Deck 8: Working Capital

Question 1

When the allowance method of recognizing bad debt expense is used,the entries at the time of collection of an account previously written off would

A)Increase net income
B)Have no effect on total current assets
C)Increase working capital
D)Decrease total current liabilities

Answer 1

B

Question 2

The advantage of relating a company's bad debt experience to its accounts receivable is that this approach

A)Gives a reasonable correct statement of receivables in the balance sheet
B)Relates bad debts expense to the period of sale
C)Is the only generally accepted method for valuing accounts receivable
D)Makes estimates of uncollectible accounts unnecessary

Answer 2

A

Question 3

The total amount of working capital is

A)$155,000.
B)$145,000.
C)$60,000.
D)$150,000.

Answer 3

B

Question 4

An account that would be classified as a current liability is

A)Dividends payable in stock
B)Accounts payable - debit balance
C)Reserve for possible losses on purchase commitments
D)Excess of replacement cost over LIFO cost of basic inventory temporarily liquidated

Question 5

A common measure of liquidity is

A)Return on assets.
B)Accounts receivable turnover.
C)Profit margin.
D)Debt to equity.

Question 6

Which of the following inventory cost flow methods involves computations based on broad inventory pools of similar items?

A)Regular quantity of goods LIFO
B)Dollar-value LIFO
C)Weighted average
D)Moving average

Question 7

If inventory levels are stable or increasing an argument that favors the FIFO method as compared to LIFO is

A)Income taxes tend to be reduced in periods of rising prices
B)Cost of goods sold tends to be stated at approximately current cost in the income statement
C)Cost assignments typically parallel the physical flow of the goods
D)Income tends to be smoothed as prices change over time

Question 8

Working capital is a measure of

A)Financial flexibility
B)Liquidity.
C)Profitability.
D)Solvency.

Question 9

Under what circumstances should a company with high rate of return on sales consider the inventory sold?

A)When the retailer gives a confirmation that the goods won't be returned
B)When the goods are sold on installment
C)When it can reasonably estimate the amount of returns
D)When the payment for goods is received

Question 10

When inventory declines in value below original historical)cost,and this decline is considered other than temporary,what is the maximum amount that the inventory can be valued at?

A)Sales price net of conversion costs
B)Net realizable value
C)Historical cost
D)Net realizable value reduced by a normal profit margin

Question 11

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future,failure to follow this practice usually does not make the balance sheet misleading because

A)Most short-term receivables are not interest bearing
B)The allowance for uncollectible accounts includes a discount element
C)The amount of the discount is not material
D)Most receivables can be sold to a bank or factor

Question 12

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

A)FIFO
B)LIFO
C)Conventional retail
D)Weighted average

Question 13

Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory Cost of Goods Sold

A)FIFO LIFO
B)LIFO FIFO
C)LIFO LIFO
D)FIFO FIFO

Question 14

The net realizable value of receivables is calculated as the face value of the receivables less adjustments for

A)Credit sales
B)Actual uncollected amounts adjusted for purchase discounts.
C)Bad debts already written off.
D)Estimated uncollectible accounts

Question 15

Liquidity ratios measures the

A)Operating success of a company over a period of time
B)The ability of a company to survive over a long period of time
C)The short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash
D)The number of times interest is earned

Question 16

Of the following items,the one that should be classified as a current asset is

A)Trade installment receivables normally collectible in 18 months
B)Cash designated for the redemption of callable preferred stock
C)Cash surrender value of a life insurance policy of which the company is beneficiary
D)A deposit on machinery ordered,delivery of which will be made within six months

Question 17

Liquidity is the ability

A)To increase net assets through regular operations
B)To generate cash from sources other than regular operations
C)To convert existing assets into cash
D)Of financial statement users to predict a company's cash flows

Question 18

The current ratio is

A)1.86: 1.
B)2.00: 1.
C)3.38: 1.
D)2.93: 1.

Question 19

Jamison Corporation's inventory cost on its statement of financial position was lower using first-in,first-out than last-in,first-out.Assuming no beginning inventory,what direction did the cost of purchases move during the period?

A)Up
B)Down
C)Steady
D)Cannot be determined

Question 20

The original cost of an inventory item is above the replacement cost.The replacement cost is below the net realizable value less the normal profit margin.Under the lower of cost or market method the inventory item should be priced at its

A)Original cost
B)Replacement cost
C)Net realizable value
D)Net realizable value less the normal profit margin

Question 21

The accounts receivable turnover and inventory turnover ratios are used to analyze

A)Long-term solvency
B)Profitability
C)Liquidity
D)Leverage

Question 22

Increasing a credit period from 30 to 60 days,in response to a similar action taken by company's competitors,would likely result in:

A)An increase in the average collection period.
B)A decrease in bad debt losses.
C)An increase in sales.
D)Higher profits.

Question 23

During the year Snedicker reported net sales of $1,920,000.The company had accounts receivable of $150.000,000 at the beginning of the year and $240,000 at the end of the year Compute Snedicker's average collection period assume 365 days a year. )

A)28.5 days
B)45.7 days.
C)37.1days.
D)74.2 days.

Question 24

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

A)Determining worthless accounts under direct write-off method is difficult to do.
B)Improved matching of bad debt expense with revenue.
C)Allowance method is used for tax purposes.
D)Estimates are used.

Question 25

What is a possible reason for accounts receivable turnover to increase from one year to the next year?

A)Improved collection process.
B)Granting credit to customers with lower credit quality.
C)Decreased credit sales during a recession.
D)Write-off uncollectible receivables.

Question 26

The Villas Corporation's annual sales all on credit)totaled $540,000 in 2016.The company's accounts receivable turnover ratio was 5.Villas' average accounts receivable collection period and year end accounts receivable balance respectively were:

A)365 days and $108,000.
B)73 days and $120,000
C)73 days and $108,000
D)81 days and $108,000

Question 27

Which of the following methods of determining annual bad debt expense best achieves the matching concept?

A)Percentage of average accounts receivable
B)Direct write-off
C)Percentage of sales
D)Percentage of ending accounts receivable

Question 28

A high accounts receivable turnover ratio indicates

A)Customers are making payments quickly
B)A large portion of the company's sales are on credit
C)Many customers are not paying their receivables in a timely manner
D)The company's sales have increased