Deck 7: Sales and Receivables

Question 1

When a customer fails to pay on their account, it creates a(n):

A) Bad Debt Expense.
B) Uncollectible Account.
C) Account Receivable.
D) decrease in revenue.
E) decrease in expenses.

Answer 1

Bad Debt Expense.

Question 2

A retailer has 5% credit/debit card service fees deducted from the business's bank account on a monthly
basis. The retailer has $43,500 in sales for the month. What is the journal entry to record these sales?

Answer 2

Debit Cash for $43,500; Credit Sales for $43,500

Question 3

Use the allowance method to account for uncollectible accounts
There are two methods for accounting for uncollectible receivables.

Answer 3

True

Question 4

A retailer has 2% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $4,800 in sales for the day. The journal entry to record these sales would be __________.

Question 5

Accounts receivable are more formal and usually longer in terms than notes receivable.

Question 6

What is the expense called that reflects the estimate of uncollectible accounts receivable?

Question 7

When companies extend credit to customers,:

A) losing sales generally increases.
B) not collecting money from customers decreases.
C) not collecting money from customers increases.
D) the business stays the same.
E) sales decrease.

Question 8

From the retailer's perspective, debit cards are nearly identical to credit cards and have the same benefits and drawbacks.

Question 9

Assume a retailer has a credit card sale of $1,400, with cost of the product being $1,050. The business pays $8 of processing fees, which are deducted from the proceeds. The journal entry to record these sales would be __________.

Question 10

What are the most desirable form of sales?

Question 11

A customer's written promise to pay an amount of money to a business with interest is a(n) ________ of the business.

A) account receivable
B) account payable
C) note receivable
D) note payable
E) revenue

Question 12

A retailer has 3% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,700 in sales for the day. The journal entry to record these sales would be __________.

Question 13

Notes receivable generally include a charge for interest.

Question 14

What are the most common credit cards issued by financial institutions?

Question 15

MasterCard and Visa sales are treated like cash sales.

Question 16

Use the allowance method to account for uncollectible accounts
Receivables of a company CANNOT be long-term assets.

Question 17

Use the allowance method to account for uncollectible accounts
The aging method of calculating uncollectible accounts considers the existing balance in the Allowance for Doubtful Accounts.

Question 18

Most financial institutions charge the retailer a service fee that enables the retailer to accept the credit cards as payment on merchandise.

Question 19

A retailer has 4% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,200 in sales for the day. The journal entry to record these sales would be:

A) debit Cash for $1,200 and credit Sales for $1,200.
B) debit Sales for $1,200 and credit Cash for $1,200.
C) debit Cash for $1,152, debit Credit Card Expense for $48, and credit Sales for $1,200.
D) debit Cash for $1,152 and credit Sales for $1,152.
E) debit Accounts Receivable for $1,200 and credit Sales for $1,200.

Question 20

Toy Company has 4% credit/debit card service fees deducted monthly by the bank from Toy Company's bank account. Toy Company has $75,000 in sales for the month. At what amount will Toy Company record this month's sales?

Question 21

What are the two methods of accounting for uncollectible accounts?

Question 22

On March 10, 2012, Allyson Enterprises determined that its customer Betty Chow's account for $780 was considered uncollectible. If Allyson uses the allowance method, what is the journal entry required to write off Betty Chow's account?

Question 23

The journal entry to write off a customer's account under the direct write-off method is:

A) debit Bad Debts Expense; credit Allowance for Doubtful Accounts.
B) not required.
C) debit Cash; credit Accounts Receivable/customer name.
D) debit Bad Debts Expense; credit Accounts Receivable/customer name.
E) debit Sales Revenue; credit Accounts Receivable/customer name.

Question 24

Margaret is a customer of Tammy Company. The company wrote off her account of $1,200 on August 15. On October 12, she sent in a payment of $560. What is the journal entry that Tammy Company will record first to reinstate her account?

Question 25

A company has $317,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has an $8,150 debit balance. If the company uses the allowance method based on 6% of credit sales, what will be the amount of the journal entry credited to Allowance for Doubtful Accounts?

Question 26

How is the "net realizable value" of accounts receivable computed ?

Question 27

What type of account is Allowance for Doubtful accounts?

A) Asset
B) Contra-asset
C) Liability
D) Expense
E) Contra-sales

Question 28

The period-end adjusting entry for Bad Debts Expense under the direct write-off method is:

A) debit Bad Debts Expense; credit Allowance for Doubtful Accounts.
B) not required.
C) debit Cash; credit Accounts Receivable/customer name.
D) debit Bad Debts Expense; credit Accounts Receivable/customer name.
E) debit Bad Debts Expense; credit Sales Revenue.

Question 29

Which method for accounting for uncollectible accounts is not acceptable for financial reporting purposes?

Question 30

A company has $235,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has a $7,250 credit balance. If the company uses the allowance method based on 7% of credit sales, what will be the amount of the journal entry credited to Allowance for Doubtful Accounts?

Question 31

Which is NOT a benefit to extending credit to customers?

A) Bad debt expenses
B) Increased revenues
C) Increased profits
D) Wider range of customers
E) Additional customers

Question 32

Use the allowance method to account for uncollectible accounts
The percentage-of-sales method is called the balance sheet method.

Question 33

Taymon Company has given you the following information from its aging of accounts receivable. Using
this information, what is the journal entry to record the periodic adjustment for bad debts? Assume the amount in the allowance for doubtful accounts is $$850 credit.

Question 34

What account is credited in the Allowance method of recording uncollectible accounts when an uncollectible customer account is written off?

Question 35

Brandon Company completed an aging of their accounts receivable and came up with an estimated
amount of $6,342. The credit sales for the period are $85,000. The balance in the Allowance for Doubtful Accounts is a debit of $817. If Brandon uses 5% of credit sales as their estimating uncollectible accounts, how much will the credit be to the Allowance for Doubtful Accounts if Brandon uses the percentage of credit sales as its method of estimating uncollectible accounts?

Question 36

Under the percentage of sales method, how is Bad Debts Expense calculated?

Question 37

A company has $295,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has a $250 debit balance. The company uses the allowance method based on an aging of accounts receivable and determines $13,400 as uncollectible. What will be the amount of the Bad Debts Expense and what is the journal entry?

Question 38

Use the allowance method to account for uncollectible accounts
Bad Debts Expense is debited when writing off customer accounts under the Allowance method.

Question 39

Taylor Company has given you the following information from its aging of accounts receivable. Using
this information, determine the ending balance of the allowance for doubtful accounts.

Current amount in the allowance for doubtful accounts is a $958 credit.

Question 40

Under the direct write-off method, to record the receipt of cash after an account has previously been written off, you would first:

A) debit Cash and credit the customer's account.
B) reinstate the customer's account.
C) debit Allowance for Doubtful Accounts.
D) debit Bad Debts Expense.
E) credit Accounts Receivable.

Question 41

Using a 365-day year, the maturity value of a 180-day note for $2,700 at 9% annual interest is (rounded to the nearest cent):

A) $2,943.00.
B) $2,821.50.
C) $2,819.84.
D) $119.84.
E) $2,891.84

Question 42

On September 1, 2012, Kelly Company lent $2,400 to Tim on a 6-month 8% promissory note. What is the amount of interest to be accrued on December 31?

Question 43

What is the maturity date of a 4-month promissory note dated on July 17?

Question 44

On March 1, 2012, Kelly Company lent $3,500 to Tim on a 1-year 6% promissory note. The amount of interest to be accrued on December 31 will be:

A) $210.00.
B) $175.00.
C) $157.50.
D) $140.00.
E) $176.00

Question 45

Accounts receivable are reported at "current market value" in the current assets section of the balance sheet.

Question 46

What is the maturity date of a note that is signed on April 15, 2011 at 9% for 216 days?

Question 47

A company has $295,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has a $250 debit balance. The company uses the allowance method based on 6% of credit sales. What will be the amount of the Bad Debts Expense and what is the journal entry?

Question 48

Assume that at December 31, 2013, Alyson Corporation has an Accounts Receivable balance of $240,000 and its Allowance for Doubtful Accounts balance is $13,900. Prepare a partial Balance Sheet showing the Accounts Receivable section.

Question 49

Andy Corporation lent $25,000 to Casey Corporation for 75 days at 7% interest on November 22, 2010. How much interest will have accrued to Andy Corporation on December 31, 2010, assuming a 360-day year?

Question 50

Using a 360-day year, the maturity value of a 69-day note for $1,500 at 7% annual interest is (rounded to the nearest cent):

Question 51

The business or person that signs the note and promises to pay the required amount is called the payee.

Question 52

Using a 360-day year, what is the maturity value of a 90-day note for $3,500 at 8% annual interest?

Question 53

A promissory note is a verbal promise to pay a specified amount of money on a particular future date.

Question 54

A 135-day note issued on May 17 will mature on:

A) September 28.
B) September 29.
C) September 30.
D) October 1.
E) October 2.

Question 55

Assume that at December 31, 2013, Sophie Corporation has an Accounts Receivable balance of $325,000 and its Allowance for Doubtful Accounts balance is $17,979. How is the Accounts Receivable presented on the balance sheet?

Question 56

The amount loaned out by the payee is called the maturity value.

Question 57

When counting the days of a note, remember to count the day the note was issued.

Question 58

Isaiah Company converted a $4,000 account receivable from Mark to a 75-day, 8% note receivable. The maturity value (assume a 360-day year) that will be due from Mark in 75 days (round to nearest dollar) is:

A) $4,000.
B) $4,067.
C) $4,320.
D) $4,077.
E) some other number.

Question 59

Accounts receivable may be reported "net of allowance for doubtful accounts."

Question 60

The maturity value is the sum of the principal plus the interest due at maturity.

Question 61

If a company has 90-day credit terms, what would you expect its accounts receivable turnover to be?

Question 62

Mike Company has cash of $56,000; net accounts receivable of $67,000; short-term investments of $12,000; and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in long-term liabilities. What is the quick ratio for Mike Company ?

Question 63

On April 9, Joe paid $3,568 to Mike Company to fulfill his promissory note agreement. Of the $3,568, $400 is interest. The journal entry Mike Company will record is __________.

Question 64

On April 23, Lauren paid $4,750 to Ryan Company to fulfill her promissory note agreement. Of the $4,750, $750 is interest. The journal entry Ryan Company will record is __________.

Question 65

Walmart operates on a quick ratio of less than 0.20 because it collects cash:

A) quickly and has a large amount of receivables.
B) slowly and has almost no receivables.
C) slowly and has a large amount of receivables.
D) quickly and has almost no receivables.
E) quickly and has only long-term receivables.

Question 66

Rick Company has cash of $143,000; net accounts receivable of $89,000; short-term investments of $35,000; and prepaid expenses of $40,000. It also has $50,000 in current liabilities and $80,000 in long-term liabilities. What is the quick ratio for Rick Company?

Question 67

Sierra Company has cash of $33,000; net accounts receivable of $41,000; short-term investments of $15,000; and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term liabilities. The quick ratio for Sierra Company is:

A) 1.78.
B) 2.97.
C) 3.30.
D) 3.80.
E) 2.99.

Question 68

On September 1, 2012, Kelly Company lent $2,400 to Tim on a 6-month 8% promissory note. The journal entry to record the note for Kelly would be __________.

Question 69

The formula for the quick ratio is quick assets divided by non-current assets.

Question 70

Meranda Corporation reported cash sales of $235,000; net credit sales of $515,000; beginning net accounts receivable of $212,000; and ending net accounts receivable of $224,000. Meranda's accounts receivable turnover is:

A) 2.30.
B) 2.36.
C) 2.43.
D) 3.44.
E) 2.63.

Question 71

Alexis Corporation had the following transactions:
Oct 1 Exchanged a customer Jim's account receivable for a 4-month, 8% note for $3,500.
Dec 31 Recorded accrued interest on Jim's note.
Record the journal entries required:

Question 72

Using a 365-day year, what is the maturity value of a 55-day, 7% note for $23,000 rounded to the nearest cent?

Question 73

Another name for the quick ratio is the acid-test ratio.

Question 74

A company with an accounts receivable turnover of 11.78 would be collecting its receivables about __________.

Question 75

What is considered to be a safe quick ratio?

Question 76

A company with a quick ratio of 1.23 means that the company:

A) has $1.00 in quick assets for every $1.23 in current liabilities.
B) has $1.23 in quick assets for every $1.00 in current liabilities.
C) could not pay off all of its current liabilities using quick assets.
D) would have to use inventory to help pay off its current liabilities.
E) has $1.23 in current assets for every $1.00 in current liabilities.

Question 77

Accounts receivable turnover measures the ability to collect cash from a company's credit customers.

Question 78

The account receivable turnover is computed by taking the average net accounts receivable and dividing by the net credit sales.

Question 79

What does the term "maturity date" mean?

Question 80

Rory Company exchanged an accounts receivable of $5,300 for an 8-month, 6% note on November 1, 2012.
Record the journal entries on December 31 to record accrued interest and on July 1 to record paying off of the note with interest.