Question Details

CHAPTER 9 ACCOUNTING FOR RECEIVABLES MULTIPLE CHOICE QUESTIONS PART 7


MULTIPLE CHOICE QUESTIONS


101. During 2008, Carbondale Inc. had sales on account of $132,000, cash sales of $54,000,
and collections on account of $84,000. In addition, they collected $1,450 which had been
written off as uncollectible in 2007. As a result of these transactions, the change in the
accounts receivable balance indicates a
9 - 16 Test Bank for Accounting Principles, Eighth Edition
a. $100,550 increase.
b. $48,000 increase.
c. $46,550 increase.
d. $102,000 increase.
102. Brother Bear Corporation- unadjusted trial balance includes the following balances
(assume normal balances):
Accounts Receivable $746,000
Allowance for Doubtful Accounts 14,200
Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts
expense will the company record?
a. $44,760
b. $30,560
c. $29,708
d. $45,612
103. Manning Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise
sold on July 1. Citibank charges 4% for its credit card use. The entry to record this
transaction by Manning Retailers will include a credit to Sales of $75,000 and a debit(s) to
a. Cash $72,000 and Service Charge Expense $3,000.
b. Accounts Receivable $72,000 and Service Charge Expense $3,000.
c. Cash $72,000 and Interest Expense $3,000.
d. Accounts Receivable $75,000.
104. ABC Company accepted a national credit card for a $3,000 purchase. The cost of the
goods sold is $2,400. The credit card company charges a 3% fee. What is the impact of
this transaction on net operating income?
a. Increase by $582
b. Increase by $600
c. Increase by $510
d. Increase by $2,910
105. Major advantages of credit cards to the retailer include all of the following except the
a. issuer does the credit investigation of customers.
b. issuer undertakes the collection process.
c. retailer receives more cash from the credit card issuer.
d. All of these are advantages.
106. The sale of receivables by a business
a. indicates that the business is in financial difficulty.
b. is generally the major revenue item on its income statement.
c. is an indication that the business is owned by a factor.
d. can be a quick way to generate cash for operating needs.
107. If a retailer regularly sells its receivables to a factor, the service charge of the factor
should be classified as a(n)
a. selling expense.
b. interest expense.
c. other expense.
d. contra asset.
Accounting for Receivables
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108. If a company sells its accounts receivables to a factor,
a. the seller pays a commission to the factor.
b. the factor pays a commission to the seller.
c. there is a gain on the sale of the receivables.
d. the seller defers recognition of sales revenue until the account is collected.
109. Retailers generally consider sales from the use of national credit card sales as a
a. credit sale.
b. collection of an accounts receivable.
c. cash sale.
d. collection of a note receivable.
110. Receivables might be sold to
a. lengthen the cash-to-cash operating cycle.
b. take advantage of deep discounts on the cash realizable value of receivables.
c. generate cash quickly.
d. finance companies at an amount greater than cash realizable value.
111. A company regularly sells its receivables to a factor who assesses a 2% service charge
on the amount of receivables purchased. Which of the following statements is true for the
seller of the receivables?
a. The loss section of the income statement will increase each time receivables are sold.
b. The credit to Accounts Receivable is less than the debit to Cash when the accounts
are sold.
c. Selling expenses will increase each time accounts are sold.
d. The other expense section of the income statement will increase each time accounts
are sold.
112. Winsor Furniture factors $800,000 of receivables to Fast Factors, Inc. Fast Factors
assesses a 2% service charge on the amount of receivables sold. Winsor Furniture
factors its receivables regularly with Fast Factors. What journal entry does Winsor make
when factoring these receivables?
a. Cash............................................................................... 784,000
Loss on Sale of Receivables .......................................... 16,000
Accounts Receivable ............................................. 800,000
b. Cash............................................................................... 784,000
Accounts Receivable ............................................. 784,000
c. Cash............................................................................... 800,000
Accounts Receivable ............................................. 784,000
Gain on Sale of Receivables ................................. 16,000
d. Cash............................................................................... 784,000
Service Charge Expense................................................ 16,000
Accounts Receivable ............................................. 800,000
113. When customers make purchases with a national credit card, the retailer
a. is responsible for maintaining customer accounts.
b. is not involved in the collection process.
c. absorbs any losses from uncollectible accounts.
d. receives cash equal to the full price of the merchandise sold from the credit card
company.
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114. The retailer considers VISA and MasterCard sales as
a. cash sales.
b. promissory sales.
c. credit sales.
d. contingent sales.
115. The basic issues in accounting for notes receivable include each of the following except
a. analyzing notes receivable.
b. disposing of notes receivable.
c. recognizing notes receivable.
d. valuing notes receivable.
116. A 60-day note receivable dated June 13 has a maturity date of
a. August 13.
b. August 12.
c. August 11.
d. August 10.
117. The maturity value of a $90,000, 10%, 60-day note receivable dated July 3 is
a. $90,000.
b. $99,000.
c. $105,000.
d. $91,500.
118. A 90-day note dated June 14 has a maturity date of
a. September 14.
b. September 12.
c. September 13.
d. September 15.
119. A 30-day note dated May 18 has a maturity date of
a. June 18.
b. June 17.
c. June 19.
d. June 16.
120. A promissory note
a. is not a formal credit instrument.
b. may be used to settle an accounts receivable.
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party.