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Name __________________________________________
1. Why is the allowance method preferred over the direct write-off method of accounting for
bad debts?
A) Allowance method is used for tax purposes.
B) Estimates are used.
C) Determining worthless accounts under direct write-off method is difficult to do.
D) Improved matching of bad debt expense with revenue.
2. Why would a company sell receivables to another company?
A) To improve the quality of its credit granting process.
B) To limit its legal liability.
C) To accelerate access to amounts collected.
D) To comply with customer agreements.
3. AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the
company uses the gross method to record sales made on credit, what is/are the debit(s) in
the journal entry to record the sale?
A) Debit Accounts Receivable for $14,850.
B) Debit Accounts Receivable for $14,850 and Sales Discounts for $150.
C) Debit Accounts Receivable for $15,000.
D) Debit Accounts Receivable for $15,000 and Sales Discounts for $150.
4. Lankton Company has the following account balances at year-end:
Accounts receivable $80,000
Allowance for doubtful accounts 4,800
Sales discounts 3,200
Lankton should report accounts receivable at a net amount of
A) $72,000.
B) $75,200.
C) $76,800.
D) $80,000.
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