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

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

Q: A company’s accounts receivable turnover ratio is calculated as:

$\frac{\text{Credit Sales}}{\text{Average Net Accounts Receivable}}$

Question 1

Which of the following best describes when revenue should be recognized under GAAP?

Accepted Answer

When goods are delivered or services are performed, and the amount can be measured reliably.

Question 2

A company sells goods with shipping terms FOB destination. When should the company recognize revenue?

Accepted Answer

When the goods are delivered to the customer.

Question 3

Apple, Inc. sells 6,000 iPhones to AT&T Wireless for $100 each on account, offering a 2% discount if paid within 30 days. If AT&T pays within the discount period, what is the total amount Apple will receive?

Accepted Answer

$588,000

Question 4

Which journal entry correctly records the sale of goods on account with a 2% sales discount offered, assuming the customer pays within the discount period?

Accepted Answer

Debit Cash for the net amount, debit Sales Discounts for the discount, credit Accounts Receivable for the gross amount.

Question 5

A company estimates uncollectible accounts using the percent-of-sales method. If total sales are $500,000 and the estimated uncollectible rate is 0.5%, what is the uncollectible-account expense for the period?

Accepted Answer

$2,500

Question 6

Which of the following is TRUE about the allowance for uncollectible accounts?

Accepted Answer

It is a contra-asset account that reduces accounts receivable to net realizable value.

Question 7

Under the aging-of-receivables method, what is the primary purpose of analyzing accounts based on how long they have been outstanding?

Accepted Answer

To estimate the ending balance needed in the allowance for uncollectible accounts.

Question 8

Which of the following is NOT a consequence of using the direct write-off method for uncollectible accounts?

Accepted Answer

It is in conformance with GAAP.

Question 9

A company has the following balances: Accounts Receivable $10,000, Allowance for Uncollectible Accounts $900. What is the net accounts receivable reported on the balance sheet?

Accepted Answer

$9,100

Question 10

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

Accepted Answer

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

Question 11

If a company sells $100,000 of accounts receivable to a factor and receives $95,000 cash, what is the factoring expense?

Accepted Answer

$5,000

Question 12

Which of the following strategies would NOT help speed up cash flow from receivables?

Accepted Answer

Extending longer credit terms to customers.

Question 13

A company’s accounts receivable turnover ratio is calculated as:

Accepted Answer

$\frac{	ext{Credit Sales}}{	ext{Average Net Accounts Receivable}}$

Question 14

Which of the following is a formal contract where the borrower promises to pay a definite sum plus interest at a future date?

Accepted Answer

Notes receivable

Question 15

A company’s credit department estimates uncollectible-account expense is 0.0004% of total revenues, which are $182,795,000. What is the uncollectible-account expense for the year? (Round to the nearest dollar.)

Accepted Answer

$731

Question 16

Which of the following is TRUE regarding the subsidiary ledger for accounts receivable?

Accepted Answer

It summarizes total receivable for each customer.

Question 17

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

Accepted Answer

Total assets remain unchanged; net income remains unchanged.

Question 18

A promissory note is signed for $10,000 at 8% annual interest for 6 months. What is the total interest revenue earned at maturity?

Accepted Answer

$400

Question 19

Which of the following is a disadvantage of factoring accounts receivable?

Accepted Answer

Loss of control over collection.

Question 20

A company’s quick assets are $50,000 and current liabilities are $100,000. What is the quick (acid-test) ratio?

Accepted Answer

$0.5

Financial Accounting: Chapter Five – Receivables (Mini-Textbook Study Notes)

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