6Receivables Chapter and Inventories
True/False
No. Obj.
1
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6-1
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6-1
6
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6-1
11
6-2
Difficulty
Easy
Easy
Easy
Moderate
Moderate
Easy
Moderate
Moderate
Moderate
Easy
Easy
No.
12
13
14
15
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22
Obj.
6-3
6-3
6-3
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6-7
Difficulty
Easy
Easy
Easy
Easy
Easy
Easy
Moderate
Easy
Easy
Easy
Easy
No.
23
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34
Obj.
6-7
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6-8
6-8
6-8
Difficulty
Difficult
Difficult
Difficult
Difficult
Easy
Easy
Easy
Easy
Easy
Easy
Difficult
Easy
Multiple Choice
No. Obj. Difficulty
1
6-1
Easy
2
6-1
Easy
3
6-1
Easy
4
6-1
Easy
5
6-1
Easy
6
6-1
Easy
7
6-1
Easy
8
6-1
Moderate
9
6-1
Moderate
10
6-1
Easy
11
6-1
Easy
12
6-1
Easy
13
6-1
Moderate
14
6-1
Moderate
15
6-1
Easy
16
6-2
Easy
17
6-3
Easy
18
6-3
Easy
No.
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6-5
6-5
6-6
6-6
6-6
6-6
Difficulty
Easy
Easy
Easy
Difficult
Difficult
Moderate
Difficult
Difficult
Moderate
Moderate
Easy
Easy
Difficult
Difficult
Difficult
Easy
Easy
Moderate
No.
37
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51
Obj.
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6-7
Difficulty
Easy
Moderate
Moderate
Moderate
Moderate
Moderate
Moderate
Moderate
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
Easy
6-1
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in whole or in part.
Problems
No. Obj.
1
6-1
2
6-1
3
6-1
4
6-1
5
6-4
6
6-7
No.
1
2
3
Difficulty
Easy
Easy
Moderate
Easy
Moderate
Difficult
No.
7
8
9
10
11
12
Obj.
6-7
6-7
6-7
6-8
6-8
6-8
Difficulty
Difficult
Difficult
Difficult
Moderate
Easy
Easy
Other
Obj.
Difficulty
6-7
Moderate
6-7
Moderate
6-7
Moderate
No.
4
5
Obj.
6-7
6-7
Difficulty
Difficult
Difficult
TRUE/FALSE
1. All receivables that are expected to be realized in cash within a year are presented in the
current assets section of the balance sheet.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
2. Receivables not expected to be collected within one year are reported in the fixed assets
section of the balance sheet.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
3. Both accounts receivable and notes receivable represent claims that are expected to be col lected in cash.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
4. The due date of a 60-day note dated July 10 is September 9.
ANS: F
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-1
5. The maturity value of a 12%, 60-day note for $5,000 is $5,100.
ANS: T
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
6. The person who is to be paid when a note matures is called the payee.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
7. The maturity value of a 12%, 60-day note for $1,000 is $1,020.
6-2
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in whole or in part.
ANS: T
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
8. The interest on a 6%, 60-day note for $5,000 is $50.
ANS: T
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-1
9. The due date on a 90-day note dated June 10 is September 8.
ANS: T
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-1
10. The party promising to pay a note at maturity is the payee.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
11. When companies sell their receivables to other companies, the transaction is called factor ing.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-2
12. Under the direct write-off method, an attempt is made to match Bad Debt Expense to sales
revenues in the same accounting period.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-3
13. Generally accepted accounting principles do not normally allow the use of the allowance
method of accounting for uncollectible accounts.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-3
14. The direct write-off method records uncollectible accounts expense in the year the specific
account receivable is determined to be uncollectible.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-3
15. Allowance for Doubtful Accounts is a contra-equity account.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-4
16. When the estimate based on analysis of receivables is used, income is reduced when a spe cific receivable is written off.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-4
6-3
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in whole or in part.
17. The difference between the total receivables and the balance in Allowance for Doubtful Accounts at the end of a period is referred to as the net realizable value of the accounts receivable.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-4
18. At the end of a period before the accounts are adjusted, Allowance for Doubtful Accounts
has a balance of $250, and net sales on account for the period total $500,000. If uncollect ible accounts expense is estimated at 1% of net sales on account, the current provision to be
made for uncollectible accounts expense is $4,997.50.
ANS: F
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-4
19. The estimate based on the sales method violates the matching principle.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-4
20. Inventories of merchandising and manufacturing businesses are reported as current assets
on the balance sheet.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-5
21. The FIFO method of costing inventory is based on the assumption that costs should be
charged against revenues in the reverse order in which they were incurred.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-5
22. Of the three widely used inventory costing methods (FIFO, LIFO, and average), the FIFO
method of costing inventory is based on the assumption that costs are charged against rev enues in the order in which they were incurred.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-5
23. During inflationary periods, the use of the FIFO method of costing inventory will result in a
greater amount of net income than would result from the use of the LIFO cost method.
ANS: T
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
24. During inflationary periods, the use of the FIFO method of costing inventory will yield an
inventory amount for the balance sheet approximating the current replacement cost.
ANS: T
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
6-4
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
25. During inflationary periods, the use of the LIFO method of costing inventory will result in
a lesser amount of net income than would result from the use of the average method.
ANS: T
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
26. During deflationary periods, the use of the LIFO method of costing inventory will result in
a greater amount of net income than would result from the use of the FIFO method.
ANS: T
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
27. The balance of the allowance for doubtful accounts is deducted from accounts receivable
on the balance sheet.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-8
28. The net realizable value is used for purposes of valuing out-of-date merchandise in invent ory.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-8
29. Cost is a method of inventory valuation.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-8
30. In valuing damaged merchandise for inventory purposes, net realizable value is the estim ated selling price less any direct cost of disposition.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 6-8
31. The lower of cost or market is a method of inventory valuation.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-8
32. "Market," as used in the phrase "lower of cost or market" for valuing inventory, refers to
the price at which the inventory is being offered for sale by its owner.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-8
33. The use of the lower of cost or market method of inventory valuation increases the gross
profit for the period in which the inventory replacement price declined.
ANS: F
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-8
34. Merchandise Inventory is presented on the balance sheet in the current assets section.
6-5
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
MULTIPLE CHOICE
OBJ: 6-8
1. Receivables are usually a significant portion of
a. total current liabilities.
b. total liabilities.
c. total current assets.
d. total assets.
ANS: C
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
2. A note receivable due in 90 days is listed on the balance sheet under
a. long-term liabilities.
b. fixed assets.
c. current liabilities.
d. current assets.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
3. A note receivable due in five years is listed on the balance sheet under the caption
a. investments.
b. current assets.
c. fixed assets.
d. stockholders' equity.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
4. A written promise to pay a sum of money on demand or at a definite time is called a(n)
a. default.
b. deferral.
c. accrual.
d. promissory note.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
5. In reference to a promissory note, the person who makes the promise to pay is called the
a. maker.
b. payee.
c. seller.
d. receiver.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
6. In reference to a promissory note, the person who is to receive payment is called the
a. maker.
b. payee.
c. seller.
d. payor.
ANS: B
PTS: 1
DIF: Easy
OBJ: 6-1
6-6
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in whole or in part.
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
7. The amount of the promissory note plus the interest earned on the due date is called the
a. realizable value.
b. maturity value.
c. face value.
d. net realizable value.
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
8. The due date of a 90-day note dated July 5 is
a. September 30.
b. October 2.
c. October 3.
d. October 1.
ANS: C
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-1
9. The due date of a 60-day note dated July 12 is
a. September 11.
b. September 8.
c. September 9.
d. September 10.
ANS: D
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-1
10. A note receivable due in 18 months is listed on the balance sheet under the caption
a. long-term liabilities.
b. fixed assets.
c. current assets.
d. investments.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
11. A 60-day, 10% note for $6,000 dated April 15 is received from a customer on account.
The face value of the note is
a. $6,100.
b. $5,400.
c. $5,900.
d. $6,000.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
12. A 90-day, 10% note for $10,000 dated April 1 is received from a customer on account. The
face value of the note is
a. $10,000.
b. $11,000.
c. $1,000.
d. $9,000.
ANS: A
PTS: 1
DIF: Easy
OBJ: 6-1
6-7
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
NAT: AACSB Analytic | AICPA FN-Measurement
13. A 90-day, 8% note for $10,000 dated May 1 is received from a customer on account.
The maturity value of the note is
a. $10,000.
b. $10,800.
c. $10,200.
d. $9,800.
ANS: C
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
14. A 60-day, 12% note for $15,000 dated May 1 is received from a customer on account.
The maturity value of the note is
a. $15,300.
b. $15,000.
c. $14,700.
d. $16,800.
ANS: A
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-1
15. Other receivables do NOT include
a. accounts receivable.
b. interest receivable.
c. taxes receivable.
d. receivables from employees or officers.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-1
16. The process of a company selling its accounts receivable to another company is referred to
as
a. discounting.
b. adjusting.
c. assignment.
d. factoring.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-2
17. 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.
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-3
18. One of the weaknesses of the direct write-off method is that it
a. understates accounts receivable on the balance sheet.
b. violates the matching principle.
c. is too difficult to use for many companies.
6-8
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in whole or in part.
d. is based on estimates.
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-3
19. Allowance for Doubtful Accounts is listed on the balance sheet under the caption
a. stockholders' equity.
b. investments.
c. fixed assets.
d. current assets.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-4
20. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receiv able has a balance of $500,000 and Allowance for Doubtful Accounts has a balance of
$25,000. What is the net realizable value of the accounts receivable?
a. $25,000
b. $525,000
c. $500,000
d. $475,000
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-4
21. What type of account is Allowance for Doubtful Accounts?
a. Contra asset
b. Asset
c. Revenue
d. Expense
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-4
22. Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of the year,
and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000.
Which of the following records the proper provision for doubtful accounts?
a. Increase Uncollectible Accounts Expense, $800; increase Allowance for Doubtful Ac counts, $800
b. Increase Uncollectiable Accounts Expense $15,000; increase Allowance for Doubtful Ac counts, $15,000
c. Increase Uncollectible Accounts Expense, $14,200; increase Allowance for Doubtful Ac counts, $14,200
d. Increase Uncollectible Accounts Expense, $15,800; increase Allowance for Doubtful Ac counts, $15,800
ANS: C
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-4
23. Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year,
and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000.
Which of the following records the proper provision for doubtful accounts?
a. Increase Uncollectible Accounts Expense, $14,500; increase Allowance for Doubtful Ac counts, $14,500
b. Increase Uncollectible Accounts Expense, $15,000; increase Allowance for Doubtful Ac counts, $15,000
c. Increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful Ac counts, $14,000
6-9
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in whole or in part.
d. Increase Uncollectible Accounts Expense, $15,500; increase Allowance for Doubtful Ac counts, $15,500
ANS: A
PTS: 1
DIF: Difficult
OBJ: 6-4
NAT: AACSB Analytic | AICPA FN-Reporting
24. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receiv able has a balance of $430,000 and Allowance for Doubtful Accounts has a balance of
$30,000. What is the net realizable value of the accounts receivable?
a. $30,000
b. $460,000
c. $430,000
d. $400,000
ANS: D
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-4
25. Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the
year, and an analysis of customers' accounts indicates doubtful accounts of $12,900. Which
of the following records the proper provision for doubtful accounts?
a. Increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful
Accounts, $14,000
b. Decrease Allowance for Doubtful Accounts, $14,000; decrease Uncollectible Accounts
Expense, $14,000
c. Decrease Allowance for Doubtful Accounts, $11,800; decrease Uncollectible Accounts
Expense, $11,800
d. Increase Uncollectible Accounts Expense, $11,800; increase Allowance for Doubtful
Accounts, $11,800
ANS: D
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-4
26. Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year,
and uncollectible accounts expense is estimated at 1% of net sales. If net sales are
$950,000, the amount of the adjustment to record the provision for doubtful accounts is
a. $9,500.
b. $500.
c. $8,500.
d. $9,000.
ANS: 1
DIF: A
PTS: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-4
27. Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year,
and uncollectible accounts expense is estimated at 1% of net sales. If net sales are
$300,000, the amount of the adjustment to record the provision for doubtful accounts is
a. $400.
b. $3,400.
c. $3,000.
d. $2,600.
ANS: C
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-4
6-10
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
28. The presentation of net accounts receivable on the balance sheet will be most accurate
under the
a. direct write-off method.
b. estimate based on the percentage of sales method.
c. estimate based on analysis of receivables.
d. none of these.
ANS: C
PTS: 1
DIF: Moderate
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 6-4
29. When an account is written off under the allowance method,
a. the write-off is taken against the allowance account.
b. bad debt expense is increased.
c. accounts receivable remains unchanged.
d. accounts receivable increases.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 6-4
30. The term "inventory" indicates
a. merchandise held for sale in the normal course of business.
b. materials in the process of production or held for production.
c. both of these.
d. neither of these.
ANS: C
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-5
31. The inventory method that considers the inventory to be composed of the units of mer chandise acquired earliest is called
a. first-in, first-out.
b. retail method.
c. average cost.
d. last-in, first-out.
ANS: D
PTS: 1
DIF: Difficult
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-6
32. Inventory costing methods place primary emphasis on assumptions about
a. flow of goods.
b. flow of costs.
c. flow of goods or costs depending on the method.
d. flow of values.
ANS: B
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
33. When merchandise sold is assumed to be in the order in which the expenditures were made,
the inventory method is called
a. first-in, last-out.
b. last-in, first-out.
c. first-in, first-out.
d. average cost.
ANS: C
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-6
6-11
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
34. Under which method of cost flows is the inventory assumed to be composed of the most
recent costs?
a. Average cost
b. Last-in, first-out
c. First-in, last-out
d. First-in, first-out
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-6
35. The two most widely used methods for determining the cost of inventory are
a. FIFO and LIFO.
b. FIFO and average cost.
c. LIFO and average cost.
d. gross profit and average cost.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
36. The inventory method that assigns the most recent costs to cost of good sold is
a. FIFO.
b. LIFO.
c. average cost.
d. specific identification.
ANS: B
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
37. Under which method of inventory cost flows is the cost flow assumed to be in the reverse
order in which the expenditures were made?
a. Average cost
b. Last-in, first-out
c. First-in, first-out
d. Last-in, last-out
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-6
The inventory data for an item for November are:
Nov. 1 Inventory
10 Purchased
30 Purchased
Sold
25 units at $20
30 units at $21
10 units at $22
35 units
38. Using the first-in, first-out method, what is the cost of the merchandise inventory of 30
units on November 30?
a. $640
b. $605
c. $623
d. $660
ANS: A
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
6-12
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in whole or in part.
39. Using the last-in, first-out method, what is the cost of the merchandise inventory of 30 units
on November 30?
a. $640
b. $623
c. $600
d. $605
ANS: D
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
40. Use the following data to calculate the cost of ending inventory under the FIFO method.
September 1
September 10
September 20
September 30
a.
b.
c.
d.
Beginning Inventory
Purchases
Purchases
Ending Inventory
15 units @ $20
20 units @ $25
25 units @ $28
30 units
$825
$750
$675
$840
ANS: A
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
41. Use the following data to calculate cost of merchandise sold under FIFO method.
September 1
September 10
September 20
September 30
a.
b.
c.
d.
Beginning Inventory
Purchases
Purchases
Ending Inventory
15 units @ $20
20 units @ $25
25 units @ $28
30 units
$825
$750
$675
$600
ANS: C
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
42. Use the following data to calculate the cost of ending inventory using the LIFO method.
September 1
September 10
September 20
September 30
a.
b.
c.
d.
Beginning Inventory
Purchases
Purchases
Ending Inventory
15 units @ $20
20 units @ $25
25 units @ $28
30 units
$825
$750
$675
$600
ANS: C
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
6-13
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in whole or in part.
43. Use the following data to calculate the cost of ending inventory under average cost method.
September 1
September 10
September 20
September 30
a.
b.
c.
d.
Beginning Inventory
Purchases
Purchases
Ending Inventory
15 units @ $20
20 units @ $25
25 units @ $28
30 units
$825
$600
$675
$750
ANS: D
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
44. Calculate the cost of ending inventory using FIFO inventory cost method.
1/1
2/28
5/10
9/20
12/31
a.
b.
c.
d.
Beginning inventory
Purchases
Purchases
Purchases
Ending inventory
10 units @ $10 per unit
40 units @ $12 per unit
50 units @ $14 per unit
30 units @ $16 per unit
50 units
$800
$760
$580
$500
ANS: B
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-6
45. During a period of consistently rising prices, the method of inventory that will result in re porting the greatest cost of merchandise sold is
a. FIFO.
b. average cost.
c. LIFO.
d. All methods will generate the same cost of merchandise sold.
ANS: C
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
46. If merchandise inventory is being valued at cost and the price level is steadily rising, the
method of costing that will yield the highest net income is
a. average cost.
b. LIFO.
c. FIFO.
d. All methods will generate the same net income.
ANS: C
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
6-14
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
47. If merchandise inventory is being valued at cost and the price level is consistently rising,
which method of costing will yield the largest gross profit?
a. Average cost
b. LIFO
c. FIFO
d. All methods will generate the same gross profit.
ANS: C
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
48. If merchandise inventory is being valued at cost and the purchase price is steadily falling,
which method of costing will yield the largest gross profit?
a. Average cost
b. LIFO
c. FIFO
d. All methods will generate the same gross profit.
ANS: B
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-7
49. If the cost of an item of inventory is $60 and the current replacement cost is $65, the
amount included in inventory according to the lower of cost or market is
a. $5.
b. $60.
c. $65.
d. $125.
ANS: B
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-8
50. If the cost of an item of inventory is $70, the current replacement cost is $65, and the sales
price is $85, the amount included in inventory according to the lower of cost or market is
a. $65.
b. $70.
c. $85.
d. $160.
ANS: A
PTS: 1
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 6-8
51. Merchandise inventory is reported on the balance sheet in the section entitled
a. current assets.
b. fixed assets.
c. current liabilities.
d. stockholders' equity.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 6-8
6-15
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
PROBLEM
1. Classify the following as either Current Assets (CA), Investments (I), or both (CA and I).
(a)
Trade Receivables
(b)
Note Receivable due in 30 days
(c)
Interest Receivable on note due in 30 days
(d)
Note Receivable due in 2 years
(e)
Five-year Note Receivable due in a series of equal annual payments
ANS:
(a)
(b)
(c)
(d)
(e)
CA
CA
CA
I
CA and I
PTS: 1
DIF: Easy
OBJ: 6-1
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
2. Other than accounts receivable and notes receivable, name other receivables that might be
included on the balance sheet.
ANS:
Interest Receivable, Receivables from Officers or Employees, Taxes Receivable.
PTS: 1
DIF: Easy
OBJ: 6-1
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
3.
(a)
(b)
If the interest on a note is $800, the interest rate is 6%, and the time is 60 days, what
is the principal?
If the principal of a note is $24,000, the interest is $600, and the time is 60 days,
what is the interest rate?
ANS:
(a) $80,000 ($800 .01)
(b) 15% ($600 $24,000) 6 = 15%
PTS: 1
DIF: Moderate
OBJ: 6-1
NAT: AACSB Analytic | AICPA FN-Measurement
4. Determine the due date and amount of interest due at maturity on the following notes:
Origination
Date
(a) March 1
(b) May 15
Face
Amount
$5,000
$9,000
Term
of Note
60 days
120 days
Interest
Rate
9%
8%
Maturity
Date
_______
_______
Interest
Amount
_______
_______
ANS:
(a)
April 30; $75 = ($5,000 .09) (60/360)
(b)
September 12; $240 = ($9,000 .08) (120/360)
PTS: 1
DIF: Easy
OBJ: 6-1
NAT: AACSB Analytic | AICPA FN-Reporting
6-16
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in whole or in part.
5. Determine the amount to be added to Allowance for Doubtful Accounts in each of the fol lowing cases:
(a) Balance of $500 in the allowance account just prior to adjustment. Analysis of ac counts receivable indicates doubtful accounts of $9,500.
(b) Balance of $950 in the allowance account just prior to adjustment. Uncollectibles are
estimated at 3.5% of sales, which totaled $1,000,000 for the year.
ANS:
(a) $ 9,000
(b) $35,000
PTS: 1
DIF: Moderate
OBJ: 6-4
NAT: AACSB Analytic | AICPA FN-Reporting
6. Beginning inventory, purchases, and sales data for May are as follows:
May 1 Inventory
12 Purchase
Sales
20 units at $40
18 units at $42
25 units
The business uses the first-in, first-out inventory costing method. Determine the cost of the
inventory on hand at the end of May.
ANS:
May 30
Balance: 13 units at $42 = $546
PTS: 1
DIF: Difficult
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
7. The following units are available for sale during the year:
January 1
April 3
August 31
September 29
December 31
Beginning Inventory
Purchases
Purchases
Purchases
Ending Inventory
10 units @ $18
30 units @ $20
28 units @ $25
17 units @ $30
21 units
Determine ending inventory cost by (a) FIFO, (b) LIFO, and (c) average cost.
ANS:
(a) FIFO: $610
(b) LIFO: $400
(c) Average cost: $492 (rounded)
PTS: 1
DIF: Difficult
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
8. Beginning inventory, purchases and sales data for the month are as follows:
Beginning Inventory
First Purchase
Second Purchase
Sales
10 units @ $42
15 units @ $44
13 units @ $45
26 units
6-17
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in whole or in part.
Determine the total cost of ending inventory according to (a) FIFO and (b) LIFO.
ANS:
(a) $540
(b) $508
PTS: 1
DIF: Difficult
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
9.
September 5
September 13
September 29
September 30
Purchases
Purchases
Purchases
Ending Inventory
65 units @ $6
55 units @ $8
44 units @ $10
70 units
Determine ending inventory cost by (a) FIFO, (b) LIFO, and (c) average cost.
ANS:
(a) FIFO: $648
(b) LIFO: $430
(c) Average cost: $542 (rounded)
PTS: 1
DIF: Difficult
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
10. On the basis of the following data related to current assets for Mission Co. at December
2010, prepare a partial balance sheet in good form.
Cash and cash equivalents
Notes receivable
Accounts receivable
Allowance for doubtful accounts
Interest receivable
Merchandise inventory-at lower of cost (first-in, first-out method) or market
$100,000
50,000
290,000
20,000
750
120,000
ANS:
Mission Co.
Partial Balance Sheet
December 31, 2010
Assets
Current assets:
Cash and cash equivalents
Notes receivable
Accounts receivable
Less allowance for doubtful accounts
Interest receivable
Merchandise inventory at lower of cost (FIFO) or market
Total current assets
$100,000
50,000
$290,000
20,000
270,000
750
120,000
$540,750
PTS: 1
DIF: Moderate
OBJ: 6-8
NAT: AACSB Analytic | AICPA FN-Reporting
6-18
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
11. Prepare the Current Assets section of a balance sheet using some or all of the following accounts:
Cash
Property, Plant, and Equipment
Accounts Receivable
Notes Receivable--90-day note
Merchandise Inventory
Allowance for Doubtful Accounts
Interest Receivable
Prepaid Advertising
Sales Returns and Allowances
ANS:
Current Assets:
Cash
Notes Receivable--90-day note
Accounts Receivable
Less Allowance for Doubtful Accounts
Interest Receivable
Merchandise Inventory
Prepaid Advertising
PTS: 1
DIF: Easy
OBJ: 6-8
NAT: AACSB Analytic | AICPA FN-Reporting
12. Indicate the section of the balance sheet (current assets, fixed assets, investments, current liabilities, long-term liabilities, stockholders' equity) in which each of the following is reported:
(a) Note receivable due in 3 years
(b) Note receivable due in 90 days
(c) Allowance for doubtful accounts
ANS:
(a) Investments
(b) Current assets
(c) Current assets
PTS: 1
DIF: Easy
OBJ: 6-8
NAT: AACSB Analytic | AICPA FN-Reporting
OTHER
1. Beginning inventory, purchases, and sales for Product XCX are as follows:
Oct 1
Oct. 5
Oct. 17
Oct. 30
Beginning Inventory
Sale
Purchase
Sale
24 units
17 units
10 units
8 units
@
$12
@
$15
Assuming a perpetual inventory system and the first-in, first-out method, determine (a) the
cost of the merchandise sold for the October 30 sale and (b) the inventory on October 31.
6-19
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in whole or in part.
ANS:
(a) Cost of merchandise sold:
7 units @ 12 = $84
1 unit @ 15 = $15
8 units
$99
(b) Inventory, October 31
9 units @ $15 = $135
PTS: 1
DIF: Moderate
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
2. Beginning inventory, purchases, and sales for Product XCX are as follows:
Oct 1
Oct. 5
Oct. 17
Oct. 30
Beginning Inventory
Sale
Purchase
Sale
24 units
17 units
10 units
8 units
@
$12
@
$14
Assuming a perpetual inventory system and the last-in, first-out method, determine (a) the
cost of the merchandise sold for the October 30 sale and (b) the inventory on October 31.
ANS:
(a) Cost of merchandise sold:
8 units @ $14 = $112
(b) Inventory October
7 units @ $12 = $ 84
2 units @ $14 = $ 28
9 units
$112
PTS: 1
DIF: Moderate
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
3. The units of Product YY2 available for sale during the year were as follows:
Apr 1
Jun 16
Sep 28
Inventory
Purchase
Purchase
16 units
30 units
45 units
@
@
@
$30
$33
$37
There are 17 units of the product in the physical ending inventory at March 31. The period ic inventory system is used. Determine the ending inventory cost by (a) FIFO, (b) LIFO,
and
(c) average cost methods.
ANS:
FIFO:
17 units @ $37 = $629
LIFO:
Average cost:
PTS: 1
16 units @ $30 = $480
1 unit @ $33 = 33
Total
$513
17 units @ $34.45 = 585.65
DIF: Moderate
OBJ: 6-7
6-20
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in whole or in part.
NAT: AACSB Analytic | AICPA FN-Measurement
4. The units of Product YY2 available for sale during the year were as follows:
Apr 1
Jun 16
Sep 28
Inventory
Purchase
Purchase
16 units
30 units
45 units
@
@
@
$30
$33
$37
There are 15 units of the product in the physical inventory at March 31. The periodic in ventory system is used. Determine the difference in gross profit between the LIFO and
FIFO inventory cost systems.
ANS:
FIFO Cost of Merchandise Sold =
LIFO Cost of Merchandise Sold =
Difference
$2,580
$2,685
$ 105
PTS: 1
DIF: Difficult
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
5. Using the lower of cost or market, what should the total inventory value be for the following
items:
Item
A
B
C
Quantity
200
100
50
Unit cost
price
$5
$4
$7
Unit market
price
$4.50
$5.00
$6.50
Total cost
price
$1,000
$ 400
$ 350
Total market
price
$900
$500
$325
ANS:
Item
A
B
C
Quantity
200
100
50
Unit cost
price
$5
$4
$7
Unit market
price
$4.50
$5.00
$6.50
Total cost
price
$1,000
$ 400
$ 350
Total market price
$900
$500
$325
Lower of cost
or market
$ 900
$ 400
$ 325
$1,625
PTS: 1
DIF: Difficult
OBJ: 6-7
NAT: AACSB Analytic | AICPA FN-Measurement
6-21
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in whole or in part.
6-22
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.