ACCT 2110 Exam 3

What effects occur on a retail store's accounting equation when it records the purchase of merchandise on account, assuming the use of a perpetual inventory system?

assets and equity decrease

Cooper Industries reported net income of $95,000 for 2012. Early in 2013, the company discovered an error was made in the inventory count and that its ending inventory for 2012 was overstated by $5,000. What is the effect of this error for 2012?

Assets and equity would have been overstated by $5,000 on this balance sheet; expenses would have been understated by $5,000 on the income statement, making net income overstated by $5,000

Which of the following would NOT be reported in the property, plant, and equipment section of a balance sheet?

Depreciation Expense - buildings

If the amount assigned to ending inventory is incorrect, then

both the balance sheet and the income statement are affected

If a company understates its inventory at the end of the period (ending inventory), what are the effects on cost of goods sold and net income for the current year?

cost of goods sold will be overstated and net income will be understated

The effect of recording depreciation for the year is a

decrease in assets and net income

Resources that are used in operations more than one year with no physical substance are called

intangible assets

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flow under

investing activities

When the market value of inventory items has declined below their cost, which method would be the most appropriate in complying with GAAP?

lower of cost or market

Transportation-in is

part of the cost of net purchases

Pollet Company started a business at the beginning of 2012. The company selected FIFO for its inventory costing method. Pollen's profits will be maximized in 2012 in a period of

rising prices

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

the buyer

The cost of goods sold is equal to

the cost of goods available for sales less ending inventory

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

the seller

The accounting life of intangible assets is determined by

their legal or useful lives, whichever is shorter