accounting chapter 5

How is income tax reported on a multiple-step income statement?

separately after non-operating revenues and expenses

Recording a write-down of inventory from cost to its lower net realizable value includes:

debit to Cost of Goods Sold credit to Inventory

Purchasing inventory on account:

increase assets increase liabilities

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

LIFO reserve

In accounting terminology, the life of a trademark is considered

indefinite

Notes payable is classified as a liability that has which of the following effects?

Creates interest expense on the income statement

When prices rise, which inventory method tends to result in lower income and a lower tax liability?

LIFO

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

In a periodic inventory system, freight-in costs are

recognized in a temporary freight-in account.

Service companies ________ revenues when the service is provided to customers.

record

Which of the following long-lived assets would not be depreciated?

land

Which of the following is the formula for the current ratio?

Current assets divided by current liabilities.

Which of these are parts of the journal entry to record depreciation?

Debit Depreciation Expense Credit Accumulated Depreciation

Which payroll tax is paid equally by the employee and the employer?

FICA

Which of the following intangible assets are usually considered to have indefinite lives?

Trademarks Goodwill

What depreciation method results in an equal amount of depreciation each year?

straight-line

Land, land improvements, buildings, equipment, and natural resources are examples of ____ assets.

tangible

The primary benefit of LIFO is:

tax savings

True or false: The accounting treatment for the cost of copyrights is identical to that of patents.

true

Credit sales typically include an informal credit arrangement requiring payment within ______ days.

30 to 60

Gross Profit is

Net Sales Revenue minus Cost of Goods Sold.

Werner uses the periodic inventory system. Werner purchases inventory and records the purchase in a purchases account. If Werner returns the inventory for a full refund, the journal entry to record the return will include a:

credit to purchase returns

The journal entry to record the amortization of an intangible asset includes

credit to the intangible asset. debit to amortization expense.

Which of the following may be a proper balance sheet classification of contingent events?

current liability long-term liability

The income statement approach for estimating bad debts focuses on

current year's credit sales

A disadvantage to selling on account is

customers do not always pay

The two categories for intangible assets are

intangibles with indefinite lives. intangibles with finite lives.

Which of the following are classified as receivables?

interest due from loans to customers loans by a company to other entities

The _____ ______ ratio shows the number of times the firm sells its average inventory balance during a reporting period.

inventory turnover

Receivables not expected to be collected should

not be counted in assets of the company

Amounts that are subtracted from an employee's gross pay are referred to as

payroll withholdings.

A company's "operating cycle" refers to the time required for the company to

spend cash to provide goods and services then collect from customers.

Payroll withholdings are

the items subtracted from an employee's gross pay to arrive at take-home pay.

Which of the following involves both an acquisition and a disposition of an asset?

Exchange of fixed assets

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

If a company uses the perpetual inventory system, how many entries are made when a sale occurs?

Two

The direct write-off method is not normally an acceptable method under GAAP because it fails to report _____.

assets and expenses correctly

Asset turnover ratio is net sales divided by

average total assets.

Which of the following are long-term tangible assets?

equipment property

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______.

inventory; selling expense

FICA tax is paid by

both the employee and employer.

Which of the following are tangible assets?

building land improvements

The _____ ratio shows the number of times during a year that the average receivable balance is collected.

receivables turnover

The profit margin ratio indicates the amount of net income achieved for

each dollar of sales

What are the two classifications for liabilities?

Long-term Current

Which of the following obligations is NOT commonly classified as a current liability?

Note payable due in 3 years

Which of the following are tangible assets?

buildings land equipment

If a company pays freight-in for its inventory, that amount will later be included in

cost of goods sold

When a company adjusts its own FIFO inventory records at year-end to a LIFO basis for financial statements, the company must:

credit inventory debit cost of goods sold

Attorney fees and other costs necessary to secure a patent should be

added to the patent account.

What will be the effect of paying off an accounts payable balance on the current and the acid-test ratios? Assume that both ratios are greater than 1.

Acid-test ratio will increase Current ratio will increase

Which of the following companies would be most likely to utilize the specific identification method?

Adams Company produces one-of-a-kind products.

Which accounting standards provides a lower threshold for recording contingent liabilities?

IFRS

Which of the following statements best describes an entity's liquidity ratios?

Some companies may be motivated to manipulate accounting numbers to improve their liquidity ratios.

True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

false

True or false: Current liabilities are always payable within one year.

false

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

receivable turnover ratio average collection period

If a company has a current ratio of 1.2, which of the following is true?

The company has $1.20 in current assets for each dollar of current liabilities.

Straight-line, declining-balance, and activity-based refer to methods commonly used to _____ property, plant, and equipment.

depreciate

Munster Company negotiates a line of credit with its bank, under which the Company may borrow up to $500,000 at a 5% annual interest rate. Munster should credit notes payable when Munster

receives cash under the line of credit.

The FIFO inventory method assumes that units remaining in ending inventory are the ______ units purchased.

recent

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

residual value.

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

two

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

The ability to estimate the amount of payment The likelihood of payment

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be

$1760

Which of the following are current liabilities?

Deferred revenues Taxes payable Accounts payable

Freight charges are _________ to the cost of inventory, while purchase returns and purchase discounts are________from the cost of inventory by most companies..

added deducted

Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called ______ benefits

employee

Amortization refers to the allocation of the cost of _____ assets to expense

tangible

The weighted average cost method assumes that cost of goods sold consists of

a mixture of all the goods available for sale.

A loss that is judged to be probable and for which the amount is reasonably estimable should be

recorded

Lambert Corporation has employee salary expense of $100,000 on May 31. FICA contributions are 7.65%, and FUTA contributions are 6.2%. The journal entry for payroll tax expense will include which of the following entries?

Debit payroll tax expense $13,850 Credit FUTA payable $6,200 Credit FICA payable $7,650

Assume that Market Company's current ratio is 1.2. Which of the following management strategies would prevent the company's current ratio from decreasing at the financial statement date?

Delaying a scheduled purchase of inventory on account until the beginning of the next fiscal year.

Under a perpetual inventory system, the entry to record the return of goods previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is:

correct

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

disguise real prices from competitors give quantity discounts to customers change prices without publishing a new catalog

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

A new major component that is added to an existing asset is called

an addition

West Company pays health insurance for its employees of $2,000 for the pay period. The journal entry to record this fringe benefit includes which of the following?

Credit accounts payable $2,000 Debit Salaries Expense $2,000

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

______ refers to a company's cash position and overall ability to obtain cash in the normal course of business. (Enter one word per blank)

Liquidity

When an asset is no longer useful, but cannot be sold, it is called an asset ______

retire

Norbert Inc. purchases a machine for $21,000 with an estimated service life of three years and estimated salvage value of $1,000. The company utilizes the double-declining balance method. Depreciation expense for the last service year is: (Round to the nearest dollar.)

$1333

Which of the following costs may be capitalized into the cost of a trademark?

Registration fees Fees for a successful legal defense Design costs

Goodwill is recognized only when one company ____ another company

acquires

The formula for calculating the double-declining-balance method is

book value at beginning of year x 2/estimated service life

Freight-in is

included as a cost of inventory.

A multiple-step income statement reports multiple levels of______

income

Combining operating income with non-operating revenues and expenses yields

income before income taxes

Bad debt expense is reported on the __________ and is classified as an operating expense.

income statement

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue _________- revenue on December 31. (Enter only one word.)

interest

A higher return on assets typically indicates the company

is using its assets effectively.

Long-term tangible assets include

land buildings equipment

The current ratio, acid-test ratio, and amount of working capital are common indicators of:

liquidity

The depreciable cost is

the cost of the asset minus the residual value.

By law, an employer is required to pay which of the following amounts as payroll taxes?

Federal unemployment tax Medicare contributions Social Security contributions

Under the periodic inventory system, purchase returns and purchase discounts accounts represent

contra purchases accounts

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______.

current-year activity or production

Zeiger Corporation sells goods 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 $2000

Given a choice, most companies will prefer classifying liabilities as ____

noncurrent

Straight-line and declining balance methods allocate the cost of a long-term asset based on ____ while an activity-based method allocates the cost of an asset based on its ____.

time use

For accounting purposes, depreciation is

an allocation of a cost of an asset.

If a company replaces a major component of an asset with a new component with the same characteristics of an old component, it is classified as

an improvement

James Corporation sells $1,000 goods on account. Sales returns were $40, and sales allowances were $50. Sales discounts for the period were $30. Net sales are

$880 Sales minus sales discounts, returns, and allowances equals net sales. $1,000 - ($40 + $50 + $30) = $880.

Average days in inventory is calculated as

365 divided by the inventory turnover ratio.

Which of these would explain an increase in a company's inventory turnover ratio?

A decrease in inventory. An increase in the demand for the company's products.

Which of the following are expenditures for assets subsequent to acquisition?

Additions Improvements Repairs and maintenance

Linx purchases an intangible asset for $10,000. How should the $10,000 be reported in the financial statements?

As an asset for $10,000.

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods?

Change in residual value of an asset Change in service life of an asset

Which of the following items are intangible assets?

Copyright Patent Trademark

Which of the following items are included in calculating operating income?

Cost of goods sold General and administrative expenses Utility expense

Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?

Disclose the contingency and state that an estimate cannot be made.

Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?

Employee contributions to retirement plans Health insurance paid by the employee Federal income taxes

Which of the following must employers by law withhold from their employees' pay?

Federal income taxes

What costs are capitalized as an intangible asset for a franchise?

Initial payment for the franchise.

Which of the following items may be classified as nonoperating revenues and expenses for a company that manufactures televisions?

Interest expense Gain from sale of land Interest revenue

When prices increase, the. _______ inventory method provides the best matching of revenue and expenses.

LIFO

Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.)

Medicare Social Security

Which of the following costs are recognized in work in process for a manufacturing company?

Overhead Raw materials Direct labor

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?

Perpetual inventory system

Which of the following costs should be capitalized in the costs of acquiring a building?

Remodeling building Realtor commissions Legal fees to obtain title purchase price Construction related overhead costs Architect fees Interest costs

Which of the following terms are used to categorize the likelihood of the occurrence of a future loss?

Remote Probable Reasonably possible

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

Warranty

Inventory is classified as

a current asset

Quick ratio is another commonly used term for the _____.

acid-test ratio

A new major component that is added to an existing asset is considered a(n) _____ and should be capitalized

addition

Because the future benefits of research and development costs are uncertain, FASB requires that research and development costs be treated as

an expense on the income statement.

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, ABC's adjusting entry at December 31 would include a ______.

debit to Interest expense of $1,000

At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too high

At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too low

A long-lived asset is assumed to be impaired if its estimated future cash flows are ________ than its book value

less

The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as:

net realizable value

Revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues and expenses.

nonoperating

Income tax receivable is a ______.

nontrade receivable

Intangible assets with indefinite useful lives should

not be amortized.

a ______ receivable typically yields interest revenue and possesses a fairly high probability of collectibility.

note

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: (Select all that apply.)

overstates net income in the prior year overstates assets in the prior year

If sales returns are incorrectly treated as expenses, what are the effects on the financial statements? (Select all that apply.)

revenues and expenses are both overstated

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method.

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the ____ life of the. asset

useful

Berta Company's inventory value has declined during the current period. Berta does not expect to sell its inventory during the current year. Berta should recognize the loss in the period when the inventory

value declines

Which of the following is a correct interpretation of the information provided by the gross profit margin?

It indicates the percentage of each sales dollar available to cover other expenses.

Expenditures for repairs and maintenance should be_____ in the. periodincurred.

expense

A subsequent expenditure for an asset increases the future benefits of the asset if it

increases the quality of the goods or services produced by the asset. increases the operating efficiency of the asset. extends the asset's service life.

Interest expense is recorded in the period when it is _______.

incur

Peter Company, a produce distributer, always tries to sell its oldest produce first. Peter company

is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions.

Deferred revenue is classified as a(n)

liability

Which of the following are common examples of long-term liabilities that require reporting of a current portion of the liability?

long-term notes payable with quarterly payments of principal and interest mortgage requiring monthly payments of principal and interest

The flipside of a contingent gain is a contingent

loss

The purposes of the period-end adjustment in the periodic inventory system include:

reflect the proper ending balance in the inventory account recognize cost of goods sold relating to sales during the period close the temporary accounts relating to inventory purchases, discounts, and returns and allowances

Cost of goods sold determined under the FIFO perpetual inventory system is the same as under the FIFO periodic inventory system

under all circumstances

sales return

A customer returns merchandise purchased during the month and receives a refund of the full sales price.

An expenditure that qualifies as an addition should be

capitalized.

Liabilities are classified as

current and long-term.

Which of the following are included in FICA taxes?

A 1.45% Medicare tax A 6.2% social security tax

Maier Company purchases inventory from Kunze Corporation and debits inventory and credits accounts payable to record the transaction. Which of the following journal entries would Kunze make to record the sale?

Debit accounts receivable, credit sales revenue

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

Title insurance Costs to remove an old building Legal fees to secure title Grading the land

The two conditions that must exist for a sale and the related receivable to be recognized are

collection from the customer is probable and the company has provided goods or services to the customer

The shipping term FOB stands for

free on. board

The depreciable cost of an asset is the asset's cost minus its estimated ____ value

residual

Which of the following statements describe the accounting rules for a franchise agreement?

Capitalize the cost of the franchise. Expense periodic payments as incurred. Amortize the cost of the franchise over its life.

Which of the following are not required payroll withholdings?

Charitable contributions Federal unemployment tax (FUTA) State unemployment tax (SUTA)

Which of the following inventory systems requires a physical count in order to determine cost of goods sold?

Periodic inventory system

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the __________ method of accounts receivable. (Enter only one word.)

aging

Which of the following items are readily available from an inventory account under the perpetual inventory system?

beginning inventory balance ending inventory balance individual purchases cost of units sold

Assets represent probable future economic ________ whereas liabilities represent probable future economic _________.

benefits sacrifices

Current maturities of long-term debt should be classified as _____ liabilities

current

Steiner Company's average days in inventory has decreased during the current year as compared to the prior year. From this information, we can conclude that Steiner

has a higher inventory turnover ratio. is selling its inventory faster.

The write-off of a specific accounts receivable ______ total assets reported on the balance sheet.

has no effect on

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

Items held for sale in the normal course of business are referred to as ______.

inventory

Cost of goods sold divided by average inventory is

inventory turnover

The process of estimating an allowance for uncollectible accounts, writing off bad debts in the following periods, and then reestimating the allowance at the end of the period occurs:

throughout the company's life

On July 1, year 1, Smith Corp. purchased equipment for $200,000. The equipment has an expected service life of 10 years with no residual value. Smith uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$10000

Prather Inc. has sales of $100,000, sales returns of $5,000, cost of goods sold of $60,000, and selling expenses of $3,000. Calculate gross profit.

$35000

An account receivable is normally classified as

an asset

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

change prices without publishing a new catalog give quantity discounts to customers disguise real prices from competitors

The receivables turnover ratio offers an indication of how quickly a company is able to

collect its accounts receivable

What is the transaction that required the following entry?

collect on interest-bearing note receivable

Sully Corporation uses a percentage-of-credit sales 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 during the year, the adjustment for estimated uncollectible accounts will require a

debit to bad debt expense for $2000

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

paid by the supplier

Mueller installs a new motor in its manufacturing equipment. The new motor is expected to decrease energy use by 25%. The related cost should be:

capitalized in the equipment account

What is the first issue that needs to be addressed in order to properly report tangible and intangible assets?

Determining the amounts to be included in the assets' initial cost

Accounts receivable from sales to customers are ______ receivables.

trade

A(n) ________ __________ is the legal right to receive cash from a credit sale and represents an asset of the company.

trade receivables

If a company uses a perpetual inventory system, the entry to record the company's return of goods previously purchased on account includes ______ and _____. (Answer from the viewpoint of the buyer.)

debit to Accounts Payable credit to Inventory.

Albert Corp. received a 2-month, 8%, $1,500 note receivable on December 1. The adjustment for interest earned by December 31 will include a:

debit to interest receivable of $10

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20, Medicare $8.70, federal income tax $58, and state income tax $10. Assuming that John gets paid in cash, ABC would record a journal entry that includes a ______.

debit to Wages Expense of $600 credit to State and Federal Income Tax Payable of $68 credit to FICA (Social Security and Medicare) Payable of $45.90 credit to Cash of $486.10

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

a balance sheet

The formula for calculating interest on a note is

face value x annual rate x fraction of the annual period

Accounts receivable should be classified as a(n)

asset

a ______ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time. (Enter one word per blank)

franchise

Melvin charges a fee of $1,080 for merchandise purchased by a customer. Assuming that the amount includes 8% of sales tax, Melvin should credit sales tax payable for:

$80

Poppy Corporation has a current ratio of 2.0 and a quick ratio of 1.6. Poppy purchases additional inventory for cash. Which of the following occurs?

The current ratio will remain the same.

The sales discount account is classified as a(n)

contra revenue account

Common current liabilities include:

The current portion of long-term debt Sales tax payable Deferred revenues

On September 1, 2018, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2018?

$4000

Which of the following items are expensed?

Costs related to maintaining equipment

A contingent event for which the likelihood of payment is properly judged to be remote:

is not required to be disclosed in the financial statement notes

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.

revenue

Which of the following items are intangible assets?

goodwill trademarks

The normal balance of notes receivable is:

a debit

Total revenues less discounts, returns, and allowances are referred to as __________ revenues

net

The profit margin ratio is defined as ______ _______ divided by net sales

net income

Straight-line deprecation is calculated as the depreciable cost divided by

the estimated service life of the asset.

The receivables turnover ratio indicates

the number of times during a year that the average accounts receivables were collected.

The average collection period is calculated as 365 divided by

the receivables turnover ratio

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is calculated as

$20,000 x 0.08 x 6/12

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.

$20000

Smith Company acquires a franchise from West Corp for $200,000. The franchise agreement covers a period of 10 years. Compute amortization expense for the second year.

$20000

On January 1, year 1, London Corp. purchases equipment for $400,000. The equipment has a 5-year service life and a $50,000 residual value. London uses the double-declining-balance method of depreciation. What is the book value at the end of year 1?

$240000

Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should record a contingent liability and loss of

$250000

On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021?

$70000

At the beginning of year 1, Looby Corp. purchases equipment for $100,000. The equipment has a residual value of $20,000 and an expected service life of 10 years. What is straight-line depreciation for year 1?

$8000

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

Relay Corporation provides services with a normal price of $105,000 and a trade discount of $5,000. Terms are 1/10, n/30 and the customers pay within 10 days. The net service revenue is

$99,000 $105,000 - 5,000 trade discount = $100,000 gross sales less 1% discount (.01x100,000) = $99,000.

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was:

$990

The formula to calculate an activity-based depreciation rate is:

(cost - residual value)/estimated total production.

The formula for straight-line depreciation is

(cost - residual value)/service life.

Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively.

4

Which of the following statements is correct?

A company can apply more than one inventory cost flow assumption.

sales allowance

A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.

Which of the following items are reported in operating income?

Advertising expenses Revenues Selling expenses

Which of the following describes the requirement to pay FUTA.

An employer must pay FUTA taxes even if the employer pays SUTA taxes

Branson uses the periodic inventory system. Branson purchases inventory on terms 2/10,n/30 for $100, and records the entry in a purchases account for $100. If Branson pays the amount within the 10 day period, the entry will include which of the following entries?

Credit Cash $98 Debit Accounts Payable $100 Credit Purchase Discounts $2

Generally, if a company wants its inventory cost flows to be the same as the inventory's physical flows, what inventory method would it use?

FIFO

Which of the following are employer payroll costs?

Federal and state unemployment taxes Employer portion of Medicare tax

A contingent liability is recorded if which conditions are met?

It is probable that a future loss will occur. The amount of the loss can be reasonably estimated.

Consistent with International Financial Reporting Standards, which of the following cost flow assumptions are currently permitted?

Weighted-average First in, first out

A retirement or abandonment of an asset is different from a sale of an asset because

a loss must be recognized for the remaining book value. no cash is received.

The weighted average cost method assumes that ending inventory consists of

a mixture of all the goods available for sale.

The estimated expense for accounts that may not be collected is referred to as

bad debt expense

Although a company may have a high current ratio and appear successful, the accounts used to calculate the current ratio that may have issues or problems are

accounts receivable. inventories.

The ratio that is a more conservative measure than the current ratio of a company's ability to pay its current liabilities is the:

acid-test ratio

Payroll withholdings ______. (Select all that apply.)

are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives

Accounting errors must be corrected

as soon as they are discovered.

Costs incurred to acquire equipment are recognized as a(n) ______ while cost providing a benefit in the current period only are recognized as a(n) ______.

asset expense

Inventory not yet sold is classified as a(n) ________in the _______ ________ . (Enter one word per blank)

asset balance sheet

Amend Inc. debited Accounts Receivable and credited Allowance for Doubtful Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.

cash; accounts receivable

The percentage-of--credit-sales method is allowed only if it does not

differ significantly from estimates using the percentage-of-receivables method.

Inventory errors that are discovered more than one accounting period after the error occurred

do not require a correcting entry because the error self-corrects.

When an asset has a significant decline in value and is written down, this is called_______

impairment

expenditures classified as ____ involve the replacement of a major component of an asset.

improvement

Bad debt expense is reported on the:

income statement

The amount of net credit sales is reported on the _____ _____.

income statement

Units of production or units of output are alternative terms for the _____ _______ depreciation method.

activity based

In a perpetual inventory system, freight costs on purchases are

added to the inventory account.

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory)

net income increases total assets increase stockholders'. equity increases

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

When a contingent event that may give rise to a future loss is likely to occur, it is said to be ______.

probable

The ratio that indicates the amount of net income achieved per dollar of sales is the

profit margin ratio.

Another name for the acid-test ratio is the _____ ratio

quick

_______ ________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production.

raw materials

Which of the following accounts are typically reported in the balance sheet of a manufacturing company?

raw materials work in process finished goods

An estimated residual value ____ the total amount of depreciation recorded over an asset's service life.

reduces

The types of expenditures that can occur subsequent to an asset's acquisition are

repairs and maintenance. improvemnets additions

The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the LIFO ______.

reserve

Which of the following sells inventory to end users?

retailers

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate _____.

revenue

Classifying liabilities as current or long term helps creditors and investors assess ______

risk

Management typically prefers reporting liabilities as long-term rather than current because financial statement users perceive current liabilities as:

riskier than long-term liabilities

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

sales discount

The amortization of an intangible asset occurs over the period of time that is the ______ of the legal, regulatory, contractual, or service life.

shorter

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method.

specific identification

The depreciation rate we use under the declining-balance method is a multiple of the. ______ ______ method.

straight line

The depreciation method that is easiest to apply and results in higher net income in earlier years is

straight-line

The most frequently used depreciation method for financial reporting is the ______ method.

straight-line

The declining balance method of depreciation is a multiple of the

straight-line rate of depreciation.

Average days in inventory measures

the average time the inventory is held.

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

A company makes a sale on terms 2/10, n/30. What does this mean? (Select all that apply.)

the customer may take a 2% discount off the price if paid within 10 days if payment is not made in 10 days the net amount is due in 30 days

The employer's portion of FICA tax remitted to the taxing authority is:

the same as the employee's portion

Assume Company X is in its fifth year of operation. Analyze the following schedule. What conclusion can be drawn from the following schedule?

the target amount in allowance for uncollectib;e accounts is $25500

Weighted-average unit cost is determined by dividing cost of goods available for sale by

total quantity available for sale

a______ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

true

The ratio that indicates the approximate number of days the average inventory is held is referred to as the:

average days in inventory

To calculate the inventory turn over ratio, cost of goods sold should be divided by the

average inventory balance

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

Deferred revenues and sales tax payable typically are reported as ____ liabilities

current

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?

FIFO

The ______ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

Make an adjusting entry at the end of the current period to accrue the interest earned.

Which of the following methods are not used for inventory costing? (Select all that apply.)

NIFO Simple-average

What is the formula for the profit margin ratio?

Net income divided by net sales.

Which of the following is an important criteria used to determine the reporting of a contingent liability?

The likelihood of future payment or loss

Liabilities that are payable within one year commonly are classified as _______ liabilities, while those payable more than one year from now commonly are classified as _______ liabilities

current long-term

Where is inventory classified in the financial statements?

current asset in the balance sheet

Tax collected on sales is classified as a(n) ____ ______.

current liability

True or false: The inventory cost flow assumption must match the physical flow of inventory units.

false

Which of the following may be the result of extending payment periods?

greater required investment in receivables increased gross sales

Using the declining balance method, depreciation will be

higher in earlier years, but lower in later years.

What comparative advantages do notes receivables possess compared to other receivables? (Select all that apply.)

higher likelihood of collectibility interest-bearing

What are the financial statement effects of recording bad debt expense using the allowance method?

increase expenses decrease assets

A potential disadvantage of the allowance method is that it:

may be used to manage earnings

Companies that serve as intermediaries between manufacturers and end users typically are referred to as ____ companies.

merchandising

The mathematical formula for working capital is current assets ______ current liabilities.

minus

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a________ income statement.

multiple-step

______ ______ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process.

natural resources

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.

no effect

Since accounting numbers, such as the Allowance for Uncollectible Accounts balance, are based on estimates, financial statements are:

subject to inaccuracy

The LIFO adjustment is used internally to convert the inventory

the LIFO basis

The measurement of an impairment loss in step 2 is the difference between

the asset's book value and its fair value.

In a basket purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives.

Which of the following are classified as natural resources?

timber forests oil deposits

Managers may want to report to use FIFO to report higher assets and profitability to satisfy shareholders or increase stock price.

true

Deductions from employee pay for contributions toward retirement savings plans and contributions for charitable organizations are examples of:

voluntary employee deductions

For a manufacturer, the most commonly reported contingent liabilities relate to product _____

warranties

Supreme Inc. sells its products with a 3-year warranty. The company estimates that estimated warranty costs relating to sales during 2018 are as follows: 2018: $10,000; 2019: $25,000; 2020: $15,000. Assume that actual warranty costs during 2018 were as estimated. What is the amount of the estimated warranty liability that Supreme should recognize on its 2018 balance sheet?

$40000

Kuhn Corporation acquired Salz Company by paying $65 million in cash. The total fair value of Salz's identifiable assets is $90 million and the total fair value of its liabilities is $40 million. The amount of goodwill reported by Kuhn Corporation relating to its acquisition of Salz is:

$15 million

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 accounts receivable balance?

$18000

Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is

$2.00 per machine hour.

On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021?

$26000

Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is

$3.00 per machine hour.

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for. uncollectible. accounts

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows: (Select all that apply.)

equity decreases assets decrease

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future; current

An accelerated depreciation method is appropriate when the asset will provide

greater benefits in the earlier years of the asset's life.

Goodwill may only be recognized

in a business acquistion

Where is a note receivable reported in the balance sheet?

in either current or noncurrent assets, as appropriate.

A change in accounting estimate requires a company to account for the change

in the current and future years

Period-end adjustments are necessary for the:

periodic

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n)______ discount.

sales

The LIFO inventory method assumes that the units sold are

the most recent units purchased

True or false: A company may use more than one inventory cost method.

true

True or false: Determining inventory-related amounts is very important because for some companies cost of goods sold represents the largest expense on the income statement.

true

True or false: If an impairment loss is recognized under U.S. GAAP, later recovery of the loss is prohibited.

true

Ending inventory determined under the FIFO perpetual inventory system is the same as under the FIFO periodic inventory system

under all circumstances

Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a(n) _______

warranty

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

An asset that has no physical substance is referred to as a(n)

intangible assets

The estimated selling price of inventory less costs necessary to sell the inventory is referred to as net _____ _____.

realize value

Cash received from selling salvaged materials:

reduces the cost of the land

True or false: Cost of goods sold tends to be different when using LIFO between the periodic system and the perpetual system.

true

True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.

false

True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.

false

True or false: Internally developed goodwill should be capitalized as an asset.

false

True or false: Repairs and maintenance expenditures should be capitalized in the period incurred.

false

________ ___________ inventory consists of items for which the manufacturing process is complete.

finished goods

Which inventory account consists of the cost of items for which the manufacturing process is complete?

finished goods inventory

The FIFO method assumes that units sold are the _____ units acquired.

first

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a

franchise

The key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset.

During the year, Inga Corporation writes off a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of later collecting the written-off accounts receivable on total assets?

no effect

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

During the year, a $1,000,000 lawsuit was filed against a US company for unsafe working conditions. Management and the attorneys feel that it is not likely that the company will lose the case. The plaintiff who filed the lawsuit has offered to settle for $600,000. Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000. What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?

$0

Green Corp. uses a periodic inventory system. Cost of beginning inventory is $1,000. During the year, Green purchases inventory costing $11,000. The related freight is $100. Based on a physical count, Green determines that inventory costing $1,800 is still on hand. Green Corporation's cost of goods sold is:

$10,300

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700, Medicare $1,450, federal income tax $18,000 and state income tax $3,850. The journal entry to record wages paid includes a ______.

$100,000 debit to Salaries expense

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20, Medicare $8.70, federal income tax $58, and state income tax $10. Assuming that John gets paid in cash, ABC would record a journal entry that includes a ______.

$100,000 debit to Salaries expense

Green Corp. uses a periodic inventory system. Cost of beginning inventory is $1,000. During the year, Green purchases inventory costing $11,000. The related freight is $100. Based on a physical count, Green determines that inventory costing $1,800 is still on hand. Green Corporation's cost of goods available for sale is:

$12100

Anastasia Company recognizes payroll for the month of May. Gross employee income is $200,000; federal taxes withheld are $40,000; state taxes withheld are $6,000; Social Security and Medicare taxes are $15,000. Employees contribute $10,000 to a 401(k) retirement plan. Anastasia will pay which net amount to its employees?

$129000

At the beginning of year 1, Valerie Corp. purchases equipment for $10,000. The equipment has a residual value of $4,000 and an expected service life of 4 years. What is straight-line depreciation for year 1?

$1500

Berner Inc. internally develops a patent, which has an estimated value of $25 million. Related legal, design and registration fees were $155,000. The amount reported on Berner's balance sheet should be:

$155000

On January 1, year 1, Paisley Corp. purchases equipment for $200,000. Paisley uses the double-declining-balance method of depreciation. The asset has a 10-year service life and a $10,000 residual value. What is the book value at the end of year 1?

$160000

Cellem, Inc.'s beginning inventory is $4,000 and its ending inventory is $2,000. The inventory turnover is 6. Cost of goods sold must equal:

$18000

On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. Orange has a December 31 year-end. On February 1, year 2, when the note matures, the journal entry will include a

$400

On January 1, year 1, LaRose Corp. purchases equipment for $100,000. LaRose uses the double-declining-balance method of depreciation. The asset has a 5-year service life and a $10,000 residual value. What is depreciation expense for year 1?

$40000

Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should record a contingent liability and loss of

$400000

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be

$420

Lester purchased a new car for $30,000 and depreciated it straight-line over an estimated service life of five years with no residual value. After two years, Lester estimates that the remaining service life of the car is four years. Assuming that Lester continues to apply the straight-line method, depreciation recognized for each of the remaining years will be:

$4500

On January 1, year 1, Clem Corp. purchased equipment for $160,000. The equipment has a residual value of $10,000, and has a life of 100,000 hours. Clem uses the activity-based method of depreciation. In year 1, Clem used the machine 2,000 hours, and in year 2, Clem used the machine 3,000 hours. What is the depreciation expense for year 2?

$4500

Fog Corporation sells $5,000 goods on account. Salaries expense was $3,000. Sales returns were $100, and sales discounts were $300. Net sales were

$4600

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20, Medicare $8.70, federal Income tax $58, and state income tax $10. What is John's net pay?

$486.10

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has an expected service life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$5000

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is:

$800

Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ______ times.

10

A trademark registered with the U.S. Patent and Trademark Office protects the trademark from use by others for a renewable period of

10 years

Compute the asset turnover ratio using the following information: net sales is $100,000 for the year, last year's assets in place were $900,000 and this year's assets in place are $1,100,000. Receivables for both years are $50,000.

10%

Which of the following would be the best current ratio, assuming the company had excellent liquidity and an ability to generate positive income?

2.4

Wagner Company's financial records show that it has a mortgage that requires monthly principal payments of $3,000. The mortgage loan matures in 15 years. What should Wagner show on its balance sheet at the end of the current year?

A current liability of $36,000. A noncurrent liability of $504,000.

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles and back. How does ABC Airlines record the $300 collected in advance?

A debit to Cash of $300 and a credit to Deferred Revenue of $300.

Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible?

A disclosure must describe the contingency. An estimate of the potential loss should be made (if possible) and disclosed.

Which of the following are current liabilities?

Accounts payable Note payable due in 3 months Wages payable

Which of the following are items included in the numerator of the quick ratio?

Accounts receivable Cash Current investments

Which of the following items are included in the numerators for both the current ratio and the acid-test ratio?

Accounts receivable Current investments

Which account is credited in a journal entry to record depreciation on machinery?

Accumulated Depreciation

Which item qualifies as an addition and should be capitalized?

Adding a new computer-aided cutting device to an existing machine.

Withholding taxes for federal and state income tax are based upon which items?

Amounts earned by employees Number of exemptions claimed

Margot Company constructs a new building that will replace its current office building. In addition to construction materials and labor, which of following costs incurred during the construction period should be included in the cost of the new building?

Architect fees Construction related overhead costs Interest costs

Where is the account accumulated depreciation on equipment found on the financial statements?

As a contra account to equipment on the balance sheet

Linx Corporation internally develops an intangible asset with research and development costs of $10,000. How should Linx report this $10,000?

As an expense on the income statement.

On January 1, year 1, Clem Corp. purchased equipment for $160,000. The equipment has a residual value of $10,000, and has a life of 100,000 hours. Clem uses the activity-based method of depreciation. In year 1, Clem used the machine 2,000 hours, and in year 2, Clem used the machine 3,000 hours. Which of the following statements is true?

Clem will depreciate the machine for $150,000 over its service life.

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Commissions Legal fees to secure title Costs to remove an old building

Which of the following items typically are classified as equipment?

Computers and printers used in office Machinery used in manufacturing Furniture and fixtures

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.

Cost of Goods Sold Inventory

Branson uses the perpetual inventory system. Branson purchases inventory on terms 2/10,n/30 for $100, and records the entry in an inventory account for $100. If Branson pays the amount within the 10 day period, the entry will include which of the following entries?

Credit Inventory $2 Debit Accounts Payable $100

On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required March 1, 2019 at the maturity date includes which of the following entries?

Credit cash $106,000 Debit note payable $100,000 Debit interest expense $2,000 Debit interest payable $4,000

On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. The journal entry to record the sale will include which of the following?

Credit equipment $150,000 Debit loss on sale of equipment $20,000 Debit cash $70,000 Debit accumulated depreciation $60,000

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

Which inventory cost flow method approximates the physical flow of inventory items?

FIFO

Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?

FIFO

Bernie Corp. uses the FIFO inventory method to calculate cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes?

FIFO and weighted-average only

Which of these payroll taxes are paid only by the employer? (Check all that apply.)

FUTA SUTA

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

Which of the following payroll-related taxes must the employer pay by law?

Federal Insurance Contributions Act amounts Unemployment taxes

Which of the following items should be capitalized in the cost of equipment?

Freight to deliver the equipment to its location Insurance on equipment during shipping Installation and testing of equipment Purchase price Legal fees to establish title Freight to deliver the equipment Sales tax Installation and testing of equipment

Which of the following may be classified as contingent liabilities?

Future litigation losses Product warranties Frequent flyer program awards

Gosling Corporation had a return on asset ratio of 4% in 2017 and 9% in 2018. This change in return on assets can be interpreted as

Gosling is using its assets more effectively to earn income.

Which of the following strategies could likely be used by a company to increase its return on assets?

Higher turn-over with discount pricing Product differentiation with premium pricing

Under U.S. GAAP, contingent liabilities are recorded if the estimated loss is probable. Under IFRS, contingent liabilities are recorded if the estimated loss is "more likely than not." Which framework will report more contingent liabilities on the balance sheet?

IFRS

Which of the following standards requires that impairment losses are reversed if the fair value of the related asset recovers during a subsequent period?

IFRS only

Which of the following considerations may influence managers' choice of the FIFO inventory cost flow assumption for a company that experiences rising prices?

Increases stock prices Compensation/bonus tied to reported income Meeting earnings targets

Which of the following amounts or balances affected by an inventory error that was not discovered are correct at the end of the year after the error occurred?

Inventory Retained earnings

Which of the following contributes to the importance of properly determining the cost of inventory and the cost of goods sold?

Inventory may be the largest asset on some companies' balance sheets Cost of goods sold may be the largest expense on some companies' income statement

Which statement is true about the straight-line method of depreciation?

It allocates an equal amount of depreciation to each year the asset is used.

Which of the following is a correct interpretation of the information provided by the gross profit ratio?

It measures the amount by which the inventory sale exceeds its cost.

Which information regarding the receivables turnover ratio is true?

It shows the number of times during a period that the average accounts receivable balance is collected. It provides an indication of a company's efficiency in collecting receivables.

The definition of inventory includes which of the following items?

Items currently in production for future sale Items held for resale Items used currently in the production of goods to be sold

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?

LIFO

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

The ______ cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

LIFO

The _______ cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

LIFO

The service life of an intangible asset may be limited by what types of provisions?

Legal Contractual Regulatory

What are the financial statement effects of using the declining balance method of depreciation as compared to the straight-line method in the first year of an asset's life?

Net income is lower. Total assets are lower.

Norton's current ratio is 2.5 and its quick ratio is .9. What is the most likely cause for this difference in the current and quick ratio?

Norton has a high inventory balance.

Which of the following are long-term liabilities?

Note payable due in 3 years 20-year mortgage payable

Which of the following items are included in the numerator for the current ratio but are excluded from the numerator of the quick or acid-test ratio?

Prepaid assets Inventory

Which of the following strategies can be used to increase a company's return on assets?

Product differentiation and premium pricing Increased sales volume with lower prices

Norbert Company utilizes a periodic inventory system. The unadjusted inventory balance is $100; purchases were $1,050; purchase discounts were $50; ending inventory is $200 based on a physical count. Norbert Company's adjusting entry would include debit(s) to:

Purchase discounts: $50 Cost of goods sold: $900 Inventory (ending): $200

To calculate the amount in the inventory account, which of the following occurs?

Purchase returns are subtracted from the cost of inventory Purchase discounts are subtracted from the cost of inventory Freight-in is added to the cost of inventory

Which of the following items are capitalized?

Replacing a major component Successful legal defense of a patent Major repair that increases future benefits

Which of the following costs are expensed under both U.S. GAAP and IFRS?

Research costs only

Prague Company has sales of $1,000,000 each year, but the average collection period has increased from 45 days to 65 days. What are the most likely reasons for the change in average collection period?

The company has become more lax in its credit policies and is extending credit terms to maintain customers. Customers are not paying in a timely manner.

Which of the following are essential characteristics of a liability? (Select all that apply.)

The future sacrifice arises from a present obligation. The obligation results from a past event. A future sacrifice of an economic benefit is probable.

Which method is preferred for recognizing bad debts?

a balance sheet method such as percentage-of-receivables

Deferred revenue is classified as

a liability

When an employer withholds items such as charitable organization contributions from an employee's pay, the employer must record the item as

a liability until the amount is paid to the organization.

A trade discount is

a percentage reduction from list price.

Jan purchases a piece of land and immediately tears down an old building. The proceeds from selling the salvaged materials should be recognized as:

a reduction in the cost of the purchased land

Mueller Inc. utilizes a periodic inventory system. When Mueller incurs shipping costs for purchased goods, the account debited should be

a separate freight-in account.

an _____ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash. (Enter only one word.)

account

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable

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; note

A company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. This transaction is recorded as a(n)

accounts payable

Flounder Corp. provided $12,000 of services on account. The entry to record this transaction would include a debit to

accounts receivable

Glasser Corp. provided $20,000 of services on account. When Glasser collects on the account, a credit is made to

accounts receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable

The term net accounts receivable refers to

accounts receivable less the allowance for uncollectible accounts

On January 1, 20X1, Claire Corp. purchases a patent. One month after acquiring the patent, Claire paid $3,000 in legal fees to successfully defend its right to the patent. The $3,000 should be:

added to the patent account

The average accounts receivable balance is calculated by:

adding last year's and this year's ending balances of accounts receivable and dividing the sum by 2

Alexandra Inc. utilizes a periodic inventory system. Related to inventory, Alexandra Inc. must record period-end adjustments to:

adjust the inventory balance to its proper ending balance close purchase-related temporary accounts record cost of goods sold for the period

Depreciation is a process of cost _______ and not a process of valuation.

allocation

To record bad debts at the end of the period, an adjustment would be made by a credit to

allowance for uncollectible accounts

Which method of accounting requires estimating bad debt expense and recording the expense in the same period as the related revenue?

allowance method

Allocating the cost of intangible assets to expense is referred to as _____

amortization

The journal entry to record the amortization for a patent would include a debit to _____ _______ and credit to _____.

amortization expense patent

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

In accounting, the term impairment refers to

an asset's significant decline in value.

Klaussen Corporation settles an account receivable from Milton Company by accepting a two-year interest bearing note receivable with an interest rate of 8%. The effect on Klaussen's financial statements is (Select all that apply.)

an increase in long-term assets a decrease in current assets

An interest rate, unless otherwise specified, is typically a(n) ________ rate

annual

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n)

annual, 12 month rate.

In a periodic inventory system, purchase returns

are recorded in a separate contra purchases account.

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

A liability is a present responsibility to sacrifice _______ in the future due to a transaction or other event that happened in the _______

asset past

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

Meller purchases inventory on account. As a results, Meller's

assets will increase

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated

For a typical credit sale, the seller records revenue

at the point of delivery

Income related ratios that are calculated with reference to balance sheet totals should utilize

average balances for the period.

The formula 365 divided by the inventory turnover ratio equals the

average days in inventory

A customer account that is not expected to be collected is referred to as a(n) ______ debt. (Enter one word per blank)

bad

The cost of estimated accounts receivable that will not be collected is referred to as _____ _______expense.

bad debt

Where is inventory reported in the financial statements?

balance sheet as a current asset

When assets are purchased in a group for a single sum, it is referred to as a

basket purchase

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides ______.

benefits

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.

book

The first step in determining whether an impairment loss should be recorded is to determine if the sum of estimated future cash flows from an asset is less than the asset's

book value

The original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the ____ ____ of the asset.

book value

gift card _____ refers to the point in time when gift cards expire or when the likelihood of redemption becomes remote.

breakage

The term ______ means to record an expenditure as an asset.

capitalize

If an intangible right is successfully defended, the legal costs should be

capitalized

In accounting, expenditures recorded as assets are said to be _____.

capitalized

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

The cost of a major improvement that extends the service life of an asset would be _______ whereas the cost of maintenance that does not increase the future benefits would be ______.

capitalized expensed

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

capitalized; expensed

The ratio that shows the approximate number of days the average accounts receivable balance is outstanding is referred to as the average _______ ________ .

collection period

When a company borrows from another company, the note is referred to as

commercial paper.

The LIFO difference (sometimes called LIFO reserve) helps investors

compare the performance of companies that use different cost flow assumptions.

Which of the following concepts or principles is especially relevant to the lower of cost and net realizable value rule?

conservatism

The lower of cost and net realizable value method represents a(n) _____ approach in accounting.

conservative

A transaction or event in which the outcome is uncertain is referred to as a(n) ______

contingency

Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to _____ liabilities

contingent

a ____ gain is an existing uncertainty that might result in a gain.

contingent

The accumulated depreciation account is classified as a(n)

contra asset

a ____ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

a ____ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

"Cost of sales" is another name for which of the following accounts?

cost of goods sold

Beginning inventory plus purchases, plus freight-in, minus purchase discounts and returns, minus ending inventory calculates the amount of:

cost of goods sold

Catalina Bookstore pays freight on books shipped to its store. The shipping cost is debited to Inventory. When the books are sold, the freight costs pertaining to the books are included in:

cost of goods sold

The formula for inventory turnover is

cost of goods sold divided by average inventory.

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

cost of lawn sprinkler system cost of driveways cost of sidewalks

Some companies refer to "cost of goods sold" as

cost of merchandise sold cost of sales cost of products sold

Which of the following items should be capitalized as land improvements?

cost of sidewalks cost of fences cost of parking lots

Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should

credit notes payable $5,000.

If the allowance for uncollectible accounts is 25% of year-end accounts receivable, this might indicate

credit policies are too lenient

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales

The journal entry to record bad debt expense includes: (Select all that apply.)

debit to bad debt expense credit to allowance for uncollectible accounts

Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a:

debit to loss credit to contingent liability

Marston acquired a patent for $100,000. At the end of year 3, the book value of the patent was $60,000. An impairment loss was indicated, and the fair value of the patent was $48,000. The journal entry to record the impairment loss will include a

debit to loss on impairment of $12,000.

Marston acquired a patent for $100,000. At the end of year 3, the patent had a book value of $60,000. An impairment loss was indicated, and the fair value of the patent was $48,000. The journal entry to record the impairment loss will include:

debit to loss on impairment of $12,000. credit to patent of $12,000

Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record:

debit to sales allowances $60 credit to accounts receivable $60

Notes receivable normally has a(n)______ balance because it is classified as a(n) _________ . (Enter only one word per blank.)

debit; asset

Which depreciation methods allocate the cost of long-term assets based on time?

declining-balance straight-line

If a liability is classified as current, rather than noncurrent, the company's working capital will ______.

decrease

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

decrease an asset and increase an expense increase an asset and increase revenue

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

Freeze Corporation uses the lower of cost or net realizable value method to write down inventory. Freeze determines that the inventory should be written down by $1,000. The effect on the financial statements is to:

decrease net income decrease assets decrease stockholders' equity

Recording bad debt expense: (Select all that apply.)

decreases assets increases expenses decreases net income

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

If a company receives a payment from a customer in advance for work to be done the following year, this should be classified as a(n)

deferred revenue.

For an asset with an estimated salvage value greater than 0, depreciation during the last service year may be less than the amount calculated based on the carrying value times the depreciation rate in order to avoid

depreciating part of the salvage value.

The cost allocation for property, plant, and equipment is referred to as ______ while the cost allocation for intangible assets is referred to as ______.

depreciation amortization

Mark records a journal entry with a debit to Bad debt Expense and a credit to Accounts Receivable. Mark is utilizing the:

direct write-off method

Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay?

direct write-off method

"Net credit sales" refers to credit sales net of:

discounts returns allowances

The receivables turnover ratio and the average collection period provide information about a company's

effectiveness in managing receivables

A high receivables turnover ratio is a sign of a company's:

effectiveness of credit sales and collection policies

Which of the following voluntary contributions by employees may employers deduct from their employees' pay?

employee investments in retirement contributions toward retirement funds

Which of the following payroll-related costs are incurred by employees?

employee investments in retirement plans federal and state income tax

Machines used in manufacturing, computers, printers, vehicles, furniture, and fixtures generally are classified as ______.

equipment

Ling Corporation's long-term asset has a book value of $200,000 and an estimated fair value of $195,000. Ling estimates that the future cash flows associated with the asset are $198,000. To determine whether the asset may be impaired, Ling should compare the asset's book value to its

estimated future cash flows

Jones Corporation's long-term asset has a book value of $100,000 and an estimated fair value of $101,000. Jones estimates that the future cash flows associated with the asset are $95,000. To determine whether the asset may be impaired, Jones should compare the asset's book value to its

estimated future cash flows.

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated; at the end of the year

Because some of the amounts reported in financial statements are based on ____________, some of the information may be inaccurate. (Enter only one word.)

estimates

An asset that is traded for another asset is treated as a(n) ______ whereas an asset that is sold or retired is treated as a disposition.

exchange

When inventory is sold, the cost of inventory is recognized as a(n) ______. (Enter one word per blank)

expense

When inventory is sold, the cost of inventory is recognized as a(n) ________.

expense

For a patent developed internally, the research and development costs are

expensed as incurred.

Under IFRS rules for R&D, the costs of research-related activities are recorded as _____ while the costs of development-related activities are recorded as _____ ______.

expenses intangible asset

True or false: Depreciation is a valuation method for property and equipment.

false

True or false: Sales tax is recorded on the income statement because it is a cost of making a sale.

false

True or false: Under the perpetual inventory system, an adjusting entry is needed to close temporary inventory-related accounts, record cost of goods sold, and adjust the inventory account balance.

false

True or false: Your employer is allowed to keep the amounts withheld from your gross pay.

false

Under GAAP, we do not record contingent _____ until the gain is known with certainty.

gains

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.

goodwill

The gross profit ratio is calculated as

gross profit divided by net sales.

Gross profit divided by net sales equals

gross profit ratio.

The purchase discount term, 2/10, n/30, means that the purchaser ______.

has 10 days from the purchase date in which to pay and receive a 2% discount

The issues that are important for tangible and intangible assets, include determining:

how to expense the cost of the asset over its life how to record the disposal of the asset what amounts to include in the cost

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory.

The percentage-of-credit-sales method is also commonly referred to as the _____ _______method.

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. (Enter only one word per blank.)

income statement

The direct write-off method is required for

income tax purposes

Obtaining a note payable for cash results in a(n) ______.

increase in assets and an increase in liabilities

We record interest expense in the period in which we

incur it.

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier.

The Work-in-Process inventory account typically includes which costs? (Select all that apply.)

indirect manufacturing costs direct labor raw materials

Intangible assets are categorized as those with finite lives and those with _________ lives

infinite

Janex Company manufactures refrigerators. Which of the following items is classified as nonoperating expense

interest expense

On December 1, Milka Inc. borrows $500,000 from the bank. Interest of 6% is due in six months. On December 31, Milka recognizes interest. As a result of this journal entry, Milka's income statement reports:

interest expense for one month

On December 1, Milka Inc. borrows $500,000 from the bank. Interest of 6% is due in six months. On December 31, Milka recognizes interest. As a result of this journal entry, Milka's balance sheet reports:

interest payable for one month

On November 1, Pepper Corp. sold goods on account to Salt. Pepper agreed to accept a 3-month interest-bearing note from Salt in payment for the goods. Pepper has a December 31 year-end. On February 1, year 2, when the note matures, Pepper's journal entry will include credits to: (Select all that apply.)

interest receivable notes receivable interest revenue

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

inventory

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.)

inventory cost of goods sold

In a perpetual inventory system, when inventory is purchased, the _____ account is debited, whereas in a periodic system, the _____ account is debited

inventory purchases

The cost of goods not yet sold is recorded in the ______ account, whereas the cost of goods that are sold to customers is recorded in _____.

inventory; cost of goods sold

The method of amortization used for intangible assets

is most commonly straight-line.

Companies extend credit to customers and sell goods on account because

it increases sale

Companies use accelerated depreciation for tax purposes because

it reduces taxable income in the early years of the asset's life and provides better cash flows.

Self-constructed buildings include which of the following costs?

labor costs incurred for construction of building interest costs incurred during construction material costs incurred for construction of building

The distinction between land and land improvements is that:

land has an indefinite life

Which of the following inventory cost flow assumptions is prohibited under International Financial Reporting Standards?

last in, first out

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include.

legal costs to acquire purchase price required filing fees

Which of the following costs are capitalized as an asset for an internally developed patent?

legal fees filing fees

An aging schedule classifies accounts receivable based on

length of time outstanding

In a business acquisition, goodwill equals the purchase price

less the fair value of net assets acquired.

The journal entry to record employer payroll taxes affects ______.

liabilities and stockholders' equity

Deferred revenue should be classified as a(n) ____ on the balance sheet

liability

a _______ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events. (Enter one word per blank)

liability

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)

liability.

Accounting for land improvements requires that the land improvements are recorded separately from land because the improvements have a _____ life.

limited

The cost of land improvements are capitalized separately from land because land improvements tend to have a _____ useful life.

limited

Gladys Company signs an agreement under which Gladys may borrow up to $100,000 at a 6% annual interest rate whenever the company needs cash. This agreement is commonly referred to as a

line of credit

a _______ of __________ is an informal agreement that permits a company to borrow up to a prearranged amount without having to follow formal loan procedures.

line. credit

Management most likely prefers to classify debt obligations as

long-term liabilities.

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be _________than ending inventory determined using the FIFO inventory assumption.

lower

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable value; greater

Freight-in on inventory purchases is typically recognized as

part of the cost of purchasing inventory.

The exclusive legal right to manufacture a product or to use a process is called a(n)______.

patent

a ________. is the exclusive right to manufacture a product or use a process granted for a period of. _____. years

patent 20

The cost of successfully defending a patent should be added to:

patent. account

The accounting for copyrights uses the same accounting rules as

patents

The acid-test ratio is based on a more conservative measure than the current ratio of the company's ability to:

pay its current liabilities

The method used to estimate bad debts that may result in more accurate reporting of net income is the:

percentage-of-credit-sales method

Purchase returns are recorded in a separate contra purchase account in a ______ inventory system

periodic

Gerhard Inc. recognizes goodwill related to the acquisition of another company. Gerhard should:

periodically test goodwill for impairment capitalize the goodwill when company is acquired

Purchase discounts and purchase returns are recorded as a reduction in inventory cost in a _____ inventory system.

perpetual

A ______ inventory system updates the inventory account each time a sale or purchase is made, whereas a ________ inventory system calculates cost of goods sold and ending inventory at the end of the reporting period.

perpetual periodic

The ______ inventory system records all inventory-related transactions in the Inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The ________inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.

perpetual periodic

Freight-in costs are debited to Inventory in this inventory system:

perpetual only

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

provides benefits to the company.

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production.

raw materials inventory

When an asset's fair value falls below its book value, the difference between fair value and book value is

recognized as an impairment loss.

Two entries are required when a previously written off account is collected. These two entries include:

record the collection on the account receivable reinstate the account receivable

At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will be returned by customers during the subsequent year. Kunze Corporation must

record the estimated returns at the end of the year

Intangible assets are written down when events or changes in circumstances indicate that the asset's ______ amount is less than its _______ amount.

recoverable; recorded

Which of the following are examples of fringe benefits provided by employers to their employees?

reduced or no-cost company-provided services payment of insurance premiums on employees behalf contributions to retirement and other savings accounts

Costs of periodically servicing equipment is an example of:

repair and maintenance

Which of the following may be disadvantages of extending credit to customers and relaxing collection policies?

requires higher investment in receivables increased bad debt

The sales discount account is a contra ______ account. (Enter one word per blank)

revenue

Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should record the following credit amounts.

sales revenue of $1,000. sales taxes payable of $100.

Glasser Corp. provided $20,000 of services on account. The account that should be credited is

service revenue

Long-term assets are classified as

tangible intangible

Long-lived assets are typically classified in two categories: _____ and _____.

tangible intangible

Which of the following items are classified as receivables?

tax refund claims amounts loaned and expected to be repaid amounts owned by customers

The service life or useful life of an asset is

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

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible

The average collection period is an estimate of

the number of days the average account receivable balance is outstanding

The LIFO inventory method assumes that the units that remain in ending inventory are

the oldest units in inventory

In a basket or lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times

the relative fair value percentages of each asset.

The lower of cost and net realizable value method causes losses in the value of inventory to be recognized in the period when

the value declines below cost.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark

True or False: The Federal Unemployment Tax Act (FUTA) requires employers to pay a tax of 6.2% of the first $7,000 earned by each employee reduced by a maximum 5.4% credit for contributions to a state unemployment program.

true

True or false: All long-term assets are subject to impairment rules.

true

True or false: Repairs and maintenance expenditures that do not increase the future benefit of the asset are expensed.

true

True or false: When goods are sold, the cost of the goods is transferred from the Inventory account to the Cost of Goods Sold account.

true

The ratio that measures the sales per dollar of assets invested is referred to as the asset _____ ratio.

turnover

A contingent liability is an existing ______. situation that might result in a loss depending on the outcome of a future event.

uncertain

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial

A company that tries to increase current-year net income by manipulating bad debt expense could achieve this objective by intentionally

underestimating uncollectible accounts

Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be:

understated assets, retained earnings, and net income

Work in process inventory refers to inventory where the manufacturing process is ___________ , whereas finished goods refers to inventory where the manufacturing process is ____________. (Enter one word per blank)

unfinished finished

A company is most likely to utilize the specific identification method if its inventory consists of

very expensive products unique products

Which of the following tends to be the source of the most commonly reported contingent liability?

warranties

Supreme Inc. sells its products with a 3-year warranty. The company estimates that warranty costs relating to sales during 2018 are as follows: 2018: $10,000; 2019: $25,000; 2020: $15,000. Assume that actual warranty costs during 2018 were as estimated. The journal entry to recognize the warranty work performed in 2018 includes a debit to:

warranty liability for $10,000

Which of the following methods are available for costing inventory? (Select all that apply.)

weighted-average FIFO specific identification LIFO

FOB shipping point means title to the goods passes

when they are shipped

_______resell inventory to retail companies or to professional users, whereas retailers sell inventory to end users.

wholesalers

Taxes subtracted from employees' pay and remitted to the government on their behalf are called

withholding taxes.

The specific identification method (select all that apply):

would be beneficial to a company that makes fine jewelry matches each unit of inventory with its actual cost

Freight-in costs should be debited to the Inventory account under the ______ inventory system and to a separate Freight-in account under the _____inventory system.

perpetual periodic

Under what circumstances are accelerated depreciation methods most appropriate?

For an asset that will be used less in the later years of its life. For an asset that will provide greater benefits in earlier years of its life.

The allocation of the cost of a tangible asset over its service life is referred to as_____.

depreciation

The direct write-off method violates which accounting concept?

matching expenses to the related revenues

Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the

LIFO adjustment

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?

LIFO only

In a business combination, goodwill is recognized to the extent that the purchase price of the company is ____ than the ____ value of the acquired company's identifiable net assets.

greater fair

An asset that has no physical substance is called a(n) ____ asset.

intangible

Norma installs a new motor in its manufacturing equipment. The new motor is expected to increase output by 20%. The cost of the new motor should be capitalized because it:

provides a future benefit

Assume Company X is in its fifth year of operation. Analyze the following schedule. What conclusion can be drawn from the following schedule?

the target amount in allowance for uncollectible accounts is $25500

With the direct write-off method, the journal entry to write-off an uncollectible account includes a debit to _____ and a credit to _____.

bad debt expense; accounts receivable

Accounting for land improvements requires that the costs of land improvements are

recorded separately from the land itself.

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _________ _____________ . (Enter only one word per blank.)

sales return

Net revenues is calculated as total revenues minus which of the following items?

sales returns sales allowances sales discounts

True or false: Companies prefer to report liabilities as long-term versus current.

true

The feature that distinguishes loss _______ from other liabilities is the uncertain outcome. (Enter one word per blank)

contingencies

Sales to customers in which the customers pay within 30 to 60 days are referred to as

credit sales and sales on account

True or False: If a state has an unemployment tax program, no FUTA tax must be paid.

false

True or false: Expenditures that qualify as an addition should be expensed in the period incurred.

false

True or false: Goodwill acquired in a business combination is amortized over its estimated service life.

false

When a company acquires a business in a business acquisition and the purchase price is greater than the fair value of the net assets acquired, the excess is reported as_______

goodwill

Identify a primary reason why financial statement users assess a company's liquidity.

Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful.

Adding last year's and this year's ending balances in accounts receivable and dividing the sum by two will calculate the:

average accounts receivable

The allocation of the cost of a tangible fixed asset is referred to as _____, whereas the allocation of the cost of an intangible asset is referred to as _____.

depreciation, amortization

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

If an intangible right is not successfully defended, the legal costs should be

expensed

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$20

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

40.6 days

Beginning inventory is $20,000. Purchases of inventory during the year are $100,000. Ending inventory is $50,000. What is cost of goods sold?

$70000

Which type of contingent liability would most likely be found on a balance sheet prepared under U.S. GAAP?

Probable contingent liability that can be estimated.

Most companies use _____ _____ amortization for intangible assets.

straight line

Balance Corporation sells $1,000 of goods to a customer for cash. The sales tax is 5%. The journal entry to record the sale will include which of the following?

Credit sales tax payable $50

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity, assuming all year-end (December 31) adjusting entries were made correctly, would include a ______.

credit to Cash of $52,250 debit to Notes payable of $50,000 debit to Interest payable of $1,000 debit to Interest expense of $1,250

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? (Select all that apply.)

credit to accounts receivable debit to sales returns

a _____ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.

debit

The inventory turnover ratio directly measures ______.

the times per period the average inventory balance is sold

In a perpetual inventory system, purchase discounts and purchase returns

directly reduce the Inventory account balance.

The rationale for expenditures being capitalized as assets is based on whether the expenditures benefit ______.

future periods

Under U.S. GAAP, if a company recognizes an impairment loss,

future recovery of the impairment loss is prohibited

An intangible asset that is measured as the purchase price less the fair value of the net identifiable assets is called

goodwill

Recording sales returns and allowances in a separate contra-revenue account helps managers:

keep track of the amounts

No amortization is recorded for

intangible assets with indefinite lives.

When a sale occurs under the periodic inventory system, we record:

only the sale, but not the related cost of goods sold

Land used in a company's ____ is classified as property, plant and equipment, while land held solely for the expected increase in value is classified as an ____.

operations investments

under the ______. inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.

perpetual

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ______.

relative fair value

Disclosure related to a contingent event usually is not required if the likelihood of payment is ______

remote

______. value is the amount the company expects to receive for the asset at the end of its service life.

residual

How is cost of goods sold classified in the financial statements?

expense in the income statement

Impairment losses can be used to manipulate earnings by

writing off impairments in the current year and taking losses to decrease future depreciation and increase future earnings.

Current assets minus current liabilities equals _____ _____

working capital

Net sales revenue minus cost of goods sold is

gross profit

Which of the following items are capitalized into the cost of a patent?

Attorney fees to secure patent Purchase price Filing fees

On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries?

Credit gain on sale of equipment $50,000 Credit equipment $100,000 Debit accumulated depreciation $70,000 Debit cash $80,000

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 entry required on Oak's books on March 5 would require which of the following entries?

Debit Notes Receivable $100,000; credit Service Revenue $100,000.

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $40,000 Credit equipment $120,000 Debit equipment $50,000 Debit loss on exchange $30,000

The account "Allowance for Uncollectible Accounts" normally has a _________ balance. (Enter only one word.)

credit

a _____ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

credit

Which of the following correctly reflects the determination of cost of goods sold in a periodic inventory system?

Beginning inventory + net purchases - ending inventory

Which of the following measure liquidity?

Current ratio Working capital Acid-test ratio

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries?

Debit loss on exchange $10,000 Debit accumulated depreciation $40,000 Debit equipment $40,000 Credit equipment $90,000

If a company generates its own goodwill through advertising or training, how should these costs be treated?

Expense the costs as incurred.

The FASB requires research and development costs to be expensed because

it is difficult to determine whether costs will result in future benefits.

Which of the following accounts would be found in the balance sheet of a manufacturing company?

work in process

The formula for average collection period is

365 divided by the receivables turnover ratio.

Smith Corporation acquired West Company by paying $5 million in cash. The total fair value of West's identifiable assets is $8 million and the total fair value of its liabilities is $4 million. The amount of goodwill reported by Smith Corporation relating to its acquisition of West is:

$1 million

Anastasia Company recognizes payroll for the month of May. Gross employee income is $200,000; federal taxes withheld are $40,000; state taxes withheld are $6,000; Social security and Medicare taxes are $30,000 total for employer and employees. Employees contribute $10,000 to a 401(k) retirement plan. Federal and state unemployment taxes are $12,000. Anastasia's payroll tax expense will be

$27000

Monet Company purchased a patent with an estimated service life of ten years for $200,000 After three years of amortizing the patent using the straight-line method, Monet estimates that the remaining useful life is only 5 years. Amortization expense for the fourth year is:

$28000

The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?

$2850

On January 1, year 1, Roark Corp. purchased equipment for $120,000. The equipment has a residual value of $20,000, and has a life of 1,000,000 hours. Roark uses the activity-based method of depreciation. In year 1, Roark used the machine 30,000 hours, and in year 2, Roark used the machine 50,000 hours. What is the depreciation expense for year 2?

$5000

On January 1, year 1, Mark Corp. purchases equipment for $300,000. The equipment has a 10-year service life and a $50,000 residual value. Mark uses the double-declining-balance method of depreciation. What is depreciation expense for year 1?

$60000

Cannery Company pays health insurance for its employees of $1,000 for the pay period. The journal entry to record this fringe benefit includes which of the following?

Debit Salaries Expense $1,000 Credit accounts payable $1,000

On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $4,000

Ming Corporation sells $100,000 goods on account to customers. Ming estimates that warranties will be 3% of sales. At the end of the year, Ming will require which of the following entries for warranties?

Debit warranty expense $3,000; Credit warranty liability $3,000

The primary benefit for choosing this method is that it tends to save taxes.

LIFO

Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces?

LIFO

Which disclosure allows financial statement users to compare companies that use LIFO to companies that use FIFO?

LIFO reserve

Which of the following assets are depreciated?

Land improvements Buildings Equipment

What is the formula for the asset turnover ratio?

Net sales divided by average total assets.

Norbert Company utilizes a periodic inventory system. The unadjusted inventory balance is $100; purchases were $1,050; purchase discounts were $50; ending inventory is $200 based on a physical count. Norbert Company's adjusting entry would include credits(s) to:

Purchases: $1,050 Inventory (beginning) $100

Which of the following items are initially recorded as an expense on the income statement?

Research and development costs Advertising costs

Which of the following are common characteristics of commercial paper?

The loan period is between 30 and 270 day The loan is between two companies

At year end, CurlZ Inc.'s inventory consists of 100 bottles of CleanZ with a cost of $1, and a selling price of $0.80 per bottle. It also has 100 boxes of DyeZ with a cost of $10, and a selling price of $11 per box. Using the lower of cost and net realizable value method, the year-end Inventory balance should include which of the following amounts?

The selling price of $80 for the CleanZ bottles. The cost of $1,000 for the DyeZ boxes.

Which of the following does not differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

Green Inc. expenses the cost of small tools provided that the amount is less than $1,000. This accounting treatment is:

acceptable if the amount is considered immaterial

trade receivable is another term for _____ receivable

account

On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a

debit to notes receivable $40000

On June 1, Tulip Corp. provided services on account to Daffodil. Tulip initially recorded this as an account receivable but it later became apparent Daffodil could not pay quickly so Tulip required Daffodil to sign $40,000, 10%, 3-month interest-bearing note. The entry required on Tulip's books when Daffodil signs the note would include a

debit to notes receivable $40000

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 allowance $50

Rauch Corporation estimated warranty expense in Year 1 of $10,000. In Year 2, Rauch performed warranty work of $8,000. The journal entry to record the performance of warranty work would include a

debit to warranty liability.

Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as

internally developed intangibles.

Under US GAAP, a contingent liability should ______.

not be reported if the loss is remote and unable to be estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated

Gladys Company negotiates a line of credit with its bank. The agreement specifies that Gladys may borrow up to $100,000 at a 6% annual interest rate. When Gladys signs the agreement with the bank, Gladys should

not make any journal entry.

Other terms used for an activity-based depreciation method are:

units of production method units of output method

Goodwill and some trademarks are examples of intangible assets that are assumed to a have a(n) ____ life

unlimited

Income before income taxes is calculated by combining operating income with

non-operating income

Which of the following transactions will increase a company's working capital?

Receipt of cash on a long-term notes receivable

On December 1, Melinda Corp. performed services on account to Norman. Melinda agreed to accept a 4-month interest-bearing note from Norman in payment for the services. Melinda has a December 31 year-end. On April 1, year 2, when the note matures, Melinda's journal entry will include: (Select all that apply.)

credit to interest receivable credit to interest revenue debit to cash

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be_______ than cost of goods sold determined using the FIFO inventory assumption.

higher

_______inventory refers to the products that have been started in production, but are still incomplete.

work-in-process

The residual value of an intangible asset is usually

zero

Ralph charges a fee of $2,180 for services performed for a new client. Assuming that the fee includes 9% of sales tax, Ralph should credit sales tax payable for:

$180

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. The net realizable values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. Using the lower of cost and net realizable value method, CurlZ should report its inventory at:

$1000

Beginning inventory is $60,000. Purchases of inventory during the year are $100,000. Cost of goods sold is $120,000. What is ending inventory?

$40000

Which of the following are correct with respect to perpetual and periodic inventory systems?

Amounts for cost of goods sold tend to be different when using weighted-average. Amounts for cost of goods sold tend to be different when using LIFO.

Identify characteristics of notes payable that are not common to accounts payable.

Based on promissory note Interest bearing

a ____ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.

contingent

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The cost of goods sold is:

$23000

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

$2540

Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:

$300

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The cost of goods available for sale is:

$30000

On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$40

West Corp purchased a piece of equipment for $35,000 and depreciated it straight-line over an estimated service life of seven years with a residual value of $7,000. After two years, West estimates that the remaining service life of the equipment is four years and the residual value remains unchanged. Assuming that West continues to apply the straight-line method, depreciation recognized for each of the remaining years will be:

$5000

Supreme Inc. sells its products with a 3-year warranty. The company estimates that estimated warranty costs relating to sales during 2018 are as follows: 2018: $10,000; 2019: $25,000; 2020: $15,000. Assume that actual warranty costs during 2018 were as estimated. What is the amount of warranty expense that Supreme should recognize in its 2018 income statement?

$50000

Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand. If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be

$5667

On October 1, 2018, Perry Corporation signed a 12-month, 8% interest-bearing promissory note for $10,000. Assume that all appropriate adjusting journal entries were made at 12/31. The journal entry required when the note matures on October 1, 2019 would include a debit to interest expense for

$600

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, the cost of ending inventory will be

$640

On June 1, 2018, 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 2018?

$7000

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income tax $18,000 and State income tax $3,850. What is the net pay to employees?

$70000

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?

Credit equipment $90,000 Credit gain on exchange of asset $30,000 Debit accumulated depreciation $70,000 Debit equipment $50,000

Kevin sells $100 of goods to a customer for cash. The sales tax is 8%. The journal entry for this sale will include which of the following entries?

Credit revenues $100 Debit cash $108 Credit sales tax payable $8

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following?

Credit to Note Payable $100,000 Debit to Cash $100,000

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $10,000 cash. The journal entry to record the sale will include which of the following entries?

Credit to equipment $50,000 Debit to cash $10,000 Debit to accumulated depreciation $30,000 Debit to loss on sale of asset $10,000

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. The journal entry to record the sale will include which of the following entries?

Credit to gain on sale of asset $25,000 Credit to equipment $50,000 Debit to cash $45,000 Debit to accumulated depreciation $30,000

Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?

Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

On March 5, Oak Corp. provided services on account to Pine. Oak initially recorded this as an account receivable but it later became apparent Pine could not pay quickly so Oak required Pine to sign a $100,000, 12%, 2-month interest-bearing note. The journal entry required by Oak when Pine signs the note includes

Debit Notes Receivable $100,000; credit Accounts Receivable $100,000.

On October 1, 2018, Logan Corporation signed a 6-month, 8% interest-bearing promissory note for $10,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $200

Rimland Corporation has employee salary expense of $10,000 on April 30, 2018. FICA contributions are 7.65%, and FUTA contributions are 6.2%. The journal entry for payroll tax expense will include which of the following?

Debit payroll tax expense $1,385

Wang Corporation sells $200,000 goods on account to customers. Wang estimates that warranties will be 2% of sales. At the end of the year, Wang will require which of the following entries for warranties?

Debit warranty expense $4,000; Credit warranty liability $4,000

Which of the following are commonly used depreciation methods?

Declining-balance Activity-based Straight-line

Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company? (Select all that apply.)

Engine tune-up Routine oil change

For internal record keeping, most companies carry their inventory using the _____ basis.

FIFO

On January 1, Gerhard Company has 100 units in beginning inventory. On January 3, the company purchases 500 units; on February 23, 800 units; and on March 19, 1,000 units. If the company sells 100 units on January 4, which units would be assumed to have been sold in a periodic FIFO system?

The units in beginning inventory.

On January 1, Gerhard Company has 100 units in beginning inventory. On January 3, the company purchases 500 units; on February 23, 800 units; and on March 19, 1,000 units. If the company sells 100 units on January 4, which units would be assumed to have been sold in a perpetual FIFO system?

The units in beginning inventory.

Which of the following is correct regarding gain contingencies?

They are recorded when the gain is known with certainty.

Which of the following represent reasons why managers closely monitor inventory levels?

To ensure that sufficient units are available. To minimize costs of inventory write-downs due to obsolete inventory.

Joyce Corp. uses the percentage-of-receivables 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 uncollectible accounts

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a

credit to allowance for uncollectible accounts

Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a

credit to contingent liability for lawsuit $10,000.

The journal entry to retire old equipment that is not fully depreciated includes a:

credit to equipment debit to accumulated depreciation debit to loss

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. The entry required on Light's books for interest on April 1 when the note is due requires (Select those that are correct.)

credit to interest receivable, $2,000. debit to cash $4,000 credit to interest revenue, $2,000

Werner uses the perpetual inventory system. Werner purchases inventory and records the purchase in an inventory account. If Werner returns the inventory for a full refund, the journal entry to record the return will include a:

credit to inventory

ABC Corp. received a 3-month, 8%, $1,500 note receivable on November 1. The adjustment for interest earned by December 31 will include a:

credit to. interest revenue of $20

the____ portion of long-term debt is the amount that will be paid within the next year. (Enter only one word.)

current

Mathematically, the current ratio is expressed as current assets divided by _____ _______

current liabilities

The formula for the acid-test or quick ratio is quick assets divided by ____ _____

current liabilities

At the end of the current year, Maximilliam Inc. signs a 10 year mortgage note, which requires monthly payments of principle and interest. On its current year balance sheet, Maximilliam reports the mortgage as:

current liability (1 year) and long-term liability (9 years)

The portion of a long-term liability that will be paid within the next year is referred to and reported as the:

current portion of long-term debt

At the end of the year, companies must record estimated contra revenues for estimated sales returns and allowances and sales discounts pertaining to

current year sales only

A company can manipulate income by overstating an impairment loss. The financial statement effects of this are

current-year income is low. future depreciation, depletion, or amortization is unrealistically low. future income is unrealistically high.

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

debit accounts receivable credit allowance for uncollectible accounts

Schoen Corporation internally accounts for its inventory using the FIFO cost flow assumption, but uses LIFO for external reporting. Its current year inventory ending balance under FIFO is $15,000; under LIFO, the ending balance would be $11,000. The journal entry to adjust FIFO to LIFO is:

debit cost of goods sold and credit inventory for $4,000

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

debit inventory

What type of company purchases raw materials and makes goods to sell?

manufacturers

Companies that produce the inventory they sell are referred to as __________ . (Enter one word per blank)

manufacturing

What type of companies recognize revenues when they sell inventory to customers?

manufacturing companies merchandising companies

_______ companies purchase inventory that is primarily in finished form and ready for resale to customers.

merchandising

The difference between total accounts receivable and the allowance for uncollectible accounts is referred to as:

net accounts receivable

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's financial statements the date the note is accepted is

no change in current assets

During the year, Inga Corporation writes off a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of later collecting the written-off accounts receivable on net income?

no effect

Which of the following may be a proper income statement classification of contingent events?

non-operating expense operating expense

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable

The process of estimating uncollectible accounts

occurs throughout the company's life

If a company uses the periodic inventory system, how many entries are made when a sale occurs?

one

The time it takes to spend cash to provide goods and services to a customer until collection of cash from that customer is referred to as the company's _______ ________.

operating cycle

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at

original cost

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming

outdated

Costs related to manufacturing products typically include

overhead raw materials direct labor

Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:

overstated net income

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

$686000

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 accounts receivable balance?

$93000

The allowance method is required by _________. (Enter one word or abbreviation per blank)

GAAP

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 sales return occurs when a customer returns a product for a full refund, whereas a sales ___________ is when the customer keeps the product and obtains a partial refund.

allowance

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

A trade discount is recognized

by reducing the revenue amount recorded

Flounder Corp. sold $12,000 of services on account. When Flounder collects on the account, the transaction will include a debit to

cash

Sales Returns and Sales Allowances are ______ ________ accounts and require a debit entry to increase the account.

contra revenue

Sales returns and sales allowances are what type of accounts?

contra revenue

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.

contra-asset

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

credit accounts receivable $100 debit sales discount $2 debit cash $98

Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record:

credit to accounts receivable $60 debit to sales allowances $60

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

debit allowance for uncollectible accounts

Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record which of the following?

debit cash $1000

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

debit sales discount $15

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

debit sales discount $2 debit cash $98 credit accounts receivable $100

Warner Corp. 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?

debit sales returns; credit accounts receivable

The financial statement effects of recording an allowance for estimated sales returns are that: (Select all that apply.)

equity decreases assets decrease net income decreases

Accounts receivable are normally classified

in the balance sheet as assets

The contra revenue accounts sales returns and sales allowances

reduce revenues

A high ratio of allowance for uncollectible accounts to total accounts receivable can indicate: (Select all that apply.)

the company extends too much credit the company's customers are high-risk

True or false: Credit sales tend to increase sales and profitability in the long-run.

true

A customer account that is not expected to be collected is referred to as a bad debt or ________ account. (Enter one word per blank)

uncollectible

The allowance method estimates

uncollectible accounts

Identify the likely disadvantages of extending credit to customers.

uncollectible accounts and delay in collecting accounts