Accounting test #2
Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement. T or F
False
Inventory is usually reported as a long-term asset in the balance sheet. T or F
False
We record a long term asset at its cost less all expenditures necessary to get the asset ready for use. T or F
False
We record interest expense in the period in which we pay it, rather than in the period we incur it. T or F
False
The property, plant and equipment category consists of land, land improvements, buildings, equipment, and natural resources. T or F
True
Using the FIFO, the first units purchased are assumed to be the first ones sold. T or F
True
Book value is equal to the original cost of the asset minus the current balance in accumulated depreciation. T or F
True
Commonly, current liabilities are payable within one year, and long term liabilities are payable more than one year from now. T or F
True
Companies are free to choose FIFO, LIFO, or weighted average cost to report inventory and cost of goods sold. T or F
True
Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life. T or F
True
During a period of rising costs, FIFO generally results in a higher ending inventory balance. T or F
True
During periods of rising costs, LIFO would generally result in a higher cost of goods sold. T or F
True
Generally, a higher turnover ratio reflects positively on a company's ability to manage its inventory. T or F
True
Gross profit equals net sales of inventory less cost of goods sold. T or F
True
Kansas Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2019 and the book value on December 31, 2019, would be:
$11,000 and $38,000
Bob Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Bob Inc. record?
Debit Cash $8,000; Credit Notes payable $8,000
In January 2018, Summit Co. sells a gift card for $50 and receives cash. What would be the appropriate journal entry for this event?
Debit Cash, $50; Credit Deferred revenue, 50$
On December 1, 2015, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2016. How should Old World record the adjusting entry on December 31, 2015
Debit Interest expense and credit interest payable, $1250
Young Company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:
Probable and the amount is reasonably estimable
