Intermediate Accounting 1 - RECEIVABLES (ACCOUNTS RECEIVABLES, NOTE RECEIVABLES, LOAN RECEIVABLES AND RECEIVABLE FINANCING)

Which is generally accepted method of determining the amount to bad debt expense?

An amount derived from aging accounts receivable adjusted for the balance in allowance


An amount derived from aging accounts receivable not adjusted for the balance in allowance

A percentage of accounts receivable not adjusted for the balance in allowance

A percentage of sales adjusted for the balance in allowance

An amount derived from aging accounts receivable adjusted for the balance in allowance

Loans and receivables are non-derivative financial assets

Without fixed or determinable payments that are not quoted in an active market

With fixed or determinable payments that are not quoted in an active market

Without fixed or determinable payments that are quoted in an active market

With fixed or determinable payments that are quoted in an active market

With fixed or determinable payments that are not quoted in an active market

When individual customer's accounts have credit balance of material amounts, their amounts

May be shown as "credit balances of customer accounts" in the current assets section

Must be reported separately in the liability section f the balance sheet

May be deducted from the debit balance other customers accounts in the asset section

Should be omitted from the balance sheet

Must be reported separately in the liability section f the balance sheet

Which of the following accounting principles primarily supports the use of allowance for doubtful accounts?

Matching principle

Continuity principle

Cost principle

Full-disclosure principle

Matching principle

The carrying value of an impaired note before recognizing a loan impairment


Included accrued interest

Is less than the carrying value after recognizing the impairment

Is the same as the carrying value after recognizing the impairment

Excludes accrued interest

Included accrued interest

A non-interest bearing note receivable

Includes a specified principal but an unspecified interest amount

Causes no interest revenue to be recorded

Includes an unspecified principal amount and an unspecified interest amount

Includes a specified principal amount plus specified interest

Includes an unspecified principal amount and an unspecified interest amount

Accounts receivable are classified as current assets

Only if the allowance method is used to estimate the uncollectible accounts

Whenever accounts receivable arise from "normal" sales to customers, regardless of the credit terms

Only if convertible into cash beyond one year

Only if convertible into cash within 60 days or sooner

Whenever accounts receivable arise from "normal" sales to customers, regardless of the credit terms

The allowance method of recognizing bad debt expense is generally considered a generally accepted accounting principle. What two conditions must be met before the allowance method can be used?

Bad debts must be probable and measurable

Bad debts must be persistent over time and the method used to estimate them is constantly applied

Bad debts must be relevant and reliable

Bad debts must be expected and material

Bad debts must be probable and measurable

The carrying value of an impaired note immediately after the recognition of the impairment loss is

The book value before the impairment loss is recognized less accrued interest

Present value of remaining cash flows to be received, discounted at the original interest rate implicit in the note.

Nominal sum of remaining cash flows to be received.


Present value of remaining cash flows to be received, discounted at the current market rate of interest.

Present value of remaining cash flows to be received, discounted at the original interest rate implicit in the note.

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

Sales discount forfeited in the cost of sales section of the income statement

An item of other expense in the income statement

A deduction from accounts receivable in determining the net realizable value

A deduction from sales in the income statement

A deduction from sales in the income statement

After being held for 60 days, a 120-day 8% interest bearing note receivable was discounted at a bank at 12%. The amount received from the bank is equal to

Face value less discount rate at 12%

Face value less discount rate at 8%

Maturity value less discount at 12%

Maturity value less discount at 8%

Maturity value less discount at 12%

ABC Cycle Shop sells bicycle to XYZ, a customer who uses Express Charge (a national credit card, but not issued by a bank) in recording this sale, ABC Cycle Shop should record

A small increase in the allowance for doubtful accounts

An account receivable from Express Charge

An account receivable from XYZ

A cash receipt

An account receivable from Express Charge

A company, which has an adequate amount in its Allowance for Doubtful Accounts, writes off as uncollectible an accounts receivable from a bankrupt customer. This action will

Reduce net income for the period

Reduce the amount of equity

Have no effect on total current assets

Reduce total current assets

Have no effect on total current assets

When accounts receivable are pledged, in addition to the disclosure required, total receivables will

Increase or decrease depending on the circumstances

Remain the same

Decrease

Increase

Remain the same

Which f the following methods may not be appropriate for estimating bad debt expense?

Percentage of income

Percentage of outstanding accounts receivable

Individual or collective assessment of outstanding receivables

Aging of accounts receivable

Percentage of income

Assuming that the ideal measure of short-term receivable in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because

The amount of discount is not material

Most receivables can be sold to a bank or factor

The allowance for uncollectible accounts includes a discount element

Most short-term receivables are not interest bearing

The amount of discount is not material

ABC company uses the allowance method in recognizing uncollectible accounts. Ignoring deferred taxes, the entity to record the write-off of a specific uncollectible account

Affects neither net income nor accounts receivable

Decreases both net income and working capital

Decreases both net income and accounts receivable

Affects neither net income nor working capital

Affects neither net income nor accounts receivable

Short-term non-interest bearing notes receivable are usually recorded at their

Maturity value

Discounted value

Present value

Net realizable value

Maturity value

When the allowance method is used, the entry which is appropriate when a particular account is written off as uncollectible should include a

Credit to bad debt expense

Debit to accounts receivable

Debit to allowance for doubtful accounts

Credit to sales revenue

Debit to allowance for doubtful accounts

Accounts receivable appear in the balance sheet

Only if the balance sheet method of estimating uncollectible accounts is used

As either current assets or noncurrent assets, depending on whether the allowance method or the direct write off method is used to account for uncollectible accounts

As current assets, combined with cash and cash equivalents

As current assets, immediately after cash and cash equivalents

As current assets, immediately after cash and cash equivalents

Which of the following is an advantage of using the net price method for recording cash discounts on credit sales?

It simplifies recording of sales returns and allowances

It eases communication with customers about their balances

It properly reflects current period sales revenue

It requires less record-keeping efforts than the gross method

It properly reflects current period sales revenue

All of the following are characteristics of financial assets classified as loan and receivable except

They are not quoted in an active market

The holder has demonstrated positive intention and ability to hold them to maturity

They have fixed or determinable payments

The holder can recover substantially all of its investment (unless there has been credit deterioration)

The holder has demonstrated positive intention and ability to hold them to maturity