True Or False
1.When companies sell their receivables to other companies, the transaction is called factoring.
2.Allowance for Doubtful Accounts is a liability account.
3.When an accounts receivable that has been written off is subsequently collected, the account receivable is reinstated.
4.The accounts receivable turnover measures the length of time in days it takes to collect a receivable
5.During inflationary periods, the use of FIFO method of costing inventory will yield an inventory amount for the balance sheet approximating the current replacement cost.
6.Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand.
7.When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.
8.A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.
9.Generally, the lower the number of days’ sales in inventory, the better
10.One negative effect of carrying too much inventory is risk that customers will change their buying habits.
11.In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold.
12.Generally, all deductions made from an employee’s gross pay are required by law.
13.All long-term liabilities eventually become current liabilities.
14.In order to be a recorded contingent liability, the liability must be possible and easily estimated.
15.Receiving payment prior to delivering goods or services causes a current liability to be incurred.
Multiple Choice
1.The internal control objective most relevant to receivables is
a.Safeguard assets
b.Comply with laws and regulations
c.Operate efficiently
d.Assess risk
2.The two methods of accounting for uncollectible receivables are the allowance method and the
a.Equity method
b.Direct write off method
c.Interest method
d.Cost method
3.What is the type of account and normal balance of Allowance for Doubtful Accounts?
a.contra asset, credit
b.asset, debit
c.asset, credit
d.contra asset, debit
4.A 60-day, 10% note for $8,000, dated April 15, is received from a customer on account. The face value of the note is
a.$8,600
b.$7,200
c.$8,800
d.$8,000
5.If the merchandise costs $4,000, insurance in transit costs $200, tariff costs $50, processing the purchase order by the purchasing dept costs $35, and the company receiving dock personnel cost $15, what is the total cost charged to the merchandise?
a.$4,250
b.$4,285
c.$4,300
d.$4,000
6.If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
a.N/30
b.FOB shipping point
c.FOB destination
d.Consigned
7.Under which method of inventory costs flows is the cost flow assumed to be in the reverse order in which the expenditure were made?
a.Weighted average
b.Last-in, first-out
c.First-in, first-out
d.Average cost
8.Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?
a.Owners equity is overstated
b.Cost of merchandise sold is overstated
c.Gross profit is understated
d.Net income is understated
9.A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of
a.$92,000
b.$91,000
c.$87,000
d.$86,000
10.Equipment with a cost of $160,000 has an estimated residual value of $10,m000 and an estimated life of 5 years of 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was 3,300 hours?
a.$30,000
b.$32,500
c.$34,000
d.$40,000
11.In a normal arm’s length business transaction, long-term liabilities are often secured by
a.Fixed assets
b.Signature of the chief executive officer
c.Accounts receivable
d.Bonds payable
12.The maturity value of a $40,000, 90 day, 6% note payable is
a.$40,600
b.$42,400
c.$600
d.$2,400
13.Most employers are required to withhold from employees which of the following employment taxes?
a.FICA tax
b.FICA tax, state and federal unemployment compensation tax
c.Only state unemployment compensation tax
d.Only federal unemployment compensation tax
14.The cost of a product warranty should be included as an expense in the
a.Period the cash is collected for a product sold on account
b.Future period when the cost of repairing the product is paid
c.Period of the sale of the product
d.Future period when the product is repaired or replaced
15.Payroll taxes levied against employees become liabilities
a.The first of the following month
b.At the
1.When companies sell their receivables to other companies, the transaction is called factoring.
2.Allowance for Doubtful Accounts is a liability account.
3.When an accounts receivable that has been written off is subsequently collected, the account receivable is reinstated.
4.The accounts receivable turnover measures the length of time in days it takes to collect a receivable
5.During inflationary periods, the use of FIFO method of costing inventory will yield an inventory amount for the balance sheet approximating the current replacement cost.
6.Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand.
7.When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.
8.A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.
9.Generally, the lower the number of days’ sales in inventory, the better
10.One negative effect of carrying too much inventory is risk that customers will change their buying habits.
11.In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold.
12.Generally, all deductions made from an employee’s gross pay are required by law.
13.All long-term liabilities eventually become current liabilities.
14.In order to be a recorded contingent liability, the liability must be possible and easily estimated.
15.Receiving payment prior to delivering goods or services causes a current liability to be incurred.
Multiple Choice
1.The internal control objective most relevant to receivables is
a.Safeguard assets
b.Comply with laws and regulations
c.Operate efficiently
d.Assess risk
2.The two methods of accounting for uncollectible receivables are the allowance method and the
a.Equity method
b.Direct write off method
c.Interest method
d.Cost method
3.What is the type of account and normal balance of Allowance for Doubtful Accounts?
a.contra asset, credit
b.asset, debit
c.asset, credit
d.contra asset, debit
4.A 60-day, 10% note for $8,000, dated April 15, is received from a customer on account. The face value of the note is
a.$8,600
b.$7,200
c.$8,800
d.$8,000
5.If the merchandise costs $4,000, insurance in transit costs $200, tariff costs $50, processing the purchase order by the purchasing dept costs $35, and the company receiving dock personnel cost $15, what is the total cost charged to the merchandise?
a.$4,250
b.$4,285
c.$4,300
d.$4,000
6.If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
a.N/30
b.FOB shipping point
c.FOB destination
d.Consigned
7.Under which method of inventory costs flows is the cost flow assumed to be in the reverse order in which the expenditure were made?
a.Weighted average
b.Last-in, first-out
c.First-in, first-out
d.Average cost
8.Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?
a.Owners equity is overstated
b.Cost of merchandise sold is overstated
c.Gross profit is understated
d.Net income is understated
9.A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of
a.$92,000
b.$91,000
c.$87,000
d.$86,000
10.Equipment with a cost of $160,000 has an estimated residual value of $10,m000 and an estimated life of 5 years of 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was 3,300 hours?
a.$30,000
b.$32,500
c.$34,000
d.$40,000
11.In a normal arm’s length business transaction, long-term liabilities are often secured by
a.Fixed assets
b.Signature of the chief executive officer
c.Accounts receivable
d.Bonds payable
12.The maturity value of a $40,000, 90 day, 6% note payable is
a.$40,600
b.$42,400
c.$600
d.$2,400
13.Most employers are required to withhold from employees which of the following employment taxes?
a.FICA tax
b.FICA tax, state and federal unemployment compensation tax
c.Only state unemployment compensation tax
d.Only federal unemployment compensation tax
14.The cost of a product warranty should be included as an expense in the
a.Period the cash is collected for a product sold on account
b.Future period when the cost of repairing the product is paid
c.Period of the sale of the product
d.Future period when the product is repaired or replaced
15.Payroll taxes levied against employees become liabilities
a.The first of the following month
b.At the