Question 1

Which of the following terms best describes the assumption made in applying the four inventory methods?

Accepted Answer

A)  Goods flow. 
B)  Physical flow. 
C)  Cost flow. 
D)  Asset flow. C

Question 2

An error in the physical count of goods on hand at the end of the current period resulted in a $2,500 overstatement of the ending inventory. The effect of this error in the current period is to:

Accepted Answer

A)  overstate cost of goods sold. 
B)  understate cost of goods available for sale. 
C)  understate gross profit. 
D)  overstate net income. D

Question 3

Bad Debts Expense should be recorded:

Accepted Answer

A)  whenever an account is written off as uncollectible. 
B)  each time a credit sale is made. 
C)  whenever an account written off is recovered. 
D)  at the end of each accounting period. D

Question 4

In a period of rising prices, the inventory method that will show the highest net income is:

Accepted Answer

A)  Average Cost. 
B)  FIFO. 
C)  LIFO. 
D)  Specific Identification.

Question 5

The receivables turnover ratio is calculated by dividing:

Accepted Answer

A)  net credit sales by average receivables. 
B)  net credit sales by ending receivables. 
C)  total sales by average receivables. 
D)  total sales by ending receivables.

Question 6

A company just starting business purchased three merchandise inventory items at the following prices: first purchase $510; second purchase $550; third purchase $590. If two items were sold during the period and the company used the LIFO costing method, the gross profit for the period would be how much greater or less than if the FIFO costing method had been used?

Accepted Answer

A)  Gross profit would be $80 greater. 
B)  Gross profit would be $80 less. 
C)  Gross profit would be the same. 
D)  Gross profit would be $40 greater.

Question 7

A check correctly written and paid by the bank for $481 is incorrectly recorded on the company's books for $418. The appropriate adjustment on a bank reconciliation would be to:

Accepted Answer

A)  deduct $418 from the book's balance. 
B)  deduct $63 from the book's balance. 
C)  deduct $63 from the bank's balance. 
D)  add $63 to the bank's balance.

Question 8

All of the following are sections of a cash budget except:

Accepted Answer

A)  cash disbursements. 
B)  cash receipts. 
C)  financing. 
D)  operating.

Question 9

The principles of internal control do not include:

Accepted Answer

A)  establishment of responsibility. 
B)  documentation procedures. 
C)  management responsibility. 
D)  independent internal verification.

Question 10

The basis of computing uncollectible accounts that provides a reasonable matching of expenses with revenues is the:

Accepted Answer

A)  percentage-of-receivables basis. 
B)  percentage of doubtful accounts basis. 
C)  lower of cost or market basis. 
D)  direct write-off method.

Exam 8: Reporting and Analyzing Receivables