Intro to Fin Acct Midterm 2

Under the direct write-off method, bad debts are only recognized when an account is determined to be uncollectible.

True

Aging accounts receivable is a variation of the percentage-of-sales approach to recognizing bad debt expense.

False

When a company selects a cost flow assumption (FIFO, LIFO, average cost, etc.), it must be consistent with the actual physical movement of goods through the company

False

A LIFO reserve account is generally used when a company uses LIFO for tax and external reporting purposes

but uses another method for internal purposes.

True

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

True

The revenue recognition principle states that revenue is recognized when the performance obligation is satisfied.

True

During a consignment relationship, the consignee does not record the merchandise as an asset on its books.

True

Notes receivable can be classified as

All these answers are correct

If a company employs the net method of recording accounts receivable from customers, then sales discounts forfeited (not taken) should be reported as

an item of "other revenues and gains" in the income statement

A cash discount of 1/10, n/30 means the customer gets a:

1% discount if they pay within 10 days

A compensating balance as defined by the SEC is best reflected by which of the following?

The portion of any demand deposit, time deposit, or certificate of deposit maintained by a corporation which constitutes support for existing borrowing arrangements of the corporation with the lending institution.

When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n)

cash discount

The advantage of relating a company’s bad debt expense to its accounts receivable is that this approach:

gives a reasonably correct measure of receivables in the balance sheet

Lynn Spellman Corporation sold its accounts receivable outright to White Company, a financing company which normally buys accounts receivable of other companies without recourse. The accounts receivable have been

factored

Under a perpetual inventory system which accounts should be debited each time a sale on account is made??

Accounts Receivable and Cost of Goods Sold

Which of the following accounts does not exist in a perpetual inventory system?

Purchases

Which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold?

Specific identification

An inventory method that makes it possible to manipulate net income is the:

specific identification method

The ending inventory and cost of goods sold will be the same whether a perpetual or periodic system is used under the:

FIFO method

Which of the following inventory methods comes closest to stating ending inventory at replacement costs?

FIFO

Which of the following represents the best justification for the departure from the historical cost principle that results when lower-of-cost-or-net realizable is used?

The loss in utility (revenue‐producing ability) that results from a decline in the market value of inventory should be charged against revenues in the period in which it occurs

When using the lower-of-cost-or-market method, what is the meaning of “designated market”?

The middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin.

To entice more customers into the store on Mondays, Strassberg Company is selling a slice of pizza for $1 less on Mondays. Normally a slice of pizza sells for $3. When Barbara buys a slice of pizza from Strassberg Company on a Monday with cash, how should Strassberg Company recognize the transaction?

Revenue of $2 should be recognized.

Which of the following is not a condition in the determination of when a valid contract exists:

The contract has to be in writing.

Which of the following is false concerning the identification of separate performance obligations?

When two goods are not distinct within a contract, a company should still separate them into distinct performance obligations because products should never be combined and reported as one performance obligation.

A company has satisfied its performance obligation when the

company has transferred physical possession of the asset.

The required balance in Wheeler’s Allowance for Doubtful Accounts is $36,750, based on an aging of its accounts receivable. The Allowance for Doubtful Accounts currently has a debit balance of $4,200. Wheeler’s bad debt expense for the period is

$40,950

During the year, Trout Enterprises made an entry to write off an $8,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $100,000 and the balance in the allowance account was $9,000. The net realizable value of accounts receivable before and after the write-off entry was

$91,000

June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 80 units that cost $20 per unit. During the current month, the company purchased 480 units at $20 each. Sales during the month totaled 360 units for $43 each. What is the cost of goods sold using the LIFO method?

$7,200

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the average cost method, what is the amount of ending inventory?

$24,314

A product has an original cost of $15 and a replacement cost of $12. The cost of completion and disposal is $2. If the product has a net realizable value of $16 and a normal profit margin of $5, applying LCM, its inventory value should be:

$12

Given the acquisition cost of product Z is $27, the net realizable value for product Z is $24, the normal profit for product Z is $2, and the market value (replacement cost) for product Z is $25, what is the proper per unit inventory value for product Z applying LCNRV?

$24

For the year ended December 31, 2020, Bretts would recognize gross profit on the building of: (CHECK 35)

$230,000

At December 31, 2020, Bretts would report Construction in Process in the amount of: (CHECK 36)

$2,760,000

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2021. Estimated standalone fair values of the equipment, installation and training are $90,000, $60,000 and $30,000 respectively. The journal entry to record the transaction on March 15, 2021 will include a:

credit to Unearned Service Revenue of $24,000