44.

A cash discount is usually granted to all of the following except

a. retail customers.
b. retailers.
c. wholesalers.
d. All of these are granted discounts.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: Business Economics

45. Which one of the following is not a primary problem associated with accounts
receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: Business Economics

46. Trade accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at net realizable value.
d. only if they are not past due.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

47. Three accounting issues associated with accounts receivable are

a. depreciating, returns, and valuing.
b. depreciating, valuing, and collecting.
c. recognizing, valuing, and disposing.
d. accrual, bad debts, and disposing.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: Business Economics

54.Under the allowance method, writing off an uncollectible account

a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

55. The net amount expected to be received in cash from receivables is termed the
a. cash realizable value.
b. cash-good value.
c. gross cash value.
d. cash-equivalent value.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

56. If a company fails to record estimated bad debts expense,

a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
 d. receivables are understated.
Ans: B, LO: 2, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

57. Homeplate sells softball equipment. On November 14, they shipped $4,000 worth of
softball uniforms to Bonita Middle School, terms 2/10, n/30. On November 21, they
received an order from Vista High School for $1,500 worth of custom printed bats to be
produced in December. On November 30, Bonita Middle School returned $200 of
defective merchandise. Homeplate has received no payments from either school as of
month end. What amount will be recognized as net accounts receivable on the balance
sheet as of November 30?
a. $3,800
b. $4,000
c. $5,300
d. $5,500
Ans: A, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution: $4,000  $200  $3,800

58. Cosmos Company on July 15 sells merchandise on account to Cajon Co. for $6,000,
terms 2/10, n/30. On July 20 Cajon Co. returns merchandise worth $1,000 to Cosmos
Company. On July 24 payment is received from Cajon Co. for the balance due. What is
the amount of cash received?
a. $4,800
b. $4,900
c. $5,000
d. $6,000
Ans: B, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution: ($6,000  $1,000)  .98  $4,900

66.Under the direct write-off method of accounting for uncollectible accounts, Bad Debt
Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: FSA

67. An alternative name for Bad Debt Expense is

a. Deadbeat Expense.
b. Uncollectible Accounts Expense.
c. Collection Expense.
d. Credit Loss Expense.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

68. A reasonable amount of uncollectible accounts is evidence

a. that the credit policy is too strict.
b. that the credit policy is too lenient.
c. of a sound credit policy.
 d. of poor judgments on the part of the credit manager.
Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None,
IMA: Business Economics

69. Bad Debt Expense is considered

a. an avoidable cost in doing business on a credit basis.
b. an internal control weakness.
c. a necessary risk of doing business on a credit basis.
d. avoidable unless there is a recession.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None,
IMA: Business Economics

70. The best managed companies will have

a. no uncollectible accounts.
b. a very strict credit policy.
c. a very lenient credit policy.
d. some accounts that will prove to be uncollectible.
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None,
IMA: Business Economics

147. Sandle Company lends Roseenn Company $9,000 on April 1, accepting a four-month,
4% interest note. Sandle Company prepares financial statements on April 30. What
adjusting entry should be made before the financial statements can be prepared?
a. Note Receivable ............................................................ 9,000
Cash ..................................................................... 9,000
b. Interest Receivable ....................................................... 30
Interest Revenue .................................................. 30
c. Cash ............................................................................. 30
Interest Revenue .................................................. 30
d. Interest Receivable ....................................................... 120
Interest Revenue .................................................. 120
Ans: B, LO: 4, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution: $9,000  .04  112  $30

148. When a note receivable is honored, Cash is debited for the note's
a. net realizable value.
b. maturity value.
c. gross realizable value.
d. face value.
Ans: B, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: FSA

149. Xenox Company had net credit sales during the year of $1,300,000 and cost of goods
sold of $800,000. The balance in accounts receivable at the beginning of the year was
$185,000, and the end of the year it was $140,000. What was the accounts receivable
turnover?
a. 4.9
b. 7.0
c. 8.0
d. 9.3
Ans: C, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Solution: $1,300,000  [($185,000  $140,000)  2]  8

150. The average collection period for accounts receivable is computed by dividing 365 days
by
a. net credit sales.
b. average accounts receivable.
c. ending accounts receivable.
d. accounts receivable turnover.
Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

151. The average collection period is computed by dividing

a. net credit sales by average gross accounts receivable.
b. net credit sales by ending gross accounts receivable.
c. the accounts receivable turnover by 365 days.
d. 365 days by the accounts receivable turnover.
Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

BE 182
Underwood Company’s ledger at the end of the current year shows Accounts Receivable of
$150,000.

Instructions
a. If Allowance for Doubtful Accounts has a credit balance of $4,500 in the trial balance and
bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for
the end of the period.
b. If Allowance for Doubtful Accounts has a debit balance of $4,500 in the trial balance and
bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for
the end of the period.
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 182 (5 min.)

(a) Bad Debt Expense......................................................................... 7,500
Allowance for Doubtful Accounts ($12,000 – $4,500).......... 7,500
(To adjust the allowance account to total estimated uncollectible,
$150,000 × .08 = $12,000)
(b) Bad Debt Expense......................................................................... 16,500
Allowance for Doubtful Accounts ($12,000 + $4,500).......... 16,500

BE 183
Stine Co. sells Christmas angels. Stine determines that at the end of December, it has the
following aging schedule of Accounts Receivable:

Customer Not Yet Due Number of Days Past Due

1–30 31–60 61–90 Over 90
DV Gannon $500 $300 $200
 JJ Joysen 300 100 200
NJ Bell 150 50 100
JC Werly 200 200
? 300 300 250 200 100
% uncollectible 1% 5% 10% 20% 50%
Total Estimated ? ? ? ? ? ?
Uncollectible Amounts

Compute the net receivables based on the above information at the end of December. (There
was no beginning balance in the Allowance for Doubtful Accounts).
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 183 (5 min.)

Customer Not Yet Due Number of Days Past Due

1–30 31–60 61–90 Over 90
DV Gannon $ 500 $300 $200
JJ Joysen 300 100 200
NJ Bell 150 50 100
JC Werly 200 200
$1,150 300 300 250 200 100
% uncollectible 1% 5% 10% 20% 50%
Total Estimated $133 $3 $15 $25 $40 $50
Uncollectible Amounts

Net Receivables = ($1,150 – $133 = $1,017)

BE 186
Decca Distributors has the following transactions related to notes receivable during the last
month of the year.
Dec. 1 Loaned $12,000 cash to J. Cash on a 1-year, 5% note.
16 Sold goods to W. Jennings, receiving a $10,000, 60-day, 6% note.
31 Accrued interest revenue on all notes receivable.

Instructions
Journalize the transactions for Decca Distributors.
Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 186 (6 min.)

Dec 1 Notes Receivable— J. Cash................................................ 12,000
 Cash........................................................................... 12,000
(To record loan made to J. Cash)

Dec 16 Notes Receivable— W. Jennings......................................... 10,000

Sales Revenue............................................................ 10,000
(To record sale to W. Jennings)

Dec. 31 Interest Receivable.............................................................. 75

Interest Revenue*....................................................... 75
(To record accrued interest)

*Calculation of interest revenue

Cash note: $12,000 × 5% × 30/360 = $50
Jennings note: 10,000 × 6% × 15/360 = 25
Total accrued interest $75

Ex. 195
(a) On January 6, Whitson Co. sells merchandise on account to Garcia Inc. for $7,000, terms
2/10, n/30. On January 16, Garcia Inc. pays the amount due. Prepare the entries on
Whitson's books to record the sale and related collection.
(b) On January 10, Jill Hoyle uses her Berkman Co. credit card to purchase merchandise from
Berkman Co. for $9,000. On February 10, Hoyle is billed for the amount due of $9,000. On
February 12, Hoyle pays $4,000 on the balance due. On March 10, Hoyle is billed for the
amount due, including interest at 2% per month on the unpaid balance as of February 12.
Prepare the entries on Berkman Co.'s books related to the transactions that occurred on
January 10, February 12, and March 10.
Ans: N/A, LO: 1, Bloom: AP, Difficulty: Medium, Min: 9, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 195 (12 min.)

(a) Jan. 6 Accounts Receivable—Garcia..................................... 7,000
Sales Revenue................................................... 7,000
16 Cash ($7,000 – $140)................................................. 6,860
Sales Discounts (2%  $7,000)................................... 140
Accounts Receivable—Garcia............................ 7,000

(b) Jan. 10 Accounts Receivable—Hoyle...................................... 9,000

Sales Revenue................................................... 9,000
Feb. 12 Cash .......................................................................... 4,000
Accounts Receivable—Hoyle............................. 4,000
Mar. 10 Accounts Receivable—Hoyle...................................... 100
Interest Revenue................................................ 100
[2%  ($9,000 – $4,000)]
Ex. 199
The December 31, 2015 balance sheet of Barone Company had Accounts Receivable of
$400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2016, the
following transactions occurred: sales on account $1,500,000; sales returns and allowances,
$50,000; collections from customers, $1,250,000; accounts written off $36,000; previously
written off accounts of $6,000 were collected.

Instructions
(a) Journalize the 2016 transactions.
(b) If the company uses the percentage-of-sales basis to estimate bad debt expense and
anticipates 3% of net sales to be uncollectible, what is the adjusting entry at December 31,
2016?
(c) If the company uses the percentage of receivables basis to estimate bad debt expense and
determines that uncollectible accounts are expected to be 8% of accounts receivable, what
is the adjusting entry at December 31, 2016?
(d) Which basis would produce a higher net income for 2016 and by how much?
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 199 (20–30 min.)

(a) Accounts Receivable..................................................................... 1,500,000
Sales Revenue.................................................................... 1,500,000
(To record credit sales)

Sales Returns and Allowances...................................................... 50,000

Accounts Receivable........................................................... 50,000
(To record credits to customers)

Cash ............................................................................................ 1,250,000

Accounts Receivable........................................................... 1,250,000
(To record collection of receivables)

Allowance for Doubtful Accounts................................................... 36,000

Accounts Receivable........................................................... 36,000
(To write off specific accounts)

Accounts Receivable..................................................................... 6,000

Allowance for Doubtful Accounts......................................... 6,000
(To reverse write-off of account)

Cash ............................................................................................ 6,000

Accounts Receivable........................................................... 6,000
(To record collection of account)
Solution 199 (cont.)
(b) Percentage-of-sales basis:
Sales revenue................................................................................ $1,500,000
Less: Sales Returns and Allowances............................................ 50,000
Net Sales............................................................................. 1,450,000
Bad debt percentage...................................................................... .03
Bad debt provision......................................................................... $ 43,500

Dec. 31 Bad Debt Expense .......................................................... 43,500

Allowance for Doubtful Accounts .................................... 43,500

(c) Percentage-of-receivables basis:

ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE ACCOUNTS
400,000 50,000 36,000 32,000
1,500,000 1,250,000 6,000
6,000 36,000 Bal. 2,000
6,000
Bal. 564,000

Required balance ($564,000 × .08).............................................................. $45,120

Balance before adjustment........................................................................... 2,000
Adjustment required..................................................................................... $43,120

Dec. 31 Bad Debt Expense......................................................... 43,120

Allowance for Doubtful Accounts........................... 43,120

(d) Percentage-of-sales basis............................................................................ $43,500

Percentage-of-receivables basis.................................................................. 43,120
Net income higher with percentage of receivables basis by......................... $ 380