Multiple Choice Questions
1. Accounts receivable information for specific customers is important because it reveals:
A) How much each customer has purchased on credit.
B) How much each customer has paid.
C) How much each customer still owes.
D) The basis for sending bills to customers.
E) All of the above.
2. Sellers allow customers to use credit cards:
A) To avoid having to evaluate a customer's credit standing for each sale.
B) To lessen the risk of extending credit to customers who cannot pay.
C) To speed up receipt of cash from the credit sale.
D) To increase total sales volume.
E) All of the above.
3. A promissory note received from a customer in exchange for an account receivable:
A) Is a cash equivalent for the recipient.
B) Is an account receivable for the recipient.
C) Is a note receivable for the recipient.
D) Is a short-term investment for the recipient.
E) Is a note payable for the recipient.
4. The person who signs a note receivable and promises to pay the principal and interest is the:
A) Maker.
B) Payee.
C) Holder.
D) Receiver.
E) Owner.
5. The accounting principle that requires financial statements (including notes) to report all relevant information about the operations and financial condition of a company is called:
A) Relevance.
B) Full disclosure.
C) Evaluation.
D) Materiality.
E) Matching.
6. A promissory note:
A) Is a short-term investment for the maker.
B) Is a written promise to pay a specified amount of money at a certain date.
C) Is a liability to the payee.
D) Is another name for an installment receivable.
E) Cannot be used in payment of an account receivable.
7. Pledging receivables:
A) Allows firms to raise cash.
B) Allows a firm to retain ownership of its receivables.
C) Does not transfer risk of bad debts to the lender.
D) Should be disclosed in the financial statements.
E) All of the above.
8. The account receivable turnover measures:
A) How long it takes to sell accounts receivable to a factor.
B) How often, on average receivables are received and collected during the period.
C) The relation of cash sales to credit sales.
D) How long it takes to sell merchandise inventory.
E) All of the above.
9. Plant assets are:
A) Tangible assets used in the operation of a business that have a useful life of more than one accounting period.
B) Current assets.
C) Held for sale.
D) Intangible assets used in the operations of a business that have a useful life of more than one accounting period.
E) Tangible assets used in the operation of business that have a useful life of less than one accounting period.
10. A main accounting issue for plant assets is:
A) Computing the cost of the plant assets.
B) Matching the costs of plant assets against revenues for the periods they benefit.
C) Accounting for repairs and improvements to plant assets.
D) The disposal of plant assets.
E) All of the above.