CH009TEST

Chapter9 accountingforrECEIVABLESTrue/FalseQuestions1.  Aslongasacompanyaccuratelyrecordstotalcreditsalesinformation,itisnotnecessarytohaveseparateaccountsforspecificcustomers.Answer:False2.  Ifacreditcardsaleismade,thesellercaneitherdebitCashordebitAccountsreceivableatthetimeofthesale.Answer:True3.  Companiescanreportcreditcardexpenseasadiscountdeductedfromsalesorasasellingexpense.Answer:True4.  Thepercentofaccountsreceivablemethodforbaddebtsestimationusesonlyincomestatementaccountbalancestoestimatebaddebts.Answer:False5.  Apromissorynoteisawrittenpromisetopayaspecifiedamountofmoneyeitherondemandoratadefinitefuturedate.Answer:True6.  Acompanyborrowed$1,000bysigningasixmonthpromissorynoteat5%interest. Thetotalamountofinterestis$25.Answer:True7.  Sellersgenerallyprefertoreceivenotesreceivableratherthanaccountsreceivablewhenthecreditperiodislongandthereceivableisforalargeamount.Answer:True8.  Receivablescanbeusedtoobtaincashbyeithersellingthemorusingthemassecurityforaloan.Answer:True9.  Theaccountsreceivableturnoverindicateshowoftenaccountsreceivablearereceivedandcollectedduringtheperiod.Answer:True10.  Ahighaccountsreceivableturnoverincomparisonwithcompetitorssuggeststhatthefirmshouldtightenitscreditpolicy.Answer:False11.  Acompanyhadnetsalesof$500,000andanaverageaccountsreceivableof$80,000. Itsaccountsreceivableturnoverequals6.25.Answer:TrueCalculation:$500,000/$80,000=6.2512.  Whenusingtheallowancemethodofaccountingforuncollectibleaccounts,theentrytorecordthebaddebtsexpenseisadebittoBadDebtsExpenseandacredittoAccountsReceivable.Answer:False13.  Afteradjustment,theallowancefordoubtfulaccountshastheeffectofreducingaccountsreceivabletoitsestimatedrealizablevalue.Answer:True14.  Whenusingtheallowancemethodofaccountingforuncollectibleaccounts,therecoveryofabaddebtwouldberecordedasadebittoCashandacredittoBadDebtsExpense.Answer:False15.  Theagingofaccountsreceivableinvolvesclassifyingeachaccountreceivablebyhowlongitispastitsduedateandestimatingtheamountthatisuncollectible.Answer:True16.  Thepercentofsalesmethodforestimatingbaddebtsassumesthatagivenpercentofacompany'screditsalesfortheperiodareuncollectible.Answer:TrueMultipleChoice1.  Accountsreceivableinformationforspecificcustomersisimportantbecauseitreveals:A)  Howmucheachcustomerhaspurchasedoncredit.B)  Howmucheachcustomerhaspaid.C)  Howmucheachcustomerstillowes.D)  Thebasisforsendingbillstocustomers.E)  Alloftheabove.Answer:E2.  Creditcardexpensemaybeclassifiedas:A)  A"discount"deductedfromsalestogetnetsales.B)  Asellingexpense.C)  Anadministrativeexpense.D)  Alloftheabove.E)  Onlyaandb.Answer:D3.  Apromissorynotereceivedfromacustomerinexchangeforanaccountreceivable:A)  Isacashequivalentfortherecipient.B)  Isanaccountreceivablefortherecipient.C)  Isanotereceivablefortherecipient.D)  Isashort-terminvestmentfortherecipient.E)  Isanotepayablefortherecipient.Answer:C4.  Apromissorynote:A)  Isashort-terminvestmentforthemaker.B)  Isawrittenpromisetopayaspecifiedamountofmoneyatacertaindate.C)  Isaliabilitytothepayee.D)  Isanothernameforaninstallmentreceivable.E)  Cannotbeusedinpaymentofanaccountreceivable.Answer:B5.  Thematuritydateofanotereceivable:A)  Isthedayofthecreditsale.B)  Isthedaythenotewassigned.C)  Isthedaythenoteisduetobepaid.D)  Isthedateofthefirstpayment.E)  Isthelastdayofthemonth.Answer:C6.  A90-daynoteissuedonApril10matureson:A)  July9.B)  July10.C)  July11.D)  July12.E)  July13.Answer:A7.  Acompanyreceivesa10%,90-daynotefor$1,500. Thetotalinterestdueonthematuritydateis:A)  $ 50.00B)  $150.00.C)  $ 75.00.D)  $ 37.50.E)  $ 87.50.Answer:DCalculation:$1,500x0.10x90/360=$37.508.   Acompanyborrowed$10,000bysigninga180-daypromissorynoteat11%. Thetotalinterestdueonthematuritydateis.A) $50B) $275C) $550D) $825E)   $1,100Answer: CCalculation:$10,000x0.11x1/2=$5509.  Pledgingreceivables:A)  Allowsfirmstoraisecash.B)  Allowsafirmtoretainownershipofitsreceivables.C)  Doesnottransferriskofbaddebtstothelender.D)  Shouldbedisclosedinthefinancialstatements.E)  Alloftheabove.Answer:E10.Acompanyfactored$45,000ofitsaccountsreceivableandwaschargeda3%factoringfee. Thejournalentrytorecordthistransactionwouldincludea:A) DebittoCashof$45,000,adebittoFactoringFeeExpenseof$1,350,andcredittoAccountsReceivableof$43,650.B) DebittoCashof$45,000andacredittoAccountsReceivableof$45,000.C) DebittoCashof$43,650,adebittoFactoringFeeExpenseof$1,350,andacredittoAccountsReceivableof$45,000.D) DebittoCashof$46,350andacredittoAccountsReceivableof$46,350.E) DebittoCashof$45,000andacredittoNotesPayableof$45,000.Answer: CCalculation: $45,000x.03=$1,350$45,000-$1,350=$43,65011.  Theaccountreceivableturnovermeasures:A)  Howlongittakestosellaccountsreceivabletoafactor.B)  Howoften,onaveragereceivablesarereceivedandcollectedduringtheperiod.C)  Therelationofcashsalestocreditsales.D)  Howlongittakestosellmerchandiseinventory.E)  Alloftheabove.Answer:B12.  Dellreportednetsalesof$8,739millionandaverageaccountsreceivableof$864million. Itsaccountsreceivableturnoveris:A)  0.90.B)  10.1.C)  36.1.D)  50.0.E)  3,686.Answer:BCalculation:$8,739/$864=10.113.  Pepsi'saccountsreceivableturnoverwas9.9forthisyearand11.0forlastyear. Coke'sturnover  was9.3forthisyearand9.3forlastyear. Theseresultsimplythat:A)  Cokehasthebetterturnoverforbothyears.B)  Pepsihasthebetterturnoverforbothyears.C)  Coke'sturnoverisimproving.D)  Coke'screditpoliciesaretoolooseE)  CokeiscollectingitsreceivablesmorequicklythanPepsiinbothyears.Answer:B14.  OnOctober29ofthecurrentyear,acompanyconcludedthatacustomer's$4,400accountreceivablewasuncollectibleandthattheaccountshouldbewrittenoff. Whateffectwillthiswrite-offhaveonthiscompany'snetincomeandtotalassetsassumingtheallowancemethodisusedtoaccountforbaddebts?A)  Decreaseinnetincome;noeffectontotalassets.B)  Noeffectonnetincome;noeffectontotalassets.C)  Decreaseinnetincome;decreaseintotalassets.D)  Increaseinnetincome;noeffectontotalassets.E)  Noeffectonnetincome;decreaseintotalassets.Answer:B15.  Amethodofestimatingbaddebtsexpensethatinvolvesadetailedexaminationofoutstandingaccountsandtheirlengthoftimepastdueisthe:A)  Directwrite-offmethod.B)  Agingofaccountsreceivablemethod.C)  Percentageofsalesmethod.D)  Agingofinvestmentsmethod.E)  Percentofaccountsreceivablemethod.Answer:B16.  OnDecember31ofthecurrentyear,acompany'sunadjustedtrialbalanceincludedthefollowing: AccountsReceivable,debitbalanceof$97,250;AllowanceforDoubtfulAccounts,creditbalanceof$951. WhatamountshouldbedebitedtoBadDebtsExpense,assuming6%ofoutstandingaccountsreceivableattheendofthecurrentyearwillbeuncollectible?A)  $ 951.B)  $3,992.C)  $4,884.D)  $5,835.E)  $6,786.Answer:CCalculation:Desiredbalanceinallowanceaccount:$97,250x.06=$5,835creditCurrentbalanceinallowanceaccount- 951creditRequired:amountofBadDebtsExpense:$4,884credit17.  Acompanyusedthepercentofsalesmethodtodetermineitsbaddebtsexpense. Attheendofthecurrentyear,thecompany'sunadjustedtrialbalancereportedthefollowingselectedamounts: Accountsreceivable  $355,000debitAllowanceforuncollectibleaccounts  500creditNetSales  800,000 creditAllsalesaremadeoncredit.Basedonpastexperience,thecompanyestimates0.6%ofcreditsalestobeuncollectible. WhatamountshouldbedebitedtoBadDebtsExpensewhentheyear-endadjustingentryisprepared?A)  $1,275B)  $1,775C)  $4,500D)  $4,800E)  $5,500Answer:DCalculation: $800,000x.006=$4,80018.  Electronborrowed$75,000cashfromTechCombysigningapromissorynote. TechCom'sentrytorecordthetransactionshouldincludea:A)  DebittoNotesReceivablefor$75,000.B)  DebittoAccountsReceivablefor$75,000.