126.The Allowance for Doubtful Accounts represents:
A. Cash set aside to make up for bad debt losses.
B. The amount of uncollectible accounts written off to date.
C. The difference between total credit sales and collections on credit sales.
D. The difference between the face value of accounts receivable and the net realizable value of accounts receivable.
127.When determining the uncollectible accounts expense in computing taxable income, income tax regulations:
A. Require the allowance method.
B. Require the direct write-off method.
C. Require the income statement approach.
D. Allow any method.
128.The aging of the accounts receivable approach to estimating uncollectible accounts does
not:
A. Take into consideration the existing balance in the Allowance for Doubtful Accounts.
B. Utilize a percentage of probable uncollectible accounts for each age group of accounts receivable.
C. Stress the relationship between uncollectible accounts expense and net sales.
D. Tend to give a reliable estimate of uncollectible accounts because of the consideration given to the collectability of specific accounts receivable.
129.If a company uses a percentage of net sales in computing the amount of uncollectible accounts expense:
A. No valuation allowance will be required.
B. The relationship between revenue and expenses is being stressed more than the valuation of receivables at the balance sheet date.
C. The existing balance in the Allowance for Doubtful Accounts will be increased sufficiently to equal the probable loss indicated by the percentage of net sales computation.
D. Any past-due accounts will be listed as a separate item in the balance sheet.
130.Randall, Inc. uses the allowance method supported by an aging of its accounts receivable to recognize uncollectible accounts expense in its financial statements. What method of recognizing this expense does Randall use in its income tax return?
A. It must use the same method.
B. The direct write-off method.
C. Either the balance sheet or income statement approach is acceptable.
D. None, since uncollectible accounts expense is not deductible for income tax purposes.
131.The direct write-off method of recognizing uncollectible accounts expense:
A. Is acceptable only when most of the company's sales are on credit.
B. Records uncollectible accounts expense when individual accounts receivable are determined to be worthless.
C. Records uncollectible accounts expense when customers exceed their credit limits.
D. Uses a valuation account to record specific customer accounts deemed uncollectible.
132.Joe Costello handles cash receipts from customers and also has responsibility for issuing credit memoranda, writing off uncollectible accounts, and maintaining the accounts receivable records. When customers pay their accounts, Costello occasionally issues a credit memorandum and steals the cash received from the customer. This fraud should come to light if an employee other than Costello:
A. Reconciles the bank statement to the accounting records.
B. Reconciles the accounts receivable subsidiary ledger to the accounts receivable controlling account.
C. Investigates weekly all accounts written off as uncollectible.
D. Reconciles credit memoranda for sales returns to returned merchandise accepted by the receiving department.
133.Shrek Cyclery sells a bicycle to W. O'Connor, a customer who uses Empress Charge (a national credit card, but not issued by a bank). In recording this sale, Shrek Cyclery should record:
A. An account receivable from W. O'Connor.
B. A cash receipt.
C. An account receivable from Empress Charge.
D. A small increase in the allowance for doubtful accounts.
134.The Kansas Company makes credit sales to customers who use bank credit cards (such as Visa or MasterCard) as well as to customers who use non-bank credit cards (such as American Express or Diner's Club). In this situation:
A. Sales to customers using bank credit cards are recorded as cash sales.
B. Regardless of the type of credit card used by the customer, Kansas records a receivable from the credit card company when a credit sale is made.
C. Regardless of the type of credit card used by the customer, Kansas estimates uncollectible accounts related to these credit sales using the allowance method.
D. The fees charged by the credit card company reduce the dollar amount of sales recorded.
135.Sales to customers using bank credit cards, such as Visa or MasterCard, are recorded as:
A. Cash sales.
B. An account receivable from the cardholder.
C. An account receivable from the bank.
D. Credit card discount expense.