Q: Which formula correctly calculates the acid-test (quick) ratio?

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

Q: How is interest on a note receivable for less than one year calculated?

$$\text{Principal} \times \text{Interest Rate} \times \frac{\text{Number of Months}}{12}$$

Question 1

Which of the following would NOT be classified as a cash equivalent on the balance sheet?

Accepted Answer

A postdated cheque received from a customer

Question 2

A company’s bank reconciliation for January 31 shows the following: balance per bank statement $$8,000, deposits in transit 1$$,200, outstanding cheques $$2,500, and a bank error that undercharged the account by 100. $$What is the adjusted bank balance?

Accepted Answer

$6,900

Question 3

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

Accepted Answer

Bank service charges

Question 4

A company wrote cheque #101 for $$450, but recorded it in the books as 540. $$How should this error be corrected in the bank reconciliation and journal entry?

Accepted Answer

Add $$90 to the book balance; debit Cash 90$$, credit Accounts Payable $90

Question 5

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

Accepted Answer

To estimate and report the amount of receivables expected not to be collected

Question 6

A company has the following balances: Accounts Receivable $$120,000, Allowance for Uncollectible Accounts 4$$,000 (credit). After aging the accounts, the company estimates $6,500 will be uncollectible. What is the required journal entry to adjust the allowance?

Accepted Answer

Debit Bad Debt Expense $$2,500; credit Allowance for Uncollectible Accounts 2$$,500

Question 7

If a company writes off a $1,000 uncollectible account under the allowance method, what is the effect on total assets and net income?

Accepted Answer

Total assets do not change; net income does not change

Question 8

Which formula correctly calculates the acid-test (quick) ratio?

Accepted Answer

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

Question 9

A company has net sales of $$730,000. Beginning net receivables are 50$$,000 and ending net receivables are $58,000. What is the days’ sales in receivables? (Round to one decimal place)

Accepted Answer

27.0 days

Question 10

Which of the following is NOT a strategy to speed up cash flow from sales?

Accepted Answer

Allowing customers unlimited time to pay

Question 11

A note receivable is best described as:

Accepted Answer

A written promise to pay a specified sum at a future date, usually with interest

Question 12

How is interest on a note receivable for less than one year calculated?

Accepted Answer

$$	ext{Principal} 	imes 	ext{Interest Rate} 	imes \frac{	ext{Number of Months}}{12}$$

Question 13

Which of the following is a correct journal entry for recording a bank service charge of $25 found during bank reconciliation?

Accepted Answer

Debit Bank Service Charge $$25; Credit Cash 25$$

Question 14

A company’s accounts receivable control account shows $$80,000. The sum of the subsidiary ledger balances is 78$$,500. What is the most likely cause?

Accepted Answer

A customer payment was posted to the control account but not to the subsidiary ledger

Question 15

Which of the following is NOT a reconciling item on the bank side of a bank reconciliation?

Accepted Answer

Bank collections

Question 16

If a company receives a customer cheque for $1,000 that is later returned NSF, what is the correct journal entry?

Accepted Answer

Debit Accounts Receivable $$1,000; Credit Cash 1$$,000

Question 17

Which of the following best describes the aging-of-receivables method?

Accepted Answer

It estimates uncollectible accounts based on the length of time receivables have been outstanding

Question 18

Which of the following is a correct formula for calculating average daily sales?

Accepted Answer

$$\frac{	ext{Net sales}}{365}$$

Question 19

On the statement of cash flows, collections from accounts receivable are classified as:

Accepted Answer

Operating activities

Financial Accounting: Chapter 4 – Cash and Receivables (Study Notes)

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