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Exam 5: Receivables and Sales

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Question 41

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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.

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Question 42

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The direct write-off method is used for tax purposes but is generally not permitted for financial reporting.

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Question 43

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Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term by placing the letter designating the term in the space provided. Terms: -_____ Sale on account to customers.

Give three examples of contra revenue accounts and the transactions with which they are associated.

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?

On December 31, 2012, Andy Inc. has a debit balance of $1,500 for the Allowance for Uncollectible Accounts before any year-end adjustment. Andy Inc. also has the following information for its accounts receivable and the estimated percentages of bad debts for different past-due amounts: $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Age Group } \\\text { (days past due) }\end{array} & \begin{array} { c } \text { Accounts } \\\text { Receivable }\end{array} & \begin{array} { c } \text { Estimated Percent } \\\text { Uncollectible }\end{array} \\\hline 0 - 30 & \$ 50,000 & 5 \% \\\hline 31 - 60 & \$ 20,000 & 10 \% \\\hline 61 - 90 & \$ 10,000 & 20 \% \\\hline\end{array}$ What is the amount of bad debt expense to be reported on Andy Inc.'s financial statements for 2012?

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?

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

Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term by placing the letter designating the term in the space provided. Terms: -_____ Offered to induce prompt payment.

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?

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

On August 1, 2012, Turner Manufacturing lends cash and accepts a $6,000 note receivable that offers 8% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2012?

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?

The following information pertains to Lightning, Inc. at the end of the year: $\begin{array} { l r } \text { Credit Sales } & \$ 60,000 \\\text { Accounts Payable } & 10,000 \\\text { Accounts Receivable } & 7,000 \\\text { Allowance for Uncollectible Accounts } & 400 \text { credit } \\\text { Cash Sales } & 20,000\end{array}$ Lightning uses the percentage-of-credit-sales method and estimates 1% of sales are uncollectible. What is the ending balance of the allowance account after the year-end adjustment?

On December 31, 2012, Coolwear Inc. had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $48,400 and $940, respectively. During 2013, Coolwear wrote off $820 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $1,140 at December 31, 2013. Bad debt expense for 2013 would be:

On May 1, 2012, a company lends $100,000 to one of its main suppliers and accepts a 12-month, 6% note. Record the acceptance of the note on May 1, 2012, the adjustment on December 31, 2012, and the cash collection on May 1, 2013.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Accounts receivable less allowance for uncollectible accounts.

How is the receivables turnover ratio measured? What does this ratio indicate? Is a higher or lower receivables turnover preferable?

Sandburg Veterinarian reports the following information for the year: $\begin{array} { l r } \text { Net credit sales } & \$ 120,000 \\\text { Average accounts receivable } & 20,000 \\\text { Cash collections on credit sales } & 100,000\end{array}$ What is Sandburg's receivables turnover ratio?

A sale on account is recorded as a debit to Service Revenue and a credit to Accounts Receivable.