4. Which statement is FALSE?

a) If management underestimates the allowance for non-collectible accounts, this will cause net income for the period to be overstated.

b) Forming a special purpose entity (SPE) is a common way companies securitize receivables.

c) If a company factors its accounts receivables, this will have the effect of making its cash cycle appear shorter.

d) Under GAAP, the choice of inventory costing method (LIFO, FIFO, etc.) must be determined by the physical flow of the goods.

5. Which statement is FALSE?

a) The LIFO conformity rule states that if a company uses LIFO for tax purposes, it must also use it for financial reporting purposes.

b) LIFO provides a better match of current expenses to revenues on the income statement, while FIFO provides a better ending inventory figure by more closely reflecting current costs.

c) Changes in inventory levels have been shown to be useful in predicting future sales and earnings.

d) One advantage of FIFO over LIFO is that it minimizes the distortion caused by inflation on net income.

6. Which statement is TRUE?

a) An increasing accounts receivables balance is always a good sign as it means the company has more current assets and is more liquid.

b) All property, plant, and equipment must be depreciated over a period not to exceed forty years.

c) In a period of rising prices, using FIFO would produce a lower cost of goods sold than using LIFO.

d) Gains and losses from the sale of property, plant, and equipment should be included in cost of goods sold as in reality they reflect the cost of producing goods for sale.