Deck 6: Receivables and Inventories

Question 1

The party promising to pay a note at maturity is the payee.

Answer 1

False

Question 2

When companies sell their receivables to other companies,the transaction is called factoring.

Answer 2

True

Question 3

Receivables not expected to be collected within one year are reported in the fixed assets section of the balance sheet.

Answer 3

False

Question 4

The due date of a 60-day note dated July 10 is September 9.

Question 5

Generally accepted accounting principles do not normally allow the use of the allowance method of accounting for uncollectible accounts.

Question 6

At the end of a period before the accounts are adjusted,Allowance for Doubtful Accounts has a balance of $250,and net sales on account for the period total $500,000.If uncollectible accounts expense is estimated at 1% of net sales on account,the current provision to be made for uncollectible accounts expense is $4,997.50.

Question 7

Allowance for Doubtful Accounts is a contra liability account.

Question 8

Under the direct write-off method,an attempt is made to match Bad Debt Expense to sales revenues in the same accounting period.

Question 9

The due date of a 90-day note dated July 15 is October 13.(Assume 360 days in a year)

Question 10

The direct write-off method records uncollectible accounts expense in the year the specific account receivable is determined to be uncollectible.

Question 11

Net income is reduced when a specific receivable is written off under the analysis of receivables method.

Question 12

The maturity value of a 12%,60-day note for $1,000 is $1,020.(Assume 360 days in a year)

Question 13

All receivables that are expected to be realized in cash within a year are presented in the current assets section of the balance sheet.

Question 14

The sum of the face amount and the interest that must be paid at the due date of the note is called maturity value.

Question 15

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 16

The estimate of uncollectible accounts receivable based on the sales method violates the matching principle.

Question 17

The person who is to be paid when a note matures is called the payee.

Question 18

The difference between the total receivables and the balance in Allowance for Doubtful Accounts at the end of a period is referred to as the net realizable value of the receivables.

Question 19

Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet.

Question 20

The interest at 6%,on a 60-day note for $5,000 is $300.(Assume 360 days in a year)

Question 21

"Market," as used in the phrase "lower of cost or market" for valuing inventory,refers to the price at which the inventory is being offered for sale by its owner.

Question 22

Of the three widely used inventory costing methods (FIFO,LIFO,and average),the FIFO method of costing inventory is based on the assumption that costs are charged against revenues in the order in which they were incurred.

Question 23

Receivables are usually a significant portion of:

A)total current liabilities.
B)total sales.
C)total current assets.
D)total stockholders' equity.

Question 24

In valuing damaged merchandise for inventory purposes,net realizable value is the estimated selling price less any direct cost of disposal.

Question 25

A note receivable due in 90 days is listed on the balance sheet under:

A)long-term liabilities.
B)fixed assets.
C)current liabilities.
D)current assets.

Question 26

During inflationary periods,the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO method of costing inventory.

Question 27

Lower-of-cost-or-market is a method of inventory valuation.

Question 28

Average cost is a method of inventory valuation.

Question 29

The balance of the allowance for doubtful accounts is added to accounts receivable on the balance sheet.

Question 30

A note receivable due in five years is listed on the balance sheet under the caption:

A)investments.
B)current assets.
C)fixed assets.
D)stockholders' equity.

Question 31

A written promise to pay a sum of money on demand or at a definite time is called a(n):

A)letter of credit.
B)deferred note.
C)credit memorandum.
D)promissory note.

Question 32

During deflationary periods,the use of the LIFO method of costing inventory will result in a greater amount of net income than would result from the use of the FIFO method of inventory costing.

Question 33

The use of the lower-of-cost-or-market method of inventory valuation increases the gross profit for the period in which the inventory replacement price declined.

Question 34

Merchandise Inventory is presented on the balance sheet in the current assets section.

Question 35

During inflationary periods,the use of the LIFO method of costing inventory will result in a lesser amount of net income than would result from the use of the average method of inventory costing.

Question 36

In reference to a promissory note,the person who makes the promise to pay is called the:

A)maker.
B)payee.
C)seller.
D)receiver.

Question 37

The net realizable value is used for purposes of valuing out of date merchandise in inventory.

Question 38

During inflationary periods,the value of inventory that appears on the balance sheet using FIFO method will be more than its current replacement cost.

Question 39

The FIFO method of costing inventory is based on the assumption that costs should be charged against revenues in the order in which they were incurred.

Question 40

Credit purchase is taken into account while calculating accounts receivable turnover ratio.

Question 41

Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the year,and an analysis of customers' accounts indicates doubtful accounts of $12,900.Which of the following records the proper provision for doubtful accounts?

A)Increase Uncollectible Accounts Expense,$14,000; increase Allowance for Doubtful Accounts,$14,000
B)Decrease Allowance for Doubtful Accounts,$14,000; decrease Uncollectible Accounts Expense,$14,000
C)Decrease Allowance for Doubtful Accounts,$11,800; decrease Uncollectible Accounts Expense,$11,800
D)Increase Uncollectible Accounts Expense,$11,800; increase Allowance for Doubtful Accounts,$11,800

Question 42

Taxes receivable is classified as:

A)other receivable.
B)notes receivable.
C)accounts receivable.
D)trade receivables.

Question 43

Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of the year,and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Which of the following records the proper provision for doubtful accounts?

A)Increase Uncollectible Accounts Expense,$800; increase Allowance for Doubtful Accounts,$800
B)Increase Uncollectible Accounts Expense $15,000; increase Allowance for Doubtful Accounts,$15,000
C)Increase Uncollectible Accounts Expense,$14,200; increase Allowance for Doubtful Accounts,$14,200
D)Increase Uncollectible Accounts Expense,$15,800; increase Allowance for Doubtful Accounts,$15,800

Question 44

A note receivable due in 18 months is listed on the balance sheet under the caption:

A)long-term liabilities.
B)fixed assets.
C)current assets.
D)investments.

Question 45

A 90-day,8% note for $10,000 dated May 1 is received from a customer on account.The maturity value of the note is (Assume 360 days in a year):

A)$10,000.
B)$10,800.
C)$10,200.
D)$9,800.

Question 46

Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year,and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Compute the adjusted balance in the allowance for doubtful accounts?

A)$15,000
B)$14,500
C)$14,000
D)$15,500

Question 47

The due date of a 60-day note dated July 12 is:

A)September 11.
B)September 8.
C)September 9.
D)September 10.

Question 48

A 60-day,12% note for $15,000 dated May 1 is received from a customer on account.The maturity value of the note is (Assume 360 days in a year):

A)$15,300.
B)$15,000.
C)$14,700.
D)$16,800.

Question 49

The amount of the promissory note plus the interest earned on the due date is called the:

A)market value.
B)maturity value.
C)face value.
D)discounted value.

Question 50

The due date of a 90-day note dated July 5 is:

A)September 30.
B)October 2.
C)October 3.
D)October 1.

Question 51

In reference to a promissory note,the person who is to receive payment is called the:

A)maker.
B)payee.
C)seller.
D)payer.

Question 52

After the accounts are adjusted at the end of the fiscal year,Accounts Receivable has a balance of $430,000 and Allowance for Doubtful Accounts has a balance of $30,000.What is the net realizable value of the receivables?

A)$30,000
B)$460,000
C)$430,000
D)$400,000

Question 53

After the accounts are adjusted and closed at the end of the fiscal year,Accounts Receivable has a balance of $500,000 and Allowance for Doubtful Accounts has a balance of $25,000.What is the net realizable value of the accounts receivable?

A)$25,000
B)$525,000
C)$500,000
D)$475,000

Question 54

A 90-day,10% note for $10,000 dated April 1 is received from a customer on account.The face value of the note is:

A)$10,000.
B)$11,000.
C)$1,000.
D)$9,000.

Question 55

A 90-day,10% note for $10,000 dated March 15 is received from a customer on account.The face value of the note is:

A)$10,250.
B)$9,000.
C)$9,750.
D)$10,000.

Question 56

One of the weaknesses of the direct write-off method is that it:

A)understates accounts receivable on the balance sheet.
B)violates the matching principle.
C)adjusts allowance account the end of the year.
D)is based on estimates.

Question 57

What type of account is Allowance for Doubtful Accounts?

A)Contra asset account
B)Asset account
C)Liability account
D)Expense account

Question 58

The process of a company selling its accounts receivable to another company is referred as:

A)discounting.
B)adjusting.
C)assignment.
D)factoring.

Question 59

The two methods of accounting for uncollectible receivables are the:

A)direct method and the indirect method.
B)allowance method and the direct write-off method.
C)cash method and the accrual method.
D)percent of sales method and the analysis of receivables method.

Question 60

Allowance for Doubtful Accounts is listed on the balance sheet under the caption:

A)stockholders' equity.
B)investments.
C)fixed assets.
D)current assets.

Question 61

The inventory costing method that assigns the most recent costs to cost of good sold is:

A)FIFO.
B)LIFO.
C)average cost.
D)specific identification.

Question 62

Use the following data to calculate the cost of ending inventory under the FIFO method.

A)$825
B)$750
C)$675
D)$840

Question 63

Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year,and uncollectible accounts expense is estimated at 1% of net sales.If net sales are $950,000,the amount of the adjustment to record the provision for doubtful accounts is:

A)$9,500.
B)$500.
C)$8,500.
D)$9,000.

Question 64

Using the first-in,first-out method,what is the cost of the merchandise inventory of 30 units on November 30?

A)$640
B)$660
C)$700
D)$600

Question 65

Inventory refers to the:

A)merchandise held for sale in the normal course of business.
B)materials sold during the year.
C)fixed assets purchased to assist the production process.
D)claims arising from the purchase of raw material.

Question 66

The two most widely used methods for determining the cost of inventory are:

A)FIFO and LIFO.
B)FIFO and average cost.
C)LIFO and average cost.
D)specific identification and average cost.

Question 67

During a period of consistently rising prices,the method of inventory costing that will result in reporting the greatest cost of merchandise sold is:

A)FIFO.
B)average cost.
C)LIFO.
D)All methods will generate the same cost of merchandise sold.

Question 68

The presentation of net accounts receivable on the balance sheet will be most accurate under the:

A)direct write-off method.
B)cash basis accounting.
C)estimate based on analysis of receivables.
D)allowance method.

Question 69

Using the last-in,first-out method,what is the cost of the merchandise inventory of 30 units on November 30?

A)$600
B)$660
C)$640
D)$700

Question 70

When an account is written off under the allowance method:

A)accounts receivable decreases.
B)bad debt expense is increased.
C)accounts receivable remains unchanged.
D)accounts receivable increases.

Question 71

Calculate the cost of ending inventory using FIFO method.

A)$800
Ending inventory
50 units
B)$760
C)$580
D)$500

Question 72

Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year,and uncollectible accounts expense is estimated at 1% of net sales.If net sales are $300,000,compute the amount of the adjustment to record the provision for doubtful accounts.

A)$400.
B)$3,400.
C)$3,000.
D)$2,600.

Question 73

Use the following data to calculate the cost of ending inventory under average cost method.

A)$992
B)$400
C)$875
D)$700

Question 74

Use the following data to calculate cost of merchandise sold under FIFO method.

A)$825
B)$750
C)$675
D)$600

Question 75

Under which method of inventory costing is the cost flow assumed to be in the reverse order in which the expenditures were made?

A)Average cost
B)Last-in,first-out
C)First-in,first-out
D)Specific identification method

Question 76

Inventory costing methods place primary emphasis on assumptions about:

A)flow of goods.
B)flow of costs.
C)flow of goods or costs depending on the method.
D)flow of values.

Question 77

Use the following data to calculate the cost of ending inventory using the LIFO method.

A)$825
B)$750
C)$675
D)$600

Question 78

The inventory costing method that considers the ending inventory to be composed of units of the merchandise acquired earliest is called:

A)first-in,first-out.
B)highest-in,first-out.
C)lowest-in,first-out.
D)last-in,first-out.

Question 79

When merchandise sold is assumed to be in the order in which the expenditures were made,the inventory costing method is called:

A)first-in,last-out.
B)last-in,first-out.
C)first-in,first-out.
D)average cost.

Question 80

Under which method of inventory costing is the ending inventory assumed to be composed of the most recent costs?

A)Average cost
B)Last-in,first-out
C)First-in,last-out
D)First-in,first-out