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Exam 5: Receivables and Sales

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Question 41

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The Sales Returns account is an expense account.

A) True
B) False

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Question 42

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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.

E) C) and D)
F) A) and B)

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Question 43

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Calculate the missing amount for each of the following notes receivable.

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.

On July 1,2015,a company loans one of its employees $20,000 and accepts a nine-month,8% note receivable.Calculate the amount of interest revenue the company will recognize in 2015 and 2016.

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.

The following information pertains to Lightning,Inc.at the end of the year: Lightning uses the percentage-of-credit-sales method and estimates 1% of sales are uncollectible.What is the ending balance of the allowance account after the year-end adjustment?

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

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.

Lail Inc.accounts for bad debts using the allowance method.On June 1,Lail Inc.wrote off Andrew Green's $2,500 account.Based on Lail's estimation,Andrew Green will never pay any portion of the balance in his account.What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off?

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?

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

On April 1,2015,a company loans one of its suppliers $50,000 and accepts a 24-month,12% note receivable.Calculate the amount of interest revenue the company will recognize in 2015,2016,and 2017.

A company reports the following amounts at the end of the year (before any year-end adjustment). Record the adjustment for uncollectible accounts (1)using the percentage-of-receivables method,assuming the company estimates 10% of receivables will not be collected,and (2)using the percentage-of-credit-sales method,assuming the company estimates 2% of credit sales will not be collected.

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

On January 1,2015,Alice & Co.lends $5,000 to an employee and accepts a 24-month,10% note.At the end of 2015,what effect will the adjustment for accrued interest revenue have on the Alice & Co.'s financial statements?

Sandburg Veterinarian reports the following information for the year: What is Sandburg's receivables turnover ratio?

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

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

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