Question 1

Management may wish to overstate a company's income because bonus plans and stock options are related to reported earnings.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following activities affects net income, but has no immediate impact upon cash flows?

Accepted Answer

A)  Collection of an account receivable. 
B)  Making the end-of-period adjustment to record estimated uncollectible accounts. 
C)  Investing excess cash in marketable securities. 
D)  Write-off of an uncollectible account receivable against the allowance. 
A)  Collection of an account receivable. 
B)  Making the end-of-period adjustment to record estimated uncollectible accounts. 
C)  Investing excess cash in marketable securities. 
D)  Write-off of an uncollectible account receivable against the allowance.

Question 3

Each of the following measures strengthens internal control over cash receipts except:

Accepted Answer

A)  The use of a voucher system. 
B)  Preparation of a daily listing of all checks received through the mail. 
C)  The deposit of cash receipts intact in the bank on a daily basis. 
D)  The use of cash registers. 
A)  The use of a voucher system. 
B)  Preparation of a daily listing of all checks received through the mail. 
C)  The deposit of cash receipts intact in the bank on a daily basis. 
D)  The use of cash registers.

Question 4

Which of the following practices contributes to efficient cash management?

Accepted Answer

A)  Never borrow money-maintain a cash balance sufficient to make all necessary payments. 
B)  Record all cash receipts and cash payments at the end of the month when reconciling the bank statements. 
C)  Prepare monthly forecasts of planned cash receipts, payments and anticipated cash balances up to a year in advance. 
D)  Pay each bill as soon as the invoice arrives. 
A)  Never borrow money-maintain a cash balance sufficient to make all necessary payments. 
B)  Record all cash receipts and cash payments at the end of the month when reconciling the bank statements. 
C)  Prepare monthly forecasts of planned cash receipts, payments and anticipated cash balances up to a year in advance. 
D)  Pay each bill as soon as the invoice arrives.

Question 5

Match the following terms with the explanations below. If no term fits the explanation write none
$$\begin{array} { | l | l | l | } 
\hline \text { Accounts Receivable Turnover Rate } && \text { Financial Assets } \
\hline \text { Allowance for Doubtful Accounts } && \text { Marketable Securities } \
\hline \text { Cash Equivalents } && \text { Mark-to-Market } \
\hline \text { Direct Write Off Method } && \text { Unrealized Gain } \
\hline
\end{array}$$
_______ (1) A means of accounting for uncollectibles which does not recognize any expense until specific receivables are determined to be worthless.
_______ (2) An account showing the amount of estimated uncollectible receivables.
_______ (3 ) The process of estimating uncollectible accounts by classifying accounts receivables by age groups.
_______ (4) Dividing net sales by average receivables to create a ratio to measure the liquidity of accounts receivable.
_______ (5) Very short-term liquid investments which must mature within 90 days of acquisition.
_______ (6) Cash and assets convertible directly into known amounts of cash.
_______ (7) An account showing the difference between the cost of an investment in marketable securities and its market value.
_______ (8) The value of a note at its maturity date.
_______ (9) Highly liquid investments that can be sold in organized securities exchanges.

Accepted Answer

(1.) Direct Write Off Method
(2.) Allowa

Question 6

A note receivable which is not collected promptly at the maturity date should be written off the books by a debit to Accounts Receivable and a credit to Notes Receivable.

Accepted Answer

A) True 
 B)False

Question 7

Puget Sound Co. sold available-for-sale marketable securities costing $80,000 for $92,000 cash. In the company's income statement and statement of cash flows, respectively, this will appear as:

Accepted Answer

A)  A $12,000 gain and a $92,000 cash receipt. 
B)  A $92,000 gain and an $8,000 cash receipt. 
C)  A $12,000 gain and an $80,000 cash receipt. 
D)  A $92,000 sale and a $92,000 cash receipt. 
A)  A $12,000 gain and a $92,000 cash receipt. 
B)  A $92,000 gain and an $8,000 cash receipt. 
C)  A $12,000 gain and an $80,000 cash receipt. 
D)  A $92,000 sale and a $92,000 cash receipt.

Question 8

Which of the following actions is least likely to increase a company's accounts receivable turnover?

Accepted Answer

A)  Encouraging customers to use bank credit cards, such as Visa and MasterCard, rather than other national credit cards, such as American Express. 
B)  Offer customers larger cash discounts for making early payments. 
C)  Borrowing money, pledging accounts receivable as collateral. 
D)  Sell accounts receivable to a factor. 
A)  Encouraging customers to use bank credit cards, such as Visa and MasterCard, rather than other national credit cards, such as American Express. 
B)  Offer customers larger cash discounts for making early payments. 
C)  Borrowing money, pledging accounts receivable as collateral. 
D)  Sell accounts receivable to a factor.

Question 9

At December 31, 2009, Laconia Industries' portfolio of investments in available-for-sale marketable securities consisted of the following:
  
(a.) Illustrate the presentation of marketable securities and unrealized holding gain (or loss) in Laconia's financial statements at December 31, 2009. Indicate the financial statement and section in which each item appears.
(b.) Assume that on March 15, 2010, Laconia made the following sales of securities:
(1) Sold 5,000 shares of its investment in Crown, Inc., at a price of $20 per share.
(2) Sold 1,000 shares of its investment in Plastic Dots at a price of $45 per share.
Compute the gain or loss recognized in Laconia's 2010 income statement for each sale:
(1). Sale of 5,000 shares of Crown: $____________ Gain/Loss
(2). Sale of 1,000 shares of Plastic Dots: $____________ Gain/Loss
(c.) At December 31, 2010, the market values of these stocks are: Crown, $21 per share; Plastic Dots, $42 per share. Complete the following schedule showing cost and current market value of securities owned by Laconia at the end of 2010.
 
(d.) Illustrate the presentation of marketable securities and unrealized holding gain (or loss) in Laconia's financial statements at December 31, 2010. (Follow same format as in part

Accepted Answer

The answer of At December 31, 2009, Laconia Industries' portfolio...

Question 10

With available-for-sale securities, unrealized holding gains and losses are:

Accepted Answer

A)  Not reported until recognized. 
B)  Reported on the income statement. 
C)  Reported as an unearned revenue on the balance sheet. 
D)  Reported in the stockholders' equity section of the balance sheet. 
A)  Not reported until recognized. 
B)  Reported on the income statement. 
C)  Reported as an unearned revenue on the balance sheet. 
D)  Reported in the stockholders' equity section of the balance sheet.

Question 11

The aging of the accounts receivable approach to estimating uncollectible accounts does not:

Accepted Answer

A)  Take into consideration the existing balance in the Allowance for Doubtful Accounts. 
B)  Utilize a percentage of probable uncollectible accounts for each age group of accounts receivable. 
C)  Stress the relationship between uncollectible accounts expense and net sales. 
D)  Tend to give a reliable estimate of uncollectible accounts because of the consideration given to the collectability of specific accounts receivable. 
A)  Take into consideration the existing balance in the Allowance for Doubtful Accounts. 
B)  Utilize a percentage of probable uncollectible accounts for each age group of accounts receivable. 
C)  Stress the relationship between uncollectible accounts expense and net sales. 
D)  Tend to give a reliable estimate of uncollectible accounts because of the consideration given to the collectability of specific accounts receivable.

Question 12

Internal control over cash transactions
(a.) Describe three measures contributing to strong internal control over cash receipts.
(b.) Describe three measures contributing to effective internal control over cash disbursements.

Accepted Answer

(a) Students may choose three of the fol

Question 13

Under the direct write-off method of accounting for uncollectible accounts:

Accepted Answer

A)  The current year uncollectible accounts expense is less than the expense would be under the income statement approach. 
B)  The relationship between the current period net sales and current period uncollectible accounts expense illustrates the matching principle. 
C)  The Allowance for Doubtful Accounts is debited when specific accounts receivable are determined to be worthless. 
D)  Accounts receivable are not stated in the balance sheet at net realizable value, but at the balance of the Accounts Receivable ledger account. 
A)  The current year uncollectible accounts expense is less than the expense would be under the income statement approach. 
B)  The relationship between the current period net sales and current period uncollectible accounts expense illustrates the matching principle. 
C)  The Allowance for Doubtful Accounts is debited when specific accounts receivable are determined to be worthless. 
D)  Accounts receivable are not stated in the balance sheet at net realizable value, but at the balance of the Accounts Receivable ledger account.

Question 14

Available-for-sale securities are usually held for:

Accepted Answer

A)  Less than three months. 
B)  Between six and eighteen months. 
C)  Greater than one year. 
D)  Less than one month. 
A)  Less than three months. 
B)  Between six and eighteen months. 
C)  Greater than one year. 
D)  Less than one month.

Question 15

Petty cash fund
E-Z Productions established a petty cash fund of $650 on January 1. On January 28, the fund was replenished for the payments made to date as shown by the following petty cash vouchers: postage, $145; telephone expense, $62.80; repairs, $79.20; office supplies, $67.20; and miscellaneous expense, $56. Prepare journal entries in general journal form to record the establishment of the fund on January 1 and its replenishment on January 28.

Accepted Answer

The answer of Petty cash fund
E-Z Productions established a petty...

Question 16

The primary purpose of a petty cash fund is:

Accepted Answer

A)  Accuracy. 
B)  Convenience. 
C)  Internal control. 
D)  Conservatism. 
A)  Accuracy. 
B)  Convenience. 
C)  Internal control. 
D)  Conservatism.

Question 17

Dorfmann Industries has an accounts receivable turnover rate of 12. Which of the following statements is not true?

Accepted Answer

A)  Dorfmann's accounts receivable are more liquid than those of a business whose accounts receivable turnover rate is 8. 
B)  Dorfmann waits approximately 30 days to make collections of its credit sales. (Use 365 days in a year.) 
C)  Dorfmann writes off accounts receivable as uncollectible if they are over 30 days old. 
D)  Dorfmann's net credit sales are about twelve times the amount of its average accounts receivable. 
A)  Dorfmann's accounts receivable are more liquid than those of a business whose accounts receivable turnover rate is 8. 
B)  Dorfmann waits approximately 30 days to make collections of its credit sales. (Use 365 days in a year.) 
C)  Dorfmann writes off accounts receivable as uncollectible if they are over 30 days old. 
D)  Dorfmann's net credit sales are about twelve times the amount of its average accounts receivable.

Question 18

The accounts receivable turnover rate for Baldwin Corporation is 8, and for Basinger Company is 10. These statistics indicate that:

Accepted Answer

A)  Basinger collects its accounts receivable within 10 days on average; Baldwin collects its accounts receivable in 8 days on average. 
B)  Basinger writes off as uncollectible a greater percentage of its accounts receivable than does Baldwin Company. 
C)  Basinger collects its accounts receivable faster than does Baldwin Company. 
D)  Basinger makes on average 10 credit sales annually to each of its customers, while Baldwin makes 8 credit sales to each customer. 
A)  Basinger collects its accounts receivable within 10 days on average; Baldwin collects its accounts receivable in 8 days on average. 
B)  Basinger writes off as uncollectible a greater percentage of its accounts receivable than does Baldwin Company. 
C)  Basinger collects its accounts receivable faster than does Baldwin Company. 
D)  Basinger makes on average 10 credit sales annually to each of its customers, while Baldwin makes 8 credit sales to each customer.

Question 19

To "write-off" an account receivable is to reduce the balance of the customer's account to zero.

Accepted Answer

A) True 
 B)False

Question 20

The income statement approach used to estimate uncollectible receivables uses a percentage of net sales without considering the current balance in the Allowance account.

Accepted Answer

A) True 
 B)False

Exam 7: Financial Assets

Management may wish to overstate a company's income because bonus plans and stock options are related to reported earnings.

Which of the following activities affects net income, but has no immediate impact upon cash flows?

Each of the following measures strengthens internal control over cash receipts except:

Which of the following practices contributes to efficient cash management?

A note receivable which is not collected promptly at the maturity date should be written off the books by a debit to Accounts Receivable and a credit to Notes Receivable.

Puget Sound Co. sold available-for-sale marketable securities costing $80,000 for $92,000 cash. In the company's income statement and statement of cash flows, respectively, this will appear as:

Which of the following actions is least likely to increase a company's accounts receivable turnover?

With available-for-sale securities, unrealized holding gains and losses are:

The aging of the accounts receivable approach to estimating uncollectible accounts does not:

Internal control over cash transactions (a.) Describe three measures contributing to strong internal control over cash receipts. (b.) Describe three measures contributing to effective internal control over cash disbursements.

Under the direct write-off method of accounting for uncollectible accounts:

Available-for-sale securities are usually held for:

The primary purpose of a petty cash fund is:

Dorfmann Industries has an accounts receivable turnover rate of 12. Which of the following statements is not true?

The accounts receivable turnover rate for Baldwin Corporation is 8, and for Basinger Company is 10. These statistics indicate that:

To "write-off" an account receivable is to reduce the balance of the customer's account to zero.

The income statement approach used to estimate uncollectible receivables uses a percentage of net sales without considering the current balance in the Allowance account.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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