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Horngren's Financial and Managerial Accounting, 6e (Miller-Nobles)
1) A receivable occurs when a business sells goods or services to another party on account.
2) Each receivable transaction involves two parties - the one who takes on the obligation and the one who
will collect the cash.
3) A receivable is a monetary claim against a business or an individual.
4) A receivable is a liability because it represents a right to receive cash in the future.
5) A debtor is a party to a credit transaction who will receive the cash for the transaction at a later date.
6) A receivable occurs when a business ________.
A) loans money to another party
B) sells goods or services to another party on account
C) has a monetary claim against a business or individual
D) All of the statements are correct.
7) Which of the following statements regarding receivables is correct?
A) Each receivable transaction involves three parties.
B) Receivables occur when a business loans money to another party.
C) A receivable occurs when a business makes a cash sale of goods or services to another party.
D) A receivable is the right to pay cash in the future from a current receivable transaction.
8) The two major types of receivables are interest receivable and taxes receivable.
9) The three major types of receivables are accounts receivable, notes receivable, and other receivables.
10) Accounts receivable are also called trade receivables.
11) The collection period of accounts receivable is usually long, and therefore, it is classified as a long-
term asset on the balance sheet.
12) Accounts receivable are usually collected within a short period of time and are therefore reported as a
current liability on the balance sheet.
13) Notes receivable represent a written promise that a party will pay a fixed amount of principal plus
interest on a stated maturity date.
14) The payment terms for a note receivable are generally longer than that of an account receivable.
15) Dividends receivable, interest receivable, and taxes receivable are generally categorized as other
receivables.
16) Notes receivable due within 12 months or within the normal operating cycle if the cycle is longer than
a year are considered long-term assets.
17) Which of the following is included in the category of other receivables?
A) interest receivable
B) accounts receivable
C) notes receivable
D) investments
18) Which of the following statements is true?
A) Accounts receivable are more liquid than cash.
B) Notes receivable are always classified as current assets.
C) Notes receivable usually have longer collection terms than accounts receivable.
D) Accounts receivable are liabilities.
19) Which of the following statements, regarding notes receivable, is incorrect?
A) Notes receivable usually have longer terms than accounts receivable.
B) A notes receivable is a written promise that a customer will pay a fixed amount of principal plus
interest by a certain date in the future.
C) All notes receivable are considered long-term assets.
D) Notes receivable are sometimes called promissory notes.
20) Notes receivable ________.
A) represent an oral promise to pay a fixed amount of principal plus interest on the maturity date
B) are included in a miscellaneous category called other receivables
C) are due within 12 months or within the normal operating cycle if the cycle is longer than a year are
considered long-term assets
D) are supported by a promissory note
21) Which of the following should be classified as a long-term asset?
A) Interest Receivable
B) Accounts Receivable
C) Notes Receivable, due in 5 years
D) Cash Equivalents
22) Credit department employees must have access to cash in order to exercise effective internal control
over receivables.
23) Separation of cash-handling and cash-accounting duties is a critical element of internal control over
receivables.
24) The employees who handle cash know how customers pay and thus are in the best position to grant
credit to customers.
25) Which of the following is an example of exercising internal control over receivables?
A) separating cash collection and credit approval duties
B) extending credit to all customers who apply for credit
C) combining the duties of the credit and accounting departments
D) allowing credit department employees to collect cash from customers
26) Which of the following is a weak internal control over cash collections from receivables?
A) The credit department should have no access to cash.
B) A credit department should evaluate customers' credit applications to determine whether they meet
the company's approval standards.
C) A company should have written approval standards for processing customers' credit applications.
D) In order to avoid losing sales, all customers' credit applications should be approved.
27) The role of the credit department includes ________.
A) approving all credit applications in order to avoid losing sales
B) evaluating customers' credit applications to determine whether they meet the company's approval
standards
C) following unwritten approval standards for processing customers' credit applications
D) collecting cash from customers
28) Businesses must maintain a single Accounts Receivable control account regardless of the number of
customers.
29) Separate customer accounts receivable are called subsidiary accounts.
30) A business maintains a separate Accounts Receivable account for each customer in order to account
for payments received from the customer and amounts still owed by the customer.
31) Because customers make payments on account throughout the period, the sum of all balances in
subsidiary accounts receivable will not equal the control account balance.
32) Specialty Foods, Inc. maintains a separate accounts receivable account for each customer. Regarding
this accounting treatment, which of the following statements is incorrect?
A) The separate customer accounts receivable are called subsidiary accounts.
B) When a customer makes a payment on account, a debit is posted to the accounts receivable subsidiary
account as well as to the accounts receivable control account.
C) The sum of all balances in the subsidiary accounts receivable equals a control account balance.
D) The purpose of this accounting treatment is to account for payments received from the customer and
the amounts still owed.
33) Alltech Company maintains a separate accounts receivable account for each customer. On June 18,
Alltech provides $6,300 of services on account to customer Anthony and $1,200 of services on account to
customer Walker. How will these two transactions affect the control and subsidiary accounts?
A) The control account, Accounts Receivable, will be increased with a debit of $7,500.
B) The individual customer accounts in the subsidiary ledger will be increased with credits.
C) After posting these transactions, the sum of the balances in subsidiary accounts receivable will not
equal the control account balance.
D) The control account will have a debit balance and the subsidiary accounts will have a credit balance.
This keeps the accounting equation in balance.
34) A business maintains subsidiary accounts for each of its customers. On May 15, the business provides
services on account: $1,900 to customer J. Anthony ; $4,900 to customer A. Martin; and $1,300 to customer
S. Lee. Which journal entry is needed to record these transactions?
A)
May 15
Accounts Receivable
8,100
Service Revenue
8,100
B)
May 15
Accounts Receivable - J. Anthony
1,900
Accounts Receivable - A. Martin
4,900
Accounts Receivable - S. Lee
1,300
Service Revenue
8,100
C)
May 15
Service Revenue
8,100
Accounts Receivable
8,100
D)
May 15
Accounts Receivable Control
8,100
Sales Revenue
8,100
May 15
Accounts Receivable - J. Anthony
1,900
Accounts Receivable - A. Martin
4,900
Accounts Receivable -S. Lee
1,300
Accounts Receivable - Control
8,100
