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Exam 5: Receivables and Sales

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Question 41

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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?

A) $5,500.
B) $4,312.
C) $4,486.
D) $4,606.

E) A) and B)
F) A) and C)

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Question 42

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Crimson Inc.recorded credit sales of $750,000,of which $600,000 is not yet due,$100,000 is past due for up to 180 days,and $50,000 is past due for more than 180 days.Under the aging of receivables approach,Crimson Inc.expects it will not collect 1% of the amount not yet due,10% of the amount past due for up to 180 days,and 20% of the amount past due for more than 180 days.The allowance account had a debit balance of $1,000 before adjustment.After adjusting for bad debt expense,what is the ending balance of the allowance account?

A) $29,000.
B) $28,000.
C) $27,000.
D) $26,000.

E) B) and D)
F) B) and C)

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Question 43

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A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible.If the company has $40,000 of newer accounts and $5,000 of older accounts,the total estimate of uncollectible accounts is $2,000.

A company collects a customer's account within the discount period.Indicate how this transaction would affect the following five financial statement items: $\begin{array}{llllll}&&& \text { Stockholders' } \\&\text { Assets } &\text { Liabilities } &\underline{\text { Equity }}& \underline{\text { Revenues }} &\underline{\text { Expenses }}\\\text { a. } & \text { Decrease } & \text { No effect } & \text { Decrease } & \text { Decrease } & \text { No effect } \\\text { b. } & \text { Increase } & \text { No effect } & \text { Increase } & \text { Increase } & \text { Decrease } \\\text { c. } & \text { Increase } & \text { No effect } & \text { Increase } & \text { Increase } & \text { No effect } \\\text { d. } & \text { No effect } & \text { No effect } & \text { No effect } & \text { No effect } & \text { No effect }\end{array}$

A company records a sales return from a credit customer.Indicate how this transaction would affect the following five financial statement items. $\begin{array}{llllll}&&& \text { Stockholders' } \\&\text { Assets } &\text { Liabilities } &\underline{\text { Equity }}& \underline{\text { Revenues }} &\underline{\text { Expenses }}\\\text { a. } & \text { Decrease } & \text { No effect } & \text { Decrease } & \text { Decrease } & \text { No effect } \\\text { b. } & \text { Increase } & \text { No effect } & \text { Increase } & \text { Increase } & \text { Decrease } \\\text { c. } & \text { Increase } & \text { Increase } & \text { Increase } & \text { Increase } & \text { No effect } \\\text { d. } & \text { No effect } & \text { No effect } & \text { No effect } & \text { No effect } & \text { No effect }\end{array}$

A company uses the allowance method to account for uncollectible accounts.During the year,the company has actual bad debts of $25,000.Record the write-off of the uncollectible accounts.

Richard LLC accounts for possible bad debts using the allowance method.When an actual bad debt occurs,what effect does it have on the accounting equation?

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?

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

Customers' accounts that we no longer consider collectible are referred to as uncollectible accounts (or bad debts).

Under the allowance method,when a company writes off an account receivable as an actual bad debt,it reduces total assets.

At the time of a credit sale,a company would record an increase in assets and an increase in revenues.

The adjustment for uncollectible accounts involves a debit to Bad Debt Expense and a credit to the Allowance for Uncollectible Accounts.

Under the direct write-off method,bad debt expense is recorded at the time accounts are known to be uncollectible.

Accounts receivable are normally reported at the:

If a company is owed $10,000 by its customers,but it expects that $1,000 will not be collected,accounts receivable in the balance sheet are reported at the net amount of $9,000.

Sales returns and allowances occur when the buyer returns the goods or the seller reduces the customer's balance owed.

On April 14,a company lends $10,000 cash to one of its employees and accepts a six-month,12% note in return.Record the acceptance of the note receivable.

Which of the following statements is true with respect to the percentage-of-credit-sales method for estimating uncollectible accounts?

Under the allowance method,the write-off of an actual bad debt is recorded with a debit to the Allowance for Uncollectible Accounts and a credit to Accounts Receivable.