Accounts Receivables

Theories

1. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

2. What is the preferable presentation of accounts receivable from officers,

employees, or affiliated companies on a balance sheet?
a. As offsets to capital.
b. By means of footnotes only.
c. As assets but separately from other receivables.
d. As trade notes and accounts receivable if they otherwise qualify as current
assets.

3. When a customer purchases merchandise inventory from a business

organization, she may be given a discount which is designed to induce prompt
payment. Such a discount is called a(n)
a. trade discount.
b. nominal discount.
c. enhancement discount.
d. cash discount.

4. Trade discounts are

a. not recorded in the accounts; rather they are a means of computing a
price.
b. used to avoid frequent changes in catalogues.
c. used to quote different prices for different quantities purchased.
d. all of the above.

5. If a company employs the gross method of recording accounts receivable

from customers, then sales discounts taken should be reported as
a. a deduction from sales in the income statement.
b. an item of "other expense" in the income statement.
c. a deduction from accounts receivable in determining the net realizable
value of accounts receivable.
d. sales discounts forfeited in the cost of goods sold section of the income
statement.

6. Why do companies provide trade discounts?

a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. Both a. and c.

Cregencia, Jill Pauline O.

3CAC Page 1
 Accounts Receivables

7. The accounting for cash discounts and trade discounts are

a. the same.
b. always recorded net.
c. not the same.
d. tied to the timing of cash collections on the account.

8. Of the approaches to record cash discounts related to accounts

receivable, which is more theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.

9. All of the following are problems associated with the valuation of accounts
receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.

10. Why is the allowance method preferred over the direct write-off method of
accounting for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off method is difficult to
do.
d. Improved matching of bad debt expense with revenue.

Problems

1. If a company purchases merchandise on terms of 1/10, n/30, the cash

discount available is equivalent to what effective annual rate of interest
(assuming a 360-day year)?
a. 1%
b. 12%
c. 18%
d. 30%

2. Riley Inc. made a 15,000 sale on account with the following terms: 2/10,
n/30. If the company uses the net method to record sales made on credit, what
is/are the debit(s) in the journal entry to record the sale?
a. Debit Accounts Receivable for 14,700.

Cregencia, Jill Pauline O.

3CAC Page 2
 Accounts Receivables

b. Debit Accounts Receivable for 14,700 and Sales Discounts for 300.
c. Debit Accounts Receivable for 15,000.
d. Debit Accounts Receivable for 15,000 and Sales Discounts for 300.

3. Angeles Corp. has outstanding accounts receivable totaling 1.27 million as

of December 31 and sales on credit during the year of 6.4 million. There is also a
debit balance of 3,000 in the allowance for doubtful accounts. If the company
estimates that 1% of its net credit sales will be uncollectible, what will be the
balance in the allowance for doubtful accounts after the year-end adjustment to
record bad debt expense?
a. 12,700.
b. 15,700.
c. 61,000.
d. 67,000.

4. Kellington Corp. has outstanding accounts receivable totaling 6.5 million

as of December 31 and sales on credit during the year of 24 million. There is also
a credit balance of 12,000 in the allowance for doubtful accounts. If the company
estimates that 8% of its outstanding receivables will be uncollectible, what will be
the amount of bad debt expense recognized for the year?
a. 532,000.
b. 520,000.
c. 1,920,000.
d. 508,000.

5. J&J has outstanding accounts receivable totaling 5 million as of December

31 and sales on credit during the year of 25 million. There is also a debit balance
of 20,000 in the allowance for doubtful accounts. If the company estimates that
8% of its outstanding receivables will be uncollectible, what will be the balance in
the allowance for doubtful accounts after the year-end adjustment to record bad
debt expense?
a. 2,000,000.
b. 380,000.
c. 400,000.
d. 420,000.

6. The following information is available for Morgan Company:

Allowance for doubtful accounts at December 31, 2011 16,000
Credit sales during 2012 800,000
Accounts receivable deemed worthless and written off during 2012
18,000
As a result of a review and aging of accounts receivable in early January
2016, however, it has been determined that an allowance for doubtful
accounts of 11,000 is needed at December 31, 2015. What amount should
Cregencia, Jill Pauline O.
3CAC Page 3
 Accounts Receivables

Morgan record as "bad debt expense" for the year ended December 31,
2012?
a. 9,000
b. 11,000
c. 13,000
d. 27,000

Use the following information for questions 7 and 8.

A trial balance before adjustments included the following:

Debit Credit
Sales 850,000
Sales returns and allowance 28,000
Accounts receivable 86,000
Allowance for doubtful accounts 1,520

7. If the estimate of uncollectibles is made by taking 2% of net sales, the

amount of the adjustment is
a. 13,400.
b. 16,440.
c. 17,000.
d. 19,480.

8. If the estimate of uncollectibles is made by taking 10% of gross account

receivables, the amount of the adjustment is
a. 7,080.
b. 8,600.
c. 8,448.
d. 10,120.

9. Lakandiwa Company has the following account balances at year-end:

Accounts receivable 80,000
Allowance for doubtful accounts 4,800
Sales discounts 3,200
Lakandiwa should report accounts receivable at a net amount of
a. 72,000.
b. 75,200.
c. 76,800.
d. 80,000.

10. Blaire Company has the following account balances at year-end:

Accounts receivable 120,000
Allowance for doubtful accounts 7,200
Sales discounts 4,800

Cregencia, Jill Pauline O.

3CAC Page 4
 Accounts Receivables

Blaire should report accounts receivable at a net amount of

a. 108,000.
b. 112,800.
c. 115,200.
d. 120,000.

Cregencia, Jill Pauline O.

3CAC Page 5