Deck 10: Short-Term Operating Assets: Cash and Receivables

Question 1

Which of the following must be disclosed in the footnotes to the financial statements?

A)reclassification of a cash amount that is restricted from use in the current operating cycle
B)negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance
C)short-term liquid investment with original maturity of three months or less
D)minimum cash balance required to be maintained by a credit agreement

Answer 1

B

Question 2

Grisson Enterprises provides the following information: * Restricted fund for bond retirement
Following U.S.GAAP,what is the dollar amount of Cash and Cash Equivalents reported on Grisson's balance sheet?

A)$27,300
B)$26,600
C)$16,300
D)$15,600

Answer 2

C

Question 3

Bordelain Company has cash in bank of $20,000,restricted cash in a separate account of $6,000,and a bank overdraft in an account at another bank of $2,000.Kennison should report cash of ________.

A)$18,000
B)$20,000
C)$24,000
D)$26,000

Answer 3

B

Question 4

A trade discount reduces the list price for customers purchasing a large quantity of merchandise.

Question 5

What is a bank overdraft?

A)reclassification of a cash amount that is restricted from use in the current operating cycle
B)negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance
C)short-term liquid investment with original maturity of three months or less
D)minimum cash balance required to be maintained by a credit agreement

Question 6

Under the gross method of recording accounts receivable,a customer must pay the gross amount of the invoice.

Question 7

Under U.S.GAAP,bank overdraft should generally be reported as ________.

A)a decrease in the balance of Cash and Cash Equivalents
B)a decrease in other current assets
C)an increase in operating expenses
D)an increase in current liabilities

Question 8

Sales discounts are reductions granted to customers to encourage quick invoice payment.

Question 9

Which of the following is considered to be cash (not a cash equivalent)?

A)treasury bill
B)money market fund
C)certificate of deposit
D)money order

Question 10

How do accounting standards for bank overdrafts differ under U.S.GAAP and IFRS?

Question 11

Grisson Enterprises provides the following data:
Notes related to these data include:
*1 A current loan obligation to First Bank requires Grisson to maintain a $1,200 compensating balance in the Savings account
*2 Grisson's board of directors have specified that these funds are restricted to provide for retirement of company bonds that mature in seven years.
Required:
a.Following U.S.GAAP,what is the dollar amount of Cash and Cash Equivalents reported on Grisson's balance sheet?
b.Describe appropriate accounting treatment for any given data that is excluded from Cash and Cash Equivalents.

Question 12

Cash equivalents may include Treasury bills and certificates of deposit.

Question 13

Cash equivalents are short-term,highly liquid investments with original maturities of one year or less.

Question 14

According to U.S.GAAP,checks written in excess of the balance of a bank account are deducted from the cash account on the balance sheet.

Question 15

Under what circumstances may cash in a bank account be classified as a non-current asset?

Question 16

What is a cash equivalent?

A)reclassification of a cash amount that is restricted from use in the current operating cycle
B)negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance
C)short-term liquid investment with original maturity of three months or less
D)minimum cash balance required to be maintained by a credit agreement

Question 17

What is a compensating balance?

A)reclassification of a cash amount that is restricted from use in the current operating cycle
B)negative cash balance that occurs when a company writes a check in an amount that exceeds the account balance
C)short-term liquid investment with original maturity of three months or less
D)minimum cash balance required to be maintained by a credit agreement

Question 18

Accounting standards require separate disclosure for cash and cash equivalents that are restricted from use in operations.

Question 19

What is the balance sheet classification of a bank account whose fund balance is restricted for retirement of bonds that mature in six years?

A)current asset
B)non-current asset
C)current liability
D)non-current liability

Question 20

A compensating cash balance held as support of a credit agreement is not classified as cash on the balance sheet.

Question 21

Fraxon Inc.made a $10,000 sale on account with terms: of 1/15,n/30.If the company uses the gross method,which of the following will be included in the journal entry to record customer payment within the discount period?

A)credit Accounts Receivable $10,000
B)credit Sales Discount $100
C)credit Sales Revenue $10,000
D)credit Cash $9,900

Question 22

The Sales Discounts Forfeited account is classified as a contra-revenue account.

Question 23

On June 1,Homart Wholesalers,Inc.sells 2,000 cases of facial products for $8 per case with terms of 3/15,n/30.
a.If Homart uses the gross method,what is the journal entry to record the sale on June 1?
b.If Homart uses the gross method,what is the journal entry to record customer payment on June 12?
c.If Homart uses the gross method,what is the journal entry to record customer payment on June 30?
d.If Homart uses the net method,what is the journal entry to record the sale on June 1?
e.If Homart uses the net method,what is the journal entry to record customer payment on June 12?
f.If Homart uses the net method,what is the journal entry to record customer payment on June 30

Question 24

The account Allowance for Uncollectible Accounts is classified as a contra-revenue account.

Question 25

Eurobake Inc.made a $10,000 sale on account with terms: of 1/15,n/30.If the company uses the net method,which of the following will be included in the journal entry to record the sale on account?

A)debit Accounts Receivable $10,000
B)debit Accounts Receivable $9,900
C)debit Sales Discount Forfeited $100
D)credit Sales Discount Forfeited $100

Question 26

Under the net method of recording accounts receivable,a company assumes that the customer will take the sales discount.

Question 27

Bad debt expense represents the amount of receivables written off during the period.

Question 28

Why are trade discounts not recorded in the accounts like sales discounts?

Question 29

Gappule Corp.made a $10,000 sale on account with terms: of 1/15,n/30.If the company uses the net method,which of the following will be included in the journal entry to record customer payment within the discount period?

A)credit Accounts Receivable $10,000
B)debit Sales Discounts Forfeited $100
C)credit Sales Revenue $9,900
D)debit Cash $9,900

Question 30

Net realizable value (NRV)describes the estimated amount of a company's expected cost of uncollectible accounts.

Question 31

The two acceptable approaches to recording sales discounts are ________.

A)the net method and the aging method
B)the allowance method and the aging method
C)the net method and the gross method
D)the allowance method and the gross method

Question 32

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

A)sales discounts forfeited on the income statement
B)an item of "other income and expense" on the income statement
C)an increase to sales revenue on the income statement
D)a deduction from sales revenue on the income statement

Question 33

The balance-sheet value of the asset Accounts Receivable represents the amount of cash the company is expected to collect from its customers.

Question 34

Frigart Company sold goods for $1,000 with terms 2/10,n/30.How much would Frigart receive if the account were paid within the discount period?

A)$998
B)$980
C)$970
D)$900

Question 35

A company uses the gross method to account for cash discounts offered to its customers.If payment is made before the discount period expires,which of the following is correct?

A)Sales discounts is debited for the amount of discounts taken by customers.
B)Sales discounts is credited for the amount of discounts taken by customers.
C)Accounts receivable is debited for the gross amount of cash received from customers.
D)Accounts receivable is credited for the net amount of cash received from customers.

Question 36

The allowance method is used to estimate not only the net realizable value of accounts receivable but also the current period's bad debt expense.

Question 37

Net realizable value is calculated as ________.

A)net receivables plus sales discounts forfeited
B)gross receivables minus sales discounts taken
C)gross receivables minus sales discounts forfeited
D)gross receivables minus allowance for uncollectible accounts

Question 38

Which of the following is a reduction of a catalog price whenever a company sells to a reseller in the same industry?

A)trade discount
B)sales discount
C)net discount
D)gross discount

Question 39

Darko Inc.made a $10,000 sale on account with terms: of 1/15,n/30.If the company uses the gross method,which of the following will be included in the journal entry to record the sale on account?

A)credit Accounts Receivable $10,000
B)debit Sales Discount $100
C)credit Sales Revenue $10,000
D)debit Cash $10,000

Question 40

If a company employs the net method of recording accounts receivable from customers,then sales discounts forfeited should be reported as ________.

A)sales discounts forfeited on the income statement
B)an item of "other income and expense" on the income statement
C)an increase to sales revenue on the income statement
D)a deduction from sales revenue on the income statement

Question 41

Why are the objectives of the allowance method of accounting for uncollectible receivables?

Question 42

Under the allowance method,the recovery of an account previously written-off ________.

A)has no effect on the allowance for uncollectible accounts
B)has no effect on total assets
C)increases net income
D)increases net realizable value of receivables

Question 43

Which method of estimating bad debt expense focuses on faithful representation of the net realizable value of receivables?

A)net method
B)allowance method
C)aging method
D)percentage-of-sales method

Question 44

Lithotech,Inc had net sales in 2016 of $700,000.At December 31,2016,before adjusting entries,the balances in selected accounts were: accounts receivable $125,000 debit,and allowance for doubtful accounts $1,200 debit.Lithotech estimates that 2% of its net sales will prove to be uncollectible.What is the cash realizable value of the receivables reported on the statement of financial position at December 31,2016?

A)$109,800
B)$111,000
C)$112,200
D)$122,500

Question 45

Under the allowance method,the write-off of an uncollectible account ________.

A)has no effect on the allowance for uncollectible accounts
B)has no effect on net income
C)increases expenses
D)decreases total assets

Question 46

The percentage-of-sales method directly estimates the appropriate balance of the Allowance for Uncollectible Accounts.

Question 47

Recording bad debt expense during the period when an account is determined to be uncollectible,which is generally not allowed under U.S.GAAP,is known as the ________.

A)allowance method
B)non-allowance method
C)direct write-off method
D)net write-off method

Question 48

How can accounting for bad debts be used for earnings management?

A)changing the percentage of aged receivables that comprise the allowance balance
B)using the percentage-of-sales method to determine bad debt expense
C)determining which accounts to write-off
D)reversing previous write-offs

Question 49

The percentage-of-sales method estimates current-period bad debt expense by focusing on balance sheet relationships.

Question 50

The aging-of-receivable method determines current-period bad debt expense by focusing on balance sheet relationships.

Question 51

What type of account is Allowance for Uncollectible Accounts?

A)current liability
B)expense
C)contra asset
D)contra revenue

Question 52

Bad debt expense represents the amount of ________.

A)gross sales that is written off during the current period
B)current period sales that is expected to be uncollectible
C)gross receivables that is expected to be uncollectible
D)net receivables that is written off during the current period

Question 53

Lithotech,Inc had net sales in 2016 of $700,000.At December 31,2016,before adjusting entries,the balances in selected accounts were: accounts receivable $125,000 debit,and allowance for doubtful accounts $1,200 credit.Lithotech estimates that 2% of its net sales will prove to be uncollectible.What is the cash realizable value of the receivables reported on the statement of financial position at December 31,2016?

A)$109,800
B)$111,000
C)$112,200
D)$122,500

Question 54

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

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

Question 55

Which method of estimating bad debt expense focuses on balance sheet relationships?

A)net method
B)allowance method
C)aging method
D)percentage-of-sales method

Question 56

The two acceptable approaches to estimating bad debt expense are ________.

A)the net method and the gross method
B)the aging method and the percent-of-sales method
C)the gross method and the aging method
D)the percent-of-sales method and the allowance method

Question 57

The aging-of-receivable method focuses on matching bad debt expense to the revenues that generated those revenues.

Question 58

Which method of estimating bad debt expense focuses on matching that expense to revenues generated from offering credit sales?

A)net method
B)allowance method
C)aging method
D)percentage-of-sales method

Question 59

Which method of estimating bad debt expense focuses on income statement relationships?

A)net method
B)allowance method
C)aging method
D)percentage-of-sales method

Question 60

A company writes off an account receivable when it no longer expects to collect the amount due from the customer.

Question 61

In which of the following situations are a company's receivables sold to another entity?

A)recoursing
B)assigning
C)factoring
D)pledging

Question 62

To be recognized as a sale under IFRS,factored receivables do not have to be isolated.

Question 63

Factored receivables sold without recourse are classified as a liability.

Question 64

Prior to adjustments,Willett Company's account balances at December 31,2017,for Accounts Receivable and the related Allowance for Uncollectible Accounts were $2,400,000 and $120,000,respectively.An aging of accounts receivable indicated that $212,000 of the December 31,2017,receivables may be uncollectible.The net realizable value of accounts receivable at December 31,2017,was ________.

A)$2,308,000
B)$2,280,000
C)$2,188,000
D)$2,068,000

Question 65

What factors are considered when determining either the percentage of sales or the percentage of aged receivables used in determining the adjustment for bad debt expense?

Question 66

In which of the following situations are a company's receivables held as collateral for a financing situation?

A)collateralization
B)securitization
C)factoring
D)pledging

Question 67

Securitization of receivables eliminates the risk of non-collection.

Question 68

To be recognized as a sale under IFRS,companies must give up effective control of factored receivables.

Question 69

Teeter Company began 2017 with accounts receivable of $400,000 and an allowance for uncollectible accounts of $20,000 (credit balance).Bad debt expense for the year was $33,000 and the ending balance in the allowance for uncollectible accounts account was $15,000.What was the amount of accounts receivable written off during the year?

A)$5,000
B)$38,000
C)$438,000
D)$405,000

Question 70

Marston Company has outstanding accounts receivable totaling €6.5 million as of December 31 and sales on credit during the year of €24 million.There is also a credit balance of €12,000 in the allowance for doubtful accounts.After aging its receivables,the company estimates that 8% of its total outstanding receivables will be uncollectible.What will be the amount of bad debt expense recognized for the year?

A)€532,000
B)€520,000
C)€512,000
D)€508,000

Question 71

During the year,Liptom 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 (normal balance).What is the net realizable value of accounts receivable after the write-off entry?

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

Question 72

Marston Company has outstanding accounts receivable totaling €6.5 million as of December 31 and sales on credit during the year of €24 million.There is also a credit balance of €12,000 in the allowance for doubtful accounts.After aging its receivables,the company estimates that 2% of its credit sales will be uncollectible.What will be the balance for the Allowance for Uncollectible Accounts after the year-end adjustment is made to record bad debt expense?

A)€492,000
B)€488,000
C)€480,000
D)€468,000

Question 73

Securitization of receivables involves taking many separate receivables and bundling them into a single investment pool.

Question 74

Pledged receivables are collateral for a financing arrangement.

Question 75

Which of the following is true when accounts receivable are factored without recourse?

A)The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
B)The financing cost (interest expense)should be recognized ratably over the collection period of the receivables.
C)The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables.
D)The transaction may be accounted for either as a secured borrowing or as a sale,depending upon the substance of the transaction.

Question 76

Factored receivables have been sold to another company.

Question 77

On January 1,2016,Willett Company's account balances for Accounts Receivable and the related Allowance for Uncollectible Accounts were $3,600,000 and $90,000,respectively.During the year,sales revenue totaled $40 million,of which 70% were credit sales and the remainder were cash sales.Altogether,cash collections from all customers amounted to $30 million.Also,write-offs of accounts deemed to be uncollectible totaled $250,000.At the end of the year,an analysis of aged accounts receivable indicated that 2% of total gross receivables may be uncollectible.
Required:
Determine the amount of bad debt expense for the year and net realizable value of receivables at the end of the year.

Question 78

Pledged receivables are reported as current assets while assigned receivables are reported as non-current assets.

Question 79

In which of the following transactions is a "hold back" feature applicable?

A)collateralization
B)securitization
C)factoring
D)pledging

Question 80

Which of the following is not a requirement for recognizing that a transaction can be recorded as a sale of receivables?

A)The factor discounts the amount remitted to the seller.
B)The selling company does not maintain effective control over the receivables.
C)The factor has the ability to pledge the receivables.
D)The receivables are isolated from the selling company.