Question 1

Which of the following is not one of the criteria that must be satisfied for a seller to recognize revenue at the time of sale when the right of return exists?

Accepted Answer

A) The sales price is known at the time of sale. 
B) The buyer's obligation to the seller would not change by theft or damage to the product. 
C) The seller has significant obligations to help the buyer sell the product. 
D) The seller can reasonably estimate the amount of future returns. 
A) The sales price is known at the time of sale. 
B) The buyer's obligation to the seller would not change by theft or damage to the product. 
C) The seller has significant obligations to help the buyer sell the product. 
D) The seller can reasonably estimate the amount of future returns.

Question 2

In certain circumstances a company may find it necessary to accelerate the cash inflows potentially generated from its accounts receivable.This can be accomplished through pledging, assigning, or factoring the accounts receivable.
Required:
Explain each of these arrangements.Include in your discussion an explanation of each agreement, who retains the risks and benefits of ownership, whether or not the agreement is formally recorded in the company's accounting records, and how the agreement is disclosed in the company's financial statements.

Accepted Answer

A company pledges its accounts receivabl

Question 3

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

Accepted Answer

A) is the bad debt expense for the year 
B) is the correct balance for the allowance for doubtful accounts at year-end 
C) is the amount added to the existing credit balance in the allowance account to determine the bad debt expense for the year 
D) is the amount that should be written off as uncollectible for the year 
A) is the bad debt expense for the year 
B) is the correct balance for the allowance for doubtful accounts at year-end 
C) is the amount added to the existing credit balance in the allowance account to determine the bad debt expense for the year 
D) is the amount that should be written off as uncollectible for the year

Question 4

What entry format is appropriate if sales returns and allowances occur on factored accounts?

Accepted Answer

A) 
$\begin{array}{cc}
\text { Sales Returns and Allowances } & \mathrm{XX} \
\text { Receivable from Factor } & \mathrm{XX}
\end{array}$ 
B) 
$\begin{array}{cc}
\text { Receivable from Factor } & \text { XX } \
\text { Factoring Expense } & \text { XX }
\end{array}$ 
C) 
$\begin{array}{lc}
\text { Sales Returns and Allowances } & \mathrm{XX} \
\text { Factoring Expense } & \mathrm{XX}
\end{array}$ 
D) 
$\begin{array}{cc}
\text { Receivable from Factor } & \text { XX } \
\text { Accounts Receivable } & \text { XX }
\end{array}$ 
A) 
$\begin{array}{cc}
\text { Sales Returns and Allowances } & \mathrm{XX} \
\text { Receivable from Factor } & \mathrm{XX}
\end{array}$ 
B) 
$\begin{array}{cc}
\text { Receivable from Factor } & \text { XX } \
\text { Factoring Expense } & \text { XX }
\end{array}$ 
C) 
$\begin{array}{lc}
\text { Sales Returns and Allowances } & \mathrm{XX} \
\text { Factoring Expense } & \mathrm{XX}
\end{array}$ 
D) 
$\begin{array}{cc}
\text { Receivable from Factor } & \text { XX } \
\text { Accounts Receivable } & \text { XX }
\end{array}$

Question 5

Which of the following would not be a valid contributing justification for expanding your selling model to include selling goods on account?

Accepted Answer

A) market share increases 
B) revenues generated always exceed the costs incurred 
C) improved customer loyalty 
D) customer convenience 
A) market share increases 
B) revenues generated always exceed the costs incurred 
C) improved customer loyalty 
D) customer convenience

Question 6

Compensating balance agreements that legally restrict cash should

Accepted Answer

A) only be described in the footnotes to the financial statements 
B) be separately reported in the current assets portion of the balance sheet if they are against short-term borrowings 
C) be separately classified as noncurrent assets on the balance sheet if they are against short-term borrowings 
D) not be shown on the balance sheet 
A) only be described in the footnotes to the financial statements 
B) be separately reported in the current assets portion of the balance sheet if they are against short-term borrowings 
C) be separately classified as noncurrent assets on the balance sheet if they are against short-term borrowings 
D) not be shown on the balance sheet

Question 7

If the transferor of accounts receivable cannot meet all conditions for a sale, the transferor records the proceeds received as a debit to Cash and records a corresponding credit to a(n)

Accepted Answer

A) deferred revenue account 
B) deferred credit account 
C) liability account 
D) asset account 
A) deferred revenue account 
B) deferred credit account 
C) liability account 
D) asset account

Question 8

Which of the following is not a basic form of financing agreement to obtain cash from accounts receivable?

Accepted Answer

A) assigning 
B) pledging 
C) deferring 
D) factoring 
A) assigning 
B) pledging 
C) deferring 
D) factoring

Question 9

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

Accepted Answer

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 
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 10

On a bank reconciliation, customers' checks that are returned for lack of funds would be

Accepted Answer

A) deducted from the balance per company records 
B) deducted from the balance per bank statement 
C) added to the balance per bank statement 
D) added to the balance per company records 
A) deducted from the balance per company records 
B) deducted from the balance per bank statement 
C) added to the balance per bank statement 
D) added to the balance per company records

Question 11

Bedford Market's accountant is preparing its May bank reconciliation and has collected the following data: $\begin{array}{lll}&\text { Per Books }&\text { Per Bank }\
\text { May } 1 \text { balance } & \$ 11,600 & \$ 10,000 \
\text { May deposits } & 24,600 & 21,200 \
\text { May checks } & 27,800 & 29,000 \
\text { Note collected (includes 10\% interest) } & -- & 4,400 \
\text { May service charge } & -- & 20 \
\text { May 31 balance } & 8,400 & 6,580
\end{array}$ Additionally, deposits in transit and outstanding checks from April's reconciliation were $4, 400 and $2, 800, respectively.
The correct balance for cash at May 31 should be

Accepted Answer

A) $10, 960 
B) $12, 780 
C) $11, 180 
D) $13, 980 
A) $10, 960 
B) $12, 780 
C) $11, 180 
D) $13, 980

Question 12

O'Rourke Co.reports assigned accounts receivable of $90, 000 that relate to an unpaid note payable of $40, 000.Correct balance sheet disclosure is

Accepted Answer

A) 
Current assets:
Accounts receivable assigned $\quad\quad\quad \$ 90,000 $
Less: Note payable $ \quad\quad\quad\quad\quad\quad\quad \underline{40,000} $
Equity in accounts receivable assigned $\quad \$ 50,000 $ 
B) 
Current assets:
Equity in accounts receivable assigned $\quad\quad\quad \$ 50,000 $ 
C) 
Current assets:
Accounts receivable assigned $\quad\quad \$ 90,000 $ 
Current liabilities:
Note payable $\quad\quad\quad\quad\quad\quad \$ 40,000 $ 
D) 
Current assets:
Accounts receivable assigned $ \quad \$ 50,000 $
Current liabilities:
Note payable $\quad\quad\quad\quad\quad\quad \$ 50,000 $
Less: Accounts receivable assigned $\quad\quad\quad \frac{50,000}{\$-0-} $ 
A) 
Current assets:
Accounts receivable assigned $\quad\quad\quad \$ 90,000 $
Less: Note payable $ \quad\quad\quad\quad\quad\quad\quad \underline{40,000} $
Equity in accounts receivable assigned $\quad \$ 50,000 $ 
B) 
Current assets:
Equity in accounts receivable assigned $\quad\quad\quad \$ 50,000 $ 
C) 
Current assets:
Accounts receivable assigned $\quad\quad \$ 90,000 $ 
Current liabilities:
Note payable $\quad\quad\quad\quad\quad\quad \$ 40,000 $ 
D) 
Current assets:
Accounts receivable assigned $ \quad \$ 50,000 $
Current liabilities:
Note payable $\quad\quad\quad\quad\quad\quad \$ 50,000 $
Less: Accounts receivable assigned $\quad\quad\quad \frac{50,000}{\$-0-} $

Question 13

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

Accepted Answer

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

Question 14

Under U.S.GAAP, a company can designate a receivable, upon initial recognition, to be recognized at fair value without meeting any criteria.IFRS has established qualifying criteria for fair value designation.
Required:
Describe the IFRS qualifying criteria that must be met to designate a receivable as fair value.

Accepted Answer

The IFRS criteria include: the eliminati

Question 15

The sales returns and allowances account is reported as a

Accepted Answer

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

Question 16

Compensating balance agreements against short-term borrowings that legally restrict the amount of funds shown on the balance sheet should be reported in the

Accepted Answer

A) current asset section 
B) long-term investment section 
C) other asset section 
D) footnotes 
A) current asset section 
B) long-term investment section 
C) other asset section 
D) footnotes

Question 17

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

Accepted Answer

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

Question 18

Current GAAP requires a company to disclose the fair value of its financial instruments and to disclose all significant concentrations of credit risk due to its financial instruments.The FASB's rationale for this disclosure includes allowing readers to

Accepted Answer

A) better identify major customers 
B) compute each company's risk 
C) better determine a company's financial flexibility 
D) compute liquidity ratios 
A) better identify major customers 
B) compute each company's risk 
C) better determine a company's financial flexibility 
D) compute liquidity ratios

Question 19

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

Accepted Answer

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 other revenue on the income statement 
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 other revenue on the income statement

Question 20

The following are transactions of the Morris Company:
   Required:
Record the appropriate amounts under the gross price, net price, and allowance methods in the spaces below.For each method, write the amount to be debited or credited on the appropriate line for each account shown.Indicate that the amount is a debit or credit by placing a (d)or (c)after the amount.
 a. To record sale on Nov. 5: 
$\begin{array}{lll}
&\text { Gross Price } & \text { Net Price } & \text { Allowance } \
&\text { Method } & \text { Method } & \text { Method }\
\text { Cash }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Accounts Receivable }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Allowance for Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts Not Taken }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Returns and.Allowances: }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\end{array}$ b. To record payment received on Nov. 20
$\begin{array}{lll}
&\text { Gross Price } & \text { Net Price } & \text { Allowance } \
&\text { Method } & \text { Method } & \text { Method }\
\text { Cash }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Accounts Receivable }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Allowance for Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts Not Taken }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Returns and.Allowances: }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\end{array}$ c. To record payment recenved on Dec. 5:
$\begin{array}{lll}
&\text { Gross Price } & \text { Net Price } & \text { Allowance } \
&\text { Method } & \text { Method } & \text { Method }\
\text { Cash }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Accounts Receivable }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Allowance for Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts Not Taken }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Returns and.Allowances: }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\end{array}$ d. To record sales returin on Dec.8: 
$\begin{array}{lll}
&\text { Gross Price } & \text { Net Price } & \text { Allowance } \
&\text { Method } & \text { Method } & \text { Method }\
\text { Cash }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Accounts Receivable }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Allowance for Sales Discounts }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Discounts Not Taken }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\text { Sales Returns and.Allowances: }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\end{array}$

Accepted Answer

The answer of The following are transactions of the Morris...

Which of the following is not one of the criteria that must be satisfied for a seller to recognize revenue at the time of sale when the right of return exists?

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

What entry format is appropriate if sales returns and allowances occur on factored accounts?

Which of the following would not be a valid contributing justification for expanding your selling model to include selling goods on account?

Compensating balance agreements that legally restrict cash should

If the transferor of accounts receivable cannot meet all conditions for a sale, the transferor records the proceeds received as a debit to Cash and records a corresponding credit to a(n)

Which of the following is not a basic form of financing agreement to obtain cash from accounts receivable?

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

On a bank reconciliation, customers' checks that are returned for lack of funds would be

O'Rourke Co.reports assigned accounts receivable of $90, 000 that relate to an unpaid note payable of $40, 000.Correct balance sheet disclosure is

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

The sales returns and allowances account is reported as a

Compensating balance agreements against short-term borrowings that legally restrict the amount of funds shown on the balance sheet should be reported in the

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

Current GAAP requires a company to disclose the fair value of its financial instruments and to disclose all significant concentrations of credit risk due to its financial instruments.The FASB's rationale for this disclosure includes allowing readers to

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

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

Filters

Exam 7: Cash and Receivables

Which of the following is not one of the criteria that must be satisfied for a seller to recognize revenue at the time of sale when the right of return exists?

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

What entry format is appropriate if sales returns and allowances occur on factored accounts?

Which of the following would not be a valid contributing justification for expanding your selling model to include selling goods on account?

Compensating balance agreements that legally restrict cash should

If the transferor of accounts receivable cannot meet all conditions for a sale, the transferor records the proceeds received as a debit to Cash and records a corresponding credit to a(n)

Which of the following is not a basic form of financing agreement to obtain cash from accounts receivable?

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

On a bank reconciliation, customers' checks that are returned for lack of funds would be

O'Rourke Co.reports assigned accounts receivable of $90, 000 that relate to an unpaid note payable of $40, 000.Correct balance sheet disclosure is

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

The sales returns and allowances account is reported as a

Compensating balance agreements against short-term borrowings that legally restrict the amount of funds shown on the balance sheet should be reported in the

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

Current GAAP requires a company to disclose the fair value of its financial instruments and to disclose all significant concentrations of credit risk due to its financial instruments.The FASB's rationale for this disclosure includes allowing readers to

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

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

Filters