Orion Ch 8: Reporting and Analyzing Receivables

Q 8.32: Short-term _____ _____ use the same estimations and computations as accounts receivable to determine cash realizable value.

notes receivable

Q 8.7: What is the Bad Debts Expense considered? A : an internal control weakness B : an avoidable cost in doing business on a credit basis C : avoidable unless there is a recession D : a necessary risk of doing business on a credit basis

D : a necessary risk of doing business on a credit basis

Q 8.36: When calculating interest on a promissory note with the maturity date stated in terms of days, the payer receives _____ interest if 360 days are used instead of 365. a) more b) less

a) more

An annual rate of interest would be _____ way in which to state the interest rate for a three-month loan. a) the normal b) an unusual

a) the normal

Q 8.22: The average collection period for receivables is computed by dividing 365 days by which of the following? A : accounts receivable turnover B : average accounts receivable C : net credit sales D : ending accounts receivable

A accounts receivable turnover

Q 8.2: ________ are also called trade receivables. A : Accounts receivable B : Other receivables C : Income taxes refundable D : Advances to employees

A : Accounts receivable

Q 8.12: Which of the following statements about a note receivable is true? A : It can be transferred to another party by endorsement. B : It eliminates the need for a bad debts allowance. C : It takes the place of checks in a business firm. D : It can only be collected by a bank.

A : It can be transferred to another party by endorsement.

Q 8.3: ________ are three accounting issues associated with accounts receivable. A : Recognizing, valuing, and disposing B : Depreciating, returns, and valuing C : Depreciating, valuing, and collecting D : Accrual, bad debts, and disposing

A : Recognizing, valuing, and disposing

Q 8.11: Maynard Mills received a 60-day, 5% note for $10,000 on April 5th. Which of the following statements is true? A : The principal of the note plus interest is due on June 4th. B : Maynard Mills should record a total receivable due of $10,500 on April 5th. C : The maturity value of this note is $10,000. D : Maynard Mills will receive $10,000 plus interest of $500 at maturity.

A : The principal of the note plus interest is due on June 4th.

Q 8.34: A promissory note may be used to settle accounts receivable. A : True B : False

A : True

Q 8.13: What happens when a note receivable is dishonored? A : accounts Receivable is debited if eventual collection is expected B : bad debts expense is recorded C : interest revenue is never recorded D : the maturity value of the note is written off

A : accounts Receivable is debited if eventual collection is expected

Q 8.17: How is the average collection period computed? A : by dividing 365 days by the accounts receivable turnover ratio B : by dividing net credit sales by ending gross accounts receivable C : by dividing the accounts receivable turnover ratio by 365 days D : by dividing net credit sales by average gross accounts receivable

A : by dividing 365 days by the accounts receivable turnover ratio

Q 8.19: The retailer ________ when customers use national credit cards to make purchases. A : is not involved in the collection process B : is responsible for maintaining customer accounts C : absorbs any losses from uncollectible accounts D : receives cash equal to the full price of the merchandise sold from the credit card company

A : is not involved in the collection process

Q 8.10: What are the two key parties to a promissory note? A : maker and the payee B : debtor and the payee C : sender and the receiver D : maker and a bank

A : maker and the payee

Q 8.14: When a note receivable is honored, Cash is debited for the note's A : maturity value. B : fair value. C : market value. D : face value.

A : maturity value.

Q 8.18: The use of credit cards offers advantages to the retailer. Which of the following is NOT an advantage of credit cards to the retailer? A : the retailer receives more cash from the credit card issuer B : the issuer does the credit investigation of customers C : the issuer undertakes the collection process D : all of the choices are correct

A : the retailer receives more cash from the credit card issuer

Q 8.35: A note receivable can be transferred ________ by endorsement. A : to another party B : into Bad Debts Expense C : within the bookkeeping department D : to Accounts Payable

A : to another party

Q 8.4: The net amount expected to be received in cash from receivables is termed the _____ _____ value. A) Cash realizable B) Cash Equivalent

A) Cash realizable

Q 8.30: What is represented by the following formula? Face Value of Note × Annual Interest Rate × Time in Terms of One Year = Interest A : the basic formula for a year's worth of interest on a note. B : the basic formula for computing interest on an interest-bearing note. C : a way of finding the lowest interest on a note. D : a way of determining if an interest-bearing note will prove worthwhile for the payee.

B the basic formula for computing interest on an interest-bearing note.

Q 8.15: A debit to ________ is entered to record the dishonor of a note receivable assuming the payee expects eventual collection. A : Allowance for Doubtful Accounts B : Accounts Receivable C : Note Receivable D : Cash

B : Accounts Receivable

Q 8.24: Two methods of accounting for uncollectible accounts are the direct write-off method and the accrual method. A : True B : False

B : False

Q 8.25: When the allowance method is used, current assets increase when an entry recognizes bad debts. A : True B : False

B : False

Q 8.20: When a factor buys accounts receivable, the charge for the factor's commission is recorded as A : Commission Expense. B : Service Charge Expense. C : Bad Debts Expense. D : Loss on Sale of Receivables.

B : Service Charge Expense.

Q 8.21: All of the following are principles of managing accounts receivable EXCEPT A : monitoring collections. B : determining from which vendor credit should be requested. C : establishing a payment period. D : accelerating cash receipts from receivables when necessary.

B : determining from which vendor credit should be requested.

Q 8.33: A(n) ________ may be used to settle accounts receivable. A : NSF stamp B : promissory note C : bill of attainder D : collection notice

B : promissory note

Q 8.5: When would a credit card holder receive lower interest charges? A : when the card company states interest as a monthly percentage rather than an annual percentage B : when the card company allows a grace period before interest is accrued C : when the card company calculates finance charges from the date of purchase to the date the amount is paid D : when the card company allows cardholders to skip payments on their cards

B : when the card company allows a grace period before interest is accrued

Q 8.16: Which of the following statements concerning receivables are true? Select all that apply. A : Notes receivable are often listed last under receivables. B : The contingent liability from selling notes receivable should be disclosed. C : Both the gross amount of receivables and the allowance for doubtful accounts should be reported. D : Interest revenue and gain on sale of notes receivable are shown under other revenues and gains.

B : The contingent liability from selling notes receivable should be disclosed. C : Both the gross amount of receivables and the allowance for doubtful accounts should be reported. D : Interest revenue and gain on sale of notes receivable are shown under other revenues and gains.

Q 8.31: If a company receives a 60-day, 5% note for $5,000 on September 5, which of the following statement is true? A : The maturity value of the note is $5,000. B : The company should receive $5,000 plus interest of $250 at maturity. C : The company should receive the principal of the note plus interest in early November. D : The company should record a total receivable due of $5,000 on September 5.

C : The company should receive the principal of the note plus interest in early November.

Q 8.23: Another name for trade receivables, which result from sales transactions, is A : advances to employees. B : refundable income taxes. C : accounts receivable. D : other receivables.

C : accounts receivable.

Q 8.9: The entry to recognize the bad debt expense ________ when the allowance method is used. A : has no effect on current assets B : has no effect on net income C : decreases current assets D : increases net income

C : decreases current assets

Q 8.6: Writing off an uncollectible account affects ________ under the allowance method. A : all financial statements B : only income statement accounts C : only balance sheet accounts D : both balance sheet and income statement accounts

C : only balance sheet accounts

Q 8.38: When the due date of a note is stated in months, what is the time factor in computing interest? A : the number of months divided by 30 days B : the number of months divided by 360 days C : the number of months divided by 12 D : the number of months divided by 0.12

C : the number of months divided by 12

Q 8.28: A written promise of amounts to be received as the result of a sales transaction, a note or account receivable is often called a A : non-trade receivable. B : merchandise receivable. C : trade receivable. D : sales receivable.

C : trade receivable.

Q 8.1: What are notes or accounts receivables that result from sales transactions often called? A : sales receivables B : merchandise receivables C : non-trade receivables D : trade receivables

D : trade receivables

Q 8.39: In a promissory note, the party who will be paid is called the ______ .

I got this question wrong, and I didn't get the answer. Sorry! =(

Q 8.29: When a company receives an interest-bearing note receivable, it will ______ Notes Receivable for the face value of the note. a) debit b) credit

a) debit

Q 8.37: Being transferrable to another party by endorsement _____ one of the characteristics of a note receivable. a) is b) is not

a) is

Q 8.8: The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts _____ relevant when using the percentage of receivables basis. a) is b) is not

a) is

Q 8.26: Writing off an uncollectible account affects the balance sheet account and ______ affect the income statement accounts under the allowance method. a) does b) does not

b) does not

The _____ amount expected to be collected from receivables is the cash realizable value. a) gross b) net

b) net