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Below are some of the accounts that Company F has on their books: Cash and Cash Equivalents $2,000 Insurance Expense $250 Accounts Payable $800 Prepaid Rent $400 Accounts Receivable $750 Deferred Revenue $1,650 Inventory $925 Which of the amounts below is the correct total of liabilities?

Accounts Payable $800 + Deferred Revenue $1,650 = $2,450

FIFO

"FIFO" stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold. In other words, the cost associated with the inventory that was purchased first is the cost expensed first.

Suppose for the year 2015, Speedy Chef, a fast food restaurant, had a Gross Profit of $1,281,648. Speedy Chef had the following expenses: Cost of Goods Sold $1,251,167 Selling Expense $70,578 Rent Expense $156,941 Utilities Expense $73,994 Insurance Expense $35,148 Wages $505,245 General & Administrative $24,358 Miscellaneous $32,968 Interest Expense $4,059 Income Tax Expense $60,596 What would Speedy Chef's Income Before Taxes be for 2015?

$1,281,648 - $70,578 - $156,941 - $73,994 - $35,148 - $505,245 - $24,358 - $32,968 - $4,059 = $378,357 Income Before Taxes is calculated by subtracting Operating Expenses and Non-Operating Expenses from Gross Profit (note that Cost of Goods Sold has already been subtracted to get Gross Profit, and Income Tax Expense should not be subtracted to get Income Before Taxes so these two figures can be ignored in this case).

Company A is a new online hat retailer. During the first month they made the following purchases of hats and had the following sales of hats: January 1: Purchased 400 hats for $5 each. January 15: Purchased 200 hats for $6 each. January 31: Sold 250 hats. What would be the value of the ending Inventory if they use LIFO?

$1,750

Suppose Ven Inc's Operating Income for 2015 was $1,750,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $2,350,000 Interest Income $15,000 Income Taxes $215,000 Depreciation Expense $280,000 What was Ven's Income Before Taxes for 2015?

$1,765,000 Operating Income + Interest Income Income Before Taxes is equal to Operating Income adjusted for any non-operating activity. In this example, S,G,& A and Depreciation Expenses are operating expenses that have already been deducted to arrive at Operating Income. Income Taxes will be deducted after Income Before Taxes. To get to Income Before Taxes, simply add Interest Income to Operating Income: $1,750,000 + $15,000 = $1,765,000

Suppose Company Z lent $100,000 to Company A on January 1, 2012. On December 31, 2013, Company A paid back the $100,000 and also paid $12,000 interest to Company Z. Under U.S.GAAP, what would be the impact of the transaction on Company Z's statement of cash flows of 2013 using the direct method?

$100,000 would be shown as an increase in the funds in the Investing Section but the $12,000 would be shown as an increase in the Operating Section

Suppose PepsiCo has 3,000 cases of Pepsi in one of their warehouses at the beginning of the month of June. Half of these cases were held over from the prior month (May) at a cost of $5 per case and half were from 2 months ago (April) with a cost of $4 per case. In the month of June they received another 2,000 cases at a cost of $5.50 per case. The warehouse sold and shipped 2,000 cases in the month of June. PepsiCo uses FIFO to value their inventory. What would be the remaining balance of PepsiCo in the Inventory account of this warehouse at the end of June?

$16,000 The actual number of cases stays the same at 3,000 since there were 2,000 cases sold and 2,000 cases purchased in the month of June. However, since PepsiCo uses FIFO to value their inventory, the cost of the first 1,500 cases from April will leave inventory first and the balance of 500 cases from May will leave inventory next. This leaves behind 1,000 cases from May at $5 per case ($5,000) and 2,000 cases from June at $5.50 per case ($11,000) for a total of $16,000.

Suppose Plexco Manufacturing purchased a piece of plant equipment in December, 2015 and, after installing and testing the equipment, it was put into service on January 1, 2016. The total cost to put the equipment into service was $400,000; it is expected to have a useful life of 10 years and a salvage value of $60,000. Assuming Plexco uses straight-line depreciation, what would the accumulated depreciation related to this asset be on July 1, 2016? *salvage value, useful life, accumulated depreciation*

$17,000 By July 1, 2016, the equipment would have been in use for 6 months. The amount to be depreciated is the total cost to put the asset in service ($400,000) minus the assumed salvage value after 10 years ($60,000). This leaves $340,000 to be depreciated over 10 years (120 months) or about $2,833 per month. Therefore, the accumulated depreciation at July 1, 2016 would be $17,000 ($2,833 per month times 6 months).

Suppose Green Mountain Coffee Roasters (GMCR) sold a piece of land during the year for $30 million. GMCR also bought a long term investment in a small competitor for $10 million, and, at the end of the year, GMCR purchased computers for $1 million to replace its current equipment. What would be the net impact of these transactions in the Investing Section of the statement of cash flows?

$19 million net increase in cash from Investing Activities. All the transactions are part of the GMCR Investing Section. As a result, the section will show a positive cash flow effect of 19 million (sum of $30M inflow, $10M outflow, and $1M outflow).

Suppose PepsiCo purchased a piece of plant equipment in December, 2013 and, after installing and testing the equipment, it was put into service on January 1, 2014. The total cost to put the equipment into service was $300,000; it is expected to have a useful life of 5 years and a salvage value of $60,000. Assuming PepsiCo uses straight-line depreciation, what would the ACCUMULATED depreciation related to this asset be on July 1, 2014?

$24,000 ($300,000) minus the assumed salvage value after 5 years ($60,000). This leaves $240,000 to be depreciated over 5 years (60 months) or $4,000 per month. Therefore, the accumulated depreciation at that point would be $24,000 ($4,000 per month times 6 months).

The Mayflower, a seafood restaurant, had the following liabilities by the end of 2015: Accounts Payable $60,000 Wages Payable $100,000 Unearned Revenue $125,000 (60% will be earned in 2016) Notes Payable $140,000 ($45,000 payable in 2016) What is the amount that The Mayflower should report as Total Current Liability on its balance sheet as of December 31, 2015?

$280,000 (Accounts Payable + Wages Payable + 60 % of Unearned Revenue + 45,000 0f Notes payable The Total Current Liability reported would be the sum of Accounts Payable, Wages Payable, $75,000 of Unearned Revenue, and $45,000 of Notes Payable. 60,000 + 100,000 + 75,000 + 45,000 = $280,000

Suppose Zenon Co. issued a long-term bond and received $250,000 cash from the issuance during 2015. The company also issued 12,000 shares of common stock for $260,000. At the end of the year, Zenon paid $165,000 for the dividend declared last year. What would be the net impact of these transactions on Zenon's 2015 statement of cash flows under US GAAP?

$345,000 would be shown as an increase in the Financing Section.

A company purchased a piece of equipment for $350,000 in 2008. As of 12/31/2015, $215,000 of depreciation expense had been recognized against this piece of equipment. What is the equipment's net book value on 12/31/2015?

$350,000 - $215,000 = $135,000 The net book value is calculated by subtracting the accumulated depreciation from the original cost of the asset.

Suppose PepsiCo purchased a piece of plant equipment in December, 2013 and, after installing and testing the equipment, it was put into service on January 1, 2014. The total cost to put the equipment into service was $300,000; it is expected to have a useful life of 5 years and a salvage value of $60,000. Assuming PepsiCo uses straight-line depreciation, what would the DEPRECIAITON expense be for the month of July, 2014?

$4,000 The amount to be depreciated is the total cost to put the asset in service ($300,000) minus the assumed salvage value after 5 years ($60,000). This leaves $240,000 to be depreciated over 5 years (60 months) or $4,000 per month.

A company has retained earnings of $94,000 as of December 31, 2014. The Pro-forma income statement projects net income of $22,000 for 2015. The company expects to declare their annual dividend on March 15, 2015 of $0.70 per share and has a total of 100,000 shares outstanding. What will the projected retained earnings account be as of December 31, 2015?

$46,000 To calculate the projected retained earnings, you add the projected 2015 net income of $22,000 to the beginning balance of $94,000 carried over from 2014. Then you must subtract $70,000 for the dividend of $0.70 per share times the 100,000 shares outstanding. $94,000 + $22,000 - $70,000 = $46,000

Suppose Pinocchio's Pizza had 40 boxes of pre-made pizza dough in inventory at the beginning of July 2016. Pinocchio's paid $20.00 for each box. During the month, Pinocchio's purchased 15 more boxes, also at $20.00 a piece. At the end of the month, a physical count revealed that 18 boxes remained in inventory. No boxes were lost or stolen during the period. What would Cost of Goods Sold related to the pre-made pizza dough be for the month of July?

$740. Since there were 40 boxes in inventory at the beginning of the month and 15 more boxes were purchased, there were 55 boxes available for sale. Since there were 18 boxes remaining in inventory at the end of the month, it means that 37 boxes were sold during the month. At a cost of $20 per box, that means the Cost of Goods Sold was $740.

identifying implicit transactions:

(1) No transfer of resources (2) No invoices or other paper documentation (3) No specific event or activity that clearly triggers a journal entry, just the passing of time (4) Judgement regarding when to record and how much to record

Free Cash Flows

(1-tax rate) x Earnings before Interest and Taxes + Depreciation and Amortization - Capital Expenditures - Change in Net Working Capital

Based on this income statement for Company B for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for Depreciation and Amortization in calculating cash flow from Operating Activities using the indirect method?

(add up all amortization and depreciation cost) Increase by $22,000 This is the correct answer! The adjustment to Net Income is an increase of $22,000, because $22,000 of Depreciation and Amortization expense was recognized during the year. By adding this amount back to Net Income, we eliminate the impact of this non-cash transaction.

Examples of Current Liability

(any current portion) Accounts Payable Wages/Salaries Payable Deferred Revenue Taxes Payable Deferred Income Tax - current, and Other Current Liabilities ACCRUED EXPENSES NOTES PAYABLE - CURRENT PORTION Sales Tax Payable Short-term loan payable

Examples of non-current liabilities

(any long term portion) Deferred Income Tax - non-current Notes Payable Gift Certificates - Non current

Based on this income statement for Company ZYX for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for Gain or Loss in calculating cash flow from Operating Activities using the indirect method?

(gain of The correct answer is: Adjustment of (16,000) in the Operating Section The total cash flows received from both the sale of equipment and the sale of debt investment are investing activities and not operating activities. The net of the gain and loss is a gain of $16,000. To eliminate this gain, the $16,000 amount should be subtracted from net income. Since the gain would have increased net income, this subtraction ensures that the net effect on cash flow from operations is zero.

What adjustments would need to be made in the Operating Section of the statement of cash flows prepared under the indirect method to account for the changes in the Accounts Payable and Accrued Expenses account balances for Apple Inc.? *******ACCOUNTS PAYABLE*******

(rev has both increasaed from 2012-2013) Increase of $1,192 for Accounts Payable and increase of $2,442 for Accrued Expenses

Use the direct method for calculating cash flow from Operating Activities.

, Interest paid on loan is included in the Operating Section. Because this is a cash outflow, this is a use of cash. Interest earned in cash, Cash collections from customers is included in the Operating Section. Because this is a cash inflow, this is a source of cash. Sale of used plant equipment for cash is included in the Investing Section. Because this is a cash inflow, this is a source of cash. Cash dividend received is included in the Operating Section. Because this is a cash inflow, this is a source of cash. Purchase of equipment for cash is included in the Investing Section. Because this is a cash outflow, this is a use of cash. Distribution of cash dividend declared last year is included in the Financing Section. Because this is a cash outflow, this is a use of cash. Payment of wages to employees is included in the Operating Section. Because this is a cash outflow, this is a use of cash.

Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchased $80,000 of open airline tickets in advance that can be used for a variety of destinations. Using the accrual method, build the entry to record the use of $40,000 of these tickets on March 15, 2014 for multiple passengers on a flight from New York to Kigali, Rwanda.

- The correct answer is to debit Travel Expense for $40,000 to recognize the expense associated with the use of the tickets - credit Prepaid Expense for $40,000 as the company no longer has the right to receive benefits from the prepaid tickets.

Suppose a piece of plant equipment that Plexco put into service on January 1, 2010 at a total cost of $310,000 with an expected useful life of 5 years and a salvage value of $70,000 is sold on January 1, 2015 for $60,000. What would the journal entry look like to record this sale?

- This transaction results in a reduction of the PP&E account of the initial, gross value of the equipment (credit of $310,000) - offset by receipt of cash (debit of $60,000), - and the reduction of accumulated depreciation (debit of $240,000), - and loss on the disposal of the asset (debit of $10,000)

Wise Guys Consulting receives payment in full totaling $9,000 from a client for services which were rendered and invoiced the previous month. What would be the impact at the time the payment is received?

- debit Cash (an asset) for $9,000 as the company now has the cash - credit Accounts Receivable (also an asset) for $9,000 as the company no longer has the right to receive cash.

Keep You in the Know (KYK) magazine received $120,000 cash in annual subscriptions in December 2013. KYK is a monthly publication and all of these subscriptions commence in January 2014. What entry should KYK make on December 31, 2013 to record the payments received for these subscriptions?

- debit Cash for $120,000 as the company now has the cash - credit Deferred Revenue for $120,000 as the company now has the obligation to provide services in the future.

Like A Wrecking Ball is a demolition company. At the end of a project, they presented their client with an invoice for $18,000 and immediately received a check for the full amount. What is the journal entry to record this receipt?

- debit Cash for $18,000 as the company now has the cash (remember--checks are considered cash!) - credit Revenue for $18,000 to recognize the revenue associated with the services provided.

Traxx is a shoe manufacturer. They sold 250 pairs of shoes on credit to Feet of Endurance (FOE) for $16,000. The total manufactured cost of the shoes was $7,000. What is the journal entry to record the cost of the inventory transfer on the books of Traxx?

- debit Cost of Goods Sold for $7,000 to recognize the expense associated with the sale of shoes - credit Inventory for $7,000 as the company no longer has the inventory.

Cakery Bakery received $1,000 from a customer on August 5, 2016 for a wedding cake to be delivered on September 19, 2016. What would Cakery Bakery record on their books when the cake is successfully delivered?

- debit Deferred Revenue (a liability) for $1,000 as the company no longer has an obligation to provide services - credit Revenue (part of owners' equity) for $1,000 to recognize the revenue associated with the sale.

Keep You in the Know (KYK) magazine received $120,000 cash in annual subscriptions in December 2013. KYK is a monthly publication and all of these subscriptions commence in January 2014. What entry should KYK make on January 31, 2014 related to the subscription services provided for one month?

- debit Deferred Revenue for $10,000 as the company no longer has the liability for one month's worth of subscription - credit Revenue for $10,000 to recognize the revenue associated with one month's worth of services provided.

Curls Just Want to Have Fun, a small salon, purchased 200 wigs from their supplier for $25,000 and paid by check. What entry should the salon make to record this purchase?

- debit Inventory for $25,000 as the company now has the inventory (the wigs), - credit Cash for $25,000 as the company paid with cash (remember checks are considered cash in accounting terms).

Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchase $80,000 of open airline tickets in advance that can be used for a variety of destinations because they need the flexibility and savings provided by such tickets. What entry should Friends International make to record this purchase?

- debit Prepaid Expense for $80,000 as the company now has the right to receive benefits from the prepaid tickets - credit Cash for $80,000 as the company no longer has the cash.

As part of the 2014 year end close, Tritex Manufacturing reviews any potential liabilities related to 2014 activities that will be paid in 2015. Tritex received snow removal services in December and agreed to pay $10,000. They have not yet received the invoice. What would the journal entry look like to record this obligation?

- debit Snow Removal Expenses for $10,000 - credit Accrued Expenses (a liability account) for $10,000. In this case, Tritex has not received a bill but based on their evaluation concludes that there are obligations coming from 2014 activities that will have to be settled in 2015. These obligations are recorded as liabilities in 2014 because they relate to 2014 activities.

At the end of the fiscal year, December 31, 2015, ProHealth Gym had the following revenue and expense accounts: What is the total value of all the expense accounts on January 1, 2016?

Suppose Green Mountain Coffee Roasters presents the following information in its 2013 financial statements: Net Sales $4.4 B Cost of Sales $2.8B Income Tax Expense $0.3B General and Admin Expenses $0.3B Selling and Operating Expenses $0.5B Interest Expense $0.1B What would be the Operating Income in this fiscal year?

0.8 Operating Income = Gross Income - Operating Expenses Operating Income is the profit before taxes and interest. In this example it is the Gross Profit (Net Sales - Cost of Goods Sold) minus Selling, Operating, General and Admin Expenses.

Mandini's Steakhouse purchased 100 T-bone steaks for a total of $1,000 from a supplier. The restaurant bought the steaks on credit, and they will not pay until 30 days after delivery. First, how will the accounting equation be affected at the time of the purchase? Select all that apply. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease Suppose 30 days after the purchase, Mandini's paid cash to the vendor. How will the accounting equation be affected when the payment is made? Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

1) Asset: 1000 increase Liability: 1000 increase OE: ---- 2) Asset: 1000 decrease Liability: 1000 decrease OE: ----

M2: Some things to remember about Journal Entries:

1) Every journal entry has one line for each account affected 2) There are always at least two accounts affected 3) The total of all debits must equal the total of all credits 4) Journal entries are generally formatted with the debits first, then credits 5) Each journal entry has a date associated with the entry

1,250 Under FIFO, the 250 hats sold would be expensed using the earliest inventory costs first. 250 *5 = $1,250.

1,450

1,950 Under FIFO, the 250 hats sold would be expensed using the earliest inventory costs first. So the ending Inventory balance is (150 * 5) + (200 * 6) = $1,950.

UDeliver, a moving rental truck company, paid $3,600 on 1/1/2016 for 12 months of insurance coverage on a fleet of trucks for the coming year. What would be the impact on this date? What would be the impact on March 31, 2016 when UDeliver makes an adjustment to reflect that three months of the insurance coverage has been used up?

1/1 INSURANCE EXPENSE: $3600 increase with debit CASH: $3600 decrease with credit 3/31 ACCOUNTS PAYABLE: Insurance Expense (part of owners' equity) increases with a debit of $900 Prepaid Insurance (an asset) decreases with a credit of $900.

Gill Fishing, a company that provides fishing expeditions for tourists at 8 locations across the globe, sold 15 tickets for expeditions at its various locations on January 1, 2015 for a total of $15,000 ($1,000 per customer). The customers will go on the expeditions during the fishing months from May - September 2015. All of the customers paid in cash at the time of the purchase. What impact would the receipt of cash have on this date? By July 31, 2015, Gill had provided eight of the fifteen expeditions. What would be the impact when Gill Fishing records the services provided for the month?

1/1/15 CASH: $15000 increase with a debit DEFERRED REVENUE: $15000 increase with credit 7/31/15 REVENUE: $8000 increase with credit DEFERRED REVENUE: $8000 decrease with debit

The Hattery is a new online hat retailer. During the first month they made the following purchases of hats and had the following sales of hats: January 1: Purchased 600 hats for $10 each. January 15: Purchased 300 hats for $7 each. January 31: Sold 425 hats. What would be the Cost of Goods Sold if they use LIFO?

3,350 Under LIFO, the 425 sold would be expensed using the most recent inventory costs first. (300 * 7) + (125 * 10) = $3,350.

days purchases outstanding

365 / accounts payable turnover

Formula for Days Inventory

365/Inventory Turnover

Suppose Tolero Manufacturing purchased a piece of plant equipment in February, 2016 and, after installing and testing the equipment, it was put into service on April 1, 2016. The total cost to put the equipment into service was $250,000; it is expected to have a useful life of 5 years and a salvage value of $10,000. Assuming Tolero uses straight-line depreciation, what would the depreciation expense be for the month of August, 2016? *depreciation expense, salvage value*

4,000 The amount to be depreciated is the total cost to put the asset in service ($250,000) minus the assumed salvage value after 5 years ($10,000). This leaves $240,000 to be depreciated over 5 years (60 months) or $4,000 per month.

For 2015, suppose Field Enterprises had Gross Profit of $1,150,000 and the following expenses: Salaries and Wages Expense $400,000 Building and Utilities Expense $90,000 Other Operating Expenses $50,000 Interest Expense $25,000 Income Tax Expense $32,000 Cost of Goods Sold (COGS) $890,000 What would be Field's Operating Income for 2015?

610,000 (Gross Profit - Salaries / Wages - Building - Other Operating Expense) Operating Income is the profit before taxes and interest. In this example it is the Gross Profit minus the Salaries and Wages and the Building and Utilities Expenses and the Other Operating Expenses.

Suppose PepsiCo has 3,000 cases of Pepsi in one of their warehouses at the beginning of the month of June. Half of these cases were held over from the prior month (May) at a cost of $5 per case and half were from 2 months ago (April) with a cost of $4 per case. In the month of June they received another 2,000 cases at a cost of $5.50 per case. The warehouse sold and shipped 2,000 cases in the month of June. PepsiCo uses FIFO to value their inventory. What would have been the Cost of Sales related to the cases shipped in June?

8,500 Since PepsiCo uses FIFO to value their inventory, the first 1,500 cases would have been valued at the April cost of $4. The next 500 cases would have been valued at the May cost of $5. This means that the amount charged to cost of sales and credited to inventory would be $6,000 plus $2,500, or $8,500.

Tea Online is a new online retailer of premium teas. During the first month they made the following purchases of teabags and had the following sales of tea bags: January 1: Purchased 200 tea bags for $3 each. January 15: Purchased 100 tea bags for $4 each. January 31: Sold 250 teabags. What would be the Cost of Goods Sold if they use FIFO?

800 Under FIFO, the 250 tea bags sold would be expensed using the earliest inventory costs first. (200 * 3) + (50 * 4) = $800.

For the year 2015, Dark Horse Corp.'s sales revenue was $1,600,000. Cost of goods sold (COGS) was 40% of sales revenue. Their income statement shows that operating expense was $150,000. What was Dark Horse Corp.'s gross profit for 2015?

960,000 Gross Profit is equal to Sales Revenue minus Cost of Goods Sold, in this case $1,600,000 - $640,000 = $960,000. The Cost of Goods Sold of $640,000 is found by multiplying $1,600,000 by 40%.

Going Concern

A company is considered to be a going concern if the entity is expected to remain in operation and be able to satisfy all commitments and obligations and realize the benefits and values of all assets for the indefinite future. If there is evidence to the contrary, the business may no longer be considered a going concern.

Which of the following would cause a decrease to liabilities? Select all that apply. A company pays $550, which is the current portion due on a long term bank loan A company sells $1,000 worth of gift cards A company prepays for 12 months of landscaping services A company pays off the remaining amount of their mortgage loan After one month, a company recognizes revenue equal to 1/12 of an annual magazine subscription they sold to a customer

A company pays $550, which is the current portion due on a long term bank loan A company pays off the remaining amount of their mortgage loan After one month, a company recognizes revenue equal to 1/12 of an annual magazine subscription they sold to a customer

Which of the following is an example of Accrued Liabilities?

A company recorded wages expense for May on May 31, and will pay the wages on June 15.

Which of the following is an example of an asset? Select all that apply. An obligation to pay rent for an office building that will be used next month A carton of milk that has spilled in the back of a grocery store A customer's promise to pay for a new computer delivered last month

A customer's promise to pay for a new computer delivered last month

the basic rules for creating a Statement of Sources and Uses are

A decrease in a liability or owner's equity account represents a use of funds, and an increase in these accounts represents a source of funds. A decrease in an asset account is a source of funds, while an increase is a use of funds. Changes in cash are ignored.

Which of the following companies is most likely to have a negative Cash Conversion Cycle?

A discount retailer A discount retailer sells most of its inventory quickly and for cash, while delaying payments to suppliers.

Using the Indirect Method to create the Statement of Cash Flows, which of the following options are correct in describing what must be done to convert net income to operating cash flow? (Please select all that apply.)

A gain is subtracted from net income. An increase in operating current assets is subtracted from net income. A decrease in operating current liabilities is subtracted from net income. (A gain, an increase in operating current assets, and a decrease in operating current liabilities would all need to be subracted from net income in order to convert net income into operating cash flow when using the indirect method to create the Statement of Cash Flows.)

A company purchased a building for $850,000 on January 1, 2010. As of December 31, 2014, $200,000 of accumulated depreciation had been recorded related to this building. The building was sold to another party for $1,250,000 on January 1, 2015. On the sale of this building, the company should recognize:

A gain of $600,000 At the sale date, the building's net book value was $650,000 ($850,000 original cost less $200,000 accumulated depreciation). Since it was sold for $1,250,000, which is more than the net book value, the company should recognize a gain of $600,000.

Which of the following statements is NOT true in relation to the Gordon Growth Model?

A higher discount rate results in a higher terminal value. This statement is not true. A higher discount rate results in a lower terminal value.

Which of the following is an example of Deferred Revenue?

A household appliances company received an advance payment from its customer for a product that would be delivered at a later date.

West Corp. purchased a piece of equipment in January 2014. The accountant of West Corp. decided to use double declining balance method to depreciate this equipment. For 2014, compared with using straight-line depreciation method, the company will have: (*double declining, straight line depreciation*)

A lower net income and a higher accumulated depreciation. Using an accelerated depreciation method as compared to the straight-line method means that a higher depreciation expense will be recognized in the early years so the company will have a lower net income and a higher accumulated depreciation.

Which of the following is an example of Deferred Revenue?

A magazine company collected annual subscription fees at the beginning of the year before delivering magazines.

Periodic Inventory System

A method of determining the ending value of inventory and cost of goods sold in which detailed inventory transactions are not recorded on a regular basis. Instead, a physical count of inventory is performed periodically, and the cost of goods sold for a period are determined by subtracting the value of counted inventory from the goods available for sale (calculated as beginning inventory plus inventory purchases during the period). Due to modern technology, the periodic inventory system has been replaced in most cases by the perpetual inventory system. However, most businesses still perform periodic inventory counts, even if they use a perpetual inventory system.

Perpetual Inventory System

A method of inventory tracking in which all inventory purchases and movements are recorded when they occur. The transactions are typically entered into an inventory tracking system which is integrated with the accounting system. At any point in time, including at a period end, the amount and value of inventory is available and can be reported by the system. However, most businesses still perform periodic inventory counts, even if they use a perpetual inventory system.

Suppose Bikram Yoga Natick sold six 3-month yoga memberships on July 1, 2013 for a total of $2,100. All of the customers paid in cash at the time of the purchase.What impact would the receipt of cash have on this date? On July 31, 2013, the yoga studio had provided one month of services out of the three month agreement. What would be the impact when Bikram Yoga Natick records the services provided for the month?

Cash (asset) increases with a debit of $2100 and since the revenue has not been earned and Bikram Yoga Natick is obligated to provide the yoga classes, the DEFERRED REVENUE account (a liability) should be increased (credited) by the amount of funds received ($2,100). On July 31, reduce (debit) the Deferred Revenue account (a liability) for $700 and increase (credit) the Revenue account (part of owners' equity) for $700, one-third of the initial advance.

Accounts not used in creating the Statement of Sources and Uses include

Cash (because it is never used in creating this Statement) as well as Software, Note Payable, and Common Stock (because each of those accounts had no change during the year).

Cash and Cash Equivalents $2,000 + Accounts Receivable $750 + Inventory $925 + Prepaid Rent $400 = $4,075

Company A borrowed $100,000 from a commercial bank at an annual interest rate of 8% for 3 years on January 1, 2013. Interests on the loan would be paid with principal after three years. On December 31, 2013, the accountant of Company A recorded a journal entry as follows: Interest Expense: $8000 Debit Interest Payable: $8000 Credit

Company A didn't pay $8,000 to bank but recognized $8,000 of interest expense.

Company A has a shorter Average Collection Period than Company B using the formula 365 / (Credit Sales / Average AR Balance). Which of the following statements is true regarding these two companies?

Company A is more efficient in collecting receivables from customers than Company B. Average Collection Period = 365 / AR Turnover = 365 / (Credit Sales / Average AR Balance) Accounts Receivable Turnover is an indicator of a business' ability and efficiency in collecting receivables from customers.

Previous QuestionQuestion 5 of 20Next Question Company A has a higher Inventory Turnover Ratio than Company B. Which of the following statements is true regarding these two companies?

Company A is more efficient in using its inventory to generate revenue. Inventory Turnover = Cost of goods sold / Average inventory Inventory Turnover measures the number of times inventory is sold or used in a time period. It is an indicator of operating efficiency.

Company A has a higher Accounts Payable Turnover Ratio than Company B. Which of the following statements is true regarding these two companies?

Company A is paying suppliers at a faster rate than Company B. Accounts Payable Turnover = Credit Purchases / Average Accounts Payable Balance Accounts Payable Turnover measures the number of times a company can pay off its average account payable balance during a time period.

Company B, a cable services company, performed services to a client on November 30, 2013. The client promised to pay Company B $1,200 on January 5, 2014 for the services provided on November 30, 2013. On November 30, 2013 the accountant of Company B recorded a journal entry as follows: Accounts Receivable: :$1200 Debit Revenue: $1200 Credit

Company B didn't collect $1,200 from client but recognized revenue.

A customer of Company C, a gym studio, paid $800 for a yearly membership on July 1, 2013. On July 1, 2013, the accountant of Company C recorded a journal entry as follows: Cash: $800 Debit Deferred Revenue: $800 Credit

Company C collected $800 from customer but didn't recognize revenue.

A customer of Company C, a gym studio, paid $800 for a yearly membership on July 1, 2013. On December 31, 2013 the accountant of Company C recorded a journal entry as follows: Deferred Revenue $400 - credit Revenue $400 - debit

Company C didn't collect $400 from customer but recognized revenue.

Which of the following companies would likely have the LEAST difficulty making the interest payments on its debts?

Company C will likely have the least difficulty making interest payments on its debt, because it has the highest Interest Coverage Ratio. The Interest Coverage Ratio can be calculated as ( EBIT / Interest Expense ) Company A has an EBIT of $140,000 ( $100,000 + $25,000 + $15,000 ) Company A's Interest Coverage Ratio is 5.6 ( $140,000 / $25,000 ) Company B has an EBIT of $140,000 ( $100,000 + $30,000 + $10,000 ) Company B's Interest Coverage Ratio is 4.7 ( $140,000 / $30,000 ) Company C has an EBIT of $145,000 ( $100,000 + $25,000 + $20,000 ) Company C's Interest Coverage Ratio is 5.8 ( $145,000 / $25,000 )

On January 1, 2013, Company D rented a warehouse for two years. On December 31, 2013, the accountant of Company D recorded a journal entry as follows: Rent Expense $15,000 credit Prepaid Expense $1500 debit Which of the following best describes the transaction that occurred on December 31, 2013, that would lead to this journal entry?

Company D didn't pay $15,000 for warehouse rental but recognized $15,000 of rent expense

On January 1, 2013, Company D rented a warehouse for two years. The accountant of Company D recorded a journal entry as follows: Prepaid Expense: $30,000 Debit Cash: $30,000 Credit

Company D paid $30,000 for warehouse rental but didn't recognize $30,000 of rent expense.

Which of the statements below is NOT true regarding Company H?

Company H has negative cash flows from operations because it has a negative gross income.

Conservatism

Conservatism requires that you record expenses or losses when they are probable but only record gains or revenue when they are realized (turned into cash or cash equivalents or good receivables).

A cold-weather clothing store has always had a generous return policy on all jackets and coats. Jackets can be returned for a full refund up to a year from the date of purchase. Historical data has shown that 8% of customers will return their jackets and the company maintains a reserve for returns to account for this. The CEO is looking for ways to boost its bottom line and would like to get rid of this reserve in the current year. The most important accounting principle to consider in this case is: Historical Cost Consistency Materiality Reliability

Consistency

Which of the following is an expense account? Select all that apply.

Cost of Goods Sold Rent Expense Wages Expense

The primary costs that make up the cost of sales for Medtronic Inc. are employee costs, chemical costs, and supplies costs. Employee costs are forecast to be 15% of revenue, chemical costs are forecast to be 10% of revenue, and supplies costs are forecast to be 5% of revenue, for a total of 30%. With forecasted sales revenue of $175 million for 2015, what will be the forecasted cost of sales for 2015?

Cost of sales is forecast to be 30% of net sales (sum of employee cost, 15% + chemical cost, 10% + supplies cost, 5%). In order to calculate, multiply 2015 sales by 30%. Calculation: (175.0 * 0.30) = 52.5

Deferred Revenue

Deferred revenue is a liability that represents the obligation to provide goods or services to a customer in the future. Deferred revenue is recorded when a business receives a payment in advance from a customer, but the business has not yet delivered the good or provided the service. Once the business fulfills its obligation to provide goods or services, the liability is reduced and the revenue is recognized. May also be referred to as unearned revenue. Remember that deferred revenue is NOT revenue.

Examples of Product Cost

Direct Labor Manufacturing Overhead Packaging Materials Cost Plant Manager Salary Factory Rental Manufacturing Utilities Direct Materials Manufacturing Equipment Depreciation Equipment Maintenance

TIMES INTEREST EARNED

EBIT / INTEREST EXPENSE

interest coverage ratio

EBIT / INTEREST EXPENSE

The profit margin for East Corp. for each year from 2011 to 2013 is listed below. 2011: 7.13% 2012: 7.68% 2013: 8.14% Which of the following is NOT a reasonable explanation for the trend in the ratio? The variable costs decreased due to an improvement in technology. Lower variable costs would result in a higher profit margin.

East Corp. declared a cash dividend to shareholders. This is the correct answer! This situation wouldn't directly impact a company's profit margin.

The income statement reflects a company's:

Financial performance over a given period of time.

Cost of Goods Sold

Food Products Expense Accessory Products Expense Product Shipping

Example of Net Sales

Food Sales Other Sales Sales Discounts

The founders of a business are interested in investing in a project in the coming year, and they have two different projects to choose from. The estimated cash flows of the two projects are shown below. The company's Weighted Average Cost of Capital (WACC) is 9%. Calculate the IRR of each project.

For Project 1, the correct answer is 10.62% The correct answer formula, which should be entered into cell E4, is the following: =IRR(B3:B10) For Project 2, the correct answer is 9.43% The correct answer formula, which should be entered into cell E16, is the following: =IRR(B15:B22)

The founders of a business are interested in investing in a project in the coming year, and they have two projects to choose from. The estimated cash flows of the two projects are shown below. The company's Weighted Average Cost of Capital (WACC) is 9%. Calculate the IRR of each project.

For Project 1, the correct answer is 12.52% The correct answer formula, which should be entered into cell E4, is the following: =IRR(B3:B10) (B3to 10 is all cahs flows) For Project 2, the correct answer is 16.50% The correct answer formula, which should be entered into cell E16, is the following: =IRR(B15:B22)

You have just reviewed the financial statements of Penelope's Candy Store (PCS). You have determined that PCS has a Profit Margin of 19%. How do you explain this to owner Penelope Hassey?

For every $100 in sales, $19 ended up in Net Income. Profit Margin (Net Income/Sales) measures the ability of a company to make a profit relative to revenue generated during a period. A Profit Margin of 19% tells us that for every $100 in sales, $19 ended up in Net Income.

Adjusting the Trial Balance *pic 2*

For the first transaction, Hipzone should debit Accounts Receivable for $450 and credit Sales for $450. At the same time, HIPZONE should debit Cost of Goods Sold for $220 and credit Accumulated Project Costs for $220. For the second transaction, Hipzone should debit Depreciation Expense for $180 and credit Accumulated Depreciation for $180.

Sources of funds include:

Furniture & Equipment, net, Accrued Expenses, and Retained Earnings,Inventory, Other Current Assets, Intangibles, net, Other Long Term Assets, Accounts Payable, Accrued Expenses, and Retained Earnings

Example of Non-current Asset

Furniture and Equipment Net Software. PP&E (Net) Other Non-current assets

Which of the following is an example of a revenue? Select all that apply. Gopher Co. is a designer and manufacturer of promotional clothing and accessories. Gopher delivered T-shirts to a customer and sent an invoice to the customer for $2,000. Lauren owns a coffee shop. A customer came to the shop and purchased a cappuccino and a bag of coffee beans. The customer paid $40 at the time of purchase. SKI manufacturing, an auto parts manufacturer in Iceland, received an order valued at 1 million Icelandic Krona. They also received 100,000 Icelandic Krona as a down payment

Gopher Co. is a designer and manufacturer of promotional clothing and accessories. Gopher delivered T-shirts to a customer and sent an invoice to the customer for $2,000. Lauren owns a coffee shop. A customer came to the shop and purchased a cappuccino and a bag of coffee beans. The customer paid $40 at the time of purchase.

Formula for Gross Profit Margin

Gross Profit / Sales

Consider the following financial data (in millions) for Apple Inc. What is the gross profit margin reported in 2013?

Gross Profit Margin is calculated by dividing the Gross Profit (Revenue less Cost of Sales) by the Revenue. In this case, the calculation is as follows: (Revenue - Cost of Sales) / Revenue = Gross Profit Margin (170,910 - 106,606) / 170,910 = 37.62% The suggested correct answer formula is: =(B1-B4)/B1

Consider the following financial data (in millions) for Tridatex Inc. What is the gross profit margin reported in 2015?

Gross Profit Margin is calculated by dividing the Gross Profit (Revenue less Cost of Sales) by the Revenue. In this case, the calculation is as follows: (Revenue - Cost of Sales) / Revenue = Gross Profit Margin (214,910 - 117,606) / 214,910 = 45.28% The suggested correct answer formula is: =(B1-B4)/B1

Consider the following financial data (in thousands) for CleanAir Systems Inc. What's the gross profit margin reported in 2015?

Gross Profit Margin is calculated by dividing the Gross Profit by the Revenue. In this case, the calculation is as follows: Gross Profit / Revenue = 1,619,386 / 4,358,100 = 37.16% The suggested correct answer formula is: =B6/B4

Consider the following financial data (in thousands) for Green Mountain Coffee Roasters. What's the gross profit margin reported in 2013?

Notice how overall Amazon's gross profit % trend is increasing while the profit margin trend is decreasing. 2009201020112012Gross Profit Margin22.57%22.35%22.44%24.75%Profit Margin3.68%3.37%1.31%(0.06)% Which of the following is a reasonable explanation for the inverse trends?

Higher demand has allowed Amazon to increase their prices, while higher overhead expenses have been hurting overall profits. This is the correct answer! Higher selling prices would result in a higher gross profit margin, but increasing operating expenses could eat away the profits before they hit the bottom line.

3.2 Liquidity

How quickly and easily assets and liabilities can be converted to cash. For example, accounts receivable are more liquid than inventory because the inventory must be sold to become a receivable and then the receivable must be collected to become cash. Hence, the receivable is one step closer to being converted to cash than the inventory and is, therefore, more liquid.

BELOW Operating Income

INCOME TAX EXPENSE INTEREST INCOME GAIN ON FOREIGN CURRENCY INTEREST EXPENSE LOSS ON FINANCIAL INSTRUMENTS

Non Operating Expense

INTEREST EXPENSE INTEREST INCOME LOSS ON DISPOSAL INCOME TAX EXPENSE LOSS ON FOREIGN CURRENCY RENTAL INCOME

Apple sells an iPhone X for $1000. They identify this sale as a contract with the customer. What is the very next thing they should do?

Identify the performance obligations they must provide as part of that sale

Calculate the Leverage used in the DuPont Framework for H&M based on its Balance Sheet and Income Statement. Use average balances in your calculation where applicable. (On 11/30/2012, H&M had total assets of $60,173 and total equity of $43,835.)

In the DuPont Framework, the leverage ratio is calculated by dividing the average total assets by the average equity. Average Total Assets / Average Equity = 62,925 / 44,542 = 1.41 The suggested correct answer formula is: =AVERAGE(B11,D5)/AVERAGE(SUM(B16:B18),D8)

INCOME STATEMENT

Income Tax Expense Salaries Expense Sales Revenue

Based on this income statement for Company A for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for Depreciation in calculating cash flow from Operating Activities using the indirect method? pc1

Increase by $10,000 This is the correct answer! The adjustment to Net Income is an increase of $10,000, because $10,000 of Depreciation expense was recognized during the year. By adding this amount back to Net Income, we eliminate the impact of this non-cash transaction.

Based on this income statement for Company Y for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for gain or loss in calculating cash flow from Operating Activities using the indirect method? loss is bracketed

Increase by $12,000 The total cash flows received from sale of fixed assets is an Investing Activity and not an Operating Activity. The loss itself is a non-cash item. To eliminate this loss, the $12,000 amount should be added to Net Income in the Operating Section of the Statement of Cash Flows. Since the loss would have decreased Net Income, this addition ensures that the net effect on cash flow from operations is zero.

Increase of $32,593 for Accounts Payable and increase of $70,977 for Accrued Expenses (rev has increaseaed from 2012 - 2013) Since Accounts Payable and Accrued Expenses increased, it means that the cash paid was less than the expense recognized, so the adjustment is to record an increase related to both Accounts Payable and Accrued Expenses.

Company X reported the following information on its 2015 income statement: Interest Expense $10,000 Income Tax$50,000Net Income $140,000 What is Company X's Interest Coverage Ratio for 2015?

Interest Coverage Ratio = EBIT / Interest Expense = (Net Income + Income Tax + Interest Expense) (140,000 +50,000 + 10,000) / 10,000) = 20.0

Company X reported the following information on its 2015 income statement: Interest Expense $12,000 Income Tax$54,000Net Income $144,000

Interest Coverage Ratio = EBIT / Interest Expense = (Net Income + Income Tax + Interest Expense) (144,000 +54,000 + 12,000) / 12,000) = 17.5

When projecting financial statements, which of the following accounts is difficult to forecast using the percent of sales method?

Interest Expense Normally, Accounts Receivable, Accounts Payable, and Cost of Sales will trend in a direct relationship with sales. However, Interest Expense is more dependent upon the level of borrowings which does not necessarily track with sales.

Consider the following summarized financial statements (in millions) for Apple Inc. What is the inventory turnover and days inventory observed in 2013? pc6

Inventory Turnover is calculated by dividing the annual Cost of Goods Sold (or Cost of Sales in this case) by the average inventory value for the year. In this case, we are using a two-point average of beginning and end of year asset values so the calculation is as follows: Cost of Sales / Average Inventory = 106,606 / 1,278 = 83.45 Days Inventory is calculated by dividing Average Inventory by the average daily Cost of Sales which is Cost of Sales divided by 365. Average Inventory / Average Daily Cost of Sales = 1,278 / 292 = 4.37 There are several formulas that could help you arrive at the correct answer, but one solution is presented below: Inventory Turnover: =C15/AVERAGE(B4:C4) Days Inventory: =AVERAGE(B4:C4)/(C15/365)

The gross profit margin for Amazon for each year from 2010 to 2012 is listed below. 2010: 22.35% 2011: 22.44% 2012: 24.75% Which explanation below is a reasonable explanation for the trend in the ratio?

Inventory prices have fallen resulting in decreased COGS. This is the correct answer! If the cost of inventory decreased, Amazon could make more money off of each item it sold.

What is free cash flow?

It is the amount of cash that a business could be expected to generate from its normal operations.

Consider the following portions of summarized financial statements (in millions) for Apple Inc. What is the accounts payable turnover and the days purchases outstanding observed in 2013?

Accounts Payable Turnover is calculated by dividing the annual credit purchases by the average accounts payable balance. In this case, we do not have access to Apple's credit purchases so we are using Cost of Sales as a proxy. Again we will use a 2-point average of beginning and end of year accounts payable balances. Cost of Sales / Average Accounts Payable = 106,606 / 21,771 = 4.90 Days Purchases Outstanding is calculated by dividing Average Accounts Payable by the average daily Cost of Sales, which is Cost of Sales divided by 365. Average Accounts Payable / Average Daily Cost of Sales = 21,771 / 292 = 74.54 There are several formulas that could help you arrive at the correct answer, but one solution is presented below: Accounts Payable Turnover: =C17/AVERAGE(B7:C7) Days Payable Outstanding: =AVERAGE(B7:C7)/(C17/365)

Suppose the following were the gross profit margins for Green Mountain Coffee Roasters (GMCR) from 2011 through 2013. 2011: 34.13% 2012: 32.89% 2013: 37.16% What could be an explanation of the fluctuations in gross profit margins for GMCR from 2011 through 2013?

An increase in manufacturing capacity at the beginning of 2012 caused overhead to increase but allowed for greater efficiency and significant sales growth later. This is the correct answer! The increase in overhead costs could hurt 2012 margins but pave the way for more profitable operations in 2013.

Apple decides to allocate $950 of the purchase price toward the phone itself, and $50 toward the software updates they will provide over the next year. Before the sale, the phone was in Apple's inventory valued at $500. Create a journal entry for the date of the sale, October 1, 2018

Apple needs to first note the receipt of cash and the loss of inventory by debiting Cash for $1000 and crediting Inventory for $500. Then they need to record the revenue: debit Cost of Goods sold by $500, credit Revenue for $950, and then credit Deferred Revenue (the software updates) for $50.

Suppose that before 2012 Apple recognized revenue on domestic sales when the goods were shipped and recognized revenue on international sales when the goods were delivered to the customer. Let's also suppose that in 2012 Apple began recognizing revenue on all sales, domestic and international, when they were shipped. Which of the following is true? Apple's accounting prior to 2012 violated the consistency principle. Apple's accounting in 2012 violated the consistency principle. Neither Apple's accounting before or during 2012 violated the consistency principle. Both Apple's accounting before and during 2012 violate the consistency principle.

Apple's accounting in 2012 violated the consistency principle. (Apple's accounting in 2012 violated the consistency principle because it started using different revenue recognition policies than it had used in the previous year.)

M2: Debit vs Credit (picture)

Asset & Expenses: INCREASAE with debit / DECREASE with credit Liabilities & Equity & Revenues: INCREASE with credit / DECREASE with debit

Consider the following summarized financial statements (in millions) for Apple Inc. What is the asset turnover observed in 2013? Use the average assets from the beginning and ending of the year for your calculation. Remember to use the AVERAGE of assets for 2012 and 2013 in your calculation.

Asset Turnover is calculated by dividing the annual revenue by the average asset value for the year. In this case, we are using a two-point average of beginning and end of year asset values so the calculation is as follows: Revenue / Average Assets = 170,910 / 191,532 = 0.89 To calculate average assets, you are given the beginning total of $176,064 but you must calculate the ending total by summing all asset accounts as of Sept 28, 2013 (a shortcut would be to add the Liabilities and Equity at September 28, 2013, since we know A = L + OE). The ending total is $207,000 making the average $191,532. There are several formulas that could help you arrive at the correct answer, but one solution is presented below: =B17/AVERAGE(B14,SUM(B2:B9))

Calculate the Asset Turnover for Chrissie's Cooking Supply based on its Balance Sheet and Income Statement. Use average balances in your calculation where applicable. (On 12/31/2014, Chrissie's Cooking Supply had total assets of $65,173.)

Asset Turnover is calculated by dividing the annual revenue by the average asset value for the year. In this case, we are using the average of beginning and end of year asset values. Revenue / Average Assets = 152,633 / 82,925 = 1.84 The suggested correct answer formula is: =B24/AVERAGE(B11,D5)

Sheetz, a paper manufacturer, has total revenue of $280,910 and total expenses of $243,873 at the end of 2015. Their total assets and liabilities at the end of 2015 are $317,000 and $193,451, respectively. Total assets and liabilities at the end of 2014 are $286,064 and $140,203, respectively. What is the asset turnover observed in 2015?

Asset Turnover is calculated by dividing the annual revenue by the average asset value for the year.To calculate average assets, take the ending amount of assets for 2014, $286,064, add the ending amount of assets for 2015, $317,000, and divide by two. Average assets = $301,532 Revenue / Average Assets = 280,910 / 301,532 = 0.93

Assets

Assets = Liabilities + Owner's Equity

We Like to Rock (WLR), a granite countertop manufacturer, delivered 5 countertops at $2,000 each to their client. The cost of producing the countertops was $500 each. The client paid cash for the countertops. First, how would the revenue from this transaction impact the accounting equation for WLR? Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease At the same time, how will the related expense from this transaction impact the accounting equation of WLR?

Assets: 10,000 increase Liabiltiies: ------- OE: 10,000 increase Assets: 2,500 decrease Liabiltiies: ------- OE: 2,500 decrease

Gilligan and Skipper's Tour Boat Co. (GSTBC) receives $150,000 in advance payments for an upcoming 3-hour tour. How will the accounting equation of GSTBC be impacted when these advance payments are received? Please enter the amounts in the boxes below. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 150,000 increase Liabiltiies: 150,000 increase OE: ---------

Glodar Corp., an oil rig parts manufacturer, received an advance payment of $150,000 on Aug 1 for an order of a replacement drill bit for an oil rig. Glodar Corp. delivered the drill bit on Nov 1. How will the accounting equation be impacted when this advance payment was recorded on Aug 1? Select all that apply. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 150,000 increase Liabiltiies: 150,000 increase OE: ----------

Gold Zone Inc., a jewelry designer and manufacturer, sold watches to Jill's Jewelry Shop for $1,500. Gold Zone spent $800 manufacturing the watches and Jill's Jewelry Shop has 30 days to pay for this order after they receive it. First, how will the recognition of the receivable and revenue for the transaction impact the accounting equation at the time of the sale? Please enter the amounts in the boxes below. Next, Gold Zone needs to show that the inventory was sold and recognize an expense for the cost of goods sold for $800. How will such a recognition impact the accounting equation? Lastly, Gold Zone received payment from Jill's Jewelry Shop 30 days after the initial purchase.How would the accounting equation be impacted when the payment is received? Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 1500 increase Liabiltiies: ----- OE: 1500 increase Assets: 800 decrease Liabiltiies: ----- OE: 800 decrease Assets: 1500 increase / 1500 decrease Liabiltiies: ----- OE: -----

Wanting to raise more capital for the business, Suslik Designs decided to allow 2 new equity investors into the business. Each new investor paid $10,000. How will their investment impact the accounting equation? Select all that apply Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 20,000 increase Liabiltiies: --------- OE: 20,000 increase The assets of the business are increased by the amount of cash received ($10,000 from each investor), and because the source of those resources is the new owners, owners' equity is also increased.

Perfect Printers is able to obtain 30 days credit terms to purchase a heavy duty printing machine for $200,000. How will this purchase impact the accounting equation of Perfect Printers at the time of the purchase? Select all that apply. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 20,000 increase Liabiltiies: 20,000 increase OE: --------

Leak Geeks, a plumbing supply company, sold $25,000 of plumbing supplies to one of their larger customers. The supplies had an inventory value of $12,000. How will the revenue and cash inflow from this transaction impact the accounting equation of Leak Geeks? Please enter the amounts in the boxes below. How will the related expense from this transaction impact the accounting equation of Leak Geeks? Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 25,000 increase Liabiltiies: increase/decrease OE: 25,000 increase/decrease Assets: 12,000 decrease Liabiltiies: increase/decrease OE: 12,000 decrease

Qingji Corp., an oil separator manufacturer, rented a warehouse on January 1st and paid $30,000 for the rent for the next two years. How would this transaction impact the accounting equation of Qingji Corp.? Please enter the amounts in the boxes below. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 30,000 increase / 30,000 decrease Liabiltiies: ------- OE: -------

Dongfeng, an automobile manufacturer, purchased raw materials for $600,000 on credit on January 1st. Dongfeng promised to pay for the raw materials in three equal monthly installments beginning from February 1st. How will this purchase impact the accounting equation on the books of Dongfeng? Please enter the amounts in the boxes below. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 600,000 increase Liabiltiies: 600,000 increase OE: -------

Jarvard University Bookstore paid $67,000 for books purchased on credit in the previous month. How would this payment impact the accounting equation? Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 67,000 decrease Liabiltiies: 67,000 decrease OE: ------

Breeze Inc. receives payment of $800,000 for 4 wind turbines that were delivered and invoiced on credit in the previous month. How would this receipt impact the accounting equation of Breeze Inc.? Select all that apply. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease

Assets: 800,000 increase / 800,00 decrease Liabiltiies: ---------- OE: -----------

Address You, a fancy dress manufacturer, sold a dress for $8,000 on credit. The cost of producing this dress was $1,000. First, how would the revenue and receivable from this transaction impact the accounting equation of Address You? Please enter the amounts in the boxes below. Assets: increase/decrease Liabiltiies: increase/decrease OE: increase/decrease At the same time, how will the related expense from this transaction impact the accounting equation of Address You?

Assets: 8000 increase Liabiltiies:----- OE: 8000 increase Assets: 1000 decrease Liabiltiies: ------ OE: 1000 decrease

Example of a Liability

Bank Loan Accounts Payable (money owed by a company to its creditors) Wages Payable sales tax payable unredeemed gift certificates Notes Payable Interest Payable Current Portion of Notes Payable Taxes Payable Accrued Taxes Accrued Wages Accrued Interest Deferred Tax Liability Deferred Revenue

Investing

Because they aren't looking to grow or expand rapidly, cash flow from investing activities will generally be slightly negative as the new equipment being purchased replaces the equipment that has worn out.

Bianca's Bicycles is a small shop that sells bicycles and offers repair services. Which of the following would be considered an asset on the balance sheet of Bianca's Bicycles? Select all that apply. Amounts owed to a supplier in 30 days for bike parts Bicycles in the store showroom Amounts owed by customers for repair services previously provided Amounts prepaid for next year's subscription to Bicycles Weekly, a cycling magazine Amounts owed to the bank for mortgage

Bicycles in the store showroom Amounts owed by customers for repair services previously provided This is an example of an account receivable, which belongs in the asset section of the balance sheet). Amounts prepaid for next year's subscription to Bicycles Weekly, a cycling magazine (This is an example of a prepaid expense, which belongs in the asset section of the balance sheet).

On July 1, 2015, two years after the original purchase, Diamond Decals sold a building and the related land to another party. The building and land were originally purchased for $1,500,000, and $100,000 of depreciation had been recognized against the building. Diamond Decals received $1,100,000 from the purchaser of the land and building. How would the sale of the land and building be recorded? The value of the land had remained constant at $300,000 and depreciation on the building had been recorded through June 30.

Building and Land reduction of $1,500,000 with credit Cash $1,100,000 with debit reduction of accumulated depreciation (debit of $100,000) loss on the disposal of the asset (debit of $300,000)

Formula for Inventory Turnover

COGS / Average Inventory

ABOVE Operating Income

COST OF GOODS SOLD GENERAL & ADMIN EXPENSE DEPRECIATION OTHER OPERATING EXPENSES SALES REVENUE

3.1 Example of Nominal Account

COST OF GOODS SOLD RENT EXPENSE SALES REVENUE SELLING, GENERAL & ADMIN EXPENSES - ADVERTISING EXPENSE, RESEARCH & DEVELOPMENT EXPENSE, INTEREST EXPENSE, etc

Temporary Accounts

COST OF GOODS SOLD SALES REVENUE RENT EXPENSE

Suppose the profit margin for Cardullo's Gourmet Shoppe, Inc for Q1 was 4.99% and Q2 was 10.57%. Which of the following statements can you conclude regarding Cardullo's?

Cardullo's does a better job in cost control in Q2 than in Q1. This is the correct answer! Profit margin is the percentage of selling price that turned into profit. Cardullo's could increase its profit by reducing costs, thus increase its profit margin.

Suppose the gross profit margin for Cardullo's Gourmet Shoppe, Inc for Q1 was 47.25% and Q2 was 47.70%. Which of the following is a reasonable explanation for the change in the ratio?

Cardullo's negotiated with vendors and successfully reduced overall inventory prices. This is the correct answer! If the cost of inventory decreased, Cardullo's could make more money off of each item it sold.

Example of Current Assets

Cash Accounts Receivable Other Receivables Prepaid Expenses Inventory

Which of the following accounts increase with a debit? Select all that apply.

Cash Depreciation Expense Prepaid Rent

On January 1, 2015 Sweetums, a candy manufacturer, sold 15 boxes of their signature chocolate bars to a local retailer for $1,500. Sweetums had paid $720 to produce the chocolate bars. Sweetum's granted credit terms and permitted the retailer to pay in 30 days. On the same day of the sale, Sweetums delivered the chocolate bars to the retail store. Consider both the revenue and cost of this transaction on the books of Sweetums. What would be the impact on January 1, 2015, the date of the sale? On January 30, 2015 Sweetums received payment in full from the local retailer.What would be the impact of this transaction on this date?

January 1st REVENUE: $1500 increase with credit COST OF GOODS SOLD: $1500 increase with credit ACCOUNTS RECEIVABLE: $1500 increase with debit INVENTORY: $720 decrease with credit COST OF GOODS SOLD: $720 increase with debit January 30th CASH: $1500 increase with debit ACCOUNTS RECEIVABLE: $1500 decrease with credit

An automotive parts company that sells to automotive manufacturers is forecasting revenue as part of its internal budgeting and planning process. Which of the following is LEAST likely to be important in its forecasting assumptions?

Level of long-term debt The level of long-term debt would not likely impact the revenue forecast.

Accrued Liability

Liability accounts that record expenses that have been recognized on the income statement but have not yet been paid. Similar to accrued expenses.

On which financial statements would you be most likely to find information about capital expenditures related to the purchase of equipment during the past year?

Look at the investing section in the statement of cash flows

The trial balance for a business at a given point in time typically has much more detailed information than what is depicted on the financial statements. What is the accounting concept that allows for the information from the trial balance to be condensed to what is displayed on the financial statements?

Materiality

Many companies keep a small amount of cash on hand to reimburse employees for small expenses that arise in the course of business. This account is called Petty Cash and is accounted for at the end of a period, with expenses grouped together by accounts such as Office Supplies, Meals, Travel, and Other Expenses, rather than record each individual expense that is reimbursed. The reasoning behind recording the transactions in this manner relates to which of the following accounting principles? Reliability Relevance Materiality Consistency

Materiality (The decision about the level of detail in grouping transactions into financial accounts is related to how significant, or material, the transactions are)

Which of the following would be considered a long term liability account?

Mortgage Payable

How does the following transaction impact cash flow? Paying cash for property insurance covering next 2 years

Negative (Decrease)

Which of the following is an example of owners' equity? Select all that apply. Shares of a competitor's stock owned by the business Cash received from owner contributions Net income for the first four months of the fiscal year

Net income for the first four months of the fiscal year (All revenues and expenses, and therefore Net Income, are part of the owners' equity of the business)

How do you calculate the profit margin ratio within the DuPont Framework?

Net income/Sales This is the correct answer! This ratio shows the % of each dollar of sales that ends up as net profit.

A CFO of a start-up company is evaluating the timing of a significant capital expenditure. He was previously at a mature company that used a discount rate of 8% so he used the same rate at the start-up company. Which of the following would be impacted if the discount rate were raised to reflect the risk of the start-up company?

Net present value NPV is the only one of the answer choices that is impacted by the discount rate.

How does the following transaction impact cash flow? Purchasing inventory on credit

No Impact

Which of the following are steps in the closing process? Select all that apply.

Nominal accounts are reset to zero. Net income is transferred to the retained earnings account on the balance sheet.

Which of the following options is true in regards to financial forecasts?

Odds are, forecasts will differ from actual results. Because of the assumptions that need to be made when creating forecasts and the subjectivity involved in making those assumptions, a financial forecast may be good base idea of the company's future operations, but they will most likely not be exactly correct.

Suppose that on January 1, 2014 Cardullo's paid $2,400 for 12 months of insurance coverage for the coming year. What would be the impact on this date? What would be the impact on January 31, 2014 when Cardullo's makes an adjustment to reflect that one month of the insurance coverage has been used up?

On January 1, 2014, Prepaid Insurance (an asset) increases with a debit of $2,400 and Cash (an asset) decreases with a credit of $2,400. On January 31, 2014, Insurance Expense (part of owners' equity) increases with a debit of $200 and Prepaid Insurance (an asset) decreases with a credit of $200.

Income Before Taxes

Operating Income adjusted for any non-operating activity.

Operating

Operating cash flows will generally be positive for these businesses. They will have a consistent and steady stream of cash from revenue and will generally be one of the major players in their market.

3.1 Example of Real Accounts

PROPERTY, PLANT, & EQUIPMENT COMMON STOCK INVENTORY INVESTMENTS RETAINED EARNINGS OTHER LIABILITIES - DEFERRED REVENUE ADDITIONAL PAID-IN CAPITAL ACCOUNTS RECEIVABLE NOTES RECEIVABLE OFFICE FURNITURE & EQUIPMENT INTANGIBLE ASSETS PREPAID EXPENSES GOODWILL ACCOUNTS PAYABLE NOTES PAYABLE

Salaries and Wages Expense

Payroll Tax and Fees Wages Expense Salaries Expense

Company A is a small candy store that sells a variety of candies, such as jelly beans, caramels, and taffies. In the store, most candies are stored in bulk containers, and customers can fill bags with candies and pay by the weight. Company A tracks its candy purchases and performs a monthly inventory count. Company A records an adjusting journal entry for Cost of Goods Sold at the end of the month after the inventory count reveals the ending inventory on hand. Which type of inventory system does Company A utilize?

Periodic (Under a periodic inventory system, a company only records Cost of Goods Sold periodically, in this case, once a month after the inventory count)

Fresh Faces is a small cosmetics company. It has invested in a linked inventory and accounting information system. When a cosmetic item is purchased and scanned at the cash register, the accounting information system automatically records the journal entry transferring the specific inventory item from inventory to cost of goods sold. Fresh Faces also performs a monthly inventory count and then records an adjusting journal entry to account for any shrinkage. Which type of inventory system does Fresh Faces utilize? (*scanner, automatic)

Perpetual , a company continuously tracks the sales of inventory and records Cost of Goods Sold for each sale. Even companies with a perpetual inventory system may perform inventory counts periodically.

Cash and cash equivalents

Petty cash Operating bank accounts Payroll bank account Savings bank account

How does the following transaction impact cash flow? Receiving cash for goods or services yet to be provided

Positive (Increase)

balance sheet

Prepaid Expense Salaries Payable Deferred Revenue

Which ratio measures the ability of a company to make a profit relative to revenue generated during a period?

Profit Margin Profit Margin (Net Income/Sales) measures the ability of a company to make a profit relative to revenue generated during a period.

Which of the following ratios measures the ability of a company to make a profit relative to the revenue generated during the period?

Profit Margin This is the correct answer! Profit margin shows the % of each dollar of sales that ends up as net profit.

You have just reviewed the financial statements of Penelope's Candy Store (PCS). You have determined that PCS has a Profit Margin of 19%. How do you explain this to owner Penelope Hassey?

Profit Margin (Net Income/Sales) measures the ability of a company to make a profit relative to revenue generated during a period. A Profit Margin of 19% tells us that for every $100 in sales, $19 ended up in Net Income.

Formula for Return on Equity

Profitability x Efficiency (Asset Turnover, Sales/Assets) x Leverage

Suppose on January 1, 2014 Cardullo's purchases a new cash register for the shop and pays $800. How would you record this transaction on a T-account?

Property, Plant, & Equipment (P,P&E) is an asset and increases with a debit of $800. Cash is also an asset and decreases with a credit of $800.

EXAMPLE OF IMPLICIT

RECOGNIZING DEPRECIATION ON AN OFFICE BUILDING RECOGNIZING EXPENSE RELATED TO 6 MONTHS OF PREPAID RENT USAGE RECOGNIZING REVENUE RELATED TO PREPAID SUBSCRIPTION RECOGNIZING THE EXPENSE RELATED TO ONE MONTH OF PREPAID INSURANCE USAGE RECORDING DEPRECIATION ON A VEHICLE Recognizing impairment on an intangible asset

REVENUR BOOK!! - debit Accounts Receivable for $16,000 as the company now has the right to receive cash -credit Revenue for $16,000 to recognize the revenue associated with the sale.

The Peach Pit, a restaurant, has Net Income of $25,000, Sales of $55,000, Assets of $115,000, and no debt. What is their ROE?

ROE = (Net Income / Sales) X (Sales / Assets) X (Assets / Equity) If a company has no debt, then their equity multiplier is 1. (25,000/55,000) * (55,000/115,000) * 1 = 21.7%

Which of the following demonstrates the historical cost principle? John is wondering which method of accounting for inventory in his bike shop would be most appropriate. He decides that he should use the same method that he has been using for the last few years, since his business has been operating essentially the same way. Real Estate prices in Orderville have increased dramatically over the last five years. Although the land under Chad's office building is currently believed to be worth $500,000, it is recorded at $250,000 because that is the price he paid for it. Shelley's Automotive received a large order from a customer, who prepaid the entire amount. Shelley recorded the prepayment as revenue at the time she received the cash. Shelley delivered the parts 30 days after the payment was received.

Real Estate prices in Orderville have increased dramatically over the last five years. Although the land under Chad's office building is currently believed to be worth $500,000, it is recorded at $250,000 because that is the price he paid for it. (The idea that assets are recorded at their original cost underlies the historical cost principle, so the land under Chad's office being recorded at the price he paid for it is an example of the historical cost principle).

Which of the following items is an implicit transaction?

Recognizing impairment on an intangible asset

Which of the following items is an explicit transaction?

Recognizing the revenue for inventory sold

Companies may include a footnote in their financial statements regarding key market and industry risks that affect their business because users of the financial statements would likely consider such information to be: Reliable Consistent Relevant Measurable

Relevant

Reliability

Reliability means that the information faithfully represents the underlying economics. The three dimensions of reliability are validity, verifiability, and unbiasedness.

Which of the following items would NOT be shown on a statement of cash flows created using the indirect method?

Retained Earnings

Examples of Owner's Equity

Retained earnings Net income contributed capital Common Stock Capital Stock Additional Paid-In Capital Preferred Stock Treasury Stock

Revenue - Cost Of Goods Sold = Gross Profit

Revenue - COGS = Gross Profit

Revenue - Cost Of Goods sold = Gross Profit

Revenue - COGS = Gross Profit

For the year 2015, suppose Rocky Inc., a pet supply store, had revenues of $896,000. Their income statement shows that Gross Profit was $200,000 and Other Expenses were $122,000. What was Rocky's Cost of Goods Sold (COGS)?

Revenue - COGS = Gross Profit Since we know Revenues were $896,000 and Gross Profit was $200,000, COGS must be $696,000. 'Other expenses' is not needed in this calculation.

Gross Profit

Revenue - Cost of Good Sold

Cost of Good Sold

Revenue - Gross Profit

Operating Expenses

SALARIES AND WAGES SELLING, GENERAL & ADMIN EXPENSES MARKETING EXPENSE RESEARCH & DEVELOPMENT OTHER OPERATING EXPENSE DEPRECIATION UTILITIES EXPENSE RENT EXPENSE INSURANCE EXPENSE

Example of Revenue

Sales Sales Revenue Interest Revenue Rent Revenue Miscellaneous Revenue

At the end of the third quarter, a department store is showing lower cash flows and lower sales on its financial statements compared to the average of the previous four quarters. It also shows an increase in inventory compared to the second quarter. Which of the following options is MOST likely to be the cause?

Seasonality Seasonality is causing the department store to build up its inventory for the holiday season and would anticipate a lower inventory and increased sales and cash flows for the 4th quarter financial statement.

Examples of Period Cost

Selling, General & Administrative Expense Head Office Depreciation Office Rental Sales Staff Salary Head Office Utilities Advertising Expense Admin Office Supplies R&D Cost Sales Commissions

Materiality

Something is considered to be material if it is reasonably likely to impact the decision-making of those who are using the accounting data or financial reports. Businesses are only required to do detailed record-keeping and reporting for items that are material.

Which of the following is INCORRECT in determining free cash flows?

Subtract depreciation This is the correct answer! It is NOT true. You ADD BACK depreciation in determining free cash flows.

EXAMPLE OF EXPLICIT

TAKING OUT A BANK LOAN SELLING GOODS TO CUSTOMERS ON CREDIT PAYING FOR ONE YEAR OF RENT IN ADVANCE PAYING FOR ONE YEAR OF INSURANCE IN ADVANCE PAYING WAGES TO EMPLOYEES Recognizing the revenue for inventory sold

Which of the following is the amount of tax that relates to the Income Before Taxes for the year?

Tax Expense Tax Expense is the amount deducted from Income Before Taxes to get to Net Income for the period.

A Deferred Tax Asset arises when:

Taxable Income exceeds Income Before Taxes due to a temporary timing difference. When a Deferred Tax Asset arises it means a company is recognizing Tax Expense now on an amount of income that will be reflected in the financial records later.

Which of the following is the amount of the tax liability that pertains to the current period and is payable in the next 12 months?

Taxes Payable Taxes Payable is the tax liability due in the current period.

Suppose Waterman Cable Company lent $125,000 to Comcast. On December 31, 2015, Comcast paid back the $125,000 and also paid $3,000 interest to Waterman Cable Company. Under U.S.GAAP, what would be the impact of the repayment on Waterman Cable Company's statement of cash flows using the direct method?

The $125,000 would be shown as an increase in the funds in the Investing Section but the $3,000 would be shown as an increase in the Operating Section.

Suppose Company X purchased 10,000 common shares at a price of $15 per share on March 1, 2013. On Nov. 30, the company received cash dividend of $10,000 from stock they purchased. Under US GAAP, what would be the impact of this investment and dividend on the statement of cash flows of 2013 using the direct method?

The $150,000 would be shown as a decrease in the funds in the Investing Section but the $10,000 would be shown as an increase in the Operating Section. The correct answer is: the $150,000 would be shown as a decrease in the funds in the Investing Section but the $10,000 would be shown as an increase in the Operating Section The $150,000 paid to purchase common shares should be a decrease in the Investing Section and, under US GAAP, the $10,000 cash dividend received should be included in the Operating Section.

Suppose Company X sold a piece of equipment during the year. The equipment had been purchased five years ago for $10,000. At the time of the sale, $5,000 of Depreciation had been recognized against the equipment. Company X received $6,000 from the sale of the equipment. What would be the impact of the sale on the statement of cash flows prepared using the Indirect Method?

The $6,000 would be shown as an increase in the funds in the Investing Section and the $1,000 gain would be shown as a decrease in the Operating Section. The correct answer is: the $6,000 would be shown as an increase in the funds in the Investing Section and the $1,000 gain would be shown as a decrease in the Operating Section The $6,000 received for the equipment should be an increase in the Investing Section and, because the $1,000 gain is a non-cash item which would have been included in net income, it has to be deducted from the Operating Section.

Calculate the Gross Profit Margin for Chrissie's Cooking Supply based on its Income Statement.

The Gross Profit Margin is calculated by dividing Gross Profit by Revenue. Gross Profit / Revenue = Gross Profit Margin 81,477 / 152,633 = 53.38% The suggested correct answer formula is: =B7/B5

Calculate the Profit Margin for Chrissie's Cooking Supply based on its Income Statement.

The Profit Margin is calculated by dividing the Net Income by the Revenue. Net Income / Revenue = 11,216 / 152,633 = 7.35% The suggested correct answer formula is: =B19/B5

Consider the following financial data (in millions) for Apple Inc. What is the profit margin reported in 2013?

The Profitability or Profit Margin is calculated by dividing the Net Income by the Revenue. In this case, the calculation is as follows: Net Income / Revenue = 37,037 / 170,910 = 21.67% The trick is to recognize that the Revenue is equal to the Cost of Sales plus the Gross Profit (170,910 = 106,606 + 64,304). As we have learned, Revenue minus Cost of Sales equals Gross Profit so it follows that Cost of Sales plus Gross Profit equals Revenue. The suggested correct answer formula is: =C12/(C6+C7)

Consider the following financial data (in thousands) for Green Mountain Coffee Roasters. What is the profit margin reported in 2013?

The Profitability or Profit Margin is calculated by dividing the Net Income by the Revenue. In this case, the calculation is as follows: Net Income / Revenue = 483,232 / 4,358,100 = 11.09% The suggested correct answer formula is: =C9/C4

Consider the following financial data (in millions) for Orange Inc. What is the profit margin reported in 2015?

The Profitability or Profit Margin is calculated by dividing the Net Income by the Revenue. In this case, the calculation is as follows: Net Income / Revenue = 34,608 / 258,910 = 13.37% The trick is to recognize that the Revenue is equal to the Cost of Sales plus the Gross Profit (258,910 = 150,606 + 108,304). As we have learned, Revenue minus Cost of Sales equals Gross Profit so it follows that Cost of Sales plus Gross Profit equals Revenue. The suggested correct answer formula is: =C10/(C5+C6)

Consider the following financial data (in thousands) for Cool Grounds Coffee Inc. What is the profit margin reported in 2015?

The Profitability or Profit Margin is calculated by dividing the Net Income by the Revenue. In this case, the calculation is as follows: Net Income / Revenue = 464,456 / 4,380,100 = 10.60% The suggested correct answer formula is: =C9/C4

Which of the following is true regarding the trial balance? Select all that apply.

The accounting principle of materiality says that the information on the trial balance can be combined and simplified into more general reporting items. The trial balance includes all of the accounts needed to create the balance sheet and the income statement.

Blueridge Vet Clinic buys a diagnostic piece of equipment for $115,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $12,000. The company expects the machine to be able to generate after-tax cash flows of $44,000 in each of the 10 years, and then it will sell the machine for $12,000 at the end of 10 years. What are the cash flows related to this purchase for each of the next 10 years? Ignore taxes.

The annual cash flows will commence at the beginning of year 1 when the piece of equipment is purchased. This will be a negative cash flow of $-115,000. In the next 9 years, the company will benefit from the $44,000 of after-tax cash flow generated each year. In year 10 the company will also benefit from the salvage value of $12,000 bringing that year's cash flow to $56,000. tCash Flow0-115,000144,000244,000344,000444,000544,000644,000744,000844,000944,0001056,000

Applied Medical Services buys a diagnostic piece of equipment for $326,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $75,000. The company expects the machine to be able to generate after-tax cash flows of $64,000 in each of the 10 years, and then it will sell the machine for $75,000 at the end of 10 years. What are the cash flows related to this purchase for each of the next 10 years? Ignore taxes.

The annual cash flows will commence at the beginning of year 1 when the piece of equipment is purchased. This will be a negative cash flow of $326,000. In the next 9 years, the company will benefit from the $64,000 of after-tax cash flow generated each year. In year 10 the company will also benefit from the salvage value of $75,000 bringing that year's cash flow to $139,000.

Which of the options below would cause the following journal entry to be made? Cash: debit $200,000 PP&E: credit $500,000 Accumulated Depreciation: debit $350,000 Gain/Loss on Disposal of assets: credit $50,000

The business disposed of a used production machine and realized a gain of $50,000. The journal entry shows that a machine was sold for cash and realized a gain of $50,000.

Which of the options below would cause the following journal entry to be made? Income Tax Expense: DEBIT $500,000 taxes Payable: CREDIT $450,000 Deferred Income Tax Liability: CREDIT $50,000

The business incurs $500,000 for income tax expense for the year 2014. The Tax Expense for the year would be increased by $500,000 by this entry. Since $50,000 would not be payable until a future year, it is set up as a Deferred Tax Liability.

Which of the options below would cause the following journal entry to be made? income tax expense: DEBIT $500,000 cash: CREDIT $550,000 deferred income tax asset: DEBIT $50,000

The business recognizes $500,000 of Tax Expense but pays $550,000. The Tax Expense for the year would be increased by $500,000 by this entry. However, due to timing differences, the business had to pay $550,000 and the difference is set up as a Deferred Tax Asset.

Which of the options below would cause the following journal Entry to be made? Income Tax Expense: debit $500,000 Cash: credit $475,000 Deferred income tax asset: credit $25,000

The business recognizes $500,000 of Tax Expense but pays less as a temporary timing difference reverses. $500,000 is being recognized here, but only $475,000 is being paid in cash, while $25,000 is a Deferred Tax Asset being eliminated as a temporary timing difference reverses.

Which of the options below would cause the following journal entry to be made? Income Tax Expense: DEBIT $500,000 taxes Payable: CREDIT $525,000 Deferred Income Tax Liability: DEBIT $25,000

The business recognizes $500,000 of Tax Expense but will pay more as a temporary timing difference reverses. Since the Deferred Tax Liability is being debited, it means that it is being reduced and an amount set up in a prior period when a temporary timing difference made Taxable Income less than Income Before Taxes is now reversing as the timing difference now makes Taxable Income higher than Income Before Taxes.

Which of the options below would cause the following journal entry to be made? Income Tax Expense: DEBIT $500,000 Taxes Payable: CREDIT $525,000 Deferred Income Tax Liability: DEBIT $25,000

The business recognizes $500,000 of Tax Expense but will pay more as a temporary timing difference reverses. The Tax Expense for the year would be increased by $500,000 by this entry. However, due to reversal of previously recorded temporary timing differences the business had to pay $525,000 and the difference is a reduction of a Deferred Tax Liability.

Which of the following cash flows should be used in an NPV calculation to determine which project to pursue? (Select all that apply.)

The cash inflows expected as a result of the project This is correct! It is an incremental cash flow that would only be received if the project were undertaken. Investment needed to be made by the company to undertake the project This is correct! It is an incremental cash flow that would only be incurred if the project is undertaken.

Net Working Capital

The cash that is tied up in a business' operations. Usually calculated as current assets less current liabilities. The change in net working capital is part of the free cash flow equation.

Which of the following demonstrates the Money Measurement principle? Select all that apply. The catch-phrase for Carl's Consulting Company (CCC) is "Our employees are our biggest asset." However, if you look at the Balance Sheet of CCC, there is no such asset. Upon successful completion of extensive flight tests for a new aircraft model, Boeing Aircraft sends an invoice to the customer per the terms of the contract and recognizes a portion of the revenue related to the order. The HR Director at AQG Industries proposes a change to the employee benefits plan. The CEO rejects the proposal because it would change the relative cost of the benefits plans in AQG. After winning a prestigious supplier of the year award, Mack Manufacturing saw an increase in their stock price. This increase does not appear on the company's financial statements.

The catch-phrase for Carl's Consulting Company (CCC) is "Our employees are our biggest asset." However, if you look at the Balance Sheet of CCC, there is no such asset. After winning a prestigious supplier of the year award, Mack Manufacturing saw an increase in their stock price. This increase does not appear on the company's financial statements.

Profitable/Growing Stage

The company has positive cash flows from operations, negative cash flows from investing, and positive cash flows from financing.

It is mid-January and Company A is closing their year ending December 31, 2013 and they need to make their tax entry. The Income Before Taxes for the year is $110,000. Company A has also prepared a preliminary tax return for the year but the Taxable Income was only $100,000 due to the fact that the tax deduction for depreciation was greater than the depreciation expense. The tax rate is 30%. There have been no entries related to income taxes made for the year up to this point. Taxes are not required to be paid until April 15, 2014. What is the entry required as of December 31, 2013 to record taxes? *key point: not required to be paid*

The company needs to record income taxes related to 2013. Because there is a temporary timing difference related to depreciation expense, the company will need to record deferred taxes related to the difference, in addition to recording income tax expense and taxes payable. The correct answer is to debit Income Tax Expense for $33,000 ($110,000 * 30%), credit Taxes Payable for $30,000 ($100,000 * 30%), and credit Deferred Income Tax Liability for $3,000 (the difference between Income Tax Expense and Taxes Payable).

It is mid-January and Company B is closing their year ending December 31, 2013 and they need to make their tax entry. The Income Before Taxes for the year is $100,000. Company B has also prepared a preliminary tax return for the year but the Taxable Income was $110,000 due to a temporary timing difference that caused the revenue on the tax return to be greater than the revenue on the financial reports. The tax rate is 20%. There have been no entries related to income taxes made for the year up to this point. Taxes are not required to be paid until April 15, 2014. What is the entry required as of December 31, 2013 to record taxes? *key point: not required to be paid*

The company needs to record the income taxes related to 2013. Because there is a temporary timing difference, the company will need to record deferred taxes related to the difference, in addition to recording the tax expense and taxes payable. The correct answer is to debit Income Tax Expense for $20,000 ($100,000 * 20%), credit Taxes Payable for $22,000 ($110,000 * 20%), and debit Deferred Income Tax Asset for $2,000 (the difference between Income Tax Expense and Taxes Payable).

A company is considering buying a diagnostic piece of equipment for $250,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $40,000. The company expects the machine to be able to generate after-tax revenues of $33,000 in each of the 10 years, and then it will sell the machine for $40,000 at the end of 10 years. The sum of the undiscounted cash flows is $370,000. The discount rate is 7%. The net present value is calculated to be $2,112. Which of the following statements is true?

The company should buy the equipment because the NPV is positive. As long as the NPV is positive, even if it is a very small positive number, it means the company will earn a return greater than its discount rate, so it is a good investment.

A company under IFRS standards decides to include interest paid in the Financing Section of their Statement of Cash Flows. How will this company's Statement of Cash Flows differ from how it would appear if the company were abiding by US GAAP standards?

The company under IFRS will have lower cash flow in the financing section and higher cash flow in the operating section than the company under US GAAP.

Suppose Red Barn Outfitters presents the following information in its 2015 financial statements: Net Sales $6B Cost of Sales $4B Income Tax Expense $0.4B General & Admin Expenses $0.6B Selling & Marketing Expenses $0.5B Interest Expense $0.3B What would the Net Income be in this fiscal year?

The correct answer is $0.2B (Net sales - Cost of Sales - General and Admin - Income Tax Expense - Selling and Marketing and Interest Expense) To get Net Income, we need to subtract from Net Sales the Cost of Sales, all Operating and Admin Expenses as well as Interest and Tax Expense. The calculation would be: $6B - 4B - 0.4B - 0.6B - 0.5B - 0.3B = $0.2B

Suppose Green Mountain Coffee Roasters presents the following information in its 2012 financial statements: Net Sales $4.5B Cost of Sales $3B Income Tax Expense $0.2B General & Admin Expenses $0.4B Selling & Marketing Expenses $0.3B Interest Expense $0.2B What would the Net Income be in this fiscal year?

The correct answer is $0.4B (Net Sales - Cost of Sales, all operating and Admin expense and interest and tax expense - Income Tax Expense - Selling and Marketing - Interest Expense) To get Net Income, we need to subtract from Net Sales the Cost of Sales, all Operating and Admin Expenses as well as Interest and Tax Expense. The calculation would be: $4.5B - 3B - 0.4B - 0.3B - 0.2B - 0.2B = $0.4B

Suppose Pied Piper had Net Income of $1,600,000 for the year 2011. They also had the following income and expenses: COGS $7,000,000 SG&A Expense $2,100,000 Other Non-Operating Income $100,000 Interest Income $20,000 Depreciation Expense $350,000 Income Tax Expense $150,000 What would the Operating Income be for the year 2011?

The correct answer is $1,630,000 (Net Income + Tax Expense - Interest Income - Other Non-Operating Income) To get from Net Income to Operating Income, we need to add back the Tax Expense ($150,000) and eliminate the impact of any non-operating income or expenses ($20,000 Interest Income and $100,000 Other Income). $1,600,000 +150,000 - 20,000 - 100,000 = $1,630,000

Suppose Cardullo's had 30 boxes of Cranberry Bog Frogs in inventory at the beginning of July 2013. Cardullo's paid $5.00 for each box. During the month, Cardullo's purchased 20 more boxes, also for $5.00 a piece. At the end of the month, a physical count revealed that 25 boxes remained in inventory. No boxes were lost or stolen during the period. What would Cost of Goods Sold related to the Cranberry Bog Frogs be for the month of July?

The correct answer is $125. Since there were 30 boxes in inventory at the beginning of the month and 20 more boxes were purchased, there were 50 boxes available for sale. Since there were 25 boxes remaining in inventory at the end of the month, it means that 25 boxes were sold during the month. At a cost of $5 per box, that means the Cost of Goods Sold was $125.

For 2012, suppose Cardullo's had Gross Profit of $500,000 and the following expenses: Salaries and Wages Expense $200,000 Building and Utilities Expense $80,000 Other Operating Expenses $30,000 Interest Expense $15,000 Income Tax Expense $25,000 Cost of Goods Sold (COGS) $500,000 What would be Cardullo's Operating Income for 2012?

The correct answer is $190,000 (Gross Profit (500,000) - Salaries and Wages - Building and Utilities - Other Operating Expense) Operating Income is the income before taxes and interest. In this example it is the Gross Profit minus the Salaries and Wages and the Building and Utilities Expenses and the Other Operating Expenses.

Suppose Hipzone's Operating Income for 2014 was $2,042,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $2,397,000 Interest Income $3,000 Income Taxes $155,000 Depreciation Expense $374,000 What was Hipzone's Income Before Taxes for 2014?

The correct answer is $2,045,000 (Income + Interest income) Income Before Taxes is equal to Operating Income adjusted for any non-operating activity. In this example, S,G,& A and Depreciation Expenses are operating expenses that have already been deducted to arrive at Operating Income. Income Taxes will be deducted after Income Before Taxes. To get to Income Before Taxes, simply add Interest Income to Operating Income: $2,042,000 + $3,000 = $2,045,000

Suppose Hipzone's Operating Income for 2013 was $2,120,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $1,910,000 Interest Expense $14,000 Income Taxes $198,000 Depreciation Expense $420,000 Other Non-operating Expenses $35,000 What was Hipzone's Income Before Taxes for 2013?

The correct answer is $2,071,000 (Income - Interest Expense - Non-operating Expense) Operating Income adjusted for any non-operating activities results in Income Before Taxes. In this example, take Operating Income less Interest Expense less Other Non-Operating Expenses ($2,120,000 - 14,000 - 35,000 = $2,071,000). Selling, General, & Admin and Depreciation Expenses were already deducted to arrive at Operating Income, and Income Taxes will be deducted after Income Before Taxes.

Luster Consulting Company purchased a new heating and cooling system for their office building in March, 2014. After installing and testing the equipment, it was put into service on April 1, 2014. The total cost to put the equipment into service was $45,000; it is expected to have a useful life of 10 years and a salvage value of $5,000. On December 31, 2014, assuming Luster Consulting Company uses straight-line depreciation, what will be the amount of depreciation expense on the books?

The correct answer is $3,000. The depreciable value of the equipment is $40,000 ($45,000 cost - $5,000 salvage value) and the number of years to be depreciated is 10 years. So the depreciation for 12 months is $4,000 ($40,000 / 10 years). Since the equipment was put into service on April 1, 2014, the amount of depreciation expense at December 31, 2014 will only be for 9 months.

A project has the estimated cash flows shown below. The discount rate is 8%. Calculate the NPV of this project.

The correct answer is $41,511. The correct answer formula is: =NPV(E4,B3:B9)+B2 (E4 is the rate, B3to9 is the cash flow numbers only positive) and B2 is the negative cash flow

Clean Air Systems buys a diagnostic piece of equipment for $270,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $50,000. The company expects the machine to be able to generate after-tax cash flows of $43,000 in each of the 10 years, and then it will sell the machine for $50,000 at the end of 10 years. The discount rate is 7%. What is the Net Present Value?

The correct answer is $57,431. The correct answer formula, which should be entered into cell E5, is the following: =NPV(E4,B3:B12)+B2 - E4 is the rate, B3ro12 is positive cash flows) B2is negative cahs flow Remember, for NPV you have to manually add the negative outflow from time zero related to the initial investment.

A project has an initial cost of $44,000. Expected cash flows as a result of this project are projected as indicated below. Calculate the payback period for this project. Assume a discount rate of 9%.

The correct answer is 3.5 years. At the end of year 3 the project has returned $35,000 ($10,000 + $10,000 + $15,000). This leaves $9,000 to be returned to hit payback. Assuming that the $18,000 projected for year 4 comes in a steady stream, this would mean it would take half of that year.

The founders of a business are interested in investing in a project in the coming year. The two projects are mutually exclusive. The estimated cash flows of the two projects are shown below. The company's Weighted Average Cost of Capital (WACC) is 9%. The table below shows the data from the previous spreadsheet exercise and the correct IRR calculation

The correct answer is Project 2. Project 2 has the higher IRR and the IRR for Project 1 is below the WACC of 9%.

In 2013, Company A's Income Before Taxes for the year is $110,000 but the Taxable Income according to the tax return was only $100,000 due to the fact that the tax deduction for depreciation was greater than the depreciation expense. The tax rate is 30%. An adjusting entry to record taxes was recorded at December 31, 2013.It is mid-April and Company A pays their taxes for the prior year. What is the entry required to record the payment? *prior year*

The correct answer is that to record the payment, the company would record a debit to Taxes Payable for $30,000 and a credit to Cash for $30,000. Note that there is no entry to Income Tax Expense at this date because the expense was previously recognized on December 31, 2013.

In 2013, Company B's Income Before Taxes for the year is $100,000 but the Taxable Income according to the tax return was $110,000 due to a temporary timing difference. The tax rate is 20%. An adjusting entry to record taxes was recorded at December 31, 2013.It is mid-April and Company B pays their taxes for the prior year. What is the entry required to record the payment? *prior year*

The correct answer is that to record the payment, the company would record a debit to Taxes Payable for $22,000 and a credit to Cash for $22,000. Note that there is no entry to Income Tax Expense at this date because the expense was previously recognized on December 31, 2013.

Company C set up a Reserve for Bad Debts in 2013. Although there were no account balances written off, it was considered prudent to acknowledge that some of the Accounts Receivable would not be collectable. The IRS does not allow a deduction until the accounts are written off. As a result, the Taxable Income was greater than the Income Before Taxes. This is a timing difference and will reverse in future years so it means that Taxable Income will be less than Income Before Taxes in some future years when the accounts written off will be greater than the increase in the Reserve for Bad Debts. What will be the entry required in 2013 to record this difference? *the Taxable Income was greater than the Income Before Taxes in 2013*

The correct answer is to debit the Deferred Tax Asset account. (Taxable Income will be greater than Income Before Taxes) The fact that the Provision for Bad Debts could not be deducted for tax purposes means that Taxable Income will be greater than Income Before Taxes

Cybertrex, a manufacturing facility, rented a new piece of equipment on January 1st and agreed to pay an annual rental fee of $18,000 at the end of each of the next 10 years. The weighted average cost of capital of the company is 8%. The present value of $1 for 10 years at 8% is 0.46319 The present value of an ordinary annuity of $1 for 10 years at 8% is 6.71008 What is the Present Value of the rental payments over 10 years?

The correct answer is: $120,781 It is calculated by multiplying the annual payment by the present value of an annuity factor. $18,000 * 6.71008 = $120,781

Metafacturing Inc. rented a new piece of equipment on January 1st and agreed to pay an annual rental fee of $24,000 at the end of each of the next 10 years. The weighted average cost of capital of the company is 8%. The present value of $1 for 10 years at 8% is 0.46319 The present value of an ordinary annuity of $1 for 10 years at 8% is 6.71008 What is the Present Value of the rental payments over 10 years?

The correct answer is: $161,042 It is calculated by multiplying the annual payment by the present value of an annuity factor. $24,000 * 6.71008 = $161,042

Based on this income statement for Company X for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for gain or loss in calculating cash flow from Operating Activities using the indirect method? (find gain and loss section - gain is normal)

The correct answer is: Decrease by $1,000 The total cash flows received from sale of fixed assets is an Investing Activity and not an Operating Activity. The gain itself is a non-cash item. To eliminate this gain, the $1,000 amount should be subtracted from Net Income in the Operating Section of the Statement of Cash Flows. Since the gain would have increased Net Income, this subtraction ensures that the net effect on cash flow from operations is zero.

What adjustments would need to be made in the Operating Section of the statement of cash flows prepared under the indirect method to account for the changes in the Accounts Receivable and Inventory account balances for Green Mountain Coffee Roasters? ******ACCOUNTS RECIEVabEL* pc3

The correct answer is: Decrease of $104,205 for Accounts Receivable and increase of $92,348 for Inventory Since Accounts Receivable increased during the year, it means that the cash collected was less than the revenue recognized, so the adjustment is to record a decrease related to Accounts Receivable. Since Inventory decreased it means that the COGS expense recognized was more than cash spent for purchasing inventory, so the adjustment is to record an increase related to Inventory.

What adjustments would need to be made in the Operating Section of the statement of cash flows prepared under the indirect method to account for the changes in Inventory and Other Current Assets account balances for Apple Inc.? ******ACCOUNTS RECIEVabEL* pc 3

The correct answer is: Decrease of $973 for Inventory and decrease of $1,071 for Other Current Assets Since Inventory increased, it means the cash paid for purchasing inventory was more than the COGS expense recognized, so the adjustment is to record a decrease related to Inventory. Since Other Current Assets increased, it means the cash paid to acquire these assets was more than the expenses incurred in the period, so the adjustment is to record a decrease related to Other Current Assets.

The correct answer is: Increase of $87 for Accounts Receivable and increase of $172 for Inventory Since Accounts Receivable decreased, it means that the cash collected was more than the revenue recognized, so the adjustment is to record an increase related to Accounts Receivable. Since Inventory decreased it means that COGS expense was more than cash spent for purchasing inventory, so the adjustment is to record an increase related to Inventor

How does the following transaction impact cash flow? Recognizing depreciation expense on a piece of equipment purchased six years ago.

The correct answer is: No Impact No cash is actually paid when a company recognizes depreciation expense. This is an implicit transaction related to the passage of time, and therefore, there is no impact on cash flows.

How does the following transaction impact cash flow? Recording an account receivable for the sale of goods to a customer.

The correct answer is: No Impact When a company records an account receivable for goods sold to a customer, it is because they are allowing the customer to pay for the goods at a later date. Since no cash was received at the time of transaction, there is no impact on cash flows.

Which of the following is an example of an expense? Select all that apply. The cost of a home store's inventory of glassware that is thrown away because they were broken. Cash received by a computer repair company for repairs made. Fuel used for a company's delivery trucks last month.

The cost of a home store's inventory of glassware that is thrown away because they were broken. Fuel used for a company's delivery trucks last month.

Which of the following items represents the net income/(loss) for the year?

The difference between the revenues/gains and expenses/losses.

Historical Cost

The historical cost principle refers to the fact that transactions are recorded at the cost that existed at the time the transaction occurred. In the case of assets, it means that their value in the financial records is shown at historical cost, rather than current market value. When combined with the principle of Conservatism, it means that an asset's value may be reduced if it is deemed to have permanently lost value but it cannot be increased if it is deemed to have gained value.

Gross profit and profit margins followed similar patterns in years 2011, 2012 and 2013 for Apple Inc. 2011 2012 2013 Gross Profit Margin 40.5% / 43.9% / 37.6% Profit Margin 23.9% / 26.7% / 21.7% What could explain the increase of ratios in 2012?

The introduction of new products or versions of a product with temporarily higher margins This is the correct answer! Changes in product mix can have a significant impact on profitability from year to year for a consumer technology company like Apple.

Suppose a manufacturing plant purchased a new heating system in December, 2015 and, after installing and testing the equipment, it was put into service on January 1, 2016. The total cost to put the equipment into service was $55,000; it is expected to have a useful life of 5 years and a salvage value of $5,000. Using the straight-line method of depreciation, what will the entry be to record depreciation for the 6 months ending June 30, 2016? (*salvage value, straight-line depreciation*)

The journal entry to record this is a debit to Depreciation Expense (expense account) for $5,000 and a credit to Accumulated Depreciation (contra-asset account) for $5,000. The depreciable value of the equipment is $50,000 ($55,000 cost - $5,000 salvage value), which means that the manufacturing company will recognize $10,000 of depreciation every year over the 5 year useful life. Thus, the depreciation for the 6 months ending June 30, 2016 is $5,000.

LIFO

The last in, first out, or LIFO (pronounced LIE-foe), accounting method assumes that sellable assets, such as inventory, raw materials, or components, acquired most recently were sold first. The last to be bought is assumed to be the first to be sold using this accounting method.

Amortization

The method for recognizing the expense of long-lived intangible assets such as patents, copyrights, and brands, over the life of the assets. Amortization is usually calculated similar to straight-line depreciation. Some companies use an accumulated amortization account, while other companies may directly reduce the value of the associated asset.

M2: Money Measurement Principle

The money measurement principle refers to the fact that only values that can be measured in monetary terms should be recorded in the financial accounting records.

Which of the following is measured by the DuPont Framework?

The return that a business generates during a period on equity invested in the business by the owners of the business. This is the definition of ROE (Return on Equity), which is measured by the DuPont Framework.

Company A's accounting period goes from January 1 through December 31. Which of the following describes the difference between the trial balance on December 31, 2013 and the trial balance on January 1, 2014? The trial balance on January 1, 2014 does not balance because all nominal accounts were reset in the closing process. The trial balance on January 1, 2014 does not balance because the company has not yet earned any income for the period. The trial balance on January 1, 2014 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process. The trial balance on January 1, 2014 shows no balance in all accounts because the accounting books were reset in the closing process.

The trial balance on January 1, 2014 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process. (During the closing process, the balance of all nominal accounts are closed to retained earnings and reset to zero)

As part of the 2013 year end close, your company evaluates any potential liabilities related to 2013 activities that will be paid in 2014. The company ran an advertising campaign in December for which you agreed to pay $100,000, but you have not yet received the invoice. What would the journal entry look like to record this obligation?

These obligations are recorded as liabilities in 2013 because they relate to 2013 activities. You should debit Advertising Expenses for $100,000 and credit Accrued Expenses (a liability account) for $100,000.

This transaction results in a reduction of the Land and Building account of the initial, gross value of the land and building (credit of $1,500,000) offset by receipt of cash (debit of $1,100,000), reduction of accumulated depreciation (debit of $100,000), and recognition of the loss on the disposal of the asset (debit of $300,000). Remember that accumulated depreciation is a contra-asset account associated with the related asset account. Whenever a company disposes of an asset, the value of that asset account, as well as the related contra-asset account, must both be removed from the books. The difference between the asset account and the contra-asset account is known as the net book value. Whenever the net book value is greater than the amount of cash received from the sale of the asset, a loss is recognized. When the net book value is less than the amount of cash received from the sale of the asset, a gain is recognized.

On July 1, 2013, Bikram Yoga Natick sells 5 annual memberships for $1,200 each.What would the entry look like to record the receipt of cash as deferred revenue?

To record the cash and the related liability, record a debit to cash for $6,000 and a credit to deferred revenue for $6,000.

Suppose on September 1, 2013 Cardullo's purchased an order of Spicy Maya Hot Chocolate from the supplier for $100. Cardullo's has 30 days to pay the supplier.What would the journal entry for this purchase look like? 30 days later, Cardullo's paid for the hot chocolate.What would the journal entry for the payment made on September 30, 2013 look like?

To record the purchase on 9/1/13: Debit Inventory for $100 Credit Accounts Payable for $100 To record the payment 30 days later: Debit Accounts Payable for $100 Credit Cash for $100

Kopera is a small family-owned office supply store. Suppose on September 1, 2015 Kopera purchased a large order of notebooks from a supplier for $850. Kopera has 30 days to pay the supplier. What would the journal entry for this purchase look like? 30 days later, Kopera paid for the notebooks.What would the journal entry for the payment made on September 30, 2015 look like?

To record the purchase on 9/1/15: Debit Inventory for $850 Credit Accounts Payable for $850 To record the payment 30 days later: Debit Accounts Payable for $850 Credit Cash for $850

Suppose on June 1, 2013, Cardullo's sold 10 bags of MEM Tea for a total of $80 to a customer who paid in cash. The business had previously purchased the tea for $50 and recorded it as inventory. First record the sale and then the impact on Cardullo's inventory.

To record the sale, Cash (an asset) increases with a debit of $80 and Sales (revenue) increases with a credit of $80. At the same time, Cost of Goods Sold or COGS (expense) increases with a debit of $50 and Inventory (an asset) decreases with a credit of $50.

General Administrative Expense

Transportation Utilities, Insurance Office Supplies Expense

US GAAP vs IFRS

US GAAP presents Current Liabilities first, followed by Non-Current Liabilities, while IFRS presents them in the reverse order. (accounts are generally presented in order of liquidity from most liquid to least liquid under US GAAP, and vice versa under IFRS.)

US GAAP vs IFRS

US GAAP vs IFRS Interest Paid: Operating Section / Operating OR Financing Section Dividends Paid:Financing Section / Operating OR Financing Section Interest Received: Operating Section / Operating OR Investing Section Dividends Received: Operating Section / Operating OR Investing Section

When Building Financial Statement (Consolidated Balance Sheet US GAAP)

Under Current Assets: Cash and Short term marketable securities Accounts receivable Net Inventories Other Current Assets Under Non-Current Assets: Long-term Marketable Securities Property, land, and Equipment Goodwill Acquired Intangible Assets Other Long-term assets Under Liabilities: Accounts payable Accrued Expense Deferred Revenue Under non-current liabilities: Deferred Revenue - non current long term debt other non-current liabilities Under Shareholder's Equity: Common Stock Retained Earnings Less Dividends and Stock Repurchase and others Capital Stock

When Building Financial Statement (Consolidated Balance Sheet US GAAP)

Under Current Assets: Cash and Short term marketable securities Accounts receivable Net Inventories Other Current Assets Prepaid Expense Other Receivables Under Non-Current Assets: Long-term Marketable Securities Property, land, and Equipment - Software Goodwill Acquired Intangible Assets Other Long-term assets Under Liabilities: Accounts payable Accrued Expense Deferred Revenue Under non-current liabilities: Deferred Revenue - non current long term debt other non-current liabilities Under Shareholder's Equity: Common Stock Retained Earnings Less Dividends and Stock Repurchase and others Capital Stock

Company B is a small toy retail chain and has invested in a linked inventory and accounting information system. When a toy is purchased and scanned at the cash register, the accounting information system automatically records the journal entry transferring the specific inventory item from inventory to cost of goods sold. Company B also performs a monthly inventory count and then records an adjusting journal entry to account for any shrinkage. Which type of inventory system does Company B utilize?

Under a perpetual inventory system, a company continuously tracks the sales of inventory and records Cost of Goods Sold for each sale. Even companies with a perpetual inventory system may perform inventory counts periodically.

Permanent Accounts

all accounts that appear in the balance sheet; account balances are carried forward from period to period

Days Purchases outstanding

average accounts payable / (annual credit purchases /365) or average accounts payable / (cogs/365)

debt to equity

average total liabilities / average total equity

Accounts Payable Turnover

calculated by dividing the annual credit purchases by the average accounts payable balance. or COGS / Average accounts payable

quick ratio

current assets - inventory / current liabilities

current ratio

current assets / current liabilities

cash conversion cycle

days inventory + average collection period - days purchase outstading

On April 1, 2014, Apex Insurance Company receives payment of $6,000 for an annual property insurance policy from one of their corporate customers. How should this receipt be recorded in the accounts of Apex?

debit Cash for $6,000 and credit Deferred Revenue for $6,000 as Apex has collected cash from its customer, but has not yet earned the revenue. It will earn the revenue in the future when it provides insurance coverage to its customer.

On April 1, 2014, Apex Insurance Company receives payment of $6,000 for an annual property insurance policy from one of their corporate customers. How would Apex record the revenue related to this policy for the month of September, 2014?

debit Deferred Revenue for $500 and credit Revenue for $500 as Apex has earned one month's worth of revenue during September.

As part of the 2013 year end close, your company evaluates the total pension obligation and determines that it needs to be increased to properly reflect the obligation at the end of the year. The shortfall is estimated to be $100,000. What would the journal entry look like to record this obligation?

debit Pension Benefit Expense for $100,000 and credit Pension Obligation (a liability account) for $100,000.

Suppose that Company A acquired Company Z in 2011 and recorded $500,000 of goodwill related to the acquisition. It is now the end of 2013, and there is evidence that goodwill has been impaired. This impairment needs to be recognized on the books. What will the entry look like to record $60,000 of impairment on December 31, 2013?

debit impairment loss for $60,000 and credit goodwill for $60,000. Remember--goodwill can never be amortized, so amortization expense and accumulated amortization are not used to show goodwill impairment.

On August 1, 2015, Lifters, a gym, sells 5 annual memberships for $1,500 each. What would the entry look like to record the receipt of cash as deferred revenue?

debit to cash for $7,500 credit to deferred revenue for $7,500.

The principle of Conservatism, says that a company should choose measurement methods that anticipate and record _____________ but don't anticipate and record _____________.

future losses; future gains

goodwill

goodwill can never be amortized, so amortization expense and accumulated amortization are not used to show goodwill impairment.

leverage

leverage = average total assets/ average total equity

Company A estimates that it needs 30% of sales in net working capital. In year 1, sales were $1 million and in year 2, sales were $2 million. Associated with the change in net working capital from year 1 to year 2 is a cash:

outflow of $300,000.

Equity vs Liabilty

owner's of the business control the business decisions Any payment payed back to the owner is discretionary

Hadley's Hardware is a small hardware store that sells a variety of nuts, bolts, nails, and screws. In the store, these items are stored in bulk containers, and customers can fill bags and pay by the weight. Hadley's tracks its hardware purchases and performs a monthly inventory count. Hadley's records an adjusting journal entry for Cost of Goods Sold at the end of the month after the inventory count reveals the ending inventory on hand. Which type of inventory system does Hadley's utilize? (*by weight, end of the month*)

periodic inventory system, a company only records Cost of Goods Sold periodically, in this case, once a month after the inventory count.

Examples of Asset

prepaid expenses Buildings Equipments cash Shares of a competitor's stock owned by the business Prepaid Rent Other Intangible Assets Prepaid Insurance Other Prepaid Expenses Goodwill Deferred Tax Asset Notes Receivable Interest Receivable Investments Fixed Assets

Suppose a piece of plant equipment that PepsiCo put into service on January 1, 2014 at a total cost of $300,000 with an expected useful life of 5 years and a salvage value of $60,000 is sold on January 1, 2019 for $50,000. What would the journal entry look like to record this sale?

reduction of the PP&E account of the initial, gross value of the equipment (credit of $300,000) offset by the receipt of cash (debit of $50,000), and the reduction of accumulated depreciation (debit of $240,000), and loss on the disposal of the asset (debit of $10,000).

Which of the following arises when Taxable Income is less than Income Before Taxes due to a temporary timing difference?

Deferred Tax Liability This is the amount that arises when Taxable Income is less than Income Before Taxes due to a temporary timing difference.

Which of the following is an example of a proper application of materiality? Suppose Starbucks had a legal dispute with Kraft related to a delivery agreement they had signed years ago. Starbucks decides not to disclose information because they don't want a long trial and they are making internal efforts to solicit a mediator. International Investments has been pursuing an aggressive profit strategy and invested in many developing countries. However, they are highly exposed to exchange rate risks and they do not disclose its diversifying instruments. A microfinance institution has been relying on government collateral subsidies to finance start-ups in rural areas. However, the government has cut the program recently. The company reports this situation in its financial statements as this might affect the decisions of stakeholders.

A microfinance institution has been relying on government collateral subsidies to finance start-ups in rural areas. However, the government has cut the program recently. The company reports this situation in its financial statements as this might affect the decisions of stakeholders.

Which of the following is a common finding in looking at the statement of cash flows of a mature company?

A negative cash flow from financing activities

Which of the following is a common finding in looking at statement of cash flows of a startup company?

A negative cash flow from investing activities

Which of the following is a common finding in looking at statement of cash flows of a startup company?

A negative cash flow from operating activities

Which of the following is a common finding in looking at the statement of cash flows of a declining company?

A negative cash flow from operating activities

Which of the following is an example of a liability? Inventory to be sold to customers Cash owed to you by a customer A note payable for a bank loan

A note payable for a bank loan

Which of the following is a common finding in looking at the statement of cash flows of a declining company?

A positive cash flow from investing activities

Which of the following is a common finding in looking at the statement of cash flows of a mature company?

A positive cash flow from operating activities

Wise Guys Consulting issues an invoice for $9,000 to one of their clients for services provided. The terms of the invoice call for payment 30 days after the invoice date. What would be the impact at the date the services are completed and invoiced?

ACCOUNTS RECEIVABLE: $9000 increase with debit REVENUE: $9000 increase with credit

Suppose that on January 1, 2014 Apple obtained a patent on a component of one of its products and it expected that this patent would have value for 4 years. The patent was recorded on the books for $2,400,000. What will the entry look like to record amortization for the month of January, 2014?

AMORTIZATION EXPENSE $50,000 debit Accumulated Amortization (contra-asset account) $50,000 - credit 4 years (48 months). Thus, $2,400,000/48 = $50,000

Which of the following demonstrates the going concern concept? AQG Industries sold $20,000 of product on credit to SSA Manufacturing. SSA did not pay on time. AQG decides that it is fruitless to pursue collection so they write off the receivable from SSA. Gail's Garments has been in business for 20 years and during that period the company has gained a good reputation. Gail would like the Controller to acknowledge the value of that reputation by including it as an asset worth $100,000 but the controller says she cannot do it. AQG Industries purchases $20,000 of product on credit from RSI Manufacturing. AQG records the purchase as an increase in inventory and an increase in accounts payable. AQG feels that they will be able to realize the value from the inventory and settle the obligation to RSI in the weeks to come.

AQG Industries purchases $20,000 of product on credit from RSI Manufacturing. AQG records the purchase as an increase in inventory and an increase in accounts payable. AQG feels that they will be able to realize the value from the inventory and settle the obligation to RSI in the weeks to come.

When Building Financial Statement (Consolidated Income Statement)

Above Gross Profit: Net Sales and Cost of Sales Above Total Operating Expense / Operating Income: Research & Development Sales, General, and Administrative Above Income before Taxes: Interest and Dividend Income Interest Expense Other Expense, Net Above Net income (less): Income Tax Expense

Consider the following summarized financial statements (in millions) for Apple Inc. What are the accounts receivable turnover and the average collection period observed in 2013? Assume all sales are on credit.

Accounts Receivable Turnover is calculated by dividing the annual credit sales by the average accounts receivable balance. In this case, we assume that all of Apple's revenue is from sales made on credit terms. Again we will use a 2-point average of beginning and end of year accounts receivable balances. Credit Sales / Average Accounts Receivable = 170,910 / 12,016 = 14.22 Average Collection Period is calculated by dividing Average A/R by the average daily Credit Sales, which is Credit Sales divided by 365. Average Accounts Receivable / Average Daily Credit Sales = 12,016 / 468 = 25.66 There are several formulas that could help you arrive at the correct answer, but one solution is presented below: Accounts Receivable Turnover: =C14/AVERAGE(B3:C3) Average Collection Period: =AVERAGE(B3:C3)/(C14/365)

Consider the following summarized financial statements (in millions) for Apple Inc. What is the accounts receivable turnover and the average collection period observed in 2013? Assume all sales are on credit. pc 7

Uses of funds include:

Accounts Receivable, Accumulated Project Costs, Prepaid Expenses, and Accounts Payable, PP&E, net, Other Current Liabilities, Long Term Debt, Other Long Term Liabilities, Common Stock & Paid In Capital, and AOCI & Other Equity

3.1 Nominal Accounts

Accounts that are reset to zero at the end of each accounting period. Nominal accounts include all revenue and expense accounts, and may also be referred to as temporary accounts or Income Statement accounts. The net balance of nominal accounts is transferred to retained earnings at the end of each accounting period.

3.1 Real Account

Accounts which contain cumulative balances since the inception of the business. The balances in these accounts flow from one accounting period to the next. Real accounts include all asset, liability, and owners' equity accounts and may also be referred to as permanent accounts or Balance Sheet accounts.

Based on this income statement for Company Z for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for gain/loss on sale of equipment in calculating cash flow from Operating Activities using the indirect method? gain of 1000

Adjustment for (1,000) in the Operating Section The total cash flows received from sale of fixed assets is an Investing Activity and not an Operating Activity. The gain itself is a non-cash item. To eliminate this gain, the $1,000 amount should be subtracted from Net Income in the Operating Section of the Statement of Cash Flows. Since the gain would have increased Net Income, this subtraction ensures that the net effect on cash flow from operations is zero.

Based on this income statement for Company XYZ for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for gain/loss on sale of a building in calculating cash flow from Operating Activities using the indirect method?

Adjustment for 4,000 in the Operating Section The correct answer is: Adjustment for 4,000 in the Operating Section The total cash flows received from sale of a building is an Investing Activity and not an Operating Activity. The loss itself is a non-cash item. To eliminate this loss, the $4,000 amount should be added to Net Income in the Operating Section of the Statement of Cash Flows. Since the loss would have decreased Net Income, this addition ensures that the net effect on cash flow from operations is zero.

Once they have identified their two performance obligations (provide a phone and provide one year of software updates) and have identified the price as $1000, what should they do next?

Allocate the transaction price of $1000 to the phone and the software updates

Consistency

Although accounting guidelines allow some degree of discretion in how transactions are recorded, the consistency principle requires that the methods be consistently applied by the company over time in recording and reporting unless there is a sound reason to change them. Consistency refers only to consistency over time; it does not imply consistency across accounts. For example, a company may properly choose to use LIFO for US inventory valuation and FIFO for international inventory valuation, and this is not a violation of the consistency principle.

Financing:

Although it can fluctuate, cash flow from financing activities will generally be negative for mature companies. This is because they are generating cash through operations that is sufficient to cover their investment needs. Because any excess cash generated isn't needed to fund growth, the money can be used to pay down loans or give money back to shareholders through dividends.

As a result of continued demand growth, Company A's revenue was growing from 2011 to 2013. However, the company's gross profit margin decreased from 2011 to 2013: 2011: 39.51% 2012: 37.84% 2013: 36.28% Which of the following is a reasonable explanation for the inverse trends?

Although the market was growing with the demand, competition was driving the prices down. This is the correct answer! This is not an unusual situation and it would explain the inverse trends.

Deferral

An amount that is recorded when payment is received for revenue that is yet to be earned (such as deferred revenue/unearned revenue) or when payment has been made prior to an expense being incurred (such as prepaid insurance). In either case, for a deferral the exchange of cash takes place before the actual revenue or expense is recognized.

Which of the following cash flows should be included in the Financing Section of the statement of cash flows under US GAAP? Drag the cash transaction to the appropriate column. Cash flow from financing activities vs NOT a cash flow from financing activities

Cash flow from financing activities REPAYMENT OF A BANK LOAN (PRINCIPAL) PAYMENT OF DIVIDENDS RECEIPT OF CAPITAL FROM AN OWNER REPURCHASES OF COMMON STOCK PROCEED FROM ISSUING BONDS REPAYMENT OF LONG TERM DEBT (PRINCIPAL) CASH RECEIVED FROM RAISING DEBT FINANCING CASH RECEIVED FROM RAISING DEBT PAYMENTS TO REACQUIRE STOCK PROCEEDS FROM ISSUING STOCK PRINCIPAL PAID ON NOTES PAYABLE CASH RECEIVED FROM RAISING DEBT CASH RECEIVED FROM ISSUING STOCKS CASH CONTRIBUTED BY AN OWNER REPAYMENT OF LONG TERM DEBT NOT a cash flow from financing activities PURCHASE OF INVENTORY SALE OF LAND SALE OF INVENTORY SALE OF PLANT EQUIPMENT PURCHASE OF A BUILDING PAYMENT OF UTILITIES PAYING WAGES TO EMPLOYEES CASH COLLECTIONS FROM CUSTOMERS CASH RECEIVED IN SALE OF EQUIPMENT WAGES PAID TO EMPLOYEES CASH PAID TO BUY A NEW FACILITY INTEREST EARNED IN CASH PAYMENT TO SUPPLIERS CASH DIVIDEND RECEIVED CASH PAID TO SUPPLIERS PRINCIPAL RECEIVED FROM LOAN MADE TO OTHERS ACQUISITION OF EQUITY INVESTMENT CASH PAID FOR INTEREST SALE PROCEEDS FROM DEBT INVESTMENT RENT PAID IN ADVANCE PURCHASE OF A BUILDING SALE OF PLANT EQUIPMENT CASH PAID FOR TAXES PRINCIPAL RECEIVED FROM LOANS MADE TO OTHERS CASH PAID FOR LONG TERM INVESTMENT

Which of the following cash flows should be included in the Investing Section of the statement of cash flows under US GAAP? Drag the cash transaction to the appropriate column. (Cash flow from investing activities vs NOT a cash flow from investing activities)

Cash flow from investing activities: SALE OF PLANT EQUIPMENT SALE OF LAND PURCHASE OF A BUILDING CASH PAID TO BUY A NEW FACILITY CASH RECEIVED IN SALE OF EQUIPMENT CASH PAID FOR LONG TERM INVESTMENT PRINCIPAL RECEIVED FROM LOANS MADE TO OTHERS SALE PROCEEDS FROM EQUITY INVESTMENTS PAYMENTS RECEIVED FROM LOAN RECEIVABLE SALE PROCEEDS FROM DEBT INVESTMENTS LOAN MADE TO THIRD PARTY PURCHASE OF A PIECE OF LAND NOT a cash flow from investing activities: PURCHASE OF INVENTORY SALE OF INVENTORY PAYMENT OF UTILITIES PAYMENT OF WAGES TO EMPLOYEES REPAYMENT OF A BANK LOAN (PRINCIPAL) PAYMENT OF DIVIDENDS RECEIPT OF CAPITAL FROM AN OWNER CASH COLLECTIONS FROM CUSTOMERS INTEREST EARNED IN CASH WAGES PAID TO EMPLOYEES PAYMENT TO SUPPLIERS PAYMENT OF LONG TERM BONDS PAYABLE SHARES BUYBACK PRINCIPAL AMOUNTS OF DEBT BORROWED CASH COLLECTED FROM CUSTOMERS DIVIDENDS PAID TO SHAREHOLDERS CASH PAID FOR INTEREST PROCEEDS FROM ISSUING STOCK CASH PAID TO PURCHASE INVENTORY CASH RECEIVED FOR GOODS SOLD LAST MONTH CASH CONTRIBUTED BY AN OWNER PAYMENT TO REACQUIRE SHARES PROCEEDS FROM ISSUING STOCKS INTEREST EARNED IN CASH

Operating Section of the statement of cash flows under US GAAP Cash flow from operating activities vs NOT a cash flow from operating activities

Cash flow from operating activities: - CASH RECEIVED FROM CUSTOMERS - RENT PAID IN ADVANCE - CASH PAID FOR INVENTORY - CASH PAID FOR OPERATING EXPENSES - WAGES PAID TO EMPLOYEES - INTEREST AND DIVIDENDS RECEIVED - CASH PAID TO SUPPLIERS - COLLECTIONS FROM CUSTOMERS - CASH PAID FOR TAXES - WAGES PAID TO EMPLOYEES - PAYMENT TO SUPPLIERS - SALE OF INVENTORY - CASH PAID FOR INTEREST - CASH PAID TO PURCHASE RAW MATERIALS - WAGES PAID TO MANUFACTURIN-G STAFF - INTEREST RECEIVED IN CASH - CASH PAID FOR WAREHOUSE RENTAL - CASH COLLECTED FOR SERVICE YET TO BE PROVIDED NOT a cash flow from operating activities - CASH LOAN PAYMENT (PRINCIPAL ONLY) - CASH PROCEEDS FROM A LOAN - LOAN MADE TO THIRD PARTY - SALE OF PLANT EQUIPMENT FOR CASH - CASH PAID FOR EQUIPMENT PURCHASE - CASH RECEIVED FROM OWNERS - CASH RECEIVED FROM LOANS RECEIVABLE - PAYMENTS TO REACQUIRE STOCK - PROCEEDS FROM SALE OF FIXED ASSETS - ACQUISITION OF EQUITY INVESTMENT - PRINCIPAL PAID ON DEBT - CASH RECEIVED IN SALE OF EQUIPMENT - CASH PAID TO BUY LAND - PAYMENT OF LONG TERM BONDS PAYABLE - REPURCHASE OF SHARES - CASH PAID FOR LONG TERM INVESTMENT CASH PAID TO PURCHASE A BUILDING CASH DIVIDENDS PAID TO SHAREHOLDERS CASH CONTRIBUTED BY AN OWNER SALE PROCEEDS FROM EQUITY INVESTMENTS LOAN MADE TO THIRD PARTY

Present Value of Infinite Cash Flows

Cash flows in the final year of our projection / discount rate - growth rate

Suppose on June 30, 2013 Cardullo's received an electricity bill for $900 and paid it immediately. How would you record this transaction on a T-account?

Cash is an asset account and it is decreased by credits (on the right in T-accounts). Utility Expense is an expense account and it is increased by debits (on the left in T-accounts).

Suppose on February 1, 2014 Bikram Yoga Natick collects $17 from a walk-in customer. How would you record this transaction on a T-account?

Cash is an asset and increases with a debit of $17. Revenue is part of owners' equity and increases with a credit $17.

Which of the following is considered an Operating Activity under US GAAP?

Cash paid to a vendor for inventory This is the correct answer! Inventory is an integral part of a company's operations and cash disbursed to pay for inventory impacts Operating cash flow. Cash received in advance for services This is the correct answer! Cash received from customers, even if it is received in advance, is an Operating Activity. Cash collected from customer This is the correct answer! Collecting cash from customers is an Operating Activity, which impacts Operating cash flow. Wages paid to employees This is the correct answer! Hiring employees is an integral part of a company's operations and cash disbursed to pay for the wages impacts Operating cash flow.

cash flows in operating activity

Cash paid to suppliers: cash paid for current period operating activity purchases cash paid for previous period credit purchases cash paid in advance for future period purchases Cash received from customers: cash received from current period sales cash collections from previous period credit sales cash received in advance for future period sales

Donegan's Deli had the following account balances as of December 31, 2014: and the following account balances as of December 31, 2015: Which of the following represents the Change in Net Working Capital from 2014 to 2015?

Change in Net Working Capital is calculated as the current year's net of current assets (excluding cash) and current liabilities less the prior year's net of current assets and current liabilities. The Net Working Capital for 2015 was $1,600. The Net Working Capital for 2014 was $1,375. The difference, the change in NWC, is 225.

Which of the following arises when Taxable Income exceeds Income Before Taxes due to a temporary timing difference?

Deferred Tax Asset This is the amount that arises when Taxable Income exceeds Income Before Taxes due to a temporary timing difference.

Bikram Yoga Natick pays taxes on a cash basis so annual membership fees received during the year are included in determining their Taxable Income. However, for financial reporting purposes, they are only treated as revenue as time passes and the memberships are expiring. This creates a timing difference which causes Taxable Income to be greater than Income Before Taxes in years when the Deferred Revenue increases. In 2012 the Deferred Revenue account went down, meaning that Taxable Income was less than Income Before Taxes. What was the entry in 2012 to record this difference? *key point: taxable income was less than income before taxes*

Credit the Deferred Tax Asset account (taxable Income to be lower than Income Before Taxes) When a temporary timing difference causes Taxable Income to be lower than Income Before Taxes, the required entry is a credit. In this case, the credit is a decrease to the Deferred Tax Asset account, because in previous years, when the Deferred Revenue was first recorded, a Deferred Tax Asset would have been created.

Company A purchased a new piece of plant equipment in 2013 and, because it is being depreciated using straight-line for financial reporting but accelerated depreciation for tax purposes, the Taxable Income is less than the Income Before Taxes for 2013. What will be the entry required due to this temporary timing difference? *taxable income is less than the income before taxes*

Credit the Deferred Tax Liability account (Taxable Income to be less than Income Before Taxes.) The fact that the tax deduction for depreciation is HIGHER than the Depreciation Expense causes Taxable Income to be less than Income Before Taxes. Since Tax Expense is based on Income Before Taxes, this means that the amount of Tax Payable for 2013 will be less than the Tax Expense for the year.

Suppose your company recorded a Deferred Tax Liability in 2010. It was not expected to be resolved for several years. It is now December 2014 and you note that the Deferred Tax Liability is expected to be resolved in the first six months of 2015. Under which section of the balance sheet do you classify the Deferred Tax Liability? *deferred tax liability*

Current Liabilities The Deferred Tax Liability would have been classified as a Non-Current Liability initially, but as soon as it becomes evident that liability is expected to be resolved in a year or less, it should be reclassified as a Current Liability.

Bob's Burgers had the following account balances as of December 31, 2014: Accounts Receivable $1,825 Accumulated Depreciation$200 Inventory $750 Building $2,000 Equipment $500 Accounts Payable $400 Salaries/Wages Payable$925 Which of the following represents the Net Working Capital for the business?

Current assets (excluding cash) less current liabilities equals Net Working Capital. In this case, currents assets total $2,575 (accounts receivable and inventory) and current liabilities total $1,325. (salaraies and wages payable and accounts payable) The difference, NWC, is $1,250.

Suppose PepsiCo purchased a piece of plant equipment in December, 2013 and, after installing and testing the equipment, it was put into service on January 1, 2014. The total cost to put the equipment into service was $300,000; it is expected to have a useful life of 5 years and a salvage value of $60,000.Suppose PepsiCo records an adjusting entry at the end of each quarter to record depreciation. What would the entry to record depreciation be for the quarter ending March 31, 2014?

DEPRECIATION EXPENSE $12,000 - debit ACCUMULATED DEPRECIATION $12,000 - credit The depreciable amount is $240,000 ($300,000 total cost less $60,000 salvage value) divided by 60 (as it will be depreciated for 60 months), which is $4,000 per month, or $12,000 for three months. The depreciation expense account should be increased by this amount. Remember that expenses increase with debits. The accumulated depreciation (contra-asset) account should be increased by this amount. Contra-asset accounts increase with credits.

Bob's Burgers has an Inventory Turnover of 6.0, an Accounts Receivable Turnover of 8.5, and an Accounts Payable Turnover of 10.1. What is the length of their Cash Conversion Cycle?

Days Inventory + Average Collection Period - Days Purchases Outstanding = Cash Conversion Cycle Days Inventory = 365 / Inventory Turnover Average Collection Period = 365 / Accounts Receivable Turnover Days Purchases Outstanding = 365 / Accounts Payable Turnover ( 365 / 6.0 + 365 / 8.5 - 365 / 10.1 ) = 67.6

Fran's Furniture Store has an Inventory Turnover of 8.0, an Accounts Receivable Turnover of 10.5, and an Accounts Payable Turnover of 12.1. What is the length of their Cash Conversion Cycle?

Which of the following measures does not reflect a company's profitability?

Days Sales in Accounts Receivable Days Sales in Accounts Receivable is the average number of days a company takes to collect payments on goods sold. It is not related to profitability.

Suppose that on January 1, 2016 PepsiCo purchased a patent on a production process and it expected that this patent would have value for 10 years. The patent was recorded on the books for $4,800,000. What will the entry look like to record amortization for the month of January, 2016?

Debit Amortization Expense for $40,000 credit Accumulated Amortization for $40,000.

On January 1, 2016, Flathound Properties received $22,800 from a tenant as rent for all of 2016. How would this receipt be recorded on Flathound Properties' books on 1/1/2016?

Debit Cash for $22,800 credit Deferred Revenue for $22,800.

Suppose a piece of plant equipment that PepsiCo put into service on January 1, 2014 at a total cost of $300,000 with an expected useful life of 5 years and a salvage value of $60,000 is sold on June 30, 2018 for $60,000. The accumulated depreciation is $216,000. What would the journal entry look like to record this sale?

Debit Cash for $60,000, credit Property, Plant & Equipment for $300,000, debit Accumulated Depreciation for $216,000, debit Gain/Loss on Disposal of Assets for $24,000.

On January 1, 2016, Flathound Properties received $22,800 from a tenant as rent for all of 2016. What journal entry would Flathound Properties make at the end of January 2016 to show that one month of service had been provided?

Debit Deferred Revenue for $1,900 credit Revenue for $1,900.

On June 1, 2013 Cardullo's purchased a case of Vermeiren Cookie Spread as inventory from its supplier for $200 and paid in cash. How would you record the following transaction?

Debit Inventory for $200 Credit Cash for $200

Billie's Beehives (BB) purchased a shipment of beehives on June 1, 2014 to sell to local beekeepers. It paid $500 for 100 hives. How would you record the following transaction?

Debit Inventory for $500 Credit Cash for $500

Johnny's Drive-in pays its employees bi-weekly. The first payday of 2014 will be on January 3 and will compensate employees for work done from December 18-31, 2013. Because the employee work was performed in 2013, the wages expense should be recorded in 2013. Record the Transaction: What adjusting entry will need to be made? Total compensation to be paid for the 2 week period is $100,000.

Debit Wages Expense for $100,000 credit Wages Payable for $100,000.

Bikram Yoga Natick pays taxes on a cash basis so annual membership fees received during the year are included in determining their Taxable Income. However, for financial reporting purposes, they are only treated as revenue as time passes and the memberships are expiring. This creates a temporary timing difference which causes Taxable Income to be greater than Income Before Taxes in years when the Deferred Revenue increases; 2013 was such a year. What will the entry be in 2013 to record this difference? *taxable income to be greater than income before taxes*

Debit the Deferred Tax Asset account (Taxable Income to be HIGHER than Income Before Taxes) When a temporary timing difference causes Taxable Income to be HIGHER than Income Before Taxes, the required entry is a debit. In this case, the debit is an increase to the Deferred Tax Asset account.

Company B purchased a new piece of plant equipment in 2008. They used the straight-line depreciation method for financial reporting, but used the accelerated depreciation method for tax purposes. Thus, the Taxable Income is different from the Income Before Taxes for 2013. This difference has caused the Depreciation Deduction to be less than the Depreciation Expense. What will be the entry required due to this difference? *key point: depreciation deduction to be less than the depreciation expense*

Debit the Deferred Tax Liability account (taxable Income to be more than Income Before Taxes) The fact that the tax deduction for depreciation is lower than the Depreciation Expense causes Taxable Income to be more than Income Before Taxes. Since Tax Expense is based on Income Before Taxes, this means that the amount of Tax Payable for 2013 will be more than the Tax Expense for the year.

Which of the following items is NOT related to a company's ability to pay off its debts?

Debt to Equity Ratio Debt to Equity Ratio measures a company's leverage, not ability to pay off debts.

What adjustments would need to be made in the Operating section of the statement of cash flows prepared under the indirect method to account for the changes in the Accounts Receivable and Inventory account balances for IBM? ******ACCOUNTS RECIEVabEL* pc3

Decrease of $1,547 for Accounts Receivable and decrease of $23 for Inventory (rev has increasee from 2012 to 2013)

Luster Consulting Company purchased a new heating and cooling system for their office building in March, 2014. After installing and testing the equipment, it was put into service on April 1, 2014. The total cost to put the equiptment into service was $45,000; it is expected to have a useful life of 10 years and a salvage value of $5,000. Assuming Luster Consulting Company uses straight-line depreciation, what will the accumulated depreciation be at the end of September, 2015?

The correct answer is $6,000. (total cost - salvage value) / number of years to be depreciated: 10yrs 40,000 / 10 = 4,000 March 2014 - March 2015: 1 year so 400 + 6 months ($2000) The depreciable value of the equipment is $40,000 ($45,000 cost - $5,000 salvage value) and the number of years to be depreciated is 10 years. So the depreciation for 12 months is $4,000 ($40,000 / 10 years). The amount of accumulated depreciation at the end of September, 2015 will be $6,000, which includes $3,000 for the nine months of depreciation in 2014 and $3,000 for the nine months of depreciation in 2015.

Quench, a bottled water supplier, has 5,496 bottles of water in their warehouse at the end of April. One third of the bottles were purchased in February at a cost of $1.00 per bottle. Another third were purchased in the month of March at a cost of $1.25 per bottle. The remaining third were purchased in April at a cost of $1.75 per bottle. The warehouse sold and shipped 4,925 bottles during May. Quench uses FIFO to value their inventory. What was the Cost of Sales related to the bottles shipped in May? (*FIFO)

The correct answer is $6,328.75. Under FIFO, the oldest purchased are expensed first as Cost of Sales. In this case, the 4,925 bottles of water sold in May include 1,832 bottles expensed at a cost of $1.00 per bottle (related to February), 1,832 bottles expensed at a cost of $1.25 (related to March) and 1,261 bottles expensed at a cost of $1.75 per bottle (related to April).

Chrissie's Cooking Supply Company has 5,000 skillets in their warehouse at the end of July. One quarter of these skillets were held over from the month of June at a cost of $12 per skillet. The remaining skillets were purchased in July at a cost of $15 per skillet. At the beginning of August they received another 2,000 skillets at a cost of $17 per skillet. The warehouse sold and shipped 2,198 skillets during August. Chrissie's Cooking Supply Company uses LIFO to value their inventory. What would be the remaining balance of skillets in the inventory account at the end of August?

The correct answer is $68,280. Under LIFO, the most recent purchases are expensed first as cost of sales. In this case, the 2,198 skillets sold at the end of August include 2,000 expensed at a cost of $17 per skillet (related to August) and 198 expensed at a cost of $15 per skillet (related to July). This means that the remaining balance of inventory is related to the skillets purchased in July and June. (3,552 * $15 per skillet) + (1,250 * $12 per skillet) = 68,280

For 2013, West Corp.'s Operating Income was $130,000. Income Tax Expense was $20,000. West Corp. had Operating Expense of $50,000 and Other Non-Operating Expense of $30,000. What was West Corp.'s Net Income for 2013?

The correct answer is $80,000 The Operating Expense has already been taken out to arrive at Operating Income. Operating Income minus Other Non-Operating Expense equals Income Before Taxes. Income Before Taxes minus Income Tax Expense equals Net Income. $130,000 - $30,000 - $20,000 = $80,000

Suppose MassTech (a new software company) provides the following financial information (in millions) for its fiscal year: Operating Income $130M Cost Of Goods Sold $70M Interest Expense $10M Product Development Expense $30M General Operating Expenses $30M Corporate Tax Rate of 30% What is the Net Income reported by the firm?

The correct answer is $84M. COGS, Product Development, and General Operating Expenses have already been deducted to get to Operating Income. All that needs to be done now is to deduct Interest Expense to get to Pretax Profit and then apply the tax rate and subtract the tax amount to get Net Income. Pretax Profit would be calculated as $130M - $10M = $120M Tax Expense would be calculated as $120M x 30% = $36M Net Income would be calculated as $120M - $36M = $84M

A project has the estimated cash flows shown as indicated below. The discount rate is 7%. Calculate the NPV of this project.

The correct answer is -$7,124 The correct answer formula, which should be entered into cell E5, is the following: NPV(E4,B3:B7)+B2 Remember, for NPV you have to manually add the negative outflow from time zero related to the initial investment.

Suppose Green Mountain Coffee Roasters presents the following information in its 2014 financial statements: Net Sales $4.4B Cost of Sales $2.8B Income Tax Expense $0.3B General & Admin Expenses $0.3B Selling & Marketing Expenses $0.5B Interest Expense $0.1B What would the Income Before Taxes be in this fiscal year?

The correct answer is 0.7 (Net Sales - Cost of Sales - General & Admin Expense (bc it is after income tax expense) - Selling and Marketing - Interest Expense) Income Before Taxes equals Gross Profit minus Operating Expenses, Other Expense and Interest Expense. It is calculated as ($4.4B - 2.8 - 0.3 - 0.5 - 0.1) = $0.7B. Income Tax Expense will be deducted after Income Before Taxes.

Initech finances their business using a combination of equity and liabilities. Which of the following numbers is most likely Initech's equity multiplier?

The correct answer is 1.5. A company that finances using only equity will have an equity multiplier of 1. Any amount over 1 shows the proportion financed using liabilities. Since Initech uses a combination of equity and liabilities to finance operations, the only option that would most likely be their equity multiplier is option 4, 1.5.

A project has the estimated cash flows shown as indicated below. The discount rate is 8% and the NPV is $17,924. Calculate the IRR of this project.

The correct answer is 18.97%. The correct answer formula, which should be entered into cell E6, is the following: =IRR(B2:B7) - Bs are all cash flows

A project has the estimated cash flows shown below. The discount rate is 8% and the NPV is $41,511. Calculate the IRR of this project

The correct answer is 21.23%. The correct answer formula is: =IRR(B2:B9) (the Bs are all the numbers for cash Flows)

A project has an initial cost of $25,000. Expected cash flows as a result of this project are as follows: $6,000 in 2015 $6,000 in 2016 $8,000 in 2017 $10,000 in 2018 What is the payback period for this project?

The correct answer is 3.5 years. At the end of year 3 the project has returned $20,000 ($6,000 + $6,000 + $8,000). This leaves $5,000 to be returned to hit payback. Assuming that the $10,000 projected for year 4 comes in a steady stream, this would mean it would take half of that year.

Select the accounts that will be impacted by the transaction described below and drag them to the correct section of the accounting equation. Once the T-account appears, choose the date from the drop-down menu, and enter the appropriate amount as debit or credit. You must choose a date and enter an amount on each T-account line shown in order to submit the exercise. If the Submit button is not enabled, make sure you have selected a date for each line in the T-accounts, and make sure there is an amount in the debit or credit column for each line. If there are any unused T-accounts in the accounting equation bucket area, make sure they are dragged back up to the Accounts bucket. (*T-account) Tom's Grocery purchased 5 new cash registers for their new store and they paid $2,400 each for a total of $12,000 on August 1, 2013, the day they were delivered. The cash registers are expected to have useful lives of 5 years and they are not expected to have any salvage value. Tom's Grocery uses straight-line depreciation. The cash registers were recorded as long-lived assets at the time of the purchase and now Tom's needs to make an entry showing the expense related to these cash registers up to December 31, 2013.

the company would record a debit to Depreciation (an expense, part of owners' equity) for $1,000 and a credit to Accumulated Depreciation (a contra-asset, part of assets) for $1,000. The depreciable value of the cash registers is $12,000 and they have an estimated useful life of 5 years (or 60 months), so the monthly depreciation would be $200 per month ($12,000 / 60). To recognize the 5 months' worth of depreciation ($200 per month * 5 months = $1,000) at 12/31/13, the company would record a debit to Depreciation (an expense, part of owners' equity) for $1,000 and a credit to Accumulated Depreciation (a contra-asset, part of assets) for $1,000.

Operating Income

the income before taxes and interest

Operating Income

the income before taxes and interest Operating Income = Gross Income - Operating Expenses

Suppose Hipzone had Net Income of $1,600,000 for the year 2011. They also had the following income and expenses: COGS $7,000,000 SG&A Expense $2,100,000 Other Non-Operating Income $100,000 Interest Income $20,000 Depreciation Expense $350,000 Income Tax Expense $150,000 What would the Operating Income be for the year 2011?

the income before taxes and interest The correct answer is $1,630,000 (Net Income + Tax Expense - other non-operating income - interest income) To get from Net Income to Operating Income, we need to add back the Tax Expense ($150,000) and eliminate the impact of any non-operating income or expenses ($20,000 Interest Income and $100,000 Other Income). $1,600,000 +150,000 - 20,000 - 100,000 = $1,630,000

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