ACC 4001 Exam 2
Which inventory method would be used when the inventory consists of similar items?
average-cost
(using the net method) sales discounts forfeited should be reported as
other revenues and gains
(using allowance method) What is included in the entries when collecting a previously written-off account?
increase the allowance for doubtful accounts, increase and decrease A/R, increase cash
Why is the allowance method preferred over the direct write-off method?
Matches expenses with revenues better
Who counts the inventory for goods held on consignment?
The consignor includes them in Ending Inventory
what type of costs are freight charges (on goods sold)
period costs
Trade discount of 4% if ordering 10,000+ units per year; sold 4,000 ATM at $2/unit. Likelihood of the discount being taken is very high - what revenue should the company record
$7,680
For a good or service to be considered distinct and identified as a separate performance obligation, it must be:
Able to be used by the customer on its own or with resources readily available to the customer, and able to be separately identified from other promises in the contract
(perpetual inventory) which accounts are debited during credit sales
A/R and COGS
What are the ways that a company can generate cash from accounts receivable?
Assignments and factoring
When a customer purchases inventory from a business organization, they may be given a discount which is designed to induce prompt payment. What is it called?
Cash discount
in a period of rising costs, which method gives the highest COGS
LIFO
In a period of rising costs, which method gives the highest Net Income
FIFO
Which inventory method would a company use to maximize profits in a period of rising prices?
FIFO
Which method of inventory best approximates specific identification of the actual flow of costs and units in most manufacturing situations?
FIFO
When the accounts receivable are sold outright to a company, they have been
Factored
Finance companies that buy receivables from businesses
Factors
T/F: If a supplier ships goods FOB destination, the title passes to the buyer when the supplier delivers the goods to the common carrier
False
T/F: a nonrefundable upfront fee is generally recorded as revenue when received
False
T/F: if a company uses a perpetual inventory system, it is not necessary to take a physical inventory count
False
T/F: purchases of merchandise are debited to Purchases in a perpetual inventory system and Inventory in a periodic inventory system
False
T/F: the first step in the revenue recognition process is to identify the separate performance obligations in the contract
False
On May 1, 2025, Richardson Inc. entered into a contract to deliver one of its specialty mowers to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of $900 in advance on May 15, 2025. Kickapoo pays Richardson on May 15, 2025, and Richardson delivers the mower (with cost of $575) on May 31, 2025. When is revenue recognized?
May 31
Which inventory method would be used with a relatively small number of costly, easily distinguishable items?
Specific identification
What is a LIFO reserve
The difference between LIFO inventory and the amount used for internal reporting purposes
A discount is deducted before any exchange takes place; tt is often done for larger orders. What is it called?
Trade discount
T/F: FOB shipping point - title passes when the common carrier receives the goods
True
T/F: if the performance obligation is NOT highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately
True
When preparing a bank reconciliation, bank credits are a) deducted from the balance per books b) added to the balance per books c) deducted from the bank statement balance d) added to the bank statement balance
added to the balance per books
A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on a) gross sales b) credit sales less returns and allowances c) aging the receivables d) direct write-off
aging the receivables
Bad debt is: a) management's determination of which accounts will be sent to the attorney for collection b) an estimate that is based only on an analysis of the receivables aging c) an estimate that is based on historical and prospective information d) based on the actual amounts determined to be uncollectible
an estimate that is based on historical and prospective information
The standard, Revenue from Contracts with Customers, adopts what approach
asset-liability (Balance Sheet) approach
revenue from a contract with a customer a) can be recognized even when a contract is still pending b) is recognized when the customer receives the rights to receive consideration c) cannot be recognized until a contract exists d) is recognized even if the contract is still wholly unperformed
cannot be recognized until a contract exists
Short-term paper maturities of less than 3 months should be classified as
cash equivalents
the minimum cash amounts that banks often require their loan customers to maintain in checking accounts is called:
compensating balance
most used costing approach for LIFO?
dollar-value LIFO
one criterion that indicates that a company should disregard revenue guidance for contracts is when a) each party's rights regarding the goods or services to be transferred can be identified b) the payment terms for the goods and services to be transferred can be identified c) each party can unilaterally terminate the contract without compensation d) the contract has commercial substance
each party can unilaterally terminate the contract without compensation
The seller of a good or service should recognize revenue when: a) each performance obligation is satisfied b) it identifies the separate performance obligations in the contract c) it identified the contract with customers d) it determines the transaction price
each performance obligation is satisfied
Which inventory for a manufacturing firm is similar to the merchandising inventory?
finished goods
a departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business, their:
future utility (profit making ability) will be less than their cost
a contract: a) must be in writing to be enforceable b) is enforceable if each party can unilaterally terminate the contract c) is an agreement that creates enforceable rights and obligations d) does not need to have commercial substance
is an agreement that creates enforceable rights and obligations
the direct write-off method a) is based on facts, not estimates b) is often used for financial reporting purposes c) records the expense in the same period as the associated revenue d) all of these answer choices are correct
is based on facts, not estimates
the journal entries for a bank reconciliation: a) are taken from the "balance per bank" section only b) may include a credit to A/R for a NSF check c) may include a debit to Office Expense for bank service charges d) may include a debit to A/P for an NSF check
may include a debit to Office Expense for bank service charges
all of the following can be included under "cash" except a) money market funds b) savings account balance c) checking account balance d) currency
money market funds
Which account does not exist in a perpetual inventory system? a) COGS b) inventory c) sales returns and allowances d) purchases
purchases
Travel advances should be reported as
receivables
FASB ASC 606, includes all of the following except: a) allocate the transaction price to the performance obligations b) identify the contract with the customer c) recognize revenue when (or as) the entity is paid for a performance obligation d) identify the performance obligations in the contract
recognize revenue when (or as) the entity is paid for a performance obligation
when sales are made with a right of return, the company a) records the estimated returns in the Sales Revenue account b) records the returned asset in a separate inventory account c) should recognize revenue for the full sales price d) should not recognize any revenue
records the returned asset in a separate inventory account
What is a LIFO layer?
the LIFO value of an increase in inventory for a given year
an indication that the customer has not taken control of the good or service is
the customer has no significant risks or rewards of ownership
LCM, the designated market value is
the middle value between replacement cost, NRV, and NRV - normal profit margin
in determining the transaction price, the company must consider
variable consideration, non-cash consideration, time value of money, and consideration payable