ACCT Exam 2 Class Prep
Allowance for Doubtful Accounts is listed on the balance sheet under the caption
Current Assets
Merchandise inventory is reported on the balance sheet in the section entitled
Current assets
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount
F
A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570
F
Freight in is the amount paid by the seller to deliver merchandise sold to a customer
F
If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $48.
F
If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination
F
In a transaction where purchased merchandise has been returned, the buyer will increase the Sales Returns and Allowances account and the seller will increase the Purchases Returns and Allowances account
F
Merchandise inventory shrinkage will increase Merchandise Inventory
F
Net sales is equal to sales plus cost of merchandise sold
F
On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales
F
Lower-of-cost-or-market is a method of inventory valuation
T
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)
10,200
If the cost of an item of inventory is $70, the current replacement cost is $65, and the sales price is $85, the amount included in inventory according to the lower-of-cost-or-market method is
65
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
F (difference in balance and estimate)
Allowance for Doubtful Accounts is a contra liability account
F (its a contra asset)
If merchandise inventory is being valued at cost and the price level is steadily falling, which method of costing will yield the largest gross profit
FIFO
Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet
T
A note receivable due in five years is listed on the balance sheet under the caption
Investments
Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet.
T
In reference to a promissory note, the person who makes the promise to pay is called the
Maker
A criticism of the single-step income statement is that gross profit and income from operations are not readily available for analysis
T
Both accounts receivable and notes receivable represent claims that are expected to be collected in cash
T
Gross profit percent is calculated by dividing gross profit by net sales
T
In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account
T
On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues
T
Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising business
T
Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system
T
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
T
The direct write-off method records uncollectible accounts expense in the year the specific account receivable is determined to be uncollectible
T
The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable
T
The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities
T
The maturity value of a 12%, 60-day note for $1,000 is $1,020. (Assume 360 days in a year)
T
The merchandise inventory account is found on the balance sheet
T
The person who is to be paid when a note matures is called the payee
T
The sales discount account is a contra account to Sales
T
When someone purchases merchandise and incurs the cost of transportation, these costs of purchasing inventory are added to the cost of the inventory
T
Inventory turnover is calculated by dividing
cost of merchandise sold / average inventory
The accounts receivable turnover is computed by dividing
net credit sales / average net accounts receivable
Receivables are usually a significant portion of
total current assets