Q: Which formula is used to calculate interest income on an interest-bearing note?

$\text{Interest} = \text{Face Value of Note} \times \text{Annual Interest Rate} \times \text{Time in Terms of One Year}$

Question 1

Which of the following best describes a subsidiary ledger in the context of accounts receivable?

Accepted Answer

A group of accounts that share a common characteristic, providing details that support the total balance for accounts receivable in the general ledger.

Question 2

A company estimates that 3% of its $120,000 accounts receivable will be uncollectible. If the Allowance for Expected Credit Losses currently has a $1,000 credit balance, what is the amount of credit loss expense to be recorded for the period?

Accepted Answer

$2,600

Question 3

Which formula is used to calculate interest income on an interest-bearing note?

Accepted Answer

$	ext{Interest} = 	ext{Face Value of Note} 	imes 	ext{Annual Interest Rate} 	imes 	ext{Time in Terms of One Year}$

Question 4

If a company writes off an uncollectible account under the allowance method, what is the effect on the carrying amount of accounts receivable?

Accepted Answer

The carrying amount remains unchanged.

Question 5

A hospital reports the following receivables on its statement of financial position. Which is NOT typically included?

Accepted Answer

Inventory receivable from suppliers

Question 6

Which journal entry is required when a previously written-off account is recovered under the allowance method?

Accepted Answer

Debit Accounts Receivable; Credit Allowance for Expected Credit Losses

Question 7

A company has credit sales of $500,000 and average gross accounts receivable of $100,000. What is its receivables turnover ratio?

Accepted Answer

$5$

Question 8

If the receivables turnover ratio is $8$, what is the average collection period?

Accepted Answer

$45.6$ days

Question 9

Which of the following is a key difference between accounts receivable and notes receivable?

Accepted Answer

Notes receivable are written promises to pay and usually require interest.

Question 10

Under the allowance method, how is the estimated amount of uncollectible accounts determined?

Accepted Answer

By applying a percentage to the total or aged accounts receivable balance.

Question 11

Which of the following is TRUE regarding the presentation of receivables on the statement of financial position?

Accepted Answer

Short-term receivables are reported in the current assets section, net of expected credit losses.

Question 12

A company has the following balances: Accounts Receivable $200,000, Allowance for Expected Credit Losses $11,000. What is the carrying amount of accounts receivable?

Accepted Answer

$189,000$

Question 13

Which of the following is NOT a principle of sound accounts receivable management?

Accepted Answer

Extending credit to all customers without evaluation

Question 14

A note receivable for $10,000 at 6% annual interest is outstanding for 3 months. What is the interest income?

Accepted Answer

$150$

Question 15

When a note receivable is dishonoured and collection is NOT expected, which account is debited?

Accepted Answer

Credit Losses

Question 16

Which of the following best describes the aging of accounts receivable method?

Accepted Answer

Classifying accounts receivable by the length of time they have been outstanding and applying different percentages to each category.

Question 17

Why is it important to record credit losses in the same period as the related revenue?

Accepted Answer

To comply with the matching principle and accurately reflect net income.

Question 18

Which of the following is TRUE regarding the receivables turnover ratio?

Accepted Answer

A higher ratio indicates more liquid receivables.

Question 19

A company has credit sales of $900,000 and average gross accounts receivable of $150,000. What is the average collection period?

Accepted Answer

$60.8$ days

Question 20

Which of the following is a real-world example of a nontrade receivable?

Accepted Answer

Interest receivable from a loan to a company officer.

Chapter 8: Reporting and Analyzing Receivables – Financial Accounting Study Notes

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