Deck 6: Receivables and Inventories

Question 1

Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet.

Answer 1

True

Question 2

Allowance for Doubtful Accounts is a contra liability account.

Answer 2

False

Question 3

The estimate of uncollectible accounts receivable based on the sales method violates the matching principle.

Answer 3

False

Question 4

The sum of the face amount and the interest that must be paid at the due date of the note is called maturity value.

Question 5

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 6

The due date of a 60-day note dated July 10 is September 9.

Question 7

All receivables that are expected to be realized in cash within a year are presented in the current assets section of the balance sheet.

Question 8

The party promising to pay a note at maturity is the payee.

Question 9

When companies sell their receivables to other companies, the transaction is called factoring.

Question 10

Under the direct write-off method, an attempt is made to match Bad Debt Expense to sales revenues in the same accounting period.

Question 11

At the end of a period before the accounts are adjusted, Allowance for Doubtful Accounts has a balance of $250, and net sales on account for the period total $500,000.If uncollectible accounts expense is estimated at 1% of net sales on account, the current provision to be made for uncollectible accounts expense is $4,997.50.

Question 12

Receivables not expected to be collected within one year are reported in the fixed assets section of the balance sheet.

Question 13

The difference between the total receivables and the balance in Allowance for Doubtful Accounts at the end of a period is referred to as the net realizable value of the receivables.

Question 14

The interest at 6%, on a 60-day note for $5,000 is $300.(Assume 360 days in a year)

Question 15

The due date of a 90-day note dated July 15 is October 13.(Assume 360 days in a year)

Question 16

Net income is reduced when a specific receivable is written off under the analysis of receivables method.

Question 17

The maturity value of a 12%, 60-day note for $1,000 is $1,020.(Assume 360 days in a year)

Question 18

Generally accepted accounting principles do not normally allow the use of the allowance method of accounting for uncollectible accounts.

Question 19

The direct write-off method records uncollectible accounts expense in the year the specific account receivable is determined to be uncollectible.

Question 20

The person who is to be paid when a note matures is called the payee.

Question 21

"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.

Question 22

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

Question 23

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

Question 24

The FIFO method of costing inventory is based on the assumption that costs should be charged against revenues in the order in which they were incurred.

Question 25

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 method of costing inventory.

Question 26

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.

Question 27

In reference to a promissory note, the person who is to receive payment is called the:

A) maker.
B) payee.
C) seller.
D) payer.

Question 28

Average cost is a method of inventory valuation.

Question 29

The amount of the promissory note plus the interest earned on the due date is called the:

A) market value.
B) maturity value.
C) face value.
D) discounted value.

Question 30

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.

Question 31

During inflationary periods, the value of inventory that appears on the balance sheet using FIFO method will be more than its current replacement cost.

Question 32

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 of inventory costing.

Question 33

Credit purchase is taken into account while calculating accounts receivable turnover ratio.

Question 34

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.

Question 35

A written promise to pay a sum of money on demand or at a definite time is called a(n):

A) letter of credit.
B) deferred note.
C) credit memorandum.
D) promissory note.

Question 36

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

Question 37

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.

Question 38

The balance of the allowance for doubtful accounts is added to accounts receivable on the balance sheet.

Question 39

Lower-of-cost-or-market is a method of inventory valuation.

Question 40

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 of inventory costing.

Question 41

Which of the following statements is a correct representation of the effect of the reinstatement of an accounts receivable account previously written off?

A) Days' sales in receivables increases by the reinstatement of the account.
B) Return on sales decreases by the reinstatement of the account.
C) Days' sales in receivables is not affected by the reinstatement of the account.
D) Return on sales is not affected by the reinstatement of the account.

Question 42

Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the year, and an analysis of customers' accounts indicates doubtful accounts of $12,900.Which of the following records the proper provision for doubtful accounts?

A) Increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful Accounts, $14,000
B) Decrease Allowance for Doubtful Accounts, $14,000; decrease Uncollectible Accounts Expense, $14,000
C) Decrease Allowance for Doubtful Accounts, $11,800; decrease Uncollectible Accounts Expense, $11,800
D) Increase Uncollectible Accounts Expense, $11,800; increase Allowance for Doubtful Accounts, $11,800

Question 43

A transaction in which a company sells its receivables and immediately receives cash for operating and other needs is called _____.

A) adjusting
B) assigning
C) factoring
D) discounting

Question 44

Days' sales in receivables estimates the average number of days it takes to:

A) collect cash sales.
B) convert inventory to sales.
C) collect accounts receivables.
D) convert raw material to inventory.

Question 45

Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales.If net sales are $300,000, compute the amount of the adjustment to record the provision for doubtful accounts.

A) $400.
B) $3,400.
C) $3,000.
D) $2,600.

Question 46

What type of account is Allowance for Doubtful Accounts?

A) Contra asset account
B) Asset account
C) Liability account
D) Expense account

Question 47

At the end of the current year, Jackson Inc.has an Accounts Receivable balance of $200,000 and Allowance for Doubtful Accounts has a negative balance of $(60,000).What is the net realizable value of the receivables?

A) $60,000
B) $260,000
C) $200,000
D) $140,000

Question 48

Taxes receivable is classified as:

A) other receivable.
B) notes receivable.
C) accounts receivable.
D) trade receivables.

Question 49

Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year, and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Compute the adjusted balance in the allowance for doubtful accounts?

A) $15,000
B) $14,500
C) $14,000
D) $15,500

Question 50

Ariel Inc.uses the allowance method of accounting for uncollectible accounts receivable and estimates that 2% of the credit sales of $1,650,000 for the year ended will be uncollectible.Allowance for Doubtful Accounts has a negative unadjusted balance of $(1,600) at the end of the year.Determine the amount of the adjustment to record the provision for doubtful accounts.

A) $33,000
B) $31,400
C) $34,600
D) $30,000

Question 51

Jack Inc.offers a credit term of n/30.This means that the company:

A) receives money from the customers 30 days after the of sale of the goods.
B) offers a 30-day loan to the suppliers.
C) expects to collect receivables every 30 days.
D) pays its creditors within 30 days of the purchase of raw materials.

Question 52

The due date of a 60-day note dated July 12 is:

A) September 11.
B) September 8.
C) September 9.
D) September 10.

Question 53

A 90-day, 10% note for $10,000 dated March 15 is received from a customer on account.The face value of the note is:

A) $10,250.
B) $9,000.
C) $9,750.
D) $10,000.

Question 54

The two methods of accounting for uncollectible receivables are the:

A) direct method and the indirect method.
B) allowance method and the direct write-off method.
C) cash method and the accrual method.
D) percent of sales method and the analysis of receivables method.

Question 55

The analysis of receivables method of costing inventory is based on the assumption that:

A) the uncollectible accounts can be estimated as a percentage of credit sales.
B) the bad debt expense is recorded by estimating uncollectible accounts at the end of the accounting period.
C) the bad debt expense is recorded only when an account is determined to be worthless.
D) the longer an account receivable is outstanding, the less likely that it will be collected.

Question 56

One of the weaknesses of the direct write-off method is that it:

A) understates accounts receivable on the balance sheet.
B) violates the matching principle.
C) adjusts allowance account the end of the year.
D) is based on estimates.

Question 57

Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of the year, and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Which of the following records the proper provision for doubtful accounts?

A) Increase Uncollectible Accounts Expense, $800; increase Allowance for Doubtful Accounts, $800
B) Increase Uncollectible Accounts Expense $15,000; increase Allowance for Doubtful Accounts, $15,000
C) Increase Uncollectible Accounts Expense, $14,200; increase Allowance for Doubtful Accounts, $14,200
D) Increase Uncollectible Accounts Expense, $15,800; increase Allowance for Doubtful Accounts, $15,800

Question 58

Georgia Inc.reported operating income of $156,000 and sales of $1,300,000 for the current year end.Determine the company's return on sales.

A) 10%
B) 8%
C) 15%
D) 12%

Question 59

A 90-day, 8% note for $10,000 dated May 1 is received from a customer on account.The maturity value of the note is (Assume 360 days in a year):

A) $10,000.
B) $10,800.
C) $10,200.
D) $9,800.

Question 60

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $500,000 and Allowance for Doubtful Accounts has a balance of $25,000.What is the net realizable value of the accounts receivable?

A) $25,000
B) $525,000
C) $500,000
D) $475,000

Question 61

The following data is available for an item of JNC Inc.for the month of March: $$\begin{array} { r l l } \text { March } 1 & \text { Inventory } & 15 \text { units at } \$ 10 \text { each } \\15 & \text { Purchase } & 30 \text { units at } \$ 18 \text { each } \\31 & \text { Purchase } & 24 \text { units at } \$ 15 \text { each } \\& \text { Sale } & 30 \text { units }\end{array}$$ ? ?Using the first-in, first-out method, what is JNC Inc.'s cost of ending inventory for March??

A) $630
B) $510
C) $420
D) $360

Question 62

The inventory costing method that considers the ending inventory to be composed of units of the merchandise acquired earliest is called:

A) first-in, first-out.
B) highest-in, first-out.
C) lowest-in, first-out.
D) last-in, first-out.

Question 63

In a period of rising prices, the effect of selecting the FIFO rather than the LIFO method of inventory valuation results in:

A) a higher days' sales in inventory.
B) a lower return on sales.
C) a lower days' sales in inventory.
D) a higher days' sales in receivables.

Question 64

During a period of consistently rising prices, the method of inventory costing that will result in reporting the greatest cost of merchandise sold is:

A) FIFO.
B) average cost.
C) LIFO.
D) All methods will generate the same cost of merchandise sold.

Question 65

When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory costing method is called:

A) first-in, last-out.
B) last-in, first-out.
C) first-in, first-out.
D) average cost.

Question 66

ABC Inc.provided the following data for the year end: Cost of goods sold
$4,680,000
Inventory at the beginning of the year
678,000
Inventory at the end of the year
570,000
​
What is ABC Inc.'s days' sale in inventory? (Assume 360 days in a year)

A) 95 days
B) 13 days
C) 60 days
D) 48 days

Question 67

Days' sales in inventory estimates the average number of days it takes to:

A) convert inventory to sales.
B) convert raw materials to finished inventory.
C) collect cash from inventory sold.
D) pay suppliers for inventory purchased.

Question 68

Inventory costing methods place primary emphasis on assumptions about:

A) flow of goods.
B) flow of costs.
C) flow of goods or costs depending on the method.
D) flow of values.

Question 69

Under which method of inventory costing is the ending inventory assumed to be composed of the most recent costs?

A) Average cost
B) Last-in, first-out
C) First-in, last-out
D) First-in, first-out

Question 70

Blue Jay Inc.reported the following transactions for the month of March:? $$\begin{array} { r l l } 1 & \text { Beginning inventory } & 15 \text { units at } \$ 6 \text { each } \\5 & \text { Purchase } & 29 \text { units at } \$ 9 \text { each } \\13 & \text { Purchase } & 25 \text { units at } \$ 12 \text { each } \\20 & \text { Purchase } & 15 \text { units at } \$ 14 \text { each } \\31 & \text { Ending inventory } & 30 \text { units }\end{array}$$ Calculate the cost of ending inventory using the FIFO method.

A) $420
B) $390
C) $216
D) $510

Question 71

The following data is available for an item of LCC Inc.for the month of March:? $$\begin{array} { r l l } \text { March } 1 & \text { Inventory } & 15 \text { units at } \$ 10 \text { each } \\15 & \text { Purchase } & 30 \text { units at } \$ 18 \text { each } \\31 & \text { Purchase } & 20 \text { units at } \$ 15 \text { each } \\& \text { Sale } & 30 \text { units }\end{array}$$ ? Using the last-in, first-out method, what is ABC Inc.'s cost of ending inventory for March?

A) $450
B) $630
C) $540
D) $510

Question 72

Use the following data to calculate the cost of ending inventory under the FIFO method. $$\begin{array} { l l l } \text { September } 1 & \text { Beginning Inventory } & 15 \text { units at } \$ 20 \text { each } \\\text { September } 10 & \text { Purchase } & 20 \text { units at } \$ 25 \text { each } \\\text { September } 20 & \text { Purchase } & 25 \text { units at } \$ 28 \text { each } \\\text { September } 30 & \text { Ending Inventory } & 30 \text { units }\end{array}$$

A) $825
B) $750
C) $675
D) $840

Question 73

Use the following data to calculate cost of merchandise sold under FIFO method. $$\begin{array} { l l l } \text { September } 1 & \text { Beginning Inventory } & 15 \text { units at } \$ 20 \text { each } \\\text { September } 10 & \text { Purchase } & 20 \text { units at } \$ 25 \text { each } \\\text { September } 20 & \text { Purchase } & 25 \text { units at } \$ 28 \text { each } \\\text { September } 30 & \text { Ending Inventory } & 30 \text { units }\end{array}$$

A) $825
B) $750
C) $675
D) $600

Question 74

If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is:

A) average cost.
B) LIFO.
C) FIFO.
D) All methods will generate the same net income.

Question 75

Under which method of inventory costing is the cost flow assumed to be in the reverse order in which the expenditures were made?

A) Average cost
B) Last-in, first-out
C) First-in, first-out
D) Specific identification method

Question 76

When the allowance method for recognising uncollectible accounts receivable is used, the allowance account will have a positive balance at the end of the period if:

A) the write-offs during the period exceed the beginning balance.
B) the write-offs are equal to the balance of the account at the beginning of the period.
C) the write-offs during the period are less than the beginning balance.
D) the write-offs are equal to the difference between the beginning and the ending balance of the account.

Question 77

Use the following data to calculate the cost of ending inventory using the LIFO method. $$\begin{array} { l l l } \text { September } 1 & \text { Beginning Inventory } & 15 \text { units at } \$ 20 \text { each } \\\text { September } 10 & \text { Purchase } & 20 \text { units at } \$ 25 \text { each } \\\text { September } 20 & \text { Purchase } & 25 \text { units at } \$ 28 \text { each } \\\text { September } 30 & \text { Ending Inventory } & 30 \text { units }\end{array}$$

A) $825
B) $750
C) $675
D) $600

Question 78

Use the following data to calculate the cost of ending inventory under average cost method. $$\begin{array} { l l l } \text { September } 1 & \text { Beginning Inventory } & 20 \text { units at } \$ 10 \text { each } \\\text { September } 10 & \text { Purchase } & 25 \text { units at } \$ 20 \text { each } \\\text { September } 20 & \text { Purchase } & 40 \text { units at } \$ 25 \text { each } \\\text { September } 30 & \text { Ending Inventory } & 35 \text { units }\end{array}$$

A) $992
B) $400
C) $875
D) $700

Question 79

The presentation of net accounts receivable on the balance sheet will be most accurate under the:

A) direct write-off method.
B) cash basis accounting.
C) estimate based on analysis of receivables.
D) allowance method.

Question 80

The inventory costing method that assigns the most recent costs to cost of good sold is:

A) FIFO.
B) LIFO.
C) average cost.
D) specific identification.