Intermediate Accounting Chapter 6 Quiz

8 October 2022
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question
Which of the following would be included in cash and cash equivalents on the balance sheet? A. commercial paper B. bank overdrafts C. sinking funds D. compensating balances
answer
A. commercial paper
question
Which of the following would be included in cash and cash equivalents on the balance sheet? A. postdated checks B. travel advance funds C. certificates of deposit D. undeposited credit cards
answer
D. undeposited credit card sales receipts
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Which of the following would NOT be considered a cash equivalent? A. undeposited credit card sales receipts B. money market fund securities C. savings account fund to be used to retire bonds D. commercial paper
answer
C. savings account fund to be used to retire bonds
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Items classified as "cash" on the balance sheet A. may be subject to contractual restrictions B. do not include negotiable checks or bank drafts C. are limited to coins, currency, or bank drafts D. must be available to pay current obligations
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D. must be available to pay current obligations
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In order to be classified as a cash equivalent, an investment must have a maturity date of A. three months or less B. twelve months or less C. six months or less D. nine months or less
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A. three months or less
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Which of the following is NOT considered cash for financial statement reporting? A. travelers checks B. sinking funds C. negotiable instruments D. cash, coins, and currency
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B. sinking fun
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Compensating balance agreements are held against short-term borrowings should A. be separately classified as noncurrent assets on the balance sheet B. not be shown on the balance sheet C. be separately reported in the current assets portion of the balance sheet D. only be described in the footnotes to the financial statements
answer
C. separately reported in the current assets portion of the balance sheet
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Which of the following would be reported as a liability? A. bank overdrafts B. demand deposits C. travel advances D. certificates of deposit
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A. bank overdrafts
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Which of the following would NOT be a contractual restriction to the cash available to pay current obligations? A. certificate of deposit B. negotiable instruments C. sinking fund D. postdated checks
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B. negotiable instruments
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Compensating balance agreements that do NOT legally restrict the amount of funds shown on the balance sheet should be reported in the A. current asset section B. long-term investment section C. other asset section D. notes of the financial statements
answer
D. notes of the financial statements
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Cash control systems are the methods and procedures used to ensure A. that excess cash does not exist B. the safeguarding of cash C. that current obligations are met D. that unused cash is invested
answer
B. the safeguarding of cash
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Which of the following is a key element of internal control over cash payments? A. requiring that all petty cash vouchers be approved by two signatures B. periodically reconciling the cash account balance on the company's books to the bank statement balance C. making daily bank deposits D. authorizing and verifying that all cash received is recorded daily
answer
B. periodically reconciling the cash account balance on the company's books to the bank statement balance
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Which of the following is a key element of internal control over cash receipts?A. immediate counting of cash in the cash register when a new cashier begins working B. reconcile the bank account C. authorize and sign checks only after the approval D. making all payments by check
answer
A. immediate counting of cash in the cash register when a new cashier begins working
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What are the two main functions of each cash control system? A. control over checks and control over invoicing B. control over cash and control over purchase orders C. control over receipts and control over the bank account D. control over receipts and control over payments
answer
D. control over receipts and control over payments
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Some companies use automated payment processing technology in which paper checks that may arrive at a lockbox are converted into electronic payments then the check itself is destroyed. This process is referred to as A. check 21 B. accounts receivable conversion C. internal control over payments D. electronic funds transfer
answer
B> accounts receivable conversion
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All of the following are important elements of internal control over cash EXCEPT A. a cash reserve B. the daily deposit of all receipts C. a petty cash system D. a bank reconciliation
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A. a cash reserve
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Current accounts receivables are receivables that are expected to be collected within A. one year or the current operating cycle, whichever is longer B. one year or the current operation cycle, whichever is shorter C. one year or the current financing cycle, whichever is longer D. one year or the current financial cycle, whichever is shorter
answer
A. one year or the current operating cycle, whichever is longer
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All of the following are nontrade receivables EXCEPT A. deposit paid to utility companies B. promissory note from a customer C. declared dividend from an investment D. advances to executives and employees
answer
B. promissory note from a customer
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Most trade receivables are initially recorded at their A. net realizable values B. present values C. discounted values D. maturity values
answer
D. maturity values
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Which of the following statements about accounting for discounts is true? A. the net price method highlights sales discounts taken and the gross price method highlights sales discounts not taken B. the net price method highlights trade discounts not taken and the gross price method highlights trade discounts taken C. the net price method highlights trade discounts taken and the gross price method highlights trade discounts not taken D. the net price method highlights sales discounts not taken and the gross price method highlights sales discounts taken
answer
D. the net price method highlights sales discounts not taken and the gross price method highlights sales discounts taken
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Which of the following would NOT be reported on the financial statements? A. sales discounts taken B. trade discounts C. sales discounts not taken D. trade receivables
answer
B. trade discounts
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Which of the following is an advantage of using the net price method for recording cash discounts on credit sales? A. it simplifies recording of sales returns and allowances B. it requires less record keeping than the gross method C. it conservatively reflects current period sales revenue D. it eases communication with customers about thier balances
answer
C. it conservatively reflects current period sales revenue
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A DISADVANTAGE of using the gross price method to account for cash discounts extended by the seller to its customer is that A. the method reports accounts receivable at the net realizable value B. the method requires more bookkeeping than the net price method C. the method enables sales returns and allowances to be recorded at gross amounts D. the method overstates current sales and accounts receivable
answer
D. the method overstates current sales and account receivables
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The sales returns and allowances account is reported as a A. current liability on the balance sheet B. selling expense on the income statement C. contra-asset reducing accounts receivable on the balance sheet D. contra-revenue account on the income statement
answer
D. contra-revenue account on the income statement
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Theoretically, the amount of estimated future returns and allowances on credit sales should be recorded during the period of the sale so as not to overstate sales and ending accounts receivable. In practice, these estimates are not recorded by most companies because A. the amount of such returns and allowances is usually not material B. such estimates are not allowed according to generally accepted accounting principles C. there is too much uncertainty surrounding such estimates D. the amount of such returns and allowances tends to fluctuate too greatly from period to period
answer
A. the amount of such returns and allowances is usually not material
question
When aging of accounts receivable is used, each group is multiplied by its own estimated uncontrollable percentage to determine each age group's estimated noncollectable amount. The sum of the amounts thus determined is the A. required ending balance for the allowance for doubtful accounts B. increase to the existing credit balance in the allowance for doubtful accounts C. amount that should be written off as uncollectable for the year D. amount of bad debt expense for the year
answer
A. required ending balance for the allowance for doubtful accounts
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Which of the following methods is NOT an appropriate method for estimating bad debt expense for companies whose uncollectibe accounts are material? A. aging of accounts receivable B. percentage of net credit sales C. percentage of outstanding accounts receivable D. direct write-off method
answer
D. direct write-off method
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An advantage of basing bad debt expense on the historical relationship between bad debts and net credit sales is that A. it provides the best information to the credit department to use in its collection activities B. it provides the best estimate of the net realizable value of accounts receivable C. it considers the balance in the allowance account when making the bad debt expense estimate D. it best adheres to principle of cause and effect recognition
answer
D. it best adheres to principle of cause and effect recognition
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When an uncollectible account is written off under the allowance method, the effect of the write-off is to A. increase working capital B. decrease net income C. leave total assets unchanged D. increase the accounts receivable net realizable value
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C. leave total assets unchanged
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Bad debt expense is normally reported on the income statement as a(n) A. financial expense in the other items section B. contra-revenue amount C. operating expense D. element of cost of goods sold
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C. operating expense
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When a company writes of an account receivable using the direct write-off method, the effect of the write-off on the financial statements is to A. reduce total assets B. increase the net realizable value of accounts receivable C. increase working capital D. reduce total expenses
answer
A. reduce total assets
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Which of the following is NOT a disadvantage of using the direct write-off method for recording uncolletible accounts? A. violates the expense recognition principle B. allows manipulation of earnings C. overstates the net realizable value of receivables D. increase the cost of record keeping
answer
D. increases the cost of record keeping
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For an given company, the amount of bad debt expense may be based on the historical relationship between actual bad debts incurred and Set A/R Sales A/P 1. yes no no 2. no no yes 3. no yes no 4. yes yes no A. set 2 B. set 1 C. set 4 D. set 3
answer
C. set 4
question
When accounting for uncollectible accounts, A. if the percentage of sales method is in use, any existing balance in the Allowance for Doubtful Accounts is the amount used int eh adjusting entry B. an aging analysis results in reporting accounts receivable at their historical cost on the balance sheet C. writing off a specific receivable does not reduce the current ratio if the percentage of ending accounts receivable method is in use D. in current accounting practice, the most frequently used method of recognizing bad debts is the direct write-off method
answer
C. writing off a specific receivable does not reduce the current ratio if the percentage of ending accounts receivable method is in use
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Which method for estimating uncollectible accounts receivable is considered to be balance-sheet oriented? A. percentage of net sales method B. gross receivables method C. aging of accounts receivable method D. direct write-off method
answer
C. aging accounts receivable method
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Which of the following is NOT a basic form of financing agreement to obtain cash from accounts receivable? A. factoring B. deferring C. assigning D. pledging
answer
B. deferring
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If a company usually sells its accounts receivable, it records any factoring commissions as a(n) A. receivable B. liability C. loss D. expense
answer
D. expense
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A company can record the transfer of accounts receivable as a sale if all of the following are true EXCEPT A. the transferee obtains the right to exchange B> the transferee obtains the risks of ownership C. the transferred assets have been isolated from the transferor D. the transferor can repurchase the transferred assets before their maturity
answer
D. the transferor can repurchase the transferred assets before their maturity
question
When a company factors its accounts receivable, it A transfers the accounts but retains title of the accounts until the loan is paid B. sells individual accounts to a financial institution C. uses these accounts only as a collateral for a loan D. enters into a lending agreement with the institution to receive cash on specific customer accounts
answer
B. sells individual accounts to a financial institution
question
What is the difference between pledging receivables and assigning receivables A. receivables are pledged without recourse; receivables are assigned with recourse B. Pledging involves selling the receivables; assigning involves using the receivables as collateral for a loan C. there is no difference; these are two terms for the same type of financing arrangement D. receivables are pledged with recourse; receivables are assigned without recourse
answer
C. there is no difference; these are two terms for the same type of financing arrangement
question
Which of the following is an example of a factoring agreement? A. selling an individual account receivable to a bank B. pledging a single large account receivable to a bank C. assigning a group of accounts receivable D. selling financial securities that are collateralized by accounts receivables
answer
A. selling an individual account receivable to a bank
question
When accounts receivable are assigned, the risk of ownership A. and title are retained by the borrowing company B. and title pass to the financing company C. is retained by the borrowing company, but the title is passed to the financing company D. passes to the financing company, but the title is retained by the borrowing company
answer
A. and the title are retained by the borrowing company
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When pledging accounts receivable A. title to the receivables reverts to the lender B. collection responsibility reverts to the lender C. the pledges are usually made with recourse D. the pledge arrangements become the new valuation methodology entered in the accounting records
answer
C. the pledges are usually made with recourse
question
If the transferor of accounts receivable cannot meet all conditions for a sale, the tansferor records the processed received as a debit to Cash and records a corresponding credit it to a(n) A. asset account B. liability account C. deferred revenue account D. deferred credit account
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B. liability account
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Short-term noninterest-bearing notes receivable are usually recorded at their A. net realizable value B. principle value C. present value D. maturity value
answer
D. maturity value
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Recording short-term noninterset-bearing notes receivable at their maturity value A. correctly states sales revenue and interest income B. is prohibited by GAAP C. overstates interest income and understates sales revenue D. overstates sales revenue and understates interest income
answer
D. overstates sales revenue and understates interest income
question
Which statement concerning notes receivable is FALSE? A. all notes implicitly include interest B. notes receivable initially should be recorded at the present value of the future cash receipts C. the account discount on notes receivable is a contra-revenue account D. the account notes receivable dishonored is an asset account
answer
C. the account discount on notes reeivable is a contra-revenue account
question
When a company sells a customer's note to a bank, the discount period is the length of time A. from the date of discount to the date of sale B. from the date of discount to issue date C. from the date of sale to the issue D. from the date of discount to the maturity
answer
D. from the date of discount to the maturity date
question
What type of account is Cash Short and Over? A. liability B. deferred revenue C. asset D. expense
answer
D. expense
question
After completing the bank reconciliation, which of the following reconciling items would require an adjusting journal entry on the company's books? A. service charges B. cash on hand C. deposits in transit D. outstanding checks
answer
A. service charges
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On bank reconciliations, customers' checks that are returned for lack of funds would be A. deducted from the balance per bank statement B. deducted from the balance per company records C. added to the balance per company records D. added to the balance per bank statement
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B. deducted from the balance per company records
question
Joan Bell, Inc. uses the bank reconciliation form that arrives at a corrected cash balance. Bank service charges will be A. added back to the bank balance B. added to the book balance C. deducted from the book balance D. deducted from the bank balance
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C. deducted from the book balance
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When completing the bank reconciliation, deposits in transit would be A. added to the company's records B. added to the bank statement balance C. deducted from the bank statement balance D. deducted from the company's records
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B. added to the bank statement balance
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After the company completes the bank reconciliation, it makes journal entries for adjustments A. it made to the bank statement balance only B. it made to both the bank statement and the company records C. it made to the company records only D. made on the statement of cash flows
answer
C. it made to the company records only