Chapter 9 Test 1

Question 1

Working Capital =

Answer 1

Firms Current Assets - Current Liabilities

Question 2

Current Ratio/Working Capital Ratio =

Answer 2

Current Assets/Current Liabilities

Question 3

Liquidity

Answer 3

refers to a firms ability to meet short term obligations as they come due.

Question 4

Prepayments

Answer 4

are assets that represent services a firm has paid for before consuming them

Question 5

Inventory

Answer 5

refers to items a firm holds for sale or for further processing as part of its operations

Question 6

Inventory Equation = Ending Inventory =

Answer 6

Beginning Inventory + Additions - Withdrawals

Question 7

Manufactured Inventories include

Answer 7

Direct Materials ( Raw Materials )
Direct Labor
Manufacturing Overhead

Question 8

Product Cost

Answer 8

(are assets) Until a firm sells it products and recognizes revenue it treats all manufacturing cost as product cost

Question 9

Raw Materials Inventory

Answer 9

account shows the cost of raw materials purchased but not yet transferred to the factory floor.

Question 10

Work in Process Inventory

Answer 10

accumulates the cost of raw materials transferred to the factory floor the cost of direct labor used in production, and manufacturing overhead costs.

Question 11

Finished Goods Inventory

Answer 11

account measures the manufacturing cost of units completed but not yet sold.

Question 12

Cost of Goods Sold

Answer 12

an expense reducing net income and ultimately retained earnings.

Question 13

Three types of cost flow assumptions

Answer 13

1. Weighted Average - firm calculates the average of the cost of all units avalible for sale during the accounting period
2. First in, First Out -assigns cost of the first units acquired to the units sold and assigns the costs of the most recent acquisition to the ending inventory.
3. Last in, First Out (not permitted with IFRS) - assigns the cost of the latest units acquired to the withdrawals and assigns the costs of the oldest units to the ending inventory.

Question 14

Cost of Goods Sold Percentage =

Answer 14

Cost of Goods Sold/Sales Revenue

Question 15

Inventory Turnover Ratio =

Answer 15

Cost of Goods Sold/Average Inventory

Question 16

Accounts Payable Turnover Ratio =

Answer 16

Purchases/Average Accounts Payable

Question 17

Cash Cycle

Answer 17

the time between a firms first acquiring inventory then making and selling the product and ultimately recieing cash from the customer and paying cash to suppliers.

Question 18

Note Payable

Answer 18

Money borrowed on less than a year.