81. Under the _____ procedure, the firm estimates and recognizes its bad debt expense; the offsetting credit increases the balance in the Allowance for Uncollectibles. Under the _____ procedure, the firm estimates the ending balance in the Allowance for Uncollectibles account and makes a credit entry to bring the balance to this amount; the offsetting debit is to Bad Debt Expense.
A. aging; percentage-of-sales
B. percentage-of-sales; aging
C. percentage-of-sales; direct charge-off
D. direct charge-off; percentage-of-sales
E. percentage-of-sales; indirect charge-off
82. At the start of 20×4, Colonial Designs’ Allowance for Uncollectibles balance is €120,000. During 20×4, Colonial Designs’ credit sales were €5,000,000; of this amount, it expected 2% will become uncollectible. During 20×4, Colonial Designs wrote off €70,000 of accounts receivable. At the end of 20×4, Colonial Designs estimates, based on an aging of accounts, that the ending balance in the Allowance for Uncollectibles should be €130,000.
A. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Accounts Receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
B. Bad Debt Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Accounts Receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
C. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
D. Bad Debt Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
E. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Accounts Receivable, gross. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
83. Which of the following is true regarding the U.S. Internal Revenue Service?
A. The IRS permits firms to use the allowance method to calculate the tax deduction for bad debts.
B. The IRS requires that firms recognize bad debt expense only when they conclude an account is not collectible.
C. The IRS permits firms to use the aging of accounts receivable method to calculate the tax deduction for bad debts.
D. The IRS permits firms to use the percentage of sales to calculate the tax deduction for bad debts.
E. The IRS permits firms to use the cost of goods sold method to calculate the tax deduction for bad debts.
84. The financial statements contain information for analyzing the collectibility of accounts receivable and the adequacy of the expense for uncollectible accounts. Typical ratios used for this analysis include the
A. accounts receivable turnover ratio, only.
B. days receivables outstanding, only.
C. write-off percentage, only.
D. accounts receivable turnover ratio, days receivables outstanding, and write-off percentage.
E. accounts receivable turnover ratio and days receivables outstanding, only.
85. The accounts receivable turnover ratio captures the speed of cash collections from credit customers and is calculated as follows:
A. average accounts receivable divided by sales revenue.
B. sales revenue divided by average accounts receivable.
C. sales revenue plus average accounts receivable.
D. sales revenue minus average accounts receivable.
E. sales revenue times average accounts receivable.
86. Ratios used to evaluate the allowance for uncollectibles are
A. Bad Debt Expense to Sales Revenue and the ratio of the Accounts Receivable, Gross to Allowance for Uncollectibles to Accounts.
B. Sales Revenue to Bad Debt Expense and the ratio of the Accounts Receivable, Gross to Allowance for Uncollectibles to Accounts.
C. Sales Revenue to Bad Debt Expense and the ratio of the Allowance for Uncollectibles to Accounts Receivable, Gross.
D. Bad Debt Expense to Sales Revenue and the ratio of the Allowance for Uncollectibles to Accounts Receivable, Gross.
E. none of the above.
87. For U.S. companies, how do U.S. GAAP and income tax reporting compare in their treatment of uncollectible accounts?
A. U.S. GAAP and income tax reporting both require the direct write-off method.
B. U.S. GAAP and income tax reporting both require the allowance method.
C. U.S. GAAP and income tax reporting require different treatments of uncollectible accounts.
D. U.S. GAAP and income tax reporting assume uncollectible accounts are estimated based on past experience for reporting purposes.
E. none of the above.
88. The direct write-off method
A. recognizes losses from uncollectible accounts in the period when a firm decides that specific customers’ accounts are uncollectible.
B. does not usually recognize the loss from uncollectible accounts in the period in which the sale occurs and the firm recognizes revenue.
C. provides firms with an opportunity to manage earnings each period by deciding when particular customers’ accounts become uncollectible.
D. all of the above.
E. none of the above.
89. The method that recognizes losses from uncollectible accounts in the period when a firm decides that specific customers’ accounts are uncollectible is called the
A. direct write-off method.
B. allowance method.
C. percentage of sales method.
D. bad debt determination method.
E. indirect write-off method.
90. Which of the following is/are not a shortcoming of the direct write-off method?
A. It provides firms with an opportunity to manage earnings each period by deciding when particular customers’ accounts become uncollectible.
B. It does not usually recognize the loss from uncollectible accounts in the period in which the sale occurs and the firm recognizes revenue.
C. The amount of accounts receivable on the balance sheet does not reflect the amount a firm expects to collect in cash.
D. It is the method required for income tax reporting in the United States.
E. none of the above.
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