Question 1

When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?

Accepted Answer

A) Assets and stockholders' equity increase. 
B) Assets and stockholders' equity decrease. 
C) Assets increase and stockholders' equity decreases. 
D) No effect on overall assets or equity.

Question 2

If a company uses the direct write-off method of accounting for bad debts,

Accepted Answer

A) It is applying the matching principle. 
B) It will record bad debt expense only when an account is determined to be uncollectible. 
C) It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible accounts. 
D) It will report accounts receivable in the balance sheet at their net realizable value.

Question 3

Selling on credit protects a company from the risk that some of its receivables will never be collected.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long?

Accepted Answer

A) The company may need to borrow to acquire operating cash. 
B) The company may offer trade discounts to lengthen the collection period. 
C) Cash flows from operations may be higher than expected for the company's sales. 
D) The company should expand operations with its excess cash.

Question 5

Which of the following statements is true regarding dividend income?

Accepted Answer

A) Dividend income is accrued at year-end. 
B) Dividend income is reported on the income statement. 
C) Dividend income appears in the stockholders' equity section of the balance sheet. 
D) Dividend income is recognized by companies that own debt securities.

Question 6

One of the problems with the use of the allowance method to account for bad debts is that it often violates the matching principle.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true regarding the two allowance methods used to account for bad debts?

Accepted Answer

A) The percentage of net credit sales approach takes into account the existing balance in the Allowance for Doubtful Accounts account. 
B) The direct write-off method takes into account the existing balance in the Allowance for Doubtful Accounts account. 
C) The percentage of accounts receivable approach takes into account the existing balance in the Allowance for Doubtful Accounts account. 
D) The direct write-off method does a better job of matching revenues and expenses.

Question 8

The percentage of net credit sales approach for recognizing bad debts considers any existing balance in Allowance for Doubtful Accounts.

Accepted Answer

A) True 
 B)False

Question 9

What should a company do to improve its accounts receivable turnover rate?

Accepted Answer

A) Lower its selling prices. 
B) Increase its sales force. 
C) Give customers credit terms of 2/10, n/30 rather than 1/10, n/30. 
D) Reduce the number of employees working in the credit department.

Question 10

The alternate term for a credit card draft is an invoice.

Accepted Answer

A) True 
 B)False

Question 11

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.estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

Accepted Answer

A) $12,400 
B) $13,700 
C) $14,000 
D) $15,000

Question 12

Promissory notes are non-negotiable.

Accepted Answer

A) True 
 B)False

Question 13

A general ledger account that is supported by a subsidiary ledger is called an) .

Accepted Answer

The answer of A general ledger account that is supported...

Question 14

Typically, the lower the accounts receivable turnover ratio, the better.

Accepted Answer

A) True 
 B)False

Question 15

The following data concerns Wang Corporation for 2015:  What amount will Wang show on its year-end balance sheet for the net realizable value of its accounts receivable?

Accepted Answer

A) $253,000 
B) $235,000 
C) $224,000 
D) $217,000

Question 16

Twin Cities Corp.had sales during the year of $15,000,000 and an average accounts receivable of $5,000,000.Its accounts receivable turnover ratio is 0.33 times.

Accepted Answer

A) True 
 B)False

Question 17

When an investor is able to secure significant influence over an investee, the method of accounting is used.

Accepted Answer

The answer of When an investor is able to secure...

Question 18

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 amount will be reported as bad debt expense for 2015?

Accepted Answer

A) $12,700 
B) $13,700 
C) $14,000 
D) $15,300

Question 19

On February 1, 2015, Vermont Corp.pays $50,000 for shares of Stream, Inc.common stock and another $1,000 in commissions.Assume that Vermont sells the Stream stock on May 20, 2015, for $53,000.In this case, Vermont recognizes

Accepted Answer

A) An increase in assets and stockholders' equity for $2,000. 
B) An decrease in assets and an increase in stockholders' equity for $2,000. 
C) An increase and decrease in assets by the same amount. 
D) An increase in assets and stockholders' equity for $3,000.

Question 20

What is the impact on the cash flow statement from a decrease in accounts 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) None.A decrease in accounts receivable has an impact only if the direct method is used

Exam 7: Receivables and Investments

When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?

If a company uses the direct write-off method of accounting for bad debts,

Selling on credit protects a company from the risk that some of its receivables will never be collected.

Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long?

Which of the following statements is true regarding dividend income?

One of the problems with the use of the allowance method to account for bad debts is that it often violates the matching principle.

Which of the following statements is true regarding the two allowance methods used to account for bad debts?

The percentage of net credit sales approach for recognizing bad debts considers any existing balance in Allowance for Doubtful Accounts.

What should a company do to improve its accounts receivable turnover rate?

The alternate term for a credit card draft is an invoice.

Promissory notes are non-negotiable.

A general ledger account that is supported by a subsidiary ledger is called an) .

Typically, the lower the accounts receivable turnover ratio, the better.

The following data concerns Wang Corporation for 2015: What amount will Wang show on its year-end balance sheet for the net realizable value of its accounts receivable?

Twin Cities Corp.had sales during the year of $15,000,000 and an average accounts receivable of $5,000,000.Its accounts receivable turnover ratio is 0.33 times.

When an investor is able to secure significant influence over an investee, the method of accounting is used.

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 amount will be reported as bad debt expense for 2015?

On February 1, 2015, Vermont Corp.pays $50,000 for shares of Stream, Inc.common stock and another $1,000 in commissions.Assume that Vermont sells the Stream stock on May 20, 2015, for $53,000.In this case, Vermont recognizes

What is the impact on the cash flow statement from a decrease in accounts receivable, assuming the indirect method is used?