Test

Wholesale Stuff, Inc. sells to retailers on account. Sales for the year totaled $9,900,000. The company uses the aging method for determining bad debt expense. The aging report and related information includes:

$1,067,600

Freeman Corporation estimates uncollectible accounts using a percentage of outstanding accounts receivable. After the year-end adjustment for bad debt expense was made, the company's records reflected the following information:

$1,100

On May 17, Bruno Olive Co. accepted a $6,500, 8%, 90-day note from a customer. On June 11, the note was discounted at 10%. At maturity date, the note was dishonored and the bank charged a $25 protest fee. The amount that Bruno Olive Co. would debit to Notes Receivable Dishonored is

$6,655.00

McClure Corp. purchased raw materials with a cost of $86,000. Credit terms of 3/10, n/60 apply. If McClure uses the net price method, the purchase should be recorded as

$83,420

Which of the following is included in the work in process account?

All of these answer choices are included in the work in process account.

Which of the following statements concerning contingencies is true?

Contingent liabilities are always disclosed in the footnotes to the financial statements.

Which payroll tax is imposed on both the employee and the employer?

FICA tax

In considering contingencies, IFRS and GAAP define the term "probable" as

IFRS - more likely than not; GAAP - likely

Which one of the following statements is false concerning the retail inventory method?

In arriving at a cost-to-retail ratio, sales discounts are deducted from goods available for sale to determine ending inventory at retail.

Which one of the following is not an advantage of LIFO?

In periods of rising prices, less holding gains are reported in net income.

Which of the following statements is not true?

Losses may be accrued for unasserted claims and other potential unfiled lawsuits.

Puzzle Company sold merchandise on credit with a list price of $75,000. Terms were 3/10, n/30. Which of the following entries correctly applies the indicated method to record the sale?

Net Price Method Accounts Receivable 72,750 Sales 72,750

Which of the following is not a general assumption that underlies the retail inventory method?

There were no changes in the retail price of inventory purchased during the period except the changes captured by markups and markdowns.

With regard to liabilities, liquidity refers to

a company's ability to convert its assets to cash to pay for its liabilities.

The most common approach to implementing the LCNRV or LCM rule for inventory valuation is to apply it to

b. each individual item of inventory separately.

Which of the following contingencies is usually accrued?

bad debts

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

beginning inventory

Current GAAP requires a company to disclose the fair value of its financial instruments and to disclose all significant concentrations of credit risk due to its financial instruments. The FASB's rationale for this disclosure includes allowing readers to

better determine a company's financial flexibility.

Which of the following would be included in cash and cash equivalents on the balance sheet?

commercial paper

Dollar-value LIFO uses

current cost and cost indexes

Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What would be the effect of this change on ending inventory in the year of the change?

decreased ending inventory

Which one of the following is not a disadvantage of the LIFO inventory cost flow assumption?

failure to match the most recent costs with revenue

Which one of the following inventories may be valued for balance sheet purposes at the inventory's selling price less distribution costs even if it is above the cost of the inventory?

gold for a mining corporation

An advantage of basing bad debt expense on the historical relationship between bad debts and net credit sales is that

it best adheres to principle of cause and effect recognition.

A disadvantage of basing bad debt expense on the historical relationship between actual bad debts and the outstanding accounts receivable balance at the end of the year is that

it may not recognize the cause and effect relationship between expenses and revenues.

Short-term debt expected to be refinanced

may be classified as long-term if both the intent to refinance and the ability to refinance exist.

A manufacturing firm would not normally have an account titled

merchandise inventory

Items classified as "cash" on the balance sheet

must be available to pay current obligations.

The cost of goods sold can be determined only after a physical count of inventory on hand under the

periodic system

Which item is not considered cash and cash equivalents on the balance sheet?

post dated checks

Which of the following is a legal liability?

sales taxes payable to the state

Unearned revenue (also called deferred revenue) can occur when

services are provided after the receipt of cash.

All of the following are examples of legal liabilities except

sick pay payable (may be taken as time off).

Which of the following dividends is not considered a current liability when declared?

stock dividends

When applying the lower of cost or market rule to the valuation of inventory, the allowance method is considered preferable to the direct method because

the allowance method reports the inventory loss or loss recovery in a separate income statement account.

The FASB established the use of the terms "probable," "reasonably possible," and "remote." It adopted these terms because

the likelihood of occurrence of future events can vary over a wide range.

Conceptually, all liabilities should be reported on the balance sheet at

the present value of the future outlays they require.

A company can record the transfer of accounts receivable as a sale if all of the following are true except

the transferor can repurchase the transferred assets before their maturity.

In order to be classified as a cash equivalent, an investment must have a maturity date of

three months or less,

When accounting for uncollectible accounts,

writing off a specific receivable does not reduce the current ratio if the percentage of ending accounts receivable method is in use.