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62. An alternative name for Bad Debts Expense is a. Deadbeat Expense. b. Uncollectible Accounts Expense. c. Collection Expense. d. Credit Loss Expense. 63. A reasonable amount of uncollectible accounts is evidence a. that the credit policy is too strict. b. that the credit policy is too lenient. c. of a sound credit policy. d. of poor judgments on the part of the credit manager.

64. Bad Debts Expense is considered a. an avoidable cost in doing business on a credit basis. b. an internal control weakness. c. a necessary risk of doing business on a credit basis. d. avoidable unless there is a recession.

65. The best managed companies will have a. no uncollectible accounts. b. a very strict credit policy. c. a very lenient credit policy. d. some accounts that will prove to be uncollectible.

66. Two methods of accounting for uncollectible accounts are the a. allowance method and the accrual method. b. allowance method and the net realizable method. c. direct write-off method and the accrual method. d. direct write-off method and the allowance method.

67. The allowance method of accounting for uncollectible accounts is required if a. the company makes any credit sales. b. bad debts are significant in amount. c. the company is a retailer. d. the company charges interest on accounts receivable.

68. Bad Debts Expense is reported on the income statement as a. part of cost of goods sold. b. reducing gross profit. c. an operating expense. d. a contra-revenue account.

69. When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded a. in the year after the credit sale is made. b. in the same year as the credit sale. c. as each credit sale is made. d. when an account is written off as uncollectible.

70. To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts. b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. d. debit to Loss on Credit Sales and a credit to Accounts Receivable.

71. Under the allowance method of accounting for uncollectible accounts, a. the cash realizable value of accounts receivable is greater before an account is written off than after it is written off. b. Bad Debts Expense is debited when a specific account is written off as uncollectible. c. the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off. d. Allowance for Doubtful Accounts is closed each year to Income Summary.

72. Allowance for Doubtful Accounts on the balance sheet a. is offset against total current assets. b. increases the cash realizable value of accounts receivable. c. appears under the heading "Other Assets." d. is offset against accounts receivable.

73. When an account is written off using the allowance method, the a. cash realizable value of total accounts receivable will increase. b. total accounts receivable will decrease. c. allowance account will increase. d. total accounts receivable will stay the same.

74. If an account is collected after having been previously written off, a. the allowance account should be debited. b. only the control account needs to be credited. c. both income statement and balance sheet accounts will be affected. d. there will be both a debit and a credit to accounts receivable.

75. When an account is written off using the allowance method, accounts receivable a. is unchanged and the allowance account increases. b. increases and the allowance account increases. c. decreases and the allowance account decreases. d. decreases and the allowance account increases.

76. Two bases for estimating uncollectible accounts are: a. percentage of assets and percentage of sales. b. percentage of receivables and percentage of total revenue. c. percentage of current assets and percentage of sales. d. percentage of receivables and percentage of sales.

77. The percentage of receivables basis for estimating uncollectible accounts emphasizes a. cash realizable value. b. the relationship between accounts receivable and bad debts expense. c. income statement relationships. d. the relationship between sales and accounts receivable.

78. Lane Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Lane Company make to record the bad debts expense? a. Bad Debts Expense 25,000 Allowance for Doubtful Accounts 25,000 b. Bad Debts Expense 20,000 Allowance for Doubtful Accounts 20,000 c. Bad Debts Expense 20,000 Accounts Receivable 20,000 d. Bad Debts Expense 25,000 Accounts Receivable 25,000

79. The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts a. is relevant when using the percentage of receivables basis. b. is relevant when using the percentage of sales basis. c. is relevant to both bases of adjusting for uncollectible accounts. d. will never show a debit balance at this stage in the accounting cycle.

80. The direct write-off method of accounting for bad debts a. uses an allowance account. b. uses a contra-asset account. c. does not require estimates of bad debt losses. d. is the preferred method under generally accepted accounting principles.

81. Under the direct write-off method of accounting for uncollectible accounts a. the allowance account is increased for the actual amount of bad debt at the time of write-off. b. a specific account receivable is decreased for the actual amount of bad debt at the time of write-off. c. balance sheet relationships are emphasized. d. bad debt expense is always recorded in the period in which the revenue was recorded.

82. The sale of receivables by a business a. indicates that the business is in financial difficulty. b. is generally the major revenue item on its income statement. c. is an indication that the business is owned by a factor. d. can be a quick way to generate cash for operating needs.

83. If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n) a. selling expense. b. interest expense. c. other expense. d. contra asset.

84. If a company sells its accounts receivables to a factor, a. the seller pays a commission to the factor. b. the factor pays a commission to the seller. c. there is a gain on the sale of the receivables. d. the seller defers recognition of sales revenue until the account is collected.

85. Major advantages of credit cards to the retailer include all of the following except the a. issuer does credit investigation of the customer. b. issuer maintains customer accounts. c. retailer receives more cash from the credit card issuer than from the customer. d. issuer udertakes the collection process and absorbs any losses.

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