Question 1

Assuming that the allowance for doubtful debts method of accounting for bad debts is used, when a customer's account is determined to be a bad debt, which of the following will occur?

Accepted Answer

When a customer's account is determined to be a bad debt, the allowance for doubtful debts is reduced, as it was originally set up as a reserve for such situations. Additionally, the accounts receivable balance is reduced to reflect the fact that the customer is unlikely to pay their debt. Therefore, choice B is the correct answer.

Question 2

The So-Big Company sells hot-dogs. Inventory information for a recent week is shown below:  If five units were sold during the week, what is the cost of goods sold if the LIFO periodic method is used?

Accepted Answer

The answer of The So-Big Company sells hot-dogs. Inventory information...

Question 3

Which of the following methods results in the higher value for cost of goods sold in times of rising inventory prices?

Accepted Answer

In times of rising inventory prices, the Last-in, First-out (LIFO) method results in a higher cost of goods sold (COGS) because it assumes that the most recently acquired (and presumably more expensive) inventory items are sold first.

Question 4

Inventories do not include goods and services:

Accepted Answer

Inventories include goods and services that are held for sale, used up in production, or consumed in production. They do not include goods and services that have already been sold to customers.

Question 5

Using the last-in, first-out periodic method, the value of closing inventory is:

Accepted Answer

To use the last-in, first-out periodic method, we assume that the most recent purchases are sold first.

We have the following information:

Beginning inventory: 20 units at $80 = $1600
Purchases:
- 30 units at $90 = $2700
- 40 units at $100 = $4000

We assume that the 40 units purchased at $100 are the last to be sold. Therefore, we start by valuing the 40 units at $100, which gives a total value of $4000.

Next, we move on to the 30 units purchased at $90. We assume that all 30 units were sold, so we add $2700 to our running total.

Finally, we move on to the beginning inventory of 20 units at $80. We assume that all 20 units were sold, so we add $1600 to our running total.

Our total cost of goods sold is $8300.

To calculate the value of closing inventory, we add up the cost of the 20 units beginning inventory and the remaining 10 units from the 30 units purchased at $90. This gives a total value of $1680.

Therefore, the value of closing inventory is $1680.

The best choice is B.

Question 6

The net realisable value of inventory is:

Accepted Answer

The net realisable value of inventory is the estimated selling price in the ordinary course of business, less the estimated costs of completion and any estimated costs of sale. This represents the amount that the company expects to receive from selling the inventory. Therefore, option D is correct. Options A and B are incorrect as they only represent either the cost of goods sold or the purchase cost of the inventory, respectively. Option C is incorrect as it only represents the selling price less any costs of sale, without considering the cost of completion.

Question 7

George, a sole trader, sells goods on credit, and uses the direct write-off method for recording bad debts. The balance for accounts receivable at the end of the last financial year ended 31 December was $12 000. There was $1000 of bad debts that were written off this year. From an accrual perspective, for last year, which of the following is incorrect?

Accepted Answer

Liabilities are not affected by accounts receivable or bad debts, so profit and liabilities being overstated is incorrect.

Question 8

The inventory valuation method that results in the recognition of the oldest inventory costs on the balance sheet and statement of comprehensive income, respectively, is: Balance Sheet Statement of Comprehensive Income

Accepted Answer

The answer of The inventory valuation method that results in...

Question 9

You would expect to see the account Work-in-Progress Inventory reported on the balance sheet of a: Manufacturing firm Merchandising firm

Accepted Answer

Work-in-progress inventory is an inventory of goods that are in the process of being manufactured or produced. Therefore, it would only be reported on the balance sheet of a manufacturing firm that is producing goods. A merchandising firm simply buys and sells finished goods, so they would not have work-in-progress inventory.

Question 10

Which inventory measurement method would have the most recent costs in cost of goods sold?

Accepted Answer

LIFO assumes that the most recent costs are sold first, therefore the cost of goods sold would consist of the most recent costs.

Question 11

Different inventory valuation methods do not affect:

Accepted Answer

Inventory valuation methods primarily affect the cost of goods sold and ending inventory balances, thus impacting profit and assets. Liabilities, however, are not directly affected by how inventory is valued.

Question 12

Inventory should normally be classified on the balance sheet as:

Accepted Answer

Inventory is a current asset, meaning it is expected to be converted into cash within one year or one operating cycle, whichever is longer. This is because inventory is held for the purpose of being sold or used in the production of goods for sale, and it is typically expected that it will be sold or used within a short period of time. Therefore, it should be classified as a current asset on the balance sheet.

Question 13

Assuming that there are inflationary trends in the economy, the inventory amount shown in the balance sheet, if based on LIFO, would normally be:

Accepted Answer

If there are inflationary trends in the economy and the inventory amount is based on the LIFO method, then the inventory cost will reflect the most recent purchases, which will be at the higher current market value. Therefore, the cost of goods sold will be higher and the value of inventory will be lower, resulting in lower net income and lower taxes. Hence, the inventory amount shown in the balance sheet, if based on LIFO, would normally be lower than the FIFO value.

Question 14

Using the first-in, first-out periodic method, the value of closing inventory is:

Accepted Answer

The answer of Using the first-in, first-out periodic method, the...

Question 15

The balance of the accounts receivable balance of XYZ Pty Ltd was $23 000 at the beginning of the financial year ended 30 June and $27 000 at the end of the period. The total credit sales for the company for the financial year was $132 000. Bad debts write-off totalled $5500. What was the total of the cash received from accounts receivable during the year?

Accepted Answer

To calculate the total cash received from accounts receivable during the year, we start with the opening balance of accounts receivable, add total credit sales, subtract bad debts written off, and then subtract the closing balance of accounts receivable. The formula looks like this: Opening balance + Credit sales - Bad debts - Closing balance = Cash received.So, using the numbers provided: $23,000 (opening balance) + $132,000 (credit sales) - $5,500 (bad debts) - $27,000 (closing balance) = $122,500.

Question 16

The net figure for accounts receivable after deducting the allowance for doubtful debts account:

Accepted Answer

The net figure for accounts receivable after deducting the allowance for doubtful debts account represents the expected cash to be collected. This means that it reflects the portion of accounts receivable that the company expects to collect from customers in the future. Therefore, choice A is correct. Choice B is incorrect because the allowance for doubtful debts account is a contra asset account, which has the opposite balance to the accounts receivable account. Choice C is incorrect because the allowance for doubtful debts account is deducted from the accounts receivable, which means that the net figure already takes into account the expected loss due to bad debts. Conversely, choice D is also incorrect because the net figure for accounts receivable already takes into account the expected loss due to bad debts; hence, it does not overstate the realisable value of accounts receivable.

Question 17

When the price of inventory is decreasing, which of the following is true regarding the three best-known inventory valuation methods?

Accepted Answer

The answer of When the price of inventory is decreasing,...

Question 18

First-in, first-out is the same as:

Accepted Answer

The answer of First-in, first-out is the same as:
...

Question 19

The cost of a block of wood is $28 but the net realisable value is $24. Under the valuation rule in accounting standards, the block of wood is recognised at:

Accepted Answer

According to the valuation rule in accounting standards, inventory should be recognized at the lower of cost or net realisable value. In this case, the net realisable value of the block of wood is lower than the cost, so it should be recognized at $24.

Question 20

Using the weighted-average-cost method, the value of closing inventory is (to the nearest whole $):

Accepted Answer

The answer of Using the weighted-average-cost method, the value of...

Quiz 8: Accounting for Selected Assets