Accounting 201 - Chapter 5

38 Questions | By Jc173 | Updated: Mar 21, 2022 | Attempts: 379

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Securities are divided into debt and equity securities. Trading in securities is one form of investment that guarantees maximum profits when properly placed. Did you understand this chapter fully? The quiz below is designed to help you answer that with ease. Give it a try and polish up on the areas you note afterwards.

Questions and Answers

1.

Investments that a company plans to hold for one year or less are:
- A.
  
  Long-term investments.
- B.
  
  Short-term investments.
- C.
  
  Marketable securities.
- D.
  
  Both B and C.
2.

The purpose of owning trading securities is to:
- A.
  
  Increase cash reserves.
- B.
  
  Hold for a long-term period.
- C.
  
  Sell the investment for more than its cost.
- D.
  
  Sell the investment to decrease net income.
3.

All trading securities are classified as:
- A.
  
  Current assets
- B.
  
  Long-term assets
- C.
  
  Equity securities
- D.
  
  Available-for-sale securities
4.

Investments in trading securities are reported on the Balance Sheet at their _________ value.
- A.
  
  Current market
- B.
  
  Investment
- C.
  
  Market or investment
- D.
  
  Fair
5.

When a company receives a cash dividend from a trading investment, the journal entry includes:
- A.
  
  A debit to cash and credit to dividend revenue.
- B.
  
  A debit to dividend revenue and credit to cash.
- C.
  
  A debit to cash and credit to trading investment.
- D.
  
  None of the above.
6.

Unrealized gains and losses occur when:
- A.
  
  The investment is sold.
- B.
  
  The cost of the investment differs from the current market value.
- C.
  
  The investment has not been sold.
- D.
  
  Both B and C occur.
7.

Realized gains and losses occur when:
- A.
  
  The investment is sold
- B.
  
  The cost of the investment differs from the current market value
- C.
  
  The investment has not been sold
- D.
  
  Both B and C occur
8.

Formal monetary claims against others acquired mainly by lending money are:
- A.
  
  Accounts receivable
- B.
  
  Notes receivable
- C.
  
  Accounts payable
- D.
  
  Notes payable
9.

Notes receivable are
- A.
  
  More formal contracts than accounts receivable
- B.
  
  Are due on the maturity date
- C.
  
  May require the borrower to pledge security for the loan
- D.
  
  All of the above
10.

A ledger that contains a separate account for each customer is called a
- A.
  
  General ledger.
- B.
  
  Trade ledger.
- C.
  
  Control ledger.
- D.
  
  Subsidiary ledger.
11.

The biggest risk of selling on credit is:
- A.
  
  The risk of posting a payment to the wrong subsidiary account.
- B.
  
  The risk of not collecting some of the receivables.
- C.
  
  The risk of losing a sale.
- D.
  
  None of the above.
12.

Another term for uncollectible-account expense is:
- A.
  
  Doubtful-account expense.
- B.
  
  Bad-debt expense.
- C.
  
  Both A and B
- D.
  
  None of the above.
13.

The most acceptable way to measure bad debts is by:
- A.
  
  The direct write-off method.
- B.
  
  The percent-of-sales method.
- C.
  
  The allowance method.
- D.
  
  None of the above.
14.

The two methods of estimating uncollectible receivables are the:
- A.
  
  Aging-of-receivables method and direct write-off method.
- B.
  
  Percent- of- sales method and the aging-of-receivables method.
- C.
  
  Allowance method and the direct write-off method.
- D.
  
  Percent of sales method and the direct write-off method.
15.

The way to estimate uncollectible accounts by analyzing individual accounts receivable according to the length of time they have been outstanding is known as the:
- A.
  
  Aging-of-receivables method
- B.
  
  Percent-of-sales method.
- C.
  
  Allowance method.
- D.
  
  Direct write-off method.
16.

The cost to the seller that arises from the failure to collect from customers who were extended credit is called:
- A.
  
  Aging-of-receivables.
- B.
  
  Uncollectible-account expense.
- C.
  
  Direct write-off.
- D.
  
  Aging expense.
17.

Allowance for Uncollectible Accounts is classified as:
- A.
  
  A contra-expense account.
- B.
  
  A contra-revenue account.
- C.
  
  A contra-asset account.
- D.
  
  None of the above.
18.

Which account shows the amount of accounts receivable that the business does NOT expect to collect?
- A.
  
  Sales Returns and Allowances
- B.
  
  Unearned Accounts Receivable
- C.
  
  Allowance for Uncollectible Accounts
- D.
  
  Uncollectible Accounts Expense
19.

Net accounts receivable is calculated as:
- A.
  
  Sales less sales returns and allowances.
- B.
  
  Accounts receivable plus allowance for uncollectible accounts.
- C.
  
  Accounts receivable less allowance for uncollectible accounts.
- D.
  
  Accounts payable plus allowance for uncollectible accounts.
20.

The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:
- A.
  
  Matching principle.
- B.
  
  Historical cost principle.
- C.
  
  Revenue recognition principle.
- D.
  
  Full disclosure principle.
21.

Under the percentage-of-sales method, the estimate of bad debts for the period is based on:
- A.
  
  The ending balance in the Accounts Receivable account.
- B.
  
  The aging accounts receivable schedule.
- C.
  
  A percentage of total revenues.
- D.
  
  A percentage of net accounts receivable.
22.

Under the allowance method, the entry to record the bad debts estimate includes a debit to:
- A.
  
  Accounts Receivable and a credit to Allowance for Uncollectible Accounts.
- B.
  
  Allowance for Uncollectible Accounts and a credit to Uncollectible-Account Expense.
- C.
  
  Allowance for Uncollectible Accounts and a credit to Accounts Receivable.
- D.
  
  Uncollectible-Account Expense and credit to Allowance for Uncollectible Accounts.
23.

Under the allowance method, the entry to write off a $2,600 uncollectible account includes a:
- A.
  
  Debit to Accounts Receivable for $2,600.
- B.
  
  Credit to Uncollectible-Account Expense for $2,600.
- C.
  
  Credit to Allowance for Uncollectible Accounts for $2,600.
- D.
  
  Debit to Allowance for Uncollectible Accounts for $2,600.
24.

An aging-of-accounts-receivable indicates that the amount of uncollectible accounts is $7,200. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $2,000. The amount of the adjusting entry should be:
- A.
  
  $9,200.
- B.
  
  $7,200.
- C.
  
  $5,200.
- D.
  
  $2,000.
25.

An aging-of-accounts-receivable method indicates that amount of uncollectible accounts is $7,200.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $2,000. The amount of the adjusting entry for uncollectible accounts expense should be:
- A.
  
  $9,200.
- B.
  
  $7,200.
- C.
  
  $5,200.
- D.
  
  $2,000.