Question 1

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

Accepted Answer

Most companies report their receivables at net realizable value which is the amount expected to be collected from customers after deducting estimated allowances for doubtful accounts.

Question 2

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.

Accepted Answer

The answer of When prices are falling:
A) LIFO will result...

Question 3

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

Accepted Answer

The answer of The Ruiz Corporation, which owns a chain...

Question 4

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

Accepted Answer

The answer of The Ruiz Corporation, which owns a chain...

Question 5

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.

Accepted Answer

In a period of rising prices, the FIFO (first-in, first-out) method will produce the lowest amount of cost of goods sold because it assumes that the oldest inventory items are sold first, which have lower costs compared to the newer inventory items. This results in a higher value of ending inventory and a lower value of cost of goods sold. On the other hand, LIFO (last-in, first-out) assumes that the newest inventory items are sold first, resulting in a higher cost of goods sold and a lower value of ending inventory. Weighted average takes into account the cost of all inventory items and calculates the average cost per unit, which might not reflect the actual cost of the older inventory items. Hence, the best choice in this scenario is A) FIFO.

Question 6

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.

Accepted Answer

Ending inventory will be lower if Barney uses weighted average than it would be if FIFO were used because the weighted average cost per unit is lower than the FIFO cost per unit.

Question 7

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.

Accepted Answer

In an inflationary environment, LIFO results in higher cost of goods sold and lower ending inventory values compared to FIFO, leading to lower inventory on the balance sheet.

Question 8

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.

Accepted Answer

The consistency principle requires a company to use the same accounting methods over time to ensure that financial statements are comparable from one period to the next. This helps to provide more accurate and reliable information for users of financial statements.

Question 9

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.

Accepted Answer

The full disclosure principle requires companies to disclose information about their accounting methods, including inventory cost flow methods, to provide financial statement users with a complete understanding of the company's financial position and performance. The consistency principle requires companies to use the same accounting methods from period to period, the conservatism principle requires companies to be cautious in their financial reporting by recording expenses and losses as soon as possible, and the historical cost principle requires companies to record assets at their original cost. However, none of these principles specifically address the disclosure of accounting methods chosen.

Question 10

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

Accepted Answer

The best estimate for the amount of cash a company expects to collect from its accounts receivable is not the face value of the receivables, as some customers may not pay their invoices or may pay them late. The company must estimate an allowance for doubtful accounts or bad debt expense to reflect the expected losses from uncollectible accounts. This allowance reduces the gross amount of accounts receivable to their net realizable value, which represents the amount of cash the company expects to collect from its customers.

Question 11

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.

Accepted Answer

To calculate the weighted average cost per unit, we first need to calculate the total cost of inventory:

Total cost = (300 units x $1.00 per unit) + (400 units x $1.50 per unit)
Total cost = $300 + $600
Total cost = $900

We then divide the total cost by the total number of units:

Weighted average cost per unit = $900 ÷ (300 units + 400 units)
Weighted average cost per unit = $1.125 per unit

To calculate the cost of goods sold, we multiply the number of units sold (400) by the weighted average cost per unit ($1.125):

Cost of goods sold = 400 units x $1.125 per unit
Cost of goods sold = $450

Therefore, the answer is C) $514.

Question 12

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

Accepted Answer

The answer of Howard Company accepts a credit card as...

Question 13

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.

Accepted Answer

Under FIFO (First-In, First-Out), the first item purchased (costing $6.00) is assumed to be sold first. Therefore, the ending inventory consists of the item purchased in February, which cost $7.00.

Question 14

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.

Accepted Answer

LIFO (last-in, first-out) method assumes that the most recently purchased items are sold first. So, during inflationary periods, the cost of goods sold under LIFO will be higher and will result in a lower net income, and ultimately lower taxable income. This reduced taxable income leads to a lower cash outflow for income taxes.

Question 15

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.

Accepted Answer

The answer of Victorino Company accepted a credit card payment...

Question 16

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

Accepted Answer

The net realizable value of accounts receivable is the total amount of its receivables that a company expects to collect, which takes into account any uncollectible accounts or bad debts. Therefore, this statement is true.

Question 17

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.

Accepted Answer

The answer of During November 2014, Hall Company purchased two...

Question 18

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.

Accepted Answer

Accepting a credit card account receivable means that the company is essentially selling the account receivable to the credit card company in exchange for cash. Therefore, the company will receive $50,000 - 3% = $48,500. This is because the credit card company deducts a service charge of 3% from the face value of the account receivable. The $1,500 is an expense incurred by the customer, not the company. Therefore, the transaction would increase assets by $48,500.

Question 19

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

Accepted Answer

Under FIFO (First-In-First-Out), the oldest inventory items are sold first, which means that cost of goods sold will reflect the lower prices of the items purchased earlier. Therefore, in a rising price scenario, the use of FIFO will result in a lower cost of goods sold compared to LIFO and Weighted Average methods.

Question 20

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.

Accepted Answer

Explanation: Option B is not an advantage because it highlights a cost (fees charged) rather than a benefit of accepting credit cards.

Quiz 5: Accounting for Receivables and Inventory Cost Flow

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

When prices are falling:

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

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?

In an inflationary environment:

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

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

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

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.

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

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

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

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

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

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