ch 6

cellar's inc. sold $800,000 of merchandise with sales terms of 2/10, n/30 and the customers paid within 10 days. The ner sales equals ___. $784,000 $16,000 $800,000 $816,000

$784,000 (=800,000-(800,000 x 2%))

Rank companies A-C based on how favorable their receivables turnover ratio is (from most favorable to least) Company C: 2.4 times Company B: 5.6 times Company A: 3.4 times

B A C

T/F? Net sales is the same as net income and is reported on the income statement

False (net sales is the first line of the income statement above expenses. Net income is net of all expenses)

removing an uncollectible account and its corresponding allowance from the accounting records is called double entry accounting subsidiary accounting a write-off a write-up

a write-off

which method requires directly computing the desired allowance for doubtful accounts on the balance sheet and then computing the amount of the adjusting entry necessary to obtain this desired balance? % of credit sales or aging of receivables method

aging of receivables method

nim com soup ince uses the allowance method to account for bad debt expense. it determines that a customer account of $10,000 should be written off as uncollectible. the write off of the account will include a _________

debit allowance for doubtful accounts (the entry to record the wite-off of a specific non-paying customer includes a debit to allowance for doubtful accounts and a credit to accounts receivable)

Libby inc sells $3,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. The amount of the credit card discount (that is netted against Sales Revenue) equals $ _____

$90 (the amount not added onto; = 3000 x 3%)

which method requires directly computing the desired amount of bad debt expense on the income statement? % of credit sales or aging of receivables method

% of credit sales method

which method for accounting for doubtful accounts is easier to apply but less accurate and thus tends to be used on a montly basis, instead of on an annual basis?

% of total credit sales method

which of the following is a noncurrent asset? -2 year notes receivable -trade receivable due in 9 months -nontrade receivable due in 3 years -notes receivable due within 90 days -accounts receivable

-2-year notes receivable -nontrade receivable due in 3 years

the allowance method requires that ____ (check all that apply) -allowance for doubtful accounts be netted against accounts receivable -bad debt expense be recorded in the period a specific customer's account is written off (removed) -bad debt expense be recorded in the same period as the related credit sales

-allowance for doubtful accounts be netted against accounts receivable -bad debt expense be recorded in the same period as the related credit sales

which of the following are typically netted against sales to arrive at net sales? (check all that apply) -cost of goods sold -bank service charges -sales returns and allowances -credit card discounts -sales discounts

-sales returns and allowances -credit card discounts -sales discounts

accounts receivable has a $2,300 balance, and the allowance for doubful accounts has a $200 credit balance. An $80 account receivable is written off. The net book value of receivables on the balance sheet after the write-offs equals ______

2,100 net receivables=(2,300- 80) - (200-80)

during the month, cellum, inc sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and icurred bank service charges of $20. Net sales for the month ended equals $____

9,702 (net sales = $9,702= (100 x 100) - (10,000 x .01)- 198 $20 is an expense, not a contra-revenue account, and thus is not netted against sales) **remember to subtract net of discounts

which of the following are contra-asset accounts? -capital stock -allowance for doubtful accounts -accumulated depreciation -unearned revenue

allowance for doubtful accounts accumulated depreciation

delectable inc's unadjusted trial balance inclues accounts receivable of $10,000; allowance for doubtful accounts of $50 credit balance; and sales revenue of $100,000 (all on credit) management estimates that 2% of credit sales will be uncollectible. delectable's financial statements will show _____

allowance for doubtful accounts of $2050 credit balance bad debt expense of $2000

miss hap, the accountant, forgot to make the adjusting entry for the bad debt estimate for the accounting period. As a result, ____

assets will be overstated se will be overstated liabilities will be understated

the allowance for doubtful accounts, a contra-asset account, is ___ when specific uncollectible accounts are written-off debited non adjusted credited

debited (its normal balnce is a credit, thus debits, not credits, decrease this account. originally, the adjusting entry recorded an estimated amount of uncollectible acounts witha debit to bad debt expense (E, -SE) and credit allowance for doubtful accounts (xA, -A). accounts receivable could not be reduced until it is known which specific customer's account should be credited. Later when a non-paying customer is identified, the specific customer's accounts receiivable (-A) can now be credited and taken out of the allowance for doubtful accounts (+xA, -A) by debiting it

what are the financial statement effects of recording bad debt expense using the allowance method? -increase assets -increase revenues -decrease assets -increase expenses

decrease assets increase expenses

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

has no effect on net income

when merchandise is returned for a refund or for credit to be applied to other purchases, the account called sales _______and ______ is debited

returns allowances

when a customer returns a product for a refund, in which of the seller's accounts is the entry recorded? sales discounts sales returns and allowances purchase discounts purchase returns and allowances

sales returns and allowances