Deck 7: Cash and Receivables

Question 1

Which of the following methods of determining annual bad debts expense best achieves the matching concept?

A)Percentage of sales
B)Percentage of ending accounts receivable
C)Percentage of average accounts receivable
D)Direct write-off

Answer 1

A

Question 2

The interest element for trade receivables

A)is usually not recognized because of materiality considerations
B)must always be recognized and be accounted for using the net method.
C)is recognized at their net realizable value.
D)becomes more significant as the time between the sale and payment shortens.

Answer 2

A

Question 3

Travel advances should be reported as

A)supplies.
B)cash because they represent the equivalent of money.
C)investments.
D)none of these.

Answer 3

D

Question 4

When the stated rate and market rate of a note receivable are the same

A)the note's face value would be different
B)the note's face value would be indeterminable
C)the note's face value and fair value would be the same
D)None of these

Question 5

Receivables are claims held against customers for services, goods or money.The three classifications for receivables are:

A)Trade or non-trade, current or non current, and accounts receivable or notes receivable
B)Trade or non-trade, current or non current and trade discount
C)Current or non current, accounts receivable or notes receivable and inventory
D)Current or non current, trade or non-trade and allowance method

Question 6

Which of the following methods of estimating the impairment of receivables does not properly match expense and revenue?

A)Charging bad debts with a percentage of sales under the allowance method.
B)Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method.
C)Charging bad debts with an amount derived from aging accounts receivable under the
D)Charging bad debts as accounts are written off as uncollectible.

Question 7

Which of the following is considered cash?

A)Certificates of deposit (CDs)
B)Money market chequing accounts
C)Money market savings certificates
D)Postdated cheques

Question 8

Bank overdrafts, if material, should

A)be reported as a deduction from the current assets section.
B)be reported as a deduction from cash.
C)be netted against cash and a net cash amount reported.
D)be reported as a current liability.

Question 9

Imputation is the process of determining an appropriate interest rate, and the resulting rate is called:

A)Imputed interest rate
B)Discounted interest rate
C)Secured borrowing rate
D)Asset bearing rate

Question 10

The category "trade receivables" includes

A)advances to officers and employees.
B)income tax refunds receivable.
C)claims against insurance companies for casualties sustained.
D)none of these.

Question 11

When a note receivable was issued at an amount that is less than its face value

A)The note was issued at a premium
B)The note was issued at a discount
C)The note's stated rate was the same as the prevailing market rate of interest
D)None of these

Question 12

The ratio that is used to assess the receivables liquidity is:

A)Receivable turnover ratio
B)Current Ratio
C)Asset turnover
D)Inventory turnover

Question 13

Under IFRS, interest income and the amortization of discounts and premiums for financial assets must be accounted for using the

A)effective interest method only (unless the assets is held for trading purposes)
B)straight-line method
C)the straight-line or the effective interest method
D)the units-of-production method

Question 14

Under private entity GAAP, interest income and the amortization of discounts and premiums for financial assets must be accounted for using the

A)effective interest method only
B)straight-line method
C)the straight-line or the effective interest method
D)the units-of-production method

Question 15

When a note receivable was issued at an amount that is more than its face value

A)The note was issued at a premium and the note's stated rate was different from the market rate of interest
B)The note was issued at a discount and the note's stated rate was the same as the prevailing market rate of interest
C)The note was issued at a premium and the note's stated rate was the same as the prevailing market rate of interest
D)None of these

Question 16

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because

A)most short-term receivables are not interest-bearing.
B)the allowance for uncollectible accounts includes a discount element.
C)the amount of the discount is not material.
D)most receivables can be sold to a bank or factor.

Question 17

Which of the following is not considered cash for financial reporting purposes?

A)Petty cash funds and change funds
B)Money orders, certified cheques, and personal cheques
C)Coin, currency, and available funds
D)Postdated cheques and I.O.U.'s

Question 18

Deposits held as compensating balances

A)usually do not earn interest.
B)if legally restricted and held against short-term credit may be included as cash.
C)if legally restricted and held against long-term credit may be included among current assets.
D)none of these.

Question 19

The direct write off method to accounting for the impairment of receivables

A)Is never an acceptable method.
B)Is an acceptable method when the effect of not applying the allowance method would be immaterial.
C)Is specifically disallowed under private entity GAAP.
D)Would usually result in the same net income as the allowance method.

Question 20

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be

A)reported as a deduction from sales in the income statement.
B)reported as an item of "other expense" in the income statement.
C)reported as a deduction from accounts receivable in determining the net realizable value of accounts receivable.
D)reported as sales discounts forfeited in the cost of goods sold section of the income

Question 21

When the transferee retains the right to pledge transferred receivables

A)the transaction would not qualify as a sale.
B)the transferee has surrendered control
C)the transferee has not surrendered control.
D)(a) and (c)

Question 22

A Cash Over and Short account is

A)not generally accepted.
B)debited when the petty cash fund proves out over.
C)debited when the petty cash fund proves out short.
D)a contra account to Cash.

Question 23

Assuming Macoon has used the net method, and payment was received within the discount period, the entry to record the receipt of payment would include

A)An additional debit of $85.24 to accounts receivable
B)A credit of $8,438.76 to accounts receivable
C)A credit of $85.24 to sales
D)A debit of $85.24 to "forfeited sales discounts"

Question 24

Entries during the first month would include a

A)debit to Cash of $110,380.
B)debit to Bad Debts Expense of $3,700.
C)debit to Allowance for Doubtful Accounts of $3,700.
D)debit to Accounts Receivable of $115,430.

Question 25

Under the net method of recording accounts receivable

A)The sales discount forfeited by the customer would be recognized as "other revenue"
B)The sales discount forfeited by the customer would be recognized as an expense.
C)The theoretically preferred method would be used
D)(a) and (c)

Question 26

When preparing a bank reconciliation, bank credits are

A)added to the bank statement balance.
B)deducted from the bank statement balance.
C)added to the balance per books.
D)deducted from the balance per books.

Question 27

Securitization of assets usually involves

A)sale to only one company.
B)the seller does not continue to service the receivables.
C)the receivables quality is low.
D)many investors.

Question 28

Receivables are usually analyzed in terms of

A)their turnover
B)their age
C)their change relative to related accounts
D)all of these

Question 29

Under the allowance method of recognizing uncollectible accounts, the entry to recognize the collection of a previously written off uncollectible account

A)increases the allowance for doubtful accounts.
B)has no effect on the allowance for doubtful accounts.
C)decreases the allowance for doubtful accounts.
D)increases net income.

Question 30

Assuming Macoon uses the gross method, the entry to record the sale is

A)A debit and credit of $7,671.60 to accounts receivable and sales respectively.
B)A debit and credit of $8,438.76 to accounts receivable and sales respectively.
C)A debit and credit of $8,524 to accounts receivable and sales respectively.
D)Debits of $8,438.76 and $85.24 to accounts receivable and "forfeited sales discounts" and a credit to sales to balance

Question 31

Use the following information for questions
On February 1, 2010, Otto Company factored receivables with a carrying amount of $200,000 to Kassim Company.Kassim Company assesses a finance charge of three percent of the receivables and retains five percent of the receivables.Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Otto Company for February.
Assume that Otto factors the receivables on a without recourse basis.The loss to be reported is

A)$0.
B)$6,000.
C)$10,000.
D)$16,000.

Question 32

Use the following information for questions
On February 1, 2010, Otto Company factored receivables with a carrying amount of $200,000 to Kassim Company.Kassim Company assesses a finance charge of three percent of the receivables and retains five percent of the receivables.Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Otto Company for February.
Assume that Otto factors the receivables on a recourse basis.The recourse obligation has a fair value of $1,000.The loss to be reported is

A)$6,000.
B)$7,000.
C)$10,000.
D)$17,000.

Question 33

The following information is available for Sorensen Company: As a result of a review and aging of accounts receivable in early January 2012, however, it has been determined that an allowance for doubtful accounts of $7,500 is needed at December 31, 2011.What amount should Sorensen record as bad debt expense for the year ended December 31, 2011?

A)$6,500
B)$7,500
C)$8,500
D)$15,500

Question 34

The amount of cash Inn received from Darwol at the time of the transfer was

A)$378,000.
B)$410,000.
C)$411,600.
D)$420,000.

Question 35

During the year, Bergh Company made an entry to write off a $4,000 uncollectible account.Before this entry was made, the balance in accounts receivable was $60,000 and the balance in the allowance account was $4,500.The net realizable value of accounts receivable after the write-off entry was

A)$60,000.
B)$59,500.
C)$51,500.
D)$55,500.

Question 36

The journal entries for a bank reconciliation

A)are taken from the "balance per bank" section only.
B)may include a debit to Office Expense for bank service charges.
C)may include a credit to Accounts Receivable for an NSF cheque.
D)may include a debit to Accounts Payable for an NSF cheque.

Question 37

The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach

A)gives a reasonably correct statement of receivables in the balance sheet.
B)best relates bad debts expense to the period of sale.
C)is the only generally accepted method for valuing accounts receivable.
D)makes estimates of uncollectible accounts unnecessary.

Question 38

The accounts receivable turnover ratio is calculated by dividing

A)gross sales by ending net receivables.
B)gross sales by average net receivables.
C)net sales by ending net receivables.
D)net sales by average net receivables.

Question 39

If a petty cash fund is established in the amount of $350, and contains $300 in cash and $45 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to the following accounts

A)Petty Cash, $45.
B)Petty Cash, $50.
C)Cash, $45; Cash Over and Short, $5.
D)Cash, $50.

Question 40

Macoon Company has sold goods at terms 1/10, n/30.If the discount is not taken, the amount payable is $8,524.Assuming Macoon uses the net method, the entry to record the sale is

A)A debit and credit of $7,671.60 to accounts receivable and sales respectively.
B)A debit and credit of $8,438.76 to accounts receivable and sales respectively.
C)A debit and credit of $8,524 to accounts receivable and sales respectively.
D)Debits of $8,438.76 and $85.24 to accounts receivable and "forfeited sales discounts" and a credit to sales to balance

Question 41

In preparing its bank reconciliation for the month of April 2010, Rizzo, Inc.has available the following information. What should be the correct balance of cash at April 30, 2010?

A)$46,680
B)$51,685
C)$51,300
D)$51,280

Question 42

If the month-end bank statement shows a balance of $49,000, outstanding cheques are $16,000, a deposit of $7,000 was in transit at month end, and a cheque for $800 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

A)$40,000
B)$24,800
C)$40,800
D)$20,100

Question 43

On the December 31, 2010 balance sheet of Yager Co., the current receivables consisted of the following: At December 31, 2010, the correct total of Yager's current net receivables was

A)$78,000
B)$74,500
C)$70,500
D)$66,500

Question 44

Mueller Co.prepared an aging of its accounts receivable at December 31, 2010 and determined that the net realizable value of the receivables was $290,000.Additional information is available as follows: For the year ended December 31, 2010, Mueller's bad debt expense would be

A)$20,000.
B)$23,000.
C)$16,000.
D)$14,000.

Question 45

In preparing its May 31, 2010 bank reconciliation, Kerrigan Co.has the following information available: The correct balance of cash at May 31, 2010 is

A)$47,400
B)$44,700
C)$42,000
D)$47,800

Question 46

Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account

A)increases the allowance for doubtful accounts.
B)has no effect on the allowance for doubtful accounts.
C)has no effect on net income.
D)decreases net income.

Question 47

In preparing its August 31, 2010 bank reconciliation, Moira Corp.has available the following information: At August 31, 2010, Moira's correct cash balance is

A)$32,190
B)$32,090
C)$31,440
D)$32,140

Question 48

For the year ended December 31, 2010, Kurz Co.estimated its allowance for doubtful accounts using the year-end aging of accounts receivable.The following data are available: After year-end adjustment, the bad debt expense for 2010 should be

A)$89,000
B)$37,000
C)$126,000
D)$52,000

Question 49

The cash account shows a balance of $64,000 before reconciliation.The bank statement does not include a deposit of $3,100 made on the last day of the month.The bank statement shows a collection by the bank of $1,200 and a customer's cheque for $580 was returned because it was NSF.A customer's cheque for $360 was recorded on the books as $630, and a cheque written for $179 was recorded as $791.The correct balance in the cash account was

A)$64,962
B)$64,350
C)$63,738
D)$66,122

Question 50

Solara, Ltd.had the following bank reconciliation at March 31, 2010: All reconciling items at March 31, 2010 cleared the bank in April.Outstanding cheques at April 30, 2010 totalled $5,000.There were no deposits in transit at April 30, 2010.What is the cash balance per books at April 30, 2010?

A)$30,200
B)$32,900
C)$35,200
D)$40,500

Question 51

The following accounts were abstracted from Urich Co.'s unadjusted trial balance at December 31, 2010: Urich Co.estimates that 1.5 percent of the gross accounts receivable will become uncollectible.After adjustment at December 31, 2010, the allowance for doubtful accounts should have a credit balance of

A)$12,750
B)$11,000
C)$44,250
D)$41,380

Question 52

Which of the following is a method to generate cash from accounts receivable?

Question 53

Moscowietz Co.'s allowance for doubtful accounts was $85,000 at the end of 2010 and $105,000 at the end of 2009.For the year ended December 31, 2010, Moscowietz reported bad debt expense of $18,000 in its income statement.What amount did
Moscowietz debit to the appropriate account in 2010 to write off actual bad debts?

A)$20,000
B)$34,650
C)$38,000
D)$12,000