Question 1

In an inflationary environment:
A) a company's net income will be higher if it uses LIFO than if it uses FIFO.
B) a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO.
C) a company's net income will be the same regardless of whether LIFO or FIFO is used.
D) the amount of inventory on the company's balance sheet will be lower if it uses LIFO as opposed to FIFO cost flow.

Accepted Answer

The answer of In an inflationary environment:
A) a company's net...

Question 2

Howard Company accepts a credit card as payment for $950 of services provided to a customer.The credit card company charges a 4% fee for its services.Select the answer that shows how the entry to record the service revenue would affect Barlett's financial statements. 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Howard Company accepts a credit card as...

Question 3

In a period of rising prices,which inventory cost flow method will produce the lowest amount of cost of goods sold?
A) FIFO.
B) Weighted average.
C) LIFO.
D) All methods will produce the same amount of cost of goods sold.

Accepted Answer

In a period of rising prices, the FIFO (first-in, first-out) method will produce the lowest amount of cost of goods sold because it assumes that the oldest inventory items are sold first, which have lower costs compared to the newer inventory items. This results in a higher value of ending inventory and a lower value of cost of goods sold. On the other hand, LIFO (last-in, first-out) assumes that the newest inventory items are sold first, resulting in a higher cost of goods sold and a lower value of ending inventory. Weighted average takes into account the cost of all inventory items and calculates the average cost per unit, which might not reflect the actual cost of the older inventory items. Hence, the best choice in this scenario is A) FIFO.

Question 4

What total amount of cash will Siebens collect on May 31,2013?
A) $20,000
B) $20,667
C) $21,600
D) None of the above

Accepted Answer

The answer of What total amount of cash will Siebens...

Question 5

Which of the following correctly shows the effects of the sale on March 1? Assume that the credit card fee is recorded on the date of sale. 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

Option C correctly shows the effects of the sale on March 1, with the sale amount recorded as revenue, the credit card fee recorded as an expense, and the net amount recorded as cash received. Option A is incorrect because it does not account for the credit card fee. Option B is incorrect because it records the credit card fee on March 2 instead of on the date of sale. Option D is incorrect because it includes an additional cash receipt for the credit card fee, which is not accurate.

Question 6

The accounting principle that requires a company to provide financial statement users with information about the accounting methods it has selected (including inventory cost flow methods)is
A) the consistency principle.
B) the conservatism principle.
C) the full disclosure principle.
D) the historical cost principle.

Accepted Answer

The full disclosure principle requires companies to disclose information about their accounting methods and inventory cost flow methods, among other things, in their financial statements. This allows users to make informed decisions about the reliability and comparability of the information presented.

Question 7

Which of the following answers correctly describes the effect on Ruiz's financial statements of the collection of cash from the credit card company? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Which of the following answers correctly describes...

Question 8

When prices are rising,which method of inventory will result in the lowest cash outflow for income taxes?
A) weighted average
B) FIFO
C) LIFO
D) None of these; inventory methods do not affect the amount of income taxes.

Accepted Answer

LIFO (last-in, first-out) method assumes that the most recently purchased items are sold first. So, during inflationary periods, the cost of goods sold under LIFO will be higher and will result in a lower net income, and ultimately lower taxable income. This reduced taxable income leads to a lower cash outflow for income taxes.

Question 9

Barry Company purchased two identical inventory items.The item purchased first cost $7.00 and the item purchased second cost $9.00.Barney sold one of the items for $12.00.Which of the following statements is true?
A) Ending inventory will be lower if Barney uses weighted average than it would be if FIFO were used.
B) Cost of goods sold will be higher if Barney uses FIFO than it would be if weighted average were used.
C) Ending inventory will be the same no matter which cost flow method is used.
D) Gross margin will be higher if Barney uses LIFO than if FIFO were used.

Accepted Answer

The answer of Barry Company purchased two identical inventory items.The...

Question 10

The net realizable value of accounts receivable is the amount of its receivables a company expects to collect.

Accepted Answer

Net realizable value is the amount of accounts receivable a company expects to collect, after deducting any allowances for bad debts or uncollectible accounts.

Question 11

On October 1,2012,Balkan,Inc.accepted from another corporation a 1-year note receivable in the amount of $15,000,with an interest rate of 6%.On December 31,2012,Balkan accrued the interest income earned to date.How did this accrual affect Balkan's financial statements? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

Accruing the interest income earned to date on the note receivable would increase Balkan's assets and equity on the balance sheet, as well as increase the interest income and total revenue on the income statement. Therefore, Option C, which shows an increase in assets and equity on the balance sheet and an increase in interest income and total revenue on the income statement, is the best choice. Option A is incorrect because it shows a decrease in assets and equity, while Option B is incorrect because it shows no change in assets or equity. Option D is incorrect because it shows a decrease in revenue.

Question 12

Victorino Company accepted a credit card payment in exchange for $10,000 of services provided to a customer.The credit card company charges a 5% service charge.The collection of cash from the credit card company when it settles the account receivable balance will
A) increase assets by $9,500.
B) decrease assets and equity by $500.
C) increase assets by $10,000.
D) none of the above.

Accepted Answer

The answer of Victorino Company accepted a credit card payment...

Question 13

On October 1,2012,Balkan,Inc.accepted from another corporation a 1-year note receivable in the amount of $15,000,with an interest rate of 6%.How did this transaction affect Balkan's financial statements? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of On October 1,2012,Balkan,Inc.accepted from another corporation a...

Question 14

Kendall Company uses the perpetual inventory method.On January 1,2012,Kendall purchased 300 units of inventory that cost $1.00 each.On January 10,2012,the company purchased an additional 400 units of inventory that cost $1.50 each.If Kendall uses the weighted average cost flow method and sells 400 units of inventory,the amount of cost of goods sold appearing on the income statement will be:
A) $450.
B) $529.
C) $514.
D) $600.

Accepted Answer

Under weighted average cost flow method, cost of goods available for sale is divided by the total number of units available for sale to arrive at the weighted average cost per unit.

Cost of goods available for sale = (300 units × $1.00) + (400 units × $1.50) = $300 + $600 = $900

Total units available for sale = 300 units + 400 units = 700 units

Weighted average cost per unit = $900 ÷ 700 units = $1.29

When 400 units are sold, the cost of goods sold can be calculated as:

Cost of goods sold =  400 units × $1.29 per unit = $514

Therefore, the correct answer is C) $514.

Question 15

When prices are falling:
A) LIFO will result in lower income and a lower ending inventory than will FIFO.
B) LIFO will result in lower income and a higher ending inventory than will FIFO.
C) LIFO will result in higher income and a lower ending inventory than will FIFO.
D) LIFO will result in higher income and a higher ending inventory than will FIFO.

Accepted Answer

The answer of When prices are falling:
A) LIFO will result...

Question 16

Rosierre Company purchased two identical inventory items.One of the items cost $6.00 and was purchased in January.The other was purchased in February,and the company paid $7.00 for this item.One of the items was sold in March at a price of $10.00.Select the correct answer assuming that Rosierre uses a FIFO cost flow assumption.
A) The balance in ending inventory would be $7.00.
B) The amount of gross margin would be $3.00.
C) The amount of ending inventory would be $6.50.
D) The amount of ending inventory would be $6.00.

Accepted Answer

The answer of Rosierre Company purchased two identical inventory items.One...

Question 17

The accounting principle that requires a company to use the same accounting methods (such as inventory cost flow methods)over a period of time is
A) the consistency principle.
B) the conservatism principle.
C) the full disclosure principle.
D) the historical cost principle.

Accepted Answer

The consistency principle requires a company to use the same accounting methods over a period of time so that financial statements are comparable from one period to another. This helps users of financial statements make informed decisions based on consistent information.

Question 18

Which of the following is not an advantage of accepting credit cards from retail customers?
A) The acceptance of credit cards tends to increase sales.
B) There are fees charged for the privilege of accepting credit cards.
C) The credit card company performs credit worthiness assessments.
D) The credit card company assumes the cost of slow collections and write-offs.

Accepted Answer

Option B states that there are fees charged for the privilege of accepting credit cards. This is a disadvantage, not an advantage. Options A, C, and D are advantages of accepting credit cards as they increase sales, perform credit worthiness assessments, and assume the cost of slow collections and write-offs.

Question 19

If prices are rising,which inventory cost flow method will produce the lowest amount for Cost of Goods Sold?
A) FIFO
B) LIFO
C) Weighted Average
D) Either B or C

Accepted Answer

FIFO assumes that the first inventory items purchased are the first ones sold, so during a period of rising prices, the COGS will reflect the lower cost of the older inventory items. In contrast, LIFO assumes that the last inventory items purchased are the first ones sold, so during a period of rising prices, the COGS will reflect the higher cost of the newer inventory items. Weighted Average takes an average of all inventory costs, which will fall somewhere between the costs of FIFO and LIFO. Therefore, A (FIFO) is the best choice for producing the lowest COGS during a period of rising prices.

Question 20

During November 2012,Hall Company purchased two identical inventory items.The item purchased first cost $12.00,and the item purchased second cost $15.00.Hall sold one of the inventory items for $20.00.Based on this information
A) the amount of gross margin would be $5.00 if Hall uses the weighted average cost flow method.
B) the amount of cost of goods sold would be $12.00 if Hall uses the weighted average cost flow method.
C) the amount of gross margin will be $5.00 if Hall uses the FIFO cost flow method.
D) the amount of ending inventory will be $12.00 if Hall uses the LIFO cost flow method.

Accepted Answer

The answer of During November 2012,Hall Company purchased two identical...

Quiz 5: Accounting for Receivables and Inventory Cost Flow

In an inflationary environment:

Howard Company accepts a credit card as payment for $950 of services provided to a customer.The credit card company charges a 4% fee for its services.Select the answer that shows how the entry to record the service revenue would affect Barlett's financial statements.

In a period of rising prices,which inventory cost flow method will produce the lowest amount of cost of goods sold?

What total amount of cash will Siebens collect on May 31,2013?

Which of the following correctly shows the effects of the sale on March 1? Assume that the credit card fee is recorded on the date of sale.

The accounting principle that requires a company to provide financial statement users with information about the accounting methods it has selected (including inventory cost flow methods) is

Which of the following answers correctly describes the effect on Ruiz's financial statements of the collection of cash from the credit card company?

When prices are rising,which method of inventory will result in the lowest cash outflow for income taxes?

Barry Company purchased two identical inventory items.The item purchased first cost $7.00 and the item purchased second cost $9.00.Barney sold one of the items for $12.00.Which of the following statements is true?

The net realizable value of accounts receivable is the amount of its receivables a company expects to collect.

On October 1,2012,Balkan,Inc.accepted from another corporation a 1-year note receivable in the amount of $15,000,with an interest rate of 6%.On December 31,2012,Balkan accrued the interest income earned to date.How did this accrual affect Balkan's financial statements?

Victorino Company accepted a credit card payment in exchange for $10,000 of services provided to a customer.The credit card company charges a 5% service charge.The collection of cash from the credit card company when it settles the account receivable balance will

On October 1,2012,Balkan,Inc.accepted from another corporation a 1-year note receivable in the amount of $15,000,with an interest rate of 6%.How did this transaction affect Balkan's financial statements?

When prices are falling:

The accounting principle that requires a company to use the same accounting methods (such as inventory cost flow methods) over a period of time is

Which of the following is not an advantage of accepting credit cards from retail customers?

If prices are rising,which inventory cost flow method will produce the lowest amount for Cost of Goods Sold?

During November 2012,Hall Company purchased two identical inventory items.The item purchased first cost $12.00,and the item purchased second cost $15.00.Hall sold one of the inventory items for $20.00.Based on this information