accty 2100 ch 6&7 exam 3 with cumulative portion

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

patent

In a perpetual inventory system, the purchase of inventory is debited to:

inventory

Items held for sale in the normal course of business are referred to as

inventory

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

inventory

LIFO is considered an income-statement approach for reporting inventory because it:

better approximates inventory cost necessary to generate revenue

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

capitalized

A(n)___________ 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

inventory is defined as

items a company intends for a sale to customers

The primary reason for the popularity of LIFO is that it gives:

lower income tax obligation when inventory costs are rising

Intangible assets include

patents, trademarks, copyrights, franchises, and goodwill

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

perpetual

a ____________ inventory system is one that is continually updated to reflect inventory purchases and sales

perpetual

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

perpetual

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

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

A multiple-step income statement provides the advantage of:

Separating revenues and expenses based on their different types of activities.

Accumulated Depreciation:

The contra asset account and has a normal credit balance

Which inventory cost flow assumption more realistically matches the current cost of inventory with current sales revenue?

LIFO

What is net realizable value?

Net amount expected to be realized in cash from the sale of the inventory

A trademark is:

a word, slogan, or symbol that distinctively identifies a company, product, or service.

Inventory is typically reported as a(n):

asset on balance sheet

The original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the___________________ of the asset

book value

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

finished goods inventory

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 is called a

franchise

The shipping term FOB stands for

free on board

Which of the following intangible assets is not amortized?

goodwill

profit most directly related to the sale of inventory

gross profit

operating income is defined as

gross profit minus operating expenses

gross profit ratio

gross profit/net sales

Amount of profit after including nonoperating revenues and expenses.

income before income taxes

Amortization refers to the allocation of the cost of_________ assets to expense

intangible

What type of company purchases raw materials and makes goods to sell?

manufacturers

Amount recorded from the sale of products and services to customers.

sales revenue

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

Expenses arising from activities that are part of a company's normal operations.

operating expenses

Profit from normal operations that is a key performance measure for predicting future profit.

operating income

The cost of an engine tune-up is an example of which of the following expenditures after acquisition?

ordinary repairs and maintenance

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

specific identification

The balance of the Cost of Goods Sold account at the end of the year represents:

the cost of inventory sold in the current year

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

FIFO

Which of the following methods are used for inventory costing?

FIFO LIFO weighted average specific identification

A ________ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph or book

copyright

The legal life of a patent is _____ years.

20

cost of goods sold is:

an expense account

The allocation of the cost of a tangible asset over its service life is referred to as

depreciation

Which of the following would not be recorded as land improvements?

Closing costs on purchasing the land.

Separation of duties refers to:

Individuals who have physical responsibility for assets should not also have access to accounting records.

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

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

The inventory turnover ratio measures:

The times per period the average inventory balance is sold

Which of the following subsequent expenditures would be capitalized?

additions and improvements

Where is inventory reported in the financial statements?

balance sheet as current asset

how do we account for improvement of the shipping and receiving area

capitalize and depreciate over the service life of the asset

how do we account for security system to the manufacturing facility

capitalize and depreciate over the service life of the asset

how so we account for remodeling of offices

capitalize and depreciate over the service life of the asset

Cost of inventory sold during the period.

cost of goods sold

Gross profit is calculated as net sales minus:

cost of goods sold

company's inventory turnover ratio

cost of goods sold divided by average inventory

inventory is classified as

current asset

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

debit inventory

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

debit to inventory

Which of the following current liabilities does not involve the future payment of cash?

deferred revenue

As natural resources are used, their cost is allocated to an expense through a process known as _____________.

depletion

The cost of ordinary repairs to equipment during the first year of service is added to the Equipment account.

false

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

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

outdated

Which of the following amortization methods is most commonly used?

straight-line

A return on assets of 5% indicates that for every $1 invested in assets:

the company generates $0.05 in net income.

the FIFO method assumes that

the first units purchased are the first ones sold

the LIFO method assumes

the last units purchased are the first ones sold

Inventory is reported on the balance sheet at:

the lower of original cost and net realizable value

A patent,is the exclusive right to manufacture a product or use a process granted for a period of 20, years.

true

FOB destination means title to the goods passes

when they arrive at the destination

We do not amortize intangible assets _____.

with indefinite useful lives

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory)

1. net income increases 2. stockholders' equity increases 3. total assets increase

The specific identification method

1. would be beneficial to a company that makes fine jewelry 2. matches each unit of inventory with its actual cost

Which of the following represent reasons why managers closely monitor inventory levels?

1. To minimize costs of inventory write-downs due to obsolete inventory. 2. To ensure that sufficient units are available.

Infinity Corporation purchased equipment with a 10-year useful life and zero residual value for $10,000. At the end of the fifth year, the equipment is sold for $6,000. The entry to record this sale will include _______. Assume the straight-line depreciation method is used.

1. a credit to Equipment for $10,000 2. debit to cash for 6000 3. a debit to accumulated depreciation for 5000 4. gain for 1000

When considering total depreciation recorded over the entire life span of an asset, the method resulting in the highest total depreciation is:

1. double-declining-balance 2. straight-line 3. units-of-activity

A subsequent expenditure for an asset increases the future benefits of the asset if it

1. increases the quality of the goods or services produced by the asset. 2. extends the asset's service life. 3. increases the operating efficiency of the asset.

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

1. indirect manufacturing costs 2. direct labor 3. raw materials

The choice of inventory cost flow assumptions affects which of the following amounts?

1. inventory 2. cost of goods sold 3. gross profit

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year, respectively. Net income and sales for the year are $240,000 and $2,000,000, respectively. What is Paradise Pizza's asset turnover?

1.25 (1500000+1700000)/2 = 1600000 2000000/1600000 = 1.25

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year, respectively. Net income and sales for the year are $240,000 and $2,000,000, respectively. What is Paradise Pizza's return on assets?

15% (1500000 + 1700000)/2 = 1600000 240000/1600000 = 15%

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year, respectively. Net income and sales for the year are $240,000 and $2,000,000, respectively. What is Paradise Pizza's profit margin?

240000 / 2000000= 12%

average days in inventory

365/inventory turnover ratio

For the current year, Theta Corporation has beginning and ending inventories of $40,000 and $60,000, respectively. Cost of goods sold for the year is $240,000. What is the company's inventory turnover ratio?

4.8

Gains on the sale of long-term assets for cash:

Are the excess of the cash received over the book value.

At the beginning of December, Global Corporation had $1,100 in supplies on hand. During the month, supplies purchased amounted to $2,700, but by the end of the month the supplies balance was only $2,600. What is the appropriate month-end adjusting entry?

Debit supplies expense $1,200, credit supplies $1,200

When a company reports a gain on the sale of a depreciable asset, which of the following is always true?

The company sold the asset for more than its book value.

The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______.

asset ; balance sheet

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 key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset.

Accounts receivable are normally reported at the:

Expected amount to be received

For the current year, Delta Corporation has beginning and ending inventories of $80,000 and $100,000, respectively. Cost of goods sold for the year is $450,000. What is the company's average days in inventory?

73 days

Given the information below, what is the gross profit? Sales revenue $335,000 Accounts receivable 59,000 Ending inventory 117,000 Cost of goods sold 237,000 Sales returns 25,000

73000 sales rev - sales returns = net sales net sales - sot of goods sold

how do we account for annual maintenance on its machinery

expense in the current period

_________________ inventory consists of items for which the manufacturing process is complete.

finished goods

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

finished goods work in progress raw materials

The definition of inventory includes which of the following items?

1. Items currently in production for future sale 2. Items held for resale 3. Items used currently in the production of goods to be sold

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

1. assets increase by the sales price of the inventory 2. assets decrease by the cost of the inventory

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

1. cost of units sold 2. beginning inventory balance 3. individual purchases 4. ending inventory balance

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

1. debit to cost of goods sold 2. debit to inventory 3. credit to sales revenue

Betty Foods has separate patents for its chocolate chip cookie dough and vanilla ice cream. In the current year, both patents were challenged in court. Betty Foods spent $240,000 in legal fees to successfully defend its cookie dough, and $300,000 in legal fees in an unsuccessful defense of its vanilla ice cream. For what amount can Betty Foods capitalize these costs?

240000

A company pays $5,000 for equipment. Annual depreciation on the equipment is $500. What is the book value of the equipment at the end of Year 2?

4,000

A company purchased a machine for $209,000 on October 1, 2021. The estimated service life is 10 years with a $20,800 residual value. The company records partial-year depreciation based on the number of months in service. Depreciation expense for the year ended December 31, 2021, using straight-line depreciation, is:

4750 209000-20800 / 10 = 18820 18820x(3/12) = 4750

A company purchased new equipment for $43,000. The company paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,900; sales tax paid $2,900; and installation cost, $1,700. The cost recorded for the equipment was:

49,500

A company purchased a commercial dishwasher by paying cash of $5,000. The dishwasher's fair value on the date of the purchase was $5,370. The company incurred $490 in transportation costs, $270 installation fees, and paid a $250 fine for illegal parking while the dishwasher was being delivered. For what amount will the company record the dishwasher?

5760

The following information was taken from a company's bank reconciliation at the end of the year: Bank balance$8,900 Checks outstanding$8,000 Note collected by the bank$1,600 Service fee$22 Deposits outstanding$5,000 NSF check$370 What is the correct cash balance that should be reported in the company's balance sheet at the end of the year?

5900

Crimson Inc. recorded credit sales of $782,000, of which $520,000 is not yet due, $170,000 is past due for up to 180 days, and $92,000 is past due for more than 180 days. Under the aging of receivables method, Crimson Inc. expects it will not collect 3% of the amount not yet due, 15% of the amount past due for up to 180 days, and 24% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,800 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

63180

Kansas Enterprises purchased equipment for $72,500 on January 1, 2021. The equipment is expected to have a ten-year service life, with a residual value of $7,800 at the end of ten years. Using the straight-line method, depreciation expense for 2021 would be:

6470 72500-7800 / 10

Losses on the sale of long-term assets for cash:

Are the excess of the book value over the cash received

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

Cost, residual value, and service life.

Which one of the following regarding the book value of an asset is correct?

It reflects the original cost of the asset less accumulated depreciation.

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

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

Inventory does not include:

Equipment used in the manufacturing of assets for sale.

A perpetual inventory system measures cost of goods sold by:

Making entries to the inventory account for each purchase and sale.

the gross profit ratio measures

The amount by which the sale of inventory exceeds its cost per dollar of sales.

residual value

The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value

The depreciable cost used in calculating depreciation expense is:

The asset's cost minus its estimated residual value.

When a company reports a loss on the sale of a depreciable asset, which of the following is always true?

The company sold the asset for less than book value.

goodwill is:

The value of a business as a whole, over and above the value of its net identifiable assets.

For accounting purposes, depreciation is

an allocation of a cost of an asset

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to:

be more accurate

Cost of goods sold equals:

beginning inventory + net purchases - ending inventory

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

capitalized

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

capitalized ; expensed

The cost of a major improvement that extends the service life of an asset would be _____________, whereas the cost of maintenance that does not increase the future benefits would be__________ .

capitalized ; expensed

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for

costs of goods sold and inventory

Depreciation is the process of allocating the cost of an asset to a(n) _________ over its service life.

expense

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower cost and net realizable value ; greater

companies that produce inventory they sell are referred to as

manufacturing

Return on assets is calculated as:

net income divided by average total assets

Gross Profit

net sales - cost of goods sold

is property tax included in the initial cost of a purchase?

no

Expenses arising from activities that are not part of a company's primary operations.

non-operating expenses

In a periodic inventory system, the purchase of inventory is debited to:

purchases

________________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production.

raw materials

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

A long-term asset is reported on the balance sheet at its original cost plus all expenditures necessary to get the asset ready for use.

true

Due to technological advances in recent years, most companies use a perpetual inventory system to track inventory purchases and sales.

true

Land has an unlimited useful life.

true

Repairs and maintenance expenditures that benefit future periods are capitalized as an asset.

true

The cost of an oil change for a company's delivery truck is expensed in the current period.

true

The cost of inventory sold during a period is reported on the income statement.

true

The costs of beginning inventory plus additional purchases during the year make up the cost of inventory available for sale.

true

The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

true

The service life of an asset can be measured in units of time (such as years) or in units of activity (such as miles driven).

true

Which of the following accounts would be found in the balance sheet of a manufacturing company?

work in progress

_____ inventory refers to the products that have been started in production, but are still incomplete.

work-in progress

________inventory refers to the products that have been started in production, but are still incomplete

work-in progress