Accounting MCQs: Receivables and Inventory

Why do companies create an allowance for uncollectible accounts?

• To comply with cash-basis accounting

• To recognize bad debts only when customers default

• To present accounts receivable at net realizable value and match losses with revenue

• To reduce taxable income in advance

A company estimates uncollectible accounts of $18,000 at year-end. Which journal entry is correct?

• Dr Accounts Receivable 18,000; Cr Bad Debt Expense 18,000

• Dr Uncollectible Accounts Expense 18,000; Cr Allowance for Uncollectible Accounts 18,000

• Dr Cash 18,000; Cr Bad Debt Expense 18,000

• Dr Allowance for Uncollectible Accounts 18,000; Cr Accounts Receivable 18,000

• Dr Inventory Write-Down Loss 12,000; Cr Accounts Payable 12,000

• Dr Inventory 12,000; Cr Allowance for Inventory Write-Down 12,000

• Dr Inventory 12,000; Cr Inventory Write-Down Loss 12,000

• Dr Inventory Write-Down Loss          12,000

     Cr Allowance for  Write-Down  12,000

Which statement about inventory held on consignment is correct?

• The consignee recognizes inventory and a payable at delivery

• The consignor continues to report the inventory until it is sold to a third party

• The consignor records revenue when goods are delivered to the consignee

• The consignee records the inventory upon receipt

Goods are shipped on 30 December under FOB Destination terms. Which statement is correct?

• The buyer records inventory on 30 December

• The seller recognizes revenue on 30 December

• Ownership transfers when goods leave the seller’s warehouse

• Ownership transfers when goods reach the buyer