Q: Which formula correctly calculates the Quick (Acid-Test) Ratio?

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

Q: What is the correct formula for Accounts Receivable Turnover?

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

Q: What is the correct formula for calculating interest revenue on a note receivable for a period less than a year?

$$\text{Principal} \times \text{Interest Rate} \times \frac{\text{Months}}{12}$$

Question 1

According to GAAP, when should revenue be recognized for the sale of goods?

Accepted Answer

When the goods are shipped and control transfers to the customer.

Question 2

Apple Inc. sells 30,000 iPhones to AT&T Wireless for $100 each on account. What is the correct journal entry to record the sale?

Accepted Answer

Debit Accounts Receivable $$3,000,000; Credit Sales Revenue 3$$,000,000

Question 3

If Apple’s historical experience is that 1% of items sold are returned and June sales revenue is $200 million, what is the estimated sales returns for June?

Accepted Answer

$2,000,000

Question 4

Ace Hardware offers a 2/10, n/30 sales discount. If a customer pays a $100,000 invoice within 10 days, how much cash does Ace Hardware receive?

Accepted Answer

$98,000

Question 5

Which formula correctly calculates the Quick (Acid-Test) Ratio?

Accepted Answer

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

Question 6

A company estimates uncollectible-account expense using the percent-of-sales method. If total revenues are $394,328 million and the estimated rate is 0.0002, what is the expense?

Accepted Answer

$$79$$ million

Question 7

Which of the following is NOT a strategy to speed up cash flow from sales?

Accepted Answer

Extending credit to all customers regardless of creditworthiness

Question 8

What is the correct formula for Accounts Receivable Turnover?

Accepted Answer

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

Question 9

If Apple’s accounts receivable is $$28,284 million and the allowance for uncollectible accounts is 100 $$million, what is the net realizable value?

Accepted Answer

$$28,184$$ million

Question 10

Which method adjusts the allowance for uncollectible accounts TO the amount determined by an aging schedule?

Accepted Answer

Aging-of-receivables method

Question 11

A company’s accounts receivable had a beginning balance of $$200, sales of 1$$,800, write-offs of $$100, and an ending balance of 400. $$What is the amount collected from customers?

Accepted Answer

$$1,500$$

Question 12

Which journal entry records the write-off of uncollectible accounts under the allowance method?

Accepted Answer

Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable

Question 13

What is the maturity value of a $1,000 note receivable at 9% annual interest for 6 months?

Accepted Answer

$$1,045$$

Question 14

Which of the following is a disadvantage of the direct write-off method for uncollectible accounts?

Accepted Answer

It may overstate assets on the balance sheet.

Question 15

If a company’s accounts receivable turnover is 14.48, what is the average days’ sales outstanding (DSO)?

Accepted Answer

$$25.2$$ days

Question 16

Which of the following best describes a pivot table used in analyzing receivables collectibility?

Accepted Answer

A tool for summarizing data, such as sums, averages, and counts, to focus on specific information.

Question 17

What is the correct formula for calculating interest revenue on a note receivable for a period less than a year?

Accepted Answer

$$	ext{Principal} 	imes 	ext{Interest Rate} 	imes \frac{	ext{Months}}{12}$$

Question 18

Which account is credited when a customer returns goods and receives a refund?

Accepted Answer

Sales Refunds Payable

Question 19

When using the aging-of-receivables method, what is the primary purpose of the aging schedule?

Accepted Answer

To estimate the balance needed in the allowance for uncollectible accounts.

Question 20

Which of the following is reported on the income statement as a result of uncollectible accounts?

Accepted Answer

Uncollectible-account expense (bad debt expense)

Receivables and Revenue: Recognition, Management, and Analysis

Study Guide - Practice Questions

Study Guide - Flashcards