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5 Written questions

5 Matching questions

  1. aging schedule
  2. exchange rate
  3. quantity discount
  4. current assets
  5. net realizable value
  1. a Current assets are assets on the balance sheet expected to be converted to cash or expired in one year or the operating cycle, whichever is longer.
  2. b 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.
  3. c 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.
  4. d The reduction in the per-unit price of an item if a certain quantity is purchased.
  5. e 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 Multiple choice questions

  1. Multinational corporations have their home in one country but operate and have subsidiaries operating within and under the laws of other countries.
  2. Hedging is a strategy used by management to reduce the risk associated with fluctuations in the values of assets and liabilities.
  3. 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.
  4. (Cash + Marketable Securities accounts Receivable)/Current liabilities. The quick ratio compares a company's highly liquid assets to its current liabilities, providing a measure of the portion of the current liabilities that could be paid off in the near future.
  5. The procedures designed to ensure that the cash account on the balance sheet reflects the actual amount of cash in the company's possession.

5 True/False questions

  1. escrowA 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.


  2. petty cashA small amount of cash kept on hand to cover minor expenses.


  3. physical controlThe process designed to safeguard cash from loss or theft.


  4. markdownEscrow 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.


  5. compensating balanceOperating cycle is the time it takes, in general, for a company to begin with cash, convert the cash to inventory (or a service), sell the inventory (or service), and receive cash payment.