Question One: True or False (10 marks) 1. The operating cycle of a merchandising company is longer than that of a service company. 2. FOB destination point means that the buyer should pay the transportation costs. 3. The main difference between the balance sheet of a merchandising company and a service company is that current assets include inventory account. 4. Merchandising companies should prepare single step income statement, rather than multiple step income statement. 5. The FIFO inventory costing method assumes that costs of the earliest goods purchased are the first to be recognized in determining the cost of goods sold. 6. The LIFO inventory costing method assumes that costs of the latest goods purchased are the first to be recognized in determining the cost of ending inventory. 7. The allowance for doubtful accounts is a contra asset account. 8. The main disadvantage of the direct write off method is that it violates the matching principle. 9. Under the allowance method, accounts receivables are reported in the balance sheet at the cash realizable value. 10. Under the allowance method, bad debt expense is debited when the accounts receivable are written off.