Financial Accounting Quiz: Allowance Method For Uncollectibles
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Allowance Method For UncollectiblesQuestion 1 of 20

A company's analysis of its accounts receivable at year-end resulted in a required allowance for doubtful accounts of $95,000. The allowance account had a pre-adjustment credit balance of $12,000. Earlier in the year, the company wrote off a $6,000 account. What is the bad debt expense to be recognized for the year?

$95,000
$101,000
$77,000
$83,000
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Financial Accounting Quiz

Financial Accounting Quiz: Allowance Method For Uncollectibles

Practice Allowance Method For Uncollectibles in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Allowance Method For Uncollectibles, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

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Question 1

A company's analysis of its accounts receivable at year-end resulted in a required allowance for doubtful accounts of $95,000. The allowance account had a pre-adjustment credit balance of $12,000. Earlier in the year, the company wrote off a $6,000 account. What is the bad debt expense to be recognized for the year?

  1. $95,000
  2. $101,000
  3. $77,000
  4. $83,000 (correct answer)
Explanation: The balance sheet approach is being used. The goal is to make the ending balance in the Allowance for Doubtful Accounts (ADA) equal to the required amount of $95,000. The account already has a pre-adjustment credit balance of $12,000. The amount of bad debt expense needed is the difference: $95,000 (target balance) - $12,000 (existing balance) = $83,000. The write-off amount is irrelevant information for calculating the year-end adjustment when the pre-adjustment balance is already provided.

Question 2

During Year 1, its first year of operations, Pascal Company had credit sales of $500,000 and wrote off $5,000 of accounts as uncollectible. At year-end, it estimated bad debt expense at 3% of credit sales. In Year 2, Pascal had credit sales of $700,000, wrote off $18,000 of accounts, and revised its estimate of bad debts to 4% of credit sales for that year.

Based on the information in the passage, what is the balance in Pascal's Allowance for Doubtful Accounts at the end of Year 2?

  1. $28,000
  2. $20,000 (correct answer)
  3. $10,000
  4. $43,000
Explanation: This is a two-year, multi-step problem. First, find the ending balance of the Allowance for Doubtful Accounts (ADA) for Year 1. Bad Debt Expense (Year 1) = 3% * $500,000 = $15,000. Ending ADA (Year 1) = Beginning ADA (0) + BDE ($15,000) - Write-offs ($5,000) = $10,000. This is the beginning balance for Year 2. Now, calculate for Year 2. Bad Debt Expense (Year 2) = 4% * $700,000 = $28,000. Ending ADA (Year 2) = Beginning ADA ($10,000) + BDE ($28,000) - Write-offs ($18,000) = $20,000.

Question 3

At the end of its first year of operations, a company's records show accounts receivable of $300,000 and an allowance for doubtful accounts of $0. The company uses an aging schedule to estimate uncollectibles. The schedule indicates that $25,000 of the receivables will likely be uncollectible. In addition, a specific customer account with a $2,000 balance is known to be uncollectible due to bankruptcy. What is the company's bad debt expense for its first year?

  1. $23,000
  2. $27,000
  3. $25,000 (correct answer)
  4. $2,000
Explanation: The aging schedule determines the required ending balance in the Allowance for Doubtful Accounts, which is $25,000. Since this is the first year of operations, the beginning balance in the allowance account is $0. Therefore, the Bad Debt Expense for the year is the amount needed to bring the allowance balance from $0 to $25,000, which is $25,000. The specific $2,000 uncollectible account is presumably already included in the aging analysis. Even if it were separate, the aging method sets the target for the allowance, and the expense is the adjustment to reach that target.

Question 4

After a company using the allowance method writes off a $1,000 account receivable, it unexpectedly collects the $1,000 in full. The journal entries to record this recovery will cause:

  1. An increase in total assets and a decrease in net income.
  2. An increase in the Allowance for Doubtful Accounts and no change in net income. (correct answer)
  3. A decrease in Net Accounts Receivable and an increase in net income.
  4. No change in total assets and no change in the Allowance for Doubtful Accounts.
Explanation: The recovery of a previously written-off account requires two journal entries: 1) Reinstate the receivable: Debit Accounts Receivable $1,000, Credit Allowance for Doubtful Accounts $1,000. This entry increases the allowance account. 2) Record the cash collection: Debit Cash $1,000, Credit Accounts Receivable $1,000. Neither of these entries involves a revenue or expense account, so there is no change in net income. Therefore, the recovery process increases the Allowance for Doubtful Accounts and has no effect on net income.

Question 5

On December 31, a company determined that a $3,000 account receivable from a customer was uncollectible and wrote it off. Immediately before this write-off, the balance in Accounts Receivable was $200,000, and the balance in the Allowance for Doubtful Accounts was $15,000. What is the effect of the write-off on the company's Net Realizable Value of Accounts Receivable and its total Working Capital?

  1. Net Realizable Value decreases by $3,000; Working Capital decreases by $3,000.
  2. Net Realizable Value is unchanged; Working Capital is unchanged. (correct answer)
  3. Net Realizable Value decreases by $3,000; Working Capital is unchanged.
  4. Net Realizable Value is unchanged; Working Capital decreases by $3,000.
Explanation: Before the write-off, Net Realizable Value (NRV) was \200,000 - $15,000 = $185,000. The write-off entry is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable for \3,000. After the write-off, Accounts Receivable is $197,000 and the Allowance is $12,000. The new NRV is \197,000 - $12,000 = $185,000. Thus, NRV is unchanged. Working Capital (Current Assets - Current Liabilities) is also unchanged because one current asset (Accounts Receivable) decreased by \3,000 while another contra-current asset (Allowance for Doubtful Accounts) also decreased by $3,000, resulting in no net change to total current assets.

Question 6

A company had a credit balance of $20,000 in its Allowance for Doubtful Accounts at the beginning of the year. During the year, the company recovered $5,000 of an account previously written off. What is the net effect of the two-part journal entry to record this recovery (reinstatement of the receivable and subsequent cash collection)?

  1. An increase to Cash of $5,000 and an increase to the Allowance for Doubtful Accounts of $5,000.
  2. An increase to Cash of $5,000 and no net change in the balance of Net Accounts Receivable.
  3. An increase to Cash of $5,000 and a decrease to Net Accounts Receivable of $5,000. (correct answer)
  4. An increase to Cash of $5,000 and an increase to Bad Debt Expense of $5,000.
Explanation: The recovery involves two entries: 1) Reinstate the receivable: Debit Accounts Receivable $5,000, Credit Allowance for Doubtful Accounts $5,000. This increases both A/R and the Allowance, so Net A/R is unchanged. 2) Collect the cash: Debit Cash $5,000, Credit Accounts Receivable $5,000. The net effect of both entries is an increase in Cash by $5,000 and a decrease in Net Accounts Receivable by $5,000 (because the gross A/R balance returns to its pre-reinstatement level, but the Allowance balance is $5,000 higher). Bad Debt Expense is not affected by a recovery.

Question 7

Pell Corp. uses the percentage-of-credit-sales method to estimate uncollectibles. For the year, the company had total sales of $2,500,000, of which $2,000,000 were on credit. Sales returns and allowances were $50,000, of which $40,000 related to credit sales. Pell estimates that 2% of its net credit sales will be uncollectible. The Allowance for Doubtful Accounts had a pre-adjustment credit balance of $15,000. What is the Bad Debt Expense for the year?

  1. $39,200 (correct answer)
  2. $40,000
  3. $24,200
  4. $50,000
Explanation: The percentage-of-sales method calculates Bad Debt Expense based on sales in the current period, ignoring the pre-adjustment balance in the allowance account. The calculation should be based on net credit sales. Net Credit Sales = Credit Sales - Sales Returns and Allowances on Credit Sales = $2,000,000 - $40,000 = $1,960,000. Bad Debt Expense = 2% of $1,960,000 = $39,200. The pre-adjustment balance is irrelevant for this calculation.

Question 8

The following information is available for Apex Company's Allowance for Doubtful Accounts (ADA): Beginning credit balance of $30,000; Ending credit balance of $38,000; Bad Debt Expense recognized during the year of $25,000. During the year, Apex also recovered a $3,000 account that was previously written off. What was the total amount of accounts receivable written off during the year?

  1. $14,000
  2. $20,000 (correct answer)
  3. $17,000
  4. $23,000
Explanation: The relationship in the ADA T-account is: Beginning Balance + Bad Debt Expense + Recoveries - Write-offs = Ending Balance. The recovery entry (reinstating the A/R) credits the ADA, so it is an addition. Plugging in the known values: \30,000 + $25,000 + $3,000 - \text{Write-offs} = $38,000.SolvingforWrite−offs:. Solving for Write-offs: $58,000 - \text{Write-offs} = $38,000. Therefore, Write-offs = \20,000.

Question 9

At year-end, Terra Co. had a $600,000 balance in Accounts Receivable and a $30,000 credit balance in the Allowance for Doubtful Accounts before any adjustment. The company estimates its bad debt expense to be 2% of its $2,000,000 of credit sales. After the year-end adjusting entry is made, what is the Net Realizable Value of Accounts Receivable that will be reported on the balance sheet?

  1. $560,000
  2. $530,000 (correct answer)
  3. $570,000
  4. $556,000
Explanation: This requires two steps. First, calculate the Bad Debt Expense for the year: 2% of $2,000,000 credit sales = $40,000. Second, calculate the ending balance in the Allowance for Doubtful Accounts (ADA): Pre-adjustment balance + Bad Debt Expense = $30,000 + $40,000 = $70,000. Finally, calculate the Net Realizable Value (NRV): Gross Accounts Receivable - Ending ADA = $600,000 - $70,000 = $530,000.

Question 10

On January 1, Year 2, Jolt Co. had a credit balance of $26,000 in its allowance for uncollectible accounts. During Year 2, Jolt wrote off accounts totaling $18,000. The balance in accounts receivable was $400,000 at January 1 and $480,000 at December 31. An analysis of Jolt's December 31 receivables indicates that the allowance for uncollectible accounts should be $32,000. What amount should Jolt report as uncollectible accounts expense for Year 2?

  1. $24,000 (correct answer)
  2. $18,000
  3. $32,000
  4. $38,000
Explanation: This problem requires reconstructing the Allowance for Doubtful Accounts (ADA) T-account to solve for the uncollectible accounts expense. First, find the pre-adjustment balance of the ADA at year-end: Beginning Balance - Write-offs = $26,000 - $18,000 = $8,000 credit balance. The company wants the ending balance to be $32,000. The required adjustment (the expense) is the difference: Target Ending Balance - Pre-adjustment Balance = $32,000 - $8,000 = $24,000.

Question 11

Cypress Inc. uses the percentage-of-sales method. At the start of the year, its Allowance for Doubtful Accounts had a credit balance of $18,000. During the year, Cypress had $900,000 in credit sales, wrote off $12,000 of uncollectible accounts, and estimated bad debt expense at 3% of credit sales. What is the ending balance in the Allowance for Doubtful Accounts?

  1. $27,000
  2. $33,000 (correct answer)
  3. $15,000
  4. $39,000
Explanation: This is a multi-step calculation. First, calculate the bad debt expense for the year: 3% of $900,000 = $27,000. Second, use the T-account formula to find the ending balance of the Allowance for Doubtful Accounts (ADA): Ending ADA = Beginning ADA + Bad Debt Expense - Write-offs. Ending ADA = $18,000 + $27,000 - $12,000 = $33,000.

Question 12

Mill Co. began operations on January 1. During its first year, the company had credit sales of $1,200,000, wrote off $9,000 of accounts, and collected $1,050,000 from customers. At year-end, the company's aging of receivables analysis indicates that $22,000 of its accounts are uncollectible. What is the Net Realizable Value of Mill's accounts receivable at year-end?

  1. $119,000 (correct answer)
  2. $141,000
  3. $128,000
  4. $150,000
Explanation: This question requires calculating the ending gross Accounts Receivable (A/R) and then subtracting the required allowance. First, calculate ending gross A/R: Beginning A/R ($0) + Credit Sales ($1,200,000) - Collections ($1,050,000) - Write-offs ($9,000) = $141,000. Second, the aging analysis determines the required ending balance in the Allowance for Doubtful Accounts, which is $22,000. Finally, calculate Net Realizable Value (NRV): Ending Gross A/R ($141,000) - Required Allowance ($22,000) = $119,000. Wait, let me re-check my math. 1,200,000 - 1,050,000 = 150,000. 150,000 - 9,000 = 141,000. That is the ending A/R. The required allowance is $22,000. So NRV = 141,000 - 22,000 = 119,000. The answer should be A. Why did I put C? Let's re-read. Maybe I made a mistake in the distractors. A) $119,000. B) $141,000 (This is just gross A/R). C) $128,000. Where would this come from? Maybe ending A/R without the write-off? 150,000 - 22,000 = 128,000. This is a common error, forgetting to subtract write-offs from the A/R control account. Yes, that's a good distractor. So Ending A/R is $141,000. Required Allowance is $22,000. NRV is $141,000 - $22,000 = $119,000. The correct answer is A. Let me fix my chosen answer. Okay, correct answer is A. The explanation should be: First, calculate ending gross Accounts Receivable (A/R): Beginning A/R ($0) + Credit Sales ($1,200,000) - Collections ($1,050,000) - Write-offs ($9,000) = $141,000. The aging analysis determines the required ending balance in the Allowance for Doubtful Accounts is $22,000. Net Realizable Value (NRV) = Ending Gross A/R - Required Allowance = $141,000 - $22,000 = $119,000.

Question 13

A company uses the allowance method. If the company fails to make an entry to write off a specific customer account that was deemed uncollectible in December, how will this omission affect its financial statements at year-end?

  1. Net income will be overstated, and total assets will be overstated.
  2. Net income will be unaffected, but Accounts Receivable and the Allowance for Doubtful Accounts will both be overstated. (correct answer)
  3. Net income will be understated, and the Net Realizable Value of Accounts Receivable will be understated.
  4. Net income will be unaffected, but the Net Realizable Value of Accounts Receivable will be overstated.
Explanation: Bad debt expense is recognized when it is estimated, not when a specific account is written off. Therefore, failing to write off the account has no effect on net income for the year. The write-off entry involves debiting the Allowance account and crediting Accounts Receivable. By omitting this entry, both the gross Accounts Receivable balance and the Allowance for Doubtful Accounts balance will be higher than they should be (overstated). Since both are overstated by the same amount, the Net Realizable Value (A/R - Allowance) is unaffected. Distractor D is incorrect because NRV is not overstated.

Question 14

A company performs an aging of its accounts receivable at year-end and determines the required balance in the Allowance for Doubtful Accounts to be $58,000. The company's general ledger shows the following pre-adjustment balances: Accounts Receivable, $950,000; Allowance for Doubtful Accounts, $7,000 (debit). What is the necessary adjusting journal entry?

  1. Debit Bad Debt Expense, $51,000; Credit Allowance for Doubtful Accounts, $51,000.
  2. Debit Bad Debt Expense, $58,000; Credit Allowance for Doubtful Accounts, $58,000.
  3. Debit Bad Debt Expense, $65,000; Credit Allowance for Doubtful Accounts, $65,000. (correct answer)
  4. Debit Allowance for Doubtful Accounts, $7,000; Credit Bad Debt Expense, $7,000.
Explanation: The company needs the Allowance for Doubtful Accounts to have a credit balance of $58,000. Currently, the account has a debit balance of $7,000. To move the balance from a $7,000 debit to a $58,000 credit, the company must credit the allowance account for the sum of these amounts: \7,000 + $58,000 = $65,000. The corresponding debit is to Bad Debt Expense. Therefore, the entry is Debit Bad Debt Expense for \65,000 and Credit Allowance for Doubtful Accounts for $65,000.

Question 15

Orion Company's records show the following at year-end: Accounts Receivable, beginning balance $200,000; Allowance for Doubtful Accounts, beginning credit balance $15,000; Credit sales $1,000,000; Collections on account $950,000; Accounts written off $18,000. Orion determines that its required allowance for doubtful accounts should be 2% of ending Accounts Receivable. What is Orion's bad debt expense for the year?

  1. $4,640
  2. $5,000
  3. $7,640 (correct answer)
  4. $2,000
Explanation: This is a multi-step problem using the percentage-of-receivables method. First, calculate the ending balance of Accounts Receivable: $200,000 + $1,000,000 - $950,000 - $18,000 = $232,000. Second, calculate the required ending balance for the Allowance for Doubtful Accounts: 2% × $232,000 = $4,640. Third, calculate the pre-adjustment balance of the allowance: $15,000 - $18,000 = ($3,000) debit balance. Finally, calculate the bad debt expense needed: $4,640 target balance - ($3,000) current debit balance = $7,640.

Question 16

At the beginning of the year, Zorin Corp. had a credit balance of $4,000 in its Allowance for Doubtful Accounts. During the year, the company had credit sales of $800,000, collected $750,000 from customers, and wrote off $9,000 in uncollectible accounts. At year-end, management determined that the Allowance for Doubtful Accounts should have a balance of $12,000. Before the year-end adjusting entry, the Allowance for Doubtful Accounts had a debit balance. What is the Bad Debt Expense for the year?

  1. $12,000
  2. $17,000 (correct answer)
  3. $13,000
  4. $7,000
Explanation: This is a multi-step problem. First, determine the pre-adjustment balance in the Allowance for Doubtful Accounts (ADA). Pre-adjustment ADA=Beginning ADA−Write-offs\text{Pre-adjustment ADA} = \text{Beginning ADA} - \text{Write-offs} \4,000 \text{ credit} - $9,000 = -$5,000, which is a \5,000 debit balance. Second, calculate the required adjustment (Bad Debt Expense). The company wants to go from a $5,000 debit balance to a $12,000 credit balance. The required credit to the allowance account is \5,000 + $12,000 = $17,000. Therefore, Bad Debt Expense is \17,000.

Question 17

Thompson Corporation uses the allowance method for uncollectible accounts. On January 1, 2024, the Allowance for Doubtful Accounts had a credit balance of $15,000. During 2024, the company wrote off $18,000 in uncollectible accounts and recovered $3,000 from accounts previously written off. At year-end, Thompson estimated that 3% of its $800,000 accounts receivable would be uncollectible.

What is the bad debt expense that Thompson Corporation should record for 2024?

  1. $24,000 (correct answer)
  2. $21,000
  3. $39,000
  4. $18,000
Explanation: The required ending balance in Allowance for Doubtful Accounts is $800,000 × 3% = $24,000. The current balance before adjustment is: Beginning balance $15,000 - Write-offs $18,000 + Recoveries $3,000 = $0. Therefore, bad debt expense needed is $24,000 - $0 = $24,000. Choice B incorrectly subtracts recoveries instead of adding them. Choice C adds the write-offs to the required expense. Choice D simply uses the write-off amount.

Question 18

Davis Industries uses the aging method to estimate uncollectible accounts. The company's aging analysis shows that $50,000 of accounts receivable should have a 2% uncollectible rate, $75,000 should have a 5% rate, and $25,000 should have a 15% rate. Before any adjusting entries, the Allowance for Doubtful Accounts has a debit balance of $2,800.

What adjusting entry should Davis Industries make for bad debt expense?

  1. Debit Bad Debt Expense $9,000; Credit Allowance for Doubtful Accounts $9,000
  2. Debit Bad Debt Expense $6,200; Credit Allowance for Doubtful Accounts $6,200
  3. Debit Bad Debt Expense $11,800; Credit Allowance for Doubtful Accounts $11,800 (correct answer)
  4. Debit Bad Debt Expense $8,750; Credit Allowance for Doubtful Accounts $8,750
Explanation: Required allowance balance = (50,000×250,000 × 2%) + (75,000 × 5%) + ($25,000 × 15%) = $1,000 + $3,750 + $3,750 = $8,500. Since the account has a debit balance of $2,800, the required credit to achieve a $8,500 credit balance is $8,500 + $2,800 = $11,800. Choice A ignores the existing debit balance. Choice B incorrectly subtracts the debit balance. Choice D uses the total aging amount incorrectly.

Question 19

Parker Company uses the allowance method and has the following account balances before year-end adjustments: Accounts Receivable $200,000 (debit), Allowance for Doubtful Accounts $3,000 (debit), Sales $500,000 (credit). If the company estimates bad debts at 4% of outstanding receivables, what is the effect on net income from the bad debt adjustment?

  1. Decrease net income by $8,000
  2. Decrease net income by $5,000
  3. Decrease net income by $11,000 (correct answer)
  4. Decrease net income by $3,000
Explanation: Required allowance balance = $200,000 × 4% = $8,000 credit. Current allowance has a $3,000 debit balance. To achieve an $8,000 credit balance from a $3,000 debit balance requires a credit of $11,000. Therefore, bad debt expense (and decrease to net income) is $11,000. Choice A uses only the required balance. Choice B ignores the existing debit balance. Choice D uses only the existing debit balance.

Question 20

Wilson Corp estimates uncollectible accounts using the percentage of sales method. Sales for 2024 were $2,000,000, of which $1,600,000 were credit sales. The company estimates that 1.5% of credit sales will be uncollectible. At the beginning of 2024, Allowance for Doubtful Accounts had a credit balance of $8,000. During 2024, accounts totaling $12,000 were written off.

What should be the balance in Allowance for Doubtful Accounts at the end of 2024, after all adjusting entries?

  1. $20,000 (correct answer)
  2. $24,000
  3. $30,000
  4. $32,000
Explanation: Under the percentage of sales method, bad debt expense = $1,600,000 × 1.5% = $24,000. The ending allowance balance = Beginning balance $8,000 - Write-offs $12,000 + Bad debt expense $24,000 = $20,000. Choice B incorrectly uses only the bad debt expense. Choice C incorrectly adds the sales percentage to total sales. Choice D fails to subtract the write-offs.