Intermediate Ch 7
Zeiger Corporation sells gods to a customer on account for $2,000, terms 2/10,n/30. When the customer pays on the 12th day, Zeiger records which of the following?
Debit cash $2,000
expense accounts are closed to income summary with:
Debit entry to income summary credit entry to expenses
In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance?
Deposit outstanding
Another term for principle amount of a note receivable is
Face amount
True or false: An interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest.
False With a noninterest-bearing not, the interest is deducted from the principal of the note.
Signing a long-term promissory note is a
Financing Activity
sale of receivables or secured borrowing
Financing receivables can be done by a
Voluntary changes in accounting principle
GAAP requires to be accounted for retrospectively
Emerging Issues Task Force
Group dealing with emerging issues - US GAAP
Using an adjusting entry at the end of the period for any remaining future expected returns and as returns occur
How do sellers typically account for returns?
When a lender believes it is probable that not all principal and interest will be collected on a long-term note receivable, what is recognized?
Impairment loss
noninterest
In a __________ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan.
account receivable
Informal credit agreement with trade customers
IFRS does not allow which inventory valuation method
LIFO
NSF stands for:
Non-Sufficient funds
In a _______, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan
Non-interest bearing note
a noncurrent asset
On January 1,2012, Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
Third step in determining impairment of receivables
Perform impairment test
Estimated returns are material
Recognize estimated returns during year of sales
Which of the following are errors in accounting for cash?
Recording a check for $168 for $186 in the cash account. The bank processing a check for $210 as $120. Recording a cash collection of $4,000 but depositing $3,000 into the bank.
no entry is required on the company's books
Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What is the journal entry required to correct this error?
Investing Activity
Selling Equipment
1933 Securities Act
Sets forth accounting and disclosure requirements for initial public offerings of securities
Short term Investment
Short term investments has a maturity of three months or less that can be converted to cash with little risk of loss that are classified as cash equivalents
posting
The Process of transferring debit and credit information from the journal to ledger
What would cause a bank statement not to agree with the cash balance in the accounting records?
The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank made an error in recording a deposit made by the company.
Who is responsible for providing an opinion on management's assessment of internal control?
The company's auditors
Which of the following is not a characteristic of an asset classified as inventory?
The item is currently used as part of the company's day-to-day operations
measurement
The process of associating numerical amounts to the elements in the financial statements
How do long-term notes receivable differ from the short-term notes receivable?
The time value of money has a larger effect on a long term notes receivable
How do long-term notes receivable differ from short-term notes receivable?
The time value of money has a larger effect on long-term notes receivable
discounting a note receivable
The transfer of a note receivable to a financial institution for an amount less than the face amount of the note is referred to as
securitization and factoring
The two most common types of selling arrangements for accounts receivable are
When should Mainzel recognize the related revenue?
When it's earned.
a trade discount is
a percentage reduction from a list price
Financing with recievables is accomplished through
a secured borrowing or a sale of recievables
In a bank reconciliation, interest revenue earned on a company's bank account is:
added to the company's cash balance
The effect of salaries and wages incurred but not yet paid would be reflected in the account balances shown on the:
adjusted trial balance
factors considered when estimating sales returns
change in customer base overall economic conditions
The most critical element in determining if a company can account for the transfer of receivables as a sale is the surrender of ________.
control
The most critical element in determining if a company can account for the transfer of receivables as a sale is the surrender of ___________
control
Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?
corporate management
When a company discovers an Immaterial error in a year subsequent to the year the error is made, what is the proper course of action?
correct the error in the year discovered
When inventory is written down, the reduced inventory value becomes the new _________ _________.
cost basis
Cost index for layer year
cost in layer year/cost in base year
cost-to-retail percentage formula
cost of goods available for sale/retail of goods available for sale (before net markdowns)
On November 1, 2017, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, 2017 requires:
credit to rent expense $11,000
Revenues are $1,000. Expenses are $1,800. The journal entry required to close the income summary account will require a ________ to income summary and a _______ to retainted earnings
credit; debit
Calculate goodwill
current assets + property, plant, and equipment+ other assets- current liabilities- long-term liabilities=amount cash-previous amount
Working capital
current assets minus current liabilities
Purchase inventory on account
debit inventory credit accounts payable
Prepaid rent
debit prepaid rent credit cash
To close revenue accounts
debit revenue credit income summary
An adjusting entry for accrued expenses involves a
debit to an expense credit to a liability
Accrued salary is recorded by:
debit to salary expense credit to salary payable
Adjusting journal entries are necessary for three situations:
deferrals, accruals and estimates
current liabilities
deferred revenues and accrued salaries payable
Accounting for land improvements requires that the land improvements are capitalized and then ________over periods benefited by their use.
depreciated
Comparative financial statements purpose
detect and predict trends compare year-to year data
A periodic performance review is an example of
detective control
A periodic performance review is an example of a
detective control.
First step in measuring inventory and cost of goods sold
determining the physical quantities of goods
Interim financial Earnings per share is consistent with which view
discrete view and follow same procedures as annual calculations calculations are based on what is happening in that quarter rather than conditions estimated to exist at end of fiscal year
Which of the following are among the basic assumptions underlying U.S. GAAP? (select all that apply) a) periodicity b) neutrality c) revenue recognition d) going concern e) fulldisclosure f) economic entity g) monetary unit
economic entity, going concern, periodicity and monetary unit
statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:
either an operating or financing cash flow
Internal control consists of plans to:
enhance the accuracy of accounting data enhance the reliability of accounting data and promote operational efficiency
Vertical analysis
examines the relationship of items on the financials of one year
An asset retirement obligation is measured at _____ value
fair
annuity due
first payment is due at signing of agreement
ordinary annuity
first payment is due at the end of the first month after signing the agreement
journal entries
from here on
IFRS allows expenses to be classified by
function or nature
Future value of an ordinary annunity
future value of a series of equal-sized cash flows with the first payment taking place at the end of the first period
Future value of an ordinary annuity table is used when calculating
future value of a series of payments example: depositing an amount to a savings account each month that will grow to purchase a car in 5 years
____ method of recording sales views a discount not taken by a customer as part of the sales revenue
gross
the ___________ of recording sales revenue recognized the discount not taken as part of the sale
gross method
The two methods used for recoring sales discounts are the
gross method net method
two methods used for recording sales discounts are
gross method and net method
Impairment loss
if book value (carrying value) of an asset is more than fair value minus cost to sell the asset
dollar-value LIFO
if prices have changed, use cost indexes to determine whether an observed increase in inventory is an actual increase in the quantity of inventory or one caused by an increase in prices
Reporting comprehensive income:
in a single statement of comprehensive income or in two consecutive statements - income statement and comprehensive income statement
Where is a note recievable reported in the balance sheet?
in either current or non-current assets, as appropriate
LIFO
in period of declining costs would result in the highest ending inventory
Accounts receivable are normally classified
in the balance sheet as current assets
goodwill
indefinite
Separations of duties requires that
individuals who have physical responsibility for assets should not have access to accounting records.
Accounts receivable are __________ credit agreements typically due within 60 days of the sale.
informal
compound interest
interest on initial investment plus interest calculated on previously earned interest
The FASB requires research and development costs to be expensed because
it is difficult to objectively determine the future benefits
Deferred revenue is a(n)
liability on the balance sheet
copyright
life of creator plus 70 years -exclusive right of protection given to a creator of a published work
It is likely that bad debt accruals under IFRS will be _____ and will occur _____ than under U.S. GAAP.
lower, later
Responsibility for the financials and other information found in the annual report lies with ____________
management
specific identification inventory cost flow method
matches each unit on hand at the end of the period with its actual cost
A temporary purchases account is used when the _____________ inventory system is used
periodic
Separation of duties and E-commerce controls are examples of
preventative controls.
A typical note receivable requires payment of a specified dollar amount at a specified maturity date in the future. What are items for the specified dollar amount?
principle or face amount
main focus of accounting information is to?
provide useful information for decision making
IFRS impairment indicator guidance
provides an illustrative list of loss events
Inventory includes
raw materials, work in process, finished goods
A company's claims to the future collection of cash, other assets, or services is called a ____
recievable
Securities and Exchange Commission
regulatory oversight U.S. GAAP
hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics:
relevance and faithful representation
For accounting information to be ____________________,it must possess predictive value and/or confirmatory value.
relevant
temperary earnings
result from transactions or events that are not likely to occur again in the foreseeable future or that are likely to have a different impact on earnings in the future
FIFO perpetual inventory system and FIFO periodic inventory system
result in the same ending inventory and cost of goods sold
Changes in inventory method generally are accounted for __________.
retrospectively
Expense recognition often matches _________ and ___________ that arise from the same transaction
revenue and expenses
The revenue/expense approach focuses on the income statement because it relies on ________________ accounting princile
revenue recognition and matching
Operating Income on income statement
revenues and expenses directly related to the primary revenue-generating activities of the company. Provides a measure of profitability for core (or normal) operations, a key performance measure for predicting the furture profit generating ability
What are Permanent Temporary:
revenues, expenses, dividends
Obsolescence may impair the _______ of inventory.
salability
A reversing entry is used after accruing 3 days of salaries at year-end. To make the reversing entry, the accountant would debit which account?
salaries payable
The seller views returns as a reduction of net ______, whereas the buyer views returns as a reduction of net ______.
sales purchases
A critical aspect of a good internal control system is
separation of duties
Companies finance with their receivables to
shorten the operating cycle increase cash flow and receive cash before customers would pay amounts due
Statement of Shareholders' equity
shows the sources of the changes in the various permanent equity accounts
LIFO disadvantages
significant recordkeeping costs, possibility of LIFO liquidation
the dollar-value LIFO (DVL)
simplifies record keeping reduces the risk of liquidation of layers
As the number of periods increase, present value factors become ________________
smaller
IASB's main objective is to develop a single set of global accounting _____________ that are high-quality, understandable, and enforceable.
standards
A classified balance sheet shows
subtotals for current assets and current liabilities.
gross method of purchase discounts
subtracts the discount from total purchases to determine net purchases
Income Statement (Statement of Operations)
summarizes revenues and expenses for a period of time Used to predict future profitability and future cash-generating ability
management should hold the minimum amount of cash to:
take advantage of opportunities, conduct business operations and meet its obligations
Plant, property and equipment characteristics
tangible, used long-term in production
Donald company purchases and sells inventory f.o.b. destination. On December 31, the company sells 10,000 units and receives notice that 40,000 units have been shipped by its supplier. Which units should be included in Donald company's ending inventory?
the 10,000 units sold are included as they have not not reached their destination
The type of information included in an account includes:
the account number, columns for increases and decreases, and account title
The post-closing trial balance helps to verify that:
the accounts are ready for next period's transactions we prepared and posted closing entries correctly
Net realizable value
the amount of cash into which an asset is expected to be converted in the ordinary course of business
The average collection period indicates
the average number of days it takes to collect on account
One of the most important internal controls for cash is
the bank reconciliation.
If a note with an unrealistic inerest rate is recieved solely in exchange for cash, the present value of the note is considered to be
the cash paid
Depreciation is an allocation of
the cost of buildings
Timothy Company purchases merchandise costing 100,000. The payment terms are 3/10, n/30. if Timothy Company utilizes the gross method and pays the amount within the 10-day period
the cost of inventory will be reduced by 3,000.
Current Cost
the cost that would be incurred to purchase or reproduce the asset today
Present value
the measurement attribute that is based on future cash flows discounted for the time value of money
The LIFO inventory method that the units sold are
the most recent units purchased
Current liabilities are due within
the next year.
when a note receivable is impaired, it is remeasured based on what
the present value of currently expected cash flows
If the company uses the direct write-off method, what would bad debt expense be for 2016
the same amount as the accounts receivable written off
Direct method and indirect method of preparing the statement of cash flows result in _______________
the same net cash flows from operating activities and the same presentation of investing and financing activities
differences between the book balance and bank balance occur due to ______________ differences and ___________
timing errors
A non-sufficient funds check requiring an adjustment to the cash balance was written
to the company preparing the bank reconciliation
The sum of current and long-term assets reported on the balance sheet is referred to as
total assets.
Step 3 of the accounting processing cycle
transaction is recorded in a journal
Prepayments are:
transactions in which cash flow precedes revenue recognition and/or expense recognition
Present value calculations are used in calculating pension contributions for defined benefit plans true/false
true
long-term notes receivable are accounted for the same way as short-term notes receivable, but the time value of money has a larger effect true/false
true
sale of accounts receivables results in removing the accounts receivable from the balance sheet true/false
true
The direct write-off method is used when
uncollectible accounts are not anticipated or are immaterial
Horizontal analysis
uses ratio analysis or trend analysis of financials across multiple years
which of the following is not a receivable
wages earned by the employees but not yet paid by the company
For capitalization of interest on self-constructed assets, the average accumulated expenditures is the
weighted-average expenditures during the construction period
accounting error
when a transaction is recorded incorrectly or not recorded at all
Adverse opinion
when auditor finds exceptions that are so material that the financials may be misleading
qualified
when there is an exception to the standard opinion but not of sufficient seriousness to invalidate the whole of the financials
In a factoring arrangement made ______ recourse, the seller bears the risk of uncollectibility.
with
the balance in accounts receivable at the beginning of 2018 was $700. During 2018, $2,200 of credit sales were recorded. If the ending balance in accounts receivable was $170 and $100 in accounts receivable were written off during the year, the amount of cash collected from customers during 2018 was:
$2,630 700 receivables beginning yr 2,200 credit sales 170 receivables end yr 100 wrote off 700 + 2200 - 170 - 100 = 2630
Ajax Company purchased a two-year certificate of deposit for its building fund in the amount of $250,000. How much should the certificate of deposit be worth at the end of two years if interest is compounded at an annual rate of 9%?
$297,025 250,000 x 1.18810 = 297,025 FV of $1
Below is a schedule of accounts receivable. Using the aging method, determine the ending balance in the allowance for uncollectible accounts.
$4,800
Adams company utilizes LIFO inventory pools. Current period beginning inventory cost was $5,500. At the end of the period, the company determines that a layer of 100 units has been added. Average current year purchase price per unit was $6,000. The most recent cost per unit was $6.50. The amount of ending inventory should be:
$6,100 The LIFO layer is added at the average cost of purchases made during the period $6 x 100= 600+5500 = 6,100
Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were:
$61,740 face amount + interest to maturity 60,000 x .10 x 1/12= 3,000 = 63,000 maturity value - discount discount 63,000 x .12 x 2/12 = 1,260 63,000 - 1,260 = 61,740
Carol wants to invest money in a 6% CD account that compounds semiannually. Carol would like the account to have a balance of $80,000 four years from now. How much must Carol deposit to accomplish her goal?
$63,153 i = 6/3 = 3% n=4x2 = 8 80,000x.78941 = 63,153 PV of $1
Gammy Corporation provides services with a normal price of $800,000 and a trade discount of $100,000. Terms are 2/10,n/30 and the customers pay within 10 days. The net service revenue is
$686,000
Lee accepts a $100,000, 90-Day noninterest-bearing not recievable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sale is
$97,000
intangible with estimated useful life
-
Adjustments to the bank balance in a bank reconciliation include:
- Adjustments for BANK ERRORS - Add DEPOSIT OUTSTANDING - Deduct CHECKS OUTSTANDING
Receivables represent a company's claims to the future collection of _____
- Cash - Services - Other assets
Internal control consists of plans to
- Encourage adherence to company policies/procedures - promote operational efficiency - minimize errors/theft - enhance the reliability/accuracy of accounting data - improve the accuracy/reliability of accounting info - Safeguard company assets
Services performed by a factor
- buy accounts receivable - handle billing and collection of accounts receivable
Which of the following items are classified as receivables? -Amounts loaned and expected to be repaid -Tax refund claims -Amounts owned by customers -Amounts due to suppliers -Amounts paid for expenses
-Amounts loaned and expected to be repaid -Tax refund claims -Amounts owed by customers
The retail inventory method can be used to approximate
-FIFO -LIFO -average cost
Which of the following inventory methods result in the same ending inventory and cost of goods sold?
-FIFO periodic inventory system -FIFO perpetual inventory system
What two approaches are appropriate for estimating future bad debts?
-Income statement approach -Balance sheet approach
Restrictions on cash can be
-Informal arising from management intent -Formal by contract
Which of the following must be known to apply the retail inventory method?
-Inventory and purchases based on cost -inventory and purchases based on retail value
In what kind of situations does a sales return occur?
-a customer returns merchandise for credit to be applied to other purchases -a customer returns merchandise for a full refund
cash that is restricted and is not available for current use may be reported in the balance sheet as
-a noncurrent asset -investments and funds -other assets
Which accounts would an analyst investigate to detect if accounts receivable may impact earnings quality?
-bad debt expense -allowance for uncollectible accounts
The retail inventory and gross profit methods are similar in that they both rely on the relationship between which of the following to estimate ending inventory and cost of goods sold?
-cost -selling price
which of the following items are included in cash
-currency and coins -balances in checking accounts, items acceptable for deposits in these accounts (checks and money orders
What are some examples of adjustments to the bank balance in a bank reconciliation?
-deduct checks outstanding -adjustment for bank errors -add deposits outstanding
The cost of natural resources includes which of the following?
-development -acquisition cost for the use of land -exploration costs before production begins -restoration costs at the end of extraction
What type of expenditures should be included in the cost of inventory of a merchandising company?
-expenditures necessary to acquire inventory -expenditures necessary to bring inventory to necessary condition and sales location
Which of the following are included in inventory?
-goods that manufactures produce for sale -assets a retail company acquires for resale
A perpetual inventory system continuously records changes in what?
-inventory quantity -inventory cost
The definition of inventory includes which of the following items
-items held for resale -items currently in production for future sale -items used currently in the production of goods to be sold
Which of the following costs are capitalized as an asset for an internally developed patent?
-legal fees -filing fees
Taking a "big bath" tends to impair a company's
-net income -earnings quality
The gross profit ratio highlights the relationship between which of the following?
-net sales revenue -cost of goods sold
which of the following are classified as natural resources?
-oil deposits -mineral deposits
When is it appropriate to recognize a liability for an asset retirement obligation?
-over the asset's life as incurred -at the inception of the asset's life if a legal obligation exists.
A typical note receivable requires payment of a specified dollar amount at a specified maturity date in the future. What are terms for the specified dollar amount?
-principal -face amount
Which of the following accounts are typically reported on the balance sheet of a manufacturing company?
-raw materials -work in process -finished goods
What are classified as receivables?
-tax refund claims -amounts owed by customers -amounts loaned and expected
which of the following are the two approaches of estimating future bad debts
-the balance sheet approach -income statement approach
How is inventory recorded related to returns?
-the inventory account is increased when returns occur to include the returned items -inventory expected to be returned as an asset on the balance sheet
What is included in the cost of merchandise inventory?
-the purchase price of the goods -necessary costs incurred to get the goods in location for sale
Consistent with international financial reporting standards, which of the following cost flow assumptions are currently permitted?
-weighted-average -first in, first out
Comprehensive income reporting options:
1) a single, continuous statement of comprehensive income 2) two separate but consecutive statements
FASB standard setting process:
1) board adds a project to its technical agenda 2) the board deliberates at one or more public meetings 3) the board issues an Exposure Draft or Discussion Paper 4) the staff analyzes comment letters 5) the board issues an Accounting Standards Update (research, discussion paper, exposure draft, accounting standard update)
Sarbanes-Oxley act key provisions include:
1) restricting activities of auditors to prevent conflects of interest 2) requiring that corporate executives certify financials 3) requiring documentation and assessing effectiveness of internal controls
steps that pertain to the dollar-value LIFO retail method in the correct order.
1. ending inventory at year-end retail prices is converted to base-year retail prices 2. Inventory layers at base-year retail prices are identified 3. Using layer indexes and cost-to-retail ratios, inventory layers convert to LIFO cost.
Identify the entries needed for the closing process. .
1.Debit each revenue, credit each expense, and record the difference in Retained Earnings. 2.Credit Dividends Declared and debit Retained Earnings.
Adjusting entries are needed in order to
1.measure the period's net income or loss 2.update the accounts to their proper balances
Present value factors formula
1/(1+i)^n
Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the average cost method is
12,900 average cost of purchases: [(800 x 20) + (400 x 22)+(400 x 24)]/1600 = 21.50 21.50 x 600 = 12,900
during the year, claire wrote off $9,000 of accounts receivable that were uncollectible. What is bad debt expense for the period?
16,000
Norwalk Agreement
2002, FASB and IASB formalized their commitment to remove existing differences between US GAAP and IFRS
Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest ae is 6%, what is the present value of this annuity?
3,901 PVAD factor of 6% for 10 years 7.80169 x 500 = 3,901
Payment for credit sales are typically due in _ to _ days.
30,60
Lakeland Corp. Calculates that in the current year its employees earned an additional annuity of $10,000 for 20 years commencing with their retirement 12 years from today. Lakeland assumes a future interest rate of 6%. If the value of the annuity is $121,581 on the date the employees retire, what amount should be contributed today to fully fund the pension plan?
60,422
note receivable
A formal credit arrangement between a creditor and debtor is called a
_____ _____ are created when sellers recognize revenue associated with a credit sale.
Accounts receivable
Statement of cash flows is useful because
Accrural based income is not an indication of cash flow
Name a contra account to account receivables.
Allowance for sales returns
Asset
An item owned by the company representing probable future benefits. A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events
A bed debt expense is
An operating expense incurred to make sales
For a typical credit sale, the revenue recognition criteria is usually satisfied -When all expenses are estimated. -When cash is collected. -When the contract is signed. -At the point of delivery.
At the point of delivery.
Employees purchases should be included in the accounting records:
By the end of the accounting period
Inventory Turnover Ratio
COGS/Average Inventory shows how many times the average inventory balance is sold during the current reporting period
current asset
Cash and cash equivalents are included in the ____________ section of the balance sheet.
in the current asset "cash" account
Checks received from customers that have not been deposited yet are included where on a company's balance sheet?
The framework for designing an internal control system is provided by the:
Committee of Sponsoring Organizations (COSO) of the Tread way Commission
A(n) _______ balance is a cash restriction in connection with a loan that creates a higher effective interest rate on that loan.
Compensating
First step in determining impairment of receivables
Consider whether individual significant receivables are impaired
cash flows
Consistent with IFRS, determining whether risks and rewards have been transferred is evaluated by comparing how variability in the amounts and timing of the ____________ of the transferred affects the company before and after transfer.
An allowance for sales return account is classified as a(n)
Contra account to accounts receivable.
Which of the following items are included in cash?
Currency and Coins Checks from Customers Balance in Checking Accounts
List the steps for a bank reconciliation in correct order:
Adjust bank's cash balance, adjust the company's cash balance, update the company's cash account by recording items identified in the previous step.
Which of the following statements describes the effect that adjustments may have on liabilities?.
Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period
In a bank reconciliation, which of the following will require a journal entry by the company?
Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books
Which of the following require inventory to be valued at the lower of cost and net realizable value?
Both U.S. GAAP and IFRS
Which of the following services preformed by a factor?
Buy accounts receivable. Handle billing and collection of accounts receivable.
framework for designing an internal control system is provided by
COSO - Committee of Sponsoring Organizations of the Treadway Commission
True or false: Internal controls prevent and detect all errors and fraud.
False
True or false: Variability in operating cash flows is unimportant as long as the total cash flows over a three-year period is sufficiently positive.
False
A note receivable is an informal agreement, whereas an account receivable is accompanied by a formal promissory note. True False
False An account receivable is informal and a note receivable is formal and accompanied by a promissory note.
The gross method and the cash method are the two ways to record sales discounts. True False
False The gross method and the net method are the two ways to record sales discounts.
Which set of standards requires more disaggregation of accounts receivable and notes receivables in the balance sheet or notes?
GAAP
The two methods used for recording sales discounts are the _______ method and the _______ method.
Gross; Net
Second stepin determining impairment of receivables
Group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) _______ _______ approach to measuring bad debts
Income statement
bad debt expense is reported on the
Income statement operating expense
financial statements most frequently provided to external users
Income statement, balance sheet, state of cash flows, statement of shareholders equity
On October 1, Calloway signs a 5-year interest-bearing note payable for $4,000. The note bears interest of 10%. The journal entry required on December 31 to accrue interest will include:
debit to interest expense $100 4000 x .10 x (3/12) = 100
historical cost principle
The principle stating that asset and liability measurements should be based on the amount given or received in the original transaction
Financial Accounting Standards Board (FASB)
The private sector organization that is currently responsible for setting accounting standards in the U.S. is the?
transaction analysis
The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved
consistency concept
The qualitative characteristic of using the same accounting method each period over time refers
Identify all transactions that do not require adjusting entries..
Transactions that do not involve revenue or expense activities. Transactions that result in revenues or expenses being recorded at the same same time as the cash flow
The _______ recognizes a note receivable in a secured borrowing agreement.
Transferee
Match the impairment indicators with the correct account standard.
U.S. GAAP - Impairment if probable and can be measured reliably IFRS - Objective evidence exists that a loss event will affect future cash flows and can measured reliably
liabilities
U.S. GAAP requires that bank overdrafts be treated as __________ on the balance sheet where IFRS allows them to offset other cash accounts.
correctly match the impairment indicator guidance with the accounting standards the pertain to
U.S.GAAP-provides an illistrative list of information to consider in evaluating receivable for impairment IFRS- provides an illustrative list of loss events
income statement
Using a percentage of each period's net credit sales to estimate bad debt expense is an ___________________ approach to measuring bad debts.
debit sales returns; credit accounts receivable
Warner sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?
a(n) ________ _____________ is an informal credit arrangement to receive cash from a credit sale and represents an asset of the company
accounts receivable
match each term with its definition
accounts receivable-informal credit agreement with trade customers note receivable- formal credit arrangement between borrower and lender
Other comprehensive income is reported in the current reporting period on the income statement or as an addition to the income statement, and _____________ other comprehensive income is reported on the balance sheet
accumulated
factors that influence choice of inventory cost flow assumption
actual physical flow of inventory tax implications of choice financial statement effect
a sale to a customer on account should be recognized when the goods or services are delivered and
collection of the receivable is probable
When adjusting the book balance in a bank reconciliation must be added to the cash account book balance?
collections of funds by the bank
The accounting term for a situation where two or more people act in coordination to circumvent internal controls is _____
collusion
When two or more persons work together to circumvent internal control procedures and commit a fraud this is called
collusion.
A nonmonetary exchange is considered to have ______ _____ if the future cash flows will change as a result of the exchange
commercial substance
ratio analysis
common method of analysis is to express a relationship between the two financial statement items and compare this relationship with previous years
Shareholders' equity includes?
common stock and retained earnings
Common disclosures on the face of the financials
common stock information allowance for uncolletible accounts
Accrual adjustments are needed when a
company has earned revenue or incurred an expense but cash has not been exchanged
a restriction of cash wherein the borrower is required to maintain a specific amount in a low-interest or non-interest-bearing account at the bank is called a(n) _______________ balance.
compensating
A cash restriction imposed by a bank wherein the debtor must leave a certain amount of funds such as 5% of the original loan in the low-interest or noninterest-bearing account is a
compensating balance
A cash restriction imposed by a bank wherein the debtor must leave a certain amounts of funds such as 5% of the original loan in the low-interest or noninterest-bearing account is a
compensating balance
discontinued operation is reported when a ____________ of an entity either has been disposed of or is classified as held for sale
component
Two types of adjustments to net income for indirect method
components of net income that do not affect cash changes in operating assets and liabilities during the period that affected cash and were not in net income
The "accounting constitution", a coherent system of interrelated objectives and fundamentals that lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting is referred to as the ______________ framework.(enter only one word)
conceptual
Companies have considerable flexibility in reporting income from __________ operations, but the reporting of income from ___________________ operations is strictly mandated
continued discontinued
The account sales return and allowances account is a(n) _. _ account and requires a _ entry to increase the account.
contra - revenue debit
an allowance for sales return accounts is classified as a(n)
contra account to accounts receivable
The discount on notes receivable account is classified as
contra account to notes receivables
The sales returns and allowances account is classified as a
contra revenue account
The Esquire Clothing Company borrowed a sum of cash on October 1, 2018, and signed a note payable. The annual interest rate was 12% and the company's year 2018 income statement reported interest expenses of $1,260 related to this note. What was the amount borrowed?
42,000 1260/.03 = 42,000
Sarbanes-Oxley Act requires lead audit partners are required to rotate every ________ years
5
The present value is $29,650, the future value is $50,000, and the interest rate is 11%. The number of periods is approximately
5 29,650/50,000 = .593 PV table - find 11% column, find factor .593
On January 1, year 1, Dennis borrows $20,000 at 6% interest compounded semi-annually. What is the amount of interest Dennis will pay at the end of year 4?
5,335 [20,000 x (1.03)] - 20,000 = 5,335
Excerpts from Huckabee Company's December 31, 2018 and 2010, financial statements are presented below: 2018 2017 A/R 81,000 73,000 Inventory 59,000 73,000 Net Sales 401,000 373,000 COGS 241,000 221,000 Huckabee's 2018 receivables turnover (rounded to 2 decimal places) is
5.21 (81,000 + 73,000)/2 = 77,000 401,000/77,000 = 5.207 or 5.21
current assets
Accounts receivable are ________ because they will be converted to cash within the normal operating cycle.
allowance for collectible accounts and allowance for sales returns
Accounts receivable are initially recorded at the exchange price agreed upon by the buyer and seller and subsequently reduced by what?
Which of the following items are not included in cash?
Accounts receivable from customers.
Which of the following steps are necessary to reconcile the bank balance and the cash account balance.
Adjust bank's cash balance Adjust the company's cash balance Record items that reconcile the company's cash balance
A gain from discontinued operations will result in an income tax _________, whereas a loss from discontinued operations will result in an income tax __________
expense benefit
Cost to develop computer software to be used internally should be treated as a(n) ______, whereas costs after the development stage is complete should be treated as a(n) _____.
expense asset
Accrued liabilities are ___________________
expenses incurred before cash was paid (interest payable, warranty liabilities, salary payable)
Adjusting journal entries are needed to record:
expenses incurred, but not yet paid and revenue earned, but not yet received
Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financials?
expenses will increase
The primary role of financial accounting is to provide useful financial information to users __________ to the business enterprise.
external
The formula for calculating interest includes which one of the following?
face amount X annual rate X fraction of the annual period
The two most common types of selling arrangements for accounts receivable are
factoring securitization
The two most common types of selling arrangements for accounts receivables are _____ and _____.
factoring, curitization
An exchange of assets that has commercial substance is valued at the_____ value of the assets given or received, whichever is more clearly evident, but an exchange that lacks commercial substance is valued at the_____ value of the assets given
fair book
The basic principle far valuing assets in a nonmonetary exchange is to value the asset received at
fair value
alternative method for valuing notes receivable
fair value method
an interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest true/false
false
Two most common sources of occupational fraud are:
financial statement manipulation misuse of company resources
Disclosure is the process of including additional pertinent information in?
financial statements and notes to the financial statements
The classifications on the statement of cash flows are cash flows from
financing activities investing activities operating activities
statement of cash flows, cash received from the issuance of common stock would be classified as a ________________
financing activity
Once products are completely manufactured, the related costs are transferred to ___________________ ________________.
finished goods
When the allowance method is used, the write-off of an uncollectible account:
has no effect on net income
During the year, Inga Corporation writes a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of collecting the written-off accounts receivable on net income?
no effect
Cobalt Corp. uses the allowance method to account for bad debts. If Cobalt writes off an account for $3,000, what is the effect on the balance sheet
no effect on total assets
Interest expenses is classified on the income statement as
nonoperating item
The acronym NSF stands for
nonsufficient funds.
The transfer of a(n) ___________ __________________________________ to a financial institution is called discounting.
note receivable
When a receivable, trade or nontrade, is accompanied by a formal promissory note, it is referred to as a _____ _____.
note receivable
a formal credit arrangement between a creditor and debtor is called a(n)
note receivable
internal control system is designed to
promote operational efficiency safeguard assets encourage adherence to company policies
Sarbanes-Oxley Act requires that if non-GAAP earnings are included in a report of any public disclosure, the company must
provide a reconciliation with earnings according to GAAP
Internal control consists of plans to
provide accurate and reliable accounting information. safeguard company assets.
Initial market transactions
provide for new cash by the issuance of stocks and bonds by the corporation.
Interim reporting objectives
provide information about seasonality enhance the timeliness of finanacials
GAAP impairment indicator guidance
provides an illustrative list of information to consider in evaluating receivables for impairment
LIFO
provides better matching of current revenues with current inventory cost
Financial reporting is the process of ______________
providing information to outside users
Debit and credit cards used by employees in the course of fulfilling their employment objective are commonly referred to as
purchase cards.
Neumann Corporation has entered into a contract with its vendor to purchase 1,000 units of merchandise at $520 per unit. This is an example of a ___________ _____________________
purchase commitment
deducted in the cost column
purchase dicounts taken (if gross method used to record purchases)
Wholesale and retail companies
purchase goods that are primarily in completed form
manufacturing companies
purchase goods that are used to produce another product
when a buyer returns goods to the seller, the buyer records a(n) ______________
purchase return
what ratios measure liquidity
quick ratio and current ratio
With respect to current assets, liquidity refers to how.
quickly an asset can be converted to cash
effect rate
rate at which money will actually grow during a full year
gross accounts receivable less allowance for doubtful accounts is the net _________value of accounts receivable
realizable
A claim to recieve cash in the future is a
receivable
a company's claims to the future collection of cash, other assets, or services is called a _.
receivable
Tax refund claims, loans to employees, and interest due on a loan made by the company to another entity are all examples of nontrade __________.
receivables
During the prior year, Marian Company recognized an impairment loss on its notes receivables. During the current year, the amount of estimated future cash flows improved. Marian sould
recognize a gain
Estimated returns are material
recognize estimated returns during year of sales
Estimated returns are immaterial
recognize returns when they occur
Klein Company's accountant is unable to reconcile the current year bank and cash account balances. If no cause can be determined to explain this difference, the difference should be
recognized as miscellaneous expense or revenue.
One of the most important internal controls for cash is the bank _____.
reconciliation
the required accounting treatment for transfer of receivables as a sale includes which of the following
record proceeds recognize gain or loss remove receivables
At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will still be returned by customers during the subsequent year. Kunze Corporation must
record the estimated returns at the end of the year.
Freight out (or transportation out)
recorded as either selling expense or cost of goods sold
The primary disadvantage of offering discounts to customers is that they:
reduce current period net revenue
Depreciation expense adjusting entry has what effect on the balance sheet
reduce total assets
what happens when a receivable previously written off is collected in full
reinstate the receivable and the allowance for uncollectible account
permanent earnings
relate to operations that are expected to generate similar profits in the future. (usually begin with income from continuing operations (not all of this is actually from continuing operations)
Nonoperating Income (Other Income (expense))
relates to peripheral or incidental activities of the company
Gross Profit
relationship between sales revenue and cost of goods sold
Proponents of fair value accounting point out that it will enhance the ____________ of the information provided
relevance
A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the _______ _____ account.
rent expense
The purpose of recording an allowance for uncollectible accounts is to
report accounts receivable at net realizable value.
cash flows may be distored by the transfer of receivables because companies may
report sale of receivables in the operating section of the statement of cash flows
Strong internal control systems allow greater reliance by investors on:
reported financial statements
Income Tax Expense (provision for income taxes)
reported in a separate line in the income statement Income taxes are levied on taxpayers in proportion to the amount of taxable income that is reported to taxing authorities
what is on a Balance sheet:
reports assets, liabilities, stockholders' equity
what is on a Income statement:
reports revenue minus expenses.
retained earnings
represents the net income earned by a corporation and not yet paid to shareholders
Compensation disclosure
required by SEC for Executives and directors
Subsequent event disclosure
required for any event having a material effect on operations that occurs after a company's year-end but before the financials are issued (issuance of debt or equity securities)
change in depreciation method
requires a justification in the notes to financials
Sarbanes-Oxley act, Section 404
requires companies must document internal controls and asses their adequacy
Full-disclosure principle
requires financials to provide all material relevant information regarding the company (pension plans, long-term debt, leases)
The key provisions of the Sarbanes-Oxley Act include requiring documentation and assessing effectiveness of internal controls
requiring that corporate executives certify financial statements restricting activities of auditors to prevent conflicts of interest
The key provisions of the Sarbanes-Oxley Act include
requiring that corporate executives certify financial statements. restricting activities of auditors to prevent conflicts of interest. requiring documentation and assessing effectiveness of internal controls.
The accounting treatment required for a material error in financials that have already been issued is to ______________
restate the financial statements of the previous periods affected
The cost to return land or other property to its original condition after extracting natural resources are referred to as
restoration
Cash that is _____ in some way and not available for current use usually is reported as a noncurrent asset such as investments and funds or other assets.
restricted
Cash that is not available for current operations is referred to as _____ cash.
restricted
The _________ _______ method uses the cost-to-retail percentage based on a current relationship between cost and selling price.
retail inventory
Emily Retail Company wants to estimate its ending inventory for annual financial reporting purposes. Which of the following methods can the company utilize?
retail inventory method
The two major categories reported in the income statement are:
revenue expense
a cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specied period of time is also referred to as a ______ discount
sales
Which of the following is a discount that is a reduction in the sales price if the customer pays within a specified time period?
sales discount
serves to relay important information about a transaction to the accountant?
sales invoices, bills from suppliers, cash register tapes
FIFO inventory method
tends to approximate replacement cost because units are priced using the most recent acquisition costs
The post-closing trial balance helps to verify that:
the accounts are ready for next period's transactions we prepare and posted closing entries correctly
Revenue in the income statement for the year ended December 31, 2018 equals
the amount earned by selling goods or services to customers during 2018.
Bill wants to give Maria a $510,000 gift in 6 years. If money is work 6% compounded semiannually, what is Maria's gift worth today?
$357,704 n=12 (6x2 = 12) i=6/2 = 3 510,000 x .70138 = 357,705 PV of $1
Which of the following are services performed by a factor?
-buy accounts receivable -handle billing and collection of accounts receivable
Garcia sells goods to a customer for $100,00 on a noninterest-bearing 180-day note. The discount rate is 12%. The effective interest rate for this note is
1) $100,000 X 12% X 180/ 360 days = $6,000 2) $6,000 / $94,000 = 6.383% 3) 6.383% X 2 = 12.77% annual interest
Neumann company places 100 units on consignment with Hartman consignments company. At the end if the accounting period, 45 units have been sold. How many units (if any) should be included in Neumann's ending inventory?
55 units
Cash and cash equivalents are reported as a single amount in the _____
Balance sheet
Place the asset categories in the order in which they would appear on a classified balance sheet.
Current Assets Long-Term Investments Property, Plant, and Equipment Intangible Assets
Cash and cash equivalents are included in the __________ __________ section of the balance sheet.
Current asset
Cash and cash equivalents are included in the ____ of the balance sheet
Current asset section
Company employees who make necessary expenditures during the course of their employment may utilize "purchase cards"
Debit and credit cards
Purchase supplies on account requires what journal entries
Debit supplies on hand credit accts payable
Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?
Debit to Sales Returns Credit to Accounts Receivable.
The closing entry for expense accounts involves the following journal entry.
Debit: Retained Earnings Credit: Expenses
Adam company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be
$2,540 2,880/900 = 3.2 3.2 x 700 = 2,240 2,240 + 300 = 2,540
When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance?
Deposits outstanding
Internal control consists of plans to
Encourage adherence to company policies and procedures Promote operational efficiency Minimize errors and theft Enhance the reliability and accuracy of accounting data.
The citation used to reference generally accepted accounting principles is
FASB ASC followed by the appropriate number
The __________ and the __________ are jointly working on the Financial Statement Presentation project
FASB and IASB
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?
FIFO
In a(n) _______ arrangement, the company sells its account receivable to a financial institution and the financial institution handles the billing and collections.
Factoring
True or false: All companies are required to have an independent auditor assess the adequacy of their internal control procedures.
False
True or false: Employee purchases using cash or purchase cards must be recorded immediately as business expense.
False
Which of the following steps are necessary to reconcile the banks balance and cash account balance
First, adjust the banks cash balance. record the items that reconcile the company's cash balance and adjust the company's cash balance
troubled debt
For a note receivable, if the original terms of the debt are changed due to financial difficulties of the borrower, this is referred to as a ___________________ restructuring.
the more likely it will prove uncollectible
For accounts receivable, the longer an account is outstanding,
check signing and check writing, and check writing and check mailing
For internal control purposes, what responsibilities should be separated for cash disbursements?
Control Environment
Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure
The income statement approach and balance sheet approach are two alternative ways to estimate the amount of
Future bad debts
Gain
Increase in equity from peripheral or incidental transactions. Result from changes in equity that do not result directly from operations but nonetheless are related to those activities. (sale of equipment, buildings, etc also included)
A company that has sufficient cash or is capable of converting assets to cash in a short period of time so that it can meet its current needs is considered to be -Liquid. -Profitable. -Risky. -Marketable.
Liquid
When assets are purchased in a group for a single sum, it is referred to as a
Lump-sum purchases
7.5%
Lydia Corp. borrows $25,000 from the bank at an interest rate of 6%. If the bank requires a compensating balance of $5,000, the effective rate of interest on the loan is
Who has final responsibility for internal controls?
Management
Who has the responsibility to apply accounting standards when communicating with investors and creators?
Management
offering cash discounts and extending payment terms
Management can influence credit and collections by
Reconciliation
Most important internal controls for cash is the bank ______________.
Earnings per share (EPS) basic
Net income (less dividends to preffered stock holders) / weighted average number of common shares outstanding weighted average example: 1 million shares outstanding beginning of period, 1 mill shares sold March 31, 2018 1,000,000 + 1,000,000(9/12)
Two statement approach:
Net income statement immediately followed by a statement of comprehensive income Comprehensive income statement begins with net income, followed by OCI items to arrive at comprehensive income there is a seperate income statement
_____ _____ allow a customer to pay an amount below the list price.
Trade discounts
Match the impairment indicators with the correct accounting standard.
U.S. GAAP - Impairment if probable and can be measured reliably IFRS - Objective evidence exists that a loss event will affect future cash flows and can measured reliably
Match the accounting standard with the appropriate treatment of receivables.
U.S. GAAP - Requires more disaggregation and disclosure of receivables. IFRS - Recommends but does not require separate disclosure of receivables.
Cash equivalents
US treasury bills, money markets, commercial paper with a 3 month maturity date or less from date of purchase
An informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as a
account recievable
Periodically, management should verify that amounts related to the company's physical assets agree with the _____ records.
accounting
Elements of the accounting equation are represented by _________ which are contained in the general ledger
accounts
The adjusted trial balance shows a list of all
accounts and their balances after we have updated account balances for adjusting entries.
A customer account that is not expected to be collected is referred to as a(n) _ debt.
bad
Monetary assets
accounts receivable cash note receivable (not inventory)
accouts that could be examined to detect potential low earnings quality
accounts receivable and allowance for bad debts
calculate bad debt expense for the year
accounts receivable balance at the beginning of the year X percentage of credit sales
The term net accounts receivable refers to
accounts receivable less the allowance for uncollectible accounts
internal controls for cash is the
bank reconciliation
Non-GAAP earnings are calculated
based on management's assumptions of permanent earning
Sales revenue is reported net of these amounts:
actual sales discounts taken by customers actual sales return and allowances granted to customers estimated sales returns and allowances pertaining to current year sales
purpose of a sales journal is to record
all credit sales
Trade discounts
allows a customer to pay an amount below the list price.
The sales discount account is classified as a
contra revenue account
The accumulated depreciation account is a contra (valuation) account to ___________________
asset account
When rent is paid in advance for 2 years, it is appropriately recorded as a(n) ______, whereas when rent is paid and used during one month, it is appropriately recorded as a(n) _______
asset; expense
for a typical credit sale, the revenue recognition criteria is usually satisfied
at the point of delivery
Which of the following is usually reported on the balance sheet as a noncurrent asset? a) Cash equivalents b) Restricted cash c) Inventory d) Accounts receivable
b) Restricted cash
Abby Company has three bank accounts with the following balances: account 1: $20,000; account 2: $40,000; account 3: $10,000 overdrawn. If Abby Company applies U.S. GAAP, it will report: a) cash of $70,000 b) liability of $10,000 c) cash of $50,000 d) cash of $60,000
b) liability of $10,000 d) cash of $60,000
markdown cancellation
elimination of markdown
In the closing process....
expenses and dividends are zeroed out by crediting each account and revenues are zeroed out by debiting each account.
Failure to record an adjusting entry for accrued interest on a note payable has what effect of financials:
expenses are understated retained earnings is over stated
Under the accrual basis of accounting, the matching principle requires that
expenses be recognized in the same period as the related revenues.
Most states require ________ to become a licensed certified public accountant
experience, education and testing
interest calculation formula
face value x annual interest rate x fraction of the annual period
The formula for calculating interest on a note is
face value x annual rate x fraction of the annual period
advantages of one global accounting framework:
facilitate access to capital improve comparability
annuity
fixed payment at fixed intervals
Income Approach
for measuring fair value estimates value by estimating future amounts of earnings or cash flows and then mathematically converting these amounts to a single present value
SEC does not agree with a standard issued by the private sector it can:
force a change in the standard
The two methods used for recording sales discounts are the __________ method and the _________ method.
gross net
Property, plant and equipment
mineral mines, oil wells, furniture, machines, buildings
Which of the following are components of internal control?
monitoring; control activities; risk assessment; control environment
Return on shareholders' equity (ROE)
net income/average shareholders equity amount of profit management can generate from the assets that owners provide.
Which organizations provide financial information to external users?
profit-oriented businesses and charitable organizations
A company's claims to the future collection of cash, other assets, or services is called a
recievable
A good internal control system would require that the employee who handles cash must not be involved in
reconcilin the bank statement
when merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _________ _________
sales return
FASB and IASB already developed converged accounting standards for:
share-based compensation, non-monetary exchanges and Earnings per share
Disclosure notes for discontinued operations must include
the identity of the component the major classes of assets and liabilities of the component the reason for the discontinuance
Accounts receivables from sales to customers are _ receivables.
trade
accounts receivable from sales to customers are _ receivables.
trade
Management can influence the collection of receivables based on the terms they offer true/false
true
Who has the responsibility for preparing financial statements in accordance with generally accepted principles?
Corporate Management
Prime corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net realizable value of accounts receivable?
$93,000
Cash uncludes
- currency and coins - balances in checking accounts - checks - money orders
Examples of what can be paid with petty cash
- entertainment expense - office supplies - postage expense
The formula for calculating interest multiplies which of the following
- face amount of note - fraction of the annual period - annual interest rate
Show the order in which these asset accounts would appear on a company's balance sheet.
1. Cash 2. Accounts Receivable 3. Equipment
Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be
6,000,000 720,000 / .12 = 6,000,000 ROA = net income / assets so 12% = 720,000/ assets = 6,000,000
On January 1, year 1, Mary borrows $30,000 at 8% interest compounded semi-annually. What is the amount of interest Mary will pay at the end of year 3?
7,960 [30,000 x (1.04^n)] - 30,000 = 7,960
comparability
An enhancing qualitative characteristic of accounting information that allows users to better understand similarities and differences in the financial reports across different companies
failure to record the adjusting entry for depreciation expense is omitted ____________________
Assets will be overstated and income overstated
markup cancellation
Elimination of an additional markup
note receivable
Formal credit arrangement between borrow and lender
Income from Discontinued Operations
Income that will not continue in the future
A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as
Internal controls
Which of the following are cash inflows from financing activities?
Issuing stock to investors for cash Borrowing from bank
Receivables turn over ratio formula
Net sales divided by average accounts receivable (net)
Which of the following trial balances shows account balances that incorporate current year deferrals and accruals?
Post closing trial balance. Adjusting trial balance.
$93,000
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net realizable value of accounts receivable?
Long-term assets can be classified as
Property plant equipment intangible
Which of the following situations require cash to be restricted?
Requirements to set aside funds to repay debt. Requirements to use cash for future plant expansion.
When adjusting the cash account balance in a bank reconciliation, which items must be subtracted from the company's cash account balance?
Service charges Charges for NSF checks
Why is it easy for top level management to commit fraud
Subordinates feel intimidated and may not report it. They can override the internal control system and fewer internal control may be in place at that level
Which of the following is an example of separation of duties in a good system of internal control?
The individual who recieves the inventory does not have access to the accounting records
recognition
The process of admitting or recording an item into the basic financial statements
Accounts receivable are classified as current assets because
They will be converted to cash within 1 year or the normal operating cycle.
allowance for bad debts and accounts receivable
What accounts could be examined the detect potential low earnings quality?
treasury bills, commercial paper, and money markets
What are considered cash equivalents?
Accumulated depreciation is:
a contra asset account, a balance sheet account
Net income and comprehensive income are identical __________
a statement of comprehensive income is not required
accounting model best meets the primary goal of users of financial reporting
accrual basis
First-in, first-out (FIFO) method
assumes that items in ending inventory are the most recently acquired most closely approximates the actual physical flow of inventory
The direct write-off method involves a debit to _ and a credit to _.
bad debt expense;accounts receivable
Employees purchase should be included in the accounting records
by the end of the accounting period
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called
checks outstanding.
An allowance for sales return account is classified as a
contra account to accounts recievable
journal entry, the amount to be _________ is entered in the first column, and the amount to be ____________ is entered in the second column
debied; credited
shannon corp. determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account includes
debit to allowance for uncollectible accounts and credit to accounts receivable
Failure to record depreciation expenses has what effect on the financials
expenses are understated assets are overstated
A ______ is a financial institution that buys receivables for cash and charges a fee for this service.
factor
In a _________ arrangement, the company sells its accounts receivable to a financial institution and the financial institution handles the billing and collections.
factoring
An intentional error by an employee that results in theft is referred to as a ______.
fraud
Restructuring cost are recognized on the income statement
in the period the exit or disposal obligation is incurred (based on fair value)
Earnings per share is disclosed at the bottome of the
income statement
The FIFO inventory method assumes that units remaining in ending inventory are the _____ unuits purchased
last
FASB conceptual framework concepts includes:
measurement concepts, concepts regarding types ofevents to be accounted for and undelrying concepts of accounting
Failure to accrue salaries at year-end has what effect of financials
net income is overstated
Failure to recognize revenue in the period earned has what effect on the financials:
net income may be over or understated and the income statement would not report the accomplishments of the period
Jordan corporation settles an account receivable from london company by accepting a six-month interest bearing note receivable with an interest rate of 8%. The effect on Jordan financial statements is
no change in current assets
The acronym NSF stands for
non-sufficient funds
Income tax receivable is a _ receivable.
nontrade
If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:
nothing; the deposit has already been recorded.
Separation of duties and E-commerce controls are examples of ______ controls.
preventative
Tax refund claims, loans to employees, and interest due on a loan made by the company to another entity are all examples of _____.
receivables
Which of the following is a discount that is a reduction in the amound to be paid if the customer pays within a specified time period
sales discount
participating interest
sharing proportionally in the cash flows of the receivables and having equal rights with respect to the receivables
when does the actual write-off of a receivable occur?
when it is determined that all or a portion of the receivable will not be collected
A company sells goods on account. Customer returns merchandise, and has not yet paid for any of the goods. What will be recorded?
- Debit to Sales Returns - Credit to Account Receivables
Potential benefits of offering cash discounts to customers include
- Reduction in bad debt - Increased sales volume - Accelerated customer payment
When a receivable is written off, what happens
- The allowance for uncollectible accounts is reduced - Accounts receivable is reduced
What is NOT a receivable
- Wages earned by employees but not yet paid by the company
Classified as receivables
- loans by a company to other entities - interest due from loans to customers
Cash equivalents include
- money market funds - treasury bills - commercial paper
Two methods for recording SALES DISCOUNTS are
- net method - gross method
Werner Company's accountant discovered that the prior-year financial statements were misstated due to an inventory-related error. Werner must
- restate its prior-year financial statements -adjust account balances that are incorrect as a result of the error
Match the inventory cost flow assumptions on the left with the scenario on the right
--------------
Correctly match the type of company with the type of inventory purchased
-----------------
Math each scenario with the type of invenory system
------------------
match the account names with the correct financial statement.
----------------------
Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000 respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?
-200,000 x (1-.3) = 140,000 loss net of tax
Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that:
-All disbursements are made by check, debit card, or credit card -Checks are signed by authorized individuals -All expenditures are authorized
Company's employees who make necessary expenditures during the course of their employment may utilize "purchase cards" which may be in the form of:
-Debit Cards -Credit Cards
Internal control consists of plans to: -Enhance the reliability of accounting data. -Report misuse of company assets to investors -Promote operational efficiency -Enhance the accuracy of accounting data -Report management errors to the investors
-Enhance the reliability of accounting data. -Promote operational efficiency. -Enhance the accuracy of accounting data.
Restrictions on cash may be -Imposed by government regulation. -Formal by contract -Imposed by stockholder intervention. -Informal arising from management intent.
-Formal by contract. -Informal arising from management intent.
What are preventable controls?
-Separation of duties -Physical Controls
When a receivable is written off, what occurs?
-accounts receivable is reduced -the allowance for uncollectible accounts is reduced
The two important account issues related to self-constructed assets are
-allocation of overhead -treatment of interest charges
Ziegler Company properly applies the lower of cost and net realizable value rule and determines that its inventory value has declined by 10,500 below cost. Which of the following accounts could be credited for this write-down
-allowance -inventory
cash and cash equivalent sheet includes
-balance in checking account -balance in savings account -undeposited customer checks -currency and coins on hand -U.S. treasury bills that is under 3 months
cash and cash equivalent sheet does not include
-balance in savings account when the savings account is being used to accumulate cash considering the cash is not of use at this point -balance in checking account when the funds can't be used at this point -u.s. treasury bills that are longer than 3 months
What are some examples for adjustments to the book balance in a bank reconciliation?
-bank service charges -company errors -collections made by the bank on the company's behalf
Tore Company's records reveal the following information regarding its inventory. Beginning inventory was $100,000 at cost and 160,000 at retail. Purchases during the year were $300,000 at cost and $500,00 at retail. Markups were $10,000 and markdowns 20,000. Assuming the conventional retail method is used and net sales were 500,000, ending inventory at retail would be?
-beginning inventory at retail 160,000 + net purchases at retail 500,000 + markups 10,000 - markdowns 20,000 -net sales 500,000= 150,000
The statement of cash flows provides information about a company's:
-cash disbursements -cash receipts
which of the following are adjustments to the book balance in a bank reconciliation?
-company errors -collections made by the bank on the company's behalf -bank service charges -SUBTRACTED ITEMS 1.NSF checks 2. Service and other charges made by the bank
Exploration costs include expenditures for
-drilling a well -excavating a mine -relating to a search for natural resources
Internal controls consist of plans to
-encourage adherence to company's policies and procedures -promote operational efficiency -minimize errors and theft -enhance reliability and accuracy of accounting data
Restrictions on cash may be
-formal by contract -informal arising from management intent
Indicate which costs would be capitalized as part of the cost of manufacturing equipment
-freight-in -insurance during transit -set-up cost
added in the cost column
-freight-in(Before calculating the cost-to-retail %) -employee discounts (if sales are recorded net of discounts) (after calculating the cost-to-retail %)
The two generally accepted methods for oil gas accounting for U.S. GAAP are the
-full-cost method -successful efforts method
ownership of inventory at the end of the accounting period is determined for
-goods shipped to customers and suppliers
Which of the following methods can be used to estimate inventory when a physical count is not possible?
-gross profit method -retail inventory method
which of the following are potential benefits of offering cash discounts to customers?
-increase sales volume -accelerate customer payment, reduce bad debts
What are examples of costs of extending credit terms to customers?
-increased investment in receivables -increase in uncollectible accounts
Which of the following are costs of extending credit terms to customers
-increased investment in receivables -increase in uncollectible accounts
The lower of cost and net realizable value approach can be applied to
-individual inventory items -logical categories of inventory (groups of interntory items) -entire inventory
In a perpetual inventory system, which buyer accounts are reduced at the time a purchase return occurs?
-inventory -accounts payable
Which of the following costs should be capitalized in the costs of acquiring a building?
-legal fees to obtain title -purchase price
Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?
-legal fees to secure title -costs to remove an old building -real estate agent commissions
which of the following gives rise to a note receivable
-loaning money to stockholders -loaning money to an affiliated company -a formal, written extension of the credit period to trade customers
r&d cost
-modification of a formula or design -design, construction and testing of prototype or model
Which of the following must be included in the disclosure note related to a change in inventory method?
-the effect of the change on items not reported on the face of the primary statements -the cumulative effect of the change on retained earnings -justification that the change is appropriate
Multi Company changed its inventory method from LIFO to FIFO. Multi must disclose the following information in its notes:
-the effect on earnings per share amounts -the cumulative effect pf the change on retained earnings
Which of the following indicate surrender of control over the assets transferred?
-the transferor will have no continuing involvement -Received are sold without recourse
Steps at the end of the accounting period
1) prepare an unadjusted trial balance 2) record adjusting entries 3) prepare an adjusted trial balance 4) prepare financials 5) close the temorary accounts
Financial accounting objectives
1) provide information to investors 2) provide information used to evaluate future cash flows
SFAC 5 the four criteria that must be met for an item to be recognized in the basic financial statements are:
1) the information about the item is relevant to decision making 2) the item has relevant attributes that are measurable 3) the item meets the definition of an element 4) the information about the item is reliable
Kevin borrows $8,000 from Second National Bank at 10% interest. Kevin will repay the loan in six equal payments beginning at the end of year 1. What is the annual amount that Kevin will pay the bank each year.
1,837
List the steps for a bank reconciliation in the correct order.
1. Adjust bank's cash balance. 2. Adjust the company's cash balance. 3. Update the company's Cash account by recording items identified in the previous step.
Which of the following items are classified as receivables?
1. Amounts owed by customers. 2. Tax refund claims. 3.Amounts loaned and expected to be repaid.
Steps in determining the impairment of receivables under IFRS
1. Consider whether individual significant receivables are impaired 2. Group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics 3. Perform impairment test
List these liability accounts in the order in which they would appear on a company's balance sheet.
1. Note payable (due in 5 months) 2. Note payable (due in 5 years) 3. Mortgage payable (due in 25 years)
Place the steps in the adjustment process at the end of the accounting period in the correct order.
1. Using the unadjusted trial balance, determine the accounts requiring adjustment. 2. Record the adjusting entries in the journal 3. Post the adjusting journal entries to the T-accounts 4. Prepare an adjusted trial balance to check the equality of the debits and credits.
steps for capitalizing interest on self-construction assets in their proper order
1. identify assets that qualify for interest capitalization 2. identify the period of capitalization 3. Calculate average accumulated expenditures 4. apply the appropriate interest rate -qualifying asset -period of capitalization -applicable interest rate -average accumulated expenditures
Place the following in the proper order to reflect the typical cost flow for a manufacturing company
1. raw materials are used and recorded in work in process 2. direct labor is applied to work in process 3. manufacturing overhead is applied to work in process 4. costs of completed units are transferred to finished goods 5. costs flow to cost of goods sold when goods are sold
Which of the following steps are necessary to account for and report a change in inventory method?
1. revise comparative financial statements 2. the affected accounts are adjusted 3. A disclosure note provides additional information ANSWER -adjust appropriate balance sheet accounts -disclose additional information in the financial statement notes. -revise comparative financial statements
On Jan 1, Bern Company has 100 units costing $100 in beginning inventory. On Jan 2, Bern Purchases an additional 400 units for 1.50 per unit, and sells 300 units. On Jan 3, the company sells an additional 100 units. On jan 4, Bern purchases 200 additional units for 1.60 per unit. If bern utilizes a perpetual LIFO system, per unit of cost of goods sold for the Jan 3 sale will be
1.50
Which of the following should be segregated?
1.Opening the mail and deposit of checks in the bank 2.Depositing checks into the bank and recording receipts in the accounting records.
match the effect of each error with the specific error scenario 1. net income is overstated 2. net income is understated 3. net income is not affected
1.during the physical inventory, certain inventory items were double counted 2. inventory currently out on consignment was not included in the inventory count 3. a purchase in transit that was shipped f.o.b. shipping point was neither counted nor recorded.
Adjusting entries :
1.update the accounts to their proper balances 2.are needed in order to measure the period's net income or loss
IN a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in the following order
1.work in process 2. finished goods 3. cost of goods sold
trademark
10 years renewable, possibly indefinite exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company
threshold of revenues, assets, or income that qualifies a segment to be disclosed
10%
If the future value of an amount is $40,000 at the end of 4 years, the present value today is $27,320, and the interest is compounded annually, the interest rate is approximately ________
10% 27,320/40,000 = .06830 look at PV table, this ratio is approximately the same PV factor as 10% interest for four periods
Patent
20 years -exclusive right to produce a product or use a process
Informal credit agreement with trade customers
Account receivable
Inventory expected to be returned in included in what type of account?
Asset
Adjusting entries
Entries made at the end of an accounting period before the financial statements are prepared to ensure that the revenue recognition and expense recognition principles are followed. necessary for three situations: deferrals, accruals and estimates
Correctly match the appropriate accounting treatment for estimated returns.
Estimated returns are material - Recognize estimated returns during year of sales. Estimated returns are immaterial - Recognize returns when they occur.
Interest is defined as the "cost of borrowing money" Since the account represents all the cost incurred during the period on borrowed money, it is classified as a
Expense account.
Interest is defined as the "cost of borrowing money." Since the account represents all the cost incurred during the period on borrowed money, it is classified as an
Expense account.
True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.
False
Which of the following led to the passage of the Sarbanes-Oxley Act of 2002?
High profile accounting scandals during the early 2000s
the time value of money has a larger effect on long-term notes receivable
How do long-term notes receivable differ from short-term notes receivable?
A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?
It would be added to the bank balance.
_____ is a measure of a company's cash position and overall ability to obtain cash in the normal course of business.
Liquidity
the amount of cash the company expects to actually collect from customers
Net realizable value of accounts receivable is
deducted in the retail column
Normal shortages (spoilage, breaekage, theft) (after calculating the cost-to-retail %)
A formal credit arrangement between a creditor and debtor is called a(n)
Notes receivable
present value of future cash receipts
Notes receivable is valued on the balance sheet at the
If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:
Nothing, the deposit has already been recorded
IFRS impairment indicators
Objective evidence that a loss event will affect future cash flows and can be measured relaibly
Liabilities
Obligation to transfer cash or other resources as a result of a past transaction. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events
Jonquil corp. sells $20,000 of goods on account. Analyze the journal entries shown below and indicate the method used to record sales revenue
Oct 5, 2011 DB Accounts receiable 20,000 CR Sales revenue 20,000 Oct 14, 2011 DB Cash 13,720 DB Sales discounts 280 CR Accounts recievable 14,000 Nov 4, 2011 DB Cash 6,000 CR Accounts recievable 6,000 gross method
economic and political environment in which standard setting occurs?
Often characterized as a political process. Standards, particularly changes in standards, can have significant differential effects on companies, investors and creditors, and other interest groups. A change in an accounting standard or the introduction of a new standard can result in a substantial redistribution of wealth within our economy. The FASB's due process is designed to obtain information from all interested parties to help determine the appropriate accounting approach, but standards are supposed to be neutral with respect to the interests of various parties. Both the FASB and IASB sometimes come under political pressure that sways the results of the standard-setting process
debit to notes receivables for $100,000
On March 1, Song Corp. receives a $100,000, 90-day noninterest-bearing note receivable from a customer. The note has a 12% discount rate. On March 1, when Song receives the note from the customer, Song will record a
debit notes receivable $100,000; credit service revenue $100,000
On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entity required on Oak's books on March 5 would require what entries?
credit to interest receivable, $2,000 and a credit to interest revenue, $2,000
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,00, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end. The entry required on Light's books on April 1 when the note is due requires a
reconciliation
One of the most important internal controls for cash is the bank _________________.
The _______ cash account is used to pay for low cost items so checks do not have to be processed.
Petty
A small amount of cash on hand to pay for minor purchases is commonly referred to as:
Petty Cash Fund
_____ represent a company's claims to the future collection of cash, other assets, or services.
Receivables
Which of the following indicate surrender of control over the assets transferred?
Receivables are sold without recourse The transferor will have no continuing involvement.
present / future
Receivables should be recorded at the __________ value of ________ cash receipts using realistic interest rate.
estimated returns are material
Recognize estimated returns during year of sales.
Estimated returns are immaterial
Recognize returns when they occur
estimated returns are immaterial
Recognize returns when they occur.
receivable / allowance
Recoveries of accounts receivable previously written off require the reinstatement of the _____________ and the ___________.
Which of the following are potential benefits of offering cash discounts to customers?
Reduction in bad debt Accelerated customer payment Increased sales volume
FASB Accounting Standards Codification project purpose
Reorganize all relevant accounting pronouncements in the U.S. GAAP
discount
The ___________ on notes receivable account is a contra account.
credit to sales, $4,900
Tim Corporation uses the net method to record sales on account. Tim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include a
An ________ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction.
Timing
What is the primary purpose of a bank reconciliation?
To ensure the bank balance per reconciliation is equal to the company balance per reconciliation
The adjusting entry for a deferred revenue includes
a debit to a liability account and a credit to a revenue account.
Earnings quality is affected by:
accelerating revenue recognition losing a major custore
Accounts receivable contra account
allowance for sales returns
required disclosure regarding asset transfers
any cash flows occurring between the transferor and transferee the amount of receivables that are past due and any related credit losses during the period how fair values were estimated when recording the transaction the transfer any continuing involvement with the transferred assets any ongoing risks to the transferor how any continuing involvement in the transferred assets will be accounted for on an ongoing basis
Greenland Company changed from FIFO to the LIFO method. Greenland should
apply LIFO from that point forward
Inventory expected to be returned is included in what type of account
asset
Cost flow ____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory.
assumptions
Which of the following would appropriately be paid with petty cash? a) Inventory expense b) Postage expense c) Office supplies expense d) Entertainment expense e) Interest expense
b) Postage expense c) Office supplies expense d) Entertainment expense
______ ______ expense is an operating expense incurred to make sales.
bad debt
The estimated expense for accounts that may not be collected that is matched against revenue of the period is referred to as
bad debt expense
Financing receivables can be done by a(n) a) transferee approach b) contra receivables approach c) sale of receivables d) secured borrowing
c) sale of receivables d) secured borrowing
Order of current assets on balance sheet
cash and cash equivalents accounts receivable inventory prepaid expenses
Zeigen Inc. debited accounts receivable and credited allowance for doubtful accounts. Zeigen Inc. should also debit _ and credit _ _.
cash, accounts, receivable
Short-term highly liquid investments with maturity of 3 months or less that can be readily turned into
cash.
Paid-in capital
common stock, paid-in capital in excess of par
classified balance sheet, supplies would be classified among __________
current assets
Carly Corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. First Bank charged a 4% factoring fee and retained $5,000 to provide a reserve against potential sales returns and allowances. Management estimates the fair value of the last 9% of receivables to be equivalent to the book value. The journal entry Calry will make to record the factoring arrangement will include
debit to loss on sale of receivables for $4,000
The allocation of the cost of natural resources to the periods extracted is referred to as ___________ expense
depletion
Objectives-oriented accounting standard setting
emphasizes the use of professional judgment when choosing how to account for a transaction
An internal event
events that affect the financial position, but do not involve an exchange transaction with another entity
Qualitative characteristic of FASB conceptual framework
faithful representation relevance
To be useful for decision making, information should possess the fundamental decision-specific qualities of:
faithful representation, relevance
Accounts receivable results from the sale of good or services for cash true/false
false
Operational Risk
how adept a company is at withstanding various events that might impair its ability to earn profits
Disclosure refers to the process of?
including additional information in the financial statements and notes
balance sheet
inventory
perpetual inventory system
merchandise returned to a supplier - credit inventory
___ method considers discounts not taken as interest revenue
net
FOB shipping point
ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller
Stockholders' equity sources:
paid in from shareholders, earned by the corporation (retained earnings)
markdown
reduction in selling price below the original selling price
NRV formula
selling price-cost to sell
At what amount are accounts recievable recorded?
the amount expected to be collected
In a sale of receivables, the __________ includes the receivables as assets in its balance sheet
transferee
The buyer assumes the risk of uncollectibility when accounts are sold _____
without recourse
Calistoga Produce estimates bad deb expense at .50% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $489,000 and $1,590 respectively, at December 31, 2017. During 2018, Calistoga's credit sales and collections were $329,000 and $316,000, respectively, and $1,830 in accounts receivable were written off. Calistoga's final balance in its allowance for uncollectivle accounts at December 31, 2018 is:
$1,405 329,000 * .50% = 1645 expense 1830 - 1590 = 240 1645 - 240 = 1405
Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?
$100 should be added to the bank balance.
Davenport Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $48,000 at the date of employment and another $68,000 two years later. Assuming the employee's time value of money is 10% annually, what lump sum at employment date would make her indifferent between the two options?
$104,199 The lump-sum equivalent would be $48,000 + the present value of $68,000 where n = 2 and i = 10%. That is, $48,000 + ($68,000 x 0.82645 from Table 2 PV of $1) = $104,198.6
Spielberg Inc. signed a $260,000 noninterest-bearing note due in three years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. At what amount should this debt be valued at its inception?
$190,109 PV = $260,000 × 0.73119* = $190,109 *PV of $1: n = 3; i = 11%
The Reingold Hat Company uses the allowance method to account for bad debts. During 2018, the company recorded $800,000 in credit sales. At the end of 2018, account balances were: Accounts receivable $120,000, Allowance for uncollectible accounts $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of
$24,000 800,000 x3% = 24,000
Rosie's Florist borrows $350,000 to be paid off in eight years. The loan payments are semiannual with the first payment due in six months, and interest is at 6%. What is the amount of each payment?
$27,864 350,000/12.56110 PVA of $1
Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance?
$46,000
Mary Alice just won the lottery and is trying to decide between the annual cash flow payment option of $350,000 per year for 30 years beginning today and the lump sum option. Mary Alice can earn 5 percent investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives?
$5,649,374 $350,000 x 16.14107* = $5,649,374.5 *PVAD of $1: n = 30; i = 5%
Bern Corp, a merchandising company, utilizes the net method in accounting for purchase discounts. The company usually pays during the discount period, when discounts are offered by the vendor. Bern's net income for the year ended was $500,000. Purchase discounts taken during the year totaled $5,000. If Bern had used the gross method, its net income would have been
$500,000
Lassiter Corp. uses the periodic inventory method. During the year, Lassiter purchases $10,000 of inventory. Ending inventory is $6,000. Cost of goods sold is $12,000. Beginning inventory was: __________
$8,000 purchases 10,000, less cost of goods 12,000, less ending inventory 10,000 - 12,000 - 6,000 = 8,000
Jasper Company uses the allowance method to account for bad debts. During 2018, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:
$9,000 bad debt expense will credit allowance for bad debts for $9,000 writing off bad debts will debit allowance for bad debts for $5,000 as well as crediting accounts receivable net decrease in working capital will be 9,000 + 5,000 - 5,000 = 9,000
Cash often is referred to as a _____ asset because it earns no interest. For this reason, managers invest idle cash in either cash equivalents or short-term investments, both of which provide a return. Management's goal is to hold the minimum amount of cash necessary to conduct normal business operations, meet its obligations and take advantage of opportunities.
* Too much cash reduces profits through lost returns, while too little cash increases risk. This trade-off between risk and return is an ongoing choice made by management (internal decision makers). Whether the choice made is appropriate is an ongoing assessment made by investors and creditors (external decision makers).
Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?
-Depositing checks into the bank and recording receipts in the accounting records -Opening the mail and deposit of checks in the bank
Which of the following are classified as receivables? -Inventory purchased on account -Interest due from loans to customers -Loans by a company to other entities -Trading securities
-Interest due from loans to customers -Loans by a company to other entities
Which of the following cost flow assumptions currently are acceptable under U.S. GAAP?
-LIFO -FIFO -weighted-average
The dollar-value LIFO retail method is a combination of which of the following?
-LIFO retail method -dollar-value LIFO method
inventory at retail component with the correct cost-to-retail percentage assuming that the LIFO retail method is used. -Beginning inventory -Current period layer
-beginning-inventory cost-to-retail percentage -current-inventory cost-to-retail percentage
What are the cost components for self-constructed assets?
-direct material -manufacturing overhead -direct labor
The three classifications on the statement of cash flows are cash flows from:
-operating activities -investing activities -financing activities
When the retail inventory method is used to approximate average cost, the cost-to-retail percentage should be based on the weighted average
-retail amounts of goods available for sale -costs of goods available for sale
When adjusting the book balance in a bank reconciliation, which items must be subtracted from the cash account book balance?
-service chargers -charges for NSF checks
2012, the SEC issued its Final Staff Report in which it concluded that it is not feasible for the US to simply adopt IFRS given:
1) a need for the US to have strong influence on the standard setting process 2) the fact that many laws, regulations and private contracts reference US GAAP 3) the high costs to companies of converting to IFRS
Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilizes FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of 2016, Pernell's ending inventory would have been
150,000 higher if it had used FIFO
On dec. 30 20x1, brighton corp. disposed with a historical cost of 150,000 and accumulated depreciation of 60,000. The equipment was sold for 70,000 cash. What is the gain or loss on disposal of the equipment?
150000-60000=90000-70000=20000 loss
Sondra deposits $3,000 in an IRA account on April 15, 2018. Assume the account will earn 3% annually. If she repeats this for the next 5 years, how much will she have on deposit on April 14, 2024?
19,988 3000 x 6.6625 = 19,987.5 FVAD of $1 n=6
Compute the inventory turnover ratio using the following information: Net sales $100,000 for the year,cost of goods sold $40,000, last years assets in place were $900,000, and this years assets in place are $1,100,000. Receivables for both years are $50,000. Inventory changed from $30,000 last year to $10,000 this year
2
Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The present value of this annuity at Time Zero, the inception o f the annuity is
3,791 PVA (present value ordinary annuity) factor of 10% for 5 periods is 3.79079 1000 x 3.79079 = 3,791
Titanic Corporation leased executive limos under terms of $110,000 down and three equal annual payments of $1200,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be:
32.257 PVA = $120,000 × 2.44371* = $293,245.2 $293,245.2 × 11% = $32,256.97 *PVA of $1: n = 3; i = 11%
Average collection period formula
365 divided by the receivables turnover ratio
Average Collection Period Ratio
365/accounts receivable turnover tells approximate # of days the average receivable balance is outstanding (average age of receivables)
average days in inventory
365/inventory turnover ratio
J.T. Rider and Sons uses the dollar-value LIFO inventory method. At the end of 2019 the cost index is 1.25 and the ending inventory at base year cost is $360,000. If 2019 beginning inventory at base year cost was $300,000, 2019 ending inventory at dollar-value LIFO cost is:
375,000 300,000 + [(360,000 - 300,000) x 1.25]
Beth will deposit $1,000 at the end of each year for 4 years. Assuming an 8% rate of interest, how much will Beth have in the bank at the end of year 4?
4,506
For its 2018 fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is:
40% (10,500,000 - 6,300,000) / 10,500,000
Smith Company has 150 units costing $450 in beginning inventory. During the year, the year, the company purchases 1,000 units for a total cost of $3,300. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the periodic LIFO method, ending inventory will be:
615 150 units at $450 3,300/1000 = 3.30 x 50 = 165 165 + 450 = 615
Jose wants to cash in his winning lottery ticket. He can either receive seven, $10,000 annual payments starting today, or he can receive a lump-sum payment now based on a 3% annual interest rate. What would be the lump-sum payment?
64,172 10,000 x 6.41719 = 64,171.9 PVAD of $1 table 6
When a company has a claim to receive services in the future, this is recorded on the balance sheet as
A receivable
A compensating balance is
A restriction of cash wherein the borrower is required to maintain a specific amount in a low-interest or noninterest-bearing account at the bank
A method of financing with receivables has the transferor derecognize the receivables from its balance sheet
A sale of receivables
Which method of financing with receivables has the transferee recognize the receivables as a assets in its balance sheet.
A sales of receivables
assigned / pledged
A secured borrowing occurs when accounts receivable are ___________ or __________ as collateral for a loan.
fair value
A standard setting focus on the asset/liability approach supports measurement of assets and liabilities at:
control
A transfer of a receivable qualifies as a sale if the transferor surrenders ___________ over the asset transferred.
If Company A sells accounts recievable without recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts?
ABC Finance
trade
Accounts receivable from sales to customers are _____________ receivables.
with / without
Accounts receivable sold with the risk of nonpayment by customers assumed by the transferor of the receivables is a sale ________ recourse; whereas, receivables sold with the risk of nonpayment assumed by the transferee is a sale ___________ recourse.
List the steps for a bank reconciliation in the correct order.
Adjust the banks cash balance Adjust the company's cash balance Update the company's cash account by recording items identified in the previous step
Which of the following trial balances shows account balances that incorporate current year deferrals and accruals?
Adjusting trial balance Post closing trial balance
Examin the followin journal entry. What is the transaction that required this entry? DB Allowance for sales returns 70,000 CR Accoutns recievable 70,000
Adjustment for estimated sales returns
Which of the following are adjustments to the bank balance in a bank reconciliation?
Adjustments for bank errors Add deposits outstanding Deduct checks outstanding
In a bank reconciliation, which items will require journal entries by the company?
Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books.
accounting change occurs during an interim period, the change is applied retrospectively. In subsequent interim periods of the same fiscal year, which of the following are disclosed?
Affect on income from continuing operations Affect on net income Affect on related per share amounts
When are account previously written off is collected in full, which entry is required to ensure the accounting for the complete payment history of the customer?
An entry to reinstate the account receivable and an entry to record payment
accounts receivable
An informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as an
Restricted cash is usually reported in the balance sheet
As noncurrent assets
the amount to be collected
At what amount are accounts receivable recorded?
An alternative classification that is currently permitted for accounts receivables under IFRS but not US GAAP
Available for sale investment
Which accounting standards allow reversals of previously recognized impairment losses on receivables
Both US GAAP and IFRS
_____ _____ include money market funds, treasury bills, and commercial paper. To be classified as such, these investments must have a maturity date no longer than three months from the date of purchase.
Cash equivalents
A trade discount is a reduction from the list price, which is to
Change prices without publishing a new catalog Give quantity discounts to customers Disguise real prices from competitors.
A trade discount is a reproduction from the list price, which is used to:
Change prices without publishing a new catalog give quantity discounts to customers disguise real prices from competitors
gross / net
Conceptually, the _______ method of recording sales views a discount not taken by the customer as a part of sales revenue, whereas the ______ method considers discounts not taken as interest revenue.
franchise
Contract term Contractual agreement in which an entity may use a company's name, products and formulas.
The __________ sets the overall ethical tone of the company with respect to internal control.
Control Environment
Adrian corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?
DB to sales returns CR Accounts receivable
Which of the following entries affect a company's cash flows?
Debit supplies; credit cash Debit rend expense; credit cash
The bank will show a customer's withdrawal as a _________
Debit, because a withdrawal decreases its liability from the banks point of view.
As part of the closing process, dividends are closed to retained earnings. In the closing entry, correctly match the accounts with the appropriate debit/credit.
Debit: Retained Earnings Credit: Dividends
Future Value (FV)
FV = $1(1+i)^n the amount an investment is worth after one or more periods
Formula to calculate future value of an amount "I"
FV = I(1+i)^n
Future value formula
FV = PV(1+i)^n
Interest on notes is calculated as
Face amount X Annual rate X Fraction of the annual period
The formula for calculating interest multiplies which of the following?
Face amount of the note Annual interest rate Fraction of the annual period
relationship among management, auditors, investors and creditors that tends to preclude the "What would you like it to be?" attitude?
It is the responsibility of management to apply accounting standards when communicating with investors an creditors through financials. Auditors serve as independent intermediaries to help ensure that the management-prepared statements are presented fairly in accordance with GAAP. In providing this assurance, the auditor precludes the "What would you like it to be?" attitude.
operating segment characteristics
It operating results are regularly reviewed by the chief operating decision maker, it engages in business to earn revenues and incur expenses discrete financial info is available
Which of the following are classified as receivable?
Loans by a company to other entities.
Which of the following will require a journal entry following a bank reconcilliation?
NSF checks Notes collected by the bank
Recognizing bad debt expense results in account receivable being reported at their _______
Net realizable value
$96,800
On January 1, year 1. Jordan receives a $100,000 note receivable from a customer. The note receivable is a 10% note, due at the end of the year on December 31. Jordan immediately discounts the note receivable at Third Bank at a discount rate of 12%. What are the cash proceeds of the discounted note?
Seperation of duties and E-commerce controls are examples of ______ controls.
Preventative
Separation of duties and E-commerce controls are examples of ________ controls.
Preventive
cash and cash equivalents
Reston Corp. borrowed $20,000 from First National Bank on a 6-month note at 8% interest. Reston has an informal agreement with the bank to maintain a compensating balance of $2,000 until the loan is repaid. Reston should report the $2,000 as
What is reported on the balance sheet as a noncurrent asset?
Restricted cash
Which of the following is usually reported on the balance sheet as a noncurrent asset? -Cash equivalents -Restricted cash -Accounts receivable -Inventory
Restricted cash
iASB
Standard setting board IFRS
principal
The face amount of a note receivable is also called the ________.
Why is it often easy for top level management to commit fraud?
They can override the internal control system. Fewer internal controls may be in place at that level. Subordinates feel intimidated and may not report it.
true
True or false: A sale of an accounts receivable results in removing the accounts receivable from the balance sheet.
Add deposits outstanding, deduct checks outstanding, and adjustments for bank errors.
What are some adjustments to the bank balance in a bank reconciliation?
commercial paper, treasury bills, and money market funds.
What are some examples of cash equivalents?
restricted cash
What is usually reported on the balance sheet as a noncurrent asset?
notes collected by the bank and NSF checks
What requires a journal entry in a bank reconciliation?
requirements to set aside funds to repay debt and requirement to use cash for future plant expansion
What situations require cash to be restricted?
customer defaults and does not pay or sale on account is returned by a customer
What transactions will require a credit to accounts receivable?
reinstate the accounts receivable and record the collection of the account receivable
What two entries are required when a previously written-off account is paid?
NSF checks and notes collected by the bank
What will require a journal entry in a bank reconciliation?
impairment loss
When a lender believers it is probable that not all principal and interest will be collected on a long-term note receivable, what is recognized?
the present value of currently expected cash flows
When a note receivable is impaired, it is remeasured based on what?
Fraud
When a person intentionally deceives another person or company for personal gain, this is referred to as:
discounting
When a sale is made to a customer on a noninterest-bearing note, an entry is made to an account called "discount on notes receivable"; when a transfer is made of a note receivable to a financial institution, this is referred to as ______________ a note receivable.
collections of funds by the bank
When adjusting the cash account balance in a bank reconciliation, which item must be added to the cash account balance?
errors and timing differences
Which of the following will cause differences between the bank statement balance and the accounting balance for cash?
current ratio and quick ratio
Which ratios measure liquidity?
U.S. GAAP
Which set of standards requires more disaggregation of accounts receivable and notes receivable in the balance sheet or notes?
In a factoring arrangement made _______ recourse, the seller bears the risk of uncollectibility.
With
The buyer assumes the risk of uncollectibility when accounts receivable are sold _______
Without recourse
liquidity
_________ is a measure of a company's cash position and its overall ability to obtain cash in the normal course of business.
bad debt
__________ expense is an operating expense incurred to make sales.
note receivable
a receivable supported by a formal agreement that specifies payment terms
Which of the following is a cost of offering a cash discount?
a reduction in the amount of cash collected from customers who take advantage of the discount
Which of the following are required by Section 404 of the Sarbanes-Oxley Act of 2002? a) Assessment of internal control adequacy b) Documented internal controls c) Auditor opinion on effective internal control
a) Assessment of internal control adequacy b) Documented internal controls
Which of the following are adjustments to the book balance in a bank reconciliation? a) Collections made by the bank on the company's behalf b) Checks outstanding c) Bank service charges d) Company errors e) Bank errors
a) Collections made by the bank on the company's behalf c) Bank service charges d) Company errors
Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has paid for all of the goods with cash. What will Adrian record on May 15? a) Credit to Cash b) Credit to Allowance for Sales Returns c) Debit to Sales Expense d) Debit to Sales Returns
a) Credit to Cash d) Debit to Sales Returns
Two entries are required when a previously written-off account is paid. These two entries include: a) Record the collection on the account receivable. b) Record bad debt expense. c) Reinstate the account receivable. d) Record the adjustment to sales.
a) Record the collection on the account receivable. c) Reinstate the account receivable.
When a company surrenders control of the assets transferred, it is allowed to account for the transfer as a what? a) Sale b) Secured borrowing
a) Sale
Who incurs the risk of bad debt in a factoring arrangement made without recourse? a) The buyer b) The seller
a) The buyer
Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that a) checks are signed by authorized individuals. b) the employee who authorizes the payment should write the check. c) all expenditures are authorized. d) all disbursements are made by check, debit card, or credit card. e) employees in charge of cash receipts are also in charge of cash disbursements.
a) checks are signed by authorized individuals. c) all expenditures are authorized. d) all disbursements are made by check, debit card, or credit card.
Depending on the nature of the restriction and the classification of the related debt, compensating balances may be disclosed in the financial statements as a) current assets. b) noncurrent assets. c) cash and cash equivalents. d) owners' equity. e) contra assets.
a) current assets. b) noncurrent assets. c) cash and cash equivalents.
A trade discount is a reduction from the list price, which is to a) disguise real prices from competitors. b) encourage customers to pay quickly. c) reduce the sale price for interest received. d) change prices without publishing a new catalog. e) give quantity discounts to customers
a) disguise real prices from competitors. d) change prices without publishing a new catalog. e) give quantity discounts to customers
Management can influence credit and collections by a) extending payment terms b) offering cash discounts c) obtaining terms with suppliers d) factoring with recourse
a) extending payment terms b) offering cash discounts
The numerator of the quick ratio eliminates which current assets? a) inventory b) cash and cash equivalents c) short-term investments d) accounts receivable e) prepaid expenses
a) inventory e) prepaid expenses
trade receivable is another term or _ receivable.
accounts
The average debt necessary to self-construct an assets is referred as the average
accumulated expenditures
Prepaid expense
an asset recorded when an expense is paid in advance, (paid but not yet incurred - asset acquired in one period and expensed in a future period)
intangible asset
an asset that has no physical substance
Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as
an expense on the income statement
SEC requires to submit financial information how frequently
annually and quarterly
A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the
appraised value of the land
The PCAOB sets standards for
audited financial reports.
Which of the following are detective controls?
audits; reconciliation; performance reviews
At what amounts are accounts receivable initially recorded? a) The present value of expected future cash flows. b) The future value of the amount expected to be collected. c) The exchange price agreed on by the buyer and seller.
c) The exchange price agreed on by the buyer and seller.
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as
closing entries.
Weighted-average unit cost is determined by dividing ______________ by quantity of goods available for sale
coat of goods available for sale
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?
collection from customers receipt of interest
The two condition that must exist for a sale and the related recievable to be recognized are
collection from the customer is reasonably assured the earnings process is virtually complete
Banks frequently require cash restrictions in connection with loans or loan commitments (lines of credit). Typically, the borrower is asked to maintain a specified balance in a low interest or noninterest-bearing account at the bank (creditor). The required balance usually is some percentage of the committed amount (say 2% to 5%). These are known as _____ _____ because they compensate the bank for granting the loan or extending the line of credit.
compensating balances
FASB expanded view of income is included in
comprehensive income
periodic inventory system disadvantage
cost of goods equation assumes all inventory not on hand at the end of the period was sold and does not account for damages or stolen merchandise
income statement
cost of goods sold
Parker company reports gross sales revenue of 7.5 million, net sales revenue of 7 million, and cost of goods sold of 3.5 million. Its inventory balance was 150,000 at the beginning of the accounting period and 200,000 at the end of the accounting period. The company's inventory turnover ratio is closest to
cost of goods sold/average inventory 3.5 million/ (150,000+200,000/2)
sales to customers in which the customer pays within 30 to 60 days are referred to as
credit sales, sales on account
The journal entry to record bad debt expense includes a:
credit to allowance for uncollectible accounts debit to bad debt expense
The adjusting entry to record deferred revenue originally recorded as sales revenue includes:
credit to deferred revenue debit to sales revenue
An account receivable is normally classified as a
current asset
An account receivable is normally classifies as a
current asset
Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as a(n) _____ _____.
current asset
Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as a
current asset.
Andy records an adjusting entry for deferred revenue. Andy should:
debit a liability account credit a revenue account
previously written off account is collected in full, the entry to reinstate the account would require
debit accounts receivable credit allowance for uncollectible accounts
Kilroy uses the net method to record sales on account. Kilroy sells goods on account for $1,000 with terms 2/10, n/30. the journal entry to record this transaction will include
debit accounts receivable $980 credit sales $980
interest-bearing note receivable collection
debit cash credit interest revenue credit note receivable
The journal entry necessary to establish a "petty cash fund" is:
debit petty cash credit cash
The journal entry necessary to establish a petty cash fund is:
debit petty cash credit cash
A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires:
debit sales discounts for the discount taken by customer
A company believes its sales returns will be material. What is the journal entry required
debit sales returns credit allowance for sales returns
Warner Corp sells goods on account for $10,000. The customer pays the invoice in full on April 15, but on April 20, the customer returns $3,000 of the merchandise and receives a refund. What is the entry Warner will make on April 20 when the goods are returned?
debit sales returns credit cash
Warner Corp. sells goods on account for 10,000 on april 2, the customer returns 3,000 of the merchandise and receives a refund. As of April 20, the customer has paid the account balance in full. What is the entry Warner will make on April 20 when the goods are returned
debit sales returns credit cash
Regland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The Adjusting journal entry required at year-end includes:
debit supplies expense $700 credit supplies on hand $700
Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a
debit to Cash.
The adjusting entry for a deferred revenue includes a
debit to a liability account and a credit to a revenue account.
kim corporation provides services at the gross amount and uses discount account to account for the discounts taken by customers. kim provides services on account for $5,000 with terms 2/10, n/30. Recording this transaction will include a
debit to accounts receivable, $5,000
During the year, Connor wrote off $17,000 of accounts receivable that were uncollectible. The adjustment to record bad debt expense at the end of the period was a
debit to bad debt expense for $20,000
Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording the transaction will include
debit to cash
Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a
debit to cash
what is bad debt expense for 2016
debit- bad debt expense credit- allowance for uncollectable accounts
Cheng Corp exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was 90,000 and its accumulated depreciation at the date of exchange was 40,000. The asset received had a fair value of 40,000 and a book value of 35,000. What journal entry should be recorded?
debit- equipment 40,000 loss on exchange 10,000 credit equipment 90,000
determine the amount of accounts receivable written off during 2016
debit-allowance for uncollectible accounts credit-accounts receivable
A(n) ______ represents the left side of the account, whereas a(n) _______ represents the right side of the account
debit; credit
When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account.
decrease
Cash receipts that have been recorded in the company's accounting recording but are not recorded by the bank are
deposits outstanding
The ____ on notes recievable account is a contra account
discount
earnings may be distorted by the transfers of receivables because companies may
distort fair value estimates in recording securitizations
To solve for present value
divide FV by (1 +i)^n
Which accounts are closed at the end of the period?
dividends, sales and salary expense (not cash accounts)
Internal control consists of plans to
encourage adherence to company policies and procedures minimize errors and theft safegaurd company assets
The amount of cash in the balance sheet reflects the
ending cash on the balance sheet date
At the end of the current accounting period, Ziegler company's accoountant estimates that future return of already sold products will be material to the financial statements, WHich of the following is the correct accounting treatment>
estimate future returns and accrue them during the current year
What type of expenditures should be included in the cost of inventory of a manufacturing company?
expenditures necessary to acquire inventory, and bring inventory to sales location
The primary components of net income are:
expenses revenues
The two most common types of selling arrangements for accounts receivables are
factoring and securitization
True or false: A note recievable is considered impaired when payment is not recieved on the due date
false
a note receivable is considered impaired when payment is not received on the due date true/false
false
gross profit ratio
gross profit/net sales
Conceptually, the _____ method of recording sales views a discount not taken by the customer as part of sales revenue, whereas the _____ method considers discounts not taken as interest revenue.
gross, net
The two methods used for recording sales discounts are the ______ method and the _____ method
gross, net
LIFO
in period of rising prices - results in higher cost of goods sold, lower net income and lower tax liability
GAAP allows that any significant noncash investing and financial activities may be reported
in the notes to financials on the face of the statement of cash flows
Accruing a receivable _________ accounts receivable on the balance sheet and ___________ revenues on the income statement
increases; increases
Purchasing supplies on account ____________ the supplies account and _____________ accounts payable
increases; increases
Unqualified audit opinion
indicates the financials have been prepared according to U.S. GAAP
gross profit margin
indicates the percentage of each sales dollar available to cover other expenses
An account receivable is a(n) _____ agreement, whereas a note receivable is a(n) _____ agreement.
informal, formal
DVL Pool
is made up of items likely to have similar cost change pressures
A long-term liability:.
is not due within the next year
DVL method
layers can only be added during the current year if inventory at base year cost has increased
If the restriction is _____ _____, the cash is classified as either current or noncurrent (investments and funds or other assets) depending on the classification of the related debt. In either case, note disclosure is appropriate.
legally binding
an aging schedule classifies accounts receivable based on
length of time outstanding
A bond will be issued at a premium when the market rate of interest is ________ the stated rate
less than
Over a 5-year period, simple interest is __________ compound interest on the same note
less than
U.S. GAAP required that bank overdrafts be treated as _____ on the balance sheet where IFRS allows them to offset other cash accounts.
liabilities
US GAAP requires that bank overdrafts be treated as ____ on the balance sheet where IFRS allows them to offset other cash accounts
liabilities
Sabrina Company accrues salaries expense at the end of year. As a result of this entry, Sabrina Company's:
liabilities increase equity decrease
write-downs are common.
loss is included as part of cost of goods sold
write-downs are rare
loss is recognized as a separate item in operating expense
Who has responsibility to apply accounting standard when communicating with investors and creditors
management
Choosing perpetual or periodic inventory system considerations
management control and cost of implementation
Control Environment are Formal policies related to
management's philosophy assignment of responsibilities, and organizational structure.
Under the conventional retail method, ___________ are excluded from the calculation of the cost-to-retail percentage.
markdowns
cash basis accounting
measures the difference between cash receipts and payments during a reporting period.
Accrual accounting model measures
measures the entity's accomplishments and resource sacrifices during the period regardless of when cash is received or paid
Profit Margin Ratio
net income/net sales (before deducting cost of goods) measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales indicates the amount of net income achieved for each dollar of sales
The sum of net cash flows from operating, investing, and financing activities reported in the statement of cash flows represents the:
net increase or decrease in cash during the year
If the retail inventory method is used, which of the following are included in the calculation of goods available for sale at retail to approximate average costs?
net markups net markdowns
purchase discount methods
net method gross method
monetary liabilities
obligation to pay amounts of cash, the amount which is fixed or determinable bond payable note payable accounts payable (not advances from customers)
Disclaimer
occurs when the auditor does not have sufficient information to express an opinion
The statement of cash flows classifies items as
operating, investing, and financing.
Auditors examine financial statements to express a professional, independent ___________________ on the financial statements.(enter one word per blank)
opinion
AICPA - american institute of certified public accountants
organization is currently the national professional organization for certified professional public accountants
initial markup
original amount of markup from cost to selling price
restricted cash not available for current use may be reported in the balance sheet as
other assets or investments and funds or noncurrent asset
compensating balance is recorded as
other current asset,
Omar company uses a periodic inventory system and erroneously overstates ending inventory by $10,000 for the year ended December 2015. This error would cause the retained earnings balance for the ear ended 2015 to be
overstated by 10,000
Failure to record an adjusting entry for deferred revenue results in:
overstated liabilities
accumulated interest formula
principal x interest x (# of moths/12)
Intraperiod tax allocation
process of associating income tax effects with the income statement components that create those effects
Sale of accounts receivable requires
remove the accounts receivable from the balance sheet and recognize the fair value of assets acquired or liabilities assumed
items are removed from continuing operations and reported separately for discontinued operations
revenue, expenses, gains, losses, tax expense
Accrual accounting model's measure of resources provided by business operations is called _____________.
revenues
Temporary accounts
revenues, expenses, dividends
Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral
secured borrowing
Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral?
secured borrowing
financing receivables can be done by
secured borrowing, sale of receivables
A petty cash account is used for
small amounts of cash needed for low-cost items
A significant disadvantage of the periodic inventory system is that it assumes that quantities not on hand at the end of the period were ____________________.
sold
business organizations
sole proprietorship, partnership and corporation
Repetitive transactions such as sales or purchases are usually recorded in a(n) ________ _______ rather than the general journal
special journal
A good internal control system for cash would require that those who handle cash should not be involved with:
the accounting records reconciliation of bank balances
a good internal control system for cash would require that those who handle cash should not be involved with
the accounting records the reconciliation of bank balances
A prepayment that is originally recorded as an asset will be allocated to future accounting periods based on
the value of the benefit used during the period.
Present Value of an Ordinary Annuity
the value today of a series of equal-size cash flows with the first payment taking place at the end of the first compounding period The value today, given a discount rate, of a series of future payments.
Present Value of an Ordinary Annuity
the value today of a series of equal-sized cash flows with the first payment taking place at the end of the first compounding period
gains and losses from the sale of investments can affect earnings quality because
they are often nonrecurring
Political pressure has deterred the FASB from issuing particular standard changes. True/false
true
True or false: When specific recievables are assigned, the financing liability should be netted against the accounts recievable account.
true Although offsetting is usually not allowed by US GAAP, when recievables are assigned, offsetting the liability against the receivables is allowed
long-term liability
will not be satisfied within 12 months or the operating cycle, whichever is longer (pension obligations, lease obligations longer than 1 year and notes due in more than 1 year)
Neumann, Inc.'s books show an ending cash balance of $20,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $2,000; deposits outstanding of $3,000; NSF check of $200; and interest earned on the bank account of $30, the company's up-to-date ending cash balance equals:
$20,000-$200+$30= $19,830
In the balance sheet at the end of the first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $83,600. During the year, Dinty wrote off $30,900 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,240,000, and cash collections from credit customers totaled $1,750,000. What accounts receivable balance would Dinty report in its first year-end balance sheet?
$459,100 2,240,000 - 1,750,000 = 490,000 - 30,900 = 459,100
Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance?
$53,000
Ireland Corporation obtained a $56,000 note receivable from a customer on June 30, 2018. The note, along with interest at 5%, is due on June 30, 2019. On September 30, 2018, Ireland discounted the note at Cloverdale bank. The bank's discount rate is 9%. What amount of cash did Ireland receive from Cloverdale Bank
$54,831 56,000 + (interest to maturity) 56,000 x 5% = 2800 56,000 + 2,800 = 58,800 58,800 x.09 x 9/12= 3,969 58,800 - 3,969 = 54,831
Frasquita acquired equipment from the manufacturer on 6/30/18 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $572,000 on 4/30/19 to satisfy the obligation in full. If Frasquita accrued interest of $15,000 on the note in its 2018 year-end financial statements, at what amount would it record the equipment on its 6/30/18 balance sheet?
$547,000 ($15,000 was interest for 6 months in 2018. The note lasts 10 months, so 10/6*15000= $25000, $547,000 (572000-25000) is the principal which is the cost of the equipment purchased.
False Value Hardware began 2018 with a credit balance of $31,200 in the allowance for sales returns account. Sales and cash collections from customers during the year were $670,000 and $630,000, respectively. False Value estimates that 8% of all sales will be returned. During 2018, customers returned merchandise for credit of $23,000 to their accounts. What is the balance in the allowance for sales returns account at the end of 2018?
$61,800 670,000 x .08 = 53,600 31,200 + 53,600 - 23,000 = 61,800
At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made with recourse. Homemark charges a fee of 3% of receivables factored. Estimated recourse liability is $2,000. During July, $150,000 of factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?
$8,000 recourse liability adds a credit of $2,000 increasing the loss 200,000 x .03 + 2,000 = 8,000
On May 31, 2018, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 2018, for $1,120,000. The component generated operating income from January 1, 2018, through disposalof $300,000. In its income statement for the year ended December 31, 2018, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?
$800,000 620,000 - 300,000 = 320,000 1,120,000 - 320,000 = 800,000
Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation?
$900 should be subtracted from the cash balance in the accounting records.
Times interest earned ratio
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense Provides the creditor with an indication of the ability to pay interest on debts
Sometimes restrictions are _____ imposed. Debt instruments, for instance, frequently require the borrower to set aside funds (often referred to as a sinking fund) for the future payment of a debt. In these instances, the restricted cash is classified as noncurrent investments and funds or other assets if the debt is classified as noncurrent. On the other hand, if the liability is current, the restricted cash also is classified as current.
* Disclosure notes should describe any material restrictions of cash.
A trade discount is a reduction from the list price, which is to:
- change prices without publishing a new catalog - give quantity discounts to customers - disguise real prices from competitors
when adjusting the cash account balance in a bank reconciliation, which items must be SUBTRACTED from the cash account balance
- charges for NSF (nonsufficient funds) checks - Service charges
Restrictions on cash may be:
- informal arising from management intent - formal by contract
What gives rise to a note receivable?
-Loaning money to an affiliated company -Loaning money to stockholders -Formal, written extension of the credit period to trade customers.
perpetual inventory system
-Neumann company can determine the cost of inventory still on hand by referring to the inventory account - freight is added directly to the inventory account
The numerator of the quick ratio eliminates which current assets? -Cash and cash equivalents -Accounts receivable -Prepaid expenses -Inventory -Short-term investments
-Prepaid expenses -Inventory
non-r&d cost
-Routine efforts to improve an existing product -adaptation of an existing capability for a customer
Internal control consists of plans to:
-Safeguard the company's assets -Improve the accuracy and reliability of accounting information -minimize errors and theft
When adjusting the company's cash account balance in a bank reconciliation, which items must decrease the company's cash account balance?
-Service charges -Charges for NSF check
periodic inventory system
-Shelly company must first take a physical inventory to determine the cost of inventory still on hand -a separate freight-in account is used
arrange the steps in determining the impairment of receivables under IFRS in the correct sequence
-consider whether individual significant receivables are impaired -group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics -perform impairment test
Panther Company's bookkeeper debited supplies expense for the cost of goods sold during that month. The bookkeeper discovered the error prior to closing the books. The correcting entry would include a
-debit to cost of goods sold -credit to suppies expense
steps to calculate ending inventory using the inventory retail method
-determine cost of goods available for sale at retail -determine sales revenue at retail -subtract sales revenue from cost of goods available for sale -multiply ending inventory (at retail) by the cost-to-retail %
A trade discount is a reduction from the list price, which is to
-disguise real prices from competitiors -give quantity discounts to customers -change prices without publishing a new catalog.
Internal control consists of plans to
-encourage adherence to company policies and procedures -safeguard company assets -minimize errors and theft
When assets are exchanged and the transaction lacks commercial substance, which of the following occurs?
-no gain is recognized -the asset received is valued at the book value of the asset given
Cash that is restricted and is not available for current use may be reported in the balance sheet as
-noncurrent asset -investments and funds -other assets
deducted in both the cost and retail columns
-purchase returns(Before calculating the cost-to-retail %) -abnormal shortages (spoilage, breakage theft)
Which of the following can be used to write-down inventory according to the lower of cost and net realizable value rule?
-recognize the write-down as an addition to costs of goods sold -recognize the write-down as a separate line item on the income statement
An intangible asset with an indefinite life is
-recorded at cost -tested for impairment
Daryl corp. purchases 10,000 units of inventory on account for 50,000. Two days after receiving the inventory, Daryl discovers that 1,000 units are defective and returns the the defective units to the vendor. The company utilizes a perpetual inventory system. As a result of this return
-the accounts payable balance decreases -the inventory balance decreases
The specific identification method
-would be beneficial to a company that makes fine jewelry -matches each unit of inventory with its actual cost
FASB's standard setting process begins when th board adds a project to its technical agenda. List the steps in order in the FASB's accounting standard setting process.
.
Private accounting standard setting bodies in chronological order:
1) Committee on Accounting Procedure 2) Accounting Principles Board 3) Financial Accounting Standards Board
Ethical decision making steps:
1) determine the facts of the situation 2) identify the ethical issue and stakeholders 3) identify the values related to the situation 4) specify the alternative courses of action 5) evaluate the courses of action in terms of their consistency
2011, the SEC recognizes that:
1) different application methods of IFRS could lead to financial statements not being comparable across countries 2) U.S. GAAP provides significantly more guidance about particular transactions or industries than IFRS
Common arguments against the creation of a single set of global accounting standards include:
1) maintaining competition between accounting standard-setting bodies improves quality 2) implementation and enforcement of IFRS varies among nations 3) accounting under IFRS will appear more uniform than it actually is
What would indicate net operating cash flow may not be a good predictor of long-run cash-generating ability
1) pay cash to purchase a 2 year insurance policy 2) customer pays for services provided in a prior perid
To segregate duties involving cash receipts, specific responsibilities are assigned to various employees:
1. Cashiers are responsible for collecting cash and issuing a receipt at the point of sale. 2. A supervisor is responsible for collecting the cash at the end of each cashier's shift 3. Members of the accounting department are responsible for ensuring that cash sales are properly recorded
Green Corp uses a periodic inventory system. Cost of beginning inventory is 1,000. During the year, Green purchases inventory costing 11,000. Based on a physical count, Green determines that inventory costing 1,800 is still on hand. Green Corporation's cost of goods sold will be
10,200
Smith sells goods to customers in exchange for a note requiring payment of $100,000 in one year plus interest at 10%. At what amount is the note payable reflected on the customers balance sheet?
100,000
Gerhard company has 300 units costing $10 per unit in beginning inventory. During the year the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company used LIFO inventory method for the past 5 years. If the company had purchased at least 1,2000 units, COGS would have been
2,000 higher
The Esquire Company reported sales of $1,600,000 and cost of goods sold of $1,122,000 for the year ended December 31, 2018. Ending inventory for 2017 and 2018 was $420,000 and $460,000, respectively. Esquire's inventory turnover for 2018 is:
2.55 Inventory turnover: cost of goods sold / average inventory 420,000 + 460,000/2 = 440.000 1,122,000/440,000 = 2.55
Ronald signs a lease agreement that requires him to pay $4,000 at the end of each year for 7 years. The interest rate on this type of lease is 8%. Calculate the present value off the lease payments
20,825
On June 1, 2017, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2017?
24,000/24 = 1,000 1,000 x 7 = 7,000
The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 40% is
250,000 + 50,000 = 300,000 300,000 x (1-.40) = 180,000
Geese Company utilizes the dollar-value LIFO retail inventory method. Its cost-to-retail percentage is 60% based on beginning inventory and 64% based on current-period purchases. The company determined that beginning inventory at retail was $200,000 and that ending inventory at current-year retail prices was $250,000. The current-year price index is 1.10. During the current year, a new inventory layer at base-year retail prices was added in the amount of?
250,000/1.10=$227,273-200,000=27,273
Chez Fred Bakery estimates the allowance for uncollectible accounts at 2% of the ending balance of accounts receivable. During 2018, Chez Fred's credit sales and collections were $110,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2018, if $250 in accounts receivable were written off during 2018 and if the allowance account had a balance of $630 on 12/31/18?
52,750 A/R 1/1/2016 ? Collections (131,000) Write-offs (250) Credit sales 110,000 A/R 12/31/2016 $39,000 [$630 = 2% of AR; so AR = $630 ÷ 0.02 = $31,500] Therefore, A/R, 1/1/2016 = $81,100
The following items appeared in the 2018 year-end trial balance for the Brown Coffee Company: Revenue CR 600,000 operating expenses DB 420,000 Income on discontinued operations CR 200,000 Restructuring costs DB 100,000 Interest Expense DB 20,000 Gain on Sale of Investments CR 30,000
54,000 (600,000 - 420,000 - 100,000 -20,000 + 30,000) x (1-.40) = 54,000
On December 31, 2018, the Charlie Company adopted the dollar value LIFO inventory method. Inventory at the end of 2018 for its only inventory pool was $500,000 under the dollar-value LIFO method. At the end of 2019 inventory at year-end cost is $672,000 and the cost index is 1.05. Inventory at the end of 2019 at dollar-value LIFO cost is:
647,000 End-of 2019 inventory at end-of-2018 year cost = 640,000 (672,000/1.05) The increase in the end-of-2018 inventory at end-of-2018 dollars is $140,000 (640,000 - 500,000) Adjusting this to end-of-2018 cost is $147,000 (140,000 x 1.05) adding this to the beginning balance = 647,000 500,000 + 147,000
Debbie has $192,516 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. The withdrawals will take place annually starting today. How soon will the fund be exhausted if Debbie withdraws $30,000 each year?
7.0 years 192,516/30,000 = 6.4172 look on PVAD of $1 table and fine 6.4172 in the 3% column
Lydia Corp. borrows $25,000 from the bank at an interest rate of 6%. If the bank requires a compensating balance of $5,000, the effective rate of interest on the loan is -7.5% -4.8% -26% -30%
7.5%
Kelly borrows $11,000 from the bank at an interest rate of 8%. If the bank requires a compensating balance of $1,000, the effective rate of interest on the loan is -8.55% -8.8% -9.09% -8%
8.8% $11,000 x 8%=$880 $880/$10,000(cash available for use)= 8.8%
On January 1, year 1, Klondike issued a 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds.
88,699 (5.65022 x 10,000) + (.32197 x 100,000) = 88,699
Pine corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive
980
factor
A __________ is a financial institution that buys receivables for cash and charges a fee for this service.
compensating balance
A ____________________ compensates the bank for granting a loan or line of credit.
A sales discount is
A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specific period of time
receivable
A claim to receive cash in the future is a _________.
ethics
A code or moral system that provides criteria for evaluating right and wrong behavior
A trade discount is
A percentage reduction from list price
small amounts of cash needed for low-cost items
A petty cash account is used for
liability of $10,00 and cash of $60,000
Abby Company has three bank accounts with the following balances: account 1: $20,000; account 2: $40,000; account 3: $10,000 overdrawn. If Abby Company applies U.S. GAAP, it will report:
A(n) _______ _______ is an informal credit arrangement to receive cash from a credit sale and represents an asset of the company.
Account receivable
Match each term with its definition.
Account receivable - Informal credit agreement with trade customers Note receivable - Formal credit arrangement between borrower and lender
When a specific account receivable is determined to be uncollectible, which of the following occur?
Account receivable is reduced Allowance account is reduced
In developing standards, the FASB considers the:
Both of the following: 1) concerns and opinions of constituents 2) economic transactions that standards will address
In a sale of an accounts receivable without recourse, if the customer does not pay, the loss is assumed by the _______ of the accounts receivable.
Buyer
Accounts receivables are _____ because they will be converted to cash within the normal operating cycle
Current asstes
The employee responsible for the petty cash fund is often referred to as the petty cash __________.
Custodian
Which of the following transactions will require credit to accounts recievable
Customer defaults and does not pay Sales on account is returned by a customer
Which of the following is an internal control procedure for cash disbursements?
Disbursements should be made by check.
In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the _______
Effective interest rate
GASB
Government Accounting Standards Board
A key factor in helping safeguard cash is a well functioning ________ system.
Internal control system
Which of the following will require a journal entry following a bank reconciliation?
NSF Checks & Notes Collected by the bank
Which of the following items will require a journal entry following a bank reconciliation?
NSF checks Notes collected by the bank
debit postage expense $50; credit cash $50
Night Corp. establishes a petty cash account for $200. During the month, Night uses petty cash to purchase postage for $50. At the end of the month, when petty cash is replenished, the journal entry will include
_____ _____ are those other than trade receivables and include tax refund claims, interest receivable, and loans by the company to other entities including stockholders and employees.
Nontrade receivables
The transfer of a(n) _______ to a financial institution is called discounting.
Note receivable
Sell goods to customers Sell stock to investors Purchase equipment
Operating Financing Investing
Purchasing inventory from vendors is a
Operating Activity
Expenses
Outflow of an asset (resources) related to the production of revenue. Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations
When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?
Outstanding checks
Which of the following is classified as part of the control environment?
Overall ethical tone of the organization with respect to internal control
Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. Assuming the interest rate is 5%, what is the present value of this annuity?
PVAD factor of 5% for 10 periods, 8.10782 x 5000 = 40,539
credit to sales, $1,000
Paredes uses the gross method to record sales on account. Paredes sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include a
A manager compares the monthly sales revenue to the amount forecasted. Which type of internal control is this?
Performance review
Which of the following are preventive controls:
Physical controls Separation of duties
Which of the following are preventive controls?
Physical controls Separations of duties
Control Activities
Policies and procedures that help ensure management's directives are being carried out
Industry averages are only one indication of acceptability of the liquidity ratios. Any ratio is but one indication of liquidity. _____ is perhaps the best long-run indication of liquidity.
Profitability
The acronym PCAOB stands for
Public Company Accounting Oversight Board.
Operating Activity
Purchasing inventory from vendors
A company's claims to the future collection of cash, other assets, or services is called __________.
Receivable
Which of the following are common controls over cash receipts?
Reducing the proportion of transactions that involve cash, having two different employees take custody of the checks and making a deposit, opening mail daily and making a detailed list of checks received.
International Organization of Securities
Regulatory oversight IFRS
Which of the following are provisions included in the Sarbanes-Oxley Act?
Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors.
later
Requiring the recurrence of a loss event may result in recognizing a loss _______ under IFRS than U.S. GAAP.
_____ on cash can be informal, arising from management's intent to use a certain amount of cash for a specific purpose. For example, a company may set aside funds for future plant expansion. This cash, if material, should be classified as investments and funds or other assets.
Restrictions
Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers $345,000; Cash paid for rent $41,000; Cash paid to employees for services rendered during the year $121,000; Cash paid for utilities $51,000 In addition, you determine that customers owed the company $61,000 at the end of the year and no bad debts were anticipated. The company owed the gas and electric company $2,100 at year-end, and the rent payment was for a two-year period. Calculate accrual net income for the year
Revenue (345,000 + 61,000) = 406,000 less expenses: Rent (41,000 / 2) = (20,500) Salaries = (121,000) Utilities (51,000 + 2,100) = (53,100) 406,000 - 20,500 - 121,000 - 53,100 = 211,400
Net Income
Revenues plus gains less expenses and losses. The difference between revenue and expenses when revenue is greater
authority to set accounting standards for companies, but has delegated the task to the private sector
SEC
Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. Indicate which of these groups it primarily represents:
SEC (Securities and Exchange Commission) - users Financial Executives International - preparers American Institute of Certified Public Accountants - Auditors Institute of Management Accountants - Preparers Association of Investment Management and Research - users
Which of the following are commonly classified as current liabilities?
Salaries Payable Accounts Payable Deferred Revenue
Loss
Sale of an asset used in the operations of a business for less than the asset's book value. A decrease in equity from peripheral or incidental transactions of an entity.
Cash inflow:
Sale of services for cash Collection on account Cash outflow: Payment of salaries Payment on account
Which of the following is a discount that is a reduction in the amount to be paid if the customer pays within a specified time period?
Sales discount
What type of payment tend to increase sales and profitability in the long run
Sales on account
A(n) _______ _______ occurs when a customer returns merchandise for a refund.
Sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is a called a
Sales return
The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the
Sarbanes-Oxley Act
The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the:
Sarbanes-Oxley Act
The public company accounting reform and investor protection act of 2002 is known as
Sarbanes-Oxley Act
High profile accounting scandals in the early 2000s promoted the passage of the
Sarbanes-Oxley Act, Section 404
Which of the following are preventative controls?
Separation of Duties Physical Controls
A critical aspect of a good internal control system is
Separation of duties
As cash is the most liquid of all assets, a well-designed and functioning system of internal control must surround all cash transactions. _____ _____ _____ is critical.
Separation of duties
Which of the following are preventative controls?
Separation of duties Physical Controls
Receivables represent a company's claims to the future collection of
Service Cash Other assets
When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?
Service charges; Charges for NSF checks
debit allowance for uncollectible accounts
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a:
cash equivalents
Short-term investments that can be readily converted to cash and have a maturity date of less than three months from date of purchase are called ______________.
Financing Activity
Signing a long term promissory note
Income Statement Formats
Single-step format groups all revenues and gains together, then expenses and losses are grouped, subtotaled, and subtracted - in a single-step from revenues/gains to derive income from continuing operations. Operating and nonoperating items are not separately classified Income tax is usually reported in a seperate line Multi-step format includes a number of intermediate subtotals before arriving at income from continuing operations
Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?
Smith
The financial statement that provides information about cash receipts and cash disbursements for the period is the:
Statement of cash flows
Steps in ethical decision making:
Step 1: Determine the facts of the situation Step 2: Identify the ethical issue and stakeholders Step 3: identify the values related to the situation Step 4: Specify the alternative courses of action Step 5: Evaluate the courses of action in terms of their consistency
Independent financial statement audits are most commonly required of:
Stock exchange listed companies
Which of the following allows greater reliance by investors on reported financial statements?
Strong internal control systems
Analyze the income summary: Income Summary ________________________ 36,333 38750 _______________________ 2417
The $38,750 represents :revenue The $36,333 represent expenses The $2,417 represents net income
Political pressure in International standard setting comes from:
The European Union and politicians from countries utilizing IFRS
understandability
The accounting characteristic that requires a user to comprehend the information within the context of the decision being made
At what amount are accounts receivable recorded?
The amount expected to be collected.
going concern
The assumption that a business entity will continue to operate indefinitely in the future refers to what assumption?
The ending balance in cash is reported in which financial statement(s)?
The balance sheet and statement of cash flows
The ending balance in cash is reported in which financial statements?
The balance sheet and statement of cash flows.
The ending balance in cash is reported in which financial statements?
The balance sheet and the statement of cash flows
without
The buyer assumes the risk of uncollectibility when accounts receivable are sold __________ recourse.
Comprehensive income
The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Includes net income as well as other gains and losses that change shareholders' equity but are not included in traditional net income
In which situations does a company accept a note receivable?
The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest. The company lends money to employees or businesses.
If a company determines that it has $1400 of supplies on hand at the end of the period, which of the following statements is correct?
The company has $1,400 in supplies remaining at the end of the period.
conceptual framework that underlies accounting principles (in generan)?
The conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting. The fundamentals are the underlying concepts of accounting, concepts that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties.
could result in the mismatching of expense and revenue
The direct write-off method
At what amount are accounts receivable initially recorded?
The exchange price agreed on by the buyer and seller
At what amount are accounts receivable initially recorded?
The exchange price agreed on by the buyer and seller.
At what amount are accounts receivable initially recorded? -The present value of expected future cash flows. -The exchange price agreed on by the buyer and seller. -The future value of the amount expected to be collected.
The exchange price agreed on by the buyer and seller.
at what amount are accounts receivable initially recorded?
The exchange price agreed on by the buyer and seller.
Who has the receivables on their balance sheet in a sale of receivables?
Transferee
the transfer, any continuing involvement, and ongoing risk to the transferor
Transferors of assets must provide enough information about the transfer to allow financial statement users to fully understand what?
closing process involves ___________________________
Transferring revenue and expense balances to retained earnings
When a creditor changes the terms of a debt agreement in response to the debtor's financial difficulties, this referred to as
Troubled debt restructuring
true
True or false: Inventory that is expected to be returned in the future is included on the balance sheet of the company expecting the return.
false
True or false: The gross method and the cash method are the two ways to record sales discounts.
Detective
Two type of control procedures are preventive and _________.
Which set of standards require more disaggregation of accounts receivable and notes receivable in the balance sheet or notes?
U.S. GAAP
secured borrowing
Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral?
cost index
Used to convert ending inventory at year-end cost to base year cost.
An income statement approach:
Uses a percentage of each period's net credit sales to estimate bad debt expense
Accelerated customer payment, reduction in bad debt, and increased sales volume
What are potential benefits of offering cash discounts to customers?
change in customer base and overall change in economic conditions
What are some factors considered when estimating sales returns?
receivables are sold without recourse and the transfer will have no continuing involvement.
What indicates the surrender of control over the assets transferred?
book / fair
When settlement occurs at the time of a troubled debt restructuring, the creditor records a loss for the difference between the ______ value of the receivable and the _______ value of the assets received.
when the account receivable is determined to be uncollectible
When the direct write-off method is used, an entry for bad debt expense is required
Collusion
When two or more persons work together to circumvent internal control procedures and commit a fraud:
both IFRS and U.S. GAAP
Which accounting standards allow reversals of previously recognized impairment losses on receivables?
a sale of receivables
Which method of financing with receivables has the borrower credit the receivable asset?
Pledging / assigning
______________ accounts receivables requires no special account treatment, whereas ______________ accounts receivables requires netting a liability against the accounts receivables.
trade discount
__________________ allows a customer to pay an amount below the list price.
Accounts receivables
___________________ are created when sellers recognize revenue associated with a credit sale.
Deferred revenue arises when
a business receives cash in one period, but does not provide all of the related goods or services until a later period.
The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:
a change in accounting principle
discontinued operations qualifications
a component of the entity has been sole, disposed of,or held for sale and a strategic shift is represented that will have a major effect on financial results
The replenishment of a petty cash fund might include
a debit to office supplies expense recording expenses occurs at the time the petty cash fund is replenished
factors
a financial institution that buys receivables for cash and charges a fee for this service
A trade discount is
a percentage reduction from list price
After preparing closing entries, the last step in the accounting process is to prepare ___________________
a post-closing trial balance
When a company has acclaim to receive assets in the future, how is this recorded on the balance sheet?
a receivable
when a company has a claim to receive assets in the future, ow is this recorded on the balance sheet
a receivable
what does a sales discount represent
a reduction in the amount to be paid if paid within a specified period of time
which method of financing with receivables has the transferee recognize the receivables as assets in its balance sheet
a sales of receivables
Requires an explanatory paragraph required (even though auditors report is unqualified)
a significant matter concerning the financial statements and a related-party transaction, and uncertainty regarding a contingency for which a loss is material in amount
securitization
a special purpose entity is created for the purpose of purchasing pools of receivables
Which of the following are adjustments to the bank balance in a bank reconciliation? a) Add deposits outstanding b) Adjust for bank service charges c) Deduct checks outstanding d) Adjustments for company errors e) Adjustments for bank errors
a) Add deposits outstanding c) Deduct checks outstanding e) Adjustments for bank errors
When an accounts receivable is written off, which account is effected? a) Allowance for uncollectible accounts b) Bad debt expense c) Cash
a) Allowance for uncollectible accounts
Financial Flexibility
ability to alter cash flows in order to take advantage of unexpxected investment opportunities and needs
Accounting changes - 3 types
accounting principle accounting estimate reporting entity
The objectives for determining the present value of future cash flows associated with an asset or liability requires that the uncertainty concerning the ____________ and timing of the cash flows be taken into consideration
amounts
Which of the following items are classified as recievables
amounts owed by customers amounts loaned and expected to be repaid tax refund claims
Which of the following items are classified as receivables?
amounts owed by customers tax refund claims amounts loaned and expected to be repaid
Recognizing revenue before cash flow is an example of ____________
an accrual adjusting entry
cash equivalent
an investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less
At the end of the accounting period, before the adjusting entries are recorded:
an unadjusted trial balance is prepared
Recording sales returns and allowances in a separate contra-revenue account helps managers:
analyze the transactions
In a(n) ___________________ the payment is received or made at the beginning of the period, whereas in a(n) __________________ the payment is received at the end of each period
annuity due ordinary annuity
On a financial calculator, the PMT key is used to input the ____________
annuity payment
Book value of a company
assets minus liabilities
Balance sheet limitations
assets minus liabilities is not representative of the company's true market value, the balance sheet is heavily reliant on estimates rather than determinable amounts
investments
assets not used directly in the operations of the business (cash set aside for future plant expansion, 3 year note receivable, land held for speculation, noncurrent receivables)
The application of conservatism leads to:
assets tending to be biased downwards and losses being recognized quicker than gains
Permanent accounts
assets, liabilities, equity
what are Permanent accounts :
assets, liabilities, equity
A secured borrowing occurs when accounts recievable are _____ or ______ as collateral for a loan
assigned, pledged
The formula to compute the receivables turnover ratio is net sales divided by
average accounts receivable
perpetual inventory system
average cost method is applied by computing a moving average unit cost each time inventory is purchased
Below is information from the financial statements of Thornton Company: Accounts receivable (net) 2014: $1,100 Accounts receivable (net) 2013: $900 Net sales 2014: $8,000 What is the receivables turnover? a) .1375 times b) 8 times c) 7.27 times d) .125 times e) 4 times
b) 8 times
If Company A sells accounts receivable with recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts? a) ABC Finance b) Company A c) the customer
b) Company A
The formula for calculating interest multiplies which of the following? a) Daily interest rate b) Face amount of the note c) Future value of the note d) Fraction of the annual period e) Annual interest rate
b) Face amount of the note d) Fraction of the annual period e) Annual interest rate
Both IFRS and U.S. GAAP permit the fair value option for accounting for receivables. Which of the following represents a difference in the application of this option? a) U.S. GAAP restricts the circumstances for applying the fair value option b) IFRS restricts the circumstances for applying the fair value option.
b) IFRS restricts the circumstances for applying the fair value option.
Which of the following are costs of extending credit terms to customers? a) Increased sales volume. b) Increased investment in receivables. c) Increase in uncollectible accounts. d) Reduction in the amount of cash collected from customers.
b) Increased investment in receivables. c) Increase in uncollectible accounts.
The organization responsible for the Code of Professional Conduct for accountants providing auditing services to their own organization is the: a) Accounting Principles Board b)Institute of Internal Auditors c) Public Accounting Standards Oversight Board d) Institute of Management Accountants e) American Institute of Certified Public Accountants
b) Institute of Internal Auditor
How is inventory recorded related to returns? a) The inventory account is decreased when returns occur to include the returned items. b) Inventory expected to be returned is included as an asset on the balance sheet. c) The inventory account is increased when returns occur to include the returned items. d) Inventory expected to be returned is included as income on the income statement.
b) Inventory expected to be returned is included as an asset on the balance sheet. c) The inventory account is increased when returns occur to include the returned items.
Which of the following are potential benefits of offering cash discounts to customers? a) Increased investment in receivables b) Reduction in bad debt c) Accelerated customer payment d) Increased sales volume
b) Reduction in bad debt c) Accelerated customer payment d) Increased sales volume
Which method of financing with receivables has the borrower credit the receivable asset? a) a secured borrowing b) a sale of receivables
b) a sale of receivables
The transfer of a note receivable to a financial institution for an amount less than the face amount of the not is referred to as a) discount on notes receivable. b) discounting a note receivable. c) pledging accounts receivable. d) assigning the note receivable.
b) discounting a note receivable.
Restrictions on cash may be a) imposed by stockholder intervention. b) informal arising from management intent. c) imposed by government regulation. d) formal by contract.
b) informal arising from management intent. d) formal by contract.
An item typically included in the income from continuing operations section of the income statement is: a) discontinued operations b) restructuring costs d) prior period adjustments d) all of the above
b) restructuring costs
Which of the following are cash equivalents? a) currency b) treasury bills c) commercial paper d) restricted cash e) coins
b) treasury bills c) commercial paper
The balance sheet approach estimates ______ _______ expense by estimating the net realizable value of accounting receivable.
bad debt
The balance sheet approach estimates _________ ___________ expense by estimating the net realizable value of accounts receivable.
bad debt
The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as
bad debt expense
The balance sheet approach estimates
bad debt expense by estimating the net realizable value of accounts receivable
Cash and cash equilvalents are reported as a single account in the ______________________ _________________________________
balance sheet
Cash and cash equivalents are reported as a single amount in the _____ ______.
balance sheet
How much cash you have is on:
balance sheet statement of cash flows
Other long-term assets
balance sheet item that is a catch-all classification of noncurrent assets (long-term prepaid expenses, noncurrent investments that are not material)
The components of internal control are
based on the ethical tone set by management.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
be more accurate
accrued receivable occures when revenue is earned
before cash flow
A timing difference in cash occurs when a company records a transaction either
before or after the bank records the same transaction.
Using the LIFO retail method, a new layer at retail is determined by subtracting what from ending inventory at retail?
beginning inventory at retail
related-pary transactions
borrowing or lending money at an interest rate significantly different from the market interest rate
when a specific account receivable is determined to be uncollectible
both the allowance amount and account receivable is reduced
Ways management can use accounts receivable to manipulate earnings resulting in diminished earnings quality
building large allowances for bad debts in good periods and then reducing those allowances in bad periods selling products at large discounts to retailers before they would normally buy and then holding the products for later delivery
Depreciation is the allocation of the cost of
buildings, vehicles, and equipment to expense over time as they are used.
What does a sales discount represent? a) A quantity discount for large customers. b) A reduction in the selling price of a good or service. c) A reduction in the amount to be paid if paid within a specified period of time.
c) A reduction in the amount to be paid if paid within a specified period of time.
Which of the following are the two approaches of estimating future bad debts? a) The revenue approach b) The equity approach c) The income statement approach d) The balance sheet approach
c) The income statement approach d) The balance sheet approach
Which of the following is a contra account to accounts receivable? a) sales returns b) inventory-estimated returns c) allowance for sales returns
c) allowance for sales returns
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a a) debit Accounts Receivable. b) debit Bad Debt Expense. c) debit Allowance for Uncollectible Accounts. d) credit Sales Returns and Allowances.
c) debit Allowance for Uncollectible Accounts.
The following information is taken from Connor Corp.'s accounting records: Accounts Receivable - beg. bal. $100,000, ending bal. $140,000 Allowance for Uncollectible Accounts - beg. bal. $15,000, ending bal. $18,000 During the year, Connor wrote off $17,000 of accounts receivable that were uncollectible. The adjustment to record bad debt expense at the end of the period was a a) credit to Allowance for Uncollectible Accounts for $18,000. b) debit to Bad Debt Expense for $18,000. c) debit to Bad Debt Expense for $20,000. d) credit to Bad Debt Expense for $18,000.
c) debit to Bad Debt Expense for $20,000. * $18,000 + $17,000 - $15,000
Earnings per share should be reported for each of the following income statement captions except: a) income from continuing opereations b) discontinued operations c) operating income d) net income
c) operating income
which of the following would more likely be found in a multi-step income statement? a) total expenses b) total revenues and gains c) operating income d) all of the above
c) operating income
Which of the following items would not be included as a cash flow from operating activities in a statement of cash flow? a) collections from customers b) interest on note payable c) purchase of equipment d) purchase of inventory
c) purchase of equipment
A check that is NSF (nonsufficient funds) is a check that
cannot be paid because the account does not contain enough funds.
A check that is NSF (nonsufficent funds) is a check that
cannot be paid due to the amount does not contain enough funds
Management Discussion and Analysis section includes a perspective on:
capital resources, operations and liquidity
Expenditures needed to get land ready for its intended use should be
capitalized as part of the cost of land
Amounts readily available to pay off debt or used in operations are considered _____
cash
Coins, balances in checking accounts, checks received from customers and money orders received are all included in _____ on the balance sheet.
cash
Coins, balances in checking accounts, checks received from customers and money orders received are all included in the ______ account on the balance sheet.
cash
In a cash receipts journal, the debit column is for:
cash
In factoring agreement, the seller relinquishes all rights to future cash receipts in exchange for _____ from the factor.
cash
The asset most susceptible to fraudulent activity is(are)
cash
The asset that is most easily stolen and susceptible to fraud is
cash
The gross method and the net method are two ways to record ______ discounts.
cash
petty cash fund should always have ________ and ______ that together equal the amount of the fund
cash receipts
A _____________ or______________ discount represents reductions not in the selling price of a good or services, but in the amount to be paid by the customer.
cash sales
Reston Corp. borrowed 20,000 from first national bank on a 6-month note at 8% interest. Reston has an informal arrangement with no contractual agreement with the bank to maintain a compensation balance of 2,000 until the loan is repaid. Reston should report the 2,000, as
cash and cash equivalents
compensating balance may be disclosed in the financials as
cash and cash equivalents noncurrent assets current assets
current assets
cash and other assets that are expected to be converted to cash or consumed within a year or the current operating cycle (temporary investment, short-term marketable security)
short-term, highly liquid investments such as money market funds or treasury bills are classified as
cash eqivalents
Highly liquid investments with a maturity date of 3 months or less are considered ____
cash equivalents
Short-term, highly liquid investments such as money market funds or treasury bills are classified as
cash equivalents
Amounts readily available to pay off debt or use in operations are considered cash, while highly liquid investments with a maturity date of 3 months or less are considered
cash equivalents.
The new expected cash flow approach requires that the probability adjustment for uncertainty is applied to what amount when calculating expected cash flows?
cash flow
Paying by check helps a business to control cash when the ______.
checks are prenumbered and written sequentially check is signed by an authorized manager
Internal control procedures for cash disbursements should include that
checks are signed by authorized individuals all disbursements are made by check, debit card, or credit card all expenditures are authorized
Sarbanes-Oxley Act, Section 404
companies must document internal controls and assess their adequacy
To complete the measurement process,
companies need to update balance of assets, liabilities, revenues and expenses for adjusting entries.
The Sarbanes-Oxley Act applies to
companies that are required to file with the SEC.
Which of the following are providers of financial information? a) customers b) companies c) households d) investors e) schools
companies, households, schools
Decreases in inventory value are recognized as they occur, but not increases. This is consistent with the ____________________ principle or concept
conservatism
The gain or loss on disposal of an asset is calculated as
consideration received less the book value of asset sold
A company applies the _____________________________concept when it applies the same accounting principles from period to period to allow for more comparability.
consistency
amount of loss from write-down using individual items
cost total-by individual products total
Management must evaluate the ______ and _______ of any change in credit and collection policies.
cost; benefit
LIFO liquidation profits occur when
costs are rising and inventory quantity declines
A credit balance in the income summary account is closed with a ___________ to retained earnings
credit
A(n) _ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.
credit
The account "Allowance for Uncollectible Accounts" normally has a _ balances.
credit
The adjusting entry required to record depreciation includes a(n) ________ entry to accumulated depreciation
credit
The normal balance in a contra asset account is:
credit
calculate the year-end balance in the allowance for uncollectible accounts
credit balance-accounts receivable written off during the year + bed debt expense
If the allowance for uncollectible accounts is 25% of gross accounts receivable, this might indicate
credit policies are too lenlent
On Jan 1, KLAY corp. recieves a $100,000, 120-day, non-interest bearing note recieable from a customer. The note has a 6% discount rate. On Jan 1, when Klay receives the note from the customer, Klay will record a
credit to discount on notes recievable for $2,000
On March 1, Song corp. recieves a $100,000, 90-day, non-interest bearing note receivable from a customer. The discount rate is 12%. On June 1, when Song receives full payment for the customer, Song will record a
credit to interest income for $3,000
Accruing interest at year-end on a note receivable journal entry includes
credit to interest revenue
Rascal Corp. borrows $500,000, by signing on a 1-yr, 12% promissory not from General Finance company and assignes $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the recievables assigned. The journal entry for Rascal to record the borrowing will include a
credit to liability---financing arrangements for $500,000
Paredes uses the gross method to record sales on account. Paredes sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include a
credit to sales, $1,000
The bank will show a customer's deposit on bank statements as a ______.
credit, because a deposit is a liability from the bank's point of view
To increase the accumulated depreciation account, you would _________ the account, and to increase depreciation expense, you would _______ the account
credit, debit
The interest rate used in the expected cash flow approach to estimating the value of assets or liabilities is the
credit-adjusted risk-free rate
Under the LIFO retail inventory method, a new layer is converted to cost by multiplying it by the_____________ period cost-to-retail percentage.
current
Balance sheet - how are assets classified
current and noncurrent
ending balance of accumulated other comprehensive income is calculated by adding this amount to the beginning balance of accumulated other comprehensive income
current year other comprehensive income
Frequently, liquidity is measured with respect to the ability to pay _____ maturing debt.
currently * The current ratio is one of the most common ways of measuring liquidity.
Which of the follown transactions will require an entry to the accounts recievable account?
customer purchases goods on account, customer defaults and does not pay sale on the account is returned by a customer
A disadvantage to selling on account is
customers do not always pay
Kim Corp. uses the gross method to record sales on account. Kim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include a a) credit to accounts receivable, $4,900. b) debit to sales, $5,000. c) credit to sales, $4,900. d) debit to accounts receivable, $5,000.
d) debit to accounts receivable, $5,000.
A signed agreement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others is called a(n) a) account payable b) note payable c) account receivable d) note receivable
d) note receivable
To close the dividend account, the journal entry would require a(n) ______ entry to retained earnings
debit
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a
debit Allowance for Uncollectible Accounts.
Smith Corporation began 2016 with a difference of $50,000 between inventory valued internally using FIFO and inventory valued using LIFO. At the end of 2016, this difference increased to $75,000. The journal entry to record this increase would include
debit COGS $25,000 credit to LIFO reserve $25,000
Oswego Clay Pipe Company sold $45,500 of pipe to Southeast Water District #45 on April 12 of the current year with terms 4/15, n/60. Oswego uses the gross method of accounting for cash discounts. What entry would Oswego make on April 12?
debit accounts receivable 45,500 credit sales 45,500
Burton Corp. is owed $100,000 by Gem Corp. under a note payable for $100,000 with a 10% interest rate. The carrying value of the note is $40,000, but the previous year's interest of $4,000 had not been received. Burton settles the debt by accepting land with a fair value of $30,000. The journal entry to record this transaction will include:
debit bad debt expense $14,000 debit land $30,000
Marson Corp. has a note receivable from a client. The carrying value of the note is $100,000. Due to the clients financial situation, Marston modifies the terms of the note. The present value of the future cash flows for principle and interest on the modified note are $96,000. The journal entry for the loan modification will include
debit bad debt expense $4,000 credit allowance for uncollectible accounts $4,000
When inventory is sold in a perpetual inventory system:
debit cost of goods sold credit inventory debit cash credit sales
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require
debit interest receivable $2,000 credit interest revenue $2,000
Smith Company has a discrepancy of $50 at the end of the bank reconciliation. Smith has come to the conclusion that $50 of cash went missing somewhere. The journal entry to record this discrepancy includes:
debit miscellaneous expense $50 credit cash $50
On May 1, 2017 Garcia Company paid $1,200 for 12 months rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, 2017 will require:
debit prepaid rent $400 credit rent expense $400 Garcia recorded the full amount as rent expenses in the income statement on May 1. At the end of the year, the rent expense must be reduced by the remaining four months
Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. A physical count determined the cost of inventory a the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry to record the purchase of inventory during the year includes:
debit purchases $100,000 credit cash $100,000
Joyce determines that a customer accout of $20,000 should be written off as uncollectible. The journal entry to write off the account using the allowance method will include
debit to allowance for uncollectible accounts credit to accounts receivable
The following information is taken from Connor Corp.'s accounting records accounts receivable beginning balance 100,000 ending balance 140,000 allowance for uncollectible accounts beginning balance 15,000 ending balance 18,000 during the year, Connor wrote off $17,000 of accounts receivable that were uncollectible the adjustment to record bad debt expense at the end of the period was
debit to bad debt expenses for $20,000 credit to allowance for uncollectible accounts for $20,000 18,000+17,000-15,000 = 20,000
journal entry to record the borrowing of cash and the signing of a note payable involves:
debit to cash credit to note payable
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end and principal and interest are due at maturity. The entry required on Lights books on April 1 when the note is due requires:
debit to cash $104,000 credit to interest revenue $2,000 100,000 x .08 x3/12 credit to note receivables $100,000 credit to interest receivable $2,000
Kendall Corp. purchases equipment for $100,000 by paying $20,000 in cash and signing a note payable for $80,000. The journal entry to record this transaction would include:
debit to equipment credit to cash credit to notes payable
On january 2, Allison Corp. changes from the LIFO to the FIFO method. Its prior-year financial statement notes show a LIFO reserve of $20,000 if it had utilized FIFO in prior years. Allison should make a journal entry that includes a
debit to inventory credit to retained earnings
On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On January 1, when Song receives the note from the customer, Song will record:
debit to notes receivables $100,000 credit to sales revenue $79,719 n=2, i=12%, present value factor is .79719 x 100,000 credit to discount on note receivables $20,281 n=2, i=12$, present value factor is .79719 x 100,000
Brunson Company pays employees $4000 for work performed in the current month. The journal entry to record the transaction will include
debit to salary expense credit to cash
Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a
debit to sales allowances $50.
Notes receivable normally has a(n) _ balance because it is classified as a(n) _.
debit, asset
The bank will show a customer's withdrawal as a _____.
debit, because a withdrawal decreases its liability from the bank's point of view
if the company uses the direct write-off method, what would bad debt expense be for 2016
debit- bad debt expense credit accounts receivable
Revenues are $1,000. Expenses are $200. The journal entry required to close the income summary account will require a _______ to income summary and a ______ to retained earnings
debit; credit
Supplies expense is ______ and supplies is _____ for the amount of supplies used during the period that were originally recorded as an asset when purchased
debited; credited
The overriding objective in the hierarchy of qualitative characteristics of financial reporting information is:
decision usefulness
A LIFO liquidation occurs when inventory quantities _____.
decline
What are the financial statement effects of recording bad debt expense using the allowance method?
decrease assets increase expenses
Liabilities impact of debits and credits:
decrease by debit increase by credit
Expenses will ____________ retained earnings and revenues will ____________ retained earnings
decrease; increase
In a bank reconciliation, the bank's charge of $10 for checking account fees is
deducted from the company's cash balance
when adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance
deposits it transit
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are
deposits outstanding
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for
designing an internal control system.
Cost approach
determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition
The accounts receivable account is reduced when the seller:
determines that a specific customer account will not be collectible
Private Company Council (PCC)
determines whether changes to existing GAAP are necessary to meet the needs of users of private company financials
_______________ cost are incurred after after a natural resource has been discovered but before production begins.
development
Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay?
direct write-off method
Which of the following is an internal control procedure for cash disbursements
disbursments should be made by check
pledging receivables requires
disclosure in the notes to financial statements
The ____________ on notes receivable account is a contra account
discount
Gross method of accounting for purchase discounts
discount not taken is recorded as Purchase
Net method of accounting for purchase discounts
discount not taken is recorded as interest expense
The transfer of a note to a financial institution is referred to as ______.
discounting
A trade discount is a reduction from the list price, which is used to:
disguise real prices from competitors change prices without publishing a new catalog give quantity discounts to customers
a trade discount is a reduction from the list price, which is to:
disguise real prices from competitors give quantity discounts to customers change prices without publishing a new catalog
An asset that is traded for another asset is treated as an exchange, whereas an asset that is sold or retired is treated as a(n) _________________.
disposition
The statement of stockholders' equity includes these amounts:
dividends for the period net income ending balance retained earnings
The write-off of a specific accounts receivable _ total assets reported on the balance sheet.
does not affect
Liability - characterisitcs
due to a past transaction or event, it is a probable future sacrifice of an economic benefit, it is a present obligation
Each economic event, or transaction, affecting the accounting equation has a(n) _______ effect because resources must always equal claims
duel
perpetual LIFO
each time inventory is purchases or sold, the layers are adjusted
In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the _____ _____ rate.
effective interest
In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the _________ ___________ rate.
effective interest
an application where the interest rate stays the same over time, but interest revenue increases as the rate is multiplied by a receivable balance that increases is referred to as
effective interest method
Which of the following effectively mitigate the natural risks of running any business without being capable of completely eliminating the risk?
effective internal control; ethical employees
The broad term that encompasses machinery used in manufacturing, computers and other office equipment, vehicles, furniture, and fixtures is _________.
equipment
A(n) _____ is a mistake in accounting, which can be intentional or unintentional.
error
An inventory _______ can occur due to the over- or understatement of purchases.
error
At the beginning of the year, Block Company's allowance account has a debit balance of $10,000. this may indicate that the
estimate of uncollectible accounts was too low
Net sales by cost formula
estimated ending inventory at retail * cost-to-retail ratio
Because some of the amounts reported in financial statements are based on _ some of the information may be inaccurate.
estimates
The gross profit method is useful in situations where ________of inventory are desirable
estimates
Three types of accounting changes are a change in accounting principle, a change in accounting ______________, and a change in reporting __________
estimates entity
susequent events
event that affects a loss contingency, sale of the business, issuance of debt securities
Some ____________ recognition is modified in interim reporting to cause interim statements to relate better to annual statements
expense
When inventory is sold and reported as cost of goods sold, the cost of inventory is recognized as a(n) _______.
expense
If equipment is purchased specifically for one research and development project, the cost of the equipment is
expensed immediately
Consistent with U.S. GAAP and IFRS, donated assets generally are valued at __________ value.
fair
At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond true/false
false
Cash basis accounting is the required accounting method for most profit-oriented companies. true/false
false
Retained earnings equals net income plus distributions to shareholders. true/false
false
Economic Events cause changes in the:
financial position of a company
Note receivable is
formal credit agreement with trade customers
note receivable
formal credit arrangement between borrower and lender
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational _____.
fraud
When a person intentionally deceives another person or company for personal gain, this is referred to as _____.
fraud
when a person intentionally deceives another person or company for personal gain,
fraud
The two reasons why companies may issue incorrect financial statements are
fraud and errors
The majority of productive resources are privately owned in a ________ enterprise economy
free
perpetual inventory system
freight is added directly to the inventory account
The __________ ___________ principle requires that any information useful to decision makers be provided in the financial statements, subject to the cost effectiveness constraint
full disclosure
Clara invests $1,000 in a savings account earning 3% interest. At the end of the first year, Clara has $1,030 in the account. The $1,030 Clara has at the end of year 1 is the __________ value
future
The calculation of ____________ value requires the addition of interest, while the calculation of ______________ value requires the removal of interest
future present
Chen Corp. wishes to deposit $10,000 in the bank at the beginning of each year, a nd would like to know how much money it will have at the end of year 10. Which table should Chen use to make this calculation?
future value of an annuity due
The future value of a series of equal-sized cash flows with the first payment taking place at the beginning of the first period is __________________
future value of an annuity due
In an exchange of nonmonetary assets, if the transaction lacks commercial substance, any _____ is deferred but a(n) _____ is recognized immediately.
gain loss
Discontinued operations reported income
gain or loss on disposal of the components assets and operating income or loss of the component from the beginning of the reporting period to the disposal date
Other comprehensive income includes net income as well as other _________ and __________ that change shareholders' equity but are not included in traditional net income
gains losses
Costs of providing financial information
gathering, processing and disseminating information
IASB is dedicated to developing a set of high-quality, understandable, and enforceable ________ accounting standards
global
According to the revenue recognition principle, revenues should be recognized when
goods or services are provided to customers, not necessarily when cash is received
Ownership of inventory at the end of the accounting period is determined for:
goods shipped by suppliers goods shipped to customers
An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized is ________________.
goodwill
A bond will be issued at a discount when the market rate of interest is ___________
greater than the stated rate
The gross profit ratio is computed as _____ divided by net sales.
gross profit
IFRS primary purpose of the conceptual framework is to provide
guidance to both standard setters and practitioners
double entry system of accounting means each transaction _______
has a dual effect on the accounting equation
A primary purpose of adjusting entries is to record events that:
have occurred but that have not yet been recorded.
Control Activities are Policies and procedures that
help ensure management's directives are being carried out.
The allowance for uncollectible accounts has a debit balance at the end of the year prior to recording bad debt expense. This means that write offs of accounts were _ than the estimated bad debt expense for the previous year.
higher
compensating balance results in an effective interest on the loan that is ___________ than the stated rate on the debt
higher
A compensating balance results in the borrower's paying an effective interest rate _____ than the stated rate on the debt.
higher * For example, suppose that a company borrows $10,000,000 from a bank at an interest rate of 12%. If the bank requires a compensating balance of $2,000,000 to be held in a noninterest-bearing checking account, the company really is borrowing only $8,000,000 (the loan less the compensating balance). This means an effective interest rate of 15% ($1,200,000 interest divided by $8,000,000 cash available for use).
Based on the Dupont model an equity multiplier greater than 1 will produce a return on equity that is higher than the return on assets. What is the trade-off to this effect?
higher leverage results in higher probability of default
Financial Statement Presentation project addresses:
how items are displayed in the financials, classifications and subclassifications of items, the aggregation of items in the financials
Dollar amounts are assigned to goods sold and goods remaining in ending inventory by making an assumption regarding what?
how units of goods and their associated costs flow through the system
EIFT - Emerging Issues Task Force was formed to
identify potential problem areas and provide a timely response to issues
Robert Skinner, an accountant, discovers an error in accounting for an inventory purchase. He should correct the error....
immediately
When a lender believe it is probable that not all principle and interest will be collected on a long-term note receivable, what is recognized?
impairment loss
when a lender believes it is probable that not all principal and interest will be collected on a long-term note receivable, what is recognized
impairment loss
LIFO inventory method
in the absence of changes in costs, the results of using LIFO would be identical to those obtained by FIFO LIFO will provide a close matching of current revenues with current cots since the most recent costs are expensed first In periods of declining costs, cost of goods sold using LIFO will produce a lower cost of goods sold than FIFO
Accounts recievable are normaly classified
in the balance sheet as current assets
estimated future sales returns
included in ending inventory and deducted from cost of goods sold
Raw Materials Inventory
includes items acquired for the purpose of processing into finished goods
Summary of significant accounting policies
includes method of depreciation, choice between LIFO AND FIFO, items included in cash and cash equivalents
Statement of Cash Flows
includes operating, investing and financial activities reports the changes in a companys cash balance during a period purpose is to provide information about cash receipts and cash disbursement during a period
Income from Continuing Operations
includes the revenues, expenses (including income taxes), gains and losses from operations that are more likely to continue into the future. 3 Components: Operating Income Nonoperating Income Income tax expenses
The financial statement effects of recording an allowance for estimate sales return are that:
income decreases assets decrease equity decreases
When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through
income statement classification shifting
CECL - Current Expected Credit Loss model will ________ the amount of bad debt expense companies have to recognize on receivable impairments in comparison to current GAAP
increase
additional markup
increase in selling price subsequently to initial markup
Two acceptable methods under U.S. GAAP for preparing the statement of cash flows are
indirect and direct methods
Seperation of duties requires that
individuals who have physical responsibililty for assets should not hace access to accounting records
restriction on cash may be
informal arising from management intent and formal by contract
account receivable
informal credit agreement with trade customers
Worksheet
informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period
ERP - Enterprise Resource Planning system
integrates the information of departments and functions of a company into a single computer system
A error is a mistake in accounting, which can be
intentional or unintentional.
Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable interest rate is 6%. One year after the prepayment. Munchen should recognize:
interest revenue of 5,340 89,000*.06 = 5340
A periodic performance review is an example of a(n) _____ control.
internal
The success of any business enterprise depends on an effective system of _____ _____.
internal control
The control environment sets the overall ethical tone of the company with respect to
internal control.
A perpetual system requires that merchandise purchases be recorded in the _____________ account
inventory
In a perpetual system, each time goods are sold, cost of goods sold is debited and __________ is credited
inventory
The cost of freight-in paid by the purchaser is most commonly included in the cost of ______.
inventory
the dollar-value LIFO method extends the concept of _______ ________ by allowing a company to combine a large variety of goods into one pool
inventory pools
affect earnings quality
inventory write-downs choice of inventory method change in inventory method
Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests is a(n) ________________ by owners.
investments
Noncurrent assets
investments, property and machines
Capital markets is a composite of all:
investors and creditors
The cost of freight-in
is commonly included in the cost of inventory
A physical count of inventoy
is required in a periodic inventory system as cost of goods sold is not determined continuously.
Net operating cash flow
is the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.
Statement of Cash flows financial activities
issuance of common stock to investors borrowing from bank
financing activity on the statement of cash flows
issue stock pay dividends, borrowing on a note payable
A note recievable is considered impaired when
it becomes probable that the creditor will not be able to collect all amounts
An advantage of historical cost measurement is
it is objective and verifiable
The statement of cash flows is useful because
it provides information on the company's ability to maintain long-term success.
Multi-step income statement advantages
it reports expenses by function it reports the relationship between various items it provides more information than a single-step income statement
A note recieved solely for cash is valued at
its present value, which is the cash amount
The time value of money has a _____ effect on long-term notes receivable versus short-term notes receivable.
larger
The time value of money has a _______ effect on long-term notes receivable versus short-term notes receivable
larger
GAAP typically requires that bank overdrafts be treated as _______________ on the balance sheet where IFRS allows them to offset other cash accounts
liabilities
a company that has sufficient cash or is capable of converting assets to cash in a short period of time so that it can meet its current needs is considered to be
liquid
Use the LIFO inventory pools reduces the chance of unintentional LIFO layer______.
liquidation
current ratio and quick ratio measure
liquidity
Carly corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. First bank charged a 4% factoring fee and retained $5,000 to provide a reseve against potential sales returns and allowances. The journal entry Carly will make to record the factoring arrangement will include a
loss on sale of receivables for $4,000
Carly corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. FIrst Bank charged a 4% factoring fee and retained $5,000 to provide a reserve against potential sales returns and allowances. Te journal entry Carly will make to record the factoring arrangement will include a
loss on sale of recievables for $4,000
a petty cash fund is an efficient way to handle what type of payments
low cost office supply purchases
A high inventory turnover ratio could be caused by:
low ending inventory levels a superior sales force
IFRS, bad debt accruals will be __________ and will occur ________ than under GAAP
lower later
fair value approach that uses current information from recent transactions or exchanges in active trading on the stock exchanges is the ____________ approach
market
Secondary Market
market in which stocks and bonds are traded among individual and institutional investors
The direct write-off method violates which accounting concept?
matching expenses to their revenues in the same period
The lower of cost and net realizable value methods avoids reporting inventory at an amount _________________future benefits.
more than
An investment that has higher risk also has
more uncertainty of returns
FIFO
most closely approximates the actual physical flow of inventory
Simply interest
multiply initial investment x both the applicable interest rate and period of time for which the money is used
related-party transaction disclosure requirements
nature of the relationship, amounts due to or from related parties
To calculate Present Value Of a known future amount
need: future value interest rate number of compounding periods
When a long-term note receivable is discounted, interest revenue each period is calculated based on the _______ note receivable at the beginning of the period.
net
the income statement approach for estimating bad debts uses a percentage of
net credit sales
Return on Assets (ROA)
net income + interest expense (1-tax rate)/average total assets or: ROA = Profit Margin x asset turnover Measures how profitably a company uses its assets. Net income / Average total assets. (expresses income as a percentage of average total assets)
Failure to record an accrual for salaries at year-end has what effects on the financials
net income overstated expense is understated liabilities are understated
The _ _ value of accounts receivable is the amount of cash a company expects to collect.
net realizable
Auditors of public companies are prohibited from providing ________ services for their audit clients.
non audit
In a ______ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan.
non interest
purpose of the statement of comprehensive income is to report current period changes in equity that arose from?
non-owner transactions
In a(n) _____ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.
noninterest
In a(n) ________-bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.
noninterest
Income tax receivable is a ______ receivable
nontrade
Income tax receive is a __________ receivable.
nontrade
purchase discounts
not taken are reported as interest expense under net method of accounting for purchase discounts under perpetual inventory system, treated as a reduction in the inventory account
A formal credit arrangement between a creditor and debtor is called a(n)
note receivable
The lender in a secured borrowing recognizes a _______ on their balance sheet
note receivable
The lender in a secured borrowing recognizes a(n) ____________ ____________ on their balance sheet
note receivable
A(n) _ receivable typically yields interest revenue and possesses a fairly high probability of collectibility.
notes
A signed aggrement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others is called
notes receivable
the transfer of a(n) _____ to a financial institution is called discounting
notes receivable
_______ ______ are formal credit arrangement between a lender and borrower arising from loans to other entities.
notes receivables
SFAC 8 of the conceptual framework focuses on
objective and qualitative characteristics
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called
occupational fraud.
Effective internal control over cash requires segregation of duties by,
opening the mail and deposing checks in the bank. Depositing checks into the back and recording receipts in the accounting records
Collection from customers is classified as an
operating activity
Depreciation expense is classified on the income statement as
operating item
Revenue and expenses on the income statement are classified as:
operating items and non-operating items
statement of cash flows categories
operating, investing and financing activities
The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash ________ occurs when a company purchases its own securities as treasury stock, and a cash _______ occurs when a company issues stock for cash to investors.
outflow inflow
Financial accounting is chiefly concerned with providing information to various _________ users.
outside
when adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance
outstanding checks
IFRS cash reporting
overdrafts in one cash account can typically be offset against positive balance in other cash account
The direct write-off method is normally not permitted for U.S. GAAP reporting because if related credit sales occurred in the prior year, it:
overstates net income in the prior year overstates assets in the prior year
FOB destination
ownership of the goods remains with the seller until the goods reach the buyer seller usually responsible for shipping
A _______ is the exclusive right to manufacture a product or use a process granted for a period of __________ years.
patent 20
Time value of money calculations are required for which topics?
pensions, long-term notes payable, leases
A(n) _________________ inventory system adjusts inventory at the end of each reporting period.
periodic
In a(n) _________________________inventory system, cost of goods sold is recorded at the end of the accounting period.
periodic
Allowing the life of a company to be divided into artificial time periods in order to provide timely information is referred to as the _______________ assumption.
periodicity
A(n) ______ account represents the basic financial position elements of the accounting equation and a ______ account keeps track of the changes in the retained earnings component of shareholders' equity.
permanent; temporary
A ____________ inventory system tracks units from purchase to sale
perpetual
In a(n) _________________ inventory system, the average cost method is applied by computing a moving average unit cost each time inventory is purchased.
perpetual
A small amount of cash on had to pay for minor purchases is commonly referred to
petty cash
A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) _____ _____ fund.
petty cash
A small amount of cash on hand to pay for minor purchases is commonly referred to as a
petty cash fund.
Long-lived assets are classified as intangible assets if they lack ______ substance
physical
Measurement of inventory and cost of goods sold always starts with determining the _________ quantities of goods.
physical
secured borrowing occurs when accounts receivables are _________ or __________________ as collateral for a loan
pledged assigned
According to the conceptual framework, for accounting information to be relevant, what qualities must it possess?
predictive value and confirmatory value
If the adjusting entry's debit is to an expense account, then the credit must be to a:
prepaid expense liability
Two types of control activities are
preventative and detective controls.
The cost of components purchased from another manufacturer that will become part of the finished product are recognized in the _____ _____ account.
raw materials
a company's claims to the future collection of cash, other assets, or services is called a _____________.
receivable
ability to continue to generate a high level of sales and collect its receivables can be measured with
receivable turnover ratio and average collection period
Bad debts written off as bad debt expense (no allowance method) results in
receivables will likely be overstated
Temporary accounts are periodically closed, and the net effect is recorded in the permanent ____________ ___________ accout
retained earnings
The balance in the _______ ________ account after all the temporary accounts have been closed equals net income or net loss
retained earnings
When a company applies a retrospective change in inventory method, they must revise beginning _____________ ______________ to reflect the cumulative income effect of the difference in inventory methods for all prior years
retained earnings
When dividends are declared, a debit is made to a dividends declared account or the _________ _________ account
retained earnings
Errors that are discovered during periods subsequent to the period when the errors occurred require that the financial statements are _____________restated.
retrospectively
Generally, voluntary changes in accounting principles are accounted for
retrospectively
Interim accounting changes are reported _________
retrospectively
DuPont Formula
return on equity = Profitability (profit margin): net income/total sales x (times) Activity (asset turnover): total sales (net sales)/average total assets x (times) Financial Leverage (equity multiplier): average total assets/average total equity or ROA (return on asset) x equity multiplier
Temporary accounts include:
revenue and expense accounts
Financial statement elements are measured and reported as a result of providing goods and services
revenues and expenses
if sales return are incorrectly treated as expenses, what are the effects on the financial statements?
revenues are overstated expenses are overstated
GAAP disclosure requirements for geographic areas include
revenues from external customers, long-lived assets
Careful consideration of internal and external factors that may cause harm to a company is called _____ assessment.
risk
default risk
risk that a company will not be able to pay its obligations when they become due
Auditor
role is to attest to the fairness of the financials they have examined
Which of the following cash transactions are classified as cash inflows from investing activities?
sale of building sale of equipment sale of held-to-maturity investments
Which of the following cash transactions are classified as cash inflows from investing activities?
sale of equipment sale of investments sale of building
Which of the following transactions will require a credit to accounts receivable
sale on account is returned by a customer customer defaults and does not pay
A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a __________ discount.
sales
When merchandise is returned for a refund of for credit to be applied to other purchases, the situation is called a(n) _ _.
sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a
sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _____ _____.
sales return
When merchandise is returned for for credit to be applied to other purchases, the situation is called a ____ _____.
sales return
Assigning or pledging accounts recievable is used in a
secured borrowing
In a consignment, a company arranges for another company to:
sell its products
Who are the external users of financial information?
suppliers, creditors, investors and government agencies
The most critical element in determining if a company can account for the transfer of receivables as a sale is the
surrender of control
An intangible asset with a finite life is recorded at cost and subsequently
tested for impairment
Difference in CECL model and current GAAP
the "probable" threshold for identifying impaired receivables is removed and Bad debt estimates will be based on predictions about the future
earnings quality
the ability of reported earnings (income) to predict a company's future earnings
Auditor is required to evaluate:
the ability to continue for a reasonable time as a going concern
liquidity
the ability to converts assets to cash to pay current obligations readiness to pay short-term debts as they come due measured by current ratio and quick ratio
A good internal control system for cash would require that those who handle cash should not be involved with
the accountin records, reconciliation of bank balances
Employee purchases should be included in the accounting records by the end of
the accounting period
justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that:
the accounts are adjusted at year-end to reflect the correct balances
Net realizable value of accounts receivable is
the amount of cash the company expects to actually collect from customers.
Present value of a single amount
the amount of money today that is equivalent to a given amount to be received or paid in the future
Interest
the amount paid for the use of money for some period of time
Errors that affect prior-year income statement accounts are corrected by adjusting
the balance of retained earnings
The reconciliation process for cash receipts requires that the amount recieved from customers should agree with
the bank-generated deposit slip the accounting records
the reconciliation process for cash receipts requires that the amount received from customers should agree with
the bank-generated deposit slip and the accounting records
IFRS qualifications for transfer of receivables as a sale
the company transfers substantially all of the risks and rewards of ownership
inventory costs include
the cost to bring inventory to its desired condition expenditures to acquire the inventory the cost to bring inventory to its desired location
a troubled debt restructuring occurs when
the creditor changes the terms of the agreement to make it easier for the debtor to pay
Sarbanes-Oxley act, corporate management is responsible for:
the financials and internal control
When recording noninterest-bearing notes receivable, the discount on a noninterest-bearing note receivable reprsents
the interest to be earned on the note receivable
Discontinued operations held for sale reported on balance sheet at
the lower of the book value or fair value less costs to sell
per unit inventory value
the lowest amount between the cost and NRV
The price of a bond includes _________________________
the present value of the face amount plus present value of the periodic interest payments
Closing process
the process in which temporary accounts are reduced to zero balances and transferred to retained earningssal
what occurs when petty cash is used to pay for an item
the receipts is placed in the petty cash fund
During the closing process, the closing entry to reduce the sales revenue normal account account balance to zero requires
the revenue account to be debited.
If goods are shipped f.o.b. destination, at time of shipment
the seller still had legal title of the goods
Operating Cycle
the time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect the accounts receivable (time to convert cash to raw materials and then back to cash)
the difference between the gross method and net method of recording sales revenue, in terms of the effect on income is what
the timing of the recognition of any discounts not taken varies and could occur in different reporting periods
a company is allowed to account for the transfer of receivables as a sale if what occurs?
the transferor has surrendered control over the assets transferred
Why is the sale approach preferred over the secured borrowing approach for the transferor
the transferor seems more profitable, more liquid and less leveraged
Accounts receivable are almost always considered current assets because
their normal collection, even longer than a year, is part of the normal operating cycle
Faithful presentation exists when?
there is agreement between a measure or description and the phenomenon it purports to represent
Accounts receivable are classified as current assets because
they will be converted to cash within 1 year or the normal operating cycle
The process of estimating for an allowance for uncollectible accounts, writing off bad debt in the following periods, and then reestimating the allowance at the end of the period occurs:
throughout the company's life
The difference between $100 invested now and $105 at the end of year 1 represents the
time value of money
Financial accounting provides investors with information that should help them to evaluate the:
timing of the firms future cash flow and uncertainty of the firms future cash flow and amounts of the firms future cash
Disclosures purpose
to assist in underestanding the financial statements
If an adjusting entry's credit is to a liability account, then the debit must be
to expense.
A recently issued FASB standard requires that companies recognize revenue when goods or services are _____________ to customers for the amount the company expects to be entitled to receive in exchange for those goods and services
tranferred
The _____ recognizes a note receivable in a secured borrowing agreement.
transferee
Who has the receivables on their balance sheet in a sale of receivables?
transferee
Chane in estimate
treated on a prospective basis because the change affects the current period and future periods
for a note receivable, if the original terms of the debt are changed due to financial difficulties of the borrower, this is referred to as a _________________ ________________ restructuring
troubled debt
Inventory that is expected to be returned in the future is included on the balance sheet of the company expecting the return true/false
true
To complete the measurement process, companies need to
update balances of assets, liabilities, revenues and expenses for adjusting entries.
Adjusting entries are posted to general ledger accounts to..
update their balances
Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in 2 year. The interest rate on this type of loan is 8%. What is the present value of the note?
use present value table number 2 - 8% factor .85734 100,000 x .85734 = 85,734
Special Journals
used to capture the dual effect of the transaction in debit/credit form examples: cash receipts journal, cash disbursements journal, sales journal and purchases journal
Under the dollar-value LIFO method, inventory is viewed as a quantity of ______, rather than a quantity of _____.
value units
Consistent with the accrual-basis of accounting, we record revenue when
we provide goods and services to customers, and we record expenses with the related revenues
perpetual inventory system
weighted-average cost becomes a moving-average cost
FASB recently issued a standard that requires companies recognize revenue:
when goods or services are transferred to customers and at a point in time or over a period of time, for the amount the company expect to be entitled to receive
deferred annuity
when the first cash flow occurs more than one period after the date the agreement begins
IFRS accounting for transfers of receivables
whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables
consigned goods inventory
who carries the risk of loss determines who includes consigned goods in inventory
If revenues exceed expenses for the accounting period, the income summary account ______________________
will have a credit balance prior to closing
The bank will show a customer's withdrawal as a debit, because a
withdrawal decreases its liability from the bank's point of view.
A debit card
withdraws funds immediately from the cardholders' bank account
Inventory ______ are often used to shift income between periods.
write-downs
Glaser corp does not estimate sales returns. If Glaser sells goods on December 20, year 1, and the goods are returned January 15, year 2, what is the effect on its financial statements
year 1 net income is overstated
At the beginning of the account period, the balances of temporary accounts are
zero.
The correct amount of prepaid insurance shown on a company's December 31, 2018, balance sheet was $900. On July 1, 2019, the company an additional insurance premeium of $600. In the December 31, 2019, balance sheet, t he amount of prepaid insurance was correctly shown as$500. The amount of insurance expense that should appear in the company's 2019 income statement is:
$1,000 900 + 600 = 1500 - 500 = 1000
The following information relates to Halloran Co.'s accounts receivable for 2018: 1/1/18 account receivable balance: $853,000 credit sales for 2018: 3,450,000 Accounts receivable written off during 2018: 50,000 Collections form customers in 2018: 3,040,000 Allowance for uncollectible accounts balance 12/31/18: 206,000 What amount should Halloran report for accounts receivable, before allowances at December 31, 2018?
$1,213,000 853,000+3,450,000 - 50,000 - 3,040,000 = 1,213,000
A(n) _____ _____ is the legal right to receive cash from a credit sale and represents an asset of the company.
account receivable
Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?
LIFO only
credit cash $2,000
Largo Corp. discovered $2,000 for a NSF check in its bank reconciliation. The journal entry required would be:
level of the fair value hierarchy includes inputs other than quoted prices that are observable for the asset or liability?
Level 2
the accounting records and the bank-generated deposit slip
The reconciliation process for cash receipts requires that the amount received from customers should agree with
remove receivables, recognize gain or loss, and record poceeds
The required accounting treatment for transfer of receivables as a sale include
Sarbanes-Oxley Act, Section 404
The requirement that companies must document internal controls and assess their adequacy is required by the
At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?
$6,000 200,000 x .03 = 6,000
Western company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016 was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?
$758,200 $815,400/1.08 = 755,000 giving 2 layers of $715,000 and 40,000 715,000 x 1.0 = 715,000 40,000 x 1.08 = 43,200 715,000 + 43,200 = 758,200
Interest on a note formula
(face amount x annual rate x fraction of the annual period)
Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable effective interest rate is 6%. Upon delivery, Munchen should recognize the purchase of inventory at:
100,000 prepayment 89,000 reflects present value of 100,000 at 6% (factor is .89). The difference between the prepayment and the inventory cost is interest revenue
Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $8,000 Proceeds from bank loan $100,000 Repayment of bank loan (includes interest of $4,000) $44,000 Proceeds from sale of equipment $5,000 Cash collected from customers $320,000 Purchase of stock of another corporation as an investment $20,000 Common stock issued for cash $200,000 In its 2018 statement of cash flows, Dunn's should report net cash inflows from financing activities of
100,000 - 40,000 (repayment of principal on bank loan) + 200,000 = 260,000
Riley has a $100,000 note receivable from a customer. The note receivable is an 8% note, due in 9 months. Three months after accepting the note, Riley discounts the note receivable at Third Bank at a discount rate of 10%. What are the cash proceeds of the discounted note?
100,700 (100,000 x .08 x9/12) = 6,000 interest Maturity value of $106,000 x .10 x 6/12 = 5,300 discount Maturity value 106,000 - 5,300 = 100,700
cash / sales
A _______ or _______ discount represents reductions not in the selling price of a good or service, but in the amount to be paid by the customer.
Which of the following are classified as receivables?
Interest due from loans to customers loans by a company to other entities
average collection period and accounts receivable turnover
The financial ratios most often used to analyze accounts receivable are
the transferor seems more liquid, more profitable, and less leveraged
What are some reasons why a transferor prefers the sale approach over the secured borrowing approach of transferring receivables?
The transferor surrenders control of the asset, the transferee has the right to pledge or exchange the assets, the assets are isolated and beyond the reach of the transferor
What conditions must exist for a transfer of receivables to be treated as a sale?
In a sale of an accounts receivable without recourse, if the customer does not pay, the loss is assumed by the ___________________ of the accounts receivable
buyer
Revenue earned
debit cost of goods sold credit sales
Klondike Inc sold goods to customers for $5,000 cash. The cost of goods was $3,000. The journal entries to record this transaction are:
debit to cash $5000 credit to sales $5000 debit to cost of goods sold $3000 credit to inventory $3000
On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On December 31, when Song records Interest for the year, Song will record
debit to discount on note receivable $9,566 credit to interest revenue $9,566 n= 2, i=12%, the present value factor is .79179 x 100,000 = 79,719 79,719 x 12% = 9,566
Adjusting entry needed to record use of prepaid expense
debit to expense account credit to prepaid asset account
Kraven corp. borrows $100,000 by signing on a 1-yr, 8% promissory not from General Finance company and assigns $120,000 of its accounts receivables as collateral for the loan. General Finance charges a financing fee of 1% of the recievables assigned. The journal entry for Kraven to recourd the borrowing will include a
debit to finance charge expense for $1,200
LIFO inventory pools
simplifies recordkeeping and reduces the risk of LIFO liquidation by grouping inventory units into pools based on physical similarities of the individual units.
A petty cash fund is used for
small amounts of cash needed for low-cost items.
A JIT inventory system allows companies to maintain ________ inventory levels
smaller
The _________ interest method uses the interest rate from the actual construction loan on a self-constructed asset, whereas the weighted-average method uses a weighted-average rate on all construction loans outstanding.
specific
Indirect method of statement of cash flows
start with net income and works backward to calculate net cash flow from operating activities adds back depreciation expense adjusts for changes in liabilities to reconcile the difference between accrual net income and cash paid or received adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received
Goliath Corp has beginning accounts receivable of $2,000. During the year, Goliath sold goods to customers on account for $10,000. During the year, Goliath also sold goods to customers for cash in the amount of $2,000. At the end of the year, the balance in Goliath's accounts receivable is $3,000. What is accrual basis sales for the year?
$12,000 10,000 + 2,000 = 12,000
At the end of each quarter, Patti deposits $800 into an account that pays 12% interest compounded quarterly. How much will Patti have in the account in four years?
$16,126 n=16 (4x4=16) i=12/4 = 3% 800 x 20.1569 = 16,126 FVA of $1
Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2018, the allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would be:
$17,000 Focusing on the allowance account 18,000 - 14,000 + total bad debt expense = 21,000 bad debt expense = 17,000
Accounts receivable has a $2,300 balance, and the allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written off. Net receivables (net realizable value) after the write-off equals:
$2,100
Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:
$9,910
Quick Ratio or Acid Test Ratio
(current assets - inventory - prepaid items - restricted cash - deferred taxes) / current provides a more rigorous indication of liquidity than the current ratio
Most nonretail business receive payment for goods by checks received through the mail. An approach to internal control over cash receipts that utilizes separation of duties might include the following steps: 1. Employee A opens the mail each day and prepares a multicopy listing of all checks including the amount and payer's name. 2. Employee B takes the checks, along with one copy of the listing, to the person responsible for depositing the checks in the company's bank account. 3. A second copy of the check listing is sent to the accounting department where Employee C enters receipts into the accounting records.
* Good internal control helps ensure accuracy as well as safeguard against theft. The bank-generated deposit slip can be compared with the check listing to verify that the amounts received were also deposited. And, because the person opening the mail is not the person who maintains the accounting records, it's impossible for one person to steal checks and alter accounting records to cover up their theft.
A company pays for a purchase with a credit card. What is the effect of this purchase on the accounts?
Accounts payable will increase
Proper controls for cash disbursements should be designed to prevent any unauthorized payments and ensure that disbursements are recorded in the proper accounts. Important elements of a cash disbursement control system include: 1. All disbursements, other than very small disbursements from petty cash, should be made by check. This provides a permanent record of all disbursements. 2. All expenditures should be authorized before a check is prepared. For example, a vendor invoice for the purchase of inventory should be compared with the purchase order and receiving report to ensure the accuracy of quantity, price, part numbers, and so on. 3. Checks should be signed only by authorized individuals.
* Responsibilities for check signing, check writing, check mailing, cash disbursement documentation, and recordkeeping should be separated whenever possible. That way, a single person can't write checks to himself and disguise that theft as a payment to an approved vendor.
internal controls consists of plans to
- encourage adherence to company policies and procedures - promote operational efficiency - minimize errors and theft - enhance reliability and accuracy of accounting data
Account receivable is
- informal credit agreement with trade customers - supported by an invoice - normally due 30-60 days after sale
Two most common types of selling arrangements for accounts receivable
- securitization - factoring
Items that are classified as receivables
- tax refund claims - amounts owed by customers - amounts loaned and expected to be repaid
Depending on the nature of the restriction and the classification of the related debt, compensating balances may be disclosed in the financial statement as -Noncurrent assets. -Owner's equity. -Contra assets. -Cash and cash equivalents. -Current assets.
-Noncurrent assets. -Cash and cash equivalents. -Current assets.
A company pays for a purchases with a credit card. what is the effect of this purchase on the accounts?
Accounts payable will increase
Cash
A journal entry that affects a company's statement of cash flows will include an inflow or outflow of __________.
Spartan Corp. purchases inventory, land, building, and equipment for $540,000 from Klein Corp. The value of the assets are as follows inventory book value $80,000 fair value $100,000 land book value 140,000 fair value 180,000 equipment 80,000 fair 120,000 building 200,000 fair 200,000 At what amount should spartan record the invenotry
100000/600000 *540=90000
Rudy company reports gross sales revenue of $5.2 million, net sales of $5 million, and cost of goods sold $3 million. Its inventory balance was $250,000 at the beginning of the accounting period and $300,000 at the end of the accounting period. The company's inventory turnover ratio is closest to
11 3 mill/(250,000+300,000/2)=10.9
On dec 31, Salz Company sells 1,000 units of merchandise to Welner Corp. and 2,000 units to Torr Corp. Shipping terms are F.O.B. destination for the 1,000 unit sale and F.O.B. shipping point for the 2,000 unit sale and the goods have shipped. If salz still has , 10,000physical units in its inventory after there sales, how many units should Salz include in its ending inventory on dec 31?
11,000
Below is the information from the financial statements of Greenwich Company: Accounts receivable (net) 2016: $2,400 Accounts receivable (net) 2015: $2,200 Net sales 2016: $25,875 What is the receivables turnover?
11.25 25875/[(2400+2300)/2]
below is information from the financial statements of thornton company accounts receivable net 2014:1,100 accounts receivable net 2013:900 net sales 2013:8,000 which is the average collection period?
1100+900/2=1000 8000/1000=8 365/8=45.63
Smith Company has 150 units costing 450.00 in beginning inventory. During the year, the company purchases 1,000 units for a total cost of 3,300.00. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company used the LIFO method, cost of goods sold will be
1150 total units-200 units=950 units sold=(3300/1000)=3135
Shirley borrows $3,605 from Second National Bank. Shirley will repay the loan in five equal payments of $1,000 each beginning at the end of year 1. What is the annual interest rate implicit in this agreement?
12% 3605/1000 = 3.605 looking at the present value of an ordinary annuity table in the row for 5 periods, find the factor closest to 3.605
Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the LIFO method is:
12,000 600 x 20=12,000
Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying FIFO method is:
14,400 (400 x 24)+(200 x 22)= 14,400
Gerhard Company has 300 units costing 10.00 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing 20.00 per unit and sales 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased at least 1,200 units, COGS would have been
2,000 higher
Parker company reports gross sales revenue of $7.5 million, net sales revenue of $7 million and cost of goods sold of $3.5 million. Its inventory balance was $150,000 at the beginning of the accounting period and $200,000 at the end of the accounting period. The company's inventory turnover ratio is closet to
20 3.5 mil/(150,000 + 200,000/2)
Berta company recently lost its entire inventory in a fire. The following information is available from its accounting records: Beginning inventory: 1,000 purchases: 13,000 net sales $20,000 the company's average gross profit percentage is 40%. using the gross profit method, a reasonable estimate of the lost inventory would be
20,000*40%=8,000 20,000-8,000=12,000 1,000+13,000-12,000=2,000
Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. If Sanfillipo instead used the perpetual inventory system, cost of goods sold for the month of March applying the LIFO inventory method would be:
21,600 (600 x 20)+(400 x 24) = 21,600
Neumann company has 100 units with a $2.00 weighted-average cost per unit in beginning inventory. Neumann sells 40 units and then purchases 100 additional units for $2.20 per unit. After the purchase, Neumann sells another 100 units. What is the amount of cost of goods sold for the second sale if Neumann company uses the perpetual inventory system?
213 (100-40) units x $2 = 120 100 units x 2.20 = 220 120+220 = 340 340/160 units = 2.125 per unit 2.125 x 100 = 212.50
Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $8,000 Proceeds from bank loan $100,000 Repayment of bank loan (includes interest of $4,000) $44,000 Proceeds from sale of equipment $5,000 Cash collected from customers $320,000 Purchase of stock of another corporation as an investment $20,000 Common stock issued for cash $200,000 In its 2018 statement of cash flows, Dunn's should report net cash outflows from investing activities as:
23,000 5000 - 8000 - 20,000 = 23,000
Short-term highly liquid investments with a maturity of _____ months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents.
3
Compute present value of the following annuity: Interest rate per compounding period 8% Number of periods 12 Payment at the end of the period $500
3,768
Symington Corp uses the periodic inventory system. At December 31, 2018, the end of the company's fiscal year, a physical count of inventory revealed an ending inventory balance of $320,000. The following items were not included in the physical count: Goods held on consignment at murphy corp: 23,000 merchandise shipped to customer on 12/30 f.o.b. desination (customer received 1/3/17) 12,000 merchandise shipped to customer on 12/29 f.o.b. shipping point (arrived at customer on 1/2/17) 6,000 merchandise purchased from supplier shipped f.o.b. destination on 12/29, in transit at year end 24,000 Symington's 2018 ending inventory should be:
355,000 320,000 + 12,000 + 23,000 = 355,500
Rudy company reports gross sales revenue of $5.2 million, net sales of $5 million, and cost of goods sold $3 million. Rounding to the nearest percent, the company's gross profit ratio would be:
40% 5 million - 3 million/5 million gross profit/net sales
Baker is building a new warehouse. The warehouse qualifies as a self-constructed asset. During the year, Baker has weighted-average expenditures on the construction project of 600,000. Although baker does not borrow money specifically to build the warehouse, it has 2 loans outstanding during the year. Loan a is for 400,000 at 6% interest. Loan b is for 800,000 at 9% interest. What is the interest rate used to capitalize interest on the warehouse?
400,000x6%=24000 800,000x9%=72,000 total interest is 24,000+72,000=96,000 the weighted-average rate is 96000/1200000=8%
pernell company reported LIFO reserves of 150,000 and 100,000 in 2010 and 2009 respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's pretax income for the 2010 fiscal year would have been
50,000 higher if itt would have used FIFO
Paul borrows $5,000 from the bank and wishes to repay the amount in equal installments of $800 per year over a period of years. The payments will be made at the end of each year. The bank wishes to earn interest on this loan at 8%. Approximately how many years will it take for Paul to repay the loan?
9 years
The Wazoo Times Newspaper Company reported an $11,200 liability in its 2018 balance sheet for subscription revenue received in advance. During 2019, $62,000 was received from customers for subscriptions and the 2019 income statement reported subscription revenue of $63,700. What is the liability amount fore deferred subscription revenue that will appear in the 2019 balance sheet?
9,500 beginning balance + additional receipts - subscription revenue recognized 11,200 + 62,000 - 63700 = 9,500
debit sales returns; credit allowance for sales returns
A company believes its sales returns will be material. What is the journal entry required?
verifiability
A consensus among different individuals appraising the value of land describes which qualitative accounting characteristic
unearned revenues
A customer pays in advance for services to be performed in a future period are recorded in what account
A factor is
A financial institution that buys receivables for cash and charges a fee for this service
reconciliation of bank balances and the accounting records
A good internal control system for cash would require that those who handle cash should not be involved with:
Cash that is restricted and is not available for current use may be reported in the balance sheet as
A noncurrent asset. Other assets. Investments and funds.
it becomes probable that a creditor will not be able to collect all amounts
A note receivable is considered impaired when
its present value, which is the cash amount
A note received solely for cash is valued at
participating interest
A partial transfer in accounts receivable is treated as a secured borrowing, unless the amount transferred qualifies as a ______________________, which is defined as sharing proportionally in the cash flows of the receivables and having equal rights with respect to the receivables.
When the amount of bad debts is material, GAAP requires the _______ method to be used to reduce the carrying value of accounts receivable to the amount of cash expected to be received.
Allowance
_______ is a CONTRA ACCOUNT to accounts receivable
Allowance for sales returns
When an accounts receivable is written off, which account is effected?
Allowance for uncollectible accounts.
Which method of accounting requires estimating bad debt expense and matching the expense to sales of that period?
Allowance method
When initially recorded, the typical account receivable is valued at the
Amount expected to be received.
contra account to accounts receivable
An allowance for sales return account is classified as a
While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?
An entry must be made to debit Accounts Payable and credit Cash for $45.
The balance sheet approach estimates _______ _______ expense by determining the appropriate carrying value of accounts receivable.
Bad debt
Which of the following items are included in cash?
Balance in checking accounts Currency and coins Checks from customers
Cash and cash equivalents are reported as a single amount on the _______ _______
Balance sheet
One of the most important internal control for cash is the?
Bank Reconciliation
Detective Controls
Are deigned to detect errors or fraud that already have occurred. -Performance reviews -Audits -Reconciliation
Inventory expected to be returned is included in an ______ account
Asset
Accounting Equation
Assets = Liabilities + Owner's Equity
What are current assets?
Assets that provide benefits within the next year.
Which of the following responsibilietes are seperated in a good internal control system for cash disbursements?
Cash disbursement documentation and the accounting recording function check writing and check signing
Checks Outstanding
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called:
Short-term investments that can be readily converted to cash and have a maturity date of less than three month from date of purchase are called -Restricted cash -Short-term investments -Accounts receivable -Cash equivalents
Cash equivalents
Short-term, highly liquid investments such as money market funds or treasury bills are classified as
Cash equivalents.
During the year, Bernard Company's cash balance increased by $10,000. The sum of which totals reported on Bernard Company's statement of cash flows would also be equal to $10,000?
Cash flows from Operating, Investing, and Financing Activities
A ______ discount represents reductions not in the selling price or a good or service, but in the amount to be paid by the customer
Cash or sales
Matching cost of goods sold with the revenues generated during the period is an example of which approach to expense recognition?
Cause-and-effect relationship
Which of the following might be cash equivalents?
Certificates of deposit Money market funds Treasury bills
When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?
Collection of funds by the bank
When adjusting the company's cash account balance in a bank reconciliation,
Collection of funds by the bank must be added to the cash account balance
When adjusting the cash account balance in a bank reconciliation, which item must be added to the cash account balance?
Collection of funds by the bank.
When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?
Collections of funds by the bank
The accounting term for a situation where two or more people act in coordination to circumvent internal controls is
Collusion
The framework for designing an internal control system is provided by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
shorten the operating cycle, receive cash before customers would pay amounts due, and increase cash flow.
Companies finance with their receivables to:
Company B will receive a 2% discount if payment is made within 10 days
Company A offers Company B discount terms of 2/10, n/30. What does this mean?
A cash restriction imposed by a bank wherein the debtor must leave a certain amount of funds such as 5% of the original loan in the low-interest or noninterest-bearing account is a -Interest rate loan guarantee. -Compensating balance. -Guaranteed interest balance. -Restricted loan advance.
Compensating balance
What requirements for corporate accountability are included in the Sarbanes-Oxley Act?
Corporate executives may be criminally liable for fraudulent financial statements Corporate executives must personally certify the financial statements
Joyce Corp. uses the percentage-of-credit-sales method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?
Credit to Accounts Receivable Debit to allowance for Uncollected accounts
Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000. A physical count determined the cost of inventory at the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry at the end of the year once the physical count occurs includes:
Deb cost of goods sold $40,000 debit inventory (ending) $110,000 credit purchases $100,000 credit inventory (beginning) $50,000
Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error?
Debit Advertising Expense $900; credit Cash $900.
The bank will show a customer's withdrawal is a
Debit because a withdrawal will decrease its liability from the bank's perspective
Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. Assuming Western uses a perpetual inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following
Debit cost of goods sold $40,000 debit accounts receivable $70,000 credit sales revenue $70,000 credit inventory $40,000
A company believes its sales returns will be material. What is the journal enry required?
Debit sales returns; credit allowance for sales returns
Which of the following entries affect a company's cash flow?
Debit supplies, credit cash Debit accounts payable; credit cash
Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise and receives a refund. As of May 15, the customer has paid for all of the goods with cash. What will adrian record on May 15?
Debit to Sales Returns. Credit to Cash.
Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer ha not yet paid for any goods. What will Adrian record on May 15?
Debit to sales returns Credit to accounts receivable.
When actual inventory returns occur in a perpetual inventory system, which of the following happens?
Debt the asset inventory account
Distribution to owners
Decreases in equity of a particular enterprise resulting from transfers to owners. Dividends paid by a corporation to its shareholders.
Which of the following are noncurrent tangible assets?
Equipment machinery land
Monitoring
Includes formal procedures for reporting control deficiencies.
The probable threshold for identifying impaired receivables is removed. And bad debt estimates will be based on predictions about the future
How does the CECL model differ from current GAAP?
it is written down to the amount the company expects to receive when it sells or disposes of the merchandise
How is damaged or defective merchandise recorded when returned from a customer?
International Accounting Standards Committee issued international Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues:
IFRS - international financial reporting standards
Which method(s) permit the offsetting of bank overdrafts against cash balances?
IFRS only
Revaluation surplus
IFRS only - reported as other comprehensive income fair value is higher than book value - difference in revaluation surplus
provision
IFRS refers to the allowance for uncollectible accounts as a ____________ for bad debts.
Both IFRS and GAAP permit the fair value option for accounting for receivables. What is a difference
IFRS restricts the circumstances for applying the fair value option
Risk Assessment
Identifies and analyzes factors that could prevent objectives from being achieved
Monitoring:
Identifying and reporting control deficiencies
Company A
If Company A sells accounts receivable with recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts?
Timing
If a company records a transaction before the bank records the same transaction, this is called a timing difference.
Troubled debt restructuring
If a receivable becomes impaired, it is remeasured at the discounted present value of currently expected cash flows If a receivable is remeasured, the discount rate is based on the loan's original effective rate Sometimes receivables are settled outright at the time of a restructuring Modification of terms typically results in some loss that needs to be recorded
A company makes a sale on terms 2/10, n/30. What does this mean?
If the discount is not taken in 10 days, the net amount is due in 30 days. The customer may take a 2% discount off the price if paid within 10 days.
noncurrent assets
If the restriction on a compensation balance for a 5-year loan is legally binding, where is the compensating balance reported in the financial statements?
US GAAP impairment indicators
Impairment if probable and can be measured reliably
modified terms
In a troubled debt restructuring, the lender may agree to reduce or delay interest payments or maturity amount. This is referred to as _________________
Accounts receivable are normally classified -In the income statement as other income. -In the balance sheet as current assets. -In the income statement as revenue. -In the balance sheet as noncurrent assets.
In the balance sheet as current assets.
Checks received from customers that have not been deposited yet are included where on a company's balance sheet? -In a current asset account other than cash. -In the current asset "cash" account. -These checks are not included on the balance sheet until they are deposited.
In the current asset "cash" account.
effective interest
In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the ______________________ rate.
Investing Activities
Include cash investments in long-term assets and investment securities.
Operating Activities
Include cash transactions involving revenue and expense events during the period.
Financing Activities
Include transitions designed to raise cash or finance the business.
Investing activities
Includes cash transactions involving the purchase and sale of long-term assets and current investments
asset turnover ratio
Indicates how efficiently a company uses its assets to generate sales; net sales/average total assets.
Separation of duties requires that -An employee procedures manual must be developed to describe duties. -Two employees may not work on the same project if they are related. -Individuals who have physical responsibility for assets should not have access to accounting records. -The board of directors may not influence the decisions of the top managers.
Individuals who have physical responsibility for assets should not have access to accounting records.
Revenue
Inflow of an asset (resources) from providing a good or service. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods,rendering services, or other activities that constitute the entity's ongoing major or central operations.
Which of the following is most likely an accrued liability? a) depreciation b) interest c) cost of goods sold d) office supples
Interest accrued liabilities arises when all or part of an expense is recognized before the associated cash disbursement
Which of the following statements is correct regarding the adjustment to record interest accrued on a note payable?
Interest on the note payable is classified as an expense since it is the cost of borrowing.
A company's plans to adhere to policies and procedures, promote operational efficiency minimize efforts and theft, and enhance the reliability and accuracy of accounting data are referred to as:
Internal Controls
For internal control purposes, risk assessment considers which two types of risk?
Internal and external risks
_____ _____ refers to a company's plan to (a) encourage adherence to company policies and procedures, (b) promote operational efficiency, (c) minimize errors and theft, and (d) enhance the reliability and accuracy of accounting data. From a financial accounting perspective, the focus is on controls intended to improve the accuracy and reliability of accounting information and to safeguard the company's assets.
Internal control
encourage adherence to company policies and procedures, minimize errors and theft, and safeguard company assets.
Internal control consists of plans to
is a highly liquid asset and can be stolen
Internal control over cash is important because cash
checks are signed by authorized individuals, all expenditures are authorized, and all disbursements (other than petty cash) are made by check.
Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that:
Average Cost Method (Weighted- Average Method)
Inventory method costing method, based on the average cost of inventory during the period assumes that the cost of goods sold consists of a mixture of all the goods available for sale determined by dividing cost of goods available for sale by quantity of goods available for sale
Selling equipment is a
Investing Activity
Which of the following are cash inflows from financing activities?
Issuance of common stock to investors Borrowing from another company and signing a promissory note
lower / later
It is likely that bad debt accruals under IFRS will be __________ and will occur __________ than under U.S. GAAP.
A note receivable is impaired when
It is probable that not all of the cash flows for principle and interest will be received
This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added or subtracted from the bank balance or the company's cash (book) balance?
It would be deducted from the company balance
Sarbanes-Oxley Act Include:
Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor-client relations and internal control procedures. -Restricting activities of auditors to prevent conflicts of interest -Requiring documentation and assessing effectiveness of internal controls -Requiring that corporate executives certify financial statements.
The ______________ method assumes that units sold are those most recently acquired
LIFO
if a company uses __________ to measure taxable income, they msut use the same method for external financial reporting
LIFO
profitability / risk
Management must make important decisions related to cash that have a direct impact on a company's ____________ and _______.
meet its obligations, conduct business operations, and take advantage of opportunities
Management should hold the minimum amount of cash to
1934 Securities and Exchange Act
Mandates reporting requirements for companies whose stock is publicly traded
Receivables Turnover Ratio
Net credit sales / avg net accounts receivable
In a(n) _______ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.
Noninterest
In a _____, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan
Noninterest bearing note
Formal credit agreement between borrower and lender
Note receivable
debit interest receivable $2,000; credit interest income $2,000
On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require what entries?
effectiveness of operations, reliability of financial reporting, and compliance with laws and regulations
The objectives of COSO on internal control are to achieve
Equity
The owners residual interest in the assets of a company. The residual interest in the assets of an entity that remains after deducting its liabilities total assets minus total liabilities
cash / receipts
The petty cash fund should always have _______ and __________ that together equal the amount of the fund.
Income smoothing
The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next.
allowance for uncollectible accounts
The first step in using a balance sheet approach to estimate bad debts is to calculate the desired ending balance in which account?
face amount of the note, fraction of the annual period, and annual interest rate.
The formula for calculating interest multiplies which of the following?
sales discount / interest revenue
The gross method for recording accounts receivable records the sale at 100% and records customer discounts in a ____________________ account, whereas the net method records the sale of the discount and records the discounts not taken as ______________________.
Which of the following is an example of separation of duties in a good system of internal control?
The individual who receives the inventory does not have access to the accounting records.
Which of the following is an example of separation of duties in a good system of internal control? -The individual who hires the employees may not manage the employees. -The individual who receives the inventory does not have access to the accounting records. -The individual who receives the inventory cannot count the inventory. -The individual who evaluates the employees may not hire the employees.
The individual who receives the inventory does not have access to the accounting records.
inventory and prepaid expenses
The numerator of the quick ratio eliminates which current assets?
economic entity accounting assumption
The requirement that the economic activities of a business owner should be separated from the activities of the business
LIFO liquidation
The result of selling more units than are purchased during the period, which can have negative tax consequences if a company is using LIFO.
Who incurs the risk of bad debt in a factoring arrangement made with recourse?
The seller
Operating, Investing and Financing
The statement of cash flows classifies items as:
securitization
The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called ___________________.
To be classified as cash equivalents
These investments must have a maturity date no longer than THREE months FROM DATE OF PURCHASE
allowance for uncollectible accounts
To record bad debts at the end of the period, an adjustment would be made by a credit to
The individual or groups of individuals who are most able to override internal control features is (are):
Top management
What should you tell your friend about the presence of accounting standards in the U.S.? Who has the authority for standard setting? Who has the responsibility?
We have a set of standards known as generally accepted accounting principles (GAAP). GAAP is a dynamic set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financials and related notes. The Securities and Exchange Commission has the authority to set accounting standards for companies whose securities are publicly traded but it relies on the private sector to accomplish that task. At the present, the Financial Accounting Standards Board is the private sector body responsible for standard setting
Consider whether individual significant receivables are impaired, group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics, and perform impairment test.
What are the steps in determining the impairment of receivables under IFRS?
the income statement approach and the balance sheet approach
What are the two approaches of estimating future bad debts.
the individual who receives the inventory does not have access to the accounting records
What is an example of separation of duties on a good system of internal control?
debit accounts receivable; credit allowance for uncollectible accounts
When an account previously written off is collected in full, what would the entry to reinstate the account would require?
allowance for uncollectible accounts
When an accounts receivable is written off, which account is effected?
a customer returns merchandise for credit to be applied to other purchases OR a customer returns merchandise for a full refund.
When does a sales return occur?
Which of the following adjusting entries causes an increase in liabilities? a) accruing unrecorded interest expense b) recording the amount of expired prepaid insurance c) accruing unrecorded interest revenue d) recording depreciation expense
a) accruing unrecorded interest expense
When adjusting the cash account balance in a bank reconciliation, which items must be subtracted from the cash account balance? a) charges for NSF checks b) deposits in transit c) service charges d) outstanding checks
a) charges for NSF checks c) service charges
For internal control purposes, which of the following responsibilities should be separated for cash disbursements? a) check writing and check mailing b) check ordering and check proofreading c) check signing and check writing
a) check writing and check mailing c) check signing and check writing
Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles? a) corporate management b) CPA firms who audit the company c) SEC staff auditors d) audit committee
a) corporate management
Sully Corporation uses an income statement approach for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of sales during the year, the adjustment for estimated uncollectible accounts will require a a) debit to Bat Debt Expense for $2,000 b) credit to Accounts Receivable for $2,000 c) credit to Bad Debt Expense for $2,000 d) debit to Allowance for Uncollectible Accounts for $2,000
a) debit to Bat Debt Expense for $2,000
The two methods used for recording sales discounts are the a) net method b) gross method c) discount method d) valuation method.
a) net method b) gross method
Which ratios measure liquidity? a) quick ratio b) times interest earned ratio c) debt to asset ratio d) debt to equity ratio e) current ratio
a) quick ratio e) current ratio
During the prior year, Marian Company recognized an impairment loss on its notes receivables. During the current year, the amount of estimated future cash flows improved. Marian should a) recognize a gain b) ignore the improvement c) wait until cash is collected
a) recognize a gain
Which of the following are enhancing characteristics of financial information? (select all that apply) a) timeliness b) decision usefulness c) cost effectiveness d) comparability
a) timeliness and d) comparability
The involvement of accounting professionals and management in accounting scandals resulted in Congress passing the Sarbanes-Oxley Act. What is the purpose of the Sarbanes-Oxley Act? (select all that apply) a) provide penalties for violators b) prevent conflicts of interests c) issue capital requirements for companies d) require CEO accountability e) regulate auditors
a, b, d and e
When a sales journal is used, at the end of the period the total amount sold on credit is debited to __________________
accounts receivable
The allowance for uncollectible accounts a contra account to
accounts receivable
Solvency
ability to pay long-term debts as they become due measured by Debt to equity ratio and Times Interest earned ratio
potential benefits of offering cash discounts to customers
accelerated customer payments, reduction in bad debt and increased sales volume
GAAP stands for generally ___________ accounting principles.
accepted
An ____ _____ is the legal right to recieve cash from a credit dale an represents an asset of the company
account recievable
A(n) _ receivable is an informal credit arrangement with trade customers, whereas a(n) receivable is a formal signed credit arrangement between a creditor and a debtor
account, notes
Munchkin Inc. pays for promotional expenses by charging the company's credit card. Munchkin should debit an expense and credit
accounts payable
in a perpetual inventory system, when inventory is returned which accounts will the purchaser adjust to reflect the effect of the return
accounts payable and inventory
A(n) ____________________________ ______________________________ is the legal right to receive cash from a credit sale and represents an asset of the company
accounts receivable
An _____ _____ is the legal right to receive cash from a credit sale and represents an asset of the company.
accounts receivable
Receivables resulting from the sale of goods or services on account are called _____ _____ and often are referred to as trade receivables.
accounts receivable
In a bank reconciliation, a deposit outstanding is
added to the bank balance
in a bank reconciliations, which items will require journal entries by the company
adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books
perpetual inventory system
adjusts for each change caused by a purchase, a sale or a return of merchandise allows management to determine the amount of goods on hand on any date without having to take a physical count a new weighted-average unit cost is calculated after each purchase
Internal control procedures for cash disbursements should include
all disbursements are made by checks, debit card or credit card. And all expenditures are authorized. as well as check are signed by authorized individuals
Internal control procedures for cash disbursements should include
all expenditures are authorized checks are signed by authorized individuals all disbursements are made by check, debit card, or credit card
Profitability Ratios
all numerators is net income
LIFO inventory pools
all purchases during the period are considered to be made: at the same time and same cost grouped according to physical similarities a single layer is added at the average cost of purchases during the period is added to beginning inventory if the quantity of ending inventory increased
periodic inventory system
allocates cost of goods available for sale only at the end of each reporting period
A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales
allowance
a contra-asset account is used to reduce the carrying value of accounts receivable to the amount of cash expected to be received under the _______ method of accounting for bad debts
allowance
If a company believes its sales returns will be material, an adjusting entry for expected returns should be made to which account?
allowance for sales returns
determine the amount of accounts receivable written off during 2016
allowance for uncollectible accounts + bad debt expense - credit balance at the beginning of year 1
A company that expects the some of its customers will not pay the agreed upon sales price must utilize the
allowance method
Recoveries of accounts receivable previously written off require the reinstatement of the _____ and the _____.
allowance, receivable
When initially recorded, the typical accounts receivable is valued at the
amount expected to be received
When initially recorded, the typical account recievable is valued at the
amount expected to be reieved
asset impairment
any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant impairment of value
when a previously written off account is collected, what happens after the reinstatment
collection is recorded with a debit to cash and credit to accounts receivable
FASB mandated changes implementation ways
apply new standard to the current and future periods with an adjustment to the beginning balance of retained earnings in the year of adoption apply new standards in the current period and all future periods with no change to prior financial statements apply new standard to all periods presented in the financial statements
When a company receives an asset from an unrelated party by a donation, the assets are valued at ____________ value.
appraisal
the balance sheet approach to measuring bad debt expense focuses on
appropriate carrying value of accounts receivable
Interim reporting periods
are periods when financials are produced other than at the end of the fiscal year
Restricted cash is usually reported in the balance sheet
as a concurrent asset
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
as a noncurrent asset
restricted cash is usually reported in the balance sheet
as a noncurrent asset
fair value option for a financial asset or financial liability, how are the changes in fair value reported in the financial statements
as gains or losses on the income statement
how do sellers typically account for returns:
as return occurs and using an adjusting entry at the end of the period for any remaining future expected returns
Quavier Inc. adjusts its allowance account to reflect the estimate of future uncollectible accounts. This adjustment achieves matching of expenses with revenue in the same period _.
as the revenue they helped generate
Manfred mining company is required to restore a piece of land to it original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset.
asset retirement obligation (ARO)
York Inc, records a year-end adjustment for estimates sales return and allowances. as a result of this entry, york's financial statements will change as follows:
assets decrease equity decrease
effect on the accounting equation from using supplies which had been previously recorded as an asset
assets decrease and owners' equity decreases
Last-in, first-out (LIFO) method
assumes that the units sold are the most recent units purchased if prices rise over time, results in the lowest ending inventory provides better matching of current revenues with current inventory cost
With the allowance method, bad debt expense is recorded
at the end of the period when bad debts are estimated.
GAAP requires companies to report inventory
at the lower of cost and net realizable value
For a typical credit sale, the revenue recognition criteria is usually satisfied
at the point of delivery
The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except: a) income from continuing operations b) operating income c) discontinued operations d) all of the above
b) operating income
A good internal control system would require that the employee who handles cash must not be involved in a) hiring decisions. b) reconciling the bank statement. c) daily operations of the company. d) the accounts payable function.
b) reconciling the bank statement.
Which of the following adjusting entries causes a decrease in assets? a) recognizing the portion of revenue collected in advance b) recording depreciation expense c) accruing unrecorded salaries expense d) accruing unrecorded interest revenue
b) recording depreciation expense
Net realizable value of accounts receivable is a) the full amount of the sale not initially paid for with cash. b) the amount of cash the company expects to actually collect from customers. c) the full amount of the receivable plus interest.
b) the amount of cash the company expects to actually collect from customers.
A difference between U.S. GAAP and IFRS in accounting for cash and cash equivalents is that IFRS allows a) notes due within 3 years to be classified as current if no compensating balance is required. b) the netting of bank overdrafts against the cash and cash equivalents. c) restricted cash to be reported as cash and cash equivalents. d) accounts payable to be netted against accounts receivable.
b) the netting of bank overdrafts against the cash and cash equivalents.
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?
collection of an accounts receivable interest received on notes receivable
A sale to a customer on account should be recognized when the goods or services are delivered and
collection of the receivable is probable
The balance sheet approach estimates _____ _____ expense by estimating the net realizable value of accounts receivable.
bad debt
steps necessary to estimate ending inventory under the gross profit method
beginning inventory (from records) + Net purchases (from records) = goods available for sale - cost of goods sold = net sales -estimated gross profit of 40% = estimated cost of goods sold goods available for sale - estimated cost of goods sold =estimated ending inventory REAL ANSWER 1. calculate cost of goods available for sale 2. apply the estimated gross profit ratio to sales 3. calculate an estimate of cost of goods sold 4. Calculate an estimate of ending inventory
Employee purchases should be included in the accounting records
by the end of the accounting period.
Lee accepts a $100,000, 90-day noninterest-bearing note receivable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sale is a) $88,000 b) $103,000 c) $97,000 d) $100,000
c) $97,000
IFRS for determining whether risks and rewards have been transferred is evaluated by comparing how variability in the amounts and timing of the _______________ ________________ of the transferred assets affects the company before and after transfer
cash flows
Reporting revenues only when
cash is received and expenses only when cash is paid is called the cash basis of accounting.
The asset that is most easily stolen and susceptible to fraud is
cash most easily stolen
Amounts readily available to pay off debt or used in operations are considered _____, while highly liquid investments with a maturity date of 3 months or less are considered _____ _____.
cash, cash equivalents
Other assets
catch all category of noncurrent assets
Income statement classification shifting
categorizing operating expenses as nonoperating expesenes
Change in accounting principle
change from one acceptable accounting method to another change from percent-off-completion to completed contract method change from LIFO to FIFO
For internal control purposes, which responsibilities should be seperated for cash dispursements
check signing and check writing check writing and check mailing
For internal control purposes, which of the following responsibilities should be separated for cash disbursements?
check writing and check mailing Check signing and check writing
Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that
checks are signed by authorized individuals. all expenditures are authorized. all disbursements are made by check, debit card, or credit card.
Which of the following items are included in cash?
checks from customers currency and coins balance in checking accounts
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called
checks outstanding
internal control procedures for cash disbursements (other than small disbursements from petty cash) should include
checks signed by authorized individuals all expenditures are authorized all disbursements (other than petty cash) are made by check
Internal control components are built on the foundations of the ethical tone established by top management in its
control environment.
A(n) ___________________ is an exclusive right of protection given to a creator of a published work, such as a song, film, photograph, or book
copyright
product costs
cost that are included in inventory direct materials, direct labor, manufacturing overhead
amount of loss from write-down using entire inventory
cost total < nrv total then there is no loss
amount of loss from write-down using categories
cost total-by category total
Management must evaluate the _____ and _____ of any change in credit and collection policies.
costs, benefits
direct write-off method
could result in a mismatching of expenses and revenue
The normal balance of the contra asset accumulated depreciation account is a(n) _________
credit
Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include
credit Cash, $2,000
To close the dividend account, the journal entry would require a(n) ___________ entry to the dividend account and a ______ entry to retained earnings
credit; debit
A company debits cash to increase its cash account. A bank _______ the customer's checking account because the customer account represents a liability on the bank's balance sheet
credits
Because cash inflows and outflows can vary from planned amounts, a company needs an additional cash _____ as a precaution against surprises.
cushion * The size of the cushion depends on the ability to convert cash equivalents and short-term investments into cash quickly, along with its short-term borrowing capacity.
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net realizable value of accounts receivable? a) $17,000 b) $20,000 c) $19,000 d) $18,000
d) $18,000
What transaction would require the journal entry shown below? Allowance for uncollectible accounts----25,000 Accounts receivable -------------------------------25,000 a) Reinstate a customer account. b) Record collection on account. c) Estimate bad debt expense. d) Write off a customer account.
d) Write off a customer account.
Accounts receivable are almost always considered current assets because a) they are always due within a maximum of one year. b) they are always due within a maximum of 60 days. c) their normal collection, only if less than a year, is part of the normal operating cycle. d) their normal collection, even if longer than a year, is part of the normal operating cycle.
d) their normal collection, even if longer than a year, is part of the normal operating cycle.
When actual inventory returns occur in a perpetual inventory system, which of the following happens?
debit the asset inventory account
The adjusting journal entry required when deferred revenue is recognized includes a ______ entry to a liability
debit
Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. Assuming Western uses a periodic inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following
debit accounts receivable $70,000 credit sales revenue $70,000
Sully corporation uses an allowance method for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of credit sales and $100,000 of cash sales during the year, the adjustment for estimated uncollectible accounts will require a
debit bad debt expense for $2,000 credit allowance for uncollectible accounts for $2,000
Rascal Corp. borrows $500,000 by signing a 1-year, 12% promissory note from General Finance Company and assigns $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Rascal to record the borrowing will include
debit cash debit finance charge $6,000 credit to liability financing arragements
journal entry required for a note receivable transferred as a sale
debit cash debit loss on sale of note (to balance) credit not receivable (face amount) credit interest receivable (accrued interest)
sale with recours
debit cash debit loss on sale of receivable to balance debit factor on receivables credit recourse liability credit accounts receivable (book value when sold)
factoring without recorse
debit cash debit loss on sale of receivables (to balance) debit receivable from factor credit accounts receivable (book value sold)
On November 10 of the current year, Flores Mills sold carpet to a customer for $7,300 with credit terms 3/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 17, assuming the correct payment was received on that date?
debit cash $7,081 debit sales discounts 219 credit accounts receivable 7,300
A journal entry that affects a company's cash flows must include a
debit or credit to cash.
On October 1, Callison accepts a 5-year interest bearing not receivable for $1,000.The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31, Year 1, to accrue interest will include:
debit to interest receivable $30 credit to interest revenue $30 1000 x .12 x (3/12) = 30
ophelia inc. just learned that patton inc., one of its customers with an outstanding accounts receivable balance filed for bankruptcy. Assuming that the company utilizes the allowance method, ophelia should record a(n):
decrease in Accounts Receivable
The allowance method is a method of accounting that is _ net accounts receivable (as well as net income) for estimated bad debts.
decreases
Paying for supplies purchased in a previous month has what effect on the accounting equation for the payment of supplies?
decreases assets decreases liabilities
A sales allowance _ the amount owed by the customer for merchandise that is _ by the customer.
decreases;retained
In a bank reconciliation, an outstanding check is ______.
deducted form the bank balance
The two methods for preparing the Statement of Cash Flows are:
direct and indirect methods
Which of the followng is an internal control procedure for cash disbursements?
disbursements should be made by check
The transfer of a note receivable to a financial institution for an amount less than the face amount of the note is referred to as
discounting a note receivable
The treatment of discontinued operations and unusual items in interim reporting under U.S. GAAP is more consistent with the _______ view
discrete
management approach to segment reporting requires that _______________ financial information is available
discrete
IFRS comprehensive income must be presented in
either one or two statements (same as GAAP)
When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting ________________
error
Change in residual value of a depreciable asset is treated as a change in accounting _________________
estimate
A change in depreciation method is treated as a change in accounting ___________ that is achieed by a change in accounting ____________
estimate principle
sales revenue is reported net of these amounts:
estimated sales returns and allowances pertaining to current year sales actual returns and allowances granted to customers actual sales discounts taken by customers
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) _____ _____ approach to measuring bad debts.
income statement
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) __________________________________ ______________________________________ approach to measuring bad debts
income statement
Which approach for estimating bas debts uses a percentage of each period's net credit sales?
income statement approach
Assets impact of debits and credits:
increase by debit decrease by credit
Providing services and sales on account has what effect on the balance sheet equation?
increases assets
Purchasing supplies on account has what effect on the balance sheet equation
increases liabilities increases assets
If the compensating balance is _____ with no contractual agreement that restricts the use of cash, the compensating balance can be reported as part of cash and cash equivalents, with not disclosure of the arrangement.
informal
The percentage-of-receivable approach to measuring bad debt expense focuses on
net realizable value of accounts receivable
Acceptable measurement attributes for certain financial statement items:
net realizable value, present value, historical cost and fair value
The fixed-asset turnover ratio is calculated as ________________ divided by average fixed assets.
net sales
When specific recievables are assigned as collateral in a secured borrowing, the appropriate financial statement disclosure is to
net the note payable from the accounts recievable
a bond will be issued at a premium when the market rate of interest is ___________ the stated rate
less than
The unadjusted balance of the allowance for uncollectible accounts is equal to the estimate of uncollectible accounts at the end of last year _ actual write-offs during the _ year.
less;current
A potential disadvantage of the allowance method is that it:
may be used to manage earnings
Activity Ratios
measures efficiency in managing/using assets Include: asset turnover, receivables turnover, average collection period, inventory turnover, average days in inventory
The most common source of occupational fraud is:
misuse of company resources
The two most common sources of occupational fraud are:
misuse of company resources financial statement manipulation
The most common source of occupational fraud is:
misuse of company resources.
The average cost method assumes that cost of goods sold and ending inventory each consist of a(n) _________ of the goods available for sale.
mixture
The assumption that financial statement elements should be measured in terms of the U.S. dollar for U.S. financial reporting is referred to as the _______________ unit assumption.
monetary
Time value of money concept
money can be invested today to earn interest and grow to a larger amount in the future
cash equivalents include which of the following
money market funds, treasury bills, and commercial paper (must have a maturity date no longer than 3 months from the date of purchase)
Gross Method vs. Net method of accounting for purchase discounts
net method results in a higher gross margin than the gross method if discounts are not taken financial statements do not differ under the gross and net methods if discounts are always taken
Gross accounts receivable less allowance for doubtful accounts is ______ of accounts receivable
net realizable value
The formula "future value divided by the quantity (1+i)^n is the formula for ___________ value
present
We value most receivables and payables at the _________ value of _______________ cash flows, reflecting an appropriate time value of money.
present future
Present value of annuity four variables
present value interest rate number of periods payment amount
The present value of a series of equal-sized flows with the first payment taking place at the beginning of the first period is a ______________________
present value of an annuity due
notes receivable is valued on the balance sheet at the
present value of future cash receipts
Harold would like to deposit a sum of money today that will grown to $20,000 in year 8. Which table should Harold use when making this calculation?
present value of single amount
A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the
present value of the note payable, which is the face amount of the note
Bolt corp. acquires equipment valued at 81,630 by signing a 3-year noninterest bearing note payable for 100,000. Calculate the implicit interest rate on the note
present value/face amount 81,630/100000=.8163 8 then look at PV table
Balance sheet
presents the financial position of the company on a particular date provides useful information about a company's liquidity and long-term solvency purpose: report a company's financial position on a specific date
The most recent issue in implementing the fair value accounting standards is:
pressure to reduce the extent to which fair value changes are reported in net income
Risk Assessment Identifies and analyzes factors that could
prevent objectives from being achieved.
Separation of duties and E-commerce control are examples of
preventive control
fair value
price that would be received in an orderly market transaction
The face amount of a note receivable is also called the _____.
principal
assets
probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
To calculate the effective rate of interest on a non-interest bearing note, the amount of interest is the divided by the
proceeds
When a company borrows money by signing a noninterest-bearing note, the amount of cash recieved at the inception of the loan is reffered to as the _____ of the note
proceeds
method for determining if an item is material and requires separate disclosure relies on:
professional judgement
Consistent with the lower of cost and net realizable value approach, this inventory item should be value at? Jones company's inventory cost is $100. The expected sales price is $110. The company estimates sales cost as 10% of the sales price.
sales price*%=answer sales price -previous answer= inventory item value
A(n) ________________________________ __________________________________occurs when a customer returns merchandise for a refund.
sales return
When a customer returns a product for a refund, in which account is the entry recorded?
sales return
When merchandis is returned for a refund or for credit to be appliead to other purchases, the situation is called a ____ ____
sales return
The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called _____.
securitization
When a company decides to build its own asset rather than purchase it outright, this is referred to as a(n) ____________________ asset.
self-constructed
In a sale of an accounts receivable with recourse, if the customer does not pay, the loss is assumed by the ______ of the accounts recievable
seller
In a sale of an accounts receivable with recourse, if the customer does not pay, the loss is assumed by the ____________ of the accounts receivable
seller
Net realizable value is ________ __________ minus costs of completion, disposal, and transportation.
selling price
periodic inventory system
separate freight-in account is used
internal control system critical aspect
seperation of duties
Glasser Corp. provided $20,000 of services on account. The account that should be credited is ______ _____.
service revenue
In general, cash and cash equivalents are treated _____ under IFRS and U.S. GAAP. One difference relates to bank overdrafts, which occur when withdrawals from a bank account exceed the available balance. U.S. GAAP requires that overdrafts typically be treated as liabilities. In contrast, IAS No. 7 allows bank overdrafts to be offset against other cash accounts when overdrafts are payable on demand and fluctuate between positive and negative amounts as part of the normal cash management program that a company uses to minimize its cash balance. For example, LaDonia Company has two cash accounts with the following balances as of December 31, 2016: National Bank: $300,000 Central Bank: (15,000) Under U.S. GAAP, LaDonia's 12/31/16 balance sheet would report a cash asset of $300,000 and an overdraft current liability of $15,000. Under IFRS, LaDonia would report a cash asset of $285,000.
similar
Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:
statement of cash flows balance sheet
IFRS steps in determining the impairment of receivables
step 1 - consider whether individual significant receivables are impaired step 2 - group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics step 3 - perform impairment test
Managers who are entrusted with taking care of the assets of the company are referred to as
stewards of the companys assets
The n value is present and future value tables refers to what?
the total number of compounding periods
If a note with an unrealistic interest rate is received solely in exchange for cash, the present value of the note is considered to be
the cash paid
A troubled debt restructuring occurs when
the creditor changes the terms of the agreement to make it easier for the debtor to pay.
A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals
the ending balance of cash in the accounting records.
at what amount are accounts receivable initially recorded
the exchange price agreed on by the buyer and seller
Kerry acquires equipment valued at $81,630 by signing a 3-year noninterest-bearing note payable for $100,000. The difference between the $100,000 repayment and the value of the equipment represents
the implicit interest on the note
In a deferred annuity, a two-step process can be used to calculate the present value of the annuity. The first step requires the calculation of the present value of he annuity a t the beginning of the annuity period. The second step involves discounting the amount calculated in step 1
to its present value as of today
Companies commonly restrict cash for which of the following reasons?
to pay off a large loan when due to finance a major purchase of equipment to have cash available for future investment opportunities
The post-closing trial balance checks that
total debits equal total credits at the end of the period.
Debt to equity ratio
total liabilities / shareholders equity (including retained earnings) the higher the ratio, the higher the risk
A __________ __________ is a way to change prices without publishing a new catalog.
trade discount
A(n) _________________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service
trademark
CECL model broadens information that creditors should consider when estimating credit losses true/false
true
When pricing a bond, the present value of the annuity of the coupon payments is added to the present value of the maturity value of the bond true/false
true
Risk refers to the __________ of an investment
uncertainty
Income before taxes
useful for comparing the performance of companies in different tax jurisdictions or comparing corporations with sole-proprietorships or partners
asset/liability approach to accounting
uses the measurement of balance sheet accounts to drive revenue and expense recognition
Purpose of a post-closing trial balance
verify that closing entries were prepared and posted correctly and that the accounts are now ready for next years transactions
In a factoring arrangement made ___________ recourse, the seller bears the risk of uncollectibility
with
The buyer assumes the risk of uncollectibility when accounts receivables are sold _____ recourse.
without
the buyer assumes the risk of uncollectibility when accounts receivable are sold __________ recourse
without
