INTAC - CHAPTER 4

Question 1

Trade receivables are classified as current assets if reasonably expected to be collected

a. Within one year.

b. Within the normal operating cycle.

c. Within one year or within the operating cycle, whichever is shorter.

d. Within one year or within the operating cycle, whichever is longer.

Answer 1

d. Within one year or within the operating cycle, whichever is longer.

Question 2

Nontrade receivables are classified as current assets only if reasonably expected to be realized in cash

a. Within one year or within the operating cycle, - whichever is shorter.

b. Within one year or within the operating cycle, whichever is longer.

c. Within the normal operating cycle.

d. Within one year, the length of the operating cycle notwithstanding

Answer 2

d. Within one year, the length of the operating cycle notwithstanding

Question 3

Credit balances in accounts receivable are classified as

a. Current liabilities
b. Part of accounts payable
c. Long term liabilities
d. Deduction from accounts receivable

Answer 3

a. Current liabilities

Question 4

Which of the following does not change the balance in accounts receivable?

a. Return on credit sales
b. Collection from customers
c. Bad debt expense adjusting entry
d. Writeoff

Answer 4

d. Writeoff

Question 5

Which is recorded by a credit to accounts receivable?

a. Sale of inventory on account

b. Estimating the allowance for doubtful accounts

c. Estimating annual sales returns

d. Writeoff of accounts receivable

Answer 5

a. Sale of inventory on account

Question 6

Which accounting principle primarily supports the use of allowance for doubtful accounts?

a. Continuity principle
b. Full disclosure principle
c. Matching principle
d. Conservatism

Answer 6

c. Matching principle

Question 7

Why is the allowance method preferred over the direct writeoff method of accounting for bad debts?

a. Allowance method is used for tax purposes

b. Estimates are used

c. Determining worthless accounts under direct writeoff method is difficult to do

d. Improved matching of bad debt expense with revenue

Answer 7

d. Improved matching of bad debt expense with revenue

Question 8

The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made when

a. A customer pays an account balance.

b. A customer defaults on the account.

c. A previously defaulted customer pays the balance.

d. Estimated uncollectible accounts are too low.

Answer 8

c. A previously defaulted customer pays the balance.

Question 9

In recording cash discounts related to accounts receivable, which is more theoretically correct?

a. Net method
b. Gross method
c. Allowance method
d. All three methods are theoretically correct

Answer 9

a. Net method

Question 10

All of the following are problems associated with the measurement of accounts receivable, except

a. Uncollectible accounts
b. Returns
c. Cash discounts under the net method
d. Allowance granted

Answer 10

c. Cash discounts under the net method

Question 11

Which method of recording bad debt loss is consistent with accrual accounting?

a. Allowance method
b. Direct writeoff method
c. Percent of sales method
d. Percent of accounts receivable method

Answer 11

a. Allowance method

Question 12

When the allowance method is used, the entry to record the writeoff of a specific account would

a. Decrease both accounts receivable and the allowance

b. Decrease accounts receivable and increase allowance

c. Increase both accounts receivable and the allowance

d. Increase accounts receivable and decrease the allowance

Answer 12

a. Decrease both accounts receivable and the allowance

Question 13

Under the allowance method, the journal entry to record the writeoff of a specific uncollectible account

a. Affects neither net income nor working capital

b. Affects neither net income nor accounts receivable

c. Decreases both net income and working capital

d. Decreases both net income and accounts receivable

Answer 13

a. Affects neither net income nor working capital

Question 14

Under the allowance method, the entries at the time of collection of an account previously written off would

a. Decrease the allowance for doubtful accounts

b. Increase net income

c. Have no effect on the allowance for doubtful accounts

d. Have no effect on net income

Answer 14

d. Have no effect on net income

Question 15

Collection of accounts receivable previously written off results in an increase in cash and an increase in

a. Accounts receivable
b. Allowance for doubtful accounts
c. Bad debt expense
d. Retained earnings

Answer 15

b. Allowance for doubtful accounts

Question 16

Where the operating cycle extends beyond one year because of normal credit terms as in the case of installment sales

a. The entire receivables are classified as current with disclosure of the amount not realizable within one year.

b. The entire receivables are shown as noncurrent.

c. The portion due in one year is shown as current.

d. The entire receivables are not recognized.

Answer 16

a. The entire receivables are classified as current with disclosure of the amount not realizable within one year.

Question 17

In the case of long-term real estate installment sales

a. The entire receivables are shown as current.

b. The entire receivables are shown as noncurrent.

c. Only the portion currently due is shown as current and the balance as noncurrent.

d. The entire receivables are not recorded.

Answer 17

c. Only the portion currently due is shown as current and the balance as noncurrent.