Which of the following is true regarding sales returns and sales allowances? Sales returns are variable consideration; sales allowances are fixed consideration. Sales returns represent a price reduction made to encourage customers to keep merchandise; sales allowances are granted for merchandise taken back. Two entries are necessary to record estimated sales returns; one entry is required to record estimated sales allowances. Companies must estimate sales allowances; sales returns do not have to be estimated.

How does a sale of accounts receivable differ from the use of accounts receivable as collateral for a loan?

		With a sale of receivables, the operating cycle is shortened, but with a collateralized loan, the operating cycle is extended.
		With a collateralized loan, the borrower records a note payable, but in a sale, the seller records a note receivable.
		With a collateralized loan, the borrower recognizes potential credit losses, but in a sale with recourse, the seller does not recognize potential credit losses.
		With a collateralized loan, the receivables remain under the control of the borrower but in a sale, the seller no longer has title to the receivables.

Entities need not adjust consideration for the effects of a significant financing component if the time period between the transfer of goods or services to the customer and customer payment is __________ or less.

		Three months
		One year
		Two years
		Six months

Which of the following items would most likely NOT be classified as a cash equivalent?

		A 12-month U.S. Treasury bill purchased three months from maturity
		Commercial paper of Utility Company with a 30-day maturity. Utility Company has a strong credit rating.
		Money market fund with an original maturity of four months.
		Certificate of deposit with a one-month maturity.

When the allowance method of recognizing doubtful accounts is used, the entries to record collection of an account previously written off would

		Increase total assets.
		Increase net income.
		Decrease total assets.
		Have no effect on net income or total assets.