ACG Test 3 Fin

Lansing Construction Company had the following receivables: Employee advances $ 500 Notes receivable (i.e., promissory notes from customers in exchange for services performed by Lansing Construction Co. 3,500 Income taxes refundable 2,000 Accounts receivable 13,000 Notes receivable (i.e., promissory notes obtained from creditors who purchased used equipment from Lansing Construction Co. 3,000 Interest receivable 200 Loans to company officers 4,400 Based on this information, what is the company's "Trade Receivables"? $13,000 $16,500 $19,500 $18,700 $15,000

B. 16500

Which of the following is used to compute cash realizable value of accounts receivable? A. Bad Debt Expense B. Allowance for Doubtful Accounts C. None of these D. Cash

B. Allowance for Doubtful Accounts

Receivables are assets that must be reported in the order of ______? Time Cash Equivalents Liquidity Interest Rates

C. Liquidity

At what value are accounts receivable reported on the balance sheet? Cash realizable value Maturity value Present value Fair market value

a. Cash realizable value

Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.00. What is its average collection period (also known as the days in receivable ratio)? A. 52 days B. 30 days C. 2,555 days D. 2 days

A. 52 days Solution: The average collection period is computed by dividing the number of days in the year by the accounts receivable turnover. The average collection period = 365/7 = 52 days. Chapter 8, Learning objective 8: Identify ratios to analyze a company's receivables.

Good Stuff Retailers accepted $60,000 of Wells Fargo Visa credit card charges for merchandise sold on July 1. Wells Fargo charges 4% for its credit card use. What should Good Stuff Retailers debit as a result of this transaction? A. Cash for $57,600 and Service Charge Expense for $2,400 B. Accounts Receivable for $57,600 and Service Charge Expense for $2,400 C. Cash for $60,000 D. Accounts Receivable for $60,000

A. Cash for $57,600 and Service Charge Expense for $2,400 Solution: The entry includes a credit to Sales for $60,000, a $57,600 debit to Cash, and a debit to Service Charge Expense for $2,400. Chapter 8, Learning objective 9: Describe methods to accelerate the receipt of cash from receivables.

Which of the following accounts is debited when a company factors its accounts receivable? A. Service Charge Expense B. Interest Expense C. Accounts Receivable D. Loss on Sale of Accounts Receivable

A. Service Charge Expense

Edward Corporation had net credit sales during the year of $750,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $75,000 and at the end of the year was $110,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover? A. 10.0 B. 8.11 C. 6.81 D. 5.41

B. 8.11 Solution: The accounts receivable turnover ratio measures the liquidity of receivables. This ratio measures the number of times a company collects its accounts receivable's average balance. The accounts receivables turnover is computed by dividing net credit sales by average net accounts receivable. Accounts receivable turnover = $750,000/[($75,000 + $110,000)/2] = 8.11 The company's average accounts receivable for the year is $92,500. Its net credit sales are 8.11 times its average balance suggesting the company collected the equivalent of its average accounts receivable 8.11 times during the year.

A 120-day promissory note is issued on April 11. What is the note's maturity date? A. August 10 B. August 9 C. August 8 D. August 11

B. August 9 A 120-day note (or promissory note) is due 120 days after the date of issue. When counting days, ignore the date the note is issued but count the date it is paid (i.e., the due date). Since the note is issued on April 11, count 19 days in April (i.e., beginning with April 12 and ending with April 30). Counting all of May, June, and July produces a subtotal of 73 days through the end of November (i.e., subtotal = 19 + 31 + 30 + 31 = 111 days). Therefore count 9 days in August. The note is due August 9.

On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $21,000. During the year, it had net credit sales of $900,000 and it had $20,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 6% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31? A. $20,000 B. $19,000 C. $11,000 D. $12,000

C. $11,000 Solution: After the write-offs are recorded (but before the year-end adjusting entry), Allowance for Doubtful Accounts will have a credit balance of $1,000 ($21,000 credit beginning balance combined with a $20,000 debit for the write-offs). Using the percentage of receivables basis, the balance in the allowance account needs to be a credit balance of $12,000 (i.e., $200,000 x 6%). In order to have an ending balance of $12,000, a credit entry of $11,000 must be made to Allowance for Doubtful Accounts. Thus, the amount of the adjusting entry must be $11,000. Chapter 8, Learning objective 3: Describe the methods used to account for bad debts.

Which of these statements about national credit card (e.g., Visa) sales is correct? A. The retailer waits at least 24 hours to receive payment from the customer who used the credit card at a retailer. B. The issuer must assess the customer's credit worthiness when the customer uses a national credit card to make a purchase. C. A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer. D. The retailer considers sales involving the use of a national credit card to be sales on account.

C. A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer.

In October, Oliver Company sold merchandise on account to Mr. Reed for $100 with terms 2/10, n/30. Oliver Company uses the percentage of receivables basis for estimating uncollectible accounts on December 31. On May 25, Oliver Company determines that it will not collect the amount due from Mr. Reed. Prepare the journal entry to record the write-off on May 25. A. Allowance for Doubtful Accounts 98 Accounts Receivable 98 B. Allowance for Doubtful Accounts 100 Bad Debts Expense 100 C. Allowance for Doubtful Accounts 100 Accounts Receivable 100 D. Bad Debts Expense 100 Accounts Receivable 100

C. Allowance for Doubtful Accounts 100 Accounts Receivable 100

Which one of the following is not one of the principles of managing accounts receivable? A. Determining to whom to extend credit B. Accelerating cash receipts from receivables when necessary C. Cross-indexing journal-entries with the postings to the ledger D. Establishing a payment period E. Evaluate the liquidity of receivables

C. Cross-indexing journal-entries with the postings to the ledger

Net credit sales for the month are $5,000,000 for Karl Clothiers. Its accounts receivable balance is $180,000. The allowance is calculated as 8.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $6,000 before adjustment. How much is the balance of the allowance account after adjustment? A. Credit balance of $9,300 B. Debit balance of $15,300 C. Credit balance of $15,300 D. Debit balance of $9,300

Credit balance of $15,300 Solution: The ending balance required in the allowance account (i.e., Allowance for Doubtful Accounts) needs to be a credit balance equal to 8.5% times $180,000, or $15,300. Chapter 8, Learning objective 3: Describe the methods used to account for bad debts.

Net credit sales are $800,000, average net receivables total $150,000, average inventory totals $200,000, and the allowance for doubtful accounts totals $8,000. How much is the average collection period (also known as the days in receivable ratio)? A. 5.33 days B. 328.8 days C. 2.2 days D. 68.5 days

D. 68.5 The accounts receivable turnover is net credit sales divided by average net accounts receivable. The accounts receivable turnover is net credit sales ($800,000) divided by average net accounts receivable ($150,000), or 5.333 times. The average collection period is 365 divided by the accounts receivable turnover, which is 365/5.333 = 68.5 days.

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? A. Loss on Accounts Receivable account is debited. B. Accounts Receivable account is debited. C. Bad Debts Expense account is debited. D. Allowance for Doubtful Accounts is debited.

D. Allowance for Doubtful Accounts is debited.

When an uncollectible account is recovered after it has been written off, which of the following journal entries will be recorded first? A. Debit Account Receivable and credit Bad Debt Expense B. Debit Allowance for Doubtful Accounts and credit Accounts Receivable C. Debit Cash and credit Allowance for Doubtful Accounts D. Debit Accounts Receivable and credit Allowance for Doubtful Accounts

D. Debit Accounts Receivable and credit Allowance for Doubtful Accounts

Which one of the following is not a method used by companies to accelerate cash receipts? A. Offering discounts for early payment B. Accepting national credit cards for customer purchases C. Selling receivables to a factor D. Writing off receivables

D. Writing off receivables