61)
The expense recognition (matching) principle requires that accrued interest on outstanding notes
receivable be recorded at the end of each accounting period.
A)
True
B)
False
62)
When posting a dishonored note to a customer’s account, an explanation is included so as not to
misinterpret the debit as a sale on account.
A)
True
B)
False
63)
The banker’s rule simplifies interest computations by treating a year as having 365 days.
A)
True
B)
False
64)
Separate accounts receivable information for each customer is important because it reveals all of
the following except:
A)
When the customer intends to pay outstanding balances.
B)
The basis for sending bills to customers.
C)
How much each customer has purchased on credit.
D)
How much each customer has paid.
E)
How much each customer still owes.
65)
A credit sale of $5,275 to a customer would result in which of the following?
A)
A credit to the Accounts Receivable account in the general ledger and a credit to the
customer’s account in the accounts receivable subsidiary ledger.
B)
A debit to the Accounts Receivable account in the general ledger and a credit to the
customer’s account in the accounts receivable subsidiary ledger.
C)
A credit to Sales and a credit to the customer’s account in the accounts receivable subsidiary
ledger.
D)
A credit to the Accounts Receivable account in the general ledger and a debit to the
customer’s account in the accounts receivable subsidiary ledger.
E)
A debit to the Accounts Receivable account in the general ledger and a debit to the customer’s
account in the accounts receivable subsidiary ledger.
66)
Sellers allow customers to use credit cards for all of the following reasons except:
A)
To speed up receipt of cash from the credit sale.
B)
To lessen the risk of extending credit to customers who cannot pay.
C)
To avoid having to evaluate a customer’s credit standing for each sale.
D)
To be able to charge more due to fees and interest.
E)
To increase total sales volume.
67)
Which of the following is not true regarding a credit card expense?
A)
Credit card expense is not recorded by the seller.
B)
Credit card expense may be classified as a selling expense.
C)
Credit card expense is a fee the seller pays for services provided by the card company.
D)
Credit card expense may be classified as a “discount” deducted from sales to get net sales.
E)
Credit card expense may be classified as an administrative expense.
68)
A promissory note received from a customer in exchange for an account receivable is recorded by
the payee as:
A)
A note payable.
B)
A note receivable.
C)
An account receivable.
D)
A cash equivalent.
E)
A short-term investment.
69)
The person who signs a note receivable and promises to pay the principal and interest is the:
A)
Maker. B) Owner. C) Payee. D) Holder. E) Receiver.
70)
Reporting the details of notes is consistent with which accounting principle that requires financial
statements (including footnotes) to report all relevant information?
A)
Relevance.
B)
Expense recognition (matching).
C)
Full disclosure.
D)
Evaluation.
E)
Materiality.
71)
A promissory note:
A)
Is another name for an installment receivable.
B)
Is a short-term investment for the maker.
C)
Is a written promise to pay a specified amount of money at a certain date.
D)
Is a liability to the payee.
E)
Cannot be used in payment of an account receivable.
72)
The maturity date of a note receivable:
A)
Is the last day of the month.
B)
Is the day the note was signed.
C)
Is the day the note is due to be repaid.
D)
Is the date of the first payment.
E)
Is the day of the credit sale.
73)
The interest accrued on $7,500 at 6% for 90 days is: (Use 360 days a year.)
A) $37.50. B) $450.00. C) $11.25. D) $112.50. E) $1,800.00.
74)
A 90-day note issued on April 10 matures on:
A)
July 10. B) July 11. C) July 12. D) July 13. E) July 9.
75)
A company receives a 10%, 120-day note for $1,500. The total interest due on the maturity date is:
(Use 360 days a year.)
A) $150.00. B) $37.50. C) $75.00. D) $87.50. E) $50.00.
76)
A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due
on the maturity date is: (Use 360 days a year.)
A) $450 B) $1,800 C) $900 D) $300 E) $75
77)
A company borrowed $10,000 by signing a 180-day promissory note at 9%. The maturity value of
the note is: (Use 360 days a year.)
A) $11,800 B) $10,075 C) $10,900 D) $10,300 E) $10,450
78)
A finance company or bank that purchases and takes ownership of another company’s accounts
receivable is called a:
A)
Payee. B) Pledgee. C) Payer. D) Pledger. E) Factor.
79)
Factoring receivables is beneficial to a seller for all of the following reasons except:
A)
There are no fees for factoring.
B)
Passes ownership of the receivables to the factor.
C)
Allows firms to receive cash earlier.
D)
May transfer the risk of bad debts to the factor.
E)
Seller avoids the cost of billing and accounting for receivables.
80)
A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The
journal entry to record this transaction would include a:
A)
Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and a credit to
Accounts Receivable of $46,800.
B)
Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C)
Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to
Accounts Receivable of $45,000.
D)
Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
E)
Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
81)
The quality of receivables refers to:
A)
The likelihood of collection without loss.
B)
Sales turnover.
C)
The creditworthiness of sellers.
D)
The speed of collection.
E)
The interest rate.
82)
The account receivable turnover measures:
A)
How long it takes to sell accounts receivable to a factor.
B)
How long it takes to sell merchandise inventory.
C)
The relation of cash sales to credit sales.
D)
How often, on average, receivables are received and collected during the period.
E)
All of the options are correct.
83)
The accounts receivable turnover is calculated by:
A)
Dividing average accounts receivable by net sales and multiplying by 365.
B)
Dividing net income by average accounts receivable.
C)
Dividing net sales by average accounts receivable and multiplying by 365.
D)
Dividing net sales by average accounts receivable.
E)
Dividing average accounts receivable by net sales.
84)
A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its
accounts receivable turnover for the period?
A) 5.00 B) 3.0 C) 20.0 D) 73.0 E) 0.33
85)
Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts
receivable of $890 million. Its accounts receivable turnover is:
A) 7.1. B) 9.7. C) 68.3. D) 51.7. E) 37.8.
86)
Axle Co.’s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman’s
turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A)
Axle’s credit policies are too loose.
B)
Betterman’s turnover is improving.
C)
Axle has the better turnover for both years.
D)
Betterman is collecting its receivables more quickly than Axle in both years.
E)
Betterman has the better turnover for both years.
87)
A company had net sales of $600,000, total sales of $750,000, and an average accounts receivable
of $75,000. Its accounts receivable turnover equals:
A) 7.75 B) 10.00 C) 8.00 D) .13 E) .80
88)
A company had total sales of $600,000, net sales of $550,000, and an average accounts receivable
of $90,000. Its accounts receivable turnover equals:
A) 54.8 B) 1.1 C) 6.3 D) 6.1 E) 63.0
89)
The expense recognition (matching) principle, as applied to bad debts, requires:
A)
The use of the direct write-off method for bad debts.
B)
That bad debts not be written off.
C)
That bad debts be disclosed in the financial statements.
D)
That expenses be ignored if their effect on the financial statements is unimportant to users’
business decisions.
E)
The use of the allowance method of accounting for bad debts.
90)
The materiality constraint, as applied to bad debts:
A)
Requires that bad debts not be written off.
B)
Requires use of the direct write-off method.
C)
Requires use of the allowance method for bad debts.
D)
Requires that expenses be reported in the same period as the sales they helped produce.
E)
Permits the use of the direct write-off method when bad debts expenses are relatively small.
91)
If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad
debt being written off, the entry to record the write-off against the allowance account results in:
A)
No effect on the expenses of the current period.
B)
A reduction in current liabilities.
C)
An increase in the expenses of the current period.
D)
A reduction in equity.
E)
A reduction in current assets.
92)
On October 12 of the current year, a company determined that a customer’s account receivable was
uncollectible and that the account should be written off. Assuming the allowance method is used to
account for bad debts, what effect will this write-off have on the company’s net income and total
assets?
A)
Decrease in net income; decrease in total assets.
B)
Increase in net income; no effect on total assets.
C)
Decrease in net income; no effect on total assets.
D)
No effect on net income; no effect on total assets.
E)
No effect on net income; decrease in total assets.
93)
On October 12 of the current year, a company determined that a customer’s account receivable was
uncollectible and that the account should be written off. Assuming the direct write-off method is
used to account for bad debts, what effect will this write-off have on the company’s net income and
total assets?
A)
Decrease in net income; decrease in total assets.
B)
Decrease in net income; no effect on total assets.
C)
Increase in net income; no effect on total assets.
D)
No effect on net income; no effect on total assets.
E)
No effect on net income; decrease in total assets.
94)
Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3,
the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The
entry or entries Gideon makes to record the write off of the account on May 3 is:
A)
Accounts Receivable—A. Hopkins
2,000
Allowance for Doubtful Accounts
2,000
B)
Accounts Receivable—A. Hopkins
2,000
Bad debts expense
2,000
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
C)
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
D)
Allowance for Doubtful Accounts
2,000
Accounts Receivable—A. Hopkins
2,000
E)
Allowance for Doubtful Accounts
2,000
Bad debts expense
2,000
95)
Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On
May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A.
Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:
A)
Allowance for Doubtful Accounts
2,000
Accounts Receivable—A. Hopkins
2,000
B)
Accounts Receivable—A. Hopkins
2,000
Bad Debts Expense
2,000
C)
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
D)
Accounts Receivable—A. Hopkins
2,000
Cash
2,000
E)
Bad Debts Expense
2,000
Accounts Receivable—A. Hopkins
2,000
96)
Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3,
the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On
July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry
or entries Gideon makes to record the recovery of the bad debt is:
A)
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
B)
Allowance for Doubtful Accounts
2,000
Accounts Receivable—A. Hopkinse
2,000
Accounts Receivable—A. Hopkins
2,000
Cash
2,000
C)
Accounts Receivable—A. Hopkins
2,000
Allowance for Doubtful Accounts
2,000
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
D)
Cash
2,000
Bad debts expense
2,000
E)
Accounts Receivable—A. Hopkins
2,000
Bad debts expense
2,000
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
40
97)
Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On
May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A.
Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On
July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:
A)
Allowance for Doubtful Accounts
2,000
Accounts Receivable—A. Hopkinse
2,000
Accounts Receivable—A. Hopkins
2,000
Cash
2,000
B)
Accounts Receivable—A. Hopkins
2,000
Bad debts expense
2,000
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
C)
Accounts Receivable—A. Hopkins
2,000
Allowance for Doubtful Accounts
2,000
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
D)
Cash
2,000
Accounts Receivable—A. Hopkins
2,000
E)
Cash
2,000
Bad debts expense
2,000