chapter 5 review questions

On August 1, 2018, Azores, Inc., sold equipment and accepted a six-month, 11% $30,000 note receivable. How much interest revenue will Azores have for the life of the note?

$1,650

The balance in Accounts Receivable was $800,000 at the beginning of the year and $500,000 at the end of the year. Sales on account for the year totaled $2,400,000. How much cash was collected from customers during the period?

$2,700,000

The data presented below are for Falconi, Inc. for 2021. Credit sales during the year: $2,100,000 Accounts receivable—December 31, 2021 395,000 Allowance for doubtful accounts—December 31, 2021 20,000 Bad debts expense for the year 17,000 What amount will Falconi show on its year-end balance sheet for the net realizable value of its accounts receivable?

$375,000

On January 1, 2020, Accounts Receivable and Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550, respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2021. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The amount of bad debts expense recognized in the 2021 income statement will be:

$595

Gridlock Incorporated uses the percentage-of-sales method to estimate bad debts. Net credit sales for the current year amount to $1,000,000, and management estimates 4% will be uncollectible. Allowance for Uncollectible Accounts prior to adjustment has a balance of $1,900. The amount of expense reported on the income statement and the balance in Allowance for Uncollectible Accounts respectively, will be:

Bad Debt Expense: $40,000 A.F.D.A.: $41,900

Which of the following statements is true regarding dividend income?

Dividend income is reported on the income statement

Which one of the following is not an accurate description of Allowance for Doubtful Accounts?

Income statement account

What are the effects on the accounting equation from the purchase of a short-term investment?

No effects—assets increase and decrease by the same amount

Why do businesses invest in short-term investments?

None of these are correct

What is the distinguishing characteristic between accounts receivable and notes receivable?

Notes receivable result from a written promise to pay within a specified amount of time

Which one of the following statements is true?

The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the subsidiary ledger for accounts receivable

Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long?

The company may need to borrow to acquire operating cash

During 2021, the accounts receivable turnover ratio for Cordner Company increased from 10 to 14 times per year. Which one of the following statements is the most likely explanation for the change?

The company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections