Midterm II Flashcards
To convert annual IR into Compounding Period Interest Rate, divide annual IR by ____.
Number of compounding periods per year
T or F?: All things equal, borrowers prefer to pay simple interest.
T
What is an ordinary annuity?
series of equal payments made at END of consecutive periods
What is an annuity due?
series of equal payments made at the BEGINING of consecutive periods
Does simple interest compound?
No.
What table shows the smallest value for a given #?
Present value of 1.
Process of accumulation involved determining the _____.
future value
Future value of an ordinary annuity will be greater or less than an annuity due?
Less than, since ordinary annuities compound interest at the end of the month instead of beginning.
Expected cash flow approach calls for ______ to discount cash flows.
risk-free rate of return
When compounding frequency is more than once a year, the effective-IR is always ____ than the stated rate.
exceeds
The FV of a deferred annuity is _____ as the FV of an annuity not deferred.
the same
FASB has studied whether to eliminate ______ as a cash classification.
cash equivalents
T or F: Cash can be either current or long term asset
T; depending on availability of disbursement
Does cash include postdated checks?
No
Does cash include CD’s or Tax Refunds due?
No
Are bank overdrafts offset against a cash account?
Yes
If FASB eliminates Cash Equivalents, Treasury Bills will be considered _____.
a temporary investment
Sales discounts offsets ____.
AR
Sales returns and allowances has a normal ___ balance.
debit
Non-trade receivables doesn’t include _______.
oral promises to pay
Effective annual interest rate from 1/10 n/30 =
1% / [(30d-10d)/365d]
Percent divided by fraction of year between options.
Notes receivable can be classified as _______.
Current/noncurrent and trade/nontrade
Using net method, sales discounts forfeited should be reported as _____.
other revenues and gains on IS
Why does direct write-off method violate expense recognition concept?
Fails to record expenses in same period as associated revenues
% of receivables approach presents AR at _____.
NRV
% of sales approach matches _____ on IS.
revenue and expenses
Allowance for Doubtful Accounts has a normal ____ balance.
credit
NRV of AR =
AR - Allowance Account
IR that equates cash paid with amount received in future with ‘zero interest’
Implicit rate
T or F: You only recognize interest revenue after the period end.
T; otherwise its interest receivable
Under Fair Value option, unrealized holding gains and losses on receivables are included in _______, not as part of other comprehensive income.
net income
T or F; Assignment and Factoring are both methods used to generate cash from AR
T
Companies that buy receivables from businesses are called _____.
Factors
T or F; Securitization requires purchaser to service receivable
F
AR Turnover Ratio=
Net Sales / Avg Net AR
AR Turnover Ratio measures _____.
number of times the avg balance of AR is collected during period
What is float?
$ briefly counted twice due to time gaps in transactions. Prevented with lockbox.
Do deposited check bounces reduce cash account?
no
Bank overdrafts are ____.
netted against cash balances
Merchandising firms call their unsold units _____ inventory.
Merchandise
A ‘purchases’ account only exists in a ______ inventory system.
periodic
The ‘gross method’ for recording purchase discounts does/does not use a purchase discounts account?
does not
Is interest a product cost or period cost?
period cost, not associated with inventory
What three costs are excluded from inventory under GAAP and IFRS?
Storage, admin, selling
