TRUE/FALSE

1. When the direct write-off method is used to record a bad debt. the Bad Debts Expense account is debited, and the Accounts Receivable account is credited. True or False

2. Under the allowance method. an estimate of the total bad debts expected for the following year is made at the end of the current year. True or False

3. The difference between the balance of Accounts Receivable and the balance of Allowance for Doubtful Accounts is called the net realizable value of the accounts receivable. True or False

4. The interest on a $2,500 note for 45 days at 8% is $30. True or False

5. The maturity value of a $2,000 note due in 30 days at 12% interest is $2,020. True or False

MULTIPLE CHOICE

1 A business using the direct write-off method learns that a customer who owes $1,000 has declared bankruptcy. The entry to record this transaction involves a debit to

a. Allowance for doubtful Accounts and a credit to Bad Debts Expense for $1,000.

b. Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $1,000.

c. Bad Debts Expense and a credit to Accounts Receivable for $1,000.

d. Allowance for Doubtful Accounts and a credit to Accounts Receivable for $1,000.

2 A customer owes a business $650 and makes a partial payment of $200. The remainder is considered uncollectible. If the business uses the direct write-off method, its journal entry will involve

a. a debit to Cash for $650 and credits to Allowance for Doubtful Accounts and Accounts Receivable for $2m and $450,

b. a debit to Allowance for Doubtful Accounts for $650 and credits to Cash and Accounts Receivable for and $450.

c. debits to Cash and Bad Debts Expense for S2m and $450, respectively, and a credit to Accounts Receivable for $650.

d. debits to Cash and Allowance for Doubtful Accounts for and $450, and a credit to Accounts Receivable for 3650.

3. Alladin Corporation uses the allowance method in estimating uncollectibles. At the end of the year, Alladin Corporation estimates that 2% of its credit sales of $1,000,000 will be uncollectible. Allowance for Doubtful Accounts has a credit balance of $1,000 before adjustment. What is the amount of the adjusting entry?

1. 20000, b. 21000, c. 22000, d. 19000

4.Allowance for Doubtful Accounts will appear on the balance sheet as a. a contra asset.

a. a contra asset.

b. a contra liability

c. a liability.

d. part of the owner's capital