Chapter 14 - 10 ed.
True/False
Indicate whether the statement is true or false.
____
1. A business generally sells on account to encourage sales.
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2. At the end of the fiscal period, an adjustment for uncollectible accounts expense is planned in the subsidiary
ledger.
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3. Accounts receivable that cannot be collected are called uncollectible accounts.
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4. A business usually knows at the time sales are made which customer accounts will become uncollectible.
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5. Allowance for Uncollectible Accounts is a contra account to its related asset account, Accounts Receivable.
____
6. When an adjusting entry for uncollectible accounts expense is recorded, Allowance for Uncollectible
Accounts is credited.
____
7. Using the percentage of total sales on account to estimate uncollectible accounts expense assumes that a
portion of every sale on account dollar will become uncollectible.
____
8. Canceling the balance of a customer account because the customer does not pay is called writing off an
account.
____
9. Allowance for Uncollectible Accounts is debited to write off a customer account.
____ 10. Accounts Receivable is debited to write off a customer account.
____ 11. When a previously written-off account is collected, Accounts Receivable is debited and credited for the
amount collected.
____ 12. When a customer account is written off under the allowance method, book value of accounts receivable
decreases.
____ 13. Three journal entries are recorded for the collection of a written-off account receivable.
____ 14. When an account is determined to be uncollectible, no journal entry needs to be made.
____ 15. The debit balance of the uncollectible accounts expense account is the estimated uncollectible accounts from
sales on account during the next fiscal year.
____ 16. The adjusting entry for uncollectible accounts affects the balance of the accounts receivable account.
____ 17. The adjusting entry for uncollectible accounts expense is recorded at the beginning of every accounting
period.
____ 18. The percentage of total sales on account method of estimating uncollectible accounts expense assumes that a
portion of every sales dollar will become uncollectible.
____ 19. Recording an estimate of uncollectible accounts to the contra asset account and the expense account is an
application of the Realization of Revenue accounting concept.
____ 20. The amount of accounts receivable that is uncollectible is an expense.
____ 21. Allowing customers to buy now and pay later is an ineffective method for increasing sales.
____ 22. Accounts Receivable is credited to write off a customer account.
____ 23. When an account is written off, the account balance is transferred to Allowance for Uncollectible Accounts.
____ 24. When an account is collected that was previously written off, the account receivable must be reopened.
____ 25. When a journal entry is made to cancel the customer account in the general ledger account Accounts
Receivable, the entry also cancels the customer account in the accounts receivable ledger.
____ 26. The percentage used to estimate uncollectible accounts expense is specified by the Internal Revenue Service.
____ 27. Entries resulting from cash received for a previously written-off account are recorded in a cash receipts
journal's special amount columns.
____ 28. When the allowance account has a previous credit balance, this previous balance is subtracted from the
amount of the adjustment for uncollectible accounts expense.
____ 29. The account Allowance for Uncollectible Accounts is increased by a debit.
____ 30. The balance of the account Allowance for Uncollectible Accounts is extended to the Income Statement Credit
column of the work sheet.
____ 31. A promissory note, unlike a check, cannot be endorsed and transferred to a bank in return for cash.
____ 32. The days, months, or years from the date of issue until a note is to be paid are the time of a note.
____ 33. The percentage of the principal that is paid for use of the money is the interest rate of a note.
____ 34. The amount that is due on the maturity date of a note is the maturity value.
____ 35. The principal of a note is sometimes referred to as the face amount of a note.
____ 36. Liabilities due within a short period of time are current liabilities.
____ 37. The date a note is written is not counted in calculating the maturity date.
____ 38. Notes receivable paid within one year generally are classified as non-current assets.
____ 39. A note is recorded as a note receivable by the person or business to whom the amount of a note is payable.
____ 40. Using a receipt as the source document for recording cash received for a note receivable is an application of
the Objective Evidence concept.
____ 41. The interest earned on money loaned is interest income.
____ 42. When a business receives payment for a note receivable, Accounts Receivable is credited.
____ 43. A note that is not paid when due is a dishonored note.
____ 44. Notes Receivable is an asset account and has a normal credit balance.
____ 45. Notes Payable is a liability account and has a normal credit balance.
____ 46. "Interest at 12 percent" means that 12 cents will be paid for the use of each dollar borrowed for the time of a
note.
____ 47. In interest calculations, time can be expressed in whole years or as a fraction of a year.
____ 48. The maturity value of a note is calculated by subtracting the interest rate from the principal.
____ 49. The maturity value of a note is calculated by multiplying the interest rate times the principal.
____ 50. When a note receivable is dishonored, the company should immediately write off the account receivable for
that customer.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 51. The loss from an uncollectible account is ____.
a. a liability
c. an asset
b. a regular expense of doing business
d. a reduction in revenue
____ 52. When the percentage of total sales on account method is used, the estimated uncollectible accounts expense is
calculated by ____.
a. multiplying total sales on account times the percentage
b. dividing total sales on account by the percentage
c. multiplying total sales times the percentage
d. dividing total sales by the percentage
____ 53. Estimating the percentage of uncollectible accounts expense at the end of a fiscal period is an application of
the accounting concept ____.
a. Business Entity
c. Realization of Revenue
b. Objective Evidence
d. Matching Expenses with Revenue
____ 54. An Allowance for Uncollectible Accounts balance in the Trial Balance Credit column of a work sheet means
____.
a. there are no uncollectible accounts
b. the estimate has not yet been recorded
c. previous fiscal period estimates have not yet been identified as uncollectible
d. equity has been maintained
____ 55. When the allowance account in the Trial Balance column of a work sheet has a credit balance, the amount of
the adjustment is ____.
a. deducted from the trial balance amount
c. multiplied by two
b. not recorded
d. added to the Trial Balance amount
____ 56. Information used to journalize an uncollectible expense adjusting entry is obtained from a work sheet's ____.
a. Balance Sheet columns
c. Adjustments columns
b. Income Statement columns
d. Trial Balance column
____ 57. The entry to journalize the uncollectible accounts expense adjusting entry is debit Uncollectible Accounts
Expense and credit ____.
a. Accounts Receivable
c. Allowance for Uncollectible Accounts
b. Cash
d. none of the above
____ 58. When an account is determined to be uncollectible, ____.
a. a journal entry is made to cancel the uncollectible account
b. the account is removed from the general ledger
c. the amount is deducted from sales
d. the customer subsidiary ledger account is removed
____ 59. Canceling the balance of a customer account because the customer does not pay is ____.
a. an adjusting entry
c. a closing entry
b. writing off an account
d. none of the above
____ 60. Writing off an account ____.
a. decreases the balance of Accounts Receivable
b. decreases the balance of Uncollectible Accounts Expense
c. increases the balance of Allowance for Uncollectible Accounts
d. increases the balance of Cash
____ 61. When uncollectible accounts are estimated, writing off an account ____.
a. increases revenue
b. increases expenses
____ 62.
____ 63.
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____ 73.
c. does not change the book value of accounts receivable
d. may increase expenses or decrease revenue
The entry to write off an account receivable is recorded in the ____.
a. sales journal
c. cash payments journal
b. cash receipts journal
d. general journal
The journal entry to write off an account receivable account is debit Allowance for Uncollectible Accounts
and credit ____.
a. Cash
c. Uncollectible Accounts Expense
b. Accounts Receivable
d. none of the above
The journal entry to reopen an account that has been written off is debit Accounts Receivable and credit ____.
a. Cash
c. Uncollectible Accounts Expense
b. Allowance for Uncollectible Accounts
d. none of the above
The journal entry to record receipt of cash for an account previously written off is debit Cash and credit ____.
a. Accounts Receivable
c. Uncollectible Accounts Expense
b. Allowance for Uncollectible Accounts
d. none of the above
After the entries are made to reopen a customer account and record collection of the account, the customer
account balance is ____.
a. a debit
c. zero
b. a credit
d. none of the above
At the end of a fiscal period, the account debited to show the estimated amount of uncollectible accounts is
____.
a. Accounts Receivable
c. Uncollectible Accounts Expense
b. Cash
d. Allowance for Uncollectible Accounts
To reopen an account previously written off, ____.
a. one general journal entry is recorded
b. two general journal entries are recorded
c. no journal entries are recorded
d. one general journal entry and one cash receipts journal entry are recorded
At the end of a fiscal period, the account credited to show the estimated amount of uncollectible accounts is
____.
a. Cash
c. Accounts Receivable
b. Uncollectible Accounts Expense
d. Allowance for Uncollectible Accounts
When the account Allowance for Uncollectible Accounts is used, a customer past-due account is written off
as uncollectible by ____.
a. debiting Uncollectible Accounts Expense and crediting Accounts Receivable and the
customer account
b. debiting Allowance for Uncollectible Accounts and crediting Accounts Receivable and the
customer account
c. debiting Accounts Receivable and the customer account and crediting Allowance for
Uncollectible Accounts
d. none of these
The date a note is due is the ____.
a. time of a note
c. principal of a note
b. date of a note
d. maturity date of a note
The number assigned to identify a specific note is ____.
a. the number of a note
c. the date of a note
b. the time of a note
d. none of the above
Interest on a promissory note is stated as ____.
a. the total of the principal plus the interest
____ 74.
____ 75.
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____ 86.
b. a percentage of the principal
c. a number of cents on the dollar
d. a given amount of money
The interest on a 12 percent note for $1,000.00 for one year is ____.
a. $10.00
c. $100.00
b. $12.00
d. $120.00
The interest on a 12 percent note for $1,000.00 for 60 days is ____.
a. $20.00
c. $60.00
b. $30.00
d. $80.00
A 90-day note dated March 15 would be due on ____.
a. June 13
c. June 15
b. June 14
d. June 16
The journal entry to record accepting a note receivable for an extension of time is ____.
a. debit Accounts Receivable; credit Notes Receivable
b. debit Accounts Receivable; credit Notes Receivable and Interest Income
c. debit Notes Receivable; credit Accounts Receivable
d. debit Accounts Receivable; credit Notes Receivable
The journal entry to record a dishonored note receivable is ____.
a. debit Accounts Receivable; credit Notes Receivable
b. debit Accounts Receivable; credit Notes Receivable and Interest Income
c. debit Notes Receivable; credit Accounts Receivable
d. debit Accounts Receivable; credit Notes Receivable
The most useful evidence of a debt in a court of law is ____.
a. an oral promise to pay
c. an account payable
b. an account receivable
d. a signed note
The time of a note issued for less than one year is typically stated in ____.
a. days
c. fraction of a year
b. months
d. none of the above
Notes Payable are classified as ____.
a. current assets
c. expenses
b. current liabilities
d. revenue
Interest income of a business is ____.
a. a normal operating revenue
c. an investment
b. an other revenue
d. an account receivable
When a business accepts a note from a customer for an extension of time on account, the customer's accounts
receivable account is ____.
a. not affected
b. changed to a zero balance
c. equal to the principal plus interest of the note
d. debited for the amount of the note
Notes receivable are classified as ____.
a. other expense
c. current liabilities
b. current assets
d. other revenue
When a customer dishonors a note, ____.
a. interest is earned but not recorded
c. interest is both earned and recorded
b. no interest is earned
d. none of the above
When a customer dishonors a note, the customer's account receivable is ____.
a. written off
b. debited for the amount of the note and interest
c. credited for the amount of the note and interest
d. debited for the amount of the note
____ 87. Accepting a note receivable from a customer for an extension of time on account ____.
a. is not a good business practice
b. will always earn interest income for a business
c. will not earn interest income if the customer does not pay the note when it is due
d. changes the customer's account from a debit balance to a credit balance
Chapter 14 - 10 ed.
Answer Section
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MULTIPLE CHOICE
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B
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85. ANS: C
86. ANS: B
87. ANS: B
PTS: 1
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