Question 1

Which statement best describes the gross method of accounting for cash discounts?

Accepted Answer

A) Records receivables at their present value amount. 
B) Records any discounts forfeited as income. 
C) Records any discounts taken as a reduction in revenue. 
D) Records any discounts taken as an expense. 
A) Records receivables at their present value amount. 
B) Records any discounts forfeited as income. 
C) Records any discounts taken as a reduction in revenue. 
D) Records any discounts taken as an expense.

Question 2

Super Corp. reported credit sales of $2,000,000, cash sales of $200,000 and bad debt write-offs of $100,000 for last year. The ending balance in accounts receivable was $4,500,000. Bad debt expense was $250,000. The allowance for doubtful accounts had a balance of $400,000 at the beginning of the year. What was the balance in the allowance for doubtful accounts at the end of the year?

Accepted Answer

A) $100,000 
B) $300,000 
C) $500,000 
D) $550,000 
A) $100,000 
B) $300,000 
C) $500,000 
D) $550,000

Question 3

Micelle Inc. reported credit sales of $600,000 and cash collections of $450,000 for last year. The ending balance in accounts receivable was $800,000. Bad debt expense is estimated at 1% of credit sales. The allowance for doubtful accounts had a balance of $80,000 at the beginning of the year. Assuming there are no write-offs made during the year, what was the balance in the allowance for doubtful accounts at the end of the year?

Accepted Answer

A) $6,000 
B) $8,000 
C) $81,500 
D) $86,000 
A) $6,000 
B) $8,000 
C) $81,500 
D) $86,000

Question 4

What are the general recognition criteria for non-cash assets under GAAP?

Accepted Answer

A) If the item meets the definition of an asset, it must have an indefinite life. 
B) If the item meets the definition of an expense, it must be measurable. 
C) In order for the item to be an asset, it will have future economic benefits, be under the entity's control, and result form past transactions. 
D) Future transactions can be recorded under GAAP. 
A) If the item meets the definition of an asset, it must have an indefinite life. 
B) If the item meets the definition of an expense, it must be measurable. 
C) In order for the item to be an asset, it will have future economic benefits, be under the entity's control, and result form past transactions. 
D) Future transactions can be recorded under GAAP.

Question 5

Which statement is correct about recording an allowance for doubtful accounts?

Accepted Answer

A) Accounts receivable are not adjusted for known uncollectable amounts. 
B) Net accounts receivable is recalculated when there are changes recorded in the Allowance for Doubtful Accounts contra account. 
C) Comparability is the reason an allowance for doubtful accounts is needed. 
D) An allowance for doubtful accounts does not require estimates or judgments. 
A) Accounts receivable are not adjusted for known uncollectable amounts. 
B) Net accounts receivable is recalculated when there are changes recorded in the Allowance for Doubtful Accounts contra account. 
C) Comparability is the reason an allowance for doubtful accounts is needed. 
D) An allowance for doubtful accounts does not require estimates or judgments.

Question 6

Maximum Inc. reported credit sales of $880,000, bad debt write-offs of $297,000 and bad debt expense of $257,000 for last year. Accounts receivable had a balance of $1,367,000 at the beginning of the year and $1,381,000 at the end of the year. How much cash was collected from customers during the year?

Accepted Answer

A) $457,000 
B) $569,000 
C) $714,000 
D) $866,000 
A) $457,000 
B) $569,000 
C) $714,000 
D) $866,000

Question 7

Identify whether each of the following items should be classified in "cash and cash equivalents" on the balance sheet. Assume that the reporting entity has operations in Canada.
 $\begin{array}{c}
\begin{array}{|l}
\hline\
\
\
\hline a.\
\
\hline b.\
\
\hline c.\
\hline d.\
\hline e.\
\
\
\hline
\end{array}
\begin{array}{|l|}
\hline\
\
\
\hline \text {Negative balance in a chequing account}\
\text { (overdraft).}\
\hline \text {Investment in Treasury bills maturing}\
\text { 70 days after the year-end.}\
\hline \text {100 ounces of silver.}\
\hline \text {Chequing account in Canadian dollars.}\
\hline \text {Investment in U.S. government}\
\text {Treasury bills maturing 80 days after}\
\text { the yearend.}\
\hline 
\end{array}
\begin{array}{c|}
\hline\text {Cash and}\
 \text {cash}\
\text { equivalents}\
\hline\
\
\hline\
\
\hline\
\hline\
\hline\
\
\
\hline
\end{array}
\begin{array}{c|}
\hline\text {Readily}\
\text {convertible}\
\text {to cash?}\
\hline\
\
\hline\
\
\hline\
\hline\
\hline\
\
\
\hline
\end{array}
\begin{array}{c|}
\hline\text {Risk of}\
 \text {change in}\
\text { cash value?}\
\hline\
\
\hline\
\
\hline\
\hline\
\hline\
\
\
\hline
\end{array}
\end{array}$

Accepted Answer

None

Question 8

Which of the following is not a reason for preparing a bank reconciliation?

Accepted Answer

A) It explains differences between cash in the general ledger and cash on the bank statement. 
B) It is necessary in order to prevent fraud committed by employees. 
C) It is helpful in identifying any errors made by the bank. 
D) It is helpful in identifying any bookkeeping errors made in the general ledger. 
A) It explains differences between cash in the general ledger and cash on the bank statement. 
B) It is necessary in order to prevent fraud committed by employees. 
C) It is helpful in identifying any errors made by the bank. 
D) It is helpful in identifying any bookkeeping errors made in the general ledger.

Question 9

What is included in "cash and cash equivalents"?

Accepted Answer

A) Petty cash. 
B) Six-month term deposits in Canadian dollars. 
C) Guaranteed Investment Certificate maturing in 100 days. 
D) Four-month term deposit in U.S. dollars. 
A) Petty cash. 
B) Six-month term deposits in Canadian dollars. 
C) Guaranteed Investment Certificate maturing in 100 days. 
D) Four-month term deposit in U.S. dollars.

Question 10

What amount will be included in "cash and cash equivalents"? $$\begin{array} { | l | r | } 
\text { Treasury bills maturing in } 125 \text { days } & \$ 12,000 \
\hline \text { Treasury bills maturing in } 30 \text { days } & 24,000 \
\hline \text { U.S. dollar chequing account } & 18,000 \
\hline \text { Shares of a U.S. publicly traded company } & 10,000 \
\hline
\end{array}$$

Accepted Answer

A) $36,000 
B) $42,000 
C) $54,000 
D) $64,000 
A) $36,000 
B) $42,000 
C) $54,000 
D) $64,000

Question 11

Which statement is correct?

Accepted Answer

A) Factoring without recourse creates a receivable on the balance sheet. 
B) Factoring without recourse reduces a current ratio that is >1. 
C) Factoring with recourse negatively impacts working capital. 
D) Factoring without recourse creates a liability on the balance sheet. 
A) Factoring without recourse creates a receivable on the balance sheet. 
B) Factoring without recourse reduces a current ratio that is >1. 
C) Factoring with recourse negatively impacts working capital. 
D) Factoring without recourse creates a liability on the balance sheet.

Question 12

What amount will be included in "cash and cash equivalents"? $$\begin{array} { | l | r | } 
\hline \text { Treasury bills maturing in } 140 \text { days } & \$ 12,000 \
\hline \text { Euro-denominated savings account } & 18,000 \
\hline \text { U.S. dollar chequing account } & 10,000 \
\hline \text { Treasury bills maturing in } 30 \text { days } & 24,000
\end{array}$$

Accepted Answer

A) $36,000 
B) $42,000 
C) $52,000 
D) $64,000 
A) $36,000 
B) $42,000 
C) $52,000 
D) $64,000

Question 13

Which statement is correct about the bank reconciliation?

Accepted Answer

A) It compares cash in the company's records with those of the bank. 
B) It does not identify accounting errors made by the bank. 
C) It interferes with other internal controls over cash. 
D) It compares cash in the general ledger with the monthly budgets. 
A) It compares cash in the company's records with those of the bank. 
B) It does not identify accounting errors made by the bank. 
C) It interferes with other internal controls over cash. 
D) It compares cash in the general ledger with the monthly budgets.

Question 14

Pessimist Inc. reported credit sales of $5,400,000 and $4,800,000 for the years ended December 31, 2020 and 2021, respectively. Information on trade accounts receivable for the company is presented below.
 $$\begin{array} { l r r r r } 
\text { Days outstanding } & \text { Current } & \text { 31-60 } & \mathbf { 6 1 - 9 0 } & \text { 91+ } \
\text { Balance in A/R. Dec. 31. 2020 } & 397,000 & 156,000 & 47,000 & 17,000 \
\text { Balance in A/R. Dec. 31. 2021 } & 392,000 & 141,000 & 33,000 & 26,000 \
\% \text { of AR est. to be uncollectible } & 0.8 \% & 5.0 \% & 6.0 \% & 9.0 \%
\end{array}$$ The balance of the allowance for doubtful accounts as of January 1, 2020 was $15,000. In addition, you learn that the company wrote off specific accounts of $18,500 in 2020, and the bad debts expense was $13,000 in 2021.
Required:
a. Determine the bad debts expense for 2020.
b. Determine the amount of receivables written off during 2021.
c. Prepare the journal entry to record the bad debts expense for 2020.

Accepted Answer

a. Calculate the bad debts expense for 2

Question 15

Which statement is not correct?

Accepted Answer

A) Factoring with recourse creates a liability on the balance sheet. 
B) Factoring with recourse reduces a current ratio that is >1. 
C) Factoring with recourse negatively impacts working capital. 
D) Factoring without recourse reduces a current ratio that is >1. 
A) Factoring with recourse creates a liability on the balance sheet. 
B) Factoring with recourse reduces a current ratio that is >1. 
C) Factoring with recourse negatively impacts working capital. 
D) Factoring without recourse reduces a current ratio that is >1.

Question 16

Beebo Ltd. provides for doubtful accounts based on 6% of credit sales. The following data are available for 2021.
 $$\begin{array} { | l | r | } 
\hline \text { Credit sales during } 2021 & \$ 3,550,000 \
\hline \text { Allowance for doubtful accounts, Jan 1, 2021 } & 59,000 \mathrm { Cr } \
\hline \text { Collection of accounts written off in prior years } & 3,500 \
\hline \text { Customer accounts written off as uncollectable during } 2021 & 37,000 \
\hline
\end{array}$$ How much should the balance in the allowance for doubtful accounts be at December 31, 2021?

Accepted Answer

The answer of Beebo Ltd. provides for doubtful accounts based...

Question 17

Eastwick Company is preparing its financial statement for the year ended December 31, 2020. A summary of Eastwick's accounts receivable sub-ledger shows the following information:
 $$\begin{array} { l r r r r } 
\text { Days outstanding } & \mathbf { 0 - 3 0 } & \mathbf { 3 1 - 9 0 } & \mathbf { 9 1 + } & \text { Total } \
\text { Balance outstanding } 12 / 31 / 20 & \$ 5,500,000 & \$ 2,500,000 & \$ 250,000 & \$ 8,250,000 \
\text { Estimated default rate } & 0.6 \% & 2.0 \% & 9.0 \% &
\end{array}$$ $\begin{array}{llcc}
  \text { Accounts written off in 2020 } &\$80,000  \
 \text {Collection of accounts written off in other periods  } &1,000\
 \text {Allowance for doubtful accounts, 01/01/2020  } &115,000\
\end{array}$
 Required:
a. Calculate the amount of bad debts expense required for 2020.
b. Present the journal entry to record bad debts expense for 2020.
c. Present the journal entry that was used to record write-offs for 2020.
d. Independent of the information above, suppose Eastwick factored $1,500,000 of receivables without recourse. In exchange, it received $1,380,000. Present the journal entry to record this transfer of receivables.
e. Independent of part (d), Eastwick instead factored the $1,500,000 of receivables with recourse and received $1,430,000 cash. Both Eastwick and the factor anticipate that 2% of these receivables will prove to be uncollectable, so the factor has held this amount to cover any uncollectable accounts. Should the amount of uncollectable accounts prove to be more or less than 2%, the difference will be paid by/refunded to Eastwick. Present the journal entry to record this transfer of receivables.

Accepted Answer

a. Calculate the bad debts expense (BDE)

Question 18

What is one way to segregate duties to improve controls over cash?

Accepted Answer

A) Request all customers to pay in cash. 
B) Separate sales employees from employees who book the accounting entries. 
C) Request all customers to pay by cheques made payable to "CASH." 
D) Have the employee who is responsible for making cash deposits to the bank also do the bank reconciliations. 
A) Request all customers to pay in cash. 
B) Separate sales employees from employees who book the accounting entries. 
C) Request all customers to pay by cheques made payable to "CASH." 
D) Have the employee who is responsible for making cash deposits to the bank also do the bank reconciliations.

Question 19

Explain why a bank reconciliation is necessary.

Accepted Answer

•A bank reconciliation ties together the

Question 20

At December 31, 2021, Pinebrook Inc. reported $135,000 in accounts receivable and $9,300 in the allowance for doubtful accounts. In 2022, the company had $875,000 in credit sales and collected $915,000 on accounts receivable. Pinebrook also wrote off $2,500 in uncollectable accounts. The company uses the aging method to estimate bad debts, and management has estimated that the allowance for doubtful accounts for December 31, 2022 should be $8,800.
Required:
a. Provide the journal entry to record bad debts expense for the year 2022. (Ignore information contained in part (b)below.)
b. While auditing the books of Pinebrook, you discover that the company's bookkeeper has erroneously recorded a transaction: for one customer who went bankrupt in 2022, she wrote off the $6,800 receivable with a debit to bad debts expense. Determine the error's effects (overstated/understated)on the December 31, 2022 balance sheet (accounts receivable, allowance for doubtful accounts)and the income statement for the year 2022.
c. In January 2023, the company factored all of its receivables ($95,000)without recourse for proceeds of $77,000. Present the journal entry to record this transaction.

Accepted Answer

a. @#IMG-DLM& Journal entry to record bad debts ex

Which statement best describes the gross method of accounting for cash discounts?

What are the general recognition criteria for non-cash assets under GAAP?

Which statement is correct about recording an allowance for doubtful accounts?

Which of the following is not a reason for preparing a bank reconciliation?

What is included in "cash and cash equivalents"?

What amount will be included in "cash and cash equivalents"? Treasury bills maturing in 125 days \ 12,000 Treasury bills maturing in 30 days 24,000 U.S. dollar chequing account 18,000 Shares of a U.S. publicly traded company 10,000

Which statement is correct?

What amount will be included in "cash and cash equivalents"? Treasury bills maturing in 140 days \ 12,000 Euro-denominated savings account 18,000 U.S. dollar chequing account 10,000 Treasury bills maturing in 30 days 24,000

Which statement is correct about the bank reconciliation?

Which statement is not correct?

What is one way to segregate duties to improve controls over cash?

Explain why a bank reconciliation is necessary.

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Inventories

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 5: Cash and Receivables

Which statement best describes the gross method of accounting for cash discounts?

What are the general recognition criteria for non-cash assets under GAAP?

Which statement is correct about recording an allowance for doubtful accounts?

Which of the following is not a reason for preparing a bank reconciliation?

What is included in "cash and cash equivalents"?

What amount will be included in "cash and cash equivalents"? Treasury bills maturing in 125 days \ 12,000 Treasury bills maturing in 30 days 24,000 U.S. dollar chequing account 18,000 Shares of a U.S. publicly traded company 10,000

Which statement is correct?

What amount will be included in "cash and cash equivalents"? Treasury bills maturing in 140 days \ 12,000 Euro-denominated savings account 18,000 U.S. dollar chequing account 10,000 Treasury bills maturing in 30 days 24,000

Which statement is correct about the bank reconciliation?

Which statement is not correct?

What is one way to segregate duties to improve controls over cash?

Explain why a bank reconciliation is necessary.

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Inventories

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters