ACCT 2010 Ch 5
The receivables turnover ratio indicates
The number of times during a year that the average accounts receivables were collected.
A customer account that is not expected to be collected is referred to as a bad debt or ___________ account.
Uncollectible
The lair price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?
$2,580
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?
$18,000 (20000-2000)
On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?
$20 (1500 x 0.08 x (2/12) = 20)
Fog Corporation sells $5,000 goods on account. Salaries expense was $3,000. Sales returns were $100, and sales discounts were $300. Net sales were
$4,600 (5000-100-300=4600)
Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2018, Garber provided $4,000 of plumbing services to Red Oak Inc., and $1,500 of services to Cyril Inc., Each of these customers was granted credit terms of 2/10, net 30. If both customers paid for the plumbing services within the discount period, what was the net revenues amount for these two transactions?
$4,606
On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?
$40 (2000 x 0.06 x (4/12))
During its first year of operations, Ellison, Inc. 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:
$600
James Corporation sells $1,000 goods on account. Sales returns were $40, and sales allowances were $50. Sales discounts for the period were $30. Net sales are
$880 (1000 - (40+50+30))
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?
$93,000 (100000-7000)
The _____ ratio shows the number of times during a year that the average receivable balance is collected.
Receivables turnover
The formula for average collection period is
365 divided by the receivable turnover ratio
The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.
A balance sheet
The account "Allowance for Uncollectible Accounts" is classified as
A contra asset to accounts receivable in the balance sheet
A trade discount is
A percentage reduction from list price
The percentage-of-receivables method of estimating bad debt applies ____ to _____.
A single percentage, accounts receivable
At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be A. $6,540 B. $7,800 C. $7,140 D. $7,740
A. $6,540
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)
Account receivable
A company will debit __________ while recording a credit sale at the time of the transaction.
Accounts receivable
The allowance for uncollectible accounts is a contra account to
Accounts receivable
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as
Accounts receivable
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _______ method of accounts receivable.
Aging
Net Sales
Sales - sales discounts - sales returns and allowances
Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.
contra-asset
Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the ____ year.
future; current
"Net credit sales" refers to credit sales net of:
Discounts, returns, allowances
A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales _________.
Allowance
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to
Allowance for uncollectible debts
A company that expects that some of its customers will not pay the agreed upon sales price must utilize
Allowance method
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
As a non-current asset
Accounts receivable should be classified as a(n)
Asset
With the allowance method, bad debt expense is recorded
At the end of the period when bad debts are estimated
The formula to compute the receivables turnover ratio is net credit sales divided by
Average accounts receivable
A customer account that is not expected to be collected is referred to as a
Bad debt
The cost of estimated accounts receivable that will not be collected is referred to as _________ expense.
Bad debt expense
The estimated expense for accounts that may not be collected is referred to as
Bad debt expense
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
Be more accurate
A trade discount is recognized
By reducing the revenue amount recorded
The ratio that shows the approximate number of days the average accounts receivable balance is outstanding is referred to as the average
Collection period
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.
Contra revenue
The Sales Returns and Sales Allowances accounts are classified as
Contra revenue accounts
Sales Returns and Sales Allowances _________ accounts and require a debit entry to increase the account.
Contra-revenue
A(n) _____ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.
Credit
The account "Allowance for Uncollectible Accounts" normally has a _____ balance.
Credit
Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Account revenue account is credited for $100. If the customer pays within 10 days, Claire will record:
Credit Accounts Receivable $100, Debit Cash $98, Debit Sales Discount $2
When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?
Credit allowance for uncollectible accounts, Debit accounts receivable
The income statement approach for estimating bad debts uses a percentage of
Credit sales
When a business provides services to a customer, and the customer promises to pay later, this is referred to as
Credit sales
Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?
Credit to Accounts receivable, Debit to Sales returns
Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include:
Credit to Cash, Debit to Sales Returns
Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?
Credit to accounts receivable, Debit to allowance for uncollectible accounts
Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a
Credit to allowance for uncollectible accounts
The journal entry to record bad debt expense includes:
Credit to allowance for uncollectible accounts, Debit to bad debt expense
A disadvantage of selling on account is
Customers do not always pay
A(n) _____ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.
Debit
On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entry required on Oak's books on March 5 would require which of the following entries?
Debit Notes Receivable, Credit Service Revenue $100,000
Bell provides $500 of services to customers on account with terms 3/10, n/10. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record:
Debit Sales Discount $15
Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet lid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?
Debit Sales Returns, Credit Accounts Receivable
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include
Debit allowance for uncollectible accounts
Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record
Debit cash $1,000
Zeiger Corporation sells goods to a customer on account for $2,000, terms 2/10, n/30. When the customer pays on the 12th day, Zeiger records
Debit cash $2,000
On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a
Debit to Notes Receivable, $40,000
Kilroy Corporation provides services to a customer for $1000. The customer complained that there was a slight defect in the service. Kilroy granted the customer and $50 credit. Kilroy will recorded this adjustment to the sales price with a
Debit to Sales Allowances $50
Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record:
Debit to Sales Allowances, $60, Credit to Accounts Receivable $60
Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):
Decrease in Accounts Receivable
A sales allowance _____ the amount owed by the customer for merchandise that is ______ by the customer.
Decreases; retained
The Accounts Receivable account is reduced when the seller:
Determines that a specific customer account will not be collectible
At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the
Estimate of uncollectible accounts was too high
At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the
Estimate of uncollectible accounts was too low
Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.
Estimated; at the end of the year
The formula for calculating interest on a note is
Face amount x annual rate x fraction of the annual period
True or False: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off
False. Receivables not expected to be collected are not included in assets
The allowance method is required by
GAAP
A trade discount is a reduction from the list price, which is used to:
Give quantity discounts to customers, Change prices without publishing a new catalog, Disguise real prices from competitors
When the allowance method is used, the write-off of an uncollectible account:
Has no effect on net income
Where is a note receivable reported in the balance sheet?
In either current or non-current assets, as appropriate
Bad debt expense is reported on the ______ ______ and is classified as an operating expense.
Income statement
Bad debt expense is reported on the:
Income statement
The amount of net credit sales is reported on the _______ ______.
Income statement
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) _____ _____ approach to measuring bad debts
Income statement
The direct write-off method is required for
Income tax purposes
A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue _____ revenue on December 31.
Interest
(Face value x annual interest rate x fraction of the annual period) is the formula for
Interest on a note
Companies extend credit to customers and sell goods on account because
It increases sales
An aging schedule classifies accounts receivable based on
Length of time outstanding
When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?
Make an adjusting entry at the end of the current period to accrue the interest earned
What is the formula for the receivable turnover ratio?
Net credit sales divided by average accounts receivable (net)
Total revenues less discounts, returns, and allowances are referred to as ____ revenues.
Net revenues
Dela Company performed $20,000 of services on account and recorded the amount due as a typical account receivable. Over time, it became apparent that the customer would not be able to pay quickly, so Delta required the customer to sign a six-month, 11 percent promissory note on February 1, Year 2. The company then reclassified the existing account receivable as a note receivable. Which of the following will result from this action?
No impact on the accounting equation
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.
Not affect
Receivables not expected to be collected should
Not be counted in assets of the company
A formal credit arrangement between a creditor and debtor is called a(n)
Note receivable
A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.
Note receivable
Barton Health Services provided care to a patient worth $1,200. Because the patient was over the age of 65, Barton granted the patient a 20% discount and the customer paid the correct amount in cash. How would Barton record the service transaction?
Option A (Cash $960, Service Revenue $960)
The _____ ratio shows the number of times during a year that the average receivable balance is collected.
Receivable turnover
A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a ______ discount.
Sales discount
A discount in the amount to be paid if the customer pays within a specified time period
Sales discount
When a customer returns a product for a refund, in which account is the entry recorded?
Sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
Sales return
Net revenue is calculated as total revenues minus
Sales returns, sales discounts, sales allowances
For accounts receivable, the longer an account is outstanding,
The more likely it will prove uncollectible
The average collection period is an estimate of
The number of days the average account receivable balance is outstanding
Assume Company X is in its fifth year of operation. Analyze the following schedule. What conclusion can be drawn from the following schedule?
The target amount in allowance for uncollectible accounts is $25,500
Accounts receivable are typically classified as current assets because
They will be converted to cash within 1 year
Net Revenue
Total revenues - sales allowances - sales returns - sales discounts
The allowance method estimates
Uncollectible accounts
The direct write-off method is used when
Uncollectible accounts are not anticipated or are immaterial
The average collection period is calculated as 365 divided by
The receivables turnover ratio
Sales to customers in which the customers pay within 30 to 60 days are referred to as
Credit sales, Sales on account
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash discounts.
Option B (Accounts receivable $8000, Sales $8000)
