Chapter 8 2 When an account is written off using the allowance method

Document Type
Test Prep
Book Title
Financial Accounting-- Binder Ready Version: Tools for Business Decision Making 8th Edition
Authors
Donald E. Kieso, Jerry J. Weygandt, Paul D. Kimmel
Reporting and Analyzing Receivables
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102. When an account is written off using the allowance method, the
a. cash realizable value of total accounts receivable will increase.
b. net accounts receivable will decrease.
c. allowance account will increase.
d. net accounts receivable will stay the same.
103. If an account is collected after having been previously written off
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and balance sheet accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.
104. You have just received notice that a customer of yours with an account receivable balance
of $100 has gone bankrupt and will not make any future payments. Assuming you use the
allowance method, the entry you make is to
a. debit Allowance for Doubtful Accounts and credit Bad Debt Expense.
b. debit Allowance for Doubtful Accounts and credit Accounts Receivable.
c. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
d. debit Bad Debt Expense and credit Accounts Receivable.
105. When an account is written off using the allowance method, accounts receivable
a. is unchanged and the allowance account increases.
b. increases and the allowance account increases.
c. decreases and the allowance account decreases.
d. decreases and the allowance account increases.
106. Under the allowance method, when a specific account is written off
a. total assets will be unchanged.
b. net income will decrease.
c. total assets will decrease.
d. total assets will increase.
107. The percentage of receivables basis for estimating uncollectible accounts emphasizes
a. cash realizable value.
b. the relationship between accounts receivable and bad debts expense.
c. income statement relationships.
d. the relationship between sales and accounts receivable.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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108. Nichols Company uses the percentage of receivables method for recording bad debts
expense. The accounts receivable balance is $250,000 and credit sales are $1,000,000.
Management estimates that 4% of accounts receivable will be uncollectible. What
adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a
credit balance of $2,500 before adjustment?
a. Bad Debt Expense 10,000
Allowance for Doubtful Accounts 10,000
b. Bad Debt Expense 7,500
Allowance for Doubtful Accounts 7,500
c. Bad Debt Expense 7,500
Accounts Receivable 7,500
d. Bad Debt Expense 10,000
Accounts Receivable 10,000
109. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $55,000. If the balance of the Allowance for Doubtful Accounts
is $11,000 debit before adjustment, what is the balance after adjustment?
a. $55,000
b. $11,000
c. $66,000
d. $44,000
110. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $55,000. If the balance of the Allowance for Doubtful Accounts
is $11,000 debit before adjustment, what is the amount of bad debt expense for that
period?
a. $55,000
b. $11,000
c. $66,000
d. $44,000
111. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts
is $6,000 credit before adjustment, what is the amount of bad debt expense for that
period?
a. $45,000
b. $39,000
c. $51,000
d. $6,000
Reporting and Analyzing Receivables
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112. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts
is $6,000 debit before adjustment, what is the balance after adjustment?
a. $45,000
b. $51,000
c. $39,000
d. $6,000
113. Kinsler Company uses the percentage-of-receivables method for recording bad debt
expense. The Accounts Receivable balance is $250,000 and credit sales are $1,000,000.
Management estimates that 6% of accounts receivable will be uncollectible. What
adjusting entry will Kinsler Company make if the Allowance for Doubtful Accounts has a
credit balance of $2,500 before adjustment?
a. Bad Debt Expense 17,500
Allowance for Doubtful Accounts 17,500
b. Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
c. Bad Debt Expense 12,500
Allowance for Doubtful Accounts 12,500
d. Bad Debt Expense 10,000
Accounts Receivable 10,000
114. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $44,000. If the balance of the Allowance for Doubtful Accounts
is $9,000 debit before adjustment, what is the amount of bad debt expense for that
period?
a. $44,000
b. $ 9,000
c. $53,000
d. $35,000
115. Under the allowance method, when a year-end adjustment is made for estimated
uncollectible accounts
a. total assets decrease.
b. total assets are unchanged.
c. net income is unchanged.
d. liabilities decrease.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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116. One might infer from a debit balance in Allowance for Doubtful Accounts that
a. a posting error has been made.
b. more accounts have been written off than had been estimated.
c. the direct method is being used.
d. Bad Debt Expense has been overestimated.
117. Using the allowance method, the uncollectible accounts for the year are estimated to be
$50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before
adjustment, what is the balance after adjustment?
a. $9,000
b. $41,000
c. $50,000
d. $59,000
118. Using the allowance method, the uncollectible accounts for the year is estimated to be
$50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before
adjustment, what is the amount of bad debt expense for the period?
a. $9,000
b. $41,000
c. $50,000
d. $59,000
119. Using the allowance method, the uncollectible accounts for the year is estimated to be
$50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 debit before
adjustment, what is the amount of bad debt expense for the period?
a. $9,000
b. $41,000
c. $50,000
d. $59,000
120. In reviewing the accounts receivable, the cash receivable value is $28,000 before the
write-off of a $2,000 account. What is the cash receivable value after the write-off?
a. $28,000
b. $2,000
c. $30,000
d. $26,000
Reporting and Analyzing Receivables
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121. In 2017 the Golic Co. had net credit sales of $900,000. On January 1, 2017, the
Allowance for Doubtful Accounts had a credit balance of $22,500. During 2017, $36,000
of uncollectible accounts receivable were written off. Past experience indicates that the
allowance should be 10% of the balance in receivables (percentage-of-receivables basis).
If the accounts receivable balance at December 31 was $240,000, what is the required
adjustment to the Allowance for Doubtful Accounts at December 31, 2017?
a. $24,000.
b. $37,500.
c. $46,500.
d. $36,000.
122. The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to
record Bad Debt Expense
a. is relevant when using the percentage-of-receivables basis.
b. is relevant when using the direct write-off method.
c. is relevant to both the percentage-of-receivables basis and the direct write-off method.
d. will never show a debit balance at this stage in the accounting cycle.
123. The direct write-off method of accounting for bad debts
a. uses an allowance account.
b. uses a contra asset account.
c. does not require estimates of bad debt losses.
d. is the preferred method under generally accepted accounting principles.
124. Under the direct write-off method of accounting for uncollectible accounts
a. the allowance account is increased for the actual amount of bad debt at the time of
write-off.
b. a specific account receivable is decreased for the actual amount of bad debt at the
time of write-off.
c. balance sheet relationships are emphasized.
d. bad debt expense is always recorded in the period in which the revenue was
recorded.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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125. A company has an ending accounts receivable balance of $1,800,000 and it estimates
that uncollectible accounts will be 2% of the receivable balance. If Allowance for Doubtful
Accounts has a credit balance of $4,000 prior to adjustment, its balance after adjustment
will be a credit of
a. $40,000.
b. $36,000.
c. $35,920.
d. $32,000.
126. Net credit sales for the month are $900,000. The accounts receivable balance is
$192,000. The allowance is calculated as 5% of the receivables balance using the
percentage-of-receivables basis. If the Allowance for Doubtful Accounts has a credit
balance of $6,000 before adjustment, what is the balance after adjustment?
a. $ 9,600
b. $ 3,600
c. $15,600
d. $ 9,900
127. In 2017 Wilkinson Company had net credit sales of $2,250,000. On January 1, 2017,
Allowance for Doubtful Accounts had a credit balance of $54,000. During 2017, $90,000
of uncollectible accounts receivable were written off. Past experience indicates that the
allowance should be 10% of the balance in receivables (percentage of receivables basis).
If the accounts receivable balance at December 31 was $600,000, what is the required
adjustment to the Allowance for Doubtful Accounts at December 31, 2017?
a. $ 60,000
b. $ 25,000
c. $ 96,000
d. $ 90,000
Reporting and Analyzing Receivables
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128. An analysis and aging of the accounts receivable of Watts Company at December 31
reveal these data:
Accounts receivable $ 3,200,000
Allowance for doubtful accounts per books before adjustment (credit) 200,000
Total estimated uncollectible accounts at December 31 260,000
What is the cash realizable value of the accounts receivable at December 31 after
adjustment?
a. $2,740,000
b. $3,000,000
c. $3,200,000
d. $2,940,000
129. The bookkeeper recorded the following journal entry
Allowance for Doubtful Accounts 1,000
Accounts Receivable Richard James 1,000
Which one of the following statements is false?
a. This entry is only prepared on the last day of the accounting period.
b. There should be written authorization for this transaction from someone who does not
have responsibilities related to recording cash.
c. There could be a violation of internal control policies.
d. James’ account was written off because it was determined to be uncollectible.
130. The following information is related to December 31, 2016 balances.
Accounts receivable $1,400,000
Allowance for doubtful accounts (credit) (120,000)
Cash realizable value 1,280,000
During 2017 sales on account were $390,000 and collections on account were $230,000.
Also, during 2017 the company wrote off $22,000 in uncollectible accounts. An analysis of
outstanding receivable accounts at year end indicated that bad debts should be estimated
at $144,000. The change in the cash realizable value from the balance at 12/31/16 to
12/31/17 was
a. 136,000 increase.
b. $160,000 increase.
c. $114,000 increase.
d. $138,000 increase.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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131. The following information is related to December 31, 2016 balances.
Accounts receivable $1,400,000
Allowance for doubtful accounts (credit) (120,000)
Cash realizable value 1,280,000
During 2017 sales on account were $390,000 and collections on account were $230,000.
Also, during 2017 the company wrote off $22,000 in uncollectible accounts. An analysis of
outstanding receivable accounts at year end indicated that bad debts should be estimated
at $144,000. Bad debt expense for 2017 is:
a. $46,000.
b. $24,000.
c. $144,000.
d. $ 2,000.
132. During 2017 Sedgewick Inc. had sales on account of $528,000, cash sales of $216,000,
and collections on account of $336,000. In addition, they collected $5,800 which had been
written off as uncollectible in 2016. As a result of these transactions the change in the
accounts receivable balance indicates a
a. $402,200 increase.
b. $192,000 increase.
c. $186,200 increase.
d. $408,000 increase.
133. Thompson Corporation’s unadjusted trial balance includes the following balances
(assume normal balances):
Accounts receivable $1,865,000
Allowance for doubtful accounts $ 35,500
Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt
expense will the company record?
a. $119,400
b. $76,400
c. $74,270
d. $114,030
Reporting and Analyzing Receivables
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134. The following information is related to December 31, 2016 balances.
Accounts receivable $3,150,000
Allowance for doubtful accounts (credit) (270,000)
Cash realizable value $2,880,000
During 2017 sales on account were $870,000 and collections on account were $516,000.
Also during 2017 the company wrote off $48,000 in uncollectible accounts. An analysis of
outstanding receivable accounts at year end indicated that bad debts should be estimated
at $324,000. The change in the cash realizable value from the balance at 12/31/16 to
12/31/17 was a
a. $300,000 increase.
b. $354,000 increase.
c. $252,000 increase.
d. $306,000 increase.
135. The following information is related to December 31, 2016 balances.
Accounts receivable $3,150,000
Allowance for doubtful accounts (credit) (270,000)
Cash realizable value $2,880,000
During 2017 sales on account were $870,000 and collections on account were $516,000.
Also during 2017 the company wrote off $48,000 in uncollectible accounts. An analysis of
outstanding receivable accounts at year end indicated that bad debts should be estimated
at $324,000. Bad debt expense for 2017 is
a. $102,000.
b. $ 54,000.
c. $324,000.
d. $ 6,000.
136. During 2017 Wheeler Inc. had sales on account of $792,000, cash sales of $324,000, and
collections on account of $504,000. In addition, they collected $8,700 which had been
written off as uncollectible in 2016. As a result of these transactions the change in the
accounts receivable indicates a
a. $603,300 increase.
b. $288,000 increase.
c. $279,300 increase.
d. $612,000 increase.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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137. Smithson Corporation’s unadjusted trial balance includes the following balances (assume
normal balances):
Accounts Receivable $1,119,000
Allowances for Doubtful Accounts $ 21,300
Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt
expense will the company record?
a. $67,140
b. $45,840
c. $44,562
d. $68,418
138. A write off of a specific accounts receivable under the allowance method
a. increases bad debt expense for the accounting period.
b. should occur on the last day of the accounting period.
c. decreases the cash realizable value of accounts receivable.
d. should be formally approved by an authorized employee.
139. The direct write-off method is acceptable for financial reporting purposes only if the bad
debt losses are insignificant.
a. This is a false statement because the direct write-off method violates the matching
principle.
b. This is a true statement based on the concept of materiality.
c. This is a false statement because the direct write-off method can only be used for tax
reporting.
d. This is a true statement because companies can choose either the direct write-off or
the allowance method for financial reporting, as long as they consistently apply the
method.
140. Under the allowance method of accounting for bad debts, why must uncollectible accounts
receivable be estimated at the end of the accounting period?
a. To allow the collection department to schedule work for the next accounting period.
b. To determine the gross realizable value of accounts receivable.
c. The IRS rules require the company to make the estimate.
d. To match bad debt expense to the period in which the revenues were earned.
141. A promissory note
a. is not a formal credit instrument.
b. may be used to settle an accounts receivable.
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party.
Reporting and Analyzing Receivables
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142. Which of the following is not true regarding a promissory note?
a. Promissory notes may not be transferred to another party by endorsement.
b. Promissory notes may be sold to another party.
c. Promissory notes give a stronger legal claim to the holder than accounts receivable.
d. Promissory notes may be bearer notes and not specifically identify the payee by
name.
143. The two key parties to a promissory note are the
a. maker and a bank.
b. debtor and the payee.
c. maker and the payee.
d. sender and the receiver.
144. When calculating interest on a promissory note with the maturity date stated in terms of
days, the
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.
145. The interest on a $10,000, 10%, 1-year note receivable is
a. $10,000.
b. $1,000.
c. $11,000.
d. $10,900.
146. The interest on a $20,000, 6%, 60-day note receivable is
a. $1,200.
b. $200.
c. $400.
d. $600.
147. The interest on a $15,000, 6%, 90-day note receivable is
a. $900.
b. $450.
c. $225.
d. $675.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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148. The interest on a $25,000, 10%, 1-year note receivable is
a. $250.
b. $208.
c. $2,500.
d. $27,500.
149. The interest on a $15,000, 6%, 60-day note receivable is
a. $75.
b. $900
c. $450.
d. $150.
150. The interest on a $10,000, 9%, 90-day note receivable is
a. $225.
b. $900.
c. $75.
d. $150.
151. A note receivable is a negotiable instrument which
a. eliminates the need for a bad debts allowance.
b. can be transferred to another party by endorsement.
c. takes the place of checks in a business firm.
d. can only be collected by a bank.
152. When a company receives an interest-bearing note receivable, it will
a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.
153. The face value of a note refers to the amount
a. that can be received if sold to a factor.
b. borrowed plus interest received at maturity from the maker.
c. at which the note receivable is recorded.
d. remaining after a service charge has been deducted.
Reporting and Analyzing Receivables
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154. Rosen Company receives a $9,000, 3-month, 6% promissory note from Bay Company in
settlement of an open accounts receivable. What entry will Rosen Company make upon
receiving the note?
a. Notes Receivable 9,135
Accounts ReceivableBay Company 9,135
b. Notes Receivable 9,135
Accounts ReceivableBay Company 9,000
Interest Revenue 135
c. Notes Receivable 5,000
Interest Receivable 135
Accounts ReceivableBay Company 9,000
Interest Revenue 135
d. Notes Receivable 9,000
Accounts ReceivableBay Company 9,000
155. Doane Company receives a $10,000, 3-month, 6% promissory note from Ray Company in
settlement of an open accounts receivable. What entry will Doane Company make upon
receiving the note?
a. Notes Receivable 10,150
Accounts ReceivableRay Company 10,150
b. Notes Receivable 10,150
Accounts ReceivableRay Company 10,000
Interest Revenue 150
c. Notes Receivable 10,000
Interest Receivable 150
Accounts ReceivableRay Company 10,000
Interest Revenue 150
d. Notes Receivable 10,000
Accounts ReceivableRay Company 10,000
156. Short-term notes receivable
a. have a related allowance account called Allowance for Doubtful Notes Receivable.
b. are reported at their gross realizable value.
c. use the same estimations and computations as accounts receivable to determine cash
realizable value.
d. present the same valuation problems as long-term notes receivables.
157. A 90-day note dated June 30, 2017, would mature on:
a. September 30, 2017.
b. September 27, 2017.
c. September 28, 2017.
d. September 29, 2017.
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158. The interest rate for a three-month loan would normally be stated in terms of which of the
following rates of interest?
a. Daily
b. Monthly
c. Quarterly
d. Annual
159. Ramos Company has a 90-day note that carries an annual interest rate of 8%. If the
amount of the total interest on the note is equal to $900, then what is the principal of the
note?
a. $11,250
b. $45,000
c. $64,800
d. $28,800
160. Douglas Company has a $60,000 note that carries an annual interest rate of 10%. If the
amount of the total interest on the note is equal to $4,500, then what is the duration of the
note in months?
a. 6 months
b. 4 months
c. 12 months
d. 9 months
161. Young Company lends Dobson industries $40,000 on August 1, 2017, accepting a 9-
month, 9% interest note. If Young prepares its financial statements as of December 31,
2017, what adjusting entry must it make?
a. Interest Receivable 1,500
Interest Revenue 1,500
b. Accounts Receivable 1,500
Interest Receivable 1,500
c. Cash 1,500
Interest Revenue 1,500
d. Notes Receivable 1,500
Interest Revenue 1,500
Reporting and Analyzing Receivables
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162. Young Company lends Dobson industries $40,000 on August 1, 2017, accepting a 9-
month, 9% interest note. If Young accrued interest at its December 31, 2017 year-end,
what entry must it make to record the collection of the note and interest at its maturity
date?
a. Cash 42,700
Notes Receivable 40,000
Interest Revenue 2,700
b. Cash 42,700
Notes Receivable 42,700
c. Notes Receivable 40,000
Interest Receivable 1,500
Interest Revenue 1,200
Cash 42,700
d. Cash 42,700
Notes Receivable 40,000
Interest Receivable 1,500
Interest Revenue 1,200
163. Young Company lends Dobson industries $40,000 on January 1, 2017, accepting a 9-
month, 9% interest note. If Dobson dishonors the note and does not pay it in full at
maturity but Young expects that it will eventually be able to collect the debt, which of the
following entries should most likely be made by Young Company?
a. Cash 40,000
Notes Receivable 40,000
b. Accounts Receivable 40,000
Notes Receivable 40,000
c. Accounts Receivable 42,700
Notes Receivable 40,000
Interest Revenue 2,700
d. Accounts Receivable 42,700
Notes Receivable 40,000
Interest Receivable 2,700
164. Which of the following is a way of disposing of a note receivable?
a. Honoring it on maturity date.
b. Selling it to receive cash before the maturity date.
c. Default by the maker.
d. All of these are ways to dispose of notes receivable.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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165. A dishonored note receivable
a. Is no longer negotiable.
b. Must be written off by the lender.
c. Creates a claim against the maker for the amount of principal only.
d. Is one that is not paid in full within 10 days of maturity.
166. The maturity value of a $60,000, 9%, 40-day note receivable dated July 3 is
a. $60,000.
b. $66,000.
c. $65,400.
d. $60,600.
167. Barber Company lends Monroe Company $40,000 on April 1, accepting a four-month, 6%
interest note. Barber Company prepares financial statements on April 30. What adjusting
entry should be made before the financial statements can be prepared?
a. Note Receivable 40,000
Cash 40,000
b. Interest Receivable 200
Interest Revenue 200
c. Cash 200
Interest Revenue 200
d. Interest Receivable 600
Interest Revenue 600
168. The maturity value of a $10,000, 6%, 60-day note receivable dated February 10th is
a. $10,100.
b. $10,050.
c. $10,000.
d. $10,600.
169. When a note is dishonored, the payee’s entry includes a
a. debit to Interest Revenue.
b. credit to Accounts Receivable.
c. debit to Interest Expense.
d. credit to Notes Receivable.
Reporting and Analyzing Receivables
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170. A note receivable is executed in December. When the note is paid the following February,
the payee’s entry includes (assuming a calendar-year accounting period and no reversing
entries) a
a. credit to Interest Receivable.
b. credit to Cash.
c. debit to Notes Receivable.
d. debit to Interest Income.
171. The maturity value of a $50,000, 12%, 3-month note receivable is
a. $51,500.
b. $50,600.
c. $56,000.
d. $50,500.
172. Nance Co. holds Gant Inc.’s $30,000, 120 day, 9% note. The entry made by Nance Co.
when the note is collected, assuming no interest has previously been accrued is:
a. Cash 30,000
Notes Receivable 30,000
b. Accounts Receivable 30,900
Notes Receivable 30,000
Interest Revenue 900
c. Cash 30,900
Notes Receivable 30,000
Interest Revenue 900
d. Accounts Receivable 30,900
Notes Revenue 30,000
Interest Revenue 900
173. All of the following statements regarding the financial statement presentation of
receivables are true except:
a. Short-term receivables are reported in the current assets section of the balance sheet.
b. The gross amount of receivables less the allowance for doubtful accounts is equal to
the net receivables.
c. Short-term receivables are reported above the short-term investments in the balance
sheet.
d. Companies report bad debts expense under "Selling Expenses" in the operating
expenses section of the income statement.
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174. Which of the following is least likely to help a company minimize losses as credit
standards are relaxed?
a. Require potential customers to provide bank guarantees.
b. Ask a potential customer for references regarding payment history.
c. Increase the estimate of uncollectible accounts at the end of each period.
d. Check a potential customer's credit rating.
175. Which one of the following is not a principle of sound accounts receivable management?
a. Determine to whom to extend credit.
b. Delay cash receipts from receivables if necessary.
c. Monitor collections.
d. Determine a payment period.
176. The accounts receivable turnover is computed by dividing
a. total sales by average receivables.
b. total sales by ending receivables.
c. net credit sales by average receivables.
d. net credit sales by ending receivables.
177. The accounts receivable turnover is used to analyze
a. profitability.
b. liquidity.
c. risk.
d. long-term solvency.
178. A high accounts receivable turnover ratio indicates
a. the company’s sales are increasing.
b. a large proportion of the company’s sales are on credit.
c. customers are making payments very quickly.
d. customers are making payments slowly.
179. The accounts receivable turnover is needed to calculate
a. the average collection period in days.
b. market risk.
c. return on assets.
d. current ratio.
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180. The average collection period for receivables is computed by dividing 365 days by
a. net credit sales.
b. average accounts receivable.
c. ending accounts receivable.
d. accounts receivable turnover.
181. The financial statements of the Nelson Manufacturing Company reports net sales of
$360,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year
and end of year, respectively. What is the accounts receivable turnover for Nelson?
a. 4.5 times
b. 7.2 times
c. 12.0 times
d. 9.0 times
182. The financial statements of the Melton Manufacturing Company reports net sales of
$360,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year
and end of year, respectively. What is the average collection period for accounts
receivable in days?
a. 81.1
b. 40.6
c. 50.7
d. 30.4
183. The financial statements of the Phelps Manufacturing Company reports net sales of
$600,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year
and end of year, respectively. What is the accounts receivable turnover for Phelps?
a. 10.0 times
b. 15.0 times
c. 7.5 times
d. 5.0 times
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
8-40
184. The financial statements of the Belfry Manufacturing Company reports net sales of
$600,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year
and end of year, respectively. What is the average collection period for accounts
receivable in days?
a. 24.3 times
b. 73.0 times
c. 36.5 times
d. 48.7 times
185. A popular variation of the accounts receivable turnover is the
a. credit risk ratio.
b. concentration of credit risk.
c. bad debts ratio.
d. average collection period.
186. The accounts receivable turnover
a. is computed by dividing net credit sales for the accounting period by the cash
realizable value of accounts receivable on the last day of the accounting period.
b. can be used to compute the average collection period.
c. is a method of evaluating the solvency of net accounts receivable.
d. is only important to internal users of accounting information.
187. Leary Corporation had net credit sales during the year of $1,200,000 and cost of goods
sold of $720,000. The balance in accounts receivable at the beginning of the year was
$120,000 and at the end of the year was $180,000. What was the accounts receivable
turnover?
a. 8.0
b. 10.0
c. 6.7
d. 4.8
188. Windsor Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable
turnover of 6. What is its average collection period (days)?
a. 90
b. 40
c. 61
d. 48

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