CH 5 - Revenue & Receivables

Question 1

The inflow of cash or accounts receivable that a business receives when it provides goods or services to customers is referred to as _______.

Answer 1

revenue or revenues

Question 2

The final step used to apply the core revenue recognition principle is to recognize revenue

Answer 2

when (or as) each performance obligation is satisfied.

Question 3

Bingham Corporation sells products to customers for $100,000 cash. The cost of the inventory sold is $65,000. What is the net impact of this transaction on the accounting equation?

Answer 3

*increase in assets of $35,000
*increase in stockholder’s equity of $35,000

Question 4

On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. The financial statement effects for Morrison on September 10 include a(n)

Answer 4

decrease in liabilities and increase in stockholders’ equity

Question 5

Sadie performs a service that satisfies just one of the three conditions for determining whether revenue should be recognized over time. Sadie should recognize revenue

Answer 5

over time.

Question 6

Inflows of cash or accounts receivable that result from providing goods or services to customers are
______.

Answer 6

revenues

Question 7

Net revenues is calculated as total revenues minus which of the following?

Answer 7

Sales returns

Question 8

The five steps used to apply the core revenue recognition principle in the correct order.

Answer 8

1. Identify the contract with a customer
2. Identify the performance obligation(s) in the contract
3. Determine the transaction price.
4. Allocate the transaction price to each performance obligation
5. Recognize revenue when (or as) each performance obligation is satisfied.

Question 9

Callen Corporation sells products to customers for $10,000 cash. The cost of the inventory sold is $8,400. The financial statement effects of the sale include a(n)

Answer 9

increase in assets of $1,600

Question 10

On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. On September 10, Morrison recognizes a(n)

Answer 10

increase in Retained Earnings of $500

Question 11

When a performance obligation is satisfied over time, revenue is recognized in proportion to the amount of the

Answer 11

performance obligation that has been satisfied.

Question 12

Total revenues less sales returns and discounts are referred to as ___ revenues.

Answer 12

net

Question 13

Sales returns ______ the amount of sales revenue reported on the income statement.

Answer 13

decrease

Question 14

The first step used to apply the core revenue recognition principle is:

Answer 14

Identify the contract with a customer.

Question 15

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ___ discount.

Answer 15

sales or cash

Question 16

Sales to customers in which the customers pay within 30 to 60 days are referred to as

Answer 16

*Credit sales
*Sales on Account

Question 17

On February 10, Trotwell sold a product to a customer on account. On February 20, the customer sent the product back to Trotwell for a full refund. The transaction on February 20 is an example of a(n)

Answer 17

sale return

Question 18

On April 1, Frost Industries provides $30,000 of services on account. On April 20, Frost collects payment from the customer. The financial statement effects of the sale on April 1 include a(n):

Answer 18

*increase in assets
*increase in stockholders’ equity

Question 19

What would be a discount in the amount to be paid if the customer pays within a specified time period?

Answer 19

Sales discount

Question 20

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

Answer 20

credit sales

Question 21

On April 1, Frost Industries provides $30,000 of services on account. On April 20, Frost collects payment from the customer. The sale on April 1 results in a(n):

Answer 21

*Increase in Accounts Receivable
*Increase in Service Revenue

Question 22

The allowance method estimates

Answer 22

uncollectible amounts

Question 23

Under the _________ method, a company reports it accounts receivable for the net amount expected to be collected.

Answer 23

allowance method

Question 24

The account “Allowance for Uncollectible Accounts” is classified as

Answer 24

a contra asset to accounts receivable

Question 25

_________ for _____________ ________ is a contra asset account that represents the amount for accounts receivable not expected to be collected. The _________ account provides a way to reduce accounts receivable indirectly, rather than decreasing the accounts receivable balance itself

Answer 25

Allowance for Uncollectible Accounts, Allowance

Question 26

The difference between total accounts receivable and the allowance for uncollectible accounts is referred to as:

Answer 26

net accounts receivable

Question 27

The difference between total accounts receivable and the allowance for uncollectible accounts.

Answer 27

Net accounts receivable

Question 28

_____ _____ transfer goods or services to a customer today while bearing the risk of collecting payment from that customer in the future. Extending credit to customers makes it more convenient for them to purchases goods or services. It can also potentially increase customer loyalty and boost sales, especially if the company's competitors are not offering credit to their customers.

Answer 28

Credit sales

Question 29

The cost of estimated accounts receivable that will not be collected is referred to as _________ ______ expense.

Answer 29

(Field 1:) bad, uncollectible, or delinquent (Field 2:) debt, accounts, or account

Question 30

The creation of the allowance account also creates an expense account called ___ ____ expense. ___ ____ expense represents the cost of the estimated future bad debts that is reported as an expense in the current year's income statement.

Answer 30

Bad debt

Question 31

Under the allowance method, companies estimate Blank______ uncollectible amounts and report those estimates in the Blank______ year.

Answer 31

future; current

Question 32

The allowance for uncollectible accounts is a contra account to

Answer 32

accounts receivable

Question 33

The term net accounts receivable refers to

Answer 33

accounts receivable less the allowance for uncollectible accounts.

Question 34

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will ___ ______ net income.

Answer 34

not affect

Question 35

The estimated expense for accounts that may not be collected is referred to as

Answer 35

bad debt expense.

Question 36

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

Answer 36

be more accurate.

Question 37

At the end of 2027, we could multiply total accounts receivable by a single percentage to get an estimate of future uncollectible accounts. However, a more accurate method is to consider the various ages of individual accounts receivable, using a higher percentage of uncollectible for "old" accounts than for "new" accounts. This is known as the _____ method.

Answer 37

Aging

Question 38

accounts that are 120 days past due are older than accounts that are 60 days past due. The older the account, the less likely it is to be collected. The _____ method is a more detailed application of the percentage-of-receivables method, so it also is a balance sheet method.

Answer 38

aging

Question 39

When the allowance method is used, the write-off of an uncollectible account:

Answer 39

has no effect on net income

Question 40

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _____ method of accounts receivable.

Answer 40

aging, age, or ages

Question 41

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

Answer 41

*receivables turnover ratio *average collection period

Question 42

The ___________ ________ _____ provides a measure of a company's ability to collect cash from customers. The ratio shows number of times during a year that the average accounts receivable balance is collected (or "turns over").

Answer 42

Receivable turnover ratio

Question 43

___________ ________ _____ = Net credit sales/Average accounts receivable

Answer 43

Receivable turnover ratio

Question 44

The _______ __________ ______ is another way to express the same efficiency measure. This ratio shows the approximate number of days the average accounts receivable balance is outstanding. It is calculated as 365 days divided by the receivables turnover ratio

Answer 44

average collection period

Question 45

_______ __________ ______ = 365 days/Receivables turnover ratio

Answer 45

Average collection period

Question 46

A (n) __ receivable is an informal credit arrangement with trade customers, whereas a(n) __ receivable is a formal signed credit arrangement between a creditor and a debtor.

Answer 46

(Field 1:) account, accounts, or trade (Field 2:) Note or Notes

Question 47

_____ __________ are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument, or not.

Answer 47

Notes receivable

Question 48

_____ __________ typically arise from loans to other entities (including affiliated companies), loans to stockholders and employees, and occasionally loans to customers related to the sale of goods and services

Answer 48

Notes receivable

Question 49

The financial statement effects of accepting a note receivable include a(n):

Answer 49

*Increase in total assets *Increase in total stockholders' equity

Question 50

On November 1, Year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of Year 2. What is the amount of interest revenue that should be reported for Year 1?

Answer 50

$20 (Face value x Annual interest rate x Fraction of the year or _/12)

Question 51

The receivables turnover ratio and the average collection period provide information about a company's

Answer 51

effectiveness in managing receivables

Question 52

Formal credit arrangement between borrower and lender

Answer 52

Note receivable

Question 53

Informal credit agreement with trade customers

Answer 53

Account receivable

Question 54

On March 1, Terry Corp. provided services to a customer. Terry agreed to accept a $60,000, 5%, 6-month interest-bearing note as payment for the services. For Terry, acceptance of the note results in a(n):

Answer 54

*increase in Notes receivable *Increase in Service Revenue

Question 55

On September 1, Year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of Year 2. What is the amount of interest revenue that should be reported for Year 1?

Answer 55

$40