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

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

Q: A company reports the following at year-end: AR current $$100,000, AR 1-30 days past due 9$$,000, AR over 30 days past due $12,000. If estimated uncollectible rates are 1%, 10%, and 15% respectively, what is the required ending balance in Allowance for Uncollectible Accounts?

$$3,700 = (100,000 \times 0.01) + (9,000 \times 0.10) + (12,000 \times 0.15)$$

Q: Which formula is used to calculate the quick (acid-test) ratio?

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

Q: Which formula correctly calculates Days Sales Outstanding (DSO)?

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

Question 1

Which of the following best describes when revenue should be recognized under GAAP for the sale of goods?

Accepted Answer

When control of the goods is transferred to the customer, based on the contract's performance obligations.

Question 2

Apple Inc. sells 30,000 iPhones to AT&T Wireless for $100 each, shipped FOB shipping point. When should Apple recognize revenue?

Accepted Answer

When the iPhones leave Apple's shipping dock.

Question 3

A company offers a sales discount of 2/10, n/30. If a customer purchases $5,000 of goods and pays within 10 days, how much cash does the company receive?

Accepted Answer

$$4,900 = 5$$,000 	imes 98\%$

Question 4

Which journal entry correctly records the estimated sales returns for a company with $200 million in sales and a 1% expected return rate?

Accepted Answer

Debit Sales Returns & Allowances $$2,000,000; Credit Sales Refunds Payable 2$$,000,000

Question 5

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

Accepted Answer

January 4, 2021

Question 6

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

Accepted Answer

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

Question 7

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

$$3,000 = 1\% 	imes 300,000$$

Question 8

A company reports the following at year-end: AR current $$100,000, AR 1-30 days past due 9$$,000, AR over 30 days past due $12,000. If estimated uncollectible rates are 1%, 10%, and 15% respectively, what is the required ending balance in Allowance for Uncollectible Accounts?

Accepted Answer

$$3,700 = (100,000 	imes 0.01) + (9,000 	imes 0.10) + (12,000 	imes 0.15)$$

Question 9

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

Accepted Answer

Extending credit to all customers without checks

Question 10

If a company writes off a specific uncollectible account using the allowance method, what is the impact on net accounts receivable?

Accepted Answer

Net accounts receivable remains unchanged

Question 11

Which formula is used to calculate the quick (acid-test) ratio?

Accepted Answer

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

Question 12

A company has net credit sales of $$1,000,000 and average net accounts receivable of 100$$,000. What is its accounts receivable turnover ratio?

Accepted Answer

$$10 = \frac{1,000,000}{100,000}$$

Question 13

Which formula correctly calculates Days Sales Outstanding (DSO)?

Accepted Answer

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

Question 14

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

Accepted Answer

$$1,176 = (2,000 - 800) 	imes 98\%$$

Question 15

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

Accepted Answer

It may overstate assets on the balance sheet.

Question 16

A note receivable for $1,000 is issued with a 9% annual interest rate for 4 months. What is the interest revenue accrued at year-end?

Accepted Answer

$$30 = 1,000 	imes 9\% 	imes \frac{4}{12}$$

Question 17

Which of the following is a performance obligation in a contract for the sale of an iPhone according to Apple Inc.'s revenue recognition policy?

Accepted Answer

The right to receive unspecified software upgrades

Question 18

If a company has a beginning accounts receivable balance of $$20,000, sales on account of 180$$,000, write-offs of $$2,000, and an ending balance of 25$$,000, what were the cash collections from customers?

Accepted Answer

$$173,000 = 20,000 + 180,000 - X - 2,000 = 25,000 \Rightarrow X = 173,000$$

Receivables and Revenue Recognition – Financial Accounting Chapter 5 Study Notes

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