Question 1

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:

Accepted Answer

This is an example of a sales discount, which is a reduction in the price of a product or service offered to customers who pay within a certain timeframe. It is not a bad debt, which refers to money owed that is unlikely to be paid back, nor is it a sales return or sales allowance, which are both related to returning products or offering refunds.

Question 2

On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on November 17. How would Flores record the collection of cash on November 17?

Accepted Answer

The customer paid within the discount period, so a 2% discount is applied. The cash received is $7,840, and the $160 discount is recorded as a sales discount.

Question 3

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:

Accepted Answer

When a customer returns merchandise because it is incorrect or defective, it is considered a sales return. Therefore, the appropriate account to debit would be Sales Returns.

Question 4

On July 8, Ray Inc. sold 100 printers to Office Rental Company at $600 each and offered a 2% discount for payment within 10 days. On July 15, Office Rental Company paid the full amount in cash. What should Ray Inc. record on July 15?

Accepted Answer

Sales discount = $600 F1F1F1S1F1F1F10 100 printers F1F1F1S1F1F1F10 2% = $1,200.

Question 5

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

Accepted Answer

Net revenues = $860,000 - $50,000 - $30,000 = $780,000.

Question 6

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on June 10, assuming the customer made the correct payment on that date?

Accepted Answer

No discount is recorded because payment is made after 15 days.

Question 7

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 23, assuming the customer made the correct payment on that date?

Accepted Answer

$46,000 x 1% = 460; $46,000 - 460 = $45,540.

Question 8

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2012, 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 sales figure for these two transactions?

Accepted Answer

Trade discount = $4,000 F1F1F1S1F1F1F10 20% = $800. Sales revenue = ($4,000 - $800) + $1,500 = $4,700. Sales discount $4,700 F1F1F1S1F1F1F10 2% = $94. Net sales = $4,700 - $94 = $4,606.

Question 9

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:

Accepted Answer

The answer of Gershwin Wallcovering Inc. shipped the wrong shade...

Question 10

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 12?

Accepted Answer

The answer of Oswego Clay Pipe Company provides services of...

Question 11

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 sales for the year?

Accepted Answer

Net sales = $550,000 - $12,000 - $44,000 - $17,000 = $477,000.

Question 12

A company collects a customer's account within the discount period. Indicate how this transaction would affect the following five financial statement items:

Accepted Answer

The answer of A company collects a customer's account within...

Question 13

A company provides services on account. Indicate how this transaction would affect the following five financial statement items:

Accepted Answer

The answer of A company provides services on account. Indicate...

Question 14

On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. How would Flores record the sale on November 10?

Accepted Answer

Flores Mills should record the full amount of the sale as Accounts Receivable and Sales Revenue at $8,000. The discount is only recorded if the customer pays within the discount period.

Question 15

On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on December 5. How would Flores record the collection of cash on December 5?

Accepted Answer

No sales discount is awarded because payment is not received within 10 days.

Question 16

Credits sales are recorded as:

Accepted Answer

Credits sales are recorded as a debit to Accounts Receivable and a credit to Service Revenue, as the company is recognizing revenue for services performed but has not yet received payment for them, resulting in an increase in Accounts Receivable.

Question 17

Which of the following is recorded upon receipt of a payment on April 7, 2012, by a customer who pays a $900 invoice dated March 3, 2012, with terms 2/10, n/60?

Accepted Answer

No discount is recorded because payment is made after 10 days.

Question 18

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?

Accepted Answer

No revenue recorded on March 25. The revenue would have been recorded on March 17.

Question 19

Barton Health Services provided care to a patient worth $1,200. Because the patient was over the age of 65, Barton granted the patient a 20% discount and the customer paid the correct amount in cash. How would Barton record the service transaction?

Accepted Answer

The answer of Barton Health Services provided care to a...

Question 20

Which of the following best describes credit sales?

Accepted Answer

Credit sales refer to sales made to customers on account, meaning they will pay at a later date.

Quiz 5: Receivables and Sales