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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 1

True/False

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A promissory note may be secured by assets belonging to the maker.

A) True
B) False

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Question 2

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Kendall Company uses the perpetual inventory method. On January 1, 2014, Kendall purchased 300 units of inventory that cost $1.00 each. On January 10, 2014, the company purchased an additional 400 units of inventory that cost $1.50 each. If Kendall uses the weighted average cost flow method and sells 400 units of inventory, the amount of cost of goods sold appearing on the income statement will be:

A) $450.
B) $529.
C) $514.
D) $600.

E) None of the above
F) A) and C)

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Question 3

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The net realizable value of accounts receivable decreases when an account receivable is written off.

On August 1, 2014, Miles Company accepted from another company a one-year note receivable with a face amount of $4,000 and an interest rate of 8%. What would be the total amount of assets (related to the note receivable) reported on Muller's balance sheet dated December 31, 2014?

The amount of accounts receivable that is actually expected to be collected is known as:

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ Green Bay Corporation used the allowance method to account for uncollectible accounts expense. On June 20, 2014, Green Bay wrote off an uncollectible account in the amount of $3,000. On September 1, 2014, the account was collected. How would the appropriate entries on September 1 affect the financial statements?

Riley Corporation accepted credit cards for $107,200 of services performed in 2014. The credit card company charged a 3% service fee and paid Riley as soon as it received the credit card receipts. Required: Based on this information only, determine a) the amount of revenue that Riley should report on its 2014 income statement. b) the amount of expense that Riley should report on its 2014 income statement. c) the amount of assets that Riley has at the end of 2014. d) Riley's cash flows from operating activities for 2014.

The Ruiz Corporation, which owns a chain of specialty shops, has recently begun to accept credit cards. On March 1, 2014, Ruiz made a credit card sale of $5,200 to a customer. The credit card company charges a fee of 3%. Which of the following correctly shows the effects of the sale on March 1? Assume that the credit card fee is recorded on the date of sale.

The inventory cost flow method a company chooses affects both the income statement and the balance sheet.

In an inflationary period, which cost flow method, LIFO or FIFO, will result in the larger amount of assets on the balance sheet? Explain.

When a company receives payment from a customer whose account was previously written off, the customer's account should be reinstated.

Maple Company started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first unit cost $800 and the second, $700. One of the items was sold during the year. Based on this information, how much product cost would be allocated to cost of goods sold and ending inventory, assuming use of a. LIFO b. FIFO c. Weighted average $\begin{array} { | l | l | l | } \hline & \text { Cost of goods sold } & \text { Ending inventory } \\\hline \text { LIFO } & & \\\hline \text { FIFO } & & \\\hline \text { Weighted average } & & \\\hline\end{array}$

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015. What amounts will Siebens report on its 2015 statement of cash flows?

The Stevens Company provided $45,000 of services on account during 2014, its first year in operation. During 2014, Stevens collected $34,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 2% of its revenues on account. The amount of uncollectible accounts expense recognized on the 2014 income statement was

Victorino Company accepted a credit card payment in exchange for $10,000 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

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ On October 1, 2014, Falls Company loaned $10,000 to a customer for one year at 6% interest. Show the effect of this transaction on Falls' financial statements.

Barry Company purchased two identical inventory items. The item purchased first cost $7.00 and the item purchased second cost $9.00. Barney sold one of the items for $12.00. Which of the following statements is true?

On October 1, 2014, Balkan, Inc. accepted from another corporation a 1-year note receivable in the amount of $15,000, with an interest rate of 6%. On December 31, 2014, Balkan accrued the interest income earned to date. How did this accrual affect Balkan's financial statements?

Fairleigh Company sells home weather stations. Its beginning inventory was 50 units at $200 per unit. During the year, Fairleigh made two purchases of the station: first, a 150-unit purchase at $220 per unit, and then 100 units at $250 per unit. The ending inventory for the year was 125 units. Required: Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Fairleigh uses a) FIFO b) LIFO c) Weighted average $\begin{array} { | l | l | l | } \hline & \text { Cost of goods sold } & \text { Ending inventory } \\\hline \text { FIFO } & & \\\hline \text { LIFO } & & \\\hline \text { Weighted average } & & \\\hline\end{array}$

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