ACC 210 Module 5

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. Reason: $20,000 - $2,000

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. $100,000 - $7,000

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. Reason: 365/receivables turnover = 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. 365/receivables turnover = 365/6 = 60.8 days

A(n) Blank is the legal right to receive cash from a credit sale and represents an asset of the company.

Account Receivable

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

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

Cash; Accounts Receivable. Reason: this entry would be correct only if the first entry had not been made

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

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.

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

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

Sales discount

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

Sales discounts Sales returns Sales allowances

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a reduction from list price.

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

aginig

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 accounts.

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

allowance method

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 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 a reduction from the list price, which is used to: (Select all that apply.)

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

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

contra-asset

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

The income statement approach for estimating bad debts uses a percentage of

credit sales.

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

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 journal entry to record bad debt expense includes: (Select all that apply.)

credit to allowance for uncollectible accounts debit to bad debt expense

The income statement approach for estimating bad debts focuses on

current year's credit sales.

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.

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 Blank______ the amount owed by the customer for merchandise that is Blank______ 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 Blank______ bad debt expense Blank______.

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

sing 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.

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

net

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will Blank______ 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) Blank______ by the lender.

note receivable.

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

receivables turnover ratio average collection period

Two entries are required when a previously written off account is collected. These two entries include:

reinstate the account receivable record the collection on the account receivable

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

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 returns

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

The cost of estimated accounts receivable that will not be collected is referred to as____ ____ expense

uncollectible account

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

The allowance method estimates

uncollectible accounts.

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.