ACCT Ch 5

An agreement by the borrower to supply financial statements to the lender and an agreement by the borrower to refrain from paying dividends until the note is paid are both examples of provisions known as ___ (collateral/covenants/interest/default).

Covenants

Prepaid expenses such as insurance premiums and lease (rental) payments that have been paid in advance should be treated as ___ (assets/liabilities) until the benefits associated with the prepayment are received and thus the ___ (revenue/expense) has been ___ (earned/incurred).

assets, expense, incurred

Assume that Missvel Inc. has credit sales terms of 1/10, n60. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying: a. $10,000 by May 15 or paying $10,100 by July 4. b. $9,900 by May 15 or paying $10,000 by July 4. c. $9,900 by May 15 or paying $10,100 by July 4. d. $9,900 by May 15 or paying $10,000 by May 30.

b. $9,900 by May 15 or paying $10,000 by July 4.

Identify the correct entries to record a sales transaction under the perpetual inventory system. (Check all that apply). a. Dr. Sales Cr. Accounts Receivable (or Cash) b. Dr. Cost of Goods Sold Cr. Inventory c. Dr. Inventory Cr. Cost of Goods Sold d. Dr. Accounts Receivable (or Cash) Cr. Sales

b. Dr. Cost of Goods Sold Cr. Inventory d. Dr. Accounts Receivable (or Cash) Cr. Sales

Inventory is reported on the balance sheet at: a. original (historical) cost. b. lower of cost or market value. c. current replacement cost. d. current market value.

b. lower of cost or market value.

Expenses that could be treated as prepaid and included in current assets include insurance, rent and: a. office supplies, and advertising. b. office supplies, and postage. c. salaries, and postage. d. advertising, and research and development.

b. office supplies, and postage.

The impact on the financial statements of a write-off of an account receivable includes: a. a decrease to a liability account. b. a decrease to an expense account. c. a decrease to an asset account. d. an increase to an expense account.

c. a decrease to an asset account.

Alternative cost flow assumptions include FIFO, LIFO, _____. a. weighted-average, and NIFO b. replacement cost, and specific identification c. weighted-average, and specific identification d. weighted-average, and replacement cost

c. weighted-average, and specific identification

The security pledged by the borrower to support the loan is known as ___ (collateral/covenants/interest/maturity).

collateral

The net realizable value of accounts receivable is not affected by: a. an adjustment to record the estimated bad debts for the year. b. an entry to record the collection of an account receivable. c. an entry to record a credit sales transaction. d. an entry to the write-off of an account receivable.

d. an entry to the write-off of an account receivable.

To calculate the cost of an item purchased for inventory, costs associated with the purchase of the item are added to the invoice price paid to the supplier and _____. a. any extra profit made on the sales of the item is subtracted. b. any marketing and selling costs incurred are also added. c. any cost involved in transporting the item to the customer is also added. d. any cash discount allowed on the purchase is subtracted.

d. any cash discount allowed on the purchase is subtracted.

Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded? a. $47,000 b. $46,000 c. $48,000 d. $50,000

a. $47,000

Assume that Missvel Inc. has credit sales terms of 3/10, n90. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying: a. $9,700 by May 15 or paying $10,000 by August 3. b. $9,700 by May 15 or paying $10,000 by May 30. c. $10,000 by May 15 or paying $10,300 by August 3. d. $9,700 by May 15 or paying $10,300 by August 3.

a. $9,700 by May 15 or paying $10,000 by August 3.

The beginning inventory for ProKnows Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each, and during May, an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the LIFO cost flow assumption, ending inventory: a. = (20 @ $4) + (10 @ $5) = $130. b. = (30 @ $6) = $180. c. = (40 @ $6) + (30 @ $5) = $240 + $150 = $390. d. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340.

a. = (20 @ $4) + (10 @ $5) = $130.

The beginning inventory for ProKnows, Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each and during May an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the FIFO cost flow assumption, cost of goods sold: a. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340. b. = (20 @ $4) + (10 @ $5) = $130. c. = (40 @ $6) + (30 @ $5) = $240 + $150 = $390. d. = (30 @ $6) = $180.

a. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340.

In the cost of goods sold model, the "Cost of goods available for sale" equals: (Check all that apply). a. Cost of goods sold + Ending inventory b. Beginning inventory + Purchases c. Ending inventory - Cost of goods sold d. Cost of goods sold + Purchases

a. Cost of goods sold + Ending inventory b. Beginning inventory + Purchases

The entry to record the transfer of cost of the inventory sold to the income statement is: a. Dr. Cost of Goods Sold Cr. Inventory b. Dr. Inventory Cr. Cost of Goods Sold c. Dr. Accounts Payable (or Cash) Cr. Inventory d. Dr. Sales Cr. Inventory

a. Dr. Cost of Goods Sold Cr. Inventory

The entry to accrue interest on short-term marketable debt securities is: a. Dr. Interest Receivable xx Cr. Interest Income xx b. Dr. Interest Receivable xx Cr. Interest Expense xx c. Dr. Cash xx Cr. Interest Income xx d. Dr. Cash xx Cr. Interest Receivable xx

a. Dr. Interest Receivable xx Cr. Interest Income xx

The entry to record accrued interest on Notes Receivable is: a. Dr. Interest Receivable xx Cr. Interest Income xx b. Dr. Cash xx Cr. Interest Income xx c. Dr. Cash xx Cr. Interest Receivable xx d. Dr. Interest Receivable xx Cr. Interest Expense xx

a. Dr. Interest Receivable xx Cr. Interest Income xx

The entry to record the purchase of inventory is: a. Dr. Inventory Cr. Accounts Payable (or Cash) b. Dr. Cost of Goods Sold Cr. Accounts Payable (or Cash) c. Dr. Inventory Cr. Accounts Receivable (or Cash) d. Dr. Cost of Goods Sold Cr. Inventory

a. Dr. Inventory Cr. Accounts Payable (or Cash)

The cost of an inventory item is released to the income statement as an: a. Expense when the product is sold (or becomes worthless or is lost or stolen). b. expense when the product is purchased (or becomes worthless or is lost or stolen). c. asset when the product is sold (or becomes worthless or is lost or stolen). d. asset when the product is purchased (or becomes worthless or is lost or stolen).

a. Expense when the product is sold (or becomes worthless or is lost or stolen).

Identify the true statements regarding a bank reconciliation. Select all that apply a. In a bank reconciliation, outstanding checks are subtracted from the bank's balance. b. In a bank reconciliation, service charges are subtracted from the company's book balance. c. In a bank reconciliation, interest earned is subtracted from the company's book balance. d. In a bank reconciliation, deposits in transit are subtracted from the bank's balance. e. In a bank reconciliation, NSF checks are subtracted from the company's book balance.

a. In a bank reconciliation, outstanding checks are subtracted from the bank's balance. b. In a bank reconciliation, service charges are subtracted from the company's book balance. e. In a bank reconciliation, NSF checks are subtracted from the company's book balance.

The amounts reported for ending inventory and cost of goods sold will differ depending on whether the weighted-average, FIFO, or LIFO cost flow assumption is used by the reporting company. Which of the following is the primary reason for such differences in reported amounts? a. The purchase price (i.e., cost) per unit of inventory items changes over time. b. The sales volume (i.e., number of units sold) changes over time. c. The average size of a purchase order (i.e., number of units purchased in an average purchase transaction) changes over time. d. The selling price (i.e., revenue) per unit of inventory items changes over time.

a. The purchase price (i.e., cost) per unit of inventory items changes over time.

The impact on the financial statements of the year-end adjustment for bad debts normally includes: (Check all that apply). a. a decrease in the net realizable value of accounts receivable. b. a decrease to paid-in capital. c. an increase to expenses. d. an increase to total liabilities.

a. a decrease in the net realizable value of accounts receivable. c. an increase to expenses.

The impact on the financial statements of a write-off of an account receivable includes: a. a decrease to a contra asset account. b. an increase to a liability account. c. an increase to an expense account. d. an increase to an asset account.

a. a decrease to a contra asset account.

The impact on the financial statements of the year-end adjustment for bad debts normally includes: (Check all that apply). a. a decrease to total assets. b. an increase to net income. c. an increase to a contra asset account. d. a decrease to the Accounts Payable account.

a. a decrease to total assets. c. an increase to a contra asset account.

1. Acceptable approaches in estimating bad debts include the: Select all that apply (A, D) a. aging of receivables method. b. declining balance method. c. FIFO method. d. percentage of credit sales method. e. straight-line method.

a. aging of receivables method. d. percentage of credit sales method.

The effects on the financial statements of accruing interest on Notes Receivable include: Select all that apply a. an increase to assets. b. an increase to net income. c. an increase to liabilities. d. an increase to revenues. e. an increase to expenses.

a. an increase to assets. b. an increase to net income. d. an increase to revenues.

An operating cycle can be described as the process of going from: a. cash to inventory to accounts receivable and back to cash. b. cash to inventory to accounts payable and back to cash. c. inventory to accounts payable to accounts receivable and back to cash. d. cash to inventory and back to cash.

a. cash to inventory to accounts receivable and back to cash.

The entry that reflects the transfer of cost of goods sold to the income statement involves a _____. a. debit to Cost of Goods Sold and credit to Inventory b. debit to Inventory and credit to Accounts Payable c. debit to Accounts Payable and credit to Inventory d. debit to Inventory and credit to Cost of Goods Sold

a. debit to Cost of Goods Sold and credit to Inventory

The amount in the Cash account, which is reported as an asset on the balance sheet, includes all of the following except: a. expected litigation settlements. b. demand deposit balances. c. undeposited receipts. d. petty cash fund balances.

a. expected litigation settlements.

The cost of an inventory item is released to the income statement as an: Select all that apply a. expense when the product is lost or stolen. b. revenue when the product is sold. c. expense when the product becomes worthless. d. asset when the product is purchased. e. expense when the product is sold. f. expense when the product is purchased.

a. expense when the product is lost or stolen. c. expense when the product becomes worthless. e. expense when the product is sold.

A firm paying its suppliers within the discount period _____. a. gives a positive signal to the credit-rating agencies and credit grantors regarding the firm's creditworthiness and liquidity. b. gives a positive signal to the shareholders that the firm will be declaring higher dividend in the current financial year. c. shows that the firm cannot borrow money at the lower interest rate to earn the higher rate from cash discounts. d. shows that the firm has zero bad debt expenses in the current year.

a. gives a positive signal to the credit-rating agencies and credit grantors regarding the firm's creditworthiness and liquidity.

The cost of an item purchased for inventory: Select all that apply a. includes the invoice price paid to the supplier. b. is reduced by cash discounts allowed on the purchase. c. includes freight and material handling charges. d. includes warehousing fees until the product is sold. e. is reduced by finders fees paid to product managers.

a. includes the invoice price paid to the supplier. b. is reduced by cash discounts allowed on the purchase. c. includes freight and material handling charges.

Cash equivalents are short-term investments readily convertible into cash with minimal risk of price change due to: a. interest rate movements. b. stock market movements. c. credit worthiness of the issuer. d. inflation adjustments.

a. interest rate movements.

The petty cash fund: a. is used to make small payments of cash. b. records expenses each day as disbursements are made. c. is used as management's slush fund for personal expenditures. d. uses petty cash vouchers to make payments rather than cash.

a. is used to make small payments of cash.

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of older, lower costs to the income statement results in higher profits than if current costs were to be recognized. This creates a problem for the reporting company because: a. lower costs means higher taxable income and higher taxes payable. b. lower costs means higher net income and higher retained earnings. c. lower costs means lower net income and lower retained earnings. d. lower costs means lower taxable income and lower taxes payable.

a. lower costs means higher taxable income and higher taxes payable.

In times of rising prices, LIFO results in: a. lower ending inventory value and higher cost of goods sold value than FIFO. b. lower ending inventory value and lower cost of goods sold value than FIFO. c. higher ending inventory value and lower cost of goods sold value than FIFO. d. higher ending inventory value and higher cost of goods sold value than FIFO.

a. lower ending inventory value and higher cost of goods sold value than FIFO.

Most firms will almost always pay within the discount period to take advantage of the cash discounts (such as 2/10, n30) offered by their suppliers because: a. most credit terms represent a significant financing cost if the discounts are not taken. b. the time value of money states that it's always better to pay off liabilities sooner rather than later. c. not making payments within the cash discount period is an ultra vires act and thus a violation of corporate law. d. most firms can earn a much higher ROI on their principal activities than that offered by the cash discounts.

a. most credit terms represent a significant financing cost if the discounts are not taken.

A note receivable: Select all that apply a. often includes covenants made by the borrower. b. often identifies collateral pledged by the borrower to support the loan. c. is much less formal. d. normally includes a maturity date. e. does not have any collection risk.

a. often includes covenants made by the borrower. b. often identifies collateral pledged by the borrower to support the loan. d. normally includes a maturity date.

Under the FIFO method, the amounts reported as ending inventory and cost of goods sold will always be the same, whether a periodic or perpetual system is used because: a. once first-in, always first-in; under FIFO, costs flow in the chronological order of purchase transactions. b. the timing of the question "What was the first-in cost?" will vary depending on price level changes that occur over time. c. the timing of the question "What was the first-in cost?" will vary depending on whether the periodic or perpetual system is used. d. once first-in, always first-in; under FIFO, the timing of purchase transactions will impact which costs are identified with sales transactions.

a. once first-in, always first-in; under FIFO, costs flow in the chronological order of purchase transactions.

Under the FIFO method, the amount reported as ending inventory: a. will always be the same whether a periodic or perpetual system is used. b. will always be higher under a periodic system as compared to a perpetual system. c. will always be lower under a periodic system as compared to a perpetual system. d. will vary under periodic and perpetual systems because the first-in item is redefined every time an inventory item is purchased.

a. will always be the same whether a periodic or perpetual system is used.

Beginning inventory = $15,000, Purchases = $24,000, and Ending inventory = $17,000. Thus: a. Cost of goods available for sale = $32,000 and Cost of goods sold = $8,000. b. Cost of goods available for sale = $39,000 and Cost of goods sold = $22,000. c. Cost of goods available for sale = $41,000 and Cost of goods sold = $26,000. d. Cost of goods available for sale = $56,000 and Cost of goods sold = $39,000.

b. Cost of goods available for sale = $39,000 and Cost of goods sold = $22,000.

If ending inventory was understated at the end of Year 1 but counted correctly at the end of Year 2 and this error was not discovered until sometime in Year 3, then: a. Cost of goods sold was overstated in Year 1 and overstated in Year 2 and the error would have doubled in total. b. Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total. c. Cost of goods sold was understated in Year 1 and understated in Year 2 and the error would have doubled in total. d. Cost of goods sold was understated in Year 1 and overstated in Year 2 but the error would have self-corrected in total.

b. Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total.

If ending inventory was overstated at the end of Year 1 but counted correctly at the end of Year 2 and this error was not discovered until sometime in Year 3, then: a. Cost of goods sold was overstated in Year 1 and overstated in Year 2 and the error would have doubled in total. b. Cost of goods sold was understated in Year 1 and overstated in Year 2 but the error would have self-corrected in total. c. Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total. d. Cost of goods sold was understated in Year 1 and understated in Year 2 and the error would have doubled in total.

b. Cost of goods sold was understated in Year 1 and overstated in Year 2 but the error would have self-corrected in total.

Assume that on September 1, Year 1, a six-month property insurance premium of $12,000 was paid for a policy whose coverage began on that day. Also assume that the Prepaid Insurance account was debited for $12,000 at this time. The December 31, Year 1, adjustment with respect to the this policy will include a: a. Debit to Insurance Expense for $4,000. b. Credit to Prepaid Insurance for $8,000. c. Credit to Prepaid Insurance for $4,000. d. Debit to Insurance Expense for $12,000.

b. Credit to Prepaid Insurance for $8,000.

Identify the true statements regarding a bank reconciliation. Select all that apply a. In a bank reconciliation, service charges are subtracted from the bank balance. b. In a bank reconciliation, outstanding checks are subtracted from the bank balance. c. In a bank reconciliation, NSF checks are subtracted from the bank balance. d. In a bank reconciliation, deposits in transit are added to the bank balance. e. In a bank reconciliation, interest earned is added to the bank balance.

b. In a bank reconciliation, outstanding checks are subtracted from the bank balance. d. In a bank reconciliation, deposits in transit are added to the bank balance.

The internal control process is designed to provide reasonable assurance that objectives are achieved with respect to which of the following? Select all that apply a. The organization's ability to avoid taxes b. The effectiveness and efficiency of the operations of the organization c. The reliability of the organization's financial reporting d. The organization's effort in minimizing prevailing inflation rate e. The organization's compliance with applicable laws and regulations

b. The effectiveness and efficiency of the operations of the organization c. The reliability of the organization's financial reporting e. The organization's compliance with applicable laws and regulations

Which of the following are alternative cost flow assumptions? Select all that apply a. Straight-line b. Weighted-average c. First-in, first-out (FIFO) d. Percentage of sales

b. Weighted-average c. First-in, first-out (FIFO)

The impact on the financial statements of the year-end adjustment for bad debts normally includes: (Check all that apply). a. an increase to net income. b. a decrease to total assets. c. an increase to a contra asset account. d. a decrease to the Accounts Payable account.

b. a decrease to total assets. c. an increase to a contra asset account.

Bad debt expenses can be estimated using a percentage of credit sales method and _____. a. a double-declining-balance method b. an aging of receivables method c. a weighted-average method d. a straight-line method

b. an aging of receivables method

In the bank reconciliation process, errors are: Select all that apply a. either added to or subtracted from the bank balance, if the error was made by the company. b. either added to or subtracted from the company's book balance, if the error was made by the company. c. either added to or subtracted from the bank balance, if the error was made by the bank. d. either added to or subtracted from the company's book balance, if the error was made by the bank.

b. either added to or subtracted from the company's book balance, if the error was made by the company. c. either added to or subtracted from the bank balance, if the error was made by the bank.

The cost of an item purchased for inventory: Select all that apply a. is reduced by finders fees paid to product managers. b. includes freight and material handling charges. c. includes warehousing fees until the product is sold. d. includes the invoice price paid to the supplier. e. is reduced by cash discounts allowed on the purchase.

b. includes freight and material handling charges. d. includes the invoice price paid to the supplier. e. is reduced by cash discounts allowed on the purchase.

The amount in the Cash account, which is reported as an asset on the balance sheet, includes: Select all that apply a. supplies on hand b. money on hand in petty cash funds c. IOUs from credit worthy customers d. checking account balances e. savings account balances f. undeposited receipts including checks

b. money on hand in petty cash funds d. checking account balances e. savings account balances f. undeposited receipts including checks

The impact on the financial statements of a write-off of an account receivable includes: a. an increase to an expense account and a decrease to an asset account. b. offsetting decreases to an asset account and a contra asset account. c. offsetting decreases to an asset account and an expense account. d. offsetting increases to an asset account and a contra asset account.

b. offsetting decreases to an asset account and a contra asset account.

Administrative controls: a. ensure that more than one person is involved in a transaction from beginning to end. b. often involve limit (or reasonableness) tests. c. are financial in nature. d. are related to the concept of separation of duties.

b. often involve limit (or reasonableness) tests.

The net realizable value of accounts receivable is not affected by the write-off of an account receivable because: a. the increase to an asset account is offset by a increase to a contra asset account. b. the decrease to an asset account is offset by a decrease to a contra asset account. c. the decrease to an asset account is offset by a decrease to an expense account. d. both accounts affected by the write-off entry are income statement accounts.

b. the decrease to an asset account is offset by a decrease to a contra asset account.

An operating cycle is the average time it takes: a. to sell an inventory item, thus creating an account receivable. b. to convert an investment in inventory back to cash. c. to collect an account receivable so that the company can pay its accounts payable. d. to collect an account receivable, thus receiving cash.

b. to convert an investment in inventory back to cash.

Current assets include cash and other assets that are expected to be converted to cash or used up: a. within a year, or an operating cycle, whichever is shorter. b. within a year, or an operating cycle, whichever is longer. c. within a year. d. within an operating cycle.

b. within a year, or an operating cycle, whichever is longer.

The effects on the financial statements of accruing interest on short-term marketable debt securities include: Select all that apply a. an increase in expenses. b. an increase in liabilities. c. an increase in revenues. d. an increase in net income. e. an increase in assets.

c. an increase in revenues. d. an increase in net income. e. an increase in assets.

Financial controls: a. are often called reasonableness tests. b. are administrative in nature. c. are related to the concept of separation of duties. d. are designed primarily to ensure the proper authorization of transactions.

c. are related to the concept of separation of duties.

An operating cycle can be described as the process of going from: a. inventory to accounts payable to accounts receivable and back to cash. b. cash to inventory to accounts payable and back to cash. c. cash to inventory to accounts receivable and back to cash. d. cash to inventory and back to cash.

c. cash to inventory to accounts receivable and back to cash.

In the bank reconciliation process, errors are: a. always subtracted from the bank balance or the company's book balance. b. always either added to or subtracted from the bank balance. c. either added to or subtracted from the bank balance or the company's book balance. d. always either added to or subtracted from the company's book balance.

c. either added to or subtracted from the bank balance or the company's book balance.

The cost of an inventory item is released to the income statement as an: Select all that apply a. expense when the product is purchased. b. asset when the product is purchased. c. expense when the product becomes worthless. d. revenue when the product is sold. e. expense when the product is lost or stolen. f. expense when the product is sold.

c. expense when the product becomes worthless. e. expense when the product is lost or stolen. f. expense when the product is sold.

The cost of an inventory item is released to the income statement as an: a. expense when the product is purchased (or becomes worthless or is lost or stolen). b. asset when the product is purchased (or becomes worthless or is lost or stolen). c. expense when the product is sold (or becomes worthless or is lost or stolen). d. asset when the product is sold (or becomes worthless or is lost or stolen).

c. expense when the product is sold (or becomes worthless or is lost or stolen).

Inventory is reported on the balance sheet at: a. current market value. b. original (historical) cost. c. lower of cost or market value. d. current replacement cost.

c. lower of cost or market value.

Short-term marketable debt securities that fall in the held-to-maturity category are reported on the balance sheet at the entity's cost, which is usually about the same as market value, because _____. a. of their high risk and the short time until maturity b. the underlying assets in these securities are equities of banking companies c. of their high quality and the short time until maturity d. the underlying assets in these securities are equities of small-cap companies.

c. of their high quality and the short time until maturity

The impact on the financial statements write-off of an accof a ount receivable includes: a. offsetting decreases to an asset account and an expense account. b. offsetting increases to an asset account and a contra asset account. c. offsetting decreases to an asset account and a contra asset account. d. an increase to an expense account and a decrease to an asset account.

c. offsetting decreases to an asset account and a contra asset account.

Other than prepaid insurance, expenses that could be treated as prepaid and included in current assets include: Select all that apply a. advertising b. research and development c. rent d. postage e. furniture f. office supplies

c. rent d. postage f. office supplies

Short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at: a. the entity's cost of the securities less accumulated depreciation. b. the market value of the securities. c. the entity's cost of the securities. d. the lower of the entity's cost of the securities or the market value of the securities.

c. the entity's cost of the securities.

Under the LIFO method, the amounts reported as ending inventory and cost of goods sold will differ depending on whether a periodic or perpetual system is used because: a. once last-in, always last-in; under LIFO, the timing of purchase transactions will not impact which costs are identified with sales transactions. b. the timing of the question "What was the last-in cost?" will impact the average price per unit that is calculated to determine cost of goods sold. c. the last-in cost is redefined as each purchase transaction takes place, so the timing of the application of LIFO rules will influence the results. d. once last-in, always last-in; under LIFO, costs flow in the chronological order of purchase transactions.

c. the last-in cost is redefined as each purchase transaction takes place, so the timing of the application of LIFO rules will influence the results.

Under the LIFO method, the amount reported as ending inventory: a. will vary under periodic and perpetual systems because the last-in cost is redefined each time a sales transaction occurs. b. will always be higher under a periodic system as compared to a perpetual system. c. will vary under periodic and perpetual systems because the last-in cost is redefined each time a purchase transaction occurs. d. will always be lower under a periodic system as compared to a perpetual system.

c. will vary under periodic and perpetual systems because the last-in cost is redefined each time a purchase transaction occurs.

The amounts reported for ending inventory and cost of goods sold will differ depending on whether the weighted-average, FIFO, or LIFO cost flow assumption is used by the reporting company because the ___ (cost/profit) per unit ___ (purchased/sold) changes over time.

cost, purchased

1. Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded? (D) a. $50,000 b. $48,000 c. $46,000 d. $47,000

d. $47,000

Assume that Missvel Inc. has credit sales terms of 2/10, n30. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying: a. $10,000 by May 15 or paying $10,200 by June 4. b. $9,800 by May 15 or paying $10,000 by May 30. c. $9,800 by May 15 or paying $10,200 by June 4. d. $9,800 by May 15 or paying $10,000 by June 4.

d. $9,800 by May 15 or paying $10,000 by June 4.

Purchases = $210,000, Cost of goods available for sale = $300,000, and Cost of goods sold = $230,000. Thus: a. Beginning inventory = $70,000 and Ending inventory = $90,000. b. Beginning inventory = $420,000 and Ending inventory = $400,000. c. Beginning inventory = $380,000 and Ending inventory = $400,000. d. Beginning inventory = $90,000 and Ending inventory = $70,000.

d. Beginning inventory = $90,000 and Ending inventory = $70,000.

The sum of the cash on hand in the petty cash box and the receipts in support of disbursements (called petty cash vouchers): a. should periodically be closed at the end of the year to Retained Earnings. b. should equal the amount reported as net cash flows from operations. c. should equal the balance of the Cash account in the general ledger. d. should equal the amount initially put in the petty cash fund.

d. should equal the amount initially put in the petty cash fund.

The internal control process is designed to provide reasonable assurance that each of the following objectives are achieved, except: a. the effectiveness and efficiency of the operations of the organization. b. the organization's compliance with applicable laws and regulations. c. the reliability of the organization's financial reporting. d. the promotion of a positive organizational image.

d. the promotion of a positive organizational image.

The internal control process is designed to provide reasonable assurance that each of the following objectives are achieved, except: a. the organization's compliance with applicable laws and regulations. b. the reliability of the organization's financial reporting. c. the effectiveness and efficiency of the operations of the organization. d. the promotion of a positive organizational image.

d. the promotion of a positive organizational image.

The "market" in the lower of cost of market valuation is generally: a. the current selling price of the inventory. b. the historical cost of the inventory less depreciation. c. the current selling price of the inventory less the company's normal profit margin. d. the replacement cost of the inventory.

d. the replacement cost of the inventory.

The LIFO cost flow assumption results in the most ___ (distant/recent) costs being transferred to cost of goods sold. In times of rising prices, the costs transferred to cost of goods sold under LIFO will therefore be ___ (higher/lower) than the costs transferred to cost of goods sold under FIFO.

recent, higher

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of ___ (older/newer), ___ (higher/lower) costs to the income statement results in ___ (higher/lower) profits than if current costs were to be recognized.

older, lower, higher

The beginning inventory for ProKnows, Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each and during May an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the FIFO cost flow assumption, ending inventory: a. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340. b. = (30 @ $6) = $180. c. = (40 @ $6) + (30 @ $5) = $240 + $150 = $390. d. = (20 @ $4) + (10 @ $5) = $130.

b. = (30 @ $6) = $180.

The beginning inventory for ProKnows, Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each and during May an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the FIFO cost flow assumption, ending inventory: a. = (40 @ $6) + (30 @ $5) = $240 + $150 = $390. b. = (30 @ $6) = $180. c. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340. d. = (20 @ $4) + (10 @ $5) = $130.

b. = (30 @ $6) = $180.

Identify a true statement about cash equivalents. a. Cash equivalents are issued by very creditworthy corporations to raise short-term funds. b. Cash equivalents are short-term investments readily convertible into cash with minimal risk of price change. c. Cash equivalents are used for making small payments for which writing a check will be inconvenient. d. Cash equivalents are investments that are made for more than a year but less than five years.

b. Cash equivalents are short-term investments readily convertible into cash with minimal risk of price change.