Ch. 7

Question 1

A receivable arising from the sale of goods or services with a verbal promise to pay.

Answer 1

Account receivable

Question 2

A measure of the number of times accounts receivable is collected during the period.

Answer 2

Accounts receivable turnover ratio

Question 3

A form used to categorize the various individual accounts receivable according to the length of time each has been outstanding.

Answer 3

Aging schedule

Question 4

A contra-asset account used to reduce accounts receivable to its net realizable value.

Answer 4

Allowance for doubtful accounts

Question 5

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.

Answer 5

Allowance method

Question 6

The general ledger account that is supported by a subsidiary ledger.

Answer 6

Control account

Question 7

A multiple-copy document used by a company that accepts a credit card for a sale.

Answer 7

Credit card draft

Question 8

Securities issued by corporations and governmental bodies as a form of borrowing.

Answer 8

Debt securities

Question 9

The recognition of bad debts expense at the point an account is written off as uncollectible.

Answer 9

Direct write-off method

Question 10

The process of selling a promissory note.

Answer 10

Discounting

Question 11

Securities issued by corporations as a form of ownership in the business.

Answer 11

Equity securities

Question 12

These terms, with their definitions in the text, are important for your understanding.

Answer 12

Key terms for promissory notes

Question 13

The party that agrees to repay the money for a promissory note at some future date.

Answer 13

Maker

Question 14

A liability resulting from the signing of a promissory note.

Answer 14

Note payable

Question 15

An asset resulting from the acceptance of a promissory note from another company.

Answer 15

Note receivable

Question 16

A measure of how long it takes to collect receivables.

Answer 16

Number of days’ sales in receivables

Question 17

The party that will receive the money from a promissory note at some future date.

Answer 17

Payee

Question 18

A written promise to repay a definite sum of money on demand or at a fixed or determinable date in the future.

Answer 18

Promissory note

Question 19

The detail for a number of individual items that collectively make up a single general ledger account.

Answer 19

Subsidiary ledger

Question 20

What is not an accurate discretion of allowance for doubtful accounts?

Answer 20

Income Statement Account

Question 21

If a company uses the direct. Wrote off method of accounting for bad debts?

Answer 21

It will record bad debt expense only when an account is determined to be un collectable

Question 22

If a company uses the allowance method to account for bad debts when will the company owners equity decrease?

Answer 22

At the end of the accounting period when adjusting entry for bad debts is recorded

Question 23

Which when the allowance method what are the accts receivable turnover ratio be found?

Answer 23

No effect on overall assets or equity

Question 24

Where cant the amounts needed to compute the accounts receivable turnover ratio be found?

Answer 24

Both income statement and balance sheet

Question 25

What should a company do to improve its accounts receivable turnover rate?

Answer 25

Give a discount for paying early

Question 26

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

Answer 26

$60

Question 27

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...

Answer 27

A decrease to notes receivable

Question 28

A company is referred to as a parent if it owns?

Answer 28

More than 50% of the equity's security's of a second company

Question 29

The equity method of accounting for an investment is used when A company purchases?

Answer 29

More than 20% of the equity securities of a second company

Question 30

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.

Answer 30

x

Question 31

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.

Answer 31

x

Question 32

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.

Answer 32

x

Question 33

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.

Answer 33

x

Question 34

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.

Answer 34

x

Question 35

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.

Answer 35

x

Question 36

1. 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.

Answer 36

Bad Debts Expense is debited, and Allowance for Doubtful Accounts is credited.

Question 37

2. 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.

Answer 37

Dividend income is reported on the income statement.

Question 38

3. 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

Answer 38

5 times

Question 39

4. 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.

Answer 39

it receives cash sooner than it would if it held the note to maturity.

Question 40

5. 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

Answer 40

as an addition

Question 41

6. 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.

Answer 41

$2,000.

Question 42

7. 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

Answer 42

as a deduction

Question 43

8. 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.

Answer 43

interest revenue

Question 44

9. 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.

Answer 44

it does not matter what the balance is in the Allowance for Doubtful Accounts account.

Question 45

10. 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

Answer 45

60 days

Question 46

11. 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.

Answer 46

increase interest receivable by $250

Question 47

12. 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.

Answer 47

gain of $600

Question 48

13. 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.

Answer 48

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.

Question 49

1. 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

Answer 49

Percentage of accounts receivable approach