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Accounts Receivable and Bad Debts Expense (Quiz)

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  1. 1. When a sale is made with the credit terms of 2/10, net 30, the "10" refers to the
    __________
    discount
    period.
  2. 2.

    On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller expect to receive if the buyer pays on June 8?

    $720
    Wrong.
    $784
    Wrong.
    $792
    Right!
    $800 minus 1% of $800 = $800 minus $8 = $792.
    $800
    Wrong.
  3. 3.

    On June 1, $800 of goods are sold with credit terms of 1/10, n/30. On June 3 the customer returned $100 of the goods. How much should the seller expect to receive if the buyer pays on June 8?

    $692
    Wrong.
    $693
    Right!
    $800 minus $100 = $700 minus 1% of $700 = $693.
    $700
    Wrong.
    $792
    Wrong.
  4. 4.

    With credit terms of 2/10, n/30, the annual interest rate for paying in 10 days instead of 30 days is closest to

    2%
    Wrong.
    24%
    Wrong.
    30%
    Wrong.
    36%
    Right!
    2% for paying 20 days early = an annual rate of 36%.
  5. 5. When the terms of a sale are FOB
    __________
    destination
    , ownership of goods will transfer to the customer at the customer's dock.
  6. 6.

    The seller is responsible for the costs of shipping its goods to the buyer when the terms of the sale are FOB

    Destination
    Right!
    Shipping Point
    Wrong.
  7. 7.

    The buyer is responsible for the costs of shipping when goods are sold with the terms FOB

    Destination
    Wrong.
    Shipping Point
    Right!
  8. 8.

    When the Allowance for Doubtful Accounts appears on a company's financial statements, its balance will be a __________ balance.

    Debit
    Wrong.
    The allowance account must be a zero or credit balance when reported on the balance sheet.
    Credit
    Right!
  9. 9.

    On which financial statement would you expect to find Allowance for Doubtful Accounts?

    Balance Sheet
    Right!
    Income Statement
    Wrong.
  10. 10.

    Which method of reporting losses on accounts receivable is required in the U.S. for income tax purposes?

    Allowance
    Wrong.
    Direct Write-off
    Right!
  11. 11.

    Which method of reporting losses on accounts receivable is to be used for financial reporting?

    Allowance
    Right!
    Direct Write-off
    Wrong.
  12. 12.

    The seller of goods that is offering credit terms of net 30 days will likely be one of its customer's __________ creditors until it receives payment.

    Secured
    Wrong.
    Unsecured
    Right!
  13. 13.

    After several years of operations, a company's Bad Debts Expense for a given year is likely to be the same as its balance in Allowance for Doubtful Accounts.

    True
    Wrong.
    False
    Right!
  14. 14.

    A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $8,000. The adjusting entry will include a __________ to the Allowance for Doubtful Accounts.

    Debit Of $12,000
    Wrong.
    Credit Of $12,000
    Right!
    The present credit balance of $8,000 must become a credit balance of $20,000. Therefore a credit of $12,000 must be entered in the Allowance account (and a debit of $12,000 must be entered in the Bad Debts Expense account).
    Debit Of $28,000
    Wrong.
    Credit Of $28,000
    Wrong.
  15. 15.

    A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting entry will include a __________ to Bad Debts Expense.

    Debit Of $2,000
    Right!
    Amount needed in Allowance is $20,000 minus the present amount of $18,000 = $2,000 additional credit needed in Allowance. The entry will therefore require a debit of $2,000 to Bad Debts Expense.
    Credit Of $2,000
    Wrong.
    Debit Of $38,000
    Wrong.
    Credit Of $38,000
    Wrong.
  16. 16.

    A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a debit balance of $3,000. The adjusting entry will include a __________ to Allowance for Doubtful Accounts.

    Debit Of $3,000
    Wrong.
    Credit Of $3,000
    Wrong.
    Debit Of $17,000
    Wrong.
    Credit Of $17,000
    Wrong.
    Debit Of $23,000
    Wrong.
    Credit Of $23,000
    Right!
    The present debit balance of $3,000 must become a credit balance of $20,000. Therefore a credit entry of $23,000 is needed in the Allowance account (and a debit of $23,000 to Bad Debts Expense).
  17. Use the following information for questions 17-21:
    A company is expecting thousands of credit sales transactions each week with terms of net 30 days. The company uses the allowance method and it prepares weekly financial statements. It believes that 0.001 of its credit sales will be uncollectible. The company's credit sales for its first week of operations are $500,000. The credit sales for its second week are $600,000.

  18. 17. The company's bad debts expense for its first week of operations will be $
    __________
    $500
    $500,000 times 0.001
    .
  19. 18. The balance in Allowance for Doubtful Accounts at the end of the first week will likely be $
    __________
    $500
    .
  20. 19. The company's bad debts expense for its second week of operations will be $
    __________
    $600
    $600,000 times 0.001
    .
  21. 20. The amount of accounts receivable that you expect will be written off by the end of the company's second week of operations is $
    __________
    $0
    Since none of the accounts are due for several weeks, it is unlikely that an account will have been written off.
    .
  22. 21. The balance in Allowance for Doubtful Accounts at the end of the second week of operations will likely be $
    __________
    $1,100
    $500 + $600.
    .
  23. Use the following information for questions 22-25:
    A company's Allowance for Doubtful Accounts has a credit balance of $25,000. It learns that one of its accounts receivable amounting to $1,800 is worthless and needs to be written off.

  24. 22.

    Which account should be debited for $1,800 when writing off the account?

    Allowance For Doubtful Accounts
    Right!
    Accounts Receivable
    Wrong.
    Bad Debts Expense
    Wrong.
  25. 23.

    Which account should be credited for $1,800 when writing off the account?

    Allowance For Doubtful Accounts
    Wrong.
    Accounts Receivable
    Right!
    Bad Debts Expense
    Wrong.
  26. 24.

    Assuming that after the account is written off, the supplier receives full payment from the customer. Which account will not be involved in the accounting entries made at the time when the payment is received?

    Allowance For Doubtful Accounts
    Wrong.
    Accounts Receivable
    Wrong.
    Bad Debts Expense
    Right!
  27. 25.

    Under the direct write off method, which account is debited when a company writes off one of its accounts receivable?

    Allowance For Doubtful Accounts
    Wrong.
    Accounts Receivable
    Wrong.
    Bad Debts Expense
    Right!
  28. 26. Sorting a company's accounts receivable into classifications such as current, 1-30 days past due, and 31-60 days past due is known as the
    __________
    aging
    of accounts receivables.
  29. 27. The receivable turnover ratio is computed by dividing the net credit
    __________
    sales
    for the year by the average amount of accounts receivable during the year.
  30. 28. The days' sales in accounts receivable is calculated by dividing
    __________
    360 or 365
    days by the receivables turnover ratio during the year.
  31. 29. A company's accounts receivable minus its allowance for doubtful accounts equals the net
    __________
    realizable
    value of the accounts receivable.
  32. 30. In some industries, companies often sell their accounts receivable to a firm known as a
    __________
    factor
    .

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