ACCOUNTING CHAPTERS 8-10 QUESTIONS AND CORRECT ANSWERS

ACCOUNTING CHAPTERS 8-10
QUESTIONS AND CORRECT
ANSWERS
AccountsA2receivableA2-A2Ans--
TheA2rightA2toA2receiveA2cashA2inA2theA2futureA2fromA2customersA2forA2goodsA2soldA2orA2for
A2servicesA2performed


NotesA2receivableA2-A2Ans--
AA2writtenA2promiseA2thatA2aA2customerA2willA2payA2aA2fixedA2amountA2ofA2principalA2plusA2
interestA2byA2aA2certainA2dateA2inA2theA2future

MaturityA2dateA2-A2Ans--TheA2dateA2whenA2aA2noteA2isA2due

BadA2debtsA2expenseA2-A2Ans--
TheA2costA2toA2theA2sellerA2ofA2extendingA2credit.A2ItA2arisesA2fromA2theA2failureA2toA2collec
tA2fromA2someA2creditA2customers

DirectA2write-offA2methodA2-A2Ans--
AA2methodA2ofA2accountingA2forA2uncollectibleA2receivablesA2inA2whichA2theA2companyA2re
cordsA2badA2debtsA2expenseA2whenA2aA2customer'sA2accountA2receivableA2isA2uncollecta
ble

AllowanceA2MethodA2-A2Ans--
AA2methodA2ofA2accountingA2forA2uncollectibleA2receivablesA2inA2whichA2theA2companyA2e
stimatesA2badA2debtsA2expenseA2insteadA2ofA2waitingA2toA2seeA2whichA2customersA2theA2c
ompanyA2willA2notA2collectA2from

AllowanceA2forA2badA2debtsA2-A2Ans--
AA2contraA2account,A2relatedA2toA2accountsA2receivable,A2thatA2holdA2theA2estimatedA2am
ountA2ofA2uncollectibleA2accounts

NetA2realizableA2valueA2-A2Ans--
TheA2netA2valueA2aA2companyA2expectsA2toA2collectA2fromA2itsA2accountsA2receivable.A2Ac
countsA2ReceivableA2lessA2AllowanceA2forA2BadA2Debts

Percent-of-salesA2methodA2-A2Ans--
AA2methodA2ofA2estimatingA2uncollectibleA2receivablesA2thatA2calculatesA2badA2debtsA2exp
enseA2basedA2onA2aA2percentageA2ofA2netA2creditA2sales

Percent-of-receivablesA2methodA2-A2Ans--
AA2methodA2estimatingA2uncollectibleA2receivablesA2byA2determiningA2theA2balanceA2ofA2t

, heA2AllowanceA2forA2BadA2DebtsA2accountA2basedA2onA2aA2percentageA2ofA2accountsA2rec
eivable

Aging-of-receivablesA2methodA2-A2Ans--
AA2methodA2ofA2estimatingA2uncollectibleA2receivablesA2byA2determiningA2theA2balanceA2o
fA2theA2AllowanceA2forA2BadA2DebtsA2accountA2basedA2onA2theA2ageA2ofA2individualA2acco
untsA2receivable

PrincipalA2-A2Ans--
TheA2amountA2loanedA2outA2byA2theA2payeeA2andA2borrowedA2byA2theA2makerA2ofA2theA2n
ote

InterestA2-A2Ans--TheA2revenueA2toA2theA2payeeA2forA2loaningA2moneyA2-
A2theA2expenseA2toA2theA2debtor


InterestA2periodA2-A2Ans--
TheA2periodA2ofA2timeA2duringA2whichA2interestA2inA2computed.A2ItA2extendsA2fromA2theA2or
iginalA2dateA2ofA2theA2noteA2toA2theA2maturityA2date

InterestA2rateA2-A2Ans--TheA2percentageA2rateA2ofA2interestA2specifiedA2byA2theA2note

MaturityA2valueA2-A2Ans--TheA2sumA2ofA2theA2principalA2plusA2interestA2dueA2atA2maturity

Acid-testA2ratioA2-A2Ans--TheA2ratioA2ofA2theA2sumA2ofA2cashA2plusA2short-
termA2investmentsA2plusA2netA2currentA2receivablesA2toA2totalA2currentA2liabilities.A2TheA2r
atioA2tellsA2whetherA2theA2entityA2couldA2payA2allA2itA2currentA2liabilitiesA2ifA2theyA2cameA2d
ueA2immediately

Days'A2salesA2inA2receivablesA2-A2Ans--
TheA2ratioA2ofA2averageA2netA2accountsA2receivableA2toA2oneA2day'sA2sales.A2TheA2ratioA2t
ellsA2howA2manyA2daysA2itA2takesA2toA2collectA2theA2averageA2levelA2ofA2accountsA2receiva
ble.A2365A2days/AccountsA2receivableA2turnoverA2ratio

PlantA2assetA2-A2Ans--long-
lived,A2tangibleA2asset,A2suchA2asA2land,A2buildings,A2andA2equipment,A2usedA2inA2theA2op
erationA2ofA2aA2business

DepreciationA2-A2Ans--
theA2processA2byA2whichA2businessesA2spreadA2theA2allocationA2ofA2aA2plantA2asset'sA2cos
tA2overA2itsA2usefulA2life

CostA2principleA2-A2Ans--
AA2principleA2thatA2statesA2thatA2acquiredA2assetsA2andA2servicesA2shouldA2beA2recordedA
2atA2theirA2actualA2cost