Question 1

The data presented below for Lynx Corp.is for the year ended December 31, 2016: $$\begin{array} { l r } 
\text { Sales (100\% on credit) } & \$ 1,000,000 \
\text { Sales returns } & 30,000 \
\text { Accounts Receivable (December 31,2016) } & 170,000 \
\text { Allowance for Doubtful Accounts [Cr. B alance] } & \
\quad \text { (Before adjustment at December 31, 2016) } & 1,300 \
\text { Estimated amount of uncollectible accounts based on aging analysis } & 14,000
\end{array}$$
-See the data for Lynx Corp. If Lynx 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)  $1,300 
B)  $9,700 
C)  $8,400 
D)  $11,000

Question 2

Cash flows from purchases, sales, and maturities of investments are usually classified as operating activities.

Accepted Answer

A) True 
 B)False

Question 3

Select the term from the list below that matches each of the following six descriptions.
-Transfer a note with a contingent liability

Accepted Answer

A) Interest 
B) Maturity value 
C) Principal 
D) Payee 
E) Discounting
F)Term
G)Recourse
H)Implicit
I)Maker

Question 4

Which one of the following is not an accurate statement regarding the direct write-off method of accounting for bad debts?

Accepted Answer

A)  The direct write-off method has some deficiencies when accounting for bad debts. 
B)  The direct write-off method ignores the possibility that partial collection of a company's outstanding accounts receivable may occur. 
C)  Under the direct write-off method, an expense is increased. 
D)  The allowance method for bad debts violates the matching principle, but the direct write-off method does not.

Question 5

The maker of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

Accepted Answer

A) True 
 B)False

Question 6

Espat Corp.reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2016.Its beginning balance of Accounts Receivable was $150,000.The accounts receivable balance decreased by $10,000 during 2016.Rounded to two decimal places, what is Espat's accounts receivable turnover rate for 2016?

Accepted Answer

A)  7.59 
B)  10.32 
C)  10.67 
D)  11.03

Question 7

For each item listed below, identify how it will be reported on the Statement of Cash Flows under the indirect method.
-Increase in short-term notes receivable

Accepted Answer

A) Operating activity 
B) Investing activity 
C) Financing activity 
D) Not reported separately on the cash flow statement

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Match the following definitions with their appropriate terms .
-Payee

Accepted Answer

A) A liability resulting from the signing of a 
B) A measure of how long it takes to collect receivables. promissory note. 
C) A written promise to repay a definite sum of 
D) The length of time a note is outstanding, that is, the money on demand or at a fixed or determinable period of time between the date it is issued and the date date in the future. it matures. 
E) The party that will receive the money from a
F)The process of selling a promissory note. promissory note at some future date.
G)The date the promissory note is due.
H)The amount of cash the maker is to pay the payee on the maturity date of the note.
I)The difference between the principal amount of
J)An asset resulting from the acceptance of a promissory the note and its maturity value. note from another company.
K)Securities issued by corporations and
L)Securities issued by corporations as a form of ownership governmental bodies as a form of borrowing. in the business.
M)The party that agrees to repay the money for a
N)The amount of cash received, or the fair value of the promissory note at some future date. products or services received, by the maker when a promissory note is issued.

Question 10

The data presented below is for Mellon Corporation for the year ended December 31, 2016: $\begin{array}{lr}
\text { Sales (100\% on credit) } & \$ 1,500,000 \
\text { Sales returns } & 60,000 \
\text { Accounts Receivable (December 31, 2016) } & 250,000 \
\text { Allowance for Doubtful Accounts [Credit B al ance] (Before adjustment at December } & \
31,2016 &3,000  \
\text { Estimated amount of uncollectible accounts based on an aging analysis }&31,000\
\end{array}$
-Refer to the data for Mellon Corporation. ?
If Mellon estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2016?

Accepted Answer

A)  $25,800 
B)  $27,000 
C)  $28,800 
D)  $30,000

Question 11

The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable.

Accepted Answer

A) True 
 B)False

Question 12

How will the payee of the promissory note record the note on its books?

Accepted Answer

A)  The promissory note will be recorded as an asset. 
B)  The promissory note will be recorded as a liability. 
C)  The promissory note will be recorded as revenue. 
D)  The promissory note will be recorded as an expense.

Question 13

Toppson Corp.invested cash in a 9-month certificate of deposit (CD) on October 1, 2016.If Toppson has an accounting period which ends on December 31, 2016, when would it most likely recognize interest revenue from the CD?

Accepted Answer

A)  On December 31, 2016 only 
B)  On July 1, 2017 only 
C)  Both Dec.31, 2016 and July 1, 2017 
D)  On October 1, 2016

Question 14

Which one of the following is an investing activity on the statement of cash flows?

Accepted Answer

A)  Collection of accounts receivable 
B)  Purchase of long-term investments 
C)  Receipt of interest 
D)  Receipt of dividends

Question 15

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 16

Select the term from the list below that matches each of the following six descriptions.
-The amount of cash the maker is to pay the payee on the maturity date of the note

Accepted Answer

A) Interest 
B) Maturity value 
C) Principal 
D) Payee 
E) Discounting
F)Term
G)Recourse
H)Implicit
I)Maker

Question 17

Bad Debts expense is debited and Accounts Receivable is credited at the end of the period to recognize bad debts under the allowance method.

Accepted Answer

A) True 
 B)False

Question 18

Match the following definitions with their appropriate terms .
-Principal

Accepted Answer

A) A liability resulting from the signing of a 
B) A measure of how long it takes to collect receivables. promissory note. 
C) A written promise to repay a definite sum of 
D) The length of time a note is outstanding, that is, the money on demand or at a fixed or determinable period of time between the date it is issued and the date date in the future. it matures. 
E) The party that will receive the money from a
F)The process of selling a promissory note. promissory note at some future date.
G)The date the promissory note is due.
H)The amount of cash the maker is to pay the payee on the maturity date of the note.
I)The difference between the principal amount of
J)An asset resulting from the acceptance of a promissory the note and its maturity value. note from another company.
K)Securities issued by corporations and
L)Securities issued by corporations as a form of ownership governmental bodies as a form of borrowing. in the business.
M)The party that agrees to repay the money for a
N)The amount of cash received, or the fair value of the promissory note at some future date. products or services received, by the maker when a promissory note is issued.

Question 19

Sweetson Enterprises' comparative balance sheets included accounts receivable of $220,300 at December 31, 2016, and $200,900 at December 31, 2017.Sales reported on Sweetson's 2017 income statement amounted to $2,350,000.What is the amount of cash collections that Sweetson will report in the Operating Activities category of its 2017 statement of cash flows assuming that the direct method is used? ​

Accepted Answer

A)  $2,369,400 
B)  $2,350,000 
C)  $2,771,200 
D)  $2,330,600

Question 20

The data presented below is for Mellon Corporation for the year ended December 31, 2016: $\begin{array}{lr}
\text { Sales (100\% on credit) } & \$ 1,500,000 \
\text { Sales returns } & 60,000 \
\text { Accounts Receivable (December 31, 2016) } & 250,000 \
\text { Allowance for Doubtful Accounts [Credit B al ance] (Before adjustment at December } & \
31,2016 &3,000  \
\text { Estimated amount of uncollectible accounts based on an aging analysis }&31,000\
\end{array}$
-Refer to the data for Mellon Corporation. ?
If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2016?

Accepted Answer

A)  $28,000 
B)  $31,000 
C)  $34,000 
D)  $50,000

Exam 7: Receivables and Investments

Cash flows from purchases, sales, and maturities of investments are usually classified as operating activities.

Select the term from the list below that matches each of the following six descriptions. -Transfer a note with a contingent liability

Which one of the following is not an accurate statement regarding the direct write-off method of accounting for bad debts?

The maker of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

For each item listed below, identify how it will be reported on the Statement of Cash Flows under the indirect method. -Increase in short-term notes receivable

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

Match the following definitions with their appropriate terms . -Payee

The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable.

How will the payee of the promissory note record the note on its books?

Toppson Corp.invested cash in a 9-month certificate of deposit (CD) on October 1, 2016.If Toppson has an accounting period which ends on December 31, 2016, when would it most likely recognize interest revenue from the CD?

Which one of the following is an investing activity on the statement of cash flows?

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

Select the term from the list below that matches each of the following six descriptions. -The amount of cash the maker is to pay the payee on the maturity date of the note

Bad Debts expense is debited and Accounts Receivable is credited at the end of the period to recognize bad debts under the allowance method.

Match the following definitions with their appropriate terms . -Principal