5 Written Questions
5 Matching Questions
- aging schedule
- exchange rate
- multinational corporation
- a The exchange rate is the value of one currency expressed in terms of another currency. Like the prices of all goods and services, the exchange rates among currencies vary from one day to the next. Companies that transact in more than one currency face the risks associated with fluctuating exchange rates, which can give rise to gains and losses—some of which are reflected on the financial statements. Fledging is a strategy that can be used to reduce such risks.
- b Aging is a method of estimating and analyzing collectible accounts receivable that categorizes individual accounts on the basis of the amount of time each has been outstanding. Each category is then multiplied by a different uncollectible percentage under the assumption that older accounts are more likely than new accounts to be uncollectable. This method is used primarily by management to identify and maintain control over uncollectible accounts receivables.
- c Multinational corporations have their home in one country but operate and have subsidiaries operating within and under the laws of other countries.
- d A markdown is a reduction in sales price normally due to decreased demand for an item. Markdowns are very common in the retail industry, especially at the close of the seasons. These discounts are designed to accelerate sales of old items (boosting inventory turnover), making room for new inventories market price The market price is the price at which an asset can be exchanged in the open (output) market as of a particular point in time. See fair market value and stock price.
- e Hedging is a strategy used by management to reduce the risk associated with fluctuations in the values of assets and liabilities.
5 Multiple Choice Questions
- Accounts receivable is a balance sheet account indicating the dollar amount due from customers from sales made on open account. It arises when revenues are recognized before receipt of the associated cash payment. Accounts receivable is normally included as a current asset and for some companies can be quite large.
- Escrow is the state of an item (e.g., cash) that has been put into the custody of a third party until certain conditions are fulfilled. Damage deposits on rental agreements, for example, are often held in escrow until the end of the rental period.
- Initially recognize the full sales price (gross) and later discount the gross.
- A small amount of cash kept on hand to cover minor expenses.
- Net realizable value is the net cash amount expected from the sale of an item, usually equal to the selling price of the item less the cost to complete and sell it.
5 True/False Questions
allowance method → The allowance method, under generally accepted accounting principles (GAAP) is the preferred method to account for uncollectibles and sales returns, both of which have a direct effect on the reported value of accounts receivable. The allowance method involves estimating the dollar amount of the uncollectibles or sales returns at the end of each accounting period and, based on that estimate, records an entry that reduces both net income and the balance in accounts receivable with a contra account called 'allowance for uncollectibles'.
window dressing → Hedging is a strategy used by management to reduce the risk associated with fluctuations in the values of assets and liabilities.
cash discount → When a good or service is sold on credit, the selling company wishes to collect the cash as soon as possible. To encourage prompt payment, many companies offer cash discounts on the gross sales price. Cash discounts specify that an amount of cash less than the gross sales price is sufficient to satisfy the obligation.
quick ratio → Current assets/Current liabilities. The current ratio is often used to assess a company's current asset management and its solvency position. It is normally an important part of financial statement analysis.
record control → The procedures designed to ensure that the cash account on the balance sheet reflects the actual amount of cash in the company's possession.