Financial Accounting Exam 2

Which of the following would appear on the balance sheet as a current asset?

Accounts Recievable

When an customer account is closed due to nonpayment, the account to be debited is:

Allowance for Uncollectible Accounts

A note is made December 14, and is due in 120 days. What is the due date of the note?

April 13

LIFO (last in, first out)?

Assumes we sell the newest merchandise first to determine the cost of goods sold.

FIFO (First in, First out)?

Assumes we sell the oldest merchandise first to determine the cost of goods sold.

A note dated May 21 and due in 90 days would be due on

August 19

The Allowance for Uncollectible Accounts will only have a debit balance when amount of actual uncollectible accounts closed for nonpayment is greater than the amount that was estimated for them (i.e., uncollectible accounts have been underestimated).

True

intagible assets

Non-Physical rights used for purposes of operating the company and which are expected to benefit the company for a year or more.

Interest paid on a loan from the bank would be included in which section of the income statement?

Other Revenue and Expenses

Interest paid on debt would be entered on the multistep income statement in the category called

Other Revenues and Expenses

Property, Plant, and Equipment?

Physical assets that are currently being used within the company

What is the Simple Interest formula?

Principle x Rate x Time

A factory being used by a business for producing products for resale would be classified in which category?

Property, Plant, and equipment

Net Sales?

Sales - Sales Returns and Allowances - Sales Discounts

Which of the following accounts is needed to compute the Net Sales figure on the multi-step Income Statement?

Sales Returns & Allowance

Which of the following accounts is not classified as a 'selling' expense on the income statement?

Sales Returns and Allowances

Operating Expense?

Selling Expenses - General & Administrative Expenses

A note is made on June 23 and is due in 90 days. What is the due date of the note?

September 21

Current Assets?

Short-term assets that will be gone within 1 year

Which of the following is not classified as a 'general and administrative' expense on the income statement?

Taxes on Net Income

The account "Allowance for Uncollectible Accounts" will have a debit balance when uncollectible accounts have previously been underestimated.

True

Whether to classify stock held in another company as a 'current asset' or an 'investment' depends on the length of time the management of the company plans to hold stock.

True

Specific Identification Method?

Uses the actual cost of the items sold

The maturity value of a $1,000, 60-day, 9 percent note is

$1,014.79

Our company lends $8,000 to a customer for 90 days at 10% interest. What amount of interest will be due when the loan matures?

$197.26

Our company lends $50,000 to a customer for 45 days at 8% interest. What amount of interest will be due when the loan matures?

$493.15

A $5,000 note is due in 192 days, and the interest rate is 4%. What is the maturity value of the note?

$5,105.21

Johnson Co. uses the Aging Method to estimate uncollectible Accounts. An aging schedule shows that $60,000 in accounts are estimated to be uncollectible. The Allowance for Uncollectible Accounts already has a $5,000 credit balance. For what amount should the account be adjusted (credited)?

$55,000

Jacobs Co. uses the Percentage of Credit Sales Method to estimate uncollectible accounts. Past experience indicates that about 2% of credit sales will become uncollectible. Credit sales for the current month are $400,000. The Allowance for Uncollectible Accounts already has a $3,000 credit balance. For what amount should the account be adjusted (credited)?

$8,000

A note dated January 30 and due on May 15 has a duration of how many days (assume it is not a leap year)?

105 days

What is the duration of a note made on November 7 and due on March 7? Assume that February is not in a leap year.

120 days

A company uses the Aging Method to calculate their adjusting entry for uncollectible accounts. They have completed an aging schedule for their accounts receivable and arrived at an estimate for total uncollectible accounts of $1,600. If the Allowance for Uncollectible Accounts has a debit balance of $600 prior to the end-of-period adjustment, then for what amount should the adjustment be recorded?

2,200

A company uses the Percentage of Credit Sales Method to calculate their adjusting entry for uncollectible accounts. The company had credit sales of $100,000 during the period. At the end of the period, the Allowance for Uncollectible Accounts had a credit balance of $5,000. If the company estimates that 3 percent of credit sales will become uncollectible, for how much should the adjustment be recorded?

3,000

What is the duration of a note made on Sept 27 and due on December 31?

95 days

Weighted Average Method?

A weighted average unit cost is multiplied by the number of items sold to determine the cost of goods sold.

If the company spends money on research, design, a new venture, etc., and there is significant doubt about whether it will result in future sales, then they should expense the costs and not record the cost as an asset.

Conservatism

Johnson Pharmaceuticals spent $500,000 last year on research for a new cancer drug. The research has not yet produced a product that has approval for testing on human subjects. Johnson recorded the cost as an expense rather than as an asset following the principle of

Conservatism

Changing from the Aging Method of estimating uncollectible accounts receivable to the Percent of Credit Sales Method simply because the change would increase net income would be a violation of which accounting principal?

Consistency

Jamison Company has changed its method of valuing end-of-month inventories. They have done this because the change in valuation will increase the amount of assets on Jamison's Balance Sheet and the net income on its Income Statement. The company is violating the principle of:

Consistency

When a company has a choice of accounting methods, they must use the same method every time for consistency.

Consistency

Cost of Goods Sold?

Cost of Goods sold + Freight in

Gross profit equals the difference between net sales and

Cost of goods sold

Prepaid Insurance that will expire within one year would be included in which Balance Sheet asset classification?

Current Asset

Which of the following accounts would not be classified as a general and administrative expense on the income statement?

Freight Out

Anything about the company that would significantly affect an outside investor's opinion of the company must be disclosed in the notes to the financial statements.

Full Disclosure

Johnson Company has discovered that it's CFO has been involved in accepting bribes from a city official to bid jobs for the city at a low cost. The company keeps this information quiet and does not mention the bribery scheme in its financial statements. The company is violating the principle of :

Full Disclosure

Income from Operations

Gross Margin - Operating Expenses

Net Income

Income before Income Taxes - Income Taxes

Income before Income Taxes

Income from Operations + - Other Revenues and Expenses (the + - is used because the net value of the 'Other Revenues and Expenses" may be either positive or negative, depending on the amounts involved for those accounts combined in that category)

Franchise rights would appear in which balance sheet section?

Intangible assets

Other Revenue and Expenses

Interest Revenue + Dividend Revenue+ Gains (on sales of non-inventory assets) - Interest Expense - Losses (on sales of non-inventory assets)

Perpetual Inventory System?

Inventory is constantly (perpetually) updated for items sold

Periodic Inventory System?

Inventory is only updated at the end of the accounting period, either by estimating what was sold or by determining what was sold by counting what is left.

Rare coins purchased by a law firm for the purpose of reselling them in two years at a higher price would be

Investments

Investments?

Long-term notes receivable and long-term investments

If the company buys an asset that costs very little, they are allowed to expense the cost, rather than recording it as an asset.

Materiality

A note is made on Feb 5 and due in 90 days. What is the due date of the note?

May 6

Gross Margin?

Net Sales - Cost of Goods Sold

The account 'Allowance for Uncollectible Accounts' is classified as a(n)

contra account

General and Administrative expense?

include all office salaries and wages; all costs of maintaining offices; costs related to office-use vehicles, office personnel travel and entertainment

Selling Expense?

include sales salaries, wages, and commissions; advertising; freight out; all costs of maintaining stores and websites; costs related to sales vehicles, sales travel and entertainment

A practical decision to expense small cost items, such as a purchase of a single chair or lamp, rather than record them as property, plant, and equipment and depreciate them probably is made on the basis of the

materiality