TRADE AND OTHER RECEIVABLES

Question 1

Accounts receivable shall be recognized initially at
a. Face value c. Maturity value
b. Discounted value d. Current value

Question 2

Subsequent to initial recognition, accounts receivable should be carried at
a. Face value c. Maturity value
b. Net realizable value d. Present value

Question 3

Assuming that the ideal measure of short- term receivable in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because
a. Most short- term receivables are not interest- bearing
b. The allowance for uncollectible accounts includes a discount element
c. The amount of the discount is not material
d. Most receivables can be sold to a bank or factor

Question 4

Receivables denominated in a foreign currency should be
a. Translated to local currency using the exchange rate at the time the receivable arise
b. Shown at face value of the foreign currency
c. Translated to local currency using the exchange rate at the balance sheet date
d. Translated to local currency using the exchange rate when the balance sheet is issued

Question 5

In reporting accounts receivable at the balance sheet
a. An aging schedule is used to determine which accounts should be written off prior to preparing the balance sheet totals
b. The allowance for uncollectible accounts, freight charges, sales discounts, and sales returns and allowances are deducted from accounts receivable
c. The direct write off method is used to determine the appropriate balance in the allowance for uncollectible accounts at year-end
d. Only those accounts likely to be collected before the beginning of the next period should be included in the accounts receivable

Question 6

When individual customer’s accounts have credit balances of material amounts, these amounts
a. Should be omitted from the balance sheet
b. Must be reported separately in the liability section of the balance sheet
c. May be shown as “credit balances of customers accounts” in the current assets section
d. May be deducted from the debit balance in other customers accounts in the asset section

Question 7

Bad debt expense represents
a. That portion of this period’s sales on account not likely to be collected
b. That portion of the balance in accounts receivable at the end of the period not likely to be collected
c. The amount of accounts receivable written off as uncollectible during the current period
d. The total of those accounts receivable written off during the period and the amount judged to be uncollectible at the beginning of the period

Question 8

Which of the following statement is true in relation to presentation of receivables in statement of financial position?
a. Trade receivables and nontrade receivables are shown separately
b. Nontrade receivables are presented as noncurrent assets
c. Trade account receivables and trade notes receivable shall be presented separately
d. Trade receivable and nontrade receivable which are currently collectible shall be presented as one line item called “trade and other receivables”

Question 9

Accounts receivable usually appear in the balance sheet
a. As current assets, combined with cash and cash equivalents
b. As current assets, immediately after cash and cash equivalents
c. Only if the balance sheet method of estimating uncollectible accounts is used
d. As either current assets or noncurrent assets, depending on whether the allowance method or the direct write-off method is used to account for uncollectible accounts

Question 10

Accounts receivable are classified as current assets
a. Only if convertible into cash beyond one year
b. Only if convertible into cash within 60 days or sooner
c. Only if the allowance method is used to estimate the uncollectible accounts
d. Whenever accounts receivable arise from “normal” sales to customers, regardless of the credit terms

Question 11

If a company employs the gross method of recording receivables from customers, then sales discounts taken should be reported as
a. A deduction from sales in the income statement
b. An item of other expense in the income statement
c. Sales discounts forfeited in the cost of sales section of the income statement
d. A deduction from accounts receivable in determining the net realizable value

Question 12

Which of the following is an advantage of using the net price method for recording cash discounts on credit sales?
a. It properly reflects current periods sales revenue
b. It simplifies recording of sales returns and allowances
c. It eases communication with customers about their balances
d. It requires less record-keeping efforts than the gross method

Question 13

Which of the following concepts relates to the allowance method in accounting for accounts receivable?
a. Bad debt expense is based on the actual amount determined to be uncollectible
b. Bad debt expense is an estimate that is based only on an aging of accounts receivable
c. Bad debts expense is an estimate that is based on historical and prospective information
d. Bad debt expense is management determination of which accounts will be sent to the attorney for collection

Question 14

Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable not adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance

Question 15

Which is a generally accepted method of determining the amount of the adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of accounts receivable not adjusted for the balance in the allowance
c. An amount derived from aging accounts receivable adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable not adjusted for the balance in the allowance

Question 16

Which method does not properly match expense and revenue?
a. Charging bad debts as accounts are written off as uncollectible
b. Charging bad debts with a percentage of sales under the allowance method
c. Charging bad debts using aging of accounts receivable under the allowance method
d. Charging bad debts using a percentage of accounts receivable under the allowance method

Question 17

A method of estimating bad debts that focuses on the income statement whether rather than the statement of financial position is the allowance method based on
a. Direct write-off method c. Credit sales
b. Aging the trade accounts receivable d. The balance in the trade accounts
receivable

Question 18

When an accounts receivable aging schedule is prepared, a series of computations is made to determine estimated uncollectible accounts. The resulting amount from this aging schedule
a. When added to the total accounts written off during the year is the desired credit balance of the allowance for doubtful accounts at year-end
b. Is the amount of doubtful accounts expense for the year
c. Is the amount that should be added to the beginning allowance for doubtful accounts to get the doubtful accounts expense for the year
d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year end

Question 19

From the standpoint of accounting theory, the allowance method of accounting for uncollectible accounts expense is much better than the direct write off method because
a. Uncollectible accounts are merely charged to expense in the period when such receivables are determined to be collectible
b. Expenses are unmatched with related revenues
c. The receivables are not stated at their provable realizable value
d. Uncollectible accounts are recorded as expenses in the period in which the individual accounts are determined to be worthless

Question 20

When the allowance method is used, the entry which is appropriate when a particular account is written off as uncollectible should include a
a. Credit to sales revenue c. Debit to accounts receivable
b. Credit to bad debt expense d. Debit to allowance for doubtful accounts

Question 21

A company, which has an adequate amount in its Allowance for Doubtful Accounts, writes off as uncollectible an accounts receivable from a bankrupt customer. This action will
a. Have no effect on total current assets c. Reduce the amount of equity
b. Reduce net income for the period d. Reduce total current assets

Question 22

When a specific customer’s account receivable is written off as uncollectible, what will be the effect on net income under each of the following methods of recognizing bad debt expense?
Allowance Direct write-off Allowance Direct write-off
a. None Decrease c. Decrease Decrease
b. Decrease None d. None None