accounting exam 3

patent

-exclusive right to manufacture a product or to use a process for a period of 20 years.

tangible assets

-land -land improvements -buildings -equipment -natural resources (physical substance)

intangible assets

-patents -trademarks -copyrights -franchises -goodwill (lack of physical substance and existence often based on legal contract)

The cost of an engine tune-up is an example of which of the following expenditures after acquisition?

Ordinary repairs and maintenance.

residual value(salvage value)

the amount the company expects to receive from selling the asset at the end of its service life

A machine has a cost of $15,000, an estimated residual value of $3,000, and an estimated useful life of four years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated depreciation?

6,000

what is the net revenue formula

Total revenue-Sales discounts-sales allowances

A company's adjustment for uncollectible accounts at year-end would include a:

debit to bad debt expense

basket purchases

purchase of more than one asset at the same time for one purchase price

amortization

allocated the cost of intangible assets to expense

depreciation

allocation of an asset's cost to expense over time.

Average cost

assumes each unit of inventory has a cost equal to the weighted-average unit cost of all inventory items.

Accounts Receivable

cash owed to the company by its customers from sales or services on account. recorded at the Time of sale or service.

sales discount(debit balance)=

contra revenue account

Oregon Adventures purchased equipment for $80,000. They sold the equipment at the end of three years for $45,000. If the expected useful life of the equipment was seven years with a residual value of $10,000, and they use straight-line depreciation, which of the following is true regarding the entry to record the sale of the equipment?

debit loss $5,000

straight-line depreciation

depreciation expense=Asset's cost-residual value/service life

activity-bases depreciation

depreciation rate per unit=depreciable cost/total units expected to be produced

copyright

exclusive right of protection given to the creator of a published work..granted for the life of the creator plus 70 years

intangible assets developed internally

expense in the income statement most of the costs for internally developed intangible assets in the period we incur those costs.

Research and development costs should be:

expensed in the period incurred

cost of goods sold=

goods available for sale - cost of ending inventory

cost of ending inventory=

goods available for sale-cost of goods sold

operating income=

gross profit - operating expenses

gross profit ration=

gross profit/net sales

book value

if we dispose of an asset for more than its book value, we record a gain. if we dispose of an asset for less than its book value, we record a loss.

inventory

includes its a company intends for sale to customers in the ordinary course of business

sales discount

intended to provide incentive for quick payment. represented by terms such as 2/10, n/30, where the 2 represents the discount available, the 10 represents the number of days payment must be received to get the discount, the n represents the term net or full payment, and the 30 represents the days in which full payment is due.

cost of goods sold

is the cost of the inventory sold

goodwill

is the portion of the purchase price that exceeds the fair value of identifiable net assets..recorded only when one company acquires another company (NOT DEPRECIATED)

franchises

local outlets that pay for the exclusive right to use the franchisor's name and to sell its products within a specified geographical area...franchisee records the initial fee as an intangible asset

Special Identification

matches each unit of inventory with its actual cost.

gross profit=

net revenues(net sales)-cost of goods sold

non trade receivables

receivables that originate from sources other than customers

purchased intangibles

record at their original cost plus all other cost necessary to get the asset ready for use.

trade discounts

record the sale at the discounted price

Goods Available for Sale=

costs of beginning inventory+purchases

On March 17, Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10, net 20. What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials?

$0 because it would have been recorded on march 17

A company reports the following amounts at the end of the year: Total sales revenue = $530,000; sales discounts = $13,000; sales returns = $32,000; sales allowances = $26,000. Compute net revenues.

$459,000

A company purchased a computer system at a cost of $40,000. The estimated useful life is 10 years, and the estimated residual value is $5,000. Assuming the company uses the double-declining-balance method, what is the depreciation expense for the second year?

$6400

A company purchased new equipment for $60,000. The company paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the equipment was:

$66,500

On January 1, 2022, a company purchased a machine that cost $500,000 and had a residual value of $50,000. The machine is expected to produce 360,000 units and is estimated to last 10 years. If 25,000 units were produced in 2022 and 35,000 were produced in 2023, what amount of accumulated depreciation is reported at the end of 2022 using the activity-based method (rounded to the nearest whole dollar if necessary)?

$75,000

allowance for uncollectible accounts

-Contra asset reported in the balance sheet Reduces the balance of total assets -reduces the balance of accounts receivable

periodic system

-does not continually modify inventory amounts -periodically adjust for purchases and sales of inventory -at the end of the reporting period -based on physical; count of inventory on hand

At the end of the year, a company has a balance in Allowance for Uncollectible Accounts of $260 (credit) before any year-end adjustment. The balance of Accounts Receivable is $15,800. The company estimates that 14% of accounts receivable will not be collected over the next year. record the adjustment for uncollectible accounts.

1. Bad debt expense......debit 1952 Allowance for Uncollectible Accounts....credit 1952

Kansas Enterprises purchased equipment for $60,000 on January 1, 2021. The equipment is expected to have a five-year service life, with a residual value of $5,000 at the end of five years. using straight-line method, depreciation expense for 2021 would be:

11,000

Average Collection Period

365/receivables turnover ratio

A company has net sales of $200,000, cost of goods sold of $120,000, selling expenses of $6,000, and nonoperating expenses of $2,000. What is the company's gross profit?

80,000

FIFO (first in, first out)

Assumes first units purchased are first ones sold

LIFO (last in, first out)

Assumes last units purchased are first ones sold

The account "Allowance for Uncollectible Accounts" is classified as a(n):

Contra asset to accounts receivable in the balance sheet.

At the end of 2021, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2021, to record its estimated uncollectible accounts included a:

Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500.

Bad Debt Expense

Expense reported in the income statement

The inventory cost flow assumption that generally best matches the physical flow of inventory is:

FIFO

LIFO reserve

For a company using LIFO, the difference between inventory reported using LIFO and inventory using FIFO.

notes receivable

Formal credit arrangements evidenced by a written debt instrument, or note

MACRS

Modified Accelerated Cost Recovery System-current tax depreciation system in the in United States.

Receivables Turnover Ratio

Net Credit Sales / Average Accounts Receivable

The balance of the Cost of Goods Sold account at the end of the year represents:

The cost of inventory sold in the current year.

perpetual system

a system in which the inventory account is increased at the time of each purchase and decreased at the time of each sale

revenue accounts normally have

credit balance

service life

the estimated use the company expects to receive from the asset before disposing of it.

depreciation method

the pattern in which the asset's depreciable cost(original cost - residual value) is allocated over time.

FOB destination

when inventory arrives at destination.

FOB shipping point

when inventory leaves the supplier's warehouse.

Trademarks

word, slogan, or symbol that distinctively identifies a company, product, or service...renewable for an indefinite number of 10 year periods.(NOT DEPRECIATED)

Taco Hut purchased equipment on May 1, 2021, for $19,000. Residual value at the end of an estimated eight-year service life is expected to be $2,000. Calculate depreciation expense using the straight-line method for 2021 and 2022, assuming a December 31 year-end.

year 2021 =$1417 2022=$2125