154) A note receivable is reported in the balance sheet:
A) Always as a current asset.
B) Always as a long-term asset.
C) As either a current asset or long-term asset depending on the expected collection date.
D) As a contra asset.
155) Suppose a customer is unable to pay its account on time, so the company accepts a six-month
interest-bearing note receivable to replace the customer’s account receivable. What effect will
accepting the note receivable have on the company’s financial statements at the time of
acceptance?
A) Total assets increase.
B) Total assets decrease.
C) No change in total assets.
D) Total revenues increase.
156) Suppose a customer is unable to pay its account on time, so the company accepts a six-month
interest-bearing note receivable to replace the customer’s account receivable. Over the next six
months, what effect will accepting the note receivable have on the company’s financial statements?
A) Total assets increase.
B) Total revenues increase.
C) Net income increases.
D) All of the other answers are financial statement effects that will occur.
157) Hughes Aircraft sold a four-passenger airplane for $380,000, accepting a 12% note for the
purchase price. This transaction would include a:
A) Credit to Cash.
B) Debit to Sales Discount.
C) Debit to Notes Receivable.
D) Credit to Notes Receivable.
158) On February 1, 2021, Miter 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 Miter Corp. report during
2021?
A) $120.
B) $240.
C) $100.
D) $60.
159) On February 1, 2021, 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, 2021, when
the borrower pays Sanger the correct amount owed?
A.
Cash
2,000
Interest Revenue
100
Notes Receivable
2,100
B.
Cash
2,100
Notes Receivable
2,100
C.
Cash
2,100
Interest Revenue
100
Notes Receivable
2,000
D.
Cash
2,200
Notes Receivable
2,200
A) Option A
B) Option B
C) Option C
D) Option D
160) On September 1, 2021, 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 2021?
A) $20.
B) $40.
C) $30.
D) $60.
161) On September 1, 2021, 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 2022?
A) $20.
B) $40.
C) $30.
D) $60.
162) On August 1, 2021, 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 2021?
A.
Interest Revenue
360
Interest Receivable
360
B.
Interest Receivable
480
Interest Revenue
480
C.
Interest Receivable
360
Interest Revenue
360
D.
Interest Receivable
200
Interest Revenue
200
A) Option A
B) Option B
C) Option C
D) Option D
163) On July 1, 2021, 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,
2022, when the borrower pays Herzog the correct amount owed? Assume the company has a
December 31 year end.
A.
Cash
9,675
Notes Receivable
9,000
Interest Revenue
675
B.
Cash
9,675
Notes Receivable
9,000
Interest Revenue
225
Interest Receivable
450
C.
Cash
9,675
Notes Receivable
9,000
Interest Receivable
675
D.
Cash
9,675
Notes Receivable
9,675
A) Option A
B) Option B
C) Option C
D) Option D
164) On January 1, 2021, Alice & Co. lends $5,000 to an employee and accepts a 24-month, 10%
note. At the end of 2021, what effect will the adjustment for accrued interest revenue have on the
Alice & Co.’s financial statements?
A) Decreases assets.
B) Decreases revenue.
C) Increases expense.
D) Increases stockholders’ equity.
165) On October 1, 2021, Stripes Inc. lends $100,000 to another company and accepts a 24-month,
6% note. What is the amount of interest revenue Stripes will report in its 2021 income statement?
A) $750.
B) $1,500.
C) $4,500.
D) $6,000.
166) On October 1, 2021, Stripes Inc. lends $100,000 to another company and accepts a 24-month,
6% note. What is the amount of interest revenue Stripes will report in its 2022 income statement?
A) $0.
B) $1,500.
C) $4,500.
D) $6,000.
167) On October 1, 2021, Stripes Inc. lends $100,000 to another company and accepts a 24-month,
6% note. What is the amount of interest revenue Stripes will report in its 2023 income statement?
A) $0.
B) $4,500.
C) $6,000.
D) $12,000.
168) On September 1, 2021, a company accepts a $9,000, 12-month note receivable. For 2021, the
company reports interest revenue of $240. How much interest revenue will the company report in
2022?
A) $240.
B) $480.
C) $720.
D) The answer cannot be determined with the information given.
169) On August 1, 2021, a company accepts an $8,000, 9-month note receivable. For 2021, the
company reports interest revenue of $200. What is the interest rate on the note?
A) 5%.
B) 6%.
C) 7%.
D) 8%.
170) On September 1, 2021, a company lends $50,000 to a customer with 10% interest. The note
and interest are due in twelve months. The note receivable is recorded for $50,000 on September 1,
but no other adjustments are made in 2021. At the end of 2021, which of the following is true?
A) Assets are overstated.
B) Revenues are understated.
C) Expenses are understated.
D) All amounts are accurately stated.
171) On September 1, 2021, a company lends $50,000 to a customer with 9% interest. The note
and interest are due in twelve months. The note receivable is recorded for $50,000 on September 1,
and the following year-end adjusting entry is made on December 31, 2021:
Interest Receivable
4,500
Interest Revenue
4,500
At the end of 2021, which of the following is true?
A) Revenues are understated.
B) Liabilities are understated.
C) Assets are overstated.
D) All amounts are accurately stated.
172) The amount of a company’s receivables is influenced by several variables, including all of the
following except:
A) The level of credit sales.
B) The nature of the good or service sold.
C) The credit and collection policies.
D) Dividend payments to stockholders.
173) The formula for the receivables turnover ratio is:
A) Average accounts receivable divided by average total assets.
B) Net credit sales divided by average accounts receivable.
C) Net credit sales divided by average total assets.
D) Average accounts receivable divided by net credit sales.
174) The receivables turnover ratio indicates:
A) How efficient the company is at managing sales and inventory.
B) The relationship between sales and cost of goods sold.
C) The number of times during a year that the average accounts receivables were collected.
D) The relationship between cash sales and credit sales.
175) An increase in a company’s receivables turnover ratio typically means the company is:
A) Having trouble paying debts as they become due.
B) Less profitable.
C) More effectively granting credit to and collecting cash from customers.
D) Losing customers to its competitors.
176) 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?
A) 2.50.
B) 3.57.
C) 2.94.
D) 146 days.
177) A company reports the following information for the year:
Net credit sales
$
120,000
Average accounts receivable
20,000
Cash collections on credit sales
100,000
What is the company’s receivables turnover ratio?
A) 6.0.
B) 5.0.
C) 1.2.
D) 0.2.
178) 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?
A) 12.0.
B) 9.6.
C) 8.0.
D) 1.5.
179) A company reports a receivables turnover ratio of 14.5. The industry average is 10.7. What
most likely is causing this difference?
A) The company is selling to high-risk customers.
B) The company has effective procedures related to selling goods on account.
C) The company provides superior goods and services.
D) The company allows customers too long to pay.
180) A company’s ratio of net sales (cash and credit sales) to average accounts receivable can be
interpreted as management’s ability to:
A) Collect cash from all sales to customers.
B) Effectively market its goods and services.
C) Generate profits for investors.
D) Reduce costs of selling goods and services to customers.
181) The formula for average collection period is:
A) 365 days divided by the receivable turnover ratio.
B) 365 days divided by net credit sales.
C) 365 days divided by average accounts receivable.
D) Net credit sales divided by average accounts receivable.
182) What is the most likely reason for a company to have an increase in average collection
period?
A) The company has incurred additional marketing expenses to attract customers.
B) Customers are paying in a timelier manner.
C) The company has tightened its credit policies for its customers.
D) The company has become more lenient in its credit policies and is extending credit terms to
maintain customers.
183) A company has the following information:
Net credit sales = $400,000
Net income = $100,000
Average total assets = $80,000
Average accounts receivable = $20,000
What is the company’s average collection period (rounded to the nearest whole day)?
A) 73 days.
B) 18 days.
C) 9 days.
D) 5 days.
184) The percentage-of-credit-sales method for estimating uncollectible accounts is sometimes
described as:
A) The balance sheet method.
B) The method most used by companies.
C) The income statement method.
D) The percentage-of-receivables method.
185) The income statement method for estimating bad debts uses a percentage of:
A) Credit sales.
B) Accounts receivable.
C) Allowance for uncollectible accounts.
D) Bad debt expense.
186) Which of the following statements is true with respect to the percentage-of-credit-sales
method for estimating uncollectible accounts?
A) The amount recorded for bad debt expense does not depend on the balance of the allowance for
uncollectible accounts.
B) This method is referred to as the balance sheet method.
C) This method does not allow for future uncollectible accounts.
D) Under this method, bad debt expense is recorded at the time of an actual bad debt.
187) Which of the following provides an accurate match?
A) Percentage-of-receivables method ~ Assets are reported closer to the net amount of cash
expected to be collected.
B) Allowance method ~ Receivables are reported net of estimated uncollectible accounts.
C) Percentage-of-credit-sales method ~ Revenues and expenses are better matched.
D) All of the other answers provide an accurate match.
76
188) The following information pertains to Lindsey Corp. at the end of the year:
Credit Sales
$
150,000
Accounts Payable
20,000
Accounts Receivable
30,000
Allowance for Uncollectible Accounts
800
debit
Cash Sales
5,500
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?
A) $1,200.
B) $2,200.
C) $3,000.
D) $3,800.
189) The following information pertains to Lightning Inc., at the end of the year:
Credit Sales
$
60,000
Accounts Payable
10,000
Accounts Receivable
7,000
Allowance for Uncollectible Accounts
400
credit
Cash Sales
20,000
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?
A) $600.
B) $1,000.
C) $200.
D) $1,200.
190) Using the income statement method for accounting for uncollectible accounts, a company
estimates that 2.5% of credit sales will eventually become uncollectible. If credit sales during the
year are $400,000 and accounts receivable at the end of the year are $80,000, the adjustment for
estimated uncollectible accounts will require a:
A) Credit to Accounts Receivable for $2,000.
B) Debit to Bad Debt Expense for $10,000.
C) Debit to Allowance for Uncollectible Accounts for $10,000.
D) Credit to Bad Debt Expense for $8,000.
78
Match each term related to net revenues with its description.
A) Sales allowances
B) Contra revenues
C) Net revenues
D) Sales discounts
E) Trade discounts
F) Sales returns
191) Total revenues less contra revenues.
Difficulty: 2 Medium
Topic:
Learning Objective:
Net Revenues – Trade Discounts; Net Revenues – Sales Returns and Sales Allowances; Net
Revenues – Sales Discounts
05-02 Calculate net revenues using returns, allowances, and discounts.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
192) Reduction in revenue because the product or service is sold below the listed price.
Difficulty: 2 Medium
Topic: Net Revenues – Trade Discounts; Net Revenues – Sales Returns and Sales Allowances;
Net Revenues – Sales Discounts
Learning Objective: 05-02 Calculate net revenues using returns, allowances, and discounts.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
193) Reduction in revenue because the customer brings back products to the company after the
original purchase.
Difficulty: 2 Medium
Topic: Net Revenues – Trade Discounts; Net Revenues – Sales Returns and Sales Allowances;
Net Revenues – Sales Discounts
Learning Objective: 05-02 Calculate net revenues using returns, allowances, and discounts.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
194) Reduction in revenue because of some deficiency in the company’s good or service.
Difficulty: 2 Medium
Topic: Net Revenues – Trade Discounts; Net Revenues – Sales Returns and Sales Allowances;
Net Revenues – Sales Discounts
Learning Objective: 05-02 Calculate net revenues using returns, allowances, and discounts.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
79
195) Reduction in revenue when the customer pays within a specified period.
Difficulty: 2 Medium
Topic: Net Revenues – Trade Discounts; Net Revenues – Sales Returns and Sales Allowances;
Net Revenues – Sales Discounts
Learning Objective: 05-02 Calculate net revenues using returns, allowances, and discounts.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
196) Accounts with balances opposite of revenue.
Difficulty: 2 Medium
Topic: Net Revenues – Trade Discounts; Net Revenues – Sales Returns and Sales Allowances;
Net Revenues – Sales Discounts
Learning Objective: 05-02 Calculate net revenues using returns, allowances, and discounts.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
80
Match each term related to the allowance method for uncollectible accounts with its description.
A) No effect
B) Allowance method
C) Allowance for Uncollectible Accounts
D) Accounts receivable
E) Bad debt expense
F) Net accounts receivable
G) Increase
H) Decrease
197) The account used to record sales on account to customers.
Difficulty: 3 Hard
Topic: Allowance Method – Establishing the Allowance
Learning Objective: 05-04 Establish an allowance for uncollectible accounts.
Bloom’s: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking
198) The procedure required for financial reporting purposes to account for uncollectible accounts.
Difficulty: 3 Hard
Topic: Allowance Method – Establishing the Allowance
Learning Objective: 05-04 Establish an allowance for uncollectible accounts.
Bloom’s: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking
199) The difference between total accounts receivable and the estimate of future bad debts.
Difficulty: 3 Hard
Topic: Allowance Method – Establishing the Allowance
Learning Objective: 05-04 Establish an allowance for uncollectible accounts.
Bloom’s: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking
200) The effect on total assets when estimating future bad debts.
Difficulty: 3 Hard
Topic: Allowance Method – Establishing the Allowance
Learning Objective: 05-04 Establish an allowance for uncollectible accounts.
Bloom’s: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking