Q: Which of the following is the correct formula for calculating interest income on a note receivable?

$$\text{Interest} = \text{Principal Amount} \times \text{Annual Interest Rate} \times \text{Time in Terms of One Year}$$

Question 1

Which of the following is NOT typically classified as a trade receivable on the statement of financial position?

Accepted Answer

Interest receivable from loans to company officers

Question 2

A company sold merchandise on account for $10,000. The customer is expected to return 5% of the merchandise. What is the initial amount recorded as accounts receivable?

Accepted Answer

$9,500

Question 3

Which account is credited when a company estimates bad debts using the allowance method?

Accepted Answer

Allowance for Doubtful Accounts

Question 4

A company has accounts receivable of $$200,000 and an allowance for doubtful accounts of 11$$,000. What is the carrying amount of accounts receivable reported on the statement of financial position?

Accepted Answer

$189,000

Question 5

If the opening balance of Allowance for Doubtful Accounts is a $$2,000 debit and the required balance is 11$$,000 credit, what is the amount of bad debts expense to be recorded?

Accepted Answer

$13,000

Question 6

Which of the following journal entries correctly records the write-off of an uncollectible account under the allowance method?

Accepted Answer

Debit Allowance for Doubtful Accounts; Credit Accounts Receivable

Question 7

A company estimates 2% of its $111,500 accounts receivable outstanding for 0–30 days will be uncollectible. What is the estimated uncollectible amount for this age group?

Accepted Answer

$2,230

Question 8

Which of the following best describes the subsidiary ledger for accounts receivable?

Accepted Answer

It provides details of individual receivable accounts that support the control account.

Question 9

A company writes off a $2,500 account as uncollectible. What is the effect on the carrying amount of accounts receivable?

Accepted Answer

The carrying amount remains unchanged.

Question 10

Which of the following is the correct formula for calculating interest income on a note receivable?

Accepted Answer

$$	ext{Interest} = 	ext{Principal Amount} 	imes 	ext{Annual Interest Rate} 	imes 	ext{Time in Terms of One Year}$$

Question 11

A company receives a six-month, 5%, $12,000 note receivable. What is the total interest income earned at maturity?

Accepted Answer

$600

Question 12

If a note receivable is dishonoured and eventual collection is expected, which account is debited?

Accepted Answer

Accounts Receivable

Question 13

Which of the following is NOT a principle of sound accounts receivable management?

Accepted Answer

Ignoring overdue accounts

Question 14

A company has sales of $$2,519,021 and average accounts receivable of 387$$,712. What is the receivables turnover ratio?

Accepted Answer

$$6.50$$

Question 15

Which of the following statements about the allowance for doubtful accounts is TRUE?

Accepted Answer

It is a contra asset account with a credit balance.

Question 16

On the statement of financial position, how are receivables due in more than one year presented?

Accepted Answer

In the non-current assets section

Question 17

Which of the following is reported as an operating expense on the statement of income?

Accepted Answer

Bad debts expense

Question 18

A company uses the aging of accounts receivable method to estimate uncollectible accounts. Which accounts are most likely to have the highest estimated percentage uncollectible?

Accepted Answer

Accounts outstanding over 120 days

Question 19

If a previously written-off account is recovered, what is the first step in the journal entry process?

Accepted Answer

Debit Accounts Receivable; Credit Allowance for Doubtful Accounts

Question 20

Which of the following best describes the effect of a write-off of an uncollectible account under the allowance method?

Accepted Answer

The carrying amount of accounts receivable remains unchanged

Chapter 8: Reporting and Analyzing Receivables – Study Notes

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