TEST BANK Receivables PDF

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1. Travel advances should be reported as a. Receivables b. Cash because they represent the equivalent of money c. Investments d. None of these answers are correct 2. In which account are postage stamp classified as ? a. Cash b. Receivables c. Office Supplies d. Inventory 3. Bank overdrafts, if material, should be a. Reported as current liability b. Reported as a deduction from the current asset section c. Reported as a deduction from cash d. Netted against cash and a net cash amount reported 4. Which of the following should be recorded in the category “trade receivables” a. Advances to officers and employees b. Income tax refunds receivable c. Open accounts resulting from short term extensions of credit to customers d. Claims against insurance companies for casualties sustained

5. If a company employs the gross method of recording accounts receivable from customers then sales discounts taken should be reported as a. Deduction from sales in the income statement

6. Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct? a. NET APPROACH

7. Why is the allowance method preferred over the direct write off method of accounting for bad debts? a. Improved matching of bad debt expense with revenue

8. How can accounting for bad debts be use for earnings management? a. Changing the percentage of sales recorded as bad debt expense

9. What is normal journal entry for recording bad debt expense under the allowance method? a. Debit Bad debt expense , credit allowance for doubtful accounts

10. What is the normal journal entry when writing off an account as uncollectible under the allowance method? a. Debit, Allowance for doubtful account, credit Accounts receivable

11. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because a. The amount of the discount is not material

12. Which of the following methods of determining annual bad debt expense best achieves the matching concept? a. Income statement approach

13. At the beginning of 2013, Gannon Company received a three-year, zero interest bearing 1,000 trade note. The market rate for equivalent notes was 8% at that time. Gannon reported this note as 1,000 trade note receivable on its 2013 year-end statement of financial position and 1,000 as sales revenue for 2013. What effect did this accounting for note have on gannon’s net earning for 2013, 2014,2015 respectively? OVERSTATE, UNDERSTATE, UNDERSTATE

14. Antique Company has notes receivable that have a fair value of 920,000 and a carrying amount of 710,000. Antique decides on Dec 31, 2014, to use the fair value option for these recently acquired receivables. The adjusting entry to record this change will include = CREDIT TO UNREALIZED HOLDING GAIN OR LOSS INCOME FOR 210,000 15. Which of the following is true when accounts receivable are factored without recourse? THE FACTOR ASSUMES THE RISK OF COLLECTIBILITY AND ABSORBS ANY CREDIT LOSSES IN COLLECTING THE RECEIVABLES

16. Which of the following items should be included in accounts receivable reported on the balance sheet? a. Notes receivable b. Interest receivable c. Allowance for doubtful accounts d. Advances to related parties and officers

17. Lawrence Company has a cash in bank of 22,000 restricted cash in a separate account of 4,000 and a bank overdraft In account at another bank of 2,000. Lawrence should report cash of? 22,000 18. Kaniper Company has the following items at year end: CASH IN BANK= 35,000 PETTY CASH= 500 SHORT TERM PAPER WITH MATURITY OF 2 MOTHS =8200 POSTDATED CHECKS OF = 2100 KANIPER SHOULD REPORT CASH AND CASH EQUI OF ? 43700

19. ABC Madde A 15,000 sale on account with the following terms 1/10,n/30. If ABC uses the gross method to record sales made on credit, what is/are debit in the journal entry to record the sale? DEBIT AR FOR 15,000

20. On July 22, Peter sold 15,500 of inventory items on credit with terms 2/15, net 30. Payment on 10,000 sales was received on August 1 and the remaining payment was received on August 12. Assuming Peter uses the gross method of accounting for sales discounts, which one of the following entries was made on august 1 to record the cash received? CASH 9800 SD 200 A/R 10,000

21. On April 2, KLV sold 30,000 of inventory items on credit with the terms 1/10, net 30. Payment on 18,000 sales was received on April 8 and the remaining payment on 12,000 sales was received on April 27. Assuming KLV uses the net method of accounting for sales discount, the entry recorded on April 27 would include a = 120 debit to AR AND CREDIT TO SALES DISCOUNT FORFEITED FRO 120 22. Becky had net sales all on account in 2014 of 600,000. At December 31,2013, before adjusting entries, the balances in selected accounts were: accounts receivable 750,000 debit, and allowance for doubtful accounts 1,500 debit. Becky estimates that 3% of its net sales will prove to be uncollectible. What is the net realizable value of the receivables reported on the financial statements at December 31, 2014 ? 23. WLC has outstanding accounts receivable totaling 6.5 million as of Dec 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. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? 508,000

24. Before year-end adjusting entries, Dunn Company’s account balances at Dec 31,2014 for accounts receivable and the related allowance for uncollectible accounts were 1,200,000 and 90,000, respectively. An aging of ar indicated that 125,000 of the Dec 31 receivables are expected to be uncollectible. The net realizable value of AR after adjustment is = 1,075,000 25. SMC had a 1/1/14 balance in the Allowance for Doubtful Accounts of $20,000. During 2014, it wrote off $14,400 of accounts and collected $4,200 on accounts previously written off. The balance in Accounts Receivable was $400,000 at 1/1 and $480,000 at 12/31. At 12/31/14, SMC estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2014? a. $4,000. b. $14,200. c. $18,400. d. $24,000 26. GCM Corporation had a 1/1/14 balance in the Allowance for Doubtful Accounts of $25,000. During 2014, it wrote off $18,000 of accounts and collected $5,250 on accounts previously written off. The balance in Accounts Receivable was $500,000 at 1/1 and $600,000 at 12/31. At 12/31/14, GCM estimates that 5% of accounts receivable will prove to be uncollectible. What should GCM report as its Allowance for Doubtful Accounts at 12/31/14? a. $12,000. b. $12,250. c. $17,250. d. $30,000.

27. Assume PRC Corp., an equipment distributor, sells a piece of machinery with a list price of $600,000 to ACH Inc. ACH will pay $650,000 in one year. PRC normally sells this type of equipment for 90% of list price. How much should be recorded as revenue? a. $585,000. b. $540,000. c. $600,000. d. $650,000. 28. TRN accepted a customer's $50,000 zero-interest-bearing six-month note payable in a sales transaction. The product sold normally sells for $48,000. If the sale was made on June 30, how much interest revenue from this transaction would be recorded for the year ending December 31? a. $0. b. $2,000. c. $4,000. d. $5,000

29. TRN sold $40,000, of goods and accepted the customer's $40,000 10%, 1-year note payable in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30? a. $0. b. $2,000. c. $4,000. d. $8,000 30. Sun Inc. factors $3,000,000 of its accounts receivables with recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $150,000. What would be recorded as a gain (loss) on the transfer of receivables? a. Gain of $90,000. b. Loss of 240,000. c. Gain of $540,000. d. Loss of $150,000.ming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if t 31. Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables? a. Loss of $30,000. b. Loss of $240,000. c. Loss of $270,000. d. $0

32. On January 1, 2014, West Co. exchanged equipment for a $400,000 zero-interest-bearing note due on January 1, 2017. The prevailing rate of interest for a note of this type at January 1, 2014 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in West's 2015 income statement? a. $0 b. $40,000 c. $33,000 d. $30,000

33. The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2014: Debit Credit Accounts receivable $300,000 Allowance for uncollectible accounts 8,000 Net credit sales $7,500,000 Starr estimates that 4% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2014, the allowance for uncollectible accounts should have a credit balance of a. $12,000. b. $20,000. c. $308,000. d. $300,000.

34. Ace Co. prepared an aging of its accounts receivable at December 31, 2014 and determined that the net realizable value of the receivables was $600,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1/14—credit balance $ 60,000 Accounts written off as uncollectible during 2014 46,000 Accounts receivable at 12/31/14 650,000 Uncollectible accounts recovered during 2014 10,000 For the year ended December 31, 2014, Ace's uncollectible accounts expense would be a. $50,000. b. $26,000. Answer c. $22,000. d. $18,000. 35. Which of the following methods is also referred as "parking transactions"? a. Consignment sales. b. Sales on installment. c. Sales with high rates of return. d. Sales with buyback agreement. Answer 36. Under what circumstances should a company with high rate of return on sales consider the inventory sold? a. When it can reasonably estimate the amount of returns. Answer b. When the retailer gives a confirmation that the goods won't be returned c. When the goods are sold on installment

d. When the payment for goods is received 37. How is a significant amount of consignment inventory reported in the balance sheet? a. The inventory is reported separately on the consignor's balance sheet. ANSWER b. The inventory is combined with other inventory on the consignor's balance sheet. c. The inventory is reported separately on the consignee's balance sheet. d. The inventory is combined with other inventory on the consignee's balance sheet 38. Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet? a. Accounts payable. b. Inventory. c. Equipment. d. Not on the balance sheet. ANSWER 39. If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory? a. Overstate the current ratio. b. Understate the current ratio.ANSWER c. No effect on the current ratio. d. Not sufficient information to determine effect on the current ratio. 40. Goods in transit which are shipped f.o.b. shipping point should be a. included in the inventory of the seller. b. included in the inventory of the buyer.ANSWER c. included in the inventory of the shipping company. d. none of these answers are correct. 41. During 2014 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2015. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2015 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan. On whose books should the cost of the inventory appear at the December 31, 2014 balance sheet date? a. Carne Corporation b. Nolan Corporation c. Norwalk Bank d. Nolan Corporation, with Carne making appropriate note disclosure of the transaction

42. Valuation of inventories requires the determination of all of the following except a. the costs to be included in inventory. b. the physical goods to be included in inventory. c. the cost of goods held on consignment from other companies. ANSWER

d. the cost flow assumption to be adopted 43. If the beginning inventory for 2014 is overstated, the effects of this error on cost of goods sold for 2014, net income for 2014, and assets at December 31, 2015, respectively, are a. overstatement, understatement, overstatement. b. overstatement, understatement, no effect. ANSWER c. understatement, overstatement, overstatement. d. understatement, overstatement, no effect.’

44. Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be a. net income, current assets, and retained earnings were overstated. ANSWER b. net income was correct and current assets were understated. c. net income and current assets were overstated and current liabilities were understated. d. net income, current assets, and retained earnings were understated.

45. What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance? a. Understated by $50,000. b. No effect. ANSWER c. Overstated by $50,000. d. Need more information to determine.

46. All of the following costs should be charged against revenue in the period in which costs are incurred except for a. manufacturing overhead costs for a product manufactured and sold in the same accounting period. b. costs which will not benefit any future period. c. costs from idle manufacturing capacity resulting from an unexpected plant shutdown. d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory. ANSWER

47. The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its a. invoice price. b. invoice price plus the purchase discount lost. c. invoice price less the purchase discount taken. d. invoice price less the purchase discount allowable whether taken or not. ANSWER

48. During 2014, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end. Which of the following recording procedures would result in the highest cost of goods sold for 2014? 1) Recording purchases at gross amounts 2) Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement a. 1 ANSWER b. 2 c. Either 1 or 2 will result in the same cost of goods sold. d. Cannot be determined from the information provided.

49. The pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation: a. moving-average. b. weighted-average. ANSWER c. LIFO perpetual. d. FIFO. 50. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the cost of goods sold is a. FIFO. b. LIFO. ANSWER c. base stock.

d. weighted-average....