TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY

1. Trade receivables are CLASSIFIED as current 6. Long-term notes receivable which nominally
assets if they are reasonably expected to be bear no interest or an interest which is
collected unreasonably low shall be recognized initially at

a. Within one year. a. Face value

b. Within the normal operating cycle. b. Present value
c. Within one year or within the operating cycle, c. Maturity value
whichever is shorter. d. Current value
d. Within one year or within the operating cycle,
whichever is longer. 7. Credit balances in accounts receivable shall
be classified as
2. Nontrade receivables are classified as
current assets only if they are reasonably a. Current liability
expected to be realized in cash b. Part of accounts payable
c. Long-term liabilities
a. Within one year or within the operating cycle, d. Deduction from accounts receivable
whichever is shorter.
b. Within one year or within the operating cycle, 8. Receivables from subsidiaries shall be
whichever is longer. classified as
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle a. Current assets
notwithstanding. b. Noncurrent assets
c. Either as current or noncurrent depending on the
3. Which of the following statements is true in expectation of realizing them within one year or over
relation to presentation of receivables in the one year
financial position? d. Partly current and partly noncurrent

a. Trade receivables and nontrade receivables are 9. Where the operating cycle extends beyond
shown separately. one year because of normal credit terms as in
b. Nontrade receivables are presented as noncurrent the case of installment sales of household
assets. appliances
c. Trade accounts receivable and trade notes receivable
shall be presented separately. a. It is proper to classify the entire receivables as
d. Trade receivables and nontrade receivables which current assets with the disclosure of the amount not
are currently collectible shall be presented as one line realizable within one year, if material.
item called “trade and other receivables.” b. The entire receivables are shown as noncurrent
assets.
4. If the ideal measure of short-term receivables c. The portion due in one year is shown as current and
in the statement of financial position is the the balance as noncurrent.
discounted amount of the cash to be received d. The receivables are not recognized.
in the future, failure to follow this practice
10. In the case of long-term installment
usually does not make the statement of
receivable (real estate installment sales) where
financial position misleading because
a major portion of the receivables will be
a. Most short-term receivables are not interest-bearing. collected beyond the normal operating cycle
b. The allowance for doubtful accounts includes a
discount element. a. The entire receivables are shown as current without
c. The amount of the discount is not material. the disclosure of the amount not currently due.
d. Most receivables can be sold to a bank or factor. b. The entire receivables are shown as noncurrent.
c. Only the portion currently due is shown as current
5. Accounts receivable shall be recognized and the balance as noncurrent.
initially at d. The entire receivables are shown as current with
disclosure of the amount not currently due.
a. Face value
b. Discounted value 11. Which method of recording bad debt loss is
c. Maturity value consistent with accrual accounting?
d. Current value
a. Allowance method
b. Direct write-off method
c. Percent of sales method
d. Percent of accounts receivable method

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 TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY

12. A method of estimating bad debts that 17. When an entity uses the allowance method
focuses on the income statement rather than for recognizing uncollectible accounts, the
the statement of financial position is the entry to record the write-off of a specific
allowance method based on uncollectible account

a. Direct write-off a. Affects neither net income nor working capital

b. Aging the trade accounts receivable b. Affects neither net income nor accounts receivable
c. Credit sales c. Decreases both net income and accounts receivable
d. The balance in the trade accounts receivable d. Decreases both net income and working capital

13. A method of estimating uncollectible 18. When the allowance method for recognizing
accounts that emphasizes asset valuation bad debt expense is used, the entries at the
rather than income measurement is the time of collection of an account previously
allowance method based on written off would

a. Aging the receivables a. Decrease the allowance for doubtful accounts

b. Direct write-off b. Increase net income
c. Gross sales c. Have no effect on the allowance for doubtful
d. Credit sales less returns and allowances accounts
d. Have no effect on net income
14. The advantage of relating an entity’s bad
debt experience to accounts receivable is that 19. An entity uses the allowance method to
this approach recognize doubtful accounts expense. What is
the effect of a collection of an account
a. Gives a reasonably accurate measurement of previously written off?
receivables in the statement of financial position.
b. Relates bad debt expense to the period of sale. a. No effect on both allowance for doubtful accounts
c. Is the only generally accepted method for measuring and doubtful accounts expense
accounts receivable. b. No effect on allowance for doubtful accounts and
d. Makes estimates of uncollectible accounts decrease in doubtful accounts expense
unnecessary. c. Increase in allowance for doubtful accounts and no
effect on doubtful accounts expense
15. When a specific customer’s account d. Increase in allowance for doubtful accounts and
receivable is written off as uncollectible, what decrease in doubtful accounts expense
will be the effect on net income under the
allowance and direct write-off method? 20. When an accounts receivable aging
schedule is prepared, a series of computation is
a. No effect under both allowance method and direct made to determine the estimated uncollectible
write-off method. accounts. The resulting amount from this aging
b. Decrease under both allowance methods and direct schedule
write-off method.
c. No effect under allowance method and decrease a. When added to the total accounts written off during
under direct write-off method. the year is the desired credit balance of the allowance
d. Decrease under allowance method and no effect for doubtful accounts at year-end.
under direct write-off method. b. Is the amount of doubtful accounts expense for the
year
16. When the allowance method of recognizing c. Is the amount that should be added to the beginning
uncollectible accounts is used, the entry to allowance for doubtful accounts to get the doubtful
record the write-off of a specific account would accounts expense for the year.
d. Is the amount desired credit balance of the
a. Decrease both accounts receivable and the allowance for doubtful accounts to be reported at
allowance for uncollectible accounts. year-end.
b. Decrease accounts receivable and increase the
allowance for uncollectible accounts 21. Which of the following methods of
c. Increase the allowance for uncollectible accounts and determining bad debt expense does not match
decrease net income. expense and revenue?
d. Decrease both accounts receivable and net income.
a. Charging bad debts with a percentage of sales
b. Charging bad debts with a percentage of accounts receivable under the
allowance method
c. Charging bad debts with an amount derived from aging the accounts
receivable under the allowance method

Lomboy, April Mae M.

 TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY

d. Charging bad debts as accounts written off as the write-off of a specific uncollectible account
uncollectible would decrease

22. Which of the following methods of a. Allowance for doubtful accounts

determining bad debt expense most closely b. Net income
matches expense to revenue? c. Net realizable value of accounts receivable
d. Working capital
a. Charging bad debts as accounts written off as
uncollectible 28. The entry debiting accounts receivable and
b. Charging bad debts with a percentage of sales for crediting allowance for doubtful accounts
that period would be made when
c. Estimating the allowance for doubtful accounts as a
percentage of accounts receivable a. A customer pays its account balance
d. Estimating the allowance for doubtful accounts by b. A customer defaults on its account
aging the accounts receivable c. A previously defaulted customer pays its
outstanding balance
23. When the allowance method of recognizing d. Estimated uncollectible receivables are too low.
bad debt expense is used, the allowance for
doubtful accounts would decrease when 29. A debit balance in the allowance for
doubtful accounts
a. Specific account receivable is collected
b. Account previously written of is collected a. Should never occur
c. Account previously written off becomes collectible b. Is always the result of management providing a large
d. Specific uncollectible account is written off enough allowance in under to manage earnings.
c. May occur before the end-of-period adjustment for
24. When comparing the allowance method of uncollectible accounts
accounting for bad debts with the direct write- d. May exist even after the end-of-period adjustment
off method, which of the following is true? for uncollectible accounts

a. The direct write-off method is exact and also better 30. When the direct write-off method of
illustrates the matching principle. recognizing bad debts expense is used, the
b. The allowance method is less exact but it better entry to write off a specific customer account
illustrates the matching principle. would
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate a. Increase net income
entries to write off an uncollectible account. b. Have no effect on net income
c. Increase accounts receivable and increase net income
25. Which of the following is not acceptable in d. Decrease accounts receivable and decrease net
estimating uncollectible accounts receivable? income

a. The estimate of uncollectible accounts is based on a 31. Which of the following does not change the
percentage of sales for the period. balance in accounts receivable?
b. The estimate of uncollectible accounts is based on a
percentage of accounts receivable at the end of a a. Return on credit sales
period. b. Collection from customers
c. The estimate of uncollectible accounts is based on an c. Bad debts expense adjusting entry
aging schedule. d. Write-off
d. No estimate of uncollectible accounts is made but
accounts are written off when it is determined they 32. Which is recorded by a credit to accounts
cannot be collected. receivables?

a. Sale of inventory on account

26. Estimation of uncollectible accounts b. Estimating the allowance for doubtful accounts
receivable based on a percentage of sales c. Estimating annual sales return
a. Emphasizes measurement of the net realizable value d. Write-off of accounts receivable
of accounts receivable.
b. Emphasizes measurement of bad debt expense. 33. Which of the following principle primarily
c. Emphasizes measurement of total assets. supports the use of allowance for doubtful
d. It is only acceptable for tax purposes. accounts?

a. Continually principle
27. When the allowance method of recognizing b. Full disclosure principle
bad debt expense is used, the entry to record c. Matching principle

Lomboy, April Mae M.

 TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY

d. Conservatism c. Bad debt expense is measured directly and the

allowance for doubtful accounts is measured directly
d. Bad debt expense is measured directly and the
allowance for doubtful accounts is measured indirectly

34. Why is the allowance method preferred over 40. Which concepts relates to the allowance
the direct write-off method of accounting for method in accounting for uncollectible
bad debts? accounts receivable?

a. Allowance method is used for tax purposes a. Bad debt expense is an estimate based on historical
b. Estimates are used and prospective information
c. Determining worthless accounts under direct write- b. Bad debt expense is the actual amount determined to
off method is difficult to do be uncollectible
d. Improved matching bad debts expense with revenue c. Bad debts expense is an estimate based only on aging
of A/R
d. Bad debt expense is management determination of
35. In recording cash discounts related to which accounts are considered doubtful.
accounts receivable, which is more
theoretically correct? 41. Which is not permitted in accounting for
uncollectible accounts receivable?
a. Net method
b. Gross method a. Percentage of accounts receivable
c. Allowance method b. Percentage of sales
d. All the tree are theoretically correct c. Direct write-off
d. Aging of accounts receivable
36. All of the following are problems associated
with the measurement of accounts receivable,
except

a. Uncollectible accounts
b. Returns
c. Cash discounts under net method
d. Allowance granted

37. Collection of accounts receivable previously

written off results in an increase in cash and an
increase in

a. Accounts receivable
b. Allowance for doubtful accounts
c. Bad debts expense
d. Retained earnings

38. Which is an accurate method of determining

the amount of the adjustment to bad debt
expense?

a. A percentage of sales adjusted for the balance in the

allowance
b. A percentage of sales not adjusted for the balance in
the allowance
c. A percentage of accounts receivable not adjusted for
the balance in the allowance
d. An amount derived from aging accounts receivable
and not adjusted for the balance in the allowance

39. When an aging approach is used for

estimating uncollectible accounts

a. Bad debt expense is measured indirectly and the

allowance for doubtful accounts is measured directly
b. Bad debt expense is measured indirectly and the
allowance for doubtful accounts is measured indirectly

Lomboy, April Mae M.