OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
Multiple Choice
1. LO 9.1 Which of the following is not a criterion to recognize revenue under GAAP?
A. The earnings process must be completed.
B. A product or service must be provided.
C. Cash must be collected.
D. GAAP requires that the accrual basis accounting principle be used in the revenue
recognition process.
Solution
C
2. LO 9.1 Which of the following best represents the matching principle criteria?
A. Expenses are reported in the period in which they were incurred.
B. Expenses may be reported in a different period than the matching revenues.
C. Revenue and expenses are matched based on when expenses are paid.
D. Revenue is recognized when an order occurs and not when the actual sale is initiated.
Solution
A
3. LO 9.1 If 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?
A. Cost of Goods Sold, Merchandise Inventory, Sales Revenue
B. Sales Revenue, Credit Card Expense, Accounts Receivable
C. Accounts Receivable, Merchandise Inventory, Credit Card Expense
D. Cost of Goods Sold, Credit Card Expense, Sales Revenue
Solution
B
4. LO 9.1 A 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?
A. $31,500
B. $19,250
C. $8,750
D. $7,000
Solution
A; $35,000 × (90%)
5. LO 9.2 Tines 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?
A. $12,000
B. $45,000
C. $33,000
D. $57,000
Solution
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
C. $45,000 – $12,000
6. LO 9.2 Doer 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?
A. $13,650
B. $2,992.50
C. $136,500
D. $29,925
Solution
A. $390,000 × 3.5%
7. LO 9.2 Balloons 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?
A. $84,000
B. $58,000
C. $26,000
D. $110,000
Solution
B. $84,000 – $26,000
8. LO 9.2 Conner 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?
A. $26,082
B. $6,164
C. $260,820
D. $61,640
Solution
B. $134,000 × 4.6%
9. LO 9.2 Which method delays recognition of bad debt until the specific customer accounts
receivable is identified?
A. income statement method
B. balance sheet method
C. direct write-off method
D. allowance method
Solution
C
10. LO 9.2 Which of the following estimation methods considers the amount of time past due
when computing bad debt?
A. balance sheet method
B. direct write-off method
C. income statement method
D. balance sheet aging of receivables method
Solution
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
D
11. LO 9.3 Which of the following best represents a positive product of a lower number of days’
sales in receivables ratio?
A. collection of receivables is quick, and cash can be used for other business expenditures
B. collection of receivables is slow, keeping cash secured to receivables
C. credit extension is lenient
D. the lender only lends to the top 10% of potential creditors
Solution
A
12. LO 9.3 South 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)?
A. 2.02 times
B. 2.25 times
C. 2.15 times
D. 1.13 times
Solution
B. Avg. AR = $341,385; $769,346/$341,385 = 2.25 times
13. LO 9.3 What information can best be elicited from a receivable ratio?
A. company performance with current debt collection
B. credit extension effect on cash sales
C. likelihood of future customer bankruptcy filings
D. an increase in future credit sales to current customers
Solution
A
14. LO 9.3 Ancient 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)?
A. 190 days
B. 109 days
C. 110 days
D. 101 days
Solution
B. Rounded from 109.28
15. LO 9.4 Which of the following is not a way to manage earnings?
A. Change the method for bad debt estimation.
B. Change the figure for the uncollectible percentage.
C. Under the balance sheet aging method, change the past-due categories.
D. Change the dates of common stock issuance.
Solution
D
16. LO 9.4 Which of the following is true about earnings management?
A. It works within the constraints of GAAP.
B. It works outside the constraints of GAAP.
C. It tries to improve stakeholder’s views of the company’s financial position.
D. Both B and C
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, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
E. Both A and C
Solution
E
17. LO 9.4 Which statement is most directly affected by a change to net income?
A. balance sheet
B. income statement
C. statement of retained earnings
D. statement of cash flows
Solution
B
18. LO 9.4 Michelle 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?
A. $3,100
B. $13,800
C. $10,700
D. $77,500
Solution
A. $13,800 – $10,700 = $3,100
19. LO 9.6 Which of the following is true of a maturity date?
A. It must be calculated in days, not in months or years.
B. It is the date when principal and interest on a note are to be repaid to the lender.
C. It is the date of establishment of note terms between a lender and customer.
D. It is not a characteristic of a note receivable.
Solution
B
20. LO 9.6 Mark 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?
A.
B.
C.
D.
Solution
D
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Chapter 9: Accounting for Receivables
Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
Multiple Choice
1. LO 9.1 Which of the following is not a criterion to recognize revenue under GAAP?
A. The earnings process must be completed.
B. A product or service must be provided.
C. Cash must be collected.
D. GAAP requires that the accrual basis accounting principle be used in the revenue
recognition process.
Solution
C
2. LO 9.1 Which of the following best represents the matching principle criteria?
A. Expenses are reported in the period in which they were incurred.
B. Expenses may be reported in a different period than the matching revenues.
C. Revenue and expenses are matched based on when expenses are paid.
D. Revenue is recognized when an order occurs and not when the actual sale is initiated.
Solution
A
3. LO 9.1 If 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?
A. Cost of Goods Sold, Merchandise Inventory, Sales Revenue
B. Sales Revenue, Credit Card Expense, Accounts Receivable
C. Accounts Receivable, Merchandise Inventory, Credit Card Expense
D. Cost of Goods Sold, Credit Card Expense, Sales Revenue
Solution
B
4. LO 9.1 A 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?
A. $31,500
B. $19,250
C. $8,750
D. $7,000
Solution
A; $35,000 × (90%)
5. LO 9.2 Tines 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?
A. $12,000
B. $45,000
C. $33,000
D. $57,000
Solution
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
C. $45,000 – $12,000
6. LO 9.2 Doer 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?
A. $13,650
B. $2,992.50
C. $136,500
D. $29,925
Solution
A. $390,000 × 3.5%
7. LO 9.2 Balloons 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?
A. $84,000
B. $58,000
C. $26,000
D. $110,000
Solution
B. $84,000 – $26,000
8. LO 9.2 Conner 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?
A. $26,082
B. $6,164
C. $260,820
D. $61,640
Solution
B. $134,000 × 4.6%
9. LO 9.2 Which method delays recognition of bad debt until the specific customer accounts
receivable is identified?
A. income statement method
B. balance sheet method
C. direct write-off method
D. allowance method
Solution
C
10. LO 9.2 Which of the following estimation methods considers the amount of time past due
when computing bad debt?
A. balance sheet method
B. direct write-off method
C. income statement method
D. balance sheet aging of receivables method
Solution
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
D
11. LO 9.3 Which of the following best represents a positive product of a lower number of days’
sales in receivables ratio?
A. collection of receivables is quick, and cash can be used for other business expenditures
B. collection of receivables is slow, keeping cash secured to receivables
C. credit extension is lenient
D. the lender only lends to the top 10% of potential creditors
Solution
A
12. LO 9.3 South 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)?
A. 2.02 times
B. 2.25 times
C. 2.15 times
D. 1.13 times
Solution
B. Avg. AR = $341,385; $769,346/$341,385 = 2.25 times
13. LO 9.3 What information can best be elicited from a receivable ratio?
A. company performance with current debt collection
B. credit extension effect on cash sales
C. likelihood of future customer bankruptcy filings
D. an increase in future credit sales to current customers
Solution
A
14. LO 9.3 Ancient 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)?
A. 190 days
B. 109 days
C. 110 days
D. 101 days
Solution
B. Rounded from 109.28
15. LO 9.4 Which of the following is not a way to manage earnings?
A. Change the method for bad debt estimation.
B. Change the figure for the uncollectible percentage.
C. Under the balance sheet aging method, change the past-due categories.
D. Change the dates of common stock issuance.
Solution
D
16. LO 9.4 Which of the following is true about earnings management?
A. It works within the constraints of GAAP.
B. It works outside the constraints of GAAP.
C. It tries to improve stakeholder’s views of the company’s financial position.
D. Both B and C
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, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 9: Accounting for Receivables
E. Both A and C
Solution
E
17. LO 9.4 Which statement is most directly affected by a change to net income?
A. balance sheet
B. income statement
C. statement of retained earnings
D. statement of cash flows
Solution
B
18. LO 9.4 Michelle 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?
A. $3,100
B. $13,800
C. $10,700
D. $77,500
Solution
A. $13,800 – $10,700 = $3,100
19. LO 9.6 Which of the following is true of a maturity date?
A. It must be calculated in days, not in months or years.
B. It is the date when principal and interest on a note are to be repaid to the lender.
C. It is the date of establishment of note terms between a lender and customer.
D. It is not a characteristic of a note receivable.
Solution
B
20. LO 9.6 Mark 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?
A.
B.
C.
D.
Solution
D
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