Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 6
1. 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
2. Receivables not expected to be collected within one year are reported in the fixed assets section of the balance sheet.
a.
True
b.
False
3. Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.
Chapter 6
a.
True
b.
False
4. The due date of a 60-day note dated July 10 is September 9.
a.
True
b.
False
5. 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
Chapter 6
6. The person who is to be paid when a note matures is called the payee.
a.
True
b.
False
7. 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
Chapter 6
8. The interest at 6%, on a 60-day note for $5,000 is $300. (Assume 360 days in a year)
a.
True
b.
False
9. The due date of a 90-day note dated July 15 is October 13. (Assume 360 days in a year)
a.
True
b.
False
Chapter 6
10. The party promising to pay a note at maturity is the payee.
a.
True
b.
False
11. When companies sell their receivables to other companies, the transaction is called factoring.
a.
True
b.
False
Chapter 6
12. 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
13. Generally accepted accounting principles do not normally allow the use of the allowance method of accounting for
uncollectible accounts.
a.
True
b.
False
Chapter 6
14. 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
15. Allowance for Doubtful Accounts is a contra liability account.
a.
True
b.
False
Chapter 6
16. Net income is reduced when a specific receivable is written off under the analysis of receivables method.
a.
True
b.
False
17. 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.
a.
True
b.
False
Chapter 6
18. 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
19. The estimate of uncollectible accounts receivable based on the sales method violates the matching principle.
a.
True
b.
False
Chapter 6
20. Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet.
a.
True
b.
False
21. 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
22. 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.
Chapter 6
a.
True
b.
False
23. 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
24. 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
Chapter 6
b.
False
25. 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
26. 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
Chapter 6
27. The balance of the allowance for doubtful accounts is added to accounts receivable on the balance sheet.
a.
True
b.
False
28. The net realizable value is used for purposes of valuing out of date merchandise in inventory.
a.
True
b.
False
Chapter 6
29. Lower-of-cost-or-market is a method of inventory valuation.
a.
True
b.
False
30. 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
Chapter 6
31. Average cost is a method of inventory valuation.
a.
True
b.
False
32. "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
Chapter 6
33. 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
34. Merchandise Inventory is presented on the balance sheet in the current assets section.
a.
True
b.
False
Chapter 6
35. Credit purchase is taken into account while calculating accounts receivable turnover ratio.
a.
True
b.
False
36. 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.
Chapter 6
37. 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.
38. 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.
Chapter 6
39. In reference to a promissory note, the person who is to receive payment is called the:
a.
maker.
b.
payee.
c.
seller.
d.
payer.
40. 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.
Chapter 6
41. The due date of a 60-day note dated July 12 is:
a.
September 11.
b.
September 8.
c.
September 9.
d.
September 10.
42. 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.
