chapter 5 learnsmart

A customer account that is not expected to be collected is referred to as a bad debt or _______ account.

uncollectible

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 $20,000 - $2,000

The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?

$2,850

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

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

Credit Allowance for Uncollectible Accounts. Debit Accounts Receivable.

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.)

Credit to Accounts Receivable. Debit to Sales Returns.

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Accounts Receivable.

Joyce Corp. uses the percentage-of-receivables 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 of the account will include which of the following entries?

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

The allowance method is required by

GAAP

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

Sales discount

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

a balance sheet

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a percentage reduction from list price.

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

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.

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, give quantity discounts to customers, disguise real prices from competitors

The income statement approach for estimating bad debts focuses on

current year's credit sales.

A disadvantage to selling on account is

customers do not always pay.

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 ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated; at the end of the year

The formula for calculating interest on a note is

face amount 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

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

net

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.

not affect

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

sale returns, sale discounts, sale allowances

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

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

The direct write-off method is required for

income tax purposes.

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

allowance method

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.

Shannon Corp. uses the aging method to account for bad debt expense. 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.

Companies extend credit to customers and sell goods on account because

it increases sales.

An aging schedule classifies accounts receivable based on

length of time outstanding.

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

sales return

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

The receivables turnover ratio indicates

the number of times during a year that the average accounts receivables were collected.

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.

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

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

account receivable

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable.

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

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.

aging

What is the formula for the receivables turnover ratio?

average accounts receivable.

A customer account that is not expected to be collected is referred to as a(n) _____ debt.

bad

The cost of estimated accounts receivable that will not be collected is referred to as _______ _______ expense

bad debt

A trade discount is recognized

by reducing the revenue amount recorded.

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

contra-asset

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

credit

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

credit sales.

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.)

debit to Sales Returns credit to Cash

The journal entry to record bad debt expense includes:

debit to bad debt expense credit to allowance for uncollectible accounts

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

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

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note.

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) _____ by the lender.

note receivable.

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

receivables turnover

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

sales return

The allowance method estimates

uncollectible accounts.