accounting 3300 test 3

Which of the following is true?

Rents occur at the beginning of each period of an annuity due.

What is interest?

Payment for the use of money

Which of the following items should not be included in the Cash caption on the balance sheet?

Postage stamps on hand

Which of the following is not considered cash for financial reporting purposes?

Postdated checks and IOUs

Which of the following situations does not base an accounting measure on present values?

Prepaid insurance

Emma purchased a house for $300,000. After providing a 20% down payment, she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month. Which time value concept would be used to determine the monthly payment?

Present value of an ordinary annuity

In the time diagram below, which of the following concepts is depicted?

Present value of an ordinary annuity

Because there is no accumulation or investment on which interest accrues, the future value of a deferred annuity is the same as the future value of an annuity that is not deferred.

True

Companies record and report long-term notes receivable at the present value of the cash they expect to collect.

True

Companies use data analytics to look at both historical write-offs and forward-looking data to estimate the total allowance for existing receivables.

True

Companies value and report short-term receivables at the net amount expected to be collected.

True

Compound interest uses the accumulated balance at each year-end to compute interest in the succeeding year.

True

Compound interest, rather than simple interest, must be used to properly evaluate long-term investment proposals.

True

In the gross method, sales discounts are reported as a deduction from sales.

True

Interest is the excess cash received or repaid over and above the amount lent or borrowed.

True

Present value is the value now of a future sum or sums discounted assuming compound interest.

True

Recognition of a recourse liability will make a loss on the sale of receivables larger than it would otherwise have been.

True

Savings accounts are usually classified as cash on the balance sheet.

True

Short-term, highly liquid investments may be included with cash on the balance sheet.

True

The expected cash flow approach uses a range of cash flows and incorporates the probabilities of those cash flows to provide a more relevant present value.

True

The future value of a single sum is determined by multiplying the future value factor by its present value.

True

The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity.

True

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

True

Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different quantities purchased.

True

Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different quantities purchased. True

True

When the stated rate does not equal the market rate at the date of issuance, the entry to record the issuance of the note will include

either a debit to Discount on Notes Receivable or a credit to Premium on Notes Receivable.

When the stated rate of interest exceeds the effective rate, the present value of the notes receivable will be less than its face value.

false

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and

is so near its maturity that there is an insignificant risk of changes in interest rates.

The present value of an annuity due table of 1 is used when equal payments are made at the end of each period.

False

The rents that comprise an annuity due earn no interest during the period in which they are originally deposited.

False

The time value of money refers to the fact that a dollar received today is worth less than a dollar received in the future.

False

Trade receivables include notes receivable and advances to officers and employees.

False

When buying receivables with recourse, the purchaser assumes the risk of collectability and absorbs any credit loss.

False

]Simple interest is computed on principal and on any interest earned that has not been withdrawn.

False

Which table would you use to determine what amount was deposited three years ago to provide $1,000 today?

Future value of 1 or present value of 1

To determine the amount at which a zero-interest bearing note should be recorded, all of the following must be known except

the fair value of the note.

The interest rate included in the promissory note contract is the

the nominal rate.

The present value of a note is determined by adding

the present value of the face amount and the present value of the annuity of interest receipts.

Present value is not

the sum of a series of payments.

An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at

2% for 32 periods.

The amount of consideration that a company expects to receive from a customer in exchange for transferring goods or services is

All of these answers are correct.

Which of the following items should be included as part of accounts receivable reported on the balance sheet?

Allowance for doubtful accounts

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year?

Annually

What is not a variable that is considered in interest computations?

Assets

Bank overdrafts are always offset against the cash account in the balance sheet.

False

Cash equivalents are investments with original maturities of six months or less.

False

Certificates of deposit are usually classified as cash on the balance sheet.

False

Simple interest is computed on principal and on any interest earned that has not been withdrawn.

False

The accounts receivable turnover is computed by dividing net sales by the ending net receivables.

False

The future value of an ordinary annuity table of 1 is used when equal payments are invested at the beginning of each period.

False

The percentage-of-receivables approach of estimating uncollectible accounts emphasizes matching over valuation of accounts receivable.

False

The percentage-of-receivables approach requires companies to set up an aging schedule of accounts receivable.

False

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

Improved matching of bad debt expense with revenue

What is imputed interest?

Interest based on the implicit interest rate

What is a compensating balance?

Minimum deposits required to be maintained in connection with a borrowing arrangement

Which of the following is not considered a cash or cash equivalent?

Money market checking accounts

Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct?

Net approach

Which of the following is true when accounts receivable are factored without recourse?

The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables.

What best describes the time value of money?

The relationship between time and money

What is the primary difference between an ordinary annuity and an annuity due?

The timing of the periodic payment

Post-dated checks which have been received are classified as

receivables.

All of the following are types of variable consideration except

allowance for doubtful accounts.

A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an

annuity due

When a customer purchases inventory from a business organization, they may be given a discount which is designed to induce prompt payment. Such a discount is called a(n)

cash discount.

All of the following are problems associated with valuing accounts receivable except

cash discounts under the net method.

Deposits held as compensating balances

if separately restricted and held against long-term credit may be included as noncurrent assets.

The accounts receivable turnover is computed by dividing

net sales by average net receivables.

Bank overdrafts, if material, should be

netted against cash and a net cash amount reported.

The accounts receivable turnover measures the

number of times the average balance of accounts receivable is collected during the period.

Postage stamps are classified as

office supplies.