Reviewer

Quiz 4
1. If the seller retains significant risk and rewards of ownership, the transaction is not
regarded as a sale for purposes of recognizing revenue. Which of the following
situations would signify that “risk and rewards” have been transferred to the buyer
and therefore revenue should be recognized?
The correct answer is: When buyer has a right to return the goods or right to seek a
refund and the seller can reliably estimate the future returns based on past
experience and other relevant factors.
2. All of the following are required when classifying receivables, except
The correct answer is: All of the choices are required when classifying receivables.
Disclose any receivables pledged as collateral. Indicate the receivables classified as
current and noncurrent. Disclose all significant concentrations of credit risk arising
from receivables.
3. A company uses the allowance method to recognize uncollectible accounts expense.
What is the effect at the time of the collection of an account previously written off on
each of the following accounts?
The correct answer is: Allowance for Doubtful Accounts - Increase ; Uncollectible
Accounts Expense - No effect
4. These are oral promises of the buyers to pay for goods and services sold.
The correct answer is: Accounts receivable.
5. The payment terms 2/10, n/30 tell us that:
The correct answer is: a 2% discount will be awarded if the payment is made within
10 days of invoice date; otherwise, the full amount is payable within 30 days of
invoice date.
6. I. Accounts receivable may be discounted to generate cash.
II. Subscription receivable is a trade receivable.
The correct answer is: Both statements are false
7. When shall revenue associated with the rendering of services recognized by
reference to the stage of completion of the transaction at the reporting date?
The correct answer is: When the outcome of a transaction involving the rendering of
services is probable and can be estimated reliably.
8. Long-term receivables are measured at present value of all future cash flows
discounted using the prevailing market rate.
The correct answer is: False
9. On Russel’s April 30, 2019 balance sheet a note receivable was reported as a
noncurrent asset and its accrued interest for eight months was reported as a current
asset. Which of the following terms would fit Russel’s note receivable?
The correct answer is: Principal is due August 31, 2020, and interest is due August
31, 2019, and August 31, 2020.
10. On August 15, 2019, Guzman Co. sold goods for which it received a note bearing
the market rate of interest on that date. The four-month note was dated July 15,
2019. Note principal, together with all interest, is due November 15, 2019. When the
note was recorded on August 15, 2019, which of the following accounts increased?
The correct answer is: Interest receivable
11. When a specific customer’s account receivable is written off as uncollectible, what
will be the effect on net income under each of the following methods of recognizing
bad debt expense?
The correct answer is: Allowance Method – None ; Direct write-off method –
Decrease
12. The ideal measure of short-term receivables is the discounted value of cash to be
received in the future. Failure to follow this practice usually does not make the
statement of financial position misleading because
The correct answer is: The amount of the discount is not material.
13. What is the preferable presentation of accounts receivable from officers, employees,
or affiliated companies on a balance sheet?
The correct answer is: As assets but separately from other receivables.
14. The category "trade receivables" includes
The correct answer is: none of these. claims against insurance companies for
casualties sustained. advances to officers and employees. income tax refunds
receivable.
15. I. Trade receivables are classified as current assets if they are reasonably expected
to be collected within one year or within the operating cycle, whichever is longer
II. Cash discounts are given to encourage early payment of receivables.
The correct answer is: Both statements are true
16. Which of the following methods of determining bad debt expense violates the
matching principle?
The correct answer is: Charging bad debts expense as accounts are written off as
collectible.
17. The interest on a noninterest bearing note is equal to
The correct answer is: The excess of the face value over the present value.
18. Nontrade receivables are classified as current assets only if they are reasonably
expected to be realized in cash
The correct answer is: Within one year, the length of the operating cycle
notwithstanding
19. The purchase or sales discount is given to customers for:
The correct answer is: early payments
20. I. Nontrade receivables are classified as current assets if they are reasonably
expected to be collected within one year or within the operating cycle, whichever is
longer. II. Non-interest-bearing notes receivable do not have interest income.
The correct answer is: Both statements are false
21. Nontrade receivables are classified as current assets only if they are reasonably
expected to be realized in cash
The correct answer is: Within one year, the length of the operating cycle
notwithstanding.
22. I. Trade receivables are claims arising from income in the ordinary course of
business.
II. Receivable financing is a form of raising money out of receivables.
The correct answer is: Both statements are true
23. A trade receivable due two years should never be classified as a current asset.
The correct answer is: False
24. Dishonored note receivable should be debited to
The correct answer is: Accounts receivable at face value plus interest and other
charges.
25. If the buyer of an entity’s receivables withholds a certain portion or percentage of the
receivables purchased, the portion retained by the buyer
The correct answer is: Should be included in receivables of the seller.
26. When the allowance method of recognizing uncollectible accounts is used, the entry
to record the write-off of a specific account
The correct answer is: Decreases both accounts receivable and net income.
27. All of the following are problems associated with the valuation of accounts
receivable, except
The correct answer is: Cash discounts under the net method
28. Which of the following methods of determining bad debt expense most closely
matches expense to revenue?
The correct answer is: Charging bad debts with a percentage of sales for that period.
29. All but one are required before a transfer of receivables can be recorded as a sale.
The correct answer is: The transferor maintains continuing involvement
30. Trade discounts are
The correct answer is: All of these describe trade discounts. Used to quote prices for
different quantities purchased.Not recorded in the accounts but rather a means of
computing a price.Used to avoid frequent changes in catalogs.
31. When the allowance method of recognizing bad debt expense is used, the entries at
the time of collection of an account previously written off would
The correct answer is: Have no effect on net income
32. Trade receivables are classified as current assets when they are reasonably
expected to be collected
The correct answer is: Within one year or within the normal operating cycle,
whichever is longer
33. On July 1 of this year a company received a one-year note receivable bearing
interest at the market rate. The face amount of the note receivable and the entire
amount of the interest are due on June 30 of next year. At December 31 of this year,
the company should report in its balance sheet.
 The correct answer is: Interest receivable for the interest accruing this year.
34. Credit balances in accounts receivable should be classified as
The correct answer is: Current liability
35. The accounts receivable that cannot be collected because of bankruptcy is termed
as:
The correct answer is: uncollectible accounts
36. Why would an entity sell accounts receivable to another entity?
The correct answer is: To accelerate access to amounts collected
37. On October 1, 2019, a company received a one-year note receivable bearing interest
at the market rate. The face amount of the note receivable and the entire amount of
the interest are due on September 30, 2020. The interest receivable account at
December 31, 2019 would consist of an amount representing
The correct answer is: Three months of accrued interest income.
38. Which of the following should be recorded in Accounts Receivable?
The correct answer is: None of these. Receivables from officers. Receivables from
subsidiaries. Dividends receivable
39. Accounts receivable should be stated at
The correct answer is: Net realizable value
40. I. Subscription receivable is classified as a current asset when collectible within the
operating cycle but beyond twelve months.
II. Trade discounts are given to encourage a higher volume of sales.
The correct answer is: II is true
QUIZ 5.

1. Net realizable value is the

The correct answer is: Estimated selling price less cost to complete and cost
to sell.
2. Which of the following should not be included in determining the cost of
inventory?
The correct answer is: Interest on loan taken out specifically for the purpose
of purchasing inventory items
3. If the beginning inventory for 2019 is overstated, the effects of this error on
cost of goods sold for 2019, net income for 2019, and assets at December
31, 2020, respectively, are
The correct answer is: overstatement, understatement, no effect.
4. The gain on reversal of inventory write-down is presented as addition to cost
of goods sold; After a purchase commitment has been made, a loss is
recorded when the market price rises.
The correct answer is: Both statements are false
5. Inventories are assets defined by all of the following, except
The correct answer is: Used in the production or supply of goods and
services for administrative purposes.
6. which of the following is correct about inventories?
The correct answer is: All of the above. Inventories include raw materials that
are used in the production process Inventories include goods in process.
Inventories include finished goods
7. Which of the following statements is true regarding inventory write-downs and
recovery of write-down?
The correct answer is: PFRS requires separate reporting of reversal of
inventory write-down
8. Which of the following is false regarding purchase commitment?
The correct answer is: A gain on purchase commitment shall be recorded at
the amount of gain if the market price rises by the time the entity makes the
purchase.
9. Commodity broker-traders
The correct answer is: Hold inventory primarily to sell the commodities in the
near term and generate a profit from B price fluctuation.
10. When a portion of inventory has been pledged as security on a loan
The correct answer is: The fact should be disclosed but the amount of current
assets should not be affected.
11. Situations in which net realizable value is used to value inventory include
The correct answer is: All of these are measured at net realizable value
12. How is a significant amount of consignment inventory reported?
 The correct answer is: The inventory is reported separately on the consignor's
statement of financial position.
13. When the cost of goods sold method is used to record inventory at net
realizable value
The correct answer is: The NRV is substituted for cost and the loss is buried
in cost of goods sold
14. The credit balance that arises when a loss on a purchase commitment is
recognized should be
The correct answer is: Presented as current liability
15. PAS 2 provides that inventories shall be measured at
The correct answer is: Lower of cost and net realizable value
16. The use of a discount lost account implies that the recorded cost of an
inventory is
The correct answer is: Invoice price less the purchase discount allowable
whether taken or not
17. Which of the following is correct regarding accounting for raw materials and
manufacturing supplies held for use in the production of inventories?
The correct answer is: Raw materials are not written down below cost under
the condition that the finished goods in which they will be incorporated are
expected to be sold at or above cost.
18. How is a significant amount of consignment inventory reported in the balance
sheet?
The correct answer is: The inventory is reported separately on the consignor's
balance sheet.
19. The failure to record a purchase of merchandise on account even though the
goods are properly included in the physical inventory results in
The correct answer is: an understatement of liabilities and an overstatement
of owners' equity.
20. The of inventory of a service provider is described as work in progress and
includes
The correct answer is: All of these are included in the inventory of a service
provider. Compensation of supervisors directly engaged in providing the
service. Attributable overhead incurred in providing the service labor cost of
personnel directly engaged in providing the service.
21. Conversion cost is the total of
The correct answer is: Direct labor and factory overhead
22. Which of the following is incorrect regarding the periodic and perpetual
inventory system?
The correct answer is: When an entity made a sale on account, both
inventory systems debit accounts receivable and credit sales, no other journal
entry is added
23. If a company uses the periodic inventory system, what is the impact on net
income of including goods in transit f.o.b. shipping point in purchases, but not
ending inventory?
The correct answer is: Understate net income.
24. Which is incorrect concerning the maritime term FAS (free alongside)?
The correct answer is: Title passes upon receipt of the goods by the buyer.
25. Which of the following is a characteristic of a perpetual inventory system?
The correct answer is: Cost of goods sold is recorded with each sale.
26. Which of the following is incorrect regarding the average method of
accounting for inventory cost flow?
The correct answer is: There is no available argument in using the weighted
average method.
27. Which of the following must be included in inventory?
I. Goods in transit and sold FOB destination
II. Goods in transit and purchased FOB destination
III. Goods in transit and sold FOB shipping point
IV. Goods in transit and purchased FOB shipping point
V. Goods purchased under bill-and-hold arrangement
VI. Goods sold under bill-and-hold arrangement
The correct answer is: I, IV, and V
28. Which of the following is not included in the initial measurement of
inventories?
The correct answer is: All options are included Cost of conversion. Other
costs related to bringing the inventory items to their present location and
condition. Purchase cost that normally includes purchase price, import duties,
irrevocable taxes, freight, handling and other costs directly associated in the
acquisition of finished goods, materials and services.
29. PAS 2 Inventories prohibits which of the following cos t flow methods?
The correct answer is: LIFO method
30. Which of the following should not be included in the inventory?
The correct answer is: All of these are included in inventory
31. Which of the following is not included in the cost of inventory?
The correct answer is: Fire insurance premium on inventory.
32. Which of the following items should be included in the inventory as of
December 31, 2019?
The correct answer is: Merchandise costing P9,000 was received on January
5, 2020; invoice which was recorded on the same date showed shipment was
made on December 28, 2019, FOB supplier’s warehouse.
33. Under this inventory system, a physical count is necessary only for internal
control purposes
The correct answer is: Perpetual inventory system
34. The following are included in the determination of cost of goods sold, except
The correct answer is: Freight out
35. Entities must allocate the cost of all goods available for sale between
The correct answer is: The income statement and the statement of financial
position
36. Which of the following is the entry for recording the increase in allowance
of inventory write-down?
The correct answer is: Dr. Loss on inventory write-down; Cr. Allowance for
inventory write-down
37. Which inventory cost flow method in which the oldest costs rarely have an
effect on the ending inventory?
The correct answer is: FIFO method
38. Which of the following would result to the lowest net income in the period
of declining prices?
The correct answer is: First in, First out
39. This is added to purchases at cost only.
The correct answer is: Freight in
40. In a period of inflation, the use of which inventory cost flow method would
typically result in the lowest cost of goods sold or highest net income?
FIFO method