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