Accounts receivable are generally reflected on the balance sheet at net unrealized value. One way to estimate a company's bad debt provision is the percentage of revenue method. The allowance for uncollectibles increases the gross accounts receivable balance on the balance sheet. An aging of accounts receivable inherently assumes older receivables are less likely to be collected Accounts receivable increasing at a slower pace than sales is a warning sign that a company is having A company with a 5-year non-interest-bearing note receivable doesn't recognize interest income until the True/False (2 points each) - write T for True or F for False to the left of each statement 1. 2. 3. 4. 5. collection problems. 6. note is paid. 7. 8. 9. _A company that chooses to record its receivables at fair value may have to book a loss. Factoring and collateralized borrowings are both ways to accelerate cash collection. _Because the LIFO vs. FIFO decision affects paper profits, it can't affect actual cash flows. _GAAP does not require the cost flow assumption to correspond to the actual physical flow of inventory. A perpetual inventory system calculates cost of goods sold after every transaction. 10. 11. 12. Companies that use LIFO must report a LIFO reserve, 13. While LIFO companies usually show lower profits than they would have with FIFO, a LIFO liquidation usually increases profits relative to not doing a LIFO liquidation. 14. Costs to transport inventory to retail locations are included in the inventory balance until sold. 15. Costs to insure inventory in the warehouse are included in the inventory balance until sold. 16. Switching from LIFO to FIFO will not affect a company's current ratio. 17. If a company uses LIFO for tax purposes, it must for external financial reporting as well. However, a company could use accelerated depreciation for tax purposes but straight-line for external financial reporting. 18. Depreciation, amortization, and depletion are all expenses associated with different types of current assets. 19. Under US GAAP, long-lived assets are recorded on the balance sheet at a value based on future cash flows they will generate. 20 Both the double-declining balance method and the sum-of-the-years' digits method are accelerated depreciation methods. 21 To improve comparisons of profitability of firms, an analyst could use the average useful life of fixed assets in the industry to compute a company's hypothetical depreciation expense. 22. Routine equipment maintenance costs should be expensed rather than capitalized. 23. _Expenses that increase the efficiency of a long-lived asset should be capitalized. 24. Research and development expenses are usually capitalized, since they are long-term in nature. 25. Even though an asset impairment doesn't affect cash flows, a loss is still recognized on the income statement 1
