Chapter 8 MC

The expense recognition

necessitates the recording of an estimated amount for bad debts.

The accounts receivable turnover is needed to calculate

the average collection period in days.

The interest rate for a three-month loan would normally be stated in terms of which of the following rates of interest?

Annual

A captive finance company refers to

a company that is wholly owned by another company and provides financing to purchasers of its owner company's goods.

Bad Debt Expense is considered

a necessary risk of doing business on a credit basis.

The accounts receivable turnover is used to analyze

liquidity.

The two key parties to a promissory note are the

maker and the payee.

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

management estimates the amount of uncollectibles.

Factoring arrangements

are ways to accelerate receivable collections.

When using the balance sheet approach, the balance in Allowance for Doubtful Accounts must be considered prior to the end of period adjustment when using which of the following methods?

Allowance method

A dishonored note receivable

Is no longer negotiable.

Which of the following receivables would not be classified as an "other receivable"?

Notes receivable

A 90-day note dated June 30, 2017, would mature on:

September 28, 2017.

Accounts receivable are valued and reported on the balance sheet

at cash realizable value.

When an account is written off using the allowance method, accounts receivable

decreases and the allowance account decreases.

Interest is usually associated with

notes receivable.

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

Receivables might be sold to

generate cash quickly.

Which of the following would probably be the most significant type of a claim held by a company?

accounts receivable

The average collection period for receivables is computed by dividing 365 days by

accounts receivable turnover.

The net amount expected to be received in cash from receivables is termed the

cash realizable value.

The percentage of receivables basis for estimating uncollectible accounts emphasizes

cash realizable value.

Receivables are

claims that are expected to be collected in cash.

The account Allowance for Doubtful Accounts is classified as a(n)

contra account to Accounts Receivable

A note receivable is executed in December. When the note is paid the following February, the payee's entry includes (assuming a calendar-year accounting period and no reversing entries) a

credit to Interest Receivable.

When a note is dishonored, the payee's entry includes a

credit to Notes Receivable.

A high accounts receivable turnover ratio indicates

customers are making payments very quickly.

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

debit Allowance for Doubtful Accounts and credit Accounts Receivable.

When a company receives an interest-bearing note receivable, it will

debit Notes Receivable for the face value of the note.

Two methods of accounting for uncollectible accounts are the

direct write-off method and the allowance method.

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

does not affect income in the period it is collected.

The direct write-off method of accounting for bad debts

does not require estimates of bad debt losses.

The expense recognition principle relates to credit losses by stating that bad debt expense should be recorded

in the period of the sale.

When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded

in the same year as the credit sale.

A debit balance in the Allowance for Doubtful Accounts

indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

Allowance for Doubtful Accounts on the balance sheet

is deducted from accounts receivable.

The direct write-off method of accounting for uncollectible accounts

is not generally accepted as a basis for estimating bad debts.

When customers make purchases with a national credit card, the retailer

is not involved in the collection process.

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record Bad Debt Expense

is relevant when using the percentage-of-receivables basis.

All of the following statements are true regarding the average collection period except:

it should generally exceed the credit term period.

A promissory note

may be used to settle an accounts receivable.

One might infer from a debit balance in Allowance for Doubtful Accounts that

more accounts have been written off than had been estimated.

If the amount of uncollectible account expense is understated at year end

net Accounts Receivable will be overstated.

If the amount of uncollectible account expense is overstated at year end

net Accounts Receivable will be understated.

When an account is written off using the allowance method, the

net accounts receivable will stay the same.

The accounts receivable turnover is computed by dividing

net credit sales by average receivables.

The receivable that is usually evidenced by a formal instrument of credit is a(n)

note receivable.

When calculating interest on a promissory note with the maturity date stated in terms of days, the

payee receives more interest if 360 days are used instead of 365.

Three accounting issues associated with accounts receivable are

recognizing, valuing, and accelerating collections.

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n)

selling expense.

Short-term notes receivable

use the same estimations and computations as accounts receivable to determine cash realizable value.

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

when an account is determined to be uncollectible.

The Allowance for Doubtful Accounts is necessary because

when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

When an account becomes uncollectible and must be written off

Accounts Receivable should be credited.

The retailer considers Visa and MasterCard sales as

cash sales.

Using the allowance method, the uncollectible accounts for the year is estimated to be $50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the amount of bad debt expense for the period?

$41,000

Using the allowance method, the uncollectible accounts for the year are estimated to be $50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?

$50,000

Selling accounts receivables to factors and allowing credit terms such as 2/10, n/30

All of these answer choices are correct.

Which of the following is a way of disposing of a note receivable?

All of these are ways to dispose of notes receivable.

Which one of the following is not a principle of sound accounts receivable management?

Delay cash receipts from receivables if necessary.

Which one of the following is not an accounting problem (issue) associated with accounts receivable?

Depreciating accounts receivable

Which of the following is least likely to help a company minimize losses as credit standards are relaxed?

Increase the estimate of uncollectible accounts at the end of each period.

Non-trade receivables should be reported separately from trade receivables. Why is this statement either true or false?

It is true because non-trade receivables do not result from business operations and should not be included with accounts receivable.

Which of the following is not true regarding a promissory note?

Promissory notes may not be transferred to another party by endorsement.

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables?

Selling expenses will increase each time accounts are sold.

All of the following statements regarding the financial statement presentation of receivables are true except:

Short-term receivables are reported above the short-term investments in the balance sheet.

The bookkeeper recorded the following journal entry Allowance for Doubtful Accounts 1,000 Accounts Receivable - Richard James 1,000 Which one of the following statements is false?

This entry is only prepared on the last day of the accounting period.

The direct write-off method is acceptable for financial reporting purposes only if the bad debt losses are insignificant.

This is a true statement based on the concept of materiality.

Under the allowance method of accounting for bad debts, why must uncollectible accounts receivable be estimated at the end of the accounting period?

To match bad debt expense to the period in which the revenues were earned.

An alternative name for Bad Debt Expense is

Uncollectible Accounts Expense.

Under the allowance method, Bad Debt Expense is recorded

Under the allowance method, Bad Debt Expense is recorded

Under the direct write-off method of accounting for uncollectible accounts

a specific account receivable is decreased for the actual amount of bad debt at the time of write-off.

Under the allowance method, writing off an uncollectible account

affects only balance sheet accounts.

The term "receivables" refers to

amounts due from individuals or companies.

Bad Debt Expense is reported on the income statement as

an operating expense.

The face value of a note refers to the amount

at which the note receivable is recorded.

A popular variation of the accounts receivable turnover is the

average collection period.

The allowance method of accounting for uncollectible accounts is required if

bad debts are significant in amount.

The sale of receivables by a business

can be a quick way to generate cash for operating needs.

A note receivable is a negotiable instrument which

can be transferred to another party by endorsement.

The accounts receivable turnover

can be used to compute the average collection period.

If a company fails to record estimated bad debts expense,

expenses are understated.

The sale or transfer of accounts receivable in order to raise funds is called

factoring.

A write off of a specific accounts receivable under the allowance method

should be formally approved by an authorized employee.

Under the allowance method of accounting for uncollectible accounts,

the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

If a company sells its accounts receivables to a factor

the seller pays a commission to the factor.

If an account is collected after having been previously written off

there will be both a debit and a credit to accounts receivable.

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts

total assets decrease.

Under the allowance method, when a specific account is written off

total assets will be unchanged.

Notes or accounts receivables that result from sales transactions are often called

trade receivables.