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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 31

True/False

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In most businesses, the physical flow of goods occurs on a FIFO basis, but a different cost flow method is allowed under generally accepted accounting principles.

A) True
B) False

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Question 32

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The Yankee Corporation has recently begun to accept credit cards. On July 7, Yankee made a credit card sale of $600. The credit card company charges a fee of 3%. Which of the following answers correctly describes the effect of the collection of cash from the credit card company on the financial statements of Yankee Corporation?

A) Option A
B) Option B
C) Option C
D) Option D

E) B) and C)
F) A) and D)

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Question 33

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The percent of receivables method to estimate uncollectible accounts expense is also known as:

The party that issues a promissory note is known as the:

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The amount of uncollectible accounts expense recognized in the Year 2 income statement will be:

When a customer's account, previously written off as uncollectible, is reinstated, the net realizable value of Accounts Receivable increases.

The practice of reporting the net realizable value of receivables in the financial statements is commonly called the:

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

Melbourne Company uses the perpetual inventory method. Melbourne purchased 500 units of inventory that cost $4.00 each. At a later date the company purchased an additional 600 units of inventory that cost $5.00 each. If Melbourne uses a LIFO cost flow method, and sells 800 units of inventory, the amount of ending inventory appearing on the balance sheet will be:

When the cost of purchasing inventory is declining, which inventory cost flow method will produce the highest amount of cost of goods sold?

The year-end adjusting entry to accrue interest on a note receivable is an asset source transaction.

Poole Company purchased two identical inventory items. One of the items, purchased in January, cost $4.50. The other, purchased in February, cost $4.75. One of the items was sold in March at a selling price of $7.50. Assuming that Poole uses a LIFO cost flow, which of the following statements is correct?

The inventory records for Radford Co. reflected the following Determine the amount of gross margin assuming the FIFO cost flow method.

On June 1, Year 2, Carolina Company collected a $24,000 note receivable that had been issued on June 1, Year 1. The note carried a 6% interest rate. The interest revenue recognized on the maturity date is $1,440.

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows is:

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

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

Collection of a credit card receivable is an asset source transaction.

Indicate whether each of the following statements is true or false. _____ a) A benefit of making credit card sales is that there is no cost to the merchant. _____ b) A benefit of accepting credit cards is that increased sales may be generated. _____ c) Recording a credit card sale increases total assets and increases total liabilities. _____ d) Recording the collection of cash from the credit card company increases cash and increases revenue. _____ e) The income statement is not affected at the time the cash receipt is recorded.

Houff Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation?