Receivables Accounting | Test Bank – Full Version – 11th - Financial Accounting 11e | Test Bank with Answer Key by John Hoggett by John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield. DOCX document preview.
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Testbank
to accompany
Accounting
11th edition
by
Hoggett et al.
© John Wiley & Sons Australia, Ltd 2020
Chapter 12: Receivables
Multiple-choice questions
1. Which of the following is not one of the ways in which the asset 'other receivables' could be recognised?
a. Prepaid insurance
b. Loan to executive director
c. Rent receivable
d. Sale of machinery on credit
General Feedback:
Learning objective 12.1: define the different types of receivables.
2. The text classifies accounts receivables into which broad types?
a. Promissory notes, accounts receivable, prepayments
b. Debtors, receivables, promissory notes
c. Trade receivables, other receivables, sundry receivables
d. Accounts receivable, bills receivable, other receivables
General Feedback:
Learning objective 12.1: define the different types of receivables.
3. When a credit sale involving GST is recorded the accounts receivable account:
a. has the GST deducted.
b. includes the GST.
c. excludes the GST.
d. is input taxed.
General Feedback:
Learning objective 12.1: define the different types of receivables.
4. Which of the following would not be classified as 'other receivables'?
a. Amounts receivable from the sale of non-current assets
b. Loans to directors
c. Interest receivable
d. Amount owing from a credit sale
General Feedback:
Learning objective 12.1: define the different types of receivables.
5. When a credit sale involving GST is recorded, the sales account:
a. excludes the GST.
b. is input taxed.
c. has the GST added.
d. includes the GST.
General Feedback:
Learning objective 12.1: define the different types of receivables.
6. Accounts receivable are usually valued in the statement of financial position at:
a. Historical cost
b. The lower of cost and net realisable value
c. Gross amount less allowance for expected bad debts
d. Market value
General Feedback:
Learning objective 12.2: define accounts receivable, and discuss how accounting recognises and values them.
7. The main problem that exists in valuing accounts receivables is:
a. reconciling the debtor's control account with the debtor's subsidiary ledger
b. keeping track of the amount that is owed by individual debtors.
c. estimating the value of goods that may be returned.
d. estimating the amount of receivables that will become bad.
.
General Feedback:
Learning objective 12.2: define accounts receivable, and discuss how accounting recognises and values them.
8. The of accounts receivables is measured at gross receivables less anticipated future bad debts.
a. fair value.
b. estimated value.
c. expected value.
d. discounted value.
General Feedback:
Learning objective 12.2: define accounts receivable, and discuss how accounting recognises and values them.
9. Allowing customers to buy on credit is only profitable if the costs associated with granting credit are less than the profit on the increased sales generated. Which of the following is not one of the additional costs of selling on credit?
a. Credit checks on customers
b. Additional record keeping
c. The cost of collecting outstanding debts
d. Sales commission
General Feedback:
Learning objective 12.2: define accounts receivable, and discuss how accounting recognises and values them.
10. Black Beauty Co has the following balances in its general ledger:
If a debt for $500, previously provided for as doubtful, is written off as bad, what is the estimated net realisable value of accounts receivable after the write off?
a. $46 500
b. $43 500
c. $44 500
d. $44 000
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: $44 000 = $46 500 - $2500
11. Which of the following statements is incorrect?
a. Bad debts are a cost of selling on credit.
b. Bad debts should be deducted as an expense in the same accounting period in which the credit sale is recognised.
c. A debt is bad as soon as the receivable has passed its due date.
d. An outstanding debt may be turned over to a collection agency.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
12. Which of the following statements is incorrect in relation to the direct write-off method of accounting for bad debts?
a. Bad debts expense is recorded in the same period in which its related sales revenue is included as income.
b. There is no contra asset account for estimated doubtful debts.
c. Bad debts are charged as an expense at the time an account is determined to be uncollectable.
d. The entry to write off bad debts is DR Bad debts expense, DR GST payable, CR Accounts receivable.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
13. The allowance for doubtful debts account had a balance of $4500 before bad debts of $1000 were written off and the allowance was adjusted to 10% of the accounts receivable balance of $22 000. The new amount of allowance for doubtful debts that is deducted from accounts receivable in the statement of financial position is:
a. $1200.
b. $1400.
c. $1000.
d. $2200.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: $2200 = $22 000 x 10%
14. After writing off bad debts of $1800 the allowance for doubtful debts account balance was $600 credit. What is the correct general journal entry to record an adjustment to bring the allowance for doubtful debts to 10% of accounts receivable of $22 000?
a. DR Allowance for doubtful debts $1600; CR Accounts receivable $1600
b. DR Allowance for doubtful debts $1600; CR Bad debts expense $1600
c. DR Bad debts expense $1600; CR Allowance for doubtful debts $1600
d. DR Bad debts expense $1600; CR Accounts receivable $1600
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: DR Bad debts expense $1600; CR Allowance for doubtful debts $1600 ($22 000 x 10% = $2200) ($2200 - $600 = $1600).
15. Which statement is not true in relation to bad debts recovered?
a. The entry to reinstate the accounts receivable is DR Accounts receivable and CR Bad debts recovered.
b. The accounts receivable should be re-established to maintain a complete history of the customer's activity and restore their credit rating.
c. The entry made following reinstatement of the account receivable to record the recovery is DR Bad debts recovered and CR Accounts receivable.
d. The recovery is recorded by effectively reversing the entry originally made to write off the receivable.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: The entry made following reinstatement of the account receivable is debit bank and credit accounts receivable.
16. Jax Co Ltd has the following balances in its general ledger.
If a debt for $3000, previously provided for as doubtful, is written off as bad, what is the estimated net realisable value of accounts receivable after the write off?
a. $27 000
b. $28 000
c. $25 000
d. $24 000
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: $24 000 = $25 000 - $1 000.
17. Which statement regarding the direct write-off method of bad debts is not true?
a. Bad debts are matched against the related sales revenue.
b. Bad debts are written off when they are determined to be uncollectable.
c. The method is justified on the basis of simplicity.
d. Future bad debts are not required to be estimated.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
18. Baxter Ltd recorded sales of $480 000 during the year with $350 000 being on credit. Bad debts in the past have averaged 2% of credit sales. Using the statement of financial performance method, the amount to provide for estimated bad debt expense for the year is:
a. $2 600
b. nil.
c. $9 600
d. $7 000
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: Under the statement of financial performance method estimated bad debts expense is $7000 = 2% x $350 000.
19. The allowance for doubtful debts account has a balance at the start of the year of $2000. At the end of the year debts of $880, including $80 GST, are to be written off and the allowance for doubtful debts is to be adjusted to 10% of the closing accounts receivable balance of $33 000 (including $3000 GST). The amount for bad and doubtful debts appearing in the statement of financial performance for the year will be:
a. $1800.
b. $3300.
c. $3000.
d. $1200.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: $1800 = $3000 - $1200 ($2000 - $800).
20. What is the effect on the financial statements if no adjustment is made for doubtful debts?
a. Assets are understated and profit is overstated.
b. Assets are understated and profit is understated.
c. Assets are overstated and profit is understated
d. Assets are overstated and profit is overstated.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
21. John Jones calculates that this year's estimated bad debts expense will be $13 800. When John makes the adjusting entry, the effect will be:
a. Bad debt expense: Increase; Allowance for doubtful debts: No effect; Gross accounts receivable: Decrease.
b. Bad debt expense: No effect; Allowance for doubtful debts: Increase; Gross accounts receivable: Decrease.
c. Bad debt expense: No effect; Allowance for doubtful debts: Decrease; Gross accounts receivable: No effect.
d. Bad debt expense: Increase; Allowance for doubtful debts: Increase; Gross accounts receivable: No effect.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
22. Which of the following is the general journal entry to provide for estimated bad debts under the allowance method?
a. DR Allowance for doubtful debts; CR Bad debts expense
b. DR Accounts receivable; CR Bad debts expense
c. DR Bad debts expense; CR Accounts receivable
d. DR Bad debts expense; CR Allowance for doubtful debts
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
23. Carton Recyclers recorded sales of $180 000 during the year (net of GST). Of these, 60% were on credit. Bad debts have averaged 1% of credit sales. The entry to estimate bad debt expense for the year is which of the following?
a. DR Bad debts expense $1800; CR Allowance for doubtful debts $1800
b. DR Bad debts expense $1080; CR Accounts receivable $1080
c. DR Bad debts expense $1800; CR Accounts receivable $1800
d. DR Bad debts expense $1080; CR Allowance for doubtful debts $1080
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
24. While reviewing the books of Simon's Pest Control Service you discover that no adjusting entry was made for estimated bad debts traceable to sales in 2022 (the company's first year of operation). Assuming this error is not corrected, which of the following is true at year-end 2022?
a. Liabilities are overstated, profit is understated
b. Assets are understated, profit is overstated
c. Assets are correct, profit is overstated
d. Assets are overstated, profit is overstated
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
25. Which statement concerning the allowance for doubtful debts account is not true?
a. Allowance for doubtful debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt.
b. Allowance for doubtful debts normally has a credit balance.
c. Allowance for doubtful debts is used to adjust receivables for estimated bad debts because individual debtor's balances cannot be removed from the ledger unless there is indisputable evidence they are bad.
d. Allowance for doubtful debts is a contra-asset account designed to reduce receivables to estimated realisable value.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
26. On 31 December 2023, Miner Resources decided to finally write off as a bad debt a receivable of $6600 (including $600 GST) from Underground Pty Ltd (in liquidation). If Miner Resources uses the allowance method, the correct entry to write off the debt is:
a. DR Bad debts expense $6600; CR Accounts receivable $6600
b. DR Bad debts expense $6600; CR GST payable $600; CR Accounts receivable $6000
c. DR Allowance for doubtful debts $6000, DR GST payable $600; CR Accounts receivable $6600
d. DR Allowance for doubtful debts $6000; CR Bad debts expense $6000
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
27. A debtor's account that was previously written-off has now been collected in full. Why should the accounts receivable for the debtor be re-established?
a. So that expenses are not overstated.
b. To restore the credit rating of the debtor.
c. So that the debits equal the credits.
d. So that assets are not understated.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
28. The balances for Grose Ltd at 16 April are:
If an account for $1200 is written off on 15 June, what is the estimated realisable value of accounts receivable after the write-off? (Ignore any GST adjustment for the purposes of this question.)
a. $43 550
b. $44 750
c. $48 150
d. $42 350
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
Feedback: DR Allowance for doubtful debts $1200; CR Accounts receivable $1200 has no effect on the estimated realisable value of accounts receivable.
29. Under the statement of financial performance method of estimating likely bad debts:
a. a percentage, based on past experience, is applied to credit sales.
b. a percentage, based on past experience, is applied to profit.
c. an estimate of bad debts is made by the accountant.
d. accounts receivable are 'aged' to establish likely bad debts.
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
30. Courtney uses the allowance method of accounting for bad and doubtful debts. When she received notice that a debtor, who owed her $5 000, was in liquidation she decided to write off the debt as bad. What is the general journal entry to record the write off?
a. DR Allowance for doubtful debts $5 000; CR Accounts receivable $5 000
b. DR Bad debts expense $5 000; CR Allowance for doubtful debts $5 000
c. DR Bad debts expense $5 000; CR Accounts receivable $5 000
d. DR Allowance for doubtful debts $5 000; CR Bad debts expense $5 000
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
31. When the direct write off method is used, the general journal entry to write off bad debts is:
a. DR Accounts receivable; CR Bad debts expense
b. DR Bad debts expense; CR Accounts receivable
c. DR Accounts receivable; CR Allowance for doubtful debts
d. DR Allowance for doubtful debts; CR Accounts receivable
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
32. Watson Company calculated that this year's estimated bad debts expense will be $5800. The unadjusted balance of the allowance for doubtful debts account is $4200. What effect will the necessary adjusting entry have on the following accounts?
Gross accounts receivable: bad debts expense: allowance for doubtful debts.
a. No effect: increase: increase.
b. Increase: increase: no effect.
c. No effect: increase: decrease.
d. Increase: increase: increase
General Feedback:
Learning objective 12.3: explain the nature of bad and doubtful debts and how to account for them.
33. Maxine's Flower Shop had bank issued credit card sales of $1650 including GST. The correct entry to record the sales is:
a. 
b. 
c. 
d. 
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
34. Which of the following statements concerning the factoring of accounts receivable is true?
a. All of the other options are true.
b. A disadvantage of factoring can be its high cost.
c. A typical journal entry to record the sale of accounts receivable is DR Bank; DR Service charge expense; CR Accounts receivable control.
d. Credit cards are a form of factoring (i.e. the credit card firm specialises in the collection of accounts receivable).
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
35. Which of the following are an issue in a firm's management of its accounts receivable?
I. Deciding which customers to offer credit to.
II. Minimising the costs of carrying accounts receivables.
III. Following up slow paying customers.
a. I, II and III
b. I and II only
c. II and III only
d. None of them are an issue.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
36. Which of the following statements is not true?
a. If credit policies are too strict valuable customers may be lost.
b. If an entity is too generous in extending credit bad debts will occur.
c. A credit report from a credit rating agency is an important method of checking on customer's credit history.
d. Generally, entities offer too much credit to customers.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
37. Which of the following indicates an improvement in the management of accounts receivable?
a. A change in the number of times debtors are turned over per year from 8.32 times to 10.85 times.
b. An increase in the average collection time for accounts receivable.
c. A change in the average collection period from 34 days to 39 days.
d. An extension of the time taken to collect debts to beyond the allowed credit period.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
Feedback: A change in the number of times debtors are turned over per year from 8.32 times to 10.85 times indicates an improvement in the management of accounts receivable. A turnover of 8.32 times p.a. = a collection period of 43.9 days whereas a turnover of 10.85 times p.a. = a collection period of 33.64 days
38. Which of the following are internal controls relating to accounts receivable?
I. Sending monthly statements of account to customers.
II. Reviewing slow paying accounts.
III. Regular reconciliation of the debtors control account and the subsidiary ledger.
IV. Separating the functions of maintaining the accounts receivables with processing of cash receipts.
V. Allowing debtors discount for early settlement.
a. I, II, III, and IV only
b. I III and V only.
c. I, II, III, IV and V
d. I, II and IV only .
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
39. The formula for calculating the average collection period for accounts receivable in days is:
a. Average receivables x 365 divided by net credit sales
b. 365 divided by average receivables
c. Net credit sales divided by average receivables
d. Average receivables divided by net credit sales
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
40. Which statement concerning the receivables turnover ratio is true?
a. It is a measure of how many times the average receivables balance is converted into cash during a year.
b. It is calculated as total sales divided by average receivables.
c. If the receivables turnover ratio is divided into 365 this gives the average number of days it takes to sell receivables.
d. A change in the ratio from 4.1 times to 3.5 times is a favourable change.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
41. The selling of accounts receivable as a means of quickly raising cash, minimising debt collecting expenses and minimising bad debt losses is known as:
a. transferring.
b. diverting.
c. ageing.
d. factoring.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
42. Which of the following statements concerning the accounting treatment of bank issued credit card sales is correct?
a. The treatment of bank issued credit card sales is the same as the treatment of non-bank issued credit card sales.
b. A 'merchant fee' for the month's sales is debited to the firm's bank statement at month-end.
c. The sale is recorded like a credit sale in the books of the seller
d. The business does not retain a copy of the transaction slip.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
43. Which of the following are internal controls relating to accounts receivable?
I. Bad debt write-offs are authorised by a responsible officer.
II. All cash receipts are stored in a locked safe.
III. Monthly statements of account are sent to customers.
a. I and III only
b. III only
c. I, II and III
d. II and III only
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
Feedback: All cash receipts are stored in a locked safe is an internal control but it is not related to accounts receivable.
44. A debit card (EFPTOS) sale is essentially recorded by the seller:
a. as a bill payable.
b. as a bill receivable.
c. as a credit sale.
d. as a cash sale.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of account receivable.
45. In managing accounts receivable, the term 'factoring' relates to:
a. selling the accounts receivable to a business that will then collect the debts.
b. ageing the receivables.
c. calculating the amount of bad debts expense.
d. the proportion of debts expected to become bad.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
46. For Maxwell Ltd the correct general journal entry for a sale of $6600, including GST, paid for by the customer with a bank issued credit card, is:
a. DR Bank $6000; DR GST payable $600; CR Sales $6600
b. DR Bank $6600; CR Sales $6600
c. DR Accounts receivable $6600; CR Sales $6000; CR GST payable $600
d. DR Bank $6600; CR Sales $6000; CR GST payable $600
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
47. One of the measures that can be undertaken to reduce bad debts before they occur is:
a. a reminder notice.
b. issue of a monthly statement to the debtor.
c. a credit check.
d. use of a debt collector.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
48. The major issuers of credit cards in Australia are banks but there are also some credit cards that are issued by non-bank organisations. Which of the following is not a credit card issued by a bank?
a. American Express
b. Visa
c. MasterCard
d. Bankcard
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
49. Which statement concerning bank issued credit card fees (merchant fees) is incorrect?
a. They are calculated by the bank once a month.
b. They are recorded by the firm as a debit to the merchant fees expense account and a credit to bank.
c. Credit card fees are subject to GST.
d. They are calculated as a flat charge regardless of sales.
General Feedback:
Learning objective 12.4: identify the principles involved in the management and control of accounts receivable.
Document Information
Connected Book
Financial Accounting 11e | Test Bank with Answer Key by John Hoggett
By John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield