Question 1

An increase in receivables growth exceeding sales growth could indicate aggressive revenue recognition policies.

Accepted Answer

A) True 
 B)False  True

Question 2

Securitization occurs when receivables are bundled together and sold or transferred to another organization that issues securities which are not collateralized by the transferred receivables.

Accepted Answer

A) True 
 B)False  False

Question 3

The gross accounts receivable approach is consistent with the accrual accounting philosophy of recording estimated bad debt expense when the sale was made.

Accepted Answer

A) True 
 B)False  False

Question 4

When a firm does not adopt the fair value option,it still must disclose the fair value of its accounts receivable.

Accepted Answer

A) True 
 B)False

Question 5

Echo Company's 2014 beginning and ending accounts receivable balances were $72,500 and $41,250 respectively.During 2014,the company's sales (all on credit)amounted to $857,250.Per Echo's 2014 cash flow statement,$873,500 was collected from customers while $18,750 related to uncollectible accounts was listed among the "non-cash expenses." If Echo's beginning balance in the allowance for uncollectibles was $17,600,the ending balance in this account must be

Accepted Answer

A) $15,000. 
B) $21,350. 
C) $36,350. 
D) The required "allowance for uncollectibles" balance cannot be determined from the data given. 
A) $15,000. 
B) $21,350. 
C) $36,350. 
D) The required "allowance for uncollectibles" balance cannot be determined from the data given.

Question 6

When sales returns occur,they are debited to the sales account.

Accepted Answer

A) True 
 B)False

Question 7

Research has found that companies "manage" earnings by increasing the bad debt provision when earnings are otherwise low,and decreasing the bad debt provision when earnings are high.

Accepted Answer

A) True 
 B)False

Question 8

Research evidence suggests that

Accepted Answer

A) companies increase bad debt expense when earnings are otherwise low and then decrease the expense when earnings are high. 
B) companies reduce bad debt expense when earnings are otherwise low and then increase the expense when earnings are high. 
C) there is no correlation between bad debt expense and earnings levels. 
D) a company's ratio of allowance for uncollectibles to gross receivables should always be close to the average for its industry. 
A) companies increase bad debt expense when earnings are otherwise low and then decrease the expense when earnings are high. 
B) companies reduce bad debt expense when earnings are otherwise low and then increase the expense when earnings are high. 
C) there is no correlation between bad debt expense and earnings levels. 
D) a company's ratio of allowance for uncollectibles to gross receivables should always be close to the average for its industry.

Question 9

Assuming that the transaction was a collateralized loan,which one of the following entries will Ritter make to record this transaction?

Accepted Answer

A)  $\begin{array}{lrl}
\text { DR Cash } & 94,000 & \
\text { DR Prepaid interest } & 6,000 & \
\quad \text { CR Accounts receivable } & & 100,000
\end{array}$ 
B)  $\begin{array}{lrr}
\text { DR Cash } & 94,000 & \
\text { DR Interest expense } & 6,000 & \
\quad \text { CR Loan Payable - Hisker } & & 100,000
\end{array}$
Enterprises 
C)  $\begin{array}{lrr}
\text { DR Cash } & 94,000 & \
\text { DR Prepaid interest } & 6,000 & \
\quad \text { CR Loan Payable-Hisker } & & 100,000
\end{array}$
Enterprises 
D)  $\begin{array}{l}
\text { DR Cash } &94,000\
\quad \text { CR Loan Payable-Hisker }&&94,000
\end{array}$ 
A)  $\begin{array}{lrl}
\text { DR Cash } & 94,000 & \
\text { DR Prepaid interest } & 6,000 & \
\quad \text { CR Accounts receivable } & & 100,000
\end{array}$ 
B)  $\begin{array}{lrr}
\text { DR Cash } & 94,000 & \
\text { DR Interest expense } & 6,000 & \
\quad \text { CR Loan Payable - Hisker } & & 100,000
\end{array}$
Enterprises 
C)  $\begin{array}{lrr}
\text { DR Cash } & 94,000 & \
\text { DR Prepaid interest } & 6,000 & \
\quad \text { CR Loan Payable-Hisker } & & 100,000
\end{array}$
Enterprises 
D)  $\begin{array}{l}
\text { DR Cash } &94,000\
\quad \text { CR Loan Payable-Hisker }&&94,000
\end{array}$

Question 10

A restructured loan can differ from the original loan in any of the several ways listed below except:

Accepted Answer

A) Scheduled interest and principal payments may be reduced or eliminated. 
B) The repayment schedule may be extended over a longer time period. 
C) The loan terms remain the same,but the amount of collateral securing the loan is increased. 
D) The customer and lender can settle the loan. 
A) Scheduled interest and principal payments may be reduced or eliminated. 
B) The repayment schedule may be extended over a longer time period. 
C) The loan terms remain the same,but the amount of collateral securing the loan is increased. 
D) The customer and lender can settle the loan.

Question 11

A change in the percentage rate used to estimate bad debts expense will have a negligible impact on reported earnings.

Accepted Answer

A) True 
 B)False

Question 12

Assume that the transaction was a factoring arrangement with recourse and included a holdback of $6,000.If the fair value of the recourse obligation is equal to the allowance of $3,500,which one of the following entries will Ritter make to record this transaction?

Accepted Answer

A)  $\begin{array}{lrr}
\text { DR Cash } & 100,000 & \
\text { DR Allowance for doubtful accounts } & 3,500 & \
\text { CR Accounts receivable } & & 100,000 \
\text { CR Recourse obligation } && 3,500
\end{array}$ 
B)  $\begin{array}{lrr}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 6,000 & \
\text { DR Allowance for doubtful accounts } & 3,500 & \
\text { DR Due from Hisker Enterprises } & 6,000 & \
\text { CR Accounts receivable } & & 100,000 \
\quad \text { CR Recourse obligation } & & 3,500
\end{array}$ 
C)  $\begin{array}{lll}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 12,000 & \
\quad \text { CR Accounts receivable } & & 100,000
\end{array}$ 
D)  $\begin{array}{lll}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 12,000 & \
\quad \text { CR Due to Hisker Enterprises } & & 100,000
\end{array}$ 
A)  $\begin{array}{lrr}
\text { DR Cash } & 100,000 & \
\text { DR Allowance for doubtful accounts } & 3,500 & \
\text { CR Accounts receivable } & & 100,000 \
\text { CR Recourse obligation } && 3,500
\end{array}$ 
B)  $\begin{array}{lrr}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 6,000 & \
\text { DR Allowance for doubtful accounts } & 3,500 & \
\text { DR Due from Hisker Enterprises } & 6,000 & \
\text { CR Accounts receivable } & & 100,000 \
\quad \text { CR Recourse obligation } & & 3,500
\end{array}$ 
C)  $\begin{array}{lll}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 12,000 & \
\quad \text { CR Accounts receivable } & & 100,000
\end{array}$ 
D)  $\begin{array}{lll}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 12,000 & \
\quad \text { CR Due to Hisker Enterprises } & & 100,000
\end{array}$

Question 13

At the close of its third year of operations,on December 31,2014,the Runner Company had receivables of $350,000,which were net of the related allowance for doubtful accounts.During 2014,the company had charges to bad debt expense of $50,000 and wrote off,as uncollectible,accounts receivable of $22,000.Runner had a balance in its allowance for uncollectible accounts at December 31,2013 of $8,100.
Required:
What should the company report on its balance sheet at December 31,2014,as accounts receivable before the allowance for uncollectible accounts?

Accepted Answer

The answer of At the close of its third year...

Question 14

Guthrie Corporation reports accounts receivable at a net realizable value of $2,940,000 (gross receivable of $3,000,000 minus allowance for uncollectible accounts of $60,000).Assume that there is an active market for these types of receivables and that the price is 94% of face value.To adjust the receivable's carrying value to fair value Guthrie would make which of the following entries?

Accepted Answer

A)  DR Realized loss on receivables$\quad$180,000
CR Accounts receivable$\quad$180,000 
B)  DR Unrealized loss on receivables$\quad$120,000
CR Fair value adjustment-accounts receivable$\quad$120,000 
C)  DR Unrealized loss on receivables$\quad$180,000
CR Fair value adjustment-accounts receivable$\quad$180,000 
D)  DR Realized loss on receivables$\quad$120,000
CR Accounts receivable$\quad$120,000 
A)  DR Realized loss on receivables$\quad$180,000
CR Accounts receivable$\quad$180,000 
B)  DR Unrealized loss on receivables$\quad$120,000
CR Fair value adjustment-accounts receivable$\quad$120,000 
C)  DR Unrealized loss on receivables$\quad$180,000
CR Fair value adjustment-accounts receivable$\quad$180,000 
D)  DR Realized loss on receivables$\quad$120,000
CR Accounts receivable$\quad$120,000

Question 15

For sale of receivables with recourse,what is,if any,the required disclosure? Explain the importance of this point.

Accepted Answer

Disclosure of the contingent liability t

Question 16

The Palmer Corporation sells goods to its customers on a note basis with 10% credit terms and interest payable at the end of each quarter. All notes are due in one year. Palmer makes the following sales on July 1, 2014:
$\begin{array}{lccr}\text { Customer } & \text { Note Maturity } & \text { Interest Due } & \text { Interest Rate } \\hline
\text { J. Perez } & \$ 100,000 & \text { Quarterly } & 10 \% \
\text { P. Berg } & \$ 100,000 & - & \text { None }
\end{array}$
To encourage sales, Berg was given a special deal on interest. Additional information:
Future value of $100,000 in one year (quarterly interest) is $110,381.
Present value of $100,000 for one year (quarterly interest) is $90,595.
-What amount will Palmer use to record the sale to Perez?

Accepted Answer

A) $90,000 
B) $90,595 
C) $100,000 
D) $110,381 
A) $90,000 
B) $90,595 
C) $100,000 
D) $110,381

Question 17

Assuming that the transaction was a factoring arrangement without recourse,which one of the following entries will Ritter make?

Accepted Answer

A)  DR Cash$\quad$100,000
CR Accounts receivable$\quad$100,000 
B)  $\begin{array}{lr}
\text { DR Cash } & 94,000 \
\text { DR Loss on sale of receivables } & 6,000\\text { CR Accounts receivable }&&100,000
\end{array}$ 
C)  $\begin{array}{lr}
\text { DR Cash } & 94,000 \
\text { DR Allowance for doubtful accounts } & 3,500 \
\text { DR Loss on sale of receivables } & 2,500\\text { CR Accounts receivable }&&100,000
\end{array}$ 
D)  $\begin{array}{lrr}
\text { DR Cash } & 94,000 & \
\text { DR Loss on sale of receivables } & 6,000 & \
\text { CR Due to Hisker Enterprises } & & 100,000
\end{array}$ 
A)  DR Cash$\quad$100,000
CR Accounts receivable$\quad$100,000 
B)  $\begin{array}{lr}
\text { DR Cash } & 94,000 \
\text { DR Loss on sale of receivables } & 6,000\\text { CR Accounts receivable }&&100,000
\end{array}$ 
C)  $\begin{array}{lr}
\text { DR Cash } & 94,000 \
\text { DR Allowance for doubtful accounts } & 3,500 \
\text { DR Loss on sale of receivables } & 2,500\\text { CR Accounts receivable }&&100,000
\end{array}$ 
D)  $\begin{array}{lrr}
\text { DR Cash } & 94,000 & \
\text { DR Loss on sale of receivables } & 6,000 & \
\text { CR Due to Hisker Enterprises } & & 100,000
\end{array}$

Question 18

On December 31,2014,Benton Company sold equipment to Cleveland,Inc.,accepting a $400,000 non-interest bearing note receivable in full payment.The note is due on December 31,2017.Cleveland,Inc.normally pays 10% for its borrowed funds.The equipment is carried in Benton's perpetual inventory records at 50% of its cash selling price.The present value of $1 to be received n periods in the future = 1 ÷ (1 + r)n where r is the rate of interest per period.
Required:
a.Prepare Benton's journal entries to record the sale on December 31,2014.
b.Prepare Benton's journal entry on December 31,2015 necessitated by this transaction.
c.At what amount would this note appear on Benton's December 31,2015 balance sheet?

Accepted Answer

@#IMG-DLM& 
Feedback:Present value of $1 for n = 3

Question 19

The determining factor for accounting treatment of a troubled debt restructuring when there is a continuation with modification of terms is whether

Accepted Answer

A) there is a gain or loss on the transaction to the debtor. 
B) there is a gain or loss on the transaction to the lender. 
C) the undiscounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest)at the restructuring date. 
D) the discounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest)at the restructuring date. 
A) there is a gain or loss on the transaction to the debtor. 
B) there is a gain or loss on the transaction to the lender. 
C) the undiscounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest)at the restructuring date. 
D) the discounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest)at the restructuring date.

Question 20

Interest must be imputed whenever the stated rate is not the same as the prime rate of interest at the time of the transaction.

Accepted Answer

A) True 
 B)False

An increase in receivables growth exceeding sales growth could indicate aggressive revenue recognition policies.

Securitization occurs when receivables are bundled together and sold or transferred to another organization that issues securities which are not collateralized by the transferred receivables.

The gross accounts receivable approach is consistent with the accrual accounting philosophy of recording estimated bad debt expense when the sale was made.

When a firm does not adopt the fair value option,it still must disclose the fair value of its accounts receivable.

When sales returns occur,they are debited to the sales account.

Research has found that companies "manage" earnings by increasing the bad debt provision when earnings are otherwise low,and decreasing the bad debt provision when earnings are high.

Research evidence suggests that

Assuming that the transaction was a collateralized loan,which one of the following entries will Ritter make to record this transaction?

A restructured loan can differ from the original loan in any of the several ways listed below except:

A change in the percentage rate used to estimate bad debts expense will have a negligible impact on reported earnings.

Assume that the transaction was a factoring arrangement with recourse and included a holdback of $6,000.If the fair value of the recourse obligation is equal to the allowance of $3,500,which one of the following entries will Ritter make to record this transaction?

For sale of receivables with recourse,what is,if any,the required disclosure? Explain the importance of this point.

Assuming that the transaction was a factoring arrangement without recourse,which one of the following entries will Ritter make?

The determining factor for accounting treatment of a troubled debt restructuring when there is a continuation with modification of terms is whether

Interest must be imputed whenever the stated rate is not the same as the prime rate of interest at the time of the transaction.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters

Exam 8: Receivables

An increase in receivables growth exceeding sales growth could indicate aggressive revenue recognition policies.

Securitization occurs when receivables are bundled together and sold or transferred to another organization that issues securities which are not collateralized by the transferred receivables.

The gross accounts receivable approach is consistent with the accrual accounting philosophy of recording estimated bad debt expense when the sale was made.

When a firm does not adopt the fair value option,it still must disclose the fair value of its accounts receivable.

When sales returns occur,they are debited to the sales account.

Research has found that companies "manage" earnings by increasing the bad debt provision when earnings are otherwise low,and decreasing the bad debt provision when earnings are high.

Research evidence suggests that

Assuming that the transaction was a collateralized loan,which one of the following entries will Ritter make to record this transaction?

A restructured loan can differ from the original loan in any of the several ways listed below except:

A change in the percentage rate used to estimate bad debts expense will have a negligible impact on reported earnings.

Assume that the transaction was a factoring arrangement with recourse and included a holdback of $6,000.If the fair value of the recourse obligation is equal to the allowance of $3,500,which one of the following entries will Ritter make to record this transaction?

For sale of receivables with recourse,what is,if any,the required disclosure? Explain the importance of this point.

Assuming that the transaction was a factoring arrangement without recourse,which one of the following entries will Ritter make?

The determining factor for accounting treatment of a troubled debt restructuring when there is a continuation with modification of terms is whether

Interest must be imputed whenever the stated rate is not the same as the prime rate of interest at the time of the transaction.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters