ACCT Final Review

Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $580,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $38,000; title insurance, $2,800; and miscellaneous closing costs, $7,600. The warehouse is immediately demolished at a cost of $38,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land.

$666,400

What financial statement are these for?: (1) Change in owners' claims to resources (2) Resources equal creditors' and owners' claims to those resources

(1) Statement of SHE (2) Balance Sheet

For semiannual interest payments on a bond, the interest payment must be divided by ____ before you can use it to calculate issue price

2

For semiannual payments, the market rate is divided by ____ and then you can use the PV1 and PVA tables using this halved rate

2

Average days in inventory formula

365/Inventory turnover ratio

Average collection period

365/receivable turnover ratio

How to find RE if you are only given assets, liabilities, and common stock?

A = L + (RE + CS)

Following the write-off, what is the balance of Allowance for Uncollectible Accounts?

A debit of 1300 (we took the estimate from the beginning of the year - the actual bad debts, which equaled -1300)

Record the adjusting entry: Customers receiving $700 of services from a company have not been billed as of the end of December. These customers will be billed on January 4 and are expected to pay the full amount owed on January 9.

Adjusting entry: Debit AR 700 Credit Service Revenue 700 When they pay: Debit Cash 700 Credit AR 700

Straight line depreciation formula

Asset's cost - res value/service life

Inventory turnover ratio formula

COGS/Avg Inventory

Int expense formula

CV * MR

Retiring bonds: CV < MV = gain/loss? CV > MV = gain/loss?

CV < MV = loss CV > MV = gain

Stock dividend Increase in _________ _________ Decrease in __________ __________ _________ ___________ doesn't change

Common stock Retained Earnings SHE

EFT for rent goes on which side in a bank reconciliation?

Company

Provide beauty services of $960 to customers on account. What is the journal entry?

Debit AR Credit Service Revenue

If you make credit sale with 6% state tax and 2.5% local tax (journal entry):

Debit AR for credit sales amount + sales tax Credit Sales tax payable for sales tax amount Credit Sales for entire credit sales amount

Loss on retirement entry

Debit Accum Dep Debit Loss Credit Equipment (for original cost)

Entry to write off an account

Debit Allowance Credit AR

At the beginning of the year, Mitchum Enterprises allows for estimated uncollectible accounts of $14,300. By the end of the year, actual bad debts total $15,600. Record the write-off to uncollectible accounts.

Debit Allowance 15,600 Credit AR 15,600

At the end of the first year of operations, Mayberry Advertising had accounts receivable of $21,500. Management of the company estimates that 12% of the accounts will not be collected. What adjustment would Mayberry Advertising record for Allowance for Uncollectible Accounts?

Debit BDE 2580 Credit Allowance 2580

At the end of the year, Brinkley Incorporated's balance of Allowance for Uncollectible Accounts is $2,600 (credit) before adjustment. The company estimates future uncollectible accounts to be 5% of credit sales for the year. Credit sales for the year total $121,000. What is the adjustment Brinkley would record for Allowance for Uncollectible Accounts using the percentage-of-credit-sales method?

Debit BDE 6050 Credit Allowance 6050

Entry to write down inventory

Debit COGS Credit Inventory for the write-down amount

Entry to issue a bond

Debit Cash Credit Bonds Payable

Entry for when a customer pays in advance for a rental (this is what the company records, not the customer)

Debit Cash Credit Deferred Revenue

Entry for selling equipment at a loss

Debit Cash Debit Accum Dep Debit Loss (you would credit a gain) Credit Equipment (for original cost)

Entry to reissue TS

Debit Cash (for new price) Credit TS (for old price) Credit APIC (for difference)

How do you record this in a journal entry: note receivable collected by bank of $5,500 and interest earned on the account balance plus from the note of $570

Debit Cash 6,070 Credit Interest Revenue 570 Credit Notes Receivable 5,500

Entry for issuing stock

Debit Cash for market value Credit CS/Preferred Stock for par Credit APIC for difference

Entry for reissuing TS

Debit Cash for sell price Credit TS for original purchase price APIC for difference

Adjusting entry for when a customer pays in advance for a rental (what the company records)

Debit Deferred Revenue Credit Service Revenue

Adjusting entry for prepaid insurance

Debit Insurance Expense Credit Prepaid Insurance

Entry for interest payment on bond (at face value)

Debit Int Expense Credit Cash

Purchase land for $19,000. A note payable is signed for the full amount. (journal entry)

Debit Land Credit Notes Payable

Entry for purchase of prepaid insurance

Debit Prepaid insurance Credit Cash

How to close expense accounts to RE?

Debit RE for the full expenses amount Credit each expense individually

When closing revenue accounts to retained earnings, how would you do this given service revenue and interest revenue?

Debit Service Revenue Debit Interest Revenue Credit Retained Earnings

Small stock dividend (25% or less) entry

Debit Stock Div(new shares * % * MV) Credit CS(new shares*par) Credit APIC(difference)

Large stock dividend (25% or more) entry

Debit Stock Div(new shares * par) Credit CS(new shares * par)

Entry to purchase TS

Debit TS Credit Cash

Record expenditures from credit card and the petty cash fund. (what would you debit/credit?)

Debit all the expenses individually Credit Petty Cash for PC expenses Credit Accounts Payable for credit expenses

Entry for interest on bond

Debit int exp for int exp Credit cash for int pay Credit discount/debit premium for difference

Determine which method will result in higher profitability when inventory costs are rising.

FIFO

Int payment formula

FV * SR

Fair value of identifiable net assets formula

Fair value of assets - fair value of liabilities

Issuance/repayment of bonds or notes payable are ___________ activities

Financing

Collection of notes receivable is an inflow from a ___________ activity

Investing

Lending with notes receivable is a outflow of a ___________ activity

Investing

How to find operating cash flows given avg total assets and the return on assets percentage?

Multiply avg total assets by the return on assets percentage

Retained earnings formula

Net income - dividends

Earnings per share formula

Net income - dividends on pref stock/avg shares of CS outstanding

Does an increase in cash affect SHE?

No

Is property insurance included in the cost of equipment?

No

Does purchasing equipment by signing a note with the bank affect stockholders' equity?

No Assets go up and liabilities go up

Journal entry for: Hire three employees for $2,000 per month.

No entry required

Stock split entry Does total SHE change?

No entry required SHE is not affected

Goodwill formula

Purchase price - Fair value of identifiable net assets

What is owners' claims to resources?

SHE

If AR goes up, what happens to SHE?

SHE goes up

Shares outstanding =

Shares issued - TS

NRV of AR formula

Total AR - Allowance (the actual full estimated amount, not what you adjusted by/to - whatever is at the bottom balance of the t-account) = NRV

Sales tax formula

Total amount - (total amount/sales tax+1)

Weighted-average unit cost

Total cost/# of units

Partial year depreciation expense formula

Usual dep exp * portion of year (like 10/12) = dep exp for that year

When would you write down inventory?

When Cost > NRV

Kelly's Jewelry has the following transactions during the year: total jewelry sales = $670,000; sales discounts = $16,000; sales returns = $42,000; sales allowances = $22,000. In addition, at the end of the year the company estimates the following transactions associated with jewelry sales in the current year will occur next year: sales discounts = $1,600; sales returns = $5,040; sales allowances = $2,930. Compute net sales. What method would you use to solve this?

You will add all the sales discounts, returns, and allowances - even the estimated ones - and subtract all of them from the net sales

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What is the amount of net revenues (total revenue minus sales discounts) as of August 12? a. $4,850 b. $5,000 c. $5,150 d. $5,300

a. $4,850

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy's gross profit ratio? a. 20% b. 10% c. 25% d. 30%

a. 20%

The effect of writing off a specific account receivable is: a. A reduction in the allowance for uncollectible accounts. b. An increase in the amount of accounts receivable. c. An increase in the amount of bad debt expense. d. An increase in the allowance for uncollectible accounts.

a. A reduction in the allowance for uncollectible accounts.

Which of the following leases is simply a rental? a. An operating lease. b. A capital lease. c. Both an operating and a capital lease. d. Neither an operating lease nor a capital lease.

a. An operating lease.

The current ratio is: a. Current assets divided by current liabilities. b. Current liabilities divided by current assets. c. Cash, short-term investments, and accounts receivable divided by current liabilities. d. Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.

a. Current assets divided by current liabilities.

Using a periodic inventory system, the sale of inventory on account would be recorded as: a. Debit Cost of Goods Sold; credit Inventory. b. Debit Inventory; credit Sales Revenue. c. Debit Sales Revenue; credit Accounts Receivable. d. Debit Inventory; credit Accounts Receivable.

a. Debit Cost of Goods Sold; credit Inventory.

Which of the following is paid by both the employee and the employer? a. FICA taxes. b. Federal unemployment taxes. c. State unemployment taxes. d. Personal income taxes.

a. FICA taxes

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the borrowing of cash to be paid back in five years affect each ratio? a. Increase the current ratio and increase the acid-test ratio. b. No change to the current ratio and decrease the acid-test ratio. c. Decrease the current ratio and decrease the acid-test ratio. d. Increase the current ratio and decrease the acid-test ratio.

a. Increase the current ratio and increase the acid-test ratio. because borrowing cash increases assets, which is in the numerator of each ratio

Which of the following transactions causes a decrease in stockholders' equity? a. Paying salaries expense for the current month. b. Repaying amount borrowed from the bank. c. Providing services to customers for cash. d. Providing services to customers on account

a. Paying salaries expense for the current month. (decreases RE)

Which of the following accounts is listed in a post-closing trial balance? a. Salaries Payable. b. Dividends. c. Advertising Expense. d. Service Revenue.

a. Salaries Payable.

For a discounted bond, you want to add/subtract the interest discounts to get back to your original value For a premium bond, you want to add/subtract the interest premiums to get back to your original value.

add subtract

In operating activities, noncash expenses are added/subtracted

added

In operating activites, non-operating losses are added/subtracted and non-operating gains are added/subtracted (each are for the sale of non-current assets)

added subtracted

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4? a. $4,850 b. $5,000 c. $5,150 d. $5,300

b. $5,000

At the end of a reporting period, Gaston Corporation determines that its ending inventory has a cost of $6,500 and a market value of $5,800. The adjustment to write down inventory to market value would include: a. A debit to inventory for $5,800. b. A credit to inventory for $700. c. A debit to cost of goods sold for $5,800. d. A credit to cost of goods sold for $700.

b. A credit to inventory for $700. (reducing inventory)

When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds? a. Carrying value and interest expense increase. b. Carrying value and interest expense decrease. c. Carrying value decreases and interest expense increases. d. Carrying value increases and interest expense decreases.

b. Carrying value and interest expense decrease

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is probable, a contingent liability should be: a. Disclosed but not reported as a liability. b. Disclosed and reported as a liability. c. Neither disclosed or reported as a liability. d. Reported as a liability but not disclosed.

b. Disclosed and reported as a liability.

The balance of retained earnings in the adjusted trial balance: a. Equals the balance of retained earnings after closing entries. b. Equals the balance of retained earnings at the beginning of the accounting period. c. Is not shown. d. Is the amount shown for retained earnings in the balance sheet.

b. Equals the balance of retained earnings at the beginning of the accounting period. Note that we never went over trial balances this semester, so this may not be on the exam

On March 4, Tonkawa Law asks Green Lawn Services for basic lawn maintenance totaling $200. Green Lawn provides maintenance on March 8, and Tonkawa pays for the lawn maintenance on March 12. According to the matching principle, on which date should Tonkawa record lawn maintenance expense? a. March 4 (date of request). b. March 8 (date of lawn maintenance service). c. March 12 (date of cash payment). d. Evenly over the three dates.

b. March 8 (date of lawn maintenance service).

Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits? a. Use source documents to determine accounts affected by the transaction. b. Prepare a trial balance. c. Analyze the impact of the transaction on the accounting equation. d. Post the transaction to the T-account in the general ledger.

b. Prepare a trial balance.

Which of the following will result in higher depreciation expense in the first year of the asset's life? a. Short service life, high residual value, and straight-line depreciation. b. Short service life, low residual value, and double-declining balance depreciation. c. Long service life, low residual value, and straight-line depreciation. d. Long service life, high residual value, and double-declining balance depreciation.

b. Short service life, low residual value, and double-declining balance depreciation.

Which of the following statements is false regarding the amortization of intangible assets? a. Intangible assets with a limited useful life are amortized. b. The service life of an intangible asset is always equal to its legal life. c. The expected residual value of most intangible assets is zero. d. Goodwill is the most common intangible asset with an indefinite useful life.

b. The service life of an intangible asset is always equal to its legal life.

Which of the following is true about a trial balance? a. Only income statement accounts are shown. b. Total debit amounts should always equal total credit amounts. c. Only balance sheet accounts are shown. d. The trial balance shows the change in all account balances over the accounting period.

b. Total debit amounts should always equal total credit amounts.

Suppose Windell Corporation understates its ending inventory amount. What effect will this have on the reported amount of net income in the year of the error? a. Overstate net income. b. Understate net income. c. Have no effect on net income. d. Not possible to determine with information given

b. Understate net income. (since this error overstates COGS, which is an expense)

In the % of Credit Sales method, you adjust to/by the amount

by So you adjust by (debit/credit) 20k to get the final amount

Tasty Inn and Out incurred the following costs related to its purchase of equipment. Cost of the equipment $10,000 Sales tax (7%) 700 Annual property insurance 500 Shipping 200 Installation 1,000 Total costs $12,400 What is the recorded cost of the equipment? a. $10,000 b. $10,700 c. $11,900 d. $12,400

c. $11,900 (insurance not included)

Which of the following is possible for a particular business transaction? a. Increase assets; decrease liabilities. b. Decrease assets; increase stockholders' equity. c. Decrease assets; decrease liabilities. d. Decrease liabilities; increase expenses.

c. Decrease assets; decrease liabilities.

Which of the following does not represent an external business transaction? a. Purchasing office supplies. b. Paying employees' salaries. c. Expiration of an insurance policy over time. d. Providing services to customers.

c. Expiration of an insurance policy over time.

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising? a. Specific identification. b. First-in, first-out (FIFO). c. Last-in, first-out (LIFO). d. Average cost.

c. Last-in, first-out (LIFO).

Transferring the debit and credit information from a journal to individual accounts in the general ledger is referred to as: a. Balancing. b. Analyzing. c. Posting. d. Journalizing.

c. Posting.

A component/aspect of relevant accounting information includes: a. Faithful representation. b. Comparability. c. Predictive value. d. Consistency.

c. Predictive value.

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common? a. Secured and term. b. Secured and serial. c. Unsecured and term. d. Unsecured and serial.

c. Unsecured and term.

Under the direct write-off method, bad debt expense is reported: a. When an account receivable is estimated to be uncollectible. b. When an account receivable is initially recorded. c. When an account receivable is proven uncollectible. d. When the allowance for uncollectible accounts is established.

c. When an account receivable is proven uncollectible.

acid test ratio =

cash + current investments + AR/current liab

Contingent liab that is probable in the next year and can be estimates =

current liabiltiy

Which of the following is not a common long-term debt? a. Bonds payable. b. Notes payable. c. Leases payable. d. Accounts payable.

d. Accounts payable.

Which of the following is considered cash for financial reporting purposes? a. Inventory that is likely to be sold within three months. b. Amounts to be collected from customers. c. Amounts owed to suppliers. d. Balances in savings accounts.

d. Balances in savings accounts.

Under a perpetual inventory system: a. Cost of good sold is recorded with a period-end adjusting entry. b. Purchase discounts are not recorded. c. Inventory purchases are recorded only at the end of the period. d. Cost of goods sold is recorded with each sale.

d. Cost of goods sold is recorded with each sale.

The return on assets is equal to: a. Net income divided by long-term assets. b. Net income divided by average long-term assets. c. Average total assets divided by net income. d. Net income divided by average total assets.

d. Net income divided by average total assets.

TS has a normal _____ balance

debit

You debit/credit the discount when issuing the bond and debit/credit the discount when recording an interest payment

debit credit

debit/credit Discount and debit/credit Premium upon issuing bond

debit; credit

Financial leverage is best measured by the ____ to ______ ratio

debt to equity

Contingent liab that is reasonable possible in next year and can be estimated =

disclosure note only

Double declining balance 2/_____ = rate?

double the straight line rate dep exp is not the same every year, take BV * dep rate 2/years = rate

Operating income equals

gross profit minus operating expenses

Gross profit ratio =

gross profit/net sales

Sale of treasury stock is an inflow/outflow of a _______ activity

inflow; financing

Receivable turnover ratio

net credit sales/avg AR

Receivable turnover ratio formula

net credit sales/avg AR

Return on assets formula

net income/avg total assets

Profit margin formula

net income/net sales

Gross profit equals

net revenues (or net sales) minus cost of goods sold

Asset turnover formula

net sales/avg total assets

Income before income taxes equals

operating income plus nonoperating revenues and minus nonoperating expenses

Warranty liability =

percent of sales expected to be warranty costs - actual warranty expenditures

Activity based method

res val/total units expected to be produced (like miles) = rate Miles used each year * rate = dep exp for that year Then take the original BV minus that dep exp Repeat this using the previous year BV

Interest on note is recorded ________ in the bank reconciliation on the _______ side

separately from the note company So if you collected 5100 on a note that you originally gave for 5000, 100 is "interest on note" and the other 5000 is "notes collected"

Price earnings ratio

stock price/earnings per share

In the % of AR (Aging method), you adjust to/by the amount?

to So you want everything to equal 20k (if your % of AR is 20k)

Preferred stockholders do not have _______ rights

voting