Q: A note receivable for $10,000 is issued on January 1 with a 9% annual interest rate, due in 1 year. What is the maturity value of the note?

$$ 10,000 + (10,000 \times 0.09) = 10,900 $$

Q: Which of the following is the correct formula for calculating Days Sales Outstanding (DSO)?

$$ \text{DSO} = \frac{365}{\text{Accounts Receivable Turnover}} $$

Question 1

Which of the following best describes the Net Realizable Value (NRV) of Accounts Receivable as reported on the balance sheet?

Accepted Answer

The amount of accounts receivable expected to be collected, calculated as gross accounts receivable minus allowance for uncollectible accounts.

Question 2

A company made credit sales of $50,000 and estimates that 4% of these sales will be uncollectible. What is the journal entry to record the estimated uncollectible accounts using the percentage-of-sales method?

Accepted Answer

Dr. Uncollectible Account Expense $$2,000; Cr. Allowance for Uncollectible Accounts 2$$,000

Question 3

Which of the following is NOT considered 'cash and cash equivalents' for balance sheet reporting purposes?

Accepted Answer

Equity securities such as common stock

Question 4

Under the allowance method, what is the impact of writing off a specific uncollectible account on net income and net accounts receivable?

Accepted Answer

Net income is unaffected and net accounts receivable is unaffected.

Question 5

A company has the following balances: Accounts Receivable $$40,000, Allowance for Uncollectible Accounts 3$$,000. What is the net accounts receivable reported on the balance sheet?

Accepted Answer

$37,000

Question 6

Which of the following best describes the matching principle as it relates to accounting for uncollectible accounts?

Accepted Answer

Expenses should be recorded in the same period as the related revenues.

Question 7

A company uses the aging-of-receivables method to estimate uncollectible accounts. If the desired ending balance in the allowance account is $$5,000 and the current balance is 1$$,200 (credit), what is the required adjustment?

Accepted Answer

Dr. Uncollectible Account Expense $$3,800; Cr. Allowance for Uncollectible Accounts 3$$,800

Question 8

Which of the following is a non-operating item on the income statement?

Accepted Answer

Interest expense

Question 9

A company has net credit sales of $$600,000 and average accounts receivable (net) of 75$$,000. What is the accounts receivable turnover ratio?

Accepted Answer

$$ \frac{600,000}{75,000} = 8 $$

Question 10

If a company’s accounts receivable turnover ratio increases from 6 to 10, what does this most likely indicate?

Accepted Answer

The company is collecting cash from customers more quickly.

Question 11

A note receivable for $10,000 is issued on January 1 with a 9% annual interest rate, due in 1 year. What is the maturity value of the note?

Accepted Answer

$$ 10,000 + (10,000 	imes 0.09) = 10,900 $$

Question 12

Which of the following is the correct formula for calculating Days Sales Outstanding (DSO)?

Accepted Answer

$$ 	ext{DSO} = \frac{365}{	ext{Accounts Receivable Turnover}} $$

Question 13

Which of the following is TRUE regarding the direct write-off method for uncollectible accounts?

Accepted Answer

It violates the matching principle because expenses may be recorded in a different period than the related revenue.

Question 14

A company’s aging report estimates $$4,000 of uncollectible accounts. The allowance for uncollectible accounts has a debit balance of 500 $$before adjustment. What is the required journal entry?

Accepted Answer

Dr. Uncollectible Account Expense $$4,500; Cr. Allowance for Uncollectible Accounts 4$$,500

Question 15

Which of the following is the correct calculation for net income on the income statement?

Accepted Answer

$$ 	ext{Net Income} = 	ext{Revenues} - 	ext{Expenses} + 	ext{Gains} - 	ext{Losses} $$

Question 16

Which of the following is a key step in the revenue recognition process under GAAP?

Accepted Answer

Recognize revenue when the entity satisfies a performance obligation.

Question 17

A company’s gross accounts receivable is $$100,000. The allowance for uncollectible accounts is 6$$,000. During the year, $2,000 of accounts are written off. What is the net accounts receivable after the write-off?

Accepted Answer

$$100,000 - 2$$,000 - $$6,000 = 92$$,000

Question 18

Which of the following is a real-world consequence of underestimating the allowance for uncollectible accounts?

Accepted Answer

Net income will be overstated and assets will be overstated.

Cash, Receivables & Revenue: Income Statement Presentation and Analysis

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