1. Which of the following statements is true?
i. Accounts receivable may be reported as a current asset or a current liability.
ii. Accounts receivable are reported at net realizable value on the balance sheet.
a. i only
b. ii only
c. Both i and ii
d. Neither i nor ii
2. Accounts receivable are:
a. recorded at the time cash is received.
b. netted with a liability account to be presented on the balance sheet at net worth.
c. recorded when a revenue is earned but cash has not yet been received.
d. reported as unearned revenue until payment is received.
3. Which of the following is not true of the Sales Returns and Allowances account?
a. It is a contra-revenue account
b. It is increased when sales are returned
c. It is a contra-expense account
d. It is a temporary account that is zeroed-out during the closing process
4. Under the direct write-off method:
a. bad debt expense increases only when a receivable is deemed uncollectible.
b. a contra-asset account is used to estimate the amount of receivables that will be uncollectible.
c. the matching principle of accounting is not violated.
d. the income statement approach is used to estimate Bad Debt Expense.
5. The allowance method:
a. requires only one journal entry to write off uncollectible accounts and record bad debt expense.
b. uses a contra-asset account to report accounts receivable at net realizable value.
c. is not recommended by GAAP.
d. is only used if the amount of accounts receivable is immaterial.
6. The percentage-of-sales approach to estimating bad debt expense:
a. is considered a balance sheet approach.
b. focuses on getting the allowance for bad debts account as accurate as possible.
c. matches expenses and revenues better than the percentage-of-receivables approach.
d. is calculated using gross margin.
7. Which is not true of the percentage-of receivables approach to estimating bad debt expense?
a. It is calculated in two steps
b. It is a function of a company's receivables balance
c. It results in a meaningful net realizable value
d. It always results in less bad debt expense compared to the percentage-of-sales approach