ACC 201 - test 3

EI effect

•The average cost method will always give you a COGS and EI that's between FIFO and LIFO.

Net income

the difference between total revenue and total expenses when total revenue is greater

False -Declining balance used book value. -Straight line and units of production use depreciable value.

UNITS OF PRODUCTION IS THE ONLY DEPRECIATION METHOD THAT STARTS ITS CALCULATION WITH BOOK VALUE.

A.J D Architect firm

WHICH OF THE FOLLOWING WOULD NOT BE CONSIDERED A MERCHANDISING OPERATION?

Calculating and paying interest

•Total Payment = Principal Amount Owed + Interest •Interest = Principal x Interest Rate x Period (our A x R x T calculation)

False

BOOK VALUE (CARRYING VALUE) IS CALCULATED AS THE ASSET COST PLUS ACCUMULATED DEPRECIATION.

Disposal of asset journal entries (calculating gain or loss)

Disposal of asset journal entries (calculating gain or loss)

gross profit.

SALES REVENUE LESS COST OF GOODS SOLD IS CALLED

Cost allocation: Depreciable assets vs. asset(s) that can't be depreciated

•Depreciation is a cost allocation process. •Depreciation is not an attempt to measure the fair value of an asset or its market value. •The accumulated depreciation account that gets increased every month only helps to calculate the current book value. •Depreciation is not an attempt to accumulate cash for the replacement of an asset. •Depreciation does not involve cash.

Tax effect

•In periods of rising prices, companies may choose LIFO because it produces the lowest current taxable income and the lowest current income tax payment. •In the long run, all inventory costs will find their way to cost of goods sold and the income statement. Also, the income taxes will be paid eventually.

Credit Terms

Terms such as 2/10, n/30 mean that a 2% discount may be taken on the invoice price if payment is made within 10 days of invoice.

$0.10

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment?

License fee

WHICH OF THESE COSTS DO NOT GO INTO THE CAPITALIZED COSTS OF A CAR?

cost dividing

WHICH OF THESE IS NOT A DEPRECIATION METHOD?

Average Age of Fixed Assets

= Accumulated Depreciation ÷ Depreciation Expense

Lower of Cost or Market

•Under LCM, if the market value (replacement cost) of a company's inventory is lower than its cost, the company reduces the amount recorded in inventory to its market value. •This is done as an adjusting entry before issuing financial statements debiting COGS to increase and crediting Inventory to lower.

contigent liability

•When a liability depends on a future event it is called a ____________, such as the outcome of a lawsuit.

BI + P = COGAS - COGS = EI

WHICH OF THESE OPTIONS REPRESENTS A VERSION OF THE COGS MODEL?

Whichever is shorter

ARE LIMITED LIFE INTANGIBLES AMORTIZED OVER THE USEFUL LIFE OR THE LEGAL LIFE OF THE ASSET?

Increase wages expense by $48,000 $80,000 / 5 = $16,000 per day x 3 days = $48,000

A manufacturing company's weekly payroll is $80,000 for a 5-day work week beginning each Monday and ending each Friday. The last time salaries and wages were recorded was Friday, December 26. What adjustment is needed on December 31, the last day of the company's fiscal period?

Depreciation Expense and a credit to Accumulated Depreciation for $45,000 ($500,000 − $50,000) / 10 = $45,000

Equipment with a residual value of $50,000 at the end of 10 years was acquired at the beginning of 2019 for $500,000. Assuming the use of the straight-line depreciation method, the journal entry to record depreciation expense for 2021 will have a debit to

True

THE COST ALLOCATION METHOD FOR INTANGIBLE ASSETS IS CALLED AMORTIZATION.

at the end of a period

THE PERIODIC INVENTORY SYSTEM RECORDS COST OF GOODS SOLD

FIFO, LIFO, Weighted Average

-Inventory Costing Methods -use the flow of costs

Net income, COGS, EI effect, tax effect

-Specific Identification method calculations -uses the actual flow of goods

FOB Shipping Point

-•ownership of the inventory passes from the seller to the buyer at the shipping point. •Buyer normally pays the transportation costs termed freight-in. •Costs considered part of purchase and inventory account increased. •*Additional cost of inventory*

calculating discounts

Ex. Purchased golf clubs for $1000, terms 1/10,N/30 Merchandise inventory $1000 Accounts payable $1000 Paid in full: Accounts payable $1000 Cash ($1,000 x .99) $990 Merchandise inventory ($1000 x 0.01) $10

Purchasing company

IF GOODS SHIPPED FOB SHIPPING POINT ARE IN TRANSIT AT THE END OF THE PERIOD, THEY SHOULD BE INCLUDED IN THE ENDING INVENTORY OF THE:

each time a sale occurs.

IN A PERPETUAL INVENTORY SYSTEM, COST OF GOODS SOLD IS RECORDED

loss of $1,500 $11,000 - $4,500 = $6,500 Book value$5,000 proceeds - $6,500 book value = ($1,500) loss

On January 1, a company sold a machine for $5,000 that it had used for several years. The machine cost $11,000, and had accumulated depreciation of $4,500 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine for the year ended December 31?

$49,500 $90,000 principal × 11% annual interest = $9,900 x 5 years = $49,500

The total amount of interest that will be paid on a 5-year, $90,000 note payable at 11% simple annual interest is?

Medicare tax payable will be credited in the amount of $145 $10,000 × .0145 = $145

This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700 and $400, 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 rates of 2% and 5%, respectively. The company's year-end is December 31. Refer to the information for Gainesville Truck Center. Which of the following statements is true regarding the entry to record wages and the related liabilities?

When it's probable and the amount can be estimated

WHEN IS THE ONLY TIME A CONTINGENT LIABILITY JOURNAL ENTRY IS MADE?

FOB Destination

•ownership of the inventory passes when the goods are delivered to the buyer •Seller is usually responsible for paying the transportation costs termed freight-out. •Seller recognizes these costs as selling expense. •*Additional operating expense*

· Disposal of asset journal entries (calculating gain or loss)

•Gain/Loss on Disposal = Proceeds from Sale - Book Value •A positive value is a gain •A negative value is a loss

interest payable by $1,200 $30,000 principal × .06 interest × 8/12 = $1,200

On May 1, a company borrowed $30,000 from the First National Bank on a 1-year, 6% note. Assuming the company keeps its records on a calendar year basis, an entry is needed on December 31st to increase

Inventory turnover and average days to sell

•The inventory turnover ratio is calculated as: •Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory •This ratio indicates how quickly inventory is purchased (or produced) and sold. •High ratio - rapidly selling inventory •Low ratio - holding excess inventory or falling demand •Must balance having enough inventory for customer demand with minimizing cost of holding inventory. •Provides indicator of how much of company's funds are tied up in inventory. •Alternatively, companies can use the average days to sell inventory ratio: •Average Days to Sell Inventory = 365 days / Inventory Turnover

weighted average

•allocates the cost of goods available for sale between ending inventory and cost of goods sold based on a weighted average cost per unit •Under the perpetual inventory system, this weighted average cost per unit is calculated after each purchase of inventory as follows: •Weighted Average Cost per Unit = Cost of Goods Available for Sale / Units Available for Sale •A new average is computed after each purchase (often called the moving-average method) •The periodic inventory system would calculate the average cost per unit at the end of every period. •This weighted average cost per unit is then used to calculate ending inventory and cost of goods sold •Ending Inventory = Units on Hand x Weighted Average Cost per Unit Cost of Goods Sold = Units Sold x Weighted Average Cost per Unit

$20,000 $100,000 / 5 = $20,000

A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year?

$2,720.00 June 5: (50 x $18) + (50 x $18.20) = $1,810.00June 24: (50 x $18.20) = $910.00Total = $1,810 + $910 = $2,720.00

Klump Co. uses a perpetual inventory system and had the following inventory transactions for the month of June. June. 1 On hand, 50 units at $18.00 each $900.00 4 Purchased 115 units at $18.20 each $2,093.00 5 Sold 100 units 10Purchased 75 units at $18.25 each $1,368.75 24 Sold 50 units Total cost of goods available for sale $4,361.75 30 On hand, 90 units Refer to the information provided for Klump Co. If the company uses the FIFO inventory costing method, cost of goods sold for the month of June is:

$2,880 $7,200 × 0.4 = $2,880

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2020?

LIFO

•Last-in, first-out allocates the cost of goods available for sale between ending inventory and COGS based on theassumptionthat the most recent purchases (the last in) are the first to be sold (the first out). •The most recent purchases (newest costs) are allocated to COGS. •The earliest purchases (oldest costs) are allocated to inventory. • •Except for companies that stockpile inventory (coal, hay, etc.) this cost flow assumption rarely coincides with the actual physical flow of inventory.

operating asset

•Property, plant, and equipment are often called fixed assets or plant assets •Includes land, buildings, machines, and automobiles •Intangible assets do not have physical substance •Includes patents, copyrights, trademarks, licenses, and goodwill •Natural resources are naturally occurring materials •Includes timberlands and deposits such as coal, oil, and gravel

warranty expense

•The expense recognition concept requires that all expenses required to produce sales revenue for a given period be recorded in that period. The recognition of warranty expense and (estimated) warranty liability is normally recorded by an adjustment at the end of the accounting period

$2,230 (50 x $14 from beginning inventory) + (70 x $15 from the June 4th purchase) + (30 x $16 from the June 10th purchase) = $2,230.00.

Klinc Company uses a perpetual inventory system and had the following inventory transactions for the month of June: June. 1 On hand, 50 units at $14.00 each $700 4 Purchased 115 units at $15 each $1,725 5 Sold 100 units 10Purchased 75 units at $16 each $1,200 24 Sold 50 units Total cost of goods available for sale $3,625 30 On hand, 90 units The June 30th inventory included 45 units from the June 4th purchase and 45 units from the June 10th purchase. Refer to the information provided for Klinc Company. What is the cost of goods sold for June under the specific identification method?

$572,500 $500,000 + $50,000 + $12,500 + $10,000 = $572,500

A company purchased land and incurred the following costs: Purchase Price $500,000 Excavation Costs $50,000 Razing Old Building $12,500 Broker Fees $10,000 Cost of a Parking Lot $25,000 What is the cost of the land?

The customer should pay $1,000 if the invoice is paid on July 9th.

Coffski, Inc. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10th; credit terms were 1/10, n/30. Which of the following statements is true?

Accounts Receivable 636,000 Sales Revenue 600,000 Sales Tax Payable 36,000

During the first quarter of the current year, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%. Refer to General Lighting. Sales taxes are required to be paid to the state taxing authority at the end of the quarter. Which of the following records the sale of the batteries?

$1,980 ($20 x 100 packs) - 1%($20 x 100) = $1,980

Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2019. Refer to the information provided for Eli Company. If the customer pays the amount of the invoice for its purchase on March 14, 2019, how much cash will Eli Company receive?

$1,629.25 (25 x $18.25) + (15 x $18.20) + (50 x $18) = $1,629.25

Klump Co. uses a perpetual inventory system and had the following inventory transactions for the month of June. June1 On hand, 50 units at $18.00 each $900.00 4 Purchased 115 units at $18.20 each $2,093.00 5 Sold 100 units ????? 10 Purchased 75 units at $18.25 each $1,368.75 24 Sold 50 units ????? Total cost of goods available for sale $4,361.75 30 Ending units on hand????? Refer to the information provided for Klump Co. If the company uses the LIFO inventory costing method, the amount of ending inventory reported on the balance sheet is:

Perpetual vs. Periodic Inventory Systems

Perpetual - balances and COGS are continually updates with each sale or purchase of inventory, throughout each period Periodic - records cost of purchases as they occur, takes a physical count of inventory at the end of the period, reflects the end of each period

$177,000 $178,000 + 5,000 - 6,000 = $177,000.

Irwin Company counted its ending inventory as $178,000 at year-end, January 31, 2019. Upon review of the records, it was noted that the following items were in transit during the count: - Goods totaling $2,000 shipped by the supplier FOB destination on January 31 were received February 5th and were not counted by Irwin Company. - Goods totaling $5,000 shipped by the supplier FOB shipping point on January 30 were received February 2nd and were not counted by Irwin Company. - Goods totaling $6,000 shipped by Irwin Company to a customer FOB shipping point on January 31 were received by the customer on February 3rd and were counted by Irwin Company. What is Irwin Company's correct inventory balance on January 31, 2019?

$6,000 $12,000 − $2,000 − $2,000 − $2,000 = $6,000

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. If the company uses the straight-line method of depreciation, what is the book value at December 31, 2021?

$1,641.75 (15 x $18.20) + (75 x $18.25) = $1,641.75

Klump Co. uses a perpetual inventory system and had the following inventory transactions for the month of June. June. 1 On hand, 50 units at $18.00 each $900.00 4 Purchased 115 units at $18.20 each $2,093.00 5 Sold 100 units 10Purchased 75 units at $18.25 each $1,368.75 24 Sold 50 units Total cost of goods available for sale $4,361.75 30 On hand, 90 units Refer to the information provided for Klump Co. If the company uses the FIFO inventory costing method, the amount of ending inventory reported on the balance sheet is:

Current, quick and cash ratios

•Current Ratio = Current Assets / Current Liabilities •Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities •Cash Ratio = (Cash + Marketable Securities) / Current Liabilities •Operating Cash Flow Ratio = Cash Flows from Operating Activities / Current Liabilities

FIFO

•First-in, first-out is based on the assumptionthat costs enter and leave the inventory in the same order. •The earliest purchases (the first in) are assumed to be the first sold (the first out) - COGS. •More recent purchases are in ending inventory. • •In many instances, this cost flow assumption is an accurate representation of the physical flow of goods for businesses such as restaurants and grocery stores.

$2,732.50 June 5: (100 x $18.20) = $1,820.00June 24: (50 x $18.25) = $912.50Total = $1,820 + $912.50 = $2,732.50

Klump Co. uses a perpetual inventory system and had the following inventory transactions for the month of June. June1 On hand, 50 units at $18.00 each $900.00 4 Purchased 115 units at $18.20 each $2,093.00 5 Sold 100 units 10 Purchased 75 units at $18.25 each $1,368.75 24 Sold 50 units Total cost of goods available for sale$4,361.75 30 On hand, 90 units Refer to the information provided for Klump Co. If the company uses the LIFO inventory costing method, cost of goods sold for the month of June is: