Chapter 7
1.Bank overdrafts, if material, should be d. reported as a current liability.
2. Which of the following should be recorded in Accounts Receivable? D. None of these
3. When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n) d. cash discount.
4. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
d. Improved matching of bad debt expense with revenue.
5. Which of the following concepts relates to using the allowance method in accounting for account receivable? a. Bad debt expense is an estimate that is based on historical and prospective information.
6. Which of the following methods of determining bad debt expense does not properly match expense and revenue?
d. Charging bad debts as accounts are written off as uncollectible.
7. Why would a company sell receivables to another company? c.To accelerate access to amounts collected.
8. Of the following conditions, which is the only one that is not required if the transfer of receivable with recourse is to be accounted for as a sale?
a.The transferor is obligated to make a genuine effort to identify those receiv¬ables that are uncollectible. 9. Consider the following: Cash in Bank – checking account of $13,500, Cash on hand of $500, Post-dated checks received totaling $3,500, and Certificates of deposit totaling $124,000. How much should be reported as cash in the balance sheet? b. $ 14,000.
10. If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)? C. 18% 11. AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record sales made on