Question 1

Which of the following inventory cost flow methods involves computations based on broad inventory pools of similar items?
A)Regular quantity of goods LIFO
B)Dollar-value LIFO
C)Weighted average
D)Moving average

Accepted Answer

Dollar-value LIFO involves computations based on broad inventory pools of similar items, allowing for the grouping of goods into pools that are valued using the LIFO (Last In, First Out) principle, but on a dollar basis rather than item by item. This method simplifies the tracking and valuation of inventory by focusing on the total value of the inventory pool rather than the specific details of individual items.

Question 2

The net realizable value of receivables is calculated as the face value of the receivables less adjustments for
a.Credit sales
b.Actual uncollected amounts adjusted for purchase discounts.
c.Bad debts already written off.
d.Estimated uncollectible accounts

Accepted Answer

a.Credit sales b.Actual uncollected amounts adjusted for purchase discounts.c.Bad debts already written off.d.Estimated uncollectible accounts

Question 3

Which of the following statements is not valid as it applies to inventory costing methods?
A)If inventory quantities are to be maintained,part of the earnings must be invested plowed back)in inventories when FIFO is used during a period of rising prices.
B)LIFO tends to smooth out the net income pattern,since it matches current cost of goods sold with current revenue,when inventories remain at constant quantities.
C)When a firm using the LIFO method fails to maintain its usual inventory position reduces stock on hand below customary levels),there may be a matching of old costs with current revenue.
D)The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases,which is not true with LIFO.

Accepted Answer

C

Question 4

The original cost of an inventory item is above the replacement cost.The replacement cost is below the net realizable value less the normal profit margin.Under the lower of cost or market method the inventory item should be priced at its
A)Original cost
B)Replacement cost
C)Net realizable value
D)Net realizable value less the normal profit margin

Accepted Answer

Under the lower of cost or market method, inventory items are valued at the lower of their original cost or their market value. The market value is determined as the replacement cost, but not exceeding the net realizable value less the normal profit margin. Therefore, the inventory item should be priced at its net realizable value less the normal profit margin, which is the option D.

Question 5

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future,failure to follow this practice usually does not make the balance sheet misleading because
A)Most short-term receivables are not interest bearing
B)The allowance for uncollectible accounts includes a discount element
C)The amount of the discount is not material
D)Most receivables can be sold to a bank or factor

Accepted Answer

The discounted value of short-term receivables may not be material enough to affect the balance sheet significantly.

Question 6

The total amount of working capital is
A)$155,000.
B)$145,000.
C)$60,000.
D)$150,000.

Accepted Answer

Working Capital = Current Assets - Current Liabilities 
Working capital = $200,000 - $55,000 = $145,000. Therefore, the correct option is B.

Question 7

A successful discount retail store such as Wal-Mart would probably have
a.A low inventory turnover
b.A high inventory turnover
c.Zero profit margin
d.Low volume

Accepted Answer

The answer of A successful discount retail store such as...

Question 8

If inventory levels are stable or increasing an argument that favors the FIFO method as compared to LIFO is
A)Income taxes tend to be reduced in periods of rising prices
B)Cost of goods sold tends to be stated at approximately current cost in the income statement
C)Cost assignments typically parallel the physical flow of the goods
D)Income tends to be smoothed as prices change over time

Accepted Answer

The answer of If inventory levels are stable or increasing...

Question 9

An account that would be classified as a current liability is
A)Dividends payable in stock
B)Accounts payable - debit balance
C)Reserve for possible losses on purchase commitments
D)Excess of replacement cost over LIFO cost of basic inventory temporarily liquidated

Accepted Answer

The answer of An account that would be classified as...

Question 10

When the allowance method of recognizing bad debt expense is used,the entries at the time of collection of an account previously written off would
A)Increase net income
B)Have no effect on total current assets
C)Increase working capital
D)Decrease total current liabilities

Accepted Answer

When the allowance method is used, the write-off of a bad debt reduces the balance sheet and income statement accounts: accounts receivable and the allowance for doubtful accounts. When a previously written-off account is collected, there is no effect on total current assets because the original reduction of accounts receivable was already accounted for.

Question 11

When inventory declines in value below original historical)cost,and this decline is considered other than temporary,what is the maximum amount that the inventory can be valued at?
A)Sales price net of conversion costs
B)Net realizable value
C)Historical cost
D)Net realizable value reduced by a normal profit margin

Accepted Answer

When inventory declines in value below historical cost and this decline is considered other than temporary, the inventory can be valued at the net realizable value reduced by a normal profit margin. This is because the inventory cannot be sold at its original historical cost, and the expected revenue from its sale is the net realizable value, which should consider a normal profit margin.

Question 12

Jamison Corporation's inventory cost on its statement of financial position was lower using first-in,first-out than last-in,first-out.Assuming no beginning inventory,what direction did the cost of purchases move during the period?
A)Up
B)Down
C)Steady
D)Cannot be determined

Accepted Answer

If the inventory cost on the statement of financial position was lower using first-in, first-out than last-in, first-out, it means that the cost of goods sold was higher under the last-in, first-out method because the older, cheaper items were sold first, leaving the more expensive items in inventory. This would result in a higher cost of goods sold and lower ending inventory. Therefore, the cost of purchases must have moved up during the period.

Question 13

The advantage of relating a company's bad debt experience to its accounts receivable is that this approach
A)Gives a reasonable correct statement of receivables in the balance sheet
B)Relates bad debts expense to the period of sale
C)Is the only generally accepted method for valuing accounts receivable
D)Makes estimates of uncollectible accounts unnecessary

Accepted Answer

The answer of The advantage of relating a company's bad...

Question 14

The current ratio is
A)1.86 : 1.
B)2.00 : 1.
C)3.38 : 1.
D)2.93 : 1.

Accepted Answer

The answer of The current ratio is
A)1.86 : 1.
B)2.00 :...

Question 15

Liquidity ratios measures the
A)Operating success of a company over a period of time
B)The ability of a company to survive over a long period of time
C)The short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash
D)The number of times interest is earned

Accepted Answer

Liquidity ratios, such as current ratio and quick ratio, are used to measure a company's ability to pay its short-term obligations and meet unexpected cash needs. They indicate whether a company has enough assets that can easily be converted to cash to cover its immediate liabilities. Therefore, Option C is the correct answer. Option A and D are incorrect because they relate to profitability and financial leverage ratios, respectively. Option B is incorrect because it relates to long-term sustainability, which is not specifically measured by liquidity ratios.

Question 16

Liquidity is the ability
A)To increase net assets through regular operations
B)To generate cash from sources other than regular operations
C)To convert existing assets into cash
D)Of financial statement users to predict a company's cash flows

Accepted Answer

Liquidity refers to a company's ability to convert its existing assets into cash. Option A refers to profitability and option B refers to cash generation, which are not the same as liquidity. Option D refers to the usefulness of financial statements in predicting cash flows, which is related to liquidity, but not a definition of it.

Question 17

Of the following items,the one that should be classified as a current asset is
A)Trade installment receivables normally collectible in 18 months
B)Cash designated for the redemption of callable preferred stock
C)Cash surrender value of a life insurance policy of which the company is beneficiary
D)A deposit on machinery ordered,delivery of which will be made within six months

Accepted Answer

A deposit on machinery ordered, delivery of which will be made within six months would be classified as a current asset because it is expected to be converted into cash within one year or the operating cycle, whichever is longer.

Question 18

Working capital is a measure of
A)Financial flexibility
B)Liquidity.
C)Profitability.
D)Solvency.

Accepted Answer

Working capital is a measure of a company's ability to meet its short-term obligations or its liquidity. It is calculated by subtracting current liabilities from current assets. A higher working capital implies that a company has enough liquid assets to meet its short-term debts, while a low or negative working capital may indicate financial distress. While working capital can affect financial flexibility and solvency, it is primarily used as a measure of liquidity. Profitability is a measure of a company's ability to generate profits.

Question 19

A common measure of liquidity is
A)Return on assets.
B)Accounts receivable turnover.
C)Profit margin.
D)Debt to equity.

Accepted Answer

Accounts receivable turnover is a common measure of liquidity because it indicates how quickly a company can convert its accounts receivable (or unpaid customer invoices) into cash. A higher turnover ratio suggests that a company is collecting its receivables more quickly and has more cash available, which can be important for short-term liquidity needs. Return on assets, profit margin, and debt to equity ratios are not measures of liquidity, but instead focus on profitability and financial structure.

Question 20

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is
A)FIFO
B)LIFO
C)Conventional retail
D)Weighted average

Accepted Answer

LIFO, or last-in, first-out, assumes that the newest costs incurred are the first to be used in producing or selling inventory. This means that the oldest costs have a lower impact on the ending inventory valuation, making it a good choice for businesses that want to minimize their tax liability by reducing the amount of taxable income. However, LIFO can result in lower profits and inventory values over time if prices are increasing.

Quiz 8: Working Capital

Which of the following inventory cost flow methods involves computations based on broad inventory pools of similar items?

The net realizable value of receivables is calculated as the face value of the receivables less adjustments for a.Credit sales b.Actual uncollected amounts adjusted for purchase discounts. c.Bad debts already written off. d.Estimated uncollectible accounts

Which of the following statements is not valid as it applies to inventory costing methods?

The original cost of an inventory item is above the replacement cost.The replacement cost is below the net realizable value less the normal profit margin.Under the lower of cost or market method the inventory item should be priced at its

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future,failure to follow this practice usually does not make the balance sheet misleading because

The total amount of working capital is

A successful discount retail store such as Wal-Mart would probably have a.A low inventory turnover b.A high inventory turnover c.Zero profit margin d.Low volume

If inventory levels are stable or increasing an argument that favors the FIFO method as compared to LIFO is

An account that would be classified as a current liability is

When the allowance method of recognizing bad debt expense is used,the entries at the time of collection of an account previously written off would

When inventory declines in value below original historical) cost,and this decline is considered other than temporary,what is the maximum amount that the inventory can be valued at?

Jamison Corporation's inventory cost on its statement of financial position was lower using first-in,first-out than last-in,first-out.Assuming no beginning inventory,what direction did the cost of purchases move during the period?

The advantage of relating a company's bad debt experience to its accounts receivable is that this approach

The current ratio is

Liquidity ratios measures the

Liquidity is the ability

Of the following items,the one that should be classified as a current asset is

Working capital is a measure of

A common measure of liquidity is

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is