Accounting Self Test Ch. 8 – Flashcards

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question
Notes and accounts receivable that result from sales transactions are often called trade receivables.
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True
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Notes or accounts receivables that result from sales transactions are often called
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trade receivables
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A cash discount can occur when a seller wants to encourage early payment of an accounts receivable.
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True
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Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash received?
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$686 (This amount constitutes payment in full. Because it is received within 10 days of the purchase, the cash received is $686 ($1,000-$300)-(($1,000-$300) X 2%).)
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Cash (net) realizable value is the net amount the company expects to receive in cash from collecting its accounts receivable.
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True
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The percentage-of-receivables basis results in a better matching of expenses with revenues than the percentage-of-sales basis.
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False (The percentage-of-sales basis results in a better matching of expenses with revenues than the percentage-of-receivables basis.)
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The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the
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percentage of receivables basis. (The existing balance in the Allowance for Doubtful Accounts is considered in computing bad debts expense when using the percentage of receivables basis. The existing balance is ignored when using the sales basis.)
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Which of the following approaches for bad debts is best described as a balance sheet method?
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Percentage-of-receivables basis. (The percentage-of-receivables basis is a balance sheet method because it emphasizes the cash realizable value of accounts receivable - a balance sheet viewpoint.)
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Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on the review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible In this situation, the amount of bad debts expense that should be reported for the year is
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$65,000 (The amount of bad debts expense is $65,000. By crediting Allowance for Doubtful Accounts for $65,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debts Expense for $65,000 and credits Allowance for Doubtful Accounts for $65,000.)
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In 2014, Roso Carlson Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2014?
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$10,500. (The accounts written off during the year will result in a $30,000 debit to Allowance for Doubtful Accounts. The adjusting entry for bad debts will include a $22,500 credit ($750,000 X 3%) to Allowance for Doubtful Accounts. Combining the beginning balance of $18,000 credit, the $30,000 debit and the $22,500 credit leaves a credit balance of $10,500 in the Allowance account.)
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Companies report accounts receivable on the balance sheet at
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cash (net) realizable value. (Companies report accounts receivable at their cash (net) realizable value on the balance sheet.)
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Under the allowance method, estimated uncollectible receivables are credited to
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Allowance for Doubtful Accounts. ( Estimated uncollectible receivables are debited to Bad Debts Expense and credited to Allowance for Doubtful Account.)
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The percentage-of-sales basis of estimating uncollectibles
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results in a better matching of expenses with revenues. (The percentage-of-sales basis of estimating uncollectibles results in a better matching of expenses with revenues---an income statement viewpoint.)
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The direct write-off method
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shows only actual losses from uncollectible accounts. (The direct write-off method shows only actual losses from uncollectible accounts.)
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Bond Company recorded bad debts expense of $35,000 and wrote off accounts receivable of $20,000 during the current year. The net effect of these two transactions on net income was
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a decrease of $35,000. (The journal entries for these two transactions are as follows: Recording of Bad Debts Expense: Bad Debts Expense $35,000 Allowance for Doubtful Accounts $35,000 Recording of Write-offs: Allowance for Doubtful Accounts $20,000 Accounts Receivable $20,000 The only entry that affects net income is the Recording of Bad Debts Expense. The debit to the expense increases the expense account which in turn, decreases net income.)
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Retailers consider sales from the use of national credit cards as credit sales.
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False ( Sales from the use of national credit cards are considered cash sales by the retailer.)
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The sale of receivables by a business
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can be a quick way to generate cash for operating needs.
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Which of the following statements about Visa credit card sales is incorrect?
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Two parties are involved. (There are three parties involved in Visa credit card sales: the credit card company, the retailer and the customer.)
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In recording the sale of accounts receivable, the commission charged by a factor is recorded as
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Service Charge Expense. (The commission charged by a factor is debited to Service Charge Expense when accounts receivable are sold.)
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To determine the maturity date of a note, you need to include the date the note is issued but omit the due date.
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False (To determine the maturity date of a note, the date the note is issued is ignored but the due date is included.)
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On February 1, Kline Company received a $6,000, 10%, four-month note receivable. The cash to be received by Kline Company when the note becomes due is
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$6,200. (Maturity value = face value + total interest. Interest = $6,000 X 10% X 4/12 = $200. Therefore maturity value = $6,000 + $200 = $6,200.)
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The interest rate specified in a note is for a
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year (The interest rate specified in a note is an annual rate of interest.)
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When a note is accepted to settle an open account, Note Receivable is debited for the note's
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face value. (The entry to accept a note to settle an open account involves a debit to Notes Receivable for the face value of the note and a credit to Accounts Receivable for the face value of the account.)
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Companies report short-term notes receivable at their cash (net) realizable value.
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True
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Short-term notes receivable are reported at
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cash (net) realizable value. (Short-term notes receivable are reported at cash (net) realizable value.)
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When a note receivable is dishonored,
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accounts receivable is debited if eventual collection is expected. (When a note receivable is dishonored, Accounts Receivable is debited for the maturity value of the note, and Notes Receivable and Interest Revenue are credited.)
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Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is
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Cash 10,300 Notes Receivable 10,000 Interest Revenue 300 (This is the correct entry because cash is collected (debit Cash for maturity value), the note receivable is written off (credit Notes Receivable for face value) and the amount of interest earned is recognized (credit Interest Revenue).)
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The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to
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Accounts Receivable. (If eventual collection of the note is expected, the entry to record the dishonor of a note receivable would debit Accounts Receivable.)
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The average collection period is computed by dividing
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365 days by the accounts receivable turnover ratio.
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Accounts and short-term notes receivable are reported in the current assets section of the balance sheet at
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cash (net) realizable value. (Accounts and Notes Receivables are both reported in the current assets section of the balance sheet at cash (net) realizable of value.)
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The accounts receivable turnover ratio is computed by dividing
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net credit sales by average net accounts receivable.
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