Ch.7 Smartbook

Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest per year. The loan has a one year term and calls for payment at maturity. The amount of cash Alpha will collect for interest in Year 1 is ______. Multiple choice question. $300 $75 $225 $0

- $0

Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest per year. The loan has a one year term and calls for payment at maturity. The amount of cash Alpha will collect for interest in Year 1 is ______. Multiple choice question. $75 $0 $300 $225

- $0

JVL Inc. estimates that 3% of revenue will be uncollectible. If revenue for the year totals $56,300, the uncollectible account expense estimate will be $________.

- $1,689 Uncollectible Account Expense= Revenue x %

On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the net realizable value of receivables shown on the Year 2 balance sheet is ______. Multiple Choice. $20,000 $700 $19,000 $1,000

- $19,000 Reason: Ending balance in the allowance account = $20,000 x 5% = $1,000. Net realizable value of receivables = $20,000 - $1,000 = $19,000.

Which of the financial statements is not affected by the recognition of uncollectible accounts expense under the direct write-off method? Multiple choice question. •Balance Sheet •Income Statement •Statement of Changes in Stockholders' Equity •Statement of Cash Flows

- Statement of Cash Flows

Trade Company accepted a credit card with a fee for services rendered. The collection from the credit card company of the amount due affects the ______. Multiple select question. Income Statement Statement of Changes in Stockholders Equity Statement of Cash Flows Balance Sheet

- Statement of Cash Flows - Balance Sheet

Western Company loaned Eastern Company money. This event affect Western Company's ______. Select all that apply. Multiple select question. •Statement of Cash Flows •Balance Sheet •Statement of Changes in Stockholder Equity •Income Statement

- Statement of Cash Flows - Balance Sheet

Stable Company recognized accrued interest revenue. This event affects Stable Company's ______. Multiple select question. Statement of Changes in Stockholders Equity Balance Sheet Statement of Cash Flows Income Statement

- Statement of Changes in Stockholders Equity - Balance Sheet - Income Statement

Which of the following statements is true? Multiple choice question. The direct write-off method is used to ensure the matching of expenses with revenue. Only banks are permitted to use the direct write-off method. Companies with large amounts of uncollectible accounts normally use the direct-write off method to account for uncollectible accounts expense. The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.

- The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.

Which of the following statements is true? Multiple choice question. Companies with large amounts of uncollectible accounts normally use the direct-write off method to account for uncollectible accounts expense. The direct write-off method is used to ensure the matching of expenses with revenue. Only banks are permitted to use the direct write-off method. The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.

- The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity. Reason: The direct method does not require the use of estimates and an associated allowance account. Instead, it recognizes uncollectible accounts expense when it occurs, thereby simplifying the record keeping process

Which event has no effect on the amount of total assets, net income, or cash flow? Multiple choice question. Recognize uncollectible accounts expense Write-off an uncollectible account Collect an account receivable Recognize revenue on account

- Write-off an uncollectible account

When using the percentage of revenue method to estimate for uncollectible accounts expense, the percentage may be adjusted for expected changes in ______. Multiple select question. credit approval standards the selling price of goods and services economic conditions

- credit approval standards - economic conditions

The journal entry to recognize accrued interest on a note receivable includes a ________ to interest revenue and a ________ to interest receivable.

- credit, debit

The journal entry to record an investment in notes receivable includes a ________ to cash and a ________ to notes receivable.

- credit, debit

Under the allowance method, the journal entry to recognize the reinstatement of an account receivable includes a ________ to allowance for doubtful accounts and a ________ to accounts receivable.

- credit, debit

The journal entry to recognize accrued interest includes a ______ to interest revenue. Multiple choice question. debit to cash and a credit credit to cash and a debit debit to interest receivable and a credit credit to interest receivable and a debit

- debit to interest receivable and a credit

The face value of accounts receivable less an allowance for doubtful accounts equals ________ ________ value of accounts receivable.

-net, realizable

On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the net realizable value of receivables shown on the Year 2 balance sheet is ______. Multiple choice question. $20,000 $19,000 $1,000 $700

- $19,000 Reason: Ending balance in the allowance account = $20,000 x 5% = $1,000. Net realizable value of receivables = $20,000 - $1,000 = $19,000.

On September 1, Year 1, Jack Company loaned $12,000 to Jill Company for a one year term at 5% interest per year. Jack Company's accounting year is January 1 to December 31 and the note is payable at maturity. In Year 2, Jack will collect interest revenue in cash of ______. Multiple choice question. $600 $0 $200 $400

- $600

On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the amount of uncollectible accounts expense shown on the Year 2 income statement is ______. Multiple choice question. $1,000 $1,300 $700 $0

- $700 Reason: Ending balance in the Allowance for the Doubtful Accounts account = $20,000 x 5% = $1,000. Since the Allowance for the Doubtful Accounts account currently has a $300 balance, $700 of expense must be added to the account.

On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the amount of uncollectible accounts expense shown on the Year 2 income statement is ______. Multiple choice question. $1,300 $1,000 $700 $0

- $700 Reason: Ending balance in the Allowance for the Doubtful Accounts account = $20,000 x 5% = $1,000. Since the Allowance for the Doubtful Accounts account currently has a $300 balance, $700 of expense must be added to the account.

Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest per year. On December 31, Year 1, Alpha will recognize accrued interest revenue of ______.

- $75

Frost Company accepted a credit card payment for $6,000 of services provided to a customer. If the credit card fee is 5% of sales, the Accounts Receivable account will be increased by $________ and the Service Revenue account will be increased by $________.

- 5,700 ; 6,000

Ellen Company loaned $10,000 cash to Ann Company on December 1, Year 1. The loan had a one year term and a 6% annual interest rate. Based on this information alone, interest income for Year 1 is $________; interest income for Year 2 is $________; cash flow from operations for Year 1 is $________; and cash flow from operations for Year 2 is $________.

- 50, 550, 0, 600

A company experienced an event that caused total assets and net income to increase, but had no effect on cash flow. Which of the following events could have caused these effects? Multiple choice question. Accepting a credit card for services provided Collecting interest receivable Collecting the principal balance of a loan Lending money

- Accepting a credit card for services provided

Recognizing accrued interest revenue is a(n) ______ transaction. Multiple choice question. claims exchange asset exchange asset source asset use

- Asset source

Stable Company recognized accrued interest revenue. This event affects Stable Company's ______. Multiple select question. Balance Sheet Statement of Changes in Stockholders Equity Income Statement Statement of Cash Flows

- Balance Sheet - Statement of Changes in Stockholders Equity - Income Statement

A company experienced an event that had no effect on total assets or net income but increased operating activities cash flow. Which of the following events could have caused these effects? Multiple choice question. • Collecting a receivable due from a credit card company • Collecting the principal balance of a loan • Accepting a credit card for the sale of goods • Collecting a receivable due from a credit card company

- Collecting a receivable due from a credit card company

True or False: Businesses typically only record accrued interest with it is due.

- False

True or False: The percent of revenue method provides a more acceptable result for estimating uncollectible accounts expense than the percent of receivables approach.

- False

True or False: Recording uncollectible accounts expense directly reduces the Accounts Receivable account.

- False

True or False: Many accountants determine the estimated uncollectible account expense by taking a percentage of gross profit.

- False

Which of the following statements about aging accounts receivable is true? Multiple choice question. An existing balance in the Allowance for Doubtful Accounts account is ignored when when determining uncollectible accounts expense. The total of the aging schedule represents the amount of uncollectible accounts expense. Newer accounts are less likely to be collected. Higher percentages are applied to older accounts.

- Higher percentages are applied to older accounts.

Investing in a note receivable (loaning money) does not affect the ______. Multiple choice question. •balance sheet •income statement •statement of cash flows

- Income statement

A company experienced an event that had no affect on the amount of total assets or net income, but did cause a cash outflow from investing activities. Which of the following events could have caused these effects? Multiple choice question. •Reinstating an account receivable •Collecting an account receivable •Borrowing money with a two year term to maturity •Loaning money with a three year term to maturity

- Loaning money with a three year term to maturity

Which of the financial statements is not affected by the recognition of uncollectible accounts expense under the direct write-off method? Multiple choice question. Statement of Cash Flows Income Statement Statement of Changes in Stockholders' Equity Balance Sheet

- Statement of Cash Flows

The net realizable value of receivables equals ______. Multiple choice question. accounts payable minus the allowance for doubtful accounts accounts receivable minus the allowance for doubtful accounts accounts receivable plus the allowance for doubtful accounts accounts payable plus the allowance for doubtful accounts

- accounts receivable minus the allowance for doubtful accounts

The amount interest earned, but not yet collected, is called ________ interest.

- accrued

Reporting accounts receivable in the financial statements at net realizable value is commonly called the ________ ________ of accounting for uncollectible accounts.

- allowance, method

When a company accepts a credit card with a fee for services rendered, Accounts Receivable ______. Multiple choice question. and Service Revenue increase and Credit Card Expense decreases and Credit Card Expense and Service Revenue are all decreased and Credit Card Expense decrease, and Service Revenue increases and Credit Card Expense and Service Revenue are all increased

- and Credit Card Expense and Service Revenue are all increased

When a company recognizes a write-off of an uncollectible account, the balance in Accounts Receivable ______. Multiple choice question. and the balance in Allowance for Doubtful Accounts both increase decreases and the balance in Allowance for Doubtful Accounts increases and the balance in Allowance for Doubtful Accounts both decrease increases and the balance in Allowance for Doubtful Accounts account decreases

- and the balance in Allowance for Doubtful Accounts both decrease

When a company recognizes a write-off of an uncollectible account, the balance in Accounts Receivable ______. Multiple choice question. decreases and the balance in Allowance for Doubtful Accounts increases increases and the balance in Allowance for Doubtful Accounts account decreases and the balance in Allowance for Doubtful Accounts both increase and the balance in Allowance for Doubtful Accounts both decrease

- and the balance in Allowance for Doubtful Accounts both decrease

When a company reinstates an account receivable that had previously been written-off, the balance in Accounts Receivable ______. Multiple choice question. decreases and the balance in Allowance for Doubtful Accounts increases increases and the balance in Allowance for Doubtful Accounts account decreases and the balance in Allowance for Doubtful Accounts both decrease and the balance in Allowance for Doubtful Accounts both increase

- and the balance in Allowance for Doubtful Accounts both increase

When uncollectible accounts expense is recognized, the balance in Uncollectible Accounts Expense ______. Multiple choice question. decreases and the balance in the Allowance for Doubtful Accounts increases and the balance in Allowance for Doubtful Accounts both increase increases and the balance in the Allowance for Doubtful Accounts decreases and the balance in Allowance for Doubtful Accounts both decrease

- and the balance in Allowance for Doubtful Accounts both increase

Investing in a note receivable (loaning money) is a(n) ______ transaction. Multiple choice question. asset use asset source asset exchange claims exchange

- asset exchange

The write-off of uncollectible accounts receivable is a(n) ______ transaction. Multiple choice question. asset exchange asset source claims exchange asset use

- asset exchange

The write-off of uncollectible accounts receivable is a(n) ______ transaction. Multiple choice question. asset exchange asset use asset source claims exchange

- asset exchange

Disadvantages of using the direct write-off method of recognizing uncollectible accounts expense include ______. Select all that apply. Multiple select question. assets are overstated the method is simple to implement estimates cannot be based on aging expenses are not matched with revenue

- assets are overstated - expenses are not matched with revenue

Under the allowance method, the journal entry to recognize uncollectible accounts expense is made ______. Multiple choice question. at the beginning of the accounting period when sales occurs at the end of the accounting period when an account receivable is determined to be uncollectible

- at the end of the accounting period

Recording uncollectible accounts expense impacts the ______. Select all that apply. Multiple select question. statement of cash flows balance sheet income statement

- balance sheet - income statement

Tom Company loaned $24,000 to Paul Company on November 1, Year 1 with a one year term and a 4% rate of interest. Based on this information, Tom's Year 1 ______. Multiple select question. balance sheet will show $160 of interest receivable, and the Year 2 balance sheet will show zero interest receivable. income statement will show $160 of interest revenue, and the Year 2 income statement will show $800 of interest revenue. statement of cash flows will show a $160 cash inflow, and the Year 2 statement of cash flows will show an $800 cash inflow.

- balance sheet will show $160 of interest receivable, and the Year 2 balance sheet will show zero interest receivable. - income statement will show $160 of interest revenue, and the Year 2 income statement will show $800 of interest revenue.

Because the percent of receivables method focuses on determining the best estimate of the allowance balance, it is often called the ________ ________approach.

- balance, sheet

Assets belonging to the maker of a note that are assigned as security to ensure payment when due are called ________.

- collateral

The net realizable value of receivables decrease when a company ______. Select all that apply. Multiple select question. pays an account payable account recognizes revenue on account. collects an account receivable. recognizes uncollectible accounts expense

- collects an account receivable. - recognizes uncollectible accounts expense

The net realizable value of receivables decrease when a company ______. Select all that apply. Multiple select question. recognizes revenue on account. collects an account receivable. pays an account payable account recognizes uncollectible accounts expense

- collects an account receivable. - recognizes uncollectible accounts expense

Allowance for Doubtful Accounts is a(n) ________ asset account because it has a credit balance instead of the normal debit balance seen in asset accounts.

- contra

The journal entry to recognize uncollectible accounts expense under the direct write-off method will include a ______. Multiple choice question. credit to uncollectible accounts expense and a debit to accounts receivable credit to uncollectible accounts expense and a debit to allowance for doubtful accounts debit to uncollectible accounts expense and a credit to accounts receivable debit to uncollectible accounts expense and a credit to allowance for doubtful accounts

- debit to uncollectible accounts expense and a credit to accounts receivable

Under the allowance method, the journal entry to recognize the write-off of an uncollectible account receivable includes a ________ to allowance for doubtful accounts and a ________ to accounts receivable.

- debit, credit

When the allowance method is used, the reinstatement of a previously written off accounts receivable ______. Multiple choice question. impacts all the financial statements increases cash flow from operating activities has no net effect on the financial statements impacts the balance sheet and income statement only

- has no net effect on the financial statements

When the allowance method is used, the write-off of uncollectible accounts receivable ______. Multiple choice question. decreases cash flow from operating activities impacts the balance sheet and income statement only has no net effect on the financial statements impacts all the financial statements

- has no net effect on the financial statements

Recording uncollectible accounts expense impacts the ______. Select all that apply Multiple select question. income statement balance sheet statement of cash flows

- income statement - balance sheet

Tom Company loaned $24,000 to Paul Company on November 1, Year 1 with a one year term and a 4% rate of interest. Based on this information, Tom's Year 1 ______. Multiple select question. income statement will show $160 of interest revenue, and the Year 2 income statement will show $800 of interest revenue. statement of cash flows will show a $160 cash inflow, and the Year 2 statement of cash flows will show an $800 cash inflow. balance sheet will show $160 of interest receivable, and the Year 2 balance sheet will show zero interest receivable.

- income statement will show $160 of interest revenue, and the Year 2 income statement will show $800 of interest revenue. - balance sheet will show $160 of interest receivable, and the Year 2 balance sheet will show zero interest receivable.

Because the percent of revenue method focuses on determining the uncollectible accounts expense, it is often called the ________ ________ approach.

- income, statement

When a company recognizes uncollectible accounts expense, cash flow from operating activities ______. Multiple choice question. will decrease is not affected will increase

- is not affected

The longer an account receivable remains outstanding, the ______ likely it is to be collected. Multiple choice question. less more

- less

Assets are reported on the balance sheet in order of their ________.

- liquidity

How quickly assets are expected to be converted to cash during normal operations is referred to as ________.

- liquidity

To avoid overstating assets, companies report receivables at ______ value. Multiple choice question. face net realizable cash collected guaranteed

- net realizable

Interest is normally shown as a(n) ________ item on the income statement and a(n) ________ activity on the statement of cash flows.

- nonoperating, operating

Companies generally charge interest on ______ receivable. Multiple choice question. only accounts both notes and accounts neither notes nor accounts only notes

- only notes

The amount of money loaned by the payee to the maker of a note is called the ________.

- principal

When a company extends credit for a long period of time, the parties frequently enter into a credit agreement, the terms of which are legally documented in a(n) ________ ________.

- promissory note

A company experienced an event that caused total assets and net income to increase, but had no affect on cash flow. This could have been due to ______. Multiple choice question. collecting interest receivable collecting the principal balance of a loan lending money recognizing accrued interest

- recognizing accrued interest

Stair Company accepted a credit card with a fee for services rendered. As a result of this transaction ______. Multiple select question. •operating cash flows increased •total liabilities increased •recorded revenue exceeds accounts receivable •stockholders' equity increased •total assets increased

- recorded revenue exceeds accounts receivable - stockholders' equity increased - total assets increased