Question 1

Neither GAAP nor IFRS allow the use of the direct write-off method.

Accepted Answer

A) True 
 B)False

Question 2

A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. Each interest payment will be for:

Accepted Answer

A)  $9,000. 
B)  $750. 
C)  $4,500. 
D)  $1,500. 
A)  $9,000. 
B)  $750. 
C)  $4,500. 
D)  $1,500.

Question 3

Other things being equal, a two-year note receivable should yield more interest revenue than a one-year note.

Accepted Answer

A) True 
 B)False

Question 4

All other things equal, a company is better off when it's 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. 
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.

Question 5

The aging of accounts receivable method is based upon the principle that the longer an account is overdue, the higher the risk of nonpayment.

Accepted Answer

A) True 
 B)False

Question 6

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on

Accepted Answer

A)  a direct write-off. 
B)  an aging of the receivables. 
C)  credit sales. 
D)  net sales. 
A)  a direct write-off. 
B)  an aging of the receivables. 
C)  credit sales. 
D)  net sales.

Question 7

Assuming the company uses the aging of receivables method and estimates the uncollectible amount at 5% of accounts receivable, what is the required adjusting entry to record bad debt expense for the year?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 8

Which of the following statements is not true?

Accepted Answer

A)  The receivables turnover ratio indicates the average number of times the company completes the selling and collecting cycle during the year. 
B)  The days-to-collect measure is 365 days divided by the receivables turnover ratio. 
C)  The receivables turnover ratio and days-to-collect measure move in opposite directions. 
D)  A high receivables turnover ratio means a slower turnover. 
A)  The receivables turnover ratio indicates the average number of times the company completes the selling and collecting cycle during the year. 
B)  The days-to-collect measure is 365 days divided by the receivables turnover ratio. 
C)  The receivables turnover ratio and days-to-collect measure move in opposite directions. 
D)  A high receivables turnover ratio means a slower turnover.

Question 9

Purrfect Pets, Inc., had sales revenue of $1,748,380 during 2011. The company had credit card discounts of
$16,280 and sales returns of $3,460. The balance in accounts receivable on December 31, 2010 was $104,500
and on December 31, 2011 it was $129,100. Calculate the receivables turnover ratio and days to collect measure for 2011 (round each calculate to one decimal place).

Accepted Answer

The answer of Purrfect Pets, Inc., had sales revenue of...

Question 10

Which of the following statements regarding methods of accounting for bad debts is true?

Accepted Answer

A)  When the allowance method is used, the journal entry to write-off an uncollectible account does not change the amount reported as net accounts receivable on the balance sheet. 
B)  The two methods of accounting for bad debts that are acceptable under GAAP are the allowance method and the direct write-off method. 
C)  When the allowance method is used, if actual results differ from the estimates, the prior year financial statements must be corrected. 
D)  When the allowance method is used, bad debt expense is equal to the write-offs that occurred during the 
A)  When the allowance method is used, the journal entry to write-off an uncollectible account does not change the amount reported as net accounts receivable on the balance sheet. 
B)  The two methods of accounting for bad debts that are acceptable under GAAP are the allowance method and the direct write-off method. 
C)  When the allowance method is used, if actual results differ from the estimates, the prior year financial statements must be corrected. 
D)  When the allowance method is used, bad debt expense is equal to the write-offs that occurred during the

Question 11

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt. That customer reorganizes and now pays the $350. Your company should:

Accepted Answer

A)  debit Bad Debt Expense and credit Cash. 
B)  debit Accounts Receivable and credit Bad Debt Expense and then debit Allowance for Doubtful Accounts and credit Cash. 
C)  debit Cash and credit Bad Debt Expense. 
D)  debit Accounts Receivable and credit Allowance for Doubtful Accounts and then debit Cash and credit 
A)  debit Bad Debt Expense and credit Cash. 
B)  debit Accounts Receivable and credit Bad Debt Expense and then debit Allowance for Doubtful Accounts and credit Cash. 
C)  debit Cash and credit Bad Debt Expense. 
D)  debit Accounts Receivable and credit Allowance for Doubtful Accounts and then debit Cash and credit

Question 12

The unadjusted trial balance at the end of the year includes the following:   The company uses the allowance method and has completed the aging schedule which indicates $5,800 of accounts are estimated uncollectible. What is the amount of bad debt expense to be recorded for the year?

Accepted Answer

A)  $5,800 
B)  $4,800 
C)  $6,800 
D)  $7,800 
A)  $5,800 
B)  $4,800 
C)  $6,800 
D)  $7,800

Question 13

A company uses the percentage of credit sales method to estimate bad debt expense. At the end of the year, the company's unadjusted trial balance includes the following:   The company estimates, based on historical bad debt losses, that 0.5% of the sales will be uncollectible. What is the bad debt expense to be recorded for the year?

Accepted Answer

A)  $4,500 
B)  $4,300 
C)  $4,700 
D)  $5,000 
A)  $4,500 
B)  $4,300 
C)  $4,700 
D)  $5,000

Question 14

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

Accepted Answer

A)  6% 
B)  8% 
C)  12% 
D)  10% 
A)  6% 
B)  8% 
C)  12% 
D)  10%

Question 15

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

Accepted Answer

A)  I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate, and T = number of months. 
B)  I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate, and T = (number of months  12) 
C)  I = P x R x 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. 
A)  I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate, and T = number of months. 
B)  I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate, and T = (number of months  12) 
C)  I = P x R x 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.

Question 16

The required entry(ies) on May 29 to record the recovery is:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 17

The percentage of credit sales method, also called the income statement approach, estimates bad debts based on a historical percentage of sales that lead to bad debt losses.

Accepted Answer

A) True 
 B)False

Question 18

If a company attempts to artificially inflate current sales and net income by shipping goods that have not been ordered, we would expect that the receivables turnover ratio will:

Accepted Answer

A)  rise and the days-to-collect will rise, all other things equal. 
B)  rise and the days-to-collect will fall, all other things equal. 
C)  fall and the days-to-collect will fall, all other things equal. 
D)  fall and the days-to-collect will rise, all other things equal. 
A)  rise and the days-to-collect will rise, all other things equal. 
B)  rise and the days-to-collect will fall, all other things equal. 
C)  fall and the days-to-collect will fall, all other things equal. 
D)  fall and the days-to-collect will rise, all other things equal.

Question 19

On July 1, 2011, Icespresso Inc. signed a two-year $8,000 note receivable with 9 percent interest. At its due date, July 1, 2013, the principal and interest will be received in full. Interest revenue should be reported on Icepresso's income statement for the year ended December 31, 2011, in the amount of:

Accepted Answer

A)  $1,440. 
B)  $720. 
C)  $420. 
D)  $360. 
A)  $1,440. 
B)  $720. 
C)  $420. 
D)  $360.

Question 20

If Johnstone Supplies, Inc., writes off $3,081 of uncollectible accounts during August, 2011, the unadjusted account balance in the allowance for doubtful accounts on August 31, 2011 will be:

Accepted Answer

A)  $30,931. 
B)  $5,065. 
C)  $34,012. 
D)  $1,984. 
A)  $30,931. 
B)  $5,065. 
C)  $34,012. 
D)  $1,984.

Neither GAAP nor IFRS allow the use of the direct write-off method.

A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. Each interest payment will be for:

Other things being equal, a two-year note receivable should yield more interest revenue than a one-year note.

All other things equal, a company is better off when it's receivable turnover ratio:

The aging of accounts receivable method is based upon the principle that the longer an account is overdue, the higher the risk of nonpayment.

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on

Assuming the company uses the aging of receivables method and estimates the uncollectible amount at 5% of accounts receivable, what is the required adjusting entry to record bad debt expense for the year?

Which of the following statements is not true?

Which of the following statements regarding methods of accounting for bad debts is true?

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt. That customer reorganizes and now pays the $350. Your company should:

The unadjusted trial balance at the end of the year includes the following: The company uses the allowance method and has completed the aging schedule which indicates $5,800 of accounts are estimated uncollectible. What is the amount of bad debt expense to be recorded for the year?

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

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

The required entry(ies) on May 29 to record the recovery is:

The percentage of credit sales method, also called the income statement approach, estimates bad debts based on a historical percentage of sales that lead to bad debt losses.

If a company attempts to artificially inflate current sales and net income by shipping goods that have not been ordered, we would expect that the receivables turnover ratio will:

If Johnstone Supplies, Inc., writes off $3,081 of uncollectible accounts during August, 2011, the unadjusted account balance in the allowance for doubtful accounts on August 31, 2011 will be:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments, Financial Statements, and Financial Results

Financial Reporting and Analysis

Internal Control and Financial Reporting for Cash and Merchandise Sales

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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

Neither GAAP nor IFRS allow the use of the direct write-off method.

A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. Each interest payment will be for:

Other things being equal, a two-year note receivable should yield more interest revenue than a one-year note.

All other things equal, a company is better off when it's receivable turnover ratio:

The aging of accounts receivable method is based upon the principle that the longer an account is overdue, the higher the risk of nonpayment.

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on

Assuming the company uses the aging of receivables method and estimates the uncollectible amount at 5% of accounts receivable, what is the required adjusting entry to record bad debt expense for the year?

Which of the following statements is not true?

Which of the following statements regarding methods of accounting for bad debts is true?

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt. That customer reorganizes and now pays the $350. Your company should:

The unadjusted trial balance at the end of the year includes the following: The company uses the allowance method and has completed the aging schedule which indicates $5,800 of accounts are estimated uncollectible. What is the amount of bad debt expense to be recorded for the year?

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

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

The required entry(ies) on May 29 to record the recovery is:

The percentage of credit sales method, also called the income statement approach, estimates bad debts based on a historical percentage of sales that lead to bad debt losses.

If a company attempts to artificially inflate current sales and net income by shipping goods that have not been ordered, we would expect that the receivables turnover ratio will:

If Johnstone Supplies, Inc., writes off $3,081 of uncollectible accounts during August, 2011, the unadjusted account balance in the allowance for doubtful accounts on August 31, 2011 will be:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments, Financial Statements, and Financial Results

Financial Reporting and Analysis

Internal Control and Financial Reporting for Cash and Merchandise Sales

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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