Deck 5: Accounting for Receivables and Inventory Cost Flow

Question 1

On January 1, Year 2, the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800. On January 15, Year 2, an $800 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

A) $36,200.
B) $33,400.
C) $35,000.
D) $34,200.

Answer 1

D
Explanation: $37,000 - $800 = $36,200 accounts receivable balance after the write-off; $2,800 - $800 = $2,000 allowance balance after the write-off; $36,200 - $2,000 = $34,200 net realizable value after the write-off.

Question 2

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The amount of uncollectible accounts expense recognized in the Year 2 income statement will be:

A) $310.
B) $725.
C) $745.
D) $550.

Answer 2

B
Explanation: $72,500 credit sales × 1% = $725 uncollectible accounts expense

Question 3

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $160,000 of revenue on account during Year 1. During Year 1, Hancock collected $128,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, Year 1 balance sheet would be:

A) $30,400.
B) $30,720.
C) $32,000.
D) $30,000.

Answer 3

A
Explanation: $0 beginning accounts receivable + $160,000 revenue on account - $128,000 collected = $32,000 ending accounts receivable; $0 beginning allowance balance + ($160,000 × 1%) uncollectible accounts expense = $1,600 ending allowance balance; net realizable value of receivables = $32,000 - $1,600 = $30,400

Question 4

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows is:

A) $97,000.
B) $104,000.
C) $89,520.
D) $95,060.

Question 5

The amount of accounts receivable that is actually expected to be collected is known as the:

A) allowance for doubtful accounts.
B) uncollectible accounts expense.
C) present value of accounts receivable.
D) net realizable value.

Question 6

The Miller Company earned $190,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The net realizable value of Miller's receivables at the end of Year 2 was:

A) $54,000.
B) $49,920.
C) $59,700.
D) $48,300.

Question 7

A company that uses the allowance method to account for uncollectible accounts:

A) records Uncollectible Accounts Expense when a receivable is written off.
B) does not record uncollectible accounts until the amount becomes significant.
C) reports the net realizable value of its accounts receivable on the balance sheet.
D) None of these answer choices are correct.

Question 8

Domino Company uses the aging of accounts receivable method to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800, respectively. During the year, the company wrote off $4,640 in uncollectible accounts. In preparation for the company's Year 2 estimate, Domino prepared the following aging schedule: What will Domino record as Uncollectible Accounts Expense for Year 2?

A) $6,132
B) $1,512
C) $7,292
D) $4,640

Question 9

The year-end adjusting entry to recognize uncollectible accounts expense will:

A) decrease assets and decrease equity.
B) increase assets and decrease equity.
C) increase liabilities and increase equity.
D) decrease liabilities and increase equity.

Question 10

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Kincaid's entry to recognize the write-off of the uncollectible accounts will:

A) increase total assets and total equity.
B) increase total assets and decrease total equity.
C) decrease total assets and total equity.
D) not affect total assets or total equity.

Question 11

Houff Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation?

A) Increase assets and increase equity.
B) Increase assets and decrease liabilities.
C) Reduce liabilities and increase equity.
D) Have no effect on assets, liabilities or equity.

Question 12

The practice of reporting the net realizable value of receivables in the financial statements is commonly called the:

A) cash flow method of accounting for uncollectible accounts.
B) allowance method of accounting for uncollectible accounts.
C) direct write-off method of accounting for uncollectible accounts.
D) accrual method of accounting for uncollectible accounts.

Question 13

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement is:

A) $320.
B) $1,000.
C) $2,080.
D) $1,940.

Question 14

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

A) $2,200
B) $1,500
C) $700
D) $1,600

Question 15

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expense using the allowance method?

A) Option A
B) Option B
C) Option C
D) Option D

Question 16

How would accountants estimate the amount of a company's uncollectible accounts expense?

A) Consider new circumstances that are anticipated to be experienced in the future.
B) Compute as a percentage of credit sales.
C) Consult with trade association and business associates.
D) All of these answer choices are correct.

Question 17

The balance in Accounts Receivable at the beginning of the period amounted to $16,000. During the period $64,000 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $10,000, and uncollectible accounts expense amounted to $4,000, then the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement would be:

A) $66,000.
B) $64,000.
C) $80,000.
D) None of these answers are correct.

Question 18

The Miller Company earned $190,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement was:

A) $5,700.
B) $1,320.
C) $4,080.
D) $54,000.

Question 19

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:

A) $29,075.
B) $27,725.
C) $28,950.
D) $28,400.

Question 20

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Kincaid's entry required to recognize the uncollectible accounts expense for Year 2 will:

A) increase total assets and retained earnings.
B) decrease total assets and increase retained earnings.
C) decrease total assets and net income.
D) increase total assets and decrease net income.

Question 21

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:

A) $960 and $0
B) $0 and $960
C) $240 and $720
D) $720 and $240

Question 22

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following answers correctly states the effect of Loudoun Company's February Year 2 entry to write off the customer's account?

A) Option A
B) Option B
C) Option C
D) Option D

Question 23

The primary reason for a business to allow customers to purchase goods or services on account is to:

A) increase sales.
B) increase cash flow from financing.
C) decrease cost of goods sold.
D) decrease the marketability of the company's inventory.

Question 24

The party that issues a promissory note is known as the:

A) lender.
B) maker.
C) borrower.
D) borrower and maker.

Question 25

The Yankee Corporation has recently begun to accept credit cards. On July 7, Yankee made a credit card sale of $600. The credit card company charges a fee of 3%. Which of the following correctly shows the effects of the sale on July 7? Assume that the credit card fee is recorded on the date of sale.

A) Option A
B) Option B
C) Option C
D) Option D

Question 26

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following answers correctly states the effect of Loudoun's recording the reestablishment of the receivable on April 4, Year 2?

A) Option A
B) Option B
C) Option C
D) Option D

Question 27

The percent of receivables method to estimate uncollectible accounts expense is also known as:

A) the income statement approach.
B) the direct write-off approach.
C) the credit sales approach.
D) the balance sheet approach.

Question 28

Buttercup Florist uses the allowance method to account for uncollectible accounts. Unable to collect a $150 account from a customer, Buttercup determined it was uncollectible. How would the write-off of this account affect the company's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 29

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

A) Weighted average.
B) Specific identification.
C) LIFO.
D) FIFO.

Question 30

Alberta Company accepts a credit card as payment for $450 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Alberta's financial statements.

A) Option A
B) Option B
C) Option C
D) Option D

Question 31

When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)?

A) LIFO.
B) FIFO.
C) Weighted average
D) None of these; inventory methods cannot affect cash flows.

Question 32

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following answers correctly states the effect of recording the collection of the reestablished receivable on April 4, Year 2?

A) Option A
B) Option B
C) Option C
D) Option D

Question 33

Elliston Company accepted credit card payments for $10,000 of services provided to customers. The credit card company charges a 3% service charge. This transaction would increase:

A) revenue by $9,700.
B) assets by $10,000.
C) Retained Earnings by $9,700.
D) net income by $10,000.

Question 34

Which of the following is not an advantage of accepting credit cards from retail customers?

A) The acceptance of credit cards tends to increase sales.
B) The credit card company performs credit worthiness assessments.
C) There are fees charged for the privilege of accepting credit cards.
D) The credit card company assumes the cost of slow collections and write-offs.

Question 35

At a time of declining prices, which cost flow assumption will result in the highest ending inventory?

A) Weighted average
B) FIFO
C) LIFO
D) Either weighted average or FIFO

Question 36

The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:

A) have no effect on total assets or total equity.
B) increase total equity only.
C) decrease total assets.
D) increase total assets and total equity.

Question 37

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following answers correctly states the effect of the December 31, Year 1 adjusting entry for uncollectible accounts on the financial statements of the Loudoun Corporation?

A) Option A
B) Option B
C) Option C
D) Option D

Question 38

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?

A) The account is a contra account.
B) The account is a temporary account.
C) The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables.
D) The account is increased by an estimate of uncollectible accounts expense.

Question 39

Glebe Company accepted a credit card account receivable in exchange for $1,100 of services provided to a customer. The credit card company charges a 5% service charge. The collection of cash from the credit card company when it settles the account receivable balance will act to:

A) increase assets by $1,045.
B) decrease assets and equity by $55.
C) increase assets by $1,100.
D) None of these answer choices are correct.

Question 40

The Yankee Corporation has recently begun to accept credit cards. On July 7, Yankee made a credit card sale of $600. The credit card company charges a fee of 3%. Which of the following answers correctly describes the effect of the collection of cash from the credit card company on the financial statements of Yankee Corporation?

A) Option A
B) Option B
C) Option C
D) Option D

Question 41

Anton Co. uses the perpetual inventory method. Anton purchased 400 units of inventory that cost $12.00 each. At a later date the company purchased an additional 600 units of inventory that cost $16.00 each. If Anton uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be:

A) $11,200.
B) $10,400.
C) $8,400.
D) $9,600.

Question 42

Barker Company paid cash to purchase two identical inventory items. The first purchase cost $18.00 cash and the second cost $20.00 cash. Barker sold one inventory item for $30.00 cash. Based on this information alone, without considering the effect of income tax:

A) cash flow from operating activities is $11.00 assuming a weighted average cost flow.
B) cash flow from operating activities is $12.00 assuming a FIFO cost flow.
C) cash flow from operating activities is $10.00 assuming a LIFO cost flow.
D) the amount of cash flow from operating activities is not affected by the cost flow method.

Question 43

Stubbs Company uses the perpetual inventory method. On January 1, Year 1, Stubbs purchased 400 units of inventory that cost $8.00 each. On January 10, Year 1, the company purchased an additional 600 units of inventory that cost $9.00 each. If Stubbs uses a weighted average cost flow method and sells 700 units of inventory for $16.00 each, the amount of gross margin reported on the income statement will be:

A) $5,180.
B) $5,250.
C) $5,000.
D) $6,020.

Question 44

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

A) LIFO
B) FIFO
C) Weighted average
D) LIFO, FIFO, and weighted average will all produce equal amounts.

Question 45

Poole Company purchased two identical inventory items. One of the items, purchased in January, cost $4.50. The other, purchased in February, cost $4.75. One of the items was sold in March at a selling price of $7.50. Assuming that Poole uses a LIFO cost flow, which of the following statements is correct?

A) The balance in ending inventory would be $4.75.
B) The amount of gross margin would be $2.75.
C) The amount of ending inventory would be $4.625.
D) The amount of cost of goods sold would be $4.50.

Question 46

The inventory records for Radford Co. reflected the following Determine the weighted average cost per unit for May.

A) $4.45
B) $4.50
C) $5.12
D) $6.34

Question 47

The inventory records for Radford Co. reflected the following Determine the amount of ending inventory assuming the FIFO cost flow method.

A) $480
B) $440
C) $400
D) $940

Question 48

When the cost of purchasing inventory is declining, which inventory cost flow method will produce the highest amount of cost of goods sold?

A) Weighted average
B) LIFO
C) FIFO
D) LIFO, FIFO, and weighted average will all produce the same amount of cost of goods sold.

Question 49

Melbourne Company uses the perpetual inventory method. Melbourne purchased 500 units of inventory that cost $4.00 each. At a later date the company purchased an additional 600 units of inventory that cost $5.00 each. If Melbourne uses a LIFO cost flow method, and sells 800 units of inventory, the amount of ending inventory appearing on the balance sheet will be:

A) $3,800.
B) $1.350.
C) $1,500.
D) $1,200.

Question 50

The inventory records for Radford Co. reflected the following Determine the amount of gross margin assuming the FIFO cost flow method.

A) $2,920
B) $3,420
C) $3,000
D) $4,020

Question 51

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

A) Ending inventory will be lower if Blake uses weighted average than if FIFO were used.
B) Cost of goods sold will be higher if Blake uses FIFO than if weighted average were used.
C) The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used.
D) Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.

Question 52

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows. Glasgow sold 220 units after purchase 3 for $17.00 each. Glasgow's ending inventory under LIFO would be:

A) $2,730.
B) $2,460.
C) $2,220.
D) $1,950.

Question 53

When prices are falling, LIFO will result in:

A) lower income and a lower inventory valuation than will FIFO.
B) lower income and a higher inventory valuation than will FIFO.
C) higher income and a higher inventory valuation than will FIFO.
D) higher income and a lower inventory valuation than will FIFO.

Question 54

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information, the amount of:

A) ending inventory is $35.00 if Hoover uses the LIFO cost flow method.
B) gross margin is $28.00 if Hoover uses the weighted average cost flow method.
C) cost of goods sold is $35.00 if Hoover uses the FIFO cost flow method.
D) cost of goods sold is $33.00 if Hoover uses the LIFO cost flow method.

Question 55

Koontz Company uses the perpetual inventory method. On January 1, Year 1, the company's first day of operations, Koontz purchased 400 units of inventory that cost $7.50 each. On January 10, Year 1, the company purchased an additional 600 units of inventory that cost $9.00 each. If Koontz uses a weighted average cost flow method and sells 550 units of inventory, the amount of inventory appearing on balance sheet following the sale will be approximately:

A) $3,780.
B) $4,738.
C) $3,080.
D) $3,713.

Question 56

The inventory records for Radford Co. reflected the following Determine the amount of cost of goods sold assuming the LIFO cost flow method.

A) $4,100
B) $4,320
C) $2,360
D) $3,600

Question 57

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows. Glasgow sold 220 units after purchase 3 for $17.00 each. Glasgow's cost of goods sold under FIFO would be:

A) $1,650.
B) $1,860.
C) $2,310.
D) $2,100.

Question 58

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows. Glasgow sold 220 units after purchase 3 for $17.00 each. Glasgow's ending inventory under weighted average would be approximately:

A) $2,361.
B) $2,340.
C) $1,980.
D) $1,998.

Question 59

The inventory records for Radford Co. reflected the following Determine the amount of gross margin assuming the weighted average cost flow method.

A) $3,015
B) $2,412
C) $1,314
D) $2,970

Question 60

In an inflationary environment:

A) a company's net income will be higher if it uses LIFO than if it uses FIFO.
B) a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO.
C) a company's net income will be the same regardless of whether LIFO or FIFO is used.
D) a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

Question 61

The Griffin Corporation accepted a credit card for a sale of $3,000 on December 16, Year 1. The credit card company charges a fee of 4%. On January 5, Year 2, Griffin received payment from the credit card company. Indicate whether each of the following statements is true or false.
_____ a) Griffin should record $2,880 revenue in Year 1 when the sale is made.
_____ b) Griffin should record a credit card receivable account receivable of $3,000 on December 16, Year 1.
_____ c) The sale has no impact on the statement of cash flows in Year 1.
_____ d) The collection of cash increases total assets in Year 2.
_____ e) The entry on December 16, Year 1, increases total revenues and total expenses on the Year 1 income statement.

Question 62

Barton Corporation uses the aging of accounts receivable method of accounting for uncollectible accounts. As of December 31, Year 1, prior to estimating uncollectible accounts expense, Barton's balance of accounts receivable was $68,900, the balance of allowance for doubtful accounts was $2,500, and total sales for Year 1 were $875,000. On December 31, Year 1, Barton aged its receivables and determined the following:
Indicate whether each of the following statements is true or false.
_____ a) Barton will report Net Realizable Value of Accounts Receivable equal to $63,170 on its December 31, Year 1 balance sheet.
_____ b) Barton will report Uncollectible Accounts Expense of $5,730 on its Year 1 income statement.
_____ c) The December 31 adjusting entry related to uncollectible accounts will increase liabilities and decrease equity by $3,230.
_____ d) The method Barton uses to account for uncollectible accounts is known as the balance sheet approach.
_____ e) Write-offs of uncollectible accounts in Year 2 will reduce Barton's net realizable value of receivables.

Question 63

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Assuming Chase uses a FIFO cost flow method, the cost of goods sold for the sales transaction on January 31 is:

A) $1,020.
B) $1,005.
C) $1,045.
D) $340.

Question 64

Indicate whether each of the following statements is true or false.
_____ a) Loaning cash to another company is considered a financing activity on the statement of cash flows.
_____ b) The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest.
_____ c) In a promissory note, the payee issues the note to the maker.
_____ d) Interest rates are always stated on an annual basis, regardless of the length of the note.
_____ e) Accruing interest on a note receivable is considered an asset use transaction.

Question 65

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Assuming Chase uses a LIFO cost flow method, the amount of cost of goods sold for the sales transaction on January 18 is:

A) $1,150.
B) $1,050.
C) $1,070.
D) $1,130.

Question 66

The face value of Accounts Receivable plus the balance in the Allowance for Doubtful Accounts is equal to the net realizable value of the receivables.

Question 67

The collection of an account receivable is an asset source transaction.

Question 68

Tetra Company purchased 2,000 units of inventory that cost $4.00 each on January 1, Year 1. An additional 3,000 units of inventory were purchased on January 12, Year 1 at a cost of $4.20 each. Tetra Company sold 4,000 units of inventory on January 20, Year 1. Assuming that Tetra Co. uses the perpetual inventory method and a FIFO cost flow method, how would the entry to recognize the cost of goods sold affect the financial statements?

A) Increase inventory and increase cost of goods sold by $16,400
B) Decrease cost of goods sold and increase inventory by $16,600
C) Increase cost of goods sold and decrease inventory by $16,400
D) Increase inventory and increase cost of goods sold by $16,600

Question 69

Most companies report receivables on their balance sheets at the net realizable value.

Question 70

On June 1, Delaware Co. had one unit in beginning inventory that cost $10.00. During June, Delaware paid cash to purchase two additional inventory items. Delaware purchased the first item for cash at a cost of $10.00, and the second at a cost of $12.00. Delaware Co. sold two inventory items for $24.00 each, receiving cash. Based on this information alone, indicate whether each of the following items is true or false.
_____ a) The amount of ending inventory will be $10 assuming the LIFO cost flow was used.
_____ b) Cost of goods sold would be $24 assuming the weighted average cost flow was used.
_____ c) Cash flow from operating activities in June would be $28 assuming a FIFO cost flow was used.
_____ d) Cash flow from operating activities in June would be $26 independent of what cost flow assumption was used.
_____ e) The amount of gross margin would be $26 assuming the FIFO cost flow was used.

Question 71

Which of the following businesses is most likely to use a specific identification cost flow method?

A) Car dealership
B) Grocery store
C) Hardware store
D) Roofing company

Question 72

The best estimate for the amount of cash a company expects to collect from its accounts receivable is the face value of the receivables.

Question 73

Vargas Company uses the perpetual inventory method. Vargas purchased 400 units of inventory that cost $15.00 each. At a later date the company purchased an additional 800 units of inventory that cost $18.00 each. Vargas sold 500 units of inventory for $27.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be:

A) $7,800.
B) $6,000.
C) $4,500.
D) $5,700.

Question 74

On December 31, Year 1, the West Corporation estimated that $6,000 of its receivables might not be collected. Before adjusting entries, the balance of Accounts Receivable and the Allowance for Doubtful Accounts respectively was $150,000 and zero on December 31, Year 1. On February 1, Year 2, West wrote-off of a delinquent account from one of its customers. West Corp. uses the allowance method of accounting for uncollectible accounts. Indicate whether each of the following statements is true or false.
_____a) The net realizable value of accounts receivable (after the appropriate adjusting entry on December 31, Year 1) was $144,000.
_____b) The write-off of the account on February 1, Year 2, did not affect the net realizable value of West's accounts receivable.
_____c) The adjusting entry on December 31, Year 1, had no effect on West's total assets.
_____d) The write-off entry on February 1, Year 2, had no effect on West's total assets.
_____e) The write-off entry on February 1, Year 2, decreased net income for Year 2.

Question 75

Indicate whether each of the following statements is true or false.
_____ a) A benefit of making credit card sales is that there is no cost to the merchant.
_____ b) A benefit of accepting credit cards is that increased sales may be generated.
_____ c) Recording a credit card sale increases total assets and increases total liabilities.
_____ d) Recording the collection of cash from the credit card company increases cash and increases revenue.
_____ e) The income statement is not affected at the time the cash receipt is recorded.

Question 76

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Assuming Chase uses a FIFO cost flow method, the ending inventory on January 31 is:

A) $345.
B) $340.
C) $330.
D) $1,020.

Question 77

Indicate whether each of the following statements is true or false.
_____ a) The FIFO cost flow method assumes that the company physically rotates inventory so that the oldest inventory is sold first.
_____ b) In a period of rising prices, FIFO gives higher cost of goods sold than LIFO.
_____ c) Under the weighted average cost flow method, the cost per unit of ending inventory is equal to the cost per unit of inventory sold.
_____ d) In a period of declining prices, LIFO will result in higher income tax expense than FIFO.
_____ e) In a period of rising prices, FIFO gives higher ending inventory than LIFO does.

Question 78

Indicate whether each of the following statements is true or false.
_____ a) Most companies expect to receive the full face value of their receivables.
_____ b) The estimated amount of uncollectible accounts is called the net realizable value.
_____ c) The direct write-off method of accounting for uncollectible accounts does not require the computation of the net realizable value of accounts receivable.
_____ d) The practice of reporting the net realizable value of receivables is the result of using the allowance method of accounting for uncollectible accounts.
_____ e) The materiality principle requires the computation of net realizable value for a company's liabilities.

Question 79

Indicate whether each of the following statements is true or false.
_____ a) To compute cost of goods sold under the weighted average method, it is necessary to first compute the weighted-average cost per unit.
_____ b) The weighted average cost per unit is computed by dividing the total cost of goods purchased by the number of units sold.
_____ c) Under the FIFO method, each time units are sold the unit cost of the oldest inventory is applied to the number of units sold.
_____ d) Under a perpetual inventory system, it is not possible to use the LIFO method of cost flow.
_____ e) A U.S. company can use LIFO for income tax purposes only if it also uses LIFO for financial reporting purposes.

Question 80

The net realizable value of accounts receivable is the amount of receivables a company expects to collect.