Deck 5: Accounting for Receivables and Inventory Cost Flow

Question 1

Kentucky Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $80,000 of revenue on account during 2014. During 2014, the company collected $64,000 of cash from its receivables accounts. Kentucky estimates that it will be unable to collect 2% of revenue on account. The amount of net realizable value of receivables on the December 31, 2014 balance sheet would be:

A) $16,640.
B) $17,400.
C) $16,000.
D) $14,400.

Answer 1

D

Question 2

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

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

Answer 2

A

Question 3

The Stevens Company provided $45,000 of services on account during 2014, its first year in operation. During 2014, Stevens collected $34,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 2% of its revenues on account.
The amount of net realizable value of receivables on the company's 2014 balance sheet was

A) $14,400.
B) $10,100.
C) $12,350.
D) $1,350.

Answer 3

B

Question 4

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.
The amount of cash flow from operating activities that would appear on the 2014 statement of cash flows is:

A) $24,000.
B) $25,000.
C) $17,000.
D) $21,000.

Question 5

To estimate the amount of its uncollectible accounts receivable, a company might

A) consult industry publications.
B) look at its past history of uncollectible accounts.
C) take into account the current condition of the economy.
D) all of these.

Question 6

The net realizable value of accounts receivable is calculated,

A) Accounts Receivable + Uncollectible Accounts Expense
B) Accounts Receivable + Notes Receivable
C) Accounts Receivable - Allowance for Doubtful Accounts
D) 365/Accounts Receivable

Question 7

For a business, the advantage of offering credit to customers is that it:

A) increases the amount of sales.
B) increases cash flow from financing activities.
C) decreases cost of goods sold.
D) decreases the amount of inventory the company needs to carry.

Question 8

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expenses?

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

Question 9

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.
The net realizable value of Bay's accounts receivable as of December 31, 2014 was

A) $7,000.
B) $3,500.
C) $6,500.
D) $500.

Question 10

On January 1, 2014, Howe Company's Accounts Receivable balance was $10,000 and the balance in the Allowance for Doubtful Accounts was $500. On January 5, 2014, a $200 uncollectible account was written-off as uncollectible. Assuming that no other transactions related to accounts receivable had occurred, the net realizable value of accounts receivable immediately after the write-off was

A) $9,500.
B) $9,700.
C) $9,300.
D) $9,200.

Question 11

The net effect of the entries to recognize the collection of a previously written-off account under the allowance method will

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

Question 12

Matsuzaka 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 13

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

A) the cash flow method of accounting for uncollectible accounts.
B) the direct write-off method of accounting for uncollectible accounts.
C) the allowance method of accounting for uncollectible accounts.
D) the cash flow method of accounting for uncollectible accounts and the direct write-off method of accounting for uncollectible accounts are correct.

Question 14

The Stevens Company provided $45,000 of services on account during 2014, its first year in operation. During 2014, Stevens collected $34,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 2% of its revenues on account.
The amount of uncollectible accounts expense recognized on the 2014 income statement was

A) $600.
B) $900.
C) $1,350.
D) $300.

Question 15

On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales.
The amount of uncollectible accounts expense recognized in the 2014 income statement will be

A) $700.
B) $300.
C) $750.
D) $550.

Question 16

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

A) an estimate of the amount of accounts receivable that will not be collected
B) an income statement account
C) a contra account
D) a balance sheet account

Question 17

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.
The amount of uncollectible accounts expense to recognize on the 2014 income statement is:

A) $80.
B) $250.
C) $480.
D) $500.

Question 18

A company's year-end adjusting entry to recognize uncollectible accounts expense will

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

Question 19

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.
The balance in Accounts Receivable as of December 31, 2014 was

A) $7,000.
B) $4,000.
C) $8,000.
D) $500.

Question 20

For Engle Company, the balance in Accounts Receivable at the beginning of the period was $800. During the period $3,200 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $400, and uncollectible accounts of $200 were written off, the amount of cash inflow from customers that would appear in the operating section of the cash statement would be:

A) $3,400.
B) $3,200.
C) $4,000.
D) $3,300.

Question 21

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.
What amounts will Siebens report on its 2014 statement of cash flows?

A) $0
B) A cash outflow of $20,000 shown as an operating activity
C) A cash outflow of $20,000 and an inflow of $800 for interest
D) A cash outflow of $20,000 shown as an investing activity

Question 22

On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales.
The entry required to recognize the uncollectible accounts expense for 2014 will

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

Question 23

On August 1, 2014, Miles Company accepted from another company a one-year note receivable with a face amount of $4,000 and an interest rate of 8%.
What would be the amount of cash flow from operating activities (related to the note receivable) on the 2014 statement of cash flows?

A) $(4,000)
B) $187
C) $133
D) zero

Question 24

On December 31, 2014, the Landon Corporation estimated that 3% of its credit sales of $215,000 would be uncollectible. Landon used the allowance method of accounting for uncollectible accounts. On February 15, 2015, Landon wrote off the account of one of its customers, in the amount of $2,500. On April 7, 2015, the customer paid the account in full.
Which of the following answers correctly states the effect of Landon's write-off entry on February 15, 2015?

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

Question 25

On December 31, 2014, the Landon Corporation estimated that 3% of its credit sales of $215,000 would be uncollectible. Landon used the allowance method of accounting for uncollectible accounts. On February 15, 2015, Landon wrote off the account of one of its customers, in the amount of $2,500. On April 7, 2015, the customer paid the account in full.
Which of the following answers correctly states the effect of the reinstatement of the receivable on April 7, 2015?

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

Question 26

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.
Related to this note receivable, what amount of interest income would Siebens report on its 2015 income statement?

A) $667
B) $600
C) $800
D) $0

Question 27

On October 1, 2014, Balkan, Inc. accepted from another corporation a 1-year note receivable in the amount of $15,000, with an interest rate of 6%. On December 31, 2014, Balkan accrued the interest income earned to date. How did this accrual affect Balkan's financial statements?

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

Question 28

On October 1, 2014, Balkan, Inc. accepted from another corporation a 1-year note receivable in the amount of $15,000, with an interest rate of 6%. How did this transaction affect Balkan's financial statements?

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

Question 29

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.
What would be the total amount of receivables on Siebens' December 31, 2014 balance sheet?

A) $20,000
B) $21,600
C) $20,933
D) $20,800

Question 30

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.
Related to this note receivable, what amount of interest income would Siebens report on its 2014 income statement?

A) $1,000
B) $1,600
C) $800
D) $933

Question 31

On December 31, 2014, the Landon Corporation estimated that 3% of its credit sales of $215,000 would be uncollectible. Landon used the allowance method of accounting for uncollectible accounts. On February 15, 2015, Landon wrote off the account of one of its customers, in the amount of $2,500. On April 7, 2015, the customer paid the account in full.
Which of the following answers correctly shows the effect of the December 31, 2014 adjusting entry for uncollectible accounts on the financial statements of the Landon Corporation?

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

Question 32

Olin Company had accounts receivable of $449,000. Before it recorded the adjusting entry for uncollectible accounts, the balance in the Allowance for Doubtful Accounts was $870. Olin estimates that it will not collect 3 percent of its accounts receivable. What amount of uncollectible accounts expense should be recorded?

A) $12,600
B) $10,860
C) $11,730
D) $13,470

Question 33

At the end of 2014, Duffau Company had outstanding accounts receivable of $109,760. Before recording the adjusting entry for uncollectible accounts, the balance in the Allowance for Doubtful Accounts was $350. If Duffau estimates that it will not collect 4 percent of its accounts receivable, what amount of uncollectible accounts expense should Duffau record? Round to the nearest dollar.

A) $4,040
B) $4,740
C) $4,390
D) $5,090

Question 34

The net effect of the entries to recognize the collection of a previously written-off account under the allowance method will

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

Question 35

On December 31, 2014, the Landon Corporation estimated that 3% of its credit sales of $215,000 would be uncollectible. Landon used the allowance method of accounting for uncollectible accounts. On February 15, 2015, Landon wrote off the account of one of its customers, in the amount of $2,500. On April 7, 2015, the customer paid the account in full.
Which of the following answers correctly states the effect of recording the collection of the reinstated receivable on April 7, 2015?

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

Question 36

On August 1, 2014, Miles Company accepted from another company a one-year note receivable with a face amount of $4,000 and an interest rate of 8%.
What would be the total amount of assets (related to the note receivable) reported on Muller's balance sheet dated December 31, 2014?

A) $4,000
B) $4,133
C) $4,320
D) $4,187

Question 37

On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales.
The entry to recognize the write-off of an uncollectible account 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 38

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.
What amounts will Siebens report on its 2015 statement of cash flows?

A) An operating cash inflow of $1,600 and a cash inflow of $20,000 shown as an investing activity
B) An operating cash inflow of $1,600 and a financing cash inflow of $20,000
C) An investing activity cash inflow of $20,000 and a financing cash inflow of $1,600
D) $21,600 cash inflow from financing activities

Question 39

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.
What total amount of cash will Siebens collect on May 31, 2015?

A) $20,000
B) $20,667
C) $21,600
D) None of these

Question 40

On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales.
The net realizable value of receivables appearing on the December 31, 2014 balance sheet will amount to:

A) $29,200.
B) $30,450.
C) $29,750.
D) $24,300.

Question 41

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

Question 42

When prices are falling:

A) LIFO will result in lower income and a lower ending inventory than will FIFO.
B) LIFO will result in lower income and a higher ending inventory than will FIFO.
C) LIFO will result in higher income and a lower ending inventory than will FIFO.
D) LIFO will result in higher income and a higher ending inventory than will FIFO.

Question 43

The Ruiz Corporation, which owns a chain of specialty shops, has recently begun to accept credit cards. On March 1, 2014, Ruiz made a credit card sale of $5,200 to a customer. The credit card company charges a fee of 3%.
Which of the following correctly shows the effects of the sale on March 1? 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 44

The Ruiz Corporation, which owns a chain of specialty shops, has recently begun to accept credit cards. On March 1, 2014, Ruiz made a credit card sale of $5,200 to a customer. The credit card company charges a fee of 3%.
Which of the following answers correctly describes the effect on Ruiz's financial statements of the collection of cash from the credit card company?

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

Question 45

In a period of rising prices, which inventory cost flow method will produce the lowest amount of cost of goods sold?

A) FIFO.
B) Weighted average.
C) LIFO.
D) All methods will produce the same amount of cost of goods sold.

Question 46

Barry Company purchased two identical inventory items. The item purchased first cost $7.00 and the item purchased second cost $9.00. Barney sold one of the items for $12.00. Which of the following statements is true?

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

Question 47

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) the amount of inventory on the company's balance sheet will be lower if it uses LIFO as opposed to FIFO cost flow.

Question 48

The accounting principle that requires a company to use the same accounting methods (such as inventory cost flow methods) over a period of time is

A) the consistency principle.
B) the conservatism principle.
C) the full disclosure principle.
D) the historical cost principle.

Question 49

The accounting principle that requires a company to provide financial statement users with information about the accounting methods it has selected (including inventory cost flow methods) is

A) the consistency principle.
B) the conservatism principle.
C) the full disclosure principle.
D) the historical cost principle.

Question 50

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 51

Kendall Company uses the perpetual inventory method. On January 1, 2014, Kendall purchased 300 units of inventory that cost $1.00 each. On January 10, 2014, the company purchased an additional 400 units of inventory that cost $1.50 each. If Kendall uses the weighted average cost flow method and sells 400 units of inventory, the amount of cost of goods sold appearing on the income statement will be:

A) $450.
B) $529.
C) $514.
D) $600.

Question 52

Howard Company accepts a credit card as payment for $950 of services provided to a customer. The credit card company charges a 4% fee for its services. Select the answer that shows how the entry to record the service revenue would affect Barlett's financial statements.

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

Question 53

Rosierre Company purchased two identical inventory items. One of the items cost $6.00 and was purchased in January. The other was purchased in February, and the company paid $7.00 for this item. One of the items was sold in March at a price of $10.00. Select the correct answer assuming that Rosierre uses a FIFO cost flow assumption.

A) The balance in ending inventory would be $7.00.
B) The amount of gross margin would be $3.00.
C) The amount of ending inventory would be $6.50.
D) The amount of ending inventory would be $6.00.

Question 54

When prices are rising, which method of inventory will result in the lowest cash outflow for income taxes?

A) weighted average
B) FIFO
C) LIFO
D) None of these; inventory methods do not affect the amount of income taxes.

Question 55

Victorino Company accepted a credit card payment in exchange for $10,000 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

A) increase assets by $9,500.
B) decrease assets and equity by $500.
C) increase assets by $10,000.
D) none of these.

Question 56

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

Question 57

During November 2014, Hall Company purchased two identical inventory items. The item purchased first cost $12.00, and the item purchased second cost $15.00. Hall sold one of the inventory items for $20.00. Based on this information

A) the amount of gross margin would be $5.00 if Hall uses the weighted average cost flow method.
B) the amount of cost of goods sold would be $12.00 if Hall uses the weighted average cost flow method.
C) the amount of gross margin will be $5.00 if Hall uses the FIFO cost flow method.
D) the amount of ending inventory will be $12.00 if Hall uses the LIFO cost flow method.

Question 58

Falon Company accepted a credit card account receivable in exchange for $50,000 of services provided to a customer. The credit card company charges a 3% service charge. Recording the service revenue and the service charge would

A) decrease expenses by $1,500.
B) increase assets by $50,000.
C) increase assets by $48,500.
D) decrease expenses by $1,500 and increase assets by $48,500.

Question 59

If prices are rising, which inventory cost flow method will produce the lowest amount for Cost of Goods Sold?

A) FIFO
B) LIFO
C) Weighted Average
D) Either B or C

Question 60

The Ruiz Corporation, which owns a chain of specialty shops, has recently begun to accept credit cards. On March 1, 2014, Ruiz made a credit card sale of $5,200 to a customer. The credit card company charges a fee of 3%.
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) There are fees charged for the privilege of accepting credit cards.
C) The credit card company performs credit worthiness assessments.
D) The credit card company assumes the cost of slow collections and write-offs.

Question 61

A company may choose to estimate its uncollectible accounts expense based on a percentage of sales or a percentage of accounts receivable.

Question 62

The person responsible for making payment on a promissory note is referred to as the payer.

Question 63

The adjusting entry to recognize uncollectible accounts expense is an asset use transaction.

Question 64

Warnock Company had $400,000 in credit sales for 2014, and it estimated that 2% of the credit sales would not be collected. The balance in Accounts Receivable at the end of the year was $79,000. Warnock had never used the allowance method to account for its receivables till 2014. The net realizable value of its accounts receivable at the end of the year was $71,000.

Question 65

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

Question 66

A promissory note may be secured by assets belonging to the maker.

Question 67

An aging of accounts receivable may be used to estimate the amount of accounts receivable that a company is likely not to collect.

Question 68

The principal on a promissory note is the person to whom the note is payable.

Question 69

Using the allowance method of accounting for uncollectible receivables requires an estimate of the amount of receivables that will not be collected.

Question 70

A company that uses the allowance write-off method of accounting for uncollectible accounts does not prepare a year-end adjusting entry to estimate its uncollectibles.

Question 71

When a company receives payment from a customer whose account was previously written off, the customer's account should be reinstated.

Question 72

For a company that uses the allowance method, the write-off of an uncollectible account receivable is an asset use transaction.

Question 73

The longer an account receivable has been outstanding, the less likely it is to be collected.

Question 74

When a customer's account, previously written off as uncollectible, is reinstated, the net realizable value of Accounts Receivable increases.

Question 75

The percent of revenue method of determining uncollectible accounts expense is called the balance sheet approach.

Question 76

The adjusting entry to recognize uncollectible accounts expense does not affect the net realizable value of receivables.

Question 77

The net realizable value of accounts receivable decreases when an account receivable is written off.

Question 78

Loaning money to another company through a promissory note is an asset source transaction.

Question 79

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

Question 80

When an uncollectible account receivable is written off, the amount of total assets is unchanged.