Q: Which of the following is the correct formula for Net Realizable Value (NRV) of Accounts Receivable?

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

Question 1

Which of the following is NOT a component of internal control as defined in financial accounting?

Accepted Answer

Market segmentation

Question 2

A company discovers that its bank statement shows a balance of $$12,000, but its cash account shows 11$$,500. The following items are identified: outstanding checks of $$800, deposits in transit of 600$$, and a bank service charge of $50. What is the adjusted bank balance?

Accepted Answer

$$12,000 + 600$$ - $$800 = 11$$,800$

Question 3

Which of the following would NOT be considered a cash equivalent on the balance sheet?

Accepted Answer

Accounts receivable

Question 4

A company makes a credit card sale of $1,000. The credit card company charges a 2% fee. What is the correct journal entry?

Accepted Answer

Debit Cash $$980$$, Debit Credit Card Expense $$20$$, Credit Sales $$1,000$$

Question 5

Which of the following best describes the revenue recognition principle?

Accepted Answer

Revenue is recognized when the performance obligation is satisfied.

Question 6

A company sells goods FOB Shipping Point. When does the company recognize revenue?

Accepted Answer

When goods leave the seller's premises

Question 7

A customer returns merchandise worth $500. What is the correct journal entry for the actual return?

Accepted Answer

Debit Sales Returns and Allowances $$500$$, Credit Accounts Receivable $$500$$

Question 8

A company estimates that $2,000 of its sales will be returned. What is the correct adjusting journal entry?

Accepted Answer

Debit Sales Returns and Allowances $$2,000$$, Credit Allowance for Sales Returns $$2,000$$

Question 9

A company offers terms 2/10, net 30. A customer pays $$980$$ within the discount period for a $$1,000$$ sale. What is the correct journal entry using the gross method?

Accepted Answer

Debit Cash $$980$$, Debit Sales Discounts $$20$$, Credit Accounts Receivable $$1,000$$

Question 10

Which of the following is the correct formula for Net Realizable Value (NRV) of Accounts Receivable?

Accepted Answer

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

Question 11

A company uses the allowance method and writes off a $$500$$ uncollectible account. What is the correct journal entry?

Accepted Answer

Debit Allowance for Doubtful Accounts $$500$$, Credit Accounts Receivable $$500$$

Question 12

Which account is a contra-asset and used to calculate Net Realizable Value?

Accepted Answer

Allowance for Doubtful Accounts

Question 13

A company uses the aging method to estimate uncollectible accounts. If the aging report suggests $$3,000$$ should be in the Allowance for Doubtful Accounts and the current balance is $$1,000$$ credit, what is the required adjusting entry?

Accepted Answer

Debit Bad Debt Expense $$2,000$$, Credit Allowance for Doubtful Accounts $$2,000$$

Question 14

A company sells goods and receives a note receivable for $$10,000 at 6$$% annual interest for 6 months. What is the maturity value?

Accepted Answer

$$10,000 + (10,000 	imes 0.06 	imes 0.5) = 10$$,300$

Question 15

At year-end, a company needs to accrue interest on a note receivable of $$5,000 at 8$$% for 3 months. What is the accrued interest?

Accepted Answer

$$5,000 	imes 0.08 	imes \frac{3}{12} = 100$

Question 16

Which of the following would be included on the 'bank side' of a bank reconciliation?

Accepted Answer

Outstanding checks

Question 17

Which of the following would be included on the 'book side' of a bank reconciliation?

Accepted Answer

Bank service charges

Question 18

A company expects to collect $$50,000 in $$accounts receivable and has an allowance for uncollectible accounts of $$5,000. $$What is the Net Realizable Value?

Accepted Answer

$$50,000 - 5,000 = 45$$,000$

Question 19

Which journal entry is required to record a sale with a note receivable for $$8,000$$?

Accepted Answer

Debit Notes Receivable $$8,000$$, Credit Sales $$8,000$$

Financial Accounting: Internal Control, Cash, and Receivables (Chapters 4 & 5) - Study Notes

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