Q: If a business uses the Aging Method for Accounts Receivable, which formula is used to estimate the Net Realizable Value (NRV)? $$\text{NRV} = \text{A/R (gross)} - \text{AFDA}$$

$$\text{NRV} = \text{A/R (gross)} - \text{AFDA}$$

Question 1

A retail store purchases 20 identical shirts at $$15 each. Later, it sells 12 shirts for 25 $$each. Using the weighted-average method under a perpetual inventory system, what is the average cost per shirt after the purchase, and what is the cost of goods sold (COGS) for the 12 shirts sold?

Use the formula:

$$	ext{Average cost per unit} = \frac{	ext{Beginning inventory cost} + 	ext{Purchase cost}}{	ext{Total units}}$$

$$	ext{COGS} = 	ext{Units sold} 	imes 	ext{Average cost per unit}$$

Accepted Answer

Average cost per shirt is $$15.00; COGS is 180.00$$

Question 2

Which inventory costing method assumes that the oldest inventory items are sold first, resulting in higher COGS during periods of rising prices?

$$	ext{COGS}_{	ext{FIFO}} = 	ext{Cost of oldest inventory} 	imes 	ext{Units sold}$$

Accepted Answer

FIFO (First-In, First-Out)

Question 3

A business estimates that 5% of its Accounts Receivable will be uncollectible. If the total Accounts Receivable is $$40,000, what is the required Allowance for Doubtful Accounts?

$$	ext{Allowance for Doubtful Accounts} = 	ext{Accounts Receivable} 	imes 	ext{Estimated Uncollectible Percentage}$

Accepted Answer

$$2,000$$

Question 4

Which of the following is NOT a situation that requires adjusting inventory on the books?

Accepted Answer

Recording a sales tax liability

Question 5

A company sells goods for $$10,000 with a 2% cash discount if paid within 15 days. The customer pays within the discount period. What is the amount of cash received and how should inventory be adjusted?

$$	ext{Cash received} = 	ext{Sales amount} 	imes (1 - 	ext{Discount rate})$

Accepted Answer

Cash received is $9,800; inventory is not affected

Question 6

If a business uses the Aging Method for Accounts Receivable, which formula is used to estimate the Net Realizable Value (NRV)?

$$	ext{NRV} = 	ext{A/R (gross)} - 	ext{AFDA}$$

Accepted Answer

$$	ext{NRV} = 	ext{A/R (gross)} - 	ext{AFDA}$$

Question 7

A store buys 50 units of inventory at $$8 each. Later, it purchases 30 more units at 10 $$each. If it sells 40 units, what is the COGS using FIFO?

$$	ext{COGS}_{	ext{FIFO}} = (	ext{Units from first purchase} 	imes 	ext{First cost}) + (	ext{Units from second purchase} 	imes 	ext{Second cost})$$

Accepted Answer

$$400$$

Question 8

Which of the following best describes the purpose of the Allowance for Doubtful Accounts (AFDA)?

Accepted Answer

To estimate and match expected credit losses to the period in which sales occur

Question 9

A business purchases inventory for $$5,000 and receives a purchase discount of 4% for early payment. What is the inventory cost recorded?

$$	ext{Inventory cost} = 	ext{Purchase price} 	imes (1 - 	ext{Discount rate})$

Accepted Answer

$$4,800$$

Question 10

Which of the following is TRUE regarding the weighted-average method under a perpetual inventory system?

Accepted Answer

The average cost per unit is recalculated after each purchase

Question 11

A company has $$12,000 in Accounts Receivable and an Allowance for Doubtful Accounts of 1$$,500. What is the Net Realizable Value (NRV) of Accounts Receivable?

$$	ext{NRV} = 	ext{A/R} - 	ext{AFDA}$$

Accepted Answer

$$10,500$$

Question 12

Which of the following is NOT a feature of the Aging Method for estimating uncollectible accounts?

Accepted Answer

It ignores the time period that receivables have been outstanding

Question 13

A business in Canada sells goods for $$1,000 plus 5% GST and 8% PST. What is the total amount collected from the customer?

$$	ext{Total collected} = 	ext{Sales} + (	ext{Sales} 	imes 	ext{GST rate}) + (	ext{Sales} 	imes 	ext{PST rate})$

Accepted Answer

$$1,130$$

Question 14

Which of the following is a correct journal entry for recording a sale of inventory for cash, assuming a perpetual inventory system?

Accepted Answer

Debit Cash, Credit Sales; Debit COGS, Credit Inventory

Question 15

A company performs a physical inventory count and discovers $500 less inventory than recorded. What is the correct adjustment?

Accepted Answer

Debit COGS $$500, Credit Inventory 500$$

Question 16

Which of the following statements about sales taxes in Canada is correct?

Accepted Answer

GST is a value-added tax collected at each stage with input tax credits for businesses

Question 17

A business sells inventory for $$2,000. The cost of the inventory sold is 1$$,200. What is the gross margin?

$$	ext{Gross margin} = 	ext{Sales} - 	ext{COGS}$$

Accepted Answer

$$800$$

Question 18

Which method is NOT acceptable under GAAP/IFRS for estimating uncollectible accounts?

Accepted Answer

Direct Write-Off Method

Question 19

A company purchases inventory for $$1,000 and later returns 200 $$worth of goods to the supplier. What is the final inventory cost recorded?

$$	ext{Final inventory cost} = 	ext{Purchase cost} - 	ext{Purchase returns}$$

Accepted Answer

$$800$$

Question 20

Which of the following is TRUE regarding the specific identification method for inventory costing?

Accepted Answer

It matches each item sold to its exact purchase cost

Financial Accounting: Inventory, Cost of Goods Sold, Receivables, and Sales Taxes

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