Exam 2 MGMT 200

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment.

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)

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)

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

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

Average collection period & Receivable turnover ratio

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

Be more accurate

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

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

Credit

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?

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

What are the financial statement effects of recording bad debt expense using the allowance method?

Decrease assets Increase expenses

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 (Receivables not expected to be collected are not included in assets)

The allowance method is required by ________ . (Enter one word or abbreviation per blank)

GAAP

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

Net revenues is calculated as total revenues minus which of the following items?

Sales returns Sales discounts Sales allowances

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

account receivable

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

account 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 allowance for uncollectible accounts is a contra account to

accounts receivalbe

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ______ method of accounts receivable. (Enter only one word.)

aging

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

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 should be classified as a(n)

asset

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

bad debt expense

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

contra-asset account

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

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

current; future

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.

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

Recording bad debt expense: (Select all that apply.)

decreases net income decreases assets increases expenses

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

decreases; returned

The Accounts Receivable account is reduced when the seller:

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.)

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

The direct write-off method is required for

income tax purposes.

Total revenues less discounts, returns, and allowances are referred to as _______ revenues. (Enter only one word.)

net revenues

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

note receivable.

A trade discount is

percentage reduction from the list price

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 discount

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

sales discount

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

sales return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _________. (Enter only one word per blank.)

sales return

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

A customer account that is not expected to be collected is referred to as a bad debt or _______ account. (Enter one word per blank)

uncollectible account

The allowance method estimates

uncollectible accounts