Which of the following methods of determining annual bad debt expense best achieves the matching concept?
A.
Percentage of sales
B.
Percentage of ending accounts receivable
C.
Percentage of average accounts receivable
D.
Direct write-off

A.
Percentage of sales

Mayer Company received a seven-year zero-interest-bearing note on February 22, 2010, in exchange for property it sold to Reardon Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2010, 7.5% on December 31, 2010, 7.7% on February 22, 2011, and 8% on December 31, 2011. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2010 and 2011, respectively?
A.
0% and 0%
B.
7% and 7%
C.
7% and 7.7%
D.
7.5% and 8%

B.
7% and 7%

Short-term notes receivable are reported at either
A.
net realizable value or amortized cost.
B.
net realizable value or fair value.
C.
amortized cost or net realizable value.
D.
face value or fair value.

B.
net realizable value or fair value.

Of the following conditions, which is the only one that is not required if the transfer of receivables with recourse is to be accounted for as a sale?
A.
The transferor is obligated to make a genuine effort to identify those receivables that are uncollectible.
B.
The transferred asset has been isolated from the transferor.
C.
The transferee cannot require the transferor to repurchase the receivables.
D.
The transferees have obtained the right to pledge or exchange the receivables.

A.
The transferor is obligated to make a genuine effort to identify those receivables that are uncollectible.

The accounts receivable turnover ratio is computed by dividing
A.
gross sales by ending net receivables.
B.
gross sales by average net receivables.
C.
net sales by ending net receivables.
D.
net sales by average net receivables.

D.
net sales by average net receivables.

The journal entries for a bank reconciliation
A.
are taken from the "balance per bank" section only.
B.
may include a debit to Office Expense for bank service charges.
C.
may include a credit to Accounts Receivable for an NSF check.
D.
may include a debit to Accounts Payable for an NSF check.

B.
may include a debit to Office Expense for bank service charges.

Short-term paper with maturities of 3 to 12 months should be classified as
A.
cash equivalents.
B.
investments.
C.
temporary investments.
D.
receivables.

C.
temporary investments.

Deposits held as compensating balances
A.
usually do not earn interest.
B.
if legally restricted and held against short-term credit may be included as cash.
C.
if legally restricted and held against long-term credit may be included among current assets.
D.
none of these.

D.
none of these.

Non-trade receivables include all of the following except
A.
Advances to officers
B.
Receivables from subsidiaries
C.
Claims against insurance companies
D.
Accounts receivable from customers

D.
Accounts receivable from customers

If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)?
A.
1%
B.
12%
C.
18%
D.
30%

[360 days / (30 days – 10 days)] X 1% = 18% effective annual rate of interest.

During the year, Larson Company made an entry to write off a $4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $50,000 and the balance in the allowance account was $4,500. The net realizable value of accounts receivable before and after the write-off entry was
A.
$50,000.
B.
$49,500.
C.
$41,500.
D.
$45,500.

$50,000 - $4,500 = ($50,000 - $4,000) – ($4,500 - $4,000) = $45,500.

On December 31, 2010, Eller Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000. The terms of the sale were as follows:
$15,000 down payment
$30,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2010 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
A.
$52,773.
B.
$67,773.
C.
$60,000.
D.
$105,546.

A.
$52,773.

If companies elect the fair value option for short-term notes receivable, the unrealized holding gains and losses
A.
are recognized but not recorded.
B.
are reported as part of other comprehensive income.
C.
are reported as part of net income.
D.
are netted against interest revenue.

C.
are reported as part of net income.

Which of the following is a method used to generate cash from accounts receivable?
Assignment Factoring
A.
Yes No
B.
Yes Yes
C.
No Yes
D.
No No

Assignment and Factoring are both methods used to generate cash from accounts receivable.

The accounts receivable turnover ratio measures the
A.
number of times the average balance of accounts receivable is collected during the period.
B.
percentage of accounts receivable turned over to a collection agency during the period.
C.
percentage of accounts receivable arising during certain seasons.
D.
number of times the average balance of inventory is sold during the period.

A.
number of times the average balance of accounts receivable is collected during the period.

In preparing its August 31, 2010 bank reconciliation, Adel Corp. has available the following information:
Balance per bank statement, 8/31/10
$21,650
Deposit in transit, 8/31/10
3,900
Return of customer's check for insufficient funds, 8/30/10
600
Outstanding checks, 8/31/10
2,750
Bank service charges for August
100

At August 31, 2010, Adel's correct cash balance is
A. $22,800.
B. $22,200.
C. $22,100.
D. $20,500.

$21,650 + $3,900 - $2,750 = $22,800.

Cash consists of all of the following except:
A.
petty cash.
B.
certified checks.
C.
money orders.
D.
short-term paper with a maturity of 6 months.

D.
short-term paper with a maturity of 6 months.

The minimum cash amounts that banks often require customers to whom they lend money to maintain in checking accounts is called:
A.
bank overdrafts.
B.
cash equivalents.
C.
compensating balances.
D.
money market funds.

C.
compensating balances.

If, as anticipated, the FASB eliminates the cash equivalent classification, a treasury bill will be classified as:
A.
cash.
B.
an investment.
C.
a receivable.
D.
a short-term investment.

D.
a short-term investment.

Receivables may be classified as all of following except:
A.
current or noncurrent.
B.
accounts receivable or notes receivable.
C.
restricted or unrestricted.
D.
trade receivables or nontrade receivables.

C.
restricted or unrestricted.

In the gross method of recording cash discounts, sales discounts are:
A.
recorded at the time of sale.
B.
recorded when payment is received within the discount period.
C.
never recorded.
D.
ignored unless they are material in amount.

B.
recorded when payment is received within the discount period.

Short-term receivables are valued and reported at either fair value or:
A.
present value.
B.
face value.
C.
gross realizable value.
D.
net realizable value.

D.
net realizable value.

The percentage-of-sales method for estimating uncollectible accounts is often referred to as the:
A.
aging method.
B.
balance sheet approach.
C.
direct write-off method.
D.
income statement approach.

D.
income statement approach.

The balance in Allowance for Doubtful Accounts must be considered in computing Bad Debt Expense under the:
A.
direct write-off method.
B.
percentage-of-sales method.
C.
percentage-of-receivables method.
D.
percentage-of-sales and the percentage-of-receivables method.

C.
percentage-of-receivables method.