Chapter 5 Review

Beginning accounts receivable were $200,000 and ending accounts receivable were $300,000. Assuming cash collections totaled $1,100,000, what were credit sales? a) $1,200,000 b) $1,100,000 c) $1,300,000 d) $1,500,000

a) $1,200,000 Beg. AR + Credit Sales - Cash Collection - Write-off = Ending AR 200,000 + ? - 1,100,000 = 300,000 ? = $1,200,000

A company had sales of $40,000, sales discounts of $800, sales returns of $1,600 and commissions owed to sales people of $600. Compute net sales. a) $37,600 b) $37,000 c) $38,400 d) $39,000

a) $37,600 Sales Rev - Sales Discount - Sales Return & Allowance = Net Sales 40,000 - 800 - 1,600 = $37,600

All Star Auto has an accounts receivable balance after posting net collections from customers for 2013 of $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts receivable and estimate for uncollected account percentages as follows: $90,000 -- Current at 2% $50,000 -- 1-30 days past due at 5% $30,000 -- 31-60 days past due at 10% $10,000 -- 60+ days past due at 25% The net realizable value of the accounts receivable is a) $173,200 b) $170,200 c) $172,700 d) $180,000

b) $170,200 % of Credit Sale --> Bad Debt Exp. Aging --> Ending AFDA 90,000 * 0.02 = 1,800 50,000 * 0.05 = 2,500 30,000 * 0.10 = 3,000 10,000 * 0.25 = 2,500 sum = 9,800 Ending AFDA 180,000 - 9,800 = $170,200

~Accounts Receivable (January 1) -- $455,000 ~Credit sales during the year -- $900,000 ~Collections from credit customers during the year -- $825,000 ~Customer accounts written off as uncollected during the year -- $15,000 ~Allowance for Doubtful Accounts (After write-off of uncollected accounts) -- $2,100 ~Estimated uncollected accounts based on an aging analysis -- $29,200 If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense? a) $2,100 b) $27,100 c) $29,200 d) $31,300

b) $27,100 Beg AFDA - Write-off = 2,100 + Bad Debt Exp = 29,000 29,000 - 2,100 = $27,100

A company receiving payment of a $20,000 accounts receivable within 10 days with terms of 2/10, n/30 would record a sales discount of: a) 10% of $20,000 b) 2% of $20,000 c) (100% - 10%) x $20,000 d) (100% - 2%) x $20,000

b) 2% of $20,000

If a company uses the allowance method to account for doubtful accounts, when will the company's Stockholders' equity decrease? a) At the date a customer's account is written off. b) At the end of the account period when an adjusting entry for bad debts is recorded. c) At the date a customer's account is determined to be uncollected. d) When the accounts receivable amount becomes past due.

b) At the end of the account period when an adjusting entry for bad debts is recorded.

If a company uses the direct write-off method of accounting for bad debts, a) It establishes an estimate for the allowance for doubtful accounts. b) It will record bad debt expense only when an account is determined to be uncollected. c) It will reduce the accounts receivable account at the end of the accounting period for estimated uncollected accounts. d) When an account is written off, total assets will stay the same.

b) It will record bad debt expense only when an account is determined to be uncollected.

The company sold merchandise to a customer on December 1, 2019, for $120,000. The company accepted a promissory note as payment. The note has a term of three months and an annual interest rate of 10%. The company's accounting period ends on December 31. What amount should the company recognize as interest revenue in 2020? a) $0 b) $1,000 c) $2,000 d) $3,000

c) $2,000 12/01/19 -- 2/28/20 Int: (12/01/19--12/31/19 --> 1 m in 2019; 1/01/20--2/28/20 --> 2 m in 2020) 120,000 * 10% * 2/12 = $2,000

On December 15, the accounts receivable balance was $50,000 and the balance in the allowance for doubtful accounts was $5,000. That morning, a $1,000 uncollected account was written-off. The net realizable value of accounts receivable immediately after the write-off is: a) $49,000 b) $46,000 c) $45,000 d) $44,000

c) $45,000 Beg. AR + Credit Sales (net.) - Cash Collection - Write-off = Ending AR Beg. AFDA (Cr.) + Bad Debt Exp. - Write-off = Ending AFDA Ending AR - Ending AFDA = Net Realizable Value (NRV) 50,000 - 1,000 = 49,000 5,000 - 1,000 = 4,000 49,000 - 4,000 = 45,000

~Accounts Receivable (January 1) -- $455,000 ~Credit sales during the year -- $900,000 ~Collections from credit customers during the year -- $825,000 ~Customer accounts written off as uncollected during the year -- $15,000 ~Allowance for Doubtful Accounts (After write-off of uncollected accounts) -- $2,100 ~Estimated uncollected accounts based on an aging analysis -- $29,200 What is the balance of Accounts Receivable at December 31? a) $545,000 b) $440,000 c) $515,000 d) $530,000

c) $515,000 Beg. AR + Credit Sales - Cash Collection - Write-off = Ending AR 455,000 + 900,000 - 825,000 - 15,000 = $515,000 Ending AR

~Sales (credit) -- $2,500,000 ~Sales Returns & Allowances -- $50,000 ~Accounts Receivable (December 31) -- $640,000 ~Allowance for Doubtful Accounts (Before adjustment at December 31) -- $20,000 ~Estimated amount of uncollected accounts based on aging analysis -- $45,000 If the company estimates its bad debt to be 2% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts? a) $20,000 b) $19,000 c) $49,000 d) $69,000

d) $69,000 Sales Rev - Sales Discount - Sales Return & Allowance = Net Sales 2,500,000 - 50,000 = 2,450,000 Net Sales 2,450,000 * 0.02 = 49,000 Bad Debt Exp. Beg. AFDA + Bad Debt Exp. - Write-off = Ending AFDA 20,000 +49,000 = $69,000 Ending AFDA

What is the distinguishing characteristic between accounts receivable and notes receivable? a) Accounts receivable are usually current assets while notes receivable are usually long-term assets. b) Accounts receivable require payment of interest while notes receivable does not have payment of interest. c) Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable result from credit sale transactions for service companies. d) Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid.

d) Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid.

~Sales (credit) -- $2,500,000 ~Sales Returns & Allowances -- $50,000 ~Accounts Receivable (December 31) -- $640,000 ~Allowance for Doubtful Accounts (Before adjustment at December 31) -- $20,000 ~Estimated amount of uncollected accounts based on aging analysis -- $45,000 The Allowance for Doubtful Accounts represents: a) Bad debt losses incurred in the current period. b) The amount of uncollected accounts written off to date. c) The difference between total sales made on credit and the amount collected from those credit sales. d) The difference between the recorded value of accounts receivable and the net realizable value of accounts receivable.

d) The difference between the recorded value of accounts receivable and the net realizable value of accounts receivable.