Problem 5-21 Multiple choice (AICPA Adapted) 1. A method of estimating bad debts that focuses on the income statement rather than the statement of financial position is the allowance method based on a. Direct writeoff b. Aging the trade accounts receivable c. Credit sales d. Trade accounts receivable 2. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on a. Aging of accounts receivable b. Direct writeoff c. Gross sales d. Credit sales less returns and allowances 3. The advantage of relating the bad debt experience to accounts receivable is that this approach a. Gives a reasonably accurate measurement of accounts receivable in the statement of financial position. b. Relates bad debt expense to the period of sale. Is the only generally accepted method for measuring accounts receivable. d. Makes estimates of uncollectible accounts unnecessary. c. 4. Which is an accurate method of determining the amount of the adjustment to bad debt 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 and not adjusted for the balance in the allowance 5. An entity uses the allowance method to recognize doubtful accounts expense. What is the effect of a collection of an account previously written off? a. No effect on both allowance for doubtful accounts and doubtful accounts expense b. No effect on allowance for doubtful accounts and decrease in doubtful accounts expense c. Increase in allowance for doubtful accounts and no effect on doubtful accounts expense d. Increase in allowance for doubtful accounts and decrease in doubtful accounts expense 6. When an accounts receivable aging schedule is prepared, a series of computations is made to determine the estimated uncollectible accounts. The resulting amount from this aging schedule a. When added to the total accounts written off during the year is the desired credit balance of the allowance for doubtful accounts at year-end b. Is the amount of doubtful accounts expense for the year c. Is the amount that should be added to the beginning allowance for doubtful accounts to get the doubtful accounts expense for the year d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year-end 7. When an aging approach is used for estimating uncollectible accounts a. Bad debt expense is measured indirectly and the allowance for uncollectible accounts is measured directly, b. Bad debt expense is measured indirectly and the allowance for uncollectible accounts is measured indirectly c. Bad debt expense is measured directly and the allowance for uncollectible accounts is measured directly. d. Bad debt expense is measured directly and the allowance for uncollectible accounts is measured indirectly. 8. Which concept relates to the allowance method in accounting for uncollectible accounts receivable? a. Bad debt expense is an estimate based on historical and prospective information. b. Bad debt expense is the actual amount determined to be uncollectible. Bad debt expense is an estimate based only on aging of accounts receivable. d. Bad debt expense is management determination of which accounts are considered doubtful. c. 9. Which of the following is not acceptable in estimating uncollectible accounts receivable? a. The estimate of uncollectible accounts is based on a percentage of sales for the period. b. The estimate of uncollectible accounts is based on a percentage of the accounts receivable at the end of a period. c. The estimate of uncollectible accounts is based on an aging schedule. d. No estimate of uncollectible accounts is made but accounts are written off when it is determined that the accounts cannot be collected. 10. The estimate of uncollectible accounts receivable based on a percentage of sales 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