Question 1

Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?

Accepted Answer

A)  Increase assets; No effect on liabilities; Increase stockholders' equity 
B)  Increase assets; No effect on liabilities; No effect on stockholders' equity 
C)  No effect on assets; No effect on liabilities; Decrease stockholders' equity 
D)  No effect on assets; No effect on liabilities; No effect on stockholders' equity

Question 2

The financial statements of Orion Frozen Foods contained the following information:
 
-Use the information above to answer the following question.The average length of time it takes for Orion Frozen Foods to collect accounts receivable is approximately:

Accepted Answer

A)  60 days 
B)  36 days 
C)  41 days 
D)  29 days

Question 3

Which of the following situations depicts the best receivables management?

Accepted Answer

A)  Receivables turnover ratio increases and the days to collect decreases 
B)  Receivables turnover ratio increases and the days to collect increases 
C)  Receivables turnover ratio decreases and the days to collect increases 
D)  Receivables turnover ratio decreases and the days to collect decreases

Question 4

A company lends its supplier $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The entry to record this lending transaction includes a debit to:

Accepted Answer

A)  Notes Receivable and a credit to Cash for $150,000. 
B)  Cash and a credit to Notes Payable for $150,000. 
C)  Cash and a credit to Interest Revenue for $9,000. 
D)  Interest Receivable and a credit to Interest Revenue for $4,500.

Question 5

The advantage of extending credit to customers is that it helps customers to buy products and services,thereby increasing the seller's revenue.The disadvantages of extending credit are costs related to:

Accepted Answer

A)  increased sales. 
B)  bad debt expense. 
C)  increased notes receivable. 
D)  marketing.

Question 6

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:

Accepted Answer

A)  the accounts receivable turnover ratio to increase. 
B)  net income to increase. 
C)  total assets to remain unchanged. 
D)  net accounts receivable to increase.

Question 7

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

Accepted Answer

A)  debit to Interest Revenue of $10 
B)  credit to Interest Receivable of $20 
C)  credit to Interest Revenue of $30 
D)  debit to Interest Receivable of $10

Question 8

On December 1,2015,a company lends a new employee $20,000 to assist with her relocation expenses.The employee signs a 6-month note,with interest of 9%.The company prepares year-end financial statements at December 31.What is the required adjusting entry at December 31 as a result of this note transaction?

Accepted Answer

A)  Debit Interest Revenue and credit Interest Receivable for $900 
B)  Debit Interest Receivable and credit Interest Revenue for $900 
C)  Debit Interest Revenue and credit Interest Receivable for $150 
D)  Debit Interest Receivable and credit Interest Revenue for $150

Question 9

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%

Question 10

Geisel,Inc.reported net sales revenue of $600,000 in 2015 and $500,000 in 2016.The company's average net receivables were $120,000 during 2014 and $130,000 during 2015.At December 31,2016,the company had Accounts Receivable of $148,000 and an unadjusted debit balance in its Allowance for Doubtful Accounts account of $1,000.The company reported Bad Debt Expense of $6,000 during 2015.
Required:
Part a.Determine the net receivables at December 31,2016.
Part b.Calculate the receivables turnover ratio for 2015 and 2016.(Round each calculation to one decimal place).
Part c.Calculate the days to collect for 2015 and 2016.(Round each calculation to one decimal place).
Part d.Interpret the results of this analysis.
Part e.Identify possible reasons for the changes in these two ratios from 2015 to 2016.

Accepted Answer

The answer of Geisel,Inc.reported net sales revenue of $600,000 in...

Question 11

Which of the following statements about the recording of interest on notes receivable is correct?

Accepted Answer

A)  Interest on notes receivable is recorded as revenue only when the cash is received. 
B)  When a company makes an interest payment on a note, the payment is debited to Interest Receivable. 
C)  Interest on notes receivable is recognized when it is earned, which is not necessarily when the interest is received in cash. 
D)  Interest earned but not yet received must be recorded in an adjusting entry which includes a debit to Interest Revenue.

Question 12

The days-to-collect measures the:

Accepted Answer

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

Question 13

Your company uses the aging of accounts receivable method.Net credit sales are unchanged from last year,the year-end balance in Accounts Receivable is unchanged from the previous year's ending balance,and there were no write-offs during the current year.The 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 at the end of the current year.The dollar amount of the adjustment to record Bad Debt Expense in the current year:

Accepted Answer

A)  decline, thus increasing the ending balance of the Allowance for Doubtful Accounts account. 
B)  increase, thus increasing the ending balance of the Allowance for Doubtful Accounts account. 
C)  decline, thus reducing the ending balance of the Allowance for Doubtful Accounts account. 
D)  increase, thus reducing the ending balance of the Allowance for Doubtful Accounts account.

Question 14

Using its aging of accounts receivable,Age Old,Inc.estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible.Prior to making its adjusting entry,the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000.After the adjustment,the:

Accepted Answer

A)  Allowance for Doubtful Accounts will have a $90,000 credit balance. 
B)  Allowance for Doubtful Accounts will have an $89,000 credit balance. 
C)  Allowance for Doubtful Accounts will have a $91,000 credit balance. 
D)  Bad Debt Expense will equal $90,000.

Question 15

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was ______ than the amount estimated in the prior period.Thus,bad debt expense will be ______ in the current period than had the unadjusted balance been a credit balance.

Accepted Answer

A)  less; less 
B)  greater; greater 
C)  greater; less 
D)  less; greater

Question 16

The percentage of credit sales method focuses on estimating the ending balance to be reported in the Allowance for Doubtful Account,whereas the aging of accounts receivable method focuses on estimating Bad Debt Expense for the period.

Accepted Answer

A) True 
 B)False

Question 17

A company decides to start allowing its customers to pay with national credit cards and PayPal.This decision would:

Accepted Answer

A)  slow down its cash collection. 
B)  speeds up its cash collection, but increase losses from customers writing bad checks. 
C)  speeds up its cash collection and reduce losses from customers writing bad checks. 
D)  slow down its cash collection, but decrease losses from customers writing bad checks

Question 18

The entry to record a recovery causes:

Accepted Answer

A)  an increase in net accounts receivable. 
B)  a decrease in net accounts receivable. 
C)  net accounts receivable to stay the same. 
D)  an increase in total revenues.

Question 19

Which of the following statements about the Allowance for Doubtful Accounts is correct?

Accepted Answer

A)  The Allowance for Doubtful Accounts is credited when a specific write-off is recorded. 
B)  Under the aging of accounts receivable method, Bad Debt Expense is calculated and then added to the beginning balance in the Allowance for Doubtful Accounts. 
C)  The Allowance for Doubtful Accounts is a contra-revenue account. 
D)  The Allowance for Doubtful Accounts has a normal credit balance.

Question 20

A company lent $10,000 to an employee who signed a 9%,6-month promissory note.The entry made by the company to record this loan to the employee will include a:

Accepted Answer

A)  debit to Accounts Receivable for $10,000. 
B)  credit to Sales for $10,000. 
C)  debit to Notes Receivable for $10,000. 
D)  credit to Notes Payable for $10,000.

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