Chapter 6

At year-end, Chief Company has a balance of $10,000 in accounts receivable of which $1,000 is more than 30 days overdue. Chief has a credit balance of $100 in the allowance for doubtful accounts before any year-end adjustments. Using the aging of accounts receivable method, Chief estimates that 1% of current accounts and 10% of accounts over thirty days are uncollectible. What is the amount of bad debt expense? A. $90. B. $190. C. $290. D. $100.

A; Allowance for doubtful accounts desired balance, $190 = ($1,000 × .10) + ($9,000 × .01). Bad debt expense, $90 = Allowance for doubtful accounts desired balance, $190 - Allowance for doubtful accounts current balance = $100.

The Soft Company has provided the following information after year-end adjustments: • Allowance for doubtful accounts was $11,000 at the beginning of the year and $30,000 at the end of the year. • Accounts receivable were $80,000 at the beginning of the year and $420,000 at the end of the year. • Accounts written off as uncollectible totaled $20,000. • Net sales totaled $2,700,000. • Sales discounts were $100,000. What was the amount of Soft's bad debt expense for the year? A. $39,000. B. $1,000. C. $19,000. D. $20,000.

A; Bad debt expense, $39,000 = Beginning balance in allowance for doubtful accounts, $11,000 + Bad debt expense, (X) - Write offs of uncollectible accounts, $20,000 - Ending balance in allowance for doubtful accounts, $20,000.

Newark Company has provided the following information: • Cash sales, $450,000 • Credit sales, $1,350,000 • Selling and administrative expenses, $330,000 • Sales returns and allowances, $90,000 • Gross profit, $1,360,000 • Increase in accounts receivable, $55,000 • Bad debt expense, $33,000 • Sales discounts, $43,000 • Net income, $1,030,000 How much is Newark's cost of sales? A. $307,000. B. $252,000. C. $440,000. D. $340,000.

A; Net sales = $1,667,000 = $450,000 + $1,350,000 - $90,000 - $43,000. Net sales minus cost of sales equals gross profit, $1,360,000. Therefore, cost of sales equals $1,667,000 minus $1,360,000 = $307,000.

A company had the following partial list of account balances at year-end: Sales Returns and Allowances $1,000 Accounts Receivable 38,000 Sales Discounts 2,100 Sales Revenue 95,000 Allowance for Doubtful Accounts 1,200 How much is net sales revenue? A. $91,900. B. $90,700. C. $89,900. D. $88,600.

A; Net sales revenue, $91,900, equals sales revenue, $95,000 minus sales discounts, $2,100, and minus sales returns and allowances, $1,000.

A customer purchased and received $5,000 of goods on credit from Discount Paper Supply on September 1. The customer received the bill on September 13 and mailed a $5,000 check on September 30. Discount Paper Supply received the check on October 4. On which of the following dates should Discount Paper Supply record sales revenue? A. September 1 B. September 13 C. September 30 D. October 4

A; Sales revenue should be recorded on the date of sale. They were purchased and received on the same day so there is no issue with FOB destination or shipping point and the date of sale is September 1.

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts receivable is estimated to be uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded? A. $5,500. B. $6,700. C. $4,240. D. $4,300.

A; The allowance for doubtful accounts balance = 5% of accounts of accounts receivable = 5% × $110,000 = $5,500.

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded? A. $7,950. B. $6,750. C. $5,550. D. $7,800.

A; The allowance for doubtful accounts, $7,950 = Bad debt expense, (1.5% × $450,000) plus the allowance for doubtful accounts credit balance, $1,200.

Which of the following journal entries correctly records the collection of an account receivable for which a 1% sales discount was recorded at the time of collection? A. Cash xxx Sales discounts xxx Accounts receivable xxx B. Cash xxx Bad debt expense xxx Accounts receivable xxx C. Cash xxx Sales discounts xxx Accounts receivable xxx D. Cash xxx Gross profit xxx Accounts receivable xxx

A; The journal entry involves a debit to both cash and sales discounts and a credit to accounts receivable.

Which of the following correctly describes the effect of a journal entry involving the recording of a sales return? A. Gross profit decreases. B. Net sales increases. C. Current assets remain the same. D. Net income increases.

A; The journal entry involves a debit to sales returns and allowances, which reduces net sales, which will reduce gross profit and net income.

Woodland Company uses the allowance method to account for bad debts. During 2016, a customer declared bankruptcy and a receivable of $10,000 was deemed uncollectible. Which of the following journal entries records Woodland's uncollectible account write-off? A. Allowance for doubtful accounts 10,000 Accounts receivable 10,000 B. Bad debt expense 10,000 Allowance for doubtful accounts 10,000 C. Allowance for doubtful accounts 10,000 Bad debt expense 10,000 D. Loss on receivables 10,000 Accounts receivable 10,000

A; Writing off an uncollectible account involves a debit to allowance for doubtful accounts (a contra-asset account) and a credit to accounts receivable (an asset account).

Superior Company has provided you with the following information before any year-end adjustments: Net credit sales are $120,000. Historical percentage of credit losses is 2%. Allowance for doubtful accounts has a credit balance of $300. Accounts receivables ending balance is $47,000. What is the estimated bad debt expense using the percentage of credit sales method? A. $2,100. B. $2,400. C. $940. D. $2,700.

B; $2,400 = (2% × 120,000)

A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not have cash available to pay within the discount period, the manager of the company is considering borrowing money to take advantage of the discount. In order to make the appropriate decision, the manager computed the annual interest rate associated with the sales discount. Which of the following is the annual interest rate (rounded)? A. 56%. B. 38%. C. 25%. D. 18%.

B; 30-day interest rate (.031) = Amount saved ($3) ÷ Amount paid ($97). Annual interest rate (38%) = 30-day interest rate (.031) × (365 ÷ 30).

One of Trent Company's customers returned products that had been sold on account for $800. Which of the following correctly describes the effect on the financial statements of the return? A. A contra-revenue account decreases $800. B. Accounts receivable decrease $800. C. Sales returns and allowances decrease $800. D. Net sales increase $800.

B; Accounts receivable decrease $800. The contra-revenue account, sales returns and allowances, increases, and net sales decrease.

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been uncollectible. How much is Flyer's bad debt expense? A. $7,950. B. $6,750. C. $5,550. D. $7,800.

B; Bad debt expense = $6,750 = 1.5% × $450,000.

Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works prepared and aging of accounts receivable and estimated that $5,000 of the $98,000 accounts receivable balance would be uncollectible. The allowance for doubtful accounts had a $400 debit balance at year-end prior to adjustment. What is the amount of bad debt expense? A. $5,000. B. $5,400. C. $4,600. D. $400.

B; Bad debt expense, $5,400 = Allowance for doubtful accounts desired credit balance, $5,000 + Allowance for doubtful accounts current debit balance, $400.

The CHS Company has provided the following information: • Accounts receivable written-off as uncollectible during the year amounted to $11,500. • The accounts receivable balance at the beginning of the year was $150,000. • The accounts receivable balance at the end of the year was $210,000. • The allowance for doubtful accounts balance at the beginning of the year was $14,000. • The allowance for doubtful accounts balance at the end of the year after the recording of bad debt expense was $12,900. • Credit sales during the year totaled $900,000. How much cash was received from collections of accounts receivable? A. $888,500. B. $828,500. C. $690,000. D. $701,500.

B; Ending accounts receivable, $210,000 = Beginning accounts receivable, $150,000 - Accounts receivable write-offs, $11,500 + Credit sales, $900,000 - Cash collections, $828,500.

A company sells a product FOB destination. The product is shipped on December 29, 2015 and the customer receives the shipment on January 3, 2016. Which of the following is true? A. The sale will be recorded when the customer's credit card information is received. B. The sale will be recorded when the shipment is received by the customer. C. The sale will be recorded when the shipment is shipped. D. The sale will be recorded when it is known there will be no returns or allowances.

B; Shipments FOB destination are recorded as a sale when the goods are delivered to the customer, which is when the customer receives the goods.

Which of the following statements correctly describes the effect of recording the collection of a $10,000 account receivable for which a 2% sales discount was recorded at the time of collection? A. Current assets will remain the same. B. Gross profit will decrease $200. C. Accounts receivable will decrease $9,800. D. Net sales will increase $9,800.

B; The $200 sales discount ($10,000 × 2%) reduces net sales and therefore gross profit.

Clark Company estimated the net realizable value of its accounts receivable as of December 31, 2016, to be $165,000, based on an aging schedule of accounts receivable. Clark has also provided the following information: • The accounts receivable balance on December 31, 2016 was $175,000. • Uncollectible accounts receivable written off during 2016 totaled $12,000. • The allowance for doubtful accounts balance on January 1, 2016 was $15,000. How much is Clark's 2016 bad debt expense? A. $10,000. B. $7,000. C. $13,000. D. $3,000.

B; The December 31, 2016 balance in allowance for doubtful accounts, $10,000 equals the accounts receivable balance on December 31, 2016, $175,000, minus the December 31, 2016 net realizable value of accounts receivable, $165,000. The December 31, 2016 balance in allowance for doubtful accounts, $10,000 equals the balance in allowance for doubtful accounts on January 1, 2016, $15,000 minus accounts receivable write offs during 2016, $12,000, plus the 2016 bad debt expense, $7,000.

Which of the following is not a reason for the Jones Hardware Store to accept credit cards from customers? A. Jones can receive its money faster than if it directly extended credit to the customer by an account receivable. B. The credit card company offers a discount to Jones so that Jones will have more money available for operations. C. Jones will not have to be concerned with nonsufficient funds checks from customers. D. Jones will not have to have extra office workers to make phone calls to customers requesting collections on accounts.

B; The credit card charges a discount fee. This discount is deducted from the total sales revenue, which results in less money available for the company's operation. However, the fee charged by the credit card company would offset the costs of having an internal department for collections, bank fees for NSF checks, and allows the company to receive its money immediately from the credit card company than if it had to wait for customers to pay the company directly.

Which of the following correctly describes credit terms of 2/10, n/30? A. A two percent discount for early payment is available if the invoice is paid before the tenth day of the month following the month the sale. B. A two percent discount for early payment is available within ten days of the date of sale. C. A ten percent discount for early payment is available if the invoice is paid within two days of the date of the invoice. D. A two percent discount for early payment is available if the invoice is paid after the tenth day, but before the thirtieth day of the invoice date.

B; The credit term 2/10 implies that a 2% discount is available within ten days of the date of sale and the term n/30 implies that the full sales price is due within 30 days of the sale.

Which of the following correctly describes the following journal entry? Cash xxx Sales discounts xxx Accounts receivable xxx A. The gross profit does not change. B. Net income decreases. C. Current assets increase. D. Net sales increases.

B; The debit to the sales discount account is a contra-revenue account, which reduces both gross profit and net income.

Which of the following does not correctly describe the effect of a journal entry involving the recording of a credit card discount? A. Net sales decrease and net income decreases. B. Net sales decrease, operating expenses increase, and net income remains the same. C. Operating expenses remain the same and net income decreases. D. Net sales decrease and gross profit decreases.

B; The journal entry includes a debit to credit card discount, which is a contra-revenue account, and therefore net sales, gross profit, and net income all decrease.

Which of the following statements is correct? A. The journal entry to record bad debt expense requires a debit to bad debt expense and a credit to accounts receivable. B. The journal entry to record bad debt expense requires a debit to bad debt expense and a credit to allowance for doubtful accounts. C. The journal entry to record the write off of an uncollectible account receivable requires a debit to bad debt expense and a credit to accounts receivable. D. The journal entry to record the write off of an uncollectible account receivable requires a debit to bad debt expense and a credit to allowance for doubtful accounts.

B; The journal entry to record bad debt expense requires a debit to bad debt expense and a credit to allowance for doubtful accounts.

Which of the following journal entries correctly records the write off of an uncollectible account receivable when using the allowance method? A. Bad debt expense xxx Uncollectible sales xxx B. Allowance for doubtful accounts xxx Accounts receivable xxx C. Allowance for doubtful accounts xxx Bad debt expense xxx D. Bad debt expense xxx Allowance for doubtful accounts xxx

B; The journal entry to write off an account receivable requires a debit to allowance for doubtful accounts and a credit to accounts receivable.

Merchandise was sold on credit for $30,000, terms 3/15, n/30. Which of the following journal entry descriptions correctly describes the cash collection? A. Cash is debited for $25,500 and accounts receivable is credited for $25,500 if the collection is within the discount period. B. Cash is debited for $29,100, sales discounts is debited for $900, and accounts receivable is credited for $30,000 if the collection is within the discount period. C. Cash is debited for $30,000, accounts receivable is credited for $29,100, and sales discounts is credited for $900 if the collection is within the discount period. D. Cash is debited for $29,100 and accounts receivable is credited for $29,100 if the collection is after the discount period.

B; When the payment is received within the discount period, a sales discount, $900, is recorded via a debit and cash is debited for the selling price less the discount [$30,000 - $900] and accounts receivable is credited for the selling price, $30,000.

When credit terms for a sale are 2/15, n/40, the customer saves by paying early. What percent (rounded) would this savings amount to on an annual basis? A. 18.2%. B. 20.0%. C. 29.2%. D. 36.5%.

C; 25-day interest rate (.02) = Amount saved ($2) ÷ Amount paid ($98). Annual interest rate (29.2%) = 25-day interest rate (.02) × (365 ÷ 25).

Which of the following statements does not correctly describe the allowance for doubtful accounts balance? A. It is reported on the balance sheet as a component of current assets. B. It is a contra-asset account. C. It is reported on the balance sheet as a stockholders' equity account. D. It is created as a result of the adjusting entry to record bad debt expense.

C; Allowance for doubtful accounts is a contra-asset account and does not affect stockholders' equity.

Which of the following is not a component of the gross profit calculation? A. Cost of sales. B. Sales returns and allowances. C. Allowance for doubtful accounts. D. Credit card discounts.

C; Allowance for doubtful accounts is a contra-asset account on the balance sheet.

Which of the following transactions does not affect gross profit? A. A customer returning merchandise that was sold for a profit. B. The collection of cash on an account receivable, which was paid for by the customer within the discount period. C. The journal entry to record bad debt expense. D. Accepting a credit card for a sale and paying a service fee to the credit card company.

C; Bad debt expense is an operating (selling) expense, which does not affect gross profit.

Which of the following is correct when bad debt expense is recorded at year-end? A. Current assets will increase. B. Gross profit will decrease. C. Income from operations will decrease. D. Current liabilities will decrease.

C; Bad debt expense is an operating expense. An increase in operating expenses decreases income from operations.

What would be incorrect about reporting accounts receivable in the balance sheet? A. Presenting accounts receivable net of allowance for doubtful accounts. B. Presenting accounts receivable at estimated net realizable value. C. Presenting accounts receivable less bad debt expense and write-offs. D. Presenting accounts receivable at gross amount, less allowance for doubtful accounts.

C; Bad debts and write-offs, if material, are reported on a schedule included in Form 10-K for public companies but not on the balance sheet.

Redwing Company sold inventory costing $500 to a customer on account for $700. Which of the following correctly describes the collection of $686 cash when the customer takes advantage of a sales discount? A. Operating expenses increase $14. B. Accounts receivable decreases $686. C. Current assets decrease $14. D. Gross profit is not affected.

C; Cash increases $686 and accounts receivable decreases $700.

Sabre Company sold inventory costing $600 to a customer on account for $900 with terms of 3/15, n/30. Which of the following is not correct? A. Gross profit increases $300 on the date of sale. B. Total current assets are not affected on the date of cash collection if the customer pays 30 days after the date of sale. C. Total current assets increase $27 on the date of cash collection if the customer pays within 15 days of the date of sale. D. Gross profit and net sales both decrease $27 on the date of cash collection if the customer pays within 15 days of the date of sale.

C; Cash increases $873 and accounts receivable decrease $900. Therefore, total current assets decrease $27.

The CHS Company has provided the following information: • Accounts receivable written-off as uncollectible during the year amounted to $11,500. • The accounts receivable balance at the beginning of the year was $150,000. • The accounts receivable balance at the end of the year was $210,000. • The allowance for doubtful accounts balance at the beginning of the year was $14,000. • The allowance for doubtful accounts balance at the end of the year after the recording of bad debt expense was $12,900. • Credit sales during the year totaled $900,000. How much was CHS Company's bad debt expense? A. $11,500. B. $12,900. C. $10,400. D. $14,000.

C; Ending allowance for doubtful accounts, $12,900 = Beginning allowance for doubtful accounts, $14,000 - Accounts receivable write-offs, $11,500 + Bad debt expense, $10,400.

Which of the following statements is correct? A. Revenue is recognized at the time of shipment when goods are shipped FOB destination. B. Sales returns and allowances are reported as operating expenses on an income statement. C. A seller records revenue when title and risks of ownership transfer to the buyer. D. Sales discounts are reported as cost of sales on an income statement.

C; Most businesses recognize revenue when the product is delivered and/or service is provided

The Tanner Company has provided the following information after year-end adjustments: • Allowance for doubtful accounts increased $19,000. • Accounts receivable increased $390,000 during the year. • Accounts written off as uncollectible totaled $20,000. • Sales totaled $2,500,000. • Sales discounts were $100,000. What was the amount of Tanner's net sales? A. $1,990,000. B. $2,380,000. C. $2,400,000. D. $2,420,000.

C; Net Sales = $2,400,000 = Sales, $2,500,000 - Sales discounts, $100,000.

Newark Company has provided the following information: • Cash sales, $450,000 • Credit sales, $1,350,000 • Selling and administrative expenses, $330,000 • Sales returns and allowances, $90,000 • Gross profit, $1,360,000 • Increase in accounts receivable, $55,000 • Bad debt expense, $33,000 • Sales discounts, $43,000 • Net income, $1,030,000 How much are Newark's net sales? A. $1,634,000. B. $1,800,000. C. $1,667,000. D. $1,745,000.

C; Net sales = $1,667,000 = $450,000 + $1,350,000 - $90,000 - $43,000.

When a credit sale is made with terms of 2/10, n/30 on May 10 and the customer's check is received on May 19, which of the following is true about the May 19 journal entry? A. The debit to cash will equal the credit to accounts receivable because the discount was recorded on May 10. B. There will be a debit to sales discounts on May 10. C. The debit to cash will be less than the credit to accounts receivable on May 19. D. There will be a credit to sales discounts on May 19.

C; The customer paid within the discount period so the discount is recognized on May 19. The discount reduces the cash received so the debit to cash is less than the credit to accounts receivable.

Which of the following statements is false? A. The journal entry to record bad debt expense decreases current assets. B. The journal entry to record bad debt expense decreases retained earnings. C. The journal entry to write off an uncollectible account receivable decreases operating income. D. The journal entry to write off an uncollectible account receivable does not affect current assets.

C; The journal entry to write off an uncollectible account receivable decreases both the accounts receivable and the allowance for uncollectible accounts balances. There is no effect on operating income.

Which of the following would be included in Latimer Company's sales in 2016? A. Goods shipped from a supplier in 2016 with terms of FOB shipping point. Latimer received the goods in 2016. B. Goods shipped to customers in 2016 with terms of FOB destination. The customer received the goods in 2017. C. Goods shipped to customers in 2015 with terms of FOB destination. The customer received the goods in 2016. D. Goods shipped to customers in 2015 with terms of FOB shipping point. The customer received the goods in 2016.

C; Title passes to the customer when the goods are received if the terms are FOB destination. Title passes to the customer when the goods are shipped if the terms are FOB shipping point. Goods shipped from a supplier are purchases and are not sales of Latimer.

Which of the following accounts is not a contra-revenue account? A. Sales discounts B. Credit card discounts C. Sales returns and allowances D. Allowance for doubtful accounts

D

Which of the following does not correctly describe the effect of recording a credit sale of inventory for a profit? A. Sales are recorded when title and risks of ownership are transferred to the buyer. B. Current assets increase. C. Gross profit increases. D. Operating expenses increase.

D; Cost of goods sold (cost of sales) increase; not operating expenses. Cost of goods sold is not an operating expense.

Which of the following correctly describes the effect of a sales discount? A. Gross profit increases. B. Net sales increases. C. Current assets remain the same. D. Net income decreases.

D; Sales discounts reduce net sales, which will reduce gross profit and net income.

One of Hawk Company's customers returned products that cost Hawk $300, which was sold on account for $450. Which of the following does not correctly describe the effect of the return on the financial statements? A. Gross profit decreases $150. B. Total current assets decrease $150. C. Sales returns and allowances increase $150. D. Operating expenses increase $150.

D; Sales returns are a contra-revenue account; they are not operating expenses.

Which of the following does not correctly describe the effect of a credit card discount? A. Net sales decrease and gross profit decreases. B. Net sales decrease and net income decreases. C. Operating expenses remain the same and net income decreases. D. Neither operating expenses, nor net income is affected.

D; The credit card discount account is a contra-revenue account, which reduces net sales, gross profit, and therefore net income.

Which of the following does not correctly describe the following journal entry? Cash xxx Credit card discount xxx Accounts receivable xxx A. Current assets decrease. B. Gross profit decreases. C. Net sales decreases. D. Net income is not affected.

D; The debit to the credit card discount account is a contra-revenue account, which reduces both gross profit and operating income.

Which of the following does not correctly describe the following journal entry? Sales returns and allowances xxx Accounts receivable xxx A. Current assets decrease. B. Gross profit decreases. C. Net sales decreases. D. Operating expenses increase.

D; The debit to the sales returns and allowances account is a contra-revenue account, which reduces both gross profit and operating income. Sales returns and allowances is not an operating expense.

Which of the following journal entries correctly records bad debt expense? A. Bad debt expense xxx Accounts receivable xxx B. Allowance for doubtful accounts xxx Accounts receivable xxx C. Allowance for doubtful accounts xxx Bad debt expense xxx D. Bad debt expense xxx Allowance for doubtful accounts xxx

D; The journal entry to record bad debt expense involves a debit to bad debt expense and a credit to allowance for doubtful accounts.

Redwing Company sold inventory costing $500 to a customer on account for $700. Which of the following does not correctly describe the collection of $686 cash when the customer takes advantage of a sales discount? A. Gross profit decreases $14. B. Accounts receivable decreases $700. C. Net sales decrease $14. D. Net income is not affected.

D; The sales discount decreases net sales, gross profit, and net income.

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts receivable is estimated to be uncollectible. How much is bad debt expense? A. $5,500. B. $6,700. C. $4,240. D. $4,300.

D; Under the aging method, the bad debt expense is the amount required to set the allowance for doubtful accounts to the balance it should be. The balance should be 5% of accounts of accounts receivable = 5% × $110,000 = $5,500. The allowance for doubtful accounts credit balance is already $1,200. Therefore, the bad debt expense is $5,500 - $1,200 = $4,300.

Merchandise was sold on credit for $10,000, terms 2/10, n/30. Which of the following journal entry descriptions correctly describes the cash collection? A. Cash is debited for $10,000 and accounts receivable is credited for $10,000 if the collection is within the discount period. B. Cash is debited for $10,000, accounts receivable is credited for $9,800, and sales discounts is credited for $200 if the collection is within the discount period. C. Cash is debited for $10,000, accounts receivable is credited for $9,800, and sales discounts is credited for $200 if the collection is after the discount period. D. Cash is debited for $10,000 and accounts receivable is credited for $10,000 if the collection is after the discount period.

D; When the payment is received after the discount period, a sales discount is not recorded and cash is debited and accounts receivable is credited for the selling price.

Dillon Company uses the allowance method to account for bad debts. The entry to write off a bad account (one that will never be collected) should be: A. Debit Credit Bad debt expense Accounts receivable B. Debit Credit Bad debt expense Allowance for doubtful accounts C. Debit Credit Sales revenue Accounts receivable D. Debit Credit Allowance for doubtful accounts Accounts receivable

D; Writing off an uncollectible account using the allowance method involves a debit to allowance for doubtful accounts and a credit to accounts receivable.

When using the allowance method for accounting for bad debts, accounts receivable is reported on the balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately is determined to be uncollectible and is written off, the recording of this event will: A. Decrease the net realizable value of the accounts receivable. B. Have an effect that is not determinable from the information given. C. Increase the net realizable value of the accounts receivable. D. Have no effect on the net realizable value of the accounts receivable.

D; Writing-off an uncollectible account involves a debit to allowance for doubtful accounts (a contra-asset account) and a credit to accounts receivable (an asset account). Therefore, the net realizable value (accounts receivable minus allowance for doubtful accounts) does not change

Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful accounts of $21,500 just prior to writing off as worthless a customer's $5,000 account receivable. The net realizable value of Oakwood's accounts receivable as shown by the accounting records before and after the write off was as follows: A. Before After $750,000 $745,000 B. Before After $721,500 $733,500 C. Before After $728,500 $723,500 D. Before After $728,500 $728,500

D; Writing-off an uncollectible account involves a debit to allowance for doubtful accounts (a contra-asset account) and a credit to accounts receivable (an asset account). Therefore, the net realizable value (accounts receivable minus allowance for doubtful accounts) does not change; it is $728,500 both before and after the write off.