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financial reporting
Contemporary Issues In Financial Reporting A User Oriented Approach 1st Edition Paul Rosenfield - Solutions
____ The underlying concept of FIFO is that the earliest inventory purchased would be sold first. TRUE OR FALSE
____ A jewelry store or boat dealership would normally be able to use the specific identification method. TRUE OR FALSE
____ It is impossible for decision makers to compare a company who uses LIFO with one who uses FIFO. TRUE OR FALSE
____ The larger the inventory turnover, the better, in most cases. TRUE OR FALSE
____ Companies can use LIFO for tax purposes and FIFO for financial reporting. TRUE OR FALSE
____ LIFO tends to provide a better match of costs and expenses than FIFO and averaging. TRUE OR FALSE
____ The United States is the only country that allows LIFO. TRUE OR FALSE
____ Using the LIFO cost assumption will always result in a lower net income than using the FIFO cost assumption. TRUE OR FALSE
What is inventory turnover? What does it tell a user about a comp
How is number of days in inventory calculated and why would a user want to know this number?
How is gross profit percentage calculated and what does it tell a user about a company?
How can users compare companies who use different cost flow assumptions?
Explain LIFO liquidation.
Why do many countries not permit their companies to use LIFO?
Why must a company keep one set of books for financial reporting purposes and another for tax compliance purposes?
What are advantages of using LIFO?
Which cost flow assumption appears to be used by more companies than any other?
Why don’t all companies use specific identification?
Which cost flow assumption will give a higher net income in a period of rising prices?
Briefly explain the averaging cost flow assumption.
Briefly explain the last-in, first-out cost flow assumption.
Briefly explain the first-in, first-out cost flow assumption.
Briefly explain the specific identification approach.
What is a cost flow assumption?
Why is it unrealistic to assume that inventory costs will remain constant over time?
Nakatobi Company has a warehouse in Fargo, ND. The company utilizes a periodic inventory system. At the beginning of the year, the warehouse contained $369,000 worth of inventory. During the first quarter, Nakatobi purchased another $218,000 worth of inventory and made sales of$450,000. On April 1,
Fabulous Fay’s is a boutique clothing store in San Diego. Fay’s uses a perpetual inventory system. In March, Fay’s purchased a type of swimwear designed to be slimming to the wearer. It purchased twenty suits of varying sizes for $40 each and priced them at $120 each. They sold out almost
Costello Corporation uses a perpetual inventory system. At the end of the year, the inventory balance reported by its system is $45,270. Costello performs an inventory count and determines that the actual ending inventory is $39,780.a. Discuss why a company that uses a perpetual inventory system
Magic Carpets Inc. sells a full line of area rugs, from top quality to bargain basement. Economic conditions have hit the textile industry, and Magic Carpets accountant is concerned that its rug inventory may not worth the amount Magic paid for it. Information about three lines of rugs is found
Racers ATVs sells many makes and models of all terrain vehicles. Racers uses a periodic inventory system. On January 1, Racers had a beginning inventory of AXVs costing $28,600. On January 14, Racers received a shipment of Model AXVs with a purchase price of $14,700 and transportation costs of
Montez Muffins and More is a bakery located in New York. Montez purchases a great deal of flour in bulk from a wholesaler. The wholesaler offers purchase discounts for fast payment. Montez purchased 600 pounds of flour for $100 on May 1, under terms 2/10 n/30. Determine the amount Montez should pay
ConnecTech bought 400 computers in December 20X2 for $300 each. It paid $260 to have them delivered to its store. In January 20X3, ConnecTech sold 220 of the computers for $550 each. ConnecTech uses a perpetual inventory system.a. Prepare the journal entry(ies) to record ConnecTech’s purchase of
Real South Products has $400,000 worth of inventory on hand on January 1.Between January and March 13, Real South purchased an additional$190,000 in inventory and sales of $530,000 had been made. On March 13, Real South’s warehouse flooded and all but $15,000 worth of inventory was ruined. Real
Romulus Company sells maps. At the end of the year, Romulus’s inventory account indicated that it had 2,900 maps of Italy on hand that had originally cost $30 each. An inventory count showed that only 2,875 were actually in ending inventory. What journal entry should Romulus make if management
Which of the following concerning the “lower-of-cost-or-market” rule is not true?a. If the replacement cost of an inventory item falls below its historical cost, the value of the item should be written down.b. If the market value of an item exceeds its historical cost, it should be written up
On which date should Raceway include the supplies in its inventory?a. December 1b. December 22c. December 26d. January 2
The sales staff at Delta informed Raceway that the supplies would not be available to ship out until December 22 and Raceway accepted this arrangement. The supplies actually shipped, FOB shipping point, on December 26 and arrived at Raceway’s receiving dock on January
Raceway Corporation manufactures miniature cars and racetracks for collectors and enthusiasts. Raceway placed an order for supplies from Delta Inc. on December
Crayson Inc. started the year with $490,000 in beginning inventory. During the year, Crayson purchased an additional $1,060,000 in inventory. At the end of the year, Crayson employees performed a physical count and determined that ending inventory amounted to $450,000. What was Crayson’s cost of
How much did they pay?a. $300b. $900c. $882d. $810
On February 13, North Carolina Furniture purchases three sofas from a manufacturer for $300 each. The terms of the sale are 2/10 n/45. North Carolina Furniture pays the invoice on February
____ The “purchases” account is not used in a perpetual inventory system.
____ Companies only follow the “lower-of-cost-or-market” guideline if they use a periodic inventory system.
____ In a periodic system, cost of goods sold is the difference between what a company has available for sale (beginning inventory and purchases) and what they didn’t sell (ending inventory).
____ Periodic inventory systems are, in general, less expensive to operate than perpetual systems.
____ Companies infrequently take advantage of purchase discounts because they amount to so little savings.
____ If inventory is shipped FOB shipping point, the buyer takes title as soon as the inventory leaves the seller’s warehouse.
____ In a perpetual system, but not a periodic system, cost of goods sold is determined and recorded at the time of sale.
____ A company that uses a perpetual inventory system should still perform a physical inventory count.
____ A company should include costs of transporting an item to its store when determining the cost of the item.
____ If the market value of a company’s inventory increases, the company should record a gain.
Why would a company that uses a perpetual inventory system still perform a physical inventory count?
Explain the concept of “lower-of-cost-or-market.”
Give the formula for computing cost of goods sold under a periodic system.
What two journal entries are made when inventory is sold under a perpetual system?
When does ownership transfer if documents specify “FOB destination”?
When does ownership transfer if documents specify “FOB shipping point”?
Explain the concept of “free on board.”
Name one advantage of a periodic inventory system over a perpetual inventory system.
Name one advantage of a perpetual inventory system over a periodic inventory system.
What is a periodic inventory system?
What is a perpetual inventory system?
How do cash discounts impact the reported value of inventory?
Explain what the term “3/10 n/30” means.
What is a cash discount?
Define “cost” as it relates to determining the value of inventory.
In Chapter 4 "How Does an Organization Accumulate and Organize the Information Necessary to Prepare Financial Statements? ", Heather Miller started her own business, Sew Cool. The financial statements for December are shown below.Based on the financial statements, determine the following:a. Current
Medwear Corporation is a multinational dealer of uniforms for medical personnel. Medwear is headquartered in a country where dollars are the currency. On March 17, Medwear enters into a transaction to sell uniforms to a hospital in Brussels, Belgium in the amount of 267,000 euros. On this date, the
Ray’s GamePlace sells all the hottest gear and video games. On January 1, 20X7, Ray’s had the following account balances:a. During 20X7, Ray’s wrote off $6,000 in uncollectible accounts.Make this journal entry.b. One account in the amount of $500 that had been written off in (a)above was
Assume that Nuance in number 1 above used the percentage of receivables method to estimate uncollectible accounts instead of the percentage of sales method. Nuance assumes that 5 percent of accounts receivable will never be collected.a. Prepare the entry to record Nuance’s bad debt expense for
Nuance Company had net credit sales for the year of $500,000. Nuance estimates that 2 percent of its net credit sales will never be collected.a. Prepare the entry to record Nuance’s bad debt expense for the year.b. Nuance had accounts receivable of $100,000 at the end of the year. Show how the
Fifer Inc. began the year with $450,000 in accounts receivable, ended the year with $590,000 in accounts receivable, and $4,000,000 in sales. Last year Fifer’s age of receivables was forty-six days and its receivables turnover was six times. Which of the following is not true?a. Fifer’s age of
Darlene Corporation has $300,000 in assets, 30 percent of which are current, and $100,000 in liabilities, 40 percent of which are current. Which of the following is true?a. Darlene’s current ratio is 3 to 1.b. Darlene’s working capital is $200,000.c. Darlene’s working capital is $50,000.d.
Gladson Corporation accrues bad debt expense using the percentage of sales method. At the end of the year, Gladson has $450,000 in accounts receivable and $4,000 in its allowance for doubtful accounts before any entry is made for bad debts. Sales for the year were $1,900,000. The percentage that
Ornate Inc. ended 20X3 with $400 in allowance for bad debts. In 20X4, Ornate wrote off $360 in accounts receivable that appear to be uncollectible. At the end of 20X4, Ornate recorded bad debt expense of$330. What is the balance in the allowance for doubtful accounts at the end of 20X4?a. $370b.
SunFun Company manufactures lawn furniture that is sold to retailers like big box home improvement stores. During October 20X1, SunFun sold furniture to Home Place on account in the amount of $40,000. At the end of 20X1, the balance was still outstanding. In January 20X2, SunFun decided to write
Which principle states that expenses should be recorded in the period in which they help generate revenues?a. Matching principleb. Going concern principlec. Cost/benefit analysisd. Measurement principle
Which of the following would not be used to help a company determine the net realizable value of its accounts receivable?a. Industry averages and trendsb. The company’s ability to pay its own debtsc. Current economic conditionsd. Efficiency of the company’s collection procedures
____ To make statements more accurate, bad debt expense is recorded when a specific account is deemed uncollectible and written off. TRUE OR FALSE
____ The higher that receivables turnover is, the slower the receivables are being collected. TRUE OR FALSE
____ The older a receivable, the less likely it is to be collected. TRUE OR FALSE
____ Frequently, bad debt expense and the ending balance in the allowance for doubtful accounts will differ. TRUE OR FALSE
____ All companies perform their estimation of uncollectible accounts in the same manner. TRUE OR FALSE
____ The net accounts receivable number on the balance sheet represents the exact amount the company will collect in cash. TRUE OR FALSE
____ Once an account has been written off, it can never be reinstated on the books, even if it is later collected. TRUE OR FALSE
____ The matching principle says that expenses should be recorded the same period as the revenues they help generate. TRUE OR FALSE
____ Bad debt expense is reported on the balance sheet as a contra account to accounts receivable. TRUE OR FALSE
____ Companies use two separate accounts in order to report accounts receivable at its net realizable value. TRUE OR FALSE
Why do financial statement users calculate a company’s age of receivables?
How is the current ratio calculated and what does it indicate about a company’s financial health?
Define “current liabilities.”
Define “current assets.”
At what exchange rate are monetary asset and liabilities reported?
Why does reporting balances in foreign currencies create accounting challenges?
What is the purpose of a company having an accounts receivable subsidiary ledger?
Name the two most popular approaches to estimating uncollectible accounts and briefly explain each.
Give two reasons why accountants do not restate prior year statements when estimations are not exact.
What entry does a company make to write off a specific account that has proven to be uncollectible?
Why do companies set up the allowance for doubtful accounts instead of just decreasing accounts receivable for any expected uncollectible balances?
When is bad debt expense recorded?
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