Q: A company offers terms 2/10, n/30 on a $5,000 sale. If the customer pays within 10 days, how much cash does the company receive?

$$4,900 \ (\5$$,000 \times 98\%)$

Q: Using the percent-of-sales method, if a company has $300,000 in sales and estimates 1% will be uncollectible, what is the uncollectible account expense for the year?

$$3,000 \ (\300$$,000 \times 1\%)$

Q: What is the formula for calculating the net realizable value (NRV) of accounts receivable?

$$\text{Accounts Receivable} - \text{Allowance for Uncollectible Accounts}$$

Q: Which of the following is the correct formula for calculating interest revenue on a note receivable?

$$\text{Principal} \times \text{Annual Rate} \times \frac{\text{Months}}{12}$$

Q: If a company’s accounts receivable turnover is 14.48, what is the formula to calculate days’ sales outstanding (DSO)?

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

Q: A company’s quick (acid-test) ratio is calculated as follows:

$$\frac{\text{Cash and Cash Equivalents} + \text{Short-term Investments} + \text{Net Current Receivables}}{\text{Total Current Liabilities}}$$

Question 1

According to GAAP, when should revenue be recognized for a sale of goods under an FOB shipping point agreement?

Accepted Answer

When the goods leave the seller’s shipping dock.

Question 2

Apple Inc. sells $200 million in June and expects 1% of sales to be returned. What is the estimated amount of sales returns to be recorded for June?

Accepted Answer

$2,000,000

Question 3

A company offers terms 2/10, n/30 on a $5,000 sale. If the customer pays within 10 days, how much cash does the company receive?

Accepted Answer

$$4,900 \ (\5$$,000 	imes 98\%)$

Question 4

Which of the following best describes the Allowance for Uncollectible Accounts?

Accepted Answer

A contra-asset account that reduces accounts receivable to net realizable value.

Question 5

Using the percent-of-sales method, if a company has $300,000 in sales and estimates 1% will be uncollectible, what is the uncollectible account expense for the year?

Accepted Answer

$$3,000 \ (\300$$,000 	imes 1\%)$

Question 6

Bradley Company has the following year-end receivables: $$100,000 current (1% uncollectible), 9$$,000 1-30 days past due (10%), $$12,000 over 30 days past due (15%). Allowance for Uncollectible Accounts has a 500 $$credit balance. What is the uncollectible account expense for the year using the aging method?

Accepted Answer

$3,200

Question 7

What is the formula for calculating the net realizable value (NRV) of accounts receivable?

Accepted Answer

$$	ext{Accounts Receivable} - 	ext{Allowance for Uncollectible Accounts}$$

Question 8

A company writes off a specific customer’s account using the allowance method. What is the effect on net accounts receivable?

Accepted Answer

Net accounts receivable remains unchanged.

Question 9

Which of the following is the correct formula for calculating interest revenue on a note receivable?

Accepted Answer

$$	ext{Principal} 	imes 	ext{Annual Rate} 	imes \frac{	ext{Months}}{12}$$

Question 10

Which of the following best describes the purpose of an aging schedule for accounts receivable?

Accepted Answer

To estimate the amount of receivables that may be uncollectible based on the age of each account.

Question 11

If a company’s accounts receivable turnover is 14.48, what is the formula to calculate days’ sales outstanding (DSO)?

Accepted Answer

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

Question 12

A company’s quick (acid-test) ratio is calculated as follows:

Accepted Answer

$$\frac{	ext{Cash and Cash Equivalents} + 	ext{Short-term Investments} + 	ext{Net Current Receivables}}{	ext{Total Current Liabilities}}$$

Question 13

Which of the following is NOT a strategy to speed up cash flow from sales?

Accepted Answer

Delaying invoicing customers.

Question 14

If a company uses the direct write-off method, which of the following is true?

Accepted Answer

It recognizes uncollectible accounts expense when specific accounts are determined to be uncollectible.

Question 15

A company’s accounts receivable at the beginning of the year was $$10,000. During the year, sales on account were 50$$,000, collections were $$45,000, and write-offs were 2$$,000. What is the ending accounts receivable balance?

Accepted Answer

$13,000

Question 16

Which of the following is a contra-revenue account?

Accepted Answer

Sales Returns and Allowances

Question 17

If a company estimates that 5% of its accounts receivable will be uncollectible, and its accounts receivable balance is $100,000, what should the allowance for uncollectible accounts be after adjustment?

Accepted Answer

$$5,000 \ (\100$$,000 	imes 5\%)$

Question 18

Which of the following is the correct journal entry to record the estimated uncollectible accounts expense using the allowance method?

Accepted Answer

Debit Uncollectible-Account Expense; Credit Allowance for Uncollectible Accounts

Question 19

A company sells $10,000 of goods FOB destination on December 29, 2020, and the customer receives the goods on January 4, 2021. When should the company recognize revenue?

Accepted Answer

January 4, 2021

Chapter 5: Receivables and Revenue – Financial Accounting Study Notes

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