Test Bank, Intermediate Accounting, 14

th
ed. 183
CHAPTER 6
The Revenue/Receivables/Cash Cycle
MULTIPLE CHOICE QUESTIONS
Theory/Definition! Q"e#tion#
1 Definition of the operating cycle
Co!position of cash on the balance sheet
" #eparation of duties in controls over cash
4 $nderstanding the bank reconciliation
% $nderstanding the bank reconciliation
& #'(# )o. 1% criteria for recogni*ing transfers as sales.
+ ,rinciples of internal control
- .perating cycle defined
/ Trade discounts
10 $sing direct 1rite2off !ethod
11 (llo1ance !ethod of accounting for bad debts
1 (llo1ance !ethod22recording 1rite2off
1" (llo1ance !ethod 1rite2off22effect on net inco!e and accounts receivable
14 (llo1ance !ethod22recording collection of account 1ritten off
1% Balance sheet !ethod of esti!ating bad debts22aging of accounts
receivable
1& (n uncollectible receivable is paid off
1+ 3atching principle and the recognition of an esti!ated liability for
1arranties
1- (ccounts receivable turnover
1/ )u!ber of days4 sales in accounts receivable
0 Cash classifications
1 Characteristics of cash control syste!
5ournal entry to replenish petty cash
" ,urpose of petty cash syste!
4 ,urpose of petty cash rei!burse!ent prior to year end
% Replenishing petty cash fund
& Bank state!ent infor!ation
+ Bank state!ent reconciliation
18$ Chapter & The Revenue/Receivables/Cash Cycle
- Bank state!ent reconciliation
/ Bank reconciliation22ite!s added to bank balance
"0 Bank reconciliation22ad6ust!ents on depositor7s books
"1 8eneral assign!ent of accounts receivable does not reduce accounts
receivable balance
" Definition of factoring accounts receivable
"" Reporting transfer of receivables 1ith recourse as a sale
"4 (,B )o. 122valuation of notes receivable e9changed for property
"% Recording notes receivable 1ithout interest
"& Definition of discounting notes receivable
Co%&"ttion! Q"e#tion#
"+ Co!puting proceeds of discounting notes receivable
"- Co!puting proceeds of discounting notes receivable
"/ Co!putation of sales discounts
40 Co!putation of sales discounts
41 Co!putation of gross sales given 1rite2off a!ounts under direct 1rite2off
4 Co!putation of net reali*able value of accounts receivable
4" Co!putation of net reali*able value of accounts receivable
44 Co!putation of allo1ance for doubtful accounts balance
4% Co!putation of doubtful accounts e9pense
4& Co!putation of doubtful accounts e9pense
4+ Co!putation of doubtful accounts e9pense
4- Co!putation of doubtful accounts e9pense22aging !ethod
4/ Co!putation of net reali*able value of accounts receivable using
percentage of credit sales for bad debts
%0 Co!putation of doubtful accounts e9pense
%1 Co!putation of 1arranty e9penses
% Co!putation of 1arranty e9penses
%" Co!putation of accounts receivable turnover
%4 Co!putation of nu!ber of days sales in average inventories
%% Co!putation of year2end cash balance
%& Co!putation of cash a!ount for balance sheet
%+ Co!putation of petty cash fund rei!burse!ent
%- Co!putation of reconciled cash balance
%/ Co!putation of reconciled cash balance
&0 Co!putation of cash balance per books
&1 Co!putation of cash a!ount for balance sheet
& Co!putation of corrected cash balance
&" Co!putation of cash disburse!ents per books
&4 Co!putation of proceeds fro! assign!ent of accounts receivable
&% (ssign!ent of accounts receivable22co!putation of a!ount o1ed to
assignee
&& Co!putation of proceeds received on note
Test Bank, Intermediate Accounting, 14
th
ed. 18'
&+ Co!putation of proceeds received on note
&- Co!putation of proceeds received on note
&/ Co!putation of proceeds received on note
+0 Co!putation of proceeds received on note
+1 Co!putation of proceeds of discounting notes receivable
+ Co!putation of proceeds of discounting notes receivable
+" Co!putation of effective interest rate on notes receivable
+4 :ffect of uncollectible accounts on state!ent of cash flo1s
+% :ffect of uncollectible accounts on state!ent of cash flo1s
+& :ffect of uncollectible accounts on state!ent of cash flo1s
++ ,roper state!ent presentation of receivables
PRO(LEMS
1 ,rovide entries to establish, replenish, and decrease petty cash
Co!putation of cash balance per books before reconciliation ad6ust!ents
" ,repare bank reconciliation state!ent
4 ,repare bank reconciliation state!ent
% ,repare 42colu!n bank reconciliation
& 8ive ad6usting entries for bad debts e9pense
+ 8ive ad6usting entries for bad debts e9pense
- ,repare schedule of allo1ance for bad debts and ad6usting entries
/ Record assign!ent, loan and re!ittance of accounts receivable ;and sho1
balance sheet<
10 Record factoring/sale of accounts receivable and final settle!ent
11 Co!putation of proceeds fro! discounting three separate notes
1 8iven scenario, co!pute discount on notes receivable, gain/loss on
e=uip!ent sale, record sale and a!orti*ation of discount
1" Record entries for sale, interest, and settle!ent of building sale
14 Record transactions for sale of e=uip!ent and factor of note
1% Record note receipt and discount to bank
1& Record factoring of accounts receivable
1+ Co!putation of net cash fro! operations given appropriate balances
MULTIPLE CHOICE QUESTIONS
c 1. (n operating cycle
>.1 a. is t1elve !onths or less in length.
b. is the average ti!e re=uired for a co!pany to collect its receivables.
c. is used to deter!ine current assets 1hen the operating cycle is longer
than one year.
186 Chapter & The Revenue/Receivables/Cash Cycle
d. begins 1ith inventory and ends 1ith cash.
Test Bank, Intermediate Accounting, 14
th
ed. 18)
a . The a!ount reported as ?Cash? on a co!pany7s balance sheet nor!ally
should
>.4 e9clude
a. postdated checks that are payable to the co!pany.
b. cash in a payroll account.
c. undelivered checks 1ritten and signed by the co!pany.
d. petty cash.
c ". @hich one of the follo1ing state!ents is incorrectA
>.4 a. The accounting function should be separated fro! the custodianship of
a co!pany7s assets.
b. Certain clerical personnel in a co!pany should be rotated a!ong
various 6obs.
c. The responsibility for receiving !erchandise and paying for it should
usually be given to one person.
d. ( co!pany7s personnel should be given 1ell2defined responsibilities.
d 4. Bf the balance sho1n on a co!pany7s bank state!ent is less than the
correct
>.4 cash balance, and neither the co!pany nor the bank has !ade any errors,
there !ust be
a. deposits credited by the bank but not yet recorded by the co!pany.
b. outstanding checks.
c. bank charges not yet recorded by the co!pany.
d. deposits in transit.
a %. Bf the cash balance sho1n in a co!pany7s accounting records is less than
the
>.4 correct cash balance, and neither the co!pany nor the bank has !ade any
errors, there !ust be
a. deposits credited by the bank but not yet recorded by the co!pany.
b. deposits in transit.
c. outstanding checks.
d. bank charges not yet recorded by the co!pany.
b &. The '(#B specified in #tate!ent )o. 1% three conditions that !ust be !et
>.& if a transfer of receivables is to accounted for as a sale. @hich of the
follo1ing is not one of the three conditions specifiedA
a. The transferred assets have been isolated fro! the transferor.
b. The transferor4s obligation under the recourse provisions 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, 14
th
ed. 18*
c +. @hich one of the follo1ing state!ents is incorrectA
>.4 a. The accounting function should be separated fro! the custodianship of
a co!pany4s 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!pany4s personnel should given 1ell2defined responsibilities.
a -. @hich of the follo1ing is incorrectA
>.1 a. The operating cycle al1ays 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 /. ( 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.
d 10. @hen the direct 1rite2off !ethod of recogni*ing bad debt e9pense is used,
the
>. entry to 1rite off a specific custo!er account 1ould
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 allo1ance !ethod of accounting for bad debts 1ith
the
>. direct 1rite2off !ethod, 1hich of the follo1ing is trueA
a. The direct 1rite2off !ethod is e9act and also better illustrates the
!atching principle.
b. The allo1ance !ethod is less e9act but it better illustrates the !atching
principle.
c. The direct 1rite2off !ethod is theoretically superior.
1*+ Chapter & The Revenue/Receivables/Cash Cycle
d. The direct 1rite2off !ethod re=uires t1o separate entries to 1rite off an
uncollectible account.
Test Bank, Intermediate Accounting, 14
th
ed. 1*1
a 1. @hen the allo1ance !ethod of recogni*ing bad debt e9pense is used, the
>. entry to record the 1rite2off of a specific uncollectible account 1ould
decrease
a. allo1ance for doubtful accounts.
b. net inco!e.
c. net reali*able value of accounts receivable.
d. 1orking capital.
a 1". @hen a specific custo!er4s account is 1ritten off by a co!pany using the
>. allo1ance !ethod, the effect on net inco!e and the net reali*able value of
the accounts receivable is
)et Reali*able Calue
)et Bnco!e of (ccounts Receivable
a. )one )one
b. Decrease Decrease
c. Bncrease Bncrease
d. Decrease )one
b 14. @hen the allo1ance !ethod of recogni*ing bad debt e9pense is used, the
>. entries at the ti!e of collection of a s!all account previously 1ritten off
1ould
a. increase net inco!e.
b. increase the allo1ance for doubtful accounts.
c. decrease net inco!e.
d. decrease the allo1ance 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 allo1ance !ethod based on
a. direct 1rite2off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts deter!ined to be uncollectible.
c 1&. The entry
>.
(ccounts Receivable....................................... 999
(llo1ance for $ncollectible (ccounts........ 999
1ould be !ade 1hen
a. a custo!er pays its account balance.
b. a custo!er defaults on its account.
1*, Chapter & The Revenue/Receivables/Cash Cycle
c. a previously defaulted custo!er pays its outstanding balance.
d. esti!ated uncollectible receivables are too lo1.
Test Bank, Intermediate Accounting, 14
th
ed. 1*3
a 1+. @hat is the accounting principle underlying the recognition of an esti!ated
>. liability for 1arranties in the period of product saleA
a. 3atching
b. 3ateriality
c. 'ull Disclosure
d. Conservatis!
c 1-. Bn calculating a co!pany4s accounts receivable turnover, 1hich of the
follo1ing
>." sets of factors 1ould 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 stockholders4 e=uity
c 1/. @hich of the follo1ing factors are used to co!pute the nu!ber of days4
sales
>." in accounts receivableA
a. Bnventory turnover and "&% days
b. )et sales and average inventory
c. (ccounts receivable turnover and "&% days
d. (verage accounts receivable and cost of goods sold
d 0. @hich of the follo1ing 1ould not be classified as cashA
>.4 a. ,ersonal checks
b. Travelers4 checks
c. Cashiers4 checks
d. ,ostdated checks
b 1. @hich of the follo1ing is not a basic characteristic of a syste! of cash
controlA
>.4 a. $se of a voucher syste!
b. Co!bined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Bnternal audits at irregular intervals
1*$ Chapter & The Revenue/Receivables/Cash Cycle
c . .n 5anuary 1, 00, Dyle Corporation established a petty cash fund of
E400.
>./ .n Dece!ber "1, 00, the petty cash fund 1as e9a!ined and found to
have receipts and docu!ents for !iscellaneous e9penses a!ounting to
E"&4. Bn addition, there 1as cash a!ounting to E44. @hat entry 1ould 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
d ". ( 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.
a 4. Bn !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 1ith the appropriate state!ent of e9penses.
b %. Bn replenishing a petty cash fund, 1hich one of the follo1ing 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, 14
th
ed. 1*'
d &. Bank state!ents provide infor!ation about all of the follo1ing except
>.4 a. checks cleared during the period.
b. )#' checks.
c. bank charges for the period.
d. errors !ade by the co!pany.
c +. @hich of the follo1ing ite!s 1ould be added to the book balance on a bank
>.4 reconciliationA
a. .utstanding checks
b. ( check 1ritten for E&" entered as E"& in the accounting records
c. Bnterest paid by the bank
d. Deposits in transit
c -. Bn preparing a bank reconciliation, interest paid by the bank on the account
is
>.4 a. added to the bank balance.
b. subtracted fro! the bank balance.
c. added to the book balance.
d. subtracted fro! the book balance.
c /. Bn preparing a !onthly bank reconciliation, 1hich of the follo1ing ite!s
1ould
>.4 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!er4s note collected by the bank on behalf of the depositor
b "0. Bank reconciliations are nor!ally prepared on a !onthly basis to identify
>.4 ad6ust!ents needed in the depositor4s 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 1hich of
the
>.& follo1ing 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 1ithout recourse
b ". @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 1ithout
recourse, the accounts receivable have been
a. transferred 1ith recourse.
b. factored.
c. assigned.
d. pledged.
a "". @hich of the follo1ing is a re=uire!ent for reporting the transfer of
receivables
>.& 1ith 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 transferor4s 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 1as recorded, 1hich of the follo1ing 1ere
debited or creditedA
Bnterest 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 1as i!!ediately
>.+ discounted at a bank at 1 percent. The proceeds received fro! the bank
upon discounting 1ould 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 bank4s discount rate 1as / percent. Go1 !uch
1ere 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, 1ith ter!s of /10, net /"0. .n 5uly &, #econd returned E00 1orth
of !erchandise clai!ing the !aterials 1ere 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. Go1 !uch 1as the total #ales Discounts given to #econd during
5ulyA
a. E0
b. E/
c. E441
d. E,441
c 40. 'irst Co!pany sold !erchandise on credit to #econd Co!pany for E1,000
on
>. 5uly 1, 1ith ter!s of /10, net /"0. .n 5uly &, #econd returned E00 1orth
of !erchandise clai!ing the !aterials 1ere 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 1as the total cash received fro! #econd during 5ulyA
a. E441
b. E4%0
c. E+/1
d. E-00
b 41. 'or the !onth of Dece!ber, the records of Balin Corporation sho1 the
>. follo1ing 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 1ritten off as uncollectible.................. ,000
The corporation uses the direct 1rite2off !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, sho1ed the follo1ingH
(ccounts Receivable....................................................... E-40,000
(llo1ance 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 follo1ing dataH
(ccounts Receivable....................................................... E4%0,000
(llo1ance 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 follo1ing data are available for last yearH
(llo1ance for Doubtful (ccounts, 5anuary 1................... E %4,000
;cr<
(ccounts 1ritten off as uncollectible during the year...... &0,000
Collection of accounts 1ritten off in prior years
;custo!er credit 1as re2established<...................................... 1%,000
Credit sales, year2ended Dece!ber "1........................... ",000,000
The allo1ance for doubtful accounts balance at Dece!ber "1, after
ad6usting entries, should be
a. E4%,000.
b. E-4,000.
c. E/0,000.
d. E//,000.
c 4%. The follo1ing infor!ation is fro! the records of ,rosser, Bnc. for the year
>. ended Dece!ber "1, 00.
(llo1ance for Doubtful (ccounts, 5anuary 1, 00......... E &,000
;cr<
#ales, 00...................................................................... ,/0,000
#ales Returns and (llo1ances, 00.............................. ",000
Bf 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 follo1sH
(ccounts Receivable at Dece!ber "1............................ E--0,000
(llo1ance for Doubtful (ccounts at 5anuary 1................ 1-,000
;cr<
(ccounts 1ritten off as uncollectible during the year...... --,000
,ribob4s 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 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
allo1ance for doubtful accounts credit balance 1as E10,000. During 00,
(ce 1rote off E1-,000 of uncollectible receivables and recovered E%,000 on
accounts 1ritten off in prior years. Bf 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.
d 4-. Richards Co!pany uses the allo1ance !ethod of accounting for bad debts.
>. The follo1ing su!!ary schedule 1as prepared fro! an aging of accounts
receivable outstanding on Dece!ber "1 of the current year.
)o. of Days ,robability
.utstanding (!ount of Collection
02"0 days E%00,000 ./-
"12&0 days 00,000 ./0
.ver &0 days 100,000 .-0
The follo1ing additional infor!ation is available for the current yearH
)et credit sales for the year....................................... E4,000,000
(llo1ance for Doubtful (ccountsH
Balance, 5anuary 1............................................... 4%,000
;cr<
Balance before ad6ust!ent, Dece!ber "1........... ,000
;dr<
Bf 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 allo1ance !ethod of accounting for bad debts.
>. The follo1ing su!!ary schedule 1as prepared fro! an aging of accounts
receivable outstanding on Dece!ber "1 of the current year.
)o. of Days ,robability
.utstanding (!ount of Collection
02"0 days E%00,000 ./-
"12&0 days 00,000 ./0
.ver &0 days 100,000 .-0
The follo1ing additional infor!ation is available for the current yearH
)et credit sales for the year............................................. E4,000,000
(llo1ance for Doubtful (ccountsH
Balance, 5anuary 1..................................................... 4%,000
;cr<
Balance before ad6ust!ent, Dece!ber "1................. ,000
;dr<
Bf 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 1ill be
a. E+"-,000.
b. E+40,000.
c. E+4,000.
d. E+%0,000.
d %0. 8ekko, Bnc. reported the follo1ing balances ;after ad6ust!ent< at the end of
>. 00 and 001.
1/"1/00 1/"1/001
Total accounts receivable..................... E10%,000 E/&,000
)et accounts receivable....................... 10,000 /4,%00
During 00, 8ekko 1rote off custo!er accounts totaling E",00 and
collected E-00 on accounts 1ritten off in previous years. 8ekko4s 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. ( ne1 product introduced by @ilkenson ,ro!otions carries a t1o2year
>. 1arranty against defects. The esti!ated 1arranty costs related to dollar
sales are as follo1sH
Fear of sale................................................................. " percent
Fear after sale............................................................. % percent
#ales and actual 1arranty e9penditures for the years ended Dece!ber "1,
001 and 00, are as follo1sH
(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 1ashing !achines that carry a three2year
>. 1arranty against !anufacturer4s defects. Based on co!pany e9perience,
1arranty costs are esti!ated at E&0 per !achine. During the year, )ational
sold 4-,000 1ashing !achines and paid 1arranty costs of E"40,000. Bn its
inco!e state!ent for the year ended Dece!ber "1, )ational should report
1arranty e9pense of
a. E&-0,000.
b. E/&0,000.
c. E,00,000.
d. E,--0,000.
c %". 3ill1ard Corporation7s books disclosed the follo1ing 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
3ill1ard7s 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 follo1sH
)et sales.......................................................................... E",&00,000
Cost of goods sold........................................................... ,400,000
Bnventories at 5anuary 1.................................................. &+,000
Bnventories 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 %%. Ber!an Corporation had the follo1ing transactions in its first year of
>.4 operationsH
#ales ;/0 percent collected in the first year<................... E+%0,000
Disburse!ents for costs and e9penses........................... &00,000
,urchases of e=uip!ent for cash.................................... 00,000
,roceeds fro! issuance of co!!on stock...................... %0,000
,ay!ents on short2ter! borro1ings................................ %,000
,roceeds fro! short2ter! borro1ings............................. %0,000
Depreciation on e=uip!ent.............................................. 40,000
Disburse!ents for inco!e ta9es...................................... 4%,000
Bad debt 1rite2offs........................................................... "0,000
@hat is the cash balance at Dece!ber "1 of the first yearA
a. E+%,000
b. E-%,000
c. E10%,000
d. E140,000
d %&. 5ackson Co!pany had the follo1ing cash balances at Dece!ber "1, 00H
>.4
Cash in banks.................................................................. E"+%,000
,etty cash funds ;all funds 1ere rei!bursed on
Dece!ber "1, 00<......................................................... %,000
Cash in banks includes E1%,000 of co!pensating balances against short2
ter! borro1ing arrange!ents at Dece!ber "1, 00. The co!pensating
balances are legally restricted as to 1ithdra1al by 5ackson. Bn the current
asset section of 5ackson4s Dece!ber "1, 00, balance sheet, 1hat 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 follo1ingH
Currency and coins.......................................................... E 1.%0
Receipted vouchers forH
,ostage....................................................................... &.00
Travel.......................................................................... +.%0
Donation to charity..................................................... 10.00
E%.00
@hich of the follo1ing 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 %-. (ssu!e the follo1ing facts for Durt Co!panyH The !onth2end bank
state!ent
>.4 sho1s 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 1as 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
c %/. Bn preparing the bank reconciliation of Cre1s Co!pany for the !onth of
5uly,
>.4 the follo1ing 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
Cre1s 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 Delvin Bnc. sho1ed a balance of
E11",000.
>.4 Deducted in arriving at this a!ount 1as a custo!er4s )#' check for
E,400 that had been returned. Delvin had received no prior notice
concerning this check. Bn addition to the bank state!ent, other records
sho1ed there 1ere 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<A
a. E11,-00
b. E11/,400
c. E11+,000
d. E11%,400
c &1. Trask Corporation4s checkbook balance on Dece!ber "1, 001, 1as
E-,000.
>.4 Bn addition, Trask held the follo1ing 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 1as
redeposited 5anuary , 00, and cleared
5anuary +......................................................................... 400
,ost2dated checks................................................................. 1%0
Check dra1n on Trask Corporation4s account, payable
to a vendor, dated and recorded Dece!ber "1, but
not !ailed until 5anuary 1%, 00................................... 1,000
The proper a!ount to be sho1n as cash on Trask4s balance sheet at
Dece!ber "1, 001, is
a. E+,&00.
b. E-,000.
c. E-,&00.
d. E/,+%0.
d &. Bn preparing its bank reconciliation for the !onth of 'ebruary, 5a!es
Co!pany
>.4 has available the follo1ing 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!es4
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 &". Ra!os Co!pany had the follo1ing bank reconciliation at 3arch "1H
>.4
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 follo1H
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. 1ill
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 1ith cash collected on assigned
accounts receivable. Collections of assigned accounts during #epte!ber
totaled E&0,000 less cash discounts of E",%00. @hat 1ere the proceeds
fro! the assign!ent of Riva4s accounts receivable on #epte!ber 1A
a. E&10,000
b. E&1,%00
c. E&%,000
d. 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. 1ill
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 1ith 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 o1ed 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 ho1 !uch interest did #i!pson earn on the noteA
a. E1+"
b. E%
c. E%
d. E&0
d &+. Bf a "2!onth non2interest2bearing note receivable of E10,000 is discounted
at
>.& a bank at 10 percent, ho1 !uch cash is receivedA
a. E10
b. E1,010
c. E///
d. E/,+%0
c &-. .n 5anuary 1, ,arent Co!pany gave Dids, Bnc. a E%,000, 2!onth, &
percent
>.& note in pay!ent of its account. .ne !onth later, Dids discounted the note
at the bank at - percent. The cash that Dids received fro! the bank 1as
;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!er4s E10,000, / percent,
"
>.& !onth note. .n 5uly 1, the note 1as discounted at a bank at a rate of 1
percent. Go1 !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 1ill 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. Go1 !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!er4s E1-0,000, &
>.& !onth, 10 percent note receivable dated (pril "0, 00. ( discount rate of
1 percent 1as charged by the bank. #i!on4s proceeds fro! this
discounted note 1ould be
a. E1&/,00.
b. E1+,-00.
c. E1-1,440.
d. E1-%,0.
c +". .n 5uly 1, 00, Cornell Corp. received a one2year note 1ith a face value
of
>.+ E/00,000 and a stated interest rate of 1% percent in e9change for a
!achine 1ith 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 1rote off
E0,000 of accounts receivable during 00, and collected E",000 on an
account 1ritten off in 000. #ales for the year 00 totaled E&0,000. (ll
sales 1ere on account. The a!ount collected fro! custo!ers on accounts
receivable during 00 1as
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 1rote off
E10,000 of accounts receivable during 00, and collected E,000 on an
account 1ritten off in 000. #ales for the year 00 totaled E%0,000. (ll
sales 1ere on account. The a!ount collected fro! custo!ers on accounts
receivable during 00 1as
a. E4-+,000.
b. E4-%,000.
c. E%10,000.
d. E4/%,000.
d +&. R8B 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 1rote off
E1,000 of accounts receivable during 00, and collected E,%00 on an
account 1ritten off in 000. #ales for the year 00 totaled E%%0,000. (ll
sales 1ere on account. The a!ount collected fro! custo!ers on accounts
receivable during 00 1as
a. E%"%,000.
b. E%",000.
c. E%"-,000.
d. E%%,%00.
d ++. @hich of the follo1ing 1ould be considered part of the category ?trade
>.% receivables?A
a. (dvances to e!ployees
b. Bnco!e ta9 refunds receivable
c. Dividends receivable
d. (!ounts due fro! custo!ers
PRO(LEMS
Problem 1
The accountant for Baccah Bnc. established a petty cash fund of E1,400. During
#epte!ber, the fund 1as depleted by the follo1ing disburse!entsH
#hipping e9pense............................................................................. E+40
Travel e9pense................................................................................. 40
,ostage e9pense.............................................................................. "0
3iscellaneous supplies.................................................................... 1+0
Bn addition to receipts for the above ite!s, the petty cash bo9 contained E- in coins
and an B.$ 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........................................................................ 1,400
Cash............................................................................ 1,400
;< #hipping :9pense............................................................ +40
Travel :9pense................................................................ 40
,ostage :9pense............................................................. "0
3iscellaneous #upplies................................................... 1+0
:!ployee Receivables.................................................... -
Cash .ver and #hort....................................................... 4
Cash............................................................................ 1,"/
;"< Cash ............................................................................... 400
,etty Cash.................................................................. 400
Problem 2
The infor!ation belo1 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...................... 1,"40
Bank charges not recorded.............................................................. 1&
)ote collected by bank and not recorded on books........................ 1,10
.utstanding checks.......................................................................... 1,100
)#' checks22not recorded on books nor redeposited..................... 1&0
(ssu!ing no errors 1ere !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 #teve4s #ervice, Bnc. disclosed a cash balance of E&-,+%+ on 5une
"0. The bank state!ent as of 5une "0 sho1ed a balance of E%4,+-0. (dditional
infor!ation that !ight be useful in reconciling the t1o balances follo1sH
;a< Check nu!ber +4- for E",000 1as originally recorded on the books as
E4,%00.
;b< ( custo!er4s note dated 3arch % 1as discounted on (pril 1. The note
1as dishonored on 5une / ;!aturity date<. The bank charged #teve4s
account for E14,&%, including a protest fee of E4.
;c< The deposit of 5une 4 1as recorded on the books as E,-/%, but it 1as
actually a deposit of E,+00.
;d< .utstanding checks totaled E/,--% as of 5une "0.
;e< There 1ere bank service charges for 5une of E10 not yet recorded on the
books.
;f< #teve4s account had been charged on 5une & for a custo!er4s )#' check
for E1,/&.
;g< #teve properly deposited E&00 on 5une " that 1as not recorded by the
bank.
;h< Receipts of 5une "0 for E1",4% 1ere recorded by the bank on 5uly .
;i< ( bank !e!o stated that a custo!er4s 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............................. E%4,+-0
(ddH Deposits in transit............................................ E1",4%
Bank error22deposit not recorded.................... &00 14,0%
E&-,-0%
DeductH .utstanding checks......................................... /,--%
Corrected bank balance................................................... E%-,/0
Balance per books, 5une "0............................................ E&-,+%+
(ddH Book error22Check )o. +4-............................. E 1,%00
Custo!er note collected by bank.................... 4,&/ &,1/
E+4,--&
DeductH Dishonored note.............................................. E14,&%
Book error22i!properly recorded deposit........ 1/%
)#' check....................................................... 1,/&
Bank service charges...................................... 10 1%,/&&
Corrected book balance................................................... 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. Bn reconciling the
balances, the follo1ing ite!s are discovered.
;a< Collection by bank of note for E1,%00 less collection fees of E%0.
;b< Deposits in transit, E%1,000.
;c< The bank charged the depositor E-00 for overdrafts.
;d< Checks outstanding on 3ay "1, E+/,100.
;e< ( canceled check issued to #cott Corp. for E4,%00 1as not recorded on :ric
Co!pany4s 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............................................ E ",400
(dd deposits in transit..................................................... %1,000
E -",400
Deduct outstanding checks.............................................. +/,100
Corrected balance............................................................ E 4,"00
Balance per depositor4s records...................................... E -,"%0
(dd note receivable collected by bank............................ 1,%0
E /,&00
DeductH
.verdrafts................................................................ E -00
Book error22unrecorded check................................. 4,%00 %,"00
Corrected balance............................................................ E 4,"00
Problem 5
The accountant for the 8oshen Co!pany asse!bled the follo1ing dataH
5une "0 5uly "1
Cash account balance................................................... E 1%,- E "/,+4%
Bank state!ent balance................................................ 10+,0- 1"+,-1+
Deposits in transit.......................................................... -,01 1,--0
.utstanding checks....................................................... +,+1- "0,11
Bank service chargeL.................................................... + &0
Custo!er4s check deposited 5uly 10, returned by
bank on 5uly 1& !arked )#', and redeposited
i!!ediatelyI no entry !ade on books for return
or redeposit.............................................................. -,%0
Collection by bank of co!pany4s notes receivable....... +1,-1% -0,/00
L ;Recorded on books in !onth follo1ing charge or collection<
The bank state!ents and the co!pany4s cash records sho1 these totalsH
Disburse!ents in 5uly per bank state!ent................... E1-,"+"
Cash receipts in 5uly per 8oshen4s books.................... "&,4%
Checks 1ritten in 5uly per 8oshen4s books.................. 1,%/
Receipts in 5uly per bank state!ent............................. 4/,10-
,repare 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 :nding
Reconciliation Reconciliation
5une "0 Receipts Disburse!ents 5uly "1
Balance per bank
state!ent..................E10+,0- E4/,10- E1-,"+" E1"+,-1+
Deposits in transitH
5une "0.............. -,01 ;-,01<
5uly "1............... 1,--0 1,--0
.utstanding checksH
5une "0.............. ;+,+1-< ;+,+1-<
5uly "1............... "0,11 ;"0,11<
)#' check
redeposited.............. ;-,%0< ;-,%0<
Corrected bank
balance..................... E -+,%&% E4%,%"+ E1,%1+ E10,%-%
Balance per books. . . E 1%,- E"&,4% E1,%/ E "/,+4%
Bank service chargeH
5une................... ;+< ;+<
5uly.................... &0 ;&0<
Collection of notes
receivableH
5une................... +1,-1% ;+1,-1%<
5uly.................... -0,/00 -0,/00
Corrected book
balance..................... E -+,%&% E4%,%"+ E1,%1+ E10,%-%
Problem 6
The follo1ing infor!ation 1as abstracted fro! the records of the Gooper
CorporationH
(ccounts Receivable, Dece!ber "1, 00............................. E %/0,000
(llo1ance for Doubtful (ccounts before ad6ust!ent,
Dece!ber "1, 00............................................................ 1-,000
;dr<
#ales2200.............................................................................. ,1-0,000
#ales Discounts2200............................................................. 1-,000
#ales Returns2200................................................................ +,000
,repare the ad6usting entry for doubtful accounts e9pense under each of the
follo1ing assu!ptionsH
;1< " percent of outstanding accounts receivable are uncollectible.
;< 1.% percent of 1//& net sales are uncollectible.
;"< (n aging schedule of the accounts sho1s that E1,400 of the accounts are
uncollectible.
Solution 6
>.
;1< Doubtful (ccounts :9pense.......................................... "%,+00
(llo1ance for Doubtful (ccounts ............................ "%,+00
M;"N 9 E%/0,000< O E1-,000P
;< Doubtful (ccounts :9pense.......................................... ",0%
(llo1ance for Doubtful (ccounts ............................ ",0%
M1.%N 9 ;E,1-0,000 2 E1-,000 2 E+,000<P
;"< Doubtful (ccounts :9pense.......................................... "/,400
(llo1ance for Doubtful (ccounts............................. "/,400
;E1,400 O E1-,000<
Problem 7
The follo1ing infor!ation 1as abstracted fro! the 00 financial state!ents of
5ennings Co!panyH
#ales.............................................................................................. E+4+,000 L
(ccounts Receivable, Dece!ber "1, 00................................... 1-,000
(llo1ance 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
follo1ing 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 .......... ,&0
(llo1ance for Doubtful (ccounts............................. ,&0
;< Doubtful (ccounts :9pense.......................................... %,"+%
(llo1ance for Doubtful (ccounts............................. %,"+%
"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 allo1ance !ethodH ,rovisions 1ere
!ade !onthly at percent of credit salesI bad debts 1ritten off 1ere charged to the
allo1ance accountI recoveries of bad debts previously 1ritten off 1ere credited to
the allo1ance accountI and no year2end ad6ust!ents to the allo1ance account
1ere !ade. Garris4s usual credit ter!s are net "0 days.
The credit balance in the allo1ance for doubtful accounts 1as E&0,000 at 5anuary
1, 00. During 00, credit sales totaled E1-,000,000, interi! provisions for
doubtful accounts 1ere !ade at percent of credit sales, E1-0,000 of bad debts
1ere 1ritten off, and recoveries of accounts previously 1ritten off a!ounted to
E"0,000. Garris installed a co!puter syste! in )ove!ber 00 and an aging of
accounts receivable 1as prepared for the first ti!e as of Dece!ber "1, 00. (
su!!ary of the aging is as follo1sH
Classifications by Balance in :sti!ated N
3onth of #ale :ach Category $ncollectible
)ove!ber2Dece!ber 00 E,-0,000 N
5uly2.ctober 00 1,00,000 1%N
5anuary25une 00 -00,000 %N
,rior to 5anuary 1, 00 &0,000 -0N
Based on the revie1 of collectibility of the account balances in the Jprior to 5anuary
1, 00K aging category, additional receivables totaling E10,000 1ere 1ritten off
as of Dece!ber "1, 00. :ffective 1ith the year ended Dece!ber "1, 00,
Garris adopted a ne1 accounting !ethod for esti!ating the allo1ance 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 allo1ance for doubtful
accounts for the year ended Dece!ber "1, 00. #ho1 supporting
co!putations in good for!.
;< ,repare the 6ournal entry for the year2end ad6ust!ent to the allo1ance for
doubtful accounts balance as of Dece!ber "1, 00.
Solution 8
>.
;1< Garris Corporation
(nalysis of Changes in the (llo1ance for Doubtful (ccounts
'or the Fear :nded Dece!ber "1, 00
Balance at 5anuary 1, 00............................................................. E&0,000
,rovision for doubtful accounts ;E1-,000,000 9 N<.............................. "&0,000
Recovery in 00 of bad debts 1ritten off previously...................... "0,000
E&%0,000
Deduct 1rite2offs for 00 ;E1-0,000 O E10,000<.................................. "00,000
Balance at Dece!ber "1, 00, before change in accounting
esti!ate....................................................................................... E"%0,000
Bncrease due to change in accounting esti!ate during 00
;E%"+,&00 2 E"%0,000<........................................................................ 1-+,&00
Balance at Dece!ber "1, 00, ad6usted ;#chedule 1<.................. E%"+,&00
#chedule 1
Co!putation of (llo1ance for Doubtful (ccounts
at Dece!ber "1, 00
(ging Category Balance ,ercent Doubtful (ccounts
)ove!ber2Dece!ber 00 E,-0,000 N E 4%,&00
5uly2.ctober 00 1,00,000 1%N 1-0,000
5anuary25une 00 -00,000 %N 00,000
,rior to 5anuary 1, 00 140,000 L -0N 11,000
E4,40,000 E%"+,&00
L E&0,000 2 E10,000
;< Doubtful (ccounts :9pense............................................. 1-+,&00
(llo1ance for Doubtful (ccounts................................ 1-+,&00
To increase the allo1ance 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 1ere assigned to
8eorgeto1n 'inance Co!pany by Tho!pson Bnc. 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 !onth4s interest 1as 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 Bnc.
;< ,repare the appropriate section;s< of Tho!pson4s 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....................................................... 1,4+0,000
(ccounts Receivable............................................ 1,-%0,000
Cash............................................................................ &-0,000
(ccounts Receivable (ssigned............................. &-0,000
)otes ,ayable............................................................ &-0,000
Bnterest :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 Bnc. 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, Go1ard Corporation needed cash to !eet current operating
needs. Go1ard decided to factor so!e of its receivables. Go1ard factored
E4/0,000 of receivables to Third )ational Bank for E41&,%00. (n allo1ance for
doubtful accounts of " percent of the receivables balance is !aintained by Go1ard.
The bank 1ithheld + percent of the purchase price as protection against sales
returns and allo1ances. #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%%
(llo1ance for Doubtful (ccounts ;"N 9 E4/0,000<............... 14,+00
>oss fro! 'actoring ;E4/0,000 2 E14,+00< 2 E41&,%00............... %-,-00
(ccounts Receivable.................................................. 4/0,000
;< #ales Returns and (llo1ances........................................ 1,4-0
Cash ;E/,1%% 2 E1,4-0<........................................................ +,&+%
Receivable fro! 'actor.............................................. /,1%%
Problem 11
.n Dece!ber "1, Central #avings R >oan discounted the follo1ing 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 Calue................................................................................... E+0,000
Discount ;E+0,000 9 1N 9 1/1<............................................................. +00
,roceeds.......................................................................................... E&/,"00
;< 'ace.................................................................................................. E4-,000
Bnterest Bnco!e ;E4-,000 9 1"N 9 /1<.................................................. 1,040
3aturity Calue................................................................................... E4/,040
Discount ;E4/,040 9 1N 9 1/1<............................................................. 4/0
,roceeds.......................................................................................... E4-,%%0
;"< 'ace.................................................................................................. E"0,000
Bnterest Bnco!e ;E"0,000 9 10N 9 4/1<.................................................. 1,000
3aturity Calue................................................................................... E"1,000
Discount ;E"1,000 9 1N 9 /1<............................................................. &0
,roceeds.......................................................................................... E"0,"-0
Problem 12
Denver :=uip!ent sold a !achine 1ith 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< 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.
;4< ,repare a schedule of discount a!orti*ation for the note 1ith 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 Calue of noteH ,C Q (;,C' ;n/i<< n Q " i Q 10N
,C Q E&0,000 9 .+%1"
,C Q E4%,0+-
'ace Calue of )ote........................................................................... E &0,000
,resent Calue................................................................................... 4%,0+-
Discount............................................................................................ E 14,/
;< )et Book Calue................................................................................. E &&,000
,resent Calue of )ote...................................................................... 4%,0+-
>oss on #ale..................................................................................... E 0,/
;"< )otes Receivable............................................................. &0,000
>oss on #ale of 3achinery.............................................. 0,/
3achinery ;net<........................................................ &&,000
Discount on )otes Receivable................................ 14,/
;4< $na!orti*ed
:ffective Discount Discount ,resent Calue
Bnterest 10N (!orti*ed Balance of )ote
Bnitial E14,/ E4%,0+-
:nd of Fear 1 E4,%0- E4,%0- 10,414 4/,%-&
:nd of Fear 4,/%/ 4,/%/ %,4%% %4,%4%
:nd of Fear " %,4%% %,4%% 0 &0,000
;%< Discount on )otes Receivable........................................ 4,%0-
Bnterest Revenue..................................................... 4,%0-
Problem 13
.n 5anuary , 00, Clark ,roducts, Bnc. sold an apart!ent building that cost
E1,-00,000 and had a book value of E-10,000. Clark received a t1o2year, non2
interest2bearing note 1ith 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 1as 14 percent.
,repare the 6ournal entries for Clark ,roducts, Bnc. 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...................... &+-,/-" L
(part!ent Building................................................ 1,-00,000
Discount on )otes Receivable.............................. 44&,01+
L E1,/"%,000 9 .+&/% Q E1,4--,/-"
-10,000
E &+-,/-" 8ain
;< Dece!ber "1, 00
Discount on )otes Receivable ;E1,4--,/-" 9 14N<......... 0-,4%-
Bnterest Revenue................................................... 0-,4%-
Dece!ber "1, 00"
Discount on )otes Receivable ;E44&,01+ 2 E0-,4%-< L... "+,%%/
Bnterest 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 1as 40 percent depreciated. .n #epte!ber 1%,
00, ,ogo discounted the note, 1ith 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!pany4s 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 1ould be re=uired on ,ogo4s 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,"/
Bnterest Revenue........................................................ "/
.bligation on Discounted )otes Receivable............. 10,000
'ace Calue of )ote..................................................................... E10,000
Bnterest Revenue ;E10,000 9 10N 9 1-0/"&%<.................................... %,/1-
3aturity Calue............................................................................. E1%,/1-
Discount ;E1%,/1- 9 1N 9 1"%/"&%<................................................. %,%-/
,roceeds..................................................................................... E10,"/
5anuary +, 00"
.bligation on Discounted )otes Receivable................... 10,000
)otes Receivable....................................................... 10,000
;< 5anuary +, 00"
)otes Receivable22,ast Due........................................... 1%,/1-
Cash............................................................................ 1%,/1-
.bligation 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, 1ithout 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!pany4s books. Round a!ounts to the nearest dollar.
;< @hat entry 1ould be re=uired on Dunn Co!pany4s 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............................. %,0&&
)otes Receivable....................................................... 400,000
'ace Calue.................................................................................. E400,000
Bnterest ;E400,000 9 1N 9 /0/"&%<..................................................... 11,-"&
3aturity Calue............................................................................. E411,-"&
Discount ;E411,-"& 9 10N 9 &0/"&%<................................................... &,++0
,roceeds..................................................................................... E40%,0&&
;< )o entry because the note 1as transferred 1ithout recourse.
Problem 16
.n 5uly ", ,litt Co!pany factored E"00,000 in accounts receivable for cash of
E-0,000. The factor 1ithheld + percent of the cash proceeds to allo1 for possible
custo!er returns. (n allo1ance for doubtful accounts of E1",000 had previously
been established by ,litt in relation to these accounts.
3ake the 6ournal entry necessary on ,litt4s books to record the factoring of the
accounts.
Test Bank Intermediate Accounting, 14
th
ed. ,,'
Solution 16
>.&
Cash................................................................................. &0,400
Receivable fro! 'actor.................................................... 1/,&00
(llo1ance for Doubtful (ccounts..................................... 1",000
>oss fro! 'actoring Receivables.................................... +,000
(ccounts Receivable.................................................. "00,000
Problem 17
The follo1ing infor!ation is for >oranne Co!panyH
(ccounts Receivable, 5anuary 1, 00...................................... E 00,000
(ccounts Receivable, Dece!ber "1, 00................................ 1%,000
(llo1ance for Bad Debts, 5anuary 1, 00................................ "0,000
(llo1ance for Bad Debts, Dece!ber "1, 00.......................... -,000
@rite2offs of uncollectible accounts2200................................. "%,%00
Bad Debt :9pense2200........................................................... "",%00
Depreciation :9pense2200...................................................... 100,000
)et Bnco!e2200....................................................................... %+,000
Co!pute net cash flo1 fro! operations for 00. (ssu!e that all e9penses not
!entioned 1ere paid in cash and that the levels of all current assets and liabilities,
e9cept for accounts receivable, 1ere unchanged during the year.
Solution 17
>.-
)et inco!e.................................................................................. E %+,000
,lusH Depreciation e9pense....................................................... 100,000
>essH Bncrease in net accounts receivable................................ ;1+,000<
)et cash flo1 fro! operations.................................................... E "40,000
Problem 18
Fou are the auditor of ,lastico, Bnc., a !anufacturer of plastic products. Bn
revie1ing 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 1ill be considered related party transaction
for purposes of financial accounting and reporting. The president see!s so!e1hat
annoyed by your co!!ents and asks you to e9plain 1hat you !ean by Jrelated
partyK transactions and ho1 the financial state!ents 1ill be affected by these
transactions. ,repare a brief response to the president4s =uestion.
Solution 18
>.%
Related party transactions occur 1hen an enterprise engages in transactions in
1hich
one of the parties to the transaction has the ability to influence significantly the
policies of the other, or in 1hich one party to the transaction has the ability to
influence the policies of the t1o transacting parties. The follo1ing are e9a!ples of
related party transactionsH
a. Transactions bet1een a parent co!pany and its subsidiaries.
b. Transactions bet1een subsidiaries of a co!!on parent.
c. Transactions bet1een an enterprise and trusts for the benefit of e!ployees
;such trusts being controlled or !anaged by the enterprise<.
d. Transactions bet1een an enterprise and its principal o1ners, !anage!ent, or
!e!bers of i!!ediate fa!ilies and affiliates.
Transactions bet1een 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!4s2length transactions 1ith unrelated parties. Related party
transactions fre=uently involve such things as borro1ing or lending !oney at
abnor!ally high or lo1 interest rates, real estate sales at a!ounts that differ
significantly fro! appraised values, e9changes of non!onetary assets, and
transactions 1ith JshellK co!panies
;enterprises having no econo!ic substance<.
Transactions 1ith related parties are not conducted at ar!4s2length and thus their
for! !ay differ fro! their econo!ic substance. Bn cases 1here the for! of the
transaction differs fro! the substance, auditors 1ill re=uire that the financial
state!ents properly reflect the substance of the transaction. (uditors also 1ill
re=uire that the financial state!ents include the follo1ing disclosures regarding
related party transactionsH
a. The nature of the relationship;s< involved.
b. ( description of the transactions, including transactions to 1hich no
a!ounts or no!inal a!ounts 1ere ascribed for each period for 1hich an
inco!e state!ent is presented.
c. The dollar a!ounts of transactions for each of the periods for 1hich 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 1ith 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 1ould include a!ounts in checking, savings, and !oney
!arket deposit accounts.
T ' ". Deposits in foreign banks are al1ays 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 ' -. Bn a bank reconciliation state!ent, the a!ount of a not2sufficient2funds check
!ust be added to the depositor4s cash balance in deter!ining the correct cash
balance.
T ' /. Bn 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 1rite2off !ethod for uncollectible accounts does not provide for the
!atching of current revenues 1ith related e9penses.
T ' ". The use of the direct 1rite2off !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 1rite off an uncollectible account under the allo1ance !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 allo1ance for doubtful accounts is
ignored.
T ' -. @hen there has been a failure to esti!ate uncollectible accounts accurately,
resulting in an allo1ance balance that is clearly e9cessive or inade=uate, an
ad6ust!ent is in order. This ad6ust!ent 1ould 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 1hich the
receivable and the corresponding revenue should be recorded.
T '10. #ales discounts are nor!ally reported as selling e9penses.
-
CHAPTER 6 -- QUI. C
)a!e SSSSSSSSSSSSSSSSSSSSSSSSS
#ection SSSSSSSSSSSSSSSSSSSSSSSS
T ' 1. 'or balance sheet classification purposes, accounts receivable are al1ays
considered current.
T ' . )ontrade receivables should be included 1ith 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 borro1er 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 1ithout recourse, the buyer ;factor<
nor!ally assu!es the burden of billing and collecting accounts.
T ' +. Transferring receivables 1ithout 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 1hen due.
T ' -. The transfer of accounts receivable 1ith 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 1ith trade notes receivable.
T '10. (n interest2bearing note is 1ritten 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 1rite2off !ethod
:. Bnterest2bearing note
'. 3aturity date
8. ,ro!issory note
G. 'actoring receivables
B. Trade discount
5. ,resent value
D. (llo1ance !ethod
>. #ales discount
3. )egotiable note
). )on2interest2bearing note
.. (ssign!ent of receivables
,. Caluation date
#elect the ter! that best fits each of the follo1ing definitions and descriptions.
SSSS 1. ( !ethod of recogni*ing the actual losses fro! uncollectible accounts as
e9penses during the period in 1hich 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 1ithout recourse for cash to a third party, usually a
bank or other financial institution.
SSSS 4. Receivables that are evidenced by a for!al 1ritten 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 allo1ed if pay!ent is received 1ithin a
specified period.
SSSS /. ( !ethod of recogni*ing the esti!ated losses fro! uncollectible accounts as
e9penses during the period in 1hich 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 1ith
the nor!al operating activities of a business.
SSSS1. ( note 1ritten in the for! 1here the face a!ount includes the interest
charges.
SSSS1". The borro1ing of !oney 1ith receivables pledged as security on the loan.
SSSS14. ( note 1ritten in the for! 1here the !aker pro!ises to pay the face a!ount
plus interest at a specified rate.
SSSS1%. (n unconditional 1ritten pro!ise to pay a certain su! of !oney at a specified
ti!e.
"0
CHAPTER 6 -- QUI. SOLUTIONS
Tui* (
1. T
. T
". '
4. T
%. '
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