Ch7 Sales and Receivables – Test Bank | 2nd Ed

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 7 Sales and Receivables

7.1 Describe the different types of revenue and identify when revenue is recognized

1) Accounting for the sale of goods is similar under IFRS and ASPE.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

2) The seller recognizes sales revenue when goods and ownership are transferred to the buyers and the seller has no control over the goods.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

3) The ASPE guidelines for revenue recognition requires that the costs associated with the goods sold should be able to be measured reliably and the seller no longer has control or managerial influence over the item to a degree that would be normally associated with ownership.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

4) Service companies recognize revenue when they received an order to perform services for a client.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

5) IFRS provides an option to use the percentage of completion or completed contract method.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

6) Under IFRS, the completed contract method is prohibited.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

7) Under IFRS, the revenue for long-term projects can be recognized using the

A) completed contract method only.

B) percentage of completion method or the completed contract method.

C) percentage of completion method only.

D) risk and reward criterion for product sales.

E) None of the above

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

8) Under ASPE, the revenue for long-term projects can be recognized using the

A) completed contract method only.

B) percentage of completion method or the completed contract method.

C) percentage of completion method only.

D) risk and reward criterion for product sales.

E) None of the above

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

9) What are the three criteria for recognizing revenue under both IFRS and ASPE for products?

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Knowledge

10) What are the criteria for recognizing revenue under both IFRS and ASPE for services?

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Knowledge

11) Gina Construction entered into a three-year contract to build a containment vessel for Ontario Power Generators. The contract is for $1.4 million. Presented below is information about the contract.

a) Calculate the revenue to be recognized under the percentage of completion method for years 1, 2, and 3.

b) Calculate the revenue to be recognized under the completed method for years 1, 2, and 3.

b) The revenue to be recognized under the completed contract method is $0 in year 1; $0 in year 2; and $1,400,000 in year 3.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Application

7.2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

1) Even though cash sales are the most desirable, businesses may limit their sales potential by not providing options for customers to buy now and pay later.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

2) MasterCard and Visa sales are treated like cash sales.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

3) Most financial institutions charge the retailer a service fee that enables the retailer to accept the credit cards as payment on merchandise.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

4) From the retailer's perspective, debit cards are nearly identical to credit cards and have the same benefits and drawbacks.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

5) Accounts receivable are more formal and usually longer in terms than notes receivable.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

6) Notes receivable generally include a charge for interest.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

7) The direct method of writing off bad debt does good matching of expenses with revenues.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

8) A retailer has 4% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,200 in sales for the day. The journal entry to record these sales would be:

A) debit Cash for $1,200 and credit Sales for $1,200.

B) debit Sales for $1,200 and credit Cash for $1,200.

C) debit Cash for $1,152, debit Credit Card Expense for $48, and credit Sales for $1,200.

D) debit Cash for $1,152 and credit Sales for $1,152.

E) debit Accounts Receivable for $1,200 and credit Sales for $1,200.

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

9) When a customer fails to pay on their account, it creates a(n):

A) Bad Debt Expense.

B) Uncollectible Account.

C) Account Receivable.

D) decrease in revenue.

E) decrease in expenses.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Concept

Blooms: Knowledge

10) When companies extend credit to customers:

A) losing sales generally increases.

B) not collecting money from customers decreases.

C) not collecting money from customers increases.

D) the business stays the same.

E) sales decrease.

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Analysis

11) A customer's written promise to pay an amount of money to a business with interest is a(n) ________ of

the business.

A) account receivable

B) account payable

C) note receivable

D) note payable

E) revenue

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Concept

Blooms: Knowledge

12) The period-end adjusting entry for Bad Debts Expense under the direct write-off method is:

A) debit Bad Debts Expense; credit Allowance for Doubtful Accounts.

B) not required.

C) debit Cash; credit Accounts Receivable/customer name.

D) debit Bad Debts Expense; credit Accounts Receivable/customer name.

E) debit Bad Debts Expense; credit Sales Revenue.

Diff: 2

LO: 7-3 Report accounts receivable on the balance sheet

Skill: Critical Thinking

Blooms: Comprehension

13) The journal entry to write off a customer's account under the direct write-off method is:

A) debit Bad Debts Expense; credit Allowance for Doubtful Accounts.

B) not required.

C) debit Cash; credit Accounts Receivable/customer name.

D) debit Bad Debts Expense; credit Accounts Receivable/customer name.

E) debit Sales Revenue; credit Accounts Receivable/customer name.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

14) Under the direct write-off method, to record the receipt of cash after an account has previously been

written off, you would first:

A) debit Cash and credit the customer's account.

B) reinstate the customer's account.

C) debit Allowance for Doubtful Accounts.

D) debit Bad Debts Expense.

E) credit Accounts Receivable.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Concept

Blooms: Comprehension

15) What are the two methods of accounting for uncollectible accounts?

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

16) Which method for accounting for uncollectible accounts is not acceptable for financial reporting purposes?

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

17) Toy Company has 4% credit/debit card service fees deducted monthly by the bank from Toy Company's bank account. Toy Company has $75,000 in sales for the month. At what amount will Toy Company record this month's sales?

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

18) What are the most common credit cards issued by financial institutions?

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

19) What are the most desirable form of sales?

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Recall

Blooms: Knowledge

20) What type of expense reflects the estimate of uncollectible accounts receivable?

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Concept

Blooms: Knowledge

21) A retailer has 2% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $4,800 in sales for the day. The journal entry to record these sales would be ________.

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

22) A retailer has 5% credit/debit card service fees deducted from the business's bank account on a monthly

basis. The retailer has $43,500 in sales for the month. What is the journal entry to record these sales?

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

23) Assume a retailer has a credit card sale of $1,400, with cost of the product being $1,050. The business pays $8 of processing fees, which are deducted from the proceeds. The journal entry to record these sales would be ________.

Debit Cost of Goods Sold $1,050; Credit Inventory $1,050

Diff: 1

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

24) A retailer has 3% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,700 in sales for the day. The journal entry to record these sales would be ________.

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application

25) The Barnes Group is a legal firm with a balance in receivables of $100,000. A customer named Bill Dyer has a receivable for $10,000. Dyer informs the Barnes Group that he will be unable to pay his receivable. What entry would the Barnes Group record to account for this uncollectible account if the direct method is used?

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Knowledge

26) Does the direct write-off method of uncollectible accounts do a good job of matching revenue and expenses? Explain your reasoning.

Diff: 2

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Knowledge

7.3 Use the allowance method to account for uncollectible accounts

1) There are two methods for accounting for uncollectible receivables.

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Recall

Blooms: Knowledge

2) The allowance method to account for uncollectible accounts does a good job of matching expenses with revenues.

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Recall

Blooms: Knowledge

3) Receivables of a company CANNOT be long-term assets.

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Comprehension

4) The aging method of calculating uncollectible accounts considers the existing balance in the Allowance for Doubtful Accounts.

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Concept

Blooms: Comprehension

5) The percentage-of-sales method is also called the balance sheet method.

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Concept

Blooms: Knowledge

6) Bad Debts Expense is debited when writing off customer accounts under the Allowance method.

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

7) Which is NOT a benefit to extending credit to customers?

A) Bad debt expenses

B) Increased revenues

C) Increased profits

D) Wider range of customers

E) Additional customers

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Critical Thinking

Blooms: Analysis

8) What type of account is Allowance for Doubtful accounts?

A) Asset

B) Contra-asset

C) Liability

D) Expense

E) Contra-sales

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Concept

Blooms: Knowledge

9) What account is credited in the Allowance method of recording uncollectible accounts when an uncollectible customer account is written off?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

10) Under the percentage of sales method, how is Bad Debts Expense calculated?

Diff: 1

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

11) Brandon Company completed an aging of their accounts receivable and came up with an estimated

amount of $6,342. The credit sales for the period are $85,000. The balance in the Allowance for Doubtful Accounts is a debit of $817. If Brandon uses 5% of credit sales as their estimating uncollectible accounts, how much will the credit be to the Allowance for Doubtful Accounts if Brandon uses the percentage of credit sales as its method of estimating uncollectible accounts?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

12) A company has $317,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has an $8,150 debit balance. If the company uses the allowance method based on 6% of credit sales, what will be the amount of the journal entry credited to Allowance for Doubtful Accounts?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

13) Taylor Company has given you the following information from its aging of accounts receivable. Using

this information, determine the ending balance of the allowance for doubtful accounts.

Current amount in the allowance for doubtful accounts is a $958 credit.

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

14) A company has $235,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has a $7,250 credit balance. If the company uses the allowance method based on 7% of credit sales, what will be the amount of the journal entry credited to Allowance for Doubtful Accounts?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

15) How is the "net realizable value" of accounts receivable computed?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

16) Margaret is a customer of Tammy Company. The company wrote off her account of $1,200 on August 15. On October 12, she sent in a payment of $560. What is the journal entry that Tammy Company will record first to reinstate her account?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

17) On March 10, 2012, Allyson Enterprises determined that its customer Betty Chow's account for $780 was considered uncollectible. If Allyson uses the allowance method, what is the journal entry required to write off Betty Chow's account?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

18) Taymon Company has given you the following information from its aging of accounts receivable. Using

this information, what is the journal entry to record the periodic adjustment for bad debts? Assume the amount in the allowance for doubtful accounts is $850 credit.

Debit Bad Debts Expense $1,099; Credit Allowance for Doubtful Accounts $1,099

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

19) A company has $295,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has a $250 debit balance. The company uses the allowance method based on an aging of accounts receivable and determines $13,400 as uncollectible. What will be the amount of the Bad Debts Expense and what is the journal entry?

Debit Bad Debts Expense $13,650; Credit Allowance for Doubtful Accounts $13,650

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

20) A company has $295,000 in credit sales. The company uses the allowance method of determining Bad Debts Expense. The Allowance for Doubtful Accounts now has a $250 debit balance. The company uses the allowance method based on 6% of credit sales. What will be the amount of the Bad Debts Expense and what is the journal entry?

Debit Bad Debts Expense $17,700; Credit Allowance for Doubtful Accounts $17,700

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

7.4 Report accounts receivable on the balance sheet

1) Accounts receivable are reported at "current market value" in the current assets section of the balance sheet.

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

2) Accounts receivable may be reported "net of allowance for doubtful accounts."

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Concept

Blooms: Comprehension

3) Assume that at December 31, 2013, Sophie Corporation has an Accounts Receivable balance of $325,000 and its Allowance for Doubtful Accounts balance is $17,979. How is the Accounts Receivable presented on the balance sheet?

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

4) Assume that at December 31, 2013, Alyson Corporation has an Accounts Receivable balance of $240,000 and its Allowance for Doubtful Accounts balance is $13,900. Prepare a partial Balance Sheet showing the Accounts Receivable section.

Balance Sheet

As of December 31, 2013

Diff: 2

LO: 7-4 Report accounts receivable on the statement of financial position

Skill: Application

Blooms: Application

7.5 Account for notes receivable

1) A promissory note is a verbal promise to pay a specified amount of money on a particular future date.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Concept

Blooms: Knowledge

2) The business or person that signs the note and promises to pay the required amount is called the payee.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Concept

Blooms: Knowledge

3) The amount loaned out by the payee is called the maturity value.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Concept

Blooms: Knowledge

4) The maturity value is the sum of the principal plus the interest due at maturity.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Concept

Blooms: Comprehension

5) When counting the days of a note, remember to count the day the note was issued.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

6) Using a 365-day year, the maturity value of a 180-day note for $2,700 at 9% annual interest is (rounded to the nearest cent):

A) $2,943.00.

B) $2,821.50.

C) $2,819.84.

D) $119.84.

E) $2,891.84

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

7) A 135-day note issued on May 17 will mature on:

A) September 28.

B) September 29.

C) September 30.

D) October 1.

E) October 2.

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

8) On March 1, 2012, Kelly Company lent $3,500 to Tim on a 1-year 6% promissory note. The amount of interest to be accrued on December 31 will be:

A) $210.00.

B) $175.00.

C) $157.50.

D) $140.00.

E) $176.00.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

9) Isaiah Company converted a $4,000 account receivable from Mark to a 75-day, 8% note receivable. The maturity value (assume a 360-day year) that will be due from Mark in 75 days (round to nearest dollar) is:

A) $4,000.

B) $4,067.

C) $4,320.

D) $4,077.

E) some other number.

Diff: 3

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

10) Andy Corporation lent $25,000 to Casey Corporation for 75 days at 7% interest on November 22, 2010. How much interest will have accrued to Andy Corporation on December 31, 2010, assuming a 360-day year?

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

11) What is the maturity date of a note that is signed on April 15, 2011 at 9% for 216 days?

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

12) On September 1, 2012, Kelly Company lent $2,400 to Tim on a 6-month 8% promissory note. What is the amount of interest to be accrued on December 31?

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

13) Using a 360-day year, what is the maturity value of a 69-day note for $1,500 at 7% annual interest (rounded to the nearest cent)?

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

14) What is the maturity date of a 4-month promissory note dated on July 17?

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

15) Using a 360-day year, what is the maturity value of a 90-day note for $3,500 at 8% annual interest?

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

16) Using a 365-day year, what is the maturity value of a 55-day, 7% note for $23,000, rounded to the nearest cent?

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

17) On September 1, 2012, Kelly Company lent $2,400 to Tim on a 6-month 8% promissory note. The journal entry to record the note for Kelly would be ________.

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

18) On April 9, Joe paid $3,568 to Mike Company to fulfill his promissory note agreement. Of the $3,568, $400 is interest. The journal entry Mike Company will record is ________.

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

19) On April 23, Lauren paid $4,750 to Ryan Company to fulfill her promissory note agreement. Of the $4,750, $750 is interest. The journal entry Ryan Company will record is ________.

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

20) Alexis Corporation had the following transactions:

Oct 1 Exchanged a customer Jim's account receivable for a 4-month, 8% note for $3,500.

Dec 31 Recorded accrued interest on Jim's note.

Record the journal entries required.

Diff: 2

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

21) Rory Company exchanged an accounts receivable of $5,300 for an 8-month, 6% note on November 1, 2012.

Record the journal entries on December 31 to record accrued interest and on July 1 to record paying off of the note with interest.

Diff: 3

LO: 7-5 Account for notes receivable

Skill: Application

Blooms: Application

22) What does the term "maturity date" mean?

Diff: 1

LO: 7-5 Account for notes receivable

Skill: Concept

Blooms: Knowledge

7.6 Calculate the quick ratio and accounts receivable turnover

1) Another name for the quick ratio is the acid-test ratio.

Diff: 1

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Concept

Blooms: Knowledge

2) The formula for the quick ratio is quick assets divided by non-current assets.

Diff: 1

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Recall

Blooms: Knowledge

3) Accounts receivable turnover measures the ability to collect cash from a company's credit customers.

Diff: 1

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Concept

Blooms: Knowledge

4) The account receivable turnover is computed by taking the average net accounts receivable and dividing by the net credit sales.

Diff: 1

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Recall

Blooms: Knowledge

5) Sierra Company has cash of $33,000; net accounts receivable of $41,000; short-term investments of $15,000; and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term liabilities. The quick ratio for Sierra Company is:

A) 1.78.

B) 2.97.

C) 3.30.

D) 3.80.

E) 2.99.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

6) Meranda Corporation reported cash sales of $235,000; net credit sales of $515,000; beginning net accounts receivable of $212,000; and ending net accounts receivable of $224,000. Meranda's accounts receivable turnover is:

A) 2.30.

B) 2.36.

C) 2.43.

D) 3.44.

E) 2.63.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

7) A company with a quick ratio of 1.23 means that the company:

A) has $1.00 in quick assets for every $1.23 in current liabilities.

B) has $1.23 in quick assets for every $1.00 in current liabilities.

C) could not pay off all of its current liabilities using quick assets.

D) would have to use inventory to help pay off its current liabilities.

E) has $1.23 in current assets for every $1.00 in current liabilities.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Concept

Blooms: Comprehension

8) Walmart operates on a quick ratio of less than 0.20 because it collects cash:

A) quickly and has a large amount of receivables.

B) slowly and has almost no receivables.

C) slowly and has a large amount of receivables.

D) quickly and has almost no receivables.

E) quickly and has only long-term receivables.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Comprehension

9) If a company has 90-day credit terms, what would you expect its accounts receivable turnover to be?

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

10) A company with an accounts receivable turnover of 11.78 would be collecting its receivables about ________.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Comprehension

11) Rick Company has cash of $143,000; net accounts receivable of $89,000; short-term investments of $35,000; and prepaid expenses of $40,000. It also has $50,000 in current liabilities and $80,000 in long-term liabilities. What is the quick ratio for Rick Company?

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

12) Mike Company has cash of $56,000; net accounts receivable of $67,000; short-term investments of $12,000; and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in long-term liabilities. What is the quick ratio for Mike Company ?

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

13) What is considered to be a safe quick ratio?

Diff: 1

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

14) Tammy Corporation reported cash sales of $118,000; net credit sales of $343,000; beginning net accounts receivable of $89,000; and ending net accounts receivable of $111,000. What is Tammy's accounts receivable turnover? If last year's accounts receivable turnover was 3, is there an improvement or deterioration? Indicate the reason for your answer.

Since the accounts receivable turnover increased, there is an improvement in its collections of receivables.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Critical Thinking

Blooms: Analysis

15) Riccardo Company has cash of $103,000; net accounts receivable of $69,000; short-term investments of $25,000; and prepaid expenses of $40,000. It also has $90,000 in current liabilities and $80,000 in long-term liabilities. What is the quick ratio for Riccardo Company? If last year's quick ratio was 2.3, is there an improvement or deterioration in the quick ratio? Is the current year's quick ratio good?

There has been a deterioration in the quick ratio but the ratio indicates good liquidity.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Critical Thinking

Blooms: Analysis

16) A company has a quick ratio of 1.23. What does this mean?

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Critical Thinking

Blooms: Analysis

17) Victor Company has cash of $23,000; net accounts receivable of $49,000; long-term investments of $25,000; and supplies of $13,000. It also has accounts payable of $20,000; other current liabilities of $15,000; and $70,000 in long-term liabilities. What is the quick ratio for Victor Company? Is the current year's quick ratio good?

Yes, this is a good ratio as it is above 1.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Application

Blooms: Application

18) Tildy Corporation reported total sales of $944,000 of which 30% are on credit; beginning net accounts receivable of $69,000; and ending net accounts receivable of $71,000. What is Tammy's accounts receivable turnover? If last year's accounts receivable turnover was 5, is there an improvement or deterioration? Indicate the reason for your answer.

There has been a deterioration as the receivables turnover decreased, which means that they are collecting their receivables less often.

Diff: 2

LO: 7-6 Calculate the quick ratio and accounts receivable turnover

Skill: Critical Thinking

Blooms: Analysis

7.7 Cumulative Questions

1) Journalize the following transactions for Allan Company using the allowance method:

April 21 Sold $560 of merchandise on account to Bill Smith.

June 30 Bill Smith filed bankruptcy and his account was written off.

August 1 Replaced Joe's $450 receivable balance with a 4% 8-month note.

Dec 31 Recorded Bad Debts Expense based on 6% of credit sales of $120,000.

Dec 31 Recorded interest on the note.

Diff: 3

LO: 7-2 Identify the different types of sales and receivables and discuss related internal controls for accounts receivable

Skill: Application

Blooms: Application