Q: How is Net Sales calculated?

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

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

$$\text{Interest} = P \times I/R \times T$$

Question 1

According to GAAP, when should revenue be recognized?

Accepted Answer

When goods are delivered or services are performed, regardless of cash collection.

Question 2

Apple Inc. sells 1,000 iPhones at $$1,000 each on account. The cost to produce each iPhone is 600. $$What is the correct journal entry to record the sale?

Accepted Answer

Debit Accounts Receivable $$1,000,000; Credit Sales Revenue 1$$,000,000; Debit Cost of Goods Sold $$600,000; Credit Inventory 600$$,000

Question 3

Ace Hardware offers a 2/10, n/30 sales discount. If a customer purchases $100,000 of goods and pays within 10 days, how much cash does Ace Hardware receive?

Accepted Answer

$98,000

Question 4

Which of the following best describes a sales discount?

Accepted Answer

A contra revenue account that reduces net sales when customers pay early.

Question 5

Amazon estimates that 1% of its $50,000 million June sales will be returned. What is the estimated amount of sales returns?

Accepted Answer

$500 million

Question 6

If Amazon’s cost of goods sold is 60% of sales and $120 million of inventory is actually returned, what is the cost of goods sold related to these returns?

Accepted Answer

$72 million

Question 7

How is Net Sales calculated?

Accepted Answer

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

Question 8

Which method estimates uncollectible accounts based on a percentage of sales revenue?

Accepted Answer

Percent-of-sales method

Question 9

Apple Inc. estimates uncollectible-account expense as 0.02% of $400,000 million in revenues. What is the uncollectible-account expense?

Accepted Answer

$80 million

Question 10

Which of the following is true about the direct write-off method for uncollectible accounts?

Accepted Answer

It recognizes bad debt expense when a specific account is determined to be uncollectible.

Question 11

A company has the following balances: Beginning A/R $$200, Sales on account 1$$,500, Write-offs $$100, Ending A/R 400. $$What is the cash collected from customers?

Accepted Answer

$1,200

Question 12

Which journal entry is correct for writing off an uncollectible account under the allowance method?

Accepted Answer

Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable

Question 13

A note receivable of $1,000,000 is issued at 9% for 6 months. What is the total interest revenue at maturity?

Accepted Answer

$45,000

Question 14

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

Accepted Answer

$$	ext{Interest} = P 	imes I/R 	imes T$$

Question 15

If a company’s accounts receivable are reported net of allowance for uncollectible accounts, what does this mean?

Accepted Answer

The allowance is subtracted from accounts receivable.

Question 16

Which of the following actions would NOT help a company shorten its credit cycle?

Accepted Answer

Offering longer payment terms to customers.

Question 17

A company uses the aging-of-receivables method to estimate uncollectibles. What is the main focus of this method?

Accepted Answer

The age of each individual receivable.

Question 18

Which of the following is a real-world consequence of failing to recognize uncollectible accounts in the same period as the related revenue?

Accepted Answer

Assets may be overstated on the balance sheet.

Question 19

If a company collects a note receivable plus interest at maturity, which accounts are affected?

Accepted Answer

Cash, Notes Receivable, Interest Revenue

Question 20

Which of the following best describes the purpose of the allowance for uncollectible accounts?

Accepted Answer

To estimate and match bad debt expense to the period in which related sales revenue is earned.

Receivables and Revenue: Recognition, Management, and Reporting

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