exam 2 acct theory

True or False: A company using the periodic inventory method will debit the asset account, purchases, when merchandise held for resale is bought

False

True or False: Land improvements, like the asset land, are not depreciated

False

True or False: intangible assets are recorded on the balance sheet at their fair market value

false

When could a company have inventory profits?

prices are rising and the company is using the periodic FIFO

What is the effect of recording amortization expense for the year? increase, decrease, no effect A L SHE

A: Decrease L: No effect SHE: Decrease

For a company using the allowance method, the collection of an account receivable that has previously been written off will have what effect on the financial statements? Increase, decrease, no effect Asset Liability SHE

A: No effect L: No effect SHE: No effect

If a company uses the allowance method to account for bad debts, when will the company's stockholders' equity decrease? A) On the date a customer's account is written off B) At the end of the accounting period when an adjusting entry for bad debts is recorded C) At the date a customer's account is determined to be uncollectible D) When the accounts receivable becomes past due E) When collection is made on a previously written off account

B) At the end of the accounting period when an adjusting entry for bad debts is recorded

Accrual accounting requires that bad debts resulting from the failure of credit customers to pay their bills should: A) be recognized in the period in which the account receivable proves to be uncollectible because that is the only date when the exact amount of bad debt will be known. B) be estimated and recorded in the period in which sales are made so that expenses are matched with revenues. C) be estimated in the period in which sales are made, because of the matching principle, but should not be recorded until the customer actually defaults

B) be estimated and recorded in the period in which sales are made so that expenses are matched with revenues.

Which of the following statements is false: A) Depreciation expense is closed to Retained Earnings at the end of the accounting period. B) The entry to record depreciation of an asset includes a credit to a contra-account. C) Accumulated depreciation is closed to Retained Earnings at the end of the accounting period. D) An asset cannot be depreciated beyond its cost less its salvage value. E) Both A and D are false.

C) Accumulated depreciation is closed to Retained Earnings at the end of the accounting period.

At year-end, for companies using the periodic inventory system, the cost of goods available for sale is allocated between: A) Beginning inventory and ending inventory B) Beginning inventory and cost of goods sold C) Ending inventory and cost of goods sold D) Ending inventory and cost of goods purchased E) Beginning inventory and cost of goods purchase

C) Ending inventory and cost of goods sold

Raylan Company and Boyd Company are two competing firms in a high-tech industry. Due to recent technological advancements, the purchase price for their products has steadily decreased over the last two years. The inventory reported in Raylan Company's balance sheet is close to the current cost of inventory, whereas Boyd's inventory is considerably above its current cost. Which of the following statements are true? A) Raylan Company is using LIFO because its ending inventory is close to current cost. B) Boyd Company is using LIFO because its net income is lower. C) Raylan Company is using FIFO because its Cost of Goods Sold is higher. D) Boyd Company is using FIFO because its ending inventory is considerably above its current cost.

C) Raylan Company is using FIFO because its Cost of Goods Sold is higher.

Which of the following statements is false? A) Recording an accrual of interest expense decreases stockholders' equity. B) If a company's accounts receivable are a material amount the company must use the allowance method of accounting for their accounts receivables. C) Using the allowance method of accounting for accounts receivables follows the matching concept. D) The issuer of a note records a receivable on their books on the date the note is issued. E) A debit memo issued by the bank reduces a company's cash balance.

D) The issuer of a note records a receivable on their books on the date the note is issued.

Which of the following is not an advantage of the perpetual inventory system over the periodic inventory system? A) Inventory losses can be identified and controlled better under a perpetual system. B) The inventory account balance can be easily determined for interim financial statements under the perpetual system. C) The perpetual system is suitable for businesses with a relatively small volume of high unit price merchandise. D) The perpetual system eliminates the need for an annual inventory count.

D) The perpetual system eliminates the need for an annual inventory count.

Which inventory costing method (FIFO, LIFO, Avg. Cost) most closely approximates current cost for Ending Inventory?

FIFO

True or False: Accumulated depreciation is closed to the Income Summary at the end of the accounting period.

False

True or False: All intangible assets purchased by a company are amortized over the lesser of their useful or legal life with no salvage value.

False

True or False: Depreciation expense is closed to the Income Summary at the end of the accounting period.

False

True or False: Recording depreciation expense through an adjusting entry is an example of an accrual.

False

True or False: A year end physical inventory count is required if a company is using the periodic inventory method but not if they are using the perpetual inventory method

False

True or False: Per GAAP a company must use the same method of depreciation for all of its fixed assets.

False

True or False: gains and losses from the sale of fixed assets are included in income from operations on the income statement

False

In periods of rising prices, which inventory costing method will produce the greatest tax savings?

LIFO

True or False: ABC Company purchased equipment on January 1, 2021. The following information is available concerning the purchase: Invoice price $12,000, installation costs $300, shipping charges $900, trial run materials and labor $400. The equipment account will be debited for $13,600 on January 1, 2021.

True

True or False: Capital expenditures are added to the book value of an asset and depreciated over the remaining life.

True

True or False: Regardless of the depreciation method used, the total amount of depreciation taken over the life of the asset will be the same.

True

True or False: The entry to record depreciation of an asset includes a credit to a contra-account.

True

True or False: An asset cannot be depreciated beyond its cost less its salvage value.

True

True or False: Depreciable base is defined as the book value of an asset less the salvage value.

True

True or False: Failure to record depreciation expense for the year would result in total assets and net income being overstated for the period

True

True or False: Net income will be less in the early years of an asset's life if the company is using double declining depreciation as compared to straight-line depreciation.

True

True or False: The recording of a interest receivable is a accrual

True

True or False: building a new wing on an existing building would be considered a capital expenditure

True

True or False: using the allowance method to account for bad debts follows the matching principle

True

True or False: Depreciation expense is closed at the end of the accounting period

true