Sunday, 30 August 2015

Accounts receivable Fresher Questions and Answers

41. When a firm writes off a bad debt under the allowance method of accounting for bad debts
  a. the realizable value of accounts receivable decreases
  b. total net current assets will decrease
  c. the cash account will decrease
  d. the realizable value of accounts receivable will not change
Ans: d

42. When a firm collects (recovers) an account receivable that was previously written off under the allowance method of accounting for bad debts,
  a. the realizable value of accounts receivable will decrease
  b. the cash account will decrease by the full amount of the recovery
  c. the allowance account will decrease by the amount collected
  d. the realizable value of accounts receivable will increase
Ans: a

43. The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment, of $450. The bad debts are estimated at 3% of $650,000, the net credit sales. After the appropriate adjusting entry for bad debts, the Allowance for Doubtful Accounts should have a credit balance of
  a. $19,500
  b. $19,950
  c. $19,050
  d. $20,400
Ans: b

44. The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment of $500. The bad debts are estimated at 7% of $60,000 of outstanding accounts receivable. After the appropriate adjusting entry to recognize the bad debt expense, the Allowance for Doubtful Accounts should have a ___________ credit balance.
  a. $4,200
  b. $3,200
  c. $3,700
  d. $5,200
Ans: a

45. Which accounting principle or concept permits the direct write-off method of accounting for bad debts?
  a. full-disclosure principle
  b. business entity concept
  c. matching principle
  d. materiality principle
Ans: d

46. A firm using the allowance method of accounting for bad debts expense has recovered a bad debt that was written off one year ago. The appropriate journal entry to record the recovery would include a
  a. credit to the Allowance for Doubtful Accounts account
  b. debit to the Bad Debt Expense account
  c. credit to the Bad Debt Expense account
  d. debit to the Allowance for Doubtful Accounts account
Ans: a

47. On July 18, a firm received from one of its customers, Algo Rythym, a written promise to pay the firm $1,200, at 12% interest, on September 17, for merchandise that Algo had purchased from the firm. Which of the following statements is true?
  a. Algo is the payee of the note
  b. the firm is the maker of the note
  c. the firm is the endorser of the note
  d. Algo is the maker of the note
Ans: d

48. A 90-day, 11%, promissory note that is dated June 13 will have a maturity date of
  a. September 11
  b. September 10
  c. September 9
  d. September 8
Ans: a

49. The interest on a $1,500, 15%, 4-month note is
  a. $7.50
  b. $75.00
  c. $1,575.00
  d. $225.00
Ans: b

50. Which of the following is not true with regard to a $3,000, 14%, 90-day note that is dishonored?
  a. an account receivable is charged with the maturity value of the note
  b. the Interest Earned account is credited
  c. the Notes Receivable account is credited for the maturity value
  d. interest may be charged on the outstanding balance
Ans: c

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