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Chapter 6
The Current Asset Classification, Cash, and Accounts Receivable
MULTIPLE CHOICE QUESTIONS
1. Current assets are assets which

a. can be used immediately to retire liabilities.
b. are newly acquired.
c. have been converted into cash in the previous year.
d. are intended to be converted into cash within one year.
Ans: D KP 1 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

AICPA BB: Critical Thinking AICPA FN: Reporting
2. A company’s operating cycle may be described as

a. the period of time that is typically required for a company to convert cash into
inventory and inventory into cash.
b. the period of time from the beginning of operations until a company liquidates all of
its assets.
c. always a one-year time period.
d. a cycle that is distinguished at the discretion of the Board of Directors on a daily
basis.
Ans: A KP 1 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

AICPA BB: Critical Thinking AICPA FN: Measurement
3. Cash may consist of

a. coin and currency, loans to employees, and money orders.
b. petty cash, officer imprest accounts, and employee savings accounts.
c. money orders, postage stamps, and currency.
d. checking accounts, savings accounts, and bank drafts.
Ans: D KP3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

4. A compensating balance is
a. cash held by a foreign government.
b. a balance maintained by the company to pay the employees’ payroll.
c. a minimum cash balance that must be maintained on deposit.
d. items which are not cash, but equivalent to cash.
Ans: C KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

6-1
6-2 Test Bank – Chapter 6 – The Current Asset Classification, Cash, and Accounts Receivable
5. Which of the following are components of the quick ratio?

a. Cash and notes payable
b. Cash and accounts receivable
c. Accounts receivable and inventory
d. All current assets except accounts receivable
Ans: B KP 1 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

6. Which of the following are components of the current ratio?

a. Accounts receivable and short term investments
b. Inventory, retained earnings, and accounts payable
c. Accounts payable, dividends, and cash
d. Short term investments, equipment, and land
Ans: A KP 1 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic

7. ‘Earnings management’ is described as deliberate managerial decisions and choices

that are solely designed to
a. increase selling prices of a company’s products.
b. reduce repair costs on the company’s equipment.
c. manipulate net income from one period to the next to boost the company’s stock
price.
d. increase working capital.
Ans: C KP 1,2 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic

8. If a company with a current ratio of 2.0 pays $2,000 of its salaries payable, then its
current ratio will
a. change, but not enough information is provided to determine if it will increase or
decrease.
b. decrease.
c. remain the same.
d. increase.
Ans: D KP 1,2 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

9. On August 1, Compass Co. made a $10,000 credit sale under the terms 2/10, n/30. If
Compass receives full payment of the account on August 8, how much cash will it
receive?
a. $9,700
b. $9,800
c. $9,000
d. $10,000
Ans: B KP 4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Test Bank – Chapter 6 – The Current Asset Classification, Cash, and Accounts Receivable 6-3
10. If a company with working capital of $210,000 pays $4,000 of bonds payable, then its
working capital will
a. increase.
b. decrease.
c. remain the same.
d. Not enough information to determine
Ans: B KP 1,2 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

11. The allowance for doubtful accounts is

a. an ‘other revenue’ account.
b. a contra accounts receivable account.
c. an ‘other expense’ account.
d. a contra expense.

12. On November 3, Carol Company made a $2,000 credit sale under the terms 3/10, n/60.
If Carol receives full payment of the account on November 14, how much cash will it
receive?
a. $1,400
b. $1,900
c. $1,940
d. $2,000
Ans: D KP 4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

13. On January 2, Favre Co. made a $2,000 credit sale under the terms 3/10, n/30. If Favre
uses the gross method of accounting for cash discounts, the proper entry on January 2
includes
a. a debit to Accounts Receivable for $2,000, and a credit to Sales for $2,000.
b. a debit to Accounts Receivable for $2,000, a credit to Cash Discounts for $1,940,
and a credit to Sales for $60.
c. a debit to Accounts Receivable for $1,940, and a credit to Sales for $1,940.
d. a debit to Accounts Receivable for $1,940, a debit to Cash Discounts for $60, and a
credit to Sales for $2,000.
Ans: A KP 4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

14. The net realizable value of receivables is calculated as the face value of the receivables
less adjustments for
a. sales returns and sales discounts.
b. actual uncollected amounts adjusted for purchase discounts.
c. bad debts already written off.
d. sales returns, cash discounts, and estimated uncollectible accounts.
Ans: D KP 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic

15. Montego Bay Resort Club offers a cash discount of 3% if its customers pay within 15
days after the customer eats dinner. Otherwise, the customer must pay within 30 days. If
a customer does not take advantage of the cash discount, then he/she is paying an
annual interest rate for not delaying payment for 15 days of
a. 3%.
b. 6%.
c. 36%.
d. 72%.
Ans: D KP 3,4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

16. The face amount of accounts receivable for Rio Inc. is $20,000. It was estimated that 5%
of the accounts will not be collected, cash discounts of $500 will be exercised, and $200
of sales returns will be experienced. The net realizable value of accounts receivable is
a. $19,500
b. $19,300
c. $20,000
d. $18,300
Ans: D KP 4,5 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

17. Under the allowance method of accounting for bad debts, the recognition of bad debts
expense
a. increases current assets and decreases net income.
b. decreases current assets and increases net income.
c. increases current assets and net income.
d. decreases current assets and net income.
Ans: D KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

18. Under the direct write-off method of accounting for bad debts, the recognition of bad
debts expense
a. decreases current assets and net income.
b. decreases current assets and increases net income.
c. increases current assets and net income.
d. increases current assets and decreases retained earnings.
Ans: A KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

19. Under the allowance method of accounting for bad debts, the write-off of an account
receivable determined to be uncollectible
a. decreases the current ratio.
b. increases the current ratio.
c. has no effect on the current ratio.
d. decreases working capital.
Ans: C KP 5 BT: AP Difficulty: Easy TOT: 1 min. AACSB: Analytic

20. Hummel Inc. and Nadia Co. have experienced identical economic performances for the
last several years of growing sales. Each uses identical accounting measurement rules
except that Hummel uses the allowance method and Nadia uses the direct write-off
method of accounting for bad debts. Both companies have experienced a gradual
increase in uncollectible accounts. Which one of the following statements is true in the
first year of operations for both companies?
a. Hummel ‘s net income is less than Nadia’s net income.
b. Hummel ‘s net income is greater than Nadia’s net income.
c. Hummel ‘s current ratio is greater than Nadia’s current ratio.
d. Hummel will appear more solvent than Nadia will.
Ans: A KP 1,5 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

21. Delvin Co. uses the percentage of credit sales approach in estimating its bad debt
expense. The total estimate that is calculated by multiplying the percentage times the
net sales revenue for the period will be equal to
a. the debit balance required in the allowance for doubtful accounts after the
recognition of bad debts expense.
b. the credit balance required in the allowance for doubtful accounts after the
recognition of bad debts expense.
c. the difference between the beginning and the ending accounts receivable balance.
d. the amount of bad debt expense.

22. Maradonna Co. uses an aging schedule of accounts receivable in estimating its bad debt
expense. The total estimate, which appears on the aging schedule, will be equal to
a. the amount of bad debts expense on the company’s income statement.
b. the debit balance required in the allowance account prior to the recognition of bad
debts expense.
c. the increase in bad debts expense as a result of the estimate.
d. the credit balance required in the allowance account after the recognition of bad
debts expense.

23. On December 1, 2010, Smith Company delivered a shipment of goods to a Danish

customer for a price of 160,000 euros. If on that date 1.3 U.S. dollars could be
exchanged for 1 euro. If Smith closes its books on December 31 and 1 U.S. dollar is
trading for 1 euro at that time, the adjusting entry that Smith would record would include:
a. a credit to Exchange Rate Gain for $48,000.
b. a debit to Accounts Receivable for $20,800.
c. a debit to Exchange Rate Loss for $48,000.
d. a debit to Sales for $48,000.
Ans: C KP 4 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

24. Under the allowance method of accounting for bad debts, the actual write-off of an
account receivable determined to be uncollectible
a. decreases current assets.
b. has no effect on current assets.
c. increases current assets.
d. occurs in the same accounting period as the sale.
Ans: B KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

25. Polo, Inc. uses the direct write-off method of accounting for bad debts. During July,
Torey’s account was written off as uncollectible. The write-off of Torey’s account
a. increases both the current and quick ratios.
b. decreases the current ratio and has no effect on the quick ratio.
c. decreases both the current and quick ratios.
d. increases the current ratio and has no effect on the quick ratio.
Ans: C KP 5 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

26. Alma Company uses the allowance method of accounting for bad debts. Alma:
a. is violating the matching principle.
b. will record bad debt expense only when an account is determined to be uncollectible.
c. will not sell to customers on account anymore.
d. will report accounts receivable in the balance sheet at their net realizable value.
Ans: D KP 5 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

27. If a company decreases its cash discount offer from 3/10, n/30 to 2/10, n/60, then it
would expect its accounts receivable collection period to
a. increase.
b. decrease.
c. remain the same.
d. There is not enough information to answer this question.
Ans: A KP 5,6 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

28. A company’s allowance for doubtful accounts is $4,000 and $3,000 on 1/1/11 and
1/1/10, respectively. During 2010, bad debts expenses were estimated to be 6% on net
credit sales of $100,000. During 2010, the amount of accounts written off as
uncollectible amounts to
a. $6,000.
b. $7,000.
c. $5,000.
d. $4,000.
Ans: C KP 5 BT: AN Difficulty: Difficult TOT: 2 min. AACSB: Analytic

29. The journal entry to record the recovery of a previously written-off $2,000 account
receivable (for customer Leno Company) under the allowance method would include:
a. a credit to Bad Debt Expense.
b. a credit to Cash.
c. a debit to Accounts Payable – Leno Company.
d. a credit to Allowance for Doubtful Accounts.
Ans: D KP 4,5,6 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

30. The allowance method of accounting for bad debts emphasizes the net realizable value
of accounts receivable on the balance sheet when
a. the direct write-off method is used.
b. the percentage of net credit sales approach is used to estimate uncollectibles.
c. the percentage of accounts receivable approach is used to estimate uncollectibles.
d. a company omits cash payments during the accounting period.
Ans: C KP 4,5,6 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

31. If a company’s collection period for accounts receivable is considered to be excessively

long, then
a. the company may want to invest excess cash from receivable collections in the stock
market.
b. the company might examine its billing procedures in order to expedite collection from
customers.
c. customer returns should be disallowed in order to increase the collection of cash.
d. cash flows from operations will probably be more than sufficient.
Ans: B KP 5,6 BT: C Difficulty: Moderate TOT: 2 min. AACSB: Analytic

32. During the year, Caltech Inc.’s accounts receivable turnover rate increased from 10 to 12
times. The company makes credit sales only with credit terms of 3/10, n/40. The best
explanation for the increase is that
a. the company’s credit department did a better follow up with customers whose
account balances became past due.
b. the company has recently dropped its credit check policy.
c. the company makes all customers pay cash instead of allowing purchases to be
charged.
d. the company has more customers at the end of the year than it had at the beginning
of the year.
Ans: A KP 3,4,5,6 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

33. Summers, Inc. uses the allowance method to account for bad debts. The entry to record
the write-off of a customer’s account balance decreases
a. assets and owners’ equity.
b. assets and decreases liabilities.
c. owners’ equity and revenues.
d. none of these answers is correct.

34. If a company uses the allowance method to account for bad debts, the company’s
owners’ equity will decrease
a. at the end of the accounting period when an adjusting entry to estimate bad debts is
recorded.
b. on the date a customer’s account is determined to be uncollectible.
c. when the accounts receivable amount becomes past due.
d. on the date a customer’s account is written off.
Ans: A KP 5 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

35. Managers must understand how transactions affect working capital

a. because GAAP does not allow companies with weak working capital to obtain loans.
b. because lenders often use this to assess a company’s ability to meet current
obligations.
c. so that management can avoid transactions that increase working capital.
d. in anticipation of meeting creditors guidelines before issuing new stock.
Ans: B KP 2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

36. Which of the following would be separately reported as restricted cash in the balance
sheet or footnotes to the financial statement?
a. $8,000 in the savings account at First Bank
b. $200 in a petty cash drawer
c. $10,000 cash in an escrow account at Guarantee Bank
d. $4,000 in a checking account at Second Rate Bank
Ans: C KP 1 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

37. On March 1, 2010, Silver Corp. sold goods to a Chinese company for 10,000 Chinese
yuan (10,000 RMB) to be paid on April 1, 2010. The exchange rates on March 1 and
April 1, 2010 are US$8.0 = 1 RMB and US$8.5 = 1 RMB, respectively. What is Silver’s
revenue in US dollars and its 2009 exchange gain or loss?
a. Sales revenue =US $80,000; Exchange gain US $5,000
b. Sales revenue = US $85,000; Exchange loss US $5,000
c. Sales revenue = US $80,000; Exchange loss US $5,000
d. Sales revenue = US $85,000; Exchange gain US $5,000
Ans: A KP4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

38. The current ratio fails to accurately reflect

a. the ability of a company to pay its current debts as they come due.
b. amounts that will come due within the next accounting period.
c. amounts due within the next operating cycle as of the end of the accounting period.
d. cash flows anticipated in future accounting periods.
Ans: D KP 1,2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

39. Most companies

a. use working capital and current and quick ratios as low-cost surrogates for cash flow
measures.
b. place little importance on managing current assets.
c. have large amounts of current assets comprised of cash only.
d. are moving away from cash flow accounting.
Ans: A KP 1,2 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

40. The procedures designed to ensure that the cash account on the balance sheet reflects
the actual amount of cash in the company’s possession are referred to as
a. compensating balances.
b. record controls.
c. physical controls.
d. cash budgeting.

41. A company that maintains a cash balance of more than is necessary for its day-to-day
needs
a. is likely to have cash flow problems.
b. is not using working capital to its ideal advantage.
c. is likely to have a very low solvency.
d. has a problem with physical controls.
Ans: B KP 2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

42. Accounts used to cover day-to-day office expenses are referred to as

a. petty cash.
b. bad debts.
c. cash restrictions.
d. compensating balances.
Ans: A KP1,2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

43. A cash discount differs from a trade discount in that the cash discount is
a. a reduction in the per unit price of an item if a certain quantity is purchased.
b. received in currency instead of by a check from the customer.
c. typically associated with consumers and a trade discount associated with
commercial vendors or suppliers.
d. the same as a mark down.
Ans: C KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

44. The gross method refers to

a. a method of accounting for uncollectible accounts.
b. the expectation that the customer will not take advantage of a cash discount.
c. a method of reporting cash on the balance sheet.
d. the restriction placed on the company’s bank account by the bank.

45. An exchange rate

a. is the cash amount received from a customer who takes advantage of a cash
discount.
b. is the value of one currency in terms of another currency.
c. seldom varies from one accounting period to the next.
d. is ignored by multinational companies.

46. Hedging is used to

a. reduce risks associated with holding receivables denominated in foreign currencies.
b. calculate the current ratio for multinational companies.
c. translate foreign currency into U.S. dollars.
d. ‘window dress’ uncollectible accounts.
Ans: A KP 2,4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

47. Tyson Corp. uses the aging method to estimate bad debts. The bookkeeper provided the
following schedule as of March 30th, 2010:
Account Age Balance Noncollection Probability
Current $50,000 3%
1 -- 30 days past due 40,000 4%
31 -- 60 days past due 10,000 8%
Over 60 days past due 5,000 15%
What is the amount of receivables deemed uncollectible?
a. $1,650
b. $4,650
c. $3,400
d. $105,000
Ans: B KP 4,5 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

48. At the beginning of 2010, Cyrus Corp.’s allowance for doubtful accounts is $12,500.
During 2010, $4,250 was written off as uncollectible. At December 31, the company
used an aging schedule of accounts receivable and determined that $10,530 of the
accounts receivable would probably be uncollectible. What would be the bad debts
expense that should be reported on Cyrus’s 2010 income statement?
a. $5,720
b. $26,780
c. $2,280
d.$18,280
Solution:
$12,500 – $4,250 + X = $10,530 X = $2,280
Ans: C KP5 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

49. Before adjusting entries, Kilby Corp’s accounts receivable and allowance for doubtful
accounts are $745,000 and $7,000 (credit balance), respectively. Using an aging schedule of
accounts receivable, it is determined that $60,000 of the accounts receivable would probably be
uncollectible. Calculate the net realizable value of Truman’s receivables at year end.
a. $681,000
b. $695,000
c. $809,000
d. $685,000
Solution:
$745,000 - $60,000 = $685,000

50. The following information concerning the current assets and current liabilities of
Mason Company at December 31, 2010, is presented below.
Current Assets
Cash $6,700
Accounts Receivable $7,900
Less Allowance (70) 7,830
Inventory 2,270
Prepaid expenses 500
Total $17,300
Current Liabilities
Accounts payable $9,000
Wages payable 500
Taxes payable 200
Rent payable 1,600
Notes payable 2,000
Total
$13,300
Based on this information, how would the current ratio be affected if Mason collects the
accounts receivable and then uses some of the cash to pay off the accounts payable?
a. The current ratio would increase from 1.30 to 1.93.
b. The current ratio would increase from 0.74 to 4.02.
c. The current ratio would decrease from 1.30 to 0.62.
d. The current ratio would increase from 1.09 to 1.61.
Solution:
Before: $17,300/$13,300 = 1.30; After: $8,300/$4,300 = 1.93
The current ratio would increase.
Ans: A KP 2 BT: AN Difficulty: Difficult TOT: 4 min. AACSB: Analytic

Current Assets
Cash $6,700
Inventory 2,270
Total $17,300
Current Liabilities
Wages payable 500
Taxes payable 200
Rent payable 1,600
Notes payable 2,000
Total
$13,300
Based on this information, how would the quick ratio be affected if Mason purchased
$1,300 of inventory on account?
a. The quick ratio would decrease from 1.30 to 1.21.
b. The quick ratio would not change.
c. The quick ratio would decrease from 1.09 to 1.00.
d. The quick ratio would decrease from 1.09 to 1.21.
Solution:
Before: ($6,700 + $7,830)/$13,300 = 1.09
After: ($6,700 + $7,830)/($13,300 + $1,300) = 1.00
The quick ratio would decrease. Note that inventory is not a quick asset.
Ans: C KP 1 BT: AN Difficulty: Difficult TOT: 4 min. AACSB: Analytic

Current Assets
Cash $6,700
Inventory 2,270
Total $17,300
Current Liabilities
Wages payable 500
Taxes payable 200
Rent payable 1,600
Notes payable 2,000
Total
$13,300
Based on this information, what would the quick ratio be if Mason sold all of its inventory
for $6,000 cash?
a. The quick ratio would decrease from 1.09 to 0.19.
b. The quick ratio would decrease from 1.30 to 0.85.
c. The quick ratio would increase from 1.30 to 1.54.
d. The quick ratio would increase from 1.09 to 1.54.
Solution:
Before: ($6,700 + $7,830)/$13,300 = 1.09
After: ($6,700 + $7,830 + $6,000)/$13,300 = 1.54
The quick ratio would increase.
Ans: D KP 1 BT: AN Difficulty: Difficult TOT: 4 min. AACSB: Analytic

53. Sanchez Inc. sells to customers only on credit. For the year ended December 31, 2010,
the following information is provided:
Sales revenue $850,000

Accounts receivable, 1/01/10 230,000
Allowance for doubtful accounts, 12/31/10(before adjustment for bad debts) 600
Collections during 2010 470,000
Accounts written off as uncollectible during 2010 13,000
Sales returns 7,000
What is the balance of the Accounts Receivable account at December 31, 2010?
a. $1,525,000
b. $590,000
c. $205,000
d. $135,000
Solution: $230,000 + $850,000 – $470,000 – $7,000 – $13,000 = $590,000
Ans: B KP 3,4,5 BT: AN Difficulty: Moderate TOT: 3 min. AACSB: Analytic

54. Sanchez Inc. sells to customers only on credit. For the year ended December 31, 2010,

Sales returns 7,000
If Sanchez estimates bad debts at 5% of net credit sales, how much is bad debt
expense?
a. $34,000
b. $15,200
c. $23,400
d. $42,150
Solution:
5% x ($850,000 – $7,000) = $42,150
Ans: D KP 3,4,5 BT: AN Difficulty: Moderate TOT: 3 min. AACSB: Analytic

55. The balances of the allowance for doubtful accounts on the balance sheets dated
December 31 of 2010 and 2009 were $2,000 and $7,000, respectively. During 2010, bad
debts expense was $12,000. What is the amount of accounts receivable that were
written off as uncollectible during 2010?
a. $22,000
b. $8,000
c. $17,000
d. $2,000
Solution:
$7,000 + $12,000 - $2,000 = $17,000
Ans: C KP 3,4,5 BT: AN Difficulty: Moderate TOT: 3 min. AACSB: Analytic

56. The following information is provided for Atlanta, Inc..
Balance Sheet 2010 2009

Cash and cash equivalents $89,000 $106,000
Accounts Receivables, less allowance for doubtful
accounts of $4,600 (2010) and $2,000 (2009) 198,000 154,000
How much is the balance in the Accounts Receivable account at December 31, 2010?
a. $193,600
b. $158,600
c. $202,600
d. $203,600
Solution:
$198,000 + $4,600 = $202,600

57. The following information is provided for Atlanta Inc.

accounts of $4,600 (2010) and $2,000 (2009) 198,000 154,000
What is the amount of the Net Realizable Value of the receivables at December 31,
2010?
a. $198,000
b. $154,000
c. $193,600
d. $190,400
Solution:
$198,000
Ans: A KP 5 BT: AN Difficulty: Easy TOT: 2 min. AACSB: Analytic

58. The following information was taken from the unadjusted trial balance and aging
schedule of Diane Company on December 31, 2010. All sales are on account.
Accounts and related balances at December 31, 2010 before adjustment:

Debit Credit
Accounts receivable $46,000
Allowance for doubtful accounts $ 680
Sales (all on account) 500,000
Sales returns 3,000
Aging Schedule of Accounts Receivable:

Age Amount % Uncollectible
0-30 days $14,000 5%
30-60 days 20,000 8%
Over 60 days 12,000 12%
If Diane uses the aging schedule of accounts receivable to determine bad debts, what is
the bad debts expense for the year ending December 31, 2010?
a. $4,280
b. $3,600
c. $3,680
d. $3,060
Solution:
Desired balance of Allowance for Uncollectible Accounts:
$14,000 X .05 = $ 700
$20,000 X .08 = 1,600
$12,000 X .12 = 1,440
$3,740
Beginning balance $ 680

Less desired balance (3,740)
Bad debt expense $3,060


Debit Credit
Sales returns 3,000

0-30 days $14,000 5%
30-60 days 20,000 8%
Over 60 days 12,000 12%
the Allowance for Doubtful Accounts balance at December 31, 2010?
a. $3,000
b. $4,280
c. $2,920
d. $3,740


Debit Credit
Sales returns 3,000

0-30 days $14,000 5%
30-60 days 20,000 8%
Over 60 days 12,000 12%
the net realizable value of accounts receivable on the 2010 financial statements?
a. $46,000
b. $42,260
c. $42,320
d. $30,400
Solution:
Net realizable value = $46,000 – $3,740 = $42,260


Debit Credit
Sales returns 3,000

0-30 days $14,000 5%
30-60 days 20,000 8%
Over 60 days 12,000 12%
If Diane Company estimates bad debts as 6% of net credit sales, what is the amount of
bad debts expense to be reported on the income statement for the period ending
December 31, 2010?
a. $27,019
b. $29,820
c. $30,000
d. $29,779
Solution:
Bad debts expense = ($500,000 – $3,000) X 6% = $29,820

62. On December 1, 2010, Sedona Trading Co. sold goods to a German company for
25,000 German marks (25,000 DM) to be collected on January 12, 2011. The exchange
rates on December 1 and December 31, 2010 are US$0.75 = 1 DM and US$.90 = 1 DM,
respectively. What is Sedona’s revenue in U.S. dollars?
a. $18,750
b. $22,500
c. $3,750
d. $41,250
Solution:
Sales revenue = $0.75 x 25,000 = US$18,750
Ans: A KP 4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

63. On December 1, 2010, Sedona Trading Co. sold goods to a German company for
25,000 German marks (25,000 DM) to be collected on January 12, 2011. The exchange
rates on December 1 and December 31, 2010 are US$0.75 = 1 DM and US$.90 = 1 DM,
respectively. What is Sedona’s exchange gain or loss for 2010?
a.$22,500 Exchange Gain
b. $3,750 Exchange Loss
c. $3,750 Exchange Gain
d. $18,750 Exchange Loss
Solution:
Exchange gain = ($0.90 − $0.75) x 25,000 = US$3,750

MATCHING QUESTIONS
1. For each item listed in 1 through 5 below, place the letter of the best description selected
from a through e in the space provided. You may use each letter more than once or not
at all.
Descriptions
a. (Accounts receivable∕sales) x 365
b. 2/10, n/30
c. Proper matching achieved
d. Expense recognized when an account is written off
e. Cash-purchase-sale-cash
____ 1. Operating cycle

____ 2. Cash discount
____ 3. Allowance method
____ 4. Collection period
____ 5. Direct write-off method
Solution:
1. e
2. b
3. c
4. a
5. d
KP 5 BT: K Difficulty: Easy TOT: 3 min. AACSB: Analytic

2. For each item numbered 1 through 5 below, identify the letter of the best description by
selecting from items a through e below. You may use each letter more than once or not
at all.
Descriptions
a. Intention is to convert into cash within one year
b. Current assets/current liabilities
c. Current assets – current liabilities
d. Must pay within one year
e. (Cash + marketable securities + accounts receivable) divided by current liabilities
____ 1. Current liabilities

____ 2. Current assets
____ 3. Quick ratio
____ 4. Working capital
____ 5. Current ratio
Solution:
1. d 2. a 3. e 4. c 5. b

3. For each item listed in 1 through 5, place the letter (a through e) of the best description
in the space provided. You may use each letter more than once or not at all.
Descriptions
a. Occurs when a customer brings back merchandise for a refund
b. A reduction in the per-unit price if a certain quantity is purchased
c. Decreases accounts receivable
d. An incentive for customers to pay timely
e. Estimated cash value
f. Arises from normal credit sales transactions with customers
____ 1. Sales returns

____ 2. Accounts receivable
____ 3. Sales discounts
____ 4. Net realizable value
____ 5. Quantity discounts
Solution:
1. a
2. f
3. d
4. e
5. b

SHORT PROBLEMS
1. At the beginning of 2010, Flagstaff Corp.’s allowance for doubtful accounts is $10,000.
During 2010, $7,000 was written off as uncollectible. At December 31, the company
used an aging schedule of accounts receivable and determined that $8,000 of the
accounts receivable would probably be uncollectible. Calculate bad debts expense to be
reported on Flagstaff’s 2010 income statement.
Solution:
$10,000 – $7,000 + X = $8,000
X = $5,000
KP 5 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

2. Before adjusting entries, Dormont Corp’s accounts receivable and allowance for doubtful
accounts are $800,000 and $7,000 (credit balance), respectively. Using an aging
schedule of accounts receivable, it is determined that $44,000 of the accounts
receivable would probably be uncollectible. Calculate the net realizable value of
Dormont’s receivables at year end.
Solution:
$800,000 - $44,000 = $756,000

Use the information that follows concerning the current assets and current liabilities of Ryan
Company at December 31, 2010, to answer problems 3 through 8. Each problem is
independent of the others.
Current Assets
Cash $1,700
Inventory 2,270
Total $7,100
Current Liabilities
Wages payable 300
Taxes payable 200
Rent payable 800
Notes payable 1,000
Total $6,300
3. How would the current ratio be affected if Ryan collects the accounts receivable and
then uses some of the cash to pay off the accounts payable?
Solution:
Before: $7,100/$6,300 = 1.13; After: $3,100/$2,300 = 1.35
The current ratio would increase.
KP 2 BT: AN Difficulty: Difficult TOT: 4 min. AACSB: Analytic

4. Calculate Ryan’s working capital, current ratio, and quick ratio at December 31, 2010.
Solution:
Working capital: $7,100 − $6,300 = $800
Current ratio: $7,100/$6,300 = 1.13
Quick ratio: ($1,700 + $2,830)/$6,300 = 0.72

5. How would the quick ratio be affected if Ryan purchased $500 of inventory on account?
Solution:
Before: ($1,700 + $2,830)/$6,300 = 0.72
After: ($1,700 + $2,830)/($6,300 + $500) = 0.67
The quick ratio would decrease. Note that inventory is not a quick asset.

6. How would the current ratio be affected if Ryan collects $600 from customers for
amounts owed?
Solution:
Before: $7,100/$6,300 = 1.13; After: ($7,100 – $600 + $600)/$6,300 = 1.13
The current ratio would not change. Cash and accounts receivable are both current.

7. What would the quick ratio be if Ryan sold all of its inventory for $5,000 cash?
Solution:
Before: ($1,700 + $2,830)/$6,300 = 0.72
After: ($1,700 + $2,830 + $5,000)/$6,300 = 1.51
The quick ratio would increase.

8. How would the current ratio be affected if Ryan paid off its wages and taxes?
Solution:
Before: $7,100/$6,300 = 1.13
After: ($7,100 – $500)/($6,300 – $200 – $300) = 1.14
The current ratio would increase slightly.

9. Brocton Inc. sells to customers only on credit. For the year ended December 31, 2010,

Sales returns 6,000
A. Determine the balance of the Accounts Receivable account at December 31, 2010.
B. If Brocton estimates bad debts at 3% of net credit sales, how much is bad debt
expense?
Solution:
A. $240,000 + $550,000 – $580,000 – $6,000 – $14,000 = $190,000
B. 3% x ($550,000 – $6,000) = $16,320
KP 3,4,5 BT: AN Difficulty: Difficult TOT: 5 min. AACSB: Analytic

10. Before adjusting entries, Martin’s accounts receivable and allowance for doubtful
accounts are $65,000 and $1,500 (debit balance), respectively. Using an aging schedule
of accounts receivable, it is determined that $4,000 of the accounts receivable would
probably be uncollectible. Calculate bad debts expense to be reported on Martin’s
current year’s income statement?
Solution:
$1,500 + $4,000 = $5,500

December 31 of 2010 and 2009 were $1,000 and $4,000, respectively. During 2010, bad
debts expense was $9,000. What is the amount of accounts receivable that were written
off as uncollectible during 2010?
Solution:
$4,000 + $9,000 - $1,000 = $12,000
KP 3,4,5 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

12. The following information is provided for Garland Inc. Answer the questions that follow.

accounts of $3,000 (2010) and $1,800 (2009) 165,000 132,000
A. How much is the balance in the Accounts Receivable account at December 31,
2010?
B. What is the amount of the Net Realizable Value of the receivables at December 31,
2010?
Solution:
A. $165,000 + $3,000 = $168,000
B. $165,000

December 31 of 2010 and 2009 were $21,000 and $14,000, respectively. During 2010,
$13,000 of accounts receivable were written off as uncollectible. How much bad debts
expense is recognized during 2010?
Solution:
$14,000 – $13,000 – $21,000 = $20,000

14. Before adjusting entries, Clark’s accounts receivable and allowance for doubtful
accounts are $42,000 and $300 (credit balance), respectively. Clark determined that
0.4% of net sales would probably be uncollectible. Sales during the year were $500,000
and sales returns amounted to $6,000. Calculate the net realizable value of accounts
receivable on Clark’s balance sheet at year-end.
Solution:
$42,000 – [$300 + ($494,000 x .004)] = $39,724
KP 3,4,5 BT: AN Difficulty: Moderate TOT: 3 min. AACSB: Analytic

Use the information that follows taken from the unadjusted trial balance and aging schedule of
Behrend Company on December 31, 2010 to answer problems 15. All sales are on account.

Debit Credit
Sales returns 2,000

0-30 days $15,000 2%
30-60 days 18,000 7%
Over 60 days 14,000 13%
15. If Behrend uses the aging schedule of accounts receivable to determine bad debts,
determine the following:
A. Bad debts expense for the year ending December 31, 2010
B. Allowance for Doubtful Accounts balance at December 31, 2010
C. Net realizable value of accounts receivable on the 2010 financial statements
Solution:
A. Desired balance of Allowance for Uncollectible Accounts:
$15,000 X .02 = $ 300
$18,000 X .07 = 1,260
$14,000 X .13 = 1,820
$3,380
Beginning balance $ 420

Less desired balance (3,380)
Bad debt expense $2,960
B. Allowance for uncollectible accounts $ 420

Current period estimate 2,960
Ending allowance for uncollectible accounts $3,380
C. Net realizable value = $47,000 – $3,380 = $43,620

Use the information that follows from the financial statements of Pines Company at December
31, 2010, to answer questions 16 through 20 that follow.
Accounts payable $ 2,000

Accounts receivable 3,000
Capital stock 8,000
Cash 5,000
Inventory 19,000
Land 24,000
Notes payable (short-term) 5,000
Cost of goods sold 12,000
Retained earnings 21,000
Sales revenue 20,000
16. Calculate total current assets for Pines Company at December 31, 2010.
Solution:
$3,000 + $5,000 + $19,000 = $27,000

17. Calculate total current liabilities for Pines Company at December 31, 2010.
Solution:
$2,000 + $5,000 = $7,000

18. Calculate total working capital for Pines Company at December 31, 2010.
Solution:
($3,000 + $5,000 + $19,000) – ($2,000 + $5,000) = $20,000

19. Calculate the current ratio for Pines Company at December 31, 2010.
Solution:
$27,000/$7,000 = 3.86

20. Calculate the quick ratio for Pines Company at December 31, 2010.
Solution:
($3,000 + $5,000)/$7,000 = 1.14
KP3 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

21. On December 1, 2010, Casio Trading Co. sold goods to a German company for 20,000
German marks (20,000 DM) to be collected on January 12, 2011. The exchange rates
on December 1 and December 31, 2010 are US$0.50 = 1 DM and US$.60 = 1 DM,
respectively. Calculate Casio’s revenue in U.S. dollars and its exchange gain or loss for
2010.
Solution:
Sales revenue = $0.50 x 20,000 = US$10,000
Exchange gain = ($0.60 − $0.50) x 20,000 = US$2,000

22. On December 11, 2010, Bisbee Co. purchased capsules from a Canadian company for
10,000 Canadian dollars (10,000 C$) to be paid on January 2, 2011. The exchange
rates on December 11 and December 31, 2010 are US$0.79 = 1C$ and US$0.82 = 1C$,
respectively. What is the cost of the capsules in U.S. dollars and the 2010 exchange
loss?
Solution:
Cost of capsules = $0.79 x 10,000 = US$7,900
Exchange loss = ($0.82 − $0.79) x 10,000 = US$300

23. On December 1, 2009, Mason Company delivered a shipment of goods to a Swiss

customer for a price of 150,000 euros. If on that date 1.3 U.S. dollars could be
exchanged for 1 euro, what entry would Mason record to convert the receivable to
equivalent U.S. dollars?
Solution:
Accounts receivable 195,000

Sales 195,000
KP 4 BT: AN Difficulty: Easy TOT: 2 min. AACSB: Analytic

24. The following are partial balance sheets for Pedro Co, dated December 31:
2009 2010
Accounts receivable $55,000 $68,000
Allowance for doubtful accounts (5,000) (11,000)
Net realizable value $50,000 $57,000
During 2010, $4,000 of accounts receivable were written off as uncollectible. Calculate
the amount of bad debts expense recognized on Pedro’s 2010 income statement.
Solution:
$5,000 − $4,000 − $11,000 = $10,000

25. Paxton’s aging schedule of its accounts receivable on December 31 follows:
Account Age Balance Non-collection Likelihood

1-30 days $100,000 3%
31-90 days 70,000 7%
Over 90 days 40,000 10%
The balance in Paxton’s allowance for doubtful accounts immediately prior to December
31 adjusting entries is $700 credit. Determine bad debts expense and the net realizable
value of the December 31 accounts receivable.
Solution:
Balance in the allowance for doubtful accounts required on the balance sheet:
(.03 x $100,000) + (.07 x $70,000) + (.1 x $40,000) = $11,900.
Bad debts expense is $11,200 ($11,900 – $700).
The net realizable value of accounts receivable is $210,000 – $11,900 = $198,100.

26. On 12/31/09, Phoebe Company’s balance sheet revealed a $7,000 balance in its
allowance for doubtful accounts. During 2010, $2,000 of accounts were written off and
$500 of accounts receivable previously written off were collected. On 12/31/10, bad
debts expense was estimated to be 5% on net credit sales, which were $400,000.
Calculate the balance in the allowance for doubtful accounts on 12/31/10.
Solution:
The balance in the allowance for doubtful accounts on 12/31/10 is $7,000 – $2,000 +
$500 + $20,000 = $25,500.

SHORT ESSAY QUESTIONS
1. Briefly described hedging.
Solution:
Hedging is commonly practiced to reduce the risk associated with holding receivables
and payables in foreign currencies. Companies are susceptible to losses in situations
where extreme exchange rates are constantly fluctuating. The fluctuating exchange
rates can cause losses that cause income and other reported values (receivables and
payables) to fluctuate substantially from one period to the next. Hedging involves taking
a position in foreign currency in an amount that is equal and opposite of a particular
receivable or payable expressed in the currency. Hedging can negate the effect of
transaction losses much like an insurance policy can offset a loss to plant assets.
KP 4 BT: K Difficulty: Moderate TOT: 4 min. AACSB: Communication, Analytic

2. The Porsha Bank has provided its auditor with the following selected financial data for
2010:
Cash $ 7,000
Loans receivable—current $21,000
Allowance for doubtful accounts (3,000) 18,000
Total current assets $25,000
Loans receivable—long-term $36,000
Allowance for doubtful accounts (4,000) $32,000
Current liabilities $19,000
2010 net income $30,000
In reviewing the loans outstanding, the auditors were troubled by the fact that the
collectability of some loans to Brazil was questionable. In fact, Porsha Bank has been
making new loans to Brazil so that they can pay the interest on the loans already
outstanding. The economic situation of Brazil has forced the auditors to insist that
Porsha Bank increases its allowance for its current loans to $9,000 and for its non-
current loans to $16,000. Porsha Bank decided to adhere to their auditors’ suggestions.
Indicate the effects of adopting the auditor’s allowance requirements on Porsha Bank’s
current ratio and 2010 net income.
Solution:
Increasing the allowance for doubtful accounts-current from $3,000 to $9,000 decreases
current assets from $25,000 to $19,000. This decreases the current ratio from 1.32 to
1.0. Net income is decreased by $18,000 [($9,000 + $16,000) − ($4,000 + $3,000)],
upon the increase of both current and long-term allowances for doubtful accounts. The
adjusted 2010 net income is $12,000 ($30,000 − $18,000). There is no change in the
current ratio as a result of the long-term increase.
KP 5 BT: AN Difficulty: Difficult TOT: 10 min. AACSB: Communication, Analytic

3. Why might an operating cycle of one company differ from an operating cycle of another
company?
Solution:
An operating cycle is the time it takes a company to convert its cash to inventory, sell the
inventory, and collect cash from the sale. A company that grows Christmas trees will
likely have a long operating cycle, because of the time it takes to grow a tree. A fast food
restaurant will have a very quick operating cycle. The nature of a company’s industry
determines its operating cycle.
KP 1 BT: AP Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

4. What accounting requirements brought significant opposition from the banking industry?
Solution:
FASB has ruled that banks disclose the market value of their outstanding loans and
create larger reserves (allowances) for bad debts. Banks were opposed to this rule
because it reduced the balance sheet value of most U.S. banks.
KP 5,6 BT: K Difficulty: Moderate TOT: 2 min. AACSB: Communication, Analytic

5. Identify the limitations of current asset classification.
Solution:
The limitations are related to the fundamental fact that current assets and current
liabilities fail to accurately reflect future cash inflows and outflows. The ability of the
company to pay its debts as they come due is based upon whether cash flows will occur
in the future. Since financial statements are based on historical facts and are not
intended to predict information about future cash flows, this information cannot be
determined solely by examining the current sections of the balance sheet.
KP 1 BT: K Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

6. On December 31, 2010, Priya Co. has accounts receivable of $400,000. It uses the
direct write-off method of accounting for bad debts because this is what is required for
determining its U.S. taxable net income. The opinion of management is that what is
acceptable to the Internal Revenue System should be acceptable under generally
accepted accounting procedures. However, its independent auditor disagrees with this
impassioned argument and does not accept the direct write-off method of accounting for
bad debts.
Present the reason(s) for the auditor’s objection to the direct write-off method, and
indicate the method that must be used under GAAP. Indicate how Priya’s 2010 net
income, current ratio, and quick ratio will be affected by following the auditor’s position.
Solution:
The direct write-off method of accounting for bad debts recognizes bad debts expense
when an individual account is determined to be uncollectible. This does not achieve
matching of expenses with the revenue that it generates. Also, accounts receivable
would be measured at total face amount and not its net realizable value. Each reason
makes the direct write-off method unacceptable under generally accepted accounting
procedures. Taxable income for the IRS does not attempt to match expenses with
revenues. To have a deduction for bad debts expense, the IRS wants evidence that a
particular account is uncollectible and not a mere estimation of uncollectibility.
The allowance method will initially increase bad debts expense and therefore decrease
income. The carrying value of accounts receivable will decrease by the allowance for
doubtful accounts and therefore decrease both the current and quick ratios.
KP 5,6 BT: C Difficulty: Difficult TOT: 8 min. AACSB: Communication, Analytic

7. A company has a significant debit or credit accumulation in the preadjustment balance of

allowance for doubtful accounts over several periods.
Required:
(1) What would this indicate?
(2) How can users detect the source of this problem?
Solution:
(1) This may indicate that the estimates for bad debts are inaccurate and
biased. Consistent overestimates give risk to preadjustment credit
accumulations, while consistent underestimates create preadjustment
accumulations on the debit side of allowance for doubtful accounts.
Such accumulations, which often indicate that a company’s estimating
formula should be revise, can lead to balance sheet misstatements in
the allowance account because they are reflected in the year-end,
post-adjustment balance.
(2) Users can detect the balance sheet misstatements by comparing the
amount in the allowance account to such numbers as sales and
accounts receivable across time. Unusual deviations or well-defined
trends may reveal a problem in estimating bad debts, which may raise
questions about management’s competence and/or incentives.
KP 5,6,7 BT: C Difficulty: Moderate TOT: 6 min. AACSB: Communication, Analytic

8. Preston Bank has $50 million of loans outstanding on December 31 of the current year,
in which it recorded net income of $770,000. Preston did not provide for any
uncollectible loans because all of its loans are collateralized by real estate. That is, if the
loans were to default, Preston would obtain the title to the real estate for which the loans
were made. However, during the audit of Preston’s financial statements, the auditing
company determined that $5 million of the outstanding loans would probably be
dishonored (uncollectible). Because during the last three years real estate values have
deteriorated, they also investigated the real estate that backed these collateralized
loans. The market value of that real estate is negligible.
Recalculate Preston’s loans receivable on December 31 and current net income to an

amount that would be acceptable to the auditors.
Solution:
The allowance for uncollectible loans should be increased from $0 to $5,000,000. This
would decrease the carrying value of Preston’s loans receivable from $50,000,000 to
$45,000,000. Current net income would also decrease by $5 million because of bad
debts expense, from net income of $770,000 to a net loss of $4,230,000.

9. Can a company use the direct write-off method rather than the allowance method to
account for bad debts? Explain why or why not.
Solution:
Two accounting methods exist—the direct write off method and the allowance method.
The direct write off method is not considered GAAP unless the dollar amount of
uncollectible accounts is so small that using the direct write off method would not impact
any users’ decisions. The allowance method is preferable since it matches a company’s
expenses against the sales revenue and values receivables on the balance sheet at the
net amount expected to be collected.
KP 5,6,7 BT: AP Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

10. What effect does ‘window dressing’ have on the solvency of a company?
Solution:
Managers who have discretion over the accounts in the current asset section of the
balance sheet make efforts to inflate solvency measures by selecting accounting
methods and making operating decisions that are designed solely to make the financial
statements appear more attractive. Increasing the dollar amount of current assets
increases working capital, the current ratio, and the quick ratio. This makes a company
look much more solvent than it might be in reality. In the long run, a company may suffer
and actually find its ability to raise debt and equity capital in the future hindered.
KP 1,2 BT: C Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

11. The following is a partial balance sheet for Quenton Company dated December 31,
2010:
Current assets
Cash $20,000
Allowance for doubtful accounts (3,000)
Net realizable value 42,000
Inventory 33,000
Total current assets $95,000
Current liabilities $65,000
During 2010, $4,000 of accounts receivable were written off as uncollectible and bad
debts expense recognized on Quenton’s 2010 net income statement was $8,000.
However, the president of the company believes that $2,500 of these receivables were
written off too soon. She believes that there is a good chance that they will be collected
next year. There is some historical evidence to back the president’s position.
A partial explanation for her position is that Quenton has a debt covenant requiring it to
maintain a current ratio of 1.5. The president believes that by reversing the write-off of
$2,500 of accounts receivable, the current assets will be $97,500 and the current ratio
will be 1.5. However, the chief financial officer states that a better approach to getting
the current ratio to 1.5 is to pay off some accounts payable. If the company paid $5,000
of accounts payable, the current ratio would become the minimum 1.5 required by the
debt covenant.
Comment, with numerical illustration, on the president’s and chief financial officer’s
positions.
Solution:
If the write-off of $2,500 of accounts receivable were reversed, the carrying or net
realizable value of accounts receivable will not change because a write off under the
allowance method causes a decrease in accounts receivable and an increase in the
allowance account. The new accounts receivable portion of current assets would be:
Allowance for doubtful accounts (5,500)
Net realizable value $42,000
Thus, total current assets and the current ratio would not change. Under the allowance
method of accounting for bad debts, the write-off of an account decreases both accounts
receivable and allowance for doubtful accounts, leaving the carrying value of net
accounts receivable unaffected. If we follow the president’s suggestion, the current ratio
is still 1.46 ($95,000/$65,000), which is less than the 1.5 required by the debt covenant.
The only way to change accounting for accounts receivable so that a 1.5 current ratio
can be achieved is to consider an aging schedule of accounts receivable and estimate
that only $500 of allowance is required. This would increase the net realizable value of
accounts receivable and current assets by the required $2,500.
The position of the CFO is frequently referred to as window dressing. If $5,000 of

accounts payable were paid, the current assets would decrease by $5,000 to $90,000,
and current liabilities would also decrease by $5,000 to $60,000. The resulting current
ratio meets the 1.5 minimum.

12. Why is too much cash undesirable?
Solution:
Cash that is not being used for immediate needs is idle. Idle cash provides no return,
interest, or earnings power, and loses purchasing power during periods of inflation.
Maintaining a proper balance of cash is one of management’s greatest challenges.
KP 2 BT: C Difficulty: Easy TOT: 2 min. AACSB: Communication, Analytic

13. Why is the timing of recording a receivable important?
Solution:
The timing of recording a receivable is important because of its

relationship to revenue recognition. Note that the timing of revenue
recognition can have a significant effect on important financial statement
numbers. In other words, by recognizing the sale involving a receivable
in an earlier period, the current ratio can be increased, as well as both
working capital and net income can be increased. Such effects have
economic significance, because they may influence a company’s credit
rating or determine whether it violates the terms of debt agreements.
Since the timing of revenue and receivable recognition has a direct effect
on net income and current assets, financial statement users are
tremendously impacted.
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Fig. 138.—Engraved shell. British Museum.
The first engravers who attacked precious stones had no
diamond dust. They supplied its place with emery powder, which was
to be found in unlimited quantities in the islands of the Archipelago,
whence it was imported by the Phœnicians at a very early date.
Moreover there was nothing to prevent them crushing the precious
stones belonging to the class called corundum, such as sapphires,
rubies, amethysts, emeralds, and the oriental topaz. No doubt the
lathe or wheel was a comparatively late invention. M. Soldi thinks it
hardly came into use in Mesopotamia till about the eighth century
B.C. Before that the continuous rotary movement that was so
necessary for the satisfactory conduct of the operation was obtained
by other means. According to M. Soldi they must have employed for
many centuries a hand-drill turned by a bow, like that of a modern
centre-bit or wimble.[304]
Fig. 139.—Chalcedony cylinder. British Museum.
Fig. 140.—Cylinder of black jasper. British Museum.

On examining the oldest Mesopotamian engravings on precious
stones a skilled craftsman would see at once that nearly all the work
had been done with only two instruments—one for the round hollows
and another for the straight lines. In the designs cut with these tools
we find curiously complete likenesses of the small lay figures with
ball-and-socket joints used by painters. Some idea of the strange
results produced by these first attempts at gem-engraving may be
formed from our reproductions of two cylinders in the collection at
the British Museum. The influence of the process, the tyranny of the
implement, if we may use such a phrase, is conspicuous in both.
Note, for instance, in the first design, which is, apparently, a scene of
sacrifice (Fig. 139), how the head and shoulder of the figure on the
left are each indicated by a circular hollow. The same primitive
system has been used in the cylinder where the god Anou is
separated from another deity by the winged globe (Fig. 140). The
design is here more complex. The bodies of the two divinities and
the wings of the globe are indicated by numerous vertical and
horizontal grooves set close together; but the circular hollows appear
not only in the globe and in the piece of furniture that occupies the
foreground, but also in the knees, calves, ankles, and other parts of
the two figures.
Fig. 141.—Assyrian cylinder. British Museum. Drawn by

Wallet.
As time went on they learnt to use their tools with more freedom
and more varied skill. We shall not attempt to follow M. Soldi in
tracing the art through all its successive stages.[305] As an example
of the skill to which the Mesopotamian artist had attained towards
the seventh century B.C. we may quote a splendid cornelian cylinder
belonging to the British Museum (Fig. 141).[306] The subject is
extremely simple. In its general lines it continually recurs on the bas-
reliefs and gems of the Sargonid period. A winged personage, with
his arms extended, stands between two fantastic winged
quadrupeds and grasps each by a fore-paw. The chief actor in the
scene is very like the winged genius whom we encounter so often on
the walls of the palaces (see above, Fig. 36), while both in the
exaggerated modelling of the legs and in the care with which the
smallest details of the costume are carried out, the special features
that distinguished the sculpture of the time may be recognized. The
execution is firm and significant, though a little dry and hard. It is
made up of short cuts, close together; the engraver did not
understand how to give his work that high polish and finish that
enabled the Greeks to express the subtlest contours of the living
form.
From this period onwards the artists of Mesopotamia and, in later
years, those who worked for the Medes and Persians, put into use
all the precious stones that were afterwards engraved by the Greeks
and Romans. Their tools and processes cannot have greatly differed
from those handed down by antiquity to the gem-cutters of the
middle ages and the Italian renaissance. If their results were inferior
to those obtained by Pyrgoteles and Dioscorides,[307] it was because
oriental art never had the knowledge of the nude or the passion for
beauty of form which made Greek art so original. Intaglio is only a
bas-relief reversed and greatly diminished in size; the style and spirit
of contemporary sculpture are reflected in it as the objects of nature
are reflected in the mirror of the human eye. For want of proper tools
it may lag behind sculpture, but it will never outstrip it.
The close connection between the two arts is nowhere more
strongly marked than in some of the cylinders belonging to the first
monarchy. Although the artist was content in most cases with mere
outlines, he now and then lavished more time and trouble on his
work, and gave to his modelling something of the breadth and truth
that we find in the statues from Tello. These merits are seen at their
best in a fine cylinder belonging to the New York Museum (Fig. 142).
It represents Izdubar and his companion Hea-bani, the Hercules and
Theseus of Chaldæan mythology, engaged in a hand-to-hand
struggle with a wild bull and a lion, a scene which may be taken as
personifying the struggle between the divine protectors of mankind
on the one hand, and the blind forces of nature assisted by all the
supernatural powers of evil on the other.[308] We have already had
occasion to speak of Izdubar, who is always represented nude and
very muscular. As for his companion, he combines the head and
bust of a man with the hind quarters of a bull.[309] There is a certain
conventionality in the attitude of the lion and in the way his claws are
represented, and the movement of Hea-bani’s left arm is ungraceful;
but the antelope under the inscription and the bull overpowered by
Izdubar are rendered with a truth of judgment and touch that all
connoisseurs will appreciate. We may say the same of the two
heroes; their muscular development is given with frankness but
without exaggeration; the treatment generally is free and broad.
Fig. 142.—Chaldæan cylinder. Marble or porphyry. New York

Museum.
Between this cylinder and the one quoted on the last page as
among the masterpieces of Ninevite art, there is the same difference
as between the statues of Tello and the bas-reliefs of Nimroud and
Khorsabad. The engraver, who some fifteen centuries before our
era, cut upon marble this episode from one of the favourite myths of
Chaldæa, may not have been able to manipulate precious stones
with such ease and dexterity as the artist of Sargon or Sennacherib
who made the cylinder in the British Museum, but he had the true
feeling for life and form in a far higher degree.
So far we have studied the cylinders from the standpoint of their
use and the material of which they are composed; we have
described the processes employed in cutting them and the changes
undergone in the course of centuries in the style of art they display.
We have yet to speak of the principal types and scenes to be found
upon them. We cannot pretend, however, to give the details in any
complete fashion. For that a whole book would be necessary, such
as the one promised by M. Ménant.
This is not because the themes treated show any great variety;
they have, in fact, far less originality than might at first be thought.
Compare the impressions from different cabinets and attempt to
classify them in order of subject; you will find the same types and
scenes repeated, with but slight changes, on a great number of
specimens, and you will soon discover that hundreds of cylinders
may be divided into a very small number of groups. In each group,
too, many individual specimens will only be distinguishable from
each other by their inscriptions. All this is to be easily accounted for.
The finest cylinders, whether in design or material, must have
been commissioned by kings, nobles, and priests, while the common
people bought theirs ready-made. When any one of the latter wished
to buy a seal he went to the merchant and chose it from his stock,
which was composed of the patron gods and religious scenes which
happened to be most in fashion at the time. As soon as the
purchaser had made his selection he caused his own name to be
engraved in the space left for the purpose, and it was this inscription,
rather than the scene beside it, that gave its personal character to
the seal. The production of these objects was a real industry, carried
on all over the country and for many centuries, and continually
reproducing the same traditional and consecrated types.
M. Ménant believes himself able to determine where most if not
all the cylinders of the early monarchy were produced. He talks of
the schools of Ur, of Erech, of Arade, and in many cases the signs
on which he relies appear to have a serious value. But we shall not
attempt even to give a résumé of the arguments he uses to justify
the classification he was the first to sketch out; we could not do so
without multiplying our illustrations and extending our letterpress to
an extravagant degree. Judging from the examples quoted by M.
Ménant himself in support of his own theory, the workshops of
different towns in the course of a single period were distinguished
rather by their predilection for particular themes than by anything
peculiar in their styles of execution; the same processes and the
same way of looking at living forms may be recognised in all. We
may, then, treat all these early works of the Chaldæan gem-
engravers as the productions of a single school; and in this history
we only propose to note and discuss the general direction of the
great art currents. We cannot follow all the arms and side streams
into which the main river is subdivided.
Fig. 143.—Chaldæan cylinder. Green serpentine. Louvre. Drawn

by Wallet.
Fig. 144.—Chaldæan cylinder. Basalt. Louvre. Drawn by Wallet.
Fig. 145.—Chaldæan cylinder. Basalt. Louvre.

One of the favourite subjects at this time was the scene of
worship we have already encountered on the Sippara tablet (Vol. I.,
Fig. 71.); in the cylinders as well as on the larger tablet the
worshipper is led by a priest into the presence of an enthroned
divinity. The temple, indicated in the tablet, is suppressed in the
seals, where the space is so much less, but otherwise the
composition is the same. It would be difficult to imagine anything
better fitted for objects of a talismanic character, which were also to
be used for the special purpose of these cylinders. Whenever the
Chaldæan put his seal upon clay he renewed the act of prayer and
faith which the engraver had figured upon it; he took all men to
witness his faith in the protection of Anou, of Samas, or of some
other god. We need therefore feel no surprise at encountering this
subject upon the cylinders of Ourkam, (Vol. I., Fig. 3), and his son
Dungi,[310] princes in whom the oldest Chaldæan royalty was
embodied. Both of these seals seem to have been engraved in Ur,
the home of that dynasty. We have given several other variants of
the same theme (Vol. I., Figs. 17–20, and above, Figs. 40 and 124);
[311] here are two more found by M. de Sarzec at Tello (Figs. 143,
144). In the first of these two streams seem to flow from the
shoulders of the seated deity; they may have some connection with
that worship of the two great rivers whose traces appear elsewhere.
[312] In the second example, which is not a little rough and summary
in its execution, the figures are believed to be those of women, on
account of the way in which the hair is arranged. It is clubbed with
ribbons at the back of the neck. The artist seems also to have tried
to suggest the amplitude of the female bosom. On the whole we may
believe the scene to represent a goddess—Istar perhaps—
surrounded by worshippers of her own sex. In the Louvre there is a
cylinder with a scene of the same kind, but more complex and, for
us, more obscure (Fig. 145). A seated figure, apparently female from
the long hair flowing over the shoulders, sits upon a low stool and
holds a child upon her knees. In front of the group thus formed
stands a man who seems to be offering some beverage in a horn-
shaped cup. Behind him there are three not inelegant vases upon a
bracket, and a man kneeling beside a large jar upon a tripod. The
latter holds in his hand the spoon with which he has filled the goblet
presented by his companion. We may, perhaps, take the whole
scene as a preparation for a feast offered to one of those goddesses
of maternity whom we find on the terra-cottas (see above Fig. 107).
We shall not here go into the question whether we may see in all this
an episode in the legend of the ancient Sargon, the royal infant
whom his mother exposed upon the water after his clandestine birth;
after commencing like Moses, the hero of this adventure was found
and brought up by a boatman, and became the founder of an empire
when he grew to manhood, like Cyrus and Romulus.[313]
Fig. 146.—Chaldæan cylinder. Montigny collection.
If we may believe M. Ménant some of the cylinders belonging to
this period represent human sacrifices. Such he supposes to be the
theme of the example reproduced in Fig. 146. The figure with arm
uplifted would be the priest brandishing his mace over the kneeling
victim, who turns and begs in vain for mercy. The issue of the
unequal struggle is hinted at by the dissevered head introduced in
the lower left-hand corner. To make our description complete we
must notice the subordinate passage, a rampant leopard, winged,
preparing to devour a gazelle.[314] The conjecture is specious, but
until confirmatory texts are discovered, it will remain a conjecture.
Those texts that have been quoted in support of it are vague in the
first place, and, in the second, they appear to refer less to the
sacrifice of human victims than to holocausts of infants, who must
have been thrown into the flames as they were in Phœnicia. Why
should we not look upon it as an emblem of the royal victories, an
emblem similar in kind to the group that recurs so persistently in
Egyptian sculpture, from the time of the ancient Empire to that of the
Ptolemies?[315] The gesture in each case is almost exactly the
same; the weapon raised over the vanquished both in the Theban
relief and the Chaldæan cylinder is well fitted to suggest the power of
the conqueror and his cruel revenges. We have reproduced this
example less for its subject than for the character of its execution.
The figures are modelled in a very rough-and-ready fashion; we
might almost call it a sketch upon stone. The movement, however, of
the two chief figures is well understood and expressive.
Fig. 147.—Chaldæan cylinder. Basalt.

Another and perhaps still richer series is composed of stones on
which the war waged by Izdubar and his faithful Hea-bani against the
monsters is figured.[316] We have already shown Izdubar carrying off
a lion he has killed (see above, Fig. 35). Another task of the
Mesopotamian Hercules is shown in Fig. 147, where he is engaged
in a struggle with the celestial human-headed bull, who has been
roused to attack the hero by Istar, whose love the hero has refused.
[317]
In this cylinder it will be noticed that Izdubar is repeated twice,

once in profile and once full face. Close to him Hea-bani is wrestling
with a lion, the bull’s companion and assistant. In another example
we find Izdubar alone (Fig. 148) and maintaining a vigorous struggle
against a bull with long straight horns, and at the same time turning
his head so as to follow a combat between a lion and ibex that is
going on behind him.[318] The action of both these latter animals is
rendered with great freedom and truth. We have already had to draw
attention to the merit that distinguishes not a few of the animals in
these cylinders.[319] This merit is to be found in almost every
composition in which the artist has been content to make use of
natural types. It is only when he compiles impossible monsters that
the forms become awkward and confused. An instance of this may
be found in a cylinder found by M. de Sarzec at Tello, on which
winged quadrupeds seizing and devouring gazelles are portrayed
(Fig. 149). Too many figures are brought together in the narrow
space and the result is confusion. We are not, however, disposed to
accept this cylinder as belonging to the first years of Chaldæan art. It
is of veined agate, a material that was not among the earliest
employed; but there are many more on which similar scenes are
engraved, and which, by their execution, may be safely placed
among the most ancient products of art.[320]
Fig. 148.—Chaldæan cylinder. Black marble. French

National Library.
One of the earliest types invented by the imaginations of these
people was that of the strange and chaotic beings who, according to
the traditions collected by Berosus, lived upon the earth before the
creation of man, creatures in which the forms and limbs afterwards
separated and distinguished by nature, were mixed up as if by
accident. The text in question is of the very greatest interest and
value. It proves that the composite figures of which Chaldæan art
was so fond were not a simple caprice of the artists who made them,
but were suggested by a cosmic theory of which they formed, as it
were, a plastic embodiment and illustration.
“There was a time,” says Berosus, “when all was water and
darkness, in which monstrous animals were spontaneously
engendered: men with two wings, and some with four; with two
faces, and two heads, the one male and the other female, and with
the other features of both sexes united in their single bodies; men
with the legs and horns of a goat and the feet of a horse; others with
the hind quarters of a horse and the upper part of a man, like the
hippocentaurs. There were also bulls with human heads, dogs with
four bodies and fishes’ tails, and other quadrupeds in which various
animal forms were blended, fishes, reptiles, serpents, and all kinds
of monsters with the greatest variety in their forms, monsters whose
images we see in the paintings of the temple of Bel at Babylon.”[321]
Of all these fantastic creatures there are hardly any but may be
found on some cylinder, and if there be one or two still missing, it is
very probable that future discoveries will fill up the gap.
Fig. 149.—Chaldæan cylinder of veined

agate. Louvre.
Before quitting these remains from the earliest school of gem
engraving, we must draw attention for a moment to the way in which
it treats costume. In most cases the folds of the stuff are imitated by
very fine parallel strokes. Sometimes, as, for instance, in the figure
on the right of Ourkam’s seal (Vol. I., Fig. 3), these close and slightly
sinuous lines extend without interruption from the top to the bottom
of the dress, but in most cases they are crossed by several
transverse bands, probably coloured, either woven into the material
or sewn upon it (see Vol. I., Figs. 3, 17, and 20, and above, Figs. 39
and 41). We have already encountered this method of treating
drapery in certain statuettes from the same place and time (Figs. 99
and 100), but we never find it in Assyria or in Chaldæa after the fall
of Nineveh, either in statues or on engraved stones.
There is another characteristic detail that should not be forgotten,
namely, the caps turned up at the side in the shape of horns (Vol. I.,
Fig. 17 and above, Fig. 143). By this head-dress and the plaited
robes a Chaldæan cylinder may be at once recognised as dating
from these remote ages. Fashions and methods of execution
changed as soon as the preponderance of Assyrian royalty was
assured. Artists of merit must then have migrated northwards and
opened workshops in the cities of the Tigris; but production was
never so great as in the south. Every traveller in those regions
notices that there are far more cylinders to be purchased in the
bazaars of Bagdad and Bassorah than in those of Mossoul.[322] The
glyptic art of Assyria was an exotic, like her sculpture and her
architecture.
Fig. 150.—Archaic Assyrian cylinder. In the Uffizi,

Florence.
In attempting to define the characteristics of the Assyrian
cylinders, and to distinguish them from those of Chaldæa, we may
take as points of departure and as types of the new class, a few
seals bearing legends that enable us to give them a positive date.
Thus we may learn from a signet that once belonged to the governor
of Calah what the execution of the artists employed by the princes of
Elassar and Nimroud was like (Fig. 150). We need not hesitate to
assign this cylinder to the first Assyrian monarchy. The
workmanship, at once careful and awkward, belongs to a time when
all the difficulties of gem engraving had not yet been overcome. In
the wings of the genius and the legs of the personage who follows
him the management of the instrument used is that of an art still in its
infancy. In this seal then we have a valuable example of what we
may call The Archaic Assyrian Cylinder. We have already figured
several in which the same characteristics appear (Figs. 124, 139,
and 140). In the same class we may put a number of cylinders on
which scenes of worship are represented with slight variations (Figs.
151 and 152).[323] The figure of the king standing before the altar
with his right hand upon his bow resembles the Assurnazirpal in
several of the Nimroud reliefs (see above, Fig. 140). The Balawat
gates and other remains from the same time have already made us
acquainted with the accessories of the act of worship figured in the
last of these two cylinders, especially with the short column
surmounted by a cone (Plate XII).
Fig. 151.—Assyrian cylinder. Serpentine. National

Library, Paris.
Fig. 152.—Assyrian cylinder. Serpentine. National Library,
Paris.
Fig. 153.—Assyrian cylinder. British Museum.

Drawn by Wallet.
We now come to the epoch of the Sargonids with its still more
refined and skilful art, of which an exquisite cylinder in the British
Museum may be taken as an example (Fig. 153). The name of a
personage called Musesinip has been read upon it, and it is believed
to be a reduction from a contemporary bas-relief. In the centre
appears the holy tree with the supreme deity floating over it in the
winged disk. On each side of the tree is the figure of a king with a
winged eagle-headed genius behind him. These last-named
creatures have their right hands raised, while in their left they hold
the bronze buckets we have already encountered at Nimroud (Vol. I.,
Fig. 8). There is one detail which is not to be found, so far as I know,
in the bas-reliefs, namely, the double cord that descends from the
winged disk into the hands of the king. The artist, no doubt, meant to
symbolize by this the communication established by prayer between
the prince and his divine protector.
Among the dated and authenticated examples from this epoch
the cylinder inscribed with the name of Ursana, king of Musasir and
adversary of Sargon, may be quoted.[324] We do not reproduce it
because it differs so little from the example of Assyrian gem
engraving given in our Fig. 141. The same genius appears in the
middle, but instead of two winged monsters he holds two ostriches
by the neck. We have already encountered this fight between a man
and an ostrich on a stone dating from the same century (Fig. 75). We
may name as a last example the stone found by Layard at
Kouyundjik, which may be the very signet of Sennacherib himself
(Vol. I., Fig. 70).
If we place all these impressions side by side we shall find they
have a certain number of common characteristics which will enable
us to recognize those of Assyrian parentage even when they bear no
lettering, or when their inscriptions tell us nothing as to their origin. In
the first place they are mostly of fine materials, such as chalcedony
or onyx. Secondly, they contain sacred emblems and types that are
not to be found in the primitive arts of Chaldæa, such as the mystic
tree, the winged globe, the eagle-headed genius, &c. Thirdly, the
fantastic animals of Assyria are different in general appearance from
those of the southern kingdom; and, finally, the costume of the two
countries is not the same. In the cylinders from Calah and Nineveh
we find neither the flounced robes nor the cap with turned-up
borders. As in the palace reliefs, the mantle-fringes cross the figure
slanting-wise—an obliquity which affords a ready means of
distinguishing between a native of Assyria and one of Chaldæa.
Fig. 154.—Chaldæan cylinder dating from the
second monarchy. Black jasper. British
Museum.
Fig. 155.—Impression of a cylinder on a contract; from Ménant.[2]

The use of the cylinder persisted after the fall of Nineveh and
throughout the second Chaldæan monarchy, but the types from this
late epoch display very little invention or variety. The most common
of all shows a personage standing bare-headed before two altars,
one bearing the disk of the sun, the other that of the moon (Fig. 154).
[325] This individual is sometimes bearded, sometimes shaven. His
costume is neither that of early Chaldæa nor the twisted robe of
Assyria. Sometimes one of the altars or the field is occupied by a
monster with a goat’s head and a fish’s body and tail, as in the
impression left by a cylinder on a contract dated “the twelfth year of
Darius, king of Babylon, king of the nations” (Fig. 155).[326] The use
of these types lasted in the valley of the Euphrates all through the
Achæmenid supremacy. No inscriptions were used. Names and
dates were engraved by hand on the clay after the seal had been
placed upon it. We can see clearly from the monotony of the images,
which are repeated almost unchanged on hundreds of tablets, that
the art of gem-engraving was in full decadence. The people were
enslaved, they lived upon the memory of their past, creating neither
new forms nor new ideas. They no longer attempted to make their
seals works of art; they looked upon them as mere utensils.
Fig. 156.—Cylinder with Aramaic characters. Vienna Museum.

Cylinders are sometimes found in this region inscribed with
Aramaic characters, like the weights from Nimroud. Such, for
instance, is one representing a dismounted hunter meeting the
charge of a lion,[327] while his horse stands behind him and awaits
the issue of the struggle (Fig. 156). The costume of the hunter is
neither Assyrian nor Chaldæan. He has been supposed to represent
a Scythian. The Scythian figured at Bisitun has the same pointed
bonnet or cowl. Cylinders of this kind will long be a difficulty for the
classifier.[328]
The cylindrical form was not the only one used by the inhabitants
of Mesopotamia for their seals. Small objects in pietra dura of a
different shape are now often found in the country, and are beginning
to hold their own in our museums; these are pyramids, spheroids,
and especially cones. Every cone, except one or two which may
never, perhaps, have been finished, is pierced near its summit with a
hole for suspension. There has never been any doubt from the first
that they were signets. Their bases, which are generally flat, but
sometimes convex or concave, are always engraved in intaglio. The
impression was thus obtained at one stroke, at one pressure of the
hand, and it was in all probability the greater ease with which that
operation could be carried out that in time led to the supercession of
the cylinder by the cone. The use of the latter became almost
universal in the time of the Seleucidæ and Parthians.
Fig. 157.—Cone. Sapphirine

chalcedony.[329]
Fig. 158.—Cone. Sapphirine

chalcedony.[330]
It is when they grow old that both nations and individuals turn
their attention to ease and comfort. The Chaldees were long
contented with the cylinder, although, as a seal, it was a very

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MULTIPLE CHOICE QUESTIONS

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Ans: D KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: C KP 5 BT: AP Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: A KP 1,5 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Ans: D KP 5 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Ans: D KP 5 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

23. On December 1, 2010, Smith Company delivered a shipment of goods to a Danish

Ans: C KP 4 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: B KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: C KP 5 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Ans: D KP 5 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A KP 5,6 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: C KP 5 BT: AN Difficulty: Difficult TOT: 2 min. AACSB: Analytic

Ans: D KP 4,5,6 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: C KP 4,5,6 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

31. If a company’s collection period for accounts receivable is considered to be excessively

Ans: B KP 5,6 BT: C Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Ans: A KP 3,4,5,6 BT: AP Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Ans: D KP 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A KP 5 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

35. Managers must understand how transactions affect working capital

Ans: B KP 2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: C KP 1 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Ans: A KP4 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

38. The current ratio fails to accurately reflect

Ans: D KP 1,2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

39. Most companies

Ans: A KP 1,2 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: B KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: B KP 2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic