Intermediate Ch 7

Zeiger Corporation sells gods to a customer on account for $2,000, terms 2/10,n/30. When the customer pays on the 12th day, Zeiger records which of the following?

Debit cash $2,000

expense accounts are closed to income summary with:

Debit entry to income summary credit entry to expenses

In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance?

Deposit outstanding

Another term for principle amount of a note receivable is

Face amount

True or false: An interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest.

False With a noninterest-bearing not, the interest is deducted from the principal of the note.

Signing a long-term promissory note is a

Financing Activity

sale of receivables or secured borrowing

Financing receivables can be done by a

Voluntary changes in accounting principle

GAAP requires to be accounted for retrospectively

Emerging Issues Task Force

Group dealing with emerging issues - US GAAP

Using an adjusting entry at the end of the period for any remaining future expected returns and as returns occur

How do sellers typically account for returns?

When a lender believes it is probable that not all principal and interest will be collected on a long-term note receivable, what is recognized?

Impairment loss

noninterest

In a __________ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan.

account receivable

Informal credit agreement with trade customers

IFRS does not allow which inventory valuation method

LIFO

NSF stands for:

Non-Sufficient funds

In a _______, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan

Non-interest bearing note

a noncurrent asset

On January 1,2012, Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

Third step in determining impairment of receivables

Perform impairment test

Estimated returns are material

Recognize estimated returns during year of sales

Which of the following are errors in accounting for cash?

Recording a check for $168 for $186 in the cash account. The bank processing a check for $210 as $120. Recording a cash collection of $4,000 but depositing $3,000 into the bank.

no entry is required on the company's books

Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What is the journal entry required to correct this error?

Investing Activity

Selling Equipment

1933 Securities Act

Sets forth accounting and disclosure requirements for initial public offerings of securities

Short term Investment

Short term investments has a maturity of three months or less that can be converted to cash with little risk of loss that are classified as cash equivalents

posting

The Process of transferring debit and credit information from the journal to ledger

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank made an error in recording a deposit made by the company.

Who is responsible for providing an opinion on management's assessment of internal control?

The company's auditors

Which of the following is not a characteristic of an asset classified as inventory?

The item is currently used as part of the company's day-to-day operations

measurement

The process of associating numerical amounts to the elements in the financial statements

How do long-term notes receivable differ from the short-term notes receivable?

The time value of money has a larger effect on a long term notes receivable

How do long-term notes receivable differ from short-term notes receivable?

The time value of money has a larger effect on long-term notes receivable

discounting a note receivable

The transfer of a note receivable to a financial institution for an amount less than the face amount of the note is referred to as

securitization and factoring

The two most common types of selling arrangements for accounts receivable are

When should Mainzel recognize the related revenue?

When it's earned.

a trade discount is

a percentage reduction from a list price

Financing with recievables is accomplished through

a secured borrowing or a sale of recievables

In a bank reconciliation, interest revenue earned on a company's bank account is:

added to the company's cash balance

The effect of salaries and wages incurred but not yet paid would be reflected in the account balances shown on the:

adjusted trial balance

factors considered when estimating sales returns

change in customer base overall economic conditions

The most critical element in determining if a company can account for the transfer of receivables as a sale is the surrender of ________.

control

The most critical element in determining if a company can account for the transfer of receivables as a sale is the surrender of ___________

control

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?

corporate management

When a company discovers an Immaterial error in a year subsequent to the year the error is made, what is the proper course of action?

correct the error in the year discovered

When inventory is written down, the reduced inventory value becomes the new _________ _________.

cost basis

Cost index for layer year

cost in layer year/cost in base year

cost-to-retail percentage formula

cost of goods available for sale/retail of goods available for sale (before net markdowns)

On November 1, 2017, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, 2017 requires:

credit to rent expense $11,000

Revenues are $1,000. Expenses are $1,800. The journal entry required to close the income summary account will require a ________ to income summary and a _______ to retainted earnings

credit; debit

Calculate goodwill

current assets + property, plant, and equipment+ other assets- current liabilities- long-term liabilities=amount cash-previous amount

Working capital

current assets minus current liabilities

Purchase inventory on account

debit inventory credit accounts payable

Prepaid rent

debit prepaid rent credit cash

To close revenue accounts

debit revenue credit income summary

An adjusting entry for accrued expenses involves a

debit to an expense credit to a liability

Accrued salary is recorded by:

debit to salary expense credit to salary payable

Adjusting journal entries are necessary for three situations:

deferrals, accruals and estimates

current liabilities

deferred revenues and accrued salaries payable

Accounting for land improvements requires that the land improvements are capitalized and then ________over periods benefited by their use.

depreciated

Comparative financial statements purpose

detect and predict trends compare year-to year data

A periodic performance review is an example of

detective control

A periodic performance review is an example of a

detective control.

First step in measuring inventory and cost of goods sold

determining the physical quantities of goods

Interim financial Earnings per share is consistent with which view

discrete view and follow same procedures as annual calculations calculations are based on what is happening in that quarter rather than conditions estimated to exist at end of fiscal year

Which of the following are among the basic assumptions underlying U.S. GAAP? (select all that apply) a) periodicity b) neutrality c) revenue recognition d) going concern e) fulldisclosure f) economic entity g) monetary unit

economic entity, going concern, periodicity and monetary unit

statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:

either an operating or financing cash flow

Internal control consists of plans to:

enhance the accuracy of accounting data enhance the reliability of accounting data and promote operational efficiency

Vertical analysis

examines the relationship of items on the financials of one year

An asset retirement obligation is measured at _____ value

fair

annuity due

first payment is due at signing of agreement

ordinary annuity

first payment is due at the end of the first month after signing the agreement

journal entries

from here on

IFRS allows expenses to be classified by

function or nature

Future value of an ordinary annunity

future value of a series of equal-sized cash flows with the first payment taking place at the end of the first period

Future value of an ordinary annuity table is used when calculating

future value of a series of payments example: depositing an amount to a savings account each month that will grow to purchase a car in 5 years

____ method of recording sales views a discount not taken by a customer as part of the sales revenue

gross

the ___________ of recording sales revenue recognized the discount not taken as part of the sale

gross method

The two methods used for recoring sales discounts are the

gross method net method

two methods used for recording sales discounts are

gross method and net method

Impairment loss

if book value (carrying value) of an asset is more than fair value minus cost to sell the asset

dollar-value LIFO

if prices have changed, use cost indexes to determine whether an observed increase in inventory is an actual increase in the quantity of inventory or one caused by an increase in prices

Reporting comprehensive income:

in a single statement of comprehensive income or in two consecutive statements - income statement and comprehensive income statement

Where is a note recievable reported in the balance sheet?

in either current or non-current assets, as appropriate

LIFO

in period of declining costs would result in the highest ending inventory

Accounts receivable are normally classified

in the balance sheet as current assets

goodwill

indefinite

Separations of duties requires that

individuals who have physical responsibility for assets should not have access to accounting records.

Accounts receivable are __________ credit agreements typically due within 60 days of the sale.

informal

compound interest

interest on initial investment plus interest calculated on previously earned interest

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits

Deferred revenue is a(n)

liability on the balance sheet

copyright

life of creator plus 70 years -exclusive right of protection given to a creator of a published work

It is likely that bad debt accruals under IFRS will be _____ and will occur _____ than under U.S. GAAP.

lower, later

Responsibility for the financials and other information found in the annual report lies with ____________

management

specific identification inventory cost flow method

matches each unit on hand at the end of the period with its actual cost

A temporary purchases account is used when the _____________ inventory system is used

periodic

Separation of duties and E-commerce controls are examples of

preventative controls.

A typical note receivable requires payment of a specified dollar amount at a specified maturity date in the future. What are items for the specified dollar amount?

principle or face amount

main focus of accounting information is to?

provide useful information for decision making

IFRS impairment indicator guidance

provides an illustrative list of loss events

Inventory includes

raw materials, work in process, finished goods

A company's claims to the future collection of cash, other assets, or services is called a ____

recievable

Securities and Exchange Commission

regulatory oversight U.S. GAAP

hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics:

relevance and faithful representation

For accounting information to be ____________________,it must possess predictive value and/or confirmatory value.

relevant

temperary earnings

result from transactions or events that are not likely to occur again in the foreseeable future or that are likely to have a different impact on earnings in the future

FIFO perpetual inventory system and FIFO periodic inventory system

result in the same ending inventory and cost of goods sold

Changes in inventory method generally are accounted for __________.

retrospectively

Expense recognition often matches _________ and ___________ that arise from the same transaction

revenue and expenses

The revenue/expense approach focuses on the income statement because it relies on ________________ accounting princile

revenue recognition and matching

Operating Income on income statement

revenues and expenses directly related to the primary revenue-generating activities of the company. Provides a measure of profitability for core (or normal) operations, a key performance measure for predicting the furture profit generating ability

What are Permanent Temporary:

revenues, expenses, dividends

Obsolescence may impair the _______ of inventory.

salability

A reversing entry is used after accruing 3 days of salaries at year-end. To make the reversing entry, the accountant would debit which account?

salaries payable

The seller views returns as a reduction of net ______, whereas the buyer views returns as a reduction of net ______.

sales purchases

A critical aspect of a good internal control system is

separation of duties

Companies finance with their receivables to

shorten the operating cycle increase cash flow and receive cash before customers would pay amounts due

Statement of Shareholders' equity

shows the sources of the changes in the various permanent equity accounts

LIFO disadvantages

significant recordkeeping costs, possibility of LIFO liquidation

the dollar-value LIFO (DVL)

simplifies record keeping reduces the risk of liquidation of layers

As the number of periods increase, present value factors become ________________

smaller

IASB's main objective is to develop a single set of global accounting _____________ that are high-quality, understandable, and enforceable.

standards

A classified balance sheet shows

subtotals for current assets and current liabilities.

gross method of purchase discounts

subtracts the discount from total purchases to determine net purchases

Income Statement (Statement of Operations)

summarizes revenues and expenses for a period of time Used to predict future profitability and future cash-generating ability

management should hold the minimum amount of cash to:

take advantage of opportunities, conduct business operations and meet its obligations

Plant, property and equipment characteristics

tangible, used long-term in production

Donald company purchases and sells inventory f.o.b. destination. On December 31, the company sells 10,000 units and receives notice that 40,000 units have been shipped by its supplier. Which units should be included in Donald company's ending inventory?

the 10,000 units sold are included as they have not not reached their destination

The type of information included in an account includes:

the account number, columns for increases and decreases, and account title

The post-closing trial balance helps to verify that:

the accounts are ready for next period's transactions we prepared and posted closing entries correctly

Net realizable value

the amount of cash into which an asset is expected to be converted in the ordinary course of business

The average collection period indicates

the average number of days it takes to collect on account

One of the most important internal controls for cash is

the bank reconciliation.

If a note with an unrealistic inerest rate is recieved solely in exchange for cash, the present value of the note is considered to be

the cash paid

Depreciation is an allocation of

the cost of buildings

Timothy Company purchases merchandise costing 100,000. The payment terms are 3/10, n/30. if Timothy Company utilizes the gross method and pays the amount within the 10-day period

the cost of inventory will be reduced by 3,000.

Current Cost

the cost that would be incurred to purchase or reproduce the asset today

Present value

the measurement attribute that is based on future cash flows discounted for the time value of money

The LIFO inventory method that the units sold are

the most recent units purchased

Current liabilities are due within

the next year.

when a note receivable is impaired, it is remeasured based on what

the present value of currently expected cash flows

If the company uses the direct write-off method, what would bad debt expense be for 2016

the same amount as the accounts receivable written off

Direct method and indirect method of preparing the statement of cash flows result in _______________

the same net cash flows from operating activities and the same presentation of investing and financing activities

differences between the book balance and bank balance occur due to ______________ differences and ___________

timing errors

A non-sufficient funds check requiring an adjustment to the cash balance was written

to the company preparing the bank reconciliation

The sum of current and long-term assets reported on the balance sheet is referred to as

total assets.

Step 3 of the accounting processing cycle

transaction is recorded in a journal

Prepayments are:

transactions in which cash flow precedes revenue recognition and/or expense recognition

Present value calculations are used in calculating pension contributions for defined benefit plans true/false

true

long-term notes receivable are accounted for the same way as short-term notes receivable, but the time value of money has a larger effect true/false

true

sale of accounts receivables results in removing the accounts receivable from the balance sheet true/false

true

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial

Horizontal analysis

uses ratio analysis or trend analysis of financials across multiple years

which of the following is not a receivable

wages earned by the employees but not yet paid by the company

For capitalization of interest on self-constructed assets, the average accumulated expenditures is the

weighted-average expenditures during the construction period

accounting error

when a transaction is recorded incorrectly or not recorded at all

Adverse opinion

when auditor finds exceptions that are so material that the financials may be misleading

qualified

when there is an exception to the standard opinion but not of sufficient seriousness to invalidate the whole of the financials

In a factoring arrangement made ______ recourse, the seller bears the risk of uncollectibility.

with

the balance in accounts receivable at the beginning of 2018 was $700. During 2018, $2,200 of credit sales were recorded. If the ending balance in accounts receivable was $170 and $100 in accounts receivable were written off during the year, the amount of cash collected from customers during 2018 was:

$2,630 700 receivables beginning yr 2,200 credit sales 170 receivables end yr 100 wrote off 700 + 2200 - 170 - 100 = 2630

Ajax Company purchased a two-year certificate of deposit for its building fund in the amount of $250,000. How much should the certificate of deposit be worth at the end of two years if interest is compounded at an annual rate of 9%?

$297,025 250,000 x 1.18810 = 297,025 FV of $1

Below is a schedule of accounts receivable. Using the aging method, determine the ending balance in the allowance for uncollectible accounts.

$4,800

Adams company utilizes LIFO inventory pools. Current period beginning inventory cost was $5,500. At the end of the period, the company determines that a layer of 100 units has been added. Average current year purchase price per unit was $6,000. The most recent cost per unit was $6.50. The amount of ending inventory should be:

$6,100 The LIFO layer is added at the average cost of purchases made during the period $6 x 100= 600+5500 = 6,100

Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were:

$61,740 face amount + interest to maturity 60,000 x .10 x 1/12= 3,000 = 63,000 maturity value - discount discount 63,000 x .12 x 2/12 = 1,260 63,000 - 1,260 = 61,740

Carol wants to invest money in a 6% CD account that compounds semiannually. Carol would like the account to have a balance of $80,000 four years from now. How much must Carol deposit to accomplish her goal?

$63,153 i = 6/3 = 3% n=4x2 = 8 80,000x.78941 = 63,153 PV of $1

Gammy Corporation provides services with a normal price of $800,000 and a trade discount of $100,000. Terms are 2/10,n/30 and the customers pay within 10 days. The net service revenue is

$686,000

Lee accepts a $100,000, 90-Day noninterest-bearing not recievable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sale is

$97,000

intangible with estimated useful life

-

Adjustments to the bank balance in a bank reconciliation include:

- Adjustments for BANK ERRORS - Add DEPOSIT OUTSTANDING - Deduct CHECKS OUTSTANDING

Receivables represent a company's claims to the future collection of _____

- Cash - Services - Other assets

Internal control consists of plans to

- Encourage adherence to company policies/procedures - promote operational efficiency - minimize errors/theft - enhance the reliability/accuracy of accounting data - improve the accuracy/reliability of accounting info - Safeguard company assets

Services performed by a factor

- buy accounts receivable - handle billing and collection of accounts receivable

Which of the following items are classified as receivables? -Amounts loaned and expected to be repaid -Tax refund claims -Amounts owned by customers -Amounts due to suppliers -Amounts paid for expenses

-Amounts loaned and expected to be repaid -Tax refund claims -Amounts owed by customers

The retail inventory method can be used to approximate

-FIFO -LIFO -average cost

Which of the following inventory methods result in the same ending inventory and cost of goods sold?

-FIFO periodic inventory system -FIFO perpetual inventory system

What two approaches are appropriate for estimating future bad debts?

-Income statement approach -Balance sheet approach

Restrictions on cash can be

-Informal arising from management intent -Formal by contract

Which of the following must be known to apply the retail inventory method?

-Inventory and purchases based on cost -inventory and purchases based on retail value

In what kind of situations does a sales return occur?

-a customer returns merchandise for credit to be applied to other purchases -a customer returns merchandise for a full refund

cash that is restricted and is not available for current use may be reported in the balance sheet as

-a noncurrent asset -investments and funds -other assets

Which accounts would an analyst investigate to detect if accounts receivable may impact earnings quality?

-bad debt expense -allowance for uncollectible accounts

The retail inventory and gross profit methods are similar in that they both rely on the relationship between which of the following to estimate ending inventory and cost of goods sold?

-cost -selling price

which of the following items are included in cash

-currency and coins -balances in checking accounts, items acceptable for deposits in these accounts (checks and money orders

What are some examples of adjustments to the bank balance in a bank reconciliation?

-deduct checks outstanding -adjustment for bank errors -add deposits outstanding

The cost of natural resources includes which of the following?

-development -acquisition cost for the use of land -exploration costs before production begins -restoration costs at the end of extraction

What type of expenditures should be included in the cost of inventory of a merchandising company?

-expenditures necessary to acquire inventory -expenditures necessary to bring inventory to necessary condition and sales location

Which of the following are included in inventory?

-goods that manufactures produce for sale -assets a retail company acquires for resale

A perpetual inventory system continuously records changes in what?

-inventory quantity -inventory cost

The definition of inventory includes which of the following items

-items held for resale -items currently in production for future sale -items used currently in the production of goods to be sold

Which of the following costs are capitalized as an asset for an internally developed patent?

-legal fees -filing fees

Taking a "big bath" tends to impair a company's

-net income -earnings quality

The gross profit ratio highlights the relationship between which of the following?

-net sales revenue -cost of goods sold

which of the following are classified as natural resources?

-oil deposits -mineral deposits

When is it appropriate to recognize a liability for an asset retirement obligation?

-over the asset's life as incurred -at the inception of the asset's life if a legal obligation exists.

A typical note receivable requires payment of a specified dollar amount at a specified maturity date in the future. What are terms for the specified dollar amount?

-principal -face amount

Which of the following accounts are typically reported on the balance sheet of a manufacturing company?

-raw materials -work in process -finished goods

What are classified as receivables?

-tax refund claims -amounts owed by customers -amounts loaned and expected

which of the following are the two approaches of estimating future bad debts

-the balance sheet approach -income statement approach

How is inventory recorded related to returns?

-the inventory account is increased when returns occur to include the returned items -inventory expected to be returned as an asset on the balance sheet

What is included in the cost of merchandise inventory?

-the purchase price of the goods -necessary costs incurred to get the goods in location for sale

Consistent with international financial reporting standards, which of the following cost flow assumptions are currently permitted?

-weighted-average -first in, first out

Comprehensive income reporting options:

1) a single, continuous statement of comprehensive income 2) two separate but consecutive statements

FASB standard setting process:

1) board adds a project to its technical agenda 2) the board deliberates at one or more public meetings 3) the board issues an Exposure Draft or Discussion Paper 4) the staff analyzes comment letters 5) the board issues an Accounting Standards Update (research, discussion paper, exposure draft, accounting standard update)

Sarbanes-Oxley act key provisions include:

1) restricting activities of auditors to prevent conflects of interest 2) requiring that corporate executives certify financials 3) requiring documentation and assessing effectiveness of internal controls

steps that pertain to the dollar-value LIFO retail method in the correct order.

1. ending inventory at year-end retail prices is converted to base-year retail prices 2. Inventory layers at base-year retail prices are identified 3. Using layer indexes and cost-to-retail ratios, inventory layers convert to LIFO cost.

Identify the entries needed for the closing process. .

1.Debit each revenue, credit each expense, and record the difference in Retained Earnings. 2.Credit Dividends Declared and debit Retained Earnings.

Adjusting entries are needed in order to

1.measure the period's net income or loss 2.update the accounts to their proper balances

Present value factors formula

1/(1+i)^n

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the average cost method is

12,900 average cost of purchases: [(800 x 20) + (400 x 22)+(400 x 24)]/1600 = 21.50 21.50 x 600 = 12,900

during the year, claire wrote off $9,000 of accounts receivable that were uncollectible. What is bad debt expense for the period?

16,000

Norwalk Agreement

2002, FASB and IASB formalized their commitment to remove existing differences between US GAAP and IFRS

Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest ae is 6%, what is the present value of this annuity?

3,901 PVAD factor of 6% for 10 years 7.80169 x 500 = 3,901

Payment for credit sales are typically due in _ to _ days.

30,60

Lakeland Corp. Calculates that in the current year its employees earned an additional annuity of $10,000 for 20 years commencing with their retirement 12 years from today. Lakeland assumes a future interest rate of 6%. If the value of the annuity is $121,581 on the date the employees retire, what amount should be contributed today to fully fund the pension plan?

60,422

note receivable

A formal credit arrangement between a creditor and debtor is called a

_____ _____ are created when sellers recognize revenue associated with a credit sale.

Accounts receivable

Statement of cash flows is useful because

Accrural based income is not an indication of cash flow

Name a contra account to account receivables.

Allowance for sales returns

Asset

An item owned by the company representing probable future benefits. A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events

A bed debt expense is

An operating expense incurred to make sales

For a typical credit sale, the revenue recognition criteria is usually satisfied -When all expenses are estimated. -When cash is collected. -When the contract is signed. -At the point of delivery.

At the point of delivery.

Employees purchases should be included in the accounting records:

By the end of the accounting period

Inventory Turnover Ratio

COGS/Average Inventory shows how many times the average inventory balance is sold during the current reporting period

current asset

Cash and cash equivalents are included in the ____________ section of the balance sheet.

in the current asset "cash" account

Checks received from customers that have not been deposited yet are included where on a company's balance sheet?

The framework for designing an internal control system is provided by the:

Committee of Sponsoring Organizations (COSO) of the Tread way Commission

A(n) _______ balance is a cash restriction in connection with a loan that creates a higher effective interest rate on that loan.

Compensating

First step in determining impairment of receivables

Consider whether individual significant receivables are impaired

cash flows

Consistent with IFRS, determining whether risks and rewards have been transferred is evaluated by comparing how variability in the amounts and timing of the ____________ of the transferred affects the company before and after transfer.

An allowance for sales return account is classified as a(n)

Contra account to accounts receivable.

Which of the following items are included in cash?

Currency and Coins Checks from Customers Balance in Checking Accounts

List the steps for a bank reconciliation in correct order:

Adjust bank's cash balance, adjust the company's cash balance, update the company's cash account by recording items identified in the previous step.

Which of the following statements describes the effect that adjustments may have on liabilities?.

Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

Which of the following require inventory to be valued at the lower of cost and net realizable value?

Both U.S. GAAP and IFRS

Which of the following services preformed by a factor?

Buy accounts receivable. Handle billing and collection of accounts receivable.

framework for designing an internal control system is provided by

COSO - Committee of Sponsoring Organizations of the Treadway Commission

True or false: Internal controls prevent and detect all errors and fraud.

False

True or false: Variability in operating cash flows is unimportant as long as the total cash flows over a three-year period is sufficiently positive.

False

A note receivable is an informal agreement, whereas an account receivable is accompanied by a formal promissory note. True False

False An account receivable is informal and a note receivable is formal and accompanied by a promissory note.

The gross method and the cash method are the two ways to record sales discounts. True False

False The gross method and the net method are the two ways to record sales discounts.

Which set of standards requires more disaggregation of accounts receivable and notes receivables in the balance sheet or notes?

GAAP

The two methods used for recording sales discounts are the _______ method and the _______ method.

Gross; Net

Second stepin determining impairment of receivables

Group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) _______ _______ approach to measuring bad debts

Income statement

bad debt expense is reported on the

Income statement operating expense

financial statements most frequently provided to external users

Income statement, balance sheet, state of cash flows, statement of shareholders equity

On October 1, Calloway signs a 5-year interest-bearing note payable for $4,000. The note bears interest of 10%. The journal entry required on December 31 to accrue interest will include:

debit to interest expense $100 4000 x .10 x (3/12) = 100

historical cost principle

The principle stating that asset and liability measurements should be based on the amount given or received in the original transaction

Financial Accounting Standards Board (FASB)

The private sector organization that is currently responsible for setting accounting standards in the U.S. is the?

transaction analysis

The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved

consistency concept

The qualitative characteristic of using the same accounting method each period over time refers

Identify all transactions that do not require adjusting entries..

Transactions that do not involve revenue or expense activities. Transactions that result in revenues or expenses being recorded at the same same time as the cash flow

The _______ recognizes a note receivable in a secured borrowing agreement.

Transferee

Match the impairment indicators with the correct account standard.

U.S. GAAP - Impairment if probable and can be measured reliably IFRS - Objective evidence exists that a loss event will affect future cash flows and can measured reliably

liabilities

U.S. GAAP requires that bank overdrafts be treated as __________ on the balance sheet where IFRS allows them to offset other cash accounts.

correctly match the impairment indicator guidance with the accounting standards the pertain to

U.S.GAAP-provides an illistrative list of information to consider in evaluating receivable for impairment IFRS- provides an illustrative list of loss events

income statement

Using a percentage of each period's net credit sales to estimate bad debt expense is an ___________________ approach to measuring bad debts.

debit sales returns; credit accounts receivable

Warner sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

a(n) ________ _____________ is an informal credit arrangement to receive cash from a credit sale and represents an asset of the company

accounts receivable

match each term with its definition

accounts receivable-informal credit agreement with trade customers note receivable- formal credit arrangement between borrower and lender

Other comprehensive income is reported in the current reporting period on the income statement or as an addition to the income statement, and _____________ other comprehensive income is reported on the balance sheet

accumulated

factors that influence choice of inventory cost flow assumption

actual physical flow of inventory tax implications of choice financial statement effect

a sale to a customer on account should be recognized when the goods or services are delivered and

collection of the receivable is probable

When adjusting the book balance in a bank reconciliation must be added to the cash account book balance?

collections of funds by the bank

The accounting term for a situation where two or more people act in coordination to circumvent internal controls is _____

collusion

When two or more persons work together to circumvent internal control procedures and commit a fraud this is called

collusion.

A nonmonetary exchange is considered to have ______ _____ if the future cash flows will change as a result of the exchange

commercial substance

ratio analysis

common method of analysis is to express a relationship between the two financial statement items and compare this relationship with previous years

Shareholders' equity includes?

common stock and retained earnings

Common disclosures on the face of the financials

common stock information allowance for uncolletible accounts

Accrual adjustments are needed when a

company has earned revenue or incurred an expense but cash has not been exchanged

a restriction of cash wherein the borrower is required to maintain a specific amount in a low-interest or non-interest-bearing account at the bank is called a(n) _______________ balance.

compensating

A cash restriction imposed by a bank wherein the debtor must leave a certain amount of funds such as 5% of the original loan in the low-interest or noninterest-bearing account is a

compensating balance

A cash restriction imposed by a bank wherein the debtor must leave a certain amounts of funds such as 5% of the original loan in the low-interest or noninterest-bearing account is a

compensating balance

discontinued operation is reported when a ____________ of an entity either has been disposed of or is classified as held for sale

component

Two types of adjustments to net income for indirect method

components of net income that do not affect cash changes in operating assets and liabilities during the period that affected cash and were not in net income

The "accounting constitution", a coherent system of interrelated objectives and fundamentals that lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting is referred to as the ______________ framework.(enter only one word)

conceptual

Companies have considerable flexibility in reporting income from __________ operations, but the reporting of income from ___________________ operations is strictly mandated

continued discontinued

The account sales return and allowances account is a(n) _. _ account and requires a _ entry to increase the account.

contra - revenue debit

an allowance for sales return accounts is classified as a(n)

contra account to accounts receivable

The discount on notes receivable account is classified as

contra account to notes receivables

The sales returns and allowances account is classified as a

contra revenue account

The Esquire Clothing Company borrowed a sum of cash on October 1, 2018, and signed a note payable. The annual interest rate was 12% and the company's year 2018 income statement reported interest expenses of $1,260 related to this note. What was the amount borrowed?

42,000 1260/.03 = 42,000

Sarbanes-Oxley Act requires lead audit partners are required to rotate every ________ years

5

The present value is $29,650, the future value is $50,000, and the interest rate is 11%. The number of periods is approximately

5 29,650/50,000 = .593 PV table - find 11% column, find factor .593

On January 1, year 1, Dennis borrows $20,000 at 6% interest compounded semi-annually. What is the amount of interest Dennis will pay at the end of year 4?

5,335 [20,000 x (1.03)] - 20,000 = 5,335

Excerpts from Huckabee Company's December 31, 2018 and 2010, financial statements are presented below: 2018 2017 A/R 81,000 73,000 Inventory 59,000 73,000 Net Sales 401,000 373,000 COGS 241,000 221,000 Huckabee's 2018 receivables turnover (rounded to 2 decimal places) is

5.21 (81,000 + 73,000)/2 = 77,000 401,000/77,000 = 5.207 or 5.21

current assets

Accounts receivable are ________ because they will be converted to cash within the normal operating cycle.

allowance for collectible accounts and allowance for sales returns

Accounts receivable are initially recorded at the exchange price agreed upon by the buyer and seller and subsequently reduced by what?

Which of the following items are not included in cash?

Accounts receivable from customers.

Which of the following steps are necessary to reconcile the bank balance and the cash account balance.

Adjust bank's cash balance Adjust the company's cash balance Record items that reconcile the company's cash balance

A gain from discontinued operations will result in an income tax _________, whereas a loss from discontinued operations will result in an income tax __________

expense benefit

Cost to develop computer software to be used internally should be treated as a(n) ______, whereas costs after the development stage is complete should be treated as a(n) _____.

expense asset

Accrued liabilities are ___________________

expenses incurred before cash was paid (interest payable, warranty liabilities, salary payable)

Adjusting journal entries are needed to record:

expenses incurred, but not yet paid and revenue earned, but not yet received

Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financials?

expenses will increase

The primary role of financial accounting is to provide useful financial information to users __________ to the business enterprise.

external

The formula for calculating interest includes which one of the following?

face amount X annual rate X fraction of the annual period

The two most common types of selling arrangements for accounts receivable are

factoring securitization

The two most common types of selling arrangements for accounts receivables are _____ and _____.

factoring, curitization

An exchange of assets that has commercial substance is valued at the_____ value of the assets given or received, whichever is more clearly evident, but an exchange that lacks commercial substance is valued at the_____ value of the assets given

fair book

The basic principle far valuing assets in a nonmonetary exchange is to value the asset received at

fair value

alternative method for valuing notes receivable

fair value method

an interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest true/false

false

Two most common sources of occupational fraud are:

financial statement manipulation misuse of company resources

Disclosure is the process of including additional pertinent information in?

financial statements and notes to the financial statements

The classifications on the statement of cash flows are cash flows from

financing activities investing activities operating activities

statement of cash flows, cash received from the issuance of common stock would be classified as a ________________

financing activity

Once products are completely manufactured, the related costs are transferred to ___________________ ________________.

finished goods

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

During the year, Inga Corporation writes a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of collecting the written-off accounts receivable on net income?

no effect

Cobalt Corp. uses the allowance method to account for bad debts. If Cobalt writes off an account for $3,000, what is the effect on the balance sheet

no effect on total assets

Interest expenses is classified on the income statement as

nonoperating item

The acronym NSF stands for

nonsufficient funds.

The transfer of a(n) ___________ __________________________________ to a financial institution is called discounting.

note receivable

When a receivable, trade or nontrade, is accompanied by a formal promissory note, it is referred to as a _____ _____.

note receivable

a formal credit arrangement between a creditor and debtor is called a(n)

note receivable

internal control system is designed to

promote operational efficiency safeguard assets encourage adherence to company policies

Sarbanes-Oxley Act requires that if non-GAAP earnings are included in a report of any public disclosure, the company must

provide a reconciliation with earnings according to GAAP

Internal control consists of plans to

provide accurate and reliable accounting information. safeguard company assets.

Initial market transactions

provide for new cash by the issuance of stocks and bonds by the corporation.

Interim reporting objectives

provide information about seasonality enhance the timeliness of finanacials

GAAP impairment indicator guidance

provides an illustrative list of information to consider in evaluating receivables for impairment

LIFO

provides better matching of current revenues with current inventory cost

Financial reporting is the process of ______________

providing information to outside users

Debit and credit cards used by employees in the course of fulfilling their employment objective are commonly referred to as

purchase cards.

Neumann Corporation has entered into a contract with its vendor to purchase 1,000 units of merchandise at $520 per unit. This is an example of a ___________ _____________________

purchase commitment

deducted in the cost column

purchase dicounts taken (if gross method used to record purchases)

Wholesale and retail companies

purchase goods that are primarily in completed form

manufacturing companies

purchase goods that are used to produce another product

when a buyer returns goods to the seller, the buyer records a(n) ______________

purchase return

what ratios measure liquidity

quick ratio and current ratio

With respect to current assets, liquidity refers to how.

quickly an asset can be converted to cash

effect rate

rate at which money will actually grow during a full year

gross accounts receivable less allowance for doubtful accounts is the net _________value of accounts receivable

realizable

A claim to recieve cash in the future is a

receivable

a company's claims to the future collection of cash, other assets, or services is called a _.

receivable

Tax refund claims, loans to employees, and interest due on a loan made by the company to another entity are all examples of nontrade __________.

receivables

During the prior year, Marian Company recognized an impairment loss on its notes receivables. During the current year, the amount of estimated future cash flows improved. Marian sould

recognize a gain

Estimated returns are material

recognize estimated returns during year of sales

Estimated returns are immaterial

recognize returns when they occur

Klein Company's accountant is unable to reconcile the current year bank and cash account balances. If no cause can be determined to explain this difference, the difference should be

recognized as miscellaneous expense or revenue.

One of the most important internal controls for cash is the bank _____.

reconciliation

the required accounting treatment for transfer of receivables as a sale includes which of the following

record proceeds recognize gain or loss remove receivables

At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will still be returned by customers during the subsequent year. Kunze Corporation must

record the estimated returns at the end of the year.

Freight out (or transportation out)

recorded as either selling expense or cost of goods sold

The primary disadvantage of offering discounts to customers is that they:

reduce current period net revenue

Depreciation expense adjusting entry has what effect on the balance sheet

reduce total assets

what happens when a receivable previously written off is collected in full

reinstate the receivable and the allowance for uncollectible account

permanent earnings

relate to operations that are expected to generate similar profits in the future. (usually begin with income from continuing operations (not all of this is actually from continuing operations)

Nonoperating Income (Other Income (expense))

relates to peripheral or incidental activities of the company

Gross Profit

relationship between sales revenue and cost of goods sold

Proponents of fair value accounting point out that it will enhance the ____________ of the information provided

relevance

A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the _______ _____ account.

rent expense

The purpose of recording an allowance for uncollectible accounts is to

report accounts receivable at net realizable value.

cash flows may be distored by the transfer of receivables because companies may

report sale of receivables in the operating section of the statement of cash flows

Strong internal control systems allow greater reliance by investors on:

reported financial statements

Income Tax Expense (provision for income taxes)

reported in a separate line in the income statement Income taxes are levied on taxpayers in proportion to the amount of taxable income that is reported to taxing authorities

what is on a Balance sheet:

reports assets, liabilities, stockholders' equity

what is on a Income statement:

reports revenue minus expenses.

retained earnings

represents the net income earned by a corporation and not yet paid to shareholders

Compensation disclosure

required by SEC for Executives and directors

Subsequent event disclosure

required for any event having a material effect on operations that occurs after a company's year-end but before the financials are issued (issuance of debt or equity securities)

change in depreciation method

requires a justification in the notes to financials

Sarbanes-Oxley act, Section 404

requires companies must document internal controls and asses their adequacy

Full-disclosure principle

requires financials to provide all material relevant information regarding the company (pension plans, long-term debt, leases)

The key provisions of the Sarbanes-Oxley Act include requiring documentation and assessing effectiveness of internal controls

requiring that corporate executives certify financial statements restricting activities of auditors to prevent conflicts of interest

The key provisions of the Sarbanes-Oxley Act include

requiring that corporate executives certify financial statements. restricting activities of auditors to prevent conflicts of interest. requiring documentation and assessing effectiveness of internal controls.

The accounting treatment required for a material error in financials that have already been issued is to ______________

restate the financial statements of the previous periods affected

The cost to return land or other property to its original condition after extracting natural resources are referred to as

restoration

Cash that is _____ in some way and not available for current use usually is reported as a noncurrent asset such as investments and funds or other assets.

restricted

Cash that is not available for current operations is referred to as _____ cash.

restricted

The _________ _______ method uses the cost-to-retail percentage based on a current relationship between cost and selling price.

retail inventory

Emily Retail Company wants to estimate its ending inventory for annual financial reporting purposes. Which of the following methods can the company utilize?

retail inventory method

The two major categories reported in the income statement are:

revenue expense

a cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specied period of time is also referred to as a ______ discount

sales

Which of the following is a discount that is a reduction in the sales price if the customer pays within a specified time period?

sales discount

serves to relay important information about a transaction to the accountant?

sales invoices, bills from suppliers, cash register tapes

FIFO inventory method

tends to approximate replacement cost because units are priced using the most recent acquisition costs

The post-closing trial balance helps to verify that:

the accounts are ready for next period's transactions we prepare and posted closing entries correctly

Revenue in the income statement for the year ended December 31, 2018 equals

the amount earned by selling goods or services to customers during 2018.

Bill wants to give Maria a $510,000 gift in 6 years. If money is work 6% compounded semiannually, what is Maria's gift worth today?

$357,704 n=12 (6x2 = 12) i=6/2 = 3 510,000 x .70138 = 357,705 PV of $1

Which of the following are services performed by a factor?

-buy accounts receivable -handle billing and collection of accounts receivable

Garcia sells goods to a customer for $100,00 on a noninterest-bearing 180-day note. The discount rate is 12%. The effective interest rate for this note is

1) $100,000 X 12% X 180/ 360 days = $6,000 2) $6,000 / $94,000 = 6.383% 3) 6.383% X 2 = 12.77% annual interest

Neumann company places 100 units on consignment with Hartman consignments company. At the end if the accounting period, 45 units have been sold. How many units (if any) should be included in Neumann's ending inventory?

55 units

Cash and cash equivalents are reported as a single amount in the _____

Balance sheet

Place the asset categories in the order in which they would appear on a classified balance sheet.

Current Assets Long-Term Investments Property, Plant, and Equipment Intangible Assets

Cash and cash equivalents are included in the __________ __________ section of the balance sheet.

Current asset

Cash and cash equivalents are included in the ____ of the balance sheet

Current asset section

Company employees who make necessary expenditures during the course of their employment may utilize "purchase cards"

Debit and credit cards

Purchase supplies on account requires what journal entries

Debit supplies on hand credit accts payable

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

Debit to Sales Returns Credit to Accounts Receivable.

The closing entry for expense accounts involves the following journal entry.

Debit: Retained Earnings Credit: Expenses

Adam company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be

$2,540 2,880/900 = 3.2 3.2 x 700 = 2,240 2,240 + 300 = 2,540

When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance?

Deposits outstanding

Internal control consists of plans to

Encourage adherence to company policies and procedures Promote operational efficiency Minimize errors and theft Enhance the reliability and accuracy of accounting data.

The citation used to reference generally accepted accounting principles is

FASB ASC followed by the appropriate number

The __________ and the __________ are jointly working on the Financial Statement Presentation project

FASB and IASB

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?

FIFO

In a(n) _______ arrangement, the company sells its account receivable to a financial institution and the financial institution handles the billing and collections.

Factoring

True or false: All companies are required to have an independent auditor assess the adequacy of their internal control procedures.

False

True or false: Employee purchases using cash or purchase cards must be recorded immediately as business expense.

False

Which of the following steps are necessary to reconcile the banks balance and cash account balance

First, adjust the banks cash balance. record the items that reconcile the company's cash balance and adjust the company's cash balance

troubled debt

For a note receivable, if the original terms of the debt are changed due to financial difficulties of the borrower, this is referred to as a ___________________ restructuring.

the more likely it will prove uncollectible

For accounts receivable, the longer an account is outstanding,

check signing and check writing, and check writing and check mailing

For internal control purposes, what responsibilities should be separated for cash disbursements?

Control Environment

Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure

The income statement approach and balance sheet approach are two alternative ways to estimate the amount of

Future bad debts

Gain

Increase in equity from peripheral or incidental transactions. Result from changes in equity that do not result directly from operations but nonetheless are related to those activities. (sale of equipment, buildings, etc also included)

A company that has sufficient cash or is capable of converting assets to cash in a short period of time so that it can meet its current needs is considered to be -Liquid. -Profitable. -Risky. -Marketable.

Liquid

When assets are purchased in a group for a single sum, it is referred to as a

Lump-sum purchases

7.5%

Lydia Corp. borrows $25,000 from the bank at an interest rate of 6%. If the bank requires a compensating balance of $5,000, the effective rate of interest on the loan is

Who has final responsibility for internal controls?

Management

Who has the responsibility to apply accounting standards when communicating with investors and creators?

Management

offering cash discounts and extending payment terms

Management can influence credit and collections by

Reconciliation

Most important internal controls for cash is the bank ______________.

Earnings per share (EPS) basic

Net income (less dividends to preffered stock holders) / weighted average number of common shares outstanding weighted average example: 1 million shares outstanding beginning of period, 1 mill shares sold March 31, 2018 1,000,000 + 1,000,000(9/12)

Two statement approach:

Net income statement immediately followed by a statement of comprehensive income Comprehensive income statement begins with net income, followed by OCI items to arrive at comprehensive income there is a seperate income statement

_____ _____ allow a customer to pay an amount below the list price.

Trade discounts

Match the impairment indicators with the correct accounting standard.

U.S. GAAP - Impairment if probable and can be measured reliably IFRS - Objective evidence exists that a loss event will affect future cash flows and can measured reliably

Match the accounting standard with the appropriate treatment of receivables.

U.S. GAAP - Requires more disaggregation and disclosure of receivables. IFRS - Recommends but does not require separate disclosure of receivables.

Cash equivalents

US treasury bills, money markets, commercial paper with a 3 month maturity date or less from date of purchase

An informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as a

account recievable

Periodically, management should verify that amounts related to the company's physical assets agree with the _____ records.

accounting

Elements of the accounting equation are represented by _________ which are contained in the general ledger

accounts

The adjusted trial balance shows a list of all

accounts and their balances after we have updated account balances for adjusting entries.

A customer account that is not expected to be collected is referred to as a(n) _ debt.

bad

Monetary assets

accounts receivable cash note receivable (not inventory)

accouts that could be examined to detect potential low earnings quality

accounts receivable and allowance for bad debts

calculate bad debt expense for the year

accounts receivable balance at the beginning of the year X percentage of credit sales

The term net accounts receivable refers to

accounts receivable less the allowance for uncollectible accounts

internal controls for cash is the

bank reconciliation

Non-GAAP earnings are calculated

based on management's assumptions of permanent earning

Sales revenue is reported net of these amounts:

actual sales discounts taken by customers actual sales return and allowances granted to customers estimated sales returns and allowances pertaining to current year sales

purpose of a sales journal is to record

all credit sales

Trade discounts

allows a customer to pay an amount below the list price.

The sales discount account is classified as a

contra revenue account

The accumulated depreciation account is a contra (valuation) account to ___________________

asset account

When rent is paid in advance for 2 years, it is appropriately recorded as a(n) ______, whereas when rent is paid and used during one month, it is appropriately recorded as a(n) _______

asset; expense

for a typical credit sale, the revenue recognition criteria is usually satisfied

at the point of delivery

Which of the following is usually reported on the balance sheet as a noncurrent asset? a) Cash equivalents b) Restricted cash c) Inventory d) Accounts receivable

b) Restricted cash

Abby Company has three bank accounts with the following balances: account 1: $20,000; account 2: $40,000; account 3: $10,000 overdrawn. If Abby Company applies U.S. GAAP, it will report: a) cash of $70,000 b) liability of $10,000 c) cash of $50,000 d) cash of $60,000

b) liability of $10,000 d) cash of $60,000

markdown cancellation

elimination of markdown

In the closing process....

expenses and dividends are zeroed out by crediting each account and revenues are zeroed out by debiting each account.

Failure to record an adjusting entry for accrued interest on a note payable has what effect of financials:

expenses are understated retained earnings is over stated

Under the accrual basis of accounting, the matching principle requires that

expenses be recognized in the same period as the related revenues.

Most states require ________ to become a licensed certified public accountant

experience, education and testing

interest calculation formula

face value x annual interest rate x fraction of the annual period

The formula for calculating interest on a note is

face value x annual rate x fraction of the annual period

advantages of one global accounting framework:

facilitate access to capital improve comparability

annuity

fixed payment at fixed intervals

Income Approach

for measuring fair value estimates value by estimating future amounts of earnings or cash flows and then mathematically converting these amounts to a single present value

SEC does not agree with a standard issued by the private sector it can:

force a change in the standard

The two methods used for recording sales discounts are the __________ method and the _________ method.

gross net

Property, plant and equipment

mineral mines, oil wells, furniture, machines, buildings

Which of the following are components of internal control?

monitoring; control activities; risk assessment; control environment

Return on shareholders' equity (ROE)

net income/average shareholders equity amount of profit management can generate from the assets that owners provide.

Which organizations provide financial information to external users?

profit-oriented businesses and charitable organizations

A company's claims to the future collection of cash, other assets, or services is called a

recievable

A good internal control system would require that the employee who handles cash must not be involved in

reconcilin the bank statement

when merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _________ _________

sales return

FASB and IASB already developed converged accounting standards for:

share-based compensation, non-monetary exchanges and Earnings per share

Disclosure notes for discontinued operations must include

the identity of the component the major classes of assets and liabilities of the component the reason for the discontinuance

Accounts receivables from sales to customers are _ receivables.

trade

accounts receivable from sales to customers are _ receivables.

trade

Management can influence the collection of receivables based on the terms they offer true/false

true

Who has the responsibility for preparing financial statements in accordance with generally accepted principles?

Corporate Management

Prime corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net realizable value of accounts receivable?

$93,000

Cash uncludes

- currency and coins - balances in checking accounts - checks - money orders

Examples of what can be paid with petty cash

- entertainment expense - office supplies - postage expense

The formula for calculating interest multiplies which of the following

- face amount of note - fraction of the annual period - annual interest rate

Show the order in which these asset accounts would appear on a company's balance sheet.

1. Cash 2. Accounts Receivable 3. Equipment

Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be

6,000,000 720,000 / .12 = 6,000,000 ROA = net income / assets so 12% = 720,000/ assets = 6,000,000

On January 1, year 1, Mary borrows $30,000 at 8% interest compounded semi-annually. What is the amount of interest Mary will pay at the end of year 3?

7,960 [30,000 x (1.04^n)] - 30,000 = 7,960

comparability

An enhancing qualitative characteristic of accounting information that allows users to better understand similarities and differences in the financial reports across different companies

failure to record the adjusting entry for depreciation expense is omitted ____________________

Assets will be overstated and income overstated

markup cancellation

Elimination of an additional markup

note receivable

Formal credit arrangement between borrow and lender

Income from Discontinued Operations

Income that will not continue in the future

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

Internal controls

Which of the following are cash inflows from financing activities?

Issuing stock to investors for cash Borrowing from bank

Receivables turn over ratio formula

Net sales divided by average accounts receivable (net)

Which of the following trial balances shows account balances that incorporate current year deferrals and accruals?

Post closing trial balance. Adjusting trial balance.

$93,000

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net realizable value of accounts receivable?

Long-term assets can be classified as

Property plant equipment intangible

Which of the following situations require cash to be restricted?

Requirements to set aside funds to repay debt. Requirements to use cash for future plant expansion.

When adjusting the cash account balance in a bank reconciliation, which items must be subtracted from the company's cash account balance?

Service charges Charges for NSF checks

Why is it easy for top level management to commit fraud

Subordinates feel intimidated and may not report it. They can override the internal control system and fewer internal control may be in place at that level

Which of the following is an example of separation of duties in a good system of internal control?

The individual who recieves the inventory does not have access to the accounting records

recognition

The process of admitting or recording an item into the basic financial statements

Accounts receivable are classified as current assets because

They will be converted to cash within 1 year or the normal operating cycle.

allowance for bad debts and accounts receivable

What accounts could be examined the detect potential low earnings quality?

treasury bills, commercial paper, and money markets

What are considered cash equivalents?

Accumulated depreciation is:

a contra asset account, a balance sheet account

Net income and comprehensive income are identical __________

a statement of comprehensive income is not required

accounting model best meets the primary goal of users of financial reporting

accrual basis

First-in, first-out (FIFO) method

assumes that items in ending inventory are the most recently acquired most closely approximates the actual physical flow of inventory

The direct write-off method involves a debit to _ and a credit to _.

bad debt expense;accounts receivable

Employees purchase should be included in the accounting records

by the end of the accounting period

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding.

An allowance for sales return account is classified as a

contra account to accounts recievable

journal entry, the amount to be _________ is entered in the first column, and the amount to be ____________ is entered in the second column

debied; credited

shannon corp. determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account includes

debit to allowance for uncollectible accounts and credit to accounts receivable

Failure to record depreciation expenses has what effect on the financials

expenses are understated assets are overstated

A ______ is a financial institution that buys receivables for cash and charges a fee for this service.

factor

In a _________ arrangement, the company sells its accounts receivable to a financial institution and the financial institution handles the billing and collections.

factoring

An intentional error by an employee that results in theft is referred to as a ______.

fraud

Restructuring cost are recognized on the income statement

in the period the exit or disposal obligation is incurred (based on fair value)

Earnings per share is disclosed at the bottome of the

income statement

The FIFO inventory method assumes that units remaining in ending inventory are the _____ unuits purchased

last

FASB conceptual framework concepts includes:

measurement concepts, concepts regarding types ofevents to be accounted for and undelrying concepts of accounting

Failure to accrue salaries at year-end has what effect of financials

net income is overstated

Failure to recognize revenue in the period earned has what effect on the financials:

net income may be over or understated and the income statement would not report the accomplishments of the period

Jordan corporation settles an account receivable from london company by accepting a six-month interest bearing note receivable with an interest rate of 8%. The effect on Jordan financial statements is

no change in current assets

The acronym NSF stands for

non-sufficient funds

Income tax receivable is a _ receivable.

nontrade

If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:

nothing; the deposit has already been recorded.

Separation of duties and E-commerce controls are examples of ______ controls.

preventative

Tax refund claims, loans to employees, and interest due on a loan made by the company to another entity are all examples of _____.

receivables

Which of the following is a discount that is a reduction in the amound to be paid if the customer pays within a specified time period

sales discount

participating interest

sharing proportionally in the cash flows of the receivables and having equal rights with respect to the receivables

when does the actual write-off of a receivable occur?

when it is determined that all or a portion of the receivable will not be collected

A company sells goods on account. Customer returns merchandise, and has not yet paid for any of the goods. What will be recorded?

- Debit to Sales Returns - Credit to Account Receivables

Potential benefits of offering cash discounts to customers include

- Reduction in bad debt - Increased sales volume - Accelerated customer payment

When a receivable is written off, what happens

- The allowance for uncollectible accounts is reduced - Accounts receivable is reduced

What is NOT a receivable

- Wages earned by employees but not yet paid by the company

Classified as receivables

- loans by a company to other entities - interest due from loans to customers

Cash equivalents include

- money market funds - treasury bills - commercial paper

Two methods for recording SALES DISCOUNTS are

- net method - gross method

Werner Company's accountant discovered that the prior-year financial statements were misstated due to an inventory-related error. Werner must

- restate its prior-year financial statements -adjust account balances that are incorrect as a result of the error

Match the inventory cost flow assumptions on the left with the scenario on the right

--------------

Correctly match the type of company with the type of inventory purchased

-----------------

Math each scenario with the type of invenory system

------------------

match the account names with the correct financial statement.

----------------------

Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000 respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?

-200,000 x (1-.3) = 140,000 loss net of tax

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that:

-All disbursements are made by check, debit card, or credit card -Checks are signed by authorized individuals -All expenditures are authorized

Company's employees who make necessary expenditures during the course of their employment may utilize "purchase cards" which may be in the form of:

-Debit Cards -Credit Cards

Internal control consists of plans to: -Enhance the reliability of accounting data. -Report misuse of company assets to investors -Promote operational efficiency -Enhance the accuracy of accounting data -Report management errors to the investors

-Enhance the reliability of accounting data. -Promote operational efficiency. -Enhance the accuracy of accounting data.

Restrictions on cash may be -Imposed by government regulation. -Formal by contract -Imposed by stockholder intervention. -Informal arising from management intent.

-Formal by contract. -Informal arising from management intent.

What are preventable controls?

-Separation of duties -Physical Controls

When a receivable is written off, what occurs?

-accounts receivable is reduced -the allowance for uncollectible accounts is reduced

The two important account issues related to self-constructed assets are

-allocation of overhead -treatment of interest charges

Ziegler Company properly applies the lower of cost and net realizable value rule and determines that its inventory value has declined by 10,500 below cost. Which of the following accounts could be credited for this write-down

-allowance -inventory

cash and cash equivalent sheet includes

-balance in checking account -balance in savings account -undeposited customer checks -currency and coins on hand -U.S. treasury bills that is under 3 months

cash and cash equivalent sheet does not include

-balance in savings account when the savings account is being used to accumulate cash considering the cash is not of use at this point -balance in checking account when the funds can't be used at this point -u.s. treasury bills that are longer than 3 months

What are some examples for adjustments to the book balance in a bank reconciliation?

-bank service charges -company errors -collections made by the bank on the company's behalf

Tore Company's records reveal the following information regarding its inventory. Beginning inventory was $100,000 at cost and 160,000 at retail. Purchases during the year were $300,000 at cost and $500,00 at retail. Markups were $10,000 and markdowns 20,000. Assuming the conventional retail method is used and net sales were 500,000, ending inventory at retail would be?

-beginning inventory at retail 160,000 + net purchases at retail 500,000 + markups 10,000 - markdowns 20,000 -net sales 500,000= 150,000

The statement of cash flows provides information about a company's:

-cash disbursements -cash receipts

which of the following are adjustments to the book balance in a bank reconciliation?

-company errors -collections made by the bank on the company's behalf -bank service charges -SUBTRACTED ITEMS 1.NSF checks 2. Service and other charges made by the bank

Exploration costs include expenditures for

-drilling a well -excavating a mine -relating to a search for natural resources

Internal controls consist of plans to

-encourage adherence to company's policies and procedures -promote operational efficiency -minimize errors and theft -enhance reliability and accuracy of accounting data

Restrictions on cash may be

-formal by contract -informal arising from management intent

Indicate which costs would be capitalized as part of the cost of manufacturing equipment

-freight-in -insurance during transit -set-up cost

added in the cost column

-freight-in(Before calculating the cost-to-retail %) -employee discounts (if sales are recorded net of discounts) (after calculating the cost-to-retail %)

The two generally accepted methods for oil gas accounting for U.S. GAAP are the

-full-cost method -successful efforts method

ownership of inventory at the end of the accounting period is determined for

-goods shipped to customers and suppliers

Which of the following methods can be used to estimate inventory when a physical count is not possible?

-gross profit method -retail inventory method

which of the following are potential benefits of offering cash discounts to customers?

-increase sales volume -accelerate customer payment, reduce bad debts

What are examples of costs of extending credit terms to customers?

-increased investment in receivables -increase in uncollectible accounts

Which of the following are costs of extending credit terms to customers

-increased investment in receivables -increase in uncollectible accounts

The lower of cost and net realizable value approach can be applied to

-individual inventory items -logical categories of inventory (groups of interntory items) -entire inventory

In a perpetual inventory system, which buyer accounts are reduced at the time a purchase return occurs?

-inventory -accounts payable

Which of the following costs should be capitalized in the costs of acquiring a building?

-legal fees to obtain title -purchase price

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

-legal fees to secure title -costs to remove an old building -real estate agent commissions

which of the following gives rise to a note receivable

-loaning money to stockholders -loaning money to an affiliated company -a formal, written extension of the credit period to trade customers

r&d cost

-modification of a formula or design -design, construction and testing of prototype or model

Which of the following must be included in the disclosure note related to a change in inventory method?

-the effect of the change on items not reported on the face of the primary statements -the cumulative effect of the change on retained earnings -justification that the change is appropriate

Multi Company changed its inventory method from LIFO to FIFO. Multi must disclose the following information in its notes:

-the effect on earnings per share amounts -the cumulative effect pf the change on retained earnings

Which of the following indicate surrender of control over the assets transferred?

-the transferor will have no continuing involvement -Received are sold without recourse

Steps at the end of the accounting period

1) prepare an unadjusted trial balance 2) record adjusting entries 3) prepare an adjusted trial balance 4) prepare financials 5) close the temorary accounts

Financial accounting objectives

1) provide information to investors 2) provide information used to evaluate future cash flows

SFAC 5 the four criteria that must be met for an item to be recognized in the basic financial statements are:

1) the information about the item is relevant to decision making 2) the item has relevant attributes that are measurable 3) the item meets the definition of an element 4) the information about the item is reliable

Kevin borrows $8,000 from Second National Bank at 10% interest. Kevin will repay the loan in six equal payments beginning at the end of year 1. What is the annual amount that Kevin will pay the bank each year.

1,837

List the steps for a bank reconciliation in the correct order.

1. Adjust bank's cash balance. 2. Adjust the company's cash balance. 3. Update the company's Cash account by recording items identified in the previous step.

Which of the following items are classified as receivables?

1. Amounts owed by customers. 2. Tax refund claims. 3.Amounts loaned and expected to be repaid.

Steps in determining the impairment of receivables under IFRS

1. Consider whether individual significant receivables are impaired 2. Group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics 3. Perform impairment test

List these liability accounts in the order in which they would appear on a company's balance sheet.

1. Note payable (due in 5 months) 2. Note payable (due in 5 years) 3. Mortgage payable (due in 25 years)

Place the steps in the adjustment process at the end of the accounting period in the correct order.

1. Using the unadjusted trial balance, determine the accounts requiring adjustment. 2. Record the adjusting entries in the journal 3. Post the adjusting journal entries to the T-accounts 4. Prepare an adjusted trial balance to check the equality of the debits and credits.

steps for capitalizing interest on self-construction assets in their proper order

1. identify assets that qualify for interest capitalization 2. identify the period of capitalization 3. Calculate average accumulated expenditures 4. apply the appropriate interest rate -qualifying asset -period of capitalization -applicable interest rate -average accumulated expenditures

Place the following in the proper order to reflect the typical cost flow for a manufacturing company

1. raw materials are used and recorded in work in process 2. direct labor is applied to work in process 3. manufacturing overhead is applied to work in process 4. costs of completed units are transferred to finished goods 5. costs flow to cost of goods sold when goods are sold

Which of the following steps are necessary to account for and report a change in inventory method?

1. revise comparative financial statements 2. the affected accounts are adjusted 3. A disclosure note provides additional information ANSWER -adjust appropriate balance sheet accounts -disclose additional information in the financial statement notes. -revise comparative financial statements

On Jan 1, Bern Company has 100 units costing $100 in beginning inventory. On Jan 2, Bern Purchases an additional 400 units for 1.50 per unit, and sells 300 units. On Jan 3, the company sells an additional 100 units. On jan 4, Bern purchases 200 additional units for 1.60 per unit. If bern utilizes a perpetual LIFO system, per unit of cost of goods sold for the Jan 3 sale will be

1.50

Which of the following should be segregated?

1.Opening the mail and deposit of checks in the bank 2.Depositing checks into the bank and recording receipts in the accounting records.

match the effect of each error with the specific error scenario 1. net income is overstated 2. net income is understated 3. net income is not affected

1.during the physical inventory, certain inventory items were double counted 2. inventory currently out on consignment was not included in the inventory count 3. a purchase in transit that was shipped f.o.b. shipping point was neither counted nor recorded.

Adjusting entries :

1.update the accounts to their proper balances 2.are needed in order to measure the period's net income or loss

IN a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in the following order

1.work in process 2. finished goods 3. cost of goods sold

trademark

10 years renewable, possibly indefinite exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company

threshold of revenues, assets, or income that qualifies a segment to be disclosed

10%

If the future value of an amount is $40,000 at the end of 4 years, the present value today is $27,320, and the interest is compounded annually, the interest rate is approximately ________

10% 27,320/40,000 = .06830 look at PV table, this ratio is approximately the same PV factor as 10% interest for four periods

Patent

20 years -exclusive right to produce a product or use a process

Informal credit agreement with trade customers

Account receivable

Inventory expected to be returned in included in what type of account?

Asset

Adjusting entries

Entries made at the end of an accounting period before the financial statements are prepared to ensure that the revenue recognition and expense recognition principles are followed. necessary for three situations: deferrals, accruals and estimates

Correctly match the appropriate accounting treatment for estimated returns.

Estimated returns are material - Recognize estimated returns during year of sales. Estimated returns are immaterial - Recognize returns when they occur.

Interest is defined as the "cost of borrowing money" Since the account represents all the cost incurred during the period on borrowed money, it is classified as a

Expense account.

Interest is defined as the "cost of borrowing money." Since the account represents all the cost incurred during the period on borrowed money, it is classified as an

Expense account.

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.

False

Which of the following led to the passage of the Sarbanes-Oxley Act of 2002?

High profile accounting scandals during the early 2000s

the time value of money has a larger effect on long-term notes receivable

How do long-term notes receivable differ from short-term notes receivable?

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance.

_____ is a measure of a company's cash position and overall ability to obtain cash in the normal course of business.

Liquidity

the amount of cash the company expects to actually collect from customers

Net realizable value of accounts receivable is

deducted in the retail column

Normal shortages (spoilage, breaekage, theft) (after calculating the cost-to-retail %)

A formal credit arrangement between a creditor and debtor is called a(n)

Notes receivable

present value of future cash receipts

Notes receivable is valued on the balance sheet at the

If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:

Nothing, the deposit has already been recorded

IFRS impairment indicators

Objective evidence that a loss event will affect future cash flows and can be measured relaibly

Liabilities

Obligation to transfer cash or other resources as a result of a past transaction. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Jonquil corp. sells $20,000 of goods on account. Analyze the journal entries shown below and indicate the method used to record sales revenue

Oct 5, 2011 DB Accounts receiable 20,000 CR Sales revenue 20,000 Oct 14, 2011 DB Cash 13,720 DB Sales discounts 280 CR Accounts recievable 14,000 Nov 4, 2011 DB Cash 6,000 CR Accounts recievable 6,000 gross method

economic and political environment in which standard setting occurs?

Often characterized as a political process. Standards, particularly changes in standards, can have significant differential effects on companies, investors and creditors, and other interest groups. A change in an accounting standard or the introduction of a new standard can result in a substantial redistribution of wealth within our economy. The FASB's due process is designed to obtain information from all interested parties to help determine the appropriate accounting approach, but standards are supposed to be neutral with respect to the interests of various parties. Both the FASB and IASB sometimes come under political pressure that sways the results of the standard-setting process

debit to notes receivables for $100,000

On March 1, Song Corp. receives a $100,000, 90-day noninterest-bearing note receivable from a customer. The note has a 12% discount rate. On March 1, when Song receives the note from the customer, Song will record a

debit notes receivable $100,000; credit service revenue $100,000

On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entity required on Oak's books on March 5 would require what entries?

credit to interest receivable, $2,000 and a credit to interest revenue, $2,000

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,00, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end. The entry required on Light's books on April 1 when the note is due requires a

reconciliation

One of the most important internal controls for cash is the bank _________________.

The _______ cash account is used to pay for low cost items so checks do not have to be processed.

Petty

A small amount of cash on hand to pay for minor purchases is commonly referred to as:

Petty Cash Fund

_____ represent a company's claims to the future collection of cash, other assets, or services.

Receivables

Which of the following indicate surrender of control over the assets transferred?

Receivables are sold without recourse The transferor will have no continuing involvement.

present / future

Receivables should be recorded at the __________ value of ________ cash receipts using realistic interest rate.

estimated returns are material

Recognize estimated returns during year of sales.

Estimated returns are immaterial

Recognize returns when they occur

estimated returns are immaterial

Recognize returns when they occur.

receivable / allowance

Recoveries of accounts receivable previously written off require the reinstatement of the _____________ and the ___________.

Which of the following are potential benefits of offering cash discounts to customers?

Reduction in bad debt Accelerated customer payment Increased sales volume

FASB Accounting Standards Codification project purpose

Reorganize all relevant accounting pronouncements in the U.S. GAAP

discount

The ___________ on notes receivable account is a contra account.

credit to sales, $4,900

Tim Corporation uses the net method to record sales on account. Tim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include a

An ________ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction.

Timing

What is the primary purpose of a bank reconciliation?

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation

The adjusting entry for a deferred revenue includes

a debit to a liability account and a credit to a revenue account.

Earnings quality is affected by:

accelerating revenue recognition losing a major custore

Accounts receivable contra account

allowance for sales returns

required disclosure regarding asset transfers

any cash flows occurring between the transferor and transferee the amount of receivables that are past due and any related credit losses during the period how fair values were estimated when recording the transaction the transfer any continuing involvement with the transferred assets any ongoing risks to the transferor how any continuing involvement in the transferred assets will be accounted for on an ongoing basis

Greenland Company changed from FIFO to the LIFO method. Greenland should

apply LIFO from that point forward

Inventory expected to be returned is included in what type of account

asset

Cost flow ____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory.

assumptions

Which of the following would appropriately be paid with petty cash? a) Inventory expense b) Postage expense c) Office supplies expense d) Entertainment expense e) Interest expense

b) Postage expense c) Office supplies expense d) Entertainment expense

______ ______ expense is an operating expense incurred to make sales.

bad debt

The estimated expense for accounts that may not be collected that is matched against revenue of the period is referred to as

bad debt expense

Financing receivables can be done by a(n) a) transferee approach b) contra receivables approach c) sale of receivables d) secured borrowing

c) sale of receivables d) secured borrowing

Order of current assets on balance sheet

cash and cash equivalents accounts receivable inventory prepaid expenses

Zeigen Inc. debited accounts receivable and credited allowance for doubtful accounts. Zeigen Inc. should also debit _ and credit _ _.

cash, accounts, receivable

Short-term highly liquid investments with maturity of 3 months or less that can be readily turned into

cash.

Paid-in capital

common stock, paid-in capital in excess of par

classified balance sheet, supplies would be classified among __________

current assets

Carly Corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. First Bank charged a 4% factoring fee and retained $5,000 to provide a reserve against potential sales returns and allowances. Management estimates the fair value of the last 9% of receivables to be equivalent to the book value. The journal entry Calry will make to record the factoring arrangement will include

debit to loss on sale of receivables for $4,000

The allocation of the cost of natural resources to the periods extracted is referred to as ___________ expense

depletion

Objectives-oriented accounting standard setting

emphasizes the use of professional judgment when choosing how to account for a transaction

An internal event

events that affect the financial position, but do not involve an exchange transaction with another entity

Qualitative characteristic of FASB conceptual framework

faithful representation relevance

To be useful for decision making, information should possess the fundamental decision-specific qualities of:

faithful representation, relevance

Accounts receivable results from the sale of good or services for cash true/false

false

Operational Risk

how adept a company is at withstanding various events that might impair its ability to earn profits

Disclosure refers to the process of?

including additional information in the financial statements and notes

balance sheet

inventory

perpetual inventory system

merchandise returned to a supplier - credit inventory

___ method considers discounts not taken as interest revenue

net

FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

Stockholders' equity sources:

paid in from shareholders, earned by the corporation (retained earnings)

markdown

reduction in selling price below the original selling price

NRV formula

selling price-cost to sell

At what amount are accounts recievable recorded?

the amount expected to be collected

In a sale of receivables, the __________ includes the receivables as assets in its balance sheet

transferee

The buyer assumes the risk of uncollectibility when accounts are sold _____

without recourse

Calistoga Produce estimates bad deb expense at .50% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $489,000 and $1,590 respectively, at December 31, 2017. During 2018, Calistoga's credit sales and collections were $329,000 and $316,000, respectively, and $1,830 in accounts receivable were written off. Calistoga's final balance in its allowance for uncollectivle accounts at December 31, 2018 is:

$1,405 329,000 * .50% = 1645 expense 1830 - 1590 = 240 1645 - 240 = 1405

Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?

$100 should be added to the bank balance.

Davenport Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $48,000 at the date of employment and another $68,000 two years later. Assuming the employee's time value of money is 10% annually, what lump sum at employment date would make her indifferent between the two options?

$104,199 The lump-sum equivalent would be $48,000 + the present value of $68,000 where n = 2 and i = 10%. That is, $48,000 + ($68,000 x 0.82645 from Table 2 PV of $1) = $104,198.6

Spielberg Inc. signed a $260,000 noninterest-bearing note due in three years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. At what amount should this debt be valued at its inception?

$190,109 PV = $260,000 × 0.73119* = $190,109 *PV of $1: n = 3; i = 11%

The Reingold Hat Company uses the allowance method to account for bad debts. During 2018, the company recorded $800,000 in credit sales. At the end of 2018, account balances were: Accounts receivable $120,000, Allowance for uncollectible accounts $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of

$24,000 800,000 x3% = 24,000

Rosie's Florist borrows $350,000 to be paid off in eight years. The loan payments are semiannual with the first payment due in six months, and interest is at 6%. What is the amount of each payment?

$27,864 350,000/12.56110 PVA of $1

Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance?

$46,000

Mary Alice just won the lottery and is trying to decide between the annual cash flow payment option of $350,000 per year for 30 years beginning today and the lump sum option. Mary Alice can earn 5 percent investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives?

$5,649,374 $350,000 x 16.14107* = $5,649,374.5 *PVAD of $1: n = 30; i = 5%

Bern Corp, a merchandising company, utilizes the net method in accounting for purchase discounts. The company usually pays during the discount period, when discounts are offered by the vendor. Bern's net income for the year ended was $500,000. Purchase discounts taken during the year totaled $5,000. If Bern had used the gross method, its net income would have been

$500,000

Lassiter Corp. uses the periodic inventory method. During the year, Lassiter purchases $10,000 of inventory. Ending inventory is $6,000. Cost of goods sold is $12,000. Beginning inventory was: __________

$8,000 purchases 10,000, less cost of goods 12,000, less ending inventory 10,000 - 12,000 - 6,000 = 8,000

Jasper Company uses the allowance method to account for bad debts. During 2018, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:

$9,000 bad debt expense will credit allowance for bad debts for $9,000 writing off bad debts will debit allowance for bad debts for $5,000 as well as crediting accounts receivable net decrease in working capital will be 9,000 + 5,000 - 5,000 = 9,000

Cash often is referred to as a _____ asset because it earns no interest. For this reason, managers invest idle cash in either cash equivalents or short-term investments, both of which provide a return. Management's goal is to hold the minimum amount of cash necessary to conduct normal business operations, meet its obligations and take advantage of opportunities.

* Too much cash reduces profits through lost returns, while too little cash increases risk. This trade-off between risk and return is an ongoing choice made by management (internal decision makers). Whether the choice made is appropriate is an ongoing assessment made by investors and creditors (external decision makers).

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?

-Depositing checks into the bank and recording receipts in the accounting records -Opening the mail and deposit of checks in the bank

Which of the following are classified as receivables? -Inventory purchased on account -Interest due from loans to customers -Loans by a company to other entities -Trading securities

-Interest due from loans to customers -Loans by a company to other entities

Which of the following cost flow assumptions currently are acceptable under U.S. GAAP?

-LIFO -FIFO -weighted-average

The dollar-value LIFO retail method is a combination of which of the following?

-LIFO retail method -dollar-value LIFO method

inventory at retail component with the correct cost-to-retail percentage assuming that the LIFO retail method is used. -Beginning inventory -Current period layer

-beginning-inventory cost-to-retail percentage -current-inventory cost-to-retail percentage

What are the cost components for self-constructed assets?

-direct material -manufacturing overhead -direct labor

The three classifications on the statement of cash flows are cash flows from:

-operating activities -investing activities -financing activities

When the retail inventory method is used to approximate average cost, the cost-to-retail percentage should be based on the weighted average

-retail amounts of goods available for sale -costs of goods available for sale

When adjusting the book balance in a bank reconciliation, which items must be subtracted from the cash account book balance?

-service chargers -charges for NSF checks

2012, the SEC issued its Final Staff Report in which it concluded that it is not feasible for the US to simply adopt IFRS given:

1) a need for the US to have strong influence on the standard setting process 2) the fact that many laws, regulations and private contracts reference US GAAP 3) the high costs to companies of converting to IFRS

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilizes FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of 2016, Pernell's ending inventory would have been

150,000 higher if it had used FIFO

On dec. 30 20x1, brighton corp. disposed with a historical cost of 150,000 and accumulated depreciation of 60,000. The equipment was sold for 70,000 cash. What is the gain or loss on disposal of the equipment?

150000-60000=90000-70000=20000 loss

Sondra deposits $3,000 in an IRA account on April 15, 2018. Assume the account will earn 3% annually. If she repeats this for the next 5 years, how much will she have on deposit on April 14, 2024?

19,988 3000 x 6.6625 = 19,987.5 FVAD of $1 n=6

Compute the inventory turnover ratio using the following information: Net sales $100,000 for the year,cost of goods sold $40,000, last years assets in place were $900,000, and this years assets in place are $1,100,000. Receivables for both years are $50,000. Inventory changed from $30,000 last year to $10,000 this year

2

Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The present value of this annuity at Time Zero, the inception o f the annuity is

3,791 PVA (present value ordinary annuity) factor of 10% for 5 periods is 3.79079 1000 x 3.79079 = 3,791

Titanic Corporation leased executive limos under terms of $110,000 down and three equal annual payments of $1200,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be:

32.257 PVA = $120,000 × 2.44371* = $293,245.2 $293,245.2 × 11% = $32,256.97 *PVA of $1: n = 3; i = 11%

Average collection period formula

365 divided by the receivables turnover ratio

Average Collection Period Ratio

365/accounts receivable turnover tells approximate # of days the average receivable balance is outstanding (average age of receivables)

average days in inventory

365/inventory turnover ratio

J.T. Rider and Sons uses the dollar-value LIFO inventory method. At the end of 2019 the cost index is 1.25 and the ending inventory at base year cost is $360,000. If 2019 beginning inventory at base year cost was $300,000, 2019 ending inventory at dollar-value LIFO cost is:

375,000 300,000 + [(360,000 - 300,000) x 1.25]

Beth will deposit $1,000 at the end of each year for 4 years. Assuming an 8% rate of interest, how much will Beth have in the bank at the end of year 4?

4,506

For its 2018 fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is:

40% (10,500,000 - 6,300,000) / 10,500,000

Smith Company has 150 units costing $450 in beginning inventory. During the year, the year, the company purchases 1,000 units for a total cost of $3,300. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the periodic LIFO method, ending inventory will be:

615 150 units at $450 3,300/1000 = 3.30 x 50 = 165 165 + 450 = 615

Jose wants to cash in his winning lottery ticket. He can either receive seven, $10,000 annual payments starting today, or he can receive a lump-sum payment now based on a 3% annual interest rate. What would be the lump-sum payment?

64,172 10,000 x 6.41719 = 64,171.9 PVAD of $1 table 6

When a company has a claim to receive services in the future, this is recorded on the balance sheet as

A receivable

A compensating balance is

A restriction of cash wherein the borrower is required to maintain a specific amount in a low-interest or noninterest-bearing account at the bank

A method of financing with receivables has the transferor derecognize the receivables from its balance sheet

A sale of receivables

Which method of financing with receivables has the transferee recognize the receivables as a assets in its balance sheet.

A sales of receivables

assigned / pledged

A secured borrowing occurs when accounts receivable are ___________ or __________ as collateral for a loan.

fair value

A standard setting focus on the asset/liability approach supports measurement of assets and liabilities at:

control

A transfer of a receivable qualifies as a sale if the transferor surrenders ___________ over the asset transferred.

If Company A sells accounts recievable without recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts?

ABC Finance

trade

Accounts receivable from sales to customers are _____________ receivables.

with / without

Accounts receivable sold with the risk of nonpayment by customers assumed by the transferor of the receivables is a sale ________ recourse; whereas, receivables sold with the risk of nonpayment assumed by the transferee is a sale ___________ recourse.

List the steps for a bank reconciliation in the correct order.

Adjust the banks cash balance Adjust the company's cash balance Update the company's cash account by recording items identified in the previous step

Which of the following trial balances shows account balances that incorporate current year deferrals and accruals?

Adjusting trial balance Post closing trial balance

Examin the followin journal entry. What is the transaction that required this entry? DB Allowance for sales returns 70,000 CR Accoutns recievable 70,000

Adjustment for estimated sales returns

Which of the following are adjustments to the bank balance in a bank reconciliation?

Adjustments for bank errors Add deposits outstanding Deduct checks outstanding

In a bank reconciliation, which items will require journal entries by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books.

accounting change occurs during an interim period, the change is applied retrospectively. In subsequent interim periods of the same fiscal year, which of the following are disclosed?

Affect on income from continuing operations Affect on net income Affect on related per share amounts

When are account previously written off is collected in full, which entry is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment

accounts receivable

An informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as an

Restricted cash is usually reported in the balance sheet

As noncurrent assets

the amount to be collected

At what amount are accounts receivable recorded?

An alternative classification that is currently permitted for accounts receivables under IFRS but not US GAAP

Available for sale investment

Which accounting standards allow reversals of previously recognized impairment losses on receivables

Both US GAAP and IFRS

_____ _____ include money market funds, treasury bills, and commercial paper. To be classified as such, these investments must have a maturity date no longer than three months from the date of purchase.

Cash equivalents

A trade discount is a reduction from the list price, which is to

Change prices without publishing a new catalog Give quantity discounts to customers Disguise real prices from competitors.

A trade discount is a reproduction from the list price, which is used to:

Change prices without publishing a new catalog give quantity discounts to customers disguise real prices from competitors

gross / net

Conceptually, the _______ method of recording sales views a discount not taken by the customer as a part of sales revenue, whereas the ______ method considers discounts not taken as interest revenue.

franchise

Contract term Contractual agreement in which an entity may use a company's name, products and formulas.

The __________ sets the overall ethical tone of the company with respect to internal control.

Control Environment

Adrian corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

DB to sales returns CR Accounts receivable

Which of the following entries affect a company's cash flows?

Debit supplies; credit cash Debit rend expense; credit cash

The bank will show a customer's withdrawal as a _________

Debit, because a withdrawal decreases its liability from the banks point of view.

As part of the closing process, dividends are closed to retained earnings. In the closing entry, correctly match the accounts with the appropriate debit/credit.

Debit: Retained Earnings Credit: Dividends

Future Value (FV)

FV = $1(1+i)^n the amount an investment is worth after one or more periods

Formula to calculate future value of an amount "I"

FV = I(1+i)^n

Future value formula

FV = PV(1+i)^n

Interest on notes is calculated as

Face amount X Annual rate X Fraction of the annual period

The formula for calculating interest multiplies which of the following?

Face amount of the note Annual interest rate Fraction of the annual period

relationship among management, auditors, investors and creditors that tends to preclude the "What would you like it to be?" attitude?

It is the responsibility of management to apply accounting standards when communicating with investors an creditors through financials. Auditors serve as independent intermediaries to help ensure that the management-prepared statements are presented fairly in accordance with GAAP. In providing this assurance, the auditor precludes the "What would you like it to be?" attitude.

operating segment characteristics

It operating results are regularly reviewed by the chief operating decision maker, it engages in business to earn revenues and incur expenses discrete financial info is available

Which of the following are classified as receivable?

Loans by a company to other entities.

Which of the following will require a journal entry following a bank reconcilliation?

NSF checks Notes collected by the bank

Recognizing bad debt expense results in account receivable being reported at their _______

Net realizable value

$96,800

On January 1, year 1. Jordan receives a $100,000 note receivable from a customer. The note receivable is a 10% note, due at the end of the year on December 31. Jordan immediately discounts the note receivable at Third Bank at a discount rate of 12%. What are the cash proceeds of the discounted note?

Seperation of duties and E-commerce controls are examples of ______ controls.

Preventative

Separation of duties and E-commerce controls are examples of ________ controls.

Preventive

cash and cash equivalents

Reston Corp. borrowed $20,000 from First National Bank on a 6-month note at 8% interest. Reston has an informal agreement with the bank to maintain a compensating balance of $2,000 until the loan is repaid. Reston should report the $2,000 as

What is reported on the balance sheet as a noncurrent asset?

Restricted cash

Which of the following is usually reported on the balance sheet as a noncurrent asset? -Cash equivalents -Restricted cash -Accounts receivable -Inventory

Restricted cash

iASB

Standard setting board IFRS

principal

The face amount of a note receivable is also called the ________.

Why is it often easy for top level management to commit fraud?

They can override the internal control system. Fewer internal controls may be in place at that level. Subordinates feel intimidated and may not report it.

true

True or false: A sale of an accounts receivable results in removing the accounts receivable from the balance sheet.

Add deposits outstanding, deduct checks outstanding, and adjustments for bank errors.

What are some adjustments to the bank balance in a bank reconciliation?

commercial paper, treasury bills, and money market funds.

What are some examples of cash equivalents?

restricted cash

What is usually reported on the balance sheet as a noncurrent asset?

notes collected by the bank and NSF checks

What requires a journal entry in a bank reconciliation?

requirements to set aside funds to repay debt and requirement to use cash for future plant expansion

What situations require cash to be restricted?

customer defaults and does not pay or sale on account is returned by a customer

What transactions will require a credit to accounts receivable?

reinstate the accounts receivable and record the collection of the account receivable

What two entries are required when a previously written-off account is paid?

NSF checks and notes collected by the bank

What will require a journal entry in a bank reconciliation?

impairment loss

When a lender believers it is probable that not all principal and interest will be collected on a long-term note receivable, what is recognized?

the present value of currently expected cash flows

When a note receivable is impaired, it is remeasured based on what?

Fraud

When a person intentionally deceives another person or company for personal gain, this is referred to as:

discounting

When a sale is made to a customer on a noninterest-bearing note, an entry is made to an account called "discount on notes receivable"; when a transfer is made of a note receivable to a financial institution, this is referred to as ______________ a note receivable.

collections of funds by the bank

When adjusting the cash account balance in a bank reconciliation, which item must be added to the cash account balance?

errors and timing differences

Which of the following will cause differences between the bank statement balance and the accounting balance for cash?

current ratio and quick ratio

Which ratios measure liquidity?

U.S. GAAP

Which set of standards requires more disaggregation of accounts receivable and notes receivable in the balance sheet or notes?

In a factoring arrangement made _______ recourse, the seller bears the risk of uncollectibility.

With

The buyer assumes the risk of uncollectibility when accounts receivable are sold _______

Without recourse

liquidity

_________ is a measure of a company's cash position and its overall ability to obtain cash in the normal course of business.

bad debt

__________ expense is an operating expense incurred to make sales.

note receivable

a receivable supported by a formal agreement that specifies payment terms

Which of the following is a cost of offering a cash discount?

a reduction in the amount of cash collected from customers who take advantage of the discount

Which of the following are required by Section 404 of the Sarbanes-Oxley Act of 2002? a) Assessment of internal control adequacy b) Documented internal controls c) Auditor opinion on effective internal control

a) Assessment of internal control adequacy b) Documented internal controls

Which of the following are adjustments to the book balance in a bank reconciliation? a) Collections made by the bank on the company's behalf b) Checks outstanding c) Bank service charges d) Company errors e) Bank errors

a) Collections made by the bank on the company's behalf c) Bank service charges d) Company errors

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has paid for all of the goods with cash. What will Adrian record on May 15? a) Credit to Cash b) Credit to Allowance for Sales Returns c) Debit to Sales Expense d) Debit to Sales Returns

a) Credit to Cash d) Debit to Sales Returns

Two entries are required when a previously written-off account is paid. These two entries include: a) Record the collection on the account receivable. b) Record bad debt expense. c) Reinstate the account receivable. d) Record the adjustment to sales.

a) Record the collection on the account receivable. c) Reinstate the account receivable.

When a company surrenders control of the assets transferred, it is allowed to account for the transfer as a what? a) Sale b) Secured borrowing

a) Sale

Who incurs the risk of bad debt in a factoring arrangement made without recourse? a) The buyer b) The seller

a) The buyer

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that a) checks are signed by authorized individuals. b) the employee who authorizes the payment should write the check. c) all expenditures are authorized. d) all disbursements are made by check, debit card, or credit card. e) employees in charge of cash receipts are also in charge of cash disbursements.

a) checks are signed by authorized individuals. c) all expenditures are authorized. d) all disbursements are made by check, debit card, or credit card.

Depending on the nature of the restriction and the classification of the related debt, compensating balances may be disclosed in the financial statements as a) current assets. b) noncurrent assets. c) cash and cash equivalents. d) owners' equity. e) contra assets.

a) current assets. b) noncurrent assets. c) cash and cash equivalents.

A trade discount is a reduction from the list price, which is to a) disguise real prices from competitors. b) encourage customers to pay quickly. c) reduce the sale price for interest received. d) change prices without publishing a new catalog. e) give quantity discounts to customers

a) disguise real prices from competitors. d) change prices without publishing a new catalog. e) give quantity discounts to customers

Management can influence credit and collections by a) extending payment terms b) offering cash discounts c) obtaining terms with suppliers d) factoring with recourse

a) extending payment terms b) offering cash discounts

The numerator of the quick ratio eliminates which current assets? a) inventory b) cash and cash equivalents c) short-term investments d) accounts receivable e) prepaid expenses

a) inventory e) prepaid expenses

trade receivable is another term or _ receivable.

accounts

The average debt necessary to self-construct an assets is referred as the average

accumulated expenditures

Prepaid expense

an asset recorded when an expense is paid in advance, (paid but not yet incurred - asset acquired in one period and expensed in a future period)

intangible asset

an asset that has no physical substance

Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as

an expense on the income statement

SEC requires to submit financial information how frequently

annually and quarterly

A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the

appraised value of the land

The PCAOB sets standards for

audited financial reports.

Which of the following are detective controls?

audits; reconciliation; performance reviews

At what amounts are accounts receivable initially recorded? a) The present value of expected future cash flows. b) The future value of the amount expected to be collected. c) The exchange price agreed on by the buyer and seller.

c) The exchange price agreed on by the buyer and seller.

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries.

Weighted-average unit cost is determined by dividing ______________ by quantity of goods available for sale

coat of goods available for sale

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

collection from customers receipt of interest

The two condition that must exist for a sale and the related recievable to be recognized are

collection from the customer is reasonably assured the earnings process is virtually complete

Banks frequently require cash restrictions in connection with loans or loan commitments (lines of credit). Typically, the borrower is asked to maintain a specified balance in a low interest or noninterest-bearing account at the bank (creditor). The required balance usually is some percentage of the committed amount (say 2% to 5%). These are known as _____ _____ because they compensate the bank for granting the loan or extending the line of credit.

compensating balances

FASB expanded view of income is included in

comprehensive income

periodic inventory system disadvantage

cost of goods equation assumes all inventory not on hand at the end of the period was sold and does not account for damages or stolen merchandise

income statement

cost of goods sold

Parker company reports gross sales revenue of 7.5 million, net sales revenue of 7 million, and cost of goods sold of 3.5 million. Its inventory balance was 150,000 at the beginning of the accounting period and 200,000 at the end of the accounting period. The company's inventory turnover ratio is closest to

cost of goods sold/average inventory 3.5 million/ (150,000+200,000/2)

sales to customers in which the customer pays within 30 to 60 days are referred to as

credit sales, sales on account

The journal entry to record bad debt expense includes a:

credit to allowance for uncollectible accounts debit to bad debt expense

The adjusting entry to record deferred revenue originally recorded as sales revenue includes:

credit to deferred revenue debit to sales revenue

An account receivable is normally classified as a

current asset

An account receivable is normally classifies as a

current asset

Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as a(n) _____ _____.

current asset

Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as a

current asset.

Andy records an adjusting entry for deferred revenue. Andy should:

debit a liability account credit a revenue account

previously written off account is collected in full, the entry to reinstate the account would require

debit accounts receivable credit allowance for uncollectible accounts

Kilroy uses the net method to record sales on account. Kilroy sells goods on account for $1,000 with terms 2/10, n/30. the journal entry to record this transaction will include

debit accounts receivable $980 credit sales $980

interest-bearing note receivable collection

debit cash credit interest revenue credit note receivable

The journal entry necessary to establish a "petty cash fund" is:

debit petty cash credit cash

The journal entry necessary to establish a petty cash fund is:

debit petty cash credit cash

A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires:

debit sales discounts for the discount taken by customer

A company believes its sales returns will be material. What is the journal entry required

debit sales returns credit allowance for sales returns

Warner Corp sells goods on account for $10,000. The customer pays the invoice in full on April 15, but on April 20, the customer returns $3,000 of the merchandise and receives a refund. What is the entry Warner will make on April 20 when the goods are returned?

debit sales returns credit cash

Warner Corp. sells goods on account for 10,000 on april 2, the customer returns 3,000 of the merchandise and receives a refund. As of April 20, the customer has paid the account balance in full. What is the entry Warner will make on April 20 when the goods are returned

debit sales returns credit cash

Regland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The Adjusting journal entry required at year-end includes:

debit supplies expense $700 credit supplies on hand $700

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to Cash.

The adjusting entry for a deferred revenue includes a

debit to a liability account and a credit to a revenue account.

kim corporation provides services at the gross amount and uses discount account to account for the discounts taken by customers. kim provides services on account for $5,000 with terms 2/10, n/30. Recording this transaction will include a

debit to accounts receivable, $5,000

During the year, Connor wrote off $17,000 of accounts receivable that were uncollectible. The adjustment to record bad debt expense at the end of the period was a

debit to bad debt expense for $20,000

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording the transaction will include

debit to cash

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to cash

what is bad debt expense for 2016

debit- bad debt expense credit- allowance for uncollectable accounts

Cheng Corp exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was 90,000 and its accumulated depreciation at the date of exchange was 40,000. The asset received had a fair value of 40,000 and a book value of 35,000. What journal entry should be recorded?

debit- equipment 40,000 loss on exchange 10,000 credit equipment 90,000

determine the amount of accounts receivable written off during 2016

debit-allowance for uncollectible accounts credit-accounts receivable

A(n) ______ represents the left side of the account, whereas a(n) _______ represents the right side of the account

debit; credit

When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account.

decrease

Cash receipts that have been recorded in the company's accounting recording but are not recorded by the bank are

deposits outstanding

The ____ on notes recievable account is a contra account

discount

earnings may be distorted by the transfers of receivables because companies may

distort fair value estimates in recording securitizations

To solve for present value

divide FV by (1 +i)^n

Which accounts are closed at the end of the period?

dividends, sales and salary expense (not cash accounts)

Internal control consists of plans to

encourage adherence to company policies and procedures minimize errors and theft safegaurd company assets

The amount of cash in the balance sheet reflects the

ending cash on the balance sheet date

At the end of the current accounting period, Ziegler company's accoountant estimates that future return of already sold products will be material to the financial statements, WHich of the following is the correct accounting treatment>

estimate future returns and accrue them during the current year

What type of expenditures should be included in the cost of inventory of a manufacturing company?

expenditures necessary to acquire inventory, and bring inventory to sales location

The primary components of net income are:

expenses revenues

The two most common types of selling arrangements for accounts receivables are

factoring and securitization

True or false: A note recievable is considered impaired when payment is not recieved on the due date

false

a note receivable is considered impaired when payment is not received on the due date true/false

false

gross profit ratio

gross profit/net sales

Conceptually, the _____ method of recording sales views a discount not taken by the customer as part of sales revenue, whereas the _____ method considers discounts not taken as interest revenue.

gross, net

The two methods used for recording sales discounts are the ______ method and the _____ method

gross, net

LIFO

in period of rising prices - results in higher cost of goods sold, lower net income and lower tax liability

GAAP allows that any significant noncash investing and financial activities may be reported

in the notes to financials on the face of the statement of cash flows

Accruing a receivable _________ accounts receivable on the balance sheet and ___________ revenues on the income statement

increases; increases

Purchasing supplies on account ____________ the supplies account and _____________ accounts payable

increases; increases

Unqualified audit opinion

indicates the financials have been prepared according to U.S. GAAP

gross profit margin

indicates the percentage of each sales dollar available to cover other expenses

An account receivable is a(n) _____ agreement, whereas a note receivable is a(n) _____ agreement.

informal, formal

DVL Pool

is made up of items likely to have similar cost change pressures

A long-term liability:.

is not due within the next year

DVL method

layers can only be added during the current year if inventory at base year cost has increased

If the restriction is _____ _____, the cash is classified as either current or noncurrent (investments and funds or other assets) depending on the classification of the related debt. In either case, note disclosure is appropriate.

legally binding

an aging schedule classifies accounts receivable based on

length of time outstanding

A bond will be issued at a premium when the market rate of interest is ________ the stated rate

less than

Over a 5-year period, simple interest is __________ compound interest on the same note

less than

U.S. GAAP required that bank overdrafts be treated as _____ on the balance sheet where IFRS allows them to offset other cash accounts.

liabilities

US GAAP requires that bank overdrafts be treated as ____ on the balance sheet where IFRS allows them to offset other cash accounts

liabilities

Sabrina Company accrues salaries expense at the end of year. As a result of this entry, Sabrina Company's:

liabilities increase equity decrease

write-downs are common.

loss is included as part of cost of goods sold

write-downs are rare

loss is recognized as a separate item in operating expense

Who has responsibility to apply accounting standard when communicating with investors and creditors

management

Choosing perpetual or periodic inventory system considerations

management control and cost of implementation

Control Environment are Formal policies related to

management's philosophy assignment of responsibilities, and organizational structure.

Under the conventional retail method, ___________ are excluded from the calculation of the cost-to-retail percentage.

markdowns

cash basis accounting

measures the difference between cash receipts and payments during a reporting period.

Accrual accounting model measures

measures the entity's accomplishments and resource sacrifices during the period regardless of when cash is received or paid

Profit Margin Ratio

net income/net sales (before deducting cost of goods) measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales indicates the amount of net income achieved for each dollar of sales

The sum of net cash flows from operating, investing, and financing activities reported in the statement of cash flows represents the:

net increase or decrease in cash during the year

If the retail inventory method is used, which of the following are included in the calculation of goods available for sale at retail to approximate average costs?

net markups net markdowns

purchase discount methods

net method gross method

monetary liabilities

obligation to pay amounts of cash, the amount which is fixed or determinable bond payable note payable accounts payable (not advances from customers)

Disclaimer

occurs when the auditor does not have sufficient information to express an opinion

The statement of cash flows classifies items as

operating, investing, and financing.

Auditors examine financial statements to express a professional, independent ___________________ on the financial statements.(enter one word per blank)

opinion

AICPA - american institute of certified public accountants

organization is currently the national professional organization for certified professional public accountants

initial markup

original amount of markup from cost to selling price

restricted cash not available for current use may be reported in the balance sheet as

other assets or investments and funds or noncurrent asset

compensating balance is recorded as

other current asset,

Omar company uses a periodic inventory system and erroneously overstates ending inventory by $10,000 for the year ended December 2015. This error would cause the retained earnings balance for the ear ended 2015 to be

overstated by 10,000

Failure to record an adjusting entry for deferred revenue results in:

overstated liabilities

accumulated interest formula

principal x interest x (# of moths/12)

Intraperiod tax allocation

process of associating income tax effects with the income statement components that create those effects

Sale of accounts receivable requires

remove the accounts receivable from the balance sheet and recognize the fair value of assets acquired or liabilities assumed

items are removed from continuing operations and reported separately for discontinued operations

revenue, expenses, gains, losses, tax expense

Accrual accounting model's measure of resources provided by business operations is called _____________.

revenues

Temporary accounts

revenues, expenses, dividends

Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral

secured borrowing

Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral?

secured borrowing

financing receivables can be done by

secured borrowing, sale of receivables

A petty cash account is used for

small amounts of cash needed for low-cost items

A significant disadvantage of the periodic inventory system is that it assumes that quantities not on hand at the end of the period were ____________________.

sold

business organizations

sole proprietorship, partnership and corporation

Repetitive transactions such as sales or purchases are usually recorded in a(n) ________ _______ rather than the general journal

special journal

A good internal control system for cash would require that those who handle cash should not be involved with:

the accounting records reconciliation of bank balances

a good internal control system for cash would require that those who handle cash should not be involved with

the accounting records the reconciliation of bank balances

A prepayment that is originally recorded as an asset will be allocated to future accounting periods based on

the value of the benefit used during the period.

Present Value of an Ordinary Annuity

the value today of a series of equal-size cash flows with the first payment taking place at the end of the first compounding period The value today, given a discount rate, of a series of future payments.

Present Value of an Ordinary Annuity

the value today of a series of equal-sized cash flows with the first payment taking place at the end of the first compounding period

gains and losses from the sale of investments can affect earnings quality because

they are often nonrecurring

Political pressure has deterred the FASB from issuing particular standard changes. True/false

true

True or false: When specific recievables are assigned, the financing liability should be netted against the accounts recievable account.

true Although offsetting is usually not allowed by US GAAP, when recievables are assigned, offsetting the liability against the receivables is allowed

long-term liability

will not be satisfied within 12 months or the operating cycle, whichever is longer (pension obligations, lease obligations longer than 1 year and notes due in more than 1 year)

Neumann, Inc.'s books show an ending cash balance of $20,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $2,000; deposits outstanding of $3,000; NSF check of $200; and interest earned on the bank account of $30, the company's up-to-date ending cash balance equals:

$20,000-$200+$30= $19,830

In the balance sheet at the end of the first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $83,600. During the year, Dinty wrote off $30,900 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,240,000, and cash collections from credit customers totaled $1,750,000. What accounts receivable balance would Dinty report in its first year-end balance sheet?

$459,100 2,240,000 - 1,750,000 = 490,000 - 30,900 = 459,100

Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance?

$53,000

Ireland Corporation obtained a $56,000 note receivable from a customer on June 30, 2018. The note, along with interest at 5%, is due on June 30, 2019. On September 30, 2018, Ireland discounted the note at Cloverdale bank. The bank's discount rate is 9%. What amount of cash did Ireland receive from Cloverdale Bank

$54,831 56,000 + (interest to maturity) 56,000 x 5% = 2800 56,000 + 2,800 = 58,800 58,800 x.09 x 9/12= 3,969 58,800 - 3,969 = 54,831

Frasquita acquired equipment from the manufacturer on 6/30/18 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $572,000 on 4/30/19 to satisfy the obligation in full. If Frasquita accrued interest of $15,000 on the note in its 2018 year-end financial statements, at what amount would it record the equipment on its 6/30/18 balance sheet?

$547,000 ($15,000 was interest for 6 months in 2018. The note lasts 10 months, so 10/6*15000= $25000, $547,000 (572000-25000) is the principal which is the cost of the equipment purchased.

False Value Hardware began 2018 with a credit balance of $31,200 in the allowance for sales returns account. Sales and cash collections from customers during the year were $670,000 and $630,000, respectively. False Value estimates that 8% of all sales will be returned. During 2018, customers returned merchandise for credit of $23,000 to their accounts. What is the balance in the allowance for sales returns account at the end of 2018?

$61,800 670,000 x .08 = 53,600 31,200 + 53,600 - 23,000 = 61,800

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made with recourse. Homemark charges a fee of 3% of receivables factored. Estimated recourse liability is $2,000. During July, $150,000 of factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

$8,000 recourse liability adds a credit of $2,000 increasing the loss 200,000 x .03 + 2,000 = 8,000

On May 31, 2018, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 2018, for $1,120,000. The component generated operating income from January 1, 2018, through disposalof $300,000. In its income statement for the year ended December 31, 2018, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?

$800,000 620,000 - 300,000 = 320,000 1,120,000 - 320,000 = 800,000

Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation?

$900 should be subtracted from the cash balance in the accounting records.

Times interest earned ratio

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense Provides the creditor with an indication of the ability to pay interest on debts

Sometimes restrictions are _____ imposed. Debt instruments, for instance, frequently require the borrower to set aside funds (often referred to as a sinking fund) for the future payment of a debt. In these instances, the restricted cash is classified as noncurrent investments and funds or other assets if the debt is classified as noncurrent. On the other hand, if the liability is current, the restricted cash also is classified as current.

* Disclosure notes should describe any material restrictions of cash.

A trade discount is a reduction from the list price, which is to:

- change prices without publishing a new catalog - give quantity discounts to customers - disguise real prices from competitors

when adjusting the cash account balance in a bank reconciliation, which items must be SUBTRACTED from the cash account balance

- charges for NSF (nonsufficient funds) checks - Service charges

Restrictions on cash may be:

- informal arising from management intent - formal by contract

What gives rise to a note receivable?

-Loaning money to an affiliated company -Loaning money to stockholders -Formal, written extension of the credit period to trade customers.

perpetual inventory system

-Neumann company can determine the cost of inventory still on hand by referring to the inventory account - freight is added directly to the inventory account

The numerator of the quick ratio eliminates which current assets? -Cash and cash equivalents -Accounts receivable -Prepaid expenses -Inventory -Short-term investments

-Prepaid expenses -Inventory

non-r&d cost

-Routine efforts to improve an existing product -adaptation of an existing capability for a customer

Internal control consists of plans to:

-Safeguard the company's assets -Improve the accuracy and reliability of accounting information -minimize errors and theft

When adjusting the company's cash account balance in a bank reconciliation, which items must decrease the company's cash account balance?

-Service charges -Charges for NSF check

periodic inventory system

-Shelly company must first take a physical inventory to determine the cost of inventory still on hand -a separate freight-in account is used

arrange the steps in determining the impairment of receivables under IFRS in the correct sequence

-consider whether individual significant receivables are impaired -group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics -perform impairment test

Panther Company's bookkeeper debited supplies expense for the cost of goods sold during that month. The bookkeeper discovered the error prior to closing the books. The correcting entry would include a

-debit to cost of goods sold -credit to suppies expense

steps to calculate ending inventory using the inventory retail method

-determine cost of goods available for sale at retail -determine sales revenue at retail -subtract sales revenue from cost of goods available for sale -multiply ending inventory (at retail) by the cost-to-retail %

A trade discount is a reduction from the list price, which is to

-disguise real prices from competitiors -give quantity discounts to customers -change prices without publishing a new catalog.

Internal control consists of plans to

-encourage adherence to company policies and procedures -safeguard company assets -minimize errors and theft

When assets are exchanged and the transaction lacks commercial substance, which of the following occurs?

-no gain is recognized -the asset received is valued at the book value of the asset given

Cash that is restricted and is not available for current use may be reported in the balance sheet as

-noncurrent asset -investments and funds -other assets

deducted in both the cost and retail columns

-purchase returns(Before calculating the cost-to-retail %) -abnormal shortages (spoilage, breakage theft)

Which of the following can be used to write-down inventory according to the lower of cost and net realizable value rule?

-recognize the write-down as an addition to costs of goods sold -recognize the write-down as a separate line item on the income statement

An intangible asset with an indefinite life is

-recorded at cost -tested for impairment

Daryl corp. purchases 10,000 units of inventory on account for 50,000. Two days after receiving the inventory, Daryl discovers that 1,000 units are defective and returns the the defective units to the vendor. The company utilizes a perpetual inventory system. As a result of this return

-the accounts payable balance decreases -the inventory balance decreases

The specific identification method

-would be beneficial to a company that makes fine jewelry -matches each unit of inventory with its actual cost

FASB's standard setting process begins when th board adds a project to its technical agenda. List the steps in order in the FASB's accounting standard setting process.

.

Private accounting standard setting bodies in chronological order:

1) Committee on Accounting Procedure 2) Accounting Principles Board 3) Financial Accounting Standards Board

Ethical decision making steps:

1) determine the facts of the situation 2) identify the ethical issue and stakeholders 3) identify the values related to the situation 4) specify the alternative courses of action 5) evaluate the courses of action in terms of their consistency

2011, the SEC recognizes that:

1) different application methods of IFRS could lead to financial statements not being comparable across countries 2) U.S. GAAP provides significantly more guidance about particular transactions or industries than IFRS

Common arguments against the creation of a single set of global accounting standards include:

1) maintaining competition between accounting standard-setting bodies improves quality 2) implementation and enforcement of IFRS varies among nations 3) accounting under IFRS will appear more uniform than it actually is

What would indicate net operating cash flow may not be a good predictor of long-run cash-generating ability

1) pay cash to purchase a 2 year insurance policy 2) customer pays for services provided in a prior perid

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees:

1. Cashiers are responsible for collecting cash and issuing a receipt at the point of sale. 2. A supervisor is responsible for collecting the cash at the end of each cashier's shift 3. Members of the accounting department are responsible for ensuring that cash sales are properly recorded

Green Corp uses a periodic inventory system. Cost of beginning inventory is 1,000. During the year, Green purchases inventory costing 11,000. Based on a physical count, Green determines that inventory costing 1,800 is still on hand. Green Corporation's cost of goods sold will be

10,200

Smith sells goods to customers in exchange for a note requiring payment of $100,000 in one year plus interest at 10%. At what amount is the note payable reflected on the customers balance sheet?

100,000

Gerhard company has 300 units costing $10 per unit in beginning inventory. During the year the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company used LIFO inventory method for the past 5 years. If the company had purchased at least 1,2000 units, COGS would have been

2,000 higher

The Esquire Company reported sales of $1,600,000 and cost of goods sold of $1,122,000 for the year ended December 31, 2018. Ending inventory for 2017 and 2018 was $420,000 and $460,000, respectively. Esquire's inventory turnover for 2018 is:

2.55 Inventory turnover: cost of goods sold / average inventory 420,000 + 460,000/2 = 440.000 1,122,000/440,000 = 2.55

Ronald signs a lease agreement that requires him to pay $4,000 at the end of each year for 7 years. The interest rate on this type of lease is 8%. Calculate the present value off the lease payments

20,825

On June 1, 2017, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2017?

24,000/24 = 1,000 1,000 x 7 = 7,000

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 40% is

250,000 + 50,000 = 300,000 300,000 x (1-.40) = 180,000

Geese Company utilizes the dollar-value LIFO retail inventory method. Its cost-to-retail percentage is 60% based on beginning inventory and 64% based on current-period purchases. The company determined that beginning inventory at retail was $200,000 and that ending inventory at current-year retail prices was $250,000. The current-year price index is 1.10. During the current year, a new inventory layer at base-year retail prices was added in the amount of?

250,000/1.10=$227,273-200,000=27,273

Chez Fred Bakery estimates the allowance for uncollectible accounts at 2% of the ending balance of accounts receivable. During 2018, Chez Fred's credit sales and collections were $110,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2018, if $250 in accounts receivable were written off during 2018 and if the allowance account had a balance of $630 on 12/31/18?

52,750 A/R 1/1/2016 ? Collections (131,000) Write-offs (250) Credit sales 110,000 A/R 12/31/2016 $39,000 [$630 = 2% of AR; so AR = $630 ÷ 0.02 = $31,500] Therefore, A/R, 1/1/2016 = $81,100

The following items appeared in the 2018 year-end trial balance for the Brown Coffee Company: Revenue CR 600,000 operating expenses DB 420,000 Income on discontinued operations CR 200,000 Restructuring costs DB 100,000 Interest Expense DB 20,000 Gain on Sale of Investments CR 30,000

54,000 (600,000 - 420,000 - 100,000 -20,000 + 30,000) x (1-.40) = 54,000

On December 31, 2018, the Charlie Company adopted the dollar value LIFO inventory method. Inventory at the end of 2018 for its only inventory pool was $500,000 under the dollar-value LIFO method. At the end of 2019 inventory at year-end cost is $672,000 and the cost index is 1.05. Inventory at the end of 2019 at dollar-value LIFO cost is:

647,000 End-of 2019 inventory at end-of-2018 year cost = 640,000 (672,000/1.05) The increase in the end-of-2018 inventory at end-of-2018 dollars is $140,000 (640,000 - 500,000) Adjusting this to end-of-2018 cost is $147,000 (140,000 x 1.05) adding this to the beginning balance = 647,000 500,000 + 147,000

Debbie has $192,516 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. The withdrawals will take place annually starting today. How soon will the fund be exhausted if Debbie withdraws $30,000 each year?

7.0 years 192,516/30,000 = 6.4172 look on PVAD of $1 table and fine 6.4172 in the 3% column

Lydia Corp. borrows $25,000 from the bank at an interest rate of 6%. If the bank requires a compensating balance of $5,000, the effective rate of interest on the loan is -7.5% -4.8% -26% -30%

7.5%

Kelly borrows $11,000 from the bank at an interest rate of 8%. If the bank requires a compensating balance of $1,000, the effective rate of interest on the loan is -8.55% -8.8% -9.09% -8%

8.8% $11,000 x 8%=$880 $880/$10,000(cash available for use)= 8.8%

On January 1, year 1, Klondike issued a 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds.

88,699 (5.65022 x 10,000) + (.32197 x 100,000) = 88,699

Pine corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive

980

factor

A __________ is a financial institution that buys receivables for cash and charges a fee for this service.

compensating balance

A ____________________ compensates the bank for granting a loan or line of credit.

A sales discount is

A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specific period of time

receivable

A claim to receive cash in the future is a _________.

ethics

A code or moral system that provides criteria for evaluating right and wrong behavior

A trade discount is

A percentage reduction from list price

small amounts of cash needed for low-cost items

A petty cash account is used for

liability of $10,00 and cash of $60,000

Abby Company has three bank accounts with the following balances: account 1: $20,000; account 2: $40,000; account 3: $10,000 overdrawn. If Abby Company applies U.S. GAAP, it will report:

A(n) _______ _______ is an informal credit arrangement to receive cash from a credit sale and represents an asset of the company.

Account receivable

Match each term with its definition.

Account receivable - Informal credit agreement with trade customers Note receivable - Formal credit arrangement between borrower and lender

When a specific account receivable is determined to be uncollectible, which of the following occur?

Account receivable is reduced Allowance account is reduced

In developing standards, the FASB considers the:

Both of the following: 1) concerns and opinions of constituents 2) economic transactions that standards will address

In a sale of an accounts receivable without recourse, if the customer does not pay, the loss is assumed by the _______ of the accounts receivable.

Buyer

Accounts receivables are _____ because they will be converted to cash within the normal operating cycle

Current asstes

The employee responsible for the petty cash fund is often referred to as the petty cash __________.

Custodian

Which of the following transactions will require credit to accounts recievable

Customer defaults and does not pay Sales on account is returned by a customer

Which of the following is an internal control procedure for cash disbursements?

Disbursements should be made by check.

In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the _______

Effective interest rate

GASB

Government Accounting Standards Board

A key factor in helping safeguard cash is a well functioning ________ system.

Internal control system

Which of the following will require a journal entry following a bank reconciliation?

NSF Checks & Notes Collected by the bank

Which of the following items will require a journal entry following a bank reconciliation?

NSF checks Notes collected by the bank

debit postage expense $50; credit cash $50

Night Corp. establishes a petty cash account for $200. During the month, Night uses petty cash to purchase postage for $50. At the end of the month, when petty cash is replenished, the journal entry will include

_____ _____ are those other than trade receivables and include tax refund claims, interest receivable, and loans by the company to other entities including stockholders and employees.

Nontrade receivables

The transfer of a(n) _______ to a financial institution is called discounting.

Note receivable

Sell goods to customers Sell stock to investors Purchase equipment

Operating Financing Investing

Purchasing inventory from vendors is a

Operating Activity

Expenses

Outflow of an asset (resources) related to the production of revenue. Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations

When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?

Outstanding checks

Which of the following is classified as part of the control environment?

Overall ethical tone of the organization with respect to internal control

Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. Assuming the interest rate is 5%, what is the present value of this annuity?

PVAD factor of 5% for 10 periods, 8.10782 x 5000 = 40,539

credit to sales, $1,000

Paredes uses the gross method to record sales on account. Paredes sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include a

A manager compares the monthly sales revenue to the amount forecasted. Which type of internal control is this?

Performance review

Which of the following are preventive controls:

Physical controls Separation of duties

Which of the following are preventive controls?

Physical controls Separations of duties

Control Activities

Policies and procedures that help ensure management's directives are being carried out

Industry averages are only one indication of acceptability of the liquidity ratios. Any ratio is but one indication of liquidity. _____ is perhaps the best long-run indication of liquidity.

Profitability

The acronym PCAOB stands for

Public Company Accounting Oversight Board.

Operating Activity

Purchasing inventory from vendors

A company's claims to the future collection of cash, other assets, or services is called __________.

Receivable

Which of the following are common controls over cash receipts?

Reducing the proportion of transactions that involve cash, having two different employees take custody of the checks and making a deposit, opening mail daily and making a detailed list of checks received.

International Organization of Securities

Regulatory oversight IFRS

Which of the following are provisions included in the Sarbanes-Oxley Act?

Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors.

later

Requiring the recurrence of a loss event may result in recognizing a loss _______ under IFRS than U.S. GAAP.

_____ on cash can be informal, arising from management's intent to use a certain amount of cash for a specific purpose. For example, a company may set aside funds for future plant expansion. This cash, if material, should be classified as investments and funds or other assets.

Restrictions

Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers $345,000; Cash paid for rent $41,000; Cash paid to employees for services rendered during the year $121,000; Cash paid for utilities $51,000 In addition, you determine that customers owed the company $61,000 at the end of the year and no bad debts were anticipated. The company owed the gas and electric company $2,100 at year-end, and the rent payment was for a two-year period. Calculate accrual net income for the year

Revenue (345,000 + 61,000) = 406,000 less expenses: Rent (41,000 / 2) = (20,500) Salaries = (121,000) Utilities (51,000 + 2,100) = (53,100) 406,000 - 20,500 - 121,000 - 53,100 = 211,400

Net Income

Revenues plus gains less expenses and losses. The difference between revenue and expenses when revenue is greater

authority to set accounting standards for companies, but has delegated the task to the private sector

SEC

Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. Indicate which of these groups it primarily represents:

SEC (Securities and Exchange Commission) - users Financial Executives International - preparers American Institute of Certified Public Accountants - Auditors Institute of Management Accountants - Preparers Association of Investment Management and Research - users

Which of the following are commonly classified as current liabilities?

Salaries Payable Accounts Payable Deferred Revenue

Loss

Sale of an asset used in the operations of a business for less than the asset's book value. A decrease in equity from peripheral or incidental transactions of an entity.

Cash inflow:

Sale of services for cash Collection on account Cash outflow: Payment of salaries Payment on account

Which of the following is a discount that is a reduction in the amount to be paid if the customer pays within a specified time period?

Sales discount

What type of payment tend to increase sales and profitability in the long run

Sales on account

A(n) _______ _______ occurs when a customer returns merchandise for a refund.

Sales return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is a called a

Sales return

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the:

Sarbanes-Oxley Act

The public company accounting reform and investor protection act of 2002 is known as

Sarbanes-Oxley Act

High profile accounting scandals in the early 2000s promoted the passage of the

Sarbanes-Oxley Act, Section 404

Which of the following are preventative controls?

Separation of Duties Physical Controls

A critical aspect of a good internal control system is

Separation of duties

As cash is the most liquid of all assets, a well-designed and functioning system of internal control must surround all cash transactions. _____ _____ _____ is critical.

Separation of duties

Which of the following are preventative controls?

Separation of duties Physical Controls

Receivables represent a company's claims to the future collection of

Service Cash Other assets

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?

Service charges; Charges for NSF checks

debit allowance for uncollectible accounts

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a:

cash equivalents

Short-term investments that can be readily converted to cash and have a maturity date of less than three months from date of purchase are called ______________.

Financing Activity

Signing a long term promissory note

Income Statement Formats

Single-step format groups all revenues and gains together, then expenses and losses are grouped, subtotaled, and subtracted - in a single-step from revenues/gains to derive income from continuing operations. Operating and nonoperating items are not separately classified Income tax is usually reported in a seperate line Multi-step format includes a number of intermediate subtotals before arriving at income from continuing operations

Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?

Smith

The financial statement that provides information about cash receipts and cash disbursements for the period is the:

Statement of cash flows

Steps in ethical decision making:

Step 1: Determine the facts of the situation Step 2: Identify the ethical issue and stakeholders Step 3: identify the values related to the situation Step 4: Specify the alternative courses of action Step 5: Evaluate the courses of action in terms of their consistency

Independent financial statement audits are most commonly required of:

Stock exchange listed companies

Which of the following allows greater reliance by investors on reported financial statements?

Strong internal control systems

Analyze the income summary: Income Summary ________________________ 36,333 38750 _______________________ 2417

The $38,750 represents :revenue The $36,333 represent expenses The $2,417 represents net income

Political pressure in International standard setting comes from:

The European Union and politicians from countries utilizing IFRS

understandability

The accounting characteristic that requires a user to comprehend the information within the context of the decision being made

At what amount are accounts receivable recorded?

The amount expected to be collected.

going concern

The assumption that a business entity will continue to operate indefinitely in the future refers to what assumption?

The ending balance in cash is reported in which financial statement(s)?

The balance sheet and statement of cash flows

The ending balance in cash is reported in which financial statements?

The balance sheet and statement of cash flows.

The ending balance in cash is reported in which financial statements?

The balance sheet and the statement of cash flows

without

The buyer assumes the risk of uncollectibility when accounts receivable are sold __________ recourse.

Comprehensive income

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Includes net income as well as other gains and losses that change shareholders' equity but are not included in traditional net income

In which situations does a company accept a note receivable?

The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest. The company lends money to employees or businesses.

If a company determines that it has $1400 of supplies on hand at the end of the period, which of the following statements is correct?

The company has $1,400 in supplies remaining at the end of the period.

conceptual framework that underlies accounting principles (in generan)?

The conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting. The fundamentals are the underlying concepts of accounting, concepts that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties.

could result in the mismatching of expense and revenue

The direct write-off method

At what amount are accounts receivable initially recorded?

The exchange price agreed on by the buyer and seller

At what amount are accounts receivable initially recorded?

The exchange price agreed on by the buyer and seller.

At what amount are accounts receivable initially recorded? -The present value of expected future cash flows. -The exchange price agreed on by the buyer and seller. -The future value of the amount expected to be collected.

The exchange price agreed on by the buyer and seller.

at what amount are accounts receivable initially recorded?

The exchange price agreed on by the buyer and seller.

Who has the receivables on their balance sheet in a sale of receivables?

Transferee

the transfer, any continuing involvement, and ongoing risk to the transferor

Transferors of assets must provide enough information about the transfer to allow financial statement users to fully understand what?

closing process involves ___________________________

Transferring revenue and expense balances to retained earnings

When a creditor changes the terms of a debt agreement in response to the debtor's financial difficulties, this referred to as

Troubled debt restructuring

true

True or false: Inventory that is expected to be returned in the future is included on the balance sheet of the company expecting the return.

false

True or false: The gross method and the cash method are the two ways to record sales discounts.

Detective

Two type of control procedures are preventive and _________.

Which set of standards require more disaggregation of accounts receivable and notes receivable in the balance sheet or notes?

U.S. GAAP

secured borrowing

Under which approach to financing with receivables does the borrower act like it borrowed money from the lender, with the receivables remaining on the borrowers balance sheet and serving as collateral?

cost index

Used to convert ending inventory at year-end cost to base year cost.

An income statement approach:

Uses a percentage of each period's net credit sales to estimate bad debt expense

Accelerated customer payment, reduction in bad debt, and increased sales volume

What are potential benefits of offering cash discounts to customers?

change in customer base and overall change in economic conditions

What are some factors considered when estimating sales returns?

receivables are sold without recourse and the transfer will have no continuing involvement.

What indicates the surrender of control over the assets transferred?

book / fair

When settlement occurs at the time of a troubled debt restructuring, the creditor records a loss for the difference between the ______ value of the receivable and the _______ value of the assets received.

when the account receivable is determined to be uncollectible

When the direct write-off method is used, an entry for bad debt expense is required

Collusion

When two or more persons work together to circumvent internal control procedures and commit a fraud:

both IFRS and U.S. GAAP

Which accounting standards allow reversals of previously recognized impairment losses on receivables?

a sale of receivables

Which method of financing with receivables has the borrower credit the receivable asset?

Pledging / assigning

______________ accounts receivables requires no special account treatment, whereas ______________ accounts receivables requires netting a liability against the accounts receivables.

trade discount

__________________ allows a customer to pay an amount below the list price.

Accounts receivables

___________________ are created when sellers recognize revenue associated with a credit sale.

Deferred revenue arises when

a business receives cash in one period, but does not provide all of the related goods or services until a later period.

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:

a change in accounting principle

discontinued operations qualifications

a component of the entity has been sole, disposed of,or held for sale and a strategic shift is represented that will have a major effect on financial results

The replenishment of a petty cash fund might include

a debit to office supplies expense recording expenses occurs at the time the petty cash fund is replenished

factors

a financial institution that buys receivables for cash and charges a fee for this service

A trade discount is

a percentage reduction from list price

After preparing closing entries, the last step in the accounting process is to prepare ___________________

a post-closing trial balance

When a company has acclaim to receive assets in the future, how is this recorded on the balance sheet?

a receivable

when a company has a claim to receive assets in the future, ow is this recorded on the balance sheet

a receivable

what does a sales discount represent

a reduction in the amount to be paid if paid within a specified period of time

which method of financing with receivables has the transferee recognize the receivables as assets in its balance sheet

a sales of receivables

Requires an explanatory paragraph required (even though auditors report is unqualified)

a significant matter concerning the financial statements and a related-party transaction, and uncertainty regarding a contingency for which a loss is material in amount

securitization

a special purpose entity is created for the purpose of purchasing pools of receivables

Which of the following are adjustments to the bank balance in a bank reconciliation? a) Add deposits outstanding b) Adjust for bank service charges c) Deduct checks outstanding d) Adjustments for company errors e) Adjustments for bank errors

a) Add deposits outstanding c) Deduct checks outstanding e) Adjustments for bank errors

When an accounts receivable is written off, which account is effected? a) Allowance for uncollectible accounts b) Bad debt expense c) Cash

a) Allowance for uncollectible accounts

Financial Flexibility

ability to alter cash flows in order to take advantage of unexpxected investment opportunities and needs

Accounting changes - 3 types

accounting principle accounting estimate reporting entity

The objectives for determining the present value of future cash flows associated with an asset or liability requires that the uncertainty concerning the ____________ and timing of the cash flows be taken into consideration

amounts

Which of the following items are classified as recievables

amounts owed by customers amounts loaned and expected to be repaid tax refund claims

Which of the following items are classified as receivables?

amounts owed by customers tax refund claims amounts loaned and expected to be repaid

Recognizing revenue before cash flow is an example of ____________

an accrual adjusting entry

cash equivalent

an investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less

At the end of the accounting period, before the adjusting entries are recorded:

an unadjusted trial balance is prepared

Recording sales returns and allowances in a separate contra-revenue account helps managers:

analyze the transactions

In a(n) ___________________ the payment is received or made at the beginning of the period, whereas in a(n) __________________ the payment is received at the end of each period

annuity due ordinary annuity

On a financial calculator, the PMT key is used to input the ____________

annuity payment

Book value of a company

assets minus liabilities

Balance sheet limitations

assets minus liabilities is not representative of the company's true market value, the balance sheet is heavily reliant on estimates rather than determinable amounts

investments

assets not used directly in the operations of the business (cash set aside for future plant expansion, 3 year note receivable, land held for speculation, noncurrent receivables)

The application of conservatism leads to:

assets tending to be biased downwards and losses being recognized quicker than gains

Permanent accounts

assets, liabilities, equity

what are Permanent accounts :

assets, liabilities, equity

A secured borrowing occurs when accounts recievable are _____ or ______ as collateral for a loan

assigned, pledged

The formula to compute the receivables turnover ratio is net sales divided by

average accounts receivable

perpetual inventory system

average cost method is applied by computing a moving average unit cost each time inventory is purchased

Below is information from the financial statements of Thornton Company: Accounts receivable (net) 2014: $1,100 Accounts receivable (net) 2013: $900 Net sales 2014: $8,000 What is the receivables turnover? a) .1375 times b) 8 times c) 7.27 times d) .125 times e) 4 times

b) 8 times

If Company A sells accounts receivable with recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts? a) ABC Finance b) Company A c) the customer

b) Company A

The formula for calculating interest multiplies which of the following? a) Daily interest rate b) Face amount of the note c) Future value of the note d) Fraction of the annual period e) Annual interest rate

b) Face amount of the note d) Fraction of the annual period e) Annual interest rate

Both IFRS and U.S. GAAP permit the fair value option for accounting for receivables. Which of the following represents a difference in the application of this option? a) U.S. GAAP restricts the circumstances for applying the fair value option b) IFRS restricts the circumstances for applying the fair value option.

b) IFRS restricts the circumstances for applying the fair value option.

Which of the following are costs of extending credit terms to customers? a) Increased sales volume. b) Increased investment in receivables. c) Increase in uncollectible accounts. d) Reduction in the amount of cash collected from customers.

b) Increased investment in receivables. c) Increase in uncollectible accounts.

The organization responsible for the Code of Professional Conduct for accountants providing auditing services to their own organization is the: a) Accounting Principles Board b)Institute of Internal Auditors c) Public Accounting Standards Oversight Board d) Institute of Management Accountants e) American Institute of Certified Public Accountants

b) Institute of Internal Auditor

How is inventory recorded related to returns? a) The inventory account is decreased when returns occur to include the returned items. b) Inventory expected to be returned is included as an asset on the balance sheet. c) The inventory account is increased when returns occur to include the returned items. d) Inventory expected to be returned is included as income on the income statement.

b) Inventory expected to be returned is included as an asset on the balance sheet. c) The inventory account is increased when returns occur to include the returned items.

Which of the following are potential benefits of offering cash discounts to customers? a) Increased investment in receivables b) Reduction in bad debt c) Accelerated customer payment d) Increased sales volume

b) Reduction in bad debt c) Accelerated customer payment d) Increased sales volume

Which method of financing with receivables has the borrower credit the receivable asset? a) a secured borrowing b) a sale of receivables

b) a sale of receivables

The transfer of a note receivable to a financial institution for an amount less than the face amount of the not is referred to as a) discount on notes receivable. b) discounting a note receivable. c) pledging accounts receivable. d) assigning the note receivable.

b) discounting a note receivable.

Restrictions on cash may be a) imposed by stockholder intervention. b) informal arising from management intent. c) imposed by government regulation. d) formal by contract.

b) informal arising from management intent. d) formal by contract.

An item typically included in the income from continuing operations section of the income statement is: a) discontinued operations b) restructuring costs d) prior period adjustments d) all of the above

b) restructuring costs

Which of the following are cash equivalents? a) currency b) treasury bills c) commercial paper d) restricted cash e) coins

b) treasury bills c) commercial paper

The balance sheet approach estimates ______ _______ expense by estimating the net realizable value of accounting receivable.

bad debt

The balance sheet approach estimates _________ ___________ expense by estimating the net realizable value of accounts receivable.

bad debt

The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as

bad debt expense

The balance sheet approach estimates

bad debt expense by estimating the net realizable value of accounts receivable

Cash and cash equilvalents are reported as a single account in the ______________________ _________________________________

balance sheet

Cash and cash equivalents are reported as a single amount in the _____ ______.

balance sheet

How much cash you have is on:

balance sheet statement of cash flows

Other long-term assets

balance sheet item that is a catch-all classification of noncurrent assets (long-term prepaid expenses, noncurrent investments that are not material)

The components of internal control are

based on the ethical tone set by management.

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate

accrued receivable occures when revenue is earned

before cash flow

A timing difference in cash occurs when a company records a transaction either

before or after the bank records the same transaction.

Using the LIFO retail method, a new layer at retail is determined by subtracting what from ending inventory at retail?

beginning inventory at retail

related-pary transactions

borrowing or lending money at an interest rate significantly different from the market interest rate

when a specific account receivable is determined to be uncollectible

both the allowance amount and account receivable is reduced

Ways management can use accounts receivable to manipulate earnings resulting in diminished earnings quality

building large allowances for bad debts in good periods and then reducing those allowances in bad periods selling products at large discounts to retailers before they would normally buy and then holding the products for later delivery

Depreciation is the allocation of the cost of

buildings, vehicles, and equipment to expense over time as they are used.

What does a sales discount represent? a) A quantity discount for large customers. b) A reduction in the selling price of a good or service. c) A reduction in the amount to be paid if paid within a specified period of time.

c) A reduction in the amount to be paid if paid within a specified period of time.

Which of the following are the two approaches of estimating future bad debts? a) The revenue approach b) The equity approach c) The income statement approach d) The balance sheet approach

c) The income statement approach d) The balance sheet approach

Which of the following is a contra account to accounts receivable? a) sales returns b) inventory-estimated returns c) allowance for sales returns

c) allowance for sales returns

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a a) debit Accounts Receivable. b) debit Bad Debt Expense. c) debit Allowance for Uncollectible Accounts. d) credit Sales Returns and Allowances.

c) debit Allowance for Uncollectible Accounts.

The following information is taken from Connor Corp.'s accounting records: Accounts Receivable - beg. bal. $100,000, ending bal. $140,000 Allowance for Uncollectible Accounts - beg. bal. $15,000, ending bal. $18,000 During the year, Connor wrote off $17,000 of accounts receivable that were uncollectible. The adjustment to record bad debt expense at the end of the period was a a) credit to Allowance for Uncollectible Accounts for $18,000. b) debit to Bad Debt Expense for $18,000. c) debit to Bad Debt Expense for $20,000. d) credit to Bad Debt Expense for $18,000.

c) debit to Bad Debt Expense for $20,000. * $18,000 + $17,000 - $15,000

Earnings per share should be reported for each of the following income statement captions except: a) income from continuing opereations b) discontinued operations c) operating income d) net income

c) operating income

which of the following would more likely be found in a multi-step income statement? a) total expenses b) total revenues and gains c) operating income d) all of the above

c) operating income

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flow? a) collections from customers b) interest on note payable c) purchase of equipment d) purchase of inventory

c) purchase of equipment

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

A check that is NSF (nonsufficent funds) is a check that

cannot be paid due to the amount does not contain enough funds

Management Discussion and Analysis section includes a perspective on:

capital resources, operations and liquidity

Expenditures needed to get land ready for its intended use should be

capitalized as part of the cost of land

Amounts readily available to pay off debt or used in operations are considered _____

cash

Coins, balances in checking accounts, checks received from customers and money orders received are all included in _____ on the balance sheet.

cash

Coins, balances in checking accounts, checks received from customers and money orders received are all included in the ______ account on the balance sheet.

cash

In a cash receipts journal, the debit column is for:

cash

In factoring agreement, the seller relinquishes all rights to future cash receipts in exchange for _____ from the factor.

cash

The asset most susceptible to fraudulent activity is(are)

cash

The asset that is most easily stolen and susceptible to fraud is

cash

The gross method and the net method are two ways to record ______ discounts.

cash

petty cash fund should always have ________ and ______ that together equal the amount of the fund

cash receipts

A _____________ or______________ discount represents reductions not in the selling price of a good or services, but in the amount to be paid by the customer.

cash sales

Reston Corp. borrowed 20,000 from first national bank on a 6-month note at 8% interest. Reston has an informal arrangement with no contractual agreement with the bank to maintain a compensation balance of 2,000 until the loan is repaid. Reston should report the 2,000, as

cash and cash equivalents

compensating balance may be disclosed in the financials as

cash and cash equivalents noncurrent assets current assets

current assets

cash and other assets that are expected to be converted to cash or consumed within a year or the current operating cycle (temporary investment, short-term marketable security)

short-term, highly liquid investments such as money market funds or treasury bills are classified as

cash eqivalents

Highly liquid investments with a maturity date of 3 months or less are considered ____

cash equivalents

Short-term, highly liquid investments such as money market funds or treasury bills are classified as

cash equivalents

Amounts readily available to pay off debt or use in operations are considered cash, while highly liquid investments with a maturity date of 3 months or less are considered

cash equivalents.

The new expected cash flow approach requires that the probability adjustment for uncertainty is applied to what amount when calculating expected cash flows?

cash flow

Paying by check helps a business to control cash when the ______.

checks are prenumbered and written sequentially check is signed by an authorized manager

Internal control procedures for cash disbursements should include that

checks are signed by authorized individuals all disbursements are made by check, debit card, or credit card all expenditures are authorized

Sarbanes-Oxley Act, Section 404

companies must document internal controls and assess their adequacy

To complete the measurement process,

companies need to update balance of assets, liabilities, revenues and expenses for adjusting entries.

The Sarbanes-Oxley Act applies to

companies that are required to file with the SEC.

Which of the following are providers of financial information? a) customers b) companies c) households d) investors e) schools

companies, households, schools

Decreases in inventory value are recognized as they occur, but not increases. This is consistent with the ____________________ principle or concept

conservatism

The gain or loss on disposal of an asset is calculated as

consideration received less the book value of asset sold

A company applies the _____________________________concept when it applies the same accounting principles from period to period to allow for more comparability.

consistency

amount of loss from write-down using individual items

cost total-by individual products total

Management must evaluate the ______ and _______ of any change in credit and collection policies.

cost; benefit

LIFO liquidation profits occur when

costs are rising and inventory quantity declines

A credit balance in the income summary account is closed with a ___________ to retained earnings

credit

A(n) _ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

credit

The account "Allowance for Uncollectible Accounts" normally has a _ balances.

credit

The adjusting entry required to record depreciation includes a(n) ________ entry to accumulated depreciation

credit

The normal balance in a contra asset account is:

credit

calculate the year-end balance in the allowance for uncollectible accounts

credit balance-accounts receivable written off during the year + bed debt expense

If the allowance for uncollectible accounts is 25% of gross accounts receivable, this might indicate

credit policies are too lenlent

On Jan 1, KLAY corp. recieves a $100,000, 120-day, non-interest bearing note recieable from a customer. The note has a 6% discount rate. On Jan 1, when Klay receives the note from the customer, Klay will record a

credit to discount on notes recievable for $2,000

On March 1, Song corp. recieves a $100,000, 90-day, non-interest bearing note receivable from a customer. The discount rate is 12%. On June 1, when Song receives full payment for the customer, Song will record a

credit to interest income for $3,000

Accruing interest at year-end on a note receivable journal entry includes

credit to interest revenue

Rascal Corp. borrows $500,000, by signing on a 1-yr, 12% promissory not from General Finance company and assignes $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the recievables assigned. The journal entry for Rascal to record the borrowing will include a

credit to liability---financing arrangements for $500,000

Paredes uses the gross method to record sales on account. Paredes sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include a

credit to sales, $1,000

The bank will show a customer's deposit on bank statements as a ______.

credit, because a deposit is a liability from the bank's point of view

To increase the accumulated depreciation account, you would _________ the account, and to increase depreciation expense, you would _______ the account

credit, debit

The interest rate used in the expected cash flow approach to estimating the value of assets or liabilities is the

credit-adjusted risk-free rate

Under the LIFO retail inventory method, a new layer is converted to cost by multiplying it by the_____________ period cost-to-retail percentage.

current

Balance sheet - how are assets classified

current and noncurrent

ending balance of accumulated other comprehensive income is calculated by adding this amount to the beginning balance of accumulated other comprehensive income

current year other comprehensive income

Frequently, liquidity is measured with respect to the ability to pay _____ maturing debt.

currently * The current ratio is one of the most common ways of measuring liquidity.

Which of the follown transactions will require an entry to the accounts recievable account?

customer purchases goods on account, customer defaults and does not pay sale on the account is returned by a customer

A disadvantage to selling on account is

customers do not always pay

Kim Corp. uses the gross method to record sales on account. Kim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include a a) credit to accounts receivable, $4,900. b) debit to sales, $5,000. c) credit to sales, $4,900. d) debit to accounts receivable, $5,000.

d) debit to accounts receivable, $5,000.

A signed agreement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others is called a(n) a) account payable b) note payable c) account receivable d) note receivable

d) note receivable

To close the dividend account, the journal entry would require a(n) ______ entry to retained earnings

debit

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include a

debit Allowance for Uncollectible Accounts.

Smith Corporation began 2016 with a difference of $50,000 between inventory valued internally using FIFO and inventory valued using LIFO. At the end of 2016, this difference increased to $75,000. The journal entry to record this increase would include

debit COGS $25,000 credit to LIFO reserve $25,000

Oswego Clay Pipe Company sold $45,500 of pipe to Southeast Water District #45 on April 12 of the current year with terms 4/15, n/60. Oswego uses the gross method of accounting for cash discounts. What entry would Oswego make on April 12?

debit accounts receivable 45,500 credit sales 45,500

Burton Corp. is owed $100,000 by Gem Corp. under a note payable for $100,000 with a 10% interest rate. The carrying value of the note is $40,000, but the previous year's interest of $4,000 had not been received. Burton settles the debt by accepting land with a fair value of $30,000. The journal entry to record this transaction will include:

debit bad debt expense $14,000 debit land $30,000

Marson Corp. has a note receivable from a client. The carrying value of the note is $100,000. Due to the clients financial situation, Marston modifies the terms of the note. The present value of the future cash flows for principle and interest on the modified note are $96,000. The journal entry for the loan modification will include

debit bad debt expense $4,000 credit allowance for uncollectible accounts $4,000

When inventory is sold in a perpetual inventory system:

debit cost of goods sold credit inventory debit cash credit sales

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require

debit interest receivable $2,000 credit interest revenue $2,000

Smith Company has a discrepancy of $50 at the end of the bank reconciliation. Smith has come to the conclusion that $50 of cash went missing somewhere. The journal entry to record this discrepancy includes:

debit miscellaneous expense $50 credit cash $50

On May 1, 2017 Garcia Company paid $1,200 for 12 months rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, 2017 will require:

debit prepaid rent $400 credit rent expense $400 Garcia recorded the full amount as rent expenses in the income statement on May 1. At the end of the year, the rent expense must be reduced by the remaining four months

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. A physical count determined the cost of inventory a the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry to record the purchase of inventory during the year includes:

debit purchases $100,000 credit cash $100,000

Joyce determines that a customer accout of $20,000 should be written off as uncollectible. The journal entry to write off the account using the allowance method will include

debit to allowance for uncollectible accounts credit to accounts receivable

The following information is taken from Connor Corp.'s accounting records accounts receivable beginning balance 100,000 ending balance 140,000 allowance for uncollectible accounts beginning balance 15,000 ending balance 18,000 during the year, Connor wrote off $17,000 of accounts receivable that were uncollectible the adjustment to record bad debt expense at the end of the period was

debit to bad debt expenses for $20,000 credit to allowance for uncollectible accounts for $20,000 18,000+17,000-15,000 = 20,000

journal entry to record the borrowing of cash and the signing of a note payable involves:

debit to cash credit to note payable

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end and principal and interest are due at maturity. The entry required on Lights books on April 1 when the note is due requires:

debit to cash $104,000 credit to interest revenue $2,000 100,000 x .08 x3/12 credit to note receivables $100,000 credit to interest receivable $2,000

Kendall Corp. purchases equipment for $100,000 by paying $20,000 in cash and signing a note payable for $80,000. The journal entry to record this transaction would include:

debit to equipment credit to cash credit to notes payable

On january 2, Allison Corp. changes from the LIFO to the FIFO method. Its prior-year financial statement notes show a LIFO reserve of $20,000 if it had utilized FIFO in prior years. Allison should make a journal entry that includes a

debit to inventory credit to retained earnings

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On January 1, when Song receives the note from the customer, Song will record:

debit to notes receivables $100,000 credit to sales revenue $79,719 n=2, i=12%, present value factor is .79719 x 100,000 credit to discount on note receivables $20,281 n=2, i=12$, present value factor is .79719 x 100,000

Brunson Company pays employees $4000 for work performed in the current month. The journal entry to record the transaction will include

debit to salary expense credit to cash

Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a

debit to sales allowances $50.

Notes receivable normally has a(n) _ balance because it is classified as a(n) _.

debit, asset

The bank will show a customer's withdrawal as a _____.

debit, because a withdrawal decreases its liability from the bank's point of view

if the company uses the direct write-off method, what would bad debt expense be for 2016

debit- bad debt expense credit accounts receivable

Revenues are $1,000. Expenses are $200. The journal entry required to close the income summary account will require a _______ to income summary and a ______ to retained earnings

debit; credit

Supplies expense is ______ and supplies is _____ for the amount of supplies used during the period that were originally recorded as an asset when purchased

debited; credited

The overriding objective in the hierarchy of qualitative characteristics of financial reporting information is:

decision usefulness

A LIFO liquidation occurs when inventory quantities _____.

decline

What are the financial statement effects of recording bad debt expense using the allowance method?

decrease assets increase expenses

Liabilities impact of debits and credits:

decrease by debit increase by credit

Expenses will ____________ retained earnings and revenues will ____________ retained earnings

decrease; increase

In a bank reconciliation, the bank's charge of $10 for checking account fees is

deducted from the company's cash balance

when adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance

deposits it transit

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system.

Cost approach

determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition

The accounts receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

Private Company Council (PCC)

determines whether changes to existing GAAP are necessary to meet the needs of users of private company financials

_______________ cost are incurred after after a natural resource has been discovered but before production begins.

development

Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay?

direct write-off method

Which of the following is an internal control procedure for cash disbursements

disbursments should be made by check

pledging receivables requires

disclosure in the notes to financial statements

The ____________ on notes receivable account is a contra account

discount

Gross method of accounting for purchase discounts

discount not taken is recorded as Purchase

Net method of accounting for purchase discounts

discount not taken is recorded as interest expense

The transfer of a note to a financial institution is referred to as ______.

discounting

A trade discount is a reduction from the list price, which is used to:

disguise real prices from competitors change prices without publishing a new catalog give quantity discounts to customers

a trade discount is a reduction from the list price, which is to:

disguise real prices from competitors give quantity discounts to customers change prices without publishing a new catalog

An asset that is traded for another asset is treated as an exchange, whereas an asset that is sold or retired is treated as a(n) _________________.

disposition

The statement of stockholders' equity includes these amounts:

dividends for the period net income ending balance retained earnings

The write-off of a specific accounts receivable _ total assets reported on the balance sheet.

does not affect

Liability - characterisitcs

due to a past transaction or event, it is a probable future sacrifice of an economic benefit, it is a present obligation

Each economic event, or transaction, affecting the accounting equation has a(n) _______ effect because resources must always equal claims

duel

perpetual LIFO

each time inventory is purchases or sold, the layers are adjusted

In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the _____ _____ rate.

effective interest

In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the _________ ___________ rate.

effective interest

an application where the interest rate stays the same over time, but interest revenue increases as the rate is multiplied by a receivable balance that increases is referred to as

effective interest method

Which of the following effectively mitigate the natural risks of running any business without being capable of completely eliminating the risk?

effective internal control; ethical employees

The broad term that encompasses machinery used in manufacturing, computers and other office equipment, vehicles, furniture, and fixtures is _________.

equipment

A(n) _____ is a mistake in accounting, which can be intentional or unintentional.

error

An inventory _______ can occur due to the over- or understatement of purchases.

error

At the beginning of the year, Block Company's allowance account has a debit balance of $10,000. this may indicate that the

estimate of uncollectible accounts was too low

Net sales by cost formula

estimated ending inventory at retail * cost-to-retail ratio

Because some of the amounts reported in financial statements are based on _ some of the information may be inaccurate.

estimates

The gross profit method is useful in situations where ________of inventory are desirable

estimates

Three types of accounting changes are a change in accounting principle, a change in accounting ______________, and a change in reporting __________

estimates entity

susequent events

event that affects a loss contingency, sale of the business, issuance of debt securities

Some ____________ recognition is modified in interim reporting to cause interim statements to relate better to annual statements

expense

When inventory is sold and reported as cost of goods sold, the cost of inventory is recognized as a(n) _______.

expense

If equipment is purchased specifically for one research and development project, the cost of the equipment is

expensed immediately

Consistent with U.S. GAAP and IFRS, donated assets generally are valued at __________ value.

fair

At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond true/false

false

Cash basis accounting is the required accounting method for most profit-oriented companies. true/false

false

Retained earnings equals net income plus distributions to shareholders. true/false

false

Economic Events cause changes in the:

financial position of a company

Note receivable is

formal credit agreement with trade customers

note receivable

formal credit arrangement between borrower and lender

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational _____.

fraud

When a person intentionally deceives another person or company for personal gain, this is referred to as _____.

fraud

when a person intentionally deceives another person or company for personal gain,

fraud

The two reasons why companies may issue incorrect financial statements are

fraud and errors

The majority of productive resources are privately owned in a ________ enterprise economy

free

perpetual inventory system

freight is added directly to the inventory account

The __________ ___________ principle requires that any information useful to decision makers be provided in the financial statements, subject to the cost effectiveness constraint

full disclosure

Clara invests $1,000 in a savings account earning 3% interest. At the end of the first year, Clara has $1,030 in the account. The $1,030 Clara has at the end of year 1 is the __________ value

future

The calculation of ____________ value requires the addition of interest, while the calculation of ______________ value requires the removal of interest

future present

Chen Corp. wishes to deposit $10,000 in the bank at the beginning of each year, a nd would like to know how much money it will have at the end of year 10. Which table should Chen use to make this calculation?

future value of an annuity due

The future value of a series of equal-sized cash flows with the first payment taking place at the beginning of the first period is __________________

future value of an annuity due

In an exchange of nonmonetary assets, if the transaction lacks commercial substance, any _____ is deferred but a(n) _____ is recognized immediately.

gain loss

Discontinued operations reported income

gain or loss on disposal of the components assets and operating income or loss of the component from the beginning of the reporting period to the disposal date

Other comprehensive income includes net income as well as other _________ and __________ that change shareholders' equity but are not included in traditional net income

gains losses

Costs of providing financial information

gathering, processing and disseminating information

IASB is dedicated to developing a set of high-quality, understandable, and enforceable ________ accounting standards

global

According to the revenue recognition principle, revenues should be recognized when

goods or services are provided to customers, not necessarily when cash is received

Ownership of inventory at the end of the accounting period is determined for:

goods shipped by suppliers goods shipped to customers

An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized is ________________.

goodwill

A bond will be issued at a discount when the market rate of interest is ___________

greater than the stated rate

The gross profit ratio is computed as _____ divided by net sales.

gross profit

IFRS primary purpose of the conceptual framework is to provide

guidance to both standard setters and practitioners

double entry system of accounting means each transaction _______

has a dual effect on the accounting equation

A primary purpose of adjusting entries is to record events that:

have occurred but that have not yet been recorded.

Control Activities are Policies and procedures that

help ensure management's directives are being carried out.

The allowance for uncollectible accounts has a debit balance at the end of the year prior to recording bad debt expense. This means that write offs of accounts were _ than the estimated bad debt expense for the previous year.

higher

compensating balance results in an effective interest on the loan that is ___________ than the stated rate on the debt

higher

A compensating balance results in the borrower's paying an effective interest rate _____ than the stated rate on the debt.

higher * For example, suppose that a company borrows $10,000,000 from a bank at an interest rate of 12%. If the bank requires a compensating balance of $2,000,000 to be held in a noninterest-bearing checking account, the company really is borrowing only $8,000,000 (the loan less the compensating balance). This means an effective interest rate of 15% ($1,200,000 interest divided by $8,000,000 cash available for use).

Based on the Dupont model an equity multiplier greater than 1 will produce a return on equity that is higher than the return on assets. What is the trade-off to this effect?

higher leverage results in higher probability of default

Financial Statement Presentation project addresses:

how items are displayed in the financials, classifications and subclassifications of items, the aggregation of items in the financials

Dollar amounts are assigned to goods sold and goods remaining in ending inventory by making an assumption regarding what?

how units of goods and their associated costs flow through the system

EIFT - Emerging Issues Task Force was formed to

identify potential problem areas and provide a timely response to issues

Robert Skinner, an accountant, discovers an error in accounting for an inventory purchase. He should correct the error....

immediately

When a lender believe it is probable that not all principle and interest will be collected on a long-term note receivable, what is recognized?

impairment loss

when a lender believes it is probable that not all principal and interest will be collected on a long-term note receivable, what is recognized

impairment loss

LIFO inventory method

in the absence of changes in costs, the results of using LIFO would be identical to those obtained by FIFO LIFO will provide a close matching of current revenues with current cots since the most recent costs are expensed first In periods of declining costs, cost of goods sold using LIFO will produce a lower cost of goods sold than FIFO

Accounts recievable are normaly classified

in the balance sheet as current assets

estimated future sales returns

included in ending inventory and deducted from cost of goods sold

Raw Materials Inventory

includes items acquired for the purpose of processing into finished goods

Summary of significant accounting policies

includes method of depreciation, choice between LIFO AND FIFO, items included in cash and cash equivalents

Statement of Cash Flows

includes operating, investing and financial activities reports the changes in a companys cash balance during a period purpose is to provide information about cash receipts and cash disbursement during a period

Income from Continuing Operations

includes the revenues, expenses (including income taxes), gains and losses from operations that are more likely to continue into the future. 3 Components: Operating Income Nonoperating Income Income tax expenses

The financial statement effects of recording an allowance for estimate sales return are that:

income decreases assets decrease equity decreases

When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through

income statement classification shifting

CECL - Current Expected Credit Loss model will ________ the amount of bad debt expense companies have to recognize on receivable impairments in comparison to current GAAP

increase

additional markup

increase in selling price subsequently to initial markup

Two acceptable methods under U.S. GAAP for preparing the statement of cash flows are

indirect and direct methods

Seperation of duties requires that

individuals who have physical responsibililty for assets should not hace access to accounting records

restriction on cash may be

informal arising from management intent and formal by contract

account receivable

informal credit agreement with trade customers

Worksheet

informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period

ERP - Enterprise Resource Planning system

integrates the information of departments and functions of a company into a single computer system

A error is a mistake in accounting, which can be

intentional or unintentional.

Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable interest rate is 6%. One year after the prepayment. Munchen should recognize:

interest revenue of 5,340 89,000*.06 = 5340

A periodic performance review is an example of a(n) _____ control.

internal

The success of any business enterprise depends on an effective system of _____ _____.

internal control

The control environment sets the overall ethical tone of the company with respect to

internal control.

A perpetual system requires that merchandise purchases be recorded in the _____________ account

inventory

In a perpetual system, each time goods are sold, cost of goods sold is debited and __________ is credited

inventory

The cost of freight-in paid by the purchaser is most commonly included in the cost of ______.

inventory

the dollar-value LIFO method extends the concept of _______ ________ by allowing a company to combine a large variety of goods into one pool

inventory pools

affect earnings quality

inventory write-downs choice of inventory method change in inventory method

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests is a(n) ________________ by owners.

investments

Noncurrent assets

investments, property and machines

Capital markets is a composite of all:

investors and creditors

The cost of freight-in

is commonly included in the cost of inventory

A physical count of inventoy

is required in a periodic inventory system as cost of goods sold is not determined continuously.

Net operating cash flow

is the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.

Statement of Cash flows financial activities

issuance of common stock to investors borrowing from bank

financing activity on the statement of cash flows

issue stock pay dividends, borrowing on a note payable

A note recievable is considered impaired when

it becomes probable that the creditor will not be able to collect all amounts

An advantage of historical cost measurement is

it is objective and verifiable

The statement of cash flows is useful because

it provides information on the company's ability to maintain long-term success.

Multi-step income statement advantages

it reports expenses by function it reports the relationship between various items it provides more information than a single-step income statement

A note recieved solely for cash is valued at

its present value, which is the cash amount

The time value of money has a _____ effect on long-term notes receivable versus short-term notes receivable.

larger

The time value of money has a _______ effect on long-term notes receivable versus short-term notes receivable

larger

GAAP typically requires that bank overdrafts be treated as _______________ on the balance sheet where IFRS allows them to offset other cash accounts

liabilities

a company that has sufficient cash or is capable of converting assets to cash in a short period of time so that it can meet its current needs is considered to be

liquid

Use the LIFO inventory pools reduces the chance of unintentional LIFO layer______.

liquidation

current ratio and quick ratio measure

liquidity

Carly corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. First bank charged a 4% factoring fee and retained $5,000 to provide a reseve against potential sales returns and allowances. The journal entry Carly will make to record the factoring arrangement will include a

loss on sale of receivables for $4,000

Carly corp. factored accounts receivable that had a book value of $100,000 to First Bank. The transfer was made without recourse. FIrst Bank charged a 4% factoring fee and retained $5,000 to provide a reserve against potential sales returns and allowances. Te journal entry Carly will make to record the factoring arrangement will include a

loss on sale of recievables for $4,000

a petty cash fund is an efficient way to handle what type of payments

low cost office supply purchases

A high inventory turnover ratio could be caused by:

low ending inventory levels a superior sales force

IFRS, bad debt accruals will be __________ and will occur ________ than under GAAP

lower later

fair value approach that uses current information from recent transactions or exchanges in active trading on the stock exchanges is the ____________ approach

market

Secondary Market

market in which stocks and bonds are traded among individual and institutional investors

The direct write-off method violates which accounting concept?

matching expenses to their revenues in the same period

The lower of cost and net realizable value methods avoids reporting inventory at an amount _________________future benefits.

more than

An investment that has higher risk also has

more uncertainty of returns

FIFO

most closely approximates the actual physical flow of inventory

Simply interest

multiply initial investment x both the applicable interest rate and period of time for which the money is used

related-party transaction disclosure requirements

nature of the relationship, amounts due to or from related parties

To calculate Present Value Of a known future amount

need: future value interest rate number of compounding periods

When a long-term note receivable is discounted, interest revenue each period is calculated based on the _______ note receivable at the beginning of the period.

net

the income statement approach for estimating bad debts uses a percentage of

net credit sales

Return on Assets (ROA)

net income + interest expense (1-tax rate)/average total assets or: ROA = Profit Margin x asset turnover Measures how profitably a company uses its assets. Net income / Average total assets. (expresses income as a percentage of average total assets)

Failure to record an accrual for salaries at year-end has what effects on the financials

net income overstated expense is understated liabilities are understated

The _ _ value of accounts receivable is the amount of cash a company expects to collect.

net realizable

Auditors of public companies are prohibited from providing ________ services for their audit clients.

non audit

In a ______ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan.

non interest

purpose of the statement of comprehensive income is to report current period changes in equity that arose from?

non-owner transactions

In a(n) _____ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

noninterest

In a(n) ________-bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

noninterest

Income tax receivable is a ______ receivable

nontrade

Income tax receive is a __________ receivable.

nontrade

purchase discounts

not taken are reported as interest expense under net method of accounting for purchase discounts under perpetual inventory system, treated as a reduction in the inventory account

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable

The lender in a secured borrowing recognizes a _______ on their balance sheet

note receivable

The lender in a secured borrowing recognizes a(n) ____________ ____________ on their balance sheet

note receivable

A(n) _ receivable typically yields interest revenue and possesses a fairly high probability of collectibility.

notes

A signed aggrement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others is called

notes receivable

the transfer of a(n) _____ to a financial institution is called discounting

notes receivable

_______ ______ are formal credit arrangement between a lender and borrower arising from loans to other entities.

notes receivables

SFAC 8 of the conceptual framework focuses on

objective and qualitative characteristics

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called

occupational fraud.

Effective internal control over cash requires segregation of duties by,

opening the mail and deposing checks in the bank. Depositing checks into the back and recording receipts in the accounting records

Collection from customers is classified as an

operating activity

Depreciation expense is classified on the income statement as

operating item

Revenue and expenses on the income statement are classified as:

operating items and non-operating items

statement of cash flows categories

operating, investing and financing activities

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash ________ occurs when a company purchases its own securities as treasury stock, and a cash _______ occurs when a company issues stock for cash to investors.

outflow inflow

Financial accounting is chiefly concerned with providing information to various _________ users.

outside

when adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance

outstanding checks

IFRS cash reporting

overdrafts in one cash account can typically be offset against positive balance in other cash account

The direct write-off method is normally not permitted for U.S. GAAP reporting because if related credit sales occurred in the prior year, it:

overstates net income in the prior year overstates assets in the prior year

FOB destination

ownership of the goods remains with the seller until the goods reach the buyer seller usually responsible for shipping

A _______ is the exclusive right to manufacture a product or use a process granted for a period of __________ years.

patent 20

Time value of money calculations are required for which topics?

pensions, long-term notes payable, leases

A(n) _________________ inventory system adjusts inventory at the end of each reporting period.

periodic

In a(n) _________________________inventory system, cost of goods sold is recorded at the end of the accounting period.

periodic

Allowing the life of a company to be divided into artificial time periods in order to provide timely information is referred to as the _______________ assumption.

periodicity

A(n) ______ account represents the basic financial position elements of the accounting equation and a ______ account keeps track of the changes in the retained earnings component of shareholders' equity.

permanent; temporary

A ____________ inventory system tracks units from purchase to sale

perpetual

In a(n) _________________ inventory system, the average cost method is applied by computing a moving average unit cost each time inventory is purchased.

perpetual

A small amount of cash on had to pay for minor purchases is commonly referred to

petty cash

A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) _____ _____ fund.

petty cash

A small amount of cash on hand to pay for minor purchases is commonly referred to as a

petty cash fund.

Long-lived assets are classified as intangible assets if they lack ______ substance

physical

Measurement of inventory and cost of goods sold always starts with determining the _________ quantities of goods.

physical

secured borrowing occurs when accounts receivables are _________ or __________________ as collateral for a loan

pledged assigned

According to the conceptual framework, for accounting information to be relevant, what qualities must it possess?

predictive value and confirmatory value

If the adjusting entry's debit is to an expense account, then the credit must be to a:

prepaid expense liability

Two types of control activities are

preventative and detective controls.

The cost of components purchased from another manufacturer that will become part of the finished product are recognized in the _____ _____ account.

raw materials

a company's claims to the future collection of cash, other assets, or services is called a _____________.

receivable

ability to continue to generate a high level of sales and collect its receivables can be measured with

receivable turnover ratio and average collection period

Bad debts written off as bad debt expense (no allowance method) results in

receivables will likely be overstated

Temporary accounts are periodically closed, and the net effect is recorded in the permanent ____________ ___________ accout

retained earnings

The balance in the _______ ________ account after all the temporary accounts have been closed equals net income or net loss

retained earnings

When a company applies a retrospective change in inventory method, they must revise beginning _____________ ______________ to reflect the cumulative income effect of the difference in inventory methods for all prior years

retained earnings

When dividends are declared, a debit is made to a dividends declared account or the _________ _________ account

retained earnings

Errors that are discovered during periods subsequent to the period when the errors occurred require that the financial statements are _____________restated.

retrospectively

Generally, voluntary changes in accounting principles are accounted for

retrospectively

Interim accounting changes are reported _________

retrospectively

DuPont Formula

return on equity = Profitability (profit margin): net income/total sales x (times) Activity (asset turnover): total sales (net sales)/average total assets x (times) Financial Leverage (equity multiplier): average total assets/average total equity or ROA (return on asset) x equity multiplier

Temporary accounts include:

revenue and expense accounts

Financial statement elements are measured and reported as a result of providing goods and services

revenues and expenses

if sales return are incorrectly treated as expenses, what are the effects on the financial statements?

revenues are overstated expenses are overstated

GAAP disclosure requirements for geographic areas include

revenues from external customers, long-lived assets

Careful consideration of internal and external factors that may cause harm to a company is called _____ assessment.

risk

default risk

risk that a company will not be able to pay its obligations when they become due

Auditor

role is to attest to the fairness of the financials they have examined

Which of the following cash transactions are classified as cash inflows from investing activities?

sale of building sale of equipment sale of held-to-maturity investments

Which of the following cash transactions are classified as cash inflows from investing activities?

sale of equipment sale of investments sale of building

Which of the following transactions will require a credit to accounts receivable

sale on account is returned by a customer customer defaults and does not pay

A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a __________ discount.

sales

When merchandise is returned for a refund of for credit to be applied to other purchases, the situation is called a(n) _ _.

sales return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a

sales return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _____ _____.

sales return

When merchandise is returned for for credit to be applied to other purchases, the situation is called a ____ _____.

sales return

Assigning or pledging accounts recievable is used in a

secured borrowing

In a consignment, a company arranges for another company to:

sell its products

Who are the external users of financial information?

suppliers, creditors, investors and government agencies

The most critical element in determining if a company can account for the transfer of receivables as a sale is the

surrender of control

An intangible asset with a finite life is recorded at cost and subsequently

tested for impairment

Difference in CECL model and current GAAP

the "probable" threshold for identifying impaired receivables is removed and Bad debt estimates will be based on predictions about the future

earnings quality

the ability of reported earnings (income) to predict a company's future earnings

Auditor is required to evaluate:

the ability to continue for a reasonable time as a going concern

liquidity

the ability to converts assets to cash to pay current obligations readiness to pay short-term debts as they come due measured by current ratio and quick ratio

A good internal control system for cash would require that those who handle cash should not be involved with

the accountin records, reconciliation of bank balances

Employee purchases should be included in the accounting records by the end of

the accounting period

justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that:

the accounts are adjusted at year-end to reflect the correct balances

Net realizable value of accounts receivable is

the amount of cash the company expects to actually collect from customers.

Present value of a single amount

the amount of money today that is equivalent to a given amount to be received or paid in the future

Interest

the amount paid for the use of money for some period of time

Errors that affect prior-year income statement accounts are corrected by adjusting

the balance of retained earnings

The reconciliation process for cash receipts requires that the amount recieved from customers should agree with

the bank-generated deposit slip the accounting records

the reconciliation process for cash receipts requires that the amount received from customers should agree with

the bank-generated deposit slip and the accounting records

IFRS qualifications for transfer of receivables as a sale

the company transfers substantially all of the risks and rewards of ownership

inventory costs include

the cost to bring inventory to its desired condition expenditures to acquire the inventory the cost to bring inventory to its desired location

a troubled debt restructuring occurs when

the creditor changes the terms of the agreement to make it easier for the debtor to pay

Sarbanes-Oxley act, corporate management is responsible for:

the financials and internal control

When recording noninterest-bearing notes receivable, the discount on a noninterest-bearing note receivable reprsents

the interest to be earned on the note receivable

Discontinued operations held for sale reported on balance sheet at

the lower of the book value or fair value less costs to sell

per unit inventory value

the lowest amount between the cost and NRV

The price of a bond includes _________________________

the present value of the face amount plus present value of the periodic interest payments

Closing process

the process in which temporary accounts are reduced to zero balances and transferred to retained earningssal

what occurs when petty cash is used to pay for an item

the receipts is placed in the petty cash fund

During the closing process, the closing entry to reduce the sales revenue normal account account balance to zero requires

the revenue account to be debited.

If goods are shipped f.o.b. destination, at time of shipment

the seller still had legal title of the goods

Operating Cycle

the time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect the accounts receivable (time to convert cash to raw materials and then back to cash)

the difference between the gross method and net method of recording sales revenue, in terms of the effect on income is what

the timing of the recognition of any discounts not taken varies and could occur in different reporting periods

a company is allowed to account for the transfer of receivables as a sale if what occurs?

the transferor has surrendered control over the assets transferred

Why is the sale approach preferred over the secured borrowing approach for the transferor

the transferor seems more profitable, more liquid and less leveraged

Accounts receivable are almost always considered current assets because

their normal collection, even longer than a year, is part of the normal operating cycle

Faithful presentation exists when?

there is agreement between a measure or description and the phenomenon it purports to represent

Accounts receivable are classified as current assets because

they will be converted to cash within 1 year or the normal operating cycle

The process of estimating for an allowance for uncollectible accounts, writing off bad debt in the following periods, and then reestimating the allowance at the end of the period occurs:

throughout the company's life

The difference between $100 invested now and $105 at the end of year 1 represents the

time value of money

Financial accounting provides investors with information that should help them to evaluate the:

timing of the firms future cash flow and uncertainty of the firms future cash flow and amounts of the firms future cash

Disclosures purpose

to assist in underestanding the financial statements

If an adjusting entry's credit is to a liability account, then the debit must be

to expense.

A recently issued FASB standard requires that companies recognize revenue when goods or services are _____________ to customers for the amount the company expects to be entitled to receive in exchange for those goods and services

tranferred

The _____ recognizes a note receivable in a secured borrowing agreement.

transferee

Who has the receivables on their balance sheet in a sale of receivables?

transferee

Chane in estimate

treated on a prospective basis because the change affects the current period and future periods

for a note receivable, if the original terms of the debt are changed due to financial difficulties of the borrower, this is referred to as a _________________ ________________ restructuring

troubled debt

Inventory that is expected to be returned in the future is included on the balance sheet of the company expecting the return true/false

true

To complete the measurement process, companies need to

update balances of assets, liabilities, revenues and expenses for adjusting entries.

Adjusting entries are posted to general ledger accounts to..

update their balances

Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in 2 year. The interest rate on this type of loan is 8%. What is the present value of the note?

use present value table number 2 - 8% factor .85734 100,000 x .85734 = 85,734

Special Journals

used to capture the dual effect of the transaction in debit/credit form examples: cash receipts journal, cash disbursements journal, sales journal and purchases journal

Under the dollar-value LIFO method, inventory is viewed as a quantity of ______, rather than a quantity of _____.

value units

Consistent with the accrual-basis of accounting, we record revenue when

we provide goods and services to customers, and we record expenses with the related revenues

perpetual inventory system

weighted-average cost becomes a moving-average cost

FASB recently issued a standard that requires companies recognize revenue:

when goods or services are transferred to customers and at a point in time or over a period of time, for the amount the company expect to be entitled to receive

deferred annuity

when the first cash flow occurs more than one period after the date the agreement begins

IFRS accounting for transfers of receivables

whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables

consigned goods inventory

who carries the risk of loss determines who includes consigned goods in inventory

If revenues exceed expenses for the accounting period, the income summary account ______________________

will have a credit balance prior to closing

The bank will show a customer's withdrawal as a debit, because a

withdrawal decreases its liability from the bank's point of view.

A debit card

withdraws funds immediately from the cardholders' bank account

Inventory ______ are often used to shift income between periods.

write-downs

Glaser corp does not estimate sales returns. If Glaser sells goods on December 20, year 1, and the goods are returned January 15, year 2, what is the effect on its financial statements

year 1 net income is overstated

At the beginning of the account period, the balances of temporary accounts are

zero.

The correct amount of prepaid insurance shown on a company's December 31, 2018, balance sheet was $900. On July 1, 2019, the company an additional insurance premeium of $600. In the December 31, 2019, balance sheet, t he amount of prepaid insurance was correctly shown as$500. The amount of insurance expense that should appear in the company's 2019 income statement is:

$1,000 900 + 600 = 1500 - 500 = 1000

The following information relates to Halloran Co.'s accounts receivable for 2018: 1/1/18 account receivable balance: $853,000 credit sales for 2018: 3,450,000 Accounts receivable written off during 2018: 50,000 Collections form customers in 2018: 3,040,000 Allowance for uncollectible accounts balance 12/31/18: 206,000 What amount should Halloran report for accounts receivable, before allowances at December 31, 2018?

$1,213,000 853,000+3,450,000 - 50,000 - 3,040,000 = 1,213,000

A(n) _____ _____ is the legal right to receive cash from a credit sale and represents an asset of the company.

account receivable

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?

LIFO only

credit cash $2,000

Largo Corp. discovered $2,000 for a NSF check in its bank reconciliation. The journal entry required would be:

level of the fair value hierarchy includes inputs other than quoted prices that are observable for the asset or liability?

Level 2

the accounting records and the bank-generated deposit slip

The reconciliation process for cash receipts requires that the amount received from customers should agree with

remove receivables, recognize gain or loss, and record poceeds

The required accounting treatment for transfer of receivables as a sale include

Sarbanes-Oxley Act, Section 404

The requirement that companies must document internal controls and assess their adequacy is required by the

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

$6,000 200,000 x .03 = 6,000

Western company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016 was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?

$758,200 $815,400/1.08 = 755,000 giving 2 layers of $715,000 and 40,000 715,000 x 1.0 = 715,000 40,000 x 1.08 = 43,200 715,000 + 43,200 = 758,200

Interest on a note formula

(face amount x annual rate x fraction of the annual period)

Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable effective interest rate is 6%. Upon delivery, Munchen should recognize the purchase of inventory at:

100,000 prepayment 89,000 reflects present value of 100,000 at 6% (factor is .89). The difference between the prepayment and the inventory cost is interest revenue

Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $8,000 Proceeds from bank loan $100,000 Repayment of bank loan (includes interest of $4,000) $44,000 Proceeds from sale of equipment $5,000 Cash collected from customers $320,000 Purchase of stock of another corporation as an investment $20,000 Common stock issued for cash $200,000 In its 2018 statement of cash flows, Dunn's should report net cash inflows from financing activities of

100,000 - 40,000 (repayment of principal on bank loan) + 200,000 = 260,000

Riley has a $100,000 note receivable from a customer. The note receivable is an 8% note, due in 9 months. Three months after accepting the note, Riley discounts the note receivable at Third Bank at a discount rate of 10%. What are the cash proceeds of the discounted note?

100,700 (100,000 x .08 x9/12) = 6,000 interest Maturity value of $106,000 x .10 x 6/12 = 5,300 discount Maturity value 106,000 - 5,300 = 100,700

cash / sales

A _______ or _______ discount represents reductions not in the selling price of a good or service, but in the amount to be paid by the customer.

Which of the following are classified as receivables?

Interest due from loans to customers loans by a company to other entities

average collection period and accounts receivable turnover

The financial ratios most often used to analyze accounts receivable are

the transferor seems more liquid, more profitable, and less leveraged

What are some reasons why a transferor prefers the sale approach over the secured borrowing approach of transferring receivables?

The transferor surrenders control of the asset, the transferee has the right to pledge or exchange the assets, the assets are isolated and beyond the reach of the transferor

What conditions must exist for a transfer of receivables to be treated as a sale?

In a sale of an accounts receivable without recourse, if the customer does not pay, the loss is assumed by the ___________________ of the accounts receivable

buyer

Revenue earned

debit cost of goods sold credit sales

Klondike Inc sold goods to customers for $5,000 cash. The cost of goods was $3,000. The journal entries to record this transaction are:

debit to cash $5000 credit to sales $5000 debit to cost of goods sold $3000 credit to inventory $3000

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On December 31, when Song records Interest for the year, Song will record

debit to discount on note receivable $9,566 credit to interest revenue $9,566 n= 2, i=12%, the present value factor is .79179 x 100,000 = 79,719 79,719 x 12% = 9,566

Adjusting entry needed to record use of prepaid expense

debit to expense account credit to prepaid asset account

Kraven corp. borrows $100,000 by signing on a 1-yr, 8% promissory not from General Finance company and assigns $120,000 of its accounts receivables as collateral for the loan. General Finance charges a financing fee of 1% of the recievables assigned. The journal entry for Kraven to recourd the borrowing will include a

debit to finance charge expense for $1,200

LIFO inventory pools

simplifies recordkeeping and reduces the risk of LIFO liquidation by grouping inventory units into pools based on physical similarities of the individual units.

A petty cash fund is used for

small amounts of cash needed for low-cost items.

A JIT inventory system allows companies to maintain ________ inventory levels

smaller

The _________ interest method uses the interest rate from the actual construction loan on a self-constructed asset, whereas the weighted-average method uses a weighted-average rate on all construction loans outstanding.

specific

Indirect method of statement of cash flows

start with net income and works backward to calculate net cash flow from operating activities adds back depreciation expense adjusts for changes in liabilities to reconcile the difference between accrual net income and cash paid or received adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received

Goliath Corp has beginning accounts receivable of $2,000. During the year, Goliath sold goods to customers on account for $10,000. During the year, Goliath also sold goods to customers for cash in the amount of $2,000. At the end of the year, the balance in Goliath's accounts receivable is $3,000. What is accrual basis sales for the year?

$12,000 10,000 + 2,000 = 12,000

At the end of each quarter, Patti deposits $800 into an account that pays 12% interest compounded quarterly. How much will Patti have in the account in four years?

$16,126 n=16 (4x4=16) i=12/4 = 3% 800 x 20.1569 = 16,126 FVA of $1

Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2018, the allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would be:

$17,000 Focusing on the allowance account 18,000 - 14,000 + total bad debt expense = 21,000 bad debt expense = 17,000

Accounts receivable has a $2,300 balance, and the allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written off. Net receivables (net realizable value) after the write-off equals:

$2,100

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:

$9,910

Quick Ratio or Acid Test Ratio

(current assets - inventory - prepaid items - restricted cash - deferred taxes) / current provides a more rigorous indication of liquidity than the current ratio

Most nonretail business receive payment for goods by checks received through the mail. An approach to internal control over cash receipts that utilizes separation of duties might include the following steps: 1. Employee A opens the mail each day and prepares a multicopy listing of all checks including the amount and payer's name. 2. Employee B takes the checks, along with one copy of the listing, to the person responsible for depositing the checks in the company's bank account. 3. A second copy of the check listing is sent to the accounting department where Employee C enters receipts into the accounting records.

* Good internal control helps ensure accuracy as well as safeguard against theft. The bank-generated deposit slip can be compared with the check listing to verify that the amounts received were also deposited. And, because the person opening the mail is not the person who maintains the accounting records, it's impossible for one person to steal checks and alter accounting records to cover up their theft.

A company pays for a purchase with a credit card. What is the effect of this purchase on the accounts?

Accounts payable will increase

Proper controls for cash disbursements should be designed to prevent any unauthorized payments and ensure that disbursements are recorded in the proper accounts. Important elements of a cash disbursement control system include: 1. All disbursements, other than very small disbursements from petty cash, should be made by check. This provides a permanent record of all disbursements. 2. All expenditures should be authorized before a check is prepared. For example, a vendor invoice for the purchase of inventory should be compared with the purchase order and receiving report to ensure the accuracy of quantity, price, part numbers, and so on. 3. Checks should be signed only by authorized individuals.

* Responsibilities for check signing, check writing, check mailing, cash disbursement documentation, and recordkeeping should be separated whenever possible. That way, a single person can't write checks to himself and disguise that theft as a payment to an approved vendor.

internal controls consists of plans to

- encourage adherence to company policies and procedures - promote operational efficiency - minimize errors and theft - enhance reliability and accuracy of accounting data

Account receivable is

- informal credit agreement with trade customers - supported by an invoice - normally due 30-60 days after sale

Two most common types of selling arrangements for accounts receivable

- securitization - factoring

Items that are classified as receivables

- tax refund claims - amounts owed by customers - amounts loaned and expected to be repaid

Depending on the nature of the restriction and the classification of the related debt, compensating balances may be disclosed in the financial statement as -Noncurrent assets. -Owner's equity. -Contra assets. -Cash and cash equivalents. -Current assets.

-Noncurrent assets. -Cash and cash equivalents. -Current assets.

A company pays for a purchases with a credit card. what is the effect of this purchase on the accounts?

Accounts payable will increase

Cash

A journal entry that affects a company's statement of cash flows will include an inflow or outflow of __________.

Spartan Corp. purchases inventory, land, building, and equipment for $540,000 from Klein Corp. The value of the assets are as follows inventory book value $80,000 fair value $100,000 land book value 140,000 fair value 180,000 equipment 80,000 fair 120,000 building 200,000 fair 200,000 At what amount should spartan record the invenotry

100000/600000 *540=90000

Rudy company reports gross sales revenue of $5.2 million, net sales of $5 million, and cost of goods sold $3 million. Its inventory balance was $250,000 at the beginning of the accounting period and $300,000 at the end of the accounting period. The company's inventory turnover ratio is closest to

11 3 mill/(250,000+300,000/2)=10.9

On dec 31, Salz Company sells 1,000 units of merchandise to Welner Corp. and 2,000 units to Torr Corp. Shipping terms are F.O.B. destination for the 1,000 unit sale and F.O.B. shipping point for the 2,000 unit sale and the goods have shipped. If salz still has , 10,000physical units in its inventory after there sales, how many units should Salz include in its ending inventory on dec 31?

11,000

Below is the information from the financial statements of Greenwich Company: Accounts receivable (net) 2016: $2,400 Accounts receivable (net) 2015: $2,200 Net sales 2016: $25,875 What is the receivables turnover?

11.25 25875/[(2400+2300)/2]

below is information from the financial statements of thornton company accounts receivable net 2014:1,100 accounts receivable net 2013:900 net sales 2013:8,000 which is the average collection period?

1100+900/2=1000 8000/1000=8 365/8=45.63

Smith Company has 150 units costing 450.00 in beginning inventory. During the year, the company purchases 1,000 units for a total cost of 3,300.00. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company used the LIFO method, cost of goods sold will be

1150 total units-200 units=950 units sold=(3300/1000)=3135

Shirley borrows $3,605 from Second National Bank. Shirley will repay the loan in five equal payments of $1,000 each beginning at the end of year 1. What is the annual interest rate implicit in this agreement?

12% 3605/1000 = 3.605 looking at the present value of an ordinary annuity table in the row for 5 periods, find the factor closest to 3.605

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the LIFO method is:

12,000 600 x 20=12,000

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying FIFO method is:

14,400 (400 x 24)+(200 x 22)= 14,400

Gerhard Company has 300 units costing 10.00 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing 20.00 per unit and sales 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased at least 1,200 units, COGS would have been

2,000 higher

Parker company reports gross sales revenue of $7.5 million, net sales revenue of $7 million and cost of goods sold of $3.5 million. Its inventory balance was $150,000 at the beginning of the accounting period and $200,000 at the end of the accounting period. The company's inventory turnover ratio is closet to

20 3.5 mil/(150,000 + 200,000/2)

Berta company recently lost its entire inventory in a fire. The following information is available from its accounting records: Beginning inventory: 1,000 purchases: 13,000 net sales $20,000 the company's average gross profit percentage is 40%. using the gross profit method, a reasonable estimate of the lost inventory would be

20,000*40%=8,000 20,000-8,000=12,000 1,000+13,000-12,000=2,000

Sanfillipo, Inc. had 800 units of inventory on hand March 1, 2018, costing $20 each. Purchases and sales of inventory during the month of March were as follows: March 8 - sold 600 units March 15 - purchased 400 units at $22 each March 22 - purchased 400 units at $24 each March 27 sold 400 units Sanfillipo uses the periodic inventory system. Accourding to a physical count, 600 units were on hand at the end of March. If Sanfillipo instead used the perpetual inventory system, cost of goods sold for the month of March applying the LIFO inventory method would be:

21,600 (600 x 20)+(400 x 24) = 21,600

Neumann company has 100 units with a $2.00 weighted-average cost per unit in beginning inventory. Neumann sells 40 units and then purchases 100 additional units for $2.20 per unit. After the purchase, Neumann sells another 100 units. What is the amount of cost of goods sold for the second sale if Neumann company uses the perpetual inventory system?

213 (100-40) units x $2 = 120 100 units x 2.20 = 220 120+220 = 340 340/160 units = 2.125 per unit 2.125 x 100 = 212.50

Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $8,000 Proceeds from bank loan $100,000 Repayment of bank loan (includes interest of $4,000) $44,000 Proceeds from sale of equipment $5,000 Cash collected from customers $320,000 Purchase of stock of another corporation as an investment $20,000 Common stock issued for cash $200,000 In its 2018 statement of cash flows, Dunn's should report net cash outflows from investing activities as:

23,000 5000 - 8000 - 20,000 = 23,000

Short-term highly liquid investments with a maturity of _____ months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents.

3

Compute present value of the following annuity: Interest rate per compounding period 8% Number of periods 12 Payment at the end of the period $500

3,768

Symington Corp uses the periodic inventory system. At December 31, 2018, the end of the company's fiscal year, a physical count of inventory revealed an ending inventory balance of $320,000. The following items were not included in the physical count: Goods held on consignment at murphy corp: 23,000 merchandise shipped to customer on 12/30 f.o.b. desination (customer received 1/3/17) 12,000 merchandise shipped to customer on 12/29 f.o.b. shipping point (arrived at customer on 1/2/17) 6,000 merchandise purchased from supplier shipped f.o.b. destination on 12/29, in transit at year end 24,000 Symington's 2018 ending inventory should be:

355,000 320,000 + 12,000 + 23,000 = 355,500

Rudy company reports gross sales revenue of $5.2 million, net sales of $5 million, and cost of goods sold $3 million. Rounding to the nearest percent, the company's gross profit ratio would be:

40% 5 million - 3 million/5 million gross profit/net sales

Baker is building a new warehouse. The warehouse qualifies as a self-constructed asset. During the year, Baker has weighted-average expenditures on the construction project of 600,000. Although baker does not borrow money specifically to build the warehouse, it has 2 loans outstanding during the year. Loan a is for 400,000 at 6% interest. Loan b is for 800,000 at 9% interest. What is the interest rate used to capitalize interest on the warehouse?

400,000x6%=24000 800,000x9%=72,000 total interest is 24,000+72,000=96,000 the weighted-average rate is 96000/1200000=8%

pernell company reported LIFO reserves of 150,000 and 100,000 in 2010 and 2009 respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's pretax income for the 2010 fiscal year would have been

50,000 higher if itt would have used FIFO

Paul borrows $5,000 from the bank and wishes to repay the amount in equal installments of $800 per year over a period of years. The payments will be made at the end of each year. The bank wishes to earn interest on this loan at 8%. Approximately how many years will it take for Paul to repay the loan?

9 years

The Wazoo Times Newspaper Company reported an $11,200 liability in its 2018 balance sheet for subscription revenue received in advance. During 2019, $62,000 was received from customers for subscriptions and the 2019 income statement reported subscription revenue of $63,700. What is the liability amount fore deferred subscription revenue that will appear in the 2019 balance sheet?

9,500 beginning balance + additional receipts - subscription revenue recognized 11,200 + 62,000 - 63700 = 9,500

debit sales returns; credit allowance for sales returns

A company believes its sales returns will be material. What is the journal entry required?

verifiability

A consensus among different individuals appraising the value of land describes which qualitative accounting characteristic

unearned revenues

A customer pays in advance for services to be performed in a future period are recorded in what account

A factor is

A financial institution that buys receivables for cash and charges a fee for this service

reconciliation of bank balances and the accounting records

A good internal control system for cash would require that those who handle cash should not be involved with:

Cash that is restricted and is not available for current use may be reported in the balance sheet as

A noncurrent asset. Other assets. Investments and funds.

it becomes probable that a creditor will not be able to collect all amounts

A note receivable is considered impaired when

its present value, which is the cash amount

A note received solely for cash is valued at

participating interest

A partial transfer in accounts receivable is treated as a secured borrowing, unless the amount transferred qualifies as a ______________________, which is defined as sharing proportionally in the cash flows of the receivables and having equal rights with respect to the receivables.

When the amount of bad debts is material, GAAP requires the _______ method to be used to reduce the carrying value of accounts receivable to the amount of cash expected to be received.

Allowance

_______ is a CONTRA ACCOUNT to accounts receivable

Allowance for sales returns

When an accounts receivable is written off, which account is effected?

Allowance for uncollectible accounts.

Which method of accounting requires estimating bad debt expense and matching the expense to sales of that period?

Allowance method

When initially recorded, the typical account receivable is valued at the

Amount expected to be received.

contra account to accounts receivable

An allowance for sales return account is classified as a

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?

An entry must be made to debit Accounts Payable and credit Cash for $45.

The balance sheet approach estimates _______ _______ expense by determining the appropriate carrying value of accounts receivable.

Bad debt

Which of the following items are included in cash?

Balance in checking accounts Currency and coins Checks from customers

Cash and cash equivalents are reported as a single amount on the _______ _______

Balance sheet

One of the most important internal control for cash is the?

Bank Reconciliation

Detective Controls

Are deigned to detect errors or fraud that already have occurred. -Performance reviews -Audits -Reconciliation

Inventory expected to be returned is included in an ______ account

Asset

Accounting Equation

Assets = Liabilities + Owner's Equity

What are current assets?

Assets that provide benefits within the next year.

Which of the following responsibilietes are seperated in a good internal control system for cash disbursements?

Cash disbursement documentation and the accounting recording function check writing and check signing

Checks Outstanding

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called:

Short-term investments that can be readily converted to cash and have a maturity date of less than three month from date of purchase are called -Restricted cash -Short-term investments -Accounts receivable -Cash equivalents

Cash equivalents

Short-term, highly liquid investments such as money market funds or treasury bills are classified as

Cash equivalents.

During the year, Bernard Company's cash balance increased by $10,000. The sum of which totals reported on Bernard Company's statement of cash flows would also be equal to $10,000?

Cash flows from Operating, Investing, and Financing Activities

A ______ discount represents reductions not in the selling price or a good or service, but in the amount to be paid by the customer

Cash or sales

Matching cost of goods sold with the revenues generated during the period is an example of which approach to expense recognition?

Cause-and-effect relationship

Which of the following might be cash equivalents?

Certificates of deposit Money market funds Treasury bills

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collection of funds by the bank

When adjusting the company's cash account balance in a bank reconciliation,

Collection of funds by the bank must be added to the cash account balance

When adjusting the cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collection of funds by the bank.

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank

The accounting term for a situation where two or more people act in coordination to circumvent internal controls is

Collusion

The framework for designing an internal control system is provided by the

Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

shorten the operating cycle, receive cash before customers would pay amounts due, and increase cash flow.

Companies finance with their receivables to:

Company B will receive a 2% discount if payment is made within 10 days

Company A offers Company B discount terms of 2/10, n/30. What does this mean?

A cash restriction imposed by a bank wherein the debtor must leave a certain amount of funds such as 5% of the original loan in the low-interest or noninterest-bearing account is a -Interest rate loan guarantee. -Compensating balance. -Guaranteed interest balance. -Restricted loan advance.

Compensating balance

What requirements for corporate accountability are included in the Sarbanes-Oxley Act?

Corporate executives may be criminally liable for fraudulent financial statements Corporate executives must personally certify the financial statements

Joyce Corp. uses the percentage-of-credit-sales method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Credit to Accounts Receivable Debit to allowance for Uncollected accounts

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000. A physical count determined the cost of inventory at the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry at the end of the year once the physical count occurs includes:

Deb cost of goods sold $40,000 debit inventory (ending) $110,000 credit purchases $100,000 credit inventory (beginning) $50,000

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error?

Debit Advertising Expense $900; credit Cash $900.

The bank will show a customer's withdrawal is a

Debit because a withdrawal will decrease its liability from the bank's perspective

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. Assuming Western uses a perpetual inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following

Debit cost of goods sold $40,000 debit accounts receivable $70,000 credit sales revenue $70,000 credit inventory $40,000

A company believes its sales returns will be material. What is the journal enry required?

Debit sales returns; credit allowance for sales returns

Which of the following entries affect a company's cash flow?

Debit supplies, credit cash Debit accounts payable; credit cash

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise and receives a refund. As of May 15, the customer has paid for all of the goods with cash. What will adrian record on May 15?

Debit to Sales Returns. Credit to Cash.

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer ha not yet paid for any goods. What will Adrian record on May 15?

Debit to sales returns Credit to accounts receivable.

When actual inventory returns occur in a perpetual inventory system, which of the following happens?

Debt the asset inventory account

Distribution to owners

Decreases in equity of a particular enterprise resulting from transfers to owners. Dividends paid by a corporation to its shareholders.

Which of the following are noncurrent tangible assets?

Equipment machinery land

Monitoring

Includes formal procedures for reporting control deficiencies.

The probable threshold for identifying impaired receivables is removed. And bad debt estimates will be based on predictions about the future

How does the CECL model differ from current GAAP?

it is written down to the amount the company expects to receive when it sells or disposes of the merchandise

How is damaged or defective merchandise recorded when returned from a customer?

International Accounting Standards Committee issued international Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues:

IFRS - international financial reporting standards

Which method(s) permit the offsetting of bank overdrafts against cash balances?

IFRS only

Revaluation surplus

IFRS only - reported as other comprehensive income fair value is higher than book value - difference in revaluation surplus

provision

IFRS refers to the allowance for uncollectible accounts as a ____________ for bad debts.

Both IFRS and GAAP permit the fair value option for accounting for receivables. What is a difference

IFRS restricts the circumstances for applying the fair value option

Risk Assessment

Identifies and analyzes factors that could prevent objectives from being achieved

Monitoring:

Identifying and reporting control deficiencies

Company A

If Company A sells accounts receivable with recourse to ABC Finance and the customer cannot pay, who assumes the risk of bad debts?

Timing

If a company records a transaction before the bank records the same transaction, this is called a timing difference.

Troubled debt restructuring

If a receivable becomes impaired, it is remeasured at the discounted present value of currently expected cash flows If a receivable is remeasured, the discount rate is based on the loan's original effective rate Sometimes receivables are settled outright at the time of a restructuring Modification of terms typically results in some loss that needs to be recorded

A company makes a sale on terms 2/10, n/30. What does this mean?

If the discount is not taken in 10 days, the net amount is due in 30 days. The customer may take a 2% discount off the price if paid within 10 days.

noncurrent assets

If the restriction on a compensation balance for a 5-year loan is legally binding, where is the compensating balance reported in the financial statements?

US GAAP impairment indicators

Impairment if probable and can be measured reliably

modified terms

In a troubled debt restructuring, the lender may agree to reduce or delay interest payments or maturity amount. This is referred to as _________________

Accounts receivable are normally classified -In the income statement as other income. -In the balance sheet as current assets. -In the income statement as revenue. -In the balance sheet as noncurrent assets.

In the balance sheet as current assets.

Checks received from customers that have not been deposited yet are included where on a company's balance sheet? -In a current asset account other than cash. -In the current asset "cash" account. -These checks are not included on the balance sheet until they are deposited.

In the current asset "cash" account.

effective interest

In the effective interest method, interest is calculated by multiplying the outstanding balance of the receivable by the ______________________ rate.

Investing Activities

Include cash investments in long-term assets and investment securities.

Operating Activities

Include cash transactions involving revenue and expense events during the period.

Financing Activities

Include transitions designed to raise cash or finance the business.

Investing activities

Includes cash transactions involving the purchase and sale of long-term assets and current investments

asset turnover ratio

Indicates how efficiently a company uses its assets to generate sales; net sales/average total assets.

Separation of duties requires that -An employee procedures manual must be developed to describe duties. -Two employees may not work on the same project if they are related. -Individuals who have physical responsibility for assets should not have access to accounting records. -The board of directors may not influence the decisions of the top managers.

Individuals who have physical responsibility for assets should not have access to accounting records.

Revenue

Inflow of an asset (resources) from providing a good or service. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods,rendering services, or other activities that constitute the entity's ongoing major or central operations.

Which of the following is most likely an accrued liability? a) depreciation b) interest c) cost of goods sold d) office supples

Interest accrued liabilities arises when all or part of an expense is recognized before the associated cash disbursement

Which of the following statements is correct regarding the adjustment to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is the cost of borrowing.

A company's plans to adhere to policies and procedures, promote operational efficiency minimize efforts and theft, and enhance the reliability and accuracy of accounting data are referred to as:

Internal Controls

For internal control purposes, risk assessment considers which two types of risk?

Internal and external risks

_____ _____ refers to a company's plan to (a) encourage adherence to company policies and procedures, (b) promote operational efficiency, (c) minimize errors and theft, and (d) enhance the reliability and accuracy of accounting data. From a financial accounting perspective, the focus is on controls intended to improve the accuracy and reliability of accounting information and to safeguard the company's assets.

Internal control

encourage adherence to company policies and procedures, minimize errors and theft, and safeguard company assets.

Internal control consists of plans to

is a highly liquid asset and can be stolen

Internal control over cash is important because cash

checks are signed by authorized individuals, all expenditures are authorized, and all disbursements (other than petty cash) are made by check.

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that:

Average Cost Method (Weighted- Average Method)

Inventory method costing method, based on the average cost of inventory during the period assumes that the cost of goods sold consists of a mixture of all the goods available for sale determined by dividing cost of goods available for sale by quantity of goods available for sale

Selling equipment is a

Investing Activity

Which of the following are cash inflows from financing activities?

Issuance of common stock to investors Borrowing from another company and signing a promissory note

lower / later

It is likely that bad debt accruals under IFRS will be __________ and will occur __________ than under U.S. GAAP.

A note receivable is impaired when

It is probable that not all of the cash flows for principle and interest will be received

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added or subtracted from the bank balance or the company's cash (book) balance?

It would be deducted from the company balance

Sarbanes-Oxley Act Include:

Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor-client relations and internal control procedures. -Restricting activities of auditors to prevent conflicts of interest -Requiring documentation and assessing effectiveness of internal controls -Requiring that corporate executives certify financial statements.

The ______________ method assumes that units sold are those most recently acquired

LIFO

if a company uses __________ to measure taxable income, they msut use the same method for external financial reporting

LIFO

profitability / risk

Management must make important decisions related to cash that have a direct impact on a company's ____________ and _______.

meet its obligations, conduct business operations, and take advantage of opportunities

Management should hold the minimum amount of cash to

1934 Securities and Exchange Act

Mandates reporting requirements for companies whose stock is publicly traded

Receivables Turnover Ratio

Net credit sales / avg net accounts receivable

In a(n) _______ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

Noninterest

In a _____, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of the loan

Noninterest bearing note

Formal credit agreement between borrower and lender

Note receivable

debit interest receivable $2,000; credit interest income $2,000

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require what entries?

effectiveness of operations, reliability of financial reporting, and compliance with laws and regulations

The objectives of COSO on internal control are to achieve

Equity

The owners residual interest in the assets of a company. The residual interest in the assets of an entity that remains after deducting its liabilities total assets minus total liabilities

cash / receipts

The petty cash fund should always have _______ and __________ that together equal the amount of the fund.

Income smoothing

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next.

allowance for uncollectible accounts

The first step in using a balance sheet approach to estimate bad debts is to calculate the desired ending balance in which account?

face amount of the note, fraction of the annual period, and annual interest rate.

The formula for calculating interest multiplies which of the following?

sales discount / interest revenue

The gross method for recording accounts receivable records the sale at 100% and records customer discounts in a ____________________ account, whereas the net method records the sale of the discount and records the discounts not taken as ______________________.

Which of the following is an example of separation of duties in a good system of internal control?

The individual who receives the inventory does not have access to the accounting records.

Which of the following is an example of separation of duties in a good system of internal control? -The individual who hires the employees may not manage the employees. -The individual who receives the inventory does not have access to the accounting records. -The individual who receives the inventory cannot count the inventory. -The individual who evaluates the employees may not hire the employees.

The individual who receives the inventory does not have access to the accounting records.

inventory and prepaid expenses

The numerator of the quick ratio eliminates which current assets?

economic entity accounting assumption

The requirement that the economic activities of a business owner should be separated from the activities of the business

LIFO liquidation

The result of selling more units than are purchased during the period, which can have negative tax consequences if a company is using LIFO.

Who incurs the risk of bad debt in a factoring arrangement made with recourse?

The seller

Operating, Investing and Financing

The statement of cash flows classifies items as:

securitization

The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called ___________________.

To be classified as cash equivalents

These investments must have a maturity date no longer than THREE months FROM DATE OF PURCHASE

allowance for uncollectible accounts

To record bad debts at the end of the period, an adjustment would be made by a credit to

The individual or groups of individuals who are most able to override internal control features is (are):

Top management

What should you tell your friend about the presence of accounting standards in the U.S.? Who has the authority for standard setting? Who has the responsibility?

We have a set of standards known as generally accepted accounting principles (GAAP). GAAP is a dynamic set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financials and related notes. The Securities and Exchange Commission has the authority to set accounting standards for companies whose securities are publicly traded but it relies on the private sector to accomplish that task. At the present, the Financial Accounting Standards Board is the private sector body responsible for standard setting

Consider whether individual significant receivables are impaired, group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics, and perform impairment test.

What are the steps in determining the impairment of receivables under IFRS?

the income statement approach and the balance sheet approach

What are the two approaches of estimating future bad debts.

the individual who receives the inventory does not have access to the accounting records

What is an example of separation of duties on a good system of internal control?

debit accounts receivable; credit allowance for uncollectible accounts

When an account previously written off is collected in full, what would the entry to reinstate the account would require?

allowance for uncollectible accounts

When an accounts receivable is written off, which account is effected?

a customer returns merchandise for credit to be applied to other purchases OR a customer returns merchandise for a full refund.

When does a sales return occur?

Which of the following adjusting entries causes an increase in liabilities? a) accruing unrecorded interest expense b) recording the amount of expired prepaid insurance c) accruing unrecorded interest revenue d) recording depreciation expense

a) accruing unrecorded interest expense

When adjusting the cash account balance in a bank reconciliation, which items must be subtracted from the cash account balance? a) charges for NSF checks b) deposits in transit c) service charges d) outstanding checks

a) charges for NSF checks c) service charges

For internal control purposes, which of the following responsibilities should be separated for cash disbursements? a) check writing and check mailing b) check ordering and check proofreading c) check signing and check writing

a) check writing and check mailing c) check signing and check writing

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles? a) corporate management b) CPA firms who audit the company c) SEC staff auditors d) audit committee

a) corporate management

Sully Corporation uses an income statement approach for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of sales during the year, the adjustment for estimated uncollectible accounts will require a a) debit to Bat Debt Expense for $2,000 b) credit to Accounts Receivable for $2,000 c) credit to Bad Debt Expense for $2,000 d) debit to Allowance for Uncollectible Accounts for $2,000

a) debit to Bat Debt Expense for $2,000

The two methods used for recording sales discounts are the a) net method b) gross method c) discount method d) valuation method.

a) net method b) gross method

Which ratios measure liquidity? a) quick ratio b) times interest earned ratio c) debt to asset ratio d) debt to equity ratio e) current ratio

a) quick ratio e) current ratio

During the prior year, Marian Company recognized an impairment loss on its notes receivables. During the current year, the amount of estimated future cash flows improved. Marian should a) recognize a gain b) ignore the improvement c) wait until cash is collected

a) recognize a gain

Which of the following are enhancing characteristics of financial information? (select all that apply) a) timeliness b) decision usefulness c) cost effectiveness d) comparability

a) timeliness and d) comparability

The involvement of accounting professionals and management in accounting scandals resulted in Congress passing the Sarbanes-Oxley Act. What is the purpose of the Sarbanes-Oxley Act? (select all that apply) a) provide penalties for violators b) prevent conflicts of interests c) issue capital requirements for companies d) require CEO accountability e) regulate auditors

a, b, d and e

When a sales journal is used, at the end of the period the total amount sold on credit is debited to __________________

accounts receivable

The allowance for uncollectible accounts a contra account to

accounts receivable

Solvency

ability to pay long-term debts as they become due measured by Debt to equity ratio and Times Interest earned ratio

potential benefits of offering cash discounts to customers

accelerated customer payments, reduction in bad debt and increased sales volume

GAAP stands for generally ___________ accounting principles.

accepted

An ____ _____ is the legal right to recieve cash from a credit dale an represents an asset of the company

account recievable

A(n) _ receivable is an informal credit arrangement with trade customers, whereas a(n) receivable is a formal signed credit arrangement between a creditor and a debtor

account, notes

Munchkin Inc. pays for promotional expenses by charging the company's credit card. Munchkin should debit an expense and credit

accounts payable

in a perpetual inventory system, when inventory is returned which accounts will the purchaser adjust to reflect the effect of the return

accounts payable and inventory

A(n) ____________________________ ______________________________ is the legal right to receive cash from a credit sale and represents an asset of the company

accounts receivable

An _____ _____ is the legal right to receive cash from a credit sale and represents an asset of the company.

accounts receivable

Receivables resulting from the sale of goods or services on account are called _____ _____ and often are referred to as trade receivables.

accounts receivable

In a bank reconciliation, a deposit outstanding is

added to the bank balance

in a bank reconciliations, which items will require journal entries by the company

adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

perpetual inventory system

adjusts for each change caused by a purchase, a sale or a return of merchandise allows management to determine the amount of goods on hand on any date without having to take a physical count a new weighted-average unit cost is calculated after each purchase

Internal control procedures for cash disbursements should include

all disbursements are made by checks, debit card or credit card. And all expenditures are authorized. as well as check are signed by authorized individuals

Internal control procedures for cash disbursements should include

all expenditures are authorized checks are signed by authorized individuals all disbursements are made by check, debit card, or credit card

Profitability Ratios

all numerators is net income

LIFO inventory pools

all purchases during the period are considered to be made: at the same time and same cost grouped according to physical similarities a single layer is added at the average cost of purchases during the period is added to beginning inventory if the quantity of ending inventory increased

periodic inventory system

allocates cost of goods available for sale only at the end of each reporting period

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales

allowance

a contra-asset account is used to reduce the carrying value of accounts receivable to the amount of cash expected to be received under the _______ method of accounting for bad debts

allowance

If a company believes its sales returns will be material, an adjusting entry for expected returns should be made to which account?

allowance for sales returns

determine the amount of accounts receivable written off during 2016

allowance for uncollectible accounts + bad debt expense - credit balance at the beginning of year 1

A company that expects the some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Recoveries of accounts receivable previously written off require the reinstatement of the _____ and the _____.

allowance, receivable

When initially recorded, the typical accounts receivable is valued at the

amount expected to be received

When initially recorded, the typical account recievable is valued at the

amount expected to be reieved

asset impairment

any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant impairment of value

when a previously written off account is collected, what happens after the reinstatment

collection is recorded with a debit to cash and credit to accounts receivable

FASB mandated changes implementation ways

apply new standard to the current and future periods with an adjustment to the beginning balance of retained earnings in the year of adoption apply new standards in the current period and all future periods with no change to prior financial statements apply new standard to all periods presented in the financial statements

When a company receives an asset from an unrelated party by a donation, the assets are valued at ____________ value.

appraisal

the balance sheet approach to measuring bad debt expense focuses on

appropriate carrying value of accounts receivable

Interim reporting periods

are periods when financials are produced other than at the end of the fiscal year

Restricted cash is usually reported in the balance sheet

as a concurrent asset

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

as a noncurrent asset

restricted cash is usually reported in the balance sheet

as a noncurrent asset

fair value option for a financial asset or financial liability, how are the changes in fair value reported in the financial statements

as gains or losses on the income statement

how do sellers typically account for returns:

as return occurs and using an adjusting entry at the end of the period for any remaining future expected returns

Quavier Inc. adjusts its allowance account to reflect the estimate of future uncollectible accounts. This adjustment achieves matching of expenses with revenue in the same period _.

as the revenue they helped generate

Manfred mining company is required to restore a piece of land to it original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset.

asset retirement obligation (ARO)

York Inc, records a year-end adjustment for estimates sales return and allowances. as a result of this entry, york's financial statements will change as follows:

assets decrease equity decrease

effect on the accounting equation from using supplies which had been previously recorded as an asset

assets decrease and owners' equity decreases

Last-in, first-out (LIFO) method

assumes that the units sold are the most recent units purchased if prices rise over time, results in the lowest ending inventory provides better matching of current revenues with current inventory cost

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated.

GAAP requires companies to report inventory

at the lower of cost and net realizable value

For a typical credit sale, the revenue recognition criteria is usually satisfied

at the point of delivery

The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except: a) income from continuing operations b) operating income c) discontinued operations d) all of the above

b) operating income

A good internal control system would require that the employee who handles cash must not be involved in a) hiring decisions. b) reconciling the bank statement. c) daily operations of the company. d) the accounts payable function.

b) reconciling the bank statement.

Which of the following adjusting entries causes a decrease in assets? a) recognizing the portion of revenue collected in advance b) recording depreciation expense c) accruing unrecorded salaries expense d) accruing unrecorded interest revenue

b) recording depreciation expense

Net realizable value of accounts receivable is a) the full amount of the sale not initially paid for with cash. b) the amount of cash the company expects to actually collect from customers. c) the full amount of the receivable plus interest.

b) the amount of cash the company expects to actually collect from customers.

A difference between U.S. GAAP and IFRS in accounting for cash and cash equivalents is that IFRS allows a) notes due within 3 years to be classified as current if no compensating balance is required. b) the netting of bank overdrafts against the cash and cash equivalents. c) restricted cash to be reported as cash and cash equivalents. d) accounts payable to be netted against accounts receivable.

b) the netting of bank overdrafts against the cash and cash equivalents.

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

collection of an accounts receivable interest received on notes receivable

A sale to a customer on account should be recognized when the goods or services are delivered and

collection of the receivable is probable

The balance sheet approach estimates _____ _____ expense by estimating the net realizable value of accounts receivable.

bad debt

steps necessary to estimate ending inventory under the gross profit method

beginning inventory (from records) + Net purchases (from records) = goods available for sale - cost of goods sold = net sales -estimated gross profit of 40% = estimated cost of goods sold goods available for sale - estimated cost of goods sold =estimated ending inventory REAL ANSWER 1. calculate cost of goods available for sale 2. apply the estimated gross profit ratio to sales 3. calculate an estimate of cost of goods sold 4. Calculate an estimate of ending inventory

Employee purchases should be included in the accounting records

by the end of the accounting period.

Lee accepts a $100,000, 90-day noninterest-bearing note receivable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sale is a) $88,000 b) $103,000 c) $97,000 d) $100,000

c) $97,000

IFRS for determining whether risks and rewards have been transferred is evaluated by comparing how variability in the amounts and timing of the _______________ ________________ of the transferred assets affects the company before and after transfer

cash flows

Reporting revenues only when

cash is received and expenses only when cash is paid is called the cash basis of accounting.

The asset that is most easily stolen and susceptible to fraud is

cash most easily stolen

Amounts readily available to pay off debt or used in operations are considered _____, while highly liquid investments with a maturity date of 3 months or less are considered _____ _____.

cash, cash equivalents

Other assets

catch all category of noncurrent assets

Income statement classification shifting

categorizing operating expenses as nonoperating expesenes

Change in accounting principle

change from one acceptable accounting method to another change from percent-off-completion to completed contract method change from LIFO to FIFO

For internal control purposes, which responsibilities should be seperated for cash dispursements

check signing and check writing check writing and check mailing

For internal control purposes, which of the following responsibilities should be separated for cash disbursements?

check writing and check mailing Check signing and check writing

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that

checks are signed by authorized individuals. all expenditures are authorized. all disbursements are made by check, debit card, or credit card.

Which of the following items are included in cash?

checks from customers currency and coins balance in checking accounts

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding

internal control procedures for cash disbursements (other than small disbursements from petty cash) should include

checks signed by authorized individuals all expenditures are authorized all disbursements (other than petty cash) are made by check

Internal control components are built on the foundations of the ethical tone established by top management in its

control environment.

A(n) ___________________ is an exclusive right of protection given to a creator of a published work, such as a song, film, photograph, or book

copyright

product costs

cost that are included in inventory direct materials, direct labor, manufacturing overhead

amount of loss from write-down using entire inventory

cost total < nrv total then there is no loss

amount of loss from write-down using categories

cost total-by category total

Management must evaluate the _____ and _____ of any change in credit and collection policies.

costs, benefits

direct write-off method

could result in a mismatching of expenses and revenue

The normal balance of the contra asset accumulated depreciation account is a(n) _________

credit

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include

credit Cash, $2,000

To close the dividend account, the journal entry would require a(n) ___________ entry to the dividend account and a ______ entry to retained earnings

credit; debit

A company debits cash to increase its cash account. A bank _______ the customer's checking account because the customer account represents a liability on the bank's balance sheet

credits

Because cash inflows and outflows can vary from planned amounts, a company needs an additional cash _____ as a precaution against surprises.

cushion * The size of the cushion depends on the ability to convert cash equivalents and short-term investments into cash quickly, along with its short-term borrowing capacity.

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net realizable value of accounts receivable? a) $17,000 b) $20,000 c) $19,000 d) $18,000

d) $18,000

What transaction would require the journal entry shown below? Allowance for uncollectible accounts----25,000 Accounts receivable -------------------------------25,000 a) Reinstate a customer account. b) Record collection on account. c) Estimate bad debt expense. d) Write off a customer account.

d) Write off a customer account.

Accounts receivable are almost always considered current assets because a) they are always due within a maximum of one year. b) they are always due within a maximum of 60 days. c) their normal collection, only if less than a year, is part of the normal operating cycle. d) their normal collection, even if longer than a year, is part of the normal operating cycle.

d) their normal collection, even if longer than a year, is part of the normal operating cycle.

When actual inventory returns occur in a perpetual inventory system, which of the following happens?

debit the asset inventory account

The adjusting journal entry required when deferred revenue is recognized includes a ______ entry to a liability

debit

Western company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and cost of the inventory sold was $40,000. Assuming Western uses a periodic inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following

debit accounts receivable $70,000 credit sales revenue $70,000

Sully corporation uses an allowance method for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of credit sales and $100,000 of cash sales during the year, the adjustment for estimated uncollectible accounts will require a

debit bad debt expense for $2,000 credit allowance for uncollectible accounts for $2,000

Rascal Corp. borrows $500,000 by signing a 1-year, 12% promissory note from General Finance Company and assigns $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Rascal to record the borrowing will include

debit cash debit finance charge $6,000 credit to liability financing arragements

journal entry required for a note receivable transferred as a sale

debit cash debit loss on sale of note (to balance) credit not receivable (face amount) credit interest receivable (accrued interest)

sale with recours

debit cash debit loss on sale of receivable to balance debit factor on receivables credit recourse liability credit accounts receivable (book value when sold)

factoring without recorse

debit cash debit loss on sale of receivables (to balance) debit receivable from factor credit accounts receivable (book value sold)

On November 10 of the current year, Flores Mills sold carpet to a customer for $7,300 with credit terms 3/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 17, assuming the correct payment was received on that date?

debit cash $7,081 debit sales discounts 219 credit accounts receivable 7,300

A journal entry that affects a company's cash flows must include a

debit or credit to cash.

On October 1, Callison accepts a 5-year interest bearing not receivable for $1,000.The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31, Year 1, to accrue interest will include:

debit to interest receivable $30 credit to interest revenue $30 1000 x .12 x (3/12) = 30

ophelia inc. just learned that patton inc., one of its customers with an outstanding accounts receivable balance filed for bankruptcy. Assuming that the company utilizes the allowance method, ophelia should record a(n):

decrease in Accounts Receivable

The allowance method is a method of accounting that is _ net accounts receivable (as well as net income) for estimated bad debts.

decreases

Paying for supplies purchased in a previous month has what effect on the accounting equation for the payment of supplies?

decreases assets decreases liabilities

A sales allowance _ the amount owed by the customer for merchandise that is _ by the customer.

decreases;retained

In a bank reconciliation, an outstanding check is ______.

deducted form the bank balance

The two methods for preparing the Statement of Cash Flows are:

direct and indirect methods

Which of the followng is an internal control procedure for cash disbursements?

disbursements should be made by check

The transfer of a note receivable to a financial institution for an amount less than the face amount of the note is referred to as

discounting a note receivable

The treatment of discontinued operations and unusual items in interim reporting under U.S. GAAP is more consistent with the _______ view

discrete

management approach to segment reporting requires that _______________ financial information is available

discrete

IFRS comprehensive income must be presented in

either one or two statements (same as GAAP)

When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting ________________

error

Change in residual value of a depreciable asset is treated as a change in accounting _________________

estimate

A change in depreciation method is treated as a change in accounting ___________ that is achieed by a change in accounting ____________

estimate principle

sales revenue is reported net of these amounts:

estimated sales returns and allowances pertaining to current year sales actual returns and allowances granted to customers actual sales discounts taken by customers

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) _____ _____ approach to measuring bad debts.

income statement

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) __________________________________ ______________________________________ approach to measuring bad debts

income statement

Which approach for estimating bas debts uses a percentage of each period's net credit sales?

income statement approach

Assets impact of debits and credits:

increase by debit decrease by credit

Providing services and sales on account has what effect on the balance sheet equation?

increases assets

Purchasing supplies on account has what effect on the balance sheet equation

increases liabilities increases assets

If the compensating balance is _____ with no contractual agreement that restricts the use of cash, the compensating balance can be reported as part of cash and cash equivalents, with not disclosure of the arrangement.

informal

The percentage-of-receivable approach to measuring bad debt expense focuses on

net realizable value of accounts receivable

Acceptable measurement attributes for certain financial statement items:

net realizable value, present value, historical cost and fair value

The fixed-asset turnover ratio is calculated as ________________ divided by average fixed assets.

net sales

When specific recievables are assigned as collateral in a secured borrowing, the appropriate financial statement disclosure is to

net the note payable from the accounts recievable

a bond will be issued at a premium when the market rate of interest is ___________ the stated rate

less than

The unadjusted balance of the allowance for uncollectible accounts is equal to the estimate of uncollectible accounts at the end of last year _ actual write-offs during the _ year.

less;current

A potential disadvantage of the allowance method is that it:

may be used to manage earnings

Activity Ratios

measures efficiency in managing/using assets Include: asset turnover, receivables turnover, average collection period, inventory turnover, average days in inventory

The most common source of occupational fraud is:

misuse of company resources

The two most common sources of occupational fraud are:

misuse of company resources financial statement manipulation

The most common source of occupational fraud is:

misuse of company resources.

The average cost method assumes that cost of goods sold and ending inventory each consist of a(n) _________ of the goods available for sale.

mixture

The assumption that financial statement elements should be measured in terms of the U.S. dollar for U.S. financial reporting is referred to as the _______________ unit assumption.

monetary

Time value of money concept

money can be invested today to earn interest and grow to a larger amount in the future

cash equivalents include which of the following

money market funds, treasury bills, and commercial paper (must have a maturity date no longer than 3 months from the date of purchase)

Gross Method vs. Net method of accounting for purchase discounts

net method results in a higher gross margin than the gross method if discounts are not taken financial statements do not differ under the gross and net methods if discounts are always taken

Gross accounts receivable less allowance for doubtful accounts is ______ of accounts receivable

net realizable value

The formula "future value divided by the quantity (1+i)^n is the formula for ___________ value

present

We value most receivables and payables at the _________ value of _______________ cash flows, reflecting an appropriate time value of money.

present future

Present value of annuity four variables

present value interest rate number of periods payment amount

The present value of a series of equal-sized flows with the first payment taking place at the beginning of the first period is a ______________________

present value of an annuity due

notes receivable is valued on the balance sheet at the

present value of future cash receipts

Harold would like to deposit a sum of money today that will grown to $20,000 in year 8. Which table should Harold use when making this calculation?

present value of single amount

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the

present value of the note payable, which is the face amount of the note

Bolt corp. acquires equipment valued at 81,630 by signing a 3-year noninterest bearing note payable for 100,000. Calculate the implicit interest rate on the note

present value/face amount 81,630/100000=.8163 8 then look at PV table

Balance sheet

presents the financial position of the company on a particular date provides useful information about a company's liquidity and long-term solvency purpose: report a company's financial position on a specific date

The most recent issue in implementing the fair value accounting standards is:

pressure to reduce the extent to which fair value changes are reported in net income

Risk Assessment Identifies and analyzes factors that could

prevent objectives from being achieved.

Separation of duties and E-commerce control are examples of

preventive control

fair value

price that would be received in an orderly market transaction

The face amount of a note receivable is also called the _____.

principal

assets

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

To calculate the effective rate of interest on a non-interest bearing note, the amount of interest is the divided by the

proceeds

When a company borrows money by signing a noninterest-bearing note, the amount of cash recieved at the inception of the loan is reffered to as the _____ of the note

proceeds

method for determining if an item is material and requires separate disclosure relies on:

professional judgement

Consistent with the lower of cost and net realizable value approach, this inventory item should be value at? Jones company's inventory cost is $100. The expected sales price is $110. The company estimates sales cost as 10% of the sales price.

sales price*%=answer sales price -previous answer= inventory item value

A(n) ________________________________ __________________________________occurs when a customer returns merchandise for a refund.

sales return

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

When merchandis is returned for a refund or for credit to be appliead to other purchases, the situation is called a ____ ____

sales return

The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called _____.

securitization

When a company decides to build its own asset rather than purchase it outright, this is referred to as a(n) ____________________ asset.

self-constructed

In a sale of an accounts receivable with recourse, if the customer does not pay, the loss is assumed by the ______ of the accounts recievable

seller

In a sale of an accounts receivable with recourse, if the customer does not pay, the loss is assumed by the ____________ of the accounts receivable

seller

Net realizable value is ________ __________ minus costs of completion, disposal, and transportation.

selling price

periodic inventory system

separate freight-in account is used

internal control system critical aspect

seperation of duties

Glasser Corp. provided $20,000 of services on account. The account that should be credited is ______ _____.

service revenue

In general, cash and cash equivalents are treated _____ under IFRS and U.S. GAAP. One difference relates to bank overdrafts, which occur when withdrawals from a bank account exceed the available balance. U.S. GAAP requires that overdrafts typically be treated as liabilities. In contrast, IAS No. 7 allows bank overdrafts to be offset against other cash accounts when overdrafts are payable on demand and fluctuate between positive and negative amounts as part of the normal cash management program that a company uses to minimize its cash balance. For example, LaDonia Company has two cash accounts with the following balances as of December 31, 2016: National Bank: $300,000 Central Bank: (15,000) Under U.S. GAAP, LaDonia's 12/31/16 balance sheet would report a cash asset of $300,000 and an overdraft current liability of $15,000. Under IFRS, LaDonia would report a cash asset of $285,000.

similar

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:

statement of cash flows balance sheet

IFRS steps in determining the impairment of receivables

step 1 - consider whether individual significant receivables are impaired step 2 - group individual significant receivables for which impairment is not indicated with other receivables of similar risk characteristics step 3 - perform impairment test

Managers who are entrusted with taking care of the assets of the company are referred to as

stewards of the companys assets

The n value is present and future value tables refers to what?

the total number of compounding periods

If a note with an unrealistic interest rate is received solely in exchange for cash, the present value of the note is considered to be

the cash paid

A troubled debt restructuring occurs when

the creditor changes the terms of the agreement to make it easier for the debtor to pay.

A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals

the ending balance of cash in the accounting records.

at what amount are accounts receivable initially recorded

the exchange price agreed on by the buyer and seller

Kerry acquires equipment valued at $81,630 by signing a 3-year noninterest-bearing note payable for $100,000. The difference between the $100,000 repayment and the value of the equipment represents

the implicit interest on the note

In a deferred annuity, a two-step process can be used to calculate the present value of the annuity. The first step requires the calculation of the present value of he annuity a t the beginning of the annuity period. The second step involves discounting the amount calculated in step 1

to its present value as of today

Companies commonly restrict cash for which of the following reasons?

to pay off a large loan when due to finance a major purchase of equipment to have cash available for future investment opportunities

The post-closing trial balance checks that

total debits equal total credits at the end of the period.

Debt to equity ratio

total liabilities / shareholders equity (including retained earnings) the higher the ratio, the higher the risk

A __________ __________ is a way to change prices without publishing a new catalog.

trade discount

A(n) _________________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service

trademark

CECL model broadens information that creditors should consider when estimating credit losses true/false

true

When pricing a bond, the present value of the annuity of the coupon payments is added to the present value of the maturity value of the bond true/false

true

Risk refers to the __________ of an investment

uncertainty

Income before taxes

useful for comparing the performance of companies in different tax jurisdictions or comparing corporations with sole-proprietorships or partners

asset/liability approach to accounting

uses the measurement of balance sheet accounts to drive revenue and expense recognition

Purpose of a post-closing trial balance

verify that closing entries were prepared and posted correctly and that the accounts are now ready for next years transactions

In a factoring arrangement made ___________ recourse, the seller bears the risk of uncollectibility

with

The buyer assumes the risk of uncollectibility when accounts receivables are sold _____ recourse.

without

the buyer assumes the risk of uncollectibility when accounts receivable are sold __________ recourse

without