ACCT 2001 Ch 8 Adaptive Practice

Overhaul Trucking and Two Men Deliveries both purchased services on account from Auto Body Repairs. Auto Body Repairs recorded Overhaul Trucking's purchase in Accounts Receivable, whereas they recorded Two Men Deliveries' purchase in Notes Receivable. What is the difference between these two transactions?

Auto Body Repairs expects payment from Overhaul Trucking within 60 days, but they expect payment from Two Men Deliveries in more than 60 days.

The financial statements of the Tyler Company report net sales of $300,000 and accounts receivable of $50,000 and $10,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for the Tyler Company? A 4 times B 10 times C 8 times D 2 times

B 10 times

Maynard Mills received a 60-day, 5% note for $10,000 on April 5. Which of the following statements is true? A Maynard Mills should record a total receivable due of $10,500 on April 5. B The principal of the note plus interest is due on June 4. C Maynard Mills will receive $10,000 plus interest of $500 at maturity. D The amount collected at maturity for this note is $10,000.

B The principal of the note plus interest is due on June 4.

How is the average collection period computed? A by dividing the accounts receivable turnover ratio by 365 days B by dividing net credit sales by ending gross accounts receivable C by dividing 365 days by the accounts receivable turnover ratio D by dividing net credit sales by average gross accounts receivable

C by dividing 365 days by the accounts receivable turnover ratio

What are the two key parties to a promissory note? A debtor and the payee B maker and a bank C maker and the payee D sender and the receiver

C maker and the payee

The financial statements of the Larson Company report net sales of $1,000,000 and accounts receivable of $80,000 and $60,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? A 10 B 23 C 25.5 D 21.1

C 25.5

Bad debt expense is? A an internal control weakness B an avoidable cost in doing business on a credit basis C a necessary risk of doing business on a credit basis D avoidable unless there is a recession

C a necessary risk of doing business on a credit basis

The entry to recognize the bad debt expense ________ when the allowance method is used. A increases net income B has no effect on current assets C decreases current assets D has no effect on net income

C decreases current assets

________ are said to be at "arm's length," while ________ are to be reported separately in the financial statements.

Credit sales to customers; loans to company officers

The financial statements of the Imagine Company report net sales of $1,000,000 and accounts receivable of $700,000 and $300,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for the Imagine Company? A 3 times B 2.5 times C 3.5 times D 2 times

D 2 times

Which of the following statements about a note receivable is true? A It can only be collected by a bank. B It eliminates the need for an allowance for doubtful accounts. C It takes the place of checks in a business firm. D It can be transferred to another party by endorsement.

D It can be transferred to another party by endorsement.

When a note receivable is honored, Cash is debited for the note's ________ value. A face B fair C market D maturity

D maturity

If the allowance method is used to account for uncollectible accounts, when is bad debt expense debited? A when a sale is made B when an account becomes bad and is written off C when a customer's account becomes past due D when management estimates the amount of uncollectibles

D when management estimates the amount of uncollectibles

What are notes or accounts receivable that result from sales transactions often called? A merchandise receivables B sales receivables C nontrade receivables D trade receivables

D trade receivables

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

Notes Receivable 1,000 Accounts Receivable 1,000

Valente Company received a $10,000, 12%, 1-year note from Andrea Foley on June 1st, as full payment on her account. Which of the following is the correct journal entry?

Notes Receivable 10,000 Accounts Receivable 10,000

The financial statements of the Darlington Company report net sales of $500,000 and accounts receivable of $40,000 and $20,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Darlington?

Sales / Average Accounts Receivable $500,000 ÷ [($40,000 + $20,000) ÷ 2] = 16.7

Two customers purchased $500 of merchandise from the same store on account. The terms of both sales were 2/10, n/30. If the first customer paid in 8 days and the second customer paid in 12 days, what would be the difference in the merchandise company's records on the date the customers paid in full?

The Cash entry for the first customer would be $490, and the Cash entry for the second customer would be $500.

Two customers purchased $315 of merchandise from the same store on account. The terms of both sales were 3/15, n/45. Interest charged after 45 days is 1% per month. The first customer paid $305.55, and the second customer paid $315. Yet both of their accounts were marked paid in full. Why?

The first customer paid within 15 days, and the second customer paid after 15 days but before 45 days.

Blair Automotive performed mechanic services for two customers. The first customer owed $5,280 for services, so Blair Automotive made them sign a written promise to pay in full after six months with an annual interest rate of 3.5%. The second customer owed $326 for services, so Blair Automotive plans to send them a bill within the next two weeks, due within 30 days of receipt of the bill. What is the difference between these two transactions?

The first transaction will be recorded as a note receivable, whereas the second transaction will be recorded as an account receivable.

which company is having the MOST problem collecting their accounts receivable? Net credit sales Average Net account receivable company 3 $490,000 $27,000 company 4 $1,400,000 $153,000

company 4. 1,400,000 / 153,000 = 9.15 365/9.15 = 39.9 days The only company with an average collection period longer than their credit term period is

Trade receivables are the sum of a

firm's accounts receivable + notes receivable

Because of their ________, Gibson Company lists short-term investments ________ short-term receivables on a classified balance sheet.

greater liquidity; before

Opportunities for fraud are ________ when a(n) ________ also handles cash.

increased; accounts receivable clerk

A ________ usually involves the

note receivable; collection of interest.

Grant Incorporated has loaned $15,000 to a corporate officer. Grant should classify the loan as a(n) ________ since the transaction is outside the normal course of business.

other receivable

When a company collects on an account after writing it off as uncollectible, it makes one journal entry

reversing the entry made when writing off the account, and another entry recording the collection in the usual manner.

A(n) ________ will cause accounts receivable turnover to increase.

shorter collection period

In order to measure the average amount of time that a receivable is outstanding, a company first needs to measure

the number of times, on average, it collects receivables during the period.

Owen Industries reports an average collection period of 19.6 days. Beginning and ending accounts receivable are $28,665 and $19,782, respectively. What were Owen's net credit sales? Round to the nearest cent.

$450,557 365/19.6= 18.6 (28665+19782) / 2 = 24223.5 x 18.6

Velocity Company reports an average collection period of 43.8 days. Beginning and ending accounts receivable are $61,225 and $51,025, respectively. What were Velocity's net credit sales?

$467,708 365/43.8 = 8.333333 (61,225 +51,025) / 2 = 56,125 56,125 x 8.33333= $467,708

On May 12, 2022, Hudson Merchandise sold merchandise on account to Guzman Housewares for $6,897, terms 3/10, n/30. If Guzman returns merchandise with a sale price of $318 on May 15, 2022, what amount will Hudson record in their Cash account if Guzman pays in full on May 20, 2022?

$6,381.63 6,897 - 318 = 6579 100-3 = 97% 6579 x 0.97 = $6381.63

The financial statements of Glazer Manufacturing report net sales of $400,000 and accounts receivable of $20,000 and $30,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days?

22.8 365 / ($400,000 ÷ [($20,000 + $30,000) ÷ 2]) = 22.8

What is the annual interest rate for a 60-day note issued with a face value of $2,500 that will earn interest of $42?

2500 x 60/360 = 416.67 42/416.67 = 10.1

The financial statements of R & P Imports report net sales of $600,000 and accounts receivable of $60,000 and $100,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for R & P Imports?

7.5 times $600,000 ÷ [($60,000 + $100,000) ÷ 2] = 7.5 times

The financial statements of Baker Company report net sales of $500,000 and accounts receivable of $10,000 and $15,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days?

9.1 $500,000 ÷ [($10,000 + $15,000) ÷ 2] = 40; 365 ÷ 40 = 9.1

Which of the following statements regarding reporting receivables on the balance sheet is true? A Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet. B Bad Debts Expense is subtracted from Accounts Receivable and is then shown as a deduction from Accounts Receivable on the balance sheet. C Bad Debts Expense is shown as a deduction from Accounts Receivable on the balance sheet. D Bad Debts Expense and Allowance for Doubtful Accounts are shown as a deduction from Accounts Receivable on the balance sheet.

A Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.

Maynard Mills received a 60-day, 5% note for $10,000 on April 5th. Which of the following statements is true? A The principal of the note plus interest is due on June 4th. B Maynard Mills should record a total receivable due of $10,500 on April 5th. C The maturity value of this note is $10,000. D Maynard Mills will receive $10,000 plus interest of $500 at maturity.

A The principal of the note plus interest is due on June 4th.

The financial statements of the Harrison Company report net sales of $200,000 and accounts receivable of $10,000 and $5,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? A 13.7 B 8 C 14.1 D 10.2

A 13.7

________ are usually part of trade receivables. A Accounts receivable B Income taxes refundable C Advances to employees D Other receivables

A Accounts receivable

What happens if the amount of uncollectible account expense is overstated at year end? A Net Accounts Receivable will be understated. B Net income will be overstated. C Stockholders' equity will be overstated. D Allowance for Doubtful Accounts will be understated.

A Net Accounts Receivable will be understated.

When recording the sale of receivables, what is the difference between journalizing a sale to a factor and a sale paid with a national credit card?

A sale to a factor affects two asset accounts and one stockholders' equity account, whereas a sale paid with a national credit card affects one asset account and two stockholders' equity accounts.

Hunter's Paradise sells merchandize on account to Outdoor Haven for $3,280, terms 2/10, n/30. What should the journal entry be to record this transaction for Hunter's Paradise?

Accounts Receivable $3,280 Sales Revenue $3,280

________ is used to calculate how quickly customers are making payments.

Accounts receivable turnover

Which of the following will occur if a company shortens its collection period?

Accounts receivable turnover will increase.

Assuming a 3/15, n/30 term and a merchandise return of $200, which of the following best explains what is meant by a journal entry that reads Debit Cash $1552 Debit Sales Discounts $48 Credit Accounts Receivable $1600

Adams Company originally made an $1,800 purchase then made its return and paid in full within 15 days.

Accounts receivable differ from notes receivable in that

accounts receivable are generally collected within 30 to 60 days and do not involve use of a formal instrument.

Which of the following best explains what is meant by a journal entry that reads Accounts Receivable Sales Revenue

a sale was made to xxx

Bad debt expense is classified as ________ on a multiple-step income statement.

a selling expense

Credit sales result in the creation of ________ for the company.

accounts receivable

Which of the following are the result of credit sales to a company? Select all that apply.

accounts receivable notes receivable