Deck 6: Receivables and Inventories

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

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

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 7

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

Question 8

Allowance for Doubtful Accounts is a contra equity account.

Question 9

The maturity value of a 12%, 60-day note for $5,000 is $5,100. (Assume 360 days in a year)

Question 10

The interest at 6%, on a 60-day note for $5,000 is $50. (Assume 360 days in a year)

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

The due date of a 90-day note dated June 10 is September 8. (Assume 360 days in a year)

Question 18

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

Question 19

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 20

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 21

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 22

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 23

Average cost is a method of inventory valuation.

Question 24

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

Question 25

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 26

Receivables are usually a significant portion of:

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

Question 27

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 28

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 29

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 30

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 31

The balance of the allowance for doubtful accounts is deducted from accounts receivable on the balance sheet.

Question 32

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 33

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

Question 34

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 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

"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 40

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 41

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 42

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 43

The two methods of accounting for uncollectible receivables are the allowance method and the:

A) equity method.
B) direct write-off method.
C) interest method.
D) cost method.

Question 44

A 60-day, 10% note for $6,000 dated April 15 is received from a customer on account. The face value of the note is:

A) $6,100.
B) $5,400.
C) $5,900.
D) $6,000.

Question 45

What type of account is Allowance for Doubtful Accounts?

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

Question 46

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 47

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 48

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 49

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 50

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

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

Question 51

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 52

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 53

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 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

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 56

Taxes receivable is classified as:

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

Question 57

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 58

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 59

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 60

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 61

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 62

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 63

If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is:

A) average cost.
B) LIFO.
C) FIFO.
D) All methods will generate the same net income.

Question 64

Use the following data to calculate the cost of ending inventory using the LIFO method. $\begin{array}{lll}15 \text { units at } \$ 20 \text { each } & \text { Beginning Inventory } & \text { September 1 } \\20 \text { units at } \$ 25 \text { each } & \text { Purchase } & \text { September 10 } \\25 \text { units at } \$ 28 \text { each } & \text { Purchase } & \text { September } 20 \\30 \text { units } & \text { Ending Inventory } & \text { September } 30\end{array}$

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

Question 65

The inventory data for an item for November are: $\begin{array}{lll}25 \text { units at } \$ 20 \text { each } & \text { Inventory } & \text { Nov. } 1 \\30 \text { units at } \$ 21 \text { each } & \text { Purchase } & 10 \\10 \text { units at } \$ 22 \text { each } & \text { Purchase } & 30 \\35 \text { units } & \text { Sale } &\end{array}$ Using the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?

A) $640
B) $605
C) $630
D) $660

Question 66

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 67

Use the following data to calculate the cost of ending inventory under average cost method. $\begin{array}{lll}15 \text { units at } \$ 20 \text { each } & \text { Beginning Inventory } & \text { September 1 } \\20 \text { units at } \$ 25 \text { each } & \text { Purchase } & \text { September 10 } \\25 \text { units at } \$ 28 \text { each } & \text { Purchase } & \text { September } 20 \\30 \text { units } & \text { Ending Inventory } & \text { September } 30\end{array}$

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

Question 68

Inventory refers to the:

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

Question 69

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 70

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 71

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 72

The inventory data for an item for November are: $\begin{array}{lll}25 \text { units at } \$ 20 \text { each } & \text { Inventory } & \text { Nov. } 1 \\30 \text { units at } \$ 21 \text { each } & \text { Purchase } & 10 \\10 \text { units at } \$ 22 \text { each } & \text { Purchase } & 30 \\35 \text { units } & \text { Sale } &\end{array}$ Using the last-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?

A) $640
B) $630
C) $600
D) $605

Question 73

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 74

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) none of these.

Question 75

Calculate the cost of ending inventory using FIFO method. $\begin{array}{lll}10 \text { units at } \$ 10 \text { each } & \text { Beginning inventory } & 1 / 1 \\40 \text { units at } \$ 12 \text { each } & \text { Purchase } & 2 / 28 \\50 \text { units at } \$ 14 \text { each } & \text { Purchase } & 5 / 10 \\30 \text { units at } \$ 16 \text { each } & \text { Purchase } & 9 / 20 \\50 \text { units } & \text { Encling inventory } & 12 / 31\end{array}$

A) $800
B) $760
C) $580
D) $500

Question 76

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

Question 77

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 78

Use the following data to calculate cost of merchandise sold under FIFO method. $\begin{array}{lll}15 \text { units at } \$ 20 \text { each } & \text { Beginning Inventory } & \text { September 1 } \\20 \text { units at } \$ 25 \text { each } & \text { Purchase } & \text { September 10 } \\25 \text { units at } \$ 28 \text { each } & \text { Purchase } & \text { September } 20 \\30 \text { units } & \text { Ending Inventory } & \text { September } 30\end{array}$

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

Question 79

Use the following data to calculate the cost of ending inventory under the FIFO method. $\begin{array}{lll}15 \text { units at } \$ 20 \text { each } & \text { Beginning Inventory } & \text { September 1 } \\20 \text { units at } \$ 25 \text { each } & \text { Purchase } & \text { September 10 } \\25 \text { units at } \$ 28 \text { each } & \text { Purchase } & \text { September } 20 \\30 \text { units } & \text { Ending Inventory } & \text { September } 30\end{array}$

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

Question 80

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.