Q: Red Raider Hardware sells merchandise for $1,000 on account with terms 2/10, net 30. If the customer pays on day 8, what is the correct journal entry for the receipt of payment?

Cash $$980 \newline Sales Discount 20$$ \newline \text{A/R} $1,000

Q: A company estimates that 7.5% of its $6,000 sales will be returned. What is the adjusting journal entry for sales returns and allowances at year-end?

Sales Returns and Allowances $$450 \newline Sales Refunds Payable 450$$

Q: Which of the following best describes Net Realizable Value (NRV) for accounts receivable?

$$\text{NRV} = \text{Accounts Receivable} - \text{Allowance for Doubtful Accounts}$$

Q: A company writes off $12,000 of uncollectible accounts. What is the correct journal entry?

Allowance for Doubtful Accounts $$12,000 \newline Accounts Receivable 12$$,000

Q: Which of the following is the correct formula for calculating interest on a note receivable?

$$\text{Interest} = \text{Principal} \times \text{Interest Rate} \times \frac{\text{Term}}{12}$$

Q: A $1,000 note is issued on August 31, 2024, with a maturity date of February 28, 2025, and an annual interest rate of 9%. What is the total interest due at maturity?

$$1,000 \times 9\% \times \frac{6}{12} = 45$

Question 1

According to the revenue recognition principle, when should a company recognize revenue from the sale of goods?

Accepted Answer

When the company transfers control of the goods or services to the customer.

Question 2

Red Raider Hardware sells merchandise for $1,000 on account with terms 2/10, net 30. If the customer pays on day 8, what is the correct journal entry for the receipt of payment?

Accepted Answer

Cash $$980 
ewline Sales Discount 20$$ 
ewline 	ext{A/R} $1,000

Question 3

A company ships goods FOB Shipping Point on September 7. The goods arrive at the customer on September 15. When should the seller recognize revenue?

Accepted Answer

September 7

Question 4

Which of the following is a contra revenue account?

Accepted Answer

Sales Returns and Allowances

Question 5

A company estimates that 7.5% of its $6,000 sales will be returned. What is the adjusting journal entry for sales returns and allowances at year-end?

Accepted Answer

Sales Returns and Allowances $$450 
ewline Sales Refunds Payable 450$$

Question 6

Which of the following best describes Net Realizable Value (NRV) for accounts receivable?

Accepted Answer

$$	ext{NRV} = 	ext{Accounts Receivable} - 	ext{Allowance for Doubtful Accounts}$$

Question 7

A company writes off $12,000 of uncollectible accounts. What is the correct journal entry?

Accepted Answer

Allowance for Doubtful Accounts $$12,000 
ewline Accounts Receivable 12$$,000

Question 8

A company has the following aging schedule for A/R: $$60,000 (1% uncollectible), 40$$,000 (15% uncollectible), $58,000 (50% uncollectible). What is the required ending balance in Allowance for Doubtful Accounts?

Accepted Answer

$$600 + 6$$,000 + $$29,000 = 35$$,600$

Question 9

Which of the following is the correct formula for calculating interest on a note receivable?

Accepted Answer

$$	ext{Interest} = 	ext{Principal} 	imes 	ext{Interest Rate} 	imes \frac{	ext{Term}}{12}$$

Question 10

A $1,000 note is issued on August 31, 2024, with a maturity date of February 28, 2025, and an annual interest rate of 9%. What is the total interest due at maturity?

Accepted Answer

$$1,000 	imes 9\% 	imes \frac{6}{12} = 45$

Question 11

Which of the following best describes the accounting treatment for credit card sales?

Accepted Answer

Treated as cash sales, less the credit card fee.

Question 12

If a company estimates $$800 for Sales Returns and Allowances at the end of the month, and has 10$$,000 in total sales and $200 in sales discounts, what is Net Sales?

Accepted Answer

$$10,000 - 800$$ - $$200 = 9$$,000$

Question 13

Which of the following is NOT a step in the five-step revenue recognition model under GAAP?

Accepted Answer

Record cash receipts from the customer.

Question 14

A company has $$100,000 in Accounts Receivable and 6$$,000 in Allowance for Doubtful Accounts. What is the Net Realizable Value (NRV) reported on the balance sheet?

Accepted Answer

$$100,000 - 6$$,000 = $$94,000$$

Question 15

Which of the following best describes a note receivable?

Accepted Answer

A formal written contract specifying that someone owes you money.

Question 16

If a company receives a 3-month, 6% note receivable for $3,000 on December 1, what is the interest revenue recognized at December 31?

Accepted Answer

$$3,000 	imes 6\% 	imes \frac{1}{12} = 15$

Question 17

Which of the following is true regarding the classification of notes receivable on the balance sheet?

Accepted Answer

The current portion is due within one year; the remainder is long-term.

Chapter 5: Receivables and Revenue – Financial Accounting Study Notes

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