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| 1 | |
Why is the direct write-off method an unacceptable method for GAAP purposes? |
| | A) | It properly matches the estimated bad debts expense to the year in which the original sale took place. |
| | B) | It properly matches the estimated bad debts expense to the year in which the account receivable is collected in cash. |
| | C) | It makes no effort to match an estimated bad debts expense to the year in which the sale took place but writes off the account only when it proves to be uncollectible in some future accounting period. |
| | D) | It properly matches the exact amount of bad debts expense to the year in which the sale took place. |
| | E) | None of the above. |
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| 2 | |
When recording bad debts expense, the Allowance for Doubtful Accounts account is required with which of the following methods? |
| | A) | Percent of accounts receivables method. |
| | B) | Direct write-off method. |
| | C) | Percent of sales method. |
| | D) | Both A and B. |
| | E) | Both A and C. |
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| 3 | |
A company uses the accrual basis of accounting. At what point or points in time during the accounting period is the entry made whereby the company debits Bad Debts Expense and credits the Allowance for Doubtful Accounts? |
| | A) | Only once at the very end of the year. |
| | B) | At the end of any interim period and at the end of the annual accounting period when financial statements will be prepared. |
| | C) | When a customer's account receivable actually becomes uncollectible. |
| | D) | When a customer sends the company the full amount of the cash for an account receivable that the company had written off more than six months ago. |
| | E) | None of the above. |
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| 4 | |
For which of the following methods of estimating or recording bad debts expense is it necessary to take the end-of-the-period unadjusted balance in the Allowance for Doubtful Accounts into account before calculating the amount of the adjusting entry? |
| | A) | The percent of accounts receivables method. |
| | B) | The percent of sales method. |
| | C) | The direct write-off method. |
| | D) | Both A and B. |
| | E) | Both B and C. |
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| 5 | |
A Note Receivable is dated June 2, 2010, and has a 120-day term. If the exact number of elapsed days is used, what is the maturity date? |
| | A) | September 30, 2010. |
| | B) | September 29, 2010. |
| | C) | October 1, 2010. |
| | D) | September 28, 2010. |
| | E) | October 2, 2010. |
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| 6 | |
A company sells merchandise inventory to its customers using both Accounts Receivable and Notes Receivable. Which description best fits the end-of-the-period adjusting entry to accrue the interest on the notes receivable? |
| | A) | Debit Cash and credit Interest Revenue. |
| | B) | Debit Interest Receivable and credit Cash. |
| | C) | Debit Notes Receivable and credit Cash. |
| | D) | Debit Interest Receivable and credit Interest Revenue. |
| | E) | None of the above. |
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| 7 | |
A firm using the direct write-off method of accounting for bad debts expense writes off a customer's account receivable as uncollectible. Two months later the customer pays the company in full for this account. The appropriate partial journal entry to record the customer's payment would include which of the following? |
| | A) | A debit to the Bad Debts Expense account. |
| | B) | A credit to the Bad Debts Expense account. |
| | C) | A credit to the Allowance for Doubtful Accounts account. |
| | D) | A debit to the Allowance for Doubtful Accounts account. |
| | E) | None of the above. |
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| 8 | |
The direct write-off method of accounting for bad debts is not as theoretically sound as the allowance method, yet some firms still use it. Which accounting principle is violated when the direct write-off method is used (1) and which accounting principle provides a rationale for the use of the direct write-off method of accounting for bad debts (2)? |
| | A) | The (1) materiality principle and the (2) matching principle. |
| | B) | The (1) matching principle and the (2) materiality principle. |
| | C) | The (1) matching principle and (2) the historical cost principle. |
| | D) | The (1) materiality principle and the (2) monetary unit principle. |
| | E) | The (1) historical cost principle and (2) the materiality principle. |
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| 9 | |
Prior to adjustment, the Allowance for Doubtful Accounts account has a year-end credit balance of $725. An aging of the accounts receivable indicates that the amount of accounts receivable that will prove to be uncollectible is $2,700. The adjusting entry to record bad debts expense will include which of the following? |
| | A) | A debit to the Allowance for Doubtful Accounts account for $1,975. |
| | B) | A credit to Bad Debts Expense for $3,425. |
| | C) | A debit to the Allowance for Doubtful Accounts account for $3,425. |
| | D) | A credit to the Allowance for Doubtful Accounts account of $1,975. |
| | E) | The answer cannot be determined. |
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| 10 | |
How much interest will be earned on a $12,800, 6%, 150-day note receivable? |
| | A) | $3,200.00. |
| | B) | $32.00. |
| | C) | $13,120.00. |
| | D) | $320.00. |
| | E) | None of the above. |
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| 11 | |
Which of the following is true with regard to a $3,000, 14%, 90-day note that is dishonored? |
| | A) | The Account Receivable account is debited. |
| | B) | The Interest Earned account is credited. |
| | C) | Total current assets increase by the amount of the interest earned. |
| | D) | The Notes Receivable account is credited. |
| | E) | All of the above. |
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| 12 | |
A $6,000, 4%, 6-month note is received by Farrady Company on September 30. Which of the following is true about the adjusting entry to be made at the end of the year, December 31? |
| | A) | The amount of the adjusting entry will be $80. |
| | B) | A debit will be made to Interest Revenue. |
| | C) | A credit will be made to Interest Receivable. |
| | D) | The amount of the adjusting entry will be $60. |
| | E) | A debit will be made to Notes Receivable. |
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| 13 | |
A $6,000, 4%, 6-month note is received by Farrady Company on September 30. Which of the following is not part of the entry that Farrady will record when it receives payment on March 31 of the following the year? |
| | A) | Credit Interest Revenue for $60. |
| | B) | Credit Notes Receivable for $6,000. |
| | C) | Debit Interest Receivable for $60. |
| | D) | Debit Cash for $6,120. |
| | E) | Credit Interest Receivable for $60. |
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| 14 | |
Credit sales for Sparrow Inc. during the year were $505,000. Management of Sparrow estimates that uncollectible accounts are 2% of credit sales. The balance in the Allowance for Doubtful Accounts account before the adjustment for bad debts is a debit of $860. Which of the following is true? |
| | A) | The ending balance in the Allowance for Doubtful Accounts account will be $10,100. |
| | B) | The ending balance in the Allowance for Doubtful Accounts account will be $10,960. |
| | C) | The ending balance in the Allowance for Doubtful Accounts account will be used to determine the amount of the adjusting entry. |
| | D) | The amount of the adjusting entry will be $10,100. |
| | E) | None of the above. |
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| 15 | |
When the maker of a note fails to pay on time, which is the term used to describe the note? |
| | A) | Dishonored. |
| | B) | Disallowed. |
| | C) | Discounted. |
| | D) | All of the above. |
| | E) | None of the above. |
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