a. accounts receivable.
b. notes receivable.
c. doubtful accounts.
d. bad debts.
a. trade receivable.
b. note receivable.
c. accounts receivable.
d. income tax receivable.
a. Advance to an employee
b. Refundable income tax
c. Notes receivable
d. Interest receivable
a. sales receivables.
b. non-trade receivables.
c. trade receivables.
d. merchandise receivables.
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
a. one of the most liquid assets and thus are always considered current assets.
b. claims that are expected to be collected in cash.
c. shown on the income statement at cash realizable value.
d. always the result of revenue recognition.
a. It is true because trade receivables are current assets and non-trade receivables are long term.
b. It is false because all current receivables must be grouped together in one account.
c. It is true because non-trade receivables do not result from business operations and should not be included with accounts receivable.
d. It is false because management can decide how to report receivables.
Income tax refund due $ 500
Advance due to the company from
the company president 300
3-month note due from M. Cornett’s main customer 2,000
Interest due this month on the above note 100
Due and unpaid from this month’s sales 7,000
Due and unpaid from last month’s sales 1,000
a. $8,000
b. $10,000
c. $9,000
d. $10,900
Solution: $2,000 + $7,000 + $1,000 = $10,000
a. notes receivable
b. non-trade receivables
c. accounts receivable
d. interest receivable
Employee advances
$ 1,580
Amounts owed by customers for the sale of services (due in 30 days)
3,050
Refundable income taxes
1,120
Interest receivable
950
Accepted a formal instrument of credit for services (due in 18 months)
2,220
A loan to company president
8,000
Dishonored a note for principal and interest which will eventually be collected
1,380
Based on this information, what amount should appear in the “Other Receivables” category?
a. $18,300
b. $11,650
c. $13,030
d. $15,250
Solution: $1,580 + $1,120 + $950 + $8,000 = $11,650
a. $2,400
b. $2,328
c. $2,310
d. $1,680
Solution: ($3,000 ? $600) ? .97 = $2,328
a. $4,800
b. $4,500
c. $3,000
d. $2,700
Solution: $3,000 ? $300 = $2,700
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Accelerating cash receipts from accounts receivable
a. in the investments section.
b. at gross amounts less sales returns and allowances.
c. at cash realizable value.
d. only if they are not past due.
a. depreciating, returns, and valuing.
b. depreciating, valuing, and collecting.
c. recognizing, valuing, and accelerating collections.
d. accrual, bad debts, and accelerating collections.
a. $1,200
b. $1,176
c. $1,160
d. $2,000
Solution: ($2,000 ? $800) ? .98 = $1,176
a. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.
b. uncollectible accounts that are written off must be accumulated in a separate account.
c. a liability results when a credit sale is made.
d. management needs to accumulate all the credit losses over the years.
a. liability.
b. contra account of Bad Debt Expense.
c. expense.
d. contra account to Accounts Receivable.
a. when an individual account is written off.
b. when the loss amount is known.
c. for an amount that the company estimates it will not collect.
d. several times during the accounting period.
a. requires that all credit losses be recorded when an individual customer cannot pay.
b. necessitates the recording of an estimated amount for bad debts.
c. results in the recording of a known amount for bad debt losses.
d. is not involved in the decision of when to expense a credit loss.
a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
a. cash realizable value.
b. cash-good value.
c. gross cash value.
d. cash-equivalent value.
a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
d. receivables are understated.
a. net income will be understated.
b. stockholders’ equity will be understated.
c. Allowance for Doubtful accounts will be overstated.
d. net Accounts Receivable will be overstated.
a. net income will be overstated.
b. stockholders’ equity will be overstated.
c. Allowance for Doubtful accounts will be understated.
d. net Accounts Receivable will be understated.
a. in the same period as allowed for tax purposes.
b. in the period of the sale.
c. for an exact amount.
d. in the period of the loss.
a. a sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer’s account becomes past due.
a. Allowance for Doubtful Accounts should be credited.
b. Accounts Receivable should be credited.
c. Bad Debt Expense should be credited.
d. Sales Revenue should be debited.
a. will increase income in the period it is collected.
b. will decrease income in the period it is collected.
c. requires a correcting entry for the period in which the account was written off.
d. does not affect income in the period it is collected.
a. emphasizes the matching of expenses with revenues.
b. emphasizes balance sheet relationships.
c. emphasizes cash realizable value.
d. is not generally accepted as a basis for estimating bad debts.
a. debit to Bad Debt Expense for $4,500.
b. debit to Allowance for Doubtful Accounts for $3,300.
c. debit to Bad Debt Expense for $3,300.
d. credit to Allowance for Doubtful Accounts for $4,500.
Solution: $4,500 ? $1,200 = $3,300
a. debit to Bad Debt Expense for $4,500.
b. debit to Bad Debt Expense for $6,100.
c. debit to Bad Debt Expense for $2,900.
d. credit to Allowance for Doubtful Accounts for $4,500.
Solution: $4,500 + $1,600 = $6,100
a. debit to Bad Debt Expense for $4,500.
b. debit to Allowance for Doubtful Accounts for $2,900.
c. debit to Bad Debt Expense for $2,900.
d. credit to Allowance for Doubtful Accounts for $4,500.
Solution: $4,500 ? $1,600 = $2,900
a. debit to Bad Debt Expense for $4,500.
b. debit to Allowance for Doubtful Accounts for $5,700.
c. debit to Bad Debt Expense for $5,700.
d. credit to Allowance for Doubtful Accounts for $4,500.
Solution: $4,500 + $1,200 = $5,700
a. is the normal balance for that account.
b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of receivables method of estimating bad debts is used.
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
a. Deadbeat Expense.
b. Uncollectible Accounts Expense.
c. Collection Expense.
d. Credit Loss Expense.
a. an avoidable cost in doing business on a credit basis.
b. an internal control weakness.
c. a necessary risk of doing business on a credit basis.
d. avoidable unless there is a recession.
a. allowance method and the accrual method.
b. allowance method and the net realizable method.
c. direct write-off method and the accrual method.
d. direct write-off method and the allowance method.
a. the company makes any credit sales.
b. bad debts are significant in amount.
c. the company is a retailer.
d. the company charges interest on accounts receivable.
a. part of cost of goods sold.
b. an expense subtracted from net sales to determine gross profit.
c. an operating expense.
d. a contra revenue account.
a. in the year after the credit sale is made.
b. in the same year as the credit sale.
c. as each credit sale is made.
d. when an account is written off as uncollectible.
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable.
a. the cash realizable value of accounts receivable is greater before an account is written off than after it is written off.
b. Bad Debt Expense is debited when a specific account is written off as uncollectible.
c. the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.
d. Allowance for Doubtful Accounts is closed each year to Income Summary.
a. Net realizable method
b. Direct write-off method
c. Accrual method
d. Allowance method
a. is offset against total current assets.
b. increases the cash realizable value of accounts receivable.
c. appears under the heading “Other Assets.”
d. is deducted from accounts receivable.
a. cash realizable value of total accounts receivable will increase.
b. net accounts receivable will decrease.
c. allowance account will increase.
d. net accounts receivable will stay the same.
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and balance sheet accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.
a. debit Allowance for Doubtful Accounts and credit Bad Debt Expense.
b. debit Allowance for Doubtful Accounts and credit Accounts Receivable.
c. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
d. debit Bad Debt Expense and credit Accounts Receivable.
a. is unchanged and the allowance account increases.
b. increases and the allowance account increases.
c. decreases and the allowance account decreases.
d. decreases and the allowance account increases.
a. total assets will be unchanged.
b. net income will decrease.
c. total assets will decrease.
d. total assets will increase.
a. cash realizable value.
b. the relationship between accounts receivable and bad debts expense.
c. income statement relationships.
d. the relationship between sales and accounts receivable.
a. Bad Debt Expense 8,000
Allowance for Doubtful Accounts 8,000
b. Bad Debt Expense 6,000
Allowance for Doubtful Accounts 6,000
c. Bad Debt Expense 6,000
Accounts Receivable 6,000
d. Bad Debt Expense 8,000
Accounts Receivable 8,000
Solution: ($200,000 ? .04) ? $2,000 = $6,000
a. $45,000
b. $11,000
c. $56,000
d. $34,000
Solution: $45,000 estimated uncollectible accounts
a. $45,000
b. $11,000
c. $56,000
d. $34,000
Solution: $45,000 + $11,000 = $56,000
a. $30,000
b. $26,000
c. $34,000
d. $4,000
Solution: $30,000 ? $4,000 = $26,000
a. $30,000
b. $34,000
c. $26,000
d. $4,000
Solution: $30,000 estimated uncollectible accounts
a. Bad Debt Expense 14,000
Allowance for Doubtful Accounts 14,000
b. Bad Debt Expense 12,000
Allowance for Doubtful Accounts 12,000
c. Bad Debt Expense 10,000
Allowance for Doubtful Accounts 10,000
d. Bad Debt Expense 8,000
Accounts Receivable 8,000
Solution: ($200,000 ? .06) ? $2,000 = $10,000
a. $34,000
b. $ 9,000
c. $43,000
d. $25,000
Solution: $34,000 + $9,000 = $43,000
a. total assets decrease.
b. total assets are unchanged.
c. net income is unchanged.
d. liabilities decrease.
a. a posting error has been made.
b. more accounts have been written off than had been estimated.
c. the direct method is being used.
d. Bad Debt Expense has been overestimated.
a. $9,000
b. $31,000
c. $40,000
d. $49,000
Solution: $40,000 estimated uncollectible accounts
a. $9,000
b. $31,000
c. $40,000
d. $49,000
Solution: $40,000 ? $9,000 = $31,000
a. $9,000
b. $31,000
c. $40,000
d. $49,000
Solution: $40,000 + $9,000 = $49,000
a. $21,000
b. $1,500
c. $22,500
d. $19,500
Solution: $21,000 before and after write-off
a. $16,000.
b. $25,000.
c. $31,000.
d. $24,000.
Solution: ($160,000 ? .10) + ($24,000 ? $15,000) = $25,000
a. is relevant when using the percentage-of-receivables basis.
b. is relevant when using the direct write-off method.
c. is relevant to both the percentage-of-receivables basis and the direct write-off method.
d. will never show a debit balance at this stage in the accounting cycle.
a. uses an allowance account.
b. uses a contra asset account.
c. does not require estimates of bad debt losses.
d. is the preferred method under generally accepted accounting principles.
a. the allowance account is increased for the actual amount of bad debt at the time of write-off.
b. a specific account receivable is decreased for the actual amount of bad debt at the time of write-off.
c. balance sheet relationships are emphasized.
d. bad debt expense is always recorded in the period in which the revenue was recorded.
a. $20,000.
b. $18,000.
c. $17,960.
d. $16,000.
Solution: $900,000 ? .02 = $18,000
a. $ 8,000
b. $ 3,000
c. $13,000
d. $ 8,250
Solution: $160,000 ? .05 = $8,000
a. $ 40,000
b. $150,000
c. $ 64,000
d. $ 60,000
Solution: ($400,000 ? .10) + ($60,000 ? $36,000) = $64,000
Accounts receivable $ 2,400,000
Allowance for doubtful accounts per books before adjustment (credit) 150,000
Amounts expected to become uncollectible 195,000
What is the cash realizable value of the accounts receivable at December 31 after adjustment?
a. $2,055,000
b. $2,250,000
c. $2,400,000
d. $2,205,000
Solution: $2,400,000 ? $195,000 = $2,205,000
Allowance for Doubtful Accounts 1,000
Accounts Receivable – Richard James 1,000
Which one of the following statements is false?
a. This entry is only prepared on the last day of the accounting period.
b. There should be written authorization for this transaction from someone who does not have responsibilities related to recording cash.
c. There could be a violation of internal control policies.
d. James’ account was written off because it was determined to be uncollectible.
Accounts receivable $700,000
Allowance for doubtful accounts (credit) (60,000)
Cash realizable value 640,000
During 2014 sales on account were $195,000 and collections on account were $115,000. Also, during 2014 the company wrote off $11,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $72,000. The change in the cash realizable value from the balance at 12/31/13 to 12/31/14 was
a. $68,000 increase.
b. $80,000 increase.
c. $57,000 increase.
d. $69,000 increase.
Solution: ($700,000 + $195,000 ? $115,000 ? $11,000) ? $72,000 ? $640,000 = $57,000
Accounts receivable $700,000
Allowance for doubtful accounts (credit) (60,000)
Cash realizable value 640,000
During 2014 sales on account were $195,000 and collections on account were $115,000. Also, during 2014 the company wrote off $11,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $72,000. Bad debt expense for 2014 is:
a. $23,000.
b. $12,000.
c. $72,000.
d. $ 1,000.
Solution: $72,000 ? ($60,000 ? $11,000) = $23,000
a. $201,100 increase.
b. $ 96,000 increase.
c. $ 93,100 increase.
d. $204,000 increase.
Solution: $264,000 ? $168,000 = $96,000
Accounts receivable $1,492,000
Allowance for doubtful accounts $ 28,400
Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record?
a. $89,520
b. $61,120
c. $59,416
d. $91,224
Solution: ($1,492,000 ? .06) ? $28,400 = $61,120
Accounts receivable $2,100,000
Allowance for doubtful accounts (credit) (180,000)
Cash realizable value $1,920,000
During 2014 sales on account were $580,000 and collections on account were $344,000. Also during 2014 the company wrote off $32,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $216,000. The change in the cash realizable value from the balance at 12/31/13 to 12/31/14 was a
a. $200,000 increase.
b. $236,000 increase.
c. $168,000 increase.
d. $204,000 increase.
Solution: ($2,100,000 + $580,000 ? $344,000 ? $32,000) ? $216,000 ? $1,920,000 = $168,000
Accounts receivable $2,100,000
Allowance for doubtful accounts (credit) (180,000)
Cash realizable value $1,920,000
During 2014 sales on account were $580,000 and collections on account were $344,000. Also during 2014 the company wrote off $32,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $216,000. Bad debt expense for 2014 is
a. $ 68,000.
b. $ 36,000.
c. $216,000.
d. $ 4,000.
Solution: $216,000 ? ($180,000 ? $32,000) = $68,000
a. $402,200 increase.
b. $192,000 increase.
c. $186,200 increase.
d. $408,000 increase.
Solution: $528,000 ? $336,000 + $5,800 ? $5,800 = $192,000
Accounts Receivable $3,357,000
Allowances for Doubtful Accounts $ 63,900
Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record?
a. $201,420
b. $137,520
c. $133,686
d. $205,254
Solution: ($3,357,000 ? .06) ? $63,900 = $137,520
a. increases bad debt expense for the accounting period.
b. should occur on the last day of the accounting period.
c. decreases the cash realizable value of accounts receivable.
d. should be formally approved by an authorized employee.
a. This is a false statement because the direct write-off method violates the matching principle.
b. This is a true statement based on the concept of materiality.
c. This is a false statement because the direct write-off method can only be used for tax reporting.
d. This is a true statement because companies can choose either the direct write-off or the allowance method for financial reporting, as long as they consistently apply the method.
a. To allow the collection department to schedule work for the next accounting period.
b. To determine the gross realizable value of accounts receivable.
c. The IRS rules require the company to make the estimate.
d. To match bad debt expense to the period in which the revenues were earned.
a. is not a formal credit instrument.
b. may be used to settle an accounts receivable.
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party.
a. Promissory notes may not be transferred to another party by endorsement.
b. Promissory notes may be sold to another party.
c. Promissory notes give a stronger legal claim to the holder than accounts receivable.
d. Promissory notes may be bearer notes and not specifically identify the payee by name.
a. maker and a bank.
b. debtor and the payee.
c. maker and the payee.
d. sender and the receiver.
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.
a. $5,000.
b. $500.
c. $5,500.
d. $5,450.
Solution: $5,000 ? .10 = $500
a. $680.
b. $100.
c. $200.
d. $300.
Solution: $10,000 ? .06 ? 60/360 = $100
a. $360.
b. $180
c. $90.
d. $270.
Solution: $6,000 ? .06 ? 90/360 = $90
a. $9,000.
b. $75.
c. $900.
d. $9,900.
Solution: $9,000 ? .10 = $900
a. $35.
b. $420
c. $210.
d. $70.
Solution: $7,000 ? .06 ? 60/360 = $70
a. $90.
b. $360.
c. $30.
d. $60.
Solution: $4,000 ? .09 ? 90/360 = $90
a. eliminates the need for a bad debts allowance.
b. can be transferred to another party by endorsement.
c. takes the place of checks in a business firm.
d. can only be collected by a bank.
a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.
a. that can be received if sold to a factor.
b. borrowed plus interest received at maturity from the maker.
c. at which the note receivable is recorded.
d. remaining after a service charge has been deducted.
a. Notes Receivable 5,075
Accounts Receivable—Bay Company 5,075
b. Notes Receivable 5,075
Accounts Receivable—Bay Company 5,000
Interest Revenue 75
c. Notes Receivable 5,000
Interest Receivable 75
Accounts Receivable—Bay Company 5,000
Interest Revenue 75
d. Notes Receivable 5,000
Accounts Receivable—Bay Company 5,000
Solution: $5,000 face value
a. Notes Receivable 7,035
Accounts Receivable—Ray Company 7,035
b. Notes Receivable 7,105
Accounts Receivable—Ray Company 7,000
Interest Revenue 105
c. Notes Receivable 7,000
Interest Receivable 105
Accounts Receivable—Ray Company 7,000
Interest Revenue 105
d. Notes Receivable 7,000
Accounts Receivable—Ray Company 7,000
Solution: $7,000 face value
a. have a related allowance account called Allowance for Doubtful Notes Receivable.
b. are reported at their gross realizable value.
c. use the same estimations and computations as accounts receivable to determine cash realizable value.
d. present the same valuation problems as long-term notes receivables.
a. September 30, 2014.
b. September 27, 2014.
c. September 28, 2014.
d. September 29, 2014.
Solution: $90 ? (1 + 31 + 31) = 27
a. Daily
b. Monthly
c. Quarterly
d. Annual
a. $8,750
b. $35,000
c. $50,400
d. $22,400
Solution: P ? .08 ? 90/360 = $700; P = ($700 ? 360/90) ? .08 = $35,000
a. 6 months
b. 4 months
c. 12 months
d. 8 months
Solution: $3,400 ? ($51,000 ? .10) = 666; .666 ? 12 = 8
a. Interest Receivable 2,000
Interest Revenue 2,000
b. Accounts Receivable 2,000
Interest Receivable 2,000
c. Cash 2,000
Interest Revenue 2,000
d. Notes Receivable 2,000
Interest Revenue 2,000
Solution: $40,000 ? .12 ? 5/12 = $2,000
a. Cash 43,600
Notes Receivable 40,000
Interest Revenue 3,600
b. Cash 43,600
Notes Receivable 43,600
c. Notes Receivable 40,000
Interest Receivable 2,000
Interest Revenue 1,600
Cash 43,600
d. Cash 43,600
Notes Receivable 40,000
Interest Receivable 2,000
Interest Revenue 1,600
Solution: $40,000 ? .12 ? 5/12 = $2,000; $40,000 ? .12 ? 4/12 = $1,600
a. Cash 40,000
Notes Receivable 40,000
b. Accounts Receivable 40,000
Notes Receivable 40,000
c. Accounts Receivable 43,600
Notes Receivable 40,000
Interest Revenue 3,600
d. Accounts Receivable 43,600
Notes Receivable 40,000
Interest Receivable 3,600
Solution: $40,000 ? .12 ? 9/12 = $3,600
a. Honoring it on maturity date.
b. Selling it to receive cash before the maturity date.
c. Default by the maker.
d. All of these are ways to dispose of notes receivable.
a. Is no longer negotiable.
b. Must be written off by the lender.
c. Creates a claim against the maker for the amount of principal only.
d. Is one that is not paid in full within 10 days of maturity.
a. $40,000.
b. $44,000.
c. $43,600.
d. $40,400.
Solution: $40,000 + ($40,000 ? .09 ? 40/360) = $40,400
a. Note Receivable 30,000
Cash 30,000
b. Interest Receivable 150
Interest Revenue 150
c. Cash 150
Interest Revenue 150
d. Interest Receivable 450
Interest Revenue 450
Solution: $30,000 ? .06 ? 1/12 = $150
a. $5,050.
b. $5,025.
c. $5,000.
d. $5,300.
Solution: $5,000 + ($5,000 ? .06 ? 60/360) = $5,050
a. debit to Interest Revenue.
b. credit to Accounts Receivable.
c. debit to Interest Expense.
d. credit to Notes Receivable.
a. credit to Interest Receivable.
b. credit to Cash.
c. debit to Notes Receivable.
d. debit to Interest Income.
a. $41,200.
b. $40,480.
c. $44,800.
d. $40,400.
Solution: $40,000 + ($40,000 ? .12 ? 3/12) = $41,200
a. Cash 25,000
Notes Receivable 25,000
b. Accounts Receivable 25,750
Notes Receivable 25,000
Interest Revenue 750
c. Cash 25,750
Notes Receivable 25,000
Interest Revenue 750
d. Accounts Receivable 25,750
Notes Revenue 25,000
Interest Revenue 700
Solution: $25,000 ? .09 ? 120/360 = $750
a. Short-term receivables are reported in the current assets section of the balance sheet.
b. The gross amount of receivables less the allowance for doubtful accounts is equal to the net receivables.
c. Short-term receivables are reported above the short-term investments in the balance sheet.
d. Companies report bad debts expense under “Selling Expenses” in the operating expenses section of the income statement.
a. Require potential customers to provide bank guarantees.
b. Ask a potential customer for references regarding payment history.
c. Increase the estimate of uncollectible accounts at the end of each period.
d. Check a potential customer’s credit rating.
a. Determine to whom to extend credit.
b. Delay cash receipts from receivables if necessary.
c. Monitor collections.
d. Determine a payment period.
a. total sales by average receivables.
b. total sales by ending receivables.
c. net credit sales by average receivables.
d. net credit sales by ending receivables.
a. profitability.
b. liquidity.
c. risk.
d. long-term solvency.
a. the company’s sales are increasing.
b. a large proportion of the company’s sales are on credit.
c. customers are making payments very quickly.
d. customers are making payments slowly.
a. the average collection period in days.
b. market risk.
c. return on assets.
d. current ratio.
a. net credit sales.
b. average accounts receivable.
c. ending accounts receivable.
d. accounts receivable turnover.
a. 3.8 times
b. 6 times
c. 10.0 times
d. 7.5 times
Solution: $300,000 ? ($50,000 + $30,000) ? 2 = 7.5
a. 96.1
b. 48.7
c. 36.5
d. 60.8
Solution: $300,000 ? ($50,000 + $30,000) ? 2 = 7.5; 365 ? 7.5 = 48.7
a. 8.3 times
b. 12.5 times
c. 6.3 times
d. 4.2 times
Solution: $500,000 ? ($80,000 + $40,000) ? 2 = 8.3
a. 29.2 times
b. 86.9 times
c. 44.0 times
d. 57.9 times
Solution: $500,000 ? ($80,000 + $40,000) ? 2 = 8.3; 365 ? 8.3 = 44
a. credit risk ratio.
b. concentration of credit risk.
c. bad debts ratio.
d. average collection period.
a. Is computed by dividing net credit sales for the accounting period by the cash realizable value of accounts receivable on the last day of the accounting period.
b. Can be used to compute the average collection period.
c. Is a method of evaluating the solvency of net accounts receivable.
d. Is only important to internal users of accounting information.
a. 6.0
b. 7.5
c. 5.0
d. 3.6
Solution: $900,000 ? ($120,000 + $180,000) ? 2 = 6.0
a. 80
b. 30
c. 46
d. 36
Solution: 365 ? 8 = 46
a. it is a popular variant of the accounts receivable turnover .
b. it is used to assess the effectiveness of a company’s credit and collection policies.
c. it should generally exceed the credit term period.
d. its increase may suggest a decline in the financial health of customers.
Company
Accounts Receivable turnover
Average collection period
Martin
13.9
26.3
Lewis
13.3
27.4
Danforth
10.4
35.1
Garner
14.5
25.2
Industry Average
13.0
28.1
If Garner’s net credit sales are $290,000, what are its average net accounts receivable?
a. $11,508
b. $20,000
c. $42,050
d. $73,080
Solution: $290,000 ? 14.5 = $20,000
Company
Accounts Receivable turnover
Average collection period
Martin
13.9
26.3
Lewis
13.3
27.4
Danforth
10.4
35.1
Garner
14.5
25.2
Industry Average
13.0
28.1
Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations?
a. Martin
b. Lewis
c. Danforth
d. Garner
a. Cash $86,400 and Service Charge Expense $3,600.
b. Accounts Receivable $86,400 and Service Charge Expense $3,600.
c. Cash $86,400 and Interest Expense $3,600.
d. Accounts Receivable $90,000.
Solution: 90,000 ? .04 = $3,600
a. represent common business practices.
b. represent ways to accelerate receivables collections.
c. result in collections that are less than the gross accounts receivable.
d. All of these answer choices are correct.
a. are ways to accelerate receivable collections.
b. involve no commissions or service charges because the factor is guaranteed collections on the due date.
c. are generally used by businesses that are insolvent.
d. are mainly used in the textile and furniture industries.
a. Increase by $1,358.
b. Increase by $1,400.
c. Increase by $1,190.
d. Increase by $6,790.
Solution: ($7,000 ? $5,600) ? ($7,000 ? .03) = $1,190
a. Increase by $1,455.
b. Increase by $1,500.
c. Increase by $1,275.
d. Increase by $7,275.
Solution: ($7,500 ? $6,000) ? ($7,500 ? .03) = $1,275
a. debit to Interest Expense for $18,000.
b. debit to Cash for $882,000.
c. debit to Service Charge Expense for $18,000.
d. credit to Accounts Receivable for $900,000.
Solution: $900,000 ? .02) = $18,000
a. indicates that the business is in financial difficulty.
b. is generally the major revenue item on its income statement.
c. is an indication that the business is owned by a captive finance company.
d. can be a quick way to generate cash for operating needs.
a. selling expense.
b. interest expense.
c. other expense.
d. contra asset.
a. pledging.
b. factoring.
c. leasing.
d. collateralizing.
a. the seller pays a commission to the factor.
b. the factor pays a commission to the seller.
c. there is a gain on the sale of the receivables.
d. the seller defers recognition of sales revenue until the account is collected.
a. a finance company that is owned by individuals who borrow money from the company.
b. finance companies that won’t allow early repayment of loans.
c. a company that is wholly owned by another company and provides financing to purchasers of its owner company’s goods.
d. any company that issues a major credit card.
a. lengthen the cash-to-cash operating cycle.
b. take advantage of deep discounts on the cash realizable value of receivables.
c. generate cash quickly.
d. finance companies at an amount greater than cash realizable value.
a. The loss section of the income statement will increase each time receivables are sold.
b. The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold.
c. Selling expenses will increase each time accounts are sold.
d. The other expenses section of the income statement will increase each time accounts are sold.
a. Cash 485,000
Loss on Sale of Receivables 15,000
Accounts Receivable 500,000
b. Cash 485,000
Accounts Receivable 485,000
c. Cash 500,000
Accounts Receivable 485,000
Gain on Sale of Receivables 15,000
d. Cash 485,000
Service Charge Expense 15,000
Accounts Receivable 500,000
Solution: $500,000 ? (1 ? .03) = $485,000
a. is responsible for maintaining customer accounts.
b. is not involved in the collection process.
c. absorbs any losses from uncollectible accounts.
d. receives cash equal to the full price of the merchandise sold from the credit card company.
a. credit to Cash of $588.
b. debit to Cash of $600.
c. debit to Service Charge Expense of $12.
d. credit to Service Charge Expense of $12.
Solution: $600 ? .02 = $12
a. Cash for $57,600 and Service Charge Expense for $2,400.
b. Accounts receivable for $57,600 and Service Charge Expense for $2,400.
c. Cash for $60,000.
d. Accounts Receivable for $60,000.
Solution: $60,000 ? (1 ? .04) = $57,600
a. cash sales.
b. promissory sales.
c. credit sales.
d. contingent sales.