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Name:
Class:
Date:
chapter 6
Indicate whether the statement is true or false.
1. Merchandise Inventory is presented on the balance sheet in the current assets section.
a. True
b. False
2. The balance of the allowance for doubtful accounts is added to accounts receivable on the balance sheet.
a. True
b. False
3. During inflationary periods, the value of inventory that appears on the balance sheet using FIFO method will be more
than its current replacement cost.
a. True
b. False
4. Under the direct write-off method, an attempt is made to match Bad Debt Expense to sales revenues in the same
accounting period.
a. True
b. False
5. Credit purchase is taken into account while calculating accounts receivable turnover ratio.
a. True
b. False
6. 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.
a. True
b. False
7. The sum of the face amount and the interest that must be paid at the due date of the note is called maturity value.
a. True
b. False
8. 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.
a. True
b. False
9. The interest at 6%, on a 60-day note for $5,000 is $300. (Assume 360 days in a year.)
a. True
b. False
10. 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.
Name:
Class:
Date:
chapter 6
b. False
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.
a. True
b. False
12. The person who is to be paid when a note matures is called the payee.
a. True
b. False
13. The direct write-off method records uncollectible accounts expense in the year the specific account receivable is
determined to be uncollectible.
a. True
b. False
14. Lower-of-cost-or-market is a method of inventory valuation.
a. True
b. False
15. 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.
a. True
b. False
16. The maturity value of a 12%, 60-day note for $1,000 is $1,020. (Assume 360 days in a year.)
a. True
b. False
17. The party promising to pay a note at maturity is the payee.
a. True
b. False
18. In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price less any
direct cost of disposal.
a. True
b. False
19. 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.
a. True
b. False
Name:
Class:
Date:
chapter 6
20. Allowance for Doubtful Accounts is a contra liability account.
a. True
b. False
21. Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet.
a. True
b. False
22. The net realizable value is used for purposes of valuing out of date merchandise in inventory.
a. True
b. False
23. Receivables not expected to be collected within one year are reported in the fixed assets section of the balance sheet.
a. True
b. False
24. 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.
a. True
b. False
25. 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.
a. True
b. False
26. Generally accepted accounting principles do not normally allow the use of the allowance method of accounting for
uncollectible accounts.
a. True
b. False
27. When companies sell their receivables to other companies, the transaction is called factoring.
a. True
b. False
28. The due date of a 90-day note dated July 15 is October 13. (Assume 360 days in a year)
a. True
b. False
29. The estimate of uncollectible accounts receivable based on the sales method violates the matching principle.
a. True
b. False
30. Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.
Name:
Class:
Date:
chapter 6
a. True
b. False
31. Average cost is a method of inventory valuation.
a. True
b. False
32. All receivables that are expected to be realized in cash within a year are presented in the current assets section of the
balance sheet.
a. True
b. False
33. "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.
a. True
b. False
34. The due date of a 60-day note dated July 10 is September 9.
a. True
b. False
35. Net income is reduced when a specific receivable is written off under the analysis of receivables method.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
36. If a company has an accounts receivable turnover ratio of 15, the company:
a. is converting its accounts receivable to cash 15 times per year.
b. is selling its inventory on 15 days credit terms.
c. is converting its inventory to accounts receivable in 15 days of production.
d. collects it receivables 15 times per year.
37. 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
38. The following data is available for an item of LCC Inc. for the month of March:
March 1 Inventory 15 units at $10 each
15 Purchase 30 units at $18 each
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Class:
Date:
chapter 6
Sale 30 units
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
39. 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 increase by the reinstatement of the account.
b. Return on sales decreases by the reinstatement of the account.
c. Days' sales in receivables are not affected by the reinstatement of the account.
d. Return on sales is not affected by the reinstatement of the account.
40. 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
41. 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
42. Use the following data to calculate the cost of ending inventory under average cost method.
September 1 Beginning Inventory 20 units at $10 each
September 10 Purchase 25 units at $20 each
September 20 Purchase 40 units at $25 each
September 30 Ending Inventory 35 units
a. $992
b. $400
c. $875
d. $700
43. 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
Name:
Class:
Date:
chapter 6
44. In reference to a promissory note, the person who is to receive payment is called the ____.
a. maker
b. payee
c. seller
d. payer
45. 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
46. 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
47. 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
48. The following data is available for an item of JNC Inc. for the month of March:
March 1 Inventory 15 units at $10 each
15 Purchase 30 units at $18 each
31 Purchase 24 units at $15 each
Sale 30 units
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
49. 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.
50. 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
Name:
Class:
Date:
chapter 6
b. a lower return on sales
c. a lower days' sales in inventory
d. a higher days' sales in receivables
51. If merchandise inventory is being valued at cost and the price level is consistently rising, which method of costing will
yield the highest inventory?
a. Average cost
b. LIFO
c. FIFO
d. All methods will generate the same gross profit.
52. 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
53. If merchandise inventory is being valued at cost and the price level is steadily declining, which method of costing will
yield the largest gross profit?
a. Average cost
b. LIFO
c. FIFO
d. All methods will generate the same gross profit.
54. 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
55. 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
56. Use the following data to calculate cost of merchandise sold under FIFO method.
September 1 Beginning Inventory 15 units at $20 each
September 10 Purchase 20 units at $25 each
September 20 Purchase 25 units at $28 each
September 30 Ending Inventory 30 units
a. $825
b. $750
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Class:
Date:
chapter 6
c. $675
d. $600
57. 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
58. 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
59. 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
60. 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
61. 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%
62. Taxes receivable is classified as ____.
a. other receivable
b. notes receivable
c. accounts receivable
d. trade receivable
Name:
Class:
Date:
chapter 6
63. 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
64. Dana Inc. showed the following data for the year end:
Cash sales $4,100,000
Credit sales 5,900,000
Accounts receivable, beginning of the year 600,000
Accounts receivable, end of the year 400,000
Calculate Dana Inc.'s days' sales in receivables. (Round the answer to the nearest whole number.)
a. 30 days
b. 61 days
c. 12 days
d. 44 days
65. Blue Jay Inc. reported the following transactions for the month of March:
1 Beginning inventory 15 units at $6 each
5 Purchase 29 units at $9 each
13 Purchase 25 units at $12 each
20 Purchase 15 units at $14 each
31 Ending inventory 30 units
Calculate the cost of ending inventory using the FIFO method.
a. $420
b. $390
c. $216
d. $510
66. SQC Inc. had sales of $3,000,000, cost of merchandise sold of $2,100,000, and average inventory of $140,000. What
is SQC Inc.'s days' sales in inventory? (Round the answer to the nearest whole number.)
a. 24 days
b. 17 days
c. 15 days
d. 30 days
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
68. The accounts receivable turnover is computed by dividing ____.
a. total assets by average accounts receivable
b. net sales by average accounts receivable
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chapter 6
c. net income by average accounts receivable
d. net purchases by average accounts receivable
69. Use the following data to calculate the cost of ending inventory under the FIFO method.
September 1 Beginning Inventory 15 units at $20 each
September 10 Purchase 20 units at $25 each
September 20 Purchase 25 units at $28 each
September 30 Ending Inventory 30 units
a. $825
b. $750
c. $675
d. $840
70. 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
71. 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
72. 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
73. When the allowance method for recognizing 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.
74. 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
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Class:
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chapter 6
75. 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.
76. 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
77. The due date of a 60-day note dated July 12 is ____.
a. September 11
b. September 8
c. September 9
d. September 10
78. 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 within 30 days of the invoice date
d. pays its creditors within 30 days of the purchase of raw materials
79. 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
80. 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
81. Use the following data to calculate the cost of ending inventory using the LIFO method.
September 1 Beginning Inventory 15 units at $20 each
September 10 Purchase 20 units at $25 each
September 20 Purchase 25 units at $28 each
September 30 Ending Inventory 30 units
a. $825
b. $750
