Question

Multiple Choice

1. The economic order quantity method of inventory management identifies the optimal inventory level by:

• Determining exactly the amount of inventory needed on a given day.

• Equating inventory restocking costs with the costs of carrying inventory.

• Equating the cost of inventory with the monthly average cost of goods sold.

• Subdividing the inventory into three categories based on item cost.

• Computing the cost of the inventory sold on an average day.

2.

Which of the following is the best definition of a collection policy.

• Conditions on which a firm sells its goods and services for cash or credit.

• Wholly owned subsidiary that handles credit extension and receivables financing through commercial paper.

• A discount given for a cash purchase.

• A compilation of accounts receivable by the age of each account.

• Procedures followed by a firm in collecting accounts receivable.

3.

The CRA will disallow any lease that:

• Involves a lessee that has net operating losses.

• Has a lease term in excess of three years.

• Appears to exist solely to avoid taxes.

• Has a term that is less than one-half of the economic life of the asset.

• Reduces the combined tax obligations of the lessor and the lessee.

4. A _______________ is effectively a secured loan from the lessor to the lessee.

• Leveraged lease.

• Sale and leaseback arrangement.

• Conditional sales agreement lease.

• Single investor lease.

• Operating lease.

Answer 1

Part 1

Answer is option 2

Equating inventory restocking costs with the costs of carrying inventory.

To have EOQ, restocking costs = carrying costs

Part 2

Answer is option 5

the procedures followed by a firm to collect its accounts receivables

Collection policy is associated with the collective payment for debtors for credit granted to them.

Part 3

Answer is option 2

appears to exist solely to defer taxes.

Lease is the facility to get equipment or assets for use. It doesn't aim only at deferred taxes

Part 4

Answer is option 3

Conditional sales agreement lease.

It is a secured loan in a lease agreement.