Accounting Ch 5, 6, 7, 8 Midterm study guide

A note receivable is reported in the balance sheet:

As either a current asset or long-term asset depending on the expected collection date.

Which of the following items typically are classified as equipment?

Computers and printers used in office Furniture and fixtures Machinery used in manufacturing vehicles

Which of the following items should be capitalized as land improvements?

Cost of fences Cost of parking lots Cost of sidewalks cost of driveways cost of sprinklers

In accounting for inventory, net realizable value equals:

Estimated selling price less any costs of completion, disposal, and transportation.

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:

Liabilities until the product or service is provided.

Which of the following costs should be capitalized in the costs of acquiring a building?

Remodeling building Realtor commissions Legal fees to obtain title

When assets are purchased in a group for a single sum, it is referred to as a

basket purchase

Accounting for land improvements requires that the land improvements are recorded separately from land because the improvements have a

definite/limited

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

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

disguise real prices from competitors, give quantity discounts to customers, and change prices without publishing a new catalog

property, land, and equipment: Investment:

land is used in company's operations land is purchased and held until price rises

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be than ending inventory determined using the FIFO inventory assumption.

lower

Companies that produce the inventory they sell are referred to as . (Enter one word per blank)

manufacturers

Long-lived assets are typically classified in two categories: and. .

tangible, intangible

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

true

Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be: Multiple choice question. understated

understated assets, retained earnings, and net income

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

capitalized

The current portion of long-term debt should be

Reported as a current liability in the balance sheet.

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

Sales on account credit sales

The percentage-of-receivables method for estimating uncollectible accounts is sometimes described as:

The aging method

The factors used to compute depreciation expense are an asset's:

Cost, residual value, and physical life.

Research and development costs should be:

Expensed in the period incurred.

Generally, if a company wants its inventory cost flows to be the same as the inventory's physical flows, what inventory method would it use?

FIFO

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Legal fees to secure title Costs to remove an old building Commissions

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

as a noncurrent asset

Identify the likely advantage of extending credit to customers. Multiple Choice Lower accounts receivable. Increased sales. Reduced amounts owed to creditors. Fewer expenses.

increased sales

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier.

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production.

raw materials inventory

The largest expense on a retailer's income statement is typically:

Cost of goods sold.

The distinction between land and land improvements is that:

land has an indefinite life

Self-constructed buildings include which of the following costs?

-labor costs incurred for construction of building -interest costs incurred during construction -material costs incurred for construction of building

The legal life of a patent is:

20 years

Which of the following is considered a "contra" account?

Accumulated Depreciation.

What is the formula for the receivables turnover ratio?

Avg net sales/avg accounts receivable, net

The cost of estimated accounts receivable that will not be collected is referred to as expense.

Bad debt

The sale of gift cards by a company is a direct example of:

Deferred revenues.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

account receivable

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the method of accounts receivable. (Enter only one word.)

aging

The cost of major improvements that extend the service life of an asset would be , whereas the cost of maintenance that increase future benefits would be .

capitalized, expensed

gross profit is:

net sales rev minus COGS

From the seller's perspective, ending inventory is equal to the cost of items on hand plus:

Items in transit sold FOB destination.

True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off. True false question.

False

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

The cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

LIFO

When prices increase, the inventory method provides the best matching of revenue and expenses.

LIFO

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

1) receivable turnover ratio 2) average collection period

On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. How would Flores record the sale on November 10? A.Accounts Receivable7,840 Sales Revenue 7,840 B.Accounts Receivable8,000 Sales Revenue 8,000 C.Accounts Receivable7,840 Cash Discounts160 Sales Revenue 8,000 D.Accounts Receivable8,000 Cash Discounts 160 Sales Revenue 7,840

B

Given a choice, most companies would prefer to report a liability as long-term rather than current because:

It may cause the firm to appear less risky to investors and creditors.

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

Items held for sale in the normal course of business are referred to as .

inventory

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement. Multiple choice question.

multiple set

Suppose a customer is unable to pay its account on time, so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable. What effect will accepting the note receivable have on the company's financial statements at the time of acceptance?

no change in total assets

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming

old

Where is inventory reported in the financial statements?

Balance sheet as a current asset

FIFO is considered a balance-sheet approach for reporting inventory because it:

Better approximates the value of ending inventory.

Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.

Cash; Accounts Receivable

Recurring costs related to equipment: Cost of preparing asset for use

Expense during the period they are incurred Include as part of asset cost

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year. Multiple choice question.

Future, current

The allowance method is required by .

GAAP

Which of the following items should be capitalized in the cost of equipment?

Installation and testing of equipment Purchase price Freight to deliver the equipment to its location Insurance on equipment during shipping

Margot Company constructs a new building that will replace its current office building. In addition to construction materials and labor, which of following costs incurred during the construction period should be included in the cost of the new building?

Interest costs Construction related overhead costs Architect fees

Deferred Revenues is a(n):

Liability account.

Which of the following methods are not used for inventory costing? (Select all that apply.)

NIFO Simple-average

Which measure reflects profitability from normal operations and a key performance measure for predicting the future profit-generating ability of a company?

Operating income.

A(n) is the legal right to receive cash from credit sale and represents an asset of the company

Trade receivable

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use. True false question.

True

Which of the following accounts are typically reported in the balance sheet of a manufacturing company?

Work in process. Raw materials Finished goods

A trade discount is

a percentage reduction from list price

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the Multiple choice question.

allowance method

Accounts receivable should be classified as a(n)

asset

Costs incurred to acquire equipment are recognized as a(n). , while cost providing a benefit in the current period only are recognized as a(n) .

asset, expense

Costs incurred to acquire equipment are recognized as a(n) , while cost providing a benefit in the current period only are recognized as a(n) .

assets, expenses

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

The term means to record an expenditure as an asset.

capitalize

In accounting, expenditures recorded as assets are said to be _____. Multiple choice question.

capitalized

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

capitalized; expensed

A word, slogan, or symbol that distinctively identifies a company, product, or service is a:

trademark