ACCTG 326- Chapter 7
Which of the following are potential benefits of offering cash discounts to customers?
- Accelerated customer payment - Reduction in bad debt - Increased sales volume
Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?
$100 should be added to the bank balance.
Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation?
$900 should be subtracted from the cash balance in the accounting records.
In a bank reconciliation, which items will require journal entries by the company?
Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books.
At what amount are accounts receivable recorded?
Amount expected to be collected.
Both IFRS and U.S. GAAP permit the fair value option for accounting for receivables. Which of the following is correct regarding the application of this option?
IFRS restricts the circumstances for applying the fair value option
The difference between the gross method and net method of recording sales revenue, in terms of the effect on income is what?
The timing of the recognition of any discounts not taken varies and could occur in different reporting periods.
A(n) ________ receivable is an informal credit arrangement with trade customers, whereas a(n) _______ receivable is a formal signed credit arrangement between a creditor and a debtor.
account; notes
Similar to accounts receivable, a company must estimate credit losses on its notes receivable and use a(n) ___________ account to reduce the receivable to the appropriate carrying value.
allowance
The first step in using a balance sheet approach to estimate bad debts is to calculate the desired ending balance in which account?
allowance for uncollectible accounts
Which method of estimating bad debts is required by GAAP when the amount of bad debt is material?
allowance method
The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as
bad debt expense
When adjusting the book balance in a bank reconciliation, which items must be subtracted from the cash account book balance?
charges for NSF checks service charges
Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. The journal entry required would be
credit cash, $2,000
On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. Orange has a December 31 year-end. On February 1, year 2, when the note matures, the journal entry for Orange will include a
credit to interest revenue, $400
On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. The entry required on Orange's books on December 31, at the end of the year includes a
debit Interest Receivable, $800. Reason: The 12% is an annual rate and since only 2/12 of a year has been earned, interest revenue is $800 (=$40,000*0.12*(2/12))
Reconciling cash receipts to bank records helps verify that the amounts received also were
deposited
An alternative method for valuing notes receivable is the
fair value method
If a company elects the fair value option for receivables, changes in fair value are recognized as
gains and losses on the income statement.
The current ratio and the quick ratio measure
liquidity
It is likely that bad debt accruals under IFRS will be Blank______ and will occur Blank______ than under U.S. GAAP.
lower; later
In a troubled debt restructuring, the lender may agree to reduce or delay interest payments or maturity amount. This is referred to as
modified terms
Which of the following will require a journal entry in a bank reconciliation?
notes collected by the bank and NSF checks
The gross method and the net method are two ways to record ______ discounts.
sales
To calculate the effective rate of interest on a noninterest-bearing note, the amount of interest is divided by the Blank______.
sales price
Which of the following is one of the most important tools used to control cash?
the bank reconciliation
A troubled debt restructuring occurs when
the creditor changes the terms of the agreement to make it easier for the debtor to pay
In a sale of receivables, the________ includes the receivables as assets in its balance sheet
transferee
The ___________ , recognizes a note receivable in a secured borrowing agreement.
transferor
Kim Corp. uses the gross method to record sales on account. Kim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include (Select all that apply.) debit to accounts receivable, $4,900. debit to sales, $5,000. credit to accounts receivable, $4,900. debit to accounts receivable, $5,000. credit to sales, $5,000. credit to sales, $4,900.
- debit to accounts receivable, $5,000. - credit to sales, $5,000
Kilroy uses the net method to record sales on account. Kilroy sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include (Select all that apply.) debit to sales, $1,000. credit to accounts receivable, $980. credit to sales, $1,000. debit to accounts receivable, $980. debit to accounts receivable, $1,000. credit to sales, $980.
- debit to accounts receivable, $980. - credit to sales, $980.
Which of the following will cause differences between the bank statement balance and the accounting balance for cash?
- errors - timing differences
Depending on the nature of the restriction and the classification of the related debt, compensating balances may be disclosed in the financial statements as
- noncurrent assets. - current assets. - cash and cash equivalents
Financing receivables can be done by______ &______.
- sale of receivables - secured borrowing
The reconciliation process for cash receipts requires that the amount received from customers should agree with ________ & __________.
- the bank-generated deposit slip - the accounting records.
The IFRS Expected Credit Loss model bases expected credit losses on most receivables that could occur when?
Only within the next twelve months.
When the direct write-off method is used, an entry for bad debt expense is required
when the account receivable is determined to be uncollectible
Which of the following are adjustments to the bank balance in a bank reconciliation?
- Adjustments for bank errors - Add deposits outstanding - Deduct checks outstanding
How does the CECL model differ from current GAAP? (Select all that apply.)
- Bad debt estimates will be based on predictions about the future. - The "probable" threshold for identifying impaired receivables is removed.
Which of the following responsibilities are separated in a good internal control system for cash disbursements?
- Check writing and check signing. - Cash disbursement documentation and the accounting recording function.
Which of the following are adjustments to the book balance in a bank reconciliation?
- Collections made by the bank on the company's behalf - Bank service charges Company errors
Which of the following are costs of extending credit terms to customers?
- Increase in uncollectible accounts. - Increased investment in receivables.
For internal control purposes, which of the following responsibilities should be separated for cash disbursements?
- check signing and check writing - check writing and check mailing
Which of the following is a cost of offering a cash discount?
A reduction in the amount of cash collected from customers who take advantage of the discount.
Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What is the journal entry required to correct this error?
No entry is required on the company's books. Reason: This error was made by the bank. Therefore, no entry is required on the company's books. The bank must correct its error.