Exam

Name___________________________________

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

1) Credit sales are recorded by crediting an Accounts Receivable. 1)

2) The maturity date of a note refers to the date the note must be repaid. 2)

3) A promissory note is a written promise to pay a specified amount of money either on 3)

demand or at a definite future date.

4) The formula for computing interest on a note is: Principal of the note Annual interest 4)
rate Time expressed in fraction of year.

5) The person that borrows money and signs a promissory note is called the maker. 5)

6) A company borrowed $10,000 by signing a six month promissory note at 5% interest. 6)

The total amount of interest is $25.

7) A company borrowed $16,000 by signing a 4-month promissory note at 12%. The total 7)
interest on the note is $640.

8) The direct write-off method of accounting for bad debts records the loss from an 8)
uncollectible account receivable when it is determined to be uncollectible.

9) The matching principle requires use of the allowance method of accounting for bad 9)
debts.

10) No attempt is made to estimate bad debts expense under the allowance method of 10)
accounting for uncollectible accounts receivable.

11) When using the allowance method of accounting for uncollectible accounts, the entry to 11)
record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to
Allowance for Doubtful Accounts.

12) After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of 12)
reducing Accounts Receivable to its estimated realizable value.

13) When using the allowance method of accounting for uncollectible accounts, the entry to 13)
write off Macie's uncollectible account is a debit to Allowance for Doubtful Accounts
and a credit to Accounts ReceivableMacie.

14) When using the allowance method of accounting for uncollectible accounts, the recovery 14)
of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

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15) The accounts receivable method to estimate bad debts obtains the estimated balance in 15)
the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent
uncollectible from the total accounts receivable or (2) aging accounts receivable.

16) The percent of sales method for estimating bad debts assumes that a given percent of a 16)
company's credit sales for the period are uncollectible.

17) The aging of accounts receivable involves classifying each account receivable by how 17)
long it is past its due date and estimating the percent of each uncollectible class.

18) The percent of sales method for bad debts estimation uses only income statement 18)
account balances to estimate bad debts.

19) The aging method of determining bad debts expense is based on the knowledge that the 19)
longer a receivable is past due, the higher the likelihood of collection.

20) Installment accounts receivable is another name for aging of accounts receivable. 20)

21) A company using the percentage of sales method for estimating bad debts has sales of 21)
$350,000 and estimates that 1.0% of its sales are uncollectible. The estimated amount of
bad debts expense is $3,500.

22) The percent of sales method of estimating bad debts focuses more on the realizable value 22)
of accounts receivable than on matching.

23) A company received a $15,000, 90-day, 10% note receivable. The journal entry to record 23)
receipt of the note includes a debit to Notes Receivable.

24) A maker who dishonors a note is one who does not pay it at maturity. 24)

25) The practice of placing dishonored notes receivable into accounts receivable keeps only 25)
notes that have not matured in the Notes Receivable account.

26) The matching principle requires that accrued interest on outstanding notes receivable be 26)
recorded at the end of each accounting period.

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

27) A credit sale of $5,275 to a customer would result in which of the following? 27)
A) A credit to the Accounts Receivable account in the general ledger and a credit to
the customer's account in the accounts receivable subsidiary ledger.
B) A debit to the Accounts Receivable account in the general ledger and a debit to the
customer's account in the accounts receivable subsidiary ledger.
C) A debit to the Accounts Receivable account in the general ledger and a credit to the
customer's account in the accounts receivable subsidiary ledger.
D) A credit to Sales and a credit to the customer's account in the accounts receivable
subsidiary ledger.
E) A credit to the Accounts Receivable account in the general ledger and a debit to the
customer's account in the accounts receivable subsidiary ledger.

28) A promissory note received from a customer in exchange for an account receivable is 28)
recorded by the payee as:
A) A note receivable.
B) A cash equivalent.
C) An account receivable.
D) A note payable.
E) A short-term investment.

29) The person who signs a note receivable and promises to pay the principal and interest is 29)
the:
A) Holder.
B) Owner.
C) Maker.
D) Receiver.
E) Payee.

30) A promissory note: 30)

A) Cannot be used in payment of an account receivable.
B) Is a liability to the payee.
C) Is another name for an installment receivable.
D) Is a short-term investment for the maker.
E) Is a written promise to pay a specified amount of money at a certain date.

31) The maturity date of a note receivable: 31)

A) Is the day of the credit sale.
B) Is the last day of the month.
C) Is the day the note is due to be repaid.
D) Is the date of the first payment.
E) Is the day the note was signed.

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32) A company receives a 10%, 120-day note for $1,500. The total interest due on the 32)
maturity date is:
A) $50.00.
B) $87.50.
C) $37.50.
D) $150.00.
E) $75.00.

33) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total 33)
interest due on the maturity date is.
A) $1,800 B) $450 C) $75 D) $300 E) $900

34) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The 34)
maturity value of the note is:
A) $11,800 B) $10,450 C) $10,900 D) $10,300 E) $10,075

35) A finance company or bank that purchases and takes ownership of another company's 35)
accounts receivable is called a:
A) Factor.
B) Payee.
C) Pledgee.
D) Payer.
E) Pledger.

36) If the credit balance of the Allowance for Doubtful Accounts account exceeds the 36)
amount of a bad debt being written off, the entry to record the write-off against the
allowance account results in:
A) A reduction in equity.
B) A reduction in current assets.
C) No effect on the expenses of the current period.
D) An increase in the expenses of the current period.
E) A reduction in current liabilities.

37) On October 17 of the current year, a company determined that a customer's account 37)
receivable was uncollectible and that the account should be written off. Assuming the
allowance method is used to account for bad debts, what effect will this write-off have
on the company's net income and total assets?
A) Decrease in net income; decrease in total assets.
B) Increase in net income; no effect on total assets.
C) No effect on net income; decrease in total assets.
D) No effect on net income; no effect on total assets.
E) Decrease in net income; no effect on total assets.

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38) Gideon Company uses the allowance method of accounting for uncollectible accounts. 38)
On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its
customer, A. Hopkins. On July 10, Gideon received a check for the full amount of
$2,000 from Hopkins. The entry or entries Gideon makes to record the write off of the
account on May 3 is:
A)
Cash 2,000
Accounts ReceivableA. Hopkins 2,000

B)
Accounts ReceivableA. Hopkins 2,000
Bad debts expense 2,000
Cash 2,000
Accounts ReceivableA. Hopkins 2,000

C)
Accounts ReceivableA. Hopkins 2,000
Allowance for Doubtful Accounts 2,000

D)
Allowance for Doubtful Accounts 2,000
Bad debts expense 2,000

E)
Allowance for Doubtful Accounts 2,000
Accounts ReceivableA. Hopkins 2,000

39) The allowance method based on the idea that a given percent of a company's credit sales 39)
for the period is uncollectible is:
A) Direct write-off method.
B) The percent of sales method.
C) The aging of accounts receivable method.
D) The percent of accounts receivable method.
E) Factoring method.

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40) A method of estimating bad debts expense that involves a detailed examination of 40)
outstanding accounts and the length of time past due is the:
A) Percentage of sales method.
B) Aging of accounts receivable method.
C) Aging of investments method.
D) Direct write-off method.
E) Percent of accounts receivable method.

41) Which of the following is an accounting procedure that (1) estimates and reports bad 41)
debts expense from credit sales during the period the sales are recorded, and (2) reports
accounts receivable at the estimated amount of cash to be collected?
A) Adjustment method for uncollectible debts.
B) Direct write-off method of accounting for bad debts.
C) Allowance method of accounting for bad debts.
D) Cash basis method of accounting for bad debts.
E) Aging of notes receivable.

42) On December 31 of the current year, the unadjusted trial balance of a company using the 42)
percent of receivables method to estimate bad debt included the following: Accounts
Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance
of $921. What amount should be debited to Bad Debts Expense, assuming 6% of
outstanding accounts receivable at the end of the current year will be uncollectible?
A) $5,770. B) $5,660. C) $6,636. D) $5,715. E) $4,794.

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43) A company ages its accounts receivables to determine its end of period adjustment for 43)
bad debts. At the end of the current year, management estimated that $15,750 of the
accounts receivable balance would be uncollectible. Prior to any year-end adjustments,
the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry
should the company make at the end of the current year to record its estimated bad debts
expense?
A)
Accounts Receivable 15,750
Bad Debts Expense 375
Sales 16,125

B)
Bad Debts Expense 16,125
Allowance for Doubtful Accounts 16,125

C)
Bad Debts Expense 15,750
Allowance for Doubtful Accounts 15,750

D)
Bad Debts Expense 15,375
Allowance for Doubtful Accounts 15,375

E)
Accounts Receivable 16,125
Allowance for Doubtful Accounts 16,125

44) A company uses the percent of sales method to determine its bad debts expense. At the 44)
end of the current year, the company's unadjusted trial balance reported the following
selected amounts:

Accounts receivable $375,000 debit

Allowance for uncollectible accounts 500 debit
Net Sales 800,000 credit

All sales are made on credit. Based on past experience, the company estimates that 0.6%
of credit sales are uncollectible. What amount should be debited to Bad Debts Expense
when the year-end adjusting entry is prepared?
A) $4,800 B) $1,275 C) $1,775 D) $5,500 E) $4,500

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45) A company uses the percent of sales method to determine its bad debts expense. At the 45)
end of the current year, the company's unadjusted trial balance reported the following
selected amounts:

Accounts receivable $375,000 debit

Allowance for uncollectible accounts 500 debit
Net Sales 800,000 credit

All sales are made on credit. Based on past experience, the company estimates 0.6% of
credit sales to be uncollectible. What adjusting entry should the company make at the
end of the current year to record its estimated bad debts expense?
A) Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
B) Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
C) Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.
D) Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.
E) Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.

46) A company has $90,000 in outstanding accounts receivable and it uses the allowance 46)
method to account for uncollectible accounts. Experience suggests that 4% of
outstanding receivables are uncollectible. The current balance (before adjustments) in the
allowance for doubtful accounts is an $800 debit. The journal entry to record the
adjustment to the allowance account includes a debit to Bad Debts Expense for:
A) $3,632 B) $3,568 C) $4,400 D) $2,800 E) $3,600

47) Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record 47)
the transaction should be:
A) Debit Notes Payable $25,000; credit Accounts Payable $25,000.
B) Debit Accounts Receivable $25,000; credit Notes Receivable $25,000.
C) Debit Cash $25,000; credit Notes Receivable for $25,000.
D) Debit Notes Receivable $25,000; credit Sales $25,000.
E) Debit Notes Receivable for $25,000; credit Cash $25,000.

48) Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record 48)
the collection of the note and interest at maturity should be:
A) Debit Notes Payable $25,000; Debit Interest Expense $1,750; credit Cash $26,750.
B) Debit Cash $25,437.50; credit Notes Receivable for $25,437.50.
C) Debit Cash $26,750; credit Interest Revenue $1,750, credit Notes Receivable
$25,000.
D) Debit Cash for $25,000; credit Notes Receivable $25,000.
E) Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable
$25,000.

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49) Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and 49)
signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to
record the sales transaction is:
A) Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4,060
B) Debit Notes Receivable $4,000; credit Sales $4,000
C) Debit Accounts Receivable $4,060; credit Sales $4,060
D) Debit Accounts Receivable $4,000; credit Sales $4,000
E) Debit Notes Receivable $4,060; credit Sales $4,060

50) Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and 50)
signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to
record the collection on the maturity date is:
A) Debit Cash $4,060; credit Notes Receivable $4,060
B) Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000
C) Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,000
D) Debit Notes Receivable $4,060; credit Sales $4,060
E) Debit Notes Receivable $4,000; credit Cash $4,000

51) Failure by a promissory notes' maker to pay the amount due at maturity is known as: 51)
A) Closing a note.
B) Depreciating a note.
C) Protesting a note.
D) Discounting a note.
E) Dishonoring a note.

52) Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 52)
17. If the note is dishonored, what entry should Uniform Supply make on January 15 of
the next year?
A) Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest
Receivable $100, credit Notes Receivable $4,800.
B) Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20,
credit Notes Receivable $4,800.
C) Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100,
credit Notes Receivable $4,800.
D) Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales
$4,920.
E) Debit Cash $4,920; credit Notes Receivable $4,920.

53) Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa 53)
Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what
is the amount due on the note?
A) $130 B) $8,050 C) $7,800 D) $8,130 E) $7,930

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54) Which of the following is not true about the Allowance for Doubtful Accounts? 54)
A) It is a liability account.
B) It is used instead of reducing accounts receivable directly.
C) It is debited when uncollectible accounts are written off.
D) It is a contra asset account.
E) It is credited when bad debts expense is estimated and recorded.

55) Craigmont uses the allowance method to account for uncollectible accounts. Its year-end 55)
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful
accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated
to be 4% of accounts receivable, what is the amount of the bad debts expense adjusting
entry?
A) $4,180 B) $3,850 C) $3,700 D) $4,845 E) $3,515

56) Craigmont uses the allowance method to account for uncollectible accounts. Its year-end 56)
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful
accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated
to be 0.5% of sales, what is the amount of the bad debts expense adjusting entry?
A) $4,625 B) $4,825 C) $3,960 D) $4,750 E) $5,290

57) The unadjusted trial balance at year-end for a company that uses the percent of 57)
receivables method to determine its bad debts expense reports the following selected
amounts:

Accounts receivable $435,000 Debit

Allowance for Doubtful Accounts 1,250 Debit
Net Sales 2,100,000 Credit

All sales are made on credit. Based on past experience, the company estimates 3.5% of
ending account receivable to be uncollectible. What adjusting entry should the company
make at the end of the current year to record its estimated bad debts expense?
A) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
B) Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts
$17,350.
C) Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts
$13,975.
D) Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts
$16,475.
E) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts
$15,225.

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Answer Key
Testname: RECEIVABLES

1) FALSE
2) TRUE
3) TRUE
4) TRUE
5) TRUE
6) FALSE
7) TRUE
8) TRUE
9) TRUE
10) FALSE
11) TRUE
12) TRUE
13) TRUE
14) FALSE
15) TRUE
16) TRUE
17) TRUE
18) TRUE
19) FALSE
20) FALSE
21) TRUE
22) FALSE
23) TRUE
24) TRUE
25) TRUE
26) TRUE
27) B
28) A
29) C
30) E
31) C
32) A
33) B
34) B
35) A
36) C
37) D
38) E
39) B
40) B
41) C
42) E
43) B
44) A
45) E
46) C
47) E
48) B
49) B

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Answer Key
Testname: RECEIVABLES

50) B
51) E
52) A
53) E
54) A
55) E
56) A
57) D

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