1. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

1. Allowance method is used for tax purposes.
2. Estimates are used.
3. Determining worthless accounts under direct write-off method is difficult to do.
4. GAAP requires the allowance method because it matches bad debt expense with revenue.

2. Why would a company sell receivables to another company?

1. To improve the quality of its credit granting process.
2. To limit its legal liability.
3. To accelerate access to amounts collected.
4. To comply with customer agreements.

3. What is consigned inventory?

1. Goods that are shipped, but title transfers to the receiver.
2. Goods that are sold, but payment is not required until the goods are sold.
3. Goods that are shipped, but title remains with the shipper.
4. Goods that have been segregated for shipment to a customer.

4. Goods in transit which are shipped f.o.b shipping point should be

1. Included in the inventory of the seller.
2. Included in the inventory of the buyer.
3. Included in the inventory of the shipping company.
4. None of the above.

5. Which of the following is a product cost as it relates to inventory?

1. Selling costs.
2. Interest costs.
3. Raw materials.
4. Abnormal spoilage.

6. In a period of rising prices, the inventory method which tends to give the highest reported net income is

1. Base stock
2. FIFO
3. LIFO
4. Weighted-Average

7. Why are inventories stated at lower-of-cost and net realizable value?

1. To report a loss when there is a decrease in the future utility.
2. To keep track of the market value of the inventory.
3. To report a loss when there is a decrease in the future utility below the original cost.
4. To permit future profits to be recognize

8. Net realizable value is

1. Acquisition cost plus costs to complete and sell.
2. Selling price.
3. Selling price plus costs to complete and sell.
4. Selling price less costs to complete, sell and transport.

9. At the end of the fiscal year, Alpha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements?

1. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment.
2. No impact.
3. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment.
4. Only disclose the existence of the purchase commitment.

10. Which of the following is not a common disclosure for inventories?

1. Inventory composition.
2. Inventory location.
3. Inventory financing arrangements.
4. Inventory costing methods employed