CHAPTER 6: CASH AND RECEIVABLES
1. A compensating balance used to secure a short term loan should be recorded against its short term borrowing in current
assets separate from cash.
a.
True
b.
False
True
1
Easy
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2. A sinking fund established for the purpose of paying off long term bonds would be recorded on the balance sheet as a
cash equivalent.
a.
True
b.
False
False
1
Easy
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3. Cash equivalents include coin and currency, negotiable instruments, and certificates of deposit
a.
True
b.
False
False
1
Easy
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4. Check 21 is a law that allows merchants to scan digital copies of checks to the bank instead of remitting the actual
check.
a.
True
b.
False
True
1
Easy
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5. Sarbanes-Oxley Act requires all U.S. companies to maintain adequate internal control systems.
a.
True
b.
False
False
1
Easy
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6. Increased use of automated technology for processing cash transfers decreases the need to rely on internal controls.
a.
True
b.
False
7. Trade receivables are a sub classification of accounts receivable.
a.
True
b.
False
False
1
Easy
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8. Trade receivables are amounts due from customers and non-trade receivables are amounts due from all other parties.
a.
True
b.
False
True
1
Easy
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9. To classify a receivable as a current asset it must be collected within one year or the normal operating cycle of the
business, whichever is shorter.
a.
True
b.
False
False
1
Easy
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10. In general, GAAP requires receivables to be recorded and reported at their present value, but excludes accounts
receivables from this rule.
a.
True
b.
False
True
1
Easy
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11. The net price method of recording sales and receivables generally requires less record keeping and is more cost
effective
a.
True
b.
False
False
1
Easy
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12. The gross price method highlights sales discounts taken and the net price method highlights sales discounts NOT
taken.
a.
True
b.
False
True
1
Easy
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13. The estimated value of sales returns should reduce gross sales in the period items are sold, not in the later period items
are returned.
a.
True
b.
False
True
1
Easy
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14. Concerning the various methods for accounting for uncollectible receivables, the percentage of credit sales method is
an example of the allowance method.
a.
True
b.
False
True
1
Easy
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15. When using the direct write-off method, bad debts are written off directly to the allowance for uncollectible accounts.
a.
True
b.
False
False
1
Easy
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16. Under the allowance method, when an account is written off, total assets decrease
a.
True
b.
False
False
1
Easy
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17. In a transfer without recourse the transferor retains the risk of ownership and bears any loss from nonpayment.
a.
True
b.
False
False
1
Easy
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18. The two forms of secured borrowing that companies use to obtain cash from accounts receivables are pledging and
assigning.
a.
True
b.
False
True
1
Easy
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Chapter 6: Cash and Receivables
19. Because a larger number of investors are involved in factoring than in securitization, companies can factor much
larger amounts of receivables.
a.
True
b.
False
False
1
Easy
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20. A company may elect to use the fair value option for a single note receivable or for all notes receivable.
a.
True
b.
False
True
1
Easy
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21. For a non-interest-bearing note, the maturity value of the note includes both principal and interest.
a.
True
b.
False
True
1
Easy
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22. In a well-controlled petty cash fund, the amount of cash minus the amount of expenditure vouchers should be equal to
the original amount in the petty cash fund.
a.
True
b.
False
False
1
Easy
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23. A bank reconciliation is an analysis of the difference between the financial accounting records and the bank records to
ensure the accurate ending cash balance.
a.
True
b.
False
True
1
Easy
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24. Which of the following would be included in cash and cash equivalents on the balance sheet?
a.
sinking fund
b.
bank overdrafts
c.
commercial paper
d.
compensating balances
c
1
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25. Which of the following would be included in cash and cash equivalents on the balance sheet?
a.
Travel advance funds
b.
Undeposited credit card sales receipts
c.
Postdated checks
d.
Certificates of deposit
b
1
Easy
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26. Which of the following would not be considered a cash equivalent?
a.
savings account fund to be used to retire bonds
b.
commercial paper
c.
undeposited credit card sales receipts
d.
money market fund securities
a
1
Easy
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27. Items classified as “cash” on the balance sheet
a.
are limited to coins, currency, or bank drafts.
b.
must be available to pay current obligations.
c.
may be subject to contractual restrictions.
d.
do not include negotiable checks or bank drafts.
b
1
Easy
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28. Which item is not considered cash and cash equivalents on the balance sheet?
a.
unrestricted funds on deposit with the bank
b.
money market funds
c.
postdated checks
d.
bank drafts
c
1
Easy
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29. In order to be classified as a cash equivalent, an investment must have a maturity date of
a.
twelve months or less,
b.
nine months or less,
c.
six months or less,
d.
three months or less,
d
1
Easy
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30. Which of the following is not considered cash for financial statement reporting?
a.
cash, coins, and currency
b.
travelers checks
c.
sinking fund
d.
negotiable instruments
c
1
Easy
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31. Given the following information:
Petty cash fund
$ 175
Postage stamps
58
Cash on hand
4,265
Traveler’s checks
550
Checking balance, First National Bank
30,425
Checking balance, Third National Bank
(825)
The total amount of cash that should appear on the balance sheet is
a.
$34,648
b.
$34,590
c.
$34,040
d.
$35,415
b
1
Easy
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32. Compensating balance agreements are held against short-term borrowings should
a.
only be described in the footnotes to the financial statements.
b.
be separately reported in the current assets portion of the balance sheet.
c.
be separately classified as noncurrent assets on the balance sheet .
d.
not be shown on the balance sheet.
b
1
Easy
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33. Which of the following would be reported as a liability?
a.
demand deposits
b.
bank overdrafts
c.
certificates of deposit
d.
travel advances
b
1
Easy
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34. Which of the following would not be a contractual restriction to the cash available to pay current obligations?
a.
Sinking fund
b.
Certificate of Deposit
c.
Postdated checks
d.
negotiable instruments
d
1
Easy
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35. Compensating balance agreements that do not legally restrict the amount of funds shown on the balance sheet should
be reported in the
a.
current asset section.
b.
long-term investment section.
c.
other asset section.
d.
notes of the financial statements.
d
1
Easy
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36. Which of the following statements concerning compensating balance agreements is not true?
a.
They always reduce the amount of cash available to the borrower.
b.
They always involve legal restrictions on the cash received.
c.
They always increase the effective interest rate to the borrower.
d.
They must be disclosed in the financial statements’ footnotes.
b
1
Easy
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37. Cash control systems are the methods and procedures used to ensure
a.
that current obligations are met.
b.
that excess cash does not exist.
c.
the safeguarding of cash.
d.
that unused cash is invested.
c
1
Easy
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38. Which of the following is a key element of internal control over cash payments?
a.
periodically reconciling the cash account balance on the company’s books to the bank statement balance
b.
making daily bank deposits
c.
requiring that all petty cash vouchers be approved by two signatures
d.
authorizing and verifying that all cash received is recorded daily
a
1
Easy
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39. Which of the following is a key element of internal control over cash receipts?
a.
Making all payments by check
b.
Authorize and sign checks only after approval
c.
Reconcile the bank account
d.
Immediate counting of cash in the cash register when a new cashier begins working
d
1
Easy
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40. What are the two main functions of cash control systems?
a.
Control over cash and control over purchase orders
b.
Control over checks and control over invoicing
c.
Control over receipts and control over the bank account
d.
Control over receipts and control over payments
d
1
Easy
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41. Which is not a key element of internal control over cash receipts?
a.
daily recording of all cash receipts in the accounting records
b.
daily entry in a voucher register
c.
immediate counting by the person opening the mail or using the cash register
d.
daily bank deposits
b
1
Easy
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42. Some companies use automated payment processing technology in which paper checks that may arrive at a lockbox
are converted into electronic payments then the check itself is destroyed. This process is referred to as
a.
internal control over payments.
b.
Check 21.
c.
accounts receivable conversion.
d.
electronic funds transfer.
c
1
Easy
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43. All of the following are important elements of internal control over cash except
a.
a petty cash system.
b.
a cash reserve.
c.
a bank reconciliation.
d.
the daily deposit of all receipts.
b
1
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44. Current accounts receivables are receivables that are expected to be collected within
a.
one year or the current financing cycle, whichever is longer.
b.
one year or the current financing cycle, whichever is shorter.
c.
one year or the current operating cycle, whichever is longer.
d.
one year or the current operating cycle, whichever is shorter.
c
1
Easy
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45. All of the following are nontrade receivables except
a.
declared dividend from an investment.
b.
advances to executives and employees.
c.
promissory note from a customer.
d.
deposit paid to utility companies.
c
1
Easy
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46. Nontrade receivables, such as deposits with utility companies or advances to subsidiary companies, should be
a.
recorded in separate accounts and reported as noncurrent assets on the balance sheet.
b.
recorded along with trade receivables in one account and included as part of the total receivables balance on
the balance sheet.
c.
recorded in separate accounts and separately reported on the balance sheet.
d.
recorded in separate accounts and reported as an offset to retained earnings on the balance sheet.
c
1
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47. Most trade receivables are initially recorded at their
a.
maturity values.
b.
discounted values.
c.
present values.
d.
net realizable values.
a
1
Easy
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48. Which of the following types of discounts are offered to induce prompt payment by customers?
a.
Quantity discounts
b.
Nontrade discounts
c.
Trade discounts
d.
Sales discounts
d
1
Moderate
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49. Which of the following statements about accounting for discounts is true?
a.
The net price method highlights sales discounts not taken and the gross price method highlights sales discounts
taken.
b.
The net price method highlights sales discounts taken and the gross price method highlights sales discounts not
taken.
c.
The net price method highlights trade discounts not taken and the gross price method highlights trade
discounts taken.
d.
The net price method highlights trade discounts taken and the gross price method highlights trade discounts
not taken.
a
1
Easy
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50. Which of the following would not be reported on the financial statements?
a.
sales discount taken
b.
trade receivables
c.
trade discounts
d.
sales discounts not taken
c
1
Easy
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51. Which of the following is an advantage of using the net price method for recording cash discounts on credit sales?
a.
It eases communication with customers about their balances.
b.
It conservatively reflects current period sales revenue.
c.
It simplifies recording of sales returns and allowances.
d.
It requires less record keeping than the gross method.
b
1
Easy
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52. When the net price method is used to record credit sales, the sales discounts not taken account is reported as a(n)
a.
addition to sales returns and allowances on the income statement.
b.
deduction from gross sales on the income statement.
c.
deduction from selling expenses on the income statement.
d.
addition to sales revenue on the income statement.
d
1
Easy
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53. Puzzle Company sold merchandise on credit with a list price of $75,000. Terms were 3/10, n/30. Which of the
following entries correctly applies the indicated method to record the sale?
a.
Gross Price Method
Accounts Receivable 72,750
Sales 72,750
b.
Net Price Method
Accounts Receivable 72,750
Sales 72,750
c.
Net Price Method
Accounts Receivable 75,000
Sales 75,000
d.
Gross Price Method
Accounts Receivable 72,000
Sales 72,000
1
Moderate
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b
54. Hole Sailors, Inc. sold merchandise on credit with a list price of $12,000. Terms were 1/20, n/45. Which of the
following entries correctly applies the indicated method to record the sale?
a.
Net Price Method
Accounts Receivable 10,800
Sales 10,800
b.
Net Price Method
Accounts Receivable 11,400
Sales 11,400
c.
Net Price Method
Accounts Receivable 12,000
Sales 12,000
d.
Gross Price Method
Accounts Receivable 12,000
Sales 12,000
1
Moderate
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d
55. A disadvantage of using the gross price method to account for cash discounts extended by the seller to its customer is
that
a.
the method reports accounts receivable at the net realizable value.
b.
the method overstates current sales and accounts receivable.
c.
the method requires more bookkeeping than the net price method.
d.
the method enables sales returns and allowances to be recorded at gross amounts.
b
1
Moderate
ACCT.WHAL.16.6.4 – LO: 6.1
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56. In accounting for sales transactions, which method isolates sales discounts not taken?
a.
allowance method
b.
gross price method
c.
percentage of price method
d.
net price method
d
1
ACCT.WHAL.16.6.4 – LO: 6.1
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57. The sales returns and allowances account is reported as a
a.
contra-revenue account on the income statement.
b.
current liability on the balance sheet.
c.
contra-asset reducing accounts receivable on the balance sheet.
d.
selling expense on the income statement.
a
1
Easy
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