MC Chapter 6

The following information is available for Ivory Inc. as on December 31 of the current year before any adjustment. Calculate the balance in the allowance for doubtful accounts after the adjusting entry. Balance of accounts receivable → $500,000 Balance of allowance for doubtful accounts → $(6,000) Total credit sales → $7,500,000 Bad debt as a percent of credit sales → ¾% A. $(62,250) B. $62,250 C. $(33,000) D. $33,000

A. $(62,250) (Total credit sales x %) + allowance for doubtful accounts

Cost of goods sold for the current year for Mintcream Inc. is $8,760,000. Beginning inventory was $550,000, and ending inventory is $650,000. Calculate the days' sales in inventory. A. 25 B. 15 C. 18 D. 22

A. 25 Days' sales in inventory = Average inventory / Average daily COGS (cogs / 365)

Which of the following is an effect of writing off an uncollectible account? A. A decrease in the days' sales in receivables B. An increase in return on sales C. A decrease in bad debt expenses D. An increase in sales

A. A decrease in the days' sales in receivables

What is the similarity between the percent of sales method and the analysis of receivables method? A. Both are used to calculate the uncollectible accounts. B. Both are used to calculate the cost of ending inventory. C. Both are used to calculate the cost of goods sold. D. Both are used to calculate inventory related ratios.

A. Both are used to calculate the uncollectible accounts.

Which of the following is a formula to calculate the accounts receivable turnover? A. Credit sales ÷ Average accounts receivable B. Cash sales ÷ Average accounts receivable C. Credit sales × Average accounts receivable D. Cash sales × Return on average accounts receivable

A. Credit sales ÷ Average accounts receivable

Which of the following is a characteristic of the last-in, first-out (LIFO) inventory cost flow method? A. The last units purchased are assumed to be sold, and the ending inventory is made up of the first purchases. B. The units purchased in the middle of the year are assumed to be sold, and the ending inventory is made up of the other purchases. C. The first units purchased are assumed to be sold, and the ending inventory is made up of the most recent purchases. D. The cost of the units sold and in ending inventory is an average of the purchase costs.

A. The last units purchased are assumed to be sold, and the ending inventory is made up of the first purchases.

The method that requires an estimate of uncollectible accounts at the end of a period is called the _____. A. allowance method B. analysis of receivables method C. straight line method D. costing method

A. allowance method

When prices are increasing, the larger gross profits that result from the first-in, first-out (FIFO) method are often called _____. A. inventory profits B. opportunity profits C. economic profits D. accounting profits

A. inventory profits

The three types of inventory that a manufacturing company has are: A. materials inventory, work-in-process inventory, and finished goods inventory. B. .transit inventory, buffer inventory, and estimated inventory. C. practical inventory, theoretical inventory, and decoupling inventory. D. service inventory, non-service inventory, and supply-chain inventory.

A. materials inventory, work-in-process inventory, and finished goods inventory.

Calculate the maturity value of a promissory note having a face amount of $3,500, interest rate of 12%, and a term of 90 days. Assume 360 days in a year. A. $3,710 B. $3,605 C. $4,305 D. $3,920

B. $3,605

If the estimated selling price of a commodity is $1,050 and the selling expenses are $350, what will the net realizable value of the commodity be? A. $1,150 B. $700 C. $1,850 D. $1,400

B. $700 NRV = Estimated selling price - Direct cost of disposal

Following is the information provided by Digitrex Co. for the month of September: Date Units Unit Cost Sep. 1 Beginning Inventory 200 $20 Sep. 18 Purchase 500 $25 Sep. 25 Purchase 400 $30 Total 1,000 Digitrex sold 700 units in September. Calculate the cost of ending inventory and the cost of goods sold for the month of September using the last-in, first-out (LIFO) method. A. Ending inventory is $12,600, and cost of goods sold is $15,900. B. Ending inventory is $9,000, and cost of goods sold is $19,500. C. Ending inventory is $7,500, and cost of goods sold is $21,000. D. Ending inventory is $12,000, and cost of goods sold is $16,500.

B. Ending inventory is $9,000, and cost of goods sold is $19,500. Ending Inventory: 200 Units x $20 = $4,000 200 Units x $25 = $5,000 Total = $9,000 Cost of Goods Sold: 400 Units x $30 = $12,000 300 Units x $25 = $7,500 Total = $19,500

Which of the following is a disadvantage of the specific identification method? A. It reports very less gross profit in a deflationary situation. B. It is not practicable unless each inventory unit can be separately identified. C. It offers a misleading picture of inventory in the long-run. D. It requires a certain amount of estimation and is therefore not reliable.

B. It is not practicable unless each inventory unit can be separately identified.

Which of the following best explains the last-in, first-out (LIFO) reserve? A. It is the income tax saving that is the result of the application of the last-in, first-out (LIFO) method that should be reported on the income statement. B. It is the estimated difference between the last-in, first-out (LIFO) valued inventory and the inventory if the first-in, first-out (FIFO) method had been used. C. It is a reserve that is created in order to regularize the purchase cost of inventory over a period of years. D. It is a special reserve that is created to meet the needs of specific investment purposes.

B. It is the estimated difference between the last-in, first-out (LIFO) valued inventory and the inventory if the first-in, first-out (FIFO) method had been used.

Which of the following is true about materials inventory? A. Materials inventory consists of the opportunity cost of using materials in a production process. B. Materials inventory consists of the cost of raw materials used in manufacturing a product. C. Materials inventory consists of the costs of selling materials. D. Materials inventory consists of the costs incurred for partially completed products.

B. Materials inventory consists of the cost of raw materials used in manufacturing a product.

Which of the following is a useful tool for measuring the liquidity and efficiency of a company? A. The prepaid expenses turnover B. The accounts receivable turnover C. The profitability ratio D. The debt ratio

B. The accounts receivable turnover

Which of the following methods is used to account for uncollectible receivables? A. The indirect method B. The allowance method C. The double-declining method D. The straight-line method

B. The allowance method

Which of the following is a feature of a promissory note receivable? A. The maker is the person to whom the amount is payable. B. The interest rate must be paid on the face amount for the term of the note. C. The payee is the party making the promise to pay. D. The issuance date is the date on which the amount is to be paid.

B. The interest rate must be paid on the face amount for the term of the note.

Which of the following is the effect of using lower of cost or market on liquidity metrics? A. There will be an increase in the days' sales in inventory. B. There will be a decrease in the days' sales in inventory. C. There will be an increase in net income. D. There will be a decrease in sales.

B. There will be a decrease in the days' sales in inventory.

A vehicle manufacturing company requires a certain down payment for the sale of its vehicles, and the remaining amount is to be paid at a later date. The company would record the remaining amount as: A. uncollectible receivables on the assets side of the balance sheet. B. accounts receivables on the assets side of the balance sheet. C. prepaid expenses under non-current assets on the balance sheet. D. interest receivables on the assets side of the balance sheet.

B. accounts receivables on the assets side of the balance sheet.

The percent of sales method emphasizes the _____. A. balance sheet B. income statement C. statement of changes in equity D. statement of cash flows

B. income statement

Writing off accounts receivable under the direct method _____. A. increases both accounts receivables and bad debt expenses B. increases bad debt expense and decreases accounts receivables C. decreases both accounts receivables and bad debt expenses D. decreases bad debt expense and increases accounts receivables

B. increases bad debt expense and decreases accounts receivables

The following data is given for Aquablue Inc. Calculate the ending inventory. Cost of goods sold for 2016 → $5,475,000 Beginning inventory → $425,000 Days' sales in inventory → 25 days A. $450,000 B. $375,000 C. $325,000 D. $400,000

C. $325,000

In which of the following situations is the lower-of-cost-or-market (LCM) method used to value the inventory? A. If the market is higher than the opportunity cost of inventory B. If the market is lower than the direct cost of disposal C. If the market is lower than the purchase cost of inventory D. If the market is higher than the operating cost of inventory

C. If the market is lower than the purchase cost of inventory

Accounts receivables are recorded on the balance sheet of a company as _____. A. long-term assets B. long-term liabilities C. current assets D. current liabilities

C. current assets

Receivables and inventory are reported as _____. A. current liabilities on the balance sheet B. non-operating expenses on the income statement C. current assets on the balance sheet D. operating expenses on the income statement

C. current assets on the balance sheet

What should the average daily sales of a firm be when it has an average accounts receivables of $500,000 and a days' sales in receivables of 40 days? A. $62,500 B. $6,250 C. $1,250 D. $12,500

D. $12,500

Portlinc Co. has a total inventory of $1,250,980. What will be the value of its work-in-process if the value of its materials and finished goods are $99,037 and $876,465 respectively? A. $473,552 B. $2,226,482 C. $2,028,408 D. $275,478

D. $275,478

Which of the following is true about work-in-process inventory? A. It consists of the costs of raw materials which cannot be used in production. B. It consists of the costs incurred to sell a product. C. It consists of the costs incurred to distribute a product. D. It consists of the costs for partially completed products.

D. It consists of the costs for partially completed products.

What is the implication of a company having an inventory turnover ratio of 12.8? A. It implies that the company has increased its ending inventory by 12.8 % in a particular year. B. It implies that the company has decreased its sales by 12.8 times in a particular year. C. It implies that the company is converting or turning over its inventory at the rate of 12.8%. D. It implies that the company is converting or turning over its inventory 12.8 times per year.

D. It implies that the company is converting or turning over its inventory 12.8 times per year.

Which of the following is a characteristic of the weighted average cost method? A. For a series of purchases, the average cost will be different considering the direction of price trends. B. Compared to the last-in, first-out (LIFO) method, it reports the ending inventory at a very low price when prices are increasing. C. It is difficult to put to practice in periods of declining prices. D. The effect of price trends is averaged in determining the cost of goods sold.

D. The effect of price trends is averaged in determining the cost of goods sold.

The _____ records bad debt expense by estimating uncollectible accounts at the end of the accounting period. A. accelerated method B. average value method C. double declining method D. allowance method

D. allowance method

The method of inventory valuation in which the ending inventory is made up of the most recent purchases is called the _____. A. weighted average method B. last-in, first-out method C. lower of cost or market method D. first-in, first-out method

D. first-in, first-out method

Due to the reinstatement of accounts, operating income and return on sales _____. A. remain unchanged B. decrease C. are not affected D. increase

D. increase