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Chapter 6--Receivables
Student: ___________________________________________________________________________
1. On January 2, Well Corporation sold merchandise with a gross price of $140,000 to Priority Corporation with
terms of 2/10, n/30. How much sales discounts would be recorded if payment was received on January 8?
A. $ 2,800
B. $ 0
C. $ 137,200
D. $ 140.000
2. Records Inc. received payment of a $20,000 accounts receivable within 10 days. The terms were 2/10, n/30.
Records would show a:
A. trade discount of $400.
B. trade allowance of $400.
C. sales discount of $400.
D. sales allowance of $400.
3. Leno, Inc.
Data for Leno, Inc. for 2012 are presented below.
Refer to the information given above for Leno, Inc. What amount will Leno show on its year-end balance sheet for the net realizable value of its
accounts receivable?
A. $305,000
B. $290,000
C. $280,000
D. $325,000
4. The following information was presented in the balance sheet of Diablo Company as of December 31, 2012:
5. When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited
when:
A. a customer's account becomes past due.
B. an account becomes bad and is written off.
C. a sale is made.
D. the management estimates the amount of uncollectibles.
6. Which one of the following is an accurate description of the allowance for bad debts?
A. Contra account
B. Liability account
C. Revenue account
D. Expense account
7. If a company uses the direct write-off method of accounting for bad debts:
A. it establishes an estimate for the allowance for doubtful accounts.
B. it will record bad debt expense only when an account is determined to be uncollected.
C. it will reduce the accounts receivable account at the end of the accounting period for estimated uncollected
accounts.
D. total assets will stay the same, when an account is written off.
8. Forrest Corporation uses the direct write-off method to account for bad debts. What are the effects on the
accounting equation of the entry to record the write-off of a customer's account balance?
A. Assets and liabilities decrease
B. Assets and equity decrease
C. Equity and liabilities decrease
D. Assets increase and equity decrease
Refer to the information provided for Digital Corporation. What amount will Digital show on its year-end balance sheet for the net realizable value
of its accounts receivable?
A. $410,000
B. $295,000
C. $340,000
D. $355,000
Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital makes the adjustment to
record bad debt expense using the allowance method?
A. Assets increase and liabilities decrease
B. Assets and equity decrease
C. Assets increase and equity decreases
D. Assets decrease and equity increases
14. Digital Corporation
The following data concern Digital Corporation for 2012.
Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital writes off a bad debt under
the allowance method?
A. Assets decrease and equity increase
B. Assets and equity decrease
C. Assets increase and equity decreases
D. No effect on overall assets or equity
15. On December 1, 2012, Alex's Drug Store concluded that a customer's $325 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on Alex's 2012 net
income and balance sheet totals assuming the allowance method is used to account for bad debts?
A. Decrease in net income; decrease in total assets
B. Increase in net income; no effect on total assets
C. No effect on net income; decrease in total assets
D. No effect on net income; no effect on total assets
17. One of the weaknesses of the direct write-off method is that it:
A. understates accounts receivable on the balance sheet.
B. violates the matching principle.
C. is too difficult to use for many companies.
D. is based on estimates.
18. If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited
to write off a customer's account as uncollectible?
A. Uncollectible accounts expense
B. Accounts receivable
C. Allowance for bad debts
D. Interest expense
19. Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with
revenue on the income statement?
A. The percentage-of-receivables approach
B. The percentage-of-sales approach
C. The percentage of accounts written off approach
D. The direct write off method
20. Which of the following statements is true regarding the two allowance approaches used to estimate bad
debts?
A. The percentage-of-sales approach takes into account the existing balance in the Accounts Receivable
account.
B. The direct write-off method takes into account the existing balance in the Allowance for Bad Debts account.
C. The percentage-of-receivables approach takes into account the existing balance in the Allowance for Bad
Debts account.
D. The direct write-off method does a better job of matching revenues and expenses than allowance method.
21. Which one of the approaches for the allowance procedure emphasizes the net realizable value of accounts
receivable on the balance sheet?
A. The percentage-of-receivables approach
B. The percentage-of-sales approach
C. The percentage-of-accounts written off method
D. The direct write-off method
22. Ready Corporation's accounts receivable balance after posting net collections from customers for 2012 is
$190,000. Management feels that uncollected accounts should be based on the following aging of accounts
receivable and uncollected percentages. There are $120,000 that are 1 to 30 days past due at 3% and $70,000
that are 31 to 60 days past due at 8%. The net realizable value of the accounts receivable is:
A. $184,400
B. $186,400
C. $190,000
D. $180,800
23. Outlook Department Store's accounts receivable balance after posting net collections from customers for
2012 is $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts
receivable and estimate for uncollected account percentages as follows:
$90,000 Current at 2%
$50,000 1-30 days past due at 5%
$30,000 31-60 days past due at 10%
$10,000 60+ days past due at 25%
The net realizable value of the accounts receivable is:
A. $173,200.
B. $170,200.
C. $172,700.
D. $180,000.
Refer to the information provided for Collision Corporation. If Collision estimates its bad debts at 2% of net credit sales, what amount will be
reported as bad debt expense for 2012?
A. $40,000
B. $39,200
C. $24,200
D. $25,000
Refer to the information presented for Collision Corporation. If Collision estimates its bad debt to be 2% of net credit sales, what will be the balance
in the Allowance for Bad Debts account after the adjustment for bad debts?
A. $15,000
B. $40,000
C. $39,200
D. $54,200
26. Collision Corporation
Data for Collision Corporation for the year ended December 31, 2012, are presented below.
Refer to the information provided for Collision Corporation. If Collision uses the aging of accounts receivable approach to estimate its bad debts,
what amount will be reported as bad debt expense for 2012?
A. $40,000
B. $55,000
C. $15,000
D. $39,200
Refer to the information provided for Collision Corporation. If Collision uses the aging of accounts receivable approach to estimate its bad debts,
what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A. $610,000
B. $555,000
C. $595,000
D. $570,000
Refer to the data provided for Profile Corporation. If the aging approach is used to estimate bad debts, find the balance in the Allowance for Bad
Debts after the bad debt expense adjustment for 2012.
A. $20,000
B. $15,000
C. $25,000
D. $45,000
Refer to the information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad
debt expense for 2012?
A. $ 2,100
B. $27,100
C. $29,200
D. $31,300
31. Bolt Corporation
The following data concern Bolt Corporation for 2012.
Refer to information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what should the balance in the Allowance
for Bad Debts account be after the bad debts adjustment?
A. $ 2,100
B. $31,100
C. $29,200
D. $27,100
Refer to the information provided for Aspen Corporation. If Aspen estimates its bad debts at 4% of net credit sales, what amount will be reported as
bad debt expense for 2012?
A. $50,000
B. $75,000
C. $78,000
D. $84,000
Refer to information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what amount
will be reported as bad debt expense for 2012?
A. $50,000
B. $75,000
C. $78,000
D. $53,000
Refer to the information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what will
be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A. $343,000
B. $345,000
C. $420,000
D. $395,000
36. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Refer to data provided for Aspen Corporation. If Aspen estimates its bad debts at 8% of accounts receivable, what amount will be reported as bad
debt expense for 2012?
A. $75,000
B. $25,000
C. $ 8,600
D. $33,600
Refer to the data provided for Aspen Corporation. If Aspen uses 8% of accounts receivables to estimate its bad debts, what will be the balance in the
Allowance for Bad Debts account after the adjustment for bad debts?
A. $ 33,600
B. $ 25,000
C. $ 8,600
D. $ 50,000
38. Tanning Company uses the percentage of receivables method for recording bad debts expense. The accounts
receivable balance is $300,000 and credit sales are $1,000,000. An aging of accounts receivable shows that 5%
will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Bad Debts
account has a credit balance of $2,000 before the adjustment?
A. Bad Debts Expense 13,000
Allowance for Bad Debts 13,000
B. Bad Debts Expense 15,000
Allowance for Bad Debts 15,000
C. Bad Debts Expense 13,000
Accounts receivable 13,000
D. Bad Debts Expense 15,000
Accounts receivable 15,000
39. Union Corporation reported net credit sales of $2,500,000 and cost of goods sold of $1,800,000 for 2012. Its
beginning balance of accounts receivable was $350,000. The accounts receivable balance decreased by $50,000
during 2012. Rounded to two decimal places, what is Union's accounts receivable turnover ratio for 2012?
A. 7.69
B. 7.14
C. 8.33
D. 11.03
40. During 2012, the accounts receivable turnover ratio for Upward Company increased from 10 to 15 times per
year. Which one of the following statements is the most likely explanation for the change?
A. The company's credit department has followed up with customers whose account balances are past due in
order to generate quicker collections.
B. The company has decreased sales to its most credit worthy customers.
C. The company has increased the amount of time customers have to pay their accounts before they are past
due.
D. The company has extended credit to more risky customers in order to increase the accounts receivable
turnover ratio.
41. Bradford Corporation reported net credit sales of $3,200,000 and cost of goods sold of $2,600,000 for 2012.
On January 1, 2012, accounts receivable was $450,000. Amounts owed by customers increased by $50,000
during 2012. Rounding to two decimal places, what is Bradford's receivable turnover ratio for 2012?
A. 5.47
B. 6.40
C. 6.74
D. 7.11
42. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the receivable turnover ratio:
A. 3
B. 0.8
C. 3.6
D. 2.57
43. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the days-in-receivables ratio:
A. 120.00
B. 121.66
C. 112.66
D. 188.33
44. Bradford Corporation reported net credit sales of $3,200,000 and cost of goods sold of $2,600,000 for 2012.
On January 1, 2012, accounts receivable was $450,000. Amounts owed by customers increased by $50,000
during 2012. Rounding the intermediate calculation to two decimal places, what is Bradford's
days-in-receivables ratio for 2012?
A. 52.94
B. 53.67
C. 53.41
D. 54.15
45. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the allowance ratio:
A. 14.28%
B. 12.3%
C. 12.5%
D. 36.36%
46. Bradford Corporation reported net accounts receivable of $380,000 and net sales of $2,600,000 for 2012.
Allowance for bad debts was $40,000, ending 2012. Rounding to two decimal places, what is Bradford's
allowance ratio for 2012?
A. 10.53%
B. 9.52%
C. 1.54%
D. 1.50%
47. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet?
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's income
statement?
A. Net sales increased by $10,000 or 2.78% during 2012.
B. Net sales increased by $2,300 or 10.0% during 2012.
C. Net sales is $360,000 in 2012.
D. Net sales decreased by $2,300 or 10.0% during 2012.
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max's balance sheet in
2012?
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max's income statement
in 2012?
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s receivables turnover ratio in 2012?
A. The receivables turnover is 7.79 in 2012.
B. The receivables turnover is 6.67 in 2012.
C. The receivables turnover is 8.56 in 2012.
D. The receivables turnover is 7.21 in 2012.
52. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s days-in-receivables ratio in 2012?
A. The days-in-receivables ratio is 50.62 in 2012.
B. The days-in-receivables ratio is 54.75 in 2012.
C. The days-in-receivables ratio is 42.62 in 2012.
D. The days-in-receivables ratio is 60.04 in 2012.
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s allowance ratio in 2012?
A. The allowance ratio is 3.29% in 2012.
B. The allowance ratio is 3.85% in 2012.
C. The allowance ratio is 4.89% in 2012.
D. The allowance ratio is 2.97% in 2012.
56. The party to a promissory note who will pay the interest and principal is called the:
A. lender.
B. maker of the note.
C. payee of the note.
D. recipient of the note.
57. How will the payee of the promissory note record the note on its books?
A. The promissory note will be recorded as an asset
B. The promissory note will be recorded as a liability
C. The promissory note will be recorded as an equity
D. The promissory note will be recorded as an expense
58. The total amount of interest for one year calculated annually on a $18,000 promissory note payable for 3
years at 11% is:
A. $1,980.
B. $5,940.
C. $3,960.
D. $990.
Refer to the information provided for Nadal Company. An adjusting entry for Nadal's year end, December 31,
2012 needed to:
A. increase interest revenue by $2,250
B. increase notes receivable by $750
C. increase interest receivable by $750
D. increase notes receivable by $2,250
60. Nadal Company
On October 1, 2012, Nadal Company received a $50,000 promissory note from Borg Company. The annual
interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
Refer to the information provided for Nadal Company. The effect on Nadal's financial statements on
September 30, 2013, is as follows:
A. Assets and equity increase
B. No net change in equity
C. Assets and liabilities increase
D. No net change in assets
Refer to the data provided for Metal Company. What is the maturity date of the note?
A. December 31, 2012
B. January 31, 2013
C. February 28, 2013
D. March 31, 2013
Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on
December 31, 2012?
A. $ -0-
B. $ 1,000
C. $12,000
D. $11,000
63. Metal Company
Metal Company sold merchandise to Steel Corporation on December 1, 2012, for $150,000, and accepted a
promissory note for payment in the same amount. The note has a term of three months and an annual interest
rate of 8%. Metal's accounting period ends on December 31.
Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on the
maturity date of the note?
A. $ -0-
B. $1,000
C. $2,000
D. $3,000
Refer to the information for Peach Tree Farm. What is the total amount of interest that Peach Tree Farm will
receive when the note is collected?
A. $ 300
B. $ 150
C. $ 450
D. $1,800
Refer to the information for Peach Tree Farm. At the maturity date, the customer pays the amount due for the
note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that
none of the interest had already been recognized?
A. Decrease cash and notes receivable by $20,000
B. Increase cash by $20,450, increase interest revenue by $450, and decrease notes receivable by $20,000
C. Increase cash by $20,450, increase notes receivable by $20,000, and increase interest revenue by $450
D. No entry is required; the customer pays the amount due to Peach Tree Farm.
66. Lubing Company
Lubing Company sold merchandise to Lewing Corporation. on December 1, 2012, for $100,000. Lubing
accepted a promissory note from Lewing Corporation for $100,000. The note has a term of 6 months and an
annual interest rate of 9%. Lubing's accounting period ends on December 31, 2012.
Refer to the information provided for Lubing Company. What amount should Lubing recognize as interest
revenue on December 31, 2012?
A. $ -0-
B. $ 750
C. $1,500
D. $9,000
Refer to the information provided for Lubing Company. What amount should Lubing recognize as interest
revenue on the maturity date of the note?
A. $ -0-
B. $4,500
C. $3,750
D. $9,000
Refer to the information provided for Land Shoes. How much interest revenue will Land Shoes recognize for
the year ended December 31, 2012?
A. $ 0
B. $9,000
C. $2,250
D. $4,500
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Having beheld these professional curiosities, he left the Mogul
court, and proceeded by the ordinary route towards Bengal. The
Ganges, where he crossed it, in company with Bernier, he found no
larger than the Seine opposite the Louvre, an insignificant stream
which scarcely deserves the name of a river. At Benares he
observed the narrowest streets and the loftiest houses which he had
seen in Hindostan, a circumstance remarked by all travellers, and
among the rest by Heber, who says, “The houses are mostly lofty;
none, I think, less than two stories, most of three, and several of five
or six, a sight which I now for the first time saw in India. The streets,
like those of Chester, are considerably lower than the ground floors
of the houses, which have mostly arched rows in front, with little
shops behind them. Above these the houses are richly embellished
with verandahs, galleries, projecting oriel windows, and very broad
and overhanging coves, supported by carved brackets.” The
opposite sides of the streets stand so near to each other in many
places that they are united by galleries. The number of stone and
brick houses in the city are upwards of twelve thousand, of clay
houses sixteen thousand; and the population in 1803 considerably
exceeded half a million. Benares, according to the Brahmins, forms
no part of the terrestrial globe, but rests upon the thousand-headed
serpent Anarta, or Eternity: or, according to others, on the point of
Siva’s trident, and hence no earthquakes are ever felt there. The
Great Lingam, or Phallies, of Benares, is said to be a petrifaction of
Siva himself; and the worship of this emblem of the godhead so
generally prevails here, that the city contains at least a million
images of the Lingam. This holy city, the Brahmins assure us, was
originally built of gold, but for the sins of mankind it was successively
degraded to stone, and brick, and clay.
From Benares he proceeded through Patna and Rajmahel to
Daca, then a flourishing city; whence, having disposed of numerous
jewels to the nawâb, he returned to Delhi.
To avoid repetitions and perplexing breaks in the narrative, I have
paid no attention to the date of his visits to this or that city; and,
indeed, so confused were his notes and his memory, that he does
not seem to have known very well himself during which of his
journeys many events which he relates took place. Into the
particulars of his voyage to Ceylon, Sumatra, and Java it is
unnecessary to enter, more full and curious accounts of those
islands occurring in other travellers.
On his return to France from his fifth visit to the East, he married
an ancient damsel, to borrow an epithet from Burke, merely from
gratitude to her father, who was a jeweller, and had rendered him
several essential services. After this he undertook one more journey
into Asia, with merchandise to the value of four hundred thousand
livres, consisting of curious clocks, crystal and agate vases, pearls,
and other jewelry. This expedition occupied him six years, during
which he advanced farther towards the east than he had hitherto
done; and having in this and his other journeys amassed
considerable wealth, he returned with a splendid assortment of
diamonds to France, having been engaged upwards of forty years in
travelling. Disposing of these jewels advantageously to the French
king, who granted him a patent of nobility, he now conceived that all
his wanderings were at an end, and began to think of enjoying the
wealth he had purchased with so much time and toil and difficulty.
Experience, however, had not rendered him wise. Puffed up with the
vanity inspired by his patent of nobility, his whole soul was now
wrapped up in visions of luxury and magnificence. He rented a
splendid house, set up a carriage, and hired a number of valets. The
nobility, who no doubt devoured his adventures and his dinners with
equal greediness, flocked about him, invited, caressed, flattered, and
ruined him.