ACC 556 WEEK 5 CHAPTER 8

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Question 1
The accounts receivable turnover
Is computed by dividing net credit sales for the accounting period by the cash realizable value of accounts receivable on the last day of the accounting period.
Can be used to compute the average collection period.
Is a method of evaluating the solvency of net accounts receivable.
Is only important to internal users of accounting information.
Question 2
Which one of the following is not a principle of sound accounts receivable management?
Determine to whom to extend credit.
Delay cash receipts from receivables if necessary.
Monitor collections.
Determine a payment period.
Question 3
Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet.
True
False
Question 4
An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.
True
False
Question 5
When calculating interest on a promissory note with the maturity date stated in terms of days, the
maker pays more interest if 365 days are used instead of 360.
maker pays the same interest regardless if 365 or 360 days are used.
payee receives more interest if 360 days are used instead of 365.
payee receives less interest if 360 days are used instead of 365.
Question 6
Which of the following is a way of disposing of a note receivable?
Honoring it on maturity date.
Selling it to receive cash before the maturity date.
Default by the maker.
All of these are ways to dispose of notes receivable.
Question 7
Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 .´ 0.10´6/12
True
False
Question 8
If a company has significant concentrations of credit risk, it must discuss this risk in the notes to its financial statements.
True
False
Question 9
Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.
True
False
Question 10
Interest is usually associated with
accounts receivable.
notes receivable.
doubtful accounts.
bad debts.
Question 11
When an account is written off using the allowance method, the
cash realizable value of total accounts receivable will increase.
net accounts receivable will decrease.
allowance account will increase.
net accounts receivable will stay the same.
Question 12
The bookkeeper recorded the following journal entry
Allowance for Doubtful Accounts 1,000
Accounts Receivable – Richard James 1,000
Which one of the following statements is false?
This entry is only prepared on the last day of the accounting period.
There should be written authorization for this transaction from someone who does not have responsibilities related to recording cash.
There could be a violation of internal control policies.
James’ account was written off because it was determined to be uncollectible.
Question 13
Match the items below by entering the appropriate code letter in the space provided.
A. Aging the accounts receivable

B. Percentage of receivables basis
C. Direct write-off method

D. Promissory note
E. Trade receivables

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F. Cash net realizable value
G. Accounts receivable turnover

H. Credit card sales

I. Dishonored note

J. Aging the accounts receivable
____1. A written promise to pay a specified amount on demand or at a definite time.
____ 2. Sales that involve the customer, the retailer, and the credit card issuer.
____ 3. A measure of the liquidity of receivables.
____ 4. Notes and accounts receivable that result from sales transactions.
____ 5. A note which is not paid in full at maturity.
____ 6. Analysis of customer account balances by length of time they have been unpaid.
____ 7. Emphasizes expected cash realizable value of accounts receivable.
____ 8. Bad debt losses are not estimated and no allowance account is used.
____ 9. The net amount expected to be received in cash.

Question 14
Which of the following is not true regarding a promissory note?
Promissory notes may not be transferred to another party by endorsement.
Promissory notes may be sold to another party.
Promissory notes give a stronger legal claim to the holder than accounts receivable.
Promissory notes may be bearer notes and not specifically identify the payee by name.
Question 15
The expense recognition
requires that all credit losses be recorded when an individual customer cannot pay.
necessitates the recording of an estimated amount for bad debts.
results in the recording of a known amount for bad debt losses.
is not involved in the decision of when to expense a credit loss.
Question 16
The interest on a $4,000, 9%, 90-day note receivable is
$90.
$360.
$30.
$60.

Question 17
Bad Debt Expense is considered
an avoidable cost in doing business on a credit basis.
an internal control weakness.
a necessary risk of doing business on a credit basis.
avoidable unless there is a recession.
Question 18
An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.
True
False
Question 19
On January 15, Nifty Company sells merchandise on account to Martinez Associates for $3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $600 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?
$2,400
$2,328
$2,310
$1,680

 

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