EXAMPLE TEST QUESTIONS
Example Test Questions
Chapter 8
Multiple Choice
1. Of the following items, the one that should be classified as a current asset is
a. Trade installment receivables normally collectible in 18 months
b. Cash designated for the redemption of callable preferred stock
c. Cash surrender value of a life insurance policy of which the company is beneficiary
d. A deposit on machinery ordered, delivery of which will be made within six months
Answer d
2. The advantage of relating a company’s bad debt experience to its accounts receivable is that this approach
a.
Gives a reasonable correct statement of receivables in the balance sheet
b. Relates bad debts expense to the period of sale
c. Is the only generally accepted method for valuing accounts receivable
d. Makes estimates of uncollectible accounts unnecessary
Answer a
3. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because
a. Most short-term receivables are not interest bearing
b. The allowance for uncollectible accounts includes a discount element
c. The amount of the discount is not material
d. Most receivables can be sold to a bank or factor
Answer c
4. An account that would be classified as a current liability is
a. Dividends payable in stock
b. Accounts payable - debit balance
c. Reserve for possible losses on purchase commitments
d. Excess of replacement cost over LIFO cost of basic inventory temporarily liquidated
Answer d
5. Which of the following statements is not valid as it applies to inventory costing methods?
a. If inventory quantities are to be maintained, part of the earnings must be invested
(plowed back) in inventories when FIFO is used during a period of rising prices.
b. LIFO tends to smooth out the net income pattern, since it matches current cost of goods sold with current revenue, when
Chapter 8
Multiple Choice
1. Of the following items, the one that should be classified as a current asset is
a. Trade installment receivables normally collectible in 18 months
b. Cash designated for the redemption of callable preferred stock
c. Cash surrender value of a life insurance policy of which the company is beneficiary
d. A deposit on machinery ordered, delivery of which will be made within six months
Answer d
2. The advantage of relating a company’s bad debt experience to its accounts receivable is that this approach
a.
Gives a reasonable correct statement of receivables in the balance sheet
b. Relates bad debts expense to the period of sale
c. Is the only generally accepted method for valuing accounts receivable
d. Makes estimates of uncollectible accounts unnecessary
Answer a
3. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because
a. Most short-term receivables are not interest bearing
b. The allowance for uncollectible accounts includes a discount element
c. The amount of the discount is not material
d. Most receivables can be sold to a bank or factor
Answer c
4. An account that would be classified as a current liability is
a. Dividends payable in stock
b. Accounts payable - debit balance
c. Reserve for possible losses on purchase commitments
d. Excess of replacement cost over LIFO cost of basic inventory temporarily liquidated
Answer d
5. Which of the following statements is not valid as it applies to inventory costing methods?
a. If inventory quantities are to be maintained, part of the earnings must be invested
(plowed back) in inventories when FIFO is used during a period of rising prices.
b. LIFO tends to smooth out the net income pattern, since it matches current cost of goods sold with current revenue, when