Financial Accounting Exam 2

DDB rate

1/useful life x 2

Recording Inventory Purchases: Perpetual system 3. Record the return

A/P Inventory

Recording Inventory Purchases: Perpetual system 5. Record payment after the discount period

A/P Cash

EI=

COGAS-COGS

FOB Destination

Delivery expense -> Freight out

The accounting life of intangible assets is determined by:

Their legal or useful lives, whichever is shorter

Amortization

allocate cost over useful life

Tractor company purchased a patent for $250,000 at the beginning of 2011, and estimated that its expected useful life was 10 years. The patent had a legal life of 20 years. What amount should be recorded as amortization expense for the patent in 2011?

250,000/10 = $25,000

On 1/1/12, ADC Company purchased a truck for $20,000 with an estimated salvage value of $5,000 and a 5 year life, and the company used the straight- line method. At the beginning of 2014, ADC paid $8,500 for an engine overhaul that extended the vehicle's estimated life by 2 years. So, beginning with 2014 the truck had a remaining life of 5 years and a new salvage value of $6,000. When calculating the revised depreciation expense for 2014, the company should: A. Add the $8,500 to the book value at 12/31/13 and allocate the revised depreciation basis over the remaining useful life of 5 years. B. Report the effect of the change in life as an expense on the income statement for 2013. C. Ignore the change in life but depreciate the additional $8,500 cost separately over its useful life D. Expense the $8,500 and depreciate the original cost of $20,000 over the revised total life of 7 years.

A. Add the $8,500 to the book value at 12/31/13 and allocate the revised depreciation basis over the remaining useful life of 5 years.

Recording Inventory Purchases: Perpetual system 4. Record the payment within the discount period

A/P Inventory (2%) Cash (x.98)

NBV (Net Book Value) =

Asset - Accumulated Depreciation

What effects occur on a retail stores accounting equation when it records the purchase of merchandise on account, assuming the use of a perpetual inventory system?

Assets and Liabilities increase

What prompted the following journal entry? Accounts payable 4,000 Inventory 40 Cash 3,960

Brown paid for inventory purchased on credit, and took advantages of a 1% purchase discount

Recording Sales - Perpetual 2. Adjust inventory

COGS Expense Inventory

Recording Sales - Perpetual 1. Record Sale

Cash Sales Revenue

Three things to know when finding depreciation expense

Cost Life Residual Value

Depreciation cost =

Cost - Salvage Value

Inventory turnover ratio

Cost of goods sold / average inventory

If a company underestimates its inventory at the end of the period (ending inventory), what are the effects on cost of goods sold and net income for the current year?

Cost of goods sold will be over stated and net income will be understated

The effect of recording depreciation for the year is a:

Decrease in assets and a decrease in net income

Journal Entry for all Depreciation Methods

Depreciation Expense Accumulated Depreciation

NOT allowed by the IRS

Double-Declining Balance

Recording Sales - Perpetual 3. Paid shipping cost

Freight-out Cash

NO amortization

Goodwill & trademarks

Resources that are used in operations more than one year with no physical substance are called:

Intangible assets

Recording Inventory Purchases: Perpetual system 1. Record Purchase

Inventory A/P

Recording Sales - Perpetual 5. Adjust Inventory

Inventory COGS expense

Recording Inventory Purchases: Perpetual system 2. Record payment for shipping

Inventory Cash

When the market value of inventory items has declined below their cost, which method would be the most appropriate in complying with GAAP?

Lower of Cost or Market

Double-declining balance

NBV x DDB

Recording Sales - Perpetual 4. Record the sales return

Sales Revenue Cash

If a company has average inventory of $18,750 and cost of goods sold is $150,000, what is true?

The company had an inventory turnover rate of 8 times

If the amount assigned to ending inventory is incorrect, then:

both the balance sheet and the income statement are affected

Straight-line method

cost - salvage value/ useful life (yrs)

days-in-inventory ratio

dividing 365 by the cost of goods sold

Transportation-in is:

part of the cost of net purchases

Depletion

represents the cost of the natural resource that is removed during the period

A company selected FIFO for its inventory costing method. Pollens profits will be maximized in 2012 in a period of:

rising prices

At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory of:

the buyer

The cost of goods sold is equal to:

the cost of goods available for sales less ending inventory

At the year end inventory count, if goods in transit are shipped FOB destination, they should be included in the year inventory count of:

the seller