chap006 - Chapter 006: Reporting and Interpreting Sales...

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Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash True / False Questions 1. "F.O.B. destination" means that title to the shipped goods passes to the buyer on the shipment date. FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 1 2. Most companies record revenue when they ship goods to customers not when they are delivered to customers. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 1 3. Credit terms "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days. FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 4. The sales returns and allowances account should be reported as a deduction from sales revenue because it is a contra-revenue account. TRUE AACSB Tag: Communications Difficulty: Medium L.O.: 2 6-1
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Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 5. Sales returns and allowances should be included as a selling expense. FALSE AACSB Tag: Communications Difficulty: Easy L.O.: 2 6. Many merchants accept credit cards for the sale of goods because it can increase the number of customers. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 7. A company is thinking of borrowing money at an 18% annual interest rate in order to pay a $30,000 invoice within the discount period. The invoice terms are 2/10, n/30. They should borrow the money because they will still have a net savings of 19.2%. TRUE AACSB Tag: Analytic Difficulty: Medium L.O.: 2 8. An entry to bad debts expense and the allowance for doubtful accounts is made to write off a customer's account during the year when it is determined to be uncollectable. FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 4 6-2
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Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 9. When a particular account receivable is determined to be uncollectible, the entry to write off the account requires a debit to the allowance for doubtful accounts. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 4 10. The allowance for doubtful accounts normally has a debit balance after the year-end adjustment. FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 4 11. An entry to write off an uncollectible account does not change the net realizable value (book value) of accounts receivable. TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 4 12. Accounts Receivables turnover is computed as net credit sales divided by net trade accounts receivable at the end of the accounting period. FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 5 6-3
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Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 13. When a company reports a higher accounts receivable turnover ratio, then the number of days it takes to collect the receivables has also increased. FALSE
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