CHAPTER 8 TEN-MINUTE QUIZ Circle the letter of the best response. 1. Which of th
ID: 2567314 • Letter: C
Question
CHAPTER 8 TEN-MINUTE QUIZ Circle the letter of the best response. 1. Which of the following is an example of a good internal control for the credit department? A. Employees who grant credit to customers should not also evaluate customer fina Employees who handle cash receipts should not also grant credit to customers ncial position. C. Only employces who are responsible for billing customers should also grant credit to customers. D. All of these are good internal controls for the credit department. X2. That is the term that describes an entity that purchases the accounts receivables of a seller? Honorer B. Buyer D. C. Pledger Factor The person who signs a note receivable and promises to pay the principal and interest is called the payee. B. principal. maker. D. signer. C. J4·/What is the amount of interest accrued on $3,600 at 7% for 60 days (rounded to nearest dollar)? $41 $60 C. $252 D. $600 Heather's Hair Products estimates that $534 of its $28,720 Accounts Receivable are uncollectible. What is the net realizable value of Accounts Receivable? 5. 4, $534 $28,186 534 534 &$28,720 D. $29,274 6. The direct write-off method of accounting for uncollectible receivables is A. an example of the balance sheet approach. B. an example of the income statement approach. 8 not in conformity with GAAP. in conformity with the matching principle.Explanation / Answer
1. In the first case, the correct answer is B. This is called segregation of duties. If the same person handles both receipt of cash and payment of cash, it will be easy for him to embezzle funds and write off account balances on both credit and debit side.
2. The answer is D. Factoring is a process where the owner of a receivable sells it to a third party on payment of a nominal fee. This ensures that the owner receives cash instantly and he does not have to bear the risk of bad debts. The person to whom receivables are sold is called a 'Factor'.
3. The answer is C. In case of Notes Receivable, the person who signs affirms his liability that he will pay his dues to the other party and is called the maker. The person who receives the money is called payee.
4. The answer is A. The amount accrued is calculated as: 3600*7%*60/365
5. The answer is B. Net Realizable Value= Accounts Receivable - Estimated Bad Debts
Net Realizable Value represents the value of receivables actually realisable after adjusting the bad debts.
6. The answer is D. When receivables were recorded, the corresponding revenue is recorded in the Income Statement. So when the collectibles become bad, the revenue once charged to Income Statement should be written off. This is in conformity with matching principle.