Practice Test 1 Test Answers – Flashcards
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Receivables are assets that must be reported in the order of ______?
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Liquidity
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Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $120,000 at year-end and the total credit sales were $900,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $600 before adjustment?
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Bad Debts Expense 4,200 Allowance for Doubtful Accounts 4,200
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On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $18,000. During the year, it had net credit sales of $750,000 and it had $30,000 of uncollectible accounts receivable that 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 is $200,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31?
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$32,000
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Which of the following are used to compute cash realizable value?
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Accounts Receivable and Allowance for Doubtful Accounts
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Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end. The total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $200 before the year-end adjusting entry for Bad Debt Expense?
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Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000
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A 120-day note dated March 7, would mature on
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July 5.
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Laurel Company factors $400,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?
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Debit Cash for $388,000, debit Service Charge Expense for $12,000, and credit Accounts Receivable for $400,000
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How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1?
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$233
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In September, Oliver Company sold merchandise on account to Mr. Reed for $200 with terms 1/10, n/30. Oliver Company uses the percentage of receivables basis for estimating uncollectible accounts on December 31. On April 18, Oliver Company determines that it will not collect the amount due from Mr. Reed. Prepare the journal entry to record the write-off on April 18.
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Allowance for Doubtful Accounts 200 Accounts Receivable 2
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When is a receivable recorded by a merchandiser?
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At the point of sale of the merchandise on account
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Which one of the following is not one of the five basic issues in accounting for notes receivable?
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Filing notes receivable
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Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?
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Allowance for Doubtful Accounts is debited.
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Star Corporation sells its goods on terms of 3/10, n/30. It has a receivables turnover ratio of 6.00. What is its average collection period (also known as the days in receivable ratio)?
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60.83 days
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On June 15, Kelsey Company sold merchandise on account to Buyer Co. for $1,000 with terms 2/10, n/30. On June 20, Buyer Co. returns $300 of merchandise to Kelsey Company. On June 24, Buyer Co. pays the balance due. What is the amount of cash received by Kelsey Company on June 24?
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$686
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A 120-day promissory note is issued on April 11. What is the note's maturity date?
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August 9
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A bank holds a 30-day, 9%, $20,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?
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Credit to Notes Receivable for $20,000
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Which of these statements about national credit card (e.g., Visa) sales is false?
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The retailer conducts the credit investigation of the customer
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The following information relates to the beginning of the year: Accounts receivable, $150,000 Allowance for doubtful accounts (credit balance), $7,500 During the current year, sales on account were $850,000 and collections on account were $775,000. Also during the current year, the company wrote off $6,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have an $8,500 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?
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$68,000 increase
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When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain?
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A debit to Cash, a credit to Notes Receivable, and a credit to Interest Revenue
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Which one of the following is not a method used by companies to accelerate cash receipts?
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Allowing customers to settle their accounts by issuing notes
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Which one of these statements about promissory notes is correct?
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A promissory note is a long-term financial instrument.
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Michael Co. accepts a $6,000, 3-month, 12% promissory note in settlement of an account with Tony Co. Michael Co. records this transaction as
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a debit to Notes Receivable for $6,000 and a credit to Accounts Receivable for $6,000.
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Net credit sales for the month are $6,000,000 for Stacy Clothiers. Its accounts receivable balance is $300,000. The allowance is calculated as 7% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $10,000 before adjustment. How much is the balance of the allowance account after adjustment?
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Credit balance of $21,000
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Which of the following accounts is debited when a company factors its accounts receivable?
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Service Charge Expense
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Schmidt Co. holds Murphy Inc.'s $10,000, 120-day, 6% note. What is the entry to be made by Schmidt Co. when the note is collected, assuming no interest has previously been accrued?
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Debit Cash for $10,200, credit Notes Receivable for $10,000, and credit Interest Revenue for $200
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Edward Corporation had net credit sales during the year of $400,000 and cost of goods sold of $150,000. The balance in receivables at the beginning of the year was $60,000 and at the end of the year was $70,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,300,000. How much is the accounts receivables turnover?
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6.15
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An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $1,200,000; Allowance for doubtful accounts balance before adjustment (credit balance), $24,000; Amounts expected to become uncollectible, $115,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?
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$1,085,000
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Net credit sales are $800,000, average inventory totals $50,000, average net receivables total $40,000, and the allowance for doubtful accounts totals $4,000. How much is the average collection period (also known as the days in receivable ratio)?
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18.25 Days
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On May 2, Cartwright Company receives a $3,000, 4-month, 10% note from Fulton Company as a settlement of its accounts receivable. What journal entry will Cartwright Company record on May 2?
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A debit to Notes Receivable for $3,000 and a credit to Accounts Receivable for $3,000
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Which of the following should be classified as an "other" receivable?
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Interest receivable
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At what value are accounts receivable reported on the balance sheet?
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Cash realizable value
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When an uncollectible account is recovered after it has been written off two journal entries are recorded. Which of the following journal entries will be recorded second?
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Debit Cash and credit Accounts Receivable
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Kensington Company sold $6,000 of merchandise to customers who charged their purchases with a bank credit card. Kensington's bank charges it a 4% fee. Which one of the following is part of the journal entry to record this transaction?
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Debit to Cash for $5,760
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Which one of the following statements is true?
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Bad Debts Expense is a temporary account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a permanent account and remains open at the end of the fiscal period.
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Good Stuff Retailers accepted $50,000 of Wells Fargo Visa credit card charges for merchandise sold on July 1. Wells Fargo charges 5% for its credit card use. What should Good Stuff Retailers debit as a result of this transaction?
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Cash for $47,500 and Service Charge Expense for $2,500
