Acct 3001 LSU

Granny's Quilt Shoppe has $2,550 in currency and coins in the cash register along with $1,200 of personal checks. Two of those personal checks, each for $100, are postdated. They also have $300 worth of postage stamps and $250 in the petty cash fund. Additionally, the shop has a balance of $3,000 in their checking account, $4,500 in their savings account, and $2,500 in a certificate of deposit. How much should be reported as cash in the balance sheet? $11,500 $11,300 $14,200 $8,800

$11,300 Add the items considered cash together. The postdated checks need to be subtracted from the total amount of checks since they are not considered cash. Postage stamps would not be considered cash as they cannot not be used as currency or returned for cash.$2,550 + ($1,200 - $200) + $250 + $3,000 + $4,500 = $11,300

The most appropriate method for determining annual bad debt expense from an income statement viewpoint is ____ because it best relates expenses to revenue. percentage of sales percentage of ending accounts receivable percentage of average accounts receivable direct write-off

percentage of sales The percentage of sales method is the most appropriate method because it records expenses in the same period as associated revenues.

Which of the following would not appear in a Supplies Inventory account? cleaning products nails for construction of a product oils for machines steel to make a product

steel to make a product The steel to make the product is considered a raw material. Supplies inventory is defined as supplies that are used in production but are not the primary materials being produced.

Charming Cherry's had accounts receivable of $1,240,000 after deducting the related allowance for doubtful accounts at the close of its first year of operations. During the year, the company had charges to bad debt expense of $205,000 and wrote off, as uncollectible, accounts receivable of $175,000. What should the company report on its balance sheet at year end, as accounts receivable before the allowance for doubtful accounts? $1,124,000 $1,445,000 $1,270,000 $1,620,000

$1,270,000 The net realizable value is $1,240,000. To find the accounts receivable before the allowance for doubtful accounts add bad debt expense and then subtract the amount that was written off.$1,240,000 + $205,000 - $175,000 = $1,270,000

JT Engineering paid $520,000 for land. It paid $65,000 to tear down a building on the site and made $15,400 in salvage. Titles fees and insurance cost JT $4,320. Architect's fees were $28,200. Construction liability insurance cost $1,600 and the contractor was paid $1,520,000. A $4,620 assessment made by the city for pavement. What is JT's cost of the building? $1,549,800 $1,528,200 $1,521,600 $1,548,200

$1,549,800 Cost of building includes materials, labor, and overhead costs incurred during construction and professional fees and building permits. So, JT's cost of building is $28,200 + $1,600 + $1,520,000 = $1,549,800.

The net income for the current year for the Morton Company is $240,000. Their reported total assets for the year are $1,800,000. After some calculations, it is determined that at the beginning of the year the inventory was overstated by $18,000, which was never corrected.The current year inventory is correct. The corrected amount for total assets and net income for the year is $1,782,000 and $222,000. $1,800,000 and $240,000. $1,800,000 and $258,000. $1,818,000 and $258,000.

$1,800,000 and $258,000. Since the current year inventory is correct, total assets remain $1,800,000 and net income is corrected to $258,000 ($240,000 + $18,000).

The Morton Company uses the periodic inventory system. During the month of September, the beginning inventory consisted of 4,800 units that cost $12 each. Two purchases were also made by the company that month. The first was for 2,000 units at $13 each, and the second for 8,000 units at $13.50 each. Additionally, Morton sold 8,600 units during the month. If the average cost method is used (rounding unit costs to the nearest cent), the amount of cost of goods sold will be $107,900. $111,800. $115,800. $111,370.

$111,370. First calculate the weighted average cost per unit (4,800 X $12) + (2,000 X $13) + (8,000 X $13.50) = $191,600.Then divide this number by the total units (4,800 + 2,000 + 8,000 = 14,800), $191,600 ÷ 14,800 = $12.95.Lastly multiply the weighted average cost per unit by the units sold for the month: 8,600 X $12.95 = $111,370.

Seven Nine Inc. reported an allowance for uncollectible accounts of $205,000 at the end of 2020 and of $196,000 at the end of 2019. For the year ended December 31, 2020, Seven Nine reported bad debt expense of $21,000 in its income statement. How much was debited in 2020 to write off actual bad debts? $30,000 $12,000 $9,000 $21,000

$12,000 The allowance account increased by $9,000.$205,000 - $196,000 = $9,000This increase is subtracted from the reported bad debt expense to find the debit amount.$21,000 - $9,000 = $12,000

On January 1, 2016, Sitton Incorporated purchased a machine for $960,000. The machine had a 5-year useful life and $60,000 salvage value, and straight-line depreciation has been recorded. Sitton sold the machine on May 1, 2020 at a gain of $18,000. How much was Sitton paid for the machine? $258,000. $138,000. $198,000. $162,000.

$198,000. Book value must be determined by finding the annual depreciation on the machine. Depreciation is ([purchase price - salvage value] / useful life), or ([$960,000 -$60,000] /5) = $180,000. The machine has a 5-year useful life, and Sitton has had the machine for 4 1/3 years. Therefore, the book value is $180,000 [$960,000 - (4 1/3 X $180,000)]. If Sitton had an $18,000 gain from the sale, we should add the gain to the book value to determine that Sitton was paid $198,000 for the machine ($180,000 + $18,000 = $198,000).

Kuhn Technology's grinder had a fair value of $320,000 and an undepreciated cost of $300,000. Kuhn traded this grinder to Nelson Industries for a grinder with a fair value of $240,000 plus $80,000 cash. If the transaction has commercial substance, how much gain must Kuhn recognize on the exchange and at what amount should the acquired grinder be recorded? $1,537 and $221,537. $80,000 and $300,000. $20,000 and $240,000. $0 and $220,000.

$20,000 and $240,000. The gain is the difference between the fair value of the new grinder and the cash received minus the undepreciated cost of Kuhn's old grinder, so ($240,000 + $80,000) - $300,000 = $20,000. Amount of the acquired grinder is its fair value, $240,000.

On January 1, 2012, McCarthy Converting purchased equipment for $608,000. At that time, the machine had an estimated 10-year useful life and $32,000 salvage value. McCarthy has recorded monthly straight-line depreciation on the equipment. McCarthy sold the equipment on December 31, 2020 for $112,000. How much gain should McCarthy recognize on the sale? $0. $112,000. $22,400. $54,400.

$22,400. Monthly depreciation on the machine is ([purchase price - salvage value]/useful life in months), or ([$608,000 - $32,000]/120) = $4,800. McCarthy has had the machine for 108 months; therefore, it has recorded 108 * $4,800 = $518,400 in depreciation. This book value is $608,000 - $518,400 = $89,600. If McCarthy received $112,000 in the sale, we should subtract the book value from that amount to determine that McCarthy has a $22,400 gain ($112,000 - $89,600 = $22,400).

Lugo & Associates purchased machinery on January 4, 2013, for $438,000. The straight-line method is used, and useful life is estimated to be 12 years with a $42,000 salvage value. At the beginning of 2019, Lugo spent $118,000 to overhaul the machinery. After the overhaul, Lugo estimated that the useful life would be extended 6 years (18 years total), and the salvage value would be $60,000. The depreciation expense for 2019 should be $59,667. $28,083. $29,833. $24,833.

$24,833. The machine has 6 years depreciation at a rate of $33,000 per year [($438,000 - $42,000)/12) for a total of $198,000. This gives a book value of $438,000 - $198,000 = $240,000. The cost of the overhaul needs to be added to this book value for a new value of $240,000 + $118,000 = $358,000. The machine now has a remaining useful life of 12 years (18 - 6). This gives an annual depreciation of ($358,000 - $60,000) /12 = $24,833.

Ceres Company has cash in bank of $25,000, restricted cash in a separate account of $5,000, and a bank overdraft in an account at another bank of $2,000. How much cash should be reported? $23,000. $25,000. $27,000. $30,000.

$25,000. The cash in this case is limited to the cash in the bank,the overdraft amount is not offset with cash in bank because it is at a separate bank and restricted cash is reported separately as an asset.

Carolina Lab Supply sells a dual access laminar flow hood with a list price of $60,000 to BioStart Inc. BioStart Inc. will pay $65,000 in one year. Carolina Lab Supply normally sells this type of equipment for 95% of list price. How much should be recorded as revenue? $57,000 $58,500 $65,000 $60,000

$57,000 The revenue is the normal selling price which is 95% of list price.$60,000 x 0.95 = $57,000

JT Engineering paid $520,000 for land. It paid $65,000 to tear down a building on the site and made $15,400 in salvage. Title fees cost JT $4,320. Architect's fees were $28,200. Construction liability insurance cost $1,600 and the contractor was paid $1,520,000. A $4,620 assessment made by the city for pavement. What is JT's cost of land? $549,800 $593,940 $578,540 $595,540

$578,540 Cost of land includes purchase price, closing costs, costs incurred to prepare the land for its intended use, assumption of encumbrances, and land improvements with additional lives. It also includes special assessments. In addition, any salvage value for material removed from the property is credited to the cost of land. So, JT's cost of land is $520,000 + $65,000 - $15,400 + $4,320 + $4,620 = $578,540.

Indianapolis Football had a player contract with Bryant that is recorded in its books at $5,600,000 on July 1, 2020. Green Bay Football had a player contract with Crosby that is recorded in its books at $7,000,000 on July 1, 2020. On this date, Indianapolis traded Bryant to Green Bay for Crosby and paid a cash difference of $700,000. The fair value of the Crosby contract was $8,400,000 on the exchange date. Assuming the exchange had no commercial substance, how should the Crosby contract be recorded in Indianapolis' books? $7,700,000 $6,300,000 $8,400,000 $7,000,000

$6,300,000 Crosby contract is equal to the Bryant contract plus the cash paid ($5,600,000 + $700,000 = $6,300,000).

On January 1, 2020, Hat Trick Manufacturing exchanged some equipment for a $750,000 zero-interest-bearing note due on January 1, 2023. The prevailing rate of interest for a note of this type at January 1, 2020 was 10%. The present value of $1 at 10% for three periods is 0.75. Hat Trick Manufacturing included ___________ as interest revenue on the 2021 income statement. $0 $60,469 $61,875 $56,250

$61,875 $750,000 * 0.75 * 0.1 = $56,250($562,500 + $56,250) * .1 =$61,875

On May 1, 2011, Ahrens Industries purchased a machine for $352,000. At that time, the machine had an estimated 10-year useful life and $16,000 salvage value. Ahrens has recorded monthly straight-line depreciation on the machine. Ahrens sold the machine on March 1, 2020 for $48,000. How much loss should Ahrens recognize on the sale? $16,000. $7,200. $0. $23,200.

$7,200. Monthly depreciation on the machine is ([purchase price - salvage value]/useful life in months), or ([$352,000 - $16,000] /120) = $2,800. Ahrens has had the machine for 106 months, therefore it has recorded 106 * $2,800 = $296,800 in depreciation. This makes the book value $352,000 - $296,800 = $55,200. If Ahrens received $48,000 in the sale, we should subtract the book value from that amount to determine that Ahrens incurred a $7,200 loss ($48,000 - $55,200 = -$7,200).

On December 31, 2020, Heart Industries had total assets of $8.4 million. If Heart's net sales for 2020 were $5.6 million and its asset turnover ratio was 0.7, then what were Heart's total assets as of January 1, 2020? $15.2 million $8 million $16 million $7.6 million

$7.6 million A firm's asset turnover ratio is equal to its net sales divided by its average total assets. Thus, we can divide the firm's net sales of $5.6 million by the asset turnover ratio of 0.7 to arrive at average total assets of $8 million. Because a firm's average total assets is equal to the sum of its assets on the first and last day of the year divided by two, we can multiply $8 million by two and then subtract $8.4 million to arrive at total assets of $7.6 million as of January 1.

On December 31, 2021, Flint Corporation sold for $100,000 an old machine having an original cost of $180,000 and a book value of $80,000. The terms of the sale were as follows:$20,000 down payment$40,000 payable on December 31 for each of the next two yearsThe agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2021 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.) $80,000. $70,364. $90,364. $140,728.

$70,364. $40,000 x 1.75911 = $70,364

At the Preston Company, purchases are recorded at net amounts. On August 5, $40,000 worth of merchandise was purchased on account for terms of 2/10, n/30 and recorded for $40,000. $3,000 of this merchandise was returned, and the account was credited for $3,000. To reflect the net amount, accounts payable should be adjusted by $740. $860. $0. $800.

$740. $40,000 - $3,000 = $37,000. $37,000 X .02 = $740

The Corton Company uses a periodic inventory system. For the month of October, the beginning inventory consisted of 4,800 units that cost $12 each. Two purchases were made in October, one for 2,000 units at $13 each, and one for 8,000 units at $13.50 each. Additionally, Corton sold 8,600 units during the month. If the FIFO method is used, the ending inventory is $75,800. $74,400. $80,292. $83,700.

$83,700. (4,800 + 2,000 + 8,000) - 8,600 = 6,200 units in ending inventory x $13.50 = $83,700

Jane Dear Tractors has cash in bank of $85,000, cash set aside for a plant expansion in a separate account of $105,000, short-term paper that matures in 10 months for $35,000, and a compensating balance at another bank for a long-term loan of $90,000. How much should be reported under the heading Cash? $315,000 $85,000 $225,000 $190,000

$85,000 Restricted cash and compensating balance are separately reported as assets. The short-term paper is not a cash equivalent due to the 10-month maturity date, and the heading only includes cash, not cash equivalents. The cash in this case is limited to the cash in the bank.

Ceres Corporation conducts all sales on account and had net sales of $800,000 in 2020. On December 31, 2020, before adjusting entries, the balances in selected accounts were: accounts receivable $950,000 debit, and allowance for doubtful accounts $2,500 debit. The company estimates that 4% of its net sales will prove to be uncollectible. What is the net realizable value of the receivables reported on the financial statements at December 31, 2020? $950,000 $920,500 $918,000 $915,500

$920,500 Determine the amount expected to be uncollectable.0.04 x $800,000 = $32,000Then determine the net realizable value.$950,000 -$32,000 + 2,500 = $920,500

Gross Profit Method

1. Beginning inventory plus purchases equals the total goods to be accounted for. 2. Goods not sold must be on hand. 3. Sales, in terms of cost, deducted from the total goods accounted for equals ending inventory.

A firm recently replaced an existing piece of machinery with a newer model that produces 10% more product per hour. The firm has determined that the carrying amount of the old machine was $50. How should the firm handle the related accounting? A.) It should capitalize the cost of the new machine and remove the carrying amount of the old machine from the books. B.) It should debit the cost of the new machine to Accumulated Depreciation. C.) It should debit both the cost of the new machine and the carrying cost of the old machine. D.) It should capitalize both the cost of the new machine and the carrying cost of the old machine.

A.) It should capitalize the cost of the new machine and remove the carrying amount of the old machine from the books.

Which phrases fill in the following blanks? The normal journal entry when writing-off an account as uncollectible under the allowance method would debit _____________ and credit______________. Accounts Receivable; Allowance for Doubtful Accounts. Bad Debt Expense; Allowance for Doubtful Accounts. Allowance for Doubtful Accounts; Bad Debt Expense. Allowance for Doubtful Accounts; Accounts Receivable.

Allowance for Doubtful Accounts; Accounts Receivable.

How should the cost of a plant asset be measured when that asset is acquired by issuance of common stock? By the stated value of the stock By the fair value of the stock By the par value of the stock By the book value of the stock

By the fair value of the stock

How should gains or losses be recognized when cash is involved in an exchange having commercial substance? A.) Gains should be immediately recognized in their entirety and losses deferred in their entirety. B.) Gains or losses should be deferred in their entirety. C.) Gains or losses should be immediately recognized in their entirety. D.) Losses should be immediately recognized their entirety and gains deferred in their entirety.

C.) Gains or losses should be immediately recognized in their entirety. Gains or losses should be immediately recognized in their entirety when cash is involved in an exchange having commercial substance, since the value is known due to cash being exchanged.

Lisa and Elizabeth are both calculating asset values to determine if any previously impaired assets are further impaired. Instead of additional asset impairment, they found that they each had an asset that had increased in value. Lisa recorded this increase in value, but Elizabeth did not. Why? A.) Lisa's asset is being held for use, and Elizabeth's asset is currently in use. B.) Lisa is using GAAP accounting rules, and Elizabeth is using IFRS accounting rules. C.) Lisa's asset is being held for disposal, and Elizabeth's asset is currently in use. D.) Lisa's asset is currently in use, and Elizabeth's asset is being held for disposal.

C.) Lisa's asset is being held for disposal, and Elizabeth's asset is currently in use. When an asset is currently in use, an increase in a previously impaired asset is not recorded. However, if the asset is not being used but is held for disposal, an increase would be recorded.

Maria is the manager of a facility that makes small appliances. The factory's management has decided to rearrange and reinstall all of the facility's manufacturing equipment in order to promote a faster, more efficient workflow. Maria knows the total cost for the rearrangement and reinstallation, but that is all the information she currently has available. Given this situation, which of the following statements is accurate? A.) Maria should immediately expense the rearrangement and reinstallation cost, but only if she is able to determine both the machinery's original installation cost and its accumulated depreciation to date. B.) Maria should immediately expense the rearrangement and reinstallation cost, but only if she is able to determine the machinery's original installation cost. C.) Maria should capitalize the rearrangement and reinstallation cost as an asset to be amortized over future periods expected to benefit, but only if this cost is material in amount. D.) Maria should capitalize the rearrangement and reinstallation cost as an asset to be amortized over future periods expected to benefit, but only if this cost is immaterial in amount.

C.) Maria should capitalize the rearrangement and reinstallation cost as an asset to be amortized over future periods expected to benefit, but only if this cost is material in amount.

What is the expected result of an order where the price is determined at shipment and is subject to cancellation? A.) The buyer does not need to record the purchase commitment but should disclose it in a note to the financial statements. B.) The buyer does not need to record the purchase commitment and only needs to disclose it in a note to the financial statements if debt financing will be used for the purchase. C.) The buyer does not need to record the purchase commitment or disclose it in a note to the financial statements. D.) The buyer needs to record the purchase commitment and write an explanatory note to go along with the financial statements.

C.) The buyer does not need to record the purchase commitment or disclose it in a note to the financial statements. The buyer recognizes no asset or liability at the date of inception, because the contract is "executory". Prices at the time of shipment are subject to cancellation which explain why no agreement was made. The financial statement communicates what the company owes and owns.

A company receives a note for which there is no stated interest rate in exchange for services, and determining the fair value of the services is difficult. What will happen in regards to the interest rate on the note when the prevailing interest rates change? A.) The company will use the prevailing market interest rate for the note, and it will change with prevailing interest rates. B.) The company will not expect to have any interest revenue and can therefore ignore the prevailing interest rate. C.) The company will approximate an interest rate when it receives the note and then ignore changes in prevailing interest rates. D.) The company will approximate an interest rate when it receives the note and then adjust it based on changes in the prevailing interest rate.

C.) The company will approximate an interest rate when it receives the note and then ignore changes in prevailing interest rates.

A generally accepted method of determining the amount of the adjustment to bad debt expense is by determining A.) a percentage of accounts receivable not adjusted for the balance in the allowance. B.) an amount derived from aging accounts receivable and not adjusted for the balance in the allowance. C.) a percentage of sales not adjusted for the balance in the allowance. D.) a percentage of sales adjusted for the balance in the allowance.

C.) a percentage of sales not adjusted for the balance in the allowance.

Which of the following statements is true? Manufacturing overhead costs are product costs. Interest costs for routine inventories are product costs. The cost of financing is a product cost. Selling costs are product costs.

Manufacturing overhead costs are product costs. Manufacturing overhead costs are considered product costs because they are directly connected with bringing the goods to the buyer's place of business and converting such goods to a salable condition.Selling costs, interest costs and the cost of financing are considered period costs.

Which of the following situations would cause an interest-bearing note to have a present value less than the face value? The effective rate of interest is equal to the stated rate of interest. The effective rate of interest is greater than the stated rate of interest. The effective rate of interest is less than the stated rate of interest. The current market rate of interest is equal to the stated rate of interest.

The effective rate of interest is greater than the stated rate of interest. When companies exchange a note at a discount, it is because the effective rate of interest exceeds the stated rate, meaning, the present value of the note is less than the face value.

A firm realizes there was a misstatement of inventory. The current ratio is understated and accounts payable is overstated. What does the information tell you about the misstatement of inventory? The firm understated it's purchases and inventory. The firm did not actually misstate the inventory at all. The firm overstated it's inventory, but not it's purchases There is not enough information to tell.

The firm understated it's purchases and inventory. Because the current ratio (current assets divided by current liabilities) is understated and the accounts payable is overstated, this is an indication that the firm did not record as a purchase certain goods that it owns and did not count them in ending inventory.

If a firm's net sales increase but its average total assets remain constant, then the firm's return on assets will decrease. return on assets will increase. asset turnover will decrease. asset turnover will increase.

asset turnover will increase. The return on assets is computed by dividing net income by average total assets therefore if the net income increases and the total assets remain the same, the return on asset will be greater than before which is an increase in the firm's return on assets.

If a new technology leads to the availability of a more efficient and cost-effective machine, older models of the machine will likely have no market value. be written down as impairment losses. have no change in accounting. be de-valued in the Equipment account.

be written down as impairment losses. When more efficient and cost-effective machines are available, existing, older models of the machine will be written down as impairment losses. There will be a change in accounting since an impairment loss would be recognized and the asset would not be carried on the books anymore. The company would not de-value it in the Equipment account or change it to have no market value, but instead the asset would be written off.

Improvements that involve the substitution of a better asset for the one currently used are sometimes referred to as additions. betterments. reinstallations. replacements.

betterments. An improvement, or betterment, is the substitution of a better asset for the one currently used. Replacements are the substitution for a similar asset. Additions increase or extension of existing assets.

What is the term for the net realizable value when using the lower of cost or market rule? ceiling floor window wall

ceiling Low = NRV - Profit margin

Taylor uses a depreciation method that has elements of both the straight-line method and the activity approach. What type of depreciation method is Taylor using? composite approach hybrid method group method unit method

hybrid method The hybrid method of depreciation allows for straight-line depreciation charges modified by the level of activity. The composite approach depreciates a group of assets using a straight-line method, the group method is similar to the composite approach however similar assets are grouped together rather than all of the assets in one group, and the unit method could use any depreciation method, but only one method, not elements of both the straight-line and activity approach.

The recoverability test is used to determine if an asset's market value has increased. the salvage value of an asset. if asset impairment has occurred. if an asset's useful life has changed.

if asset impairment has occurred. A recoverability test is used to determine whether an impairment has occurred. Management will determine if there is a change in an asset's useful life, or a change in the asset's market value, or the salvage value of an asset.

The lower-of-cost-or-market method should not be applied to inventory based on the inventory total. individual items. categories of inventory items. inventory location.

inventory location.

Which of the following terms is used to describe the termination of an asset's service due to theft, fire, flood, or condemnation? speculation. nonreciprocal transfers. special assessment. involuntary conversion.

involuntary conversion. Special assessments are when a company pays for services for local improvements, such as pavements, streetlights, sewers, and drainage systems. A nonreciprocal transfer occurs when an asset is given to a third party with no expectation of payment in exchange. Land held for speculation indicates the asset is ready for its intended use.

Which of the following is not a type of inventory system? modified perpetual inventory system periodic inventory system modified periodic inventory system perpetual inventory system

modified periodic inventory system

Shawn knows his company's profit margin on sales and its net sales amount. Given these values, Shawn can determine the company's _________ its net sales by its profit margin on sales. net income by multiplying net income by dividing return on assets by dividing return on assets by multiplying

net income by multiplying

When using the lower-of-cost-or-market rule, which of the following amounts will prevent the understatement of inventory and the overstatement of the loss during the current period? net realizable value replacement cost net realizable value less a normal profit margin historical cost

net realizable value less a normal profit margin Lower-of-cost-or-market begins with replacement cost, then applies two additional limitations (ceiling and the floor) to value ending inventory. The upper limit is the net realizable value of inventory, which prevents companies from overstating inventory. The lower limit is the net realizable value less a normal profit margin, and this will prevent companies from understating inventory.

If a company obtained new information concerning the recoverable reserves available for a current project, then the company would revise the depletion rate for past financial statements. for future projects. on a prospective basis. on a retroactive basis

on a prospective basis. When a change in recoverable reserves is determined, the procedure is to revise the depletion rate on a prospective basis. This change will not affect future projects or past financial statements.

Corona Surfing, Inc. has decided that one of their major pieces of equipment has an impairment in value. If the equipment has no market value, they should use the __________ to calculate the loss on impairment. historical net cash flows undiscounted expected future net cash flows average expected annual net cash flows present value of expected future net cash flows

present value of expected future net cash flows

If you divide a firm's net income by its average total assets, you have calculated the firm's profit margin on sales. return on assets. return on investment. asset turnover ratio.

return on assets.

If you multiply a firm's profit margin on sales by its asset turnover, you will have calculated the firm's return on assets. net income. average total assets. net sales.

return on assets. Profit Margin on Sales x Asset Turnover = Return on Assets

A firm's asset turnover ratio reveals how many dollars of income was produced by each dollar of sales. sales were produced by each dollar invested in assets. income was produced by each dollar invested in assets. sales were produced by each dollar of income.

sales were produced by each dollar invested in assets.

Which of the following inventory methods makes it possible to manipulate net income? FIFO method average cost method specific identification method LIFO method

specific identification method

In which of the following instances should the firm's expenditure be categorized as an addition? A.) A firm opts to buy a new piece of machinery that will automate a process previously carried out by hand. B.) A firm opts to move a piece of machinery to a different part of the factory floor and reinstall it there. C.) A firm opts to replace an existing piece of machinery with a new model that is 25% more efficient. D.) A firm opts to replace an existing piece of machinery with a similar piece of machinery made by a different manufacturer.

A.) A firm opts to buy a new piece of machinery that will automate a process previously carried out by hand. Since the new piece of machinery will automate a process previously carried out manually, it is considered an improvement to current operations and will increase or be considered an extension of existing assets, therefore, it should be considered an addition.

Charles is the CFO of a toy factory. The factory's management has decided to rearrange and reinstall all of the facility's manufacturing equipment in order to promote a faster, more efficient workflow. Charles knows the original cost for installing all of the facility's machinery as well as the total cost for the rearrangement and reinstallation. If Charles wants to handle the rearrangement and reinstallation cost as a replacement, which of the following statements is accurate? A.) Charles can handle the rearrangement and reinstallation cost as a replacement only if he is able to estimate the accumulated depreciation on the original installation costs to date. B.) Charles can handle the rearrangement and reinstallation cost as a replacement only if he knows that this cost is material in amount and expected to benefit multiple periods. C.) Charles can handle the rearrangement and reinstallation cost as a replacement only if he knows that these costs are immaterial in amount. D.) Charles currently has all the information he needs to handle the rearrangement and reinstallation cost as a replacement.

A.) Charles can handle the rearrangement and reinstallation cost as a replacement only if he is able to estimate the accumulated depreciation on the original installation costs to date. Charles must know both the original installation cost and the accumulated depreciation to date. If he is unable to obtain this information, he must either capitalize the cost over future periods expected to benefit (if the cost is material in amount) or immediately expense the cost (if the cost is immaterial in amount).

Which of the following most accurately describes the two steps that must be taken at asset disposition? A.) First, the asset must be depreciated up to the date of disposition, and then all accounts related to the asset must be removed. B.) First, all accounts related to the asset must be removed, and then the asset must be sold or salvaged. C.) First, the asset must be sold or salvaged, and then the asset must be depreciated up to the date of disposition. D.) First, all accounts related to the asset must be removed, and then the asset must be depreciated up to the date of disposition.

A.) First, the asset must be depreciated up to the date of disposition, and then all accounts related to the asset must be removed.

A firm is constructing a new facility for its own use, and it decides to finance the project entirely through a specific new borrowing. The financing was obtained in the first year of the project, and construction expenditures were made at the end of each quarter for the two consecutive years. How should the firm determine the total amount of interest cost to be capitalized for the project? A.) It should multiply the interest rate on the borrowing by the weighted-average accumulated expenditures for the facility during the two-year construction period. B.) It should multiply the interest rate on the borrowing by the weighted-average accumulated expenditures for the facility during the first year of construction. C.) It should multiply the interest rate on the borrowing by the total accumulated expenditures for the facility during the two-year construction period. D.) It should multiply the interest rate on the borrowing by the weighted-average accumulated expenditures for the facility during the second year of construction.

A.) It should multiply the interest rate on the borrowing by the weighted-average accumulated expenditures for the facility during the two-year construction period. To find the total amount of interest cost to be capitalized, the firm should multiply the interest rate on the borrowing by the weighted-average accumulated expenditures for the facility during the two-year construction period.

Ceres Corporation made travel advances to the marketing team. Why are they considered nontrade receivables? A.) The amounts owed to the company did not result from selling goods or services. B.) The amounts owed to the company are not from external parties. C.) The amounts owed will not cause a decrease in the Cash account. D.) The amounts are owed to the employees, not to the company.

A.) The amounts owed to the company did not result from selling goods or services. Companies classify receivables as either current (short-term) or noncurrent (long-term). Receivables are further classified in the balance sheet as either trade or nontrade receivables.Nontrade receivables may arise from a variety of transactions; like, advances to officers and employees, deposits paid to cover potential damages or losses, or defendants under suit.

What will happen when the cost-of-goods-sold method is used to record inventory at NRV? A.) The market value figure for ending inventory is substituted for cost and the loss is included in cost of goods sold. B.) The only portion of the loss attributable to inventory sold during the period is recorded in the financial statements. C.) A loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory decline. D.) There is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale.

A.) The market value figure for ending inventory is substituted for cost and the loss is included in cost of goods sold. The cost-of-goods-sold method buries the loss in the Cost of Goods Sold account. It debits cost of goods sold for the write-down of the inventory to net realizable value. As a result, companies do not report a loss on the income statement because the cost of goods sold already includes the amount of the loss.

When analyzing asset impairments, how are undiscounted future cash flows different from discounted future cash flows? A.) Undiscounted future cash flows are used in the recoverability test to determine if an asset is impaired, and discounted future cash flows are used to calculate the amount of impairment if market value is not available. B.) Discounted future cash flows are used to determine if an asset is impaired, and undiscounted future cash flows are used to calculate the amount of impairment if market value is not available. C.) Discounted future cash flows are used to determine if an asset is impaired and to calculate the amount of impairment, and undiscounted future cash flows are not used. D.) Undiscounted future cash flows are used to determine if an asset is impaired and to calculate the amount of impairment, and discounted future cash flows are not used.

A.) Undiscounted future cash flows are used in the recoverability test to determine if an asset is impaired, and discounted future cash flows are used to calculate the amount of impairment if market value is not available. The recoverability test uses undiscounted cash flows to determine if an asset is impaired, whereas, if market value is not available, discounted future cash flows are used.

Melanie knows her firm's profit margin on sales and its net income amount. Given these values, Melanie A.) can determine the firm's net sales by dividing its net income by its profit margin on sales. B.) cannot determine the firm's net sales. C.) can determine the firm's asset turnover by dividing its net income by its profit margin on sales. D.) can determine the firm's net sales by dividing its profit margin on sales by its net income.

A.) can determine the firm's net sales by dividing its net income by its profit margin on sales. Profit Margin on Sales=Net Income / Net Sales therefore if the firm divides its net income by its profit margin on sales, the firm can determine its net sales.

In June, a firm begins to capitalize interest costs related to construction of a new asset. This tells us that the firm ________ in June. A.) made its first expenditure related to the asset B.) made its last expenditure related to the asset C.) completed construction of the asset D.) first decided to undertake the construction project

A.) made its first expenditure related to the asset The company had its first expenditure related to the asset in June, therefore, it should begin to capitalize the interest costs related to the construction of a new asset in the same month. The interest costs should be capitalized at first expense, not before the project begins or after it ends with a final expense.

According to FASB Concepts Statement No. 6, which method would clearly show losses due to market declines? A.) recording purchase commitments by debiting an asset and crediting a liability at the time of inception. B.) recording purchase commitments by debiting an asset and crediting a liability at the time of execution. C.) recording losses when the contract is executed. D.) recording losses when the market changes before execution by use of valuation accounts

A.) recording purchase commitments by debiting an asset and crediting a liability at the time of inception. It states, a purchase commitment involves both an item that might be recorded as an asset and an item that might be recorded as a liability. That is, it involves both a right to receive assets and an obligation to pay. If both the right to receive assets and the obligation to pay were recorded at the time of the purchase commitment, the nature of the loss and the valuation account that records it when the price falls would be clearly seen

How should assets acquired in a lump sum purchase be recorded? At cost allocated using relative fair market value At relative book value At appraised value At fair market value

At cost allocated using relative fair market value

At what value should assets be accounted for when they are purchased in exchange for a zero-interest-bearing note? At face value of the note At fair value of the asset received At present value of the note At book value of the asset received

At present value of the note Assets should be accounted for at the present value of the note at the date of exchange when they are purchased in exchange for a zero-interest-bearing note. If the company does not compute the present value, the asset would be recorded at an amount greater than its fair value and overstate the depreciation expense.

In which of the following instances should the firm's expenditure be categorized as a replacement? A.) A firm opts to replace an existing piece of machinery with a new model that is 25% more efficient. B.) A firm opts to replace an existing piece of machinery with a similar piece of machinery made by a different manufacturer. C.) A firm opts to buy a new piece of machinery that will automate a process previously carried out by hand. D.) A firm opts to move a piece of machinery to a different part of the factory floor and reinstall it there.

B.) A firm opts to replace an existing piece of machinery with a similar piece of machinery made by a different manufacturer. The purchase of a new or similar machine to replace an existing and perform the same operations is considered a replacement.

Which of the following should a company recognize immediately? A.) Any gain created when it makes a bargain purchase. B.) Any loss incurred when it ignorantly pays too much for an asset originally. C.) Any gain created when it constructs a piece of equipment at a cost savings. D.) Any loss incurred when it receives any asset lower than its book value on the other company's books.

B.) Any loss incurred when it ignorantly pays too much for an asset originally. The prudent cost concept says that any loss incurred when it ignorantly pays too much for an asset originally should be recognized immediately. All other choices would result in the transaction not properly being recorded.

Bonnie is the CFO of a small printing company that has decided to replace its old printing press with a newer, more efficient model. Bonnie knows the cost of purchasing and installing the new press, as well as total accumulated depreciation on the old press. Bonnie wants to capitalize the cost of the new press using the substitution approach. Given this information, which of the following statement is true? A.) Bonnie must determine what (if any) salvage value the old press has before proceeding with the substitution approach. B.) Before proceeding with the substitution approach, Bonnie must determine the original cost of the old press, as well as what (if any) salvage value the old press has. C.) Bonnie cannot use the substitution approach because the replacement does not extend the press's useful life. D.) Bonnie currently has all the information she needs to proceed with the substitution approach.

B.) Before proceeding with the substitution approach, Bonnie must determine the original cost of the old press, as well as what (if any) salvage value the old press has. In order to use the substitution approach, Bonnie must know the carrying amount of the old press. In order to determine this amount, she must first determine the original cost of the old press because the press's carrying amount is equal to the difference between its initial cost and its accumulated depreciation. Bonnie should also determine what, if any, salvage value the old press has, because any money the firm makes from selling the machine will affect the gain or loss on disposal.

How should a company determine how to classify money market funds? A.) Determine if the fund will be used to meet current operating expenses, because that would allow them to be considered cash. Otherwise, the appropriate classification would be as future operating income. B.) Determine if the fund has check writing privileges, because that would allow enough liquidity to be considered cash. Otherwise, the appropriate classification would be as a cash equivalent or temporary investment depending on whether any restriction on conversion to cash exists. C.) Determine if the fund is a negotiable instrument, because then it would be short-term paper. Otherwise, it can be considered cash. D.) Determine if the fund balances are greater than the normal amounts of petty cash. If they are less, then report them as cash; if they are greater, report them an investment

B.) Determine if the fund has check writing privileges, because that would allow enough liquidity to be considered cash. Otherwise, the appropriate classification would be as a cash equivalent or temporary investment depending on whether any restriction on conversion to cash exists.

What is the expected result of a zero-interest-bearing note that is sold today for less than face value? A.) It has an implicit premium paid equal to the difference between the face value and the present value. B.) It has implicit interest equal to the difference between the face value and the present value. C.) It has a negative interest rate and will not generate revenue. D.) It has an implicit discount equal to the amortization of the sum of the face value and present value.

B.) It has implicit interest equal to the difference between the face value and the present value.

Kate's Company received merchandise on consignment. The company recorded the transaction as a purchase and included the goods in inventory, as of October 31. What would the effect of this be on the financial statements for October 31? A.) There would be no effect. B.) The net income would be correct and current assets and current liabilities would be overstated. C.) The net income, current assets, and current liabilities would all be overstated. D.) The net income and current liabilities would be overstated.

B.) The net income would be correct and current assets and current liabilities would be overstated. Both current assets and current liabilities would be overstated because the inventory (assets) and accounts payable (liabilities) were recorded.The net income would be correct because both purchases and ending inventory were overstated by the same amount.

Merchandise that was purchased on account was accepted by the Orion Company. As of December 31, Orion had recorded the transaction using the periodic method, but did not include the merchandise in its inventory. What would be the effect of this on the financial statements for December 31? A.) The net income would be correct and current assets would be understated. B.) The net income, current assets, and retained earnings would all be understated. C.) The net income would be overstated and current assets would be understated. D.) The net income would be understated and current liabilities would be overstated.

B.) The net income, current assets, and retained earnings would all be understated.

When preparing disclosures for its balance sheet, a firm should be sure to include A.) a detailed description of the depreciation methods applicable to all classes of depreciable assets. B.) a general description of the depreciation methods applicable to major classes of depreciable assets. C.) a detailed description of the depreciation methods applicable to major classes of depreciable assets. D.) a general description of the depreciation methods applicable to all classes of depreciable assets.

B.) a general description of the depreciation methods applicable to major classes of depreciable assets. Firms do not need to provide a detailed description of the depreciation methods; however, they must disclose a general description of the depreciation methods applied to major classes of assets. It is not necessary to provide information on methods applied to all classes. The major classes of assets is the lowest level that the firm must disclose depreciation information.

What type of industry would benefit from using the relative sales value method? A.) one where advance purchase commitments are normal business practice B.) one where one raw material makes many different products C.) one where there is a controlled market with the same price for various quantities purchased D.) one where a variety of raw materials are used to make one product

B.) one where one raw material makes many different products Relative sales value method is used to value (at cost) the many products and by-products obtained from the raw material.

Why does a gain or loss develop when plant assets are retired? A.) Retired assets must be sold or salvaged at disposition; sale or salvage amounts either above or below the book value of the asset result in a gain or loss. B.) Retired assets must cease operations at disposition; unscheduled stoppage (as when a machine breaks) results in a loss, while scheduled stoppage results in a gain. C.) Retired assets must undergo comparative valuation at disposition; fair value above book results in a gain, while fair value below book results in a loss. D.) Assets must be depreciated; depreciation reflects asset cost allocation rather than value, and the gain or loss corrects net income over the life of the asset.

D.) Assets must be depreciated; depreciation reflects asset cost allocation rather than value, and the gain or loss corrects net income over the life of the asset. Usually, the book value of the specific plant asset does not equal its disposal value and a gain or loss develops because depreciation is an estimate of cost allocation and not a process of valuation.

How should a firm record an impairment in the value of property, plant, or equipment? A.) It should record neither a loss nor a reduction in the asset's book value. B.) It should record a reduction in the asset's book value but not a loss. C.) It should record a loss but not a reduction in the asset's book value. D.) It should record both a loss and a reduction in the asset's book value.

D.) It should record both a loss and a reduction in the asset's book value. Impairments are recognized by recording the loss to the Loss on Impairment account and to the Accumulated Depreciation account, thus creating a reduction in the asset's book value.

If a disposition is recorded as a gain in the discontinued operations section of an income statement, which of the following is probably true? A) The disposition involved the abandonment of a component of the business. B.) The disposition involved the sale of a plant asset. C.) The disposition involved the involuntary conversion of a plant asset. D.) The disposition involved the sale of the operations of a component of a business.

D.) The disposition involved the sale of the operations of a component of a business. The disposition involved the sale of the operations of a component of a business indicates a strategic shift, so a gain in the discontinued operations section of an income statement is present. T

In which of the following cases should the firm capitalize interest costs related to its land purchase? A.) The firm plans to build a new corporate headquarters on the land. B.) The firm does not plan on developing the land in any way before selling it to another party. C.) The firm plans to build a new warehouse facility on the land. D.) The firm does not plan to build on the land but does intend to sell it in smaller pieces as part of a new housing development.

D.) The firm does not plan to build on the land but does intend to sell it in smaller pieces as part of a new housing development.

Which situation would result in a company with a purchase commitment reporting an unrealized holding gain? A.) There was a decline in the market price after the contract was written but before the purchase was executed. B.) There was a recovery on the contract price after the purchase was executed. C.) There was an increase in the market price after the contract was written but before the purchase was executed. D.) There was a recovery on the contract price before the purchase was executed but after the period in which the decline occurred.

D.) There was a recovery on the contract price before the purchase was executed but after the period in which the decline occurred.

When using the allowance method in accounting for accounts receivable bad debt expense is A.) an estimate that is based only on an analysis of the receivables aging. B.) management's determination of which accounts will be sent to the attorney for collection. C.) based on the actual amounts determined to be uncollectible. D.) an estimate that is based on historical and prospective information.

D.) an estimate that is based on historical and prospective information.

In which of the following circumstances should a company add additional costs to an asset's original cost after that asset's acquisition? A.) if such costs are associated with bringing the asset to the location for its intended use. B.) if such costs prevent further depreciation of the asset C.) if such costs are part of the regular maintenance of the asset D.) if such costs provide future service potential to the asset

D.) if such costs provide future service potential to the asset If such costs provide future service potential to the asset, it is most likely an improvement or replacement and the company can use the substitution approach to add additional costs to an asset's original cost after that asset's acquisition.

Which of the following purchases by RL Enterprises is best described as an investment? A.) the cost of installing a streetlight in front of the company's office building to make it easier to enter and exit the parking lot B.) the construction of an addition to the existing office space that adds 8,000 square feet to the building C.) the installation of trees, plants, sod, and a small pond on the company property to improve its aesthetic appeal D.) the purchase of a parcel of land in a heavily populated area with the hope that the land will increase in value

D.) the purchase of a parcel of land in a heavily populated area with the hope that the land will increase in value Generally, land is part of property, plant, and equipment. However, if the major purpose of acquiring and holding the land is speculative, a company more appropriately classifies the land as an investment

When would a buyer not need to record the purchase commitment or disclose it in a note to the financial statements? A.) when the price is determined at the time of the contract and the order is noncancellable B.) when the price is determined at the time of the contract and the order is subject to cancellation C.) when the order is noncancellable but the price is determined at shipment D.) when the price is determined at shipment and the order is subject to cancellation

D.) when the price is determined at shipment and the order is subject to cancellation

When an asset being depreciated under the group method is disposed of, which of the following happens to any resulting gain or loss? It is buried in the Accumulated Depreciation account. It is buried in the Depreciation Expense account. It is recorded as a gain. It is recorded as a loss.

It is buried in the Accumulated Depreciation account. When an asset being depreciated under the group method is disposed of, any resulting gain or loss become part of the Accumulated Depreciation account because the gain or loss is not isolated by individual assets. Therefore, no gain or loss is recognized

When listing its assets, a company A.) does not need to disclose any pledges, liens, or other commitments related to these assets. B.) should offset all liabilities secured by property, plant, equipment, and natural resources against these assets. C.) does not need to disclose the basis of valuation for these assets. D.)should segregate plant, property, and equipment not currently employed as producing assets in the business from assets used in operations.

D.)should segregate plant, property, and equipment not currently employed as producing assets in the business from assets used in operations. Plant, property, and equipment not currently used in producing assets should be separated from assets used in operations. Th liabilities secured by property, plant, equipment, and natural resources do not need to be listed however any pledges, liens, or other commitments related to the asset must be disclosed. The basis of valuation does not need to be disclosed as the basis is historical cost per GAAP.

Billings Corporation acquires a coal mine at a cost of $2,000,000. Intangible development costs total $275,000. After extraction has occurred, Billings must restore the property (estimated fair value of the obligation is $305,000), after which it can be sold for $750,000. Billings estimates that 5,000 tons of coal can be extracted. If 900 tons are extracted the first year, which of the following would be included in the journal entry to record depletion? Credit to Inventory for $135,000 Debit to Accumulated Depletion for $329,400 Credit to Accumulated Depletion for $1,500,600 Debit to Inventory for $329,400

Debit to Inventory for $329,400 Inventory should be debited for the entire Depletion expense. Depletion cost per unit = (total cost - salvage value)/ total estimated units. Total cost is the cost of the mine plus development costs plus restoration costs (($2,000,000 + $305,000 + $275,000) -$750,000)/5000 = $366. The total depletion, which is the amount to debit is the unit cost times the number of units $366 x 900 =$329,400.

Under which of the following methods will the ending inventory and cost of goods sold be the same whether a perpetual or periodic system is used? moving-average method FIFO method weighted-average method LIFO method

FIFO method

Which of the following are advantages of the unit method when compared to the group or composite methods? I. Calculations needed are simplified. II. Both gains and losses are identified upon disposal. III. Depreciation on unused equipment is isolated. IV. The average cost over a long period of time is demonstrated. I, II and III. I, III and IV. II, III and IV. I, II and IV.

I, II and III. The unit method of depreciation allocates depreciation for every asset unit which simplifies the depreciation calculations, when assets are disposed of the gains and losses will be readily identified at that time, and depreciation on unused equipment is isolated as each unit is allocated depreciation.

Which of the following statements regarding revision of depreciation rates are correct? I. Beginning balances for the asset and its accumulated depreciation account are not adjusted when a change in estimate occurs. II. Changes in estimate should be handled in the current period only. III. No "catch-up" entry is made at the time a revision of depreciation rates occurs. IV. Depreciation expense is revised by dividing the remaining book value less any salvage value by the remaining estimated life. I, II, and III. I, II, and IV. I, III, and IV. II, III, and IV.

I, III, and IV.

Which of the following is true of depletion expense? It excludes intangible development costs from the depletion base. It is usually part of cost of goods sold. It excludes restoration costs from the depletion base. It includes tangible equipment costs in the depletion base.

It is usually part of cost of goods sold. Depletion expense occurs because the units of a natural resource are extracted, and these natural resource units are the product that is sold therefore, depletion expense is part of cost of goods sold.

Which of the following may be considered plant assets? Land held for possible use as a future plant site Deposits on machinery not yet received Small tools Idle equipment awaiting sale

Small tools Small tools are assets of a durable nature, so they are considered plant assets. Deposits on machinery not yet received is a cash asset, idle equipment awaiting sale would be an equipment asset, and land held for possible use as a future plant site is a property asset.

Which of the following does not need to be determined in order to find the valuation of inventories? The costs to be included in inventory. The cost of goods held on consignment from other companies. The cost flow assumption to be adopted. The physical goods to be included in inventory.

The cost of goods held on consignment from other companies.

What will happen if a company has an increase in the expected production of natural resources but no change in the costs associated with production? The depletion base will decrease. The depletion base will increase. The depletion cost per unit of product will increase. The depletion cost per unit of product will decrease.

The depletion cost per unit of product will decrease.

Why is the gross method used more often than the net method by companies? The gross method is preferred by outside auditors and investors. The gross method requires less analysis and bookkeeping. The gross method is more inclusive of various discounts and revenue streams. The gross method is more theoretically correct.

The gross method requires less analysis and bookkeeping.

What would be the result of writing off an uncollectible account under the allowance method of recognizing uncollectible accounts? The allowance for uncollectible accounts would increase. The allowance for uncollectible accounts would remain the same. The net income would remain the same. The net income would decrease.

The net income would remain the same. An uncollectible account that has been written off would not affect the net income because the gross receivable is still there

Which of the following is the most common method of recording depletion for accounting purposes? The units-of-production method The percentage depletion method The decreasing charge method The straight-line method

The units-of-production method

In which of the following circumstances should some or all of the gain on a nonmonetary exchange of plant assets be deferred? When the exchange has commercial substance and additional cash is paid. When the exchange has commercial substance and additional cash is received. When the exchange has no commercial substance and additional cash is received. When the exchange has no commercial substance and additional cash is paid.

When the exchange has no commercial substance and additional cash is paid.

If you want to know how many dollars of sales were produced by each dollar that a firm has invested in assets, you should calculate the firm's profit margin on assets. return on assets ratio. profit margin on sales. asset turnover ratio.

asset turnover ratio.