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86. Receivables might be sold to a. lengthen the cash-to-cash operating cycle. b. take advantage of deep discounts on the cash realizable value of receivables. c. generate cash quickly. d. finance companies at an amount greater than cash realizable value.

87. A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables? a. The loss section of the income statement will increase each time receivables are sold. b. The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold. c. Selling expenses will increase each time accounts are sold. d. The other expense section of the income statement will increase each time accounts are sold.

88. Winter Furniture factors $400,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 2% service charge on the amount of receivables sold. Winter Furniture factors its receivables regularly with Kwik Factors. What journal entry does Winter make when factoring these receivables? a. Cash 392,000 Loss on Sale of Receivables 8,000 Accounts Receivable 400,000 b. Cash 392,000 Accounts Receivable 392,000 c. Cash 400,000 Accounts Receivable 392,000 Gain on Sale of Receivables 8,000 d. Cash 392,000 Service Charge Expense 8,000 Accounts Receivable 400,000

89. When customers make purchases with a national credit card, the retailer a. is responsible for maintaining customer accounts. b. is not involved in the collection process. c. absorbs any losses from uncollectible accounts. d. receives cash equal to the full price of the merchandise sold from the credit card company.

90. The retailer considers VISA and MasterCard sales as a. cash sales. b. promissory sales. c. credit sales. d. contingent sales.

91. A 60-day note receivable dated April 13 has a maturity date of a. June 13. b. June 12. c. June 11. d. June 10.

92. The maturity value of a $30,000, 10%, 60-day note receivable dated July 3 is a. $30,000. b. $33,000. c. $35,000. d. $30,500.

93. A 90-day note dated May 11 has a maturity date of a. August 11. b. August 9. c. August 10. d. August 12.

94. A 30-day note dated July 8 has a maturity date of a. August 8. b. August 7. c. August 9. d. August 6. 95. A promissory note a. is not a formal credit instrument. b. may be used to settle an accounts receivable. c. has the party to whom the money is due as the maker. d. cannot be factored to another party.

96. Which of the following is not true regarding a promissory note? a. Promissory notes may not be transferred to another party by endorsement. b. Promissory notes may be sold to another party. c. Promissory notes give a stronger legal claim to the holder than accounts receivable. d. Promissory notes may be bearer notes and not specifically identify the payee by name.

97. The two key parties to a promissory note are the a. maker and a bank. b. debtor and the payee. c. maker and the payee. d. sender and the receiver.

98. When calculating interest on a promissory note with the maturity date stated in terms of days, the a. maker pays more interest if 365 days are used instead of 360. b. maker pays the same interest regardless if 365 or 360 days are used. c. payee receives more interest if 360 days are used instead of 365. d. payee receives less interest if 360 days are used instead of 365.

99. The maturity value of a $6,000, 9%, 60-day note receivable dated February 10th is a. $6,090. b. $6,045. c. $6,000. c. $6,540.

100. The interest on a $4,000, 10%, 1-year note receivable is a. $4,000. b. $400. c. $4,040. d. $4,400.

101. The maturity value of a $20,000, 12%, 3-month note receivable is a. $20,600. b. $20,240. c. $22,400. d. $20,200.

102. A note receivable is a negotiable instrument which a. eliminates the need for a bad debts allowance. b. can be transferred to another party by endorsement. c. takes the place of checks in a business firm. d. can only be collected by a bank.

103. A company that receives an interest bearing note receivable will a. debit Notes Receivable for the maturity value of the note. b. credit Notes Receivable for the maturity value of the note. c. debit Notes Receivable for the face value of the note. d. credit Notes Receivable for the face value of the note.

104. The face value of a note refers to the amount a. that can be received if sold to a factor. b. borrowed plus interest received at maturity from the maker. c. that is identified on the formal instrument of credit. d. remaining after a service charge has been deducted.

105. Tresh Company receives a $6,000, 3-month, 12% promissory note from Carr Company in settlement of an open accounts receivable. What entry will Tresh Company make upon receiving the note? a. Notes Receivable 6,180 Accounts Receivable—Carr Company 6,180 b. Notes Receivable 6,180 Accounts Receivable—Carr Company 6,000 Interest Revenue 180 c. Notes Receivable 6,000 Interest Receivable 180 Accounts Receivable—Carr Company 6,000 Interest Revenue 180 d. Notes Receivable 6,000 Accounts Receivable—Carr Company 6,000

106. Short-term notes receivables a. have a related allowance account called Allowance for Doubtful Notes Receivable. b. are reported at their gross realizable value. c. use the same estimations and computations as accounts receivable to determine cash realizable value. d. present the same valuation problems as long-term notes receivables.

107. Harwell Company lends Newton Company $60,000 on April 1, accepting a four-month, 9% interest note. Harwell Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? a. Note Receivable 60,000 Cash 60,000 b. Interest Receivable 450 Interest Revenue 450 c. Cash 450 Interest Revenue 450 d. Interest Receivable 1,800 Interest Revenue 1,800

108. The average collection period for receivables is computed by dividing 365 days by a. net credit sales. b. average accounts receivable. c. ending accounts receivable. d. accounts receivable turnover ratio.

The following questions are from the Study Guide.

s109. Which of the following are also called trade receivables? a. Accounts receivable b. Other receivables c. Advances to employees d. Income taxes refundable

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