Financial Accounting Fundamentals 5th Edition Wild Test Bank 1

FINANCIAL ACCOUNTING
FUNDAMENTALS 5TH EDITION

WILD
Full download link at:
Test Bank: https://testbankpack.com/p/test-bank-for-financial-

accounting-fundamentals-5th-edition-by-wild-isbn-0078025753-
9780078025754/
Solution Manual: https://testbankpack.com/p/solution-manual-for-

financial-accounting-fundamentals-5th-edition-by-wild-isbn-
0078025753-9780078025754/
Chapter 7
Accounting for Receivables
True/False Questions
1. A receivable is an amount due from another party.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
7-1
2. Credit sales are recorded by crediting an Accounts Receivable.
Answer: False
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
3. As long as a company accurately records total credit sales information, it is not necessary to
have separate accounts for specific customers.
Answer: False
Blooms: Understand
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 2 Medium
7-2
4. If a customer owes interest on accounts receivable, Interest Receivable is debited and
Accounts Receivable is credited.
Answer: False
Blooms: Remember
AACSB: Analytic
AICPA BB: Industry
Difficulty: 1 Easy
5. If a credit card sale is made, the seller can either debit Cash or debit Accounts Receivable
at the time of the sale, depending on the type of credit card.
Answer: True
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
6. Installment Accounts Receivable are classified as non-current assets if the installment

period is more than one year, even if the seller regularly offers customers such terms
Answer: False
Blooms: Remember
AICPA BB: Industry
AICPA FN: Reporting
7. Companies can report credit card expense as a discount deducted from sales or as a selling
expense.
Answer: True
Blooms: Remember
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 1 Easy
7-3
8. BizCom's customer, Redding, paid off an $8,300 balance on its account receivable.
BizCom should record the transaction as a debit to Accounts Receivable—Redding and a
credit to Cash.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
9. The maturity date of a note refers to the date the note must be repaid.
Answer: True
Blooms: Remember
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Topic: Notes Receivable
10. A promissory note is a written promise to pay a specified amount of money either on
demand or at a definite future date.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
11. The formula for computing interest on a note is: Principal of the note x Annual interest
rate x Time expressed in fraction of year.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-4
12. The person that borrows money and signs a promissory note is called the maker.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
13. A company borrowed $10,000 by signing a six month promissory note at 5% interest. The
total amount of interest is $25.
Answer: False
Bloom’: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $10,000 * .05 * 6/12 = $250
14. A company borrowed $16,000 by signing a 4-month promissory note at 12%. The total
interest on the note is $640.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $16,000 * 0.12 * 4/12 = $640
15. Sellers generally prefer to receive notes receivable rather than accounts receivable when
the credit period is long and the receivable is for a large amount.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-5
16. Federal laws prohibit the selling of accounts receivables to factors.
Answer: False
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
Difficulty: 1 Easy
Topic: Disposal of Receivables
17. The process of using accounts receivable as security for a loan is known as pledging
accounts receivable.
Answer: True
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
18. Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is
not necessary to disclose the pledging.
Answer: False
Blooms: Understand
AICPA BB: Industry
AICPA FN: Reporting
19. A company factored $30,000 of its accounts receivable and was charged a 2% factoring
fee. The journal entry to record this transaction would include a debit to Cash of $30,000, a
debit to Factoring Fee Expense of $600, and credit to Accounts Receivable of $30,600.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-6
20. The quality of receivables refers to the likelihood of collection without loss.
Answer: True
Blooms: Remember
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
21. The accounts receivable turnover indicates how often accounts receivable are received and
collected during the period.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
22. A high accounts receivable turnover in comparison with competitors suggests that the firm
should tighten its credit policy.
Answer: False
Blooms: Understand
AICPA BB: Industry
23. The accounts receivable turnover is calculated by dividing average accounts receivable by
net sales.
Answer: False
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-7
24. A company had net sales of $550,000 and an average accounts receivable of $110,000. Its
accounts receivable turnover equals 5.0.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Accounts Receivable Turnover = $550,000/$110,000 = 5.0
25. A Company had net sales of $23,000 million, and its average account receivables were
$5,700 million. Its accounts receivable turnover is 0.24.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry

26. The direct write-off method of accounting for bad debts records the loss from an
uncollectible account receivable when it is determined to be uncollectible.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
7-8
27. The matching principle requires use of the allowance method of accounting for bad debts.
Answer: True
Blooms: Understand
AICPA BB: Industry
Topic: Valuing Accounts Receivable—Allowance Method
28. Companies follow both the matching principle and the materiality constraint when
applying the direct write-off method.
Answer: False
Blooms: Understand
AICPA BB: Industry
29. The use of the direct write-off method is allowed under the materiality constraint.
Answer: True
Blooms: Understand
AICPA BB: Industry
30. The advantage of the allowance method of accounting for bad debts is that it identifies the
specific customers who will not pay their bills.
Answer: False
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-9
31. Companies use two methods to account for uncollectible accounts, the direct write-off
method and the allowance method.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
32. No attempt is made to estimate bad debts expense under the allowance method of
accounting for uncollectible accounts receivable.
Answer: False
Blooms: Understand
AICPA BB: Industry
33. The matching principle permits the use of the direct write-off method of accounting for
uncollectible accounts when bad debts are very large in relation to a company's other financial
statement items such as sales and net income.
Answer: False
Blooms: Understand
AICPA BB: Industry
7-10
34. When using the allowance method of accounting for uncollectible accounts, the entry to
record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to
Allowance for Doubtful Accounts.
Answer: True
Blooms: Understand
AICPA BB: Industry
35. After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of
reducing Accounts Receivable to its estimated realizable value.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
36. When using the allowance method of accounting for uncollectible accounts, the entry to
write off Macie’s uncollectible account is a debit to Allowance for Doubtful Accounts and a
credit to Accounts Receivable—Macie.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-11
37. When using the allowance method of accounting for uncollectible accounts, the recovery
of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
38. The aging of accounts receivable involves classifying each account receivable by how
long it is past its due date and estimating the percent of each uncollectible class.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
39. Installment accounts receivable is another name for aging of accounts receivable.
Answer: False
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
40. The accounts receivable method to estimate bad debts obtains the estimated balance in 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.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-12
41. The percent of sales method for estimating bad debts assumes that a given percent of a
company's credit sales for the period are uncollectible.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
42. The percent of sales method for bad debts estimation uses only income statement account
balances to estimate bad debts.
Answer: True
Blooms: Understand
AICPA BB: Industry
43. The aging method of determining bad debts expense is based on the knowledge that the
longer a receivable is past due, the higher the likelihood of collection.
Answer: False
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-13
44. A company has $80,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of outstanding
receivables are uncollectible. The current credit balance (before adjustments) in the allowance
for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance
account includes a debit to Bad Debts Expense for $4,800.
Answer: False
Feedback: Desired balance in allowance: $80,000 * .06 = $4,800 credit

Current balance in allowance: 1,200 credit
Adjustment to allowance: $3,600 credit
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
45. A company using the percentage of sales method for estimating bad debts has sales of
$350,000 and estimates that 1.0% of its sales are uncollectible. The estimated amount of bad
debts expense is $3,500.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $350,000 * 0.01 = $3,500
46. The percent of sales method of estimating bad debts focuses more on the realizable value
of accounts receivable than on matching.
Answer: False
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
7-14
47. If a company holds a large number of notes receivable it sometimes sets up a controlling
account and a subsidiary ledger for notes.
Answer: True
Blooms: Remember
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 1 Easy
48. Notes receivable are classified as current liabilities regardless of the time to maturity.
Answer: False
Blooms: Remember
AACSB: Analytic
AICPA BB: Industry
Difficulty: 1 Easy
49. A company received a $15,000, 90-day, 10% note receivable. The journal entry to record
receipt of the note includes a debit to Notes Receivable.
Answer: True
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
50. For legal reasons, it is not advisable to accept a note receivable in exchange for an
overdue account receivable.
Answer: False
Blooms: Remember
AACSB: Reflective Thinking
AICPA BB: Legal
Difficulty: 1 Easy
7-15
51. A note that the maker is unable or refuses to pay at maturity is called a dishonored note.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
Topic: Valuing and Settling Notes
52. A maker who dishonors a note is one who does not pay it at maturity.
Answer: True
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
53. The notes receivable account of a business should include both the notes that haven’t
matured and the dishonored notes.
Answer: False
Blooms: Understand
AICPA BB: Industry
54. The practice of placing dishonored notes receivable into accounts receivable keeps only
notes that have not matured in the Notes Receivable account.
Answer: True
Blooms: Understand
AICPA BB: Industry
7-16
55. The matching principle requires that accrued interest on outstanding notes receivable be
recorded at the end of each accounting period.
Answer: True
Blooms: Understand
AICPA BB: Industry
Multiple Choice Questions

56. Separate accounts receivable information for each customer is important because it reveals
all of the following except:
A. How much each customer has purchased on credit.
B. How much each customer has paid.
C. How much each customer still owes.
D. The basis for sending bills to customers.
E. When the customer intends to pay outstanding balances.
Answer: E
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-17
57. A credit sale of $5,275 to a customer would result in which of the following?
A. 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.
B. A credit to the Accounts Receivable account in the general ledger and a credit to the
C. A debit to the Accounts Receivable account in the general ledger and a credit to the
D. A credit to the Accounts Receivable account in the general ledger and a debit to the
E. A credit to Sales and a credit to the customer's account in the accounts receivable
subsidiary ledger.
Answer: A
Blooms: Understand
AICPA BB: Industry
58. Sellers allow customers to use credit cards for all of the following reasons except:
A. To be able to charge more due to fees and interest.
B. To lessen the risk of extending credit to customers who cannot pay.
C. To speed up receipt of cash from the credit sale.
D. To increase total sales volume.
E. To avoid having to evaluate a customer's credit standing for each sale.
Answer: A
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-18
59. Which of the following is not true regarding a credit card expense?
A. Credit card expense may be classified as a "discount" deducted from sales to get net sales.
B. Credit card expense may be classified as a selling expense.
C. Credit card expense may be classified as an administrative expense.
D. Credit card expense is not recorded by the seller.
E. Credit card expense is a fee the seller pays for services provided by the card company.
Answer: D
Blooms: Understand
AICPA BB: Industry
AICPA FN: Reporting
60. A promissory note received from a customer in exchange for an account receivable is
recorded by the payee as:
A. A cash equivalent.
B. An account receivable.
C. A note receivable.
D. A short-term investment.
E. A note payable.
Answer: C
Blooms: Remember
AICPA BB: Industry
AICPA FN: Reporting
7-19
61. The person who signs a note receivable and promises to pay the principal and interest is
the:
A. Maker.
B. Payee.
C. Holder.
D. Receiver.
E. Owner.
Answer: A
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
62. Reporting the details of notes is consistent with which accounting principle that requires
financial statements (including footnotes) to report all relevant information?
A. Relevance.
B. Full disclosure.
C. Evaluation.
D. Materiality.
E. Matching.
Answer: B
Blooms: Remember
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 1 Easy
63. A promissory note:

A. Is a short-term investment for the maker.
B. Is a written promise to pay a specified amount of money at a certain date.
C. Is a liability to the payee.
D. Is another name for an installment receivable.
E. Cannot be used in payment of an account receivable.
Answer: B
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-20
64. The maturity date of a note receivable:
A. Is the day of the credit sale.
B. Is the day the note was signed.
C. Is the day the note is due to be repaid.
D. Is the date of the first payment.
E. Is the last day of the month.
Answer: C
Blooms: Remember
AICPA BB: Legal
Difficulty: 1 Easy
65. The interest accrued on $7,500 at 6% for 90 days is:

A. $ 450.00
B. $ 37.50.
C. $ 112.50.
D. $ 11.25.
E. $1,800.00.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $7,500 * 0.06 * 90/360 = $112.50
66. A 90-day note issued on April 10 matures on:

A. July 9.
B. July 10.
C. July 11.
D. July 12.
E. July 13.
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-21
67. A company receives a 10%, 120-day note for $1,500. The total interest due on the
maturity date is:
A. $ 50.00
B. $150.00.
C. $ 75.00.
D. $ 37.50.
E. $ 87.50.
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $1,500 * 0.10 * 120/360 = $50.00
68. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total
interest due on the maturity date is.
A. $900
B. $75
C. $450
D. $300
E. $1,800
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $10,000 * 0.09 * 180/360 = $450
7-22
69. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The maturity
value of the note is:
A. $10,450
B. $10,900
C. $10,075
D. $11,800
E. $10,300
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $10,000 + ($10,000 * 0.09 * 180/360) = $10,450
70. A finance company or bank that purchases and takes ownership of another company's
accounts receivable is called a:
A. Payer.
B. Pledger.
C. Factor.
D. Payee.
E. Pledgee.
Answer: C
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-23
71. Factoring receivables is beneficial to a seller for all of the following reasons except:
A. Allows firms to receive cash earlier.
B. Passes ownership of the receivables to the factor.
C. There are no fees for factoring.
D. Seller avoids the cost of billing and accounting for receivables.
E. May transfer the risk of bad debts to the factor.
Answer: C
Blooms: Understand
AICPA BB: Industry
72. A company factored $45,000 of its accounts receivable and was charged a 4% factoring
fee. The journal entry to record this transaction would include a:
A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and credit to
Accounts Receivable of $46,800.
B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C. Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to
Accounts Receivable of $45,000.
D. Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $45,000 * 0.04 = $1,800; $45,000 – $1,800 = $43,200
7-24
73. The quality of receivables refers to:
A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.
Answer: C
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
74. The account receivable turnover measures:

A. How long it takes to sell accounts receivable to a factor.
B. How often, on average, receivables are received and collected during the period.
C. The relation of cash sales to credit sales.
D. How long it takes to sell merchandise inventory.
E. All of the options are correct.
Answer: B
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
75. The accounts receivable turnover is calculated by:

A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
Answer: A
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-25
76. A company has net sales of $1,200,000 and average accounts receivable of $400,000.
What is its accounts receivable turnover for the period?
A. 0.20.
B. 5.00
C. 20.0
D. 73.0
E. 3.0
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry

Accounts Receivable Turnover = $1,200,000/$400,000 = 3.0
77. Pepperdine reported net sales of $8,600 million, net income of $126 million and average
accounts receivable of $890 million. Its accounts receivable turnover is:
A. 37.8.
B. 9.7.
C. 68.3.
D. 7.1.
E. 51.7.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard

Accounts Receivable Turnover = $8,600/$890 = 9.7
7-26
78. Axle Co’s accounts receivable turnover was 9.9 for this year and 11.0 for last year.
Betterman’s turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A. Betterman has the better turnover for both years.
B. Axle has the better turnover for both years.
C. Betterman’s turnover is improving.
D. Axle’s credit policies are too loose
E. Betterman is collecting its receivables more quickly than Axle in both years.
Answer: B
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
79. A company had net sales of $600,000, total sales of $750,000, and an average accounts
receivable of $75,000. Its accounts receivable turnover equals:
A. .13
B. .80
C. 7.75
D. 8.00
E. 10.00
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard

7-27
80. A company had total sales of $600,000, net sales of $550,000, and an average accounts
receivable of $95,000. Its accounts receivable turnover equals:
A. 6.1
B. 63.0
C. 54.8
D. 1.1
E. 6.3
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard

81. The matching principle, as applied to bad debts, requires:

A. That expenses be ignored if their effect on the financial statements is unimportant to users'
business decisions.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
Answer: C
Blooms: Understand
AICPA BB: Industry
7-28
82. The materiality constraint, as applied to bad debts:
A. Permits the use of the direct write-off method when bad debts expenses are relatively
small.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. Requires that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.
Answer: A
Blooms: Understand
AICPA BB: Industry
83. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount
of a bad debt being written off, the entry to record the write-off against the allowance account
results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
Answer: D
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-29
84. On October 17 of the current year, a company determined that a customer's account
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; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
Answer: B
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
85. Gideon Company uses the allowance method of accounting for uncollectible accounts. 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. Accounts Receivable—A. Hopkins 2,000

Allowance for Doubtful Accounts 2,000
B. Allowance for Doubtful Accounts 2,000

Bad debts expense 2,000
C. Accounts Receivable—A. Hopkins 2,000

Cash 2,000
Accounts Receivable—A. Hopkins 2,000
D. Allowance for Doubtful Accounts 2,000

E. Cash 2,000
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-30
86. Gideon Company uses the allowance method of accounting for uncollectible accounts. 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.
On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:
A. Accounts Receivable—A. Hopkins 2,000

Cash 2,000
B. Cash 2,000
C. Accounts Receivable—A. Hopkins 2,000

Cash 2,000
D. Allowance for Doubtful Accounts 2,000

Cash 2,000
E. Cash 2,000
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-31
87. The allowance method based on the idea that a given percent of a company’s credit sales
for the period is uncollectible is:
A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. Direct write-off method.
E. Factoring method.
Answer: A
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
88. A method of estimating bad debts expense that involves a detailed examination of
outstanding accounts and the length of time past due is the:
A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percentage of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.
Answer: B
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-32
89. Which of the following is an accounting procedure that (1) estimates and reports bad 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. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
Answer: A
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
90. On December 31 of the current year, the unadjusted trial balance of a company using the
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. $5,715.
B. $6,636.
C. $4,794.
D. $5,770.
E. $5,660.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback:
Desired balance in allowance account: $95,250 * .06 = $5,715 credit
Current balance in allowance account: – 921 credit
Required: amount of Bad Debts Expense: $4,794 credit
7-33
91. A company ages its accounts receivables to determine its end of period adjustment for 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. Bad Debts Expense 15,750

B. Bad Debts Expense 15,375

C. Bad Debts Expense 16,125

D. Accounts Receivable 15,750

Bad Debts Expense 375
Sales 16,125
E. Accounts Receivable 16,125

Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback:
Desired balance in allowance account: 15,750 credit
Current balance: 375 debit
Required: adjustment to allowance $16,125 credit
7-34
92. A company uses the percent of sales method to determine its bad debts expense. At the
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. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $800,000 * 0.006 = $4,800
7-35
93. A company uses the percent of sales method to determine its bad debts expense. At the
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 $2,130; credit Allowance for Doubtful Accounts $2,130.
B. Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
C. Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
D. Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
E. Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $800,000 * 0.006 = $4,800
7-36
94. A company has $90,000 in outstanding accounts receivable and it uses the allowance
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. $3,600
B. $3,568
C. $3,632
D. $2,800
E. $4,400
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback:
Desired balance in allowance account: $90,000 x .04 = $3,600 credit
Current balance in allowance account: + 800 debit
Adjustment to allowance: $4,400 credit
95. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper’s entry to record
the transaction should be:
A. Debit Notes Receivable for $25,000; credit Cash $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 Payable $25,000; credit Accounts Payable $25,000.
E. Debit Notes Receivable $25,000; credit Sales $25,000.
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-37
96. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest
that Jasper will collect on the loan is:
A. $1,750.
B. $145.83.
C. $437.50.
D. $19.44.
E. $875.00.
Answer: C
Feedback:$25,000 * .07 * 90/360 = $437.50

Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
97. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper’s entry to record
the collection of the note and interest at maturity should be:
A. Debit Cash for $25,000; credit Notes Receivable $25,000.
B. Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.
C. Debit Cash $25,437.50; credit Notes Receivable for $25,437.50.
D. Debit Notes Payable $25,000; Debit Interest Expense $1,750; credit Cash $26,750.
E. Debit Cash $26,750; credit Interest Revenue $1,750, credit Notes Receivable $25,000.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-38
98. Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 2.
Lemming’s end-of-period adjusting entry on December 31 should be:
A. Debit Cash for $250; credit Notes Receivable $250.
B. Debit Interest Revenue $500; credit Notes Receivable $500.
C. Debit Interest Receivable $250; credit Interest Revenue $250.
D. Debit Interest Receivable $500; credit Interest Revenue $500.
E. Debit Notes Receivable $500; credit Interest Revenue $500.
Answer: C
Feedback: $18,750 * .08 * 60/360 =$250
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
99. The amount due on the maturity date of a $6,000, 60-day 4%, note receivable is:
A. $6,000.
B. $6,240.
C. $5,760.
D. $6,040.
E. $5,960.
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: Interest = $6,000 * 0.04 * 60/360 = $40

Maturity Value = $6,000 + $40 = $6,040
7-39
100. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and
signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record
the sales transaction is:
A. Debit Accounts Receivable $4,000; credit Sales $4,000
B. Debit Notes Receivable $4,000; credit Sales $4,000
C. Debit Accounts Receivable $4,060; credit Sales $4,060
D. Debit Notes Receivable $4,060; credit Sales $4,060
E. Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4,060
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
101. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and
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 Notes Receivable $4,000; credit Cash $4,000
C. Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,000
E. Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-40
102. Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax
signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the
sales transaction is:
A. Debit Accounts Receivable $7,800; credit Sales $7,800
B. Debit Accounts Receivable $7,904; credit Sales $7,904
C. Debit Notes Receivable $7,800; credit Sales $7,800
E. Debit Notes Receivable $7,800; debit Interest Receivable $104; credit Sales $7,904
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
103. Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax
signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the
collection on the maturity date is:
A. Debit Cash $7,800; credit Accounts Receivable $7,800
B. Debit Accounts Receivable $7,904; credit Notes Receivable $7,800; credit Interest
Receivable $104
C. Debit Notes Receivable $7,800; credit Cash $7,904; credit Interest Revenue $104
D. Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104
E. Debit Cash $7,904; credit Notes Receivable $7,904
Answer: D
Feedback: $7,800 + ($7,800 * .08 * 60/360) = $7,904 Cash collected
$7,800 * .08 * 60/360 = $104 Interest Revenue
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-41
104. Honoring a note receivable indicates that the maker has:
A. Signed.
B. Paid in full.
C. Guaranteed.
D. Notarized.
E. Cosigned.
Answer: B
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
105. Failure by a promissory notes’ maker to pay the amount due at maturity is known as:
A. Protesting a note.
B. Closing a note.
C. Dishonoring a note.
D. Discounting a note.
E. Depreciating a note.
Answer: C
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-42
106. Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October
17. What entry should Uniform Supply make on January 15 of the next year when the note is
paid?
A. Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B. Debit Cash $4,920; credit Notes Receivable $4,920.
C. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20; credit
Notes Receivable $4,800.
D. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit
E. Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: Interest accrued at December 31: $4,800 * .10 * 75/360 = $100

Interest earned during January: $4,800 * .10 * 15/360 = $20
17.What entry should Uniform Supply make on December 31, to record the accrued interest
on the note?
A. Debit Cash $20; credit Notes Receivable $20.
B. Debit Cash $100; credit Notes Receivable $100
D. Debit Interest Receivable $100; credit Interest Revenue $100.
E. Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-43
17.If the note is dishonored, what entry should Uniform Supply make on January 15 of the
next year?
B. Debit Cash $4,920; credit Notes Receivable $4,920.
C. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20, credit
D. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit
E. Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable
$100, credit Notes Receivable $4,800.
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard

Interest earned during January: $4,800 * .10 * 15/360 =$20
109. Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa
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. $7,800
C. $7,930
D. $8,050
E. $8,130
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $7,800 * 0.10 * 60/360 = $130 + $7,800 = $7,930
7-44
110. Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa
Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is
the journal entry to record the dishonored note?
A. Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable
$7,800.
B. Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.
C. Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.
D. Debit Accounts Receivable—Valley Spa $7,800; credit Notes Receivable $7,800.
E. Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $7,800 * 0.10 * 60/360 = $130 + $7,800 = $7,930
111. Which of the following is not true about the Allowance for Doubtful Accounts?
A. It is a contra asset 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 liability account.
E. It is credited when bad debts expense is estimated and recorded.
Answer: D
Blooms: Understand
AICPA BB: Industry
7-45
112. Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain
necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make on
to record the transaction?
A. Debit Cash $71,250; debit Factoring Fee Expense $3,750; credit Accounts Receivable
$75,000
B. Debit Accounts Receivable $71,250; debit Factoring Fee Expense $3,750; credit Cash
$75,000.
C. Debit Cash $75,000; credit Factoring Fee Expense $3,750; credit Accounts Receivable
$75,000
D. Debit Cash $71,250; credit Accounts Receivable $71,250
E. Debit Accounts Receivable $75,000; credit Factoring Fee Expense $3,750; credit Cash
$71,250
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: Factoring fee expense: $75,000 * .05 = $3,750

Cash received: $75,000 – $3,750 = $71,250
113. Jervis accepts all major bank credit cards, including those issued by Northern Bank
(NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in
NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?
A. Debit Cash $3,500; credit Sales $3,500
B. Debit Accounts Receivable $3,500; credit Sales $3,500
C. Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500
D. Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500
E. Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500
Answer: D
Feedback: Credit card fee expense: $3,500 * .03 = $105

Cash received: $3,500 – $105 = $3,395
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-46
114. Brinker accepts all major bank credit cards, including First Savings Bank’s, which
assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First
Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the
deposit?
A. Debit Accounts Receivable $4,800; credit Sales $4,800.
B. Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800.
C. Debit Cash $4,800; credit Sales $4,800.
D. Debit Cash $4,920; credit Credit Card Expense $120; credit Sales $4,800.
E. Debit Accounts Receivable $4,680; debit Credit Card Expense $120; credit Sales $4,800.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Topic: Credit Card Sales
Feedback: Credit card fee expense: $4,800 * 0.025 = $120

Cash received: $4,800 – $120 = $4,680
115. Craigmont uses the allowance method to account for uncollectible accounts. Its year-end
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. $4,845
B. $4,180
C. $3,515
D. $3,700
E. $3,850
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $104,500 * 0.04 = $4,180 – $665 = $3,515
7-47
116. Craigmont uses the allowance method to account for uncollectible accounts. Its year-end
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. $3,960
C. $5,290
D. $4,750
E. $4,825
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $925,000 * 0.005 = $4,625
117. On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton
Summers as payment on account. Compute the maturity date for the note.
A. October 8
B. October 7
C. November 8
D. November 7
E. November 6
Answer: B
Feedback: July 31-9 = 22; August =31; September = 30; 90 – 22 – 31 – 30 = October 7
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-48
Summers as payment on account. Compute the amount due at maturity for the note.
A. $8,628
B. $8,192
C. $8,613
D. $8,500
E. $8,670
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Feedback: $8,500 * 0.08 * 90/360 = $170 + $8,500 = $8,670
Summers as payment on account. What entry should be made on July 9 to record receipt of
the note?
A. Debit Accounts Receivable $8,500; credit Sales $8,500.
B. Debit Notes Receivable $8,670; credit Sales $8,670.
C. Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.
D. Debit Notes Receivable $8,500; credit Sales $8,500.
E. Debit Notes Receivable $8,725; credit Interest Revenue $225; credit Accounts Receivable
$8,500.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-49
Summers as payment on account. What entry should be made on the maturity date assuming
the maker pays in full?
B. Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.
C. Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500.
D. Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500
E. Debit Cash $8 500; credit Notes Receivable $8,500.
Answer: B
Feedback: $8,500 * 0.08 * 90/360 = $170 + $8,500 = $8,670

Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
121. On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a
customer as payment on account. What adjusting entry should be made on the December 31
year-end?
A. Debit Interest Receivable $1,200; credit Interest Revenue $1,200.
B. Debit Interest Receivable $140; credit Interest Revenue $140.
D. Debit Interest Revenue $140; credit Interest Receivable $140.
E. Debit Interest Revenue $200; credit Interest Receivable $200.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $15,000 * 0.08 * 42/360 = $140
7-50
122. On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a
customer settle an account. What entry should be made on the November 1 to record the note
acceptance?
A. Debit Note Receivable $10,000; credit Cash $10,000.
B. Debit Note Receivable $10,000; credit Accounts Receivable $10,000.
C. Debit Note Receivable $10,000; credit Sales $10,000.
D. Debit Cash $10,000; credit Sales $10,000.
E. Debit Sales $10,000; credit Accounts Receivable $10,000.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
123. The unadjusted trial balance at year-end for a company that uses the percent of
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?
E. Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $435,000 * 0.035 = $15,225 + $1,250 = $16,475
7-51
124. The following selected amounts are reported on the year-end unadjusted trial balance
report for a company that uses the percent of sales method to determine its bad debts expense.
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 1% 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?
E. Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: $2,100,000 * 0.01 = $21,000
125. On February 1, a customer’s account balance of $2,300 was deemed to be uncollectible.

What entry should be recorded on February 1 to record the write-off assuming the company
uses the allowance method?
A. Debit Bad Debts Expense $2,300; credit Accounts Receivable $2,300.
B. Debit Allowance for Doubtful Accounts $2,300; credit Bad Debts Expense $2,300.
C. Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300.
E. Debit Accounts Receivable $250; credit Allowance for Doubtful Accounts $2,300.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-52
126. All of the following statements regarding recognition of receivables under U.S. GAAP
and IFRS are true except:
A. U.S. GAAP and IFRS have similar asset criteria that apply to recognition of receivables.
B. Receivables that arise from revenue-generating activities are subject to broadly similar
criteria for U.S. GAAP and IFRS.
C. The realization principle under GAAP implies an arm’s length transaction occurs.
D. GAAP refers to the earnings process and IFRS refers to risk transfer and ownership
reward.
E. Differences arise mainly from industry-specific guidance under U.S. GAAP.
Answer: D
Blooms: Understand
AICPA BB: Global
AICPA FN: Reporting
Difficulty: 3 Hard
127. All of the following statements regarding valuation of receivables under U.S. GAAP and
IFRS are true except:
A. Both require the allowance method for uncollectibles unless uncollectibles are immaterial.
B. Both require that receivables be reported net of estimated collectibles.
C. Both require that the expenses for estimated collectibles be recorded in the same period
revenues generated from those receivables are recorded.
D. Both allow using percent of sales, percent of receivables, or aging of receivables to
estimate uncollectibles.
E. Both require that the expense related to uncollectibles be recorded when the receivable is
determined to be uncollectible.
Answer: E
Blooms: Understand
AICPA BB: Global
AICPA FN: Reporting
Difficulty: 3 Hard
7-53
128. Under IFRS, the term provision:
A. Refers to expense.
B. Usually refers to a liability whose amount or timing is uncertain.
C. Means establishing a provision for bad debts.
D. Means establishing a contra-asset account.
E. Means establishing an asset account.
Answer: B
Blooms: Understand
AICPA BB: Global
AICPA FN: Reporting
129. Winkler Company borrows $85,000 and pledges its receivables as security. The journal
entry to record this transaction would be:
A. Debit Cash of $85,000 and credit Accounts Receivable $85,000.
B. Debit Cash of $85,000 and credit Accounts Payable $85,000.
C. Debit Note Receivable $85,000 and credit Accounts Receivable $85,000.
D. Debit Cash $85,000 and credit Notes Payable $85,000.
E. Debit Accounts Receivable $85,000 and credit Notes Payable $85,000.
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-54
130. Mullis Company sold merchandise on account to a customer for $625, terms n/30. The
journal entry to record this sale transaction would be:
A. Debit Cash of $625 and credit Sales $625.
B. Debit Cash of $625 and credit Accounts Receivable $625.
C. Debit Accounts Receivable $625 and credit Sales $625.
D. Debit Accounts Receivable $625 and credit Cash $625.
E. Debit Sales $625 and credit Accounts Receivable $625.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
131. Mullis Company sold merchandise on account to a customer for $625, terms n/30. The
journal entry to record the collection on account would be:
D. Debit Accounts Receivable $625 and credit Cash $625.
E. Debit Sales $625 and credit Accounts Receivable $625.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-55
132. MacKenzie Company sold $300 of merchandise to a customer who used a Regional
Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards
and credits MacKenzie’s account immediately when sales are made. The journal entry to
record this sale transaction would be:
D. Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.
E. Debit Cash $295.50 and credit Sales $295.50.
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit cards.
MacKenzie electronically remits the credit card sales receipts to the credit card company and
receives payment in approximately 5 days. The journal entry to record this sale transaction
would be:
B. Debit Cash of $180 and credit Accounts Receivable—Regional $180.
C. Debit Accounts Receivable—Regional $172.80; debit Credit Card Expense $7.20 and
credit Sales $180.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-56
Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit cards.
MacKenzie electronically remits the credit card sales receipts to the credit card company and
receives payment in approximately 5 days. The journal entry to record the collection from the
credit card company would be:
A. Debit Cash of $172.80 and credit Accounts Receivable—Regional $172.80.
B. Debit Cash of $180; credit Credit Card Expense $7.20 and credit Accounts Receivable
$172.80.
C. Debit Accounts Receivable—Regional $172.80; debit Credit Card Expense $7.20 and
credit Sales $180.
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
135. Frederick Company borrows $63,000 from First City Bank and pledges its receivables as
security. Which of the following is true regarding this transaction:
A. First City Bank is the factor in this transaction.
B. Frederick Company’s financial statements must disclose the pledging of receivables.
C. Frederick Company no longer has the risk of bad debts.
D. First City Bank takes ownership of the receivables at the time of the pledge.
E. No journal entry is required for this event.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-57
136. Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March
1. On the date the note matures, Swartz is unable to pay, but Majesty intends to continue
collection efforts. What entry should Majesty record on the maturity date for this dishonored
note?
A. Debit Accounts Receivable $7,200; credit Notes Receivable $7,200.
B. Debit Accounts Receivable $7,200; credit Allowance for Doubtful Accounts $7,200.
C. Debit Bad Debt Expense $7,344; credit Notes Receivable $7,344.
D. Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable
$7,200.
E. Debit Accounts Receivable $7,056; debit Interest Revenue $144; credit Notes Receivable
$7,200.
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Feedback: Interest: $7,200 * .06 * 120/360 = $144
7-58
Matching Questions
137. Match each of the following terms with the appropriate definitions.
A. Maker of a note
B. Bad debts
C. Aging of accounts receivable
D. Interest
E. Promissory note
F. Payee of a note
G. Accounts receivable
H. Allowance for doubtful accounts
I. Realizable value
J. Matching principle
____ 1. Amounts due from customers for credit sales.

____ 2. A process of classifying accounts receivable by how long it is past its due date for the
purpose of estimating the amount of uncollectible accounts.
____ 3. A written promise to pay a specified amount of money, usually with interest, either
on demand or at a definite future date.
____ 4. The expected proceeds from converting an asset into cash.
____ 5. The uncollectible accounts of credit customers who do not pay what they have
promised.
____ 6. The accounting principle that requires expenses to be reported in the same period as
the sales they helped to produce.
____ 7. The charge a borrower pays for using money borrowed.
____ 8. A contra asset account with a balance approximating the amount of accounts
receivable expected to be uncollectible.
____ 9. The party who signs a note and promises to pay it at maturity.
____10. The party to whom the promissory note is payable.
Answer:
1. G; 2. C; 3. E; 4. I; 5. B; 6. J; 7. D; 8. H; 9. A; 10. F
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-59
138. Match each of the following terms with the appropriate definitions.
A. Allowance method
B. Installment accounts receivable
C. Principal of a note
D. Full disclosure principle
E. Materiality constraint
F. Direct write-off method
G. Dishonoring a note
H. Accounts receivable turnover
I. Factoring accounts receivable
J. Pledging accounts receivable
____ 1. A measure of both the quality and liquidity of accounts receivable that indicates how
often, on average, receivables are received and collected during the period.
____ 2. Amounts owed by customers from credit sales for which payment is required in
periodic payments over an extended period of time.
____ 3. The accounting constraint that states that an amount can be ignored if its effect on
the financial statements is unimportant to its users.
____ 4. Refers to a note maker’s inability or refusal to pay a note at maturity.
____ 5. A method of accounting for bad debts that matches the estimated loss from
uncollectible accounts receivable against the sales they helped to produce.
____ 6. Selling all or a portion of accounts receivable to a finance company or bank.
____ 7. The accounting principle that requires financial statements (including the notes) to
report all relevant information about operations and financial condition.
____ 8. Committing accounts receivable as security for a loan.
____ 9. A method of accounting for bad debts that records the loss from an uncollectible
account receivable immediately upon determining it is uncollectible.
____10. The amount that the signer of a note agrees to pay back when the note matures, not
including interest.
Answer:1. H; 2. B; 3. E; 4. G; 5. A; 6. I; 7. D; 8. J; 9. F; 10. C
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-60
Short Answer Questions
139. Describe how accounts receivable arise and how they accounted for, including the use of
a subsidiary ledger and an allowance account.
Answer: Accounts receivable arise from credit sales to customers. Accounts receivable are
reported at their realizable value, which is their total amount less an estimate for the amount
of uncollectible accounts. Accounts receivable are also recorded into an accounts receivable
subsidiary ledger that separately lists amounts owed by individual customers.
Blooms: Understand
AICPA BB: Industry
140. Define a note receivable and explain how to calculate the interest due on a short-term
note receivable.
Answer: A note receivable is a promissory note, which is a written promise to pay a specified
amount of money either on demand or at a definite future date. Interest on a note receivable
that matures in less than one year is calculated by multiplying the principal of the note times
the annual interest rate times the time expressed in fraction of year.
Blooms: Understand
AICPA BB: Industry
141. Explain the options a company may use to convert its receivables to cash before they are
due.
Answer: A company's receivables are normally converted to cash as the customers pay off
their accounts. However, options are available to a company that wishes to convert its
receivables before they are due. A company can sell the receivables to a factor, paying a fee
for the service, or the company can pledge its receivables as security for a loan.
Blooms: Understand
AICPA BB: Industry
7-61
142. What is the accounts receivable turnover ratio? How is it calculated and how is it used to
assess financial condition?
Answer: The accounts receivable turnover ratio is used to measure how often, on average,
receivables are collected during an accounting period. It is calculated by dividing net sales by
average accounts receivable. Analysts use the ratio to measure both the quality and liquidity
of accounts receivable. Quality refers to the likelihood of collection without loss. Liquidity
refers to the speed of collections.
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
143. Describe the differences in how the direct write-off method and the allowance method
are applied in accounting for uncollectible accounts receivables.
Answer: The direct write-off method records the loss from an uncollectible account
receivable when a specific individual account is determined to be uncollectible. Under the
allowance method, estimated bad debt expense is recorded at the end of each accounting
period by debiting Bad Debts Expense and crediting Allowance for Doubtful Accounts. The
amount of bad debts expense is determined by applying one of several estimation methods.
Individual uncollectible accounts are later written off with a debit to the Allowance for
Doubtful Accounts and a credit to the specific account receivable.
Blooms: Understand
AICPA BB: Industry
7-62
144. The allowance method of accounting for bad debts requires an estimate of bad debt
expense at the end of each accounting period. The two common methods to determine the
estimate amount are the percent of sales method and the percent of receivables method.
Explain the basic differences between the two methods.
Answer: The percent of sales method emphasizes the income statement relationship between
Bad Debts Expense and Sales. It is based on the matching principle and assumes that bad
debts are incurred and can be estimated at the time of sale. The accounts receivable method
emphasizes the realizable value of Accounts Receivable. The accounts receivable method
uses either a percent of total accounts receivable or an aging of accounts receivable to
estimate the amount of uncollectible accounts.
Blooms: Understand
AICPA BB: Industry
145. Explain how to record the receipt (acceptance) of a note receivable.
Answer: The receipt of a note receivable is recorded by entering the total amount borrowed
(principal) as a debit to Notes Receivable and as a credit to the account representing the asset
or service exchanged for the note (typically cash, sales, or accounts receivable).
Blooms: Understand
AICPA BB: Industry
7-63
146. Explain the difference between honoring and dishonoring a note receivable.
Answer: When a note is honored, the maker of the note pays the note at maturity. When a
note is dishonored, the maker is unable or refuses to pay the note at maturity.
Blooms: Understand
AICPA BB: Industry
147. What are some of the considerations management should make when assessing the
accounts receivable turnover ratio?
Answer: Since the accounts receivable turnover ratio reflects how well management is doing
in granting credit to customers, it is useful for comparing internally and with competitors. A
high turnover in comparison with competitors suggests that management should consider
using more liberal credit terms to increase sales. A lower turnover suggests management
should consider stricter credit terms and more aggressive collection efforts to avoid having
resources tied up in accounts receivable.
Blooms: Understand
AICPA BB: Industry
7-64
Problems
148. A company allows its customers to use bank credit cards to charge purchases. When
customers use the credit cards, the net amount is deposited in the company's checking
account, less a 2.5% service charge. Assume that on April 13, the company sold $20,000
worth of merchandise to customers who used credit cards. Prepare the company's journal
entry to record the credit card sales for April 13 assuming the company deposited the receipts
that same day.
Answer:
April 13 Cash....................................................................... 19,500

Credit Card Expense............................................... 500
Sales................................................................ 20,000
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
149. Gemstone Products allows customers to use bank credit cards to charge purchases. The
bank used by Gemstone Products processes all bank credit cards in exchange for a 3%
processing fee and all credit card receipts deposited are credited to the company account on
the day of deposit. Assume that on January 18, Gemstone Products sold and deposited
$18,000 worth of bank credit card receipts. Prepare the general journal entry to record this
transaction.
Answer:
Jan. 18 Cash....................................................................... 17,460

Sales................................................................ 18,000
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-65
150. Mercks accepts the Discovery credit card for credit card sales. Mercks sends credit card
receipts to Discovery on a weekly basis. Discovery charges Mercks a 3% fee. Mercks usually
receives payment from Discovery within a week. Prepare journal entries to record the
following transactions.
March 11 Sold merchandise for $4,500 (that had cost $2,100) and accepted the
customer’s Discovery card. Transferred the credit card receipts to
Discovery, requesting payment.
March 20 Received Discovery’s check for the March 11 billing, less the service
charge.
Answer:
March 11 Accounts Receivable—Discovery 4,365
Credit Card Expense 135
Sales 4,500
Cost of Goods Sold 2,100
Merchandise Inventory 2,100
March 20 Cash 4,365
Accounts Receivable—Discovery 4,365
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-66
151. Woods Co. accepts the World Express credit card from its customers. World Express
charges a 3.5% service fee and pays Woods the amount net of World Express charges once a
month. During February, Woods sold $24,000 worth of merchandise to customers using the
World Express charge card. On February 28, Woods sent the $24,000 worth of credit card
receipts to World Express. On March 4, Woods received cash proceeds from World Express
for the February credit sales less the service charge. Prepare the journal entries to record
February sales and the March 4 cash receipt.
Answer:
Feb. 28 Cash........................................................................ 23,160

Sales................................................................. 24,000
March 4 Cash......................................................................... 23,160

Accounts Receivable—World Express............. 23,160
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
152. What is the maturity date of a 120-day note receivable dated March 5?
Answer: July 3
Feedback: March 31 – 5 = 26 days; April = 30 days; May = 31 days, June = 30 days.

July = 120 – 26 – 30 – 31 – 30 = 3
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-67
153. Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of
interest that is due at maturity?
Answer: $26,000 * .04 * 90/360 = $260
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
154. Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity value of
the note?
Answer: $26,000 * .04 * 90/360 = $260 interest

$26,000 + $260 = 26,260.
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
155. Calculate the amount of interest that would be owed on a $18,000, 60-day, 8% note
receivable at maturity.
Answer: $18,000 * .08 * 60/360 = $240
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-68
156. If a 90-day note receivable is dated July 12, what is the maturity date of the note?
Answer: July = 31 – 12 = 19 days, August = 31 days, September = 30 days

October = 90 – 19 – 31 – 30 = 10. The maturity date is October 10
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
157. If a 60-day note receivable is dated September 22, what is the maturity date of the note?
Answer: November 21
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-69
158. On May 31, a company had a balance in its accounts receivable of $103,200. Prepare
journal entries to record the following transactions for June.
June 2 Sold merchandise on account, $12,000. The cost of the merchandise was $7,200.
June 8 Sold $15,000 worth of accounts receivable to First Bank. First Bank charged a 4%
factoring fee.
June 20 Borrowed $30,000 cash from Second National Bank, pledging $31,500 worth of
accounts receivable as collateral for the loan.
Answer:
June 2 Accounts Receivable 12,000
Sales 12,000
Cost of Goods Sold 7,200
June 8 Cash 14,400

Factoring Fee Expense ($15,000 * .04) 600
Accounts Receivable 15,000
June 20 Cash 30,000

Notes Payable 30,000
(A note would disclose the collateral
agreement.)
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Topic: Receivables Conversion Option
7-70
159. Orman Co. sold $80,000 of accounts receivable to First Savings and incurred a 3%
factoring fee. Prepare the journal entry for Orman Co. to record the sale.
Answer:
Cash....................................................................... 77,600
Factoring Fee Expense ($80,000 * .03)................ 2,400
Accounts Receivable....................................... 80,000
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
160. Flax had net sales of $7,875 and its average accounts receivables is $1,250. Calculate
Flax’s accounts receivable turnover:
Answer: Accounts Receivable Turnover = Net Sales/Average Accounts Receivables

Accounts Receivable Turnover = $7,875/$1,250 = 6.3 times
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
161. Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its
competitor, Stanley, had net sales of $290,000 and average accounts receivables of $61,350.
Calculate the accounts receivable turnover for both companies. Which company is doing a
better job of managing its accounts receivables?
Answer: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Morgan: $310,000/$75,600 = 4.1 times
Stanley: $290,000/$61,350 = 4.7 times
Stanley has a higher accounts receivable turnover. This implies it is doing a better job of
managing its receivables than Morgan.
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Critical Thinking
Difficulty: 3 Hard
7-71
162. A company reports the following results in its financial statements:
Year 3 Year 2 Year 1

Net
Sales…………….……………………. $2,500,000 $2,100,000 $1,900,000
Accounts receivable, Ending
Balance……. 172,000 167,000 165,000
Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these
two results and give a possible explanation for any significant change.
Answer:
Year 2: Accounts receivable turnover:
$2,100,000/[($165,000+$167,000) / 2] = 12.7 times
Year 3: Accounts receivable turnover:
$2,500,000/[($167,000+$172,000) / 2] = 14.7 times
The company’s accounts receivable turnover has increased from 12.7 in Year 2 to 14.7 in Year 3. This
increase in accounts receivable turnover may indicate that the company has tightened its credit policy
or that it has improved on its collection efforts regarding receivables.
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-72
163. The Links Company uses the percent of sales method of accounting for uncollectible
accounts receivable. During the current year, the following transactions occurred:
Sept 7 Links Company determined that the $8,000 account receivable of the Rainier
Company was uncollectible, and wrote it off.
Oct 15 Links Company determined that the $3,500 account receivable of the
Olympic Company was uncollectible and wrote it off.
Nov 9 Rainier Company paid $6,000 of the amount owed to the Links
Company. Links Company does not expect further collections from the Rainier
Company.
Dec 31 Links Company estimates that 1% of its $1,900,000 of credit
sales would be uncollectible.
1. Prepare the general journal entries to record these transactions.

2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1
of the current year, determine the balance of the allowance for uncollectible accounts at
December 31 of the current year. Assume that the transactions above are the only transactions
affecting the allowance for uncollectible accounts during the year.
Answer:
1.
Sept. 7 Allowance for Uncollectible Accounts...................... 8,000
Accounts Receivable—Rainier............................ 8,000
Oct 15 Allowance for Uncollectible Accounts...................... 3,500
Accounts Receivable—Olympic......................... 3,500
Nov 9 Accounts Receivable—Rainier.................................. 6,000
Allowance for Uncollectible Accounts................. 6,000
Cash........................................................................... 6,000
Accounts Receivable –Rainier............................. 6,000
Dec 31 Bad Debts Expense ($1,900,000 * .01).................... 19,000
2. Calculation: $4,000 – $8,000 – $3,500 + $6,000 + $19,000 = $17,500
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-73
164. The Branson Company uses the percent of sales method of accounting for uncollectible
accounts receivable. During the current year, the following transactions occurred:
Mar 7 Branson Company determined that the $2,000 account receivable of the Bing
Company was uncollectible, and wrote it off.
Jun 9 Bing Company paid $1,500 of the amount owed to the Branson
Company. Branson Company does not expect further collections from the Bing
Company.
Dec 31 Branson Company estimates that 1.5% of its $900,000 of credit
sales will be uncollectible.
Prepare the general journal entries to record these transactions.
Answer:
1.
Mar. 7 Allowance for Uncollectible Accounts...................... 2,000
Accounts Receivable—Bing............................ 2,000
Jun. 9 Accounts Receivable—Bing.................................. 1,500
Cash........................................................................... 1,500
Accounts Receivable –Bing............................. 1,500
Dec 31 Bad Debts Expense ($900,000 * .015).................... 13,500
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-74
165. Thatcher Company had a January 1, credit balance in its Allowance for Doubtful
Accounts of $4,000 for the current year. The following transactions and events affected the
Allowance for Doubtful Accounts during the current year:
Apr 15 Bean's account receivable of $2,700 was deemed uncollectible.

July 1 Cho paid the full amount of a previously written-off account receivable. This
receivable of $1,300 had been written off in the prior year.
Dec 31 Bad debts expense of $4,500 was recorded.
What amount should appear in the allowance for doubtful accounts in the December 31,
balance sheet for the current year?
Answer: $4,000 – $2,700 + $1,300 + $4,500 = $7,100.
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
166. Owens Company uses the direct write-off method of accounting for uncollectible
accounts receivable. On December 6, Year 1, Owens sold $6,300 of merchandise to the
Valley Company. On August 8, Year 2, after numerous attempts to collect the account,
Owens determined that the account of the Valley Company was uncollectible.
a. Prepare the journal entry required to record the transactions on August 8.

b. Assuming that the $6,300 is material, explain how the direct write-off method violates the
matching principle in this case.
Answer:
a.
Aug. 8 Bad Debts Expense..................................... 6,300
Accounts Receivable – Valley Company 6,300
b. In this case, the Bad Debts Expense was recorded in Year 1, but the sale was recorded in Year 2.
Extending credit to customers helped produce the sales. The bad debts expense was recorded in a
different period from the sale it helped to produce which violates the matching principle.
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AIPCA BB: Critical Thinking
Difficulty: 3 Hard
7-75
167. At December 31 of the current year, a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300
credit
Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this company's
bad debts are estimated to equal 5% of accounts receivable.
Answer:
Dec. 31 Bad Debts Expense................................................................. 6,500

Allowance for Doubtful Accounts**................................... 6,500
**Required balance ($160,000 * 5%)..................................... $8,000

Balance before adjusting entries ($7,300-$5,800).................... 1,500
Required adjustment................................................................ $6,500
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-76
168. At December 31 of the current year, a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300
Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this company's
bad debts are estimated to equal 1.5% of credit sales:
Answer:
Allowance for Doubtful Accounts*..................................... 12,300
*($980,000 – $160,000) * .015
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-77
169. A company has the following unadjusted account balances at December 31, of the
current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of
$1,600 (credit balance). The company uses the aging of accounts receivable to estimate its
bad debts. The following aging schedule reflects its accounts receivable at the current year-
end:
Estimated
Uncollectible
Account Age Balance Percentage
Current (not yet due) $96,000 1.0%
1—30 days past due 64,000 2.5%
30—60 days past due 16,000 11.0%
61—90 days past due 6,500 37.0%
Over 90 days past due 3,200 70.0%
Total $185,700
1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the
December 31, of the current year, balance sheet.
2. Prepare the adjusting journal entry to record bad debts expense for the current year .
Answer:
$96,000 * .010 = $ 960
64,000 * .025 = 1,600
16,000 * .110 = 1,760
6,500 * .370 = 2,405
3,200 * .700 = 2,240
$8,965
1. Bad Debts Expense .......................................................... 7,365

Allowance for Doubtful Accounts ........................................ 7,365
Desired balance in allowance account: $ 8,965 credit

Current balance in allowance account: 1,600 credit
Amount of adjustment $ 7,365 credit
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-78
170. A company has the following unadjusted account balances at December 31, of the
current year; Accounts Receivable of $183,400 and Allowance for Doubtful Accounts of
$1,600 (credit balance). The company uses the aging of accounts receivable to estimate its
bad debts. The following aging schedule reflects its accounts receivable at the current year-
end:
Estimated
Uncollectible
1—30 days past due 54,000 4.0%
30—60 days past due 12,000 10.0%
61—90 days past due 8,500 25.0%
Total $183,400
Calculate the amount of the Allowance for Doubtful Accounts that should appear on the
December 31, of the current year, balance sheet.
Answer:
$106,000 * .02 = $2,120

54,000 * .04 = 2,160
12,000 * .10 = 1,200
8,500 * .25 = 2,125
2,900 * .75 = 2,175
$9,780
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-79
171. A company had the following items and amounts in its unadjusted trial balance as of
December 31 of the current year:
Debit Credit
Cash sales……………………………………………….. $188,000
Credit sales……………………………………………… 275,000
Accounts receivable…………………………………….. $76,000
Allowance for doubtful accounts……………………….. 1,000
Prepare the adjusting entry to estimate bad debts assuming an aging analysis estimates that
8% of the outstanding accounts receivable will be uncollectible.
Answer:
Bad Debts Expense……………………………………………….5,080

Allowance for Doubtful Accounts………………………….5,080
Desired balance in allowance account: $76,000 * .08 = $ 6,080 credit

Current balance in allowance account: 1,000 credit
Adjustment to allowance account $ 5,080 credit
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-80
172. A company had the following items and amounts in its unadjusted trial balance as of
December 31 of the current year:
Debit Credit
Cash sales……………………………………………….. $188,000
Credit sales……………………………………………… 275,000
Accounts receivable…………………………………….. $76,000
Allowance for doubtful accounts……………………….. 1,000
Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5%
of credit sales.
Answer:
1. Bad Debts Expense ..................................................................... 6,875
Allowance for Doubtful Accounts .......................................................... 6,875
$275,000 * .025 = $6,875
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 2 Medium: 07-P2
7-81
173. A company uses the aging of accounts receivable method to estimate its bad debts
expense. On December 31 of the current year an aging analysis of accounts receivable
revealed the following:
Estimated
Uncollectible
1—30 days past due 270,000 2.0%
30—60 days past due 145,000 8.0%
61—90 days past due 55,000 20.0%
90—120 days past due 32,000 50.0%
Total $1,140,000
Required:
a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on
the current year-end balance sheet.
b. Calculate the amount of the Bad Debts Expense that should be reported on the current
year's income statement, assuming that the balance of the Allowance for Doubtful Accounts
on January 1 of the current year was $41,000 and that accounts receivable written off during
the current year totaled $43,200.
c. Prepare the adjusting entry to record bad debts expense on December 31 of the current year.
d. Show how Accounts Receivable will appear on the current year-end balance sheet as of
December 31.
Answer:
a.
Estimated
Uncollectible
Current (not yet due) $620,000 0.5% 3,100
1—30 days past due 270,000 2.0% 5,400
30—60 days past due 145,000 8.0% 11,600
61—90 days past due 55,000 20.0% 11,000
90—120 days past due 32,000 50.0% 16,000
Over 120 days past due 18,000 70.0% 12,600
Total $1,140,000 59,700
b. Desired balance in allowance account $59,700 Credit
Balance before adjustment ($41,000 – $43,200) 2,200 Debit
Adjustment needed $61,900 Credit
7-82
c. Bad Debts Expense 61,900
d. Accounts receivable $1,140,000
Less allowance for doubtful accounts 59,700
$1,080,300
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
174. On December 31, of the current year, Spectrum Company's unadjusted trial balance
revealed the following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75%
were on credit), and Allowance for Doubtful Accounts of $1,600 (credit balance).
Prepare the adjusting journal entry to record Spectrum’s estimate for bad debts assuming:
1. 6.0% of the accounts receivable balance is assumed to be uncollectible.
2. Bad debts expense is estimated to be 1.5% of credit sales.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear
on the balance sheet after adjustment assuming the percentage of sales method is used.
4. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.
5. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear
on the balance sheet immediately after writing off the account in part 4 assuming the
percentage of sales method is used.
Answer:
1.
Allowance for Doubtful Accounts....................................... 9,536
2.

Allowance for Doubtful Accounts....................................... 14,400
$1,280,000 * .75 * .015 =$14,400
3. Accounts receivable $185,600
Less: Allowance for Doubtful accounts* 16,000 $169,600
*($1,280,000 * .75 * .015) + $1,600 = $16,000

7-83
4. Jan 1 Allowance for Doubtful Accounts 1,500
5. Accounts receivable ($185,600 – $1,500) $184,100
Less: Allowance for Doubtful accounts ($16,000 – 14,500 $169,600

$1,500)
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
175. Each December 31, Kimura Company ages its accounts receivable to determine the
amount of its adjustment for bad debts. At the end of the current year, management estimated
that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for
Doubtful Accounts account had a debit balance of $1,200 before any year-end adjustment for
bad debts. Prepare the adjusting journal entry that Kimura Company should make on
December 31, of the current year, to estimate bad debts expense.
Answer:
Dec. 31 Bad Debts Expense 18,100

Desired balance in allowance account: $16,900 credit

Current balance in allowance account: 1,200 debit
Adjustment to allowance account: $18,100 credit
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-84
176. A company that uses the percent of sales to account for its bad debts had credit sales of
$740,000 in Year 1, including a $720 sale to Marshall Fresh. On December 31, Year 1, the
company estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the company
wrote off, as uncollectible, the $720 account of Marshall Fresh. On December 21, Year 2,
Marshall Fresh unexpectedly paid his account in full. Prepare the necessary journal entries:
(a) On December 31, Year 1, to reflect the estimate of bad debts expense.
(b) On June 1, Year 2, to write off the bad debt.
(c) On December 21, Year 2, to record the unexpected collection.
Answer:
Year 1
Dec. 31 Bad Debts Expense 11,100
($740,000 * .015)
Year 2
June 1 Allowance for Doubtful Accounts 720
Accounts Receivable—Marshall Fresh 720
Dec. 21 Accounts Receivable—Marshall Fresh 720
Allowance for Doubtful Accounts 720
21 Cash 720
.................................................................................
Accounts Receivable—Marshall Fresh 720
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-85
177. The following series of transactions occurred during Year 1 and Year 2, when Foxworth
Co. sold merchandise to Kevin Lewis. Foxworth’s annual accounting period ends on
December 31.
10/01/Yr 1 Sold $12,000 of merchandise to K. Lewis, terms 2/10, n/30.

11/15/Yr 1 Lewis reports that he cannot pay the account until early next year. He agrees to exchange
the account for a 120-day, 12% note receivable.
12/31/Yr 1 Prepared the adjusting journal entry to record accrued interest on the note.
03/15/Yr 2 Foxworth receives a check from Lewis for the maturity value (with interest) of the note.
03/22/Yr 2 Foxworth receives notification that Lewis’ check is being returned for nonsufficient
funds (NSF).
12/31/Yr 2 Foxworth writes off Lewis’ account as uncollectible.
Prepare Foxworth Co.'s journal entries to record the above transactions. The company uses
the allowance method to account for its bad debt expense.
Answer:
Year 1
Oct. 1 Accounts Receivable—Lewis 12,000
Sales 12,000
Nov. 15 Notes Receivable 12,000
Accounts Receivable—Lewis 12,000
Dec. 31 Interest Receivable 184
Interest Revenue 184
$12,000 * .12 * (46/360) = $184

Year 2
Mar. 15 Cash 12,480
.................................................................................
Notes Receivable 12,000
Interest Receivable 184
Interest Earned 296
$12,000 * .12 * (74/360) = $296
Mar. 22 Accounts Receivable—Lewis 12,480
Cash 12,480
7-86
Dec. 31 Allowance for Doubtful Accounts 12,480
Accounts Receivable—Lewis 12,480
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Topic: Valuing Accounts Receivable —–Allowance Method
178. Prepare general journal entries for the following transactions of Norman Company,
assuming they use the allowance method to account for uncollectible accounts.
Apr 01 Sold $3,500 of merchandise to Lance Co., receiving an 8%, 90-day,

$3,500 note.
15 Wrote off $1,500 owed by Guy Co. from a previous period sale.
30 Received a $5,000, 6%, 30-day note receivable from James Co. as
settlement for its $5,000 account receivable.
May 30 The note received from James on April 30 was collected in full.
Jun 30 Lance Co. was unable to pay the note on the due date.
Jul 15 Guy Co. paid $1,000 of the amount written off on April 15.
Answer:
Apr 1 Notes Receivable.................................................. 3,500
Sales .......................................................... 3,500
15 Allowance for Doubtful Accounts ........................ 1,500

Accounts Receivable—Guy 1,500
30 Notes Receivable.................................................. 5,000

Accounts Receivable—James ...................... 5,000
May 30 Cash ..................................................................... 5,025

Notes Receivable ........................................ 5,000
Interest Revenue ($5,000 * .06 * 30/360) 25
June 30 Account Receivable-Lance................................... 3,570

Notes Receivable ........................................ 3,500
7-87
July 15 Accounts Receivable—Guy .................................. 1,000
Allowance for Doubtful Accounts ............... 1,000
15 Cash ..................................................................... 1,000
Accounts Receivable—Guy 1,000
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
179. Jordan Co. uses the allowance method of accounting for uncollectible accounts. Jordan
Co. accepted a $5,000, 12%, 90-day note dated May 16, from Beckam Co. in exchange for its
past-due account receivable. Make the necessary general journal entries for Jordan Co. on
May 16 and the August 14 maturity date, assuming that the:
a. Note is held until maturity and collected in full at that time.

b. Note is dishonored; the amount of the note and its interest are written off as uncollectible.
Answer:
a. May 16 Notes Receivable ............................................ 5,000

Accounts Receivable—Beckham .............. 5,000
Aug. 14 Cash ................................................................ 5,150

Notes Receivable .................................... 5,000
b. May 16 Notes Receivable ............................................ 5,000

Aug. 14 Accounts Receivable—Beckham ..................... 5,150

Notes Receivable ................................... 5,000
Interest Revenue ..................................... 150
Aug. 14 Allowance for Doubtful Accounts .................... 5,150

7-88
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
180. Prepare general journal entries for the following transactions for the current year:
Apr. 25 Sold $4,500 of merchandise to Dunn Corp., receiving a 10%, 60-day. $4,500 note receivable.
June 24 The note of Dunn Corp., received on April 25 was dishonored.
Answer:
Apr 25 Notes Receivable........................................... 4,500
Sales.......................................................... 4,500
June 24 Accounts Receivable--Dunn Corp.................. 4,575
Notes Receivable...................................... 4,500
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
7-89
181. The following data are taken from the comparative balance sheets of Grayling Company.
Compute and interpret its accounts receivable turnover for Year 2. Competitors average a
turnover of 7.5. How is the company doing in relation to its competitors?
Year 2 Year 1
Accounts receivable, net 180,230 220,450
Answer: Accounts Net sales Receivable Turnover
1,500,750 1,495,600
= Net Sales/Average Accounts Receivable
Accounts Receivable Turnover = $1,500,750/[(180,230 + 220,450)/2] = 7.5times
Grayling’s turnover is the same as the industry average. The company is doing the same as
competitors in receivables turnover for the year. The turnover should also be compared with prior
years’ results for the company to determine if the company is making improvement internally.
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-90
182. On July 31, Orwell Co. has $448,800 of accounts receivable.
Required:
1. Prepare journal entries to record the following selected August transactions. The company
uses the perpetual inventory system.
2. Also prepare any footnotes to the August 31 financial statements that result from these
transactions.
3. Calculate the balance in the Accounts Receivable account as of August 10.
Aug 3 Sold $250,000 of merchandise (that cost $122,000) to customers on credit.

Sold $300,000 of accounts receivable to Cash Solutions. Cash Solutions charges a 7%
Aug 5 factoring fee.
Aug 8 Received $165,200 from customers in payment on their accounts.
Borrowed $50,000 cash from State Bank, pledging $65,000 of accounts receivable as
Aug 9 security for the loan. The note is a 90-day, 9% note.
Answer:
1.
Aug 3 Accounts Receivable......................................................... 250,000
Sales............................................................................. 250,000
3 Cost of goods sold............................................................ 122,000
Merchandise Inventory............................................... 122,000
5 Cash (300,000 – 21,000)................................................... 279,000
Factoring fee expense (300,000 * .07)........................ 21,000
Accounts Receivable................................................... 300,000
Aug 8 Cash.................................................................................. 165,200
Accounts Receivable................................................... 165,200
Aug 9 Cash.................................................................................. 50,000
Notes Payable.............................................................. 50,000
2. Orwell should include the following note with its statements:

Accounts receivable of $65,000 are pledged as security for a $50,000 note payable.
3. Accounts receivable balance: $233,600
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 3 Hard
7-91
183. On September 30, Waldon Co. has $540,250 of accounts receivable. Waldon uses the
allowance method of accounting for bad debts and has an existing credit balance in the
allowance for doubtful accounts of $13,750.
1. Prepare journal entries to record the following selected October transactions. The company
uses the perpetual inventory system. 2. Show how Accounts Receivable and the Allowance
for Doubtful Accounts appear on its October 31 balance sheet.
a. Sold $305,000 of merchandise (that cost $178,500) to customers on credit.

b. Received $395,100 cash in payment of accounts receivable.
c. Wrote off $15,700 of uncollectible accounts receivable.
d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated that
4.0% of accounts receivable will be uncollectible.
Answer:
1.
a. Accounts Receivable............................................................. 305,000
Sales.................................................................................. 305,000
Cost of goods sold................................................................. 178,500
Merchandise Inventory..................................................... 178,500
b. Cash....................................................................................... 395,100
Accounts Receivable........................................................ 395,100
c. Allowance for Doubtful Accounts........................................ 15,700
Accounts Receivable........................................................ 15,700
d. Bad Debts Expense *........................................................ 19,328
Allowance for Doubtful Accounts................................... 19,328
* $540,250 + $305,000 – $395,100 – 15,700 = $434,450 ending Accounts Receivable

Allowance for doubtful accounts before adjustment= $13,750 – $15,700 = $1,950 debit
Uncollectible = $434,450 * .04 = $17,378; $17,378 + $1,950 = $19,328 bad debt expense
2.
Current assets
Accounts Receivable $434,450
Less: Allowance for Doubtful Accounts 19,328 $415,122
7-92
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AIPCA FN: Reporting
Difficulty: 3 Hard
184. Bonita Company estimates uncollectible accounts using the allowance method at
December 31. It prepared the following aging of receivables analysis.
Days Past Due
Total Current 1 to 30 31 to 60 61 to 90 Over 90
Accounts receivable $110,000 68,000 17,000 10,000 8,000 7,000
Percent uncollectible 1% 2% 5% 8% 13%
a. Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts
receivable method.
b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a.
Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $550 credit.
c. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a.
Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300 debit.
Answer:
a. Total Current 1 to 30 31 to 60 61 to 90 Over 90

Accounts receivable $110,000 68,000 17,000 10,000 8,000 7,000
Percent uncollectible 1% 2% 5% 8% 13%
Estimated uncollectible 3,070 680 340 500 640 910
b. Bad Debts Expense 2,520

Allowance for doubtful accounts 2,520
$3,070 – $550 = $2,520

$3,070 + $300 = $3,370

Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-93
185. On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method
of accounting for bad debts and has an existing credit balance in the allowance for doubtful
accounts of $14,250.
1. Prepare journal entries to record the following selected May transactions. The company
uses the perpetual inventory system.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its
May 31 balance sheet.
a. Sold $415,200 of merchandise (that cost $249,000) to customers on credit.

b. Received $465,800 cash in payment of accounts receivable.
c. Wrote off $15,800 of uncollectible accounts receivable.
d. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0%
of accounts receivable will be uncollectible.
Answer:
a. Accounts Receivable 415,200
Sales 415,200
Cost of goods sold 249,000
b. Cash 465,800
...........................................................................
c. Allowance for Doubtful Accounts 15,800

...........................................................................
d. Bad Debts Expense 13,926

...........................................................................
Calculation: Accounts Receivable $375,800 + 415,200 – 465,800 – 15,800 = $309,400

Allowance for Doubtful Accounts before adj. $14,250 – 15,800 = $1,550 debit
Desired balance in Allowance Account ($309,400 * .04) = $12,376 credit
Amount of bad debts expense $13,926
2. Current assets
Accounts Receivable $309,400
Less: Allowance for Doubtful Accounts 13,926 $295,474
7-94
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-95
186. At December 31, Yarrow Company reports the following results for its calendar year
from the adjusted trial balance.
Credit sales $2,300,000

Cash sales 1,050,000
Allowance for doubtful accounts (credit balance) 750
a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are
estimated to be 1.1% of credit sales.
b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are
estimated to be .8% of total sales.
c. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are
estimated to be 7.0% of year-end accounts receivable.
Answer:
a.. Bad Debts Expense 25,300

$2,300,000 * .011 = $25,300
b. Bad Debts Expense 26,800

$3,350,000 * .008 = $26,800

$295,000 * .07 = $20,650 – $750 = $19,900
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
7-96
187. White Company allows customers to make purchases on credit. The terms of all credit
sales are 2/10, n/30, and all sales are recorded at the gross price. Other customers can use a
bank credit card where the bank deducts a 4% service charge for credit card sales and credits
the bank account of White immediately when credit card receipts are deposited. White uses
the perpetual inventory method. Prepare journal entries to record the following selected
transactions and events.
June 4 Sold $12,000 of merchandise (cost $7,000) on credit to Grant.

6 Sold $17,000 of merchandise (cost $9,350) to customers who used a bank credit
card, receipts were processed and deposited the same day.
8 Sold $8,500 of merchandise (cost $4,500) on credit to Emma Company.
10 Accepted a $6,700, 45-day, 6% note dated this day in granting Cory Tam a time
extension on his past-due account receivable.
12 Received Grant’s check in full payment of the purchase on June 4.
15 Wrote off the account of Z. Westmore against the Allowance for Doubtful
Accounts. The $1,580 balance stemmed from a credit sale in January.
20 Accepted a $6,240, 30-day, 10% note dates this day in granting F. Potter a time
extension on his past-due account receivable.
July 17 Received the amount previously written-off from Z. Westmore.
20 F. Potter dishonored his note when presented for payment.
25 Received payment of principal plus interest from Cory Tam.
Answer:
June 4 Accounts Receivable – Grant 12,000
Sales 12,000
6 Cash (17,000 * .96) 16,320

Credit Card Expense (17,000 * .04) 680
Sales 17,000
8 Accounts Receivable—Emma Co. 8,500

Sales 8,500
10 Notes Receivable 6,700

Accounts Receivable—Cory Tam 6,700
12 Cash (12,000 * .98) 11,760

Sales Discounts (12,000 * .02) 240
Accounts Receivable—Grant 12,000
15 Allowance for Doubtful Accounts 1,580

Accounts Receivable—Z. Westmore 1,580
7-97
20 Notes Receivable 6,240
Accounts Receivable—F. Potter 6,240
July 17 Accounts Receivable—Z. Westmore 1,580

Cash 1,580
Accounts Receivable—Z. Westmore 1,580
20 Accounts Receivable—F. Potter (6,240 + 52) 6,292

Interest Revenue (6,240 * .10 * 30/360) 52
Notes Receivable 6,240
25 Cash (6,700 + 50.25) 6,750.25

Interest Revenue (6,700 * .06 * 45/360) 50.25
Notes Receivable 6,700.00
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
Difficulty: 3 Hard
Fill in the Blank Questions

188. A supplementary record created to maintain a separate account for each customer is
called the ________________________.
Answer: accounts receivable ledger

Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-98
189. A ____________________ is a signed agreement to pay a specified amount of money
either on demand or at a definite future date.
Answer: promissory note
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
190. The person to whom a note is payable is known as the ______________.
Answer: payee
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
191. ____________________ is the charge for using borrowed money until its due date.
Answer: Interest
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
192. The ____________________ of a note is the day the principle plus interest of a note
must be repaid.
Answer: maturity date
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-99
193. Converting receivables to cash before they are due is usually done by either (1)
_______________________ or (2) ________________________________.
Answer: selling them to a factor; pledging them as security for a loan
Feedback: answers can appear in any order

Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
194. The accounts receivable turnover is calculated by dividing _________________ by

________________.
Answer: net sales; average accounts receivable
Feedback: answers need to appear in this order

Blooms: Remember
AACSB: Communications
AICPA BB: Industry
Difficulty: 1 Easy
195. The_________________ method of accounting for bad debts records the loss from an
uncollectible account receivable at the time it is determined to be uncollectible (and not
before).
Answer: direct write-off
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-100
196. ____________________________ are amounts owed by customers from credit sales
where payment is required in periodic amounts over an extended time period.
Answer: Installment accounts receivable
Blooms: Remember
AACSB: Communications
AICPA BB: Industry
Difficulty: 1 Easy
197. To write off an uncollectible account receivable when the allowance method of
accounting for uncollectible accounts is used, a company should debit
_______________________ and credit accounts receivable.
Answer: allowance for uncollectible accounts
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
198. The _________________________ method of computing uncollectible accounts uses

income statement relationships to estimate bad debts and is based on the idea that a given
percent of a company's credit sales for a period are uncollectible.
Answer: percent of sales
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-101
199. The ________________________ methods of computing uncollectible accounts use
balance sheet relations to estimate bad debts—mainly the relation between accounts
receivable and the allowance amount.
Answer: accounts receivable
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
200. The _______________________ method uses both past and current receivables to
estimate the allowance amount, and assumes that the longer an amount is past due, the more
likely it is to be uncollectible.
Answer: aging of accounts receivable
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
201. Felton Corporation purchased $4,000 in merchandise from Marita Co. Felton signed a
60-day, 10%, $4,000 promissory note. Marita should record the sale with a journal entry
debiting ____________________ for $ ________ and crediting __________________ for $
________.
Answer: notes receivable; $4,000; sales; $4,000
Feedback: answers need to appear in this order

Blooms: Understand
AICPA BB: Industry
7-102
202. When the maker of a note is unable or refuses to pay at maturity, the note is said to be
___________________.
Answer: dishonored
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
203. _______________ refers to the expected proceeds from converting an asset into cash.
Answer: Realizable value
Blooms: Remember
AICPA BB: Industry
Difficulty: 1 Easy
7-103

Financial Accounting Fundamentals 5th Edition Wild Test Bank 1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Accounting Fundamentals 5th Edition Wild Test Bank 1

Uploaded by

Copyright:

Available Formats

FINANCIAL ACCOUNTING

FUNDAMENTALS 5TH EDITION

Test Bank: https://testbankpack.com/p/test-bank-for-financial-

Solution Manual: https://testbankpack.com/p/solution-manual-for-

1. A receivable is an amount due from another party.

6. Installment Accounts Receivable are classified as non-current assets if the installment

Feedback: $10,000 * .05 * 6/12 = $250

Feedback: $16,000 * 0.12 * 4/12 = $640

Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Feedback: Desired balance in allowance: $80,000 * .06 = $4,800 credit

Feedback: $350,000 * 0.01 = $3,500

Multiple Choice Questions

63. A promissory note:

65. The interest accrued on $7,500 at 6% for 90 days is:

Feedback: $7,500 * 0.06 * 90/360 = $112.50

66. A 90-day note issued on April 10 matures on:

Feedback: $1,500 * 0.10 * 120/360 = $50.00

Feedback: $10,000 * 0.09 * 180/360 = $450

Feedback: $10,000 + ($10,000 * 0.09 * 180/360) = $10,450

Feedback: $45,000 * 0.04 = $1,800; $45,000 – $1,800 = $43,200

74. The account receivable turnover measures:

75. The accounts receivable turnover is calculated by:

Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

Feedback: Accounts Receivable Turnover = Net Sales/Average Accounts Receivable

81. The matching principle, as applied to bad debts, requires:

A. Accounts Receivable—A. Hopkins 2,000

B. Allowance for Doubtful Accounts 2,000

C. Accounts Receivable—A. Hopkins 2,000

D. Allowance for Doubtful Accounts 2,000

A. Accounts Receivable—A. Hopkins 2,000

C. Accounts Receivable—A. Hopkins 2,000

D. Allowance for Doubtful Accounts 2,000

A. Bad Debts Expense 15,750

B. Bad Debts Expense 15,375

C. Bad Debts Expense 16,125

D. Accounts Receivable 15,750

E. Accounts Receivable 16,125

Accounts receivable.................................................. $375,000 debit

Feedback: $800,000 * 0.006 = $4,800

Accounts receivable................................................ $375,000 debit

Feedback: $800,000 * 0.006 = $4,800

Feedback:$25,000 * .07 * 90/360 = $437.50

Feedback: $18,750 * .08 * 60/360 =$250

Feedback: Interest = $6,000 * 0.04 * 60/360 = $40

Feedback: Interest accrued at December 31: $4,800 * .10 * 75/360 = $100

Feedback: Interest accrued at December 31: $4,800 * .10 * 75/360 = $100

Feedback: Interest accrued at December 31: $4,800 * .10 * 75/360 = $100

Feedback: $7,800 * 0.10 * 60/360 = $130 + $7,800 = $7,930

Feedback: $7,800 * 0.10 * 60/360 = $130 + $7,800 = $7,930

Feedback: Factoring fee expense: $75,000 * .05 = $3,750

Feedback: Credit card fee expense: $3,500 * .03 = $105

Feedback: Credit card fee expense: $4,800 * 0.025 = $120

Feedback: $104,500 * 0.04 = $4,180 – $665 = $3,515

Feedback: $925,000 * 0.005 = $4,625

Feedback: July 31-9 = 22; August =31; September = 30; 90 – 22 – 31 – 30 = October 7

Feedback: $8,500 * 0.08 * 90/360 = $170 + $8,500 = $8,670

Feedback: $8,500 * 0.08 * 90/360 = $170 + $8,500 = $8,670

Feedback: $15,000 * 0.08 * 42/360 = $140

Feedback: $435,000 * 0.035 = $15,225 + $1,250 = $16,475

Accounts receivable $435,000 Debit

Feedback: $2,100,000 * 0.01 = $21,000

($1,280,000 .75 * .015) + $1,600 = $16,000