Q: A company had credit sales of $$2,000,000 this year. It estimates 1.5% of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a debit balance of 2$$,000. What is the bad debt expense for the year?

$$Bad\ Debt\ Expense = 2,000,000 \times 0.015 = 30,000$$

Q: How is interest on a note receivable calculated?

$$Total\ Interest = Face\ Value\ of\ Note \times Annual\ Interest\ Rate \times (Time\ Factor)$$

Q: A company loans $16,000 at 8% annual interest for three months on June 1. What is the interest revenue earned by June 30?

$$Interest = 16,000 \times 0.08 \times \frac{1}{12} = 106.67$$

Question 1

Which of the following best describes a Note Receivable?

Accepted Answer

A formal written contract with stated terms, including interest.

Question 2

A company sells $12,000 of goods on account. Later, the customer cannot pay on time and issues a 90-day, 6% note for the same amount. What is the journal entry on the date the note is issued?

Accepted Answer

Debit Notes Receivable $$12,000; Credit Accounts Receivable 12$$,000

Question 3

Which method for estimating bad debt expense is considered an income statement approach?

Accepted Answer

Percentage-of-Sales Method

Question 4

A company has gross accounts receivable of $$12,000 and estimates 800 is $$uncollectible. What is the formula for Net Accounts Receivable?

Accepted Answer

$$Net\ Accounts\ Receivable = Gross\ Accounts\ Receivable - Allowance\ for\ Doubtful\ Accounts$$

Question 5

A company had credit sales of $$2,000,000 this year. It estimates 1.5% of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a debit balance of 2$$,000. What is the bad debt expense for the year?

Accepted Answer

$$Bad\ Debt\ Expense = 2,000,000 	imes 0.015 = 30,000$$

Question 6

Which of the following is true about the Direct Write-off Method?

Accepted Answer

It is not GAAP and does not follow the matching principle.

Question 7

How is interest on a note receivable calculated?

Accepted Answer

$$Total\ Interest = Face\ Value\ of\ Note 	imes Annual\ Interest\ Rate 	imes (Time\ Factor)$$

Question 8

A company loans $16,000 at 8% annual interest for three months on June 1. What is the interest revenue earned by June 30?

Accepted Answer

$$Interest = 16,000 	imes 0.08 	imes \frac{1}{12} = 106.67$$

Question 9

Which of the following is included in the numerator of the Quick (Acid-Test) Ratio?

Accepted Answer

Net Accounts Receivable

Question 10

Super Liquid Company has current assets of $$450,000, including 115$$,000 inventory, $$35,000 accounts receivable, and 10$$,000 prepaid expenses. Current liabilities are $315,000. What is the quick ratio?

Accepted Answer

$$Quick\ Ratio = \frac{450,000 - 115,000 - 10,000}{315,000} = 1$$

Question 11

Which of the following best describes the Accounts Receivable Turnover Ratio?

Accepted Answer

$$AR\ Turnover = \frac{Net\ (Credit)\ Sales}{Average\ Net\ AR\ Balance}$$

Question 12

XYZ Company had net sales of $$500,000. Beginning AR was 75$$,000 and ending AR was $25,000. What is the AR Turnover ratio?

Accepted Answer

$$AR\ Turnover = \frac{500,000}{(75,000 + 25,000)/2} = 10$$

Question 13

What does a high Accounts Receivable Turnover ratio generally indicate?

Accepted Answer

The company is efficiently collecting its receivables.

Question 14

The Average Collection Period is calculated as:

Accepted Answer

$$Average\ Collection\ Period = \frac{365}{AR\ Turnover}$$

Question 15

Which of the following is a red flag when analyzing the quick ratio?

Accepted Answer

A quick ratio below 1

Question 16

Which of the following is NOT a trade receivable?

Accepted Answer

Cash advance to an employee

Question 17

If a company uses the aging-of-receivables method and estimates $$3,600 of receivables are uncollectible, with a current debit balance in the allowance account of 800$$, what is the bad debt expense?

Accepted Answer

$$Bad\ Debt\ Expense = 3,600 + 800 = 4,400$$

Question 18

Which of the following best describes Interest Receivable?

Accepted Answer

An asset representing interest earned but not yet received.

Receivables and Revenue: Key Concepts and Methods

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