Test 3

Question 1

What is the time frame for liquidity of cash equivalents?

Answer 1

30-90 days, <_ 3 months

Question 2

An overdrawn bank account becomes what on the financial statements?

Answer 2

Temporary Bank Overdraft (liability)

Question 3

Can there be negative cash on financial statements?

Answer 3

No. Negative cash gets moved to liabilities

Question 4

You have a negative balance in one of your bank accounts, but the net balance between all accounts is positive. Do you have a liability to the bank?

Answer 4

No, since the net balance is positive.

Question 5

What are the two methods of estimating uncollectible accounts receivable?

Answer 5

1) % of Sales
2) % of Accounts Receivable

Question 6

% of Sales makes which financial statement perfect?

Answer 6

Income Statement

Question 7

% of Accounts Receivable makes which financial statement perfect?

Answer 7

Balance Sheet

Question 8

What journal entries do you use to write off uncollectible receivables?

Answer 8

Allowance for Doubtful Accounts
Accounts Receivable

Bad Debts Expense
Allowance for Doubtful Accounts

Question 9

Are the journal entries different for % of Sales and % of Accounts Receivables?

Answer 9

No, but calculation for BDE is different

Question 10

What is the company that buys receivables called?

Answer 10

A factor
(process of selling is factoring)

Question 11

What two ways can you factor your A/R? Describe each.

Answer 11

With and without recourse.

With: Original co. pays if the factor can’t collect
Without: Factor assumes all risk of uncollectibles

Question 12

Which valuation method is used for inventory that loses value over time

Answer 12

Lower-of-Cost or Net Realizable Value

Question 13

What are the three types of inventory?

Answer 13

Raw Materials
Work-in-Process
Finished Goods

Question 14

Which types of inventory are required by FASB to report?

Answer 14

All RM, WIP, and FG
(usually disclosed in footnotes)

Question 15

Which inventory method is ideal?

Answer 15

Specific Identification

Question 16

What are the four inventory costing methods?

Answer 16

FIFO, LIFO, Average Cost, Dollar-Value LIFO

Question 17

In a period of rising prices, which inventory method returns the highest net income?

Answer 17

FIFO

Question 18

In a period of rising prices, which inventory method returns the lowest net income?

Answer 18

LIFO

Question 19

Describe the difference between Markup and Gross Profit Percentages.

Answer 19

Sales 100
COGS 80
GP 20

Markup %: 25%
GP %: 20%

Question 20

How do you calculate Net Realizable Value?

Answer 20

Selling Price
(Completion Costs)
(Disposal Costs or Selling Costs)
(Transportation Costs)
= Net Realizable Value

(do not include purchasing price)