On December 1, YR05 Nord Inc. sold $100 of merchandise to Jones Inc. The sale wa
ID: 2460976 • Letter: O
Question
On December 1, YR05 Nord Inc. sold $100 of merchandise to Jones Inc. The sale was on account with terms 3/10 net/30. This inventory cost Nord Inc. $70. (for question 25 and 26)
25. If Nord Inc. uses the Perpetual Inventory System the sale will be recorded as follows:
a.Accounts Receivable 100 Sales 100
b.Accounts Receivable 100 Sales 100 Cost of Goods Sold 70 Inventory 70
c.Accounts Receivable 90 Sales 90
d.Accounts Receivable 90 Sales 90 Cost of Goods Sold 70 Inventory 70
e.none of the above
26. Jones Inc. paid the bill on December 3, YR05. The entry made by Nord Inc. to record receipt of the payment would be:
a.Cash 100 Accounts Receivable 100
b.Cash 90 Sales Discounts 10 Accounts Receivable 100
c.Cash 90 Sales Returns & Allowances 10 Accounts Receivable 100
d.Cash 97 sales Discounts 3 Account Receivable 100
e.none of the above
27. The allowance method of recording bad debts is preferable to the direct write-off method because the allowance method:
a.recognizes the expense of the bad debt in the year in which the account is determined to be uncollectible.
b.recognizes the expense of an uncollectible account in the same period as the revenue from the related sale.
c.does not use estimates
d.uses estimates nor influenced by current economic conditions and credit standards.
e.requires fewer journal entries
28. Which method below is not used to estimate bad debts (uncollectible accounts) expense?
a.Percnet-of-Sales
b.Direct Write-off
c.Aging-of-receivables
d.Percent-of-Receivables
e.All of the above methods can be used to estimate bad debts expense.
Explanation / Answer
25) correct option is "B" -Accounts Receivable 100 Sales 100 [To record sales]
Cost of Goods Sold 70 Inventory 70 [To record cost of sales]
26)correct option is "D" -Cash 97 sales Discounts 3 Account Receivable 100
discount = 100*.03 = 3
27)correct option is ""A" -recognizes the expense of the bad debt in the year in which the account is determined to be uncollectible.
28) correct option is ""B"-Direct Write-off
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