Question : 5.6   Learning Objective 5-6 1) Accepting credit cards can increase revenue : 1230168

5.6   Learning Objective 5-6

1) Accepting credit cards can increase revenue for a company, but the added revenue comes at a cost.

2) When a company factors its receivables, accounts receivable will be credited.

3) Accounts receivable can be sold to a factor as a means of speeding up cash flows.

4) Cash that results from collections on account are reported as investing activities on the statement of cash flows.

5) To shorten the collection period, a company may:

A) decide to stop accepting credit cards.

B) stop charging interest on late payments.

C) decrease the discount offered.

D) factor its receivables.

6) In 2012, Krane Company purchases $75,000 of U.S. Treasury bills. This purchase would be reported on Krane Company’s 2012 statement of cash flows as:

A) a financing activity.

B) an operating activity.

C) an investing activity.

D) none of the above.

7) On a statement of cash flows, collections of accounts receivables are classified as:

A) an operating activity.

B) an investing activity.

C) a financing activity.

D) none of the above.

8) XYZ Company has decided to factor its accounts receivable in order to get the immediate receipt of cash. The journal entry to record the factoring of the receivables would include:

A) a debit to Accounts Receivable.

B) a credit to Cash.

C) a debit to Financing Expense.

D) a credit to Interest Revenue.

9) Crazy Foods, Inc., factors its receivables to Shady Factoring Company. The effect of this transaction is:

A) Shady Factoring will earn revenue on the transaction.

B) Crazy Foods will retain control over the receivables.

C) Shady Factoring will recognize a factoring expense on the transaction.

D) Crazy Foods will receive cash equal to the face value of the receivables.

10) Which of the following is a correct statement regarding methods to speed up the collection of cash from receivables?

A) Factoring is used frequently by companies since it is an inexpensive way to raise cash.

B) Credit card companies will charge a fee of 20-30% of the total amount of the sale.

C) The company that factors its receivables maintains control over the collection process.

D) The credit card discount expense is an operating expense.

11) Selling accounts receivable typically:

A) decreases assets and increases revenues.

B) decreases assets and increases expenses.

C) increases assets and increases revenues.

D) has no effect on assets and decreases expenses.

12) Terry’s Berry Farm accepted a bank-issued credit card in payment of a $1,200 sales transaction. Terry’s bank charges 2% to process the transaction. The journal entry to record the sales transaction will include:

A) a credit to Sales Revenue for $1,176.

B) a debit to Cash for $1,200.

C) a debit to Credit Card Discount Expense for $24.

D) a debit to Accounts Receivable for $1,200.

13) If Extol’s Inc. sells items to a customer who uses a credit card for $800, and there is a credit card fee of 2%, what is the amount of the debit to Cash?

A) $816

B) $800

C) $784

D) $768

14) If Abby, Inc. sells items to a customer who uses a credit card for $1,000, and there is a credit card fee of 1.5%, Abby will record a(n):

A) credit to Sales Revenue for $985.

B) debit to Accounts Receivable for $985.

C) debit to Sales expense for $65.

D) debit to Credit Card Discount Expense for $15.