MGMT 200 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

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

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

40.6 days

Black Company has the following information: Receivable turnover 6 Inventory turnover 5 Asset turnover 3 Net credit sales $500,000 What is the average collection period?

60.8 days

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 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 ______.

Cash; Accounts Receivable

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 to Accounts Receivable Debit to Allowance for Uncollectible Accounts

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.

False

The allowance method is required by _____.

GAAP

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

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

Sales Return

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

Sales discount

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a reduction from list price.

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable.

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

accounts receivable.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

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

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.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

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

allowance.

Accounts receivable should be classified as a(n)

asset

With the allowance method, bad debt expense is recorded

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

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

bad debt

The estimated expense for accounts that may not be collected is referred to as

bad debt expense.

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate.

Allowance for Uncollectible Accounts has a credit balance because it is a(n) ______ account.

contra-asset

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

credit

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales.

The journal entry to record bad debt expense includes: (Select all that apply.)

credit to allowance for uncollectible accounts debit to 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.

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):

decrease in Accounts Receivable

A sales allowance ______ the amount owed by the customer for merchandise that is ______ by the customer.

decreases; retained

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

The receivables turnover ratio and the average collection period provide information about a company's

effectiveness in managing receivables

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record ______ bad debt expense ______.

estimated; at the end of the year

The formula for calculating interest on a note is

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

Under the allowance method, companies estimate ______ uncollectible amounts and report those estimates in the ______ year.

future; current

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

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

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note.

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will ______ net income.

not affect

Receivables not expected to be collected should

not be counted in assets of the company.

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

A formal, signed credit agreement between a lender and a borrower is called a(n) ______ by the lender.

note receivable.

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

receivables turnover ratio average collection period

Two entries are required when a previously written off account is collected. These two entries include:

record the collection on the account receivable reinstate the account receivable

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.)

sales on account. credit sales.

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

Accounts receivable are typically classified as current assets because

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.

The allowance method estimates

uncollectible accounts.

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.