Week 10 Quiz

Which method of recording bad debts records bad debt expense only when the business gives up on a specific customer's account?

Select one.

• The direct write-off method
• The allowance method
• The aging schedule
• The net realizable value method

The bicycle shop (illustrative) ages its receivables at the end of Year 3: $28,000 not yet due at 1 percent, $7,000 that are 1 to 30 days past due at 4 percent, $3,000 that are 31 to 60 days past due at 10 percent, and $2,000 over 60 days past due at 30 percent. What balance should Allowance for Doubtful Accounts have?

Select one.

• $1,200
• $600
• $1,460
• $1,720

The bicycle shop (illustrative)'s aging schedule requires an allowance of $1,460, and Allowance for Doubtful Accounts already has a $260 credit balance before the year-end adjustment. How much bad debt expense does the adjusting entry record?

Select one.

• $1,460
• $1,200
• $1,720
• $260

After its year-end adjustment, the bicycle shop (illustrative) reports Accounts Receivable of $40,000 and Allowance for Doubtful Accounts of $1,460. What is the net realizable value of its receivables?

Select one.

• $40,000
• $38,800
• $39,650
• $38,540

True or false: under the allowance method, when the bicycle shop (illustrative) writes off a customer's $350 balance, it records $350 of bad debt expense.

True or false.

• True
• False

Before a write-off, the bicycle shop (illustrative) has Accounts Receivable of $40,000 and Allowance for Doubtful Accounts of $1,460. It then writes off a customer's $350 balance under the allowance method. What is the net realizable value of its receivables after the write-off?

Select one.

• $38,540
• $38,190
• $39,650
• $40,350

A youth cycling program signs a $6,000, 6 percent, 3-month note to the bicycle shop (illustrative). Using Interest = Face × Rate × Time, how much interest does the note earn by maturity?

Select one.

• $360
• $1,080
• $90
• $30

Under the allowance method, which journal entry records the write-off of a customer's $350 balance that the business no longer expects to collect?

Select one.

• Debit Bad Debt Expense 350; credit Accounts Receivable 350
• Debit Allowance for Doubtful Accounts 350; credit Accounts Receivable 350
• Debit Accounts Receivable 350; credit Allowance for Doubtful Accounts 350
• Debit Bad Debt Expense 350; credit Allowance for Doubtful Accounts 350

Which statements describe Allowance for Doubtful Accounts? Select all that apply.

Select every option that applies.

• It is a contra asset account.
• It normally carries a credit balance.
• Accounts Receivable minus it gives the net realizable value of receivables.
• It is a liability the business owes its customers.
• It lists which customers will not pay.

Under expense recognition (matching), how does the allowance method time bad debt expense?

Select one.

• It records the expense when the customer's cash is collected.
• It records the expense when a specific account is written off.
• Its adjusting entry credits Cash for the estimated loss.
• It puts the expense in the period of the credit sales that caused it.