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Exam 7: Receivables and Investments

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Question 51

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Which one of the approaches for the allowance method of accounting for bad debts emphasizes the net realizable value of accounts receivable on the balance sheet?

A) The percentage of accounts receivable approach
B) The percentage of net credit sales approach
C) The direct write-off method
D) The uncollectible approach

E) A) and B)
F) A) and C)

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Question 52

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Genuine Parts received a promissory note from a customer on March 1, 2015.The face amount of the note is $8,000; the terms are 90 days and 9% interest.At the maturity date, the customer pays the amount due for the note and interest.What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

A) Increase Cash, $8,000, and decrease Notes Receivable $8,000
B) Increase Cash, $8,180, increase Interest Revenue, $180, and decrease Notes Receivable, $8,000
C) Increase Cash $8,720, decrease Notes Receivable $8,000, and increase Interest Revenue, $720
D) No entry is required; the customer pays the amount due to the bank

E) A) and D)
F) B) and C)

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Question 53

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If Ash Company had sales during the year of $10,000,000, an average accounts receivable of $2,000,000, and net income of $500,000, its accounts receivable turnover ratio would be 0.25.

The equity method of accounting is used if the investor owns at least 20% of the investee and the investor is able to secure influence over the investee.

Which one of the following is an investing activity on the statement of cash flows?

-Refer to the data for Benton Corporation. What is the balance of Accounts Receivable at December 31, 2015?

Both stock and bond investments have maturity dates.

What is the distinguishing characteristic between accounts receivable and notes receivable?

Router Inc.lends $70,000 on a 120-day, 9% promissory note.The total interest that Router will receive at maturity is

The party that agrees to repay is the of the note.

When a company discounts a promissory note at the bank, it receives cash at the same time it would if it held the note to maturity.

If a company discounts a note at a bank, but still is contingently liable for the maturity value, then the note was discounted with ____________________.

Why do businesses invest in short-term investments?

What are the effects on the accounting equation from the purchase of a short-term investment?

Significant influence of one company over another has been defined by the accounting profession as the ownership of what minimum percent of the second company's stock?

Genuine Parts received a promissory note from a customer on March 1, 2015.The face amount of the note is $8,000; the terms are 90 days and 9% interest.What is the total amount of interest that Genuine Parts will receive when the note is paid?

On July 1, 2015, Frank Corp.purchased $100,000 of 8% bonds at face value.Interest is paid annually on June 30.If the accounting year for Frank ends at December 31, 2015, what will be reported with respect to the bonds on that date?

If a company accepts a major credit card such as VISA from a customer, then the company is responsible for the amount of the sale in a case of nonpayment from a cardholder.

The maker of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

Mellon Corporation The data presented below is for Mellon Corporation for the year ended December 31, 2015: -Refer to the data for Mellon Corporation. If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2015?