MGMT 200 - Chapter 5
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. debit. b. discount. c. credit. d. allowance.
d
A formal credit arrangement between a creditor and debtor is called a(n) a. note receivable. b. interest receivable. c. trade receivable. d. account receivable.
a
A sales allowance ________ the amount owed by the customer for merchandise that is ________ by the customer. a. decreases; retained b. decreases; returned. c. increases; returned d. increased; retained
a
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. $93,000 b. $90,000 c. $107,000 d. $97,000
a
Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) a. sales on account. b. deferred sales. c. nonaccrued sales. d. credit sales.
a, d
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. discount. b. debit. c. allowance. d. credit.
c
A trade discount is a. an increase in the account receivable. b. a percentage reduction from list price. c. a rebate from the manufacturer. d. a percentage reduction of the amount due for early payment.
b
The allowance method is required by ________. (Enter one word or abbreviation per blank)
GAAP
A trade discount is a reduction from the list price, which is used to: (Select all that apply.) a. encourage customers to pay quickly b. disguise real prices from competitors c. change prices without publishing a new catalog d. reduce the sale price for interest received e. give quantity discounts to customers
b, c, e
The journal entry to record bad debt expense includes: (Select all that apply.) a. debit to allowance for uncollectible accounts b. credit to allowance for uncollectible accounts c. credit to bad debt expense d. debit to bad debt expense
b, d
A customer account that is not expected to be collected is referred to as a(n) ________ debt. (Enter one word per blank)
bad
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 Accounts Receivable b. decrease in Sales Revenue c. increase in Sales Revenue d. increase in Allowance for Doubtful Accounts e. decrease in Accounts Receivable
e
A customer account that is not expected to be collected is referred to as a bad debt or ________ account. (Enter one word per blank)
uncollectible
The direct write-off method is used when a. bad debts are expected to be material in amount. b. uncollectible accounts are not anticipated or are immaterial. c. a company expects excessive sales returns. d. a company elects to use this method as one of several alternatives.
b
The estimated expense for accounts that may not be collected is referred to as a. sales discounts. b. bad debt expense. c. interest expense. d. accounts receivable. e. amortization expense.
b
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 formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. a. account receivable. b. note receivable. c. note payable. d. account payable.
b
A trade discount is a. an increase in the account receivable. b. a percentage reduction from list price. c. a percentage reduction of the amount due for early payment. d. a rebate from the manufacturer.
b
What are the financial statement effects of recording bad debt expense using the allowance method? a. Increase assets b. Increase expenses c. Increase revenues d. Decrease expenses e. Decrease assets
b, 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. (Enter only one word.)
net
When a customer returns a product for a refund, in which account is the entry recorded? a. purchase return b. purchase discount c. sales return d. sales discount
c
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n) a. nontrade receivable. b. note payable. c. account receivable. d. prepaid receivable.
c
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income. a. increase b. decrease c. not affect
c
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 a contra account to sales b. As a noncurrent asset c. As a current asset d. As other comprehensive income
b
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as a. accounts payable. b. accounts receivable. c. a guarantee. d. uncollectible accounts.
b
The account "Allowance for Uncollectible Accounts" normally has a ________ balance. (Enter only one word.)
credit
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to a. result in the highest net income. b. be more accurate. c. recognize bad debts earlier. d. result in the lowest net income.
b
Receivables not expected to be collected should a. initially be included as assets and then be written off when the customer does not pay. b. not be counted in assets of the company. c. always be counted in assets of the company.
b
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 a. debit Accounts Receivable. b. debit Allowance for Uncollectible Accounts. c. credit Sales Returns and Allowances. d. debit Bad Debt Expense.
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
Accounts receivable are typically classified as current assets because a. they are a formal agreement to pay within a specific period of time. b. they are matched with accounts payable for the period. c. they will be converted to cash within 1 year. d. they accrue interest at a specified interest rate.
c
Accounts receivable should be classified as a(n) a. revenue. b. liability. c. asset. d. expense.
c
Amend Inc. debited Accounts Receivable and credited Allowance for Doubtful Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______. a. Cash; Allowance for Uncollectible Accounts b. Accounts Receivable; Cash c. Cash; Accounts Receivable d. Allowance for Uncollectible Accounts; Cash
c
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to a. result in the highest net income. b. recognize bad debts earlier. c. be more accurate. d. result in the lowest net income.
c
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. credit sales. d. current sale.
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
Two important ratios that help in understanding a company's effectiveness in managing receivables are the: a. receivables profit margin b. gross receivable ratio c. average collection period d. receivable turnover ratio
c, d
Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year. a. future; future b. current; current c. current; future d. future; current
d
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 a. debit Allowance for Uncollectible Accounts. b. credit Sales Returns and Allowances. c. debit Accounts Receivable. d. debit Bad Debt Expense.
a
The Accounts Receivable account is reduced when the seller: a. determines that a specific customer account will not be collectible b. records the allowance for uncollectible accounts c. adopts the allowance method
a
The account "Allowance for Uncollectible Accounts" is classified as a. a contra asset to accounts receivable. b. a liability account in the balance sheet. c. an expense in the income statement. d. a contra equity account.
a
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to a. allowance for uncollectible accounts. b. accounts receivable. c. bad debt expense. d. sales returns and allowances.
a
Two entries are required when a previously written off account is collected. These two entries include: a. reinstate the account receivable b. record the adjustment to sales c. record the collection on the account receivable d. record bad debt expense
a, c
Recording bad debt expense: (Select all that apply.) a. increases expenses b. increases net income c. decreases net income d. decreases assets e. decreases expenses f. increases assets
a, c, d
Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account. a. contra-revenue b. contra-asset c. expense d. liability e. asset
b
The allowance for uncollectible accounts is a contra account to a. sales allowances. b. accounts receivable. c. bad debt expense. d. revenue.
b
The allowance method estimates a. future sales. b. uncollectible accounts. c. sales discounts. d. trade discounts.
b
The direct write-off method is required for a. IFRS reporting purposes. b. income tax purposes. c. U.S. GAAP reporting purposes.
b
The receivables turnover ratio and the average collection period provide information about a company's a. amount of net credit sales b. effectiveness in managing receivables c. ability to generate sales
b
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. $20,000 b. $18,000 c. $17,000 d. $19,000
b
The cost of estimated accounts receivable that will not be collected is referred to as ________ ________ expense.
bad debt
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
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) ________ ________. (Enter only one word per blank.)
sales return
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 reinstate the account receivable and an entry to adjust bad debt expense. b. An entry to reinstate the account receivable and an entry to record payment. c. An entry to record payment and an entry to record bad debt expense. d. An entry to adjust net sales and an entry to adjust bad debt expense.
b
When the direct write-off method is used, an entry for bad debt expense is required a. at the end of the year. b. when the account receivable is determined to be uncollectible. c. when each sale is made. d. only when bad debts are recorded on the tax return.
b
Where is a note receivable reported in the balance sheet? a. In noncurrrent assets. b. In either current or noncurrent assets, as appropriate. c. In noncurrent liabilities until paid. d. In current assets. e. In either current or noncurrent liabilities, as appropriate.
b
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? a. Debit Bad Debt Expense b. Credit to Accounts Receivable c. Debit to Allowance for Uncollectible Accounts d. Credit Allowance for Uncollectible Accounts
b, c
Net revenues is calculated as total revenues minus which of the following items? a. Allowance for uncollectible accounts b. Sales discounts c. Accounts receivable d. Sales allowances e. Sales returns
b, d, e
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the a. bad debt method b. debt forgiveness method c. allowance method d. direct write-off method
c
Which of the following is a discount in the amount to be paid if the customer pays within a specified time period? a. Purchase discount b. Quantity discount c. Trade discount d. Sales discount
d
Receivables not expected to be collected should a. not be counted in assets of the company. b. initially be included as assets and then be written off when the customer does not pay. c. always be counted in assets of the company.
a