Accounting - Chapter 9 T/F

Good examples of clearly determinable liabilities include sales taxes payable and federal excise taxes payable.

True

If a company has credit terms of 2/20, n/60, you might expect their average collection time for accounts receivable to be under 60 days.

True

If the country is in a recession, one might expect collection times for accounts receivable to increase.

True

In commercial transactions, interest is commonly calculated on the basis of 360 days per year.

True

To record nonbank credit card sales, a debit to Credit Card Expense records the service fee charged on the sale by the credit card company.

True

When a company collects federal excise taxes from customers, a liability account is credited.

True

When a note is dishonored, the payee should debit Accounts Receivable for the maturity value of the note.

True

When a note is payable on demand, the maturity date cannot be calculated.

True

When a previously written-off account is collected, two entries are generally made, one to reverse to original entry to write-off the account receivable, and the other to record the receipt of cash.

True

When credit cards are accepted by a retailer, the retailer generally receives less than the full amount of the sale from the credit agency.

True

When making the adjusting entry for uncollectible accounts, an allowance must be used because it is not known which accounts will become uncollectible.

True

When product warranty expenses are estimated, an expense is debited and a liability is credited.

True

When properly adjusted, the Allowance for Uncollectible Accounts will always reduce accounts receivable to a lower net realizable value.

True

When sales taxes are recorded in the Sales account, they must be separated from sales revenue at the end of the accounting period.

True

When using the percentage of sales method of estimating uncollectible accounts, any existing balance in the Allowance for Uncollectible Accounts account is ignored as long as the account has a credit balance after adjustment.

True

Writing off a specific account receivable does not immediately affect the expense account under the allowance method.

True

Because the Allowance for Uncollectible Accounts has a credit balance, it should be reported in the balance sheet among liabilities.

False

Current liabilities are normally paid with noncurrent assets.

False

Current liabilities are obligations that are payable within one year or one operating cycle, whichever is shorter.

False

For estimated liabilities, the existence of the liability can only be estimated, but its amount is certain.

False

If Sam Jones gives Dorothea Smith a note for some merchandise he purchased from her, Sam is called the payee of the note.

False

An account receivable does not involve a formal debt instrument, while a note receivable does involve a formal debt instrument.

True

At the time when goods are sold on account, revenue is both earned and realized.

True

Both a company's credit terms and collection policies affect accounts receivable turnover.

True

Contingent liabilities often result from lawsuits.

True

Credit card companies absorb the loss from uncollectible accounts.

True

Current portions of long-term debt will be listed in the current liabilities section of the balance sheet.

True

Discount on Notes Payable is a contra account to Notes Payable and is eventually converted into interest expense.

True

For clearly determinable liabilities, both the existence of the liability and its amount are certain.

True

For contingent liabilities, the existence of the liability is uncertain, and usually its amount is uncertain.

True

Generally, the faster that companies collect accounts receivable, the better.

True

In counting the days of interest on a note, the day the money is borrowed is omitted, but the day it is paid back is counted.

True

In estimating uncollectible accounts for a period, the percentage of sales method is the simplest method.

True

Interest accrues on an interest-bearing note on a daily basis, although it is usually only recorded at the note's maturity date or on a balance sheet date.

True

Liabilities result from the past, but are obligations to perform in the future.

True

Loans to officers of the business should be shown separately from accounts receivable (trade receivables) in the balance sheet.

True

A 60-day note dated March 15, 2012, matures on May 15, 2012.

False

A company with a high accounts receivable turnover ties up a larger proportion of its funds in accounts receivable than a company with a low turnover.

False

A company with an aggressive collection policy tends to have a lower accounts receivable turnover than one that has a lenient policy.

False

A company with credit terms of 2/10, n/30 would expect to have a lower accounts receivable turnover than a company with terms of n/60.

False

Any current portion of a long-term debt should remain in the long-term liability section of the balance sheet until paid.

False

Any obligation that cannot be precisely measured in dollars should not be shown as a liability on the balance sheet.

False

At the end of an accounting period, a company that has a noninterest-bearing note payable outstanding will need to make an adjusting entry debiting Interest Expense and crediting Interest Payable.

False

A receivable is any sum of money due to be received from any party resulting from an expected future transaction.

False

A service company selling for cash will have a longer operating cycle (cash cycle) than a manufacturing company selling for cash.

False

An aging schedule is used to apply one constant percentage for all age categories of receivables in estimating uncollectible accounts.

False

Any accounts receivable that carry credit balances should be netted out from the debit-balanced accounts receivable before preparing a balance sheet.

False

If no adjusting entries have been made relative to a 60-day note that becomes dishonored, the payee of the note will make a journal entry to debit Accounts Receivable (or Dishonored Notes Receivable) and credit Notes Receivable for the face value of the note.

False

If the customer fails to pay the credit card agency, the company that sold the merchandise suffers the loss.

False

Liabilities can be satisfied with only cash.

False

Long-term liabilities will be paid out of current assets.

False

Most contingent liabilities are recorded in the accounts at the best estimate of their amounts.

False

Selling goods only for cash will usually result in more revenues and fewer uncollectible accounts than selling goods on account.

False

The creation of an account receivable in a sale of merchandise causes revenue to be earned but not realized.

False

The interest on an $8,000 note at 9 percent for 60 days is $80.

False

The longer accounts receivable remain outstanding, the more likely they are to be collected.

False

The maturity value of a $4,000, 12%, 60-day note (using a 360-day year) is $4,480.

False

The operating cycle (or cash cycle) for most companies is the same length as their fiscal year.

False

Under the allowance method, recoveries of accounts previously written off are credited to Uncollectible Accounts Recovered.

False

Usually only the net amount of accounts receivable is shown on the balance sheet.

False

When a company collects sales taxes from customers, the amount of taxes collected represents a revenue.

False

When a company estimates uncollectible accounts by the use of the percentage of accounts receivable method and an actual uncollectible is determined to exist, the write-off of the account requires a debit to Uncollectible Accounts Expense and a credit to Accounts Receivable.

False

When a note is dishonored, the payee will make an accounting entry that includes a debit to Notes Receivable.

False

When repairs are made under warranty (and an adjusting entry has been made previously for estimated warranty expenses), an expense is debited.

False

When using the percentage of accounts receivable method of estimating uncollectible accounts, any existing balance in the Allowance for Uncollectible Accounts is ignored.

False

A company must usually estimate the amount of the product warranty expensive.

True

A noninterest-bearing note payable that is discounted at a bank carries no specified interest rate but will still have interest associated with it.

True

A note generally carries a specified interest rate, whereas an open account generally bears no interest.

True

A one-month note dated May 31, 2012, matures on June 20, 2012.

True

A payable is any amount of money due to be paid to any party generally resulting from a past transaction.

True

A properly adjusted Allowance for Uncollectible Accounts will always have a credit balance.

True

Accounts receivable turnover is the number of times per year that the average amount of accounts receivable is collected.

True

Accrued interest on a note is recorded by a debit to Interest Expense on the maker's books and a credit to Interest Revenue on the payee's books

True

Allowance for Uncollectible Accounts may have a debit balance before adjustment.

True

Making an adjusting entry for uncollectible accounts at the end of the period results in a more precise matching of uncollectible accounts expense against sales revenue for the period than does waiting until an account receivable actually becomes uncollectible before debiting an expense.

True

Net accounts receivable represents the estimated collectible receivables.

True

Once an account has been identified as being uncollectible, Allowance for Uncollectible Accounts is debited (assume an annual adjusting entry is made for uncollectible accounts).

True

One of the objectives sought through the use of the allowance method of accounting for uncollectible accounts is a proper matching of expenses and revenues.

True

Revenue from sales is generally recorded at the point of sale, whether cash or an account receivable is received in the exchange.

True

The account "Allowance for Uncollectible Accounts" is a contra-asset account.

True

The faster a company collects receivables, the more liquid the receivables are and the higher their quality.

True

The interest rate on notes receivable and notes payable is generally stated in annual terms.

True

The net liability at any point in time regarding a discounted note payable is the note's face value less the discount not yet converted to interest expense.

True

The number of days' sales in accounts receivable is equal to 365 days divided by the accounts receivable turnover.

True

The sale of goods to a customer who charged them using a credit card usually leads to the recording of an expense on the seller's books.

True