Chapter 8

Question 1

Accounts receivable turnover ratio

Answer 1

A ratio that measures the number of times the company collects the average accounts receivable balance in a year. Net credit/average net accounts receivable

Question 2

Acid test ratio

Answer 2

The ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities. The ratio tells whether the entity could pay all its current liabilities if they came due immediately. ( Cash + Short-term investments + Net Current receivables)/ total current liabilities.

Question 3

Aging of receivables method

Answer 3

A method of estimating uncollectible receivables by determining the balance of the allowance for bad debt account based on the age of individual accounts receivable

Question 4

Allowance for bad debt

Answer 4

A Contra account, related to you Accounts Receivable, that holds the estimated amount of uncollectible accounts

Question 5

Allowance method

Answer 5

A method of accounting for uncollectible receivables in which the company estimates bad debt expense instead of waiting to see which customers the company will not collect from

Question 6

Bad debt expense

Answer 6

The cost to the seller of extending credit. It arises from the failure to collect from some credit customers

Question 7

Days’ sales in receivables

Answer 7

The ratio of average net accounts receivable to one day’s sales. The ratio tell how many days it takes to collect the average level of accounts receivable. 365 days/accounts receivable turnover ratio

Question 8

Debtor

Answer 8

The party to a credit transaction he takes on an obligation/payable

Question 9

Direct write-off method

Answer 9

A method of accounting for uncollectible receivables in which the company records bad debt expense when a customer’s account receivable is uncollectible

Question 10

Dishonor a note

Answer 10

Failure of the note’s maker to pay a note receivable at maturity

Question 11

Interest

Answer 11

The revenue to the payee for loaning money – the expense to the debtor

Question 12

Interest period

Answer 12

The period of time during which interest is computed. It extends from the original date of the note to the maturity date

Question 13

Interest rate

Answer 13

The percentage rate of interest specified by the note

Question 14

Maturity date

Answer 14

The date when a note is due

Question 15

Maturity value

Answer 15

The sum of the principal plus interest at due maturity

Question 16

Net realizable value

Answer 16

The net value a company expects to collect from its accounts receivable. Accounts Receivable less allowance for bad debts.

Question 17

Notes receivable

Answer 17

A written promise that a customer will pay a fixed amount of principal plus interest by certain date in the future

Question 18

Percent – of – receivables method

Answer 18

A method of estimating uncollectible receivables by determining the balance of the allowance for bad debts account based on a percentage of accounts receivable

Question 19

Percent – of – sales method

Answer 19

A method of estimating uncollectible receivables that calculates bad debt expense based on a percentage of net credit sales

Question 20

Principal

Answer 20

The amount loaned out by the payee and borrowed by the maker of the note

Question 21

Receivable

Answer 21

A monetary claim against a business or an individual

Question 22

With good internal controls, the person who handles cash cannot…

Answer 22

Account for cash payments, account for cash receipts from customers, issue credits to customers for sales returns.

Question 23

When recording credit card or debit card sales using the net method,

Answer 23

Cash received equals sales minus the fee assessed by the card processing company

Question 24

Which of the following is a limitation of the direct write-off method of accounting for uncollectibles?

Answer 24

The direct write-off method overstates assets on the balance sheet, does not match expenses against revenue very well, does not set up an allowance for uncollectible’s

Question 25

The entry to recording write-off of an uncollectible account when using the direct write off method involves a?

Answer 25

Debit too bad debt expense

Question 26

Brickman corporation uses the allowance method to account for uncollectible receivables. At the end of each year, allowance for bad debts had a credit balance of $1000. During the year Brickman wrote off uncollectible receivables of $2100. Brickman recorded Bad debt expense of $2700. What is Berkmans year and balance in allowance for bad debts?

Answer 26

$1600

Question 27

Berkmans ending balance of accounts receivable is $19,500. His year end balance in allowance for bad debts was $1600 use this to compute the net realizable value of Accounts Receivable year end.

Answer 27

$17,900

Question 28

December 31 year – end, Crain corporation has an $8400 note receivable from a customer. Interest of 10% has accrued for 10 months on the note. What will Crain financial statements report for this situation

Answer 28

The balance sheet for the note receivable of $8400 and interest receivable of $700

Question 29

If the balance sheet for December 31 at Crane corporation reports the note receivable of $8400 in interest receivable a $700. what will the income statement for the year ended December 31, report for this situation

Answer 29

It'll record interest revenue of $700

Question 30

At year-end, Schultz, Inc. has cash of $11,600, current accounts receivable of $48,900, merchandise inventory of $37,900, and prepaid expenses totaling $5100. Liabilities of $55,900 must be paid next year. What is Schulz acid test ratio

Answer 30

1.08

Question 31

Knowing that Schultz Inc. at year-end had current accounts receivable of $48,900, assume accounts receivable had a beginning balance of $67,400 and net credit sales for the current year totaled $807,800. How many days did it take Schultz to collect it's average level of receivables?

Answer 31

26

Question 32

Accounts receivable

Answer 32

The right to receive cash in the future from customers for goods sold or for services performed