Deck 5: Receivables and Sales

Question 1

A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances.

Answer 1

False

Question 2

The adjustment for uncollectible accounts involves a debit to Bad Debt Expense and a credit to the Allowance for Uncollectible Accounts.

Answer 2

True

Question 3

Sales returns and allowances occur when the buyer returns the goods or the seller reduces the customer's balance owed.

Answer 3

True

Question 4

A sales discount represents a reduction,not in the selling price of a product or service,but in the amount to be paid by a credit customer if payment is made within a specified period of time.

Question 5

The Sales Returns account is an expense account.

Question 6

Customers' accounts that we no longer consider collectible are referred to as uncollectible accounts (or bad debts).

Question 7

When a company sells a $100 service with a 20% trade discount,$80 of revenue is recognized.

Question 8

The adjustment to account for future bad debts has the effect of (1)reducing assets and (2)increasing liabilities.

Question 9

The Sales Discounts account is an example of a contra revenue account.

Question 10

A sale on account for $1,000 offered with terms 2/10,n/30 means that the customers will get a $2 discount if payment is made within 10 days;otherwise,full payment is due within 30 days.

Question 11

The Sales Discounts account is an expense account.

Question 12

Credit sales transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future.

Question 13

The direct write-off method involves recording an adjustment at the end of each period to account for the possibility of future uncollectible accounts.

Question 14

The net realizable value of accounts receivable is the full amount owed by customers.

Question 15

Accounts receivable represent the amount of cash owed to the company by its customers from the sale of products or services on account.

Question 16

At the time of a credit sale,a company would record an increase in assets and an increase in revenues.

Question 17

If a company has total revenues of $100,000,sales discounts of $3,000,sales returns of $4,000,and sales allowances of $2,000,the income statement will report net revenues of $91,000.

Question 18

Trade discounts represent a discount offered to the purchasers for quick payment.

Question 19

A sale on account is recorded as a debit to Service Revenue and a credit to Accounts Receivable.

Question 20

Accounts receivable are reported at their net realizable value.

Question 21

Notes receivable are assets and are reported in the balance sheet.

Question 22

The Allowance for Uncollectible Accounts is a contra asset account representing the amount of accounts receivable that we do not expect to collect.

Question 23

Under the allowance method,when a company collects cash from an account previously written off,total assets increase.

Question 24

The direct write-off method violates the matching principle.

Question 25

Under the direct write-off method,recording an estimate of future uncollectible accounts includes a debit to Bad Debt Expense and a credit to the Allowance for Uncollectible Accounts.

Question 26

Under the direct write-off method,bad debt expense is recorded at the time accounts are known to be uncollectible.

Question 27

The direct write-off method is used for tax purposes but is generally not permitted for financial reporting.

Question 28

Interest on a note receivable is calculated as the face value of the note times the annual interest rate stated on the note times the fraction of the year the note is outstanding.

Question 29

A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible.If the company has $40,000 of newer accounts and $5,000 of older accounts,the total estimate of uncollectible accounts is $2,000.

Question 30

A debit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts was too low.

Question 31

Notes receivable typically arise from sales to customers.

Question 32

One disadvantage of the allowance method (over the direct write-off method)for recording uncollectible accounts is that it generally matches bad debt expense with the revenue it helped to generate.

Question 33

Notes receivable are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument,or note.

Question 34

Under the allowance method,when a company writes off an account receivable as an actual bad debt,it reduces total assets.

Question 35

Under the allowance method,when a company writes off an account receivable as an actual bad debt,it records an expense.

Question 36

The aging method for estimating uncollectible accounts considers that a higher percentage of "older" accounts will not be collected compared to "newer" accounts.

Question 37

A credit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts may have been too high.

Question 38

Bad debt expense is the amount of the adjustment to the allowance for uncollectible accounts that represents the cost of the estimated future bad debts.

Question 39

Under the allowance method,the write-off of an actual bad debt is recorded with a debit to the Allowance for Uncollectible Accounts and a credit to Accounts Receivable.

Question 40

If a company is owed $10,000 by its customers,but it expects that $1,000 will not be collected,accounts receivable in the balance sheet are reported at the net amount of $9,000.

Question 41

Which of the following best describes credit sales?

A)Cash sales to customers that are new to the company.
B)Sales to customers using credit cards.
C)Sales to customers on account.
D)Sales with a high risk that the customer will return the product.

Question 42

Accrued interest on a note receivable has the effects of increasing assets and increasing liabilities.

Question 43

The average collection period shows the approximate number of days the average accounts receivable balance is outstanding.

Question 44

The percentage-of-credit-sales method (income statement method)is allowed only if amounts do not differ significantly from estimates using the percentage-of-receivables method.

Question 45

Even though the percentage-of-receivables method and the percentage-of-credit-sales method use different accounts to estimate future uncollectible accounts,the amount of bad debt expense reported in the income statement will always be the same under the two methods.

Question 46

Credits sales are recorded as:

A)Debit Cash,credit Unearned Revenue.
B)Debit Service Revenue,credit Accounts Receivable.
C)Debit Cash,credit Service Revenue.
D)Debit Accounts Receivable,credit Service Revenue.

Question 47

A $10,000 note that has a stated interest rate of 10% and is due in six months would have interest of $1,000.

Question 48

Eric Company has the following information:
What is the amount of net revenues for Eric Company?

A)$330,000.
B)$230,000.
C)$680,000.
D)$780,000.

Question 49

The percentage-of-credit-sales method for estimating uncollectible accounts is commonly referred to as the income statement method,because it always results in a higher amount of net income being reported in the income statement.

Question 50

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers.In March 2015,Garber provided $4,000 of plumbing services to Red Oak,Inc.and $1,500 of services to Cyril,Inc.Each of these customers was granted credit terms of 2/10,net 30.If both customers paid for the plumbing services within the discount period,what was the net revenues figure for these two transactions?

A)$5,500.
B)$4,312.
C)$4,486.
D)$4,606.

Question 51

The percentage-of-receivables method for estimating uncollectible accounts is commonly referred to as the balance sheet method,because the estimate of bad debts is based on a balance sheet amount-accounts receivable.

Question 52

Lewis Inc.had the following information taken from various accounts for 2015: What was Lewis Inc.'s net revenues in 2015?

A)$368,000.
B)$434,000.
C)$383,000.
D)$437,000.

Question 53

From an income statement perspective,the percentage-of-credit-sales method is typically preferable because it better matches the revenues (credit sales)with their related expenses (bad debts).

Question 54

The receivables turnover ratio shows the number of times during a year that the average accounts receivable balance is collected (or "turns over").

Question 55

The receivables turnover ratio equals average accounts receivable divided by net credit sales.

Question 56

Two important ratios that help in understanding the company's effectiveness in managing receivables are the receivables turnover ratio and the average collection period.

Question 57

Accrued interest on a note receivable is interest earned by the end of the year but not yet received.

Question 58

From a balance sheet perspective,the percentage-of-receivables method is typically preferable because assets (net accounts receivable)are reported closer to their net realizable value.

Question 59

On March 17,Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10,net 20.What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials?

A)$15,000.
B)$14,550.
C)$15,450.
D)$0.

Question 60

A lower receivables turnover ratio generally indicates more favorable management of accounts receivable by company managers.

Question 61

At December 31,Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970 (credit)in Allowance for Uncollectible Accounts.An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable.Bad debt expense for the year should be:

A)$6,220.
B)$6,450.
C)$5,250.
D)$7,190.

Question 62

Allowance for Uncollectible Accounts is:

A)An expense account.
B)A contra asset account.
C)A contra revenue account.
D)A liability account.

Question 63

Gershwin Wallcovering Inc.shipped the wrong shade of paint to a customer.The customer agreed to keep the paint upon being offered a 15% price reduction.Gershwin would record this reduction by crediting Accounts Receivable and debiting:

A)Sales Revenue.
B)Sales Discounts.
C)Sales Returns.
D)Sales Allowances.

Question 64

Richard LLC accounts for possible bad debts using the allowance method.When an actual bad debt occurs,what effect does it have on the accounting equation?

A)Increases assets and increases stockholders' equity.
B)Decreases assets and decreases stockholders' equity.
C)Decreases assets and decreases liabilities.
D)No effect on the accounting equation.

Question 65

Gershwin Wallcovering Inc.shipped the wrong shade of paint to a customer.The customer agreed to keep the paint upon being offered a 15% price reduction.The price reduction is an example of a:

A)Sales revenue.
B)Sales discount.
C)Sales return.
D)Sales allowance.

Question 66

At December 31,Gill Co.reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (debit).An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable.The amount of the adjustment for uncollectible accounts would be:

A)$6,540.
B)$7,800.
C)$7,140.
D)$7,740.

Question 67

Shupe Inc.estimates uncollectible accounts based on the percentage of accounts receivable.What effect will recording the estimate of uncollectible accounts have on the accounting equation?

A)Increase liabilities and decrease stockholders' equity.
B)Decrease assets and decrease liabilities.
C)Decrease assets and decrease stockholders' equity.
D)Increase assets and decrease stockholders' equity.

Question 68

Under the allowance method,which of the following does not change the balance in the Accounts Receivable account?

A)Returns on credit sales.
B)Collections on customer accounts.
C)Bad debt expense adjustment.
D)Write-offs.

Question 69

Tom's Textiles shipped the wrong material to a customer,who refused to accept the order.Upon receipt of the material,Tom's would credit Accounts Receivable and debit:

A)Sales Revenue.
B)Sales Discounts.
C)Sales Returns.
D)Sales Allowances.

Question 70

Which of the following is recorded upon receipt of a payment on April 7,2015,by a customer who pays a $900 invoice dated March 3,2015,with terms 2/10,n/60?

A)Debit Sales Discounts $18.
B)Credit Purchase Discounts $18.
C)Credit Accounts Receivable $882.
D)Debit Cash $900.

Question 71

On December 31,2015,Mark Inc.estimates future bad debts to be $6,500.The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year-end adjustment.What adjustment should Mark Inc.record for the estimated bad debts on December 31,2015?

A)Debit Bad Debt Expense,$6,500;credit Allowance for Uncollectible Accounts,$6,500.
B)Debit Bad Debt Expense,$4,000;credit Allowance for Uncollectible Accounts $4,000.
C)Debit Allowance for Uncollectible Accounts,$9,000;credit Bad Debt Expense,$9,000.
D)Debit Bad Debt Expense,$9,000;credit Allowance for Uncollectible Accounts,$9,000.

Question 72

At December 31,Gill Co.reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit).An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable.The amount of the adjustment for uncollectible accounts would be:

A)$6,540.
B)$7,800.
C)$7,140.
D)$7,740.

Question 73

Accounts receivable are normally reported at the:

A)Present value of future cash receipts.
B)Current value plus accrued interest.
C)Expected amount to be received.
D)Current value less expected collection costs.

Question 74

Tom's Textiles shipped the wrong material to a customer,who refused to accept the order.This is an example of a:

A)Sales revenue.
B)Sales discount.
C)Sales return.
D)Sales allowance.

Question 75

At December 31,Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970 (debit)in Allowance for Uncollectible Accounts.An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable.Bad debt expense for the year should be:

A)$6,220.
B)$6,450.
C)$5,250.
D)$7,190.

Question 76

A trade discount results in:

A)A contra revenue account being recorded.
B)A contra asset being recorded.
C)Customers delaying cash payment.
D)Revenue being recorded for the discounted price.

Question 77

Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000;sales discounts = $12,000;sales returns = $44,000;sales allowances = $17,000.What was the company's net revenues for the year?

A)$489,000.
B)$485,000.
C)$477,000.
D)$499,000.

Question 78

A company's adjustment for uncollectible accounts at year-end would include a:

A)Debit to Bad Debt Expense.
B)Credit to Accounts Receivable.
C)Debit to Accounts Receivable.
D)Debit to Allowance for Uncollectible Accounts.

Question 79

When customers purchase products on account,Spitz Manufacturing offers them a 2% reduction in the amount owed if they pay within 10 days.This is an example of a:

A)Bad debt.
B)Sales discount.
C)Sales return.
D)Sales allowances.

Question 80

Suppose that the balance of a company's Allowance for Uncollectible Accounts was $6,200 (credit)at the end of 2015,prior to any adjustments.The company estimated that the total of uncollectible accounts in its accounts receivable was $44,300 at the end of 2015.What amount of bad debt expense would appear in the company's 2015 income statement?

A)$38,100.
B)$105,700.
C)$33,000.
D)$50,500.