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FINMAN > A/R MANAGEMENT MCQ > Flashcards

A/R MANAGEMENT MCQ Flashcards

1
Q

A firm’s inventory turnover (IT) is 5 times on a cost of goods sold (COGS) of $800,000. If the IT is improved to 8 times while the COGS remains the same, a substantial amount of funds is released from or additionally invested in inventory. In fact,

A. $160,000 is released.
B. $100,000 is additionally invested.
C. $60,000 is additionally invested.
D. $60,000 is released

A

D. $60,000 is released

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2
Q

Ninety-percent of Vogel Bird Seed’s total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:

A. 365 days and $108,000.
B. 73 days and $120,000.
C. 73 days and $108,000.
D. 81 days and $108,000.

A

C. 73 days and $108,000.

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3
Q

If EOQ = 360 units, order costs are $5 per order, and carrying costs are $.20 per unit, what is the usage in units?

A. 129,600 units
B. 2,592 units
C. 25,920 units
D. 18,720 units

A

B. 2,592 units

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4
Q

Costs of not carrying enough inventory include:

A. lost sales.
B. customer disappointment.
C. possible worker layoffs.
D. all of these.

A

D. all of these.

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5
Q

Which of the following relationships hold true for safety stock?

A. the greater the risk of running out of stock, the smaller the safety of stock.
B. the larger the opportunity cost of the funds invested in inventory, the larger the safety stock.
C. the greater the uncertainty associated with forecasted demand, the smaller the safety stock.
D. the higher the profit margin per unit, the higher the safety stock necessary.

A

D. the higher the profit margin per unit, the higher the safety stock necessary

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6
Q

Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:

A. an increase in the average collection period.
B. a decrease in bad debt losses.
C. an increase in sales.
D. higher profits

A

A. an increase in the average collection period.

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7
Q

The credit policy of Spurling Products is “1.5/10, net 35.” At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?

A. Lower than the present level.
B. No change from the present level.
C. Higher than the present level.
D. Unable to determine without more information.

A

A. Lower than the present level.

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8
Q

An increase in the firm’s receivable turnover ratio means that:

A. it is collecting credit sales more quickly than before.
B. cash sales have decreased
C. it has initiated more liberal credit terms.
D. inventories have increased.

A

A. it is collecting credit sales more quickly than before.

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9
Q

Receiving a required inventory item at the exact time needed.

A. ABC
B. JIT
C. FOB
D. PERT

A

B. JIT

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10
Q

EOQ is the order quantity that over our planning horizon.

A. minimizes total ordering costs
B. minimizes total carrying costs
C. minimizes total inventory costs
D. the required safety stock

A

C. minimizes total inventory costs

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11
Q

A B2B exchange is a Internet marketplace that matches supply and demand by real-time auction bidding.

A. buyer-to-business
B. business-to-business
C. business-to-buyer
D. buyer-to-buyer

A

B. business-to-business

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12
Q

Companies can use their accounts receivable as collateral when obtaining a ________ (asset-based lending) or sell them through factoring.
A. Debt
B. Loan
C. Bond (finance)
D. Credit (finance)

A

B. Loan

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13
Q

On a company’s ________, accounts receivable is the money owed to that company by entities outside of the company.
A. Equity (finance)
B. Accountancy
C. Asset
D. Balance sheet

A

D. Balance sheet

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14
Q

Clark Garrison, Inc. uses an allowance for doubtful accounts. When they write off an uncollectible account receivable, total assets will
A) increase
B) decrease
C) remain the same
D) depends on the amount of the receivable

A

C) remain the same

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15
Q

Clark Garrison, Inc. uses an allowance for doubtful accounts. When they recover a previously written off account receivable, total assets will
A) increase
B) decrease
C) remain the same
D) depends on the amount of the receivable

A

C) remain the same

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16
Q

Brook Logan, Inc. uses the balance sheet approach for estimating bad debt expense. At year end, accounts receivable was valued at $200,000 and the allowance for doubtful accounts had a credit balance of $300. The allowance for doubtful accounts is estimated at 1% of accounts receivable. What is the bad debt expense for the year?
A) $1,700
B) $2,000
C) $2,300
D) some other amount

A

A) $1,700

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17
Q

If net credit sales for a given year are $400,000 and the average accounts receivable are $20,000, What is the accounts receivable turnover?
A) 20
B) 80
C) 200
D) 50

A

A) 20

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18
Q

If net credit sales for a given year are $600,000 and the average accounts receivable is $60,000, what is the average days to collect receivables?
A) 10
B) 60
C) 31
D) 36.5

A

D) 36.5

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19
Q

Imperial Grocery had net credit sales of $3,150,000 in 1999. It began the year with an accounts receivable balance of $78,200 and ended the year with a balance of $78,700. The accounts receivable turnover is:
A) 40.15 times
B) 40.28 times
C) 40.03 times
D) 9.09 times

A

A) 40.15 times

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20
Q

Catering Company borrowed $100,000 on December 5, 2000, by signing a 90-day note payable with an annual interest of 9 percent. The amount of interest expense on this note for December 2000 is:
A) $750
B) $641.10
C) $665.75
D) $616.44

A

B) $641.10

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21
Q

The due date of a 60-day note receivable signed on April 17 is
A) June 16
B) June 17
C) June 15
D) June 18

A

A) June 16

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22
Q

Allowance for doubtful accounts is a contra-asset.
A) True
B) False

A

A) True

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23
Q

The process of classifying accounts receivable by age groups is called a subsidiary ledger.
A) True
B) False

A

B) False

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24
Q

A significant portion of receivables due from a group of customers with a shared characteristic that is likely to be affected in a similar manner by changes in economic conditions is referred to as a concentration of credit risk.
A) True
B) False

A

A) True

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25
Q

A controlling account is a general ledger account that summarizes the content of a specific subsidiary ledger.
A) True
B) False

A

A) True

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26
Q

A method for accounting for uncollectible receivables in which no expense is recognized until individual accounts are determined to be worthless is the income statement method.
A) True
B) False

A

B) False

27
Q

A person or entity who issues a promissory note is referred to as an issuer.
A) True
B) False

A

B) False

28
Q

Which is the appropriate way to disclose the credit card expense on the income statement?
a. as an addition to sales
b. as a selling expense
c. as an administrative expense
d. as part of the cost of goods sold

A

b. as a selling expense

29
Q

When a firm writes off a bad debt under the allowance method of accounting for bad debts
a. the realizable value of accounts receivable decreases
b. total net current assets will decrease
c. the cash account will decrease
d. the realizable value of accounts receivable will not change

A

d. the realizable value of accounts receivable will not change

30
Q

When a firm collects (recovers) an account receivable that was previously written off under the allowance method of accounting for bad debts,
a. the realizable value of accounts receivable will decrease
b. the cash account will decrease by the full amount of the recovery
c. the allowance account will decrease by the amount collected
d. the realizable value of accounts receivable will increase

A

a. the realizable value of accounts receivable will decrease

31
Q

The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment, of $450. The bad debts are estimated at 3% of $650,000, the net credit sales. After the appropriate adjusting entry for bad debts, the Allowance for Doubtful Accounts should have a credit balance of
a. $19,500
b. $19,950
c. $19,050
d. $20,400

A

b. $19,950

32
Q

The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment of $500. The bad debts are estimated at 7% of $60,000 of outstanding accounts receivable. After the appropriate adjusting entry to recognize the bad debt expense, the Allowance for Doubtful Accounts should have a ___________ credit balance.
a. $4,200
b. $3,200
c. $3,700
d. $5,200

A

a. $4,200

33
Q

Which accounting principle or concept permits the direct write-off method of accounting for bad debts?
a. full-disclosure principle
b. business entity concept
c. matching principle
d. materiality principle

A

d. materiality principle

34
Q

On July 18, a firm received from one of its customers, Algo Rythym, a written promise to pay the firm $1,200, at 12% interest, on September 17, for merchandise that Algo had purchased from the firm. Which of the following statements is true?
a. Algo is the payee of the note
b. the firm is the maker of the note
c. the firm is the endorser of the note
d. Algo is the maker of the note

A

d. Algo is the maker of the note

35
Q

A 90-day, 11%, promissory note that is dated June 13 will have a maturity date of
a. September 11
b. September 10
c. September 9
d. September 8

A

a. September 11

36
Q

The interest on a $1,500, 15%, 4-month note is
a. $7.50
b. $75.00
c. $1,575.00
d. $225.00

A

b. $75.00

37
Q

Which of the following is not true with regard to a $3,000, 14%, 90-day note that is dishonored?
a. an account receivable is charged with the maturity value of the note
b. the Interest Earned account is credited
c. the Notes Receivable account is credited for the maturity value
d. interest may be charged on the outstanding balance

A

c. the Notes Receivable account is credited for the maturity value

38
Q

A $10,000, 12%, 60-day note receivable is received on January 12. The note is discounted at 12% on January 18. The maturity value of the note is
a. $10,000
b. $10,100
c. $10,200
d. $11,200

A

c. $10,200

39
Q

A $10,000, 12%, 60-day note receivable is received on January 12. The note is discounted at 12% on January 18. The proceeds of the note will be
a. $10,000.00
b. $10,016.40
c. $10,184.60
d. $11,200.00

A

b. $10,016.40

40
Q

On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller expect to receive if the buyer pays on June 8?
A. $720
B. $784
C. $792
D. $800

A

C. $792

41
Q

On June 1, $800 of goods are sold with credit terms of 1/10, n/30. On June 3 the customer returned $100 of the goods. How much should the seller expect to receive if the buyer pays on June 8?
A. $692
B. $693
C. $700
D. $792

A

B. $693

42
Q

With credit terms of 2/10, n/30, the annual interest rate for paying in 10 days instead of 30 days is closest to
A. 2%
B. 24%
C. 30%
D. 36%

A

D. 36%

43
Q

A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $8,000. The adjusting entry will include a ___________________ to the Allowance for Doubtful Accounts.
A. debit of $12,000
B. credit of $12,000
C. debit of $28,000
D. credit of $28,000

A

B. credit of $12,000

44
Q

A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting entry will include a ____________________ to Bad Debts Expense.
A. debit of $2,000
B. credit of $2,000
C. debit of $38,000
D. credit of $38,000

A

A. debit of $2,000

45
Q

________ are criteria a company uses to screen credit applicants in order to determine which of its customers should be offered credit and how much.
a. Carrying costs
b. Ordering costs
c. Credit standards
d. Stockout costs

A

c. Credit standards

46
Q

The quality of credit extended to customers is a multidimensional concept involving which of the following?
a. Average collection period.
b. Bad-debt loss ratio.
c. a and b.
d. None of the above.

A

c. a and b.

47
Q

Which of the following is part of the five C’s of capital?
a. Character, capital and conditions.
b. Capital, conditions, and cash discount.
c. Capital, collateral, and credit period.
d. None of the above.

A

a. Character, capital and conditions.

48
Q

Manufacturing firms generally hold three types of inventory:
a. raw material, stockout, and finished goods.
b. work-in-process, finished goods, and just-in-time inventory.
c. Just-in-time inventory, raw materials inventory, and finished goods inventory.
d. Raw materials, work-in-process, and finished goods inventories.

A

d. Raw materials, work-in-process, and finished goods inventories

49
Q

Which of the following is not an inventory related cost?
a. Ordering costs.
b. Variable costs.
c. Stockout prices.
d. Carrying costs.

A

b. Variable costs.

50
Q

The basic EOQ model makes a number of assumptions, including:
a. fluctuating demand.
b. uncertain lead times.
c. zero lead-time.
d. None of the above.

A

c. zero lead-time.

51
Q

Probabilistic inventory control models require consideration of the possibility of ________.
a. stock outs
b. seasonal dating
c. an inventory cycle
d. carrying costs

A

a. stock outs

52
Q

Rich Corporation’s annual carrying costs are 25 percent of the inventory value. The product cost is $85 a unit and they can replenish inventory instantaneously. The cost of placing an order is $55. If Rich Corporation plans to sell 5,000 units next year, what should be their economic order quantity?
a. 5,000 units.
b. 114 units.
c. 81 units.
d. 161 units.

A

d. 161 units.

53
Q

Wing Corporation’s annual carrying costs are 25 percent of the inventory value. The product cost is $65 a unit. The cost of placing an order is $100, and the EOQ is 785 units. If the corporation plans to sell 50,000 units next year, what should be the total annual ordering and carrying costs?
a. $12,748
b. $31,882
c. $6,442
d. $2,506,378

A

a. $12,748

54
Q

The estimate of bad debts can be based on either a percentage of net sales, or:
a. a percentage of aged receivables.
b. a percentage of actual bad debts deemed uncollectible last period.
c. a percentage of next month’s anticipated sales.
d. None of these

A

a. a percentage of aged receivables.

55
Q

Johnson has Accounts Receivable of $100,000 and Allowance for Doubtful Accounts of $5,000; its sales this year were $300,000. The cash realizable value of the receivables is:
a. $200,000
b. $100,000
c. $95,000
d. None of these

A

c. $95,000

56
Q

When an account is written off, Accounts Receivable will be credited. Under the Allowance method, the debit will go to:
a. Bad Debts Expense
b. Allowance for Doubtful Accounts
c. Cash
d. None of these

A

b. Allowance for Doubtful Accounts

57
Q

Johnson receives a 3-month 6% note from a customer in the amount of $1,000. At maturity, the note will have earned how much interest?
a. $60
b. $5
c. $15
d. None of these

A

c. $15

58
Q

Johnson receives a 60-day note on June 2. The maturity date of the note will be:
a. June 30
b. August 1
c. July 30
d. None of these

A

b. August 1

59
Q

Accounts Receivable turnover is calculated by dividing:
a. Net credit Sales by Average Accounts Receivable
b. Average Accounts Receivable by Net Sales
c. Average Accounts Receivable by Allowance for Doubtful Accounts
d. None of these

A

a. Net credit Sales by Average Accounts Receivable

60
Q

Johnson computes bad debts as a percentage of sales. If 2% of sales amounts to $2,000 and the Allowance account currently has a balance of $900, the bad debts adjustment should be in the amount of:
a. $2,000
b. $2,900
c. $1100
d. None of these

A

a. $2,000

61
Q

Warren computes bad debts as a percent of accounts receivable. The ADA account has a credit balance of $900. If an aging reveals that bad debts are estimated at $3000, the bad debts adjustment should be in the amount of:
a. $2100
b. $3900
c. $3000
d. None of these

A

a. $2100

62
Q

The adjustment for accruing interest on a note receivable requires a debit to Interest Receivable and a credit to:
a. Notes Receivable
b. Cash
c. Interest Revenue
d. None of these

A

c. Interest Revenue

63
Q

All of the following statements are true regarding bad debts expense except
a. When using the income statement method, we concentrate on the percentage of net credit sales.
b. When using the balance sheet method, the percentage of net credit sales is not considered.
c. Calculation of bad debts expense is required at least once a year when a company has receivables.
d. All of the above are correct.

A

d. All of the above are correct.

64
Q

All of the following are valid bad debts expense assumptions except
a. percentage of receivables method
b. direct write off method
c. percentage of sales method
d. treat bad debts as unusual items that do not often occur

A

d. treat bad debts as unusual items that do not often occur

FINMAN (8 decks)

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