Question 1

What effect does 'window dressing' have on the solvency of a company?

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Question 2

Why is the timing of recording a receivable important?

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Question 3

Preston Bank has $50 million of loans outstanding on December 31 of the current year, in which it recorded net income of $770,000. Preston did not provide for any uncollectible loans because all of its loans are collateralized by real estate. That is, if the loans were to default, Preston would obtain the title to the real estate for which the loans were made. However, during the audit of Preston's financial statements, the auditing company determined that $5 million of the outstanding loans would probably be dishonored (uncollectible). Because during the last three years real estate values have deteriorated, they also investigated the real estate that backed these collateralized loans. The market value of that real estate is negligible.
Recalculate Preston's loans receivable on December 31 and current net income to an amount that would be acceptable to the auditors.

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The answer of Preston Bank has $50 million of loans...

Question 4

Why is too much cash undesirable?

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Question 5

The following is a partial balance sheet for Quenton Company dated December 31, 2017:
 $$\begin{array}{l}
 \underline {\text { Current assets }}\
\begin{array} { l r r } 
\text { Cash } & & \$ 20,000 \
\text { Accounts receivable } &\$45,000 & \
\text { Allowance for doubtful accounts } & ( 3,000 ) & \
\text { Net realizable value } & & \$ 42,000 \
\text { Irventary } & & \underline { \$ 33,000 } \
\text { Tatal current assets } && \underline { \$ 95,000} \
\text { Current liabilities } && \underline { \$ 65,000}
\end{array}
\end{array}$$ 
During 2017, $4,000 of accounts receivable were written off as uncollectible and bad debt expense (based on an aging schedule) recognized on Quenton's 2017 income statement was $8,000. However, the president of the company believes that $2,500 of these receivables were written off too soon. She believes that there is a good chance that they will be collected next year. There is some historical evidence to back the president's position.
A partial explanation for her position is that Quenton has a debt covenant requiring it to maintain a current ratio of 1.5. The president believes that by reversing the write-off of $2,500 of accounts receivable, the current assets will be $97,500 and the current ratio will be 1.5. However, the chief financial officer states that a better approach to getting the current ratio to 1.5 is to pay off some accounts payable. If the company paid $5,000 of accounts payable, the current ratio would become the minimum 1.5 required by the debt covenant.
Comment, with numerical illustration, on the president's and chief financial officer's positions.

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The answer of The following is a partial balance sheet...

Question 6

Match between columns
                        Premises: Sales returns
Accounts receivable
Cash discounts
Net realizable value
Aging schedule

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The Answer of Occurs when a customer brings back merchandise is...

Question 7

Match between columns
                        Premises: Current liabilities
Current assets
Quick ratio
Working capital
Current ratio

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The Answer of Intention is to convert into cash within is...

Question 8

Match between columns
                        Premises: Operating cycle
Net realizable value
Allowance method
Collection period
Hedging

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The Answer of (Accounts receivable∕sales) x 365 and Amount of is...

Quiz 6: The Current Asset Classification, Cash, and Accounts Receivable

What effect does 'window dressing' have on the solvency of a company?

Why is the timing of recording a receivable important?

Why is too much cash undesirable?

For each item identify the best description You may use each choice more than once or not at all.

For each item identify the best description You may use each choice more than once or not at all.

Match each item to the best description You may use each choice more than once or not at all.