Question 1

A note discounted with recourse means that if the original customer fails to pay the bank the total amount due on the maturity date of the note, the company that transferred the note to the bank is liable for the full amount.

Accepted Answer

A) True 
 B)False

Question 2

Which one of the following is an accurate description of Allowance for Doubtful Accounts?

Accepted Answer

A) Contra account 
B) Liability account 
C) Revenue account 
D) Expense account

Question 3

The payee of a note recognizes on its income statement.

Accepted Answer

The answer of The payee of a note recognizes on...

Question 4

What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method?

Accepted Answer

A) Assets and owners' equity increase. 
B) Assets and owners' equity decrease. 
C) Assets increase and owners' equity decreases. 
D) Assets decrease and owners' equity increases.

Question 5

When one company purchases less than 50% of equity securities in a second company, which of the following statements is true?

Accepted Answer

A) The purchaser is referred to as the parent. 
B) The purchaser is referred to as the subsidiary. 
C) The company whose securities are purchased is the subsidiary. 
D) The company whose securities are purchased is the investee.

Question 6

Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching bad debts expense with revenue on the income statement?

Accepted Answer

A) The percentage of accounts receivable approach 
B) The percentage of net credit sales approach 
C) The direct write-off method 
D) The uncollectible approach

Question 7

Bonds issued by corporations or governmental bodies as a form of borrowing are called
____________________.

Accepted Answer

The answer of Bonds issued by corporations or governmental bodies...

Question 8

When a note receivable has been discounted by a company

Accepted Answer

A) An account called discount on notes receivable is used. 
B) It will be shown as an asset of the company. 
C) It slows the collection process. 
D) It may be shown as a contingent liability in the footnotes.

Question 9

A company invests excess cash in a certificate of deposit.At the end of an accounting period before the CD matures, the company will recognize interest expense.

Accepted Answer

A) True 
 B)False

Question 10

The difference between the principal amount of a note and its maturity value is called .

Accepted Answer

The answer of The difference between the principal amount of...

Question 11

When a note is discounted at a bank, it is normally done with recourse.

Accepted Answer

A) True 
 B)False

Question 12

The data presented below is for Craft, Inc.for 2015.  What amount will Craft show on its year-end balance sheet for the net realizable value of its accounts receivable?

Accepted Answer

A) $295,000 
B) $267,000 
C) $250,000 
D) $ 28,000

Question 13

What is the impact on the cash flow statement from an increase in short-term notes receivable, assuming the indirect method is used?

Accepted Answer

A) A decrease in the cash flow from operating activities 
B) An increase in the cash flow from operating activities 
C) An increase in the cash flow from financing activities 
D) An increase in the cash flow from investing activities

Question 14

The total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that is not compounded is

Accepted Answer

A) $ 280 
B) $ 840 
C) $ 2,520 
D) $ 8,260

Question 15

Purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 16

Clarion Corp.invested cash in a 6-month certificate of deposit CD) on November 1, 2015.If Clarion Corp.has an accounting period that ends on December 31, 2015, when should Clarion recognize interest revenue from the CD?

Accepted Answer

A) On December 31, 2015 only 
B) On May 1, 2016 only 
C) Both December 31, 2015 and May 31, 2016 
D) On the date when its income tax return is filed

Question 17

Pharma Corp.
The data presented below for Pharma Corp.is for the year ended December 31, 2015: 
-See the data for Pharma Corp.
If Pharma Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

Accepted Answer

A) $140,000 
B) $156,000 
C) $167,000 
D) $184,000

Question 18

The mechanism that keeps track of the balances owed by individual customers is called an)
_________________________.

Accepted Answer

The answer of The mechanism that keeps track of the...

Question 19

Comfort Shoes received a promissory note from a customer on April 1, 2014.The face amount of the note is $2,000; the terms are 12 months and 8% annual interest.How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014?

Accepted Answer

A) $ 40 
B) $ 107 
C) $ 120 
D) $ 160

Question 20

The entry required to recognize the bad debts expense for 2014 will act to:

Accepted Answer

A) Increase total assets and retained earnings 
B) Decrease total assets and retained earnings 
C) Decrease total assets and increase net income 
D) Increase total assets and decrease net income

Exam 7: Receivables and Investments

A note discounted with recourse means that if the original customer fails to pay the bank the total amount due on the maturity date of the note, the company that transferred the note to the bank is liable for the full amount.

Which one of the following is an accurate description of Allowance for Doubtful Accounts?

The payee of a note recognizes on its income statement.

What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method?

When one company purchases less than 50% of equity securities in a second company, which of the following statements is true?

Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching bad debts expense with revenue on the income statement?

Bonds issued by corporations or governmental bodies as a form of borrowing are called ____________________.

When a note receivable has been discounted by a company

A company invests excess cash in a certificate of deposit.At the end of an accounting period before the CD matures, the company will recognize interest expense.

The difference between the principal amount of a note and its maturity value is called .

When a note is discounted at a bank, it is normally done with recourse.

The data presented below is for Craft, Inc.for 2015. What amount will Craft show on its year-end balance sheet for the net realizable value of its accounts receivable?

What is the impact on the cash flow statement from an increase in short-term notes receivable, assuming the indirect method is used?

The total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that is not compounded is

Purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows.

Clarion Corp.invested cash in a 6-month certificate of deposit CD) on November 1, 2015.If Clarion Corp.has an accounting period that ends on December 31, 2015, when should Clarion recognize interest revenue from the CD?

The mechanism that keeps track of the balances owed by individual customers is called an) _________________________.

Comfort Shoes received a promissory note from a customer on April 1, 2014.The face amount of the note is $2,000; the terms are 12 months and 8% annual interest.How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014?

The entry required to recognize the bad debts expense for 2014 will act to: