Accounting Exam 3: Chapters 6-8
The average cost inventory costing method is used by Quest, Inc. Sales are $275,000, the number of units available for sale is 250, the number of units sold during the period is 220, and the average cost of the goods available for sale is $1,000 each.How much is gross profit for the company? Select one: A. $ 55,000 B. $35,000 C. $25,000 D. $ 0
A. $ 55,000
Which of the following estimates are required when calculating depreciation expense? 1.Depreciation rate 2.Useful life 3.Expected maintenance costs 4.Salvage value Select one: A. 1, 2, and 4 B. 1, 2, 3, and 4 C. 2 and 4 D. 2, 3, and 4
A. 1, 2, and 4
On which financial statement and at what amount are accounts receivable reported? Select one: A. Balance sheet at the net realizable value B. Income statement at the amount written off C. Income statement at the net uncollectible amount D. Balance sheet at the amount owed by customers
A. Balance sheet at the net realizable value
Under which section of a statement of cash flows would the proceeds received from the sale of long-term depreciable assets most likely appear? Select one: A. Investing cash flows B. Operating cash flows C. Long-term assets D. Financing cash flows
A. Investing cash flows
How can uncollectible accounts be estimated
Aging analysis or the percentage of sales
How is the gain (loss) on a plant asset sale calculated? Select one: A. Asset sale price - Asset purchase cost B. Asset sale price - Book value on balance sheet C. Book value on balance sheet - Asset sale price D. Asset sale price - Total accumulated depreciation
B. Asset sale price - Book value on balance sheet
Assuming sales hold steady, which of the following actions would result in lowering income taxes for a company that uses the LIFO inventory method? Select one: A. Increasing sales prices B. Buying extra inventory at the end of the year in an inflationary environment C. Allowing the inventory quantity at year end to fall below beginning year levels D. None of these. All would cause increasing taxes
B. Buying extra inventory at the end of the year in an inflationary environment
Why must amounts received in advance from customers be deferred? Select one: A. The customer may not pay the entire balance due B. The company receiving payment has not earned the amount C. The customer has a right of return D. All of the above are reasons to defer
B. The company receiving payment has not earned the amount
Which of the following is an inventory account for manufacturing companies? Select one: A. Overhead B. Direct labor C. Finished goods D. Cost of goods sold
C. Finished goods
Assuming rising prices, which method will give the highest dollar value for cost of goods sold on the income statement? Select one: A. FIFO B. Average Cost C. LIFO D. All of these give equal values for cost of goods sold
C. LIFO
Which of the following is not a reason that so much attention paid to inventory in financial statement analysis? Select one: A. The magnitude of a company's inventory investment is often very large B. It can provide insight into future performance C. Low inventories may result in substantial costs for the company D. Risks of inventory losses are often high
C. Low inventories may result in substantial costs for the company
Which of the following is not necessary in calculating the depreciation expense for the first year for a newly purchased factory forklift? Select one: A. Estimated salvage value B. Total cost of the forklift at acquisition C. Market value of the forklift during its useful life D. Estimated useful life E. Depreciation rate
C. Market value of the forklift during its useful life
An income statement does not include which of the following? Select one: A. Cost of goods sold B. Operating expenses C. Retained earnings D. Sales
C. Retained Earnings
When you have a gain of a piece of equipment do you debit or credit?
Credit
On January 1, 2020, Danvers Company purchased a copy machine. The machine cost $800,000, its estimated useful life is 5 years, and its expected salvage value is $50,000.What is the depreciation expense for 2021 using the double-declining-balance method? Select one: A. $128,000 B. $200,000 C. $150,000 D. $192,000
D. $192,000
Ashton's Goods purchases $100,000 of inventory during the year, has beginning of the period inventory of $15,000, and sells $85,000 of inventory during the year for $150,000. What is the company's inventory balance to be reported on its balance sheet at year end? Select one: A. $15,000 B. $70,000 C. $65,000 D. $30,000
D. $30,000
At what amount will accounts receivable be reported on the balance sheet if the gross receivable balance is $100,000 and the allowance for uncollectible accounts is estimated at 6% of gross receivables? Select one: A. $106,000 B. $60,000 C. $100,000 D. $94,000
D. $94,000
Which statement is true concerning the straight-line method of depreciation? Select one: A. Depreciation is equal to the proceeds received on sale less the amount paid to acquire the asset. B. Purchase cost is expensed in the year of acquisition. C. Annual depreciation expense is highest in the early years and decreases over the life of the asset. D. Depreciation is recognized evenly over the estimated useful life of the asset.
D. Depreciation is recognized evenly over the estimated useful life of the asset.
When you have a loss of a piece of equipment do you debit or credit?
Debit
Why is revenue important?
It is a measure of customers responsiveness to a company's offerings of products and/or services
What is allowance for uncollectible accounts?
-A contra-asset representing the amount a company expects that its customers will not pay
What is shifting income?
-Allowance account sometimes used by managers to shift income from one year into anotheri0
What is a percentage of sales?
-Focuses on potentially uncollectible amounts among current period sales
What is an aging analysis?
-Focuses on receivables owed by customers that might be uncollectible
What does an income statement attempt to answer?
-How profitable the company is -How did it achieve that profitability? -Will the current profitability level persist
What is factoring?
-Selling receivables to a bank or other financial institutions -Receivables are removed from the balance sheet if sold
What are operating activities?
-The primary transactions and events of a company -Separated from non-operating activities on the statement
What information are income statements used for?
-To predict future performance for investment purposes -to assess the credit worthiness of a company -to evaluate the quality of management
What is pledging?
-Using receivables as collateral for short-term loan -Disclosed in footnotes -A short term loan is also presented in the liabilities section of the balance sheet
How do we report accounts receivable?
Report on the balance as net realizable value (the amount the seller expects to collect)
What are contract liabilities?
Revenue that hasn't been earned yet (unearned revenue or deferred revenue)
