Q: Which of the following is the correct formula for calculating net realizable value (NRV) of accounts receivable?

$$\text{NRV} = \text{Accounts Receivable} - \text{Allowance for Uncollectible Accounts}$$

Q: Which of the following is the correct formula for calculating inventory turnover?

$$\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$$

Q: Which of the following is the correct formula for gross profit percentage?

$$\text{Gross Profit \%} = \frac{\text{Sales} - \text{Cost of Goods Sold}}{\text{Sales}}$$

Question 1

A company sells goods to a customer with terms 2/10, net 30. The customer returns $$500 of the 5$$,000 sale and pays within the discount period. What is the amount of cash the company will receive?

Accepted Answer

$4,410

Question 2

Which of the following best describes the effect of writing off an uncollectible account under the allowance method?

Accepted Answer

It has no effect on net realizable value of accounts receivable.

Question 3

A company estimates that 3% of its $200,000 credit sales will be uncollectible. What is the journal entry to record the uncollectible account expense using the percent-of-sales method?

Accepted Answer

Db. Uncollectible Account Expense $$6,000; Cr. Allowance for Uncollectible Accounts 6$$,000

Question 4

Which of the following is the correct formula for calculating net realizable value (NRV) of accounts receivable?

Accepted Answer

$$	ext{NRV} = 	ext{Accounts Receivable} - 	ext{Allowance for Uncollectible Accounts}$$

Question 5

A company issues a 6-month, $10,000 note receivable at 8% annual interest on April 1. What is the maturity value of the note?

Accepted Answer

$$10,400$$

Question 6

Which of the following costs should be capitalized as part of the cost of a new machine?

Accepted Answer

Cost to install the machine

Question 7

A company purchases equipment for $$50,000 with a residual value of 5$$,000 and a useful life of 5 years. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$9,000$$

Question 8

Which of the following statements about the double-declining balance (DDB) depreciation method is TRUE?

Accepted Answer

DDB results in higher depreciation expense in the early years compared to straight-line.

Question 9

A company uses the aging-of-receivables method to estimate uncollectibles. The aging schedule indicates an allowance balance of $$12,000 is needed. If the current Allowance for Uncollectible Accounts has a 3$$,000 credit balance, what is the required journal entry?

Accepted Answer

Db. Uncollectible Account Expense $$9,000; Cr. Allowance for Uncollectible Accounts 9$$,000

Question 10

Which of the following is NOT a characteristic of plant assets?

Accepted Answer

They are intangible.

Question 11

A company purchases land, building, and equipment for a lump-sum price of $$1,000,000. The appraised values are: Land 300$$,000, Building $$600,000, Equipment 100$$,000. What amount should be allocated to the building?

Accepted Answer

$$600,000$$

Question 12

Which of the following is the correct formula for calculating inventory turnover?

Accepted Answer

$$	ext{Inventory Turnover} = \frac{	ext{Cost of Goods Sold}}{	ext{Average Inventory}}$$

Question 13

When prices are rising, which inventory costing method results in the highest net income?

Accepted Answer

FIFO

Question 14

Which of the following is TRUE regarding consignment inventory?

Accepted Answer

The consignor reports the inventory as an asset.

Question 15

A company sells inventory FOB shipping point. When does the buyer take ownership of the goods?

Accepted Answer

When the goods are shipped

Question 16

Which of the following is the correct formula for gross profit percentage?

Accepted Answer

$$	ext{Gross Profit \%} = \frac{	ext{Sales} - 	ext{Cost of Goods Sold}}{	ext{Sales}}$$

Question 17

Which of the following is an example of an intangible asset that is NOT amortized?

Accepted Answer

Trademark

Question 18

A company fails to accrue interest revenue at year-end on a note receivable. What is the effect on the financial statements?

Accepted Answer

Assets and net income are both understated.

Question 19

Which of the following best describes the accounting treatment for investments in stock with less than 20% ownership?

Accepted Answer

Adjust to fair value at each reporting date and recognize unrealized gains/losses in income.

Question 20

Which of the following is the correct formula for the quick (acid-test) ratio?

Accepted Answer

$$	ext{Quick Ratio} = \frac{	ext{Cash} + 	ext{Short-term Investments} + 	ext{Accounts Receivable}}{	ext{Current Liabilities}}$$

Receivables, Revenue, Inventory, Plant Assets, and Investments: Mini-Textbook Study Guide

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