1.

Question 1

Why do we have an allowance for doubtful accounts?

1 point

2.

Question 2

The Allowance for doubtful accounts is an

1 point

Asset account

Contra-asset account

Expense account

Liability account

3.

Question 3

Baz corp. is a jewelry company that sells custom rings. At the beginning of the year, their customers owed them $2,500,000 but they estimated about $300,000 would not actually be collected. At the end of the year, their customers owed them $2,550,000 and estimated $550,000 would not be collected. What amount would they present for accounts receivable on their year end balance sheet?

4.

Question 4

Continuing with Baz corp, recall at the beginning of the year, their customers owed them $2,500,000 and they had an allowance for doubtful accounts of $300,000. At the end of the year, their customers owed them $2,550,000 and they had an allowance for doubtful accounts of $550,000. What was bad debt expense for this year?

5.

Question 5

The bad debt expense for Baz for this year will be included in the income statement as:

1 point

It depends.

By reducing revenues for the period.

In cost of goods sold

In selling, general and administrative

As its own line item

6.

Question 6

Chacko corp is a distributor of exotic fruits and vegetables. At the beginning of the year they had an allowance for doubtful accounts of $1,100,000. At the end of the year they determined their balance in the allowance should be $900,000. They did not "write off" any accounts or make any other adjustments to the allowance during the during the year. How much would they recognize for bad debt expense during the year?

1 point

-$200,000

$200,000

$900,000

7.

Question 7

In the next year, Chacko finds out that one of its customers, Gula Inc, went bankrupt and will not pay. Gula owed Chacko $4,000. How would that impact the numbers reported on Chackos balance sheet and income statement?

1 point

It would not impact either statement.

It would reduce accounts receivable reported on the balance sheet, but not impact the income statement.

It would increase the bad debt expense on the income statement and decrease accounts receivable on the balance sheet.

It would increase the bad debt expense on the income statement, but have no impact on the balance sheet.

Question 8

When a firm reports an impairment, it implies the prior book value violated the following component of the definition of an asset:

1 point

From a past transaction

Under the firm control

Probable future economic benefit

Q 9

Monika is a brand manager for an art supply company. Glowing paint has been one of their most popular products. They have built up a large inventory in several colors. It has recently come out that their "glowing pink" causes some young children to become very high energy and unable to sleep for several days after exposure. As such, many customers with younger children no longer will purchase the paint. However, customers without younger children still will.

Monika has determined they will have to drop the price to $15 per gallon given their current demand, but that no additional costs will be incurred since the paint is already in the warehouses and ready to distribute (paint stores pay for shipping etc.). The paint currently has a book value of $19 per gallon and there are 1,000 gallons in stock. How much (if any) of an impairment must Monika recognize?

Q 10

Monika is also the brand manager for "spin kits". They have been a very popular product among middle school kids. Given the popularity, it has been hard to keep them in stock. Thus, they have been priced at $35 a kit. That has made a nice profit as the cost of producing one (the book value) is only $16. Unfortunately, a number of competing products have emerged and the initial excitement is also wearing off, so Monika is dropping the price to $20 a kit. How much (if any) impairment must Monika recognize?