ACCOUNTING FOR RECEIVABLES

Claims for which formal instruments of credit are issued as proof of the debt are

• accounts receivable.

• interest receivable.

• notes receivable.

• other receivables.

Trade accounts receivable are valued and reported on the balance sheet

• in the investment section.

• at gross amounts less sales returns and allowances.

• at net realizable value.

• only if they are not past due.

Three accounting issues associated with accounts receivable are

• depreciating, returns, and valuing.

• depreciating, valuing, and collecting.

• recognizing, valuing, and disposing.

• accrual, bad debts, and disposing.

Under the allowance method, writing off an uncollectible account

• affects only balance sheet accounts.

• affects both balance sheet and income statement accounts.

• affects only income statement accounts.

• is not acceptable practice.

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

• will increase income in the period it is collected.

• will decrease income in the period it is collected.

• requires a correcting entry for the period in which the account was written off.

• does not affect income in the period it is collected.

An aging of a company's accounts receivable indicates that $8,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the

adjustment to record bad debts for the period will require a

• debit to Bad Debts Expense for $8,000.

• debit to Allowance for Doubtful Accounts for $6,900.

• debit to Bad Debts Expense for $6,900.

• credit to Allowance for Doubtful Accounts for $8,000.

A reasonable amount of uncollectible accounts is evidence

• that the credit policy is too strict

• that the credit policy is too lenient.

• of a sound credit policy.

• of poor judgments on the part of the credit manager.

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

• debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.

• debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

• debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

• debit to Loss on Credit Sales and a credit to Accounts Receivable.

King Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management

estimates that 2% is the sales percentage to use. What adjusting entry will King Company make to record the bad debts expense?

• Dr. Bad Debts Expense ..................................... 50,000

  Cr. Allowance for Doubtful Accounts .......................... 50,000

• Dr. Bad Debts Expense ................................... 40,000

  Cr. Allowance for Doubtful Accounts .......................... 40,000

• Dr. Bad Debts Expense ......................................... 40,000

  Cr. Accounts Receivable ............................................ 40,000

• Dr. Bad Debts Expense ....................................... 50,000

  Cr. Accounts Receivable ............................................ 50,000

Alpha Corporation applies the percentage of balance sheet method to estimate its bad debts expense. During the fiscal year, the company reports cash sales of $600,000 and credit sales of $1,500,000. At the end of year, balance of account receivable is $1,000,000 and no allowance being made yet. The management has determined that the appropriate percentage for estimating bad debts is 4.5%. What adjusting entry should Alpha Corporation record to account for the bad debts expense?

• Dr. Bad Debts Expense ....... 45,000

  Cr. Allowance for Doubtful Accounts ...... 45,000

• Dr. Bad Debts Expense ...................... 30,000

  Cr. Allowance for Doubtful Accounts ............... 30,000

• Dr. Bad Debts Expense .................................. 30,000

  Cr. Accounts Receivable ...................................... 30,000

• Dr. Bad Debts Expense ................................ 45,000

  Cr. Accounts Receivable .................................... 45,000