Question 1

Simonic Retailers accepted $90,000 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 $90,000 and a debit(s) to
A) Cash $86,400 and Service Charge Expense $3,600.
B) Accounts Receivable $86,400 and Service Charge Expense $3,600.
C) Cash $86,400 and Interest Expense $3,600.
D) Accounts Receivable $90,000.

Accepted Answer

Simonic Retailers will receive cash of $86,400 after Citibank deducts its 4% service charge ($90,000 x 4% = $3,600). Therefore, the entry will include a debit to Cash for $86,400 and a debit to Service Charge Expense for $3,600.

Question 2

A company sells $900,000 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 $18,000.
B) debit to Cash for $882,000.
C) debit to Service Charge Expense for $18,000.
D) credit to Accounts Receivable for $900,000.

Accepted Answer

The entry should not include a debit to Interest Expense because the 2% service charge is recorded as a Service Charge Expense, not as an interest expense.

Question 3

Windsor Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 8. What is its average collection period (days)?
A) 80
B) 30
C) 46
D) 36

Accepted Answer

The average collection period is 360 days / accounts receivable turnover. So, 360 days / 8 = 46 days.

Question 4

Leary Corporation had net credit sales during the year of $900,000 and cost of goods sold of $540,000. The balance in receivables 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) 6.0
B) 7.5
C) 5.0
D) 3.6

Accepted Answer

The accounts receivable turnover is calculated as net credit sales divided by the average accounts receivable. Average accounts receivable is ($120,000 + $180,000) / 2 = $150,000. Thus, turnover is $900,000 / $150,000 = 6.0.

Question 5

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 ratio measures how efficiently a company collects its receivables. It can be used to compute the average collection period by dividing the number of days in the period by the turnover ratio.

Question 6

The financial statements of the Melton Manufacturing Company reports net sales of $300,000 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) 96.1
B) 48.7
C) 36.5
D) 60.8

Accepted Answer

The average collection period is calculated as (Average Accounts Receivable / Net Sales) * 365. The average accounts receivable is ($50,000 + $30,000) / 2 = $40,000. Thus, ($40,000 / $300,000) * 365 = 48.7 days.

Question 7

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

The service charge of the factor represents the cost of selling the receivables to the factor, and is therefore classified as a selling expense.

Question 8

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 not generally exceed the credit term period. Ideally, it should be as short as possible, indicating that customers are paying their bills in a timely manner.

Question 9

In the table below the information for four companies is provided. $$\begin{array} { | l | c | c | } 
\hline \text { Compary } & \begin{array} { c } 
\text { Accounts Receivable } \
\text { turnover }
\end{array} & \text { Average collection period } \
\hline \text { Martin } & 13.9 & 26.3 \
\hline \text { Lewis } & 13.3 & 27.4 \
\hline \text { Danforth } & 10.4 & \mathbf { 3 5 . 1 } \
\hline \text { Gamer } & 14.5 & 25.2 \
\hline \text { Industry Average } & 13.0 & 28.1 \
\hline
\end{array}$$ 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 10

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

Selling accounts receivables to factors and offering credit terms such as 2/10, n/30 are common business practices that allow companies to accelerate their receivables collections. However, when factoring, the company receives less than the gross accounts receivable due to fees charged by the factor.

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 measures the average number of days it takes for a company to collect its receivables from customers. It is calculated by dividing the number of days in a period by the accounts receivable turnover ratio. It is a popular variation of the accounts receivable turnover ratio as it provides a more tangible measure of the efficiency of a company’s collections process.

Question 12

ABC Company accepted a national credit card for a $7,000 purchase. The cost of the goods sold is $5,600. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?
A) Increase by $1,358.
B) Increase by $1,400.
C) Increase by $1,190.
D) Increase by $6,790.

Accepted Answer

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

Question 13

YZ Company accepted a national credit card for a $7,500 purchase. The cost of the goods sold is $6,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?
A) Increase by $1,455.
B) Increase by $1,500.
C) Increase by $1,275.
D) Increase by $7,275.

Accepted Answer

The net operating income increases by the sales revenue minus the cost of goods sold and the credit card fee: $7,500 - $6,000 - ($7,500 * 3%) = $1,275.

Question 14

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 quick way for a business to generate cash for operating needs. It does not necessarily indicate financial difficulty or ownership by a captive finance company, and it is not typically the major revenue item on an income statement.

Question 15

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 are financial transactions where a business sells its accounts receivable to a third party (factor) to accelerate cash flow and improve liquidity.

Question 16

The financial statements of the Phelps Manufacturing Company reports net sales of $500,000 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) 8.3 times
B) 12.5 times
C) 6.3 times
D) 4.2 times

Accepted Answer

Accounts receivable turnover = Net sales / Average accounts receivableAverage accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2= ($80,000 + $40,000) / 2= $60,000Accounts receivable turnover = $500,000 / $60,000= 8.3 times

Question 17

The financial statements of the Belfry Manufacturing Company reports net sales of $500,000 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) 29.2 times
B) 86.9 times
C) 44.0 times
D) 57.9 times

Accepted Answer

The average collection period is calculated as (Average Accounts Receivable / Net Sales) * 365. The average accounts receivable is ($80,000 + $40,000) / 2 = $60,000. Thus, the average collection period is ($60,000 / $500,000) * 365 = 44.0 days.

Question 18

The financial statements of the Nelson Manufacturing Company reports net sales of $300,000 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) 3.8 times
B) 6 times
C) 10.0 times
D) 7.5 times

Accepted Answer

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

Question 19

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 involves selling or transferring accounts receivable to a third party (known as a factor) in exchange for immediate cash, at a discount from the face value of the receivables. This helps the company to raise funds quickly without having to wait for customers to pay their invoices. Pledging involves using accounts receivable as collateral for a loan. Leasing involves renting out assets such as property, equipment or vehicles. Collateralizing involves providing assets as security for a loan or other financial obligation.

Question 20

In the table below the information for four companies is provided. $$\begin{array} { | l | c | c | } 
\hline \text { Compary } & \begin{array} { c } 
\text { Accounts Receivable } \
\text { turnover }
\end{array} & \text { Average collection period } \
\hline \text { Martin } & 13.9 & 26.3 \
\hline \text { Lewis } & 13.3 & 27.4 \
\hline \text { Danforth } & 10.4 & \mathbf { 3 5 . 1 } \
\hline \text { Gamer } & 14.5 & 25.2 \
\hline \text { Industry Average } & 13.0 & 28.1 \
\hline
\end{array}$$ If Garner's net credit sales are $290,000, what are its average net accounts receivable?
A) $11,508
B) $20,000
C) $42,050
D) $73,080

Accepted Answer

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

Quiz 8: Reporting and Analyzing Receivables

Simonic Retailers accepted $90,000 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 $90,000 and a debit(s) to

A company sells $900,000 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 8. What is its average collection period (days) ?

Leary Corporation had net credit sales during the year of $900,000 and cost of goods sold of $540,000. The balance in receivables 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 accounts receivable turnover

The financial statements of the Melton Manufacturing Company reports net sales of $300,000 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?

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

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

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

A popular variation of the accounts receivable turnover is the

ABC Company accepted a national credit card for a $7,000 purchase. The cost of the goods sold is $5,600. 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 $7,500 purchase. The cost of the goods sold is $6,000. 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 financial statements of the Phelps Manufacturing Company reports net sales of $500,000 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?

The financial statements of the Belfry Manufacturing Company reports net sales of $500,000 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?

The financial statements of the Nelson Manufacturing Company reports net sales of $300,000 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?

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