Deck 7: Cash and Receivables

Question 1

Dividends and interest receivable would be classified as

A)loans receivable.
B)trade receivables.
C)notes receivable.
D)nontrade receivables.

Answer 1

D

Question 2

Bank overdrafts are generally reported as

A)a current asset.
B)a contra account.
C)a non-current asset.
D)a current liability.

Answer 2

D

Question 3

The portion of any demand deposit that a customer keeps as support for its existing or maturing obligations is called a(n)

A)account receivable.
B)bank overdraft.
C)compensating balance.
D)restricted cash.

Answer 3

C

Question 4

Receivables are initially valued based on their ______.

A)fair value
B)estimated amount collectible
C)lower-of-cost-or-market value
D)historical cost

Question 5

"Sales Returns and Allowances" are reported as

A)an expense.
B)a deduction from Sales Revenue.
C)a deduction from Accounts Receivable.
D)an addition to Accounts Receivable.

Question 6

"Allowance for Doubtful Accounts" is a(n)

A)expense account.
B)contra account.
C)liability account.
D)current asset.

Question 7

Which of the following is considered as "cash" for reporting purposes?

A)money-market chequing accounts
B)certificates of deposit (CDs)
C)travel advances to employees
D)postdated cheques

Question 8

The net method of recording accounts receivable is rarely used because it

A)is less theoretically correct than the gross method.
B)requires an "Allowance for Sales Discounts" to be reported on the statement of financial position.
C)has a different effect on the statement of financial position and income statement.
D)requires more bookkeeping for the additional adjusting entries after the discount period has passed.

Question 9

Which of the following is NOT a financial asset?

A)a contractual right to receive cash or other financial asset from another party
B)an equity instrument of another entity
C)a contractual right to exchange financial instruments with another party under potentially favourable conditions
D)a contractual right to pay cash or another financial asset to another party

Question 10

Assuming that the ideal measure of short-term receivables in the statement of financial position is the discounted value of the cash to be received in the future, failure to follow this practice usually does NOT make the financial statements 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 11

The general accounting standards for recognition and measurement of accounts receivable include

A)measuring the receivable initially at amortized cost.
B)measuring the receivable initially at fair value.
C)after initial recognition, measuring the receivable at fair value.
D)not recognizing the receivable until it is paid.

Question 12

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 included in the net realizable value of the receivables.
D)becomes more significant as the time between the sale and payment shortens.

Question 13

Which of the following statements is correct regarding receivables?

A)Receivables are written promises of the purchaser to pay for goods or services.
B)Receivables are claims held against customers and others for money, goods, or services.
C)Receivables are non-financial assets.
D)Receivables that are expected to be collected within a year are classified as non-current.

Question 14

The likelihood of loss because of the failure of the other party to fully pay the amount owed is called

A)accounting risk.
B)bad debts.
C)credit risk.
D)currency risk.

Question 15

If a company uses the gross method of recording accounts receivable, then cash discounts taken should be reported as

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

Question 16

Jenny Manufactures sold toys listed at $240 per unit to Jack Inc.for $204, a trade discount of 15 percent.Jack Inc.in turn sells the toys in the market at $225.Jenny should record the receivable and related sales revenue (per unit)at

A)$240.
B)$225.
C)$204.
D)$191.

Question 17

Trade discounts are generally NOT used to

A)avoid frequent changes in catalogues.
B)quote different prices for different quantities purchased.
C)encourage faster payment.
D)hide the true invoice price from competitors.

Question 18

Which of the following is not an example of a nontrade receivable?

A)amounts arising from sale of goods or services
B)dividends and interest receivable
C)claims against insurance companies for losses suffered
D)amounts owing from a purchaser on sale of capital

Question 19

Using the allowance method, when an account receivable is written off, the account to be debited is

A)accounts receivable.
B)bad debts expense.
C)allowance for doubtful accounts.
D)cash.

Question 20

Which of the following actions would NOT be considered good management of accounts receivable?

A)assessing creditworthiness of new or potential customers
B)very loose or flexible credit terms to encourage sales
C)offering discounts to encourage faster payment
D)regular aged receivables analysis

Question 21

If receivables are used as collateral in borrowing transactions,

A)the receivables generally come under the control of the lender.
B)a liability is reported on the borrower's statement of financial position.
C)the receivables will be reported as a liability.
D)the transaction would be reported as a sale.

Question 22

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

A)gives a reasonably correct valuation of the receivables in the statement of financial position.
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 23

Use the following information for questions.
Braun Company factors $300,000 of accounts receivable with Schick Factors Inc.on a without recourse basis.The receivables records are transferred to Schick Factors, which takes over full responsibility for collections.Schick assesses a finance charge of 4% and withholds an initial amount equal to 7% of the accounts receivable for returns and allowances.
The loss on sale of receivables recorded by Braun is

A)$12,000.
B)$21,000.
C)$33,000.
D)$0.

Question 24

The straight-line method of amortization of discounts and premiums for long-term notes

A)is allowed by both IFRS and ASPE.
B)reflects the economic reality of the loan.
C)is only allowed by ASPE.
D)requires more complicated calculations than the effective interest method.

Question 25

Which of the following approaches to determine 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

Question 26

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

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

Question 27

If a note receivable was issued at an amount that is less than its face value, then

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)it must be a zero-interest-bearing note.

Question 28

Which of the following is INCORRECT regarding factoring of receivables?

A)Factoring usually involves a sale to only one company.
B)The fees are relatively high.
C)The quality of the receivables may be lower.
D)The seller usually continues to service the receivables.

Question 29

What is the normal journal entry for recording bad debt expense under the allowance method?

A)debit Allowance for Doubtful Accounts, credit Accounts Receivable
B)debit Allowance for Doubtful Accounts, credit Bad Debt Expense
C)debit Bad Debt Expense, credit Allowance for Doubtful Accounts
D)debit Accounts Receivable, credit Allowance for Doubtful Accounts

Question 30

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 31

Assume Royal Palm Corp., an equipment distributor, sells a piece of machinery with a list price of $600,000 to Arch Inc.Arch Inc.will pay $650,000 in one year.Royal Palm Corp.normally sells this type of equipment for 90% of list price.How much should be recorded as revenue?

A)$540,000
B)$585,000
C)$600,000
D)$650,000

Question 32

Which of the following statements is correct?

A)There is no interest included in a zero-interest-bearing note.
B)A long-term note's fair value and present value are always the same.
C)All notes contain an interest element because of the time value of money.
D)A note is signed by the payee in favour of the maker.

Question 33

If a note receivable was issued at an amount that is more than its face value, then

A)the note was issued at a premium and the note's stated rate was different from the prevailing market rate of interest.
B)the note was issued at a premium and the note's stated rate was the same as the prevailing market rate of interest.
C)the note was issued at a discount and the note's stated rate was the same as the prevailing market rate of interest.
D)the note was issued at a discount and the note's stated rate was different from the prevailing market rate of interest.

Question 34

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

A)is never acceptable.
B)is an acceptable method when the effect of not applying the allowance method would be highly immaterial.
C)is specifically disallowed under IFRS.
D)usually results in the same net income as the allowance method.

Question 35

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)it must be a zero-interest-bearing note.

Question 36

At the beginning of 2017, Gannon Company received a three-year zero-interest-bearing $1,000 trade note.The market rate for equivalent notes was 8% at that time.Gannon reported this note as a $1,000 trade note receivable on its 2017 year-end statement of financial position and $1,000 as sales revenue for 2017.What effect did this accounting for the note have on Gannon's net earnings for 2017, 2018, 2019, and its retained earnings at the end of 2019, respectively?

A)overstate, overstate, understate, zero
B)overstate, understate, understate, understate
C)overstate, overstate, overstate, overstate
D)None of these answer choices are correct.

Question 37

On December 31, 2017, Flint Corporation sold for $100,000 an old machine having an original cost of $180,000 and a book value of $80,000.The terms of the sale were as follows:
$20,000 down payment,
$40,000 payable on December 31 each of the next two years.
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.What should be the amount of the notes receivable net of the unamortized discount on December 31, 2017 rounded to the nearest dollar?

A)$70,364
B)$90,364
C)$80,000
D)$140,728

Question 38

What is the single most important indicator used to identify impaired accounts receivable?

A)the customer's payment history
B)the age of the accounts
C)credit reports and references
D)industry in which the company operates

Question 39

Which of the following is NOT a difference between factoring and securitization of receivables?

A)In securitization, many investors are involved, whereas factoring usually involves only one company.
B)Receivables are derecognized when securitized, but not when factored.
C)The quality of receivables factored tends to be lower than those securitized.
D)The seller retains responsibility to collect amounts due when securitized, but not when factored.

Question 40

When a zero-interest-bearing note is issued, its present value is

A)zero.
B)the face value discounted at the market rate.
C)the face value.
D)the cash paid to the issuer.

Question 41

Cupcake Corp.has sold goods at terms 2/10, n/30.If the discount is not taken, the amount payable is $8,725.Assuming Cupcake uses the net method, the entry to record the sale is

A)a debit and credit of $7,852.50 to both Accounts Receivable and Sales respectively.
B)a debit and credit of $8,550.50 to Accounts Receivable and Sales respectively.
C)a debit and credit of $8,725 to Accounts Receivable and Sales respectively.
D)debits of $8,550.50 and $49.50 to Accounts Receivable and "Forfeited Sales Discounts" respectively, and a credit to Sales for the total.

Question 42

Valiant Inc.reported the following amounts: Cash in Bank-chequing account of $18,500, Cash on hand of $500, Postdated cheques received totalling $3,500, and certificates of deposit totalling $124,000.How much should be reported as cash in the balance sheet?

A)$ 18,500.
B)$ 19,000.
C)$ 22,500.
D)$136,500.

Question 43

Regarding receivables recognition and measurement, which of the following is true regarding the related IFRS standard?

A)It requires the effective interest method is used to recognize interest and related premiums or discounts.
B)It requires the straight-line method is used to recognize interest and related premiums or discounts.
C)It allows a choice between either the effective interest or straight-line method.
D)None of these statements are correct.

Question 44

The ratio that is used to assess the liquidity of accounts receivable is the

A)current ratio.
B)receivables turnover ratio.
C)quick ratio.
D)inventory turnover ratio.

Question 45

On Cairo Corp.'s December 31, 2017 statement of financial position, the current receivables consisted of the following: At December 31, 2017, the correct total of Cairo's current net receivables was

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

Question 46

Cupcake Corp.has sold goods at terms 2/10, n/30.If the discount is not taken, the amount payable is $8,725.Assuming Cupcake has used the net method, and payment was received within the discount period, the entry to record the payment would include

A)an additional debit of $49.50 to Accounts Receivable.
B)a credit of $8,550.50 to Accounts Receivable.
C)a credit of $174.5 to Sales.
D)a debit of $174.50 to "Forfeited Sales Discounts."

Question 47

The following information is available for Pirate Company: As a result of a review and aging of Accounts Receivable in early January 2019, however, it has been determined that an Allowance For Doubtful Accounts of $7,500 is required at December 31, 2018.What amount should Oreo record as bad debt expense for calendar 2018?

A)$4,200
B)$11,700
C)$7,500
D)$74,000

Question 48

Regarding treatment of cash and cash equivalents under ASPE vs.IFRS, which of the following is NOT correct?

A)IFRS allows preferred shares acquired close to their maturity date to qualify as cash equivalent.
B)Cash equivalents under ASPE may be highly liquid investments readily convertible to cash.
C)Cash equivalents under ASPE may be investments convertible to unknown amounts of cash with material risk of change and value.
D)All of these statements are correct.

Question 49

When preparing a bank reconciliation, a deposit credited to our account by the bank in error is

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 50

Use the following information for questions.
Braun Company factors $300,000 of accounts receivable with Schick Factors Inc.on a without recourse basis.The receivables records are transferred to Schick Factors, which takes over full responsibility for collections.Schick assesses a finance charge of 4% and withholds an initial amount equal to 7% of the accounts receivable for returns and allowances.
The cash paid by Schick Factors to Braun Company is

A)$300,000.
B)$288,000.
C)$267,000.
D)$279,000.

Question 51

The requirements for presentation and disclosure of receivables under IFRS are different than those required by ASPE.Which of the following statements is true about these disclosures?

A)More information is required under ASPE than IFRS.
B)IFRS requires extensive quantitative and qualitative information about all accounts.
C)Under ASPE, a reconciliation of changes in the allowance account during the period must be reported.
D)Far less information about risk exposures and fair values is required under ASPE.

Question 52

In preparing its bank reconciliation for the month of April 2014, Henke, Inc.has the following information available: What should be the correct balance of cash at April 30, 2014?

A)$34,370
B)$33,940
C)$33,490
D)$33,470

Question 53

Which of the following is NOT a common reconciling item recorded in preparation of a company's period bank reconciliation(s)?

A)deposits in transit
B)bank charges
C)cash in other accounts
D)bank credits

Question 54

A Cash Over and Short account is

A)not generally acceptable under Canadian GAAP.
B)debited when the sum of the receipts and the cash in the fund is more than the imprest amount.
C)debited when the sum of the receipts and the cash in the fund is less than the imprest amount.
D)a contra account to Cash.

Question 55

Steinert Company has the following items at year end: Steinert should report cash and cash equivalents of

A)$35,000.
B)$35,500.
C)$43,700.
D)$45,800.

Question 56

Cupcake Corp.has sold goods at terms 1/10, n/30.If the discount is not taken, the amount payable is $8,725.Assuming Cupcake uses the gross method, the entry to record the sale is

A)a debit and credit of $7,852.50 to Accounts Receivable and Sales respectively.
B)a debit and credit of $8,550.50 to Accounts Receivable and Sales respectively.
C)a debit and credit of $8,725 to Accounts Receivable and Sales respectively.
D)debits of $8,550.50 and $49.50 to Accounts Receivable and "Forfeited Sales Discounts" respectively, and a credit to Sales for the total.

Question 57

Lebanon Ltd.prepared an aging of its accounts receivable at December 31, 2017 and determined that the net realizable value of the receivables was $290,000.Additional information for calendar 2017 follows: For the year ended December 31, 2017, Lebanon's bad debt expense should be

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

Question 58

The journal entries related to a bank reconciliation

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

Question 59

During the year, Popsicle Inc., who uses the allowance method, made an entry to write off a $2,000 uncollectible account.Before this entry was posted, the balance in accounts receivable was $40,000 and the balance in the allowance account was $3,500.The net realizable value of accounts receivable after the write off entry was

A)$40,000.
B)$38,500.
C)$38,000.
D)$36,500.

Question 60

The accounts receivable turnover ratio is calculated by dividing

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

Question 61

On February 1, 2017, Strawberry Corp.factored receivables with a carrying amount of $250,000 to Shortcake Inc.Shortcake assessed a finance charge of 3% of the receivables and retained 5% 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 Strawberry Corp.for February.Assume that Strawberry factors the receivables on a without recourse basis.The loss to be reported is

A)$ 0.
B)$7,500.
C)$15,000.
D)$14,550.

Question 62

If the month-end bank statement shows a balance of $51,000, outstanding cheques are $14,000, a deposit of $3,000 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)$40,800.
B)$51,000.
C)$28,800.
D)$14,800.

Question 63

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

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

Question 64

Starlight Ltd.assigned $600,000 of Accounts Receivable to Moonbeam Management as security for a loan of $580,000.Moonbeam charged a 3% commission on the amount of the loan; the interest rate on the note was 10%.During the first month, Starlight collected $320,000 of the assigned accounts, after deducting $500 of discounts.As well, Starlight accepted returns worth $2,600 and wrote off assigned accounts totalling $4,500.Entries made by Starlight during the first month would include a

A)debit to Cash of $322,600.
B)debit to Bad Debts Expense of $4,500.
C)debit to Allowance for Doubtful Accounts of $4,500.
D)debit to Accounts Receivable of $324,500.

Question 65

If a petty cash fund is established in the amount of $550, and contains $500 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 66

In preparing its bank reconciliation at April 30, 2017, Delta Inc.has the following information available: The correct balance of cash at April 30, 2017 is

A)$45,280.
B)$32,200.
C)$48,200.
D)$61,700.

Question 67

The following accounts were included on Mali Co.'s unadjusted trial balance at December 31, 2017: Mali estimates that 1.5 % of the gross accounts receivable will become uncollectible.After the proper adjustment at December 31, 201, the allowance for doubtful accounts should have a credit balance of

A)$23,750.
B)$12,750.
C)$11,000.
D)$ 1,750.

Question 68

Sudan Ltd.'s allowance for doubtful accounts was $85,000 at the end of 2017 and $105,000 at the end of 2016.For the year ended December 31, 2017, Sudan reported bad debt expense of $18,000 in its income statement.What amount did Sudan debit to allowance for doubtful accounts during 2017 to write off actual bad debts?

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

Question 69

Cookie Ltd.receives a four-year, $100,000 zero-interest-bearing note.The present value of this note is $82,270.Interest income to be recognized for calendar 2018 will be

A)$10,000.
B)$4,319.18.
C)$8,227.00.
D)$7,910.75.

Question 70

On February 1, 2017, Strawberry Corp.factored receivables with a carrying amount of $250,000 to Shortcake Inc.Shortcake assessed a finance charge of 3% of the receivables and retained 5% 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 Strawberry Corp.for February.Assume that Strawberry factors the receivables on a with recourse basis.The recourse obligation has a fair value of $1,000.The loss to be reported is

A)$17,000.
B)$7,000.
C)$8,500.
D)$1,000.

Question 71

Cookie Ltd.receives a four-year, $100,000 zero-interest-bearing note.The present value of this note is $82,270.Assuming the note was issued on January 1, 2017, and the effective interest method is used, the interest income to be recognized for calendar 2017 will be

A)$5,000.
B)$9,000.46.
C)$4,113.50.
D)$6,587.31.

Question 72

For the year ended December 31, 2017, Tunisia Corp.estimated its allowance for doubtful accounts using the year-end aging of accounts receivable.Additional information for calendar 2017 follows: For the year ended December 31, 2017, Tunisia's bad debt expense should be

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

Question 73

Cookie Ltd.receives a four-year, $100,000 zero-interest-bearing note.The present value of this note is $82,270.What is the implicit rate of interest?

A)3%
B)5%
C)7%
D)9%

Question 74

In preparing its bank reconciliation at May 31, 2017, Teddy Graham Co.has the following information available: The correct balance of cash at May 31, 2017 is

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

Question 75

Starlight Ltd.assigned $600,000 of Accounts Receivable to Moonbeam Management as security for a loan of $580,000.Moonbeam charged a 3% commission on the amount of the loan; the interest rate on the note was 10%.During the first month, Starlight collected $320,000 of the assigned accounts, after deducting $500 of discounts.As well, Starlight accepted returns worth $2,600 and wrote off assigned accounts totalling $4,500.The amount of cash Starlight received from Moonbeam at the time of the transfer was

A)$378,000.
B)$582,000.
C)$562,600.
D)$280,000.