Chapter 5 questions

A trade revenue is recognized

By reducing the revenue amount recorded

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

Discounts Allowances Returns

The allowance method is required by

GAAP

A trade discount is

A percentage reduction from list price

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

Gammy Corporation provides services with a normal price of $800,000 and a trade discount of $100,000. Terms are 2/10, n/30 and the customers pay within 10 days. The net service revenue is

$686,000

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

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

credit sales

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:

credit to accounts receivable $60 debit to Sales Allowances $60

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.

A sales allowance _________ the amount owed by the customer for merchandise that is _______ by the customer

decreases; retained

A trade discount is a reduction from the list price, which is used to:

disguise real prices from competitors, give quantity discounts to customers, change prices without publishing a new catalog

If sales returns are incorrectly treated as expenses, what are the effects on the financial statements?

expenses are overstated revenues are overstated

direct write-off method is required for

income tax purposes

The contra revenue accounts sales returns and sales allowances

reduce revenues

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.

Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive

$980

Relay Corporation provides services with a normal price of $105,000 and a trade discount of $5,000. Terms are 1/10, n/30 and the customers pay within 10 days. The net service revenue is

$99,000

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

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 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.

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 which of the following?

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 which of the following?

Debit cash $2,000

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

Recording sales return and allowances in a separate contra-revenue account helps managers:

Keep track of the amounts

The amount of cash owed to a company by its company from the sale of goods or services is referred to as

Accounts receivable

The direct write off method is not normally accepted by GAAP because it fails to report

Assets and Expenses correctly

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:

Assets decrease and equity decreases

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

Credit sales Sales on account

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? (Select all that apply.)

Credit to Cash Debit to Sales Returns.

At the end of the year, companies must record estimate contra revenues for estimated sales returns and allowances and sales discounts pertaining to

Current sales only

The financial statement effects of recording an allowance for estimated sales returns are that

net income decreases assets decrease equity decreases