Activity 1

MULTIPLE CHOICE

1. The category "trade receivables" includes

a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these

2. 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

3. 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.

4. 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.

5. 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.

Activity 2
I. MULTIPLE CHOICE

1. 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.
2. 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.

3. The accounting for cash discounts and trade discounts are

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

4. 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.

5. 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.

6. 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.

7. AG Inc. made a 10,000 sale on account with the following terms: 1/15, n/30. If the company uses the
net method to record sales made on credit, how much should be recorded as revenue?
a. 9,800.
b. 9,900.
c. 10,000.
d. 10,100.

8. AG Inc. made a 10,000 sale on account with the following terms: 1/15, n/30. If the company uses the
gross 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 9,900.
b. Debit Accounts Receivable for 9,900 and Sales Discounts for $100.
c. Debit Accounts Receivable for 10,000.
d. Debit Accounts Receivable for 10,000 and Sales Discounts for $100.
9. AG Inc. made a 10,000 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 9,800.
b. Debit Accounts Receivable for 9,800 and Sales Discounts for 200.
c. Debit Accounts Receivable for 10,000.
d. Debit Accounts Receivable for 10,000 and Sales Discounts for 200.

10. Wellington Corp. has outstanding accounts receivable totaling 2.54 million as of December 31 and
sales on credit during the year of 12.8 million. There is also a debit balance of 6,000 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. 25,400.
b. 31,400.
c. 122,000.
d. 134,000

II. True or False

False 11.The percentage-of-receivables approach of estimating uncollectible accounts emphasizes

matching over valuation of accounts receivable.
False 12.The percentage-of-sales method results in a more accurate valuation of receivables on the
balance sheet.
True 13.Accounts receivables are also called open accounts. -
True 14.Trade receivables arise from the sale of goods and services in the ordinary course of
business.
True 15.Trade and nontrade receivables that are currently collectible are combined and presented
on the statement of financial position in a single line item described as “Trade and other
receivables.”

Activity 3
MULTIPLE CHOICE

1. How can accounting for bad debts be used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt expense.
c. Using an aging of the accounts receivable balance to determine bad debt expense.
d. Reversing previous write-offs.

2. What is the normal journal entry for recording bad debt expenses under the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
3. What is the normal journal entry when writing-off an account as uncollectible under the allowance
method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts

4. Which of the following is included in the normal journal entry to record the collection of accounts
receivable previously written off when using the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

5. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted
value of the cash to be received in the future, failure to follow this practice usually does not make the
balance sheet misleading because
a. Most short-term receivables are not interest-bearing.
b. The allowance for uncollectible accounts includes a discount element.
c. The amount of the discount is not material.
d. Most receivables can be sold to a bank or factor.

6. Which of the following methods of determining bad debt expense does not properly match expense
and revenue?
a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts with an amount derived from a percentage of accounts receivable under
the allowance method.
c. Charging bad debts with an amount derived from aging accounts receivable under the
allowance method.
d. Charging bad debts as accounts are written off as uncollectible.

7. Which of the following methods of determining annual bad debt expense best achieves the matching
concept?
a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct write-off

8. Which of the following is a generally accepted method of determining the amount of the adjustment
to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable not adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable and not adjusted for the balance in the
allowance
9. The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that
this approach
a. gives a reasonably correct statement of receivables in the balance sheet.
b. best relates bad debt expense to the period of sale.
c. is the only generally accepted method for valuing accounts receivable.
d. makes estimates of uncollectible accounts unnecessary.

10. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of a small account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.

11. A method of estimating bad debts that focuses on the balance sheet rather than the income
statement is the allowance method based on
a. direct write-off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts determined to be uncollectible.

12. The entry (see entry below), would be made when:

Dr. Accounts Receivable xxx
Cr. Allowance for Uncollectible Accounts xxx

a. a customer pays its account balance.

b. a customer defaults on its account.
c. a previously defaulted customer pays its outstanding balance.
d. estimated uncollectible receivables are too low.

Activity 4

MULTIPLE CHOICE. Show your solution in your paper.

1. Wellington 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.
2. Wellington Corp. has outstanding accounts receivable totaling 3 million as of December 31 and sales
on credit during the year of 15 million. There is also a debit 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 balance in the allowance for doubtful accounts after the year-end adjustment to record
bad debt expense?
a. 1,200,000.
b. 228,000.
c. 240,000.
d. 252,000.

3. At the close of its first year of operations, December 31, 2010, Ming Company had accounts
receivable of 540,000, after deducting the related allowance for doubtful accounts. During 2010, the
company had charges to bad debt expense of 90,000 and wrote off, as uncollectible, accounts receivable
of 40,000. What should the company report on its balance sheet on December 31, 2010, as accounts
receivable before the allowance for doubtful accounts?
a. 670,000
b. 590,000
c. 490,000
d. 440,000

4. Before year-end adjusting entries, Dunn Company's account balances at December 31, 2010, for
accounts receivable and the related allowance for uncollectible accounts were 600,000 and 45,000,
respectively. An aging of accounts receivable indicates that 62,500 of the December 31 receivables are
expected to be uncollectible. The net realizable value of accounts receivable after adjustment is
a. 582,500.
b. 537,500.
c. 492,500.
d. 555,000.

5. During the year, Kiner Company made an entry to write off a 4,000 uncollectible account. Before this
entry was made, the balance in accounts receivable was 50,000 and the balance in the allowance
account was 4,500. The net realizable value of accounts receivable after the write-off entry was
a. 50,000.
b. 49,500.
c. 41,500.
d. 45,500

6. The following information is available for Murphy Company:

Allowance for doubtful accounts at December 31, 2009 8,000
Credit sales during 2010 400,000
Accounts receivable deemed worthless and written off during 2010 9,000

As a result of a review and aging of accounts receivable in early January 2011, however, it has been
determined that an allowance for doubtful accounts of 5,500 is needed on December 31, 2010.

What amount should Murphy record as "bad debt expense" for the year ended December 31, 2010?
a. 4,500
b. 5,500
c. 6,500
d. 13,500

(Use the following information for questions 7 and 8.)

A trial balance before adjustments included the following:
Debit Credit
Sales 425,000
Sales returns and allowance 14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760

7. If the estimate of uncollectible is made by taking 2% of net sales, the amount of the adjustment is
a. 6,700.
b. 8,220.
c. 8,500.
d. 9,740.

8. If the estimate of uncollectible is made by taking 10% of gross account receivables, the amount of the
adjustment is
a. 3,540.
b. 4,300.
c. 4,224.
d. 5,060.

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

Accounts receivable 60,000
Allowance for doubtful accounts 3,600
Sales discounts 2,400

Lankton should report accounts receivable at a net amount of

a. 54,000.
b. 56,400.
c. 57,600.
d. 60,000.

10. Smithson Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of 10,000.
During 2010, it wrote off 7,200 of accounts and collected 2,100 on accounts previously written off. The
balance in Accounts Receivable was 200,000 at 1/1 and 240,000 at 12/31. At 12/31/10, Smithson
estimates that 5% of accounts receivable will prove to be uncollectible.
What is Bad Debt Expense for 2010?
a. 2,000.
b. 7,100.
c. 9,200.
d. 12,000.

11. Black Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of 12,000. During
2010, it wrote off 8,640 of accounts and collected 2,520 on accounts previously written off. The balance
in Accounts Receivable was 240,000 at 1/1 and 288,000 at 12/31. At 12/31/10, Black estimates that 5%
of accounts receivable will prove to be uncollectible.
What should Black report as its Allowance for Doubtful Accounts at 12/31/10?
a. 5,760.
b. 5,880.
c. 8,280.
d. 14,400.

12. Shelton Company has the following account balances at year-end:

Accounts receivable 80,000
Allowance for doubtful accounts 4,800
Sales discounts 3,200

Shelton should report accounts receivable at a net amount of

a. 72,000.
b. 75,200.
c. 76,800.
d. 80,000.

13. Vasguez Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of 20,000. During
2010, it wrote off $14,400 of accounts and collected 4,200 on accounts previously written off. The
balance in Accounts Receivable was 400,000 at 1/1 and 480,000 at 12/31. At 12/31/10, Vasguez
estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for
2010?
a. 4,000.
b. 14,200.
c. 18,400.
d. 24,000.

14. McGlone Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of 15,000.
During 2010, it wrote off $10,800 of accounts and collected 3,150 on accounts previously written off.
The balance in Accounts Receivable was 300,000 at 1/1 and 360,000 at 12/31. At 12/31/10, McGlone
estimates that 5% of accounts receivable will prove to be uncollectible.
What should McGlone report as its Allowance for Doubtful Accounts at 12/31/10?
a. 7,200.
b. 7,350.
c. 10,350.
d. 18,000

15. Gray Company had an accounts receivable balance of ₱50,000 on December 31, 2001, and ₱75,000
on December 31, 2002. The company wrote off ₱20,000 of accounts receivable during 2002, and
collected ₱3,000 on an account written off in 2000. Sales for the year 2002 totaled ₱620,000. All sales
were on account. The amount collected from customers on accounts receivable during 2002, including
recoveries, was
a. ₱575,000.
b. ₱578,000.
c. ₱600,000.
d. ₱595,000.

16. Based on the aging of its accounts receivable at December 31, Pribob Company determined that the
net realizable value of the receivables at that date is ₱760,000. Additional information is as follows:
Accounts Receivable on December 31 .............. ₱880,000
Allowance for Doubtful Accounts on January 1 128,000 (cr)
Accounts written off as uncollectible during the year 88,000

Pribob's doubtful accounts expense for the year ended December (31 is
a. ₱80,000.
b. ₱96,000.
c. ₱120,000.
d. ₱160,000.

17. Based on its past collection experience, Ace Company provides for bad debts at the rate of 2 percent
of net credit sales. On January 1, 2002, the allowance for doubtful accounts credit balance was ₱10,000.
During 2002, Ace wrote off ₱18,000 of uncollectible receivables and recovered ₱5,000 on accounts
written off in prior years. If net credit sales for 1999 totaled ₱1,000,000, the doubtful accounts expense
for 2002 should be
a. ₱17,000.
b. ₱20,000.
c. ₱23,000.
d. ₱35,000.

18. Richards Company uses the allowance method of accounting for bad debts. The following summary
schedule was prepared from an aging of accounts receivable outstanding on December 31 of the current
year.
No. of Days Probability
Outstanding Amount of Collection
0-30 days ₱500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80

The following additional information is available for the current year:

Net credit sales for the year .................. ₱4,000,000
Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 (cr)
Balance before adjustment, December 31 ... 2,000 (dr)
If Richards determines bad debt expense using 1.5 percent of net credit sales, the net realizable value of
accounts receivable on the December 31 balance sheet will be
a. ₱738,000.
b. ₱740,000.
c. ₱742,000.
d. ₱750,000.

19. Gekko, Inc. reported the following balances (after adjustment) at the end of 2002 and 2001.
12/31/2002 12/31/2001
Total accounts receivable ................. ₱105,000 ₱96,000
Net accounts receivable ................... 102,000 94,500

During 2002, Gekko wrote off customer accounts totaling ₱3,200 and collected ₱800 on accounts
written off in previous years. Gekko's doubtful accounts expense for the year ending December 31, 2002
is
a. ₱1,500.
b. ₱2,400.
c. ₱3,000.
d. ₱3,900.

20. For the year ended December 31, 2010, Dent Co. estimated its allowance for uncollectible accounts
using the year-end aging of accounts receivable. The following data are available:
Allowance for uncollectible accounts, 1/1/10 56,000
Provision for uncollectible accounts during 2010
(2% on credit sales of 2,000,000) 40,000
Uncollectible accounts written off, 11/30/10 46,000
Estimated uncollectible accounts per aging, 12/31/10 69,000
After year-end adjustment, the uncollectible accounts expense for 2010 should be
a. 6,000.
b. 62,000.
c. 9,000.
d. 59,000