Question

1. When reporting accounts receivable, the amount reported should be ________.

A) the accounts receivable collected during the period

B) the amount of accounts receivable that a company expects to collect

C) the accounts receivable charged for the current month

D) the amount of accounts receivable minus credit card expense

2. Net accounts receivable are ________.

A) accounts receivable plus the allowance for uncollectible accounts

B) accounts receivable minus the allowance for uncollectible accounts

C) accounts receivable minus bad debts expense

D) sales minus bad debts expense

3. Which of the following methods of accounting for uncollectible accounts matches sales with bad debts expense?

A) direct write-off method

B) allowance method

C) contra-asset method

D) reconciliation method

4. The allowance for uncollectible accounts is a(n) ________.

A) contra-expense account

B) contra-revenue account

C) contra-asset account

D) expense account

5. Which of the following statements is FALSE about the allowance method for uncollectible accounts?

A) Bad debt expense is estimated and matched with sales.

B) Expense is recorded during end of the period adjustments.

C) This method is not acceptable under GAAP.

D) The method is acceptable under GAAP.

6. In the allowance method, the adjustment used to write off an uncollectible account ________.

A) decreases net income

B) has no effect on net income

C) reduces total assets

D) decreases liabilities

7. The balance sheet account used to report the amount of accounts receivable that a company does not expect to collect is called ________.

A) net accounts receivable

B) allowance for uncollectible accounts

C) uncollectible accounts expense

D) bad debts expense

8. What is the effect on the accounting equation of writing off an uncollectible account of $75?

A) increase assets $75 and decrease liabilities $75

B) decrease assets $75 and decrease liabilities $75

C) decrease assets $75 and increase expense $75

D) no net effect on total assets

9. In 2011, Seven Seas sold $20,000 worth of merchandise on account. Its accountant estimated that $400 of that amount would be uncollectible. In 2011, Saki, a Japanese customer, purchased $500 of merchandise on account from Seven Seas. In 2012, Saki declared bankruptcy while still owing the $500. What is the amount of bad debts expense Seven Seas should report on

December 31, 2011?

A) $100

B) $400

C) $500

D) $900

10. In preparing the financial statements for January, the accountant for Team Shirts has compiled the following information: accounts receivable are $5,000; the amount estimated to be uncollectible is 10% of receivables; sales for the month were $43,000; and the balance in the allowance for uncollectible accounts is a positive $100. Using the accounts receivable allowance method, the amount of bad debts expense for January is ________.

A) $100

B) $500

C) $600

D) $4,300

11. What is the effect on the accounting equation when a company collects an account receivable?

A) Total assets increase, total liabilities increase, and total shareholders’ equity stays the same.

B) Total assets stay the same, total liabilities stay the same, and total shareholders’ equity stays the same.

C) Total assets decrease, total liabilities stay the same, and total shareholders’ equity decreases.

D) Total assets stay the same, total liabilities increases, and total shareholders’ equity decreases.

12. The sales method for estimating bad debts is calculated using ________.

A) aging of accounts receivable

B) a percentage of credit sales

C) a percentage of net accounts receivable

D) the current balance in accounts receivable

13. Team Shirts had a balance in its allowance for uncollectible accounts of $(200). Aging the accounts receivable showed that the allowance should be $(1,800). Bad debts expense should be ________.

A) $1,400

B) $1,600

C) $1,800

D) $2,000

Learning Objective 4-4

14. Credit card sales benefit companies because ________.

A) the risk of uncollectible accounts is transferred to credit card companies

B) fewer customers will be able to buy products or services

C) the credit card company is not responsible for evaluating customers’ credit-worthiness

D) they will receive less than the full amount of the sale from the credit card company

15. Timmy’s Tires sold $18,750 worth of tires to customers using VISA. The credit card fee is 4% of sales. The amount of sales Timmy’s Tires should recognize is ________.

A) $750

B) $19,500

C) $18,750

D) $18,000

16. Team Shirts decided to accept bankcards from credit customers. Team Shirts should expect ________.

A) an increase in its allowance for uncollectible accounts

B) a decrease in its bad debts expense

C) a decrease in its credit card expense

D) an increase in its write-off of specific customer accounts

17. Magic Cow Co. made a sale for $5,000 to a customer who paid with MasterCard. MasterCard charges Magic Cow a fee of 3% of sales. MasterCard will directly deposit the cash from this sale within 24 hours. How much cash will MasterCard deposit?

A) $5,000

B) $4,850

C) $150

D) $5,150

18. Sally has a new VISA card that was issued by MBNA (Maryland Bank of North America). Sally used her VISA card to buy five kegs of beer at Crock‘n’ Keg. Three months later, Sally still has not paid her VISA bill. Which company carries the account receivable from this sale?

A) MBNA

B) Sally

C) Crock‘n’ Keg

D) both Sally and Crock‘n’ Keg