2-2

1.Credit balances in accounts receivable are classified as

a.Current liabilities

b.Part of accounts payable

c.Long term liabilities

d.Deduction from accounts receivable

2.Which of the following does not change the balance in accounts receivable?

a. Return on credit sales

b.Collection from customers

c.Bad debt expense adjusting entry

d.Write off

3.In recording cash discounts related to accounts receivable, which is more theoretically correct?

a.Net methodc. Allowance method

b.Gross methodd. All three methods are theoretically correct

4.Which accounting principle primarily supports the use of allowance for doubtful accounts?

a.Continuity principle

b.Full disclosure principle

c.Matching principle

d.Conservatism

5.Which method of recording bad debt loss is consistent with accrual accounting?

a. Allowance method

b.Direct write off method

c.Percent of sales method

d.Percent of accounts receivable method

6.Collection of accounts receivable previously written off results in an increase in cashand an increase in

a.Accounts receivable

b.Allowance for doubtful accounts

c.Bad debt expense

d.Retained earnings

7.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 write off

b.Aging the trade accounts receivable

c.Credit sales

d.Trade accounts receivable

8.A method of estimating uncollectible accounts that emphasizes asset valuation ratherthan income measurement is the allowance method based on

a. Aging of accounts receivable

b.Direct writeoff

c.Gross sales

d.Credit sales less returns and allowances

9.The advantage of relating the bad debt experience to accounts receivable is that thisapproach

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

b.Relates bad debt expense to the period of

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

d.Makes estimates of uncollectible accounts unnecessary.

10.When an accounts receivable aging schedule is prepared, a series of computations is made to determine the estimated uncollectible accounts. The resulting amount from thisaging schedule

a. When added to the total accounts written off during the year is the desired creditbalance 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 allowance for doubtfulaccounts to get the 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

11.The estimate of uncollectible accounts receivable based on a percentage of sales

a.Emphasizes measurement of the net realizable value of accounts receivable.

b.Emphasizes measurement of bad debt expense.

c.Emphasizes measurement of total assets.

d.Is only acceptable for tax purposes.

12.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 onDecember 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 on October 1 of the present value of the note receivable over the faceamount

13.On July 1 of the current year, 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 the date of maturity. Interestreceivable on December 31 of the current year is

a.5% of the face amount of the note

b.4% of the face amount of the note

c.5% of the present value of the note

d.4% of the present value of the note

14.What is imputed interest?

a.interest based on the stated interest rate

b.Interest based on the implicit interest rate

c.Interest based on the average interest rate

d.Interest based on the bank prime interest rate

15.Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?

a. Relevance

b.Verifiability

c.Substance over form

d.Form over substance

16.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 onJuly 1, which of the following was debited?

a. Interest receivable

b.Unearned discount on note receivable

c.Interest receivable and unearned discount on note receivable

d.Neither interest receivable nor unearned discount on note receivable

17.On August 15, an entity sold goods for which it received a note bearing the market rate ofinterest on that date. The four-month note was dated July 15. Note principal, together with all interest, is due November 15. When the note was recorded on August 15, which of the following accounts increased?

a.Unearned discountc. Prepaid interest

b.Interest receivabled. Interest revenue

18.Why would an entity factor accounts receivable?

a.To improve the quality of credit granting process

b.To limit its legal liability

c.To accelerate access to amount collected

d.To comply with customer agreements

19.Which of the following is a method to generate cash from accounts receivable?

a. Assignment

b.Factoring

c.Assignment and factoring

d.Assignment, factoring and discounting

20.The practice of realizing cash from accounts receivable prior to maturity date is widespread. Which term is not associated with this practice?

a. Hypothecation

b.Factoring

c.Defalcation

d.Pledging

21.When the accounts receivable are sold outright, the accounts receivable have been

a.Pledgedc. Factored

b.Assignedd. Collateralized

22.Which of the following is used to account for probable sales discounts, sales returns and sales allowances in a factoring arrangement?

a. Factor holdback

b.Recourse liability

c.Both factor holdback and recourse liability

d.Neither factor holdback nor recourse liability

23. If a note receivable is discounted with recourse

a.A contingent liability does not exist.

b.Note receivable discounted is credited.

c.Liability for note receivable discounted is credited.

d.Note receivable must be credited.

24.The note receivable discounted account' is reported as

a.Contra asset account for the proceeds from discounting

b.Contra asset account for the face amount of the note

c.Liability account for the proceeds from the discounting

d.Liability account for the face amount of the note

25.If a note receivable is discounted without recourse

a.The contingent liability may be disclosed

b.Liability for note receivable discounted is credited

c.Note receivable is credited

d.The transaction is a secured borrowing