ACC exam 2 equations and questions

weight average cost: average cost per unit

cost of goods available for sale / # of units available for sale

If the number of periods is known, the interest rate is determined by

dividing the future value by the present value and looking for the quotient in the future value of 1 table.

bad debt expense

estimated % uncollectible x credit sales

Which inventory costing method assigns the cost of the most recent items purchased to ending inventory?

fifo

For companies that are too small to hire separate employees to do all the different functions needed for internal controls, the key to good internal controls is ________.

get the owner involved

Gross profit %

gross profit/net sales

What is the distinguishing characteristic between accounts receivable and notes receivable?

Notes receivable result from a written promise to pay within a specified amount of time.

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called

accumulated depreciation

Royal Company purchased a dump truck at the beginning of 2019 at a cost of $60,000. The truck had an estimated life of six years and an estimated residual value of $24,000. On January 1, 2021, the company made major repairs of $20,000 to the truck that extended the life one year. Thus, starting with 2021, the truck has a remaining life of five years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. When calculating depreciation for 2021, Royal should

add the $20,000 to the book value at December 31, 2016, and then allocate the revised basis over the remaining adjusted useful life of five years.

ending balance on a amortization schedule

beginning balance - principal (payment - interest)

cost of goods sold

beginning inventory + purchases - ending inventory

Using the following information, what is the amount of cost of goods sold? Purchases $32,000 Merchandise Inventory, September 1: 5,700 Merchandise Inventory, September 30: 6,370 Purchase returns and allowances: 1,200 Purchase discounts: 960 Transportation-in: 1,040 Sales: 63,000

$30,210

depletion

(cost - salvage value) / units (units of production)

straight line depreciation

(cost - salvage value) / useful life

units of production

(cost - salvage value) / useful life in units

Cash and cash equivalents include

-assets that are short-term, highly liquid, and are purchased by the entity within three months of maturity. - Customer checks, cashier's checks, certified checks, and money orders.

an accurate description of Allowance for Doubtful Accounts?

-contra account -balance sheet -current asset acount

Effective cash management and control includes:

-the use of petty cash fund -bank reconciliations -short-term investments of excess cash

Requirements of Sarbanes-Oxley Act

1. A company's annual report must include an internal control report. 2. External auditors can no longer provide human resource services. 3. External auditors can no longer provide brokerage services.

DDB rate

2 x (1/straight line years)

inventory turnover days

365/inventory turnover

A customer returned damaged goods and was given an allowance. Which of the seller's accounts decreases?

Accounts receivable

accounts receivable turnover ratio

A ratio that measures the number of times the company collects the average accounts receivable balance in a year. Net credit sales / Average net accounts receivable. *Higher is better*

net realizable value

Accounts Receivable - Allowance for Doubtful Accounts

Arena, Inc. uses straight-line depreciation for its equipment. Arena purchased equipment for $300,000 and estimated its useful life at eight years. The bookkeeper failed to consider the residual value of $50,000. What is the impact on earnings per share and operating income of failing to consider the residual value?

Both earnings per share and operating income will be understated

inventory turnover

COGS/Average Inventory

when inventory costs are increasing, ____ has highest income tax expense

FIFO

T/F: The Cost of Goods Sold account is updated after each sale of merchandise under the periodic inventory system.

False

FOB shipping point

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller. *buyer pays cost*

Which one of the following types of inventory accounts would be used by a retailer?

Merchandise Inventory

What are the effects on the accounting equation from the purchase of a short-term investment?

No effects—assets increase and decrease by the same amount.

On December 1, 2020, Richards Company sold some machinery to Fleming Company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required four equal annual payments with the first payment due on December 1, 2020, the date of the sale. What time value of money concept is appropriate for this situation?

Present value of an annuity due of 1 for four periods.

gross proft

Sales Revenue - COGS

Vern Corp. sold merchandise to a customer on credit. The invoice amount was $2,000; the invoice date was June 10; credit terms were 1/20, n/30. Which one of the following statements is true?

The customer should pay $2,000 if the invoice is paid on July 9

How are cash equivalents reported or disclosed in the financial statements?

They are included with cash under current assets on the balance sheet.

Why do businesses invest in short-term investments?

They are investing excess cash to meet future business operation or investment needs.

T/F: The Inventory account is updated only at the end of the accounting period under the periodic inventory system.

True

T/F: The Purchases account is used only under the periodic inventory system.

True

T/F: The audit committee is a subset of individuals on the board of directors that acts as a direct contact between the stockholders and the independent accounting firm.

True

which of the following reconciling items does not require a journal entry? a. deposit in transit b. bank collection of note receivable c. bank service charge d. NSF check

a. deposit in transit

Oakland Corp. purchased land and a building for a combined cost of $500,000. Oakland must

allocate the $500,000 acquisition cost to separate Land and Buildings accounts based on their respective fair market values.

A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an

annuity due

depreciable cost

asset cost - salvage value

amortization

asset cost / useful life (straight line)

In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for

both the periodic and perpetual inventory systems

most liquid asset

cash

Which one of the following would appear on the income statement of a merchandising company, but not on the income statement of a service company?

costs of goods sold

if the bookkeeper statement included an EFT payment of $670 for insurance, the journal entry to record this reconciling item should include

credit to cash for $670

In a period of rising prices a. net income under LIFO will be higher than under FIFO b. LIFO inventory will be greater than FIFO inventory c. COGS under LIFO will be less than under FIFO d. gross profit under FIFO will be higher than under LIFO

d. gross profit under FIFO will be higher than under LIFO

Dividend income is reported on the _____

income statement

The recognition of cost of goods sold as an expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the

matching principle

monthly interest on amortization schedule

month 1 = amount borrowed x rate x 1/12 month 2 = ending balance of month 1 x rate x 1/12

net purchases

purchase price + freight in - purchase returns - purchase allowances - purchase discounts

the depreciation process attempt to match the

revenues earned by the asset and the cost of the asset

An internal control system consists of all of the following policies and procedures except those necessary to ensure

that cash on hand and on deposit in checking accounts is beyond the minimal amount for ongoing operations

At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of

the buyer

T/F: The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the subsidiary ledger for accounts receivable.

true