Acc 131 Exam 3
What affect does the recording the incurrence of payment of a liability have on assets, liabilities, and stockholders equity?
Stockholders is unchanged, assets go down, liabilities are going down, we will have less cash
When the fair value of an asset falls significantly below the book value of the asset and this decline is a permanent decline, the asset is said to be:
impaired
Under the lower of cost or market (LCM) rule, market is defined as:
A current replacement cost
If Smith Brothers uses the first-in, first-out (FIFO) method, the company is assuming that costs move through Inventory:
in an unbroken stream, the costs entering and leaving inventory in the order in which they were purchased.
Amortization
intangible asset, Straight line method
What is cost of goods sold?
it is allocated between cost of ending inventory and the cost of goods sold
Expenditures that do not increase the future economic benefits of the fixed asset are called:
revenue expenditures.
What is the most commonly used method to compute depletion?
units-of-activity method
Depreciable Base
Historical Cost - Estimated Salvage
Units of Production (Activity) Rate
Historical Cost - Estimated Salvage/ Estimated Units of Production or Activity
Quick Ratio
(Cash + Marketable Securities + Accounts Receivable)/ Current Liabilities
Annual Straight Line Depreciation
(Historical Cost-Estimated Salvage) or (Historical Cost-Estimated Salvage)/Estimated Useful Life
Units of Production (Activity) Annual Depreciation
(Units of Production Rate) x Annual Units of Production
While a company will choose between the three depreciation methods as it prepares its financial statements, the depreciation method used in preparing the tax return is specified by:
. the Internal Revenue Code.
What type of inventory accounts are used by a manufacturer?
-Raw materials -Work in process -Finished goods
What sets of factors are needed to calculate depreciation on plant & equipment?
-estimated life of the asset -acquisition cost -estimated residual value
What does the total cost of an asset include?
-item itself -shipping -sales tax -set up/wiring
What are the acceptable methods of inventory costing?
1. FIFO 2. LIFO 3. Average cost 4. Specific Identification
Straight Line Depreciation Rate
1/estimated useful life
Double Declining Balance Rate
2 x Straight Line Rate(1/useful years). For 2 years rate stays the same
What is a liability?
A probable future sacrifice of economic benefit
What would appear only in the footnotes(the disclosures)?
A probable loss from a pending lawsuit, the amount of which is not yet determinable
Which of the following accounts is classified as a current liability?
Accounts Payable
What is the salvage value(residual value)?
Amount of cash or trade in condiseration that the company expects that the company expects to receive when an asset is received from service.
Ending inventory is reported on the:
Balance sheet
Annual Double Declining Balance Depreciation
Book Value x Double Declining Balance Rate
A note payable arises when a business borrows money. The company should use which of the following entries to correctly record borrowing money from a bank?
Cash debit; Notes Payable credi
What account would most likely appear on the income statement of a merchandise company but not on a service company?
Cost of goods sold
When inventory is sold to customers, the cost of the inventory becomes an expense called:
Cost of goods sold
Current Ratio
Current assets/ current liabilities
Which depreciation method is classified as an accelerated depreciation method?
Declining Balance
Book Value
Historical Cost - Accumulated Depreciation
The purchase price of inventory includes all of the following except:
F.O.B. destination or freight-out.
The cost of goods sold is reported on the:
Income statement
When the perpetual inventory system is used, which of the following accounts is affected?
Inventory
What type of merchandise would be costed using the specific identification method?
It is used for high cost items with unique identities that were sold in serial numbers. EX : Automobiles
When purchase prices are rising, which inventory costing method produces the lowest cost for ending Inventory?
Last In, First out
What is the impact on the accounting equation of the recording of the accrual of wages expense?
Liabilities increase and stockholders' equity decreases
What kind of account is a rent deposit?
Liability
Depletion
Natural resources, Units of activity or units or production.
At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the count of:
The buyer
Which ratio describes how quickly inventory is purchased (or produced) and sold?
The inventory turnover ratio
What is depreciation?
The process of allocating, in a systematic and rational manner, the cost of a tangible fixed asset to expense over the assets useful life.
What is accumulated depreciation?
The total amount of depreciation expense that has been recorded for an asset since the asset was acquired, its reported on the balance sheet as a contra asset
Average Cost Inventory
Weighted average cost per unit= cost of goods available for sale/ units available for sale
A current liability includes obligations which must be repaid:
Within one year of the operating cycle
Liabilities are reported on which financial statement?
balance sheet
Cost of goods available for sale is equal to the:
beginning inventory plus purchases made during the period.
Under the lower of cost or market (LCM) rule, the company's inventory is valued at:
he lower of its cost or market value.
The cost principle requires that a company record its Fixed Assets at:
historical cost.
