Question 1

When Company A buys stock in Company B,Company A is referred to as the investee.

Accepted Answer

When Company A buys stock in Company B, Company B is referred to as the investee, not Company A. Company A is the investor or the purchaser of the stock.

Question 2

Twin Cities Corp.had sales during the year of $15,000,000 and an average accounts receivable of $5,000,000.Its accounts receivable turnover ratio is 0.33 times.

Accepted Answer

The answer of Twin Cities Corp.had sales during the year...

Question 3

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 a case of nonpayment from a cardholder.

Accepted Answer

The company is not responsible for nonpayment from a cardholder. The credit card company or issuing bank may charge the company a fee for a chargeback or dispute, but ultimately the liability lies with the cardholder.

Question 4

Promissory notes are non-negotiable.

Accepted Answer

Promissory notes are negotiable instruments that can be transferred to a third party who then becomes the new holder of the note.

Question 5

If accounts receivable turnover is faster,this means that fewer days are required to collect receivables.

Accepted Answer

Accounts receivable turnover ratio is calculated by dividing net credit sales by the average accounts receivable for a period. A higher accounts receivable turnover ratio indicates that the company is collecting its receivables more quickly, hence fewer days are required to collect receivables.

Question 6

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 7

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

Accepted Answer

When a payee receives a note from a borrower, it represents a promise to pay back the loan at a future date with interest. The payee recognizes the note as an asset on the balance sheet (notes receivable), and recognizes interest revenue on the income statement as the borrower makes payments on the note.

Question 8

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

This is because in a note discounted with recourse, the company that transferred the note to the bank assumes the risk of payment default by the original customer. If the original customer fails to pay on the maturity date, the bank can demand payment from the company that transferred the note. The company is then liable for the full amount due on the note.

Question 9

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 10

The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts receivable.

Accepted Answer

The statement is true. The accounts receivable turnover ratio is a financial ratio that measures a company's ability to collect its accounts receivable in a timely manner. It is calculated by dividing a company's net credit sales by its average accounts receivable during a given period. A high accounts receivable turnover ratio indicates that a company is efficient in collecting its accounts receivable, while a low ratio may suggest that a company is having difficulty collecting its debts.

Question 11

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

Accepted Answer

This is because a note payable is a liability that needs to be recognized on the balance sheet, and interest expense arises from the interest paid on the note payable, which is reflected on the income statement.

Question 12

A high accounts receivable turnover ratio could mean that the company's credit policies may be too stringent.

Accepted Answer

A high accounts receivable turnover ratio indicates that a company collects its outstanding credit sales quickly. This could suggest that the company has strict credit policies, leading to faster collections from customers.

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

Whether an investment is reported as a current or noncurrent asset depends on the company's intent, meaning if the company's intention is to hold the investment for more than one year, it will be classified as a noncurrent asset, otherwise, it will be classified as a current asset.

Question 15

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

Accepted Answer

A subsidiary is a company that is owned, in whole or in part, by another company, referred to as the parent or holding company. It is a separate legal entity that can own assets, incur liabilities, and conduct business operations under its own name. The parent company controls the subsidiary through ownership of its shares or voting rights.

Question 16

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

Accepted Answer

When a note is discounted at a bank, the bank usually has recourse, meaning that if the borrower defaults on the loan, the bank can go after the borrower for the unpaid amount.

Question 17

If Apple Company had sales during the year of $10,000,000,an average accounts receivable
of $2,000,000,and net income of $500,000,its accounts receivable turnover ratio would be 0.25.

Accepted Answer

The accounts receivable turnover ratio is calculated by dividing sales by the average accounts receivable. In this case, $10,000,000 / $2,000,000 = 5, not 0.25.

Question 18

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

Accepted Answer

This statement is true. Equity securities represent ownership in a corporation and include common and preferred stock.

Question 19

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 correct. The equity method of accounting is used when an investor owns 20% or more of the investee and has significant influence over it.

Question 20

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

Accepted Answer

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

Quiz 7: Receivables and Investments