Multiple Choice Questions

Questions 1 through 5 use the following data:

On August 1, 2010, Botores, Inc., sold equipment and accepted a six-month, 12%, $50,000 note receivable. Botores year-end is December 31.

1. How much interest revenue should Botores accrue on December 31, 2010?

a. $6,000

b. $3,000

c. $2,500

d. Some other amount

2. If Botores, Inc., fails to make an adjusting entry for the accrued interest,

a. Net income will be overstated and liabilities will be understated.

b. Net income will be overstated and assets will be overstated.

c. Net income will be understated and liabilities will be overstated.

d. Net income will be understated and assets will be understated.

3. How much interest does Botores, Inc., expect to collect on the maturity date (February 1, 2011)?

a. $3,000

b. $6,000

c. $2,500

d. Some other amount

4. Which of the following accounts will Botores credit in the journal entry at maturity on February 1, 2011, assuming collection in full?

a. Cash

b. Interest Payable

c. Note Payable

d. Interest Receivable

5. Write the journal entry on the maturity date (February 1, 2011).

6. Which of the following is included in the calculation of the acid-test ratio?

a. Prepaid expenses and cash

b. Cash and accounts receivable

c. Inventory and prepaid expenses

d. Inventory and short-term investment

7. A company with net sales of $1,017,000, beginning net receivables of $110,000, and ending net receivables of $120,000, has days sales in accounts receivable of

a. 38 days.

b. 47 days.

c. 41 days.

d. 44 days.

8. A company sells on credit terms of net 30 days and has days sales in account receivable of 30 days. Its days sales in receivables is

a. Too high.

b. Too low.

c. About right.

d. Cannot be evaluated from the data given.