Question 1

A company's number of days to collect is higher than the length of credit period.Analysts might conclude:
A) customers are dissatisfied with the product or service they bought.
B) the company is effectively managing its receivables.
C) the company's payment terms have been relaxed and customers are taking advantage of those new terms.
D) the company's payment terms have been tightened and customers are paying within the payment period granted.

Accepted Answer

The answer of A company's number of days to collect...

Question 2

A company decides to start allowing its customers to pay with national credit cards and PayPal.This decision would:
A) slow down its cash collection.
B) speeds up its cash collection, but increase losses from customers writing bad checks.
C) speeds up its cash collection and reduce losses from customers writing bad checks.
D) slow down its cash collection, but decrease losses from customers writing bad checks

Accepted Answer

Allowing customers to pay with national credit cards and PayPal speeds up the cash collection process as these payment methods are generally faster and more reliable than checks. Additionally, accepting these payment methods reduces the risk of losses from bad checks as the company can receive instant verification of payment through credit card and PayPal transactions.

Question 3

If your company factors its accounts receivable,it:
A) will focus its collection activities on only the largest Accounts Receivable balances
B) sells outstanding receivables to another company
C) will use major national credit cards to allow its customers to pay for goods
D) will engage in aggressive hounding of its clients to pay their bills

Accepted Answer

Factoring accounts receivable involves selling outstanding receivables to another company, typically a financial institution or factoring company. This allows the company to receive immediate cash for the receivables, rather than waiting for payment from customers.

Question 4

Which of the following situations depicts the best receivables management?
A) Receivables turnover ratio increases and the days to collect decreases
B) Receivables turnover ratio increases and the days to collect increases
C) Receivables turnover ratio decreases and the days to collect increases
D) Receivables turnover ratio decreases and the days to collect decreases

Accepted Answer

A higher receivables turnover ratio indicates that the company is collecting its outstanding receivables more frequently, which is a positive sign for the company's cash flow. Additionally, a decrease in days to collect means that the company is collecting its receivables more quickly, reducing the risk of bad debts and improving cash flow. Therefore, A is the best choice.

Question 5

Toque Inc.uses the allowance method for bad debts.If management is overly optimistic about its ability to collect customer accounts,the company will understate Bad Debt Expense and:
A) overstate net income and days to collect will decline.
B) overstate net income but days to collect will increase.
C) understate net income and days to collect will increase.
D) understate net income and days to collect will decline.

Accepted Answer

The answer of Toque Inc.uses the allowance method for bad...

Question 6

Katy Company uses the allowance method.Katy writes off a customer account balance when it becomes clear that the particular customer will never pay.How will this write-off affect the company's net income and accounts receivable turnover ratio?
A) Net income and the account receivable turnover ratio will both decrease.
B) Net income will decrease; the account receivable turnover ratio will not change.
C) Net income will not change; the account receivable turnover ratio will decrease.
D) Net income will not change; the account receivable turnover ratio will not change.

Accepted Answer

The answer of Katy Company uses the allowance method.Katy writes...

Question 7

Receivables might be sold ("factored")to:
A) lengthen the time to collect from customers.
B) reduce the receivables turnover ratio.
C) generate cash immediately.
D) generate a gain on sale.

Accepted Answer

Receivables can be sold or factored to generate cash immediately, which can be useful in meeting short-term cash needs or funding new projects. While factoring can also reduce the receivables turnover ratio, this is not typically the primary reason for factoring. Lengthening the time to collect from customers would not be a desirable outcome of factoring, and while it is possible to generate a gain on sale through factoring, this is not always the case.

Question 8

Momentum Products Inc.just recorded an adjusting journal entry for the current year's estimate of bad debts.Assuming all else is equal,this adjusting journal entry will cause:
A) the accounts receivable turnover ratio to increase.
B) net income to increase.
C) total assets to remain unchanged.
D) net accounts receivable to increase.

Accepted Answer

The answer of Momentum Products Inc.just recorded an adjusting journal...

Question 9

Companies A and B both report net income growth of 12% per year.Company A has a receivables turnover ratio of 5.6,which is lower last year.Company B has a receivables turnover ratio of 11.3,which is higher than last year.All other things being equal:
A) Company A is more effectively managing its receivables.
B) Company B is more effectively managing its receivables.
C) Company A's days to collect is lower than Company B's in both years.
D) Company B's days to collect increased.

Accepted Answer

The answer of Companies A and B both report net...

Question 10

Bolster Soda had an accounts receivable turnover ratio of 9.9 this year and 11.0 last year.Castor Soda had a turnover ratio of 9.3 this year and 9.3 last year.This implies:
A) Castor's receivables turnover ratios were better than Bolster's for both years.
B) Bolster's receivables turnover ratios were better than Castor's for both years.
C) Castor has credit policies that need to be tightened.
D) Castor collected receivables more quickly than Bolster in both years.

Accepted Answer

Bolster's receivables turnover ratios were consistently higher than Castor's for both years, indicating that Bolster collected its receivables more quickly than Castor.

Question 11

Which of the following statements about receivables turnover analysis is correct?
A) The receivables turnover ratio indicates how many times, on average, the process of selling to and collecting from customers occurs during the accounting period.
B) Companies of similar size in different industries tend to have similar receivables turnover ratios.
C) A high turnover ratio may suggest the company is allowing too much time for customers to pay.
D) The days to collect ratio is found by dividing the receivables turnover ratio by 365 days.

Accepted Answer

The receivables turnover ratio indicates how many times, on average, the process of selling to and collecting from customers occurs during the accounting period. The ratio is calculated by dividing net credit sales by the average accounts receivable balance. A high receivables turnover ratio indicates that the company is collecting its accounts receivable quickly, while a low ratio may suggest that the company is having difficulty collecting its outstanding debts. The days to collect ratio is found by dividing 365 days by the receivables turnover ratio. Companies of similar size in different industries may have different receivables turnover ratios based on their unique business models and customer bases. A high turnover ratio may suggest the company is being efficient in collecting its accounts receivable, not that it is allowing too much time for customers to pay.

Question 12

Which of the following statements about the interpretation of the receivables turnover ratio is not correct?
A) Analysts often interpret a sudden increase in the receivables turnover ratio as a signal of a developing problem.
B) The smaller the receivables turnover ratio the larger the days to collect will be.
C) A change in the receivables turnover ratio may indicate a change in the company's credit granting policies.
D) A change in the receivables turnover ratio may indicate a change in economic conditions.

Accepted Answer

Analysts often interpret a sudden decrease in the receivables turnover ratio as a signal of a developing problem, not an increase. A higher receivables turnover ratio indicates a more efficient collection of accounts receivables, which is generally viewed positively.

Question 13

All other things being equal,a company is better off when its receivable turnover ratio:
A) and its days-to-collect measure are both low.
B) is high and its days-to-collect measure is low.
C) and its days-to-collect measure are both high.
D) is low and its days-to-collect measure is high.

Accepted Answer

A high receivable turnover ratio indicates that the company is collecting its receivables quickly, which is a positive sign. A low days-to-collect measure indicates that the company is also collecting its receivables quickly. Therefore, option B is the best choice, as it shows that the company is collecting its receivables quickly and efficiently.

Question 14

Which of the following statements about the receivables turnover analysis is correct?
A) Accounts receivable decline as companies sell on credit.
B) Accounts receivable increase as companies receive payment.
C) Receivables turnover refers to how fast receivables are collected.
D) The days to collect will increase as the receivables turnover increases.

Accepted Answer

Receivables turnover refers to how fast receivables are collected. Options A and B have the opposite effect on accounts receivable. Option D is incorrect because as the receivables turnover increases, it means the company is collecting its receivables faster, resulting in a decrease in the number of days to collect.

Question 15

An arrangement where receivables are sold to another company for immediate cash is called:
A) factoring
B) leasing
C) depreciating
D) renting

Accepted Answer

This describes the process of factoring, where a company sells its receivables to a factor (financial company) for immediate cash. This helps the company to receive cash quicker and avoid the need for collection efforts. Leasing, depreciating, and renting do not involve the selling of receivables.

Question 16

Assume ABC sells its receivables to another company for immediate cash on a regular basis.How should the factoring fee be reported in the income statement?
A) Selling expense
B) Non-operating expense
C) Sales returns
D) Not at all

Accepted Answer

The factoring fee is a cost that ABC incurs to sell its receivables to another company. Since it is a cost associated with selling the receivables, it should be reported as a selling expense in the income statement.

Question 17

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing might suggest:
A) channel stuffing.
B) cookie jar accounting.
C) an investment opportunity.
D) improved receivables monitoring.

Accepted Answer

Credit sales increasing and accounts receivable turnover decreasing suggests that the company may be engaging in channel stuffing, which is the practice of artificially inflating sales by shipping excessive amounts of product to distributors or retailers to meet sales targets. This can lead to a buildup of accounts receivable and a decrease in accounts receivable turnover as customers may be slow to pay or unable to pay for the excess inventory.

Question 18

The receivables turnover ratio gives information on how:
A) how many times inventory is turned over per year.
B) how many times the company sells and collects amounts on account per year.
C) how many customers default per year.
D) the profitability of a company.

Accepted Answer

The receivables turnover ratio measures how many times a company collects, or turns over, its accounts receivable in a year, indicating how efficiently the company is collecting its sales on credit.

Question 19

What does a high receivable turnover ratio indicate?
A) Customer payments are collected relatively soon after the sale has been made.
B) Sales are growing.
C) Credit sales are much greater than cash sales.
D) Cash collections are sluggish, taking longer to collect.

Accepted Answer

A high receivable turnover ratio indicates that customer payments are collected relatively soon after the sale has been made, meaning that the company is efficient in collecting its accounts receivable. This is a positive sign for a company's cash flow and overall financial health.

Question 20

A high receivables turnover ratio is a sign of a company's:
A) effectiveness in granting and collecting credit
B) weakness in granting and collecting credit
C) profitability
D) ability to sell goods quickly

Accepted Answer

A high receivables turnover ratio means that the company is collecting its outstanding debts quickly, which is a sign of effectiveness in granting and collecting credit. It indicates that the company has a good credit policy and is managing its credit risks well.

Quiz 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

A company's number of days to collect is higher than the length of credit period.Analysts might conclude:

A company decides to start allowing its customers to pay with national credit cards and PayPal.This decision would:

If your company factors its accounts receivable,it:

Which of the following situations depicts the best receivables management?

Toque Inc.uses the allowance method for bad debts.If management is overly optimistic about its ability to collect customer accounts,the company will understate Bad Debt Expense and:

Katy Company uses the allowance method.Katy writes off a customer account balance when it becomes clear that the particular customer will never pay.How will this write-off affect the company's net income and accounts receivable turnover ratio?

Receivables might be sold ("factored") to:

Momentum Products Inc.just recorded an adjusting journal entry for the current year's estimate of bad debts.Assuming all else is equal,this adjusting journal entry will cause:

Companies A and B both report net income growth of 12% per year.Company A has a receivables turnover ratio of 5.6,which is lower last year.Company B has a receivables turnover ratio of 11.3,which is higher than last year.All other things being equal:

Bolster Soda had an accounts receivable turnover ratio of 9.9 this year and 11.0 last year.Castor Soda had a turnover ratio of 9.3 this year and 9.3 last year.This implies:

Which of the following statements about receivables turnover analysis is correct?

Which of the following statements about the interpretation of the receivables turnover ratio is not correct?

All other things being equal,a company is better off when its receivable turnover ratio:

Which of the following statements about the receivables turnover analysis is correct?

An arrangement where receivables are sold to another company for immediate cash is called:

Assume ABC sells its receivables to another company for immediate cash on a regular basis.How should the factoring fee be reported in the income statement?

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing might suggest:

The receivables turnover ratio gives information on how:

What does a high receivable turnover ratio indicate?

A high receivables turnover ratio is a sign of a company's: