INTACC CHAP 1-10 THEORIES REVIEWER

Which of the following is classified as a financial asset?

• a. Ordinary shares of the issuer

• b. Loans payable

• c. Accounts receivable

• d. Inventory

Statement I: Trade receivables are classified as current assets if they are to be collected

within one year or within the normal operating cycle, whichever is shorter.

Statement II: Non-trade receivables are classified as current assets if they are to be collected

within one year or within the normal operating cycle, whichever is longer.

• a. Both statements are true

• b. Both statements are false

• c. Only statement I is true

• d. Only statement I is false

What is an example of TRADE receivables?

• a. Claims in litigation

• b. Loans to employees

• c. Amounts due from customers

• d. Receivables from affiliates

The normal operating cycle

• a. Cannot exceed a period of one year

• b. Refers to the seasonal variations experienced by business entities

• c. Should be used to classify asset and liabilities as current if the cycle is less than one year

• d. Measures the time elapsed between cash disbursements for inventory and cash collection of the sales price

A credit balance in accounts receivable resulting from overpayments, advanced payments and sales returns should be classified as (customers’ credit balance)

• a. A current liability

• b. A long-term liability

• c. A contra asset

• d. A note disclosure

Uncollectible accounts expense

• a. Represents the loss in accounts receivable that eventually turn out to be uncollectible

• b. Is the amount an entity must pay whenever a customer fails to pay his or her account

• c. Should not occur if a company properly investigates customers based on credit history

• d. Is the amount an entity must pay to a collection agent to recover amounts on overdue accounts

A method of estimating uncollectible accounts that emphasize asset valuation rather than income measurement is the allowance method based on

• a. Aging of receivables

• b. Direct write-off

• c. Percent of sales method

• d. Percent of accounts receivable method

The advantage of relating bad debt experience to accounts receivable is that this approach

• a. Does not require knowledge of the balance in the allowance for doubtful accounts

• b. Gives a reasonably correct amount of receivables in the balance sheet

• c. Does not require estimates of uncollectible accounts

• d. Relates bad debt expense to the period of sale

Which method of recording bad debt loss is consistent with accrual accounting?

• a. Allowance method

• b. Direct write-off method

• c. Percent of sales method

• d. Percent of accounts receivable method

Under the direct write-off method, uncollectible accounts expense is recognized

• a. As a percentage of net sales during the period

• b. As a percentage of net credit sales during the period

• c. As specific accounts receivable are determined to be worthless

• d. As indicated by aging the accounts receivable at the end of the period