Deck 6: Cash and Receivables

Question 1

Trade receivables are amounts due from customers and non-trade receivables are amounts due from all other parties.

Answer 1

True

Question 2

Trade receivables are a sub classification of accounts receivable.

Answer 2

False

Question 3

The gross price method highlights sales discounts taken and the net price method highlights sales discounts NOT taken.

Answer 3

True

Question 4

The estimated value of sales returns should reduce gross sales in the period items are sold, not in the later period items are returned.

Question 5

The net price method of recording sales and receivables generally requires less record keeping and is more cost effective

Question 6

Because a larger number of investors are involved in factoring than in securitization, companies can factor much larger amounts of receivables.

Question 7

Cash equivalents include coin and currency, negotiable instruments, and certificates of deposit

Question 8

A sinking fund established for the purpose of paying off long term bonds would be recorded on the balance sheet as a cash equivalent.

Question 9

In a transfer without recourse the transferor retains the risk of ownership and bears any loss from nonpayment.

Question 10

Check 21 is a law that allows merchants to scan digital copies of checks to the bank instead of remitting the actual check.

Question 11

Concerning the various methods for accounting for uncollectible receivables, the percentage of credit sales method is an example of the allowance method.

Question 12

Increased use of automated technology for processing cash transfers decreases the need to rely on internal controls.

Question 13

Sarbanes-Oxley Act requires all U.S. companies to maintain adequate internal control systems.

Question 14

When using the direct write-off method, bad debts are written off directly to the allowance for uncollectible accounts.

Question 15

Under the allowance method, when an account is written off, total assets decrease

Question 16

A compensating balance used to secure a short term loan should be recorded against its short term borrowing in current assets separate from cash.

Question 17

A company may elect to use the fair value option for a single note receivable or for all notes receivable.

Question 18

In general, GAAP requires receivables to be recorded and reported at their present value, but excludes accounts receivables from this rule.

Question 19

The two forms of secured borrowing that companies use to obtain cash from accounts receivables are pledging and assigning.

Question 20

To classify a receivable as a current asset it must be collected within one year or the normal operating cycle of the business, whichever is shorter.

Question 21

Which of the following would not be considered a cash equivalent?

A) savings account fund to be used to retire bonds
B) commercial paper
C) undeposited credit card sales receipts
D) money market fund securities

Question 22

Which of the following is a key element of internal control over cash receipts?

A) Making all payments by check
B) Authorize and sign checks only after approval
C) Reconcile the bank account
D) Immediate counting of cash in the cash register when a new cashier begins working

Question 23

What are the two main functions of cash control systems?

A) Control over cash and control over purchase orders
B) Control over checks and control over invoicing
C) Control over receipts and control over the bank account
D) Control over receipts and control over payments

Question 24

Which of the following would be reported as a liability?

A) demand deposits
B) bank overdrafts
C) certificates of deposit
D) travel advances

Question 25

Which of the following is a key element of internal control over cash payments?

A) periodically reconciling the cash account balance on the company's books to the bank statement balance
B) making daily bank deposits
C) requiring that all petty cash vouchers be approved by two signatures
D) authorizing and verifying that all cash received is recorded daily

Question 26

Which of the following would be included in cash and cash equivalents on the balance sheet?

A) sinking fund
B) bank overdrafts
C) commercial paper
D) compensating balances

Question 27

Which of the following would not be a contractual restriction to the cash available to pay current obligations?

A) Sinking fund
B) Certificate of Deposit
C) Postdated checks
D) Negotiable instruments

Question 28

Compensating balance agreements that do not legally restrict the amount of funds shown on the balance sheet should be reported in the

A) current asset section.
B) long-term investment section.
C) other asset section.
D) notes of the financial statements.

Question 29

Given the following information:

Question 30

Items classified as "cash" on the balance sheet

A) are limited to coins, currency, or bank drafts.
B) must be available to pay current obligations.
C) may be subject to contractual restrictions.
D) do not include negotiable checks or bank drafts.

Question 31

Compensating balance agreements are held against short-term borrowings should

A) only be described in the footnotes to the financial statements.
B) be separately reported in the current assets portion of the balance sheet.
C) be separately classified as noncurrent assets on the balance sheet .
D) not be shown on the balance sheet.

Question 32

In a well-controlled petty cash fund, the amount of cash minus the amount of expenditure vouchers should be equal to the original amount in the petty cash fund.

Question 33

Cash control systems are the methods and procedures used to ensure

A) that current obligations are met.
B) that excess cash does not exist.
C) the safeguarding of cash.
D) that unused cash is invested.

Question 34

Which item is not considered cash and cash equivalents on the balance sheet?

A) unrestricted funds on deposit with the bank
B) money market funds
C) post dated checks
D) bank drafts

Question 35

A bank reconciliation is an analysis of the difference between the financial accounting records and the bank records to ensure the accurate ending cash balance.

Question 36

Which of the following statements concerning compensating balance agreements is not true?

A) They always reduce the amount of cash available to the borrower.
B) They always involve legal restrictions on the cash received.
C) They always increase the effective interest rate to the borrower.
D) They must be disclosed in the financial statements' footnotes.

Question 37

Which of the following would be included in cash and cash equivalents on the balance sheet?

A) Travel advance funds
B) Undeposited credit card sales receipts
C) Postdated checks
D) Certificates of deposit

Question 38

In order to be classified as a cash equivalent, an investment must have a maturity date of

A) twelve months or less,
B) nine months or less,
C) six months or less,
D) three months or less,

Question 39

Which of the following is not considered cash for financial statement reporting?

A) cash, coins, and currency
B) travelers checks
C) sinking fund
D) negotiable instruments

Question 40

For a non-interest-bearing note, the maturity value of the note includes both principal and interest.

Question 41

Current accounts receivables are receivables that are expected to be collected within

A) one year or the current financing cycle, whichever is longer.
B) one year or the current financing cycle, whichever is shorter.
C) one year or the current operating cycle, whichever is longer.
D) one year or the current operating cycle, whichever is shorter.

Question 42

Some companies use automated payment processing technology in which paper checks that may arrive at a lockbox are converted into electronic payments then the check itself is destroyed. This process is referred to as

A) internal control over payments.
B) Check 21.
C) accounts receivable conversion.
D) electronic funds transfer.

Question 43

In accounting for sales transactions, which method isolates sales discounts not taken?

A) allowance method
B) gross price method
C) percentage of price method
D) net price method

Question 44

Puzzle Company sold merchandise on credit with a list price of $75,000. Terms were 3/10, n/30. Which of the following entries correctly applies the indicated method to record the sale?

Question 45

Which is not a key element of internal control over cash receipts?

A) daily recording of all cash receipts in the accounting records
B) daily entry in a voucher register
C) immediate counting by the person opening the mail or using the cash register
D) daily bank deposits

Question 46

Which of the following statements about accounting for discounts is true?

A) The net price method highlights sales discounts not taken and the gross price method highlights sales discounts taken.
B) The net price method highlights sales discounts taken and the gross price method highlights sales discounts not taken.
C) The net price method highlights trade discounts not taken and the gross price method highlights trade discounts taken.
D) The net price method highlights trade discounts taken and the gross price method highlights trade discounts not taken.

Question 47

All of the following are nontrade receivables except

A) declared dividend from an investment.
B) advances to executives and employees.
C) promissory note from a customer.
D) deposit paid to utility companies.

Question 48

When the net price method is used to record credit sales, the sales discounts not taken account is reported as an)

A) addition to sales returns and allowances on the income statement.
B) deduction from gross sales on the income statement.
C) deduction from selling expenses on the income statement.
D) addition to sales revenue on the income statement.

Question 49

Which of the following is an advantage of using the net price method for recording cash discounts on credit sales?

A) It eases communication with customers about their balances.
B) It conservatively reflects current period sales revenue.
C) It simplifies recording of sales returns and allowances.
D) It requires less record keeping than the gross method.

Question 50

February 1, Adams Company sold merchandise on credit with a list price of $8,400. Terms were 3/15, n/45. Which of the following entries correctly applies the indicated method to receive the appropriate customer payment on February 12?

Question 51

A disadvantage of using the gross price method to account for cash discounts extended by the seller to its customer is that

A) the method reports accounts receivable at the net realizable value.
B) the method overstates current sales and accounts receivable.
C) the method requires more bookkeeping than the net price method.
D) the method enables sales returns and allowances to be recorded at gross amounts.

Question 52

Theoretically, the amount of estimated future returns and allowances on credit sales should be recorded during the period of the sale so as not to overstate sales and ending accounts receivable. In practice, these estimates are not recorded by most companies because

A) the amount of such returns and allowances tends to fluctuate too greatly from period to period.
B) there is too much uncertainty surrounding such estimates.
C) such estimates are not allowed according to generally accepted accounting principles.
D) the amount of such returns and allowances is usually not material.

Question 53

Most trade receivables are initially recorded at their

A) maturity values.
B) discounted values.
C) present values.
D) net realizable values.

Question 54

All of the following are important elements of internal control over cash except

A) a petty cash system.
B) a cash reserve.
C) a bank reconciliation.
D) the daily deposit of all receipts.

Question 55

Which of the following would not be reported on the financial statements?

A) sales discount taken
B) trade receivables
C) trade discounts
D) sales discounts not taken

Question 56

On August 1, Party Hearty Company sold merchandise on credit with a list price of $6,300. Terms were 2/10, n/30. Which of the following entries correctly applies the indicated method to receive the appropriate customer payment on August 15?

Question 57

Hole Sailors, Inc. sold merchandise on credit with a list price of $12,000. Terms were 1/20, n/45. Which of the following entries correctly applies the indicated method to record the sale?

Question 58

Which of the following types of discounts are offered to induce prompt payment by customers?

A) Quantity discounts
B) Nontrade discounts
C) Trade discounts
D) Sales discounts

Question 59

Nontrade receivables, such as deposits with utility companies or advances to subsidiary companies, should be

A) recorded in separate accounts and reported as noncurrent assets on the balance sheet.
B) recorded along with trade receivables in one account and included as part of the total receivables balance on the balance sheet.
C) recorded in separate accounts and separately reported on the balance sheet.
D) recorded in separate accounts and reported as an offset to retained earnings on the balance sheet.

Question 60

The sales returns and allowances account is reported as a

A) contra-revenue account on the income statement.
B) current liability on the balance sheet.
C) contra-asset reducing accounts receivable on the balance sheet.
D) selling expense on the income statement.

Question 61

When a company writes off an account receivable using the direct write-off method, the effect of this write-off on the financial statements is to

A) increase the net realizable value of accounts receivable.
B) reduce total expenses.
C) reduce total assets.
D) increase working capital.

Question 62

A disadvantage of basing bad debt expense on the historical relationship between actual bad debts and the outstanding accounts receivable balance at the end of the year is that

A) it may not recognize the cause and effect relationship between expenses and revenues.
B) it may not result in a reasonable estimate of the net realizable value of receivables.
C) it is not a generally accepted accounting procedure.
D) it is an income statement approach.

Question 63

Wholesale Stuff, Inc. sells to retailers on account. Sales for the year totaled $9,900,000. The company uses the aging method for determining bad debt expense. The aging report and related information includes: The unadjusted balance in the allowance account at year end is $1,700 credit. What is the estimated net realizable value of receivables at year end?

A) $1,098,300
B) $1,067,600
C) $1,065,900
D) $1,064,200

Question 64

Wholesale Stuff, Inc. sells to retailers on account. Sales for the year totaled $9,900,000. The company uses the aging method for determining bad debt expense. The aging report and related information includes: The unadjusted balance in the allowance account at year end is $1,700 credit. What is the amount of bad debt expense for the year?

A) $30,690
B) $32,400
C) $34,100
D) $35,800

Question 65

During 2016, Blueberry, Inc. recovered and collected $4,200 from an account that had been written off for over a year. At the end 2016, prior to the adjusting entry for bad debt expense, Blueberry, Inc.'s balances for Accounts Receivable and Allowances for Doubtful Accounts were $750,000 debit) and $5,500 credit), respectively. After the bad debt expense entry was posted, the net realizable value of accounts receivable was $675,000. Bad debt expense for the 2016 was

A) $69,500
B) $73,200
C) $79,200
D) $80,500

Question 66

Under the allowance method of recording bad debts, which of the following entries, if any, would be made to write off actual uncollectible accounts of $5,500?

Question 67

Which of the following methods is not an appropriate method for estimating bad debt expense for companies whose uncollectible accounts are material?

A) percentage of net credit sales
B) percentage of outstanding accounts receivable
C) aging of accounts receivable
D) direct write-off method

Question 68

Based on the following information: If bad debts are estimated to be 3% of net credit sales, the adjusting entry to recognize uncollectible accounts will include a debit to expense for

A) $76,020
B) $75,270
C) $76,050
D) $75,300

Question 69

Splitter Corporation had total sales in the current year of $750,000 and credit sales of $650,000. The Accounts Receivable balance was $450,000 on the balance sheet date and the Allowance for Doubtful Accounts had a credit balance of $10,000 before adjusting entries. Bad debt expense is estimated as 2% of credit sales. The adjusting entry to record estimated bad debt expense would include a

A) $13,000 debit to Bad Debt Expense.
B) $13,000 debit to Allowance for Doubtful Accounts.
C) $13,000 debit to Bad Debt Expense
D) $13,000 credit to Allowance for Doubtful Accounts.

Question 70

During 2016, a company wrote off $7,500 in uncollectible accounts receivable. At the end of the year, bad debt expense was estimated using a percent of gross sales. In 2017, the company collected $1,500 from an account that was written off in 2016. Recording this collection would include

A) a debit to Retained Earnings.
B) a credit to Allowance for Doubtful Accounts.
C) a decrease to gross receivables.
D) an increase to net receivables.

Question 71

Based on the following information: If expected bad debts are estimated to be 1 1/2% of ending accounts receivable, the adjusting entry to recognize bad debts will include a debit to Bad Debt Expense for

A) $170
B) $190
C) $210
D) $250

Question 72

When aging of accounts receivable is used, each age group is multiplied by its own estimated uncollectible percentage to determine each age group's estimated uncollectible amount. The sum of the amounts thus determined is the

A) amount of bad debt expense for the year.
B) required ending balance for the allowance for doubtful accounts.
C) increase to the existing credit balance in the allowance for doubtful accounts.
D) amount that should be written off as uncollectible for the year.

Question 73

An advantage of basing bad debt expense on the historical relationship between bad debts and net credit sales is that

A) it provides the best estimate of the net realizable value of accounts receivable.
B) it provides the best information to the credit department to use in its collection activities.
C) it best adheres to principle of cause and effect recognition.
D) it considers the balance in the allowance account when making the bad debt expense estimate.

Question 74

Pineapple's Fruit Smoothies began the year with a $4,200 credit balance in its Allowances for Doubtful Accounts. During the year, it accrued $21,500 of bad debt expense and wrote off accounts totaling $28,000. At year-end, a percentage of the outstanding accounts receivable indicated that a $4,800 allowance should be provided for on that date. The year-end adjustment for bad debt expense should be

A) $7,100
B) $4,800
C) $3,000
D) $2,300

Question 75

When accounting for uncollectible accounts,

A) if the percentage of sales method is in use, any existing balance in the Allowance for Doubtful Accounts is the amount used in the adjusting entry.
B) in current accounting practice, the most frequently used method of recognizing bad debts is the direct write- off method.
C) writing off a specific receivable does not reduce the current ratio if the percentage of ending accounts receivable method is in use.
D) an aging analysis results in reporting accounts receivable at their historical cost on the balance sheet.

Question 76

Which of the following is not a disadvantage of using the direct write-off method for recording uncollectible accounts?

A) Increases the cost of record keeping
B) violates the expense recognition principle
C) allows manipulation of earnings
D) overstates the net realizable value of receivables

Question 77

When an uncollectible account is written off under the allowance method, the effect of the write-off is to

A) decrease net income.
B) increase working capital.
C) increase the accounts receivable net realizable value.
D) leave total assets unchanged.

Question 78

Bad debt expense is normally reported on the income statement as an)

A) operating expense.
B) element of cost of goods sold.
C) financial expense in the other items section.
D) contra-revenue amount.

Question 79

Trainor Company estimates bad debt expense using a percentage of credit sales 5%). The company began its current year with an $8,500 balance in the allowance account. During the current year, $10,500 of accounts receivable were written off, and $1,200 of previously written off accounts were collected. Credit sales for the year were $255,000. The bad debt expense for the year was

A) $12,750
B) $11,550
C) $10,500
D) $8,500

Question 80

For any given company, the amount of bad debt expense may be based on the historical relationships between actual bad debts incurred and