Deck 12: Accounting for Receivablesand Payables

Question 1

Other receivables include nontrade receivables such as loans to company officers.

Answer 1

True

Question 2

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

Answer 2

False

Question 3

Accounts receivable are the result of cash and credit sales.

Answer 3

True

Question 4

The percentage of sales basis for estimating uncollectible accounts always results in more Bad Debts Expense being recognized than the percentage of receivables basis.

Question 5

When an account becomes uncollectible and must be written off,

A)Allowance for Doubtful Accounts should be credited.
B)Accounts Receivable should be credited.
C)Bad Debts Expense should be credited.
D)Sales should be debited.

Question 6

When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.

Question 7

When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded

A)in the year after the credit sale is made.
B)in the same year as the credit sale.
C)as each credit sale is made.
D)when an account is written off as uncollectible.

Question 8

Two bases for estimating uncollectible accounts are percentage of:

A)assets and percentage of sales.
B)receivables and percentage of total revenue.
C)current assets and percentage of sales.
D)receivables and percentage of sales.

Question 9

A note payable must always be paid before an account payable.

Question 10

A factor purchases receivables from businesses for a fee and collects the remittances directly from customers.

Question 11

Trade accounts receivable are valued and reported on the balance sheet

A)in the investment section.
B)at gross amounts less sales returns and allowances.
C)at net realizable value.
D)only if they are not past due.

Question 12

Allowance for Doubtful Accounts on the balance sheet

A)is offset against total current assets.
B)increases the cash realizable value of accounts receivable.
C)appears under the heading "Other Assets."
D)is offset against accounts receivable.

Question 13

When customers make purchases with a national credit card, the retailer

A)is responsible for maintaining customer accounts.
B)is not involved in the collection process.
C)absorbs any losses from uncollectible accounts.
D)receives cash equal to the full price of the merchandise sold from the credit card company.

Question 14

The credit department of a hotel is normally part of the accounting department.

Question 15

Notes or accounts receivables that result from sales transactions are often called

A)sales receivables.
B)non-trade receivables.
C)trade receivables.
D)merchandise receivables.

Question 16

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n)

A)selling expense.
B)interest expense.
C)other expense.
D)contra asset.

Question 17

Which of the following receivables would not be classified as an "other receivable"?

A)Advance to an employee
B)Refundable income tax
C)Notes receivable
D)Interest receivable

Question 18

Two methods of accounting for uncollectible accounts are the

A)allowance method and the accrual method.
B)allowance method and the net realizable method.
C)direct write-off method and the accrual method.
D)direct write-off method and the allowance method.

Question 19

The percentage of receivables basis of estimating expected uncollectible accounts emphasizes income statement relationships.

Question 20

A debit balance in the Allowance for Doubtful Accounts

A)is the normal balance for that account.
B)indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
C)indicates that actual bad debt write-offs have been less than what was estimated.
D)cannot occur if the percentage of sales method of estimating bad debts is used.

Question 21

The two key parties to a promissory note are the

A)maker and a bank.
B)debtor and the payee.
C)maker and the payee.
D)sender and the receiver.

Question 22

Most companies pay current liabilities

A)out of current assets.
B)by issuing interest-bearing notes payable.
C)by issuing stock.
D)by creating long-term liabilities.

Question 23

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased.Which of the following statements is true for the seller of the receivables?

A)The loss section of the income statement will increase each time receivables are sold.
B)The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold.
C)Selling expenses will increase each time accounts are sold.
D)The other expense section of the income statement will increase each time accounts are sold.

Question 24

Liabilities are classified on the balance sheet as being _______________ liabilities or ______________ liabilities.

Question 25

With an interest-bearing note, a borrower must pay the ________________ of the note plus _________________ at maturity.

Question 26

The face value of a note refers to the amount

A)that can be received if sold to a factor.
B)borrowed plus interest received at maturity from the maker.
C)that is identified on the formal instrument of credit.
D)remaining after a service charge has been deducted.

Question 27

Sammy Seafood Supplier receives a $6,000, 3-month, 12% promissory note from Carp Co.in settlement of an open accounts receivable.What entry will Sammy's make upon receiving the note?

A) Notes Receivable............... $\quad 6,180$
$\quad$ Accounts Receivable-Carr Company...... $\quad 6,180$

B) Notes Receivable.............. $\quad 6,180$
$\quad$ $\quad$ Accounts Receivable-Carr Company...... $\quad 6,000$
$\quad$ $\quad$ Interest Revenue....... $\quad180$

C) Notes Receivable.............. $\quad$ 6,000
$\quad$ Interest Receivable............. $\quad$ 180
$\quad$ Accounts Receivable-Carr Company...... $\quad 6,000$
$\quad$ Interest Revenue............. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 180

D) Notes Receivable.................... $\quad$ 6,000
Accounts Receivable-Carr Company............ $\quad$ 6,000

Question 28

A note which is not paid on the maturity date is said to be ______________.

Question 29

The two methods of accounting for uncollectible accounts are the ____________ method and the ______________ method.

Question 30

The relationship of current assets to current liabilities is used in evaluating a company's

A)operating cycle.
B)revenue-producing ability.
C)short-term debt paying ability.
D)long-range solvency.

Question 31

Interest expense on an interest-bearing note is

A)always equal to zero.
B)accrued over the life of the note.
C)only recorded at the time the note is issued.
D)only recorded at maturity when the note is paid.

Question 32

Short-term notes receivables

A)have a related allowance account called Allowance for Doubtful Notes Receivable.
B)are reported at their gross realizable value.
C)use the same estimations and computations as accounts receivable to determine cash realizable value.
D)present the same valuation problems as long-term notes receivables.

Question 33

A 30-day note dated September 8 has a maturity date of

A)October 8.
B)October 7.
C)October 9.
D)October 6.

Question 34

Hart Hotels lends Nancy's Nuts $60,000 on July 1, accepting a four-month, 9% interest note.Hart Hotels prepares financial statements on July 30.What adjusting entry should be made before the financial statements can be prepared?

A) Note Receivable......................60,000
$\quad$ Cash.......................................... $\quad$$\quad$ 60,000

B) Interest Receivable....................450
Interest Revenue............................. $\quad$ $\quad$ 450

C) Cash.........................................450
Interest Revenue...................... $\quad$ $\quad$ $\quad$ 450

D) Interest Receivable.................1,800
Interest Revenue............................ $\quad$ $\quad$ 1,800

Question 35

Good credit policies will not

A)ensure guest satisfaction.
B)provide an easy way to collect service charges.
C)lessen misunderstanding.
D)ensure revenues are collected in a timely manner.

Question 36

Which type of business is more susceptible to losses in accounts receivables?

A)Restaurant
B)Theme park
C)Hotel
D)Club

Question 37

A 75-day note receivable dated July 5 would mature on ______________.

Question 38

A restaurant credited the Sales account for the sales price and the amount of sales tax on sales.If the sales tax rate is 5% and the balance in the Sales account amounted to $168,000, what is the amount of the sales taxes owed to the taxing agency?

A)$160,000
B)$168,000
C)$8,400
D)$8,000

Question 39

A retailer that collects sales taxes is acting as an agent for the

A)wholesaler.
B)customer.
C)taxing authority.
D)chamber of commerce.