Chap5 Self-Study Questions

Accounts receivable are best described as

a. Liabilities of the company that represent the amount owed to suppliers.

b. Amounts that have previously been received from customers.

c. Assets of the company representing the amount owed by customers.

d. Amounts that have previously been paid to suppliers.

c. Assets of the company representing the amount owed by customers.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17?

a. $12,400.

b. $11,760.

c. $12,000.

d. $2,240.

c. $12,000.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17?

Refer to the information in the previous question. What is the amount of net revenues (sales minus sales discounts) as of March 23?

a. $0.

b. $11,760.

c. $12,000.

d. $12,240.

b. $11,760.

The allowance method for uncollectible accounts LO5-3)

a. Is required by generally accepted accounting principles.

b. Allows for the possibility that some accounts will not be collected.

c. Reports net accounts receivable for the amount of cash expected to be collected.

d. All of the above are correct

d. All of the above are correct

At the end of its first year of operations, a company estimates future uncollectible accounts to be $4,500. The company's year-end adjusting entry would include(LO5-3)

a. A credit to Accounts Receivable for $4,500.

b. A credit to Allowance for Uncollectible Accounts for $4,500.

c. A debit to Allowance for Uncollectible Accounts for $4,500.

d. No adjusting entry is necessary because the accounts are not yet actual bad debts

b. A credit to Allowance for Uncollectible Accounts for $4,500.

Using the allowance method, the entry to record a write-off of accounts receivable will include LO5-4)

a. A debit to Bad Debt Expense.

b. A debit to Allowance for Uncollectible Accounts.

c. No entry because an allowance for uncollectible accounts was established in an earlier period.

d. A debit to Service Revenue.

b. A debit to Allowance for Uncollectible Accounts.

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to LO5-4)

a. Decrease total assets.

b. Decrease net income.

c. Both a. and b.

d. Neither a. nor b.

d. Neither a. nor b.

“writing off” both Allowance for Uncollectible Accounts and Accounts Receivable are assets

A company has the following account balances at the end of the year:

• Credit Sales = $400,000

• Accounts receivable = $80,000

• Allowance for Uncollectible Accounts = $400 credit

The company estimates future uncollectible accounts to be 4% of accounts receivable. At what amount would Bad Debt Expense be reported in the current year's income statement? LO5-5)

a. $400.

b. $2,800.

c. $3,200.

d. $3,600.

b. $2,800.

A company has the following account balances at the end of the year:

Credit Sales = $400,000

• Accounts receivable = $80,000

• Allowance for Uncollectible Accounts = $400 debit

The company estimates future uncollectible accounts to be 4% of accounts receivable. At what amount would Bad Debt Expense be reported in the current year's income statement? LO5-5)

a. $400.

b. $2,800.

c. $3,200.

d. $3,600.

d. $3,600.

At what amount would Allowance for Uncollectible Accounts be reported in the current year's balance sheet? LO5-5)

a. $1,150.

b. $1,900.

c. $2,300.

d. $5,900.

c. $2,300.

The direct write-off method is generally not permitted for financial reporting purposes because (LO5-6)

a. Compared to the allowance method, it would allow greater flexibility to managers in manipulating reported net income.

b. This method is primarily used for tax purposes.

c. It is too difficult to accurately estimate future bad debts.

d. Accounts receivable are not stated for the amount of cash expected to be collected.

d. Accounts receivable are not stated for the amount of cash expected to be collected.

On January 1, 2024, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in eight months. Calculate the amount of interest revenue Nees will record on September 1, 2024, the date that the note is due. LO5-7)

a. $300.

b. $600.

c. $900.

d. $1,000.

b. $600.

On May 1, 2024, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in 12 months. Nees has a December 31 year-end. Calculate the amount of interest revenue Nees will report in its 2024 and 2025 income statements. ( LO5-7)

a. 2024 = $300; 2025 = $600.

b. 2024 = $600; 2025 = $300.

c. 2024 = $900; 2025 = $0.

d. 2024 = $0; 2025 = $900.

b. 2024 = $600; 2025 = $300.

At the beginning of 2024, Clay Ventures has total accounts receivable of $100,000. By the end of 2024, Clay reports net credit sales of $900,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Clay Ventures? (LO5-8)

a. 2.0.

b. 4.5.

с. 6.0.

d. 9.0.

с. 6.0.

Net Credit Sales/Average Accounts Receivable

A company has the following account balances at the end of the year:

• Credit Sales = $400,000

• Accounts receivable = $80,000

• Allowance for Uncollectible Accounts = $400 credit

The company estimates 1% of credit sales will be uncollectible. At what amount would Allowance for Uncollectible Accounts be reported in the current year's balance sheet? LO5-9)

a. $4,000.

b. $4,400.

c. $3,600.

d. $800.

b. $4,400.

 Normally, when adjusting accounts, we subtract credit amounts if we’re adjusting an expense or reducing an asset. However, in this case, we are increasing the Allowance for Uncollectible Accounts because we’re using the percentage of credit sales method to estimate bad debts.