Exam 2 Reviews MGMT 200
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
