Test Cash and Receivable

Cash equivalents are investments with original maturities of six months or less

• True

• False

Short-term, highly liquid investments may be included with cash on the statement of financial position.

• True

• False

When the stated rate of interest exceeds the effective rate, the present value of the note receivable will be less than its face value.

• True

• False

When buying receivables with recourse, the purchaser assumes the risk of collectibility and absorbs any credit loss.

• True

• False

Which of the following concepts relates to using the allowance method in accounting for accounts receivable?

• Bad debt expense is an estimate that is based on historical and prospective information.

• Bad debt expense is based on the actual amounts determined to be uncollectible

• Bad debt expense is an estimate that is based only on an analysis of the receivables aging schedule

• Bad debt expense is management’s determination of which accounts will be sent to the attorney for collection

Why would a company sell receivables to another company?

• To improve the quality of its credit granting process

• To limit its legal liability

• To accelerate access to amounts collected

• To comply with customer agreements

When a note is exchanged for property, goods, or services, the stated interest rate is assumed to be fair:

• When no interest rate is stated

• When the stated interest rate is unreasonable.

• When the face amount of the note is materially different from the current fair value of the debt instrument

• When the company sets the face amount of the note equal to the cash sales price for similar or the same items.

Kennison Company has cash in bank of £10,000, restricted cash in a separate account of £3,000, and a bank overdraft in an account at another bank of £1,000 (not offset). Kennison should report cash of

• £9,000

• £10,000

• £12,000

• £13,000

Vivian, Inc had net sales in 2022 of €700,000. At December 31, 2022, before adjusting entries, the balances in selected accounts were: accounts receivable €125,000 debit, and allowance for doubtful accounts €1,200 credit. Vivian estimates that 2% of its net sales will prove to be uncollectable. What is the cash realizable value of the receivables reported on the statement of financial position at December 31, 2022?

• €112,200

• €122,500

• €111,000

• €109,800

Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account

• increases the allowance for uncollectible accounts.

• has no effect on the allowance for uncollectible accounts.

• has no effect on net income.

• decreases net income