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Accounts Receivable- Answer Key

NAME: Date:
Professor: Section: Score:

TRUE OR FALSE

1. TRUE 6. TRUE
FALS
TRUE
2. 7. E
FALS
TRUE
3. E 8.
FALS
TRUE
4. E 9.
FALS FALS
5. E 10. E

MULTIPLE CHOICE:
1. Which of the following is incorrect?
a. The operating cycle always is one year in duration.
b. The operating cycle sometimes is longer than one year in duration.
c. The operating cycle sometimes is shorter than one year in duration.
d. The operating cycle is a concept applicable both to manufacturing and retailing enterprises.

2. The category "trade receivables" includes

a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these.

3. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

4. When the direct write-off method of recognizing bad debt expense is used, the entry to write off
a specific customer account would
a. increase net income.
b. have no effect on net income.
c. increase the accounts receivable balance and increase net income.
d. decrease the accounts receivable balance and decrease net income.
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5. When comparing the allowance method of accounting for bad debts with the direct write-off
method, which of the following is true?
a. The direct write-off method is exact and also better illustrates the matching principle.
b. The allowance method is less exact but it better illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate entries to write off an uncollectible
account.

6. When the allowance method of recognizing bad debt expense is used, the entry to record the
write-off of a specific uncollectible account would decrease
a. allowance for doubtful accounts.
b. net income.
c. net realizable value of accounts receivable.
d. working capital.

7. When a specific customer's account is written off by a company using the allowance method, the
effect on net income and the net realizable value of the accounts receivable is
Net Realizable Value
Net Income of Accounts Receivable

a. None None
b. Decrease Decrease
c. Increase Increase
d. Decrease None

8. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of a small account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.

9. A method of estimating bad debts that focuses on the balance sheet rather than the income
statement is the allowance method based on
a. direct write-off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts determined to be uncollectible.

10. The entry

Accounts Receivable xxx

Allowance for Uncollectible Accounts xxx

would be made when

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a. a customer pays its account balance.

b. a customer defaults on its account.
c. a previously defaulted customer pays its outstanding balance.
d. estimated uncollectible receivables are too low.
SOLUTIONS TO PROBLEMS:
1. A (260K + (2% x 9M) – 325K = 115K

2. A (93,000 – 2,000 + 3,000) = 94,000

3. C (2,920,000 – 32,000) x 1% = 28,880

4. D (450,000 – 32,000) = 418,000

5. D [54,000 – 60,000 + 15,000 + (3,000,000 x 3%)] = 99,000

6. A
Allowance for doubtful accounts
128,000 beg.
Write-offs 88,000 80,000 Bad debts expense (squeeze)
- Recoveries
a
end. 120,000

a
(880,000 – 760,000) = 120,000

7. B (1,000,000 x 2%) = 20,000

8. C
Allowance for doubtful accounts
Dec. 31 (unadjusted) 2,000
Write-offs - 60,000 Bad debts (4M x 1.5%)
- Recoveries
end. 58,000

(500,000 + 200,000 + 100,000) = 800,000 – 58,000 = 742,000

9. D
Allowance for doubtful accounts
1,500 beg. (96K - 94.5K)
Write-offs 3,200 3,900 Bad debts (squeeze)
800 Recoveries
end. (105K - 102K) 3,000

10. B
Accounts receivable
beg. 50,000
Sales on account 620,000 578,000 Collections, including recoveries
Recoveries 3,000 20,000 Write-offs
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75,000 end.