Accounting Unit 3 Exam Practice/Review

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

During July, Audio City sold 200 radios for $50 each. Each radio had cost Audio City $32 to purchase and carried a 2 year warranty. If 5 percent typically need to be replaced over the warranty period and one is replaced during July, for what amount in July should Audio City debit Product Warranty Expense?

$320

List some examples of revenue expenditures

-Ordinary recurring repairs to keep the machinery in good working order -Periodic lubrication after machinery is placed in service -Training of personnel for initial operation of the machinery

An asset that costs $7,000 and has accumulated depreciation of $5,200 is sold for $1,000. The ensuing journal entry would include a

A debit to Loss on Sale of Asset for $800.

Steps of Revision of Depreciation

A. Obtain the book value of the asset on the date of the revision of depreciation. B. Compute Depreciation expense using the revised amounts for book value, useful life, and/or residual value.

Operating Assets

Assets not for resale, life > 1 year, used in normal course of operations

Secured Bonds

Backed by specific assets that have been pledged as collateral

Journal Entry for a Discarded machine no longer in the business

Debit Accumulated Depreciation, Machinery XX, Debit loss on disposal of machinery XX, Credit Machinery XX.

Depletion Formula

Depletion Rate x Units recovered

Capital Expenditures

Extends the life of the asset, expands the productive capacity, increases efficiency, or improves the quality of the product.

Mortgage Payable Characteristics

Instead of paying off the principal at maturity, some debt requires a portion of the principal to be paid off each period (usually monthly), along with some interest

Intangible Assets

Intangible assets are recorded at cost. The cost of an intangible asset is any expenditure necessary to acquire the asset and to prepare the asset for use. (No physical substance)

Straight Line Depreciation Method

It allocates an equal amount of an asset's cost to depreciation expense for each year of the asset's useful life.

Current Portion of Long-term note payable

Long-term debt due within a year

Fixed Asset Turnover Ratio (function)

Measures how efficiently fixed assets are used.

Sales Tax

Money collected from the customer for the taxing authority.

Fixed Asset Turnover Ratio (formula)

Net Sales/ Average Fixed Assets

Debentures (Unsecured bonds)

No collateral

Depreciation

Systematically allocate the cost of a tangible fixed asset (other than land) to expense over the asset's useful life.

Term Bonds

The bond principal is due in full at a single maturity date.

What is all included in Land improvements?

driveways, parking lots, fences, and signs.

Franchise

exclusive right to conduct a certain type of business in some particular geographic area. Life of the franchise depends on specific terms of the franchise contract. Cost includes: initial cost paid to acquire the franchise.

Failure to record a liability probably will

result in an overstated net income

Contingencies must be accrued as liabilities, if

the company can determine a reasonable estimate of the debt, and it is probable the company will suffer a loss.

A company's employees earn $5,000 per day per week (Monday-Friday), and get paid each Friday. If the previous payday was January 26th and the accounting period ends on January 31, what is the ending balance in the wages payable account?

$15,000

A company purchases a coal mine for $1,000,000. It estimates that the mine contains 5,000,000 tons of coal and has a five year life with no salvage value. If the company extracts and sells 800,000 tons during the first year, how much accumulated depletion should be recorded?

$160,000

Focal Point Engineering purchased a trademark at the beginning of 2017 for $200,000. Although the trademark's legal life is 20 years, economic benefits were expected for only 10 years. Also, during 2017, the company incurred research and development costs of $200,000. The book value of the trademarks at December 31, 2017, is

$180,000

Assume the tax rate in your state is 8%. Your cash register does not have a key for sales tax. However, the total amount of cash received for sales and sales tax during the month of June was $27,000. Sales for the month of June totaled

$25,000

On January 1st, a company vehicle with a useful life of eight years and a residual value of $1,000 was purchased for $25,000. What is the depreciation expense in year 3 under straight-line depreciation?

$3,000

The exclusive right to reproduce and sell a literary, artistic, or musical work is called a what?

Copyright

On January 1st, a company vehicle with a useful life of eight years and a residual value of $1,000 was purchased for $25,000. What is the depreciation expense in year 1 using the double-declining-balance method?

$6,250

Elway company purchases land for $85,000 cash. Elway assumes $2,500 in property taxes due on the land. The title and attorney fees totaled $1,000. Elway has the land graded for $2,200. They paid $10,000 for paving a parking lot. What amount does Elway record as the cost for the land?

$90,700

Depletion Rate formula

(Cost - Residual Value)/ Recoverable Units

Straight-Line Depreciation method formula

(Cost -Residual Value)/Expected Useful life

Units-of-Production Method (Depreciation Cost per Unit) Formula

(Cost- Residual Value) / Expected Usage of the Asset

List some examples of capital expenditures

-Purchase Price -Lubrication before machinery is placed in service -major overhaul to extend useful life by 3 years -sales tax paid on the purchase price -Transportation and insurance while machinery is in transit from seller to buyer. -Installation

Disposal of fixed assets (hint: usually requires two journal entries)

1. An entry to record depreciation expense up to the date of disposal. 2. An entry to: a. Remove the asset's book value( the cost of the asset and the related accumulated depreciation) b. Record a gain or loss on disposition of the asset, which is computed as the difference between the proceeds from the sale and the book value of the asset).

3 Factors of Depreciation

1. Cost of the fixed asset 2. Residual (salvage value) 3. Useful life

How to journalize the disposal of an asset (steps)

1. Debit Accumulated Depreciation 2. Debit any receipt of cash 3. Debit or credit a loss or gain on disposal if cash received differs from the carrying value. 4. Credit the asset account for recorded cost.

2 examples of classic installment debt payments

1. Home Mortgages 2. Car payments

3 depreciation methods

1. Straight-Line Depreciation 2. Double-Declining-Balance Method (aka accelerated depreciation method) 3. Units-of-Production Method

Declining Balance Rate formula

2 x Straight-Line Rate

Social Security tax is always what? Medicare tax is always what?

6.2%, 1.45%

Depletion

Allocated the cost of the natural resource to each period.

Short-term Notes Payable

Arises when borrow money or purchase goods or services from a company that requires a formal agreement or contract-a note

Accounts Payable:

Arises when purchase goods or services on credit.

Examples of Natural Resources

Coal Deposits, oil reserves, and mineral deposits

Journal Entry for Amortization

Debit Amortization Expense xx Credit Patent (or credit accumulated amortization)

Journal Entry for purchasing assets with a mortgage

Debit Assets Credit Mortgage Payable

Journal entry for issue of a promissory note with interest stated separately.

Debit Cash XX Credit Notes Payable XX

Journal Entry for the Sale of merchandise and collection of sales and excise taxes

Debit Cash XX Credit Sales XX, Sales tax Payable XX, Excise Tax Payable XX

Journal entry for receipt of annual subscriptions in advance

Debit Cash XX Credit Unearned Subscriptions XX

Journal entry for the Sale of a machine at more than carrying value; gain recorded

Debit Cash XX, Debit Accumulated Depreciation, Machinery XX, Credit Gain on Sale of Machinery XX, Credit Machinery XX.

Journal entry for the sale of a machine for carrying value; no gain or loss

Debit Cash XX, Debit Accumulated Depreciation, Machinery XX, Credit Machinery XX

Journal Entry for the sale of a machine at less than carrying value; loss recorded

Debit Cash XX, Debit Accumulated Depreciation, Machinery XX, Debit Loss on Sale of Machinery XX, Credit Machinery XX

Journal Entry for recording Costs of Goods Sold

Debit Cost of goods sold xx, Credit Inventory xx.

Journal entry to accrue interest payable on note with interest stated separately.

Debit Interest Expense XX Credit Interest Payable XX

Journal Entry for recording Depletion of Natural Resources

Debit Inventory xx Credit Accumulated Depletion xx.

Journal entry for monthly mortgage payment

Debit Mortgage Payable, Mortgage Interest Payable Credit Cash

Journal entry for payment of note with interest stated separately

Debit Notes Payable, Interest Payable, Interest Expense Credit Cash

journal entry for delivery of monthly magazine issues

Debit Unearned Subscriptions XX Credit Subscription Revenues XX

Journal Entry for replacement of part under warranty?

Debit: Cash XX, Estimated Product Warranty Liability XX Credit: Service Revenue XX, Merchandise Inventory XX

What is the journal entry to record estimated product warranty expense

Debit:product warranty expense XX Credit Estimated Product warranty expense XX

How do you calculate the Declining Balance Depreciation Expense?

Declining Balance x Book Value

Units of Production Method (Units-of-Production Depreciation Expense) Formula

Depreciation Cost Per Unit x Actual Usage of the Asset

Revenue expenditures

Does NOT increase the future economic benefits of the asset

Measurement of liabilities

Exclude any interest that has not yet occurred.

Interest Formula

Principal x Annual interest rate x Fraction of one year

Liabilities

Probable future sacrifices of economic benefits and require the payment of cash, transfer of non-cash assets, or the performance of services.

On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year, 7% note. If the company's fiscal year ends on December 31st, a year-end adjusting entry is required to increase

Interest payable by $1,050

Research and Development (R&D) Expense

Not Intangible assets! (Expensed)

Amortization of Goodwill (Hint: trick question)

Not amortized since it has an indefinite life; renewed a least annually for impairment.

Amortization of Trademark (Hint: trick question)

Not amortized since it has an indefinite life; reviewed at least annually for impairment.

Contingent Liabilities

Not recognized unless the occurrence of the event is probable AND the loss could be reasonably estimated.

Current Liabilities

Obligations requiring the firm to pay cash or another current asset, create a new current liability, or provide goods or services within the longer of one year or one operating cycle.

Amortization

Over the shorter of the intangible asset's remaining legal life or useful life.

Which of the following is not a capital expenditure? a. replacing an old engine with a new one in a company vehicle b. a complete overhaul of a heating system c. painting the office walls d. the addition of a building wing

Painting the office walls

Examples of Intangible Assets

Patents, copyrights, trademarks, leaseholds, franchises, goodwill.

Examples of Contingent Liabilities

Pending lawsuits, tax disputes.

Maturity formula

Principal +interest

What is all included in cost of land?

Real estate commissions, lawyer's fees, accrued taxes aid by the buyer, razing a building, draining, clearing, grading, assessments, and landscaping.

Patent (Hint: what is the legal life?)

Right to manufacture, sell, or use the product. The legal life is 20 years from the date of the grant. Cost includes purchase price, registration fees, and legal costs.

Copyright (Hint: what is the legal life?)

Right to publish, sell, or control a literary or artistic work. The legal life is life of author plus 70 years. Cost includes: Purchase price, registration fees, legal costs.

Trademark (Hint: what is the legal life?)

Right to the exclusive use of a distinctive name, phrase, or symbol. The legal life is 10 years but it can be renewed indefinitely. Cost includes: Purchase price, registration fees, legal costs.

Amortization for Franchise

Shorter of the economic life or legal life.

Amortization for Patents

Shorter of the economic life or legal life.

Amortization for Copyright

Shorter of the economic or legal life.

Gainesville Truck Center has a weekly payroll of $100,000 for its employees. Federal and state income taxes are withheld in the amounts of $17,000 and $4,000 respectively, and FICA taxes are withheld at a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state unemployment taxes are applied at 2% and 5% respectively. Which of the following statements is true regarding the entry to record wages and the related liabilities?

Social Security tax payable will be credited in the amount of $6,200.

Serial Bonds

The bond principal is repaid in installments over the maturity period.

Goodwill

Unidentifiable Intangible asset that arises from factors such as costumer satisfaction, quality products, skilled employees, and business location. Goodwill is only recognized in business combinations. Cost includes: The excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination.

Unearned Revenues

When goods or services received in advance.

Units-of-Production Formula

When the decline in an asset's service potential is proportional to the usage of the asset and asset usage can be measured. (depreciation expense can be computed using this method)

Notes Payable provides the lender what?

Written documentation of the obligation, and interest income

Liquidity

a company's ability to meet its short-term obligations.

Which of the following involves a contingent liability?

a pending lawsuit

Liabilities are what?

creditors' claims on total assets existing debts and obligations obligations that must be settled or paid at some time in the future by the transfer of assets or services

The cost of tearing down a building situated on land just purchased should be ?

debited to the Land account.

What is all included in the cost of equipment?

invoice price less cash discounts, freight insurance, taxes, tariffs, buying expense, installation costs, and test runs.

Which of the following is not true about goodwill?

it should be expensed in the year acquired

What is all included in building costs?

purchase price and repairs to make the building usable.

What is all included in cost of a building?

purchase prices and repairs to make the building usable.

Estimated Liabilities: Warranties

usually guarantees the repair or replacement of defective goods during a period(ranging from a few days to several years) following the sale.

When are liabilities recognized?

when goods or services are received or money is borrowed.


Kaugnay na mga set ng pag-aaral

Chapter 5: Authority in the Church - Teaching and Governing

View Set

Chemistry - The Nature of Matter

View Set

Lab Final Exam (Anatomy) Ex 3+4!

View Set

IGGY 7TH EDCH 60 Care of Patients with Inflammatory Intestinal Disorders

View Set

Pregnancy and prenatal development

View Set

Topic 2: Cells and the Organization of Life

View Set