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1.

LO 9.1Which of the following is not a criterion to recognize revenue under GAAP?

  1. The earnings process must be completed.
  2. A product or service must be provided.
  3. Cash must be collected.
  4. GAAP requires that the accrual basis accounting principle be used in the revenue recognition process.
2.

LO 9.1Which of the following best represents the matching principle criteria?

  1. Expenses are reported in the period in which they were incurred.
  2. Expenses may be reported in a different period than the matching revenues.
  3. Revenue and expenses are matched based on when expenses are paid.
  4. Revenue is recognized when an order occurs and not when the actual sale is initiated.
3.

LO 9.1If a customer pays with a credit card and the service has been provided, which of the following accounts will be used to record the sales entry for this transaction?

  1. Cost of Goods Sold, Merchandise Inventory, Sales Revenue
  2. Sales Revenue, Credit Card Expense, Accounts Receivable
  3. Accounts Receivable, Merchandise Inventory, Credit Card Expense
  4. Cost of Goods Sold, Credit Card Expense, Sales Revenue
4.

LO 9.1A car dealership sells a car to a customer for $35,000. The customer makes a 10% down payment, and the dealership finances the remaining 90% in-house. How much will the car dealership record in Accounts Receivable for this customer?

  1. $31,500
  2. $19,250
  3. $8,750
  4. $7,000
5.

LO 9.2Tines Commerce computes bad debt based on the allowance method. They determine their current year’s balance estimation to be a credit of $45,000. The previous period had a credit balance in Allowance for Doubtful Accounts of $12,000. What should be the reported figure in the adjusting entry for the current period?

  1. $12,000
  2. $45,000
  3. $33,000
  4. $57,000
6.

LO 9.2Doer Company reports year-end credit sales in the amount of $390,000 and accounts receivable of $85,500. Doer uses the income statement method to report bad debt estimation. The estimation percentage is 3.5%. What is the estimated balance uncollectible using the income statement method?

  1. $13,650
  2. $2,992.50
  3. $136,500
  4. $29,925
7.

LO 9.2Balloons Plus computes bad debt based on the allowance method. They determine their current year’s balance estimation to be a credit of $84,000. The previous period had a credit balance in Allowance for Doubtful Accounts of $26,000. What should be the reported figure in the adjusting entry for the current period?

  1. $84,000
  2. $58,000
  3. $26,000
  4. $110,000
8.

LO 9.2Conner Pride reports year-end credit sales in the amount of $567,000 and accounts receivable of $134,000. Conner uses the balance sheet method to report bad debt estimation. The estimation percentage is 4.6%. What is the estimated balance uncollectible using the balance sheet method?

  1. $26,082
  2. $6,164
  3. $260,820
  4. $61,640
9.

LO 9.2Which method delays recognition of bad debt until the specific customer accounts receivable is identified?

  1. income statement method
  2. balance sheet method
  3. direct write-off method
  4. allowance method
10.

LO 9.2Which of the following estimation methods considers the amount of time past due when computing bad debt?

  1. balance sheet method
  2. direct write-off method
  3. income statement method
  4. balance sheet aging of receivables method
11.

LO 9.3Which of the following best represents a positive product of a lower number of days’ sales in receivables ratio?

  1. collection of receivables is quick, and cash can be used for other business expenditures
  2. collection of receivables is slow, keeping cash secured to receivables
  3. credit extension is lenient
  4. the lender only lends to the top 10% of potential creditors
12.

LO 9.3South Rims has an accounts receivable balance at the end of 2018 of $357,470. The net credit sales for the year are $769,346. The balance at the end of 2017 was $325,300. What is the accounts receivable turnover rate for 2018 (rounded to two decimal places)?

  1. 2.02 times
  2. 2.25 times
  3. 2.15 times
  4. 1.13 times
13.

LO 9.3What information can best be elicited from a receivable ratio?

  1. company performance with current debt collection
  2. credit extension effect on cash sales
  3. likelihood of future customer bankruptcy filings
  4. an increase in future credit sales to current customers
14.

LO 9.3Ancient Grains Unlimited has an accounts receivable turnover ratio of 3.34 times. The net credit sales for the year are $567,920. What is the days’ sales in receivables ratio for 2018 (rounded to the nearest whole number)?

  1. 190 days
  2. 109 days
  3. 110 days
  4. 101 days
15.

LO 9.4Which of the following is not a way to manage earnings?

  1. Change the method for bad debt estimation.
  2. Change the figure for the uncollectible percentage.
  3. Under the balance sheet aging method, change the past-due categories.
  4. Change the dates of common stock issuance.
16.

LO 9.4Which of the following is true about earnings management?

  1. It works within the constraints of GAAP.
  2. It works outside the constraints of GAAP.
  3. It tries to improve stakeholder’s views of the company’s financial position.
  4. Both B and C
  5. Both A and C
17.

LO 9.4Which statement is most directly affected by a change to net income?

  1. balance sheet
  2. income statement
  3. statement of retained earnings
  4. statement of cash flows
18.

LO 9.4Michelle Company reports $345,000 in credit sales and $267,500 in accounts receivable at the end of 2019. Michelle currently uses the income statement method to record bad debt estimation at 4%. To manage earnings more efficiently, Michelle changes bed debt estimation to the balance sheet method at 4%. How much is the difference in net income between the income statement and balance sheet methods?

  1. $3,100
  2. $13,800
  3. $10,700
  4. $77,500
19.

LO 9.6Which of the following is true of a maturity date?

  1. It must be calculated in days, not in months or years.
  2. It is the date when principal and interest on a note are to be repaid to the lender.
  3. It is the date of establishment of note terms between a lender and customer.
  4. It is not a characteristic of a note receivable.
20.

LO 9.6Mark Industries issues a note in the amount of $45,000 on August 1, 2018 in exchange for the sale of merchandise. Which of the following is the correct journal entry for this sale?

  1. Debit Cash 45,000, credit Sales Revenue 45,000.
  2. Debit Cash 45,000, credit Notes Receivable: Mark 45,000.
  3. Debit Accounts Receivable: Mark 45,000, credit Sales Revenue 45,000.
  4. Debit Notes Receivable: Mark 45,000, credit Sales Revenue 45,000.
21.

LO 9.6A customer takes out a loan of $130,000 on January 1, with a maturity date of 36 months, and an annual interest rate of 11%. If 6 months have passed since note establishment, what would be the recorded interest figure at that time?

  1. $7,150
  2. $65,000
  3. $14,300
  4. $2,383
22.

LO 9.6A company collects an honored note with a maturity date of 24 months from establishment, a 10% interest rate, and an initial loan amount of $30,000. Which accounts are used to record collection of the honored note at maturity date?

  1. Interest Revenue, Interest Expense, Cash
  2. Interest Receivable, Cash, Notes Receivable
  3. Interest Revenue, Interest Receivable, Cash, Notes Receivable
  4. Notes Receivable, Interest Revenue, Cash, Interest Expense
23.

LO 9.6Orion Rentals is unable to collect on a note worth $25,000 and has accumulated interest of $250. It convert this note and interest to accounts receivable. After some time, Orion is still unable to collect the debt and it decides to sell the converted note to a collection agency. The collection agency will pay only 20% of the value of accounts receivable to Orion. What is the amount of cash paid to Orion from the collection agency?

  1. $5,000
  2. $5,050
  3. $20,000
  4. $19,950
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