Acct 382 - Intermediate Accounting 1

An item typically included in the income from continuing operations section of the income statement is: a) discontinued operations b) restructuring costs d) prior period adjustments d) all of the above

b) restructuring costs

Other long-term assets

balance sheet item that is a catch-all classification of noncurrent assets (long-term prepaid expenses, noncurrent investments that are not material)

internal controls for cash is the

bank reconciliation

Non-GAAP earnings are calculated

based on management's assumptions of permanent earning

accrued receivable occures when revenue is earned

before cash flow

related-pary transactions

borrowing or lending money at an interest rate significantly different from the market interest rate

when a specific account receivable is determined to be uncollectible

both the allowance amount and account receivable is reduced

Ways management can use accounts receivable to manipulate earnings resulting in diminished earnings quality

building large allowances for bad debts in good periods and then reducing those allowances in bad periods selling products at large discounts to retailers before they would normally buy and then holding the products for later delivery

Earnings per share should be reported for each of the following income statement captions except: a) income from continuing opereations b) discontinued operations c) operating income d) net income

c) operating income

which of the following would more likely be found in a multi-step income statement? a) total expenses b) total revenues and gains c) operating income d) all of the above

c) operating income

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flow? a) collections from customers b) interest on note payable c) purchase of equipment d) purchase of inventory

c) purchase of equipment

Management Discussion and Analysis section includes a perspective on:

capital resources, operations and liquidity

In a cash receipts journal, the debit column is for:

cash

petty cash fund should always have ________ and ______ that together equal the amount of the fund

cash receipts

Order of current assets on balance sheet

cash and cash equivalents accounts receivable inventory prepaid expenses

compensating balance may be disclosed in the financials as

cash and cash equivalents noncurrent assets current assets

current assets

cash and other assets that are expected to be converted to cash or consumed within a year or the current operating cycle (temporary investment, short-term marketable security)

short-term, highly liquid investments such as money market funds or treasury bills are classified as

cash eqivalents

The new expected cash flow approach requires that the probability adjustment for uncertainty is applied to what amount when calculating expected cash flows?

cash flow

IFRS for determining whether risks and rewards have been transferred is evaluated by comparing how variability in the amounts and timing of the _______________ ________________ of the transferred assets affects the company before and after transfer

cash flows

Other assets

catch all category of noncurrent assets

Income statement classification shifting

categorizing operating expenses as nonoperating expesenes

Change in accounting principle

change from one acceptable accounting method to another change from percent-off-completion to completed contract method change from LIFO to FIFO

factors considered when estimating sales returns

change in customer base overall economic conditions

For internal control purposes, which responsibilities should be seperated for cash dispursements

check signing and check writing check writing and check mailing

internal control procedures for cash disbursements (other than small disbursements from petty cash) should include

checks signed by authorized individuals all expenditures are authorized all disbursements (other than petty cash) are made by check

when a previously written off account is collected, what happens after the reinstatment

collection is recorded with a debit to cash and credit to accounts receivable

ratio analysis

common method of analysis is to express a relationship between the two financial statement items and compare this relationship with previous years

Shareholders' equity includes?

common stock and retained earnings

Common disclosures on the face of the financials

common stock information allowance for uncolletible accounts

Paid-in capital

common stock, paid-in capital in excess of par

Which of the following are providers of financial information? a) customers b) companies c) households d) investors e) schools

companies, households, schools

a restriction of cash wherein the borrower is required to maintain a specific amount in a low-interest or non-interest-bearing account at the bank is called a(n) _______________ balance.

compensating

discontinued operation is reported when a ____________ of an entity either has been disposed of or is classified as held for sale

component

Two types of adjustments to net income for indirect method

components of net income that do not affect cash changes in operating assets and liabilities during the period that affected cash and were not in net income

FASB expanded view of income is included in

comprehensive income

The "accounting constitution", a coherent system of interrelated objectives and fundamentals that lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting is referred to as the ______________ framework.(enter only one word)

conceptual

Companies have considerable flexibility in reporting income from __________ operations, but the reporting of income from ___________________ operations is strictly mandated

continued discontinued

an allowance for sales return accounts is classified as a(n)

contra account to accounts receivable

When a company discovers an Immaterial error in a year subsequent to the year the error is made, what is the proper course of action?

correct the error in the year discovered

Cost index for layer year

cost in layer year/cost in base year

periodic inventory system disadvantage

cost of goods equation assumes all inventory not on hand at the end of the period was sold and does not account for damages or stolen merchandise

product costs

cost that are included in inventory direct materials, direct labor, manufacturing overhead

LIFO liquidation profits occur when

costs are rising and inventory quantity declines

direct write-off method

could result in a mismatching of expenses and revenue

A credit balance in the income summary account is closed with a ___________ to retained earnings

credit

The adjusting entry required to record depreciation includes a(n) ________ entry to accumulated depreciation

credit

The normal balance in a contra asset account is:

credit

The normal balance of the contra asset accumulated depreciation account is a(n) _________

credit

The adjusting entry to record deferred revenue originally recorded as sales revenue includes:

credit to deferred revenue debit to sales revenue

Accruing interest at year-end on a note receivable journal entry includes

credit to interest revenue

On November 1, 2017, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, 2017 requires:

credit to rent expense $11,000

To increase the accumulated depreciation account, you would _________ the account, and to increase depreciation expense, you would _______ the account

credit, debit

The interest rate used in the expected cash flow approach to estimating the value of assets or liabilities is the

credit-adjusted risk-free rate

Revenues are $1,000. Expenses are $1,800. The journal entry required to close the income summary account will require a ________ to income summary and a _______ to retainted earnings

credit; debit

To close the dividend account, the journal entry would require a(n) ___________ entry to the dividend account and a ______ entry to retained earnings

credit; debit

A company debits cash to increase its cash account. A bank _______ the customer's checking account because the customer account represents a liability on the bank's balance sheet

credits

Balance sheet - how are assets classified

current and noncurrent

classified balance sheet, supplies would be classified among __________

current assets

Working capital

current assets minus current liabilities

ending balance of accumulated other comprehensive income is calculated by adding this amount to the beginning balance of accumulated other comprehensive income

current year other comprehensive income

journal entry, the amount to be _________ is entered in the first column, and the amount to be ____________ is entered in the second column

debied; credited

The adjusting journal entry required when deferred revenue is recognized includes a ______ entry to a liability

debit

To close the dividend account, the journal entry would require a(n) ______ entry to retained earnings

debit

Smith Corporation began 2016 with a difference of $50,000 between inventory valued internally using FIFO and inventory valued using LIFO. At the end of 2016, this difference increased to $75,000. The journal entry to record this increase would include

debit COGS $25,000 credit to LIFO reserve $25,000

previously written off account is collected in full, the entry to reinstate the account would require

debit accounts receivable credit allowance for uncollectible accounts

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. Assuming Western uses a periodic inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following

debit accounts receivable $70,000 credit sales revenue $70,000

Kilroy uses the net method to record sales on account. Kilroy sells goods on account for $1,000 with terms 2/10, n/30. the journal entry to record this transaction will include

debit accounts receivable $980 credit sales $980

Oswego Clay Pipe Company sold $45,500 of pipe to Southeast Water District #45 on April 12 of the current year with terms 4/15, n/60. Oswego uses the gross method of accounting for cash discounts. What entry would Oswego make on April 12?

debit accounts receivable 45,500 credit sales 45,500

Burton Corp. is owed $100,000 by Gem Corp. under a note payable for $100,000 with a 10% interest rate. The carrying value of the note is $40,000, but the previous year's interest of $4,000 had not been received. Burton settles the debt by accepting land with a fair value of $30,000. The journal entry to record this transaction will include:

debit bad debt expense $14,000 debit land $30,000

Marson Corp. has a note receivable from a client. The carrying value of the note is $100,000. Due to the clients financial situation, Marston modifies the terms of the note. The present value of the future cash flows for principle and interest on the modified note are $96,000. The journal entry for the loan modification will include

debit bad debt expense $4,000 credit allowance for uncollectible accounts $4,000

Sully corporation uses an allowance method for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of credit sales and $100,000 of cash sales during the year, the adjustment for estimated uncollectible accounts will require a

debit bad debt expense for $2,000 credit allowance for uncollectible accounts for $2,000

interest-bearing note receivable collection

debit cash credit interest revenue credit note receivable

Rascal Corp. borrows $500,000 by signing a 1-year, 12% promissory note from General Finance Company and assigns $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Rascal to record the borrowing will include

debit cash debit finance charge $6,000 credit to liability financing arragements

journal entry required for a note receivable transferred as a sale

debit cash debit loss on sale of note (to balance) credit not receivable (face amount) credit interest receivable (accrued interest)

sale with recours

debit cash debit loss on sale of receivable to balance debit factor on receivables credit recourse liability credit accounts receivable (book value when sold)

factoring without recorse

debit cash debit loss on sale of receivables (to balance) debit receivable from factor credit accounts receivable (book value sold)

On November 10 of the current year, Flores Mills sold carpet to a customer for $7,300 with credit terms 3/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 17, assuming the correct payment was received on that date?

debit cash $7,081 debit sales discounts 219 credit accounts receivable 7,300

When inventory is sold in a perpetual inventory system:

debit cost of goods sold credit inventory debit cash credit sales

Revenue earned

debit cost of goods sold credit sales

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require

debit interest receivable $2,000 credit interest revenue $2,000

Purchase inventory on account

debit inventory credit accounts payable

Prepaid rent

debit prepaid rent credit cash

On May 1, 2017 Garcia Company paid $1,200 for 12 months rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, 2017 will require:

debit prepaid rent $400 credit rent expense $400 Garcia recorded the full amount as rent expenses in the income statement on May 1. At the end of the year, the rent expense must be reduced by the remaining four months

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. A physical count determined the cost of inventory a the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry to record the purchase of inventory during the year includes:

debit purchases $100,000 credit cash $100,000

To close revenue accounts

debit revenue credit income summary

A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires:

debit sales discounts for the discount taken by customer

A company believes its sales returns will be material. What is the journal entry required

debit sales returns credit allowance for sales returns

Warner Corp sells goods on account for $10,000. The customer pays the invoice in full on April 15, but on April 20, the customer returns $3,000 of the merchandise and receives a refund. What is the entry Warner will make on April 20 when the goods are returned?

debit sales returns credit cash

Regland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The Adjusting journal entry required at year-end includes:

debit supplies expense $700 credit supplies on hand $700

Joyce determines that a customer accout of $20,000 should be written off as uncollectible. The journal entry to write off the account using the allowance method will include

debit to allowance for uncollectible accounts credit to accounts receivable

shannon corp. determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account includes

debit to allowance for uncollectible accounts and credit to accounts receivable

The following information is taken from Connor Corp.'s accounting records accounts receivable beginning balance 100,000 ending balance 140,000 allowance for uncollectible accounts beginning balance 15,000 ending balance 18,000 during the year, Connor wrote off $17,000 of accounts receivable that were uncollectible the adjustment to record bad debt expense at the end of the period was

debit to bad debt expenses for $20,000 credit to allowance for uncollectible accounts for $20,000 18,000+17,000-15,000 = 20,000

journal entry to record the borrowing of cash and the signing of a note payable involves:

debit to cash credit to note payable

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end and principal and interest are due at maturity. The entry required on Lights books on April 1 when the note is due requires:

debit to cash $104,000 credit to interest revenue $2,000 100,000 x .08 x3/12 credit to note receivables $100,000 credit to interest receivable $2,000

Klondike Inc sold goods to customers for $5,000 cash. The cost of goods was $3,000. The journal entries to record this transaction are:

debit to cash $5000 credit to sales $5000 debit to cost of goods sold $3000 credit to inventory $3000

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On December 31, when Song records Interest for the year, Song will record

debit to discount on note receivable $9,566 credit to interest revenue $9,566 n= 2, i=12%, the present value factor is .79179 x 100,000 = 79,719 79,719 x 12% = 9,566

Kendall Corp. purchases equipment for $100,000 by paying $20,000 in cash and signing a note payable for $80,000. The journal entry to record this transaction would include:

debit to equipment credit to cash credit to notes payable

Adjusting entry needed to record use of prepaid expense

debit to expense account credit to prepaid asset account

On October 1, Calloway signs a 5-year interest-bearing note payable for $4,000. The note bears interest of 10%. The journal entry required on December 31 to accrue interest will include:

debit to interest expense $100 4000 x .10 x (3/12) = 100

On October 1, Callison accepts a 5-year interest bearing not receivable for $1,000.The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31, Year 1, to accrue interest will include:

debit to interest receivable $30 credit to interest revenue $30 1000 x .12 x (3/12) = 30

Carly Corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. First Bank charged a 4% factoring fee and retained $5,000 to provide a reserve against potential sales returns and allowances. Management estimates the fair value of the last 9% of receivables to be equivalent to the book value. The journal entry Calry will make to record the factoring arrangement will include

debit to loss on sale of receivables for $4,000

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On January 1, when Song receives the note from the customer, Song will record:

debit to notes receivables $100,000 credit to sales revenue $79,719 n=2, i=12%, present value factor is .79719 x 100,000 credit to discount on note receivables $20,281 n=2, i=12$, present value factor is .79719 x 100,000

Brunson Company pays employees $4000 for work performed in the current month. The journal entry to record the transaction will include

debit to salary expense credit to cash

Accrued salary is recorded by:

debit to salary expense credit to salary payable

A(n) ______ represents the left side of the account, whereas a(n) _______ represents the right side of the account

debit; credit

Revenues are $1,000. Expenses are $200. The journal entry required to close the income summary account will require a _______ to income summary and a ______ to retained earnings

debit; credit

Supplies expense is ______ and supplies is _____ for the amount of supplies used during the period that were originally recorded as an asset when purchased

debited; credited

The overriding objective in the hierarchy of qualitative characteristics of financial reporting information is:

decision usefulness

Liabilities impact of debits and credits:

decrease by debit increase by credit

Expenses will ____________ retained earnings and revenues will ____________ retained earnings

decrease; increase

Paying for supplies purchased in a previous month has what effect on the accounting equation for the payment of supplies?

decreases assets decreases liabilities

Adjusting journal entries are necessary for three situations:

deferrals, accruals and estimates

current liabilities

deferred revenues and accrued salaries payable

Comparative financial statements purpose

detect and predict trends compare year-to year data

Cost approach

determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition

Private Company Council (PCC)

determines whether changes to existing GAAP are necessary to meet the needs of users of private company financials

First step in measuring inventory and cost of goods sold

determining the physical quantities of goods

The two methods for preparing the Statement of Cash Flows are:

direct and indirect methods

pledging receivables requires

disclosure in the notes to financial statements

Gross method of accounting for purchase discounts

discount not taken is recorded as Purchase

Net method of accounting for purchase discounts

discount not taken is recorded as interest expense

The treatment of discontinued operations and unusual items in interim reporting under U.S. GAAP is more consistent with the _______ view

discrete

management approach to segment reporting requires that _______________ financial information is available

discrete

Interim financial Earnings per share is consistent with which view

discrete view and follow same procedures as annual calculations calculations are based on what is happening in that quarter rather than conditions estimated to exist at end of fiscal year

a trade discount is a reduction from the list price, which is to:

disguise real prices from competitors give quantity discounts to customers change prices without publishing a new catalog

earnings may be distorted by the transfers of receivables because companies may

distort fair value estimates in recording securitizations

To solve for present value

divide FV by (1 +i)^n

Which accounts are closed at the end of the period?

dividends, sales and salary expense (not cash accounts)

Liability - characterisitcs

due to a past transaction or event, it is a probable future sacrifice of an economic benefit, it is a present obligation

Each economic event, or transaction, affecting the accounting equation has a(n) _______ effect because resources must always equal claims

duel

perpetual LIFO

each time inventory is purchases or sold, the layers are adjusted

Which of the following are among the basic assumptions underlying U.S. GAAP? (select all that apply) a) periodicity b) neutrality c) revenue recognition d) going concern e) fulldisclosure f) economic entity g) monetary unit

economic entity, going concern, periodicity and monetary unit

an application where the interest rate stays the same over time, but interest revenue increases as the rate is multiplied by a receivable balance that increases is referred to as

effective interest method

statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:

either an operating or financing cash flow

IFRS comprehensive income must be presented in

either one or two statements (same as GAAP)

Objectives-oriented accounting standard setting

emphasizes the use of professional judgment when choosing how to account for a transaction

Internal control consists of plans to:

enhance the accuracy of accounting data enhance the reliability of accounting data and promote operational efficiency

When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting ________________

error

Change in residual value of a depreciable asset is treated as a change in accounting _________________

estimate

A change in depreciation method is treated as a change in accounting ___________ that is achieed by a change in accounting ____________

estimate principle

Three types of accounting changes are a change in accounting principle, a change in accounting ______________, and a change in reporting __________

estimates entity

susequent events

event that affects a loss contingency, sale of the business, issuance of debt securities

An internal event

events that affect the financial position, but do not involve an exchange transaction with another entity

Vertical analysis

examines the relationship of items on the financials of one year

What type of expenditures should be included in the cost of inventory of a manufacturing company?

expenditures necessary to acquire inventory, and bring inventory to sales location

Some ____________ recognition is modified in interim reporting to cause interim statements to relate better to annual statements

expense

A gain from discontinued operations will result in an income tax _________, whereas a loss from discontinued operations will result in an income tax __________

expense benefit

Failure to record depreciation expenses has what effect on the financials

expenses are understated assets are overstated

Failure to record an adjusting entry for accrued interest on a note payable has what effect of financials:

expenses are understated retained earnings is over stated

Accrued liabilities are ___________________

expenses incurred before cash was paid (interest payable, warranty liabilities, salary payable)

Adjusting journal entries are needed to record:

expenses incurred, but not yet paid and revenue earned, but not yet received

Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financials?

expenses will increase

Most states require ________ to become a licensed certified public accountant

experience, education and testing

The primary role of financial accounting is to provide useful financial information to users __________ to the business enterprise.

external

interest calculation formula

face value x annual interest rate x fraction of the annual period

advantages of one global accounting framework:

facilitate access to capital improve comparability

alternative method for valuing notes receivable

fair value method

Qualitative characteristic of FASB conceptual framework

faithful representation relevance

To be useful for decision making, information should possess the fundamental decision-specific qualities of:

faithful representation, relevance

Accounts receivable results from the sale of good or services for cash true/false

false

At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond true/false

false

Cash basis accounting is the required accounting method for most profit-oriented companies. true/false

false

Retained earnings equals net income plus distributions to shareholders. true/false

false

a note receivable is considered impaired when payment is not received on the due date true/false

false

an interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest true/false

false

Economic Events cause changes in the:

financial position of a company

Disclosure is the process of including additional pertinent information in?

financial statements and notes to the financial statements

statement of cash flows, cash received from the issuance of common stock would be classified as a ________________

financing activity

annuity due

first payment is due at signing of agreement

ordinary annuity

first payment is due at the end of the first month after signing the agreement

annuity

fixed payment at fixed intervals

Income Approach

for measuring fair value estimates value by estimating future amounts of earnings or cash flows and then mathematically converting these amounts to a single present value

SEC does not agree with a standard issued by the private sector it can:

force a change in the standard

note receivable

formal credit arrangement between borrower and lender

The majority of productive resources are privately owned in a ________ enterprise economy

free

perpetual inventory system

freight is added directly to the inventory account

The __________ ___________ principle requires that any information useful to decision makers be provided in the financial statements, subject to the cost effectiveness constraint

full disclosure

IFRS allows expenses to be classified by

function or nature

Clara invests $1,000 in a savings account earning 3% interest. At the end of the first year, Clara has $1,030 in the account. The $1,030 Clara has at the end of year 1 is the __________ value

future

The calculation of ____________ value requires the addition of interest, while the calculation of ______________ value requires the removal of interest

future present

Future value of an ordinary annunity

future value of a series of equal-sized cash flows with the first payment taking place at the end of the first period

Future value of an ordinary annuity table is used when calculating

future value of a series of payments example: depositing an amount to a savings account each month that will grow to purchase a car in 5 years

Chen Corp. wishes to deposit $10,000 in the bank at the beginning of each year, a nd would like to know how much money it will have at the end of year 10. Which table should Chen use to make this calculation?

future value of an annuity due

The future value of a series of equal-sized cash flows with the first payment taking place at the beginning of the first period is __________________

future value of an annuity due

Discontinued operations reported income

gain or loss on disposal of the components assets and operating income or loss of the component from the beginning of the reporting period to the disposal date

Other comprehensive income includes net income as well as other _________ and __________ that change shareholders' equity but are not included in traditional net income

gains losses

Costs of providing financial information

gathering, processing and disseminating information

IASB is dedicated to developing a set of high-quality, understandable, and enforceable ________ accounting standards

global

Ownership of inventory at the end of the accounting period is determined for:

goods shipped by suppliers goods shipped to customers

A bond will be issued at a discount when the market rate of interest is ___________

greater than the stated rate

the ___________ of recording sales revenue recognized the discount not taken as part of the sale

gross method

two methods used for recording sales discounts are

gross method and net method

gross profit ratio

gross profit/net sales

IFRS primary purpose of the conceptual framework is to provide

guidance to both standard setters and practitioners

double entry system of accounting means each transaction _______

has a dual effect on the accounting equation

compensating balance results in an effective interest on the loan that is ___________ than the stated rate on the debt

higher

Based on the Dupont model an equity multiplier greater than 1 will produce a return on equity that is higher than the return on assets. What is the trade-off to this effect?

higher leverage results in higher probability of default

Operational Risk

how adept a company is at withstanding various events that might impair its ability to earn profits

Financial Statement Presentation project addresses:

how items are displayed in the financials, classifications and subclassifications of items, the aggregation of items in the financials

EIFT - Emerging Issues Task Force was formed to

identify potential problem areas and provide a timely response to issues

Impairment loss

if book value (carrying value) of an asset is more than fair value minus cost to sell the asset

dollar-value LIFO

if prices have changed, use cost indexes to determine whether an observed increase in inventory is an actual increase in the quantity of inventory or one caused by an increase in prices

Reporting comprehensive income:

in a single statement of comprehensive income or in two consecutive statements - income statement and comprehensive income statement

LIFO

in period of declining costs would result in the highest ending inventory

LIFO

in period of rising prices - results in higher cost of goods sold, lower net income and lower tax liability

LIFO inventory method

in the absence of changes in costs, the results of using LIFO would be identical to those obtained by FIFO LIFO will provide a close matching of current revenues with current cots since the most recent costs are expensed first In periods of declining costs, cost of goods sold using LIFO will produce a lower cost of goods sold than FIFO

GAAP allows that any significant noncash investing and financial activities may be reported

in the notes to financials on the face of the statement of cash flows

Restructuring cost are recognized on the income statement

in the period the exit or disposal obligation is incurred (based on fair value)

estimated future sales returns

included in ending inventory and deducted from cost of goods sold

Raw Materials Inventory

includes items acquired for the purpose of processing into finished goods

Summary of significant accounting policies

includes method of depreciation, choice between LIFO AND FIFO, items included in cash and cash equivalents

Statement of Cash Flows

includes operating, investing and financial activities reports the changes in a companys cash balance during a period purpose is to provide information about cash receipts and cash disbursement during a period

Income from Continuing Operations

includes the revenues, expenses (including income taxes), gains and losses from operations that are more likely to continue into the future. 3 Components: Operating Income Nonoperating Income Income tax expenses

Disclosure refers to the process of?

including additional information in the financial statements and notes

Earnings per share is disclosed at the bottome of the

income statement

When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through

income statement classification shifting

CECL - Current Expected Credit Loss model will ________ the amount of bad debt expense companies have to recognize on receivable impairments in comparison to current GAAP

increase

Assets impact of debits and credits:

increase by debit decrease by credit

Providing services and sales on account has what effect on the balance sheet equation?

increases assets

Purchasing supplies on account has what effect on the balance sheet equation

increases liabilities increases assets

Accruing a receivable _________ accounts receivable on the balance sheet and ___________ revenues on the income statement

increases; increases

Purchasing supplies on account ____________ the supplies account and _____________ accounts payable

increases; increases

Unqualified audit opinion

indicates the financials have been prepared according to U.S. GAAP

gross profit margin

indicates the percentage of each sales dollar available to cover other expenses

Two acceptable methods under U.S. GAAP for preparing the statement of cash flows are

indirect and direct methods

restriction on cash may be

informal arising from management intent and formal by contract

account receivable

informal credit agreement with trade customers

Worksheet

informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period

ERP - Enterprise Resource Planning system

integrates the information of departments and functions of a company into a single computer system

compound interest

interest on initial investment plus interest calculated on previously earned interest

Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable interest rate is 6%. One year after the prepayment. Munchen should recognize:

interest revenue of 5,340 89,000*.06 = 5340

A perpetual system requires that merchandise purchases be recorded in the _____________ account

inventory

In a perpetual system, each time goods are sold, cost of goods sold is debited and __________ is credited

inventory

affect earnings quality

inventory write-downs choice of inventory method change in inventory method

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests is a(n) ________________ by owners.

investments

Noncurrent assets

investments, property and machines

Capital markets is a composite of all:

investors and creditors

The cost of freight-in

is commonly included in the cost of inventory

DVL Pool

is made up of items likely to have similar cost change pressures

Net operating cash flow

is the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.

Statement of Cash flows financial activities

issuance of common stock to investors borrowing from bank

financing activity on the statement of cash flows

issue stock pay dividends, borrowing on a note payable

An advantage of historical cost measurement is

it is objective and verifiable

Multi-step income statement advantages

it reports expenses by function it reports the relationship between various items it provides more information than a single-step income statement

DVL method

layers can only be added during the current year if inventory at base year cost has increased

A bond will be issued at a premium when the market rate of interest is ________ the stated rate

less than

Over a 5-year period, simple interest is __________ compound interest on the same note

less than

a bond will be issued at a premium when the market rate of interest is ___________ the stated rate

less than

GAAP typically requires that bank overdrafts be treated as _______________ on the balance sheet where IFRS allows them to offset other cash accounts

liabilities

Deferred revenue is a(n)

liability on the balance sheet

a company that has sufficient cash or is capable of converting assets to cash in a short period of time so that it can meet its current needs is considered to be

liquid

current ratio and quick ratio measure

liquidity

a petty cash fund is an efficient way to handle what type of payments

low cost office supply purchases

A high inventory turnover ratio could be caused by:

low ending inventory levels a superior sales force

IFRS, bad debt accruals will be __________ and will occur ________ than under GAAP

lower later

Responsibility for the financials and other information found in the annual report lies with ____________

management

Choosing perpetual or periodic inventory system considerations

management control and cost of implementation

fair value approach that uses current information from recent transactions or exchanges in active trading on the stock exchanges is the ____________ approach

market

Secondary Market

market in which stocks and bonds are traded among individual and institutional investors

specific identification inventory cost flow method

matches each unit on hand at the end of the period with its actual cost

FASB conceptual framework concepts includes:

measurement concepts, concepts regarding types ofevents to be accounted for and undelrying concepts of accounting

Activity Ratios

measures efficiency in managing/using assets Include: asset turnover, receivables turnover, average collection period, inventory turnover, average days in inventory

cash basis accounting

measures the difference between cash receipts and payments during a reporting period.

Accrual accounting model measures

measures the entity's accomplishments and resource sacrifices during the period regardless of when cash is received or paid

perpetual inventory system

merchandise returned to a supplier - credit inventory

Property, plant and equipment

mineral mines, oil wells, furniture, machines, buildings

The assumption that financial statement elements should be measured in terms of the U.S. dollar for U.S. financial reporting is referred to as the _______________ unit assumption.

monetary

Time value of money concept

money can be invested today to earn interest and grow to a larger amount in the future

An investment that has higher risk also has

more uncertainty of returns

Simply interest

multiply initial investment x both the applicable interest rate and period of time for which the money is used

related-party transaction disclosure requirements

nature of the relationship, amounts due to or from related parties

To calculate Present Value Of a known future amount

need: future value interest rate number of compounding periods

the income statement approach for estimating bad debts uses a percentage of

net credit sales

Return on Assets (ROA)

net income + interest expense (1-tax rate)/average total assets or: ROA = Profit Margin x asset turnover Measures how profitably a company uses its assets. Net income / Average total assets. (expresses income as a percentage of average total assets)

Failure to accrue salaries at year-end has what effect of financials

net income is overstated

Failure to recognize revenue in the period earned has what effect on the financials:

net income may be over or understated and the income statement would not report the accomplishments of the period

Failure to record an accrual for salaries at year-end has what effects on the financials

net income overstated expense is understated liabilities are understated

Return on shareholders' equity (ROE)

net income/average shareholders equity amount of profit management can generate from the assets that owners provide.

Profit Margin Ratio

net income/net sales (before deducting cost of goods) measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales indicates the amount of net income achieved for each dollar of sales

purchase discount methods

net method gross method

Gross Method vs. Net method of accounting for purchase discounts

net method results in a higher gross margin than the gross method if discounts are not taken financial statements do not differ under the gross and net methods if discounts are always taken

Acceptable measurement attributes for certain financial statement items:

net realizable value, present value, historical cost and fair value

Cobalt Corp. uses the allowance method to account for bad debts. If Cobalt writes off an account for $3,000, what is the effect on the balance sheet

no effect on total assets

purpose of the statement of comprehensive income is to report current period changes in equity that arose from?

non-owner transactions

Interest expenses is classified on the income statement as

nonoperating item

purchase discounts

not taken are reported as interest expense under net method of accounting for purchase discounts under perpetual inventory system, treated as a reduction in the inventory account

a formal credit arrangement between a creditor and debtor is called a(n)

note receivable

the transfer of a(n) _____ to a financial institution is called discounting

notes receivable

SFAC 8 of the conceptual framework focuses on

objective and qualitative characteristics

monetary liabilities

obligation to pay amounts of cash, the amount which is fixed or determinable bond payable note payable accounts payable (not advances from customers)

Disclaimer

occurs when the auditor does not have sufficient information to express an opinion

Collection from customers is classified as an

operating activity

Depreciation expense is classified on the income statement as

operating item

Revenue and expenses on the income statement are classified as:

operating items and non-operating items

statement of cash flows categories

operating, investing and financing activities

Auditors examine financial statements to express a professional, independent ___________________ on the financial statements.(enter one word per blank)

opinion

AICPA - american institute of certified public accountants

organization is currently the national professional organization for certified professional public accountants

restricted cash not available for current use may be reported in the balance sheet as

other assets or investments and funds or noncurrent asset

compensating balance is recorded as

other current asset,

Financial accounting is chiefly concerned with providing information to various _________ users.

outside

when adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance

outstanding checks

IFRS cash reporting

overdrafts in one cash account can typically be offset against positive balance in other cash account

Failure to record an adjusting entry for deferred revenue results in:

overstated liabilities

FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

FOB destination

ownership of the goods remains with the seller until the goods reach the buyer seller usually responsible for shipping

Stockholders' equity sources:

paid in from shareholders, earned by the corporation (retained earnings)

Time value of money calculations are required for which topics?

pensions, long-term notes payable, leases

A temporary purchases account is used when the _____________ inventory system is used

periodic

Allowing the life of a company to be divided into artificial time periods in order to provide timely information is referred to as the _______________ assumption.

periodicity

A(n) ______ account represents the basic financial position elements of the accounting equation and a ______ account keeps track of the changes in the retained earnings component of shareholders' equity.

permanent; temporary

secured borrowing occurs when accounts receivables are _________ or __________________ as collateral for a loan

pledged assigned

According to the conceptual framework, for accounting information to be relevant, what qualities must it possess?

predictive value and confirmatory value

The formula "future value divided by the quantity (1+i)^n is the formula for ___________ value

present

We value most receivables and payables at the _________ value of _______________ cash flows, reflecting an appropriate time value of money.

present future

Present value of annuity four variables

present value interest rate number of periods payment amount

The present value of a series of equal-sized flows with the first payment taking place at the beginning of the first period is a ______________________

present value of an annuity due

Harold would like to deposit a sum of money today that will grown to $20,000 in year 8. Which table should Harold use when making this calculation?

present value of single amount

Balance sheet

presents the financial position of the company on a particular date provides useful information about a company's liquidity and long-term solvency purpose: report a company's financial position on a specific date

The most recent issue in implementing the fair value accounting standards is:

pressure to reduce the extent to which fair value changes are reported in net income

fair value

price that would be received in an orderly market transaction

accumulated interest formula

principal x interest x (# of moths/12)

assets

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Intraperiod tax allocation

process of associating income tax effects with the income statement components that create those effects

method for determining if an item is material and requires separate disclosure relies on:

professional judgement

Which organizations provide financial information to external users?

profit-oriented businesses and charitable organizations

internal control system is designed to

promote operational efficiency safeguard assets encourage adherence to company policies

Sarbanes-Oxley Act requires that if non-GAAP earnings are included in a report of any public disclosure, the company must

provide a reconciliation with earnings according to GAAP

Initial market transactions

provide for new cash by the issuance of stocks and bonds by the corporation.

Interim reporting objectives

provide information about seasonality enhance the timeliness of finanacials

main focus of accounting information is to?

provide useful information for decision making

GAAP impairment indicator guidance

provides an illustrative list of information to consider in evaluating receivables for impairment

IFRS impairment indicator guidance

provides an illustrative list of loss events

Financial reporting is the process of ______________

providing information to outside users

when a buyer returns goods to the seller, the buyer records a(n) ______________

purchase return

what ratios measure liquidity

quick ratio and current ratio

effect rate

rate at which money will actually grow during a full year

Inventory includes

raw materials, work in process, finished goods

ability to continue to generate a high level of sales and collect its receivables can be measured with

receivable turnover ratio and average collection period

Bad debts written off as bad debt expense (no allowance method) results in

receivables will likely be overstated

During the prior year, Marian Company recognized an impairment loss on its notes receivables. During the current year, the amount of estimated future cash flows improved. Marian sould

recognize a gain

the required accounting treatment for transfer of receivables as a sale includes which of the following

record proceeds recognize gain or loss remove receivables

Freight out (or transportation out)

recorded as either selling expense or cost of goods sold

Depreciation expense adjusting entry has what effect on the balance sheet

reduce total assets

Securities and Exchange Commission

regulatory oversight U.S. GAAP

what happens when a receivable previously written off is collected in full

reinstate the receivable and the allowance for uncollectible account

permanent earnings

relate to operations that are expected to generate similar profits in the future. (usually begin with income from continuing operations (not all of this is actually from continuing operations)

Nonoperating Income (Other Income (expense))

relates to peripheral or incidental activities of the company

Gross Profit

relationship between sales revenue and cost of goods sold

Proponents of fair value accounting point out that it will enhance the ____________ of the information provided

relevance

hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics:

relevance and faithful representation

For accounting information to be ____________________,it must possess predictive value and/or confirmatory value.

relevant

Sale of accounts receivable requires

remove the accounts receivable from the balance sheet and recognize the fair value of assets acquired or liabilities assumed

A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the _______ _____ account.

rent expense

cash flows may be distored by the transfer of receivables because companies may

report sale of receivables in the operating section of the statement of cash flows

Income Tax Expense (provision for income taxes)

reported in a separate line in the income statement Income taxes are levied on taxpayers in proportion to the amount of taxable income that is reported to taxing authorities

retained earnings

represents the net income earned by a corporation and not yet paid to shareholders

Compensation disclosure

required by SEC for Executives and directors

Subsequent event disclosure

required for any event having a material effect on operations that occurs after a company's year-end but before the financials are issued (issuance of debt or equity securities)

change in depreciation method

requires a justification in the notes to financials

Sarbanes-Oxley act, Section 404

requires companies must document internal controls and asses their adequacy

Full-disclosure principle

requires financials to provide all material relevant information regarding the company (pension plans, long-term debt, leases)

The accounting treatment required for a material error in financials that have already been issued is to ______________

restate the financial statements of the previous periods affected

temperary earnings

result from transactions or events that are not likely to occur again in the foreseeable future or that are likely to have a different impact on earnings in the future

FIFO perpetual inventory system and FIFO periodic inventory system

result in the same ending inventory and cost of goods sold

Temporary accounts are periodically closed, and the net effect is recorded in the permanent ____________ ___________ accout

retained earnings

The balance in the _______ ________ account after all the temporary accounts have been closed equals net income or net loss

retained earnings

When dividends are declared, a debit is made to a dividends declared account or the _________ _________ account

retained earnings

Interim accounting changes are reported _________

retrospectively

DuPont Formula

return on equity = Profitability (profit margin): net income/total sales x (times) Activity (asset turnover): total sales (net sales)/average total assets x (times) Financial Leverage (equity multiplier): average total assets/average total equity or ROA (return on asset) x equity multiplier

Temporary accounts include:

revenue and expense accounts

Expense recognition often matches _________ and ___________ that arise from the same transaction

revenue and expenses

The revenue/expense approach focuses on the income statement because it relies on ________________ accounting princile

revenue recognition and matching

items are removed from continuing operations and reported separately for discontinued operations

revenue, expenses, gains, losses, tax expense

Accrual accounting model's measure of resources provided by business operations is called _____________.

revenues

Financial statement elements are measured and reported as a result of providing goods and services

revenues and expenses

Operating Income on income statement

revenues and expenses directly related to the primary revenue-generating activities of the company. Provides a measure of profitability for core (or normal) operations, a key performance measure for predicting the furture profit generating ability

GAAP disclosure requirements for geographic areas include

revenues from external customers, long-lived assets

default risk

risk that a company will not be able to pay its obligations when they become due

Auditor

role is to attest to the fairness of the financials they have examined

A reversing entry is used after accruing 3 days of salaries at year-end. To make the reversing entry, the accountant would debit which account?

salaries payable

serves to relay important information about a transaction to the accountant?

sales invoices, bills from suppliers, cash register tapes

when merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _________ _________

sales return

Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral

secured borrowing

financing receivables can be done by

secured borrowing, sale of receivables

In a consignment, a company arranges for another company to:

sell its products

periodic inventory system

separate freight-in account is used

internal control system critical aspect

seperation of duties

FASB and IASB already developed converged accounting standards for:

share-based compensation, non-monetary exchanges and Earnings per share

participating interest

sharing proportionally in the cash flows of the receivables and having equal rights with respect to the receivables

Companies finance with their receivables to

shorten the operating cycle increase cash flow and receive cash before customers would pay amounts due

Statement of Shareholders' equity

shows the sources of the changes in the various permanent equity accounts

LIFO disadvantages

significant recordkeeping costs, possibility of LIFO liquidation

the dollar-value LIFO (DVL)

simplifies record keeping reduces the risk of liquidation of layers

LIFO inventory pools

simplifies recordkeeping and reduces the risk of LIFO liquidation by grouping inventory units into pools based on physical similarities of the individual units.

A JIT inventory system allows companies to maintain ________ inventory levels

smaller

As the number of periods increase, present value factors become ________________

smaller

business organizations

sole proprietorship, partnership and corporation

Repetitive transactions such as sales or purchases are usually recorded in a(n) ________ _______ rather than the general journal

special journal

IASB's main objective is to develop a single set of global accounting _____________ that are high-quality, understandable, and enforceable.

standards

Indirect method of statement of cash flows

start with net income and works backward to calculate net cash flow from operating activities adds back depreciation expense adjusts for changes in liabilities to reconcile the difference between accrual net income and cash paid or received adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received

IFRS steps in determining the impairment of receivables

step 1 - consider whether individual significant receivables are impaired step 2 - group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics step 3 - perform impairment test

gross method of purchase discounts

subtracts the discount from total purchases to determine net purchases

Income Statement (Statement of Operations)

summarizes revenues and expenses for a period of time Used to predict future profitability and future cash-generating ability

Who are the external users of financial information?

suppliers, creditors, investors and government agencies

management should hold the minimum amount of cash to:

take advantage of opportunities, conduct business operations and meet its obligations

Plant, property and equipment characteristics

tangible, used long-term in production

FIFO inventory method

tends to approximate replacement cost because units are priced using the most recent acquisition costs

Difference in CECL model and current GAAP

the "probable" threshold for identifying impaired receivables is removed and Bad debt estimates will be based on predictions about the future

Donald company purchases and sells inventory f.o.b. destination. On December 31, the company sells 10,000 units and receives notice that 40,000 units have been shipped by its supplier. Which units should be included in Donald company's ending inventory?

the 10,000 units sold are included as they have not not reached their destination

earnings quality

the ability of reported earnings (income) to predict a company's future earnings

Auditor is required to evaluate:

the ability to continue for a reasonable time as a going concern

liquidity

the ability to converts assets to cash to pay current obligations readiness to pay short-term debts as they come due measured by current ratio and quick ratio

The type of information included in an account includes:

the account number, columns for increases and decreases, and account title

a good internal control system for cash would require that those who handle cash should not be involved with

the accounting records the reconciliation of bank balances

justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that:

the accounts are adjusted at year-end to reflect the correct balances

Net realizable value

the amount of cash into which an asset is expected to be converted in the ordinary course of business

Present value of a single amount

the amount of money today that is equivalent to a given amount to be received or paid in the future

Interest

the amount paid for the use of money for some period of time

The average collection period indicates

the average number of days it takes to collect on account

the reconciliation process for cash receipts requires that the amount received from customers should agree with

the bank-generated deposit slip and the accounting records

If a note with an unrealistic interest rate is received solely in exchange for cash, the present value of the note is considered to be

the cash paid

IFRS qualifications for transfer of receivables as a sale

the company transfers substantially all of the risks and rewards of ownership

Current Cost

the cost that would be incurred to purchase or reproduce the asset today

inventory costs include

the cost to bring inventory to its desired condition expenditures to acquire the inventory the cost to bring inventory to its desired location

at what amount are accounts receivable initially recorded

the exchange price agreed on by the buyer and seller

Sarbanes-Oxley act, corporate management is responsible for:

the financials and internal control

Disclosure notes for discontinued operations must include

the identity of the component the major classes of assets and liabilities of the component the reason for the discontinuance

When recording noninterest-bearing notes receivable, the discount on a noninterest-bearing note receivable reprsents

the interest to be earned on the note receivable

Discontinued operations held for sale reported on balance sheet at

the lower of the book value or fair value less costs to sell

Present value

the measurement attribute that is based on future cash flows discounted for the time value of money

when a note receivable is impaired, it is remeasured based on what

the present value of currently expected cash flows

The price of a bond includes _________________________

the present value of the face amount plus present value of the periodic interest payments

Closing process

the process in which temporary accounts are reduced to zero balances and transferred to retained earningssal

what occurs when petty cash is used to pay for an item

the receipts is placed in the petty cash fund

Direct method and indirect method of preparing the statement of cash flows result in _______________

the same net cash flows from operating activities and the same presentation of investing and financing activities

Operating Cycle

the time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect the accounts receivable (time to convert cash to raw materials and then back to cash)

the difference between the gross method and net method of recording sales revenue, in terms of the effect on income is what

the timing of the recognition of any discounts not taken varies and could occur in different reporting periods

The n value is present and future value tables refers to what?

the total number of compounding periods

a company is allowed to account for the transfer of receivables as a sale if what occurs?

the transferor has surrendered control over the assets transferred

Why is the sale approach preferred over the secured borrowing approach for the transferor

the transferor seems more profitable, more liquid and less leveraged

Present Value of an Ordinary Annuity

the value today of a series of equal-size cash flows with the first payment taking place at the end of the first compounding period The value today, given a discount rate, of a series of future payments.

Present Value of an Ordinary Annuity

the value today of a series of equal-sized cash flows with the first payment taking place at the end of the first compounding period

Faithful presentation exists when?

there is agreement between a measure or description and the phenomenon it purports to represent

gains and losses from the sale of investments can affect earnings quality because

they are often nonrecurring

The difference between $100 invested now and $105 at the end of year 1 represents the

time value of money

differences between the book balance and bank balance occur due to ______________ differences and ___________

timing errors

Financial accounting provides investors with information that should help them to evaluate the:

timing of the firms future cash flow and uncertainty of the firms future cash flow and amounts of the firms future cash

Disclosures purpose

to assist in underestanding the financial statements

In a deferred annuity, a two-step process can be used to calculate the present value of the annuity. The first step requires the calculation of the present value of he annuity a t the beginning of the annuity period. The second step involves discounting the amount calculated in step 1

to its present value as of today

Debt to equity ratio

total liabilities / shareholders equity (including retained earnings) the higher the ratio, the higher the risk

A recently issued FASB standard requires that companies recognize revenue when goods or services are _____________ to customers for the amount the company expects to be entitled to receive in exchange for those goods and services

tranferred

Step 3 of the accounting processing cycle

transaction is recorded in a journal

Prepayments are:

transactions in which cash flow precedes revenue recognition and/or expense recognition

Chane in estimate

treated on a prospective basis because the change affects the current period and future periods

for a note receivable, if the original terms of the debt are changed due to financial difficulties of the borrower, this is referred to as a _________________ ________________ restructuring

troubled debt

CECL model broadens information that creditors should consider when estimating credit losses true/false

true

Inventory that is expected to be returned in the future is included on the balance sheet of the company expecting the return true/false

true

Management can influence the collection of receivables based on the terms they offer true/false

true

Political pressure has deterred the FASB from issuing particular standard changes. True/false

true

Present value calculations are used in calculating pension contributions for defined benefit plans true/false

true

When pricing a bond, the present value of the annuity of the coupon payments is added to the present value of the maturity value of the bond true/false

true

long-term notes receivable are accounted for the same way as short-term notes receivable, but the time value of money has a larger effect true/false

true

sale of accounts receivables results in removing the accounts receivable from the balance sheet true/false

true

Risk refers to the __________ of an investment

uncertainty

Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in 2 year. The interest rate on this type of loan is 8%. What is the present value of the note?

use present value table number 2 - 8% factor .85734 100,000 x .85734 = 85,734

Special Journals

used to capture the dual effect of the transaction in debit/credit form examples: cash receipts journal, cash disbursements journal, sales journal and purchases journal

Income before taxes

useful for comparing the performance of companies in different tax jurisdictions or comparing corporations with sole-proprietorships or partners

Horizontal analysis

uses ratio analysis or trend analysis of financials across multiple years

asset/liability approach to accounting

uses the measurement of balance sheet accounts to drive revenue and expense recognition

Purpose of a post-closing trial balance

verify that closing entries were prepared and posted correctly and that the accounts are now ready for next years transactions

perpetual inventory system

weighted-average cost becomes a moving-average cost

accounting error

when a transaction is recorded incorrectly or not recorded at all

Adverse opinion

when auditor finds exceptions that are so material that the financials may be misleading

FASB recently issued a standard that requires companies recognize revenue:

when goods or services are transferred to customers and at a point in time or over a period of time, for the amount the company expect to be entitled to receive

deferred annuity

when the first cash flow occurs more than one period after the date the agreement begins

qualified

when there is an exception to the standard opinion but not of sufficient seriousness to invalidate the whole of the financials

IFRS accounting for transfers of receivables

whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables

consigned goods inventory

who carries the risk of loss determines who includes consigned goods in inventory

If revenues exceed expenses for the accounting period, the income summary account ______________________

will have a credit balance prior to closing

long-term liability

will not be satisfied within 12 months or the operating cycle, whichever is longer (pension obligations, lease obligations longer than 1 year and notes due in more than 1 year)

In a factoring arrangement made ___________ recourse, the seller bears the risk of uncollectibility

with

the buyer assumes the risk of uncollectibility when accounts receivable are sold __________ recourse

without

Glaser corp does not estimate sales returns. If Glaser sells goods on December 20, year 1, and the goods are returned January 15, year 2, what is the effect on its financial statements

year 1 net income is overstated

The correct amount of prepaid insurance shown on a company's December 31, 2018, balance sheet was $900. On July 1, 2019, the company an additional insurance premeium of $600. In the December 31, 2019, balance sheet, t he amount of prepaid insurance was correctly shown as$500. The amount of insurance expense that should appear in the company's 2019 income statement is:

$1,000 900 + 600 = 1500 - 500 = 1000

The following information relates to Halloran Co.'s accounts receivable for 2018: 1/1/18 account receivable balance: $853,000 credit sales for 2018: 3,450,000 Accounts receivable written off during 2018: 50,000 Collections form customers in 2018: 3,040,000 Allowance for uncollectible accounts balance 12/31/18: 206,000 What amount should Halloran report for accounts receivable, before allowances at December 31, 2018?

$1,213,000 853,000+3,450,000 - 50,000 - 3,040,000 = 1,213,000

Calistoga Produce estimates bad deb expense at .50% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $489,000 and $1,590 respectively, at December 31, 2017. During 2018, Calistoga's credit sales and collections were $329,000 and $316,000, respectively, and $1,830 in accounts receivable were written off. Calistoga's final balance in its allowance for uncollectivle accounts at December 31, 2018 is:

$1,405 329,000 * .50% = 1645 expense 1830 - 1590 = 240 1645 - 240 = 1405

Davenport Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $48,000 at the date of employment and another $68,000 two years later. Assuming the employee's time value of money is 10% annually, what lump sum at employment date would make her indifferent between the two options?

$104,199 The lump-sum equivalent would be $48,000 + the present value of $68,000 where n = 2 and i = 10%. That is, $48,000 + ($68,000 x 0.82645 from Table 2 PV of $1) = $104,198.6

Goliath Corp has beginning accounts receivable of $2,000. During the year, Goliath sold goods to customers on account for $10,000. During the year, Goliath also sold goods to customers for cash in the amount of $2,000. At the end of the year, the balance in Goliath's accounts receivable is $3,000. What is accrual basis sales for the year?

$12,000 10,000 + 2,000 = 12,000

At the end of each quarter, Patti deposits $800 into an account that pays 12% interest compounded quarterly. How much will Patti have in the account in four years?

$16,126 n=16 (4x4=16) i=12/4 = 3% 800 x 20.1569 = 16,126 FVA of $1

Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2018, the allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would be:

$17,000 Focusing on the allowance account 18,000 - 14,000 + total bad debt expense = 21,000 bad debt expense = 17,000

Spielberg Inc. signed a $260,000 noninterest-bearing note due in three years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. At what amount should this debt be valued at its inception?

$190,109 PV = $260,000 × 0.73119* = $190,109 *PV of $1: n = 3; i = 11%

Adam company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be

$2,540 2,880/900 = 3.2 3.2 x 700 = 2,240 2,240 + 300 = 2,540

the balance in accounts receivable at the beginning of 2018 was $700. During 2018, $2,200 of credit sales were recorded. If the ending balance in accounts receivable was $170 and $100 in accounts receivable were written off during the year, the amount of cash collected from customers during 2018 was:

$2,630 700 receivables beginning yr 2,200 credit sales 170 receivables end yr 100 wrote off 700 + 2200 - 170 - 100 = 2630

The Reingold Hat Company uses the allowance method to account for bad debts. During 2018, the company recorded $800,000 in credit sales. At the end of 2018, account balances were: Accounts receivable $120,000, Allowance for uncollectible accounts $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of

$24,000 800,000 x3% = 24,000

Rosie's Florist borrows $350,000 to be paid off in eight years. The loan payments are semiannual with the first payment due in six months, and interest is at 6%. What is the amount of each payment?

$27,864 350,000/12.56110 PVA of $1

Ajax Company purchased a two-year certificate of deposit for its building fund in the amount of $250,000. How much should the certificate of deposit be worth at the end of two years if interest is compounded at an annual rate of 9%?

$297,025 250,000 x 1.18810 = 297,025 FV of $1

Bill wants to give Maria a $510,000 gift in 6 years. If money is work 6% compounded semiannually, what is Maria's gift worth today?

$357,704 n=12 (6x2 = 12) i=6/2 = 3 510,000 x .70138 = 357,705 PV of $1

In the balance sheet at the end of the first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $83,600. During the year, Dinty wrote off $30,900 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,240,000, and cash collections from credit customers totaled $1,750,000. What accounts receivable balance would Dinty report in its first year-end balance sheet?

$459,100 2,240,000 - 1,750,000 = 490,000 - 30,900 = 459,100

Mary Alice just won the lottery and is trying to decide between the annual cash flow payment option of $350,000 per year for 30 years beginning today and the lump sum option. Mary Alice can earn 5 percent investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives?

$5,649,374 $350,000 x 16.14107* = $5,649,374.5 *PVAD of $1: n = 30; i = 5%

Bern Corp, a merchandising company, utilizes the net method in accounting for purchase discounts. The company usually pays during the discount period, when discounts are offered by the vendor. Bern's net income for the year ended was $500,000. Purchase discounts taken during the year totaled $5,000. If Bern had used the gross method, its net income would have been

$500,000

Ireland Corporation obtained a $56,000 note receivable from a customer on June 30, 2018. The note, along with interest at 5%, is due on June 30, 2019. On September 30, 2018, Ireland discounted the note at Cloverdale bank. The bank's discount rate is 9%. What amount of cash did Ireland receive from Cloverdale Bank

$54,831 56,000 + (interest to maturity) 56,000 x 5% = 2800 56,000 + 2,800 = 58,800 58,800 x.09 x 9/12= 3,969 58,800 - 3,969 = 54,831

Frasquita acquired equipment from the manufacturer on 6/30/18 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $572,000 on 4/30/19 to satisfy the obligation in full. If Frasquita accrued interest of $15,000 on the note in its 2018 year-end financial statements, at what amount would it record the equipment on its 6/30/18 balance sheet?

$547,000 ($15,000 was interest for 6 months in 2018. The note lasts 10 months, so 10/6*15000= $25000, $547,000 (572000-25000) is the principal which is the cost of the equipment purchased.

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

$6,000 200,000 x .03 = 6,000

Adams company utilizes LIFO inventory pools. Current period beginning inventory cost was $5,500. At the end of the period, the company determines that a layer of 100 units has been added. Average current year purchase price per unit was $6,000. The most recent cost per unit was $6.50. The amount of ending inventory should be:

$6,100 The LIFO layer is added at the average cost of purchases made during the period $6 x 100= 600+5500 = 6,100

Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were:

$61,740 face amount + interest to maturity 60,000 x .10 x 1/12= 3,000 = 63,000 maturity value - discount discount 63,000 x .12 x 2/12 = 1,260 63,000 - 1,260 = 61,740

False Value Hardware began 2018 with a credit balance of $31,200 in the allowance for sales returns account. Sales and cash collections from customers during the year were $670,000 and $630,000, respectively. False Value estimates that 8% of all sales will be returned. During 2018, customers returned merchandise for credit of $23,000 to their accounts. What is the balance in the allowance for sales returns account at the end of 2018?

$61,800 670,000 x .08 = 53,600 31,200 + 53,600 - 23,000 = 61,800

Carol wants to invest money in a 6% CD account that compounds semiannually. Carol would like the account to have a balance of $80,000 four years from now. How much must Carol deposit to accomplish her goal?

$63,153 i = 6/3 = 3% n=4x2 = 8 80,000x.78941 = 63,153 PV of $1

Western company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016 was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?

$758,200 $815,400/1.08 = 755,000 giving 2 layers of $715,000 and 40,000 715,000 x 1.0 = 715,000 40,000 x 1.08 = 43,200 715,000 + 43,200 = 758,200

Lassiter Corp. uses the periodic inventory method. During the year, Lassiter purchases $10,000 of inventory. Ending inventory is $6,000. Cost of goods sold is $12,000. Beginning inventory was: __________

$8,000 purchases 10,000, less cost of goods 12,000, less ending inventory 10,000 - 12,000 - 6,000 = 8,000

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made with recourse. Homemark charges a fee of 3% of receivables factored. Estimated recourse liability is $2,000. During July, $150,000 of factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

$8,000 recourse liability adds a credit of $2,000 increasing the loss 200,000 x .03 + 2,000 = 8,000

On May 31, 2018, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 2018, for $1,120,000. The component generated operating income from January 1, 2018, through disposalof $300,000. In its income statement for the year ended December 31, 2018, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?

$800,000 620,000 - 300,000 = 320,000 1,120,000 - 320,000 = 800,000

Jasper Company uses the allowance method to account for bad debts. During 2018, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:

$9,000 bad debt expense will credit allowance for bad debts for $9,000 writing off bad debts will debit allowance for bad debts for $5,000 as well as crediting accounts receivable net decrease in working capital will be 9,000 + 5,000 - 5,000 = 9,000

Times interest earned ratio

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense Provides the creditor with an indication of the ability to pay interest on debts

Quick Ratio or Acid Test Ratio

(current assets - inventory - prepaid items - restricted cash - deferred taxes) / current provides a more rigorous indication of liquidity than the current ratio

Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000 respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?

-200,000 x (1-.3) = 140,000 loss net of tax

FASB's standard setting process begins when th board adds a project to its technical agenda. List the steps in order in the FASB's accounting standard setting process.

.

Private accounting standard setting bodies in chronological order:

1) Committee on Accounting Procedure 2) Accounting Principles Board 3) Financial Accounting Standards Board

2012, the SEC issued its Final Staff Report in which it concluded that it is not feasible for the US to simply adopt IFRS given:

1) a need for the US to have strong influence on the standard setting process 2) the fact that many laws, regulations and private contracts reference US GAAP 3) the high costs to companies of converting to IFRS

Comprehensive income reporting options:

1) a single, continuous statement of comprehensive income 2) two separate but consecutive statements

FASB standard setting process:

1) board adds a project to its technical agenda 2) the board deliberates at one or more public meetings 3) the board issues an Exposure Draft or Discussion Paper 4) the staff analyzes comment letters 5) the board issues an Accounting Standards Update (research, discussion paper, exposure draft, accounting standard update)

Ethical decision making steps:

1) determine the facts of the situation 2) identify the ethical issue and stakeholders 3) identify the values related to the situation 4) specify the alternative courses of action 5) evaluate the courses of action in terms of their consistency

2011, the SEC recognizes that:

1) different application methods of IFRS could lead to financial statements not being comparable across countries 2) U.S. GAAP provides significantly more guidance about particular transactions or industries than IFRS

Common arguments against the creation of a single set of global accounting standards include:

1) maintaining competition between accounting standard-setting bodies improves quality 2) implementation and enforcement of IFRS varies among nations 3) accounting under IFRS will appear more uniform than it actually is

What would indicate net operating cash flow may not be a good predictor of long-run cash-generating ability

1) pay cash to purchase a 2 year insurance policy 2) customer pays for services provided in a prior perid

Steps at the end of the accounting period

1) prepare an unadjusted trial balance 2) record adjusting entries 3) prepare an adjusted trial balance 4) prepare financials 5) close the temorary accounts

Financial accounting objectives

1) provide information to investors 2) provide information used to evaluate future cash flows

Sarbanes-Oxley act key provisions include:

1) restricting activities of auditors to prevent conflects of interest 2) requiring that corporate executives certify financials 3) requiring documentation and assessing effectiveness of internal controls

SFAC 5 the four criteria that must be met for an item to be recognized in the basic financial statements are:

1) the information about the item is relevant to decision making 2) the item has relevant attributes that are measurable 3) the item meets the definition of an element 4) the information about the item is reliable

Kevin borrows $8,000 from Second National Bank at 10% interest. Kevin will repay the loan in six equal payments beginning at the end of year 1. What is the annual amount that Kevin will pay the bank each year.

1,837

Present value factors formula

1/(1+i)^n

threshold of revenues, assets, or income that qualifies a segment to be disclosed

10%

If the future value of an amount is $40,000 at the end of 4 years, the present value today is $27,320, and the interest is compounded annually, the interest rate is approximately ________

10% 27,320/40,000 = .06830 look at PV table, this ratio is approximately the same PV factor as 10% interest for four periods

Smith sells goods to customers in exchange for a note requiring payment of $100,000 in one year plus interest at 10%. At what amount is the note payable reflected on the customers balance sheet?

100,000

Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable effective interest rate is 6%. Upon delivery, Munchen should recognize the purchase of inventory at:

100,000 prepayment 89,000 reflects present value of 100,000 at 6% (factor is .89). The difference between the prepayment and the inventory cost is interest revenue

Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $8,000 Proceeds from bank loan $100,000 Repayment of bank loan (includes interest of $4,000) $44,000 Proceeds from sale of equipment $5,000 Cash collected from customers $320,000 Purchase of stock of another corporation as an investment $20,000 Common stock issued for cash $200,000 In its 2018 statement of cash flows, Dunn's should report net cash inflows from financing activities of

100,000 - 40,000 (repayment of principal on bank loan) + 200,000 = 260,000

Riley has a $100,000 note receivable from a customer. The note receivable is an 8% note, due in 9 months. Three months after accepting the note, Riley discounts the note receivable at Third Bank at a discount rate of 10%. What are the cash proceeds of the discounted note?

100,700 (100,000 x .08 x9/12) = 6,000 interest Maturity value of $106,000 x .10 x 6/12 = 5,300 discount Maturity value 106,000 - 5,300 = 100,700

Rudy company reports gross sales revenue of $5.2 million, net sales of $5 million, and cost of goods sold $3 million. Its inventory balance was $250,000 at the beginning of the accounting period and $300,000 at the end of the accounting period. The company's inventory turnover ratio is closest to

11 3 mill/(250,000+300,000/2)=10.9

Shirley borrows $3,605 from Second National Bank. Shirley will repay the loan in five equal payments of $1,000 each beginning at the end of year 1. What is the annual interest rate implicit in this agreement?

12% 3605/1000 = 3.605 looking at the present value of an ordinary annuity table in the row for 5 periods, find the factor closest to 3.605

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the LIFO method is:

12,000 600 x 20=12,000

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the average cost method is

12,900 average cost of purchases: [(800 x 20) + (400 x 22)+(400 x 24)]/1600 = 21.50 21.50 x 600 = 12,900

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying FIFO method is:

14,400 (400 x 24)+(200 x 22)= 14,400

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilizes FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of 2016, Pernell's ending inventory would have been

150,000 higher if it had used FIFO

Sondra deposits $3,000 in an IRA account on April 15, 2018. Assume the account will earn 3% annually. If she repeats this for the next 5 years, how much will she have on deposit on April 14, 2024?

19,988 3000 x 6.6625 = 19,987.5 FVAD of $1 n=6

Compute the inventory turnover ratio using the following information: Net sales $100,000 for the year,cost of goods sold $40,000, last years assets in place were $900,000, and this years assets in place are $1,100,000. Receivables for both years are $50,000. Inventory changed from $30,000 last year to $10,000 this year

2

Gerhard company has 300 units costing $10 per unit in beginning inventory. During the year the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company used LIFO inventory method for the past 5 years. If the company had purchased at least 1,2000 units, COGS would have been

2,000 higher

The Esquire Company reported sales of $1,600,000 and cost of goods sold of $1,122,000 for the year ended December 31, 2018. Ending inventory for 2017 and 2018 was $420,000 and $460,000, respectively. Esquire's inventory turnover for 2018 is:

2.55 Inventory turnover: cost of goods sold / average inventory 420,000 + 460,000/2 = 440.000 1,122,000/440,000 = 2.55

Parker company reports gross sales revenue of $7.5 million, net sales revenue of $7 million and cost of goods sold of $3.5 million. Its inventory balance was $150,000 at the beginning of the accounting period and $200,000 at the end of the accounting period. The company's inventory turnover ratio is closet to

20 3.5 mil/(150,000 + 200,000/2)

Ronald signs a lease agreement that requires him to pay $4,000 at the end of each year for 7 years. The interest rate on this type of lease is 8%. Calculate the present value off the lease payments

20,825

Norwalk Agreement

2002, FASB and IASB formalized their commitment to remove existing differences between US GAAP and IFRS

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. If Sanfillipo instead used the perpetual inventory system, cost of goods sold for the month of March applying the LIFO inventory method would be:

21,600 (600 x 20)+(400 x 24) = 21,600

Neumann company has 100 units with a $2.00 weighted-average cost per unit in beginning inventory. Neumann sells 40 units and then purchases 100 additional units for $2.20 per unit. After the purchase, Neumann sells another 100 units. What is the amount of cost of goods sold for the second sale if Neumann company uses the perpetual inventory system?

213 (100-40) units x $2 = 120 100 units x 2.20 = 220 120+220 = 340 340/160 units = 2.125 per unit 2.125 x 100 = 212.50

Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $8,000 Proceeds from bank loan $100,000 Repayment of bank loan (includes interest of $4,000) $44,000 Proceeds from sale of equipment $5,000 Cash collected from customers $320,000 Purchase of stock of another corporation as an investment $20,000 Common stock issued for cash $200,000 In its 2018 statement of cash flows, Dunn's should report net cash outflows from investing activities as:

23,000 5000 - 8000 - 20,000 = 23,000

On June 1, 2017, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2017?

24,000/24 = 1,000 1,000 x 7 = 7,000

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 40% is

250,000 + 50,000 = 300,000 300,000 x (1-.40) = 180,000

Compute present value of the following annuity: Interest rate per compounding period 8% Number of periods 12 Payment at the end of the period $500

3,768

Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The present value of this annuity at Time Zero, the inception o f the annuity is

3,791 PVA (present value ordinary annuity) factor of 10% for 5 periods is 3.79079 1000 x 3.79079 = 3,791

Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest ae is 6%, what is the present value of this annuity?

3,901 PVAD factor of 6% for 10 years 7.80169 x 500 = 3,901

Titanic Corporation leased executive limos under terms of $110,000 down and three equal annual payments of $1200,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be:

32.257 PVA = $120,000 × 2.44371* = $293,245.2 $293,245.2 × 11% = $32,256.97 *PVA of $1: n = 3; i = 11%

Symington Corp uses the periodic inventory system. At December 31, 2018, the end of the company's fiscal year, a physical count of inventory revealed an ending inventory balance of $320,000. The following items were not included in the physical count: Goods held on consignment at murphy corp: 23,000 merchandise shipped to customer on 12/30 f.o.b. desination (customer received 1/3/17) 12,000 merchandise shipped to customer on 12/29 f.o.b. shipping point (arrived at customer on 1/2/17) 6,000 merchandise purchased from supplier shipped f.o.b. destination on 12/29, in transit at year end 24,000 Symington's 2018 ending inventory should be:

355,000 320,000 + 12,000 + 23,000 = 355,500

Average Collection Period Ratio

365/accounts receivable turnover tells approximate # of days the average receivable balance is outstanding (average age of receivables)

average days in inventory

365/inventory turnover ratio

J.T. Rider and Sons uses the dollar-value LIFO inventory method. At the end of 2019 the cost index is 1.25 and the ending inventory at base year cost is $360,000. If 2019 beginning inventory at base year cost was $300,000, 2019 ending inventory at dollar-value LIFO cost is:

375,000 300,000 + [(360,000 - 300,000) x 1.25]

Beth will deposit $1,000 at the end of each year for 4 years. Assuming an 8% rate of interest, how much will Beth have in the bank at the end of year 4?

4,506

For its 2018 fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is:

40% (10,500,000 - 6,300,000) / 10,500,000

Rudy company reports gross sales revenue of $5.2 million, net sales of $5 million, and cost of goods sold $3 million. Rounding to the nearest percent, the company's gross profit ratio would be:

40% 5 million - 3 million/5 million gross profit/net sales

The Esquire Clothing Company borrowed a sum of cash on October 1, 2018, and signed a note payable. The annual interest rate was 12% and the company's year 2018 income statement reported interest expenses of $1,260 related to this note. What was the amount borrowed?

42,000 1260/.03 = 42,000

Sarbanes-Oxley Act requires lead audit partners are required to rotate every ________ years

5

The present value is $29,650, the future value is $50,000, and the interest rate is 11%. The number of periods is approximately

5 29,650/50,000 = .593 PV table - find 11% column, find factor .593

On January 1, year 1, Dennis borrows $20,000 at 6% interest compounded semi-annually. What is the amount of interest Dennis will pay at the end of year 4?

5,335 [20,000 x (1.03)] - 20,000 = 5,335

Excerpts from Huckabee Company's December 31, 2018 and 2010, financial statements are presented below: 2018 2017 A/R 81,000 73,000 Inventory 59,000 73,000 Net Sales 401,000 373,000 COGS 241,000 221,000 Huckabee's 2018 receivables turnover (rounded to 2 decimal places) is

5.21 (81,000 + 73,000)/2 = 77,000 401,000/77,000 = 5.207 or 5.21

Chez Fred Bakery estimates the allowance for uncollectible accounts at 2% of the ending balance of accounts receivable. During 2018, Chez Fred's credit sales and collections were $110,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2018, if $250 in accounts receivable were written off during 2018 and if the allowance account had a balance of $630 on 12/31/18?

52,750 A/R 1/1/2016 ? Collections (131,000) Write-offs (250) Credit sales 110,000 A/R 12/31/2016 $39,000 [$630 = 2% of AR; so AR = $630 ÷ 0.02 = $31,500] Therefore, A/R, 1/1/2016 = $81,100

The following items appeared in the 2018 year-end trial balance for the Brown Coffee Company: Revenue CR 600,000 operating expenses DB 420,000 Income on discontinued operations CR 200,000 Restructuring costs DB 100,000 Interest Expense DB 20,000 Gain on Sale of Investments CR 30,000

54,000 (600,000 - 420,000 - 100,000 -20,000 + 30,000) x (1-.40) = 54,000

Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be

6,000,000 720,000 / .12 = 6,000,000 ROA = net income / assets so 12% = 720,000/ assets = 6,000,000

Lakeland Corp. Calculates that in the current year its employees earned an additional annuity of $10,000 for 20 years commencing with their retirement 12 years from today. Lakeland assumes a future interest rate of 6%. If the value of the annuity is $121,581 on the date the employees retire, what amount should be contributed today to fully fund the pension plan?

60,422

Smith Company has 150 units costing $450 in beginning inventory. During the year, the year, the company purchases 1,000 units for a total cost of $3,300. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the periodic LIFO method, ending inventory will be:

615 150 units at $450 3,300/1000 = 3.30 x 50 = 165 165 + 450 = 615

Jose wants to cash in his winning lottery ticket. He can either receive seven, $10,000 annual payments starting today, or he can receive a lump-sum payment now based on a 3% annual interest rate. What would be the lump-sum payment?

64,172 10,000 x 6.41719 = 64,171.9 PVAD of $1 table 6

On December 31, 2018, the Charlie Company adopted the dollar value LIFO inventory method. Inventory at the end of 2018 for its only inventory pool was $500,000 under the dollar-value LIFO method. At the end of 2019 inventory at year-end cost is $672,000 and the cost index is 1.05. Inventory at the end of 2019 at dollar-value LIFO cost is:

647,000 End-of 2019 inventory at end-of-2018 year cost = 640,000 (672,000/1.05) The increase in the end-of-2018 inventory at end-of-2018 dollars is $140,000 (640,000 - 500,000) Adjusting this to end-of-2018 cost is $147,000 (140,000 x 1.05) adding this to the beginning balance = 647,000 500,000 + 147,000

On January 1, year 1, Mary borrows $30,000 at 8% interest compounded semi-annually. What is the amount of interest Mary will pay at the end of year 3?

7,960 [30,000 x (1.04^n)] - 30,000 = 7,960

Debbie has $192,516 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. The withdrawals will take place annually starting today. How soon will the fund be exhausted if Debbie withdraws $30,000 each year?

7.0 years 192,516/30,000 = 6.4172 look on PVAD of $1 table and fine 6.4172 in the 3% column

On January 1, year 1, Klondike issued a 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds.

88,699 (5.65022 x 10,000) + (.32197 x 100,000) = 88,699

Paul borrows $5,000 from the bank and wishes to repay the amount in equal installments of $800 per year over a period of years. The payments will be made at the end of each year. The bank wishes to earn interest on this loan at 8%. Approximately how many years will it take for Paul to repay the loan?

9 years

The Wazoo Times Newspaper Company reported an $11,200 liability in its 2018 balance sheet for subscription revenue received in advance. During 2019, $62,000 was received from customers for subscriptions and the 2019 income statement reported subscription revenue of $63,700. What is the liability amount fore deferred subscription revenue that will appear in the 2019 balance sheet?

9,500 beginning balance + additional receipts - subscription revenue recognized 11,200 + 62,000 - 63700 = 9,500

ethics

A code or moral system that provides criteria for evaluating right and wrong behavior

verifiability

A consensus among different individuals appraising the value of land describes which qualitative accounting characteristic

unearned revenues

A customer pays in advance for services to be performed in a future period are recorded in what account

fair value

A standard setting focus on the asset/liability approach supports measurement of assets and liabilities at:

accounting change occurs during an interim period, the change is applied retrospectively. In subsequent interim periods of the same fiscal year, which of the following are disclosed?

Affect on income from continuing operations Affect on net income Affect on related per share amounts

comparability

An enhancing qualitative characteristic of accounting information that allows users to better understand similarities and differences in the financial reports across different companies

Asset

An item owned by the company representing probable future benefits. A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events

Accounting Equation

Assets = Liabilities + Owner's Equity

failure to record the adjusting entry for depreciation expense is omitted ____________________

Assets will be overstated and income overstated

In developing standards, the FASB considers the:

Both of the following: 1) concerns and opinions of constituents 2) economic transactions that standards will address

Inventory Turnover Ratio

COGS/Average Inventory shows how many times the average inventory balance is sold during the current reporting period

framework for designing an internal control system is provided by

COSO - Committee of Sponsoring Organizations of the Treadway Commission

Matching cost of goods sold with the revenues generated during the period is an example of which approach to expense recognition?

Cause-and-effect relationship

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000. A physical count determined the cost of inventory at the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry at the end of the year once the physical count occurs includes:

Deb cost of goods sold $40,000 debit inventory (ending) $110,000 credit purchases $100,000 credit inventory (beginning) $50,000

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. Assuming Western uses a perpetual inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following

Debit cost of goods sold $40,000 debit accounts receivable $70,000 credit sales revenue $70,000 credit inventory $40,000

expense accounts are closed to income summary with:

Debit entry to income summary credit entry to expenses

Purchase supplies on account requires what journal entries

Debit supplies on hand credit accts payable

Distribution to owners

Decreases in equity of a particular enterprise resulting from transfers to owners. Dividends paid by a corporation to its shareholders.

Adjusting entries

Entries made at the end of an accounting period before the financial statements are prepared to ensure that the revenue recognition and expense recognition principles are followed. necessary for three situations: deferrals, accruals and estimates

The citation used to reference generally accepted accounting principles is

FASB ASC followed by the appropriate number

The __________ and the __________ are jointly working on the Financial Statement Presentation project

FASB and IASB

Future Value (FV)

FV = $1(1+i)^n the amount an investment is worth after one or more periods

Formula to calculate future value of an amount "I"

FV = I(1+i)^n

Future value formula

FV = PV(1+i)^n

Voluntary changes in accounting principle

GAAP requires to be accounted for retrospectively

GASB

Government Accounting Standards Board

Emerging Issues Task Force

Group dealing with emerging issues - US GAAP

International Accounting Standards Committee issued international Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues:

IFRS - international financial reporting standards

Revaluation surplus

IFRS only - reported as other comprehensive income fair value is higher than book value - difference in revaluation surplus

Both IFRS and GAAP permit the fair value option for accounting for receivables. What is a difference

IFRS restricts the circumstances for applying the fair value option

Troubled debt restructuring

If a receivable becomes impaired, it is remeasured at the discounted present value of currently expected cash flows If a receivable is remeasured, the discount rate is based on the loan's original effective rate Sometimes receivables are settled outright at the time of a restructuring Modification of terms typically results in some loss that needs to be recorded

Investing activities

Includes cash transactions involving the purchase and sale of long-term assets and current investments

financial statements most frequently provided to external users

Income statement, balance sheet, state of cash flows, statement of shareholders equity

Income from Discontinued Operations

Income that will not continue in the future

Gain

Increase in equity from peripheral or incidental transactions. Result from changes in equity that do not result directly from operations but nonetheless are related to those activities. (sale of equipment, buildings, etc also included)

asset turnover ratio

Indicates how efficiently a company uses its assets to generate sales; net sales/average total assets.

Revenue

Inflow of an asset (resources) from providing a good or service. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods,rendering services, or other activities that constitute the entity's ongoing major or central operations.

Which of the following is most likely an accrued liability? a) depreciation b) interest c) cost of goods sold d) office supples

Interest accrued liabilities arises when all or part of an expense is recognized before the associated cash disbursement

Average Cost Method (Weighted- Average Method)

Inventory method costing method, based on the average cost of inventory during the period assumes that the cost of goods sold consists of a mixture of all the goods available for sale determined by dividing cost of goods available for sale by quantity of goods available for sale

relationship among management, auditors, investors and creditors that tends to preclude the "What would you like it to be?" attitude?

It is the responsibility of management to apply accounting standards when communicating with investors an creditors through financials. Auditors serve as independent intermediaries to help ensure that the management-prepared statements are presented fairly in accordance with GAAP. In providing this assurance, the auditor precludes the "What would you like it to be?" attitude.

operating segment characteristics

It operating results are regularly reviewed by the chief operating decision maker, it engages in business to earn revenues and incur expenses discrete financial info is available

IFRS does not allow which inventory valuation method

LIFO

if a company uses __________ to measure taxable income, they msut use the same method for external financial reporting

LIFO

level of the fair value hierarchy includes inputs other than quoted prices that are observable for the asset or liability?

Level 2

1934 Securities and Exchange Act

Mandates reporting requirements for companies whose stock is publicly traded

Receivables Turnover Ratio

Net credit sales / avg net accounts receivable

Earnings per share (EPS) basic

Net income (less dividends to preffered stock holders) / weighted average number of common shares outstanding weighted average example: 1 million shares outstanding beginning of period, 1 mill shares sold March 31, 2018 1,000,000 + 1,000,000(9/12)

Two statement approach:

Net income statement immediately followed by a statement of comprehensive income Comprehensive income statement begins with net income, followed by OCI items to arrive at comprehensive income there is a seperate income statement

Liabilities

Obligation to transfer cash or other resources as a result of a past transaction. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

economic and political environment in which standard setting occurs?

Often characterized as a political process. Standards, particularly changes in standards, can have significant differential effects on companies, investors and creditors, and other interest groups. A change in an accounting standard or the introduction of a new standard can result in a substantial redistribution of wealth within our economy. The FASB's due process is designed to obtain information from all interested parties to help determine the appropriate accounting approach, but standards are supposed to be neutral with respect to the interests of various parties. Both the FASB and IASB sometimes come under political pressure that sways the results of the standard-setting process

Expenses

Outflow of an asset (resources) related to the production of revenue. Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations

Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. Assuming the interest rate is 5%, what is the present value of this annuity?

PVAD factor of 5% for 10 periods, 8.10782 x 5000 = 40,539

International Organization of Securities

Regulatory oversight IFRS

FASB Accounting Standards Codification project purpose

Reorganize all relevant accounting pronouncements in the U.S. GAAP

Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers $345,000; Cash paid for rent $41,000; Cash paid to employees for services rendered during the year $121,000; Cash paid for utilities $51,000 In addition, you determine that customers owed the company $61,000 at the end of the year and no bad debts were anticipated. The company owed the gas and electric company $2,100 at year-end, and the rent payment was for a two-year period. Calculate accrual net income for the year

Revenue (345,000 + 61,000) = 406,000 less expenses: Rent (41,000 / 2) = (20,500) Salaries = (121,000) Utilities (51,000 + 2,100) = (53,100) 406,000 - 20,500 - 121,000 - 53,100 = 211,400

Net Income

Revenues plus gains less expenses and losses. The difference between revenue and expenses when revenue is greater

authority to set accounting standards for companies, but has delegated the task to the private sector

SEC

Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. Indicate which of these groups it primarily represents:

SEC (Securities and Exchange Commission) - users Financial Executives International - preparers American Institute of Certified Public Accountants - Auditors Institute of Management Accountants - Preparers Association of Investment Management and Research - users

Loss

Sale of an asset used in the operations of a business for less than the asset's book value. A decrease in equity from peripheral or incidental transactions of an entity.

1933 Securities Act

Sets forth accounting and disclosure requirements for initial public offerings of securities

Income Statement Formats

Single-step format groups all revenues and gains together, then expenses and losses are grouped, subtotaled, and subtracted - in a single-step from revenues/gains to derive income from continuing operations. Operating and nonoperating items are not separately classified Income tax is usually reported in a seperate line Multi-step format includes a number of intermediate subtotals before arriving at income from continuing operations

iASB

Standard setting board IFRS

Steps in ethical decision making:

Step 1: Determine the facts of the situation Step 2: Identify the ethical issue and stakeholders Step 3: identify the values related to the situation Step 4: Specify the alternative courses of action Step 5: Evaluate the courses of action in terms of their consistency

Analyze the income summary: Income Summary ________________________ 36,333 38750 _______________________ 2417

The $38,750 represents :revenue The $36,333 represent expenses The $2,417 represents net income

Political pressure in International standard setting comes from:

The European Union and politicians from countries utilizing IFRS

posting

The Process of transferring debit and credit information from the journal to ledger

understandability

The accounting characteristic that requires a user to comprehend the information within the context of the decision being made

going concern

The assumption that a business entity will continue to operate indefinitely in the future refers to what assumption?

Comprehensive income

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Includes net income as well as other gains and losses that change shareholders' equity but are not included in traditional net income

conceptual framework that underlies accounting principles (in generan)?

The conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting. The fundamentals are the underlying concepts of accounting, concepts that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties.

Equity

The owners residual interest in the assets of a company. The residual interest in the assets of an entity that remains after deducting its liabilities total assets minus total liabilities

Income smoothing

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next.

historical cost principle

The principle stating that asset and liability measurements should be based on the amount given or received in the original transaction

Financial Accounting Standards Board (FASB)

The private sector organization that is currently responsible for setting accounting standards in the U.S. is the?

recognition

The process of admitting or recording an item into the basic financial statements

measurement

The process of associating numerical amounts to the elements in the financial statements

transaction analysis

The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved

consistency concept

The qualitative characteristic of using the same accounting method each period over time refers

economic entity accounting assumption

The requirement that the economic activities of a business owner should be separated from the activities of the business

LIFO liquidation

The result of selling more units than are purchased during the period, which can have negative tax consequences if a company is using LIFO.

closing process involves ___________________________

Transferring revenue and expense balances to retained earnings

Cash equivalents

US treasury bills, money markets, commercial paper with a 3 month maturity date or less from date of purchase

cost index

Used to convert ending inventory at year-end cost to base year cost.

What should you tell your friend about the presence of accounting standards in the U.S.? Who has the authority for standard setting? Who has the responsibility?

We have a set of standards known as generally accepted accounting principles (GAAP). GAAP is a dynamic set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financials and related notes. The Securities and Exchange Commission has the authority to set accounting standards for companies whose securities are publicly traded but it relies on the private sector to accomplish that task. At the present, the Financial Accounting Standards Board is the private sector body responsible for standard setting

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:

a change in accounting principle

discontinued operations qualifications

a component of the entity has been sole, disposed of,or held for sale and a strategic shift is represented that will have a major effect on financial results

Accumulated depreciation is:

a contra asset account, a balance sheet account

The replenishment of a petty cash fund might include

a debit to office supplies expense recording expenses occurs at the time the petty cash fund is replenished

factors

a financial institution that buys receivables for cash and charges a fee for this service

After preparing closing entries, the last step in the accounting process is to prepare ___________________

a post-closing trial balance

when a company has a claim to receive assets in the future, ow is this recorded on the balance sheet

a receivable

note receivable

a receivable supported by a formal agreement that specifies payment terms

what does a sales discount represent

a reduction in the amount to be paid if paid within a specified period of time

which method of financing with receivables has the transferee recognize the receivables as assets in its balance sheet

a sales of receivables

Requires an explanatory paragraph required (even though auditors report is unqualified)

a significant matter concerning the financial statements and a related-party transaction, and uncertainty regarding a contingency for which a loss is material in amount

securitization

a special purpose entity is created for the purpose of purchasing pools of receivables

Net income and comprehensive income are identical __________

a statement of comprehensive income is not required

Which of the following adjusting entries causes an increase in liabilities? a) accruing unrecorded interest expense b) recording the amount of expired prepaid insurance c) accruing unrecorded interest revenue d) recording depreciation expense

a) accruing unrecorded interest expense

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles? a) corporate management b) CPA firms who audit the company c) SEC staff auditors d) audit committee

a) corporate management

Which of the following are enhancing characteristics of financial information? (select all that apply) a) timeliness b) decision usefulness c) cost effectiveness d) comparability

a) timeliness and d) comparability

The involvement of accounting professionals and management in accounting scandals resulted in Congress passing the Sarbanes-Oxley Act. What is the purpose of the Sarbanes-Oxley Act? (select all that apply) a) provide penalties for violators b) prevent conflicts of interests c) issue capital requirements for companies d) require CEO accountability e) regulate auditors

a, b, d and e

Financial Flexibility

ability to alter cash flows in order to take advantage of unexpxected investment opportunities and needs

Solvency

ability to pay long-term debts as they become due measured by Debt to equity ratio and Times Interest earned ratio

potential benefits of offering cash discounts to customers

accelerated customer payments, reduction in bad debt and increased sales volume

Earnings quality is affected by:

accelerating revenue recognition losing a major custore

GAAP stands for generally ___________ accounting principles.

accepted

Accounting changes - 3 types

accounting principle accounting estimate reporting entity

Elements of the accounting equation are represented by _________ which are contained in the general ledger

accounts

in a perpetual inventory system, when inventory is returned which accounts will the purchaser adjust to reflect the effect of the return

accounts payable and inventory

When a sales journal is used, at the end of the period the total amount sold on credit is debited to __________________

accounts receivable

a(n) ________ _____________ is an informal credit arrangement to receive cash from a credit sale and represents an asset of the company

accounts receivable

Monetary assets

accounts receivable cash note receivable (not inventory)

accouts that could be examined to detect potential low earnings quality

accounts receivable and allowance for bad debts

accounting model best meets the primary goal of users of financial reporting

accrual basis

Other comprehensive income is reported in the current reporting period on the income statement or as an addition to the income statement, and _____________ other comprehensive income is reported on the balance sheet

accumulated

factors that influence choice of inventory cost flow assumption

actual physical flow of inventory tax implications of choice financial statement effect

The effect of salaries and wages incurred but not yet paid would be reflected in the account balances shown on the:

adjusted trial balance

in a bank reconciliations, which items will require journal entries by the company

adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

perpetual inventory system

adjusts for each change caused by a purchase, a sale or a return of merchandise allows management to determine the amount of goods on hand on any date without having to take a physical count a new weighted-average unit cost is calculated after each purchase

purpose of a sales journal is to record

all credit sales

Profitability Ratios

all numerators is net income

LIFO inventory pools

all purchases during the period are considered to be made: at the same time and same cost grouped according to physical similarities a single layer is added at the average cost of purchases during the period is added to beginning inventory if the quantity of ending inventory increased

periodic inventory system

allocates cost of goods available for sale only at the end of each reporting period

a contra-asset account is used to reduce the carrying value of accounts receivable to the amount of cash expected to be received under the _______ method of accounting for bad debts

allowance

Accounts receivable contra account

allowance for sales returns

The objectives for determining the present value of future cash flows associated with an asset or liability requires that the uncertainty concerning the ____________ and timing of the cash flows be taken into consideration

amounts

Recognizing revenue before cash flow is an example of ____________

an accrual adjusting entry

Prepaid expense

an asset recorded when an expense is paid in advance, (paid but not yet incurred - asset acquired in one period and expensed in a future period)

intangible asset

an asset that has no physical substance

cash equivalent

an investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less

At the end of the accounting period, before the adjusting entries are recorded:

an unadjusted trial balance is prepared

SEC requires to submit financial information how frequently

annually and quarterly

In a(n) ___________________ the payment is received or made at the beginning of the period, whereas in a(n) __________________ the payment is received at the end of each period

annuity due ordinary annuity

On a financial calculator, the PMT key is used to input the ____________

annuity payment

required disclosure regarding asset transfers

any cash flows occurring between the transferor and transferee the amount of receivables that are past due and any related credit losses during the period how fair values were estimated when recording the transaction the transfer any continuing involvement with the transferred assets any ongoing risks to the transferor how any continuing involvement in the transferred assets will be accounted for on an ongoing basis

asset impairment

any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant impairment of value

FASB mandated changes implementation ways

apply new standard to the current and future periods with an adjustment to the beginning balance of retained earnings in the year of adoption apply new standards in the current period and all future periods with no change to prior financial statements apply new standard to all periods presented in the financial statements

the balance sheet approach to measuring bad debt expense focuses on

appropriate carrying value of accounts receivable

Interim reporting periods

are periods when financials are produced other than at the end of the fiscal year

restricted cash is usually reported in the balance sheet

as a noncurrent asset

fair value option for a financial asset or financial liability, how are the changes in fair value reported in the financial statements

as gains or losses on the income statement

how do sellers typically account for returns:

as return occurs and using an adjusting entry at the end of the period for any remaining future expected returns

The accumulated depreciation account is a contra (valuation) account to ___________________

asset account

When rent is paid in advance for 2 years, it is appropriately recorded as a(n) ______, whereas when rent is paid and used during one month, it is appropriately recorded as a(n) _______

asset; expense

effect on the accounting equation from using supplies which had been previously recorded as an asset

assets decrease and owners' equity decreases

Book value of a company

assets minus liabilities

Balance sheet limitations

assets minus liabilities is not representative of the company's true market value, the balance sheet is heavily reliant on estimates rather than determinable amounts

investments

assets not used directly in the operations of the business (cash set aside for future plant expansion, 3 year note receivable, land held for speculation, noncurrent receivables)

The application of conservatism leads to:

assets tending to be biased downwards and losses being recognized quicker than gains

First-in, first-out (FIFO) method

assumes that items in ending inventory are the most recently acquired most closely approximates the actual physical flow of inventory

Last-in, first-out (LIFO) method

assumes that the units sold are the most recent units purchased if prices rise over time, results in the lowest ending inventory provides better matching of current revenues with current inventory cost

Cost flow ____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory.

assumptions

perpetual inventory system

average cost method is applied by computing a moving average unit cost each time inventory is purchased

The organization responsible for the Code of Professional Conduct for accountants providing auditing services to their own organization is the: a) Accounting Principles Board b)Institute of Internal Auditors c) Public Accounting Standards Oversight Board d) Institute of Management Accountants e) American Institute of Certified Public Accountants

b) Institute of Internal Auditor

The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except: a) income from continuing operations b) operating income c) discontinued operations d) all of the above

b) operating income

Which of the following adjusting entries causes a decrease in assets? a) recognizing the portion of revenue collected in advance b) recording depreciation expense c) accruing unrecorded salaries expense d) accruing unrecorded interest revenue

b) recording depreciation expense