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Exam 8: Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

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Question 41

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Which of the following statements is not true?

A) The receivables turnover ratio indicates the average number of times the company completes the selling and collecting cycle during the year.
B) The days-to-collect measure is 365 days divided by the receivables turnover ratio.
C) The receivables turnover ratio and days-to-collect measure move in opposite directions.
D) A high receivables turnover ratio means a slower turnover.

E) None of the above
F) B) and C)

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Question 42

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All other things equal, a company is better off when it's receivable turnover ratio:

A) and its days-to-collect measure are both low.
B) is high and its days-to-collect measure is low.
C) and its days-to-collect measure are both high.
D) is low and its days-to-collect measure is high.

E) C) and D)
F) B) and D)

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Question 43

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The required entry(ies) on May 29 to record the recovery is:

Assuming the company uses the aging of receivables method and estimates the uncollectible amount at 5% of accounts receivable, what is the required adjusting entry to record bad debt expense for the year?

If Johnstone Supplies, Inc., writes off $3,081 of uncollectible accounts during August, 2011, the unadjusted account balance in the allowance for doubtful accounts on August 31, 2011 will be:

When interest is calculated for periods shorter than a year, the formula to calculate interest is:

The percentage of credit sales method, also called the income statement approach, estimates bad debts based on a historical percentage of sales that lead to bad debt losses.

The aging of accounts receivable method is based upon the principle that the longer an account is overdue, the higher the risk of nonpayment.

Neither GAAP nor IFRS allow the use of the direct write-off method.

If a company attempts to artificially inflate current sales and net income by shipping goods that have not been ordered, we would expect that the receivables turnover ratio will:

Which of the following statements regarding methods of accounting for bad debts is true?

Purrfect Pets, Inc., had sales revenue of $1,748,380 during 2011. The company had credit card discounts of $16,280 and sales returns of $3,460. The balance in accounts receivable on December 31, 2010 was $104,500 and on December 31, 2011 it was $129,100. Calculate the receivables turnover ratio and days to collect measure for 2011 (round each calculate to one decimal place).

A company uses the percentage of credit sales method to estimate bad debt expense. At the end of the year, the company's unadjusted trial balance includes the following: The company estimates, based on historical bad debt losses, that 0.5% of the sales will be uncollectible. What is the bad debt expense to be recorded for the year?

On July 1, 2011, Icespresso Inc. signed a two-year $8,000 note receivable with 9 percent interest. At its due date, July 1, 2013, the principal and interest will be received in full. Interest revenue should be reported on Icepresso's income statement for the year ended December 31, 2011, in the amount of:

Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt. That customer reorganizes and now pays the $350. Your company should:

The unadjusted trial balance at the end of the year includes the following: The company uses the allowance method and has completed the aging schedule which indicates $5,800 of accounts are estimated uncollectible. What is the amount of bad debt expense to be recorded for the year?

What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?

A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. Each interest payment will be for:

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on

Other things being equal, a two-year note receivable should yield more interest revenue than a one-year note.