ACC 210 Exam 2
How do we calculate annual depreciation using the straight-line depreciation method?
(Cost - Residual Value)/ Service Life
Indicate whether each transaction would increase, decrease, or have no effect on the Assets, Liabilities, Stockholder's Equity, Revenue, and Expense accounts. 1.) Provide services on account 2.) Estimate uncollectible accounts 3.) Write off accounts as uncollectible 4.) Collect on account previously written off
1.) Assets, Stockholder's Equity, and Revenues increase, everything else isn't affected. 2.) Assets & Stockholder's Equity decrease, Expenses increase, everything else isn't affected 3.) None are affected 4.) None are affected
Abbott Landscaping purchased a tractor at a cost of $42,000 and sold it three years later for $21,600. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $3,000 residual value. Tractors are included in the Equipment account. Record the sale.
1.) Debit Cash $21,600 2.) Debit Accumulated Depreciation $23,400 3.) Credit Equipment $42,000 4.) Credit Gain $3,000 Explanation: 1.) debit cash the amount we receive for the asset sold. 2.) calculate accumulated depreciation using the straight-line method 3.) credit equipment the original cost because we are "losing" that money out of the equipment account 4.) calculate the gain/loss of the sale and credit a gain and debit a loss.
Match the following terms to their definitions: 1.) Exclusive right to display a word, a symbol, or an emblem. 2.) Exclusive right to benefit from a creative work. 3.) Assets that represent contractual rights. 4.) Oil and gas deposits, timber tracts, and mineral deposits. 5.) Purchase price less fair value of net identifiable assets. 6.) The allocation of cost for plant and equipment. 7.) The allocation of cost for intangible assets. a.) Copyright b.) Depreciation c.) Trademark d.) Amortization e.) Goodwill f.) Natural resources g.) Intangible assets
1.) c 2.) a 3.) g 4.) f 5.) e 6.) b 7.) d
On April 25, Foreman Electric installs wiring in a new home for $3,500 on account. However, on April 27, Foreman's electrical work does not pass inspection, and Foreman grants the customer an allowance of $600 because of the problem. The customer makes full payment of the balance owed, excluding the allowance, on April 30.
April 25: Debit Acc. Rec. $3,500 Credit Service Rev. $3,500 April 27: Debit Sales Allowance $600 Credit Acc. Rec. $600 April 30: Debit Cash $2,900 Credit Accounts Rec. $2,900
For the following, indicate whether you add, subtract or no entry for bank or company reconciliations: Checks outstanding, NSF checks, Interest earned, Deposits outstanding, Deposit recorded twice by company, Bank service fees.
Checks Outstanding: Subtract from Bank, no entry for company. NSF Checks: No entry for bank, subtract from company Interest Earned: no entry for bank, add for company. Deposits Outstanding: add for bank, no entry for company. Deposit recorded twice by company: no entry for bank, subtract from company. Bank Service Fees: no entry for bank, subtract from company.
Compare Company 1 that has a receivable turnover ratio of 80.5 and an average collection period of 4.5 to Company 2 that has a receivable turnover ratio of 11.3 and an average collection period of 32.3
Company 1 has a higher receivables ratio and a lower average collection period which means they collect cash more quickly from its customers.
How do we calculate inventory turnover ratio?
Cost of Goods Sold/ Average Inventory
How do we calculate weighted-average unit cost?
Divide total cost by number of units
What has historically been the most common means of detecting fraud?
Employee tips
How do we calculate gross profit?
Gross Profit = Net Sales - COGS
How do we calculate interest?
Interest = Face value x annual interest rate x fraction of year
On March 12, Medical Waste Services provides services on account to Grace Hospital for $11,000, terms 2/10, n/30. Grace does not pay for services until March 31, missing the 2% sales discount. For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 31.
March 12: Debit Accounts Rec. $11,000 Credit Service Rev. $11,000 March 31: Debit Cash $11,000 Credit Accounts Rec. $11,000
On March 12, Medical Waste Services provides services on account to Grace Hospital for $11,000, terms 2/10, n/30. Grace pays for those services on March 20. For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 20.
March 12: Debit Accounts Receivable $11,000 Credit Service Revenue: $11,000 March 20: Debit Cash $10,780 Debit Sales Discounts $220 Credit Accounts Receivables $11,000
How do we calculate net realizable value?
NRV = Total Accounts Receivable - Allowance for Uncollectible Accounts
What is the receivables turnover ratio?
Net Credit Sales / Average Accounts Receivable
How do we calculate net sales (net revenue)?
Net Sales= Total sales - Sales discounts - Sales Returns & Allowances
Does collecting cash on an account previously written off effect total assets or net income?
No
How do we calculate annual depreciation using the double-declining-balance depreciation method?
Original cost x (2/service life) = first year depreciation (original cost - 1st yr. depreciation) x (2/service life) = 2nd year depreciation etc.
For each scenario, calculate amount of revenue to be recognized in 2021. Scenario 1: During 2021, IBM provides consulting services on its mainframe computer for $11,000 on account. The customer does not pay for those services until 2022. Scenario 2: On January 1, 2021, Gold's Gym sells a one-year membership for $1,200 cash. Normally, this type of membership would cost $1,600, but the company is offering a 25% "New Year's Resolution" discount. Scenario 3: During 2021, The Manitowoc Company provides shipbuilding services to the U.S. Navy for $450,000. The U.S. Navy will pay $150,000 at the end of each year for the next three years, beginning in 2021. Scenario 4: During 2021, Goodyear sells tires to customers on account for $35,000. By the end of the year, collections total $30,000. At the end of 2022, it becomes apparent that the remaining $5,000 will never be collected from customers.
Scenario 1: $11,000 Scenario 2: $1,200 Scenario 3: $450,000 Scenario 4: $35,000
How do we calculate annual depreciation using the activity-based depreciation method?
Step 1: (cost -residual value)/ total units expected to be produced = per unit rate Step 2: multiply per unit rate by number of units of activity each period.
What is residual value or salvage value?
The amount the company expects to receive from selling an asset at the end of its service life.
What is service life?
Time period over which the company expects to receive benefits from the asset before disposing of it.
When do we record an impairment?
When future cash flows fall below book value.
When prices are RISING, indicate whether LIFO or FIFO will result in: a.) Higher total assets b.) Higher cost of goods sold c.) Higher net income
a.) FIFO b.) LIFO c.) FIFO
When prices are DECLINING, indicate whether FIFO or LIFO results in: a.) Higher total assets b.) Higher cost of goods sold c.) Higher net income
a.) LIFO b.) FIFO c.) LIFO
Match the type of company to the definition: Manufacturing, Merchandising, Service a.) Purchases good that are primarily in finished form to resale to customers b.) Records revenues when providing services to customers c.) Produces the goods they sell to customers
a.) Merchandising b.) Service c.) Manufacturing
Match the type of inventory to its definition: Raw materials, finished product, work-in-process a.) Cost of items not yet compete by end of period b.) Inventory that has been substantially completed c.) Basic components used to build a product
a.) work-in-process b.) finished goods c.) raw materials
How do we calculate profit margin?
net income/ net sales
How do we calculate asset turnover ratio?
net sales/ average total assets
How do we calculate return on assets?
profit margin x asset turnover ratio or net income/average total assets
