Ch. 7 Flashcards
A receivable arising from the sale of goods or services with a verbal promise to pay.
Account receivable
A measure of the number of times accounts receivable is collected during the period.
Accounts receivable turnover ratio
A form used to categorize the various individual accounts receivable according to the length of time each has been outstanding.
Aging schedule
A contra-asset account used to reduce accounts receivable to its net realizable value.
Allowance for doubtful accounts
A method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period.
Allowance method
The general ledger account that is supported by a subsidiary ledger.
Control account
A multiple-copy document used by a company that accepts a credit card for a sale.
Credit card draft
Securities issued by corporations and governmental bodies as a form of borrowing.
Debt securities
The recognition of bad debts expense at the point an account is written off as uncollectible.
Direct write-off method
The process of selling a promissory note.
Discounting
Securities issued by corporations as a form of ownership in the business.
Equity securities
These terms, with their definitions in the text, are important for your understanding.
Key terms for promissory notes
The party that agrees to repay the money for a promissory note at some future date.
Maker
A liability resulting from the signing of a promissory note.
Note payable
An asset resulting from the acceptance of a promissory note from another company.
Note receivable
A measure of how long it takes to collect receivables.
Number of days’ sales in receivables
The party that will receive the money from a promissory note at some future date.
Payee
A written promise to repay a definite sum of money on demand or at a fixed or determinable date in the future.
Promissory note
The detail for a number of individual items that collectively make up a single general ledger account.
Subsidiary ledger
What is not an accurate discretion of allowance for doubtful accounts?
Income Statement Account
If a company uses the direct. Wrote off method of accounting for bad debts?
It will record bad debt expense only when an account is determined to be un collectable
If a company uses the allowance method to account for bad debts when will the company owners equity decrease?
At the end of the accounting period when adjusting entry for bad debts is recorded
Which when the allowance method what are the accts receivable turnover ratio be found?
No effect on overall assets or equity
Where cant the amounts needed to compute the accounts receivable turnover ratio be found?
Both income statement and balance sheet
What should a company do to improve its accounts receivable turnover rate?
Give a discount for paying early
Utah co sold merchandise to big sky in dec 1 2904 for 9000 and accepted a promissory note for payment in the sameamount. The note has a term of 90 days and a stated interest rate of 8% Utahans accounting period ends in dec 31what amount should Utah recognize as interest revenue on dec 31 if a 360 day year is assumed
$60
Comfort shoes received a promissory note from a customer on April the face amount of the note in 2000 the termsare 12 months and 8% annual interest. At maturity pays for the note and interest. Comfort shoes made the properadjustment at the end of December for interest the effect of recognizing the transaction on the maturity date is…
A decrease to notes receivable
A company is referred to as a parent if it owns?
More than 50% of the equity’s security’s of a second company
The equity method of accounting for an investment is used when A company purchases?
More than 20% of the equity securities of a second company
Which of the following statements regarding investments is correct?a. Securities issued by corporations as a form of ownership in the business, such as common and preferred stock, are called equity securities. b. When Company P buys stock in Company W, Company P is referred to as the investee. c. Both stocks and bonds have maturity dates. d. The use of fair value accounting is an example of the cost principle.
x
On the statement of cash flows, the maturity of a bond should be reported as:a. an increase to net income in operating activities. b. a decrease to net income in operating activities. c. a cash outflow in investing activities. d. a cash inflow in investing activities.
x
Boston makes $20,000 of credit card sales during the week and is charged 5% by the credit card company. Boston will record sales revenue of:a. $10,000 b. $20,000 c. $19,000 d. None of these choices are correct.
x
Maple Corp. borrows $10,000 at a local bank. Maple will recognize the following accounts:a. Notes Receivable and Interest Revenue. b. Notes Payable and Interest Revenue. c. Notes Receivable and Interest Expense. d. Notes Payable and Interest Expense.
x
Why is the allowance method of recognizing bad debts used?a. It results in recognizing the maximum amount of write-off in each period. b. It results in recognizing the expense of granting credit in the period in which the account is written off. c. It results in matching expense with the revenue of the period in which the sale took placed. d. The allowance method cannot be justified and therefore is not allowed.
x
The amounts needed to compute the accounts receivable turnover ratio can be found on:a. both the balance sheet and the income statement. b. the balance sheet only. c. the income statement only. d. the statement of cash flows.
x
- What accounts are debited and credited at the end of the period to recognize bad debts under the allowance method?a. Allowance for Doubtful Accounts is debited, and Bad Debts Expense is credited. b. Bad Debts Expense is debited, and Accounts Receivable is credited. c. Bad Debts Expense is debited, and Allowance for Doubtful Accounts is credited. d. None of these choices is the correct entry.
Bad Debts Expense is debited, and Allowance for Doubtful Accounts is credited.
- Which of the following statements is true regarding dividend income?a. Dividend income appears in the stockholders’ equity section of the balance sheet. b. Dividend income is recognized by companies that own debt securities. c. Dividend income is reported on the income statement. d. Dividend income is accrued at year-end.
Dividend income is reported on the income statement.
- Oak Corp. had sales during the year of $10,000,000 and an average accounts receivable of $2,000,000. Its accounts receivable turnover ratio is:a. 10 times. b. 5 times. c. .2 times. d. None of these choices are correct
5 times
- When a company discounts a promissory note at the banka. discounting is not allowed as a standard practice. b. it receives cash at the same time it would if it held the note to maturity. c. it receives cash sooner than it would if it held the note to maturity. d. it receives cash later than it would if it held the note to maturity.
it receives cash sooner than it would if it held the note to maturity.
- How should a decrease in notes receivable be reported on the statement of cash flows using the indirect method?a. As a deduction b. It depends on the amount of the increase c. Changes in notes receivable balances are not reported on the statement of cash flows d. As an addition
as an addition
- Elm Inc. borrows $50,000 on a 120-day, 12% promissory note. The total interest that Elm will repay at maturity is:a. $500. b. $6,000. c. $2,000. d. None of these choices are correct.
$2,000.
- How should an increase in accounts receivable be reported on the statement of cash flows using the indirect method?a. As an addition b. As a deduction c. Changes in accounts receivable balances are not reported on the statement of cash flows d. It depends on the amount of the increase
as a deduction
- A company invests excess cash in a certificate of deposit. At the end of an accounting period before the CD matures, the company will recognize:a. interest revenue. b. the receipt of cash. c. interest expense. d. None of these choices are correct.
interest revenue
- Under the percentage of net credit sales approach,a. the Bad Debts Expense is divided by the Allowance for Doubtful Accounts to get the percentage of net credit sales to expense. b. only receivables that are actually in default can be expensed. c. it does not matter what the balance is in the Allowance for Doubtful Accounts account. d. the calculated Bad Debts Expense is added to the beginning balance in the allowance account to get the ending allowance amount for the balance sheet.
it does not matter what the balance is in the Allowance for Doubtful Accounts account.
- If the accounts receivable turnover is 6, then accounts receivable is collected every:a. 6 months. b. 60 days. c. Cannot be determined from the information given. d. 6 days
60 days
- On July 1, 2012, Chang Company received a $20,000 promissory note from Abba Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2013. If Chang’s fiscal year ends September 30, 2012, an adjusting entry is needed to:a. increase interest receivable by $250. b. increase notes receivable by $250. c. increase notes receivable by $1,000. d. increase interest revenue by $1,000.
increase interest receivable by $250
- Baxter pays $15,000 to buy stock in another company and an additional $400 in commissions. Three months later Baxter sells the stock for $16,000. At the time of sale, Baxter will recognize a:a. loss of $1,000. b. gain of $1,000. c. loss of $600. d. gain of $600.
gain of $600
- When a note is discounted at a bank, it is usually done “with recourse.” With recourse means that:a. the original customer can pay the note before the maturity date. b. if the original customer fails to pay the bank, the company that transferred of the note must pay the bank. c. at the original customer’s discretion, they can get their note back. d. if the original customer fails to pay the bank the total amount due on the maturity date of the note, the company that transferred the note to the bank is liable for the full amount.
if the original customer fails to pay the bank the total amount due on the maturity date of the note, the company that transferred the note to the bank is liable for the full amount.
- Which of the two approaches to recognizing bad debts considers any existing balance in the Allowance for Doubtful Accounts account?a. Neither method takes into account any existing balance in the Allowance for Doubtful Accounts account b. Both the percentage of sales approach and the percentage of accounts receivable approach c. Percentage of accounts receivable approach d. Percentage of sales approach
Percentage of accounts receivable approach
