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Chapter 7—The Revenue/Receivables/Cash Cycle
MULTIPLE CHOICE
1. Which of the following is NOT correct?

a. The operating cycle sometimes is longer than one year in duration.
b. The operating cycle always is one year in duration.
c. The operating cycle sometimes is shorter than one year in duration.
d. The operating cycle is a concept applicable both to manufacturing and retailing
enterprises.
ANS: B PTS: 1 DIF: Easy OBJ: LO 1
TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking
2. An operating cycle
a. is twelve months or less in length.
b. is the average time required for a company to collect its receivables.
c. is used to determine current assets when the operating cycle is longer than one year.
d. begins with inventory and ends with cash.
ANS: C PTS: 1 DIF: Easy OBJ: LO 1
3. The amount reported as "Cash" on a company's balance sheet normally should exclude
a. postdated checks that are payable to the company.
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.
ANS: A PTS: 1 DIF: Easy OBJ: LO 4
4. If the balance shown on a company's bank statement is less than the correct cash balance, and neither
the company nor the bank has made any errors, there must be
a. deposits credited by the bank but not yet recorded by the company.
b. outstanding checks.
c. bank charges not yet recorded by the company.
d. deposits in transit.
ANS: D PTS: 1 DIF: Medium OBJ: LO 4
TOP: AICPA FN-Measurement MSC: AACSB Analytic
5. If the cash balance shown in a company's accounting records is less than the correct cash balance, and
neither the company nor the bank has made any errors, there must be
a. outstanding checks.
b. deposits in transit.
c. deposits credited by the bank but not yet recorded by the company.
d. bank charges not yet recorded by the company.
ANS: C PTS: 1 DIF: Medium OBJ: LO 4
6. The FASB specified in Statement No. 140 three conditions that must be met if a transfer of receivables
is to accounted for as a sale. Which of the following is not one of the three conditions specified?
a. The transferred assets have been isolated from the transferor.
b. The transferor's obligation under the recourse provisions can be reasonably estimated.
c. The transferee has the right to pledge or exchange the transferred assets.
d. The transferor does not maintain effective control over the assets through an agreement to
repurchase the assets before their maturity.
ANS: B PTS: 1 DIF: Medium OBJ: LO 6
7. Which one of the following statements is NOT correct?

a. The accounting function should be separated from the custodianship of a company's
assets.
b. Certain clerical personnel in a company should be rotated among various jobs.
c. A company's personnel should be given well-defined responsibilities.
d. The responsibility of receiving merchandise and paying for it usually should be given to
one person.
ANS: D PTS: 1 DIF: Easy OBJ: LO 4
8. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as
a
a. quantity discount.
b. cash discount.
c. trade discount.
d. size discount.
9. When the direct write-off method of recognizing bad debt expense is used, the entry to write off a
specific customer account would
a. increase net income.
b. have no effect on net income.
c. increase the accounts receivable balance and increase net income.
d. decrease the accounts receivable balance and decrease net income.
10. When comparing the allowance method of accounting for bad debts with the direct write-off method,
which of the following is true?
a. The direct write-off method is exact and also better illustrates the matching principle.
b. The allowance method is less exact but it better illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate entries to write off an uncollectible
account.
11. When the allowance method of recognizing bad debt expense is used, the entry to record the write-off
of a specific uncollectible account would decrease
a. allowance for doubtful accounts.
b. net income.
c. net realizable value of accounts receivable.
d. working capital.
12. When a specific customer's account is written off by a company using the allowance method, the effect
on net income and the net realizable value of the accounts receivable is
Net Realizable Value

Net Income of Accounts Receivable
a. Increase Increase
b. Decrease Decrease
c. None None
d. Decrease None
13. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of a small account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.
14. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is
the allowance method based on
a. direct write-off.
b. specific accounts determined to be uncollectible.
c. credit sales.
d. aging the trade receivable accounts.
15.
Accounts Receivable xxx
Allowance for Uncollectible Accounts xxx
This entry would be made when:

a. a customer pays its account balance.
b. a customer defaults on its account.
c. a previously defaulted customer pays its outstanding balance.
d. estimated uncollectible receivables are too low.
16. What is the accounting principle underlying the recognition of an estimated liability for warranties in
the period of product sale?
a. Matching
b. Materiality
c. Full Disclosure
d. Conservatism
ANS: A PTS: 1 DIF: Medium OBJ: LO 2
17. In calculating a company's accounts receivable turnover, which of the following sets of factors would
be used?
a. Net income and average accounts receivable
b. Average accounts receivable and average total assets
c. Average accounts receivable and net credit sales
d. Net credit sales and average stockholders' equity
18. Which of the following factors are used to compute the number of days' sales in accounts receivable?
a. Inventory turnover and 365 days
b. Accounts receivable turnover and 365 days
c. Net sales and average inventory
d. Average accounts receivable and cost of goods sold
19. Which of the following would NOT be classified as cash?

a. Personal checks
b. Travelers' checks
c. Cashiers' checks
d. Postdated checks
20. Which of the following is NOT a basic characteristic of a system of cash control?
a. Use of a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals
21. Bank statements provide information about all of the following except
a. checks cleared during the period.
b. NSF checks.
c. bank charges for the period.
d. errors made by the company.
22. Which of the following items would be added to the book balance on a bank reconciliation?
a. Outstanding checks
b. A check written for $96 entered as $69 in the accounting records
c. Interest paid by the bank
d. Deposits in transit
23. In preparing a bank reconciliation, interest paid by the bank on the account is
a. added to the book balance.
b. subtracted from the bank balance.
c. added to the bank balance.
d. subtracted from the book balance.
24. In preparing a monthly bank reconciliation, which of the following items would be added to the
balance reported on the bank statement to arrive at the correct cash balance?
a. Outstanding checks
b. Bank service charge
c. Deposits in transit
d. A customer's note collected by the bank on behalf of the depositor
25. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the
depositor's records and to identify bank errors. Adjustments should be recorded for
a. bank errors, outstanding checks, and deposits in transit.
b. all items except bank errors, outstanding checks, and deposits in transit.
c. book errors, bank errors, deposits in transit, and outstanding checks.
d. outstanding checks and deposits in transit.
Abe Company sold merchandise on credit to Bee Company for $1,000 on July 1, with terms of 2/10,
net /30. On July 6, Bee returned $200 worth of merchandise claiming the materials were defective. On
July 8, Abe received a payment from Bee and credited Accounts Receivable for $350. On July 24, Bee
Company paid the remaining balance on its account.
26. See Abe Company information above. How much was the total Sales Discounts given to Bee during
July?
a. $7
b. $0
c. $441
d. $2,441
27. See Abe Company information above. What was the total cash received from Bee during July?
a. $441
b. $450
c. $793
d. $800
28. For the month of December, the records of Former Corporation show the following information:
Cash received on accounts receivable .................. $ 70,000

Cash sales ............................................ 60,000
Accounts Receivable, December 1 ....................... 160,000
Accounts Receivable, December 31 ...................... 148,000
Accounts Receivable written off as uncollectible ...... 2,000
The corporation uses the direct write-off method in accounting for uncollectible accounts receivable.
What are the gross sales for the month of December?
a. $144,000
b. $130,000
c. $118,000
d. $120,000
29. An analysis and aging of accounts receivable of the Gibson Company at December 31, 2014, showed
the following:
Accounts Receivable .................................. $800,000

Allowance for Doubtful Accounts
(before adjustment) ................................ 36,000 (cr)
Accounts estimated to be uncollectible ............... 76,800
Compute the net realizable value of the accounts receivable of Gibson Company at December 31,
2014.
a. $804,000
b. $799,200
c. $723,200
d. $727,200
ANS: C PTS: 1 DIF: Challenging OBJ: LO 2
30. An analysis and aging of the accounts receivable of Mahi Company at December 31 revealed the
following data:
Accounts Receivable ................................. $450,000

Allowance for Doubtful Accounts (before adjustment).. 25,000 (cr)
Accounts estimated to be uncollectible .............. 32,000
The net realizable value of the accounts receivable at December 31 should be

a. $450,000.
b. $443,000.
c. $425,000.
d. $418,000.
ANS: D PTS: 1 DIF: Challenging OBJ: LO 2
31. Aspen Company provides for doubtful accounts expense at the rate of 3 percent of credit sales. The
following data are available for last year:
Allowance for Doubtful Accounts, January 1 ..... $ 54,000 (cr)

Accounts written off as uncollectible during the
year ......................................... 60,000
Collection of accounts written off in prior years..
(customer credit was re-established) ........... 15,000
Credit sales, year-ended December 31 ........... 3,000,000
The allowance for doubtful accounts balance at December 31, after adjusting entries, should be
a. $45,000.
b. $99,000.
c. $90,000.
d. $84,000.
ANS: B PTS: 1 DIF: Challenging OBJ: LO 2
32. The following information is from the records of Sumter, Inc. for the year ended December 31, 2014.
Allowance for Doubtful Accounts, January 1, 2014 .. $ 6,000 (cr)

Sales, 2014 ....................................... 2,920,000
Sales Returns and Allowances, 2014 ................ 32,000
If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts
expense for 2014 is
a. $22,800.
b. $23,200.
c. $28,880.
d. $34,880.
33. Based on the aging of its accounts receivable at December 31, Quanto Company determined that the
net realizable value of the receivables at that date is $760,000. Additional information is as follows:
Accounts Receivable at December 31 ................ $880,000

Allowance for Doubtful Accounts at January 1 ...... 128,000 (cr)
Accounts written off as uncollectible during the
year ............................................ 88,000
Quanto's doubtful accounts expense for the year ended December 31 is

a. $80,000.
b. $96,000.
c. $120,000.
d. $160,000.
34. Based on its past collection experience, Base Company provides for bad debts at the rate of 2 percent
of net credit sales. On January 1, 2014, the allowance for doubtful accounts credit balance was
$10,000. During 2014, Base wrote off $18,000 of uncollectible receivables and recovered $5,000 on
accounts written off in prior years. If net credit sales for 2014 totaled $1,000,000, the doubtful
accounts expense for 2014 should be
a. $17,000.
b. $20,000.
c. $23,000.
d. $35,000.
Teeming Company uses the allowance method of accounting for bad debts. The following summary
schedule was prepared from an aging of accounts receivable outstanding on December 31 of the
current year.
No. of Days Probability

Outstanding Amount of Collection
0-30 days $500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80
The following additional information is available for the current year:
Net credit sales for the year .................. $4,000,000

Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 (cr)
Balance before adjustment, December 31 ......... 4,000 (dr)
35. See Teeming Company information above. If Teeming bases its estimate of bad debts on the aging of
accounts receivable, doubtful accounts expense for the current year ending December 31 is
a. $47,000.
b. $48,000.
c. $50,000.
d. $54,000.
36. See Teeming Company information above. If Teeming determines bad debt expense using 1.5 percent
of net credit sales, the net realizable value of accounts receivable on the December 31 balance sheet
will be
a. $738,000.
b. $740,000.
c. $744,000.
d. $750,000.
37. Harris, Inc. reported the following balances (after adjustment) at the end of 2014 and 2013.
12/31/2014 12/31/2013
Total accounts receivable ................. $105,000 $96,000
Net accounts receivable ................... 102,000 94,500
During 2014, Harris wrote off customer accounts totaling $3,200 and collected $800 on accounts
written off in previous years. Harris’ doubtful accounts expense for the year ending December 31,
2014 is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,900.
ANS: D PTS: 1 DIF: Challenging OBJ: LO 2
38. A new product introduced by Sunbound Promotions carries a two-year warranty against defects. The
estimated warranty costs related to dollar sales are as follows:
Year of sale .............................. 3 percent

Year after sale ........................... 5 percent
Sales and actual warranty expenditures for the years ended December 31, 2013 and 2014, are as
follows:
Actual Warranty
Sales Expenditures
2013 $ 800,000 $18,000
2014 1,000,000 70,000
What amount should Sunbound report as its estimated liability as of December 31, 2014?
a. $4,000
b. $24,000
c. $56,000
d. $74,000
39. Carter Appliance Center sells washing machines that carry a three-year warranty against
manufacturer's defects. Based on company experience, warranty costs are estimated at $60 per
machine. During the year, Carter sold 48,000 washing machines and paid warranty costs of $340,000.
In its income statement for the year ended December 31, Carter should report warranty expense of
a. $680,000.
b. $960,000.
c. $2,200,000.
d. $2,880,000.
40. Windward Corporation's books disclosed the following information for the year ended December 31,
2014:
Net credit sales ..................................... $1,500,000

Net cash sales ....................................... 240,000
Accounts Receivable at beginning of year ............. 200,000
Accounts Receivable at end of year ................... 400,000
Windward’s accounts receivable turnover is
a. 3.75 times.
b. 4.35 times.
c. 5.00 times.
d. 5.80 times.
41. Selected information from the accounting records of Monroe Manufacturing Company follows:
Net sales ............................................ $3,600,000

Cost of goods sold ................................... 2,400,000
Inventories at January 1 ............................. 672,000
Inventories at December 31 ........................... 576,000
What is the number of days' sales in average inventories for the year?
a. 102.2
b. 94.9
c. 87.6
d. 68.1
42. Conan Corporation had the following transactions in its first year of operations:
Sales (90 percent collected in the first year) ....... $900,000

Disbursements for costs and expenses ................. 600,000
Purchases of equipment for cash ...................... 200,000
Proceeds from issuance of common stock ............... 250,000
Payments on short-term borrowings .................... 25,000
Proceeds from short-term borrowings .................. 50,000
Depreciation on equipment ............................ 40,000
Disbursements for income taxes ....................... 45,000
Bad debt write-offs .................................. 30,000
What is the cash balance at December 31 of the first year?

a. $170,000
b. $200,000
c. $240,000
d. $290,000
43. Donovan Company had the following cash balances at December 31, 2014:
Cash in banks ........................................ $375,000

Petty cash funds (all funds were reimbursed on
December 31, 2014) ................................. 5,000
Cash in banks includes $125,000 of compensating balances against short-term borrowing

arrangements at December 31, 2014. The compensating balances are legally restricted as to withdrawal
by Donovan. In the current asset section of Donovan’s December 31, 2014, balance sheet, what total
amount should be reported as Cash?
a. $380,000
b. $375,000
c. $255,000
d. $250,000
44. Assume the following facts for Lowmann Company: The month-end bank statement shows a balance
of $40,000; outstanding checks total $2,000; a deposit of $8,000 is in transit at month-end; and a check
for $400 was erroneously charged against the account by the bank. What is the correct cash balance at
the end of the month?
a. $33,600
b. $34,400
c. $45,600
d. $46,400
45. In preparing the bank reconciliation of Yardley Company for the month of July, the following
information is available:
Balance per bank statement, 7/31 ..................... $60,075

Deposits in transit, 7/31 ............................ 9,375
Outstanding checks, 7/31 ............................. 8,625
Deposit erroneously recorded by bank to Yardley’s 375
account, 7/18 ......................................
Bank service charges for July ........................ 75
What is the correct cash balance at July 31?

a. $52,875
b. $54,375
c. $54,825
d. $60,450
46. The August 31 bank statement of Mervin Inc. showed a balance of $113,000. Deducted in arriving at
this amount was a customer's NSF check for $2,400 that had been returned. Mervin had received no
prior notice concerning this check. In addition to the bank statement, other records showed there were
deposits in transit totaling $17,200 and that outstanding checks totaled $10,800. What is the cash
balance per books at August 31 (prior to adjustments)?
a. $121,800
b. $119,400
c. $117,000
d. $115,400
47. Lawson Corporation's checkbook balance on December 31, 2014, was $8,000. In addition, Lawson
held the following items in its safe on December 31:
Check payable to Lawson Corporation, dated January 2, 2015,

not included in December 31 checkbook balance.. $2,000
Check payable to Lawson Corporation, deposited December 20,
and included in December 31 checkbook balance, but returned
by bank on December 30, stamped "NSF." The check was
redeposited January 2, 2015, and cleared January 7 .. 400
Post-dated checks ....................................... 150
Check drawn on Lawson Corporation's account, payable to a
vendor, dated and recorded December 31, but not mailed until
1,000
January 15, 2015 ..................................
The proper amount to be shown as cash on Lawson’s balance sheet at December 31, 2014, is
a. $7,600.
b. $8,000.
c. $8,600.
d. $9,750.
ANS: C PTS: 1 DIF: Challenging OBJ: LO 4
48. In preparing its bank reconciliation for the month of February, Vance Company has available the
following information:
Balance per bank statement, February 28 ................. $18,025

Deposit in transit, February 28 ......................... 3,125
Outstanding checks, February 28 ......................... 2,875
Check erroneously deducted by bank from Vance's account, 125
February 10 ...........................................
Bank service charges for February ....................... 25
What is the corrected cash balance at February 28?

a. $18,125
b. $18,150
c. $18,275
d. $18,400
49. Alonso Company had the following bank reconciliation at March 31:
Balance per bank statement, 3/31 ........................ $ 93,000

Add: Deposit in transit ................................. 20,600
$113,600
Less: Outstanding checks ................................ (25,200)
Balance per books, 3/31 ................................. $ 88,400
Data per bank statement for the month of April follow:
Deposits .............................................. $116,800

Disbursements ......................................... 99,400
All reconciling items at March 31 cleared through the bank in April. Outstanding checks at April 30
totaled $15,000. What is the amount of cash disbursements per books in April?
a. $89,200
b. $99,400
c. $109,600
d. $114,400
ANS: A PTS: 1 DIF: Challenging OBJ: LO 4
50. Which of the following would be considered part of the category "trade receivables"?
a. Advances to employees
b. Amounts due from customers
c. Dividends receivable
d. Income tax refunds receivable
51. Under GAAP, an entry should be made to the Bad Debt Expense account
a. when an account receivable with terms 2/10, n30 is past thirty days due.
b. when an account receivable previously written off is determined to be collectible.
c. when an account receivable is determined not to be collectible and is written off.
d. in the period when a sale is made and not when the receivable associated with the sale is
determined to be uncollectible.
52. Which of the following accounts is not affected when an account receivable written off as
uncollectible is unexpectedly collected?
a. Cash
b. Accounts Receivable
c. Bad Debt Expense
d. Allowance for Bad Debts
53. A debit balance in the Allowance for Doubtful Accounts

a. should never occur.
b. is always the result of management not providing a large enough allowance in order to
manage earnings.
c. may occur before the end-of-period adjustment for uncollectibles.
d. may exist even after the end-of-period adjustment for uncollectibles.
54. For tax purposes, an entry should be made to Bad Debt Expense
a. when an account is determined to be uncollectible.
b. in the period in which the sale that created the receivable was made.
c. when an account determined to be uncollectible is collected.
d. when an account with terms 2/10, n30 is still unpaid after thirty days.
55. Estimation of uncollectible accounts receivable based on a percentage of sales

a. emphasizes measurement of the net realizable value of accounts receivable.
b. is only acceptable for tax purposes.
c. emphasizes measurement of total assets.
d. emphasizes measurement of bad debt expense.
56. Which of the following is NOT acceptable in estimating uncollectible accounts receivable under
GAAP?
a. The estimate of uncollectible accounts is based on a percentage of sales for the period.
b. The estimate of uncollectible accounts is based on a percentage of the accounts receivable
balance at the end of a period.
c. The estimate of uncollectible accounts is based on an aging schedule.
d. No estimate of uncollectible accounts is made; accounts are written off when it is
determined they cannot be collected.
57. During 2012, Grinder Machinery company introduced a new line of machines that carry a three-year
warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at
2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales
and actual warranty expenditures for the first three-year period were as follows:
Actual
Warranty
Year Sales Expenditure
2012 $ $ 3,375
225,000
2013 16,875
562,500
2014 50,625
787,500
$ 1,575,000 $
70,875
What amount should Grinder Machinery report as a liability at December 31, 2014?
a. $0
b. $5,625
c. $76,500
d. $118, 125
58. The following information is available for Closer Company relative to 2014 operations:
Accounts receivable, January 1, 2014 $

40,000
Accounts receivable collected during 2014 84,000
Cash sales during 2014 20,000
Inventory, January 1, 2014 48,000
Inventory, December 31, 2014 44,000
Purchases of inventory during 2014 80,000
Gross margin on sales 42,000
What is Closer Company’s accounts receivable balance at December 31, 2014?

a. $82,000
b. $62,000
c. $20,000
d. $146,000
59. Sandy Corporation uses the allowance method of accounting for uncollectible accounts. During 2014,
Sandy had charged $80,000 to Bad Debt Expense, and wrote off accounts receivable of $90,000 as
uncollectible. What was the amount of the decrease in working capital as a result of these entries?
a. $0
b. $90,000
c. $80,000
d. $10,000
60. The following information is available for Longview Company:
Credit sales during 2014 $ 50,000

Allowance for Doubtful Accounts, Dec. 31, 2013 1,800
Accounts receivable written off during 2014 1,900
As a result of a review and aging of accounts receivable, it has been determined that the Allowance for
Doubtful Accounts should show a balance of $2,400 at December 31, 2014. What amount should
Longview record as bad debt expense for the year ended December 31, 2014?
a. $2,500
b. $1,300
c. $2,400
d. $3,700
61. On December 1, 2014, Laramie Company received a $10,000, 60-day, 6% note from a customer. On
December 31, 2014, the company discounted the note at the bank. The bank’s discount rate is 9%.
What were the proceeds that Barnes received from the discounting of the note?
a. $10,024.25
b. $9,700.00
c. $9,924.25
d. $10,050.00
62. Barter Company borrows $20,000 for one year a 9% interest, but must maintain a $1,600
compensating balance. The effective rate of interest on this loan is
a. 9.0%.
b. 17.0%.
c. 9.8%.
d. 8.0%.
63. Corbin Company has two checking accounts. A special account is used for the weekly payroll only,
and the general account is used for all other disbursements. Every week, a check in the amount of the
net payroll is drawn on the general account and deposited in the payroll account. The company
maintains a $5,000 minimum balance in the payroll account. On a monthly bank reconciliation, the
payroll account should
a. reconcile to $5,000.
b. show a zero balance per the bank statement.
c. show a $5,000 balance per the bank statement.
d. be reconciled jointly with the general account in a single reconciliation.
64. Accounts receivable usually are factored

a. with recourse on a notification basis.
b. with recourse on a no-notification basis.
c. without recourse on a notification basis.
d. without recourse on a no-notification basis.
65. A firm factors $40,000 of accounts receivable without recourse. The factor agrees to provide financing
based on these receivables, but imposes a 10% fee. In addition, the transferor and transferee agree that
$3,000 of sales returns and allowances can be expected from these accounts. What is the loss or
expense to recorded by the transferor?
a. $7,000
b. $4,000
c. $3,000
d. $0
66. On August 1, a firm assigned $30,000 of its $56,000 of accounts receivable. The finance company
advanced 90% of the assigned accounts less a $2,000 fee. Interest is 12% and payable monthly on the
beginning-of-period loan balance. A loan payment is remitted at the end of each month. Each payment
includes principal and interest. The amount of each loan payment equals the cash collected on
receivables during the month plus interest on the loan balance.
If $8,000 was collected on accounts receivable during August, the entry for the first loan payment
would include a
a. debit to Interest Expense of $280.
b. credit to Cash of $8,000.
c. credit to Account Receivable Assigned of $8,000.
d. debit to Notes Payable of $8,280.
TOP: AICPA FN-Reporting MSC: AACSB Analytic
67. Halen Company factored $50,000 of its accounts receivable with recourse. The factor retained 8% for
sales adjustments and charged $3,000 as a financing fee. For simplicity, assume the estimated and
actual amounts of the following items are equal:
Sales adjustments $2,500

Uncollectible accounts 500
Assume the transfer is recorded as a sale by Halen Company. What is the loss or financing expense to
be recognized on the transfer?
a. $11,000
b. $6,000
c. $3,000
d. $8,000
68. The plan of organization and all the methods and measures adopted within a business to safeguard its
assets, check the accuracy of its accounting data, promote operational efficiency, and encourage
adherence to managerial policies is called
a. accounting control.
b. administrative control.
c. managerial control.
d. internal control.
69. Eastern Company sells products covered by a 3-year warranty. Based on past experience of other
entities in the industry, Eastern expects to incur warranty costs equal to 1% of sales. Eastern’s sales
were $45,000 in 2013 and $50,000 in 2014. In 2014, the company spent $200 to repair goods sold in
2013 and $300 to repair goods sold in 2014. Eastern received no warranty servicing demands from its
customers in 2013, the company’s first year of operations.
What is the balance in the warranty liability account on January 1, 2015?

a. $450
b. $500
c. $300
d. $0
70. Which of the following is not correct regarding IAS 39, International Accounting Standard 39,
“Financial Instruments: Recognition and Measurement,” and SFAS No. 140, Statement of Financial
Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities: A Replacement of FASB Statement No. 125”?
a. IAS 39 represents a principles-based approach to standard setting.

b. SFAS No. 140 represents a principles-based approach to standard setting.
c. SFAS No. 140 represents a rule-based approach to standard setting.
d. In the large majority of cases, application of the two standards will result in the same
accounting treatment for a receivable transfer.
71. Which of the following is one of the two steps of the 2-step test for derecognition of receivables stated
in IAS 39, International Accounting Standard 39, “Financial Instruments: Recognition and
Measurement”?
a. The transferred assets have been isolated from the transferor such that the transferor and
its creditors cannot access the assets.
b. The transferee has the right to pledge or exchange the transferred assets.
c. If the receivable transfer does not involve the transfer of substantially all the risks and
rewards of ownership, then test to determine if the transferor maintains effective control
over the assets through either an agreement to repurchase the assets before their maturity,
or by the ability to cause the transferee to return specific assets.
d. Determine whether the receivable transfer involves a transfer of substantially all the risks
and rewards of ownership of the receivable and, if so, account for the transfer as a sale of
the receivable.
PROBLEM
1. The information below is from the books of the Pawnee Corporation on June 30:
Balance per bank statement ........................... $12,164

Receipts recorded but not yet deposited in the bank .. 1,340
Bank charges not recorded ............................ 16
Note collected by bank and not recorded on books ..... 1,120
Outstanding checks ................................... 1,100
NSF checks--not recorded on books nor redeposited .... 160
Assuming no errors were made, compute the cash balance per books on June 30 before any
reconciliation adjustments.
ANS:
Balance per bank statement, June 30 ................... $12,164
Add: Receipts not yet deposited ................... 1,340
Bank charges ................................. 16
NSF checks ................................... 160
$13,680
Deduct: Note collected by bank ....................... 1,120
Outstanding checks ........................... 1,100
Balance per books before reconciliation adjustments ... $11,460
PTS: 1 DIF: Easy OBJ: LO 4 TOP: AICPA FN-Measurement

MSC: AACSB Analytic
2. The books of Barry’s Service, Inc. disclosed a cash balance of $68,757 on June 30. The bank statement
as of June 30 showed a balance of $54,780. Additional information that might be useful in reconciling
the two balances follows:
(a) Check number 748 for $3,000 was originally recorded on the books as $4,500.
(b) A customer's note dated March 25 was discounted on April 12. The note was
dishonored on June 29 (maturity date). The bank charged Barry’s account for
$14,265, including a protest fee of $42.
(c) The deposit of June 24 was recorded on the books as $2,895, but it was actually a
deposit of $2,700.
(d) Outstanding checks totaled $9,885 as of June 30.
(e) There were bank service charges for June of $210 not yet recorded on the books.
(f) Barry’s account had been charged on June 26 for a customer's NSF check for
$1,296.
(g) Barry properly deposited $600 on June 3 that was not recorded by the bank.
(h) Receipts of June 30 for $13,425 were recorded by the bank on July 2.
(i) A bank memo stated that a customer's note for $4,500 and interest of $165 had been
collected on June 27, and the bank charged a $36 collection fee.
Prepare a bank reconciliation statement, using the form reconciling bank and book balances to the
correct cash balance.
ANS:
Balance per bank statement, June 30 ......... $54,780
Add: Deposits in transit ................ $13,425
Bank error--deposit not recorded ............ 600 14,025
$68,805
Deduct: Outstanding checks ................. 9,885
Corrected bank balance ...................... $58,920
Balance per books, June 30 .................. $68,757

Add: Book error--Check No. 748 .......... $ 1,500
Customer note collected by bank ............. 4,629 6,129
$74,886
Deduct: Dishonored note .................... $14,265
Book error--improperly recorded deposit ..... 195
NSF check ................................... 1,296
Bank service charges ........................ 210 15,966
Corrected book balance ...................... $58,920
PTS: 1 DIF: Medium OBJ: LO 4 TOP: AICPA FN-Measurement

MSC: AACSB Analytic
3. The Ryan Manufacturing Company received its bank statement for the month ending May 31. The
bank statement indicates a balance of $32,400. The cash account as of the close of business on May 31
has a balance of $8,350. In reconciling the balances, the following items are discovered.
(a) Collection by bank of note for $1,500 less collection fees of $250.
(b) Deposits in transit, $51,000.
(c) The bank charged the depositor $800 for overdrafts.
(d) Checks outstanding on May 31, $79,100.
(e) A canceled check issued to Kate Corp. for $4,500 was not recorded on Ryan
Manufacturing Company's books.
Prepare a bank reconciliation statement. (Use the format of reconciling bank and depositor figures to
corrected cash balance.)
ANS:
Balance per bank statement .................. $32,400
Add deposits in transit ..................... 51,000
$83,400
Deduct outstanding checks ................... 79,100
Corrected balance ........................... $ 4,300
Balance per depositor's records ............. $ 8,350
Add note receivable collected by bank ....... 1,250
$ 9,600
Deduct:
Overdrafts ................................ $ 800
Book error--unrecorded check .............. 4,500 5,300
Corrected balance ........................... $ 4,300

MSC: AACSB Analytic
4. The accountant for the Teffen Company assembled the following data:
June 30 July 31
Cash account balance ........................ $ 15,822 $ 39,745
Bank statement balance ...................... 107,082 137,817
Deposits in transit ......................... 8,201 12,880
Outstanding checks .......................... 27,718 30,112
Bank service charge* ........................ 72 60
Customer's check deposited July 10, returned 8,250
by bank on July 16 marked NSF, and
redeposited immediately; no entry made on
books for return or redeposit ..............
Collection by bank of company's notes 71,815 80,900
receivable .................................
* (Recorded on books in month following charge
or collection) ...........................
The bank statements and the company's cash records show these totals:
Disbursements in July per bank statement ................ $218,373

Cash receipts in July per Teffen’s books ................ 236,452
Checks written in July per Teffen’s books ............... 212,529
Receipts in July per bank statement ..................... 249,108
Prepare a 4-column bank reconciliation as of July 31, using the form that reconciles both the book and
bank balances to a correct cash amount.
ANS:
Teffen Company
Reconciliation of Receipts, Disbursements, and Bank Balance
July 31
Beginning Ending
Reconciliation Reconciliation
June 30 Receipts Disbursements July 31
Balance per bank

statement ....... $107,082 $249,108 $218,373 $137,817
Deposits in
transit:
June 30 .......... 8,201 (8,201)
July 31 .......... 12,880 12,880
Outstanding
checks:
June 30 .......... (27,718) (27,718)
July 31 .......... 30,112 (30,112)
NSF check
redeposited ..... (8,250) (8,250)
Corrected bank
balance ......... $ 87,565 $245,537 $212,517 $120,585
Balance per books $ 15,822 $236,452 $212,529 $ 39,745

Bank service
charge:
June ............. (72) (72)
July ............. 60 (60)
Collection of
notes receivable:
June ............. 71,815 (71,815)
July ............. 80,900 80,900
Corrected book
balance ......... $ 87,565 $245,537 $212,517 $120,585
PTS: 1 DIF: Challenging OBJ: LO 4 TOP: AICPA FN-Measurement

MSC: AACSB Analytic
5. The following information was abstracted from the records of the Norrick Corporation:
Accounts Receivable, December 31, 2014 ............ $ 590,000

Allowance for Doubtful Accounts before adjustment,
December 31, 2014 ............................... 18,000 (dr)
Sales--2014........................................ 2,180,000
Sales Discounts--2014 ............................. 18,000
Sales Returns--2014 ............................... 27,000
Prepare the adjusting entry for doubtful accounts expense under each of the following assumptions:
(1) 3 percent of outstanding accounts receivable are uncollectible.
(2) 1.5 percent of 2014 net sales are uncollectible.
(3) An aging schedule of the accounts shows that $21,400 of the accounts are
uncollectible.
ANS:
(1)
Doubtful Accounts Expense ................... 35,700
Allowance for Doubtful Accounts ........... 35,700
[(3%  $590,000) + $18,000]
(2)
[1.5%  ($2,180,000 - $18,000 - $27,000)]
(3)
($21,400 + $18,000)

MSC: AACSB Analytic
6. The following information was abstracted from the 2014 financial statements of Keller Company:
Sales ............................................... $747,000 *
Accounts Receivable, December 31, 2014 .............. 128,000
Allowance for Doubtful Accounts ..................... 1,220 (cr)
Sales discounts ..................................... 18,000 *
Sales returns ....................................... 12,400 *
*30% related to credit sales ........................
Prepare the adjusting entry for doubtful accounts expense under each of the following assumptions:
(1) 4 percent of current accounts receivable are uncollectible.
(2) 2.5 percent of net credit sales are uncollectible.
ANS:
(1)
Doubtful Accounts Expense
(4%  128,000) - $1,220 .................. 3,900
(2)
30% ($747,000 - $18,000 - $12,400) =
$214,980
(2.5%  $214,980) = $5,375

MSC: AACSB Analytic
7. From inception of operations to December 31, 2013, Centaur Corporation provided for uncollectible
accounts receivable under the allowance method: Provisions were made monthly at 2 percent of credit
sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously
written off were credited to the allowance account; and no year-end adjustments to the allowance
account were made. Centaur’s usual credit terms are net 30 days.
The credit balance in the allowance for doubtful accounts was $260,000 at January 1, 2014. During
2014, credit sales totaled $18,000,000, interim provisions for doubtful accounts were made at 2
percent of credit sales, $180,000 of bad debts were written off, and recoveries of accounts previously
written off amounted to $30,000. Centaur installed a computer system in November 2014 and an aging
of accounts receivable was prepared for the first time as of December 31, 2014. A summary of the
aging is as follows:
Classifications by Balance in Estimated %

Month of Sale Each Category Uncollectible
November-December 2014 $2,280,000 2%
July-October 2014 1,200,000 15%
January-June 2014 800,000 25%
Prior to January 1, 2014 260,000 80%
Based on the review of collectibility of the account balances in the "prior to January 1, 2014" aging
category, additional receivables totaling $120,000 were written off as of December 31, 2014. Effective
with the year ended December 31, 2014, Centaur adopted a new accounting method for estimating the
allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts
receivable.
(1) Prepare a schedule analyzing the changes in the allowance for doubtful accounts for
the year ended December 31, 2014. Show supporting computations in good form.
(2) Prepare the journal entry for the year-end adjustment to the allowance for doubtful
accounts balance as of December 31, 2014.
ANS:
(1)
Centaur Corporation
Analysis of Changes in the Allowance for Doubtful Accounts
For the Year Ended December 31, 2014
Balance at January 1, 2014 ............................... $260,000

Provision for doubtful accounts ($18,000,000  2%) ....... 360,000
Recovery in 2014 of bad debts written off previously ..... 30,000
$650,000
Deduct write-offs for 2014 ($180,000 + $120,000) ......... 300,000
Balance at December 31, 2014, before change in accounting
estimate ............................................... $350,000
Increase due to change in accounting estimate during 2014
($537,600 - $350,000) .................................... 187,600
Balance at December 31, 2014, adjusted (Schedule 1) ...... $537,600
Schedule 1
Computation of Allowance for Doubtful Accounts
at December 31, 2014
Doubtful
Aging Category Balance Percent Accounts
November-December 2014 $2,280,000 2% $ 45,600
July-October 2014 1,200,000 15% 180,000
January-June 2014 800,000 25% 200,000
Prior to January 1, 2014 140,000 * 80% 112,000
$4,420,000 $537,600
* $260,000 - $120,000
(2)
Doubtful Accounts Expense .................... 187,600
Allowance for Doubtful Accounts ............ 187,600
To increase the allowance for doubtful
accounts at December 31, 2014, resulting
from a change in accounting estimate.

MSC: AACSB Analytic
8. You are the auditor of Browning, Inc., a manufacturer of plastic products. In reviewing the balance
sheet of the company, you notice several receivables from the officers of the company. You report
your findings to the president of the company and inform him that these receivables will be considered
related party transactions for purposes of financial accounting and reporting. The president seems
somewhat annoyed by your comments and asks you to explain what you mean by "related party"
transactions and how the financial statements will be affected by these transactions. Prepare a brief
response to the president's question.
ANS:
Related party transactions occur when an enterprise engages in transactions in which one of the parties
to the transaction has the ability to influence significantly the policies of the other, or in which one
party to the transaction has the ability to influence the policies of the two transacting parties. The
following are examples of related party transactions:
a. Transactions between a parent company and its subsidiaries.

b. Transactions between subsidiaries of a common parent.
c. Transactions between an enterprise and trusts for the benefit of employees (such
trusts being controlled or managed by the enterprise).
d. Transactions between an enterprise and its principal owners, management, or
members of immediate families and affiliates.
Transactions between related parties may be controlled entirely by one of the parties so that the
transactions may be affected significantly by considerations other than those in arm's-length
transactions with unrelated parties. Related party transactions frequently involve such things as
borrowing or lending money at abnormally high or low interest rates, real estate sales at amounts that
differ significantly from appraised values, exchanges of nonmonetary assets, and transactions with
"shell" companies (enterprises having no economic substance).
Transactions with related parties are not conducted at arm's-length and thus their form may differ from
their economic substance. In cases where the form of the transaction differs from the substance,
auditors will require that the financial statements properly reflect the substance of the transaction.
Auditors also will require that the financial statements include the following disclosures regarding
related party transactions:
a. The nature of the relationship(s) involved.

b. A description of the transactions, including transactions to which no amounts or
nominal amounts were ascribed for each period for which an income statement is
presented.
c. The dollar amounts of transactions for each of the periods for which income
statements are presented.
d. Amounts due from or to related parties as of the date of each balance sheet presented.
The president may be reluctant to disclose the nature or amounts of related party transactions and may
resist changes in accounting for related party transactions if the transactions have not been accounted
for in accordance with applicable generally accepted accounting principles or do not reflect the
substance of the transactions.
PTS: 1 DIF: Medium OBJ: LO 5 TOP: AICPA FN-Reporting

MSC: AACSB Reflective Thinking
9. Receivables can be used to generate cash through two general categories of transactions:
1. A secured borrowing
2. A sale of the receivables.
Both of these types of transactions require a transfer of the receivables to a new holder, typically a
financial institution.
Required:
Distinguish between a secured borrowing and a sale of receivables as regards the rights of the
transferor and transferee as well as regards the accounting for each type of transaction.
ANS:
A secured borrowing uses the receivable as collateral for the loan. If the borrower assigning or
pledging the receivables defaults on the loan payments, the proceeds from the collection of the pledged
or assigned receivables will be applied directly to the payment of the debt. The term “assigning”
signifies the pledging of specific receivables as collateral, whereas the term pledging refers to pledging
of say all trade receivables as collateral.
The borrower typically cannot borrow up to the full amount of the receivables pledged. The lender
retains this difference in order to provide for accounts on which collection is not made. The lender also
levies a financing charge on the borrower in addition to the interest on the loan itself. Collection of the
receivables may be done by the borrower or the lender. In the case of pledging, the responsibility for
collection of the receivables rests entirely with the borrower.
In the case of a secured borrowing, the transferor maintains the receivables on its books, records a
liability, and recognizes interest expense over the term of the loan. If the transferee is not permitted to
sell or pledge the collateralized receivables unless the transferor defaults, then the transferor continues
to carry the assets with its trade accounts receivable. If the transferee is permitted to sell or pledge the
assets, then the transferor must reclassify the receivables and report them separately from other
receivables.
A sale of receivables requires that the borrower surrender control over the receivables. Specific
requirements are provided by the FASB to determine if a borrower has in fact surrendered control. If
these requirements are met, then the receivables are removed from the borrower’s books and a gain or
loss is recognized. The lender will record the receivables received on its books at fair value.
PTS: 1 DIF: Medium OBJ: LO 6 TOP: AICPA FN-Reporting

MSC: AACSB Analytic
10. Receivables can be used to generate cash through two general categories of transactions:
1. A secured borrowing
2. A sale of the receivables.
Both of these types of transactions require a transfer of the receivables to a new holder, typically a
financial institution.
A sale of receivables results in the receivables being removed from the books of the transferor and the
recognition of gain or loss. From the transferee’s standpoint, a sale of receivables results in the
receivables being recorded on its books at their fair value.
Required:
Identify the conditions that must exist for a transfer of receivables to be accounted for as a sale.
ANS:
A transfer of receivables is accounted for as a sale only if the transferor surrenders control over the
assets transferred. The transferor must receive consideration other than the right to receive cash flows
from the receivables. If the transferor retains the right to receive cash flows from the receivables, then
transferee may not be able to sell the receivables, suggesting that control has not been completely
relinquished by the transferor.
A transfer of receivables must meet the following conditions prescribed by Statement of Financial
Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities”:
1. The transferred assets must have been isolated from the transferor--put beyond the reach
of the transferor and its creditors, even in bankruptcy or other receivership.
2. The transferee has the right to pledge or exchange the assets, free of conditions that
restrain it from taking advantage of that right.
3. The transferor does not maintain effective control over the transferred assets through
either
a. an agreement that the transferor repurchase or redeem the transferred assets before
their maturity, or
b. entitles the transferor to repurchase assets that are not readily obtainable.
A recourse obligation alone does not prevent a transfer from being recorded as a sale. An option held
by the transferor to repurchase the receivables does not necessarily require recording a transfer as loan.
For the first condition to be met, neither the transferor nor the creditors of the transferor can retain a
claim to the transferred receivables. Additionally, the transferor cannot retain the right to revoke the
transfer.
The second condition suggests that if a transferee can sell or pledge the receivables without
interference from the transferor or other parties, then the transferor has control over the future cash
flows underlying the receivables, as a result of a past transaction.
The third condition pertains to a requirement that the transferor repurchase the receivables (a “call”
option). If the transferor must repurchase the receivables, then control has not passed to the transferee.
A transferor may wish to reacquire interest-bearing receivables when interest rate changes would be
favorable to someone holding the receivable. Such an option may seem to violate the requirement for
control to pass to the transferee. Nonetheless, such an option does not entitle the transferor to receive
interest or other benefits from the transferred receivables. The transferor does not have custody of the
assets, does not control the disposition of the assets, and cannot access the assets unless the option is
exercised.
The transferee must be capable of fulfilling the option, if exercised. The transferred assets, or similar
assets, must be readily obtainable. If the assets are not readily obtainable, then the transferee would be
unable to sell the assets originally transferred, and thus would not have effective control over the
assets.
PTS: 1 DIF: Challenging OBJ: LO 6 TOP: AICPA FN-Reporting

MSC: AACSB Analytic
11. Securitization is a widely-used arrangement for selling receivables. Many companies use credit card
securitization and other forms of securitizations as part of their overall financing strategies.
Required:
Explain the nature of securitization, how it can be implemented, and the appropriate accounting
procedures related to a securitization. Include in your discussion the effects of recourse provisions on
the securitization.
ANS:
A securitization requires first that a company create a special purpose entity (SPE). This SPE usually is
a trust or a subsidiary. The SPE buys a pool of trade receivables, credit card receivables, or loans from
the company, and then sells securities such as bonds or commercial paper that are backed
(collateralized) by the receivables. To qualify as a sale, the transfer of the receivables must meet
specific criteria that ensure that seller has relinquished control.
Securitization of receivables without recourse means that the buyer assumes the risk of the receivables
not being collectible. The buyer has no recourse to the seller if the customers do not pay the
receivables. The seller accounts for the transaction as a sale of an asset.
Securitization of receivables with recourse means that the seller retains the risk of uncollectibility. The
seller guarantees that the buyer will be paid even if certain receivables are uncollectible. In this case,
the securitization would still be accounted for as a sale by the seller. The seller would be required to
estimate and record the fair value of the recourse obligation as a liability.

MSC: AACSB Analytic
Foreman Company sells specialized machinery and equipment. On January 1, 2014, the company sold
equipment and received a two-year, $10,000 note with a 3 percent stated interest rate. Interest is
payable each December 31, and the entire principal is payable December 31, 2015.
The equipment does not have a readily established market value. The market rate of interest for notes
of this type and level of risk is 10 percent.
12. See Foreman Company information above.
Required:
Prepare the entries on Foreman Company’s books to record the sale of the equipment.
ANS:
Accounting Principles Board Opinion No. 21, “Interest on Receivables and Payables,” requires that the
note be accounted for at the market rate of interest appropriate for the transaction. In this case, that rate
is 10 percent.
The present value of the note is computed as follows:
Present value of the maturity amount:

$10,000 ´ PVF2/10% = $ 8,265
Present value of the nominal interest payments:
($10,000 ´ .03) ´ PVAF2/10% = 521
Present value of note at 10% $ 8,786
The appropriate journal entries are as follows:
January 1, 2014:
Note Receivable 10,000
Discount on Note Receivable
1,214
Sales Revenue
8,786
December 31, 2014:
Cash ($10,000  .03) 300
Discount on Note Receivable 579
Interest Revenue ($8,786  .10)
879
December 31, 2015:

Cash ($10,000  .03) 300
Discount on Note Receivable 636
Interest Revenue ($9,365  .10)
936
December 31, 2015:

Cash 10,000
Note Receivable
10,000

MSC: AACSB Analytic
13. See Foreman Company information above.
Required:
Explain how and why this transaction was structured as it is.
ANS:
Notes with stated interest rates below market are used by companies to increase sales. Such notes
represent yet another means of marketing the seller’s product.
The Foreman Company note uses a low nominal or stated interest rate offset by an increased face
value. Many buyers of costly items, including automobiles, home appliances, and houses are more
concerned about the monthly payment than the final maturity payment (or balloon payment). The
present value of the Foreman Company note is $8,786. A note with a face value of $8,787 and 10
percent interest rate results in the same present value to Foreman Company as a note with a $10,000
face value and a 3 percent interest rate. A 3 percent interest payment on $10,000 ($300) may be more
attractive to a buyer than a 10 percent payment on $8,786 ($879). Foreman Company earns 10 percent
over the two-year term of the note either way. Note that with a face value of $8,786 and a 10 percent
interest rate, Foreman would receive cash totaling $10,544, which is less than the total cash receipts
with a $10,000 face value and 3 percent interest. Foreman would be willing to accept the $8,786 note
at 10 percent interest because it would receive cash more quickly under this arrangement.
Prior to the issuance of Accounting Principles Board Opinion No. 21, “Interest on Receivables and
Payables”, no definitive guidelines existed for accounting for a situation in which the stated and
market rates were unequal. Some companies recorded notes at face value even though the market rate
exceed the stated rate, resulting in inflated values for notes receivable and sales.

MSC: AACSB Analytic
14. On January 1, 2014, Nonsuch Corporation sold specialized equipment originally costing $20,000 and
having a book value of $16,000. The market value of the equipment was not readily determinable.
Nonsuch received a $5,000 downpayment and a $10,000, 4 percent note payable in four equal annual
installments beginning December 31, 2014. The current market rate on notes of a similar nature and
risk is 10 percent.
Required:
Prepare the entries to record the sale of the equipment on January 1, 2014, and the first interest
payment received on December 31, 2014.
ANS:
Computation of the annual payment:
$10,000 /PVAF4/4% $ 2,755
The principal of the note equals the present value of four

payments of $2,755 at 10%:
$2,755 ´ PVAF4/10% = $ 8,733
January 1, 2014:
Cash 5,000
Accumulated Depreciation ($20,000 - $16,000) 4,000
Loss on Sale of Equipment ($16,000 - $5,000 -$8,733) 2,267
Discount on Note Receivable Equipment 1,267
20,000
December 31, 2014:
Cash 2,755
Discount on Note Receivable (.10 ´ $8,733) 873
Interest Revenue (.10 ´ $8,733) 873

MSC: AACSB Analytic
15. Cash, the most liquid of all assets, must be safeguarded. Cash can be easily concealed and transported,
bears no marks of ownership, and is universally valued and accepted. Risk of theft of cash is directly
correlated to the accessibility of cash and cash records. Businesses address these problems through a
system of internal control.
Required:
1. Discuss generally what a system of internal control is designed to accomplish and

identify general controls over cash that should be implemented.
2. Identify internal control procedures for cash receipts.
3. Identify internal control procedures for cash disbursements.
ANS:
1. A system of internal control is designed to:
a. Protect assets.
b. Ensure compliance with laws and company policy.
c. Provide accurate accounting records.
d. Evaluate performance.
An internal control system for cash should include the following:

a. Separation of custody of and accounting for cash.
b. Procedures to insure that all cash transactions are accounted for.
c. Policies resulting in holding only minimal cash balances.
d. Periodic test counts of cash balances.
e. Reconciliation of general ledger and bank cash account balances.
f. Obtain an adequate return on idle cash balances.
g. Provide physical control of cash.
2. Specific controls over cash receipts would include:
a. Separation of responsibilities for handling cash, for recording cash transactions,

and for reconciling cash balances in order to reduce the likelihood of theft and
concealment through false recording.
b. Separation of cash handling and cash-recording responsibilities to ensure a
continuous, uninterrupted flow of cash from receipt to deposit. All cash should be
immediately counted, recorded and deposited.
c. Supervision of all cash-handling and cash-recording functions. Routine and
surprise cash counts, internal audits, and preparation of daily reports of cash
receipts, disbursements, and balances should be required.
3. Specific controls over cash disbursements would include:
a. Separation of responsibilities for cash disbursement documentation, check

writing, check signing, check mailing, and record keeping.
b. Requirements that all disbursements are made by check (except petty cash
disbursements) and that pre-numbered checks are issued and accounted for
numerically.
c. Tight controls and authorization procedures over all petty cash funds.
d. Preparation and signing of checks only if supported by adequate documentation
and verification.
e. Supervision of all cash disbursement and record-keeping functions.

MSC: AACSB Analytic
16. The annual report of McGregor Manufacturing showed the following in the 2014 balance sheet:
Balance Sheet: June 30, 2014
Current assets:
Other receivables $ 10,778,000
Noncurrent assets: $ 31,454,000

Notes receivable
Footnote information:
The fair value of the notes receivable was estimated by discounting the future cash flows using current
rates available to similar borrowers under similar circumstances.
All notes receivable bear interest at 5% to 12% and require future principal payments of approximately
$547,000 in 2015, $3,742,000 in 2016, $1,015,000 in 2017, $683,000 in 2018, $661,000 in 2019, and
$25,353,000 thereafter. The current portion of these long-term notes is included in other receivables in
the consolidated balance sheets.
Required:
1. Estimate the average term of the notes and the interest rates at which these notes were
issued by customers of McGregor.
2. Why would the interest rates vary so much?
3. Are the stated rate and the prevailing market rate of interest similar or quite different at
the date of issue?
ANS:
1. Most of the principal payments are due after 2019 suggesting that the average term is at
least six years (or perhaps longer).
2. Long-term notes are measured at the present value of remaining cash payments
(receipts), using the prevailing market rate of interest at the date of issuance. If the sum
of future principal payments is close to the net valuation of notes in the balance sheet,
then the stated and market rates of interest likely were similar at the date of issuance.
The stated interest rates vary between 5% and 12% which reflects the credit risks
associated with a wide range of customers and the variation in interest rates in effect at
the times the various notes were issued.
The sum of the principal payments for the period 2015 through 2019 and thereafter as
listed in the footnotes is $32,001,000. This amount is close to the amount disclosed for
net long-term notes receivable.
The principal amount due one year from the balance sheet date ($547,000) explains the
difference between the sum of the principal payments ($32,001,000) and the valuation
of long term notes ($31,454,000). This difference suggests that the market rates at
issuance of the notes likely were the same as the stated rates.

MSC: AACSB Analytic
17. The following is information from the books of Gioulis Consulting on September 30:
Balance per bank statement $53,000

Receipts recorded but not yet deposited in the bank 3,800
Bank charges not recorded 75
Note collected by bank and not recorded on books 2,070
Outstanding checks 2,732
NSF checks—not recorded on books nor redeposited 580
Assume no errors exist, compute the cash balance per books on September 30 before any
reconciliation adjustments.
ANS:
Balance per bank statement September 30 $53,000
Add: Receipts not yet deposited 3,800
Bank charges 75
NSF checks 580
Deduct: $57,455
Note collected by bank 2,070
Outstanding checks 2,732
Balance per books before reconciliation adjustments $52,653

MSC: AACSB Analytic
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inconsistent both with the general scope and the minute details of
the writing itself, that even without the support of this most
incontrovertible evidence of the earliest Christian antiquity, the
falsehood of the idea of any anti-papal prophecy can be most
triumphantly and unanswerably settled; and this has been repeatedly
done, in every variety of manner, by the learned labors of all the
sagest of the orthodox theologians of Germany, Holland, France and
England, for the last three hundred years. A most absurd notion
seems to be prevalent, that the idea of a rational historical
interpretation of the Apocalypse, is one of the wicked results of that
most horrible of abstract monsters, “German neology;” and the
dreadful name of Eichhorn is straightway referred to, as the source
of this common sense view. But Eichhorn and all those of the
modern German schools of theology, who have taken up this notion,
so far from originating the view or aspiring to claim it as their
invention, were but quietly following the standard authorities which
had been steadily accumulating on this point for sixteen hundred
years; and instead of being the result of neology or of anything new,
it was as old as the time of Irenaeus. The testimony of all the early
writers on this point, is uniform and explicit; and they all, without a
solitary exception, explain the great mass of the bold expressions in
it, about coming ruin on the enemies of the pure faith of Christ, as a
distinct, direct prophecy of the downfall of imperial Rome, as the
great heathen foe of the saints. There was among them no very
minute account of the manner in which the poetical details of the
prophecy was to be fulfilled; but the general meaning of the whole
was considered to be so marked, dated, and individualized, that to
have denied this manifest interpretation in their presence, must have
seemed an absurdity not less than to have denied the authentic
history of past ages. Not all, nor most of the Christian Fathers
however, have noticed the design and character of the Apocalypse,
even among those of the western churches; while the scepticism of
the Greek and Syrian Fathers, after the third century, about the
authenticity of the work, has deprived the world of the great
advantage which their superior acquaintance with the original
language of the writing, with its peculiarly oriental style, allusions and
quotations, would have enabled them to afford in the faithful
interpretation of the predictions. From the very first, however, there
were difficulties among the different sects, about the allegorical and
literal interpretations of the expressions which referred to the final
triumph of the followers of Christ; some interpreting those passages
as describing an actual personal reign of Christ on earth, and a real
worldly triumph of his followers, during a thousand years, all which
was to happen shortly;――and from this notion of a Chiliasm, or a
Millennium, arose a peculiar sect of heretics, famous in early
ecclesiastical history, during the two first centuries, under the name
of Chiliasts or ♦ Millenarians,――the Greek or the Latin appellative
being used, according as the persons thus designated or those
designating them, were of eastern or western stock. Cerinthus and
his followers so far improved this worldly view of the subject, as to
inculcate the notion that the faithful, during that triumph, were to be
further rewarded, by the full fruition of all bodily and sensual
pleasures, and particularly that the whole thousand years were to be
passed in nuptial enjoyments. But these foolish vagaries soon
passed away, nor did they, even in the times when they prevailed,
affect the standard interpretation of the general historical relations of
the prophecy.
♦ “Millennarians” replaced with “Millenarians”
It was not until a late age of modern times, that any one pretended
to apply the denunciations of ruin, with which the Apocalypse
abounds, to any object but heathen, imperial Rome, or to the pagan
system generally, as personified or concentrated in the existence of
that city. During the middle ages, the Franciscans, an order of
monks, fell under the displeasure of the papal power; and being
visited with the censures of the head of the Romish church, retorted,
by denouncing him as an Anti-Christ, and directly set all their wits to
work to annoy him in various ways, by tongue and pen. In the course
of this furious controversy, some of them turned their attention to the
prophecies respecting Rome, which were found in the Apocalypse,
then received as an inspired book by all the adherents of the church
of Rome; and searching into the denunciations of ruin on the
Babylon of the seven hills, immediately saw by what a slight
perversion of expressions, they could apply all this dreadful
language to their great foe. This they did accordingly, with all the
spite which had suggested it; and in consequence of this beginning,
the Apocalypse thenceforward became the great storehouse of
scriptural abuse of the Pope, to all who happened to quarrel with
him. This continued the fashion, down to the time of the Reformation;
but the bold Luther and his coadjutors, scorned the thought of a
scurrilous aid, drawn from such a source, and with a noble honesty
not only refused to adopt this construction, but even did much to
throw suspicion on the character of the book itself. Luther however,
had not the genius suited to minute historical and critical
observations; and his condemnation of it therefore, though showing
his own honest confidence in his mighty cause, to be too high to
allow him to use a dishonest aid, yet does not affect the results to
which a more deliberate examination has led those who were as
honest as he, and much better critics. This however, was the state in
which the early reformers left the interpretation of the Apocalypse.
But in later times, a set of spitefully zealous Protestants, headed by
Napier, Mede, and bishop Newton, took up the Revelation of John,
as a complete anticipative history of the triumphs, the cruelties and
the coming ruin of the Papal tyranny. These were followed by a
servile herd of commentators and sermonizers, who went on with all
the elaborate details of this interpretation, even to the precise
meaning of the teeth and tails of the prophetical locusts. These
views were occasionally varied by others tracing the whole history of
the world in these few chapters, and finding the conquests of the
Huns, the Saracens, the Turks, &c. all delineated with most amazing
particularity.
But while these idle fancies were amusing the heads of men, who
showed more sense in other things, the great current of Biblical
knowledge had been flowing on very uniformly in the old course of
rational interpretation, and the genius of modern criticism had
already been doing much to perfect the explanation of passages on
which the wisdom of the Fathers had never pretended to throw light.
Of all critics who ever took up the Apocalypse in a rational way, none
ever saw so clearly its real force and application as Hugo Grotius;
and to him belongs the praise of having been the first of the moderns
to apprehend and expose the truth of this sublimest of apostolic
records. This mighty champion of Protestant evangelical theology,
with that genius which was so resplendent in all his illustrations of
Divine things as well as of human law, distinctly pointed out the three
grand divisions of the prophetical plan of the work. “The visions as
far as to the end of the eleventh chapter, describe the affairs of the
Jews; then, as far as to the end of the twentieth chapter, the affairs
of the Romans; and thence to the end, the most flourishing state of
the Christian church.” Later theologians, following the great plan of
explanation thus marked out, have still farther perfected it, and
penetrated still deeper into the mysteries of the whole. They have
shown that the two cities, Rome and Jerusalem, whose fate
constitutes the most considerable portions of the Apocalypse, are
mentioned only as the seats of two religions whose fall is foretold;
and that the third city, the New Jerusalem, whose triumphant
heavenly building is described in the end, after the downfall of the
former two, is the religion of Christ. Of these three cities, the first is
called Sodom; but it is easy to see that this name of sin and ruin is
only used to designate another devoted by the wrath of God to a
similar destruction. Indeed, the sacred writer himself explains that
this is only a metaphorical or spiritual use of the term,――“which is
spiritually called Sodom and Egypt;”――and to set its locality beyond
all possibility of doubt, it is furthermore described as the city “where
also our Lord was crucified.” It is also called the “Holy city,” and in it
was the temple. Within, have been slain two faithful witnesses of
Jesus Christ; these are the two Jameses,――the great apostolic
proto-martyrs; James the son of Zebedee, killed by Herod Agrippa,
and James the brother of our Lord, the son of Alpheus, killed by
order of the high priest, in the reign of Nero, as described in the lives
of those apostles. The ruin of the city is therefore sealed. The
second described, is called Babylon; but that Chaldean city had
fallen to the dust of its plain, centuries before; and this city, on the
other hand, stood on seven hills, and it was, at the moment when the
apostle wrote, the seat of “the kingdom of the kingdoms of the earth,”
the capital of the nations of the world,――expressions which
distinctly mark it to be imperial Rome. The seven angels pour out
the seven vials of wrath on this Babylon, and the awful ruin of this
mighty city is completed.
To give repetition and variety to this grand view of the downfall of

these two dominant religions, and to present these grand objects of
the Apocalypse in new relations to futurity, which could not be fully
expressed under the original figures of the cities which were the
capital seats of each, they are each again presented under the
poetical image of a female, whose actions and features describe the
fate of these two systems, and their upholders. First, immediately
after the account of the city which is called Sodom, a female is
described as appearing in the heavens, in a most peculiar array of
glory, clothed in the sun’s rays, with the moon beneath her feet, and
upon her head a crown of twelve stars. This woman, thus splendidly
arrayed, and exalted to the skies, represents the ancient covenant,
crowned with all the old and holy honors of the twelve tribes of Israel.
A huge red dragon (the image under which Daniel anciently
represented idolatry) rises in the heavens, sweeping away the third
part of the stars, and characterized by seven heads and ten horns,
(thus identified with a subsequent metaphor representing imperial
Rome;)――he rages to devour the offspring to which the woman is
about to give existence. The child is born destined to rule all nations
with a rod of iron,――and is caught up to the throne of God, while
the mother flees from the rage of the dragon into the wilderness,
where she is to wander for ages, till the time decreed by God for her
return. Thus, when from the ancient covenant had sprung forth the
new revelation of truth in Jesus, it was driven by the rage of
heathenism from its seat of glory, to wander in loneliness, unheeded
save by God, till the far distant day of its blissful re-union with its
heavenly offspring, which is, under the favor of God, advancing to a
firm and lasting dominion over the nations. Even in her retirement,
she is followed by the persecutions of the dragon, now cast down
from higher glories; but his fury is lost,――she is protected by the
earth, (sheltered by the Parthian empire;) yet the dragon still
persecutes those of her children who believe in Christ, and are yet
within his power; (Jews and Christians persecuted in Rome, by Nero
and Domitian.)
Again, after the punishment and destruction of imperial Babylon

have been described, a second female appears, not in heaven, like
the first, but in an earthly wilderness, splendidly attired, but not with
the heavenly glories of the sun, moon and stars. Purple and scarlet
robes are her covering, marking an imperial honor; and gold, silver,
and all earthly gems, adorn her,――showing only worldly greatness.
In her hand is the golden cup of sins and abominations, and she is
designated beyond all possibility of mistake, by the words, “Mystery,
Babylon the Great.” This refers to the fact, that Rome had another
name which was kept a profound secret, known only to the priests,
and on the preservation of which religious “mystery,” the fortunes of
the empire were supposed to depend. The second name also
identifies her with the city before described as “Babylon.” She sits on
a scarlet beast, with seven heads and ten horns. The former are
afterwards minutely explained, by the apostle himself, in the same
chapter, as the seven hills on which she sits; they are also seven
kings, that is, it would seem, seven periods of empire, of which five
are past, one now is, and one brief one is yet to come, and the
bloody beast itself――the religion of heathenism――is another. The
ten horns are the ten kings or sovrans who never received any
lasting dominion, but merely held the sway one after another, a brief
hour, with the beast, or spirit of heathenism. These, in short, are the
ten emperors of Rome before the days of the
Apocalypse;――Augustus, Tiberius, Caligula, Claudius, Nero, Galba,
Otho, Vitellius, Vespasian and Titus. These had all reigned, each his
hour, giving his power to the support of heathenism, and thus
warring against the faith of the true believers. Still, though reigning
over the imperial city, they shall hate her, and make her desolate;
strip her of her costly attire, and burn her with fire. How well
expressed here the tyranny, of the worst of the Caesars, plundering
the state, banishing the citizens, and, in the case of Nero, “burning
her with fire!”
Who can mistake the gorgeously awful picture? It is heathen,

imperial Rome, desolating and desolated, at that moment suffering
under the tyrannic sway of him whom the apostle cannot yet number
with the gloomy ten, that have passed away to the tomb of ages
gone. It is the mystic Babylon, drunk with the blood of the faithful
witnesses of Christ, and triumphing in the agonies of his saints,
“butchered to make a Roman holiday!” No wonder that the
amazement of the apostolic seer should deepen into horror, and
highten to indignation. Through her tyranny his brethren had been
slaughtered, or driven out from among men, like beasts; and by that
same tyranny he himself was now doomed to a lonely exile from
friends and apostolic duties, on that wild heap of barren rocks. Well
might he burst out in prophetic denunciation of her ruin, and rejoice
in the awful doom, which the angels of God sung over her; and listen
exultingly to the final wail over her distant fall, rolling up from futurity,
in the coming day of the Gothic and Hunnish ravagers, when she
should be “the desolator desolate, the victor overthrown.”
As there are three mystically named cities――Sodom, Babylon,

and the New Jerusalem; so there are three metaphoric
females,――the star-crowned woman in heaven, the bloody harlot
on the beast in the wilderness, and the bride, the Lamb’s wife. A
peculiar fate befalls each of the three pairs. The spiritual Sodom
falls under a temporary ruin, trodden under foot by the Gentiles,
forty-two mystic months; and the star-crowned daughter of Zion
wanders desolate in the wilderness of the world, for twelve hundred
and sixty days, till the hand of her God shall restore her to grace and
glory. The great Babylon of the seven hills, falls under a doom of
far darker, and of irrevocable desolation,――like the dashing roar of
the sinking rock thrown into the sea, she is thrown down, and shall
be found no more at all. And such too, is the doom of the fierce
scarlet rider of the beast,――“Rejoice over her, O heaven! and ye
holy apostles and prophets! for God has avenged you on her.” But
beyond all this awful ruin appears a vision of contrasting, splendid
beauty.
“The first two acts already past,
The third shall close the drama with the day;――
Time’s noblest offspring is the last.”
The shouts of vindictive triumph over the dreadful downfall of the

bloody city, now soften and sweeten into the songs of joy and praise,
while the New Jerusalem, the church of God and Christ, comes
down from the heavens in a solemn, glorious mass of living splendor,
to bless the earth with its holy presence. In this last great scene,
also, there is a female, the third of the mystic series; not like her of
the twelve stars, now wandering like a widow disconsolate, in the
wilderness;――not like her of the jeweled, scarlet and purple robes,
cast down from her lofty seat, like an abandoned harlot, now
desolate in ashes, from which her smoke rises up forever and
ever;――but it is one, all holy, happy, pure, coming down stainless
from the throne of God,――a bride, crowned with the glory of God,
adorned for her husband,――the One slain from the foundation of
the world. He through the opening heavens, too, has come forth
before her, the Word of God, the Faithful and the True,――known by
his bloody vesture, stained, not in the gore of slaughtered victims,
but in the pure blood poured forth by himself, for the world, from its
foundation. Yet now he rode forth on his white horse, as a warrior-
king, dealing judgment upon the world with the sword of
wrath,――with the sceptre of iron. Behind him rode the armies of
heaven,――the hallowed hosts of the chosen of God,――like their
leader, on white horses, but not like him, in crimson vesture; their
garments are white and clean; by a miracle of purification, they are
washed and made white in blood. This mighty leader, with these
bright armies, now returns from the conquests to which he rode forth
from heaven so gloriously. The kings and the hosts of the earth have
arrayed themselves in vain against him;――the mighty imperial
monster, in all the vastness of his wide dominion,――the false
prophets of heathenism, combining their vile deceptions with his
power, are vanquished, crushed with all their miserable slaves,
whose flesh now fills and fattens the eagles, the vultures, and the
ravens. The spirit of heathenism is crushed; the dragon, the monster
of idolatry, is chained, and sunk into the bottomless pit,――yet not
for ever. After a course of ages,――a mystic thousand years,――he
slowly rises, and winding with serpent cunning among the nations,
he deceives them again; till at last, lifting his head over the world, he
gathers each idolatrous and barbarous host together, from the whole
breadth of the earth, encompassing and assaulting the camp of the
saints; but while they hope for the ruin of the faithful, fire comes
down from God, and devours them. The accusing deceiver,――the
genius of idolatry and superstition,――is at last seized and bound
again; but not for a mere temporary imprisonment. With the spirit of
deception and imposture, he is cast into a sea of fire, where both are
held in unchanging torment, day and night, forever. But one last,
awful scene remains; and that is one, that in sublimity, and vastness,
and overwhelming horror, as far outgoes the highest effort of any
genius of human poetry, as the boundless expanse of the sky excels
the mightiest work of man. “A great white throne is fixed, and One
sits on it, from whose face heaven and earth flee away, and no place
is found for them.” “The dead, small and great, stand before God;
they are judged and doomed, as they rise from the sea and from the
land,――from Hades, and from every place of death.” Over all, rises
the new heaven and the new earth, to which now comes down the
city of God,――the church of Christ,――into which the victorious,
the redeemed, and the faithful enter. The Conqueror and his armies
march into the bridal city of the twelve jewelled gates, on whose
twelve foundation-stones are written the names of the mighty
founders, the twelve apostles of the slain one. The glories of that
last, heavenly, and truly eternal city, are told, and the mighty course
of prophecy ceases. The three great series of events are
announced; the endless triumphs of the faithful are achieved.
iii. what is the style of the apocalypse?
This inquiry refers to the language, spirit and rhetorical structure of

the writing, to its rank as an effort of composition, and to its
peculiarities as expressive of the personal character and feelings of
its inspired writer. The previous inquiry has been answered in such a
way as to illustrate the points involved in the present one; and a
recapitulation of the simple results of that inquiry, will best present
the facts necessary for a satisfactory reply to some points of this.
First, the Apocalypse is a prophecy, in the common understanding

of the term; but is not limited, as in the ordinary sense of that word,
to a mere declaration of futurity; it embraces in its plan the events of
the past, and with a glance like that of the Eternal, sweeps over that
which has been and that which is to be, as though both were now;
and in its solemn course through ages, past, present, and future, it
bears the record of faithful history, as well as of glorious prophecy.
Second, the Apocalypse is poetry, in the highest and justest sense

of the word. All prophecy is poetry. The sublimity of such thoughts
can not be expressed in the plain unbroken detail of a prose
narrative; and even when the events of past history are combined in
one harmonious series with wide views of the future, they too rise
from the dull unpictured record of a mere narrator, and share in the
elevation of the mighty whole. The spirit of the writer, replete, not
with mere particulars, but with vivid images, seeks language that
paints, “thoughts that breathe, and words that burn;” and thus the
writing that flows forth is poetry,――the imaginative expression of
deep, high feeling――swelling where the occasion moves the writer,
into the energy of passion, whether dark or holy.
The character of the Apocalypse, as affected by the passionate

feelings of the writer, is also a point which has been illustrated by
foregoing historical statements of his situation and condition at the
time of the Revelation. He was the victim of an unjust and cruel
sentence, deprived of all the sweet earthly solaces of his advanced
age, and left on a desert rock,――useless to the cause of Christ and
beyond even the knowledge of its progress. The mournful sound of
sweeping winds and dashing waves, alone broke the dreary silence
of his loneliness, and awaking sensations only of a melancholy
order, sent back his thoughts into the sadder remembrances of the
past, and called up also many of the sterner emotions against those
who had been the occasions of the past and present calamities
which grieved him. The very outset is in such a tone as these
circumstances would naturally inspire. A deep, holy indignation
breaks forth in the solemn annunciation of himself, as their “brother
and companion in tribulation.” Sadness is the prominent sentiment
expressed in all the addresses to the churches; and in the prelude to
the great Apocalypse, while the ceremonies of opening the book
which contains it are going on, the strong predominant emotion of
the writer is again betrayed in the vision of “the souls of them that
were slain for the word of God, and for the testimony which they
bore;” and the solemnly mournful cry which they send up to him for
whom they died, expresses the deep and bitter feeling of the writer
towards the murderers,――“How long, O Lord! holy and true! dost
thou not judge and avenge our blood on them that dwell on the
earth?” The apostle was thinking of the martyrs of Jerusalem and
Rome,――of those who fell under the persecutions of the high
priests, of Agrippa, and of Nero. And when the seven seals are
broken, and the true revelation, of which this ceremony was only a
poetical prelude, actually begins, the first great view presents the
bloody scenes of that once Holy city, which now, by its cruelties
against the cause which is to him as his life,――by the remorseless
murder of those who are near and dear to him,――has lost all its
ancient dominion over the affections and the hopes of the last
apostle and all the followers of Christ.
Again the mournful tragedies of earlier apostolic days pass before

him. Again he sees his noble brother bearing his bold witness of
Jesus; and with him that other apostle, who in works and fate as
much resembled the first, as in name. Their blood pouring out on the
earth, rises to heaven, but not sooner than their spirits,――whence
their loud witness calls down woful ruin on the blood-defiled city of
the temple. And when that ruin falls, no regret checks the exulting
tone of the thanksgiving. All that made those places holy and dear, is
gone;――God dwells there no more; “the temple of God is opened in
heaven, and there is seen in his temple the ark of his covenant,” and
all heaven swells the jubilee over the destruction of Jerusalem. And
after this, when the apostle’s view moved forward from the past to
the future, and his eye rested on the crimes and the destiny of
heathen Rome, the bitter remembrance of her cruelties towards his
brethren, lifted his soul to high indignation, and he burst forth on her
in the inspired wrath of a Son of Thunder;――
“Every burning word he spoke,
Full of rage, and full of grief.
“Rome shall perish; write that word
In the blood that she has spilt.
Rome shall perish,――fall abhorred,――
Deep in ruin as in guilt.”
In respect to the learning displayed in the Apocalypse, some most

remarkable facts are observable. Apart from the very copious
matters borrowed from the canonical writings of the Old Testament,
from Isaiah, Ezekiel, Daniel, and other prophets, from which, as any
reader can see, some of the most splendid imagery has been taken
almost verbatim,――it is undeniable, that John has drawn very
largely from a famous apocryphal Hebrew writing, called the Book
of Enoch, which Jude has also quoted in his epistle; and in his life it
will be more fully described. The vision of seven stars, explained to
be angels,――of the pair of balances in the hand of the horseman,
after the opening of the third seal,――the river and tree of
life,――the souls under the altar, crying for vengeance,――the angel
measuring the city,――the thousand years of peace and
holiness,――are all found vividly expressed in that ancient book, and
had manifestly been made familiar to John by reading. In other
ancient apocryphal books, are noticed some other striking and literal
coincidences with the Apocalypse. The early Rabbinical writings are
also rich in such parallel passages. The name of the Conqueror,
“which no one knows but himself,”――the rainbow stretched around
the throne of God,――the fiery scepter,――the seven
angels,――the sapphire throne,――the cherubic four beasts, six-
winged, and crying Holy, Holy, Lord God of hosts,――the crowns of
gold on the heads of the saints, which they cast before the
throne,――the book with seven seals,――the souls under the
altar,――the silence in heaven,――the Abaddon,――the child
caught up to God,――Satan, as the accuser of the saints, day and
night before God,――the angel of the waters,――the hail of great
weight,――the second death,――the new heaven and earth,――the
twelve-gated city of precious stones,――and Rome, under the name
of “Great Babylon,”――are all found in the old Jewish writings, in
such distinctness as to make it palpable that John was deeply
learned in Hebrew literature, both sacred and traditional.
Yet all these are but the forms of expression, not of thought. The
apostle used them, because long, constant familiarity with the
writings in which such imagery abounded, made these sentences the
most natural and ready vehicles of inspired emotions. The tame and
often tedious details of those old human inventions, had no influence
in moulding the grand conceptions of the glorious revelation. This
had a deeper, a higher, a holier source, in the spirit of eternal
truth,――the mighty suggestions of the time-over-sweeping spirit of
prophecy,――the same that moved the fiery lips of those
denouncers of the ancient Babylon, whose writings also had been
deeply known to him by years of study, and had furnished also a
share of consecrated expressions. That spirit he had caught during
his long eastern residence in the very scene of their prophecy and its
awful fulfilment. If this notion of his dwelling for a time with Peter in
Babylon is well founded, as it has been above narrated, it is at once
suggested also, that in that Chaldean city,――then the capital seat
of all Hebrew learning, and for ages the fount of light to the votaries
of Judaism,――he had, during the years of his stay, been led to the
deep study and the vast knowledge of that amazing range of
Talmudical and Cabbalistical learning, which is displayed in every
part of the Apocalypse. But how different all these resources in
knowledge, from the mighty production that seemed to flow from
them! How far are even the sublimest conceptions of the ancient
prophets, in their unconnected bursts and fragments of inspiration,
from the harmonious plan, the comprehensive range, and the
faultless dramatic unity, or rather tri-unity, of this most perfect of
historical views, and of poetical conceptions!
All these coincidences, with a vast number of other learned references, highly illustrative
of the character of the Apocalypse, as enriched with Oriental imagery, may be found in
Wait’s very copious notes on Hug’s Introduction.
There are many things in this view of the Apocalypse which will occasion surprise to
many readers, but to none who are familiar with the views of the standard orthodox writers
on this department of Biblical literature. The view taken in the text of this work, corresponds
in its grand outlines, to the high authorities there named; though in the minute details, it
follows none exactly. Some interpretations of particular passages are found no where else;
but these occasional peculiarities cannot affect the general character of the view; and it will
certainly be found accordant with that universally received among the Biblical scholars of
Germany and England, belonging to the Romish, the Lutheran, the Anglican, and Wesleyan
churches. The authority most closely followed, is Dr. Hug, Roman Catholic professor of
theology in an Austrian university, further explained by his translator, Dr. D. G. Wait, of the
church of England, more distinguished in Biblical and oriental literature, probably, than any
other of the numerous learned living divines of that church. These views are also found in
the commentary of that splendid orientalist, Dr. Adam Clarke, a work which, fortunately for
the world, is fast taking the place of the numerous lumbering, prosing quartos that have too
long met the mind of the common Bible reader with mere masses of dogmatic theology,
where he needs the help of simple, clear interpretation and illustration, which has been
drawn by the truly learned, from a minute knowledge of the language and critical history of
the sacred writings. This noble work, as far as I know, is the first which took the honest
ground of the ancient interpretation of the Apocalypse, with common readers, and
constitutes a noble monument to the praise of the good and learned man, who first threw
light for such readers on the most sublime book in the sacred canon, and among all the
writings ever penned by man,――a book which ignorant visionaries had too long been
suffered to overcloud and perplex for those who need the guidance of the learned in the
interpretation of the “many things hard to be understood” in the volume of truth. The first
book of a popular character, ever issued from the American press, explaining the
Apocalypse according to the standard mode, is a treatise on the Millennium, by the learned
Professor Bush, of the New York University, in which he adopts the grand outlines of the
plan above detailed, though I have not had the opportunity of ascertaining how it is, in the
minor details.
In reference to the tone assumed in some passages of the statement in the text,
perhaps it may be thought that more freedom has been used in characterizing opposite
views, than is accordant with the principles of “moderation and hesitation,” proposed in
comment upon Luther and Michaelis. But where, in the denunciation of popular error, a
reference to the motive of the inculcators of it would serve to expose most readily its nature,
such a freedom of pen has been fearlessly adopted; and severity of language on these
occasions is justified by the consideration of the character of the delusion which is to be
overthrown. The statements too, which are the occasion and the support of these
condemnations of vulgar notions, are drawn not from the mere conceptions of the writer of
this book, but from the unanswerable authorities of the great standards of Biblical
interpretation. The opportunity of research on this point has been too limited to allow
anything like an enumeration of all the great names who support this view; but references
enough have already been made, to show that an irresistible weight of orthodox sentiment
has decided in favor of these views as above given.
Some of the minute details, particularly those not authorized by learned men, who have
already so nearly perfected the standard view, may fall under the censure of the critical, as
fanciful, like those so freely condemned before; but they were written down because it
seemed that there was, in those cases, a wonderfully minute correspondence between
these passages and events in the life of John, not commonly noticed. The greater part of
this view, however, may be found almost verbatim in Wait’s translation of Hug’s Introduction.
The most satisfactory evidence of the meaning of the great mystery of the Apocalypse,
is in the true interpretation of “the number of the beast,” the mystic 666. In the Greek and
oriental languages, the letters are used to represent numbers, and thence arose in mystic
writings a mode of representing a name by any number, which would be made up by adding
together the numbers for which its letters stood; and so any number thus mystically given
may be resolved into a name, by taking any word whose letters when added together will
make up that sum. Now the word Latinus, (Λατεινος,) meaning the Latin or Roman empire,
(for the names are synonymous,) is made up of Greek letters representing the numbers
whose sum is 666. Thus Λ-30, α-1, τ-300, ε-5, ι-10, ν-50, ο-70, ς-200――all which, added
up, make just 666. What confirms this view is, that Irenaeus says, “John himself told those
who saw him face to face, that this was what he meant by the number;” and Irenaeus
assures us that he himself heard this from the personal acquaintances of John. (See Wait’s
note. Translation of Hug’s Introduction II. 626‒629, note.)
his last residence in ephesus.
The date of John’s return from Patmos is capable of more exact

proof than any other point in the chronology of his later years. The
death of Domitian, who fell at last under the daggers of his own
previous friends, now driven to this measure by their danger from his
murderous tyranny, happened in the sixteenth of his own reign,
(A. D. 96.) On the happy ♦consummation of this desirable revolution,
Cocceius Nerva, who had himself suffered banishment under the
suspicious tyranny of Domitian, was now recalled from his exile, to
the throne of the Caesars; and mindful of his own late calamity, he
commenced his just and blameless reign by an auspicious act of
clemency, restoring to their country and home all who had been
banished by the late emperor. Among these, John was doubtless
included; for the decree was so comprehensive that he could hardly
have been excluded from the benefit of its provisions; and to give
this view the strongest confirmation, it is specified by the heathen
historians of Rome, that this senatorial decree of general recall did
not except even those who had been found guilty of religious
offenses. Christian writers also, of a respectable antiquity, state
distinctly that the apostle John was recalled from Patmos by this
decree of Nerva. Some of the early ecclesiastical historians, indeed,
have pretended that this persecution against the Christians was
suspended by Domitian himself, on some occasion of repentance;
but critical examination and a comparison of higher authorities, both
sacred and profane, have disproved the notion. The data above-
mentioned, therefore, fix the return of John from banishment, in the
first year of Nerva, which, according to the most approved
chronology, corresponds with A. D. 96. This date is useful also, in
affording ground for a reasonable conjecture respecting the
comparative age of John. He could not have been near as old as
Jesus Christ, since the attainment of the age of ninety-six must imply
an extreme of infirmity necessarily accompanying it, unless a miracle
of most unparalleled character is supposed; and no one can venture
to require belief in a pretended miracle, of which no sacred record
bears testimony. If he was, on his return from Patmos, as well as
during his residence there, able to produce writings of such power
and such clear expression, as those which are generally attributed to
these periods, it seems reasonable to suppose that he was many
years younger than Jesus Christ. The common Christian era, also,
fixing the birth of Christ some years too late, this circumstance will
require a still larger subtraction from this number, for the age of
John.
♦ “consummamation” replaced with “consummation”

his gospel.
The united testimony of early writers who allude to this matter, is

that John wrote his gospel, long after the completion and circulation
of the writings of the three first evangelists. Some early testimony on
the subject dates from the end of the second century, and specifies
that John, observing that in the other gospels, those things were
copiously related which concern the humanity of Christ, wrote a
spiritual gospel, at the earnest solicitations of his friends and
disciples, to explain in more full detail, the divinity of Christ. This
account is certainly accordant with what is observable of the
structure and tendency of this gospel; but much earlier testimony
than this, distinctly declares that John’s design in writing, was to
attack certain heresies on the same point specified in the former
statement. The Nicolaitans and the followers of Cerinthus, in
particular, who were both Gnostical sects, are mentioned as having
become obnoxious to the purity of the truth, by inculcating notions
which directly attacked the true divinity and real Messiahship of
Jesus. The earliest heresy that is known to have arisen in the
Christian churches, is that of the Gnostics, who, though divided
among themselves by some minor distinctions, yet all agreed in
certain grand errors, against which this gospel appears to have been
particularly directed. The great system of mystical philosophy from
which all these errors sprung, did not derive its origin from
Christianity, but existed in the east long before the time of Christ; yet
after the wide diffusion of his doctrines, many who had been
previously imbued with this oriental mysticism, became converts to
the new faith. But not rightly apprehending the simplicity of the faith
which they had partially adopted, they soon began to contaminate its
purity by the addition of strange doctrines, drawn from their
philosophy, which were totally inconsistent with the great revelations
made by Christ to his apostles. The prime suggestion of the
mischief, and one, alas! which has not at this moment ceased to
distract the churches of Christ, was a set of speculations, introduced
“to account for the origin and existence of evil in the
world,”――which seemed to them inconsistent with the perfect work
of an all-wise and benevolent being. Overleaping all those minor
grounds of dispute which are now occupying the attention of modern
controversialists, they attacked the very basis of religious truth, and
adopted the notion that the world was not created by the supreme
God himself, but by a being of inferior rank, called by them the
Demiurgus, whom they considered deficient in benevolence and in
wisdom, and as thus being the occasion of the evil so manifest in the
works of his hands. This Demiurgus they considered identical with
the God of the Jews, as revealed in the Old Testament. Between him
and the Supreme Deity, they placed an order of beings, to which
they assigned the names of the “Only-begotten,” “the Word,” “the
Light,” “the Life,” &c.; and among these superior beings, was
Christ,――a distinct existence from Jesus, whom they declared a
mere man, the son of Mary; but acquiring a divine character by being
united at his baptism to the Divinity, Christ, who departed from him at
his death. Most of the Gnostics utterly rejected the law of Moses; but
Cerinthus is said to have respected some parts of it.
A full account of the prominent characteristics of the Gnostical system may be found in
Mosheim’s Ecclesiastical History, illustrated by valuable annotations in Dr. Murdock’s
translation of that work. The scholar will also find an elaborate account of this, with other
Oriental mysticisms, in Beausobre’s Histoire de Manichee et du Manicheisme. J. D.
Michaelis, in his introduction to the New Testament, (vol. III. c. ii. § 5,) is also copious on
these tenets, in his account of John’s gospel. He refers also to Walch’s History of Heretics.
Hug’s Introduction also gives a very full account of the peculiarities of Cerinthus, as
connected with the scope of this gospel. Introduction vol. II. §§ 49‒53, [of the original,] §§
48‒52, [Wait’s translation.]
In connection with John’s living at Ephesus, a story became afterwards current about his
meeting him on one occasion and openly expressing a personal abhorrence of him.
“Irenaeus [Against Heresies, III. c. 4. p. 140,] states from Polycarp, that John once going
into a bath at Ephesus, discovered Cerinthus, the heretic, there; and leaping out of the bath
he hastened away, saying he was afraid lest the building should fall on him, and crush him
along with the heretic.” Conyers Middleton, in his Miscellaneous works, has attacked this
story, in a treatise upon this express point. (This is in the edition of his works in four or five
volumes, quarto; but I cannot quote the volume, because it is not now at hand.) Lardner
also discusses it. (Vol. I. p. 325, vol. II. p. 555, 4to. edition.)
There can be no better human authority on any subject connected with the life of John,
than that of Irenaeus of Lyons, [A. D. 160,] who had in his youth lived in Asia, where he was
personally acquainted with Polycarp, the disciple and intimate friend of John, the apostle.
His words are, “John, the disciple of the Lord, wishing by the publication of his gospel to
remove that error which had been sown among men, by Cerinthus, and much earlier, by
those called Nicolaitans, who are a fragment of science, (or the Gnosis,) falsely so
called;――and that he might both confound them, and convince them that there is but one
God, who made all things by his word, and not, as they say, one who was the Creator, and
another who was the Father of our Lord.” (Heresies, lib. III. c. xi.) In another passage he
says,――“As John the disciple of the Lord confirms, saying, ‘But these are written that you
may believe that Jesus is the Son of God, and that believing, you may have eternal life in
his name,’――guarding against these blasphemous notions, which divide the Lord, as far
as they can, by saying that he was made of two different substances.” (Heresies, lib. III. c.
xvi.) Michaelis, in his Introduction on John, discusses this passage, and illustrates its true
application.
It appears well established by respectable historical testimony,

that Cerinthus was contemporary with John at Ephesus, and that he
had already made alarming progress in the diffusion of these and
other peculiar errors, during the life of the apostle. John therefore,
now in the decline of life, on the verge of the grave, would wish to
bear his inspired testimony against the advancing heresy; and the
occasion, scope, and object of his gospel are very clearly illustrated
by a reference to these circumstances. The peculiar use of terms,
more particularly in the first part,――terms which have caused so
much perplexity and controversy among those who knew nothing
about the peculiar technical significations of these mystical phrases,
as they were limited by the philosophical application of them in the
system of the Gnostics,――is thus shown in a historical light, highly
valuable in preventing a mis-interpretation among common readers.
This view of the great design of John’s gospel, will be found to
coincide exactly with the results of a minute examination of almost all
parts of it, and gives new force to many passages, by revealing the
particular error at which they were aimed. The details of these
coincidences cannot be given here, but have been most satisfactorily
traced out, at great length, by the labors of the great modern
exegetical theologians, who have occupied volumes with the
elucidation of these points. The whole gospel indeed, is not so
absorbed in the unity of this plan, as to neglect occasions for
supplying general historical deficiences in the narratives of the
preceding evangelists. An account is thus given of two journeys to
Jerusalem, of which no mention had ever been made in former
records, while hardly any notice whatever is taken of the incidents of
the wanderings in Galilee, which occupy so large a portion of former
narratives,――except so far as they are connected with those
instructions of Christ which accord with the great object of this
gospel. The scene of the great part of John’s narrative is laid in
Judea, more particularly in and about Jerusalem; and on the parting
instructions given by Christ to his disciples, just before his crucifixion,
he is very full; yet, even in those, he seizes hold mainly of those
things which fall most directly within the scope of his work. But
throughout the whole, the grand object is seen to be, the
presentation of Jesus as the Messiah, the son of the living, eternal
God, containing within himself the Life, the Light, the Only-begotten,
the Word, and all the personified excellences, to which the Gnostics
had, in their mystic idealism, given a separate existence. It thus
differs from all the former gospels, in the circumstance, that its great
object and its general character is not historical, but
dogmatical,――not universal in its direction and tendency, but aimed
at the establishment of particular doctrines, and the subversion of
particular errors.
Another class of sectaries, against whose errors John wrote in this

gospel, were the Sabians, or disciples of John the Baptist;――for
some of those who had followed him during his preaching, did not
afterwards turn to the greater Teacher and Prophet, whom he
pointed out as the one of whom he was the forerunner; and these
disciples of the great Baptizer, after his death, taking the pure
doctrines which he taught, as a basis, made up a peculiar religious
system, by large additions from the same Oriental mysteries from
which the Gnostics had drawn their remarkable principles. They
acknowledged Jesus Christ as a being of high order, and designate
him in their religious books as the “Disciple of Life;” while John the
Baptist, himself somewhat inferior, is called the “Apostle of
Light,”――and is said to have received his peculiar glorified
transfiguration, from a body of flesh to a body of light, from Jesus at
the time of his baptism in the Jordan; and yet is represented as
distinguished from the “Disciple of Life,” by possessing this peculiar
attribute of Light.

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Intermediate Accounting 18th Edition

Stice Test Bank

1. Which of the following is NOT correct?

7. Which one of the following statements is NOT correct?

Net Realizable Value

This entry would be made when:

19. Which of the following would NOT be classified as cash?

Cash received on accounts receivable .................. $ 70,000

Accounts Receivable .................................. $800,000

Accounts Receivable ................................. $450,000

The net realizable value of the accounts receivable at December 31 should be

Allowance for Doubtful Accounts, January 1 ..... $ 54,000 (cr)

Allowance for Doubtful Accounts, January 1, 2014 .. $ 6,000 (cr)

Accounts Receivable at December 31 ................ $880,000

Quanto's doubtful accounts expense for the year ended December 31 is

No. of Days Probability

The following additional information is available for the current year:

Net credit sales for the year .................. $4,000,000

Year of sale .............................. 3 percent

Net credit sales ..................................... $1,500,000

Net sales ............................................ $3,600,000

Sales (90 percent collected in the first year) ....... $900,000

What is the cash balance at December 31 of the first year?

Cash in banks ........................................ $375,000

Cash in banks includes $125,000 of compensating balances against short-term borrowing

Balance per bank statement, 7/31 ..................... $60,075

What is the correct cash balance at July 31?

Check payable to Lawson Corporation, dated January 2, 2015,

Balance per bank statement, February 28 ................. $18,025

What is the corrected cash balance at February 28?

Balance per bank statement, 3/31 ........................ $ 93,000

Data per bank statement for the month of April follow:

Deposits .............................................. $116,800

53. A debit balance in the Allowance for Doubtful Accounts

55. Estimation of uncollectible accounts receivable based on a percentage of sales

Accounts receivable, January 1, 2014 $

What is Closer Company’s accounts receivable balance at December 31, 2014?

60. The following information is available for Longview Company:

Credit sales during 2014 $ 50,000

64. Accounts receivable usually are factored

Sales adjustments $2,500

What is the balance in the warranty liability account on January 1, 2015?

a. IAS 39 represents a principles-based approach to standard setting.

Balance per bank statement ........................... $12,164

PTS: 1 DIF: Easy OBJ: LO 4 TOP: AICPA FN-Measurement

Balance per books, June 30 .................. $68,757

PTS: 1 DIF: Medium OBJ: LO 4 TOP: AICPA FN-Measurement

PTS: 1 DIF: Easy OBJ: LO 4 TOP: AICPA FN-Measurement

Disbursements in July per bank statement ................ $218,373

Balance per bank

Balance per books $ 15,822 $236,452 $212,529 $ 39,745

PTS: 1 DIF: Challenging OBJ: LO 4 TOP: AICPA FN-Measurement

Accounts Receivable, December 31, 2014 ............ $ 590,000

PTS: 1 DIF: Medium OBJ: LO 2 TOP: AICPA FN-Measurement

PTS: 1 DIF: Medium OBJ: LO 2 TOP: AICPA FN-Measurement

Classifications by Balance in Estimated %

Balance at January 1, 2014 ............................... $260,000

PTS: 1 DIF: Challenging OBJ: LO 2 TOP: AICPA FN-Measurement

a. Transactions between a parent company and its subsidiaries.

a. The nature of the relationship(s) involved.

PTS: 1 DIF: Medium OBJ: LO 5 TOP: AICPA FN-Reporting

PTS: 1 DIF: Medium OBJ: LO 6 TOP: AICPA FN-Reporting