Ch.7 Quiz

Instructions
Please read the questions carefully.

This assessment is worth 100 points.

  1. A company's policy concerning investments that are classified as cash equivalents must be described on the face of the balance sheet.   (2 points)

      
      

  2. From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets.   (2 points)

      
      

  3. In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records.   (2 points)

      
      

  4. If a check that was overstated when recorded on the books later clears the bank at the correct amount, the bank reconciliation will include an addition to the book balance of cash.   (2 points)

      
      

  5. If all transactions were recorded accurately during the accounting period, this ensures that no adjustments will be needed when preparing the bank reconciliation.   (2 points)

      
      

  6. Deposits outstanding and checks outstanding are added to the balance per the bank statement.   (2 points)

      
      

  7. Neither the establishment nor the replenishment of a petty cash fund affects the total book balance of cash and cash equilvalents.   (2 points)

      
      

  8. Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes.   (2 points)

      
      

  9. Accounts receivable are informal credit arrangements supported by invoices.   (2 points)

      
      

  10. Accounts receivable are recorded at their present value.   (2 points)

      
      

  11. Trade discounts are reported as contra revenue accounts.   (2 points)

      
      

  12. The net method of accounting for cash discounts requires adjusting entries for discounts not taken.   (2 points)

      
      

  13. Recognizing sales returns when they occur could result in an overstatement of income in the period of the related sale.   (2 points)

      
      

  14. Under the balance sheet approach, bad debt expense is an indirect result of estimating the net realizable value of accounts receivable.   (2 points)

      
      

  15. The factoring of receivables without recourse creates a loss on the sale of receivables at the point of transfer.   (2 points)

      
      

  16. The discounting of a note receivable with recourse could create interest revenue or interest expense.   (2 points)

      
      

  17. The discounting of a note receivable without recourse is handled as a loan.   (2 points)

      
      

  18. The receivables turnover ratio will decrease if the average receivables decrease.   (2 points)

      
      

  19. A receivable turnover of 4 when credit terms are net 60 is favorable.   (2 points)

      
      

  20. An increase in the receivables turnover ratio from period to period means that the percentage increase in net sales must be greater than the percentage increase in net receivables.   (2 points)

      
      

  21. Cash may not include:   (2 points)

    a.  
    b.  
    c.  
    d.  

  22. In preparing a bank reconciliation, one would not expect to adjust the bank balance by:   (2 points)

    a.  
    b.  
    c.  
    d.  

  23. When preparing a bank reconciliation, adjustments to the book balance should not include:   (2 points)

    a.  
    b.  
    c.  
    d.  

  24. When preparing a bank reconciliation, adjustments to the book balance should include:   (2 points)

    a.  
    b.  
    c.  
    d.  

  25. Cash that is restricted and not available for current operations is reported in the balance sheet as:   (2 points)

    a.  
    b.  
    c.  
    d.  

  26. Accounts receivable are normally reported at the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  27. Queue Textiles shipped the wrong material to a customer, who refused to accept the order. Upon receipt of the material, Queue would credit accounts receivable and debit:   (2 points)

    a.  
    b.  
    c.  
    d.  

  28. Max-Mem Disks sells computer disk drives with right-of-return privileges. Returns are material and reasonably predictable. Max-Mem should:   (2 points)

    a.  
    b.  
    c.  
    d.  

  29. If a company uses the balance sheet approach to estimate bad debts expense, bad debts expense for a period can be determined by:   (2 points)

    a.  
    b.  
    c.  
    d.  

  30. Collections of accounts receivable that previously have been written off are credited to:   (2 points)

    a.  
    b.  
    c.  
    d.  

  31. Drebin Security Systems advanced $50,000 cash on a 5-year, 2% note to a supplier when an equivalent loan would carry 10% interest. The supplier has agreed to sell electronic equipment to Drebin over the next five years at less than market prices. Which of the following statements is correct?   (2 points)

    a.  
    b.  
    c.  
    d.  

  32. In deciding whether financing with receivables is a loan or a sale, the critical element is the extent to which:   (2 points)

    a.  
    b.  
    c.  
    d.  

  33. Accounts receivable pledged as collateral for a loan are reported:   (2 points)

    a.  
    b.  
    c.  
    d.  

  34. If a transferor has not surrendered control over factored receivables:   (2 points)

    a.  
    b.  
    c.  
    d.  

  35. Priscilla's Exotic Pets discounted a note receivable with recourse and the sales criteria were met. The amount of the note represents:   (2 points)

    a.  
    b.  
    c.  
    d.  

  36. A note receivable Mild Max Cycles discounted with recourse was dishonored on its maturity date. Mild Max would debit:   (2 points)

    a.  
    b.  
    c.  
    d.  

  37. Use the following to answer the next three questions: On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 10?   (2 points)

    a.  
    b.  
    c.  
    d.  

  38. What is the correct entry for Flores on November 17, assuming the correct payment was received on that date?   (2 points)

    a.  
    b.  
    c.  
    d.  

  39. Use the following to answer the next three questions: Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts. What entry would Oswego make on April 12?   (2 points)

    a.  
    b.  
    c.  
    d.  

  40. What entry would Oswego make on April 23, assuming the customer made the correct payment on that date?   (2 points)

    a.  
    b.  
    c.  
    d.  

  41. Use the following to answer the next three questions: Wallace Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Wallace uses the net method of accounting for cash discounts. What entry would Wallace make on April 12?   (2 points)

    a.  
    b.  
    c.  
    d.  

  42. What entry would Wallace make on June 10, assuming the customer made the correct payment on that date?   (2 points)

    a.  
    b.  
    c.  
    d.  

  43. At December 31, 2000, Arnold's Appliances reported accounts receivable of $311,000 and allowance for uncollectible accounts of $670, following a 2000 write-off of $6,750 in bad debts. An analysis of Arnold's December 31, 2000 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for 2000 would be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  44. Use the following to answer the next three questions: Letty's Wholesale Grocery estimates bad debt expense at ?% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650 respectively, at December 31, 1999. During 2000, Letty's credit sales and collections were $315,000 and $319,000, respectively, and $1,720 in bad accounts were written off. Letty's 2000 bad debt expense is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  45. Letty's adjusted allowance for uncollectible accounts at December 31, 2000 is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  46. Use the following to answer the next three questions: Nippy Auto Parts estimates bad debt expense at 0.5% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 1999. During 2000, Nippy's credit sales and collections were $408,000 and $404,000, repsectively, and $2,340 in bad accounts were written off. Nippy's 2000 bad debt expense is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  47. On January 1, 2000, Cezios Inc established a petty cash fund. On June 30, there were receipts totaling $148 chargeable to miscellaneous selling expense and $102 in cash. What would be the entry to record the replenishment of the petty cash fund on June 30?   (2 points)

    a.  
    b.  
    c.  
    d.  

  48. Use the following to answer the next two questions: Nader Inc. accepted a six-month noninterest-bearing note for $1,800 on January 1, 2000. The note was accepted as payment of a delinquent receivable of $1,500. What is the correct entry to record the note?   (2 points)

    a.  
    b.  
    c.  
    d.  

  49. The cash collection on July 1, 2000, would be recorded as:   (2 points)

    a.  
    b.  
    c.  
    d.  

  50. On April 1 of the current year, Troubled Company factored receivables with a carrying value of $85,000 for $60,000 in cash from Scrooge Lenders. The transfer was made without recourse. On April 1, Troubled would   (2 points)

    a.  
    b.  
    c.  
    d.  



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