Q: Which formula correctly calculates the Net Realizable Value (NRV) of accounts receivable?

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

Q: Which formula is used to calculate interest revenue on a note receivable for a period less than one year?

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

Q: Which of the following is the correct formula for the quick (acid-test) ratio?

$$\frac{\text{Cash and cash equivalents} + \text{Short-term investments} + \text{Net current receivables}}{\text{Total current liabilities}}$$

Q: A company’s accounts receivable turnover is 14.48. What is the formula to calculate days’ sales outstanding (DSO)?

$$\frac{365}{\text{Accounts receivable turnover}}$$

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 products in June and estimates that 1% will be returned. What is the correct journal entry to record the estimated sales returns at June 30, ignoring cost of goods sold?

Accepted Answer

Debit Sales Returns & Allowances $$2 million; Credit Sales Refunds Payable 2 $$million

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

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

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 6

Which formula correctly calculates the Net Realizable Value (NRV) of accounts receivable?

Accepted Answer

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

Question 7

A company’s sales for the year are $$300,000. Historically, 1% of sales are uncollectible. The Allowance for Uncollectible Accounts has a 1$$,450 credit balance before adjustment. What will the balance be after using the percent-of-sales method?

Accepted Answer

$4,450

Question 8

Which of the following is NOT a step in the five-step revenue recognition model under GAAP?

Accepted Answer

Record cash collection before delivery of goods or services.

Question 9

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

Accepted Answer

No effect on net accounts receivable.

Question 10

Which formula is used to calculate interest revenue on a note receivable for a period less than one year?

Accepted Answer

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

Question 11

Which of the following best describes the 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 ending allowance balance.

Question 12

Which of the following is the correct formula for the quick (acid-test) ratio?

Accepted Answer

$$\frac{	ext{Cash and cash equivalents} + 	ext{Short-term investments} + 	ext{Net current receivables}}{	ext{Total current liabilities}}$$

Question 13

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 14

Which of the following is a reason companies use an aging schedule for accounts receivable?

Accepted Answer

To estimate the amount of receivables likely to be uncollectible based on how long they have been outstanding.

Question 15

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 16

A company’s beginning accounts receivable is $$10,000, sales are 50$$,000, write-offs are $$2,000, and ending accounts receivable is 8$$,000. What is the amount of cash collected from customers?

Accepted Answer

$$10,000 + 50$$,000 - X - $$2,000 = 8$$,000 \implies X = $$50,000$$

Question 17

Which of the following is a key control to manage the risk of not collecting receivables?

Accepted Answer

Separating cash handling and record-keeping.

Question 18

Which of the following is true about sales discounts?

Accepted Answer

They are recorded in a contra-revenue account.

Question 19

A company sells $$2,000 of merchandise, terms 2/10, n/30. The customer returns 800 of $$merchandise and pays the balance within the discount period. What is the net revenue recorded?

Accepted Answer

$1,176

Chapter 5: Receivables and Revenue – Financial Accounting Study Notes

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