Question 1

The two acceptable approaches to estimating bad debt expense are ________.

Accepted Answer

A)  the net method and the gross method 
B)  the aging method and the allowance method 
C)  the gross method and the aging method 
D)  the direct write-off method and the allowance method 
A)  the net method and the gross method 
B)  the aging method and the allowance method 
C)  the gross method and the aging method 
D)  the direct write-off method and the allowance method

Question 2

What is a bank overdraft?

Accepted Answer

A)  reclassification of a cash amount that is restricted from use in the current operating cycle 
B)  negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance 
C)  short-term liquid investment with original maturity of three months or less 
D)  minimum cash balance required to be maintained by a credit agreement 
A)  reclassification of a cash amount that is restricted from use in the current operating cycle 
B)  negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance 
C)  short-term liquid investment with original maturity of three months or less 
D)  minimum cash balance required to be maintained by a credit agreement

Question 3

To be recognized as a sale under IFRS, companies must give up effective control of factored receivables.

Accepted Answer

A) True 
 B)False

Question 4

A trade discount reduces the list price for customers purchasing a large quantity of merchandise.

Accepted Answer

A) True 
 B)False

Question 5

Under U.S. GAAP, bank overdraft should generally be reported as ________.

Accepted Answer

A)  a decrease in the balance of Cash and Cash Equivalents 
B)  a decrease in other current assets 
C)  an increase in operating expenses 
D)  an increase in current liabilities 
A)  a decrease in the balance of Cash and Cash Equivalents 
B)  a decrease in other current assets 
C)  an increase in operating expenses 
D)  an increase in current liabilities

Question 6

The two acceptable approaches to recording sales discounts are ________.

Accepted Answer

A)  the net method and the aging method 
B)  the allowance method and the aging method 
C)  the net method and the gross method 
D)  the allowance method and the gross method 
A)  the net method and the aging method 
B)  the allowance method and the aging method 
C)  the net method and the gross method 
D)  the allowance method and the gross method

Question 7

Electroid borrowed $70,000 cash from TechCo by signing a promissory note. TechCo's entry to record the transaction should include a ________.

Accepted Answer

A)  debit to Accounts Receivable for $70,000 
B)  credit to Accounts Receivable for $70,000 
C)  debit to Note Receivable for $70,000 
D)  credit to Note Receivable for $70,000 
A)  debit to Accounts Receivable for $70,000 
B)  credit to Accounts Receivable for $70,000 
C)  debit to Note Receivable for $70,000 
D)  credit to Note Receivable for $70,000

Question 8

The Sales Discounts Forfeited account is classified as a contra-revenue account.

Accepted Answer

A) True 
 B)False

Question 9

The Note Receivable account is always debited for the face value of a note.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true when accounts receivable are factored without recourse?

Accepted Answer

A)  The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. 
B)  The financing cost (interest expense) should be recognized ratably over the collection period of the receivables. 
C)  The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. 
D)  The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. 
A)  The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. 
B)  The financing cost (interest expense) should be recognized ratably over the collection period of the receivables. 
C)  The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. 
D)  The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction.

Question 11

What is a compensating balance?

Accepted Answer

A)  short-term investments with original maturities that are less than one year 
B)  negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance 
C)  short-term liquid investment with original maturity of three months or less 
D)  minimum cash balance required to be maintained by a credit agreement 
A)  short-term investments with original maturities that are less than one year 
B)  negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance 
C)  short-term liquid investment with original maturity of three months or less 
D)  minimum cash balance required to be maintained by a credit agreement

Question 12

Which ratio indicates the effectiveness of a company's credit extension policy?

Accepted Answer

A)  inventory turnover 
B)  accounts payable turnover 
C)  days sales outstanding 
D)  days inventory on hand 
A)  inventory turnover 
B)  accounts payable turnover 
C)  days sales outstanding 
D)  days inventory on hand

Question 13

Prior to adjustments, Willett Company's account balances at December 31, 2018, for Accounts Receivable and the related Allowance for Uncollectible Accounts were $2,700,000 and $120,000, respectively. An aging of accounts receivable indicated that $207,000 of the December 31, 2018, receivables may be uncollectible. The net realizable value of accounts receivable at December 31, 2018, was ________.

Accepted Answer

A)  $2,700,000 
B)  $2,580,000 
C)  $2,493,000 
D)  $2,373,000 
A)  $2,700,000 
B)  $2,580,000 
C)  $2,493,000 
D)  $2,373,000

Question 14

Companies that use the aging-of-receivables method must disclose the percentage of uncollectible amounts for each age category.

Accepted Answer

A) True 
 B)False

Question 15

What is a cash equivalent?

Accepted Answer

A)  reclassification of a cash amount that is restricted from use in the current operating cycle 
B)  negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance 
C)  short-term liquid investment with original maturity of three months or less 
D)  minimum cash balance required to be maintained by a credit agreement 
A)  reclassification of a cash amount that is restricted from use in the current operating cycle 
B)  negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance 
C)  short-term liquid investment with original maturity of three months or less 
D)  minimum cash balance required to be maintained by a credit agreement

Question 16

In which of the following situations are a company's receivables held as collateral for a financing situation?

Accepted Answer

A)  collateralization 
B)  securitization 
C)  factoring 
D)  pledging 
A)  collateralization 
B)  securitization 
C)  factoring 
D)  pledging

Question 17

Bordelain Company has cash in bank of $20,000, restricted cash in a separate account of $6,000, and a bank overdraft in an account at another bank of $5,000. Bordelain should report cash of ________.

Accepted Answer

A)  $15,000 
B)  $20,000 
C)  $21,000 
D)  $26,000 
A)  $15,000 
B)  $20,000 
C)  $21,000 
D)  $26,000

Question 18

If a company employs the net method of recording accounts receivable from customers, then sales discounts forfeited should be reported as ________.

Accepted Answer

A)  sales discounts forfeited on the balance sheet an item of "other revenue and expense" on the income statement 
B)  an item of "other revenue and expense" on the income statement 
C)  an increase to sales revenue on the income statement 
D)  a deduction from sales revenue on the income statement 
A)  sales discounts forfeited on the balance sheet an item of "other revenue and expense" on the income statement 
B)  an item of "other revenue and expense" on the income statement 
C)  an increase to sales revenue on the income statement 
D)  a deduction from sales revenue on the income statement

Question 19

When the stated rate is equal to the market rate, the present value of future cash flows from a note is equal to the face value of the note.

Accepted Answer

A) True 
 B)False

Question 20

Factored receivables have been sold to another company.

Accepted Answer

A) True 
 B)False

Exam 9: Short-Term Operating Assets: Cash and Receivables

The two acceptable approaches to estimating bad debt expense are ________.

What is a bank overdraft?

To be recognized as a sale under IFRS, companies must give up effective control of factored receivables.

A trade discount reduces the list price for customers purchasing a large quantity of merchandise.

Under U.S. GAAP, bank overdraft should generally be reported as ________.

The two acceptable approaches to recording sales discounts are ________.

Electroid borrowed $70,000 cash from TechCo by signing a promissory note. TechCo's entry to record the transaction should include a ________.

The Sales Discounts Forfeited account is classified as a contra-revenue account.

The Note Receivable account is always debited for the face value of a note.

Which of the following is true when accounts receivable are factored without recourse?

What is a compensating balance?

Which ratio indicates the effectiveness of a company's credit extension policy?

Companies that use the aging-of-receivables method must disclose the percentage of uncollectible amounts for each age category.

What is a cash equivalent?

In which of the following situations are a company's receivables held as collateral for a financing situation?

Bordelain Company has cash in bank of $20,000, restricted cash in a separate account of $6,000, and a bank overdraft in an account at another bank of $5,000. Bordelain should report cash of ________.

If a company employs the net method of recording accounts receivable from customers, then sales discounts forfeited should be reported as ________.

When the stated rate is equal to the market rate, the present value of future cash flows from a note is equal to the face value of the note.

Factored receivables have been sold to another company.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters