Deck 5: Short-Term Investments Receivables

Question 1

Bigg and Talle Corporation uses the percentage- of- sales method to estimate uncollectibles. Net credit sales for the current year amount to $5,000,000 and management estimates 2% will be uncollectible. Allowance for Doubtful Accounts prior to adjustment has a credit balance of $16,000. After all necessary adjusting entries are made, the balance in Allowance for Uncollectible Accounts will be:

A)$ 16,000.
B)$116,000.
C)$100,000.
D)$ 84,000.

Answer 1

B

Question 2

Allowance for Uncollectible Accounts is classified as:

A)a contra- asset account.
B)a contra- expense account.
C)a contra- revenue account.
D)none of the above.

Answer 2

A

Question 3

The use of the allowance method of accounting for bad debts is preferred over the direct write- off method because of the:

A)historical cost principle.
B)full disclosure principle.
C)matching principle.
D)revenue recognition principle.

Answer 3

C

Question 4

On the maturity date, the payee of a note will debit Cash and credit:

A)Note Receivable and Interest Expense.
B)Note Receivable and Interest Revenue.
C)Note Payable and Interest Expense.
D)Note Payable and Interest Revenue.

Question 5

Chauky's Catering accepted a bank- issued credit card in payment of a $4,000 sales transaction. Chauky's bank charges 3% to process the transaction. The journal entry to record the sales transaction will include a:

A)debit to Cash for $4,000.
B)debit to Financing Expense for $120.
C)credit to Sales Revenue for $3,880.
D)All of these answers are correct.

Question 6

When a note matures, the maker should record:

A)interest payable.
B)unearned revenue.
C)interest expense.
D)interest revenue.

Question 7

If $400,000 at 8% yields interest of $8,000, how long was the note outstanding?

A)25 days
B)90 days
C)60 days
D)50 days

Question 8

On December 31, 2007, installment notes receivable totaled $54,000. Of this amount $40,000 will be collected in 2008. The remainder will be collected in 2009. How should these notes be classified on the balance sheet?

A)Current assets are $40,000 and long- term assets are $14,000.
B)Current assets are $40,000 and long- term assets are $54,000.
C)Current assets are $0 and long- term assets are $54,000.
D)Current assets are $54,000 and long- term assets are $0.

Question 9

Under a lockbox system, customers' payments are initially received by the company's:

A)bank.
B)receiving department.
C)mail room clerk.
D)accounts receivable department.

Question 10

Net accounts receivable is calculated as:

A)accounts receivable less allowance for uncollectible accounts.
B)accounts receivable plus allowance for uncollectible accounts.
C)sales less sales returns and allowances.
D)accounts payable plus allowance for uncollectible accounts.

Question 11

On October 15, 2007, Maxx Duggan Enterprises accepts a $10,000 note receivable from the YNR Company in exchange for cash. The acceptance of the note receivable would be classified on Maxx Duggan's 2007 statement of cash flows as an):

A)financing activity.
B)operating activity.
C)investing activity.
D)Notes receivable acceptances are not reported on a statement of cash flows.

Question 12

If the interest on a note was 12.5% and the principal was $100,000, what was the Maturity Value of the note, if the note is outstanding for 7 months?

A)$7,291.67
B)$107,291.67
C)$112,500.00
D)$1,142.86

Question 13

When a company sells a trading investment, the gain or loss on the sale is reported in the:

A)other revenue, gains, and losses section of the income statement.
B)revenues section of the income statement.
C)other revenue, gains, and losses section of the balance sheet.
D)short- term investments section of the balance sheet.

Question 14

A ledger that contains a separate account for each customer is called an accounts receivable:

A)control ledger.
B)trade ledger.
C)subsidiary ledger.
D)general ledger.

Question 15

The two methods of estimating uncollectible receivables are the:

A)percent of sales method and the aging- of- receivables method.
B)percent of sales method and the direct write- off method.
C)allowance method and the direct write- off method.
D)aging- of- receivables method and direct write- off method.

Question 16

Alex Rhodes' net sales for the current period were $114,000 and average receivables were $96,250. What is the amount of one day's sales rounded)?

A)$264
B)$312
C)$427
D)$557

Question 17

Notes receivable that are paid in installments are classified on the balance sheet.

A)as a current asset if the amount is to be collected in the current period, and the remainder is a long- term asset
B)always as long- term assets
C)always as current assets
D)as current assets if the final payment will be made in the current period

Question 18

The numerator in the calculation of the quick ratio includes which of the following items?

A)Total current assets less inventory only
B)The sum of cash, short- term investments, and net current receivables
C)Total current assets
D)Total current assets less prepaid expenses only

Question 19

Trading securities purchased in 2008 for $85,000 were valued at $80,000 on December 31, 2008. The securities were sold at the beginning of 2009 for $83,000. The 2009 income statement should report an):

A)realized loss of $2,000.
B)realized gain of $3,000.
C)unrealized gain recovered of $3,000.
D)unrealized loss of $5,000 and a realized gain of $3,000.

Question 20

Calside Company signed a 15- month, $50,000, 6% note on June 1, 2008. The amount of interest to be accrued on December 31, 2008, is:

A)$1,141.
B)$1,750.
C)$1,500.
D)$3,000.

Question 21

If the collection period of a company is 31 days, and the average receivables is $70,060, what is the total amount of the credit sales?

A)$824,900
B)$83,126
C)$2,260
D)$2,171,860

Question 22

Using the aging- of- accounts- receivable method to estimate uncollectibles, Avidity Corporation estimates that $3,550 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a credit balance of $800. Uncollectible account expense to be reported on the income statement is:

A)$800.
B)$2,750.
C)$4,350.
D)$3,550.

Question 23

Trading securities purchased for $400,000 were valued at $410,000 at the end of the year. The adjusting entry to record this difference included a credit to:

A)Short- term Investments.
B)Retained Earnings.
C)Unrealized Gain on Investments.
D)No adjusting entry is required.

Question 24

Which account shows the amount of accounts receivable that the business does NOT expect to collect?

A)Sales Returns and Allowances
B)Allowance for Uncollectible Accounts
C)Unearned Accounts Receivable
D)Uncollectible Accounts Expense

Question 25

Using the percentage- of- sales method, you estimate that total uncollectible accounts is $6,000. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $2,000. The amount of the adjusting entry is:

A)$6,000.
B)$4,000.
C)$8,000.
D)$2,000.

Question 26

The net realizable value of accounts receivable is the:

A)amount the company expects to collect from customers.
B)amount the company can collect from a factor when the receivables are sold.
C)amount remaining after uncollectible accounts are written off.
D)amount the company expects to pay to creditors.

Question 27

When using the direct write- off method, the journal entry to write off an uncollectible account includes a credit to:

A)Uncollectible- Account Expense.
B)Accounts Receivable.
C)Allowance for Uncollectible Accounts.
D)No entry is required when using the direct write- off method.

Question 28

The following item appeared on a balance sheet: Receivables, less allowance of $1,150 …..$8,100
Uncollectible accounts expense for the period was $1,250. The balance in Accounts Receivable was:

A)$9,250.
B)$6,950.
C)$8,100.
D)$9,350.

Question 29

Using the percentage- of- sales method, you estimate that total uncollectible accounts is $6,000. The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $2,000. The amount of the adjusting entry is:

A)$6,000.
B)$4,000.
C)$2,000.
D)$8,000.

Question 30

On a statement of cash flows, the receipt of interest on a note is classified as an):

A)operating activity.
B)financing activity.
C)investing activity.
D)Interest receipts are not reported on a statement of cash flows.

Question 31

Under the allowance method, the entry to reinstate an account previously written off:

A)decreases net income and increases total assets.
B)increases total assets.
C)has no effect on net income or total assets.
D)increases net income and increases total assets.

Question 32

Under the direct write- off method, the entry to record the estimated bad debts:

A)debits Allowance for Uncollectible Accounts and credits Accounts Receivable.
B)debits Uncollectible Accounts Expense and credits Allowance for Uncollectible Accounts.
C)debits Accounts Receivable and credits Allowance for Uncollectible Accounts.
D)does not require a journal entry.

Question 33

The following item appeared on the December 31, 2006, balance sheet of The Green Gardener: Receivables, less allowance of $650 …..$9,600
On January 5, 2007, owner Shawn Vickers wrote off a $100 customer account. A balance sheet prepared immediately after the write- off entry would show:

A)Receivables, less allowance of $550 …..$9,600
B)Receivables, less allowance of $750 …..$9,700
C)Receivables, less allowance of $650 …..$9,600
D)Receivables, less allowance of $750 …..$9,600

Question 34

If the Maturity Value of a 210 day note is $63,500 and the interest is $3,500, based on 10%, what is the principal of this note?

A)$ 3,500
B)$ 6,000
C)$60,000
D)$63,500

Question 35

On December 31, 2007, the payee on a $4,500, 120- day, 10% note dated November 1, 2007, will recognize:

A)Interest Receivable, $150.
B)Interest Payable, $150.
C)Interest Receivable, $75.
D)Interest Payable, $75.

Question 36

A maker and a payee record the same note, respectively, as a:

A)Note Receivable and Account Receivable.
B)Note Receivable and Note Payable.
C)Note Payable and Account Payable.
D)Note Payable and Note Receivable.

Question 37

An unrealized loss on a marketable security means that the:

A)historical cost of the security is less its current market value.
B)current market value of the security exceeds its original cost.
C)historical cost of the security exceeds its current market value.
D)value of the security at the time of sale exceeded the historical cost of the security.

Question 38

All trading securities are classified as:

A)current assets.
B)long- term assets.
C)available- for- sale securities.
D)equity securities.

Question 39

When a note matures, the payee should record:

A)interest expense.
B)interest revenue.
C)unearned revenue.
D)interest payable.

Question 40

The maturity value of a $40,000 note at 11% for 5 months is:

A)$47,260.
B)$44,400.
C)$40,880.
D)$41,833.

Question 41

If Extol's Inc. sells items to a customer who uses a credit card for $800, and there is a credit card fee of 2%, what is the amount of the debit to cash?

A)$800
B)$784
C)$768
D)$816

Question 42

Under the allowance method for estimating uncollectible accounts, the entry to write off an account:

A)increases both Accounts Receivable and Allowance for Uncollectible Accounts, thus decreasing net realizable value.
B)decreases Accounts Receivable, thus decreasing net realizable value.
C)increases Allowance for Uncollectible Accounts, thus decreasing net realizable value.
D)has no effect on net realizable value.

Question 43

A company with net sales of 1,642,500, a beginning balance of net receivables of $187,500, and an ending balance of net receivables of $235,500 has a days' sales in receivables of rounded):

A)47 days.
B)52 days.
C)56 days.
D)42 days.

Question 44

On a statement of cash flows, collections of accounts receivables are classified as an):

A)investing activity.
B)operating activity.
C)financing activity.
D)Accounts Receivable collections are not reported on a statement of cash flows.

Question 45

The number of days it takes to collect the average amount of receivables is called the:

A)receivables turnover ratio.
B)days' sales in receivables.
C)collection ratio.
D)current ratio.

Question 46

The collection period of Armie's for 2007 was 30 days; total credit sales were $7,300,000; and average receivables were $600,000. If sales increase to $8,030,000, and the average receivables stays the same, what happens?

A)Average receivables are now $660,000.
B)Collection period is now 27 days.
C)One day's sales = $20,000.
D)Collection period is now 32 days.

Question 47

An aging- of- accounts- receivable method indicates that amount of uncollectible accounts is $7,200.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $2,000. The amount of the adjusting entry should be:

A)$2,000.
B)$5,200.
C)$7,200.
D)$9,200.

Question 48

In 2009, Krane Company purchases $75,000 of U.S. Treasury bills. This purchase would be reported on Krane Company's 2009 statement of cash flows as an):

A)financing activity.
B)investing activity.
C)operating activity.
D)This purchase is not reported on the 2009 statement of cash flows.

Question 49

Using the aging- of- accounts- receivable method to estimate uncollectibles, Greeley Corporation estimates that $9,500 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a debit balance of $3,000. After all necessary adjusting entries are made, the balance in Allowance for Uncollectible Accounts will be:

A)$ 9,500.
B)$ 6,500.
C)$12,500.
D)$ 3,000.

Question 50

If the interest is $5,000 on a 6%, 60 day note, what is the principal?

A)$5,000,000
B)$300,000
C)$500,000
D)Not enough information to calculate

Question 51

Under the allowance method, the entry to write off a $2,600 uncollectible account includes a:

A)debit to Allowance for Uncollectible Accounts for $2,600.
B)credit to Uncollectible- Account Expense for $2,600.
C)credit to Allowance for Uncollectible Accounts for $2,600.
D)debit to Accounts Receivable for $2,600.

Question 52

The interest on a $100,000 note at 9% for 120 days is:

A)$9,000.
B)$91,000.
C)$3,000.
D)$109,000.

Question 53

Under the aging- of- accounts- receivable method, the balance in:

A)Uncollectible- Account Expense prior to adjustment must be considered.
B)Allowance for Uncollectible Accounts prior to adjustment is ignored.
C)Allowance for Uncollectible Accounts prior to adjustment must be considered.
D)Accounts Receivable prior to adjustment must be considered.

Question 54

Trading investments are reported on the balance sheet at their value.

A)investment
B)market
C)market or investment
D)fair

Question 55

VISA charges a fee for using credit cards. If Brunda's is charged $40 on a sale of $1,600, what percentage is the fee?

A)0.25
B)3.50
C)2.50
D)4.00

Question 56

The reason for unrealized gains on trading investments is:

A)fair value equals market value.
B)because the investment has not been sold.
C)fair value is less than market value.
D)market value is less than fair value.

Question 57

A company has $40,000 in cash, $75,000 in short- term investments, $263,000 in net current receivables, and $110,000 in inventory. The total current liabilities of the firm are $305,000. The quick ratio of the company is:

A)1.60.
B)1.76.
C)0.63.
D)1.24.

Question 58

Under the percentage- of- sales method, the estimate of bad debts for the period is based on:

A)a percentage of net accounts receivable.
B)aging accounts receivable schedule.
C)a percentage of net credit sales.
D)the ending balance in the Accounts Receivable account.

Question 59

A year- end review of accounts receivable and estimated uncollectible percentages revealed the following: Amounts over 90 days past due are written off. The balance in Allowance for Uncollectible Accounts was $520. The uncollectible accounts expense for the year was:

A)$2,260.
B)$ 600.
C)$2,200.
D)$3,240.

Question 60

To shorten the collection period, a company may:

A)increase average receivables.
B)decrease total sales.
C)decrease average receivables.
D)both increase average receivables and decrease total sales.

Question 61

Trading securities are reported on the balance sheet at:

A)historical cost adjusted for investment income.
B)original purchase price.
C)current market value.
D)amortized cost.

Question 62

If Extol's Inc. sells items to a customer who uses a credit for $800, and there is a credit card fee of 2%, what is the amount of the credit to sales revenue?

A)$800
B)$768
C)$816
D)$784

Question 63

Bigg and Talle Corporation uses the percentage- of- sales method to estimate uncollectibles. Net credit sales for the current year amount to $5,000,000, and management estimates 2% will be uncollectible. Allowance for Doubtful Accounts prior to adjustment has a credit balance of $16,000. The amount of expense reported on the income statement will be:

A)$100,000.
B)$116,000.
C)$ 84,000.
D)$ 16,000.

Question 64

The entry to write off an account under the allowance method for estimating uncollectible accounts:

A)increases net income.
B)reduces net income.
C)reduces total assets.
D)has no effect on total assets or net income.

Question 65

Which of the following ratios is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio?

A)Collection period
B)Current ratio
C)Liquidity ratio
D)Quick ratio

Question 66

The two accepted methods of recording bad debts are the:

A)allowance method and the direct write- off method.
B)allowance method and the aging method.
C)receivables method and the aging method.
D)direct write- off method and the percentage- of- sales method.

Question 67

The following account balances were extracted from the accounting records of A and D Corporation: What is the net realizable value of the accounts receivable?

A)$ 50,000
B)$145,000
C)$110,000
D)$ 75,000

Question 68

How does accepting payment by a bank- issued credit card affect the recognition of an individual sales transaction?

A)Decreases sales revenue and increases operating expense
B)Increases loss
C)Increases operating expense
D)Decreases sales revenue

Question 69

The entry to record accrued interest on a note receivable at year end includes a debit to:

A)Interest Receivable.
B)Cash.
C)Interest Revenue.
D)Note Receivable.

Question 70

The purpose of owning trading securities is to:

A)sell the investment to off- set net income.
B)sell the investment for more than its cost.
C)increase cash reserves.
D)hold for a long- term period.

Question 71

The percent- of- sales method of computing uncollectible accounts is used for:

A)annual statements because it is easier than the aging method.
B)annual statements because it is more accurate than the aging method.
C)interim statements because it is easier than the aging method.
D)interim statements because it is more accurate than the aging method.

Question 72

The balance in Accounts Receivable was $650,000 at the beginning of the year and $350,000 at the end of the year. Sales for the year totaled $4,100,000. During the year, $400,000 in customer accounts were written off. How much cash was collected from customers during the period?

A)$4,800,000
B)$4,400,000
C)$4,000,000
D)$3,750,000

Question 73

Unrealized gains or losses on trading securities are reported on:

A)the statement of cash flows.
B)the income statement.
C)the balance sheet.
D)none of the financial statements.

Question 74

Under the direct write- off method, the entry to write off an uncollectible account of $3,400 includes a:

A)debit to Uncollectible- Account Expense for $3,400.
B)debit to Accounts Receivable for $3,400.
C)debit to Allowance for Uncollectible Accounts for $3,400.
D)credit to Uncollectible- Account Expense for $3,400.

Question 75

If current assets are cash of $200,000, short- term investments of $50,000, net current receivables of $150,000, current liabilities of $300,000, the current ratio = 2.0 and the quick ratio = 1.33, the inventory must be:

A)$125,000.
B)$200,000.
C)$100,000.
D)$150,000.

Question 76

An aging- of- accounts- receivable indicates that the amount of uncollectible accounts is $7,200. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $2,000. The amount of the adjusting entry should be:

A)$2,000.
B)$7,200.
C)$9,200.
D)$5,200.

Question 77

To increase the quick ratio from 1.2 to 2.0, Unga's Dress and Accessory Shoppe should:

A)pay off $80 in long- term notes.
B)pay off $80 in short- term notes.
C)execute short- term note for $80.
D)issue $60 in bonds.

Question 78

A company with net sales of $800,000, a beginning balance of net receivables of $70,000, and an ending balance of net receivables of $90,000 has a collection period of rounded):

A)36 days.
B)32 days.
C)41 days.
D)110 days.

Question 79

Barts Industries, Inc., has $30,000 in cash, $15,000 in short- term investments, $75,000 in net current receivables, and $12,000 in prepaid expenses. The total current liabilities of the firm are $90,000. Barts Industries' current ratio is:

A)0.64.
B)0.60.
C)1.71.
D)1.46.

Question 80

If the current ratio is 3.2, and the current liabilities are $110,000, what is the amount of current assets?

A)$320,000
B)$ 34,375
C)$176,000
D)$352,000