Question

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

a. The allowance method uses estimates.

b. The allowance method always accurately predicts the portion of receivables that will not be collected.

c. The allowance method improves the matching of bad debt expense and revenues.

d. The allowance method will provide higher net income over time.

2. Which of the following is a characteristic of a perpetual inventory system?

a. Physical inventory counts are not taken.

b. Inventory records are not kept for every item.

c. Cost of goods sold is recorded with each sale.

d. Cost of goods sold is determined at the end of the accounting period.

3. Which of the following is a period cost?

a. Direct labor.

b. Salaries of sales personnel.

c. Indirect materials.

d. Salaries of factory supervisors.

4. What states that if a company uses LIFO for tax purposes, it must also use LIFO for financial accounting purposes?

a. LIFO reserve.

b. FIFO conformity rule.

c. LIFO disclosure rule.

d. LIFO conformity rule.

5. When valuing inventory at lower-of-cost-or-market, what is the meaning of the term "market"?

a. Net realizable value

b. Net realizable value less a normal profit margin

c. Replacement cost, Net realizable value, or Net realizable value less a normal profit margin.

d. Replacement cost

Answer 1

ANSWER OF 1

C ( THE ALLOWANCE METHOD IMPROVES THE MATCHING OF BAD DEBT EXPENSE AND REVENUES)

Reason- under this method companies estimate the amount of accounts receivables that it believes will not be collected in the future . This method intends to match the loss of bad debts with revenue of sales.

ANSWER OF 2

C (COST OF GOODS SOLD IS RECODED WITH EACH SALE)

Reason- under perpetual inventory system , businesses keeps tracks of inventory on continuous basis . Updates are matter automatically whenever a product is bought or sold .

ANSWER OF 3

B(SALARIES OF SALES PERSONNEL )

Reason- period costs are those cost that are not directly associated with the production of goods . Generally they comprises of selling,general and administrative, marketing etc expenses.

Direct labour , indirect materials , salaries of factory supervisors are the costs which are to be classified as products cost because they are directly related with the production of goods.

ANSWER OF 4

D (LIFO CONFORMITY RULE)

Reason- As per LIFO CONFORMITY rule , it is required that if the company is using lifo method for calculation of taxable income and tax purposes, it must uses LIFO in the preparation of financial statements. Lifo must be used for financial accounting purposes.

ANSWER OF 5

D ( REPLACEMENT COST)

Reason- As per LCM methods of valuation of inventory ,

Market means replacement cost of inventory .

then replacement cost is compared to net realizable value(NRV ) and net realizable value - normal profit margin.