Question 1

When a company has earned interest in the current period but has not yet recorded the interest,what type of adjustment is the company required to make?

Accepted Answer

An adjusting entry must be recorded at the end of the accounting period to accrue the interest earned includes a debit to Interest Receivable (to increase that asset account).and a credit to Interest Revenue (to increase that revenue account).

Question 2

The following information is available:  The receivables turnover ratio for 2019 is closest to:

Accepted Answer

Receivables turnover ratio = Net sales ÷ Average net receivables
$3,795,300 ÷ [($394,200 + $435,900)÷ 2] = 9.14 times

Question 3

The days-to-collect measures the:

Accepted Answer

The days to collect ratio measures the length of time (in days)it takes to collect accounts receivable.

Question 4

The following information is available:  The days to collect for 2019 is closest to:

Accepted Answer

Days to collect = 365 ÷ Receivables turnover ratio
= 365 ÷ 9.14 = 40 days (rounded)

Question 5

What effect does the adjusting entry for interest earned but yet not received have on the accounting equation?

Accepted Answer

An adjusting entry must be recorded at the end of the accounting period to accrue the interest earned includes a debit to Interest Receivable (to increase that asset account).and a credit to Interest Revenue (to increase that revenue account).When that entry is made,assets will increase and net income will also increase.As a result,stockholders' equity will also increase.

Question 6

The receivables turnover ratio:

Accepted Answer

The receivables turnover ratio indicates how many times,on average,this process of selling and collecting is repeated during the period.It is calculated by dividing net sales revenue by average net receivables.

Question 7

The days to collect receivables increased from 32 days last year to 48 days this year.Which of the following statements is correct?

Accepted Answer

Days to collect = 365 ÷ Receivables turnover ratio
Receivables turnover ratio = 365 ÷ Days to Collect
Last year:
= 365 ÷ 32 = 11.4 times
This year:
= 365 ÷ 48 = 7.6 times
An increase in the days to collect means a longer (worse)time to collect,which would cause an increase (rather than a decrease)in Bad Debt Expense.The receivables turnover increased (rather than decreased)from last year to this year.

Question 8

If the adjusting entry to accrue interest of $1,000 on a note receivable is omitted,then:

Accepted Answer

The adjusting entry to accrue the interest earned includes a debit to Interest Receivable (to increase that asset account).and a credit to Interest Revenue (to increase that revenue account)for $1,000.If that entry is not made,assets will be understated and net income will be understated.As a result,stockholders' equity will also be understated.

Question 9

ABC Corp.received a 3-month,8% per year,$1,500 note receivable on December 1.The adjusting entry on December 31 will include a:

Accepted Answer

Interest = Principal × Interest rate × Time
= $1,500 × 0.08 × 1/12 (for December)= $10
An adjusting entry must be recorded at the end of the accounting period to accrue the interest earned includes a debit to Interest Receivable (to increase that asset account).and a credit to Interest Revenue (to increase that revenue account)for $10.

Question 10

Norwood Co.reported a receivables turnover ratio of 8.0.Cost of goods sold was $700,000 and net sales revenue was $960,000.The average net receivables must have been

Accepted Answer

Receivables turnover ratio = Net sales ÷ Average net receivables
Average net receivables = Net sales ÷ Receivables turnover ratio
= $960,000 ÷ 8.0 = $120,000

Question 11

The Perry Company reported Accounts Receivable,Net of $66,600 at the beginning of the year and $72,600 at the end of the year.If the company's net sales revenue during the fourth year was $876,000,what are the days to collect during year? (Round all calculations to 1 decimal place. )

Accepted Answer

Receivables turnover ratio = Net sales ÷ Average net accounts receivable
= $876,000 ÷ [($66,600 + $72,600)÷ 2] = 12.6 times (rounded)
Days to Collect = 365 ÷ Receivables turnover ratio
= 365 ÷ 12.6 = 29.0 days

Question 12

Grandview Grinding,Inc.had net accounts receivable of $135,800 at the beginning of the year and $144,800 at the end of the year.If the company's net sales revenue during the year was $1,753,750,what is the receivables turnover ratio?

Accepted Answer

Receivables turnover ratio = Net sales revenue ÷ Average net receivables
= $1,753,750 ÷ [($135,800 + $144,800)÷ 2] = 12.5 times

Question 13

Inglewood Industries has net sales of $936,600 and average net receivables of $223,000 for the year.Which of the following statements is correct? (Round all calculations to one decimal place. )

Accepted Answer

Receivables turnover ratio = Net sales revenue ÷ Average net receivables
= $936,600 ÷ $223,000 = 4.2 times
Days to collect = 365 ÷ Receivables turnover ratio
= 365 ÷ 4.2 = 86.9 days

Question 14

A low accounts receivable turnover ratio indicates:

Accepted Answer

The lower the receivables turnover ratio,the slower the collection of receivables.

Question 15

What effect does the collection of a note receivable,excluding interest,have on the accounting equation?

Accepted Answer

The entry includes a debit to Cash (to increase that asset account)and a credit to Notes Receivable (to decrease that asset account).Total assets remain the same.Liabilities and stockholders' equity are not affected.

Question 16

Legacy,Inc.'s receivables turnover ratio increased from 11.8 last year to 14.1 this year.Which of the following statements is correct?

Accepted Answer

The higher the receivables turnover ratio,the faster the collection of receivables.

Question 17

ABC Corp.received a 3-month,at 8% per year,$1,500 note receivable on November 1.The adjusting entry on December 31 will include a:

Accepted Answer

Interest = Principal × Interest rate × Time
= $1,500 × 0.08 × 2/12 (for November and December)= $20
An adjusting entry must be recorded at the end of the accounting period to accrue the interest earned includes a debit to Interest Receivable (to increase that asset account).and a credit to Interest Revenue (to increase that revenue account)for $20.

Question 18

The financial statements of Pomegranate Produce contained the following information:  The average length of time it takes for Pomegranate Produce to collect accounts receivable is approximately:

Accepted Answer

Receivables turnover ratio = Net Sales Revenue ÷ Average Accounts Receivable
= $1,000,000 ÷ [($200,000 + $120,000)÷ 2] = 6.25 times
Days to collect = 365 ÷ Receivables turnover ratio
= 365 ÷ 6.25 = 58.4 days

Question 19

The financial statements of Pomegranate Produce contained the following information:  What is the receivables turnover ratio?

Accepted Answer

Receivables turnover ratio = Net Sales Revenue ÷ Average Accounts Receivable
= $1,000,000 ÷ [($200,000 + $120,000)÷ 2] = 6.25 times

Question 20

On November 1,2018,Lendem,Inc.loaned an employee $100,000 at 6% with both the interest and principal due in one year.No adjusting entries have been recorded in connection with this note.The adjusting entry to record the interest earned but not received as of December 31,2018 includes a:

Accepted Answer

Interest = Principal × Interest rate × Time
= $100,000 × 0.06 × 2/12 (for November and December)= $1,000
An adjusting entry must be recorded at the end of the accounting period to accrue the interest earned includes a debit to Interest Receivable (to increase that asset account).and a credit to Interest Revenue (to increase that revenue account)for $1,000.

Quiz 8: Receivables,Bad Debt Expense,and Interest Revenue