Exam 3 ACCT 2010

A balance sheet approach to estimating bad debt expense is not permitted under GAAP (Generally Accepted Accounting Principles).

False

During periods of declining purchase prices, LIFO produces the lowest amount of ending inventory relative to the other inventory costing methods.

False

If a company accepts a major credit card such as VISA from a customer, then the company is responsible for the amount of the sale in a case of nonpayment from a cardholder.

False

If cost of goods sold does not equal the cost of merchandise purchased during the period, an adjustment must be made to correct the error.

False

If ending inventory is understated, then cost of goods sold is understated.

False

Net Sales = Total credit sales - Sales Discounts - Sales Returns and Allowances

False

The longer a customer's account balance remains outstanding, the greater the likelihood that it will be collected in the near future.

False

What effects on a retail store's accounting equation occur when it records merchandise purchased for cash, assuming the use of a perpetual inventory system?

No net effect

At the year-end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of

The seller

Cost of goods sold represents an outflow of a resource, inventory, which is caused by the sale of products.

True

Sales discounts decrease the cost of inventory acquired.

True

The amount of interest paid is a function of three variables, the amount borrowed, the interest rate, and the length of the loan period.

True

The higher the accounts receivable turnover the better because it indicates that the company is more quickly collecting cash (through sales).

True

The lender of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

True

The lower of cost or market (LCM) rule violates the historical cost principle.

True

The weighted average cost per unit must be continually updated under the perpetual inventory system.

True

Under a periodic inventory system, the Purchases account accumulates the cost of the inventory acquired during the period.

True

The weighted average cost is calculated by adding the units' costs from each purchase and then dividing by the number of purchases.

False

When the shipping terms are FOB destination, the buyer must record transportation costs as an additional cost of acquiring the inventory under the perpetual inventory system.

False

A primary advantage of the allowance method to account for bad debts is that it supports the matching principle.

True