MGMT 200 Exam 2 | 200 questions| with
complete solution (Purdue University)
At the time of a credit sale, a company would record an increase in assets and an increase in
revenues. True or false? Correct Answer: True
Credit sales transfer products and services to a customer today while bearing the risk of
collecting payment from that customer in the
future. True or false? Correct Answer: True (Risk of collection)
The ending balance of the Accounts Receivable account was $20,000. Services billed to
customers for the period were $50,000, and collections on account from customers were
$40,000. What was the beginning balance of Accounts Receivable? Correct Answer: $10,000
If Greenwich, Inc. sells a $100 product with a 20%
trade discount, Greenwich will record $100 of revenue
and $20 of sales expense. True or false? Correct Answer: False (record $80 sales revenue
(trade discount is netted))
The Sales Return Account is an expense account. True or false? Correct Answer: False (Contra
revenue account)
A sales allowance is recorded as a debit to Accounts
Receivable and a credit to Sales Allowances. True or false? Correct Answer: False (A sales
allowance is recorded as a debit to Sales Allowances and a credit to Accounts Receivable.)
Cambridge Company has the following information:
Total sales $500,000
Sales returns and allowances $50,000
Sales salaries costs (expense) $20,000
Sales travel costs (expense) $5,000
What is the amount of net sales for Cambridge?
A. $500,000
B. $450,000
C. $430,000
D. $425,000 Correct Answer: B. ($500,000 ‐ $50,000 = $450,000)
When customers purchase products on account, Bufford, Inc. offers them a 1% reduction in the
amount owed if they pay within 10 days. This is an example of:
A. Sales discount
B. Sales return
C. Sales allowances
D. Bad debt Correct Answer: Sales discount
,Sales Discount (Cash .................................................... 990
Sales Discounts (contra account)...... 10
Accounts Receivable .................. 1,000
(Collect cash on account with a 1% sales discount))
Burford Inc. shipped the wrong color of paint to a
customer. The customer agreed to keep the paint after
being offered a 10% price reduction. The price
reduction is an example of a:
A. sales discount.
B. sales return.
C. sales allowance.
D. sales expense. Correct Answer: Sales Allowance
If a company has total revenues of $1,000,000, sales
discounts of $50,000, sales returns of $50,000, and
sales allowances of $100,000, the income statement
will report net revenues of $750,000. True or false? Correct Answer: False (Subtract the
amounts from the total revenue)
The advantage of extending credit to customers
A. Lower profitability
B. Higher revenues
C. Delay or failure to collect cash
D. Less collection costs Correct Answer: Higher revenues
Uncollectible accounts cannot be estimated because
it is not possible to know which accounts will not be
collected. True or false? Correct Answer: False
The matching principle
A. results in the recording of a known amount for
bad‐debt losses.
B. necessitates the recording of an estimated
amount for bad debts.
C. requires that all bad‐debt losses be recorded
when an individual customer doesn't pay.
D. is violated when the allowance method is
employed Correct Answer: Necessitates the recording of an estimate amount for bad debts
The matching rule relates to credit losses by stating
that Uncollectible Accounts Expense should be
recorded
A. in the period of the loss.
B. for an exact amount.
C. generally in the subsequent year .
, D. in the period of the sale. Correct Answer: In the period of the sale
Cotswolds, 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?
A. Decrease assets and decrease stockholders'
equity
B. Decrease assets and decrease liabilities
C. Increase assets and decrease stockholders'
equity
D. Increase liabilities and decrease stockholders'
equity Correct Answer: Decrease assets and decrease stockholders' equity
The allowance for uncollectible accounts is similar to
accumulated depreciation in that it represents the total of all accounts written off over the years.
True or false? Correct Answer: False (Represents an estimate of bad debts for
amounts in the accounts receivable balance.)
A company's Accounts Receivable balance at its December 31
year‐end is $100,000, and its Allowance for Doubtful Accounts
has a credit balance of $200 before year‐end adjustment. It
estimates that 4% of outstanding accounts receivable are
uncollectible. What amount of bad debt expense is recorded at
December 31?
A. $ 200
B. $4,200
C. $4,000
D. $3,800 Correct Answer: D. (100,000 x 4% = $4000 - $200)
At December 31, Bampton Co. reported accounts receivable of
$238,000 and an allowance for uncollectible accounts of $600
(debit) before any adjustments. 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
A. $6,540
B. $7,740
C. $7,800
D. $7,140 Correct Answer: B. ( ($238,000 × 3%)
desired balance +600)
A company performs an aging of accounts receivable
calculation and arrives at an estimate for uncollectible
accounts of $25,000. If Allowance for Uncollectible
Accounts has a debit balance of $1,000 prior to the
complete solution (Purdue University)
At the time of a credit sale, a company would record an increase in assets and an increase in
revenues. True or false? Correct Answer: True
Credit sales transfer products and services to a customer today while bearing the risk of
collecting payment from that customer in the
future. True or false? Correct Answer: True (Risk of collection)
The ending balance of the Accounts Receivable account was $20,000. Services billed to
customers for the period were $50,000, and collections on account from customers were
$40,000. What was the beginning balance of Accounts Receivable? Correct Answer: $10,000
If Greenwich, Inc. sells a $100 product with a 20%
trade discount, Greenwich will record $100 of revenue
and $20 of sales expense. True or false? Correct Answer: False (record $80 sales revenue
(trade discount is netted))
The Sales Return Account is an expense account. True or false? Correct Answer: False (Contra
revenue account)
A sales allowance is recorded as a debit to Accounts
Receivable and a credit to Sales Allowances. True or false? Correct Answer: False (A sales
allowance is recorded as a debit to Sales Allowances and a credit to Accounts Receivable.)
Cambridge Company has the following information:
Total sales $500,000
Sales returns and allowances $50,000
Sales salaries costs (expense) $20,000
Sales travel costs (expense) $5,000
What is the amount of net sales for Cambridge?
A. $500,000
B. $450,000
C. $430,000
D. $425,000 Correct Answer: B. ($500,000 ‐ $50,000 = $450,000)
When customers purchase products on account, Bufford, Inc. offers them a 1% reduction in the
amount owed if they pay within 10 days. This is an example of:
A. Sales discount
B. Sales return
C. Sales allowances
D. Bad debt Correct Answer: Sales discount
,Sales Discount (Cash .................................................... 990
Sales Discounts (contra account)...... 10
Accounts Receivable .................. 1,000
(Collect cash on account with a 1% sales discount))
Burford Inc. shipped the wrong color of paint to a
customer. The customer agreed to keep the paint after
being offered a 10% price reduction. The price
reduction is an example of a:
A. sales discount.
B. sales return.
C. sales allowance.
D. sales expense. Correct Answer: Sales Allowance
If a company has total revenues of $1,000,000, sales
discounts of $50,000, sales returns of $50,000, and
sales allowances of $100,000, the income statement
will report net revenues of $750,000. True or false? Correct Answer: False (Subtract the
amounts from the total revenue)
The advantage of extending credit to customers
A. Lower profitability
B. Higher revenues
C. Delay or failure to collect cash
D. Less collection costs Correct Answer: Higher revenues
Uncollectible accounts cannot be estimated because
it is not possible to know which accounts will not be
collected. True or false? Correct Answer: False
The matching principle
A. results in the recording of a known amount for
bad‐debt losses.
B. necessitates the recording of an estimated
amount for bad debts.
C. requires that all bad‐debt losses be recorded
when an individual customer doesn't pay.
D. is violated when the allowance method is
employed Correct Answer: Necessitates the recording of an estimate amount for bad debts
The matching rule relates to credit losses by stating
that Uncollectible Accounts Expense should be
recorded
A. in the period of the loss.
B. for an exact amount.
C. generally in the subsequent year .
, D. in the period of the sale. Correct Answer: In the period of the sale
Cotswolds, 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?
A. Decrease assets and decrease stockholders'
equity
B. Decrease assets and decrease liabilities
C. Increase assets and decrease stockholders'
equity
D. Increase liabilities and decrease stockholders'
equity Correct Answer: Decrease assets and decrease stockholders' equity
The allowance for uncollectible accounts is similar to
accumulated depreciation in that it represents the total of all accounts written off over the years.
True or false? Correct Answer: False (Represents an estimate of bad debts for
amounts in the accounts receivable balance.)
A company's Accounts Receivable balance at its December 31
year‐end is $100,000, and its Allowance for Doubtful Accounts
has a credit balance of $200 before year‐end adjustment. It
estimates that 4% of outstanding accounts receivable are
uncollectible. What amount of bad debt expense is recorded at
December 31?
A. $ 200
B. $4,200
C. $4,000
D. $3,800 Correct Answer: D. (100,000 x 4% = $4000 - $200)
At December 31, Bampton Co. reported accounts receivable of
$238,000 and an allowance for uncollectible accounts of $600
(debit) before any adjustments. 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
A. $6,540
B. $7,740
C. $7,800
D. $7,140 Correct Answer: B. ( ($238,000 × 3%)
desired balance +600)
A company performs an aging of accounts receivable
calculation and arrives at an estimate for uncollectible
accounts of $25,000. If Allowance for Uncollectible
Accounts has a debit balance of $1,000 prior to the
