Management 200 Exam 2

During the first two years, Supplies, Inc. drove the company truck 15,000 and 22,000 miles, respectively, to deliver merchandise to its customers. The company originally purchased the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles, with an estimated residual value of $25,000, what amount of deprecation expense should Supplies, Inc. record in the second year using the activity‐based method? A. $11,000 B. $18,500 C. $7,500 D. $16,000

A. $11,000

Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory? A. $20,000 B. $30,000 C. $10,000 D. $50,000

A. $20,000

Sandburg Veterinarian reports the following information for the year: What is Sandburg's receivables turnover ratio? A. 6.0 B. 5.0 C. 1.2 D. 0.2 Net credit sales $120,000 Average accounts receivable 20,000 Cash collections on credit sales 100,000

A. 6.0 $120,000/ $20,000 = 6.0.

Losses on the sale of long‐term assets for cash: A. Are the excess of the book value over the cash received B. Are recorded as a credit C. Are reported on a net‐of‐tax basis if material D. Are the excess of the cash received over the book value

A. Are the excess of the book value over the cash received

The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______. A. Asset; Balance sheet B. Expense; Income statement C. Liability; Balance sheet D. Revenue; Income statement

A. Asset; Balance sheet

One advantage of the allowance method for accounting for uncollectible accounts is that the company reports: A. Bad debt expense in the same period as the credit sale B. Greater total sales to customers C. Fewer returns by customers D. Greater total cash collected from customers

A. Bad debt expense in the same period as the credit sale

Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system? A. Costs of incoming freight charges on merchandise inventory B. A return of damaged inventory to the vendor C. A purchase discount taken for prompt payment D. Shipping charges for outgoing inventory

A. Costs of incoming freight charges on merchandise inventory

Identify the likely disadvantage(s) of extending credit to customers A. Delay or failure to collect cash B. Lower profitability C. Lower revenues D. All of the other answers are disadvantages of extending credit to customers

A. Delay or failure to collect cash

Research and development costs should be: A. Expensed in the period incurred B. Expensed in the period they are determined to be unsuccessful C. Deferred pending determination of success D. Expensed if unsuccessful, capitalized if successful

A. Expensed in the period incurred

The inventory cost flow assumption that generally best matches the physical flow of inventory is: A. FIFO B. LIFO C. Weighted‐average D. Lower of cost or net realizable value

A. FIFO

If A sells to B, and B obtains title while goods are in transit, the goods were shipped _______. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped _______. A. FOB shipping point; FOB destination B. FOB destination; FOB shipping point C. FOB destination; FOB destination D. FOB shipping point; FOB shipping point

A. FOB shipping point; FOB destination

In a periodic inventory system, the purchase of inventory is debited to: A. Purchases B. Cost of goods sold C. Inventory D. Accounts payable

A. Purchases

Cost of goods sold is: A. Reported in the income statement B. Reported in the balance sheet C. A current asset D. The cost of inventory on hand at the end of the period

A. Reported in the income statement

A basket purchase is the purchase of more than one asset at the same time for one purchase price A. True B. False

A. True

A business may use the periodic or perpetual inventory systems for different types of inventory. A. True B. False

A. True

A periodic inventory system does not continually modify inventory amounts, but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand A. True B. False

A. True

At the time inventory is sold, cost of goods sold is recorded under the perpetual inventory system. A. True B. False

A. True

Book value or carrying value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation A. True B. False

A. True

Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life A. True B. False

A. True

In an activity‐based depreciation method, we allocate an asset's cost based on its use A. True B. False

A. True

Many intangible assets are not recorded on the balance sheet at their estimated market values A. True B. False

A. True

Most companies use straight‐line amortization for intangibles and credit the amount of amortization to the intangible asset account itself rather than to Accumulated Amortization A. True B. False

A. True

Straight‐line depreciation assumes that the benefits we derive from the use of an asset are the same each year A. True B. False

A. True

The LIFO difference (reserve) is the additional amount of inventory a company would report if it used FIFO instead of LIFO. A. True B. False

A. True

The adjustment to write down inventory from cost to its lower net realizable value includes a debit to Cost of Goods Sold and a credit to Inventory. A. True B. False

A. True

Using the first‐in, first‐out method (FIFO), the first units purchased are assumed to be the first ones sold. A. True B. False

A. True

Which of the following subsequent expenditures would not be capitalized? A. Unsuccessful legal defense of intangible assets B. Additions C. Improvements D. Successful legal defense of intangible assets

A. Unsuccessful legal defense of intangible assets

How much depreciation should be recorded for the first year for a delivery truck with a cost of $30,000, an expected life of six years, and an estimated residual value of $6,000? Assume the double‐declining‐balance method is used. A. $ 12,000 B. $ 10,000 C. $ 8,000 D. $ 5,000

B. $ 10,000

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the FIFO method if 120 units were sold in January? A. $ 600 B. $ 500 C. $ 620 D. $ 720

B. $ 500

Papercraft Corporation purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five‐year life, with a residual value of $5,000 at the end of five years. Using the straight‐ line method, depreciation expense for 2018 would be: A. $12,000 B. $11,000 C. $60,000 D. None of these

B. $11,000

On September 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2018? A. $20 B. $40 C. $30 D. $60

B. $40 Interest revenue = $1,000 × 12% × 4/12 = $40

The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as: A. On‐going expense. B. An addition in the Buildings account. C. An expense in the period incurred. D. A patent.

B. An addition in the Buildings account.

The factors used to compute depreciation expense are an asset's: A. Cost, residual value, and physical life B. Cost, residual value, and service life C. Fair market value, residual value, and economic life D. Cost, replacement value, and service life

B. Cost, residual value, and service life

Which of the following subsequent expenditures would be capitalized? A. Ordinary repair B. Costs that increase the service life of an asset C. Routine maintenance D. Ordinary repair and routine maintenance

B. Costs that increase the service life of an asset

The normal balance of the account "Allowance for Uncollectible Accounts" is a _______ because _______. A. Debit; it is a contra account to Revenue (a credit account) B. Credit; it is a contra account to Accounts Receivable (a debit account) C. Debit; it is an expense in the income statement D. Credit; it is a contra account to Bad Debt Expense (a debit account)

B. Credit; it is a contra account to Accounts Receivable (a debit account)

Good Inc., sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $700; credit Inventory $700. C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. D. Debit Inventory $700; credit Cost of Goods Sold $700.

B. Debit Cost of Goods Sold $700; credit Inventory $700.

ABO purchased a truck at the beginning of 2018 for $140,000. They sold the truck at the end of 2019 for $95,000. If the expected useful life of the truck was six years with a residual value of $20,000 and ABO uses straight‐line depreciation, which of the following is true regarding the entry to record the sale of the truck? A. Credit Gain $5,000 B. Debit Loss $5,000 (see following) C. Credit Accumulated Depreciation $40,000 D. Credit Equipment $100,000

B. Debit Loss $5,000

If an asset is sold at the end of its first year of use, which depreciation method would result in the highest amount of gain (or lowest amount of loss) assuming the asset is used fairly evenly over its life? A. Straight‐line B. Double‐declining‐balance C. Activity‐based D. Not enough information to determine

B. Double‐declining‐balance

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25. A. True B. False

B. False

Accumulated Depreciation is a liability account that is increased by credits A. True B. False

B. False

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand. A. True B. False

B. False

During periods of rising costs, FIFO generally results in a higher cost of goods sold. A. True B. False

B. False

During periods of rising costs, LIFO generally results in a higher ending inventory balance. A. True B. False

B. False

For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory. A. True B. False

B. False

For most companies, actual physical flow of their inventory follows LIFO. A. True B. False

B. False

If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000. A. True B. False

B. False

In accounting for inventory, the assumed cost flow must match the physical goods flow. A. True B. False

B. False

Inventory methods such as LIFO and FIFO deal more with goods flow than with cost flow. A. True B. False

B. False

Sales revenue less cost of goods sold is referred to as operating income A. True B. False

B. False

Straight‐line produces a lower net income than accelerated methods in the earlier years of an asset's life A. True B. False

B. False

The franchisee's initial fee is recorded as an expense on the income statement A. True B. False

B. False

Using the weighted‐average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year. A. True B. False

B. False

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits A. True B. False

B. False

We record a gain if we sell an asset for less than book value A. True B. False

B. False

When the value of inventory falls below its cost, companies other than those that use LIFO have the option of recording the inventory at cost or the lower net realizable value A. True B. False

B. False

The Sales Returns account is an expense account A. True B. False

B. False Sales Returns is a contra revenue account

Trade discounts represent a discount offered to the purchasers for quick payment. A. True B. False

B. False Trade discounts represent a reduction in the listed price of a product or service

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense A. True B. False

B. False Writing off an account receivable has no effect on expenses

One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for: A. Current assets B. Inventory C. Selling expenses D. Deferred revenue

B. Inventory

During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income? A. FIFO B. LIFO C. Weighted‐average D. Simple LIFO average

B. LIFO

The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is: A. FIFO B. LIFO C. Weighted‐average D. Specific identification

B. LIFO

Which inventory cost flow assumption more realistically matches the current cost of inventory with current sales revenue? A. FIFO B. LIFO C. Weighted‐Average D. LIFO ‐ Simplified

B. LIFO

A perpetual inventory system measures cost of goods sold by: A. Estimating the amount of inventory sold. B. Making entries to the inventory account for each purchase and sale. C. Counting inventory at the end of the period. D. Debiting cost of goods sold for all purchases of inventory.

B. Making entries to the inventory account for each purchase and sale.

The formula for the receivables turnover ratio is A. Average accounts receivable divided by average total assets. B. Net credit sales divided by average accounts receivable C. Net credit sales divided by average total assets D. Average accounts receivable divided by net credit sales

B. Net credit sales divided by average accounts receivable

Cochrane, Inc. accounts for bad debts using the allowance method. On June 1, Cochrane wrote off $2,500 customer account. Based on Cochrane's estimation, the customer will never pay any portion of the balance in his account. What effect will this write‐off have on Cochrane's balance sheet at the time of the write‐off? A. An increase to stockholders' equity and a decrease to liabilities B. No effect C. An increase to assets and an increase to stockholders' equity D. A decrease to assets and a decrease to stockholders' equity

B. No effect

Which level of profitability is considered profit from normal operations? A. Gross profit B. Operating income C. Income before taxes D. Net income

B. Operating income

The primary distinction between operating activities and nonoperating activities in a multiple‐step income statement is whether the activity is: A. A large or small dollar amount B. Part of primary business operations C. Related to current versus long‐term assets D. Reported as a revenue or an expense

B. Part of primary business operations

When customers purchase products on account, Knomark, Inc. offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a: A. Bad debt B. Sales discount C. Sales return D. Sales allowances

B. Sales discount

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the LIFO method if 120 units were sold in January? A. $ 600 B. $ 500 C. $ 700 D. $ 720

C. $ 700

The direct write‐off method is not normally an acceptable method for GAAP because it fails to report: A. Revenue from the sale of goods or services to customers B. Cash collected from customers C. Accounts receivable for their net realizable value D. The amounts receivable from customers

C. Accounts receivable for their net realizable value

During the year, Bears Inc. recorded credit sales of $500,000. Before adjustments at year‐end, Bears has accounts receivable of $300,000, of which $50,000 is past due, and the allowance account had a credit balance of $2,500. Using the aging of receivables approach, what would be the adjustment assuming Bears expects it will not to collect 5% of the amount not yet past due and 20% of the amount past due? A. Bad Debt Expense 22,500 Allowance for Uncollectible Accounts 22,500 B. Bad Debt Expense 25,000 Allowance for Uncollectible Accounts 25,000 C. Bad Debt Expense 20,000 Allowance for Uncollectible Accounts 20,000 D. Allowance for Uncollectible Accounts 20,000 Bad Debt Expense 20,000

C. Bad Debt Expense 20,000 Allowance for Uncollectible Accounts 20,000

LIFO is considered an income statement approach for reporting inventory because it: A. Always results in a higher amount of net income being reported. B. Better approximates the value of ending inventory C. Better approximates inventory cost necessary to generate revenue. D. Always results in a lower amount of net income being reported

C. Better approximates inventory cost necessary to generate revenue.

Gross profit is calculated as net sales minus A. Nonoperating expenses and income tax expense. B. Operating expenses. C. Cost of goods sold. D. All of the other answers are subtracted from net sales.

C. Cost of goods sold

Under the principle of lower of cost and net realizable value, when a company has 10 units of inventory A with net realizable value of $50 and a cost of $60, what is the adjustment? A. Debit Inventory $100; credit Cost of Goods Sold $100 B. Debit Inventory $500; credit Cost of Goods Sold $500 C. Debit Cost of Goods Sold $100; credit Inventory $100 D. Debit Cost of Goods Sold $500; credit Inventory $500

C. Debit Cost of Goods Sold $100; credit Inventory $100

In a perpetual inventory system, the entry at the time of a sale to record the cost of the inventory soldin cludes a: A. Debit to Accounts Receivable B. Credit to Cost of Goods Sold C. Debit to Cost of Goods Sold D. Not recorded at the time of the sale

C. Debit to Cost of Goods Sold

Hughes Aircraft sold a four‐passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. This transaction would include a A. Credit to Cash B. Debit to Sales Discount C. Debit to Notes Receivable D. Credit to Notes Receivable

C. Debit to Notes Receivable

Inventory does not include A. Materials used in the production of goods to be sold. B. Assets intended to be sold in the normal course of business. C. Equipment used in the manufacturing of assets for sale. D. Assets currently in production for normal sales

C. Equipment used in the manufacturing of assets for sale.

On January 1, 2016, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight‐line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 2017, Jacob Inc. sold the truck for $43,000. What amount of gain or loss should Jacob Inc. record on December 31, 2017? A. Gain, $22,000 B. Loss, $18,000 C. Gain, $5,000 D. Loss, $3,000

C. Gain, $5,000

In accounting, goodwill A. May be recorded whenever a company achieves a level of net income that exceeds the industry average. B. Is amortized over its useful life. C. May be recorded when a company purchases another business. D. Must be expensed in the period it is recorded because benefits from goodwill are difficult to identify

C. May be recorded when a company purchases another business.

An increase in a company's receivables turnover ratio typically means the company is A. Having trouble paying debts as they become due. B. Less profitable. C. More effectively granting and collecting credit to customers. D. Losing customers to its competitors.

C. More effectively granting and collecting credit to customers.

Suppose a customer is unable to pay its account on time, so the company accepts a six‐month interest‐ bearing note receivable to replace the customer's account receivable. What effect will accepting the note receivable have on the company's financial statements at the time of acceptance? A. Total assets increase B. Total assets decrease C. No change in total assets D. Total revenues increase

C. No change in total assets

The purpose of recording an allowance for uncollectible accounts is to: A. Record the sales returns and allowances B. Report net sales conservatively C. Report accounts receivable at net realizable value D. Report accounts receivable for the total amount of sales in the period

C. Report accounts receivable at net realizable value

The inventory turnover ratio measures: A. The portion of inventory that becomes obsolete each period. B. How many times the company purchases inventory during the current reporting period C. The times per period the average inventory balance is sold D. How many days it takes to collect its sales of inventory sold on account

C. The times per period the average inventory balance is sold

Which of the following computations would be used to compute Net Revenue? A. Total Revenue + Accounts Receivable - Sales Discounts - Sales Allowances B. Net Revenue + Sales Allowances - Sales Discounts C. Total Revenue - Sales Discounts - Sales Allowances D. Net Income - Change in Accounts Receivable

C. Total Revenue - Sales Discounts - Sales Allowances

Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight‐line method, what is the amortization expense for the first year? A. $0 B. $2,000 C. $3,333 D. $10,000

D. $10,000

Given the information in the table below, what is the company's gross profit? A. $280,000 B. $170,000 C. $50,000 D. $100,000 Sales revenue $350,000 Accounts receivable $280,000 Ending inventory $230,000 Cost of goods sold $180,000 Sales returns $50,000 Sales discount $20,000

D. $100,000

Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account? A. $29,000 B. $28,000 C. $27,000 D. $26,000

D. $26,000 ($600,000 × 1%) = $ 6,000 ($100,000 × 10%) = 10,000 ($50,000 × 20%) = 10,000 Total $26,000

Consider the following year‐end information for Knomark Corporation: What amount will Knomark report for operating income? A. $ ‐ 0 ‐ B. $500,000 C. $200,000 D. $300,000 Cost of goods sold $500,000 Sales revenue 1,000,000 Nonoperating expenses 100,000 Operating expenses 200,000

D. $300,000

Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight‐line method, what is the carrying value at the end of the first year? A. $0 B. $10,000 C. $50,000 D. $40,000

D. $40,000

The primary difference between a note receivable and an account receivable is: A. A note receivable cannot be classified as a current asset B. Borrowers have the option of not paying a note receivable C. An account receivable is more likely to be collected D. A note receivable is evidenced by a written debt instrument

D. A note receivable is evidenced by a written debt instrument

Which of the following would be recorded as land improvements? A. Property taxes. B. Title insurance. C. Real estate commissions. D. Adding a parking lot.

D. Adding a parking lot.

The choice of inventory cost flow assumptions affects which of the following amounts? A. Inventory. B. Cost of goods sold. C. Gross profit. D. All of the other answers are affected by the inventory cost flow assumption.

D. All of the other answers are affected by the inventory cost flow assumption.

Which of the following items are classified as receivables? A. Tax refund claims B. Amounts owed by customers C. Amounts loaned and expected to be collected D. All of the other answers are classified as receivables

D. All of the other answers are classified as receivables

Which accounting concept does the direct write‐off method violate? A. Total assets equal total liabilities plus total stockholders' equity B. Recording amount owed within one year as current liabilities C. Recognizing revenue when goods or services are provided to customers D. An attempt to match revenues and their related expenses

D. An attempt to match revenues and their related expenses

The practice of using the lower of cost and net realizable value to evaluate inventory reflects which of the following accounting principles? A. Matching principle B. Materiality C. Conservatism D. Answers A and C

D. Answers A and C

The account "Allowance for Uncollectible Accounts" is classified as a(n): A. Liability account in the balance sheet B. Contra revenue to credit sales in the income statement C. Expense in the income statement D. Contra asset to accounts receivable in the balance sheet

D. Contra asset to accounts receivable in the balance sheet

Credit sales are recorded as A. Debit Cash, credit Deferred Revenue B. Debit Service Revenue, credit Accounts Receivable C. Debit Cash, credit Service Revenue D. Debit Accounts Receivable, credit Service Revenue

D. Debit Accounts Receivable, credit Service Revenue

At the end of 2018, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage‐of‐receivables method. Murray State's adjustment on December 31, 2018, to record its estimated uncollectible accounts included a: A. Credit to Allowance for Uncollectible Accounts of $12,000 B. Debit to Bad Debt Expense of $7,500 C. Credit to Allowance for Uncollectible Accounts of $7,500 D. Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500

D. Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500 Bad debt expense = $12,000 ‐ $4,500 = $7,500

Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company B record the sale of goods to Company A? A. May 12 B. May C. May 19 D. May 17

D. May 17

In a periodic inventory system, the entry at the time ofa sale to record the cost of inventory sold includes a: A. Debit to Accounts Receivable B. Credit to Cost of Goods Sold C. Debit to Cost of Goods Sold D. Not recorded at this time of the sale

D. Not recorded at this time of the sale

Which of the following is true about the aging method? A. No estimate for uncollectible accounts is made. B. Older accounts are more likely to be collected. C. It is not acceptable for GAAP. D. Older accounts are less likely to be collected.

D. Older accounts are less likely to be collected. a more accurate estimate of total uncollectible accounts compared to using a single percentage.

Costs that are expensed when incurred are called? A. Product costs B. Direct costs C. Inventoriable costs D. Period costs E. Indirect costs

D. Period costs

LePage's Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a: A. Sales Revenue B. Sales Discount C. Sales Return D. Sales Allowance

D. Sales Allowance

he depreciable cost used in calculating depreciation expense is: A. Its service life B. The amount allowable under tax depreciation methods C. The difference between its replacement value and cost D. The asset's cost minus its estimated residual value

D. The asset's cost minus its estimated residual value

Identify the condition(s) that must exist for a sale and the related receivable to be recognized. A. Collection of cash is probable B. The company must have collected cash from at least one previous sale to the customer C. Goods or services have been provided to the customer D. Two of the other answers are conditions that must exist

D. Two of the other answers are conditions that must exist

Which of the following statements is true? A. Product costs affect only the balance sheet B. Product costs affect only the income statement C. Period costs affect only the balance sheet D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation) E. Product costs eventually affect both the balance sheet and the income statement.

E. Product costs eventually affect both the balance sheet and the income statement

A sales allowance is recorded as a debit to Accounts Receivable and a Credit to Sales Allowances. 1. True 2. False

False A sales allowance is recorded as a debit to Sales Allowances and a credit to accounts receivable.

The net realizable value of accounts receivable is the full amount owed by customers A. True B. False

False Net realizable value is the net amount of cash we expect to collect.

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it reduces total assets. A. True B. False

False Writing off an account receivable has no effect on total assets

A debit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts was too low. A. True B. False

True

From a balance sheet perspective, the percentage‐of‐ receivables method is typically preferable because assets (net accounts receivable) are reported closer to their net realizable value A. True B. False

True

When a company sells a $100 service with a 20% trade discount, $80 of revenue is recognized. A. True B. False

True

If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000. 1. True 2. False

True Revenues 100,000 Less: Sales Discounts (3000) Less Sales Returns (4000) Less Sales Allowances (2000) Net Revenues 91,000