acct ch7

Which approach for estimating bad debts uses a percentage of each period's net credit sales?

The income statement approach

When does the actual write-off of a receivable occur?

When it is determined that all or a portion of the receivable will not be collected

Who houses the financed receivables on their balance sheet in a secured borrowing?

Transferor

A trade discount is Multiple choice question. a percentage reduction of the amount due for early payment. an increase in the account receivable. a rebate from the manufacturer. a percentage reduction from list price.

a percentage reduction from list price

When a previously written off account is collected, what happens after the reinstatement?

Collection is recorded with a debit to cash and a credit to accounts receivable

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Accounts Receivable

Warner Corp. sells goods on account for $10,000. The customer pays the invoice in full on April 15, but on April 20, the customer returns $3,000 of the merchandise and receives a refund. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Cash

Inventory expected to be returned is included in what type of account?

Asset

U.S. GAAP IFRS

-Requires more disaggregation and disclosure of receivables. -Recommends but does not require separate disclosure of receivables

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

Which of the following are potential benefits of offering cash discounts to customers? (Select all that apply.)

Increased sales volume Accelerated customer payment Reduction in bad debt

At what amount are accounts receivable recorded? Multiple choice question. The future value of the amount collected. The present value of future cash flows. The amount expected to be collected.

The amount expected to be collected

Which of the following items are not included in cash? Multiple choice question. cash in savings account currency and coins balance in checking accounts accounts receivable from customers

accounts receivable from customers

Which of the following items are classified as receivables? (Select all that apply.) Multiple select question. amounts owed by customers amounts loaned and expected to be repaid tax refund claims amounts paid for expenses amounts due suppliers

amounts owed by customers amounts loaned and expected to be repaid tax refund claims

The balance sheet approach to measuring bad debt expense focuses on

appropriate carrying value of accounts receivable

An allowance for sales return account is classified as a(n)

contra account to inventory

The direct write-off method

could result in a mismatching of expenses and revenue

Paredes uses the gross method to record sales on account. Paredes 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.)

credit to sales, $1,000. debit to accounts receivable, $1,000.

Sully Corporation uses an allowance method for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of credit sales and $100,000 of cash sales during the year, the adjustment for estimated uncollectible accounts will require a

debit to Bad Debt Expense for $2,000

A company's plans to adhere to policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data are referred to as Multiple choice question. general controls. protective controls. security controls. internal controls. corporate regulations.

internal controls

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable

The transfer of a(n) ____ to a financial institution is called discounting.

note receivable

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial

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

Under the allowance method, when is bad debt expense recognized?

when the allowance is created

Which of the following are adjustments to the book balance in a bank reconciliation? (Select all that apply.)

Bank service charges Collections made by the bank on the company's behalf Company errors

An application where the interest rate stays the same over time, but interest revenue increases as the rate is multiplied by a receivable balance that increases is referred to as what?

Effective interest method

Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral?

Secured borrowing

Which of the following is an example of separation of duties in a good system of internal control? Multiple choice question. The individual who receives the inventory does not have access to the accounting records. The individual who hires the employees may not manage the employees. The individual who evaluates the employees may not hire employees. The individual who receives the inventory cannot count the inventory.

The individual who receives the inventory does not have access to the accounting records.

If a company believes its sales returns will be material, an adjusting entry for expected returns should be made to which account?

allowance for sales returns

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.)

credit to sales, $980. debit to accounts receivable, $980.

A financial institution that buys receivables for cash and charges a fee for this service is referred to as a(n)

factor

A trade discount is a reduction from the list price, which is to (Select all that apply.)

give quantity discounts to customers. change prices without publishing a new catalog. disguise real prices from competitors.

The direct write-off method is required for

income tax purposes

Assigning or pledging accounts receivable is used in a

secured borrowing

When adjusting the book balance in a bank reconciliation, which items must be subtracted from the cash account book balance? (Select all that apply.)

service charges charges for NSF checks

When a company has a claim to receive assets in the future, how is this recorded on the balance sheet? Multiple choice question. A transaction A receivable A guarantee A payable

A receivable

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.

When initially recorded, the typical accounts receivable is valued at the Multiple choice question. sales amount less expected warranty expense. amount expected to be received. present value of expected cash flows. future value of cash flows.

amount expected to be received

When actual inventory returns occur in a perpetual inventory system, which of the following happens?

Debit the asset inventory account

Which of the following is an internal control procedure for cash disbursements? Multiple choice question. Disbursements should be made only at the end of each month. Disbursements should be made by check. Disbursements should be made in cash. Disbursements should be made with a cashier's check.

Disbursements should be made by check

The formula for calculating interest multiplies which of the following? (Select all that apply.)

Face amount of the note Fraction of the annual period Annual interest rate

Which of the following are services performed by a factor? (Select all that apply.)

Handle billing and collection of accounts receivable. Buy accounts receivable.

Which of the following are costs of extending credit terms to customers? (Select all that apply.)

Increased investment in receivables. Increase in uncollectible accounts.

How is inventory recorded related to returns? (Select all that apply.)

Inventory expected to be returned is included as an asset on the balance sheet. The inventory account is increased when returns occur to include the returned items.

Which of the following give rise to a note receivable? (Select all that apply.)

Loaning money to stockholders. A formal, written extension of the credit period to trade customers. Loaning money to an affiliated company.

Restricted cash is usually reported in the balance sheet Multiple choice question. immediately below cash. as a contra account to cash. as noncurrent assets. as appropriated retained earnings.

as noncurrent assets.

A company is allowed to account for the transfer of receivables as a sale if what occurs?

The transferor has surrendered control over the assets transferred

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that (Select all that apply.) Multiple select question. all expenditures are authorized. the employee who authorizes the payment should write the check. employees in charge of cash receipts are also in charge of cash disbursements. all disbursements (other than petty cash) are made by check. checks are signed by authorized individuals.

all expenditures are authorized. all disbursements (other than petty cash) are made by check. checks are signed by authorized individuals.

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

The transfer of a note receivable to a financial institution for an amount less than the face amount of the note is referred to as

discounting a note receivable.

Internal control consists of plans to (Select all that apply.) promote operational efficiency. report management errors to the police. report misuse of company assets to investors. encourage adherence to company policies and procedures. minimize errors and theft.

promote operational efficiency. encourage adherence to company policies and procedures. minimize errors and theft.

A critical aspect of a good internal control system is Multiple choice question. employee job security. separation of duties. adequate compensation. camera security.

separation of duties

Accounts receivable are almost always considered current assets because Multiple choice question. their normal collection, only if less than a year, is part of the normal operating cycle. their normal collection, even if longer than a year, is part of the normal operating cycle. they are always due within a maximum of one year. they are always due within a maximum of 60 days.

their normal collection, even if longer than a year, is part of the normal operating cycle.

Accounts receivable are classified as current assets because Multiple choice question. they will be converted to cash within 1 year or the normal operating cycle. they are matched with accounts payable for the period. they are a formal agreement to pay within a specific period of time. they accrue interest at a specified interest rate.

they will be converted to cash within 1 year or the normal operating cycle