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Chapter 8—Accounts receivable and further record-keeping
MULTIPLE CHOICE
2. The general ledger account representing the subsidiary ledger is known as a control account because:
A. inclusion of both control accounts and subsidiary ledger accounts in the general ledger
improves control.
B. the accuracy of the detailed accounts in the subsidiary ledger can be checked against the
aggregate data and the balance contained in it.
C. subsidiary ledgers eliminate the need to record totals in the general ledger.
D. it includes all transactions in the subsidiary ledger.
ANS: B PTS: 1 TOP: Subsidiary ledgers and control accounts
3. Which of the following statements about subsidiary ledgers and control accounts is NOT true?
A. Every entry made to an account in the subsidiary ledger is also reflected in the control
account in the general ledger.
B. All credit entries will be the same in aggregate between the subsidiary ledger and the control
account.
C. The total of the balances appearing in the accounts in the subsidiary ledger should equal the
balance appearing in the control account.
D. If the total of the subsidiary ledger accounts fails to agree with the balance of the control
account, the subsidiary ledger must be in error.
ANS: D PTS: 1 TOP: Subsidiary ledgers and control accounts
4. A credit balance in a customer’s account in the debtors’ ledger could be due to:
A. increased credit sales in the period.
B. an overpayment by the customer.
C. a bad debt.
D. return of goods purchased by the customer.
ANS: B PTS: 1 TOP: Subsidiary ledgers and control accounts
5. Griffin Ltd made a sale of $800 to a customer on terms of 2/10, n/30 on 1 July. The account was paid
on 8 July. Griffin Ltd would make which of the following postings to the ledger on 8 July?
A. Dr Discount expense $16
B. Dr Accounts receivable $800
C. Cr Discount revenue $16
D. Cr Discount expense $16
ANS: A PTS: 1 TOP: Operation of special journals and subsidiary ledgers
8. Which of these items is the source document for the sales journal?
A. Purchase order
B. Invoice from supplier
C. Duplicate of invoice sent to customer
D. Copy of receipt sent to customer
ANS: C PTS: 1 TOP: Operation of special journals and subsidiary ledgers
9. Which of these items is the source document for the purchase journal?
A. Purchase order
B. Invoice from supplier
C. Duplicate of invoice sent to customer
D. Copy of receipt sent to customer
ANS: B PTS: 1 TOP: Operation of special journals and subsidiary ledgers
10. Gum Ltd maintains subsidiary ledgers for debtors and creditors. At 1 July 2015, debtors owed
$4000, and $7200 was owing to creditors. Transactions for year ended 30 June 2016 were as follows:
$
Credit sales 14 000
Cash sales 3000
Credit purchases 23 000
Cash purchases 1500
Cash received from debtors 11 000
Cash paid to creditors 25 000
What was the balance of the debtors control account at 30 June 2016?
A. $3000
B. $7000
C. $10 000
D. $14 000
ANS: B PTS: 1 TOP: Operation of special journals and subsidiary ledgers
11. Gum Ltd maintains subsidiary ledgers for debtors and creditors. At 1 July 2015, debtors owed
$4000, and $7200 was owing to creditors. Transactions for year ended 30 June 2016 were as follows:
$
Credit sales 14 000
Cash sales 3000
Credit purchases 23 000
Cash purchases 1500
Cash received from debtors 11 000
Cash paid to creditors 25 000
What was the balance of the creditors control account at 30 June 2016?
A. $5200
B. $5500
C. $6000
D. $9200
ANS: A PTS: 1 TOP: Operation of special journals and subsidiary ledgers
12. Plume Ltd maintains subsidiary ledgers for debtors and creditors. At 1 January 2016, debtors owed
$3000 and creditors were owed $5600. Transactions for the month of January 2016 were as follows:
$
Credit sales 9000
Cash sales 4000
Credit purchases 16 000
Cash purchases 2000
Cash received from debtors 8000
Cash paid to creditors 17 000
Freight charged to debtors 500
Charged debtors interest on overdue accounts 300
Discount received from creditors 800
Discount allowed to debtors 400
What was the balance of the debtors control account at 31 January 2016?
A. $8400
B. $4100
C. $3900
D. $4400
ANS: D PTS: 1 TOP: Operation of special journals and subsidiary ledgers
13. Plume Ltd maintains subsidiary ledgers for debtors and creditors. At 1 January 2016, debtors owed
$3000 and creditors were owed $5600. Transactions for the month of January 2016 were as follows:
$
Credit sales 9000
Cash sales 4000
Credit purchases 16 000
Cash purchases 2000
Cash received from debtors 8000
Cash paid to creditors 17 000
Freight charged to debtors 500
Charged debtors interest on overdue accounts 300
Discount received from creditors 800
Discount allowed to debtors 400
What was the balance of the creditors control account at 31 January 2016?
A. $5800
B. $4600
C. $3800
D. $7400
ANS: C PTS: 1 TOP: Operation of special journals and subsidiary ledgers
14. Wrigley Ltd uses subsidiary ledgers for debtors and creditors. At 1 July 2015 debtors owed $7000
and creditors were owed $4000. Transactions for year ended 30 June 2016 were as follows:
$
Cash purchases 6000
Credit purchases 11 000
Cash sales 15 000
Credit sales 20 000
Cash paid to creditors 9000
Cash received from debtors 18 000
Discount received from creditors 500
Discount allowed to debtors 700
What was the balance of the creditors control account at 30 June 2016?
A. $11 500
B. $6500
C. $5500
D. $6000
ANS: C PTS: 1 TOP: Operation of special journals and subsidiary ledgers
15. Wrigley Ltd uses subsidiary ledgers for debtors and creditors. At 1 July 2015 debtors owed $7000
and creditors were owed $4000. Transactions for year ended 30 June 2016 were as follows:
$
Cash purchases 6000
Credit purchases 11 000
Cash sales 15 000
Credit sales 20 000
Cash paid to creditors 9000
Cash received from debtors 18 000
Discount received from creditors 500
Discount allowed to debtors 700
What was the balance of the debtors control account at 30 June 2016?
A. $8300
B. $9700
C. $21 300
D. $9000
ANS: A PTS: 1 TOP: Operation of special journals and subsidiary ledgers
16. Which of the following statements about the Allowance for doubtful debts account is true?
A. The Allowance for doubtful debts account represents cash available to meet losses
incurred when customers are unable to pay their accounts.
B. The Allowance for doubtful debts account functions to adjust the net value of
accounts receivable down to the lower of cost and current estimated collectable
amount.
C. The Allowance for doubtful debts account represents the total of accounts written
off as uncollectable for the current period.
D. None of the answers provided.
ANS: B PTS: 1 TOP: Accounts receivable and contra accounts
17. The trial balance of Allen Ltd at balance date showed a credit balance of $80 000 in the
Allowance for doubtful debts account. Although the account of a customer standing at
$16 000 had been determined to be uncollectable, this had not been written off. What was
the effect of this neglect on the year-end balance sheet?
A. There was an understatement of total liabilities.
B. There was an overstatement of total assets and shareholders’ equity.
C. There was an understatement of total assets and shareholders’ equity.
D. There was no effect on total liabilities, assets or shareholders’ equity.
ANS: D PTS: 1 TOP: Accounts receivable and contra accounts
18. The trial balance of Anderson Ltd included the following balances:
Debit Credit
Accounts receivable $35 000
Allowance for doubtful debts $4000
On 1 October 2016, an account for $1600 was determined to be uncollectable. The journal
entry to be made on that date would include a debit to:
A. Bad debts expense.
B. Accounts receivable.
C. Allowance for doubtful debts.
D. none of the answers provided.
ANS: C PTS: 1 TOP: Allowance for doubtful debts
19. The balance in the Allowance for doubtful debts account represents:
A. bad debts written off in the current accounting period.
B. liquid funds available to meet losses arising from customers becoming insolvent.
C. an amount that is deducted from the Accounts receivable account to reduce it to the
estimated realisable value.
D. bad debts written off as Accounts receivable considered uncollectable.
ANS: C PTS: 1 TOP: Allowance for doubtful debts
20. At year end Dodgy Ltd had a balance in Accounts receivable of $40 000 and an Allowance
for doubtful debts of $2000. It was decided to write off as irrecoverable the debt of Houdini
Ltd totalling $3500. It was further decided that the Allowance for doubtful debts should
stand at 10 per cent of Accounts receivable. What was the journal entry needed to write off
the debt of Houdini Ltd as irrecoverable?
A. Dr Allowance for doubtful debts $3500
Cr Accounts receivable $3500
B. Dr Bad debts expense $3500
Cr Allowance for doubtful debts $3500
C. Dr Bad debts expense $3500
Cr Accounts receivable $3500
D. None of the answers provided
ANS: A PTS: 1 TOP: Allowance for doubtful debts
21. At year end Dodgy Ltd had a balance in Accounts receivable of $40 000 and an Allowance
for doubtful debts of $2000. It was decided to write off as irrecoverable the debt of Houdini
Ltd totalling $3500. It was further decided that the Allowance for doubtful debts should
stand at 10 per cent of Accounts receivable. What was the journal entry needed to bring the
Allowance for doubtful debts to the required level after writing off the debt of Houdini Ltd?
A. Dr Bad debts expense $4000
Cr Allowance for doubtful debts $4000
B. Dr Bad debts expense $5150
Cr Allowance for doubtful debts $5150
C. Dr Bad debts expense $5500
Cr Allowance for doubtful debts $5500
D. Dr Allowance for doubtful debts $3500
Cr Accounts receivable $3500
ANS: B PTS: 1 TOP: Allowance for doubtful debts
22. The trial balance of Wentworth Ltd included the following balances:
Debit Credit
Accounts receivable $45 000
Allowance for doubtful debts $6000
An account for $3000 was determined to be uncollectable. The journal entry to be made on
that date would include a debit to:
A. Bad debts expense.
B. Accounts receivable.
C. Allowance for doubtful debts.
D. none of the above
ANS: C PTS: 1 TOP: Allowance for doubtful debts
23. At 30 June 2016 Shifty Ltd had a balance of Accounts receivable of $90 000 and an
Allowance for doubtful debts of $4000. It was decided to write off the debt of Wriggler,
totalling $2500, as irrecoverable. It was further decided that the Allowance for doubtful
debts should stand at 5 per cent of Accounts receivable. What was the journal entry needed
to write off the debt of Wriggler as irrecoverable?
A. Dr Bad debts expense $2500
Cr Accounts receivable $2500
B. Dr Bad debts expense $2500
Cr Allowance for doubtful debts $2500
C. Dr Allowance for doubtful debts $2500
Cr Accounts receivable $2500
D. None of the answers provided
ANS: C PTS: 1 TOP: Accounts receivable and contra accounts
24. The Allowance for doubtful debts account would appear in the balance sheet under:
A. current assets.
B. current liabilities.
C. shareholders’ equity.
D. property, plant and equipment.
ANS: A PTS: 1 TOP: Accounts receivable and contra accounts
25. S Ltd has the following balance sheet information on 28 February 2016:
$
Accounts receivable 1 000 000
Allowance for doubtful debts 58 200
Accounts receivable net 941 800
On 28 February 2016, the company receives notification from R Ltd that it has filed for
bankruptcy. The controller of S Ltd decides to write off R Ltd’s account for $10 600. Which
of the following statements is true?
A. Net income and net accounts receivable will decrease.
B. Net income will decrease but no change will occur in net accounts receivable.
C. No change will occur in net income but net accounts receivable will decrease.
D. Neither net income or net accounts receivable will decrease.
ANS: D PTS: 1 TOP: Accounts receivable and contra accounts
26. K Ltd reported beginning and ending balances in the Allowance for doubtful debts account
of $723 000 and $904 000 respectively. It also reported that write-offs of bad debts
amounted to $648 000. Assuming that no previously written-off accounts had been
collected, what amount did K Ltd record as bad debt expense for the period?
A. $467 000
B. $648 000
C. $829 000
D. $904 000
ANS: C PTS: 1 TOP: Accounts receivable and contra accounts
27. Management uses the ageing approach method to calculate the allowance for doubtful debts.
An analysis of the ageing of accounts receivable shows a substantial increase in the accounts
receivable in the over-90-days category. Management does not adjust the allowance for
doubtful debts at year-end. As a result:
A. assets are overstated, and net income is overstated.
B. assets are overstated, and net income is understated.
C. assets are understated, and net income is overstated.
D. assets are understated, and net income is understated.
ANS: A PTS: 1 TOP: Accounts receivable and contra accounts
28. Management uses the percentage-of-sales approach method to calculate the allowance for
doubtful debts. Management calculated the allowance for doubtful debts on the basis of 2
per cent of sales. However, by year-end it was aware that the rate should have really been 3
per cent of sales. Management does not adjust the allowance for doubtful debts at year-end.
As a result:
A. assets are overstated, and net profit is overstated.
B. assets are overstated, and net profit is understated.
C. assets are understated, and net profit is overstated.
D. assets are understated, and net profit is understated.
ANS: A PTS: 1 TOP: Accounts receivable and contra accounts
29. Blue Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ. XYZ has accounts
receivable of $12 million and an allowance for doubtful debts of $500 000. XYZ does not
adjust its accounts for the $10 000 that will not be paid by Blue Shoes Ltd. Which of the
following remarks is true about the financial statements?
A. There is an understatement of net profit.
B. There is an overstatement of total assets and net profit.
C. There is an understatement of total assets and net profit.
D. There is no effect on total liabilities, assets or net profit.
ANS: D PTS: 1 TOP: Accounts receivable and contra accounts
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Russian or Polish Jews. Very many of the cases brought by the
Jewish women are extremely difficult to handle owing to the fact that
the desertion has oftentimes taken place in Europe. A man living in
the ghetto of Warsaw or Bialystok or Wilna will decide to come to
America to seek his fortune. Not having money enough to bring his
wife and family, he starts out alone leaving behind him the
assurances that he will return for them, or will send them money to
bring them over. As a rule two or three letters at least are sent back
to the old country, containing money orders for little sums of money,
then the letters will cease. Sometimes the wife waits for four or five
or six years before in despair she sets out in quest of her husband.
Sometimes she finds him married to some American woman or some
woman he has met over here, and then she goes to court with her
trouble. The law here is confronted with the situation obviously
impossible to handle with equal justice to all parties concerned
without working hardship somewhere. The wife from the Old World
with her children certainly has first claim upon the man, but at the
same time the wife whom he has married here has perhaps married
him in good faith, knowing nothing about the other family, and so
have her children been born.
The Italians are the second largest nationality in the classification
of the domestic relations court cases. The Italians are very apt to be
disorderly persons. They are hot tempered, quick to strike and a
great many times an Italian wife appeals to the domestic relations
court because her husband has been cruel to her and struck her,
and this court is obliged to send her to the magistrates court in order
that her husband may be treated as a disorderly person. In justice to
the Italians of Northern Italy, it should be stated that it is very rare to
find an Italian in the domestic relations court who originally came
from any province in Italy north of Rome. The great mass of Italians
who get into this court are Neapolitans, Calabrians and Sicilians. The
third group are from Central Europe, Hungarians, peoples from the
Balkan states, Galicia and other provinces of Austria. The French
rarely are obliged to appeal to the domestic relations court. The
French are naturally a home-loving people, and anything like a
domestic break is rare among them. Only two or three times since
this court was established have French couples been obliged to
appear there. A great many people classify themselves as
Americans when as a matter of fact they are foreign born, so that the
figures in regard to the number of Americans in this court are
misleading. Negroes, however, turn up here in great numbers.
Colored men often have no sense of responsibility whatever and
they are constantly forsaking their wives and families or going off
with somebody else’s wife. The excuses offered by colored men who
are haled into this court are often very amusing.
For the most part, however, this is not an amusing court. The long
line of people who press before Judge Cornell and Judge Harris day
after day, is for the most part a sordid, hideous line, and the tales the
complainants tell fill one with contempt and sourness toward
humanity. The domestic relations court offers an even seamier
picture of life in this city than the magistrates courts. While it is true
that occasionally a family of the better class makes appeal to this
court, for the most part the clients are illiterate and very poor. A very
large per cent. of the cases that are brought here are people who, if
abandoned, would become public charges. That is why the state
interests itself to the extent of providing a counsel for complainants,
in order to protect itself from the burden of caring for helpless women
and little children, whom some individual has simply deserted. There
are people who pretend to find amusement in the rehearsal of the
marital woes of the poor. To be sure, occasionally a case turns up
with its funny side, but to me the recitals are heartbreaking and
dreary.
In the state of New York the failure of a man to support his wife, if
there are no children, the crime ranks as a misdemeanor, and six
months in the workhouse is the maximum penalty which can be
imposed upon him. The domestic relations court, in specializing on
this phase of law, will undoubtedly lead to certain reforms and
amendments to the existing law tending ultimately to develop a
system of domestic relations jurisprudence. It is a great boon, as it
stands today, to suffering poor women. Any woman without a dollar
in the world can walk into the domestic relations court, tell her
troubles to the clerk of the court, and then if her case is a worthy
one, she is within a few minutes placed on the witness stand, where
she can repeat the recital to the judge. The whole proceeding of
bringing her husband to the bar of justice and getting the court to
forcing him to provide for her is speedy and absolutely without cost.
A woman under our present system of life ought to have a court of
this kind in which she may take refuge, because the world at large is,
at the present time, so unfair to women. A woman can serve a man
for years, bear him a large family of children, and suddenly be
deserted and left with the burden of support for herself and family on
her. If her husband is faithless, all she can do is to appear before the
supreme court and apply for a divorce, but in this domestic relations
court the judge will make her husband contribute to her support and
to the support of his children.
Drink is frequently at the bottom of domestic troubles, but not
nearly so often as most people would think. Drink, especially
whiskey, frequently makes a man irritable and quarrelsome, which
leads to family rows and frequently to disorderly conduct. The
greatest number of cases that come into this court are against
shiftless, worthless, idle men who seem to belong naturally to the
submerged tenth. One day this week I sat with Judge Cornell for an
entire session of the court and the run of cases which appeared that
day gave ample indication of the tone of the court. One case was of
a colored girl who has been married less than a year, who had
brought her big black husband into the court to explain why he had
abandoned her. The explanation was frankly given. He was so
accustomed to living with white women, he said that he could not
bring himself to live any longer with the wife of his own color. He was
bonded to pay his wife $1 a week. Another woman, neat, pretty and
intelligent, a California girl, not yet twenty, had had her husband
arrested because he insisted that she go on the streets and make
money, not only for herself but for him, as a public prostitute. An Irish
woman complained that her husband who made good wages drank it
all up. He countered by stating, under oath, that his wife was an
habitual drunkard, which made no impression whatsoever on the
court, because the woman was particularly prepossessing and
without a single incriminating mark upon her. There were the usual
number of Jewish women whose husbands had simply gone off
saying they would have nothing more to do with them. And one or
two Italian women, with small babies in their arms, whose husbands
had got angry with them and put them out of the house or struck
them.
It is a miserable, pitiable phase of life that one sees in the
domestic relations court, but that the court is so overworked, so
constantly busy, is justification enough for its establishment and
indication that any large community requires some such institution to
placate and bring together men and women, husbands and wives,
whom oftentimes trifling difficulties are about to separate, and to
make it impossible for husbands to desert their wives with impunity.
That there should be only three such courts in this country is a
striking commentary on the life we lead when it has been proved and
demonstrated so extraordinarily by the domestic relations court in
New York city that the need is so great. A visit to the domestic
relations court will not insure a pleasant afternoon or an amusing
hour, but it will prove an enlightening experience.
IN THE PRISONERS’ AID FIELD
PRISONERS’ AID
WORK IN CALIFORNIA
SUPPORTING A
GOOD WARDEN