Question 1

Credits sales are recorded as:

Accepted Answer

Credit sales are recorded by debiting Accounts Receivable to show the amount owed by customers and crediting Service Revenue to recognize the earned revenue.

Question 2

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?

Accepted Answer

Recording the estimate of uncollectible accounts will decrease assets (specifically accounts receivable) and decrease stockholders' equity (through the allowance for doubtful accounts, which is a contra asset account). It does not affect liabilities.

Question 3

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?

Accepted Answer

D

Question 4

Gershwin Wallcovering Inc.shipped the wrong shade of paint to a customer.The customer agreed to keep the paint upon being offered a 15% price reduction.Gershwin would record this reduction by crediting Accounts Receivable and debiting:

Accepted Answer

The reduction in price due to the customer keeping the incorrect paint is recorded as a Sales Allowance, which is debited to reflect the reduction in revenue.

Question 5

Barton Health Services provided care to a patient worth $1,200.Because the patient was over the age of 65,Barton granted the patient a 20% discount and the customer paid the correct amount in cash.How would Barton record the service transaction?

Accepted Answer

Barton granted the patient a 20% discount, so the patient paid $1,200 - 20% = $960. The correct journal entry is:Cash 960Service Revenue 960

Question 6

Gershwin Wallcovering Inc.shipped the wrong shade of paint to a customer.The customer agreed to keep the paint upon being offered a 15% price reduction.The price reduction is an example of a:

Accepted Answer

A sales allowance is a reduction in the selling price granted by the seller due to a problem with the order, such as shipping the wrong shade of paint, which the customer agrees to keep.

Question 7

Which of the following best describes credit sales?

Accepted Answer

Credit sales refer to sales made to customers on account, where the customer is allowed to pay at a later date. This is different from cash sales (option A) or sales using credit cards (option B), where payment is received immediately. Option D does not accurately describe credit sales, as the risk of returns may be high regardless of whether the sale is made on credit or for cash.

Question 8

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

Accepted Answer

When a company collects a customer's account within the discount period, it results in an increase in cash (an asset) and a decrease in accounts receivable (an asset). Since the customer is paying within the discount period, the company will not receive the full amount of the invoice, resulting in a decrease in revenue. The transaction will have no effect on liabilities, stockholders' equity, or expenses.

Question 9

Tom's Textiles shipped the wrong material to a customer,who refused to accept the order.This is an example of a:

Accepted Answer

A sales return is when a customer returns a product to the seller because of some issue with the product, such as the wrong material being shipped. In this case, the customer refused to accept the order due to the mistake made by Tom's Textiles, making it a sales return.

Question 10

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?

Accepted Answer

Debit Cash $900 records the receipt of payment from the customer.

Question 11

Under the allowance method,which of the following does not change the balance in the Accounts Receivable account?

Accepted Answer

Bad debt expense adjustment affects the allowance for doubtful accounts, not the accounts receivable balance directly.

Question 12

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

Accepted Answer

When a sales return is recorded, assets decrease because the accounts receivable or cash is reduced. Revenues decrease because the sales revenue is reversed. Stockholders' equity decreases as a result of the decrease in net income due to the reduction in revenues. Liabilities and expenses are not affected by a sales return.

Question 13

Accounts receivable are normally reported at the:

Accepted Answer

Accounts receivable are normally reported at their expected amount to be received, meaning the total amount owed by customers or clients without any adjustments for present value, accrued interest, or collection costs. This is because the aim is to show a true representation of the amount expected to be collected, rather than how it may fluctuate based on extrapolations or assumptions.

Question 14

Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000; sales discounts = $12,000; sales returns = $44,000; sales allowances = $17,000.What was the company's net sales for the year?

Accepted Answer

Net sales are calculated by subtracting sales discounts, sales returns, and sales allowances from total sales. Net sales = $550,000 - $12,000 - $44,000 - $17,000 = $477,000.

Question 15

On March 17,Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10,net 20.What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials?

Accepted Answer

The answer of On March 17,Jackal Lumber sold building materials...

Question 16

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?

Accepted Answer

The answer of Eric Company has the following information:
\[\begin{array} {...

Question 17

At December 31,Gill Co.reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit).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:

Accepted Answer

The correct answer is A because the adjustment for uncollectible accounts is calculated as follows:Allowance for uncollectible accounts = 3% of accounts receivable= 3% of $238,000= $7,140The current allowance for uncollectible accounts is $600, so the adjustment needed is:$7,140 - $600 = $6,540

Question 18

Tom's Textiles shipped the wrong material to a customer,who refused to accept the order.Upon receipt of the material,Tom's would credit Accounts Receivable and debit:

Accepted Answer

The customer refused to accept the order, which indicates a sales return. Therefore, the correct account to debit would be Sales Returns.

Question 19

When customers purchase products on account,Spitz Manufacturing offers them a 2% reduction in the amount owed if they pay within 10 days.This is an example of a:

Accepted Answer

This is a sales discount, as it is a reduction offered to customers as an incentive to pay their account within a specific timeframe. It is not a bad debt (which is when a customer does not pay their owed amount), a sales return (which is when a customer returns a product), or a sales allowance (which is a reduction in the amount owed due to a defect or other issue with the product).

Question 20

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

Accepted Answer

When a company provides services on account, assets (accounts receivable) increase, revenues increase, and stockholders' equity increases due to the increase in retained earnings from the revenue. Liabilities and expenses are not affected.

Quiz 5: Receivables and Sales