Accounting chap9

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What is the gain or loss on the sale of a truck cost $19,200, has $11,520 of accumulated depreciation and is sold for $10,000?

$2,320 gain Book value: $19,200 - $11,520 = $7,680 Gain on sale: $10,000 - $7,680 = $2,320

Honeydukes returns 200 worth of inventory that was incorrect. What is the journal entry?

Debit accounts payable 200 Credit inventory 200

When you purchase inventory, what is the journal entry?

Inventory is debited and cash is credited (or accounts payable)

Which of the following in NOT an intangible asset?

Investment in another company

June 4th Debit Accounts Payable 100 Credit Inventory for 100

How do you calculate cost of goods sold?

Starting Value of Inventory + Inventory Purchased in the month - ending value of inventory = cost of goods sold

Which depreciation method usually allows the highest amount of net income to be reported during the first year an asset is owned?

Straightline method

Expenditures to lubricate a machine on a regular basis would be debited to

an expense account

What is an F.O.B (Free on Board) Shipping Point?

the title passes immediately upon shipment; the buyer is responsible for the goods during transit, pays transportation costs (freight in) and sale and purchase are recorded when goods are shipped by the seller

Is LCM required by GAAP

yes

How does consignment work

"A" company stocks and sells the inventory of "B" company and receives commission for the services rendered. Goods on consignment are not considered sold by "B" company until "A" company sells them because the title does not transfer until that point

On January 1, 2009, McSweeney's Press purchased equipment at a cost of $6,300. The equipment had an estimated useful life of 3 years or 15,000 hours. The equipment's estimated salvage value is $600. The equipment was used 3,250 hours in 2009. Using the units-of-production method, the depreciation expense for the year ending December 31, 2009, would be

$1,235 Depreciation expense: [($6,300 - $600) ÷ 15,000] X 3,250 = $1,235

On January 1, 2009, Melville Press purchased equipment at a cost of $6,300. The equipment had an estimated useful life of 3 years or 15,000 hours. The equipment's estimated salvage value is $600. Using the straight-line method, the depreciation expense for the year ending December 31, 2009, would be

$1,900 Depreciation expense: ($6,300 - $600) ÷ 3 = $1,900

Beginning accounts receivable were $11,000 and ending accounts receivable were $14,000. All sales were on credit and totaled $559,000. How much cash was collected from customers? a. $559,000 b. $570,000 c. $556,000 d. $552,000

$11,000 (Beginning Balance) + $559,000 (Sales) - $14,000 (Ending Balance) = $556,000

AMTA, Inc. had the following inventory transactions during the period: March 1..Begin inventory, 10 units @ $5.00 ==$50 March 5 ... Purchased 14 units @ $6 ===$ 84 March 14 ... Purchased 20 units @ $8 ===$ 160 March 28 ... Purchased 16 units @ $10.50 == $ 168 March 30 ... Sold 45 units March 31 ... Ending inventory, 15 units If AMTA uses the average cost inventory method, the amount assigned to the March 31st ending inventory would be?

$115.50 Average cost = (Dollar Cost of beginning Inventory + dollar cost of all purchases) / (# of units in beginning inventory + units purchased) Total Cost = $50 + $84 + $160 + $168 Total Units = 10 + 14 + 20 + 16 = 60 $462 / 60 units = $7.70 per unit Ending Inventory = 15 units @ $7.70 = $115.50

Soupy Soaps purchased a machine on January 1, 2009, for $28,800 cash. The machine has an estimated useful life of 4 years and a salvage value of $7,520. Soupy uses the double-declining-balance method of depreciation for all its assets. What will be the depreciation expense for 2009?

$14,400 Depreciation expense 2009: $28,800 / 4 X 2 = $14,400

Sparky, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2009 and was used 2,700 hours in 2009 and 2,600 hours in 2010. If Sparky uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2010?

$15,000 At the beginning, book value = cost 2009 Depreciation Expense = $80,000 Book Value / 8 years X 2 = $20,000 Book Value now becomes $80,000 cost less $20,000 of accumulated depreciation = $60,000 2010 Depreciation expense = $60,000 book value / 8 years X 2 = $15,000

On April 20, Tazwell purchases merchandise on account from McClean Corporation for $3,000 with terms 1/10, n/ 30. On April 22, Tazewell returns $1,000 of merchandise and on April 28 they pay McClean Corporation the amount owed them and take the discount. How much is the discount they will take?

$20 Owe $2,000 ($3,000 original purchase less $1,000 returned) $2,000 X 1% = $20

At the end of the current year, Sapphire Company's inventory account balance was $25,000. A physical count of the inventory revealed that inventory on hand totaled $20,000. What amount should Sapphire Company report on its balance sheet?

$20,000

AMTA, Inc. had the following inventory transactions during the period: March 1.... Beginning inventory, 10 units @ $5.00 ==$50 March 5 ... Purchased 14 units @ $6 ===$ 84 March 14 ... Purchased 20 units @ $8 ===$ 160 March 28 ... Purchased 16 units @ $10.50 == $ 168 March 30 ... Sold 45 units March 31 ... Ending inventory, 15 units If AMTA uses the FIFO inventory method, what is their cost of goods sold (COGS) at the end of the period?

$304.50 (10 @ $5) + (14 @ 6) + (20 @ $8) + (1 @ $10.50) = $304.50 OR $50 + $84 + $160 + $10.50 = $304.50

At the end of the current year, Diamond Company's inventory account balance was $50,000 and their COGS was $300,000. They determined that the replacement cost of the inventory was $45,000. After making the adjusting entry to apply the lower-of-cost-or-market rule, what would Diamond Company's COGS be?

$305,000 Entry is to debit (increase) COGS by $5,000 and credit inventory. Thus, COGS increases from $300,000 to $305,000

Peter Pan Corporation had the following transactions in February: February 1 ... Beginning Inventory of 250 purses @ $4 cost each February 19 ...Purchased 750 purses @ $6 cost each February 25... Sold 800 purses @ $20 selling price each February 28.... Ending Inventory of 200 purses If Peter Pan Corporation uses average cost to cost their inventory, how much is their COGS for February?

$4,400 250 @ $4 = $1,000 750 @ $6 = $4,500 ($1,000 + $4,500) / 1,000 units = $5.50 per unit 800 X $5.50/unit = $4,400

Widgets-R-Us, Inc. Use the data below to calculate the information requested in the following question ...February 1, beginning inventory = 100 widgets @ $4 each ...February 19, Purchased 900 widgets @ $6 each ...February 25, Sold 800 widgets ...February 28, Ending Inventory on hand = 200 widgets If Widgets-R-Us uses average cost, how much is their COGS for February?

$4,640 100 units @ $4 = $400 + 900 units @ $6 = $5,400 Total goods before the sale = $5,800/1,000 units = $5.80 COGS = 800 units @ $5.80 per unit = $4,640

$4,800 The February 25 sale sold Inventory from February 19. 800 widgets @ $6 each = $4,800

What is the gain or loss on the sale of an asset that originally cost $6,000, has accumulated depreciation of $2,500, and is sold for $3,000?

$500 loss Book value: $6,000 - $2,500 = $3,500 Loss on sale: $3,500 - $3,000 = $500

Sparky, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2009 and was used 2,700 hours in 2009 and 2,600 hours in 2010. If Sparky uses the straight-line method, what is the book value of the crane at December 31, 2011 after all adjusting entries have been recorded?

$51,875 ($80,000 cost - $5,000 residual value) / 8 years = $9,375 of S/L depreciation per year. Three years of deprecation have been taken (2009, 2010 and 2011). Therefore, accumulated depreciation = ($9,375 X 3 years) = $28,125. Book Value = Cost - Accumulated Depreciation Book Value = $80,000 cost - $28,125 Accum. Depr Book Value = $51,875

Sparky, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2009 and was used 2,700 hours in 2009 and 2,600 hours in 2010. If Sparky uses the units-of-production method, what is the depreciation rate per hour for the crane?

$6.00 ($80,000 cost - $5,000 residual value) / 12,500 hours = $6.00 of depreciation per hour

AMTA, Inc. had the following inventory transactions during the period: March 1... Begin inventory, 10 units @ $5.00 ==$50 March 5 ... Purchased 14 units @ $6 ===$ 84 March 14 ... Purchased 20 units @ $8 ===$ 160 March 28 ... Purchased 16 units @ $10.50 == $ 168 March 30 ... Sold 45 units March 31 ... Ending inventory, 15 units If AMTA uses the LIFO inventory method, the ending inventory at the end of March would be?

$80 (10 @ $5) + (5 @ $6) = $80 OR $50 + $30 = $80

A company had net income of $100,000 prior to recording the sale of a machine. The machine was originally purchased for $148,000, had accumulated depreciation of $124,800 and was sold for $13,000. What is the final net income after recording the sale?

$89,800 Book value: $148,000 - $124,800 = $23,200 Loss on sale: $23,200 - $13,000 = $10,200 A loss on sale is similar to an expense in that it reduces net income $100,000 of net income - $10,200 of loss = $89,800

Sequencing of current assets and current liabilities

...

What is a single step income statement?

...

What is an unclassified balance sheet?

...

A company has gross sales of 1,800, sales returns and allowance of 400 and sales discounts of 28. What is their net sales?

1,372

A company has total assets of $345,000; total liabilities of $278,000; current assets of $212,000 and current liabilities of $175,000. The companys current ratio is aproximately....

1.211

Dumpty Wall company sells eggs. Dumpty had gross sales of $20,000 in March. Dumpty recorded $5,000 of sales returns and allowances in March. Customers took $300 of sales discounts in March. What are Dumpty's NET SALES in March?

14,700 Sales has a normal CREDIT balance of $20,000. Sales returns and allowances and Sales Discounts are CONTRA-ACCOUNTS with normal DEBIT Balances. Thus, NET sales is the netting of these accounts and is $20,000 credit less $5,000 debit less $300 debit = $14,700

Honeydukes started with 25,000 inventory. They purchase 60,000 and ended up with 35,000. What was COGS?

25,000 + 60,000 - 35,000 = 50,000

If Beg inventory is 265,874 and Final is 256,312 and COGS is 750,024. What is their inventory turnover?

265,874+256,312 / 2 =261,093 750,024 / 261,093 = 2.87 Thus they turnover (or sell) 2.87 times per year Higher number is better

If a company's gross profit ratio changed from 42% in 2009 to 47% in 2010, which of the statements below would best describe the trend?

A positive trend Higher gross profit numbers are better.

The book value of an asset is the

Acquisition cost of the asset less any accumulated depreciation on the asset

Bluenote Band, Inc. purchased merchandise from Industrial Music Company on June 5, 2010. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Bluenote received the merchandise on June 10, 2010. Bluenote paid the amount due on June 13, 2010. In this situation, who is typically responsible for payment of the transportation costs on the merchandise sold by Industrial Music to Bluenote Band?

Bluenote Band, Inc.

What is the formula for inventory turn over?

COGS / Average Inventory Average inventory ( Beg+End / 2)

A company can't constantly switch its inventory costing method because of the

Consistency principle

Sales returns and allowances and the sales discount accounts are what type of an account with what type of normal balance (debit/credit)?

Contra revenue account and have a normal debit balance

What does the journal entry look like when entering in LCM

Credit inventory debit COGS

Dumpty Wall Company sells eggs. Dumpty shipped eggs to a customer on account. Some of the eggs were cracked and the customer returned $100 of eggs. Which of the following would be part of the journal entry?

Debit Returns and Allowances $100

On June 12th Snack Kart orders 1,000 chocolate frogs from Honeydukes for $1,800. They cost Honeydukes $500. The order will be on account, F.O.B Destination point 2/10, n/30. Honeydukes shipped the goods on June 13th and they were received by snack kart on June 15th. Some of the frogs were damaged in transit and Honeydukes gives Snack Kart a $40 allowance on June 16th. What is the journal entry?

Debit Sales returns and allowances 40 Credit Accounts Receivable 40

Debit sales returns and allowances 360 Credit accounts receivable 360 Debit inventory 100 Credit cost of goods sold 100

Merchandise with a sales price of $500 is sold on account with term 2/10, n/30 on March 1. If the payment is received on March 5, the journal entry to record the collection of the accounts receivables would include a

Debit to Sales Discounts for $10 Response Feedback: Debit Cash $490 Debit Sales Discounts $10 Credit A/R $500 $500 X 2% sales discount = $10

Current assets usually are listed on a balance sheet in

Decreasing order of liquidity (Most Liquid first)

A Company sells goods and is responsible for paying the freight (shipping charges). They pay the shipping company directly (credit to cash). The debit for this transaction is a debit to:

Delivery Expense

Define the LIFO reserve

Difference between inventory valued at FIFO and value at LIFO

If Peter Pan Corporation uses FIFO to cost their inventory, the physical flow of goods

Does not need to match the cost flow assumption FIFO, LIFO and weighted average are COST flow assumption - the physical flow of goods does NOT need to match this.

Dakota Corp. purchased equipment at a cost of $320,000 in January, 2001. As of January 1, 2010, depreciation of $160,000 had been recorded on this asset since it was originally purchased. Depreciation expense for 2010 is $40,000. After the adjustments are recorded and posted at December 31, 2010, what are the balances for the Equipment and Accumulated Depreciation?

Equipment Accumulated Depreciation $ 320,000 $ 200,000 $160,000 (Accumulated Depreciation at Jan. 1, 2010) + $40,000 (Depreciation Expense for 2010) = $200,000 (Accumulated Depreciation at Dec. 31, 2010)

If prices are falling, which cost flow assumption produces the highest COGS?

FIFO

If prices are rising, which cost flow assumption produces the highest ending inventory?

FIFO

During a period of deflation (falling prices), the inventory cost flow assumption that will result in reporting the lowest ending inventory on the balance sheet is?

FIFO LIFO assumes you are selling the new (lower priced items) and the older (more expensive stuff) is in ending inventory. FIFO assumes you are selling the old (higher priced items) and the newer (less expensive stuff) is in ending inventory. So, LIFO has the older (higher priced stuff) in ending inventory; FIFO has the new, cheaper stuff in ending inventory.

What are the three cost flow assumptions

FIFO, LIFO, Average Cost

Define Average Cost method for inventory

Find the average cost of the inventory; ie, on 1/10 you have 200 frogs at $.40 each for a total of $80 then you purchase 100 frogs at $.55 each for a total of $55. Then you add up the total ($135) and divide it by the 300 frogs in inventory to get $.45 per frog. Then when the customer purchases the COGS is $.45 per frog.

Define FILO

First In Last Out- First ones in are the last ones out

Glass Corporation sold merchandise to a customer for $30,000 on July 10. The customer paid Glass $10,000 of cash with the sale on July 10 and the remaining balance on July 25. Under the accrual basis of accounting, how should Glass record the transaction?

Glass will recognize $30,000 of revenue on July 10

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

Goodwill

How do you calculate net sales revenues?

Gross sales (i.e originally invoice amount) - sales returns and allowances - sales discount = net sales

Honeydukes debit Accounts Receivable 1800 credit Sales Revenue 1800 Debit cost of goods sold 500 credit inventory 500 This is one entry!

A Company purchases goods and is responsible for paying the freight (shipping charges). They pay the shipping company directly (credit to cash). The debit for this transaction is a debit to:

Inventory

What is the full disclosure principle

It requires companies financial statements to provide enough financial information for outsiders to make knowledgeable decisions about investments, etc

In order to calculate depreciation expense, which of the following need NOT be known about an asset?

Its estimated market value

Bluenote Band, Inc. ordered merchandise from Industrial Music Company on June 5, 2010. The goods were shipped June 6, 2010. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB destination. Bluenote received the merchandise on June 10, 2010. Bluenote paid the amount due on June 13, 2010. When would Bluenote Band record the purchase of inventory?

June 10th

Honeydukes orders 2,000 of inventory on account F.O.B shipping point, terms of 1/10, n/30 on May 28th. It ships on June 1st and arrives June 3rd. What is the transaction for May?

June 1st, Debit inventory for 2,000 Credit accounts payable 2,000

If prices are falling, which cost flow assumption produces the highest ending inventory?

LIFO

If prices are rising, which cost flow assumption produces the highest COGS?

LIFO

Which inventory cost flow assumption is not allowed under IFRS? a. Specific Identification b. FIFO c. LIFO d. Average Cost e. All of these are GAAP and therefore allowed under IFRS

LIFO

Which inventory cost flow assumption results in the lowest ending inventory during a period of increasing prices.

LIFO

Which inventory method is viewed as an "income statement" approach because current costs of inventory flow through COGS?

LIFO

During a period of inflation (increasing prices), the inventory cost flow assumption that will result in reporting the highest cost of goods sold (COGS) on the income statement is:

LIFO LIFO assumes you are selling the new (higher priced items) and FIFO assumes you are selling the old (lower priced items). So, LIFO has higher COGS and FIFO has lower COGS.

Which inventory cost flow assumption results in the highest gross profit during a period of decreasing prices?

LIFO With DECREASING Prices, LIFO will have Lower COGS than FIFO (LIFO has current costs in COGS and these are lower than older costs). Since Gross Profit is Revenue minus COGS, LIFO will have lower COGS and HIGHER Gross Profit.

Define LIFO

Last in First out- The most recent inventory is sold first

When the market value of inventory items has declined below its cost, inventory should be valued using what in order to comply with US GAAP?

Lower of Cost or market

We record depreciation expense because of the

Matching Concept We record depreciation expense because we are using up the asset to generate revenues. If we are estimating that we are using the machine over 60 months, then we need to match the expense of the asset to the revenue that is being generated over the 60 months.

The idea that all expenses incurred in generating revenues should be recognized in the same period as those revenues is called the

Matching Principle

Fry's purchases $1,500 of cereal on credit from General Mills. Fry's uses a perpetual inventory system. Two days later, Fry's returns $500 of the cereal it purchased from General Mills and receives a reduction of the amount due to General Mills. Which of the following is correct about Fry's required journal entry for the return of cereal?

Merchandise Inventory is credited for $500 Accounts Payable would be reduced (debited) for $500 and Merchandise Inventory would be reduced (credited) for $500. Note that this does NOT affect COGS at ALL; it reduces the COST OF INVENTORY (because Fry's is returning the inventory to General Mills)

Bashas purchases $10,000 of cheese on credit from Kelloggs. Bashas uses a perpetual inventory system. If Bashas pays the balance due within the discount period of 2/10, net 30, what effect does the payment have on Bashas' financial statements?

Merchandise Inventory is decreased by $200 Response Feedback: When a company takes a purchase discount (2% of $10,000 or $200), they credit (reduce) cash for $9,800, debit (reduce) Accounts Payable by the full $10,000 and the discount reduces (credits) Merchandise Inventory. The discount is reducing the COST OF OUR INVENTORY. (there is no purchase discounts account in a perpetual inventory system!).

Are freight charges sent to COGS?

Do the majority of countries allow LIFO

If LCM is higher than the historical cost amount, do you mark it up?

NO stick with historical cost amount at this point

Can a company switch inventory costing methods from one year to the next?

No, but if they have a valid reason they can do it occasionally

Honeydukes orders 2,000 of inventory on account F.O.B shipping point, terms of 1/10, n/30 on May 28th. It ships on June 1st and arrives June 3rd. What is the transaction for May?

Nothing. Honeydukes does not own the goods until shipping occurs in June.

Safeway purchases cereal from General Mills on credit. The cereal is sent from General Mills to Safeway as FOB shipping point. When does Safeway record the purchase and who generally pays the shipping cost in this situation?

Purchase is recorded when goods are shipped by General Mills; Safeway pays the shipping charges. FOB Shipping Point means the title changes hands when goods are shipped and then the buyer (Safeway) is responsible for shipping charges.

Sometimes in F.O.B Shipping point, the seller pays for freight and is reimbursed by the buyer later (buyer is responsible for shipping charges). Journal entry for seller? Journal entry for buyer?

Seller: (we will say shipping charges are 100) Debit Accounts receivable 100 Credit cash 100 Buyer: debit inventory 100 credit accounts payable 100

When a company purchases goods on credit and owes the vendor money, the company keeps detailed records of exactly who they owe money to and how much they owe to each vendor/creditor. When a company sells goods on credit and customers owe them money, the company keeps detailed records of exactly who owes them money and how much each customer owes them. These detailed records are referred to as:

Subsidiary Ledger

We match the COGS with the revenue that it earned. T/F

Accumulated Depreciation increases with credit. T/F

T ; Accumulated depreciation is a CONTRA-ASSET account with a normal balance of a credit (contrary to the normal balances of assets - which is why we call this a contra-asset).

During 2010, the accounts receivable turnover rate for Stern Company increased from 10 to 14 times per year. What is the most likely explanation for the change?

The company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections.

What is a multi-step income statement?

The income statement format that shows important subtotals

Honeydukes orders 2,000 of inventory on account F.O.B shipping point, terms of 1/10, n/30 on May 28th. It ships on June 1st and arrives June 3rd. On June 4th because some of the product was damaged, they receive a 100.00 credit. On June 6th they return 200 worth of inventory that was incorrect. They pay the full balance of what they owe on June 9th, taking advantage of the 1% discount. What is the journal entry?

The original A/P was 2,000 They reduced the A/P by 300 making the current amount they owe 1700. The 1% discount is 17 so they owe 1683 6/9 Debit A/P 1,700 Credit cash 1,683 Credit Inventory 17

The terms were 2/10 so any amount paid in 10 days gets a 2% discount, so they get the 2% discount. The original sale was for 1,800 but they got an allowance of 40 and returned goods of 360 for a total of 1,400 owed. They get a 2% discount= 28.00 so they owe 1,378 Credit accounts receivable for 1,400 Debit cash 1,372 Debit sales discounts 28

There is no journal entry

Tucker's Pet Shoppe had a current ratio of 1.21. Pluto's Pet Products had a current ratio of 0.95. Which of the following statements is true?

Tucker's Pet Shoppe has a stronger current ratio than Pluto's Pet Products

Wallaby Gift Shop's inventory turned over six times during the year. Similar gift shops have an inventory turnover equal to twelve times per year. What could be a valid statement for Wallaby's state of inventory management?

Wallaby is less efficient with inventory than their competitors - they are NOT effectively managing inventory compared to their competitors.

Which of the following is an element in the fraud triangle? a. All of the items are elements in the fraud triangle b. Rationalization c. Opportunity d. Pressure

a. All of the items are elements in the fraud triangle

Which of the following statements is true about fraud in the financial statements of a company? a. Fraud is the result of intentional errors. b. Fraud is not intentional and is corrected when detected. c. Fraud is a disagreement of accounting judgment. d. Fraud is not intentional and therefore does not need to be corrected.

a. Fraud is the result of intentional errors.

Which of the following is NOT a purpose of the internal control system? a. To ensure that no errors or irregularities occur b. To ensure the company is complying with applicable laws and regulations c. To safeguard assets d. All items are purposes of an internal control system e. To ensure the proper reporting of financial information

a. To ensure that no errors or irregularities occur Internal controls should REDUCE the risk of errors and irregularities. However, it does not provide assurance that NO errors or irregularities will occur.

Internal auditors focus on _________; external auditors are more concerned with ________. a. company policies and procedures; financial statements b. financial statements; laws and regulations c. e-commerce; fraud d. financial statements; risk assessment

a. company policies and procedures; financial statements

A company locks its inventory in a warehouse. This is an example of what control activity? a. restricted access b. proper authorization c. segregation of duties d. adequate documents and records

a. restricted access

The Muffect C&W Corporation started July with $10,000 of Tuffets in inventory. During July, they purchased $45,000 of Tuffets. At the end of the month, they had $15,000 of Tuffets still in inventory. What must Cost of Goods Sold have been for July?

a. $40,000 Draw Inventory as a t-account. Started with debit of $10,000. Added debit of $45,000. Ended with Debit of $15,000. There is a credit that represents the inventory that was used (sold) which is missing and will make the t-account balance. A $40,000 credit is needed (COGS was debited; Inventory credited).

Which of the following best describes the allowance for doubtful accounts? a. Contra-Asset account b. Liability account c. Expense account d. Contra-Expense account e. Asset account

a. Contra-Asset account

Lawyers Inc is a law firm. Conceptually, when should Lawyers Inc recognize revenue from its legal services?

at the date the legal services are provided Revenue is recognized when it is EARNED. For a law firm that provides legal services, revenue is earned when the legal services are provided.

Which one of the following statements is true if the company's collection period for accounts receivable is unacceptably long? a. The company should expand operations with its excess cash. b. The company may need to borrow to acquire operating cash. c. The company may offer trade discounts to lengthen the collection period. d. Cash flows from operations may be higher than expected for the company's sales.

Which of the following best describes IFRS? a. IFRS are currently used by all companies in the United States. b. IFRS are considered to be more principles based than U.S. GAAP c. IFRS are currently used by all public companies in the United States d. IFRS is the name for U.S. GAAP when it is used by international companies

b. IFRS are considered to be more principles based than U.S. GAAP

Which of the following is NOT an objective of an internal control system? a. Promoting operational efficiency b. Maximizing profits c. Safeguarding assets d. Ensuring accurate records

b. Maximizing profits

A company uses pre-numbered invoices. This is an example of what control activity? a. proper authorization b. adequate documents and records c. restricted access d. segregation of duties

b. adequate documents and records

At the beginning of the year, Accounts Receivable has a balance of $120,000 (assume a normal balance for this account type) and the Allowance for Doubtful Accounts has a balance of $20,400 (assume a normal balance for this account type). During the year, credit sales were $890,000 and cash collections on accounts receivable were $875,000. In addition, $17,000 in accounts receivable were written off during the year. If the company uses the Allowance method and estimates that 3% of credit sales will be uncollectible, what is the amount of the adjusting journal entry that should be made to the Allowance account at the end of the year? a. $23,300 b. $26,700 c. $30,100 d. $3,540 e. $6,940 f. $140

b. $26,700 For allowance account based on % of credit sales, you make the AJE for the estimate of uncollectible sales. $890,000 credit sales X 3% = $26,700

If a company has 90-credit terms, you would expect its accounts receivable turnover to be: a. 1. b. 4. c. 12. d. 2.

b. 4. You would expect that they would collect their receivables every 90 days. In a year, there are 360 days (roughly). So we would expect them to have an A/R turnover of 4. (They collect their receivables every 90 days or 4 times a year).

Which method of estimating uncollectible receivables focuses on net credit sales? a. Aging approach b. Percent-of-sales appraoch c. Net realizeable value appraoch d. All of these methods focus on net credit sales

b. Percent-of-sales appraoch

A company with a quick ratio of 1.23 means that the company a. has $1.00 in quick assets for every $1.23 in current liabilities. b. has $1.23 in quick assets for every $1.00 in current liabilities. c. would have to use inventory to help pay off its current liabilities. d. could not pay off all of its current liabilities using quick assets.

b. has $1.23 in quick assets for every $1.00 in current liabilities.

The direct write-off method of accounting for uncollectible accounts is not allowed under Generally Accepted Account Principles because it violates a. the monetary unit concept b. the matching concept. c. the historical cost concept. d. the entity concept.

b. the matching concept.

Two or more people working together to overcome internal control is called a. conspiracy b. mutiny c. collusion d. cooperation

c. collusion

Harper Company lends Hewell Company $20,000 on March 1, accepting a four-month, 6% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared? (Note: Monthly Interest = Principal x Rate x 1/12) Answer a. Cash 100 Interest Revenue 100 b. Cash 400 Interest Revenue 400 c. Interest Receivable 100 Interest Revenue 100 d. Interest Receivable 400 Interest Revenue 400

c. Interest Receivable 100 Interest Revenue 100

Joshua's Bookstore received a 6% $12,000 note receivable on September 1, 2008 from a customer and properly recorded the transaction on that date. The term of the Note Receivable is six months. Indicate the effect on the financial statements of Joshua's Bookstore at December 31, 2008 when they record the appropriate year end journal entries for the Note Receivable (assume that no other journal entries have been made for the Note Receivable by Joshua's Bookstore since the initial transaction was recorded on September 1, 2008): a. Interest Receivable increases $180, Interest Revenue increases $180 b. Interest Receivable increases $360, Interest Revenue increases $360 c. Interest Receivable increases $240, Interest Revenue increases $240 d. Interest Receivable increases $720, Interest Revenue increases $720

c. Interest Receivable increases $240, Interest Revenue increases $240 $12,000 (Principal) x .06 (Interest Rate) x 1/12 = $60 per month X 4 months (Sept - Dec) = $240

According to the text, Wal-Mart operates on a quick ratio of less than 0.20 because it collects cash: a. slowly and has a large amount of receivables. b. slowly and has almost no receivables. c. quickly and has almost no receivables. d. quickly and has a large amount of receivables.

c. quickly and has almost no receivables.

The Allowance for Doubtful Accounts represents a. cash set aside to make up for estimated bad debt losses. b. the difference between total sales made on credit and the amount collected from those credit sales. c. the amount of accounts receivable that the company estimates they will not be paid for by their customers. d. the amount of uncollectible accounts that have been written off to date.

c. the amount of accounts receivable that the company estimates they will not be paid for by their customers.

What is a periodic inventory system?

companies don't keep detailed inventory records. Instead, at the end of each accounting period (periodically), they physically count all of their inventory (referred to as a "physical inventory") and this determines the ending balance of inventory. Company knows their inventory balances and COGS at the END of an accounting period only. Must take a physical count of inventory periodically as this is the only way to determine inventory and COGS balances

What is a perpetual inventory system?

company tracks inventory continuously (perpetually). Each inventory transaction (receipt and sale of inventory) is tracked in the detailed inventory records. Computer systems (including bar codes and checkout scanners) allow companies to easily track this information. At any point in time, company knows their inventory balances and COGS. Typically take a physical count of inventory at least once a year. This is compared to detailed records of inventory and allows companies to determine if there are inventory errors or "shrinkage" (waste, breakage or theft)

A company uses the lower-of-cost-or-market-rule to value their inventory because of the

conservatism principal

Managers setting the proper "tone at the top" is which component of internal control? a. Information system b. Monitoring of controls c. Risk assessment d. Control environment

d. Control environment

Which of the following examples is the best example of employee fraud? a. A product manager for Peter Pan Corporation conducts a focus group in which 18 potential customers participate in demos and share their opinions on new products. At the end of the session, she gives each participant a $100 gift card for participating, but she has extra gift cards left over because 2 members of the focus group failed to show up. During her travel the next day, she lost the 2 remaining gift cards. Upon returning, she fills out an expense report for $2,000 (20 gift cards @ $100 each) and tells her supervisor that two of the cards have been lost. b. A junior accountant at Peter Pan Corporation's accounts payable department is responsible for issuing and sending checks to suppliers to pay for purchases made on account. Early this week, he mistakenly sent a check for $1,820 to a supplier to whom the company owed $1,280. c. The events coordinator at Peter Pan Corporation fails to confirm a banquet hall for a company function, causing the forfeiture of a $5,000 deposit and requiring a new facility to be rented that costs nearly $7,000 more than the original site. d. The lead IT technician at Peter Pan Corporation is instructed to order a new ergonomic keyboard for any employee who requests one. Many employees make requests, including employees who work in the office, in satellite offices and from home. Because so many keyboards are being ordered, she orders extra keyboards for her husband and kids to use on their personal computers at home.

d. The lead IT technician at Peter Pan Corporation is instructed to order a new ergonomic keyboard for any employee who requests one. Many employees make requests, including employees who work in the office, in satellite offices and from home. Because so many keyboards are being ordered, she orders extra keyboards for her husband and kids to use on their personal computers at home.

Which of the following statements is FALSE regarding IFRS? a. They focus on principles-based standards b. They are used by over half the countries in the world c. The SEC has established a timeline for the U.S. to adopt international standards d. There are very few differences between IFRS and U.S. GAAP

d. There are very few differences between IFRS and U.S. GAAP

Which of the following is not a cash equivalent? a. 30 day certificate of deposit b. 60 day corporate commercial paper c. 90 date U.S. Treasury bill d. 180 day note issued by a local or state government

d. 180 day note issued by a local or state government MUST BE 90 DAYS OR LESS

Which of the following is true regarding the direct write-off method of accounting for uncollectible accounts? a. The direct write-off method does not adhere to GAAP b. The direct write-off method does not use an allowance for doubtful accounts and, thus, overstates assets on the balance sheet c. The direct write-off method does not match expenses against revenues very well. d. All of these statements are correct.

d. All of these statements are correct.

If a company uses the allowance method of accounting for bad debts, which one of the following statements is TRUE? a. The company will reduce their accounts receivable at the end of the accounting period for estimated uncollectible accounts by recording an entry directly into the accounts receivable account for the estimated uncollectible accounts. b. The allowance method violates the matching principle. c. The company will record an entry for bad debt expense only when an account is determined to be uncollectible and is written off. d. The company will report accounts receivable on their balance sheet at the net realizable value.

d. The company will report accounts receivable on their balance sheet at the net realizable value.

How are cash equivalents reported or disclosed in the financial statements? a. They are included with short-term investments under current assets on the balance sheet. b. They are included with long-term assets on the balance sheet. c. They are disclosed only in a footnote to the balance sheet. d. They are included with cash under current assets on the balance sheet.

d. They are included with cash under current assets on the balance sheet.

A company with an accounts receivable turnover of 11.78 would be collecting its receivables about: a. once a quarter. b. once a year. c. once a week. d. once a month.

d. once a month. They would collect their receivables about 12 times a year, which is about once a month.

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 $3,500; credit accumulated depreciation, $3,500.

What is a classified balance sheet?

differentiates between current and long-term assets and liabilities. Classified Balance Sheet classifies items as either current (converts to cash in one year or less for assets; obligation is due in one year or less for liabilities) and long-term (greater than one year).

If an asset produces more revenue in its early years, the depreciation method best suited for this asset would be the:

double-declining balance method.

A Company incurred normal repair and maintenance expenses on their truck. Instead of correctly expensing the amount (your textbook refers to this as a "revenue expenditure" or "ordinary repair"), the company treated it as a capital expenditure. Are expenses overstated or understated? Assets?

expenses are understated and assets are overstated If something that was SUPPOSED to be expensed is capitalized, then it didn't go into expenses (like it was supposed to) and expenses are too low (or understated); it DID go into fixed assets (which was wrong) so assets are too high (overstated).

Define LIFO Conformity rule

if used for tax, LIFO must also be used for financial books

The formula for the inventory turnover ratio is COGS / average inventory. Sunshine-Is-Us Company has an inventory turnover ratio of 3.2. Competitors in Sunshine-Is-Us Company's industry have an average inventory turnover ratio of 20.8 times. Sunshine-Is-Us Company's inventory turnover ratio

indicates that the company may have a large amount of obsolete inventory or problems in their sales department.

We recognize the purchase of inventory and sale when transaction _________ - not when ______ is exchanged

occurs, cash

The inventory system that keeps a running record of inventory as it is bought and sold is the:

perpetual system

Intangible assets that are purchased should be

recorded as a long-term asset

Intangible assets that are internally developed should be

recorded as an expense

Define Lower of Cost of Market (LCM)

the current market value equals the replacement cost- this is a conservative approach to replacement cost

Subsidiary ledgers

the details of an account (lists each customer and amount they owe, etc). These are on accounts payable and accounts receivable. This just breaks down the total of the account into the specific details.

If an expenditure (payment) is capitalized it means

the item is recorded as an asset

Which of the following transactions would NOT result in an entry to the Merchandise Inventory account under a perpetual inventory system?

the receipt of payment from a customer within the discount period. If the customer pays us within the discount period, this is a "Sales Discount" which is a contra-revenue account.

What is F.O.B destination?

title passes when goods are received by the the buyer; the seller is responsible for goods while in transit, seller pays transportation costs (freight out) and sale and purchase are recorded when goods are received by the buyer

Is sales tax considered part of the cost of machinery and equipment?

yes

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