ch. 8 self test

Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of receivables balance using the percentage-of-receivables basis. If allowance for doubtful accounts has a credit balance of $5,000 before adjustment, what is the balance after adjustment?

a) $12,000 ($160,000 x .075)

Eddy corporation had net credit sales during the year of $800,000 and cost goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. What was the accounts receivable turnover?

a) 6.4 $800,000 / (($100,000 + $150,000) /2)

Good stuff retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by good stuff retailers will include a credit to sales revenue of $50,000 and debit(s) to:

a) cash $48,000 and service charge expense $2,000

Accounts and notes receivable are reported in the current assets section of the balances due sheet at:

a) cash (net) realizable value

Michael Co. accepts a $1,000, 3-month, 12% promissory note in settlement of an account with Tani Co. The entry to record this transaction is:

b) Notes receivable 1,000 Accounts receivable 1,000

In 2014, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2014, allowance for doubtful accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to allowance for doubtful accounts at December 31, 2014?

c) $32,000 ($200,000 x .10) + ($30,000 - $18,000)

Kersee compnay on June 15 sells merchandise on account to Soo Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng. Co. returns merchandise worth $300 to kersee company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received?

c) $686 ($1,000 - $300) x (100% - 2%)

Prall corporation sells it goods on terms of 2/10, n/30. It has an accounts receivable turnover of 7. What is its average collection period (days)?

c) 52 (365 days / 7)

Which of these statements about promissory notes is incorrect?

c) A promissory note is not a negotiable instrument

Which of these statements about visa credit card sales is incorrect?

c) The retailer must wait to receive payment from the issuer

A receivable that is evidenced by a formal instrument and that normally requires the payment of interest is

c) a note receivable

An analysis and aging of the accounts receivable of Raja Company at December 31 reveal these data: Accounts receivable 800,000 Allowance for doubtful accounts per books before adjustment(credit) 50,000 Amounts expected to become uncollectible 65,000 What is the cash realizable value of the accounts receivable at December 31, after adjustment?

d) $735,000 ($800,000 - $65,000)

Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. The entry is made by Schleis Co. when the note is collected, assuming no interest has previously been accrued, is:

d) Cash 10,300 Notes receivable 10,000 Interest revenue 300

If a company is concerned about extending credit to a risky customer, it could do any of the following except:

d) provide the customer a lengthy payment period to increase the chance of paying

A company can accelerate its cash receipts by all of the following except:

d) writing of receivables