Summer2018 ACCT301-21 Exam2 Name Points.--_A05 Multiple Choice (3 points cach) I
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Summer2018 ACCT301-21 Exam2 Name Points.--_A05 Multiple Choice (3 points cach) I. In a period of rising prices, the inventory method which tends to give the highest reported net income is A) last-in, first-out. B) base stock C) first-in, first-out. D) weighted-avernge. 2. The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its A) invoice price plus any purchase discount lost. invoice price less the purchase discount allowable whether taken or not. invoice price less the purchase discount taken. B) C) D) invoice price. 3. Why are inventories included in the computation of net income? A) To determine sales revenue. To determine cost of goods sold. B) C) Inventories are not included in the computation of net income. D) To determine merchandise returns 4. Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of S12.000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? A) $1,920,000. B) $ 532,000. C) $ 520,000. D) $ 508,000. 5. The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the net realizable value less normal profit margin. net realizable value. A) B) C) selling price less costs of completion and disposal. D) replacement cost. 6. Maxwell Corporation factored, with recourse, $100,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Maxwell estimates the recourse obligation at $2,400. What amount should Maxwell report as a loss on sale of receivables? A) S-0 B) $5,400. C) $10,400. D) $3,000. Version 2 Page IExplanation / Answer
Answer 1: First in first out method: As the prices of inventory rises, the stock will become costly and when the older stock is sold first and the latest stock is kept as closing inventory, the income will be high.
Answer 2: Invoice Price: If purchase discount account is opened, the purchase is recorded at invoice price and discount is crdited to purchase account. It shaal be deducted in the final profit & loss account from the purchases.'
Answer 3: Inventories are included because to calculate COGS.
Answer 4: Calculation of Bad debts expense:
Total Receivables= 6500000
Uncollectable: 0.08*6500000.= 5200000
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