Question 1

Securitization entities generally stay on the balance sheet under both IFRS and current U.S.GAAP.

Accepted Answer

A) True 
 B)False

Question 2

Edsel Inc. has the following unadjusted year end trial balance information available for 2014:
$$\begin{array} { l r } 
\text { Cash sales } & \$ 400,000 \
\text { Credit sales } & 600,000 \
\text { Ending accounts receivable balance } & 180,000 \
\text { Ending allowance for uncollectibles } & 1,500 \
\text { Estimated uncollectibles } & 2 \%
\end{array}$$
-If Edsel uses the gross accounts receivable approach for estimating bad debt expense,the income statement will show an expense of

Accepted Answer

A) $2,100. 
B) $3,600. 
C) $5,100. 
D) $8,500. 
A) $2,100. 
B) $3,600. 
C) $5,100. 
D) $8,500.

Question 3

If the fair value option is not elected,the company must still disclose the fair value of its all of its notes receivable.

Accepted Answer

A) True 
 B)False

Question 4

Shipments to a company's distributors should normally be treated as sales when they occur.

Accepted Answer

A) True 
 B)False

Question 5

A troubled debt restructuring can only be accomplished through a continuation with modification of debt terms where the original loan is cancelled and a new loan agreement is signed.

Accepted Answer

A) True 
 B)False

Question 6

Accounting for long-term credit sales transactions utilizing notes receivable

Accepted Answer

A) ignores interest unless an interest rate is specified in the note. 
B) makes it difficult to assess the degree to which a company's overall earnings are due to profitable credit sales versus profitable customer financing. 
C) achieves a clear separation between income from credit sales and interest earned. 
D) is controversial because it necessitates use of an assumed interest rate. 
A) ignores interest unless an interest rate is specified in the note. 
B) makes it difficult to assess the degree to which a company's overall earnings are due to profitable credit sales versus profitable customer financing. 
C) achieves a clear separation between income from credit sales and interest earned. 
D) is controversial because it necessitates use of an assumed interest rate.

Question 7

Corona Industries purchased a stamping machine on January 2, 2011, for $100,000. It paid $20,000 down and financed the balance over 5 years at State Bank. Terms of the loan were 10% interest payable on December 31 each year with a required $16,000 principal payment. 2014 proves to be a difficult year and on December 1, Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current market value of $22,000.
-What is the amount of the restructuring gain or loss to Corona?

Accepted Answer

A) $6,000 loss 
B) $6,000 gain 
C) $8,933 loss 
D) $13,000 gain 
A) $6,000 loss 
B) $6,000 gain 
C) $8,933 loss 
D) $13,000 gain

Question 8

When sales growth exceeds receivables growth,this could be an indication of aggressive revenue recognition policies.

Accepted Answer

A) True 
 B)False

Question 9

Under the sales revenue approach,no bad debt expense is recorded when a specific account (known to be uncollectible)is written off.

Accepted Answer

A) True 
 B)False

Question 10

Jones Co.sells on credit and maintains an allowance for doubtful accounts equal to 2% of the company's $3,450,000 receivables balance.Due to a cash shortfall,Jones sells $275,000 of its receivables with recourse to Ninth National Bank,and the bank withholds $12,000 from the factoring proceeds to cover possible noncollections.If the noncollections eventually amount to $15,000,the entry on Jones' books when notified of this fact would be:

Accepted Answer

A)  $\begin{array}{l}
\text { DR Allowance for doubtful accounts }&3,000 \
\text { CR Accounts receivable (specific customers) }&&3,000
\end{array}$ 
B)  $\begin{array}{lr}
\text {DR Allowance for doubtful accounts }&15,000\
\text { CR Accounts receivable (specific customers)}&&15,000
\end{array}$ 
C)  $\begin{array}{lr}
\text { DR Bad Debt expense}&3,000\
\text {CR Cash }&&3,000\
\end{array}$ 
D)  $\begin{array}{lr}
\text {DR Allowance for doubtful accounts }&15,000\
\text {CR Due from Ninth National Bank }&&12,000\
\text {CR Cash }&&3,000\
\end{array}$ 
A)  $\begin{array}{l}
\text { DR Allowance for doubtful accounts }&3,000 \
\text { CR Accounts receivable (specific customers) }&&3,000
\end{array}$ 
B)  $\begin{array}{lr}
\text {DR Allowance for doubtful accounts }&15,000\
\text { CR Accounts receivable (specific customers)}&&15,000
\end{array}$ 
C)  $\begin{array}{lr}
\text { DR Bad Debt expense}&3,000\
\text {CR Cash }&&3,000\
\end{array}$ 
D)  $\begin{array}{lr}
\text {DR Allowance for doubtful accounts }&15,000\
\text {CR Due from Ninth National Bank }&&12,000\
\text {CR Cash }&&3,000\
\end{array}$

Question 11

Edsel Inc. has the following unadjusted year end trial balance information available for 2014:
$$\begin{array} { l r } 
\text { Cash sales } & \$ 400,000 \
\text { Credit sales } & 600,000 \
\text { Ending accounts receivable balance } & 180,000 \
\text { Ending allowance for uncollectibles } & 1,500 \
\text { Estimated uncollectibles } & 2 \%
\end{array}$$
-If Edsel uses the sales revenue approach for estimating bad debt expense,the allowance for uncollectibles account after the proper adjustments to the accounts are recorded,should show a balance of

Accepted Answer

A) $11,500. 
B) $13,500. 
C) $15,500. 
D) $21,500. 
A) $11,500. 
B) $13,500. 
C) $15,500. 
D) $21,500.

Question 12

In a troubled debt restructuring,GAAP restructuring gains and losses are equal to real economic gains and losses for the companies involved.

Accepted Answer

A) True 
 B)False

Question 13

When the sum of the future cash flows of a restructured note is above the current note's book value,the debtor recognizes

Accepted Answer

A) a gain on the debt restructure. 
B) a loss on the debt restructure. 
C) neither a gain nor a loss on the debt restructure. 
D) both a restructure gain and an early extinguishment loss. 
A) a gain on the debt restructure. 
B) a loss on the debt restructure. 
C) neither a gain nor a loss on the debt restructure. 
D) both a restructure gain and an early extinguishment loss.

Question 14

Smith Company is a manufacturer of medical devices and has an excellent quality control department,thus defective product returns are rare.In 2014,Smith reported sales of $276,344,000.The company did,however,have two returns in 2014 related to the wrong product model being shipped.Smith's 2014 journal entry to record a $37,500 return from Foxtrot Medical would be

Accepted Answer

A)  DR Sales returns and allowances$\quad$37,500
CR Accounts receivable-Foxtrot Medical$\quad$37,500 
B)  DR Sales returns and allowances$\quad$37,500
CR Allowance for Sales Returns and Allowances$\quad$37,500 
C)  DR Sales$\quad$37,500
CR Accounts receivable-Foxtrot Medical$\quad$37,500 
D)  DR Sales returns expense$\quad$37,500
CR Accounts receivable-Foxtrot Medical$\quad$37,500 
A)  DR Sales returns and allowances$\quad$37,500
CR Accounts receivable-Foxtrot Medical$\quad$37,500 
B)  DR Sales returns and allowances$\quad$37,500
CR Allowance for Sales Returns and Allowances$\quad$37,500 
C)  DR Sales$\quad$37,500
CR Accounts receivable-Foxtrot Medical$\quad$37,500 
D)  DR Sales returns expense$\quad$37,500
CR Accounts receivable-Foxtrot Medical$\quad$37,500

Question 15

According to authoritative accounting literature,the determination of whether a transfer of receivables is a sale or collateralized borrowing hinges on whether the

Accepted Answer

A) transfer was with or without recourse. 
B) transferor collects payments directly from the customer. 
C) transferor surrenders control over the receivable. 
D) customer ultimately defaults. 
A) transfer was with or without recourse. 
B) transferor collects payments directly from the customer. 
C) transferor surrenders control over the receivable. 
D) customer ultimately defaults.

Question 16

A firm's financial statements can be dramatically affected when the firm is required to consolidate securitization entities that had previously been off-balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

Corona Industries purchased a stamping machine on January 2, 2011, for $100,000. It paid $20,000 down and financed the balance over 5 years at State Bank. Terms of the loan were 10% interest payable on December 31 each year with a required $16,000 principal payment. 2014 proves to be a difficult year and on December 1, Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current market value of $22,000.
-On December 1,2014,how much interest is accrued on this loan?

Accepted Answer

A) $2,933 
B) $3,200 
C) $6,933 
D) $18,933 
A) $2,933 
B) $3,200 
C) $6,933 
D) $18,933

Question 18

Under current GAAP,the sponsor of a securitization entity (SE)will have to treat a securitization as a collateralized borrowing instead of a sale if it has

Accepted Answer

A) the power to direct the activities of the SPE that most significantly impact the SPE's economic performance. 
B) the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE. 
C) both the power to direct the activities of the SPE that most significantly impact the SPE's economic performance and the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE. 
D) neither the power to direct the activities of the SPE that most significantly impact the SPE's economic performance or the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE because securitizations are always treated as sales. 
A) the power to direct the activities of the SPE that most significantly impact the SPE's economic performance. 
B) the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE. 
C) both the power to direct the activities of the SPE that most significantly impact the SPE's economic performance and the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE. 
D) neither the power to direct the activities of the SPE that most significantly impact the SPE's economic performance or the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE because securitizations are always treated as sales.

Question 19

The only condition required for control over receivables to be surrendered is that the transferred assets should be beyond the reach of the transferor and its creditors.

Accepted Answer

A) True 
 B)False

Question 20

What amount will Jensen recognize as interest income during 2014?

Accepted Answer

A) $4,356 
B) $4,704 
C) $5,111 
D) $0 
A) $4,356 
B) $4,704 
C) $5,111 
D) $0

Securitization entities generally stay on the balance sheet under both IFRS and current U.S.GAAP.

If the fair value option is not elected,the company must still disclose the fair value of its all of its notes receivable.

Shipments to a company's distributors should normally be treated as sales when they occur.

A troubled debt restructuring can only be accomplished through a continuation with modification of debt terms where the original loan is cancelled and a new loan agreement is signed.

Accounting for long-term credit sales transactions utilizing notes receivable

When sales growth exceeds receivables growth,this could be an indication of aggressive revenue recognition policies.

Under the sales revenue approach,no bad debt expense is recorded when a specific account (known to be uncollectible)is written off.

In a troubled debt restructuring,GAAP restructuring gains and losses are equal to real economic gains and losses for the companies involved.

When the sum of the future cash flows of a restructured note is above the current note's book value,the debtor recognizes

According to authoritative accounting literature,the determination of whether a transfer of receivables is a sale or collateralized borrowing hinges on whether the

A firm's financial statements can be dramatically affected when the firm is required to consolidate securitization entities that had previously been off-balance sheet.

Under current GAAP,the sponsor of a securitization entity (SE)will have to treat a securitization as a collateralized borrowing instead of a sale if it has

The only condition required for control over receivables to be surrendered is that the transferred assets should be beyond the reach of the transferor and its creditors.

What amount will Jensen recognize as interest income during 2014?

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

Securitization entities generally stay on the balance sheet under both IFRS and current U.S.GAAP.

If the fair value option is not elected,the company must still disclose the fair value of its all of its notes receivable.

Shipments to a company's distributors should normally be treated as sales when they occur.

A troubled debt restructuring can only be accomplished through a continuation with modification of debt terms where the original loan is cancelled and a new loan agreement is signed.

Accounting for long-term credit sales transactions utilizing notes receivable

When sales growth exceeds receivables growth,this could be an indication of aggressive revenue recognition policies.

Under the sales revenue approach,no bad debt expense is recorded when a specific account (known to be uncollectible)is written off.

In a troubled debt restructuring,GAAP restructuring gains and losses are equal to real economic gains and losses for the companies involved.

When the sum of the future cash flows of a restructured note is above the current note's book value,the debtor recognizes

According to authoritative accounting literature,the determination of whether a transfer of receivables is a sale or collateralized borrowing hinges on whether the

A firm's financial statements can be dramatically affected when the firm is required to consolidate securitization entities that had previously been off-balance sheet.

Under current GAAP,the sponsor of a securitization entity (SE)will have to treat a securitization as a collateralized borrowing instead of a sale if it has

The only condition required for control over receivables to be surrendered is that the transferred assets should be beyond the reach of the transferor and its creditors.

What amount will Jensen recognize as interest income during 2014?

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