all of the following except:

Correct AnswerverifiedShow Answer

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the first quarter is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. b.Net income increases between years...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified