Deck 10: Financial Instruments in the Statement of Financial Position and Fair Value Accounting

Question 1

Which method is used for reporting current investments in the financial statements?

A) Current investments (gross - at cost)
3,500
Less provision for potential loss
-200
Current investments (net)
3,300
B) Gross value
Provisions
Net value
Current investments
3,500
200
3,300
C) Current investments (net of provision for potential loss: 200)
3,300
D) All of these.

Answer 1

D

Question 2

How is the figure for 'average days of sales' calculated?

A) (Average net accounts receivable/Net sales)× 365 days
B) (Average net accounts receivable × Net sales)/365 days
C) (Average net accounts receivable/Net sales)/180 days
D) (Average net accounts receivable/Net sales)× 180 days

Answer 2

A

Question 3

It is necessary to know the amount of discounted notes in order to compute the average days of sale in a financial statement analysis.

Answer 3

True

Question 4

What does the credit policy of a firm impact?

A) Sales revenue
B) The level of receivables
C) The length of the cash collection cycle
D) All of these

Question 5

Which of the following statements is false?

A) Uncollectible accounts must be written off.
B) A claim is considered as uncollectible when the debtor is not solvent.
C) Uncollectible accounts are not reported in the financial statements.
D) The write off of the uncollectible accounts generates a bad debt expense in the income statement.

Question 6

Notes can be discounted;the accounts receivable represented by notes are taken out of the assets at the time of discounting.However,this can still represent:

A) A potential gain
B) A latent liability
C) A fictive asset
D) None of these

Question 7

What is the name of the written document in which a person or business promises to pay a given amount to a third party on a specified date?

A) A draft
B) A promissory note
C) A bill of exchange
D) None of these

Question 8

What is the term used for doubtful or disputed accounts,which are partly or totally uncollectible?

A) Bad debts
B) Valuation allowance
C) Provision expense
D) Debtor accounts

Question 9

The valuation of the uncollectibility risk constitutes one of the tools managers use to manage their earnings.

Question 10

Which of the following statements is not correct?

A) Under the direct write-off method,no provision is created when the risk of uncollectibility appears.
B) All countries allow the direct write-off method.
C) The direct write-off method shows receivables at their nominal value when in fact,there is a known risk of uncollectibility.
D) The only situation where the direct write-off method might not create a misrepresentation of the financial situation of the firm is when the sales revenue and the percentage of uncollectible receivables is essentially constant or stable.

Question 11

Which of the following items is not a type of accounts receivable reported in the financial statements?

A) Doubtful accounts receivable
B) Disputed accounts receivable
C) Uncollectible accounts receivable
D) Overdue accounts receivable

Question 12

What is (are)the advantage(s)to the seller of notes receivable?

A) A note is a contract and thus offers a higher level of guarantee of payment to the seller than a simple combination 'order,delivery,acknowledgment of receipt plus invoice'.
B) A note is a regular financial instrument and thus can be endorsed over to a third party.
C) A note is a negotiable credit instrument.The seller can sell a note to a financial institution before its maturity date.
D) All of the above

Question 13

Which of the following items is not a financial asset?

A) Receivables
B) Cash and cash equivalents
C) Current investments
D) Property,plant and equipment

Question 14

The more a receivable exceeds the contractual credit terms,the less likely it is to be uncollectible.

Question 15

What is the name of the accounting document in which the total amount of accounts receivable is split by customer?

A) General ledger
B) Subsidiary ledger
C) Sale ledger
D) Trial balance

Question 16

IAS 39 defines three categories of financial instruments in assets?

Question 17

Generally,the uncollectibility risk is evaluated and an allowance for uncollectibles is recorded as a provision.What is this method called?

A) Provision method
B) Allowance method
C) Prudent method
D) None of the above

Question 18

Held-to-maturity investments are valued at fair value through profit or loss in the balance sheet.

Question 19

Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.