Strayer ACC556 CHAPTER 8 EXERCISE Latest 2019 April

ACC556 Financial Accounting for Managers

CHAPTER 8 EXERCISE

Question 1 Bad Debt Expense is considered

Answers:

an avoidable cost in doing business on a credit basis.

an internal control weakness.

a necessary risk of doing business on a credit basis.

avoidable unless there is a recession.

Question 2 An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Answers:

True

False

Question 3 The expense recognition

Answers:

requires that all credit losses be recorded when an individual customer cannot pay.

necessitates the recording of an estimated amount for bad debts.

results in the recording of a known amount for bad debt losses.

is not involved in the decision of when to expense a credit loss.

Question 4 On January 15, Nifty Company sells merchandise on account to Martinez Associates for $3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $600 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?

Answers:

$2,400

$2,328

$2,310

$1,680

Question 5 If a company has significant concentrations of credit risk, it must discuss this risk in the notes to its financial statements.

Answers:

True

False

Question 6 The interest on a $4,000, 9%, 90-day note receivable is

Answers:

$90.

$360.

$30.

$60.

Question 7 Interest is usually associated with

Answers:

accounts receivable.

notes receivable.

doubtful accounts.

bad debts.

Question 8 Match the items below by entering the appropriate code letter in the space provided.

Question 9 Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet.

Answers:

True

False

Question 10 Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.

Answers:

True

False

Question 11 Which one of the following is not a principle of sound accounts receivable management?

Answers:

Determine to whom to extend credit.

Delay cash receipts from receivables if necessary.

Monitor collections.

Determine a payment period.

Question 12 When an account is written off using the allowance method, the

Answers:

cash realizable value of total accounts receivable will increase.

net accounts receivable will decrease.

allowance account will increase.

net accounts receivable will stay the same.

Question 13 Which of the following is a way of disposing of a note receivable?

Answers:

Honoring it on maturity date.

Selling it to receive cash before the maturity date.

Default by the maker.

All of these are ways to dispose of notes receivable.

Question 14 The bookkeeper recorded the following journal entry

Allowance for Doubtful Accounts 1,000

Accounts Receivable – Richard James 1,000

Which one of the following statements is false?

Answers:

This entry is only prepared on the last day of the accounting period.

There should be written authorization for this transaction from someone who does not have responsibilities related to recording cash.

There could be a violation of internal control policies.

James’ account was written off because it was determined to be uncollectible.

Question 15 Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 ? 0.10 ? 6/12.

Answers:

True

False

Question 16 When calculating interest on a promissory note with the maturity date stated in terms of days, the

Answers:

maker pays more interest if 365 days are used instead of 360.

maker pays the same interest regardless if 365 or 360 days are used.

payee receives more interest if 360 days are used instead of 365.

payee receives less interest if 360 days are used instead of 365.

Question 17 An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Answers:

True

False

Question 18 The accounts receivable turnover

Answers:

Is computed by dividing net credit sales for the accounting period by the cash realizable value of accounts receivable on the last day of the accounting period.

Can be used to compute the average collection period.

Is a method of evaluating the solvency of net accounts receivable.

Is only important to internal users of accounting information.

Question 19 Which of the following is not true regarding a promissory note?

Answers:

Promissory notes may not be transferred to another party by endorsement.

Promissory notes may be sold to another party.

Promissory notes give a stronger legal claim to the holder than accounts receivable.

Promissory notes may be bearer notes and not specifically identify the payee by name.