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Exam 5: Receivables and Sales

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Question 71

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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).

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Question 72

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

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Question 73

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At the end of the year,a company has a balance in Allowance for Uncollectible Accounts of $200 (credit)before any year-end adjustment.The balance of Accounts Receivable is $15,000.The company estimates that 10% of accounts receivable will not be collected over the next year.Record the adjustment for uncollectible accounts.

The following information pertains to Lightning,Inc.at the end of December: Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due,10% of receivables less than 30 days past due,and 40% of receivables greater than 30 days past due.The accounts receivable balance of $7,000 consists of $3,500 not yet due,$2,000 less than 30 days past due,and $1,500 greater than 30 days past due.What is the appropriate amount of Bad Debt Expense?

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

The direct write-off method violates the matching principle.

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.

If the direct write-off method is used to account for uncollectible accounts,which of the following statements is false?

Collections of accounts receivable that previously have been written off are credited to:

During 2015,its first year of operations,a company provides services on account of $250,000.By the end of 2015,cash collections on these accounts total $130,000.The company estimates that 10% of accounts receivable will be uncollectible.Record the adjustment for uncollectible accounts on December 31,2015.

The current year's beginning and ending balances for Allowance for Uncollectible Accounts is $23,000 and $27,000,respectively.If the amount of Bad Debt Expense for the year is $18,000,what is the amount of actual bad debts for the year?

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

Notes receivable typically arise from sales to customers.

On February 1,2015,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 2015?

Which of the following is recorded by a credit to Accounts Receivable?

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. -_____ The total amount owed to a company from credit sales to customers.

At December 31,Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970 (credit) in Allowance for Uncollectible Accounts.An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable.Bad debt expense for the year should be:

Under the direct write-off method,what adjustment is made at the time an actual bad debt occurs?

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. -_____ Refund because of some deficiency in the company's product or service.

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?