Chapter 5 Connect Review
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as a. uncollectible accounts. b. accounts receivable. c. a guarantee. d. accounts payable.
ANswer: -b. accounts receivable.
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. $97,000 b. $90,000 c. $93,000 d. $107,000
ANswer: -c. $93,000 (100,000 - 7,000)
Two important ratios that help in understanding a company's effectiveness in managing receivables are the: -receivable turnover ratio -average collection period -gross receivable ratio -receivables profit margin
ANswer: -receivable turnover ratio -average collection period
Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is: a. $96,000. b. $96,200. c. $100,000.
Answer: -a. $96,000.
The entry to record the estimate for uncollectible accounts includes: a. A debit to Allowance for Uncollectible Accounts. b. A credit to Accounts Receivable. c. A debit to Sales Revenue. d. A debit to Bad Debt Expense.
Answer: -d. A debit to Bad Debt Expense.
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
Answer: -d. future; current
Assuming the balance of Allowance for Uncollectible Accounts is $3,000 (credit) before adjustment, which of the following would be recorded in the year-end adjusting entry? a. Credit Allowance for Uncollectible Accounts for $20,000. b. Debit Allowance for Uncollectible Accounts for $14,000. c. Debit Bad Debt Expense for $14,000. d. Credit Allowance for Uncollectible Accounts for $17,000.
ANswer: -c. Debit Bad Debt Expense for $14,000.
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 Bad Debt Expense. -debit Accounts Receivable. -debit Allowance for Uncollectible Accounts. -credit Sales Returns and Allowances.
Answer: -debit Allowance for Uncollectible Accounts.
A(n) ____ ____ is the legal right to receive cash from a credit sale and represents an asset of the company
Answer: -accounts receivable
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____ method of accounts receivables
Answer: -aging method
On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What is the amount of net revenues (sales minus sales discounts) as of March 23? $0. $11,760. $12,000. $12,240.
Answer: -$11,760.
What are the financial statement effects of recording bad debt expense using the allowance method? a. Increase revenues b. Increase assets c. Decrease assets d. Decrease expenses Increase expenses
Answer: -Decrease assets -Increase expenses
At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions? a. 1.5. b. 5.0. c. 6.0. d. 7.5.
Answer: -c. 6.0.
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 Bad Debt Expense -Credit Allowance for Uncollectible Accounts -Credit to Accounts Receivable -Debit to Allowance for Uncollectible Accounts
Answer: -Credit to Accounts Receivable -Debit to Allowance for Uncollectible Accounts
On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a CREDIT of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be: a. $5,000. b. $5,100. c. $5,600. d. $6,100.
Answer: -b. $5,100.
Under the direct write-off method, uncollectible accounts are recorded: a. In the period the account is estimated to be uncollectible. b. In the period the account is determined actually uncollectible. c. In the period following the account being actually uncollectible.
Answer: -b. In the period the account is determined actually uncollectible.
The direct write-off method is required for a. IFRS reporting purposes. b. income tax purposes. c. U.S. GAAP reporting purposes.
Answer: -b. income tax purposes.
A formal credit arrangement between a creditor and debtor is called a(n) a. trade receivable. b. note receivable. c. account receivable. d. interest receivable.
Answer: -b. notes receivables
On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of: a. $8,000. b. $6,000. c. $2,000. d. $0.
Answer: -c. $2,000.
When a customer returns a product for a refund, in which account is the entry recorded? a. purchase return b. sales discount c. sales return d. purchase discount
Answer: -c. sales return
The journal entry to record bad debt expense includes: (Select all that apply.) -credit to allowance for uncollectible accounts -debit to bad debt expense -credit to bad debt expense -debit to allowance for uncollectible accounts
Answer: -credit to allowance for uncollectible accounts -debit to bad debt expense
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 accrue interest at a specified interest rate. d. they will be converted to cash within 1 year.
Answer: -d. they will be converted to cash within 1 year.
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
Answer: -sales discount
When the direct write-off method is used, an entry for bad debt expense is required a. only when bad debts are recorded on the tax return. b. at the end of the year. c. when the account receivable is determined to be uncollectible. d. when each sale is made.
Answer: -c. when the account receivable is determined to be uncollectible.
The effect of writing off a specific account receivable is: a. A reduction in the Allowance for Uncollectible Accounts. b. An increase in the amount of Accounts Receivable. c. An increase in the amount of Bad Debt Expense. d. An increase in the Allowance for Uncollectible Accounts.
Answer: -a. A reduction in the Allowance for Uncollectible Accounts.
Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account. a. contra-asset b. liability c. expense d. asset e. contra-revenue
Answer: -a. contra-asset
A trade discount is a. a rebate from the manufacturer. b. a percentage reduction from list price. c. an increase in the account receivable. d. a percentage reduction of the amount due for early payment
ANswer: -d. a percentage reduction of the amount due for early payment
Two entries are required when a previously written off account is collected. These two entries include: -record the collection on the account receivable -record the adjustment to sales -record bad debt expense -reinstate the account receivable
ANswer: -record the collection on the account receivable -reinstate the account receivable
Using the allowance method, the entry to record a write-off of accounts receivable will include A debit to Bad Debt Expense. A debit to Allowance for Uncollectible Accounts. No entry because an allowance for uncollectible accounts was established in an earlier period. A debit to Service Revenue.
Answer: -A debit to Allowance for Uncollectible Accounts.
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.
Answer: -False (Receivables not expected to be collected are not included in assets)
The allowance method is required by ____
Answer: -GAAP
Where is a note receivable reported in the balance sheet? -In either current or noncurrent liabilities, as appropriate. -In noncurrent liabilities until paid. -In current assets. -In either current or noncurrent assets, as appropriate. -In noncurrrent assets.
Answer: -In either current or noncurrent assets, as appropriate.
The account "Allowance for Uncollectible Accounts" is classified as a. a contra equity account. b. a contra asset to accounts receivable. c. an expense in the income statement. d. a liability account in the balance sheet.
Answer: -b. a contra asset to accounts receivable.
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. allowance method c. debt forgiveness method d. direct write-off method
Answer: -b. allowance method
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 Allowance for Doubtful Accounts b. decrease in Accounts Receivable c. increase in Accounts Receivable d. decrease in Sales Revenue e. increase in Sales Revenue
Answer: -b. decrease in Accounts Receivable
A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer. a. increases; returned b. decreases; retained c. decreases; returned. d. increased; retained
Answer: -b. decreases; retained
Accounts receivable are best described as a. Liabilities of the company that represent the amount owed to suppliers. b. Amounts that have previously been received from customers. c. Assets of the company representing the amount owed by customers. d. Amounts that have previously been paid to suppliers.
Answer: -c. Assets of the company representing the amount owed by customers.
If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account: a. Net accounts receivable increase. b. Net accounts receivable decrease. c. Net accounts receivable do not change. d. The effect on net account receivables depends on the relationship between the allowance account balance and the amount of the write off.
Answer: -c. Net accounts receivable do not change.
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n) a. note payable. b. prepaid receivable. c. account receivable. d. nontrade receivable.
Answer: -c. account receivable.
Receivables not expected to be collected should a. always 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. not be counted in assets of the company.
Answer: -c. not be counted in assets of the company.
Accounts receivable are typically classified as current assets because a. they accrue interest at a specified interest rate. b. they are a formal agreement to pay within a specific period of time. c. they will be converted to cash within 1 year. d. they are matched with accounts payable for the period.
Answer: -c. they will be converted to cash within 1 year.
A trade discount is a reduction from the list price, which is used to: (Select all that apply.) -change prices without publishing a new catalog -encourage customers to pay quickly -disguise real prices from competitors -give quantity discounts to customers -reduce the sale price for interest received
Answer: -change prices without publishing a new catalog -disguise real prices from competitors -give quantity discounts to customers
A sales discount is recorded by the seller as a ____ ____
Answer: -contra revenue
On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a DEBIT of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be: a. $5,000. b. $5,100. c. $5,600. d. $6,100.
Answer: -d. $6,100.
On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25? a. Debit Cash for $500. b. Credit Accounts Receivable for $490. c. Credit Service Revenue for $500. d. Debit Sales Discount for $10.
Answer: -d. Debit Sales Discount for $10.
The direct write-off method is used when a. a company expects excessive sales returns. b. bad debts are expected to be material in amount. c. a company elects to use this method as one of several alternatives. d. uncollectible accounts are not anticipated or are immaterial.
Answer: -d. uncollectible accounts are not anticipated or are immaterial.
The allowance method estimates a. future sales. b. trade discounts. c. sales discounts. d. uncollectible accounts.
Answer: -d. uncollectible accounts.
The estimated expense for accounts that may not be collected is referred to as a. amortization expense. b. sales discounts. c. interest expense. d. accounts receivable. e. bad debt expense.
Answer: -e. bad debt expense
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income. -not affect -increase -decrease
Answer: -not affect
Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) -sales on account. -nonaccrued sales. -deferred sales. -credit sales.
Answer: -sales on account. -credit sales.