ACT1104
MIDTERM EXAMINATION (Part 2)
MULTIPLE CHOICE QUESTIONS. Encircle the Correct Answer.
1. These are receivables that arise from the sale of goods or services in the ordinary
course of business.
a. Financial assets
b. Trade receivables
c. Note receivables
d. Account receivables
2. Trade receivables are presented as current assets
a. when they are collectible within one year
b. when they are collectible within an entity’s normal operating cycle
c. when they are backed by sufficient collateral security
d. when they are collectible within an entity’s normal operating cycle, even if
the normal operating cycle extends beyond one year.
3. Which of the following receivables may be presented as part of current assets?
a. Receivable from a subscriber of the entity’s own shares collectible within 12
months from end of reporting period.
b. Advances to affiliates, the settlement date is not yet agreed upon.
c. Loan receivables from the entity’s officers collectible beyond 12 months
d. Long-term receivables of a construction firm. The firm’s normal operating
cycle extends beyond one year.
4. A discount given to a customer for purchasing a large volume of merchandise is
typically referred to as a
a. Cash discount
b. Trade discount
c. Size discount
d. Quantity discount
5. A method of estimating bad debts that focuses on the statement of financial position
rather than the statement of comprehensive income is the allowance method based
on
a. Direct write-off
b. Credit sales
c. Aging the trade receivable accounts
d. Specific accounts determined to be uncollectible
6. Estimation of uncollectible accounts receivable based on accounts receivable
a. Emphasizes measurement of the net realizable value of accounts
receivable
b. Emphasizes measurement of bad debt expense
c. Emphasizes measurement of total assets
d. Is only acceptable for tax purposes
7. Which of the following accounts is not affected when an account receivable written
off as uncollectible is unexpectedly collected?
a. Cash
b. Accounts receivable
c. Bad debt expense
d. Allowance for bad debts
, d. Have no effect on total current assets
9. A method of estimating uncollectible account that emphasizes income measurement
rather than asset valuation is the allowance method based on
a. Direct write-off
b. Gross sales
c. Aging the receivables
d. Credit sales less returns and allowances
10. The entry debiting accounts receivable and crediting allowance for doubtful accounts
would be made when
a. A customer pays its account balance
b. A customer defaults on its account
c. A previously defaulted customer pays its outstanding balance
d. Estimated uncollectible receivables are too low
11. When the direct write-off method of recognizing bad debts expense is used, the
entry to write-off a specific customer account would
a. Increase net income
b. Have no effect on net income
c. Increase both accounts receivable and net income
d. Decrease both accounts receivable and net income
12. When the direct write-off method of recognizing bad debts expense is used, the
entries at the time of collection of an account previously written off would
a. Increase the net realizable value of the accounts receivable
b. Decrease the net realizable value of the accounts receivable
c. Increase net income
d. Decrease net income
13. The “aging method” of estimating bad debts is
a. A method in which a rate, which is usually determined from past experience of
the business, is multiplied by the ending accounts receivable balance in order to
get the required allowance balance.
b. A procedure where bad debts are directly related to sales from which they arise
and are reported in the same year of sale.
c. An analysis of the accounts whether or not they are past due.
d. A procedure where the amounts of sales for the year is multiplied by a certain
rate to get the bad debts expense.
14. A debit balance in the allowance for doubtful account
a. Should never occur
b. Is always the result of management not providing a large enough allowance in
order to manage earnings
c. May occur before the end-of-period adjustment for uncollectibles
d. May exist even after the end-of-period adjustment for uncollectibles
15. Which of the following is a generally accepted method of determining the amount of
the adjustment to bad debts expense?
a. A percentage of sales adjusted for the balance in the allowance.
b. A percentage of sales not adjusted for the balance in the allowance.
c. A percentage of accounts receivable not adjusted for the balance in the
allowance.
d. An amount derived from aging accounts receivable not adjusted for the balance
in the allowance
MIDTERM EXAMINATION (Part 2)
MULTIPLE CHOICE QUESTIONS. Encircle the Correct Answer.
1. These are receivables that arise from the sale of goods or services in the ordinary
course of business.
a. Financial assets
b. Trade receivables
c. Note receivables
d. Account receivables
2. Trade receivables are presented as current assets
a. when they are collectible within one year
b. when they are collectible within an entity’s normal operating cycle
c. when they are backed by sufficient collateral security
d. when they are collectible within an entity’s normal operating cycle, even if
the normal operating cycle extends beyond one year.
3. Which of the following receivables may be presented as part of current assets?
a. Receivable from a subscriber of the entity’s own shares collectible within 12
months from end of reporting period.
b. Advances to affiliates, the settlement date is not yet agreed upon.
c. Loan receivables from the entity’s officers collectible beyond 12 months
d. Long-term receivables of a construction firm. The firm’s normal operating
cycle extends beyond one year.
4. A discount given to a customer for purchasing a large volume of merchandise is
typically referred to as a
a. Cash discount
b. Trade discount
c. Size discount
d. Quantity discount
5. A method of estimating bad debts that focuses on the statement of financial position
rather than the statement of comprehensive income is the allowance method based
on
a. Direct write-off
b. Credit sales
c. Aging the trade receivable accounts
d. Specific accounts determined to be uncollectible
6. Estimation of uncollectible accounts receivable based on accounts receivable
a. Emphasizes measurement of the net realizable value of accounts
receivable
b. Emphasizes measurement of bad debt expense
c. Emphasizes measurement of total assets
d. Is only acceptable for tax purposes
7. Which of the following accounts is not affected when an account receivable written
off as uncollectible is unexpectedly collected?
a. Cash
b. Accounts receivable
c. Bad debt expense
d. Allowance for bad debts
, d. Have no effect on total current assets
9. A method of estimating uncollectible account that emphasizes income measurement
rather than asset valuation is the allowance method based on
a. Direct write-off
b. Gross sales
c. Aging the receivables
d. Credit sales less returns and allowances
10. The entry debiting accounts receivable and crediting allowance for doubtful accounts
would be made when
a. A customer pays its account balance
b. A customer defaults on its account
c. A previously defaulted customer pays its outstanding balance
d. Estimated uncollectible receivables are too low
11. When the direct write-off method of recognizing bad debts expense is used, the
entry to write-off a specific customer account would
a. Increase net income
b. Have no effect on net income
c. Increase both accounts receivable and net income
d. Decrease both accounts receivable and net income
12. When the direct write-off method of recognizing bad debts expense is used, the
entries at the time of collection of an account previously written off would
a. Increase the net realizable value of the accounts receivable
b. Decrease the net realizable value of the accounts receivable
c. Increase net income
d. Decrease net income
13. The “aging method” of estimating bad debts is
a. A method in which a rate, which is usually determined from past experience of
the business, is multiplied by the ending accounts receivable balance in order to
get the required allowance balance.
b. A procedure where bad debts are directly related to sales from which they arise
and are reported in the same year of sale.
c. An analysis of the accounts whether or not they are past due.
d. A procedure where the amounts of sales for the year is multiplied by a certain
rate to get the bad debts expense.
14. A debit balance in the allowance for doubtful account
a. Should never occur
b. Is always the result of management not providing a large enough allowance in
order to manage earnings
c. May occur before the end-of-period adjustment for uncollectibles
d. May exist even after the end-of-period adjustment for uncollectibles
15. Which of the following is a generally accepted method of determining the amount of
the adjustment to bad debts expense?
a. A percentage of sales adjusted for the balance in the allowance.
b. A percentage of sales not adjusted for the balance in the allowance.
c. A percentage of accounts receivable not adjusted for the balance in the
allowance.
d. An amount derived from aging accounts receivable not adjusted for the balance
in the allowance
