Question 1

The days to collect accounts receivable is calculated by dividing credit sales by the average accounts receivable.

Accepted Answer

The days to collect accounts receivable is calculated by dividing the average accounts receivable by the average daily credit sales.

Question 2

An aging schedule reveals $6,500 of uncollectible accounts.The Allowance for Uncollectible Accounts account currently has a debit balance of $250.The adjusting entry amount should be $6,750.

Accepted Answer

To adjust the Allowance for Uncollectible Accounts account to a balance of $6,750, the adjusting entry should credit the account for $6,500 (the amount of uncollectible accounts) and debit the account for $6,750 (to increase the balance to $6,750). This results in an adjusting entry amount of $250, which is the amount needed to bring the balance to the desired level.

Question 3

Which of the following is not a procedure used to safeguard cash?

Accepted Answer

Recording and maintaining the serial numbers on money is not a standard procedure for safeguarding cash in businesses or financial institutions. It is impractical for routine transactions and does not directly contribute to the control or security of cash assets.

Question 4

In its first year of operations,20X2,Flow Crafts,Inc.,had credit sales of $420,000 to many different customers.Of this amount,P.Walker purchased $400 and J.Jocke purchased $180 on account.During the year,cash collections of $389,000 were made,of which P.Walker paid $360 and J.Jocke paid $60.At the end of 20X2,bad debts expense was estimated to be 5% of ending accounts receivable.At December 31,20X2,the Allowance for Uncollectible Accounts is $0.On February 23,20X3,the balance in J.Jocke's account was written off as uncollectible.
Prepare the appropriate journal entry on the books of Flow Crafts,Inc.for
a.the $420,000 in credit sales.
b.the collection of $389,000 from credit customers.
c.the estimation of bad debts expense.
d.the write-off of J.Jocke's account.

Accepted Answer

The answer of In its first year of operations,20X2,Flow Crafts,Inc.,had...

Question 5

A compensating balance is the required minimum cash balance on deposit when money is borrowed from the bank.

Accepted Answer

A compensating balance is a requirement from the bank that the borrower maintain a minimum balance in their account as a condition for granting the loan. This minimum balance cannot be used or withdrawn and serves as collateral for the loan.

Question 6

Oxhaven Company has determined that 2% of $50,000 credit sales are uncollectible.The Allowance for Uncollectible Accounts currently has a credit balance of $250.The adjusting entry amount for bad debts should be $1,000.

Accepted Answer

The current balance in the Allowance for Uncollectible Accounts is $250, but based on the information provided, the company expects $1,000 in bad debts (2% of $50,000). Therefore, an adjusting entry of $750 ($1,000 - $250) is needed to bring the balance of the Allowance for Uncollectible Accounts up to the expected amount of bad debts.

Question 7

Heal of Approval Spa reports the following information for the years ended December 31,20X2 and 20X3:
$\begin{array} { l l l } 
& 20 \times 3 &20 \times 2 \
\text { Sales }&\$640000&\$720000\
\text { Accounts Receivable } & 40,000 & 60,000
\end{array}$ 
Sales consisted of 80% credit sales and 20% cash sales during 20X2 and 20X3.
From the information given previously for Heal of Approval Spa,determine the
a.accounts receivable turnover for 20X3.
b.days to collect accounts receivable for 20X3.

Accepted Answer

The answer of Heal of Approval Spa reports the following...

Question 8

Heintz Corporation wishes to borrow $83,000 at 11% interest from the local bank.However,the bank requires a compensating balance of 10%.The effective interest rate that Heintz Corporation will pay on the loan is which of the following?

Accepted Answer

The effective interest rate can be calculated by dividing the annual interest by the net amount available after maintaining the compensating balance. The annual interest is 11% of $83,000, which is $9,130. The compensating balance is 10% of $83,000, which is $8,300. Therefore, the net amount available is $83,000 - $8,300 = $74,700. The effective interest rate is $9,130 / $74,700 = 0.1222 or 12.2%.

Question 9

Internal controls are often implemented to guard against theft of cash.To conceal the theft of $1,500 cash,which journal entry might an accountant perform to best conceal the theft?

Accepted Answer

To best conceal the theft of $1,500 cash, an accountant might record the transaction as a Wage and Salary Expense. This approach effectively reduces cash while increasing an expense account, making the theft less noticeable in financial statements, as expenses are expected to fluctuate in the normal course of business.

Question 10

Morland Company has determined that 2% of $50,000 credit sales are uncollectible.The Allowance for Uncollectible Accounts currently has a debit balance of $250.The adjusting entry for bad debts should be prepared for $1,250.

Accepted Answer

The adjusting entry should be for $1,250 plus the $250 debit balance, totaling $1,250 + $250 = $1,500.

Question 11

All else equal,the lower the accounts receivable turnover ratio and the higher the days to collect accounts receivable,the better.

Accepted Answer

The statement is false. A lower accounts receivable turnover ratio and a higher number of days to collect accounts receivable indicate that a company is taking longer to collect payments from its customers. This delays the cash inflows, which can negatively impact the company's cash flow and its ability to pay its own bills and meet its obligations. Therefore, a higher accounts receivable turnover ratio and a lower number of days to collect accounts receivable are generally better, as they indicate that a company is collecting its payments more efficiently.

Question 12

Why is it difficult to compare accounts receivable turnover across companies?

Accepted Answer

Companies may not differentiate credit sales from total sales, which can affect the accounts receivable turnover calculation. This can make it difficult to compare accounts receivable turnover across companies.

Question 13

Cash equivalents are highly liquid long-term investments that can easily be converted into cash.

Accepted Answer

Cash equivalents are highly liquid short-term investments that can easily be converted into cash.

Question 14

Direct Rentals has many accounts receivable.Direct Rentals' balance sheet as of December 31,20X2,showed Accounts Receivable of $36,000 and an Allowance for Uncollectible Accounts of $3,400 credit.In early 20X3,write-offs of customer accounts of $2,800 were made.In late 20X3,a customer named Jeremy,whose $1,000 debt had been written off earlier,won a $1 million promotion cash prize.He immediately remitted $1,000 to Direct Rentals.
Prepare the journal entries for the
a.$2,800 write-off in early 20X3.
b.receipt from Jeremy in late 20X3.

Accepted Answer

The answer of Direct Rentals has many accounts receivable.Direct Rentals'...

Question 15

Consider the following information: $\begin{array}{ll}
\text { Cash sales } & \$ 59,000 \
\text { Credit sales } & 510,000 \
\text { Beginning Cash } & 18,000 \
\text { Ending Cash } & 11,500 \
\text { Beginning Retained Earnings } & 32,300 \
\text { Ending Retained Earnings } & 41,700 \
\text { Beginning Accounts Receivable } & 40,000 \
\text { Ending Accounts Receivable } & 50,000 \
\text { Net Income } & 64,000
\end{array}$ 
What is the accounts receivable turnover?

Accepted Answer

Accounts Receivable Turnover = Credit Sales / Average Accounts Receivable
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Average Accounts Receivable = (40,000 + 50,000) / 2 = 45,000
Accounts Receivable Turnover = 510,000 / 45,000 = 11.33

Question 16

Sequential,Inc.has the following information available as of December 31,20X3:
 $\begin{array}{ll}
\text { Total } \
\text { Accounts } & 1-30 & 31-60& 61-90& \text { Over 90}\
\text { Receivable } & \text { Days } & \text { Days }& \text { Days }& \text { Days }\
\$ 60.000 & \$ 46500& \$ 7400& \$3700& \$ 2400
\end{array}$ Total credit sales for the year ended December 31,20X3,were $825,000.
The balance in the Allowance for Uncollectible Accounts at December 31,20X3,is a $500 debit.
The estimated bad debts percentages are as follows:
as a percentage of credit sales 1%
as a percentage of ending accounts receivable 10%
as a percentage of aging accounts receivable:
 $\begin{array}{ll}
1-30 \text { days } & 3 \% \
31-60 \text { days } & 15 \% \
61-90 \text { days } & 35 \% \
\text { Over } 90 \text { days } & 75 \%
\end{array}$ 
Given the previous information,prepare the journal entry on December 31,20X3,to estimate bad debts under the allowance method using the
a.percentage of credit sales method.
b.percentage of ending accounts receivable method.
c.aging of accounts receivable method.

Accepted Answer

The answer of Sequential,Inc.has the following information available as of...

Question 17

Office Supply Space has several assets on its balance sheet.The accountant is trying to decipher which assets belong in the Cash account.From the list of assets below,which asset should NOT be included in the Cash account?

Accepted Answer

U.S. Treasury bond is an investment and it should be classified under Investments or Long-term assets on the balance sheet. The other options (A, B, C, and E) are forms of cash and cash equivalents which should be included in the Cash account.

Question 18

Consider the following information: $\begin{array}{ll}
\text { Cash sales } & \$ 59,000 \
\text { Credit sales } & 510,000 \
\text { Beginning Cash } & 18,000 \
\text { Ending Cash } & 11,500 \
\text { Beginning Retained Earnings } & 32,300 \
\text { Ending Retained Earnings } & 41,700 \
\text { Beginning Accounts Receivable } & 40,000 \
\text { Ending Accounts Receivable } & 50,000 \
\text { Net Income } & 64,000
\end{array}$ 
Assuming a 365-day year,determine the days to collect accounts receivable.

Accepted Answer

Days to collect accounts receivable can be calculated using the formula:
(days in period x ending accounts receivable) / credit sales

= (365 x $50,000)/$510,000 
= 35,825/510 
= 70.2549

Therefore, the answer is approximately 32.22 days (rounded to two decimal places).

Question 19

Typically,the more credit sales a company has

Accepted Answer

When a company has more credit sales, it means it is extending more credit to its customers, resulting in higher amounts of accounts receivables. As a result, the days to collect accounts receivable will likely increase, meaning it takes longer for the company to collect its receivables. This will also result in a lower accounts receivable turnover rate, which represents how many times a company collects its average accounts receivable balance during a period. A higher accounts receivable yield is not affected by the amount of credit sales, as it represents the interest earned on a company's accounts receivable balance.

Question 20

The accounts receivable turnover ratio indicates how rapidly customers pay their bills.

Accepted Answer

The accounts receivable turnover ratio is a measure of how quickly a company collects payment from its customers. It is calculated by dividing net credit sales by average accounts receivable. A high turnover ratio indicates that customers are paying their bills quickly, while a low ratio may suggest that there are issues with collections or credit policies.

Quiz 6: Accounting for Sales