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Exam 5: Receivables and Sales

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Question 71

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The direct write-off method is used when:

A) Uncollectible accounts are not anticipated or are immaterial.
B) A company elects to use this method as one of several alternatives.
C) A company has greater cash outflows than cash inflows.

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Question 72

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Sandburg Veterinarian reports the following information for the year: What is Sandburg's receivables turnover ratio? $\begin{array} { | l | r | } \hline \text { Net credit sales } & \$ 120,000 \\\hline \text { Average accounts receivable } & 20,000 \\\text { Cash collections on credit sales } & 100,000 \\\hline\end{array}$

A) 6.0.
B) 5.0.
C) 1.2.

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Question 73

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The current year's beginning and ending balances for Allowance for Uncollectible Accounts is $23,000 and $27,000,respectively.If the amount of Bad Debt Expense for the year is $18,000,what is the amount of actual bad debts for the year?

Which of the following best describes credit sales?

On September 1,2018,Heartford Construction lends $50,000 to a customer with 9% interest.The note and interest are due in twelve months.The note receivable is recorded for $50,000 on September 1,and the following year-end adjusting entry is made on December 31,2018: At the end of 2018,which of the following is true? $\begin{array} { | c | r | r | } \hline \text { Interest Receivable } & 4,500 & \\\hline \text { Interest Revenue } & & 4,500 \\\hline\end{array}$

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

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

Eric Company has the following information: What is the amount of net revenues for Eric Company? $\begin{array} { | l | r | } \hline \text { Total revenues } & \$ 860,000 \\\hline \text { Sales returns and allowances } & \$ 60,000 \\\hline \text { Sales discounts } & \$ 30,000 \\\hline \text { Ending inventory } & \$ 100,000 \\\hline\end{array}$

The percentage-of-receivables method for estimating uncollectible accounts is sometimes described as:

Identify the likely disadvantage(s) of extending credit to customers.

The purpose of recording an allowance for uncollectible accounts is to:

Which accounting concept does the direct write-off method violate?

Notes receivable typically arise from sales to customers.Notes receivable typically arise from loans to other entities including affiliated companies;loans to stockholders and employees;and only occasionally from the sale of merchandise or services.

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.This method is referred to as the income statement method because the estimate of bad debts is based on an income statement amount-credit sales.

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:

The following information pertains to Lindsey Corp.at the end of the year: Lindsey Corp.uses the percentage-of-credit-sales method and estimates that 2% of the credit sales are uncollectible.After the year-end adjustment,what amount of bad debt expense would Lindsey report for the year? $\begin{array} { | l r | r | } \hline \text { Credit Sales } & \$ 150,000 & \\\hline \text { Accounts Payable } & 20,000 & \\\hline \text { Accounts Receivable } & 30,000 & \\\hline \text { Allowance for Uncollectible } & 800 & \text { debit } \\\text { Accounts } & & \\\hline \text { Cash Sales } & 5,500 & \\\hline\end{array}$

An increase in a company's receivables turnover ratio typically means the company is:

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.This is generally an advantage of the allowance method.

The percentage-of-receivables method for accounting for uncollectible accounts focuses on the:

Credit sales are recorded as: