Q: Which formula is used to calculate interest income on an interest-bearing note?

$$\text{Principal Amount} \times \text{Annual Interest Rate} \times \text{Time in Terms of One Year}$$

Q: A company’s accounts receivable are reported at their carrying amount on the statement of financial position. Which equation represents the carrying amount?

$$\text{Accounts Receivable} - \text{Allowance for Doubtful Accounts}$$

Question 1

Which of the following best describes the Allowance for Doubtful Accounts?

Accepted Answer

A contra asset account that reduces the carrying amount of accounts receivable.

Question 2

A company has accounts receivable of $$200,000 and an Allowance for Doubtful Accounts with a credit balance of 10$$,000. If the company estimates that $11,000 of receivables will be uncollectible, what is the amount of Bad Debts Expense to be recorded?

Accepted Answer

$1,000

Question 3

Which of the following transactions would be classified as a 'Notes Receivable' on the statement of financial position?

Accepted Answer

A loan to a company officer with a formal promissory note.

Question 4

A company writes off a $2,500 account as uncollectible. What is the effect on the carrying amount of accounts receivable?

Accepted Answer

There is no effect on the carrying amount.

Question 5

Which formula is used to calculate interest income on an interest-bearing note?

Accepted Answer

$$	ext{Principal Amount} 	imes 	ext{Annual Interest Rate} 	imes 	ext{Time in Terms of One Year}$$

Question 6

A company uses the aging of accounts receivable method to estimate uncollectibles. If the aging schedule shows $$5,000 as the required balance in the Allowance for Doubtful Accounts, and the current credit balance is 1$$,200, what adjusting entry should be made?

Accepted Answer

Debit Bad Debts Expense $$3,800; Credit Allowance for Doubtful Accounts 3$$,800

Question 7

Which of the following best describes the purpose of an accounts receivable subsidiary ledger?

Accepted Answer

To provide details supporting the total balance for accounts receivable in the general ledger.

Question 8

If a note receivable is dishonoured and eventual collection is not expected, which journal entry is correct?

Accepted Answer

Debit Bad Debts Expense; Credit Notes Receivable and Interest Receivable

Question 9

A company has sales of $$2,000,000 and average accounts receivable of 250$$,000. What is the receivables turnover ratio?

Accepted Answer

$$8.0$$

Question 10

Which of the following is NOT a principle of sound accounts receivable management?

Accepted Answer

Extending credit to all customers regardless of creditworthiness.

Question 11

A company’s accounts receivable are reported at their carrying amount on the statement of financial position. Which equation represents the carrying amount?

Accepted Answer

$$	ext{Accounts Receivable} - 	ext{Allowance for Doubtful Accounts}$$

Question 12

If a previously written-off account is later collected, what is the correct sequence of entries under the allowance method?

Accepted Answer

Reverse the write-off entry, then record the cash collection.

Question 13

Which of the following would be classified as 'Other Receivables'?

Accepted Answer

Interest receivable from a loan to an employee.

Question 14

A company estimates that 5% of its $$100,000 accounts receivable will be uncollectible. If the Allowance for Doubtful Accounts has a debit balance of 1$$,000 before adjustment, what is the required adjusting entry?

Accepted Answer

Debit Bad Debts Expense $$6,000; Credit Allowance for Doubtful Accounts 6$$,000

Question 15

Which of the following best describes the effect of a write-off of an uncollectible account under the allowance method?

Accepted Answer

Total assets remain unchanged.

Question 16

A company sold merchandise on account for $9,300. How should this transaction be recorded?

Accepted Answer

Debit Accounts Receivable $$9,300; Credit Sales 9$$,300

Question 17

If a company wants to evaluate how quickly it collects its receivables, which ratio should it use?

Accepted Answer

Receivables turnover ratio

Question 18

A company has a receivables turnover ratio of 10. What is its average collection period (in days), assuming a 365-day year?

Accepted Answer

$$36.5$$ days

Question 19

Which of the following is TRUE regarding the statement presentation of receivables?

Accepted Answer

Receivables due more than a year are presented separately in the non-current assets section.

Chapter 8: Reporting and Analyzing Receivables – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards