Deck 5: Short-Term Investments Receivables

Question 1

All trading securities are classified as:

A)current assets.
B)long-term assets.
C)equity securities.
D)available-for-sale securities.

Answer 1

A

Question 2

Trading securities are considered to be long-term investments.

Answer 2

False

Question 3

An unrealized loss occurs when the current market value is more than the original cost of the investment.

Answer 3

False

Question 4

Another name for short-term investments is:

A)equity investments.
B)marketable securities.
C)market investments.
D)available-for-sale securities.

Question 5

Trading securities are originally recorded at their cost, which includes broker's commissions.

Question 6

Which of the following statement is TRUE?

A)Trading investments can be current or long-term assets.
B)Investments fall into three categories-trading, available-for-sale, and held for sale.
C)Trading investments are always long-term.
D)Trading investments are always current assets.

Question 7

Stock investments that are to be sold in the near future with the intent of generating profits on the sale are:

A)investments.
B)trading investments.
C)available-for-sale investments.
D)debt securities.

Question 8

The three categories of short-term investments are:

A)trading, accounts receivable and cash.
B)trading, available-for-sale and held for sale.
C)trading, available-for-sale and held-to-maturity.
D)current, trading and short-term.

Question 9

Trading securities may generate dividend revenue.

Question 10

All investments NOT classified as trading securities or held-to-maturity securities are classified as:

A)debt securities.
B)equity securities.
C)marketable securities.
D)available-for-sale securities.

Question 11

The current market value is the amount an investor can receive by selling the investment.

Question 12

Cash is always the most liquid asset. The next most liquid asset is trading securities.

Question 13

Trading securities are reported on the balance sheet at their current market value.

Question 14

AVX Co. has an investment in BYG Co. that is classified as a trading security. The purchase price was $50,000, and the market value is now $62,000. AVX has a realized gain of $12,000 on this investment.

Question 15

Short-term investments may be divided into held-to-maturity securities, trading securities and available-for-sale securities.

Question 16

The order of current assets on the balance sheet is:

A)cash, accounts receivable, short-term investments.
B)cash, inventory, accounts receivable.
C)cash, short-term investments, accounts receivable.
D)short-term investments, cash, accounts receivable.

Question 17

Unrealized gains and losses on trading securities are reported as part of current income.

Question 18

Current assets are listed on the balance sheet in order of their liquidity.

Question 19

The purpose of owning trading securities is to:

A)increase cash reserves.
B)hold for a long-term period.
C)sell the investment for more than its cost.
D)sell the investment to decrease net income.

Question 20

Investments that a company plans to hold for one year or less are:

A)long-term investments.
B)short-term investments.
C)marketable securities.
D)both B and C.

Question 21

Unrealized gains on trading investments can occur when the:

A)market value is less than fair value.
B)fair value is less than market value.
C)fair value equals market value.
D)investment has not been sold.

Question 22

The ABC Company is preparing its financial statements on December 31. During the year, they purchased IBM stock for $20,000. On December 31, the market value of the stock is $8,000. The journal entry on December 31 will include a:

A)debit to unrealized gain for $12,000.
B)debit to unrealized loss for $8,000.
C)debit to unrealized loss for $12,000.
D)debit to realized loss for $12,000.

Question 23

Accounts (trade)receivables are amounts to be collected from customers from the sale of goods or services.

Question 24

When a company receives a cash dividend from a trading investment, the journal entry includes:

A)a debit to cash and credit to dividend revenue.
B)a debit to dividend revenue and credit to cash.
C)a debit to cash and credit to trading investment.
D)none of the above.

Question 25

Realized gains and losses occur when:

A)the investment is sold.
B)the cost of the investment differs from the current market value.
C)the investment has not been sold.
D)both B and C occur.

Question 26

Investments in trading securities are reported on the Balance Sheet at their _________ value.

A)current market
B)investment
C)market or investment
D)fair

Question 27

Unrealized gains and losses occur when:

A)the investment is sold.
B)the cost of the investment differs from the current market value.
C)the investment has not been sold.
D)both B and C occur.

Question 28

Trading securities purchased for $400,000 were valued at $410,000 at the end of the year. The adjusting entry to record this difference included a credit to:

A)Retained Earnings.
B)Unrealized Gain on Investments.
C)Short-term Investments.
D)none of the accounts. No adjusting entry is required.

Question 29

Trading securities purchased in 2010 for $85,000 were valued at $80,000 on December 31, 2010. The securities were sold at the beginning of 2011 for $83,000. The 2011 income statement should report a(n):

A)realized loss of $2,000.
B)realized gain of $3,000.
C)unrealized loss of $5,000 and a realized gain of $3,000.
D)unrealized gain recovered of $3,000.

Question 30

When a company sells a trading investment, the gain or loss on the sale is reported in the:

A)revenues section of the income statement.
B)short-term investments section of the balance sheet.
C)other revenue, gains, and losses section of the balance sheet.
D)other revenue, gains, and losses section of the income statement.

Question 31

During the current year, The Hampton Company purchased 200 shares of Hilton stock for $15,000 as a short-term investment. At the end of the year, the market value of the stock was $11,000. The Hampton Company's financial statements for the current year will show:

A)an unrealized loss of $4,000 on the income statement and short-term investments of $15,000 on the balance sheet.
B)an unrealized gain of $4,000 on the income statement and short-term investments of $11,000 on the balance sheet.
C)an unrealized loss of $4,000 on the income statement and short-term investments of $11,000 on the balance sheet.
D)all of the above.

Question 32

Unrealized gains or losses on trading securities are reported on:

A)the income statement as Other Revenue, Gains, and Losses.
B)the balance sheet.
C)the income statement as Revenues or Expenses.
D)none of the financial statements.

Question 33

The accounts receivable account in the general ledger serves as a control account that summarizes the total amount receivable from all customers.

Question 34

Subsidiary records provide no information about control accounts.

Question 35

An unrealized loss on a marketable security means that the:

A)value of the security at the time of sale exceeded the historical cost of the security.
B)current market value of the security exceeds its original cost.
C)historical cost of the security is less its current market value.
D)historical cost of the security exceeds its current market value.

Question 36

Accounts receivable are current assets.

Question 37

The benefit of extending credit to customers is the potential increase in sales.

Question 38

Strategies to increase the current ratio may include:

A)increasing sales.
B)paying off current liabilities before the end of the year.
C)the questionable practice of reclassifying long-term investments as short-term investments.
D)all of the above.

Question 39

Other receivables include loans to employees and company officers.

Question 40

Trading securities are reported on the balance sheet at the:

A)original purchase price.
B)current market value.
C)amortized cost.
D)historical cost adjusted for investment income.

Question 41

A separate account for each customer is kept in a(n):

A)control account.
B)subsidiary ledger.
C)general ledger.
D)control ledger.

Question 42

Monetary claims against others acquired mainly by selling goods and services are:

A)accounts receivable.
B)notes receivable.
C)accounts payable.
D)notes payable.

Question 43

One method of establishing proper internal control over collections of accounts receivable is to:

A)set up a petty cash fund.
B)make all disbursements by cash. A. establish a bank lock box.
B) designate an authorized check signer.

Question 44

Notes receivable are:

A)more formal contracts than accounts receivable.
B)are due on the maturity date.
C)may require the borrower to pledge security for the loan.
D)all of the above.

Question 45

Under the direct write-off method, uncollectible-account expense is recorded in the same accounting period as the sale.

Question 46

Under a lockbox system, customers' payments are initially received by the company's:

A)accounts receivable department.
B)mail room clerk.
C)receiving department.
D)bank.

Question 47

When preparing financial statements, the allowance method is preferred over the direct write off method because it more accurately matches revenues and expenses.

Question 48

Formal monetary claims against others acquired mainly by lending money are:

A)accounts receivable.
B)notes receivable.
C)accounts payable.
D)notes payable.

Question 49

Uncollectible-account expense is used to record the bad debts expense for the period.

Question 50

The allowance method of accounting for bad debts records collection losses on the basis of historical collection patterns, rather than waiting to determine which customers will not pay.

Question 51

A ledger that contains a separate account for each customer is called a:

A)general ledger.
B)trade ledger.
C)control ledger.
D)subsidiary ledger.

Question 52

There are two basic ways to estimate uncollectibles-the direct write off method and the allowance method.

Question 53

Using the direct write-off method, an account with a balance of $875 would be a debit to Uncollectible- Account Expense for $875 and a credit to Accounts Receivable for $875.

Question 54

The Allowance for Uncollectible Accounts has a credit balance of $500. The sales for the current year were $800,000, and the historical bad debt percentage has been 2% of sales. The adjusting journal entry amount should be $15,500 under the percent-of-sales method.

Question 55

The Allowance for Uncollectible Accounts normally has a credit balance.

Question 56

The most important internal control over cash is to:

A)have all customers pay by check.
B)separate cash-handling duties from cash-accounting duties.
C)separate cash-handling from the mailroom.
D)do none of the above.

Question 57

The Allowance for Uncollectible Accounts may have a debit balance before the adjusting entry is recorded at the end of the year.

Question 58

Another term for uncollectible-account expense is:

A)doubtful-account expense.
B)bad-debt expense.
C)both A and B
D)none of the above.

Question 59

The journal entry to record the receivable from performing a service on account is:

A)debit notes receivable, credit service revenue.
B)debit notes receivable, credit cash.
C)debit service revenue, credit accounts receivable.
D)debit accounts receivable, credit service revenue.

Question 60

The biggest risk of selling on credit is:

A)the risk of posting a payment to the wrong subsidiary account.
B)the risk of not collecting some of the receivables.
C)the risk of losing a sale.
D)none of the above.

Question 61

Under the allowance method for estimating uncollectible accounts, the entry to write off an account:

A)increases Allowance for Uncollectible Accounts, thus decreasing net realizable value.
B)increases both Accounts Receivable and Allowance for Uncollectible Accounts, thus decreasing net realizable value.
C)decreases Accounts Receivable, thus decreasing net realizable value.
D)has no effect on net realizable value.

Question 62

Net accounts receivable is calculated as:

A)sales less sales returns and allowances.
B)accounts receivable plus allowance for uncollectible accounts.
C)accounts receivable less allowance for uncollectible accounts.
D)accounts payable plus allowance for uncollectible accounts.

Question 63

The way to estimate uncollectible accounts by analyzing individual accounts receivable according to the length of time they have been outstanding is known as the:

A)aging-of-receivables method.
B)percent-of-sales method.
C)allowance method.
D)direct write-off method.

Question 64

The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:

A)matching principle.
B)historical cost principle.
C)revenue recognition principle.
D)full disclosure principle.

Question 65

The cost to the seller that arises from the failure to collect from customers who were extended credit called:

A)aging-of-receivables.
B)uncollectible-account expense.
C)direct write-off.
D)aging expense.

Question 66

The net realizable value of accounts receivable is the:

A)amount the company can collect from a factor when the receivables are sold.
B)amount remaining after uncollectible accounts are written off.
C)amount the company expects to collect from customers.
D)amount the company expects to pay to creditors.

Question 67

Allowance for Uncollectible Accounts is classified as:

A)a contra-expense account.
B)a contra-revenue account.
C)a contra-asset account.
D)none of the above.

Question 68

The percent-of-sales method:

A)is not an acceptable method of estimating bad debts.
B)is a balance sheet approach, since it focuses on sales.
C)is an income statement approach, since it focuses on the amount of expense to be reported on the income statement.
D)is concerned with the balance in the Allowance for Doubtful Accounts.

Question 69

Under the aging-of-accounts-receivable method, the balance in:

A)Allowance for Uncollectible Accounts prior to adjustment is ignored.
B)Accounts Receivable prior to adjustment must be considered.
C)Allowance for Uncollectible Accounts prior to adjustment must be considered.
D)Uncollectible-Account Expense prior to adjustment must be considered.

Question 70

The percent-of-sales method of computing uncollectible accounts is used for:

A)interim statements because it is more accurate than the aging method.
B)annual statements because it is more accurate than the aging method.
C)interim statements because it is easier than the aging method.
D)annual statements because it is easier than the aging method.

Question 71

Under the percentage-of-sales method, the estimate of bad debts for the period is based on:

A)the ending balance in the Accounts Receivable account.
B)the aging accounts receivable schedule.
C)a percentage of total revenues.
D)a percentage of net accounts receivable.

Question 72

The aging-of-receivables method is:

A)not an acceptable method of estimating bad debts.
B)a balance sheet approach, since it focuses on accounts receivable.
C)an income statement approach, since it focuses on the amount of expense to be reported on the income statement.
D)not concerned with the balance in the Allowance for Doubtful Accounts.

Question 73

The allowance method that brings the balance of the allowance account to the needed amount as determined by the aging schedule is:

A)the percent-of-sale method.
B)the aging-of-receivables method.
C)an income statement approach, since it focuses on the amount of expense to be reported on the income statement.
D)none of the above.

Question 74

Under the allowance method for estimating uncollectible accounts, the entry to record the estimated bad debts:

A)increases total assets.
B)reduces net income.
C)has no effect on total assets or net income.
D)increases net income and decreases total assets.

Question 75

The two methods of estimating uncollectible receivables are the:

A)aging-of-receivables method and direct write-off method.
B)percent- of- sales method and the aging-of-receivables method.
C)allowance method and the direct write-off method.
D)percent of sales method and the direct write-off method.

Question 76

The net realizable value of accounts receivable is:

A)the difference between accounts receivable and its contra asset account.
B)the difference between accounts receivable and uncollectible-account expense.
C)the amount of accounts receivable that the company expects to collect.
D)both A and C.

Question 77

The most acceptable way to measure bad debts is by:

A)the direct write-off method.
B)the percent-of-sales method.
C)the allowance method.
D)none of the above.

Question 78

Which account shows the amount of accounts receivable that the business does NOT expect to collect?

A)Sales Returns and Allowances
B)Unearned Accounts Receivable
C)Allowance for Uncollectible Accounts
D)Uncollectible Accounts Expense

Question 79

Under the allowance method, the entry to reinstate an account previously written off:

A)increases total assets.
B)increases net income and increases total assets.
C)decreases net income and increases total assets.
D)has no effect on net income or total assets.

Question 80

The entry to write off an account under the allowance method for estimating uncollectible accounts:

A)reduces total assets.
B)reduces net income.
C)has no effect on total assets or net income.
D)increases net income.