Chapter 9

Chapter 009 Accounting for Receivables
Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

True/False
Item
DL
LO
Item
DL
LO
Item
DL
LO
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Easy
Easy
Med
Med
Med
Med
Hard
Hard
Easy
Easy
Med
Med
Med
Med
Med
Easy
Easy
Med
Hard
C1
C1
C1
C1
C1
C1
C1
C1
C2
C2
C2
C2
C2
C2
C2
C3
C3
C3
C3
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
Easy
Easy
Med
Med
Med
Med
Easy
Easy
Med
Med
Hard
Med
Med
Med
Med
Med
Med
Hard
Easy
A1
A1
A1
A1
A1
A1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P2
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
Easy
Easy
Med
Med
Med
Hard
Hard
Hard
Easy
Easy
Med
Med
Easy
Easy
Med
Hard
Hard
P2
P2
P2
P2
P2
P2
P2
P2
P3
P3
P3
P3
P4
P4
P4
P4
P4
9-1

Multiple Choice
Item
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
DL
LO
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DL
LO
Item
DL
LO
Easy
Med
Med
Hard
Easy
Easy
Easy
Med
Med
Med
Hard
Med
Med
Hard
Easy
Med
C1
C1
C1
C1
C2
C2
C2
C2
C2
C2
C2
C2
C2
C2
C3
C3
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
Hard
Easy
Easy
Med
Med
Med
Hard
Hard
Med
Med
Hard
Hard
Hard
Easy
Easy
Med
C3
A1
A1
A1
A1
A1
A1
A1
P1
P1
P1
P1
P1
P2
P2
P2
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
Hard
Hard
Hard
Hard
Hard
Easy
Med
Med
Med
Easy
Easy
Hard
Hard
Hard
Hard
P2
P2
P2
P2
P2
P3
P3
P3
P3
P4
P4
P4
P4
P4
P4
DL
LO
Item
DL
LO
Item
DL
LO
Med
C1,C1,
P1,P2
Med
C1-C3,
A1,
P1-P4
DL
LO
Item
DL
LO
Med
Hard
Hard
A1
P1
P2
Easy
Easy
Med
P3
P4
Matching
Item
103.
104.
Short Essay
Item
105.
106.
107.
DL
LO
Med
Hard
Med
C1
C2
C3
Item
108.
109.
110.
9-2
111.
112.
113.

Problems
Item
DL
LO
114.
115.
116.
117.
118.
119.
Med
Med
Med
Med
Easy
Med
C1
C1
C1
C1
C2
C2
120.
Med
121.
122.
123.
Item
DL
LO
124.
125.
126.
127.
128.
129.
Med
Easy
Med
Hard
Med
Hard
C3
A1
A1
A1
P1
P1
C2
130.
Hard
Med
C2
131.
Med
Med
C2
C1,C3
132.
133.
Item
DL
LO
134.
135.
136.
137.
138.
139.
Hard
Med
Med
Hard
Med
Hard
P1
140.
Med
Med
P2
141.
Hard
Med
Med
P2
P2
142.
Med
P2
P2
P1,P2
P2
P1,P2
C1,C2,
P1,P3,
P4
C1,C2,
P3,P4
C2,P3,
P4
P3,P4
DL
LO
DL
LO
Hard
Med
Med
Med
Med
C3
A1
P1
P1
P1
Easy
Easy
Easy
Hard
Easy
P2
P2
P2
P3
P4
DL
LO
DL
LO
Med
Hard
A1
C1,C2
Hard
C1,P2
Completion Problems
Item
143.
144.
145.
146.
147.
DL
LO
Easy
Easy
Easy
Easy
Easy
C1
C2
C2
C2
C2
DL
LO
Easy
Med
C1
P1
Item
148.
149.
150.
151.
152.
Item
153.
154.
155.
156.
157.
Problems
Item
158.
159.
Item
160.
161.
9-3
Item
162.
True / False Questions

1. Accounts receivable occur from credit sales to customers.
TRUE
AACSB: Communications
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C1
2. Credit sales are recorded by crediting an Accounts Receivable.

FALSE
AICPA BB: Industry
Difficulty: Easy
3. As long as a company accurately records total credit sales information, it is not necessary to
have separate accounts for specific customers.
FALSE
AICPA BB: Industry
AICPA FN: Leveraging Technology
Difficulty: Medium
4. If a customer owes interest on accounts receivable, Interest Revenue is debited and

Accounts Receivable is credited.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-4
5. If a credit card sale is made, the seller can either debit Cash or debit Accounts receivable at
the time of the sale depending on the type of credit card.
TRUE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
6. Installment accounts receivable are classified as current assets, even though the installment
period is more than one year, if the seller regularly offers customers such terms
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
7. Companies can report credit card expense as a discount deducted from sales or as a selling
expense.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard
8. TechCom's customer, RDA, paid off an $8,300 balance on its account receivable. TechCom
should record the transaction as a debit to Accounts Receivable-RDA and a credit to Cash.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-5
9. The maturity date of a note refers to the date the note must be paid.
TRUE
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: Easy
10. A promissory note is a written promise to pay a specified amount of money either on
demand or at a definite future date.
TRUE
AICPA BB: Industry
Difficulty: Easy
11. The formula for computing interest on a note is principal of the note times the annual
interest rate times time expressed in years.
TRUE
AICPA BB: Industry
Difficulty: Medium
12. The person that borrows money and signs a promissory note is called the payee.
FALSE
AICPA BB: Industry
Difficulty: Medium
9-6
13. A company borrowed $1,000 by signing a six month promissory note at 5% interest. The
total amount of interest is $25.
TRUE
$1,000 x .05 x 6/12 = $25
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
14. A company borrowed $6,000 by signing a 4-month promissory note at 12%. The total
interest on the note is $720.
FALSE
$6,000 x 0.12 x 4/12 = $240
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
15. Sellers generally prefer to receive notes receivable rather than accounts receivable when
the credit period is long and the receivable is for a large amount.
TRUE
AICPA BB: Industry
Difficulty: Medium
9-7
16. Receivables can be used to obtain cash by either selling them or using them as security for
a loan.
TRUE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
17. The process of using accounts receivable as security for a loan is known as factoring
accounts receivable.
FALSE
AICPA BB: Industry
Difficulty: Easy
18. Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is
not necessary to disclose the pledging.
FALSE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
19. A company factored $35,000 of its accounts receivable and was charged a 2% factoring
fee. The journal entry to record this transaction would include a debit to Cash of $35,000, a
debit to Factoring Fee Expense of $700, and credit to Accounts Receivable of $35,700.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-8
20. The quality of receivables refers to the likelihood of collection without loss.
TRUE
AICPA BB: Industry
Difficulty: Easy
Learning Objective: A1
21. The accounts receivable turnover indicates how often accounts receivable are received and
collected during the period.
TRUE
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: Easy
22. A high accounts receivable turnover in comparison with competitors suggests that the firm
should tighten its credit policy.
FALSE
AICPA BB: Industry
Difficulty: Medium
23. The accounts receivable turnover is calculated by dividing net sales by average accounts
receivable.
TRUE
AICPA BB: Industry
Difficulty: Medium
9-9
24. A company had net sales of $500,000 and an average accounts receivable of $80,000. Its
accounts receivable turnover equals 6.25.
TRUE
$500,000/$80,000 = 6.25
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
25. A Company had net sales of $23,000 million, and its average account receivables were
$5,860 million. Its accounts receivable turnover is 0.92.
FALSE
$23,000/$5,860 = 3.9
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
26. The direct write-off method of accounting for bad debts records the loss from an
uncollectible account receivable when it is determined to be uncollectible.
TRUE
AICPA BB: Industry
Difficulty: Easy
Learning Objective: P1
9-10
27. The matching principle requires use of the direct write-off method of accounting for bad
debts.
FALSE
AICPA BB: Industry
Difficulty: Easy
28. Companies follow both the matching principle and the materiality constraint when
applying the direct write-off method.
FALSE
AICPA BB: Industry
Difficulty: Medium
29. The use of an allowance for bad debts is required under the materiality constraint.
FALSE
AICPA BB: Industry
Difficulty: Medium
30. The advantage of the allowance method of accounting for bad debts is that it identifies the
specific customers who will not pay their bills.
FALSE
AICPA BB: Industry
Difficulty: Hard
9-11
31. Companies use two methods to account for uncollectible accounts, the direct write-off
method and the allowance method.
TRUE
AICPA BB: Industry
Difficulty: Medium
32. Under the allowance method of accounting for uncollectible accounts receivable, no
attempt is made to predict bad debts expense.
FALSE
AICPA BB: Industry
Difficulty: Medium
33. The materiality constraint permits the use of the direct write-off method of accounting for
uncollectible accounts when bad debts are very large in relation to a company's other financial
statement items such as sales and net income.
FALSE
AICPA BB: Industry
Difficulty: Medium
34. When using the allowance method of accounting for uncollectible accounts, the entry to
record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts
Receivable.
FALSE
AICPA BB: Industry
Difficulty: Medium
9-12
35. After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of
reducing accounts receivable to its estimated realizable value.
TRUE
AICPA BB: Industry
Difficulty: Medium
36. When using the allowance method of accounting for uncollectible accounts, the entry to
write off Harold's uncollectible account is a debit to Allowance for Doubtful Accounts and a
credit to Accounts Receivable Harold.
TRUE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
37. When using the allowance method of accounting for uncollectible accounts, the recovery
of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
38. The aging of accounts receivable involves classifying each account receivable by how
long it is past its due date and estimating the amount that is uncollectible.
TRUE
AICPA BB: Industry
Difficulty: Easy
9-13
39. Installment accounts receivable is another name for aging of accounts receivable.
FALSE
AICPA BB: Industry
Difficulty: Easy
40. The accounts receivable method to estimate bad debts obtains the estimated balance in the
Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible
from the total accounts receivable or (2) aging accounts receivable.
TRUE
AICPA BB: Industry
Difficulty: Easy
41. The percent of sales method for estimating bad debts assumes that a given percent of a
company's credit sales for the period are uncollectible.
TRUE
AICPA BB: Industry
Difficulty: Medium
42. The percent of accounts receivable method for bad debts estimation uses only income
statement account balances to estimate bad debts.
FALSE
AICPA BB: Industry
Difficulty: Medium
9-14
43. The aging method of determining bad debts expense is based on the knowledge that the
longer a receivable is past due, the lower the likelihood of collection.
TRUE
AICPA BB: Industry
Difficulty: Medium
44. A company has $90,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of outstanding
receivables are uncollectible. The current credit balance (before adjustments) in the allowance
for doubtful accounts is $800. The journal entry to record the adjustment to the allowance
account includes a debit to Bad Debts Expense for $7,000.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
45. A company has sales of $350,000 and estimates that 0.7% of its sales are uncollectible.
The estimated amount of bad debts expense is $2,450.
TRUE
$350,000 x .007 = $2,450
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-15
46. The percent of sales method of estimating bad debts is focused more on realizable value of
accounts receivable than matching.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
47. When a company holds a large number of notes receivable it sometimes sets up a
controlling account and a subsidiary ledger for notes.
TRUE
AICPA BB: Industry
AICPA FN: Leveraging Technology
Difficulty: Easy
48. Notes receivable are classified as current liabilities.

FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
49. A company received a $1,000, 90-day, 10% note receivable. The journal entry to record
receipt of the note includes a debit to Notes Receivable.
TRUE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-16
50. For legal reasons, it is always a good business practice to accept a note receivable in
exchange for an overdue account receivable.
TRUE
AACSB: Reflective Thinking

AICPA BB: Legal
Difficulty: Medium
51. A payee of a note always honors a note and pays it in full.

FALSE
AICPA BB: Industry
Difficulty: Easy
52. A maker who dishonors a note is one who does not pay it at maturity.
TRUE
AICPA BB: Industry
Difficulty: Easy
53. A dishonored note receivable is usually reclassified as an account receivable.

TRUE
AICPA BB: Industry
Difficulty: Medium
9-17
54. The practice of placing dishonored notes receivable into accounts receivable keeps only
notes that have not matured in the Notes Receivable account.
TRUE
AICPA BB: Industry
Difficulty: Hard
55. The matching principle requires that accrued interest on outstanding notes receivable be
recorded at the end of each accounting period.
TRUE
AICPA BB: Industry
Difficulty: Hard
Multiple Choice Questions

56. Accounts receivable information for specific customers is important because it reveals:
A. How much each customer has purchased on credit.
B. How much each customer has paid.
C. How much each customer still owes.
D. The basis for sending bills to customers.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
9-18
57. A credit sale of $3,275 to a customer would result in:

A. A debit to the Accounts Receivable account in the general ledger and a debit to the
customer's account in the accounts receivable subsidiary ledger.
B. A credit to the Accounts Receivable account in the general ledger and a credit to the
C. A debit to the Accounts Receivable account in the general ledger and a credit to the
D. A credit to the Accounts Receivable account in the general ledger and a debit to the
E. A credit to Sales and a credit to the customer's account in the accounts receivable
subsidiary ledger.
AICPA BB: Industry
Difficulty: Medium
58. Sellers allow customers to use credit cards:

A. To avoid having to evaluate a customer's credit standing for each sale.
B. To lessen the risk of extending credit to customers who cannot pay.
C. To speed up receipt of cash from the credit sale.
D. To increase total sales volume.
E. All of these.
AICPA BB: Industry
Difficulty: Medium
9-19
59. Credit card expense may be classified as:

A. A "discount" deducted from sales to get net sales.
B. A selling expense.
C. An administrative expense.
D. All of these.
E. Only A and B.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard
60. A promissory note received from a customer in exchange for an account receivable:
A. Is a cash equivalent for the recipient.
B. Is an account receivable for the recipient.
C. Is a note receivable for the recipient.
D. Is a short-term investment for the recipient.
E. Is a note payable for the recipient.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
61. The person who signs a note receivable and promises to pay the principal and interest is
the:
A. Maker.
B. Payee.
C. Holder.
D. Receiver.
E. Owner.
AICPA BB: Industry
Difficulty: Easy
9-20
62. The accounting principle that requires financial statements (including notes) to report all
relevant information about the operations and financial condition of a company is called:
A. Relevance.
B. Full disclosure.
C. Evaluation.
D. Materiality.
E. Matching.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
63. A promissory note:

A. Is a short-term investment for the maker.
B. Is a written promise to pay a specified amount of money at a certain date.
C. Is a liability to the payee.
D. Is another name for an installment receivable.
E. Cannot be used in payment of an account receivable.
AICPA BB: Industry
Difficulty: Medium
64. The maturity date of a note receivable:

A. Is the day of the credit sale.
B. Is the day the note was signed.
C. Is the day the note is due to be paid.
D. Is the date of the first payment.
E. Is the last day of the month.
AICPA BB: Legal
Difficulty: Medium
9-21
65. The interest accrued on $6,500 at 6% for 60 days is:

A. $ 36.
B. $ 42.
C. $ 65.
D. $180.
E. $420.
$6,500 x 0.06 x 60/360 = $65
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
66. A 90-day note issued on April 10 matures on:

A. July 9.
B. July 10.
C. July 11.
D. July 12.
E. July 13.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-22
67. A company receives a 10%, 90-day note for $1,500. The total interest due on the maturity
date is:
A. $ 50.00
B. $150.00.
C. $ 75.00.
D. $ 37.50.
E. $ 87.50.
$1,500 x 0.10 x 90/360 = $37.50
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
68. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The total
interest due on the maturity date is.
A. $50
B. $275
C. $550
D. $825
E. $1,100
$10,000 x 0.11 x 1/2 = $550
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-23
69. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The maturity
value of the note is:
A. $12,050
B. $12,275
C. $10,550
D. $12,825
E. $13,100
$10,000 + ($10,000 x 0.11 x 180/360) = $10,550
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
70. The buyer who purchases and takes ownership of another company's accounts receivable
is called a:
A. Payer.
B. Pledgor.
C. Factor.
D. Payee.
E. Pledgee.
AICPA BB: Industry
Difficulty: Easy
71. Pledging receivables:

A. Allows firms to raise cash.
B. Allows a firm to retain ownership of its receivables.
C. Does not transfer risk of bad debts to the lender.
D. Should be disclosed in the financial statements.
E. All of these.
AICPA BB: Industry
Difficulty: Medium
9-24
72. A company factored $45,000 of its accounts receivable and was charged a 3% factoring
fee. The journal entry to record this transaction would include a:
A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,350, and credit to
Accounts Receivable of $43,650.
B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C. Debit to Cash of $43,650, a debit to Factoring Fee Expense of $1,350, and a credit to
Accounts Receivable of $45,000.
D. Debit to Cash of $46,350 and a credit to Accounts Receivable of $46,350.
E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
$45,000 x .03 = $1,350
$45,000 - $1,350 = $43,650
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
73. The quality of receivables refers to:

A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.
AICPA BB: Industry
Difficulty: Easy
9-25
74. The account receivable turnover measures:

A. How long it takes to sell accounts receivable to a factor.
B. How often, on average, receivables are received and collected during the period.
C. The relation of cash sales to credit sales.
D. How long it takes to sell merchandise inventory.
E. All of these.
AICPA BB: Industry
Difficulty: Easy
75. The accounts receivable turnover is calculated by:

A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
AICPA BB: Industry
Difficulty: Medium
76. A company has net sales of $900,000 and average accounts receivable of $300,000. What
is its accounts receivable turnover for the period?
A. 0.20.
B. 5.00
C. 20.0
D. 73.0
E. 3.0
$900,000/$300,000 = 3.0
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-26
77. Dell reported net sales of $8,739 million and average accounts receivable of $864 million.
Its accounts receivable turnover is:
A. 0.90.
B. 10.1.
C. 36.1.
D. 50.0.
E. 3,686.
$8,739/$864 = 10.1
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
78. Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coke's
turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A. Coke has the better turnover for both years.
B. Pepsi has the better turnover for both years.
C. Coke's turnover is improving.
D. Coke's credit policies are too loose
E. Coke is collecting its receivables more quickly than Pepsi in both years.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-27
79. A company had net sales of $600,000, total sales of $750,000, and an average accounts
receivable of $75,000. Its accounts receivable turnover equals:
A. .13
B. .80
C. 7.75
D. 8.00
E. 10.00
$600,000/$75,000 = 8.00
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
80. The matching principle requires:

A. That expenses be ignored if their effect on the financial statements is unimportant to users'
business decisions.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
AICPA BB: Industry
Difficulty: Medium
9-28
81. The materiality principle:

A. States that an amount can be ignored if its effect on financial statements is unimportant to
user's business decisions.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. States that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.
AICPA BB: Industry
Difficulty: Medium
82. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount
of a bad debt being written off, the entry to record the write-off against the allowance account
results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-29
83. On October 29 of the current year, a company concluded that a customer's $4,400 account
receivable was uncollectible and that the account should be written off. What effect will this
write-off have on this company's net income and total assets assuming the allowance method
is used to account for bad debts?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-30
84. Newton Company uses the allowance method of accounting for uncollectible accounts.
On May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer,
P. Best. On July 10, Newton received a check for the full amount of $3,000 from Best. On
July 10, the entry or entries Newton makes to record the recovery of the bad debt is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
85. The amount of bad debt expense can be estimated by:

A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. All of these.
E. Only B and C.
AICPA BB: Industry
Difficulty: Easy
9-31
86. A method of estimating bad debts expense that involves a detailed examination of
outstanding accounts and their length of time past due is the:
A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percentage of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.
AICPA BB: Industry
Difficulty: Easy
87. An accounting procedure that (1) estimates and reports bad debts expense from credit
sales during the period the sales are recorded, and (2) reports accounts receivable at the
estimated amount of cash to be collected is the:
A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
AICPA BB: Industry
Difficulty: Medium
9-32
88. On December 31 of the current year, a company's unadjusted trial balance included the
following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts,
credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6%
of outstanding accounts receivable at the end of the current year will be uncollectible?
A. $ 951.
B. $3,992.
C. $4,884.
D. $5,835.
E. $6,786.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-33
89. A company ages its accounts receivables to determine its end of period adjustment for bad
debts. At the end of the current year, management estimated that $15,750 of the accounts
receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance
for Doubtful Accounts had a debit balance of $175. What adjusting entry should the company
make at the end of the current year to record its estimated bad debts expense?
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-34
90. A company used the percent of sales method to determine its bad debts expense. At the
end of the current year, the company's unadjusted trial balance reported the following selected
amounts:
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What amount should be debited to Bad Debts Expense when the
year-end adjusting entry is prepared?
A. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500
$800,000 x .006 = $4,800
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-35
91. A company used the percent of sales method to determine its bad debts expense. At the
end of the current year, the company's unadjusted trial balance reported the following selected
amounts:
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What adjusting entry should the company make at the end of the
current year to record its estimated bad debts expense?
A.
B.
C.
D.
E.
$800,000 x .006 = $4,800
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-36
92. A company has $90,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of outstanding
receivables are uncollectible. The current debit balance (before adjustments) in the allowance
for doubtful accounts is $800. The journal entry to record the adjustment to the allowance
account includes a debit to Bad Debts Expense for:
A. $4,600
B. $5,400
C. $6,200
D. $6,800
E. None of these
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
93. Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's
entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
9-37
94. The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:
A. $6,000.
B. $6,480.
C. $5,520.
D. $6,080.
E. $5,920.
Interest: $6,000 x .08 x 60/360 = $80
Maturity value: $6,000 + $80 = $6,080
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
95. Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day,
10% promissory note for the $5,000. TechCom's journal entry to record the sales portion of
the transaction is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-38
96. MixRecording Studios purchased $7,800 in electronic components from TechCom.

MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal
entry to record the sales portion of the transaction is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
97. When the maker of a note honors a note this indicates that the note is:
A. Signed.
B. Paid in full.
C. Guaranteed.
D. Notarized.
E. Cosigned.
AICPA BB: Industry
Difficulty: Easy
9-39
98. Failure by a promissory note's maker to pay the amount due at maturity is known as:
A. Protesting a note.
B. Closing a note.
C. Dishonoring a note.
D. Discounting a note.
E. Depreciating a note.
AICPA BB: Industry
Difficulty: Easy
99. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on
January 15 of the next year when the note is paid?
A.
B.
C.
D.
E.
Interest accrued at December 31: $4,800 x .10 x 75/360 = $100
Interest earned during January: $4,800 x .10 x 15/360 = $20
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-40
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on
December 31, to record the accrued interest on the note?
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-41
TechCom accepted Teller's $4,800, 90-day, 10% note. If the note is dishonored, what entry
should TechCom make on January 15 of the next year?
A.
B.
C.
D.
E.
Interest earned during January: $4,800 x .10 x 15/360 =$20
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-42
102. MixRecording Studios purchased $7,800 in electronic components from TechCom.

MixRecording Studios signed a 60-day, 10% promissory note for $7,800. If the note is
dishonored, what is the amount due on the note?
A. $130
B. $7,800
C. $7,930
D. $8,050
E. $8,130
$7,800 x .10 x 60/360 = $130 + $7,800 = $7,930
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-43
Matching Questions
103. Match each of the following terms with the appropriate definitions.
One who signs a note and promises to pay it at
maturity.
The accounts of customers who do not pay what they
2. Payee of a note
have promised to pay a company.
A process of classifying accounts receivable by how
3. Allowance for
long it is past its due date for the purpose of estimating
doubtful accounts
the amount of uncollectible accounts.
4. Accounts
The cost of borrowing money for a borrower,
receivable
alternatively the profit from lending money for a lender.
5. Matching
A written promise to pay a specified amount either on
principle
demand or at a definite future date.
The one to whom the promissory note is made
6. Interest
payable.
Amounts due from customers arising from credit
7. Promissory note
sales.
A contra asset account with a balance approximating
the amount of accounts receivable expected to be
8. Maker of a note
uncollectible.
The expected proceeds from converting an asset into
9. Bad debts
cash.
The accounting principle that requires expenses to be
10. Aging of
reported in the same period as the sales they helped to
accounts receivable
produce.
1. Realizable value
AICPA BB: Industry
Difficulty: Medium
9-44
8
9
10
6
7
2
4
3
1
5
104. Match each of the following terms with the appropriate definitions.
A method of accounting for bad debts that matches

1. Principal of a
the estimated loss from uncollectible accounts receivable
note
against the sales they helped to produce.
Amounts owed by customers from credit sales for
2. Full disclosure
which payment is required in periodic payments over an
principle
extended period of time.
The amount that the signer of a note agrees to pay
3. Factor
back when the note matures, not including interest.
The accounting principle that requires the financial
4. Accounts
statements (including the notes) to report all relevant
receivable turnover
information about operations and financial condition.
The accounting constraint that states that an amount
5. Materiality
can be ignored if its effect on the financial statements is
constraint
unimportant to their users.
A method of accounting for bad debts that records the
6. Allowance
loss from an uncollectible account receivable when it is
method
determined to be uncollectible.
Refers to a note maker's inability or refusal to pay the
7. Maker of a note
note at maturity.
A measure of both the quality and liquidity of
8. Installment
accounts receivable. It indicates how often, on average,
accounts receivable receivables are received and collected during the period.
A buyer of accounts receivable who charges the seller
9. Dishonoring a
a fee and then receives cash from the receivables as they
note
come due.
One who signs a note and promises to pay it at
10. Direct write-off
maturity.
AICPA BB: Industry
Difficulty: Medium
Learning Objective: C1-C3
Learning Objective: P1-P4
9-45
6
8
1
2
5
10
9
4
3
7
Short Answer Questions

105. Describe how accounts receivable arise and how they accounted for, including the use of
a subsidiary ledger and an allowance account.
Accounts receivable arise from credit sales to customers. Accounts receivable are reported at
their realizable value, which is their total amount less an estimate for the amount of
uncollectible accounts. Accounts receivable are also recorded into an accounts receivable
subsidiary ledger that separately lists amounts owed by individual customers.
AICPA BB: Industry
AICPA FN: Measurement, Leveraging Technology
Difficulty: Medium
106. Define a note receivable and explain how to calculate the interest due on a short-term
note receivable.
A note receivable is a promissory note, which is a written promise to pay a specified amount
of money either on demand or at a definite future date. Interest on a note receivable that
matures in less than one year is calculated by multiplying the principal of the note times the
annual interest rate times the time of the note expressed in years.
AICPA BB: Industry
Difficulty: Hard
9-46
107. Explain the options a company has to convert its receivables to cash.
A company's receivables are normally converted to cash as the customers pay off their
accounts. However, there are at least three options available to a company that wishes to
convert its receivables before they are at least due. First a company can sell the receivables to
a factor. Second, a company can use its receivables as collateral for a loan. Third, a company
can discount the receivables to a bank in return for cash.
AICPA BB: Industry
Difficulty: Medium
108. What is the accounts receivable turnover ratio? How is it calculated? How is it used to
assess financial condition?
The accounts receivable turnover ratio is used to measure how often, on average, receivables
are received and collected during an accounting period. It is calculated by dividing net sales
by average accounts receivable. Analysts use the ratio to measure both the quality and
liquidity of accounts receivable. Quality refers to the likelihood of collection without loss.
Liquidity refers to the speed of collections.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-47
109. How are the direct write-off method and the allowance method applied in accounting for
uncollectible accounts receivables?
The direct write-off method charges Bad Debts Expense when (and not until) individual
accounts receivable are determined to be uncollectible. Under the allowance method,
estimated bad debt expense is recorded at the end of each accounting period by debiting Bad
Debts Expense and crediting an Allowance for Doubtful Accounts. The amount of bad debts
expense is determined by applying one of several estimation methods. Individual
uncollectible accounts are later written off with a debit to the Allowance for Doubtful
Accounts and a credit to the specific account receivable.
AICPA BB: Industry
Difficulty: Hard
110. Explain the basic difference between estimating the amount of uncollectible accounts
using the percent of sales method and the accounts receivable method.
The percent of sales method emphasizes the income statement relation between Bad Debts
Expense and Sales. It is based on the matching principle and assumes that bad debts are
incurred and can be estimated at the time of sale. The accounts receivable method emphasizes
the realizable value of Accounts Receivable. The accounts receivable method uses either a
percent of total accounts receivable or an aging of accounts receivable to estimate the amount
of uncollectible accounts.
AICPA BB: Industry
Difficulty: Hard
9-48
111. Explain how to record the receipt of a note receivable.

The receipt of a note receivable is recorded by entering the total amount borrowed (principal)
as a debit to Notes Receivable and as a credit to the account representing the asset or service
exchanged for the note (typically cash or accounts receivable).
AICPA BB: Industry
Difficulty: Easy
112. Explain the difference between honoring and dishonoring a note receivable.
When a note is honored, the maker of the note pays the note at maturity. When a note is
dishonored, the maker is unable or refuses to pay the note at maturity.
AICPA BB: Industry
Difficulty: Easy
113. What important information did Kevin Plank of UnderArmour learn from his business
partner Sal Fasciana regarding receivables. What are some of the receivables issues that Kevin
found to be important?
Decisions on credit sales and policies for extending credit can make or break a start-up. Kevin
ensured that credits sales were extended to customers in good credit standing. Kevin got to
know his customers, including who pays and when. He became familiar with his customers
cash payment patterns that allowed him to estimate uncollectibles and minimize bad debts.
Kevin reviews his allowance for doubtful accounts monthly. By analyzing payment patterns
of customers, he knows which customers to extend credit to and can minimize future losses
from uncollectible accounts.
AICPA BB: Industry
Difficulty: Medium
9-49
Problems
114. A company allows its customers to use bank credit cards to charge purchases. When
customers use the credit cards, the net amount is deposited in the company's checking
account. The company also is charged a 2.5% service charge for these credit card sales.
Assume that on April 13, the company sold $25,000 worth of merchandise to customers who
used credit cards. Prepare the company's journal entry to record the credit card sales for April
13 assuming the company deposited the receipts that same day.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
115. Crystal Products allows customers to use bank credit cards to charge purchases. The
bank used by Crystal Products processes all bank credit cards in exchange for a 3%
processing fee. All credit card receipts deposited are credited to the company account on the
day of deposit. Assume that on January 18, Crystal Products sold and deposited $19,000
worth of bank credit card receipts. Prepare the general journal entry to record this transaction.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-50
116. Tecom accepts the NOVA credit card for credit card sales. Tecom sends credit card
receipts to NOVA on a weekly basis. NOVA charges Tecom a 2% fee. Tecom usually receives
payment from NOVA within a week. Prepare journal entries to record the following
transactions of Tecom involving the NOVA credit card.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-51
117. Outdoors Unlimited accepts the Explorer credit card from its customers. Explorer
charges a 3.5% service fee and pays Outdoors Unlimited the amount net of Explorer charges
once a month. During February, Outdoors Unlimited sold $27,000 worth of merchandise to
customers using the Explorer charge card. On February 28, Outdoor Unlimited sent the
$27,000 worth of credit card receipts to Explorer. On March 4, Outdoors Unlimited received
cash proceeds from Explorer for the February credit sales less the service charge. Prepare the
journal entries to record February sales and the March 4 cash receipt.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
118. What is the maturity date of a 6-month note receivable dated February 5?
August 5
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
119. What is the amount of interest that is due on a $36,000, 90-day, 4% note receivable at
maturity?
$36,000 x .04 x 90/360 = $360
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-52
120. Calculate the amount of interest that would be owed on a $9,000, 60-day, 9% note
receivable at maturity.
$9,000 x .09 x 60/360 = $135
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
121. If a 90-day note receivable is dated June 12, what is the maturity date of the note?
September 10
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
122. If a 60-day note receivable is dated September 22, what is the maturity date of the note?
November 21
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-53
123. On May 31, a company had a balance in its accounts receivable of $103,895. Prepare
journal entries to record the following transactions for June.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
124. ABC Co. sold $80,000 of accounts receivable to First Bank and incurred a 2% factoring
fee. Prepare the journal entry for ABC Co. to record the sale.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-54
125. Hasbro had net sales of $7,875 and its average accounts receivables is $1,350. Calculate
Hasbro's accounts receivable turnover:
$7,875/$1,350 = 5.8 times
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
126. Tecom had net sales of $315,000 and average accounts receivable of $75,600. Its
competitor, ZCom, had net sales of $299,000 and average accounts receivables of $81,350.
Calculate the accounts receivable turnover for both companies. Which company is doing a
better job of managing its accounts receivables?
Tecom: $315,000/$75,600 = 4.2 times
ZCom: $299,000/$81,350 = 3.7 times
Tecom has a higher accounts receivable turnover. This implies it is doing a better job of
managing its receivables than ZCom.
AACSB: Analytic
AICPA BB: Industry, Critical Thinking
Difficulty: Medium
9-55
127. A company reports the following results in its financial statements:
Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these
two results and give a possible explanation for any significant change.
Year 2 accounts receivable turnover:
Year 3 accounts receivable turnover:
AACSB: Analytic
Difficulty: Hard
9-56
128. The Connecting Company uses the percent of sales method of accounting for
uncollectible accounts receivable. During the current year, the following transactions
occurred:
1. Prepare the general journal entries to record these transactions.

2. If the balance of the allowance for uncollectible accounts was $8,000 on January 1 of the
current year, determine the balance of the allowance for uncollectible accounts at December
31 of the current year. Assume that the transactions above are the only transactions affecting
the allowance for uncollectible accounts during the year.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-57
129. Timmons Company had a January 1, balance in its Allowance for Doubtful Accounts of
$7,000 for the current year. The following transactions and events affected the Allowance for
Doubtful Accounts during the current year:
What amount should appear in the allowance for doubtful accounts in the December 31,
balance sheet for the current year?
$7,000 - $5,700 + $2,300 + $7,500 = $11,100.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-58
130. Griggs Company uses the direct write-off method of accounting for uncollectible
accounts receivable. On December 6, 2008, Griggs sold $6,300 of merchandise to the Hillman
Company. On August 8, 2009, after numerous attempts to collect the account, Griggs
determined that the $6,300 account of the Hillman Company was uncollectible.
a. Prepare the journal entry required to record the transactions on August 8.
b. Assuming that the $6,300 is material, explain how the direct write-off method violates the
matching principle in this case.
a.
b. In this case, the Bad Debts Expense was recorded in 2009, but the sale was recorded in
2008. Extending credit to customers helped produce the sales. The bad debts expense was
recorded in a different period from the sale it helped to produce which violates the matching
principle.
AACSB: Analytic
Difficulty: Hard
9-59
131. At December 31 of the current year, a company reported the following:

Total sales for the current year: $780,000 includes $160,000 in cash sales.
Balance of Accounts receivable balance at Dec. 31, current year: $190,000.
Bad debts written off during the current year: $6,800.
Balance of Allowance for Doubtful Accounts at January 1, current year: $8,300.
Prepare the necessary adjusting entries to record bad debts expense assuming this company's
bad debts are estimated to equal:
(a) 1.5% of credit sales.
(b) 5% of accounts receivable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-60
132. A company has the following unadjusted account balances at December 31, of the
current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of
$1,600 (credit balance). The company uses the aging of accounts receivable to estimate its bad
debts. The following aging schedule reflects its accounts receivable at the current year-end:
1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the
December 31, of the current year, balance sheet.
2. Prepare the adjusting journal entry to record bad debts expense for the current year .
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-61
133. A company had the following items and amounts in its unadjusted trial balance as of
December 31 of the current year:
Prepare the adjusting entry to estimate bad debts under each of the following separate
situations.
1. Bad debts are estimated to be 2.5% of credit sales.
2. An aging analysis estimates that 8% of the outstanding accounts receivable will be
uncollectible.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-62

134. A company uses the aging of accounts receivable method to estimate its bad debts
expense. On December 31 of the current year an aging analysis of accounts receivable
revealed the following:
Required:
a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on
the current year-end balance sheet.
b. Calculate the amount of the Bad Debts Expense that should be reported on the current
year's income statement, assuming that the balance of the Allowance for Doubtful Accounts
on January 1 of the current year was $44,000 and that accounts receivable written off during
the current year totaled $49,200.
c. Prepare the adjusting entry to record bad debts expense on December 31 of the current year.
d. Show how Accounts Receivable will appear on the current year-end balance sheet as of
December 31.
9-63
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-64
On December 31, of the current year, a company's unadjusted trial balance revealed the
following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75% were on
credit), and Allowance for Doubtful Accounts of $1,600 (credit balance).
135. Prepare the adjusting journal entry to record the estimate for bad debts assuming:
1. 6% of the accounts receivable balance is assumed to be uncollectible.
2. Bad debts expense is estimated to be 1.5% of credit sales.
1.
2.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-65
136. Assume that a company's bad debts are estimated and recorded as 1.5% of credit sales.
1. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear
on the balance sheet after adjustment.
2. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear
on the balance sheet immediately after writing off the account in part 2.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-66
137. Each December 31, Davis Company ages its accounts receivable to determine the
amount of its adjustment for bad debts. At the end of the current year, management estimated
that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for
Doubtful Accounts account had a debit balance of $3,200 before any year-end adjustment for
bad debts. Prepare the adjusting journal entry that Davis Company should make on December
31, of the current year, to estimate bad debts expense.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-67
138. A company that uses the percent of sales to account for its bad debts had credit sales of
$740,000 in 2008, including a $720 sale to Helen Sweet. On December 31, 2008, the
company estimated its bad debts at 1.5% of its credit sales. On June 1, 2009, the company
wrote off, as uncollectible, the $720 account of Helen Sweet. On December 21, 2009, Helen
Sweet unexpectedly paid her account in full. Prepare the necessary journal entries:
(a) on December 31, 2008, to reflect the estimate of bad debts expense; (b) on June 1, 2009, to
write off the bad debt; and (c) on December 21, 2009, to record the unexpected collection.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-68

139. The following series of transactions occurred during 2008 and 2009, when Linwood Co.
sold merchandise to John Moore. Linwood's annual accounting period ends on December 31.
Prepare Linwood Co.'s journal entries to record the above transactions. The company uses the
allowance method to account for its bad debt expense.
9-69
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-70
140. Prepare general journal entries for the following transactions of Viking Company,
assuming they use the allowance method to account for uncollectible accounts.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
9-71
141. Cairo Co. uses the allowance method of accounting for uncollectible accounts. Cairo Co.
accepted a $5,000, 12%, 90-day note dated May 16, from Alexandria Co. in exchange for its
past-due account receivable. Make the necessary general journal entries for Cairo Co. on May
16 and the August 14 maturity date, assuming that the:
a. Note is held until maturity and collected in full at that time.
b. Note is dishonored; the amount of the note and its interest are written off as uncollectible.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
9-72
142. Prepare general journal entries for the following transactions of this company for the
current year:
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
Fill in the Blank Questions

143. A supplementary record created to maintain a separate account for each customer is
called the ________________________.
Accounts receivable ledger
AICPA BB: Industry
Difficulty: Easy
9-73
144. A ____________________ is a signed promise to pay a specified amount of money

either on demand or at a definite future date.
Promissory note
AICPA BB: Industry
Difficulty: Easy
145. The person to whom a note is payable is known as the ______________.

Payee
AICPA BB: Industry
Difficulty: Easy
146. ____________________ is the charge for using (not paying) money until a later date.
Interest
AICPA BB: Industry
Difficulty: Easy
147. The ____________________ of a note is the day the principle plus interest of a note
must be repaid.
Maturity date
AICPA BB: Industry
Difficulty: Easy
9-74
148. Converting receivables to cash before they are due is usually done by either (1)
_______________________ or (2) ________________________________.
(1) Selling them (2) using them as security for a loan.
AICPA BB: Industry
Difficulty: Hard
149. The accounts receivable turnover is calculated by dividing _________________ by

_____________________.
Net sales; Average accounts receivable.
AICPA BB: Industry
Difficulty: Medium
150. The ________________ method of accounting for bad debts records the loss from an
uncollectible account receivable at the time it is determined to be uncollectible (and not
before).
Direct write-off
AICPA BB: Industry
Difficulty: Medium
151. ____________________________ are amounts owed by customers from credit sales

where payment is required in periodic amounts over an extended time period.
Installment accounts receivable
AICPA BB: Industry
Difficulty: Medium
9-75
152. To write off an uncollectible account receivable when the allowance method of
accounting for uncollectible accounts is used, a company should debit
_______________________ and credit accounts receivable.
Allowance for uncollectible accounts
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
153. The _________________________ method uses income statement relationships to

estimate bad debts and is based on the idea that a given percent of a company's credit sales for
a period are uncollectible.
Percent of sales
AICPA BB: Industry
Difficulty: Easy
154. The ________________________ methods use balance sheet relations to estimate bad
debts mainly the relation between accounts receivable and the allowance amount.
Accounts receivable
AICPA BB: Industry
Difficulty: Easy
9-76
155. The _______________________ method uses both past and current receivables to
estimate the allowance amount, and assumes that the longer an amount is past due, the more
likely it is to be uncollectible.
Aging of accounts receivable
AICPA BB: Industry
Difficulty: Easy
156. Myrex Corporation purchased $4,000 in merchandise from TechCom. Myrex signed a
60-day, 10%, $4,000 promissory note. TechCom should record the sale with a journal entry
debiting ____________________ for $ ________ and crediting __________________ for $
________.
Notes receivable, $4,000; Sales, $4,000
AICPA BB: Industry
Difficulty: Hard
157. When the maker of a note is unable or refuses to pay at maturity, the note is said to be
___________________.
Dishonored
AICPA BB: Industry
Difficulty: Easy
158. _______________ refers to the expected proceeds from converting an asset into cash.
Realizable value
AICPA BB: Industry
Difficulty: Easy
9-77
Multiple Choice Questions

159. The Allowance for Doubtful Accounts:
A. Is a contra asset account.
B. Is used instead of reducing accounts receivable directly.
C. Is debited when uncollectible accounts are written off.
D. All of these.
E. Only A and B.
AICPA BB: Industry
Difficulty: Medium
Essay Questions
160. The following data are taken from the comparative balance sheets of Gayle Company.
Compute and interpret its accounts receivable turnover for year 2010. Competitors average a
turnover of 7.5
$1,600,750/((180,230 + 280,450)/2) = 6.9 times
AACSB: Analytic
Difficulty: Medium
9-78
161. On April 30, Steinbeck Co. has $448,800 of accounts receivable. 1. Prepare journal
entries to record the following selected May transactions. The company uses the perpetual
inventory system. 2. Also prepare any footnotes to the May 31 financial statements that result
from these transactions. 3. Calculate the balance in the Accounts Receivable account as of
May 10.
1.
2. Steinbeck should include the following note with its statements:

Accounts receivable of $65,000 are pledged as security for a $50,000 note payable.
3. Accounts receivable balance: $233,600
AACSB: Analytic, Communications

AICPA BB: Industry
AICPA FN: Measurement, Reporting
Difficulty: Hard
9-79
162. On September 30, Emerson Co. has $540,250 of accounts receivable. Emerson uses the
allowance method of accounting for bad debts and has an existing balance in the allowance
for doubtful accounts of $13,750. 1. Prepare journal entries to record the following selected
October transactions. The company uses the perpetual inventory system. 2. Show how
Accounts Receivable and the Allowance for Doubtful Accounts appear on its October 31
balance sheet.
a. Sold $325,000 of merchandise (that cost $178,500) to customers on credit.
b. Received $425,100 cash in payment of accounts receivable.
c. Wrote off $16,700 of uncollectible accounts receivable.
d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated that
3.0% of accounts receivable will be uncollectible.
AACSB: Analytic, Communications

AICPA BB: Industry
AICPA FN: Measurement, Reporting
Difficulty: Hard
9-80

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Chapter 009 Accounting for Receivables

Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

True / False Questions

2. Credit sales are recorded by crediting an Accounts Receivable.

4. If a customer owes interest on accounts receivable, Interest Revenue is debited and

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

48. Notes receivable are classified as current liabilities.

Chapter 009 Accounting for Receivables

AACSB: Reflective Thinking

51. A payee of a note always honors a note and pays it in full.

53. A dishonored note receivable is usually reclassified as an account receivable.

Chapter 009 Accounting for Receivables

Multiple Choice Questions

Chapter 009 Accounting for Receivables

57. A credit sale of $3,275 to a customer would result in:

58. Sellers allow customers to use credit cards:

Chapter 009 Accounting for Receivables

59. Credit card expense may be classified as:

Chapter 009 Accounting for Receivables

63. A promissory note:

64. The maturity date of a note receivable:

Chapter 009 Accounting for Receivables

65. The interest accrued on $6,500 at 6% for 60 days is:

66. A 90-day note issued on April 10 matures on:

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

71. Pledging receivables:

Chapter 009 Accounting for Receivables

73. The quality of receivables refers to:

Chapter 009 Accounting for Receivables

74. The account receivable turnover measures:

75. The accounts receivable turnover is calculated by:

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

80. The matching principle requires:

Chapter 009 Accounting for Receivables

81. The materiality principle:

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

85. The amount of bad debt expense can be estimated by:

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

Chapter 009 Accounting for Receivables

96. MixRecording Studios purchased $7,800 in electronic components from TechCom.

Chapter 009 Accounting for Receivables