Question Details

CHAPTER 9
ACCOUNTING FOR RECEIVABLES

MULTIPLE CHOICE QUESTIONS


CHAPTER 9 ACCOUNTING FOR RECEIVABLES PART 4


38. Claims for which formal instruments of credit are issued as proof of the debt are
a. accounts receivable.
b. interest receivable.
c. notes receivable.
d. other receivables.
39. Interest is usually associated with
a. accounts receivable.
b. notes receivable.
c. doubtful accounts.
d. bad debts.
Accounting for Receivables
9 - 7
40. The receivable that is usually evidenced by a formal instrument of credit is a(n)
a. trade receivable.
b. note receivable.
c. accounts receivable.
d. income tax receivable.
41. Which of the following receivables would not be classified as an "other receivable"?
a. Advance to an employee
b. Refundable income tax
c. Notes receivable
d. Interest receivable
42. Notes or accounts receivables that result from sales transactions are often called
a. sales receivables.
b. non-trade receivables.
c. trade receivables.
d. merchandise receivables.
43. The term "receivables" refers to
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
44. A cash discount is usually granted to all of the following except
a. retail customers.
b. retailers.
c. wholesalers.
d. All of these are granted discounts.
45. Which one of the following is not a primary problem associated with accounts receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable
46. Trade accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at net realizable value.
d. only if they are not past due.
47. Three accounting issues associated with accounts receivable are
a. depreciating, returns, and valuing.
b. depreciating, valuing, and collecting.
c. recognizing, valuing, and disposing.
d. accrual, bad debts, and disposing.
9 - 8 Test Bank for Accounting Principles, Eighth Edition
48. Which of the following would require a compound journal entry?
a. To record merchandise returned that was previously purchased on account.
b. To record sales on account.
c. To record purchases of inventory when a discount is offered for prompt payment.
d. To record collection of accounts receivable when a cash discount is taken.
49. Which of the following would be considered as an unlikely occurrence?
a. Manufacturer offers a cash discount to a wholesaler.
b. Wholesaler offers a cash discount to a retailer.
c. Retailer offers a cash discount to a customer.
d. All of these are standard practices.
Use the following information for questions 50-51.
A customer charges a treadmill at Hank's Sport Shop. The price is $2,000 and the financing
charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within
30 days and a finance charge is added to the customer's account.
50. What is the amount of the finance charge?
a. $60
b. $15
c. $180
d. $6
51. The accounts affected by the journal entry made by Hank's Sport Shop to record the
finance charge are
a. Accounts Receivable
Cash
b. Cash
Finance Receivable
c. Accounts Receivable
Interest Payable
d. Accounts Receivable
Interest Revenue
52. Which of the following practices by a credit card company results in lower interest charges
to the cardholder?
a. The card company states interest as a monthly percentage rather than an annual
percentage.
b. The card company allows a grace period before interest is accrued.
c. The card company allows cardholders to skip payments on their cards.
d. The card company calculates finance charges from the date of purchase to the date
the amount is paid.
53. If a department store fails to make the entry to accrue the finance charges due from
customers,
a. accounts receivable will be overstated.
b. interest revenue will be understated.
c. interest expense will be overstated.
d. interest expense will be understated.
Accounting for Receivables
9 - 9
54. Under the allowance method, writing off an uncollectible account
a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
55. The net amount expected to be received in cash from receivables is termed the
a. cash realizable value.
b. cash-good value.
c. gross cash value.
d. cash-equivalent value.
56. If a company fails to record estimated bad debts expense,
a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
d. receivables are understated.
57. Janway sells softball equipment. On November 14, they shipped $1,000 worth of softball
uniforms to Chris Middle School, terms 2/10, n/30. On November 21, they received an
order from Douglas High School for $600 worth of custom printed bats to be produced in
December. On November 30, Chris Middle School returned $100 of defective
merchandise. Janway has received no payments from either school as of month end.
What amount will be recognized as net accounts receivable on the Balance Sheet as of
November 30?
a. $1,600
b. $1,500
c. $1,000
d. $900
58. Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms
2/10, n/30. On July 20 Stuart Co. returns merchandise worth $400 to Larson Company.
On July 24 payment is received from Stuart Co. for the balance due. What is the amount
of cash received?
a. $600
b. $588
c. $580
d. $1,000
59. The existing balance in Allowance for Doubtful Accounts is considered in computing bad
debts expense in the
a. direct write-off method.
b. percentage of receivables basis.
c. percentage of sales basis.
d. percentage of receivables and percentage of sales basis.

60. When the allowance method is used to account for uncollectible accounts, Bad Debts
Expense is debited when
a. a sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer's account becomes past-due.