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Financial Accounting Fundamentals 6Th Edition Wild Test Bank Full Chapter PDF
Financial Accounting Fundamentals 6Th Edition Wild Test Bank Full Chapter PDF
Financial Accounting Fundamentals 6Th Edition Wild Test Bank Full Chapter PDF
True/False Questions
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
3. As long as a company accurately records total credit sales information, it is not necessary to
have separate accounts for specific customers.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: 07-C1
Topic: Accounts Receivable
7-1
Answer: False
Blooms: Remember
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
5. If a credit card sale is made, the seller debits Cash and credits Sales for the same amount.
Answer: False
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C1
Topic: Accounts Receivable
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: 07-C1
Topic: Accounts Receivable
7. Companies can report credit card expense as a reduction in net sales or as a selling
expense.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
7-2
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-C1
Topic: Accounts Receivable
9. The maturity date of a note refers to the date the note must be repaid.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
10. A promissory note is a written promise to pay a specified amount of money either on
demand or at a definite future date.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
11. The formula for computing interest on a note is: Principal of the note x Annual interest
rate x Time expressed in fraction of year.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
7-3
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
13. A company borrowed $10,000 by signing a six-month promissory note at 5% interest. The
amount of interest to be paid at maturity is $25.
Answer: False
Bloom’: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
14. A company borrowed $16,000 by signing a 4-month promissory note at 12%. The amount
of interest to be paid at maturity is $640.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
15. Sellers generally prefer to receive notes receivable rather than accounts receivable when
the credit period is long and the receivable is for a large amount.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
7-4
Answer: False
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C3
Topic: Disposal of Receivables
17. The process of using accounts receivable as security for a loan is known as pledging
accounts receivable.
Answer: True
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: 07-C3
Topic: Disposal of Receivables
18. Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is
not necessary to disclose the pledging.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: 07-C3
Topic: Disposal of Receivables
19. A company factored $30,000 of its accounts receivable and was charged a 2% factoring
fee. The journal entry to record this transaction would include a debit to Cash of $30,000, a
debit to Factoring Fee Expense of $600, and credit to Accounts Receivable of $30,600.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C3
Topic: Disposal of Receivables
7-5
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
21. The accounts receivable turnover indicates how often accounts receivable are received
and collected during the period.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
22. A high accounts receivable turnover in comparison with competitors suggests that the firm
should tighten its credit policy.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 2 Medium
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
23. The accounts receivable turnover is calculated by dividing average accounts receivable by
net sales.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
7-6
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 3 Hard
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
25. A Company had net sales of $23,000, and its average account receivables were $5,700. Its
accounts receivable turnover is 0.24.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 2 Medium
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
26. The direct write-off method of accounting for bad debts records the loss from an
uncollectible account receivable when it is determined to be uncollectible.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
7-7
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
28. Companies follow both the expense recognition (matching) principle and the materiality
constraint when applying the direct write-off method.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
29. The use of the direct write-off method is allowed under the materiality constraint.
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
30. The advantage of the allowance method of accounting for bad debts is that it identifies the
specific customers who will not pay their bills.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
7-8
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P1
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Direct Write-off Method
Topic: Valuing Accounts Receivable—Allowance Method
32. No attempt is made to estimate bad debts expense under the allowance method of
accounting for uncollectible accounts receivable.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P3
Topic: Valuing Accounts Receivable—Allowance Method
33. The expense recognition (matching) principle permits the use of the direct write-off
method of accounting for uncollectible accounts when bad debts are very large in relation to
a company's other financial statement items such as sales and net income.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
7-9
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
35. After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of
reducing Accounts Receivable to its estimated realizable value.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
36. When using the allowance method of accounting for uncollectible accounts, the entry to
write off Jeannie’s uncollectible account is a debit to Allowance for Doubtful Accounts and a
credit to Accounts Receivable—Jeannie.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
37. The realizable value refers to the expected proceeds from converting an asset into cash.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
7-10
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
39. The allowance method of accounting for bad debts matches the estimated loss from
uncollectible accounts receivable against the sales they helped produce.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
7-11
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
41. The aging of accounts receivable involves classifying each account receivable by how
long it is past its due date and estimating the percent of each uncollectible class.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
42. Installment accounts receivable is another name for aging of accounts receivable.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
43. The accounts receivable method to estimate bad debts obtains the estimated balance in the
Allowance for Doubtful Accounts in one of two ways: (1) computing the percent
uncollectible from the total accounts receivable or (2) aging accounts receivable.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
7-12
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
45. The percent of sales method for estimating bad debts uses only income statement account
balances to estimate bad debts.
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
46. The aging method of determining bad debts expense is based on the knowledge that the
longer a receivable is past due, the higher the likelihood of collection.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
7-13
Answer: False
48. A company has $80,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of outstanding
receivables are uncollectible. The current debit balance (before adjustments) in the allowance
for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance
account includes a debit to Bad Debts Expense for $6,000.
Answer: True
7-14
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
50. A company using the percentage of sales method for estimating bad debts has sales of
$350,000 and estimates that 1.0% of its sales are uncollectible. The unadjusted balance in
Allowance for Doubtful Accounts is a $300 credit. The estimated amount of bad debts
expense is $3,200.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
Feedback: $350,000 * 0.01 = $3,500 (existing balance in Allowance for Doubtful Accounts is
ignored.)
51. The percent of sales method of estimating bad debts focuses more on the realizable value
of accounts receivable than on expense recognition.
Answer: False
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
52. The period of a note is the time from the note’s (contract) date to its maturity date.
7-15
53. Notes receivable are classified as current liabilities regardless of the time to maturity.
Answer: False
Blooms: Remember
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
54. A company received a $15,000, 90-day, 10% note receivable. The journal entry to record
receipt of the note includes a debit to Notes Receivable.
Answer: True
Blooms: Understand
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
55. For legal reasons, it is not advisable to accept a note receivable in exchange for an
overdue account receivable.
Answer: False
Blooms: Remember
AACSB: Reflective Thinking
AICPA BB: Legal
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
56. A note that the maker is unable or refuses to pay at maturity is called a dishonored note.
7-16
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
57. A maker who dishonors a note is one who does not pay it at maturity.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
59. The notes receivable account of a business should include both the notes that have not yet
matured and the dishonored notes.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
60. The practice of placing dishonored notes receivable into accounts receivable keeps only
notes that have not yet matured in the Notes Receivable account.
Answer: True
7-17
61. The expense recognition (matching) principle requires that accrued interest on outstanding
notes receivable be recorded at the end of each accounting period.
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
63. The banker’s rule simplifies interest computations by treating a year as having 365 days.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P4
Topic: Valuing and Settling Notes
7-18
Answer: E
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
7-19
Answer: A
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C1
Topic: Accounts Receivable
66. Sellers allow customers to use credit cards for all of the following reasons except:
A. To be able to charge more due to fees and interest.
B. To lessen the risk of extending credit to customers who cannot pay.
C. To speed up receipt of cash from the credit sale.
D. To increase total sales volume.
E. To avoid having to evaluate a customer's credit standing for each sale.
Answer: A
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C1
Topic: Accounts Receivable
7-20
Answer: D
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: 07-C1
Topic: Accounts Receivable
68. A promissory note received from a customer in exchange for an account receivable is
recorded by the payee as:
A. A cash equivalent.
B. An account receivable.
C. A note receivable.
D. A short-term investment.
E. A note payable.
Answer: C
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
7-21
70. Reporting the details of notes is consistent with which accounting principle that requires
financial statements (including footnotes) to report all relevant information?
A. Relevance.
B. Full disclosure.
C. Evaluation.
D. Materiality.
E. Expense recognition (matching).
Answer: B
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: 07-C3
Topic: Disposal of Receivables
Answer: B
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
7-22
Answer: C
Blooms: Remember
AACSB: Communication
AICPA BB: Legal
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C2
Topic: Notes Receivable
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
7-23
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
76. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total
interest due on the maturity date is.
A. $900
B. $75
C. $450
D. $300
E. $1,800
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
7-24
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
78. A finance company or bank that purchases and takes ownership of another company's
accounts receivable is called a:
A. Payer.
B. Pledger.
C. Factor.
D. Payee.
E. Pledgee.
Answer: C
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-C3
Topic: Disposal of Receivables
7-25
Answer: C
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: 07-C3
Topic: Disposal of Receivables
80. A company factored $45,000 of its accounts receivable and was charged a 4% factoring
fee. The journal entry to record this transaction would include a:
A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and credit to
Accounts Receivable of $46,800.
B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C. Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to
Accounts Receivable of $45,000.
D. Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C3
Topic: Disposal of Receivables
7-26
Answer: C
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
Answer: B
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
Answer: A
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 1 Easy
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
7-27
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 2 Medium
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
85. Pepperdine reported net sales of $8,600 million, net income of $126 million and average
accounts receivable of $890 million. Its accounts receivable turnover is:
A. 37.8.
B. 9.7.
C. 68.3.
D. 7.1.
E. 51.7.
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 3 Hard
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
7-28
Answer: B
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 3 Hard
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
87. A company had net sales of $600,000, total sales of $750,000, and an average accounts
receivable of $75,000. Its accounts receivable turnover equals:
A. .13
B. .80
C. 7.75
D. 8.00
E. 10.00
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 3 Hard
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
7-29
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: 3 Hard
Learning Objective: 07-A1
Topic: Accounts Receivable Turnover
89. The expense recognition (matching) principle, as applied to bad debts, requires:
A. That expenses be ignored if their effect on the financial statements is unimportant to users'
business decisions.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
Answer: C
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
7-30
Answer: A
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
91. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount
of a bad debt being written off, the entry to record the write-off against the allowance
account results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
Answer: D
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
7-31
Answer: B
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
93. On October 12 of the current year, a company determined that a customer's account
receivable was uncollectible and that the account should be written off. Assuming the direct
write-off method is used to account for bad debts, what effect will this write-off have on the
company's net income and total assets?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
Answer: C
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable— Direct Write-off Method
94. Gideon Company uses the allowance method of accounting for uncollectible accounts. On
May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A.
Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3
is:
7-32
E. Cash 2,000
Accounts Receivable—A. Hopkins 2,000
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
95. Gideon Company uses the direct write-off method of accounting for uncollectible
accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its
customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the
account on May 3 is:
E. Cash 2,000
Accounts Receivable—A. Hopkins 2,000
Answer: D
7-33
7-34
B. Cash 2,000
Bad Debts Expense 2,000
E. Cash 2,000
Accounts Receivable—A. Hopkins 2,000
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
97. Gideon Company uses the direct write-off method of accounting for uncollectible
accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its
customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000
from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the
bad debt is:
B. Cash 2,000
Bad Debts Expense 2,000
7-35
E. Cash 2,000
Accounts Receivable—A. Hopkins 2,000
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-P1
Topic: Valuing Accounts Receivable—Direct Write-off Method
98. The allowance method based on the idea that a given percent of a company’s credit sales
for the period is uncollectible is:
A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. Direct write-off method.
E. Factoring method.
Answer: A
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
7-36
Answer: B
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
7-37
Answer: A
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: 07-P2
Topic: Valuing Accounts Receivable—Allowance Method
101. On December 31 of the current year, the unadjusted trial balance of a company using the
percent of receivables method to estimate bad debt included the following: Accounts
Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of
$921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding
accounts receivable at the end of the current year are estimated to be uncollectible?
A. $5,715.
B. $6,636.
C. $4,794.
D. $5,770.
E. $5,660.
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
Feedback:
Desired balance in allowance account: $95,250 * .06 = $5,715 credit
Current balance in allowance account: – 921 credit
Required: amount of Bad Debts Expense: $4,794 credit
7-38
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
Feedback:
Desired balance in allowance account: 15,750 credit
Current balance: 375 debit
Required: adjustment to allowance $16,125 credit
103. A company ages its accounts receivables to determine its end of period adjustment for
bad debts. At the end of the current year, management estimated that $15,750 of the accounts
receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance
for Doubtful Accounts had a credit balance of $375. What adjusting entry should the
company make at the end of the current year to record its estimated bad debts expense?
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
Feedback:
Desired balance in allowance account: 15,750 credit
Current balance: 375 credit
Required: adjustment to allowance $15,375 credit
7-40
All sales are made on credit. Based on past experience, the company estimates that 0.6% of
net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when
the year-end adjusting entry is prepared?
A. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
105. A company uses the percent of sales method to determine its bad debts expense. At the
end of the current year, the company's unadjusted trial balance reported the following
selected amounts:
7-41
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
7-42
All sales are made on credit. Based on past experience, the company estimates 0.6% of net
credit sales to be uncollectible. What adjusting entry should the company make at the end of
the current year to record its estimated bad debts expense?
A. Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.
B. Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
C. Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
D. Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
E. Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on sales
7-43
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
Feedback:
Desired balance in allowance account: $90,000 x .04 = $3,600 credit
Current balance in allowance account: + 800 debit
Adjustment to allowance: $4,400 credit
108. A company has $90,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 4% of outstanding
receivables are uncollectible. The current balance (before adjustments) in the allowance for
doubtful accounts is an $800 credit. The journal entry to record the adjustment to the
allowance account includes a debit to Bad Debts Expense for:
A. $2,800
B. $3,568
C. $3,632
D. $3,600
E. $4,400
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 07-P3
Topic: Estimate uncollectible accounts receivable – based on receivables
Feedback:
Desired balance in allowance account: $90,000 x .04 = $3,600 credit
Current balance in allowance account: - 800 credit
7-44
109. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper’s entry to record
the transaction should be:
A. Debit Notes Receivable for $25,000; credit Cash $25,000.
B. Debit Accounts Receivable $25,000; credit Notes Receivable $25,000.
C. Debit Cash $25,000; credit Notes Receivable for $25,000.
D. Debit Notes Payable $25,000; credit Accounts Payable $25,000.
E. Debit Notes Receivable $25,000; credit Sales $25,000.
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 07-C2
Topic: Notes Receivable
110. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest
that Jasper will collect on the loan is:
A. $1,750.
B. $145.83.
C. $437.50.
D. $19.44.
E. $875.00.
Answer: C
7-45
But they were trying to do for China what Wyclif did for the English
and what Luther did for the Germans,—to make a translation of the
Bible into a vernacular form of national speech which would be
everywhere intelligible; and they took courage and pressed forward
slowly but surely toward their goal. In doing this they not only have
accomplished the end immediately sought, but they also have put
into the hands of the people at large a model which will largely mold
all their coming literature.
The conference at Shanghai in 1907 approved the report on the
New Testament and decided to proceed to the revision of the Old
Testament, and appointed an executive committee to select the men
to do this work. The members chosen were the same five who had
served toward the close of the revision of the New Testament, with
the exception of a new translator needed because one of the old
committee had gone home. Dr. Mateer was especially anxious that
they might be saved from the necessity of breaking in and training
several inexperienced members. Of course, he had foreseen that he
would probably be selected, but when informed that this had been
done he reserved his decision until he knew of whom besides
himself the committee was to consist. To Dr. Goodrich of the
American Board, with whom he had been so intimately associated,
he wrote several times, urging him to accept; and in one of these
letters he said: “There is a variety of reasons why I am perhaps as
loath as you are to do this work. So far as money, reputation, or
personal taste goes, I should rather do other work. But then it seems
as if duty calls to this. Neither you nor I can ignore the fact that the
experience and training of all these years have fitted us in a special
manner for this work. We can do it better and faster than new men.”
He was again made chairman, and as such he proceeded to
distribute the first of the revision work, for which he selected Genesis
and certain of the Psalms. He began his personal labors at the
opening of the year, and in the summer the committee assembled at
Chefoo to consider what had then been accomplished. The Goodrich
and the Mateer families went into residence during their projected
stay, and took for this purpose a house occupied usually as
headquarters for the school for the deaf, Mrs. Goodrich, because of
the condition of Mrs. Mateer’s health, having charge of the
housekeeping. The meetings were held in a little chapel of the China
Inland Mission, in the neighboring valley. It was while so situated that
Dr. Mateer was stricken with his fatal illness.
In a letter which he addressed “To the dear ones at home,” on the
occasion of his seventieth birthday, he said:
“There are many trials and self-denials in missionary life, but there are
also not a few compensations and some advantages.”—letter “to
the dear ones at home,” at his seventieth birthday.
Before the end of her first year in China she look an active
part in opening the little school which ultimately grew into the
Shantung College. To this school she gave the best energies
of her life, and to her in no small degree is due its continued
success. She was an accomplished teacher, especially of
young boys.... She did far more than teach, during the earlier
years of the school; she did fully two thirds of the work
involved, giving her time day and night to every detail. She
kept the accounts, looked after food and clothing and a
hundred nameless things. To the end she was the confidante
and adviser of all, in their troubles, trials, and plans, in their
marriage alliances, and in their spiritual exercises. The
thoughtful care she gave to all her pupils when they were sick
endeared her to the hearts of all who were in the college. She
studied medicine on her own account, and had no mean skill
as a physician. All the sick in the native church, and all the
sick in her own neighborhood, heathen and Christian, came to
her, and she never refused a call. There is no graduate of the
Tengchow College who does not have a place for her in his
heart, close by the side of that of his own mother. During her
illness there is probably not one of these young men,
scattered as they are over all north China, who did not pray
earnestly for her, many of them in public as well as in private;
and many of them have written her the most anxious and
affectionate letters. On her sixtieth birthday, last July, the
students of the college and graduates with their most
imposing ceremony presented her with a decorated silk gown,
and placed a large title, or sign, in gilt letters over the front
door of the house, “Character-nourishing aged mother.” It was
the proudest day of her life when these young men presented
her with this most fitting token of their loving reverence and
esteem.
In view of the hatred and prejudice which confronted her and her
husband when they arrived in Tengchow nearly thirty-five years
before, it must have almost seemed to her like the illusion of a
dream.
We have previously seen that Dr. Mateer’s brother John became
the superintendent of the mission press at Shanghai in 1872. He
continued in that position until 1876, when he returned home. For a
good many years he was in business in the United States, and then
he returned to China and took charge of the mission press of the
American Board at Peking. In April, 1900, Dr. Mateer was called by
telegraph to come to that city as quickly as possible, on account of
the dangerous illness of his brother; but John died the day before his
arrival. In a letter to the surviving brothers and sisters Dr. Mateer,
after describing the funeral services, added:
It did not fall to the lot of Dr. Mateer to have any experience of
perilous adventure and of hairbreadth escapes such as have come
into the lives of missionaries in uncivilized lands, and even in China.
Still he by no means escaped serious risks. In his earlier itinerations
he was several times threatened with attacks from individuals or
crowds, and sometimes he armed himself in order to defend himself
from assault. The second year of his residence in Tengchow,
because of negotiations going forward for the renting of a house
near the south gate, a meeting of as many as a thousand people
composing the most influential clan in the city assembled in one of
the temples, and demanded of the officials permission to kill the man
who controlled the house, and the foreigners; but the excitement
passed away without any open outbreak. In the summer of 1867
there was a great scare at Tengchow over the approach of a body of
“rebels.” These were in reality robbers, consisting of the dregs left
behind at the suppression of the Tai-Ping rebellion, who burned and
laid waste large districts of country, and mercilessly slaughtered the
people. Their approach to Tengchow had so often been reported that
nobody knew what to anticipate; but at length they, sure enough,
made their appearance in the neighboring country. The inhabitants
crowded into the city by thousands, bringing with them donkeys,
cattle, and everything that could be hastily removed, so that not only
the houses, but the streets and vacant places were crammed with
them, the mission premises not being excepted. Julia found in the
situation a fine opportunity to give the gospel to the women; and her
husband was equally diligent among the men, though he was
unfortunately hampered by the absence of his Chinese assistant. A
British war vessel called early in the scare and offered to remove the
missionaries to a place of safety; and later the “Wyoming,” a United
States naval vessel, anchored out in the bay, where she could bring
her guns to play, if necessary, for the protection of American citizens.
Happily, after five days of this state of things the rebels again
vanished, but not without leaving in their trail sickness and
desolation. The missionaries do not seem to have been much
alarmed at any time during the excitement, though no one could tell
what might happen.
In 1870 there was a cruel massacre of a large number of French
Roman Catholic missionaries and of some others at Tientsin, and
much valuable mission property was destroyed. The news of this
spread rapidly over north China and kindled the animosity of the
natives against foreigners to such a degree that the situation in many
localities became very dangerous. At Tengchow rumors of plots to
wipe out the missionaries there were frequent, and the native
Christians and others who were friendly communicated to them
information that justified serious apprehension. A meeting of all the
members of both the Baptist and the Presbyterian station was called,
and then another the next day, and by an almost unanimous vote it
was declared that it was the duty of all to take refuge in Chefoo or
elsewhere until the danger was substantially ended. Dr. Mateer in
these meetings advocated brief delay and further inquiry, but when
he found himself in a minority of one, he yielded his judgment to that
of all the others. Just as soon as possible a message was sent to
Chefoo for a ship to come up and take the families to that place, and
a couple of British vessels promptly responded. All valuables that
could be quickly packed and easily removed were shipped; and the
premises at Tengchow were placed in charge of as trusty Chinese as
could be obtained for the purpose, and a promise was given by the
chief official of the city that he would see that constables watched
the property. Dr. Mateer did not go on the ship, but remained a day
along with a Baptist missionary in order to complete the
arrangements required for the proper keeping of the houses and
goods, and then he followed on horseback down to Chefoo. The
prompt appearance of the ships in the harbor and the removal of the
missionaries seem to have made a most wholesome impression on
the people, and the excitement soon subsided, and a rather general
desire prevailed, even among the non-Christian Chinese, that they
should return. The American minister at Peking also greatly gratified
the refugees and their fellow-laborers from the United States by the
to them somewhat novel experience of his taking an earnest
practical interest in their welfare. He advised them to return to
Tengchow, and solicited the privilege of sending them back on an
American warship. After an absence of about a month Dr. Mateer
went thither on a preliminary trip, and was pleasantly surprised at the
friendly altitude of the people. In due time the other missionaries and
their families followed; but at the meeting of the synod which ensued
a little later he was compelled, after a brief sojourn at Tengchow, to
go down to Shanghai and remain there for a year and a half in
charge of the mission press. Just how real was the danger that
caused this temporary flight to Chefoo, and how imminent, is a
secret that perhaps no man clearly knew, and which certainly the
missionaries never ascertained. Writing in his Journal, just after his
return, concerning his reluctant acquiescence in the vote of all
except himself in favor of going, he says:
One of the minor but notable honors that came to Dr. Mateer was
the celebration of his seventieth birthday at Wei Hsien. The Chinese
have a curious custom as to the birthday of the emperor, and
perhaps of other distinguished persons; they celebrate it a year, a
month, and a day in advance of the true date. This custom was
followed on the occasion of Dr. Mateer’s seventieth birthday. An
eyewitness has given the following graphic description of the affair: