Test 2

Question 1

What is Time Value of Money?

Answer 1

Indicates the relationship between time and money

Question 2

Is a dollar worth more today or in the future and why?

Answer 2

Today because it can be invested today and make money on it (and because of inflation in the future)

Question 3

What are Present value-based accounting measurements used for?

Answer 3

Notes
Bonds
Leases
Pensions
Business combinations
Disclosures

Question 4

What is Interest?

Answer 4

Payment for the use of money

Question 5

What are the 3 variables in interest computation?

Answer 5

Principal (p) - the amount borrowed or invested
Interest Rate (i) - a percentage of the outstanding principal
Time (n) - the number of periods that the principal is outstanding

Question 6

What is the Simple Interest Formula?

Answer 6

P x I x N

Question 7

What is Compound Interest?

Answer 7

Interest computed on both principal plus any interest earned (not yet paid)

Question 8

When does an Ordinary Annuity of 1 occur?

Answer 8

End of period

Question 9

When does an Annunity become due?

Answer 9

Payments occur at the beginning of each period

Question 10

What is the most liquid asset?

Answer 10

Cash

Question 11

What does Cash include?

Answer 11

Currency ($) and coin
Petty Cash
Available funds on deposit at the bank
Money Orders, Certified checks, Cashier’s checks
Personal checks and savings accounts

Question 12

What are Cash Equivalents?

Answer 12

Short=term, highly liquid investments that can be converted to wash within 0-3 months

Question 13

What are examples of Cash Equivalents?

Answer 13

Treasury Bills
Commercial paper
Money market funds

Question 14

What is Restricted Cash?

Answer 14

Material funds set aside for a particular purpose; can be either short-term or long-term

Question 15

What does Restricted Cash include?

Answer 15

Cash for plant expansion
Cash for retirement of long-term debt
Cash needed for compensating balance

Question 16

What are some Non-Cash Items?

Answer 16

Post dated checks and IOUs
Travel Advances to employees
Postage on hand
Bank overdrafts

Question 17

What is the Revenue Recognition Principle?

Answer 17

Company should recognize revenue when it satisfies its performance obligation by transferring the goods or services to the customer

Dr. A/R (+A)
Cr. Sales Revenue (+R)

Question 18

What does a sales discount of 2/10, n/30 mean?

Answer 18

2% off sales price if paid within 10 days, or in full in 30 days

Question 19

What type of account is Sales Discounts?

Answer 19

Contra Revenue (XR)

Question 20

What type of account is Sales Returns and Allowances?

Answer 20

Contra Revenue (XR)

Question 21

What type of account is Allowance for Sales Returns?

Answer 21

Contra Asset (XA)

Question 22

What is Accounts Receivable recorded at per GAAP?

Answer 22

Net Realizable Value (NRV)

Question 23

If a Notes Receivable’s stated rate is > market rate, what is this called?

Answer 23

Premium

Question 24

If a Notes Receivable’s stated rate < market rate, what is this known as?

Answer 24

Discount

Question 25

What is Sales without Recourse when regarding Disposition of A/R and Notes Rec.?

Answer 25

Seller of the receivables assumes no responsibility for any credit losses associated with the transferred receivables; factor assumes the risk of collectability and credit losses

Question 26

What is Sales with Recourse?

Answer 26

Seller guarantees payment to purchaser in the event the debtor fails to pay

Question 27

What is the Accounts Receivable Turnover Ratio?

Answer 27

Used to evaluate the liquidity of A/R
Measures the number of times a company collected receivables during the period

Net Sale / Average Net Accounts Receivables