Assigment 3

Current Assets
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Multiple Choice Questions

1. Which of the following is considered cash?

a. Certificates of deposit (CDs)
b. Money orders
c. Money market savings certificates
d. Postdated checks

2. What is a compensating balance?

a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
d. Minimum deposits required to be maintained in connection with a borrowing arrangement.

3. Under which section of the statement of financial position is "cash restricted for plant expansion"
reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Equity.

4. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known
amounts of cash and
a. is acceptable as a means to pay current liabilities.
b. has a current market value that is greater than its original cost
c. bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation.
d. is so near its maturity that it presents insignificant risk of changes in interest rates.

5. The category "trade receivables" includes

a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these.

6. What is the preferable presentation of accounts receivable from officers, employees, or affiliated
companies on a statement of financial position
a. As offsets to equity.
b. By means of footnotes only.
c. As assets but separately from other receivables.
d. As trade notes and accounts receivable if they otherwise qualify as current assets.
 7. Why do companies provide trade discounts?
a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. Both a. and c.

8. All of the following are problems associated with the valuation of accounts receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.

9. Which of the following concepts relates to using the allowance method in accounting for accounts
receivable?
a. Bad debt expense is an estimate that is based on historical and prospective information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
d. Bad debt expense is management's determination of which accounts will be sent to the attorney
for collection.

10. How can accounting for bad debts be used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt expense.
c. Using an aging of the accounts receivable balance to determine bad debt expense.
d. Reversing previous write-offs.

11. Under IFRS, which of the following is not permitted for accounting for material amounts of
uncollectable accounts receivable?
a. Percentage of receivables, allowance method.
b. Percentage of sales, allowance method.
c. Direct write-off method.
d. All of the choices are acceptable under IFRS.

12. Which of the following statement is incorrect regarding how the IASB requires that the impairment
assessment be performed?
a. Receivables that are individually significant should be considered for impairment separately, if
impaired, the company recognizes it.
b. Receivables that are not individually significant are assessed individually. If impaired, the
company recognizes it.
c. Any receivable individually assessed that is not considered impaired should be included with a
group of assets with similar credit-risk characteristics and collectively assessed for impairment.
d. Any receivables not individually assessed should be collectively assessed for impairment.

13. Which of the following is correct regarding differences between IFRS and U.S.GAAP with regard to
receivables?
a. Under IFRS de-recognition of a receivable is determined by using lack of control as the primary
criterion.
b. U.S.GAAP permits the reversal of impairment losses, with the reversal limited to the asset's
amortized cost before the impairment.
c. Under IFRS the fair value option is subject to certain qualifying criteria not in U.S.GAAP.
d. All of the choices are differences between IFRS and U.S.GAAP for receivables.
14. Culver Company purchases the majority of its inventory from three primary suppliers for re-sale to
customers around the world. Culver Company’s statement of financial position will include
a. Finished goods inventory.
b. Work-in-process inventory.
 c. Merchandise inventory.
d. All of the choices are correct.

15. Why are inventories included in the computation of net income?

a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.

16. How is a significant amount of consignment inventory reported in the statement of financial position?
a. The inventory is reported separately on the consignor's statement of financial position.
b. The inventory is combined with other inventory on the consignor's statement of financial position.
c. The inventory is reported separately on the consignee's statement of financial position.
d. The inventory is combined with other inventory on the consignee's statement of financial position.

17. Valuation of inventories requires the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consignment from other companies.
d. the cost flow assumption to be adopted.

18. On June 15, 2010, Wynne Corporation accepted delivery of merchandise which it
purchased on account. As of June 30, Wynne had not recorded the transaction or included the
merchandise in its inventory. The effect of this on its statement of financial position for June 30, 2010
would be
a. assets and equity were overstated but liabilities were not affected.
b. equity was the only item affected by the omission.
c. assets, liabilities, and equity were understated.
d. none of these.

19. Oats Company offers a trade discount to its customers as a reward for large orders. According to the
International Accounting Standards Board (IASB) how should the customers of Oats Company
account for these trade discounts?
a. As an expense.
b. As a revenue.
c. As a reduction in the cost of inventory.
d. The IASB allows any of these treatments so long as the company applies it consistently.

20. Amazon.com (USA) and other e-tailers account for certain selling costs––fulfillment costs related to
inventory shipping and warehousing––as part of administrative expenses, instead of as cost of goods
sold. Which of the following is incorrect regarding this treatment?
a. IFRS allows this treatment as long as it’s applied consistently and adequately disclosed.
b. The practice does not affect the bottom line.
c. The practice does not affect gross margins.
d. U.S. GAAP allows this treatment as long as it’s applied consistently and adequately disclosed.

21. When the cost-of-goods-sold method is used to record inventory at net realizable value
a. there is a direct reduction in the selling price of the product that results in a loss being recorded
on the income statement prior to the sale.
b. a loss is recorded directly in the inventory account by crediting inventory and debiting loss on
inventory decline.
c. only the portion of the loss attributable to inventory sold during the period is recorded in the
financial statements.
d. the net realizable value figure for ending inventory is substituted for cost and the loss is buried in
cost of goods sold.
22. Why are inventories stated at lower-of-cost-or-net realizable value?
a. To report a loss when there is a decrease in the future utility.
b. To be conservative.
c. To report a loss when there is a decrease in the future utility below the original cost.
d. To permit future profits to be recognized.

23. Under International Financial Reporting Standards (IFRS), which of the following is true regarding
inventory write-downs and/or recovery of a write-down?
a. Recovery of inventory write-downs is prohibited under IFRS.
b. IFRS requires separate reporting of reversals of inventory write-downs.
c. IFRS requires companies to record write-downs in a separate loss account.
d. All of the choices are correct regarding IFRS and write-downs and/or recoveries.

24. How is the gross profit method used as it relates to inventory valuation?
a. Verify the accuracy of the perpetual inventory records.
b. Verity the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value of LIFO inventories.

25. Which of the following statements is correct regarding International Financing Reporting Standards
(IFRS) and U.S. GAAP with regard to inventory?
a. LIFO (last-in, first-out) is permitted under IFRS but not under U.S. GAAP..
b. When applying lower-of-cost-or-market, U.S. GAPP defines market as net realizable value.
c. IFRS permits valuing inventories at fair value, similar to the accounting for property, plant, and
equipment.
d. Under U.S. GAPP, if inventory is written down under lower-of-cost-or-market, it may not be
written back up its original cost in a subsequent period.

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