Deck 8: Accounting for Receivables

Question 1

Recognizing accounts receivable for a sale to a customer involves debiting accounts receivable, an income statement account, and crediting sales revenue a statement of financial position account.

Answer 1

False

Question 2

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.

Answer 2

True

Question 3

Other receivables, such as income taxes refundable and advances to employees, are reported as "accounts receivable" on the statement of financial position.

Answer 3

False

Question 4

The percentage of receivables basis of estimating expected uncollectible accounts emphasizes income statement relationships.

Question 5

Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.

Question 6

Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.

Question 7

Other receivables include nontrade receivables such as loans to company officers.

Question 8

An aging schedule is prepared only for old accounts receivables that have been past due for more than one year.

Question 9

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves statement of financial position accounts.

Question 10

The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing.

Question 11

Under the allowance method, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.

Question 12

If a retailer assesses a finance charge on the amount owed by a customer, Accounts Receivable is debited for the amount of the interest.

Question 13

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 14

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Question 15

Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period.

Question 16

Trade receivables occur when two companies trade or exchange notes receivables.

Question 17

The percentage of sales basis for estimating uncollectible accounts always results in more Bad Debts Expense being recognized than the percentage of receivables basis.

Question 18

Allowance for Doubtful Accounts is a contra asset account.

Question 19

IFRS require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

Question 20

Receivables are valued and reported in the statement of financial position at their gross amount less any sales returns and allowances and less any cash discounts.

Question 21

On the date of issue, a note receivable is recorded on the statement of financial position at its maturity values.

Question 22

Notes receivable are reported on the statement of financial position following accounts receivable because notes receivable give the payee a weaker legal claim to assets than accounts receivable.

Question 23

The value associated with a dishonored note receivable removed from the statement of financial position since the note is no longer negotiable.

Question 24

A major advantage of national credit cards to retailers is that there is no charge to the retailer by the credit card companies for their services.

Question 25

Under the allowance method, companies debit every bad debt write-off to Allowance for Doubtful Accounts) rather than to Bad Debts Expense.

Question 26

When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.

Question 27

Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer.

Question 28

The maturity date of a 1-month note receivable dated June 30 is July 30.

Question 29

Under the allowance method, the recovery of bad debts affects both the income statement and the statement of financial position.

Question 30

Accounts receivable are reported in the statement of financial position at their cash realizable value which is accounts receivable less the allowance for doubtful accounts.

Question 31

Receivables may be sold because they may be the only reasonable source of cash.

Question 32

IFRS requires the allowance method of accounting for bad debts when bad debts are immaterial in amount.

Question 33

When using the percentage of sales basis of estimating bad debts, which emphasizes income statement relationships, the company can totally disregard cash realizable value of accounts receivable

Question 34

When using the percentage of sales basis of estimating bad debts, the company disregards the existing balance in the statement of financial position account Allowance for Doubtful Accounts.

Question 35

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.

Question 36

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Question 37

When using the percentage of receivables basis of estimating bad debts, the amount of the bad debt adjusting entry will impact statement of financial position accounts only.

Question 38

A factor purchases receivables from businesses for a fee and collects the remittances directly from customers.

Question 39

On the statement of financial position, notes receivable are valued at their cash (net) realizable value, identical to how accounts receivable are valued.

Question 40

The allowance for doubtful accounts is closed at the end of the fiscal year and is accomplished by debiting bad debt expense and crediting allowance for doubtful accounts.

Question 41

When counting the exact number of days to determine the maturity date of a note, the date of issue is included but the due date is omitted.

Question 42

Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the financial statements.

Question 43

Interest is usually associated with

A)accounts receivable.
B)notes receivable.
C)doubtful accounts.
D)bad debts.

Question 44

Short-term receivables appear in the current assets section of the statement of financial position above short-term investments.

Question 45

A note is dishonored when it is not fully paid at maturity.

Question 46

The accounts receivable turnover ratio is computed by using two accounts reported on the statement of financial position, accounts receivable and allowance for doubtful accounts.

Question 47

Notes or accounts receivables that result from sales transactions are often called

A)sales receivables.
B)non-trade receivables.
C)trade receivables.
D)merchandise receivables.

Question 48

In order to accelerate the receipt of cash from receivables, owners may sell the receivables to another company for cash.

Question 49

Which of the following receivables would not be classified as an "other receivable"?

A)Advance to an employee
B)Refundable income tax
C)Notes receivable
D)Interest receivable

Question 50

U.S.GAAP accounts for short-term receivables at amortized cost, adjusted for allowances for doubtful accounts, whereas IFRS requires fairs values for receivables.

Question 51

The receivable that is usually evidenced by a formal instrument of credit is a(n)

A)trade receivable.
B)note receivable.
C)accounts receivable.
D)income tax receivable.

Question 52

In the statement of financial position, companies need only report the cash (net) realizable value of accounts and notes receivable.

Question 53

The term "receivables" refers to

A)amounts due from individuals or companies.
B)merchandise to be collected from individuals or companies.
C)cash to be paid to creditors.
D)cash to be paid to debtors.

Question 54

The accounts receivable turnover ratio is computed by dividing total sales by the average net receivables during the year.

Question 55

The account Allowance for Doubtful Accounts is closed out at the end of the year.

Question 56

Claims for which formal instruments of credit are issued as proof of the debt are

A)accounts receivable.
B)interest receivable.
C)notes receivable.
D)other receivables.

Question 57

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt.

Question 58

The two methods of accounting for uncollectible accounts are (a) percentage of sales and (b) percentage of receivables.

Question 59

Short-term receivables are reported in the current assets section before temporary investments.

Question 60

The criteria used to derecognize a receivable under IFRS uses a combination of an approach focused on risks and rewards and loss of control.

Question 61

Which of the following would be considered as an unlikely occurrence?

A)Manufacturer offers a cash discount to a wholesaler.
B)Wholesaler offers a cash discount to a retailer.
C)Retailer offers a cash discount to a customer.
D)All of these are standard practices.

Question 62

A cash discount is usually granted to all of the following except

A)retail customers.
B)retailers.
C)wholesalers.
D)All of these are granted discounts.

Question 63

Among the types of receivables reported on the statement of financial position, which of the following is considered the most significant claim held by a company?

A)Others receivables (including loans to officers).
B)Notes receivable.
C)Accounts receivable.
D)Advances to employees.

Question 64

Which one of the following is not a primary problem associated with accounts receivable?

A)Depreciating accounts receivable
B)Recognizing accounts receivable
C)Valuing accounts receivable
D)Disposing of accounts receivable

Question 65

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the

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

Question 66

Which of the following practices by a credit card company results in lower interest charges to the cardholder?

A)The card company states interest as a monthly percentage rather than an annual percentage.
B)The card company allows a grace period before interest is accrued.
C)The card company allows cardholders to skip payments on their cards.
D)The card company calculates finance charges from the date of purchase to the date the amount is paid.

Question 67

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

A)a sale is made.
B)an account becomes bad and is written off.
C)management estimates the amount of uncollectibles.
D)a customer's account becomes past-due.

Question 68

If a company fails to record estimated bad debts expense,

A)cash realizable value is understated.
B)expenses are understated.
C)revenues are understated.
D)receivables are understated.

Question 69

Which of the following would require a compound journal entry?

A)To record merchandise returned that was previously purchased on account.
B)To record sales on account.
C)To record purchases of inventory when a discount is offered for prompt payment.
D)To record collection of accounts receivable when a cash discount is taken.

Question 70

Under the allowance method, writing off an uncollectible account

A)affects only statement of financial position accounts.
B)affects both statement of financial position and income statement accounts.
C)affects only income statement accounts.
D)is not acceptable practice.

Question 71

Fowler Company on July 15 sells merchandise on account to Coffey Co.for $1,500, terms 2/10, n/30.On July 20 Coffey Co.returns merchandise worth $600 to Fowler Company.On July 24 payment is received from Coffey Co.for the balance due.What is the amount of cash received?

A)$900
B)$882
C)$870
D)$1,500

Question 72

Trade accounts receivable are valued and reported on the statement of financial position

A)in the investment section.
B)at gross amounts less sales returns and allowances.
C)at net realizable value.
D)only if they are not past due.

Question 73

When an account becomes uncollectible and must be written off,

A)Allowance for Doubtful Accounts should be credited.
B)Accounts Receivable should be credited.
C)Bad Debts Expense should be credited.
D)Sales should be debited.

Question 74

If a department store fails to make the entry to accrue the finance charges due from customers,

A)accounts receivable will be overstated.
B)interest revenue will be understated.
C)interest expense will be overstated.
D)interest expense will be understated.

Question 75

Wright sells softball equipment.On November 14, they shipped $1,000 worth of softball uniforms to Paola Middle School, terms 2/10, n/30.On November 21, they received an order from Douglas High School for $600 worth of custom printed bats to be produced in December.On November 30, Paola Middle School returned $100 of defective merchandise.Wright has received no payments from either school as of month end.What amount will be recognized as net accounts receivable on the statement of financial position as of November 30?

A)$1,600
B)$1,500
C)$1,000
D)$900

Question 76

A customer charges a treadmill at Mike's Sport Shop.The price is €2,000 and the financing charge is 9% per annum if the bill is not paid in 30 days.The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. The accounts affected by the journal entry made by Mike's Sport Shop to record the finance charge are

A) Accounts Receivable
Cash

B) Cash
Finance Receivable

C) Accounts Receivable
Interest Payable

D) Accounts Receivable
Interest Revenue

Question 77

Three accounting issues associated with accounts receivable are

A)depreciating, returns, and valuing.
B)depreciating, valuing, and collecting.
C)recognizing, valuing, and disposing.
D)accrual, bad debts, and disposing.

Question 78

A customer charges a treadmill at Mike's Sport Shop.The price is €1,000 and the financing charge is 9% per annum if the bill is not paid in 30 days.The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. What is the amount of the finance charge?

A) $€ 30$
B) $€ 8$
C) $€ 90$
D) $€ 3$

Question 79

Caps On Company manufactures sporting goods and clothing.Caps On sold merchandise to Pro Sports Company on June 5, 2011 for $1,000, terms 2/10, n/30.On June 9, 2011 Pro Sports returns merchandise worth $100 to Caps On.On June 14, 2011 Caps On receives payment in full from Pro Sports.Which of the following is true regarding the transaction on June 14, 2011?

A)Caps On receives $900 from Pro Sports.
B)Caps On will reduce assets on its statement of financial position by $18.
C)Pro Sports will pay $980 to Caps On.
D)All of the choices are correct regarding this transaction.

Question 80

The net amount expected to be received in cash from receivables is termed the

A)cash realizable value.
B)cash-good value.
C)gross cash value.
D)cash-equivalent value.