Exam 7: Receivables and Investments

When using the indirect cash flow method, a decrease in accounts receivable or notes receivable must be to net income to arrive at the increase or decrease in cash flows.

Corrigan Corp. purchased 1,000 shares of Microsoft common stock. What will determine whether the shares are classified as current assets or noncurrent assets?

For each item listed below, identify how it will be reported on the Statement of Cash Flows under the indirect method. -Increase in short-term notes receivable

Pharma Corp. The data presented below for Pharma Corp. is for the year ended December 31, 2015: -See the data for Pharma Corp. If Pharma Corp. estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity date is

Cash flows from purchases, sales, and maturities of investments are usually classified as activities.

The direct write-off method estimates the amount of bad debts before they occur.

Match the following definitions with their appropriate terms in the next eight questions. -Allowance for doubtful accounts

Which one of the following is an investing activity on the statement of cash flows?

On September 1, 2015, Fox Corp. accepted a six-month, 6%, $65,000 interest bearing note from Rudy Company in payment of an accounts receivable. Fox's year­end is December 31. Rudy paid the note and interest on the due date. REQUIRED: 1. Who is the maker and who is the payee of the note? 2. What is the maturity date of the note? 3. Identify the effects of Fox's transactions on the accounting equation in connection with this note.

Genuine Parts received a promissory note from a customer on March 1, 2015. The face amount of the note is $8,000; the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

The date that a promissory note is due is the .

Match the following definitions with their appropriate terms in the next 14 questions. -Principal

What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method?

When a company discounts an interest-bearing note at a bank with recourse:

If a company accepts a major credit card such as VISA from a customer, then the company is responsible for the amount of the sale in a case of nonpayment from a cardholder.

If accounts receivable turnover is faster, this means that fewer days are required to collect receivables.

Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching bad debts expense with revenue on the income statement?

Accountants use the to overcome the deficiencies of the direct write-off method for bad debts.

On May 31, 2015, Evergreen Corp. purchased a 120-day, 6% certificate of deposit for $60,000. The CD was redeemed on September 28, 2015. Identify the effects of the following transactions on the accounting equation for Evergreen's books: a. The purchase of the CD. b. The accrual of interest adjustment for interest earned through June 30, the end of the company's fiscal year. c. The redemption of the CD. Assume 360 days in a year.