Q: Which formula correctly calculates the percentage of allowance for doubtful accounts relative to accounts receivable?

$$\frac{\text{Allowance for Doubtful Accounts}}{\text{Accounts Receivable}} \times 100$$

Q: If a company uses the units-of-production method for depreciation, which formula should be used to calculate annual depreciation expense?

$$\frac{\text{Cost} - \text{Salvage Value}}{\text{Total Estimated Units}} \times \text{Units Produced in Year}$$

Q: A company purchased a machine for $$140,000 with a salvage value of 20$$,000 and an estimated production of 100,000 units. If 25,000 units are produced in the first year, what is the depreciation expense for that year using the units-of-production method?

$$\frac{140,000 - 20,000}{100,000} \times 25,000 = 30,000$$

Question 1

Which of the following best describes the purpose of the balance sheet?

Accepted Answer

To summarize what the firm owns and owes on a particular date

Question 2

A company’s accounts receivable is $$9,408 and its allowance for doubtful accounts is 448. $$What is the net realizable value of accounts receivable?

Accepted Answer

$8,960

Question 3

Which formula correctly calculates the percentage of allowance for doubtful accounts relative to accounts receivable?

Accepted Answer

$$\frac{	ext{Allowance for Doubtful Accounts}}{	ext{Accounts Receivable}} 	imes 100$$

Question 4

During a period of inflation, which inventory method results in the lowest ending inventory valuation?

Accepted Answer

LIFO

Question 5

If a company uses the units-of-production method for depreciation, which formula should be used to calculate annual depreciation expense?

Accepted Answer

$$\frac{	ext{Cost} - 	ext{Salvage Value}}{	ext{Total Estimated Units}} 	imes 	ext{Units Produced in Year}$$

Question 6

Which of the following is NOT a current asset?

Accepted Answer

Property, plant, and equipment

Question 7

A company’s net sales increased from $$153,000 to 215$$,600, accounts receivable increased from $$8,767 to 9$$,408, and allowance for doubtful accounts increased from $$417 to 448. $$Which account had the highest growth rate?

Accepted Answer

Net sales

Question 8

Which of the following is a key indicator of earnings quality when analyzing accounts receivable?

Accepted Answer

The growth rate of sales, accounts receivable, and allowance for doubtful accounts

Question 9

Which inventory method is NOT allowed under IFRS but is permitted under U.S. GAAP?

Accepted Answer

LIFO

Question 10

A company purchased a machine for $$140,000 with a salvage value of 20$$,000 and an estimated production of 100,000 units. If 25,000 units are produced in the first year, what is the depreciation expense for that year using the units-of-production method?

Accepted Answer

$$\frac{140,000 - 20,000}{100,000} 	imes 25,000 = 30,000$$

Question 11

Which of the following is a tangible long-term asset?

Accepted Answer

Property, plant, and equipment

Question 12

Which of the following is a plausible explanation for an abnormal pattern where sales grow faster than accounts receivable and allowance for doubtful accounts?

Accepted Answer

More sales are being collected in cash

Question 13

Which depreciation method allocates a larger expense to earlier years of an asset’s life?

Accepted Answer

Accelerated method

Question 14

Which of the following is NOT included in the checklist for earnings quality?

Accepted Answer

Inventory turnover ratio

Question 15

Which asset classification is based on contractual agreements relating to future cash flows?

Accepted Answer

Financial asset

Question 16

Which industry is most likely to have the highest percentage of net fixed assets as a proportion of total assets?

Accepted Answer

Pharmaceutical manufacturing

Question 17

Which of the following is a plausible effect of using LIFO during inflation?

Accepted Answer

Ending inventory is undervalued

Question 18

Which of the following is true about the allowance method for doubtful accounts?

Accepted Answer

It estimates bad debts and creates an allowance account

Question 19

Which of the following is NOT a factor that should be considered when estimating the allowance for doubtful accounts?

Accepted Answer

Company’s inventory turnover

Question 20

Which of the following statements about consolidated financial statements is correct?

Accepted Answer

They combine the financial statements of the parent and its subsidiaries

Investing Activities: Physical Assets, Receivables, Inventory, and Depreciation

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