ADMN 502 Chapter 6 Questions

An analyst sees the line item Accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct. (Select all that apply.) $2,040,000 is the amount estimated to be uncollectible $19,500,000 is the sum of all of its customers' account balances $21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers

$2,040,000 is the amount estimated to be uncollectible $21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers

Cellar's Inc. sold $800,000 of merchandise with sales terms of 2/10, n/30 and the customers paid within 10 days. The net sales equals ______. $816,000 $784,000 $800,000 $16,000

$784,000 The discount term 2/10, n/30 means a 2% discount if paid within 10 days, otherwise 100% is due within 30 days. The company paid within 10 days and is eligible for the discount: $784,000 (= $800,000 Sales - ($800,000 x 2% discount))

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 incurred bank service charges of $20. Net sales for the month ended equals $._____

$9,702

Rank the the 5 step process of recognizing revenue for bundled goods and services listing the 1st step at the top.

1. Identify the contract between the company and the customer 2. Identify the performance obligations (promised goods or services) 3. Determine the transaction price 4. Allocate the transaction price to performance obligations 5. Recognize revenue when each performance obligation is satisfied (or over time if a service is provided over time)

Net sales revenue is $720,000. Beginning and ending net trade accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio. 8.3 times 11.6 times 12.4 times 12.0 times

12.0 times Use the average, not beginning Net Trade Accounts Receivable. The turnover equals 12.0 times (= $720,000/(($62,000 + $58,000)/2)).

Which method of accounting for doubtful accounts is more accurate? Percentage of total credit sales method Discount method Aging of accounts receivable Direct write off method

Aging of accounts receivable

Companies may use which of the following to motivate sales and collections? (Select all that apply.) Sell merchandise FOB shipping point Allow customers to pay in advance Allow customers to purchase on credit Provide discounts for early collection

Allow customers to purchase on credit Provide discounts for early collection

What conclusion are managers likely to draw from a constant increase to sales returns and allowances? Customers are unhappy with the quality of the merchandise. The company should give fewer cash discounts to customers. The company should increase its inventory purchases.

Customers are unhappy with the quality of the merchandise

Companies may use which of the following to motivate sales and collections? (Select all that apply.) Allow customers to pay in advance Sell merchandise FOB shipping point Provide discounts for early collection Allow customers to purchase on credit

Provide discounts for early collection Allow customers to purchase on credit

The allowance method is a method of accounting that Blank______ for estimated bad debts. increases liabilities increases net income increases net accounts receivable decreases liabilities decreases net accounts receivable

Reason: Net Accounts Receivable decreases because the Allowance for Doubtful Accounts, which reports the estimated bad debts likely to arise, is netted against total Accounts Receivable.

When merchandise is returned for a refund or for credit to be applied to other purchases, the account called Sales ______ and _______ is debited

Returns and allowances

Which of the following are typically netted against sales to arrive at net sales? Sales discounts Bank service charges Credit card discounts Sales returns and allowances Cost of goods sold

Sales discounts, sales returns and allowances, and credit card discounts

Accounts Receivable is classified on the Blank______. income statement as a current liability income statement as a noncurrent asset balance sheet as a current asset income statement as a current asset balance sheet as a noncurrent liability balance sheet as a current liability income statement as a noncurrent liability balance sheet as a noncurrent asset

balance sheet as a current asset

When a business sells goods to a customer, and the customer promises to pay later, this is referred to as ______ sales. current credit operating cash

credit

When an entry is recorded with a debit to Accounts Receivable and credit to Sales Revenue, then the sale was a(n) ______ sale. discounted FOB shipping point debit credit FOB destination

credit

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy? Credit card companies charge fees that reduce profits. There are no downsides as the credit card company bears all risks and costs. The company has to wait 30 days to collect cash from the credit card companies.

credit card companies charge fees that reduce profits

Sales to customers in which the customers pay within 30 days are referred to as ______. (Check all that apply.) credit sales deferred sales sales on account nonaccrued sales

credit sales sales on account

A company's Bad Debt Expense reports the ______. cost of defaulting on its notes payable amount owed on loans estimated amount of this period's credit sales that customers will fail to pay increase in accounts receivable

estimated amount of this period's credit sales that customers will fail to pay

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on _____, financial statements are susceptible to management manipulation.

estimates

Allowing credit cards, returns or discounts for early payment affects the recording of ______. net sales revenue cost of goods sold prepaids unearned revenue

net sales revenue

When a company sells phones bundled with a one-year service contract, the portion of revenue allocated to the one-year service contract is recognized ______. the day after the service contract expires at the time the phone is delivered over time as the service is provided six months after the phone is delivered

over time as the service is provided

Who normally pays for shipping when the shipping terms are FOB destination? Buyer The shipping company Seller

seller

On January 1, goods were picked up by FedUp Delivery, Inc. The goods arrived at the customer's place of business on January 12. If the seller recorded the sale on January 1, then the terms must have been FOB Blank______. shipping point allowances destination discount

shipping point

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period? The period after credit sales are made The same period as credit sales The period before credit sales are made

the same period as credit sales

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period? The same period as credit sales The period before credit sales are made The period after credit sales are made

the same period as credit sales

FOB destination means that goods are owned by the buyer as soon as ______. they leave the seller's place of business the sales contract is signed they arrive at the buyer's place of business

they arrive at the buyer's place of business

What does FOB shipping point mean? Goods are owned by the buyer as soon as the sales contract is signed. Goods are owned by the buyer when they leave the seller's place of business. Goods are owned by the buyer as soon as they arrive at the buyer's place of business.

Goods are owned by the buyer as soon as the sales contract is signed

Which of the following are current assets? (Check all that apply.) Accounts payable 2-year notes receivable Notes receivable due within 90 days Accounts receivable 2-year notes payable Trade receivable

Notes receivable due within 90 days Accounts receivables Trade receivable