Exam 2 Reviews MGMT 200

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A contingent liability is recorded if which conditions are met?

- it is probable that a future loss will occur - the amount of the loss can be reasonably estimated

Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?

-employee contribution to retirement plan -health insurance paid by employee -federal income taxes

Examples of fringe benefits

-payment of insurance premiums -contributions to retirement and other savings accounts -reduced or no-cost company-provided services

methods used for inventory costing

LIFO specific identification FIFO weighted-average

deferred revenue is classifies as

a liability

__________ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.

account

A company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. This transaction is recorded as a(n)

account payable

In a perpetual inventory system, freight costs on purchases are

added to the inventory account

The types of expenditures that can occur subsequent to an asset's acquisition are

additions improvements repairs and maintenance

Which of the following items are initially recorded as an expense on the income statement?

advertising costs research and development costs

An interest rate, unless otherwise specified, is typically a(n) ______ rate. (Enter one word per blank)

annual

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n)

annual 12 month rate

an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

The depreciable cost is

cost - salvage value

Notes payable is classified as a liability that has which of the following effects?

creates interest expense on the income statement

Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should

credit notes payable $5000

2 classifications of liabilities

current long-term

working capital =

current assets - current liabilities

Taxes collected for taxing authorities are recognized as

current liabilities

The portion of a long-term liability that will be paid within the next year is referred to and reported as the:

current portion of long term debt

The formula to calculate activity-based depreciation is ((cost - residual value)/total estimated production) x ______.

current year activity or production

FIFO

higher ending inventory lower cost of goods sold higher profit

Issuing a note payable for cash results in a(n) ______.

increase in assets increase in liabilities

Companies use accelerated depreciation for tax purposes because

it reduces taxable income in the early years of the asset's life and provides better cash flows.

Long-term tangible assets include

land equipment buildings

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)

liability

______ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events.

liability

refers to a company's cash position and overall ability to obtain cash in the normal course of business.

liquidity

LIFO

lower ending inventory higher cost of goods sold lower profit tax savings

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable greater

Which of the following are required payroll withholdings?

medicare taxes social security federal income tax

Profit Margin Ratio Formula

net income/net sales

exclusive right to manufacture a product or use a process granted for 20 YEARS

patent

Purchase returns are recorded in a separate contra purchase account in a

periodic inventory system

Freight-in costs are debited to Inventory in this inventory system:

perpetual only

When a contingent event that may give rise to a future loss is likely to occur, it is said to be

probable

Examples of contingent liabilities

product warranties (most common) frequent flier program awards future litigation losses

terms for categorizing likelihood of occurrence of a future loss

reasonably possible remote probable

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2400

The depreciable cost of an asset is the asset's cost minus its estimated _________value.

residual/salvage

Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should record the following credit amounts.

sales taxes payable of $100 sales revenue of $1,000

payroll withholding

the amount of money subtracted from the employee's gross pay for taxes

capitalize

to record a cost as an asset, rather than an expense

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark

Taxes subtracted from employees' pay and remitted to the government on their behalf are called

withholding taxes

On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021?

$70,000

straight line depreciation

(cost - salvage value) / useful life

Which account is credited in a journal entry to record depreciation on machinery?

AD

which payroll taxes are paid only by employer

FUTA SUTA

double declining balance depreciation

book value x (2/useful life)

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

A transaction or event in which the outcome is uncertain is referred to as a(n)

contingency

Under the periodic inventory system, purchase returns and purchase discounts accounts represent

contra purchases accounts

AD is classified as a _____ account

contra-asset

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?

debit AD $60,000 debit equipment $80,000 credit equipment $100,000 credit gain on exchange of asset $40,000

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following?

debit cash $100,000 credit note payable $100,000

journal entry for depreciation

debit depreciation expense credit accumulated depreciation

perpetual inventory system PURCHASE

debit inventory credit sales revenue

The journal entry to retire old equipment that is not fully depreciated includes a:

debit loss debit AD credit equipment

entry to retire equipment

debit loss debit AD credit equipment

periodic inventory system PURCHASE

debit purchases credit sales revenue

Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a:

debit to loss credit to contingent liability

current liabilities

deferred revenue sales tax

Common current liabilities include:

deferred revenue sales tax payable current portion of long-term debt

Declining Balance Depreciation

depreciation rate per year x (cost-residual value)

The allocation of the cost of a tangible fixed asset is referred to as _______________, whereas the allocation of the cost of an intangible asset is referred to as _________

depreciation; amortization

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a

franchise

amount received - book value of asset sold =

gain or loss on disposal


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