Intermediate Accounting-Chapter 7

Which method of estimating bad debts is required by GAAP when the amount of bad debt is material?

allowance method

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

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

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

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

Select all that apply Which of the following items are classified as receivables? (Select all that apply.)

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

Select all that apply The two methods used for recording sales discounts are the

-net method. -gross method.

At what amount are accounts receivable recorded?

Amount expected to be collected

True or false: The gross method and the cash method are the two ways to record sales discounts.

False- Reason: The gross method and the net method are the two ways to record sales discounts.

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

True or false: With the effective interest method, interest revenue differs between periods.

True

True or false: Both interest bearing and noninterest bearing notes bear interest.

True- Reason: Noninterest bearing is a misnomer as both types of note bear interest. With a noninterest bearing note, interest is deducted at the outset of the loan.

(Face amount x annual rate x fraction of the annual period) is the formula for

interest on a note.

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

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

When a company has a claim to receive assets in the future, how is this recorded on the balance sheet?

A receivable

What does a sales discount represent?

A reduction in the amount to be paid if paid within a specified period of time.

When the amount of bad debts is material, GAAP requires the _____ method be used to reduce the carrying value of accounts receivable to the amount of cash expected to be received. (Enter only one word.)

Blank 1: allowance

Fill in the blanks to complete the sentence. The gross method and the net method are two ways to record ____ discounts. (Enter only one word.)

Blank 1: cash or sales

The two methods used for recording sales discounts are the ____ method and the ______method. (Enter only one word per blank.)

Blank 1: gross Blank 2: net

In a(n) ____ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

Blank 1: noninterest, non interest, or non-interest

A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a(n) ____ discount. (Enter only one word.)

Blank 1: sales or cash

Fill in the blanks to complete the sentence. A(n) ____ discount is a way to change prices without publishing a new catalog. (Enter only one word.)

Blank 1: trade

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

True or false: An interest-bearing note earns interest, whereas a non interest-bearing note does not earn interest.

False

At what amount are accounts receivable initially recorded?

The exchange price agreed on by the buyer and seller.

Accounts receivable are normally classified

in the balance sheet as current assets.

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

note receivable.

Accounts receivable are classified as current assets because

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