exam II - (Dickhaut et al 2008 A B C Patent amortization...

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True/False Question (10 points) 1. The weighted average method of inventory costing results in a valuation between that determined by the FIFO and LIFO costing methods. Answer: True 2. The present value of $1 is always less than $1. Answer: True 3. When we use the straight-line amortization method, the interest expense will be computed by multiplying the market interest rate times the book value of the bond. Answer: False Difficulty: Medium Response: False! We first divide the total premium or discount from the issuance by the number of interest payments to compute the amount to amortize and then add the amortized discount or deduct the amortized premium from the cash interest to compute interest expense. 4. In 2004, Coca-Cola inventories equaled $1,420 million and were $1,252 million in 2003. This change in inventories had a positive effect on cash flow from operations. Answer: False Response: False! An increase of $168 million in inventory has a negative effect on cash flow from operating activities. 5. When the effective-interest amortization method is used, the related interest expense for the period is determined by multiplying the stated interest rate by the book value of the bond at the beginning of the current period. Answer: False Response: False! To determine interest expense (using the effective-interest amortization method), the market interest rate is multiplied by the beginning of the period book value (carrying value) Multiple choice question: (21 points) Use the following to answer 1-2 A company had credit sales of $5.0 million for the year and estimates their bad debts to be 1% of net credit sales. The accountant for the company is thinking about switching to the aging of accounts receivable method and after preparing the aging schedule, the estimate equals $48,000. Accounts receivable has a $450,000 balance and the allowance for doubtful accounts has a credit balance of $3,000 prior to adjustment. 1. The journal entry to adjust the books when the net credit sales method is used to account for bad debts will be: A) A debit to the bad debts expense account for $50,000 and a credit to accounts
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receivable for $50,000. B) A debit to bad debts expense for $47,000 and a credit to the allowance for
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exam II - (Dickhaut et al 2008 A B C Patent amortization...

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