Ch. 5 Receivables and Sales Questions

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

Accounts receivable are typically classified as current assets because

They will be converted to cash within 1 year

The allowance method estimates

Uncollectible accounts

The direct write-off method is used when

Uncollectible accounts are not anticipated or are immaterial

When the direct write-off method is used, an entry for bad debt expense is required

When the account receivable is determined to be uncollectible

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue ____ revenue on December 31.

Interest

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

40.6 days

Black Company has the following information: Receivable turnover 6 Inventory turnover 5 Asset turnover 3 Net credit sales $500,000 What is the average collection period?

60.8 days

The receivables turnover ratio indicates

The number of times during a year that the average accounts receivables were collected

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

Sales allowance

A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.

Sales return

A customer returns merchandise purchased during the month and receives a refund of the full sales price.

A trade discount is

A reduction from list price

The percentage-of-receivables method of estimating bad debt applies ____ to ____.

A single percentage; accounts receivable

Bad debt expense is reported on the ____ ____ and is classified as an operating expense.

Income statement

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment.

Bad debt expense is reported on the:

Income statement

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

Account 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.

Ages

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

A sales return occurs when a customer returns a product for a full refund, whereas a sales ____ is when the customer keeps the product and obtains a partial refund.

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 accounts

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

Allowance method

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

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate

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

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 noncurrent 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 cost of estimated accounts receivable that will not be collected is referred to as ____ ____ expense.

Bad accounts

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ____ discount.

Cash

Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit ____ and credit ____.

Cash; Accounts Receivable

The Sales Returns and Sales Allowances accounts are classified as

Contra revenue accounts

Allowance for Uncollectible Accounts has a credit balance because it is a(n) ____ account.

Contra-asset

Sales Returns and Sales Allowances are ____ - ____ accounts and require a debit entry to increase the account.

Contra-revenue

The account "Allowance for Uncollectible Accounts" normally has a ____ balance

Credit

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

Credit sales

Sales to customers in which the customers pay within 30 to 60 days are referred to a

Credit sales. Sales on account

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 estimated expense for accounts that may not be collected is referred to as

Dad debt expense

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

Debit Accounts Receivable Credit Allowance for Uncollectible Accounts

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

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 paid 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

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?

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record 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

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?

Debit to Sales Returns Credit to Accounts Receivable

The journal entry to record bad debt expense includes:

Debit to bad debt expense Credit to allowance for uncollectible accounts

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

The receivables turnover ratio and the average collection period provide information about a company's

Effectiveness in managing receivables

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 value x annual rate x fraction of the annual period

Under the allowance method, companies estimate ____ uncollectible amounts and report those estimates in the ____ year.

Future; current

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 Disguise real prices from competitors Change prices without publishing a new catalog

When the allowance method is used, the write-off of an uncollectible account:

Has no effect on net income

Total revenues less discounts, returns, and allowances are referred to as

Net revenues

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

The ____ ratio shows the number of times during a year that the average receivable balance is collected.

Receivables turnover

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

Receivables turnover ratio Average collection period

Which of the following is 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 revenues is calculated as total revenues minus which of the following items?

Sales returns Sales discounts Sales allowances

For accounts receivable, the longer an account is outstanding,

The more likely it will prove uncollectible