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Credit card companies charge a fee to the seller that accepts the credit cards.This fee is recorded by the seller as a non-operating expense on its income statement.

A) True
B) False

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On the balance sheet,the Allowance for Doubtful Accounts:


A) is included in current liabilities.
B) increases the reported Accounts Receivable, Net.
C) is reported under the heading "Other Assets."
D) is subtracted from Accounts Receivable.

E) None of the above
F) C) and D)

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Your company has previously averaged about 26% of its accounts receivable in the "over 90 days past due" category.This year,the company hired a new collections manager and,as a result,management forecasts that only 18% of its accounts receivable will be in this category at the end of the current year.The company uses the aging of accounts receivable method of estimating Bad Debt Expense.If the total of credit sales and year-end balance in accounts receivable remain unchanged from the previous year and no write offs were made during the current year,this year's bad expense will:


A) increase over the estimate for previous months.
B) decrease over the estimate for previous months.
C) not change.
D) will depend on the percentage of credit sales deemed uncollectible.

E) None of the above
F) C) and D)

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Countryside Corporation is owed $11,890 from a customer for landscaping.The account is overdue and the customer is having difficulty paying.Countryside might ask the customer to sign a note for the unpaid amount to:


A) decrease its net income for tax reporting purposes.
B) strengthen Countryside Corporation's legal right to be repaid with interest.
C) reduce its tax liability.
D) eliminate any doubts of collection of the amount due.

E) C) and D)
F) B) and D)

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Which of the following statements about the interpretation of the receivables turnover ratio is not correct?


A) Analysts often interpret a sudden increase in the receivables turnover ratio as a signal of a developing problem.
B) The smaller the receivables turnover ratio the larger the days to collect will be.
C) A change in the receivables turnover ratio may indicate a change in the company's credit granting policies.
D) A change in the receivables turnover ratio may indicate a change in economic conditions.

E) A) and B)
F) A) and D)

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The direct write-off method for uncollectible accounts is not allowed by GAAP because it overstates the net realizable value of accounts receivable and violates the expense recognition principle.

A) True
B) False

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A company used the aging of accounts receivable method.At December 31,management determined that the net realizable value of accounts receivable was $304,000.The balance in Accounts Receivable was $384,000 and the unadjusted credit balance in Allowance for Doubtful Accounts was $16,000.What was the amount of Bad Debt Expense for the year?


A) $96,000
B) $64,000
C) $80,000
D) $16,000

E) B) and D)
F) C) and D)

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A high receivables turnover ratio is a sign of a company's:


A) effectiveness in granting and collecting credit
B) weakness in granting and collecting credit
C) profitability
D) ability to sell goods quickly

E) C) and D)
F) None of the above

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Total doubtful accounts at the end of the year are estimated to be $25,000 based on an aging of accounts receivable.If the balance in the Allowance for Doubtful Accounts is a $7,000 debit before adjustment,what is current year's Bad Debt Expense?


A) $7,000
B) $18,000
C) $25,000
D) $32,000

E) B) and D)
F) A) and B)

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The financial statements of Orion Frozen Foods contained the following information: The financial statements of Orion Frozen Foods contained the following information: -Use the information above to answer the following question.What is the receivables turnover ratio? A) 10.00 times B) 12.50 times C) 6.25 times D) 16.67 times -Use the information above to answer the following question.What is the receivables turnover ratio?


A) 10.00 times
B) 12.50 times
C) 6.25 times
D) 16.67 times

E) None of the above
F) B) and C)

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On August 1,Jackson Radiology signed a one-year note receivable of $60,000 with interest at of 15% payable every six months.Jackson properly accrued interest on the note on December 31.What journal entry would Jackson make on the following February 1 to record the interest payment received on that date?


A) Debit Cash and credit Interest Revenue for $4,500
B) Debit Cash and credit Interest Revenue for $750
C) Debit Cash for $4,500, credit Interest Receivable for $3,750, and credit Interest Revenue for $750
D) Debit Cash for $750, debit Interest Receivable for $3,750, and credit Interest Revenue for $4,500

E) C) and D)
F) A) and C)

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The adjusting entry to record the allowance for doubtful accounts includes a:


A) debit to Bad Debt Expense.
B) debit to Allowance for Doubtful Accounts.
C) debit to Sales Revenue.
D) credit to Accounts Receivable.

E) B) and D)
F) All of the above

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The days to collect receivables increased from 32 last year to 48 this year.Which of the following statements is correct?


A) The company is likely to see its Bad Debt Expense decrease.
B) The company is becoming more efficient at collecting payment.
C) The receivables turnover rate must have increased from last year to this year.
D) The receivables turnover rate decreased from approximately 11.4 to 7.6 from last year to this year.

E) A) and D)
F) B) and C)

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If the adjusting entry to accrue interest of $1,000 on a note receivable is omitted,then:


A) assets, net income, and stockholders' equity are overstated by $1,000
B) assets, net income, and stockholders' equity are understated by $1,000
C) liabilities are understated by $1,000, net income is overstated by $1000, and stockholders' equity is overstated by $1,000
D) assets are overstated, net income is understated, and stockholders' equity is understated

E) B) and D)
F) None of the above

Correct Answer

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Recording the estimate of bad debt expense:


A) increases assets.
B) increases net income.
C) is done at the same time the credit sale is recorded.
D) follows the expense recognition ("matching") principle.

E) None of the above
F) All of the above

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If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method,then it must mean that the:


A) debit to Bad Debt Expense will be $1,000 more than the desired ending balance in the Allowance for Doubtful Accounts
B) debit to Bad Debt Expense will be $1,000 less than if the Allowance balance had been $0
C) direct write-off method was used
D) percentage of sales method was used

E) A) and B)
F) C) and D)

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Which of the following are similarities between a six-month note receivable and an account receivable? They both are:


A) formal written contracts.
B) interest bearing.
C) current liabilities.
D) current assets.

E) A) and B)
F) None of the above

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Indicate whether each of the following items is a characteristic of the allowance method and/or the direct write-off method by placing an "X" in the appropriate column.If an item is a characteristic of both methods,place an "X" in both columns. Indicate whether each of the following items is a characteristic of the allowance method and/or the direct write-off method by placing an X in the appropriate column.If an item is a characteristic of both methods,place an X in both columns.

Correct Answer

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On March 1,Cents,Inc.lent $1,000 to an employee at a rate of 6% for 3 months.The entry to record the loan of $1,000 to its employee includes a:


A) credit to Cash of $1,000.
B) debit to Cash of $1,000.
C) credit to Notes Receivable of $1,000.
D) credit to Interest Revenue of $15.
E) debit to Interest Revenue of $15.

F) B) and E)
G) None of the above

Correct Answer

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Toque Inc.uses the allowance method for bad debts.If management is overly optimistic about its ability to collect customer accounts,the company will understate Bad Debt Expense and:


A) overstate net income and days to collect will decline.
B) overstate net income but days to collect will increase.
C) understate net income and days to collect will increase.
D) understate net income and days to collect will decline.

E) A) and D)
F) A) and C)

Correct Answer

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