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Accounting
Q:
A company had net sales of $230,000 for 2013 and $288,000 for 2014. The company's average total assets for 2013 were $150,000 and $180,000 for 2014. Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.
Q:
Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day, 10% promissory note for the $5,000. TechCom's journal entry to record the sales portion of the transaction is:
A. Accounts Receivable
5,000 Sales 5,000 B. Notes Receivable
5,000 Sales 5,000 C. Accounts Receivable
5,125 Sales 5,125 D. Notes Receivable
5,125 Sales 5,125 E. Notes Receivable
5,000 Interest Receivable
125 Sales 5,125
Q:
The amount due on the date of maturity for a $6,000, 60-day, 8%, note receivable is:
A. $6,000
B. $6,480
C. $5,520
D. $6,080
E. $5,920
Q:
Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
Q:
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $39,375 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $3,285. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
A. Bad Debt Expense
36,090 Allowance for Doubtful Accounts 36,090 B. Bad Debt Expense
42,660 Allowance for Doubtful Accounts 42,660 C. Bad Debt Expense
39,375 Allowance for Doubtful Accounts 39,375 D. Accounts Receivable
39,375 Bad Debt Expense
3,285 Sales 42,660 E. Accounts Receivable
36,090 Allowance for Doubtful Accounts 36,090 Answer: A
Feedback:
Q:
A company used the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable
$245,000 debit Allowance for uncollectible accounts
300 credit Net Sales
900,000 credit All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
A. $925
B. $1,225
C. $4,200
D. $4,500
E. $45,000
Q:
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $175. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
A. Bad Debt Expense
15,750 Allowance for Doubtful Accounts 15,750 B. Bad Debt Expense
15,575 Allowance for Doubtful Accounts 15,575 C. Bad Debt Expense
15,925 Allowance for Doubtful Accounts 15,925 D. Accounts Receivable
15,750 Bad Debt Expense
175 Sales 15,925 E. Accounts Receivable
15,925 Allowance for Doubtful Accounts 15,925 Answer: C
Feedback:
Q:
On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $88,790; Allowance for Doubtful Accounts, credit balance of $1,245. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are considered uncollectible?
A. $1,245.00
B. $3,551.60
C. $4,796.60
D. $2,306.60
E. $87,545.00
Answer: D
Feedback:
Q:
On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?
A. $951
B. $3,992
C. $4,884
D. $5,835
E. $6,786
Answer: C
Feedback:
Q:
An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash to be collected is the:
A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
Q:
A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:
A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percent of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.
Q:
According to GAAP, the amount of bad debt expense can be estimated by:
A. Only the percent of sales method.
B. Only the percent of accounts receivable method.
C. Only by the aging of accounts receivable method.
D. Only by the percent of sales method or the percent of accounts receivable method.
E. Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method.
Q:
Newton Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer, P. Best. On July 10, Newton received a check for the full amount of $3,000 from Best. On July 10, the entry or entries Newton makes to record the recovery of the bad debt is:
A. Accounts Receivable P. Best
3,000 Allowance for Doubtful Accounts 3,000 Cash
3,000 Accounts Receivable P. Best 3,000 B. Cash
3,000 Bad Debts Expense 3,000 C. Accounts Receivable P. Best
3,000 Bad Debts Expense 3,000 Cash
3,000 Accounts Receivable P. Best 3,000 D. Allowance for Doubtful Accounts
3,000 Accounts Receivable P. Best 3,000 Accounts Receivable P. Best
3,000 Cash 3,000 E. Cash
3,000 Accounts Receivable P. Best 3,000
Q:
On October 29 of the current year, a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
Q:
If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
Q:
The materiality constraint:
A. States that an amount can be ignored if its effect on financial statements is unimportant to the user's business decisions.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. States that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.
Q:
The matching principle requires:
A. That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
Q:
A company had an accounts receivable turnover ratio of 8 and net sales of $600,000 for a given period. What was the average accounts receivable amount for this period?
A. $4,800,000.
B. $2,919.99.
C. $205.48.
D. $75,000.
E. Average accounts receivable cannot be determined from this information.
Q:
A company had an accounts receivable turnover ratio of 12 and net sales of $744,000 for a given period. What was the average amount of accounts receivables for this period?
A. $8,928,000
B. $62,000
C. $4,380
D. $169.86
E. Average accounts receivable cannot be determined from this information
Q:
Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coca-Cola's turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A. Coke has the better turnover for both years.
B. Pepsi has the better turnover for both years.
C. Coke's turnover is improving.
D. Coke's credit policies are too loose.
E. Coke is collecting its receivables more quickly than Pepsi in both years.
Q:
Dell reported net sales of $8,739 million and average accounts receivable of $864 million. Its accounts receivable turnover is:
A. 0.90
B. 10.1
C. 36.1
D. 50.0
E. 3,686
Q:
A company has net sales of $870,000 and average accounts receivable of $174,000. What is its accounts receivable turnover for the period?
A. 0.20
B. 5.00
C. 20.0
D. 73.0
E. 1,825
Q:
The accounts receivable turnover is calculated by:
A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
Q:
The quality of receivables refers to:
A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.
Q:
A Company sold $10,000 of its accounts receivable and was charged a 2% factoring fee. How should the company record this transaction in the journal?
A. Cash
9,800 Factoring Fee Expense
200 Accounts Receivable 10,000 B. Cash
10,000 Accounts Receivable 10,000 C. Cash
10,000 Factoring Fee Expense 200 Accounts Receivable 9,800 D. Accounts Receivable
10,000 Factoring Fee Expense 200 Cash 9,800 E. Accounts Receivable
9,800 Factoring Fee Expense
200 Cash 10,000
Q:
The buyer who pays cash for an account receivable is referred to as a:
A. Payor
B. Pledgor
C. Factor
D. Payee
E. Pledgee
Q:
A company receives a 6.2%, 60-day note for $9,650. The total amount of cash due on the maturity date is:
A. $598.30
B. $99.72
C. $9,650.00
D. $10,248.30
E. $9,749.72
Q:
A company receives a 7.5%, six-month note for $8,900. The total interest due on the maturity date is:
A. $66,750.00
B. $4,005.00
C. $2,002.50
D. $667.50
E. $333.75
Q:
A company receives a 10%, 90-day note for $1,500. The total interest due upon the maturity date is:
A. $37.50
B. $150.00
C. $75.00
D. $50.00
E. $87.50
Q:
A 90-day note issued on April 20 has a maturity date of:
A. July 17
B. July 18
C. July 19
D. July 20
E. July 21
Q:
The interest accrued on $3,600 at 7% for 60 days is:
A. $36
B. $42
C. $252
D. $180
E. $420
Q:
The maturity date of a note receivable:
A. Is the day of the credit sale.
B. Is the day the note was signed.
C. Is the day the note is due to be paid.
D. Is the date of the first payment.
E. Is the last day of the month.
Q:
A promissory note:
A. Is a short-term investment for the maker.
B. Is a written promise to pay a specified amount of money at a certain date.
C. Is a liability to the payee.
D. Is another name for an installment receivable.
E. Cannot be used in payment of an account receivable.
Q:
The accounting principle that requires financial statements (including notes) to report all relevant information about the operations and financial condition of a company is called:
A. Relevance
B. Full disclosure
C. Evaluation
D. Materiality
E. Matching
Q:
The person who signs a note receivable and promises to pay the principal and interest is the:
A. Maker
B. Payee
C. Holder
D. Receiver
E. Owner
Q:
A promissory note received from a customer in exchange for an account receivable:
A. Is a cash equivalent for the recipient.
B. Is an account receivable for the recipient.
C. Is a note receivable for the recipient.
D. Is a short-term investment for the recipient.
E. Is a note payable for the recipient.
Q:
Ace Credit Card Company agrees to transfer cash to Seller Company immediately upon deposit of that company's credit card sales receipts. Ace charges a 2% fee for all credit card sales. If Seller Company deposits $57,300 credit card sales receipts, which of the following statements are true?
A. Ace will receive $56,154 cash from Seller Company.
B. Seller Company will receive cash $56,154 from Ace.
C. Ace will receive $57,300 cash from Seller Company.
D. Seller Company will receive $57,300 cash from Ace.
E. Ace will pay Seller Company a $1,146 credit card fee.
Q:
Acme Company has an agreement with a major credit card company that calls for cash to be received immediately upon deposit of Acme customers' credit card sales receipts. The credit card company receives 3.5% of card sales as its fee. If Acme has $2,000 in credit card sales, which of the following statements are true?
A. Acme debits Cash $2,000.
B. Acme debits Cash $1,930.
C. Acme debits Accounts Receivable - Credit Card Co $2,000.
D. Acme debits Accounts Receivable - Credit Card Co $1,930.
E. Acme credits Sales $1,930.
Q:
A credit sale of $2,500 to a customer would result in:
A. A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger.
B. A credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable ledger.
C. A debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable ledger.
D. A credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger.
E. A credit to Sales and a credit to the customer's account in the accounts receivable ledger.
Q:
The matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.
Q:
The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not matured in the Notes Receivable account.
Q:
A dishonored note receivable is usually reclassified as an account receivable.
Q:
A maker who dishonors a note is one who does not pay it upon maturity.
Q:
A payee of a note will always honor a note and pay it in full.
Q:
It is never good practice to accept a note receivable in exchange for an overdue account receivable.
Q:
A company received a $1,000, 90-day, 10% note receivable. The journal entry to record receipt of the note would include a debit to Notes Receivable.
Q:
When a company holds a large number of notes receivable, it sometimes sets up a controlling account and a subsidiary ledger for notes.
Q:
The percent of sales method of estimating bad debts is focused more on realizable value of accounts receivable than matching.
Q:
A company has sales of $350,000 and estimates that 0.5% of its sales are uncollectible. The company's reported amount of bad debts expense is $1,750.
Q:
A company has $80,000 in outstanding accounts receivables and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $600. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,000.
Q:
The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection.
Q:
The percent of accounts receivable method for bad debts estimation uses only income statement account balances to estimate bad debts.
Q:
The percent of sales method for estimating bad debts assumes that a given percentage of a company's credit sales for the period are uncollectible.
Q:
The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) the percent uncollectible from the total accounts receivable or (2) aging accounts receivable.
Q:
The aging of accounts receivable involves classifying each account receivable by how long it is past its due date and estimating the amount that is uncollectible.
Q:
When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.
Q:
When using the allowance method of accounting for uncollectible accounts, the entry to write off Harold's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable Harold.
Q:
After adjustment, the allowance for doubtful accounts has the effect of reducing accounts receivable to its estimated realizable value.
Q:
When using the allowance method of accounting for uncollectible accounts, the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable.
Q:
The materiality constraint permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in comparison to the company's other financial statement items such as sales and net income.
Q:
Under the allowance method of accounting for uncollectible accounts receivable, no estimate is made to predict bad debts expense.
Q:
There are two methods of accounting for uncollectible accounts: the direct write-off method and the allowance method.
Q:
The advantage of the allowance method of accounting for uncollectible accounts is that it identifies the specific customers who do not pay their bills.
Q:
The use of an allowance for bad debts is required under the materiality constraint.
Q:
Companies follow both the matching principle and the materiality principle when applying the direct write-off method.
Q:
The matching principle requires use of the direct write-off method of accounting for bad debts.
Q:
The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when the company determines it to be uncollectible.
Q:
During a given year, Compaq had net sales of $32,000 million and average account receivables of $6,850 million. Its accounts receivable turnover is equal to 0.21.
Q:
During a given year, a company had net sales of $500,000 and average accounts receivable of $80,000. Its accounts receivable turnover is equal to 6.25.
Q:
The accounts receivable turnover is calculated by dividing net sales by average accounts receivable.
Q:
A company that has a high accounts receivable turnover in comparison with competitors should tighten its credit policy.
Q:
The accounts receivable turnover ratio indicates how often accounts receivable are received and collected during the period.
Q:
The quality of receivables refers to the likelihood of collection without loss.
Q:
A company factored $35,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $35,000, a debit to Factoring Fee Expense of $700, and a credit to Accounts Receivable of $35,700.
Q:
With regard to accounts receivable, both GAAP and IFRS require the allowance method for uncollectibles (unless uncollectibles are immaterial).
Q:
The process of using accounts receivable as security for a loan is known as factoring accounts receivable.
Q:
Receivables can be used to obtain cash by either selling them or using them as security for a loan.
Q:
Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.
Q:
A company borrowed $5,000 by signing a three-month promissory note at 10%. The total interest on the note is $500.
Q:
A company borrowed $1,000 by signing a six-month promissory note at 5% interest. The total amount of interest on this promissory note is $25.