Circle the letter of the best response.

1. Available-for-sale securities are reported on the balance sheet at:

A. Historical cost.

B. Fair value.

C. Amortized cost.

D. None of the above.

2. An unrealized gain occurs:

A. If the fair value of the investment is greater than the current recorded value.

B. If the fair value of the investment is less than the current recorded value.

C. If the sales price is greater than the investment carrying amount.

D. None of the above.

3. Which method of writing off an uncollectible account violates the expense recognition principle?

A. Direct write-off method

B. Allowance method

C. Net receivables method

D. Expense recognition does not apply to uncollectible account expense.

4. When an accounts receivable account has been determined to be uncollectible the entry to record the write off using the allowance method would include a:

A. debit to Accounts Receivable.

B. debit to Uncollectible Account Expense.

C. credit to Notes Receivable.

D. debit to Allowance for Uncollectible Accounts.

5. Which of the following about factoring a receivable is true?

A. The seller retains control over the collection process.

B. The seller receives the amount of the receivable plus the financing expenses charged by the financial institution.

C. Factoring is often expensive compared to the costs of retaining the receivable on the books.

D. The seller receives the full value of the accounts receivable.

6. On May 4, Garza Sales Co. sold a $5,500 machine to a customer. The customer signed a 60-day, 4% note. What entry does Garza make on May 5?

A. Accounts Receivable 5,536

Sales Revenue 5,500

Interest Revenue 36

B. Sales Revenue 5,500

Accounts Receivable 5,500

C. Note Receivable 5,500

Sales Revenue 5,500

D. Cash 5,720

Notes Receivable 5,500

Interest Revenue 220

7. Refer to Question 6. What is the maturity date and the maturity value of the note? (Round to the closest dollar)

Maturity date Maturity value

A. July 3 $5,500

B. July 4 $5,720

C. July 2 $5,536

D. July 3 $5,536

8. Bradley Company reports the following accounts receivable information at year end:

A/R, current $100,000

A/R, 1-30 days past due 9,500

A/R, over 30-days past due 800

The company estimates that 1% of current accounts, 8% of accounts 1-30 days past due, and 12% of accounts over 30 days past due will be uncollectible. Bradley reports a balance of $750 in Allowance for Uncollectible Accounts before the year-end adjustment. Using the aging-of-accounts method, what is the amount of Uncollectible Account Expense for the year?

  1. $1,106
  2. $1,856
  3. $750
  4. $1,103

9. The formula to calculate days’ sales outstanding (DSO) is:

A. Net credit sales / Average net accounts receivable

B. Average net accounts receivable / 365

C. 365 / Accounts receivable turnover

D. Accounts receivable turnover / Net credit sales

10. The numerator in the quick ratio includes:

A. Equipment

B. Net current receivables

C. Inventory

D. Both B and C