Question 1

The alternate term for a credit card draft is an invoice.

Accepted Answer

The answer of The alternate term for a credit card...

Question 2

When a note is discounted at a bank,it is normally done with recourse.

Accepted Answer

When a note is discounted at a bank with recourse, the bank has the right to demand payment from the seller (endorser) of the note in case the buyer fails to pay. This means that the seller takes on the risk of payment default.

Question 3

Promissory notes are non-negotiable.

Accepted Answer

Promissory notes can be either negotiable or non-negotiable. If a promissory note is negotiable, it can be transferred to a third party who becomes the new legal holder of the note. However, if a promissory note is non-negotiable, it cannot be transferred to a third party and only the original parties involved in the note are legally bound by it.

Question 4

When a company discounts a promissory note at the bank,it receives cash at the same time it would if it held the note to maturity.

Accepted Answer

When a company discounts a promissory note at the bank, it receives cash immediately, which is before the note's maturity date, but the amount received is less than the face value of the note due to the discount (interest) charged by the bank.

Question 5

A note discounted with recourse means that if the original customer fails to pay the bank the total amount due on the maturity date of the note,the company that transferred the note to the bank is liable for the full amount.

Accepted Answer

A note discounted with recourse means that the selling company retains the risk of the customer's non-payment, and therefore is liable to cover any unpaid amount in case of default.

Question 6

The payee of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

Accepted Answer

When the payee of a note receives a note receivable, it is recognized as an asset on the balance sheet. The interest earned on the note is recognized as interest revenue on the income statement.

Question 7

Purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows.

Accepted Answer

Purchases and sales of cash equivalents are considered part of cash management and are therefore not reported as investing activities but are included in the cash and cash equivalents balances at the beginning and end of the period on a statement of cash flows.

Question 8

The maker of a note recognizes a note payable on the balance sheet and interest expense on its income statement.

Accepted Answer

When a company borrows money through a note payable, it creates a liability on its balance sheet, which represents the amount owed to the lender. Additionally, the interest paid on the note is recognized as an expense on the company's income statement.

Question 9

Whether investments are reported as current or noncurrent assets depends on the company's intent.

Accepted Answer

Investments can be reported as current or noncurrent assets depending on the company's intent. If the company intends to sell the investments in the near future, they are classified as current assets. If the company intends to hold them for longer than a year, they are classified as noncurrent assets.

Question 10

A company invests excess cash in a certificate of deposit.At the end of an accounting period before the CD matures,the company will recognize interest expense.

Accepted Answer

Interest from a certificate of deposit (CD) is recognized as interest income, not interest expense, because the company earns interest on the investment, rather than incurs cost.

Question 11

An increase in accounts receivable is reported on the statement of cash flows under the indirect method as an addition.

Accepted Answer

An increase in accounts receivable is reported on the statement of cash flows under the indirect method as a deduction because it represents revenue that has been recognized but not yet received in cash, thus reducing the cash flow.

Question 12

A subsidiary is a separate legal entity that is owned or controlled by another entity.

Accepted Answer

A subsidiary is defined as a legally separate entity that is controlled by another organization through ownership of a majority of its common stock or voting shares. The parent company has the authority to appoint directors and make decisions for the subsidiary, but the subsidiary may also have its own management team and board of directors.

Question 13

Baggs buys $100,000 of Vista Company bonds on January 1,2017,at face value.The bonds pay 10% interest semiannually on June 30 and December 31.If Baggs sells the bonds at 99 on July 1,2017,there will be a loss reported on the income statement.

Accepted Answer

Since the bonds are sold at a price lower than the face value, there will be a loss reported on the income statement. The loss can be calculated as (Face value of the bond) - (Sale price of the bond). In this case, the face value is $100,000 and the sale price is $99,000, resulting in a loss of $1,000.

Question 14

The equity method of accounting is used if the investor owns at least 20% of the investee and the investor is able to secure influence over the investee.

Accepted Answer

The statement is accurate. The equity method of accounting is used when the investor has significant influence over the investee i.e. the investor has the ability to participate in the financial and operating policies of the investee, which is generally the case when the investor owns at least 20% of the investee.

Question 15

A decrease in accounts receivable represents an increase in a company's cash flow from operating activities.

Accepted Answer

A decrease in accounts receivable means that the company is collecting payments quicker, which results in an increase in cash flow from operating activities. When customers pay their outstanding debts, it is added to the company's cash balance, resulting in an increase in cash flow.

Question 16

Both stock and bond investments have maturity dates.

Accepted Answer

Stock investments do not have maturity dates; they represent ownership in a company and can be held indefinitely. Bonds, on the other hand, are debt securities with fixed maturity dates by which the principal amount must be repaid.

Question 17

When Company X buys stock in Company Y,Company X is referred to as the investee.

Accepted Answer

When a company buys stock in another company, the buying company is referred to as the investor, while the company whose stock is being purchased is the investee.

Question 18

The payee of a note recognizes a note payable on the balance sheet and interest expense on its income statement.

Accepted Answer

The payee of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement, not a note payable or interest expense.

Question 19

If a company accepts a major credit card such as VISA from a customer,then the company is responsible for the amount of the sale in case of nonpayment from a cardholder.

Accepted Answer

If a company accepts a major credit card such as VISA from a customer, the company is not responsible for the amount of the sale in case of nonpayment from a cardholder. Instead, the credit card company is responsible for ensuring payment is made to the company, and may pursue collection from the cardholder if necessary.

Question 20

Securities issued by corporations as a form of ownership in the business,such as common and preferred stock,are called equity securities.

Accepted Answer

Equity securities are indeed issued by corporations as a form of ownership in the business, including common and preferred stock.

Quiz 7: Receivables and Investments