ACC 302 CHAPTER 7,8,9 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
Allowance method is used for tax purposes.
Estimates are used.
Determining worthless accounts under direct write-off method is difficult to do.
Improved matching of bad debt expense with revenue. - Answers Improved matching of bad debt
expense with revenue.
How can accounting for bad debts be used for earnings management?
Changing the percentage of receivables recorded as bad debt expense.
Using an aging of the accounts receivable balance to determine bad debt expense.
Reversing previous write-offs.
Determining which accounts to write-off. - Answers Changing the percentage of receivables recorded
as bad debt expense.
Which of the following is a generally accepted method of determining the amount of the adjustment
to bad debt expense?
A percentage of accounts receivable adjusted for the balance in the allowance.
An amount derived from aging accounts receivable and not adjusted for the balance in the
allowance.
A percentage of accounts receivable not adjusted for the balance in the allowance.
Actual losses from uncollectible accounts. - Answers A percentage of accounts receivable not
adjusted for the balance in the allowance.
At the beginning of 2016, Gannon Company received a three-year zero-interest-bearing $1,000 trade
note. The market rate for equivalent notes was 8% at that time. Gannon reported this note as a
$1,000 trade note receivable on its 2016 year-end statement of financial position and $1,000 as sales
revenue for 2016. What effect did this accounting for the note have on Gannon's net earnings for
2016, 2017, 2018, and its retained earnings at the end of 2018, respectively?
Overstate, understate, understate, zero.
Overstate, overstate, overstate, overstate
Overstate, understate, understate, understate
Overstate, overstate, understate, zero - Answers Overstate, understate, understate, zero.
Which of the following statements is not true of fair value option?
Unrealized holding gains and losses from fair value adjustments are reported as a component of
comprehensive income.
The International Accounting Standards Board believes that fair value measurement for financial
instruments provides more relevant and understandable information than historical cost.
An unrealized holding gain or loss is the net change in the fair value of the receivable from one period
to another, exclusive of interest revenue.
Receivables are recorded at fair value in the financial statements. - Answers Unrealized holding gains
and losses from fair value adjustments are reported as a component of comprehensive income.
When should a transfer of receivables be recorded as a sale?
The transferor maintains effective control over the transferred assets through an agreement to
repurchase or redeem them prior to their maturity.
The buyer surrenders control of the receivables to the seller.
The transferee cannot pledge or exchange the transferred assets.
The transferred assets are isolated from the transferor. - Answers The transferred assets are isolated
from the transferor.
, On July 22, Peter sold $23,500 of inventory items on credit with the terms 2/15, net 30. Payment on
$15,000 sales was received on August 1 and the remaining payment was received on August 12.
Assuming Peter uses the gross method of accounting for sales discounts, which one of the following
entries was made on August 1 to record the cash received?
Accounts Receivable 300
Sales Discount Forfeited 300
Cash 14,700
Sales Discount 300
Accounts Receivable 15,000
Cash 15,000
Accounts Receivable 15,000
Cash 14,700
Accounts Receivable 14,700 - Answers Cash 14,700
Sales Discount 300
Accounts Receivable 15,000
David Company uses the gross method to record sales made on credit. On June 10, 2017, it sold goods
worth $250,000 with terms 2/10, n/30 to Charles Inc. On June 19, 2017, David received payment for
1/2 of the amount due from Charles Inc. David's fiscal year end is on June 30, 2017. What amount will
be reported in the financial statements for the accounts receivable due from Charles Inc.?
$125,000.
$250,000.
$245,000.
$122,500. - Answers $125,000.
The following information is available for Murphy Company:
Allowance for doubtful accounts at December 31, 2016 $24,000
Credit sales during 2017 1,200,000
Accounts receivable deemed worthless and written off during 2017 27,000
As a result of a review and aging of accounts receivable in early January 2018, it has been determined
that an allowance for doubtful accounts of $16,000 is needed at December 31, 2017. What amount
should Murphy record as "bad debt expense" for the year ended December 31, 2017?
$19,000
$40,000
$16,000
$13,000 - Answers $19,000
$24,000 - $27,000 + X = $16,000; X = $19,000.
Black Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of $21,000. During
2017, it wrote off $15,120 of accounts and collected $4,410 on accounts previously written off. The
balance in Accounts Receivable was $420,000 at 1/1 and $504,000 at 12/31. At 12/31/17, Black
estimates that 5% of accounts receivable will prove to be uncollectible. What should Black report as
its Allowance for Doubtful Accounts at 12/31/17?
$14,490.
$10,290.
$25,200.
$10,080. - Answers $504,000 × .05 = $25,200.
The category "trade receivables" includes
claims against insurance companies for casualties sustained.
advances to officers and employees.
amounts owed by customers for goods bought or services rendered.
Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
Allowance method is used for tax purposes.
Estimates are used.
Determining worthless accounts under direct write-off method is difficult to do.
Improved matching of bad debt expense with revenue. - Answers Improved matching of bad debt
expense with revenue.
How can accounting for bad debts be used for earnings management?
Changing the percentage of receivables recorded as bad debt expense.
Using an aging of the accounts receivable balance to determine bad debt expense.
Reversing previous write-offs.
Determining which accounts to write-off. - Answers Changing the percentage of receivables recorded
as bad debt expense.
Which of the following is a generally accepted method of determining the amount of the adjustment
to bad debt expense?
A percentage of accounts receivable adjusted for the balance in the allowance.
An amount derived from aging accounts receivable and not adjusted for the balance in the
allowance.
A percentage of accounts receivable not adjusted for the balance in the allowance.
Actual losses from uncollectible accounts. - Answers A percentage of accounts receivable not
adjusted for the balance in the allowance.
At the beginning of 2016, Gannon Company received a three-year zero-interest-bearing $1,000 trade
note. The market rate for equivalent notes was 8% at that time. Gannon reported this note as a
$1,000 trade note receivable on its 2016 year-end statement of financial position and $1,000 as sales
revenue for 2016. What effect did this accounting for the note have on Gannon's net earnings for
2016, 2017, 2018, and its retained earnings at the end of 2018, respectively?
Overstate, understate, understate, zero.
Overstate, overstate, overstate, overstate
Overstate, understate, understate, understate
Overstate, overstate, understate, zero - Answers Overstate, understate, understate, zero.
Which of the following statements is not true of fair value option?
Unrealized holding gains and losses from fair value adjustments are reported as a component of
comprehensive income.
The International Accounting Standards Board believes that fair value measurement for financial
instruments provides more relevant and understandable information than historical cost.
An unrealized holding gain or loss is the net change in the fair value of the receivable from one period
to another, exclusive of interest revenue.
Receivables are recorded at fair value in the financial statements. - Answers Unrealized holding gains
and losses from fair value adjustments are reported as a component of comprehensive income.
When should a transfer of receivables be recorded as a sale?
The transferor maintains effective control over the transferred assets through an agreement to
repurchase or redeem them prior to their maturity.
The buyer surrenders control of the receivables to the seller.
The transferee cannot pledge or exchange the transferred assets.
The transferred assets are isolated from the transferor. - Answers The transferred assets are isolated
from the transferor.
, On July 22, Peter sold $23,500 of inventory items on credit with the terms 2/15, net 30. Payment on
$15,000 sales was received on August 1 and the remaining payment was received on August 12.
Assuming Peter uses the gross method of accounting for sales discounts, which one of the following
entries was made on August 1 to record the cash received?
Accounts Receivable 300
Sales Discount Forfeited 300
Cash 14,700
Sales Discount 300
Accounts Receivable 15,000
Cash 15,000
Accounts Receivable 15,000
Cash 14,700
Accounts Receivable 14,700 - Answers Cash 14,700
Sales Discount 300
Accounts Receivable 15,000
David Company uses the gross method to record sales made on credit. On June 10, 2017, it sold goods
worth $250,000 with terms 2/10, n/30 to Charles Inc. On June 19, 2017, David received payment for
1/2 of the amount due from Charles Inc. David's fiscal year end is on June 30, 2017. What amount will
be reported in the financial statements for the accounts receivable due from Charles Inc.?
$125,000.
$250,000.
$245,000.
$122,500. - Answers $125,000.
The following information is available for Murphy Company:
Allowance for doubtful accounts at December 31, 2016 $24,000
Credit sales during 2017 1,200,000
Accounts receivable deemed worthless and written off during 2017 27,000
As a result of a review and aging of accounts receivable in early January 2018, it has been determined
that an allowance for doubtful accounts of $16,000 is needed at December 31, 2017. What amount
should Murphy record as "bad debt expense" for the year ended December 31, 2017?
$19,000
$40,000
$16,000
$13,000 - Answers $19,000
$24,000 - $27,000 + X = $16,000; X = $19,000.
Black Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of $21,000. During
2017, it wrote off $15,120 of accounts and collected $4,410 on accounts previously written off. The
balance in Accounts Receivable was $420,000 at 1/1 and $504,000 at 12/31. At 12/31/17, Black
estimates that 5% of accounts receivable will prove to be uncollectible. What should Black report as
its Allowance for Doubtful Accounts at 12/31/17?
$14,490.
$10,290.
$25,200.
$10,080. - Answers $504,000 × .05 = $25,200.
The category "trade receivables" includes
claims against insurance companies for casualties sustained.
advances to officers and employees.
amounts owed by customers for goods bought or services rendered.
