ACG 301 Test 3

A company acquired an office building on three acres of land for a lump-sum price of $3,050,000. The building was completely equipped. According to independent appraisals, the fair values were $2,080,000, $1,560,000, and $1,560,000 for the building, land, and equipment, respectively. At what amount would the company record the building? -$1,500,000. -$2,100,000. -$1,220,000. - none of these are correct

$1,220,000. $3,050,000 × [$2,080,000/($2,080,000 + $1,560,000 + $1,560,000)] = $1,220,000.

SKis: selling price: $175,000 cost: $136,000 replacement cost: $130,000 sales commision: $10% In applying the lower of cost or net realizable value rule, the inventory of skis would be valued at: -$136,000. -$122,500. -$130,000. -$157,500.

$136,000 NRV = $175,000 − ($175,000 × 10%) = $157,500 $136,000 cost is less than $157,500 net realizable value.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): 44 units at $103 per unit 70 units at $82 per unit 173 units at $57 per unit Sales for the year totaled 265 units, leaving 22 units on hand at the end of the year. -$1,543. -$1,304. -$2,266. -$1,254.

$1543 [(44 × $103) + (70 × $82) + (173 × $57)] = $20,133 ÷ 287 units = $70.15 per unit 22 units × $70.15 = $1,543 (rounded)

Brockton Carpet Cleaning prepares a bank reconciliation at the end of every month. At the end of July, the balance in the general ledger checking account was $2,970 and the bank balance on the bank statement was $3,090. Outstanding checks totaled $790 and deposits in transited were $510. The bank statement revealed that a check written for $230 was incorrectly recorded by Brockton as a $330 disbursement. The bank statement listed service charges and NSF check charges totaling $260. The corrected cash balance is: -$2,380. -$2,660. -$2,580. -$2,810.

$2810 $2,970 + ($330 − $230) − $260$2,970 + $100 − $260 = $2,810, or$3,090 − $790 + $510 = $2,810

In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,900. During the year, Dinty wrote off $31,400 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,330,000, and cash collections from credit customers totaled $1,940,000.What accounts receivable balance would Dinty report in its first year-end balance sheet? -$307,100. -$358,600. -$338,500. -None of these answer choices are correct.

$358,600 Credit sales - Cash collections - Write-offs = Change in Accounts receivableSo, $2,330,000 - $1,940,000 - $31,400 = $358,600.

On September 30, 2021, Bricker Enterprises purchased a machine for $208,000. The estimated service life is 10 years with a $26,000 residual value. Bricker records partial-year depreciation based on the number of months in service. Depreciation for 2021 using the straight-line method is: (Do not round intermediate calculations.) · $13,650. · $20,800. · $4,550. · $5,200.

$4,550 ($208,000 - $26,000) ÷ 10 × 3/12 = $4,550

Cutter Enterprises purchased equipment for $93,000 on January 1, 2021. The equipment is expected to have a five-year life and a residual value of $4,500. Using the straight-line method, the book value at December 31, 2021, would be: -$75,300. -$74,400. -$69,900. -$70,800.

$75,300. ($93,000 - $4,500) ÷ 5 = $17,700$93,000 - $17,700 = $75,300

Straight-line method:

(Initial cost - Residual Value) / Useful life

balance per book

+ collections by bank -service charges -NSF checks =corrected balance

Balance per bank:

+ deposits outstanding -checks -+ errors = corrected balance

Which of the following is a potential reason that may help determine an organization's inventory assumption choice (i.e., LIFO, FIFO, or average cost)? -An attempt to match inventory accounting with the physical flow of inventory -A desire to maximize net income -A desire to lower tax liability -All of the above

-An attempt to match inventory accounting with the physical flow of inventory -A desire to maximize net income -A desire to lower tax liability

FOB destination

-Becomes buyer's inventory WHEN RECEIVED -Seller typically pays for shipping

FOB shipping point

-Becomes buyer's inventory at POINT OF SHIPPING -Buyer typically pays for shipping

To record yearly depreciation journal entry

-Debit Depreciation Expense -Credit Accumulated Depreciation o Asset Book Value = Initial cost - A/D

how to measure the impairment loss (Fair Value Test) journal entry

-Debit Loss on PP&E Impairment -Credit Accumulated Depreciation (or asset)

to find Lump-Sum Purchases:

-Determine percentage of fair values of each asset @ time of acquisition -Then, multiply each % for each asset by purchase price

Which of the following must be considered when determining the market value used in lower-cost or market analysis? -Net realizable value -Replacement cost -Net realizable value less normal profit margin -All of the above

-Net realizable value -Replacement cost -Net realizable value less normal profit margin

LCM: LIFO/retail inventory method: 3 "market values" to consider:

-Replacement Cost (market) -Net Realizable Value (ceiling) -NRV less Normal Profit Margin (floor

Perpetual:

-inventory records constantly updated -Inventory accounts and COGS are updated and recorded with purchases and sales

Periodic:

-inventory records updated periodically -Beginning Inventory + Net Purchases - Ending Inventory = COGS

LIFO reserve/allowance

-is recorded when LIFO is used for external financial reporting, but a different method is used internally -The reserve is a contra account and reduces inventory value

LIFO liquidation

-occurs when company using LIFO significantly reduces inventory levels

Gains on the cash sales of property, plant, and equipment: -Are the excess of the book value over the cash proceeds. -Are part of cash flows from operations. -Are reported on a net-of-tax basis if material. -Are the excess of the cash proceeds over the book value of the assets sold.

Are the excess of the cash proceeds over the book value of the assets sold.

This COGS is now used to estimate inventory (formula)

Beginning inventory +Net purchases -COGS (estimated) = Ending inventory (estimated

Determining the value of inventory SOLD

COGS on the income statement

Which of the following would likely NOT be included in "cash and cash equivalents" on the balance sheet? -Cash restricted to pay off long-term debt -A money order received from a customer -A treasury bill with a 90-day maturity -A bank account balance

Cash restricted to pay off long-term debt

The value of inventory that has not been sold yet is included in the inventory asset account balance on the balance sheet. The value of inventory that was sold during the period is included on the income statement as: -Sales revenue -Inventory expense -Purchase discounts -Cost of goods sold

Cost of goods sold

Oswego Clay Pipe Company sold $46,600 of pipe to Southeast Water District #45 on April 12 of the current year with terms 2/15, n/60. Oswego uses the gross method of accounting for sales discounts. What entry would Oswego make on April 23, assuming the customer made the correct payment on that date?

D. Cash 45,668 D. Sales discounts 932 C. Accounts receivable 46,600

Equipment was acquired on January 1, 2021, for $34,000 with an estimated four-year life and $3,000 residual value. The company uses straight-line depreciation. Record the gain or loss if the equipment was sold on December 31, 2023, for $11,200.

D. Cash$11,200 D. Accumulated Depreciation$23,250 C. Equipment $34,000 C. Gain $450 Depreciation = ($34,000 − $3,000)/4 years = $7,750/year.Accumulated depreciation = $7,750 × 3 years = $23,250. Book value = $34,000 − $23,250 = $10,750.Gain = $11,200 − $10,750 = $450.

When a company makes a sale on account, which is the correct entry to record the sale? -Debit Cash, Credit Accounts Receivable -Debit Accounts Receivable, Credit Sales Revenue -Debit Sales Revenue, Credit Accounts Receivable -Debit Sales Revenue, Credit Cash

Debit Accounts Receivable, Credit Sales Revenue

Units-of-production formula

Depreciation rate = (Initial cost - Residual Value) / TOTAL EXPECTED # units produced

As it relates to inventory valuation, what is the general formula for net realizable value? -Estimated selling price less costs of completion -Sales less cost of goods sold -Replacement cost less normal profit margin -Net purchases plus cost of goods sold

Estimated selling price less costs of completion

LCNRV: Net Realizable Value (NRV):

Estimated selling price minus costs of completion (sales commissions, shipping costs, etc.)

how to Measure the impairment loss (Fair Value Test)

FV - BV = impairment

Land is typically depreciated using the straight-line method. true false

False, Land is not depreciated under US GAAP.

How is the book value of a noncurrent asset determined? -Fair value less depreciation expense -Market value less impairment loss -Historical cost less fair value adjustment -Initial cost less accumulated depreciation

Initial cost less accumulated depreciation

When net income (profit) is artificially higher under the LIFO inventory method because older, less expensive inventory is sold as part of current year COGS, what is this called? -LIFO liquidation -Dollar value FIFO -Weighted-average LIFO -LIFO extraction

LIFO liquidation

In a periodic inventory system, the cost of inventory sold is: -Debited to accounts receivable. -Credited to cost of goods sold. -Debited to cost of goods sold. -Not recorded at the time goods are sold.

Not recorded at the time goods are sold.

Limited-Life Intangibles

Patents, copyrights, franchises amortized over useful life, usually S-L -Debit Amortization expense -Credit Intangible asset OR Accum. amortization

Which method of estimating the value of inventory involves determining the cost-to-retail percentage and applying this percentage to determine the cost of inventory? -Retail inventory method -Gross profit method -Inventory sales method -Net realizable cost method

Retail inventory method

When recording a note receivable, the amount debited to the notes receivable account is: -The present value of the note at the market rate -The amount of the note's discount -The present value of the note at the stated rate -The face value of the note

The face value of the note

Indefinite-Life Intangibles

Trademarks, goodwill NOT amortized, but checked for impairment periodically over time

Which of the following is recorded by a credit to accounts receivable? -Sale of inventory on account. -Estimating the annual allowance for uncollectible accounts. -Estimating annual sales returns. -Write-off of bad debts.

Write-off of bad debts.

Declining-balance

Yearly depreciation = BV @ beg of year * rate

Determining the value of inventory ON HAND

asset on the balance sheet

Net:

assume that the customer WILL pay promptly (make the adjustment if they do not)

Gross:

assume the customer WILL NOT pay promptly (make the adjustment if they do)

When a company needs to increase its estimation of doubtful accounts, the allowance for doubtful accounts is credited. Which account is normally debited in this instance? -Accounts receivable -Cash -Sales discounts -Bad debt expense

bad debt expense

receivables are?

claims to future collection of CASH Examples: - Income tax refund receivable - Interest receivable - Accounts Receivable = often called trade receivables - Notes Receivable = similar to AR but more formal and may contain interest

Which of the following refers to the allocation of expense over time for natural resources? -Depletion -Depreciation -Amortization -Asset Retirement Obligation

depletion

During periods of falling prices, LIFO ending inventory will be less than FIFO ending inventory. true fasle

false

If a long-term noninterest-bearing note is received in exchange for merchandise sold, the amount of sales revenue recognized will be greater than the amount of the note. true false

false

In a periodic inventory system, the inventory account is directly updated with purchases as they occur. true fasle

false

Most companies are allowed to capitalize development costs but must expense research costs. true fasle

false

The depreciation expense amount remains the same year-to-year under the double-declining balance method. true false

false

When an inventory write-down occurs, the inventory value decreases but net income increases. true false

false

Research and development costs are typically capitalized, rather than expensed immediately. true fasle

fasle

When cash discounts on sales are accounted for with the gross method, it is assumed that the customers will pay in time to take the discount. true false

fasle

Which of the following would generally not be included in the value of a company's inventory? -Freight-in for goods purchased FOB destination -Inventory consigned to someone else (i.e., inventory being sold by another organization on the company's behalf) -Freight-in for goods purchased FOB shipping point -An estimate of inventory to be returned

freight-in for goods purchased FOB destination

If a company is sells a piece of equipment for an amount of cash greater than the equipment's book value, the company will recognize a: -Gain -Loss -Neither a gain nor loss

gain

Which of the following assets is not amortized over time? -Goodwill -Patent -Franchise -Copyright

goodwill

During periods when costs are rising and inventory quantities are stable, cost of goods sold will be: -Higher under FIFO than LIFO. -Higher under FIFO than average cost. -Lower under average cost than LIFO. -Lower under LIFO than FIFO.

lower under average cost than LIFO.

When ending inventory is overstated for a given period, the next period's beginning inventory is: -Understated -Overstated -Neither understated nor overstated

overstated

An impairment loss has the effect of: -Reducing total assets. -Increasing liabilities. -Reducing total revenues. -None of these answer choices are correct.

reducing total assets

Secured Borrowing & sale of receivables: without recourse:

the buyer of the receivables assumes the risk of uncollectible accounts -Guarantees buyer will be paid even if cash isn't collected from AR

Cost of good sold is recorded at the time of the sale under which method of tracking inventory? -The perpetual method only. -The periodic method only. -Both the perpetual method and the periodic method.

the perpetual method only

Secured Borrowing & sale of receivables: with recourse:

the seller of the receivables assumes the risk of uncollectible accounts

Which of the following is NOT a limited-life intangible asset? -Trademark -Patent -Franchise -Copyright

trademark

A reduction in reported inventory due to market value falling below cost would reduce net income in the current period. true false

true

Goodwill impairment is recognized when the fair value of a reporting unit falls below its book value. true false

true

Goodwill is created when a company acquires another company for a purchase price that exceeds the fair value of the company's net identifiable assets (FV of assets less FV of liabilities). true fasle

true

Goodwill represents the unique value of a company as a whole over and above its identifiable tangible and intangible assets, and can be recorded only when acquiring another company. true false

true

In periods of rising costs, cost of goods sold is lower and net income is higher under a FIFO inventory assumption as opposed to LIFO. true fasle

true

Inventory shipped f.o.b. destination is included the seller's inventory during transit. true false

true

Overstating ending inventory in the current year causes net income in the current year to be overstated.Bottom of Form true false

true

The completion of periodic bank reconciliations is an important internal control over cash because it reconciles cash listed on a company's ledger (the "books") with cash on the company's bank statement. true false

true

The initial cost of property, plant, and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use. true fasle

true

The initial valuation of natural resources can include (a) acquisition costs, (b) exploration costs, (c) development costs, and (d) restoration costs. true false

true

Total depreciation is the same over the life of an asset regardless of the method of depreciation used. true false

true

When a change in inventory method from average cost to FIFO is undertaken, the inventory account and retained earnings are updated as needed, and the change is disclosed in the notes to the financial statements. true false

true