Chapter 6

An analyst sees the line item Trade accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct. (Select all that apply.) $2,040,000 is the amount estimated to be uncollectible $19,500,000 is the expected amount to be collected from customers $19,500,000 is the sum of all of its customers' account balances $21,540,000 is the gross receivables

$2,040,000 is the amount estimated to be uncollectible $19,500,000 is the expected amount to be collected from customers $21,540,000 is the gross receivables

Cellar's Inc. sold $800,000 of merchandise with sales terms of 2/10, n/30 and the customers paid within 10 days. The net sales equals ______.

$784,000

Rank the the 5 step process of recognizing revenue for bundled goods and services listing the 1st step at the top. Identify the contract between the company and customer Recognize revenue when each performance obligation is satisfied (or over time if a service is provided over time) Identify the performance obligations (promised goods and services) Allocate the transaction price to the performance obligations Determine the transaction price

1. Identify the contract between the company and customer 2.Identify the performance obligations (promised goods and services) 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognize revenue when each performance obligation is satisfied (or over time if a service is provided over time)

Which of the following is a noncurrent asset? (Check all that apply.) 2-year notes receivable Trade receivable due in 9 months Notes receivable due within 90 days Nontrade receivable due in 3 years Accounts receivable

2-year notes receivable Nontrade receivable due in 3 years

Short-term highly liquid investments with a maturity of _____ months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents.

3

Muffins & Turnovers, Inc.'s net trade accounts receivable are $880 and $820 at the end of 2019 and 2018 respectively. Net sales for 2019 are $7,225. The accounts receivable turnover for 2019 is ______ times.

8.5

During the month, Cellum, Inc. sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and incurred bank service charges of $20. Net sales for the month ended equals $ _____.

9,702 (100 x 100) - (10,000 x .01) - 198 The 20 is an expense, not a contra revenue account

Which of the following is a current asset? (Check all that apply.) Accounts payable Accounts receivable 2-year notes receivable Trade receivable Notes receivable due within 90 days 2-year notes payable

Accounts receivable Trade receivable Notes receivable due within 90 days

Which method for accounting for doubtful accounts is more accurate?

Aging of accounts receivable

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?

Credit card companies charge fees that reduce profits.

The entry to record the collection of cash from major credit cards includes a debit to ______.

Credit card discount

What conclusion are managers likely to draw from a constant increase to sales returns and allowances?

Customers are unhappy with the quality of the merchandise.

Which of the following is not an accurate statement about internal control? It promotes efficient and effective operations. It guarantees the management will behave ethically. It enhances the reliability of accounting information. It helps protect against the theft of assets.

It guarantees the management will behave ethically.

The receivables turnover ratio is computed as ______.

Net Sales divided by Average Net Trade Accounts Receivable

Which method for accounting for doubtful accounts is easier to apply but less accurate and thus tends to be used on a monthly basis, instead of on an annual basis?

Percentage of total credit sales method

Companies may use which of the following to motivate sales and collections? (Select all that apply.) Provide discounts for early collection Sell merchandise FOB shipping point Allow customers to pay in advance Allow customers to purchase on credit

Provide discounts for early collection Allow customers to purchase on credit

When a customer returns a product for a refund, in which of the seller's accounts is the entry recorded?

Sales Returns and Allowances

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

Which of the following are other account titles for Bad Debt Expense? (Select all that apply.) Uncollectible Accounts Expense Sales Discounts and Allowances Provision for Uncollectible Accounts Doubtful Accounts Expense

Uncollectible Accounts Expense Provision for Uncollectible Accounts Doubtful Accounts Expense

The challenge businesses face when estimating the allowance for doubtful accounts is that ______.

at the time of the sale, it is not known which particular customer will be a "bad" customer

When preparing a bank reconciliation, NSF checks are ______ and must be ______ the company's cash balance.

bad checks that have been deposited; deducted from

The account that reports the amount that may not be collected and is matched against credit sales of the period is referred to as ______.

bad debt expense

The line item Trade accounts receivable, net of allowances will be found on the ______.

balance sheet

Credit card companies earn revenues from ______. (Check all that apply.) charging the credit card holder a fee for each transaction charging the credit card holder interest charging the retailer interest until the purchase is paid charging the retailer a fee for each credit card sale

charging the credit card holder interest charging the retailer a fee for each credit card sale

When a business sells goods to a customer, and the customer promises to pay later, this is referred to as ______ sales.

credit

Sales to customers in which the customers pay within 30 days are referred to as ______. (Check all that apply.) credit sales nonaccrued sales sales on account deferred sales

credit sales sales on account

Beckers, Inc. accepts major credit cards from its customers. The credit card companies charge 2%. The entry to record the collection of $1,000 in credit card sales includes a ______. (Check all that apply.) debit to Credit card discount of $20 credit to Sales of $1,000 credit to Credit card discount of $20 credit to Sales of $980 debit to Cash of $980 debit to Cash of $1,000

debit to Credit card discount of $20 credit to Sales of $1,000 debit to Cash of $980

Which of the following timing differences result because of transactions that show up on the books but not on the bank statement? (Check all that apply.) NSF checks bank service charges interest deposits in transit outstanding checks

deposits in transit outstanding checks

Deposits in transit are ______.

deposits sent to the bank and recorded by the company but have not yet been recorded by the bank

Cash _____ are investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change. Examples include bank certificates and US Treasury bills.

equivalents

A company's Bad Debt Expense reports the ______.

estimated amount of this period's credit sales that customers will fail to pay

Bad Debt Expense ______. (Check all that apply.) should exceed the revenue generated from incurring the cost is a cost of extending credit to customers is an estimate is based on actual events and does not require estimation

is a cost of extending credit to customers is an estimate

Effective cash management includes ______. (Check all that apply.) maintaining accurate accounting records of cash flows safeguarding cash from theft minimizing the amounts of sales made on account preventing excess accumulation of cash in checking accounts

maintaining accurate accounting records of cash flows safeguarding cash from theft preventing excess accumulation of cash in checking accounts

On the income statement, Sales revenue less Credit card discounts less Sales discounts less Sales returns and allowances equals the line item called _____ _____.

net sales

Allowing credit cards, returns or discounts for early payment affects the recording of ______.

net sales revenue

When a company sells phones bundled with a one-year service contract, then the portion of revenue allocated to the one-year service is recognized ______.

over time as the service is provided

In addition to safeguarding cash from theft, maintaining accurate accounting records of cash flows and other controls, effective cash management also involves ______.

preventing excess accumulation of cash in checking accounts

The benefits of internal control procedures are that they ______. (Check all that apply.) protect against theft of assets enhance the reliability of accounting information improve the efficiency and effectiveness of operations decrease a firm's taxes, which increases its available cash

protect against theft of assets enhance the reliability of accounting information improve the efficiency and effectiveness of operations

A timing difference in cash occurs when a company records a transaction either before or after the bank records the same transaction. A bank _____ is used to explain these timing differences.

reconciliation

The objectives when accounting for accounts receivable and bad debts are to ______. (Check all that apply.) report accounts receivable net of the amount the company does not expect to collect (i.e., at the net realizable value) increase both accounts receivable and net income by the amount of credit sales that are unlikely to be collected as cash match the cost of bad debts to the accounting period in which the related credit sales are made

report accounts receivable net of the amount the company does not expect to collect (i.e., at the net realizable value) match the cost of bad debts to the accounting period in which the related credit sales are made

Who normally pays for shipping when the shipping terms are FOB destination?

seller

On January 1, goods were picked up by a FedUp Delivery, Inc. The goods arrived at the customer's place of business on January 12. If the seller recorded the sale on January 1, then the terms must have been FOB ______.

shipping point

FOB destination means that goods are owned by the buyer as soon as ______.

they arrive at the buyer's place of business

If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.

timing