ACTG Exam 2

A merchandising company began the year with inventory of $31,000, Purchases for the year were $56,000, and the Ending Inventory was $18,000. What is the Cost of Goods Sold that would be reported on the income statement?

$69,000

Q15. Recording Journal Entry after Allocating Transaction Price to Performance Obligations -Sky Communcations (SKY) usually sells a cell phone for $252 plus 12 months of cellular service for $588. -SKY has a special, time-limited offer in which it gives the phone for free and sells the 12 months of cellular service for $480. -Each phone costs SKY $140, which it accounts for in its perpetual inventory system. -On July 1, SKY sells one of the special packages, delivers the phone, collects the $480 cash, and starts the cellular service. 1. For the special offer, how much of the $480 is allocated to the sale of the cell phone equipment versus the sale of the cellular service?

1.$480 Transaction Price to be allocated to equipment and cellular service. Equipment proportion = Equipment price/(Equipment price + Service price) = $252/($252 + $588) = $252/$840 = 0.30 Service proportion = Service price/(Equipment price + Service price) = $588/($252 + $588) = $588/$840 = 0.70 Allocated Transaction Price Equipment = 30% × $480 = $144 Service = 70% × $480 = $336 (to be recognized over 12 months, or $28 per month)

3Q6 Which of the following describes the impact of Covid-19 on Facebook's accounting for receivables, as discussed in the video?

Allowance for doubtful accounts increased, causing an increase in bad debt expense.

Ending inventory

Beginning inventory + Purchases − Cost of goods sold

Cost of goods sold

Beginning inventory + Purchases − Ending inventory= $24,000 + $49,000 − $11,000 = $62,000

3Q14 Recording Notes Receivable Transactions, Including Accrual Adjustment for Interest Picture

Explanation: December 31, 2020 and July 1, 2021 Interest Revenue = ($66,000 × 8% × 6/12) = $2,640

4Q17 Analyze the acquisition, use, and disposal of long-lived intangible assets.

Knowledge Check 01 Annual amortization expense = $25,000 ÷ 25 years = $1,000 The journal entry includes a debit to Amortization Expense (to increase that expense account) and a credit to Accumulated Amortization (to increase that contra-asset account) for $1,000.

4Q3 A company bought land and a building for $128,000. The building has a useful life of 20 years. Why should the company split the $128,000 cost between the land and the building?

Land is not depreciated, while the building will be depreciated over its 20-year useful life.

2Q4 Which inventory method is typically used when accounting for expensive and unique inventory items?

Specific identification

4Q10 On September 1, a company purchased a vehicle for $48,000 with a residual value of $4,000. The estimated useful life is 10 years and the company uses the straight-line method. What is the depreciation expense for the year ended December 31?

$1,467 Explanation: Partial-year depreciation = (Cost − Residual value) × (1 ÷ Useful life) × Time period in use = ($48,000 − $4,000) × (1 ÷ 10) × (4 months (September 1 - through December 31) ÷ 12 months) = $1,467

3Q10 A company determined at the end of the year that estimated uncollectible accounts was $50,000. If the Allowance for Doubtful Accounts currently has an unadjusted debit balance of $10,000, what is the amount of bad debts to be recorded at the end of the year?

$60,000

Q16. Recording Journal Entry after Allocating Transaction Price to Performance Obligations

-Deferred revenue= Service from pervious. -Sales Revenue= Equipment from previous.

Q14. Allocating Transaction price to Performance obligations A company separately sells home security equipment and 12 months of system monitoring service for $210 and $420, respectively. The company sells an equipment/monitoring bundle on January 1 for a total price of $540. The monitoring service begins immediately after the equipment is delivered and installed on January 1. Required: 1.Determine the dollars of revenue that should be allocated to the equipment for each bundled sale. 2. Determine the dollars of revenue that should be allocated to the service for each bundled sale. 3. Determine the dollars of Sales Revenue and Service Revenue from the January 1 bundled sale that should be reported in the income statement for the month of January. (For all requirements, do not round intermediate calculations.)

1. $540 Transaction Price to be allocated to equipment and service Equipment proportion = Equipment price/(Equipment price + Service price) = $210/($210 + $420) = $210/$630 = 1/3 Allocated Transaction Price Equipment = 1/3 × $540 = $180 2. $540 Transaction Price to be allocated to equipment and service Service proportion = Service price/(Equipment price + Service price) = $420/($210 + $420) = $420/$630 = 2/3 Allocated Transaction Price Service = 2/3 × $540 = $360 (to be recognized over 12 months) 3. For January 1-31, $180 of Sales Revenue should be recognized when the equipment is delivered and $30 of Service Revenue should be recognized as the first month of security services are provided ($360/12 = $30).

3Q11 Recording Accounts Receivable Transactions Using the Allowance Method a. Prepare the adjusting entry for bad debts if the company uses the percentage of credit sales method. Chipman uses 1/4 of 1 percent of sales to estimate its Bad Debt Expense for the year and no Bad Debt Expense has been recorded yet. b. Prepare the adjusting entry for bad debts if instead, the company uses the aging of accounts receivable method. Chipman estimates that $74 of its Accounts Receivable will be uncollectible based on an analysis of the A/R aging report. c. Prepare the adjusting entry for bad debts if instead, the company uses the aging of accounts receivable method and has a debit balance in the allowance account. Chipman estimates that $74 of its Accounts Receivable will be uncollectible. Assume Chipman's year-end unadjusted balance in Allowance for Doubtful Accounts was a debit balance of $35. d. If one of Chipman's main customers declared bankruptcy after year-end, what journal entry would be used to write off its $20 balance?

1.Allowance for Doubtful Accounts: ($38,000 × 0.0025) = $95.2 -Bad debt expense// Allowance for doubtful accounts. 2. Allowance for Doubtful Accounts: ($74 − $32) = $42.3. -Bad debt expense// Allowance for doubtful accounts. 3. Allowance for Doubtful Accounts: [$74 − (−$35)] = $109. - -Bad debt expense// Allowance for doubtful accounts. 4. Allowance for doubtful accounts(D)20 // Accounts receivable (C)20

4Q12 Computing Depreciation under Alternative Methods Complete a depreciation schedule for each of the alternative methods. 1. Straight-line. 2. Units-of-production. 3. Double-declining-balance.

1.Computation of Depreciation Expense: Year 1: ($40,500 − $2,400) × 1/3 = $12,700 Year 2: ($40,500 − $2,400) × 1/3 = $12,700 Year 3: ($40,500 − $2,400) × 1/3 = $12,700 2.Computation of Depreciation Expense: Year 1: ($40,500 − $2,400) × 64,800/270,000 = $9,144 Year 2: ($40,500 − $2,400) × 148,500/270,000 = $20,955 Year 3: ($40,500 − $2,400) × 56,700/270,000 = $8,001 -Alternatively, units-of-production depreciation could be calculated using a depreciation rate per unit of output, computed as: ($40,500 − $2,400) ÷ 270,000 = $0.14 per unit of output. 3.Computation of Depreciation Expense: Year 1: ($40,500 − $0) × 2/3 = $27,000 Year 2: ($40,500 − $27,000) × 2/3 = $9,000 Year 3: ($40,500 − $36,000) × 2/3 = $2,100* -*Although ($40,500 − $36,000) × 2/3 = $3,000, because the ending book value must equal residual value ($2,400), only enough depreciation expense is recorded in year three to make the book value equal $2,400.

Q.11 Analyzing Gross Profit Percentage on the Basis of an Income Statement Cruz Incorporated, prides itself as being the "world's leading marketer of U.S. branded non-athletic footwear." The following data (in millions) were reported for the second quarter of 2019: 2-a. How much was the gross profit? (Enter your answer in millions.) 2-b. What was the gross profit percentage? (Round your percentage to 1 decimal place.)

2-a.Gross Profit = $1,584 − $973 = $611. 2-b.Gross Profit Percentage: $611 ÷ $1,584 × 100% = 38.6%.

4Q9 Determining Financial Statement Effects of Straight-Line Depreciation and Repairs Prepare the adjusting journal entry that would have been made at the end of 2020 for depreciation on the manufacturing equipment. Prepare the journal entries to record the two expenditures for repairs and maintenance during 2021.

2.Annual Depreciation: ($310,000 − $23,000) × 1/20 = $14,350$143,500 Accumulated Depreciation ÷ $14,350 = 10 years Remaining Estimated Life = 20 years − 10 years = 10 years

Q5. A company purchases $70,000 of inventory from a wholesaler who allows 45 days to pay. In addition, the wholesaler offers a 3% discount if payment is made within 12 days. These payment terms would be expressed as:

3/12, n/45.

Q2. (Changes) A merchandising company began the year with inventory of $35,000, Purchases for the year were $60,000, and the Ending Inventory was $22,000. What is the Cost of Goods Sold that would be reported on the income statement?

73,000

3Q7 Which of the following describes the impact of Covid-19 on accounts receivable and the allowance for doubtful accounts of manufacturing companies in the US between December 2019 and March 2020, as discussed in the video?

Accounts receivable decreased and allowance for doubtful accounts increased.

4Q7 Simple Violations, Serious Consequences The video describes how WorldCom was accused of misstating its Property and Equipment. Which of the following accounting decisions does the video discuss?

Capitalizing costs on the balance sheet instead of expensing on the income statement.

2Q2. Goods available for sale equals:

Cost of Goods Sold plus ending inventory.

Q3. Calculate Inventory Cost, Purchase Discounts, and purchase returns (Changes) During the month of June, Ace Incorporated purchased goods from two suppliers. The sequence of events was as follows: June 3 Purchased goods for $3,700 from Diamond Incorporated with terms 2/15, n/60. June 5 Returned goods costing $1,300 to Diamond Incorporated for credit on account. June 6 Purchased goods from Club Corporation for $150 with terms 2/15, n/60 .June 11 Paid the balance owed to Diamond Incorporated. June 22 Paid Club Corporation in full. Required: Assume that Ace uses a perpetual inventory system and that the company had no inventory on hand at the beginning of the month. Calculate the cost of inventory as of June 30. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Cost of Inventory: 2502.00 Purchases ($3,700 + $150)$ 3,850.00 Less: Purchase Returns(1,300.00) Less: Purchase Discount from Diamond [($3,700 − $1,300) × 2.0%](48.00)*

2Q9 Reporting inventory under lower of cost or market/net realizable value

Determine the lower of cost or market/net realizable value per unit, and the total amount that should be reported on the balance sheet for each item of inventory

4Q19 Recording Transactions and Adjustments for Tangible and Intangible Assets

Explanation 2020: December 31: Building (double declining balance): ($173,000 − $0) × 2/20 = $17,300 December 31: Delivery Van (straight line; partial year): ($38,000 − $7,600) × 1/5 × 6/12 = $3,040 December 31: Franchise Right (straight line; partial year): $93,000 × 1/5 × 1/12 = $1,550 2021: June 30:Accumulated Depreciation - Building.: ($173,000 − $17,300) × 2/20 × 6/12 = $7,785 December 31: Depreciation Expense: ($38,000 − $7,600) × 1/5 = $6,080 December 31: Amortization Expense: $93,000 × 1/5 = $18,600

4Q18 Computing and Reporting the Acquisition and Amortization of Three Different Intangible Assets

Explanation 2.Amortization for the year ended December 31 (straight-line method with no residual value): Patent: $4,000 × 1/10 years remaining = $400 Amortization Expense Trademark: The trademark is not amortized due to its indefinite life. Licensing Rights: $80,000 × 1/5 years = $16,000 Amortization Expense 3.Income statement: Amortization Expense ($400 + $16,000) = $16,400 Balance sheet at December 31: Intangibles: Accumulated Amortization ($400 + $16,000) = ($16,400)

4Q5 Computing and Recording a Basket Purchase and Straight-Line Depreciation Prepare the journal entry to record all expenditures. Assume that all transactions were for cash and they occurred at the start of the year.

Explanation 2.Land = $175,000 × 70% = $122,500Building = ($175,000 × 30%) + $20,000 = $72,500

4Q6 Computing and Recording a Basket Purchase and Straight-Line Depreciation PT2

Explanation 3. The depreciation expense on the building for the first year is $5,300 based on the following calculation:Cost of building: Initial Payment$ 52,500 Renovation Prior to Use 20,000 Acquisition Cost$ 72,500 Straight-line Depreciation: ($72,500 cost − $19,500 residual value) × 1/10 years = $5,300 Land is presumed to have an unlimited life, so it is not depreciated. 4.Computation of the book value of the property at the end of year 2: (a) Land $ 122,500 (b) Building$ 72,500 Accumulated Depreciation ($5,300 × 2 years)(10,600)$ 61,900

4Q14 Recording Asset Impairment Losses 1. Determine whether the equipment is impaired. 2. Prepare the journal entries to record the impairment in asset if any.

Explanation: 1. Printing Equipment $ 736,000 Accumulated Depreciation (-512,000) = Net Equipment $ 224,000 Since the fair value is $34,000 and the book value is $224,000, this asset is impaired. The value of the Equipment account is now $224,000. An Impairment Loss of $190,000 must be recorded so that the book value will equal the market value of $34,000.

2Q8 What positive outcome from Macy's Covid-19 experience is discussed in the video?

It could help Macy's to compete by accelerating its move to online sales.

2Q1. Angus Company agreed to sell goods for Longhorn Company on consignment, but wasn't willing to take ownership of the goods in case they were difficult to sell. Which of the following statements is true?

Longhorn owns the inventory and should report it on its balance sheet.

2Q6 What is the name of the accounting rule that led Macy's to make the adjustment discussed in the video?

Lower of cost or market/net realizable value

2Q12 Which of these would you expect to have the highest inventory turnover ratio?

McDonald's Corporation - quick service hamburger restaurants.

Q10. Analyzing Gross Profit Percentage on the Basis of an Income Statement Cruz Incorporated, prides itself as being the "world's leading marketer of U.S. branded non-athletic footwear." The following data (in millions) were reported for the second quarter of 2019:

Need Image

Q9. The following is a listing of some of the balance sheet accounts and all of the income statement accounts, company's adjusted trial balance, Net sales would be:

Net Sales: Sales revenue − Sales discounts − Sales returns and allowances

-Gross Profit: -Gross Profit percentage:

Net sales-Cost of goods sold Gross profit (Divide by) Net Sales x100%

2Q3 Oahu Kiki tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each month, as if it uses a periodic inventory system. Assume Oahu Kiki's records show the following for the month of January. Sales totaled 340 units. ( Date) (Units) (Unit cost)(total cost) Beginning Inventory: January 1, 200, 80$ , 16,000$ Required: 1.Calculate the number and cost of goods available for sale. 2.Calculate the number of units in ending inventory. 3.Calculate the cost of ending inventory and cost of goods sold using the (a) FIFO, (b) LIFO, and (c) weighted average cost methods.

Required 1. Number of Goods Available for Sale: 1,000units Cost of Goods Available for Sale $94,000 Required 2. Ending Inventory: 660 units Required 3. Cost of ending Inventory/ Cost Goods sold Fifo 65400 / 28600 Lifo 57400 / 36600 Weighted average cost 62040 / 31960 PIC on Phone

3Q15 Analyzing and Interpreting Receivables Turnover Ratio and Days to Collect 1. Determine the receivables turnover ratio and days to collect for this year. 2. Do the measures calculated in requirement 1 represent an improvement (or deterioration) in receivables turnover, compared to last year, when the turnover was 9.4? -Receivables Turnover Ratio = Net Sales/Average Net Accounts Receivable

Required 1. Receivables Turnover Ratio 8.0+/- 0.1 times Days to Collect+/-1 45.4 days Required 2. Deterioration

2Q7 Which of the following amounts on Macy's income statement was NOT affected by the adjustment discussed in the video?

Sales Revenue

Q8. Which of the following is a correct statement?

Sales discounts are offered to encourage prompt payment by customers.

2Q14 Which of the following would not be affected by the choice of an inventory costing method (that is, choosing between FIFO, LIFO, weighted average, and specific identification)?

Sales revenue

4Q1 Which of the following is not an amount that is needed to calculate straight-line depreciation?

The replacement cost the company will be required to incur to replace the asset.

Q7 Recording Journal Entries for Purchases, Purchase Returns, Sales, and Sales Returns Using a Perpetual Inventory System

Tron Auto Dealership (TAD) purchases vehicles from an automobile manufacturer and sells them to customers. During its first year of operations, TAD had the following transactions.

4Q13 Under what circumstances should a company record an asset impairment loss?

When book value is greater than the fair value of the asset.

4Q8 Simple Violations, Serious Consequences Who was credited with discovering the fraud at WorldCom?

WorldCom's internal auditors.

3Q3 Recording Write-Offs and Bad Debt Expense Using the Allowance Method a. Adjusting Entry for Bad Debts: At the end of June, bad debt expense is estimated to be $15,200. b. Write-off: In July, customer balances are written off in the amount of $7,600.

a. Bad debt expense: (D) 15200 allowance for doubtful accounts (C) 15200 b. Allowance for doubtful accounts (D) 7600 accounts receivable (C) 7600

3Q12 Recording Write-Offs and Recoveries Prior to recording the following, Elite Electronics, Incorporated, had a credit balance of $1,900 in its Allowance for Doubtful Accounts a. On August 31, a customer balance for $290 from a prior year was determined to be uncollectible and was written off. b. On December 15, the customer balance for $290 written off on August 31 was collected in full.

a.Allowance for Doubtful Accounts(D) 290 // Accounts Receivable (C) 290 b. Accounts Receivable (D) 290 // Allowance for doubtful accounts (C) 290 b2. Cash (D) 290 // Accounts receivable (C) 290

Q4. When a perpetual system is used and transportation cost is incurred to obtain inventory, the transportation cost is:

added to Inventory

3Q13 In the interest formula, the interest rate is on a(n) ________ basis; therefore, the time variable must reflect how many ________ out of ________ in the interest period.

annual; months; 12

2Q5 FIFO, LIFO, and weighted average inventory costing methods are based on:

assumptions that accountants make about the flow of inventory costs.

3Q1 The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to:

bad debt expense.

3Q4 The adjusting entry used to record the estimated bad debts in the period credit sales occur decreases:

both net income and net accounts receivable.

4Q4 An asset's book (or carrying) value is the amount that is reported on the balance sheet. Book value is equal to:

cost minus accumulated depreciation.

Q1. The inventory asset account on the balance sheet reports the:

cost of goods on hand that are available for sale.

4Q16 Intangible assets are:

long-lived assets with no physical substance.

2Q11 Generally accepted accounting principles (GAAP) require that the inventory be reported at:

lower of cost or market/net realizable value.

2Q15 When costs to purchase inventory are increasing over time, using FIFO leads to reporting ________ cost of goods sold and ________ net income than LIFO.

lower; higher

4Q11 The straight-line depreciation method and the double-declining-balance depreciation method:

produce the same total depreciation over the asset's useful life.

3Q9 The Allowance for Doubtful Accounts will have a debit balance before adjustments when:

the company recorded write-offs that exceed previous estimates of uncollectible accounts.

3Q2 An objective of the expense recognition principle ("matching") is to have bad debt expense recorded in:

the same period the related credit sales are recorded.