Multiple Choice
Identify the choice that best completes the statement or answers the
question.
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1.
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Interest is usually associated with
a. | accounts receivable. | b. | notes receivable. | c. | doubtful
accounts. | d. | bad debts. |
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2.
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Which one of the following is not a primary problem associated with accounts
receivable?
a. | Amortizing accounts receivable | b. | Recognizing accounts
receivable | c. | Valuing accounts receivable | d. | Disposing of accounts
receivable |
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3.
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Trade accounts receivable are valued and reported on the balance
sheet
a. | in the investment section. | b. | at gross amounts less sales returns and
allowances. | c. | at net realizable value. | d. | only if they are not past
due. |
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4.
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Retailers often add a financing charge to a customer’s accounts receivable
balance
a. | if the customer fails to purchase additional merchandise. | b. | if the customer pays
more than the required amount. | c. | if the account is not paid within a reasonable
period of time. | d. | if the account is not paid within five days. |
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5.
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Under the allowance method, writing off an uncollectible account
a. | affects only balance sheet accounts. | b. | affects both balance sheet and income statement
accounts. | c. | affects only income statement accounts. | d. | is not acceptable
practice. |
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6.
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The net amount expected to be received in cash from receivables is termed
the
a. | net realizable value. | b. | cash-good value. | c. | gross cash
value. | d. | cash-equivalent value. |
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7.
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If a company fails to record estimated bad debts expense,
a. | net realizable value is understated. | b. | expenses are understated. | c. | revenues are
understated. | d. | receivables are understated. |
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8.
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When the allowance method is used to account for uncollectible accounts, Bad
Debts Expense is debited when
a. | a sale is made. | b. | an account becomes bad and is written
off. | c. | management estimates the amount of uncollectibles. | d. | a customer's
account becomes past-due. |
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9.
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The percentage of sales basis of estimating expected uncollectibles
a. | emphasizes the matching of expenses with revenues. | b. | emphasizes balance
sheet relationships. | c. | emphasizes net realizable
value. | d. | is not generally accepted as a basis for estimating bad
debts. |
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10.
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An ageing of a company's accounts receivable indicates that $4,000 are
estimated to be uncollectible. Using a balance sheet method, if Allowance for Doubtful Accounts has a
$1,100 credit balance, the adjustment to record bad debts for the period will require a
a. | debit to Bad Debts Expense for $4,000. | b. | debit to Allowance for Doubtful Accounts for
$2,900. | c. | debit to Bad Debts Expense for $2,900. | d. | credit to Allowance for Doubtful Accounts for
$4,000. |
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11.
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Bad Debts Expense is considered
a. | an avoidable cost in doing business on a credit basis. | b. | an internal control
weakness. | c. | a necessary risk of doing business on a credit basis. | d. | avoidable unless
there is a recession. |
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12.
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When the allowance method of accounting for uncollectible accounts is used, Bad
Debts Expense is recorded
a. | in the year after the credit sale is made. | b. | in the same year as
the credit sale. | c. | as each credit sale is made. | d. | when an account is written off as
uncollectible. |
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13.
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Two bases for estimating uncollectible accounts are:
a. | percentage of assets and percentage of sales. | b. | percentage of
receivables and percentage of total revenue. | c. | percentage of current assets and percentage of
sales. | d. | percentage of receivables and percentage of sales. |
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14.
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The retailer considers VISA and MasterCard sales as
a. | cash sales. | b. | promissory sales. | c. | credit
sales. | d. | contingent sales. |
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15.
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A note receivable differs from an account receivable in that
a. | a note receivable is a formal promise to pay; an account receivable is an informal
promise to pay. | b. | a note receivable is used for purchases over $1,000. | c. | a note is used for a
receivable that extends beyond one year. | d. | there is no difference between an account
receivable and a note receivable; they are interchangeable terms. |
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16.
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A dishonoured note receivable that is expected to be collected should
be
a. | written off as an uncollectible by the payee. | b. | transferred to an
accounts receivable by the payee. | c. | carried in the payee’s accounting records
as a long-term asset. | d. | presented in the financial statements under the
heading, “dishonoured notes.” |
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