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Learning Objective 8-2 1) The direct write-off method of accounting for

Question : Learning Objective 8-2 1) The direct write-off method of accounting for : 1412207

 

Learning Objective 8-2

 

1) The direct write-off method of accounting for uncollectible receivables is primarily used by small, non-public companies.

 

2) The expense associated with the cost of uncollectible accounts receivable is known as bad debts expense.

 

3) Companies that follow GAAP are required to use the direct write-off method for uncollectible accounts receivable.

 

4) The direct write-off method is only acceptable for companies that have very few uncollectible receivables.

5) The direct write-off method for uncollectible accounts violates the matching principle.

 

6) The following information is from the records of Armadillo Camera Shop:

 

Accounts receivable, December 31, 2014

$80,000 (debit)

Net credit sales for 2014

165,000

Accounts written off as uncollectible during 2014

15,000

Cash sales during 2014

40,000

 

The company uses the direct write-off method for bad debts. What is the amount of bad debts expense?

A) $80,000

B) $40,000

C) $16,800

D) $15,000

 

7) For a company with significant uncollectible receivables, the direct write-off method is unsuitable because ________.

A) it overstates liabilities on the balance sheet

B) it violates the matching principle

C) it uses estimates for determining the bad debt expenses.

D) it is not allowed for tax reasons

 

8) Under the direct write-off method, the entry to write off an uncollectible account will include ________.

A) a debit to Bad Debts Expense account

B) a debit to the customer's Account Receivable

C) a credit to the Allowance for Bad Debts

D) No entry is made to write off uncollectible accounts

9) Under the direct write-off method, which of the following is included in the entry to write off an uncollectible account?

A) a credit to the Allowance for Bad Debts

B) a credit to the customer's Account Receivable

C) a debit to Allowance for Uncollectible Accounts

D) No entry is made to write off uncollectible accounts.

 

10) When a company is using the direct write-off method, and an account is written off, the journal entry consists of a ________.

A) debit to Accounts Receivable and a credit to Cash

B) credit to Accounts Receivable and a debit to Bad Debts Expense

C) debit to the Allowance for Bad Debts and a credit to Accounts Receivable

D) credit Accounts Receivable and a debit to Interest Expense

 

 

 

 

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