Select the appropriate response.
1. Trade accounts receivable:
a. arise from the sale of a company's products or services.
b. are reported in the noncurrent asset section of the balance sheet.
c. include deposits with utilities.
d. generally comprise the minority of the total receivables balance.
2. Lundstrom Company began making sales on credit during 20X1. The company used the direct write-off method for uncollectible accounts. A material amount of uncollectible accounts resulting from sales made during 20X1 were written off during 20X2. What was the effect of this write-off on net income for 20X1 and 20X2?
20X1 20X2
a. Overstate Overstate
b. Overstate Understate
c. Understate Overstate
d. Understate Understate
3. Taylor Company uses the direct write-off method of recording uncollectible accounts receivable. Recently, a customer informed Taylor that he would be unable to pay $300 owed to Taylor. Taylor's proper journal entry to reflect this event would be:
a. Uncollectible Accounts Expense 300
Allow. for Uncollectible Accounts 300
b. Allow. for Uncollectible Accounts 300
Accounts Receivable 300
c. Uncollectible Accounts Expense 300
Accounts Receivable 300
d. Sales 300
Accounts Receivable 300
4. Malcom's financial statements revealed uncollectible accounts expense of $8,000, accounts receivable of $140,000, and allowance for uncollectible accounts of $12,000. The net realizable value of Malcom's accounts receivable is:
a. $128,000
b. $132,000
c. $136,000
d. $152,000
5. Branz Company had credit sales during the current year which amounted to $700,000. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method of recording uncollectible accounts, a proper journal entry for the year would be:
a. Accounts Receivable 21,000
Allow. for Uncollectible Accounts 21,000
b. Uncollectible Accounts Expense 21,000
Accounts Receivable 21,000
c. Uncollectible Accounts Expense 21,000
Allow. for Uncollectible Accounts 21,000
d. Allow. for Uncollectible Accounts 21,000
Accounts Receivable 21,000
6. Lindy Company uses an allowance method to account for bad debts. Lindy estimates that 5% of the outstanding accounts receivable will be uncollectible. At the end of the year, Lindy has outstanding accounts receivable of $750,000, and a debit balance in the Allowance for Uncollectible Accounts of $9,000. Lindy should record uncollectible accounts expense of:
a. $28,500
b. $37,500
c. $46,500
d. $55,500
7. Flynn Company uses an allowance method for recording uncollectibles. Flynn determined that $4,000 due from Mitchell will not be collected. The entry Flynn should record to write off the Mitchell account is:
a. Uncollectible Accounts Expense 4,000
Accounts Receivable 4,000
b. Sales 4,000
Accounts Receivable 4,000
c. Uncollectible Accounts Expense 4,000
Allowance for Uncollectible Accounts 4,000
d. Allowance for Uncollectible Accounts 4,000
Accounts Receivable 4,000
8. John Company uses an allowance method for recording uncollectible receivables. John was notified by Paul that payment on a $1,000 receivable would be forthcoming. John had previously written off the receivable from Paul. The proper journal entry for John to record to reinstate the receivable into the accounts is:
a. Accounts Receivable 1,000
Allow. for Uncollectible Accounts 1,000
b. Allow. for Uncollectible Accounts 1,000
Sales 1,000
c. Accounts Receivable 1,000
Sales 1,000
d. Accounts Receivable 1,000
Uncollectible Accounts Expense 1,000
9. Interest on a loan may be computed by which of the following formulas?
a. (principal x rate)/time
b. (principal x rate x time)
c. (principal x time)/rate
d. (principal x time)/time
10. Vivian Howell is the payee of $10,000, 180-day, 8% note. At maturity, the maker failed to pay. How much interest income should Vivian recognize on the dishonored note?
a. $0
b. $400
c. $800
d. $10,800
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