Deck 5: Revenue and Receivables

Question 1

The higher the accounts receivable turnover the better because it indicates that the company is more quickly collecting cash (through sales).

Answer 1

True

Question 2

The terms "realized" and "realizable" mean that the selling price is fixed and determinable and collectability is reasonably assured.

Answer 2

True

Question 3

The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts receivable.

Answer 3

True

Question 4

The account "Allowance for Doubtful Accounts" is an expense account (the cost of making bad credit sales)that is reported on the income statement.

Question 5

A primary advantage of the allowance method to account for bad debts is that it supports the matching principle.

Question 6

If a company accepts a major credit card,such as VISA,from a customer,then the company is responsible for the amount of the sale in a case of nonpayment from a cardholder.

Question 7

A sale and its associated receivable are recorded only when the order,shipping,and billing documents are all present.

Question 8

Under the allowance method of accounting for bad debts,the company estimates the amount of bad debt expense before those debts actually occur.

Question 9

The lender of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

Question 10

Because the allowance method results in better matching,accounting standards require its use rather than the direct write-off method unless bad debts are immaterial.

Question 11

The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place.

Question 12

Net sales = total credit sales - sales discounts - sales returns and allowances

Question 13

The longer a customer's account balance remains outstanding,the greater the likelihood that it will be collected in the near future.

Question 14

The direct write-off method is inconsistent with the matching concept.

Question 15

If a company estimates its bad debt expense on the basis of a receivables aging,the balance in the allowance for doubtful accounts will not affect the amount of the end-of-period adjusting entry for bad debts.

Question 16

The lender (issuer)of a note recognizes a note payable on the balance sheet and interest expense on its income statement.

Question 17

The amount of interest paid is a function of three variables: the amount borrowed,the interest rate,and the length of the loan period.

Question 18

Trade receivables represent a stronger legal claim against the debtor than do nontrade receivables.

Question 19

Selling on credit protects a company from the risk that some of its receivables will never be collected.

Question 20

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

Question 21

Select the term that matches each of the following descriptions.

-the party that receives payment due from a note

A)interest
B)maturity value
C)principal
D)lender
E)factoring
F)fraction of year
G)maturity date
H)implicit
I)maker

Question 22

Select the term that matches each of the following descriptions.

-the difference between the principal amount of the note and its maturity value

A)interest
B)maturity value
C)principal
D)lender
E)factoring
F)fraction of year
G)maturity date
H)implicit
I)maker

Question 23

The basis of accounting that recognizes revenue when it is realizable and earned is called the ____________________.

Question 24

How efficiently a company is using the resources at its disposal is called ____________________.

Question 25

Select the term that matches each of the following descriptions.

-the length of time a note is outstanding-the period of time between the date it is issued and the date the note is due to be paid

A)interest
B)maturity value
C)principal
D)lender
E)factoring
F)fraction of year
G)maturity date
H)implicit
I)maker

Question 26

A(n)____________________ categorizes the various accounts receivable amounts by the length of time outstanding.

Question 27

____________________ are receivables that generally specify an interest rate and a maturity date at which any interest and principal must be repaid.

Question 28

Gross profit divided by net sales is called the ____________________ ratio.

Question 29

The amount of money borrowed when a promissory note is issued is called the ____________________.

Question 30

Special forms of factoring are called ____________________.

Question 31

The difference between the principal amount of a note and its maturity value is called ____________________.

Question 32

Select the term that matches each of the following descriptions.

-the date which the total interest and principal must be repaid

A)interest
B)maturity value
C)principal
D)lender
E)factoring
F)fraction of year
G)maturity date
H)implicit
I)maker

Question 33

The ____________________ order is necessary for the buyer to be obligated to accept and pay for the ordered goods.

Question 34

Select the term that matches each of the following descriptions.

-the amount borrowed

A)interest
B)maturity value
C)principal
D)lender
E)factoring
F)fraction of year
G)maturity date
H)implicit
I)maker

Question 35

According to the ____________________ principle,bad debt expense must be recorded in the period in which the sale was made.

Question 36

Net sales is total sales less sales discounts and ________________.

Question 37

The method of recording bad debts that results in a bad debt expense before the actual default is the ____________________.

Question 38

To encourage prompt payment,sellers offer a(n)____________________.

Question 39

A(n)____________________ is the buyer of receivables,who acquires the right to collect the receivables and assumes the risk of uncollectability.

Question 40

A sales invoice that bears the notation 2/10 means ____________________.

Question 41

Match each statement to the item listed below.

-a special form of factoring

A)bank credit card
B)debit card
C)Sears card
D)American Express

Question 42

Select the term that matches each of the following descriptions.

-used to encourage prompt payment

A)sales discount
B)trade discount
C)sales allowance
D)sales returns

Question 43

Match each statement to the item listed below.

-money due from customers purchasing inventory in the ordinary course of business

A)bad debt expense
B)net sales revenue
C)nontrade receivables
D)percentage of credit sales
E)profitability ratios
F)trade receivables

Question 44

Match each statement to the item listed below.

-issuer does not incur a service charge expense when this card is used

A)bank credit card
B)debit card
C)Sears card
D)American Express

Question 45

Match each statement to the item listed below.

-money due the company from another business or individual

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 46

Match each statement to the item listed below.

-a way to estimate bad debts

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 47

Select the term that matches each of the following descriptions.

-reduction of price granted by the seller for a particular class of customers

A)sales discount
B)trade discount
C)sales allowance
D)sales returns

Question 48

Match each statement to the item listed below.

-the packaging of receivables as financial instruments or securities for sale to investors

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 49

Match each statement to the item listed below.

-a contra-asset account

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 50

Select the term that matches each of the following descriptions.

-The amount of cash the maker is to pay the payee on the maturity date of the note

A)interest
B)maturity value
C)principal
D)lender
E)factoring
F)fraction of year
G)maturity date
H)implicit
I)maker

Question 51

Select the term that matches each of the following descriptions.

-used to induce the customer to keep damaged goods

A)sales discount
B)trade discount
C)sales allowance
D)sales returns

Question 52

Match each statement to the item listed below.

-use results in an immediate electronic withdrawal from the owner's bank account

A)bank credit card
B)debit card
C)Sears card
D)American Express

Question 53

Match each statement to the item listed below.

-receivables that the company is not able to collect

A)bad debt expense
B)net sales revenue
C)nontrade receivables
D)percentage of credit sales
E)profitability ratios
F)trade receivables

Question 54

Match each statement to the item listed below.

-arise from transactions not involving inventory (e.g.,interest receivable)

A)bad debt expense
B)net sales revenue
C)nontrade receivables
D)percentage of credit sales
E)profitability ratios
F)trade receivables

Question 55

Match each statement to the item listed below.

-measure the return the company is earning on sales

A)bad debt expense
B)net sales revenue
C)nontrade receivables
D)percentage of credit sales
E)profitability ratios
F)trade receivables

Question 56

Match each statement to the item listed below.

-a way to estimate bad debt expense

A)bad debt expense
B)net sales revenue
C)nontrade receivables
D)percentage of credit sales
E)profitability ratios
F)trade receivables

Question 57

Match each statement to the item listed below.

-generally entitle(s)the holder to interest

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 58

Match each statement to the item listed below.

-indicates that noncash resources have been exchanged for cash

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 59

Match each statement to the item listed below.

-indicates that the earnings process is substantially complete

A)accounts receivable
B)aging method
C)allowance for doubtful accounts
D)earned
E)notes receivable
F)realized
G)securitization

Question 60

Match each statement to the item listed below.

-a non-bank credit card

A)bank credit card
B)debit card
C)Sears card
D)American Express

Question 61

A company had sales of $40,000,sales discounts of $800,sales returns of $1,600,and commissions owed to salespeople of $600.What is net sales?

A) $37,000
B) $37,600
C) $38,400
D) $39,000

Question 62

Match each statement to the item listed below.

-the amount of sales expected to be collectible after deducting discounts and returns and allowances

A)bad debt expense
B)net sales revenue
C)nontrade receivables
D)percentage of credit sales
E)profitability ratios
F)trade receivables

Question 63

A company uses the allowance method to account for doubtful accounts.When will the company's shareholders' equity decrease?

A) on the date a customer's account is written off
B) at the end of the accounting period, when an adjusting entry for bad debts is recorded
C) on the date a customer's account is determined to be uncollected
D) on the date the accounts receivable amount becomes past due

Question 64

Beginning accounts receivable were $200,000,and ending accounts receivable were $300,000.Assuming that cash collections totalled $1,100,000,what were credit sales?

A) $1,100,000
B) $1,200,000
C) $1,300,000
D) $1,500,000

Question 65

A company uses the direct write-off method of accounting for bad debts.Which of the following does this entail?

A) establishing an estimate for the allowance for doubtful accounts
B) recording bad debt expense only when an account is determined to be uncollected
C) reducing the accounts receivable account at the end of the accounting period for estimated uncollected accounts
D) keeping total assets the same when an account is written off

Question 66

Which of the following expresses the distinction between accounts receivable and notes receivable?

A) Accounts receivable usually includes current assets; notes receivable usually includes long-term assets.
B) Accounts receivable requires payment of interest; notes receivable does not.
C) Notes receivable results from credit sale transactions for merchandising companies; accounts receivable results from credit sale transactions for service companies.
D) Notes receivable generally specifies an interest rate and a maturity date at which any interest and principle must be repaid; accounts receivable does not.

Question 67

The balance sheet of Acworth Pools as of December 31 stated that trade accounts receivable,net of allowance for doubtful accounts of $200,000 was $1,700,000.Which of the following describes Acworth Pool's accounts receivable situation?

A) The company expects to actually collect $1,700,000 of its receivables.
B) The balance in accounts receivable in the company's general ledger is $1,700,000.
C) The net realizable value of the company's receivables is $1,900,000.
D) The company expects collectibles to total $200,000.

Question 68

Which of the following is characteristic of a company that uses the allowance method of accounting for bad debts?

A) It does not use a contra-asset account called Allowance for Doubtful Accounts.
B) It records bad debt expense each time an account is determined to be uncollectible.
C) It increases its accounts receivable balance when the account is written off.
D) It reports accounts receivable in the balance sheet at their net realizable value.

Question 69

A company receives payment of a $20,000 account receivable with terms of 2/10,n/30 within 10 days.Which of these sales discounts will it record?

A) 10% of $20,000
B) 2% of $20,000
C) (100% - 10%) x $20,000
D) (100% - 2%) x $20,000

Question 70

Which of the following is an accurate description of the allowance for doubtful accounts?

A) contra account
B) liability account
C) revenue account
D) expense account

Question 71

Action Signs recorded credit sales of $10,000 on the gross method.Terms are 2/20,n/30.How would the entry to this sale be recorded?

A) accounts receivable increases by $10,000
B) sales increases by $9,800
C) sales discounts increase by $200
D) cash decreases by $3,000

Question 72

A company's accounts receivable balance after posting net collections from customers is $150,000.Management has determined there are the following uncollected accounts,including the corresponding aging of accounts receivable and uncollected percentages: $100,000 that are 1 to 30 days past due at 2%,and $50,000 that are 31 to 60 days past due at 10%.What is the net realizable value of the accounts receivable?

A) $143,000
B) $147,500
C) $148,000
D) $150,000

Question 73

On December 15,the accounts receivable balance was $50,000 and the balance in the allowance for doubtful accounts was $5,000.That morning,a $1,000 uncollected account was written off.What is the net realizable value of accounts receivable immediately after the write-off?

A) $44,000
B) $45,000
C) $46,000
D) $49,000

Question 74

All Star Auto
All Star Auto has an accounts receivable balance after posting net collections from customers of $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts receivable and estimate for uncollected account percentages as follows:
$\begin{array}{ll}\$ 90,000 & \text { Current at } 2 \% \\\$ 50,000 & 1-30 \text { days past due at } 5 \% \\\$ 30,000 & 31-60 \text { days past due at } 10 \% \\\$ 10,000 & 60+\text { days past due at } 25 \%\end{array}$

-Refer to the figure All Star Auto.What is the net realizable value of the accounts receivable?

A) $170,200
B) $172,700
C) $173,200
D) $180,000

Question 75

A company had beginning accounts receivable of $175,000.All sales were on account and totalled $550,000.Cash collected from customers totalled $650,000.What was the ending accounts receivable balance?

A) $75,000
B) $175,000
C) $275,000
D) $725,000

Question 76

Alco Roofing Company's beginning accounts receivable were $200,000.Ending accounts receivable were $270,000.During the period,credit sales totalled $570,000.How much cash was collected from customers?

A) $470,000
B) $500,000
C) $570,000
D) $640,000

Question 77

A company uses the direct write-off method to account for bad debts.What is the impact on the accounting equation of the entry to record the write-off of a customer's account balance?

A) Assets and liabilities decrease.
B) Assets and shareholders' equity decrease.
C) Shareholders' equity and liabilities decrease.
D) Assets increase and shareholders' equity decreases.

Question 78

What is the effect of an unacceptably long collection period for accounts receivable?

A) The collection cost will be reduced.
B) The company may offer sales discounts to shorten the collection period.
C) Cash flows from operations may be higher than expected for the company's sales.
D) The company should expand operations with its excess cash.

Question 79

What method for the allowance procedure emphasizes the net realizable value of accounts receivable on the balance sheet?

A) aging of accounts receivable
B) percentage of net credit sales
C) percentage of accounts written off
D) direct write-off

Question 80

What allowance method approach is considered an income statement approach to estimating bad debts?

A) percentage of accounts receivable
B) percentage of accounts written off
C) percentage of net credit sales
D) direct write-off