Financial Accounting Chapter 5

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance? -$18,000 -$17,000 -$19,000 -$20,000

$18,000

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? -$2,850 -$3,000 -$3,150

$2,850

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance? -$93,000 -$97,000 -$107,000 -$90,000

$93,000

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 _______. -Accounts Receivable; Cash -Cash; Accounts Receivable -Cash; Allowance for Uncollectible Accounts -Allowance for Uncollectible Accounts; Cash

Cash; Accounts Receivable

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15? (Select all that apply.) -Credit to Accounts Receivable. -Debit to Sales Returns. -Debit to Sales Expense. -Credit to Allowance for Sales Returns.

Credit to Accounts Receivable. Debit to Sales Returns.

The allowance method is required by _______

GAAP

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

In either current or noncurrent assets, as appropriate.

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

Sales allowances Sales returns Sales discounts

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method. -an income statement -an expense -a balance sheet -an equity

a balance sheet

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

a contra asset to accounts receivable.

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

a percentage reduction from list price.

The percentage-of-receivables method of estimating bad debt applies ____ to _____. -various percentages; total sales -a single percentage; accounts receivable -a single percentage; total sales -various percentages; accounts receivable

a single percentage; accounts receivable

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n) -note payable. -account receivable. -prepaid receivable. -nontrade receivable.

account receivable.

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

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 -bad debt expense. -sales returns and allowances. -allowance for uncollectible accounts. -accounts receivable.

allowance for uncollectible accounts.

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.) -liabilities increase -assets decrease -assets increase -liabilities decrease -equity increases -equity decreases

assets decrease equity decreases

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

be more accurate.

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

by reducing the revenue amount recorded.

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account. -contra-asset -expense -liability -asset -contra-revenue

contra-asset

The account "Allowance for Uncollectible Accounts" normally has a _____ balance

credit

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a -debit to Sales Returns and Allowances. -credit to Accounts Receivable. -debit to Bad Debt Expense. -credit to Allowance for Uncollectible Accounts.

credit to Allowance for Uncollectible Accounts.

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include -debit Allowance for Uncollectible Accounts. -debit Bad Debt Expense. -credit Sales Returns and Allowances. -debit Accounts Receivable.

debit Allowance for Uncollectible Accounts.

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

decreases; retained

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.) -liabilities increase -equity increases -equity decreases -assets decrease -assets increase -liabilities decrease

equity decreases assets decrease

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

false

When the allowance method is used, the write-off of an uncollectible account: -has no effect on net income -increases net income -decreases net income

has no effect on net income

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

income tax purposes.

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

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

sales on account. credit sales.

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

sales return

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

sales return

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

when the account receivable is determined to be uncollectible.

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

future; current

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

As a noncurrent asset

The formula for calculating interest on a note is -face value x fraction of the period. -future value x annual rate x fraction of the period. -face value x annual rate x fraction of the annual period. -principal x rate.

face value x annual rate x fraction of the annual period.

For accounts receivable, the longer an account is outstanding, -the better the customer. -the more likely the customer will return. -the higher probability of it being collected. -the more likely it will prove uncollectible.

the more likely it will prove uncollectible.

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

bad debt expense.

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

credit to allowance for uncollectible accounts debit to bad debt expense

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): -increase in Allowance for Doubtful Accounts -increase in Sales Revenue -increase in Accounts Receivable -decrease in Sales Revenue -decrease in Accounts Receivable

decrease in Accounts Receivable

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following? -Credit Allowance for Uncollectible Accounts. -Debit Accounts Receivable. -Debit Bad Debt Expense. -Credit Accounts Receivable.

Credit Allowance for Uncollectible Accounts. Debit Accounts Receivable.

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? -Debit Sales Returns; credit Accounts Receivable. -Debit Bad Debt Expense; credit Accounts Receivable. -Debit Accounts Receivable; credit Allowance for Sales Returns. -Debit Sales Returns; credit Allowance for Uncollectible Accounts.

Debit Sales Returns; credit Accounts Receivable.

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries? -Credit Allowance for Uncollectible Accounts -Debit to Allowance for Uncollectible Accounts -Credit to Accounts Receivable -Debit Bad Debt Expense

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make? -Make an adjusting entry at the end of the the next period to accrue interest earned. -No adjustment is necessary until the cash is collected. -Make an adjusting entry at the end of the current period to accrue the interest earned.

Make an adjusting entry at the end of the current period to accrue the interest earned.

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

accounts receivable

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

accounts receivable.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as -uncollectible accounts. -a guarantee. -accounts receivable. -accounts payable.

accounts receivable.

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 -debit. -discount. -credit. -allowance.

allowance.

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

assets decrease equity decreases net income decreases

With the allowance method, bad debt expense is recorded -when the account becomes uncollectible. -when the customer purchases the goods. -when the customer returns the product. -at the end of the period when bad debts are estimated.

at the end of the period when bad debts are estimated.

The formula to compute the receivables turnover ratio is net credit sales divided by -average accounts receivable. -the receivable turnover ratio. -average accounts payable. -average total assets.

average accounts receivable.

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.) -credit to Allowance for Sales Returns -debit to Sales Expense -credit to Cash -credit to Accounts Receivable -debit to Sales Returns

credit to Cash debit to Sales Returns

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

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.) -reduce the sale price for interest received -give quantity discounts to customers -encourage customers to pay quickly -disguise real prices from competitors -change prices without publishing a new catalog

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

An aging schedule classifies accounts receivable based on -length of time outstanding. -customer credit rating. -past experience with customer. -size of customer purchase.

length of time outstanding.

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

net

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income. -not affect -decrease -increase

not affect

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

they will be converted to cash within 1 year.

The direct write-off method is used when -uncollectible accounts are not anticipated or are immaterial. -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.

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

note receivable.

When the direct write-off method is used, an entry for bad debt expense is required -when the account receivable is determined to be uncollectible. -when each sale is made. -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.