Accounting Chapter 5 Learnsmart

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.

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

accounts receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable

Receivables not expected to be collected should

not be counted in assets of the company.

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

allowance method

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated

Companies extend credit to customers and sell goods on account because

it increases sales.

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.

notes receivable

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

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$20

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

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

The formula for average collection period is

365 divided by the receivables turnover ratio

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 noncurrent asset

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.

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

On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entry required on Oak's books on March 5 would require which of the following entries?

Debit Notes Receivable $100,000; credit Service Revenue $100,000.

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

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 $1,000

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

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 __________________. (Enter one word or abbreviation per blank)

GAAP

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

Sales allowances Sales discounts Sales returns

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

a single percentage; accounts receivable

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

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. (Enter only one word.)

aging

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

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.

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable

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

bad debt

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 recognized

by reducing the revenue amount recorded.

The ratio that shows the approximate number of days the average accounts receivable balance is outstanding is referred to as the average ______________ ______________.

collection period

Sales Returns and Sales Allowances are ________________ ________________and require a debit entry to increase the account.

contra revenue

The Sales Returns and Sales Allowances accounts are classified as

contra revenue accounts

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

contra-asset

A(n) _____________ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

credit

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

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

credit sales

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.

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

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

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.

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.

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

not affect

On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a

debit to Notes Receivable, $40,000.

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.

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: (Select all that apply.)

debit to bad debt expense credit to allowance for uncollectible accounts

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

"Net credit sales" refers to credit sales net of:

discounts returns allowances

At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too high.

At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too low.

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 value 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

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

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

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

has no effect on net income

Bad debt expense is reported on the ______________ ____________ and is classified as an operating expense.

income statement

Bad debt expense is reported on the:

income statement

The amount of net credit sales is reported on the

income statement

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

The direct write-off method is required for

income tax purposes.

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue _____________ revenue on December 31. (Enter only one word.)

interest

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

net

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

receivables turnover

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)

sales

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

sales return

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

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

The average collection period is an estimate of

the number of days the average account receivable balance is outstanding.

The receivables turnover ratio indicates

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

The average collection period is calculated as 365 divided by

the receivables turnover ratio

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

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

A customer account that is not expected to be collected is referred to as a(n) __________________ debt. (Enter one word per blank)

uncollectible

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

The allowance method estimates

uncollectible accounts.

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

On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$40

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.

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

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

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

account receivable

Accounts receivable should be classified as a(n)

asset

An aging schedule classifies accounts receivable based on

length of time outstanding

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

Make an adjusting entry at the end of the current period to accrue the interest earned.

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net)