1. Trade receivables are classified as current assets if they are reasonably expected to be collected

a. Within one year.

b. Within the operating cycle.

c. Within one year or within the operating cycle, whichever is shorter.

d. Within one year or within the operating cycle, whichever is longer.

2. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized

as cash

a. Within one year or within the operating cycle, whichever is shorter.

b. Within one year or within the operating cycle, whichever is longer.

c. Within the normal operating cycle.

d. Within one year, the length of the operating cycle notwithstanding.

3. Which is true concerning presentation of receivables in the statement of financial position?

a. Trade receivables and nontrade receivables are shown separately.

b. Nontrade receivables are presented as noncurrent assets.

c. Trade accounts receivable and trade notes receivable shall be presented separately.

d. Trade receivables and nontrade receivables which are currently collectible shall be presented as one line item

called "trade and other receivables".

4. Assuming that the ideal measure of short-term receivables in the statement of financial position is the

discounted value of the cash to be received in the future, failure to follow this practice usually does not

make the statement of financial position misleading because

a. Most short-term receivables are not interest-bearing.

b. The allowance for doubtful accounts includes a discount element.

c. The amount of the discount is not material.

d. Most receivables can be sold to a bank or factor.

5. Credit balance in accounts receivable shall be classified as

a. Current liabilities

b. Part of accounts payable

c. Long term liabilities

d. Deduction from accounts receivable

6. Accounts receivable shall be measured initially at

a. Face value

b. Discounted value

c. Maturity value

d. Net realizable value

7. Long-term notes receivable which normally bear no interest or an interest which is unreasonably low

shall be recognized initially at

a. Face value

b. Present value

c. Maturity value

d. Current value

8. Receivables from subsidiaries shall be classified as

a. Current assets

b. Noncurrent assets

c. Either as current or noncurrent depending on the expectation of realizing them one year or over one

year.

d. Partly current and partly noncurrent

9. Where the operating cycle extends beyond one year because of normal credit terms as in the case of

installment sales of household appliances

a. It is proper to classify the entire receivables as current assets with disclosure of the amount not

realizable within one year, if material.

b. The entire receivables are shown as noncurrent assets.

c. The portion due in one year is shown as current and the balance as noncurrent.

d. The receivables are not recognized.

10. In the case of long-term installments receivable (real estate installment sales) where a major portion of

the receivables would be collected beyond the normal operating cycle

a. The entire receivables are shown as current without disclosure of the amount not currently due.

b. The entire receivables are shown as noncurrent.

c. Only the portion currently due is shown as current and the balance as noncurrent.

d. The entire receivables are shown as current with disclosure of the amount not currently due.

11. Which method of recording bad debts loss is consistent with accrual accounting?

a. Allowance method

b. Direct writeoff method

c. Percent of sales method

d. Percent of accounts receivable method

12. A method of estimating bad debts that focuses on the income statement rather than the statement of

financial position is the allowance method based on

a. Direct writeoff

b. Aging the trade accounts receivable

c. Credit sales

d. The balance in trade accounts receivable

13. A method of estimating doubtful accounts that emphasizes asset valuation rather than income

measurement is the allowance method based on

a. Aging the accounts receivable

b. Direct writeoff

c. Gross sales

d. Credit sales less returns and allowances

14. The advantage of relating an entity's bad debts experience to its accounts receivable is that this approach

a. Gives a reasonably correct measurement of accounts receivable in the statement of financial

position

b. Related bad debts loss to the period of sales

c. Is the only generally accepted method for measuring accounts receivable

d. Makes estimates of uncollectible accounts necessary

15. When the allowance method of recognizing doubtful accounts is used, the entry to record the write-off

of a specific account would

a. Decrease both accounts receivable and the allowance for doubtful accounts

b. Decrease accounts receivable and increase allowance for doubtful accounts

c. Increase both accounts receivable and the allowance for doubtful accounts

d. Increase accounts receivable and decrease the allowance for doubtful accounts

16. An entity uses the allowance method for recognizing doubtful accounts. The entry to record the writeoff

of a specific uncollectible account

a. Affects neither net income nor working capital

b. Affects neither net income nor accounts receivable

c. Decreases both net income and working capital

d. Decreases both net income and accounts receivable

17. When the allowance method of recognizing bad debts expense is used ,the entries at the time of

collection of an account previously written off would

a. Decrease the allowance for doubtful accounts

b. Increase net income

c. Have no effect on the allowance for doubtful accounts

d. Have no effect on net income

18. An entity uses the allowance method to recognize doubtful accounts expense. What is the impact of a

collection of an account previously written off?

a. No effect on both allowance for doubtful accounts and doubtful accounts expense

b. No effect on allowance for doubtful accounts and decrease in doubtful accounts expense

c. Increase in allowance for doubtful accounts and no effect on doubtful accounts expense

d. Increase in allowance for doubtful accounts and decrease in doubtful accounts expense

19. When a specific customer's account receivable is written off as uncollectible, what will be the effect on

net income?

a. No effect under both allowance method and direct write off method

b. Decrease under both allowance method and direct write off method

c. No effect under allowance method and decrease under direct write off method

d. Decrease under allowance method and no effect under direct write off method

20. When an accounts receivable aging schedule is prepared, a series of computations is made to determine

the estimated uncollectible accounts. The resulting amount for this aging schedule

a. When added to the total accounts written off during the year is the desired credit balance of the

allowance for doubtful accounts at year end

b. Is the amount of doubtful accounts expense for the year

c. Is the amount that should be added to the beginning allowances for doubtful accounts expense for

the year

d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year

end

21. On October 1 of the current year, an entity received a one-year note receivable bearing interest at the

market rate. The face amount of the note receivable and the entire amount of the interest are due on

September 30 of next year. The interest receivable account on December 31 of the current year would

consist of an amount representing

a. Three months of accrued interest income

b. Nine months of accrued interest income

c. Twelve months of accrued interest income

d. The excess at October 1 of the present value of the note receivable over its face value.

22. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market

rate. The face amount of the note receivable and the entire amount of the interest are due on June 30 of

next year. The interest receivable account would show a balance on

a. July 1 but not December 31 of the current year

b. December 31 but not July 1 of current year

c. July 1 and December 31 of the current year

d. Neither July 1 nor December 31 of the current year

23. On August 15 of the current year, an entity sold goods for which it received a note bearing the market

rate of interest on that date. The four-month note was dated July 15 of the current year. Note principal,

together with all interest, is due November 15 of the current year. When the note was recorded on

August 15, which of the following accounts increased?

a. Unearned discount

b. Interest receivable

c. Prepaid interest

d. Interest revenue

24. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market

rate. The face amount of the note receivable and the entire amount of the interest are due on June 30 of

next year. On December 31 of the current yea, the entity should report in its statement of financial

position

a. A deferred credit for interest applicable to next year

b. No interest receivable

c. Interest receivable for the entire amount of the interest due on June 30 of next year

d. Interest receivable for the interest accruing this year

25. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market

rate. The face amount of the note receivable and the entire amount of the interest are due in one year.

When the note receivable was recorded on July 1, which of the following was debited?

I. Interest receivable

II. Unearned discount on note receivable

a. I only

b. Both I and II

c. Neither I nor II

d. II only

26. On July 1, 2011, an entity obtained a two-year 8% note receivable for services rendered. At that time,

the market rate of interest was 10%. The face amount of the note and the entire amount of interest are

due on June 30, 2013. Interest receivable on December 31, 2011 was

a. 5% of the face value of the note

b. 4% of the face value of the note

c. 5% of the July 1, 2011 present value of the amount due on June 30, 2013.

d. 4%of the July 1, 2011 present value of the amount due on June 30, 2013.

27. An entity uses the instalment sales method to recognize revenue. Customers pay the instalment notes in

24 equal monthly amounts which include 12% interest. What is the instalment notes receivable balance

six months after the sale?

a. 75% of the original sales price

b. Less than 75% of the original sales price

c. The present value of the remaining monthly payments discounted at 12%.

d. Less than the present value of the remaining monthly payments discounted at 12%.

28. The interest on a noninterest bearing note is equal to

a. The excess of the face value over the present value

b. The excess of the present value over the face value

c. The excess of the market value over the present value of the note

d. Zero

29. The interest for the interest in a noninterest bearing note receivable is an example of what aspect of

accounting theory?

a. Matching

b. Verifiability

c. Substance over form

d. Form over substance

30. In the April 30, 2011 statement of financial position, a note receivable was reported as a noncurrent

asset and the accrued interest receivable for eight months was reported as a current asset. Which of the

following terms would fit the note receivable?

a. Both principal and interest are payable on August 31, 2011 and August 31, 2012

b. Principal and interest are due December 31, 2011

c. Both principal and interest are payable on December 31, 2011 and December 31, 2012

d. Principal is due August 31, 2012, and interest is due August 31, 2011 and August 31, 2012.

31. Present value is

a. the value now of a future amount.

b. the amount that must be invested now to produce a known future value.

c. always smaller than the future value.

d. all of these.

32. Which of the following factors would show the largest value for an interest rate of 12% for six periods?

a. Present value of 1

b. Present value of an ordinary annuity of 1

c. Present value of an annuity due of 1

d. Answer cannot be determined

33. What factor should you use if you want to determine the value now of a 1,000 payment due in three

years' time?

a. Future value of 1

b. Present value of 1

c. Present value of an ordinary annuity of 1

d. Present value of an annuity due of 1

34. What factor should you use for a 1,000 note receivable that is collectible in five annual installments of

200starting one year hence?

a. Present value of 1

b. Present value of an ordinary annuity of 1

c. Present value of an annuity due of 1

d. Any of these

35. What factor should you use for a 2,000 note receivable that is collectible in full after five years?

a. Present value of 1

b. Present value of an ordinary annuity of 1

c. Present value of an annuity due of 1

d. Any of these

36. Which of the following results to the smallest value?

a. Present value of an annuity due of 1 @12%, n=5

b. Present value of an ordinary annuity of 1 @12%, n=5

c. Present value of 1 @12%, n=5

d. Present value of 1 @14%, n=5

37. A higher interest rate results to

a. increased amount of present value.

b. decreased amount of present value.

c. same amount of present value.

d. Answer cannot be determined due to insufficient data

38. A shorter period results to

a. increased amount of present value.

b. decreased amount of present value.

c. same amount of present value.

d. shorter accountant.

39. The present value of 1 for a period of zero equals

a. 1.

b. 0.

c. Error!

d. Answer depends on the interest rate

40. Multiplying a lump sum future amount by a Present Value of 1 factor results to

a. Future amount.

b. Future value of 1.

c. Present value.

d. Present value of 1.