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

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

Question 1

According to GAAP, when should revenue be recognized under a contract with multiple performance obligations?

Accepted Answer

When each performance obligation is satisfied, based on the allocation of the transaction price.

Question 2

Apple Inc. sells 30,000 iPhones to a distributor for $100 each, FOB shipping point. When should Apple recognize the revenue?

Accepted Answer

When the iPhones leave Apple’s shipping dock.

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?

$$ 	ext{Cash Received} = \$$5,000 	imes (1 - 0.02) $$

Accepted Answer

$4,900

Question 4

Which of the following best describes the purpose of the Allowance for Uncollectible Accounts?

Accepted Answer

To estimate the amount of receivables that may not be collected, reducing accounts receivable to net realizable value.

Question 5

A company has $$20,000 in Accounts Receivable and a 1$$,450 credit balance in Allowance for Uncollectible Accounts. If sales for the year are $$300,000 and 1% are estimated uncollectible, what is the year-end Allowance balance using the percent-of-sales method?

$$ 	ext{Allowance Balance} = 	ext{Beginning Allowance} + (	ext{Sales} 	imes 	ext{Uncollectible Rate}) $

Accepted Answer

$4,450

Question 6

Bradley Company’s aging schedule shows: $$100,000 current (1% uncollectible), 9$$,000 1-30 days past due (10%), $$12,000 over 30 days past due (15%). Allowance for Uncollectible Accounts has a 500 $$credit before adjustment. What is the Uncollectible Account Expense for the year?

$$ 	ext{Needed Allowance} = (100,000 	imes 0.01) + (9,000 	imes 0.10) + (12,000 	imes 0.15) = 1,000 + 900 + 1,800 = 3,700 $$
$$ 	ext{Expense} = 3,700 - 500 = 3,200 $$

Accepted Answer

$3,200

Question 7

Which of the following is NOT a reason for using the allowance method instead of the direct write-off method?

Accepted Answer

It delays recognition of bad debt expense until accounts are proven uncollectible.

Question 8

A company’s balance sheet shows Receivables of $$1,000 and Allowance for Bad Debts of 80. $$What is the net realizable value of receivables?

$$ 	ext{Net Realizable Value} = 1,000 - 80 $$

Accepted Answer

$920

Question 9

Which formula correctly calculates Days’ Sales Outstanding (DSO)?

Accepted Answer

$$ 365 / 	ext{Accounts receivable turnover} $$

Question 10

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

Accepted Answer

Net accounts receivable remains unchanged.

Question 11

Which of the following best describes a contra-revenue account?

Accepted Answer

An account with a debit balance that reduces revenue, such as Sales Returns & Allowances.

Question 12

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?

$$ 	ext{Net Revenue} = 2,000 - 800 - [(2,000 - 800) 	imes 0.02] $$

Accepted Answer

$1,176

Question 13

Which of the following is a key step in the five-step revenue recognition model under GAAP?

Accepted Answer

Allocate the transaction price to the performance obligations.

Question 14

If a company’s Accounts Receivable Turnover is 14.48, what does this indicate?

Accepted Answer

The company collects its average accounts receivable 14.48 times per year.

Question 15

A promissory note has a principal of $$1,000, an annual interest rate of 9%, and a term of 6 months. What is the total interest revenue earned?

$$ 	ext{Interest} = 1,000 	imes 0.09 	imes \frac{6}{12} $

Accepted Answer

$45

Question 16

Which of the following would NOT be included in the calculation of the quick (acid-test) ratio?

Accepted Answer

Inventory

Question 17

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

Accepted Answer

To estimate the amount of receivables that will be collected based on how long they have been outstanding.

Question 18

If a company’s credit policy is 30 days and its DSO is 25.2 days, what does this indicate?

Accepted Answer

The company is collecting receivables faster than its policy allows.

Question 19

Which of the following is true regarding the direct write-off method?

Accepted Answer

It may overstate assets on the balance sheet.

Receivables and Revenue: Financial Accounting Chapter 5 Study Guide

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