Allowance for Doubtful Accounts 10,000 b. Bad Debts Expense 8,000 Allowance for Doubtful Accounts 8,000 c. Bad Debts Expense 8,000 Accounts Receivable 8,000 d. Bad Debts Expense 10,000 Accounts Receivable 10,000
10. The receivables turnover ratio a. Is computed by dividing net credit sales for the accounting period by the cash realizable value of accounts receivable on the last day of the accounting period. b. Can be used to compute the average collection period. c. Is a method of evaluating the solvency of net accounts receivable. d. Is only important to internal users of accounting information. 11. A measure of a company’ s solvency is the a. acid-test ratio. b. current ratio. c. times interest earned ratio. d. asset turnover ratio. 12. The times interest earned ratio is computed by dividing a. net income by interest expense. b. income before income taxes by interest expense. c. income before interest expense by interest expense. d. income before interest expense and income taxes by interest expense. 13. The 2007 financial statements of Shadow Co. contain the following selected data( in millions). Current Assets $ 75 Total Assets 120 Current Liabilities 40 Total Liabilities 85 Cash 8 Interest Expense 5 Income Taxes 10 Net Income 16