7. Which of the following statements regarding the estimated uncollectible amoun

Question

7. Which of the following statements regarding the estimated uncollectible amount of accounts receivable is incorrect? (a) can be estimated using the percentage of total receivables method. (b) can be estimated using the aging accounts receivable method (c) there is some discretion in determining the amount. (d) should be set at the minimum possible value in order to result in the highest net realizable (e) none of the above 8. Which of the following is not a characteristic of cumulative preferred shares? (a) Common share dividends cannot be paid until all current and prior cumulative preferred share dividends are paid in full (b) In the event of liquidation, all cumulative preferred dividends must be paid before common shareholders receive any cash. (c) Dividends in arrears are treated as a liability since the obligation exists to pay those dividends. (d) Dividends in arrears must be disclosed in the notes to the financial statements. (e) None of the above 9. Using the indirect method, which of the following would not be an adjustment to profit? a) depreciation expense b) an increase in prepaid insurance c) an increase in inventories d) an increase in Land e) None of the above 10. In preparing a statement of cash flows, the purchase of an equipment through mortgage will be reported in the a) financing activities section b) notes to the financial statements. c) investing activities section. d) shareholders' equity section. e) None of the above.

Explanation / Answer

7 (d) - the estimation is based upon aging, % sales method or industry benchmark but not an arbitrary number to maximise collectible accounts

8. (e)

9. (b) - since this would already be accounted for in the net income

10. (c) - purchase of equipment is an investment. The mortgage loan is financing and the cash flows will be shown in financing section only to records the mortgage loan.

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