FA 4 - Adjusting Journal Entry

Company A is a new online hat retailer. During the first month they made the following purchases of hats and had the following sales of hats: January 1: Purchased 400 hats for $5 each. January 15: Purchased 200 hats for $6 each. January 31: Sold 250 hats. What would be the Cost of Goods Sold if they use FIFO?

$1250

Company A is a new online hat retailer. During the first month they made the following purchases of hats and had the following sales of hats: January 1: Purchased 400 hats for $5 each. January 15: Purchased 200 hats for $6 each. January 31: Sold 250 hats. What would be the Cost of Goods Sold if they use LIFO?

$1450

Which of the following is an example of Accrued Liabilities?

A company recorded its vehicle rental expense on June 30 and will pay this expense on July 31.

Which of the following is an example of Accrued Liabilities?

A company recorded wages expense for May on May 31, and will pay the wages on June 15.

West Corp. purchased a piece of equipment in January 2014. The accountant of West Corp. decided to use double declining balance method to depreciate this equipment. For 2014, compared with using straight-line depreciation method, the company will have:

A lower net income and a higher accumulated depreciation.

Apple sells an iPhone X for $1000. They identify this sale as a contract with the customer. What is the very next thing they should do?

Identify the performance obligations they must provide as part of that sale

Which of the following items is an implicit transaction?

Recognizing impairment on an intangible asset

Which of the following items is an explicit transaction?

Recognizing the revenue for inventory sold

Suppose Cardullo's had 30 boxes of Cranberry Bog Frogs in inventory at the beginning of July 2013. Cardullo's paid $5.00 for each box. During the month, Cardullo's purchased 20 more boxes, also for $5.00 a piece. At the end of the month, a physical count revealed that 25 boxes remained in inventory. No boxes were lost or stolen during the period. What would Cost of Goods Sold related to the Cranberry Bog Frogs be for the month of July?

Since there were 30 boxes in inventory at the beginning of the month and 20 more boxes were purchased, there were 50 boxes available for sale. Since there were 25 boxes remaining in inventory at the end of the month, it means that 25 boxes were sold during the month. At a cost of $5 per box, that means the Cost of Goods Sold was $125.

Suppose PepsiCo purchased a piece of plant equipment in December, 2013 and, after installing and testing the equipment, it was put into service on January 1, 2014. The total cost to put the equipment into service was $300,000; it is expected to have a useful life of 5 years and a salvage value of $60,000. Assuming PepsiCo uses straight-line depreciation, what would the depreciation expense be for the month of July, 2014?

The amount to be depreciated is the total cost to put the asset in service ($300,000) minus the assumed salvage value after 5 years ($60,000). This leaves $240,000 to be depreciated over 5 years (60 months) or $4,000 per month.

Company A is a small candy store that sells a variety of candies, such as jelly beans, caramels, and taffies. In the store, most candies are stored in bulk containers, and customers can fill bags with candies and pay by the weight. Company A tracks its candy purchases and performs a monthly inventory count. Company A records an adjusting journal entry for Cost of Goods Sold at the end of the month after the inventory count reveals the ending inventory on hand. Which type of inventory system does Company A utilize?

Under a periodic inventory system, a company only records Cost of Goods Sold periodically, in this case, once a month after the inventory count.

Which of the following is an example of Deferred Revenue?

A magazine company collected annual subscription fees at the beginning of the year before delivering magazines. A household appliances company received an advance payment from its customer for a product that would be delivered at a later date.

Once they have identified their two performance obligations (provide a phone and provide one year of software updates) and have identified the price as $1000, what should they do next?

Allocate the transaction price of $1000 to the phone and the software updates

Suppose PepsiCo purchased a piece of plant equipment in December, 2013 and, after installing and testing the equipment, it was put into service on January 1, 2014. The total cost to put the equipment into service was $300,000; it is expected to have a useful life of 5 years and a salvage value of $60,000. Assuming PepsiCo uses straight-line depreciation, what would the accumulated depreciation related to this asset be on July 1, 2014?

By July 1, 2014, the equipment would have been in use for 6 months. The amount to be depreciated is the total cost to put the asset in service ($300,000) minus the assumed salvage value after 5 years ($60,000). This leaves $240,000 to be depreciated over 5 years (60 months) or $4,000 per month. Therefore, the accumulated depreciation at that point would be $24,000 ($4,000 per month times 6 months).

Which of the following arises when Taxable Income is less than Income Before Taxes due to a temporary timing difference?

Deferred Tax Liability is correct This is the amount that arises when Taxable Income is less than Income Before Taxes due to a temporary timing difference.

Which of the following is an example of a Product Cost? Select all that apply.

Direct Labor, Manufacturing Overhead

Suppose PepsiCo has 3,000 cases of Pepsi in one of their warehouses at the beginning of the month of June. Half of these cases were held over from the prior month (May) at a cost of $5 per case and half were from 2 months ago (April) with a cost of $4 per case. In the month of June they received another 2,000 cases at a cost of $5.50 per case. The warehouse sold and shipped 2,000 cases in the month of June. PepsiCo uses FIFO to value their inventory. What would have been the Cost of Sales related to the cases shipped in June?

Since PepsiCo uses FIFO to value their inventory, the first 1,500 cases would have been valued at the April cost of $4. The next 500 cases would have been valued at the May cost of $5. This means that the amount charged to cost of sales and credited to inventory would be $6,000 plus $2,500, or $8,500.

Which of the following is the amount of tax that relates to the Income Before Taxes for the year?

Tax Expense is correct Tax Expense is the amount deducted from Income Before Taxes to get to Net Income for the period.

A Deferred Tax Asset arises when:

Taxable Income exceeds Income Before Taxes due to a temporary timing difference.

Which of the following is the amount of the tax liability that pertains to the current period and is payable in the next 12 months?

Taxes Payable is correct Taxes Payable is the tax liability due in the current period.

Suppose your company recorded a Deferred Tax Liability in 2010. It was not expected to be resolved for several years. It is now December 2014 and you note that the Deferred Tax Liability is expected to be resolved in the first six months of 2015. Under which section of the balance sheet do you classify the Deferred Tax Liability?

The Deferred Tax Liability would have been classified as a Non-Current Liability initially, but as soon as it becomes evident that liability is expected to be resolved in a year or less, it should be reclassified as a Current Liability.

Suppose PepsiCo has 3,000 cases of Pepsi in one of their warehouses at the beginning of the month of June. Half of these cases were held over from the prior month (May) at a cost of $5 per case and half were from 2 months ago (April) with a cost of $4 per case. In the month of June they received another 2,000 cases at a cost of $5.50 per case. The warehouse sold and shipped 2,000 cases in the month of June. PepsiCo uses FIFO to value their inventory. What would be the remaining balance of PepsiCo in the Inventory account of this warehouse at the end of June?

The actual number of cases stays the same at 3,000 since there were 2,000 cases sold and 2,000 cases purchased in the month of June. However, since PepsiCo uses FIFO to value their inventory, the cost of the first 1,500 cases from April will leave inventory first and the balance of 500 cases from May will leave inventory next. This leaves behind 1,000 cases from May at $5 per case ($5,000) and 2,000 cases from June at $5.50 per case ($11,000) for a total of $16,000.

Company C set up a Reserve for Bad Debts in 2013. Although there were no account balances written off, it was considered prudent to acknowledge that some of the Accounts Receivable would not be collectable. The IRS does not allow a deduction until the accounts are written off. As a result, the Taxable Income was greater than the Income Before Taxes. This is a timing difference and will reverse in future years so it means that Taxable Income will be less than Income Before Taxes in some future years when the accounts written off will be greater than the increase in the Reserve for Bad Debts. What will be the entry required in 2013 to record this difference?

The correct answer is to debit the Deferred Tax Asset account. The fact that the Provision for Bad Debts could not be deducted for tax purposes means that Taxable Income will be greater than Income Before Taxes. Since this difference will reverse over time it means that the higher taxes paid this year will be recovered in future years so the amount of the increase in taxes paid is recorded as a Deferred Tax Asset.

A company purchased a piece of equipment for $350,000 in 2008. As of 12/31/2015, $215,000 of depreciation expense had been recognized against this piece of equipment. What is the equipment's net book value on 12/31/2015?

The net book value is calculated by subtracting the accumulated depreciation from the original cost of the asset. $350,000 - $215,000 = $135,000

Company B is a small toy retail chain and has invested in a linked inventory and accounting information system. When a toy is purchased and scanned at the cash register, the accounting information system automatically records the journal entry transferring the specific inventory item from inventory to cost of goods sold. Company B also performs a monthly inventory count and then records an adjusting journal entry to account for any shrinkage. Which type of inventory system does Company B utilize?

Under a perpetual inventory system, a company continuously tracks the sales of inventory and records Cost of Goods Sold for each sale. Even companies with a perpetual inventory system may perform inventory counts periodically.