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Chapter 7: Receivables and Investments
Student: ___________________________________________________________________________
1. Which one of the following is not an accurate description of Allowance for Doubtful Accounts?
A. Contra account
B. Balance sheet account
C. Income statement account
D. Current asset account
2. The data presented below is for Tallon, Inc. for 2014.
Credit sales during the year $2,100,000

Accounts receivable - December 31, 2014 295,000
Allowance for doubtful accounts - December 31, 2014 28,000
Bad debt expense for the year 17,000
What amount will Tallon show on its year-end balance sheet for the net realizable value of its accounts receivable?
A. $295,000
B. $267,000
C. $250,000
D. $ 28,000

What is the effect on liquidity when Tallon records its estimate for bad debt expense using the allowance method?
A. Liquidity decreases
B. Liquidity increases
C. Liquidity stays the same
D. Liquidity both increases and decreases
4. The following information was presented in the balance sheet of Gloria Company as of December 31, 2014:
Trade accounts receivable, net of allowance for uncollectibles of $100,000

$1,600,000
Which one of the following statements is true?
A. Gloria expects that $1,700,000 of accounts receivable will be collected after year end
B. The balance in the Accounts Receivable account in Gloria’s general ledger is $1,600,000
C. The net realizable value of Gloria’s accounts receivable is $1,600,000
D. Gloria expects to collect only $1,500,000 from its customers
5. On January 15, 2014, the accounts receivable balance was $7,000 and the balance in the allowance for
doubtful accounts was $700. That morning a $200 uncollectible account was written-off. The net realizable
value of accounts receivable immediately after the write-off is:
A. $6,300
B. $6,800
C. $7,200
D. $7,900
6. Which one of the following is an accurate description of Allowance for Doubtful Accounts?
A. Contra account
B. Liability account
C. Revenue account
D. Expense account
7. Which one of the following statements is true?

A. When a company uses a subsidiary ledger, the balance in the control account, Accounts Receivable, shows
only the amount the company expects to collect from the accounts receivable, net of any expected uncollectible
accounts
B. An accounts receivable subsidiary ledger represents amounts due to vendors and suppliers
C. The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the
subsidiary ledger for accounts receivable.
D. A subsidiary ledger takes the place of the control account for some companies.
8. If a company uses the direct write-off method of accounting for bad debts,
A. It is applying the matching principle
B. It will record bad debt expense only when an account is determined to be uncollectible
C. It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible
accounts
D. It will report accounts receivable in the balance sheet at their net realizable value
9. Fenchurch Corp. uses the direct write-off method to account for bad debts. What are the effects on the
accounting equation when recording the write-off of a customer's account balance?
A. Assets and liabilities decrease
B. Assets and owners’ equity decrease
C. Owners’ equity decrease and liabilities increase
D. No effect; assets increase and decrease by the same amount
10. If a company uses the allowance method of accounting for bad debts, which one of the following statements
is true?
A. It violates the matching principle
B. It will record bad debts only when an account is determined to be uncollectible
C. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts
11. Which one of the following statements is true if a company's collection period for accounts receivable is
unacceptably long?
A. The company may need to borrow to acquire operating cash
B. The company may offer trade discounts to lengthen the collection period
C. Cash flows from operations may be higher than expected for the company's sales
D. The company should expand operations with its excess cash
12. If a company uses the allowance method to account for bad debts, when will the company's owners' equity
decrease?
A. At the date a customer's account is written off
B. At the end of the accounting period when an adjusting entry for bad debts is recorded
C. At the date a customer's account is determined to be uncollectible
D. When the accounts receivable amount becomes past due
13. Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching
bad debts expense with revenue on the income statement?
A. The percentage of accounts receivable approach
B. The percentage of net credit sales approach
C. The direct write-off method
D. The uncollectible approach
14. Which one of the approaches for the allowance method of accounting for bad debts emphasizes the net
realizable value of accounts receivable on the balance sheet?
15. Agee Corp.
The data presented below for Agee Corp. is for the year ended December 31, 2014
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
(Before adjustment at December 31, 2014) 1,300
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis
See the data for Agee Corp.

If Agee Corp. estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2014?
A. $12,400
B. $13,700
C. $14,000
D. $14,300
16. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp. estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the
adjustment for bad debts?
A. $12,400
B. $13,700
C. $14,000
D. $15,000
17. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp. uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2014?
A. $12,700
B. $13,700
C. $14,000
D. $15,300
18. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable
after the adjustment for bad debt expense?
A. $140,000
B. $156,000
C. $167,000
D. $184,000
19. Allowance for Doubtful Accounts represents:
A. Cash set aside to make up for bad debt losses
B. The amount of uncollectible accounts written off to date
C. The difference between total sales made on credit and the amount collected from those credit sales
D. The difference between the gross amount of accounts receivable and the net realizable value of accounts
receivable
20. Which of the following statements is true regarding the two allowance methods used to account for bad
debts?
A. The percentage of net credit sales approach takes into account the existing balance in the Allowance for
Doubtful Accounts account.
B. The direct write-off method takes into account the existing balance in the Allowance for Doubtful Accounts
account.
C. The percentage of accounts receivable approach takes into account the existing balance in the Allowance for
D. The direct write-off method does a better job of matching revenues and expenses.
21. The following data concerns Cubano Corporation for 2014:

Accounts Receivable - December 31, 2014 235,000
Allowance for Doubtful Accounts - December 31, 2014 18,000
What amount will Cubano show on its year-end balance sheet for the net realizable value of its accounts receivable?
A. $253,000
B. $235,000
C. $224,000
D. $217,000
22. What are the effects on the accounting equation when a company makes the adjustment to record bad debt
expense using the allowance method?
A. Assets and owners' equity increase
B. Assets and owners' equity decrease
C. Assets increase and owners' equity decreases
D. Assets decrease and owners' equity increases
23. What are the effects on the accounting equation when a company writes off a bad debt?
A. Assets and stockholders' equity increase
B. Assets and stockholders' equity decrease
C. Assets increase and stockholders' equity decreases
D. No effect on overall assets or equity
24. Americana Corporation
The data below is for Americana Corporation for 2014.
Accounts receivable - January 1, 2014 $236,000

Credit sales during 2014 820,000
Collections from credit customers during 2014 590,000
Customer accounts written off as uncollectible during 2014 8,000
Allowance for doubtful accounts - January 1, 2014 8,700
Estimated uncollectible accounts based on an aging analysis 9,600
Refer to the data for Americana Corporation.

What is the balance of Accounts Receivable at December 31, 2014?
A. $336,000
B. $448,400
C. $458,000
D. $466,000


If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2014?
A. $8,000
B. $8,100
C. $8,700
D. $8,900

Refer to the data for Americana Corporation
If the aging approach is used to estimate bad debts, what is the balance in the Allowance for Doubtful Accounts after the bad debt expense
adjustment.
A. $8,000
B. $8,100
C. $8,900
D. $9,600
27. Hui Corporation
The data below is for Hui Corporation for 2014.
Accounts Receivable - January 1, 2014 $334,000

Allowance for Doubtful Accounts (After write-off of uncollectible accounts) 1,700
Refer to the data for Hui Corporation.

A. $209,000
B. $225,000
C. $447,000
D. $459,000
28. Hui Corporation


A. $ 2,900
B. $11,500
C. $23,500
D. $26,900
29. Hui Corporation


If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts
adjustment?
A. $26,900
B. $14,900
C. $13,200
D. $11,500
30. Satin Corporation

The data presented below is for Satin Corporation for the year ended December 31, 2014.
Sales (100% on credit) $1,500,000

Sales returns 60,000
Accounts Receivable (December 31, 2014) 250,000
Allowance for Doubtful Accounts (Before adjustment at December 31, 2014) 3,000
Estimated amount of uncollectible accounts based on an aging analysis 31,000
Refer to the data for Satin Corporation
If Satin estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2014?
A. $25,800
B. $27,000
C. $28,800
D. $30,000

Sales (100% on credit) $1,500,000

Refer to information for Satin Corporation
If Satin uses 2% of net credit sales to estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the
A. $33,000
B. $31,800
C. $27,000
D. $25,800

Sales (100% on credit) $1,500,000

If Satin uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2014?
A. $28,000
B. $31,000
C. $34,000
D. $50,000

Sales (100% on credit) $1,500,000

Refer to the information for Satin Corporation.
If Satin uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after
the adjustment for bad debt expense?
A. $216,000
B. $219,000
C. $222,000
D. $250,000
34. On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius
Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of
credit sales. There were $400 of receivables written off as uncollectible in 2014. Cash collections of receivables
amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts
receivable balance.
The amount of bad debts expense recognized in the 2014 income statement will be:
A. $545
B. $595
C. $745
D. $795
35. Assuming a company uses the allowance method, the entry to recognize the write-off of the specific
uncollectible accounts will act to:
A. Increase total assets and total equity
B. Increase total assets and decrease total equity
C. Decrease total assets and total equity
D. Not affect total assets or total equity
36. The entry required to recognize the bad debts expense for 2014 will act to:
A. Increase total assets and retained earnings
B. Decrease total assets and retained earnings
C. Decrease total assets and increase net income
D. Increase total assets and decrease net income
receivable balance.
The net realizable value of receivables appearing on the 2014 balance sheet will amount to:
A. $14,105
B. $14,155
C. $14,900
D. $15,450
38. On November 2, 2014, Quaint General Store concluded that a customer’s $400 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on Quaint’s 2014
net income and balance sheet totals assuming the allowance method is used to account for bad debts?
A. Decrease in net income; decrease in total assets
B. Increase in net income; no effect on total assets
C. No effect on net income; decrease in total assets
D. No effect on net income; no effect on total assets
39. What is the distinguishing characteristic between accounts receivable and notes receivable?
A. Accounts receivable are usually current assets while notes receivable are usually long-term assets
B. Accounts receivable require payment of interest if not paid within the usual credit terms
C. Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable
result from credit sale transactions for service companies
D. Notes receivable result from a written promise to pay within a specified amount of time
40. Where can the amounts needed to compute the accounts receivable turnover ratio be found?
A. The income statement
B. The balance sheet
C. The statement of cash flows
D. Both (a) and (b).
41. What should a company do to improve its accounts receivable turnover rate?
A. Lower its selling prices.
B. Increase its sales force.
C. Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
D. Reduce the number of employees working in the credit department.
42. Spirit Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2014.
Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by
$10,000 during 2014. Rounded to two decimal places, what is Spirit’s accounts receivable turnover rate for
2014?
A. 7.59
B. 10.32
C. 10.67
D. 11.03
43. During 2014, the accounts receivable turnover rate for Cordner Company increased from 10 to 14 times per
year. Which one of the following statements is the most likely explanation for the change?
A. The company's credit department has followed up with customers whose account balances are past due in
order to generate quicker collections.
B. The company has decreased sales to its most credit worthy customers.
C. The company has increased the amount of time customers have to pay their accounts before they are past
due.
D. The company has extended credit to more risky customers in order to increase sales.
44. Lasiter Corp. reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2014. On
January 1, 2014, accounts receivable was $250,000. Amounts owed by customers increased by $20,000 during
2014. Rounding to two decimal places, what is Lasiter’s accounts receivable turnover rate for 2014?
A. 8.33
B. 8.00
C. 7.69
D. 7.41
45. The party to a promissory note that agrees to repay money on the maturity date of the note is called the
A. Lender
B. Maker of the note
C. Payee of the note
D. Recipient of the note
46. How will the payee of the promissory note record the note on its books?
A. The promissory note will be recorded as an asset
B. The promissory note will be recorded as a liability
C. The promissory note will be recorded as revenue
D. The promissory note will be recorded as an expense
47. The total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that
is not compounded is
A. $ 280
B. $ 840
C. $ 2,520
D. $ 8,260
48. On July 1, 2014, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual
interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2015.
If Falcon’s fiscal year ends September 30, 2014, an adjusting entry is needed to:
A. Increase interest revenue by $1,000
B. Increase notes receivable by $250
C. Increase interest receivable by $250
D. Increase notes receivable by $1,000
49. On July 1, 2014, Falcon Company received a $20,000 promissory note for services from Jordyn Company.
The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2013.
The effect on Falcon’s financial statements on July 1, 2014 is as follows

A. Assets increase; owners’ equity increases
B. Assets decrease and owners’ equity decreases
C. Assets decrease
D. No net change in assets
50. Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory
note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah’s
accounting period ends on December 31.
What is the actual maturity date of the note?
A. December 31, 2014
B. January 29, 2015
C. February 28, 2015
D. March 1, 2015
What amount should Utah recognize as interest revenue on December 31, 2014 (if a 360 day year is assumed)?
A. $ -0-
B. $ 60
C. $120
D. $180
What amount should Utah recognize as interest revenue on the maturity date of the note?
A. $ -0-
B. $ 60
C. $120
D. $180
53. Megan Farms received a promissory note from a customer on March 1, 2014. The face amount of the note is
$8,000; the terms are 90 days and 9% interest.
What is the total amount of interest that Megan Farms will receive when the note is paid?
A. $ 60
B. $ 90
C. $180
D. $720
$8,000; the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the
note and interest.
What entry is required on the books of Megan Farms on the maturity date, assuming none of the interest had
already been recognized?
A. One that increases Cash, $8,000, and decreases Notes Receivable $8,000.
B. One that increases Cash, $8,180, increases Interest Revenue, $180, and decreases Notes Receivable, $8,000.
C. One that increases Cash $8,720, decreases Notes Receivable $8,000, and increases Interest Revenue, $720.
D. No entry is required; the customer pays the amount due to the bank.
55. Verilux Company sold merchandise to Flight Corp. on November 1, 2014, for $10,000. Verilux accepted a
promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%.
Verilux’s accounting period ends on December 31, 2014.
What amount should Verilux recognize as interest revenue on December 31, 2014?
A. $ -0-
B. $ 116.67
C. $ 291.67
D. $ 280.00
What amount should Verilux recognize as interest revenue on the maturity date of the note?
A. $ -0-
B. $ 175.00
C. $ 291.67
D. $ 420.00
57. Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is
$2,000; the terms are 12 months and 8% annual interest.
How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014?
A. $ 40
B. $ 107
C. $ 120
D. $ 160
At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at
the end of December for interest. The effect of recognizing the transaction on the maturity date is
A. A decrease to Cash
B. An increase to Notes Receivable
C. An increase to Discount on Notes Receivable
D. A decrease to Notes Receivable
59. Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at
maturity is
A. $6,300
B. $2,100
C. $525
D. $1,890
60. Idaho.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited
directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited
during September. The effect on the accounting equation to record the sales and deposits will include
A. An increase in Cash for $12,000
B. An increase to Sales for $11,760
C. An increase to Accounts Receivable for $11,760
D. An increase in Collection Fee Expense for $240
61. When a company discounts an interest-bearing note at a bank with recourse,

A. The company is assured payment at maturity
B. The company will receive the full amount of the note plus interest
C. The company has a contingent liability from the time the note is discounted until its maturity date
D. The bank assumes the credit risk on non-payment at the maturity date
62. Discounting a note receivable

A. Requires using an account called discount on notes receivable
B. Is the process of lending money
C. Slows the collection process
D. Is the process of selling a promissory note
63. When a note receivable has been discounted by a company

A. An account called discount on notes receivable is used
B. It will be shown as an asset of the company
C. It slows the collection process
D. It may be shown as a contingent liability in the footnotes
64. If Cable Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the
credit card company, its credit card sales during the period were:
A. $111,978
B. $50,691
C. $25,000
D. $22,705
65. Cushion Sports accepted a credit card account receivable in exchange for $5,000 of services provided to a
customer. The credit card company charges a 5% service charge. Recording the transaction in the company’s
accounting records will have what effect on the accounting equation?
A. Increase assets and equity by $4,750
B. Decrease assets and equity by $250
C. Increase assets by $5,000
D. Increase equity by $5,000
66. When one company purchases less than 50% of equity securities in a second company, which of the
following statements is true?
A. The purchaser is referred to as the parent.
B. The purchaser is referred to as the subsidiary.
C. The company whose securities are purchased is the subsidiary.
D. The company whose securities are purchased is the investee.
67. Why do businesses invest in short-term investments?

A. They are trying to gain control over the activities of other companies.
B. They are investing excess cash to meet future business operation or investment needs.
C. They are lending money to companies that cannot obtain bank loans.
D. More than one of the above is correct.
68. For what reason would a company buy 10% of the common stock of a second company?
A. The company has idle cash and wishes to have a higher return than that available from temporary money
market investments.
B. The company wishes to insure a steady source of goods from the second company.
C. The company wishes to prepare consolidated financial statements.
69. A company is referred to as a parent if it owns

A. 33% of the debt securities of a second company
B. 100% of the debt securities of a second company
C. 15% of the equity securities of a second company
D. More than 50% of the equity securities of a second company
70. The equity method of accounting for an investment is used when a company purchases
A. More than 20% of the debt securities of a second company.
B. 100% of the debt securities of a second company.
C. 15% of the equity securities of a second company.
D. More than 20% of the equity securities of a second company.
71. Hedron Corp. invested cash in a 6-month certificate of deposit (CD) on November 1, 2014. If Hedron Corp.
has an accounting period that ends on December 31, 2014, when should Hedron recognize interest revenue from
the CD?
A. On December 31, 2014 only
B. On May 1, 2013 only
C. Both December 31, 2014 and May 31, 2013
D. On the date when its income tax return is filed
72. Tippi Corp. invested cash in a 9-month certificate of deposit (CD) on October 1, 2014. If Tippi has an
accounting period which ends on December 31, 2014, when would it most likely recognize interest revenue
from the CD?
B. On July 1, 2013 only
C. Both Dec. 31, 2014 and July 1, 2013
D. On October 1, 2014
73. Wagner’s Bookstore acquires a 6% $12,000 certificate of deposit on September 1. The term of the CD is six
months. At that time, all principal and accrued interest will be paid in cash. Indicate the effect on the financial
statements at December 31.
A. Interest Receivable increases $240, Interest Revenue increases $240
B. Interest Receivable increases $360, Interest Revenue increases $360
C. Interest Receivable increases $480, Interest Revenue increases $480
D. Interest Receivable increases $720, Interest Revenue increases $720
74. What are the effects on the accounting equation from the purchase of a short-term investment?
A. Assets and stockholders’ equity decrease
B. No effects--assets increase and decrease by the same amount
C. Assets and liabilities decrease
D. Stockholders' equity decreases and liabilities increase
75. Meta Inc. pays $18,000 to buy stock in another company and an additional $350 in commissions. Three
months later, Meta sells the stock for $19,000. At the time of sale, Meta will recognize a:
A. A $650 loss
B. A $1,000 gain
C. A $350 loss
D. A $650 gain
76. When are consolidated financial statements prepared?
A. At the option of an investee company
B. At the option of an investor company
C. If one company owns more than 50% of another company
D. Only if one company owns 100% of another company
77. Significant influence of one company over another has been defined by the accounting profession as the
ownership of what minimum percent of the second company's stock?
A. 30%
B. 50%
C. 100%
D. 20%
78. On July 1, 2014, Tipper Corp. purchased $100,000 of 8% bonds at face value. Interest is paid annually on
June 30. If the accounting year for Tipper ends at December 31, 2014, what will be reported with respect to the
bonds on that date?
A. The carrying value of the bonds will be $108,000.
B. The cash received in interest will be $8,000.
C. Interest income in the amount of $4,000 will be accrued.
D. A loss on the bonds will be reported in the Other Income and Expense section of the 2014 income statement
until the entire amount of interest is paid on June 30, 2015.
79. On February 1, 2014, Shine Corp. pays $50,000 for shares of Cloud common stock and
another $1,000 in commissions. Assume that Shine sells the Cloud stock on May 20, 2014, for $53,000. In this
case, Shine recognizes
A. An increase in assets and stockholders' equity for $2,000.
B. An decrease in assets and an increase in stockholders' equity for $2,000.
C. An increase and decrease in assets by the same amount.
D. An increase in assets and stockholders' equity for $3,000.
80. Which of the following statements is true regarding dividend income?

A. Dividend income is accrued at year-end.
B. Dividend income is reported on the income statement.
C. Dividend income appears in the stockholders' equity section of the balance sheet.
D. Dividend income is recognized by companies that own debt securities.
81. The comparative balance sheets for Spring Co. for 2014 and 2013 indicate that accounts receivable
decreased during 2014. Spring uses the indirect method of preparing the operating activities section of its
statement of cash flows. How will the decrease in accounts receivable be reported on the statement of cash
flows?
A. It will be included in the amount of cash and cash equivalents at the end of 2014.
B. It will be deducted from net income in the operating activities section.
C. It will be added to net income in the operating activities section.
D. It will be reported as a cash outflow in the investing activities section.
82. The comparative balance sheets of Farmore Corp. for 2014 and 2013 indicate that short-term trade notes
receivable increased from $5,000 in 2013 to $75,000 in 2014. How will this change be reported on Farmore’s
statement of cash flows (Farmore uses the indirect method)?
B. It will be reported as a deduction from net income in the operating activities section.
C. It will be reported as a cash outflow in the investing activities section.
D. It will be added to net income in the operating activities section.
83. What is the impact on the cash flow statement from an increase in notes receivable, assuming the indirect
method is used?
A. A decrease in the cash flow from operating activities
B. An increase in the cash flow from operating activities
C. An increase in the cash flow from financing activities
D. An increase in the cash flow from investing activities
84. What is the impact on the cash flow statement from a decrease in accounts receivable, assuming the indirect
method is used?
D. None. A decrease in accounts receivable has an impact only if the direct method is used
85. Which one of the following is an investing activity on the statement of cash flows?
A. Collection of accounts receivable
B. Purchase of long-term investments
C. Receipt of interest
D. Receipt of dividends
86. Darling Enterprises’ comparative balance sheets included accounts receivable of $220,300
at December 31, 2013, and $200,900 at December 31, 2014. Sales reported on Darling’s
2014 income statement amounted to $2,350,000. What is the amount of cash collections
that Darling will report in the Operating Activities category of its 2014 statement of
cash flows assuming that the direct method is used?
A. $2,369,400
B. $2,350,000
C. $2,771,200
D. $2,330,600
87. The reason the allowance method of recognizing bad debts is used is primarily because it recognizes the
maximum amount of write-off in each period.
True False
88. Bad Debts Expense is increased and Accounts Receivable is decreased at the end of the period to recognize
bad debts under the allowance method.
True False
89. The percentage of net credit sales approach for recognizing bad debts considers any existing balance in
Allowance for Doubtful Accounts.
True False
90. Selling on credit protects a company from the risk that some of its receivables will never be collected.
True False
91. Accounts receivable are shown on the balance sheet at their net realizable amount.
True False
92. The use of the allowance method is an attempt by accountants to match bad debts as an expense with the
revenue of the period in which a sale on credit takes place.
True False
93. One of the problems with the use of the allowance method to account for bad debts is that it often violates
the matching principle.
True False
94. Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts
before those debts actually occur.
True False
95. Bad Debts Expense is a contra account that is used to reduce accounts receivable to its net realizable value.
True False
96. Because the allowance method results in better matching, accounting standards require its use rather than
the direct write-off method, unless bad debts are immaterial.
True False
97. An aging schedule typically categorizes the various accounts by the length of time each invoice is
outstanding.
True False
98. The accounts receivable turnover ratio is a measure of how well a company manages its receivables.
True False
99. The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable.
True False
100. Typically, the lower the accounts receivable turnover ratio, the better.
True False
101. If Apple Company had sales during the year of $10,000,000, an average accounts receivable
of $2,000,000, and net income of $500,000, its accounts receivable turnover ratio would be 0.25.
True False
102. If accounts receivable turnover is faster, this means that fewer days are required to collect receivables.
True False
103. The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its
accounts receivable.
True False
104. A high accounts receivable turnover ratio could mean that the company’s credit policies may be too
stringent.
True False
105. Twin Cities Corp. had sales during the year of $15,000,000 and an average accounts receivable of
$5,000,000. Its accounts receivable turnover ratio is 0.33 times.
True False
106. The maker of a note recognizes a note receivable on the balance sheet and interest revenue on its income
statement.
True False
107. The maker of a note recognizes a note payable on the balance sheet and interest expense on its income
statement.
True False
108. The payee of a note recognizes a note payable on the balance sheet and interest expense on its income
statement.
True False
109. The payee of a note recognizes a note receivable on the balance sheet and interest revenue on its income
statement.
True False
110. When a note is discounted at a bank, it is normally done with recourse.

True False
111. If a company accepts a major credit card such as VISA from a customer, then the company is responsible
for the amount of the sale in a case of nonpayment from a cardholder.
True False
112. When a company discounts a promissory note at the bank, it receives cash at the same time it would if it
held the note to maturity.
True False
113. The alternate term for a credit card draft is an invoice.

True False
114. Promissory notes are non-negotiable.

True False
115. A note discounted with recourse means that if the original customer fails to pay the bank the total amount
due on the maturity date of the note, the company that transferred the note to the bank is liable for the full
amount.
True False
116. Whether investments are reported as current assets or noncurrent assets depends on the company’s intent.
True False
117. A subsidiary is a separate legal entity that is owned or controlled by another entity.
True False
118. Securities issued by corporations as a form of ownership in the business, such as common and preferred
stock, are called equity securities.
True False
119. When Company A buys stock in Company B, Company A is referred to as the investee.
True False
120. The equity method of accounting is used if the investor owns at least 20% of the investee and the investor
is able to secure influence over the investee.
True False
121. Purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows.
True False
122. Baggs buys $100,000 of Vista Company bonds on January 1, 2014 at face value. The bonds pay 10%
interest semiannually on June 30 and December 31. If Baggs sells the bonds at 99 on July 1, 2014, there will be
a loss reported on the income statement.
True False
123. Both stock and bond investments have maturity dates.

True False
124. A company invests excess cash in a certificate of deposit. At the end of an accounting period before the
CD matures, the company will recognize interest expense.
True False
125. A decrease in accounts receivable represents an increase in a company's cash flow from operating
activities.
True False
126. An increase in accounts receivable is reported on the statement of cash flows under the indirect method as
an addition.
True False
127. The mechanism that keeps track of the balances owed by individual customers is called a(n)
_________________________.
________________________________________
128. A general ledger account that is supported by a subsidiary ledger is called a(n) ____________________.
________________________________________
129. The gross accounts receivable less the allowance for doubtful accounts is known as the
_________________________.
________________________________________
130. A(n) ____________________ categorizes the various accounts receivable amounts by the length of time
outstanding.
________________________________________
131. The accounts receivable turnover ratio is computed by dividing ____________ by average accounts
receivable.
________________________________________
132. The _______________ the accounts receivable turnover ratio, the quicker the each dollar of accounts
receivable can be collected.
________________________________________
133. Over the life of a note, the maker of a note recognizes ____________ on the balance sheet and
_____________ on the income statement.
________________________________________
134. A(n) _________________________ is a written promise to repay a definite sum of money either upon
demand, or at a fixed or determinable date in the future.
________________________________________
135. The party that agrees to repay is the ____________________ of the note.
________________________________________
136. A company that holds a promissory note from another company has an asset, called a(n)
____________________.
________________________________________
137. The company that makes or gives a promissory note to another company has a liability, called a(n)
____________________.
________________________________________
138. The maker of a note recognizes ____________________ on its income statement.

________________________________________
139. The payee of a note recognizes ____________________ on its income statement.

________________________________________
140. The amount of money received, or the fair value of the products or services received by the maker when a
promissory note is issued is called the ____________________.
________________________________________
141. The length of time a note is outstanding (that is, the period of time between the date it is issued and the
date it matures) is called the ____________________.
________________________________________
142. The party that receives the payment due from a note is called the ____________________.
________________________________________
143. The date that a promissory note is due is the ____________________.

________________________________________
144. The difference between the principal amount of a note and its maturity value is called
____________________.
________________________________________
145. The amount of cash the maker is to pay the payee on the maturity date of the note is called the
____________________.
________________________________________
146. The process of assigning a note due in the future to a bank before its maturity date is called
____________________.
________________________________________
147. If a company discounts a note at a bank, but still is contingently liable for the maturity value, then the note
was discounted with ____________________.
________________________________________
148. When an investor is able to secure significant influence over an investee, the ____________________
method of accounting is used.
________________________________________
149. Securities issued by corporations as a form of ownership in the business, such as common or preferred
stock, are called _________________________.
________________________________________
150. Bonds issued by corporations or governmental bodies as a form of borrowing are called
____________________.
________________________________________
151. Cash flows from purchases, sales, and maturities of investments are usually classified as
_________________ activities.
________________________________________
152. Changes in accounts and notes receivable are reported in the __________ Activities section of a statement
of cash flows prepared using the indirect method.
________________________________________
153. When using the indirect cash flow method, a decrease in accounts receivable or notes
receivable must be _________ to net income to arrive at the increase or decrease in cash flows.
________________________________________
154. Select the term from the list below that matches each of the following six descriptions.
1. The party that receives payment due from a note Discounting ____
2. The sale of a note Term ____
3. The amount of cash the maker is to pay the payee on
the maturity date of the note Payee ____
4. Transfer a note with a contingent liability Recourse ____
5. The length of time a note is outstanding -- the period of
time between the date it is issued and the date it matures Interest ____
6. The difference between the principal amount of the Maturity
note and its maturity value value ____
155. Georgy Company had the following data available for 2014 (before making any adjustments):
Accounts receivable, 12/31/14 $343,200 (Dr.)

Allowance for doubtful accounts 3,800 (Cr.)
Net credit sales, 2014 829,000 (Cr.)
REQUIRED:
1. Identify and analyze the adjustment needed to estimate bad debts under the following assumptions:
(a) Bad Debts Expense is expected to be 3% of net credit sales for the year and
(b) Georgy expects it will not be able to collect 7% of the balance in accounts receivable at year-end.
2. Assume instead that the balance in the allowance account is ($3,800) or $3,800 (Dr). How will this affect
your answers to (1)?
156. In its first year of business, Mariman Company has net income of $290,000, exclusive of any adjustment
for bad debts expense. The president of the company has asked you to calculate net income under each of two
alternatives of accounting for bad debts: the direct write-off method and the allowance method. The president
would like to use the method that will result in the higher net income. So far, no adjustments have been made to
write off uncollectible accounts or to estimate bad debts. The relevant data are as follows:
Write-offs of uncollectible accounts during the year $ 21,000

Net credit sales 750,000
Estimated percentage of net credit sales that will be uncollectible
5%
REQUIRED:
1. Compute net income under each of the two alternatives.
2. Does Mariman have a choice as to which method to use? If so, should it base its choice on which method will result in the higher net income?
(Ignore income taxes.) Explain.
157. Wellcott Company sells on credit with terms of n/30. For the $800,000 of accounts at the end of the year
2014 that are not overdue, there is a 92% probability of collection. For the $300,000 of accounts that are less
than a month past due, Wellcott estimates the likelihood of collection going down to 75%. The probability of
collecting the $150,000 of accounts more than a month past due is estimated to be 30%.
REQUIRED:
1. Prepare an aging schedule to estimate the amount of uncollectible accounts.

2. On the basis of the schedule in (1), identify and analyze the adjustment needed to estimate bad debts as of
December 31, 2014. Assume that the balance in Allowance for Doubtful Accounts is $30,000.
158. Whispering Pines Company reported the following on its balance sheet at December 31, 2014:
Accounts receivable, less allowance of $12,400 $318,000
A) How much is the net realizable value of Whispering Pines’ receivables?
B) What is the balance of the accounts receivable account?
C) Are you able to determine whether Whispering Pines uses the allowance method or the direct write off method for uncollectibles? Why
or why not?
159. Story Corp. sold merchandise for $8,000 to Bargain on May 15, 2014, with payment due in 30 days.
Subsequent to this, Bargain experienced cash flow problems and was unable to pay its debt. On August 10,
2014, Story stopped trying to collect the outstanding receivable from Bargain and wrote off the account as
uncollectible. On December 1, 2014, Bargain sent Story a check for $2,000 and offered to sign a two-month,
12%, $6,000 promissory note to satisfy the remaining obligation. Bargain paid the entire amount due Story,
with interest, on January 31, 2015. Story ends its accounting year on December 31 each year and uses the
allowance method to account for bad debts.
REQUIRED:
1. Identify and analyze the effects of the transactions needed by Story Corp. from May 15, 2014 to January 31,
2015.
2. Why would Bargain bother to send Story a check for $2,000 on December 1 and agree to sign a note for the
balance, given that such a long period of time had passed since the original purchase?
160. Slammer Sports
The following information is for Slammer Sports at the end of 2014:
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)
Refer to the data for Slammer Sports.
If bad debts are estimated at 1% of net sales, how much will Slammer Sports report as bad debts expense for 2014?
161. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

If the aging approach is used to estimate bad debts, how much bad debts expense will Slammer Sports report for 2014?
162. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

If the aging approach is used to estimate bad debts, how much is the net realizable value of the accounts receivable at December 31, 2014?
163. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

Assume that the net realizable value is $170,000 after the adjustment for bad debts in 2014. How much is the net realizable value of accounts
receivable after a customer's account of $2,500 is written off? Explain why.
164. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

Determine the effect on Slammer Sports’ accounting equation of the year-end adjustment of bad debts using the aging approach.
Balance Sheet Income Statement

Assets = Liabilities + Stockholders’ Revenues – Expenses = Net Income
Equity
165. Beatrice Equipment
Beatrice Equipment sells merchandise only on credit. For the year ended December 31, 2014, the following data
is available:
Sales $2,400,000
Sales returns and allowances 60,000
Accounts Receivable - January 1, 2014 270,000
Collections during 2014 2,426,300
Accounts written off as uncollectible during 2014 23,700
Refer to the data for Beatrice Equipment.
Determine the balance of Accounts Receivable at December 31, 2014.
is available:
Sales $2,400,000
Assume that Beatrice Equipment estimates bad debts at 1% of net credit sales.
A) What amount will Beatrice Equipment record as bad debts expense for 2014?
B) How much is the net realizable value of accounts receivable reported on Beatrice Equipment’s balance sheet at December 31, 2014?
is available:
Sales $2,400,000
Refer to Beatrice Equipment.
Assume that Beatrice Equipment estimates bad debts on an aging analysis, and the aging schedule indicates that $28,000 of the December 31, 2014
accounts receivable will be uncollectible.
A) What amount will Beatrice Equipment recognize as bad debts expense for 2014?
B) How much is the net realizable value of the receivables to be reported on Beatrice Equipment’s balance sheet at December 31, 2014?
168. If a company has a choice of acceptable methods to estimate bad debts, what factors should be considered
in the selection?
169. Can a company use the direct write-off method rather than the allowance method to account for bad debts
expense? Explain why or why not.
170. Sliders Company
Sliders Company sells its merchandise only on credit. The following data is available at December 31, 2014:
Sales $375,000
Accounts receivable at January 1, 2014 60,600
Allowance for doubtful accounts at January 1, 2014 3,200
Cash collections during 2014 362,500
Refer to data for Sliders Company.
Sales $375,000
Refer to the data for Sliders Company.
The firm estimates that bad debts could be 1% of their net sales.
A) What amount will Sliders Company recognize as bad debts expense for the year?
B) Once this calculation is recorded, assume that the company has a balance of Accounts Receivable of $58,700, and an Allowance
for Doubtful Accounts of $800. What will be the net realizable value once the adjustment from Part A) is made?
Sales $375,000
Assume the company estimates bad debts using an aging analysis and the aging schedule indicates that $3,600 of the end of the year Accounts
Receivable will be uncollectible.
A) What amount will Sliders Company recognize as bad debt expense for the year?
B) If the ending balance of Accounts Receivables is $38,700, what is the net realizable value of Accounts Receivable reported on
December 31, 2014?
173. Mega Trends Inc. and Energize Electronics are competitors in the same industry.
The following information was summarized from a recent annual report of Mega Trends Inc.:
(In millions)
Receivables:
December 31, 2013 $ 1,968
December 31, 2012 642
Revenue for the year ended:
December 31, 2013 46,980
December 31, 2012 40,023
The following information was summarized from a recent annual report of Energize Electronics:
(In millions)
Accounts and notes receivable, net
December 31, 2013 $ 246
December 31, 2012 264
Revenues for the year ended:
December 31, 2013 4,335
December 31, 2012 4,251
REQUIRED:
1. Calculate the accounts receivable turnover ratios for Mega Trends and Energize for the most recent year.
2. Calculate the average collection period, in days, for both companies for the most recent year. Comment on
the reasonableness of the collection periods for these companies considering the nature of their business.
3. Which company appears to be performing better? What other information should you consider in determining
how these companies are performing?
174. The 2014 annual report of Shimmer Products, Inc. reported the following amounts (in millions of dollars):
Net sales, for the year ended May 31, 2014 $15,111.2
Receivables, May 31, 2014 989.4
Receivables, May 31, 2013 1,011.6
REQUIRED:
1. Compute Shimmer’s accounts receivable turnover ratio for the year ended May 31, 2014. (Assume that all
sales are on credit.)
2. What is the average collection period in days for an account receivable? Explain your answer.
3. Shimmer’s main products are inexpensive bubble-packed lipsticks and lip glosses. Give some examples of
the types of customers you would expect Shimmer to have. Do you think the average collection period for sales
to these customers is reasonable? What other information do you need to fully answer that question?
175. Rafter.com received a 10%, 90-day promissory note with a face amount of $12,000 from Joyce Company,
for the sale of merchandise on November 1, 2014.
A) Identify the maturity date of the note. _______________________
B) How much interest income (to the nearest whole month) will Rafter.com earn over the term of the note?
C) How much interest income will Rafter.com recognize during 2014?

176. Cyprus Corp. received a 7%, 6-month promissory note with a face amount of $8,000 from the Mustafa
Company for the sale of merchandise on May 1, 2014. Cyprus’ accounting year-end is December 31.
REQUIRED: Identify the maturity date of the note.
REQUIRED: How much interest income will Cyprus Corp. recognize over the term of the note?
178. Hemmer Company received a 12%, 6-month promissory note with a face amount of $10,000 from Stutfeld
Company, for the sale of merchandise on December 1, 2014.
A) Which party is the maker? _______________________
B) Which party is the payee? _____________________
C) Determine the maturity value of the note.

179. On September 1, 2014, Flavorful Corp. accepted a six-month, 6%, $65,000 interest bearing note from
Reagan Company in payment of an accounts receivable. Flavorful’s year-end is December 31. Reagan paid the
note and interest on the due date.
REQUIRED:
1. Who is the maker and who is the payee of the note?
2. What is the maturity date of the note?
3. Identify and analyze the effects of the transactions for Flavorful Corp. in connection with this note.
180. Speed Wear Bicycle Gear accepts VISA credit cards from its customers. Speed Wear is closed on Sundays
and on that day records the weekly sales and remits the credit card drafts to VISA. For the week ending on
Sunday, April 12, cash sales totaled $3,650 and credit card sales amounted to $3,900. On April 15, Speed Wear
received $3,794.70 from VISA as payment for the credit card drafts. Identify and analyze the effect of the April
12 and April 15 transactions. As a percentage, what collection fee is VISA charging Speed Wear?
181. On September 20, Lark Inc.presents credit card drafts to its bank in the amount of $10,000;
the collection charge is 4%.
Required: Identify and analyze the effect of Lark's September 20 transactions (the date of deposit).
182. On August 16, 2014, Fenchurch Corp. purchases 6,000 shares of common stock in Markham Inc. at a
market price of $17 per share. In addition, Fenchurch pays brokerage fees of $2,000. On October 21, 2014,
Fenchurch sells the Markham stock for $12 per share.
REQUIRED:
Identify and analyze the effects of Fenchurch’s investment beginning with the purchase of the common stock on
August 16, 2014, and the sale on October 21, 2014.
183. On May 31, 2014, Essex Corp. purchased a 120-day, 6% certificate of deposit for $60,000. The CD was
redeemed on September 28, 2014. Identify and analyze the effects of the following transactions on Essex’s
books:
a. The purchase of the CD.

b. The accrual of interest adjustment for interest earned through June 30, the end of the company’s fiscal year.
c. The redemption of the CD. Assume 360 days in a year.
184. Bagel Inc. reported net income of $105,000 for the year ended December 31, 2014. The following items
were included on Bagel’s balance sheets at December 31, 2014 and 2013:
12/31/14 12/31/13
Cash $106,000 $113,000
Accounts receivable 213,000 93,000
Notes receivable 95,000 103,000
Bagel uses the indirect method to prepare its statement of cash flows. Bagel does not have any other current
assets or current liabilities and did not enter into any investing or financing activities during 2014.
REQUIRED:
1. Prepare Bagel’s 2014 statement of cash flows.
2. Draft a brief memo to the owner to explain why cash decreased during a profitable year.
185. Hawthorne Industries’ comparative balance sheets included accounts receivable of $221,400
at December 31, 2013, and $205,900 at December 31, 2014. Sales reported on Hawthorne’s
that Hawthorne will report in the Operating Activities category of its 2014 statement of
cash flows assuming that the direct method is used? Show your calculations.
186. The comparative financial statements for the years ended December 31, 2014 and 2013 for Sophia
Company reported the following information.
Balance Sheet: 2014 2013

Cash and cash equivalents $77,000 $81,600
Accounts receivables, less allowance for doubtful accounts of $80 (2014) and $82
(2013) 2,700 2,300
Income Statement:
Net sales for the year $9,700 $8,800
Net income for the year 950 1,070
Statement of Cash Flows:

Net cash provided by operating activities $1,000 $1,100
Increase in accounts receivable (460) (280)
Answer these questions concerning Sophia Company's receivables:
A) What is the gross amount of accounts receivable for Sophia at December 31, 2014? Why is this amount different than the amount of
receivables shown in the 2014 column of the balance sheet?
B) What is the net realizable value of accounts receivable for Sophia at December 31, 2014? What does this amount represent?
187. Write a short paragraph explaining each of the following:
1. When bad debts are estimated, why is the balance in Allowance for Doubtful Accounts considered when the
percentage of accounts receivable approach is used but not when the percentage of net credit sales approach is
used?
2. When estimating bad debts on the basis of a percentage of accounts receivable, what is the advantage of
using an aging schedule?
188. What is the purpose of an accounts receivable subsidiary ledger?
189. What is the purpose of an aging schedule?
190. Earl’s Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are 2/10, n/20.
What does this ratio tell you about Earl’s Company?
191. Explain the distinction between a note receivable and an account receivable.
192. Identify two methods of accelerating cash from sales.
193. Why does the discounting of a note receivable with recourse result in a contingent liability? Should the
liability be reported on the balance sheet? Explain.
194. Corrigan Corp. purchased 1,000 shares of Microsoft common stock. What will determine whether the
shares are classified as current assets or noncurrent assets?
195. Why are increases in accounts receivable reported as an adjustment to net income in the operating
activities section of a statement of cash flows?
196. Evanston Inc. started the year with $35,000 in accounts receivable and ended the year with
$50,000 in the account. Describe how information regarding the company’s accounts
receivable should be reflected on its statement of cash flows, assuming use of the indirect
method.
Chapter 7: Receivables and Investments Key
1. Which one of the following is not an accurate description of Allowance for Doubtful Accounts?
A. Contra account
B. Balance sheet account
C. Income statement account
D. Current asset account

What amount will Tallon show on its year-end balance sheet for the net realizable value of its accounts receivable?
A. $295,000
B. $267,000
C. $250,000
D. $ 28,000

What is the effect on liquidity when Tallon records its estimate for bad debt expense using the allowance method?
A. Liquidity decreases
B. Liquidity increases
C. Liquidity stays the same
D. Liquidity both increases and decreases
4. The following information was presented in the balance sheet of Gloria Company as of December 31, 2014:
Trade accounts receivable, net of allowance for uncollectibles of $100,000

$1,600,000
Which one of the following statements is true?
A. Gloria expects that $1,700,000 of accounts receivable will be collected after year end
B. The balance in the Accounts Receivable account in Gloria’s general ledger is $1,600,000
C. The net realizable value of Gloria’s accounts receivable is $1,600,000
D. Gloria expects to collect only $1,500,000 from its customers
5. On January 15, 2014, the accounts receivable balance was $7,000 and the balance in the allowance for
doubtful accounts was $700. That morning a $200 uncollectible account was written-off. The net realizable
value of accounts receivable immediately after the write-off is:
A. $6,300
B. $6,800
C. $7,200
D. $7,900
6. Which one of the following is an accurate description of Allowance for Doubtful Accounts?
A. Contra account
B. Liability account
C. Revenue account
D. Expense account
7. Which one of the following statements is true?

A. When a company uses a subsidiary ledger, the balance in the control account, Accounts Receivable, shows
only the amount the company expects to collect from the accounts receivable, net of any expected uncollectible
accounts
B. An accounts receivable subsidiary ledger represents amounts due to vendors and suppliers
C. The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the
subsidiary ledger for accounts receivable.
D. A subsidiary ledger takes the place of the control account for some companies.
8. If a company uses the direct write-off method of accounting for bad debts,
A. It is applying the matching principle
B. It will record bad debt expense only when an account is determined to be uncollectible
C. It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible
accounts
9. Fenchurch Corp. uses the direct write-off method to account for bad debts. What are the effects on the
accounting equation when recording the write-off of a customer's account balance?
A. Assets and liabilities decrease
B. Assets and owners’ equity decrease
C. Owners’ equity decrease and liabilities increase
D. No effect; assets increase and decrease by the same amount
10. If a company uses the allowance method of accounting for bad debts, which one of the following statements
is true?
A. It violates the matching principle
B. It will record bad debts only when an account is determined to be uncollectible
C. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts
11. Which one of the following statements is true if a company's collection period for accounts receivable is
unacceptably long?
A. The company may need to borrow to acquire operating cash
B. The company may offer trade discounts to lengthen the collection period
C. Cash flows from operations may be higher than expected for the company's sales
D. The company should expand operations with its excess cash
12. If a company uses the allowance method to account for bad debts, when will the company's owners' equity
decrease?
A. At the date a customer's account is written off
B. At the end of the accounting period when an adjusting entry for bad debts is recorded
C. At the date a customer's account is determined to be uncollectible
D. When the accounts receivable amount becomes past due
13. Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching
bad debts expense with revenue on the income statement?
14. Which one of the approaches for the allowance method of accounting for bad debts emphasizes the net
realizable value of accounts receivable on the balance sheet?
15. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp. estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2014?
A. $12,400
B. $13,700
C. $14,000
D. $14,300
16. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp. estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the
A. $12,400
B. $13,700
C. $14,000
D. $15,000
17. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp. uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2014?
A. $12,700
B. $13,700
C. $14,000
D. $15,300
18. Agee Corp.
Sales $1,400,000
(100% on
credit)
Sales 30,000
returns
Accounts 170,000
Receivabl
e
(Decembe
r 31,
2014)
Allowanc
e for
Doubtful
Accounts
Estimated 14,000
amount of
uncollecti
ble
accounts
based on
aging
analysis

If Agee Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable
after the adjustment for bad debt expense?
A. $140,000
B. $156,000
C. $167,000
D. $184,000
19. Allowance for Doubtful Accounts represents:
A. Cash set aside to make up for bad debt losses
B. The amount of uncollectible accounts written off to date
C. The difference between total sales made on credit and the amount collected from those credit sales
D. The difference between the gross amount of accounts receivable and the net realizable value of accounts
receivable
20. Which of the following statements is true regarding the two allowance methods used to account for bad
debts?
A. The percentage of net credit sales approach takes into account the existing balance in the Allowance for
B. The direct write-off method takes into account the existing balance in the Allowance for Doubtful Accounts
account.
C. The percentage of accounts receivable approach takes into account the existing balance in the Allowance for
D. The direct write-off method does a better job of matching revenues and expenses.
21. The following data concerns Cubano Corporation for 2014:

Accounts Receivable - December 31, 2014 235,000
Allowance for Doubtful Accounts - December 31, 2014 18,000
What amount will Cubano show on its year-end balance sheet for the net realizable value of its accounts receivable?
A. $253,000
B. $235,000
C. $224,000
D. $217,000
22. What are the effects on the accounting equation when a company makes the adjustment to record bad debt
expense using the allowance method?
A. Assets and owners' equity increase
B. Assets and owners' equity decrease
C. Assets increase and owners' equity decreases
D. Assets decrease and owners' equity increases
23. What are the effects on the accounting equation when a company writes off a bad debt?
A. Assets and stockholders' equity increase
B. Assets and stockholders' equity decrease
C. Assets increase and stockholders' equity decreases
D. No effect on overall assets or equity


A. $336,000
B. $448,400
C. $458,000
D. $466,000


A. $8,000
B. $8,100
C. $8,700
D. $8,900

Refer to the data for Americana Corporation
If the aging approach is used to estimate bad debts, what is the balance in the Allowance for Doubtful Accounts after the bad debt expense
adjustment.
A. $8,000
B. $8,100
C. $8,900
D. $9,600
27. Hui Corporation


A. $209,000
B. $225,000
C. $447,000
D. $459,000
28. Hui Corporation


A. $ 2,900
B. $11,500
C. $23,500
D. $26,900
29. Hui Corporation


If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts
adjustment?
A. $26,900
B. $14,900
C. $13,200
D. $11,500

Sales (100% on credit) $1,500,000

If Satin estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2014?
A. $25,800
B. $27,000
C. $28,800
D. $30,000

Sales (100% on credit) $1,500,000

Refer to information for Satin Corporation
If Satin uses 2% of net credit sales to estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the
A. $33,000
B. $31,800
C. $27,000
D. $25,800

Sales (100% on credit) $1,500,000

If Satin uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2014?
A. $28,000
B. $31,000
C. $34,000
D. $50,000

Sales (100% on credit) $1,500,000

Refer to the information for Satin Corporation.
If Satin uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after
the adjustment for bad debt expense?
A. $216,000
B. $219,000
C. $222,000
D. $250,000
receivable balance.
The amount of bad debts expense recognized in the 2014 income statement will be:
A. $545
B. $595
C. $745
D. $795
35. Assuming a company uses the allowance method, the entry to recognize the write-off of the specific
uncollectible accounts will act to:
A. Increase total assets and total equity
B. Increase total assets and decrease total equity
C. Decrease total assets and total equity
D. Not affect total assets or total equity
36. The entry required to recognize the bad debts expense for 2014 will act to:
A. Increase total assets and retained earnings
B. Decrease total assets and retained earnings
C. Decrease total assets and increase net income
D. Increase total assets and decrease net income
receivable balance.
The net realizable value of receivables appearing on the 2014 balance sheet will amount to:
A. $14,105
B. $14,155
C. $14,900
D. $15,450
38. On November 2, 2014, Quaint General Store concluded that a customer’s $400 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on Quaint’s 2014
net income and balance sheet totals assuming the allowance method is used to account for bad debts?
A. Decrease in net income; decrease in total assets
B. Increase in net income; no effect on total assets
C. No effect on net income; decrease in total assets
D. No effect on net income; no effect on total assets
39. What is the distinguishing characteristic between accounts receivable and notes receivable?
A. Accounts receivable are usually current assets while notes receivable are usually long-term assets
B. Accounts receivable require payment of interest if not paid within the usual credit terms
C. Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable
result from credit sale transactions for service companies
D. Notes receivable result from a written promise to pay within a specified amount of time
40. Where can the amounts needed to compute the accounts receivable turnover ratio be found?
A. The income statement
B. The balance sheet
C. The statement of cash flows
D. Both (a) and (b).
41. What should a company do to improve its accounts receivable turnover rate?
A. Lower its selling prices.
B. Increase its sales force.
C. Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
D. Reduce the number of employees working in the credit department.
42. Spirit Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2014.
Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by
$10,000 during 2014. Rounded to two decimal places, what is Spirit’s accounts receivable turnover rate for
2014?
A. 7.59
B. 10.32
C. 10.67
D. 11.03
43. During 2014, the accounts receivable turnover rate for Cordner Company increased from 10 to 14 times per
year. Which one of the following statements is the most likely explanation for the change?
A. The company's credit department has followed up with customers whose account balances are past due in
order to generate quicker collections.
B. The company has decreased sales to its most credit worthy customers.
C. The company has increased the amount of time customers have to pay their accounts before they are past
due.
D. The company has extended credit to more risky customers in order to increase sales.
44. Lasiter Corp. reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2014. On
January 1, 2014, accounts receivable was $250,000. Amounts owed by customers increased by $20,000 during
2014. Rounding to two decimal places, what is Lasiter’s accounts receivable turnover rate for 2014?
A. 8.33
B. 8.00
C. 7.69
D. 7.41
45. The party to a promissory note that agrees to repay money on the maturity date of the note is called the
A. Lender
B. Maker of the note
C. Payee of the note
D. Recipient of the note
46. How will the payee of the promissory note record the note on its books?
A. The promissory note will be recorded as an asset
B. The promissory note will be recorded as a liability
C. The promissory note will be recorded as revenue
D. The promissory note will be recorded as an expense
47. The total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that
is not compounded is
A. $ 280
B. $ 840
C. $ 2,520
D. $ 8,260
48. On July 1, 2014, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual
interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2015.
If Falcon’s fiscal year ends September 30, 2014, an adjusting entry is needed to:
A. Increase interest revenue by $1,000
B. Increase notes receivable by $250
C. Increase interest receivable by $250
D. Increase notes receivable by $1,000
49. On July 1, 2014, Falcon Company received a $20,000 promissory note for services from Jordyn Company.
The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2013.
The effect on Falcon’s financial statements on July 1, 2014 is as follows

A. Assets increase; owners’ equity increases
B. Assets decrease and owners’ equity decreases
C. Assets decrease
D. No net change in assets
What is the actual maturity date of the note?
A. December 31, 2014
B. January 29, 2015
C. February 28, 2015
D. March 1, 2015
What amount should Utah recognize as interest revenue on December 31, 2014 (if a 360 day year is assumed)?
A. $ -0-
B. $ 60
C. $120
D. $180
What amount should Utah recognize as interest revenue on the maturity date of the note?
A. $ -0-
B. $ 60
C. $120
D. $180
$8,000; the terms are 90 days and 9% interest.
What is the total amount of interest that Megan Farms will receive when the note is paid?
A. $ 60
B. $ 90
C. $180
D. $720
$8,000; the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the
note and interest.
What entry is required on the books of Megan Farms on the maturity date, assuming none of the interest had
already been recognized?
A. One that increases Cash, $8,000, and decreases Notes Receivable $8,000.
B. One that increases Cash, $8,180, increases Interest Revenue, $180, and decreases Notes Receivable, $8,000.
C. One that increases Cash $8,720, decreases Notes Receivable $8,000, and increases Interest Revenue, $720.
D. No entry is required; the customer pays the amount due to the bank.
What amount should Verilux recognize as interest revenue on December 31, 2014?
A. $ -0-
B. $ 116.67
C. $ 291.67
D. $ 280.00
What amount should Verilux recognize as interest revenue on the maturity date of the note?
A. $ -0-
B. $ 175.00
C. $ 291.67
D. $ 420.00
How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014?
A. $ 40
B. $ 107
C. $ 120
D. $ 160
At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at
the end of December for interest. The effect of recognizing the transaction on the maturity date is
A. A decrease to Cash
B. An increase to Notes Receivable
C. An increase to Discount on Notes Receivable
D. A decrease to Notes Receivable
59. Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at
maturity is
A. $6,300
B. $2,100
C. $525
D. $1,890
60. Idaho.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited
directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited
during September. The effect on the accounting equation to record the sales and deposits will include
A. An increase in Cash for $12,000
B. An increase to Sales for $11,760
C. An increase to Accounts Receivable for $11,760
D. An increase in Collection Fee Expense for $240
61. When a company discounts an interest-bearing note at a bank with recourse,

A. The company is assured payment at maturity
B. The company will receive the full amount of the note plus interest
C. The company has a contingent liability from the time the note is discounted until its maturity date
D. The bank assumes the credit risk on non-payment at the maturity date
62. Discounting a note receivable

A. Requires using an account called discount on notes receivable
B. Is the process of lending money
C. Slows the collection process
D. Is the process of selling a promissory note
63. When a note receivable has been discounted by a company

A. An account called discount on notes receivable is used
B. It will be shown as an asset of the company
C. It slows the collection process
D. It may be shown as a contingent liability in the footnotes
64. If Cable Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the
credit card company, its credit card sales during the period were:
A. $111,978
B. $50,691
C. $25,000
D. $22,705
65. Cushion Sports accepted a credit card account receivable in exchange for $5,000 of services provided to a
customer. The credit card company charges a 5% service charge. Recording the transaction in the company’s
accounting records will have what effect on the accounting equation?
A. Increase assets and equity by $4,750
B. Decrease assets and equity by $250
C. Increase assets by $5,000
D. Increase equity by $5,000
66. When one company purchases less than 50% of equity securities in a second company, which of the
following statements is true?
A. The purchaser is referred to as the parent.
B. The purchaser is referred to as the subsidiary.
C. The company whose securities are purchased is the subsidiary.
D. The company whose securities are purchased is the investee.
67. Why do businesses invest in short-term investments?

A. They are trying to gain control over the activities of other companies.
B. They are investing excess cash to meet future business operation or investment needs.
C. They are lending money to companies that cannot obtain bank loans.
68. For what reason would a company buy 10% of the common stock of a second company?
A. The company has idle cash and wishes to have a higher return than that available from temporary money
market investments.
B. The company wishes to insure a steady source of goods from the second company.
C. The company wishes to prepare consolidated financial statements.
69. A company is referred to as a parent if it owns

A. 33% of the debt securities of a second company
B. 100% of the debt securities of a second company
C. 15% of the equity securities of a second company
D. More than 50% of the equity securities of a second company
70. The equity method of accounting for an investment is used when a company purchases
A. More than 20% of the debt securities of a second company.
B. 100% of the debt securities of a second company.
C. 15% of the equity securities of a second company.
D. More than 20% of the equity securities of a second company.
71. Hedron Corp. invested cash in a 6-month certificate of deposit (CD) on November 1, 2014. If Hedron Corp.
has an accounting period that ends on December 31, 2014, when should Hedron recognize interest revenue from
the CD?
B. On May 1, 2013 only
C. Both December 31, 2014 and May 31, 2013
D. On the date when its income tax return is filed
72. Tippi Corp. invested cash in a 9-month certificate of deposit (CD) on October 1, 2014. If Tippi has an
accounting period which ends on December 31, 2014, when would it most likely recognize interest revenue
from the CD?
B. On July 1, 2013 only
C. Both Dec. 31, 2014 and July 1, 2013
D. On October 1, 2014
73. Wagner’s Bookstore acquires a 6% $12,000 certificate of deposit on September 1. The term of the CD is six
months. At that time, all principal and accrued interest will be paid in cash. Indicate the effect on the financial
statements at December 31.
A. Interest Receivable increases $240, Interest Revenue increases $240
B. Interest Receivable increases $360, Interest Revenue increases $360
C. Interest Receivable increases $480, Interest Revenue increases $480
D. Interest Receivable increases $720, Interest Revenue increases $720
74. What are the effects on the accounting equation from the purchase of a short-term investment?
A. Assets and stockholders’ equity decrease
B. No effects--assets increase and decrease by the same amount
C. Assets and liabilities decrease
D. Stockholders' equity decreases and liabilities increase
75. Meta Inc. pays $18,000 to buy stock in another company and an additional $350 in commissions. Three
months later, Meta sells the stock for $19,000. At the time of sale, Meta will recognize a:
A. A $650 loss
B. A $1,000 gain
C. A $350 loss
D. A $650 gain
76. When are consolidated financial statements prepared?
A. At the option of an investee company
B. At the option of an investor company
C. If one company owns more than 50% of another company
D. Only if one company owns 100% of another company
77. Significant influence of one company over another has been defined by the accounting profession as the
ownership of what minimum percent of the second company's stock?
A. 30%
B. 50%
C. 100%
D. 20%
78. On July 1, 2014, Tipper Corp. purchased $100,000 of 8% bonds at face value. Interest is paid annually on
June 30. If the accounting year for Tipper ends at December 31, 2014, what will be reported with respect to the
bonds on that date?
A. The carrying value of the bonds will be $108,000.
B. The cash received in interest will be $8,000.
C. Interest income in the amount of $4,000 will be accrued.
D. A loss on the bonds will be reported in the Other Income and Expense section of the 2014 income statement
until the entire amount of interest is paid on June 30, 2015.
79. On February 1, 2014, Shine Corp. pays $50,000 for shares of Cloud common stock and
another $1,000 in commissions. Assume that Shine sells the Cloud stock on May 20, 2014, for $53,000. In this
case, Shine recognizes
A. An increase in assets and stockholders' equity for $2,000.
B. An decrease in assets and an increase in stockholders' equity for $2,000.
C. An increase and decrease in assets by the same amount.
D. An increase in assets and stockholders' equity for $3,000.
80. Which of the following statements is true regarding dividend income?

A. Dividend income is accrued at year-end.
B. Dividend income is reported on the income statement.
C. Dividend income appears in the stockholders' equity section of the balance sheet.
D. Dividend income is recognized by companies that own debt securities.
81. The comparative balance sheets for Spring Co. for 2014 and 2013 indicate that accounts receivable
decreased during 2014. Spring uses the indirect method of preparing the operating activities section of its
statement of cash flows. How will the decrease in accounts receivable be reported on the statement of cash
flows?
B. It will be deducted from net income in the operating activities section.
C. It will be added to net income in the operating activities section.
D. It will be reported as a cash outflow in the investing activities section.
82. The comparative balance sheets of Farmore Corp. for 2014 and 2013 indicate that short-term trade notes
receivable increased from $5,000 in 2013 to $75,000 in 2014. How will this change be reported on Farmore’s
statement of cash flows (Farmore uses the indirect method)?
B. It will be reported as a deduction from net income in the operating activities section.
C. It will be reported as a cash outflow in the investing activities section.
D. It will be added to net income in the operating activities section.
83. What is the impact on the cash flow statement from an increase in notes receivable, assuming the indirect
method is used?
D. An increase in the cash flow from investing activities
84. What is the impact on the cash flow statement from a decrease in accounts receivable, assuming the indirect
method is used?
D. None. A decrease in accounts receivable has an impact only if the direct method is used
85. Which one of the following is an investing activity on the statement of cash flows?
A. Collection of accounts receivable
B. Purchase of long-term investments
C. Receipt of interest
D. Receipt of dividends
86. Darling Enterprises’ comparative balance sheets included accounts receivable of $220,300
at December 31, 2013, and $200,900 at December 31, 2014. Sales reported on Darling’s
that Darling will report in the Operating Activities category of its 2014 statement of
cash flows assuming that the direct method is used?
A. $2,369,400
B. $2,350,000
C. $2,771,200
D. $2,330,600
87. The reason the allowance method of recognizing bad debts is used is primarily because it recognizes the
maximum amount of write-off in each period.
FALSE
88. Bad Debts Expense is increased and Accounts Receivable is decreased at the end of the period to recognize
bad debts under the allowance method.
FALSE
89. The percentage of net credit sales approach for recognizing bad debts considers any existing balance in
Allowance for Doubtful Accounts.
FALSE
90. Selling on credit protects a company from the risk that some of its receivables will never be collected.
FALSE
91. Accounts receivable are shown on the balance sheet at their net realizable amount.
TRUE
92. The use of the allowance method is an attempt by accountants to match bad debts as an expense with the
revenue of the period in which a sale on credit takes place.
TRUE
93. One of the problems with the use of the allowance method to account for bad debts is that it often violates
the matching principle.
FALSE
94. Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts
before those debts actually occur.
TRUE
95. Bad Debts Expense is a contra account that is used to reduce accounts receivable to its net realizable value.
FALSE
96. Because the allowance method results in better matching, accounting standards require its use rather than
the direct write-off method, unless bad debts are immaterial.
TRUE
97. An aging schedule typically categorizes the various accounts by the length of time each invoice is
outstanding.
TRUE
98. The accounts receivable turnover ratio is a measure of how well a company manages its receivables.
TRUE
99. The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable.
FALSE
100. Typically, the lower the accounts receivable turnover ratio, the better.
FALSE
101. If Apple Company had sales during the year of $10,000,000, an average accounts receivable
of $2,000,000, and net income of $500,000, its accounts receivable turnover ratio would be 0.25.
FALSE
102. If accounts receivable turnover is faster, this means that fewer days are required to collect receivables.
TRUE
103. The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its
accounts receivable.
TRUE
104. A high accounts receivable turnover ratio could mean that the company’s credit policies may be too
stringent.
TRUE
105. Twin Cities Corp. had sales during the year of $15,000,000 and an average accounts receivable of
$5,000,000. Its accounts receivable turnover ratio is 0.33 times.
FALSE
106. The maker of a note recognizes a note receivable on the balance sheet and interest revenue on its income
statement.
FALSE
107. The maker of a note recognizes a note payable on the balance sheet and interest expense on its income
statement.
TRUE
108. The payee of a note recognizes a note payable on the balance sheet and interest expense on its income
statement.
FALSE
109. The payee of a note recognizes a note receivable on the balance sheet and interest revenue on its income
statement.
TRUE
110. When a note is discounted at a bank, it is normally done with recourse.

TRUE
111. If a company accepts a major credit card such as VISA from a customer, then the company is responsible
for the amount of the sale in a case of nonpayment from a cardholder.
FALSE
112. When a company discounts a promissory note at the bank, it receives cash at the same time it would if it
held the note to maturity.
FALSE
113. The alternate term for a credit card draft is an invoice.

TRUE
114. Promissory notes are non-negotiable.

FALSE
115. A note discounted with recourse means that if the original customer fails to pay the bank the total amount
due on the maturity date of the note, the company that transferred the note to the bank is liable for the full
amount.
TRUE
116. Whether investments are reported as current assets or noncurrent assets depends on the company’s intent.
TRUE
117. A subsidiary is a separate legal entity that is owned or controlled by another entity.
TRUE
118. Securities issued by corporations as a form of ownership in the business, such as common and preferred
stock, are called equity securities.
TRUE
119. When Company A buys stock in Company B, Company A is referred to as the investee.
FALSE
120. The equity method of accounting is used if the investor owns at least 20% of the investee and the investor
is able to secure influence over the investee.
TRUE
121. Purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows.
FALSE
122. Baggs buys $100,000 of Vista Company bonds on January 1, 2014 at face value. The bonds pay 10%
interest semiannually on June 30 and December 31. If Baggs sells the bonds at 99 on July 1, 2014, there will be
a loss reported on the income statement.
TRUE
123. Both stock and bond investments have maturity dates.

FALSE
124. A company invests excess cash in a certificate of deposit. At the end of an accounting period before the
CD matures, the company will recognize interest expense.
FALSE
125. A decrease in accounts receivable represents an increase in a company's cash flow from operating
activities.
TRUE
126. An increase in accounts receivable is reported on the statement of cash flows under the indirect method as
an addition.
FALSE
127. The mechanism that keeps track of the balances owed by individual customers is called a(n)
_________________________.
subsidiary ledger
128. A general ledger account that is supported by a subsidiary ledger is called a(n) ____________________.
control account
129. The gross accounts receivable less the allowance for doubtful accounts is known as the
_________________________.
net realizable amount or
net realizable value
130. A(n) ____________________ categorizes the various accounts receivable amounts by the length of time
outstanding.
aging schedule
131. The accounts receivable turnover ratio is computed by dividing ____________ by average accounts
receivable.
net credit sales
132. The _______________ the accounts receivable turnover ratio, the quicker the each dollar of accounts
receivable can be collected.
higher or larger
133. Over the life of a note, the maker of a note recognizes ____________ on the balance sheet and
_____________ on the income statement.
Note payable or
Interest expense
134. A(n) _________________________ is a written promise to repay a definite sum of money either upon
demand, or at a fixed or determinable date in the future.
promissory note
135. The party that agrees to repay is the ____________________ of the note.
maker
136. A company that holds a promissory note from another company has an asset, called a(n)
____________________.
note receivable
137. The company that makes or gives a promissory note to another company has a liability, called a(n)
____________________.
note payable
138. The maker of a note recognizes ____________________ on its income statement.

interest expense
139. The payee of a note recognizes ____________________ on its income statement.

interest income
140. The amount of money received, or the fair value of the products or services received by the maker when a
promissory note is issued is called the ____________________.
principal
141. The length of time a note is outstanding (that is, the period of time between the date it is issued and the
date it matures) is called the ____________________.
term or
maturity period
142. The party that receives the payment due from a note is called the ____________________.
payee
143. The date that a promissory note is due is the ____________________.

maturity date
144. The difference between the principal amount of a note and its maturity value is called
____________________.
interest
145. The amount of cash the maker is to pay the payee on the maturity date of the note is called the
____________________.
maturity value
146. The process of assigning a note due in the future to a bank before its maturity date is called
____________________.
discounting
147. If a company discounts a note at a bank, but still is contingently liable for the maturity value, then the note
was discounted with ____________________.
recourse
148. When an investor is able to secure significant influence over an investee, the ____________________
method of accounting is used.
equity
149. Securities issued by corporations as a form of ownership in the business, such as common or preferred
stock, are called _________________________.
equity securities
150. Bonds issued by corporations or governmental bodies as a form of borrowing are called
____________________.
debt securities
151. Cash flows from purchases, sales, and maturities of investments are usually classified as
_________________ activities.
investing
152. Changes in accounts and notes receivable are reported in the __________ Activities section of a statement
of cash flows prepared using the indirect method.
Operating
153. When using the indirect cash flow method, a decrease in accounts receivable or notes
receivable must be _________ to net income to arrive at the increase or decrease in cash flows.
added
154. Select the term from the list below that matches each of the following six descriptions.
1. The party that receives payment due from a note Discounting 2

2. The sale of a note Term 5
3. The amount of cash the maker is to pay the payee on the
maturity date of the note Payee 1
4. Transfer a note with a contingent liability Recourse 4
5. The length of time a note is outstanding -- the period of
time between the date it is issued and the date it matures Interest 6
6. The difference between the principal amount of the note Maturity
and its maturity value value 3
155. Georgy Company had the following data available for 2014 (before making any adjustments):
Accounts receivable, 12/31/14 $343,200 (Dr.)

Allowance for doubtful accounts 3,800 (Cr.)
Net credit sales, 2014 829,000 (Cr.)
REQUIRED:
1. Identify and analyze the adjustment needed to estimate bad debts under the following assumptions:
(a) Bad Debts Expense is expected to be 3% of net credit sales for the year and
(b) Georgy expects it will not be able to collect 7% of the balance in accounts receivable at year-end.
2. Assume instead that the balance in the allowance account is ($3,800) or $3,800 (Dr). How will this affect
your answers to (1)?
1. a. Based on 3% of net credit sales:
2014 Dec. 31: Estimated bad debts: 3% ´ $829,000.
Balance Sheet Income

Statement
Assets = Liabilities + Stockholders' Revenues – Expenses = Net

Equity Income
Allowance for (24,870) Bad Debts (24,870)
Doubtful Expense 24,87
Accounts* 0
(24,87
0)
*The Allowance
for Doubtful
Accounts
account has
increased. It is
shown as a
decrease in the
equation above
because it is a
contra
account and
causes total
assets to
decrease.
b. 2014 Dec. 31: Based on 7% of year-end accounts receivable, to record estimated bad debts:
Need balance of 7% of $343,200 $24,024 (Cr.)
Balance before adjustment is 3,800 (Cr.)
Amount of entry must be $20,224 (Cr.)

Statement

Equity Income
Accounts*
(20,22
4)
*The Allowance
for Doubtful
Accounts
account has
increased. It is
shown as a
decrease in the
equation above
because it is a
contra
account and
causes total
assets to
decrease.
2. a. No change.
b. 2014 Dec. 31 To record estimated bad debts:
Need balance of 7% of $343,200 $24,024 (Cr.)

Balance before adjustment is (3,800) (Dr.)
Amount of entry must be $27,824 (Cr.)

Statement

Equity Income
Accounts*
(27,82
4)
*The Allowance
for Doubtful
Accounts
account has
increased. It is
shown as a
decrease in the
equation above
because it is a
contra
account and
causes total
assets to
decrease.
156. In its first year of business, Mariman Company has net income of $290,000, exclusive of any adjustment
for bad debts expense. The president of the company has asked you to calculate net income under each of two
alternatives of accounting for bad debts: the direct write-off method and the allowance method. The president
would like to use the method that will result in the higher net income. So far, no adjustments have been made to
write off uncollectible accounts or to estimate bad debts. The relevant data are as follows:
Write-offs of uncollectible accounts during the year $ 21,000

Net credit sales 750,000
Estimated percentage of net credit sales that will be uncollectible
5%
REQUIRED:
1. Compute net income under each of the two alternatives.
2. Does Mariman have a choice as to which method to use? If so, should it base its choice on which method will result in the higher net income?
(Ignore income taxes.) Explain.
1. Net income under each of the two alternatives is as follows:
Direct write-off method: $290,000 – $21,000 = $269,000
Allowance method: $290,000 – (5% ´ $750,000) = $290,000 – $37,500 = $252,500
2. The direct write-off method would result in a lesser amount of expense and therefore in a higher net income.
However, under current accounting standards, if bad debts are material in amount, the allowance method must
be used. In addition, it is not acceptable for a company to choose accounting methods on the basis of their
effects on net income.
157. Wellcott Company sells on credit with terms of n/30. For the $800,000 of accounts at the end of the year
2014 that are not overdue, there is a 92% probability of collection. For the $300,000 of accounts that are less
than a month past due, Wellcott estimates the likelihood of collection going down to 75%. The probability of
collecting the $150,000 of accounts more than a month past due is estimated to be 30%.
REQUIRED:
1. Prepare an aging schedule to estimate the amount of uncollectible accounts.

2. On the basis of the schedule in (1), identify and analyze the adjustment needed to estimate bad debts as of
December 31, 2014. Assume that the balance in Allowance for Doubtful Accounts is $30,000.
1. Estimated Estimated Percent Amount

Category Amount Uncollectible Uncollectible
Current $ 800,000 8% $ 64,000
Past due:
Less than one month 300,000 25 75,000
More than one month 150,000 70 105,000
Totals $1,250,000 $244,000
2. Journal entry:
2014 Dec. 31 To estimate bad debts: $244,000 less $30,000 currently

in allowance account.
Assets = Liabilities + Stockholders' Re –Expenses = Net

Equity ve Income
nu
es
Doubtful Expense
Accounts* 214,000
(21
4,000)
*The Allowance
for Doubtful
Accounts
account has
increased. It is
shown as a
decrease in the
equation above
because it is a
contra
account and
causes total
assets to
decrease.
158. Whispering Pines Company reported the following on its balance sheet at December 31, 2014:
Accounts receivable, less allowance of $12,400 $318,000
A) How much is the net realizable value of Whispering Pines’ receivables?
B) What is the balance of the accounts receivable account?
C) Are you able to determine whether Whispering Pines uses the allowance method or the direct write off method for uncollectibles? Why
or why not?
A) $318,000
B) $318,000 + $12,400 = $330,400
C) Whispering Pines uses the allowance method. This is seen by the presentation on the balance sheet of the receivables that shows a
deduction from the gross amount of receivables. Only a company that uses the allowance method would show a deduction from
receivables for uncollectible accounts.
159. Story Corp. sold merchandise for $8,000 to Bargain on May 15, 2014, with payment due in 30 days.
Subsequent to this, Bargain experienced cash flow problems and was unable to pay its debt. On August 10,
2014, Story stopped trying to collect the outstanding receivable from Bargain and wrote off the account as
uncollectible. On December 1, 2014, Bargain sent Story a check for $2,000 and offered to sign a two-month,
12%, $6,000 promissory note to satisfy the remaining obligation. Bargain paid the entire amount due Story,
with interest, on January 31, 2015. Story ends its accounting year on December 31 each year and uses the
allowance method to account for bad debts.
REQUIRED:
1. Identify and analyze the effects of the transactions needed by Story Corp. from May 15, 2014 to January 31,
2015.
2. Why would Bargain bother to send Story a check for $2,000 on December 1 and agree to sign a note for the
balance, given that such a long period of time had passed since the original purchase?
1. Journal entries:
2014 May 15: Sale on credit; terms n/30.
Assets = Liabilities + Stockholders’ Re –Expenses = Net

Equity ve Income
nu
es
Accounts Re- 8,000 Sa 8,000
ceivable—B les
argain 8,000 Re
v-
en
ue
8,0
00
Aug. 10 Write off uncollectible account.

Equity ve Income
nu
es
Allowance for
Doubtful
Ac-
counts*
8,000
Accounts
Receivable
—
Bargain
(8,000)
*The Allowance
for Doubtful
Accounts
account has
decreased. It is
shown as an
increase in the
equation above
because it is a
contra
account and
causes total
assets to
increase.
2014 Dec. 1 To restore account previously written off.

Equity ve Income
nu
es
Accounts Re-
ceivable—Bar
gain 8,000
Allowance for
Doubtful
Accounts*
(8,000)
*The Allowance for
Doubtful Accounts
account has
increased. It is
shown as a decrease
in the equation
above because it is
a contra
account and causes
total assets to
decrease.
Dec.1 For partial collection on open account and receipt of two-month 12% note for the balance.

Equity ve Income
nu
es
Cash 2,000
Notes Receiv-
able 6,0
00
Accounts
Receivable
—
Bargain
(8,000)
Dec. 31 For accrued interest earned: $6,000 ´ 12% ´ 1/12.

Equity ve Income
nu
es
Interest Re- 60 Int 60
ceivable ere
60 st
Re
ve
nu
e
60
2015 Jan. 31 For collection of note and interest.

Equity ve Income
nu
es
Cash 6,120 60 Int 60
Interest Re- ere
ceivable st
(60)
Notes Receiv-
able (6, Re
000) ve
nu
e
60
2. Bargain is interested in reestablishing a good credit standing with its supplier, Story, and for this reason has sent the check and signed a
note for the balance.
160. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)
If bad debts are estimated at 1% of net sales, how much will Slammer Sports report as bad debts expense for 2014?
$7,920
($800,000 - $8,000) x .01 or 1% = $7,920
161. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

If the aging approach is used to estimate bad debts, how much bad debts expense will Slammer Sports report for 2014?
$7,500 - $1,000 = $6,500

162. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

If the aging approach is used to estimate bad debts, how much is the net realizable value of the accounts receivable at December 31, 2014?
$175,000 (Accounts Receivable) - $7,500 (Allowance for Doubtful Accounts) = $167,500

163. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

Assume that the net realizable value is $170,000 after the adjustment for bad debts in 2014. How much is the net realizable value of accounts
receivable after a customer's account of $2,500 is written off? Explain why.
$170,000
Accounts receivable and the allowance for doubtful accounts both decrease by the same amount, $2,500,
leaving the net realizable value of the accounts receivable unaffected.
164. Slammer Sports
Sales $800,000
Sales 8,000
returns and
allowances
Accounts 175,000
Receivable
- December
31, 2014
Allowance
for
Doubtful
Accounts -
December
31, 2014
(Before 1,000
adjustment
for bad
debts)
Estimated
Uncollectib
le Accounts
(per aging 7,500
schedule at
December
31, 2014)

Determine the effect on Slammer Sports’ accounting equation of the year-end adjustment of bad debts using the aging approach.

Equity

Statement
Equity
A. Allow. for (6,500) Bad Debt (6,500)
Uncollect. Accts Expense 6,500
(6,500)
is available:
Sales $2,400,000
$160,000
$270,000 (Accounts Receivable at Jan. 1) + $2,400,000 (Sales) - $60,000 (Sales returns & allowances) -
$2,426,300 (Collections) - $23,700 (Accounts written off) = $160,000
is available:
Sales $2,400,000
Assume that Beatrice Equipment estimates bad debts at 1% of net credit sales.
A) What amount will Beatrice Equipment record as bad debts expense for 2014?
B) How much is the net realizable value of accounts receivable reported on Beatrice Equipment’s balance sheet at December 31, 2014?
A) ($2,400,000 - $60,000) ´ .01 = $23,400

B) [$160,000 - ($25,600 - $23,700 + $23,400)] = $134,700
is available:
Sales $2,400,000
Refer to Beatrice Equipment.
Assume that Beatrice Equipment estimates bad debts on an aging analysis, and the aging schedule indicates that $28,000 of the December 31, 2014
accounts receivable will be uncollectible.
A) What amount will Beatrice Equipment recognize as bad debts expense for 2014?
B) How much is the net realizable value of the receivables to be reported on Beatrice Equipment’s balance sheet at December 31, 2014?
A) $28,000 - ($25,600 - $23,700) = $26,100

B) ($160,000 - $28,000) = $132,000
168. If a company has a choice of acceptable methods to estimate bad debts, what factors should be considered
in the selection?
The percentage of net sales approach emphasizes the matching principle. The aging approach emphasizes the
valuation of the receivables at the net amount to be collected. A company should be concerned with both
income measurement and balance sheet valuation, but must choose one of the two approaches, most likely
based on management philosophy. If most customer balances fall within a small range of variation, the
percentage of sales approach, which is easier to apply, probably will give reasonable results for both income
measurement and asset valuation. However, if there is a wide variation in the amounts of customer balances,
and especially if some large customer balances are significantly past due and their collection is very uncertain,
then the aging approach should give better results for both income measurement and asset valuation.
169. Can a company use the direct write-off method rather than the allowance method to account for bad debts
expense? Explain why or why not.
The direct write-off method is not an acceptable GAAP (generally accepted accounting principles) procedure to
account for bad debts. It does not adequately match bad debt expense with the revenues unless the accounts are
determined to be uncollectible in the same year that the revenue was recognized. In rare cases, when a company
has very infrequent and immaterial amounts of bad debts, the direct write-off method can be justified.
Sales $375,000
Refer to data for Sliders Company.
$58,700
$60,600 (Account Receivable - Jan. 1) + $363,000 (Net Sales) - $362,500 (Cash Collections)
- $2,400 (Accounts Written Off) = $58,700
Sales $375,000
The firm estimates that bad debts could be 1% of their net sales.
A) What amount will Sliders Company recognize as bad debts expense for the year?
B) Once this calculation is recorded, assume that the company has a balance of Accounts Receivable of $58,700, and an Allowance
for Doubtful Accounts of $800. What will be the net realizable value once the adjustment from Part A) is made?
A $363,000 (Net Sales) x .01 or 1% = $3,630
B) $58,700 (Accounts Receivables Balance) - ($800 + $3,630) = $54,270

Sales $375,000
Assume the company estimates bad debts using an aging analysis and the aging schedule indicates that $3,600 of the end of the year Accounts
Receivable will be uncollectible.
A) What amount will Sliders Company recognize as bad debt expense for the year?
B) If the ending balance of Accounts Receivables is $38,700, what is the net realizable value of Accounts Receivable reported on
December 31, 2014?
A) $3,600 - ($3,200 - $2,400) = $2,800
B) $38,700 (Accounts Receivable) - $3,600 (Allowance) = $35,100

173. Mega Trends Inc. and Energize Electronics are competitors in the same industry.
The following information was summarized from a recent annual report of Mega Trends Inc.:
(In millions)
Receivables:
December 31, 2013 $ 1,968
December 31, 2012 642
Revenue for the year ended:
December 31, 2013 46,980
December 31, 2012 40,023
The following information was summarized from a recent annual report of Energize Electronics:
(In millions)
Accounts and notes receivable, net
December 31, 2013 $ 246
December 31, 2012 264
Revenues for the year ended:
December 31, 2013 4,335
December 31, 2012 4,251
REQUIRED:
1. Calculate the accounts receivable turnover ratios for Mega Trends and Energize for the most recent year.
2. Calculate the average collection period, in days, for both companies for the most recent year. Comment on
the reasonableness of the collection periods for these companies considering the nature of their business.
3. Which company appears to be performing better? What other information should you consider in determining
how these companies are performing?
1. Accounts receivable turnover ratios:
Mega Trends:
$46,980/[($1,968 + $642)/2] = $46,980/$1,305 = 36 times
Energize:
$4,335/[($246 + $264)/2] = $4,335/$255 = 17 times
2. Average collection period:
Mega Trends:
360/36 = 10 days
Energize:
360/17 = 21.2 days
Average collection periods of either 10 days or 21.2 days appear reasonable considering the nature of
the business.
3. Mega Trends’ accounts receivable turnover ratio is higher than Energize’s: 36 versus 17. However, it
would be helpful to measure these statistics—accounts receivable turnover ratio and average collection
period—with the same measures for prior years. It would also be helpful to compare these measures with the
industry averages.
174. The 2014 annual report of Shimmer Products, Inc. reported the following amounts (in millions of dollars):
Net sales, for the year ended May 31, 2014 $15,111.2
Receivables, May 31, 2014 989.4
Receivables, May 31, 2013 1,011.6
REQUIRED:
1. Compute Shimmer’s accounts receivable turnover ratio for the year ended May 31, 2014. (Assume that all
sales are on credit.)
2. What is the average collection period in days for an account receivable? Explain your answer.
3. Shimmer’s main products are inexpensive bubble-packed lipsticks and lip glosses. Give some examples of
the types of customers you would expect Shimmer to have. Do you think the average collection period for sales
to these customers is reasonable? What other information do you need to fully answer that question?
1. Accounts receivable turnover:

Net Credit Sales/Average Accounts Receivable = $15,111.2/[($989.4 + $1,011.6)/2]
= $15,111.2/$1,000.5
= 15.10 times
2. Average collection period (assuming 360 days in a year):

Number of Days in a Year/Turnover = 360/15.10
= 23.8 days to collect an accounts receivable
3. Types of customers Shimmer might have:
• Grocery wholesalers
• Drugstore wholesalers
• Grocery chains
• Drugstore chains
• Discount chains
Whether or not an average of 23.8 days to collect an account is reasonable depends on several factors. For
example, how does this compare with other companies in the same industry as Shimmer? How does it compare
with prior years? What are Shimmer’s credit terms? If its credit terms are 2/10, n/30, an average collection
period of 23.8 days may be good, but not if the credit terms are n/10, for example.
175. Rafter.com received a 10%, 90-day promissory note with a face amount of $12,000 from Joyce Company,
for the sale of merchandise on November 1, 2014.
A) Identify the maturity date of the note. _______________________
B) How much interest income (to the nearest whole month) will Rafter.com earn over the term of the note?
C) How much interest income will Rafter.com recognize during 2014?

A) January 30, 2015
B) $12,000 ´ 10% ´ 3/12 = $300
C) $12,000 ´ 10% ´ 2/12 = $200
REQUIRED: Identify the maturity date of the note.
November 1, 2014
REQUIRED: How much interest income will Cyprus Corp. recognize over the term of the note?
$280
$8,000 (Principal) ´ 7% (Interest Rate) ´ 6/12(Time Period) = $280
178. Hemmer Company received a 12%, 6-month promissory note with a face amount of $10,000 from Stutfeld
Company, for the sale of merchandise on December 1, 2014.
A) Which party is the maker? _______________________
B) Which party is the payee? _____________________
C) Determine the maturity value of the note.
A) Stutfeld Company
B) Hemmer Company
C) $10,000 + ($10,000 ´ 12% ´ 6/12) = $10,600
179. On September 1, 2014, Flavorful Corp. accepted a six-month, 6%, $65,000 interest bearing note from
Reagan Company in payment of an accounts receivable. Flavorful’s year-end is December 31. Reagan paid the
note and interest on the due date.
REQUIRED:
1. Who is the maker and who is the payee of the note?
2. What is the maturity date of the note?
3. Identify and analyze the effects of the transactions for Flavorful Corp. in connection with this note.
1. Reagan Company is the maker, has a liability (Notes Payable) and incurs an expense (Interest
Expense)
Flavorful Corp. is the payee, has an asset (Notes Receivable) and earns revenue (Interest Revenue)
2. The maturity date is March 1, 2015.
3. 2014 Sept. 1 To record receipt of six-month, 7% promissory note in exchange for open account.

Equity ve Income
nu
es
Notes Receiv-
able 65,
000
Accounts
Receiv-
able (65
,000)
2014 Dec. 31 To record interest earned at year-end: $65,000 ´ 6% ´ 4/12.

Equity ve Income
nu
es
Interest Receiv- 1,300 Int 1,300
able 1,3 ere
00 st
Re
v-
en
ue
1,3
00
2015 Mar. 1 To record collection of promissory note: $65,000 ´ 6% ´ 2/12.

Equity ve Income
nu
es
Cash 66,950 650 Int 650
Interest ere
Receiv- st
able (1,
300)
Notes Receiv- Re
able (65 ve
,000) nu
e
65
0
180. Speed Wear Bicycle Gear accepts VISA credit cards from its customers. Speed Wear is closed on Sundays
and on that day records the weekly sales and remits the credit card drafts to VISA. For the week ending on
Sunday, April 12, cash sales totaled $3,650 and credit card sales amounted to $3,900. On April 15, Speed Wear
received $3,794.70 from VISA as payment for the credit card drafts. Identify and analyze the effect of the April
12 and April 15 transactions. As a percentage, what collection fee is VISA charging Speed Wear?
April 12 To record weekly cash and credit sales.

Equity ve Income
nu
es
Cash 3,650 7,550 Sa 7,550
Accounts Re- les
ceivable— Re
VISA 3,9 v-
00
en
ue
7,5
50
April 15 To record weekly drafts from credit card company.

Equity ve Income
nu
es
Cash 3,794.70 (105.30) Collection Fee (105.30)
Accounts Re- Expense
ceivable—VISA 105.30
(3,900)
The collection fee

charged by VISA is
$105.30/$3,900 =
2.7%.
181. On September 20, Lark Inc.presents credit card drafts to its bank in the amount of $10,000;
the collection charge is 4%.
Required: Identify and analyze the effect of Lark's September 20 transactions (the date of deposit).
Sep 20 Credit card sales.
*Accounts Receivable if sale was already recorded.

Equity ve Income
nu
es
Cash 9,600 9,600 Sa Collection Fee 9,600
les Expense
Re 400
v-
en
ue
10,
00
0
182. On August 16, 2014, Fenchurch Corp. purchases 6,000 shares of common stock in Markham Inc. at a
market price of $17 per share. In addition, Fenchurch pays brokerage fees of $2,000. On October 21, 2014,
Fenchurch sells the Markham stock for $12 per share.
REQUIRED:
Identify and analyze the effects of Fenchurch’s investment beginning with the purchase of the common stock on
August 16, 2014, and the sale on October 21, 2014.
2014
Aug. 16 To record purchase of 6,000 shares of stock for $17 per share + $2,000 in fees.

Equity ve Income
nu
es
Investment in
Markham
Com-
mon
Stock 1
04,000
Cash (104,00
0)
2014 Oct. 21 To record sale of stock at a loss.
Cash received for sale: 6,000 ´ $12

Original cost of stock: ($17 x 6,000) + $2,000 = $104,000
Loss on sale of stock: $104,000 – $72,000

Equity ve Income
nu
es
Cash 72,000 (32,000) Loss on Sale of (32,000)
Investment in Stock
Markham 32,000
Com-
mon Stock
(104,0
00)
183. On May 31, 2014, Essex Corp. purchased a 120-day, 6% certificate of deposit for $60,000. The CD was
redeemed on September 28, 2014. Identify and analyze the effects of the following transactions on Essex’s
books:
a. The purchase of the CD.

b. The accrual of interest adjustment for interest earned through June 30, the end of the company’s fiscal year.
c. The redemption of the CD. Assume 360 days in a year.
a. 2014 May 31: To record purchase of 120-day 6% CD.

Equity ve Income
nu
es
Short-Term
Investme
nts:
CD 60
,000
Cash (60,00
0)
b. 2014 June 30: To record interest earned: $60,000 ´ 6% ´ 30/360.

Equity ve Income
nu
es
Interest Re- 300 Int 300
ceivable ere
300 st
Re
v-
en
ue
30
0
c. Sept. 28: To record redemption of $60,000 CD: $60,000 ´ 6% ´ 90/360 = $900.

Equity ve Income
nu
es
Cash 61,200 900 Int 900
Interest Receiv- ere
able (30 st
0) Re
Short-Term v-
Investment
s:
CD (60, en
000) ue
90
0
184. Bagel Inc. reported net income of $105,000 for the year ended December 31, 2014. The following items
were included on Bagel’s balance sheets at December 31, 2014 and 2013:
12/31/14 12/31/13
Cash $106,000 $113,000
Accounts receivable 213,000 93,000
Notes receivable 95,000 103,000
Bagel uses the indirect method to prepare its statement of cash flows. Bagel does not have any other current
assets or current liabilities and did not enter into any investing or financing activities during 2014.
REQUIRED:
1. Prepare Bagel’s 2014 statement of cash flows.
2. Draft a brief memo to the owner to explain why cash decreased during a profitable year.
1. Statement of cash flows:

BAGEL INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2014
Net income $ 105,000

Adjustments to reconcile net income to net cash
used by operating activities:
Increase in accounts receivable $(120,000)*
Decrease in notes receivable 8,000** (112,000)
Cash flows from operating activities $ (7,000)
Cash, December 31, 2013 113,000
Cash, December 31, 2014 $ 106,000
*$213,000 – $93,000
**$103,000 – $95,000
2. Memorandum to the president:

TO: Owner of Bagel, Inc.
FROM: Student’s name
DATE: January XX, 2015
SUBJECT: Cash Flows
You recently expressed concern about the decrease in the company’s cash balance in spite of the
profitable year that was reported on this year’s income statement. My thoughts and a copy of the company’s
2014 statement of cash flows follow.
Although net income on an accrual basis was $105,000, the company’s cash balance declined by
$7,000 during the year for two reasons. Most importantly, accounts receivable increased by $120,000 during the
year from $93,000 to $213,000; we did not collect amounts due from our customers as sales were made. This
drain on cash was partially offset by a $8,000 decrease in notes receivable during the year, from $103,000 to
$95,000.
We can better manage our cash flow by increasing our collection efforts.
185. Hawthorne Industries’ comparative balance sheets included accounts receivable of $221,400
at December 31, 2013, and $205,900 at December 31, 2014. Sales reported on Hawthorne’s
that Hawthorne will report in the Operating Activities category of its 2014 statement of
cash flows assuming that the direct method is used? Show your calculations.
Cash collections to be reported in the Operating Activities section of Hawthorne Industries’ 2014 statement of
cash flows (direct method):
Accounts receivable, December 31, 2013 $ 221,400

Plus: Sales during 2014 2,550,000
Less: Cash collections during 2014 (X)
Accounts receivable, December 31, 2014 $ 205,900
$221,400 + $2,550,000 – X = $205,900

X = $2,565,500
186. The comparative financial statements for the years ended December 31, 2014 and 2013 for Sophia
Company reported the following information.
Balance Sheet: 2014 2013

Cash and cash equivalents $77,000 $81,600
Accounts receivables, less allowance for doubtful accounts of $80 (2014) and $82
(2013) 2,700 2,300
Income Statement:
Net sales for the year $9,700 $8,800
Net income for the year 950 1,070
Statement of Cash Flows:

Net cash provided by operating activities $1,000 $1,100
Increase in accounts receivable (460) (280)
Answer these questions concerning Sophia Company's receivables:
A) What is the gross amount of accounts receivable for Sophia at December 31, 2014? Why is this amount different than the amount of
receivables shown in the 2014 column of the balance sheet?
B) What is the net realizable value of accounts receivable for Sophia at December 31, 2014? What does this amount represent?
A) $2,700 + $80 = $2,780. It is different because it has been adjusted for the estimated amount of receivables that are deemed uncollectible.
B) $2,700; This is the amount that Sophia expects to collect.
187. Write a short paragraph explaining each of the following:
1. When bad debts are estimated, why is the balance in Allowance for Doubtful Accounts considered when the
percentage of accounts receivable approach is used but not when the percentage of net credit sales approach is
used?
2. When estimating bad debts on the basis of a percentage of accounts receivable, what is the advantage of
using an aging schedule?
1. When bad debts expense is estimated by using the percentage of accounts receivable approach, the balance
already in the allowance account must be considered. For example, if the estimate of the accounts receivable
that will prove to be uncollectible is $20,000 and the allowance account has a balance of $3,000 before
adjustment, only $17,000 has to be added to it. Under the percentage of net credit sales approach, however, the
emphasis is on the debit or increase to Bad Debts Expense. The balance in the allowance account before
adjustment is ignored.
2. An aging schedule is a refinement of the percentage of accounts receivable approach to estimating bad debts.
The accountant categorizes the various receivables by the length of time they are outstanding. The estimate of
the percent uncollectible increases as the age of the accounts go up.
188. What is the purpose of an accounts receivable subsidiary ledger?
An accounts receivable subsidiary ledger is used to keep track of the individual customer balances so the
company knows which customers have paid and which have not.
189. What is the purpose of an aging schedule?
An aging schedule categorizes the various account receivable amounts by age based on how long an account is
past due or outstanding. A company uses this for estimating how much of its accounts receivable will be
uncollectible. It is a more refined approach because it lists the dollar amounts of receivables based on the period
of time each have been outstanding, such as 30, 60, or 90 days outstanding.
190. Earl’s Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are 2/10, n/20.
What does this ratio tell you about Earl’s Company?
At an accounts receivable turnover of 10 times per year, Earl’s receivables are outstanding approximately 36
days prior to collection (360/10 days). Given that Earl’s terms are 2/10, n/20, one would expect customers to
pay within 20 days. Customers should pay within ten days to obtain the discount of 10%. Earl’s needs to make
more efforts to collect its receivables given its current credit terms.
191. Explain the distinction between a note receivable and an account receivable.
A note receivable arises from a written promise by someone to pay a specific amount of money in the future
with interest. An account receivable arises from granting a customer an open line of credit and does not
normally include interest.
192. Identify two methods of accelerating cash from sales.
Using credit cards often accelerates cash collections. The bank charges a fee but the company receives payment
from the credit card company instead of waiting until the customer actually pays. A company is also able to
accelerate cash by discounting receivables to the bank. This involves selling notes receivable to the bank instead
of waiting for the customer to actually pay.
193. Why does the discounting of a note receivable with recourse result in a contingent liability? Should the
liability be reported on the balance sheet? Explain.
When a note receivable is discounted with recourse, it means that if the customer fails to pay the bank the total
amount due on the maturity date, the company that sold the note to the bank is liable to the bank for the full
amount. Therefore, during the time a discounted note is outstanding, the seller of the note is contingently liable.
Accounting standards do not require the seller to recognize the contingency as a liability, but a note is required
to alert the statement reader of the uncertainty.
194. Corrigan Corp. purchased 1,000 shares of Microsoft common stock. What will determine whether the
shares are classified as current assets or noncurrent assets?
Shares of common stock could be classified as either current assets or noncurrent assets. The intent of the
company determines the proper classification. If Corrigan purchases the Microsoft shares with the intent of
selling them in the near term, they should be classified as current assets. Otherwise, the shares should be
classified as noncurrent assets.
195. Why are increases in accounts receivable reported as an adjustment to net income in the operating
activities section of a statement of cash flows?
Accounts receivable arise from the accrual of sales revenue. The income statement, therefore, includes sales
revenue on the accrual basis, not the cash basis. By adjusting net income for the change in the accounts
receivable balance, sales on the accrual basis are being converted to the cash basis. Increases in accounts
receivable indicate that sales exceed actual cash collections from customers, and thus, these increases must be
deducted to determine the amount of cash flows from operating activities.
196. Evanston Inc. started the year with $35,000 in accounts receivable and ended the year with
$50,000 in the account. Describe how information regarding the company’s accounts
receivable should be reflected on its statement of cash flows, assuming use of the indirect
method.
The increase of $50,000 – $35,000, or $15,000, in accounts receivable should be deducted from net income
under the indirect method of preparing the statement of cash flows. Sales increase net income. An increase in
accounts receivable is an indication that sales exceeded cash collections; therefore, to arrive at cash from
operations, a deduction is needed.
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Fig. 187 Fig. 188
Elephantiasis of scrotum. Elephantiasis of vulva (Klamath Indian woman).

(Contributed by Dr. H. L. Raymond, U. S. A.)
As yet there is no cure for filariasis; hence there is no relief for

elephantiasis produced by it, except, when localized, to remove the
part. In the tropical forms it is the lower part of the body which is
usually involved. It begins in a limb, usually in the toes. It produces
discomfort rather than actual pain, at least until such time as
distention of the parts becomes unbearable. Along with lymphatic
engorgement there is a peculiar liability to erysipelas, which
becomes an exceedingly serious malady in tissues so saturated with
lymph, and with such possibility for the propagation of germs. A
milder degree of cutaneous and subcutaneous infection than is
implied by the term erysipelas, as used in this work, may be called
erysipeloid or cellulitis; it is quite common and frequently recurs.
With each attack of this kind the condition is aggravated and the
limits of the lesion extend. After a time the member becomes
enlarged to a degree which disables, while the skin itself undergoes
changes that alter its appearance; not only is it thickened, but there
develop upon it papillomatous projections, with infiltration of the
corium, that give it an unnatural appearance and feeling. Epithelial
proliferation is also rapid, and is accompanied by a sort of caseous
discharge which may decompose and add extremely offensive
features to these cases.
The management of these cases becomes very difficult. Total
disability finally succeeds inability, and patients in the last stages are
often bedridden. The repeated attacks of erysipeloid should be
treated with antiseptic applications and elevation of the part, but
without too much compression, as germs may be forced into the
circulation.
In elephantiasis of the lower extremities it has been suggested to
tie the femoral arteries, hoping thereby to deprive the limb of at least
a portion of its fluid supply. This may be of some avail early, but
when it is done late it is likely to be followed by gangrene of the limb,
from whose consequences not even amputation can save the
patient.
In the tropics, especially where the external genitals are
sometimes involved, extensive operations have been of great
service, and among the surgeons of India reports of operations of
this kind are frequent.
Fig. 189
Elephantiasis (“Barbadoes leg”). (E. J. Meyer.)
Elephantiasis is most common in men; occurring in women it is not

limited to the external genitals, for the writer has seen illustrations of
the disease in the legs alone. In the Western Hemisphere it is met
frequently in the Barbadoes, and is called Barbadoes leg (Fig. 189).
The principal dangers from operations on these cases pertain to the
risks of hemorrhage, shock, and infection. Nothing short of
amputation of limbs or ablation of the genitals is of real benefit. In all
these operations the veins as well as the arteries should be ligated,
and the ligatures used en masse, introduced with a needle. There is
usually copious oozing, and drainage should be provided.
CHYLOCELE.
This term is applied to a condition also referred to as chylous
hydrocele. It implies a collection of milky fluid in the cavity of the
tunica vaginalis. Occurring in a patient known to be suffering from
filariasis it may be diagnosticated before exploration. In some
instances where the sac of fluid is less translucent than usual, if the
candle test fail when applied, chylocele may be suspected. Careful
examination of the sac may show widely opened lymph vessels or
lymph spaces. It is to be distinguished from spermatocele, whose
contents also are milky fluid, but rarely collecting to the same
amount. Chylocele may be treated by tapping, or by open division or
extirpation of the sac, exactly as recommended elsewhere for the
treatment of hydrocele. (See Fig. 187.)
Chylocele is to be distinguished from lymph scrotum, which is a
form of localized lymphangitis of mild degree rather than a
circumscribed collection of chylous fluid. It presents febrile, not to
say inflammatory features, and in the chronic form the skin will be
frequently seen to ooze fluid closely resembling lymph, which
condition is called lymphorrhagia. The scrotum rarely becomes as
large as in extreme cases of dropsy, and yet may assume an
uncomfortable size. This condition, like that previously mentioned, is
usually associated with filariæ. It may appear, however,
spontaneously, and after persisting for a long time disappear, with as
little apparent reason as that which produced it. When the condition
becomes unbearable ablation may be practised. (See Fig. 187.)
CHYLURIA.
The presence of chyle in the urine gives it an appearance as if
emulsified oil had been mixed with it. It occurs with or without known
reason. Sometimes it co-exists with lesions like lymph scrotum, etc.;
at other times it seems to neither produce nor be accompanied by
other disturbances. Ordinarily the urine or the blood when examined
at night—i. e., the sleeping hours-will reveal the pathogenic
organisms, i. e., filariæ. It is a condition but little influenced by
treatment, which should be symptomatic in the absence of special
indications.
MACROMELIA.
The more typical congenital forms of occlusion of lymph vessels
produce such changes as we see, for instance, in macrochilia, where
the lips and cheeks are affected; macroglossia, where the tongue is
too large to be retained inside the mouth; and sometimes
macrodactylia and macropodia, where the fingers and hands or toes
and feet are involved (Figs. 190 and 191). It is difficult to separate
some of these cases from gigantism, as already stated. The more
distinctive lymphatic lesions are frequently accompanied by
pigmentary, cutaneous, or papillomatous conditions, which stamp
them as something more than mere expressions of disproportionate
growth. The patient of Dr. Gerrish, whose condition is illustrated in
Fig. 190, presented lesions which might be assigned to either of
these groups. It will usually require a careful study to make a proper
assignment of such cases as macromelia.
Fig. 190 Fig. 191
Macromelia. (Gerrish.) Macroglossia. (Neisser.)
MACROCHEILIA.
While this condition is usually regarded as an expression of
lymphangiectasis, it has been shown that it may be due to multiple
adenopathy of the mucous glands in the lips. The lips are well
supplied with such glands, which lie beneath mucous membrane in a
mixture of more or less connective and vascular tissue. When the
lips undergo marked hypertrophy in adult life, it is very likely that the
affection may be explained by the hypertrophy of these collective
glands, and this is particularly true when anything like nodular
arrangement can be detected. A recognition of this cause will
indicate the proper remedy, i. e., excision of the affected tissue. The
writer has on more than one occasion made an elliptical incision both
from the lower and upper lip and accomplished its purpose, with
great improvement of appearance.
LYMPHANGIOMA.
Lymphangioma has been described in the chapter on Tumors. It
seems necessary to allude to but one expression of this kind in this
place, i. e., the so-called lymphangioma circumscriptum. This
presents as a cutaneous area dotted with vesicles, sometimes
regularly, sometimes irregularly distributed, usually in annular form,
seen most commonly on the upper limbs and in the region of the
shoulders. The vesicles occasionally become sufficiently large to be
called bullæ, while the contained bloodvessels are dilated and
discolor the area involved, which may also be more or less
pigmented. Here, as in elephantiasis, there is great liability to surface
infection of low grade, which may perhaps be called erysipeloid. The
tissues gradually become thickened and covered with scabs or warty
collections of epithelium. It is met with early in life, rather than late,
and is supposed to be of congenital origin. It may be distinguished
from herpes by the pronounced vascular changes and by the
discharge of lymph.
Treatment.—Treatment has been too often unsatisfactory and the
trouble often re-appears after apparent recovery. If the
area involved be not too large complete excision will probably prove
the most satisfactory method of attack.
LYMPHANGITIS.
This term applies rather to gross and visible lesions of the larger
lymphatics than to the involvement of the ultimate lymph-filled
ramifications. When the smaller lymph capillaries and interspaces
are involved the lesion takes the type of an erysipelas or cellulitis,
but as the collected products return through the lymph channels from
such an involved area they will disturb and infect the lymph vessels
themselves, and this leads to what is called a lymphangitis. Formerly
the term spontaneous or idiopathic was given to some of these
cases. Assuming, as is done throughout this work, that there is no
true inflammation that is not of microbic origin, we may expunge the
term “idiopathic” and say that lymphangitis is also an expression of
infection, and that the inflamed vessel represents a channel through
which products of inflammation are being conveyed. Histologically
the walls of these vessels become infiltrated with a coagulating
exudate, which may completely occlude the vessel. The
bloodvessels immediately adjoining the lymphatics also become
involved, and, being engorged, give rise to the peculiar red lines or
streaks which are frequently seen when cutaneous lymphatics are
thus involved, this appearance being due to a perilymphangitis. The
infected lymph passing through this channel is filtered out in the first
lymph nodes with which it communicates, which themselves become
thus infected; hence the rapidity with which these enlarge and break
down, so that by their own sacrifice they may perhaps protect the
rest of the body from serious infection. Under these circumstances
suppuration and necrosis of these lymph nodes is to be regarded as
a vicarious destruction on their own part.
Lymphangitis proceeds from the periphery toward the centre, and
is followed by a certain amount of pain, with great soreness and
sense of stiffness in the parts; the skin overlying the infected vessels
becomes reddened in streaks, which indicate their course, or
becomes more or less infiltrated and involved throughout in a form of
infectious dermatitis. According to the virulence of the germ, and the
susceptibility of the individual and his tissues, there will or will not
occur suppuration. This may perhaps be averted by prompt
treatment. Should deep tenderness and pain take the place of or be
added to their more superficial expressions it may be inferred that
the superficial lymphatics have now infected the deeper ones, and
that there is greater danger of phlebitis and a generalized septic
infection.
Constitutionally, at least, the expressions are those of septic
intoxication, often of true septicemia or septic infection. Local
appearances, increasing temperature, or accession of chills may
indicate the presence of pus.
In proportion to the distance of the diseased part from the body
centres the prognosis becomes more favorable. When an entire limb
is involved the matter is very serious; when in the face or abdomen,
still more so, the fear being of septic phlebitis and a fatal termination
by a more or less typical pyemic process.
Treatment.—All exciting causes, including sloughing tissues,
foreign bodies, pus, etc., should be thoroughly
removed. Pus, when present, should be evacuated, and when its
presence is suspected suitable exploration should be made. Tension
should always be relieved by incision. In cases where breaking down
has already begun, continuous immersion in hot water is beneficial.
Nothing, however, will take the place of removal of pus or necrotic
tissue, and this should be first attended to or proved to be
unnecessary. In an open and sloughing wound nothing is as
satisfactory as brewers’ yeast; next to this is hot water. Over an
unbroken area which is simply edematous and pits on pressure, may
be applied the ichthyol-mercurial ointment (10 per cent. ichthyol, 40
per cent. mercurial ointment) or the Credé silver ointment. This
should not be rubbed in, but smeared freely over the surface, and
then covered with oiled silk, twice daily, in acute cases. The surgeon
should satisfy himself as to the presence or absence of pus; even
when only suspected it is advisable to make incision early, as tissue
and possibly life may thus be saved. Constitutional treatment should
not be neglected. It will consist in improving elimination, maintaining
nutrition, and overcoming the acute toxemia due to absorption, the
toxins being best antidoted by alcohol in some palatable form,
strychnine and quinine being serviceable, but not so valuable. (See
chapter on Septic Infections.)
Chronic Lymphangitis.—Chronic lymphangitis is seen in
connection with the slower infections,
tuberculosis—syphilis, filariasis, etc. Here the lymph vessels are not
involved so much as the lymph nodes. Chronic lymphangitis does
not occur without a toxic or infectious process behind it.
LYMPH NODES.
For the surgeon’s purpose, at least, he may assume that lymph
nodes are never enlarged except in the presence of toxemic or
infectious processes. The role which they play as filters of the fluid
returning through the lymph vessels subjects them to daily
possibilities of contamination. They may be acutely infected and
actually break down by a phlegmonous process, or their lesions may
be very slow, chronic, and intractable. The lymph nodes, like the
leukocytes, are among our best friends; they serve as guardians at
the various portals of the system, excluding, sometimes at the risk of
their own existence, various deleterious elements.
The term “lymph gland” should be expunged from medical
terminology, the node having, so far as known, no secretion nor any
title to be considered a gland. This would mean abandonment also of
the expression “lymphadenitis,” and so the writer would prefer to use
the expressions lymphitis, lymphangitis, etc., which at least do not
imply a wrong conception of the process. The morbid activity which
the lymph nodes present will be an expression of the general
virulence of the whole process which has produced it. To a tender
enlargement, in acute cases, there will succeed rapid swelling, with
pain and soreness commensurate with the density of the
surrounding tissues and the degree of tension thus produced. The
result is essentially an abscess, or multiple abscess, which
necessitates prompt treatment by free incision, evacuation, and
drainage, as does any other abscess. It is as often necessary to use
a curette as a knife, and when so-called specific features are
present, as in chancroidal bubo, a strong antiseptic should also be
used. Under these conditions the collection of lymph nodes in the
axilla or in the groin may become involved in multiple abscess, and it
is then good practice to make a complete cleaning out of these
regions. The ultimate effect of such extirpation is beneficial, and the
patient does not seem to suffer from the loss of the involved lymph
nodes; indeed, it is probable that new ones form to replace those
which are destroyed.
The chronic affections of the lymphatics which come under the
surgeon’s care are expressions of tuberculosis, syphilis, gonorrhea,
cancer, or of some of the other less frequent surgical diseases. In
every one of these instances the disease has assumed constitutional
proportions, and the lymph-node involvement will be general. The
ultimate fate of these affected nodes will differ with the different
diseases; in tuberculosis they sometimes suppurate by secondary
infection, and they frequently caseate, or remain enlarged for
indefinite periods, often throughout life. Around them will be found an
area of infiltration which produces firm adhesions and frequently
makes their extirpation very difficult. The lymph vessels which
connect the various nodes will also be involved in a similar process,
which adds to the difficulty of operation. In many cases these
involved nodes can be felt where they cannot be attacked—for
example, in tabes mesenterica. If, under suitable climatic and
constitutional conditions, it be possible to favorably affect other
tuberculous conditions, these expressions of the disease may also
subside or at least cease to trouble.[29]
[29] At date of going to press I do not feel justified in lauding too highly
the work done by numerous workers with the opsonins. Justice to what has
been done with and claimed for them demands, however, their extensive
trial, and suspension of any judgment not as yet favorable.
Syphilis of the lymph nodes has already been considered, as well

as the frequency, nay, the certainty, with which the lymphatics
become involved in this disease. So true is this that any general
lymphatic involvement which cannot be accounted for in some other
manner is usually attributable to syphilis. The condition of the
lymphatics may be considered a fair index as to the success and
effect of antisyphilitic treatment, for if, under such treatment, these
enlargements subside completely it may be regarded as eminently
successful. On the other hand, it is not felt by many that it is safe to
discontinue treatment in the presence of these enlargements.
Syphilitic enlargements may, moreover, undergo secondary infection,
either acute or chronic, i. e., may suppurate or become tuberculous.
In gonorrheal bubo the pus which the lymph-node abscesses contain
will often be found almost a pure culture of the gonococcus, thus
illustrating the specificity of this kind of infection.
The extent to which the lymphatics are involved in cases of cancer
will often be the guide for the surgeon in advising removal or the
reverse. The principal advance in the modern operative surgery of
cancer has come through a better working knowledge of the area of
lymph distribution of given regions. All cancerous lymph nodes which
can be reached should be extirpated. If others can be discovered
which are beyond reach it raises a doubt whether the operation
should be performed. At all events, in these cases it should be
represented as a temporary rather than an absolutely curative resort,
not only because this is true, but because the surgeon may need to
protect himself against charges which may be made later by
disappointed patients.
The advisability of removing diseased lymph nodes is often a
matter for serious discussion. There is little to justify their removal
when the exciting cause cannot also be taken with them. It is a
mistake to operate on nodes in the neck and leave diseased teeth
through which the infection may be spread. So, too, it is a mistake to
operate on nodes which may prove to be syphilitic. In many
instances, then, it is best to apply the therapeutic test. In cancerous
disease it can rarely be advisable to remove lymph nodes alone
except for purely temporary purposes, as to check hemorrhage,
remove breaking-down material, or something of the kind. In the
neck, groin, or axilla the operation is not to be lightly undertaken, for
it is made extremely difficult by adhesion of the surrounding
structures. The surgeon should be prepared then for careful
dissection, which should be made with a not too sharp knife, and he
should be ready to sew up a rent in the jugular vein or tie it, as it and
its large branches are frequently so displaced and obscured as to be
injured, even by the most careful operator.
HODGKIN’S DISEASE.
This is one of many names applied to a condition whose most
conspicuous characteristics are a progressive anemia, with
enlargement of lymph nodes, as well as usually of the spleen, with
secondary or metastatic growths in the viscera, bone-marrow, and
elsewhere. That its etiology hitherto has been considered obscure
and that its clinical characteristics vary in different cases may be
shown by a partial list of the names by which it has been previously
known: lymphadenoma, malignant lymphoma, infective lymphoma,
progressive glandular hypertrophy, lymphosarcoma, and
pseudoleukocythemia. To the writer’s mind, if the disease is to be
known by any other name rather than that of the one who first
described it, it might be called malignant lymphomatosis, as its
tendency is downward, in which sense it is malignant in an almost
hopeless degree.
The changes which occur in the blood are at first in the direction of
simple anemia, followed by marked reduction in the number of red
cells, with poverty of hemoglobin and increase in the number of
leukocytes. In the anemia of extreme cases the red cells may be
reduced 1,000,000 per Cm., while the leukocytes, especially the
polynuclear forms, may be numbered by the hundreds of thousands.
In one case recently under my observation the leukocytes amounted
to about 300,000 when treatment was begun. (See chapter on the
Blood.) It is a disease of early rather than of later life, and occurs
more often in males than in females. The most pronounced objective
changes occur in the lymph nodes, which enlarge steadily, the
swellings thus formed being hard or soft according to the rapidity of
the disease. The swellings thus formed will appear conspicuously in
the neck and will be noted also in the axilla and the groin. Careful
examination will show that every lymph node in the body which is
accessible is involved in the course of the disease. Sometimes the
tumors become so large as to cause serious pressure, and when in
the neck perhaps to require tracheotomy to prevent suffocation. Fig.
192 illustrates a case under the writer’s observation, in which he had
to resort to this emergency measure. The microscopic picture of this
enlargement is that of hyperplasia of the tissues composing the
lymph nodes, while the lymphoid cells are multiplied in number.[30]
[30] Pathologists have long suspected that Hodgkin’s disease and
sarcoma have, at least, certain features in common if they are not more or
less actually associated in character. Yamasaki has recently reported
several cases of typical Hodgkin’s disease without any suspicion of
tuberculosis, in which there were unmistakable sarcomatous formations in
various parts of the body, especially in the viscera, and he believes, as do
others, that the affection which begins as Hodgkin’s disease may later
assume the characteristics of a general sarcomatosis.
Less conspicuous but equally distinctive changes occur in the

spleen in four-fifths of the cases, it becoming enormously enlarged
and occupying the left half of the abdominal cavity, being universally
enlarged and preserving its original outlines. This splenic
enlargement sometimes is simply an hypertrophy, but in many
instances the spleen Fig. 192
itself will be occupied
by tumors, i. e.,
lymphomas, which
are scattered through
it and cause part of its
enormous
dimensions. Late in
the disease the liver
also becomes
enlarged and
lymphomas are also
scattered throughout
its substance. The
same lymphomatous
or adenoid tissue may
be met with in many
other parts of the
body, the bone-
marrow, the
alimentary canal, the
ductless glands,
kidney, lung, etc.
Hodgkin’s disease
is doubtless closely
related to other
varieties of leukemia
and to Banti’s
disease, or splenic
anemia, all of which
should be regarded
as expressions of an Hodgkin’s disease.
infection by
organisms not yet clearly described, although their better recognition
and identification are clearly foreshadowed in work now under way.
Death comes as the result of the exhaustion and poisoning of a
terminal infection, save when it is produced earlier by absolute
starvation or suffocation. To run its entire course an average case
consumes from eighteen months to two and a half years.
Diagnosis.—So far as diagnosis is concerned the microscope will
serve a certain purpose even early in the disease,
enabling one to recognize an increasing anemia and leukocytosis,
but not until perceptible enlargement of lymph nodes and of the
spleen is found can the diagnosis be made absolutely certain. One
has to distinguish mainly between those forms of leukemia in which
lymphomatous changes are not conspicuous, cachexia of cancer
and syphilis, and the condition of lymphosarcoma, as it has been
called by some, in which there is the involvement of the lymph nodes
without the characteristic blood changes met with in Hodgkin’s
disease. In splenomegaly we may have enormous enlargement of
the spleen without the marked involvement of the lymph nodes.
From lymphatic tuberculosis it is to be distinguished by absence of
fever, the tendency to universal involvement of the lymphoid tissues
in all parts of the body, and the absence of suppuration and
caseation which occur so distinctively in tuberculous disease.
Treatment.—Few drugs are of much or any avail in this disease.
Of them all nothing compares with arsenic, which
should be given for a long period and pushed to the physiological
limit. The formula which was given in the chapter on Cancer will
serve in the treatment of Hodgkin’s disease (p. 296, note). Next to
this, and especially in patients with enlargement of the spleen, the x-
rays are the most effective. In one case much of this character, in
which I began active treatment by both methods, I saw in forty-eight
hours a diminution of 100,000 leukocytes. This did not persist,
however, for the proportion was later somewhat increased, but the
immediate effect as well as the benefit were very pronounced. All the
affected regions may be exposed to the x-rays, which should be
used with great care.
TUMORS OF THE LYMPHATICS.

The term lymphoma has been indiscriminately ascribed to various
enlargements of the lymph nodes and lymphoid tissue throughout
the body, so much so as to have really lost its significance. If by the
term is meant simply a tumor of a lymph node it will usually fall under
the proper classification as being a granuloma, a syphiloma, a
carcinoma, etc. If by the term is meant a general involvement of
lymph tissue throughout the body, such as is seen in status
lymphaticus, then it would be best to use some other term. Finally it
may be questioned whether there is any distinctly marked
lymphoma, i. e., a tumor of true lymphatic structure, which is not of
infectious origin. The term lymphosarcoma is still in use and
probably will not be expunged until our notions of pathology are
clearer. The expression lymphadenoma should be discarded.
Multiple malignant lymphoma, as stated above, is but another name
for the condition ordinarily described as Hodgkin’s disease. That
sarcoma and endothelioma may arise in the lymph nodes is
universally conceded, although as primary neoplasms in these
localities they are rare. Not much can be said, then, that is distinctive
about lymphoma.
In a general way, it may be said of any tumors of the lymph nodes
that if isolated or not too multiple they should be extirpated.
CHAPTER XXXI.
SURGICAL DISEASES OF THE JOINTS AND
JOINT STRUCTURES.
The joints, by virtue of their function and anatomical relations, are
liable to a variety of injuries and affections, most of which are
essentially surgical. The joints most subject to traumatism belong to
the extremities. On the other hand, the deeper joints (e. g., of the
spine) are quite prone to toxic and infectious diseases and less liable
to serious injury. The surgeon cannot disregard the structure of the
joint when considering the pathology of its surgical affections. More
or less completely protected externally, though sometimes with but a
thin coating of integument and fibrous textures, it is composed
largely of resistant, white, fibrous tissue, seen in its ligaments, of
spongy bone in the expanded bone ends, covered with cartilage of
incrustation, the articular termination of the bone shaft not being
firmly affixed until a certain age has been reached, while the interior
is lined with a serous membrane whose lymphatic connections are
most abundant, portions of which are often loaded with fat. In certain
joints—particularly the knee-there enter separate considerations in
the shape of interarticular cartilages which are not so firmly attached
but that they may be sometimes displaced.
Lymphatic connection between the exterior and the interior is often
free, and after trifling abrasions or infections of the overlying skin the
joint beneath may suffer seriously or even fatally. Many of the
surgical diseases of the joints begin within the joint membranes
proper, i. e., the synovia. Numerous other expressions, particularly of
tuberculosis, have their origin in the bony structure contiguous to the
joint cavity.
In any destructive affection of the joint in childhood the
corresponding epiphyses are often involved. This is also true of
fractures extending into joints or occurring near them in the young.
Below will be found a table of the time when the epiphyses are
usually consolidated with the main portion of the bone. In general,
they unite earlier in the upper limb than in the lower, or, as Sappey
puts it, the upper limb first arrives at maturity. The following table
represents simply the average, there being considerable variance on
either side of it in different individuals:
UPPER EXTREMITIES.
Clavicle 23d year.
Humerus, upper 20th year.
Humerus, lower 17th year.
Radius, upper 16th year.
Radius, lower 20th year.
Ulna, upper 16th year.
Ulna, lower 19th year.
Phalanges 18th to 20th year.
LOWER EXTREMITIES.
Femur, head and great trochanter 19th year.
Femur, lower epiphysis 21st year.
Tibia, upper 21st year.
Tibia, lower 18th year.
Fibula, upper 21st year.
Fibula, lower 20th year.
Phalanges 18th year.
These dates should be remembered, as an ununited epiphysis

may be involved in a necrotic or suppurative process and thus break
down and require removal. Moreover, these facts will also be of
value in considering fractures, for up to these dates epiphyseal
separations will often be met.
INJURIES TO JOINTS
Sprains.—A sprain is either the result of a momentary dislocation
of a joint, the parts returning immediately to their proper
position, or else is produced when a joint has been strained beyond
its probable physiological limit without any true displacement. It may
be the consequence of direct or indirect violence, or even of
incessant muscular action. It always implies a certain degree of
tissue injury, which may vary from minute lacerations of ligaments,
fasciæ, aponeuroses and periosteum, up to a degree where
ligaments are violently sundered or torn out of their bony
attachments.
A sprain is generally followed by hyperemia, with its attendant
phenomena, as described in a previous chapter, and as long as
possibility of infection can be excluded the resulting outpour which
produces the extreme joint swelling will more or less quickly
disappear.
In fact, as insisted throughout this work, the differences between
hyperemia and its consequences, and true inflammation with its
results, can nowhere be more perfectly demonstrated than in such a
case as this. Even with great damage and effusion there can be
complete repair, so long as infection is excluded. Once the germ
element enter, the whole aspect is altered and a serious feature is
then introduced.
Symptoms.—The symptoms of sprain are loss of function, swelling,
pain, and later ecchymosis. The first is usually immediate, the
swelling takes place rapidly, and ecchymosis occurs after two or
three days, unless the joint be near the surface. The degree of
tenderness will afford a measure of the amount of damage done.
The swelling may be produced either by serous outpour or by
hemorrhage, or by both. Ecchymosis is usually due to minute
lacerations, and may spread to a considerable distance. Where there
has been much outpour of blood into a joint it sometimes produces a
reactional hydrarthrosis, which appears only after a week or more.
Such hemorrhage is serious, and is frequently the cause of more or
less pseudo-ankylosis by organization of clot.
Sprain may then be of all degrees of severity. From the mildest of
these one may expect perfect functional recovery in short time, while
in the more severe cases chronic thickening, with hydrarthrosis,
tender areas, and muscle atrophies, often persist for a long time or
even permanently.
Treatment.—The ordinary treatment of a sprain consists, first, in
physiological rest. If the swelling be already pronounced when seen
by the surgeon he will endeavor to promote absorption by elevation,
gentle compression, perhaps with an elastic bandage, and by cold
wet compresses. If seen early and before much swelling has
occurred it will often give great relief, especially in certain joints
(e. g., the ankle), to partially immobilize the part by strapping it with a
series of adhesive strips, 2 Cm. in width, cut sufficiently long to
encircle the foot, ankle, and lower part of the leg. The strapping
should be begun at the base of the toes, and each strap as thus
applied should be made to slightly overlie the preceding one. It is
possible by neatly compressing the involved region in this way to
almost prevent swelling, and to give such support that function is but
slightly impaired, and pain reduced to a minimum. The objection to
plaster of Paris or the more fixed dressings is that they are usually
allowed to remain too long. Far better in most of these cases is
either a splint or a dressing which permits of daily examination. With
the subsidence of acute symptoms, massage and passive
movement should be practised. There are cases in which swelling
will be so extreme that aspiration or even incision may be advisable
for the purpose of emptying the joint.
The surgeon sees many a case of this kind after it has become
chronic and after domestic or simple applications have failed. Most
of these cases require massage, practised skilfully, and with
intelligence, by which absorption is much promoted. The same
result, as well as relief of soreness or pain, follows the constant use
of cold wet compresses, perhaps combined with the use of ice-bags.
If the material used for these compresses be dipped in solution of
sodium or ammonium chloride, say 5 per cent., the effect is much
enhanced, while laudanum can also be used upon them. Tenderness
and localized pain in old cases may be treated by a succession of
blisters, but can be better treated by the application of the flying
cautery, i. e., by the light touch of a glowing cautery point swept
rapidly over the surface involved. This is one of the most powerful
agents for the relief of pain. Occasionally the cautery point may be
applied more deeply, i. e., ignipuncture. If localized collections of
fluid form they may be incised.
The statements and advice given in regard to sprain will apply
equally well to the ordinary contusions of joints.
PENETRATING WOUNDS OF THE JOINTS.

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2. The data presented below is for Tallon, Inc. for 2014.

Credit sales during the year $2,100,000

3. The data presented below is for Tallon, Inc. for 2014.

Credit sales during the year $2,100,000

Trade accounts receivable, net of allowance for uncollectibles of $100,000

7. Which one of the following statements is true?

15. Agee Corp.

See the data for Agee Corp.

See the data for Agee Corp.

17. Agee Corp.

See the data for Agee Corp.

18. Agee Corp.

See the data for Agee Corp.

21. The following data concerns Cubano Corporation for 2014:

Credit sales during the year $1,600,000

The data below is for Americana Corporation for 2014.

Accounts receivable - January 1, 2014 $236,000

Refer to the data for Americana Corporation.

25. Americana Corporation

The data below is for Americana Corporation for 2014.

Accounts receivable - January 1, 2014 $236,000

Refer to the data for Americana Corporation.

26. Americana Corporation

The data below is for Americana Corporation for 2014.

Accounts receivable - January 1, 2014 $236,000

27. Hui Corporation

The data below is for Hui Corporation for 2014.

Accounts Receivable - January 1, 2014 $334,000

Refer to the data for Hui Corporation.

What is the balance of Accounts Receivable at December 31, 2014?

28. Hui Corporation

The data below is for Hui Corporation for 2014.

Accounts Receivable - January 1, 2014 $334,000

Refer to the data for Hui Corporation.

The data below is for Hui Corporation for 2014.

Accounts Receivable - January 1, 2014 $334,000

Refer to the data for Hui Corporation.

30. Satin Corporation

Sales (100% on credit) $1,500,000

Refer to the data for Satin Corporation

31. Satin Corporation

Sales (100% on credit) $1,500,000

32. Satin Corporation

Sales (100% on credit) $1,500,000

Refer to the data for Satin Corporation

33. Satin Corporation

Sales (100% on credit) $1,500,000

Refer to the information for Satin Corporation.

The effect on Falcon’s financial statements on July 1, 2014 is as follows

61. When a company discounts an interest-bearing note at a bank with recourse,

62. Discounting a note receivable

63. When a note receivable has been discounted by a company

67. Why do businesses invest in short-term investments?

69. A company is referred to as a parent if it owns