Chapter 9 study guide

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A schedule of the periodic payments on a note.

Amortization Schedule

The value of unredeemed gift cards.

Breakage

Received cash for the sale of gift cards.

Debit: Cash Credit: Gift Cards Outstanding

Received cash for the monthly payment of an installment note receivable.

Debit: Cash Credit: Interest Income and Notes Receivable

Sold merchandise, receiving a down payment and accepting an installment note receivable.

Debit: Cash and Notes Receivable Credit: Sales

Reclassify the value of notes receivable to be received during the next fiscal period.

Debit: Current Portion of Notes Receivable Credit: Notes Receivable

Adjusting entry to recognize the value of gift cards that will never be redeemed.

Debit: Gift Cards Outstanding Credit: Breakage Revenue

Customers redeemed gift cards for the sale of merchandise (ignore sales taxes).

Debit: Gift Cards Outstanding Credit: Sales

Reversing entry required for accrued interest income.

Debit: Interest Income Credit: Interest Receivable

Adjusting entry for interest earned that will be received in the next fiscal period.

Debit: Interest Receivable Credit: Interest Income

Adjusting entry to recognize one month of rental use owed to the lessee. The business recognizes rental payments as revenue when payment is received.

Debit: Rent Income Credit: Unearned Rent

Reversing entry required for unearned rent.

Debit: Unearned Rent Credit: Rent Income

Revenue earned in one fiscal period but not received until a later fiscal period.

Accrued Revenue

Interest Receivable is reported in the Long-Term Assets section of the balance sheet.

False

Laws allow retailers to charge monthly fees every month gift cards are not redeemed.

False

The account Sales Returns and Allowances is often used to record the value of unredeemed cards.

False

The amount of revenue recognized each month from the receipt of an installment note payment is equal to the principal portion of the payment.

False

The sale of a gift card results in the recognition of revenue when payment for the card is received.

False

The total sales from gift cards is listed separately on the income statement to allow users to compare the amount of revenue from sales with the related cost of merchandise sold.

False

Unearned Rent is classified as a long-term liability.

False

When a business concludes that a gift card will never be redeemed, the value of the card is no longer an asset.

False

When making end-of-period adjusting entries, accrued interest on a note receivable is calculated from the date of the note through the maturity date of the note.

False

A note resulting from a sale that requires monthly payments of principal and interest.

Installment Note

An entry that transfers account balances between accounts on one financial statement.

Reclassification Entry

A business not in the business of renting buildings should classify rental income in the Other Revenue section of the income statement.

True

Gift cards have a magnetic strip where the amount of the card balance can be stored.

True

If an adjusting entry creates a balance in an asset or liability account, the adjusting entry is normally reversed.

True

Interest Income is reported in the Other Revenue section of the income statement.

True

Retailers often issue a gift card to a customer returning merchandise.

True

The Current Portion of Notes Receivable appears in the Current Assets section of the balance sheet.

True

The amount of Breakage Revenue is an estimate.

True

The redemption of a gift card reduces the amount of gift cards outstanding.

True

Unearned revenue is also known as deferred revenue.

True

Until a gift card is redeemed, the outstanding balance of the card is unearned revenue.

True

When a balance sheet is prepared, the amount presented as the Current Portion of Notes Receivable is equal to the total payments the business expects to collect during the next fiscal period.

True

Cash received for goods and services which have not been provided.

Unearned Revenue


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