Problem 1. A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2011 by selling more merchandise than it purchases, the effect on 2011 net income of the inventory reduction, compared to having no change in inventory quantity from the beginning to the end of 2011, is:
a) Net income for 2011 will be greater if the inventory quantity declines.
b) Net income for 2011 will not be affected because of the inventory quantity decline.
c) Can't tell from the information given.
d) Net income for 2011 will be less if the inventory quantity declines.
Problem 2. The principal reason for converting a customer's account receivable to a note receivable is:
a). the note receivable earns interest and the account receivable does not.
b). the receivable is less likely to have to be written off as uncollectible.
c). the customer is more likely to continue purchasing the company's products.
d). working capital is immediately increased.