Mgmt 200 Exam 2

$525,000

A building is offered for sale at $530,000 but is currently assessed at $550,000. The purchaser of the building believes the building is worth $600,000, but ultimately purchases the building for $525,000. The purchaser records the building at

2018 = $75; 2019 = $175

A company accepts a note receivable of $5,000 on October 1, 2018, that matures in 10 months and has stated interest of 6%. What amount of interest revenue will the company record in 2018 and 2019?

$24,000

A company performs an aging of accounts receivable calculation and arrives at an estimate for uncollectible accounts of $25,000. If Allowance for Uncollectible Accounts has a credit balance of $1,000 prior to the year‐end adjustment, what is the amount of the adjustment?

An investment

A company should classify a building and land held for a new plant facility as

$4,200

A company's Accounts Receivable balance at its December 31 year‐end is $100,000, and its Allowance for Doubtful Accounts has a debit balance of $200 before year‐end adjustment. It estimates that 4% of outstanding accounts receivable are uncollectible. What amount of bad debt expense is recorded at December 31?

Has no effect on total assets

A company, using the allowance method of recording credit losses, wrote off a customer's account in the amount of $1,000. Later, the customer paid the account. The company reinstated the account by means of a journal entry and then recorded the collection. What is the result of these procedures?

Specific Identification

A fur coat dealer probably would use which of the following inventory methods?

Making entries to the inventory account for each purchase and sale.

A perpetual inventory system measures cost of goods sold by:

False

A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances. T or F

True

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system. T or F

True

At the time of the credit sale, a company would record an increase in assets and an increase in revenues? T or F

$16,000

Bamburg Corporation purchased equipment for $100,000 on January 1, 2018. The equipment is expected to have a five‐year life, with a residual value of $20,000 at the end of five years. Using the straight‐line method, depreciation expense for 2018 would be:

Cost of making a driveway

Bampton Corporation purchases a tract of land to construct a new building. Which of the following costs would not be included in the land account?

Inventory ...........................................20,000 Cash ................................................20,000

Big Valley Farms, Inc. uses a perpetual inventory system. Big Valley purchased seed from Midwest Co., Inc. at a cost of $20,000, payable at time of delivery. The entry to record the delivery would be

$11,000

Boiler Catering, Inc. purchased a commercial dishwasher by paying cash of $10,000. The dishwasher's fair value on the date of the purchase was $12,000. The company incurred $500 in transportation costs, $500 installation fees, and paid $250 for annual property insurance for the equipment. What amount will the catering company record the dishwasher?

$20,000

Brighton Company, Inc. began the period with $10,000 in inventory. Brighton also purchased an additional $25,000 of inventory and returned $5,000 for a full credit. A physical count of the inventory at year‐end revealed an inventory on hand of $10,000. What was Brighton's cost of goods sold (CGS) for the period?

equals asset cost less accumulated depreciation.

Carrying value

False

Clifford Gardens, Inc. has ending inventory of $20,000, purchases during the year of $50,000, and beginning inventory of $10,000, cost of goods sold equals $30,000. T or F

False

Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement. T or F

Period Costs

Costs that are expensed when incurred are called?

Decrease assets and decrease stockholder's equity

Cotswolds, Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation?

True

Credit sales transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future? T or F

True

Driveways and parking lots are properly included in the Land Improvements account because they are subject to depreciation. T or F

False

During periods of consistently falling prices, the FIFO inventory method will produce the highest possible amount of net income. T or F

False

During periods of rising costs, FIFO generally results in a higher cost of goods sold. T or F

$10,000

Ending balance of Accounts Receivable account was $20,000. Services billed to customers for the period were $50,000 and the collections on account from customers were $40,000. What was the beginning balance?

True

Freight charges associated with the purchase of inventory normally are included in inventory cost. T or F

Increase Expenses

Global Pharmaceutical, Inc. spends $250,000 this year in research and development for a new drug to cure hair loss. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $250,000 spending have on Global's financial statements?

True

Goods in transit shipped FOB destination should be included in the seller's ending inventory. T or F

it is acquired through the purchase of another business entity.

Goodwill should be recorded in the accounting records only when

$500

Hampton, Inc. has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $2 each Jan. 15 Purchase 100 units @ $3 each Jan. 31 Purchase 100 units @ $4 each What would be the cost of goods sold under the FIFO method if 200 units were sold in January?

False

Hayne Corporation had average inventory of $1,000 and cost of goods sold of $5,000 during 2017. Hayne's inventory turnover ratio is 0.5. T or F

False

If Greenwich, Inc. sells a $100 product with a 20% trade discount, Greenwich will record $100 of revenue and $20 of sales expense. T or F

True

If a company has total revenues of $1,000,000, sales discounts of $50,000, sales returns of $50,000, and sales allowances of $100,000, the income statement will report net revenues of $800,000. T or F

receivable collection improved

If the receivables turnover ratio increased during the year

Allocation of the total cost to the individual assets on the basis of the fair market value of the individual assets at the time of the "basket" purchase.

In a basket purchase of assets, which of the following best describes the process by which the historical cost of the various assets acquired should be determined?

False

In accounting for inventory, the assumed cost flow must match the physical goods flow. T or F

$1,600

J&L Corporation uses the allowance method to account for uncollectible receivables. At the beginning of the year, the Allowance for Doubtful Accounts had a credit balance $1,000. During the year J&L wrote off uncollectible receivables of $2,100 In addition, J&L recorded during the year Bad Debt Expense of $2,700. What is J&L's year‐end balance in Allowance for Doubtful Accounts?

Added to cast of land

Kensal Green, Inc. purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a new plant facility. The costs incurred to tear down the building should be

$250,000

Land and a building on the land are purchased by Clifford Gardens, Inc. for $1,000,000. The appraised values of the land and building are $300,000 and $900,000, respectively. Clifford Gardens should allocate how much to the land account?

$50

On August 1, 2017, Kensal Green Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Kensal Green report during 2017?

More has been written off than estimated

One could conclude from a debit balance in Allowance for Uncollectible Accounts that

Inventory

One of the major differences between an airline and a steel manufacturer is that a steel manufacturer must account for:

$7,500

Oxford Publishing Company purchases a copyright for $75,000. The copyright has a remaining legal life of 20 years, but only an expected useful life of ten years with no residual value. Assuming the company uses the straight‐line method, what is the amortization expense for the first year?

False

Perpetual inventory refers to an inventory costing system as compared to a processing system?

False

Research and development costs normally are capitalized and amortized over the estimated sales life of the product developed. T or F

False

The Sales Returns account is an expense account. T or F?

True

The adjustment to write down inventory from cost to its lower net realizable value includes a debit to Cost of Goods Sold and a credit to Inventory. T or F

False

The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total of all accounts written off over the years. T or F

Expense; Income statement

The cost of goods sold during the year is classified as a(n) ______ in the ______.

original cost less residual value.

The depreciable cost of an asset is

Accounts Receivable at net realizable value

The direct write‐off method is not an acceptable method for GAAP because it fails to report:

LIFO reserve

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the:

Net credit sales divided by average accounts receivable

The formula for the receivables turnover ratio is

True

The higher the inventory turnover, the lower the days' inventory on hand. T or F

False

The income statement of a company that provides a service only will contain gross margin. T or F

FIFO

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

LIFO

The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is:

Necessitates the recording of an estimated amount for bad debts

The matching principle

In the period of the sale

The matching rule relates to credit losses by stating that Uncollectible Accounts Expense should be recorded

Matching

The principle of using the lower of cost or net realizable value to value inventory reflects which of the following?

True

The replacement of tires on a delivery truck is considered an ordinary repair. T or F

False

The term goods flow refers to the association of costs with their assumed flow in the operation of a business. T or F

Cost of Goods Sold

To which account is the cost of inventory transferred when a product is sold?

False

Uncollectible accounts cannot be estimated because it is not possible to know which accounts will not be collected. T or F

Total assets will be unchanged

Under the allowance method, when a specific account is written off

False

Under the periodic inventory system, cost of goods sold is recorded throughout the accounting period as inventory is sold. T or F

$50,000

Using the accounts receivable aging method, estimated uncollectible accounts are $50,000. If the balance of the Allowance for Uncollectible Accounts is an $18,000 debit before adjustment, what is the balance after adjustment?

$90,000

Using the percentage of net sales method, uncollectible accounts expense for the year is estimated to be $75,000. If the balance of the Allowance for Uncollectible Accounts is an $15,000 credit before adjustment, what is the balance after adjustment?

$8,000

What is the amount of depreciation, using the double‐declining balance method, for the first year of use for equipment costing $12,000, with an estimated residual value of $500 and an estimated life of three years?

sale price and the carrying value of the asset sold.

When an asset is sold, a gain is calculated as the difference between?

Sales Discount

When customers purchase products on account, Bufford, Inc. offers them a 1% reduction in the amount owed if they pay within 10 days. This is an example of a:

False

When the value of inventory falls below its cost, companies other than those that use LIFO have the option of recording the inventory at cost or the lower net realizable value. T or F

LIFO

Which inventory method generally best follows the matching principle?

Allocation of cost of plant asset

Which of the following describes depreciation?

Raw Materials

Which of the following inventory accounts consists of items for which the manufacturing process has not begun?

Wages for machine operater

Which of the following is not a period cost?

Cost of Goods Sold

Which of the following is not a subtotal?

Interest Expense

Which of the following is not considered an operating expense?

Gross Margin

Which of the following items is not shown on a single‐step income statement?

The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts

Which of the following statements is true with respect to the percentage‐of‐credit‐sales method for estimating uncollectible accounts?

Electricity used by the machine

Which of the following would not be debited to the Equipment asset account?

Debit Allowance for Bad Debts and Credit Account Receivable

You have just received notice that a customer of yours with an Accounts Receivable balance of $50,000, has gone bankrupt and will not be making any future payments. Using the allowance method, the journal entry you make is to