06-Receivables Theory
06-Receivables Theory
06-Receivables Theory
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9. A method of estimating doubtful accounts that focuses on the income statement rather the
balance sheet is the allowance method based on
a. Direct writeoff
c. Credit sales
b. Aging of trade accounts receivable
d. Balance of accounts receivable
10. A method of estimating doubtful accounts that emphasizes asset valuation rather than income
measurement is the allowance method based on
a. Aging of receivables
b. Direct writeoff
c. Gross sales
d. Credit sales less sales returns and allowances
11. A company uses the allowance method for recognizing doubtful accounts. The entry to record
the writeoff of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable
12. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income
13. When a specific customers account receivable is written off as uncollectible, what will be the
effect on net income under each of the following methods of recognizing bad debt expense?
Allowance
Direct writeoff
a. None
Decrease
b. Decrease
None
c. Decrease
Decrease
d. None
None
14. If receivables are hypothecated against borrowings, the amount of receivables involved should
be
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value
and the amount of borrowings
15. It is a predetermined amount withheld by a factor as a protection against customer returns,
allowances and other special adjustments.
a. Equity in assigned accounts
c. Commission
b. Service charge
d. Factors holdback
16. Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for as either a secured borrowing or as a sale.
b. The receivables are used as collateral for a promissory note issued to the factor by the
owner of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.
d. The financing cost should be recognized ratably over the collection period of the
receivables.
17. Notes receivable discounted with recourse should be
a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability
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