Question

1)Under the allowance method, when an account is written off, total assets decrease

True

False

2)In a period of rising prices LIFO produces the highest cost of goods sold and the lowest gross profit.

True

False

3)Which of the following characteristics is not common to both tangible and intangible assets?

Have an expected life of more than one year

May have value only to a particular company

Held for use and not for investment

Derive value from the ability to generate revenue

4)Software development costs are treated as R&D expense until technological feasibility of the product is established.

True

False

5)The use of inventory pools with dollar-value LIFO overcomes the issues associated with keeping numerous detailed records of individual quantities of each item.

True

False

6)A company's liquidation of inventory under LIFO results in higher income during periods of rising costs. Therefore, management can manipulate earnings by delaying purchases until after the end of the fiscal year.

True

False

7)Legal work in connection with patent applications or litigation, and the sale or licensing of patents is excluded from R & D.

True

False

Answer 1

• As per answering guidelines, I will be providing answer of FIRST FOUR QUESTIONS ONLY.
• Answer 1

The statement is FALSE.

This is because, when account is written off, accounts receivables balance decreases, AND the balance of Allowances for doubtful accounts ALSO decreases (which is a contra account and is deducted from Accounts receivables on ASSET side). Their individual balances DECREASES, but ASSET’s total balance in totality remains the same.

• Answer 2

The statement is TRUE.

LIFO system is based on Last in First Out which means that the cost of goods sold will form from the purchases that have been made most recently. Since the period is of rising prices, such purchases have been made at higher prices. As a result, cost of goods sold will also be HIGHER. Consequentially, the Gross profits will be LOWER.

• Answer 3

The correct answer is “may have value only to a particular Company”

This is because, intangible assets like goodwill of a company has some value only to that company. However, tangible assets have value to any company who possesses it.

• Answer 4

The statement is TRUE.

Until Technological feasibility is not established, Software development costs are treated as R & D expenses.