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Test Bank - Chapter9

Test Bank for Principles of Accounting - 2013/2014
Course

Principles of Accounting (ACCT 117)

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CHAPTER 9

ACCOUNTING FOR RECEIVABLES

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY

Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

True-False Statements

  1. 1 K 9. 3 C 17. 3 C 25. 5 K sg33. 3 K
  2. 1 C 10. 3 C 18. 3 K 26. 5 AP sg34. 4 C
  3. 1 C 11. 3 C 19. 3 K 27. 5 K sg35. 5 K
  4. 2 K 12. 3 K 20. 4 K 28. 5 K sg36. 8 K
  5. 2 K 13. 3 K 21. 4 K 29. 9 K sg37. 9 K
  6. 2 K 14. 3 K 22. 4 K 30. 9 K
  7. 2 K 15. 3 C 23. 4 C sg31. 1 K
  8. 3 C 16. 3 C 24. 4 K sg32. 3 K

Multiple Choice Questions

38. 1 K 63. 3 K 88. 3 C 113. 4 K 138. 8 AN
39. 1 K 64. 3 AP 89. 3 C 114. 4 K 139. 8 C
40. 1 K 65. 3 C 90. 3 C 115. 5 K 140. 9 K
41. 1 C 66. 3 C 91. 3 C 116. 5 AP 141. 9 K
42. 1 K 67. 3 K 92. 3 C 117. 5 AP 142. 9 AP
43. 1 K 68. 3 C 93. 3 C 118. 5 AP 143. 9 AP
44. 2 K 69. 3 K 94. 3 C 119. 5 AP 144. 9 AP
45. 2 K 70. 3 C 95. 3 C 120. 5 K 145. 9 AP
  1. 2 K 71. 3 K 96. 3 AP 121. 5 K sg146. 1 K
  2. 2 K 72. 3 K 97. 3 AP 122. 5 K sg147. 2 K
  3. 2 C 73. 3 K 98. 3 AP 123. 5 C st148. 3 K
  4. 2 C 74. 3 K 99. 3 AP 124. 5 AP sg149. 3 K
  5. 2 AP 75. 3 C 100. 3 AP 125. 5 AP st150. 3 K
  6. 2 C 76. 3 C 101. 3 AP 126. 5 AP sg151. 3 AP
  7. 2 C 77. 3 C 102. 3 AP 127. 5 AP st152. 4 K
  8. 2 AN 78. 3 K 103. 4 C 128. 5 AP sg153. 4 AP
  9. 2 C 79. 3 C 104. 4 AP 129. 6 K st154. 5 K
  10. 2 K 80. 3 C 105. 4 C 130. 6 K sg155. 5 AP
  11. 2 AN 81. 3 C 106. 4 K 131. 6 C st156. 8 K
  12. 2 C 82. 3 K 107. 4 K 132. 6 K sg157. 9 C
  13. 2 AP 83. 3 K 108. 4 K 133. 6 AP st158. 9 K
  14. 3 C 84. 3 AN 109. 4 K 134. 6 K
  15. 3 C 85. 3 K 110. 4 K 135. 7 K
  16. 3 C 86. 3 K 111. 4 C 136. 7 C
  17. 3 C 87. 3 C 112. 4 AP 137. 8 C

Brief Exercises

159. 2 AN 162. 3 AN 165. 5,6 AN 168. 8 AN
160. 3 AN 163. 4 AP 166. 5,8 AP 169. 8 AN
161. 3 AN 164. 5 AP 167. 6 AP 170. 9 AN

sg This question also appears in the Study Guide. st This question also appears in a self-test at the student companion website.

Test Bank for Accounting Principles, Eighth Edition 9 - 2

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY

Exercises

171. 1 C 176. 3 AN 181. 3 AN 186. 5 AP 191. 8 AP
172. 1,8 AN 177. 3 AN 182. 3,8 AN 187. 5 AP 192. 9 AN
173. 2 AN 178. 3 AN 183. 4 AN 188. 5 AN
174. 3 AN 179. 3 AN 184. 4 AP 189. 6,8 AN
175. 3 AN 180. 3 AP 185. 4 AP 190. 6,8 AP

Completion Statements

193. 1 K 196. 3 K 199. 3 K 202. 4 K 205. 8 K
194. 2 K 197. 3 K 200. 3 K 203. 4 K 206. 8 K
195. 2 K 198. 3 K 201. 3 K 204. 5 AP

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type Study Objective 1

  1. TF 3. TF 38. MC 40. MC 42. MC 146. MC 172. Ex
  2. TF 31. TF 39. MC 41. MC 43. MC 171. Ex 193. C Study Objective 2
  3. TF 44. MC 48. MC 52. MC 56. MC 159. BE
  4. TF 45. MC 49. MC 53. MC 57. MC 173. Ex
  5. TF 46. MC 50. MC 54. MC 58. MC 194. C
  6. TF 47. MC 51. MC 55. MC 147. MC 195. C Study Objective 3
  7. TF 32. TF 69. MC 81. MC 93. MC 150. MC 181. Ex
  8. TF 33. TF 70. MC 82. MC 94. MC 151. MC 182. Ex
  9. TF 59. MC 71. MC 83. MC 95. MC 160. BE 196. C
  10. TF 60. MC 72. MC 84. MC 96. MC 161. BE 197. C
  11. TF 61. MC 73. MC 85. MC 97. MC 162. BE 198. C
  12. TF 62. MC 74. MC 86. MC 98. MC 174. Ex 199. C
  13. TF 63. MC 75. MC 87. MC 99. MC 175. Ex 200. C
  14. TF 64. MC 76. MC 88. MC 100. MC 176. Ex 201. C
  15. TF 65. MC 77. MC 89. MC 101. MC 177. Ex
  16. TF 66. MC 78. MC 90. MC 102. MC 178. Ex
  17. TF 67. MC 79. MC 91. MC 148. MC 179. Ex
  18. TF 68. MC 80. MC 92. MC 149. MC 180. Ex Study Objective 4
  19. TF 24. TF 105. MC 109. MC 113. MC 163. BE 202. C
  20. TF 34. TF 106. MC 110. MC 114. MC 183. Ex 203. C
  21. TF 103. MC 107. MC 111. MC 152. MC 184. Ex
  22. TF 104. MC 108. MC 112. MC 153. MC 185. Ex Study Objective 5
  23. TF 35. TF 118. MC 122. MC 126. MC 155. MC 186. Ex
  24. TF 115. MC 119. MC 123. MC 127. MC 164. BE 187. Ex
  25. TF 116. MC 120. MC 124. MC 128. MC 165. BE 188. Ex
  26. TF 117. MC 121. MC 125. MC 154. MC 166. BE 204. C

Test Bank for Accounting Principles, Eighth Edition 9 - 4

  1. Explain how companies recognize notes receivable in the accounts. Companies record notes receivable at face value. In some cases, it is necessary to accrue interest prior to maturity. In this case, companies debit Interest Receivable and credit Interest Revenue.

  2. Describe how companies value notes receivable. As with accounts receivable, companies report notes receivable at their cash (net) realizable value. The notes receivable allowance account is the Allowance for Doubtful Accounts. The computation and estimations involved in valuing notes receivable at cash realizable value, and in recording the proper amount of bad debts expense and related allowance are similar to those for accounts receivable.

  3. Describe the entries to record the disposition of notes receivable. Notes can be held to maturity. At that time, the face value plus accrued interest is due, and the note is removed from the accounts. In many cases, the holder of the note speeds up the conversion by selling the receivable to another party (a factor). In some situations, the maker of the note dishonors the note (defaults), in which case the company writes off the note.

  4. Explain the statement presentation and analysis of receivables. Companies should identify in the balance sheet or in the notes to the financial statements each major type of receivable. Short-term receivables are considered current assets. Companies report the gross amount of receivables and the allowance for doubtful accounts. They report bad debts and service charge expenses in the multiple-step income statement as operating (selling) expenses; interest revenue appears under other revenues and gains in the nonoperating activities section of the statement. Managers and investors evaluate accounts receivable for liquidity by computing a turnover ratio and an average collection period.

TRUE-FALSE STATEMENTS

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

  2. Other receivables include nontrade receivables such as loans to company officers.

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

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

  5. The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing.

  6. Accounts receivable are the result of cash and credit sales.

  7. If a retailer assesses a finance charge on the amount owed by a customer, Accounts Receivable is debited for the amount of the interest.

  8. 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.

  9. The percentage of receivables basis of estimating expected uncollectible accounts emphasizes income statement relationships.

Accounting for Receivables 9 - 5

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

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

  3. Allowance for Doubtful Accounts is a contra asset account.

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

  5. Generally accepted accounting principles require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

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

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

  8. The percentage of sales basis for estimating uncollectible accounts always results in more Bad Debts Expense being recognized than the percentage of receivables basis.

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

  10. 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.

  11. Sales resulting from the use of VISA and MasterCard are considered credit sales by the retailer.

  12. A factor purchases receivables from businesses for a fee and collects the remittances directly from customers.

  13. 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.

  14. Receivables may be sold because they may be the only reasonable source of cash.

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

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

  17. The maturity date of a 1-month note receivable dated June 30 is July 30.

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

  19. 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.

Accounting for Receivables 9 - 7

  1. 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.

  2. 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

  3. 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.

  4. 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.

  5. A cash discount is usually granted to all of the following except a. retail customers. b. retailers. c. wholesalers. d. All of these are granted discounts.

  6. Which one of the following is not a primary problem associated with accounts receivable? a. Depreciating accounts receivable b. Recognizing accounts receivable c. Valuing accounts receivable d. Disposing of accounts receivable

  7. Trade accounts receivable are valued and reported on the balance sheet a. in the investment section. b. at gross amounts less sales returns and allowances. c. at net realizable value. d. only if they are not past due.

  8. Three accounting issues associated with accounts receivable are a. depreciating, returns, and valuing. b. depreciating, valuing, and collecting. c. recognizing, valuing, and disposing. d. accrual, bad debts, and disposing.

Test Bank for Accounting Principles, Eighth Edition 9 - 8

  1. Which of the following would require a compound journal entry? a. To record merchandise returned that was previously purchased on account. b. To record sales on account. c. To record purchases of inventory when a discount is offered for prompt payment. d. To record collection of accounts receivable when a cash discount is taken.

  2. Which of the following would be considered as an unlikely occurrence? a. Manufacturer offers a cash discount to a wholesaler. b. Wholesaler offers a cash discount to a retailer. c. Retailer offers a cash discount to a customer. d. All of these are standard practices.

Use the following information for questions 50–51.

A customer charges a treadmill at Hank's Sport Shop. The price is $2,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account.

  1. What is the amount of the finance charge? a. $ b. $ c. $ d. $

  2. The accounts affected by the journal entry made by Hank's Sport Shop to record the finance charge are a. Accounts Receivable Cash b. Cash Finance Receivable c. Accounts Receivable Interest Payable d. Accounts Receivable Interest Revenue

  3. Which of the following practices by a credit card company results in lower interest charges to the cardholder? a. The card company states interest as a monthly percentage rather than an annual percentage. b. The card company allows a grace period before interest is accrued. c. The card company allows cardholders to skip payments on their cards. d. The card company calculates finance charges from the date of purchase to the date the amount is paid.

  4. If a department store fails to make the entry to accrue the finance charges due from customers, a. accounts receivable will be overstated. b. interest revenue will be understated. c. interest expense will be overstated. d. interest expense will be understated.

Test Bank for Accounting Principles, Eighth Edition 9 - 10

  1. When an account becomes uncollectible and must be written off, a. Allowance for Doubtful Accounts should be credited. b. Accounts Receivable should be credited. c. Bad Debts Expense should be credited. d. Sales should be debited.

  2. The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles a. will increase income in the period it is collected. b. will decrease income in the period it is collected. c. requires a correcting entry for the period in which the account was written off. d. does not affect income in the period it is collected.

  3. The percentage of sales basis of estimating expected uncollectibles a. emphasizes the matching of expenses with revenues. b. emphasizes balance sheet relationships. c. emphasizes cash realizable value. d. is not generally accepted as a basis for estimating bad debts.

  4. An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debts Expense for $9,000. b. debit to Allowance for Doubtful Accounts for $7,900. c. debit to Bad Debts Expense for $7,900. d. credit to Allowance for Doubtful Accounts for $9,000.

  5. A debit balance in the Allowance for Doubtful Accounts a. is the normal balance for that account. b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. c. indicates that actual bad debt write-offs have been less than what was estimated. d. cannot occur if the percentage of sales method of estimating bad debts is used.

  6. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited a. when a credit sale is past due. b. at the end of each accounting period. c. whenever a pre-determined amount of credit sales have been made. d. when an account is determined to be uncollectible.

  7. An alternative name for Bad Debts Expense is a. Deadbeat Expense. b. Uncollectible Accounts Expense. c. Collection Expense. d. Credit Loss Expense.

  8. A reasonable amount of uncollectible accounts is evidence a. that the credit policy is too strict. b. that the credit policy is too lenient. c. of a sound credit policy. d. of poor judgments on the part of the credit manager.

Accounting for Receivables 9 - 11

  1. Bad Debts Expense is considered a. an avoidable cost in doing business on a credit basis. b. an internal control weakness. c. a necessary risk of doing business on a credit basis. d. avoidable unless there is a recession.

  2. The best managed companies will have a. no uncollectible accounts. b. a very strict credit policy. c. a very lenient credit policy. d. some accounts that will prove to be uncollectible.

  3. Two methods of accounting for uncollectible accounts are the a. allowance method and the accrual method. b. allowance method and the net realizable method. c. direct write-off method and the accrual method. d. direct write-off method and the allowance method.

  4. The allowance method of accounting for uncollectible accounts is required if a. the company makes any credit sales. b. bad debts are significant in amount. c. the company is a retailer. d. the company charges interest on accounts receivable.

  5. Bad Debts Expense is reported on the income statement as a. part of cost of goods sold. b. reducing gross profit. c. an operating expense. d. a contra-revenue account.

  6. When the allowance method of accounting for uncollectible accounts is used, Bad Debts Expense is recorded a. in the year after the credit sale is made. b. in the same year as the credit sale. c. as each credit sale is made. d. when an account is written off as uncollectible.

  7. The method of accounting for uncollectible accounts that results in a better matching of expenses with revenues is the a. aging accounts receivable method. b. direct write-off method. c. percentage of receivables method. d. percentage of sales method.

  8. To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts. b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. d. debit to Loss on Credit Sales and a credit to Accounts Receivable.

Accounting for Receivables 9 - 13

a. Bad Debts Expense ....................................................... 25, Allowance for Doubtful Accounts .......................... 25, b. Bad Debts Expense ....................................................... 20, Allowance for Doubtful Accounts .......................... 20, c. Bad Debts Expense ....................................................... 20, Accounts Receivable ............................................ 20, d. Bad Debts Expense ....................................................... 25, Accounts Receivable ............................................ 25,

  1. The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts a. is relevant when using the percentage of receivables basis. b. is relevant when using the percentage of sales basis. c. is relevant to both bases of adjusting for uncollectible accounts. d. will never show a debit balance at this stage in the accounting cycle.

  2. The direct write-off method of accounting for bad debts a. uses an allowance account. b. uses a contra-asset account. c. does not require estimates of bad debt losses. d. is the preferred method under generally accepted accounting principles.

  3. Under the direct write-off method of accounting for uncollectible accounts a. the allowance account is increased for the actual amount of bad debt at the time of write-off. b. a specific account receivable is decreased for the actual amount of bad debt at the time of write-off. c. balance sheet relationships are emphasized. d. bad debts expense is always recorded in the period in which the revenue was recorded.

  4. An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debts Expense for $4,000. b. debit to Allowance for Doubtful Accounts for $2,800. c. debit to Bad Debts Expense for $2,800. d. credit to Allowance for Doubtful Accounts for $4,000.

  5. An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debts Expense for $3,000. b. debit to Bad Debts Expense for $4,200. c. debit to Bad Debts Expense for $1,800. d. credit to Allowance for Doubtful Accounts for $4,000.

  6. Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debts expense for that period?

Test Bank for Accounting Principles, Eighth Edition 9 - 14

a. $25, b. $8, c. $33, d. $17,

  1. Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $10,000. If the balance of the Allowance for Doubtful Accounts is $2,000 credit before adjustment, what is the amount of bad debts expense for that period? a. $10, b. $8, c. $12, d. $2,

  2. Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $10,000. If the balance of the Allowance for Doubtful Accounts is $2,000 debit before adjustment, what is the balance after adjustment? a. $10, b. $12, c. $8, d. $2,

  3. Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the amount of bad debts expense for the period? a. $7, b. $21, c. $28, d. $35,

  4. Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what is the amount of bad debts expense for the period? a. $7, b. $21, c. $28, d. $35,

  5. In reviewing the accounts receivable, the cash realizable value is $16,000 before the write-off of a $1,500 account. What is the cash realizable value after the write-off? a. $16, b. $1, c. $17, d. $14,

  6. In 2008, the Fitzu Co. had net credit sales of $750,000. On January 1, 2008, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2008, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2008?

Test Bank for Accounting Principles, Eighth Edition 9 - 16

a. $100,550 increase. b. $48,000 increase. c. $46,550 increase. d. $102,000 increase.

  1. Brother Bear Corporation’s unadjusted trial balance includes the following balances (assume normal balances): Accounts Receivable $746, Allowance for Doubtful Accounts 14, Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts expense will the company record? a. $44, b. $30, c. $29, d. $45,

  2. Manning Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Manning Retailers will include a credit to Sales of $75,000 and a debit(s) to a. Cash $72,000 and Service Charge Expense $3,000. b. Accounts Receivable $72,000 and Service Charge Expense $3,000. c. Cash $72,000 and Interest Expense $3,000. d. Accounts Receivable $75,000.

  3. ABC Company accepted a national credit card for a $3,000 purchase. The cost of the goods sold is $2,400. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income? a. Increase by $ b. Increase by $ c. Increase by $ d. Increase by $2,

  4. Major advantages of credit cards to the retailer include all of the following except the a. issuer does the credit investigation of customers. b. issuer undertakes the collection process. c. retailer receives more cash from the credit card issuer. d. All of these are advantages.

  5. 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.

  6. If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n) a. selling expense. b. interest expense. c. other expense. d. contra asset.

Accounting for Receivables 9 - 17

  1. If a company sells its accounts receivables to a factor, a. the seller pays a commission to the factor. b. the factor pays a commission to the seller. c. there is a gain on the sale of the receivables. d. the seller defers recognition of sales revenue until the account is collected.

  2. Retailers generally consider sales from the use of national credit card sales as a a. credit sale. b. collection of an accounts receivable. c. cash sale. d. collection of a note receivable.

  3. Receivables might be sold to a. lengthen the cash-to-cash operating cycle. b. take advantage of deep discounts on the cash realizable value of receivables. c. generate cash quickly. d. finance companies at an amount greater than cash realizable value.

  4. A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables? a. The loss section of the income statement will increase each time receivables are sold. b. The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold. c. Selling expenses will increase each time accounts are sold. d. The other expense section of the income statement will increase each time accounts are sold.

  5. Winsor Furniture factors $800,000 of receivables to Fast Factors, Inc. Fast Factors assesses a 2% service charge on the amount of receivables sold. Winsor Furniture factors its receivables regularly with Fast Factors. What journal entry does Winsor make when factoring these receivables? a. Cash ............................................................................... 784, Loss on Sale of Receivables .......................................... 16, Accounts Receivable ............................................. 800, b. Cash ............................................................................... 784, Accounts Receivable ............................................. 784, c. Cash ............................................................................... 800, Accounts Receivable ............................................. 784, Gain on Sale of Receivables ................................. 16, d. Cash ............................................................................... 784, Service Charge Expense................................................ 16, Accounts Receivable ............................................. 800,

  6. When customers make purchases with a national credit card, the retailer a. is responsible for maintaining customer accounts. b. is not involved in the collection process. c. absorbs any losses from uncollectible accounts. d. receives cash equal to the full price of the merchandise sold from the credit card company.

Accounting for Receivables 9 - 19

  1. The two key parties to a promissory note are the a. maker and a bank. b. debtor and the payee. c. maker and the payee. d. sender and the receiver.

  2. When calculating interest on a promissory note with the maturity date stated in terms of days, the a. maker pays more interest if 365 days are used instead of 360. b. maker pays the same interest regardless if 365 or 360 days are used. c. payee receives more interest if 360 days are used instead of 365. d. payee receives less interest if 360 days are used instead of 365.

  3. The maturity value of a $4,000, 9%, 60-day note receivable dated February 10th is a. $4,060. b. $4,030. c. $4,000. c. $4,360.

  4. The interest on a $5,000, 10%, 1-year note receivable is a. $5,000. b. $500. c. $5,050. d. $5,500.

  5. The maturity value of a $30,000, 8%, 3-month note receivable is a. $30,600. b. $30,240. c. $32,400. d. $30,200.

  6. The interest on a $4,000, 6%, 60-day note receivable is a. $240. b. $40. c. $80. d. $120.

  7. The interest on a $2,000, 6%, 90-day note receivable is a. $120. b. $ c. $30. d. $90.

  8. Notes receivable are recognized in the accounts at a. cash (net) realizable value. b. face value. c. gross realizable value. d. maturity value.

Test Bank for Accounting Principles, Eighth Edition 9 - 20

  1. A note receivable is a negotiable instrument which a. eliminates the need for a bad debts allowance. b. can be transferred to another party by endorsement. c. takes the place of checks in a business firm. d. can only be collected by a bank.

  2. A company that receives an interest bearing note receivable will a. debit Notes Receivable for the maturity value of the note. b. credit Notes Receivable for the maturity value of the note. c. debit Notes Receivable for the face value of the note. d. credit Notes Receivable for the face value of the note.

  3. The face value of a note refers to the amount a. that can be received if sold to a factor. b. borrowed plus interest received at maturity from the maker. c. that is identified on the formal instrument of credit. d. remaining after a service charge has been deducted.

  4. Risen Company receives a $5,000, 3-month, 8% promissory note from Dodd Company in settlement of an open accounts receivable. What entry will Risen Company make upon receiving the note? a. Notes Receivable............................................................ 5, Accounts Receivable—Dodd Company................. 5, b. Notes Receivable............................................................ 5, Accounts Receivable—Dodd Company................. 5, Interest Revenue ................................................... 100 c. Notes Receivable............................................................ 5, Interest Receivable ................................................ 100 Accounts Receivable—Dodd Company................. 5, Interest Revenue ................................................... 100 d. Notes Receivable............................................................ 5, Accounts Receivable—Dodd Company................. 5,

  5. When a note is accepted to settle an open account, Notes Receivable is debited for the note's a. net realizable value. b. maturity value. c. face value. d. face value plus interest.

  6. 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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Test Bank - Chapter9

Course: Principles of Accounting (ACCT 117)

37 Documents
Students shared 37 documents in this course

University: King Abdulaziz University

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CHAPTER 9
ACCOUNTING FOR RECEIVABLES
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT
True-False Statements
1. 1 K 9. 3 C 17. 3 C 25. 5 K sg33. 3 K
2. 1 C 10. 3 C 18. 3 K 26. 5 AP sg34. 4 C
3. 1 C 11. 3 C 19. 3 K 27. 5 K sg35. 5 K
4. 2 K 12. 3 K 20. 4 K 28. 5 K sg36. 8 K
5. 2 K 13. 3 K 21. 4 K 29. 9 K sg37. 9 K
6. 2 K 14. 3 K 22. 4 K 30. 9 K
7. 2 K 15. 3 C 23. 4 C sg31. 1 K
8. 3 C 16. 3 C 24. 4 K sg32. 3 K
Multiple Choice Questions
38. 1 K 63. 3 K 88. 3 C 113. 4 K 138. 8
A
N
39. 1 K 64. 3 AP 89. 3 C 114. 4 K 139. 8 C
40. 1 K 65. 3 C 90. 3 C 115. 5 K 140. 9 K
41. 1 C 66. 3 C 91. 3 C 116. 5 AP 141. 9 K
42. 1 K 67. 3 K 92. 3 C 117. 5 AP 142. 9 AP
43. 1 K 68. 3 C 93. 3 C 118. 5 AP 143. 9 AP
44. 2 K 69. 3 K 94. 3 C 119. 5 AP 144. 9 AP
45. 2 K 70. 3 C 95. 3 C 120. 5 K 145. 9 AP
46. 2 K 71. 3 K 96. 3 AP 121. 5 K
sg146. 1 K
47. 2 K 72. 3 K 97. 3 AP 122. 5 K
sg147. 2 K
48. 2 C 73. 3 K 98. 3 AP 123. 5 C st148. 3 K
49. 2 C 74. 3 K 99. 3 AP 124. 5 AP
sg149. 3 K
50. 2 AP 75. 3 C 100. 3 AP 125. 5 AP
st150. 3 K
51. 2 C 76. 3 C 101. 3 AP 126. 5 AP
sg151. 3 AP
52. 2 C 77. 3 C 102. 3 AP 127. 5 AP
st152. 4 K
53. 2 AN 78. 3 K 103. 4 C 128. 5 AP
sg153. 4 AP
54. 2 C 79. 3 C 104. 4 AP 129. 6 K st154. 5 K
55. 2 K 80. 3 C 105. 4 C 130. 6 K sg155. 5 AP
56. 2 AN 81. 3 C 106. 4 K 131. 6 C st156. 8 K
57. 2 C 82. 3 K 107. 4 K 132. 6 K
sg157. 9 C
58. 2 AP 83. 3 K 108. 4 K 133. 6 AP
st158. 9 K
59. 3 C 84. 3 AN 109. 4 K 134. 6 K
60. 3 C 85. 3 K 110. 4 K 135. 7 K
61. 3 C 86. 3 K 111. 4 C 136. 7 C
62. 3 C 87. 3 C 112. 4 AP 137. 8 C
Brief Exercises
159. 2
A
N 162. 3
A
N 165. 5,6
A
N 168. 8
A
N
160. 3 AN 163. 4 AP 166. 5,8 AP 169. 8 AN
161. 3 AN 164. 5 AP 167. 6 AP 170. 9 AN
sg This question also appears in the Study Guide.
st This question also appears in a self-test at the student companion website.

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