Deck 5: Short-Term Investments Receivables

Question 1

The purpose of purchasing a trading security is to hold it for a short term and then sell it for its cost.

Answer 1

False

Question 2

A realized gain on the sale of a trading security occurs when the:

A)sales price is greater than the trading investment's carrying amount.
B)sales price is less than the trading investment's carrying amount.
C)sales price is greater than the trading investment's original cost.
D)sales price is less than the trading investment.'s original cost.

Answer 2

A

Question 3

Trading securities are originally recorded at their cost.

Answer 3

True

Question 4

Matthew Company purchases a trading security for $12,000 cash.The journal entry to record this transaction will include a:

A)debit to the Investment in Trading Securities account and a credit to Cash.
B)debit to Cash and a credit to the Investment in Trading Securities account.
C)debit to Long-term Investment and credit Cash.
D)debit to Dividend Revenue and credit to Cash.

Question 5

When a company receives a cash dividend from a trading security,the journal entry includes:

A)a debit to Investment in Trading Securities and credit to Cash.
B)a debit to Dividend Revenue and credit to Cash.
C)a debit to Cash and credit to Investment in Trading Securities.
D)a debit to Cash and credit to Dividend Revenue.

Question 6

Investments in Trading Securities are reported on the:

A)income statement at fair value.
B)balance sheet at cost.
C)balance sheet at fair value.
D)income statement at cost.

Question 7

Which of the following statements is CORRECT?

A)Trading securities can be current or long-term assets.
B)Available-for-sale securities are always current assets.
C)Held-to-maturity securities are always current assets.
D)Trading securities are always current assets.

Question 8

Stock investments that are to be sold in the near future with the intent of generating profits on the sale are called:

A)held-to-maturity investments.
B)trading securities.
C)available-for-sale securities.
D)equity-method investments.

Question 9

All investments in securities NOT classified as trading securities or held-to-maturity securities are classified as:

A)debt securities.
B)equity securities.
C)marketable securities.
D)available-for-sale securities.

Question 10

A company will have an unrealized loss if the fair value of a trading security is greater than its cost.

Question 11

Unrealized gains on trading securities are reported on the:

A)statement of cash flows.
B)balance sheet.
C)income statement as Sales Revenue.
D)income statement as Other Revenues and Gains.

Question 12

A company's trading security has a fair value which exceeds its cost.When recording the journal entry:

A)the Investment in Trading Securities account will be credited.
B)the Unrealized Gain on Trading Securities account will be credited.
C)the Unrealized Loss on Trading Securities account will be debited.
D)the Gain on Treasury Securities will be credited.

Question 13

An unrealized gain occurs when a company sells a trading security.

Question 14

Investments in trading securities:

A)are reported after accounts receivable on the balance sheet.
B)are more liquid than cash.
C)are reported at historical cost on the balance sheet.
D)are reported at fair value on the balance sheet.

Question 15

Unrealized gains and losses on trading securities are reported on the income statement.

Question 16

Fair value is the amount for which investment securities can be sold.

Question 17

When a company sells a trading security,the Gain on the Sale of Trading Securities is reported in the:

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

Question 18

Trading securities may generate dividend revenue.

Question 19

An unrealized gain on a trading security:

A)is recorded when a trading security is sold for more than its cost.
B)is recorded when a trading security is sold for less than its cost.
C)is recorded when the fair value of the trading security is more than its cost.
D)is recorded when the fair value of the trading security is less than its cost.

Question 20

Short-term investments,which may be classified as current assets,may be divided into held-to-maturity securities,trading securities and available-for-sale securities.

Question 21

Investment in Available-for-Sale Securities is reported on the:

A)income statement at cost.
B)income statement at fair value.
C)balance sheet at cost.
D)balance sheet at fair value.

Question 22

When a company sells a short-term available-for-sale security,the Gain on the Sale of the Investment in Available-for-Sale Securities is reported on the:

A)revenues section of the income statement.
B)current assets section of the balance sheet.
C)other revenues and gains section of the income statement.
D)stockholders' equity section of the balance sheet.

Question 23

On March 1,2014,Emma's Toy Store purchased Hasbro stock for $33,400,as a short-term available-for-sale security.On April 10,dividends of $1,075 were received from the Hasbro stock.On December 31,2014,the end of Emma's Toy Store's accounting year,the Hasbro stock had a market value of $34,300.On January 1,2015,Emma's Toy Store sold all of the Hasbro stock for $35,000.
Required:
Prepare the journal entries needed to record the transactions for 2014 and 2015.Explanations are not required.

Question 24

The Target Company has current assets of $10,000 and current liabilities of $8,000.They are concerned about their current ratio and are considering paying Accounts Payable totaling $3,000.The Target Company has a loan with National Bank which requires them to maintain a minimum current ratio of 1.4.
Required:
1.What is the formula for the current ratio?
2.Compute the current ratio before the possible payment of the liabilities of $3,000.
3.Compute the current ratio assuming that Target Company pays the $3,000 in current liabilities.
4.Compute the current ratio assuming that Target Company buys inventory of $3,000 on account.Ignore Requirement 3.
5.Compute the current ratio assuming that Target Company sells short-term investments with a carrying value of $3,000 for $3,000.Ignore Requirements 3 and 4.

Question 25

On April 3,Jenny's Store purchased stock in New Company for $36,000,and classified it as a short-term available-for-sale security.On April 28,Jenny's Store received dividends from New Company of $1,250.On June 30,the New Company stock had a fair value of $32,000.
Required:
1.Prepare the journal entries needed to record the transactions.Explanations are not required.
2.What will Jenny's Store report on its income statement for the year ended December 31?

Question 26

The amount of revenue to be recognized in a sale transaction is the cash value of the goods or services transferred from the seller to the buyer.

Question 27

Smith Corporation purchases $620,000 of TMI Corporation stock on October 18,2015.Smith Corporation classifies this investment as a trading security.On December 1,Smith Corporation received a cash dividend of $12,000 on the TMI Corporation stock.On December 31,2015,Smith Corporation's investment in TMI Corporation has a fair value of $600,000.
Required:
Prepare the necessary journal entries.Explanations are not required.

Question 28

An Investment in Available-for-Sale Securities are purchased for $400,000 and have a fair value of $420,000 at the end of the year.The required journal entry at year-end will have a credit to:

A)Retained Earnings.
B)Unrealized Gain on Investment in Available-for-Sale Securities.
C)Investment in Available-for-Sale Securities.
D)Investment in Trading Securities.

Question 29

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

A)Retained Earnings.
B)Unrealized Gain on Trading Securities.
C)Investment in Trading Securities.
D)Accumulated Other Comprehensive Income.

Question 30

Which statement is FALSE?

A)Available-for-sale securities are held with the intent of selling them some time in the future.
B)Held-to-maturity securities are stock investments that the investor has the intent and ability to hold until they mature.
C)Trading securities are debt and stock investments purchased and expected to be sold in the near term through active trading.
D)A debt security not classified as either trading or held-to-maturity is an available-for-sale security.

Question 31

Strategies to increase the current ratio may include:

A)increasing sales.
B)paying off current liabilities before the end of the year.
C)reclassifying long-term investments as short-term investments.
D)all of the above.

Question 32

Trading securities purchased in 2012 for $90,000,had a fair value of $92,000 on December 31,2012.At December 31,2013 the securities had a fair value of $95,000.The journal entry on December 31,2013 would include a:

A)debit to the Investment in Trading Securities account for $5,000.
B)debit to the Investment in Trading Securities account for $3,000.
C)credit to the Unrealized Gain on Trading Securities account for $5,000.
D)debit to the Unrealized Loss on Trading Securities account for $3,000.

Question 33

Unrealized Gains on Investment in Available-for-Sale Securities are reported on the:

A)income statement.
B)statement of Retained Earnings.
C)current asset section of the balance sheet.
D)stockholders' equity section of the balance sheet.

Question 34

The shipping terms in the sales contract determine when ownership of goods changes hands between the buyer and the seller.

Question 35

When a company receives a cash dividend from a short-term available-for-sale security,the journal entry is:

A)debit to Investment in Available-for-Sale Securities and credit Cash.
B)debit to Cash and credit to Dividend Revenue.
C)debit to Dividend Revenue and credit to Cash.
D)debit to Cash and credit to Investment in Available-for-Sale Securities.

Question 36

Michael Company purchased a trading investment that had a carrying amount of $35,000 when they decided to sell it.Michael Company purchased the investment for $31,000.If Michael Company sold this investment for $45,000,Michael will have a(n):

A)Gain on Sale of Trading Security for $14,000.
B)Gain on Sale of Trading Security for $10,000.
C)Unrealized Loss on Trading Security of $4,000.
D)Unrealized Gain on Trading Security of $14,000.

Question 37

Which statement is TRUE?

A)Available-for-sale securities are debt securities only.
B)Trading securities are debt securities only.
C)Held-to-maturity securities are debt securities only.
D)Held-to-maturity securities are reported as long-term assets only.

Question 38

Sales discounts and sales returns and allowances are deducted from gross revenue to determine net sales revenue.

Question 39

Jones Company purchases 1,000 shares of Microsoft Corporation stock at $34 per share on July 31.The company expects to hold the stock for 6 months and then sell it.At December 31,the market price of the stock is $32 per share.
Required:
1.What type of investment is this for Jones Company? Explain your answer.
2.Journalize the purchase on July 31 and the necessary adjustment on December 31.Explanations are not required.
3.Discuss how Jones Company would report this investment on its balance sheet at December 31 and any gain or loss on its income statement for the year ended December 31.

Question 40

To be classified as a current asset,an investment must meet the following criteria which include:

A)the investment must be liquid.
B)the investor must intend to convert the investment to cash within one year or operating cycle,whichever is longer.
C)the investment must be easily convertible to cash.
D)all of the above

Question 41

Which of the following is a TRUE statement about sales?

A)Net revenue is gross revenue plus sales discounts less sales returns and allowances.
B)Sales discounts are offered to customers in order to speed up cash flow.
C)Sales returns and allowances increase a company's profit.
D)Retailers do not generally record sales returns and allowances in a separate account.

Question 42

Nichols Company has shipped goods to one of its customers FOB shipping point.Nichols Company will recognize sales revenue when:

A)their customer has received the goods.
B)when the goods leave Nichols' shipping dock.
C)whenever the two parties agree that revenue should be recognized.
D)when the customer pays the invoice.

Question 43

The two major types of receivables are accounts receivable and trade receivables.

Question 44

On December 1,Macy Company sold merchandise with a selling price of $1,000 on account to Mrs.Jorgensen,with terms 2/10,n/30.On December 3,Mrs.Jorgensen returned merchandise with a selling price of $500.Mrs.Jorgensen paid the amount due on December 9.What journal entry did Macy Company prepare on December 9?

A)Debit Cash for $500 and credit Sales Revenue for $500.
B)Debit Sales Revenue for $500 and credit Cash for $500.
C)Debit Sales Revenue for $500,credit Sales Discount for $10 and credit Cash for $490.
D)Debit Cash for $490,debit Sales Discounts for $10 and credit Accounts Receivable for $500.

Question 45

If the credit terms are 2/10,n/30,the buyer can get a 2% discount if the invoice is paid within 20 days of the invoice date.

Question 46

By selling on credit,companies run the risk of not collecting some receivables.

Question 47

On December 2,a customer returned merchandise with a selling price of $500 purchased on account to a department store.Ignoring Cost of Goods Sold,what journal entry did the department store prepare?

A)Debit Sales Revenue for $500 and credit Accounts Receivable for $500.
B)Debit Sales Revenue for $500 and credit Cash for $500.
C)Debit Sales Revenue for $500,credit Sales Discount for $10,and credit Cash for $490.
D)Debit Sales Returns and Allowances for $500 and credit Accounts Receivable for $500.

Question 48

When goods are shipped FOB destination,revenue is recognized by the seller when the goods leave the seller's shipping dock.

Question 49

If a buyer takes advantage of a sales discount,the journal entry recorded by the seller will include a(n):

A)debit to Cash,credit to Sales Discount and credit to Accounts Receivable.
B)debit to Cash,debit to Sales Discount and credit to Accounts Receivable.
C)debit to Cash and credit to Accounts Receivable.
D)debit to Cash,debit to Sales Returns and Allowances and credit to Accounts Receivable.

Question 50

On December 1,Macy Company sold merchandise with a selling price of $1,000 on account to Mrs.Jorgensen,with terms 2/10,n/30.On December 3,Mrs.Jorgensen returned merchandise with a selling price of $500.Mrs.Jorgensen paid the amount due on December 19.What journal entry did Macy Company prepare on December 19?

A)Debit Cash for $500 and credit Sales Revenue for $500.
B)Debit Cash for $500 and credit Accounts Receivable for $500.
C)Debit Cash for $490,debit Sales Discounts for $10 and credit Accounts Receivable for $500.
D)Debit Sales Revenue for $490 and credit Cash for $490.

Question 51

A company has gross revenue of $500,000; sales discounts of $2,500; and sales returns and allowances of $3,000.Net revenue is:

A)$494,500.
B)$497,000.
C)$497,500.
D)$500,000.

Question 52

Leno Company sells goods to the Fallon Company for $10,000.It offers credit terms of 5/10,n/30.If Fallon Company pays the invoice within the discount period,Leno Company will record a debit to Cash in the amount of:

A)$0.
B)$9,000.
C)$9,500.
D)$10,000.

Question 53

Notes receivable from customers and vendors have a maturity date.

Question 54

On December 1,Macy Company sold merchandise with a selling price of $1,000 on account to Mrs.Jorgensen,with terms 2/10,n/30.Ignoring Cost of Goods Sold,what journal entry did Macy Company prepare on December 1?

A)Debit Cash for $1,000 and credit Accounts Receivable for $1,000
B)Debit Accounts Receivable for $1,000 and credit Cash for $1,000.
C)Debit Accounts Receivable for $1,000 and credit Sales Revenue for $1,000.
D)Debit Sales Revenue for $1,000 and credit Accounts Receivable for $1,000.

Question 55

Accounts (trade)receivables are amounts to be collected from customers from the sale of goods or services.

Question 56

A business offers credit terms of 2/15,n/30.These terms indicate that:

A)the total amount of the invoice must be paid within 15 days of the invoice date.
B)a discount of 2% can be taken if the invoice is paid within 15 days of the invoice date.
C)the buyer can take a 2% discount if the bill is paid within 30 days of the invoice date.
D)no discount is offered for early payment.

Question 57

With regard to Accounts Receivable,a separate account for each customer is kept in a(n):

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

Question 58

The general ledger has a separate account receivable for each customer.

Question 59

On December 1,Macy Company sold merchandise with a selling price of $1,000 on account to Mrs.Jorgensen,with terms 2/10,n/30.Mrs.Jorgensen paid the amount due on December 9.What journal entry did Macy Company prepare on December 9?

A)Debit Cash for $1,000 and credit Sales Revenue for $1,000.
B)Debit Sales Revenue for $1,000 and credit Cash for $1,000.
C)Debit Sales Revenue for $1,000,credit Sales Discount for $20,and credit Cash for $980.
D)Debit Cash for $980,debit Sales Discounts for $20 and credit Accounts Receivable for $1,000.

Question 60

When goods are shipped FOB destination:

A)revenue is recognized when the goods leave the shipping dock.
B)revenue is recognized after any returns are received by the seller.
C)revenue is recognized only after cash payment is received.
D)revenue is recognized when the goods are received by the customer.

Question 61

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

A)Unearned Sales Revenue
B)Accounts Receivable
C)Allowance for Uncollectible Accounts
D)Uncollectible-Account Expense

Question 62

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

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

Question 63

Estimating uncollectible accounts by analyzing individual accounts receivable according to the length of time they have been outstanding is known as the:

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

Question 64

What is the benefit and cost of extending credit to customers?

Question 65

Under the direct write-off method,the journal entry to record Uncollectible-Account Expense includes a credit to Accounts Receivable.

Question 66

The most important internal control over cash is to:

A)have all customers pay by check.
B)separate cash-handling duties from cash-accounting duties.
C)separate cash-handling from the mailroom.
D)have an imprest petty cash fund.

Question 67

Under the allowance method,companies are prohibited from using different methods to estimate Uncollectible-Account Expense.

Question 68

When evaluating the collectability of accounts receivable:

A)the Uncollectible-Account Expense is a contra account.
B)the Allowance for Uncollectible Accounts is an operating expense in the selling,general and administrative category.
C)the allowance method uses estimates developed from the company's collection experience.
D)the direct write-off method uses the Allowance for Uncollectible Accounts to record bad debts.

Question 69

Which method to record uncollectible accounts does NOT use estimates?

A)Allowance method
B)Percent-of-Sales
C)Aging-of-receivables method
D)Direct write-off method

Question 70

The aging-of-receivables method of estimating uncollectible accounts is:

A)not an acceptable method of estimating bad debts.
B)a balance sheet approach,since it focuses on accounts receivable.
C)an income statement approach,since it focuses on the amount of expense to be reported on the income statement.
D)not concerned with the balance in the Allowance for Doubtful Accounts.

Question 71

Uncollectible-account expense is included in Cost of Goods Sold on the income statement.

Question 72

Accounts receivable are reported on the balance sheet at their net realizable value.

Question 73

The category "Other Receivables" on the balance sheet includes:

A)Accounts Receivable,Interest Receivable.
B)Notes Receivable,Accounts Receivable,Interest Receivable.
C)Interest Receivable,Dividend Receivable,Advances to employees.
D)none of the above.

Question 74

Under the allowance method for estimating uncollectible accounts:

A)a company sets up an Allowance for Uncollectible Accounts to estimate the amount of the receivables the company does not expect to collect.
B)the Allowance for Uncollectible Accounts is a contra account to gross Accounts Receivable.
C)the Allowance for Uncollectible Accounts will normally have a credit balance.
D)all of the above.

Question 75

Following Generally Accepted Accounting Principles,two methods to estimate uncollectible accounts receivable are the direct write-off method and the allowance method.

Question 76

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

A)computes Uncollectible-Account Expense as a percent of accounts receivable.
B)takes a balance sheet approach.
C)employs the expense recognition (matching)concept.
D)will result in the same amount of estimated Uncollectible-Accounts Expense as the aging-of-receivables method.

Question 77

The Allowance for Uncollectible Accounts has a normal debit balance because it is an asset account.

Question 78

The net realizable value of accounts receivable is the difference between gross accounts receivable and:

A)Sales Discounts.
B)Sales Returns and Allowances.
C)Uncollectible-Account Expense.
D)Allowance for Uncollectible Accounts.

Question 79

Under the allowance method,Uncollectible-Account Expense is recorded in the same accounting period as the sale.

Question 80

The Allowance for Uncollectible Accounts is classified as:

A)a contra-expense account.
B)a contra-revenue account.
C)a contra-asset account.
D)an asset account.