ACCT 3001- Final
owns equipment with a cost of $291400 and accumulated depreciation at dec 31 of $151000. it is estimated that the machinery will generate future cash flows of $165300. the machinery has a fair value of $115000. cullumber should recognize a loss on impairment of
$0 bc the asset does not fail the recoverability test: future cats flows- $165300 exceed the $140400 ($291400- 151000)
6.4 practice 1 - look at ! in instances where no interest is stated, the company measures the present value of the note. ($56600 x 1.80802)
$102334
pharaoh company offers a cash rebate of $2 on each $10 package of protein sold during 2024. historically, 20% of their customers mail in rebate form.. during 2024, 3020000 packages are sold, and 296000 $2 rebates are mailed to customers. what is the rebate expense and liability, respectively shown on 2024 financial statements?
$1208000; $616000 expense - 302000 x 20% x2 / package = 1208000 since 296000 of $2 rebates were mailed the liability balance is 1208000-592000 =616000
sunland manufacturing company has the following account balances at year-end: office supplies - $8700 raw materials- 24000 WIP - 45500 finished goods- 54700 prepaid insurance- 9700 what amount should sunland report as inventories in its balance sheet?
$124200 raw materials + WIP + finished goods= reported as inventories in its balance sheet
purchased depreciable asset for $103000 on jan 1. estimated salvage is $22000, and the estimated useful life is 10 years . the double declining is used. what is depreciation for 2nd year ?
$16480 100%/10 x 2 = 20% 20% of 103000= $20600 (103000- 20600)x .20 = $16480 year 2
on jan 1 2025 Sheffield issued $5007000, 9% bonds for $4797000. the market rate of interest for these bonds is 10%. interest payable annually on dec 31. Sheffield uses effective interest method of amortizing. at December 31, 2025 Sheffield should report unamortized bond discount of
$180930 face value of bond- cash proceeds from bonds or carrying amount = $210000 amortization discount in 2025 - 5007000 x 9% = $450630 - (4797000 x 10%)= $29070 leaving a balance of: discount at issuance, $210000- amortization of discount $29070 = $180930
depreciable asset for $92000 on jan 1, 2020. estimated salvage value is $21000, and the estimated useful life is 5 years. straight line method is used. on jan 1, 2022 the company made capital expenditure of $12000 for an addition to asset. what is depreciation expense for 2022? assume that salvage value remains unchanged
$18200 cost of asset $92000 - salvage (21000) / 5 years = 14200 year of depreciation 2 years = $28400 so $92000- $28400 + $12000 = new book value of $75600 - $21000 (orig salvage value) / 3 years
Carla Vista Corp. prepared the following information for 2021: sales rev $1029000 cost of goods sold 720300 operating expenses 113190 unrealized holding gain on available for sale securities 41160 cash dividends received on the securities 4116 for 2021, carla vista would report comprehensive income of:
$240786 sales revenue- cost of goods sold - operating expenses + unrealized holding gain on available for sale securities +cash dividends on securities
ch 13 question 21 - problem with chart
$27213087 to compute present value , the periods and the interest rate must be adjusted to reflect semiannual payments so 5 years x 2 = 10 and 6.0%/2 =3.0% present value = 26100000x .74409 + (26100000 x 7.0% x6/12 x8.53020) = $27213087
sandhill reports net income: $737800. it declares and pays dividends of $85000 for the year, one half of which relate to the preferred shares. the weighted average number of common shares outstanding during the year is 170000 shares, and the weighted average number of preferred shares of outstanding during the year is 8500 shares. earrings per share is:
$4.09 net income- $737800- dividends $42500 ($85000 x 1/2), is divided by the weighted average of common shares outstanding, 170000
depreciable asset for $51920 on October 1,2020. estimated salvage is $11600, estimated useful life is 6 years. the straight lune method is used for depreciation. what is book value on july 1, 2022?
$40160 asset cost- salvage value / useful life - 72 months = $560 monthly 21 months (October 1, 2020- July 1 2022) - 21 x $560 = 11760 51920 - 11760
the required balance in Sandhills allowance for doubtful accounts is $39000, based on an aging of its accounts receivable. the allowance for doubtful accounts currently has a debit balance of $5200. Sandhills bad debt expense for the period is
$44200 allowance for doubtful accounts balance $39000 + allowance for doubtful accounts current debit balance, $5200
equipment cost $329000 and accumulated depreciation at December 31, 2021 of $218000. it is estimated that the machinery will generate future cash flows of $175000. the machine has a fair value of $156000. if carla vista uses IFRS, the company should recognize a loss of impairment of:
$45000 assets book value - fair value assets book value here is cost - accumulated depreciation
issues $15500000, 5.80% 20 year bond to yield 6% on January 1, 2025. interest is paid on June 30 and December 31. the proceeds from the bonds are $15141721. Sheffield uses effective interest amortization. what amount of interest expense will Sheffield record for the June 30, 2025 payment?
$454252 bond carrying amount x 6/12 x 6%
on jan 1, flounder issued $5017000, 9% bonds for $4752000. the market rate of interest for these bonds is 10%. interest payable annually on December 31. flounder uses the effective interest method of amortizing bond discount. at the end of the first year, flounder will report a carrying value of the bonds payable of
$4775670 (5017000x9%) - ($4752000x 10%) = 23670 4752000 + 23670 =
depreciable asset for $159000 on April 1,2020. estimated salvage is $51000, and the estimated useful life is 5 years. the straight line method is used. what is balance for accumulated depreciation on march 1, 2023?
$63000 asset cost- salvage value / useful life x amount of months (35 months)
on august 31, 2024, Sheridan university sold $429000 in season tickets for the schools 5 game home football season. as each game is played, how much revenue will Sheridan recognize?
$85800 per game bc $429000/5
replacement cost is $91. NRV is $97.50. NRV less a normal profit margin is $88.50. the cost of the item is $94. the designated market used in applying lower of cost of market is
$91 bc designated market value is the middle number $91 of replacement cost ($91) NRV ($97.50) and NRV less a normal profit margin ($88.50)
during the year, sandhill enterprises made an entry to write off an $8230 uncollectible account. before this entry was made, the balance in accounts receivable was $104200 and the balance in the allowance account was $9410 (credit balance). the net realizable value of accounts before and after the write off entry was
$94790 before: accounts receivable , $104200 - allowance account, $9410= $94790 after: accounts receivable, $104200-$8230 - allowance account, $9410 -8230 = $94790
book value of $515000. estimated that machinery will generate future cash flows of $472000. the machinery has a fair value of $417000. should recognize a loss of impairment of:
$98000 book value - fair value here
a multiple income statement:
-highlights certain intermediate components of income that analyst use to compute ratios for assessing the performance of the company -seperates operating transactions from non operating transactions -matches costs and expenses with related revenues
which of the following is a reason the trial balance may not contain up-to-date and complete data?
-some items may be unrecorded -some costs are not recorded during the accounting period bc these costs expire with the passage of time rather than as a result of recurring daily transactions -some events are not recorded daily bc its not efficient to do so
a cash discount of 1/10, n/30 means the customer gets a
1% discount if they pay within 10 days
if a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)?
18% 1% divided by ( (30 days-10 days) /360 days))
each general journal entry consists of how many elements?
4 1- the accounts and amounts to be debited 2- the accounts and amounts to be credited 3- a date 4- an explanation
wild horse company received a seven-year zero interest bearing note on feb 22,2020 in exchange for property, there was no established exchange price for this property and the note has no ready market. the prevailing rate of interest for a note of this type was 6.2% on feb 22, 2020. what interest rate should be calculate the interest revenue from this transaction for the years ended December 31, 2020 and 2021 respectively?
6.2% and 6.2% since the interest rate was 6.2% on feb 22,2020 that rate should be used
issued $20100000, 5.80%, 20 year bonds to yield 6% on jan1 2025. interest is paid on June 30 and dec 31. the proceeds from the bonds are $19635393. the company uses effect interest amortization. interest expense reported on the 2025 income statement will total
= $1178309 for first 6 months - (19635393 x 6% x6/12) = 589062 19635393+ 589062 - 582900 (which is 20100000 x 5.80% x6/12) = $19641555 so for next 6 months it would be (1964155 x0.6% x6/12) =589247 so add up first and second six months - 589062 + 589247 = total
what is total estimated warranty liability at end of 2025 ?
= $31800 sales of 2024 x (2% +5%) + sales 2025x (2%+5%) - (actual expenditures for 2024 and 2025) = estimated warranty liability at end of 2025
on June 30, 2025 blue had outstanding 8% , $5640000 face amount , 10 year bonds that pay interest semi annually on June 30 and dec 31. the unamortized balance in the bond discount account on June 30, 2024 was $200000. on June 30, 2025 blue acquired all of these bonds at 102 and retired them. what amount of gain or loss would blue record on this early extinguishment of debt?
=$312800 bonds net carrying amount is = face amount - unamortized bond discount so 5640000-200000= $5440000 the loss of extinguishment is : retirement amount = 5640000 x 1.02 - carrying amount of bonds so 5752800 - 5440000= $312800
on June 30, 2025 grouper co had outstanding 12%, $6600000 face amount , 15 year bonds maturing on June, 30, 2027. interest is payable on June 20 and December 31. the unamortized balance in the bond discount account on June 30, 2025 was $231000. on June 30, 2025, grouper acquire all of these bonds at 94 and retired them. what net carrying amount should be used in computing gain or loss on this early extinguishment of debt?
=$6369000 the bonds net carrying amount used to calculate the gain or loss on extinguishment is face amount of bonds - bond discount
purchased depreciable asset for $26000. estimated salvage value is $3250 and estimated useful life is 4 years. the double declining balance method will be used for depreciation. what is depreciation expense for the 2nd year on this asset?
=$6500 100%/4 x 2= 50% 50% of $26000 = $13000 50% of 13000 = $6500 -2nd year
employer payroll taxes include all of the following EXCEPT
EXCEPT - state income taxes
typical contingencies include all of the following EXCEPT
EXCEPT bonds payable
the cost of manufacturing equipment would include all of the following EXCEPT
EXCEPT cost of training the equipment operator
assets include all of the following subclassifications EXCEPT
EXCEPT treasury stock (this is included in stockholders equity section) include- intangibles, long term investments, other
major limitations of the balance sheet include all of the following EXCEPT:
EXCEPT- only amounts known with absolute certainty are reported major limitations- most assets and liabilities are reported at historical cost it necessarily omits many items that are of financial value but cannot be recorded objectively judgments and estimates are used to determine many of the items reported
non-trade receivables include all of the following EXCEPT
EXCEPT- oral promises of the purchaser to pay for goods and services sold include- claims against defendants under suit dividends receivable deposits paid to cover potential losses
the balance sheet is useful for analyzing all of the following EXCEPT
EXCEPT- profitability useful for- liquidity, solvency, financial flexibility
other assets include all of the following EXCEPT:
EXCEPT- timberlands other assets- restricted cash, property held for sale, and assets in special funds
all of the following are economic factors related to depreciation except:
EXCEPT- wear and tear economic factors- inadequacy, obsolesce, supersession
which of the following is FALSE?
FALSE- compensated absences are usually reported as a long term liability they are normally reported as a current liability - not long term
the ending inventory and cost of goods sold will be the same whether a perpetual or periodic system is used under the:
FIFO stays same !
which of the following pairings of an item and a basis of valuation is INCORRECT?
INCORRECT- receivables- lower of cost or market receivables are valued at estimated amount collectible and inventories are valued at lower of cost or market CORRECT- prepaid expenses-cost cash- fair value short term investments - generally fair value
in a period of rising prices, the inventory method that produces the lowest ending inventory is
LIFO periodic method
an adjusting entry would NEVER include a:
NEVER : debit to an asset account and a credit to a liability account WOULD: debit to expense and credit to asset debit to expense and credit to liability debit to liability and credit to revenue
the occurrence which most likely would have NO effect on 2021 net income (assuming that all amounts involved are material) is the
NO effect - collection in 2021 of a receivable from a customer whose account was WRITTEN OFF in 2020 by a charge to the allowance account
which of the following is NOT transferred to retained earnings at the end of the period?
NOT - common stock company does transfer dividends, revenues, and expenses to retained earnings
which one of the following is NOT a characteristic of PPE?
NOT -they are acquired for resale
all of the following statements about contra asset accounts are true EXCEPT: -contra asset acts have normal credit balances -contra asset accts are deducted from the related asset acct to determine book value -contra asset accts are not reported in financial statements -contra asset accts are increased with credits
NOT TRUE- contra asset accounts are not reported in the financial statements
which of the following is NOT true of depreciation accounting?
NOT TRUE- depreciation lowers the book value of the asset as it ages ad its fair value declines
which of the following is NOT true about the discount on short term notes payable?
NOT true- the discount on notes payable account should be reported as an asset on the balance sheet
which of the following is NOT an example of a current liability at December 31, 2026?
NOT- bonds payable, due 12/28
which of the following is NOT classified as an unusual and infrequent gain or loss?
NOT- discontinued operation are- losses from inventory write-downs impairment losses on intangible assets flood damage losses to property
which of the following would NOT be included in a manufacturing company's balance sheet?
NOT- merchandise inventory would- finished goods, raw materials, WIP
in applying lower of cost or market rule, the floor is defined as
NRV less a normal profit margin
transactions are initially recorded in the general journal - true or false?
True
lawsuit has been filed against pharaoh company for wrongful termination. legal counsel encouraged company to settle bc it is likely they will lose the case. legal counsel levies that the case should be settled for $889000. pharaoh should report
a contingent liability for $889000
on jan 1, issued $102430000, 6% bonds at 104. the JE entry to record the issuance of the bonds will include
a credit to premium on bonds payable for $4097200 debit cash $106527200 (102430000 x 1.04) and credit bonds payable for $102430000 and credit to premium of bonds
ivanhoes lawyers state it is probable that the company will lose the suit and be found liable for a judgment costing between $10048000 to $200115000. however, the lawyer states that the most probable cost is $125136000. as a result, Ivanhoe should accrue
a loss contingency of $125136000 and disclose an additional contingency of up to $74979000
which of the following disposals would be considered a strategic shift with respect to discontinued operations?
a major line of business
under a PERPETUAL inventory system, which accounts should be debited each time a sale on account is made?
accounts receivable and cost of goods sold are DEBITED
a liability for compensated absences is
accrued only if specific conditions are met
which of the following is included in an owners equity section reported in the balance sheet?
additional paid in capital other options would be capital stock, retained earnings, accumulated other comprehensive income, and treasury stock
adjustments are often prepared
after the balance sheet date, but dated as of the balance sheet date
which of the following is included in employer payroll taxes?
all of the following - FICA taxes federal unemployment taxes state unemployment taxes
notes receivable can be classified as
all of the following - current, trade, non trade
which of the following are excluded from the cost of inventory?
all of the following : interest costs related to financing inventory, general administrative costs, selling costs
gain contingencies include all of the following EXCEPT
all of the options are gain contingencies possible receipts of donations and gifts pending court cases where the probable outcome is favorable possible refunds from the government in tax disputes
which of the following factors need NOT be considered in determine whether a liability should be recorded with respect to pending or threatened litigation?
all of the options must be considered the time period in which the cause of action occurred the probability of an unfavorable outcome the ability to make a reasonable estimate of the loss
factors that shape an accounting information system include the -transactions in which the business engages -informational demands of management -volume of the date to be handled
all of these are correct
which of the following sets of conditions would give rise to the accrual of a contingency under current GAAP?
amount of loss is reasonably estimable and occurrence of the event is probable
the adjusting entry to record an accrued expense includes a debit to:
an expense account and a credit to a liability account
an accrued expense is
an expense that has been incurred but for which payment has not yet been made
If a company cannot determine the fair value of the goods exchanged for a note, and if the note has no ready market,
an imputed interest rate is used to value the note
if a company employs the net method of recording accounts receivable from customers, then sales discounts forfeited (not taken) should be reported as
an item of "other revenues and gains" in the income statement
when a company transfers an amount of restricted retained earnings into a different account, what is the title of the account?
appropriated retained earnings
which of the following is an INCORRECT depiction of the accounting equation? assets=liabilities +stockholders equity assets-stockholders equity= liabilities assets- liabilities=stockholders equity assets+stockholders equity= liabilities
assets + stockholders equity = liabilities - this is incorrect!
if an adjusting entry for an accrued revenue is NOT made
assets, revenues, and equity understated
the most extensively used method of accounting for overhead costs related to self constructed assets is:
assigning a portion of all overhead to the asset
a principal objection to the straight line method of depreciation is that it
assumes that the assets economic usefulness is the same each year
Atlantic Company had 500 units of "CL-10" in its inventory at a cost of $12 each. It purchased 300 more units of "CL-10", for $8,400. Atlantic then sold 400 units of "CL-10 at a selling price of $30 each, resulting in a gross profit of $4,800. The cost flow assumption used by Atlantic is
average cost
a business whose inventory consists of similar items would be most likely to use which of the following cost flow assumptions?
average cost
the printing costs and legal fees are associated with the issuance of bonds should
be reported as a reduction to the issue amount of the bond payable and then amortized to expense over the life of the bond
the terms of the agreement between the issuer of bonds and the lender are set forth in the
bond indenture
the difference between the cost of a depreciable asset and its related contra account, accumulated depreciation is referred to as the asset's:
book value
expenditures that extend the useful life of a plant asset without improving its quantity or quality are accounted for:
by debiting accumulated depreciation
a bond for which the issuer has the right to call and retire the bonds prior to maturity is a
callable bond
the accounting for interest costs incurred during construction recommended under GAAP is to
capitalize the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made
the correct order to present current assets is
cash accounts receivable inventories prepaid items
the gain to be recognized from the exchange is:
cash received / (cash received +fair value) x (fair value + cash received - (exchanged equipment cost - accumulated depreciation))
the gain recognized in an exchange that lacks commercial substance and in which cash is received is computed by multiplying the total gain by the formula of:
cash received divided by the total of cash received plus fair value of the asset received
in the lower of cost or market rule, NRV is referred to as the
ceiling
which of the following is NOT a recordable event or item?
changes in managerial policy
Company A rents office space to Company B. If Company B pays Company A for one year's rent in advance on June 1:
company a will record unearned rent revenue and company B will record prepaid rent
which of the following is an acceptable method of presenting the income statement?
condensed income statement other acceptable ways are single step income , multi step income
when the cost of goods sold method is used adjust to "NRV" in the lower of cost and net realizable value approach, which account is debited?
cost of goods sold is debited inventory would be credited
the method of recording inventory at net realizable cost that substitutes the net realizable cost for the historical cost and reports the loss as a part of cost of goods sold is the:
cost of goods sold method
the interest rate written in the terms of bond indenture is known as
coupon rate, nominal rate, or stated rate
federal income taxes withheld by the employer on behalf of the employee are recorded as
current liabilities bc the employer is acting as the collection agent for the government
which of the following is an intangible asset?
customer lists other examples include patents, copyrights, franchises, goodwill, trademarks, trade names
Ivanhoe company sold manufacturing equipment with a cost of $46000 and accumulated depreciation of $32700 for $11900. the JE to record will include:
debit to a loss account for $1400 cost - accumulated depreciation = BV BV - cost = loss
wild horse company sold equipment with a cost of $76000 and accumulated deprecation of $43500 for $37800. the JE to record :
debit to accumulated depreciation- equipment for $43500
issued a 60 day zero interest bearing note with a face amount of $3164. the present value of the note is $2857. the JE to record the issuance of the note will include
debit to cash for $2857 remaining part would be debit to discount on notes payable $307 and credit to notes payable for $3164
issued a 90 day zero interest bearing note with a face amount of $6150 on nov 1. the pv of the note is $5640. about the note, the adjusting JE at dec 31 will require
debit to interest expense for $340 $510/ 90 days x 60 days = $340 debit interest expense and credit discount on notes payable
adjusting entries can be classified as either
deferrals or accruals
which of the following methods of deterring annual bad debt expense violates the expense recognition concept?
direct write off
A large anticipated insurance recovery is reported as
disclosure only is a gain contingency and thus is a disclosure only
which of the following would be reported in a separate income statement category, separately from continuing operations, on the income statement?
discontinued operations
which of the following statements is FALSE?
discount on notes payable represents interest revenue to the issuer
which of the following is a nominal account? -interest payable -dividends -cash -retained earnings
dividends is a nominal or temporary account. int pay, cash, and re are real (permanent)
the lower limit (floor) for inventory valuation is defined as the selling price less:
estimated costs of completion and disposal (NRV) less a normal profit margin
in no case can "market" in the lower of cost or market rule be more than
estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal
if bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
exceed what it would have been had the effective interest method of amortization been used
an asset impairment occurs when the assets carrying amount exceeds the:
expected future net cash flows
the cost assigned to the land is:
fair market value of land / (fair market value of land + fair market value of building) x lump sum cost
in an exchange that lacks commercial substance in which a gain exists, and cash is received, the asset received is recorded at the:
fair value of the asset received less the deferred portion of the gain
in an exchange of nonmonetary assets that lacks commercial substance in which a gain exists, and no cash is paid or received, the asset received is recorded at:
fair value of the asset received less the gain deferred
IFRS uses a floor to determine market for inventory valuation. true or false?
false
avoidable interest is the lesser of actual interest cost incurred during a fiscal period or the amount of interest cost incurred during the construction period that a company could theoretically avoid if it had not made expenditures for the asset
false
cash or other assets received in an exchange are referred to as "boot"
false
if an exchange has commercial substance, all losses should be recognized immediately; however, gains should be deferred
false
the entry to record the sale of a plant asset at a loss included a credit to accumulated depreciation - true or false?
false
net realizable value is defined as estimated selling price less purchase price - true or false?
false NRV - estimated selling price less predictable cost of competition of disposal
interest incurred while getting inventories ready for sale is a product cost. true or false?
false interest is an indirect cost of financing and is thus treated as a period cost, not a product cost
land held for speculative purposes is classified as PPE but is not depreciated
false land held for speculative purposes is classified as an INVESTMENT
the balance sheet is sometimes referred to as the Statement of Net Resources - true or false?
false sometimes referred to as statement of financial position
the cost of goods sold method of recording inventory at NRV under the LCNRV rule establishes a separate contra asset account and a loss account to record the write off- true or false?
false the loss method, not the cost of goods sold method , uses a separate contra account and loss account to record the write off
best efforts underwriting means that the investment bank guarantees the proceeds of the bond issue will be a certain amount. true or false?
false - firm underwriting, not best efforts underwriting means that the investment bank guarantees the proceeds of the bond issue will be a certain amount
major limitation of the straight line method is that it is inappropriate in situations in which depreciation is a function of time instead of activity. true or false?
false - this is a major limitation of the activity method
aging accounts receivable is a variation of the percentage-of-sales approach to recognizing bad debt expense- true or false ?
false - aging is an estimation method used with the percentage-of-accounts receivable approach
in accounting for short term debt expected to be refinanced to long term debt, GAAP uses the financial statement issuance date to determine whether the debt should be classified as short or long term. true or false?
false- GAAP uses the balance sheet date to determine the classification of short term debt to be refinanced
When the effective interest rate of a bond is lower than the stated rate, the bond sells at a discount. true or false?
false- a bond would sell at a premium when the effective rate is lower than the stated rate
economic factors that shorten the service life of an asset include technological changes in the industry and damage - true or false?
false- causes an asset to become obsolete but damage is not an economic factor
sold bonds with a face value of $100,000,000 and a stated interest rate of 8% for $92,278,000 to yield 10%. if the company uses the effective interest method of amortization, interest expense for the first 6 months would be $4,000,000. true or false?
false- first 6 months would be $4,613,900 (10% x 6/12 x $92,278,000)
discontinued operations occur when a company eliminates the results of operations of a component of the business. the elimination of the component need not represent a strategic shift, having a major effect on the company's operations and financial results - true or false?
false- first part is correct, however the elimination component represents a strategic shift. having a major effect on the company's operations and financial results
merchandising companies report the cost assigned to unsold units left on hand as finished goods inventory.
false- merchandising companies call their unsold units merchandise inventory. finished goods is the name of goods in the inventory of a manufacturer that are ready for sale
unless otherwise stipulated, depreciation is normally computed on the basis of the nearest fraction of a year - true or false?
false- normally computed on the basis of the nearest full month
obsolesce is the replacement of one asset with another more efficient and economical asset. true or false?
false- replacement of one asset with another more efficient and economical asset is termed supersession, not obsolesce
the effective interest method calculates bond interest expense by multiplying the carrying value of the bonds at the beginning of the period by the stated rate of interest - true or false?
false- the effective interest method calculates interest expense by multiplying the carrying value of the bonds by the effective interest rate
state and federal unemployment taxes are imposed on both employers and employees- true or false?
false- unemployment taxes, both state and federal, are imposed solely on the employer
a strength of the balance sheet is that it omits many items that are of financial value to the business but cannot be recorded objectively, such as Human Resources, customer base, and reputation- true or false?
false- it is considered a limitation, not a strength
when preparing the report form of the balance sheet, the assets and liabilities are show in side-by side columns- true or false?
false- the report form lists the section one above the other
real accounts are periodically closed -true or false?
false- real or permanent accounts are NOT closed; only nominal or temporary accounts are closed at the end of each accounting period
the primary basis of acct for inventories is cost. a departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
future utility will be less than their cost
which of the following occur from peripheral or incidental transactions?
gain on the sale of equipment
which of the following items should be included in a company's inventory at the balance sheet date?
goods in transit, which were purchased FOB shipping point
if a bond sells at 97, the market interest rate is
greater than the stated interest rate it sold at a discount of 97% of face value, which occurs when the market rate is greater than the stated rate
a company with a ________ is better able to survive bad times, to recover from unexpected setbacks, and to take advantage of profitable and unexpected investment opportunities
high degree of financial flexibility
the interest rate that equates the cash paid with the amount received in the future on a zero-interest-bearing note is the:
implicit rate
unusual and infrequent gains and losses
include restructuring charges
bonds which do not pay interest unless the issuing company is profitable are called
income bonds
which limitation of an income statement occurs when one company uses an accelerated depreciation method while another company uses straight line depreciation?
income numbers are affected by the accounting methods employed
the proper sequence of financial statement preparation is:
income statement retained earnings balance sheet statement of cash flows
in the closing process, all of the revenue and expense account balances are closed to the:
income summary account
which one of the following statements regarding revision of depreciation rates is INCORRECT?
incorrect- changes in estimate should be handled in the current period only
book value of $2193000. estimated machinery will generate future cash flows of $1992000. the machinery has a fair value of $1913000. the Je to record the impairment loss will
increase the assets accumulated depreciation account by $280000 debit to ordinary loss account and credit to acc deprec book - fair value
JJP Corporation uses the perpetual inventory method and the gross method for recording purchases on acct. on may 11, it purchased $44200 of inventory, terms 2/10, n/30. on may 13, JJP returned goods that cost $9000. on may 19, FBS paid the supplier. on may 19, the company should credit
inventory for $704 (purchase, $44200- purchase return , $9000) x 2% = $704 debit to accts payable $35200 and credit to inventory $704 and cash $34496 (35200-704)
when NRV is lower than cost, and the loss method applying the lower of cost and net realizable approach of recording the write down is used , what account is credited?
inventory is credited there would be a debit to a loss account
the use of a purchase discounts lost account implies that the recorded cost of a purchased inventory item is its
invoice price less the purchase discount allowable whether taken or not
under the effective interest method, interest expense
is the same total amount as straight line interest expense over the term of the bonds
which of the following statements about a trial balance is INCORRECT? -its primary purpose is to prove the mathematical equality of debits and credits after posting -it uncovers errors in journalizing and posting -it is useful in the preparation of financial statements -it proves that all transactions have been recorded
it proves that all transactions have been recorded
which of the following is TRUE about intraperiod tax allocation?
its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision
in the single-step income statement:
just two groups exist- revenues & expenses
when a bond sells at a premium, interest expense will be
less than the bond interest payment
if an adjusting entry is NOT made for a deferred revenue which was initially credited to an unearned revenue account, which of the following results?
liabilities are overstated & revenues are understated & assets are unaffected
unearned revenues are
liabilities bc the firm owes the customer goods or services
when a dividend is declared:
liabilities increase and stockholders equity decreases ***when a dividend is paid - assets decrease and liabilities decrease
the selling price of a bond is the sum of the present values of the principal and the periodic interest payments. the present values are determined by discounting using the
market rate
earnings per share is computed as net income:
minus preferred dividends divided by the weighted average of common shares outstanding
PPE includes
none of these options -deposits on machinery not yet received -idle equipment awaiting sale -land held for possible use as a future plant site
amount of overhead should Pharaoh include in the cost of the self constructed asset?
normal production + variable overhead attributable to self construction
all of the following are major disadvantages of using LIFO, EXCEPT:
not a major disadvantage - future earnings will not be affected substantially by future price declines
a loss related to general or unspecified business risks is
not accrued
which of the following accounts does NOT exist in a perpetual inventory system?
not in perpetual - purchases
liabilities are
obligations arising from past transactions and payable in assets or services in the future
Ignoring income tax effects, accelerated depreciation methods can
offset the effect of increasing repair and maintenance costs at the asset ages.
when is the restoration of an impairment loss permitted?
on assets being held for disposal
gain and losses that bypass net income but affect stockholders' equity are referred to as:
other comprehensive income
which of the following describes an expense?
outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations
which of the following sections of the balance sheet is particularly difficult to prepare and understand?
owners equity (stockholders equity)
the gain or loss from disposal of a component of a business is shown as a(an):
part of discontinued operations
freight charges on goods sold are accounted for as:
period costs
________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts.
posting
plant assets purchased in exchange for a long term credit contracts should be accounted for at the:
present value of the note
the income statement can be used to assess
profitability, investment value, and creditworthiness NOT liquidity
a trial balance
proves that debits and credits are equal in the ledger
cost of equipment
purchase price + sales tax + freight charges + insurance during shipping + installation costs = cost of equipment **repairs are not included in this
the buyer would report the inventory in its balance sheet for items:
purchased FOB shipping point and in transit
the interest rates used in computing avoidable interest is the:
rate incurred on specific borrowings for the weighted average expenditures equal to the specific borrowings and the weighted average rate of other borrowings excess expenditures
the proceeds from the sale of the salvaged materials should be
recorded as a reduction of the cost of the land
when an asset being depreciated under the group method is disposed of, any resulting gain or loss is:
recorded in the accumulated depreciation account
assets acquired in a lump sum purchase should be recorded at
relative fair market values
the term market in the phrase "lower of cost or market" generally means the
replacement cost
the statement of stockholders' equity
reports the change in each stockholders' equity account and in total stockholders' equity during the year.
current liabilities are defined as obligations who's liquidation is reasonably expected to
require the use of current assets or the creation of other current liabilities
if the entry to close income summary to retained earnings includes a debit to income summary:
retained earnings will be increased by the current periods net income
the major elements of the income statement are
revenues expenses gains losses
a bond that matures in installments is called a
serial bond
the major difference between the service life of an asset and its physical life is that
service refers to the time an asset will be used by a company and physical life refers to how long the asset will last
neither the attachment nor the renovation increased the estimated useful life of the press. however, the renovation resulted in significantly increased productivity.
since increased productivity (purchase of attachment + installation of attachment + replacement parts for renovation of press + labor and overhead connection with renovation press) all should be capitalized here
an inventory method that makes it possible to manipulate net income is the:
specific identification
which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold?
specific identification
Stonehenge issues bonds with a mature amount of $5,000,000 and a maturity of 8 years from date of issue. if the bonds were issued at a premium, this indicates that
stated rate of interest exceeded the market rate
which of the following is NOT an accelerated depreciation method?
straight line method
which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
systematic and rational allocation
when a corporation purchases a computer for cash: -liabilities will be credited -stockholders equity will be debited -the net effect on assets will be a debit -the account Cash will be credited
the account cash will be credited
what is TRUE regarding capitalization of interest?
the amount of interest cost capitalized during the period should not exceed the actual interest cost incurred
the period of time during which interest must be capitalized ends when
the asset is substantially complete and ready for its intended use
the double entry accounting system means
the dual effect of each transaction is recorded with a debit and a credit
in an exchange of non monetary assets that has commercial substance, when no cash is involved, the new asset is valued at:
the fair value of the new asset
the cost of property acquired by the issuance of securities is equal to:
the market value of the securities
in applying lower of cost or market, the designated market value is
the middle value of replacement cost, net realizable value and net realizable value less a normal profit margin
In computing partial-year depreciation, depreciation is normally computed on the basis of:
the nearest full month
an impairment of PPE has occurred if
the sum of the expected future net cash flows is less than the assets carrying value
gain contingencies are recorded when
they are never recorded
the single step income statement emphasizes:
total revenues and total expenses
which of the following investments should always be reported as current assets?
trading securities
the ____ approach focuses on the income-related activities that have occurred during the period
transaction
Companies frequently use judgments and estimates in valuing items on the balance sheet- true or false?
true
a bond is a type of long term note payable. true or false?
true
a sale with a "repurchase" agreement allows the seller to finance its inventory and retain the risk of ownership even though the technical title has be transferred. true or false?
true
after journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that tis the primary basis for preparation of the financial statements- true or false?
true
companies may prepare a trial balance at any time- true or false?
true
depreciation allocates the cost of long-lived assets to expense over the periods which benefit from their use (useful life) - true or false?
true
earnings per share (EPS) is net income minus preferred dividends (income available to common stockholders), divided by the weighted average of common shares outstanding - true or false?
true
financial statements are usually prepared directly from the adjusted trial balance- true or false?
true
for the composite method, an average (composite) depreciation rate is determined by dividing the depreciation per year by the total cost of the assets- true or false?
true
gain contingencies are not recorded- true or false?
true
goods shipped FOB destination, which arrive to a customer, on jan 2 2022 should be included in the sellers December 31, 2021 inventory. true or false?
true
liquidity refers to the amount of time that is expected to elapse until a liability has to be paid- true or false?
true
losses as a result of a strike are considered unusual and infrequent- true or false?
true
revenue, equity, and liability accounts have normal credit balances - true or false?
true
the declining balance method does NOT deduct the salvage value in computing depreciation base - true or false?
true
the discount on a short term zero interest bearing notes represent interest- true or false?
true
the excess of current assets over current liabilities is referred to a net working capital- true or false?
true
total depreciation over an assets life CANNOT exceed an amount equal to cost minus estimated salvage value- true or false?
true
under the direct write-off method, bad debts are only recognized when an account is determined to be uncollectible- true or false?
true
when a merchandiser prepares closing entries, cost of goods sold is credited and income summary is debited- true or false?
true
when compared to the aging of accounts approach, the percentage of sales approach of estimating bad debt s does a better of of matching revenues (sales) and expenses (bad debt expense) on the income statement
true
when goods are shipped FOB shipping point, title passes to the buyer when the seller delivers the goods to a common carrier. true or false?
true
when revenue from gift card breakage is recorded, no cost of goods sold is recognized. true or false?
true
a special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land
true this type of one time special assessment for sidewalks and drainage system would be included in the cost of the land since it is relatively permanent in nature
gain and losses on early extinguishment of debt are reported as other gains and losses on the income statement. true or false?
true - FASB requires that gains and losses on early extinguishment of debt be reported as other gains and losses on the income statement
the entry to record the collection of sales tax by a retailer may include credits to both sales revenue and sales tax payable - true or false?
true - a company may credit the entire amount to sales revenue or may segregate the tax and credit both sales revenue and sales tax payable
A liability that is payable within the next year is sometimes included in long-term debt- true or false?
true- if the company expects to refinance the debt through another long term issue or to retire the debt out of non current assets
a debenture bond is also known as
unsecured bond
cullumber enterprises has an unusual or infrequent loss of $294000, an unusual gain of $727000, and a tax rate of 30%. at what amount should cullumber report each item?
unusual loss $(294000) and unusual gain $727000 stay the same bc they are reported net of tax
which of the following is an internal transaction?
using machinery in operations
in determining the amount to be accrued for a contingency when there is a range of possible amounts of loss and no amount within the range is a better estimate than any other amount, the liability to be accrued should be measured
using the minimum amount of the loss in the range
in Halls multiple step income statement, gross profit:
will be reported at $113300 gross= sales - cost of goods sold
