Acct 200 Exam 3

Kosher Co acquires Midwest Produce for $19 mil. The fair value is $14.3 mil. Fair value of liabilities is $2.5 mil. Calculate goodwill and record.

$7.2 million 19-14.3+2.5 assets 14.3 goodwill 7.2 ..liabilities 2.5 ..cash 19

basket price allocation

(fair value/basket price) x fair value of basket purchase

asset disposal steps

1. calculate accumulated depreciation. 2. journal entry- remove asset cost and depreciation, record cash. Record the difference between book value and value of proceeds as gain/loss.

ABC reports inventory amounts of A (100unit@$4->$8) and B (150unit@$8->$6). Find the amount to report for ending inventory using the lower of cost and NRV and insert the journal entry.

1300 CoGS 1300 Inventory 1300 Report LOWER value to avoid overstating assets.

average days in inventory

365/inventory turnover ratio

net sales are 100,000 and CoGS is 70,000. Inventory balances for the last two years are 10000 and 20000. what is the inventory turnover and average days in inventory?

4.67 times per year. 78 days in inventory.

Gross profit for Wayman Corp. is 260k, and sales revenue is 390k. What is the gross profit ratio?

66.7% (260k/390k)

Freight out costs $700.

CoGS: 700 Acct Payable: 700 (Included in CoGS)

FOB Shipping Point vs FOB Destination

FOB Shipping Point: ownership transfers from seller to buyer at shipping point. Revenue recorded when inventory ships. FOB Destination: ownership transfers from seller to buyer at destination. Revenue is recorded when the inventory arrives at the destination.

T/F: The inventory cost flow assumption must match the physical flow of inventory units.

False. The inventory cost flow assumption matches what the seller assumes.

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

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

LIFO

Which methods are available for costing inventory?

LIFO FIFO Weighted-Average Specific Identification

On Nov 1st Bahama Cruise borrows $4 million and issues a 6 month, 6% note payable. Record the issuance, adjustment, and repayment

Nov 1 Cash 4 million . Notes Payable 4 million Dec 31 interest expense 40k . interest payable 40k April 30 Notes Payable 4 million interest expense 80k interest payable 40k . cash 4.12 million

T?F: Managers may want to report to use FIFO to report higher assets and profitability to satisfy shareholders or increase stock price. True false question.

True.

trademarks

a word, slogan, or symbol. renewable for an INDEFINITE number of 10 year periods. Capitalize legal, registration, and design fees.

Weighted-average unit cost is determined by:

cost of goods available / total quantity available

Starbucks pays 1200 for equipment with a useful life of four years. record depreciation for the first year.

depreciation expense 300 . accumulated depreciation 300

Costs related to manufacturing products typically include: (3)

direct labor raw materials overhead

allocation percentage

fair value/ basket purchase

gross profit ratio

gross profit/net sales

Gross Profit Percentage

gross profit/revenue

The Work-in-Process inventory account typically includes which costs? (3)

indirect manufacturing costs raw materials direct labor

franchises

initial fee is recorded as an intangible asset.

The specific identification method

inventory costing method that matches or identifies each unit of inventory with its actual cost. Typically used when inventory is unique or expensive.

Land Improvements

lots, sidewalks, landscaping, fencing, sprinklers, etc. **Separate from land because improvements depreciate, land doesn't.

return on assets

net income/average total assets

Property, plant, and equipment (PP&E) are recorded at:

original cost plus expenditures necessary to prepare asset.

intangible assets (5)

patent trademark copyright franchise goodwill acquired internally or purchased.

Which methods are NOT available for costing inventory?

simple average NIFO

On April 7th, ABC purchases inventory for $7560 on account.

April 7 Inventory 7560 Acct Payable 7560

Inventory Turnover Ratio

COGS/Average Inventory (# of times firm sells it's inventory balance)

Freight in costs $200.

Inventory 200 Acct Payable 200 (Included in cost of inventory)

patents

exclusive right to a product or process granted for 20 years. purchased: capitalize purchase price plus legal and filing fees. internally developed: capitalize legal and filing fees only (research and development are expensed as incurred)

straight line vs activity-based depreciation:

straight line: depreciation/ useful life = yearly depreciation activity based: depreciation/ hours = hourly rate

Goodwill

when one company acquires another in which purchase price exceeds fair value, LESS (add) liabilities assumed. can be paid via advertising, training, etc.

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.

$35,000

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?

$40,000

Finley Co. finds a building with a fair value of 400k. Finley Co. notices existing equipment they can use worth 80k. Finley Co. offers 450k, and it is accepted. What is recorded?

Building: 400k/480k=83.3% 83.3%x450k=375k Equipment: 80k/480k=16.7% 16.7%x450k=75k Building 375k Equipment 75k Cash 450k

On May 1st, ABC sells inventory on account for 10500 (150 units at $70), originally purchased (60 at $52 and 90 at $54).

May 1 Acct Receivable 10500 Sales Revenue 10500 (150x70) CoGS: 7980 Inventory: 7980 (60x52) + (90x54)

multistep income statement

Revenues CoGS *gross profit Selling, Gen, and admin. expenses *operating income Other income gain on investment investment income interest expense (-) *income before tax tax expense *net income

Land costs

purchase price, commissions, back taxes, land prep, removal of buildings, and salvaged materials (reduces cost).

equipment cost

purchase price, tax, shipping, assembly, testing, etc.