Accounting Module 2 Exam

The service life or useful life of an asset is

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

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

nonoperating revenues and expenses

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

LIFO

The accumulated depreciation account is classified as a(n)

contra asset

The account "Allowance for Uncollectible Accounts" normally has a

credit balance

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 uncollectable accounts

A(n) ___________ 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

Where is a note receivable reported in the balance sheet?

in either current or long-term assets, what ever is appropriate

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable

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

accumulated depreciation

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

advertising costs and research and development costs

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

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

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

allowance method

The financial statement effects of recording an allowance for estimated sales returns are that:

assets, net income, and equity decrease

The original cost of the asset less the accumulated depreciation is the __________ of an asset

book value

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

contra asset

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

debit to accumulated depreciation, debit to loss, and a credit to equipment

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

Research and development costs incurred when developing a new product

expense when incurred

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

intangible asset

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue ________ revenue on Dec 31

interest

provides better matching of current revenues with current inventory costs

LIFO

Inventory is classified as

a current asset

The normal balance of notes receivable is:

a debit

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

as an asset $10000

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 equipment for $150000 in its service life

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 and credit inventory for 1500

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

in the current and future years

The Work-in-Process inventory account typically includes which costs?

indirect manufacturing costs, raw materials, direct labor

The ________ __________ratio shows the number of times the firm sells its average inventory balance during a reporting period.

inventory turnover

On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as __________ revenues and expenses

non-operating

The LIFO adjustment is used internally to convert the inventory

to the LIFO basis

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

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

very expensive and unique products

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

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

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

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

debit inventory

The inventory turnover ratio directly measures ______

times per period the average inventory balance is sold

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

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

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

the purchase price of an intangible asset

capitalize on the balance sheet

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 loss on exchange for 30000, credit equipment for 120000 then credit equipment for 50000, debit accumulated depreciation for 40000

The receivables turnover ratio indicates

the number of times a year that the average accounts receivable were collected

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

total depreciation recognized over an assets service life

Raw materials, direct labor, and manufacturing ________ are the three costs related to the manufacturing of products

overhead

Costs related to manufacturing products typically include

overhead, raw materials, and direct labor

The primary benefit of LIFO is:

tax savings

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

the book value at the beginning of the year

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectable

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 or activity

The allowance method estimates

uncollectable accounts

OB shipping point means title to the goods passes

when they are shipped

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 uncollectable accounts

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

debit depreciation expense and credit accumulated depreciation

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 for $50

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

merchandising

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

merchandising companies

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.

multi-step

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

net

profit margin ratio

net income/net sales

Units of production or units of output are alternative terms for the ________________ depreciation method

activity based

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ________ method of accounts receivable

aging

Depreciation is a process of cost ________ and not a process of valuation

allocation

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

capitalized

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

cash, accounts recievable

The formula for inventory turnover is

cost of goods sold/ average inventory

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

cost of sidewalk, parking lot, and fences

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

note

A formal, signed credit agreement between a lender and a borrower is called a ________ by the lender

note receivable

Freight-in on inventory purchases is typically recognized as

part of the cost of purchasing inventory

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 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

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

balance sheet

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

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

raw materials, direct labor, and overhead

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

receivables turnover

freight-out

recognized as an operating expense

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

Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following:

credit to cash and debit to sales returns

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

additions, repairs and maintenance, and additions

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

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

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

false

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

false

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

finished goods inventory

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

finished goods, raw materials, work in process

Freight-in is

included as a cost of inventory

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

included in Geralds inventory

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

income statement

Bad debt expense is reported on the:

income statement

Purchasing inventory on account:

increases liabilities and assets

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

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

inventory and cost of goods sold

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

Companies use accelerated depreciation for tax purposes because

it reduces taxable income in the early years of an assets life and provides better cash flows

The definition of inventory includes which of the following items?

items currently in production for future sale, items currently used in the production of goods to be sold, and items for resale

Net credit sales" refers to credit sales net of:

discounts, allowances, and returns

Average days in inventory is calculated as

365 divided by the inventory turnover ratio

With the allowance method, bad debt expense is recorded

in the end of the period when bad debts are estimated

The cost of land improvements are capitalized separately from land because land improvements tend to have a

limited useful life

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

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

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

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?

Debit to allowance for uncollectable accounts and a credit to accounts receivable

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

FIFO

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

FIFO

A company makes a sale on terms 2/10, n/30. What does this mean?

If payment is not made in 10 days, the net amount is due in 30 days. The customer may take a 2% discount if paid within 10 days.

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

LIFO

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

TWO, one for the sales transaction and the second for cost of goods sold and decrease inventory

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

a company that produces one of a kind products

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

a single percentage to accounts receivable

For accounting purposes, depreciation is

an allocation of a cost of an asset

An account receivable is normally classified as

an asset

In accounting, the term impairment refers to

an assets significant decline in value

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

as a contra asset to equipment on the balance sheet

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable

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

average day in inventory

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

bad debt expense

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

benefits

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

book value at the beginning of the year less residual value x2 / service life

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

capitalized

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

credit sales

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

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 allowance of $60 and a credit to accounts receivable for $60

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

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

effectiveness in managing receivables

The formula for calculating interest on a note is

face amount x annual rate x fraction of the annual period

A trade discount is a reduction from the list price, which is used to:

give quantity discounts to customers, disguise real prices from competitors, and change prices without publishing a new price list

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

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

has no effect on net income

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

Using the declining balance method, depreciation will be

higher in earlier years, but lower in later years

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, understated assets, overstated retained earnings

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

patent

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

perpetual

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

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

sales allowance

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

sales discount

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a

sales return

Long-lived assets are typically classified in two categories:

tangible and intangible

Average days in inventory measures

the average time the inventory is held

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?

total assets and net income is lower

A(n) _____________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark

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

units of production method and units of output method

Which of the following methods are used for inventory costing?

weighted average cost, LIFO, FIFO, and specific identification

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

LIFO reserve

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

changes on residual value and service life of an asset

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

collection period

The account "Allowance for Uncollectible Accounts" is classified a

contra asset to accounts receivable

Sales Returns and Sales Allowances are ___________ accounts and require a debit entry to increase the account

contra-revenue

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

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

cost of goods sold

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

cost of goods sold, beginning inventory balance, ending inventory balance, and individual purchases

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

cost- residual value/ estimated total production

A(n) __________ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

credit

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

credit allowance for uncollectable accounts and a debit to accounts receivable

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

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

estimated, at the end of the year

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

legal fees to secure the title, commissions, and cost for removing the building

An aging schedule classifies accounts receivable based on

length of time outstanding

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

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

lowers/ reduces

Companies that produce the inventory they sell are referred to as

manufacturing

Gross Profit is

net sales revenue minus cost of goods sold

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

newest units purchased

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

not affect

Receivables not expected to be collected should

not be counted as assets to the company

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

outdated