Chapter 5: Receivables and Sales

A formal credit arrangement between a creditor and debtor is called a(n) A) note receivable. B) trade receivable. C) interest receivable. D) account receivable.

A

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to A) be more accurate. B) result in the lowest net income. C) result in the highest net income. D) recognize bad debts earlier.

A

When the direct write-off method is used, an entry for bad debt expense is required A) when the account receivable is determined to be uncollectible. B) when each sale is made. C) at the end of the year. D) only when bad debts are recorded on the tax return.

A

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period? A) Sales discount B) Quantity discount C) Purchase discount D) Trade discount

A

With the allowance method, bad debt expense is recorded A) at the end of the period when bad debts are estimated. B) when the customer returns the product. C) when the customer purchases the goods. D) when the account becomes uncollectible.

A

Two entries are required when a previously written off account is collected. These two entries include: A) reinstate the account receivable B) record the adjustment to sales C) record the collection on the account receivable D) record bad debt expense

A, C

A trade discount is a reduction from the list price, which is used to: (Select all that apply.) A) Change prices without publishing a new catalog B) Reduce the sale price for interest received C) Disguise real prices from competitors D) Encourage customers to pay quickly E) Give quantity discounts to customers

A, C, E

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? A) Debit to Allowance for Uncollectible Accounts B) Credit Allowance for Uncollectible Accounts C) Debit Bad Debt Expense D) Credit to Accounts Receivable

A, D

Accounts receivable are typically classified as current assets because A) they are a formal agreement to pay within a specific period of time. B) they will be converted to cash within 1 year. C) they accrue interest at a specified interest rate. D) they are matched with accounts payable for the period.

B

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record ______ bad debt expense ______. A) estimated; when accounts are written off B) estimated; at the end of the year C) actual; when accounts are written off D) actual; at the end of the year

B

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): A) increase in Accounts Receivable B) decrease in Accounts Receivable C) decrease in Sales Revenue D) increase in Allowance for Doubtful Accounts E) increase in Sales Revenue

B

Two important ratios that help in understanding a company's effectiveness in managing receivables are the: A) average collection period B) gross receivable ratio C) receivables profit margin D) receivables turnover ratio

B, D

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the A) debt forgiveness method B) bad debt method C) allowance method D) direct write-off method

C

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 A) credit. B) discount. C) allowance. D) debit.

C

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 A) discount. B) debit. C) allowance. D) credit.

C

A trade discount is A) a percentage reduction of the amount due for early payment. B) a rebate from the manufacturer. C) a reduction from list price. D) an increase in the account receivable.

C

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? A) $19,000 B) $17,000 C) $18,000 D) $20,000

C

When the allowance method is used, the write-off of an uncollectible account: A) increases net income B) decreases net income C) has no effect on net income

C

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) A) deferred sales. B) nonaccrued sales. C) sales on account. D) credit sales.

C, D

The journal entry to record bad debt expense includes: (Select all that apply.) A) credit to bad debt expense B) debit to allowance for uncollectible accounts C) debit to bad debt expense D) credit to allowance for uncollectible accounts

C, D

(Face value x annual interest rate x fraction of the annual period) is the formula for A) issue price of a security. B) bad debt expense. C) sales price of a good. D) interest on a note.

D

A sales allowance Blank______ the amount owed by the customer for merchandise that is Blank______ by the customer. A) increases; returned B) decreases; returned C) increased; retained D) decreases; retained

D

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 ______. A) Allowance for Uncollectible Accounts; Cash B) Accounts Receivable; Cash C) Cash; Allowance for Uncollectible Accounts D) Cash; Accounts Receivable

D

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? A) 25 days B) 11.1 days C) 36 days D) 40.6 days

D

Receivables not expected to be collected should A) initially be included as assets and then be B) written off when the customer does not pay. C) always be counted in assets of the company. D) not be counted in assets of the company.

D

The allowance for uncollectible accounts is a contra account to A)bad debt expense. B) accounts receivable. C) sales allowances. D) revenue.

D

The direct write-off method is used when A) bad debts are expected to be material in amount. B) a company expects excessive sales returns. C) a company elects to use this method as one of several alternatives. D) uncollectible accounts are not anticipated or are immaterial.

D

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? A) An entry to adjust net sales and an entry to adjust bad debt expense. B) An entry to reinstate the account receivable and an entry to adjust bad debt expense. C) An entry to record payment and an entry to record bad debt expense. D) An entry to reinstate the account receivable and an entry to record payment.

D

Allowance for Uncollectible Accounts has a credit balance because it is a(n) Blank______ account. A) liability B) asset C) expense D) contra-revenue E) contra-asset

E

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _________ method of accounts receivable.

aging

The account "Allowance for Uncollectible Accounts" normally has a ______ balance.

credit

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.

sales or cash