Accounting exam# 3

Cash discounts are a type of scenario in which has a variable consideration component meaning the amount to the receive is unknown until it happens. As such, there are two way a company can report a cash discount prior to the payment occurring:

Gross method and net method

Which of the following are services performed by a factor? (Select all that apply.) Multiple select question. Sell accounts receivable for a fee. Handle billing and collection of accounts receivable. Perform credit checks for accounts payable. Buy accounts receivable.

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

Which of the following is a cost of offering a cash discount? Multiple choice question. A reduction in the amount of cash collected from customers who take advantage of the discount. Accelerated payment from customers who take advantage of the discount. Potential increased sales volume.

A reduction in the amount of cash collected from customers who take advantage of the discount.

Which of the following is a cost of offering a cash discount? Multiple choice question. Accelerated payment from customers who take advantage of the discount. Potential increased sales volume. A reduction in the amount of cash collected from customers who take advantage of the discount.

A reduction in the amount of cash collected from customers who take advantage of the discount.

allowance for uncollectible accounts

Contra-asset(cookie jar) Estimated amounts there to be collected.

Which of the following are costs of extending credit terms to customers? (Select all that apply.) Multiple select question. Increased sales volume. Increased investment in receivables. Accelerated customer payment. Increase in uncollectible accounts.

Increased investment in receivables. Increase in uncollectible accounts.

Accounts receivables are mforma credit arrangements between the seller and the buyer. Accounts receivable typically come with payment terms which are stated on the invoice, Accounts receivables are normally classified as current assets.

Informal

allowance method

The allowance method requires company to book the bad debt in the period that cause the bad debt, which is the insurance of term to a customer ( account receivable). We use a contra-asset as a cookie jar to accumulate why we expect we will not be paid in the future. Think of it as a saving account of sorts.

At what amount are accounts receivable initially recorded? Multiple choice question. The future value of the amount expected to be collected. The exchange price agreed on by the buyer and seller. The present value of expected future cash flows.

The exchange price agreed on by the buyer and seller.

Gross method

The gross method assume that the customer will not take advantage of the cash discount. As such, we report everything like we normally would and if a customer pays with a discount period, We will address the discount then. If the customer does not pay within the discount period ,We do not need to do anything special.

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 receives the inventory cannot count the inventory. The individual who evaluates the employees may not hire employees.

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

Net method

The net method assume the customer will take advantage of cast discount. As such, we report the discount on the onset and if the customer pay within the discount period, we don't do anything special since discounts is already factor in. If the customer pays outside the discount period,We need to book the additional payment then.

Trade discounts-accounts receivable

There are two common discount company can offer to the customer: Trade discount and cash discount(sales)

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

a percentage reduction from list price.

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

accounts receivable from customers

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

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

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.)

allowance

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

as noncurrent assets.

The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as Multiple choice question. bad debt expense. sales allowances. accounts receivable expense. net accounts receivable.

bad debt expense.

Which of the following items are included in cash? (Select all that apply.) balance in checking accounts notes receivable from customers checks from customers currency and coins accounts receivable from customers

balance in checking accounts checks from customers currency and coins

Coins, balances in checking accounts, checks received from customers and money orders received are all included in the_______________ account on the balance sheet. (Enter only one word.)

cash

The most critical element in determining if a company can account for the transfer of receivables as a sale is the surrender of _____________.

control

A trade discount is a reduction from the list price, which is to (Select all that apply.) Multiple select question. encourage customers to pay quickly. disguise real prices from competitors. change prices without publishing a new catalog. reduce the sale price for interest received. give quantity discounts to customers.

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

A financial institution that buys receivables for cash and charges a fee for this service is referred to as a(n) Multiple choice question. assignor transferor factor

factor

In a(n)___________ arrangement, the company sells its accounts receivable to a financial institution and the financial institution handles the billing and collections. (Enter only one word.)

factoring

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

false , b/c it gross method and net method

Accounts receivable are normally classified Multiple choice question. in the balance sheet as noncurrent assets. in the income statement as other income. in the income statement as revenue. in the balance sheet as current assets.

in the balance sheet as current assets.

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

interest on a note.

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. protective controls. corporate regulations. security controls. internal controls. general controls.

internal controls.

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.

noninterest

The transfer of a(n) ____ to a financial institution is called discounting. Multiple choice question. note receivable account receivable trade receivable

note receivable

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. Multiple choice question. account receivable. note receivable. account payable. note payable.

note receivable.

A/R Aging Approach The A/R Aging Approach is a balance sheet approach that uses the ending accounts receivable balance and estimates bad debt based on that balance rather than an income statement account (net credit sales). The A/R aging approach also categorize the A/R balance by length of time outstanding and assigns bad debt loss percentage to each category of length.

percentage category Steps to Estimating Bad Debt A/R Aging Approach Step 1: Set-up an A/R Aging Listing based categories (typically by days outstanding) Step 2: Apply a bad debt loss percentage to each category of A/R Step 3: Using the information in Step 1 and 2, calculate the estimated allowance for uncollectible account ending balance. Step 4: Compare the actual balance in the allowance for uncollectible account with the amount you just calculated. The difference is the bad debt expense.

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)___________ ___________.

sales return

Assigning or pledging accounts receivable is used in a Multiple choice question. loan impairment. contra liability. secured borrowing. note receivable.

secured borrowing.

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.

A(n) ______________discount is a way to change prices without publishing a new catalog. (Enter only one word.)

trade

Under the allowance method, when is bad debt expense recognized? Multiple choice question. when the account is written off when the allowance is created when the customer owing money goes out of business

when the allowance is created

The formula for calculating interest multiplies which of the following? (Select all that apply.) Future value of the note Daily interest rate Fraction of the annual period Face amount of the note Annual interest rate

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

A component of cash is cash equivalents. At the end of the day, cash equivalents are investments that must have an maturity date of _________ months or less.

3

trade discount

A mechanism used in wholesale transaction in which a percentage discount is given to a purchaser based on the list price of the product. Trade discount are usually expressed as a percentage discount of the list price

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 guarantee A receivable A payable

A receivable

Example Trade Discounts Assume Company A extends their customer, Zee on account. The $12,000 is the list price of all products Saw, a trade discount of 15% off Company A's list price. Zee Saw makes a purchase of $12,000 worth of goods purchased. What the journal entry for Company A for the sale to Zee Saw (disregard the Cost of Goods Sold Entry)?

A/R 10200 Sale revenue 10200

The end result

Bad debt expense and allowance for uncollectible account

Intro to Cash and Cash Equivalents From a corporate financial statement prospective, cash includes:

Currency Coins Balance in checking Account Any items a bank would accept for deposit Checks Money order

Method for credit losses there are two methods for tackling do you say valuation of account receivable issue:

Direct write-off method( not GAAP, but tax) , Allowance method

Why Trade Discount

Easy ways to reduce price to a different segment of customer, offer a way to give quantity discount to large purchasers, disguise real price from competitors

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? Multiple choice question. Future value method Noninterest bearing method Effective interest method Present value method

Effective interest method

Valuation of account receivable accounts receivable are value add the amount the seller is _______________to ______________. We do not value accounts receivable acid present value because the time is so short

Expected to receive

Bad Debt Expense

Expense been made for potential better in the future

Which of the following give rise to a note receivable? (Select all that apply.) Multiple select question. Extension of credit to customers in normal operations with no written agreement. Loaning money to stockholders. Borrowing money from an affiliated company. Loaning money to an affiliated company. A formal, written extension of the credit period to trade customers.

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

Specifically , cash equivalents include:

Moneymarket Fund Treasury Treasury Bills Commercial Paper

Accounts receivables occur from the sale of goods or services to their customers __________.

On account

subsequent valuation of accounts receivable

Receivable are recognized for the amount of seller is entired to receive for satisfying a performance obligation. In addition, we must report the accounting receivable at the amount we we expect to receive. As such, we must consider bad debt in our valuation of account receivable.

Accounts Receivable

Receivables are a company's claim to future collection of cash, other assets, or services. Accounts Receivable (trade receivable),Non -Trade Receivables, Notes Receivable, Due to sales of goods or services on account, Other than trade receivables, Formal Promissory Note

Which of the following are potential benefits of offering cash discounts to customers? (Select all that apply.) Multiple select question. Reduction in bad debt Accelerated customer payment Increased investment in receivables Increased sales volume

Reduction in bad debt Accelerated customer payment Increased sales volume

New accounts to sales revenues in order to book an allowance for sale refund, we need to introduce three new account to you:

Refund liability, inventory-estimated returns, Sales return

When customer return good for a refund, there are generate to entry that need to be made:

Refund of the sale and return of the inventory

Cash (sales discounts)-accounts receivable

Represent reduction in the amount to be received by the company from a customer that made payment within a pacific time period of time. this method is used To entice your customer to pay before the term end. Accelerate their payment.

Restricted Cash

Restricted cash is NOT reported on the cash line because Cash and Cash Equivalents represents cash available to use in the company's current operations. Restricted cash is typically not available for company's current operations.

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? Multiple choice question. Factoring receivables Securitization Sale of receivables Secured borrowing

Secured borrowing

Sales returns

Seller should we do sales revenue by the amount return to them from their customer. The revenue recognition principal tell us that we should recognize when all of the performance obligations are complete. if a customer returned something, that means that means the performance obligations has not been complete. as such, we must book an expected return in the period in which causes the return, which is the sale of goods not when the return occur. We should also book the return of inventory in the period of the sale (allowance)

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

Transferor

Match the accounting standard with the appropriate treatment of receivables. U.S. GAAP IFRS Requires more disaggregation and disclosure of receivables. Recommends but does not require separate disclosure of receivables.

U.S. GAAP-Requires more disaggregation and disclosure of receivables. IFRS-Recommends but does not require separate disclosure of receivables.