Ch 5 - act 210
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 Reason: $20,000 - $2,000
On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?
$40 Reason: The 6% is an annual rate and since only 4/12 of the year has been earned, interest revenue is $40 (=$2,000 x .06 x (4/12)). Sept, Oct, Nov, Dec is 4/12 of a year.
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
$686,000 Reason: $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
$980.
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
$99,000. Reason: $105,000 - 5,000 trade discount = $100,000 gross sales less 1% discount (.01x100,000) = $99,000.
On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?
20 Reason: The 8% is an annual rate and since only 2/12 of a year has been earned, interest revenue is $20 (=$1,500*0.08*(2/12)). Nov and Dec is 2/12 of a year.
Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively.
4 Reason: Net credit sales/average accounts receivable = $200,000/((40,000+60,000)/2) = 4
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 Reason: 365/receivables turnover = 40.6 days
A(n) is the legal right to receive cash from a credit sale and represents an asset of the company.
Blank 1: account, trade, or accounts Blank 2: receivable, recievable, or receivables
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 to Accounts Receivable Debit to Allowance for Uncollectible Accounts
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?
Debit Cash $98 Credit Accounts Receivable $100 Debit Sales Discount $2
On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entry required on Oak's books on March 5 would require which of the following entries?
Debit Notes Receivable $100,000; credit Service Revenue $100,000.
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?
Debit Sales Discount $15 Reason: $500 *. 03 = $15
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.)
Debit to Sales Returns. Credit to Accounts Receivable.
Albert Corp. received a 2-month, 8%, $1,500 note receivable on December 1. The adjustment for interest earned by December 31 will include a:
Debit to interest receivable of $10 Reason: Interest is stated at an ANNUAL rate. $1,500 x 0.08 x (1/12)=$10. Only 1/12 of the 8% annual rate has been earned since December 1.
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 current period to accrue the interest earned.
The normal balance of notes receivable is:
a debit
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)
account receivable.
Flounder Corp. provided $12,000 of services on account. The entry to record this transaction would include a debit 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.
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.
An account receivable is normally classified as
an asset.
Accounts receivable should be classified as a(n)
asset.
A trade discount is recognized
by reducing the revenue amount recorded.
When a business provides services to a customer, and the customer promises to pay later, this is referred to as
credit sales.
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
credit to Allowance for Uncollectible Accounts.
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 Cash debit to Sales Returns
On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. Orange has a December 31 year-end. On February 1, year 2, when the note matures, the journal entry will include a
credit to interest revenue, $400. Reason: The 12% is an annual rate and since only 1/12 of a year has been earned (year 2), interest revenue is $400 (=$40,000 x 0.12 x (1/12))
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.
On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. The entry required on Orange's books on December 31, at the end of the year includes a
debit Interest Receivable, $800. Reason: The 12% is an annual rate and since only 2/12 of a year has been earned, interest revenue is $800 (=$40,000*0.12*(2/12))
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
debit to Sales Allowances $50.
The journal entry to record bad debt expense includes: (Select all that apply.)
debit to bad debt expense credit to allowance for uncollectible accounts
A high receivables turnover ratio is a sign of a company's:
effectiveness of credit sales and collection policies
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.)
equity decreases assets decrease
What comparative advantages do notes receivables possess compared to other receivables? (Select all that apply.)
higher likelihood of collectibility interest-bearing
An aging schedule classifies accounts receivable based on
length of time outstanding.
The financial statement effects of recording an allowance for estimated sales returns are that: (Select all that apply.)
net income decreases equity decreases assets decrease
Management's ability to collect cash from customers in a timely manner can be evaluated using these ratios:
receivable turnover ratio average collection period
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.
Glasser Corp. provided $20,000 of services on account. The account that should be credited is
service revenue.
For accounts receivable, the longer an account is outstanding,
the more likely it will prove uncollectible.
Assume Company X is in its fifth year of operation. Analyze the following schedule. What conclusion can be drawn from the following schedule?
the target amount in allowance for uncollectible accounts is $25,500.
Accounts receivable are typically classified as current assets because
they will be converted to cash within 1 year.
Notes receivable normally has a(n) balance because it is classified as a(n) . (Enter only one word per blank.)
Blank 1: debit Blank 2: asset
A(n) receivable typically yields interest revenue and possesses a fairly high probability of collectibility. Listen to the complete question
Blank 1: notes or note
Accounts receivable are normally classified
in the balance sheet as assets.
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
$4,600 Reason: $5,000 - 100 - 300 = $4,600
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
$880 Reason: Sales minus sales discounts, returns, and allowances equals net sales. $1,000 - ($40 + $50 + $30) = $880.
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 Reason: $100,000 - $7,000
A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue revenue on December 31. (Enter only one word.)
Blank 1: interest
A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue revenue on December 31. (Enter only one word.) Listen to the complete question
Blank 1: interest
A(n) receivable typically yields interest revenue and possesses a fairly high probability of collectibility.
Blank 1: notes or note
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.
On October 1, Light Corp. provided services on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require which of the following entries?
Debit Interest Receivable $2,000; credit Interest Income $2,000. Reason: The 8% is an annual rate and since only 3/12 of a year has been earned, interest revenue is $2,000 (=$100,000 x 0.08 x (3/12))
During the year, Inga Corporation writes off a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of later collecting the written-off accounts receivable on net income?
No effect
During the year, Inga Corporation writes off a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of later collecting the written-off accounts receivable on total assets?
No effect
Prague Company has sales of $1,000,000 each year, but the average collection period has increased from 45 days to 65 days. What are the most likely reasons for the change in average collection period?
The company has become more lax in its credit policies and is extending credit terms to maintain customers. Customers are not paying in a timely manner.
A company makes a sale on terms 2/10, n/30. What does this mean? (Select all that apply.)
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.
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:
credit to accounts receivable $60 debit to Sales Allowances $60
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 Reason: $3,000 less 5% discount
ABC Corp. received a 3-month, 8%, $1,500 note receivable on November 1. The adjustment for interest earned by December 31 will include a:
credit to Interest Revenue of $20 Reason: $1,500 x 0.08 x (2/12) = $20; the time is 2/12 of the annual rate of 8%, not 2/3 of the 8% (12-month rate).
On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a
debit to Notes Receivable, $40,000.
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.
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end. The entry required on Light's books for interest on April 1 when the note is due requires (Select those that are correct.)
credit to interest revenue, $2,000 debit to cash $4,000 credit to interest receivable, $2,000. Reason: Interest rates are always stated at an annual rate. On December 31st, the company would have accrued interest receivable of $2,000. It will be collected when the note is due along with the additional interest from Jan 1 - April 1. $100,000*0.08*(3/12)
