Chapter 5 HW

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) ____ ____

sales return

A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.

sales allowance

A customer returns merchandise purchased during the month and receives a refund of the full sales price

sales return

The allowance for uncollectible accounts is a contra account to a. accounts receivable. b. sales allowances. c. bad debt expense. d. revenue.

a

The percentage-of-receivables approach to measuring bad debt expense is referred to as Blank______ method. Multiple choice question. a. a balance sheet b. an income statement c. an equity d. an expense

a

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make? a. Make an adjusting entry at the end of the current period to accrue the interest earned. b. Make an adjusting entry at the end of the the next period to accrue interest earned. c. No adjustment is necessary until the cash is collected.

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. Trade discount c. Quantity discount d. Purchase discount

a

The allowance method is required by ____

GAAP

A formal credit arrangement between a creditor and debtor is called a(n) a. note receivable. b. account receivable. c. interest receivable. d. trade receivable.

a

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. allowance. b. credit. c. debit. d. discount.

a

A trade discount is a. a reduction from list price. b. an increase in the account receivable. c. a rebate from the manufacturer. d. a percentage reduction of the amount due for early payment.

a

Accounts receivable should be classified as a(n) a. expense. b. asset. c. liability. d. revenue

b

Allowance for Uncollectible Accounts has a credit balance because it is a(n) Blank______ account. a. contra-revenue b. contra-asset c. asset d. expense

b

An aging schedule classifies accounts receivable based on a. past experience with customer. b. length of time outstanding. c. customer credit rating. d. size of customer purchase.

b

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: (Select all that apply.) a. debit to Sales Returns b. credit to Allowance for Sales Returns c. credit to Accounts Receivable d. debit to Sales Expense e. credit to Cash

both a and e

A formal, signed credit agreement between a lender and a borrower is called a(n) Blank______ by the lender. a. account payable. b. account receivable. c. note receivable. d. note payable.

c

A sales allowance Blank______ the amount owed by the customer for merchandise that is Blank______ by the customer. a. decreases; returned b. increases; returned c. decreases; retained d. increased; retained

c

(Face value x annual interest rate x fraction of the annual period) is the formula for a. bad debt expense. b. sales price of a good. c. issue price of a security. d. interest on a note.

d

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the a. direct write-off method b. debt forgiveness method c. bad debt method d. allowance method

d

The allowance method estimates a. future sales. b. sales discounts. c. trade discounts. d. uncollectible accounts.

d

Sales paid within 30-60 days i. credit sales ii. sales on account iii sales returns iv. sales discounts

i, ii

net revenue is calculated as total revenues minus which of the following items? i. sales allowances ii. sales returns iii. Sales discounts

i, ii & iii

A trade discount is a reduction from the list price, which is used to: (Select all that apply.) i. change prices without publishing a new catalog ii. disguise real prices from competitors iii. reduce the sale price for interest received iv. give quantity discounts to customers v. encourage customers to pay quickly

i, ii, iv

Bad debt expense is reported on the ____ ____ and is classified as an operating expense.

income statement

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue ____ revenue on December 31. (Enter only one word.)

interest

Receivables not expected to be collected should a. not be counted in assets of the company. b. always be counted in assets of the company. c. initially be included as assets and then be written off when the d. customer does not pay.

a

Bad debt expense is reported on the: a. income statement b. balance sheet c. statement of cash flows

a

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 to Accounts Receivable c. Credit Allowance for Uncollectible Accounts d. Debit Bad Debt Expense

a & b

The journal entry to record bad debt expense includes: (Select all that apply.) a. credit to allowance for uncollectible accounts b. debit to bad debt expense c. credit to bad debt expense d. debit to allowance for uncollectible accounts

a & b

Two important ratios that help in understanding a company's effectiveness in managing receivables are the: a. average collection period b. receivables turnover ratio c. gross receivable ratio d. receivables profit margin

a & b

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following? a. Credit Allowance for Uncollectible Accounts. b. Debit Bad Debt Expense. c. Debit Accounts Receivable. d. Credit Accounts Receivable.

a & c

A trade discount is a reduction from the list price, which is used to: (Select all that apply.) a. disguise real prices from competitors b. change prices without publishing a new catalog c. reduce the sale price for interest received d. give quantity discounts to customers e. encourage customers to pay quickly

a, b, d

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.) a. Credit to Accounts Receivable. b. Debit to Sales Expense. c. Credit to Allowance for Sales Returns. d. Debit to Sales Returns

a, d

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

account receivable

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____ method of accounts receivable. (Enter only one word.)

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

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______. a. Accounts Receivable; Cash b. Cash; Accounts Receivable c. Cash; Allowance for Uncollectible Accounts d. Allowance for Uncollectible Accounts; Cash

b

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to a. result in the lowest net income. b. be more accurate. c. recognize bad debts earlier. d. result in the highest net income.

b

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record Blank______ bad debt expense Blank______. a. estimated; when accounts are written off b. estimated; at the end of the year c. actual; at the end of the year d. actual; when accounts are written off

b

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will Blank______ net income. a. decrease b. not affect c. increase

b

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? a. $107,000 b. $93,000 c. $97,000 d. $90,000

b

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements? a. As other comprehensive income b. As a noncurrent asset c. As a contra account to sales d. As a current asset

b

The Accounts Receivable account is reduced when the seller: a. records the allowance for uncollectible accounts b. determines that a specific customer account will not be collectible c. adopts the allowance method

b

The ______ ratio shows the number of times during a year that the average receivable balance is collected. a. current b. receivables turnover c. inventory turnover d. average collection period

b

The receivables turnover ratio and the average collection period provide information about a company's a. ability to generate sales b. effectiveness in managing receivables c. amount of net credit sales

b

The receivables turnover ratio indicates a. how efficient the company is at managing sales and inventory. b. the number of times during a year that the average accounts receivables were collected. c. the relationship between sales and cost of goods sold. d. the relationship between cash sales and credit sales.

b

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to a. sales returns and allowances. b. allowance for uncollectible accounts. c. accounts receivable. d. bad debt expense.

b

Under the allowance method, companies estimate Blank______ uncollectible amounts and report those estimates in the Blank______ year. a. future; future b. future; current c. current; current d. current; future

b

When a customer returns a product for a refund, in which account is the entry recorded? a. purchase return b. sales return c. sales discount d. purchase discount

b

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 record payment and an entry to record bad debt expense. b. An entry to reinstate the account receivable and an entry to record payment. c. An entry to adjust net sales and an entry to adjust bad debt expense. d. An entry to reinstate the account receivable and an entry to adjust bad debt expense.

b

With the allowance method, bad debt expense is recorded a. when the account becomes uncollectible. b. at the end of the period when bad debts are estimated. c. when the customer returns the product. d. when the customer purchases the goods.

b

The cost of estimated accounts receivable that will not be collected is referred to as ____ ____expense.

bad debit

A trade discount is a. a rebate from the manufacturer. b. an increase in the account receivable. c. a reduction from list price. d. a percentage reduction of the amount due for early payment.

c

For accounts receivable, the longer an account is outstanding, a. the higher probability of it being collected. b. the more likely the customer will return. c. the more likely it will prove uncollectible. d. the better the customer.

c

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. 11.1 days b. 36 days c. 40.6 days d. 25 days

c

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 a. debit to Accounts Receivable $50. b. debit to Cash $50. c. debit to Sales Allowances $50. d. credit to Sales Allowances $50.

c

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 a. debit to Bad Debt Expense. b. debit to Sales Returns and Allowances. c. credit to Allowance for Uncollectible Accounts. d. credit to Accounts Receivable.

c

The Sales Returns and Sales Allowances accounts are classified as a. contra equity accounts. b. contra liability accounts. c. contra revenue accounts. d. contra asset accounts.

c

The account "Allowance for Uncollectible Accounts" is classified as a. a contra equity account. b. an expense in the income statement. c. a contra asset to accounts receivable. d. a liability account in the balance sheet.

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

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: a. debit to Cash $60 b. credit to Sales Allowances $60 c. debit to Sales Allowances $60 d. debit to Accounts Receivable $60 e. credit to Accounts Receivable $60 f. credit to Cash $60

c and e

Sales Returns and Sales Allowances are ____ - ____ accounts and require a debit entry to increase the account.

contra revenue

The account "Allowance for Uncollectible Accounts" normally has a ____ balance. (Enter only one word.)

credit

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

d

Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a. debit Bad Debt Expense. b. debit Accounts Receivable. c. credit Sales Returns and Allowances. d. debit Allowance for Uncollectible Accounts.

d

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

d

The formula for calculating interest on a note is a. principal x rate. b. face value x fraction of the period. c. future value x annual rate x fraction of the period. d. face value x annual rate x fraction of the annual period.

d

The percentage-of-receivables method of estimating bad debt applies Blank______ to Blank______. a. various percentages; total sales b. a single percentage; total sales c. various percentages; accounts receivable d. a single percentage; accounts receivable

d

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. $20,000 d. $18,000

d

When a business provides services to a customer, and the customer promises to pay later, this is referred to as a. operating sales. b. cash sales. c. current sale. d. credit sales.

d

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

d

Where is a note receivable reported in the balance sheet? a. In either current or noncurrent liabilities, as appropriate. b. In noncurrent liabilities until paid. c. In noncurrrent assets. d. In either current or noncurrent assets, as appropriate. e. In current assets.

d

lack 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? a. 24.3 days b. 90 days c. 50 days d. 60.8 days e. 30 days

d

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 Sales Revenue b. increase in Allowance for Doubtful Accounts c. decrease in Sales Revenue d. increase in Accounts Receivable e. decrease in Accounts Receivable

e

The estimated expense for accounts that may not be collected is referred to as a. accounts receivable. b. amortization expense. c. sales discounts. d. interest expense. e. bad debt expense.

e

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

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

net

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