Question 1

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

Accepted Answer

D

Question 2

Working capital is a measure of
A)Financial flexibility
B)Liquidity.
C)Profitability.
D)Solvency.

Accepted Answer

Working capital is a measure of liquidity, or a company's ability to pay its short-term debts and obligations. It is calculated by subtracting current liabilities from current assets. A high level of working capital generally indicates that a company has sufficient funds to meet its short-term financial obligations.

Question 3

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

Accepted Answer

When an account previously written off is collected under the allowance method, the entry to record the collection reverses the write-off and recognizes the collection, which affects the allowance for doubtful accounts and cash, but does not change the total current assets because one asset (cash) increases while another (allowance for doubtful accounts) decreases by the same amount.

Question 4

Define working capital.

Accepted Answer

The answer of Define working capital....

Question 5

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

Accepted Answer

Liquidity ratios, such as current ratio and quick ratio, measure a company's ability to meet its short-term obligations and unexpected cash needs. These ratios indicate whether a company has enough current assets (such as cash, inventory, and accounts receivable) to cover its current liabilities (such as accounts payable and short-term debt). They do not measure operating success over time or long-term survival, nor do they relate to interest earned.

Question 6

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

Accepted Answer

A deposit on machinery ordered, delivery of which will be made within six months is classified as a current asset because it is expected to be converted into cash within one year or the operating cycle of the business, whichever is longer. Option A is also a receivable, but it is not a current asset as it is collectible in 18 months. Option B is designated for the redemption of callable preferred stock, which is a long-term liability, and option C is the cash surrender value of a life insurance policy, which is an investment and not a current asset.

Question 7

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

Accepted Answer

The net realizable value of receivables is calculated as the face value of the receivables less adjustments for estimated uncollectible accounts. This is because the net realizable value reflects the amount of cash the company expects to receive from the receivables after accounting for any expected losses from uncollectible accounts.

Question 8

The current ratio is
A)1.86 : 1.
B)2.00 : 1.
C)3.38 : 1.
D)2.93 : 1.

Accepted Answer

The answer of The current ratio is
A)1.86 : 1.
B)2.00 :...

Question 9

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

Accepted Answer

Liquidity refers to the degree to which a company possesses the ability to convert existing assets into cash. This means that the company has the ability to pay off its short-term obligations and meet its financial obligations as they fall due. Option A relates to profitability, Option B relates to cash flow generation, and Option D refers to the predictability of cash flows.

Question 10

The total amount of working capital is
A)$155,000.
B)$145,000.
C)$60,000.
D)$150,000.

Accepted Answer

The answer of The total amount of working capital is
A)$155,000.
B)$145,000.
C)$60,000.
D)$150,000....

Question 11

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

Accepted Answer

The answer of If inventory levels are stable or increasing...

Question 12

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

Accepted Answer

The answer of The advantage of relating a company's bad...

Question 13

Discuss the perpetual vs.the periodic methods of accounting for inventories.

Accepted Answer

The answer of Discuss the perpetual vs.the periodic methods of...

Question 14

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

Accepted Answer

The key phrase in the question is "failure to follow this practice usually does not make the balance sheet misleading." Option C suggests that the amount of discount in short-term receivables is not material enough to make a significant difference in the balance sheet. Hence, despite not considering the discounted value, the balance sheet will still provide an accurate representation of the company's financial status. Option A is not the best choice because even if most short-term receivables are not interest-bearing, the discount rate should still be considered. Option B is not appropriate because the allowance for uncollectible accounts relates to the portion of the receivables that the company expects cannot be collected, and not the discount element. Option D is not relevant because the question pertains to the ideal measure of short-term receivables in the balance sheet, and not the potential sale of the receivables.

Question 15

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

Accepted Answer

The lower of cost or market method requires valuing inventory items at the lower of their cost or their market value. In this case, the replacement cost (which is the market value) is below the net realizable value less the normal profit margin, so the inventory item should be valued at the net realizable value minus the normal profit margin. Therefore, the correct answer is D.

Question 16

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

Accepted Answer

LIFO (last-in, first-out) is an inventory pricing procedure where the most recent costs incurred are matched with revenue first, leaving older costs to be matched with revenue only if there is any ending inventory left. This procedure results in older costs having little effect on the ending inventory valuation.

Question 17

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

Accepted Answer

When inventory declines in value below historical cost and this decline is considered other than temporary, the inventory can be valued at the net realizable value reduced by a normal profit margin. This is because the inventory cannot be sold at its original historical cost, and the expected revenue from its sale is the net realizable value, which should consider a normal profit margin.

Question 18

A common measure of liquidity is
A)Return on assets.
B)Accounts receivable turnover.
C)Profit margin.
D)Debt to equity.

Accepted Answer

Accounts receivable turnover is a common measure of liquidity because it indicates the speed with which a company is able to collect its outstanding receivables. A high accounts receivable turnover ratio indicates that a company is collecting its receivables quickly and has cash available for its operations, while a low ratio could indicate that a company is having difficulty collecting its receivables and may have cash flow issues. Return on assets, profit margin, and debt to equity are measures of profitability and leverage, respectively, and do not directly relate to liquidity.

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

Accepted Answer

If the inventory cost is lower using first-in, first-out than last-in, first-out, it means that the cost of goods sold was higher under LIFO. This could happen if the cost of purchases increased during the period. Hence, the direction of the cost of purchases during the period was likely to be up.

Question 20

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

Accepted Answer

Dollar-value LIFO involves computations based on broad inventory pools of similar items, where inventory layers are expressed in terms of dollar values rather than specific units. This method adjusts for both changes in the quantity of inventory and changes in the prices of that inventory. Therefore, it is the best choice among the given options.

Quiz 8: Working Capital

An account that would be classified as a current liability is

Working capital is a measure of

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

Define working capital.

Liquidity ratios measures the

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

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

The current ratio is

Liquidity is the ability

The total amount of working capital is

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

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

Discuss the perpetual vs.the periodic methods of accounting for inventories.

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

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

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

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 common measure of liquidity is

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?

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