Deck 8: Receivables, bad Debt Expense, and Interest Revenue

Question 1

When a company that uses the allowance method writes off an actual bad debt:
A.total assets decrease.
B.total liabilities increase.
C.total expenses increase and total revenues increase.
D.total assets,revenue,and expenses remain the same.

Answer 1

Question 2

If a company did not extend credit to customers:

A)its gross revenue would rise.
B)its costs of credit would rise but so would its revenue.
C)its costs of credit would fall but so would its revenue.
D)gross profit would rise.

Answer 2

its costs of credit would fall but so would its revenue.

Question 3

The unadjusted balance of the allowance for doubtful accounts of Johnstone Supplies,Inc.,is $28,947 on July 31,2008.Based on the accounts receivable aging report,bad debt expense will be:

A)$34,012.
B)$5,065.
C)$62,959.
D)$50,434.

Answer 3

$5,065.

Question 4

The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be paid.According to the revenue recognition principle and the matching principle,the company should:

A)record an estimate of bad debt expense in the same period as the lawn care is provided.
B)not report the sales revenue until it collects payment.
C)increase the value of its liabilities with an adjustment.
D)all of the above.

Question 5

An Allowance for Doubtful Accounts is a contra-account paired with:

A)expenses.
B)cash.
C)net income.
D)accounts receivable.

Question 6

Which of the following methods is required by Revenue Canada for accounting for bad debt for tax purposes:

A)Direct write-off method
B)Allowance method
C)Percentage of sales method
D)Aging of accounts method

Question 7

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:

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 Accounts Receivable.

Question 8

At the end of the accounting period,The Grass is Greener Corporation learns that a customer who owes $350 has gone bankrupt and payment will not be made.The Grass is Greener Corporation should:

A)debit Bad Debt Expense and credit Accounts Receivable for $350.
B)debit the Allowance for Doubtful Accounts and credit Accounts Receivable for $350.
C)debit Bad Debt Expense and credit Cash for $350.
D)debit Accounts Receivable and credit Bad Debt Expense for $350.

Question 9

Net accounts receivable is:

A)gross accounts receivable minus cost of goods sold.
B)also known as net pre-tax income.
C)gross accounts receivable minus allowance for doubtful accounts.
D)also known as net after-tax income.

Question 10

Purrfect Pets sells a $1,500 aquarium to a customer on account.This would be recorded under:

A)non-trade receivables.
B)cash.
C)trade accounts receivable.
D)notes receivable.

Question 11

When an adjusting entry is made in anticipation of some receivables being uncollectible the adjustment reduces:

A)both net income and net accounts receivable.
B)net income and increases liabilities.
C)net accounts receivable and increases liabilities.
D)net income and selling expenses.

Question 12

Extending credit to customers will result in which of the following additional costs?

A)Increased employer costs will be incurred to evaluate customer credit worthiness,track what each customer owes,and follow up to ensure correction.
B)Bad debt expense will result when amounts cannot be collected from customers.
C)Delayed receipt of cash may result requiring the company to take out short-term loans and incur interest costs.
D)All of the above.

Question 13

Companies are concerned about the cost of extending credit for all the following reasons EXCEPT:

A)the time delay in receiving payment.
B)the expense of the extra goods that must be produced or bought.
C)the risk of non-payment.
D)the administrative costs associated with extending credit.

Question 14

Assume the Mirtha Company had the following balances at year-end. Assume the company recorded no write-offs or recoveries during 2011.What was the amount of bad debt expense reported in 2011?

A)$79,000.
B)$64,600.
C)$28,800.
D)$14,400.

Question 15

A company extends credit to customers because it expects the:

A)benefits from the rise in sales revenue to be greater than the cost of extending credit.
B)interest charged to be greater than the cost of extending credit.
C)tax savings from a lower net income to be greater than the cost of extending credit.
D)because its borrowing cost is lower than the cost of extending credit.

Question 16

The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be paid.To record the potential bad debts,The Grass is Greener Corporation would:

A)debit Accounts Receivable and credit Allowance for Doubtful Accounts for $120.
B)debit Allowance for Doubtful Accounts and credit Bad Debt Expense for $120.
C)debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $120.
D)debit Bad Debt Expense and credit Accounts Receivable for $120.

Question 17

Match the term and the explanation.Not all explanations will be used. _____ Net credit sales
_____ Allowance method
_____ Notes receivable
_____ Accounts receivable
_____ Average net trade receivables
_____ Reserve for bad debts
_____ Bad debt loss rate
_____ Annual interest rate

A)The amount of interest a lender receives during a year.
B)A system used by companies to allocate their budgets over the different operating expenses.
C)The numerator of the receivables turnover ratio.
D)One of several common account names used to identify estimated uncollectible accounts receivable.
E)The historical average percentage of credit sales that a company has been unable to collect.
F)Another name for a company's total revenue which is calculated by multiplying the quantity sold by the average price.
G)The costs of maintaining accounts with customers who have not made recent purchases.
H)The interest that a company receives during the year divided by the principal of the loan.
I)The rate at which a company pays off its liabilities or debts.
J)The total amount of money loaned through notes that have not been repaid.
K)The denominator of the receivables turnover ratio.
L)The average level of net sales revenue the firm earns each month.
M)A two-stage process by which accounts are adjusted in anticipation of bad debts.
N)The portion of past credit sales that have not yet been collected.

Question 18

When a company that uses the allowance method writes off an actual bad debt:

A)total assets decrease.
B)total liabilities increase.
C)total expenses increase and total revenues increase.
D)total assets,revenue,and expenses remain the same.

Question 19

Over the past five years,a company had average annual credit sales of $320,000 and an average annual net write-offs of $2,000.Credit sales in the current year are $300,000.Using the percentage of credit sales method,what should the company record as an estimate of bad debt expense?

A)$2,000
B)$1,875
C)$20,000
D)$6,000

Question 20

If Johnstone Supplies,Inc.,writes off $3,081 of un-collectible accounts during August,2008,the unadjusted balance in the allowance for doubtful accounts account on August 31,2008 will be:

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

Question 21

During the year,a company concludes that $6,844 of specific customer accounts will not be collected.These are written off by:

A)debiting Accounts Receivable and crediting Allowance for Doubtful Accounts for $6,844.
B)debiting Accounts Receivable and crediting Bad Debt Expense for $6,844.
C)debiting Bad Debt Expense and crediting Accounts Receivable for $6,844.
D)debiting Allowance for Doubtful Accounts and crediting Accounts Receivable for $6,844.

Question 22

If an uncollectible account,previously written off,is recovered:

A)net accounts receivable increases.
B)net accounts receivable decreases.
C)net accounts receivable stays the same.
D)total revenues increase.

Question 23

On the balance sheet,the allowance for doubtful accounts:

A)is included in current liabilities.
B)increases the reported net value of accounts receivable.
C)appears under the heading "Other Assets."
D)is deducted from accounts receivable.

Question 24

Before adjustment,the allowance for doubtful accounts has a credit balance of $2,700.The company had $140,000 of net credit sales during the period and historically fails to collect 4% of credit sales.The company uses the percentage of credit sales method of estimating doubtful accounts.After adjusting for estimated bad debts,the new balance in the allowance for doubtful accounts account will be:

A)$8,300.
B)$5,400.
C)$2,900.
D)Cannot be determined from the information given.

Question 25

The amount of uncollectible accounts at the end of the year is estimated,using the aging of receivables method,to be $25,000.The balance in the Allowance for Doubtful Accounts account is an $8,000 credit before adjustment.What should the balance in the Allowance for Doubtful Accounts account be after adjustment?

A)$8,000.
B)$17,000.
C)$25,000.
D)$33,000.

Question 26

In reviewing the accounts receivable,the net receivable value is $17,000 before writing off a $1,500 account.What is the net receivable value after the write-off?

A)$17,000.
B)$1,500.
C)$18,500.
D)$15,500.

Question 27

Plasma Inc.,has net credit sales of $500,000 during the year.Based on historical information,Plasma estimates that 2% of net credit sales result in bad debts.At the beginning of the year,Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000.What amount of bad debt expense should Plasma recognize for the year,assuming no specific customer accounts were written off?

A)$4,000.
B)$6,000.
C)$10,000.
D)$14,000.

Question 28

Your company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category.All else equal,using the aging of accounts receivable method,the amount of the bad debt adjustment will:

A)fall,increasing the ending balance of the allowance account.
B)rise,increasing the ending balance of the allowance account.
C)fall,decreasing the ending balance of the allowance account.
D)rise,decreasing the ending balance of the allowance account.

Question 29

The beginning balance in the allowance for doubtful accounts is $12,656 and the ending balance is $14,348.If bad debt expense was $3,879,which of the following statements is true?

A)The allowance account was retroactively debited $2,187 for additional bad debts that became apparent in a future time period.
B)The allowance account was debited $2,187 for write-offs of actual bad debts.
C)The allowance account was credited $2,187 for recoveries of bad debts.
D)The allowance account was credited $2,187 for the difference between the percent of credit sales method and the aging of accounts receivable method.

Question 30

IBM signs an agreement to lend one of its customers $200,000 to be paid back in one year at 5.5% interest.IBM would record this loan under:

A)loans payable.
B)accounts receivable.
C)notes receivable.
D)unearned revenue.

Question 31

On average,5% of total accounts receivable has been uncollectible in the past.At the end of the year,the balance of accounts receivable is $100,000 and the allowance for doubtful accounts has a credit balance of $500.Credit sales during the year were $150,000.Using the aging of accounts receivable method,the estimated bad debt expense would be:

A)$4,500.
B)$5,000.
C)$5,500.
D)Cannot be determined; the aging of accounts receivable method cannot be used as the information provided can only be used for calculating the percentage of credit sales method.

Question 32

When a company makes an adjustment in anticipation of future uncollectible debt:

A)it debits an asset account and credits a liability account.
B)it debits a revenue account and credits an asset account.
C)it debits a revenue account and credits an expense account.
D)it debits an expense account and credits a contra-asset account.

Question 33

The amount of uncollectible accounts at the end of the year is estimated,using the aging of receivables method,to be $25,000.The balance in the Allowance for Doubtful Accounts account is an $8,000 credit before adjustment.Assuming no accounts are written off during the period,what will be the amount of bad debts expense for the period?

A)$8,000.
B)$17,000.
C)$25,000.
D)$33,000.

Question 34

To record estimated uncollectible accounts using the allowance method for uncollectible accounts,the adjusting entry would be a debit to:

A)Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B)Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
C)Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D)Loss on Credit Sales and a credit to Accounts Receivable.

Question 35

Your company has averaged about 26% of its accounts receivable in the "over 90 days past due" category and now forecasts 18% in this category.You use the aging of accounts receivable method of estimating bad debt expense.If the total of credit sales remains unchanged from previous months and no write offs are made,the estimate of bad expense based on the new forecast will:

A)increase over the estimate for previous months.
B)decrease over the estimate for previous months.
C)not change.
D)will depend on the percentage of credit sales deemed un-collectible.

Question 36

Total doubtful accounts at the end of the year is estimated,using the aging of receivables method,to be $25,000.If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment,what will be the amount of bad debts expense for the period?

A)$7,000.
B)$18,000.
C)$25,000.
D)$32,000.

Question 37

On average,5% of credit sales has been uncollectible in the past.At the end of the year,the balance of accounts receivable is $100,000 and the allowance for doubtful accounts has a credit balance of $500.Net credit sales during the year were $150,000.Using the percentage of credit sales method,the estimated bad debt expense would be:

A)$5,000.
B)$7,000.
C)$7,500.
D)Cannot be determined; the percent of credit sales method cannot be used,as the information provided can only be used for calculating the aging of accounts receivable method.

Question 38

In 2005,Lawrence Company had gross sales of $750,000 on account and granted sales discounts of $15,000.On January 1,2005,the Allowance for Doubtful Accounts account had a credit balance of $18,000.During 2005,$30,000 of uncollectible accounts receivable were written off.Past experiences indicate that 3% of net credit sales become uncollectible.Using the percentage of net credit sales method,what would be the adjusted balance in the Allowance for Doubtful Accounts at December 31,2005?

A)$10,050.
B)$10,500.
C)$22,050.
D)$34,500.

Question 39

As of December 31,Frappa Company has a balance of $5,000 in accounts receivable.Of this amount $500 is past due and the remainder is not yet due.Frappa has a credit balance of $45 in the allowance for doubtful accounts.Frappa Company estimates its bad debt losses using the aging of receivables method,with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts.How would the required adjusting journal entry be recorded in the Allowance for Doubtful Accounts?

A)$95 (credit).
B)$55 (credit).
C)$50 (credit).
D)$45 (debit).

Question 40

Your company uses the percentage of credit sales method for calculating bad debt expense.If your company has $216,000 in total sales,of which $178,000 are on credit,and its historical bad debt loss is 6% of credit sales,bad debt expense:

A)is $12,960.
B)is $10,680.
C)is $38,000.
D)cannot be determined from the information given.

Question 41

When a company lends cash to a customer who then signs a promissory note:

A)net income decreases for the current accounting period,but increases when the money is repaid.
B)expenses increase in the current accounting period but revenues increase when the money is repaid.
C)liabilities increase when the transaction occurs but decrease when the money is repaid.
D)net assets and net income do not change when the transaction occurs.

Question 42

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

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)none of the above.

Question 43

Which of the following statements is true?

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 divided by the receivables turnover ratio.
C)The receivables turnover ratio and days-to-collect measure move in opposite directions.
D)All of the above.

Question 44

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:

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

Question 45

Your company has net sales of $468,300 and average trade receivables of $111,500 for the year.Which of the following is true?

A)The receivables turnover ratio is 4.2 and the days-to-collect is 0.012.
B)The receivables turnover ratio is .24 and the days-to-collect is 1,520.
C)The receivables turnover ratio is 4.2 and the days-to-collect is 86.9.
D)The receivables turnover ratio is .24 and the days-to-collect is 87.6.

Question 46

On January 31,2006,Purrfect Pets receives a $4,680 interest payment on a note receivable representing two months of accumulated interest.One month of this interest was accrued during the year ended December 31,2005.Upon receiving the payment,the company would:

A)debit Interest Receivable for $2,340,debit Cash $2,340,and credit Interest Revenue for $4,680.
B)debit Cash for $4,680,credit Interest Revenue for $2,340,and credit Interest Receivable for $2,340.
C)debit Cash for $2,340,debit Interest Receivable for $2,340,and credit Interest Revenue for $2,340.
D)debit Interest Revenue for $2,340 and credit Cash for $2,340.

Question 47

In the normal formula for interest calculation,the interest rate is on a(n)_____ basis and therefore the time variable must reflect how many _____ out of _____ in the interest period.

A)biannual,months,6
B)annual,years,1
C)biannual,half-years,2
D)annual,months,12

Question 48

The days-to-collect measure indicates:

A)the number of days an average selling and collecting cycle takes.
B)the average number of times the firm completes the selling and collecting cycle during the year.
C)the average number of days for a customer's payment to clear the banking system.
D)the average number of days before the company receives a customer's payment and uses the cash to re-order merchandise.

Question 49

Which of the following is true?

A)Accounts receivable fall as companies sell on credit.
B)Accounts receivable rise as companies receive payment.
C)Receivables turnover refers to how fast receivables are collected.
D)All of the above.

Question 50

A company lends a major client $90,000 for one year at a 7% annual interest rate.Interest payments are to be made twice a year.In July,the company receives an interest payment for January through June.The company would record receipt of the interest payment in which of the following ways?

A)Debit Interest Receivable for $3,150 and credit Interest Revenue for $3,150.
B)Debit Cash for $3,150 and credit Notes Receivable for $3,150.
C)Debit Interest Revenue for $3,150 and credit Cash for $3,150.
D)Debit Cash for $3,150 and credit Interest Receivable for $3,150.

Question 51

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.The company initially records the transaction by:

A)debiting Notes Receivable for $150,000 and crediting Cash for $150,000.
B)debiting assets for $150,000 and crediting liabilities for $150,000.
C)debiting Cash for $9,000 and crediting Interest Revenue for $9,000.
D)debiting Interest Receivable for $4,500 and crediting Interest Revenue for $4,500.

Question 52

A company lends a major client $90,000 for one year at a 7% annual interest rate.Interest payments are to be made twice a year but the company wants to recognize interest earned on a monthly basis.In a month in which the company does not receive any interest payments,interest is recorded with:

A)a debit to Cash of $525 and a credit to Interest Revenue of $525.
B)a debit to Notes Receivable of $525 and a credit to Cash of $525.
C)a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D)no adjusting entry,since no transaction has occurred.

Question 53

Receivables might be sold ("factored")to:

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

Question 54

On January 1,a company lends a corporate customer $80,000 at 6% interest.The amount of interest revenue that should be recorded for the first quarter is:

A)$4,800.
B)$1,200.
C)$400.
D)$1,600.

Question 55

The receivables turnover ratio indicates:

A)the average number of days from the time a sale is made on account to the time cash is collected.
B)the average number of days from the time a sale is made on account to the time payment is due.
C)how many times a year receivables go uncollected.
D)how fast receivables are collected.

Question 56

How are net income and the accounts receivable turnover ratio affected when a customer account balance,which is known to be uncollectible,is written off? Assuming the company is using allowance method.

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

Question 57

Your company lent a customer $5,000 to satisfy the customer's overdue accounts receivable.The loan is for one year at an annual interest rate of 5%.Six months later the customer repays the principal and interest.The principal part of the repayment should be recorded as a:

A)debit to Cash and credit to Notes Receivable.
B)debit to Notes Receivable and credit to Interest Revenue.
C)debit to Cash and credit to Accounts Receivable.
D)debit to Allowance for Bad Debts and credit to Cash.

Question 58

Momentum Products Inc.,just recorded an adjusting journal entry for the current year's estimate of bad debts.Assuming all else is equal,this adjusting journal entry will cause:

A)the accounts receivable turnover ratio to increase.
B)net income to increase.
C)total assets to remain unchanged.
D)none of the above.

Question 59

A high accounts receivable turnover ratio indicates:

A)the company's sales are increasing.
B)a large proportion of the company's sales are on credit.
C)customers are making payments very quickly.
D)the company is taking longer to sell inventory.

Question 60

On July 1,2005,Icespresso Inc.signed a two-year $8,000 note receivable with 9 percent interest.At its due date,July 1,2007,the principal and interest will be received in full.Interest revenue should be reported on Icepresso's income statement for the year ended December 31,2005,in the amount of:

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

Question 61

The accounting issues for notes receivable are similar to those for accounts receivable,with this exception:

A)Unlike accounts receivable,which are interest-free until they become overdue,notes receivable charge interest from the day they are created to the day they are due (their maturity date).
B)Unlike notes receivable,which are interest-free until they become overdue,accounts receivable charge interest from the day they are created to the day they are due (their maturity date).
C)There are no exceptions,they are similar.
BT: Comprehension

Question 62

When bad debts exceed the amount estimated and written off in the previous accounting period,the company is required to issue amended financial statements.
BT: Knowledge

Question 63

Write-off method effects income statement as an additional expense is incurred when an account is written-off.
BT: Knowledge

Question 64

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:

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 65

In a competitive market it's necessary to extend credit to at least some customers so as to avoid losing market share to competitors.
BT: Comprehension

Question 66

At the end of the third year,the Treadwell Tire Company had accounts receivable of $66,600,and at the end of the fourth year,the company had accounts receivable of $72,600.If the company's net sales revenue during the fourth year were $876,000,the days- to -collect during year four was:

A)12.
B)29.
C)8.
D)34.

Question 67

There is a cost of extending credit to customers even when the company is able to collect in full its accounts receivable.
BT: Comprehension

Question 68

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

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 69

Trade accounts receivable are created by selling goods or services on credit.
BT: Knowledge

Question 70

At the end of the first year,the Treadwell Tire Company had accounts receivable of $67,900 and at the end of the second year the company had accounts receivable of $72,400.If the company's net sales revenue during the second year was $876,875,the receivables turnover ratio for the second year was:

A)12.5.
B)29.2.
C)0.08.
D)0.034.

Question 71

If a company is overly optimistic about debt collection,the company will understate bad debt expense and:

A)overstate net income; and days to collect will fall.
B)overstate net income; and days to collect will rise.
C)understate net income; and days to collect will rise.
D)understate net income; and days to collect will fall.

Question 72

Factors that might cause a company to adjust the percentage(s)used to estimate bad debts might include:

A)the state of the local economy in the customer's area.
B)the credit ratings of its customers.
C)the current situation in the customers' industry or industries.
D)all of the above.

Question 73

The direct write-off method:

A)ignores the matching principle.
B)is an acceptable alternative method of recognizing bad debt expense under GAAP.
C)results in higher bad debt expense for most companies.
D)may only be used by companies that do not extend credit to their customers.

Question 74

The receivables turnover ratio of Purrfect Pets,Inc.increases from 10.2 to 13.6.Which of the following statements is true?

A)This indicates that the company is taking longer to collect credit payments.
B)This is an indication that the company is experiencing rising credit costs.
C)This could be an indication that the company is using more efficient collection methods.
D)This is an indication that the company is buying and selling financial assets more rapidly.

Question 75

.The company's expenses (including bad debt expense)were $7,300 in Q1 and $6,900 in Q2.If the company raised its bad debt expense estimate by $800 in Q1 and lowered it by $800 in Q2,which of the following would be true assuming all else equal?

A)Q1 net income would fall $800 and Q2 net income would rise $1,600.
B)Q1 net income would fall $1,600 and Q2 net income would rise $1,600.
C)Q1 net income would fall $800 and Q2 net income would rise $800.
D)Q1 net income would fall $1,600 and Q2 net income would rise $800.

Question 76

The failure to match Bad Debt Expense with Sales Revenue in the same period will lead to the distorted views of Net Income:

A)in the period of the sale as well as in the period the bad debt is discovered.
B)in the period of sale.
C)in the period of write-off.
D)does not lead to any distortion.

Question 77

Which of the following method is not acceptable under both IFRS and ASPE?

A)Percentage of sales method
B)Direct write-off method
C)Aging of accounts receivable
BT: Knowledge

Question 78

The days- to- collect increases from 32 to 48.Which of the following statements is true?

A)The company is likely to see its bad debt expense fall.
B)The receivables turnover rate rises by 50%.
C)The company is becoming more efficient at collecting payment.
D)The receivables turnover rate falls from approximately 11.4 to 7.6.

Question 79

Companies A and B both report net income growing at 12% per year.Company A has a receivables turnover ratio of 5.6,which is smaller than its previous year.Company B has a receivables turnover ratio of 11.3,which is higher than its previous year.All other things equal:

A)Company A appears to be better managed.
B)Company A will have the lower days-to-collect measure.
C)Company B appears to be better managed.
D)Company B's days-to-collect measure is rising.

Question 80

The Grass is Greener Corporation's receivables turnover ratio decreases from 14.1 to 11.8.Which of the following statements is true?

A)This indicates that the company is taking longer to collect credit payments.
B)This is an indication that the company is experiencing falling credit costs.
C)This could be an indication that the company is using more efficient collection methods.
D)This is an indication that the company is buying and selling financial assets less rapidly.