chap 5 iclicker

At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be A. $6,540 B. $7,800 C. $7,140 D. $7,740

A. $6,540

Sandburg Veterinarian reports the following information for the year: Net credit sales$120,000 Average accounts receivable20,000 Cash collections on credit sales100,000 What is Sandburg's receivables turnover ratio? A. 6.0 B. 5.0 C. 1.2 D. 0.2

A. 6.0

A company's ratio of net sales (cash and credit sales) to average accounts receivable can be interpreted as management's ability to: A. Collect cash from all sales to customers B. Effectively market its products and services C. Generate profits for investors D. Reduce costs of selling products and services to customers

A. Collect cash from all sales to customers

Identify the likely disadvantage(s) of extending credit to customers A. Delay or failure to collect cash B. Lower profitability C. Lower revenues D. All of the other answers are disadvantages of extending credit to customers

A. Delay or failure to collect cash

Which of the following statements is true with respect to the percentage‐of‐credit‐sales method for estimating uncollectible accounts? A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts B. This method is referred to as the balance sheet approach C. This method does not allow for future uncollectible accounts D. Under this method, bad debt expense is recorded at the time of an actual bad debt

A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts

The following information pertains to Royce, Inc., at the end of the year: Credit Sales$60,000 Accounts Receivable7,000 Allowance for Uncollectible Accounts400 Cash Sales20,000 Royce uses the percentage‐of‐credit‐sales method and estimates 1% of sales are uncollectible. What is the ending balance of the allowance account after the year‐end adjustment? A. $600 B. $1,000 C. $200 D. $1,200

B. $1,000 $400+(60000/0.01)=

On September 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2018? A. $20 B. $40 C. $30 D. $60

B. $40 sept to end 2018 = 4/12

At the end of the year, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year‐end adjustment. What adjustment should Mark Inc. record for the estimated bad debts at the end of the year? A. Debit Bad Debt Expense, $6,500; credit Allowance for Uncollectible Accounts, $6,500 B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000 C. Debit Allowance for Uncollectible Accounts, $9,000; credit Bad Debt Expense, $9,000 D. Debit Bad Debt Expense, $9,000; credit Allowance for Uncollectible Accounts, $9,000

B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000

A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible. If the company has $40,000 of newer accounts and $5,000 of older accounts, the total estimate of uncollectible accounts is $2,000. A. True B. False

B. False - ($40000*0.05)+($5000*0.2)=$3000

During the year, Bears Inc. recorded credit sales of $500,000. Before adjustments at year‐end, Bears has accounts receivable of $300,000, of which $50,000 is past due, and the allowance account had a credit balance of $2,500. Using the aging of receivables approach, what would be the adjustment assuming Bears expects it will not collect 5% of the amount not yet past due and 20% of the amount past due? A. Bad Debt Expense 22,500 Allowance for Uncollectible Accounts 22,500 B. Bad Debt Expense 25,000 Allowance for Uncollectible Accounts 25,000 C. Bad Debt Expense 20,000 Allowance for Uncollectible Accounts 20,000 D. Allowance for Uncollectible Accounts 20,000 Bad Debt Expense 20,000

C. Bad Debt Expense 20,000 Allowance for Uncollectible Accounts 20,000

The direct write‐off method is not normally an acceptable method for GAAP because it fails to report: A. Revenue from the sale of goods or services to customers B. Cash collected from customers C. Accounts receivable for their net realizable value D. The amounts receivable from customers

C. Accounts receivable for their net realizable value

A note receivable is reported in the balance sheet A. Always as a current asset B. Always as a long‐term asset C. As either a current asset or long‐term asset depending on the expected collection date D. As a contra asset

C. As either a current asset or long‐term asset depending on the expected collection date

Amalgamated Corporation creates the following accounts receivable aging report at the end of the year: AgeAmountEstimated uncollectibleReserveNeeded Less than 30 days$6,000X5%$30031‐60 days $4,000X10%$40061+ days $2,000X25%$500$1,200 Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance of $500. The year‐end adjustment would include a A. Credit to Allowance for Uncollectible Accounts for $1,200 B. Debit to Bad Debt Expense for $700 C. Debit to Bad Debt Expense for $1,700 D. Debit to Bad Debt Expense for $1,200

C. Debit to Bad Debt Expense for $1,700

An increase in a company's receivables turnover ratio typically means the company is A. Having trouble paying debts as they become due. B. Less profitable. C. More effectively granting and collecting credit to customers. D. Losing customers to its competitors.

C. More effectively granting and collecting credit to customers.

The purpose of recording an allowance for uncollectible accounts is to: A. Record the sales returns and allowances B. Report net sales conservatively C. Report accounts receivable at net realizable value D. Report accounts receivable for the total amount of sales in the period

C. Report accounts receivable at net realizable value

At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be: A. $1,000 B. $16,000 C. $14,000 D. $15,000

D. $15,000

Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account? A. $29,000 B. $28,000 C. $27,000 D. $26,000

D. $26,000

Total revenues $860,000 Sales returns and allowances $50,000 Sales discounts $30,000 Ending inventory $100,000 What is the amount of net revenues for Amalgamated? A. $330,000 B. $230,000 C. $680,000 D. $780,000

D. $780,000

Which of the following items are classified as receivables? A. Tax refund claims B. Amounts owed by customers C. Amounts loaned and expected to be collected D. All of the other answers are classified as receivables

D. All of the other answers are classified as receivables

Credit sales are recorded as A. Debit Cash, credit Deferred Revenue B. Debit Service Revenue, credit Accounts Receivable C. Debit Cash, credit Service Revenue D. Debit Accounts Receivable, credit Service Revenue

D. Debit Accounts Receivable, credit Service Revenue

Identify the condition(s) that must exist for a sale and the related receivable to be recognized. A. Collection of cash is probable B. The company must have collected cash from at least one previous sale to the customer C. Goods or services have been provided to the customer D. Two of the other answers are conditions that must exist

D. Two of the other answers are conditions that must exist (A and C)

If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000. A. True B. False

A. True

The Sales Discounts account is an example of a contra revenue account. A. True B. False

A. True

When a company sells a $100 service with a 20% trade discount, $80 of revenue is recognized. A. True B. False

A. True

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense A. True B. False

B. False - Writing off an account receivable has no effect on expenses

The Sales Returns account is an expense account A. True B. False

B. False - contra revenue accounts

The net realizable value of accounts receivable is the full amount owed by customers A. True B. False

B. False - is the net amount of cash we expect to collect

Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method use different accounts to estimate future uncollectible accounts, the amount of bad debt expense reported in the income statement will always be the same under the two methods. A. True B. False

B. False - receivable (balance), credit (income)

A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances. A. True B. False

B. False - switch debit and credit

Cochrane, Inc. accounts for bad debts using the allowance method. On June 1, Cochrane wrote off $2,500 customer account. Based on Cochrane's estimation, the customer will never pay any portion of the balance in his account. What effect will this write‐off have on Cochrane's balance sheet at the time of the write‐off? A. An increase to stockholders' equity and a decrease to liabilities B. No effect C. An increase to assets and an increase to stockholders' equity D. A decrease to assets and a decrease to stockholders' equity

B. No effect

When customers purchase products on account, Knomark, Inc. offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a: A. Bad debt B. Sales discount C. Sales return D. Sales allowances

B. Sales discount

LePage's Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a: A. Trade discount B. Sales discount C. Sales allowance D. Sales return

C. Sales allowance

Which of the following computations would be used to compute Net Revenue? A. Total Revenue + Accounts Receivable - Sales Discounts - Sales Allowances B. Net Revenue + Sales Allowances - Sales Discounts C. Total Revenue - Sales Discounts - Sales Allowances D. Net Income - Change in Accounts Receivable

C. Total Revenue - Sales Discounts - Sales Allowances