Chp 7 Accounting
sales
A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a(n) _______ discount.
Debit sales returns; credit allowance for sales returns.
A company believes its sales returns will be material. What is the journal entry required?
internal controls.
A company's plans to adhere to policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data are referred to as
allowance
A contra-asset account is used to reduce the carrying value of accounts receivable to the amount of cash expected to be received under the _____ method of accounting for bad debts.
separation of duties.
A critical aspect of a good internal control system is
note receivable.
A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.
a percentage reduction from list price.
A trade discount is
disguise real prices from competitors. give quantity discounts to customers. change prices without publishing a new catalog.
A trade discount is a reduction from the list price, which is to
trade
A(n) ________ discount is a way to change prices without publishing a new catalog.
Commercial paper with a maturity date of 90 days from date of purchase, Money market funds, and Treasury bills with a maturity date of 2 months from date of purchase
Cash equivalents include which of the following?
No effect on total assets.
Cobalt Corp. uses the allowance method to account for bad debts. If Cobalt writes off an account for $3,000, what is the effect on the balance sheet?
receive cash before customers would pay amounts due. shorten the operating cycle. increase cash flow.
Companies finance with their receivables to
Company B will receive a 2% discount if payment is made within 10 days.
Company A offers Company B discount terms of 2/10, n/30. What does this mean?
Adjustment for sales returns that occurred.
Examine the following journal entry. Debit Refund liability $10,000; credit Cash $10,000; debit Inventory $6,000; and credit Inventory-estimated returns $6,000. What is the transaction that required this entry?
debit to accounts receivable, $980, credit to sales, $980.
Kilroy uses the net method to record sales on account. Kilroy sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include
a secured borrowing or a sale of receivables.
Financing with receivables is accomplished through
at the point of delivery.
For a typical credit sale, the revenue recognition criteria is usually satisfied
Company A
If Company A sells accounts receivable with recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts?
allowance for sales returns
If a company believes its sales returns will be material, an adjusting entry for expected returns should be made to which account?
with
In a factoring arrangement made ______ recourse, the seller bears the risk of uncollectibility.
seller
In a sale of an accounts receivable with recourse, if the customer does not pay, the loss is assumed by the _____ of the accounts receivable.
seller or transferor
In a sale of an accounts receivable with recourse, if the customer does not pay, the loss is assumed by the ______ of the accounts receivable.
transferee
In a sale of receivables, the _______ includes the receivables as assets in its balance sheet.
debit to accounts receivable, $5,000, credit to sales, $5,000.
Kim Corp. uses the gross method to record sales on account. Kim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include
$97,000.
Lee accepts a $100,000, 90-day noninterest-bearing note receivable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sales revenue is
debit to notes receivable for $100,000. credit to discount on notes receivable for $2,000. credit to sales revenue for $98,000.
On January 1, Klay Corp. receives a $100,000, 120-day, noninterest-bearing note receivable from a customer in exchange for the sale of goods. The note has a 6% discount rate. On January 1, when Klay receives the note from the customer, Klay will record
credit to notes receivable for $100,000
On January 1, Klay Corp. receives a $100,000, 120-day, noninterest-bearing note receivable from a customer. The discount rate is 6%. On May 1, when Klay receives full payment from the customer, Klay will record a
credit to interest revenue for $3,000.
On March 1, Song Corp. receives a $100,000, 90-day, noninterest-bearing note receivable from a customer. The discount rate is 12%. On June 1, when Song receives full payment from the customer, Song will record a
credit to interest revenue, $400.
On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. Orange has a December 31 year-end. On February 1, year 2, when the note matures, the journal entry for Orange will include a
debit to cash, $104,000 credit to note receivable, $100,000 credit to interest receivable, $2,000. credit to interest revenue, $2,000
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end and principal and interest are due at maturity. The entry required on Light's books on April 1 when the note is due requires a
Debit Interest Receivable $2,000; credit interest revenue $2,000.
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require which of the following entries?
credit to sales, $1,000. debit to accounts receivable, $1,000.
Paredes uses the gross method to record sales on account. Paredes sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include
debit to Accounts Receivable, credit to Allowance for Uncollectible Accounts.
Planters Corp. has an account that was written off in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require
other assets services cash
Receivables represent a company's claims to the future collection of
services, cash, and other assets
Receivables represent a company's claims to the future collection of
individuals who have physical responsibility for assets should not have access to accounting records.
Separation of duties requires that
cash equivalents
Short-term, highly liquid investments such as money market funds or treasury bills are classified as
securitization
The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called
debit to accounts receivable, $4,900, credit to sales, $4,900.
Tim Corporation uses the net method to record sales on account. Tim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include
allowance for uncollectible accounts.
To record bad debts at the end of the period, an adjustment would be made by a credit to
Jane Company must pay the full amount if payment is made after day 15.
Tom Company offers Jane Company discount terms of 5/15, n/45. What does this mean?
Debit Sales Returns; credit Cash.
Warner Corp. sells goods on account for $10,000. The customer pays the invoice in full on April 15, but on April 20, the customer returns $3,000 of the merchandise and receives a refund. What is the entry Warner will make on April 20 when the goods are returned?
A reduction in the amount to be paid if paid within a specified period of time.
What does a sales discount represent?
A receivable
When a company has a claim to receive assets in the future, how is this recorded on the balance sheet?
Account receivable is reduced Allowance account is reduced
When a specific account receivable is determined to be uncollectible, which of the following occur?
The amount of the receivable is written off.
When all or a portion of an account receivable is determined to be uncollectible, what occurs?
Allowance for uncollectible accounts
When an accounts receivable is written off, which account is effected?
sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
account receivable
When sellers recognize revenue associated with an informal credit sale, a(n) _____ is created.
allowance
When the amount of bad debts is material, GAAP requires the _________ method be used to reduce the carrying value of accounts receivable to the amount of cash expected to be received.
factoring
In a(n) ____________ arrangement, the company sells its accounts receivable to a financial institution and the financial institution handles the billing and collections.
noninterest-
In a(n) _____________ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.
$49,000.
Jessica accepts a $50,000, 60-day noninterest-bearing note receivable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sales revenue is
uncollectible accounts are not anticipated or are immaterial.
The direct write-off method is used when
Fraction of the annual period, Annual interest rate, Face amount of the note
The formula for calculating interest multiplies which of the following?
Debit to Sales Returns, Credit to Cash.
Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise and receives a refund. As of May 15, the customer has paid for all of the goods with cash. What will Adrian record on May 15?
enhance the reliability of accounting data, promote operational efficiency, enhance the accuracy of accounting data
Internal control consists of plans to
promote operational efficiency, encourage adherence to company policies and procedures, minimize errors and theft
Internal control consists of plans to
debit to Bad Debt Expense for $2,000.
Sully Corporation uses an allowance method for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of credit sales and $100,000 of cash sales during the year, the adjustment for estimated uncollectible accounts will require a
transferee
The _________ recognizes a note receivable in a secured borrowing agreement.
without
The buyer assumes the risk of uncollectibility when accounts receivable are sold ________ recourse.
when the allowance is created
Under the allowance method, when is bad debt expense recognized?
when the account receivable is determined to be uncollectible.
When the direct write-off method is used, an entry for bad debt expense is required
Buy accounts receivable, Handle billing and collection of accounts receivable.
Which of the following are services performed by a factor?
Allowance for sales returns
Which of the following is a contra account to accounts receivable?
Transferee
Who has the receivables on their balance sheet in a sale of receivables?
Transferor
Who houses the financed receivables on their balance sheet in a secured borrowing?
