Q: Which formula correctly calculates Net Sales?

$$\text{Net Sales} = \text{Sales} - \text{Sales Discounts} - \text{Sales Returns and Allowances}$$

Q: A company estimates $$800 of its 12$$,000 accounts receivable is uncollectible. What is the formula for Net Accounts Receivable?

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

Q: A company issues a 90-day, 12% note for $1,800. What is the total interest earned?

$$\text{Interest} = 1,800 \times 0.12 \times \frac{90}{360} = 54$$

Q: Which formula correctly calculates the Accounts Receivable Turnover ratio?

$$\text{AR Turnover} = \frac{\text{Net Sales}}{\text{Average Accounts Receivable}}$$

Question 1

Which of the following best describes the meaning of the sales discount notation '2/10, n/30'?

Accepted Answer

A 2% discount is available if payment is made within 10 days; otherwise, the net amount is due within 30 days.

Question 2

ABC Company sold $2,000 of goods on January 14 with terms 3/10, net 45. Payment was received on January 19. Using the gross method, what is the amount of cash received?

Accepted Answer

$1,940

Question 3

TOS Company sold 500 units at $12 each. The customer returned 100 units. What is the effect on assets, liabilities, and equity after the return?

Accepted Answer

Assets decrease, liabilities unchanged, equity decreases

Question 4

A customer agrees to keep 500 units at a reduced price of $$9 per unit instead of 12 $$due to low quality. What is the correct journal entry for the sales allowance?

Accepted Answer

Debit Sales Allowances $$1,500; Credit Accounts Receivable 1$$,500

Question 5

Which formula correctly calculates Net Sales?

Accepted Answer

$$	ext{Net Sales} = 	ext{Sales} - 	ext{Sales Discounts} - 	ext{Sales Returns and Allowances}$$

Question 6

A company sells $12,000 of goods on account. Later, the customer offers a 90-day, 6% note for the same amount. What is the effect on the company's assets?

Accepted Answer

Accounts Receivable decreases, Notes Receivable increases

Question 7

Which method requires the creation of an allowance account to conform with the matching principle?

Accepted Answer

Allowance method

Question 8

A company estimates $$800 of its 12$$,000 accounts receivable is uncollectible. What is the formula for Net Accounts Receivable?

Accepted Answer

$$	ext{Net Accounts Receivable} = 	ext{Gross Accounts Receivable} - 	ext{Allowance for Doubtful Accounts}$$

Question 9

Which statement about the direct write-off method is correct?

Accepted Answer

It does not follow the matching principle

Question 10

A company issues a 90-day, 12% note for $1,800. What is the total interest earned?

Accepted Answer

$$	ext{Interest} = 1,800 	imes 0.12 	imes \frac{90}{360} = 54$$

Question 11

What is the maturity date of a 60-day note issued on July 17?

Accepted Answer

September 15

Question 12

Interest Receivable is classified as which type of account?

Accepted Answer

Asset

Question 13

Holden Company received a 60-day, 12% note for $10,000 on April 15. What is the adjusting entry for interest receivable on April 30?

Accepted Answer

Debit Interest Receivable $$50; Credit Interest Revenue 50$$

Question 14

Which formula correctly calculates the Accounts Receivable Turnover ratio?

Accepted Answer

$$	ext{AR Turnover} = \frac{	ext{Net Sales}}{	ext{Average Accounts Receivable}}$$

Question 15

XYZ Company had net sales of $$500,000, beginning AR of 75$$,000, and ending AR of $25,000. What is the AR Turnover ratio?

Accepted Answer

10

Question 16

Super Liquid Company has current assets of $$450,000 (including 115$$,000 inventory, $$35,000 AR, 10$$,000 prepaid expenses) and current liabilities of $315,000. What is the quick ratio?

Accepted Answer

$$	ext{Quick Ratio} = \frac{450,000 - 115,000 - 10,000}{315,000} = 1.08$$

Question 17

Tougher Question, Inc. has cash $$45,000, AR 10$$,000, inventory $$25,000, prepaid expenses 15$$,000, accounts payable $$30,000, short term debt 40$$,000, accrued expenses $35,000. What is the quick ratio?

Accepted Answer

$$	ext{Quick Ratio} = \frac{45,000 + 10,000}{30,000 + 40,000 + 35,000} = 0.73$$

Question 18

XYZ Company had net sales of $$500,000, beginning AR 75$$,000, ending AR $25,000. What is the average collection period?

Accepted Answer

18 days

Question 19

A company has gross AR of $$100,000. Based on aging, the allowance for doubtful accounts should be 4$$,250. If the allowance currently has a credit balance of $1,000, what is the journal entry for bad debt expense?

Accepted Answer

Debit Bad Debt Expense $$3,250; Credit Allowance for Doubtful Accounts 3$$,250

Receivables and Revenue: Key Concepts, Methods, and Ratios

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