Question 1

Define what it is meant by internal control.

Accepted Answer

Internal control is part of the overall

Question 2

The purpose of assigning accounts receivable is to:

Accepted Answer

A)  Satisfy a court order. 
B)  Complete the legal prerequisites to record their sale. 
C)  Comply with form and content rules of bankruptcy proceedings. 
D)  Provide collateral for a loan. 
A)  Satisfy a court order. 
B)  Complete the legal prerequisites to record their sale. 
C)  Comply with form and content rules of bankruptcy proceedings. 
D)  Provide collateral for a loan.

Question 3

Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes.

Accepted Answer

A) True 
 B)False

Question 4

Under the ECL approach used in IFRS, impairments are only recognized for losses that occur more than a year in the future when a receivable has deteriorated in credit quality.

Accepted Answer

A) True 
 B)False

Question 5

On February 14, 2018, Prime Company sold 50 air-conditioning units to L&P Heating and Cooling. The units list for $700 each, but L&P was granted a 30% trade discount. All of Prime's sales are subject to terms 2/10, n/30. Prime uses the net method of accounting for sales discounts.
Required:
1. Prepare the journal entry to record the sale.
2. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on February 22, 2018.
3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on March 10, 2018.

Accepted Answer

The answer of On February 14, 2018, Prime Company sold...

Question 6

The GW Co. is owed $1,000,000 by Mason, Inc. under an 8% note with three years remaining to maturity. The prior year of interest was unpaid. GW believes there is a 30% chance that Mason will fail to pay GW all amounts that GW is owed. In that 30% case, GW believes it will only receive amounts equal to a present value of $880,000.
- If GW is reporting under ASU 2016-13 and therefore using the CECL model, it would recognize an impairment loss of:

Accepted Answer

A)  $0. 
B)  $60,000. 
C)  $200,000. 
D)  $220,000. 
A)  $0. 
B)  $60,000. 
C)  $200,000. 
D)  $220,000.

Question 7

On October 18, 2018, Flying Chicken sold 2,000 pounds of chicken to Healthier Grocery for $3,400, subject to terms 2/10, n/30. Flying Chicken uses the gross method of accounting for sales discounts.
Required:
1. Prepare the journal entry to record the sale.
2. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on October 26, 2018.
3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on November 15, 2018.

Accepted Answer

The answer of On October 18, 2018, Flying Chicken sold...

Question 8

In a bank reconciliation, adjustments to the book balance could include adding or subtracting company errors.

Accepted Answer

A) True 
 B)False

Question 9

Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2018. The notes included: 
Note A: Dated 5/31/2018, principal of $120,000 and interest due 3/31/2019.
Note B: Dated 7/1/2018, principal of $200,000 and interest at 8% annually, due on 4/1/2019.
Frankenstein had accrued a total of $14,400 interest receivable from these notes in its 12/31/2018 balance sheet.
-
Assume Frankenstein views the financing component of these sales to be significant. What amount of interest revenue would Frankenstein earn on these notes during 2019?

Accepted Answer

A)  Above $12,000. 
B)  Between $7,000 and 10,000. 
C)  Less than $5,000. 
D)  None of these answer choices are correct. 
A)  Above $12,000. 
B)  Between $7,000 and 10,000. 
C)  Less than $5,000. 
D)  None of these answer choices are correct.

Question 10

Nontrade receivables do not include:

Accepted Answer

A)  Sales to customers. 
B)  Loans to employees. 
C)  Income tax refund receivable. 
D)  Advances to affiliated companies. 
A)  Sales to customers. 
B)  Loans to employees. 
C)  Income tax refund receivable. 
D)  Advances to affiliated companies.

Question 11

Under IFRS, accounts receivable can be accounted for at fair value whenever company management wants to do so.

Accepted Answer

A) True 
 B)False

Question 12

Cordova, Inc., reported the following receivables in its December 31, 2017, year-end balance sheet:
 
Additional information:
1. The notes receivable account consists of two notes, a $100,000 note and a $300,000 note. The $100,000 note is dated October 31, 2017, with principal and interest payable on October 31, 2018. The $300,000 note is dated March 31, 2017, with principal and 8% interest payable on March 31, 2018.
2. During 2018, sales revenue totaled $2,120,000, $1,980,000 cash was collected from customers, and $41,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 8% of year-end gross accounts receivable.
Required:
1. In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Cordova's 2018 income statement?
2. Calculate the receivables turnover ratio for 2018.

Accepted Answer

1. In addition to sales revenue of $2,12

Question 13

The O'Hara Group is owed $1,000,000 by Hilton Enterprises under an 8% note with three years remaining to maturity. The prior year of interest was unpaid. O'Hara agrees to restructure the note under terms that yield a present value of $880,000. The journal entry that O'Hara would make to record this transaction would include a loss on troubled debt restructuring of:

Accepted Answer

A)  $0. 
B)  $80,000. 
C)  $200,000. 
D)  $220,000. 
A)  $0. 
B)  $80,000. 
C)  $200,000. 
D)  $220,000.

Question 14

San Mateo Company had the following account balances at December 31, 2018, before recording bad debt expense for the year: $\begin{array}{lr}
\text {Accounts receivable }&\$1,400,000\
\text {Allowance for uncollectible accounts (credit balance)}&22,000\
\text {Credit sales for 2018 }&1,950,000\
\end{array}$
 San Mateo is considering the following approaches for estimating bad debts for 2018: • Based on 3% of credit sales
• Based on 6% of year-end accounts receivable
What amount should San Mateo charge to bad debt expense at the end of 2018 under each method? $\begin{array}{lll}&\text { Percentage of credit sales }&\text { Percentage of accounts receivabl }\
\text { a. } & \$ 36,500 & \$ 62,000 \
\text { b. } & \$ 58,500 & \$ 62,000 \
\text { c. } & \$ 58,500 & \$ 84,000 \
\text { d. } & \$ 117,000 & \$ 95,000
\end{array}$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 15

Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1, 2018. The note was accepted as payment of a delinquent receivable of $2,500. The cash collection on July 1, 2018, would be recorded as:

Accepted Answer

A)  $\begin{array}{|c|r|r|}
\hline \text { Discount on note receivable } & 300 & \
\hline \text { Interest revenue } & & 300 \\hline \text { Cash } & 2,800 \
\hline \text { Note receivable } &&2,800 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|r|r|}
\hline \text { Cash } & 2,500 & \
\hline \text { Note receivable } & & 2,500 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|r|r|}
\hline \text { Cash } & 2,800 & \
\hline \text { Accounts receivable } & & 2,500 \
\hline \text { Interest revenue } & & 300 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|r|r|}
\hline \text { Cash } & 2,500 & \
\hline \text { Discount on note receivable } & 300 & \
\hline \text { Note receivable } & & 2,800 \
\hline
\end{array}$ 
A)  $\begin{array}{|c|r|r|}
\hline \text { Discount on note receivable } & 300 & \
\hline \text { Interest revenue } & & 300 \\hline \text { Cash } & 2,800 \
\hline \text { Note receivable } &&2,800 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|r|r|}
\hline \text { Cash } & 2,500 & \
\hline \text { Note receivable } & & 2,500 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|r|r|}
\hline \text { Cash } & 2,800 & \
\hline \text { Accounts receivable } & & 2,500 \
\hline \text { Interest revenue } & & 300 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|r|r|}
\hline \text { Cash } & 2,500 & \
\hline \text { Discount on note receivable } & 300 & \
\hline \text { Note receivable } & & 2,800 \
\hline
\end{array}$

Question 16

The following note disclosure appeared in a recent annual report of Halliburton:

Our receivables are generally not collateralized. Included in notes and accounts receivable are notes with varying interest rates totaling $12 million at December 31. At December 31, 39% of our consolidated receivables related to our United States government contracts, primarily for projects in the Middle East

-Explain the transactions that typically would affect the discount on notes receivable account.

Accepted Answer

The discount on notes receivable would b

Question 17

Explain briefly how IFRS and U.S. GAAP differ in determining whether a transfer of an accounts receivable qualifies as a sale.

Accepted Answer

U.S. GAAP focuses on whether control of

Question 18

In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records.

Accepted Answer

A) True 
 B)False

Question 19

Tokyo Imports sold merchandise to Tall-Mart, receiving a six-month, noninterest-bearing note for $100,000. The implied discount rate on the note is 10% per annum. Tokyo uses a periodic inventory system, and views the financing component of this transaction to be significant.
Required:
1. Prepare the journal entry to record the sale.
2. Compute the effective rate of interest.

Accepted Answer

@#IMG-DLM&

2. Effective inter

Question 20

Cash is the most liquid of all assets but is not always reported under current assets. Explain this statement.

Accepted Answer

Depending on the circumstances, restrict

Define what it is meant by internal control.

The purpose of assigning accounts receivable is to:

Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes.

Under the ECL approach used in IFRS, impairments are only recognized for losses that occur more than a year in the future when a receivable has deteriorated in credit quality.

In a bank reconciliation, adjustments to the book balance could include adding or subtracting company errors.

Nontrade receivables do not include:

Under IFRS, accounts receivable can be accounted for at fair value whenever company management wants to do so.

Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1, 2018. The note was accepted as payment of a delinquent receivable of $2,500. The cash collection on July 1, 2018, would be recorded as:

Explain briefly how IFRS and U.S. GAAP differ in determining whether a transfer of an accounts receivable qualifies as a sale.

In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records.

Cash is the most liquid of all assets but is not always reported under current assets. Explain this statement.

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters

Exam 7: Cash and Receivables

Define what it is meant by internal control.

The purpose of assigning accounts receivable is to:

Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes.

Under the ECL approach used in IFRS, impairments are only recognized for losses that occur more than a year in the future when a receivable has deteriorated in credit quality.

In a bank reconciliation, adjustments to the book balance could include adding or subtracting company errors.

Nontrade receivables do not include:

Under IFRS, accounts receivable can be accounted for at fair value whenever company management wants to do so.

Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1, 2018. The note was accepted as payment of a delinquent receivable of $2,500. The cash collection on July 1, 2018, would be recorded as:

Explain briefly how IFRS and U.S. GAAP differ in determining whether a transfer of an accounts receivable qualifies as a sale.

In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records.

Cash is the most liquid of all assets but is not always reported under current assets. Explain this statement.

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters