Accounting Test 2

which of the following may be the result of extending payment periods?

increased gross sales, greater required investment in receivables

the account "allowance for uncollectible accounts" is classified as

a contra asset to accounts receivable

What is a sales discount?

a discount that is a reduction in the sales price if the customer pays within a specified time period

percentage-of-credit-sales method

better matching of revenues and expenses

Claire provides $100 of services to customers on account with terms 2/10, n/30. The service revenue account is credited for $100. If the customer pays within 10 days. Claire will record which of the following?

credit accounts receivable $100, debit cash $98, debit sales discount $2

Glasser Corp. provided $20,000 of services on account. The account that should be credited is ______________ _________________.

service revenue

LIFO reserve

the disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the:

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

credit sales, sales on account

where is a note receivable reported in the balance sheet?

in either current or noncurrent assets, as appropriate

the formula for calculating interest on a note is

face value X annual rate X fraction of the annual period

gross profit divided by net sales equals

gross profit ratio

A company makes a sale on terms 2/10 n/30. What does this mean?

- if the discount is not taken in 10 days, the net income is due in 30 days - the customer may take a 2% discount off the price if paid within 10 days

net revenues is calculated as sales minus what?

- sales allowances - sales returns - sales discounts

sellers offer discounts to buyers primarily to:

-attract new customers -reward customer loyalty -encourage quick payments

when an account previously written off is collected in full, the entry to reinstate the account would require which of the of the following?

-credit allowance for uncollectible accounts -debit accounts receivable

Joyce Corp. uses the percentage-of-credit-sales method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off on the account will include which of the following entries?

-credit to accounts receivable -debit to allowance for uncollectible accounts

the journal entry to record bad debt expense includes a:

-debit to bad debt expense -credit to allowance for uncollectible accounts

On December 1, Melinda Corp. performed services on account to Norman. Melinda agreed to accept a 4-month interest-bearing note from Norman in payment for the services. Melinda has a December 31 year-end. On April, year 2, when the note matures, Melinda's journal entry will include:

-debit to cash -credit to interest revenue -credit to interest receivable

payment for credit sales are typically due in ____ to ____ days

30, 60

average days in inventory is calculated as

365 divided by the inventory turnover ratio

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost of assumption?

FIFO

the allowance method is required by _________.

GAAP

what methods are available for costing inventory?

LIFO, FIFO, weighted average, specific identification

inventory is classified as:

a current asset

Trade receivable is another word for:

accounts receivable

the average accounts receivable balance is calculated by:

adding last year's and this year's ending balances of accounts receivable and dividing the sum by 2

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

aging

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

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

allowance method

net realizable value of accounts receivable is the

amount of cash the firm expects to collect

what is a contra revenue account?

an account with a balance that is opposite to that of its related revenue account

percentage-of-receivables method

assets are reported closer to their net realizable value

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

assets decrease, net income decreases, equity decreases

the use of the allowances method reduces ____________ and increases _______________.

assets, expenses

the formula to compute the receivables turnover ratio is net credit sales divided by:

average accounts receivable

the estimated expense for accounts that may not be collected that is matched against revenue of the period is referred to as:

bad debt expense

Paredes records sales at the gross amount and uses a sales discount account to account for the discounts taken by customers. Paredes provides services on account for $1000 with terms 2/10, n/30. the entry to record this transaction will include a:

credit to service revenue $1000

accounts receivable should be classified as a

current asset

at the end of the year, companies must record estimated contra revenue for estimated sales returns and allowances and sales discounts pertaining to:

current year sales only

a _________ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low

debit

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

decreases, retained

on a multi-step income statement, the category of revenues and expenses reported immediately after operating income is referred to as _____________________ revenues and expenses.

nonoperating

a formal, signed credit agreement between a lender and a borrower is called a:

note receivable

a ____________ receivable typically yields interest revenue and possesses a fairly high probability of collectibility

notes

Kilroy Corp provides services to a customer for $1000. the customer complained there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record the adjustment to the sales price with a:

debit to sales allowances $50

the FIFO method assumes that units sold are the ________ units acquired

first

Kilroy Corp. provides services to a customer for $1,000. the customer complained 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

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:

decrease in accounts receivable

adjusting for estimates of future uncollectible accounts matches ______________ in the same period as the ________________ they help to generate

expenses, revenues

the amount of net credit sales is reported on the ______________ _____________________.

income statement

account receivable

informal credit arrangement with trade customers

The ____________________ _____________ ratio shows the number of items the firm sells its average inventory balance during a reporting period

inventory turnover

the type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______________________________ income statement.

multi-step

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

net credit sales

what is the formula for the receivables turnover ratio?

net credit sales divided by average accounts receivable (net)

the ______ _________________ value of accounts receivable is the amount of cash a company expects to collect

net realizable

the income statement method is another commonly used term to refer to the

percentage of credit sales method

a claim to receive cash in the future is a

receivable

"net credit sales" refers to credit sales net of:

returns, allowances, discounts

the sales discount account is a contra ________________ account

revenue

the entry to record lending $1000 to an employee at a rate of 6% for 3 months includes as:

-debit to notes receivable of $1000 -credit to cash of $1000

Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following:

-debit to sales returns -credit to cash

disadvantages of extending credit to customers:

-delays in collecting accounts -accounts that are uncollectible

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 catalogue

what are classified as receivables?

-interest due from loans to customers -loans by a company to other entities

two entries are required when a previously written off account is collected. these two entries include

-reinstate the AR -record the collection on the AR

items classified as receivables?

-tax refund claims -amounts owed by customers -amounts loaned and expected to be repaid

the two conditions that must exist for a sale and the related receivable to be recognized are:

-the company has provided goods or services to the customer] -collection from the customer is probable

the average cost method assumes that cost of goods sold consists of:

a mixture of all the goods available for sale

the allowance method is a method of accounting that _________________ net accounts receivable (as well as net income) for estimated bad debts

decreases

the accounts receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

the percentage-of-credit sales method is allowed only if it does not

differ significantly from estimates using the percentage-of-receivables method

Mark records a journal entry with a debit to Bad debt expense and a credit to Accounts Receivable. Mark is utilizing the:

direct write-off method

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

effectiveness is managing receivables

using a percentage of each period's net credit sales to estimate bad debt expense is a(n) ________________ _____________________ approach to measuring bad debts.

income statement

bad-debt expense is reported on the ____________ ___________________ and classified as a _______________ ______________.

income statement, operating expense

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

interest

On Nov. 1, Pepper Corp. sold goods on account to Salt. Pepper agreed to accept a 3-month interest bearing note from Salt in payment for the goods. Pepper has a December 31 year-end. On Feb. 1, year 2, when the note matures, Pepper's journal entry will include credit to:

notes receivable, interest revenue, interest receivable

the direct write-off method is normally not permitted for U.S. GAAP reporting because if related credit sales occurred in the prior year, it:

overstates assets in the prior year, overstates net income in the prior year

note receivable

formal credit arrangement between borrower and lender

The Work-in-Process inventory account typically includes which costs?

raw materials, indirect manufacturing costs, direct labor

gross accounts receivable less allowance for doubtful accounts is the net ________________ value of accounts receivable

realizable

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

receivables turnovers

when a customer returns a product for a refund, in which account is the entry recorded?

sales return

the average collection period is an estimate of:

the number of days the average AR balance is outstanding

the average collection period is calculated as 365 divided by

the receivables turnover ratio

FOB destination means title to the goods passes when

when they arrive at the location

the direct write-off method is used when:

uncollectible accounts are not anticipated or are immaterial