Cash
AG Inc. made a $25,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue? a. $24,500. b. $24,750. c. $25,000. d. $25,250.
B
All of the following may be included under the heading of "cash" except a. currency. b. money market funds. c. checking account balance. d. savings account balance.
B
T or F: Companies record and report long-term notes receivable at the present value of the cash they expect to collect.
T
T or F: Companies value and report short-term receivables at net realizable valuethe net amount they expect to receive in cash.
T
Trade discounts are a. recorded as other revenues and gains. b. used to induce prompt payment. c. presented in terms such as 2/10, n/30. d. used to avoid frequent changes in catalogs
D
Travel advances should be reported as a. supplies. b. cash because they represent the equivalent of money. c. investments. d. receivables
D
T or F: The FASB believes that historical cost for financial instruments provides more relevant and understandable information than fair value.
F
T or F: The accounts receivable turnover is computed by dividing net sales by the ending net receivables.
F
T or F: The percentage-of-receivables approach is used for impairment measurement and reporting.
F
T or F: The percentage-of-receivables approach of estimating uncollectible accounts emphasizes matching over valuation of accounts receivable.
F
T or F: The percentage-of-receivables approach requires companies to set up an aging schedule of accounts receivable.
F
T or F: Trade receivables include notes receivable and advances to officers and employees.
F
T or F: When buying receivables with recourse, the purchaser assumes the risk of collectibility and absorbs any credit loss.
F
T or F: When the stated rate of interest exceeds the effective rate, the present value of the note receivable will be less than its face value.
F
T or F: For a loan receivable, impairment loss is calculated as the difference between the investment in the loan and the expected future cash flows discounted at the loan's historical effective interest rate.
T
T or F: For receivables sold with recourse, the seller guarantees payment to the purchaser if the debtor fails to pay.
T
T or F: In the gross method, sales discounts are reported as a deduction from sales.
T
T or F: Recognition of a recourse liability will make a loss on sale of receivables larger than it would otherwise have been.
T
T or F: Savings accounts are usually classified as cash on the balance sheet.
T
T or F: Short-term, highly liquid investments may be included with cash on the balance sheet.
T
T or F: The net amount reported for short-term receivables is not affected when a specific account receivable is determined to be uncollectible.
T
T or F: Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different quantities purchased.
T
T or F: Companies include postdated checks and petty cash funds as cash.
F
T or F: GAAP permits the reversal of impairment losses recorded on receivables.
F
T or F: Cash equivalents are investments with original maturities of six months or less.
F
T or F: Certificates of deposit are usually classified as cash on the balance sheet.
F
AG Inc. made a $25,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,500. b. Debit Accounts Receivable for $24,500 and Sales Discounts for $500. c. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $500.
A
How is days to collect accounts receivable determined? a. 365 days divided by accounts receivable turnover. b. Net sales divided by 365. c. Net sales divided by average net trade receivables. d. Accounts receivable turnover divided by 365 days.
A
If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as a. a deduction from sales in the income statement. b. an item of "other expense" in the income statement. c. a deduction from accounts receivable in determining the net realizable value of accounts receivable. d. sales discounts forfeited in the cost of goods sold section of the income statement.
A
In which account are post-dated checks received classified? a. Receivables. b. Prepaid expenses. c. Cash. d. Payables.
A
Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct? a. Net approach. b. Gross approach. c. Allowance approach. d. Contra revenue approach
A
Of the following conditions, which is the only one that is not required if the transfer of receivables with recourse is to be accounted for as a sale? a. The transferor is obligated to make a genuine effort to identify those receiv¬ables that are uncollectible. b. The transferor surrenders control of the future economic benefits of the receivables. c. The transferee cannot require the transferor to repurchase the receivables. d. The transferor's obligation under the recourse provisions can be reasonably estimated.
A
On July 22, Peter sold $23,500 of inventory items on credit with the terms 2/15, net 30. Payment on $15,000 sales was received on August 1 and the remaining payment was received on August 12. Assuming Peter uses the gross method of accounting for sales discounts, which one of the following entries was made on August 1 to record the cash received? a. Cash 14,700 Sales Discount 300 Accounts Receivable 15,000 b. Cash 15,000 Accounts Receivable 15,000 c. Cash 14,700 Accounts Receivable 14,700 d. Accounts Receivable 300 Sales Discount Forfeited 300
A
The accounts receivable turnover measures the a. number of times the average balance of accounts receivable is collected during the period. b. percentage of accounts receivable turned over to a collection agency during the period. c. percentage of accounts receivable arising during certain seasons. d. number of times the average balance of inventory is sold during the period.
A
The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach a. gives a reasonably correct statement of receivables in the balance sheet. b. best relates bad debt expense to the period of sale. c. is the only generally accepted method for valuing accounts receivable. d. makes estimates of uncollectible accounts unnecessary.
A
What is "recourse" as it relates to selling receivables? a. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay. b. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay c. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale. d. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.
A
What is the normal journal entry when writing-off an account as uncollectible under the allowance method? a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts. d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
A
When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will: a. offset the overdraft against cash account. b. report the same in the notes to financial statement. c. report the bank overdraft amount as account payable. d. classify the bank overdraft as compensating balance.
A
Which of the following concepts relates to using the allowance method in accounting for accounts receivable? a. Bad debt expense is an estimate that is based on historical and prospective information. b. Bad debt expense is based on the actual amounts determined to be uncollectible. c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging. d. Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.
A
Which of the following methods of determining annual bad debt expense best achieves the matching concept? a. Percentage of sales b. Percentage of ending accounts receivable c. Percentage of average accounts receivable d. Direct write-off
A
At the close of its first year of operations, December 31, 2017, Ming Company had accounts receivable of $1,620,000, after deducting the related allowance for doubtful accounts. During 2017, the company had charges to bad debt expense of $270,000 and wrote off, as uncollectible, accounts receivable of $120,000. What should the company report on its balance sheet at December 31, 2017, as accounts receivable before the allowance for doubtful accounts? a. $2,010,000 b. $1,770,000 c. $1,470,000 d. $1,320,000
B
Consider the following: Cash in Bank - checking account of $18,500, Cash on hand of $500, Post-dated checks received totaling $3,500, and Certificates of deposit totaling $124,000. How much should be reported as cash in the balance sheet? a. $ 18,500. b. $ 19,000. c. $ 22,500. d. $136,500.
B
David Company uses the gross method to record sales made on credit. On June 10, 2017, it sold goods worth $250,000 with terms 2/10, n/30 to Charles Inc. On June 19, 2017, David received payment for 1/2 of the amount due from Charles Inc. David's fiscal year end is on June 30, 2017. What amount will be reported in the financial statements for the accounts receivable due from Charles Inc.? a. $122,500. b. $125,000. c. $250,000. d. $245,000.
B
How can accounting for bad debts be used for earnings management? a. Determining which accounts to write-off. b. Changing the percentage of receivables recorded as bad debt expense. c. Using an aging of the accounts receivable balance to determine bad debt expense. d. Reversing previous write-offs.
B
In which account are postage stamps classified? a. Cash. b. Office supplies. c. Receivables. d. Inventory.
B
Kennison Company has cash in bank of $20,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should report cash of a. $19,000. b. $20,000. c. $22,000. d. $23,000.
B
Lawrence Company has cash in bank of $25,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should report cash of a. $23,000. b. $25,000. c. $28,000. d. $29,000.
B
The journal entries for a bank reconciliation a. are taken from the "balance per bank" section only. b. may include a debit to Office Expense for bank service charges. c. may include a credit to Accounts Receivable for an NSF check. d. may include a debit to Accounts Payable for an NSF check.
B
Under which section of the balance sheet is "cash restricted for plant expansion" reported? a. Current assets. b. Non-current assets. c. Current liabilities. d. Stockholders' equity.
B
What is imputed interest? a. Interest based on the stated interest rate. b. Interest based on the implicit interest rate. c. Interest based on the average interest rate. d. Interest based on the coupon rate.
B
Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? a. Actual losses from uncollectible accounts b. A percentage of accounts receivable adjusted for the balance in the allowance c. A percentage of accounts receivable not adjusted for the balance in the allowance d. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance
B
Which of the following is an appropriate reconciling item to the balance per bank in a bank reconciliation? a. Bank service charge. b. Deposit in transit. c. Bank interest. d. Chargeback for NSF check.
B
Which of the following is considered cash? a. Certificates of deposit (CDs) b. Money market checking accounts c. Money market savings certificates d. Postdated checks
B
Which of the following statements is correct regarding receivables? a. Receivables are written promises of the purchaser to pay for goods or services. b. Receivables are claims held against customers and others for money, goods, or services. c. Receivables are non-financial assets. d. Receivables that are expected to be collected within a year are classified as noncurrent.
B
Which of the following statements is not true of fair value option? a. Receivables are recorded at fair value in the financial statements. b. Unrealized holding gains and losses from fair value adjustments are reported as a component of comprehensive income. c. The International Accounting Standards Board believes that fair value measurement for financial instruments provides more relevant and understandable information than historical cost. d. An unrealized holding gain or loss is the net change in the fair value of the receivable from one period to another, exclusive of interest revenue.
B
A Cash Over and Short account a. is not generally accepted. b. is debited when the petty cash fund proves out over. c. is debited when the petty cash fund proves out short. d. is a contra account to Cash.
C
AG Inc. made a $25,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,750. b. Debit Accounts Receivable for $24,750 and Sales Discounts for $250. c. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $250.
C
All of the following are problems associated with the valuation of accounts receivable except a. uncollectible accounts. b. returns. c. cash discounts under the net method. d. allowances granted.
C
The category "trade receivables" includes a. advances to officers and employees. b. income tax refunds receivable. c. claims against insurance companies for casualties sustained. d. amounts owed by customers for goods bought or services rendered
D
Antique Company has notes receivable that have a fair value of $920,000 and a carrying amount of $710,000. Antique decides on December 31, 2017, to use the fair value option for these recently-acquired receivables. The adjusting entry to record this change will include a: a. debit to Unrealized Holding Gain or LossIncome for $210,000. b. credit to Notes Receivable for $210,000. c. credit to Unrealized Holding Gain or LossIncome for $210,000. d. debit to Notes Receivable for $920,000.
C
Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because a. most short-term receivables are not interest-bearing. b. the allowance for uncollectible accounts includes a discount element. c. the amount of the discount is not material. d. most receivables can be sold to a bank or factor.
C
If a company purchases merchandise on terms of 2/10, n/30, the cash discount available (assuming a 360-day year) is equivalent to an effective annual interest rate of a. 2% b. 24% c. 36% d. 60%
C
Jenny Manufactures sold toys listed at $360 per unit to Jack Inc. for $306, a trade discount of 15 percent. Jack Inc. in turn sells the toys in the market at $335. Jenny should record the receivable and related sales revenue (per unit) at: a. $360. b. $335. c. $306. d. $285.
C
Kaniper Company has the following items at year-end: Cash in bank $35,000 Petty cash 300 Short-term paper with maturity of 2 months 5,500 Postdated checks 1,400 Kaniper should report cash and cash equivalents of a. $35,000. b. $35,300. c. $40,800. d. $42,200.
C
On April 2, Kelvin sold $40,000 of inventory items on credit with the terms 1/10, net 30. Payment on $24,000 sales was received on April 8 and the remaining payment on $16,000 sales was received on April 27. Assuming Kelvin uses the net method of accounting for sales discounts, the entry recorded on April 27 would include a: a. debit to Cash and credit to Accounts Receivable for $15,840. b. debit to Accounts Receivable and credit to Sales Revenue for $40,000. c. debit to Accounts Receivable and credit to Sales Discounts Forfeited for $160. d. debit to Cash and credit to Sales Discounts Forfeited for $400.
C
Steinert Company has the following items at year-end: Cash in bank $45,000 Petty cash 500 Short-term paper with maturity of 2 months 8,200 Postdated checks 2,100 Steinert should report cash and cash equivalents of a. $45,000. b. $45,500. c. $53,700. d. $55,800.
C
The accounting for cash discounts and trade discounts are a. the same. b. always recorded net. c. not the same. d. tied to the timing of cash collections on the account.
C
Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $6,000 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense? a. $19,400. b. $31,400. c. $25,400. d. $25,280.
C
Wellington Corp. has outstanding accounts receivable totaling $6 million as of December 31 and sales on credit during the year of $30 million. There is also a debit balance of $24,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense? a. $2,400,000. b. $ 456,000. c. $ 480,000. d. $ 504,000.
C
What is the normal journal entry for recording bad debt expense under the allowance method? a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts. d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
C
What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet? a. As offsets to capital. b. By means of footnotes only. c. As assets but separately from other receivables. d. As trade notes and accounts receivable if they otherwise qualify as current assets.
C
When preparing a bank reconciliation, bank credits are a. added to the bank statement balance. b. deducted from the bank statement balance. c. added to the balance per books. d. deducted from the balance per books.
C
Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. d. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.
C
Which of the following items should be included in accounts receivable reported on the balance sheet? a. Notes receivable. b. Interest receivable. c. Allowance for doubtful accounts. d. Advances to related parties and officers.
C
Which of the following statements is incorrect regarding the classification of accounts and notes receivable? a. Segregation of the different types of receivables is required if they are material. b. Disclose any loss contingencies that exist on the receivables. c. Any discount or premium resulting from the determination of present value in notes receivable transactions is an asset or liability respectively. d. Valuation accounts should be ap¬propriately offset against the proper receivable accounts.
C
Which of the following statements is true? a. An imprest petty cash system is more impractical than disbursement by check b. If cash improves out short the company credits the shortage to Cash Over and Short c. The company closes Cash Over and Short only at the end of the year. d. The Petty Cash account is debited when the fund is replenished
C
Why would a company sell receivables to another company? a. To improve the quality of its credit granting process. b. To limit its legal liability. c. To accelerate access to amounts collected. d. To comply with customer agreements.
C
A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and a. is acceptable as a means to pay current liabilities. b. has a current market value that is greater than its original cost c. bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation. d. is so near its maturity that it presents insignificant risk of changes in interest rates.
D
At the beginning of 2016, Gannon Company received a three-year zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8% at that time. Gannon reported this note as a $1,000 trade note receivable on its 2016 year-end statement of financial position and $1,000 as sales revenue for 2016. What effect did this accounting for the note have on Gannon's net earnings for 2016, 2017, 2018, and its retained earnings at the end of 2018, respectively? a. Overstate, overstate, understate, zero b. Overstate, understate, understate, understate c. Overstate, overstate, overstate, overstate d. Overstate, understate, understate, zero
D
Bank overdrafts, if material, should be a. reported as a deduction from the current asset section. b. reported as a deduction from cash. c. netted against cash and a net cash amount reported. d. reported as a current liability.
D
Becky had net sales (all on account) in 2017 of $8,000,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were: accounts receivable $1,000,000 debit, and allowance for doubtful accounts $2,000 debit. Becky estimates that 3% of its accounts receivable will prove to be uncollectible. What is the net realizable value of the receivables reported on the financial statements at December 31, 2017? a. $32,000 b. $972,000 c. $968,000 d. $970,000
D
Deposits held as compensating balances a. usually do not earn interest. b. if legally restricted and held against short-term credit may be included as cash. c. if legally restricted and held against long-term credit may be included among current assets. d. if separately restricted and held against long-term credit may be included as noncurrent assets
D
On January 1, 2017, Lynn Company borrows $3,000,000 from National Bank at 11% annual interest. In addition, Lynn is required to keep a compensatory balance of $300,000 on deposit at National Bank which will earn interest at 5%. The effective interest that Lynn pays on its $3,000,000 loan is a. 10.0%. b. 11.0%. c. 11.5%. d. 11.6%.
D
The accounts receivable turnover is computed by dividing a. gross sales by ending net receivables. b. gross sales by average net receivables. c. net sales by ending net receivables. d. net sales by average net receivables.
D
T or F: Bank overdrafts are always offset against the cash account in the balance sheet.
F
Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? a. $ 402,000. b. $ 390,000. c. $1,440,000. d. $ 378,000.
D
What is a compensating balance? a. Savings account balances. b. Margin accounts held with brokers. c. Temporary investments serving as collateral for outstanding loans. d. Minimum deposits required to be maintained in connection with a borrowing arrangement.
D
What is a possible reason for accounts receivable turnover to increase from one year to the next year? a. Decreased credit sales during a recession. b. Write-off uncollectible receivables. c. Granting credit to customers with lower credit quality. d. Improved collection process.
D
When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n) a. trade discount. b. nominal discount. c. enhancement discount. d. cash discount.
D
When should a transfer of receivables be recorded as a sale? a. The buyer surrenders control of the receivables to the seller b. The transferor does not maintain effective control over the transferred assets through an agreement to repurchase or redeem them prior to their maturity. c. The transferee cannot pledge or exchange the transferred assets. d. The transferred assets are isolated from the transferor
D
Which of the following is a general rule of classifying receivables? a. Disclose gain contingencies that exist on the receivables. b. Aggregate the various types of receivables that a company possessed. c. Aggregate current and noncurrent receivables d. Disclose any receivables designated or pledged as collateral.
D
Which of the following is included in the normal journal entry to record the collection of accounts receivable previously written off when using the allowance method? a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts. d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
D
Which of the following is not considered cash for financial reporting purposes? a. Petty cash funds and change funds b. Money orders, certified checks, and personal checks c. Coin, currency, and available funds d. Postdated checks and I. O. U.'s
D
Which of the following items should not be included in the Cash caption on the balance sheet? a. Coins and currency in the cash register b. Checks from other parties presently in the cash register c. Amounts on deposit in checking account at the bank d. Postage stamps on hand
D
Which of the following methods of determining bad debt expense does not properly match expense and revenue? a. Charging bad debts with a percentage of sales under the allowance method. b. Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method. c. Charging bad debts with an amount derived from aging accounts receivable under the allowance method. d. Charging bad debts as accounts are written off as uncollectible.
D
Which of the following should be recorded in Accounts Receivable? a. Receivables from officers b. Receivables from subsidiaries c. Dividends receivable d. Oral promises from customers to pay for good or services sold
D
Why do companies provide trade discounts? a. To avoid frequent changes in catalogs. b. To induce prompt payment. c. To easily alter prices for different customers. d. To avoid frequent changes in catalogs and to easily alter prices for different customers.
D
Why is the allowance method preferred over the direct write-off method of accounting for bad debts? a. Allowance method is used for tax purposes. b. Estimates are used. c. Determining worthless accounts under direct write-off method is difficult to do. d. Improved matching of bad debt expense with revenue.
D
Companies must measure the loss on impairment at an undiscounted amount, not at a present-value amount, when it records the loss.
F
T or F: All claims held against customers and others for money, goods, or services are reported as current assets.
F
