Q: Which of the following is the correct formula for calculating the Days’ Sales Outstanding (DSO)?

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

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

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

Q: A promissory note has a principal of $10,000, annual interest rate of 6%, and a term of 9 months. What is the interest revenue earned at maturity?

$$10,000 \times 0.06 \times \frac{9}{12} = 450$$

Question 1

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

Accepted Answer

When the goods leave the seller’s shipping dock.

Question 2

Apple Inc. sells $200 million in June and estimates 1% of sales will be returned. What is the correct journal entry to record the estimated sales returns at month-end?

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 purpose of the Allowance for Uncollectible Accounts?

Accepted Answer

To estimate and match uncollectible accounts expense to the period in which related sales are made.

Question 5

A company has $$10,000 in accounts receivable and an Allowance for Uncollectible Accounts of 900. $$What is the net realizable value of accounts receivable?

Accepted Answer

$9,100

Question 6

Using the percent-of-sales method, if a company has $500,000 in sales and estimates 0.5% will be uncollectible, what is the uncollectible account expense for the period?

Accepted Answer

$2,500

Question 7

Bradley Company has the following year-end A/R: $$100,000 current (1% uncollectible), 9$$,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 balance. What is the required year-end adjustment for uncollectible accounts expense using the aging method?

Accepted Answer

$3,200

Question 8

Which of the following is the correct formula for calculating the Days’ Sales Outstanding (DSO)?

Accepted Answer

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

Question 9

A company writes off a $1,000 account receivable that was previously estimated as uncollectible. What is the effect on net accounts receivable?

Accepted Answer

Net accounts receivable is unchanged.

Question 10

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 records expense as a percent of sales; aging-of-receivables adjusts the allowance to a required ending balance.

Question 11

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 12

If a company sells $$1,000 of goods on account and later determines 50 is $$uncollectible, which entry is correct under the direct write-off method?

Accepted Answer

Debit Bad Debt Expense $$50; Credit Accounts Receivable 50$$

Question 13

A promissory note has a principal of $10,000, annual interest rate of 6%, and a term of 9 months. What is the interest revenue earned at maturity?

Accepted Answer

$$10,000 	imes 0.06 	imes \frac{9}{12} = 450$$

Question 14

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

Accepted Answer

Extending credit to all customers regardless of creditworthiness

Question 15

A company’s accounts receivable turnover is calculated as:

Accepted Answer

$$\frac{	ext{Net\ credit\ sales}}{	ext{Average\ net\ accounts\ receivable}}$$

Question 16

If a company’s credit terms are 2/10, n/30 and a customer pays on day 24 after returning $$800 of a 2$$,000 purchase, what is the net revenue recorded?

Accepted Answer

$1,176

Question 17

Which of the following best describes a pivot table’s use in analyzing receivables collectibility?

Accepted Answer

It summarizes and categorizes receivables by age and customer to estimate uncollectible amounts.

Question 18

A company’s beginning accounts receivable is $$50,000, ending accounts receivable is 60$$,000, sales are $$400,000, and write-offs are 5$$,000. What is the amount of cash collected from customers?

Accepted Answer

$$400,000 + 50$$,000 - $$60,000 - 5$$,000 = $385,000

Chapter 5: Receivables and Revenue – Financial Accounting Study Notes

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