Chapter 8 Self-Test (ACCT220)

The accounts receivables turnover is computed by dividing net sales by accounts receivable. A. True B. False

B. False

Which one of the following is not one of the principles of managing accounts receivable? A. Determining from which vendor credit should be requested B. Establishing a payment period C. Monitoring collections D. Accelerating cash receipts from receivables when necessary

A. Determining from which vendor credit should be requested

At what amount is a short-term notes receivable recorded on the issue date? A. Face value B. Fair market value C. Present value D. Maturity value

A. Face value

On the date a 90-day note is honored, how much cash will the payee receive? A. Face value plus 90 days of interest B. Maturity value plus 90 days of interest C. Face value D. Maturity value less the face value

A. Face value plus 90 days of interest

Which of the following accounts is debited when a company factors its accounts receivable? A. Service Charge Expense B. Interest Expense C. Loss on Sale of Accounts Receivable D. Accounts Receivable

A. Service Charge Expense

A captive finance company is one that is owned by the company selling the product. A. True B. False

A. True

Short-term notes receivable are reported at their cash (net) realizable value. A. True B. False

A. True

The direct write-off method violates the expense recognition principle. A. True B. False

A. True

Under the allowance method, the write off of an account receivable leaves the net realizable value of the receivables unchanged. A. True B. False

A. True

Notes receivable are reported in the current assets section of the balance sheet at A. cash (net) realizable value. B. market value. C. total principal plus interest for the term of the loan. D. the selling price at which the inventory was sold to the customers.

A. cash (net) realizable value

Which of the following is the correct sequence to report receivables on the balance sheet? A. A 6-month note receivable, other receivables, accounts receivable B. Accounts receivable, a 6-month note receivable, other receivables C. A 6-month note receivable, accounts receivable, other receivables D. Accounts receivable, other receivables, a 6-month note receivable

B. Accounts receivable, a 6-month note receivable, other receivables

Which statement is true about reporting receivables on the balance sheet? A. Bad Debts Expense and Allowance for Doubtful Accounts are shown as a deduction from Accounts Receivable on the balance sheet. B. Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet. C. Bad Debts Expense is is shown as a deduction from Accounts Receivable on the balance sheet. D. Bad Debts Expense is subtracted from Accounts Receivable and is then shown as a deduction from Accounts Receivable on the balance sheet.

B. Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.

Which of the following is the value at which loans and receivables should be reported under IFRS? A. Cash realizable value B. Amortized cost C. Net of bad debt expense D. Maturity value

B. Amortized cost

Allowance for Doubtful Accounts is closed at the end of the fiscal year. A. True B. False

B. False

Receivables are reported on the balance sheet at the cash amount owed by customers. A. True B. False

B. False

Which of the following should be classified as an "other" receivable? A. Trade receivables B. Interest receivable C. Accounts receivable D. Notes receivable

B. Interest receivable

Which one of the following is not one of the five basic issues in accounting for notes receivable? A. Recognizing notes receivable B. Realizing notes receivable C. Valuing notes receivable D. Disposing of notes receivable

B. Realizing notes receivable

Factoring is the process of A. determining the percentage of accounts receivable expected to be collected. B. selling accounts receivable at a discount to another party. C. determining the average collection period. D. determining the allowance for doubtful accounts value.

B. Selling accounts receivable at a discount to another party

When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain? A. Two debits and one credit B. Two credits and one debit C. One debit and one credit D. None of the answer choices are correct

B. Two credits and one debit

When is a receivable recorded by a service organization? A. When the customer pays B. When service is provided on account C. When the related expenses are incurred D. When the bill is sent to the customer

B. When service is provided on account

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? A. Bad Debts Expense account is debited. B. Accounts Receivable account is debited. C. Allowance for Doubtful Accounts is debited. D. Loss on Accounts Receivable account is debited.

C. Allowance for Doubtful Accounts is debited.

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest? A. An account receivable B. A trade receivable C. A note receivable D. Past-due accounts receivables

C. A Note receivable

Which one of these statements about promissory notes is incorrect? A. The party making the promise to pay is called the maker. B. The party to whom payment is to be made is called the payee. C. A promissory note is not a negotiable instrument. D. A promissory note is more liquid than an account receivable.

C. A promissory note is not a negotiable instrument.

When an uncollectible account is recovered after it has been written off, which of the following accounts will be credited in the process? A. Allowance for Doubtful Accounts and Cash B. Cash and Account Receivable C. Accounts Receivable and Allowance for Doubtful Accounts D. Allowance for Doubtful Accounts and Bad Debts Expense

C. Accounts Receivable and Allowance for Doubtful Accounts

Which one of the following statements is true? A. Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and are closed at the end of the fiscal period. B. Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period. C. Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period. D. Bad Debts Expense is a real account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period.

C. Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period.

At what value are accounts receivable reported on the balance sheet? A. Fair market value B. Present value C. Cash (net) realizable value D. Maturity value

C. Cash (net) realizable value

Which of these statements about Visa credit card sales is incorrect? A. The credit card issuer conducts the credit investigation of the customer. B. The retailer is not involved in the collection process. C. The retailer must wait to receive payment from the issuer. D. The retailer receives cash more quickly than it would from individual customers.

C. The retailer must wait to receive payment from the issuer.

What type of receivables result from sales transactions? A. Other receivables B. Non-trade receivables C. Trade receivables D. Long-term receivables

C. Trade receivables

Which of the following is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of a company? A. Concentration risk B. Payment risk C. Credit risk D. A concentration of credit risk

D. A concentration of credit risk

Which of the following is the debit effect of the journal entry to record the dishonor of a note receivable? A. Allowance for Doubtful Accounts B. Loss on Notes Receivable C. Bad Debts Expense D. Accounts Receivable

D. Accounts Receivable

What is often the most critical part of managing receivables? A. Establishing a payment period B. Determining which method to use to account for bad debts C. Monitoring the receivables D. Determining who gets credit and who doesn't

D. Determining who gets credit and who doesn't

If a company is concerned about lending money to a risky customer, which one of the following would it not want to do? A. Require the customer to pay cash in advance B. Require the customer to provide a letter of credit or a bank guarantee C. Contact references provided by the customer, such as banks and other suppliers D. Provide the customer a lengthy payment period to increase the chance of paying

D. Provide the customer a lengthy payment period to increase the change of paying

Which one of the following is not a method used by companies to accelerate cash receipts? A. Offering discounts for early payment B. Accepting national credit cards for customer purchases C. Selling receivables to a factor D. Writing off receivables

D. Writing off receivables