Question 1

If Extol's Inc. sells items to a customer who uses a credit card for $800, and there is a credit card fee of 2%, what is the amount of the debit to cash?

Accepted Answer

The debit to cash is the amount received after the credit card fee is deducted. The fee is 2% of $800, which is $16. Therefore, the cash received is $800 - $16 = $784.

Question 2

Under the allowance method for estimating uncollectible accounts, the entry to write off an account:

Accepted Answer

The write-off entry decreases both Accounts Receivable and Allowance for Uncollectible Accounts, leaving net realizable value unchanged.

Question 3

A company with net sales of 1,642,500, a beginning balance of net receivables of $187,500, and an ending balance of net receivables of $235,500 has a days' sales in receivables of rounded):

Accepted Answer

Days' sales in receivables = (Average net receivables / Net sales) * 365 daysAverage net receivables = (Beginning net receivables + Ending net receivables) / 2= ($187,500 + $235,500) / 2= $211,500Days' sales in receivables = ($211,500 / $1,642,500) * 365 days= 47 days (rounded)

Question 4

On a statement of cash flows, collections of accounts receivables are classified as an):

Accepted Answer

Collections of accounts receivables are classified as operating activities because they are part of the company's core business operations.

Question 5

The number of days it takes to collect the average amount of receivables is called the:

Accepted Answer

Days' sales in receivables is a measure of how long it takes a company to collect its receivables. It is calculated by dividing the average amount of receivables by the annual sales revenue and multiplying by 365 days.

Question 6

The collection period of Armie's for 2007 was 30 days; total credit sales were $7,300,000; and average receivables were $600,000. If sales increase to $8,030,000, and the average receivables stays the same, what happens?

Accepted Answer

The collection period is calculated as (Average Receivables / Total Credit Sales) * 365. With the new sales figure, the collection period becomes 27 days.

Question 7

An aging- of- accounts- receivable method indicates that amount of uncollectible accounts is $7,200.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $2,000. The amount of the adjusting entry should be:

Accepted Answer

The adjusting entry should bring the Allowance for Uncollectible Accounts to the estimated uncollectible amount of $7,200. Since there is already a debit balance of $2,000, you need to credit $9,200 to offset the debit and reach the desired balance.

Question 8

In 2009, Krane Company purchases $75,000 of U.S. Treasury bills. This purchase would be reported on Krane Company's 2009 statement of cash flows as an):

Accepted Answer

Purchasing U.S. Treasury bills is considered an investing activity as it involves the acquisition of investment securities.

Question 9

Using the aging- of- accounts- receivable method to estimate uncollectibles, Greeley Corporation estimates that $9,500 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a debit balance of $3,000. After all necessary adjusting entries are made, the balance in Allowance for Uncollectible Accounts will be:

Accepted Answer

The answer of Using the aging- of- accounts- receivable method...

Question 10

If the interest is $5,000 on a 6%, 60 day note, what is the principal?

Accepted Answer

The interest formula is Interest = Principal x Rate x Time. Rearranging for Principal gives Principal = Interest / (Rate x Time). Here, Time is 60/360 (as it's typically calculated on a 360-day year for notes), so Principal = $5,000 / (0.06 x (60/360)) = $500,000.

Question 11

Under the allowance method, the entry to write off a $2,600 uncollectible account includes a:

Accepted Answer

Under the allowance method, writing off an uncollectible account involves debiting the Allowance for Uncollectible Accounts and crediting Accounts Receivable.

Question 12

The interest on a $100,000 note at 9% for 120 days is:

Accepted Answer

The interest is calculated using the formula: Interest = Principal x Rate x Time. Here, the principal is $100,000, the rate is 9% (or 0.09), and the time is 120 days out of 365 days in a year. So, Interest = $100,000 x 0.09 x (120/365) = $2,958.90, which rounds to $3,000.

Question 13

Under the aging- of- accounts- receivable method, the balance in:

Accepted Answer

The aging-of-accounts-receivable method requires considering the existing balance in the Allowance for Uncollectible Accounts to adjust it to the desired ending balance based on the aging schedule.

Question 14

Trading investments are reported on the balance sheet at their value.

Accepted Answer

Trading investments are reported on the balance sheet at their market value, reflecting their current fair value in the market.

Question 15

VISA charges a fee for using credit cards. If Brunda's is charged $40 on a sale of $1,600, what percentage is the fee?

Accepted Answer

The fee percentage is calculated by dividing the fee amount by the total sale amount and then multiplying by 100. So, ($40 / $1600) * 100 = 2.5%.

Question 16

The reason for unrealized gains on trading investments is:

Accepted Answer

Unrealized gains on trading investments occur when the fair value of the investment is greater than its cost, but the investment has not yet been sold.

Question 17

A company has $40,000 in cash, $75,000 in short- term investments, $263,000 in net current receivables, and $110,000 in inventory. The total current liabilities of the firm are $305,000. The quick ratio of the company is:

Accepted Answer

The quick ratio is calculated as (Cash + Short-term investments + Net current receivables) / Current liabilities. Here, it is ($40,000 + $75,000 + $263,000) / $305,000 = $378,000 / $305,000 = 1.24.

Question 18

Under the percentage- of- sales method, the estimate of bad debts for the period is based on:

Accepted Answer

The percentage-of-sales method estimates bad debts based on a percentage of net credit sales, reflecting the idea that a certain percentage of sales will be uncollectible.

Question 19

A year- end review of accounts receivable and estimated uncollectible percentages revealed the following: Amounts over 90 days past due are written off. The balance in Allowance for Uncollectible Accounts was $520. The uncollectible accounts expense for the year was:

Accepted Answer

The answer of A year- end review of accounts receivable...

Question 20

To shorten the collection period, a company may:

Accepted Answer

Decreasing average receivables shortens the collection period as it indicates quicker collection of outstanding debts.

Quiz 5: Short-Term Investments Receivables