Practice Problems

Complete the practice problems. Check your answers after you finish.


Self-test - Answers

True or False

1. False. The percentage-of-sales method estimates the uncollectible accounts from the net credit sales or net sales of a given period.

2. False. Uncollectible accounts expense is recognized at the end of the accounting period in an adjusting entry.

3. True. The retailer deposits the credit card invoices directly in a special checking account.

4. False. Liabilities result from a past transaction.

5. True. Current liabilities are classified into those three categories.

6. True. The note has passed its maturity date and should be removed from the Notes Receivable account. The maturity value plus any protest fee should be debited to Accounts Receivable.

7. False. Discount on Notes Payable is recorded when a non interest-bearing note is issued.

Multiple Choice

1. d. A write-off of an account receivable results in a debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable for the same amount. The net amount (accounts receivable minus allowance for uncollectible accounts) does not change.

2. a. The uncollectible accounts expense for 2010 is computed as follows:

Allowance balance after adjustment ($ 200,000 X 0.05)

$ 10,000

Balance before adjustment


Uncollectible accounts expense

$ 7,000

3. c. Manufacturing companies tend to have the longest operating cycle. They must invest cash in raw materials, convert these raw materials into work in process and then finished goods, sell the items on account, and then collect the accounts receivable.

4. b. ;

5. c. machines is defective.



6. c. The name of the payee is not needed to compute interest expense on a promissory note.

7. c. The proceeds from a bank are computed as follows: