Question 1

What is "recourse" as it relates to selling receivables?

Accepted Answer

A)  The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay. 
B)  The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay 
C)  The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale. 
D)  The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected. 
A)  The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay. 
B)  The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay 
C)  The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale. 
D)  The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.

Question 2

In the gross method, sales discounts are reported as a deduction from sales.

Accepted Answer

A) True 
 B)False

Question 3

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:

Accepted Answer

A)  offset the overdraft against cash account. 
B)  report the same in the notes to financial statement. 
C)  report the bank overdraft amount as account payable. 
D)  classify the bank overdraft as compensating balance. 
A)  offset the overdraft against cash account. 
B)  report the same in the notes to financial statement. 
C)  report the bank overdraft amount as account payable. 
D)  classify the bank overdraft as compensating balance.

Question 4

The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2014:   Starr estimates that 4% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2014, the allowance for uncollectible accounts should have a credit balance of

Accepted Answer

A)  $120,000. 
B)  $112,000. 
C)  $38,000. 
D)  $30,000. 
A)  $120,000. 
B)  $112,000. 
C)  $38,000. 
D)  $30,000.

Question 5

During the year Tulip reported net sales of $800,000. The company had accounts receivable of $75,000 at the beginning of the year and $120,000 at the end of the year Compute Tulip's average collection period (assume 365 days a year.)

Accepted Answer

A)  34.2 days 
B)  44.5 days. 
C)  54.8 days. 
D)  89.0 days. 
A)  34.2 days 
B)  44.5 days. 
C)  54.8 days. 
D)  89.0 days.

Question 6

In preparing its May 31, 2014 bank reconciliation, Catt Co. has the following information available:   The correct balance of cash at May 31, 2014 is

Accepted Answer

A)  $40,400. 
B)  $34,250. 
C)  $35,500. 
D)  $36,750. 
A)  $40,400. 
B)  $34,250. 
C)  $35,500. 
D)  $36,750.

Question 7

Which of the following statements is not true of fair value option?

Accepted Answer

A)  Receivables are recorded at fair value in the financial statements. 
B)  Unrealized holding gains and losses from fair value adjustments are reported as a component of comprehensive income. 
C)  The International Accounting Standards Board believes that fair value measurement for financial instruments provides more relevant and understandable information than historical cost. 
D)  An unrealized holding gain or loss is the net change in the fair value of the receivable from one period to another, exclusive of interest revenue. 
A)  Receivables are recorded at fair value in the financial statements. 
B)  Unrealized holding gains and losses from fair value adjustments are reported as a component of comprehensive income. 
C)  The International Accounting Standards Board believes that fair value measurement for financial instruments provides more relevant and understandable information than historical cost. 
D)  An unrealized holding gain or loss is the net change in the fair value of the receivable from one period to another, exclusive of interest revenue.

Question 8

Which of the following items should be included in accounts receivable reported on the balance sheet?

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 9

Which of the following is not considered cash for financial reporting purposes?

Accepted Answer

A)  Petty cash funds and change funds 
B)  Money orders, certified checks, and personal checks 
C)  Coin, currency, and available funds 
D)  Postdated checks and I. O. U.'s 
A)  Petty cash funds and change funds 
B)  Money orders, certified checks, and personal checks 
C)  Coin, currency, and available funds 
D)  Postdated checks and I. O. U.'s

Question 10

Under IFRS, the characteristics that would imply segregation of receivables would include

Accepted Answer

A)  past-due status. 
B)  industry. 
C)  collateral type. 
D)  All of these answer choices are correct. 
A)  past-due status. 
B)  industry. 
C)  collateral type. 
D)  All of these answer choices are correct.

Question 11

The journal entries for a bank reconciliation

Accepted Answer

A)  are taken from the "balance per bank" section only. 
B)  may include a debit to Office Expense for bank service charges. 
C)  may include a credit to Accounts Receivable for an NSF check. 
D)  may include a debit to Accounts Payable for an NSF check. 
A)  are taken from the "balance per bank" section only. 
B)  may include a debit to Office Expense for bank service charges. 
C)  may include a credit to Accounts Receivable for an NSF check. 
D)  may include a debit to Accounts Payable for an NSF check.

Question 12

Assuming the market interest rate is 10% per annum, how much would Green Co. record as a note payable if the terms of the loan with a bank are that it would have to make one $80,000 payment in two years? (The present value of $1 for two periods at 10% is 0.82645).

Accepted Answer

A)  $80,000. 
B)  $72,563. 
C)  $72,727. 
D)  $66,116. 
A)  $80,000. 
B)  $72,563. 
C)  $72,727. 
D)  $66,116.

Question 13

Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables?

Accepted Answer

A)  Loss of $30,000. 
B)  Loss of $240,000. 
C)  Loss of $270,000. 
D)  $0. 
A)  Loss of $30,000. 
B)  Loss of $240,000. 
C)  Loss of $270,000. 
D)  $0.

Question 14

AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?

Accepted Answer

A)  $14,700. 
B)  $14,850. 
C)  $15,000. 
D)  $15,150. 
A)  $14,700. 
B)  $14,850. 
C)  $15,000. 
D)  $15,150.

Question 15

Shelton Company has the following account balances at year-end:   Shelton should report accounts receivable at a net amount of

Accepted Answer

A)  $108,000. 
B)  $112,800. 
C)  $115,200. 
D)  $120,000. 
A)  $108,000. 
B)  $112,800. 
C)  $115,200. 
D)  $120,000.

Question 16

Which of the following methods of determining bad debt expense does not properly match expense and revenue?

Accepted Answer

A)  Charging bad debts with a percentage of sales under the allowance method. 
B)  Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method. 
C)  Charging bad debts with an amount derived from aging accounts receivable under the allowance method. 
D)  Charging bad debts as accounts are written off as uncollectible. 
A)  Charging bad debts with a percentage of sales under the allowance method. 
B)  Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method. 
C)  Charging bad debts with an amount derived from aging accounts receivable under the allowance method. 
D)  Charging bad debts as accounts are written off as uncollectible.

Question 17

Before year-end adjusting entries, Dunn Company's account balances at December 31, 2014, for accounts receivable and the related allowance for uncollectible accounts were $1,200,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is

Accepted Answer

A)  $1,165,000. 
B)  $1,075,000. 
C)  $985,000. 
D)  $1,110,000. 
A)  $1,165,000. 
B)  $1,075,000. 
C)  $985,000. 
D)  $1,110,000.

Question 18

Which of the following is an appropriate reconciling item to the balance per bank in abank reconciliation?

Accepted Answer

A)  Bank service charge. 
B)  Deposit in transit. 
C)  Bank interest. 
D)  Chargeback for NSF check. 
A)  Bank service charge. 
B)  Deposit in transit. 
C)  Bank interest. 
D)  Chargeback for NSF check.

Question 19

The percentage-of-sales and percentage-of-receivables approaches are used for impairment measurement and reporting.

Accepted Answer

A) True 
 B)False

Question 20

Allowance for doubtful accounts.
When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result of this, a company must recognize bad debt expense. There are basically two methods of recognizing bad debt expense: (1) direct write-off method, and (2) allowance method.

Instructions

(a) Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense.
(b) Discuss the reasons why one of the above methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles.

Accepted Answer

(a) There are basically two methods of r

Exam 7: Cash and Receivables

What is "recourse" as it relates to selling receivables?

In the gross method, sales discounts are reported as a deduction from sales.

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:

The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2014: Starr estimates that 4% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2014, the allowance for uncollectible accounts should have a credit balance of

During the year Tulip reported net sales of $800,000. The company had accounts receivable of $75,000 at the beginning of the year and $120,000 at the end of the year Compute Tulip's average collection period (assume 365 days a year.)

In preparing its May 31, 2014 bank reconciliation, Catt Co. has the following information available: The correct balance of cash at May 31, 2014 is

Which of the following statements is not true of fair value option?

Which of the following items should be included in accounts receivable reported on the balance sheet?

Which of the following is not considered cash for financial reporting purposes?

Under IFRS, the characteristics that would imply segregation of receivables would include

The journal entries for a bank reconciliation

Assuming the market interest rate is 10% per annum, how much would Green Co. record as a note payable if the terms of the loan with a bank are that it would have to make one $80,000 payment in two years? (The present value of $1 for two periods at 10% is 0.82645).

Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables?

AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?

Shelton Company has the following account balances at year-end: Shelton should report accounts receivable at a net amount of

Which of the following methods of determining bad debt expense does not properly match expense and revenue?

Which of the following is an appropriate reconciling item to the balance per bank in abank reconciliation?

The percentage-of-sales and percentage-of-receivables approaches are used for impairment measurement and reporting.

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet 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

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

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