ACC CHAPTER 5 PT 1, ACC CHAPTER 5 PT 2, ACC CHAPTER 6 PT 1, ACC CHAPTER 6 PT 2, ACC CHAPTER 7 PT 1, ACC CHAPTER 7 PT 2, ACC QUIZ 2 SMARTBOOk

Revenue

is the inflow of cash or accounts receivable that a business receives when it provides goods or services to its customers

On the income statement, companies report revenues for

the amount they are entitled to receive in cash after considering the effects of allowances such as returns and discounts

How much depreciation should be recorded for the first year for a delivery truck with a cost of $30,000, an expected life of six years, and an estimated residual value of $6,000? Assume the double-declining-balance method is used.

$10,000

On January 1, Buy More Groceries purchased store equipment for $20,500. Buy More estimates that at the end of its 10-year service life, the equipment will be worth $2,500. During the 10-year period, the company expects to use the equipment for a total of 12,000 hours. Buy More used the equipment for 1,580 hours the first year. USELESS INFORMATION Calculate depreciation expense of the equipment for the 1st year under Double Declining Depreciation.

$4,100

A company reported the following amounts at the end of the year: Total sales revenue = $500,000; sales discounts = $10,000; net revenues = $440,000, What amount did the company report for sales returns for the year?

$50,000

A performance obligation is likely satisfied if the customer has any of the following:

1. An obligation to pay the seller 2. Received legal title to the good or received the service 3. Physical possession of the asset 4. Assumed the Risk and reward of ownership to the good or receiving the service 5. Accepted the goods or service

Five steps for the Core Revenue Recognition Principle

1. Identify the contract with a customer 2. Identify the performance obligation(s) in the contract 3. Determine the transaction price 4. Allocate the transaction price to each performance obligation 5. Recognize revenue when (or as) each performance obligation is satisfied

Revenue is recognized over a period of time if any of the following 3 criteria is met

1. The customer consumes the benefit of the seller's work as it is performed (ex. cleaning service) 2. The customer controls the asset as it is created (ex. constructing a building extension) 3. The seller is creating an asset that has no alternative use to the seller and the seller has the legal right to receive payment for progress to date (ex. an order of jets customized for the U.S. AirForce)

Manufacturing companies buy the inputs for the products they manufacture. Thus, we classify inventory for a manufacturer into three categories:

1. raw materials 2. work in process 3. finished goods

During 2024, IBM provides consulting services on its mainframe computer for $11,000 on account. The customer does not pay for those services until 2025. For each scenario, calculate the amount of revenue to be recognized in 2024.

11,000

A company uses FIFO for internal recordkeeping but LIFO for reporting ending inventory. Ending inventory under FIFO is $80,000, and ending inventory under LIFO is $60,000. What is the company's LIFO reserve?

20,000

During 2024, Goodyear sells tires to customers on account for $35,000. By the end of the year, collections total $30,000. At the end of 2025, it becomes apparent that the remaining $5,000 will never be collected from customers. For each scenario, calculate the amount of revenue to be recognized in 2024.

35,000 not 30,000 because its always the amount the company is entitled to receive

During 2024, The Manitowoc Company provides shipbuilding services to the U.S. Navy for $450,000. The U.S. Navy will pay $150,000 at the end of each year for the next three years, beginning in 2024. For each scenario, calculate the amount of revenue to be recognized in 2024.

450,000 not 150,000 because the company provided already

On December 31 before adjusting entries, a company reports the following balances: -Accounts receivable: $100,000 -Allowance for Uncollectible Accounts: $2,000 (debit) The company estimates bad debts to be 20% of the accounts receivable. The adjusting entry would include:

A debit to bad debt expense for $22,000

Which of the following generally is recorded at the time a company provides services to customers on account?

Accounts receivable

The ______ bases the estimate of future bad debts on the various ages of individual accounts receivable, using a higher percentage for "old" accounts than for "new accounts

Aging method

Which of the following accurately describes a company's choice of inventory cost method? a. A company can choose which inventory method it uses, even if the method does not match the actual physical flow of goods. b. Once a company chooses a method, it is not allowed to frequently change to another one. c. A company need not use the same method for all of its inventory.

All of the other answers are correct.

Companies report their estimate of future bad debts using an ______

Allowance for uncollectible accounts

Allocating the cost of intangible assets to expense is called

Amortization

In the income statement, the annual ______ reduces net income

Amortization expense

With respect to the three criteria used to determine whether revenue on a long-term contract is recognized over time [i.e., (1) customer consumes services while performed, (2) customer controls asset as it is created, and (3) asset has no alternative use], revenue is recognized over time if:

Any one of three criteria is satisfied

Accountants often call FIFO the ______: The amount it reports for ending inventory (which appears in the balance sheet) better approximates the current cost of inventory

Balance sheet approach

______: Administrative offices, retail stores, manufacturing facilities, and storage warehouses

Buildings

Stayman Associates has sold a good to a buyer and wants to recognize revenue. Which of the following is an indicator that control of a good has passed from Stayman to the buyer?

Buyer has assumed the risk and rewards of ownership

Which of the following suggest that a performance obligation has been satisfied? (Select all that apply.)

Buyer has legal title to the asset; Buyer has accepted the asset

Future additions

Capitalize

Future legal defense of intangible assets

Capitalize

Future repairs and maintenance

Capitalize

Patents when developed internally

Capitalize legal and filing fees only (research and development costs are expensed as incurred)

Patents when purchased

Capitalize the purchase price plus legal and filing fees

Expenditures should be capitalized if the item acquired will have an economic benefit to the entity that extends beyond the end of the current fiscal year.

Capitalized

Which of the following would NOT be considered a cash equivalent?

Certificate of deposit (CD) that matures one year from now

The account "allowance for uncollectible accounts" is classified as a(n):

Contra asset to accounts receivable in the balance sheet

______ transfer goods or services to a customer today while bearing the risk of collecting payment from that customer in the future

Credit sales

The year-end adjusting entry for future uncollectible accounts is affected by the ______ of allowance for uncollectible accounts before adjustment

Current balance

______ creates more depreciation in earlier years and less depreciation in later years

Double-declining-balance

Inventory is the cost of fully assembled but unshipped inventory at the end of the reporting period.

Finished goods

Which of the following inventory accounts consists of items for which the manufacturing process is complete?

Finished goods

It assumes the first units purchased (the first in) are the first ones sold (the first out).

First-in, first-out (FIFO) method

In the balance sheet, ______ are reduced by their annual amortization, and ______ is reduced via Amortization Expense in the income statement.

Franchises and patents; retained earnings

______ equals net revenues (or net sales) minus cost of goods

Gross profit

With respect to goods and services, control has transferred to the customer if the customer: (Select all that apply.)

Has direct influence over goods or services; Can obtain the benefits associated with the goods or services

Consider the following three scenarios: ABC Lawncare performed lawn maintenance services for Drake Incorporated on June 1st, and received payment of $500 for those services. On June 1st, Melly Corporation received payment for 100 pounds of raw material to be delivered to Drake Incorporated in 6 months. Lodo, LLC collected cash on June 1st for services rendered on May 1st. Given these scenarios, revenue cannot be recognized on June 1st for:

II and III

The first step used to apply the core revenue recognition principle is:

Identify the contract with a customer

Expenditures after acquisition: Capitalize:

If it benefits future periods

Expenditures after acquisition: Expense:

If it benefits only the current period

A company makes a sale on terms 2/10, n/30. What does this mean? (Select all that apply.)

If payment is not made within 10 days, the full amount (net of any returns or allowances) is due in 30 days.; The customer may take a 2% discount off the price if paid within 10 days.

Contracts often involve receiving cash ______ of satisfying a performance obligation Requires recognition of a liability called ______, or ______

In advance, Deferred revenue; unearned revenue

When a company receives cash for services to be provided in the future, it recognizes a(n)

Increase in Deferred Revenue

Callen Corporation sells products to customers for $10,000 cash. The cost of the inventory sold is $8,400. The financial statement effects of the sale include a(n)

Increase in assets of $1,600

Bingham Corporation sells products to customers for $100,000 cash. The cost of the inventory sold is $65,000. What is the net impact of this transaction on the accounting equation? (Select all that apply.) Multiple select question. increase in stockholders' equity of $65,000

Increase in stockholders' equity of $35,000; Increase in assets of $35,000

Which of the following items may be included in nonoperating income for a company that manufactures televisions? (Select all that apply.)

Interest income; Selling expenses

Many companies, though, generate revenues by selling ______ rather than a service

Inventory

______ includes items a company intends to sell to customers in the ordinary course of business

Inventory

Which of the following is true regarding allowance for uncollectible accounts?

It is subtracted from the balance of accounts receivable in the balance sheet

______ method: ◦Cost of goods sold reflects current cost ◦"Income-statement approach"

LIFO

an adjustment used to convert a company's own inventory records maintained throughout the year on a FIFO basis to LIFO basis for preparing financial statements at the end of the year.

LIFO adjustment

______ ◦Cost of goods sold reflects current cost ◦"Income-statement approach"

LIFO conformity rule

The choice between FIFO and LIFO results in different amounts for ending inventory in the balance sheet and cost of goods sold in the income statement. This difference is often referred to as the ______

LIFO reserve

______ are amounts spent to improve the land

Land improvements

It assumes that the last units purchased (the last in) are the first ones sold (the first out).

Last-in, first-out (LIFO) method

______ are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument, or a note

Notes receivable

Measuring and reporting revenue represents one of the most critical aspects of financial reporting in part because revenue

Often represents the largest number reported in the financial statements.

Which of the following is true about the aging method?

Older accounts are less likely to be collected

Which level of profitability is considered profit from normal operations?

Operating income

______ equals gross profit minus operating expenses

Operating income

The capitalized expenditure will be expensed ______ time as the asset is used in company operations.

Over

Which of the following is an exclusive right to manufacture a product or to use a process?

Patent

The ______ is a method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected

Percentage-of-receivables method

Promises to transfer goods or services to customers are referred to as

Performance obligations

Which of the following costs would be expensed?

Performing a tune-up on a delivery truck

We record a long-term asset at its cost ______ all expenditures necessary to get the asset ready for use.

Plus

Companies acquire intangible assets in two ways: 1.They ______ intangible assets like patents, copyrights, trademarks, or franchise rights 2.They ______ intangible assets internally, for instance by developing a new product or process and obtaining a protective patent.

Purchase; develop

Inventory includes the cost of components that will become part of the finished product but have not yet been used in production.

Raw materials

The amount the company expects to receive from selling the asset at the end of its service life

Residual value (salvage value)

Occurs when a long-term asset is no longer useful but cannot be sold

Retirement

The inflow of cash or accounts receivable that a business receives when it provides goods or services to customers is referred to as

Revenue

Inflows of cash or accounts receivable that result from providing goods or services to customers are ______.

Revenues

Most common method to dispose of a long-term asset

Sale

The primary benefit of choosing LIFO is ______

Tax savings

How much revenue should companies recognize?

The amount the seller is entitled to recieve

T/F A transfer of goods and services is complete when the customer has control over the goods or services

True

It assumes that both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.

Weighted-average cost method

The final step used to apply the core revenue recognition principle is to recognize revenue

When (or as) each performance obligation is satisfied.

Sales return

When a customer returns a product

The two critical aspects of recognizing revenue are determining:

When to record it; how much revenue to record

______ resell inventory to retail companies or to professional users.

Wholesalers

Inventory refers to the products that have been started in the production process but are not yet complete at the end of the period. The total costs include raw materials, direct labor, and indirect manufacturing costs called overhead.

Work-in-process

When $2,500 of accounts receivable are determined to be uncollectible, which of the following should the company record to write off the accounts using the allowance method?

a. A debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable

The primary reason for the popularity of LIFO is that it gives:

a. A lower income tax obligation when inventory costs are rising.

Which of the following would be reported as land improvements?

a. Adding a parking lot

One advantage of the allowance method for accounting for uncollectible accounts is that the company reports:

a. Bad debt expense in the same period as the credit sale.

Credit sales are recorded as:

a. Debit Accounts Receivable, credit Service Revenue.

Shupe, Incorporated estimates uncollectible accounts based on the percentage of accounts receivable not expected to be collected. What effect will recording the estimate of uncollectible accounts have on the balance sheet?

a. Decrease assets and decrease stockholders' equity

What is the primary disadvantage of extending credit to customers?

a. Delay or failure to collect cash

Inventory does not include:

a. Equipment used in the manufacturing of assets for sale.

What is the likely advantage of extending credit to customers?

a. Increased sales

The amount of cash that is actually expected to be collected on accounts receivable is referred to as:

a. Net accounts receivable.

For a manufacturing company, the combination of the cost of raw materials, direct labor, and overhead for inventory that has not yet completed production is known as:

a. Work-in-process.

Which of the following reduces Accounts Receivable?

a. Writing off bad debts

Sales returns ______ the amount of sales revenue reported on the income statement.

decrease

On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. The financial statement effects for Morrison on August 25 include a(n)

decrease in liabilities and increase in stockholders' equity OR increase in assets and increase in liabilities

The journal entry to estimate future bad debts is ______ to the journal entry made using a single estimated percentage, it is just the amount calculated that differs

identical

On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. On September 10, Morrison recognizes a(n)

increase in Retained Earnings of $500

On January 1, Hernandez Company receives $12,000 in cash for providing a subscription service over the next 12 months. The financial statement effects for Hernandez on January 1 include a(n)

increase in assets of $12,000

On January 1, Hernandez Company receives $12,000 in cash for providing a subscription service over the next 12 months. The financial statement effects for Hernandez on January 31 include a(n): (Select all that apply.)

increase in stockholders' equity of $1,000; decrease in liabilities of $1,000 OR Increase in Service Revenue of $1,000 Decrease in Deferred Revenue of $1,000

Net revenues is calculated as total revenues minus which of the following? (Select all that apply.)

sales returns

Examples of allowances commonly granted to customers that reduce the amount of cash a company is entitled to receive include: (Select all that apply.)

the right to return a product a discount of the product's price

For a long-term contract in which none of the criteria for recognizing revenue over time are met, revenue is recognized

when the performance obligation is completely satisfied.

A company has beginning inventory for the year of $10,500. During the year, the company purchases inventory for $190,000 and ends the year with $27,000 of inventory. The company will report cost of goods sold equal to:

$173,500

Jacobi Landscaping sold lawn equipment for $7,000. The equipment was originally purchased for $20,000, and depreciation through the date of sale totaled $15,000. What is the amount of the gain (or loss) on the sale?

$2,000

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 1,100 units @ $5 each Jan. 31 Purchase 2,100 units @ $6 each What would be the cost of goods sold under the FIFO method if 120 units were sold in January?

$500

Core principle

Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods and services

Which of the following conditions will cause revenue to be recognized over time? (Select all that apply.)

Customer controls the asset as it is created; Seller creates an asset that has no alternative use, and the seller has the right to receive payment for progress to date.; Customer consumes the benefit of the seller's work as it is performed

Which of the following are key indicators that the seller has satisfied the performance obligation? (Select all that apply.)

Customer has an obligation to pay; Customer accepted the risks and rewards of ownership; Customer has legal title to the asset

The ______ is an accelerated depreciation method

Declining-balance method

Land is not ______

Depreciated

Allocating the cost of most tangible assets to expense is called

Depreciation

______ is the allocation of the cost of an asset to the years in which the benefits of the asset are expected to be received.

Depreciation

The pattern in which the asset's depreciable cost (original cost minus residual value) is allocated overtime

Depreciation method

For tax reporting, companies use an alternative method commonly referred to as the ______

Direct write-off method

Depreciation ______ refer to the change in value or selling price

Does not

Which of the following is not a step used to apply the core principle of revenue recognition?

Ensure the sales price is fixed and determinable

______: Machinery used in manufacturing, computers and other office equipment, vehicles, furniture, and fixtures

Equipment

Occurs when two companies trade long-term assets

Exchange

An ______ involves using an asset (usually cash) or incurring a liability to acquire goods, services, or other economic benefits

Expenditure

Current repairs and maintenance

Expense

To ______ an expenditure means to record the full expenditure as an expense immediately.

Expense

However, expenditures for preventive maintenance and normal repairs, even though they are needed to maintain the usefulness of the asset over a number of years, are _______

Expensed as incurred

Which inventory method or cost flow assumption most closely resembles the actual physical flow of goods?

FIFO

______ method: ◦Matches physical flow for most companies ◦Ending inventory reflects current cost ◦"Balance-sheet approach"

FIFO

It is important not only to determine ______ revenue to recognize (record), but also ______ to recognize it

How much; when

______ equals operating income plus nonoperating revenues and minus nonoperating expenses

Income before income taxes

Accountants often call LIFO the ______: The amount it reports for cost of goods sold (which appears in the income statement) more realistically matches the current costs of inventory needed to produce current revenues

Income statement approach

Thompson's manufactures blenders and receives payment on a large customer order in November 2024. Thompson's completes manufacturing the blenders in December 2024, and the order ships to the customer in January 2025. When does Thompson's recognize revenue on this sale?

January 2025

Catopia manufactures custom pet beds. In May 2024, Catopia receives a large retail order from a local animal shelter. Catopia finishes sewing and assembling of the beds in June 2024, and the finished products are delivered to the animal shelter in July 2024. In what month should Catopia recognize revenue for this sale?

July 2024

On June 1st, Lucy & Brothers received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 25th. A $50 deposit was received on June 5th and the remaining $450 was paid on June 30th. Lucy likely would recognize revenue on:

June 25th

During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income?

LIFO

On December 31 before adjusting entries, a company's balance of allowance for uncollectible accounts is a credit of $2,000. What does a Positive balance prior to adjusting entries include?

Last year's estimate of bad debts was too high

Which of the following services are commonly performed over time? (Select all that apply.)

Lending of money Financial statement audits Consulting engagements

Deferred Revenue is a(n)

Liability

______ occurs when asset is sold for less than its book value

Loss

Most companies use straight-line depreciation for financial reporting and an accelerated method called ______ for tax reporting

MACRS

______ produce the inventories they sell, rather than buying them in finished form from suppliers

Manufacturing companies

______ may assemble, sort, repackage, redistribute, store, refrigerate, deliver, or install the inventory, but they do not manufacture it. They simply serve as intermediaries in the process of moving inventory from the manufacturer to the end user.

Merchandising companies

______ equals all revenues minus all expenses

Net income

Cash = BV

No gain or loss

Cash equivalents, also included in cash, are short-term investments that have a maturity date of ______ from the date of purchase

No longer than three months

Revenue recognition for services such as lending money and performing financial statement audits is typically

Over time

Revenue related to a company providing cleaning services to a customer for a period of time should be recognized

Over time

Sadie performs a service that satisfies just one of the three conditions for determining whether revenue should be recognized over time. Sadie should recognize revenue

Over time

Xavier Inc. is adding two more floors to Tamara Company's existing office building. Revenue related to this service likely should be recognized

Over time

Which one of the following is not one of the five steps for recognizing revenue?

Recognize revenue when all the performance obligations have been satisfied

Cash > BV

Record a gain (credit)

Cash < BV

Record a loss (debit)

We allocate the total purchase price based on the ______ of the individual assets

Relative fair values

Costs of goods sold is:

Reported in the income statement

Sales discount

Represents a reduction, not in the selling price of a good or service, but in the amount received from a credit customer if collection occurs within a specified period of time

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

Sales discount

On February 10, Trotwell sold a product to a customer on account. On February 20, the customer sent the product back to Trotwell for a full refund. The transaction on February 20 is an example of a(n)

Sales return

Which of the following is not a key indicator used in deciding whether control has passed from the seller to the buyer?

Seller can identify the contract with a buyer

The estimated use the company expects to receive from the asset before disposing of it

Service life (useful life)

It matches, or identifies, each unit of inventory with its actual cost. It is used primarily by companies selling unique, expensive products with low sales volume.

Specific identification method

Which of the following is an indicator that revenue for a service should be recognized over time?

The seller is enhancing an asset that the customer controls as the service is performed

Net revenue

Total revenues less any amounts for returns and discounts

Which of the following intangible assets would not be subject to amortization?

Trademark with an indefinite life

Beginning inventory is $142,000. During the period, a company has three purchases of inventory with a cost of $75,000, $80,000, and $56,000. Also during the period, inventory with a cost of $190,000 was sold to customers for $260,000. What is the ending balance of inventory?

a. $163,000

A company reported the following amounts in its income statement: Sales revenue $ 440,000 Advertising expense $ 60,000 Interest expense $ 10,000 Salaries expense $ 55,000 Utilities expense $ 25,000 Income tax expense $ 45,000 Cost of goods sold $ 180,000 What is gross profit?

a. $260,000

On January 1, Hernandez Company receives $12,000 in cash for providing a subscription service over the next 12 months. The journal entry recorded by Hernandez on January 1 will include a(n): (Select all that apply.)

credit to Deferred Revenue for $12,000 debit to Cash for $12,000

On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. What journal entry will Morrison record on September 10?

debit Deferred Revenue; credit Service Revenue

On January 1, Hernandez Company receives $12,000 in cash for providing a subscription service over the next 12 months. The journal entry recorded by Hernandez on January 31 (after 1 month has passed) will include a(n): (Select all that apply.)

debit to Deferred Revenue for $1,000 credit to Service Revenue for $1,000

If none of the criteria are met for revenue recognition over time, revenue will be recognized

when the performance obligation is completely satisfied.

To ______ an expenditure means to record the expenditure as an asset.

Capitalize

______ occurs when asset is sold for more than its book value

Gain

Companies recognize revenue when

Goods or services are transferred

Purchase of ______ at the same time for one purchase price

More than one asset

Total revenues less sales returns and discounts are referred to as ______ revenues.

Net

On January 1, Buy More Groceries purchased store equipment for $20,500. Buy More estimates that at the end of its 10-year service life, the equipment will be worth $2,500. During the 10-year period, the company expects to use the equipment for a total of 12,000 hours. Buy More used the equipment for 1,580 hours the first year. MEANINGLESS INFORMATION Calculate depreciation expense of the equipment for the 1st year under Straight Line Depreciation.

$1,800

Whole Grain Bakery purchases an industrial bread machine for $23,000. In addition to the purchase price, the company makes the following expenditures: freight, $1,300; installation, $2,600; testing, $800; and property tax on the machine for the first year, $460. What is the initial cost of the bread machine?

$27,700

How much depreciation should be recorded in the first year for a delivery truck purchased on April 1 with a cost of $30,000, an expected service life of five years, and an estimated residual value of $5,000? Assume the straight-line method is used.

$3,750

Kosher Pickle Company acquires all the outstanding stock of Midwest Produce for $16.5 million. The fair value of Midwest's assets is $12.8 million. The fair value of Midwest's liabilities is $2.0 million. Calculate the amount paid for goodwill.

$5,700,000

Given the information below: -Sales revenue $345,000 -Accounts receivable $52,000 -Ending inventory $113,000 -Cost of Goods Sold $242,000 -Sales returns $23,000 What is the gross profit?

$80,000

A company purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance on the equipment. For what amount will the company report the dishwasher?

$9,100

On November 1, 2024, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $5,520 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2025. Taylor should recognize revenue in 2024 in the amount of

$920

On January 1, 2024, Gold's Gym sells a one-year membership for $1,200 cash. Normally, this type of membership would cost $1,600, but the company is offering a 25% "New Year's Resolution" discount For each scenario, calculate the amount of revenue to be recognized in 2024.

1,200

Future improvements

Capitalize

3 stages of the allowance method

1. Establish the allowance 2. During the next year, actually write-off bad debts 3. Adjust/revise allowance account

Trade discounts

A reduction in the listed price of a good or service

The creation of the allowance account also creates an expense account called ______

Bad debt expense

Janex Company manufactures refrigerators. Which of the following items would likely be included in the determination of nonoperating income on Janex's income statement?

Interest expense

______ is property, but is not depreciated because its service life never ends

Land

______ purchase inventory from manufacturers or wholesalers and then sell this inventory to end users. You probably are more familiar with retail companies because these are the companies from which you buy products.

Retailers

______ creates an equal amount of depreciation each year

Straight-line

A ______ contains a group of individual sub-accounts associated with a particular general ledger control account

Subsidiary ledger

When writing off an uncollectible account:

Total assets are unchanged

Consider the following year-end information for a company: Cost of goods sold $420,000 Sales revenue 800,000 Nonoperating expenses 10,000 Operating expenses 170,000 Income tax expense 80,000 What amount will the company report for operating income?

a. $210,000

On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. What journal entry will Morrison record on August 25? Multiple choice question.

debit Cash; credit Deferred Revenue

A trade discount is a reduction in the listed price, which can be used to: (Select all that apply.)

give quantity discounts to large customers