Question 1

Assume ABC sells its receivables to another company for immediate cash on a regular basis.How should the factoring fee be reported in the income statement?

Accepted Answer

A)   Selling expense
B)   Non-operating expense
C)   Sales returns
D)   Not at allE) B) and C)
F) A) and B)

Question 2

Wheeling Inc.uses the aging of accounts receivable method.Its estimate of uncollectible receivables resulting from the aging analysis equals $5,000.At the end of the year,the balance of Accounts Receivable is $100,000 and the unadjusted debit balance of the Allowance for Doubtful Accounts is $500.Credit sales during the year totaled $150,000.What is the estimated Bad Debt Expense for the current year?

Accepted Answer

A)   $4,500
B)   $5,000
C)   $5,500
D)   $7,000E) B) and D)
F) A) and B)

Question 3

Consider the scenarios listed in the table below.
Required:
For each scenario below,indicate related impact on revenues,expenses,and net income in the current period by answering increase,decrease,or no effect.

Accepted Answer

The answer of Consider the scenarios listed in the table...

Question 4

Bad Debt Expense is a:

Accepted Answer

A)   permanent account so its balance carries forward to the next accounting period
B)   permanent account so its balance is closed (zeroed out)  at the end of the accounting period
C)   temporary account so its balance is closed (zeroed out)  at the end of the accounting period
D)   temporary account so its balance carries forward to the next accounting periodE) C) and D)
F) A) and D)

Question 5

Accounts Receivable,Net (or Net Accounts Receivable) equals Accounts Receivable (gross) minus:

Accepted Answer

A)   Cost of Goods Sold.
B)   Bad Debt Expense.
C)   Allowance for Doubtful Accounts.
D)   Current Liabilities.E) All of the above
F) B) and C)

Question 6

If a company did not extend credit to customers:

Accepted Answer

A)   gross revenue would increase.
B)   costs would increase but so would sales revenue.
C)   costs would decrease but so would sales revenue.
D)   gross profit would increase.E) All of the above
F) A) and D)

Question 7

The receivables turnover ratio is calculated using the total net receivables.

Accepted Answer

A) True 
 B)False

Question 8

All other things being equal,a company is better off when its receivable turnover ratio:

Accepted Answer

A)   and its days-to-collect measure are both low.
B)   is high and its days-to-collect measure is low.
C)   and its days-to-collect measure are both high.
D)   is low and its days-to-collect measure is high.E) B) and D)
F) A) and B)

Question 9

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing might suggest:

Accepted Answer

A)   channel stuffing.
B)   cookie jar accounting.
C)   an investment opportunity.
D)   improved receivables monitoring.E) A) and B)
F) C) and D)

Question 10

ABC Corp.received a 3month,at 8% per year,$1,500 note receivable on November 1.The adjusting entry on December 31 will include a:

Accepted Answer

A)   debit to Interest Revenue of $20
B)   credit to Interest Receivable of $10
C)   credit to Interest Revenue of $120
D)   credit to Interest Revenue of $20E) A) and B)
F) All of the above

Question 11

Receivables might be sold ("factored") to:

Accepted Answer

A)   lengthen the time to collect from customers.
B)   reduce the receivables turnover ratio.
C)   generate cash immediately.
D)   generate a gain on sale.E) C) and D)
F) A) and C)

Question 12

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Accepted Answer

A)   I = P × R × T, where I = interest calculated, P = principal, R = annual interest rate, and T = number of months.
B)   I = P × R × T, where I = interest calculated, P = principal, R = annual interest rate, and T = (number of months ÷ 12) .
C)   I = P × R × T, where I = interest calculated, P = principal, R = monthly interest rate, and T = (number of months ÷ 12) .
D)   I = (MV - P) /T, where I = interest calculated, MV = maturity value, P = principal and T = number of months.E) None of the above
F) A) and D)

Question 13

Harney Inc.uses the percentage of credit sales method of estimating doubtful accounts.The Allowance for Doubtful Accounts has an unadjusted credit balance of $2,700 and the company had $140,000 of net credit sales during the period.Harney has experienced bad debt losses of 4% of credit sales in prior periods.After making the adjusting entry for estimated bad debts,what is the ending balance in the Allowance for Doubtful Accounts account?

Accepted Answer

A)   $8,300
B)   $5,400
C)   $2,900
D)   $5,600E) All of the above
F) A) and D)

Question 14

A company lends $10,000 to an employee who signs a 9%,6-month promissory note.
What is the total amount of interest on this note?

Accepted Answer

A)   $900
B)   $450
C)   $10,450
D)   $2,700E) C) and D)
F) All of the above

Question 15

Interest on a two-month,7%,$1,000 note would be calculated as $1,000 × 0.07 × 2.

Accepted Answer

A) True 
 B)False

Question 16

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

Accepted Answer

A)   Debit Notes Receivable and credit Accounts Receivable for $2,060
B)   Debit Accounts Receivable and credit Notes Receivable for $2,000
C)   Debit Notes Receivable for $2,000, debit Interest Receivable for $60, credit Accounts Receivable for $2,000, and credit Interest Revenue for $60
D)   Debit Notes Receivable and credit Accounts Receivable for $2,000E) A) and B)
F) B) and C)

Question 17

If your company factors its accounts receivable,it:

Accepted Answer

A)   will focus its collection activities on only the largest Accounts Receivable balances
B)   sells outstanding receivables to another company
C)   will use major national credit cards to allow its customers to pay for goods
D)   will engage in aggressive hounding of its clients to pay their billsE) B) and C)
F) A) and D)

Question 18

Kata Company uses the allowance method.On May 1,Kata wrote off a $22,000 customer account balance when it becomes clear that the particular customer will never pay.The journal entry to record the write-off on May 1 would include which of the following?

Accepted Answer

A)   Debit to Bad Debt Expense and credit to Allowance for Doubtful Accounts
B)   Debit to Accounts Receivable and credit to Allowance for Doubtful Accounts
C)   Debit to Allowance for Doubtful Accounts and credit to Bad Debt Expense
D)   Debit to Allowance for Doubtful Accounts and credit to Accounts ReceivableE) A) and D)
F) B) and C)

Question 19

For a note receivable that was created on November 1,2015 and is due for repayment on October 31,2016,what is the time fraction needed to compute interest revenue for the year ended December 31,2015?

Accepted Answer

A)   2/12
B)   2/10
C)   12/12
D)   22/12E) A) and B)
F) A) and C)

Question 20

On January 1,a company lends $90,000 to a customer for one year at a 7% annual interest rate.The note requires the payment of interest twice each year on June 30 and December 31.The company records adjusting entries on a monthly basis.At the end of each month in which the company does not receive any interest payments,the company:

Accepted Answer

A)   records an entry with a debit to Cash of $525 and a credit to Interest Revenue of $525.
B)   records an entry with a debit to Notes Receivable of $525 and a credit to Cash of $525.
C)   records an entry with a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D)   does not record an adjusting entry, since no transaction has occurred.E) A) and B)
F) B) and C)

Exam 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

Correct Answer
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A company lends $10,000 to an employee who signs a 9%,6-month promissory note. What is the total amount of interest on this note?

Correct Answer
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Correct Answer
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A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing might suggest:

Correct Answer
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Bad Debt Expense is a:

Correct Answer
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Assume ABC sells its receivables to another company for immediate cash on a regular basis.How should the factoring fee be reported in the income statement?

Correct Answer
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For a note receivable that was created on November 1,2015 and is due for repayment on October 31,2016,what is the time fraction needed to compute interest revenue for the year ended December 31,2015?

Correct Answer
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The receivables turnover ratio is calculated using the total net receivables.

Correct Answer
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If a company did not extend credit to customers:

Correct Answer
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Correct Answer
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Accounts Receivable,Net (or Net Accounts Receivable) equals Accounts Receivable (gross) minus:

Correct Answer
verified

Interest on a two-month,7%,$1,000 note would be calculated as $1,000 × 0.07 × 2.

Correct Answer
verified

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Correct Answer
verified

Receivables might be sold ("factored") to:

Correct Answer
verified

ABC Corp.received a 3month,at 8% per year,$1,500 note receivable on November 1.The adjusting entry on December 31 will include a:

Correct Answer
verified

Consider the scenarios listed in the table below. Required: For each scenario below,indicate related impact on revenues,expenses,and net income in the current period by answering increase,decrease,or no effect.

Correct Answer
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Correct Answer
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If your company factors its accounts receivable,it:

Correct Answer
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Kata Company uses the allowance method.On May 1,Kata wrote off a $22,000 customer account balance when it becomes clear that the particular customer will never pay.The journal entry to record the write-off on May 1 would include which of the following?

Correct Answer
verified

All other things being equal,a company is better off when its receivable turnover ratio:

Correct Answer
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Exam 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

Correct AnswerverifiedShow Answer

A company lends $10,000 to an employee who signs a 9%,6-month promissory note. What is the total amount of interest on this note?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing might suggest:

Correct AnswerverifiedShow Answer

Bad Debt Expense is a:

Correct AnswerverifiedShow Answer

Assume ABC sells its receivables to another company for immediate cash on a regular basis.How should the factoring fee be reported in the income statement?

Correct AnswerverifiedShow Answer

For a note receivable that was created on November 1,2015 and is due for repayment on October 31,2016,what is the time fraction needed to compute interest revenue for the year ended December 31,2015?

Correct AnswerverifiedShow Answer

The receivables turnover ratio is calculated using the total net receivables.

Correct AnswerverifiedShow Answer

If a company did not extend credit to customers:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Accounts Receivable,Net (or Net Accounts Receivable) equals Accounts Receivable (gross) minus:

Correct AnswerverifiedShow Answer

Interest on a two-month,7%,$1,000 note would be calculated as $1,000 × 0.07 × 2.

Correct AnswerverifiedShow Answer

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Correct AnswerverifiedShow Answer

Receivables might be sold ("factored") to:

Correct AnswerverifiedShow Answer

ABC Corp.received a 3month,at 8% per year,$1,500 note receivable on November 1.The adjusting entry on December 31 will include a:

Correct AnswerverifiedShow Answer

Consider the scenarios listed in the table below. Required: For each scenario below,indicate related impact on revenues,expenses,and net income in the current period by answering increase,decrease,or no effect.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If your company factors its accounts receivable,it:

Correct AnswerverifiedShow Answer

Kata Company uses the allowance method.On May 1,Kata wrote off a $22,000 customer account balance when it becomes clear that the particular customer will never pay.The journal entry to record the write-off on May 1 would include which of the following?

Correct AnswerverifiedShow Answer

All other things being equal,a company is better off when its receivable turnover ratio:

Correct AnswerverifiedShow Answer

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