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Exam 5: Receivables and Sales

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Question 71

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The receivables turnover ratio shows the number of times during a year that the average accounts receivable balance is collected (or "turns over").

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Question 72

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Eric Company has the following information: $\begin{array} { | l | r | } \hline \text { Total revenues } & \$ 860,000 \\\hline \text { Sales returns and allowances } & \$ 50,000 \\\hline \text { Sales discounts } & \$ 30,000 \\\hline \text { Ending inventory } & \$ 100,000 \\\hline\end{array}$ What is the amount of net revenues for Eric Company?

A) $330,000.
B) $230,000.
C) $680,000.
D) $780,000.

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Question 73

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On September 1,2012,Middleton Corp.lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months.How much interest revenue will Middleton Corp report during 2012?

Shupe Inc.estimates uncollectible accounts based on the percentage of accounts receivable.What effect will recording the estimate of uncollectible accounts have on the accounting equation?

Notes receivable are assets and are reported in the balance sheet.

Accrued interest on a note receivable has the effects of increasing assets and increasing liabilities.

If a company has total revenues of $100,000,sales discounts of $3,000,sales returns of $4,000,and sales allowances of $2,000,the income statement will report net revenues of $91,000.

Bad debt expense is the amount of the adjustment to the allowance for uncollectible accounts that represents the cost of the estimated future bad debts.

The percentage-of-receivables method for estimating uncollectible accounts is commonly referred to as the balance sheet method,because the estimate of bad debts is based on a balance sheet amount-accounts receivable.

A company reports the following amounts at the end of the year: Total sales = $400,000; cash = $35,000; sales discounts = $10,000; accounts receivable = $20,000; sales returns = $15,000; operating expenses = $70,000; sales allowances = $25,000.Compute net sales.

On December 31,2012,Mark Inc.estimates future bad debts to be $6,500.The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year-end adjustment.What adjustment should Mark Inc.record for the estimated bad debts on December 31,2012?

From an income statement perspective,the percentage-of-credit-sales method is typically preferable because it better matches the revenues (credit sales)with their related expenses (bad debts).

Explain why the percentage-of-receivables method is referred to as the balance sheet method and the percentage-of-credit-sales method is referred to as the income statement method.Which method is typically used in practice? Why?

Under the allowance method,when a company writes off an account receivable as an actual bad debt,it records an expense.

The percentage-of-credit-sales method (income statement method)is allowed only if amounts do not differ significantly from estimates using the percentage-of-receivables method.

Under the direct write-off method,what adjustment is made at the end of the year to account for possible future bad debts?

The following information pertains to Lindsey Corp.at the at the end of the year: $\begin{array} { l r } \text { Credit Sales } & \$ 150,000 \\\text { Accounts Payable } & 20,000 \\\text { Accounts Receivable } & 30,000 \\\text { Allowance for Uncollectible Accounts } & 800 \text { debit } \\\text { Cash Sales } & 5,500\end{array}$ Lindsey Corp.uses the percentage-of-credit-sales method and estimates that 2% of the credit sales are uncollectible.After the year-end adjustment,what amount of bad debt expense would Lindsey report for the year?

At the beginning of the year,Vici Ventures had accounts receivable of $220,000.At the end of the year,the company had accounts receivable of $340,000.During the year,Vici had total sales of $1,000,000,70% of which were credit sales What was Vici's receivables turnover ratio for the year?

At December 31,Gill Co.reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (debit) .An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable.The amount of the adjustment for uncollectible accounts would be:

Allowance for Uncollectible Accounts is: