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Unformatted text preview: Chapter 7 Cash and Receivables True/False Questions 1. In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records. Answer: False Learning Objective: 1 Level of Learning: 2 2. Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes. Answer: True Learning Objective: 2 Level of Learning: 1 3. The net method of accounting for cash discounts requires adjusting entries for discounts taken. Answer: False Learning Objective: 3 Level of Learning: 1 4. Recognizing sales returns when they occur could result in an overstatement of income in the period of the related sale. Answer: True Learning Objective: 4 Level of Learning: 2 5. Under the balance sheet approach, bad debt expense is an indirect result of estimating the net realizable value of accounts receivable. Answer: True Learning Objective: 6 Level of Learning: 1 6. Discounts on notes receivable are recognized as interest earned over the term of the related note. Answer: True Learning Objective: 7 Level of Learning: 1 7. Unless specific criteria are met, the factoring of accounts receivable with recourse is accounted for as a loan. Answer: True Learning Objective: 8 Level of Learning: 1 8. Securitization of receivables is a type of secured borrowing. Answer: False Learning Objective: 8 Level of Learning: 1 9. The discounting of a note receivable with recourse could create interest revenue or interest expense. Answer: True Learning Objective: 7 Level of Learning: 2 10. When comparing companies of various sizes in various industries, the receivables turnover ratio provides a way to determine which company is most effective in managing its investment in receivables. Answer: False Learning Objective: 9 Level of Learning: 1 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 233 Chapter 7 Cash and Receivables 11. A receivable turnover of 4 when credit terms are net 60 is favorable. Answer: False Learning Objective: 9 Level of Learning: 2 12. From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets. Answer: True Learning Objective: 1 Level of Learning: 1 Matching Pair Questions Use the following to answer questions 13-17: 13-17. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase....
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This note was uploaded on 02/04/2011 for the course ACCT 3110 taught by Professor Holmes during the Spring '10 term at University of North Texas Health Science Center.
- Spring '10