Accounting 2100 Exam 3

Periodic inventory system

Uses separate accounts for these items and records costs at the end of the account period

Net Realizable Value

Value of accounts receivable is the amount of cash a company EXPECTS to collect

What is the formula for the receivables turnover ratio?

(Net credit sales) / (Average accounts receivable, net)

List the steps to determine and measure impairment of long-term assets

1. Compare asset's book value to its estimated future cash flows 2. Compare asset's book value to its fair value

Alexandra Inc. utilizes a periodic inventory system. Related to inventory, they must record period-end adjustments to:

1. Adjust the inventory balance to its proper ending balance 2. Close purchase-related temporary accounts 3. Record cost of goods sold for the period

Franchise

Contractual agreement in which an entity may use a company's name/products/formulas

In a manufacturing company, raw materials, direct labor, and overheard flow from 1 account to the next occur in what order?

1. Work in progress 2. Finished goods

Average collection period is calculated by

365/the receivables turnover ratio

Inventory is classified as...

A current asset

A retirement of abandonment of an asset is different from a sale of an asset because

A loss must be recognized and no consideration is received

Informal credit agreement with trade customers

Account receivable

The approach that considers the age of various accounts receivables to estimate uncollectible accounts

Aging Method

Depreciation

Allocation of the cost of a tangible fixed asset

Depletion

Allocation of the cost of natural resources

Allocation of the cost of intangible assets

Amortization

A customer account that is not expected to be collected

Bad debt

Expense associated with the estimate of the amount of the accounts receivable that may not be collected during the year

Bad debt expense

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

Commissions, legal fees to secure title, costs to remove old building

The benefit of using FIFO

Better approximates the current cost of inventory

The income statement approach for estimating bad debts uses a percentage of

Credit sales for the year

Where is note receivable reported in the balance sheet?

Current or noncurrent depending on the expected collection date

At the end of the year, companies must record estimated contra revenue for estimated returns/allowances pertaining to

Current year sales only

When an account previously written off is collected in full, the entry to reinstate the account would require what entries?

Debit accounts receivable and credit allowance for uncollectible accounts

The allowance method is a method that....

Decreases net accounts receivable for estimated bad debts

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

Disguise real prices from competitors, give quantity discounts to customers, and change prices without publishing a new catalog

What involves both an acquisition and a disposition of an asset?

Exchange of a fixed assets

Copyright

Exclusive right of protection given for published work

Patent

Exclusive right to produce a product

If a company generates its own goodwill through advertising or training, how should it be treated?

Expense costs incurred

Formula for Interest

Face Value x Annual interest rate x fraction of the annual period

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired

Goodwill

Amortization refers to the allocation of the cost of _________ assets to expenses

Intangible

Copyrights, franchises, and goodwill are examples of what kind of assets?

Intangible

Which of the following are classified as receivables? inventory purchased on account, trading securities, loans by a company to other entities, interest due from loans to customers

Loans by a company to other entities and interest due from loans to customers

Why do managers closely monitor inventory?

Minimize costs of inventory write-downs due to obsolete inventory, to ensure that sufficient units are available

The benefit of using LIFO

More realistically matches the current costs of inventory needed to produce current revenues

Profit Margin Ratio

Net income/net sales

"Net credit sales" are similar to what?

Net revenues

FIFO Inventory method assumes that units remaining in ending inventory are the _______ units purchased

Newest

A signed agreement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others

Note receivable

Formal credit arrangement between borrower and lender

Note receivable

Book Value

Original cost of an asset minus accumulated depreciation

Omar Co uses a periodic inventory system and overstates endings by 10,000. This error would cause the retained earnings balance for the current year to be:

Overstated by 10,000

Type of inventory purchased: wholesale and retail companies

Purchase goods that are completed

Type of inventory purchased: Manufacturing companies

Purchase goods that are used to produce another product

Capitalized

Purchase price plus cost necessary to get ready for use

Costs related to manufacturing products

Raw materials, direct labor, and overhead

Tax Refund Claims (Receivable or payable)

Receivable

What the two entries required when a previous written off account is paid?

Record the collection on the account receivable, reinstate the account receivable

Perpetual inventory system

Records all inventory related transactions in the Inventory account and reduces inventory at the time of sales

Expensed

Research and development costs

A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise

Sales allowance

Sales to customers in which the customer pays within 30-60 days

Sales on account, credit sales

A customer returns merchandise purchased during the month and receives refund of the full sales price

Sales return

When a customer returns a product for a refund, which account is the entry recorded?

Sales return

Mueller inc. utilizes a periodic inventory system. When Mueller incurs shipping costs for purchased goods, the account debited should be:

Separate freight-in account

Depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life

Straight-line

What are commonly used depreciation methods?

Straight-line, declining balance, activity based

The gain or loss of an asset is calculated as:

The amount received less the book value of asset sold

Accounts Receivable

The legal right to receive cash from a credit sale and represents an asset of the company

In an exchange of assets where a loss is indicated, what occurs?

The new asset is recorded at fair value, the loss is recognized

The receivables turnover ratio indicates

The number of times during a year that the average accounts receivables were collected

Why are accounts receivable classified as current assets?

They will be converted to cash within a year

"Net credit sales" refers to credit sales net of

Total credit sales net of discounts, returns, and allowances

In a periodic inventory system, purchase returns...

are recorded in a separate contra purchases account

Inventory errors that are discovered more than one accounting period after the error was made....

do not require a correcting entry because the error self-corrects