Chapter 7 - Cash and Receivables - LO2

The category "trade receivables" includes

• advances to officers and employees.

• income tax refunds receivable.

• claims against insurance companies for casualties sustained.

• None of these answer choices are correct.

Which of the following should be recorded in Accounts Receivable?

• Receivables from officers

• Receivables from subsidiaries

• Dividends receivable

• None of these answer choices are correct.

What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a statement of financial position?

• As offsets to equity

• By means of footnotes only

• As assets but separately from other receivables

• As trade notes and accounts receivable if they otherwise qualify as current assets

Which of the following statement is incorrect regarding receivables on the statement of financial position?

• Receivables are a financial asset.

• Receivables are financial instruments.

• Non-trade receivables are generally reported as separate items in the statement of financial position.

• Accounts receivable are written promises of the purchaser to pay for goods or services.

When a customer purchases merchandise inventory from a business organization, the customer may be given a discount which is designed to induce prompt payment. Such a discount is called a(n)

• trade discount.

• nominal discount.

• enhancement discount.

• cash discount.

Trade discounts are

• not recorded in the accounts; rather they are a means of computing a price.

• used to avoid frequent changes in catalogs.

• used to quote different prices for different quantities purchased.

• All of these answer choices are correct.

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

• a deduction from sales in the income statement.

• an item of "other income and expense" in the income statement.

• a deduction from accounts receivable in determining the net realizable value of accounts receivable.

• sales discounts forfeited in the cost of goods sold section of the income statement.

Why do companies provide trade discounts?

• To only avoid frequent changes in catalogs

• To induce prompt payment

• To only easily alter prices for different customers

• To avoid frequent changes in catalogs and to easily alter prices

Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct?

• Net approach

• Gross approach

• Allowance approach

• All three approaches are theoretically correct.

All of the following are problems associated with the valuation of accounts receivable except for

• uncollectible accounts.

• returns.

• cash discounts under the net method.

• allowances granted.