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True or False
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1
Financial assets include mostly cash, receivables, and plant and equipment.
A)True
B)False
2
Short-term investments are often referred to as marketable securities.
A)True
B)False
3
Receivables appear in the balance sheet at the estimated collectible amount, which is called the net realizable value.
A)True
B)False
4
U.S. Treasury bills are considered to be cash equivalents but certificates of deposit are not.
A)True
B)False
5
Any interest received from owning cash equivalents is reported in the statement of cash flows as cash receipts from operating activities.
A)True
B)False
6
As a condition of granting a loan, if the lender requires a deposit of money in an interest bearing account as a security for the loan, the deposit of money is called a compensating balance.
A)True
B)False
7
The unused portion of a line of credit is not considered an asset or a liability.
A)True
B)False
8
One of the basic objectives of cash management is the prevention or minimization of losses from theft or fraud.
A)True
B)False
9
For good cash control, the custody of cash should be included with the record keeping of cash.
A)True
B)False
10
Three of the major steps in achieving internal control over cash include making daily deposits of cash receipts, making all major payments by check, and making one person responsible to take part in all cash control functions.
A)True
B)False
11
The Cash Over and Short account is reclassified when it is shown in the income statement.
A)True
B)False
12
One form of control over cash disbursements is the preparation of a control listing.
A)True
B)False
13
One method of controlling cash is to require the person completing a control listing to make the daily deposits.
A)True
B)False
14
An analysis prepared to explain the difference between an entity's book balance of cash and its bank balance of cash is known as the bank reconciliation.
A)True
B)False
15
You must make journal entries for outstanding deposits and outstanding checks in order to adjust your checking account to the correct balance shown on the bank statement.
A)True
B)False
16
It is not possible for the bank statement to show a larger ending cash balance than the ending cash balance shown on the balance sheet.
A)True
B)False
17
When preparing the bank reconciliation, if it is determined that the depositor's bank has made an error in recording a deposit the depositor should record a correcting entry for the amount of the error.
A)True
B)False
18
When a customer's check deposited in the checking account is returned by the depositor's (company's) bank to the depositor (company), it is referred to as an NSF check.
A)True
B)False
19
When you make a deposit to your checking account, the bank debits your checking account for the amount deposited.
A)True
B)False
20
If your bank collects a note receivable and the interest earned on the note on your behalf, the bank will credit your checking account.
A)True
B)False
21
In the bank reconciliation, deposits in transit are added to the balance per bank statement.
A)True
B)False
22
In the bank reconciliation, service charges are added to the balance per bank statement.
A)True
B)False
23
In the bank reconciliation, a $90 error by the bookkeeper in recording a deposit of $450 as a deposit of $540 will be added to the balance per bank.
A)True
B)False
24
Reimbursing a petty cash fund will require a debit to the Petty Cash account and a credit to the Cash account for the amount of the reimbursement.
A)True
B)False
25
Investments in marketable securities are originally recorded at cost.
A)True
B)False
26
The Marketable Securities account is not a control account.
A)True
B)False
27
Interest or dividends earned on marketable securities are added to the Marketable Securities account.
A)True
B)False
28
The sale of a marketable security can result in a loss or a gain.
A)True
B)False
29
Mark-to-market, the balance sheet valuation standard applied to investments in marketable securities, is an exception to the cost principle.
A)True
B)False
30
The account balances of Unrealized Holding Gains and Unrealized Holding Losses are shown in the income statement as revenue or expenses, respectively.
A)True
B)False
31
Unrealized Holding Gains are not subject to income tax.
A)True
B)False
32
The Allowance for Doubtful Accounts is a contra account.
A)True
B)False
33
The net realizable value of accounts receivable decreases each time an account receivable is written off through the allowance method.
A)True
B)False
34
The reasoning behind the allowance approach to recognizing doubtful accounts receivable is found in the matching principle.
A)True
B)False
35
When the balance sheet approach is used in determining the required amount of the allowance account, the end-of-period adjusting entry made is for an amount necessary to bring the allowance account to its required balance.
A)True
B)False
36
One of the most widely used methods of estimating the probable amount of uncollectible accounts is based on aging the accounts receivable.
A)True
B)False
37
When the income statement approach is used in determining the uncollectible account expense, the ending balance of the Allowance for Doubtful Accounts account must be considered when making the end-of-period adjusting entry for uncollectible accounts expense.
A)True
B)False
38
Most businesses today use the balance sheet approach in determining the allowance for bad debts and reporting bad debts expense in their financial statements.
A)True
B)False
39
With respect to the valuation of accounts receivable, materiality suggests that the allowance for doubtful accounts be at least adequate.
A)True
B)False
40
The FASB suggests that companies disclose all significant concentrations of credit risk, but does not require the disclosure.
A)True
B)False
41
The direct write off method of recognizing uncollectible accounts does a better job of matching revenues with expenses than does the allowance method of recognizing uncollectible accounts.
A)True
B)False
42
The full recovery of an account receivable previously written off will increase the net realizable value of the accounts receivable.
A)True
B)False
43
The allowance method is the only write-off method that may be used for tax purposes.
A)True
B)False
44
Failure to record an adjusting entry for uncollectible accounts expense will cause the operating income for the period to be overstated and current assets to be understated.
A)True
B)False
45
The direct method of writing off uncollectible accounts does not require the use of the Allowance for Doubtful Accounts account.
A)True
B)False
46
When recovering an account receivable, which was previously written off through an allowance account, two entries to record the recovery are required.
A)True
B)False
47
Factoring is the process of selling the accounts receivable to obtain cash for operations.
A)True
B)False
48
Generally, when a customer uses a credit card issued by a bank, the seller records the sale with a debit to cash.
A)True
B)False
49
When a customer uses a nonbank credit card, the seller records the sale with a debit to cash.
A)True
B)False
50
The discount charged on nonbank credit cards is usually charged to an interest expense account.
A)True
B)False
51
The person (or company) who issues a note receivable in exchange for an outstanding account receivable is known as the payee.
A)True
B)False
52
The interest on a $2,000, 8%, 45-day note is $20.
A)True
B)False
53
A 90-day note receivable dated March 15 has a maturity date of June 13.
A)True
B)False
54
If a $4,000, 6%, 60-day note is issued on December 16, the year-end adjusting entry will include a debit to Interest Receivable and credit to Interest Revenue for $10.
A)True
B)False
55
The failure of the maker of a note to pay on the due date is called a note discount.
A)True
B)False
56
When the maker of a note defaults on the note, an account receivable is established for the maker in the amount of the face value of note, only.
A)True
B)False
57
Discounting notes receivable in order to have an adequate cash flow is a widespread practice of retailers.
A)True
B)False
58
If a $5,000, 6%, 30-day note is issued on December 11, it is appropriate not to recognize the pro rata portion the interest in the current year ending December 31, due to immateriality.
A)True
B)False
59
If a firm offers its credit customers terms of 2/10, n/30 and its accounts receivable turnover rate is 5.0 times, it is managing its accounts receivables well.
A)True
B)False
60
If the accounts receivable turnover rate is 8, net credit sales were $500,000, and beginning accounts receivable were $60,000, then the ending accounts receivable are $65,000.
A)True
B)False





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