Introductory to Financial Accounting - Chapter 6

A company has been successful in reducing the amount of sales returns and allowances. At the same time, a credit card company reduced the credit card discount from 3 percent to 2 percent. What effect will these changes have on the company’s net sales, all other things equal?

• Net sales will not change.

• Net sales will increase.

• Net sales will decrease.

• Either (b) or (c).

Sales discounts with terms 2/10, n/30 mean:

• 10 percent discount for payment within 30 days.

• 2 percent discount for payment within 10 days or the full amount (less returns) due within 30 days.

• Two-tenths of a percent discount for payment within 30 days.

• None of the above.

You have determined that Company X estimates bad debt expense with an aging of accounts receivable schedule. Company X’s estimate of uncollectible receivables resulting from the aging analysis equals $250. The beginning balance in Allowance for Doubtful Accounts was $220. Write-offs of bad debts during the period were $180. What amount would be recorded as bad debt expense for the current period?

• $180

• $250

• $210

• $220

Gross sales total $300,000, one-half of which were credit sales. Sales returns and allowances of $15,000 apply to the credit sales, sales discounts of 2 percent were taken on all of the net credit sales, and credit card sales of $100,000 were subject to a credit card discount of 3 percent. What is the dollar amount of net sales?

• $227,000

• $229,800

• $279,300

• $240,000

Upon review of the most recent bank statement, you discover that you recently received an “nonsufficient funds check” from a customer. Which of the following describes the actions to be taken whenpreparing your bank reconciliation?
Balance per Books / Balance per Bank Statement

• No change / Decrease

• Decrease / Increase

• Decrease / No change

• Increase / Decrease

Which of the following best describes the proper presentation of accounts receivable in the financial statements?

• Gross accounts receivable plus the allowance for doubtful accounts in the asset section of the balance sheet.

• Gross accounts receivable in the asset section of the balance sheet and the allowance for doubtful accounts in the expense section of the income statement.

• Gross accounts receivable less bad debt expense in the asset section of the balance sheet.

• Gross accounts receivable less the allowance for doubtful accounts in the asset section of the balance sheet.

Which of the following is not a component of net sales?

• Sales returns and allowances

• Sales discounts

• Cost of goods sold

• Credit card discounts

When a company using the allowance method writes off a specific customer’s $100,000 account receivable from the accounting system, which of the following statements is/are true?

1. Total stockholders’ equity remains the same.
2. Total assets remain the same.
3. Total expenses remain the same

• 2

• 1 and 3

• 1 and 2

• 1, 2, and 3

When using the allowance method, as bad debt expense is recorded,

• Total assets remain the same and stockholders’ equity remains the same.

• Total assets decrease and stockholders’ equity decreases.

• Total assets increase and stockholders’ equity decreases.

• Total liabilities increase and stockholders’ equity decreases.