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18 Cards in this Set
- Front
- Back
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Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a: |
Sale of Gar's AR to Ross, with the risk of uncollectible accounts transferred to Ross Factoring Receivables without recourse is a sales transaction. Factoring without recourse transfers the risk of uncollectible accounts to the buyer. |
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Current Ratio |
Current Assets / Current Liabilities |
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Quick Ratio |
(Cash + Net AR + Marketable Securities) / Current Liabilities |
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Milton Co. pledged some of its AR to Good Neighbor Financing Corp in return for a loan. Which of the following statements is correct? |
Milton will retain control of the AR When a Company pledges (assigns) AR in return for a loan, the assigning company (Milton in this example) will retain title to the AR and will use the proceeds collected from the AR to repay the loan. |
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Under US GAAP, during periods of inflation, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory valuation methods |
FIFO FIFO periodic and FIFO perpetual will always result in the same dollar valuation of ending inventory. LIFO or average, perpetual versus periodic will not |
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LIFO Periodic Calc |
Ending Inv. units * Oldest Cost |
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Freight-Out |
Selling Expense and is not an item that is capitalizable as inventory |
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The original cost of an inventory item is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's replacemet cost is below the net realizable value less a normal profit margin. Under the US GAAP lower of cost or market method, the inventory item should be valued at: |
Net realizable value less normal profit margin |
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A company decided to change its inventory valuation from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change? |
Ending Inventory: Decrease Net Income: Decrease Under LIFO, ending inv. has a lower valuation than under FIFO since older, lower costs are assigned to ending inventory. Similarly, under LIFO, COGS has a higher valuation than under FIFO since recent, higher costs are assigned to goods sold. This higher COGS means that net income under LIFO decreases. |
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Estimates of price-level changes for specific inventories are required for which of the following inventory methods |
Dollar Value LIFO The dollar value LIFO method adjusts inventory retail prices and ending inventory cost for price-level changes |
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The US GAAP lower of cost or market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application generally results in the lowest inventory amount? |
Separately to each item |
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A long-lived asset is impaired if: |
The carrying amount of the asset is greater than its FV and if that carrying amount is not recoverable. An impairment loss would then be recognized for the amount of the difference between book value and FV. |
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Under US GAAP, long-lived assets that are impaired can only have their carrying value resotred if |
They are held for disposal. Assets that are held for continued use that are impaired are not permitted to have any restoration of carrying value. Keep in mind that any write-ups are limited to previous write-downs. |
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Dollar Value LIFO Internally Computed Price Index |
Price Index = Ending Inv. at current year cost / Ending inv. at base year cost |
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Net Realizable Value |
Selling price less costs to complete/sell or Selling price less estimated cost of disposal |
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IFRS requires inventory to be reported at: |
Lower of cost or net realizable value |
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Under the US GAAP lower of cost or market method, the net carrying value of inventory is the lesser of the cost of inventory determined using one of the inventory costing methods (LIFO, FIFO, etc) and the market value of the inventory. Market Value is.. |
Market value is the middle of replacement cost, net realizable value (the market ceiling) and net realizable value less normal profit margin (the market floor). |
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Assuming constant inventory quantities, which of the following inventory-costing methods will produce a lower inventory turn-over ratio in an inflationary economy? |
FIFO Since the inv. turnoer ratio is computed by taking the COGS for the year and dividing this by the average inv., then we're looking for an answer that would result in a lower COGS figure and/or higher average inv. valuation. Under FIFO, our COGS would be lower, and our ending inv. would be higher causing our average inv. to be higher as well. |
