accounting ch5

The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable? Multiple choice question.

$2,850

Fog Corporation sells $5,000 goods on account. Salaries expense was $3,000. Sales returns were $100, and sales discounts were $300. Net sales were Multiple choice question. $4,600 $2,000 $1,600 $4,900

$5,000 - 100 - 300 = $4,600

The allowance method is required by ____.

GAAP

The allowance for uncollectible accounts is a contra account to Multiple choice question. bad debt expense. accounts receivable. sales allowances. revenue.

accounts receivable.

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _____ method of accounts receivable

aging

Accounts receivable should be classified as a(n) Multiple choice question. revenue. expense. asset. liability.

asset.

The cost of estimated accounts receivable that will not be collected is referred to as _____ _____ expense.

bad debt

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to Multiple choice question. be more accurate. result in the highest net income. result in the lowest net income. recognize bad debts earlier.

be more accurate.

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year. Multiple choice question. current; future current; current future; future future; current

future; current

Recording sales returns and allowances in a separate contra-revenue account helps managers: Multiple choice question. improve financial statement ratios report higher assets keep track of the amounts report higher income

keep track of the amounts

Total revenues less discounts, returns, and allowances are referred to as ___ revenues.

net

Sales to customers in which the customers pay within 30 to 60 days are referred to as

sales on account. credit sales.

When a customer returns a product for a refund, in which account is the entry recorded? Multiple choice question. purchase return purchase discount sales return sales discount

sales return

Receivables not expected to be collected should Multiple choice question. initially be included as assets and then be written off when the customer does not pay. always be counted in assets of the company. not be counted in assets of the company.

not be counted in assets of the company.

The direct write-off method is used when Multiple choice question. uncollectible accounts are not anticipated or are immaterial. a company elects to use this method as one of several alternatives. a company expects excessive sales returns. bad debts are expected to be material in amount.

uncollectible accounts are not anticipated or are immaterial.

Net revenues is calculated as total revenues minus which of the following items? Multiple select question. Accounts receivable Sales returns Sales allowances Sales discounts Allowance for uncollectible accounts

Sales returns Sales allowances Sales discounts

Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record which of the following? Multiple choice question. Debit cash $1,000 Debit cash $980 Credit cash $1,000 Credit cash $980

Debit cash $1,000

Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record which of the following? Multiple choice question. Debit cash $980 Credit cash $1,000 Credit cash $980 Debit cash $1,000

Debit cash $1,000

Zeiger Corporation sells goods to a customer on account for $2,000, terms 2/10, n/30. When the customer pays on the 12th day, Zeiger records which of the following? Multiple choice question. Credit cash $1,960 Credit cash $2,000 Debit cash $1,960 Debit cash $2,000

Debit cash $2,000

Mark records a journal entry with a debit to Bad debt Expense and a credit to Accounts Receivable. Mark is utilizing the: Multiple choice question. Allowance method Direct write-off method Percentage-of-credit sales method

Direct write-off method

Mark records a journal entry with a debit to Bad debt Expense and a credit to Accounts Receivable. Mark is utilizing the: Multiple choice question. Direct write-off method Percentage-of-credit sales method Allowance method

Direct write-off method

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. True false question. True False

False

Where is a note receivable reported in the balance sheet? Multiple choice question. In current assets. In noncurrent liabilities until paid. In either current or noncurrent liabilities, as appropriate. In either current or noncurrent assets, as appropriate. In noncurrrent assets.

In either current or noncurrent assets, as appropriate.

The direct write-off method violates which accounting concept? Multiple choice question. Recording revenue in the period goods or services are provided to customers Consistency in the accounting methods chosen Matching expenses to the related revenues Comparability of financial statements across companies

Matching expenses to the related revenues

If sales returns are incorrectly treated as expenses, what are the effects on the financial statements? (Select all that apply.) Multiple select question.

Revenues are overstated. Expenses are overstated.

If sales returns are incorrectly treated as expenses, what are the effects on the financial statements? (Select all that apply.) Multiple select question. Liabilities are understated. Revenues are overstated. Expenses are overstated. Assets are overstated.

Revenues are overstated. Expenses are overstated.

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period? Multiple choice question. Quantity discount Purchase discount Sales discount Trade discount

Sales discount

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period? Multiple choice question. Quantity discount Sales discount Trade discount Purchase discount

Sales discount

Relay Corporation provides services with a normal price of $105,000 and a trade discount of $5,000. Terms are 1/10, n/30 and the customers pay within 10 days. The net service revenue is Multiple choice question. $99,000. $104,000. $100,000. $105,000.

$105,000 - 5,000 trade discount = $100,000 gross sales less 1% discount (.01x100,000) = $99,000.

Gammy Corporation provides services with a normal price of $800,000 and a trade discount of $100,000. Terms are 2/10, n/30 and the customers pay within 10 days. The net service revenue is Multiple choice question. $686,000. $700,000. $882,000. $630,000.

$800,000 - 100,000 trade discount = $700,000 gross sales less 2% discount (.02x700,000) = $686,000.

Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive Multiple choice question. $980. $1,000. $880. $900.

$980.

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following? Multiple choice question. Debit Sales Discount $15 Credit Cash $500 Debit Service Revenue $500 Credit Sales Discount $50

($500 *.03 = $15) Debit Sales Discount $15

A company makes a sale on terms 2/10, n/30. What does this mean? (Select all that apply.) Multiple select question. The customer may take a 2% discount off the price if paid within 10 days. If payment is not made in 10 days, the net amount is due in 30 days. The customer can take a 10% discount if paid in 30 days. The customer may take a 10% discount if paid within 2 days.

The customer may take a 2% discount off the price if paid within 10 days. If payment is not made in 10 days, the net amount is due in 30 days.

A sales return occurs when a customer returns a product for a full refund, whereas a sales _____ is when the customer keeps the product and obtains a partial refund.

allowance

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to Multiple choice question. allowance for uncollectible accounts. sales returns and allowances. bad debt expense. accounts receivable.

allowance for uncollectible accounts.

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to Multiple choice question. sales returns and allowances. allowance for uncollectible accounts. bad debt expense. accounts receivable.

allowance for uncollectible accounts.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the Multiple choice question. bad debt method debt forgiveness method allowance method direct write-off method

allowance method

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales Multiple choice question. allowance. discount. credit. debit.

allowance.

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales Multiple choice question. credit. allowance. discount. debit.

allowance.

The direct write-off method is not normally an acceptable method under GAAP because it fails to report _____. Multiple choice question. cash collected from customers revenue from the sale of goods or services to customers the amounts receivable from customers assets and expenses correctly

assets and expenses correctly

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows: (Select all that apply.) Multiple select question. assets decrease liabilities increase equity increases liabilities decrease assets increase equity decreases

assets decrease equity decreases

The financial statement effects of recording an allowance for estimated sales returns are that: (Select all that apply.) Multiple select question. assets decrease net income decreases assets increase equity decreases equity increases net income increases

assets decrease net income decreases equity decreases

The estimated expense for accounts that may not be collected is referred to as Multiple choice question. interest expense. amortization expense. sales discounts. bad debt expense. accounts receivable.

bad debt expense.

With the direct write-off method, the journal entry to write-off an uncollectible account includes a debit to _____ and a credit to _____. Multiple choice question. accounts receivable; bad debt expense bad debt expense; accounts receivable allowance for uncollectible accounts; bad debt expense allowance for uncollectible accounts; accounts receivable

bad debt expense; accounts receivable

A trade discount is recognized Multiple choice question. by reducing the revenue amount recorded. by increasing the revenue amount recorded. as a contra account to accounts receivable. as trade discount revenue.

by reducing the revenue amount recorded.

The sales discount account is classified as a(n) Multiple choice question. asset account. contra revenue account. contra account to accounts receivable. expense account.

contra revenue account.

The Sales Returns and Sales Allowances accounts are classified as Multiple choice question. contra revenue accounts. contra liability accounts. contra asset accounts. contra equity accounts.

contra revenue accounts.

The Sales Returns and Sales Allowances accounts are classified as Multiple choice question. contra revenue accounts. contra liability accounts. contra equity accounts. contra asset accounts.

contra revenue accounts.

Sales Returns and Sales Allowances are _____ - _____ accounts and require a debit entry to increase the account.

contra, revenue

When a business provides services to a customer, and the customer promises to pay later, this is referred to as Multiple choice question. cash sales. operating sales. credit sales. current sale.

credit sales.

At the end of the year, companies must record estimated contra revenues for estimated sales returns and allowances and sales discounts pertaining to Multiple choice question. future sales only. current year sales only. both current year and future year sales.

current year sales only.

Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a Multiple choice question. debit to Sales Allowances $50. debit to Accounts Receivable $50. debit to Cash $50. credit to Sales Allowances $50.

debit to Sales Allowances $50.

Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record: Multiple select question. debit to Accounts Receivable $60 credit to Sales Allowances $60 debit to Cash $60 debit to Sales Allowances $60 credit to accounts receivable $60 credit to cash $60

debit to Sales Allowances $60 credit to accounts receivable $60

Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following: (Select all that apply.) Multiple select question. credit to Accounts Receivable debit to Sales Expense credit to Allowance for Sales Returns debit to Sales Returns credit to Cash

debit to Sales Returns credit to Cash

The journal entry to record bad debt expense includes: (Select all that apply.) Multiple select question. debit to bad debt expense credit to allowance for uncollectible accounts debit to allowance for uncollectible accounts credit to bad debt expense

debit to bad debt expense credit to allowance for uncollectible accounts

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): Multiple choice question. decrease in Accounts Receivable decrease in Sales Revenue increase in Allowance for Doubtful Accounts increase in Accounts Receivable increase in Sales Revenue

decrease in Accounts Receivable

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer. Multiple choice question. increased; retained decreases; returned. decreases; retained increases; returned

decreases; retained

The Accounts Receivable account is reduced when the seller: Multiple choice question. records the allowance for uncollectible accounts determines that a specific customer account will not be collectible adopts the allowance method

determines that a specific customer account will not be collectible

A trade discount is a reduction from the list price, which is used to: (Select all that apply.) Multiple select question. give quantity discounts to customers disguise real prices from competitors reduce the sale price for interest received change prices without publishing a new catalog encourage customers to pay quickly

give quantity discounts to customers disguise real prices from competitors change prices without publishing a new catalog

Receivables not expected to be collected should Multiple choice question. always be counted in assets of the company. not be counted in assets of the company. initially be included as assets and then be written off when the customer does not pay.

not be counted in assets of the company.

A formal credit arrangement between a creditor and debtor is called a(n) Multiple choice question. account receivable. note receivable. trade receivable. interest receivable.

note receivable.

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. Multiple choice question. account receivable. account payable. note payable. note receivable.

note receivable.

The direct write-off method is normally not permitted for U.S. GAAP reporting because if related credit sales occurred in the prior year, it: (Select all that apply.) Multiple select question. overstates assets in the prior year overstates net income in the prior year overstates assets in the current year overstates net income in the current year

overstates assets in the prior year overstates net income in the prior year

The direct write-off method is normally not permitted for U.S. GAAP reporting because if related credit sales occurred in the prior year, it: (Select all that apply.) Multiple select question. overstates net income in the current year overstates assets in the prior year overstates assets in the current year overstates net income in the prior year

overstates assets in the prior year overstates net income in the prior year

At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will be returned by customers during the subsequent year. Kunze Corporation must Multiple choice question. issue a refund to customers during the current year. record the estimated returns at the end of the year. wait until the merchandise is returned by customers to record the returns.

record the estimated returns at the end of the year.

At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will be returned by customers during the subsequent year. Kunze Corporation must Multiple choice question. wait until the merchandise is returned by customers to record the returns. issue a refund to customers during the current year. record the estimated returns at the end of the year.

record the estimated returns at the end of the year.

The Accounts Receivable account is reduced when the seller: Multiple choice question. adopts the allowance method records the allowance for uncollectible accounts determines that a specific customer account will not be collectible

records the allowance for uncollectible accounts

The contra revenue accounts sales returns and sales allowances Multiple choice question. reduce expenses. reduce revenues. increase expenses. increase revenues.

reduce revenues.

The contra revenue accounts sales returns and sales allowances Multiple choice question. reduce revenues. increase revenues. increase expenses. reduce expenses.

reduce revenues.

The sales discount account is a contra ______ account. (Enter one word per blank)

revenue

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) Multiple select question. deferred sales. sales on account. credit sales. nonaccrued sales.

sales on account. credit sales.

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) ____ _____.

sales return

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

sales/cash

Accounts receivable are typically classified as current assets because Multiple choice question. they are matched with accounts payable for the period. they accrue interest at a specified interest rate. they are a formal agreement to pay within a specific period of time. they will be converted to cash within 1 year.

they will be converted to cash within 1 year.

The direct write-off method is used when Multiple choice question. a company elects to use this method as one of several alternatives. bad debts are expected to be material in amount. a company expects excessive sales returns. uncollectible accounts are not anticipated or are immaterial.

uncollectible accounts are not anticipated or are immaterial.

The allowance method estimates Multiple choice question. uncollectible accounts. trade discounts. sales discounts. future sales.

uncollectible accounts.

When the direct write-off method is used, an entry for bad debt expense is required Multiple choice question. at the end of the year. only when bad debts are recorded on the tax return. when the account receivable is determined to be uncollectible. when each sale is made.

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 Multiple choice question. only when bad debts are recorded on the tax return. when each sale is made. when the account receivable is determined to be uncollectible. at the end of the year.

when the account receivable is determined to be uncollectible. at the end of the year.

Sales returns and sales allowances are what type of accounts? Multiple choice question. Revenue Expense Contra asset Contra revenue

Contra revenue

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned? Multiple choice question. Debit Sales Returns; credit Accounts Receivable. Debit Accounts Receivable; credit Allowance for Sales Returns. Debit Sales Returns; credit Allowance for Uncollectible Accounts. Debit Bad Debt Expense; credit Accounts Receivable.

Debit Sales Returns; credit Accounts Receivable.

The direct write-off method is required for Multiple choice question. income tax purposes. IFRS reporting purposes. U.S. GAAP reporting purposes.

income tax purposes.

A(n) ______ _______ is the legal right to receive cash from a credit sale and represents an asset of the company

trade receivable

James Corporation sells $1,000 goods on account. Sales returns were $40, and sales allowances were $50. Sales discounts for the period were $30. Net sales are Multiple choice question. $950 $910 $920 $880

$1,000 - ($40 + $50 + $30) = $880

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer? Multiple choice question. An entry to record payment and an entry to record bad debt expense. An entry to reinstate the account receivable and an entry to record payment. An entry to reinstate the account receivable and an entry to adjust bad debt expense. An entry to adjust net sales and an entry to adjust bad debt expense.

An entry to reinstate the account receivable and an entry to record payment.

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements? Multiple choice question. As a noncurrent asset As a current asset As other comprehensive income As a contra account to sales

As a noncurrent asset

Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______. Multiple choice question. Accounts Receivable; Cash Allowance for Uncollectible Accounts; Cash Cash; Accounts Receivable Cash; Allowance for Uncollectible Accounts

Cash; Accounts Receivable

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

Credit Accounts Receivable $100 Debit Sales Discount $2 Debit Cash $98

The account "Allowance for Uncollectible Accounts" is classified as Multiple choice question. an expense in the income statement. a contra asset to accounts receivable. a contra equity account. a liability account in the balance sheet.

a contra asset to accounts receivable.

The account "Allowance for Uncollectible Accounts" is classified as Multiple choice question. an expense in the income statement. a liability account in the balance sheet. a contra asset to accounts receivable. a contra equity account.

a contra asset to accounts receivable.

A trade discount is Multiple choice question. an increase in the account receivable. a percentage reduction from list price. a percentage reduction of the amount due for early payment. a rebate from the manufacturer.

a percentage reduction from list price.