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Exam 5: Receivables and Sales

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Question 1

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The formula for average collection period is:

A) 365 days divided by the receivable turnover ratio.
B) 365 days divided by net credit sales.
C) 365 days divided by average accounts receivable.

D) A) and B)
E) A) and C)

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Question 2

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

A) (1) Decrease, (2) Decrease, (3) Decrease
B) (1) Decrease, (2) No effect, (3) Decrease
C) (1) Decrease, (2) Decrease, (3) No effect
D) (1) No effect, (2) No effect, (3) No effect

E) All of the above
F) None of the above

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Question 3

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Suppose at the end of the year before any adjusting entries,a company has a balance in Allowance for Uncollectible Accounts of $5,000 (debit) .During the year,the company reported the following amounts: Credit sales to customers = $550,000 Cash collections from customers = $540,000 Actual bad debts = $20,000 What was the balance of Allowance for Uncollectible Accounts at the beginning of the year?

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

On September 1,2018,Heartford Construction lends $50,000 to a customer with 10% interest.The note and interest are due in twelve months.The note receivable is recorded for $50,000 on September 1,but no other adjustments are made in 2018.At the end of 2018,which of the following is true?

A trade discount results in:

The Allowance for Uncollectible Accounts is a contra asset account representing the amount of accounts receivable that we do not expect to collect.

At the beginning of 2018,the balance in Jackson Enterprises' Allowance for Uncollectible Accounts was $31,800.During 2018,the company wrote off $38,000 of accounts receivable.Writing off the individual bad debts would include a:

Notes receivable are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument,or note.

Two important ratios that help in understanding the company's effectiveness in managing receivables are the receivables turnover ratio and the average collection period.

Under the allowance method,when a company collects cash from an account previously written off,total assets increase.Collecting cash from an account previously written off has no effect on total assets.

Allowance for Uncollectible Accounts is:

McConnell's Bakeries had the following balances on December 31,2018,before any adjustment: Accounts Receivable = $100,000;Allowance for Uncollectible Accounts = $4,100 (credit) .McConnell's estimates uncollectible accounts based on an aging of accounts receivable as shown below: What amount of bad debt expense did McConnell's record in its December 31,2018,adjustment to the allowance account? $\begin{array} { | c | r | c | } \hline \begin{array} { c } \text { Age Group(days } \\\text { past due) }\end{array} & \begin{array} { r } \text { Accounts } \\\text { Receivable }\end{array} & \begin{array} { r } \text { Estimated Percent } \\\text { Uncollectible }\end{array} \\\hline \text { Not yet due } & \$ 50,000 & 4 \% \\\hline 0 - 30 & \$ 20,000 & 8 \% \\\hline 31 - 60 & \$ 18,000 & 10 \% \\\hline \text { More than } 60 & \$ 12,000 & 40 \% \\\hline\end{array}$

Using the allowance method,writing off an actual bad debt would include a:

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?

A sales discount represents a reduction,not in the selling price of a product or service,but in the amount to be paid by a credit customer if payment is made within a specified period of time.

The Sales Discounts account is an expense account.Sales Discounts is a contra revenue account.

Credit sales transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future.

Using the income statement approach for accounting for uncollectible accounts,a company estimates that 2.5% of credit sales will eventually become uncollectible.If credit sales during the year are $400,000 and accounts receivable at the end of the year are $80,000,the adjustment for estimated uncollectible accounts will require a:

Accounts receivable represent the amount of cash owed to the company by its customers from the sale of products or services on account.