Question 1

Darko Inc. made a $60,000 sale on account with terms of 1/15, n/30. If the company uses the gross method, which of the following will be included in the journal entry to record the sale on account?
A) credit Accounts Receivable $60,000
B) debit Sales Discount $600
C) credit Sales Revenue $60,000
D) debit Cash $60,000

Accepted Answer

Under the gross method, the sale is recorded at the full invoice amount. Therefore, Sales Revenue is credited for the full amount of $60,000.

Question 2

The balance-sheet value of the asset Accounts Receivable (accounts receivable less the allowance for doubtful accounts) represents the amount of cash the company is expected to collect from its customers.

Accepted Answer

The balance-sheet value of Accounts Receivable, after deducting the allowance for doubtful accounts, reflects the net realizable value, which is the estimated amount of cash expected to be collected from customers.

Question 3

Eurobake Inc. made a $50,000 sale on account with terms of 1/15, n/30. If the company uses the net method, which of the following will be included in the journal entry to record the sale on account?
A) debit Accounts Receivable $50,000
B) debit Accounts Receivable $49,500
C) debit Sales Discount Forfeited $500
D) credit Sales Discount Forfeited $500

Accepted Answer

Under the net method, sales are recorded net of any discounts. The discount is 1% of $50,000, which is $500. Therefore, the Accounts Receivable is debited for $49,500 ($50,000 - $500).

Question 4

The two acceptable approaches to recording sales discounts are ________.
A) the net method and the aging method
B) the allowance method and the aging method
C) the net method and the gross method
D) the allowance method and the gross method

Accepted Answer

The two acceptable approaches to recording sales discounts are the net method and the gross method. The net method records sales at the net amount after discounts, while the gross method records sales at the full invoice amount before discounts.

Question 5

Which of the following is a reduction of a catalog price whenever a company sells to a reseller in the same industry?
A) trade discount
B) sales discount
C) net discount
D) gross discount

Accepted Answer

A trade discount is a reduction in the catalog price given to resellers in the same industry to encourage them to purchase and sell the company's products.

Question 6

The Sales Discounts Forfeited account is classified as a contra-revenue account.

Accepted Answer

The Sales Discounts Forfeited account is classified as a revenue account, not a contra-revenue account. It represents additional revenue earned when customers fail to take advantage of early payment discounts.

Question 7

Gappule Corp. made a $30,000 sale on account with terms of 2/15, n/30. If the company uses the net method, which of the following will be included in the journal entry to record customer payment within the discount period?
A) credit Accounts Receivable $30,000
B) debit Sales Discounts Forfeited $600
C) credit Sales Revenue $29,400
D) debit Cash $29,400

Accepted Answer

Under the net method, sales are recorded net of discounts. The customer pays within the discount period, so the cash received is $29,400 (30,000 - 2% of 30,000).

Question 8

Fraxon Inc. made a $40,000 sale on account with terms of 1/15, n/30. If the company uses the gross method, which of the following will be included in the journal entry to record customer payment within the discount period?
A) credit Accounts Receivable $40,000
B) credit Sales Discount $400
C) credit Sales Revenue $40,000
D) credit Cash $39,600

Accepted Answer

When the customer pays within the discount period, the company credits Accounts Receivable for the full amount of the sale ($40,000) and records the discount taken separately.

Question 9

Frigart Company sold goods for $13,000 with terms 2/10, n/30. How much would Frigart receive if the account were paid within the discount period?
A) $12,974
B) $12,740
C) $9,100
D) $11,700

Accepted Answer

The discount terms 2/10 mean a 2% discount is available if paid within 10 days. 2% of $13,000 is $260, so the amount received would be $13,000 - $260 = $12,740.

Question 10

On June 1, Homart Wholesalers, Inc. sells 2,000 cases of facial products for $8 per case with terms of 3/15, n/30. Homart uses the periodic inventory method.
a. If Homart uses the gross method, what is the journal entry to record the sale on June 1?
b. If Homart uses the gross method, what is the journal entry to record customer payment
on June 12?
c. If Homart uses the gross method, what is the journal entry to record customer payment
on June 30?
d. If Homart uses the net method, what is the journal entry to record the sale on June 1?
e. If Homart uses the net method, what is the journal entry to record customer payment
on June 12?
f. If Homart uses the net method, what is the journal entry to record customer payment on June 30

Accepted Answer

The answer of On June 1, Homart Wholesalers, Inc. sells...

Question 11

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as ________.
A) sales discounts forfeited on the income statement
B) an item of "other income and expense" on the income statement
C) an increase to sales revenue on the income statement
D) a deduction from sales revenue on the income statement

Accepted Answer

Under the gross method, sales discounts taken by customers are recorded as a deduction from sales revenue on the income statement, reducing the total sales revenue reported.

Question 12

Under the gross method of recording accounts receivable, a customer must pay the gross amount of the invoice.

Accepted Answer

Under the gross method, accounts receivable are recorded at the full invoice amount, but customers can still take advantage of any early payment discounts offered.

Question 13

A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires, which of the following is correct?
A) Sales discounts is debited for the amount of discounts taken by customers.
B) Sales discounts is credited for the amount of discounts taken by customers.
C) Accounts receivable is debited for the gross amount of cash received from customers.
D) Accounts receivable is credited for the net amount of cash received from customers.

Accepted Answer

When a customer takes advantage of a cash discount, the company debits Sales Discounts to reflect the reduction in revenue due to the discount taken.

Question 14

Net realizable value (NRV) describes the estimated amount of a company's expected cost of uncollectible accounts.

Accepted Answer

Net realizable value (NRV) refers to the estimated selling price of an asset in the ordinary course of business, minus any costs to complete and sell the asset, not the cost of uncollectible accounts.

Question 15

Cardboard Cutouts Inc. (CCI) sold $7,000 of products to a customer on account to a customer with terms of 2/10, n/30. CCI uses the expected-value method to record its credit sales and management assumes that it is 40% likely that the customer will not take the discount. (Ignore the journal entry that would typically be necessary to record the cost of goods sold and the reduction of inventory.) Record the journal entry to recognize the sale.

Accepted Answer

The answer of Cardboard Cutouts Inc. (CCI) sold $7,000 of...

Question 16

Why are trade discounts not recorded in the accounts like sales discounts?

Accepted Answer

The answer of Why are trade discounts not recorded in...

Question 17

ABC Inc. makes a sale to a customer for $10,000 with terms 3/15, n45. ABC Inc. uses the gross method. The customer pays ABC 12 days after the date of the invoice. What journal entry would ABC make upon receiving the payment?

Accepted Answer

The answer of ABC Inc. makes a sale to a...

Question 18

How does the most-likely-amount approach to recording accounts receivables differ from the expected-value method?

Accepted Answer

The answer of How does the most-likely-amount approach to recording...

Question 19

If a company employs the net method of recording accounts receivable from customers, then sales discounts forfeited should be reported as ________.
A) sales discounts forfeited on the balance sheet an item of "other revenue and expense" on the income statement
B) an item of "other revenue and expense" on the income statement
C) an increase to sales revenue on the income statement
D) a deduction from sales revenue on the income statement

Accepted Answer

Sales discounts forfeited are reported as "other revenue and expense" on the income statement when using the net method, as they represent additional income from customers not taking advantage of early payment discounts.

Question 20

Under the net method of recording accounts receivable, a company assumes that the customer will take the sales discount.

Accepted Answer

Under the net method, sales are recorded at the net amount, assuming the customer will take advantage of any sales discounts offered.

Quiz 9: Short-Term Operating Assets: Cash and Receivables

Darko Inc. made a $60,000 sale on account with terms of 1/15, n/30. If the company uses the gross method, which of the following will be included in the journal entry to record the sale on account?

The balance-sheet value of the asset Accounts Receivable (accounts receivable less the allowance for doubtful accounts) represents the amount of cash the company is expected to collect from its customers.

Eurobake Inc. made a $50,000 sale on account with terms of 1/15, n/30. If the company uses the net method, which of the following will be included in the journal entry to record the sale on account?

The two acceptable approaches to recording sales discounts are ________.

Which of the following is a reduction of a catalog price whenever a company sells to a reseller in the same industry?

The Sales Discounts Forfeited account is classified as a contra-revenue account.

Gappule Corp. made a $30,000 sale on account with terms of 2/15, n/30. If the company uses the net method, which of the following will be included in the journal entry to record customer payment within the discount period?

Fraxon Inc. made a $40,000 sale on account with terms of 1/15, n/30. If the company uses the gross method, which of the following will be included in the journal entry to record customer payment within the discount period?

Frigart Company sold goods for $13,000 with terms 2/10, n/30. How much would Frigart receive if the account were paid within the discount period?

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as ________.