Q: Which of the following is the correct formula for calculating the quick (acid-test) ratio?

$$\frac{\text{Cash and cash equivalents} + \text{Short-term investments} + \text{Net accounts receivable}}{\text{Total current liabilities}}$$

Q: Which of the following is the correct formula for calculating accounts receivable turnover?

$$\frac{\text{Net credit sales}}{\text{Average net accounts receivable}}$$

Q: Which of the following is the correct formula for calculating interest revenue on a note receivable?

$$\text{Principal} \times \text{Annual Rate} \times \frac{\text{Months Outstanding}}{12}$$

Question 1

Which of the following best describes when revenue should be recognized under GAAP for the sale of goods?

Accepted Answer

When the goods are delivered and control is transferred to the customer.

Question 2

Apple Inc. sells iPhones to a retailer with shipping terms FOB destination. The goods are shipped on December 29, 2023, and received by the retailer on January 4, 2024. When should Apple recognize the revenue?

Accepted Answer

January 4, 2024

Question 3

A company offers terms 2/10, n/30 on a $5,000 sale. If the customer pays within the discount period, how much cash does the company receive?

Accepted Answer

$4,900

Question 4

Which journal entry correctly records the estimated sales returns at the end of a period for a company with significant return experience?

Accepted Answer

Debit Sales Returns and Allowances, Credit Refunds Payable

Question 5

A company has the following balances before adjustment: Accounts Receivable $$20,000, Allowance for Uncollectible Accounts (credit) 1$$,450, and annual sales of $300,000. If 1% of sales are estimated uncollectible, what is the year-end balance in Allowance for Uncollectible Accounts using the percent-of-sales method?

Accepted Answer

$4,450

Question 6

Which of the following is the correct formula for calculating the quick (acid-test) ratio?

Accepted Answer

$$\frac{	ext{Cash and cash equivalents} + 	ext{Short-term investments} + 	ext{Net accounts receivable}}{	ext{Total current liabilities}}$$

Question 7

A company estimates uncollectible accounts using the aging-of-receivables method. The aging schedule shows a required allowance of $$3,700. If the Allowance for Uncollectible Accounts has a 500 $$credit balance before adjustment, what is the Uncollectible Account Expense for the year?

Accepted Answer

$3,200

Question 8

Which of the following best describes the effect of writing off a specific uncollectible account under the allowance method?

Accepted Answer

Net realizable value of accounts receivable remains unchanged.

Question 9

A company has the following data: Beginning Accounts Receivable $$10,000, Sales on account 50$$,000, Collections from customers $$45,000, Write-offs 2$$,000. What is the ending balance of Accounts Receivable?

Accepted Answer

$13,000

Question 10

Which of the following is NOT a reason why the direct write-off method is generally not acceptable under GAAP?

Accepted Answer

It is more complex than the allowance method.

Question 11

A company issues a 6-month, $10,000 note receivable with an annual interest rate of 8%. What is the total interest revenue earned at maturity?

Accepted Answer

$400

Question 12

Which of the following is the correct formula for calculating accounts receivable turnover?

Accepted Answer

$$\frac{	ext{Net credit sales}}{	ext{Average net accounts receivable}}$$

Question 13

If a company’s accounts receivable turnover is 18, what is its days sales outstanding (DSO)?

Accepted Answer

$$\frac{365}{18} = 20.28$$ days

Question 14

A company sells $$2,000 of merchandise on account with terms 2/10, n/30. The customer returns 800 of $$merchandise and pays the balance within the discount period. What is the net revenue recorded for these transactions?

Accepted Answer

$1,176

Question 15

Which of the following is NOT included in the calculation of the quick (acid-test) ratio?

Accepted Answer

Inventory

Question 16

Which of the following best describes a 'performance obligation' under the revenue recognition principle?

Accepted Answer

A promise to transfer a good or service to a customer.

Question 17

A company uses the percent-of-sales method to estimate uncollectible accounts. If sales are $500,000 and the estimated uncollectible rate is 0.5%, what is the uncollectible account expense for the period?

Accepted Answer

$2,500

Question 18

Which of the following is the correct formula for calculating interest revenue on a note receivable?

Accepted Answer

$$	ext{Principal} 	imes 	ext{Annual Rate} 	imes \frac{	ext{Months Outstanding}}{12}$$

Question 19

Which of the following is a key advantage of using an aging schedule (such as with an Excel pivot table) to analyze receivables?

Accepted Answer

It allows for more precise estimation of uncollectible accounts based on how long receivables have been outstanding.

Chapter 5 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards