Deck 8: Accounting for Receivables

Question 1

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Answer 3

True

Question 4

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves statement of financial position accounts.

Question 5

Trade receivables occur when two companies trade or exchange notes receivables.

Question 6

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Question 7

Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period.

Question 8

Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.

Question 9

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

Question 10

Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.

Question 11

Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.

Question 12

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

Question 13

If a retailer assesses a finance charge on the amount owed by a customer, Accounts Receivable is debited for the amount of the interest.

Question 14

The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing.

Question 15

IFRS require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

Question 16

Receivables are valued and reported in the statement of financial position at their gross amount less any sales returns and allowances and less any cash discounts.

Question 17

Allowance for Doubtful Accounts is a contra asset account.

Question 18

Other receivables, such as income taxes refundable and advances to employees, are reported as "accounts receivable" on the statement of financial position.

Question 19

An aging schedule is prepared only for old accounts receivables that have been past due for more than one year.

Question 20

Recognizing accounts receivable for a sale to a customer involves debiting accounts receivable, an income statement account, and crediting sales revenue a statement of financial position account.

Question 21

Under the allowance method, companies debit every bad debt write-off to Allowance for Doubtful Accounts rather than to Bad Debts Expense.

Question 22

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Question 23

The value associated with a dishonored note receivable is removed from the statement of financial position since the note is no longer negotiable.

Question 24

The maturity date of a 1-month note receivable dated June 30 is July 30.

Question 25

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.

Question 26

Accounts receivable are reported in the statement of financial position at their cash realizable value which is accounts receivable less the allowance for doubtful accounts.

Question 27

When using the percentage of sales basis of estimating bad debts, the company disregards the existing balance in the statement of financial position account Allowance for Doubtful Accounts.

Question 28

The allowance for doubtful accounts is closed at the end of the fiscal year and is accomplished by debiting bad debt expense and crediting allowance for doubtful accounts.

Question 29

On the date of issue, a note receivable is recorded on the statement of financial position at its maturity value.

Question 30

Under the allowance method, the recovery of bad debts affects both the income statement and the statement of financial position.

Question 31

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 32

When using the percentage of sales basis of estimating bad debts, which emphasizes income statement relationships, the company can totally disregard cash realizable value of accounts receivable

Question 33

When using the percentage of receivables basis of estimating bad debts, the amount of the bad debt adjusting entry will impact statement of financial position accounts only.

Question 34

A major advantage of national credit cards to retailers is that there is no charge to the retailer by the credit card companies for their services.

Question 35

Receivables may be sold because they may be the only reasonable source of cash.

Question 36

Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer.

Question 37

On the statement of financial position, notes receivable are valued at their cash (net) realizable value, identical to how accounts receivable are valued.

Question 38

IFRS requires the allowance method of accounting for bad debts when bad debts are immaterial in amount.

Question 39

Notes receivable are reported on the statement of financial position following accounts receivable because notes receivable give the payee a weaker legal claim to assets than accounts receivable.

Question 40

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

Question 41

U.S. GAAP accounts for short-term receivables at amortized cost, adjusted for allowances for doubtful accounts, whereas IFRS requires fair values for receivables.

Question 42

The account Allowance for Doubtful Accounts is closed out at the end of the year.

Question 43

The two methods of accounting for uncollectible accounts are (a) percentage of sales and (b) percentage of receivables.

Question 44

Claims for which formal instruments of credit are issued as proof of the debt are

A) accounts receivable.
B) interest receivable.
C) notes receivable.
D) other receivables.

Question 45

The accounts receivable turnover ratio is computed by using two accounts reported on the statement of financial position, accounts receivable and allowance for doubtful accounts.

Question 46

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 47

The term "receivables" refers to

A) amounts due from individuals or companies.
B) merchandise to be collected from individuals or companies.
C) cash to be paid to creditors.
D) cash to be paid to debtors.

Question 48

Interest is usually associated with

A) accounts receivable.
B) notes receivable.
C) doubtful accounts.
D) bad debts.

Question 49

Short-term receivables are reported in the current assets section after short-term investments.

Question 50

A note is dishonored when it is not fully paid at maturity.

Question 51

The receivable that is usually evidenced by a formal instrument of credit is a(n)

A) trade receivable.
B) notes receivable.
C) accounts receivable.
D) income tax receivable.

Question 52

In order to accelerate the receipt of cash from receivables, owners may sell the receivables to another company for cash.

Question 53

Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the financial statements.

Question 54

The criteria used to derecognize a receivable under IFRS uses a combination of an approach focused on risks and rewards and loss of control.

Question 55

Short-term receivables appear in the current assets section of the statement of financial position above short-term investments.

Question 56

In the statement of financial position, companies need only report the cash (net) realizable value of accounts and notes receivable.

Question 57

The accounts receivable turnover ratio is computed by dividing total sales by the average net receivables during the year.

Question 58

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt.

Question 59

When counting the exact number of days to determine the maturity date of a note, the date of issue is included but the due date is omitted.

Question 60

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 61

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 Debt Expense should be credited.
D) Sales should be debited.

Question 62

Which of the following would require a compound journal entry?

A) To record merchandise returned that was previously purchased on account.
B) To record sales on account.
C) To record purchases of inventory when a discount is offered for prompt payment.
D) To record collection of accounts receivable when a cash discount is taken.

Question 63

Three accounting issues associated with accounts receivable are

A) depreciating, returns, and valuing.
B) depreciating, valuing, and collecting.
C) recognizing, valuing, and disposing.
D) accrual, bad debts, and disposing.

Question 64

If a company fails to record estimated bad debts expense,

A) cash realizable value is understated.
B) expenses are understated.
C) revenues are understated.
D) receivables are understated.

Question 65

Under the allowance method, writing off an uncollectible account

A) affects only statement of financial position accounts.
B) affects both statement of financial position and income statement accounts.
C) affects only income statement accounts.
D) is not acceptable practice.

Question 66

The adjusting entry a retailer makes to record interest on customer amounts due includes a debit to

A) Notes Receivable.
B) Interest Receivable.
C) Accounts Receivable.
D) Interest Revenue.

Question 67

When a company determines a particular account to be uncollectible, it charges the loss to Bad Debt Expense under

A) the allowance method.
B) the direct writeoff method.
C) both the allowance method and the direct write-off method.
D) None of these answer choices are correct.

Question 68

Caps On Company manufactures sporting goods and clothing. Caps On sold merchandise to Pro Sports Company on June 5, 2014 for $1,500, terms 2/10, n/30. On June 9, 2014 Pro Sports returns merchandise worth $100 to Caps On. On June 14, 2014 Caps On receives payment in full from Pro Sports. Which of the following is true regarding the transaction on June 14, 2014?

A) Caps On receives $1,400 from Pro Sports.
B) Caps On receives $1,372 from Pro Sports.
C) Pro Sports will pay $1,470 to Caps On.
D) All of these answer choices are correct.

Question 69

Among the types of receivables reported on the statement of financial position, which of the following is considered the most significant claim held by a company?

A) Others receivables (including loans to officers).
B) Notes receivable.
C) Accounts receivable.
D) Advances to employees.

Question 70

When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when

A) a sale is made.
B) an account becomes bad and is written off.
C) management estimates the amount of uncollectibles.
D) a customer's account becomes past-due.

Question 71

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the

A) direct write-off method.
B) percentage of receivables basis.
C) percentage of sales basis.
D) percentage of receivables and percentage of sales basis.

Question 72

Trade accounts receivable are valued and reported on the statement of financial position

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

Question 73

Fowler Company on July 15 sells merchandise on account to Coffey Co. for $2,000, terms 2/10, n/30. On July 20, Coffey Co. returns merchandise worth $800 to Fowler Company. On July 24, payment is received from Coffey Co. for the balance due. What is the amount of cash received?

A) $1,200
B) $1,176
C) $1,160
D) $2,000

Question 74

If a department store fails to make the entry to accrue the finance charges due from customers,

A) accounts receivable will be overstated.
B) interest revenue will be understated.
C) interest expense will be overstated.
D) interest expense will be understated.

Question 75

A customer charges a treadmill at Mike's Sport Shop. The price is €2,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. The accounts affected by the journal entry made by Mike's Sport Shop to record the finance charge are

A) Accounts Receivable Cash
B) Cash Finance Receivable
C) Accounts Receivable Interest Payable
D) Accounts Receivable Interest Revenue

Question 76

Wright sells softball equipment. On November 14, they shipped $800 worth of softball uniforms to Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Paola Middle School for $600 worth of custom printed bats to be produced in December. On November 30, Paola Middle School returned $100 of defective merchandise. Wright has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the statement of financial position as of November 30?

A) $1,400
B) $1,300
C) $800
D) $700

Question 77

The net amount expected to be received in cash from receivables is termed the

A) cash realizable value.
B) cash-good value.
C) gross cash value.
D) cash-equivalent value.

Question 78

The entry to record merchandise returned to the seller includes a

A) debit to Sales Returns and Allowances.
B) debit to Sales Revenue.
C) credit to Inventory.
D) debit to either Sales Returns and Allowances or Sales Revenue.

Question 79

A customer charges a treadmill at Mike's Sport Shop. The price is €800 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. What is the amount of the finance charge?

A) €24
B) €6
C) €72
D) €2

Question 80

Which one of the following is not a primary problem associated with accounts receivable?

A) Depreciating accounts receivable
B) Recognizing accounts receivable
C) Valuing accounts receivable
D) Disposing of accounts receivable