Question 1

Selling accounts receivables to factors and allowing credit terms such as 2/10, n/30
A)represent common business practices.
B)represent ways to accelerate receivables collections.
C)result in collections that are less than the gross accounts receivable.
D)All of these answer choices are correct.

Accepted Answer

The answer of Selling accounts receivables to factors and allowing...

Question 2

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

Accepted Answer

Average Collection Period = (Accounts Receivable / Net Sales) x 365
= (($50,000+$30,000)/2) / $360,000 x 365 = 40.6 days

Question 3

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

Accepted Answer

The accounts receivable turnover is calculated as net sales divided by average accounts receivable. Average accounts receivable is ($80,000 + $40,000) / 2 = $60,000. Thus, the turnover is $600,000 / $60,000 = 10.0 times.

Question 4

ABC Company accepted a national credit card for a $9,000 purchase. The cost of the goods sold is $7,200. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?
A)Increase by $1,746.
B)Increase by $1,800.
C)Increase by $1,530.
D)Increase by $8,730.

Accepted Answer

The credit card company charges a fee of 3% of $9,000 = $270. Therefore, ABC Company receives $8,730 ($9,000 - $270) for the sale. The cost of goods sold is $7,200, so the gross profit is $1,530 ($8,730 - $7,200). This will be included in the company's net operating income, so the impact of the transaction is an increase in net operating income by $1,530.

Question 5

YZ Company accepted a national credit card for a $10,000 purchase. The cost of the goods sold is $8,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?
A)Increase by $1,940.
B)Increase by $2,000.
C)Increase by $1,700.
D)Increase by $9,700.

Accepted Answer

The answer of YZ Company accepted a national credit card...

Question 6

The sale of receivables by a business
A)indicates that the business is in financial difficulty.
B)is generally the major revenue item on its income statement.
C)is an indication that the business is owned by a captive finance company.
D)can be a quick way to generate cash for operating needs.

Accepted Answer

Selling receivables can be a way for a business to quickly generate cash to meet its operating needs. It does not necessarily indicate financial difficulty or that the business is owned by a captive finance company, and it is not typically the major revenue item on an income statement.

Question 7

Factoring arrangements
A)are ways to accelerate receivable collections.
B)involve no commissions or service charges because the factor is guaranteed collections on the due date.
C)are generally used by businesses that are insolvent.
D)are mainly used in the textile and furniture industries.

Accepted Answer

Factoring arrangements involve a business selling its accounts receivable to a third party, known as a factor, in exchange for immediate cash. This allows the business to accelerate its receivable collections and improve its cash flow.

Question 8

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.

Accepted Answer

The accounts receivable turnover is a ratio that measures how many times a company is able to collect its average accounts receivable balance during a given period. It is calculated by dividing net credit sales by the average accounts receivable balance. This ratio can be used to compute the average collection period, which is the average number of days it takes for a company to collect its accounts receivable. This information is useful to both internal and external users of accounting information, as it provides insight into a company's liquidity and ability to collect its outstanding debts in a timely manner.

Question 9

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n)
A)selling expense.
B)interest expense.
C)other expense.
D)contra asset.

Accepted Answer

When a retailer regularly sells its receivables to a factor, the service charge of the factor is considered a selling expense. This is because the cost of factoring is included in the cost of goods sold, which is a selling expense.

Question 10

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

Accepted Answer

Average collection period = (Accounts receivable / Net sales) x Number of days in the year
= [(80,000 + 40,000) / 2 / 600,000] x 365
= (60,000 / 600,000) x 365
= 36.5 days. 
Therefore, the answer is C.

Question 11

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.

Accepted Answer

The average collection period is a variation of the accounts receivable turnover, and it measures the average number of days it takes for a company to collect its accounts receivable. The other choices (credit risk ratio, concentration of credit risk, bad debts ratio) are other financial ratios, but they are not directly related to the accounts receivable turnover.

Question 12

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

Accepted Answer

The answer of Leary Corporation had net credit sales during...

Question 13

The sale or transfer of accounts receivable in order to raise funds is called
A)pledging.
B)factoring.
C)leasing.
D)collateralizing.

Accepted Answer

Factoring is the sale or transfer of accounts receivable to a third party at a discount in order to raise cash. Pledging refers to using accounts receivable as collateral for a loan, leasing refers to renting property or equipment, and collateralizing refers to using assets as collateral for a loan.

Question 14

Simonic Retailers accepted $80,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales Revenue of $80,000 and a debit(s) to
A)Cash $76,800 and Service Charge Expense $3,200.
B)Accounts Receivable $76,800 and Service Charge Expense $3,200.
C)Cash $76,800 and Interest Expense $3,200.
D)Accounts Receivable $80,000.

Accepted Answer

When Simonic Retailers accepts credit card charges, they receive the full amount of $80,000. However, Citibank charges a 4% service charge for the use of their credit card, which results in a $3,200 fee. To record this transaction, Simonic Retailers would credit Sales Revenue for $80,000 and debit Cash for $76,800 (the amount remaining after the service charge) and Service Charge Expense for $3,200. This represents the amount they received and the fee they paid for the use of the credit card. Option B, Accounts Receivable $76,800 and Service Charge Expense $3,200, would be incorrect because Simonic Retailers did not extend credit to the customer using the credit card, so there is no need to record an Accounts Receivable. Option C, Cash $76,800 and Interest Expense $3,200, would also be incorrect because Citibank is charging a service charge, not interest, for the use of their credit card. Option D, Accounts Receivable $80,000, would be incorrect because, again, Simonic Retailers did not extend credit to the customer using the credit card.

Question 15

A company sells $800,000 of accounts receivable to a factor for cash less a 2% service charge. The entry to record the sale should not include a
A)debit to Interest Expense for $16,000.
B)debit to Cash for $784,000.
C)debit to Service Charge Expense for $16,000.
D)credit to Accounts Receivable for $800,000.

Accepted Answer

The 2% service charge is already accounted for in the decrease in the accounts receivable balance. Therefore, there is no need to record an additional interest expense. The other options are all necessary to correctly record the sale.

Question 16

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

Accepted Answer

To calculate the average collection period (ACP), we need to use the formula:

ACP = (Accounts Receivable / Total Sales) x Number of Days

First, we need to find the accounts receivable (AR) turnover:

AR turnover = Total Sales / Average AR

Since we are given an AR turnover of 6, we can rearrange the formula to find the average AR:

Average AR = Total Sales / AR turnover = Total Sales / 6

Now, we can plug in the given information:

2/10 = 0.2 discount
n/30 = 1 - 0.2 = 0.8 no discount

Effective collection period = (0.2 x 10) + (0.8 x 30) = 26

Accounts Receivable = (Total Sales / 365) x ACP

Average AR = (Total Sales / 6) = (Total Sales / 365) x 26

By solving these equations, we can find:

ACP = 61.5 or approximately 61 days.

Therefore, the best choice is C.

Question 17

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

Accepted Answer

The answer of The financial statements of the Nelson Manufacturing...

Question 18

In the table below the information for four companies is provided. $\begin{array}{|l|c|c|}
\hline \text { Company } & \begin{array}{c}
\text { Accounts Receivable } \
\text { turnover }
\end{array} & \text { Average collection period } \
\hline \text { Martin } & 13.9 & 26.3 \\hline \text { Lewis } & 13.3 & 27.4 \
\hline \text { D anforth } & 10.4 & 35.1 \
\hline \text { Gamer } & 14.5 & 25.2 \
\hline \text { Industry Average } & 13.0 & 28.1 \
\hline
\end{array}$ If Garner's net credit sales are $435,000, what are its average net accounts receivable?
A)$17,262
B)$30,000
C)$63,075
D)$109,620

Accepted Answer

The answer of In the table below the information for...

Question 19

In the table below the information for four companies is provided. $\begin{array}{|l|c|c|}
\hline \text { Company } & \begin{array}{c}
\text { Accounts Receivable } \
\text { turnover }
\end{array} & \text { Average collection period } \
\hline \text { Martin } & 13.9 & 26.3 \\hline \text { Lewis } & 13.3 & 27.4 \
\hline \text { D anforth } & 10.4 & 35.1 \
\hline \text { Gamer } & 14.5 & 25.2 \
\hline \text { Industry Average } & 13.0 & 28.1 \
\hline
\end{array}$ Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations?
A)Martin
B)Lewis
C)Danforth
D)Garner

Accepted Answer

The answer of In the table below the information for...

Question 20

All of the following statements are true regarding the average collection period except:
A)it is a popular variant of the accounts receivable turnover .
B)it is used to assess the effectiveness of a company's credit and collection policies.
C)it should generally exceed the credit term period.
D)its increase may suggest a decline in the financial health of customers.

Accepted Answer

The average collection period should ideally be less than the credit term period, as it indicates that a company is effectively collecting its outstanding receivables within the allotted time. If the average collection period exceeds the credit term period, it may suggest that customers are not paying on time, which could lead to cash flow issues for the company.

Quiz 7: Reporting and Analyzing Receivables

Selling accounts receivables to factors and allowing credit terms such as 2/10, n/30

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?

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?

ABC Company accepted a national credit card for a $9,000 purchase. The cost of the goods sold is $7,200. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

YZ Company accepted a national credit card for a $10,000 purchase. The cost of the goods sold is $8,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

The sale of receivables by a business

Factoring arrangements

The accounts receivable turnover

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n)

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 popular variation of the accounts receivable turnover is the

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?

The sale or transfer of accounts receivable in order to raise funds is called

Simonic Retailers accepted $80,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales Revenue of $80,000 and a debit(s) to

A company sells $800,000 of accounts receivable to a factor for cash less a 2% service charge. The entry to record the sale should not include a

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) ?

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?

All of the following statements are true regarding the average collection period except: