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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 51

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If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

A) LIFO
B) FIFO
C) Weighted average
D) LIFO, FIFO, and weighted average will all produce equal amounts.

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

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Question 52

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Generally accepted accounting principles do not allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.

A) True
B) False

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Question 53

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One of the disadvantages of the specific identification inventory cost flow method is that it can allow managers of a business to manipulate the amount of income the business reports.

The Griffin Corporation accepted a credit card for a sale of $3,000 on December 16, Year 1. The credit card company charges a fee of 4%. On January 5, Year 2, Griffin received payment from the credit card company. Indicate whether each of the following statements is true or false. _____ a) Griffin should record $2,880 revenue in Year 1 when the sale is made. _____ b) Griffin should record a credit card receivable account receivable of $3,000 on December 16, Year 1. _____ c) The sale has no impact on the statement of cash flows in Year 1. _____ d) The collection of cash increases total assets in Year 2. _____ e) The entry on December 16, Year 1, increases total revenues and total expenses on the Year 1 income statement.

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

When a company accepts a credit card payment for a sale, the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.

Accepting credit cards is usually more costly to a business than offering credit directly to customers.

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 correctly shows the effects of the sale on July 7? Assume that the credit card fee is recorded on the date of sale.

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following answers correctly states the effect of Loudoun Company's February Year 2 entry to write off the customer's account?

Indicate whether each of the following statements is true or false. _____ a) To compute cost of goods sold under the weighted average method, it is necessary to first compute the weighted-average cost per unit. _____ b) The weighted average cost per unit is computed by dividing the total cost of goods purchased by the number of units sold. _____ c) Under the FIFO method, each time units are sold the unit cost of the oldest inventory is applied to the number of units sold. _____ d) Under a perpetual inventory system, it is not possible to use the LIFO method of cost flow. _____ e) A U.S. company can use LIFO for income tax purposes only if it also uses LIFO for financial reporting purposes.

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Assuming Chase uses a FIFO cost flow method, the ending inventory on January 31 is:

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information, the amount of:

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following answers correctly states the effect of the December 31, Year 1 adjusting entry for uncollectible accounts on the financial statements of the Loudoun Corporation?

In a period of rising prices, use of the FIFO cost flow method would cause a company to pay more income taxes than would use of LIFO.

The primary reason for a business to allow customers to purchase goods or services on account is to:

Glebe Company accepted a credit card account receivable in exchange for $1,100 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 act to:

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. The amount of uncollectible accounts expense recognized on the Year 2 income statement is:

Koontz Company uses the perpetual inventory method. On January 1, Year 1, the company's first day of operations, Koontz purchased 400 units of inventory that cost $7.50 each. On January 10, Year 1, the company purchased an additional 600 units of inventory that cost $9.00 each. If Koontz uses a weighted average cost flow method and sells 550 units of inventory, the amount of inventory appearing on balance sheet following the sale will be approximately:

During a period of rising prices, a company's cost of goods sold would be higher using the LIFO cost flow method than with FIFO.

Domino Company uses the aging of accounts receivable method to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800, respectively. During the year, the company wrote off $4,640 in uncollectible accounts. In preparation for the company's Year 2 estimate, Domino prepared the following aging schedule: What will Domino record as Uncollectible Accounts Expense for Year 2?