Accounting exam 2

Interest revenue=

$ - % x /12 (money - percent x how many months divided by 12)

On March 17, Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10, net 20. What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials?

$0. Explanation No revenue recorded on March 25. The revenue would have been recorded on March 17.

On December 31, 2021, Larry's Used Cars had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $53,600 and $1,325, respectively. During 2022, Larry's wrote off $1,465 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $1,280 at December 31, 2022. Bad debt expense for 2022 would be:

$1,420. explanation: Bad debt expense = $1,280 − ($1,325 − $1,465) = $1,420.

Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assume the company uses the straight-line method to record amortization. What is the amortization expense for the first year?

$10,000. Explanation $50,000 / 5 years = $10,000.

Kansas Enterprises purchased equipment for $60,000 on January 1, 2021. The equipment is expected to have a five-year service life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2022 and the book value at December 31, 2022, would be:

$11,000 and $38,000. Explanation Depreciation expense = (($60,000 − $5,000) / 5 years) = $11,000.Book value = $60,000 − ($11,000 × 2 years) = $38,000.

Kansas Enterprises purchased equipment for $60,000 on January 1, 2021. The equipment is expected to have a five-year service life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2021 would be:

$11,000. Explanation Depreciation expense = (($60,000 − $5,000) / 5 years) = $11,000.

10. Bricker Enterprises purchased a machine for $100,000 on October 1, 2018. The estimated service life is ten years with a $10,000 residual value. Bricker records partial-year depreciation based on the number of months in service. Depreciation expense for the year ended December 31, 2018, using straight-line depreciation, is:

$2,500

A company purchases a piece of equipment on January 1, 2021, for $70,000 and the equipment has an expected useful life of five years. Its residual value is estimated to be $10,000. Assuming the company uses the straight-line depreciation method, what should be the balance in accumulated depreciation for the equipment as of December 31, 2023 (three years later)?

$36,000. Explanation ($70,000 − $10,000) / 5 years = $12,000 depreciation per year.Accumulated depreciation = $12,000 × 3 years = $36,000.

company had the following information taken from various accounts at the end of the year: Sales discounts$41,000 Deferred revenues$32,000 Total revenues$459,000 Purchase discounts$15,000 Sales allowances$35,000 Accounts receivable$205,000 What was the company's net revenues for the year?

$383,000. Explanation Net revenues = $459,000 − $41,000 − $35,000 = $383,000.

Kansas Enterprises purchased equipment for $60,000 on January 1, 2021. The equipment is expected to have a five-year service life, with a residual value of $5,000 at the end of five years. Using the straight-line method, the book value at December 31, 2021, would be:

$49,000. Explanation Depreciation expense = (($60,000 − $5,000) / 5 years) = $11,000.Book value = $60,000 − $11,000 = $49,000.

Given the information below, what is the gross profit? Sales revenue$320,000 Accounts receivable 50,000 Ending inventory 100,000 Cost of goods sold 250,000 Sales returns 20,000

$50,000. Explanation Sales revenue ($320,000) − Sales returns ($20,000) − Cost of goods sold ($250,000) = $50,000.

On October 1, 2021, Stripes Inc. lends $100,000 to another company and accepts a 24-month, 6% note. What is the amount of interest revenue Stripes will report in its 2022 income statement?

$6,000. Explanation $100,000 × 6% × 12 / 12 = $6,000.

At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

$6,540. Explanation ($238,000 × 3%) − $600 = $6,540.

A company provides services on account. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

(1) Increase, (2) Increase (3) Increase

straight-line method

(cost - salvage value) / useful life

Yearly Depreciation

(cost-residual value)/useful life

A company's sales equal $60,000 and cost of goods sold equals $20,000. Its beginning inventory was $1,600 and its ending inventory is $2,400. The company's inventory turnover ratio equals:

10 times Explanation $20,000 / [($1,600 + $2,400) / 2] = 10 times

average days in inventory

365/inventory turnover ratio

6. A company has pretax income of $540,000 and the tax % is 30%. If total assets on January 1st were $450,000 and total assets on December 31st were $530,000, what is the return on assets?

77%

The Sarbanes-Oxley Act (SOX) mandates which of the following? Increased regulations related to auditor-client relations Increased regulations related to internal control Increased regulations related to corporate executive accountability All of the above

All of the above

The cost of the goods that a company sold during a period is shown in its financial statements as ___________ and the cost of the goods that a company still has on hand at the end of the year is shown in the financial statements as ____________.

Cost of goods sold; inventory

he factors used to compute depreciation expense are an asset's:

Cost, residual value, and service life.

Using a perpetual inventory system, the purchase of inventory on account is recorded with a:

DEBIT TO INVENTORY

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

Decrease assets and decrease stockholders' equity.

Which depreciation method generally will result in the greatest amount of depreciation expense in the first year of the asset's life?

Double-declining balance.

In a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is:

FIFO

FIFO

First in last out... assigns the units with the oldest costs to Cost of Goods Sold...Ending Inventor Reflects current costs... BALANCE sheet approach

Which of the following statements accurately describes depreciation? Depreciation is used to allocate the cost of the asset over periods benefited. Depreciation is used to track the fair value of the asset. The book value of an asset is its original cost less accumulated depreciation.

I and III

LIFO

Last in first out... assigns the oldest unit costs to Inventory...Costs of goods sold reflects current costs... Companies that use LIFO for tax reporting MUST also use it for FINANCIAL reporting...INCOME statement approach.

Equipment was sold for $50,000. The equipment was originally purchased for $85,000. At the time of the sale, the equipment had accumulated depreciation of $30,000. Calculate the gain or loss to be recorded on the sale of equipment.

Loss of $5,000. Explanation Original cost ($85,000) less accumulated depreciation ($30,000) = book value ($55,000). Because the sale price ($50,000) is less than book value ($55,000), a loss for the difference ($5,000) is recorded.

specific indentification method

Matches each unit of inventory with its actual cost.

profit margin

Net Income/Sales

Compute Net Sales Revenue

Net Sales Revenue= gross sales- sales returns- sales allowance- sales discount.

The purpose of recording an allowance for uncollectible accounts is to:

Report accounts receivable at the net amount of cash expected to be collected.

Which of the following generally would not be considered good internal control of cash receipts?

Requiring the employee receiving the cash from the customer to also deposit the cash into the company's bank account

Net Income Equation

Revenues - Expenses

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

Specific identification.

Double Decling Balance Method

Step 1. 2 / useful life= % Step 2. % x cost = depreciation expense Step 3. Book value = cost - depreciation expense To get the following years depreciation expense you need to multiply the % by the previous years book value. For the last year the ending book value needs to equal the residual value. To get it to equal this you need to do the previous year book value minus the residual value to get the final year depreciation expense.

Compute Gain or Loss on the disposal of an Asset

Step 1: Find yearly depreciation Step 2: FInd book value Step 3: Determine if it is a loss or gain Book value - residual value = determines loss/gain

The primary difference between the periodic and perpetual inventory systems is:

The perpetual system maintains a continual record of inventory transactions, whereas the periodic system records these transactions only at the end of the period.

What is the concept behind separation of duties establishing internal controls?

a)Employee fraud is less likely to occur when access to assets and access to accounting records are separated

weighted average cost

assumes each unit of inventory has a cost equal to the weighted The average unit cost of all inventory items Equation: Costs of goods available for sale/ # of units available for sale ... To find costs of good sold you do: goods sold x price per unit ... to find ending inventory you do: goods not sold x price per unit

Which of the following is considered cash for financial reporting purposes?

checks received from customers

Book Value

cost - accumulated depreciation

Inventory turnover ratio:

cost of goods sold/average inventory

Compute Cost of Goods Sold

costs of goods sold=Beginning inventory + purchases - ending inventory

5. Kimzey Medical Clinic receives notice that one of their former clients filed for bankruptcy. The clinic believes that the client is unlikely to pay his account of $4,000. Show the transaction that Kimzey must make to write off the account.

d. Debit Allowance for Uncollectible Accounts; Credit: Accounts Receivable

Which of the following intangible assets is not amortized? Patents. Copyrights. Franchises. Incorrect Goodwill.

goodwill

Operating Income Equation

gross profit - operating expenses

gross profit ratio

gross profit/net sales

return on asset

net income/average total assets

gross profit =

net sales - cost of goods sold

Asset Turnover

net sales/average total assets

Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:

sales allowance

units of production method

step 1. (cost- salvage value) /units of products step 2. once you get that number you multiply by the units of production in that year