Question 1

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

Accepted Answer

By extending credit to customers, a company can increase sales by allowing customers to purchase products or services even if they don't have the funds to pay upfront. This can lead to increased revenue and profits for the company. However, it is important to have a system in place to manage credit risk and ensure timely payment from customers.

Question 2

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers.In March 2018,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 revenues amount for these two transactions?

Accepted Answer

For Red Oak Inc., the services provided were $4,000, which qualifies for the 20% trade discount. The discounted amount is $4,000 * 20% = $800, so the amount after the discount is $4,000 - $800 = $3,200. Since they paid within the discount period, they get an additional 2% discount: $3,200 * 2% = $64, so the final amount paid by Red Oak Inc. is $3,200 - $64 = $3,136.For Cyril Inc., the services provided were $1,500, which does not qualify for the 20% trade discount, so the full amount remains. They also paid within the discount period, so they get a 2% discount: $1,500 * 2% = $30, making the final amount paid by Cyril Inc. $1,500 - $30 = $1,470.The net revenues amount for these two transactions is $3,136 (Red Oak Inc.) + $1,470 (Cyril Inc.) = $4,606.

Question 3

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

Sales Allowances are reductions in the selling price of goods due to issues like defects or errors, such as shipping the wrong shade of paint.

Question 4

A company collects a customer's account within the discount period.Indicate how this transaction would affect (1)assets, (2)stockholders' equity,and (3)revenues.

Accepted Answer

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

Question 5

Identify the condition(s)that must exist for a sale and the related receivable to be recognized.

Accepted Answer

The answer of Identify the condition(s)that must exist for a...

Question 6

A company records a sales return from a credit customer.Indicate how this transaction would affect (1)assets, (2)stockholders' equity,and (3)revenues.

Accepted Answer

When a company records a sales return from a credit customer, assets decrease because the accounts receivable (or cash, if the return is refunded immediately) decreases. Stockholders' equity decreases because the return reduces net income, which is a component of equity. Revenues decrease because the sales return is subtracted from total sales revenue.

Question 7

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 a sales discount, as it is a reduction offered to customers who pay within a certain timeframe.

Question 8

A trade discount results in:

Accepted Answer

A trade discount is a reduction in the listed price of a product or service for a specific customer or group of customers. It is not recorded as a contra revenue account or a contra asset, nor does it affect the timing of cash payment. Instead, revenue is recorded for the discounted price, reflecting the reduced amount that the customer actually pays.

Question 9

Ryerson Co.provides goods and services to customers during the year totaling $100,000.Also during the year,customers are granted discounts,returns,and allowance of $20,000.At the end of the year,Ryerson estimates that an additional $5,000 in discounts,returns,and allowances will occur next year as a result of sales transactions this year.What is the amount of net revenues Ryerson will report in its current-year income statement?

Accepted Answer

Net revenues are calculated by subtracting discounts, returns, and allowances from total sales. Ryerson's net revenues are $100,000 - $20,000 - $5,000 = $75,000.

Question 10

Lewis Inc.had the following information taken from various accounts at the end of the year: What was Lewis Inc.'s net revenues for the year?
$$\begin{array} { | l | r | } 
\hline \text { Sales discounts } & \$ 41,000 \
\hline \text { Deferred revenues } & \$ 32,000 \
\hline \text { Total sales } & \$ 459,000 \
\hline \text { Purchase discounts } & \$ 15,000 \
\hline \text { Sales allowances } & \$ 35,000 \
\hline \text { Accounts receivable } & \$ 205,000 \
\hline
\end{array}$$

Accepted Answer

Net revenues are calculated by subtracting sales discounts and sales allowances from total sales. Thus, net revenues = $459,000 - $41,000 - $35,000 = $383,000. Deferred revenues, purchase discounts, and accounts receivable do not directly affect the calculation of net revenues.

Question 11

Accounts receivable are normally reported at the:

Accepted Answer

Accounts receivable are reported at their expected amount to be received, which represents the estimated amount of cash the company expects to collect from its customers for goods or services already provided. This amount is based on the company's historical collection experience, credit policies, and current economic conditions. It does not include any adjustments for present value, accrued interest, or collection costs.

Question 12

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:

Accepted Answer

A sales allowance is a reduction in the selling price granted by the seller due to a problem with the order, such as shipping the wrong shade of paint, which the customer agrees to keep.

Question 13

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

Sales returns represent merchandise returned by customers due to defects, wrong shipments, or other reasons. Since Tom's Textiles shipped the wrong material, the customer refused to accept the order and would return it. As a result, Tom's Textiles would credit Accounts Receivable and debit Sales Returns.

Question 14

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

Accepted Answer

The answer of Eric Company has the following information: What...

Question 15

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 revenues for the year?

Accepted Answer

Net revenues are calculated by subtracting sales discounts, sales returns, and sales allowances from total sales. So, $550,000 - $12,000 - $44,000 - $17,000 = $477,000.

Question 16

Which of the following is recorded upon receipt of a payment on April 7,2018,by a customer who pays a $900 invoice dated March 3,2018,with terms 2/10,n/60?

Accepted Answer

The answer of Which of the following is recorded upon...

Question 17

Fleming Corp.provided services on account.The transaction would be recorded with a debit to:

Accepted Answer

When services are provided on account, it means the company has earned revenue but has not yet received cash. Therefore, Accounts Receivable is debited to reflect the amount owed to the company.

Question 18

Which of the following items are classified as receivables?

Accepted Answer

All of the items listed are classified as receivables. Tax refund claims are claims for money owed to the company by the government, amounts owed by customers are payments that the company is owed for goods or services already provided, and amounts loaned and expected to be collected are loans made by the company that are expected to be repaid.

Question 19

Fleming Corp.provided services on account.The transaction would be recorded with a credit to:

Accepted Answer

When Fleming Corp. provides services on account, it means they have performed services but have not yet received payment. This increases their revenues, so Service Revenue is credited to reflect the increase in earnings.

Question 20

Tom's Textiles shipped the wrong material to a customer,who refused to accept the order.This is an example of a:

Accepted Answer

This is a sales return because the customer refused to accept the order due to the wrong material being shipped.

Quiz 5: Receivables and Sales

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