Question 1

Beverage International reports net credit sales for the year of $240,000. The company's accounts receivable balance at the beginning of the year equaled $20,000 and the balance at the end of the year equaled $30,000. What is Beverage International's receivables turnover ratio?

Accepted Answer

Receivables turnover ratio = net credits sales ($240,000)/average accounts receivable [($20,000 + $30,000)/2] = 9.6.

Question 2

On July 1, 2012, Herzog Mining lends cash and accepts a $9,000 note receivable that offers 10% interest and is due in nine months. How would Herzog record the transaction on April 1, 2013, when the borrower pays Herzog the correct amount owed?

Accepted Answer

The answer of On July 1, 2012, Herzog Mining lends...

Question 3

A sale on account is recorded as a debit to Service Revenue and a credit to Accounts Receivable.

Accepted Answer

A sale on account is recorded as a debit to Accounts Receivable and a credit to Service Revenue.

Question 4

Credit sales transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future.

Accepted Answer

Credit sales involve providing products and services to customers on credit, with the expectation that payment will be collected at a later date. This carries the risk that the customer may not pay or may delay payment, which is borne by the seller.

Question 5

The following information pertains to Lindsey Corp. at the at the end of the year: $$\begin{array} { l r } 
\text { Credit Sales } & \$ 150,000 \
\text { Accounts Payable } & 20,000 \
\text { Accounts Receivable } & 30,000 \
\text { Allowance for Uncollectible Accounts } & 800 \text { debit } \
\text { Cash Sales } & 5,500
\end{array}$$ Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 2% of the credit sales are uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the year?

Accepted Answer

The bad debt expense is calculated as 2% of credit sales: 2% of $150,000 = $3,000.

Question 6

On February 1, 2012, Sanger Corp. lends cash and accepts a $2,000 note receivable that offers 10% interest and is due in six months. What would Sanger record on August 1, 2012, when the borrower pays Sanger the correct amount owed?

Accepted Answer

Interest revenue = $2,000 x 10% x 6/12 = $100.

Question 7

The following information pertains to Lightning, Inc. at the end of the year: $$\begin{array} { l r } 
\text { Credit Sales } & \$ 60,000 \
\text { Accounts Payable } & 10,000 \
\text { Accounts Receivable } & 7,000 \
\text { Allowance for Uncollectible Accounts } & 400 \text { credit } \
\text { Cash Sales } & 20,000
\end{array}$$ Lightning uses the percentage-of-credit-sales method and estimates 1% of sales are uncollectible. What is the ending balance of the allowance account after the year-end adjustment?

Accepted Answer

The answer of The following information pertains to Lightning, Inc....

Question 8

On August 1, 2012, Turner Manufacturing lends cash and accepts a $6,000 note receivable that offers 8% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2012?

Accepted Answer

Interest revenue = $6,000 x 8% x 5/12 = $200.

Question 9

At the time of a credit sale, a company would record an increase in assets and an increase in revenues.

Accepted Answer

This is correct as when a credit sale is made, there is an increase in accounts receivable (an asset account) and an increase in revenue (a revenue account).

Question 10

The percentage-of-credit-sales method for estimating uncollectible accounts is sometimes described as:

Accepted Answer

The answer of The percentage-of-credit-sales method for estimating uncollectible accounts...

Question 11

On January 1, 2012, Alice & Co. lends $5,000 to an employee and accepts a 24-month, 10% note. At the end of 2012, what effect will the adjustment for accrued interest revenue have on the Alice & Co.'s financial statements?

Accepted Answer

At the end of 2012, Alice & Co. will need to make an adjustment to recognize accrued interest revenue for the year. This means that the company will be recognizing a portion of the interest income that has not yet been received but has been earned. This will increase revenue and, as a result, increase stockholders' equity. Therefore, the correct answer is D.

Question 12

Toppleson Manufacturing reports a receivables turnover ratio of 14.5. The industry average is 10.7. What most likely is causing this difference?

Accepted Answer

Toppleson's higher receivables turnover ratio indicates that they have effective procedures in place for selling goods on account, resulting in faster collection of accounts receivable. This may include timely invoicing and follow-up on overdue accounts. It is also possible that Toppleson is offering more attractive payment terms to customers, such as discounts for quick payment or shorter payment periods. This does not necessarily indicate that Toppleson has inferior customers or products/services.

Question 13

On September 1, 2012, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp report during 2013?

Accepted Answer

Interest revenue = $1,000 x 12% x 2/12 = $20.

Question 14

On September 1, 2012, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp report during 2012?

Accepted Answer

Interest revenue = $1,000 x 12% x 4/12 = $40.

Question 15

The amount of a company's receivables is influenced by several variables, including all of the following except:

Accepted Answer

Dividend payments to stockholders do not have a direct impact on a company's receivables. The level of sales, the nature of the product or service sold, and the credit and collection policies are all factors that can affect the amount of receivables a company has.

Question 16

Accounts receivable represent the amount of cash owed to the company by its customers from the sale of products or services on account.

Accepted Answer

Accounts receivable are indeed the amount of cash owed to the company by its customers from the sale of products or services on account.

Question 17

Which of the following statements is true with respect to the percentage-of-credit-sales method for estimating uncollectible accounts?

Accepted Answer

The amount recorded for bad debt expense under the percentage-of-credit-sales method is based on a percentage of credit sales during the period, and is unrelated to the balance of the allowance for uncollectible accounts.

Question 18

On February 1, 2012, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp report during 2012?

Accepted Answer

Interest revenue = $1,000 x 12% x 6/12 = $60.

Question 19

At the beginning of the year, Vici Ventures had accounts receivable of $220,000. At the end of the year, the company had accounts receivable of $340,000. During the year, Vici had total sales of $1,000,000, 70% of which were credit sales What was Vici's receivables turnover ratio for the year?

Accepted Answer

[($1,000,000 x .70)/($220,000 + $340,000)/2] = 2.50.

Question 20

Sandburg Veterinarian reports the following information for the year: $$\begin{array} { l r } 
\text { Net credit sales } & \$ 120,000 \
\text { Average accounts receivable } & 20,000 \
\text { Cash collections on credit sales } & 100,000
\end{array}$$ What is Sandburg's receivables turnover ratio?

Accepted Answer

The receivables turnover ratio is calculated by dividing net credit sales by average accounts receivable. Here, it is $120,000 / $20,000 = 6.0.

Quiz 5: Receivables and Sales