Multiple Choice

1. The economic order quantity method of inventory management identifies the optimal inventory level by:

• Determining exactly the amount of inventory needed on a given day.

• Equating inventory restocking costs with the costs of carrying inventory.

• Equating the cost of inventory with the monthly average cost of goods sold.

• Subdividing the inventory into three categories based on item cost.

• Computing the cost of the inventory sold on an average day.

2.

Which of the following is the best definition of a collection policy.

• Conditions on which a firm sells its goods and services for cash or credit.

• Wholly owned subsidiary that handles credit extension and receivables financing through commercial paper.

• A discount given for a cash purchase.

• A compilation of accounts receivable by the age of each account.

• Procedures followed by a firm in collecting accounts receivable.

3.

The CRA will disallow any lease that:

• Involves a lessee that has net operating losses.

• Has a lease term in excess of three years.

• Appears to exist solely to avoid taxes.

• Has a term that is less than one-half of the economic life of the asset.

• Reduces the combined tax obligations of the lessor and the lessee.

4. A _______________ is effectively a secured loan from the lessor to the lessee.

• Leveraged lease.

• Sale and leaseback arrangement.

• Conditional sales agreement lease.

• Single investor lease.

• Operating lease.