FINANCIAL ACCOUNTING AND REPORTING

Accounts Receivable
Estimating Bad Debts
Contents
DISCUSSION QUESTIONS ......................................................................................... 3
MULTIPLE CHOICE PROBLEMS ............................................................................ 4
Accounts receivable - gross ....................................................................................... 4
Accounts receivable - net .......................................................................................... 5
Trade & Other Receivables ........................................................................................ 6
Impairment loss ......................................................................................................... 7
Allowance for sales discount ..................................................................................... 7
Allowance method – in general ................................................................................. 8
Percent of sales method ............................................................................................ 9
Percent of accounts receivable method .................................................................. 10
Aging of receivables ................................................................................................. 12
MULTIPLE CHOICE THEORY ............................................................................... 15
Measurement .......................................................................................................... 15
Presentation & disclosure........................................................................................ 16
Bad debts ................................................................................................................. 18
Gross method & net method ................................................................................... 23
Impairment of receivables ....................................................................................... 23
Comprehensive ........................................................................................................ 24
 Accounts Receivable
DISCUSSION QUESTIONS

1. Define receivables and enumerate the classes of receivables.

2. Explain the classification of receivables in the statement of financial position.
3. Explain the "initial measurement" of receivables.
4. Explain the measurement of accounts receivable.
5. What are customers' credit balances?
6. Explain the two methods of accounting for bad debts.
7. What is the treatment of "recoveries of accounts previously written off?
8. What are the three methods of estimating doubtful accounts?
9. How would you classify doubtful accounts in the income statement?
10. Explain impairment of accounts receivable.
11. What are the "loss events" that would indicate impairment of accounts receivable?
12. Explain the assessment whether accounts receivable should be considered impaired.

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 Financial Accounting & Reporting
MULTIPLE CHOICE PROBLEMS

Accounts receivable - gross

1. Roxy Company provided the following information relating to accounts receivable
for 2020:

Accounts receivable on January 1 1,300,000

Credit sales 5,400,000
Collections from customers, excluding recovery 4,750,000
Accounts written off 125,000
Collection of accounts written off in prior year
(customer credit was not reestablished) 25,000
Estimated uncollectible receivables per aging of receivables
at December 31 165,000

On December 31, 2020, what is the balance of accounts receivable, before allowance
for doubtful accounts?
A. 1,825,000 C. 1,950,000
B. 1,850,000 D. 1,990,000

2. On December 31, 2020, Honduras Company revealed a balance of P8,200,000 in

the accounts receivable control account. An analysis of the accounts receivable
showed the following:

Accounts known to be worthless 100,000

Advance payments to creditors on purchase orders 400,000
Advances to affiliated companies 1,000,000
Customers' accounts reporting credit balances arising
from sales returns (600,000)
Interest receivable on bonds 400,000
Trade accounts receivable - unassigned 2,000,000
Subscription receivable due in 30 days ' 2,200,000
Trade accounts receivable - assigned (Finance
Company's equity in assigned accounts is P500,000) 1,500,000
Trade installments receivable due 1-18 months,
including unearned finance charge of P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held
(no entries were made on receipt of checks) 200,000
Total 8,200,000
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 Accounts Receivable
What amount should be reported as trade accounts receivable on December 31,
2020?
A. 4,050,000 C. 4,650,000
B. 4,150,000 D. 4,700,000

Accounts receivable - net

3. Katherine Company provided the following information for 2020:

January 1 December-31
Accounts receivable 1,200,000
Allowance for doubtful accounts 60,000
Sales 8,000,000
Cash collected from customers 7,000,000

The cash collections included a recovery of P10,000 from a customer whose account
had been written off as worthless in prior year. During 2020, it was necessary to
recognize doubtful accounts expense of P100,000 and write off worthless customers'
accounts of P30,000. On December 1, 2020, a customer settled an account by issuing
a 12%, six-month note for P400,000. What is the net realizable value of accounts
receivable on December 31, 2020?
A. 1,630,000 C. 1,670,000
B. 1,640,000 D. 1,780,000

4. Von Company provided the following data for the current year in relation to
accounts receivable:

Debits
January 1 balance after deducting credit balance of P30,000 530,000
Charge sales 5,250,000
Charge for goods out on consignment 50,000
Shareholders' subscriptions 200,000
Accounts written off but recovered 10,000
Cash paid to customer for January 1 credit balance 25,000
Goods shipped to cover January 1 credit balance 5,000
Deposit on contract 120,000
Claim against common carrier 15,000
Advances to supplier 155,000

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 Financial Accounting & Reporting
Credits
Collections from customers, including overpayment of P50,000 5,200,000
Write-off 35,000
Merchandise returns 25,000
Allowances to customers for shipping damages 15,000
Collection on carrier claim 10,000
Collection on subscription 50,000

What is the balance of accounts receivable on December 31 ?

A. 495,000 C. 565,000
B. 545,000 D. 595,000

5. On January 1, 2019, the statement of financial position of Square Company showed

accounts receivable of P450,000 and allowance for doubtful accounts of P9,000.
During the current year, the transactions were:

 Sales on account, P4,800,000.

 Cash collections of accounts receivable totaled P3,920,000, after discounts of
P80,000 were allowed for prompt payment.
 Bad accounts previously written off in prior year amounting to P5,000 were
recovered.
 The entity decided to provide P26,000 for doubtful accounts at the end of the
year.
 Accounts receivable of P700,000 have been pledged to a local bank on a loan
of P400,000. Collections of P150,000 were made on such accounts receivable
(not included in the collections previously given).

What is the net realizable value of accounts receivable on December 31, 2020?
A. 1,060,000 C. 1,070,000
B. 1,065,000 D. 1,074,000

Trade & Other Receivables

6. When examining the accounts of Brute Company, it is ascertained that balances
relating to both receivables and payables are included in a single controlling account
called "receivables control" that has a debit balance of P4,850,000. An analysis of
the make-up of this account revealed the following:

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 Accounts Receivable
Debit Credit
Accounts receivable - customers 7,800,000
Accounts receivable - officers 500,000
Debit balances - creditors 300,000
Postdated checks from customers 400,000
Subscriptions receivable 800,000
Accounts payable for merchandise 4,500,000
Credit balances in customers' accounts 200,000
Cash received in advance from customers
for goods not yet shipped 100,000
Expected bad debts 150,000

After further analysis of the aged accounts receivable, it is determined that the
allowance for doubtful accounts should be P200,000. What amount should be
reported as "trade and other receivables" under current assets?
A. 8,600,000 C. 8,850,000
B. 8,800,000 D. 8,950,000

Impairment loss
7. On December 31, 2020, Celaica Company reported accounts receivable as follows:

Trisha Company 800,000

Jerard Company 2,000,000
Marc Company 1,500,000
Francis Company 1,000,000
Other accounts receivable not individually significant 5,000,000

The entity determined that Trisha Company receivable is impaired by P500,000 and
Francis Company receivable is totally impaired. The other accounts receivable from
Jerard Company and Marc Company are not considered impaired. The entity also
determined that a composite rate of 4% is appropriate to measure impairment on all
other accounts receivable. What is the total impairment loss of accounts receivable?
A. 1,500,000 C. 1,840,000
B. 1,700,000 D. 1,912,000

Allowance for sales discount

8. Delta Company sells to wholesalers on terms 2/15, net 30. The entity has no cash
sales but 50% of the customers take advantage of the discount. The entity used the
gross method of recording sales and accounts receivable. An analysis of the trade
accounts receivable on December 31, 2020 revealed the following:
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 Financial Accounting & Reporting
Age Amount Collectible
0-15 days 2,000,000 100%
16-30 days 1,200,000 95%
31-60 days 100,000 90%
Over 60 days 50,000 50%
3,350,000

In the December 31, 2020 statement of financial position, what amount should be
reported as allowance for sales discount?
A. 20,000 C. 33,500
B. 32,400 D. 40,000

Allowance method – in general

9. Roanne Company used the allowance method of accounting for uncollectible
accounts. During 2020, the entity had charged P800,000 to bad debt expense, and
wrote off accounts receivable of P900,000 as uncollectible. What was the decrease
in working capital?
A. 0 C. 800,000
B. 100,000 D. 900,000

10. Mill Company's allowance for doubtful accounts was P1,000,000 at the end of 2020
and P900,000 at the end of 2019. For the year ended December 31, 2020, the entity
reported doubtful accounts expense of P160,000 in the income statement. What
amount was debited to the appropriate account to write off uncollectible accounts
in2020?
A. 60,000 C. 160,000
B. 100,000 D. 260,000

11. Seiko Company reported the following balances after adjustment at year-end:

2020 2019
Accounts receivable 5,250,000 4,800,000
Net realizable value 5,100,000 4,725,000

During 2020, the entity wrote off accounts totaling P160,000 and collected P40,000
on accounts written off in previous year. What amount should be recognized as
doubtful accounts expense for the year ended December 31, 2020?
A. 120,000 C. 160,000
B. 150,000 D. 195,000

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 Accounts Receivable
Percent of sales method
12. At year-end, Barr Company reported net sales of P7,100,000 and allowance for
doubtful accounts with debit balance of P16,000 before adjustment. The entity
estimated the uncollectible accounts receivable at 2% of net sales. What is the
allowance for doubtful accounts at year-end?
A. 126,000 C. 144,500
B. 142,000 D. 158,000

13. Oriental Company followed the procedure of debiting bad debt expense for 2% of
all new sales.

Sales Allowance for bad debts

2018 3,000,000 40,000
2019 2,800,000 60,000
2020 3,500,000 80,000

What was the amount of accounts written off in 2020?

A. 10,000 C. 70,000
B. 50,000 D. 86,000

THE NEXT ITEMS ARE BASED ON THE FOLLOWING

Easy Company sells directly to retail customers. On January 1, 2020, the balance of the
accounts receivable was P2,070,000 while the allowance for doubtful accounts was a
credit of P78,000. The following data are gathered:

Credit sales Writeoffs Recoveries

2017 11,100,000 260,000 22,000
2018 12,250,000 295,000 37,000
2019 14,650,000 300,000 36,000
2020 15,000,000 310,000 42,000

Doubtful accounts are provided for as a percentage of credit sales. The entity calculated
the percentage annually by using the experience of the three years prior to the current
year.

14. What is the percentage of credit sales to be used in computing doubtful accounts
expense for 2020?
A. Two percent C. Six percent
B. Four percent D. Eight percent

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 Financial Accounting & Reporting
15. What amount should be reported as doubtful accounts expense for 2020?
A. 222,000 C. 310,000
B. 300,000 D. 378,000

16. What amount should be reported as allowance for doubtful accounts on December
31, 2020?
A. 110,000 C. 378,000
B. 300,000 D. 478,000

Percent of accounts receivable method

17. Manchester Company provided the following accounts abstracted from the
unadjusted trial balance on December 31, 2020:

Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000

The entity estimated that 3% of the gross accounts receivable will become
uncollectible. What amount should be recognized as doubtful accounts expense for
2020?
A. 110,000 C. 190,000
B. 150,000 D. 600,000

18. From inception of operations, Axis Company carried no allowance for doubtful
accounts. Uncollectible accounts were expensed as written off and recoveries were
credited to income as collected.

During 2020, management recognized that the accounting policy with respect to
doubtful accounts was not correct and determined that an allowance for doubtful
accounts was necessary.

A policy was established to maintain an allowance for doubtful accounts based on

historical bad debt loss percentage applied to year-end accounts receivable.

The historical bad debt loss percentage is to be recomputed each year based on all
available past years up to a maximum of five years.

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 Accounts Receivable
The entity provided the following information:

Year Credit sales Write-offs Recoveries

2016 1,500,000 15,000 0
2017 2,250,000 38,000 2,700
2018 2,950,000 52,000 2,500
2019 3,300,000 65,000 4,800
2020 4,000,000 83,000 5,000

The entity reported accounts receivable of P1,250,000 and P2,000,000 on December

31, 2019 and December 31, 2020, respectively. What amount should be reported as
doubtful accounts expense for 2020?
A. 78,000 C. 92,000
B. 83,000 D. 97,000

THE NEXT ITEMS ARE BASED ON THE FOLLOWING

Wonder Company provided the following transactions affecting accounts receivable
during the year ended December 31, 2020:

Sales (cash and credit) 5,900,000

Cash received from credit customers, all of whom took advantage
of the discount feature of the entity's credit terms 4/10,n/30 3,024,000
Cash received from cash customers 2,100,000
Accounts receivable written off as worthless 50,000
Credit memorandum issued to credit customers
for sales returns and allowances 250,000
Cash refunds given to cash customers for sales returns and allowances 20,000
Recoveries on accounts receivable written off as uncollectible in
prior periods (not included in cash amount stated above) 80,000

The following balances were taken from the January 1, 2020 statement of financial
position:

Accounts receivable 950,000

Allowance for doubtful accounts 100,000

The entity provided for uncollectible account losses by crediting allowance for doubtful
accounts in the amount of P70,000 for the current year.

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 Financial Accounting & Reporting
19. What is the balance of accounts receivable on December 31, 2020?
A. 1,220,000 C. 1,300,000
B. 1,280,000 D. 1,426,000

20. What is the balance of allowance for doubtful accounts on December 31,2020?
A. 120,000 C. 200,000
B. 170,000 D. 250,000

Aging of receivables
21. Tara Company provided the following information pertaining to accounts receivable
on December 31, 2020:

Days Estimated Estimated

outstanding Amount uncollectible
0- 60 1,200,000 1%
61 - 120 900,000 2%
Over 120 1,000,000 60,000
3,100,000

During 2020, the entity wrote off P70,000 in accounts receivable and recovered
P40,000 that had been written off in prior years. On January 1, 2020, the allowance
for uncollectible accounts was P 100,000. Under the aging method, what amount of
allowance for uncollectible accounts should be reported on December 31,2020?
A 90,000 C. 130,000
B. 100,000 D. 190,000

22. Orr Company prepared an aging of accounts receivable on December 31, 2020 and
determined that the net realizable value of the accounts receivable was P2,500,000.

Allowance for doubtful accounts on January 1 280,000

Accounts written off as uncollectible 230,000
Accounts receivable on December 31 2,700,000
Uncollectible accounts recovery 50,000

For the year ended December 31, 2020, what amount should be recognized as
doubtful accounts expense?
A. 100,000 C. 200,000
B. 150,000 D. 230,000

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 Accounts Receivable
23. Brain Company prepared the following schedule on December 31, 2020 and the
uncollectible accounts experience for the previous five years.

0-30 days 4,500,000

31-60 days 1,500,000
61-90 days 800,000
91-120 days 200,000
Over 120 days 100,000
7,100,000

Year-end 0-30 31-60 61-90 91-120 Over

Year receivables days days days days 120 days
2019 7,800,000 3% 9% 17.4% 52.1% 84.1%
2018 7,500,000 5 8 18.0 49.2 80.3
2017 6,800,000 4 11 19.0 53.7 82.0
2016 6,900,000 4 10 19.8 51.3 78.5
2015 7,200,000 2 11 17.8 49.9 85.2

The unadjusted allowance for bad debts on December 31, 2020 is P300,000.
What is the correct balance of the allowance for bad debts based on the average loss
experience for the last 5 years? The average rate is determined by adding all the
rates for each category divided by 5.
A. 300,000 C. 597,500
B. 340,700 D. 640,700

24. Sigma Company began operations on January 1, 2019. On December 31, 2019, the
entity provided for uncollectible accounts based on 1% of annual credit sales.
On January 1, 2020, the entity changed the method of determining the allowance for
uncollectible accounts by applying certain percentages to the accounts receivable
aging as follows:

Days past invoice date Percent uncollectible

0- 30 1
31 - 90 5
91 - 180 20
Over 180 80

In addition, the entity wrote off all accounts receivable that were over 1 year old.
The following additional information related to the years ended December 31, 2020
and 2019:
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 Financial Accounting & Reporting
2020 2019
Credit sales 3,000,000 2,800,000
Collections, including recovery 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously written off 7,000 none

Days past invoice date at December 31

0- 30 300,000 250,000
31 - 90 80,000 90,000
91 - 180 60,000 45,000
Over 180 25,000 15,000

What is the amount of uncollectible accounts expense for 2020?

A. 11,000 C. 38,000
B. 31,000 D. 39,000

THE NEXT ITEMS ARE BASED ON THE FOLLOWING

From inception of operations, Murr Company provided for uncollectible accounts
expense under the allowance method, provisions were made monthly at 2% of credit
sales, bad debts written off were charged to the allowance account, recoveries of bad
debts previously written off were credited to the allowance account, and no year-end
adjustments to the allowance account were made.

The usual credit terms are net 30 days. The allowance for doubtful accounts was P120,000
on January 1, 2020.

During the current year, credit sales totaled P9,000,000, interim provisions for doubtful
accounts were made at 2% of credit sales, P90,000 of bad debts were written off, and
recoveries of accounts previously written off amounted to P15,000.

The entity prepared an aging of accounts receivable for the first time on December 31,
2020.

Classification Balance Uncollectible

November - December 2,000,000 2%
July - October 600,000 10%
January - June 400,000 25%
Prior to January 1,2020 200,000 75%
3,200,000

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 Accounts Receivable
Based on the review of collectibility of the account balances in the "prior to January 1,
2020" aging category, additional accounts totaling P60,000 are to be written off on
December 31, 2020.

Effective with the year ended December 31, 2020, the entity adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount indicated by the
year-end aging analysis of accounts receivable.

25. What is the required allowance for doubtful accounts on December 31, 2020?
A. 305,000 C. 425,000
B. 350,000 D. 470,000

26. What amount was recorded as doubtful accounts expense for 2020?
A. 90,000 C. 270,000
B. 180,000 D. 300,000

27. What amount should be reported as doubtful accounts expense in the income
statement for 2020?
A. 180,000 C. 260,000
B. 185,000 D. 320,000

28. What is the year-end adjustment to the allowance for doubtful accounts on
December 31, 2020?
A. 140,000 C. 305,000
B. 180,000 D. 320,000

MULTIPLE CHOICE THEORY

Measurement
1. All of the following are problems associated with the measurement of accounts
receivable, except
A. Returns
B. Allowances granted
C. Uncollectible accounts
D. Cash discounts under the net method

2. Accounts receivable shall be recognized initially at

A. Current value C. Face value
B. Discounted value D. Maturity value

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 Financial Accounting & Reporting
3. If the ideal measure of short-term receivables in the statement of financial position
is the discounted amount of the cash to be received in the future, failure to follow
this practice usually does not make the statement of financial position misleading
because
A. The amount of the discount is not material.
B. Most receivables can be sold to a bank or factor.
C. Most short-term receivables are not interest-bearing.
D. The allowance for doubtful accounts includes a discount element.

Presentation & disclosure

4. Which of the following should be recorded in accounts receivable?
A. Dividends receivable C. Receivables from subsidiaries
B. Receivables from officers D. Sales on account

5. Trade receivables are classified as current assets if they are reasonably expected to
be collected
A. Within one year.
B. Within the normal operating cycle.
C. Within one year or within the operating cycle, whichever is longer.
D. Within one year or within the operating cycle, whichever is shorter.

6. Where the operating cycle extends beyond one year because of normal credit terms
as in the case of installment sales of household appliances
A. The receivables are not recognized.
B. The entire receivables are shown as noncurrent assets.
C. The portion due in one year is shown as current and the balance as noncurrent.
D. It is proper to classify the entire receivables as current assets with disclosure of
the amount not realizable within one year, if material.

7. Nontrade receivables are classified as current assets only if they are reasonably
expected to be realized in cash
A. Within the normal operating cycle.
B. Within one year, the length of the operating cycle notwithstanding
C. Within one year or within the operating cycle, whichever is longer.
D. Within one year or within the operating cycle, whichever is shorter.

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 Accounts Receivable
8. Which of the following statements is true in relation to presentation of receivables
in the statement of financial position?
A. Nontrade receivables are presented as noncurrent assets
B. Trade receivables and nontrade receivables are shown separately
C. Trade accounts receivable and trade notes receivable shall be presented
separately
D. Trade receivables and nontrade receivables which are currently collectible shall
be presented as one line item called "trade and other receivables"

9. Long-term notes receivable which nominally bear no interest or an interest which is

unreasonably low shall be recognized initially at
A. Current value C. Maturity value
B. Face value D. Present value

10. In the case of long-term installments receivable (real estate installment sales) where
a major portion of the receivables will be collected beyond the normal operating
cycle
A. The entire receivables are shown as noncurrent.
B. Only the portion currently due is shown as current and the balance as
noncurrent.
C. The entire receivables are shown as current with disclosure of the amount not
currently due.
D. The entire receivables are shown as current without disclosure of the amount
not currently due.

11. Credit balances in accounts receivable shall be classified as

A. Current liabilities C. Long term liabilities
B. Deduction from accounts receivable D. Part of accounts payable

12. Receivables from subsidiaries shall be classified as

A. Current assets
B. Noncurrent assets
C. Partly current and partly noncurrent
D. Either as current or noncurrent depending on the expectation of realizing them
within one year or over one year

13. All of the following are required when classifying receivables, except
A. Disclose any receivables pledged as collateral.
B. Indicate the receivables classified as current and noncurrent.
C. Disclose all significant concentrations of credit risk arising from receivables.
D. All of these are required.
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 Financial Accounting & Reporting
Bad debts
14. Which of the following statements is incorrect regarding how the impairment
assessment of accounts receivable is to be performed?
A. Any accounts receivable not individually assessed should be collectively
assessed for impairment.
B. Not individually significant accounts receivable should be assessed individually
and if impaired, the impairment loss is recognized.
C. Individually significant accounts receivable should be considered for
impairment separately and if impaired, the impairment loss is recognized.
D. Any account receivable individually assessed that is not considered impaired
should be included with a group of assets with similar credit-risk characteristics
and collectively assessed for impairment.

Direct write-off method

15. Which of the following is not permitted in accounting for uncollectible accounts
receivable?
A. Direct writeoff method
B. Percentage of sales, allowance method
D. Percentage of accounts receivable, allowance method
C. All of the choices are acceptable under PFRS

16. Which of the following methods of determining bad debt expense does not match
expense and revenue?
A. Charging bad debts as accounts are written off as uncollectible
B. Charging bad debts with a percentage of sales under the allowance method
C. Charging bad debts with a percentage of accounts receivable under the
allowance method
D. Charging bad debts with an amount derived from aging the accounts receivable
under the allowance method

17. Which of the following is not acceptable in estimating uncollectible accounts

receivable?
A. The estimate of uncollectible accounts is based on an aging schedule.
B. The estimate of uncollectible accounts is based on a percentage of sales for the
period.
C. The estimate of uncollectible accounts is based on a percentage of the accounts
receivable at the end of a period.
D. No estimate of uncollectible accounts is made but accounts are written off when
it is determined they cannot be collected.

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 Accounts Receivable
18. When the direct writeoff method of recognizing bad debt expense is used, the entry
to write off a specific customer account would
A. Increase net income
B. Have no effect on net income
C. Increase accounts receivable and increase net income
D. Decrease accounts receivable and decrease net income

Allowance method
19. Which method of recording bad debt loss is consistent with accrual accounting?
A. Allowance method C. Percent of accounts receivable
method
B. Direct writeoff method D. Percent of sales method

20. Which accounting principle primarily supports the use of allowance for doubtful
accounts?
A. Conservatism C. Full disclosure principle
B. Continuity principle D. Matching principle

21. Why is the allowance method preferred over the direct writeoff method of
accounting for bad debts?
A. Estimates are used.
B. The allowance method is used for tax purposes.
C. Improved matching of bad debt expense with revenue is achieved.
D. Determining worthless accounts under direct writeoff method is difficult to do.

22. When the allowance method of recognizing bad debt expense is used, the allowance
for doubtful accounts would decrease when
A. Specific account receivable is collected
B. Account previously written off is collected
C. Specific uncollectible account is written off
D. Account previously written off becomes collectible

23. When the allowance method of recognizing bad debt expense is used, the journal
entry to record the writeoff of a specific uncollectible account would decrease
A. Net income
B. Working capital
C. Allowance for doubtful accounts
D. Net realizable value of accounts receivable

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 Financial Accounting & Reporting
24. An entity uses the allowance method for recognizing doubtful accounts. The journal
entry to record the writeoff of a specific uncollectible account
A. Affects neither net income nor working capital
B. Decreases both net income and working capital
C. Affects neither net income nor accounts receivable
D. Decreases both net income and accounts receivable

25. When the allowance method of recognizing doubtful accounts is used, the entry to
record the writeoff of a specific account would
A. Increase both accounts receivable and the allowance for doubtful accounts
B. Decrease both accounts receivable and the allowance for doubtful accounts
C. Decrease accounts receivable and increase allowance for doubtful accounts
D. Increase accounts receivable and decrease the allowance for doubtful accounts

26. A debit balance in the allowance for doubtful accounts

A. Should never occur.
B. May occur before the end-of-period adjustment for uncollectible accounts.
C. May exist even after the end-of-period adjustment for uncollectible accounts.
D. Is always the result of management not providing a large enough allowance in
order to manage earnings.

27. Which of the following concepts relates to the allowance method in accounting for
uncollectible accounts receivable?
A. Bad debt expense is an estimate that is based only on aging.
B. Bad debt expense is based on the actual amount determined to be uncollectible.
C. Bad debt expense is an estimate that is based on historical and prospective
information.
D. Bad debt expense is management determination of which accounts will be sent
to the attorney for collection.

% of credit sales method

28. A method of estimating bad debts that focuses on the income statement rather than
the statement of financial position is the allowance method based on
A. Credit sales
B. Direct writeoff
C. Aging the trade accounts receivable
D. The balance in the trade accounts receivable

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 Accounts Receivable
29. The estimate of uncollectible accounts receivable based on a percentage of sales
A. Is only acceptable for tax purposes.
B. Emphasizes measurement of total assets.
C. Emphasizes measurement of bad debt expense.
D. Emphasizes measurement of the net realizable value of accounts receivable.
30. Which of the following methods of determining bad debt expense most closely
matches expense to revenue?
A. Charging bad debts with a percentage of sales for that period.
B. Charging bad debts only as accounts are written off as uncollectible.
C. Estimating the allowance for doubtful accounts by aging the accounts
receivable.
D. Estimating the allowance for doubtful accounts as a percentage of accounts
receivable.
% of A/R method
31. The advantage of relating an entity's bad debt experience to accounts receivable is
that this approach
A. Relates bad debt expense to the period of sale.
B. Makes estimates of uncollectible accounts unnecessary.
C. Is the only generally accepted method for measuring accounts receivable.
D. Gives a reasonably accurate measurement of receivables in the statement of
financial position.
Aging method
32. A method of estimating uncollectible accounts that emphasizes asset valuation
rather than income measurement is the allowance method based on
A. Gross sales
B. Direct writeoff
C. Aging the receivables
D. Credit sales less returns and allowances
33. When an accounts receivable aging schedule is prepared, a series of computations
is made to determine the estimated uncollectible accounts. The resulting amount
from this aging schedule
A. Is the amount of doubtful accounts expense for the year
B. Is the amount of desired credit balance of the allowance for doubtful accounts
to be reported at year-end
C. Is the amount that should be added to the beginning allowance for doubtful
accounts to get the doubtful accounts expense for the year
D. When added to the total accounts written off during the year is the desired credit
balance of the allowance for doubtful accounts at year-end
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 Financial Accounting & Reporting
Journal entries
34. When the allowance method of recognizing bad debt expense is used, the entry to
record the writeoff of a specific uncollectible account would decrease
A. Net income
B. Working capital
C. Allowance for doubtful accounts
D. Net realizable value of accounts receivable

35. When the allowance method of recognizing uncollectible accounts is used, the entry
to record the writeoff of a specific account would
A. Decrease both accounts receivable and net income.
B. Increase the allowance for uncollectible accounts and decrease net income.
C. Decrease both accounts receivable and the allowance for Uncollectible
accounts.
D. Decrease accounts receivable and increase the allowance for uncollectible
accounts.

36. The entry debiting accounts receivable and crediting allowance for doubtful
accounts would be made when
A. A customer defaults on its account.
B. A customer pays its account balance.
C. Estimated uncollectible receivables are too low.
D. A previously defaulted customer pays its outstanding balance.

Effect of transactions
37. When a specific customer's account receivable is written off as uncollectible, what
will be the effect on net income under the allowance and direct writeoff method?
A. No effect under both allowance method and direct writeoff method
B. Decrease under both allowance method and direct writeoff method
C. No effect under allowance method and decrease under direct writeoff method
D. Decrease under allowance method and no effect under direct writeoff method

38. When an entity uses the allowance method for recognizing uncollectible accounts,
the entry to record the writeoff of a specific uncollectible account
A. Affects neither net income nor working capital
B. Decreases both net income and working capital
C. Affects neither net income nor accounts receivable
D. Decreases both net income and accounts receivable

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 Accounts Receivable
39. When the allowance method of recognizing bad debt expense is used, the entries at
the time of collection of an account previously written off would
A. Increase net income
B. Have no effect on net income
C. Decrease the allowance for doubtful accounts
D. Have no effect on the allowance for doubtful accounts

40. An entity uses the allowance method to recognize doubtful accounts expense. What
is the effect of a collection of an account previously written off?
A. No effect on both allowance for doubtful accounts and doubtful accounts
expense
B. Increase in allowance for doubtful accounts and no effect on doubtful accounts
expense
C. Increase in allowance for doubtful accounts and decrease in doubtful accounts
expense
D. No effect on allowance for doubtful accounts and decrease in doubtful accounts
expense

Gross method & net method

41. Of the methods to record cash discounts related to accounts receivable, which is
more theoretically correct?
A. Net method
B. Gross method
C. Allowance method
D. All three methods are theoretically correct

Impairment of receivables
42. Which of the following statements is incorrect regarding how the impairment
assessment is to be performed?
A. Any accounts receivable not individually assessed should be collectively
assessed for impairment.
B. Not individually significant accounts receivable should be assessed individually
and if impaired, the impairment loss is recognized.
C. Individually significant accounts receivable should be considered for
impairment separately and if impaired, the impairment loss is recognized.
D. Any account receivable individually assessed that is not considered impaired
should be included with a group of assets with similar credit-risk characteristics
and collectively assessed for impairment.

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 Financial Accounting & Reporting
Comprehensive
43. Which of the following statements is incorrect regarding receivables?
A. Receivables are financial assets.
B. Receivables are financial instruments.
C. Accounts receivable are written promises of the purchaser to pay for goods or
services.
D. Nontrade receivables are may be reported as separate items in the statement of
financial position.

***end of handouts***

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