ACC FINAL

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legal title goods transfer to customer

"earned"

4 Financial Statements: Statement of Retained Earnings

"what you keep" net income explains how "net income" and "dividends" cause financial position to change for PERIOD OF TIME uses element : WITHDRAWAL OF OWNERS - dividends declared - sharing of profit with owners Beginning Retained earnings + net income or loss - dividends declared = ending retained earnings

Our Feathered Friends, Inc., reported credit sales of $1,500,000 for 2019. Cost of goods sold was $700,000. The following additional information is available from the company's records: December 31, 2019 December 31, 2018 Accounts receivable $50,000 $40,000 Inventory 75,000 80,000 Accounts payable 30,000 25,000 How much cash did the company collect from customers in 2019?

$1,490,000 Accounts Receivable as increased by $10,000 ($50,000 - $40,000). This increase is subtracted from sales ($1,500,000 - $10,000) = $1,490,000.

During the month of July, the Scolari Corporation received $60,000 in investments from owners, paid $25,000 cash for supplies, and purchased $10,000 of supplies on account. The ending balance in the accounts payable account for the month of July is ________.

$10,000 credit The question specifically asks about accounts payable. Any information that doesn't affect accounts payable is irrelevant to answering this question. The only transaction given for Scolari that affects accounts payable is the purchase of supplies on account ($10,000); accounts payable is a liability account that carries a normal credit balance.

Marla's Publishing Service has $4,800 of fixed expenses. The manager reported the company's operating income as $0, and the contribution margin was 45%. What are the company's sales in dollars, rounding to the nearest dollar, using the shortcut approach to the contribution margin ratio?

$10,667

A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000 after 100,000 miles of service. Using the units-of-production method, what is the first year's depreciation if the van is driven 30,000 miles?

$10,800

Ending assets for Smith company equal $600,000 and the beginning retained earnings account was $300,000. If net income during the period was $250,000 and dividends were $50,000, what were ending liabilities? $500,000 $250,000 $175,000 $100,000

$100,000

$100,000 $600,000 = X + $500,000 $100,000 = X So, Liabilities are $100,000.

Equity Bank lends Boston Furniture Company $100,000 on December 1st on a 6%, 4-month note. What is the maturity value of the note?

$102,000 First calculate the interest: $100,000 x .06 x (4/12) months = $2,000 Maturity value is $100,000 + $2,000 = $102,000

During the year, Patriot Partners had $245,000 in revenues, $120,000 in expenses, and $40,000 in declared dividends. What was Patriot's net income for the year? $125,000 $85,000 $205,000 $245,000

$125,000 Patriot had revenues that totaled $245,000 and expenses totaling $120,000, resulting in net income of $120,000, calculated as $245,000 - $120,000.

PhotoEase Camera Co. sold equipment with a cost of $19,000 and accumulated depreciation of $7,000 for an amount that resulted in a gain of $1,000. What amount should PhotoEase report on the statement of cash flows as "proceeds from sale of plant assets"?

$13,000 - The gain on sale is the extra cash gotten over the book value of equipment, therefore the amount of cash (proceeds) on this sale is: (19,000 - 7,000) + 1,000 = 13,000

Barton Industries had the following asset accounts at year end: Cash $10,000 Accounts Receivable 2,500 Supplies 750 Equipment 12,000 Building 70,000 Land 112,000 What are Barton's total current assets? $25,250 $13,250 $10,750 $83,250

$13,250

Stella Corp. has the following liabilities: $30,000 salaries payable, $70,000 accounts payable, $180,000 notes payable (to be made in 10 equal annual payments), and warranty payable $22,000 (all of Stella's products come with a 90-day manufacturer warranty). The total current liabilities is:

$140,000

Ironworks Industries purchased a piece of equipment for $80,000 with an estimated salvage value of $15,000 on January 1. Its estimated life is 5 years. To the nearest dollar, what is the equipment's depreciation using double-declining-balance for year 2?

$19,200

Equity Bank lends Boston Furniture Company $100,000 on December 1st on a 6%, 4-month note. The total cash paid for interest (only) at maturity of the note is (Round your final answer to the nearest dollar.):

$2,000 This is calculated as: $100,000 x .06 x (4/12) months = $2,000

Basic Enterprises reported the following stockholder's equity at year-end: Preferred Stock, 3%, $200 Par, 10,000 shares authorized, 600 shares outstanding $220,000 Common Stock, $3 Par, 1,000,000 shares authorized, 77,000 shares outstanding 331,000 Paid-in Capital in Excess of Par - Common 870,000 Retained Earnings 1,140,000 Treasury Stock (500 shares @ $25 per share) 22,500 What is the total stockholder's equity reported on the balance sheet for Basic?

$2,538,500 Preferred Stock, 3%, $200 Par, 10,000 shares authorized, 600 shares outstanding $220,000 Common Stock, $3 Par, 1,000,000 shares authorized, 77,000 shares outstanding 331,000 Paid-in Capital in Excess of Par - Common 870,000 Total Paid-in Capital 1,421,000 Retained Earnings 1,140,000 Subtotal 2,561,000 Less Treasury Stock (500 shares @ $25 per share) (22,500) Total Stockholder's Equity $2,538,500

Net income for the period was $200,000. The retained earnings account had a beginning balance of $25,000. If the company paid dividends of $20,000 during the year, what is the ending balance in retained earnings? $25,000 $230,000 $155,000 $205,000 $245,000

$205,000

Ending assets for CompuHelp equal $650,000 and the beginning retained earnings account was $325,000. If net income during the period was $225,000 and dividends were $150,000, what were ending liabilities? $175,000 $250,000 $25,000 $400,000

$250,000

Net income for the period was $245,000. The retained earnings account had a beginning balance of $25,000. If the company paid dividends of $15,000 during the year, what is the ending balance in retained earnings? $255,000 $10,000 $25,000 $245,000 $230,000

$255,000

The accounts receivable account had a beginning balance of $100,000, cash received on account was $120,000, and sales on account were $50,000. The ending Accounts Receivable balance was ________.

$30,000 debit The first step in this problem is to recall that asset accounts such as accounts receivable carry a debit balance. Secondly, setting up a t-account would allow a visual of this scenario:

Cesario Corporation purchases a machine for $125,000. It has an estimated salvage value of $10,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced 15,000 units. To the nearest dollar, the depreciation for the first year under the units of production method will be:

$34,500

Thompson Inc. began and ended the year with a Retained Earnings balance of $820,000 and $630,000, respectively. Thompson's reported Net Income during the year of $180,000. The only transaction that affected Retained Earnings was the declaration and payment of a cash dividend. Determine the amount of dividends declared and paid by Thompson, Inc. during the year.

$370,000 The amount of cash dividends declared and paid by Thompson, Inc. this year was $370,000. To determine the amount of cash dividends declared and paid, analyze Retained Earnings using the following formula, substituting X for the unknown amount, Dividends: Beginning Balance of RE + Net Income - Dividends = Ending Balance of RE $820,000 + $180,000 - X = $630,000 - X = $630,000 - $820,000 - $180,000 X = $370,000

A corporation has 100,000 shares of 4% preferred stock outstanding. Also, there are 100,000 shares of common stock outstanding. Par value for each is $100. If a $825,000 dividends is paid, what is the amount of dividends per share on common stock?

$4.25 - $400,000 to preferred, leaving $425,000 for common. $425,000 / 100,000 shares = $4.25 per share

Cramer's net cash provided by operating activities during 2018 was

$44,000 Net Income + 35,500 Gain on Sale of Equipment - 10,000 Depreciation + 7,500 Decrease in A/R + 5,000 Increase in Inventory - 1,000 Decrease in Accounts Payable - 1,000 Increase in Accrued Liabilities + 8,000

In 2018, Jubilee Company repurchased its own stock at a cost of $55,000. During the year, the company purchased land with cash for $120,000 and issued bonds payable for $500,000. Net cash provided by financing activities for the year would have been

$445,000 - First - identify financing activities (Repurchased stock, Issued Bonds Payable) - Second - Total (add cash inflows, subtract cash outflows)

The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.

$487,476

In the current year, BOGO Company sold land for $80,000 cash, purchased a delivery van for $25,000 cash, and issued common stock for $100,000 cash. The net cash provided by investing activities is

$55,000 - First - identify investing activities (Sold Land, Purchased Delivery Van) - Second - Total (add cash inflows, subtract cash outflows)

Assume Cramer uses the direct method to prepare the statement of cash flows. Income tax payable was $6,500 at the end of the year, and $3,100 at the beginning of the year. Income tax expense for the year totaled $58,900. What amount of cash did the company pay for income taxes during the year?

$55,500 - 3,100 + 58,900 - 6,500

A building was purchased on August 1 for $490,000. It has a salvage value of $38,000 and a useful life of 30 years. To the nearest dollar, how much will the depreciation expense for the building be for the first year ended December 31, using the straight-line method? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

$6,278

A new vehicle was purchased on January 1 for $46,000. It has a salvage value of $7,000 and a useful life of 6 years. To the nearest dollar, how much will the depreciation expense for the vehicle be for the first year using the straight-line method?

$6,500

During the month of July, the Scolari Corporation received $60,000 cash from investors, paid $25,000 cash for supplies, and purchased $10,000 of supplies on account. The ending balance in the Commons Stock account for the month of July is:

$60,000 credit

$60,000 credit The only transaction affecting common stock is the investments from investors ($60,000); equity accounts carry a normal credit balance.

The accounts receivable account had a beginning balance of $200,000, cash received on account was $240,000, and sales on account were $100,000. The ending Accounts Receivable balance was ________.

$60,000 debit

Vaughn-Williams Co. has total assets of $600,000 and stockholders' equity of $320,000. It purchased $80,000 of supplies on account and collected $50,000 on account from its customers. As a result, the company's total assets would now be __________. $680,000 $80,000 $550,000 $360,000

$680,000

Assume Cramer uses the direct method to prepare the statement of cash flows. Credit sales totaled $750,000, accounts receivable increased by $40,000, and accounts payable decreased by $25,000. How much cash did the company collect from customers?

$710,000 - Use a T-account: Credit Sales were $750,000 meaning A/R increased by $750,000, but it says that it only increased by $40,000 which means that you must have collected (750,000 - 40,000 = 710,000)

Dad's Towing Inc. began and ended the year with a Retained Earnings balance of $420,000 and $530,000, respectively. Dad's reported Net Income during the year of $185,000. The only transaction that affected Retained Earnings was the declaration and payment of a cash dividend. Determine the amount of dividends declared and paid by Dad's Towing during the year.

$75,000 Beginning Balance of RE + Net Income - Dividends = Ending Balance of RE $420,000 + $185,000 - X = $530,000 - X = $530,000 - $420,000 - $185,000 X = $75,000

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25 per picture frame. The fixed costs are $3,000 per month. What is the firm's contribution margin ratio?

$8.00-$3.25=$4.75$4.75/$8.00= 59.37%

During the current year, Morgan, Inc., had net income of $657,000. Morgan also recorded $203,000 in deprecation expense and had the following changes in its balance sheet accounts: Accounts Receivable $ 28,000 increase Inventories 12,000 decrease Accounts Payable 21,000 decrease Compute the net cash provided by operating activities using the indirect method.

$823,000 Using the indirect method, calculating cash flows from operating activities begins with net income. Non-cash income statement items are then added in (depreciation) and increases and decreases in current assets and current liabilities are adjusted accordingly. For Morgan, net cash provided by operating activities would be calculated as: Net income 657,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 203,000 Increase in Accounts Receivable (28,000) Decrease in Inventory 12,000 Decrease in Accounts Payable (21,000) 166,000 Net cash provided by operating activities 823,000

During the year, Patriot Partners had $245,000 in revenues, $120,000 in expenses, and $40,000 in declared dividends. What was the total change in Retained Earnings during the year? $85,000 increase $165,000 increase $165,000 decrease $125,000 increase

$85,000 increase

A company signs a note payable for $4,500 at 11% for 65 days. How much interest (to the nearest cent) will the company owe using a 360-day year?

$89.38

Our Taylor, Inc., reported credit sales of $2,500,000 for 2019. Cost of goods sold was $900,000. The following additional information is available from the company's records: December 31, 2019 December 31, 2018 Accounts receivable $60,000 $40,000 Inventory 75,000 80,000 Accounts payable 30,000 25,000 How much cash was paid for inventory in 2019?

$890,000 Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold $80,000 + X - $75,000 = $900,000 X = $900,000 - $80,000 + $75,000 X = $895,000 (Purchases on Account) Once the amount of purchases on account is determined, you can now determine the amount of cash paid for these purchases using the amount of the purchases on account (just calculated) and the beginning and ending balance of Accounts Payable. The following formula is used for this calculation, substituting X for the unknown amount, Payment for Inventory: Beginning A/P + Purchases on account - Payments for Inventory = Ending A/P $25,000 + $895,000 - X = $30,000 - X = $30,000 - $25,000 - $895,000 X = $890,000 This same progression is also shown through the following T-accounts: Inventory Beginning 80,000 Purchases 895,000 900,000 Cost of Goods Sold Ending 75,000 Accounts Payable 25,000 Beginning Payments for Inv. 890,000 895,000 Purchases on Account 30,000 Ending

A company purchased a computer system on March 1. Its cost was $55,000 and it had an estimated salvage value of $10,000. It was expected to have a useful life of 5 years. To the nearest dollar, the depreciation for year 2 using straight-line depreciation will be:

$9000

Daphne's Planter Company produces and sells planters. The manager reported $10,500 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $60. What is the company's breakeven point in units using the shortcut approach?

($10,500 + 0) / $60 = 175 units

GreenhouseGreenhouse Company purchased a delivery van for $35,000 on January 1. The van has an estimated 10-year life with a residual value of $6,000. What would the depreciation expense for this van be in the first year if GreenhouseGreenhouse uses thestraight-line method?

($35,000-$6,000) / 10 = $2,900

Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $50. What is the firm's breakeven point in units using the shortcut approach?

($5,400 + 0) / $50 = 108 units

Pittsburg Resources acquired a coalmine for $6,000,000. The company's survey estimates that 120,000 tons of coal can be extracted from the mine. In the first year of operations, 25,000 tons of coal was extracted, and the coal is considered sold immediately upon extraction. Pittsburg Resources would recognize ________.

($6,000,000 - $0) / 120,000 = $50 per ton $50 per ton × 25,000 tons = $1,250,000

BranderBrander Corporation purchased a forklift for $60,000 on July 1. The forklift has an estimated useful life of 35,000 usage hours with a residual value of $4,000. BranderBrander uses theunits-of-production method for depreciation. If BranderBrander uses the forklift for 6,000 hours during the firstyear, the depreciation expense on the forklift would be

($60,000-$4,000) / 35,000 = $1.60 1.60x6,000 = $9,600

On January 1, 2019, Jackson Company issued a $300,000 face value, 3 year, 8% bond at 102 or for $306,000 What is the journal entry on the date of issue Jan 1, 2019 What is the journal entry on the date of maturity

(1.02 * 300,000 = 306,000) cash 306000 (c) Preminum on Bonds Payable. 6,000 (c) Bonds Payable. 300000 Maturity: This bond will mature at the end of 3 years At the time of maturity, Bond payable decreases with a debit At the time of maturity, Cash decreases with a credit Bonds Payable. 300000 (c) cash. 300000

Tara's Sewing Service sells designer afgans for $85 each. Unit variable expenses total $50. The breakeven sales in units are 2,500 and budgeted sales in units are 4,300. What is the margin of safety in dollars?

(4,300 - 2,500) × $85 = $153,000

How can a manager forecast operating income?

(sales revenue × contribution margin ratio) - fixed costs

cash or equivalent price at time of purchase all expenditures to get asset ready for intended use (historical cost of inventory includes: purchase price, sales tax, freight-in, insurance during shipping)

* historical cost of assets is measured as...

^ Expenses >

, NI > , RE negative relationship

, Div >

, RE

Which of the following is a characteristic of a corporation?

- Limited liability of stockholders - Mutual agency (the authority given to a person doing business on behalf of the company, usually a business owner or partner)

Which of the following is considered to be an advantage of a corporation?

- Limited liability of stockholders for the corporation's debts - Continuous Life - Ability to raise more capital than a partnership or proprietorship

Preferred stock is least likely to have which of the following characteristics?

- Preference as to voting LIKELY: - Preference as to assets on liquidation of the corporation - The right of the holder to convert the shares to common stock - Preference as to dividends

Which of the following statements is true about a 3-for-1 stock split?

- Total stockholders' equity increases. ----- - Retained Earnings remains the same. - The market price of each share of stock will decrease. - Par value is reduced to one-third of what it was before the split.

1. real (permanent accounts:

- always stay open - they are balance sheet accounts ( assets, liability, equity: CS + RE)

2. Nominal (temporary):

- closed at the end of an accounting period - income statements and dividends declared (revenues, expenses, dividends)

Fundamental Quality: Faithful Representation

- completeness: all necessary info is present - neutrality: info cannot be bias - free from error

3. Mixed accounts:

- have both real / nominal - adjusted at end of AP - EX: purchases account divided into inventory and COGS

A company might purchase treasury stock for all of the following reasons

- it wants to increase its net assets by buying its stock low and reselling it at a higher price - management wants to avoid a takeover by an outside party - the company needs the stock to distribute to employees as part of its employee stock purchase plans

The statement of cash flows is designed for all of the following purposes

- to determine a company's ability to pay dividends and interest - to predict future cash flows - to provide information about cash receipts and cash payments during a period

Which of the following accurately describes how contingent liabilities are reported on the Balance Sheet?

. The accounting treatment for contingent liability could be A, B, or C depending on the likelihood of an actual obligation occurring.

Which of the following transactions decrease cash? 1) Purchase inventory from cash 2) Pay trade accounts payable 3) Accruing operating expenses 4) Purchase stock in R&D partner 5) Charging depreciation

1, 2, 4

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000?

1,375

3 Types of Business activities:

1. Operating - daily things to generate revenue and expenses 2. Investing - acquiring long-term assets (land, equipment) 3. Financing - How is a company financing its operations? Debt or equity?

est. =% of credit sales for year (once you calculate your estimate, this is "Bad Debt Exp.") estimate = bad dept expense

1. income statement method (to estimate bad debts)

Elements DURING a period of time

1. investments by owners - increases net assets by owners 2. distributions to owners - decrease in net assets to owners dividends 3. Comprehensive income -change in net assets of an entity (usually net income + other stuff) 4. Revenues: increases in net assets from ongoing major/central operations 5. Expenses: decreases in net assets from ongoing major/central operations 6. Gains: increases net assets from peripheral or incidental operations 7. Losses: decreases net assets from peripheral or incidental operations ^ all part of income statements

On the first day of its fiscal year, Amplify Company purchased a new computer system for a total cost of $35,000. The computer system is expected to have a life of 5 years with a residual value of $8,000. If the company uses the double-declining-balance method, its depreciation expense for this computer system in the first year will be

1/5 x 2 = 0.40 $35,000 x 0.40 = $14,000

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $240,000. The monthly target operating income is $80,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

133,333

Amir Company's net income and net sales are $18,000 and $1,100,000, respectively, and average total assets are $100,000. What is Amir's return on assets?

18.0% - $18,000 / $100,000 - Net Income / Average Total Assets

1. income statement method 2. BS method

2 Ways to Estimate Bad Debts (using allowance method)

est. =% of end A/R (once you calculate your est., this is the new end balance in Allowance for Uncollectible Accounts) Estimate = End Allowance for Uncollectible Accounts

2. BS method (to estimate bad debts)

Grandma's Yarn Factory produces and designs two specialty yarn products, green yarn and scarlet yarn. The manager estimates that clients will purchase 3,000 green yarn spools and 1,100 scarlet yarn spools by the end of the next period. The unit contribution margins for green yarn and scarlet yarn are $2.80 and $3.50. What is the weighted-average unit contribution margin?

2.99

Patents to produce and sell inventions are conveyed by the federal government for a period of:

20 years

Harper Company acquired a $150,000 machine on January 1, 2018. The machine is estimated to have a useful life of 5 years, and a residual value of $25,000. For units-of-production depreciation purposes, the machine is expected to produce 500,000 units. If Harper Company uses double-declining-balance depreciation, what is the depreciation expense in 2019?

2018: 40% × $150,000 = $60,000 2019: 40% × ($150,000 - $60,000) = $36,000 When computing double-declining balance, we first calculate the straight-line rate of depreciation, calculated as 1 / useful life, or 1 / 5, which is 20%. Then, multiply the straight-line rate by 2 to determine the double-declining balance rate of depreciation, resulting in a double-declining balance rate of 40% (20% x 2). Annual depreciation expense is then determined each year as the double-declining balance rate of depreciation (40%) multiplied by the beginning period book value of the asset (Cost - Accumulated Depreciation), resulting in depreciation expense in 2018 and 2019 of:

Kelly Company acquired an iron mine for $2,349,000. Kelly paid a $1,000 filing fee with the county recorder, $50,000 license fee to the state, and $100,000 for a geologic survey. It was estimated that the land would have a value of $400,000 after completion of the mining operations, and that 1,000,000 tons of iron ore could be extracted from the mine. During the first year of operations, 100,000 tons of iron ore were extracted and 80,000 tons of iron ore were sold for $5 per ton. What is the amount of depletion to record in the current period (in tons)?

210,000

Chip's Woodworking manufactures and sells specialty wood plaques. The production manager reported that the company needs to produce an additional 1,000 plaques to meet customer demand in January. The managerial accountant needs to prepare a report showing the inventoriable product cost per unit using the variable costing system. Which of the following represents the cost per unit to produce an additional 1,000 wood plaques under the variable costing system? Use the following data to compute your answer. Chips Woodworking Manufacturing Cost Report January Direct materials $6 Direct labor $10 Fixed manufacturing overhead $6,000 Variable manufacturing overhead $6 Fixed operating expenses (selling, general, and administrative) $2,000 Variable operating expenses (selling, general, and administrative $2 Unit Cost ?

Kelly Company acquired an iron mine for $2,349,000. Kelly paid a $1,000 filing fee with the county recorder, $50,000 license fee to the state, and $100,000 for a geologic survey. It was estimated that the land would have a value of $400,000 after completion of the mining operations, and that 1,000,000 tons of iron ore could be extracted from the mine. During the first year of operations, 100,000 tons of iron ore were extracted and 80,000 tons of iron ore were sold for $5 per ton.How much gross profit is shown on the Income Statement for the current period?

232,000

What is the most likely change to total variable costs if a manager increases the production of a product by 25%?

25% increase

Smith Company has 800,000 shares authorized and 250,000 shares issued and outstanding of its $2 par value common stock. The stock is currently selling for $10 per share. If Smith Company declared and distributed a 30% stock dividend, what journal entry would the company make?

250,000 shares outstanding × 30% stock dividend = 75,000 shares issued as a stock dividend Because this is a large stock dividend, Retained Earnings and Common Stock are both recorded for the par value of the new shares issued, $150,000 (75,000 shares × $2 par). Because this is a large stock dividend (more than 25%), the market value per share does not impact this entry.

Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin per candle?

3.75

A typical credit period for payment is:

30 days

Landstown College changed the budget for the next fiscal year. The new budget includes the following: Total fixed expenses $52,000 Selling price per unit $58 Variable expenses per unit $32 What is the impact on the breakeven sales in units if the new manager reduces fixed expenses by $10,000?

385 decrease

• Main objective in selecting a cost flow method should be to choose the one which most clearly reflects income • The only requirement is that the method of assigning costs should be rational and systematic, following the matching principle. • Under all methods, purchases should be the same. • The inventory count should be the same. • The difference comes in how to price the ending inventory. This pricing affects COGS. • These pricing methods do not generally relate to the physical flow of goods.

4 Inventory Cost Flow Methods

The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income?

4.85

400,000 - Par Value * % * Number of Shares - $100 * 4% * 100,000

1. identify contracts with customer 2. identify performance obligations in contract 3. determine transaction price 4. allocate transaction price to performance obligations 5. recognize revenue when (or as) entity satisfies its performance obligation

5 Steps of RRP

Under IFRS, if it is greater than ____ probability that an obligation is going to arise, and the amount can be estimated, then a "provision" should be recorded by making a journal entry.

50%

Graves Corporation issued 50,000 shares of $1 par value common stock. Later that year, Graves purchased 12,000 shares of its own common stock. Two months later, it reissued 2,000 shares. How many shares are issued and outstanding?

50,000 issued and 40,000 outstanding; Outstanding means owned by outsiders - so 50000 - 12,000 + 2,000 Issued just means that they have in the past been issued, so only the original 50,000 need be considered

On October 29th, Raider Red acquired a printer and office chairs for $1,000. The printer has a selling price of $700 and the office chairs have a selling price of $800. Determine the historical costs for the office chairs acquired by Raider Red:

533

If the accounts payable turnover is 6.7, what is the days' payable outstanding (round to the nearest day):

54 days

On August 1, Costco Lubbock collects sells 150,000 one-year family memberships to customers for $45. Costco has a December 31 year end. The journal entry required on 9/1 would include a credit to Unearned Revenue for how much?

6,750,000

Copyrights to protect various forms of media are conveyed by the federal government for a period of:

70 years beyond the author's life

On December 31st, Aubie has cost of goods sold of $734,000 and ending inventory of $123,000. The beginning inventory for the year had been $95,000. Calculate the purchases from suppliers, assume all on account.

762,000

The Coffee Factory sells two products, supreme and mild. The supreme sells for $120 per case (unit) with variable costs of $90 per unit. The mild sells for $90 per unit with variable costs of $10 per unit. The manager reported $42,600 total fixed costs. The Coffee Factory usually sells three supreme brands for each two mild brands. What is the breakeven point in total units?

852

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?

895

$592

A 90-day, 12% note for $20,000 dated July 10th, is received from a customer. What is the amount of interest earned at maturity (to the nearest dollar)

Which of the following statements is TRUE about capital and revenue expenditures related to the long-term operating assets of a company?

A capital expenditure will either increase the life or the productivity of the operating asset

How might a change in fixed costs affect the contribution margin?

A change in fixed costs does not affect the contribution margin.

Which of the following statements describing a corporation is true?

A corporation is subject to greater government regulation than a proprietorship or a partnership.

Preferred shareholders of Shelby International decided to convert some of their preferred shares into shares of Common Stock. The journal entry for this conversion will include all of the following except?

A credit to Retained Earnings would not be included in the journal entry for the conversion of preferred stock to common stock. In order to record the conversion of preferred stock to common stock, the following accounts would be affected: Debit to Convertible Preferred Stock Credit to Common Stock Credit to Paid-in Capital in Excess of Par - Common

Which of the following transactions does not affect cash during a period?

A write-off of an uncollectible account; You write it off because you couldn't collect the cash

ABC Co. had several contingent liabilities at year-end. Which of the following treatments of contingent liabilities is correct?

ABC had several contingent liabilities for which it believes it is reasonably possible it will result in a loss, so ABC disclosed all of these in the notes to the financial statements

Which of the following leases would NOT be classified as a Finance Lease?

ABC leased a vehicle from GHI. The vehicle is expected to last for 10 years and the term of the lease is 5 years, at which point ABC will return the vehicle to GHI. The present value of the lease payments made by ABC is $10,000, while the vehicle has a current market value of $17,500.

Contra Purchases account o NB = Cr o Used to calculate Net Purchases o Written in terms like "2/10, n/30" The customer get a 2% discount if they pay off account within 10 days of transaction, else the remaining balance owed on account (n) is due at end of 30 days.

Account for Purchase Discounts

amounts due from customers from sale of goods/services arising from oral promises of purchaser to pay

Accounts Receivable

Connors Company paid $700 cash to make a repair on equipment it sold under a one-year warranty in the prior year. The entry to record the payment will debit

Accrued Warranty Payable and credit Cash.

When using multiple regression to identify explanatory variables, which of the following will increase with the addition of an independent variable that improves the model?

Adjusted R-Squared

When using multiple regressions analysis, which value is used to assess the predictability of the model?

Adjusted R-squared

________ is an example of a discretionary fixed cost expense.

Advertising

Which of the following statements is false?

All contingent liabilities should be reported as liabilities on the financial statements, even those that are unlikely to occur.

Which of the following equity-related transaction would NOT be included in the financing activities section of the statement of cash flows?

All listed transactions are reported in the financing activities section of the statement of cash flows except: Smith Company declared and distributed a 20% stock dividend on common shares outstanding during the year.

Which of the following would most likely need accounting information to make a decision?

All of these need accounting information to make a decision. Investors and Creditors Regulatory bodies Individuals

- at year end = firm will estimate what is expected to not be collected - using adjusted journal entry, firms report Bad Debt expense (puts bad debt expense in same account period as associated credit sales; following matching principle)

Allowance Method for Estimating Uncollectible Accounts

amount of the AR that firm does not expect to collect from customers on account - bad debts = just considered a cost of doing business - Contra Asset Account, balance will be subtracted from AR

Allowance for Uncollectible accounts (AUA)

Which of the following is not a liability?

Allowance for bad debts

Angel Enterprises reported the following stockholder's equity at year-end: Preferred Stock, 3%, $200 Par, 10,000 shares authorized, 600 shares outstanding $120,000 Common Stock, $3 Par, 1,000,000 shares authorized, 77,000 shares outstanding 231,000 Paid-in Capital in Excess of Par - Common 770,000 Retained Earnings 1,040,000 Treasury Stock (500 shares @ $25 per share) 12,500 What is the total stockholder's equity reported on the balance sheet for Angel?

Angel's total stockholder's equity reported on the balance sheet is $2,148,500. The stockholder's equity section of the balance sheet would be reported as follows:

A bookkeeper did not record depreciation expense for a period. As a result ________.

As a result of not recording depreciation expense for the period, shareholders' equity will be overstated. The omitted journal entry would include a debit to depreciation expense and a credit to accumulated deprecation. If this entry was not recorded, assets would be overstated because the accumulated depreciation being a contra asset reducing overall assets would be omitted and depreciation expense reducing net income would be omitted. As net income affects retained earnings and retained earnings affect shareholders' equity, shareholders' equity would be overstated due to this omission.

net assets =

Assets - Liabilities (NET means something has been deducted)

The Accounting Equation:

Assets = Sources of Assets

A company replaced an engine on a vehicle and debited the amount to Repairs and Maintenance expense, rather than debiting the Vehicle account. Which of the following would occur because of this error?

Assets would be understated.

Decrease in salary payable $ 1,500 Increase in accounts payable 2,000 Decrease in accounts receivable 3,500 Net income 108,000 Increase in inventory 5,800 Decrease in prepaid expenses 1,200 Depreciation expense - equipment 5,000 Depreciation expense - buildings 7,500 Gain on sale of equipment 1,300 Loss on sale of land 2,500 Using the above data, determine the net cash provided/used by operating activities for Asakura Corporation for the current year. Assume the indirect method is used.

Assuming the indirect method, the net cash provided by operating activities for Asakura Corporation is $121,100. Net cash provided / used by Asakura Corporation is calculated as: Asakura Corporation Statement of Cash Flows Year Ended December 31, 20XX Cash flows from operating activities: Net Income $ 108,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense-equipment $ 5,000 Depreciation-land 7,500 Loss on sale of land 2,500 Gain on sale of equipment (1,300) Decrease in accounts receivable 3,500 Decrease in prepaid expenses 1,200 Increase in inventory (5,800) Decrease in salary payable (1,500) Increase in accounts payable 2,000 13,100 Net cash provided by operating activities $121,100

Consigned Goods: - the owner (consignor) transfers physical goods to agent (consignee) for purposes of selling without giving up legal title - goods out on consignment remain inventory of consignor (owner)

At end of period (ending inventory)

Which of the following classifications represents the most shares of common stock?

Authorized Shares; All shares must be authorized before they can be issued

o Determines weighted average cost per unit based on goods available of sale. o Ending inventory and COGS are priced at the average cost of goods available during the period

Average Cost

look at notes

Average Cost Instructions: FIFO Instructions: LIFO Instructions:

Which of the following costs are reported on a company's income statement and balance sheet?

B. Cost of goods sold Accumulated depreciation

Bad Debt Expense > Allow for Uncollectible Accounts

Bad Bebt AJE

Also called the statement of financial position

Balance Sheet

Whitmore Corporation purchased a new delivery van on the last day of its fiscal year. The cost of the delivery van will appear on Whitmore's _______________ in the year of purchase

Balance sheet

Net Credit Sales / Average Accounts Receivable. Basic Design had an A/R Turnover of 10.00 ($400,000 / $40,000). Days Sales Outstanding is then determined by dividing 365 by the A/R Turnover ratio. Basic Design had a Days Sales Outstanding ratio of 36.50 (365/10), meaning that it takes an average of 36.50 days to collect accounts receivable.

Basic Design had net credit sales of $400,000 during the year and an average accounts receivable balance of $40,000. On average, how many days did it take Basic Design to collect Accounts Receivable (round to two decimal places)?

Bengal Builders had operating income as of December 31st of the current year of $1,420,000, as well as the following outstanding debt: Bonds Payable, $2,000,000, 5%, issued at Par, outstanding the entire year Notes Payable, $500,000, 4%, issued on July 1st of the current year What is Bengal's times-interest-earned ratio on December 31st?

Bengal's times-interest-earned ratio as of December 31st is 12.91 times. Times-interest-earned is calculated as Operating Income / Interest Expense. To calculate Bengal's times-interest-earned ratio, you first have to calculate interest expense for the year based on the outstanding debt information given. Based on outstanding debt, interest expense is: Bond Interest Expense ($2,000,000 x .05 x 12/12) $100,000 Note Interest Expense ($500,000 x .04 x 6/12) 10,000 Total Interest Expense $110,000 Times-interest-earned is calculated as Operating Income, $1,420,000, divided by Interest Expense, $110,000, resulting in times-interest-earned of 12.91 times.

Gross Profit is $175,000 - 90,000, or $85,000. Gross profit percentage is then 48.6%, calculated as $85,000 / $175,000.

Bennett Bowling Supplies had Sales of $175,000 and Cost of Goods Sold of $90,000. What is Bennett's gross profit ratio?

Who decided whether to pay a dividend to stockholders

Board of Directors

On the statement of cash flows, which of the following items is classified as a financing activity?

Borrowing cash by signing a long-term note - Financing activities affect long-term liabilities and owner's equity

Select all the following costs that are included in the cost of land.

Brokerage commission Survey fees and legal fees Purchase price Property taxes purchaser pays expenditures for grading/clearing the land Removing unwanted buildings

Internal Users

CEO/ CFO managers Daily operating decisions / long-range planing Communicated (no rules)

removed from inventory, turned into an expense contra account, Dr matching principle expense (direct)

COGS

Expenses:

COGS, Cost of Sales, anything ending in expense

All Sales revenue (Cash/Credit/Credit Card) Less: Sales Returns and Allowances <> Sales Discounts <> = Net Sales

Calculate Net Sales

Cardinal Construction has a long-term asset with the following year-end information: Net book Value = $475,000 Estimated future cash flows = $425,000 Fair Value = $410,000 Is Cardinal required to impair this asset? If so, what amount of loss will be recorded?

Cardinal is required to impair this asset and should record an impairment loss of $65,000. To determine if an impairment has occurred and the amount of impairment loss to record, Cardinal must use the following test of impairment: Step 1: Impairment Test - Is the book value > future cash flows (Yes, $475,000 > $425,000) Step 2: Impairment Loss = Net Book Value - Fair Value = $475,000 - $410,000 = $65,000 Impairment Loss.

The formula for computing the inventory turnover is: Inventory Turnover = Cost of Goods Sold / Average Inventory Inventory Turnover = $238,000 / [($18,000 + $22,000) / 2] = 11.9 times

Carson Industries had inventory of $18,000 on January 1, 2018, and $22,000 on December 31, 2018. Cost of Goods Sold for 2018 was $238,000. What was the inventory turnover for Carson Industries for 2018?

Liquid assets that can be converted to cash

Cash Equivalents EX: certificate of deposit , U.S. treasury bill

Date Inventory xxx Cash xxx

Cash Purchase: Firm immediately pays for inventory

Gravel Corporation borrowed $250 comma 000250,000 from a bank on January 1, 20192019, by signing a 10%, six-month note. The journal entry made by Gravel on January 1, 20192019, will debit

Cash for 250,000 and credit Notes Payable for 250,000.

A business makes a cash payment of $12,000 to a creditor. Which of the following occurs?

Cash is credited for $12,000.

Cash paid for inventory in 2019 was $690,000. To determine cash paid for inventory, first determine the amount of inventory purchased during the year using the beginning and ending balances of inventory, as well as Cost of Goods Sold. The following formula is used for this calculation, substituting X for the unknown, purchases: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold $80,000 + X - $75,000 = $700,000 X = $700,000 - $80,000 + $75,000 X = $695,000 (Purchases on Account) Once the amount of purchases on account is determined, you can now determine the amount of cash paid for these purchases using the amount of the purchases on account (just calculated) and the beginning and ending balance of Accounts Payable. The following formula is used for this calculation, substituting X for the unknown amount, Payment for Inventory: Beginning A/P + Purchases on account - Payments for Inventory = Ending A/P $25,000 + $695,000 - X = $30,000 - X = $30,000 - $25,000 - $695,000 X = $690,000 This same progression is also shown through the following T-accounts: Inventory Beginning 80,000 Purchases 695,000 700,000 Cost of Goods Sold Ending 75,000 Accounts Payable 25,000 Beginning Payments for Inv. 690,000 695,000 Purchases on Account 30,000 Ending

On the statement of cash flows, which of the following items is classified as an investing activity?

Collecting cash on a long-term loan - Investing activities affect long-term assets. In this case, you are decreasing a long-term assets and increasing a current asset.

Total stockholders' equity is calculated by

Common Stock - Treasury Stock + Paid in Capital in Excess + Preferred Stock + Retained Earnings

If a corporation issues 1,000 shares of $1 par value common stock for $12,000, the journal entry would include a credit to

Common Stock for $1,000 Full Journal Entry: DR Cash $12,000 CR Common Stock $1,000 CR Paid-in Capital $11,000

Enhancing qualities:

Comparability + Consistency, Verifiability, Timeliness, Understandability

In Excel, what function will allow the user to highlight cells that satisfy a logical expression, such as profit greater than a given dollar amount?

Conditional Formatting

What Excel function would a user select to highlight cells where the profit exceeds the monthly profit goal, as in the table above?

Conditional Formatting

Where do you find net sales?

Consolidated Statements of Income

accounts whose balance - sales EX: Sales returns and Allowances (estimated), Sales Discounts (actual number)

Contra Sales Accounts

Which of the following refers to the excess of sales revenue over variable expenses?

Contribution Margin

If convertible notes payable are converted into common stock, the entry to record the conversion would include a debit to:

Convertible Notes Payable

Which of the following is not a plant asset?

Beginning Inventory + Net Purchases Good Available for Sale - Ending Inventory = COGS

Cost of Goods Sold Equation

How do you compute the purchases from suppliers?

Cost of goods sold + ending inventory - beginning inventory.

Smatter Corporation purchased land for a new building. Which of the following costs would not be included in the cost of the land?

Cost of new parking lot constructed on the land

customer pays for goods and services using a credit card firm treats credit card sales the same as cash sales, less the fee

Credit Card Sales

Accountants Plus has a 5 day work week (Monday through Friday) and pays its employees every other Friday. Each of the 10 employees earns $1,000 per week. December 31 was the second Tuesday in the pay period. The federal income tax rate is 15%, the state income tax rate is 3%, and the FICA rate is 7.65%. The adjusting journal entry required on 12/31 would include a:

Credit to FICA Tax Payable for $1,071

The party to whom money is owned

Creditor (Lender)

Lionworks Inc. signed a $57,000 8% 30-year installment note on November 1, 2016. The note requires semiannual payments of $950 plus interest on May 1 and November 1 of each year. How will Lionworks classify this loan on its December 31, 2016 Balance Sheet?

Current Portion of Long-term debt, $1,900; Long-term debt, $55,100

Tazo Inc. signed a $12,000 10% 15-year installment note on December 1, 2016. The note requires quarterly payments of $200 plus interest on March 1, June 1, September 1, and December 1 of each year. How will Tazo classify this loan on its December 31, 2016 Balance Sheet?

Current Portion of Long-term debt, $800; Long-term debt, $11,200

The operating activities section has a relationship with which part of the balance sheet?

Current assets and current liabilities

Capitalizing a cost involves increasing what type of account?

D. Asset

When a company receives cash from customers before earning the revenue, _________ will be credited.

D. unearned revenue

Spirit World, Inc., issued 250,000 shares of no-par common stock for $5 per share. The journal entry to record the issuance would be

DR Cash 1,250,000 CR Common Stock 1,250,000 - because there is no par, all of it would go into common stock.

When treasury stock is sold for less than its cost, the entry would include a debit to

DR Paid-in Capital to decrease it to represent the lost capital from selling at a loss

Marvin's Foods has outstanding 400 shares of 2% preferred stock, $100 par value; and 1,500 shares of common stock, $15 par value. Marvin's declares dividends of $13,800. Which of the following is the correct entry?

DR Retained Earnings 13,800 CR Dividends Payable, Preferred 800 CR Dividends Payable. Common 13000 - preferred: 2% * $100 * 400 shares = $800

Quill Corporation paid $28 per share to purchase 900 shares of its common stock as treasury stock. The stock was originally issued at $12 per share. Which of the following would be the journal entry that Quill would make to record the purchase of the treasury stock?

DR Treasury Stock 25,200 CR Cash 25,200

365 days in a year / inventory turnover

Days Inventory Outstanding =

Double Entry Accouting:

Debit (left) = Credit (Right)

TLR Productions pays $150,000 on January 1 to acquire a patent on a new production tool. It is expected that this patent's useful life will be 6 years. What will the journal entry be to record the first year's amortization?

Debit Amortization Expense $25,000, credit Patents $25,000

Kaldon, Inc. had the following account balances related to treasury shares: Treasury Stock (2,500 shares @ $30 per share) - $75,000 Paid-in Capital from Treasury Stock Transactions - $2,000 If Kaldon, Inc. were to resell all its treasury stock at $34 per share, the journal would include which of the following?

Debit cash $85,000

Jules Jewelers recorded cash sales of $200,000 on April 24. Jules also collected an additional 6% in sales tax payable to the state of Maryland. Which of the following would be included in the journal entry to record this sales transaction?

Debit to Cash $212,000

Southern Airlines received payment from a customer on December 1, 2018, for a round trip airline ticket from Baltimore to Orlando in the amount of $500. The flight from Baltimore to Orlando occurs on December 23, 2018, and the return flight to Baltimore is on January 11, 2019. Which of the following is included in the adjusting entry needed on December 31st to record earned revenue from this transaction?

Debit to Unearned Revenue, $250.

NorthEast Airlines received payment from a customer on December 1, 2018, for a round trip airline ticket from Baltimore to Orlando in the amount of $1,000. The flight from Baltimore to Orlando occurs on December 27, 2018, and the return flight to Baltimore is on January 10, 2019. Which of the following is included in the adjusting entry needed on December 31 to record earned revenue from this transaction?

Debit to Unearned Revenue, $500. NorthEast must record initial receipts for ticket sales as a liability, Unearned Revenue, as these revenues are not earned until the flights occur. As of December 31st, the flight from Baltimore to Orlando has occurred, so half of the revenue has been earned. An adjusting entry is needed to move half of the ticket sales from Unearned Revenue (debit) to Fees Earned (credit). These transactions would be recorded as:

the party that borrowed and owes money on the note

Debtor (Maker/Borrower)

If the indirect method is used, which of the following items appears on a statement of cash flows?

Depreciation Expense; Added to net income

Which statement about depreciation is false?

Depreciation should not be recorded in years in which the market value of the asset has increased.

Because gross profit is 45% for the past 5 years, that means that Cost of Goods Sold has average 55% of Sales (100% - 45%). Projected Cost of Goods Sold is then calculated as ($32,000,000 x 55%) $17,600,000

Donovan Company projects that sales for the year 2019 will be $32,000,000. For the past 5 years, Donovan's gross profit margin has averaged 45%. What amount should Donovan Company project for cost of goods sold for 2019?

Dividends Declared:

Dr / Cr + - NB

Expenses/Losses:

Dr / Cr + - NB

Revenues/Gains

Dr / Cr - + NB

Assets:

Dr / Cr + - NB

Equity (CS + RE):

Dr / Cr - + NB

Liabilities:

Dr / Cr - + NB

LIFO

During a period of rising prices, which inventory valuation method produces the lowest reported net income?

FIFO

During periods of falling prices, which inventory valuation method produces the lowest reported net income?

Contra Account:

EXS: Accumulated Depr., ADA, Sales Discount, Purchase Discount

Adjunct Account:

EXS: transportation-in, premium on BP or NR

2. Goods in Transit Shipping terms: dictate the date on which the title transfers to buyer FOB (Free on Board): common way to state shipping terms

Ending Inventory (Goods in Transit)

1. consigned goods - the owner (consignor) transfers goods to agent (consignee) to sell without giving title (like bakery with restaurant) - goods are still owners (consignor) inventory

Ending Inventory (consigned goods)

Sue Mason owns a bagel shop as a sole proprietorship. Sue includes her personal home, car, and boat on the books of her business. Which of the following is violated? The stable-monetary-unit assumption Going-concern assumption Entity assumption Cost principle

Entity assumption

____________ represents the "insider claims" of business. Liabilities Divdends Equity Revenue

Equity

When a company settles a warranty claim by replacing the defective goods, the journal entry will include a debit to _______ and a credit to _______.

Estimated Warranty Payable, Inventory

ActonActon, Inc., uses thedouble-declining-balance method for depreciation on its computers. Which item is not needed to compute depreciation for the firstyear?

Estimated residual value

aging-of-receivables method.

Estimating uncollectible accounts by analyzing receivables from specific customers according to how long each has been outstanding is known as the:

D... ebits increase

Expenses Assets Dividends

A company replaced tires on a vehicle and debited the amount to Vehicle instead of Repairs and Maintenance Expense. Which of the following would occur because of this error?

Expenses would be understated.

title transfers to buyer when seller gives goods to UPS During transit: GOODS BELONG TO BUYER buyer pays for shipping (records inventory on shipping date)

FOB (Free on Board) Shipping Point:

title transfers to buyer when goods reach buyers destination seller pays for shipping seller recognizes revenue on delivery date

FOB Destination

title transfers to buyer when goods reach buyers destination During transit: GOODS BELONG TO SELLER seller pays for shipping (records inventory on delivery date)

FOB Destination:

title transfers to buyer when seller gives goods on common carrier buyer pays for shipping seller recognizes revenue on shipment date

FOB Shipping Point

After a building is up and running, insurance, taxes, and maintenance costs are recorded as part of the asset's cost. True or false?

False - recorded as expenses

Which of the following statements is correct? Financial and managerial accounting information are analyzed together by both internal and external users of accounting information. Financial accounting provides information for decision makers inside the entity, such as business managers. Financial accounting provides information for decision makers outside the entity. Managerial accounting provides information for decision makers outside the entity.

Financial accounting provides information for decision makers outside the entity.

Dividend payments would be included in which section of the statement of cash flows?

Financing activities

The purchase of treasury stock would be included in which section of the statement of cash flows?

Financing activities

Which of these is an argument against the use of variable costing?

Fixed factory overhead is necessary to produce a product.

state shipping terms

Free on Board (FOB)

Because Frosty has accepted these credit cards as a source of payment, they've agreed to allow the credit card company to collect a 2% processing fee prior to depositing the funds. The fee for these sales total $280 ($14,000 x .02), resulting in net cash received from these credit card sales of $13,720 ($14,000 - 280). $13,720

Frosty Drive In recorded credit card sales of $14,000 for the month. The credit card fee associated with the transactions totaled 2%. What amount of cash did Frosty receive for these credit card sales?

Cash 13,720 Credit Card Discount Expense 280 (credit) Sales Revenue 14,000

Frosty Drive In recorded credit card sales of $14,000 for the month. The credit card fee associated with the transactions totaled 2%. Which of the following is the correct journal entry to record these credit card sales?

Financial Accounting must follow GAAP. What is GAAP?

Generally Accepted Accounting Principles (the rules of accounting) - focuses on historical data

Gloria Company has 100,000 shares of common stock authorized, 33,000 shares issued and outstanding. On September 1, 2018, the company declared a $3.30 per share dividend for those of record on October 1, 2018, to be paid on November 1, 2018. Based on this information, which of the following journal entries would Gloria Company make on November 1, 2018?

Gloria Company would make the following journal entry on November 1, 2018: Accounts Debit Credit Dividends Payable 108,900 Cash 108,900 33,000 shares outstanding x $3.30 = $108,900 dividends paid

- all goods to which the firm has legal title, regardless of good's location - purchases should be recorded when legal title passes to another

Goods Firms Include in Ending Inventory:

Net Sales - COGS

Gross Profit (aka. Gross Margin)

gross profit / net sales

Gross Profit Ratio

1. cash or cash equivalent price at time of purchase 2. all expenditures to get asset ready for intended use ex: purchase price, sales tax, freight in (shipping), insurance during shipping

Historical cost of assets is measured as...

Harper Company acquired a $150,000 machine on January 1, 2018. The machine is estimated to have a useful life of 5 years, and a residual value of $25,000. For units-of-production depreciation purposes, the machine is expected to produce 500,000 units. If Harper Company uses straight-line depreciation, what is the depreciation expense in 2019?

If Harper Company uses straight-line depreciation, the depreciation expense in 2019 is $25,000. Straight line depreciation spreads the cost of the asset equally over the assets useful life and is calculated by dividing the depreciable cost by the useful life: (Cost - Residual Value) / Useful life ($150,000 - $25,000) / 5 years = $25,000 per year

Harper Company acquired a $150,000 machine on January 1, 2018. The machine is estimated to have a useful life of 5 years, and a residual value of $25,000. For units-of-production depreciation purposes, the machine is expected to produce 500,000 units. If Harper Company uses units-of-production depreciation, and the company produces 50,000 units in 2019, what is depreciation expense for 2019?

If Harper Company uses units-of-production depreciation method, and the company produces 50,000 units in 2019, the depreciation expense for 2019 will be $12,500. The calculation for the units-of-production method of depreciation is very similar to straight-line depreciation: (Cost - Residual Value) / Total units of production = Depreciation expense per unit Depreciation expense per unit × Number of units produced in current year = Depreciation Expense ($150,000 - $25,000) / 500,000 units = $0.25 per unit $.25 x 50,000 units produced in the current year = $12,500

Morton Company began operations on January 1, 2019. The company has the following items included in its stockholders' equity section of the balance sheet on December 31, 2020: 6% Preferred stock, $100 par, 100,000 shares authorized, 25,000 shares issued and outstanding $2,500,000 Common stock, $3 par, 500,000 share authorized; 150,000 shares issued and outstanding 450,000 Additional paid-in capital 2,250,000 Total dividends for 2019 & 2020 were: During 2019, Dividends not paid During 2020, Dividends Declared and paid $160,000 If Morton Company's preferred stock was noncumulative, how much of the 2020 dividends would have been distributed to preferred and common stockholders?

If Morton Company's preferred stock was noncumulative, the 2020 dividends would have been distributed as $150,000 to preferred and $10,000 to common stockholders. To determine the amount of dividends allocated to preferred and common stockholders, first calculate the annual preferred dividend. This is calculated as .06 x $100 par x 25,000 shares, resulting in annual preferred dividends of $150,000. Because the preferred stock is noncumulative, any past dividends are lost, so the fact that dividends were not paid in 2019 is irrelevant. Of the total 2020 declared dividends of $160,000, preferred shareholder will receive their annual dividend amount, $150,000, and common stockholders will receive the remainder, $10,000, calculated as $160,000 total dividends - $150,000 preferred allocation.

A bookkeeper recorded a capital expenditure as an asset. As a result ________.

If a bookkeeper recorded a capital expenditure as an asset, the books are correct as capital expenditures should be recorded as assets, not expenses. Capital expenditures typically extend the useful life of a fixed asset, and therefore, should be capitalized and expensed over the remaining useful life of the asset. This is called capitalization. As these capital expenditures are expected to benefit future periods, they must be recorded as part of the cost and depreciated over the periods that will be benefited from the costs.

the gross profit method

If a company's inventory was destroyed by fire, but the accounting records were saved, the method that would probably be used to estimate the amount of inventory lost would be ________.

If equipment is purchased for $200,000, freight costs are $3,800, sales tax amounts to $2,000, and maintenance during the first year of use is $7,000, what is the cost of the equipment?

If equipment is purchased for $200,000, freight costs are $3,800, sales tax amounts to $2,000, and maintenance during the first year of use is $7,000, the cost of the equipment is $205,800. The "purchase price" or "cost" of a plant asset includes anything that gets the asset ready for its intended use. In this case, without the payment of the freight and sales tax, we would not have the asset and it would not be ready for its intended use. The maintenance cost for the year would be a period cost and expensed as incurred, not included as part of the cost of the asset.

A company had the following treasury-stock related account balances: Treasury Stock - $250,000 Paid-in Capital from Treasury Stock Transactions - $25,000 If the company resells Treasury Stock that originally cost $60,000 for $40,000, then __________.

If the company resells this stock that originally costs $60,000 for $40,000, then paid-in capital from treasury stock transactions is reduced $20,000. The reissuance of treasury stock at an amount below cost causes cash to increase by $40,000 and treasury stock to decrease by $60,000. Paid-in capital from treasury stock transactions is decreased by $20,000 to balance the entry, which would be: Accounts Debit Credit Cash 40,000 Paid-in Capital from Treasury Stock Transactions 20,000 Treasury Stock 60,000 previous

Where is the gain resulting from the sale of equipment shown under the indirect method?

In the operating activities section as a deduction

How a Company performed during the year: Company's financial position:

Income Statement Balance Sheet

** How are Financial Statements linked Together?

Income Statement Revenue - COGS = Gross Profit - Operating expenses +/- Gain or Loss = INC B-4 Tax - Inc Tax Exp = *NET INCOME > Beg RE Retained Earnings * Beg. RE (Jan 1) + Net Income - Dividends Declared = End RE (Dec 31) > RE Balance Sheet Assets = Liability + Equity Equity = CS + * RE Cash Flow Statement Operations + Investing + Financing = Change in Cash + Beg. Cash (Jan. 1) = End Cash (Dec 31)

When a company expenses the cost of maintenance for its heating and cooling system, that cost will appear on its

Income statement.

Which of the following is not something that must be completed by the incorporators in order to bring a corporation into existence?

Incorporators do NOT need to issue shares of stock in order to bring a corporation into existence.

cost of borrowing money

Interest

Which account would be reported on the income statement?

Interest Expense

The journal entry to record accrued interest on a short-term note payable includes a debit to:

Interest Expense and a credit to Interest Payable

The journal entry to record accrued interest on a short-term note payable includes a debit to:

Interest Expense and a credit to Interest Payable.

• In your analysis, use the Cost of Goods Sold Equation to determine the error's effect on the financial statements. o Income Statement Effect: look at COGS o Balance Sheet Effect: look at Ending Inventory

Inventory Errors

1. Periodic Method 2. Perpetual Method

Inventory Record Systems:

inventory account only changed periodically at the end of account period (inventory is taken) the cost of purchases is recorded in a Purchases account (nominal or mixed) o at the time of sale, no record is kept of the number or cost of the units sold o at the end of the period, the quantity of goods on hand is determined by physical count and the cost of ending inventory is recorded o Cost of Goods Sold determined only at period end using the COGS formula

Inventory Record Systems: (Periodic Method)

the inventory account is continuously updated. o all items purchased for resale are debited to the "Inventory" account. o keeps a running total of the inventory on hand and o updates COGS with every sale o Still requires a physical count at period end to ensure accuracy o Only inventory method to recognize losses (due to theft or shrinkage) o Computers have simplified the process of keep track of inventories, most firms now use the perpetual inventory systems.

Inventory Record Systems: (Perpetual Method)

the current assets section of the balance sheet

Inventory would be found in ________.

Cash inflows and outflows relating to plant assets, natural resources, and intangibles are reported in which section of the statement of cash flows

Investing Activities

Which of the following best describes paid-in capital?

Investments by the stockholders of a corporation best describes paid-in capital.

Which of the following events increases the equity in a business? Sale of inventory Purchase of inventory Payment of interest on a loanInvestments from stockholders Payment of rent Investments from stockholders

Investments from stockholders

External Users (Financial Accounting)

Investors, Creditors, Suppliers, Government Communicated by Financial Statements (ISBS) Makes decisions to invest

How does the declaration of a cash dividend affect a company's assets, liabilities, and equity?

It results in an increase to liabilities and a decrease to stockholders' equity, while assets remain the same. - Journal Entry: DR Retained Earnings CR Dividends Payable

On December 31, Joe Deer Corporation has the following data available: Net Income $200,000 Interest expense 20,000 Total assets at the beginning of the year 850,000 Total assets at the end of the year 780,000 Total common stockholders' equity at the beginning of the year 550,000 Total common stockholders' equity at the end of the year 490,000 What is Joe Deer's return on equity? (Round your answer to 2 decimal places.)

Joe Deer's return on equity is 38.46%. Return on equity is calculated as net income divided by average total common stockholders's equity. Average total common stockholders' equity is calculated as beginning total common stockholders' equity plus ending total common stockholders' equity divided by 2. This results in the following calculation: Average total common stockholders' equity = ($550,000 + $490,000) / 2 = $520,000 Return on Equity = $200,000 / $520,000 = 38.46%

Which sequence of actions correctly summarizes the accounting process?

Journalize transactions, post to the accounts, prepare a trial balance

Trial Balance:

LIST of all accounts in general ledger checks if D=C Order of Accounts: 1. Assets (listed in liquidity (quickly converted to cash) 2. Liabilities (currents, long-term last) 3. Equity (common stock, RE) 4. Dividends Declared 5. Revenues/Gains 6. Expenses/Losses

A corporation issues 1,800 shares of $10 par value common stock in exchange for land with a current market value of $23,000. How would this be recorded in the Land account?

Land would be debited for $23,000 in this transaction. 18,000 Paid-in Capital in Excess of Par-Common 5,000

Accounting is the....

Language of Business

• When the future utility (i.e. market value) of the asset is no longer as great as its original cost, we abandon the historical cost principle. • The inventory should be revalued at market and a loss reported in the period of the decline. In essence, the company is incurring the loss in utility in the year in which it occurs not when it is sold. o This follows faithful representation. • Why would the value decline? o Obsolescence, physical deterioration, changes in consumer tastes. • Adjusting Entry to write down inventory to market: AJE COGS xxx Inventory xxx • Write down creates "new cost basis" (i.e. as if the inventory had been originally purchased at this lower cost) • What if Market value of inventory goes back up? o NO LOSS RECOVERIES ARE ALLOWED.

Lower of Cost or Market (LCM) for US GAAP

the date on which the debtor must pay the note

Maturity Date

principle + interest

Maturity Value

Which of the following statements is correct regarding correcting accounting errors? Mistakenly posting a $400 debit as a $40 debit while correctly recording the credit is a slide error that can be uncovered by dividing the trial balance difference by 9. Mistakenly recording a $4,500 accounts balance as $5,400 is a slide error that can be uncovered by dividing the trial balance difference by 9. Mistakenly recording a $4,500 accounts balance as $5,400 is a transposition error that can be uncovered by dividing the trial balance difference by 2. Mistakenly posting a $400 debit as a $40 debit while correctly recording the credit is a transposition error that can be uncovered by dividing the trial balance difference by 9.

Mistakenly posting a $400 debit as a $40 debit while correctly recording the credit is a slide error that can be uncovered by dividing the trial balance difference by 9.

Which of the following statements is correct regarding correcting accounting errors?

Mistakenly posting a $400 debit as a $40 debit while correctly recording the credit is a slide error that can be uncovered by dividing the trial balance difference by 9. Slide errors ($400 instead of $40 for example) and transposition errors ($4,500 instead of $5,400) can both be uncovered by dividing the trial balance difference by 9, then searching through the journal and ledger for this amount. Slide errors and transposition errors can not be uncovered by dividing the difference by 2.

How would most companies prefer to classify leases? Why?

Most companies prefer to classify leases as operating leases because finance leases have a negative effect on the debt ratio. Classifying a lease as finance requires companies to record an additional liability on the balance sheet that is not required if the lease is classified as operating. Because of this additional liability, the debt ratio is reduced as a result of classifying leases as Finance instead of operating.

A company's return on assets is calculated by

Net Income (Return) / Average Total Assets (on Assets)

Which items enter the computation of net cash provided by operating activities?

Net Income, Gain on Sale of Equipment, Depreciation, Accounts Receivable, Inventory, Accounts Payable, Accrued Liabilities

Purchases cost of goods, including sales tax + Freight In (Transportation In) cost to transport the good from seller to buyer- Adjunct Purch - Purchase Discounts for early payment by the buyer ---- Contra Purch - Purchase Returns for unsuitable goods returned to the seller ---- Contra Purch - Purchase Allowances granted by the seller---- Contra Purch = Net Purchases

Net Purchase Equation

amount of AR that firm expects to collect from customers

Net Realizable Value (NRV)

Ending AR - Ending AUA (after AJE) ---------- Net Realizable Value on BS

Net Realizable Value (NRV) Reported on BS

Return on stockholders' equity is calculated by

Net income / Average Common Stockholder's Equity

KlineKline Company failed to record depreciation of equipment. How does this omission affect KlineKline's financialstatements?

Net income is overstated and assets are overstated.

Sassycat Designs inadvertently recorded an expense as a capital expenditure. Which of the following will occur as a result of this mistake?

Net income will be overstated.

JayBird Jewelers reported the following in its statement of cash flows: Net cash provided by operating activities $147,000 Net cash used by investing activities 122,000 Net cash provided by financing activities 15,000 What is the total net increase or decrease in cash reported by JayBird? Net increase of $254,000 Net increase of $284,000 Net increase of $40,000 Net decrease of $10,000

Net increase of $40,000

For cash dividends, the journal entry on the date of record

No journal entry is required on the date of record; There is no journal entry because at this date you are just recording all of the people who own stock as of that date - they'll be the ones to receive the dividends

Luke Land Development purchased Land during the year by signing a 10-year, $300,000, 4% Note Payable. Under which section of the statement of cash flows would this purchase of Land appear?

Non-cash investing and financing activities

arise from a variety of transactions not considered on-going operations EX: advances to employees, dividend/interest/rent receivable

Nontrade Receivables

formal written contract specifying that someone owes you money 1. interest bearing instruments 2. state principle, interest, maturity date ex: trade receivable, nontrade receivable

Note Receivable

1. current assets 2. long term assets 3. both current / long term

Note Receivable on BS

Phoebe Corporation signed a six-month note payable on October 23, 20182018. What accounts relating to the note payable will be reported on its financial statements for the fiscal year ending December 31, 20182018?

Notes payable and interest payable will be reported on the balance sheet.

A major difference between Accounts Payable and Notes Payable is that:

Notes payable charges interest

Debit Accounts Receivable for $1,000 and credit Sales Revenue for $1,000.

On December 1st, Jackson Company sold merchandise with a selling price of $1,000 on account to Mr. Jenkins, with terms 3/10, n/30. Using the gross method and ignoring cost of goods sold, what journal entry did Jackson Company prepare on December 1st? Jackson Company expects no sales returns.

Cash-related transactions that affect the income statement are included in which section of the statement of cash flows?

Operating

Receiving of cash dividends would be included in which section of the statement of cash flows?

Operating Activities

Which of the three types of activities reported on the statement of cash flows is the most important to evaluate when analyzing a company's long-term survival?

Operating activities; Long-term survival is based off what a company does day-to-day to achieve their goals

The current pay period ends on Friday, January 2, yet the company's fiscal year-end is on Wednesday, December 31. If the company does not make the proper adjusting entry to accrue payroll expenses at year-end, what would be the impact?

Operating income will be overstated.

The activity classifications in the statement of cash flows include:

Operating, investing, and financing activities

Cash 10,450 C Notes Receivable 10,000 C Interest Receivable 50 C Interest Revenue 400

Pear Co. loaned $10,000 to Peach Plastics on December 1, 2018, by issuing a 9-month, 6% note receivable. Which of the following is the correct journal entry on September 1, 2019, for the collection of this note, assuming Pear has a December 31st year-end?

10450

Pear Co. loaned $10,000 to Peach Plastics on December 1st of the current year, by issuing a 9-month, 6% note receivable. What is the maturity value of this note?

Which of the following would be considered a contingent liability?

Pending litigation

Which of the following statements regarding business organizations is NOT correct? The business is liable for company debts in a Limited Liability Company. People in a company are called members. In a limited liability partnership, each partner is only liable for partnership debts to the extent of his or her investment in the partnership. The owner of a proprietorship is personally liable for all the business debts.

People in a company are called members.

Preferred: $150,000; Common: $10,00

the amount of money borrowed by the debtor and lent by the creditor

Principle

Contra Purchases account o NB = Cr o Used to calculate Net Purchases

Purchase Returns and Allowances

Date Inventory xxx Accounts Payable xxx

Purchase on Account: Firm purchases inventory and pays "on account"

Which number that is not normally reported on the financial statements is needed to calculate the accounts payable turnover ratio?

Purchases from suppliers

How well a regression line fits the data points is illustrated by the ________.

R-square statistic

explains timing and measurement

RRP

Cash 873 Credit card discount expense 27 ( C) sales revenue . 900 credit card fee: .03 * 900 = 27 cash received: 900 - 27 = 873

Raiderland Industries sells $900 in goods to a customer who uses a credit card, and there is a credit card fee of 3%. How will Raiderland record the entry (ignore COGS)?

Ravel Co. purchased supplies with $200,000 of its cash. As a result, there was __________.

at the end of the period

Real (permanent) account is closed...

claims held against customers for money, goods, services

Receivables

how to reconcile activities of the ADA from beginning of the year to end begin AUA - write offs ------------- unadjusted balance + bad debt expense (AJE) ---------- Ending AUA

Reconcile Allowance for Uncollectible Accounts (AUA)

2018 net income is overstated by $15,000

Renee's Radios overstated 2018 ending inventory by $15,000. What effect, if any, will this error have on Renee's 2018 net income?

- classify either current (<- 1 year) or long term (>1 year) - Net Realizable Value (NRV) = AR - AUA

Reporting AR and AUA on BS

Net Sales: All sales - contra sales account

Reporting Net Sales

Which of the following accounts increases with a credit?

Retained Earnings

Date Cash or AR xxx Sales Revenue xxx Date Cost of Goods Sold xxx Inventory xxx

Sale of Inventory: Firm sells inventory and the customer pays "on account".

credit cycle usually 30 days Contra Revenue NB= Dr Used to calculate Net Sales

Sales Discounts

Contra Revenue Account NB = Dr Used to calculate Net Sales Accrued at the end of the period ! (GAAP required)

Sales Returns and Allowances

Sally's Dress Shop, Inc. reports operating income of $200,000 and interest expense of $18,000. The average common stockholders' equity during the year was $20,000. The beginning assets balance is $80,000 and ending assets balance is $120,000. What is the leverage ratio? (Round your final answer to two decimal places.)

Sally's leverage ratio is 5. This is calculated by: Average total assets / average common stockholders' equity [(80,000 + 120,000)/2] / $20,000 = 5.00

On December 31st, end of current year, ABC Company needs to record 4 months of accrued interest on a loan for $10,000 at 5%. The note payable is not due for another 3 months. What is the amount of Interest Payable accrued on December 31st of the current year (round to the nearest dollar)?

Since there is 4 months of accrued interest to record, it would be calculated as: $10,000 x .05 x (4/12 months) = $167. The journal entry would be a debit to Interest Expense, and a credit to Interest Payable, as it has not been paid yet, just accrued.

Interest = Principal x Rate x Time = $20,000 x 6% x 4/12 months = $400

Snider Shipping accepted an eight-month, $20,000 note receivable, with 6% interest, from Reading Company on September 1st of the current year. Snider Shipping's year-end is December 31. What is the amount of interest to be accrued on December 31st of the current year (round to the nearest dollar)?

Inflation has been about 2.5% for some time. VillageVillage Realtors is considering measuring its land values in inflation-adjusted amounts. You get an especially good buy on a laptop paying only $ 300 when it normally costs $ 800. What is your accounting value for this laptop Burger King sold a store location to McDonalds. How can Burger King determine the sale price of the storelong dash—by a professional appraisal, Burger King original cost, or the amount actually received from the sale? General Motors wants to determine which division of the company—Chevrolet or Cadillac —is more profitable.

Stable-monetary-unit assumption Historical cost principle Historical cost principle Entity Assumption

The interest rate paid by the issuer of the bond is referred to as the:

Stated rate.

Which financial statement shows cash collected from customers? Statement of retained earnings Two or more of the above Statement of cash flows Income statement Balance sheet

Statement of cash flows

Which of the following financial statements explain why a company's cash balance changed over a period of time?

Statement of cash flows

Steeler Manufacturers reported the following information from its income statement and balance sheet: Income Statement: Net Sales = $2,500,000 Gross Profit = $1,200,000 Net Income = $750,000 Balance Sheet: Total Assets, beginning = $10,500,000 Total Assets, ending, = $13,500,000 What is Steeler's Return on Assets?

Steeler's Return on Assets is 6.25%. Return on Assets is calculated as Net Income / Average Total Assets. Average Total Assets is calculated as (Beginning Total Assets + Ending Total Assets) / 2. For Steeler, Return on Assets is calculated as: $750,000 ((10,500,000 + 13,500,000) / 2)

Types of Business

Suppliers (supply raw materials) , Manufactures / Producers (transform into products), Distributors / Wholesalers (sell to retailers), Retailers (sell to customers), Service Firms (provides specific service, becoming more important to US economy)

Which of the following items should be accounted for as a capital expenditure?

Taxes paid in conjunction with the purchase of office equipment

Taylor and Company has the following: Total Assets: $100,000 Total Current Liabilities: $20,000 Total Long-Term Liabilities: $25,000 Total Common Stock: $65,000 What is Taylor Company's debt ratio (round to two decimal places)?

Taylor and Company's debt ratio is .45. This is calculated by taking total liabilities / total asset. ($20,000 + $25,000) / $100,000 = .45

Stockup, Inc. issued 1,000 shares of $1 par value common stock for $3,000. The Common Stock account will increase by __________.

The Common Stock account will increase by $1,000. The common stock account is always recorded at par value regardless of how much each share is sold for ($1 x 1,000 shares). The additional amount above par is recorded as Paid-in Capital in Excess of Par - Common and increases the stockholders' equity section of the balance sheet.

How would FedEx divide a $120,000 lump-sum purchase price

The FedEx should divide lum sum purchase price paid on the basis of market value, Such percentage should be taken as basis on the purpose for which amount should be divide, % Share of land in total market value = 40000/150000*100= 26.7% % of share of Building in market value = 95000/150000*100= 63.3% % of share of equipment in market value = 15000/150000*100= 10% Cost of each asset Land = 120000*26.7% = 32040$ Building = 120000*63.3%= 75960$ Equipment = 120000*10% = 12000$ Total. = 120000$

On December 31st, Castello, Inc. has cost of goods sold of $400,000, ending inventory of $110,000, beginning inventory of $130,000, and average accounts payable of $150,000. What is the accounts payable turnover?

The accounts payable turnover is 2.5. The accounts payable turnover = Purchases from suppliers (assumed all on credit) / average accounts payable Purchases from suppliers = cost of goods sold + ending inventory - beginning inventory ($400,000 + $110,000 - $130,000) / $150,000 = 2.5

Basil Company issued $640,000, 6%, 5-year bonds for 104, with interest paid annually. Assuming straight-line amortization, what is the amount of interest expense for the first year of the bond?

The amount of interest expense on the bond for the first year is $33,280. This is calculated by first determining the selling price of $665,600 ($640,000 x 1.04) $665,600 - $640,00 face value = $25,600 premium. The bond is a 5-year bond, so $25,600 premium / 5 years = $5,120 reduction of premium per year that reduces interest expense. Cash paid for interest is $640,000 face value x .06 = $38,400 $38,400 - $5,120 = $33,280

Basil Company issued $640,000, 6%, 5-year bonds for 104, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

The carrying value of the bond after year one is $660,480. This is calculated by first determining the selling price of $665,600 ($640,000 x 1.04) $665,600 - $640,00 face value = $25,600 premium. The bond is a 5-year bond, so $25,600 premium / 5 years = $5,120 reduction of premium per year. $665,600 selling price - $5,120 premium for year 1 = $660,480 carrying value.

On January 1, 2018, Bentley Corporation issued $1,000,000 of 10-year, 8% bonds at 105, when the market rate of interest was 7%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much cash will bondholders receive on December 31, 2018, the first interest payment date?

The cash that the bondholders will receive on December 31, 2018, the first interest payment date, is $80,000. The annual cash interest payment is calculated as the face value of the bond multiplied by the stated rate of interest. For this example, that results in an interest payment calculation of $1,000,000 x 8% = $80,000.

The company collected $2,480,000 from customers in 2019. Accounts Receivable as increased by $20,000 ($60,000 - $40,000). This increase is subtracted from sales ($2,500,000 - $20,000) = $2,480,000.

What is the basic working rule for measuring the cost of an asset?

The cost of any asset is the sum of all the costs incurred to bring the asset to its intended use

Which of the following should be recorded as an intangible asset?

The cost to obtain exclusive rights to manufacture a unique product should be recorded as an intangible asset. An intangible asset is a copyright, patent, etc. that is amortized (expensed) over its useful life (similar to depreciation of a fixed asset). A company would acquire a patent in order to have exclusive rights to manufacture a unique product, so this cost would, therefore, be capitalized. Research and development costs are expensed when incurred because the benefits from this cost are uncertain.

Under the percent of sales allowance method, you will calculate the increase to the allowance account (i.e., the adjustment needed). In this case, we find that we need to increase the allowance account by $2,800, resulting in an adjusted balance of $3,250 ($2,800 + $450). 3250

The current credit balance in Allowance for Uncollectible Accounts before adjustment is $450. A percent-of-sales reveals $2,800 of uncollectible accounts. What is the ending balance in the Allowance for Uncollectible Accounts?

Fathom Company acquired a $50,000 machine on January 1, 2018. The machine is estimated to have a useful life of 5 years, and a residual value of $5,000. For units-of-production depreciation purposes, the machine is expected to produce 500,000 units. What is the depreciable value of the machine acquired by Fathom Company?

The depreciable value of the machine acquired by Fathom Company is $45,000. Depreciable cost is calculated by reducing the cost of the asset by any residual value (i.e., $50,000 - $5,000 = $45,000)

Which of the following would be included in the journal entry to record the issuance of new shares of common stock to employees as part of a stock-based compensation plan?

The entry to record the issuance of new shares of common stock to employees as part of a stock-based compensation plan would include a debit to Compensation Expense. To journalize the issuance of new common shares as part of a stock-based compensation plan, the journal entry would include the following accounts: Debit to Compensation Expense Credit to Common Stock Credit to Paid-in Capital in Excess of Par - Common

gross profit

The excess of sales over cost of goods sold is ________.

What is the effective rate / market rate / yield

The going rate of interest that borrowers are willing to accept on the day of issue

Profits cost of goods sold was lower relative to sales in 2019 than in 2018.

The gross profit ratio for Profits, Inc., increased from 45% in 2018 to 50% in 2019. Which of the following must be true?

Why is the income statement the first financial report prepared? The income statement is prepared first because its result, Net Income, is the most important financial measurement used by decision makers. The income statement is prepared first because accounts included on the income statement are all temporary accounts that must be closed before preparing the remaining financial statements. The income statement is prepared first because its result, Net Income, is needed as part of the other financial statements. There is no required order for preparing financial statements. The income statement can be completed at any point in the financial reporting process.

The income statement is prepared first because its result, Net Income, is needed as part of the other financial statements.

A company in its first year of business earned revenues of $100,000 but collected only $80,000 in cash from its customers. Which of the following is correct? The income statement will show revenues of $100,000, the balance sheet will show accounts receivable of $20,000, and the statement of cash flows will show cash collected from customers of $100,000. The income statement will show revenues of $80,000, the balance sheet will show accounts receivable of $100,000, and the statement of cash flows will show cash collected from customers of $80,000. The income statement will show revenues of $100,000, the balance sheet will show accounts receivable of $20,000, and the statement of cash flows will show cash collected from customers of $80,000. The income statement will show revenues of $80,000, the balance sheet will show accounts receivable of $100,000, and the statement of cash flows will show cash collected from customers of $80,000.

The income statement will show revenues of $100,000, the balance sheet will show accounts receivable of $20,000, and the statement of cash flows will show cash collected from customers of $80,000. The income statement will show revenues of $100,000, the balance sheet will show accounts receivable of $20,000, and the statement of cash flows will show cash collected from customers of $80,000. Recall, according to the revenue recognition principle, revenues are recorded when earned, not necessarily when cash is received. Therefore, revenues would be recorded for the entire $100,000 on the income statement. The uncollected portion of the revenues will remain in accounts receivable on the balance sheet, and only the portion of cash collected, $80,000, will appear on the statement of cash flows.

On January 1, 2018, Bentley Corporation issued $1,000,000 of 10-year, 8% bonds at 105, when the market rate of interest was 7%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much interest expense will Bentley Corporation report on its income statement for the year ended December 31, 2018?

The interest expense that Bentley Corporation will report on its income statement for the year ended December 31, 2018 is $73,500. Interest Expense under the effective interest method is calculated as the carrying value of the bond multiplied by the market rate of interest. The carrying value used to calculate interest expense in the first period is always the amount of cash received ($1,000,000 x 1.05 = $1,050,000). This results in an interest expense calculation of $1,050,000 x 7% = $73,500

On January 1, 2018, Debtor Corporation issued $2,000,000 of 20-year, 8% bonds at 96, when the market rate of interest was 8.5%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much interest expense will Debtor Corporation report on its income statement for the year ended December 31, 2018?

The interest expense that Debtor Corporation will report on its income statement for the year ended December 31, 2018 is $163,200. Interest Expense under the effective interest method is calculated as the carrying value of the bond multiplied by the market rate of interest. The carrying value used to calculate interest expense in the first period is always the amount of cash received ($2,000,000 x .96 = $1,920,000). This results in an interest expense calculation of $1,920,000 x 8.5% = $163,200

Brooks Company issues 10, $2,000 face value, 10% bonds at 102.5. The journal entry includes which of the following?

The journal entry to issue these bonds includes a debit to cash for $20,500 Brooks received cash of $20,500 when issuing these bonds, calculated as $20,000 x 102.5%. Because Brooks received more than the face value, Brooks must also record a Premium on Bonds Payable at issue for $500, calculated as the amount received less the face value of the bonds, or $20,500 - $20,000, which equals $500. The resulting journal entry to issue these bonds is:

Equipment costing $20,000 with $17,800 of accumulated depreciation is sold for $2,500 cash. The journal entry will involve a ________.

The journal entry will involve a debit to accumulated depreciation for $17,800. When an asset is sold it must be taken off the books with a credit for the cost (which is still reported in the books in the asset account); in addition, its associated contra asset account, accumulated depreciation (carries a normal credit balance) must also be taken off the books with a debit. If the asset is sold above the book value, there is a gain (credit). If the asset is sold below the book value, there is a loss (debit).

Equipment costing $55,000 with a book value of $24,500 is sold for $21,000. The journal entry will involve a ________.

The journal entry will involve a debit to accumulated depreciation for $30,500. To record the sale of this plant asset, four accounts have to be effected: Equipment (credited for the cost of the asset), Accumulated Depreciation (debited for the amount of depreciation recorded to date), Cash (debited for the amount received), and Gain (credit) or Loss (debit) to balance the entry. In this example, the book value of the asset was given, not the accumulated depreciation. Book value is the cost of the asset less its accumulated depreciation, however, so since we were given the book value and the cost of the equipment, we can determine the balance of accumulated depreciation by subtraction: Accumulated Depreciation = Cost - Book Value Accumulated Depreciation = $55,000 - $24,500 = $30,500.

adjust the inventory balance downward if its replacement cost is lower than its historical cost

The lower-of-cost-or-market rule requires a company to ________.

Angel Enterprises reported the following stockholder's equity at year-end: Preferred Stock, 3%, $200 Par, 10,000 shares authorized, 600 shares outstanding $120,000 Common Stock, $? Par, 1,000,000 shares authorized, 77,000 shares outstanding 231,000 Paid-in Capital in Excess of Par - Common 770,000 Retained Earnings 1,040,000 Treasury Stock (500 shares @ $25 per share) 12,500 What is the par value per share of Angel's Common Stock?

The par value of Angel's Common Stock is $3 per share. The account balance in the Common Stock account is calculated as the number of shares issued multiplied by the par value per share. Because we know the balance in the Common Stock account and number of shares issued, we can back into the par value per share. This is calculated as the Common Stock account balance divided by the number of shares issued, or $231,000 / 77,000 shares issued. This results in a par value per share of $3.

Aria's, Inc. has 1,000 shares of 5%, $100 par value cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. The company has not paid dividends in two years. In its third year, it paid the common shareholders a $2 per-share dividend. How much must each preferred shareholders have received?

The preferred shareholders must have each received $15. Because the preferred stock is cumulative, whatever is owed to preferred shareholders must be paid before common shareholders can receive any dividends. Preferred shareholders are owed dividends for the prior 2 years, plus the current year. The annual preferred dividend is $5 per share ($100 x 5%). Because preferred shareholders are owed 2 prior years plus the current year, each preferred shareholder must have received $15 ($5 dividend per year x 3 years)

The process of expensing the cost of an intangible asset over its useful life is called ________.

The process of expensing the cost of an intangible asset over its useful life is called amortization. Intangibles, although not a visible unit producing asset like many fixed / plant assets, are still expensed over their "useful" lives. For example, a patent on an invention may be good for 40 years and is therefore, expensed via amortization over its useful life

On December 31, Jones Corporation has the following data available: Net Income $190,000 Interest expense 20,000 Total assets at the beginning of the year 810,000 Total assets at the end of the year 750,000 Total stockholders' equity at the beginning of the year 600,000 Total stockholders' equity at the end of the year 480,000 What is return on assets? (Round your final answer to two decimal places)

The return on assets is 24.36%. Return on assets is calculated as net income divided by average total assets. To determine average total assets, simply add beginning total assets to ending total assets, then divide by two. The following calculation results: Average total assets = ($810,000 + $750,000) / 2 = $780,000 Return on assets = $190,000 / (($810,000 + $750,000) / 2) = 24.36%

Mr. Cello bought 4,000 shares of Ventures, Inc. of $1 par value common stock directly from Ventures, Inc. for $80,000. Mr. Cello later sold 1,000 of these purchased shares to Mr. Bill for $30,000. Which of the following is true of the sale of these shares by Mr. Cello?

The shareholder's equity of Ventures Inc. will not be affected when Mr. Cello sells 1,000 of his shares to Mr. Bill for $30,000. When Ventures, Inc. initially issued 4,000 shares to Mr. Cello there was an increase to Ventures, Inc.'s stockholders' equity of $80,000. However, when Mr. Cello sold 1,000 shares to another party, this does not affect the stockholders' equity of Ventures, Inc., as this a personal transaction of an individual investor to another, not a transaction of the corporation.

Which of the following would NOT be a liability?

The signing of a three-year employment contract at a fixed annual salary

Which of the following statements regarding financial statements is NOT correct? Assets and liabilities are only reported on the balance sheet. The statement of cash flows reports cash flows from operating, investing, and capital activities. Revenues and expenses are only reported on the income statement. The ending balance of retained earnings is shown on both the statement of retained earnings and the balance sheet.

The statement of cash flows reports cash flows from operating, investing, and capital activities.

Which financial statement shows how much cash was paid for newly acquired property, plant and equipment when cash is used for part or all of the purchase?

The statement of cash flows shows how much cash was paid for newly acquired property, plant, and equipment when cash is used for all or part of the purchase. The statement of cash flows shows the cash inflows and outflows for the period covered by the statement (i.e., cash paid for newly acquired fixed assets). The statement of financial position (balance sheet) would show the total amount of fixed assets, but not the amount spent on newly acquired assets for the period. The statement of operations would show only the depreciation expense recorded on the plant assets, as well as any repairs expense related to them, but not the amount that was acquired over the period.

Aria's, Inc. has 1,000 shares of 5%, $100 par value cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. The company has not paid dividends in two years. In its third year, it paid the common shareholders a $2 per-share dividend, plus the amount owed to preferred shareholders. What is the total amount of dividends paid?

The total amount of dividends paid is $35,000. To calculate the total dividend, first determine the amount of dividends paid to preferred shareholder. The annual preferred dividend is $5,000, calculated as $100 par x 5% x 1,000 shares. Because the preferred stock is cumulative, preferred shareholders are owed dividends from the previous 2 years plus the current year, resulting in total preferred dividends of $15,000 (3 years x $5,000 per year). Next, calculate the dividend to common stockholders. This is calculated as $2 x 10,000 shares, resulting in total common dividends of $20,000. The total dividend is then calculated as the Preferred Dividend, $15,000, plus the Common Dividend, $20,000, which results in total dividends of $35,000. previous

Which of the following is an objective of the statement of cash flows?

These are all objectives of the statement of cash flows

How do Cramer's accrued liabilities affect the company's statement of cash flows for 2018?

They increase cash provided by operating activities

How do accounts receivable affect Cramer's cash flows from operating activities for 2018?

They increase cash provided by operating activities - Decreases in current assets are added in the operating section

Discount on bond payable happens when the stated rate is less than the market rate. The issue price is less than the facevalue

Think of it, like if I receive $290,000 cash for a bond that has a face value of $300,000

Premium on Bond Payable happens when the stated rate is greater than the market rate. The issue price is greater than the facevalue

Think of it, like if I received $306,000 for a bond that has a face value of $300,000

Equipment costing $55,000 with a book value of $24,500 is sold for $21,000. What is the gain or loss on sale and how is it recorded for this transaction?

This transaction results in a Loss on Sale of Equipment for $3,500, which must be debited. To record the sale of this plant asset, four accounts have to be effected: Equipment (credited for the cost of the asset), Accumulated Depreciation (debited for the amount of depreciation recorded to date), Cash (debited for the amount received), and Gain (credit) or Loss (debit) to balance the entry.

Equipment costing $135,000 with a book value of $124,000 is sold for $125,000. What is the gain or loss on sale and how is it recorded for this transaction?

This transaction results in a gain on Sale of Equipment for $1,000, which must be credited. To record the sale of this plant asset, four accounts have to be effected: Equipment (credited for the cost of the asset), Accumulated Depreciation (debited for the amount of depreciation recorded to date), Cash (debited for the amount received), and Gain (credit) or Loss (debit) to balance the entry.

In regression analysis, the variable that explains or predicts the value of another variable is referred to as the ________.

Through regression analysis, we attempt to explain or predict the independent variable, which is found on the x-axis. It may also be referred to as an explanatory or predictor variable.

1. completes the goods 2. identifies goods to contract - if goods are sorted and separated from sellers regular inventory, buyer has legal title

Title passes when seller does...

________ stay constant over a wide range of volume.

Total fixed costs

Jordan Inc. had 20,000 shares of $2 par common stock outstanding when it decided to split its common stock 2-for-1. The shares were trading for $60 per share. How will total stockholder's equity change as a result of this stock split?

Total stockholder's equity is unchanged by a stock split. A stock split is an increase in the number of shares of stock issued and outstanding, coupled with a proportionate reduction in the stock's par value. The total value of the Common Stock account remains unchanged from the stock split. In this example, before the stock split, the Common Stock account balance was $40,000, calculated as the number of shares outstanding, 20,000, multiplied by the par value, $2. After the split, there are now 40,000 shares of common stock outstanding (20,000 x 2) with a par value of $1 per share ($2 par / 2). The value in the common stock account remain $40,000, calculated now as 40,000 shares x $1 par value.

Which of the following types of costs would remain constant on a per-unit basis?

Total variable costs

oral promises of the purchaser to pay fo r goods and services through normal on-going operations

Trade recieveables

Business Ethics Leadership Alliance (BELA) holds four values vital to all their practices. Which of the following is one of the core value of BELA?

Transparency Accountability Legal compliance

Kaldon, Inc. acquired 2,500 of its own shares at $30 per share. The shares are to be held in treasury. The par value of Kaldon's common stock is $4 per share. If Kaldon were to resell all its treasury stock at $32 per share, what journal entry would Kaldon make?

Treasury Stock is accounted for using the cost method. These treasury shares were purchased for $30 per share, so when they are sold, they will be removed from the Treasury Stock account (credited) for that same $30 per share. Any cash proceeds in excess of the cost are credited to Paid-in Capital from Treasury Stock Transactions. In this example, the cash proceeds were $80,000 ($32 per share selling price x 2,500 treasury shares). The cost of the treasury shares sold was $75,000 ($30 per share cost x 2,500 treasury shares). Because the cash proceeds exceed the cost of the treasury shares, $5,000 in Paid-in Capital from Treasury Stock Transactions is created ($80,000 - $75,000).

What effect does recording a capital expenditure as repairs and maintenance expense have on the financial statements of the current period?

Treating a capital expenditure as repairs and maintenance expense overstates expenses and understates net income. Capital expenditures should be recorded as an increase in the cost of the asset and depreciated over the remaining useful life of the asset. If the expenditure is all expensed in the current period, it will overstate the expenses and understate net income in the current period. Because net income is understated, this results in equity also being understated. Because these expenditures were not capitalized, this also results in total assets being understated.

When a business receives cash from customers before earning the revenue, the ________ account is credited.

Unearned Revenue

C... redits increase

Unearned revenue Revenue Liabilities Stock Holder's Equity

During the current year, Hayden, Inc., had net income of $600,000. Hayden also recorded $200,000 in depreciation expense and had the following changes in its balance sheet accounts: Accounts Receivable $ 20,000 increase Inventories 10,000 decrease Accounts Payable 25,000 decrease Compute the net cash provided by operating activities using the indirect method.

Using the indirect method, the net cash provided by operating activities is $765,000. Using the indirect method, calculating cash flows from operating activities begins with net income. Non-cash income statement items are then added in (depreciation) and increases and decreases in current assets and current liabilities are adjusted accordingly. For Morgan, net cash provided by operating activities would be calculated as: Net income 600,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 200,000 Increase in Accounts Receivable (20,000) Decrease in Inventory 10,000 Decrease in Accounts Payable (25,000) 165,000 Net cash provided by operating activities 765,000

Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750. What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

Variable cost per unit = $590,730 / 7,000 units = $84.39 unitTotal cost = Total fixed cost + Total variable cost= $372,750 + ($84.39 per unit × 7,100 units)= $372,750 + $599,169= $971,919

________ are treated as product costs under the variable costing method.

Variable production costs

No, no revenue is recorded for items shipped FOB destination until those items reach the buyer.

Wally's World sold $24,000 of merchandise to Chase Liquidators on December 23rd, terms FOB destination. This shipment is still in transit on December 31st, year-end for Wally's World. Will Wally's World record revenue for this transaction on its current year-end December 31st income statement?

Which of the following would be considered an estimated liability?

Warranties payable

Wall Welding Co. offers warranties on all products sold. Over the last several years, Wall's warranty claims have approximated 3% of total sales. Wall's currently has an Estimated Warranty Payable balance of $4,000, and sales for the year totaled $350,000. What is the amount of warranty expense recorded by Wall at year-end?

Warranty expense recorded by Wall at year-end is $10,500. Wall would record Warranty Expense for this year based on past experience. Previous experience suggests that warranty claims will be approximately 3% of total sales. Wall recorded sales of $350,000 for the year, meaning that warranty claims will be approximately $10,500, calculated as $350,000 x .03. The balance currently in the Estimated Warranty Payable account is there from previous years and has no effect on the calculation of Warranty Expense for this year.

Higher gross profit than LIFO

What is the effect of using FIFO during a period of rising prices under a perpetual inventory system?

Decreases net income and decreases assets

What is the effect on the financial statements of writing off an uncollectible account under the direct write-off method?

Equipment costing $20,000 with $17,800 of accumulated depreciation is sold for $2,500 cash. The journal entry will involve a ________.

When an asset is sold it must be taken off the books with a credit for the cost (which is still reported in the books in the asset account); in addition, its associated contra asset account, accumulated depreciation (carries a normal credit balance) must also be taken off the books with a debit. If the asset is sold above the book value, there is a gain (credit). If the asset is sold below the book value, there is a loss (debit). The entry for the sale of equipment in this problem would be:

When the buyer receives the product

When does ownership transfer (FOB Des)

Shipping date, when it leaves the seller docks

When does ownership transfer (FOB SP)

When the buyer receives the product

When does the seller recognize revenue (FOB Des)

Shipping date, when it leaves the seller docks

When does the seller recognize revenue (FOB SP)

Estimate Inventory for interim financial statements: quarterly, monthly Estimate value of inventory destroyed/lost by casualty/theft o Gross Profit Method cannot be used as a substitute for a physical count at year end!

When is Gross Profit Method used?

On January 1, 2018, Debtor Corporation issued $2,000,000 of 20-year, 8% bonds at 96, when the market rate of interest was 8.5%. The bonds pay interest annually on December 31. How much cash did Debtor Corporation receive when the bonds were issued?

When the bonds were issued, Debtor Corporation received $1,920,000. The cash received from issuing these bonds is calculated as the quoted percentage multiplied by the face value. This results in a calculation of 96% × $2,000,000, which equals $1,920,000.

Why are contingent liabilities considered unique and different from all other liabilities?

Whether or not a company has an obligation depends on the result of a future event

Inventory is expensed in the period when it is purchased.

Which of the following accounting treatments violates the matching principle?

LIFO allows owners and managers to manipulate reported income.

Which of the following is NOT an acceptable reason for choosing the LIFO method?

Which of the following is the accounting equation?

The inventory may be too low, causing goods to be out of stock and sales to be lost.

Which of the following problems might explain an unusually high inventory turnover ratio?

Seller

Who counts goods in transit (FOB Des)

Buyer counts

Who counts goods in transit (FOB SP)

Seller

Who pays for shipping (FOB Destination)

The customer or the buyer

Who pays for shipping (FOB Shipping Point)

allowance for uncollectible accounts > AR

Write Offs

Both of the following companies are merchandisers that began operations this year. X Company Y Company Cash from operating activities $ 20,000 $ 60,000 Cash from investing activities (200,000) (100,000) Cash from financing activities 230,000 90,000 Net increase in cash $ 50,000 $ 50,000 Which of these two companies appears to have made the larger purchases of property, plant, and equipment during the year?

X Company When the investing activities section shows cash used (outflows exceed inflows) we can assume that we purchased long-term assets. X company used $200,000 and Y company used $100,000 insinuating that X company purchased more long-term assets than Y company.

^ Revenue >

^ NI > ^ RE positive relationship

The amortization of an intangible asset decreases

a business's assets and equity exactly like depreciation does.

Long-term liabilities are usually associated with ____________.

a purchase of a building.

An end-of-period adjusting entry that debits Unearned Revenue most likely will credit

a revenue

The basic form of capital stock is

a share of common stock

liquidity + solvency

ability to repay its short-term debt ability to repay its short-term debt PLUS interest

Which current liability is generally listed first?

accounts payable

Which account is NOT an example of an accrued liability?

accounts payable The other accounts listed need to be adjusted as needed at the end of each accounting period and are accrued liabilities.

LIABILITES:

accounts payable, note payable, wages payable, taxes payable, unearned revenues, bonds payable

The most frequently used current liabilities are

accounts payable, notes payable, and accrued liabilities

When a company makes a sale, sales tax is collected from the customer. The company records sales tax as a(n)

accrued liability.

Oblique, Inc., prepares its statement of cash flows using the indirect method. In calculating cash from operating activities, increases in current liabilities should be:

added to net income

On an indirect method statement of cash flows, an increase in accounts payable is

added to net income in the operating activities section - In increase in accounts payable means that you had a expense that you haven't used cash for yet, but that expense was deducted from net income. So you have to add that back into net income to show that you have not yet used cash for it.

If the indirect method is used to calculate net cash provided by operating activities, a decrease in accounts receivable is

added to net income; decreases in current assets are added to net income: If there is a decrease in A/R, that means you must have collected cash that was from a previous period and that would not already be included in net income - so you must include it

All of the following would be included in the operating activities section when preparing the statement of cash flows under the indirect method, except:

adding a decrease in accounts payable

All of the following would be included in the operating activities section when preparing the statement of cash flows under the indirect method, except:

adding a gain from the sale of a fixed asset

"posting" . means

adding data in ledger

A capital expenditure

adds to asset

Statements of changes in equity

all changes to: Contributed Capital & Retained Earnings Investments by owners: CC Withdrawal by owners: DD

Patents, copyrights, and trademarks are:

amortized.

Failure to accrue interest expense results in

an overstatement of net income and an understatement of liabilities.

Rule of Thumb:

anything over 5% of NI is material

Fair Market, Inc. purchased land, a warehouse, and a delivery truck for $450,000. The appraised values for the items are $300,000, $150,000 and $50,000, respectively. Fair Market should record this purchase ________.

as assets on the balance sheet: $270,000 for the land, $135,000 for the building, and $45,000 for the delivery truck

Elements AT a moment of time

assets - probable future benefits liabilities - probable sacrifices equity - residual interest after deducing its liabilities ^^ all part of the balance sheet

4 Assumptions: Going Concern (Continuity)

assumes that firm will continue in foreseeable future justifies use of accruals/deferrals/AJE entries

remaining amount in an account is called the

balance

1 Constraint: Cost Constraint

benefit should exceed cost or providing it

Short-term liabilities

beyond 30-60 days

Long-term Debit Liabilities

beyond a year

Stockholders of a corporation directly elect the

board of directors

Journal:

book of original entry (1st time event)

Statement of Financial Accounting Concepts (SFAC)

broad concepts that are intended to establish USEFUL AND CONSISTENT STANDARDS

The weighted-average contribution margin ________.

can be used for a company that sells more than one product

Fundamental Quality: Relevance

capable of making a difference in decision - predictive value: predict future expectations - confirmatory value: confirms/corrects prior expectations - materiality: if omit/error could influence decisions

Current assets include __________. accounts receivable and equipment cash and land cash and accounts receivable prepaid expenses and building

cash and accounts receivable

ASSETS:

cash, recievable, Investments, Prepaid Expenses, Land, Building, Equipment, Patents, Intangibles

Assets in order of liquidity:

cash, short-term investments, accounts receivable, inventory, long term assets

organizations use _______ to list their accounts and their account numbers

chart of accounts

When using the direct method of preparing the statement of cash flows, cash receipts from operating activities do not include

collection of a long-term note receivable - only Current assets and liabilities are included in operating activities

A fixed cost expense that management has little or no control over in the short run is a ________.

committed fixed cost

Total paid-in capital is calculated by

common stock + paid in capital in excess + preferred stock

Potential liabilities that depend on future events arising out of past events are called

contingent liabilities.

An obligation dependent upon an event that has not yet occurred is an example of a(n):

contingent liability.

Safe Scooters, Inc. sold scooters which they knew had faulty brakes. Consumers found out, and Safe Scooters is now facing a lawsuit over the unsafe scooters; however, no dollar amounts have been assigned to the case. This lawsuit would be considered a(n):

contingent liability.

The ________ is computed as the total contribution margin divided by total sales.

contribution margin ratio

Which of the following is an intangible asset?

Book Value of a Plant Asset = _____________ - _________________________________

cost - accumulated depreciation

as goods as sold by merchandizing firm, the cost of goods sold is removed from inventory AND TURNED INTO AN EXPENSE - matching principle (expense) : direct

cost of goods sold

Mixed costs are

costs that contain both variable and fixed cost components

What is the normal balance of premium on Bonds Payable.

credit normal balance

Notes payable due in six months are reported as

current liabilities on the balance sheet.

Nicholas Corporation accrues the interest expense on a short-term note payable at the end of its fiscal year. Due to this transaction

current liabilities will increase and stockholders' equity will decrease.

current assets / current liabilites

current ratio

current assets/current liabilities

current ratio

365 days a year / inventory turnover

days' inventory outstanding

discount on Bonds Payable

debit

ypress Corp. had sales on account of $19,500 which were subject to state sales tax of 12%. The entry to record the sales would be to:

debit Accounts Receivable $21,840; credit Sales Revenue $19,500; credit Sales Tax Payable $2,340

The Print Shoppe had sales on account of $7,000 which were subject to state sales tax of 6.5%. The entry to record the sales would be to: (Round your final answer to the nearest cent.)

debit Accounts Receivable $7,455.00; credit Sales Revenue $7,000; credit Sales Tax Payable $455.00

S&C Roofing had sales on account of $32,500 which were subject to state sales tax of 8%. The entry to record the sales would be to:

debit Accounts Receivable, $35,100; credit Sales revenue, $32,500; credit Sales tax payable, $2,600.

Metropolitan Masonry had sales on account of $7,700 which were subject to state sales tax of 10%. The entry to record the sales would be to:

debit Accounts Receivable, $8,470; credit Sales revenue, $7,700; credit Sales tax payable, $770.

During the month, Evergreen Roofing settled $600 in warranty claims by replacing the defective flashing. Evergreen uses an estimated warranty account. The journal entry to record the settled claims would have been:

debit Accrued Warranty Payable $600; credit Inventory $600

A truck costing $70,000 has accumulated depreciation of $51,000. The truck is scrapped for $0. The journal entry to record this transaction is to:

debit Accumulated Depreciation - Truck for $51,000, debit Loss on Disposal $19,000, and credit Truck for $70,000.

A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $700. The journal entry to record this transaction is to:

debit Cash for $700, debit Accumulated Depreciation - Truck for $50,000, debit Loss on Disposal for $5,300 and credit Truck for $56,000.

It is determined that a computer's depreciation expense for the year is $3,500. The journal entry to record this will be:

debit Depreciation Expense - computer $3,500; credit Accumulated Depreciation, $3,500.

During the month, TNT Construction paid $300 to settle warranty claims. TNT uses an estimated warranty account. The journal entry to record the claims payment would have been:

debit Estimated warranty payable, $300; credit Cash, $300.

During the month, Southeast Plumbing paid $600 to settle warranty claims. Southeast uses an estimated warranty account. The journal entry to record the payment would have been:

debit Estimated warranty payable, $600; credit Cash, $600.

TNT Construction had cash sales for the month of June totaling $44,000. TNT offers a 1-year warranty on its construction services. If TNT estimates warranty claims will equal 5% of sales, the journal entry to record the estimated warranty expense for the month is

debit Warranty expense, $2,200; credit Estimated warranty payable, $2,200

Southeast Plumbing had cash sales for the month totaling $732,000. Southeast offers a 6-month warranty on its services. If Southeast estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

debit Warranty expense, $21,960; credit Estimated warranty payable, $21,960.

A patent has amortization this year of $2,300. The journal entry would be to:

debit amortization expense-patent, $2,300; credit patent, $2,300.

Betta Group purchased Danio, Inc. for $960,000. The market value of Danio's assets and liabilities at the time of purchase were $1,300,000 and $360,000 respectively. The journal entry to record this will include:

debit to Asset accounts for $1,300,000, debit to Goodwill $20,000, credit to Liabilities $360,000 and credit to Cash $960,000

ShelterShelter Company sold inventory with a selling price of $ 5 comma 300$5,300 to customers for cash. It also colected sales taxes of $ 265$265. The journal entry to record this information includes a

debit to Cash of $5,565. 5,300+265

Evergreen Roofing had cash sales for the month totaling $42,000. Evergreen offers a 1-year warranty on its roofing services. If Evergreen estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

debit warranty expense $1,260; credit accrued warranty payable $1,260.

A major expenditure made to equipment that extends its useful life beyond the original estimate is journalized by ________.

debiting equipment

Kelly Company acquired an iron mine for $2,349,000. Kelly paid a $1,000 filing fee with the county recorder, $50,000 license fee to the state, and $100,000 for a geologic survey. It was estimated that the land would have a value of $400,000 after completion of the mining operations, and that 1,000,000 tons of iron ore could be extracted from the mine. During the first year of operations, 100,000 tons of iron ore were extracted and 80,000 tons of iron ore were sold for $5 per ton. The journal entry to record the current period depletion would include a

debt to iron efficiency

Kelly Company acquired an iron mine for $2,349,000. Kelly paid a $1,000 filing fee with the county recorder, $50,000 license fee to the state, and $100,000 for a geologic survey. It was estimated that the land would have a value of $400,000 after completion of the mining operations, and that 1,000,000 tons of iron ore could be extracted from the mine. During the first year of operations, 100,000 tons of iron ore were extracted and 80,000 tons of iron ore were sold for $5 per ton. The journal entry to record the current period depletion would include a

debt to iron inventory

Information is more useful if...

decision makers can compare it with similar info from the same company / other companies

Larsen Company declared and paid a $3,000 cash dividend, The effect of the transaction on the Larsen Company would be to:

decrease the balance in the cash account and decrease stockholders' equity by $3,000.

Sandusky Corporation purchased 3,000 shares of its own $1 par value common stock for $143,000. As a result of this transaction, the company's stockholders' equity

decreased by $143,000; when you purchase your own stock, you are increasing Treasury Stock - which decreases your owner's equity

On an indirect method statement of cash flows, an increase in prepaid insurance is

deducted from net income

On an indirect method statement of cash flows, a gain on the sale of plant assets is

deducted from net income in the operating activities section

In regression analysis, the variable on the y-axis is referred to as the ________.

dependent variable

Minerals, timber and coal are:

depleted

The process of expensing the cost of a natural resource over its useful life is called ________.

depletion

Equipment, buildings, and vehicles are:

depreciated.

Variable costing is also known as ________.

direct costing

A unit of product under absorption costing includes ________.

direct materials, direct labor, variable overhead, and fixed overhead costs

revenue - expense =

dividends declared

The depreciation method that does not initially use the residual value in depreciation calculations is the

double-declining balance method.

The _____ per share is the amount of income attributable to each share of common stock.

earnings; Net income / Shares Outstanding

12 Steps of Accounting Cycle

events / transactions journalize events post to Ledger unadjusted TB end of period Adjusted journal entries Post to Ledger adjusted TB prepare financial statements closing entries post to Ledger post-closing TB

what is net income (profit)

excess of revenues over expenses

What are capital expenditures and what does it mean when a capital expenditure is capitalized?

expenditures that increase an asset's capacity or extend its useful life - cost is added to an asset account and not expensed immediately

The accounting principle that requires a company to record warranty expense in the same period that it records sales revenue is the

expense recognition principle.

Research and development costs (R&D) are generally:

expensed and become part of the Income Statement.

dividends are NOT...

expenses and they never affect net income direct deductions of RE

CVP analysis ________.

expresses the relationships amongst costs, volume, and organizational profits

Hancock Company has 900,000 shares authorized and 350,000 shares issued and outstanding of its $2 par value common stock. The stock is currently selling for $20 per share. If Hancock Company declared and issued a 5% stock dividend, what journal entry would the company make?

f Hancock Company declared and distributed a 5% stock dividend, the company would make the following journal entry: Accounts Debit Credit Retained Earnings (350,000 shares x .05 x $20) 350,000 Common Stock (350,000 shares x .05 x $2) 35,000 Paid-in Capital in Excess of Par - Common 315,000

Cash received from the issuance of common stock is reported on a statement of cash flows under

financing activities; issuance of common stock affect stockholder's equity and therefore is a financing activity

Paying off bonds payable is reported on the statement of cash flows under

financing activities; long-term liability

The issuance of stock for cash is reported on the statement of cash flows under

financing activities; owner's equity

4 Assumptions: Economic entity

firm keeps its activity separate and distinct from its owners, parents and subsidiaries are separate legal entities but the same economic entity for accounting

Step costs are ________.

fixed over a small range of activity and then jump to a new fixed level with moderately small changes in volume

Jun 30, 2018, Beck sold a computer that was purchased on Jan. 1, 2016. The computer cost $14,000, had a useful life of 7 years, no salvage. The computer was sold for $11,500. a. Was the computer sold for a gain or loss? [a] b.How much was the gain or loss on the sale? [b]

gain 2500

Which intangible asset is recorded only when an acquiring company purchases another company?

goodwill

When sales exceed production, the net operating income reported under variable costing is ________.

greater than the net operating income reported under absorption costing

gross profit/ net sales

gross profit ratio *

General Ledger:

grouping of all the T-accounts with their balances

A stock split

has no effect on total stockholders' equity; you are just tearing a piece of paper in half - making on share of stock two, with it's value cut in half

Product cost under absorption costing is ________.

higher than variable costing

sales - sales returns and allowances - sales discount

how is gross sales calculated?

4 Principals: Measurement

how we value assets and liabilities 2 Bases: Historial Cost - original "cost" of asset or liability - considered very verifiable - HC FOR ASSET: cash + expenditures to get asset ready for use - HC FOR LIABILITY: equivalent price established by exchange transaction 2 Bases: Fair Value - historical cost = fair value (market value)

A contingent liability should be recorded in the accounts

if the amount can be reasonably estimated. + if the related future event will probably occur.

Classy Cooks did a major overhaul of their ovens, which extended the useful life of the ovens by 4 years. The journal entry to record this included a debit to repairs expense. This entry is:

incorrect, and as a result net income will be understated.

Revenues ___ stockholder's equity and RE expenses ___ stockholder's equity and RE

increase decrease

During the current year, a corporation earned income of $30,000, sold common stock for cash of $50,000, paid dividends of $25,000, and paid off debt of $5,000. The retained earnings account ________. increased $5,000 decreased $5,000 increased $30,000 stayed the same

increased $5,000 Recall that retained earnings is computed on the statement of retained earnings: Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings In this case, we are not given beginning retained earnings but we are given enough information to determine the change in retained earnings (net income of $30,000 - dividends of $25,000). Therefore, the change in retained earnings is an increase of $5,000.

4 Principals: Full Disclosure

info must allow users to make informed decisions can be contained in notes/ supplementary sources

COGS / average inventory = COGS / (begin inv + end inv ) / 2

inventory turnover

costs of goods sold / average inventory = cost of goods sold / (beg inv. + end inv.) / 2

inventory turnover

On the statement of cash flows, increases and decreases in long-term assets resulting from cash transactions are reported as

investing activitIes - Increases in LONG-TERM ASSETS long-term = not operating assets = investing

Selling equipment for cash is reported on the statement of cash flows under

investing activities; selling a long-term asset

Return on equity

is a measure used to compare companies of different sizes; calculated by net income - preferred dividends / average common stockholder's equity

The par value of a share of common stock

is stated in the charter; stated as soon as the corporation incorporates

The margin of safety

is the excess of actual or expected sales over breakeven sales

An advantage of account analysis is ________.

its simplicity

a _____ is a group of T accounts

ledger

What kind of account is Unearned Revenue?

liability

person issueing bond: person buying bond:

liability investment

4 Assumptions: Periodicity

life can be divided into artificial time periods justifies AJE / closing entries

Chart of Accounts

list all accounts and their identifying account numbers

Cash flows from investing activities can be discovered by analyzing changes in a company's:

long-term asset accounts

Which of the following repairs to a FedEx truck would be capitalized? Major engine overhaul Oil change Replacement of windshield New paint job

major engine overhaul

Which accounting principle dictates whether the cost of a repair should be expensed?

matching

historical cost

measurement principle can also be described as...

4 assumptions: Monetary unit

money is the common denominator proper basis for money measurement stable, regardless of inflation or deflation

When more than one independent variable is needed to predict a dependent variable, a cost analyst would use ________.

multiple regression

corporations

must sign charter limited liability for owners, continuity for life, ease in transfer of ownership, double taxation

assets - liabilities

net assets =

When using the indirect method of preparing the statement of cash flows, the starting point to determine net cash provided by operating activities is

net income

what is the most important item in financial statements

net income

Tennis Shoe Warehouse operates in a state with a 6.5% sales tax. For convenience, Tennis Shoe Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. If Tennis Shoe Warehouse fails to make an adjustment for sales taxes,

net income will be overstated and liabilities will be understated.

If the likelihood of an obligation is remote:

no action is necessary in the accounting treatment.

According to GAAP, goodwill is

not amortized, but checked annually for impairment

look at notes

o 4 steps of Gross Profit Method:

Income statement will be affected by second error Balance Sheet will be correct because second error has counterbalanced.

o In third year, only second error remains:

Income Statement is still affected by error Balance Sheet will be correct because error has counterbalanced.

o In year after error,

Income Statement is affected by error. Balance Sheet is affected by error.

o In year of error:

Limited-liability Company (LLC)

one or many members business liable not owner

In the long run, a company must generate positive cash flow from __________ or it will not survive.

operating activities

The major difference between the way a statement of cash flows is prepared using the indirect method and the way the same statement is prepared using the direct method is how _____ are reported.

operating activities

Non-business entities:

organized not for profit 1. Private Organizations (hospitals, universities, cooperatives, charities) 2. Government (Fed gov., state and local gov.)

IN RE you do not use...

paid dividends (only declared)

Which of the following would NOT be considered part of the cost of the land?

paving

goods sold and delivered to customer at store title transfers at point of sale

point of purchase sale

A scatterplot can indicate a ________.

positive correlation

The disclosure of a contingent liability only in the footnotes designates that the possibility of an actual obligation occurring is:

possible

The disclosure of a contingent liability in the footnotes and on the Balance Sheet indicates that the potential for the obligation occurring is

probable

Stockholders are eligible for a dividend if they own the stock on the date of

record

Account:

record of all the changes in a particular account must be classified as 1 of the 10 elements

Suppose a business makes a lump-sum (basket) purchase. To identify the cost of each asset, the business uses the ______________________________ method, which divides the total cost among the assets according to their relative sales values.

relative-sales-value method

After an asset is fully depreciated, the asset:

remains on the Balance Sheet at (cost - Accumulated Depreciation).

By NOT accruing warranty expense:

reported liabilities will be understated and net income will be overstated.

EQUITY:

residual interest in assets after liabilities have been deducted 1. Capital 2. Owner's Equity 3. Stockholders' Equity insiders claim on business

The two main categories of stockholders' equity are

retained earnings and paid-in capital

The statement of cash flows does not report

revenues and expenses for the current year DOES REPORT: - cash payments in the current year - noncash investing and financing activities in the current year - cash receipts in the current year

When using a variable costing system, the contribution margin (CM) is calculated as the excess of ________.

revenues over variable costs

customers have the right to give back products

right of return

when customers receive wrong goods & keeps them firm gives refund (credit memo) and reduces customers account

sales allowances

The ________ is the combination of products that make up total sales.

sales mix

when customers return merchandise

sales returns

Revenues:

sales revenue, service revenue, net sales, fees earned, rent revenue, interest income, dividend revenue

revenue has been earned

satisfy performance obligation

performs service for customer

service firms recognize revenue when the firm...

4 Financial Statements: Statement of Cash Flows

show sources of firm's cash over PERIOD OF TIME Where did company get cash and what did they spend?

4 Financial Statements: Balance Sheet

show the position of a company at a POINT OF TIME (snapshot) shows the accounting equation is in balance 1. Assets 2. Liability 3. Equity

4 Financial Statements: Income Statement

shows result for a PERIOD OF TIME 4. Revenues: increases in net assets from ongoing major/central operations 5. Expenses: decreases in net assets from ongoing major/central operations 6. Gains: increases net assets from peripheral or incidental operations 7. Losses: decreases net assets from peripheral or incidental operations

A regression analysis that contains only one x-variable is a ________.

simple linear regression

Transactions:

sold inventory to customer purchased new delivery truck paid our employees for the last 2 weeks of work

Treasury Stock

stock amounts paid by the company to repurchase its own stock

Oblique, Inc., prepares its statement of cash flows using the indirect method. In calculating cash from operating activities, increases in current assets other than Cash should be:

subtracted from net income

All of the following would be included in the operating activities section when preparing the statement of cash flows under the indirect method, except:

subtracting a decrease in prepaid expenses

length of time from when the note was signed by the debtor to when the debtor must pay the note

term

paid-in capital

the amount stockholders have invested in the company - reps the value of a company above the par

The owner of Shady Grove Company has the bookkeeper write company checks to pay for his personal items. This violates __________. the entity assumption the stable-monetary-unit assumption the matching principle the materiality concept

the entity assumption

Goodwill is defined as

the excess of the cost of purchasing another company over the sum of the market values of the acquired company's net assets (assets minus liabilities).

The net book value (or carrying value) of an asset is ________.

the original cost of the asset minus its accumulated depreciation

All of the following represent business transactions except: cash dividends were paid. the owner paid her personal home mortgage. common stock was sold for cash. a car was given to the business in exchange for common stock.

the owner paid her personal home mortgage.

Normal Balance:

the side of the account that is increased

Posting to the Ledger:

transfer amounts entered in the journal to the general ledger made of 3 accounts: 1. real (permanent accounts 2. Nominal (temporary) accounts 3. Mixed accounts

Torres Co. has installed a piece of machinery for a total of $45,000. In its third month of operation, repairs of $900 had to be made on the machine. This $900 would be:

treated as a repairs and maintenance expense.

All of the following are reported as current liabilities EXCEPT:

unearned revenues for services to be provided in 16 months.

(SEC) The Securites and Exchange Commission has legal authority to establish GAAP but allows (FASB) Financial Accounting Standards Board to...

update and create rules

Total variable costs ________.

vary in direct proportion to changes in volume

The horizontal x-axis on the CVP graph represents ________. The y-axis on the CVP graph represents ________.

volume in units dollars

all goods firms have legal title, regardless of goods' location purchases should be recorded when legal title passes to buyer

what goods should be included in ending inventory

4 Principals: Matching

when to incur expenses or loss

4 Principals: Revenue Recognition

when to recognize earned revenue and gains 1. sell 2. provide a service

current assets - current liabilites

working capital

What variable represents the volume of activity in the equation: y = vx + f? (Assume v represents the variable cost per unit of activity.)

Rochelle Corporation makes reservations for vacation homes. Rochelle Corporation provides complimentary coffee packets at a cost of $2 per guest who stay at the mountain resort. The general manager reported a total cost of $5,000 for coffee during the previous quarter. The historical number of guests at the mountain resort is 10,000 guests during the year. The manager uses the formula to compute the total variable cost (y) = Variable cost per unit of activity (v) × Volume of activity (x). The manager expects 500 guests in December. Which of the following is the correct cost equation to compute y in the cost equation for 500 guests?

y = $2 × 500

The following data pertains to activity and maintenance cost for two recent periods: Activity level (units) 5,000 4,000 Maintenance cost $16,750 $15,000 Maintenance cost is a mixed cost with both fixed and variable components. The cost formula for maintenance using the high-low method is ________.

y = $8,000 + $1.75x

Which of the following equations best expresses the straight line equation for a variable cost equation when f is zero?

y = vx

Which of the following is NOT an approach to compute the breakeven point?

zero approach income

MyronMyron, Inc., manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 7% of sales during the warranty period. The following table shows the sales and actual warranty payments during the first two years of operations: (Click the icon to view the sales and actual warranty payments during the first two years of operations.) Based on these facts, what amount of warranty liability should MyronMyron, Inc., report on its balance sheet at December 31, 20192019? Year Sales Warranty Payments 2018 $350,000 $2,800 2019 600,000 30,000

[($350,000+m$600,000) x 7%] - $2,800 -$30,000 = $ 33700

errors that fix themselves over two accounting periods

• Counterbalancing:

when customer receives damaged or wrong goods. Instead of returning the goods, the customer keep the goods, and the seller gives the customer a refund (credit memo) that reduces the customer's account.

ACC FINAL

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