Accounting Test 2-- 5
During its first year of operations, Ellison, Incorporated bills customers $18,000 for the services it provided. At the end of the year, $6,000 remains due from customers. The company's credit manager estimates that 10% of the total year-end accounts receivable will not be collected. The company's estimate of uncollectible accounts is:
600
A company makes a credit sale for $500. Future collection from the customer is probable. The company will not record revenue from the transaction until it collects cash from the customer.
False--- Even though the seller does not receive cash at the time of the credit sale, the firm records revenue immediately once goods or services are provided to the customer and future collection from the customer is probable.
On September 1, Year 1, a company collects a $5,000 six-month, five percent promissory note. The entry to record the collection at maturity date will include a:
The entry will include a debit to Cash for $5,125, a credit to Notes Receivable for $5,000, and a credit to Interest Revenue for $125 ($5,000 × 5% × [6/12]).
Using the aging method, Carlton Company calculates the estimated ending balance in the Allowance for Uncollectible Accounts to be $12,000. Prior to adjusting entries, the Allowance for Uncollectible Accounts has a credit balance of $3,000. The year-end adjustment would include a:
a debit to bad debt expense for 9000
Trade discounts represent:
a reduction in the listed price of a good or service
A company will debit ___________ when recording a credit sale.
accounts receivable
accounts with a normal credit balance include
accounts receivable allowance for uncollectible accounts cash sales revenue The Allowance for Uncollectible Accounts is a contra asset account; as such, it normally has a credit balance. Sales Revenue, being a revenue account, also has a normal credit balance.
Writing off an account receivable using the direct write-off method includes a debit to:
bad debt expense
Beta Corporation wrote off $100,000 due from a specific client in March. However, this client was able to make a partial payment of $15,000 in June. Recording this cash collection will involve all of the following accounts except:
bad debt expense
How are trade discounts recognized?
by recording the sale at a discounted price
Sales Returns is an example of a(n) ____________ account, which is used to keep a record of reductions from revenue due to sales returns separate from total revenue itself.
contra revenue
According to the allowance method, writing off an account receivable will include a:
credit to accounts receivable
On November 5, Phelps Outerwear sells a coat on account to a customer for $200. On November 15, the customer decides to return the coat to the retailer. The journal entry on November 15 will include a:
debit sales returns
A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 6. The journal entry for the receipt of payment will include a:
debit to cash for 980-The transaction will be recorded with a debit to Cash for $980, a debit to Sales Discounts for $20, and a credit to Accounts Receivable for $1,000.
On January 1, Year 1, Boyd Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. To record acceptance of the note, the company will record a:
debit to notes receivable for 10000
Under the allowance method, companies are required to estimate future uncollectible accounts and record those estimates in the current year. Estimated uncollectible accounts:
decrease total assets and decrease net income
The entry to write-off uncollectible accounts results in a reduction in total assets when using:
direct write off method
collecting cash on account from previously written off inscreases total assets but has no effect on net income
false-In both the entries required to record this event, the debit entry increases total assets by the same amount that the credit entry decreases total assets.
Writing off an account receivable using the direct write-off method includes a debit to:
false-The method considered less timely is the method that postpones recording bad debt expense until accounts actually become uncollectible.
Under the allowance method, the write-off of accounts receivable:
has no effect on total assets or net income
Delta Company performed $20,000 of services on account and recorded the amount due as a typical account receivable. Over time, it became apparent that the customer would not be able to pay quickly, so Delta required the customer to sign a six-month, 11 percent promissory note on February 1, Year 2. The company then reclassified the existing account receivable as a note receivable. Which of the following will result from this action?
no impact in accounting equation
At the end of Year 1, Fulton Corporation estimates uncollectible accounts to be $10,000. Actual bad debts during Year 2 totaled $12,000. This indicates that management's estimate of uncollectible accounts in Year 1 was:
too low
A debit balance in the Allowance for Uncollectible Accounts before year-end adjustment indicates that the company wrote off more bad debts in the current year than it had estimated.
true
The allowance method requires managers to estimate future uncollectible accounts and to record that estimate in the current year.
true- According to the allowance method, companies estimate the amount of accounts receivable that will prove uncollectible in the future and report the estimate as a contra asset to its accounts receivable.
On September 1, Year 1, Dallas Corporation accepts a $30,000 six-month, 12 percent promissory note from one of its clients. The year-end adjustment to accrue interest revenue on December 31, Year 1 will include a _____.
1200 credit to interest revenue
On January 1, Year 1, Alpha Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. How much interest will be collected at the maturity date of the note?
225 --- Interest revenue = $10,000 × 9% × [3/12] = $225.
Using the aging method to estimate uncollectible accounts is more accurate than applying a single percentage to all accounts receivable. The aging method recognizes that the longer accounts are past due, the less likely they are to be collected.
Under the aging method, the amount of accounts receivable within each age group is multiplied by a percentage uncollectible. The resulting amounts are then added together to arrive at an estimated ending balance in the Allowance for Uncollectible Accounts.
On May 1, Arden Wholesale sells $800 worth of goods on account to an out-of-state customer. Upon receiving the order on May 7, the customer notifies Arden that approximately 5% of the goods arrived damaged. As a result, Arden reduces the amount owed by the customer by $50. The journal entry by Arden Wholesale on May 7 will include a:
credit to accounts receivable
A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 24. The journal entry for the receipt of payment will include a:
credit to accounts receivable for 1000- the transaction will be recorded with a debit to cash for 1000 + accounts receivable for 1000
During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a:
credit to allowance for uncollectible accounts 1 million
On September 1, Year 1, Sigma Corporation accepts a $100,000 six-month, nine percent promissory note from one of its clients. The transaction recorded by the company on March 1, Year 2, the maturity date, will involve all of the following except a _____.
credit to interest revenue for 4500-Notice that this note extends over two accounting periods. There will be a year-end adjustment before maturity. Think about the number of months for which interest will accrue in Year 1.
A company sells goods to a customer on account for $800, terms 3/10, n/30. The customer pays within the discount period. On the date of payment, the company will debit:
sales discounts for 24 dollars- . On the date of payment, the company will record a debit to Cash for $776, a debit to Sales Discounts for $24, and a credit to Accounts Receivable for $800.
In the percentage-of-receivables method, a higher percentage uncollectible is generally used for "old" accounts than for "new" accounts.
true- Which is less likely to be collected: an account that is only 30 days past due or an account that is 120 days past due?
The journal entry to reestablish an account receivable previously written off has no effect on net accounts receivable.
true- Writing off actual bad debts and reestablishing those previous write-offs when it appears that customers will pay has no effect on net accounts receivable.
Credit sales involve benefits and costs. A benefit of selling on credit is that the seller makes it more convenient for customers to purchase goods and services. A cost of selling on credit is that there is a delay in collecting cash from customers.
true--- In the long run, credit sales should benefit the company via higher profitability, but come at the cost of a delay in collecting cash from customers.
The allowance method is required by GAAP for financial reporting purposes.
true-Customers' accounts that are no longer considered collectible are known as uncollectible accounts. According to GAAP, what method should companies use in accounting for uncollectible accounts
The balances in sales returns, allowances, and discounts are subtracted from total revenues when calculating net revenues.
true-Sales returns, allowances, and discounts are contra revenue accounts. We subtract the balances in these accounts from total revenues when calculating net revenues.
The direct write-off method is used for tax purposes but is generally not permitted for financial reporting.
true-The direct write-off method is used for tax purposes but is generally not permitted for financial reporting because it results in the overstatement of assets and understatement of expenses.