Chapter 8 Self Test Essay

question

True
answer

True or False: Notes and accounts receivable that result from sales transactions are often called trade receivables.
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C
answer

Notes or accounts receivables that result from sales transactions are often called A. sales receivables. B. non-trade receivables. C. trade receivables. D. merchandise receivables.
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True
answer

True or False: A cash discount can occur when a seller wants to encourage early payment of an accounts receivable.
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C
answer

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? A. $700. B. $680. C. $686. D. None of these.
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True
answer

True or False: Cash (net) realizable value is the net amount the company expects to receive in cash from collecting its accounts receivable.
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False
answer

True or False: The percentage-of-receivables basis results in a better matching of expenses with revenues than the percentage-of-sales basis.
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B
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The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the A. direct write-off method. B. percentage of receivables basis. C. percentage of sales basis. D. percentage of receivables and percentage of sales basis.
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A
answer

Which of the following approaches for bad debts is best described as a balance sheet method? A. Percentage-of-receivables basis. B. Direct write-off method. C. Percentage-of-sales basis. D. Both direct write-off method and percentage-of-receivables basis.
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D
answer

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 A. $5,000. B. $55,000. C. $60,000. D. $65,000.
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B
answer

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? A. $10,050. B. $10,500. C. $22,500. D. $40,500
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B
answer

Companies report accounts receivable on the balance sheet at A. cost. B. cash (net) realizable value. C. gross realizable value. D. face value.
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C
answer

Under the allowance method, estimated uncollectible receivables are credited to A. Bad Debts Expense. B. Accounts Receivable. C. Allowance for Doubtful Accounts. D. Uncollectible Accounts Expense.
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B
answer

The percentage-of-sales basis of estimating uncollectibles A. produces a better estimate of cash realizable value. B. results in a better matching of expenses with revenues. C. emphasizes balance sheet relationships. D. considers the existing balance in Allowance for Doubtful Accounts.
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C
answer

The direct write-off method A. is acceptable for financial reporting purposes. B. debits Allowance for Doubtful Accounts to record write-offs of accounts. C. shows only actual losses from uncollectible accounts. D. estimates bad debt losses.
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B
answer

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 A. a decrease of $55,000. B. a decrease of $35,000. C. a decrease of $20,000. D. no effect.
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False
answer

True or False: Retailers consider sales from the use of national credit cards as credit sales.
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D
answer

The sale of receivables by a business A. indicates that the business is in financial difficulty. B. is generally the major revenue item on its income statement. C. is an indication that the business is owned by a factor. D. can be a quick way to generate cash for operating needs.
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C
answer

Which of the following statements about Visa credit card sales is incorrect? A. The credit card issuer makes the credit investigation of the customer. B. The retailer is not involved in the collection process. C. Two parties are involved. D. The retailer receives cash more quickly than it would from individual customers on account.
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D
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In recording the sale of accounts receivable, the commission charged by a factor is recorded as A. Bad Debts Expense. B. Commission Expense. C. Loss on Sale of Receivables. D. Service Charge Expense
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False
answer

True or False: 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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C
answer

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 A. $200. B. $6,000. C. $6,200. D. $6,600.
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D
answer

The interest rate specified in a note is for a A. day. B. month. C. week. D. year
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C
answer

When a note is accepted to settle an open account, Note Receivable is debited for the note’s A. net realizable value. B. maturity value. C. face value. D. face value plus interest.
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True
answer

True or False: Companies report short-term notes receivable at their cash (net) realizable value.
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A
answer

Short-term notes receivable are reported at A. cash (net) realizable value. B. face value. C. gross realizable value. D. maturity value.
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D
answer

When a note receivable is dishonored, A. interest revenue is never recorded. B. bad debts expense is recorded. C. the maturity value of the note is written off. D. accounts receivable is debited if eventual collection is expected.
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D
answer

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 A. Cash 10,300 Notes Receivable 10,300 B. Cash 10,000 Notes Receivable 10,000 C. Accounts Receivable 10,300 Notes Receivable 10,000 Interest Revenue 300 D. Cash 10,300 Notes Receivable 10,000 Interest Revenue 300
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D
answer

The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to A. Notes Receivable. B. Cash. C. Allowance for Doubtful Accounts. D. Accounts Receivable.
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D
answer

The average collection period is computed by dividing A. net credit sales by average net accounts receivable. B. net credit sales by ending net accounts receivable. C. the accounts receivable turnover ratio by 365 days. D. 365 days by the accounts receivable turnover ratio.
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A
answer

Accounts and short-term notes receivable are reported in the current assets section of the balance sheet at A. cash (net) realizable value. B. net book value. C. lower-of-cost-or-market value. D. invoice cost.
question

B
answer

The accounts receivable turnover ratio is computed by dividing A. total sales by average net accounts receivable. B. net credit sales by average net accounts receivable. C. total sales by ending net accounts receivable. D. net credit sales by ending net accounts receivable.

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