Test Bank, Intermediate Accounting , 14th ed.
CHAPTER 6
183
The Revenue/Receivables/Cash Cycle MULTIPLE CHOICE QUESTIONS Theory/Definition! Q"e#tion#
1 " 4 % & + 10 11 1 1" 14 1% 1& 1+ 11 0 1 " 4 % & +
Definition of the operating cycle Co!position of cash on the balance sheet #eparation of of duties in in co controls ov over ca cash $nderstanding the bank reconciliation $nderstanding the bank reconciliation #'(# )o. 1% criteria ria for recogni*ing transfers as sales. rinciples of internal control perating cycle defined Trade discounts $sing direct rite2off !ethod (lloance !e !ethod of of ac accounting fo for ba bad de debts (lloance !e !ethod22recording r rite2off (ll (lloan oance ce !e !ethod hod ri ritte2o e2off22ef 22efffect ect on on net net inc inco! o!e e and and acc accou ount nts s rece receiv ivab ablle (llo lloa ance nce !e !ethod22 d22rec recordi ording ng col colllect ection of of ac account unt ri rittten of off Balance sheet !ethod of esti!ating bad debts22aging of accounts receivable (n uncollectible receivable is paid off 3atching principle and the recognition of an esti!ated liability for arranties (ccounts receivable turnover )u!ber of days sales in in ac accounts receivable Cash classifications Characteristics of cash control syste! 5ournal entry to replenish petty cash urpose of petty cash syste! urpose of of petty ca cash re rei!burse!ent prio rior to to ye year en end Replenishing petty cash fund Bank state!ent infor!ation Bank state!ent reconciliation
18$
"0 "1 " "" "4 "% "&
Chapter &
The Revenue/Receivables/Cash Cycle
Bank state!ent reconciliation Bank reconciliation22i 22ite!s added to bank balance Bank reco econcil ciliat iation22 on22ad ad66ust ust!ent ents on depo epositor itor77s boo books 8eneral assign!ent of acc accounts receivable does not reduce accounts receivable balance Definition of of fa factoring ac accounts re receivable Repor porting tran ransfer of rece eceivab ivablles ith rec recour ourse as a sale (B (B )o. )o. 122 122va valluati uation on of not notes rece receiivabl vable e e9ch e9chan ange ged d for prop proper erty ty Recording no notes re receivable i ithout in interest Definition of of discounting notes receivable
Co%&"ttion! Q"e#tion#
"+ "" 40 41 4 4" 44 4% 4& 4+ 44 %0 %1 % %" %4 %% %& %+ %% &0 &1 & &" &4 &% &&
Co!puting pr proceeds of of di discounting no notes re receivable Co!puting pr proceeds of of di discounting no notes re receivable Co!putation of sales discounts Co!putation of sales discounts Co!p Co!put utat atio ion n of gros gross s sal sales es give given n ri ritte2of e2offf a!o a!oun untts und under er dire direct ct rite rite2o 2offf Co!putation of of net net real realii*abl *able e val value ue of acc account unts rec rece eivab ivablle Co!putation of of net net real realii*abl *able e val value ue of acc account unts rec rece eivab ivablle Co!putation of all alloance for doub oubtful accoun ounts bala alance nce Co!putation of doubtful accounts e9pense Co!putation of doubtful accounts e9pense Co!putation of doubtful accounts e9pense Co!putation of of dou doubtful ac accounts nts e9 e9pense nse22a 22aging ging !ethod Co!putation of net reali*able value of accounts receivable using percentage of credit sales for bad debts Co!putation of doubtful accounts e9pense Co!putation of arranty e9penses Co!putation of arranty e9penses Co!putation of of ac accounts re receivable tu turnover Co!putation of of nu! nu!ber of of days ays sal sale es in in av averag rage in invent vento orie ries Co!putation of year2end cash balance Co!putation of of cash a!ount for ba balance sh sheet Co!putation of of pe petty ca cash fu fund re rei!burse!ent Co!putation of of reconciled ca cash balance Co!putation of of reconciled ca cash balance Co!putation of cash balance per books Co!putation of of cash a!ount for ba balance sh sheet Co!putation of corrected cash balance Co!putation of of cash disburse!ents per bo books Co!putation of pro procee ceeds fr fro! as assig sign!ent of of ac accou counts re receiv eivabl able (ssign!ent of accounts receivable22c 22co!putation of a!ount oed to assignee Co!putation of of proceeds re received on on no note
18$
"0 "1 " "" "4 "% "&
Chapter &
The Revenue/Receivables/Cash Cycle
Bank state!ent reconciliation Bank reconciliation22i 22ite!s added to bank balance Bank reco econcil ciliat iation22 on22ad ad66ust ust!ent ents on depo epositor itor77s boo books 8eneral assign!ent of acc accounts receivable does not reduce accounts receivable balance Definition of of fa factoring ac accounts re receivable Repor porting tran ransfer of rece eceivab ivablles ith rec recour ourse as a sale (B (B )o. )o. 122 122va valluati uation on of not notes rece receiivabl vable e e9ch e9chan ange ged d for prop proper erty ty Recording no notes re receivable i ithout in interest Definition of of discounting notes receivable
Co%&"ttion! Q"e#tion#
"+ "" 40 41 4 4" 44 4% 4& 4+ 44 %0 %1 % %" %4 %% %& %+ %% &0 &1 & &" &4 &% &&
Co!puting pr proceeds of of di discounting no notes re receivable Co!puting pr proceeds of of di discounting no notes re receivable Co!putation of sales discounts Co!putation of sales discounts Co!p Co!put utat atio ion n of gros gross s sal sales es give given n ri ritte2of e2offf a!o a!oun untts und under er dire direct ct rite rite2o 2offf Co!putation of of net net real realii*abl *able e val value ue of acc account unts rec rece eivab ivablle Co!putation of of net net real realii*abl *able e val value ue of acc account unts rec rece eivab ivablle Co!putation of all alloance for doub oubtful accoun ounts bala alance nce Co!putation of doubtful accounts e9pense Co!putation of doubtful accounts e9pense Co!putation of doubtful accounts e9pense Co!putation of of dou doubtful ac accounts nts e9 e9pense nse22a 22aging ging !ethod Co!putation of net reali*able value of accounts receivable using percentage of credit sales for bad debts Co!putation of doubtful accounts e9pense Co!putation of arranty e9penses Co!putation of arranty e9penses Co!putation of of ac accounts re receivable tu turnover Co!putation of of nu! nu!ber of of days ays sal sale es in in av averag rage in invent vento orie ries Co!putation of year2end cash balance Co!putation of of cash a!ount for ba balance sh sheet Co!putation of of pe petty ca cash fu fund re rei!burse!ent Co!putation of of reconciled ca cash balance Co!putation of of reconciled ca cash balance Co!putation of cash balance per books Co!putation of of cash a!ount for ba balance sh sheet Co!putation of corrected cash balance Co!putation of of cash disburse!ents per bo books Co!putation of pro procee ceeds fr fro! as assig sign!ent of of ac accou counts re receiv eivabl able (ssign!ent of accounts receivable22c 22co!putation of a!ount oed to assignee Co!putation of of proceeds re received on on no note
Test Bank, Intermediate Accounting , 14th ed.
&+ && +0 +1 + +" +4 +% +& ++
18'
Co!putation of of proceeds re received on on no note Co!putation of of proceeds re received on on no note Co!putation of of proceeds re received on on no note Co!putation of of proceeds re received on on no note Co!putation of pro procee ceeds of disc discou oun nting notes rec receiv eivable ble Co!putation of pro procee ceeds of disc discou oun nting notes rec receiv eivable ble Co!putation of of effect ective ive int inter eres estt rat rate on on not note es rec recei eiv vable ble :ffect of of un uncoll ollect ectibl ible acc acco ounts on on st state!en !ent of of cas cash h flo flo s :ffect of of un uncoll ollect ectibl ible acc acco ounts on on st state!en !ent of of cas cash h flo flo s :ffect of of un uncoll ollect ectibl ible acc acco ounts on on st state!en !ent of of cas cash h flo flo s roper st state!ent pr presentation of of re receivables
PRO(LEMS 1 " 4 % & + 10 11 1 1" 14 1% 1& 1+
rovi ovide entries ries to es establ ablish, sh, rep replleni enish, and decre crease ase pe petty ca cash Co!p Co!put utat atio ion n of of cas cash h bal balan ance ce per per boo books ks befo before re reco reconc ncil ilia iati tion on ad6u ad6ust st! !ents ents repare bank reconciliation state!ent repare bank reconciliation state!ent repare 42colu!n bank reconciliation 8ive ad6usting entries for bad debts e9pense 8ive ad6usting entries for bad debts e9pense repa epare schedul edule e of of al alloa oance nce for for bad deb debtts and and ad6usting en entries ries Reco Record rd assi assign gn! !ent ent, loan loan and and re re!itt !ittan ance ce of acco accoun untts rec recei eiva vabl ble e ;an ;and d sho sho balance sheet< Reco Record rd fact factor orin ing/ g/sa sale le of acco accoun unts ts rece receiv ivab able le and and fina finall set settle tle!ent !ent Co!putation of of pr procee ceeds fr fro! di discoun ounting thre hree se separat arate e no notes 8iven scenario, co!pute discount on notes receivable, gain/loss on e=uip!ent sale, record sale and a!orti*ation of discount Reco Record rd ent entries ries for sale sale,, inter nteres est, t, and and set settle! tle!en entt of buil buildi ding ng sale sale Recor cord tr transa nsactio ctions ns for sal sale e of of e=ui =uip!ent an and fa factor of note ote Record note receipt and discount to bank Record fa factoring of of accounts re receivable Co!p Co!put utat atio ion n of net net cash cash fro fro! oper operat atio ions ns give given n appr approp opri riat ate e bala balanc nces es
MULTIPLE CHOICE QUESTIONS c >1
1. (n operating cycle a. is telve !onths or less in length. b. is the average ti!e ti!e re=uired for for a co!pany co!pany to collect collect its receivables. receivables. c. is used to deter! deter!ine ine current current assets assets hen hen the operati operating ng cycle is longer longer than one year.
186
Chapter &
The Revenue/Receivables/Cash Cycle
d. begins begins ith ith invento inventory ry and ends ith ith cash. cash.
Test Bank, Intermediate Accounting , 14th ed.
a >4
c >4
d >4 >4
a >4 >4
b >&
18)
. The The a!o a!ount unt repo report rted ed as as ?Cas ?Cash? h? on on a co!p co!pan any y7s bal balan ance ce she sheet et nor nor!a !all lly y should e9clude a. postdated postdated checks checks that that are payable to the the co!pany co!pany.. b. cash cash in in a payr payroll oll acc accoun ount. t. c. undeliv undelivered ered checks checks ritte ritten n and signed signed by the co!pany co!pany.. d. pett petty y cash cash.. ". @hic @hich h one one of the the foll follo oiing stat state! e!e ents nts is inco incorr rrec ectA tA a. The accoun ounting funct nction ion sh should uld be be se separat arated ed fro! the cu custo stodian diansh shiip of of a co!pany7s assets. b. Cert Certai ain n cler cleric ical al pers person onne nell in a co!p co!pan any y shou should ld be rota rotate ted d a!on a!ong g various 6obs. c. The respon responsib sibili ility ty for for recei receivin ving g !erc !erchan handis dise e and and payin paying g for for it shoul should d usually be given to one person. d. ( co!pany7s co!pany7s personnel personnel should should be given given ell2defined ell2defined responsibilit responsibilities. ies. 4. f the the bala balan nce sho shon on a co!pany any7s ban bank sta state!ent is les less tha than the the correct cash cash bala balanc nce, e, and and nei neith ther er the the co co!pan !pany y nor nor the the bank bank has has !ad !ade e any any err error ors, s, there !ust be a. deposits deposits credited by the bank but not yet recorded recorded by the co!pany co!pany.. b. outs outsta tand nding ing check checks. s. c. bank charg charges es not yet yet recorded recorded by the the co!pa co!pany ny.. d. depos deposit its s in in tran transit sit.. %. f the the cash cash bal balan ance ce sho sho n in a co!p co!pan any y7s acc accou ount ntin ing g reco record rds s is less less tha than n the corr correc ectt cas cash h bal balan ance ce,, and and neit neithe herr the the co! co!pany pany nor nor the the bank bank has has !ad !ade e any any errors, there !ust be a. deposits deposits credited by the bank but not yet recorded recorded by the co!pany co!pany.. b. depos deposit its s in in tran transit sit.. c. outs outsta tand ndin ing g chec checks ks.. d. bank charg charges es not yet yet recorded recorded by the the co!pany co!pany.. &. The The '( '(#B spec specif ifie ied d in #ta #tate te!e !ent nt )o. )o. 1% 1% thre three e cond condit itio ions ns tha thatt !us !ustt be be !et !et if a tr transfer of of re receivables is is to to ac accounted fo for as as a sa sale. @hi @hich of of th the folloing is not one one of the three conditions specifiedA a. The transferred transferred assets assets have have been isolated fro! fro! the transferor transferor.. b. The The tran transf sfer eror ors s obli obliga gati tion on unde underr the the reco recour urse se prov provis isio ions ns can can be reasonably esti!ated.
188
Chapter &
The Revenue/Receivables/Cash Cycle
c. The transferee has the right to pledge or e9change the transferred assets. d. The transferor does not !aintain effective control over the assets through an agree!ent to repurchase the assets before their !aturity.
Test Bank, Intermediate Accounting , 14th ed.
18*
c >4 a
+. @hich one of the folloing state!ents is incorrectA a. The accounting function should be separated fro! the custodianship of co!panys assets. b. Certain clerical personnel in a co!pany should be rotated a!ong various 6obs. c. The responsibility of receiving !erchandise and paying for it usually should be given to one person. d. ( co!panys personnel should given ell2defined responsibilities.
a >1
-. @hich of the folloing is incorrectA a. The operating cycle alays is one year in duration. b. The operating cycle so!eti!es is longer than one year in duration. c. The operating cycle so!eti!es is shorter than one year in duration. d. The operating cycle is a concept applicable both to !anufacturing and retailing enterprises.
c >
d >
. ( discount given to a custo!er for purchasing a large volu!e of !erchandise is typically referred to as a a. =uantity discount. b. cash discount. c. trade discount. d. si*e discount. 10. @hen the direct rite2off !ethod of recogni*ing bad debt e9pense is used, the entry to rite off a specific custo!er account ould a. increase net inco!e. b. have no effect on net inco!e. c. increase the accounts receivable balance and increase net inco!e. d. decrease the accounts receivable balance and decrease net inco!e.
b 11. @hen co!paring the alloance !ethod of accounting for bad debts ith the > direct rite2off !ethod, hich of the folloing is trueA a. The direct rite2off !ethod is e9act and also better illustrates the !atching principle. b. The alloance !ethod is less e9act but it better illustrates the !atching principle. c. The direct rite2off !ethod is theoretically superior.
1*+
Chapter &
The Revenue/Receivables/Cash Cycle
d. The direct rite2off !ethod re=uires to separate entries to rite off an uncollectible account.
Test Bank, Intermediate Accounting , 14th ed.
1*1
a >
1. @hen the alloance !ethod of recogni*ing bad debt e9pense is used, the entry to record the rite2off of a specific uncollectible account ould decrease a. alloance for doubtful accounts. b. net inco!e. c. net reali*able value of accounts receivable. d. orking capital.
a >
1". @hen a specific custo!ers account is ritten off by a co!pany using the alloance !ethod, the effect on net inco!e and the net reali*able value of the accounts receivable is )et Reali*able alue )et nco!e of (ccounts Receivable a. )one )one b. Decrease Decrease c. ncrease ncrease d. Decrease )one
b >
14. @hen the alloance !ethod of recogni*ing bad debt e9pense is used, the entries at the ti!e of collection of a s!all account previously ritten off ould a. increase net inco!e. b. increase the alloance for doubtful accounts. c. decrease net inco!e. d. decrease the alloance for doubtful accounts.
b >
1%. ( !ethod of esti!ating bad debts that focuses on the balance sheet rather than the inco!e state!ent is the alloance !ethod based on a. direct rite2off. b. aging the trade receivable accounts. c. credit sales. d. specific accounts deter!ined to be uncollectible.
c >
1&. The entry (ccounts Receivable....................................... (lloance for $ncollectible (ccounts........ ould be !ade hen a. a custo!er pays its account balance. b. a custo!er defaults on its account.
999 999
1*,
Chapter &
The Revenue/Receivables/Cash Cycle
c. a previously defaulted custo!er pays its outstanding balance. d. esti!ated uncollectible receivables are too lo.
Test Bank, Intermediate Accounting , 14th ed.
a >
c >"
c >"
d >4
b >4
1*3
1+. @hat is the accounting principle underlying the recognition of an esti!ated liability for arranties in the period of product saleA a. 3atching b. 3ateriality c. 'ull Disclosure d. Conservatis! 1-. n calculating a co!panys accounts receivable turnover, hich of the folloing sets of factors ould be usedA a. )et inco!e and average accounts receivable b. (verage accounts receivable and average total assets c. (verage accounts receivable and net credit sales d. )et credit sales and average stockholders e=uity 1. @hich of the folloing factors are used to co!pute the nu!ber of days sales in accounts receivableA a. nventory turnover and "&% days b. )et sales and average inventory c. (ccounts receivable turnover and "&% days d. (verage accounts receivable and cost of goods sold 0. @hich of the folloing ould not be classified as cashA a. ersonal checks b. Travelers checks c. Cashiers checks d. ostdated checks 1. @hich of the folloing is not a basic characteristic of a syste! of cash controlA a. $se of a voucher syste! b. Co!bined responsibility for handling and recording cash c. Daily deposit of all cash received d. nternal audits at irregular intervals
1*$
c >
d >
a >
b >
Chapter &
The Revenue/Receivables/Cash Cycle
. n 5anuary 1, 00, yle Corporation established a petty cash fund of E400. n Dece!ber "1, 00, the petty cash fund as e9a!ined and found to have receipts and docu!ents for !iscellaneous e9penses a!ounting to E"&4. n addition, there as cash a!ounting to E44. @hat entry ould be re=uired to record replenish!ent of the petty cash fund on Dece!ber "1, 00A a. etty Cash............................................................. "&4 Cash #hort and ver....................................... Cash................................................................. "%& b. 3iscellaneous :9pense........................................ "&4 Cash #hort and ver....................................... etty Cash....................................................... "%& c. 3iscellaneous :9pense........................................ "&4 Cash #hort and ver....................................... Cash................................................................. "%& d. 3iscellaneous :9pense........................................ "%& Cash #hort and ver............................................ Cash................................................................. "&4 ". ( petty cash syste! is designed to a. cash checks for e!ployees. b. handle cash sales. c. account for all cash receipts and disburse!ents. d. pay s!all !iscellaneous e9penses. 4. n !ost situations, the petty cash fund is rei!bursed 6ust prior to the year end and an ad6usting entry is !ade to avoid a. the overstate!ent of cash and the understate!ent of e9penses. b. the understate!ent of cash and the overstate!ent of e9penses. c. the !isstate!ent of revenues. d. the understate!ent of cash ith the appropriate state!ent of e9penses. %. n replenishing a petty cash fund, hich one of the folloing entries is re=uiredA a. Debit etty Cash, credit Cash b. Debit individual e9pense accounts, credit Cash c. Debit etty Cash, credit individual e9pense accounts d. Debit Cash, credit etty Cash
Test Bank, Intermediate Accounting , 14th ed.
1*'
d >4
&. Bank state!ents provide infor!ation about all of the folloing except a. checks cleared during the period. b. )#' checks. c. bank charges for the period. d. errors !ade by the co!pany.
c >4
+. @hich of the folloing ite!s ould be added to the book balance on a bank reconciliationA a. utstanding checks b. ( check ritten for E&" entered as E"& in the accounting records c. nterest paid by the bank d. Deposits in transit
c >4
c >4
-. n is a. b. c. d.
preparing a bank reconciliation, interest paid by the bank on the account added to the bank balance. subtracted fro! the bank balance. added to the book balance. subtracted fro! the book balance.
. n preparing a !onthly bank reconciliation, hich of the folloing ite!s ould be added to the balance reported on the bank state!ent to arrive at the correct cash balanceA a. utstanding checks b. Bank service charge c. Deposits in transit d. ( custo!ers note collected by the bank on behalf of the depositor
b >4
"0. Bank reconciliations are nor!ally prepared on a !onthly basis to identify ad6ust!ents needed in the depositors records and to identify bank errors. (d6ust!ents should be recorded for a. bank errors, outstanding checks, and deposits in transit. b. all ite!s e9cept bank errors, outstanding checks, and deposits in transit. c. book errors, bank errors, deposits in transit, and outstanding checks. d. outstanding checks and deposits in transit.
b
"1. The balance in (ccounts Receivable is not reduced in recording hich of the folloing types of financing arrange!entsA a. (ssign!ent of specific accounts receivable
>&
1*6
Chapter &
The Revenue/Receivables/Cash Cycle
b. 8eneral assign!ent ;pledge< of accounts receivable c. 'actoring of accounts receivable d. Transfer of accounts receivable ithout recourse b >&
a >&
". @hen the accounts receivable of a co!pany are sold outright to a co!pany that nor!ally buys accounts receivable of other co!panies ithout recourse, the accounts receivable have been a. transferred ith recourse. b. factored. c. assigned. d. pledged. "". @hich of the folloing is a re=uire!ent for reporting the transfer of receivables ith recourse as a saleA a. The transferor has the right to pledge or e9change the transferred receivables. b. The transferor surrenders control of the future econo!ic benefit e!bodied in the receivables. c. The transferors obligation under the recourse provisions can be reasonably esti!ated. d. The transferee cannot re=uire the transferor to repurchase the receivables e9cept pursuant to the recourse provisions.
a >+
"4. (ccording to (B pinion )o. 1, if a note receivable is e9changed for property and no interest rate is stated, the note is to be recorded at the a. fair !arket value of the property or note. b. !aturity value of the note. c. face value of the note. d. carrying ;book< value of the property.
c >+
"%. #cott Co!pany received a one2year non2interest2bearing note receivable. @hen the note receivable as recorded, hich of the folloing ere debited or creditedA nterest Discount on Receivable )ote Receivable a. Fes Fes b. Fes )o c. )o Fes d. )o )o
b >+
"&. ( 1-02day, 1 percent interest2bearing note receivable is sold to a bank after being held for 4% days. The proceeds are calculated using a 1% percent interest rate. The note receivable has been Discounted ledged a. Fes Fes b. Fes )o c. )o Fes d. )o )o
b >+
"+. ( 02day, 1% percent interest2bearing note receivable as i!!ediately discounted at a bank at 1 percent. The proceeds received fro! the bank upon discounting ould be the a. !aturity value less the discount at 1% percent. b. !aturity value less the discount at 1 percent. c. face value less the discount at 1% percent. d. face value less the discount at 1 percent.
a
"-. n Dece!ber 1, 00, Bain Co!pany received a E10,000, &02day, & percent note fro! a custo!er. n Dece!ber "1, 00, the co!pany discounted the note at the bank. The banks discount rate as percent. Go !uch ere the proceeds received by Bain fro! the bankA a. E10,04.%. b. E,+00.00. c. E,4.%. d. E10,0%0.00.
>+
b >
". 'irst Co!pany sold !erchandise on credit to #econd Co!pany for E1,000 on 5uly 1, ith ter!s of /10, net /"0. n 5uly &, #econd returned E00 orth of !erchandise clai!ing the !aterials ere defective. n 5uly -, 'irst received a pay!ent fro! #econd and credited (ccounts Receivable for E4%0. n 5uly 4, #econd Co!pany paid the re!aining balance on its account. Go !uch as the total #ales Discounts given to #econd during 5ulyA a. E0 b. E c. E441 d. E,441
c >
b >
40. 'irst Co!pany sold !erchandise on credit to #econd Co!pany for E1,000 on 5uly 1, ith ter!s of /10, net /"0. n 5uly &, #econd returned E00 orth of !erchandise clai!ing the !aterials ere defective. n 5uly -, 'irst received a pay!ent fro! #econd and credited (ccounts Receivable for E4%0. n 5uly 4, #econd Co!pany paid the re!aining balance on its account. @hat as the total cash received fro! #econd during 5ulyA a. E441 b. E4%0 c. E+1 d. E-00 41. 'or the !onth of Dece!ber, the records of Balin Corporation sho the folloing infor!ationH Cash received on accounts receivable................................. E +0,000 Cash sales............................................................................. &0,000 (ccounts Receivable, Dece!ber 1....................................... 1&0,000 (ccounts Receivable, Dece!ber "1..................................... 14-,000 (ccounts Receivable ritten off as uncollectible.................. ,000 The corporation uses the direct rite2off !ethod in accounting for uncollectible accounts receivable. @hat are the gross sales for the !onth of Dece!berA a. E11-,000 b. E10,000 c. E1"0,000 d. E144,000
c >
4. (n analysis and aging of accounts receivable of the >ucille Co!pany at Dece!ber "1, 00, shoed the folloingH (ccounts Receivable....................................................... E-40,000 (lloance for Doubtful (ccounts ;before ad6ust!ent<........... "&,000
;cr< (ccounts esti!ated to be uncollectible ...........................
+&,-00
Co!pute the net reali*able value of the accounts receivable of >ucille Co!pany at Dece!ber "1, 00. a. E-04,000 b. E+,00 c. E+&",00 d. E++,00
d >
4". (n analysis and aging of the accounts receivable of #hriner Co!pany at Dece!ber "1 revealed the folloing dataH (ccounts Receivable....................................................... E4%0,000 (lloance for Doubtful (ccounts ;before ad6ust!ent<........... %,000
;cr< (ccounts esti!ated to be uncollectible ...........................
",000
The net reali*able value of the accounts receivable at Dece!ber "1 should be a. E4%0,000. b. E44",000. c. E4%,000. d. E41-,000. d >
44. 3aple Co!pany provides for doubtful accounts e9pense at the rate of " percent of credit sales. The folloing data are available for last yearH (lloance for Doubtful (ccounts, 5anuary 1................... E
%4,000
;cr< (ccounts ritten off as uncollectible during the year...... &0,000 Collection of accounts ritten off in prior years ;custo!er credit as re2established<...................................... 1%,000 Credit sales, year2ended Dece!ber "1........................... ",000,000 The alloance for doubtful accounts balance at Dece!ber "1, after ad6usting entries, should be a. E4%,000. b. E-4,000. c. E0,000. d. E,000. c >
4%. The folloing infor!ation is fro! the records of rosser, nc. for the year ended Dece!ber "1, 00. (lloance for Doubtful (ccounts, 5anuary 1, 00......... E
&,000
;cr< #ales, 00...................................................................... ,0,000 #ales Returns and (lloances, 00.............................. ",000 f the basis for esti!ating bad debts is 1 percent of net sales, the correct a!ount of doubtful accounts e9pense for 00 is a. E,-00. b. E",00. c. E-,--0. d. E"4,--0.
a >
4&. Based on the aging of its accounts receivable at Dece!ber "1, ribob Co!pany deter!ined that the net reali*able value of the receivables at that date is E+&0,000. (dditional infor!ation is as follosH (ccounts Receivable at Dece!ber "1............................ (lloance for Doubtful (ccounts at 5anuary 1................
E--0,000 1-,000
(ccounts ritten off as uncollectible during the year......
--,000
;cr< ribobs doubtful accounts e9pense for the year ended Dece!ber "1 is a. E-0,000. b. E&,000. c. E10,000. d. E1&0,000. b >
d >
4+. Based on its past collection e9perience, (ce Co!pany provides for bad debts at the rate of percent of net credit sales. n 5anuary 1, 00, the alloance for doubtful accounts credit balance as E10,000. During 00, (ce rote off E1-,000 of uncollectible receivables and recovered E%,000 on accounts ritten off in prior years. f net credit sales for 1 totaled E1,000,000, the doubtful accounts e9pense for 00 should be a. E1+,000. b. E0,000. c. E",000. d. E"%,000. 4-. Richards Co!pany uses the alloance !ethod of accounting for bad debts. The folloing su!!ary schedule as prepared fro! an aging of accounts receivable outstanding on Dece!ber "1 of the current year. )o. of Days utstanding 02"0 days "12&0 days ver &0 days
(!ount E%00,000 00,000 100,000
robability of Collection ..0 .-0
The folloing additional infor!ation is available for the current yearH )et credit sales for the year....................................... E4,000,000 (lloance for Doubtful (ccountsH Balance, 5anuary 1............................................... 4%,000 ;cr< Balance before ad6ust!ent, Dece!ber "1........... ;dr<
,000
f Richards bases its esti!ate of bad debts on the aging of accounts receivable, doubtful accounts e9pense for the current year ending Dece!ber "1 is a. E4+,000. b. E4-,000. c. E%0,000. d. E%,000. c >
4. Richards Co!pany uses the alloance !ethod of accounting for bad debts. The folloing su!!ary schedule as prepared fro! an aging of accounts receivable outstanding on Dece!ber "1 of the current year. )o. of Days utstanding 02"0 days "12&0 days ver &0 days
(!ount E%00,000 00,000 100,000
robability of Collection ..0 .-0
The folloing additional infor!ation is available for the current yearH )et credit sales for the year ............................................. E4,000,000 (lloance for Doubtful (ccountsH Balance, 5anuary 1..................................................... 4%,000 ;cr< Balance before ad6ust!ent, Dece!ber "1.................
,000
;dr< f Richards deter!ines bad debt e9pense using 1.% percent of net credit sales, the net reali*able value of accounts receivable on the Dece!ber "1 balance sheet ill be a. E+"-,000. b. E+40,000. c. E+4,000. d. E+%0,000. d >
%0. 8ekko, nc. reported the folloing balances ;after ad6ust!ent< at the end of 00 and 001. Total accounts receivable..................... )et a ccounts r eceivable.......................
1/"1/00 1/"1/001 E10%,000 E&,000 10,000 4,%00
During 00, 8ekko rote off custo!er accounts totaling E",00 and collected E-00 on accounts ritten off in previous years. 8ekkos doubtful accounts e9pense for the year ending Dece!ber "1, 00 is a. E1,%00.
b. E,400. c. E",000. d. E",00. c >
%1. ( ne product introduced by @ilkenson ro!otions carries a to2year arranty against defects. The esti!ated arranty costs related to dollar sales are as follosH Fear of sale................................................................. " percent Fear after sale............................................................. % percent #ales and actual arranty e9penditures for the years ended Dece!ber "1, 001 and 00, are as follosH (ctual @arranty #ales :9penditures 001 E -00,000 E0,000 00 1,000,000 +0,000 @hat a!ount should @ilkenson report as its esti!ated liability as of Dece!ber "1, 00A a. E4,000 b. E4,000 c. E%4,000 d. E+4,000
d >
%. )ational (ppliance Center sells ashing !achines that carry a three2year arranty against !anufacturers defects. Based on co!pany e9perience, arranty costs are esti!ated at E&0 per !achine. During the year, )ational sold 4-,000 ashing !achines and paid arranty costs of E"40,000. n its inco!e state!ent for the year ended Dece!ber "1, )ational should report arranty e9pense of a. E&-0,000. b. E&0,000. c. E,00,000. d. E,--0,000.
c >"
%". 3illard Corporation7s books disclosed the folloing infor!ation for the year ended Dece!ber "1, 00H )et credit sales................................................................ E1,%00,000 )et cash sales.................................................................. 40,000 (ccounts Receivable at beginning of year...................... 00,000 (ccounts Receivable at end of year ................................ 400,000 3illard7s accounts receivable turnover is a. ".+% ti!es. b. 4."% ti!es. c. %.00 ti!es. d. %.-0 ti!es.
b >"
%4. #elected infor!ation fro! the accounting records of :llison 3anufacturing Co!pany follosH )et sales.......................................................................... E",&00,000 Cost of goods sold........................................................... ,400,000 nventories at 5anuary 1.................................................. &+,000 nventories at Dece!ber "1............................................. %+&,000 @hat is the nu!ber of days7 sales in average inventories for the yearA a. 10. b. 4. c. -+.& d. &-.1
c >4
%%. Ber!an Corporation had the folloing transactions in its first year of operationsH #ales ;0 percent collected in the first year<................... Disburse!ents for costs and e9penses........................... urchases of e=uip!ent for cash.................................... roceeds fro! issuance of co!!on stock...................... ay!ents on short2ter! borroings................................ roceeds fro! short2ter! borroings............................. Depreciation on e=uip!ent.............................................. Disburse!ents for inco!e ta9es...................................... Bad debt rite2offs........................................................... @hat is the cash balance at Dece!ber "1 of the first yearA a. E+%,000 b. E-%,000
E+%0,000 &00,000 00,000 %0,000 %,000 %0,000 40,000 4%,000 "0,000
c. E10%,000 d. E140,000 d >4
%&. 5ackson Co!pany had the folloing cash balances at Dece!ber "1, 00H Cash in banks.................................................................. etty cash funds ;all funds ere rei!bursed on Dece!ber "1, 00<.........................................................
E"+%,000 %,000
Cash in banks includes E1%,000 of co!pensating balances against short2 ter! borroing arrange!ents at Dece!ber "1, 00. The co!pensating balances are legally restricted as to ithdraal by 5ackson. n the current asset section of 5acksons Dece!ber "1, 00, balance sheet, hat total a!ount should be reported as CashA a. E"-0,000 b. E"+%,000 c. E%%,000 d. E%0,000 d >
%+. ( co!pany has a petty cash fund of E%. (t the end of the !onth, petty cash includes the folloingH Currency and coins.......................................................... Receipted vouchers forH ostage....................................................................... Travel.......................................................................... Donation to charity.....................................................
E 1.%0 &.00 +.%0 10.00 E%.00
@hich of the folloing is the correct entry to si!ultaneously rei!burse the fund and increase it to E100A a. etty Cash............................................................. 100.00 Cash................................................................. 100.00 b. etty Cash............................................................. -.%0 Cash................................................................. -.%0 c. ostage................................................................. &.00 Travel .................................................................... +.%0 Donations.............................................................. 10.00 Cash................................................................. ".%0 d. etty Cash............................................................. +%.00 ostage................................................................. &.00 Travel .................................................................... +.%0 Donations.............................................................. 10.00 Cash................................................................. -.%0 d >4
c >4
%-. (ssu!e the folloing facts for urt Co!panyH The !onth2end bank state!ent shos a balance of E40,000I outstanding checks total E,000I a deposit of E-,000 is in transit at !onth2endI and a check for E400 as erroneously charged against the account by the bank. @hat is the correct cash balance at the end of the !onthA a. E"",&00 b. E"4,400 c. E4%,&00 d. E4&,400 %. n preparing the bank reconciliation of Cres Co!pany for the !onth of 5uly, the folloing infor!ation is availableH Balance per bank state!ent, +/"1........................................ E%4,0+% Deposits in transit, +/"1......................................................... ,"+% utstanding checks, +/"1...................................................... -,&% Deposit erroneously recorded by bank to Cres account, +/1-........................................................ "+% Bank service charges for 5uly............................................... +% @hat is the correct cash balance at 5uly "1A a. E%,-+% b. E%4,"+% c. E%4,4%0 d. E%4,-%
a
&0. The (ugust "1 bank state!ent of elvin nc. shoed a balance of E11",000.
>4
Deducted in arriving at this a!ount as a custo!ers )#' check for E,400 that had been returned. elvin had received no prior notice concerning this check. n addition to the bank state!ent, other records shoed there ere deposits in transit totaling E1+,00 and that outstanding checks totaled E10,-00. @hat is the cash balance per books at (ugust "1 ;prior to ad6ust!ents
c
&1. Trask Corporations checkbook balance on Dece!ber "1, 001, as E-,000. n addition, Trask held the folloing ite!s in its safe on Dece!ber "1H Check payable to Trask Corporation, dated 5anuary , 00, not included in Dece!ber "1 checkbook balance............................................................................. E,000 Check payable to Trask Corporation, deposited Dece!ber 0, and included in Dece!ber "1 checkbook balance, but returned by bank on Dece!ber "0, sta!ped J)#'.K The check as redeposited 5anuary , 00, and cleared 5anuary +......................................................................... 400 ost2dated checks................................................................. 1%0 Check dran on Trask Corporations account, payable to a vendor, dated and recorded Dece!ber "1, but not !ailed until 5anuary 1%, 00................................... 1,000
>4
The proper a!ount to be shon as cash on Trasks balance sheet at Dece!ber "1, 001, is a. E+,&00. b. E-,000. c. E-,&00. d. E,+%0.
d >4
&. n preparing its bank reconciliation for the !onth of 'ebruary, 5a!es Co!pany has available the folloing infor!ationH Balance per bank state!ent, 'ebruary -............................ E1-,0% Deposit in transit, 'ebruary -.............................................. ",1% utstanding checks, 'ebruary -......................................... ,-+% Check erroneously deducted by bank fro! 5a!es account, 'ebruary 10....................................................... 1% Bank service charges for 'ebruary....................................... % @hat is the corrected cash balance at 'ebruary -A a. E1-,1% b. E1-,1%0 c. E1-,+% d. E1-,400
a >4
&". Ra!os Co!pany had the folloing bank reconciliation at 3arch "1H Balance per bank state!ent, "/"1........................................E ",000 (ddH Deposit in transit.......................................................... 0,&00 E11",&00 >essH utstanding checks................................................... ;%,00< Balance per books, "/"1.......................................................E --,400 Data per bank state!ent for the !onth of (pril folloH Deposits........................................................................... E11&,-00 Disburse!ents................................................................. ,400 (ll reconciliation ite!s at 3arch "1 cleared through the bank in (pril. utstanding checks at (pril "0 totaled E1%,000. @hat is the a!ount of cash disburse!ents per books in (prilA a. E-,00 b. E,400 c. E10,&00 d. E114,400
a >&
&4. n #epte!ber 1, Riva Co. assigns specific receivables totaling E+%0,000 to acific Bank as collateral on a E&%,000, 1 percent note. Riva Co. ill continue to collect the assigned accounts receivable. acific also assesses a percent service charge on the total accounts receivable assigned. Riva Co. is to !ake !onthly pay!ents to acific ith cash collected on assigned accounts receivable. Collections of assigned accounts during #epte!ber totaled E&0,000 less cash discounts of E",%00. @hat ere the proceeds fro! the assign!ent of Rivas accounts receivable on #epte!ber 1A a. b. c. d.
E&10,000 E&1,%00 E&%,000 E+"%,000
b >&
&%. n #epte!ber 1, Riva Co. assigns specific receivables totaling E+%0,000 to acific Bank as collateral on a E&%,000, 1 percent note. Riva Co. ill continue to collect the assigned accounts receivable. acific also assesses a percent service charge on the total accounts receivable assigned. Riva Co. is to !ake !onthly pay!ents to acific ith cash collected on assigned accounts receivable. Collections of assigned accounts during #epte!ber totaled E&0,000 less cash discounts of E",%00. @hat a!ount is oed to acific by Riva Co. for #epte!ber collections plus accrued interest on the note to #epte!ber "0A a. E&0,000 b. E&,+%0 c. E&4,000 d. E&&,%0
a >&
&&. #i!pson Co!pany held a E&,000, "2!onth, 1% percent note. ne !onth before !aturity, it discounted the note at 10 percent at a local bank. (ppro9i!ately ho !uch interest did #i!pson earn on the noteA a. E1+" b. E% c. E% d. E&0
d
&+. f a "2!onth non2interest2bearing note receivable of E10,000 is discounted at a bank at 10 percent, ho !uch cash is receivedA a. E10 b. E1,010 c. E d. E,+%0
>&
c
&-. n 5anuary 1, arent Co!pany gave ids, nc. a E%,000, 2!onth, & percent
>&
note in pay!ent of its account. ne !onth later, ids discounted the note at the bank at - percent. The cash that ids received fro! the bank as ;rounded to the nearest dollar< a. E4,&0. b. E%,010. c. E%,01&. d. E%,0.
c
&. n 5une 1, Clinton Corporation accepted a custo!ers E10,000, percent, " !onth note. n 5uly 1, the note as discounted at a bank at a rate of 1 percent. Go !uch cash did Clinton receive fro! the bank on the discounted noteA a. E,-00.00 b. E,4.%0 c. E10,00.%0 d. E10,%0.00
>&
b >&
+0. ( 10 percent, E",000, "2!onth note receivable discounted at 1 percent for !onths ill result in net proceeds of a. E",0+%.00. b. E",01".%0. c. E",000.00. d. E",00%.%.
c >&
+1. 8rant Co!pany accepted a E400,000 face value, &2!onth, 10 percent note dated 3ay 1% fro! a custo!er. n that sa!e date 8rant discounted the note at :agle )ational Bank at a 1 percent discount rate. Go !uch cash should 8rant receive fro! the bank on 3ay 1%A a. E400,000 b. E"&,000 c. E"4,-00 d. E"-+,00
c >&
+. n 5une "0, 00, #i!on Co!pany discounted a custo!ers E1-0,000, & !onth, 10 percent note receivable dated (pril "0, 00. ( discount rate of 1 percent as charged by the bank. #i!ons proceeds fro! this discounted note ould be a. E1&,00. b. E1+,-00. c. E1-1,440. d. E1-%,0. +". n 5uly 1, 00, Cornell Corp. received a one2year note ith a face value of
c
>+
E00,000 and a stated interest rate of 1% percent in e9change for a !achine ith a fair value of E1,000,000. Co!pute the effective interest rate for Cornell Corp. a. 1&.&+ percent b. 1%.0 percent c. ".% percent d. 11.11 percent
b
+4. 8ray Co!pany had an accounts receivable balance of E%0,000 on Dece!ber "1, 001, and E+%,000 on Dece!ber "1, 00. The co!pany rote off E0,000 of accounts receivable during 00, and collected E",000 on an account ritten off in 000. #ales for the year 00 totaled E&0,000. (ll sales ere on account. The a!ount collected fro! custo!ers on accounts receivable during 00 as a. E%+%,000. b. E%+-,000. c. E&00,000. d. E%%,000.
>-
a >-
+%. 58 Co!pany had an accounts receivable balance of E40,000 on Dece!ber "1, 001, and E&%,000 on Dece!ber "1, 00. The co!pany rote off E10,000 of accounts receivable during 00, and collected E,000 on an account ritten off in 000. #ales for the year 00 totaled E%0,000. (ll sales ere on account. The a!ount collected fro! custo!ers on accounts receivable during 00 as a. E4-+,000. b. E4-%,000. c. E%10,000. d. E4%,000.
d
+&. R8 Co!pany had an accounts receivable balance of E4%,000 on Dece!ber "1, 001, and E&0,000 on Dece!ber "1, 00. The co!pany rote off E1,000 of accounts receivable during 00, and collected E,%00 on an account ritten off in 000. #ales for the year 00 totaled E%%0,000. (ll sales ere on account. The a!ount collected fro! custo!ers on accounts receivable during 00 as a. E%"%,000. b. E%",000. c. E%"-,000. d. E%%,%00.
>-
d >%
++. @hich of the folloing ould be considered part of the category ?trade receivables?A
a. b. c. d.
(dvances to e!ployees nco!e ta9 refunds receivable Dividends receivable (!ounts due fro! custo!ers
PRO(LEMS Problem 1
The accountant for Baccah nc. established a petty cash fund of E1,400. During #epte!ber, the fund as depleted by the folloing disburse!entsH #hipping e9pense............................................................................. Travel e9pense................................................................................. ostage e9pense.............................................................................. 3iscellaneous supplies....................................................................
E+40 40 "0 1+0
n addition to receipts for the above ite!s, the petty cash bo9 contained E- in coins and an $ of E- fro! the secretary handling the fund. The co!pany uses a cash over and short e9pense account, as needed. The co!pany decided to decrease the petty cash fund to E1,000. ;1< rovide the entry to establish the petty cash fund. ;< rovide the entry to replenish the petty cash fund. ;"< rovide the entry to record the decrease in the petty cash fund. Solution 1
> ;1< etty Cash........................................................................ Cash............................................................................
1,400
;< #hipping :9pense............................................................ Travel :9pense................................................................ ostage :9pense............................................................. 3iscellaneous #upplies................................................... :!ployee Receivables.................................................... Cash ver and #hort....................................................... Cash............................................................................
+40 40 "0 1+0 4
;"< Cash ............................................................................... etty Cash..................................................................
400
1,400
1,"
400
Problem 2
The infor!ation belo is fro! the books of the #e!inole Corporation on 5une "0H Balance per bank state!ent............................................................ E11,1&4
Receipts recorded but not yet deposited in the bank...................... Bank charges not recorded.............................................................. )ote collected by bank and not recorded on books........................ utstanding checks.......................................................................... )#' checks22not recorded on books nor redeposited.....................
1,"40 1& 1,10 1,100 1&0
(ssu!ing no errors ere !ade, co!pute the cash balance per books on 5une "0 before any reconciliation ad6ust!ents. Solution 2
>4 Balance per bank state!ent, 5une "0............................................. E11,1&4 (ddH Receipts not yet deposited......................................... 1,"40 Bank charges.............................................................. 1& )#' checks................................................................ 1&0 E1,&-0 DeductH )ote collected by bank............................................... 1,10 utstanding checks.................................................... 1,100 Balance per books before reconciliation ad6ust!ents..................... E10,4&0 Problem 3
The books of #teves #ervice, nc. disclosed a cash balance of E&-,+%+ on 5une "0. The bank state!ent as of 5une "0 shoed a balance of E%4,+-0. (dditional infor!ation that !ight be useful in reconciling the to balances follosH ;a< ;b< ;c< ;d< ;e< ;f< ;g< ;h< ;i<
Check nu!ber +4- for E",000 as originally recorded on the books as E4,%00. ( custo!ers note dated 3arch % as discounted on (pril 1. The note as dishonored on 5une ;!aturity date<. The bank charged #teves account for E14,&%, including a protest fee of E4. The deposit of 5une 4 as recorded on the books as E,-%, but it as actually a deposit of E,+00. utstanding checks totaled E,--% as of 5une "0. There ere bank service charges for 5une of E10 not yet recorded on the books. #teves account had been charged on 5une & for a custo!ers )#' check for E1,&. #teve properly deposited E&00 on 5une " that as not recorded by the bank. Receipts of 5une "0 for E1",4% ere recorded by the bank on 5uly . ( bank !e!o stated that a custo!ers note for E4,%00 and interest of E1&% had been collected on 5une +, and the bank charged a E"& collection fee.
repare a bank reconciliation state!ent, using the for! reconciling bank and book balances to the correct cash balance.
Solution 3
>4 Balance per bank state!ent, 5une "0............................. (ddH Deposits in transit............................................ E1",4% Bank error22deposit not recorded.................... &00 DeductH utstanding checks......................................... Corrected bank balance................................................... Balance per books, 5une "0............................................ (ddH Book error22Check )o. +4-............................. Custo!er note collected by bank....................
E%4,+-0 14,0% E&-,-0% ,--% E%-,0 E&-,+%+
E 1,%00 4,&
Dishonored note.............................................. E14,&% Book error22i!properly recorded deposit........ 1% )#' check....................................................... 1,& Bank service charges...................................... 10 Corrected book balance...................................................
&,1 E+4,--&
DeductH
1%,&& E%-,0
Problem 4
The :ric 3anufacturing Co!pany received its bank state!ent for the !onth ending 3ay "1. The bank state!ent indicates a balance of E",400. The cash account as of the close of business on 3ay "1 has a balance of E-,"%0. n reconciling the balances, the folloing ite!s are discovered. ;a< ;b< ;c< ;d< ;e<
Collection by bank of note for E1,%00 less collection fees of E%0. Deposits in transit, E%1,000. The bank charged the depositor E-00 for overdrafts. Checks outstanding on 3ay "1, E+,100. ( canceled check issued to #cott Corp. for E4,%00 as not recorded on :ric Co!panys books.
repare a bank reconciliation state!ent. ;$se the for!at of reconciling bank and depositor figures to corrected cash balance.< Solution 4
>4 Balance per bank state!ent............................................ (dd deposits in transit .....................................................
E ",400 %1,000 E -",400 +,100 E 4,"00
Deduct outstanding checks.............................................. Corrected balance............................................................ Balance per depositors records...................................... (dd note receivable collected by bank............................
E
-,"%0 1,%0 E ,&00
DeductH verdrafts................................................................ E Book error22unrecorded check................................. Corrected balance............................................................
-00 4,%00 E
%,"00 4,"00
Problem 5
The accountant for the 8oshen Co!pany asse!bled the folloing dataH Cash account balance................................................... Bank state!ent balance................................................ Deposits in transit.......................................................... utstanding checks....................................................... Bank service chargeL.................................................... Custo!ers check deposited 5uly 10, returned by bank on 5uly 1& !arked )#', and redeposited i!!ediatelyI no entry !ade on books for return or r edeposit.............................................................. Collection by bank of co!panys notes receivable....... L ;Recorded on books in !onth folloing charge or collection<
5une "0 5uly "1 E 1%,- E ",+4% 10+,0- 1"+,-1+ -,01 1,--0 +,+1"0,11 + &0
+1,-1%
-,%0 -0,00
The bank state!ents and the co!panys cash records sho these totalsH Disburse!ents in 5uly per bank state!ent................... E1-,"+" Cash receipts in 5uly per 8oshens books.................... "&,4% Checks ritten in 5uly per 8oshens books.................. 1,% Receipts in 5uly per bank state!ent............................. 4,10repare a 42colu!n bank reconciliation as of 5uly "1, using the for! that reconciles both the book and bank balances to a correct cash a!ount.
Solution 5
>4 8oshen Co!pany Reconciliation of Receipts, Disburse!ents, and Bank Balance 5uly "1 Beginning Reconciliation 5une "0 Balance per bank state!ent..................E10+,0- Deposits in transitH 5une "0.............. -,01 5uly "1............... utstanding checksH 5une "0.............. ;+,+1-< 5uly "1............... )#' check redeposited.............. Corrected bank balance..................... E -+,%&% Balance per books... E 1%,- Bank service chargeH 5une................... ;+< 5uly.................... Collection of notes receivableH 5une................... +1,-1% 5uly.................... Corrected book balance..................... E -+,%&%
Receipts E4,10-
:nding Reconciliation Disburse!ents 5uly "1 E1-,"+"
;-,01< 1,--0
1,--0 ;+,+1-< "0,11
;-,%0<
E1"+,-1+
;"0,11<
;-,%0<
E4%,%"+
E1,%1+
E10,%-%
E"&,4%
E1,%
E ",+4%
;+< &0
;&0<
;+1,-1%< -0,00 E4%,%"+
-0,00 E1,%1+
E10,%-%
Problem 6
The folloing infor!ation as abstracted fro! the records of the Gooper CorporationH (ccounts Receivable, Dece!ber "1, 00 ............................. (lloance for Doubtful (ccounts before ad6ust!ent, Dece!ber "1, 00............................................................ ;dr< #ales2200.............................................................................. #ales Discounts2200............................................................. #ales Returns2200................................................................
E %0,000 1-,000 ,1-0,000 1-,000 +,000
repare the ad6usting entry for doubtful accounts e9pense under each of the folloing assu!ptionsH ;1< " percent of outstanding accounts receivable are uncollectible. ;< 1.% percent of 1& net sales are uncollectible. ;"< (n aging schedule of the accounts shos that E1,400 of the accounts are uncollectible. Solution 6
> ;1< Doubtful (ccounts :9pense.......................................... (lloance for Doubtful (ccounts ............................
"%,+00 "%,+00
M;"N 9 E%0,000< O E1-,000P
;<
Doubtful (ccounts :9pense.......................................... (lloance for Doubtful (ccounts ............................
",0% ",0%
M1.%N 9 ;E,1-0,000 2 E1-,000 2 E+,000
;"<
Doubtful (ccounts :9pense.......................................... (lloance for Doubtful (ccounts.............................
",400 ",400
;E1,400 O E1-,000< Problem 7
The folloing infor!ation as abstracted fro! the 00 financial state!ents of 5ennings Co!panyH #ales.............................................................................................. E+4+,000 L (ccounts Receivable, Dece!ber "1, 00................................... 1-,000 (lloance for Doubtful (ccounts................................................... 1,0 ;cr< #ales discounts............................................................................. 1-,000 L #ales returns.................................................................................. 1,400 L L"0N related to credit sales
repare the ad6usting entry for doubtful accounts e9pense under each of the folloing assu!ptionsH ;1< " percent of current accounts receivable are uncollectible. ;< .% percent of net credit sales are uncollectible. Solution 7
> ;1< Doubtful (ccounts :9pense ;"N 9 1-,000< 2 E1,0 .......... (lloance for Doubtful (ccounts.............................
,&0
;<
%,"+%
Doubtful (ccounts :9pense.......................................... (lloance for Doubtful (ccounts.............................
,&0 %,"+%
"0N ;E+4+,000 2 E1-,000 2 E1,400< Q E14,-0 ;.%N 9 E14,-0< Q E%,"+% Problem 8
'ro! inception of operations to Dece!ber "1, 001, Garris Corporation provided for uncollectible accounts receivable under the alloance !ethodH rovisions ere !ade !onthly at percent of credit salesI bad debts ritten off ere charged to the alloance accountI recoveries of bad debts previously ritten off ere credited to the alloance accountI and no year2end ad6ust!ents to the alloance account ere !ade. Garriss usual credit ter!s are net "0 days. The credit balance in the alloance for doubtful accounts as E&0,000 at 5anuary 1, 00. During 00, credit sales totaled E1-,000,000, interi! provisions for doubtful accounts ere !ade at percent of credit sales, E1-0,000 of bad debts ere ritten off, and recoveries of accounts previously ritten off a!ounted to E"0,000. Garris installed a co!puter syste! in )ove!ber 00 and an aging of accounts receivable as prepared for the first ti!e as of Dece!ber "1, 00. ( su!!ary of the aging is as follosH Classifications by 3onth of #ale )ove!ber2Dece!ber 00 5uly2ctober 00 5anuary25une 00 rior to 5anuary 1, 00
Balance in :ach Category E,-0,000 1,00,000 -00,000 &0,000
:sti!ated N $ncollectible N 1%N %N -0N
Based on the revie of collectibility of the account balances in the Jprior to 5anuary 1, 00K aging category, additional receivables totaling E10,000 ere ritten off as of Dece!ber "1, 00. :ffective ith the year ended Dece!ber "1, 00, Garris adopted a ne accounting !ethod for esti!ating the alloance for doubtful accounts at the a!ount indicated by the year2end aging analysis of accounts receivable.
;1< repare a schedule analy*ing the changes in the alloance for doubtful accounts for the year ended Dece!ber "1, 00. #ho supporting co!putations in good for!. ;< repare the 6ournal entry for the year2end ad6ust!ent to the alloance for doubtful accounts balance as of Dece!ber "1, 00. Solution 8
> ;1<
Garris Corporation (nalysis of Changes in the (lloance for Doubtful (ccounts 'or the Fear :nded Dece!ber "1, 00
Balance at 5anuary 1, 00............................................................. rovision for doubtful accounts ;E1-,000,000 9 N<.............................. Recovery in 00 of bad debts ritten off previously...................... Deduct rite2offs for 00 ;E1-0,000 O E10,000<.................................. Balance at Dece!ber "1, 00, before change in accounting esti!ate....................................................................................... ncrease due to change in accounting esti!ate during 00 ;E%"+,&00 2 E"%0,000<........................................................................ Balance at Dece!ber "1, 00, ad6usted ;#chedule 1<..................
E&0,000 "&0,000 "0,000 E&%0,000 "00,000 E"%0,000 1-+,&00 E%"+,&00
#chedule 1 Co!putation of (lloance for Doubtful (ccounts at Dece!ber "1, 00 (ging Category )ove!ber2Dece!ber 00 5uly2ctober 00 5anuary25une 00 rior to 5anuary 1, 00 L
Balance E,-0,000 1,00,000 -00,000 140,000 L E4,40,000
ercent N 1%N %N -0N
Doubtful (ccounts E 4%,&00 1-0,000 00,000 11,000 E%"+,&00
E&0,000 2 E10,000
;< Doubtful (ccounts :9pense............................................. 1-+,&00 (lloance for Doubtful (ccounts................................ 1-+,&00 To increase the alloance for doubtful accounts at Dece!ber "1, 00, resulting fro! a change in accounting esti!ate.
Problem 9
#pecific custo!er accounts receivable totaling E1,-%0,000 ere assigned to 8eorgeton 'inance Co!pany by Tho!pson nc. as collateral for a E1,4+0,000 loan. The finance co!pany charged a " percent finance charge on the total accounts receivable assigned. The note bears interest at 1 percent per year. During the first !onth, Tho!pson collected E&-0,000 on the assigned accounts. This a!ount plus one !onths interest as re!itted to the finance co!pany. ;1< 3ake all necessary entries concerning the assign!ent, the loan, and the re!ittance on the books of Tho!pson nc. ;< repare the appropriate section;s< of Tho!psons balance sheet to reflect the assign!ent at the end of the first !onth. Solution 9
>& ;1< Cash............................................................................1,414,%00 'inance Charge ;"N 9 E1,-%0,000<.................................. %%,%00 (ccounts Receivable (ssigned..................................1,-%0,000 )otes ayable....................................................... (ccounts Receivable............................................
1,4+0,000 1,-%0,000
Cash............................................................................ &-0,000 (ccounts Receivable (ssigned.............................
&-0,000
)otes ayable............................................................ &-0,000 nterest :9pense ;E1,4+0,000 9 1N 9 1/1<...................... 14,+00 Cash ;E&-0,000 O E14,+00<..........................................
&4,+00
;<
Current Assets
(ccounts Receivable (ssigned..................................................
E1,1+0,000 L
LTho!pson nc. should disclose parenthetically, or in a footnote, that the e=uity in its assigned receivables is E"-0,000 ;E1,1+0,000 2 E+0,000<. Problem 10
n 5une 1, 00, Goard Corporation needed cash to !eet current operating needs. Goard decided to factor so!e of its receivables. Goard factored E40,000 of receivables to Third )ational Bank for E41&,%00. (n alloance for doubtful accounts of " percent of the receivables balance is !aintained by Goard. The bank ithheld + percent of the purchase price as protection against sales returns and alloances. #ales returns against the factored receivables totaled E1,4-0.
;1< Record the entry to reflect the factoring ;sale< of the accounts receivable. ;< Record the final settle!ent of the accounts receivable factoring. Solution 10
>& ;1< Cash................................................................................. "-+,"4% Receivable fro! 'actor ;+N 9 E41&,%00<.............................. ,1%% (lloance for Doubtful (ccounts ;"N 9 E40,000<............... 14,+00 >oss fro! 'actoring ;E40,000 2 E14,+00< 2 E41&,%00............... %-,-00 (ccounts Receivable.................................................. 40,000 ;< #ales Returns and (lloances........................................ Cash ;E,1%% 2 E1,4-0<........................................................ Receivable fro! 'actor..............................................
1,4-0 +,&+% ,1%%
Problem 11
n Dece!ber "1, Central #avings >oan discounted the folloing notes at 1 percentH ;1< "2!onth, E+0,000, non2interest2bearing note dated ctober "1. ;< 2!onth, E4-,000, 1" percent note dated )ove!ber "0. ;"< 42!onth, E"0,000, 10 percent note dated ctober "1. Deter!ine the proceeds fro! each note, rounded to the nearest dollar. Solution 11
>& ;1< 3aturity alue................................................................................... E+0,000 Discount ;E+0,000 9 1N 9 1/1< ............................................................. +00 roceeds.......................................................................................... E&,"00 ;< 'ace.................................................................................................. nterest nco!e ;E4-,000 9 1"N 9 /1<.................................................. 3aturity alue................................................................................... Discount ;E4,040 9 1N 9 1/1< ............................................................. roceeds.......................................................................................... ;"< 'ace.................................................................................................. nterest nco!e ;E"0,000 9 10N 9 4/1<.................................................. 3aturity alue................................................................................... Discount ;E"1,000 9 1N 9 /1< ............................................................. roceeds..........................................................................................
E4-,000 1,040 E4,040 40 E4-,%%0 E"0,000 1,000 E"1,000 &0 E"0,"-0
Problem 12
Denver :=uip!ent sold a !achine ith a book value of E&&,000 to 3innesota Corp., receiving a E&0,000 non2interest2bearing note due in three years. The fair value of the !achine cannot be deter!ined. The interest on si!ilar obligations is esti!ated to be 10 percent. ;1< ;< ;"< ;4<
Co!pute the discount on notes receivable. Co!pute the gain or loss on sale of !achinery, if any. repare the 6ournal entry to record the sale. repare a schedule of discount a!orti*ation for the note ith a!ounts rounded to the nearest dollar. ;%< 8ive the entry to record the a!orti*ation at the end of year one. Solution 12
>+ ;1< resent alue of noteH Q (;' ;n/i<< n Q " i Q 10N Q E&0,000 9 .+%1" Q E4%,0+'ace alue of )ote........................................................................... E &0,000 resent alue................................................................................... 4%,0+Discount............................................................................................ E 14, ;< )et Book alue................................................................................. E &&,000 resent alue of )ote...................................................................... 4%,0+>oss on #ale..................................................................................... E 0, ;"< )otes Receivable............................................................. >oss on #ale of 3achinery.............................................. 3achinery ;net<........................................................ Discount on )otes Receivable................................ ;4< :ffective nterest 10N nitial :nd of Fear 1 :nd of Fear :nd of Fear "
E4,%04,% %,4%%
Discount (!orti*ed E4,%04,% %,4%%
&0,000 0, &&,000 14,
$na!orti*ed Discount Balance E14, 10,414 %,4%% 0
;%< Discount on )otes Receivable........................................ nterest Revenue.....................................................
resent alue of )ote E4%,0+4,%-& %4,%4% &0,000
4,%04,%0-
Problem 13
n 5anuary , 00, Clark roducts, nc. sold an apart!ent building that cost E1,-00,000 and had a book value of E-10,000. Clark received a to2year, non2 interest2bearing note ith a face value of E1,"%,000 and a due date of Dece!ber "1, 00". The fair value of the apart!ent building at the date of sale could not be deter!ined. The current rate of interest for co!parable notes as 14 percent. repare the 6ournal entries for Clark roducts, nc. to recordH ;1< The apart!ent building sale. ;< The ad6usting entries at Dece!ber "1, 00 and 00" for interest earned. ;"< #ettle!ent of note at !aturity. Solution 13
>+ ;1< )otes Receivable........................................................1,"%,000 (ccu!ulated Depreciation......................................... 0,000 8ain on #ale of (part!ent Building...................... (part!ent Building................................................ Discount on )otes Receivable.............................. L E1,"%,000 9 .+&% Q E1,4--,-"
&+-,-" L 1,-00,000 44&,01+
-10,000 E &+-,-" 8ain
;< Dece!ber "1, 00 Discount on )otes Receivable ;E1,4--,-" 9 14N<......... 0-,4%nterest Revenue...................................................
0-,4%-
Dece!ber "1, 00" Discount on )otes Receivable ;E44&,01+ 2 E0-,4%-< L. . . "+,%% nterest Revenue...................................................
"+,%%
L
)oteH The use of tables causes rounding in the co!putation of discount a!ount.
;"< Cash............................................................................1,"%,000 )otes Receivable..................................................
1,"%,000
Problem 14
ogo Co!pany accepted a E10,000, 1-02day, 10 percent interest2bearing note dated (ugust 1, 00, fro! a custo!er for the sale of a piece of e=uip!ent. The !achinery cost E1&0,000 and as 40 percent depreciated. n #epte!ber 1%, 00, ogo discounted the note, ith recourse, at Third )ational Bank at a 1 percent discount rate. The custo!er paid the note at !aturity. ;1< 3ake the entries necessary to record the above transactions on ogo Co!panys books. Round a!ounts to the nearest dollar. ;(ssu!e the transfer does not !eet the '(#B criteria for recording as a sale.< ;< @hat entry ould be re=uired on ogos books at !aturity if the custo!er defaultsA Solution 14
>&, >+ ;1< (ugust 1, 00 )otes Receivable............................................................. 10,000 (ccu!ulated Depreciation............................................... &4,000 8ain on #ale of :=uip!ent........................................ 4,000 :=uip!ent................................................................... 1&0,000 #epte!ber 1%, 00 Cash................................................................................. 10," nterest Revenue........................................................ bligation on Discounted )otes Receivable ............. 'ace alue of )ote..................................................................... nterest Revenue ;E10,000 9 10N 9 1-0/"&%<.................................... 3aturity alue............................................................................. Discount ;E1%,1- 9 1N 9 1"%/"&%<................................................. roceeds.....................................................................................
" 10,000 E10,000 %,1E1%,1%,%- E10,"
5anuary +, 00" bligation on Discounted )otes Receivable................... 10,000 )otes Receivable....................................................... 10,000
;< 5anuary +, 00" )otes Receivable22ast Due........................................... 1%,1Cash............................................................................ 1%,1bligation on Discounted )otes Receivable................... 10,000 )otes Receivable....................................................... 10,000 Problem 15
Dunn Co!pany accepted a E400,000, 02day, 1 percent interest2bearing note dated #epte!ber 1, 00, fro! a custo!er for an accounts receivable balance. n ctober 1, 00, Dunn discounted the note, ithout recourse, to City )ational Bank at a 10 percent discount rate. The custo!er paid the note at !aturity. ;1< 3ake the necessary entries to record the above transactions on Dunn Co!panys books. Round a!ounts to the nearest dollar. ;< @hat entry ould be re=uired on Dunn Co!panys books at !aturity if the custo!er defaultsA Solution 15
>+ ;1< #epte!ber 1, 00 )otes Receivable............................................................. 400,000 (ccounts Receivable.................................................. 400,000 ctober 1, 00 Cash................................................................................. 40%,0&& 8ain on #ale of )otes Receivable............................. )otes Receivable....................................................... 'ace alue.................................................................................. nterest ;E400,000 9 1N 9 0/"&%<..................................................... 3aturity alue............................................................................. Discount ;E411,-"& 9 10N 9 &0/"&%<................................................... roceeds.....................................................................................
%,0&& 400,000 E400,000 11,-"& E411,-"& &,++0 E40%,0&&
;< )o entry because the note as transferred ithout recourse. Problem 16
n 5uly ", litt Co!pany factored E"00,000 in accounts receivable for cash of E-0,000. The factor ithheld + percent of the cash proceeds to allo for possible custo!er returns. (n alloance for doubtful accounts of E1",000 had previously been established by litt in relation to these accounts. 3ake the 6ournal entry necessary on litts books to record the factoring of the accounts.
Test Bank Intermediate Accounting , 14th ed.
,,'
Solution 16
>& Cash................................................................................. &0,400 Receivable fro! 'actor.................................................... 1,&00 (lloance for Doubtful (ccounts..................................... 1",000 >oss fro! 'actoring Receivables.................................... +,000 (ccounts Receivable.................................................. "00,000 Problem 17
The folloing infor!ation is for >oranne Co!panyH (ccounts Receivable, 5anuary 1, 00...................................... (ccounts Receivable, Dece!ber "1, 00 ................................ (lloance for Bad Debts, 5anuary 1, 00................................ (lloance for Bad Debts, Dece!ber "1, 00........................ .. @rite2offs of uncollectible accounts2200................................. Bad Debt :9pense2200........................................................... Depreciation :9pense2200...................................................... )et nco!e2200.......................................................................
E 00,000 1%,000 "0,000 -,000 "%,%00 "",%00 100,000 %+,000
Co!pute net cash flo fro! operations for 00. (ssu!e that all e9penses not !entioned ere paid in cash and that the levels of all current assets and liabilities, e9cept for accounts receivable, ere unchanged during the year. Solution 17
>)et inco!e.................................................................................. lusH Depreciation e9pense....................................................... >essH ncrease in net accounts receivable................................ )et cash flo fro! operations....................................................
E %+,000 100,000 ;1+,000< E "40,000
Problem 18
Fou are the auditor of lastico, nc., a !anufacturer of plastic products. n revieing balance sheet of the co!pany, you notice several receivables fro! the officers of the co!pany. Fou report your findings to the president of the co!pany and infor! hi! that these receivables ill be considered related party transaction for purposes of financial accounting and reporting. The president see!s so!ehat annoyed by your co!!ents and asks you to e9plain hat you !ean by Jrelated partyK transactions and ho the financial state!ents ill be affected by these transactions. repare a brief response to the presidents =uestion. Solution 18
>% Related party transactions occur hen an enterprise engages in transactions in hich one of the parties to the transaction has the ability to influence significantly the policies of the other, or in hich one party to the transaction has the ability to influence the policies of the to transacting parties. The folloing are e9a!ples of related party transactionsH a. b. c. d.
Transactions beteen a parent co!pany and its subsidiaries. Transactions beteen subsidiaries of a co!!on parent. Transactions beteen an enterprise and trusts for the benefit of e!ployees ;such trusts being controlled or !anaged by the enterprise<. Transactions beteen an enterprise and its principal oners, !anage!ent, or !e!bers of i!!ediate fa!ilies and affiliates.
Transactions beteen related parties !ay be controlled entirely by one of the parties so that the transactions !ay be affected significantly by considerations other than those in ar!s2length transactions ith unrelated parties. Related party transactions fre=uently involve such things as borroing or lending !oney at abnor!ally high or lo interest rates, real estate sales at a!ounts that differ significantly fro! appraised values, e9changes of non!onetary assets, and transactions ith JshellK co!panies ;enterprises having no econo!ic substance<. Transactions ith related parties are not conducted at ar!s2length and thus their for! !ay differ fro! their econo!ic substance. n cases here the for! of the transaction differs fro! the substance, auditors ill re=uire that the financial state!ents properly reflect the substance of the transaction. (uditors also ill re=uire that the financial state!ents include the folloing disclosures regarding related party transactionsH a. The nature of the relationship;s< involved. b. ( description of the transactions, including transactions to hich no a!ounts or no!inal a!ounts ere ascribed for each period for hich an inco!e state!ent is presented. c. The dollar a!ounts of transactions for each of the periods for hich inco!e state!ents are presented. d. (!ounts due fro! or to related parties as of the date of each balance sheet presented. The president !ay be reluctant to disclose the nature or a!ounts of related party transactions and !ay resist changes in accounting for related party transaction if the transactions have not been accounted for in accordance ith applicable generally accepted accounting principles or do not reflect the substance of the transactions.
CHAPTER 6 -- QUI. A )a!e SSSSSSSSSSSSSSSSSSSSSSSSS #ection SSSSSSSSSSSSSSSSSSSSSSSS T ' 1. Certificates of deposit and !oney !arket savings certificates are e9a!ples of ti!e deposits. T ' . De!and deposits ould include a!ounts in checking, savings, and !oney !arket deposit accounts. T ' ". Deposits in foreign banks are alays reported as receivables. T ' 4. ( cash overdraft should be reported as a current liability. T ' %. Co!pensating balance re=uire!ents as a result of short2ter! financing arrange!ents are reported separately in the invest!ent section of the balance sheet. T ' &. @hen an i!prest petty cash fund fails to balance, an ad6ust!ent is !ade to a !iscellaneous e9pense or revenue account, often called JCash ver and #hort.K T ' +. ( bank reconciliation should be prepared by the individual responsible for cash receipts and disburse!ents. T ' -. n a bank reconciliation state!ent, the a!ount of a not2sufficient2funds check !ust be added to the depositors cash balance in deter!ining the correct cash balance. T ' . n a bank reconciliation state!ent, an outstanding check !ust be subtracted fro! the bank state!ent balance in deter!ining the correct cash balance. T ' 10. The ter! Jinternal controlK includes only accounting controls.
+
CHAPTER 6 -- QUI. ( )a!e SSSSSSSSSSSSSSSSSSSSSSSSS #ection SSSSSSSSSSSSSSSSSSSSSSSS T ' 1. (ccounts receivable are to be reported at their net reali*able value. T ' . The direct rite2off !ethod for uncollectible accounts does not provide for the !atching of current revenues ith related e9penses. T ' ". The use of the direct rite2off !ethod is acceptable under generally accepted accounting principles. T ' 4. Doubtful accounts e9pense is nor!ally reported as a deduction fro! sales in the inco!e state!ent. T ' %. The entry to rite off an uncollectible account under the alloance !ethod is a debit to Doubtful (ccounts :9pense and a credit to (ccounts Receivable. T ' &. The !ethod of esti!ating uncollectible accounts e9pense based on the accounts receivable balance e!phasi*es the deter!ination of the net reali*able value of the receivables. T ' +. @hen esti!ating collectibility based on an analysis of the accounts receivable balance, any e9isting balance in the alloance for doubtful accounts is ignored. T ' -. @hen there has been a failure to esti!ate uncollectible accounts accurately, resulting in an alloance balance that is clearly e9cessive or inade=uate, an ad6ust!ent is in order. This ad6ust!ent ould be considered a change in accounting esti!ate under (B pinion )o. 0. T ' . The JlistK sales price less any trade discount is the a!ount at hich the receivable and the corresponding revenue should be recorded. T ' 10. #ales discounts are nor!ally reported as selling e9penses.
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CHAPTER 6 -- QUI. C )a!e SSSSSSSSSSSSSSSSSSSSSSSSS #ection SSSSSSSSSSSSSSSSSSSSSSSS T ' 1. 'or balance sheet classification purposes, accounts receivable are alays considered current. T ' . )ontrade receivables should be included ith trade accounts receivable on the balance sheet. T ' ". @ith a general assign!ent of receivables, the loan ;note payable< should be reported on the balance sheet and the a!ount and nature of the receivables pledged to secure the loan should be disclosed. T ' 4. The assign!ent of specific receivables to a lender does not re=uire custo!er notification if the borroer continues to collect the receivables. T ' %. The disclosure re=uire!ents for the assign!ent of specific receivables include reporting the! separately as a current asset, if !aterial, and presenting the e=uity in assigned accounts parenthetically or in a note. T ' &. @hen factoring accounts receivable ithout recourse, the buyer ;factor< nor!ally assu!es the burden of billing and collecting accounts. T ' +. Transferring receivables ithout recourse !eans that the bank or finance co!pany advances cash in return for accounts receivable, but it retains the right to collect fro! the transferor if debtors fail to !ake pay!ents hen due. T ' -. The transfer of accounts receivable ith recourse should never be accounted for as a sale. T ' . )otes arising fro! loans to custo!ers, officers, e!ployees, and affiliated co!panies should be reported ith trade notes receivable. T '10. (n interest2bearing note is ritten as a pro!ise to pay a face a!ount plus interest at a specified rate.
CHAPTER 6 -- QUI. D )a!e SSSSSSSSSSSSSSSSSSSSSSSSS #ection SSSSSSSSSSSSSSSSSSSSSSSS (. )otes receivable B. )ontrade receivables C. )et reali*able value D. Direct rite2off !ethod :. nterest2bearing note '. 3aturity date 8. ro!issory note G. 'actoring receivables
. Trade discount 5. resent value . (lloance !ethod >. #ales discount 3. )egotiable note ). )on2interest2bearing note . (ssign!ent of receivables . aluation date
#elect the ter! that best fits each of the folloing definitions and descriptions. SSSS 1. ( !ethod of recogni*ing the actual losses fro! uncollectible accounts as e9penses during the period in hich the receivables are deter!ined to be uncollectible. SSSS . The a!ount of cash e9pected to be received fro! the conversion of assets in the nor!al course of business. SSSS ". The sale of receivables ithout recourse for cash to a third party, usually a bank or other financial institution. SSSS 4. Receivables that are evidenced by a for!al ritten pro!ise to pay a certain su! of !oney at a specified date. SSSS %. The date the principal a!ount of a note is due to be paid. SSSS &. ( reduction in the JlistK sales price of an ite! to the JnetK sales price actually charged to the custo!erI generally the a!ount of reduction depends on the volu!e of business or si*e of the order fro! the custo!er. SSSS +. The su! of future receipts or pay!ents discounted to the present date at an appropriate rate of interest. SSSS -. ( reduction in the selling price that is alloed if pay!ent is received ithin a specified period. SSSS . ( !ethod of recogni*ing the esti!ated losses fro! uncollectible accounts as e9penses during the period in hich the sales occur. SSSS10. ( note that is legally transferable by endorse!ent and delivery. SSSS11. (ny receivable arising fro! transactions that are not directly associated ith the nor!al operating activities of a business. SSSS1. ( note ritten in the for! here the face a!ount includes the interest charges. SSSS1". The borroing of !oney ith receivables pledged as security on the loan. SSSS14. ( note ritten in the for! here the !aker pro!ises to pay the face a!ount plus interest at a specified rate. SSSS1%. (n unconditional ritten pro!ise to pay a certain su! of !oney at a specified ti!e.
"0
CHAPTER 6 -- QUI. SOLUTIONS ui* ( 1. T . T ". ' 4. T %. ' &. T +. ' -. ' . T 10. '
ui* B 1. T . T ". ' 4. ' %. ' &. T +. ' -. T . T 10. '
ui* C 1. T . ' ". T 4. T %. T &. T +. ' -. ' . ' 10. T
ui* D 1. D . C ". G 4. ( %. ' &. +. 5 -. > . 10. 3 11. B 1. ) 1". 14. : 1%. 8
