Deck 5: Receivables and Revenue

Question 1

As items are actually returned,the company reduces its sales refunds payable account for the amount of cash or accounts receivable credit it gives back to customers.

Answer 1

True

Question 2

Smart Company sells office furniture for $3,000 and the customer pays with a VISA card.VISA's fee is 2.5%.Prepare the journal entry for the sale,ignoring cost of goods sold.No sales returns are expected.Omit the explanation.

Answer 2

Question 3

Customers usually have a right to return unsatisfactory or damaged merchandise to sellers for refund,credit,or exchange.

Answer 3

True

Question 4

A trade discount is not considered in the transaction price.

Question 5

When goods are shipped FOB destination,revenue is recognized by the seller when the goods leave the seller's shipping dock.

Question 6

Large customers with excellent credit histories and cash flows often get trade discounts for making large purchases.

Question 7

Which of the following statements regarding contracts is INCORRECT?

A)The process of revenue recognition is based on contracts that the entity has with outsiders.
B)A contract is an agreement between two parties that creates enforceable rights or performance obligations.
C)Only written contracts are valid.
D)Identifying the contract with the customer is the first step of the revenue recognition model.

Question 8

When goods are shipped FOB destination:

A)revenue is recognized when the goods leave the shipping dock.
B)revenue is recognized when the invoice is mailed to the customer.
C)revenue is recognized only after cash payment is received.
D)revenue is recognized when the goods are received by the customer.

Question 9

We sell to a customer paying with Visa and the fee is 2%.Part of the transaction would include a debit to:

A)Sales Revenue.
B)Sales Discount.
C)Accounts Receivable.
D)Credit Card Discount Expense.

Question 10

On October 11,Younger Company sold merchandise with a selling price of $6,000 on account to Main Street Office Supplies,with a 10% trade discount.Journalize the 1)sale on account if cost of goods sold was $4,000.2)the collection of cash payment on October 20th.

Question 11

Companies are not required to estimate expected future returns as part of the end-of-period adjusting entry process.

Question 12

If Abby,Inc.sells items to a customer who uses a credit card for $1,900,and there is a credit card fee of 2.5%,Abby will record a(n): (Round your final answer to the nearest dollar. )

A)credit to Sales Revenue for $1,852.
B)debit to Accounts Receivable for $1,852.
C)debit to Sales Expense for $48.
D)debit to Credit Card Discount Expense for $48.

Question 13

The transaction price:

A)is the retail price and the same price to all customers.
B)may include a trade discount.
C)is always the list price.
D)is always the price that competitors see.

Question 14

When a merchant sells merchandise and lets the customer pay with a VISA credit card:

A)The strategy may increase sales dramatically,with no additional costs involved.
B)At the time of sale,Credit Card Receivable is debited and Sales Revenue is credited for the discounted portion of the sale amount.
C)The merchant's point-of-sale terminal is linked to a VISA server which automatically credits the merchant's bank account for the full sale amount.
D)The credit card discount is similar to interest expense and is reported on the income statement separately from operating income as other income (expense).

Question 15

The shipping terms in the sales contract determine when ownership of goods changes hands between the buyer and the seller.

Question 16

For retailers,a way to speed up cash collections is:

A)getting cash quickly is not important.
B)to accept debit and credit card sales.
C)to not offer a sales discount.
D)to lengthen credit cycles.

Question 17

Nichols Company has shipped goods to one of its customers FOB shipping point.Nichols Company will recognize sales revenue when:

A)their customer has received the goods.
B)the goods leave Nichols' shipping dock.
C)the two parties agree that revenue should be recognized.
D)the customer pays the invoice.

Question 18

To satisfy a performance obligation means that:

A)the provider has substantially completed the service for the customer.
B)the goods have been transferred to the customer who has assumed ownership and control over goods.
C)the selling entity has done everything required to earn the revenue.
D)All of the above statements are correct.

Question 19

Revenue should be recognized when it is earned,and not before.

Question 20

Stelloh's Berry Farm accepted a bank-issued credit card in payment of a $1,600 sales transaction.Stelloh's bank charges 1% to process the transaction.The journal entry to record the sales transaction will include (Ignore cost of goods sold. ):

A)a debit to Accounts Receivable for $1,584 and a credit to Sales Revenue for $1,584.
B)a debit to Cash for $1,600 and a credit to Sales Revenue for $1,600.
C)a debit to Cash for $1,584,a debit to Credit Card Discount Expense for $16 and a credit to Sales Revenue for $1,600.
D)a debit to Accounts Receivable for $1,600,a debit to Credit Card Revenue for $16 and a credit to Sales Revenue for $1,616.

Question 21

On December 1,Macy Company sold merchandise with a selling price of $3,000 on account to Mrs.Jorgensen,with terms 1/10,n/30.Using the gross method and ignoring cost of goods sold,what journal entry did Macy Company prepare on December 1? Macy expects no sales returns.

A)Debit Cash for $3,000 and credit Accounts Receivable for $3,000.
B)Debit Accounts Receivable for $2,970 and credit Cash for $2,970.
C)Debit Accounts Receivable for $2,970 and credit Sales Revenue for $2,970.
D)Debit Accounts Receivable for $3,000 and and credit Sales Revenue for $3,000.

Question 22

When journalizing for an actual sales return,there would be a debit to:

A)Sales Refunds Payable.
B)Cost of Goods Sold.
C)Sales Returns and Allowances.
D)Accounts Receivable.

Question 23

The multiple subsidiary ledgers for accounts receivable shows the separate accounts for each individual customer.

Question 24

On December 2,a customer returned merchandise,with a selling price of $1,400 purchased on account,to a department store.Ignoring cost of goods sold,which journal entry should the department store prepare? Assume no discounts were offered.

A)Debit Sales Revenue for $1,400 and credit Accounts Receivable for $1,400.
B)Debit Sales Revenue for $1,400 and credit Cash for $1,400.
C)Debit Sales Revenue for $1,400 and credit Sales Refunds Payable for $1,400.
D)Debit Sales Refunds Payable for $1,400 and credit Accounts Receivable for $1,400.

Question 25

By selling on credit,companies run the risk of not collecting some receivables.

Question 26

Accounts (trade)receivable are amounts to be collected from customers from the sale of goods or services.

Question 27

Accounts receivable represents a form of extending credit which requires customers to sign a promise to pay the business a definite sum at the maturity date,plus interest.

Question 28

Smith and Son's Department Store has a policy that allows customers to return merchandise for up to 45 days for a full refund.Based on prior experience,approximately 8% of merchandise sold will be returned.
In November,the store's total sales were $2,500,000,all for cash.The cost of the merchandise sold was $1,600,000.
On November 30,the company prepared the adjusting entries for sales returns.
In December,within the allowable return period,customers returned merchandise that retailed for $100,000 and that cost $66,000 for a refund.
Prepare the journal entries for these transactions.Omit explanations.

Question 29

The two major types of receivables are accounts receivable and trade receivables.

Question 30

When journalizing for the estimated sales returns,there would be a debit to:

A)Sales Refunds Payable.
B)Cost of Goods Sold.
C)Sales Returns and Allowances.
D)Accounts Receivable.

Question 31

On July 8,ABC Plumbing provided services of $7,500 on account to First Bank,with terms 3/10,n/30.On July 28,ABC received the full amount due from First Bank.
Prepare the journal entries for ABC Plumbing using the gross method.Omit explanations.

Question 32

Leno Company sells goods to the Fallon Company for $11,000.It offers credit terms of 3/10,n/30.If Fallon Company pays the invoice within the discount period,Leno Company will record a debit to Cash in the amount of:

A)$11,330.
B)$330.
C)$10,670.
D)$11,000.

Question 33

Step 3 of the revenue recognition model requires that the seller set the price of the sale at the amount the seller expects to receive from the customer.

Question 34

Smith Company returned $20,000 of inventory to us that was sold on account.Journalize the entries to record the return assuming Cost of Goods Sold is 40% of Sales and all returned inventory is returned to inventory.

Question 35

The typical credit cycle for most sales on account is 30 days.

Question 36

The general ledger has a separate account receivable for each customer.

Question 37

On October 11,Younger Company sold merchandise with a selling price of $6,000 on account to Main Street Office Supplies,with terms 2/10,n/30.No sales returns are expected.On October 20,Younger received the full amount due from Main Street.
Ignoring cost of goods sold,prepare the journal entries for Younger Company using the gross method.Omit explanations.

Question 38

Jones Company historical expenses show that 2% of the items it sells are returned.If sales revenue is expected to be $100,000 for the current year and Cost of Goods Sold is 40% of sales,what are the journal entries to record the estimated expected future returns.

Question 39

On December 1,Macy Company sold merchandise with a selling price of $9,000 on account to Mrs.Jorgensen,with terms 4/10,n/30.On December 3,Mrs.Jorgensen returned merchandise with a selling price of $700.Mrs.Jorgensen paid the amount due on December 9.What journal entry did Macy Company prepare on December 9 assuming the gross method is used?

A)Debit Cash for $7,968 and credit Accounts Receivable for $7,968.
B)Debit Sales Revenue for $7,968,debit Sales Discounts for $332,and credit Accounts Receivable for $8,300.
C)Debit Sales Revenue for $8,300,credit Sales Discount for $332 and credit Cash for $7,968.
D)Debit Cash for $7,968,debit Sales Discounts for $332,and credit Accounts Receivable for $8,300.

Question 40

A typical sales discount might be stated as 2/10,n/30.This expression means that the seller is willing to discount the order by 10% if the buyer pays the invoice within 2 days of the invoice date.

Question 41

Under the allowance method for estimating uncollectible accounts:

A)a company sets up an Allowance for Uncollectible Accounts to estimate the amount of the receivables the company does not expect to collect.
B)the Allowance for Uncollectible Accounts is a contra account to gross Accounts Receivable.
C)the Allowance for Uncollectible Accounts will normally have a credit balance.
D)all of the above.

Question 42

Under the allowance method,Uncollectible-Account Expense is recorded in the same accounting period as the sale.

Question 43

Generally Accepted Accounting Principles (GAAP)allow companies to use either the direct write-off method or the allowance method to determine Uncollectible-Account Expense.

Question 44

The journal entry to record lending money on a note receivable is:

A)Debit Cash,credit Notes Receivable
B)Debit Notes Receivable,credit Cash.
C)Debit Cash,credit Accounts Receivable.
D)Credit Accounts Receivable,credit Cash.

Question 45

Accounts receivable are reported on the balance sheet at their net realizable value.

Question 46

Estimating uncollectible accounts by analyzing receivables from specific customers according to how long each has been outstanding is known as the:

A)direct write-off method.
B)percent-of-sales method.
C)allowance method.
D)aging-of-receivables method.

Question 47

The Allowance for Uncollectible Accounts has a normal debit balance because it is an asset account.

Question 48

Under the allowance method,companies are not allowed to use different methods to estimate Uncollectible-Account Expense.

Question 49

With regard to notes receivable,which of the following statements is CORRECT?

A)Notes receivable are less formal contracts than accounts receivable.
B)Notes receivable are also called promissory notes because a written promise to pay is not required.
C)All notes receivable require the borrower to pledge collateral.
D)The borrower signs a written promise to pay the lender a definite sum at the maturity date,with interest.

Question 50

One way the risk of not collecting receivables can be managed is:

A)have all customers pay by check.
B)separate cash-handling duties from record-keeping duties.
C)separate cash-handling from the mailroom.
D)have an imprest petty cash fund.

Question 51

The aging-of-receivables method of estimating uncollectible accounts is:

A)not an acceptable method of estimating bad debts.
B)a balance sheet approach,since it focuses on accounts receivable.
C)an income statement approach,since it focuses on the amount of expense to be reported on the income statement.
D)is required to be used by all companies because it focuses on what should be the most relevant and faithful representation of accounts receivable on the balance sheet.

Question 52

The Allowance for Uncollectible Accounts is classified as:

A)a contra-expense account.
B)a contra-revenue account.
C)a contra-asset account.
D)an asset account.

Question 53

The percent-of-sales method of computing uncollectible accounts for Accounts Receivable is used by some companies because:

A)it ensures that Accounts Receivable are reported at net realizable value.
B)it is more accurate than the aging method.
C)it is easier and quicker to apply.
D)it fine tunes their allowance for uncollectibles.

Question 54

The net realizable value of accounts receivable is the difference between gross accounts receivable and:

A)Sales Discounts.
B)Sales Returns and Allowances.
C)Uncollectible-Account Expense.
D)Allowance for Uncollectible Accounts.

Question 55

With regard to Accounts Receivable,a separate account for each customer is kept in a(n):

A)control account.
B)subsidiary ledger.
C)general ledger.
D)control ledger.

Question 56

Which balance sheet account shows the amount of accounts receivable that the business does NOT expect to collect?

A)Unearned Sales Revenue
B)Accounts Receivable
C)Allowance for Uncollectible Accounts
D)Uncollectible-Account Expense

Question 57

When evaluating the collectability of accounts receivable:

A)the Uncollectible-Account Expense is a contra account.
B)the Allowance for Uncollectible Accounts is an operating expense in the selling,general and administrative category.
C)the allowance method uses estimates developed from the company's collection experience.
D)the direct write-off method uses the Allowance for Uncollectible Accounts to record bad debts.

Question 58

Under the direct write-off method,the journal entry to record Uncollectible-Account Expense includes a credit to Accounts Receivable.

Question 59

Estimates are NOT used to record uncollectible accounts expense when using the ________ method.

A)allowance.
B)percent-of-sales.
C)aging-of-receivables.
D)direct write-off.

Question 60

Uncollectible-Account Expense is included in Cost of Goods Sold on the income statement.

Question 61

Jensen Corporation uses the percentage-of-sales method to estimate uncollectibles.Net credit sales for the current year amount to $2,010,000 and management estimates 3% will be uncollectible.The Allowance for Doubtful Accounts prior to adjustment has a debit balance of $18,000.After all adjusting entries are made,the balance in Allowance for Uncollectible Accounts will be:

A)$18,000.
B)$18,540.
C)$42,300.
D)$60,300.

Question 62

A year-end review of Accounts Receivable and estimated uncollectible percentages revealed the following: Before the year-end adjustment,the credit balance in Allowance for Uncollectible Accounts was $1,300.Under the aging-of-receivables method,the Uncollectible-Account Expense at year-end is:

A)$1,950.
B)$9,000.
C)$10,300.
D)$11,600.

Question 63

The direct-write off method for uncollectible accounts receivable may ________ net income and ________ total assets in the year of the sale:

A)understate;understate.
B)overstate;overstate.
C)understate;overstate.
D)overstate;understate.

Question 64

The percent-of-sales method for computing uncollectible accounts:

A)computes Uncollectible-Account Expense as a percent of accounts receivable.
B)takes a balance sheet approach.
C)employs the expense recognition (matching)concept.
D)will result in the same amount of estimated Uncollectible-Accounts Expense as the aging-of-receivables method.

Question 65

Jumpin Corporation uses the percent-of-sales method to estimate uncollectibles.Net credit sales for the current year amount to $2,030,000,and management estimates 5% will be uncollectible.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,300.The amount of Uncollectible-Account Expense reported on the income statement will be:

A)$1,300.
B)$100,200.
C)$101,500.
D)$102,800.

Question 66

The allowance method records Uncollectible-Account Expense:

A)in the year of sale.
B)at the end of the accounting period.
C)when the specific account receivable is determined to be uncollectible.
D)A and B

Question 67

The aging-of-receivables method for estimating uncollectible accounts:

A)results in an immediate write-off of receivables that are more than 90 days past due.
B)focuses on the amount of receivables that will not be collected.
C)uses a balance sheet approach.
D)B and C.

Question 68

The direct write-off method for uncollectible accounts receivable:

A)reports receivables at their net realizable value.
B)does not use an Allowance for Uncollectible Accounts.
C)is considered to follow Generally Accepted Accounting Principles.
D)estimates uncollectible accounts as a percentage of sales.

Question 69

Which of the following is a CORRECT statement regarding the direct write-off method for uncollectible accounts?

A)Most companies use the direct-write off method for their financial statements.
B)Companies are required to use the direct write-off method for federal income tax purposes.
C)A company records the Uncollectible-Account Expense when it writes off an individual account receivable.
D)B and C.

Question 70

The following account balances were extracted from the accounting records of Thomas Corporation at the end of the year: What is the net realizable value of the accounts receivable?

A)$1,068,000
B)$1,105,000
C)$1,142,000
D)$1,165,000

Question 71

The balance in the Allowance for Uncollectible Accounts is considered prior to the year-end adjustment under:

A)the direct write-off method.
B)the percent-of-sales method.
C)the aging-of-receivables method.
D)both the percent-of-sales and aging-of-receivables methods.

Question 72

The entry to write off an Account Receivable under the allowance method:

A)reduces total assets and increases net income.
B)reduces net income and total assets.
C)has no effect on total assets and net income.
D)increases net income and total assets.

Question 73

Under the allowance method,the entry to write off a $11,600 uncollectible account includes a:

A)debit to Uncollectible Account Expense for $11,600 and credit to Allowance for Uncollectible Accounts for $11,600.
B)debit to Accounts Receivable for $11,600 and credit to Uncollectible-Account Expense for $11,600.
C)debit to Accounts Receivable for $11,600 and credit to Allowance for Uncollectible Accounts for $11,600.
D)debit to Allowance for Uncollectible Accounts for $11,600 and credit to Accounts Receivable for $11,600.

Question 74

The following item appeared on a balance sheet: The gross balance in Accounts Receivable before the allowance was deducted was:

A)$1,406,888.
B)$1,435,600.
C)$1,464,312.
D)none of the above

Question 75

The direct write-off method records Uncollectible-Account Expense:

A)in the accounting period each sale occurs.
B)at the end of the accounting period.
C)when the specific account receivable is determined to be uncollectible.
D)in the accounting period one year after the sale date.

Question 76

Under the allowance method,when a company determines that a specific customer's Accounts Receivable will not be collected,its accounting department will debit:

A)Uncollectible-Account Expense and credit Accounts Receivable.
B)Accounts Receivable and credit Allowance for Uncollectible Accounts.
C)Allowance for Uncollectible Accounts and credit Uncollectible Account Expense.
D)Allowance for Uncollectible Accounts and credit Accounts Receivable.

Question 77

A year-end review of Accounts Receivable and estimated uncollectible percentages revealed the following: Before the year-end adjustment,the credit balance in Allowance for Uncollectible Accounts was $900.Under the aging-of-receivables method,the balance in the Allowance for Uncollectible Accounts will be ________ after the adjusting entry is made.

A)$380
B)$7,600
C)$8,500
D)$9,400

Question 78

Most companies will use:

A)the direct write-off method for interim statements and the allowance method at the end of the year.
B)the allowance method for interim statements and the direct write-off method at the end of the year.
C)the percent-of-sales method for interim statements and the aging-of-receivables method at the end of the year.
D)the aging-of-receivables method for interim statements and the percent-of-sales method at the end of the year.

Question 79

An aging-of-accounts-receivable indicates that the amount of uncollectible accounts is $3,410.The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $300.The Accounts Receivable balance is $44,720.The amount of the adjusting entry for uncollectible accounts should be for:

A)$300.
B)$3,110.
C)$3,710.
D)$3,410.

Question 80

Using the percentage-of-sales method,the estimated total uncollectible accounts are $7,122.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $3,135.The Accounts Receivable balance is $44,820.The amount of the adjusting entry for Uncollectible-Accounts Expense is:

A)$3,135.
B)$3,987.
C)$7,122.
D)$10,257.