Deck 8: Reporting and Analyzing Receivables

Question 1

Under the direct write-off method, no attempt is made to match bad debt expense to sales revenues in the same accounting period.

Answer 1

True

Question 2

Trade receivables occur when two companies trade or exchange notes receivables.

Answer 2

False

Question 3

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Answer 3

True

Question 4

Accounts receivable are one of a company's least liquid assets.

Question 5

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.

Question 6

Under the accounts receivable aging method, the balance in Allowance for Doubtful Accounts must be considered carefully prior to adjusting for estimated uncollectible accounts.

Question 7

Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.

Question 8

The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debt adjusting entry is recorded.

Question 9

The two accounting problems with accounts receivable are: (1) recognizing and (2) disposing.

Question 10

When using the allowance method bad debt expense is recorded when an individual customer defaults.

Question 11

Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet.

Question 12

Advances to employees are referred to as accounts receivable.

Question 13

When the allowance method is used, the write-off of an account receivable results in an expense at the time of write-off.

Question 14

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Question 15

Trade receivables can be an account receivable or a note receivable.

Question 16

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Question 17

The allowance method of accounting for bad debts violates the matching principle.

Question 18

Other receivables include non-trade receivables such as loans to company officers.

Question 19

Accounts receivable are the result of cash and credit sales.

Question 20

Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts.

Question 21

Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 *0.10 *10 6/12.

Question 22

The Allowance for Doubtful Accounts is a liability account.

Question 23

In a promissory note, the party to whom payment is to be made is called the maker.

Question 24

If bad debt losses are significant, the direct write-off method is acceptable for financial reporting purposes.

Question 25

The two key parties to a note are the maker and the payee.

Question 26

An aging schedule is prepared only for old accounts receivables that have been past due for more than one year.

Question 27

Bad debt losses are a cost of selling on credit.

Question 28

The direct write-off method of recognizing uncollectible accounts is not in accordance with good accounting practice.

Question 29

Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.

Question 30

When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.

Question 31

When using the allowance method year-end adjustments for bad debt expense must be made.

Question 32

The allowance method of handling bad debts violates the matching principle.

Question 33

When an account receivable that was previously written off is collected, it is first necessary to reverse the entry to reinstate the customer's account before recording the collection.

Question 34

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Question 35

Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.

Question 36

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.

Question 37

The allowance for doubtful accounts is similar to accumulated depreciation in that it shows the total of all accounts written off over the years.

Question 38

There is only one way to calculate interest correctly.

Question 39

In computing the maturity date of a note, the date the note is issued is included but the due date is omitted.

Question 40

When using the direct write-off method year-end adjustments for bad debt expense must be made.

Question 41

The average collection period is frequently used to assess the effectiveness of a company's credit and collection policies.

Question 42

Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the balance sheet.

Question 43

The receivable that is usually evidenced by a formal instrument of credit is a(n)

A) trade receivable.
B) note receivable.
C) accounts receivable.
D) income tax receivable.

Question 44

If a company has significant concentrations of credit risk, it must discuss this risk in the notes to its financial statements.

Question 45

If a promissory note is dishonored, the payee should not record interest income.

Question 46

Bad debt expense and interest revenue are reported in the income statement under other revenues and expenses.

Question 47

When a note is written to settle an open account no entry is necessary.

Question 48

The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Revenue.

Question 49

The accounts receivable turnover ratio is computed by dividing total sales by the average net receivables during the year.

Question 50

A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company.

Question 51

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.

Question 52

A factor buys receivables from businesses for a fee and collects the payment directly from customers.

Question 53

A major advantage of national credit cards to retailers is that there is no charge to the retailer by the credit card companies for their services.

Question 54

A dishonored note is a note that is not paid in full at maturity.

Question 55

The basic formula for computing interest on an interest-bearing note is face value of note x annual interest rate x time in terms of one year = interest.

Question 56

Which of the following receivables would not be classified as an "other receivable"?

A) Advance to an employee
B) Refundable income tax
C) Notes receivable
D) Interest receivable

Question 57

The term "receivables" refers to

A) amounts due from individuals or companies.
B) merchandise to be collected from individuals or companies.
C) cash to be paid to creditors.
D) cash to be paid to debtors.

Question 58

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.

Question 59

If a company has a significant concentration of credit risk, it is not required to discuss that in its notes to its financial statements as that could increase the related risk.

Question 60

Interest is usually associated with

A) accounts receivable.
B) notes receivable.
C) doubtful accounts.
D) bad debts.

Question 61

Non-trade receivables should be reported separately from trade receivables. Why is this statement either true or false?

A) It is true because trade receivables are current assets and non-trade receivables are long term.
B) It is false because all current receivables must be grouped together in one account.
C) It is true because non-trade receivables do not result from business operations and should not be included with accounts receivable.
D) It is false because management can decide how to report receivables.

Question 62

The account Allowance for Doubtful Accounts is classified as a(n)

A) liability.
B) contra account of Bad Debt Expense.
C) expense.
D) contra account to Accounts Receivable.

Question 63

Wilton sells softball equipment. On November 14, they shipped $3,000 worth of softball uniforms to Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Douglas High School for $1,800 worth of custom printed bats to be produced in December. On November 30, Paola Middle School returned $300 of defective merchandise. Wilton has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30?

A) $4,800
B) $4,500
C) $3,000
D) $2,700

Question 64

If a company fails to record estimated bad debts expense,

A) cash realizable value is understated.
B) expenses are understated.
C) revenues are understated.
D) receivables are understated.

Question 65

The expense recognition

A) requires that all credit losses be recorded when an individual customer cannot pay.
B) necessitates the recording of an estimated amount for bad debts.
C) results in the recording of a known amount for bad debt losses.
D) is not involved in the decision of when to expense a credit loss.

Question 66

Accounts receivable are valued and reported on the balance sheet

A) in the investments section.
B) at gross amounts less sales returns and allowances.
C) at cash realizable value.
D) only if they are not past due.

Question 67

The net amount expected to be received in cash from receivables is termed the

A) cash realizable value.
B) cash-good value.
C) gross cash value.
D) cash-equivalent value.

Question 68

If the amount of uncollectible account expense is overstated at year end

A) net income will be overstated.
B) stockholders' equity will be overstated.
C) Allowance for Doubtful accounts will be understated.
D) net Accounts Receivable will be understated.

Question 69

On January 15, Nifty Company sells merchandise on account to Martinez Associates for $3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $600 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?

A) $2,400
B) $2,328
C) $2,310
D) $1,680

Question 70

Which one of the following is not an accounting problem (issue) associated with accounts receivable?

A) Depreciating accounts receivable
B) Recognizing accounts receivable
C) Valuing accounts receivable
D) Accelerating cash receipts from accounts receivable

Question 71

Under the allowance method, writing off an uncollectible account

A) affects only balance sheet accounts.
B) affects both balance sheet and income statement accounts.
C) affects only income statement accounts.
D) is not acceptable practice.

Question 72

Carson Company on July 15 sells merchandise on account to Tayler Co. for $2,000, terms 2/10, n/30. On July 20 Tayler Co. returns merchandise worth $800 to Carson Company. On July 24 payment is received from Tayler Co. for the balance due. What is the amount of cash received?

A) $1,200
B) $1,176
C) $1,160
D) $2,000

Question 73

The Allowance for Doubtful Accounts is necessary because

A) when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.
B) uncollectible accounts that are written off must be accumulated in a separate account.
C) a liability results when a credit sale is made.
D) management needs to accumulate all the credit losses over the years.

Question 74

Under the allowance method, Bad Debt Expense is recorded

A) when an individual account is written off.
B) when the loss amount is known.
C) for an amount that the company estimates it will not collect.
D) several times during the accounting period.

Question 75

Receivables are

A) one of the most liquid assets and thus are always considered current assets.
B) claims that are expected to be collected in cash.
C) shown on the income statement at cash realizable value.
D) always the result of revenue recognition.

Question 76

Three accounting issues associated with accounts receivable are

A) depreciating, returns, and valuing.
B) depreciating, valuing, and collecting.
C) recognizing, valuing, and accelerating collections.
D) accrual, bad debts, and accelerating collections.

Question 77

Dorman Company had the following items to report on its balance sheet: Based on this information, what amount should appear in the "Other Receivables" category?

A) $18,300
B) $11,650
C) $13,030
D) $15,250

Question 78

M. Cornett is a corporation that sells breakfast cereal. Based on the accounts listed below, what are M. Cornett's total trade receivables?

A) $8,000
B) $10,000
C) $9,000
D) $10,900

Question 79

If the amount of uncollectible account expense is understated at year end

A) net income will be understated.
B) stockholders' equity will be understated.
C) Allowance for Doubtful accounts will be overstated.
D) net Accounts Receivable will be overstated.

Question 80

Which of the following would probably be the most significant type of a claim held by a company?

A) notes receivable
B) non-trade receivables
C) accounts receivable
D) interest receivable