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 correct formula for net accounts receivable?

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

Q: Which formula calculates Accounts Receivable Turnover?

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

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

$$\text{Quick Ratio} = \frac{\text{Cash} + \text{Accounts Receivable} + \text{Marketable Securities}}{\text{Current Liabilities}}$$

Question 1

ABC Company sold 100 units of Product X for $2,000 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 2

Which journal entry correctly records a sales return of 100 units at $12 per unit for TOS Company, originally sold on account?

Accepted Answer

Debit Sales Returns and Allowances $$1,200; Credit Accounts Receivable 1$$,200

Question 3

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

Accepted Answer

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

Question 4

Which formula correctly calculates Net Sales?

Accepted Answer

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

Question 5

A company sells $12,000 worth of goods on account. Later, the customer offers a 90-day, 6% note for the same amount. What is the correct journal entry to record the conversion?

Accepted Answer

Debit Notes Receivable $$12,000; Credit Accounts Receivable 12$$,000

Question 6

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

Accepted Answer

Allowance method

Question 7

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

Accepted Answer

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

Question 8

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

Accepted Answer

It does not follow the matching principle

Question 9

Calculate the interest on a $$1,800, 12%, 90-day note. Use the formula I = P$$ 	imes R 	imes T$$ where T$ is in years.

Accepted Answer

$54

Question 10

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

Accepted Answer

September 15

Question 11

Interest Receivable is classified as:

Accepted Answer

Assets

Question 12

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

Accepted Answer

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

Question 13

Which formula calculates Accounts Receivable Turnover?

Accepted Answer

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

Question 14

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 15

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

Accepted Answer

$$	ext{Quick Ratio} = \frac{	ext{Cash} + 	ext{Accounts Receivable} + 	ext{Marketable Securities}}{	ext{Current Liabilities}}$$

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

$$\frac{450,000 - 115,000 - 10,000}{315,000} = 1.05$$

Question 17

Which formula calculates the average collection period (days’ sales outstanding)?

Accepted Answer

$$	ext{Average Collection Period} = \frac{365}{	ext{AR Turnover}}$$

Question 18

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

Accepted Answer

37 days

Question 19

A company has gross AR of $$100,000. The aging schedule estimates the allowance for doubtful accounts at 3$$,000. If the allowance account has a credit balance of $1,000, what is the journal entry for this year’s bad debt expense?

Accepted Answer

Debit Bad Debt Expense $$2,000; Credit Allowance for Doubtful Accounts 2$$,000

Receivables and Revenue: Key Concepts, Methods, and Ratios

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