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INTERMEDIATE ACCOUNTING EXAM #3 STUDY GUIDE QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING EXAM #3 STUDY GUIDE QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING EXAM #3STUDY GUIDE QUESTIONS WITH
COMPLETE ANSWERS
Travel advances should be reported as
a. receivables.
b. cash because they represent the equivalent of money.
c. investments.
d. none of these answers are correct. - Answer-receivables.
In which account are postage stamps classified?
a. Cash.
b. Receivables.
c. Office supplies.
d. Inventory. - Answer-Office supplies.
Bank overdrafts, if material, should be
a. reported as a current liability.
b. reported as a deduction from the current asset section.
c. reported as a deduction from cash.
d. netted against cash and a net cash amount reported. - Answer-reported as a current
liability.
Which of the following should be recorded in the category "trade receivables"
a. advances to officers and employees.
b. income tax refunds receivable.
c. Open accounts resulting from short-term extensions of credit to customers.
d. claims against insurance companies for casualties sustained. - Answer-Open
accounts resulting from short-term extensions of credit to customers.
If a company employs the gross method of recording accounts receivable from
customers, then sales discounts taken should be reported as
a. an item of "other expense" in the income statement.
b. a deduction from accounts receivable in determining the net realizable value of
accounts receivable.
c. sales discounts forfeited in the cost of goods sold section of the income statement.
d. a deduction from sales in the income statement. - Answer-a deduction from sales in
the income statement.
Of the approaches to record cash discounts related to accounts receivable, which is
more theoretically correct?
a. Gross approach.
b. Net approach.
,c. Allowance approach.
d. All three approaches are theoretically correct. - Answer-Net approach.
Why is the allowance method preferred over the direct write-off method of accounting
for bad debts?
a. Allowance method is used for tax purposes.
b. Improved matching of bad debt expense with revenue.
c. Estimates are used.
d. Determining worthless accounts under direct write-off method is difficult to do. -
Answer-Improved matching of bad debt expense with revenue.
How can accounting for bad debts be used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt expense.
c. Using an aging of the accounts receivable balance to determine bad debt expense.
d. Reversing previous write-offs. - Answer-Changing the percentage of sales recorded
as bad debt expense
What is the normal journal entry for recording bad debt expense under the allowance
method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts. - Answer-Debit
Bad Debt Expense, credit Allowance for Doubtful Accounts.
What is the normal journal entry when writing-off an account as uncollectible under the
allowance method?
a. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
b. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts - Answer-Debit
Allowance for Doubtful Accounts, credit Accounts Receivable.
Assuming that the ideal measure of short-term receivables in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow this practice
usually does not make the balance sheet misleading because
a. most short-term receivables are not interest-bearing.
b. the allowance for uncollectible accounts includes a discount element.
c. the amount of the discount is not material.
d. most receivables can be sold to a bank or factor. - Answer-the amount of the discount
is not material.
Which of the following methods of determining annual bad debt expense best achieves
the matching concept?
a. Balance sheet approach
, b. Percentage of average accounts receivable
c. Income statement approach
d. Direct write-off - Answer-Income statement approach
At the beginning of 2013, Gannon Company received a three-year zero-interest-bearing
$1,000 trade note. The market rate for equivalent notes was 8% at that time. Gannon
reported this note as a $1,000 trade note receivable on its 2013 year-end statement of
financial position and $1,000 as sales revenue for 2013. What effect did this accounting
for the note have on Gannon's net earnings for 2013, 2014, 2015, respectively?
a. Overstate, overstate, understate.
b. Overstate, understate, understate.
c. Overstate, overstate, overstate.
d. None of these answer choices are correct. - Answer-Overstate, understate,
understate.
Antique Company has notes receivable that have a fair value of $920,000 and a
carrying amount of $710,000. Antique decides on December 31, 2014, to use the fair
value option for these recently-acquired receivables. The adjusting entry to record this
change will include a:
a. debit to Unrealized Holding Gain or LossIncome for $210,000.
b. credit to Notes Receivable for $210,000.
c. credit to Unrealized Holding Gain or LossIncome for $210,000.
d. debit to Notes Receivable for $920,000. - Answer-credit to Unrealized Holding Gain
or LossIncome for $210,000.
Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale,
depending upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor by
the owner of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting
the receivables.
d. The financing cost (interest expense) should be recognized ratably over the collection
period of the receivables. - Answer-The factor assumes the risk of collectibility and
absorbs any credit losses in collecting the receivables.
Which of the following items should be included in accounts receivable reported on the
balance sheet?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers - Answer-Allowance for doubtful accounts.
Lawrence Company has cash in bank of $22,000, restricted cash in a separate account
of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence
should report cash of
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