Q: Which formula is used to calculate interest on a note receivable?

$$\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}$$

Q: What is the correct formula for the accounts receivable turnover rate?

$$\text{Annual Net Sales} \div \text{Average Accounts Receivable}$$

Question 1

Which of the following is NOT considered a financial asset according to the chapter?

Accepted Answer

Inventory

Question 2

How are short-term investments (marketable securities) valued on the balance sheet?

Accepted Answer

At their fair market value

Question 3

A company receives a $0.30 per share dividend on 4,000 shares. What is the correct journal entry?

Accepted Answer

Debit Cash $$1,200; Credit Dividend Revenue 1$$,200

Question 4

Which formula is used to calculate interest on a note receivable?

Accepted Answer

$$	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes 	ext{Time}$$

Question 5

If a company writes off an uncollectible account using the allowance method, what is the effect on net realizable value?

Accepted Answer

Net realizable value remains unchanged

Question 6

Which of the following is a requirement for an investment to qualify as a cash equivalent?

Accepted Answer

It must mature within 90 days of acquisition

Question 7

What is the primary purpose of preparing a bank reconciliation?

Accepted Answer

To verify the accuracy of the company’s cash transactions

Question 8

A company estimates that 2% of its credit sales will be uncollectible. If credit sales for the month are $150,000, what is the adjusting entry for uncollectible accounts expense?

Accepted Answer

Debit Uncollectible Accounts Expense $$3,000; Credit Allowance for Doubtful Accounts 3$$,000

Question 9

Which of the following is NOT an objective of internal control over cash?

Accepted Answer

Ensure unnecessarily large amounts of cash sit idle

Question 10

What is the correct formula for the accounts receivable turnover rate?

Accepted Answer

$$	ext{Annual Net Sales} \div 	ext{Average Accounts Receivable}$$

Question 11

Which of the following is a step in preparing a bank reconciliation?

Accepted Answer

Add deposits in transit to the balance per bank statement

Question 12

What is the effect of factoring accounts receivable for a small business?

Accepted Answer

It allows the business to obtain cash immediately

Question 13

Which of the following is NOT a characteristic of cash equivalents?

Accepted Answer

They are restricted for specific purposes

Question 14

If a company sells 500 shares of stock for $$50.04 per share, less a 20 $$commission, and the cost basis is $49 per share, what is the gain on sale?

Accepted Answer

$$500$$

Question 15

Which method is NOT generally accepted for estimating uncollectible accounts unless the amounts are immaterial?

Accepted Answer

Direct write-off method

Question 16

What is the correct formula for calculating the average number of days to collect accounts receivable?

Accepted Answer

$$	ext{Days in Year} \div 	ext{Accounts Receivable Turnover Ratio}$$

Question 17

Which of the following is a real-world advantage for merchants accepting credit card sales?

Accepted Answer

Merchants receive cash more quickly and prevent bad debts

Question 18

A company has $$100,000 in accounts receivable. The credit manager estimates 5$$,680 will be uncollectible. If the allowance account has a $4,000 credit balance, what is the adjusting entry?

Accepted Answer

Debit Uncollectible Accounts Expense $$1,680; Credit Allowance for Doubtful Accounts 1$$,680

Question 19

Which of the following is NOT a step in internal control over receivables?

Accepted Answer

Record sales only after cash is collected

Financial Assets: Cash, Receivables, and Short-Term Investments

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