Question 1

What is a compensating balance?

Accepted Answer

A)  Savings account balances 
B)  Margin accounts held with brokers 
C)  Temporary investments serving as collateral for outstanding loans 
D)  Minimum deposits required to be maintained in connection with a borrowing arrangement 
A)  Savings account balances 
B)  Margin accounts held with brokers 
C)  Temporary investments serving as collateral for outstanding loans 
D)  Minimum deposits required to be maintained in connection with a borrowing arrangement

Question 2

Ideally, a company should measure receivables in terms of their present value, that is, the discounted value of the cash to be received in the future.

Accepted Answer

A) True 
 B)False

Question 3

The accounts receivable turnover is computed by dividing

Accepted Answer

A)  gross sales by ending net receivables. 
B)  gross sales by average net receivables. 
C)  net sales by ending net receivables. 
D)  net sales by average net receivables. 
A)  gross sales by ending net receivables. 
B)  gross sales by average net receivables. 
C)  net sales by ending net receivables. 
D)  net sales by average net receivables.

Question 4

Companies record and report long-term notes receivable on a discounted basis.

Accepted Answer

A) True 
 B)False

Question 5

Under IFRS, a company may select the fair value option or amortized cost for valuing a group of receivables at each statement of financial position date.

Accepted Answer

A) True 
 B)False

Question 6

In which account are postage stamps classified?

Accepted Answer

A)  Cash 
B)  Supplies 
C)  Receivables 
D)  Inventory 
A)  Cash 
B)  Supplies 
C)  Receivables 
D)  Inventory

Question 7

What is the normal journal entry for recording bad debt expense under the allowance method?

Accepted Answer

A)  Debit Allowance for Doubtful Accounts, credit Accounts Receivable 
B)  Debit Allowance for Doubtful Accounts, credit Bad Debt Expense 
C)  Debit Bad Debt Expense, credit Allowance for Doubtful Accounts 
D)  Debit Accounts Receivable, credit Allowance for Doubtful Accounts 
A)  Debit Allowance for Doubtful Accounts, credit Accounts Receivable 
B)  Debit Allowance for Doubtful Accounts, credit Bad Debt Expense 
C)  Debit Bad Debt Expense, credit Allowance for Doubtful Accounts 
D)  Debit Accounts Receivable, credit Allowance for Doubtful Accounts

Question 8

All of the following may be included under the heading of "cash" except

Accepted Answer

A)  currency. 
B)  money market funds. 
C)  checking account balance. 
D)  savings account balance. 
A)  currency. 
B)  money market funds. 
C)  checking account balance. 
D)  savings account balance.

Question 9

On December 31, 2018, Hunter Corporation has elected to use the fair value option for one of its notes receivable. The note was accepted in late September, 2018 from a customer who was unable to pay its accounts receivable. The transaction with the customer had been delivery of accounting services valued at €25,000. The customer made a partial payment, resulting in a carrying value for the note of €22,000. At year-end, Hunter Corporation estimates the fair value of the note to be €17,500. Which of the following is incorrect regarding this note?

Accepted Answer

A)  Hunter will report the note on its statement of financial position at €17,500. 
B)  Hunter will report an unrealized loss of €7,500 in its income statement for the year ended December 31, 2018. 
C)  Hunter will be required to use the fair value option for this note for the duration of its existence. 
D)  In 2019, Hunter will calculate the unrealized holding gain or loss as the net change in the fair value of the receivable from 2018 to 2019, exclusive of interest revenue recognized but not recorded. 
A)  Hunter will report the note on its statement of financial position at €17,500. 
B)  Hunter will report an unrealized loss of €7,500 in its income statement for the year ended December 31, 2018. 
C)  Hunter will be required to use the fair value option for this note for the duration of its existence. 
D)  In 2019, Hunter will calculate the unrealized holding gain or loss as the net change in the fair value of the receivable from 2018 to 2019, exclusive of interest revenue recognized but not recorded.

Question 10

Cash equivalents are investments with original maturities of six months or less.

Accepted Answer

A) True 
 B)False

Question 11

How is days to collect accounts receivable determined?

Accepted Answer

A)  365 days divided by accounts receivable turnover 
B)  Net sales divided by 365 
C)  Net sales divided by average net trade receivables 
D)  Accounts receivable turnover divided by 365 days 
A)  365 days divided by accounts receivable turnover 
B)  Net sales divided by 365 
C)  Net sales divided by average net trade receivables 
D)  Accounts receivable turnover divided by 365 days

Question 12

Under IFRS, which of the following is not permitted for accounting for material amounts of uncollectable accounts receivable?

Accepted Answer

A)  Percentage of receivables, allowance method 
B)  Percentage of sales, allowance method 
C)  Direct write-off method 
D)  All of these answer choices are acceptable under IFRS 
A)  Percentage of receivables, allowance method 
B)  Percentage of sales, allowance method 
C)  Direct write-off method 
D)  All of these answer choices are acceptable under IFRS

Question 13

Which of the following items affect the accounts receivable amount reported on the statement of financial position?

Accepted Answer

A)  Notes receivable 
B)  Interest receivable 
C)  Allowance for doubtful accounts 
D)  Advances to related parties and officers 
A)  Notes receivable 
B)  Interest receivable 
C)  Allowance for doubtful accounts 
D)  Advances to related parties and officers

Question 14

Bank overdrafts are always included as part of cash in the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 15

All of the following are problems associated with the valuation of accounts receivable except for

Accepted Answer

A)  uncollectible accounts. 
B)  returns. 
C)  cash discounts under the net method. 
D)  allowances granted. 
A)  uncollectible accounts. 
B)  returns. 
C)  cash discounts under the net method. 
D)  allowances granted.

Question 16

Companies include postdated checks and petty cash funds as cash.

Accepted Answer

A) True 
 B)False

Question 17

Deposits held as compensating balances

Accepted Answer

A)  usually do not earn interest. 
B)  if legally restricted and held against short-term credit may be included as cash. 
C)  if legally restricted and held against long-term credit may be included among current assets. 
D)  None of these answer choices are correct. 
A)  usually do not earn interest. 
B)  if legally restricted and held against short-term credit may be included as cash. 
C)  if legally restricted and held against long-term credit may be included among current assets. 
D)  None of these answer choices are correct.

Question 18

At the beginning of 2017, Gannon Company received a three-year zero-interest-bearing €1,000 trade note. The market rate for equivalent notes was 8% at that time. Gannon reported this note as a €1,000 trade note receivable on its 2017 year-end statement of financial position and €1,000 as sales revenue for 2017. What effect did this accounting for the note have on Gannon's net earnings for 2017, 2018, 2019, and its retained earnings at the end of 2019, respectively?

Accepted Answer

A)  Overstate, overstate, understate, zero 
B)  Overstate, understate, understate, understate 
C)  Overstate, overstate, overstate, overstate 
D)  None of these answer choices are correct. 
A)  Overstate, overstate, understate, zero 
B)  Overstate, understate, understate, understate 
C)  Overstate, overstate, overstate, overstate 
D)  None of these answer choices are correct.

Question 19

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

Accepted Answer

A)  a deduction from sales in the income statement. 
B)  an item of "other income and expense" in the income statement. 
C)  a deduction from accounts receivable in determining the net realizable value of accounts receivable. 
D)  sales discounts forfeited in the cost of goods sold section of the income statement. 
A)  a deduction from sales in the income statement. 
B)  an item of "other income and expense" in the income statement. 
C)  a deduction from accounts receivable in determining the net realizable value of accounts receivable. 
D)  sales discounts forfeited in the cost of goods sold section of the income statement.

Question 20

Which of the following concepts relates to using the allowance method in accounting for accounts receivable?

Accepted Answer

A)  Bad debt expense is an estimate that is based on historical and prospective information. 
B)  Bad debt expense is based on the actual amounts determined to be uncollectible. 
C)  Bad debt expense is an estimate that is based only on an analysis of the receivables aging. 
D)  Bad debt expense is management's determination of which accounts will be sent to the attorney for collection. 
A)  Bad debt expense is an estimate that is based on historical and prospective information. 
B)  Bad debt expense is based on the actual amounts determined to be uncollectible. 
C)  Bad debt expense is an estimate that is based only on an analysis of the receivables aging. 
D)  Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.

What is a compensating balance?

Ideally, a company should measure receivables in terms of their present value, that is, the discounted value of the cash to be received in the future.

The accounts receivable turnover is computed by dividing

Companies record and report long-term notes receivable on a discounted basis.

Under IFRS, a company may select the fair value option or amortized cost for valuing a group of receivables at each statement of financial position date.

In which account are postage stamps classified?

What is the normal journal entry for recording bad debt expense under the allowance method?

All of the following may be included under the heading of "cash" except

Cash equivalents are investments with original maturities of six months or less.

How is days to collect accounts receivable determined?

Under IFRS, which of the following is not permitted for accounting for material amounts of uncollectable accounts receivable?

Which of the following items affect the accounts receivable amount reported on the statement of financial position?

Bank overdrafts are always included as part of cash in the statement of financial position.

All of the following are problems associated with the valuation of accounts receivable except for

Companies include postdated checks and petty cash funds as cash.

Deposits held as compensating balances

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

Which of the following concepts relates to using the allowance method in accounting for accounts receivable?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters

Exam 7: Cash and Receivables

What is a compensating balance?

Ideally, a company should measure receivables in terms of their present value, that is, the discounted value of the cash to be received in the future.

The accounts receivable turnover is computed by dividing

Companies record and report long-term notes receivable on a discounted basis.

Under IFRS, a company may select the fair value option or amortized cost for valuing a group of receivables at each statement of financial position date.

In which account are postage stamps classified?

What is the normal journal entry for recording bad debt expense under the allowance method?

All of the following may be included under the heading of "cash" except

Cash equivalents are investments with original maturities of six months or less.

How is days to collect accounts receivable determined?

Under IFRS, which of the following is not permitted for accounting for material amounts of uncollectable accounts receivable?

Which of the following items affect the accounts receivable amount reported on the statement of financial position?

Bank overdrafts are always included as part of cash in the statement of financial position.

All of the following are problems associated with the valuation of accounts receivable except for

Companies include postdated checks and petty cash funds as cash.

Deposits held as compensating balances

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

Which of the following concepts relates to using the allowance method in accounting for accounts receivable?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters