Accounting 2100 Exam 3
Periodic inventory system
Uses separate accounts for these items and records costs at the end of the account period
Net Realizable Value
Value of accounts receivable is the amount of cash a company EXPECTS to collect
What is the formula for the receivables turnover ratio?
(Net credit sales) / (Average accounts receivable, net)
List the steps to determine and measure impairment of long-term assets
1. Compare asset's book value to its estimated future cash flows 2. Compare asset's book value to its fair value
Alexandra Inc. utilizes a periodic inventory system. Related to inventory, they must record period-end adjustments to:
1. Adjust the inventory balance to its proper ending balance 2. Close purchase-related temporary accounts 3. Record cost of goods sold for the period
Franchise
Contractual agreement in which an entity may use a company's name/products/formulas
In a manufacturing company, raw materials, direct labor, and overheard flow from 1 account to the next occur in what order?
1. Work in progress 2. Finished goods
Average collection period is calculated by
365/the receivables turnover ratio
Inventory is classified as...
A current asset
A retirement of abandonment of an asset is different from a sale of an asset because
A loss must be recognized and no consideration is received
Informal credit agreement with trade customers
Account receivable
The approach that considers the age of various accounts receivables to estimate uncollectible accounts
Aging Method
Depreciation
Allocation of the cost of a tangible fixed asset
Depletion
Allocation of the cost of natural resources
Allocation of the cost of intangible assets
Amortization
A customer account that is not expected to be collected
Bad debt
Expense associated with the estimate of the amount of the accounts receivable that may not be collected during the year
Bad debt expense
Sarah purchases land to be used for a new storage facility. Which of the follow capitalized in the cost of land?
Commissions, legal fees to secure title, costs to remove old building
The benefit of using FIFO
Better approximates the current cost of inventory
The income statement approach for estimating bad debts uses a percentage of
Credit sales for the year
Where is note receivable reported in the balance sheet?
Current or noncurrent depending on the expected collection date
At the end of the year, companies must record estimated contra revenue for estimated returns/allowances pertaining to
Current year sales only
When an account previously written off is collected in full, the entry to reinstate the account would require what entries?
Debit accounts receivable and credit allowance for uncollectible accounts
The allowance method is a method that....
Decreases net accounts receivable for estimated bad debts
A trade discount is a reduction from the list price which is used to...
Disguise real prices from competitors, give quantity discounts to customers, and change prices without publishing a new catalog
What involves both an acquisition and a disposition of an asset?
Exchange of a fixed assets
Copyright
Exclusive right of protection given for published work
Patent
Exclusive right to produce a product
If a company generates its own goodwill through advertising or training, how should it be treated?
Expense costs incurred
Formula for Interest
Face Value x Annual interest rate x fraction of the annual period
When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired
Goodwill
Amortization refers to the allocation of the cost of _________ assets to expenses
Intangible
Copyrights, franchises, and goodwill are examples of what kind of assets?
Intangible
Which of the following are classified as receivables? inventory purchased on account, trading securities, loans by a company to other entities, interest due from loans to customers
Loans by a company to other entities and interest due from loans to customers
Why do managers closely monitor inventory?
Minimize costs of inventory write-downs due to obsolete inventory, to ensure that sufficient units are available
The benefit of using LIFO
More realistically matches the current costs of inventory needed to produce current revenues
Profit Margin Ratio
Net income/net sales
"Net credit sales" are similar to what?
Net revenues
FIFO Inventory method assumes that units remaining in ending inventory are the _______ units purchased
Newest
A signed agreement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others
Note receivable
Formal credit arrangement between borrower and lender
Note receivable
Book Value
Original cost of an asset minus accumulated depreciation
Omar Co uses a periodic inventory system and overstates endings by 10,000. This error would cause the retained earnings balance for the current year to be:
Overstated by 10,000
Type of inventory purchased: wholesale and retail companies
Purchase goods that are completed
Type of inventory purchased: Manufacturing companies
Purchase goods that are used to produce another product
Capitalized
Purchase price plus cost necessary to get ready for use
Costs related to manufacturing products
Raw materials, direct labor, and overhead
Tax Refund Claims (Receivable or payable)
Receivable
What the two entries required when a previous written off account is paid?
Record the collection on the account receivable, reinstate the account receivable
Perpetual inventory system
Records all inventory related transactions in the Inventory account and reduces inventory at the time of sales
Expensed
Research and development costs
A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise
Sales allowance
Sales to customers in which the customer pays within 30-60 days
Sales on account, credit sales
A customer returns merchandise purchased during the month and receives refund of the full sales price
Sales return
When a customer returns a product for a refund, which account is the entry recorded?
Sales return
Mueller inc. utilizes a periodic inventory system. When Mueller incurs shipping costs for purchased goods, the account debited should be:
Separate freight-in account
Depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life
Straight-line
What are commonly used depreciation methods?
Straight-line, declining balance, activity based
The gain or loss of an asset is calculated as:
The amount received less the book value of asset sold
Accounts Receivable
The legal right to receive cash from a credit sale and represents an asset of the company
In an exchange of assets where a loss is indicated, what occurs?
The new asset is recorded at fair value, the loss is recognized
The receivables turnover ratio indicates
The number of times during a year that the average accounts receivables were collected
Why are accounts receivable classified as current assets?
They will be converted to cash within a year
"Net credit sales" refers to credit sales net of
Total credit sales net of discounts, returns, and allowances
In a periodic inventory system, purchase returns...
are recorded in a separate contra purchases account
Inventory errors that are discovered more than one accounting period after the error was made....
do not require a correcting entry because the error self-corrects