Question 1

On November 2,2017,Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off.What effect will this write-off have on Quaint's 2017 net income and balance sheet totals assuming the allowance method is used to account for bad debts?

Accepted Answer

Under the allowance method, bad debts expense is estimated and recorded in the period when the related sales occur, not when specific accounts are deemed uncollectible. The write-off of an account receivable under the allowance method involves reducing both the accounts receivable and the allowance for doubtful accounts balances, which has no effect on net income or total assets.

Question 2

Verilux Company sold merchandise to Flight Corp.on November 1,2017,for $10,000.Verilux accepted a promissory note from Flight Corp.for $10,000.The note has a term of five months and a stated interest rate of 7%.Verilux's accounting period ends on December 31,2017.What amount should Verilux recognize as interest revenue on December 31,2017?

Accepted Answer

Verilux recognizes interest revenue using the simple interest method.

Interest revenue = Principal x Rate x Time

Since the note has a term of five months, the time period that has elapsed as of December 31,2017 is 2 months (November and December).

Interest Revenue = $10,000 x 0.07 x (2/12) = $116.67

Therefore, Verilux should recognize $116.67 as interest revenue on December 31, 2017.

Option B is correct.

Question 3

Utah Co.sold merchandise to Big Sky Corp.on December 1,2017,for $9,000 and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31.What amount should Utah recognize as interest revenue on December 31,2017 (if a 360-day year is assumed)?

Accepted Answer

Interest revenue is calculated using the formula: Principal amount x Interest rate x Time (in terms of year). For the period from December 1 to December 31 (31 days), the interest revenue is: $9,000 x 8% x (31/360) = $60.

Question 4

Utah Co.sold merchandise to Big Sky Corp.on December 1,2017,for $9,000 and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31. What is the actual maturity date of the note?

Accepted Answer

The actual maturity date of the note is calculated by adding the term of the note (90 days) to the date the note was issued (December 1, 2017). This calculation results in March 1, 2018, as the maturity date.

Question 5

What can a company try to improve its accounts receivable turnover ratio?

Accepted Answer

By offering customers credit terms of 2/10, n/30, the company is giving them a larger incentive to pay their bills earlier, which could help speed up the collection process and improve the accounts receivable turnover ratio. Lowering selling prices or reducing the number of employees working in the credit department may not necessarily improve the ratio, and increasing the sales force may lead to more sales but not necessarily better collections.

Question 6

Genuine Parts received a promissory note from a customer on March 1,2017.The face amount of the note is $8,000;the terms are 90 days and 9% interest.What amount of interest will Genuine Parts receive when the note is paid?

Accepted Answer

To calculate the interest, we can use the simple interest formula:

Interest = Principal x Rate x Time

Here, the Principal is $8,000, the Rate is 9%, and the Time is 90/360 (since it's a 90-day note and we're calculating the interest for the entire period).

Interest = $8,000 x 9% x 90/360
Interest = $180

Therefore, the amount of interest Genuine Parts will receive when the note is paid is $180.

Question 7

The party to a promissory note that agrees to repay money on the maturity date of the note is called the

Accepted Answer

The maker of the promissory note is the party that agrees to repay the money on the maturity date of the note.

Question 8

Espat Corp.reported net sales (all on credit)of $1,600,000 and cost of goods sold of $1,100,000 for 2017.Its beginning balance of Accounts Receivable was $150,000.The accounts receivable balance decreased by $10,000 during 2017.Rounded to two decimal places,what is Espat's accounts receivable turnover ratio for 2017?

Accepted Answer

The answer of Espat Corp.reported net sales (all on credit)of...

Question 9

On January 1,2017,Accounts Receivable and Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550,respectively.During the year,the company reported $70,000 of credit sales.There were $400 of receivables written off as uncollectible in 2017.Cash collections of receivables amounted to $74,700.The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. ​
The net realizable value of receivables appearing on the 2017 balance sheet will amount to

Accepted Answer

First, we need to calculate the ending balance of Accounts Receivable by adding the credit sales and deducting the write-off amount:

Beginning balance: $20,000 
+ Credit sales: $70,000 
- Write-off: $400 
= Ending balance: $89,600

Next, we need to calculate the amount of Allowance for Uncollectible Accounts needed by multiplying the ending balance of accounts receivable by the estimated uncollectible percentage:

Ending balance of accounts receivable: $89,600 
x Estimated uncollectible percentage: 5% 
= Required Allowance: $4,480

Now, we can calculate the net realizable value of accounts receivable by deducting the required allowance from the ending balance of accounts receivable:

Ending balance of accounts receivable: $89,600 
- Required allowance: $4,480 
= Net realizable value: $85,120

Therefore, the correct answer is B) $14,155.

Question 10

The total amount of interest calculated annually on a $7,000 promissory note payable for three years at 12% that is not compounded is

Accepted Answer

The interest calculated annually on a promissory note without compounding is found by multiplying the principal amount by the interest rate and then by the number of years. Here, it's $7,000 * 12% * 3 = $2,520.

Question 11

During 2017,the accounts receivable turnover ratio for Cordner Company increased from 10 to 14 times per year.Which one of the following statements is the most likely explanation for the change?

Accepted Answer

The increase in accounts receivable turnover ratio from 10 to 14 times per year indicates that the company is collecting its accounts receivable more quickly. This suggests that the credit department has followed up with customers whose account balances are past due in order to generate quicker collections. Answer options B, C, and D do not support the increase in accounts receivable turnover ratio.

Question 12

Verilux Company sold merchandise to Flight Corp.on November 1,2017,for $10,000.Verilux accepted a promissory note from Flight Corp.for $10,000.The note has a term of five months and a stated interest rate of 7%.Verilux's accounting period ends on December 31,2017.What amount should Verilux recognize as interest revenue on the maturity date of the note?

Accepted Answer

The answer of Verilux Company sold merchandise to Flight Corp.on...

Question 13

How will the payee of the promissory note record the note on its books?

Accepted Answer

The payee of a promissory note will record the note as an asset because it represents a promise of payment from the borrower. As the payee expects to receive payment in the future, the note is considered an asset.

Question 14

Utah Co.sold merchandise to Big Sky Corp.on December 1,2017,for $9,000 and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31.What amount should Utah recognize as interest revenue on the maturity date of the note?

Accepted Answer

Since the note has a term of 90 days, it will mature on February 28, 2018 (90 days after December 1, 2017). Therefore, Utah Co. will earn interest revenue for two months: December 2017 and January 2018. The interest on the note can be calculated as follows:

Interest = Principal x Rate x Time
= $9,000 x 8% x 2/12
= $120

Therefore, Utah Co. should recognize $120 as interest revenue on the maturity date of the note.

Question 15

On July 1,2017,Falcon Company received a $20,000 promissory note for services from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. ​
The effect on Falcon's financial statements on July 1,2017,is which of the following?

Accepted Answer

On July 1, 2017, Falcon Company receives a $20,000 promissory note from Jordyn Company for services rendered. This represents an increase in Falcon's assets by $20,000, as it has the right to receive payment from Jordyn. There is no effect on stockholders' equity at this point because no revenue has been recognized.

Question 16

Genuine Parts received a promissory note from a customer on March 1,2017.The face amount of the note is $8,000;the terms are 90 days and 9% interest.At the maturity date,the customer pays the amount due for the note and interest.What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

Accepted Answer

On the maturity date, Genuine Parts will receive $8,000 for the note and an additional $180 in interest calculated as ($8,000 x 9% x 90/360). Therefore, the entry required on the books of Genuine Parts would be to increase cash by $8,180, increase interest revenue by $180, and decrease notes receivable by $8,000. Option A is incorrect because it does not account for the interest earned. Option C is incorrect because it overstates the amount of cash received by including the interest earned in the entry twice. Option D is incorrect because it suggests that no entry is required when the note has matured and been paid.

Question 17

Lasiter Corp.reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2017.On January 1,2017,accounts receivable was $250,000.Amounts owed by customers increased by $20,000 during 2017.Rounding to two decimal places,what is Lasiter's accounts receivable turnover ratio for 2017?

Accepted Answer

Accounts receivable turnover ratio = net credit sales / average accounts receivable

Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
Ending accounts receivable = beginning accounts receivable + increase in accounts receivable = $250,000 + $20,000 = $270,000
Beginning accounts receivable = $250,000

Average accounts receivable = ($250,000 + $270,000) / 2 = $260,000

Accounts receivable turnover ratio = $2,000,000 / $260,000 = 7.69

Question 18

On July 1,2017,Falcon Company received a $20,000 promissory note from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. ​
If Falcon's fiscal year ends September 30,2017,an adjustment is needed to

Accepted Answer

Since Falcon's fiscal year ends on September 30, 2017, only three months of interest have accrued on the note (from July 1, 2017, to September 30, 2017), which is calculated as $20,000 × 5% × 3/12 = $250. Therefore, an adjustment is needed to increase interest receivable by $250 to reflect the portion of interest that has been earned but not yet received. Choices A and D are incorrect because the full amount of interest ($1,000) will not be earned until the maturity date of June 30, 2018. Choice B is incorrect because the note receivable amount has not changed and should not be adjusted.

Question 19

What is the distinguishing characteristic between accounts receivable and notes receivable?

Accepted Answer

The distinguishing characteristic between accounts receivable and notes receivable is that notes receivable result from a written promise to pay within a specified amount of time, while accounts receivable are simply owed to the company by its customers for goods or services rendered. Option A is not always true as notes receivable may also be short-term; Option B is not true as interest may also be charged on accounts receivable; Option C is not true as both types of companies may have both types of receivables.

Question 20

Where can the amounts needed to compute the accounts receivable turnover ratio be found?

Accepted Answer

The amounts needed to compute the accounts receivable turnover ratio can be found on both the income statement and balance sheet. The income statement provides the revenue figure, while the balance sheet provides the accounts receivable balance at the beginning and end of the period.

Quiz 7: Receivables and Investments

Utah Co.sold merchandise to Big Sky Corp.on December 1,2017,for $9,000 and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31. What is the actual maturity date of the note?

What can a company try to improve its accounts receivable turnover ratio?

Genuine Parts received a promissory note from a customer on March 1,2017.The face amount of the note is $8,000;the terms are 90 days and 9% interest.What amount of interest will Genuine Parts receive when the note is paid?

The party to a promissory note that agrees to repay money on the maturity date of the note is called the

The total amount of interest calculated annually on a $7,000 promissory note payable for three years at 12% that is not compounded is

During 2017,the accounts receivable turnover ratio for Cordner Company increased from 10 to 14 times per year.Which one of the following statements is the most likely explanation for the change?

How will the payee of the promissory note record the note on its books?

On July 1,2017,Falcon Company received a $20,000 promissory note for services from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. The effect on Falcon's financial statements on July 1,2017,is which of the following?

On July 1,2017,Falcon Company received a $20,000 promissory note from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. If Falcon's fiscal year ends September 30,2017,an adjustment is needed to

What is the distinguishing characteristic between accounts receivable and notes receivable?

Where can the amounts needed to compute the accounts receivable turnover ratio be found?

Quiz 7: Receivables and Investments

Utah Co.sold merchandise to Big Sky Corp.on December 1,2017,for $9,000 and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31. What is the actual maturity date of the note?

What can a company try to improve its accounts receivable turnover ratio?

Genuine Parts received a promissory note from a customer on March 1,2017.The face amount of the note is $8,000;the terms are 90 days and 9% interest.What amount of interest will Genuine Parts receive when the note is paid?

The party to a promissory note that agrees to repay money on the maturity date of the note is called the

The total amount of interest calculated annually on a $7,000 promissory note payable for three years at 12% that is not compounded is

During 2017,the accounts receivable turnover ratio for Cordner Company increased from 10 to 14 times per year.Which one of the following statements is the most likely explanation for the change?

How will the payee of the promissory note record the note on its books?

On July 1,2017,Falcon Company received a $20,000 promissory note for services from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. ​ The effect on Falcon's financial statements on July 1,2017,is which of the following?

On July 1,2017,Falcon Company received a $20,000 promissory note from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. ​ If Falcon's fiscal year ends September 30,2017,an adjustment is needed to

What is the distinguishing characteristic between accounts receivable and notes receivable?

Where can the amounts needed to compute the accounts receivable turnover ratio be found?

On July 1,2017,Falcon Company received a $20,000 promissory note for services from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. The effect on Falcon's financial statements on July 1,2017,is which of the following?

On July 1,2017,Falcon Company received a $20,000 promissory note from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. If Falcon's fiscal year ends September 30,2017,an adjustment is needed to