Q: Which of the following is a correct formula for the acid-test (quick) ratio?

$\frac{\text{Cash} + \text{Short-term investments} + \text{Net current receivables}}{\text{Total current liabilities}}$

Q: A note receivable has a principal of $10,000, an annual interest rate of 6%, and a term of 9 months. What is the amount of interest revenue earned at maturity?

$10,000 \times 6\% \times \frac{9}{12} = $450$

Question 1

Which of the following is NOT considered a cash equivalent when reporting cash on the balance sheet?

Accepted Answer

Accounts receivable

Question 2

A company’s bank statement shows a balance of $5,000. The company’s cash account shows $4,500. There is a deposit in transit of $800 and outstanding cheques of $600. What is the adjusted bank balance?

Accepted Answer

$5,200 = $5,000 + $800 - $600$

Question 3

Which of the following items would require a journal entry when preparing a bank reconciliation?

Accepted Answer

Bank service charges

Question 4

A company recorded a cheque for $750 as $570 in its books. What is the correct journal entry to adjust this error during bank reconciliation?

Accepted Answer

Credit Cash $180

Question 5

Which of the following best describes the purpose of the Allowance for Uncollectible Accounts?

Accepted Answer

To estimate the amount of receivables expected not to be collected

Question 6

A company has accounts receivable of $120,000 and an allowance for uncollectible accounts of $4,000. What is the net realizable value of accounts receivable?

Accepted Answer

$116,000

Question 7

Which method focuses on the proper valuation of accounts receivable on the balance sheet by analyzing individual customer balances based on time outstanding?

Accepted Answer

Aging-of-receivables method

Question 8

If a company writes off an uncollectible account, what is the effect on total current assets?

Accepted Answer

Total current assets remain unchanged

Question 9

A company’s beginning accounts receivable is $2,000, credit sales are $10,000, write-offs are $500, and ending accounts receivable is $3,000. What is the amount of cash collected from customers?

Accepted Answer

$9,500

Question 10

Which of the following strategies would NOT help a company speed up cash flow from sales?

Accepted Answer

Allowing unlimited credit terms

Question 11

A retailer makes a $1,000 sale using a credit card and is charged a 3% fee by the credit card company. What is the correct journal entry for the cash received?

Accepted Answer

Debit Cash $970; Debit Credit Card Expense $30; Credit Sales Revenue $1,000

Question 12

Which of the following is a correct formula for the acid-test (quick) ratio?

Accepted Answer

$\frac{	ext{Cash} + 	ext{Short-term investments} + 	ext{Net current receivables}}{	ext{Total current liabilities}}$

Question 13

A note receivable has a principal of $10,000, an annual interest rate of 6%, and a term of 9 months. What is the amount of interest revenue earned at maturity?

Accepted Answer

$10,000 	imes 6\% 	imes \frac{9}{12} = $450$

Question 14

Which of the following would be classified as an investing activity on the statement of cash flows?

Accepted Answer

Collection of notes receivable

Question 15

If a company’s current assets are $150,000 and current liabilities are $100,000, what is the current ratio?

Accepted Answer

$1.5$

Question 16

A company uses the aging-of-receivables method and determines that $8,000 of its $200,000 accounts receivable is uncollectible. If the Allowance for Uncollectible Accounts has a $1,500 credit balance before adjustment, what is the bad debt expense for the period?

Accepted Answer

$6,500$

Question 17

Which of the following is NOT a document used as a control device for a bank account?

Accepted Answer

Invoice

Question 18

Which of the following would be subtracted from the book balance during a bank reconciliation?

Accepted Answer

Bank service charges

Question 19

A company’s average net receivables are $52,000 and net sales are $803,000. What are the days’ sales in receivables? (Assume 365 days in a year)

Accepted Answer

$\frac{52,000}{\frac{803,000}{365}} = 23.6$ days

Chapter 4: Cash and Receivables – Financial Accounting Study Notes

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