1. Separate accounts receivable information for each customer is important because it reveals all of the following except:

A. How much each customer has purchased on credit.
B. How much each customer has paid.
C. How much each customer still owes.
D. The basis for sending bills to customers.
E. When the customer intends to pay outstanding balances.

Answer: How much each customer has purchased on credit.

2. A credit sale of $5,275 to a customer would result in which of the following?

A. A debit to the Accounts Receivable account in the general ledger and a debit to the customer’s account in the accounts receivable subsidiary ledger.
B. A credit to the Accounts Receivable account in the general ledger and a credit to the customer’s account in the accounts receivable subsidiary ledger.
C. A debit to the Accounts Receivable account in the general ledger and a credit to the customer’s account in the accounts receivable subsidiary ledger.
D. A credit to the Accounts Receivable account in the general ledger and a debit to the customer’s account in the accounts receivable subsidiary ledger.
E. A credit to Sales and a credit to the customer’s account in the accounts receivable subsidiary ledger.

Answer: A debit to the Accounts Receivable account in the general ledger and a debit to the customer’s account in the accounts receivable subsidiary ledger

3. Sellers allow customers to use credit cards for all of the following reasons except:

A. To be able to charge more due to fees and interest.
B. To lessen the risk of extending credit to customers who cannot pay.
C. To speed up receipt of cash from the credit sale.
D. To increase total sales volume.
E. To avoid having to evaluate a customer’s credit standing for each sale.

Answer: To be able to charge more due to fees and interest.

4. Which of the following is not true regarding a credit card expense?

A. Credit card expense may be classified as a “discount” deducted from sales to get net sales.
B. Credit card expense may be classified as a selling expense.
C. Credit card expense may be classified as an administrative expense.
D. Credit card expense is not recorded by the seller.
E. Credit card expense is a fee the seller pays for services provided by the card company.

Answer: Credit card expense is not recorded by the seller.

5. A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

A. A cash equivalent.
B. An account receivable.
C. A note receivable.
D. A short-term investment.
E. A note payable.

Answer: note receivable

6. The person who signs a note receivable and promises to pay the principal and interest is the:

A. Maker.
B. Payee.
C. Holder.
D. Receiver.
E. Owner.

Answer: Maker.

7. Reporting the details of notes is consistent with which accounting principle that requires financial statements (including footnotes) to report all relevant information?

A. Relevance.
B. Full disclosure.
C. Evaluation.
D. Materiality.
E. Matching.

Answer: Full disclosure.

8. A promissory note:

A. Is a short-term investment for the maker.
B. Is a written promise to pay a specified amount of money at a certain date.
C. Is a liability to the payee.
D. Is another name for an installment receivable.
E. Cannot be used in payment of an account receivable.

Answer: Is a written promise to pay a specified amount of money at a certain date.

9. The maturity date of a note receivable:

A. Is the day of the credit sale.
B. Is the day the note was signed.
C. Is the day the note is due to be repaid.
D. Is the date of the first payment.
E. Is the last day of the month.

Answer: Is the day the note is due to be repaid.

10. The interest accrued on $7,500 at 6% for 90 days is:

A. $450.00.
B. $37.50.
C. $112.50.
D. $11.25.
E. $1,800.00.

Answer: $112.50.

11. A 90-day note issued on April 10 matures on:

A. July 9.
B. July 10.
C. July 11.
D. July 12.
E. July 13.

Answer: July 9.

12. A company receives a 10%, 120-day note for $1,500. The total interest due on the maturity date is:

A. $50.00.
B. $150.00.
C. $75.00.
D. $37.50.
E. $87.50.

Answer: $50.00.

13. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is:

A. $900
B. $75
C. $450
D. $300
E. $1,800

Answer:

14. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The maturity value of the note is:

A. $10,450
B. $10,900
C. $10,075
D. $11,800
E. $10,300

Answer: $10,450

15. A finance company or bank that purchases and takes ownership of another company’s accounts receivable is called a:

A. Payer.
B. Pledger.
C. Factor.
D. Payee.
E. Pledgee.

Answer: Factor.

16. Factoring receivables is beneficial to a seller for all of the following reasons except:

A. Allows firms to receive cash earlier.
B. Passes ownership of the receivables to the factor.
C. There are no fees for factoring.
D. Seller avoids the cost of billing and accounting for receivables.
E. May transfer the risk of bad debts to the factor.

Answer: There are no fees for factoring

17. A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and credit to Accounts Receivable of $46,800.
B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C. Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $45,000.
D. Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

Answer: Debit to Cash of $43,650, a Debit to Factoring Fee Expense of $1,350, and Credit to Account Receivable of $45,000

18. The quality of receivables refers to:

A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.

Answer: The likelihood of collection without loss.

19. The account receivable turnover measures:

A. How long it takes to sell accounts receivable to a factor.
B. How often, on average, receivables are received and collected during the period.
C. The relation of cash sales to credit sales.
D. How long it takes to sell merchandise inventory.
E. All of the options are correct.

Answer: How often, on average, receivables are received and collected during the period.

20. The accounts receivable turnover is calculated by:

A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.

Answer: Dividing net sales by average accounts receivable.

21. A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its accounts receivable turnover for the period?

A. 0.20
B. 5.00
C. 20.0
D. 73.0
E. 3.0

Answer: 3.0

22. Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is:

A. 37.8.
B. 9.7.
C. 68.3.
D. 7.1.
E. 51.7.

Answer:68.3

23. Axle Co.’s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman’s turnover was 9.3 for this year and 9.3 for last year. These results imply that:

A. Betterman has the better turnover for both years.
B. Axle has the better turnover for both years.
C. Betterman’s turnover is improving.
D. Axle’s credit policies are too loose.
E. Betterman is collecting its receivables more quickly than Axle in both years.

Answer:

24. A company had net sales of $600,000, total sales of $750,000, and an average accounts receivable of $75,000. Its accounts receivable turnover equals:

A. .13
B. .80
C. 7.75
D. 8.00
E. 10.00

Answer: 8.00

25. A company had total sales of $600,000, net sales of $550,000, and an average accounts receivable of $95,000. Its accounts receivable turnover equals:

A. 6.1
B. 63.0
C. 54.8
D. 1.1
E. 6.3

Answer:

26. The matching principle, as applied to bad debts, requires:

A. That expenses be ignored if their effect on the financial statements is unimportant to users’ business decisions.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.

Answer: The use of the allowance method of accounting for bad debts.

27. The materiality constraint, as applied to bad debts:

A. Permits the use of the direct write-off method when bad debts expenses are relatively small.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. Requires that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.

Answer: Permits the use of the direct write-off method when bad debts expenses are relatively small.

28. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.

Answer: No effect on the expenses of the current period.

29. On October 17 of the current year, a company determined that a customer’s account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company’s net income and total assets?

A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.

Answer: Decrease in net income; decrease in total assets.

30. Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

A. Accounts Receivable—A. Hopkins 2,000 Allowance for Doubtful Accounts 2,000
B. Allowance for Doubtful Accounts 2,000 Bad debts expense 2,000
C. Accounts Receivable—A. Hopkins 2,000 Bad debts expense 2,000Cash 2,000 Accounts Receivable—A. Hopkins 2,000
D. Allowance for Doubtful Accounts 2,000 Accounts Receivable—A. Hopkins 2,000
E. Cash 2,000 Accounts Receivable—A. Hopkins 2,000

Answer: Bad Debts Expense 2,000 (debit)
Accounts Receivable—A. Hopkins 2,000 (credit)

31. Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

A. Accounts Receivable—A. Hopkins 2,000 Allowance for Doubtful Accounts 2,000Cash 2,000 Accounts Receivable—A. Hopkins 2,000
B. Cash 2,000 Bad debts expense 2,000
C. Accounts Receivable—A. Hopkins 2,000 Bad debts expense 2,000Cash 2,000 Accounts Receivable—A. Hopkins 2,000
D. Allowance for Doubtful Accounts 2,000 Accounts Receivable—A. Hopkins 2,000Accounts Receivable—A. Hopkins 2,000 Cash 2,000
E. Cash 2,000 Accounts Receivable—A. Hopkins 2,000

Answer: Accounts Receivable—A. Hopkins 2,000 (debit)
Bad debts expense 2,000 (credit)
Cash 2,000 (debit)
Accounts Receivable—A. Hopkins 2,000 (credit)

32. The allowance method based on the idea that a given percent of a company’s credit sales for the period is uncollectible is:

A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. Direct write-off method.
E. Factoring method.

Answer: The percent of sales method.

33. A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the:

A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percentage of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.

Answer: Aging of accounts receivable method.

34. Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?

A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.

Answer: Allowance method of accounting for bad debts.

35. On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of $921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?

A. $5,715.
B. $6,636.
C. $4,794.
D. $5,770.
E. $5,660.

Answer: $4,794.

36. A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A. Bad Debts Expense 15,750 Allowance for Doubtful Accounts 15,750
B. Bad Debts Expense 15,375 Allowance for Doubtful Accounts 15,375
C. Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125
D. Accounts Receivable 15,750 Bad Debts Expense 375 Sales 16,125
E. Accounts Receivable 16,125 Allowance for Doubtful Accounts 16,125

Answer: Bad Debts Expense 15,375 Allowance for Doubtful Accounts 15,375

37. A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company’s unadjusted trial balance reported the following selected amounts: Accounts receivable $375,000 debitAllowance for uncollectible accounts 500 debitNet Sales 800,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

A. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500

Answer:

38. A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company’s unadjusted trial balance reported the following selected amounts: Accounts receivable $375,000 debitAllowance for uncollectible accounts 500 debitNet Sales 800,000 credit All sales are made on credit. Based on past experience, the company estimates 0.6% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A. Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.
B. Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
C. Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
D. Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
E. Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.

Answer:

39. A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

A. $3,600
B. $3,568
C. $3,632
D. $2,800
E. $4,400

Answer: $4,400

40. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper’s entry to record the transaction should be:

A. Debit Notes Receivable for $25,000; credit Cash $25,000.
B. Debit Accounts Receivable $25,000; credit Notes Receivable $25,000.
C. Debit Cash $25,000; credit Notes Receivable for $25,000.
D. Debit Notes Payable $25,000; credit Accounts Payable $25,000.
E. Debit Notes Receivable $25,000; credit Sales $25,000.

Answer: Debit Notes Receivable for $25,000; credit Cash $25,000

41. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is:

A. $1,750.
B. $145.83.
C. $437.50.
D. $19.44.
E. $875.00.

Answer: . $437.50.

42. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper’s entry to record the collection of the note and interest at maturity should be:

A. Debit Cash for $25,000; credit Notes Receivable $25,000.
B. Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.
C. Debit Cash $25,437.50; credit Notes Receivable for $25,437.50.
D. Debit Notes Payable $25,000; Debit Interest Expense $1,750; credit Cash $26,750.
E. Debit Cash $26,750; credit Interest Revenue $1,750, credit Notes Receivable $25,000.

Answer:Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.

43. Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 2. Lemming’s end-of-period adjusting entry on December 31 should be:

A. Debit Cash for $250; credit Notes Receivable $250.
B. Debit Interest Revenue $500; credit Notes Receivable $500.
C. Debit Interest Receivable $250; credit Interest Revenue $250.
D. Debit Interest Receivable $500; credit Interest Revenue $500.
E. Debit Notes Receivable $500; credit Interest Revenue $500.

Answer: Debit Interest Receivable $250; credit Interest Revenue $250.

44. The amount due on the maturity date of a $6,000, 60-day 4%, note receivable is:

A. $6,000.
B. $6,240.
C. $5,760.
D. $6,040.
E. $5,960.

Answer:$6,040.

45. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier’s journal entry to record the sales transaction is:

A. Debit Accounts Receivable $4,000; credit Sales $4,000
B. Debit Notes Receivable $4,000; credit Sales $4,000
C. Debit Accounts Receivable $4,060; credit Sales $4,060
D. Debit Notes Receivable $4,060; credit Sales $4,060
E. Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4,060

Answer: Debit Notes Receivable $4,000; credit Sales $4,000

46. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier’s journal entry to record the collection on the maturity date is:

A. Debit Cash $4,060; credit Notes Receivable $4,060
B. Debit Notes Receivable $4,000; credit Cash $4,000
C. Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,000
D. Debit Notes Receivable $4,060; credit Sales $4,060
E. Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000

Answer: Debit Notes Receivable $4,000; credit Cash $4,000

47. Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World’s journal entry to record the sales transaction is:

A. Debit Accounts Receivable $7,800; credit Sales $7,800
B. Debit Accounts Receivable $7,904; credit Sales $7,904
C. Debit Notes Receivable $7,800; credit Sales $7,800
D. Debit Notes Receivable $7,904; credit Sales $7,904
E. Debit Notes Receivable $7,800; debit Interest Receivable $104; credit Sales $7,904

Answer: Debit to Cash for $7,904
Credit Interest Revenue for $104 (7800.0860/360)
Credit Notes Receivable for $7,800

48. Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World’s journal entry to record the collection on the maturity date is:

A. Debit Cash $7,800; credit Accounts Receivable $7,800
B. Debit Accounts Receivable $7,904; credit Notes Receivable $7,800; credit Interest Receivable $104
C. Debit Notes Receivable $7,800; credit Cash $7,904; credit Interest Revenue $104
D. Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104
E. Debit Cash $7,904; credit Notes Receivable $7,904

Answer: Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104

49. Honoring a note receivable indicates that the maker has:

A. Signed.
B. Paid in full.
C. Guaranteed.
D. Notarized.
E. Cosigned.

Answer: Paid in full.

50. Failure by a promissory notes’ maker to pay the amount due at maturity is known as:

A. Protesting a note.
B. Closing a note.
C. Dishonoring a note.
D. Discounting a note.
E. Depreciating a note.

Answer: Dishonoring a note.

Related answered questions GSU PHYS 2211 Mastering Physics

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