Question 1

Which of the following best describes when revenue should be recognized according to the revenue recognition principle?

Accepted Answer

When (or as) the entity satisfies its performance obligation(s) in the contract.

Question 2

A company sells goods with terms FOB Shipping Point. When should the company recognize revenue?

Accepted Answer

When the goods leave the seller's shipping dock.

Question 3

Which journal entry correctly records the estimate for doubtful accounts using the allowance method?

Accepted Answer

Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts

Question 4

A company has net credit sales of $500,000 and estimates 2% will be uncollectible. What is the bad debt expense for the period using the percentage of sales method?

Accepted Answer

$10,000

Question 5

Which method is NOT in conformity with U.S. GAAP for accounting for uncollectible accounts?

Accepted Answer

Direct write-off method

Question 6

If a company writes off a specific customer’s account under the allowance method, what is the effect on total assets?

Accepted Answer

Total assets remain unchanged.

Question 7

Which formula correctly calculates the Accounts Receivable Turnover ratio?

Accepted Answer

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

Question 8

A company has net sales of $$1,200,000 and average net accounts receivable of 200$$,000. What is its accounts receivable turnover ratio?

Accepted Answer

6

Question 9

Which of the following is considered a contra-revenue account?

Accepted Answer

Sales Returns and Allowances

Question 10

A company offers a 2% discount to customers who pay within 10 days. If a customer purchases $5,000 of goods and pays within the discount period, how much cash does the company receive?

Accepted Answer

$4,900

Question 11

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

Accepted Answer

To estimate and match uncollectible accounts expense to the period in which revenue is earned.

Question 12

A note receivable is signed for $10,000 at 6% annual interest for 9 months. What is the total interest revenue earned at maturity?

Accepted Answer

$450

Question 13

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

Accepted Answer

Inventory

Question 14

If a company’s accounts receivable turnover ratio increases from 4.0 to 6.0, what does this most likely indicate?

Accepted Answer

The company is collecting receivables more quickly.

Question 15

A company estimates its uncollectible accounts using the aging-of-receivables method. This method is considered:

Accepted Answer

A balance sheet approach.

Question 16

Which of the following is the correct formula for the quick (acid-test) ratio?

Accepted Answer

$$\frac{Cash\ +\ Short\ Term\ Investments\ +\ Net\ Current\ Receivables}{Total\ Current\ Liabilities}$$

Question 17

A company has cash of $$50,000, short-term investments of 20$$,000, net current receivables of $$30,000, and total current liabilities of 100$$,000. What is its quick ratio?

Accepted Answer

1.0

Question 18

Which of the following best describes a note receivable?

Accepted Answer

A written promise to pay a specified amount of money, plus interest, at a future date.

Question 19

If a company’s days sales outstanding increases, what does this most likely indicate?

Accepted Answer

The company is collecting receivables more slowly.

Question 20

Which of the following is a real-world consequence of overstating accounts receivable due to not recording bad debt expense?

Accepted Answer

Assets on the balance sheet are overstated.

Receivables and Revenue: Financial Accounting Study Notes (Chapter 5)

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