Q: Which of the following is the correct formula for calculating Net Realizable Value (NRV) of accounts receivable? $$ \text{NRV} = \text{Accounts Receivable} - \text{Allowance for Uncollectible Accounts} $$

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

Q: Which formula correctly calculates the Accounts Receivable Turnover ratio? $$ \text{Accounts Receivable Turnover} = \frac{\text{Net Credit Sales}}{\text{Average Net Accounts Receivable}} $$

$$ \frac{\text{Net Credit Sales}}{\text{Average Net Accounts Receivable}} $$

Q: Which formula is used to calculate Days’ Sales Outstanding (DSO)? $$ \text{DSO} = \frac{365}{\text{Accounts Receivable Turnover}} $$

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

Question 1

According to GAAP, which of the following is NOT a required step in the five-step revenue recognition process?

Accepted Answer

Estimate the cost of goods sold before recognizing revenue

Question 2

Apple Inc. sells 30,000 iPhones to a distributor for $100 each, FOB shipping point. When should Apple recognize revenue?

Accepted Answer

When the phones leave Apple's shipping dock

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?

$$ 	ext{Cash Received} = \$$5,000 	imes (1 - 0.02) $$

Accepted Answer

$4,900

Question 4

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

Accepted Answer

It estimates the amount of receivables a company expects not to collect.

Question 5

A company has $$20,000 in Accounts Receivable and a 1$$,450 credit balance in Allowance for Uncollectible Accounts. If sales for the year are $$300,000 and 1% are estimated uncollectible, what is the year-end Allowance balance using the percent-of-sales method?

$$ 	ext{Allowance Balance} = 	ext{Beginning Allowance} + (	ext{Sales} 	imes 	ext{Uncollectible Rate}) $

Accepted Answer

$4,450

Question 6

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

$$ 	ext{Required Allowance} = (100,000 	imes 0.01) + (9,000 	imes 0.10) + (12,000 	imes 0.15) $$
$$ 	ext{Uncollectible Account Expense} = 	ext{Required Allowance} - 	ext{Existing Allowance} $$

Accepted Answer

$3,200

Question 7

Which of the following is the correct formula for calculating Net Realizable Value (NRV) of accounts receivable?

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

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 a key difference between the percent-of-sales and aging-of-receivables methods for estimating uncollectible accounts?

Accepted Answer

Percent-of-sales estimates expense; aging-of-receivables estimates the required ending allowance

Question 10

A company issues a $$1,000, 9% note receivable on September 1, 2024, due in 6 months. What is the total interest revenue earned by the maturity date?

$$ 	ext{Interest} = \$$1,000 	imes 0.09 	imes \frac{6}{12} $$

Accepted Answer

$45

Question 11

Which of the following best describes the Quick (Acid-Test) Ratio?

$$ 	ext{Quick Ratio} = \frac{	ext{Cash} + 	ext{Short-term Investments} + 	ext{Net Current Receivables}}{	ext{Total Current Liabilities}} $$

Accepted Answer

A measure of how quickly a company can pay its current liabilities using its most liquid assets

Question 12

Which formula correctly calculates the Accounts Receivable Turnover ratio?

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

Accepted Answer

$$ \frac{	ext{Net Credit Sales}}{	ext{Average Net Accounts Receivable}} $$

Question 13

Which formula is used to calculate Days’ Sales Outstanding (DSO)?

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

Accepted Answer

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

Question 14

A company’s aging schedule shows $$582,458 in current invoices (0.2% uncollectible), 63$$,872 in 31-60 day invoices (8% uncollectible), $$14,643 in 61-90 day invoices (15% uncollectible), and 3$$,861 in 91+ day invoices (25% uncollectible). What is the required Allowance for Uncollectible Accounts?

$$ 	ext{Allowance} = (582,458 	imes 0.002) + (63,872 	imes 0.08) + (14,643 	imes 0.15) + (3,861 	imes 0.25) $$

Accepted Answer

$5,614

Question 15

Which of the following is a real-world example of a company needing to estimate sales returns and allowances at period end?

Accepted Answer

A retailer with a 30-day return policy and significant historical returns

Question 16

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

Accepted Answer

It may overstate assets on the balance sheet

Question 17

A company’s beginning Accounts Receivable is $$10,000. During the year, it makes 50$$,000 in sales on account, collects $$45,000 in cash, and writes off 2$$,000 as uncollectible. What is the ending Accounts Receivable balance?

$$ 	ext{Ending AR} = 	ext{Beginning AR} + 	ext{Sales} - 	ext{Collections} - 	ext{Write Offs} $$

Accepted Answer

$13,000

Chapter 5: Receivables and Revenue – Financial Accounting Study Notes

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