11.The allowance for doubtful accounts is
a. an ‘other revenue’ account.
b. a contra accounts receivable account.
c. an ‘other expense’ account.
d. a contra expense.
12.On November 3, Carol Company made a $2,000 credit sale under the terms 3/10, n/60. If Carol receives full payment of the account on November 14, how much cash will it receive?
a. $1,400
b. $1,900
c. $1,940
d. $2,000
13.On January 2, Favre Co. made a $2,000 credit sale under the terms 3/10, n/30. If Favre uses the gross method of accounting for cash discounts, the proper entry on January 2 includes
a. a debit to Accounts Receivable for $2,000, and a credit to Sales for $2,000.
b. a debit to Accounts Receivable for $2,000, a credit to Cash Discounts for $1,940, and a credit to Sales for $60.
c. a debit to Accounts Receivable for $1,940, and a credit to Sales for $1,940.
d.a debit to Accounts Receivable for $1,940, a debit to Cash Discounts for $60, and a credit to Sales for $2,000.
14.The net realizable value of receivables is calculated as the face value of the receivables less adjustments for
a.sales returns and sales discounts.
b.actual uncollected amounts adjusted for purchase discounts.
c.bad debts already written off.
d.sales returns, cash discounts, and estimated uncollectible accounts.
15.Montego Bay Resort Club offers a cash discount of 3% if its customers pay within 15 days after the customer eats dinner. Otherwise, the customer must pay within 30 days. If a customer does not take advantage of the cash discount, then he/she is paying an annual interest rate for not delaying payment for 15 days of
a. 3%.
b. 6%.
c. 36%.
d. 72%.
16.The face amount of accounts receivable for Rio Inc. is $20,000. It was estimated that 5% of the accounts will not be collected, cash discounts of $500 will be exercised, and $200 of sales returns will be experienced. The net realizable value of accounts receivable is
a. $19,500
b. $19,300
c. $20,000
d. $18,300
17.Under the allowance method of accounting for bad debts, the recognition of bad debts expense
a. increases current assets and decreases net income.
b. decreases current assets and increases net income.
c. increases current assets and net income.
d. decreases current assets and net income.
18.Under the direct write-off method of accounting for bad debts, the recognition of bad debts expense
a. decreases current assets and net income.
b. decreases current assets and increases net income.
c. increases current assets and net income.
d. increases current assets and decreases retained earnings.
19.Under the allowance method of accounting for bad debts, the write-off of an account receivable determined to be uncollectible
a. decreases the current ratio.
b. increases the current ratio.
c. has no effect on the current ratio.
d.decreases working capital.
20.Hummel Inc. and Nadia Co. have experienced identical economic performances for the last several years of growing sales. Each uses identical accounting measurement rules except that Hummel uses the allowance method and Nadia uses the direct write-off method of accounting for bad debts. Both companies have experienced a gradual increase in uncollectible accounts. Which one of the following statements is true in the first year of operations for both companies?
a. Hummel ‘s net income is less than Nadia’s net income.
b.Hummel ‘s net income is greater than Nadia’s net income.
c. Hummel ‘s current ratio is greater than Nadia’s current ratio.
d.Hummel will appear more solvent than Nadia will.