Question 1

What is the normal journal entry when writing-off an account as uncollectible under the allowance method?

Accepted Answer

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)  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

Question 2

Which of the following methods of determining bad debt expense does not properly match expense and revenue?

Accepted Answer

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 
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 B

Question 3

What is a possible reason for accounts receivable turnover to increase from one year to the next year?

Accepted Answer

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 
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 B

Question 4

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

Accepted Answer

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 
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

Question 5

Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?

Accepted Answer

A)  A percentage of sales adjusted for the balance in the allowance 
B)  A percentage of sales not 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 
A)  A percentage of sales adjusted for the balance in the allowance 
B)  A percentage of sales not 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

Question 6

Short-term, highly liquid investments may be included with cash on the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 7

Morley Manufacturing has notes receivable that have a fair value of €810,000 and a carrying amount of €620,000. Morley decides on December 31, 2019, to use the fair value option for these recently-acquired receivables. Which of the following statements is correct regarding the election of the fair value option by Morley?

Accepted Answer

A)  Morley can elect to use the fair value option or amortized cost for these notes at each statement of financial position date. 
B)  Morley reports the receivables at fair value, with any unrealized holding gains and losses reported as a separate component of comprehensive income. 
C)  The unrealized holding gain is the difference between the fair value and the carrying amount. 
D)  All of the choices are correct regarding the fair value option. 
A)  Morley can elect to use the fair value option or amortized cost for these notes at each statement of financial position date. 
B)  Morley reports the receivables at fair value, with any unrealized holding gains and losses reported as a separate component of comprehensive income. 
C)  The unrealized holding gain is the difference between the fair value and the carrying amount. 
D)  All of the choices are correct regarding the fair value option.

Question 8

When the stated rate of interest exceeds the effective rate, the present value of the note receivable will be less than its face value.

Accepted Answer

A) True 
 B)False

Question 9

IFRS requires all of the following when classifying receivables except

Accepted Answer

A)  Indicate the receivables classified as current and non-current in the statement of financial position. 
B)  Disclose any receivables pledged as collateral. 
C)  Disclose all significant concentrations of credit risk arising from receivables. 
D)  All of these answer choices are required by IFRS when classifying receivables. 
A)  Indicate the receivables classified as current and non-current in the statement of financial position. 
B)  Disclose any receivables pledged as collateral. 
C)  Disclose all significant concentrations of credit risk arising from receivables. 
D)  All of these answer choices are required by IFRS when classifying receivables.

Question 10

Assuming that the ideal measure of short-term receivables in the statement of financial position is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the statement of financial position misleading because

Accepted Answer

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. 
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.

Question 11

Under IFRS, a company will derecognize its receivables when it elects to use the fair value option for a receivable.

Accepted Answer

A) True 
 B)False

Question 12

In the gross method, sales discounts are reported as a deduction from sales.

Accepted Answer

A) True 
 B)False

Question 13

Under IFRS de-recognition of a receivable is determined by using lack of control as the primary criterion.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following methods of determining annual bad debt expense best achieves the matching concept?

Accepted Answer

A)  Percentage of sales 
B)  Percentage of ending accounts receivable 
C)  Percentage of average accounts receivable 
D)  Direct write-off 
A)  Percentage of sales 
B)  Percentage of ending accounts receivable 
C)  Percentage of average accounts receivable 
D)  Direct write-off

Question 15

Savings accounts are usually classified as cash on the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 16

The percentage-of-sales method results in a more accurate valuation of receivables on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different quantities purchased.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is incorrect when a company chooses the fair value option for its receivables?

Accepted Answer

A)  Receivables are recorded at fair value in the statement of financial position. 
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 recognized but not recorded. 
A)  Receivables are recorded at fair value in the statement of financial position. 
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 recognized but not recorded.

Question 19

How can accounting for bad debts be used for earnings management?

Accepted Answer

A)  Determining which accounts to write-off 
B)  Changing the percentage of sales recorded as bad debt expense 
C)  Using an aging of the accounts receivable balance to determine bad debt expense 
D)  Reversing previous write-offs 
A)  Determining which accounts to write-off 
B)  Changing the percentage of sales recorded as bad debt expense 
C)  Using an aging of the accounts receivable balance to determine bad debt expense 
D)  Reversing previous write-offs

Question 20

Which of the following is an appropriate reconciling item to the balance per bank in a
Bank reconciliation?

Accepted Answer

A)  Bank service charge 
B)  Deposit in transit 
C)  Bank interest 
D)  Chargeback for NSF check 
A)  Bank service charge 
B)  Deposit in transit 
C)  Bank interest 
D)  Chargeback for NSF check

What is the normal journal entry when writing-off an account as uncollectible under the allowance method?

Which of the following methods of determining bad debt expense does not properly match expense and revenue?

What is a possible reason for accounts receivable turnover to increase from one year to the next year?

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?

Short-term, highly liquid investments may be included with cash on the statement of financial position.

When the stated rate of interest exceeds the effective rate, the present value of the note receivable will be less than its face value.

IFRS requires all of the following when classifying receivables except

Assuming that the ideal measure of short-term receivables in the statement of financial position is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the statement of financial position misleading because

Under IFRS, a company will derecognize its receivables when it elects to use the fair value option for a receivable.

In the gross method, sales discounts are reported as a deduction from sales.

Under IFRS de-recognition of a receivable is determined by using lack of control as the primary criterion.

Which of the following methods of determining annual bad debt expense best achieves the matching concept?

Savings accounts are usually classified as cash on the statement of financial position.

The percentage-of-sales method results in a more accurate valuation of receivables on the balance sheet.

Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different quantities purchased.

Which of the following statements is incorrect when a company chooses the fair value option for its receivables?

How can accounting for bad debts be used for earnings management?

Which of the following is an appropriate reconciling item to the balance per bank in a Bank reconciliation?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters

Exam 7: Cash and Receivables

What is the normal journal entry when writing-off an account as uncollectible under the allowance method?

Which of the following methods of determining bad debt expense does not properly match expense and revenue?

What is a possible reason for accounts receivable turnover to increase from one year to the next year?

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?

Short-term, highly liquid investments may be included with cash on the statement of financial position.

When the stated rate of interest exceeds the effective rate, the present value of the note receivable will be less than its face value.

IFRS requires all of the following when classifying receivables except

Assuming that the ideal measure of short-term receivables in the statement of financial position is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the statement of financial position misleading because

Under IFRS, a company will derecognize its receivables when it elects to use the fair value option for a receivable.

In the gross method, sales discounts are reported as a deduction from sales.

Under IFRS de-recognition of a receivable is determined by using lack of control as the primary criterion.

Which of the following methods of determining annual bad debt expense best achieves the matching concept?

Savings accounts are usually classified as cash on the statement of financial position.

The percentage-of-sales method results in a more accurate valuation of receivables on the balance sheet.

Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different quantities purchased.

Which of the following statements is incorrect when a company chooses the fair value option for its receivables?

How can accounting for bad debts be used for earnings management?

Which of the following is an appropriate reconciling item to the balance per bank in a Bank reconciliation?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters