ACC 4001 Exam 2

Which inventory method would be used when the inventory consists of similar items?

average-cost

(using the net method) sales discounts forfeited should be reported as

other revenues and gains

(using allowance method) What is included in the entries when collecting a previously written-off account?

increase the allowance for doubtful accounts, increase and decrease A/R, increase cash

Why is the allowance method preferred over the direct write-off method?

Matches expenses with revenues better

Who counts the inventory for goods held on consignment?

The consignor includes them in Ending Inventory

what type of costs are freight charges (on goods sold)

period costs

Trade discount of 4% if ordering 10,000+ units per year; sold 4,000 ATM at $2/unit. Likelihood of the discount being taken is very high - what revenue should the company record

$7,680

For a good or service to be considered distinct and identified as a separate performance obligation, it must be:

Able to be used by the customer on its own or with resources readily available to the customer, and able to be separately identified from other promises in the contract

(perpetual inventory) which accounts are debited during credit sales

A/R and COGS

What are the ways that a company can generate cash from accounts receivable?

Assignments and factoring

When a customer purchases inventory from a business organization, they may be given a discount which is designed to induce prompt payment. What is it called?

Cash discount

in a period of rising costs, which method gives the highest COGS

LIFO

In a period of rising costs, which method gives the highest Net Income

FIFO

Which inventory method would a company use to maximize profits in a period of rising prices?

FIFO

Which method of inventory best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

FIFO

When the accounts receivable are sold outright to a company, they have been

Factored

Finance companies that buy receivables from businesses

Factors

T/F: If a supplier ships goods FOB destination, the title passes to the buyer when the supplier delivers the goods to the common carrier

False

T/F: a nonrefundable upfront fee is generally recorded as revenue when received

False

T/F: if a company uses a perpetual inventory system, it is not necessary to take a physical inventory count

False

T/F: purchases of merchandise are debited to Purchases in a perpetual inventory system and Inventory in a periodic inventory system

False

T/F: the first step in the revenue recognition process is to identify the separate performance obligations in the contract

False

On May 1, 2025, Richardson Inc. entered into a contract to deliver one of its specialty mowers to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of $900 in advance on May 15, 2025. Kickapoo pays Richardson on May 15, 2025, and Richardson delivers the mower (with cost of $575) on May 31, 2025. When is revenue recognized?

May 31

Which inventory method would be used with a relatively small number of costly, easily distinguishable items?

Specific identification

What is a LIFO reserve

The difference between LIFO inventory and the amount used for internal reporting purposes

A discount is deducted before any exchange takes place; tt is often done for larger orders. What is it called?

Trade discount

T/F: FOB shipping point - title passes when the common carrier receives the goods

True

T/F: if the performance obligation is NOT highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately

True

When preparing a bank reconciliation, bank credits are a) deducted from the balance per books b) added to the balance per books c) deducted from the bank statement balance d) added to the bank statement balance

added to the balance per books

A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on a) gross sales b) credit sales less returns and allowances c) aging the receivables d) direct write-off

aging the receivables

Bad debt is: a) management's determination of which accounts will be sent to the attorney for collection b) an estimate that is based only on an analysis of the receivables aging c) an estimate that is based on historical and prospective information d) based on the actual amounts determined to be uncollectible

an estimate that is based on historical and prospective information

The standard, Revenue from Contracts with Customers, adopts what approach

asset-liability (Balance Sheet) approach

revenue from a contract with a customer a) can be recognized even when a contract is still pending b) is recognized when the customer receives the rights to receive consideration c) cannot be recognized until a contract exists d) is recognized even if the contract is still wholly unperformed

cannot be recognized until a contract exists

Short-term paper maturities of less than 3 months should be classified as

cash equivalents

the minimum cash amounts that banks often require their loan customers to maintain in checking accounts is called:

compensating balance

most used costing approach for LIFO?

dollar-value LIFO

one criterion that indicates that a company should disregard revenue guidance for contracts is when a) each party's rights regarding the goods or services to be transferred can be identified b) the payment terms for the goods and services to be transferred can be identified c) each party can unilaterally terminate the contract without compensation d) the contract has commercial substance

each party can unilaterally terminate the contract without compensation

The seller of a good or service should recognize revenue when: a) each performance obligation is satisfied b) it identifies the separate performance obligations in the contract c) it identified the contract with customers d) it determines the transaction price

each performance obligation is satisfied

Which inventory for a manufacturing firm is similar to the merchandising inventory?

finished goods

a departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business, their:

future utility (profit making ability) will be less than their cost

a contract: a) must be in writing to be enforceable b) is enforceable if each party can unilaterally terminate the contract c) is an agreement that creates enforceable rights and obligations d) does not need to have commercial substance

is an agreement that creates enforceable rights and obligations

the direct write-off method a) is based on facts, not estimates b) is often used for financial reporting purposes c) records the expense in the same period as the associated revenue d) all of these answer choices are correct

is based on facts, not estimates

the journal entries for a bank reconciliation: a) are taken from the "balance per bank" section only b) may include a credit to A/R for a NSF check c) may include a debit to Office Expense for bank service charges d) may include a debit to A/P for an NSF check

may include a debit to Office Expense for bank service charges

all of the following can be included under "cash" except a) money market funds b) savings account balance c) checking account balance d) currency

money market funds

Which account does not exist in a perpetual inventory system? a) COGS b) inventory c) sales returns and allowances d) purchases

purchases

Travel advances should be reported as

receivables

FASB ASC 606, includes all of the following except: a) allocate the transaction price to the performance obligations b) identify the contract with the customer c) recognize revenue when (or as) the entity is paid for a performance obligation d) identify the performance obligations in the contract

recognize revenue when (or as) the entity is paid for a performance obligation

when sales are made with a right of return, the company a) records the estimated returns in the Sales Revenue account b) records the returned asset in a separate inventory account c) should recognize revenue for the full sales price d) should not recognize any revenue

records the returned asset in a separate inventory account

What is a LIFO layer?

the LIFO value of an increase in inventory for a given year

an indication that the customer has not taken control of the good or service is

the customer has no significant risks or rewards of ownership

LCM, the designated market value is

the middle value between replacement cost, NRV, and NRV - normal profit margin

in determining the transaction price, the company must consider

variable consideration, non-cash consideration, time value of money, and consideration payable