FINANCIAL ACCOUNTING ...RECEIVABLES QUESTIONS AND ANSWERS...100%#

8.1-1 The two major types of receivables are accounts receivable and notes receivable. Answer: True LO: 8-1 Diff: 1 EOC Ref: S8-1 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-2 The creditor is the entity that signs a note. Answer: False LO: 8-1 Diff: 1 EOC Ref: Accounting Vocabulary AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-3 The two major types of receivables are interest receivable and taxes receivable. Answer: False LO: 8-1 Diff: 1 EOC Ref: S8-1 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-4 Notes receivable are usually longer in term than accounts receivable. Answer: True LO: 8-1 Diff: 1 EOC Ref: Accounting Vocabulary AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-5 Which of the following is a benefit of selling on credit? A) Revenues are increased by making sales to a wider range of customers. B) Expenses are reduced by making sales to a wide range of customers. C) Some customers do not pay, creating an expense. D) Cash is received sooner. Answer: A LO: 8-1 Diff: 1 EOC Ref: E8-13 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-6 Which of the following is a disadvantage of selling on credit? A) Sales can be made to a more diverse group of customers. B) Profits are increased by making sales to a wider range of customers. C) Some customers do not pay, creating an expense. D) Prices must be reduced when selling on credit. Answer: C LO: 8-1 Diff: 1 EOC Ref: E8-13 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-7 Which of the following is included in the category Other receivables? A) Loans to employees B) Accounts receivables C) Notes receivables D) Investments Answer: A LO: 8-1 Diff: 1 EOC Ref: Accounting Vocabulary AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-8 A record that contains the details by customer or vendor of the individual account balances would be called a: A) control account. B) subsidiary ledger. C) journal. D) liability account. Answer: B LO: 8-1 Diff: 1 EOC Ref: Accounting Vocabulary AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement/Reporting 8.1-9 A creditor is a person or business who: A) has a receivable from another party. B) has a payable to another party C) invests money in the stock of a company D) purchases goods on account. Answer: A LO: 8-1 Diff: 1 EOC Ref: Accounting Vocabulary AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement/Reporting 8.1-10 Which of the following statements is TRUE? A) Accounts receivable are more liquid than cash. B) Notes receivable are always due in 30 days. C) Notes receivable are longer in term than accounts receivable. D) Accounts receivable are liabilities. Answer: C LO: 8-1 Diff: 2 EOC Ref: Accounting Vocabulary AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement/Reporting 8.1-11 GAAP prefers companies to use the: A) direct write-off method to evaluate bad debts. B) allowance method to evaluate bad debts. C) amortization method to evaluate bad debts. D) 360- day method to evaluate bad debts. Answer: B LO: 8-1 Diff: 1 EOC Ref: S8-1 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement/Reporting 8.1-12 Which of the following is NOT a key issue in controlling and managing receivables? A) Separate cash-handling, credit, and accounting duties to keep employees from stealing cash collected from customers. B) Extend credit only to customers who are most likely to pay. C) Pursue collection from customers to maximize cash flow. D) Separate the responsibility for custody and protection of inventory assets from the accounting for inventory assets. Answer: D LO: 8-1 Diff: 2 EOC Ref: E8-14 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.1-13 Which of the following duties should NOT be performed by a credit department? A) Monitor customer payment records. B) Handle cash receipts. C) Evaluate customers who apply for credit. D) Review applicant's income and credit history. Answer: B LO: 8-1 Diff: 2 EOC Ref: E8-14 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-1 The allowance method is a method of recording collection losses by estimating uncollectible amounts. Answer: True LO: 8-2 Diff: 1 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-2 The income statement approach computes uncollectible accounts expense as a percentage of net credit sales. Answer: True LO: 8-2 Diff: 1 EOC Ref: E8-16 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-3 The income statement approach computes uncollectible accounts expense by analyzing accounts receivable. Answer: False LO: 8-2 Diff: 1 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-4 The aging-of-accounts-receivable method computes uncollectible accounts expense as a percentage of net credit sales. Answer: False LO: 8-2 Diff: 1 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-5 The aging-of-accounts method is a balance sheet approach of estimating uncollectible accounts. Answer: True LO: 8-2 Diff: 2 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-6 Which of the following are the two methods of accounting for uncollectible receivables? A) The direct write-off method and the liability method B) The asset method and the sales method C) The allowance method and the liability method D) The allowance method and the direct write-off method Answer: D LO: 8-2 Diff: 1 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-7 Which of the following are the two methods of estimating uncollectible receivables? A) The allowance method and the amortization method B) The aging-of-accounts-receivable method and the percent-of-sales method C) The gross-up method and the direct write-off method D) The direct write-off method and the percent-of-completion method Answer: B LO: 8-2 Diff: 1 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-8 Which of the following entries would be used to account for uncollectible receivables using the allowance method? A) Allowance for uncollectible accounts is debited and Uncollectible accounts expense is credited. B) Uncollectible accounts expense is debited and Allowance for uncollectible accounts is credited. C) Uncollectible accounts expense is debited and Accounts receivable is credited. D) Accounts receivable is debited and Uncollectible accounts expense is credited. Answer: B LO: 8-2 Diff: 1 EOC Ref: E8-15 AACSB: Knowledge/Content AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-9 The Allowance for uncollectible accounts currently has a credit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are $115,000. What will be the amount of Uncollectible account expense reported on the income statement? A) $3,275 B) $3,075 C) $2,875 D) $2,675 Answer: C Calculations: $115,000 x .025 = $2,875 LO: 8-2 Diff: 1 EOC Ref: E8-16 AACSB: Analytical Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 8.2-10 The allowance for uncollectible accounts currently has a credit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are $115,000. What will be the balance of the Allowance for uncollectible accounts reported on the balance sheet? A) $3,275 B) $3,075 C) $2,675 D) $2,875 Answer: B Calculations: ($115,000 x .025) + $200 = $3,075 LO: 8-2 Diff: 2 EOC Ref: E8-16 AACSB: Analytical Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functiona