Accounting Test 3 Cornett

Intangibles

(Amortization Expense x,xxx Intangible x,xxx) *no physical substance *rights, privileges, or competitive advantages

Depreciation

(Depreciation Expense x,xxx Acc. Depreciation x,xxx)

Units of production activity

(cost-residual value)/expected usage cost per unit x actual usage of the asset

Depreciation expense

(cost-sv)/estimated activity over life use(ans)=

Trademarks/trade names

-word phrase jingle or symbol - identifies a specific product -20 years protection and can be renewed indefinitely -no amortization

Raw materials, work in process, and finished goods

3 classifications of inventory

Overstate beginning inventory

COGS overstated, net income understated

cost of goods available for sale(CGAFS)

COGS+EI=

Straight-line Depreciation

Depreciation cost=cost-salvage value depreciable cost/useful life(yrs) 1/useful life

Rising purchase prices

FIFO produces: highest ending inventory lowest cost of goods sold highest income LIFO produces: lowest ending inventory highest cost of goods sold lowest income

Falling purchase prices

FIFO produces: lowest ending inventory highest cost of goods sold lowest income LIFO produces: highest ending inventory lowest cost of goods sold highest income

Gross Margin

Revenue-COGS=

Net Sale

Sales-Sales Returns-Sales Discounts=

investing activities

a company purchases equipment for $32,000 cash. The transactions should be shown on the statement of cash flows under:

balance sheet

accumulated depreciation

the seller

at the year-end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of

the buyer

at the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory of:

Manufacturers

companies that buy and transform raw materials into a finished product which is then sold

Intangible assets

copyright, trademark, goodwill

COGS

cost of goods available for sale-EI

Periodic

cost of goods sold are recorded only at the end of a period

income statement

depreciation expense

Double-declining Balance

double the straight-line method

Freight-out

expense on the sellers income statement

the company had an inventory turnover rate of 8 times COGS/Av. Inv. 150,000/18750

if a company has average inventory of $18,750 and cost of goods sold is $150,000, which of these is true?

cost of goods sold will be overstated and net income with be understated

if a company understates its inventory at the end of the period(ending inventory), what are the effects on cost of goos sold and net income for the current year?

both the balance sheet and income statement are affected

if the amount assigned to ending inventory is incorrect, then:

both the balance sheet and the income statement are affected

if the amount assigned to ending inventory is incorrect, then:

Natural resources

include timberlands and deposits such as coal, oil, and gravel; depletion expense

increasing prices

inventory on the balance sheet and net income on the income statement is higher under FIFO, lower tax liability under LIFO

Depreciation

land improvements, buildings. and equipment (NOT land!)

Operating assets

long-lived assets that are used by the company in the normal course of operations

straight-line method

most widely used method

DDB

not allowed by the IRS

Amortization expense

patent/expected useful life

impairment

permanent decline in market value

rising prices

pollet company started business at the beginning of 2012. The company selected FIFO for its inventory costing method. Pollens profits will be maximized in 2012 in a period of:

Depletion

represents the cost of the natural resource that is removed during the period

Intangible assets

resources that are used in operations more than one year with no physical substance are called:

Copyright

right to reproduce and sell artistic or published work- life of creator + 70 years

Patent

sell, manufacture, and otherwise control-legal right for 20 years - amortization over lifetime

Loss on disposal

selling price < net book value =

Gain on disposal

selling price > net book value =

Calculating depreciation

step 1: Depletion rate=cost-residual value/recoverable units step 2: Depletion= depreciation index x units recovered

property, plant and equipment

tangible assets, include land, land improvements, buildings, equipment, and automobiles; depreciation expense

the cost of goods available for sales less ending inventory

the cost of goods sold is equal to:

decrease in assets and decrease in net income

the effect of the recording depreciation for the year is a(n):

Average Cost

total cost/total units=cost per unit(CPU) Ending Inventory=Qty x CPU

part of the cost of net purchases

transportation in is:

Assets and liabilities increase

what effects occur on a retail stores accounting equation when it records the purchase of merchandise on account, assuming the use of a perpetual inventory system?

Net Purchases

Purchases-Purchase Returns-Purchase Discounts+freight-in=

increase, no change

when inventory is bought under the perpetual system, what happens to the inventory and cost of goods sold accounts, respectively?

Lower of Cost or Market

when the market value of inventory items has declined below their cost, which method would be the most appropriate in complying with GAAP?

Merchandisers

(retailers or wholesalers) purchase inventory in a finished condition and hold for resale w/o further processing

Goodwill

-all favorable attributes of a business -indefinite life- no amortization

Natural resources

-coal deposits, oil reserves, mineral deposits, etc. -physically consumed as they are used

Franchises and licenses

-contractional right to sell certain products or services (Chick-fil-a)

Understate ending inventory

COGS overstated, net income understated

Overstate ending inventory

COGS understated, net income overstated

Understate beginning inventory

COGS understated, net income overstated

Perpetual

cost of goods sold updated with each sale

freight-in

cost of inventory

factors to compute depreciation

cost, useful life, salvage value

Net book value

cost-accumulated depreciation=

Intangible assets

no physical substance, includes patents, copyrights, trademarks, licenses, and goodwill; amortization expense

sold during the year

the "cost of goods sold" account represents the cost of inventory

their legal lives or useful lives, whichever is shorter

the accounting life of intangible assets is determined by:

Depreciation expense- buildings

which of the following accounts would NOT be reported in the property, plant, and equipment section of a balance sheet