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Financial Accounting, 10e (Libby)
Chapter 6 Reporting and Interpreting Sales Revenue, Receivables, and Cash
1) When goods are shipped FOB shipping point, title passes to the buyer on the shipment date.
Answer: TRUE
Explanation: When goods are shipped FOB shipping point, the title passes to the buyer when
the goods are shipped.
Difficulty: 1 Easy
Topic: Shipping terms-FOB
Learning Objective: 06-01 Analyze the impact of credit card sales, sales discounts, sales
returns, and sales of bundled items on the amounts reported as net sales.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) When goods are shipped FOB destination, the revenue from the sale is recognized on the
shipment date.
Answer: FALSE
Explanation: When goods are shipped FOB destination, the revenue is recognized when the
goods are delivered to the buyer.
Difficulty: 1 Easy
Bloom's: Remember
3) Credit card discounts are reported as operating expenses on an income statement.
Answer: FALSE
Explanation: Credit card discounts are deducted from sales to calculate net sales.
Difficulty: 1 Easy
Topic: Sales-Credit card sales
Bloom's: Remember
1
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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
4) Sales discounts are deducted from sales in the calculation of net sales.
Answer: TRUE
Explanation: Sales discounts are deducted from sales to calculate net sales.
Difficulty: 1 Easy
Topic: Sales-Net sales
Bloom's: Remember
5) Sales returns and allowances is a contra-revenue account.
Answer: TRUE
Explanation: Sales returns and allowances are deducted from sales to calculate net sales. They
are therefore a contra-revenue account.
Difficulty: 1 Easy
Bloom's: Remember
6) Credit terms of "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.
Answer: FALSE
Explanation: The "2/10" means that a 2% discount is given if the payment is made within 10
days. The "n/30" means that if the payment is not paid within 10 days, then it is due in 30 days.
Difficulty: 1 Easy
Topic: Sales-Discounts-returns-allowances
Bloom's: Remember
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 have a net savings of 19.2%.
Answer: TRUE
Explanation: The annual interest rate associated with the credit terms is 37.2% and is calculated
by multiplying the 20-day interest rate ($600 ÷ $29,400) by the number of 20-day periods during
a year (365 ÷ 20). Borrowing at 18% will save the company 19.2% (37.2% – 18%).
Difficulty: 3 Hard
Bloom's: Apply
AACSB: Knowledge Application
8) Gross profit is calculated as gross sales less cost of sales.
Answer: FALSE
Explanation: The gross profit is calculated as net sales less cost of sales.
Difficulty: 1 Easy
Bloom's: Remember
9) Gross profit decreases when sales discounts increase.
Answer: TRUE
Explanation: Sales discounts reduce net sales and decrease gross profit. More sales discounts
will further decrease gross profit.
Difficulty: 2 Medium
Bloom's: Understand
AACSB: Analytical Thinking
3
10) The journal entry to record bad debt expense is made during the year in which it is
determined that a particular receivable is uncollectible, regardless of the year of sale.
Answer: FALSE
Explanation: Bad debt expense is recorded during the year of sale, not during the year the
receivable is determined to be uncollectible.
Topic: Bad debts-Recording expense-write off-recovery
Learning Objective: 06-02 Estimate, report, and evaluate the effects of uncollectible accounts
receivable (bad debts) on financial statements.
Bloom's: Remember
11) When using an allowance for doubtful accounts and a particular account receivable is
determined to be uncollectible, the journal entry to write off the account reduces net income.
Answer: FALSE
Explanation: The entry to write off an account receivable includes a debit to the allowance for
doubtful accounts and a credit to accounts receivable; this entry does not affect the income
statement.
Bloom's: Understand
12) When a particular account receivable is determined to be uncollectible, the journal entry to
write off the account reduces cash.
Answer: FALSE
Explanation: The entry to write off an account receivable includes a debit to the allowance for
doubtful accounts and a credit to accounts receivable; this entry does not affect cash.
Bloom's: Understand
4
13) The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.
Answer: TRUE
Explanation: Allowance for doubtful accounts is deducted from accounts receivable on the
balance sheet. Therefore, it is a contra-asset account.
Topic: Classifying and reporting receivables
Bloom's: Remember
14) The journal entry to write off an uncollectible account does not change the net realizable
value (book value) of accounts receivable.
Answer: TRUE
Explanation: The journal entry to write off an account receivable includes a debit to allowance
for doubtful accounts and a credit to accounts receivable; this entry reduces both accounts
equally and therefore does not change net realizable value (accounts receivable minus allowance
for doubtful accounts).
Topic: Bad debts-Recording expense-write off-recovery; Classifying and reporting receivables
Bloom's: Analyze
15) When using the allowance method, the year-end journal entry to record bad debt expense
reduces current assets and net income.
Answer: TRUE
Explanation: The journal entry increases the allowance for doubtful accounts balance, which
decreases current assets and the journal entry increases expenses, which decrease net income.
Bloom's: Understand
5
16) When using the allowance method, the year-end journal entry to record bad debt expense
reduces the accounts receivable account and increases net income.
Answer: FALSE
Explanation: The journal entry increases the allowance for doubtful accounts balance, not
accounts receivable. The journal entry also increases expenses, which decrease net income.
Bloom's: Understand
17) When using the percentage of credit sales method, net sales multiplied by a historical
percentage for credit losses equal bad debt expense.
Answer: TRUE
Explanation: The percentage of credit sales method estimates bad debt expense by multiplying
net credit sales times a historical percentage for credit losses.
Topic: Bad debts-Percentage of credit sales
Bloom's: Remember
18) The accounts receivable aging schedule determines the dollar amount of uncollectible
accounts receivable at year-end; this dollar amount of uncollectible accounts receivable is the
bad debt expense that is recorded for the year regardless of the existing balance in the allowance
for doubtful accounts.
Answer: FALSE
Explanation: Using the aging method of accounts receivable to calculate the bad debt expense,
the bad debt expense for the year takes into consideration the existing allowance for doubtful
accounts balance.
Topic: Bad debts-Aging of accounts receivable
Bloom's: Understand
6
19) Prior year financial statements are adjusted when it is determined that prior year bad debt
expense was too low.
Answer: FALSE
Explanation: Prior year financial statements are not adjusted; the current and/or future financial
statements will reflect changes in the estimation of the expense.
Bloom's: Remember
20) If the accounts receivable turnover ratio increases, the number of days it takes to collect the
receivables also increases.
Answer: FALSE
Explanation: The higher the receivables turnover ratio, the faster receivables are collected. This
means there are fewer days in the collection period.
Topic: Ratio analysis-Accounts receivable
Learning Objective: 06-03 Analyze and interpret the receivables turnover ratio and the effects
of accounts receivable on cash flows.
Bloom's: Understand
21) When preparing the statement of cash flows, the reason that net sales revenue is adjusted for
the change in accounts receivables is to convert net sales to cash collected from customers, since
accounts receivable represents sales revenue not collected from customers at the beginning and
end of the accounting year.
Answer: TRUE
Explanation: The change in the accounts receivable balance represents the difference between
cash collections and net sales revenue.
Topic: Cash flows-Accounts receivable
Bloom's: Understand
7
22) Cash equivalents such as treasury bills are reported as investments on the balance sheet.
Answer: FALSE
Explanation: Cash and cash equivalents are combined and reported as a single amount on the
balance sheet. Cash equivalents are not reported as an investment on the balance sheet.
Topic: Cash and cash equivalents
Learning Objective: 06-04 Report, control, and safeguard cash.
Bloom's: Understand
23) Cash equivalents on the balance sheet include certificates of deposit with maturities of 90
days or more.
Answer: FALSE
Explanation: Cash equivalents have original maturities of three months or less.
Bloom's: Understand
24) Effective internal control of cash should include the separation of the duties for receiving and
disbursing cash.
Answer: TRUE
Explanation: Separation of the responsibilities for receiving and disbursing cash is a basic
internal control for cash.
Difficulty: 1 Easy
Topic: Cash-Internal control
Bloom's: Remember
8
25) If a check received from a customer has been deposited by the seller and is marked on the
bank statement as a nonsufficient funds (NSF) amount, then it would appear on the seller's bank
reconciliation as a deduction from the ending bank statement balance.
Answer: FALSE
Explanation: The NSF check would be deducted from the book balance, not the bank balance.
Topic: Cash-Bank reconciliation
Bloom's: Understand
26) Deposits in transit are deducted from the bank balance when preparing the bank
reconciliation.
Answer: FALSE
Explanation: Deposits in transit are added to the bank balance when preparing the bank
reconciliation.
Bloom's: Remember
27) An objective of preparing the bank reconciliation is to reconcile the bank balance at the end
of the period with the company's book balance at the end of the period.
Answer: TRUE
Explanation: Preparation of the bank reconciliation is an internal control procedure with the
intent of testing the equality of the bank statement balance with the book balance after the
applicable adjustments have been made to both balances.
Bloom's: Remember
9
28) When completing the bank reconciliation, bank service charges should be deducted from the
company's cash balance.
Answer: TRUE
Explanation: Bank service charges are deducted from the book cash balance because they were
unrecorded prior to receipt of the bank statement.
Bloom's: Remember
29) Which of the following statements is correct?

A) Revenue is recognized at the time of shipment when goods are shipped FOB destination.
B) Sales returns and allowances are reported as operating expenses on an income statement.
C) A seller records revenue when title and risks of ownership transfer to the buyer.
D) Sales discounts are reported as cost of sales on an income statement.
Answer: C
Explanation: Most businesses recognize revenue when the product is delivered and/or service is
provided.
Bloom's: Understand
10
30) Which of the following would be included in Latimer Company's sales in 2019?
A) Goods shipped from a supplier in 2019 with terms of FOB shipping point. Latimer received
the goods in 2019.
B) Goods shipped to customers in 2019 with terms of FOB destination. The customer received
the goods in 2020.
C) Goods shipped to customers in 2018 with terms of FOB destination. The customer received
the goods in 2019.
D) Goods shipped to customers in 2018 with terms of FOB shipping point. The customer
received the goods in 2019.
Answer: C
Explanation: Title passes to the customer when the goods are received if the terms are FOB
destination. Title passes to the customer when the goods are shipped if the terms are FOB
shipping point. Goods shipped from a supplier are purchases and are not sales of Latimer.
Difficulty: 3 Hard
Bloom's: Analyze
31) A company sells a product FOB destination. The product is shipped on December 29, 2018
and the customer receives the shipment on January 3, 2019. Which of the following is true?
A) The sale will be recorded when the customer's credit card information is received.
B) The sale will be recorded when the shipment is received by the customer.
C) The sale will be recorded when the shipment is shipped.
D) The sale will be recorded when it is known there will be no returns or allowances.
Answer: B
Explanation: Shipments FOB destination are recorded as a sale when the goods are delivered to
the customer, which is when the customer receives the goods.
Bloom's: Understand
11
32) Which of the following is not a reason for the Jones Hardware Store to accept credit cards
from customers?
A) Jones can receive its money faster than if it directly extended credit to the customer by an
account receivable.
B) The credit card company offers a discount to Jones so that Jones will have more money
available for operations.
C) Jones will not have to be concerned with nonsufficient funds checks from customers.
D) Jones will not have to have extra office workers to make phone calls to customers requesting
collections on accounts.
Answer: B
Explanation: The credit card charges a discount fee. This discount is deducted from the total
sales revenue, which results in less money available for the company's operation. However, the
fee charged by the credit card company would offset the costs of having an internal department
for collections and of bank fees for NSF checks, and allows the company to receive its money
immediately from the credit card company rather than waiting for customers to pay the company
directly.
Bloom's: Understand
12
33) Newark Company has provided the following information:
• Cash sales, $450,000

• Credit sales, $1,350,000
• Selling and administrative expenses, $330,000
• Sales returns and allowances, $90,000
• Gross profit, $1,360,000
• Increase in accounts receivable, $55,000
• Bad debt expense, $33,000
• Sales discounts, $43,000
• Net income, $1,030,000
How much are Newark's net sales?

A) $1,634,000.
B) $1,800,000.
C) $1,667,000.
D) $1,745,000.
Answer: C
Explanation: Net sales = $1,667,000 = $450,000 + $1,350,000 − $90,000 − $43,000.
Bloom's: Apply
13

• Net income, $1,030,000
How much is Newark's cost of sales?

A) $307,000.
B) $252,000.
C) $440,000.
D) $340,000.
Answer: A
Explanation: Net sales = $1,667,000 = $450,000 + $1,350,000 − $90,000 − $43,000. Net sales
minus cost of sales equals gross profit, $1,360,000. Therefore, cost of sales equals $1,667,000
minus $1,360,000 = $307,000.
Difficulty: 3 Hard
Bloom's: Apply
14

• Net income, $1,030,000
How much cash was collected from customers?

A) Cash flow increased $1,295,000.
B) Cash flow increased $1,745,000.
C) Cash flow decreased $1,855,000.
D) Cash flow increased $1,405,000.
Answer: B
Explanation: An increase in accounts receivable decreases cash flow from operating activities
and cash collections from customers. Cash sales, $450,000, plus credit sales, $1,350,000, less the
increase in accounts receivable, $55,000 = cash collections from customers, $1,745,000.
Difficulty: 3 Hard
Bloom's: Apply
15
36) Flyer Company has provided the following information prior to any year-end bad debt
adjustment:

• Credit sales, $450,000
• Gross profit, $490,000
• Accounts receivable, $110,000
• Allowance for doubtful accounts credit balance, $1,200
Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts
receivable is estimated to be uncollectible. How much is bad debt expense?
A) $5,500.
B) $6,700.
C) $4,240.
D) $4,300.
Answer: D
Explanation: Under the aging method, the bad debt expense is the amount required to set the
allowance for doubtful accounts to the balance it should be. The balance should be 5% of
accounts of accounts receivable = 5% × $110,000 = $5,500. The allowance for doubtful accounts
credit balance is already $1,200. Therefore, the bad debt expense is $5,500 − $1,200 = $4,300.
Bloom's: Apply
16
adjustment:

Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts
receivable is estimated to be uncollectible. What is the balance in the allowance for doubtful
accounts after bad debt expense is recorded?
A) $5,500.
B) $6,700.
C) $4,240.
D) $4,300.
Answer: A
Explanation: The allowance for doubtful accounts balance = 5% of accounts of accounts
receivable = 5% × $110,000 = $5,500.
Bloom's: Apply
17
adjustment:

Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been
uncollectible. How much is Flyer's bad debt expense?
A) $7,950.
B) $6,750.
C) $5,550.
D) $7,800.
Answer: B
Explanation: Bad debt expense = $6,750 = 1.5% × $450,000.
Bloom's: Apply
18
adjustment:

Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been
uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense
is recorded?
A) $7,950.
B) $6,750.
C) $5,550.
D) $7,800.
Answer: A
Explanation: The allowance for doubtful accounts, $7,950 = Bad debt expense, (1.5% ×
$450,000) plus the allowance for doubtful accounts credit balance, $1,200.
Bloom's: Apply
40) Which of the following is correct when bad debt expense is recorded at year-end?
A) Current assets will increase.
B) Gross profit will decrease.
C) Income from operations will decrease.
D) Current liabilities will decrease.
Answer: C
Explanation: Bad debt expense is an operating expense. An increase in operating expenses
decreases income from operations.
Bloom's: Analyze
19
41) Which of the following statements is false?
A) The journal entry to record bad debt expense decreases current assets.
B) The journal entry to record bad debt expense decreases retained earnings.
C) The journal entry to write off an uncollectible account receivable decreases operating income.
D) The journal entry to write off an uncollectible account receivable does not affect current
assets.
Answer: C
Explanation: The journal entry to write off an uncollectible account receivable decreases both
the accounts receivable and the allowance for uncollectible accounts balances. There is no effect
on operating income.
Bloom's: Apply
20
42) Which of the following journal entries correctly records bad debt expense?
A)
Bad debt expense xxx
Accounts receivable xxx
B)
Allowance for doubtful accounts xxx
C)
D)
Answer: D
Explanation: The journal entry to record bad debt expense involves a debit to bad debt expense
and a credit to allowance for doubtful accounts.
Difficulty: 1 Easy
Bloom's: Analyze
21
43) Which of the following journal entries correctly records the write off of an uncollectible
account receivable when using the allowance method?
A)
Uncollectible sales xxx
B)
C)
D)
Answer: B
Explanation: The journal entry to write off an account receivable requires a debit to allowance
for doubtful accounts and a credit to accounts receivable.
Bloom's: Analyze
22
44) The CHS Company has provided the following information:
• Accounts receivable written-off as uncollectible during the year amounted to $11,500.

• The accounts receivable balance at the beginning of the year was $150,000.
• The accounts receivable balance at the end of the year was $210,000.
• The allowance for doubtful accounts balance at the beginning of the year was $14,000.
• The allowance for doubtful accounts balance at the end of the year after the recording of bad
debt expense was $12,900.
• Credit sales during the year totaled $900,000.
How much was CHS Company's bad debt expense?

A) $11,500.
B) $12,900.
C) $10,400.
D) $14,000.
Answer: C
Explanation: Ending allowance for doubtful accounts, $12,900 = Beginning allowance for
doubtful accounts, $14,000 − Accounts receivable write-offs, $11,500 + Bad debt expense,
$10,400.
Difficulty: 3 Hard
Bloom's: Apply
23
45) The CHS Company has provided the following information:
• Accounts receivable written-off as uncollectible during the year amounted to $11,500.

• The accounts receivable balance at the beginning of the year was $150,000.
• The accounts receivable balance at the end of the year was $210,000.
• The allowance for doubtful accounts balance at the beginning of the year was $14,000.
• The allowance for doubtful accounts balance at the end of the year after the recording of bad
debt expense was $12,900.
• Credit sales during the year totaled $900,000.
How much cash was received from collections of accounts receivable?

A) $888,500.
B) $828,500.
C) $690,000.
D) $701,500.
Answer: B
Explanation: Ending accounts receivable, $210,000 = Beginning accounts receivable, $150,000
− Accounts receivable write-offs, $11,500 + Credit sales, $900,000 − Cash collections,
$828,500.
Difficulty: 3 Hard
Bloom's: Apply
24
46) Superior Company has provided you with the following information before any year-end
adjustments:
Net credit sales are $120,000.

Historical percentage of credit losses is 2%.
Allowance for doubtful accounts has a credit balance of $300.
Accounts receivables ending balance is $47,000.
What is the estimated bad debt expense using the percentage of credit sales method?
A) $2,100.
B) $2,400.
C) $940.
D) $2,700.
Answer: B
Explanation: $2,400 = (2% × $120,000)
Difficulty: 1 Easy
Bloom's: Remember

A) The journal entry to record bad debt expense requires a debit to bad debt expense and a credit
to accounts receivable.
B) The journal entry to record bad debt expense requires a debit to bad debt expense and a credit
to allowance for doubtful accounts.
C) The journal entry to record the write off of an uncollectible account receivable requires a
debit to bad debt expense and a credit to accounts receivable.
D) The journal entry to record the write off of an uncollectible account receivable requires a
debit to bad debt expense and a credit to allowance for doubtful accounts.
Answer: B
Explanation: The journal entry to record bad debt expense requires a debit to bad debt expense
and a credit to allowance for doubtful accounts.
Bloom's: Remember
25
48) Clark Company estimated the net realizable value of its accounts receivable as of December
31, 2019, to be $165,000, based on an aging schedule of accounts receivable. Clark has also
provided the following information:
• The accounts receivable balance on December 31, 2019 was $175,000.

• Uncollectible accounts receivable written off during 2019 totaled $12,000.
• The allowance for doubtful accounts balance on January 1, 2019 was $15,000.
How much is Clark's 2019 bad debt expense?

A) $10,000.
B) $7,000.
C) $13,000.
D) $3,000.
Answer: B
Explanation: The December 31, 2019 balance in allowance for doubtful accounts, $10,000,
equals the accounts receivable balance on December 31, 2019, $175,000, minus the December
31, 2019 net realizable value of accounts receivable, $165,000. The December 31, 2019 balance
in allowance for doubtful accounts, $10,000 equals the balance in allowance for doubtful
accounts on January 1, 2019, $15,000 minus accounts receivable write offs during 2019,
$12,000, plus the 2019 bad debt expense, $7,000.
Difficulty: 3 Hard
Bloom's: Apply
49) What would be incorrect about reporting accounts receivable in the balance sheet?
A) Presenting accounts receivable net of allowance for doubtful accounts.
B) Presenting accounts receivable at estimated net realizable value.
C) Presenting accounts receivable less bad debt expense and write-offs.
D) Presenting accounts receivable at gross amount, less allowance for doubtful accounts.
Answer: C
Explanation: Bad debts and write-offs, if material, are reported on a schedule included in Form
10-K for public companies but not on the balance sheet.
Bloom's: Remember
26
50) Which of the following statements correctly describes the effect of recording the collection
of a $10,000 account receivable for which a 2% sales discount was recorded at the time of
collection?
A) Current assets will remain the same.
B) Gross profit will decrease $200.
C) Accounts receivable will decrease $9,800.
D) Net sales will increase $9,800.
Answer: B
Explanation: The $200 sales discount ($10,000 × 2%) reduces net sales and therefore gross
profit. Assets increase by $9,800 for the cash received and decrease by $10,000 to remove the
account receivable.
Topic: Recording discounts and returns - Chapter supp
Learning Objective: 06-(S): Recording Discounts and Returns.
Bloom's: Understand
27
51) Which of the following journal entries correctly records the collection of an account
receivable for which a 1% sales discount was recorded at the time of collection?
A)
Cash xxx
Sales discounts xxx
B)
Cash xxx
C)
Cash xxx
Sales discounts xxx
D)
Cash xxx
Gross profit xxx
Answer: A
Explanation: The journal entry involves a debit to both cash and sales discounts and a credit to
accounts receivable.
Bloom's: Apply
28
52) Which of the following correctly describes the effect of a journal entry involving the
recording of a sales return?
A) Gross profit decreases.
B) Net sales increases.
C) Current assets remain the same.
D) Net income increases.
Answer: A
Explanation: The journal entry involves a debit to sales returns and allowances, which reduces
net sales, which will reduce gross profit and net income.
Bloom's: Analyze
53) Which of the following correctly describes the effect of a sales discount?
A) Gross profit increases.
B) Net sales increases.
C) Current assets remain the same.
D) Net income decreases.
Answer: D
Explanation: Sales discounts reduce net sales, which will reduce gross profit and net income.
Bloom's: Understand
29
54) Which of the following does not correctly describe the effect of a credit card discount?
A) Net sales decrease and gross profit decreases.
B) Net sales decrease and net income decreases.
C) Operating expenses remain the same and net income decreases.
D) Neither operating expenses nor net income is affected
Answer: D
Explanation: The credit card discount account is a contra-revenue account, which reduces net
sales, gross profit, and therefore net income.
Bloom's: Understand
55) Which of the following does not correctly describe the effect of a journal entry involving the
recording of a credit card discount?
A) Net sales decrease and net income decreases.
B) Net sales decrease, operating expenses increase, and net income remains the same.
C) Operating expenses remain the same and net income decreases.
D) Net sales decrease and gross profit decreases.
Answer: B
Explanation: The journal entry includes a debit to credit card discount, which is a contra-
revenue account, and therefore net sales, gross profit, and net income all decrease.
Bloom's: Understand
30
56) Which of the following correctly describes credit terms of 2/10, n/30?
A) A two percent discount for early payment is available if the invoice is paid before the tenth
day of the month following the month the sale.
B) A two percent discount for early payment is available if the invoice is paid within ten days of
the date of sale.
C) A ten percent discount for early payment is available if the invoice is paid within two days of
the date of the invoice.
D) A two percent discount for early payment is available if the invoice is paid after the tenth day,
but before the thirtieth day of the invoice date.
Answer: B
Explanation: The credit term 2/10 implies that a 2% discount is available within ten days of the
date of sale and the term n/30 implies that the full sales price is due within 30 days of the sale.
Bloom's: Understand
57) A customer purchased and received $5,000 of goods on credit from Discount Paper Supply
on September 1. The customer received the bill on September 13 and mailed a $5,000 check on
September 30. Discount Paper Supply received the check on October 4. On which of the
following dates should Discount Paper Supply record sales revenue?
A) September 1
B) September 13
C) September 30
D) October 4
Answer: A
Explanation: Sales revenue should be recorded on the date of sale. The goods were purchased
and received on the same day so there is no issue with FOB destination or shipping point and the
date of sale is September 1.
Bloom's: Understand
31
58) When a credit sale is made with terms of 2/10, n/30 on May 10 and the customer's check is
received on May 19, which of the following is true about the May 19 journal entry?
A) The debit to cash will equal the credit to accounts receivable because the discount was
recorded on May 10.
B) There will be a debit to sales discounts on May 10.
C) The debit to cash will be less than the credit to accounts receivable on May 19.
D) There will be a credit to sales discounts on May 19.
Answer: C
Explanation: The customer paid within the discount period so the discount is recognized on
May 19. The discount reduces the cash received so the debit to cash is less than the credit to
accounts receivable.
Bloom's: Understand
59) A company had the following partial list of account balances at year-end:
Sales Returns and Allowances $ 1,000

Accounts Receivable 38,000
Sales Discounts 2,100
Sales Revenue 95,000
Allowance for Doubtful Accounts 1,200
How much is net sales revenue?

A) $91,900.
B) $90,700.
C) $89,900.
D) $88,600.
Answer: A
Explanation: Net sales revenue, $91,900, equals sales revenue, $95,000 minus sales discounts,
$2,100, and minus sales returns and allowances, $1,000.
Bloom's: Apply
32
60) A company purchased goods on credit with credit terms of 3/15, n/45. Although the
company does not have cash available to pay within the discount period, the manager of the
company is considering borrowing money to take advantage of the discount. In order to make the
appropriate decision, the manager computed the annual interest rate associated with the sales
discount. Which of the following is the annual interest rate (rounded)? (Use 365 days a year)
A) 56%.
B) 38%.
C) 25%.
D) 18%.
Answer: B
Explanation: 30-day interest rate (0.031) = Amount saved ($3) ÷ Amount paid ($97). Annual
interest rate (38%) = 30-day interest rate (0.031) × (365 ÷ 30).
Difficulty: 3 Hard
Bloom's: Apply
61) When credit terms for a sale are 2/15, n/40, the customer saves by paying early. What
percent (rounded) would this savings amount to on an annual basis?
A) 18.2%.
B) 20.0%.
C) 29.2%.
D) 36.5%.
Answer: C
Explanation: 25-day interest rate (0.02) = Amount saved ($2) ÷ Amount paid ($98). Annual
interest rate (29.2%) = 25-day interest rate (0.02) × (365 ÷ 25).
Difficulty: 3 Hard
Bloom's: Apply
33
62) Which of the following accounts is not a contra-revenue account?
A) Sales discounts
B) Credit card discounts
C) Sales returns and allowances
D) Allowance for doubtful accounts
Answer: D
Explanation: Allowance for doubtful accounts is a contra-asset account.
Difficulty: 1 Easy
Bloom's: Remember
34
63) Dillon Company uses the allowance method to account for bad debts. The entry to write off a
bad account (one that will never be collected) should be:
A)
Debit Credit
Bad debt expense Accounts receivable
B)
Debit Credit
Bad debt expense Allowance for doubtful accounts
C)
Debit Credit
Sales revenue Accounts receivable
D)
Debit Credit
Allowance for doubtful accounts Accounts receivable
Answer: D
Explanation: Writing off an uncollectible account using the allowance method involves a debit
to allowance for doubtful accounts and a credit to accounts receivable.
Bloom's: Remember
35
64) When using the allowance method for accounting for bad debts, accounts receivable is
reported on the balance sheet at the expected net realizable value. When a particular receivable
from a customer ultimately is determined to be uncollectible and is written off, the recording of
this event will:
A) Decrease the net realizable value of the accounts receivable.
B) Have an effect that is not determinable from the information given.
C) Increase the net realizable value of the accounts receivable.
D) Have no effect on the net realizable value of the accounts receivable.
Answer: D
Explanation: Writing-off an uncollectible account involves a debit to allowance for doubtful
accounts (a contra-asset account) and a credit to accounts receivable (an asset account).
Therefore, the net realizable value (accounts receivable minus allowance for doubtful accounts)
does not change.
Bloom's: Remember
36
65) Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful
accounts of $21,500 just prior to writing off as worthless a customer's $5,000 account receivable.
The net realizable value of Oakwood's accounts receivable as shown by the accounting records
before and after the write off was as follows:
A)
Before After
$750,000 $745,000
B)
Before After
$721,500 $733,500
C)
Before After
$728,500 $723,500
D)
Before After
$728,500 $728,500
Answer: D
Explanation: Writing-off an uncollectible account involves a debit to allowance for doubtful
Therefore, the net realizable value (accounts receivable minus allowance for doubtful accounts)
does not change; it is $728,500 both before and after the write off.
Bloom's: Apply
37
66) Woodland Company uses the allowance method to account for bad debts. During the current
year, a customer declared bankruptcy and a receivable of $10,000 was deemed uncollectible.
Which of the following journal entries records Woodland's uncollectible account write-off?
A)
Allowance for doubtful accounts 10,000
Accounts receivable 10,000
B)
Bad debt expense 10,000
C)
D)
Loss on receivables 10,000
Answer: A
Explanation: Writing off an uncollectible account involves a debit to allowance for doubtful
Bloom's: Understand
38
67) At year-end, Chief Company has a balance of $10,000 in accounts receivable of which
$1,000 is more than 30 days overdue. Chief has a credit balance of $100 in the allowance for
doubtful accounts before any year-end adjustments. Using the aging of accounts receivable
method, Chief estimates that 1% of current accounts and 10% of accounts over thirty days are
uncollectible. What is the amount of bad debt expense?
A) $90.
B) $190.
C) $290.
D) $100.
Answer: A
Explanation: Allowance for doubtful accounts desired balance, $190 = ($1,000 × 0.10) +
($9,000 × 0.01). Bad debt expense, $90 = Allowance for doubtful accounts desired balance, $190
− Allowance for doubtful accounts current balance = $100.
Difficulty: 3 Hard
Bloom's: Apply
68) Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works
prepared an aging of accounts receivable and estimated that $5,000 of the $98,000 accounts
receivable balance would be uncollectible. The allowance for doubtful accounts had a $400 debit
balance at year-end prior to adjustment. What is the amount of bad debt expense?
A) $5,000.
B) $5,400.
C) $4,600.
D) $400.
Answer: B
Explanation: Bad debt expense, $5,400 = Allowance for doubtful accounts desired credit
balance, $5,000 + Allowance for doubtful accounts current debit balance, $400.
Bloom's: Apply
39
69) Which of the following statements does not correctly describe the allowance for doubtful
accounts balance?
A) It is reported on the balance sheet as a component of current assets.
B) It is a contra-asset account.
C) It is reported on the balance sheet as a component of stockholders' equity.
D) It is created as a result of the adjusting entry to record bad debt expense.
Answer: C
Explanation: Allowance for doubtful accounts is a contra-asset account and does not affect
stockholders' equity.
Bloom's: Understand
70) The Roscoe Company's March 31 bank statement balance was $70,000. As of March 31,
outstanding checks total $22,000 and deposits in transit total $15,000. Assuming there are no
other reconciling items, what was the March 31 cash balance on Roscoe's books?
A) $63,000.
B) $77,000.
C) $70,000.
D) $107,000.
Answer: A
Explanation: Book cash balance, $63,000 = Bank balance, $70,000 − Outstanding checks,
$22,000 + Deposits in transit, $15,000.
Bloom's: Apply
40
71) The Tanner Company's April 30 pre-reconciliation cash balance on its books was $35,000.
While preparing the April 30 bank reconciliation, Tanner determined that outstanding checks
total $11,000, deposits in transit total $7,000, and bank service charges are $50. Assuming there
are no other reconciling items, what was Tanner's April 30 cash balance per the bank statement?
A) $31,000.
B) $30,950.
C) $38,950.
D) $39,000.
Answer: C
Explanation: Bank cash balance, $38,950 = Corrected book balance, ($35,000 − $50) +
Outstanding checks, $11,000 − Deposits in transit, $7,000.
Difficulty: 3 Hard
Bloom's: Apply
72) The Conner Company's August 31 pre-reconciliation cash balance on its books was $90,000.
As of August 31, outstanding checks total $44,000 and deposits in transit total $30,000.
Assuming there are no other reconciling items, what was the August 31 cash balance on Conner's
bank statement?
A) $76,000.
B) $90,000.
C) $13,000.
D) $104,000.
Answer: D
Explanation: Bank cash balance, $104,000 = Book balance, $90,000 + Outstanding checks,
$44,000 − Deposits in transit, $30,000.
Bloom's: Apply
41
73) Which of the following statements pertaining to bank reconciliations is false?
A) Outstanding checks are deducted from the bank cash balance.
B) Deposits in transit are added to the bank cash balance.
C) Bank service charges are deducted from the bank cash balance.
D) Non-sufficient funds checks identified in the bank statement are deducted from the book cash
balance.
Answer: C
Explanation: Bank service charges are deducted from the book cash balance, not the bank cash
balance.
Bloom's: Understand
74) When a depositor receives a bank statement indicating that there was a "NSF check," the
depositor should do which of the following?
A) Reduce the cash account per the books for the amount of the "NSF check."
B) Reduce the cash account per the bank statement for the amount of the "NSF check."
C) Debit allowance for doubtful accounts for the amount of the check.
D) Increase the sales returns and allowances account.
Answer: A
Explanation: NSF checks are deducted from the book cash balance when preparing a bank
reconciliation.
Bloom's: Remember
42
75) A deposit in transit in a bank reconciliation should be:
A) Added to the depositor's book cash balance.
B) Subtracted to the depositor's book cash balance.
C) Added to the bank statement balance.
D) Subtracted from the bank statement balance.
Answer: C
Explanation: Deposits in transit represent deposits recorded on the books, which have not yet
been recorded on the bank statement. They are therefore added to the bank statement balance.
Bloom's: Remember
76) CHS Company has just finished preparing its bank reconciliation. If CHS did everything
correctly, which items would have been included as an addition to the company's cash account?
A) Deposits in transit.
B) Interest received.
C) Outstanding checks.
D) ATM and check printing fees.
Answer: B
Explanation: The bank paid interest on the company's account and increased the company's
account by this amount. However, the interest was not directly deposited by the company, so it
has not yet been recorded in the company's books. In order to reconcile the cash account, the
interest needs to be added to the book side of the reconciliation schedule.
Difficulty: 1 Easy
Bloom's: Remember
43
77) Dally Company has just finished preparing its bank reconciliation. If everything was done
correctly, which of the following items would be reported as a deduction from the company's
ending balance per the bank?
A) Deposits in transit.
B) Service Fees.
C) Outstanding checks.
D) NSF checks.
Answer: C
Explanation: The checks written by the company have been recorded and are already deducted
from the books. However, since some checks have not yet cleared the bank, the bank has no
knowledge of these amounts. In order to reconcile the cash account to the bank statement, the
outstanding checks need to be deducted from the bank side of the reconciliation schedule.
Difficulty: 1 Easy
Bloom's: Remember
78) Linetech Company's bank statement showed an ending balance of $8,000. Items appearing in
the bank reconciliation included: outstanding checks, $500; deposits in transit, $1,000; bank
service charges, $50; and Driver Company's $250 check erroneously deducted from Linetech's
bank account by the bank. What is the correct cash balance at the end of the month?
A) $10,600.
B) $8,750.
C) $8,500.
D) $8,250.
Answer: B
Explanation: Book cash balance, $8,750 = Bank balance, $8,000 – Outstanding checks, $500 +
Deposits in transit, $1,000 + Bank error, $250.
Bloom's: Apply
44
79) Which of the following demonstrates a poor internal control procedure?
A) The bookkeeper makes cash deposits and records journal entries related to cash, while the
treasurer prepares the bank reconciliation.
B) The president, who does no bookkeeping, prepares the bank reconciliation each month.
C) The treasurer signs all checks after the bookkeeper prepares the supporting documents.
D) One bookkeeper prepares cash deposits and the other bookkeeper enters the collections in the
journal and ledger.
Answer: A
Explanation: The bookkeeper's cash recordkeeping and cash handling responsibilities need to
be separated.
Bloom's: Remember
80) The cash records and the bank statement of Frankel Company showed the following at the
end of February: Outstanding checks as of the beginning of February, $8,000; checks written by
Frankel Company according to its books during February, $50,000; and checks cleared by the
bank during February, $54,000. What was the amount of the outstanding checks at the end of
February?
A) $2,000.
B) $4,000.
C) $6,000.
D) $8,000.
Answer: B
Explanation: Outstanding checks at the end of February, $4,000 = Outstanding checks at the
beginning of February, $8,000 + Checks written per the books during February, $50,000 −
Checks clearing the bank during February, $54,000.
Difficulty: 3 Hard
Bloom's: Apply
45
81) The cash account and the December bank statement of Gomez Company showed the
following: deposits made by Gomez Company during December, $90,000; deposits reflected on
the December bank statement, $88,000; and deposits in transit on November 30, $5,000. What
was the amount of deposits in transit at the end of December?
A) $10,000.
B) $7,000.
C) $5,000.
D) $2,000.
Answer: B
Explanation: Deposits in transit at the end of December, $7,000 = Deposits made per the books
during December, $90,000 − [Deposits per the December bank statement, $88,000 − November
30 deposits in transit, $5,000].
Difficulty: 3 Hard
Bloom's: Apply
82) When preparing the monthly bank reconciliation, the accountant for Farris Corporation
discovered that a check correctly written to one of Farris' suppliers for $159 had been incorrectly
recorded in the books as $195. Which of the following statements is correct with respect to the
bank reconciliation process?
A) The cash balance per the books will be decreased.
B) The cash balance per the bank statement will be increased.
C) The cash balance per the bank statement will be decreased.
D) The cash balance per the books will be increased.
Answer: D
Explanation: The error incorrectly decreases the cash balance per the books. To correct the
books, the difference [$195 − $159] is added back to the book balance.
Bloom's: Analyze
46
83) When preparing a bank reconciliation, which of the following would be deducted from the
company's cash balance?
A) Interest income paid by the bank.
B) The dollar amount of deposits in transit.
C) The dollar amount of outstanding checks.
D) The bank service charges included on the bank statement.
Answer: D
Explanation: The bank service charges are recorded on the bank statement and need to be
deducted from the book balance.
Difficulty: 1 Easy
Bloom's: Remember
84) Merchandise was sold on credit for $10,000, terms 2/10, n/30. Which of the following
journal entry descriptions correctly describes the cash collection?
A) Cash is debited for $10,000 and accounts receivable is credited for $10,000 if the collection is
within the discount period.
B) Cash is debited for $10,000, accounts receivable is credited for $9,800, and sales discounts is
credited for $200 if the collection is within the discount period.
C) Cash is debited for $10,000, accounts receivable is credited for $9,800, and sales discounts is
credited for $200 if the collection is after the discount period.
D) Cash is debited for $10,000 and accounts receivable is credited for $10,000 if the collection is
after the discount period.
Answer: D
Explanation: When the payment is received after the discount period, a sales discount is not
recorded and cash is debited and accounts receivable is credited for the selling price.
Bloom's: Apply
47
85) Merchandise was sold on credit for $30,000, terms 3/15, n/30. Which of the following
journal entry descriptions correctly describes the cash collection?
A) Cash is debited for $25,500 and accounts receivable is credited for $25,500 if the collection is
within the discount period.
B) Cash is debited for $29,100, sales discounts is debited for $900, and accounts receivable is
credited for $30,000 if the collection is within the discount period.
C) Cash is debited for $30,000, accounts receivable is credited for $29,100, and sales discounts
is credited for $900 if the collection is within the discount period.
D) Cash is debited for $29,100 and accounts receivable is credited for $29,100 if the collection is
after the discount period.
Answer: B
Explanation: When the payment is received within the discount period, a sales discount of $900
is recorded via a debit, cash is debited for $29,100, which is the selling price less the discount
[$30,000 − $900], and accounts receivable is credited for the selling price of $30,000.
Bloom's: Apply
86) Which of the following does not correctly describe the following journal entry?
Cash xxx
Credit card discount xxx
A) Current assets decrease.

B) Gross profit decreases.
C) Net sales decreases.
D) Net income is not affected.
Answer: D
Explanation: The debit to the credit card discount account is a contra-revenue account, which
reduces both gross profit and net income.
Bloom's: Understand
48
87) Which of the following correctly describes the following journal entry?
Cash xxx
Sales discounts xxx
A) The gross profit does not change.

B) Net income decreases.
C) Current assets increase.
D) Net sales increases.
Answer: B
Explanation: The debit to the sales discount account is a contra-revenue account, which reduces
gross profit, net sales, and net income.
Bloom's: Understand
88) Which of the following does not correctly describe the following journal entry?
Sales returns and allowances xxx

A) Current assets decrease.

B) Gross profit decreases.
C) Net sales decreases.
D) Operating expenses increase.
Answer: D
Explanation: The debit to the sales returns and allowances account is a contra-revenue account,
which reduces both gross profit and net sales. Accounts receivable decreases, which results in a
decrease in current assets. Sales returns and allowances is not an operating expense.
Bloom's: Understand
49
89) The Ward Company has provided the following information:
• Net sales totaled $750,000.

• Beginning net accounts receivable was $65,000.
• Ending net accounts receivable was $85,000.
What was Ward's receivables turnover ratio?

A) 10.0
B) 8.8
C) 11.5
D) 5.0
Answer: A
Explanation: Receivable turnover ratio, 10.0 = Net sales, $750,000 ÷ Average accounts
receivable, $75,000.* *Where Average net accounts receivable are equal to $75,000, based on
[beginning net accounts receivable, $65,000 + ending net accounts receivable, $85,000] ÷ 2.
Difficulty: 1 Easy
Bloom's: Apply
50
90) The Ward Company has provided the following information:
• Net sales totaled $750,000.

What was Ward's average collection period? (Use 365 days a year)
A) 73.0 days.
B) 41.8 days.
C) 31.6 days.
D) 36.5 days.
Answer: D
Explanation: Receivables turnover ratio = 10.0 = Net sales, $750,000 ÷ Average net accounts
receivable, $75,000.* *Where Average accounts receivable are equal to $75,000 based on
[beginning net accounts receivable ($65,000) + ending net accounts receivable ($85,000)] ÷ 2.
Average collection period = 36.5 days = 365 ÷ receivables turnover, 10.0.
Bloom's: Apply
51
91) The Rye Corporation has provided the following information:
• Total sales were $1,200,000.

• Sales returns and allowances totaled $100,000.
What was Rye's receivables turnover ratio?

A) 21.8
B) 18.5
C) 10.0
D) 20.0
Answer: D
Explanation: Receivables turnover ratio = 20.0 = Net sales, [$1,200,000 − $100,000] ÷
Average net accounts receivable, $55,000.* *Where Average net accounts receivable
equal $55,000 based on [beginning net accounts receivable, $45,000 + ending net
accounts receivable, $65,000] ÷ 2.
Bloom's: Apply
52
92) The Rye Corporation has provided the following information:
• Total sales were $1,200,000.

• Sales returns and allowances totaled $100,000.
What was Rye's average collection period? (Use 365 days a year)
A) 16.73 days.
B) 19.75 days.
C) 36.50 days.
D) 18.25 days.
Answer: D
Explanation: Receivables turnover ratio = 20.0 = Net sales, [$1,200,000 − $100,000] ÷
Average net accounts receivable, $55,000.* *Where Average net accounts receivable
equal $55,000 based on [beginning net accounts receivable ($45,000) + ending net
accounts receivable ($65,000)] ÷ 2.
Average collection period = (18.25 days) = 365 ÷ Receivables turnover, 20.0.

Bloom's: Apply
93) Which of the following transactions will result in a decrease in the receivables turnover
ratio?
A) The journal entry to record bad debt expense.
B) Writing off an uncollectible account receivable.
C) Selling inventory on account.
D) Collecting an account receivable.
Answer: C
Explanation: Selling inventory on account results in an increase in both net sales (numerator)
and average net receivables (denominator). However, the increase in the denominator is greater
relative to the increase in the numerator. Therefore, the receivables turnover ratio decreases.
Difficulty: 3 Hard
Bloom's: Analyze
53
94) Which of the following transactions will result in an increase in the receivables turnover
ratio?
A) The journal entry to record bad debt expense.
B) Writing off an uncollectible account receivable.
C) Selling inventory on account.
D) Purchasing inventory on account.
Answer: A
Explanation: The journal entry to record bad debt expense involves a credit to allowance for
doubtful accounts, which decreases net accounts receivable and therefore increases the
receivables turnover ratio.
Difficulty: 3 Hard
Bloom's: Analyze

A) A decrease in the accounts receivable balance means that credit sales exceeded cash
collections from customers.
B) The accounts receivable balance increases when cash collected from customers exceeds credit
sales.
C) A decrease in accounts receivable is deducted from net income when determining cash flow
from operating activities.
D) An increase in accounts receivable is deducted from net income when determining cash flow
from operating activities.
Answer: D
Explanation: An increase in accounts receivable is deducted from net income when determining
cash flow from operating activities.
Bloom's: Understand
54
96) Which of the following does not correctly describe the effect of recording a credit sale of
inventory for a profit?
A) Sales are recorded when title and risks of ownership are transferred to the buyer.
B) Current assets increase.
C) Gross profit increases.
D) Operating expenses increase.
Answer: D
Explanation: Cost of goods sold (cost of sales) increases, not operating expenses. Cost of goods
sold is not an operating expense.
Bloom's: Understand
97) The Soft Company has provided the following information after year-end adjustments:
• Allowance for doubtful accounts was $11,000 at the beginning of the year and $30,000 at the
end of the year.
• Accounts receivable were $80,000 at the beginning of the year and $420,000 at the end of the
year.
• Accounts written off as uncollectible totaled $20,000.
• Net sales totaled $2,700,000.
• Sales discounts were $100,000.
What was the amount of Soft's bad debt expense for the year?
A) $39,000.
B) $1,000.
C) $19,000.
D) $20,000.
Answer: A
Explanation: Beginning balance in allowance for doubtful accounts, $11,000 + Bad debt
expense, (X) − Write offs of uncollectible accounts, $20,000 − Ending balance in
allowance for doubtful accounts, $30,000.
Bloom's: Apply
55
98) The Tanner Company has provided the following information after year-end adjustments:
• Allowance for doubtful accounts increased $19,000.

• Accounts receivable increased $390,000 during the year.
• Accounts written off as uncollectible totaled $20,000.
• Sales totaled $2,500,000.
• Sales discounts were $100,000.
What was the amount of Tanner's net sales?

A) $1,990,000.
B) $2,380,000.
C) $2,400,000.
D) $2,420,000.
Answer: C
Explanation: Net Sales = $2,400,000 = Sales, $2,500,000 − Sales discounts, $100,000.
Difficulty: 1 Easy
Bloom's: Remember
99) Redwing Company sold inventory costing $500 to a customer on account for $700. Which of
the following correctly describes the collection of $686 cash when the customer takes advantage
of a sales discount?
A) Operating expenses increase $14.
B) Accounts receivable decreases $686.
C) Current assets decrease $14.
D) Gross profit is not affected.
Answer: C
Explanation: Cash increases $686 and accounts receivable decreases $700.
Difficulty: 3 Hard
Bloom's: Analyze
56
100) Redwing Company sold inventory costing $500 to a customer on account for $700. Which
of the following does not correctly describe the collection of $686 cash when the customer takes
advantage of a sales discount?
A) Gross profit decreases $14.
B) Accounts receivable decrease $700.
C) Net sales decrease $14.
D) Net income is not affected.
Answer: D
Explanation: The sales discount decreases net sales, gross profit, and net income.
Difficulty: 3 Hard
Bloom's: Analyze
101) Sabre Company sold inventory costing $600 to a customer on account for $900 with terms
of 3/15, n/30. Which of the following is not correct?
A) Gross profit increases $300 on the date of sale.
B) Total current assets are not affected on the date of cash collection if the customer pays 30
days after the date of sale.
C) Total current assets increase $27 on the date of cash collection if the customer pays within 15
days of the date of sale.
D) Gross profit and net sales both decrease $27 on the date of cash collection if the customer
pays within 15 days of the date of sale.
Answer: C
Explanation: Cash increases $873 and accounts receivable decrease $900. Therefore, total
current assets decrease $27.
Difficulty: 3 Hard
Bloom's: Analyze
57
102) One of Hawk Company's customers returned a product that cost Hawk $300, which was
sold on account for $450. Which of the following does not correctly describe the effect of the
return on the financial statements?
A) Gross profit decreases $150.
B) Total current assets decrease $150.
C) Sales returns and allowances increase $450.
D) Operating expenses increase $150.
Answer: D
Explanation: Sales returns are a contra-revenue account; they are not operating expenses.
Bloom's: Apply
103) One of Trent Company's customers returned products that had been sold on account for
$800. Which of the following correctly describes the effect on the financial statements of the
return?
A) A contra-revenue account decreases $800.
B) Accounts receivable decrease $800.
C) Sales returns and allowances decrease $800.
D) Net sales increase $800.
Answer: B
Explanation: Accounts receivable decrease $800. The contra-revenue account, sales returns and
allowances, increases, and net sales decrease.
Bloom's: Understand
58
104) Which of the following transactions does not affect gross profit?
A) A customer returning merchandise that was sold for a profit.
B) The collection of cash on an account receivable, which was paid for by the customer within
the discount period.
C) The journal entry to record bad debt expense.
D) Accepting a credit card for a sale and paying a service fee to the credit card company.
Answer: C
Explanation: Bad debt expense is an operating (selling) expense, which does not affect gross
profit.
Topic: Sales-Net sales; Bad debts-Recording expense-write off-recovery
returns, and sales of bundled items on the amounts reported as net sales.; 06-02 Estimate, report,
and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements.
Bloom's: Analyze
105) Which of the following is not a component of the gross profit calculation?
A) Cost of sales.
B) Sales returns and allowances.
C) Allowance for doubtful accounts.
D) Credit card discounts.
Answer: C
Explanation: Allowance for doubtful accounts is a contra-asset account on the balance sheet.
Difficulty: 1 Easy
Bloom's: Remember
59
106) The following data were taken from the records of Lilo Corporation for the year ended
December 31, 2019 before any adjustment for bad debt expense:
Sales of merchandise for cash $150,000

Sales of merchandise on credit 800,000
Sales returns and allowances 10,000
Sales salaries expense 80,000
Cost of sales 610,000
Administrative expenses 90,000
The following items have not been included in above amounts:

Estimated bad debt expense is 1% of credit sales.
The income tax rate is 35%.
10,000 of shares of common stock are outstanding.
A. Calculate the bad debt expense.

B. Prepare a multiple-step income statement (including gross profit, income before income taxes,
and earnings per share).
60
Answer:
A. Bad debt expense = $8,000 = 1% × $800,000.
B. Multiple-step income statement:
Lilo Corporation
Income Statement
For the Year Ended December 31, 2019
Sales revenues ($150,000 +
$800,000) $950,000
Less: Sales returns and
allowances 10,000
Net sales 940,000
Less: Cost of sales 610,000
Gross profit 330,000
Operating expenses:
Selling expenses
Sales salaries expense $80,000
Total selling expenses 88,000
Administrative expenses 90,000
Total operating expenses 178,000
Income before income taxes 152,000
Income tax expense ($152,000 ×
35%) 53,200
Net Income $98,800
Earnings Per Share ($98,800 ÷
10,000) $9.88
Topic: Bad debts-Percentage of credit sales; Sales-Net sales
returns, and sales of bundled items on the amounts reported as net sales.; 06-02 Estimate, report,
and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements.
Bloom's: Apply
61
107) A portion of the income statement for Oscar Company is shown below. Provide the missing
account titles and amounts.
A. ________ $350,000
Sales returns and allowances B. ________
C. ________ $348,000
D. ________ ________
Gross profit $90,000
Answer: A. Sales revenue

B. $350,000 - $348,000 = $2,000
C. Net sales
D. Cost of sales; $348,000 - $90,000 = $258,000
Difficulty: 1 Easy
Bloom's: Remember
108) A portion of the income statement for Lone Star Company is shown below. Provide the
missing account titles and amounts.
A. ________ $380,000
Sales discounts 20,000
Net sales B. ________
Cost of sales $100,000
C. ________ D. ________
Answer: A. Sales revenue

B. $380,000 - $20,000 = $360,000
C. Gross profit
D. $360,000 - $100,000 = $260,000
Difficulty: 1 Easy
Bloom's: Remember
62
109) Indicate whether each of the accounts listed below normally will have a debit balance or a
credit balance. Record your answer to the left of each account by entering either Dr or Cr.
____ 1. Allowance for doubtful accounts
____ 2. Bad debt expense
____ 3. Sales returns and allowances
____ 4. Credit card discounts
____ 5. Sales discounts
____ 6. Notes receivable
____ 7. Sales revenue
____ 8. Nontrade receivables
Answer: 1. Cr; 2. Dr; 3. Dr; 4. Dr; 5. Dr; 6. Dr; 7. Cr; 8. Dr

Difficulty: 1 Easy
Topic: Bad debts-Recording expense-writeoff-recovery; Recording discounts and returns-
Chapter supp; Sales-Net sales
Learning Objective: 06-(S): Recording Discounts and Returns.; 06-01 Analyze the impact of
credit card sales, sales discounts, sales returns, and sales of bundled items on the amounts
reported as net sales.; 06-02 Estimate, report, and evaluate the effects of uncollectible accounts
Bloom's: Remember
110) Hickory Corporation recorded sales revenue during the year of $350,000 of which $100,000
was on credit. The company has experienced an average bad debt loss rate of 2% of credit sales.
Prepare the adjusting journal entry at the end of the year to record bad debt expense.
Answer:
Bad debt expense ($100,000 × 2%) 2,000
Difficulty: 1 Easy
Bloom's: Apply
63
111) Prior to the year-end adjustment to record bad debt expense for 2019 the general ledger of
Stickler Company included the following accounts and balances:
Allowance for Doubtful

Accounts $1,000 credit balance
Bad Debt Expense 0
Accounts Receivable 200,000
Cash collections on accounts receivable during 2019 amounted to $450,000. Sales revenue
during 2019 amounted to $800,000, of which 75% was on credit, and it was estimated that 2% of
these credit sales made in 2019 would ultimately become uncollectible.
A. Calculate the bad debt expense for 2019.

B. Determine the adjusted 2019 year-end balance of the allowance for doubtful accounts.
C. Determine the net realizable value of accounts receivable for the December 31, 2019 balance
sheet.
Answer:
A. Bad debt expense, $12,000 = [($800,000 × 75%) × 2%].
B. Allowance for doubtful accounts, $13,000 = ($1,000 + $12,000).
C. Net realizable value, $187,000 = Accounts receivable, $200,000 less allowance for doubtful
accounts, $13,000.
Topic: Bad debts-Percentage of credit sales; Classifying and reporting receivables
Bloom's: Apply
64
112) On December 31, 2019, Colonial Corporation had the following account balances related to
credit sales and receivables prior to recording adjusting entries:
Accounts receivable $25,000

Allowance for doubtful
accounts 200 credit balance
Sales revenue (all credit
sales) 400,000
Required:
Prepare the necessary year-end adjusting entry related to uncollectible accounts for each of the
following independent assumptions:
A. An aging of accounts receivable is completed. It is estimated that $2,150 of the receivables
outstanding at year-end will be uncollectible.
B. Assume the same information presented in part A above except that, prior to adjustment, the
allowance for doubtful accounts had a debit balance of $200 rather than a credit balance of $200.
C. It is estimated that a provision for bad debts is required for 1% of credit sales for the year.
Answer:
A. Bad debt expense 1,950
($2,150 — $200)
B. Bad debt expense 2,350
($2,150 + $200)
C. Bad debt expense 4,000
(1% × $400,000)
Topic: Bad debts-Aging of accounts receivable; Bad debts-Percentage of credit sales
Bloom's: Apply
65
113) On January 1, American Company's allowance for doubtful accounts had a credit balance of
$3,000. The balance in the Accounts Receivable account on that date was $75,000. On January 2,
prior to any credit sales, a $500 account from National Company was deemed to be uncollectible
and written off.
A. Compute the net realizable value of American's receivables on January 1.

B. Prepare the journal entry American would record on January 2 related to the write-off of
National's account.
C. Compute the net realizable value of American's receivables on January 2, immediately
following the write-off of National's account.
Answer:
A. Net realizable value = $72,000 = Accounts receivable, $75,000
Less Allowance for doubtful accounts, $3,000.
B.
Allowance for doubtful accounts 500
Accounts receivable–National Company 500
C. Net realizable value = $72,000 = Accounts receivable, $74,500

Less Allowance for doubtful accounts, $2,500.
Difficulty: 1 Easy
Bloom's: Apply
66
114) Cyclone Inc. reported the following figures from its financial statements for the years 2018
through 2020:
2020 2019 2018

Net revenues $717,422 $1,110,178 $591,786
Gross profit 560,421 960,434 498,605
Net income (net loss) (92,788) 70,776 47,811
Cash flow from
operations 106,850 509,707 204,496
Accounts receivable 68,648 90,561 56,454
Describe how the change in accounts receivable will affect the calculation of cash flow from
operating activities for 2020 and 2019.
Answer: In 2020, accounts receivable decreased $21,913 [$90,561 - $68,648]. This results in an
increase in cash flow from operating activities during 2020. In 2019, accounts receivable
increased $34,107 [$90,561 - $56,454]. This results in a decrease in cash flow from operating
activities for 2019.
Bloom's: Apply
67
115) Cyclone Inc. reported the following figures from its financial statements for the years 2018
through 2020:
2020 2019 2018

Net credit sales $717,422 $1,110,178 $591,786
Gross profit 560,421 960,434 498,605
Net income (net loss) (92,788) 70,776 47,811
Cash flow from
operating activities 106,850 509,707 204,496
Accounts receivable 68,648 90,562 56,454
A. Calculate the accounts receivable turnover for 2020 and 2019.

B. Calculate the average collection period for 2020 and 2019.
Answer:
A. 2020 = 9.01 = Net sales $717,422 ÷ Average accounts receivable $79,605.
[Average accounts receivable = [($68,648 + $90,562) ÷ 2] = $79,605].
2019 = 15.1 = Net sales $1,110,178 ÷ $73,508).
[Average accounts receivable = [($90,562 + $56,454) ÷ 2] = $73,508].
B. 2020 = 40.51 days = 365 ÷ Accounts receivable turnover = 365 ÷ 9.01
2019 = 24.17 days = 365 ÷ Accounts receivable turnover = 365 ÷ 15.1
Bloom's: Apply
68
116) Matrix Corp. reported the following figures from its financial statements for the years 2018
through 2020.
2020 2019 2018

Net credit sales $812,720 $1,264,380 $573,255
Accounts
receivable 68,648 90,562 56,454
A. Calculate for 2020:

1. Accounts receivable turnover
2. Average collection period
B. Calculate for 2019:
1. Accounts receivable turnover
2. Average collection period
C. Interpret the receivables turnover and the average collection period, in general. Comment on
the change in the ratio results from 2019 to 2020. Then discuss how the trend in sales from 2018
to 2019 and 2020 may have affected the change in the ratios from 2019 to 2020.
69
Answer:
A. 1. 2020 Accounts receivable turnover 10.21 = Net sales ÷ Average accounts receivable =
$812,720 ÷ $79,605. [Average accounts receivable = [($68,648 + $90,562) ÷ 2] = $79,605].
2. 2020 average collection period = 35.75 days = 365 ÷ 10.21 Accounts receivable turnover.
B. 1. 2019 Accounts receivable turnover = 17.20 = Net sales ÷ average accounts receivable =
$1,264,380 ÷ $73,508. [Average accounts receivable = [($90,562 + $56,454) ÷ 2] = $73,508].
2. 2019 average collection period = 21.22 days = 365 ÷ 17.20 Accounts receivable turnover.
C. The accounts receivable turnover reflects how many times the average accounts receivable are
collected during the period. From one period to another, a higher ratio indicates that receivables
are collected more often during the period. The average collection period ratio converts the
turnover into a specific number of days it took for the company to collect its receivables. A
higher turnover ratio will convert to a faster collection period.
For Matrix Corp., the turnover declined from 2019 to 2020 and this was more specifically
indicated by a slower collection period. The difference in days is large, going from 21 days to 36
days. There may have been customers who experienced financial difficulty from 2019 to 2020.
Noticing the sales decline from 2019 to 2020, there may have been a problem within Matrix
where great inefficiencies in the sales and collections departments have occurred. However,
when including 2018 sales in the analysis, sales more than doubled from 2018 to 2019 and then
declined to what might have been a more normal level in 2020. So there might not have been
inefficiencies from 2019 to 2020. Rather, there may have been some very large sales in 2019
where the credit terms were extremely stringent and Matrix insisted on collection in a very short
period of time. These may have been special situations where the sales would not be recurring.
Overall, more information would be needed to determine why sales increased and then decreased
so greatly and also to determine prior years' ratios to see if 2020 results are actually in line with
normal sales and collections.
Difficulty: 3 Hard
Bloom's: Apply; Evaluate
AACSB: Analytical Thinking; Communication; Knowledge Application
70
117) A recent annual report for Kirova Company contained the following data:
(in millions)
2019 2018
Accounts receivable $2,026 $1,866
Less: Allowance for doubtful
accounts 50 52
Net accounts receivable 1,976 1,814
Net sales (all are on credit) 18,158
A. Calculate the accounts receivable turnover ratio.

B. Calculate the average days sales in receivables for 2019 (rounded to the nearest day).
C. Explain the meaning of each number.
Answer:
A. Accounts receivable turnover ratio = 9.6 = Net sales ÷ Average net accounts receivable =
$18,158 ÷ $1,895. [Average accounts receivable = [($1,976 + $1,814) ÷ 2] = $1,895]
B. Average days sales in receivables = 38 days = 365 days ÷ Accounts receivable turnover of 9.6
C. The accounts receivable turnover ratio indicates the number of times on average that the
receivables are collected while the average days sales in receivables shows the length of time in
days it takes the company to collect its receivables from the credit customers. The higher the
turnover ratio, the fewer days it takes to collect receivables, thereby increasing liquidity of the
receivables.
Bloom's: Apply
71
118) During 2019, Charles Inc. recorded credit sales of $2,000,000. Based on prior experience, it
estimates a 1 percent bad debt loss rate on credit sales. At the beginning of the year, the balance
in net accounts receivable was $150,000. At the end of the year, but before the bad debt expense
adjustment was recorded and before any bad debts had been written off, the balance in net
accounts receivable was $125,000.
A. Assume that on December 31, 2019, the appropriate bad debt expense adjustment was
recorded for the year 2019 and accounts receivable totaling $16,000 was written off for the year.
What was the accounts receivables turnover ratio for the year?
B. Assume that on December 31, 2019, the appropriate bad debt expense adjustment was
recorded for the year 2019 and accounts receivable totaling $12,000 was written off for the year.
What was the accounts receivables turnover ratio for the year?
C. Explain why the answers to parts A and B differ or do not differ.
Answer:
A. Accounts receivables turnover, 15.7 = Net sales, $2,000,000 ÷ Average net accounts
receivable of $127,500 [($150,000 + $105,000*) ÷ 2]. *Bad debt expense = $20,000 which
reduces net accounts receivable at end of year = $125,000 - $20,000 = $105,000. Accounts
receivable written off do not affect net accounts receivable.
B. Accounts receivables turnover, 15.7 = Net sales, $2,000,000 ÷ Average net accounts
receivable of $127,500 [($150,000 + $105,000*) ÷ 2]. *Bad debt expense = $20,000 which
reduces net accounts receivable at end of year = $125,000 - $20,000 = $105,000. Accounts
receivable written off do not affect net accounts receivable.
C. The ratio stayed the same because only the adjusting entry affects the balance of net accounts
receivable while the actual write off of customer accounts simply offsets the asset against the
contra-asset account. Therefore, the net accounts receivable do not change.
Difficulty: 3 Hard
Bloom's: Apply
72
119) Select the appropriate answer choice A through G (listed below) to correspond with the
following numbered items on a bank reconciliation. There may be more than one letter selection
for the numbered item.
1. Balance per bank statement, June 30 $XXX

Plus (1) _____
Minus (2) _____
Correct cash balance, June 30 $XXX
2. Balance per company books, June 30 $XXX
Plus (3) _____
Minus (4) _____
Correct cash balance, June 30 $XXX
Items:
A. Checks written during June that had not cleared the bank by June 30.
B. Bank service charges for June, which were not known until the June 30th bank statement
arrived.
C. Deposit made on June 30 that did not reach the bank until July 1.
D. Upon reviewing the company's cash receipts book after June 30, it was discovered the
accounting clerk had neglected to post one receipt to the cash account.
E. The bank statement reported a "NSF check" during June.
F. The bank incorrectly deducted the check of another company to the bank account during June.
G. The company was paid interest on its account by the bank.
Answer:
(1.) C and F;
(2.) A;
(3.) D and G;
(4.) B and E.
Bloom's: Remember
73
120) Why is the reconciliation of a company's cash account to the bank statement so important
for effective internal control for cash?
Answer: The reconciliation of the cash account is very important in determining the correct, up-
to-date balance for cash to be presented on the company's balance sheet. It is also a good tool for
detecting errors in the cash account.
Bloom's: Understand
AACSB: Communication
74
121) Illinois Company prepared the following bank reconciliation at May 31:
Balance per bank $1,250 Balance per books $1,365

Additions: Additions:
Deposits in transit 240 Interest Received from bank 100
Check incorrectly
charged to our bank balance 75
Deductions: Deductions:
Outstanding checks (235) NSF check (Nelson) (100)
Bank service charges (35)
Correct cash balance $1,330 Correct cash balance $1,330
Required:
Prepare the necessary journal entries for Illinois Company required by the May 31 bank
reconciliation.
Answer:
1. Cash 100
Interest revenue 100
2. Accounts receivable, Nelson 100
Cash 100
3. Bank service charge expense 35
Cash 35
OR
Accounts receivable, Nelson 100
Bank service charge expense 35
Cash 35
Interest revenue 100
Bloom's: Apply
75
122) Chicago Company has hired you to reconcile its bank statement and cash account. At June
30, 2019, the Cash account on the books showed the following:
Cash account
Date Explanation Debits Credits Balance
June 1 Balance $5,600
June 1-30 Deposits $32,000 37,600
June 1-30 Checks $29,700 7,900
June 30 Balance 7,900
The June bank statement, just received, showed the following:

June 1, balance $5,600
Deposits made in June 29,000
Interest paid by the bank in June 120
Checks paid in June (27,500)
Bank service charge for June (50)
NSF Charged (Brad Jolie, check returned
for nonsufficient funds) (150)
June 30, balance $7,020
There were neither outstanding checks nor deposits in transit at May 31, 2019.
A. Prepare the bank reconciliation at June 30, 2019.

B. Prepare the adjusting journal entries needed as a result of preparing the bank reconciliation.
76
Answer:
A.
Chicago Company
Bank Reconciliation
June 30, 2019
Balance per
Books: $7,900 Balance per bank statement: $7,020
Interest paid by Deposits in transit
bank 120 ($32,000 — $29,000) 3,000
Bank service Outstanding checks
charge (50) ($29,700 — 27,500) (2,200)
NSF check of B.
Jolie (150)
Correct cash
balance: $7,820 Correct cash balance: $7,820
B.
Cash 120
Interest income 120
Bank service charge expense 50
Cash 50
Accounts receivable, Brad Jolie 150
Cash 150
Bloom's: Apply
77
123) A comparison of the balance in Cottonwood Company's cash account per its books as of
April 30, 2019 and the bank statement dated April 30, 2019 revealed the following information:
Code Item
A. Ending Cash balance per books (unadjusted) $5,520
Ending balance per bank statement (as of April 30,
B. 2019) 5,170
Customer's NSF check returned by bank
C. Shown on the April bank statement 300
D. Outstanding checks at the end of April 870
E. Deposit in transit at the end of April 1,100
Error made by Cottonwood in recording a check
paid to a supplier during April-$550 was credited to
Cash when the proper amount was $500; the bank
properly recorded the check as $500 when it cleared
F. the bank 50
G. Bank service charge for April 20
H. Interest paid by bank 150
Prepare a complete bank reconciliation using the format below. In each section of the bank
reconciliation indicate the proper handling of each of the items shown above by listing the
appropriate item code letter and the respective amount.
Cottonwood Company
Bank Reconciliation
April 30, 2019
Bank Statement Balance:
Book Balance of Cash: $ $
(Item code) (Amount) (Item code) (Amount)
Correct cash balance: $ Correct cash balance: $
78
Answer:
Book Balance of Bank Statement Balance:
Cash:$5,520 A $5,170 B
F 50 E 1,100
H 150
C (300) D (870)
G (20)
Correct cash Correct cash
balance:$5,400 balance:$5,400
Bloom's: Apply
79
124) Burke Company has just received its June 30 bank statement from Urban Bank. The bank
statement and the cash account per the books, summarized below, are to be reconciled for the
month of June.
Cash Account per

Bank Statement Books
Balance, Balance,
June 1 $5,200 June 1 $5,500
Cash
Deposits 9,200 receipts 9,000
Interest paid Checks
by bank 240 written (7,700)
Checks
cleared (7,475)
Bank
service
charge (20)
NSF check
(Jimmy
Dean) (100)
Balance, Balance,
June 30 $7,045 June 30 $6,800
Other Data:
May June
Deposit in transit at month end $600 $400
Outstanding checks at month end 300 525
A. Prepare the June 30 bank reconciliation.

B. Prepare the journal entries that should be made in the accounts of Burke Company as a result
of the bank reconciliation.
80
Answer:
A.
Book Balance of Bank Statement
Cash:$6,800 Balance:$7,045
Interest paid 240 Deposit in transit 400
Bank service Outstanding
charge (20) checks (525)
NSF check, Jimmy
Dean (100)
Correct cash Correct cash
balance:$6,920 balance:$6,920
B.
1. Cash 240
Interest income 240
2. Bank service charge expense 20
Cash 20
3. Accounts receivable, Jimmy Dean 100
Cash 100
Bloom's: Apply
125) A. What are "cash equivalents"?

B. Specifically where would cash equivalents appear on the financial statements?
Answer:
A. Cash equivalents are short-term investments that can be readily converted into cash and
whose value is unlikely to change. They normally have maturities of three months or less.
B. Cash equivalents usually appear on the balance sheet as the first listed current asset and are
usually combined with cash held in bank accounts for balance sheet presentation.
Bloom's: Understand
81
126) You are the new manager of West Coast Company. The company distributes goods
throughout the Rocky Mountain area. Customers are billed after the shipments are sent. Most
customers pay within two weeks. You notice that one employee is responsible for opening all
incoming payments, recording them in the accounting records, and depositing all receipts in the
bank daily. When asked why this one person performed all of these duties, you were told that it
was more efficient for one person to handle cash and to keep track of things. If any cash was
missing, responsibility could be easily determined.
Do you agree with this arrangement? What changes would you make, and why?
Answer: Answers may vary. This is definitely not a good system. One person should not be
responsible for the receipt of cash, accounting for cash, and depositing in the bank. The duties of
handling cash and accounting for cash should definitely be separated. This person could be
stealing from the firm; since he/she is the only one handling the receipt of cash, the theft could
easily be concealed. For example, when a customer pays cash on account, the employee could
debit sales returns and allowances instead of the cash account. To prevent such an occurrence,
different employees should have the responsibility of receiving cash, accounting for cash, and
depositing cash in the bank on a daily basis.
Bloom's: Evaluate
AACSB: Analytical Thinking, Communication
82
127) Asia Company sold $10,000 of goods to Euro Company on credit on May 1. At the time of
the sale, Asia recorded a debit to Accounts Receivable and a credit to Sales Revenue for
$10,000. Terms were 2/10, n/30.
Prepare the journal entries Asia Company would record for each of the following independent
situations:
A. Euro paid the balance due, less the discount, on May 10.
B. Euro returned half of the goods for credit on May 4. Euro paid the balance due, less the
discount, on May 10.
C. Euro paid its bill on May 30 (there were no sales returns).
Answer:
A. May 10 Cash 9,800
Sales discounts 200
B. May 4 Sales returns and allowances 5,000
May 10 Cash 4,900
Sales discounts 100
C. May 30 Cash 10,000
Topic: Recording discounts and returns-Chapter supp
Bloom's: Apply
83
128) On July 10, 2019, Rex Company sold merchandise at an invoice price of $5,000 with terms
of 2/10, n/30.
Prepare the journal entries required below by indicating the account code of the appropriate
account for each debit and credit and enter the dollar amounts for each item.
Account Code
A Cash
B Accounts receivable
C Sales revenue
D Sales discounts
Transaction Debits Credits

Code Amount Code Amount
Sale on July 10, 2019
Assumption A: Collection of the account on
August 9, 2019.
Assumption B: Collection of the account on July
18, 2019.
Answer:
Transaction Debits Credits
Code Amount Code Amount
Sale on July 10, 2019. B $5,000 C $5,000
Assumption A: Collection of the account on
August 9, 2019. A $5,000 B $5,000
Assumption B: Collection of the account A $4,900
on July 18, 2019. D 100 B $5,000
Bloom's: Apply
84
129) On June 1, 2019, Concorde Company sold merchandise on credit at an invoice price of
$1,000; terms 2/10, n/30.
Prepare the journal entries to record the following:

A. To record the sale.
B. Assumption A: To record collection on June 28, 2019.
C. Assumption B: To record collection on June 9, 2019.
Answer:
A. June 1 Accounts receivable 1,000
Sales revenue 1,000
B. June 28 Cash 1,000
C. June 9 Cash 980
Sales discount 20
Bloom's: Apply
85
130) Determine the effect of the following transactions on the financial statement components
identified. Code your answers as follows:
A: If the transaction results in an increase in the financial statement component.
B: If the transaction results in a decrease in the financial statement component.
C. If the transaction does not affect the financial statement component.
Transaction 1: The adjusting entry to record bad debt expense was made.
Gross profit _____
Current assets _____
Stockholders' equity _____
Transaction 2: An account receivable was collected for which the customer took advantage of a
2% discount and remitted the payment less the discount.
Net sales _____
Gross Profit _____
Current assets _____
Answer: Transaction 1: The adjusting entry to record bad debt expense was made.
Gross profit C
Current assets B
Stockholders' equity B
Transaction 2: An account receivable was collected for which the customer took advantage of a
2% discount and remitted the payment less the discount.
Net sales B
Gross Profit B
Current assets B
Topic: Bad debts-Recording expense-writeoff-recovery; Recording discounts and returns-
Chapter supp
Learning Objective: 06-(S): Recording Discounts and Returns.; 06-02 Estimate, report, and
evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements.
Bloom's: Apply
86
131) On January 2, 2019, Boulder Pointe Air Conditioning and Heating sold and installed an
HVAC system to DeMille Co. for $2,750. The selling price is allocated as follows: (1) 90% for
the HVAC unit and (2) 10% for an ongoing 4-year service contract for the HVAC unit.
A. Determine each of the following related to this sale:

1. Identify the contract between the company and the customer.
2. Identify the performance obligations of Boulder Pointe.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
B. What amount of revenue should Boulder Pointe recognize for the year ended December 31,
2019?
Answer:
A.
1. A bundled HVAC system and an ongoing service contract.
2. #1 installation of an HVAC unit, #2 service for a 4-year period
3. $2,750 total
4. #1 HVAC system $2,475 ($2,750 x 90%), #2 service for 4-year period $275 ($2,750 x 10%)
B. Boulder Pointe should recognize $2,475 revenue for the HVAC system which has been
installed and $68.75 ($275 ÷ 4) of revenue for providing 1/4 of the service. Total revenue =
$2,543.75.
Difficulty: 3 Hard
Bloom's: Apply
87
132) Lumberjack, Inc. manufactures and sells skis and snowboards and uses the allowance
method to account for its receivables. Lumberjack sold $16,000 of skis to North Slope Co. in
January. In March, North Slope encountered financial difficulties due to a much lower than
average snowfall and decreased tourism at its ski resort. North Slope declared bankruptcy in June
at which time Lumberjack, Inc. wrote off the $16,000 account receivable. November and
December brought record snowfall and North Slope was able to pay the $16,000 owed to
Lumberjack on December 15. Prepare the entries on Lumberjacks' books to account for the sale,
write-off, and recovery of North Slope's account receivable.
Answer: January
Sales revenue 16,000
June
December 15
Cash 16,000
Topic: Bad debts - Recording expense-write off-recovery
Bloom's: Apply
88
133) Josephine sells organic, GMO-free pecans in the United States, Canada, and Europe.
Recently Josephine made the following two sales. Prepare the entries required on Josephine's
books to record these sales.
February
Sold 3,500 pounds of pecans on account to Tinder, a German company. Tinder agreed to pay
€14,000. On the sale date, each Euro was worth US$1.35.
March
Sold 4,000 pounds of pecans on account to Charlie Co., an English company. Charlie agreed to
pay £24,800. On the sale date, each British pound was worth US$.98.
Answer: February
Accounts receivable 18,900 (€14,000 x $1.35)
March
Accounts receivable 24,304 (£24,800 x $.98)
Bloom's: Apply
89
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English, French, and Spanish. Archie interjected his account, while
Hector bawled above them all:
“All de derangements was mos’ unmilitary. Miss Angela. Dey didn’
have no scouts, no aide-de-camps, no ban’ ob music, no nuttin’ ’tall.
When me an’ Marse, we stormed de heights at Chapultepec, de ban’
was a-playin’ ‘I wants to be a angel,’ an’, I tell you, me an’ Marse
made a heap ob Mexican angels dat day.”
“I think, ladies,” said Colonel Tremaine calmly, “that you had better
try and get your beauty sleep, which has been so rudely disturbed. If
you will excuse me, I will retire. Come, boy,” to Hector, “and get my
boots off.” Hector followed the Colonel, still mumbling about the
glories of Chapultepec and Buena Vista. All soon took the Colonel’s
advice, except Angela and Lyddon, who lingered after the others had
departed.
Angela, with her newly developed instinct of thrift, blew out one of
the candles on the hall mantelpiece. The remaining candle cast a
faint light upon the dingy Penelope, who had waited in that spot
during a century for her Ulysses. All the events of the night had
passed so swiftly that there was not really much to tell, but Angela
wanted to hear it all over again and in connected fashion.
“Wasn’t it strange,” she said, “that the last time a Confederate officer
was here, Captain Isabey, the Federals came after him, although
they didn’t get him, and now they have caught Colonel Gratiot?”
“No, I don’t think it was at all strange. You may depend upon it, the
Federals know all they want to know from the negroes.”
“Do you mean to say that these servants of ours, who are our very
own, are betraying us?”
“Oh, no, that is not the word to use. They wouldn’t betray Richard,
but they wouldn’t mind giving a tip about Isabey or Colonel Gratiot.
None of you Southern people seems to realize what a stupendous
stake the negroes have in this conflict.”
“I realize it,” answered Angela, “when we have to depend upon
Uncle Hector and Aunt Tulip and half a dozen half-grown black boys
and girls to do the work of this house, and you are put to the churn.”
Then, suddenly becoming conscious of her unbound hair, she seized
it in both hands and with rapid and graceful dexterity wound the
shining coils around her head, and fled up the dark stairway.
CHAPTER XX
A SOLDIER’S ERRAND
THE capture of Colonel Gratiot, following upon Isabey’s narrow

escape, made an immense stir in the county. There had been other
descents by night and day upon places, and a few Confederate
private soldiers had been picked up, but there had been nothing like
the concerted design which had resulted in the capture of officers.
From a little spark of suspicion grew a great flame of accusation
against Angela. The minds of men and women were so unbalanced,
so tortured, so driven hither by calamity, that anything could be
believed of anyone.
The greatest braggart in the county had died like a hero, cheering on
his men; the softest spoken university-bred men had become hard
swearers and iron disciplinarians; the most shiftless of idlers had
made admirable soldiers; and all seemed to go according to the law
of contrary.
Angela herself was quite unconscious of the storm which raged
against her in the county. She kept close to Harrowby and saw no
one, even rarely George Charteris, who still came daily to study
under Lyddon. Heretofore George had been content to pass Angela
with a cold and negligent bow, after having for years before pestered
her with his boyish lovemaking. Now he avoided as far as possible
meeting her on his daily visits to Harrowby. But once, when it was
inevitable, he passed her on the lawn without removing his hat.
Angela stopped and looked after him with blazing eyes of wrath. Was
it possible that this boy dared to insult her by not speaking to her?
She said nothing of this, keeping it with many other bitter things in
her own heart. But the next day when George came out of the study
door Angela faced him in the path. He was forced to make her
something in the nature of a bow and, after an unpleasant pause,
said: “Do you wish anything of me?”
“Nothing at all,” responded Angela sweetly, “only to find out whether
you were a gentleman or not. Good morning.”
She passed on leaving him consumed with inward rage.
Colonel Tremaine went nowhere except to the post office for the
semioccasional mail, and to church, and no one dared mention to
him the grim suspicion against Angela. But deep in his heart he
himself felt sometimes a sharp and piercing doubt of Angela. He
dared not speak of it even to Mrs. Tremaine, and put it away from
him with all his inborn chivalry and the parental affection for the girl
which was a part of his nature.
In spite of himself he could not forget the opened window, the
answering signal, and the letter dropped on the lawn. He tried to
assume that even if the worst were true and Angela were
communicating with Federals, she did not understand her own
wrongdoing, but this view was totally unconvincing even to himself.
Angela was no fool, and never had been, and it was impossible to
give her the credit of ignorance.
When Colonel Tremaine looked at her going about her daily tasks
with fiery energy and even a feverish gayety, when he saw how this
young creature, so lately a child, had grown so self-controlled, so
unshakably courageous, she was acquitted in his own mind. But
when he waked in the night, or when he sat in the library writing up
his diary, or read in the ill-printed Richmond newspapers of Federal
raids and captures, a suspicion would rise in his mind that would not
be strangled.
No more Confederate officers came to Harrowby, which Colonel
Tremaine reckoned a blessing.
Isabey had come no more; he remained in camp, going about his
duties with unswerving regularity but without cheerfulness, and was
restless at the surgeons’ prohibition against his going to the front for
some months to come. There was plenty of work for him to do, but,
like most men with a gnawing pain in the heart, Isabey wanted
action, action, action to drive away the specter of his lost love, which
had for him all the power of the first love and the last. He
remembered with a grim smile his early infatuation for Adrienne,
which was so natural as to be almost inevitable.
He recalled that he made verses in those days and set them to
music and sang them to Adrienne. He could not have made a verse
about Angela to save his life, and concluded that when men could
write, as did Petrarch, Tasso, and Dante Alighieri, of a wrecked
passion, it could not have hurt very much. He recalled that Paolo had
not written a line about Francesca, and it seemed to him that the
tragic love of those two poor souls was paralleled in his own case.
For, put it away as he might, he could not deny to himself that
Angela’s heart had struck an answering chord to his.
He reasoned with himself that it would have been too much
happiness if Angela had been free to marry him: but at least he had
what was next best and a million times better than what falls to the
lot of most dwellers upon the earth—the full and perfect confidence,
the completest sympathy and understanding, with the only woman
he had ever loved. He remembered the ancient saying that each
mortal has so much of the wine of life given to him, sweet or bitter,
strong or weak, and the goblet may be of gold or of base metal. He
concluded that his share was strong and bitter, but it was served to
him in a golden goblet.
There was a species of lofty flattery on Angela’s part in the perfect
confidence with which she treated him. She had not hesitated to
spend long hours alone with him in the old study during the month
when they were snowbound; and Isabey reckoned those hours as
spent in the Elysian Fields of the soul.
In the beginning he had tried to put her image from him, as the
normal man of gentlemanly instincts does concerning the wife of his
friend; but after that month when Angela had tended him and eased
his wounds of body and laid the soft spell of her constant presence
upon him, the thought of her would not vanish away. It was easy
enough to keep her name out of his speech or even when he spoke
it to do so quite naturally, but to banish her sweet image—ah, no
man who loved as Isabey could do that.
Each night when he slept the sleep of exhaustion after a day of hard
work in his regimental duties some faint dream of Angela would pass
through his sleep.
He was thinking of this one night sitting in his tent in camp and
working hard over some regimental papers. It was now autumn, and
not since that May night had he been to Harrowby or seen Angela’s
face. His excuse for not going was good, as no Confederate officer
had ventured within the zone of danger except under orders, and
such orders had not been given to Isabey. Colonel Gratiot had been
exchanged and had returned to duty, but Isabey had not seen him
since.
It was close upon midnight before his work was finished. Isabey rose
and, lifting the flap of his tent, looked out upon the misty night. A fine,
cold rain was falling and the lights in camp shone dull and yellow in
the murky darkness.
While he stood looking out upon the night an orderly emerged from
the darkness and handed him a note from the commanding officer,
General Farrington, requesting Isabey’s presence at headquarters
immediately.
Isabey, taking his cap and military cape, made at once for the
headquarters building. The long lines of tents were still, and the
steady tramp of the sentries back and forth alone broke the silence.
The headquarters building was a rude structure of logs containing
several compartments, for they could not be called rooms. The
orderly outside the general’s door immediately passed Isabey in, and
he entered a room to the left roughly fitted up as an office. At a big
deal table, lighted by a couple of tallow dips, sat General Farrington.
He was a burly man with a loud, shrill voice, and a saber and spurs
which generally clattered furiously. To-night, however, he was
singularly quiet and his usually jovial countenance had a somber
expression.
Isabey knew in a moment that there was unpleasant business on
hand. General Farrington, on greeting Isabey, carefully shut the door
himself after observing that no one was in the next room. The two
men then sat down at the table, Isabey taking off his wet cap and
cloak. There was a pause, and then General Farrington spoke in a
quiet voice, very different from his usual method of hallooing.
“I have sent for you to-night, Captain Isabey, to direct you to perform
a duty which is as distressing for me to order as it can possibly be for
you to execute.”
Isabey bowed. General Farrington’s air and manner had told him as
much before.
“It is this,” continued the general. “There has been, as you know,
much mysterious communication with the enemy. There are, of
course, innumerable ways by which this information could be
conveyed, but suspicion strongly points to one person.”
Isabey rose to his feet, and the words burst from him without his
volition. “Mrs. Neville Tremaine!” he said.
“Yes,” replied General Farrington briefly. Isabey sat down again.
“It is a most infamous lie—!” he began, and then stopped. His head
was in a whirl. He longed to knock down his commanding officer so
coolly voicing this odious charge against the woman Isabey loved
and respected above all women in the world.
“Mind you,” said General Farrington, still quietly, “I am not fully
committed to the belief in Mrs. Neville Tremaine’s guilt. I am,
however, inclined to think that she is used as an unconscious tool by
unprincipled persons. She is in constant communication with her
husband—that I know—and I believe that through her information
leaks out which is extremely dangerous to us. I have talked with
Colonel Gratiot since his exchange, and there is not the slightest
doubt that some signaling was going on the night he was captured. It
is significant that Mrs. Neville Tremaine was out of the way both
times the Federals made an incursion by night upon Harrowby.”
“The first time,” replied Isabey coolly, “she was absent because she
was assisting in my escape; but for her I should certainly have been
captured.”
“Very likely, and I have considered that circumstance. But the night
Colonel Gratiot was captured she was also not to be found.
However, in these conflicting circumstances I determined to make a
test myself. I wrote to Colonel Tremaine a fortnight ago, saying that I
should spend last night at Harrowby, and contrived to get the note to
him through reliable hands. Of course I never had the slightest
intention of going, and to-night I received information that last night a
Federal gunboat came up the river again, landed a force with much
secrecy and dispatch, and would certainly have got me if I had been
there. That settled it as far as Mrs. Neville Tremaine is concerned.”
“But it is probable that everyone on the plantation, black and white,
knew that you were expected,” replied Isabey, still composed and
self-controlled.
“That is true, and I can’t arrest everybody, black and white, on the
plantation. Whether Mrs. Neville Tremaine is giving information to the
enemy or not I am not prepared to say, but I think that prudence
imperatively demands that—that—” General Farrington got up and
walked up and down the narrow room, came back again, and then,
looking Isabey full in the eye, he said “—that Mrs. Neville Tremaine
be quietly arrested and sent into the enemy’s lines; and it is you
whom I desire to do this.”
“I of all men in the world! My relatives have received the hospitality of
the Harrowby family for more than a year. There is no woman on
earth whom I respect so much as I do Mrs. Neville Tremaine.” Isabey
stopped, conscious that the words and his tone had revealed
something. One look into General Farrington’s keen eyes showed
that he understood the full meaning of the admission.
“No doubt it would be a most painful duty to you, but it is equally
painful to others. You are the third officer whom I have sent for this
evening to do this piece of business, and each of the others asked
me to reconsider. Then your name occurred to me. I wondered I had
not thought of it before. You are peculiarly well situated to do it. You
are, I believe, intimate with both of Colonel Tremaine’s sons, and you
could readily make it appear that you have been designated merely
to escort Mrs. Neville Tremaine within the Federal lines in order that
she may join her husband. You have the tact and judgment to allay
any suspicion which might arise in the minds of Colonel Tremaine
and his family, and the fact that your relatives are guests at
Harrowby would make it seem the most natural thing in the world
that you should be the one chosen to escort Mrs. Neville Tremaine.
You will approach the Federal lines under flag of truce, and
everything possible will be done to make it appear that Mrs. Neville
Tremaine is going of her own free will to her husband. But you must
not forget, Captain Isabey, that you will be performing a military duty,
and that Mrs. Neville Tremaine must be closely watched, and not the
slightest opportunity given her to communicate with the enemy until
she is safely within their lines.”
Isabey remained silent, sitting with folded arms, and his black eyes
fixed on General Farrington’s light blue ones. His soul was in a
tumult, and, being a fighting man, he felt a perfectly natural and
human desire to wreak vengeance on the man who had given him
this work to do; but his sober common sense had in no wise
deserted him. If the hateful thing had to be done, was it not better, as
General Farrington said, that it should be done by one who loved the
ground on which Angela trod, and who could no more have doubted
her integrity than he could have murdered her?
“I give you much liberty in carrying out my orders,” said General
Farrington, after a while. “I understand fully the disagreeable nature
of what I am directing you to do; and one of the consolations I have
in this matter is that everything possible will be done, to save not
only Mrs. Neville Tremaine’s own feelings, but those of Colonel
Tremaine’s family. Surely you can arrange so that Mrs. Neville
Tremaine’s departure will appear a voluntary act?”
“There is not the slightest difficulty in persuading anyone of that,”
replied Isabey, in a low voice, “except Mrs. Neville Tremaine herself.
It would be impossible to deceive her.”
“I should like this duty executed at the earliest possible moment, but,
of course, at a time and hour which would not excite alarm or
suspicion in the minds of the rest of the family. If you leave early to-
morrow morning, it will answer. Here are your written instructions,
and here is some gold with which to provide Mrs. Neville Tremaine.”
General Farrington drew out of his breast pocket a few gold pieces
wrapped up in brown paper. “It is all I have,” he said, holding it out.
“I thank you,” replied Isabey, stiffly, “but I have some gold, too. I
should prefer, and I think Mrs. Neville Tremaine would prefer, that I
should furnish the money for her necessary expenses.”
He read the carefully written instructions given him, and they were
perfectly intelligible. He was to be at Harrowby by two o’clock the
next day, and at the earliest possible moment was to escort Mrs.
Neville Tremaine to the Federal lines. A brief official note to Mrs.
Neville Tremaine was inclosed, in which she was notified that if she
was again found within Confederate lines she would be subject to
arrest and imprisonment.
“This you will give to Mrs. Neville Tremaine at parting,” said General
Farrington.
As Isabey folded the papers up and put them in his breast pocket
General Farrington said to him:
“I would rather put fifty men in jail for life than arrest this one girl. I
feel as if I were plunging my sword into the breast of a dove. But this
is war, Captain Isabey.”
Isabey said no word, and, silently saluting, went out again into the
night. The cold rain struck him like a sharp hand in the face.
As he had said, it was easy enough to make it appear that Angela,
under his protection, was seeking her husband; but Angela herself,
how should he tell her, what words could he use to soften it? Ah,
there was no softening it! And suppose she should refuse to go? She
was an impulsive creature, knowing little of the world, full of rash
courage, and the last woman on earth to sit calmly under a charge of
treachery. And if she went quietly it would be to go to Neville
Tremaine’s arms, and he, Isabey, would be the one to send her to
that haven. He would never see her again, of that he felt quite sure;
nor could he bear to see her as Neville Tremaine’s wife. In one more
day, one day of shame and wretchedness, he would be forever
parted from Angela.
Isabey was no more generous in his love than are most men. He
wanted Angela’s sweet society for himself, and grudged every look
and word she might give her husband. He realized what Angela did
not—that all those sweet confidences, however innocent, between
Isabey and herself, that turning to him always for his opinion, that
delicious intimacy of the soul between them, must come to an end
when Angela held her real position as a wife.
Angela, in a way, was as novel to Isabey as he was to her. He had
never, under the social customs in New Orleans, been thrown into a
close and unguarded intimacy with any woman as with her. Her heart
and mind had been like a volume of poetry open before him, and he
had read on, pleased, touched, amused, reverencing, and surprised.
She knew so much in some ways and so little in others. The thing of
which she knew least, but could feel most, was love. If she had
possessed more guile or even more knowledge of herself, she would
never have slipped into that soft, sweet intercourse with Isabey. All of
them, the whole Harrowby family, were the most guileless people
that Isabey had ever known. The mere saying of the words which
made Angela the wife of Neville Tremaine on the wharf that April
night at Harrowby was confidently felt, not only by the Harrowby
family, but by the whole community, to put her definitely and forever
out of the reach of any other man than her husband. Such a thing as
a flirtation with a married woman had never been heard of among
those patriarchal people. They had never known anything between
the perfect dignity of a wife and the bottomless pit of degradation into
which, once in a hundred years, a woman sometimes fell to be lost
forever in the abyss.
“Wherever divorce is unknown, and the honor of women is protected
by men with arms in their hands, this state of society must result,”
thought Isabey, as he plodded along through the rain back to his
tent, and he would be the last person in the world to wish this
unwritten law changed. He would rather have died than speak a
word of open love to Angela. But love speaks without words, and to
people more worldly-wise than these simple Virginian country gentry
Isabey’s secret might have been suspected long ago.
When he reached his tent he rolled himself in his blanket and lay
down in the darkness, not to sleep, but to dream, to think, to suffer
torments. The waking hours of a night are usually long, but when the
rosy dawn crept in, Isabey thought it was the shortest night he had
ever spent.
The October morning was of an exquisite softness. The Indian
summer had come, that time of mellow sunshine, of faint blue mists
upon the uplands, of caressing winds among the fading leaves when
summer turns back, as it were, for a last farewell. Old Euripides said,
in the long ago, “In all fair things, the autumn, too, is fair.”
Isabey left camp about seven o’clock in the morning, so that he
might allow his horse a long rest before reaching Harrowby, for after
that there might be hard riding. He had settled the details of how he
should convey Angela to the Federal lines. So good a horse-woman
as she could easily ride the twenty miles over the level road. It would
be better, however, that the journey be made at night. The season
was mild and the moon was at its full, so that there would be no
hardship involved. But Isabey recognized that it would be just as well
that they should not be seen together riding upon the highway a long
distance from Harrowby.
When he reached the Federal lines, he would, of course, be obliged
to leave her. He apprehended no trouble for her; there were
gentlemen among the Federal officers who would readily assume
charge of a brother officer’s wife. It was all simple enough, only it
broke Isabey’s heart.
As he rode soberly along through the blue-and-gold October morning
he kept a moderate pace and it was quite eleven o’clock before he
reached the place where he meant to rest his horse. It was in the
little glade in the woods where he remembered to have walked with
Angela and Richard Tremaine and Lyddon the first spring afternoon
he ever met Angela, almost a year and a half before. Then it had
been springtime; now it was autumn, and the dead leaves were thick
underfoot.
Isabey dismounted, took the saddle off his horse, and sat down on
the same fallen tree where he had sat with Angela. He was not equal
to much exercise on foot, and sat quite still, living over the past with
Angela and dreading the interview that lay before him.
How would she take his message? Would she weep and wring her
hands as women usually do in such emergencies? Would she turn
upon him and visit him with her indignation. Or would she be angry
with an icy anger? It might well seem to this unsophisticated girl a
terrible thing to be thrust alone among soldiers, men whom she had
never seen and whom she daily heard reviled, to depend upon them
for her safe conduct to Neville.
Isabey’s heart was so tortured with this thought that he got up and, in
spite of his injured knee, walked up and down like a madman. The
squirrels looked at him curiously, and a family of wood robins, which
was preparing to fly southward, grew frightened, suddenly rose, and
with a rush of wings cleft the blue air. Isabey glanced at his watch
every few minutes and when it was half past one threw the saddle on
his horse, mounted, and, picking his way through the underbrush,
struck the cedar lane, down which he cantered rapidly.
Time was when no guest could approach Harrowby without being
heralded by a multitude of negroes, young and old, rushing in the
house and announcing the coming guest as if it were the most
stupendous and sensational event which had ever occurred. Not so
now. There were only a few negroes left on the estate and they were
not much in evidence.
As Isabey neared the house he was struck with its lonely aspect as it
lay basking in the unclouded midday. No one was moving about and
not even a sleeping dog was in sight. The river lay bright and still like
a lake. Over the whole scene brooded the peculiar stillness of
autumn noonday, broken only by the distant clanking cry of a mob of
crows circling high in the blue air, while below them a vulture, silent,
contemptuous, and majestically evil, winged his steady flight upon
unquivering wings toward the wooded uplands.
It occurred to Isabey that Angela would most likely be in the garden,
and as he came within sight of the broad main walk he glanced down
toward the bench at the end and saw the flutter of a crimson mantle.
He sprang from his horse and, throwing the reins over the gatepost,
entered the rusty iron gateway and walked quickly toward Angela at
the end of the garden.
In spite of Isabey’s jingling spurs, which announced his arrival when
he was still some distance off, he had a good opportunity to observe
Angela before she looked up and saw him.
The mantle had half-slipped off her shapely shoulders and her head
was bare. Little vagrant breezes had ruffled her beautiful hair. Some
coarse knitting lay in her lap, but she was not at work upon it. She
seemed so lost in abstraction that she did not notice the sound of
Isabey’s approach or even when he stopped and gazed full upon
her.
The sudden sharp cry of the crows overhead seemed to rouse her at
last. She raised her eyes and her glance fell upon Isabey, his trim
figure, in the gray uniform, silhouetted before her and the buttons
gleaming like fire in the golden light.
The change that came over her was like the lighting of a lamp in an
alabaster vase. Isabey had seen that same flash of joy in her eyes
the night he had arrived wounded at Harrowby. Now it smote him to
the heart. He knew—what Angela did not know—that when a woman
changes color, smiles, trembles, and casts down her eyes at the
coming of a certain man, it has a tragic meaning. She half-rose from
the old bench and put her slender hand into Isabey’s, a custom
which, from Isabey’s French education, always seemed strange and
exciting to him.
He asked how she had fared since last he saw her, but Angela,
without replying, began to question him about his disabled arm and
knee.
“I think they are both quite well, or rather well enough, but the
surgeons (may evil befall them!) swear to General Farrington that I
am not yet fit to be sent to join my battery, and he listens to them.
But I hardly think they will be able to keep me in camp after this.”
Then they sat down, and Angela, taking up the knitting, said to him
eagerly, like a child:
“Do you see what this is? All the ladies in the county are knitting
stockings for the soldiers. Very well; I concluded that I would knit
some stockings for my soldier, for Neville. I felt so triumphant when I
told Aunt Sophia about it. She said nothing—you know that icy
silence which falls upon her whenever Neville’s name is mentioned
—but she made no objection. Do you know that the Federals paid us
another visit night before last?”
Yes, Isabey knew it, and knew much more about it than Angela
suspected. But he merely asked her how things went off on the
occasion.
“It was exactly like the night they came after Colonel Gratiot, but this
time they didn’t catch anybody. A letter had come from General
Farrington saying that he was coming to Harrowby to spend that
night. Uncle Tremaine was in a terrible way and so was Aunt Sophia.
They didn’t like to write to the general telling him not to come,
because it might look inhospitable or as if they were afraid, but it
really was quite serious business. Uncle Tremaine swore—the first
time, I believe, in forty years—and Aunt Sophia told him that there
was a place prepared down below for blasphemers. And then Uncle
Tremaine begged her pardon and my pardon and Mr. Lyddon’s
pardon and made public confession of his fault that night at prayers.
However, when General Farrington didn’t come we all felt easy. But
about twelve o’clock the negroes all came running to the house, and
we saw the gunboat at the wharf, just as the time before. The house
was searched, the stables, and every place, but, of course, no one
was found. It is the first time I have ever seen Uncle Tremaine really
discomposed, and he has not been like himself since. We lost
nothing except our night’s rest. And a great many ridiculous things
have happened which I shall tell you about some time.”
Angela stopped, suddenly. Something in Isabey’s expressive face
gave warning. She looked attentively at him and waited for him to
speak. The pause grew awkward and even painful, and Isabey, in
spite of his usual self-control, showed a slight agitation.
“My dear Mrs. Tremaine,” he said, “I have come here to do you what
I hope is a service. I know that you wish very much to join your
husband, and this very day I am prepared to take you part of the
way.”
Isabey said so much by way of preparing her, as he had not the
slightest idea that Angela’s acute intelligence would not fathom the
whole story very quickly. She did so, even more quickly than he
expected.
“Yes,” she said, after a moment, looking at him with her piercing
sidelong glance, “I do wish to join my husband, but so far he has not
sent for me. I may be only an impediment to him. And why should
you be the one to take me to him?”
“It is necessary that you should go immediately, and I will escort you
to the Federal lines.”
“Is Neville ill,” asked Angela, adding, after a moment, “or dead?”
“Not as far as I know,” answered Isabey. “This has nothing to do with
Neville’s well-being.”
Angela looked at him with wide eyes of amazement. “To take me to
my husband,” she said, after a moment. “You? It is very strange,
most strange.”
“But you are not unwilling to go?”
Angela hesitated, and the color dropped out of her face, leaving her
deathly pale. All at once her whole heart seemed revealed to her.
Once set forth upon her journey to join her husband meant
separation, an eternal separation, from Isabey. He watched her,
reading easily the meaning of her pallor and tremors, and
understanding equally well her quick recovery of herself, the calm
courage, and even high spirit, with which she replied: “Certainly it is
my wish as well as my duty to join my husband; but why you, I can’t
understand—” Nor could Isabey, his eyes fixed upon Angela’s pale
face, understand either why he should be the instrument to put the
coming degradation upon her, and be, as it were, the executioner of
his own happiness—that faint and shadowy happiness which a man
enjoys in the presence of the woman he loves but who is irrevocably
beyond his reach.
Then Angela, without waiting for a reply to her first question, asked:
“Where shall I meet my husband?”
“That I can’t tell you. We can reach him by military telegraph as soon
as we are within the Federal lines.”
“Are those my husband’s directions?”
“No,” said Isabey, taking out his white handkerchief and passing it
over his face, on which Angela’s fixed glance noticed drops were
standing.
“Then what are my husband’s directions? Why has he not informed
me?”
To this Isabey made no reply; but his agitation, although well
mastered, could not be wholly concealed.
Angela rose to her feet, and Isabey rose also. Facing each other,
she said to him in a voice which she vainly endeavored to make
calm: “There is some mystery about this which must be explained to
me. Tell me the truth, and tell me all the truth.”
There was no gainsaying this, and Isabey, unconscious that he
called her by her first name, replied: “Angela, since you command
me, I must tell you the truth. There is a cruel and most unjust
suspicion abroad against you. The people in the county think and
say that you are conveying information from the Confederate side to
your husband.”
Angela straightened up her slender figure and smiled
contemptuously. “Is that all?” she asked. “Then it is very easily
disproved. What do I know about military matters? Who speaks of
them before me? If I told all I knew, or have ever known, it would be
nothing.”
“So I believe; but the capture of Colonel Gratiot gave rise to these
reports, and the coming of the gunboat up the river the night that
General Farrington was expected to be at Harrowby was an
unfortunate coincidence. General Farrington sent for me last night
and told me that you must be escorted within the Federal lines, and
at once. I asked him why I, whose family had received such kindness
from the Harrowby family, should be required to do this hateful duty,
and he told me that it could be done with least publicity if it were in
my hands.”
Angela remained silent for a few minutes, looking down. She was
revolving things in her mind and Isabey, who had a high opinion of
her natural good sense, did not interrupt her consideration of the
position.
“It would be best,” she said, after a pause, “that I go quietly with you,
letting everyone in this house think that you bring me a command
from my husband. It is by far the best, that you will go with me to the
Federal lines. Yes, oh, more than that—stay with me until you can
give me into Neville’s hands. I implore you!” She clasped her hands
and looked, with eyes dark and full of sudden tears, at Isabey. After
all, she was but twenty and had lived a life almost as secluded as
Miranda upon her solitary isle, and the thought of being left alone
with strangers had in it for the moment something terrifying to her.
“I wish it could be so,” replied Isabey, his heart in his eyes. “But I am
afraid—I am afraid it cannot be. It will only be a question of a day or
two.”
“How shall we travel?”
“On horseback; you don’t mind a twenty-mile ride, do you?”
“Not in the least, and I can carry a portmanteau on my horse.”
Then, without more words, they turned and walked slowly up the
broad path.
As they went Angela looked about her with troubled eyes.
“I feel,” she said, “as if I were going to another planet or into another
world. I wonder if I shall ever return here again or ever, ever walk in
this garden again with you!”
“We shall never walk here any more,” replied Isabey, in a low voice.
Angela glanced toward him, and each read the other’s soul. Then
they averted their eyes; their glances were too poignant. After a
pause Isabey said: “When I have taken you to your husband I shall
hope for your happiness. You are very young and life holds much for
you. Some day I shall see you a happy wife.”
“I am sure you will,” replied Angela, calmly. “I have no one in the
world except Neville and I shall devote my life to him, and why
shouldn’t we be happy together?”
“You will be very happy together,” replied Isabey. Like Angela, he
believed in a decent cloaking of the chained passions, those wild
beasts which, if they are not subdued, devour men and women.
CHAPTER XXI
DUST AND ASHES
AS Isabey opened the iron gate for Angela to pass through, they
noticed the few negroes left on the place running toward the main
entrance of the house, which faced landward.
They were exclaiming loudly, after the fashion of their race, at
something which was coming slowly down the long cedar lane. It
was an ordinary one-horse tumbril cart, driven by a negro sitting on a
plank laid athwart, and in the cart lay a long narrow box covered over
with a military cloak. Tied behind the cart followed a horse, fully
accoutered, with the stirrups crossed over the cavalry saddle.
Angela, whose glance was keen, turned to Isabey and said: “That’s
Richard’s horse and that’s his body servant, Peter, driving the cart.”
Isabey’s practiced eye took in the truth at a glance—Richard
Tremaine lay dead in the cart. He walked with Angela quickly to the
front of the house. Colonel and Mrs. Tremaine were already upon the
porch. They watched with terrified eyes the cart as it drew near the
wide opening in the cedar hedge where the driveway began.
Angela ran forward and took Mrs. Tremaine’s hand. Colonel
Tremaine’s tall figure swayed a little, and, putting out his arm, he
drew Mrs. Tremaine to his side. A solemn hush had fallen upon the
assembled negroes, young and old, who watched the cart drive up.
Lyddon and Archie came out and joined the silent group upon the
pillared porch. The cart drove around the carriage path and halted in
front of the steps. The horse stood almost as still as the dead man
who lay covered up in the cart.
Peter scrambled down, and going up to the steps, his rough cap in
his hand, said to Mrs. Tremaine: “Missis, I done brought Marse
Richard back to you.”

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3) Credit card discounts are reported as operating expenses on an income statement.

5) Sales returns and allowances is a contra-revenue account.

8) Gross profit is calculated as gross sales less cost of sales.

9) Gross profit decreases when sales discounts increase.

29) Which of the following statements is correct?

• Cash sales, $450,000

How much are Newark's net sales?

• Cash sales, $450,000

How much is Newark's cost of sales?

• Cash sales, $450,000

How much cash was collected from customers?

• Cash sales, $150,000

• Cash sales, $150,000

• Cash sales, $150,000

• Cash sales, $150,000

• Accounts receivable written-off as uncollectible during the year amounted to $11,500.

How much was CHS Company's bad debt expense?

• Accounts receivable written-off as uncollectible during the year amounted to $11,500.

How much cash was received from collections of accounts receivable?

Net credit sales are $120,000.

47) Which of the following statements is correct?

• The accounts receivable balance on December 31, 2019 was $175,000.

How much is Clark's 2019 bad debt expense?

Sales Returns and Allowances $ 1,000

How much is net sales revenue?

A) Current assets decrease.

A) The gross profit does not change.

Sales returns and allowances xxx

A) Current assets decrease.

• Net sales totaled $750,000.

What was Ward's receivables turnover ratio?

• Net sales totaled $750,000.

• Total sales were $1,200,000.

What was Rye's receivables turnover ratio?

• Total sales were $1,200,000.

Average collection period = (18.25 days) = 365 ÷ Receivables turnover, 20.0.

95) Which of the following statements is correct?

• Allowance for doubtful accounts increased $19,000.

What was the amount of Tanner's net sales?

Sales of merchandise for cash $150,000

The following items have not been included in above amounts:

A. Calculate the bad debt expense.

Answer: A. Sales revenue

Answer: A. Sales revenue

Answer: 1. Cr; 2. Dr; 3. Dr; 4. Dr; 5. Dr; 6. Dr; 7. Cr; 8. Dr

Allowance for Doubtful

A. Calculate the bad debt expense for 2019.

Accounts receivable $25,000

A. Compute the net realizable value of American's receivables on January 1.

C. Net realizable value = $72,000 = Accounts receivable, $74,500

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