Chapter 5 Quiz

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Question #1

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:

A $8,000

B $2,000

C $6,000

D $0

Question #2

The receivables turnover ratio is a measure of:

A The number of times during a year that the average accounts receivable balance is collected.

B The proportion of credit sales to total sales for the year.

C The likelihood that customers will not pay the full amount due at the end of the year.

D The profitability of transactions related to providing goods and services to customers on account during the year.

Question #3

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). On December 31, 20X1, Nelsen will accrue interest revenue of:

A $8,000

B $0

C $2,000

D $6,000

Question #4

If a company uses the allowance method of accounting for uncollectible accounts and collects cash on an account receivable previously written off:

A There is no change in total assets.

B The change in total assets depends on the relationship between the allowance account balance and the amount of the collection.

C Total assets decrease.

D Total assets increase.

Question #5

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:

A Net accounts receivable decrease.

B The effect on net account receivables depends on the relationship between the allowance account balance and the amount of the write off.

C Net accounts receivable do not change.

D Net accounts receivable increase.

Question #6

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

A $5,100

B $5,000

C $5,600

D $6,100

Question #7

A sales discount is recorded by the seller as a(n):

A Contra revenue.

B Expense.

C Contra asset.

D Liability.

Question #8

When a company provides services on account, which of the following accounts is debited?

A Accounts Payable.

C Service Revenue.

D Accounts Receivable.

E Cash.

Question #9

Which of the following transactions would result in an account receivable?

A Purchasing supplies on account.

B Providing services to customers on account.

C Receiving a loan from the bank.

D Paying for supplies previously purchased on account.

Question #10

The entry to record the estimate for uncollectible accounts includes:

A A debit to Sales Revenue.

B A debit to Allowance for Uncollectible Accounts.

C A credit to Accounts Receivable.

D A debit to Bad Debt Expense.

Question #11

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?

A Debit Sales Discount for $10.

B Debit Cash for $500.

C Credit Accounts Receivable for $490.

D Credit Service Revenue for $500.

Question #12

A company provides services to a customer in the current year and then determines in the following year that the customer’s account needs to be classified as uncollectible. If the company uses the direct write-off method, which of the following would be recorded in the following year at the time of the write-off?

A Credit Allowance for Uncollectible Accounts.

B Debit Accounts Receivable.

C Debit Allowance for Uncollectible Accounts.

D Debit Bad Debt Expense.

Question #13

Which of the following refers to the seller reducing the customer’s balance owed because of some deficiency in the company’s product or service?

A Sales Discount.

B Sales Allowance.

C Allowance for Uncollectible Accounts.

D Trade Discount.

Question #14

At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?

A 1.5.

B 7.5.

C 6.0.

D 5.0.

Question #15

Schmidt Company’s Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:

A $96,000

B $100,000

C $104,000

D $96,200

Question #16

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a credit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

A $5,600

B $5,100

C $6,100

D $5,000

Question #17

Under the allowance method for uncollectible accounts, the balance of Allowance for Uncollectible Accounts increases when:

A Never.

B Bad debts actually occur.

C Future bad debts are estimated.

D Cash is received from customers.

Question #18

At the end of its first year of operations, a company establishes an allowance for future uncollectible accounts for $5,600. At what amount would bad debt expense be reported in the current year’s income statement?

A $4,800

B $5,600

C $6,400

D $800

Question #19

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What is the amount of net revenues (total revenue minus sales discounts) as of August 12?

A $5,000

B $4,850

C $5,300

D $5,150

Question #20

Under the direct write-off method, uncollectible accounts are recorded:

A In the period the account is determined actually uncollectible.

B In the period following the account being actually uncollectible.

C In the period the account is estimated to be uncollectible.

D Never.

Question #21

The amount of cash owed to the company by its customers from the sale of products or services on account is known as:

A Accounts Payable.

B Service Revenue.

C Retained Earnings.

D Accounts Receivable.

Question #22

The effect of writing off a specific account receivable is:

A An increase in the Allowance for Uncollectible Accounts.

B An increase in the amount of Accounts Receivable.

C An increase in the amount of Bad Debt Expense.

D A reduction in the Allowance for Uncollectible Accounts.

Question #23

On September 1, Bates Supplies borrows $30,000 from Vines Incorporated by signing an 8% note due in 12 months. Calculate the amount of interest revenue Vines will record on December 31, four months after the note is issued.

A $1,600

B $0

C $800

D $2,400

Question #24

Suppose the balance of the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjustment entry. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current year’s income statement?

A $6,400

B $4,800

C $5,600

D $800

Question #25

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

A $5,150

B $4,850

C $5,000

D $5,300

Question #26

Under the direct write-off method, the balance of the accounts receivable account is reduced:

A When an account is estimated to be uncollectible.

B When an account is initially recorded as receivable.

C When the allowance for uncollectible accounts is established.

D When an account is proven uncollectible.

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