Mid term Chapter 8 Accounting PDF

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1. Award: 10 out of 10 pointsScore: 340/400 Points 85 %The two methods of accounting for bad debts that are acceptable under GAAP are the allowance method and the direct write-off method.TrueFalseReferencesTrue / False Difficulty: Medium Learning Objective: 08-02 Estimate and report the effects of u...

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2/25/2021

Assignment Print View

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340/400

1.

Points

85

% 

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Award:

The two methods of accounting for bad debts that are acceptable under GAAP are the allowance method and the direct write-off method.

✓

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True



False

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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2.

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Award:

Interest on notes receivable is recorded as revenue when the cash is received.



True



False

Difficulty: Medium

3.

Learning Objective: 08-03 Compute and report interest on notes receivable. 

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Award:

The allowance for doubtful accounts is not used in the direct write off method.



True



False

Difficulty: Medium

Learning Objective: 08-S1 Record bad debts using the direct write-off method.

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4.

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Award:

If the receivables turnover ratio rises significantly, the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

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True

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False

Difficulty: Hard

5.

Learning Objective: 08-04 Compute and interpret the receivables turnover ratio. 

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Award:

Direct write-off method violates the matching principle.

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True



False

Difficulty: Easy

Learning Objective: 08-S1 Record bad debts using the direct write-off method.

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Award:

Allowance for Doubtful Accounts is a contra-asset account.

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True



False

Difficulty: Easy

7.

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts. 

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Award:

Both the percentage of credit sales and aging of accounts receivable methods are acceptable under ASPE and IFRS. ✓



True

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False

Difficulty: Medium

Learning Objective: 08-04 Compute and interpret the receivables turnover ratio.

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8.

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Award:

All else being equal, net sales revenue and days to collect have an inverse relationship.

✓

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True



False

Difficulty: Medium

9.

Learning Objective: 08-04 Compute and interpret the receivables turnover ratio. 

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Award:

All else being equal, an increase in the average net receivables necessarily implies an increase in days to collect.



True



False

Difficulty: Medium

Learning Objective: 08-04 Compute and interpret the receivables turnover ratio.

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10.

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At the end of the accounting period, The Grass is Greener Corporation learns that a customer who owes $350 has gone bankrupt and payment will not be made. The Grass is Greener Corporation should:

✓

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debit Bad Debt Expense and credit Accounts Receivable for $350.



debit the Allowance for Doubtful Accounts and credit Accounts Receivable for $350.

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debit Bad Debt Expense and credit Cash for $350.

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debit Accounts Receivable and credit Bad Debt Expense for $350.

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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11.

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When an adjusting entry is made in anticipation of some receivables being uncollectible the adjustment reduces: ✓



both net income and net accounts receivable.

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net income and increases liabilities.

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net accounts receivable and increases liabilities.

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net income and selling expenses.

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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12.

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During the year, a company concludes that $6,844 of specific customer accounts will not be collected. These are written off by:

✓

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debiting Accounts Receivable and crediting Allowance for Doubtful Accounts for $6,844.

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debiting Accounts Receivable and crediting Bad Debt Expense for $6,844.



debiting Bad Debt Expense and crediting Accounts Receivable for $6,844.

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debiting Allowance for Doubtful Accounts and crediting Accounts Receivable for $6,844.

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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13.

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Award:

Your company has averaged about 26% of its accounts receivable in the "over 90 days past due" category and now forecasts 18% in this category. You use the aging of accounts receivable method of estimating bad debt expense. If the total of credit sales remains unchanged from previous months and no write offs are made, the estimate of bad expense based on the new forecast will:

✓

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increase over the estimate for previous months.



decrease over the estimate for previous months.

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not change.



will depend on the percentage of credit sales deemed un-collectible.

Difficulty: Hard

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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14.

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Award:

The beginning balance in the allowance for doubtful accounts is $12,656 and the ending balance is $14,348. If bad debt expense was $3,879, which of the following statements is true?

✓

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The allowance account was retroactively debited $2,187 for additional bad debts that became apparent in a future time period.



The allowance account was debited $2,187 for write-offs of actual bad debts.

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The allowance account was credited $2,187 for recoveries of bad debts.



The allowance account was credited $2,187 for the difference between the percent of credit sales method and the aging of accounts receivable method.

Allowance for doubtful accounts will be credited for the current period's estimate of bad debts expense. An unexplained debit to the account must have resulted from the write off of specific accounts receivable during the year.    $2,187 

$12,656 $3,879  $14,348

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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15.

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Award:

Plasma Inc., has net credit sales of $500,000 during the year. Based on historical information, Plasma estimates that 2% of net credit sales result in bad debts. At the beginning of the year, Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000. What amount of bad debt expense should Plasma recognize for the year, assuming no specific customer accounts were written off?

✓



$4,000.



$6,000.



$10,000.

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$14,000.

When the % of credit sales method is used, the amount of the entry to record Bad Debt Expense is based on the historical % of bad debt losses and is not adjusted for any balance in the allowance for doubtful accounts. $500,000 * .02 = 10,000.

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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16.

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Award:

As of December 31, Frappa Company has a balance of $5,000 in accounts receivable. Of this amount $500 is past due and the remainder is not yet due. Frappa has a credit balance of $45 in the allowance for doubtful accounts. Frappa Company estimates its bad debt losses using the aging of receivables method, with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts. How would the required adjusting journal entry be recorded in the Allowance for Doubtful Accounts?

✓

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$95 (credit).



$55 (credit).



$50 (credit).

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$45 (debit).

Using the aging method, bad debt expense equals the estimated amount of uncollectible accounts based on the aging report minus the credit balance in the allowance for doubtful accounts. $95 - $45 = $50 

Not yet due Past due Total

$4,500 $500 

Difficulty: Medium

1% 10% 

$45 $50 $95

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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17.

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Award:

In reviewing the accounts receivable, the net receivable value is $17,000 before writing off a $1,500 account. What is the net receivable value after the write-off? ✓

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$17,000.

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$1,500.

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$18,500.

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$15,500.

Difficulty: Medium

Learning Objective: 08-02 Estimate and report the effects of uncollectable accounts.

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18.

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Award:

IBM signs an agreement to lend one of its customers $200,000 to be paid back in one year at 5.5% interest. IBM would record this loan under:

✓

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loans payable.



accounts receivable.



notes receivable.

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unearned revenue.

Difficulty: Easy

Learning Objective: 08-03 Compute and report interest on notes receivable.

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19.

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Award:

In the normal formula for interest calculation, the interest rate is on a(n) _____ basis and therefore the time variable must reflect how many _____ out of _____ in the interest period.

✓

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biannual; months; 6



annual; years; 1

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biannual; half-years; 2

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annual; months; 12

Difficulty: Easy

Learning Objective: 08-03 Compute and report interest on notes receivable.

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When interest is calculated for periods shorter than a year, the formula to calculate interest is I = P × R × T, where:

✓

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I = interest calculated, P = principal, R = annual interest rate, and T = number of months.



I = interest calculated, P = principal, R = annual interest rate, and T = (number of months ÷ 12)



I = interest calculated, P = principal, R = monthly interest rate, and T = (number of months ÷ 12).



none of the choices are correct.

Difficulty: Medium

Learning Objective: 08-03 Compute and report interest on notes receivable.

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A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. The company initially records the transaction by: ✓



debiting Notes Receivable for $150,000 and crediting Cash for $150,000.



debiting assets for $150,000 and crediting liabilities for $150,000.

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debiting Cash for $9,000 and crediting Interest Revenue for $9,000.

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debiting Interest Receivable for $4,500 and crediting Interest Revenue for $4,500.

Difficulty: Medium

Learning Objective: 08-03 Compute and report interest on notes receivable.

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22.

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Award:

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Company A lends $100,000 to Company B. The interest on the loan is reported:

✓



as an expense to Company A and a revenue to Company B.



as an asset to Company A and a revenue to Company B.



as an asset to Company B and a liability to Company A.



as an expense to Company B and a revenue to Company A.

Difficulty: Easy

Learning Objective: 08-03 Compute and report interest on notes receivable.

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23.

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On January 31, 2017, Purrfect Pets receives a $4,680 interest payment on a note receivable representing two months of accumulated interest. One month of this interest was accrued during the year ended December 31, 2017. Upon receiving the payment, the company would:

✓



debit Interest Receivable for $2,340, debit Cash $2,340, and credit Interest Revenue for $4,680.



debit Cash for $4,680, credit Interest Revenue for $2,340, and credit Interest Receivable for $2,340.



debit Cash for $2,340, debit Interest Receivable for $2,340, and credit Interest Revenue for $2,340.



debit Interest Revenue for $2,340 and credit Cash for $2,340.

Difficulty: Medium

Learning Objective: 08-03 Compute and report interest on notes receivable.

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24.

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Your company lent a customer $5,000 to satisfy the customer's overdue accounts receivable. The loan is for one year at an annual interest rate of 5%. Six months later the customer repays the principal and interest. The principal part of the repayment should be recorded as a: ✓



debit to Cash and credit to Notes Receivable.



debit to Notes Receivable and credit to Interest Revenue.



debit to Cash and credit to Accounts Receivable.



debit to Allowance for Bad Debts and credit to Cash.

Difficulty: Medium

Learning Objective: 08-03 Compute and report interest on notes receivable.

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25.

Assignment Print View

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Award:

Which of the following is true?

✓



Accounts receivable fall as companies sell on credit.



Accounts receivable rise as companies receive payment.



Receivables turnover refers to how fast receivables are collected.



All of the answers are acceptable.

Difficulty: Medium

Learning Objective: 08-04 Compute and interpret the receivables turnover ratio.

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26.

Assignment Print View

Award:

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How are net income a...