Question 1

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.

Accepted Answer

The maker of a promissory note is the person who makes the promise to pay. The payee is the person or entity who will receive the payment, the seller is the person or entity who is selling something, and the receiver is a general term for someone who receives something.

Question 2

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.

Accepted Answer

During inflation, the LIFO method will result in using the newest and most expensive inventory for cost of goods sold, resulting in a lower ending inventory and a lower net income compared to the average method.

Question 3

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

Accepted Answer

Merchandise Inventory is an asset, and it is a current asset as it is expected to be sold or used up within one year. Therefore, it is presented on the balance sheet under the current assets section.

Question 4

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.

Accepted Answer

A note receivable due in 90 days is a short-term or current asset because it is expected to be collected within the next year. Therefore, it should be listed under current assets on the balance sheet.

Question 5

In reference to a promissory note,the person who is to receive payment is called the
A)maker.
B)payee.
C)seller.
D)payor.

Accepted Answer

The person who is to receive payment on a promissory note is called the payee.

Question 6

During inflationary periods,the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet approximating the current replacement cost.

Accepted Answer

During inflationary periods, the FIFO (First-In, First-Out) method of costing inventory assumes that the oldest units are sold first, resulting in the recent and more expensive inventory items remaining in the ending inventory. This yields an inventory amount for the balance sheet that approximates the current replacement cost. Therefore, the statement is true.

Question 7

"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.

Accepted Answer

"Market" in "lower of cost or market" refers to the current replacement cost of the inventory, not the price at which it is being sold by the owner.

Question 8

A written promise to pay a sum of money on demand or at a definite time is called a(n)
A)default.
B)deferral.
C)accrual.
D)promissory note.

Accepted Answer

A promissory note is a written agreement to repay a loan or debt on a specific date or on demand. It includes the amount of the loan, interest rate, and terms of repayment. Therefore, the best choice is D. The other options, default, deferral, and accrual, do not accurately describe a written promise to pay a sum of money.

Question 9

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.

Accepted Answer

FIFO stands for "first-in, first-out," which means the oldest inventory items are sold first and the cost of those items is used to calculate the cost of goods sold. This method assumes that costs are charged against revenues in the order in which they were incurred.

Question 10

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

Accepted Answer

The net realizable value (NRV) is calculated by subtracting the estimated costs of completing and selling the merchandise from its estimated selling price. This method is used to value inventory that may be outdated, damaged, or unsellable in its current condition. It is a common practice in accounting to report inventory at the lower of cost or net realizable value.

Question 11

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.

Accepted Answer

The lower-of-cost-or-market method of inventory valuation results in a decrease in the ending inventory value and an increase in the cost of goods sold when the market value declines, which in turn decreases gross profit for the period.

Question 12

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

Accepted Answer

Net realizable value is calculated as the estimated selling price minus any direct costs associated with selling the merchandise, such as repairs or shipping fees. This means that it takes into account the realistic amount the damaged merchandise can be sold for, rather than simply its original cost.

Question 13

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.

Accepted Answer

The answer of The FIFO method of costing inventory is...

Question 14

Receivables are usually a significant portion of
A)total current liabilities.
B)total liabilities.
C)total current assets.
D)total assets.

Accepted Answer

Receivables are typically considered as part of a company's current assets as they are expected to be collected within a year. Therefore, they usually represent a significant portion of total current assets.

Question 15

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

Accepted Answer

This is because the allowance for doubtful accounts represents an estimate of potential bad debts and is subtracted from the total accounts receivable to present a more accurate representation of the net amount that is expected to be collected.

Question 16

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.

Accepted Answer

A note receivable due in five years is considered a long-term investment and would be listed under the caption "investments" on the balance sheet. It is not considered a current asset because it is not expected to be converted into cash within one year. It is also not a fixed asset or stockholders' equity.

Question 17

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.

Accepted Answer

During deflationary periods, prices are falling, so the LIFO method will use older, higher-cost inventory first, resulting in lower cost of goods sold and higher net income compared to FIFO, which uses newer, lower-cost inventory.

Question 18

The lower of cost or market is a method of inventory valuation.

Accepted Answer

The lower of cost or market (LCM) method is a widely used inventory valuation method in accounting. It requires that inventory be carried at the lower of its historical cost or market value.

Question 19

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 cost method.

Accepted Answer

During inflation, FIFO (First-In, First-Out) results in lower cost of goods sold and higher net income because older, cheaper inventory costs are matched against current revenues, unlike LIFO (Last-In, First-Out) which uses more recent, higher costs.

Question 20

Cost is a method of inventory valuation.

Accepted Answer

Cost is one of the methods of inventory valuation, along with FIFO, LIFO, and average cost. It is the most commonly used method and involves valuing inventory at its historical cost or the price paid to acquire it.

Quiz 6: Receivables and Inventories

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