ACC2201 chapter 5 HW

b. decrease total assets and decrease net income. (1) decreasing total assets (accounts receivable) (2) decreasing net income, due to an increase in expenses (bad debt expense).

Under the allowance method, companies are required to estimate future uncollectible accounts and record those estimates in the current year. Estimated uncollectible accounts (which accounts affect?) a. decrease total assets and increase net income. b. decrease total assets and decrease net income. c. increase total assets and increase net income. d. increase total assets and decrease net income.

False Even though the seller does not receive cash at the time of the credit sale, the firm records revenue immediately, as long as future collection from the customer is probable.

A company makes a credit sale for $500. Future collection from the customer is probable. The company will not record revenue from the transaction until it collects cash from the customer. True or False

c. credit to Accounts Receivable for $1,000 Cash $1,000 Accounts Receivable(current asset) $1,000. Because the customer paid => account receivable decrease and cash increase

A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 24. The journal entry for the receipt of payment will include a: a. credit to Sales Discounts for $20 b. debit to Cash for $980 c. credit to Accounts Receivable for $1,000 d. debit to Sales Discounts for $20

c. debit to Cash for $980 Debit to Cash $980, Sales Discounts. $20/ Credit to Accounts Receivable. $1,000.

A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 6. The journal entry for the receipt of payment will include a: a. debit to Sales Discounts for $980 b. credit to Service Revenue for $980 c. debit to Cash for $980 d. credit to Accounts Receivable for $980

b. Sales Discounts for $24 Debit to Cash 776; sale discount 24/ credit to Account receivable 800

A company sells goods to a customer on account for $800, terms 3/10, n/30. The customer pays within the discount period. On the date of payment, the company will debit: a. Accounts Receivable for $776 b. Sales Discounts for $24 c. Cash for $800 d. Sales Revenue for $800

a. Accounts Receivable Accounts Receivable will be debited when recording a credit sale.

A company will debit ___________ when recording a credit sale. a. Accounts Receivable b. Cash c. Sales Revenue d. Accounts Payable

False Discounts for early payment tend to accelerate cash collection because customers want to take advantage of the discount by paying off their accounts sooner.

A company's decision to offer discounts for early payment has the potential to increase sales volume, but comes at the cost of slower cash collection. True or False

True A debit balance in the allowance account before adjustment indicates that its balance at the beginning of the year was too low. a. too low. The company's balance in the allowance account before adjustment is $2,000 debit, which indicates that the estimate of uncollectible accounts was to

A debit balance in the Allowance for Uncollectible Accounts before year-end adjustment indicates that the company wrote off more bad debts in the current year than it had estimated. True or False At the end of Year 1, Fulton Corporation estimates uncollectible accounts to be $10,000. Actual bad debts during Year 2 totaled $12,000. This indicates that management's estimate of uncollectible accounts in Year 1 was: a. too low. b. fraudulent. c. too high.

d. credit to Accounts Receivable The Allowance for Uncollectible Accounts will be debited and Accounts Receivable will be credited to write off an account receivable.

According to the allowance method, writing off an account receivable will include a: a. credit to Allowance for Uncollectible Accounts b. debit to Bad Debt Expense c. credit to Cash d. credit to Accounts Receivable

b. Allowance for Uncollectible Accounts f. Sales Revenue The Allowance for Uncollectible Accounts is a contra asset account; as such, it normally has a credit balance. Sales Revenue, being a revenue account, also has a normal credit balance.

Account(s) with a normal credit balance include: (Select all that apply.) a. Accounts Receivable b. Allowance for Uncollectible Accounts c. Bad Debt Expense d. Cash f. Sales Revenue

b. Bad Debt Expense This does not affect expense accounts. Journal Account Receivable 150000 Allowance for Uncollectible Accounts. 150000 (restatement of client account) Cash 150000 Account Receivable 150000 (cash collection from the client)

Beta Corporation wrote off $100,000 due from a specific client in March. However, this client was able to make a partial payment of $15,000 in June. Recording this cash collection will involve all of the following accounts except: (record journal) a. Allowance for Uncollectible Accounts b. Bad Debt Expense c. Accounts Receivable d. Cash

False Companies typically strive for a high receivables turnover ratio and a correspondingly low average collection period. ratio ↑ period ↓ (better managed) ratio ↓. period ↑ (less managed)

Company A and Company B operate in the same industry and region. Compared to Company B, Company A has a low receivables turnover ratio and a correspondingly high average collection period. From this information, we can conclude that Company A is managing its receivables better than Company B. True or False

True In the long run, credit sales should benefit the company via higher profitability, but come at the cost of a delay in collecting cash from customers.

Credit sales involve benefits and costs. A benefit of selling on credit is that the seller makes it more convenient for customers to purchase goods and services. A cost of selling on credit is that there is a delay in collecting cash from customers. True or False

a. $600 $6,000 × 10% = $600. adjusting entry uncollectible account bad debt expense(I) 600 allowance for uncollectible accounts(B:asset) 600

During its first year of operations, Ellison, Incorporated bills customers $18,000 for the services it provided. At the end of the year, $6,000 remains due from customers. The company's credit manager estimates that 10% of the total year-end accounts receivable will not be collected. The company's estimate of uncollectible accounts is: a. $600 b. $12,000 c. $6,000 d. $18,000

b. credit to Allowance for Uncollectible Accounts for $1 million Adjusting entry for uncollectible Bad Debt Expense(I) $1 million Allowance for Uncollectible Accounts for the same amount(B) $1 million

During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a: a. debit to Bad Debt Expense for $5 million b. credit to Allowance for Uncollectible Accounts for $1 million c. credit to Allowance for Uncollectible Accounts for $5 million d. debit to Bad Debt Expense for $14 million

c. By recording the sale at a discounted price contra revenue => sales discounts, sales allowances, or sales returns

How are trade discounts recognized? a. By subtracting them from total revenues at the end of the period b. By debiting the Trade Discounts account c. By recording the sale at a discounted price d. By using contra revenue accounts

False In comparing the two methods, the direct write-off method is less timely in recognizing uncollectible accounts. This is because, under the direct write-off method, no attempt is made to estimate future uncollectible accounts. Instead, bad debt expense is recorded in the period an account proves uncollectible.

In comparing the allowance method with the direct write-off method, the allowance method is less timely in recognizing uncollectible accounts. True or False

True Old accounts have a higher uncollectible % and new accounts have a lower uncollectible %. The older the account, the less likely it is to be collected. provides more accurate results than other

In the percentage-of-receivables method, a higher percentage uncollectible is generally used for "old" accounts than for "new" accounts. (explain why) True or False

Average collection period = 365 ÷ 10 = 36.5 days. c. 36.5 days

Net credit sales for Turner Company are $200,000 for the year and the average accounts receivable balance is $20,000. What is the company's average collection period? a. 54.8 days b. 548 days c. 36.5 days d. 5 days

b. 5.0 Receivables turnover ratio = sale credit /[(beginning + ending)/2]=$100,000 ÷ [($15,000 + $25,000)/2] = $100,000 ÷ $20,000 = 5.

Net credit sales for Winner Company are $100,000 for the year. The Accounts Receivable account had a balance of $15,000 at the beginning of the year and $25,000 at the end of the year. What is the company's receivables turnover ratio? a. 2.0 b. 5.0 c. 4.0 d. 0.2

c. credit to Accounts Receivable debit to Sales Allowances; credit to Accounts Receivable.

On May 1, Arden Wholesale sells $800 worth of goods on account to an out-of-state customer. Upon receiving the order on May 7, the customer notifies Arden that approximately 5% of the goods arrived damaged. As a result, Arden reduces the amount owed by the customer by $50. The journal entry by Arden Wholesale on May 7 will include a: a. debit to Sales Discounts b. debit to Sales Revenue c. credit to Accounts Receivable d. credit to Sales Allowances

a. debit to Sales Returns debit to Sales Returns/credit to Accounts Receivable.

On November 5, Phelps Outerwear sells a coat on account to a customer for $200. On November 15, the customer decides to return the coat to the retailer. The journal entry on November 15 will include a: a. debit to Sales Returns b. debit to Sales Revenue c. credit to Sales Revenue d. credit to Accounts Payable

d. contra revenue A contra revenue account has a balance that is opposite, or "contra," to that of its related revenue account, and is used to keep a record of the total revenue separate from reductions in revenue, such as sales returns.

Sales Returns is an example of a(n) ____________ account, which is used to keep a record of reductions from revenue due to sales returns separate from total revenue itself. a. contra asset b. revenue c. asset d. contra revenue

d. $16 million $20.00* 15%+$10.00* 25%+$5.00* 50%+$10.00*80%=16 Estimated ending balance in allowance for uncollectible accounts =16 net account receivable=account receivable - balance in allowance for uncollectible 45-16=29 million

Sampson Company creates the following accounts receivable aging report at the end of the year The balance of the Allowance for Uncollectible Accounts before adjustment is $5 million (credit). Use the information above to calculate the estimated ending balance in the Allowance for Uncollectible Accounts. (net account receivable?) a. $3 million b. $11 million c. $21 million d. $16 million

True GAAP requires that companies use the allowance method in accounting for uncollectible accounts.

The allowance method is required by GAAP for financial reporting purposes. True or False

True According to the allowance method, companies estimate the amount of accounts receivable that will prove uncollectible in the future and report the estimate as a contra asset to its accounts receivable.

The allowance method requires managers to estimate future uncollectible accounts and to record that estimate in the current year. True of False

True Sales returns, allowances, and discounts are contra revenue accounts. We subtract the balances in these accounts from total revenues when calculating net revenues.

The balances in sales returns, allowances, and discounts are subtracted from total revenues when calculating net revenues. True or False

True because it results in the overstatement of assets and understatement of expenses. Now total revenue isn't correct in either the period the invoice was recorded or when the bad debt was expensed. This distortion goes against GAAP principles as the balance sheet will report more revenue than was generated. This is why GAAP doesn't allow the direct write off method for financial reporting

The direct write-off method is used for tax purposes but is generally not permitted for financial reporting. (explain why) True or False

a. the direct write-off method. Writing off an account direct write-off (debit to Bad Debt Expense/credit to Accounts Receivable.) => decrease to total assets. allowance method has no effect on total assets.

The entry to write-off uncollectible accounts results in a reduction in total assets when using: a. the direct write-off method. b. the allowance method. c. either the allowance or direct write-off methods.

True Writing off actual bad debts and reestablishing those previous write-offs when it appears that customers will pay has no effect on net accounts receivable.

The journal entry to re-establish an account receivable previously written off has no effect on net accounts receivable. True or False

a. The average collection period will increase Accounts receivable are the funds that customers owe your company for products or services that have been invoiced could increase sales returns and bad debts. Do not panic= just put # to calculate and find the collection period

The percentage increase in receivables for Petro Corporation is greater than the percentage increase in sales. Which of the following conclusions can be drawn from this information? a. The average collection period will increase b. The company will see a decrease in sales returns and bad debts c. The company's payment terms for customers are becoming very stringent d. The receivables turnover ratio for the company will increase

b. a reduction in the listed price of a good or service. Trade discounts represent a reduction in the listed price of a product or service. c. a reduction in the amount to be received from a credit customer if collection occurs within a specified period of time.=> sale discount d. a reduction in the customer's balance owed because of a deficiency in the company's good or service.=> allowance

Trade discounts represent: a. a return of products by a customer. b. a reduction in the listed price of a good or service. c. a reduction in the amount to be received from a credit customer if collection occurs within a specified period of time. d. a reduction in the customer's balance owed because of a deficiency in the company's good or service.

has no effect on total assets on net income False Collecting cash on an account previously written off has no effect on total assets and no effect on net income.

Under the allowance method, the write-off of accounts receivable: a. decreases total assets. b. decreases total revenues. c. decreases total expenses. d. has no effect on total assets or net income. Collecting cash on an account previously written off increases total assets but has no effect on net income. True or False

b. debit to Bad Debt Expense for $9,000 allowance for uncollectible (t-account) 3000 (beginning) 120000 (estimate ending balance) $9,000 ($12,000 − $3,000) adjusting entry Bad Debt Expense $9,000. Allowance for Uncollectible Accounts $9,000

Using the aging method, Carlton Company calculates the estimated ending balance in the Allowance for Uncollectible Accounts to be $12,000. Prior to adjusting entries, the Allowance for Uncollectible Accounts has a credit balance of $3,000. The year-end adjustment would include a: a. credit to Allowance for Uncollectible Accounts for $12,000 b. debit to Bad Debt Expense for $9,000 c. debit to Bad Debt Expense for $12,000 d. credit to Allowance for Uncollectible Accounts for $15,000

b. Bad Debt Expense Writing off an account using the direct write-off method requires a debit to Bad Debt Expense and a credit to Accounts Receivable. allowance method => Bad Debt Expense / Allowance for uncollectible Accounts

Writing off an account receivable using the direct write-off method includes a debit to: a. Cash b. Bad Debt Expense c. Accounts Receivable d. Allowance for Uncollectible Accounts