Sex Ed chapter 5

uncollectible accounts are not anticipated or are immaterial.

uncollectible accounts are not anticipated or are immaterial.

The allowance method estimates

uncollectible accounts.

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

Sales discount

A trade discount is

a percentage reduction from list price.

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 not normally an acceptable method under GAAP because it fails to report _____.

assets and expenses correctly

With the direct write-off method, the journal entry to write-off an uncollectible account includes a debit to _____ and a credit to _____.

bad debt expense; accounts receivable

The contra revenue accounts sales returns and sales allowances

reduce revenues.

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.

Sales return

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

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

Credit Sales

The sales discount account is a contra ________Account

Revenue

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

Bad Debt Expense

Gammy Corporation provides services with a normal price of $800,000 and a trade discount of $100,000. Terms are 2/10, n/30 and the customers pay within 10 days. The net service revenue is

$686,000.

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

As a non-current asset

Accounts receivable should be classified as a(n)

(Current)asset.

Sales Returns and Sales Allowances are_________ ________ accounts and require a debit entry to increase the account.

Contra Revenue

The allowance method is required by

GAAP

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?

$2850

Fog Corporation sells $5,000 goods on account. Salaries expense was $3,000. Sales returns were $100, and sales discounts were $300. Net sales were

$4,600

Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive

$980

Relay Corporation provides services with a normal price of $105,000 and a trade discount of $5,000. Terms are 1/10, n/30 and the customers pay within 10 days. The net service revenue is

$99,000

James Corporation sells $1,000 goods on account. Sales returns were $40, and sales allowances were $50. Sales discounts for the period were $30. Net sales are

880

Sales allowance

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

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

Accounts receivable

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

Allowance Method

The Sales Returns and Sales Allowances accounts are classified as

Contra Revenue Accounts

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.

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

Debit Cash $98 Credit Accounts Receivable $100 Debit Sales Discount $2

Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record which of the following?

Debit Cash for $1,000

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

Debit Sales Discount $15

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.

Zeiger Corporation sells goods to a customer on account for $2,000, terms 2/10, n/30. When the customer pays on the 12th day, Zeiger records which of the following?

Debit cash $2,000

Mark records a journal entry with a debit to Bad debt Expense and a credit to Accounts Receivable. Mark is utilizing the:

Direct write-off method

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) approach to measuring bad debts. (Enter only one word per blank.)

Income Statement

Recording sales returns and allowances in a separate contra-revenue account helps managers:

Keep track of the amounts

The direct write-off method violates which accounting concept?

Matching expenses to the related revenues

Total revenues minus discounts, returns, and allowances are referred to as ___________ revenues.

Net

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

Note Receivable

If sales returns are incorrectly treated as expenses, what are the effects on the financial statements? (Select all that apply.)

Revenues are overstated. Expenses are overstated.

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

Sales Return

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

Sales returns Sales allowances Sales discounts

A company makes a sale on terms 2/10, n/30. What does this mean? (Select all that apply.)

The customer may take a 2% discount off the price if paid within 10 days. If payment is not made in 10 days, the net amount is due in 30 days.

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

A trade discount is recognized

by reducing the revenue amount recorded.

A trade discount is a reduction from the list price, which is used to:

change prices without publishing a new catalog disguise real prices from competitors give quantity discounts to customers

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

credit sales. sales on account.

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:

credit to accounts receivable $60 debit to Sales Allowances $60

At the end of the year, companies must record estimated contra revenues for estimated sales returns and allowances and sales discounts pertaining to

current year sales only.

The income statement approach for estimating bad debts focuses on

current year's credit sales.

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:

debit to Sales Allowances $50.

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

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows: (Select all that apply.)

equity decreases assets decrease

The financial statement effects of recording an allowance for estimated sales returns are that: (Select all that apply.)

equity decreases assets decrease net income decreases

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future; current

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

The direct write-off method is normally not permitted for U.S. GAAP reporting because if related credit sales occurred in the prior year, it: (Select all that apply.)

overstates assets in the prior year overstates net income in the prior year

At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will be returned by customers during the subsequent year. Kunze Corporation must

record the estimated returns at the end of the year.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

When the direct write-off method is used, an entry for bad debt expense is required

when the account receivable is determined to be uncollectible.