Multiple Choice – Theories & Computations the accounts receivable balance at December 31 was $200,000, what is the

required
1. Notes or accounts receivables that result from sales transactions are often adjustment to the Allowance for Doubtful Accounts at December 31, 2008?
called a. $20,000
a. sales receivables. b. $34,000
b. non-trade receivables. c. $36,000
c. trade receivables. d. $30,000
d. merchandise receivables.
16. Using the percentage of receivables method for recording bad debts
2. The term "receivables" refers to expense,
a. amounts due from individuals or companies. estimated uncollectible accounts are $10,000. If the balance of the Allowance for
b. merchandise to be collected from individuals or companies. Doubtful Accounts is $2,000 debit before adjustment, what is the balance after
c. cash to be paid to creditors. adjustment?
d. cash to be paid to debtors. a. $10,000 b. $12,000 c. $8,000 d. $2,000

3. A cash discount is usually granted to all of the following except 17. Using the allowance method, the uncollectible accounts for the year is
a. retail customers. estimated to be
b. retailers. $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit
c. wholesalers. before
d. All of these are granted discounts. adjustment, what is the amount of bad debts expense for the period?
a. $7,000
4. Which one of the following is not a primary problem associated with accounts b. $21,000
receivable? c. $28,000
a. Depreciating accounts receivable d. $35,000
b. Recognizing accounts receivable
c. Valuing accounts receivable 18. In reviewing the accounts receivable, the cash realizable value is $16,000
d. Disposing of accounts receivable before the
write-off of a $1,500 account. What is the cash realizable value after the write-
5. Trade accounts receivable are valued and reported on the balance sheet off?
a. in the investment section. a. $16,000
b. at gross amounts less sales returns and allowances. b. $1,500
c. at net realizable value. c. $17,500
d. only if they are not past due. d. $14,500

6. Three accounting issues associated with accounts receivable are 19. An aging of a company's accounts receivable indicates that $4,000 are
a. depreciating, returns, and valuing. estimated to be
b. depreciating, valuing, and collecting. uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the
c. recognizing, valuing, and disposing. adjustment to record bad debts for the period will require a
d. accrual, bad debts, and disposing. a. debit to Bad Debts Expense for $4,000.
b. debit to Allowance for Doubtful Accounts for $2,800.
7. Which of the following would require a compound journal entry? c. debit to Bad Debts Expense for $2,800.
a. To record merchandise returned that was previously purchased on account. d. credit to Allowance for Doubtful Accounts for $4,000.
b. To record sales on account.
c. To record purchases of inventory when a discount is offered for prompt 20. The accounts receivable turnover ratio is computed by dividing
payment. a. total sales by average net accounts receivable.
d. To record collection of accounts receivable when a cash discount is taken. b. net credit sales by average net accounts receivable.
c. total sales by ending net accounts receivable.
8. Under the allowance method, writing off an uncollectible account d. net credit sales by ending net accounts receivable.
a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts. 21. Which of the following is not considered cash for financial reporting
d. is not acceptable practice. purposes?
a. Petty cash funds and change funds
9. The net amount expected to be received in cash from receivables is termed b. Money orders, certified checks, and personal checks
the c. Coin, currency, and available funds
a. cash realizable value. d. Postdated checks and I.O.U.'s
b. cash-good value.
c. gross cash value.
d. cash-equivalent value. 22. Which of the following is considered cash?
a. Certificates of deposit (CDs)
10. Janway sells softball equipment. On November 14, they shipped $1,000 b. Money market checking accounts
worth of softball uniforms to Chris Middle School, terms 2/10, n/30. On November c. Money market savings certificates
21, they received an order from Douglas High School for $600 worth of custom d. Postdated checks
printed bats to be produced in December. On November 30, Chris Middle School
returned $100 of defective merchandise. Janway has received no payments from 23. Travel advances should be reported as
either school as of month end. What amount will be recognized as net accounts a. supplies.
receivable on the Balance Sheet as of November 30? b. cash because they represent the equivalent of money.
a. $1,600 c. investments.
b. $1,500 d. none of these.
c. $1,000
d. $900 24. Which of the following items should not be included in the Cash caption on
the balance
11. The existing balance in Allowance for Doubtful Accounts is considered in sheet?
computing a. Coins and currency in the cash register
bad debts expense in the b. Checks from other parties presently in the cash register
a. direct write-off method. c. Amounts on deposit in checking account at the bank
b. percentage of receivables basis. d. Postage stamps on hand
c. percentage of sales basis.
d. percentage of receivables and percentage of sales basis. 25. A cash equivalent is a short-term, highly liquid investment that is readily
convertible into
12. Which of the following are also called trade receivables? known amounts of cash and
a. Accounts receivable a. is acceptable as a means to pay current liabilities.
b. Other receivables b. has a current market value that is greater than its original cost
c. Advances to employees c. bears an interest rate that is at least equal to the prime rate of interest at the
d. Income taxes refundable date of
liquidation.
13. The direct write-off method d. is so near its maturity that it presents insignificant risk of changes in interest
a. is acceptable for financial reporting purposes. rates.
b. debits Allowance for Doubtful Accounts to record write-offs of accounts.
c. shows only actual losses from uncollectible accounts receivable. 26. Bank overdrafts, if material, should be
d. estimates bad debt losses. a. reported as a deduction from the current asset section.
b. reported as a deduction from cash.
14. In 2008, Carpenter Company had net credit sales of 1,125,000. On January c. netted against cash and a net cash amount reported.
1, 2008, d. reported as a current liability.
Allowance for Doubtful Accounts had a credit balance of $27,000. During 2008,
$45,000 27. Deposits held as compensating balances
of uncollectible accounts receivable were written off. Past experience indicates a. usually do not earn interest.
that the b. if legally restricted and held against short-term credit may be included as cash.
allowance should be 10% of the balance in receivables (percentage of c. if legally restricted and held against long-term credit may be included among
receivables basis). current
If the accounts receivable balance at December 31 was $300,000, what is the assets.
required d. none of these.
adjustment to the Allowance for Doubtful Accounts at December 31, 2008?
a. $30,000 28. The category "trade receivables" includes
b. $112,500 a. advances to officers and employees.
c. $48,000 b. income tax refunds receivable.
d. $45,000 c. claims against insurance companies for casualties sustained.
d. none of these.
15. In 2008, the Fitzu Co. had net credit sales of $750,000. On January 1, 2008,
Allowance 29. Which of the following should be recorded in Accounts Receivable?
for Doubtful Accounts had a credit balance of $16,000. During 2008, $30,000 of a. Receivables from officers
uncollectible accounts receivable were written off. Past experience indicates that b. Receivables from subsidiaries
the c. Dividends receivable
allowance should be 10% of the balance in receivables (percentage of receivable d. None of these
basis). If
30. What is the preferable presentation of accounts receivable from officers, 41. Which of the following statements is incorrect regarding the classification of
employees, or accounts and
affiliated companies on a balance sheet? notes receivable?
a. As offsets to capital. a. Segregation of the different types of receivables is required if they are
b. By means of footnotes only. material.
c. As assets but separately from other receivables. b. Disclose any loss contingencies that exist on the receivables.
d. As trade notes and accounts receivable if they otherwise qualify as current c. Any discount or premium resulting from the determination of present value in
assets. notes
receivable transactions is an asset or liability respectively.
31. When a customer purchases merchandise inventory from a business d. Valuation accounts should be appropriately offset against the proper
organization, she receivable
may be given a discount which is designed to induce prompt payment. Such a accounts.
discount is
called a(n) 42. Of the following conditions, which is the only one that is not required if the
a. trade discount. transfer of
b. nominal discount. receivables with recourse is to be accounted for as a sale?
c. enhancement discount. a. The transferor is obligated to make a genuine effort to identify those
d. cash discount. receivables that
are uncollectible.
32. Trade discounts are b. The transferor surrenders control of the future economic benefits of the
a. not recorded in the accounts; rather they are a means of computing a price. receivables.
b. used to avoid frequent changes in catalogues. c. The transferee cannot require the transferor to repurchase the receivables.
c. used to quote different prices for different quantities purchased. d. The transferor's obligation under the recourse provisions can be reasonably
d. all of the above. estimated.

33. If a company employs the gross method of recording accounts receivable 43. The accounts receivable turnover ratio measures the
from customers, a. number of times the average balance of accounts receivable is collected
then sales discounts taken should be reported as during the
a. a deduction from sales in the income statement. period.
b. an item of "other expense" in the income statement. b. percentage of accounts receivable turned over to a collection agency during
c. a deduction from accounts receivable in determining the net realizable value of the
accounts receivable. period.
d. sales discounts forfeited in the cost of goods sold section of the income c. percentage of accounts receivable arising during certain seasons.
statement. d. number of times the average balance of inventory is sold during the period.

34. Assuming that the ideal measure of short-term receivables in the balance 44. The accounts receivable turnover ratio is computed by dividing
sheet is the a. gross sales by ending net receivables.
discounted value of the cash to be received in the future, failure to follow this b. gross sales by average net receivables.
practice c. net sales by ending net receivables.
usually does not make the balance sheet misleading because d. net sales by average net receivables.
a. most short-term receivables are not interest-bearing.
b. the allowance for uncollectible accounts includes a discount element. 45. Which of the following is not true?
c. the amount of the discount is not material. a. The imprest petty cash system in effect adheres to the rule of disbursement by
d. most receivables can be sold to a bank or factor. check.
b. Entries are made to the Petty Cash account only to increase or decrease the
35. Which of the following methods of determining bad debt expense does not size of
properly match the fund or to adjust the balance if not replenished at year-end.
expense and revenue? c. The Petty Cash account is debited when the fund is replenished.
a. Charging bad debts with a percentage of sales under the allowance method. d. All of these are not true.
b. Charging bad debts with an amount derived from a percentage of accounts
receivable 46. A Cash Over and Short account
under the allowance method. a. is not generally accepted.
c. Charging bad debts with an amount derived from aging accounts receivable b. is debited when the petty cash fund proves out over.
under the c. is debited when the petty cash fund proves out short.
allowance method. d. is a contra account to Cash.
d. Charging bad debts as accounts are written off as uncollectible.
47. The journal entries for a bank reconciliation
36. Which of the following methods of determining annual bad debt expense best a. are taken from the "balance per bank" section only.
achieves b. may include a debit to Office Expense for bank service charges.
the matching concept? c. may include a credit to Accounts Receivable for an NSF check.
a. Percentage of sales d. may include a debit to Accounts Payable for an NSF check.
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable 48. When preparing a bank reconciliation, bank credits are
d. Direct write-off a. added to the bank statement balance.
b. deducted from the bank statement balance.
37. Which of the following is a generally accepted method of determining the c. added to the balance per books.
amount of the d. deducted from the balance per books.
adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance 49. On January 1, 2007, Mann Company borrows $2,000,000 from National Bank
b. A percentage of sales not adjusted for the balance in the allowance at 11%
c. A percentage of accounts receivable not adjusted for the balance in the annual interest. In addition, Mann is required to keep a compensatory balance of
allowance $200,000 on deposit at National Bank which will earn interest at 5%. The
d. An amount derived from aging accounts receivable and not adjusted for the effective interest
balance in that Mann pays on its $2,000,000 loan is
the allowance a. 10.0%.
b. 11.0%.
38. The advantage of relating a company's bad debt expense to its outstanding c. 11.5%.
accounts d. 11.6%.
receivable is that this approach
a. gives a reasonably correct statement of receivables in the balance sheet. 50. Hamilton Company has cash in bank of $10,000, restricted cash in a
b. best relates bad debt expense to the period of sale. separate account of
c. is the only generally accepted method for valuing accounts receivable. $3,000, and a bank overdraft in an account at another bank of $1,000. Hamilton
d. makes estimates of uncollectible accounts unnecessary. should
report cash of
39. At the beginning of 2006, Finney Company received a three-year zero- a. $9,000.
interest-bearing b. $10,000.
$1,000 trade note. The market rate for equivalent notes was 8% at that time. c. $12,000.
Finney d. $13,000.
reported this note as a $1,000 trade note receivable on its 2006 year-end
statement of 51. Horvath Company has the following items at year-end:
financial position and $1,000 as sales revenue for 2006. What effect did this Cash in bank $20,000
accounting Petty cash 300
for the note have on Finney's net earnings for 2006, 2007, 2008, and its retained Short-term paper with maturity of 2 months 5,500
earnings Postdated checks 1,400
at the end of 2008, respectively? Horvath should report cash and cash equivalents of
a. Overstate, overstate, understate, zero a. $20,000.
b. Overstate, understate, understate, understate b. $20,300.
c. Overstate, overstate, overstate, overstate c. $25,800.
d. None of these d. $27,200.

40. Which of the following is true when accounts receivable are factored without 52. Marshell Company has cash in bank of $15,000, restricted cash in a separate
recourse? account of
a. The transaction may be accounted for either as a secured borrowing or as a $4,000, and a bank overdraft in an account at another bank of $2,000. Marshell
sale, should
depending upon the substance of the transaction. report cash of
b. The receivables are used as collateral for a promissory note issued to the a. $13,000.
factor by the b. $15,000.
owner of the receivables. c. $18,000.
c. The factor assumes the risk of collectibility and absorbs any credit losses in d. $19,000.
collecting
the receivables. 53. Peterson Company has the following items at year-end:
d. The financing cost (interest expense) should be recognized ratably over the Cash in bank $30,000
collection Petty cash 500
period of the receivables. Short-term paper with maturity of 2 months 8,200
Postdated checks 2,100
Peterson should report cash and cash equivalents of
a. $30,000. b. $7,100.
b. $30,500. c. $9,200.
c. $38,700. d. $12,000.
d. $40,800.
63. Rusch Corporation had a 1/1/07 balance in the Allowance for Doubtful
54. If a company purchases merchandise on terms of 1/10, n/30, the cash Accounts of
discount available $12,000. During 2007, it wrote off $8,640 of accounts and collected $2,520 on
is equivalent to what effective annual rate of interest (assuming a 360-day year)? accounts
a. 1% previously written off. The balance in Accounts Receivable was $240,000 at 1/1
b. 12% and
c. 18% $288,000 at 12/31. At 12/31/07, Rusch estimates that 5% of accounts receivable
d. 30% will
prove to be uncollectible. What should Rusch report as its Allowance for Doubtful
55. At the close of its first year of operations, December 31, 2007, Linn Company Accounts at 12/31/07?
had a. $5,760.
accounts receivable of $540,000, after deducting the related allowance for b. $5,880.
doubtful c. $8,280.
accounts. During 2007, the company had charges to bad debt expense of d. $14,400.
$90,000 and
wrote off, as uncollectible, accounts receivable of $40,000. What should the 64. Sandler Company has the following account balances at year-end:
company Accounts receivable $80,000
report on its balance sheet at December 31, 2007, as accounts receivable before Allowance for doubtful accounts 4,800
the Sales discounts 3,200
allowance for doubtful accounts? Sandler should report accounts receivable at a net amount of
a. $670,000 a. $72,000.
b. $590,000 b. $75,200.
c. $490,000 c. $76,800.
d. $440,000 d. $80,000.

56. Before year-end adjusting entries, Bass Company's account balances at 65. Delgado Corporation had a 1/1/07 balance in the Allowance for Doubtful
December 31, Accounts of
2007, for accounts receivable and the related allowance for uncollectible $20,000. During 2007, it wrote off $14,400 of accounts and collected $4,200 on
accounts were accounts
$600,000 and $45,000, respectively. An aging of accounts receivable indicated previously written off. The balance in Accounts Receivable was $400,000 at 1/1
that and
$62,500 of the December 31 receivables are expected to be uncollectible. The $480,000 at 12/31. At 12/31/07, Delgado estimates that 5% of accounts
net receivable will
realizable value of accounts receivable after adjustment is prove to be uncollectible. What is Bad Debt Expense for 2007?
a. $582,500. a. $4,000.
b. $537,500. b. $14,200.
c. $492,500. c. $18,400.
d. $555,000. d. $24,000.

57. During the year, Jantz Company made an entry to write off a $4,000 66. Burnett Corporation had a 1/1/07 balance in the Allowance for Doubtful
uncollectible account. Accounts of
Before this entry was made, the balance in accounts receivable was $50,000 and $15,000. During 2007, it wrote off $10,800 of accounts and collected $3,150 on
the accounts
balance in the allowance account was $4,500. The net realizable value of previously written off. The balance in Accounts Receivable was $300,000 at 1/1
accounts and
receivable after the write-off entry was $360,000 at 12/31. At 12/31/07, Burnett estimates that 5% of accounts receivable
a. $50,000. will
b. $49,500. prove to be uncollectible. What should Burnett report as its Allowance for
c. $41,500. Doubtful
d. $45,500. Accounts at 12/31/07?
a. $7,200.
58. The following information is available for Reagan Company: b. $7,350.
Allowance for doubtful accounts at December 31, 2006 $ 8,000 c. $10,350.
Credit sales during 2007 400,000 d. $18,000.
Accounts receivable deemed worthless and written off during 2007 9,000
As a result of a review and aging of accounts receivable in early January 2008, 67. Marley Company received a seven-year zero-interest-bearing note on
however, February 22, 2007,
it has been determined that an allowance for doubtful accounts of $5,500 is in exchange for property it sold to O’Rear Company. There was no established
needed at exchange
December 31, 2007. What amount should Reagan record as "bad debt expense" price for this property and the note has no ready market. The prevailing rate of
for the interest for
year ended December 31, 2007? a note of this type was 7% on February 22, 2007, 7.5% on December 31, 2007,
a. $4,500 7.7% on
b. $5,500 February 22, 2008, and 8% on December 31, 2008. What interest rate should be
c. $6,500 used to
d. $13,500 calculate the interest revenue from this transaction for the years ended
December 31,
Use the following information for questions 59 and 60. 2007 and 2008, respectively?
A trial balance before adjustments included the following: a. 0% and 0%
Debit b. 7% and 7%
Credit c. 7% and 7.7%
Sales $425,000 d. 7.5% and 8%
Sales returns and allowance $14,000
Accounts receivable 43,000 68. On December 31, 2007, Eller Corporation sold for $75,000 an old machine
Allowance for doubtful accounts 760 having an
original cost of $135,000 and a book value of $60,000. The terms of the sale
59. If the estimate of uncollectibles is made by taking 2% of net sales, the were as
amount of the follows:
adjustment is $15,000 down payment
a. $6,700. $30,000 payable on December 31 each of the next two years
b. $8,220. The agreement of sale made no mention of interest; however, 9% would be a fair
c. $8,500. rate for
d. $9,740. this type of transaction. What should be the amount of the notes receivable net of
the
60. If the estimate of uncollectibles is made by taking 10% of gross account unamortized discount on December 31, 2007 rounded to the nearest dollar? (The
receivables, the present
amount of the adjustment is value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
a. $3,540. a. $52,773.
b. $4,300. b. $67,773.
c. $4,224. c. $60,000.
d. $5,060. d. $105,546

61. Simpson Company has the following account balances at year-end: Use the following information for questions 69 and 70.
Accounts receivable $60,000 Henry Co. assigned $400,000 of accounts receivable to Easy Finance Co. as
Allowance for doubtful accounts 3,600 security for a loan
Sales discounts 2,400 of $335,000. Easy charged a 2% commission on the amount of the loan; the
Simpson should report accounts receivable at a net amount of interest rate on the
a. $54,000. note was 10%. During the first month, Henry collected $110,000 on assigned
b. $56,400. accounts after
c. $57,600. deducting $380 of discounts. Henry accepted returns worth $1,350 and wrote off
d. $60,000. assigned
accounts totaling $2,980.
62. Holtzman Corporation had a 1/1/07 balance in the Allowance for Doubtful
Accounts of 69. The amount of cash Henry received from Easy at the time of the transfer was
$10,000. During 2007, it wrote off $7,200 of accounts and collected $2,100 on a. $301,500.
accounts b. $327,000.
previously written off. The balance in Accounts Receivable was $200,000 at 1/1 c. $328,300.
and d. $335,000.
$240,000 at 12/31. At 12/31/07, Holtzman estimates that 5% of accounts
receivable will 70. Entries during the first month would include a
prove to be uncollectible. What is Bad Debt Expense for 2007? a. debit to Cash of $110,380.
a. $2,000. b. debit to Bad Debt Expense of $2,980.
c. debit to Allowance for Doubtful Accounts of $2,980. 29. The check was to be redeposited on January 3, 2008. The original deposit
d. debit to Accounts Receivable of $114,710. has been included in the December 31 checkbook balance.
Use the following information for questions 71 and 72. (3) Coin and currency on hand amounted to $1,450.
On February 1, 2007, Norton Company factored receivables with a carrying The proper amount to be reported on Tanner's balance sheet for cash at
amount of $300,000 December 31,
to Koch Company. Koch Company assesses a finance charge of 3% of the 2007 is
receivables and a. $21,300.
retains 5% of the receivables. Relative to this transaction, you are to determine b. $20,400.
the amount of c. $22,200.
loss on sale to be reported in the income statement of Norton Company for d. $21,750.
February.
81. The cash account shows a balance of $45,000 before reconciliation. The
71. Assume that Norton factors the receivables on a without recourse basis. The bank statement
loss to be does not include a deposit of $2,300 made on the last day of the month. The
reported is bank
a. $0. statement shows a collection by the bank of $940 and a customer's check for
b. $9,000. $320 was
c. $15,000. returned because it was NSF. A customer's check for $450 was recorded on the
d. $24,000. books
as $540, and a check written for $79 was recorded as $97. The correct balance
72. Assume that Norton factors the receivables on a with recourse basis. The in the
recourse cash account was
obligation has a fair value of $1,500. The loss to be reported is a. $45,512.
a. $9,000. b. $45,548.
b. $10,500. c. $45,728.
c. $15,000. d. $47,848.
d. $25,500.
82. In preparing its May 31, 2007 bank reconciliation, Dogg Co. has the following
73. Joe Novak Corporation factored, with recourse, $100,000 of accounts information
receivable with available:
Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales Balance per bank statement, 5/31/07 $30,000
discounts, sales returns, and sales allowances. Joe Novak estimates the Deposit in transit, 5/31/07 5,400
recourse Outstanding checks, 5/31/07 4,900
obligation at $2,400. What amount should Joe Novak report as a loss on sale of Note collected by bank in May 1,250
receivables? The correct balance of cash at May 31, 2007 is
a. $ -0-. a. $35,400.
b. $3,000. b. $29,250.
c. $5,400. c. $30,500.
d. $10,400. d. $31,750.

74. Mortonson Corporation factored, with recourse, $300,000 of accounts 83. On the December 31, 2007 balance sheet of Yount Co., the current
receivable with receivables consisted
Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales of the following:
discounts, sales returns, and sales allowances. Mortonson estimates the Trade accounts receivable $ 75,000
recourse Allowance for uncollectible accounts (2,000)
obligation at $7,200. What amount should Mortonson report as a loss on sale of Claim against shipper for goods lost in transit (November 2007) 3,000
receivables? Selling price of unsold goods sent by Yount on consignment
a. $ -0-. at 130% of cost (not included in Yount 's ending inventory) 26,000
b. $9,000. Security deposit on lease of warehouse used for storing
c. $16,200. some inventories 30,000
d. $31,200. Total $132,000
At December 31, 2007, the correct total of Yount 's current net receivables was
75. Mike McKinney Corporation had accounts receivable of $100,000 at 1/1. The a. $76,000.
only b. $102,000.
transactions affecting accounts receivable were sales of $600,000 and cash c. $106,000.
collections of d. $132,000.
$550,000. The accounts receivable turnover is
a. 4.0. 84. May Co. prepared an aging of its accounts receivable at December 31, 2007
b. 4.4. and
c. 4.8. determined that the net realizable value of the receivables was $300,000.
d. 6.0. Additional
information is available as follows:
76. Nottingham Corporation had accounts receivable of $100,000 at 1/1. The Allowance for uncollectible accounts at 1/1/07—credit balance $ 29,000
only Accounts written off as uncollectible during 2007 23,000
transactions affecting accounts receivable were sales of $900,000 and cash Accounts receivable at 12/31/07 320,000
collections of Uncollectible accounts recovered during 2007 5,000
$850,000. The accounts receivable turnover is For the year ended December 31, 2007, May's uncollectible accounts expense
a. 6.0. would be
b. 6.6. a. $25,000.
c. 7.2. b. $23,000.
d. 9.0. c. $16,000.
d. $9,000.
77. If a petty cash fund is established in the amount of $250, and contains $150
in cash and 85. For the year ended December 31, 2007, Colt Co. estimated its allowance for
$95 in receipts for disbursements when it is replenished, the journal entry to uncollectible
record accounts using the year-end aging of accounts receivable. The following data are
replenishment should include credits to the following accounts available:
a. Petty Cash, $75. Allowance for uncollectible accounts, 1/1/07 $56,000
b. Petty Cash, $100. Provision for uncollectible accounts during 2007
c. Cash, $95; Cash Over and Short, $5. (2% on credit sales of $2,000,000) 40,000
d. Cash, $100. Uncollectible accounts written off, 11/30/07 46,000
Estimated uncollectible accounts per aging, 12/31/07 69,000
78. If the month-end bank statement shows a balance of $36,000, outstanding After year-end adjustment, the uncollectible accounts expense for 2007 should
checks are be
$12,000, a deposit of $4,000 was in transit at month end, and a check for $500 a. $46,000.
was b. $62,000.
erroneously charged by the bank against the account, the correct balance in the c. $69,000.
bank d. $59,000.
account at month end is
a. $27,500. 86. King Co.'s allowance for uncollectible accounts was $95,000 at the end of
b. $28,500. 2007 and
c. $20,500. $90,000 at the end of 2006. For the year ended December 31, 2007, King
d. $43,500. reported bad
debt expense of $13,000 in its income statement. What amount did King debit to
79. In preparing its bank reconciliation for the month of April 2007, Gregg, Inc. the
has available appropriate account in 2007 to write off actual bad debts?
the following information. a. $5,000
Balance per bank statement, 4/30/07 $39,140 b. $8,000
NSF check returned with 4/30/07 bank statement 450 c. $13,000
Deposits in transit, 4/30/07 5,000 d. $18,000
Outstanding checks, 4/30/07 5,200
Bank service charges for April 20 87. Under the allowance method of recognizing uncollectible accounts, the entry
What should be the correct balance of cash at April 30, 2007? to write off
a. $39,370 an uncollectible account
b. $38,940 a. increases the allowance for uncollectible accounts.
c. $38,490 b. has no effect on the allowance for uncollectible accounts.
d. $38,470 c. has no effect on net income.
d. decreases net income.
80. Tanner, Inc.’s checkbook balance on December 31, 2007 was $21,200. In
addition, 88. The following accounts were abstracted from Todd Co.'s unadjusted trial
Tanner held the following items in its safe on December 31. balance at
(1) A check for $450 from Peters, Inc. received December 30, 2007, which was December 31, 2007:
not Debit Credit
included in the checkbook balance. Accounts receivable $750,000
(2) An NSF check from Garner Company in the amount of $900 that had been Allowance for uncollectible accounts 8,000
deposited at the bank, but was returned for lack of sufficient funds on December Net credit sales $3,000,000
Todd estimates that 2% of the gross accounts receivable will become
uncollectible. After 100. When the allowance method of recognizing uncollectible accounts is used,
adjustment at December 31, 2007, the allowance for uncollectible accounts how would the collection of an account previously written off affect the following
should have a accounts?
credit balance of #1 Accounts receivable; #2 Allowance for uncollectible accounts
a. $60,000. a. Increase, Decrease b. Increase, No effect
b. $52,000. c. No effect, Decrease d. No effect, Increase
c. $23,000.
d. $15,000. 101. Which of the following methods of determining annual bad debt expense
best achieves the matching concept?
89. On January 1, 2006, Marr Co. exchanged equipment for a $400,000 zero- a. Percentage of sales b. Percentage of ending A/R
interest-bearing c. Percentage of average A/R d. Direct writeoff
note due on January 1, 2009. The prevailing rate of interest for a note of this type
at 102. Which of the following methods of determining bad debt expense does not
January 1, 2006 was 10%. The present value of $1 at 10% for three periods is properly match expense and revenue?
0.75. What a. charging bad debts with a percentage of sales under the allowance method
amount of interest revenue should be included in Marr's 2007 income statement? b. charging bad debts with an amount derived from a percentage of accounts
a. $0 receivable under the allowance method
b. $30,000 c. charging bad debts with an amount derived from aging accounts receivable
c. $33,000 under the allowance method
d. $40,000 d. charging bad debts as accounts are written off as uncollectible

90. On June 1, 2007, Watt Corp. loaned Hall $300,000 on a 12% note, payable in 103. Which of the following is a generally accepted method of determining the
five annual amount of the adjustment to bad debt expense?
installments of $60,000 beginning January 2, 2008. In connection with this loan, a. a percentage of sales adjusted for the balance in the allowance
Hall was b. a percentage of sales not adjusted for the balance in the allowance
required to deposit $3,000 in a zero-interest-bearing escrow account. The c. a percentage of a/r not adjusted for the balance in the allowance
amount held in d. an amount derived from aging a/r and not adjusted for the balance in the
escrow is to be returned to Hall after all principal and interest payments have allowance
been made.
Interest on the note is payable on the first day of each month beginning July 1, 104. The advantage of relating a company’s bad debt expense to its outstanding
2007. Hall accounts receivable is that this approach
made timely payments through November 1, 2007. On January 2, 2008, Watt a. gives a reasonably correct statement of receivables in the balance sheet
received b. best relates bad debt expense to the period of sale
payment of the first principal installment plus all interest due. At December 31, c. is the only generally accepted method for valuing a/r
2007, d. makes estimated of uncollectible accounts necessary
Watt's interest receivable on the loan to Hall should be
a. $0. PROBLEM SOLVING
b. $3,000. 1. On the Dec. 31, 2024 balance sheet of Zev Co., the current
c. $6,000. receivables consisted of the following:
d. $9,000.
- Trade accounts receivable, net of P5k credit balance in customers’
91. Which of the following is a method to generate cash from accounts accounts 85k
receivable? - Allowance for uncollectible accounts (2k)
Assignment Factoring - Claim against shipper for goods lost in transit (11/24) 3k
a. Yes No - Selling price of unsold goods sent by Zev on consignment at 130% of
b. Yes Yes cost (not included in ending inventory) 26k
c. No Yes - Security deposit on lease of warehouse used for storing some
d. No No
inventories 30k
92. In preparing its August 31, 2007 bank reconciliation, Adel Corp. has available Total 142k
the follow-
ing information: Requirement: Compute for the Dec. 31, 2024 correct total of current
Balance per bank statement, 8/31/07 $21,650 net receivables
Deposit in transit, 8/31/07 3,900
Return of customer's check for insufficient funds, 8/30/07 600 2. ABC Co. had the following credit sales in the last week of Dec. 2021
Outstanding checks, 8/31/07 2,750
Bank service charges for August 100
- Sold goods worth 550k under FOB shipping point on Dec. 27, 2021.
At August 31, 2007, Adel's correct cash balance is The goods were shipped on Dec. 30, 2021 and received by the
a. $22,800. customer on Jan. 2, 2022.
b. $22,200. - Sold goods worth 680k under FOB destination on Dec. 28, 2021. The
c. $22,100. goods were shipped on Dec. 29, 2021 and received by the customer
d. $20,500. on Jan. 3, 2022
93. Sandy, Inc. had the following bank reconciliation at March 31, 2007:
Balance per bank statement, 3/31/07 $37,200
Requirement: Compute for the amount of receivable to be included in
Add: Deposit in transit 10,300 ABC’s Dec. 31, 2021 financial statements.
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/07 $34,900
Data per bank for the month of April 2007 follow:
Deposits $46,700
Disbursements 49,700
All reconciling items at March 31, 2007 cleared the bank in April. Outstanding
checks at
April 30, 2007 totaled $6,000. There were no deposits in transit at April 30, 2007.
What is
the cash balance per books at April 30, 2007?
a. $28,200
b. $31,900
c. $34,200
d. $38,500

Milan
95. Which of the following would be considered part of the category “trade
receivables”?
a. Advances to employees
b. Income tax refunds receivable
c. Dividends receivables
d. Amounts due from customers

96. An operating cycle

a. is twelve months or less in length.
b. is the average time required for a company to collect its receivables.
c. is used to determine current assets when the operating cycle is longer than
one year.
d. begins with inventory and ends with cash.

97. According to PFRS 9 Financial Instruments, trade receivables that do not

have a significant financing component are initially measured at
a. fair value
b. fair value plus transaction costs
c. the transaction price
d. any of these

98. A discount given to a customer for purchasing a large volume of merchandise

is typically referred to as a
a. quality discount b. cash discount
c. trade discount d. size discount

99. What is the effect on the total assets of a business when an accounts
receivables has been collected?
a. increase in total assets
b. decrease in total assets
c. no change in total assets
d. decrease in cash