CHAPTER 5 - SALES AND RECEIVABLES

A 10%, $5,000 note is dated July 1. The principal and interest are due at the end of six months. How much interest will be paid on the due date?

$250

Liberty Corporation has credit sales of $2,000,000 for the year and estimates at the end of the year that 1.5% of the credit sales will default. The allowance for doubtful accounts at the end of the year before the adjusting entry is made is a credit balance of $10,000. If Liberty uses the percentage of credit sales method, what is the estimate of the bad debt expense for the period?

$30,000

A company has net sales of $1,000,000; gross profit of $700,000; operating income of $300,000; net income of $100,000; and average accounts receivable of $50,000. The net profit margin is

10%.

A 5% note receivable dated January 31 and due on December 31 of the same year will have interest due for

11 months

$1,000,000; gross profit of $700,000; operating income of $300,000; net income of $100,000; and average accounts receivable of $50,000. The gross profit margin is

70%

A company has net sales of $1,000,000; gross profit of $700,000; operating income of $300,000; net income of $100,000; and average accounts receivable of $50,000. The gross profit margin is

70%

The entry to record the collection of a note at its maturity date will include which of the following?

A debit to Cash

If Duke Corporation bills Liberty Advisors $15,000 for product sold during the week with terms of 2/10, n30 under the net method, but Liberty pays after the discount period has ended, which of the following transactions will be a part of the entry to record the receipt of cash?

Credit Sales Revenue for $300

If Duke Corporation bills Liberty Advisors $15,000 for product sold during the week with terms of 2/10, n30 under the net method, how much and what account will be debited in the entry to record the sale?

Debit Accounts Receivable for $14,700

When interest is accrued at the end of the year, which of the following entries is made?

Debit Interest Receivable, credit Accounts Receivable

When interest is accrued at the end of the year, which of the following entries is made?

Debit Interest Receivable, credit Interest Income

When a note receivable is issued because a customer cannot pay its accounts receivable, which of the following entries is made?

Debit Notes Receivable, credit Accounts Receivable

The correct formula to calculate interest is

Interest = Principal × Fraction of 1 Year × Annual Interest Rate.

Notes receivable are receivables that generally specify an interest rate and a maturity date at which time the interest and principal must be repaid. A 10%, $1,000 note is dated June 1. The principal and interest are due at the end of six months. On what date will the note be due, and how much will the interest be?

November 30, $50 interest

A receivable is money due from another business or individual. Receivables are typically categorized along three different dimensions. Which of the following is not one of these three dimensions?

Tangible or intangible

To encourage prompt payment, businesses may offer a sales discount. The discount is a reduction of the normal selling price. Which of the following is NOT a reason that a seller would offer its customers a 5% cash discount?

The company is able to reduce its revenue, which reduces its taxes.

What do accountants mean when they say revenue can be recognized under the accrual basis of accounting?

The company's performance obligation is satisfied.

There is more than one method to record bad debt expense. Which method is not consistent with the matching concept?

The direct write-off method

An order document is necessary for the buyer to be obligated to accept and pay for the ordered goods.

This statement is true.

Occasionally, accounts receivable that are written off are later partially or entirely collected.

This statement is true.

All of the following are true about debit cards EXCEPT

a debit card is not at all like a credit card.

Quantity discounts are

a reduction in the selling price granted by the seller because per-unit costs are less when larger amounts are ordered.

Securitization involves all of the following EXCEPT

aging the receivables.

To be consistent with the matching principle, generally accepted accounting principles (GAAP) require that bad debt expense must be recorded in the period related to the sales. The allowance for doubtful accounts is

an account that has been established to "store" the estimate of the accounts receivable that are not expected to be collected.

A trade receivable is

an amount due from a customer purchasing inventory in the ordinary course of business.

A customer may return goods as unsatisfactory or agree to keep the goods if the seller is willing to make an allowance. The sales return and allowance is a reduction of the sale. This type of account is called a(n)

contra-revenue account.

Sales revenue is such a key component of a company's success that analysts are interested in a large number of ratios that incorporate sales. Many of these ratios attempt to measure the return the company is earning on sales. All of the following ratios are profitability ratios EXCEPT the

current ratio.

The journal entry to record a properly documented credit sale includes a

debit to Accounts Receivable

Gross profit margin is calculated by

dividing gross profit by net sales

Net profit margin percentage is calculated by

dividing net income by net sales.

Asset management refers to

how efficiently a company is using the resources at its disposal

If the accounts receivable balance in the general ledger is $2,000,000 and the accounts receivable (net) reported on the balance sheet is $1,900,000 (the net realizable value), the allowance for doubtful accounts

is $100,000

Increasing the speed of collecting receivables may be achieved by using all of the following EXCEPT

notes receivable.

The principal of a note receivable refers to the amount

of money that was loaned.

Channel stuffing is

shipping more goods to a customer than the customer ordered near the end of a period so sales can be recognized at the time of shipment.

In terms of a company's accounts receivable, the "net realizable value" is

the amount of cash the company expects to collect.

The interest on a note refers to

the compensation paid to the lender for giving up the use of the resources for the period.

The underlying difference between the percentage of credit sales method and the aging method is

the percent of credit sales method is primarily concerned with appropriately estimating the bad debt expense on the income statement.

To be consistent with the matching principle, generally accepted accounting principles (GAAP) require that bad debt expense must be recorded in the period related to the sales. The allowance for doubtful accounts is

the reduction in sales revenue that results from the seller's actions, such as disputes and allowances.

All of the following are true about nonbank credit cards EXCEPT

they are usually less expensive than bank credit cards.