ACCT - 110 (2)
Look at Unit 7 PP Slide 18 Would it make sense to record the full $82,600 as an asset? If not how would you record it as a journal entry? What type of asset is it?
Contra (counter to) Asset: A contra account is paired with another account to reduce its value
-A company's opening balance for the year of ADA (Allowance for Doubtful Accounts) is $1000. -A client goes bankrupt and our AR Balance = $400 -$50 is recovered from the above mentioned client -On June 30, management publishes unofficial statements and requests % of sales estimate of bad debt due @ 1% of net sales of $100,000 -For the year end, our BDE (Bad Debt Expense) AR Aging Summary Estimates are: a) 0-30 days = $10,000 x 1% = $100 b) 30-60 days = $7,000 x 2% = $140 c) 60+ days = $3,000 x 50% = $1,500 (1) Complete a T-Table for both ADA (Allowance for Doubtful Account) and BDE (Bad Debt Expense Account) (2) Complete Journal Entries For each (3) How accurate was our AR Aging summary estimates?
"See Unit 7 FC 100 Answer"
Jones and Company owns the following items Cash in Bank7,500 Cash on hand450 Cash refund due from CRA800 Chequing account balance2,550 Post dated cheques1,500 What is the total to be reported as "Cash" on the balance sheet?
$10,300 (NOT post dated cheques and NOT Cash refund from CRA - believe these are AR)
You buy a boat for $100,000. The boat will last 10 years. -What is the depreciation expense? -Do a journal entry -Complete a table of year 0 through year 10 showing the Depreciation Expense, Accumulated Depreciation and Asset Value for each year/ -What type of depreciation is this?
$100,000 / 10 years = $10,000 per year. Journal Entry: Dr. Depreciation Expense $10,000 Cr. Accumulated Depreciation $10,000 [straight line depreciation - think of graph with straight line going down and to the right as the value is declining in a linear fashion] see pic for a) table
You buy a boat for $100,000. The boat will last 10 years. Say that the boat has a salvage value of $5,000 at the end of year 10. -What is the depreciation expense? -Do a journal entry -Complete a table of year 0 through year 10 showing the Depreciation Expense, Accumulated Depreciation and Asset Value for each year/ -What type of depreciation is this?
$100,000-$5,000 / 10 = $9,500 per year Dr. Depreciation Expense $9,500 Cr. Depreciation Expense $9,500 Straight line depreciation [The $9,500 is also called the deprecitionable base - we want to adjust this value from $100,000 to $95,000 at the beginning then adjust per year]
Carla's Snack Shop has a petty cash fund of $100. On November 30, the fund contained $20 in cash and receipts for postage of $16, supplies of $19, and travel expenses of $18. What is the amount of adjustment to Cash Short and over?
$27
The accounting for warranty costs is based on the concept of matching expenses with revenues, which requires that the estimated cost of honouring warranty contracts should be recognized as an expense a) when the product is brought in for repairs. b) in the period in which the product was sold. c) at the end of the warranty period. d) only if the repairs are expected to be made within one year.
B
What are the two (2) categories of liabilities? What are the three (3) uncertainties that can exist for a liability? Give six (6) and two (2) examples of each, respectively
(1) *Determinable*: There's a level of certainty regarding the liabilities: a) Existence (have a contract) b) Amount (amount is known on invoice) c) Timing (is known because the contract says you have to pay within a certain date) Examples: Acct. Payable, Unearned Rev, Bank Debt, Notes payable, Sales taxes payable, property taxes payable etc. (2) *Uncertain*: Low degree of certainity exists regarding the liabilities: a) Existence b) Amount c) Timing (company getting sued lawyer says well there's 50% chance you can be sued so existence is uncertain - as well the amount can be between $100,000 and $5,000,000 that you can lose - so amount is uncertain - and timing of when you would have to pay and when the court date is finished is unknown so timing would be uncertain Examples: -Provisions: The estimation of a existing liability. The *amount* and *timing* are uncertain (these include warranties, loyalty programs, gift cards) -Contingencies: The estimation of a possible liability. This means that *all three variables - existence, amount & timing* are uncertain (these include lawsuits, possible remediation costs, & asset expropriation)
What are the Six (6) layers of control activities for internal controls that mitigate theft and minimize mistakes (on the books)
(1) *Establishment of responsibilities*: Making ONE (1) person responsible can ensure that one person will manage and mitigate risks (think one cash registered assigned to one person - this establishes responsibility and mitigates risks) (2) *Segregation of duties*: Splitting one activity (think high risk activity likes acct. rec) for multiple employees to perform. This makes it hard to commit fraud as you would need multiple employees to collude with one another (think one employee receives cash from customer - another employee confirms this and writes it out) (3) *Documentation Procedures*: Creating a paper trail - i.e. creating a receipt and storing the receipt for a record of it - classic example of is a costco cashier double scanning an item say $30 headphones + $30 headphones but you only got 1. Then afterwards the employee can steel the headphones from the store and on the books there would be no difference. That's one of the reasons the costco employees look for receipts (to ensure cashiers aren't stealing as well). (4) *Physical and IT*: : Limiting access to physical cash and creating restrictions in software reduce theft and error a) physical controls: could be locked cash boxes and cameras b) IT controls could be: password protections and digital date stamps / fingerprints (think an acct employee going into the system and creating a new vendor and charging an expense to this vendor - but the vendor is fake and just goes to the employee - so you need password protection / digital ID showing what employee is logged in and what they're doing etc.) (5) *Independent Checks*: Someone EXTERNAL to the company does reviews and audits of the accounting department (consider the effect of knowing that your boss will randomly be reviewing portions of your work - works very well to mitigate theft) (6) *HR Controls*: Selective hiring process (i.e. companies requiring you to participate in criminal record checks, drug screening, character reference ect.)
At Frederico's, Amanda and Long work alternate lunch hours. Normally Amanda works the cash register at the checkout counter, but during her lunch hour Long takes her place. They both use the same cash drawer and count cash together at the end of the day. What are the control weaknesse(s) in this situation?
(1) *Establishment of responsibilities*: Making ONE (1) person responsible can ensure that one person will manage and mitigate risks (think one cash registered assigned to one person - this establishes responsibility and mitigates risks) - *THIS IS CONTROL ACTIVITY IS BEING VIOLATED* [segregation of duties IS being met though because both counting the cash]
What are the three (3) methods to determine what the allowance for doubtful accounts (in bad debts) is
(1) *Historical Bad Debt Expense (BDE) Estimate (Percentage of Receivables):* So this is in our AR aging summary where we look at previous years and determine the % of money we, on average get back when a debt is 0-15 days outstanding, 15-30 days outstanding etc.. and we use that percentage as an estimate to estimate how much we can expect to get back this year [some trial and error at the beginning so not the most accurate in first few years but can be fairly accurate after that - this is gold standard and yields the most accurate estimate] (2) *Percentage of Net Sales*: BDE is calculated based on a $ of net credit sales. The $ amount is written off to bad debts and added to a Allowance of Doubtful Accounts (ADA) (3) *Hybrid Method - preferred method*: -Method 2 (% of net sales) is used *monthly* to estimate BDE THEN Method 1 (% of receivables using aging summary) is used at the *year end* to set the balance of the ADA account
Uncertain Liabilities can be broken down into Provisions (Warranties, Loyalty Programs, GiftCards) and Contingencies (Lawsuits, Possible remediation Costs, Asset Expropriation) What are the two (2) types of Lawsuits in Contingencies & There characteristics. Describe your actions for each type of lawsuit contigencies if the liability is: a) Likely and measurable b) likely and not measurable c) likelihood is unknown and measurable d) Likelihood is unknown and not measurable
(1) *IFRS:* The lawsuit must be recorded if the obligation is *likely* to occur [only criteria needed so whether it's measurable or not or known/unknown it really wouldn't matter - you record it only if it's likely to exist) (2) *ASPE:* The lawsuit must be recorded if the obligation has BOTH: a) *likely* to occur (i.e. 80% chance that the lawsuit will go through and you'll lose money) b) The *amount* expected to be paid can be *reasonably estimated / measurable* (i.e. the damages will be between $10,000-20,000) a) Likely and measurable: Record loss and liability b) likely and not measurable: Disclose in notes c) likelihood is unknown and measurable: disclose in notes d) Likelihood is unknown and not measurable: disclose in notes [so you see for ASPE we only record the loss and liability if it's LIKELY to occur and the amount expected to be paid is measurable/estimated (we don't record any of the others)
What are the two (2) systems of merchandising and how they differ in regards to: -Calculation of COGs -Management of cost and inventory amounts -When an inventory count is used
(1) *Perpetual*: -CONTINUOUSLY recalculating COGs -Managers constantly UP TO DATE on costs and inventory amounts -Inventory count is only used to VERIFY and CORRECT COGs and ending inventory (2) *Periodic*: -Only calculate COGs at the END of the period -Managers don't have any info of costs and inventory amounts until the END OF THE PERIOD -Inventory count is the ONLY WAY to DETERMINE COGs and ending inventory [Perpetual inventory will be our focus in this class - we look more are periodic inventory in the next class]
In regards to Uncertain Liabilities - the two types we looked at were (1) Provisions (2) Contingencies -What are each? -Give three (3) examples of each -In which of the three (3) variables of uncertainty (Existence, Amount, Timing) is there uncertainity for each?
(1) *Provisions*: The estimation of an existing liability (Warranties, Loyalty Programs, Gift Cards): The *amount* and *timing* are uncertain (however existence is certain) (2) *Contingencies*: The estimation of a possible liability. (Lawsuits, possible remediation costs [i.e. you're an oil and gas company and you might have to be taxed 10 years from now for climate change], asset expropriation [government takes over the land your business is located on to build a highway against your wishes] ALL three (3): (1) *Existence* (2) *Amount* (3) *Timing* Are uncertain
What are the two (2) main limitations of doing a "Direct Write-Off Method" for a Bad Debt? Therefore we're only allowed to use the Direct Write off method when?
(1) *WHEN* to write off a BDE is *subjective*: -Who decided when it is the right time to write-off the BDE? -Note: Commissions/Bonuses can make people do crazy things (won't write it off in year 1 because they will get a big bonus this year so will wait) (2) Prior to the write-off Assets and Revenues are inflated --> So expenses are understated when the write-off takes place Only allowed to use this when the amount is immaterial (small)
What are the three (3) steps required in managing petty cash?
(1) Establishing the starting cash (2) Tracking all inflows and outflows of cash (3) Confirming that no cash is missing
What are the two (2) types of returns?
(1) Full Return (or just 'return'): Merchandise is returned to the sell and a full refund is given (2) Allowance (partial return): The person who bought the goods recognizes a defect with the products - a deal is made (i.e. you bought a washer for $500, its brought back with a big scratch - a deal is made where $100 is knocked off the price [don't confuse this with "allowance for doubtful accounts"]
A contractor needs to buy a tool to complete a building job. The tool costs $100 (invoice) and the contractor marks up 40% What is the true cost to the contractor (using taxes GST (5%) and PST (7%) in the calculation) Now how does this compare to HST of 12%
(1) GST & PST: Cost to contractor: $100 x GST = $5 $100 x PST = $7 Contractor remits (gets back) GST of $5 $107 for contractor to work on how - he Forwards remaining cost of $107 + markup (took time to buy tool - tool is to be used - could break etc.) to the customer $107 + 40% markup = $149.80 Customer pays GST & PST for this: $149.80 x (5% + 7%) = $17.98 = $167.78 total [this is how cumulative taxes work which is what PST is - government gets $7 + 17.98 = $24.98] (2) HST: Cost to contractor: $100 x 12% = $12 Contractor remits (gets back) HST of $12 Forwards remaining cost of $100 + markup to customer = $100 + 40% markup = $140.00 $140 x 12% = 16.80 =$140 + 16.80 = $156.80 so $10.98 additional to end customer with PST + GST as opposed to HST because PST is a cumulative tax [government only gets $16.80]
A company decides to sell a piece of equipment to a buyer for $128,000. The original cost of the asset was $450,000 and the accumulated amortization account for this asset is $214,000. Six months of depreciation expense has accrued but has not been recorded. The estimated annual amount of depreciation expense for this asset is $40,000. Half of the payment from the buyer will be in cash and the remaining half will be a short-term notes payable due in three months. What journal entries are needed?
(1) Put our $450,000 in our Cr. Asset (2)The estimated annual amount of depreciation expense for this asset is $40,000 - and because we're only half way through the year at this point it's going to be $20,000 for the 6 months period were at. (3) $214,000 + $20,000 = $234,000 is in our Accumulated Depreciation account (as a debit) (4) $128,000 - half in cash and half in notes receivable = $64,000 each (5) $234,000 + $64,000 + $64,000 = $362,000 which is $88,000 short of our $450,000. So we need to add $88,000 in our "Dr. Loss on Disposal of Asset to get to our $450,000 original cost of asset
What are the three (3) considerations when determining the cost of a long-term asset?
(1) The net purchase price (add non-refundable tax, subtract discounts etc.) (2) Add any expenditures necessary to bring the asset into it's intended use (say someone needs to inspect a truck you bought to make sure it's safe) (3) Add any retirement costs (if any) - i.e. say you have to spend $5,000 to deep clean a tanker truck you bought of hazardous materials before reselling
What four (4) things is involved in managing bank accounts for Bank Reconciliation within day to day operations
(1) Verifying the opening balance of cash (2) Adding all inflows of cash (3) Subtracting all outflows of cash (4) Comparing the calculated number to the bank statement
There's a lot of time spent waiting to get your money from a customer / buyer. What are three (3) specific reasons this is bad for you as a business?
(1) You could have used cash to expand (2) You could have used the money to accumulate interest (3) Greater of of Bad Debt Expense (BDE) - company is likely short on cash and has a greater chance of defaulting --this is why you want to speed up the collection time with discounts --> see 2/10 , n/30
ABC Manufacturing has net sales of $220,000, cost of goods sold of $120,000, and operating expenses of $40,000. The gross profit margin rounded to the nearest percentage is
(220,000-120,000) / 220,000 = *45.45%*
What are the control weaknesses (if any)? in this situation All employees at Vincent Travel take a vacation every year. During that time, with the exception of the controller's position, the employees' duties are assigned to another individual while they are on vacation.
(5) *Independent Checks*: Someone EXTERNAL to the company does reviews and audits of the accounting department (consider the effect of knowing that your boss will randomly be reviewing portions of your work - works very well to mitigate theft)
What are the control weaknesses (if any)? in this situation The internal auditors at Humber Manufacturing regularly report their findings to senior management, who get the accounting department to investigate and resolve any problems.
(5) *Independent Checks*: Someone EXTERNAL to the company does reviews and audits of the accounting department (consider the effect of knowing that your boss will randomly be reviewing portions of your work - works very well to mitigate theft) THIS IS NOT MET BECAUSE IT'S *INTERNAL* AUDITORS THAT ARE REPORTING FINDINGS TO SENIOR MANAGERS AND THEY GET THEIR OWN DEPARTMENT TO INVESTIGATE AND RESOLVE PROBLEMS - SO THERE'S NOTHING "INDEPENDENT" OR "EXTERNAL" ABOUT IT
The following data are available for Dragon Boat Company for March: Book balance, March 31: $3,620 Service charges: 50 Interest revenue: 35 Note collected by bank: 1,500 Cheque returned marked NSF: 700 What is Dragon's adjusted book balance on March 31 from the above data?
*4,405* 3620 (50) 35 1500 (700) = 4,405
Who pays for the freight costs when the terms are FOB shipping point? The ultimate customer The buyer The seller Either the buyer or the seller
B) The buyer
On which financial statement would you expect to find Allowance for Doubtful Accounts? Balance Sheet Income Statement Statement of Retained Earnings Statement of Changes in Shareholders' Equity
Balance Sheet
The allowance for Doubtful Accounts goes on the ____________ while the Bad Debt Expense goes on the _________________
Balance Sheet , Income Statement
What are the control weaknesses (if any)? in this situation At Traction Tires, most of the tires are stored in a fenced outdoor storage area. One of the employees noticed a place where the fence needed to be repaired and reported this to the manager. The fence was fixed before the close of business that night.
*CONTROL(S) NOT BEING MET!*: (4) *Physical and IT*: : Limiting access to physical cash and creating restrictions in software reduce theft and error a) physical controls: could be locked cash boxes and cameras (*physical controls is the specific one not being met in this example*) b) IT controls could be: password protections and digital date stamps / fingerprints (think an acct employee going into the system and creating a new vendor and charging an expense to this vendor - but the vendor is fake and just goes to the employee - so you need password protection / digital ID showing what employee is logged in and what they're doing etc.)
What are the control weaknesses (if any)? in this situation At Half Pipe Skate, they are very concerned about running an efficient, low-cost business. Consequently, the manager has assigned the same individual to do the purchasing and prepare the receiving reports when the merchandise is delivered
*CONTROLS NOT MET*: (2) *Segregation of duties*: Splitting one activity (think high risk activity likes acct. rec) for multiple employees to perform. This makes it hard to commit fraud as you would need multiple employees to collude with one another (think one employee receives cash from customer - another employee confirms this and writes it out) (5) *Independent Checks*: Someone EXTERNAL to the company does reviews and audits of the accounting department (consider the effect of knowing that your boss will randomly be reviewing portions of your work - works very well to mitigate theft)
Sandeep is a very hard-working employee at Stan's Hardware. Sandeep does such a good job that he is responsible for most of the company's office and accounting tasks. The only thing the owner has to do is sign cheques. What are the control weaknesses (if any)? in this situation
*Controls not being met!*: (2) *Segregation of duties*: Splitting one activity (think high risk activity likes acct. rec) for multiple employees to perform. This makes it hard to commit fraud as you would need multiple employees to collude with one another (think one employee receives cash from customer - another employee confirms this and writes it out) (5) *Independent Checks*: Someone EXTERNAL to the company does reviews and audits of the accounting department (consider the effect of knowing that your boss will randomly be reviewing portions of your work - works very well to mitigate theft)
What is the difference between FOB Shipping Point and FOB Destination in terms of the buyer and sellers responsibility for freight costs & who's responsible for damages in transit?
*FOB Shipping Point:* (assets transfer hands at shipping point) Buyer pays the freight cost Buyer is responsible for damages in transit [This freight cost is capitalized into the cost of inventory only when the buyer pays the freight costs] *FOB Destination:* (assets transfer hands at buyer destination - think amazon) Seller pays freight cost Sell is responsible for damages in transit
Observe table in Unit 5 PP slide # 33 on Merchandise Transaction Sales: Calculate the cash received from each sale
*July 3*: $900 invoice - $50 return = $850 $850 x 2% discount = $17 $840 - $17 = *$833* [paid on day 6 so gets discount] *July 5*: $1,100 invoice - $200 return = *$900* [paid on day 16 - so didn't get discount] *July 11*: $450 x 0.01 = *$445.50* [paid on day 2 so gets discount] *July 18*: $1,850-$475 = $1375 $1375 x 0.02 = $27.50 $1375-$27.50 = *$1,347.50* [paid on day 7 so gets discount] *July 22*: $1,600 - $150 = *$1,450* [doesn't get discount]
@JRX company has a December 31 fiscal year end. It received a $5,600 property tax bill from the municipality on March 31. The bill is payable on June 30. Assuming entries have been done correctly in March and June, what is the amount of property tax that should be debited to Property Tax Expense on December 31?
- need help with this one @ask prof thought it was just 5,600 x 9/12 but not...
The inventory cost is: "The cost incurred to bring the asset to its intended use" Which of these satisfy these criteria of brining it to its intended use? Inbound freight cost? Damaged inventory (cost to fix)? Manufacturing costs? If we incurred financing costs to purchase inventory? If we incurred financing costs to manufacture inventory? Training costs? PST? GST? Storage costs? Consignment goods
-Inbound freight cost: YES -Damaged inventory (cost to fix): YES -Manufacturing costs: No (not applicable to us as a retailer) -If we incurred financing costs to purchase inventory: No (if you needed to borrow money from the bank to pay for some of these fees - financing is not a necessary cost of expense to bring asset to intended use -If we incurred financing costs to manufacture inventory: No -Training costs: No (training needed to bring the item from say the ship to your warehouse then yes (material handling training) - but training to say sell the item then no because its after it arrived) -PST: YES (if you're paying PST you'd prob include in cost of asset) -GST: No -Storage costs: No (The asset reaches your asset therefore its achieved its intended use - hanging onto it for 10 years wasn't needed to sell the item) -Consignment goods: No (could you sell this on my behalf - think auction - no cost to vendor for inventory so no
If you make a sale and you collect GST on that sale it is a ___________. Whereas if you pay for a purchase and you have to pay GST on that purchase (say you're a business buying lumber for $100 and you have to pay $5 GST) it is a ______________
-Liability because we have to pay that GST back to the government when we collect it -Asset because the government will give it back at some point as businesses are GST exempt
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A depreciation calculation of an asset is used to roughly parallel the rate of deterioration. What are the three (3) ways of calculating deterioration rates?
1) Straight-Line 2) Declining Balance 3) Units of use
XYZ company sells widgets for $1,900 plus 5% GST and 7% PST. The company sold 80 widgets yesterday. Calculate the amount of PST payable the company will record for their sales.
1900 x 0.07 x 80 = $10,640
A company sells an appliance for $600 and offers 25 loyalty points. Each point is redeemable for $1.50 and historical records show that only 70% of loyalty points are used by the customers. Record the JE. What is the true price of this appliance?
25 points x $1.50 x 70% = $26.25 The appliance's value is $600/626.25 = 95.8% -Revenue: 95.8% of what the sticker price is = $574.80 (actual value of asset) -Unearned Revenue (100-95.8% = 4.2%) = $25.20 So the *true price* of our company asset appliance is $574.80 (not 600-26.25 = 573.75). *A client will have to save up $600 of points to buy a $574.80 appliance* which you could say: *If someone redeems $26.25 worth of points then they will get $25.20 worth of merchandise*
In the current year, Song Company introduces a new product that includes a two-year warranty on parts. During the year, 4,700 units are sold for $435 each. The cost of each unit was $180. The company estimates that 7% of the units will be defective and that the average warranty cost will be $76 per unit. The company has a December 31 fiscal year end and prepares adjusting entries on an annual basis. What is the total debit to warranty expense for the year end entry?
4,700 x 0.07 = 329 329 x 76 = $25,004
What are the Pension Deduction Payable in terms of the employers responsibility?
A combination of employee and employer contribution (often a negotiated formula is agreed upon)
What is a loyality program? This is an uncertain laibility. What does it create a liability in the form of?
A loyalty program provides customers with future savings. This creates a liability in the form of unearned or deferred revenue.
Davis Company has a December 31 year end. The company received its property tax bill for 2017 on March 1, 2017. According to the bill, taxes of $24,000 for the year ended December 31, 2017 are due by April 30, 2017. On March 1, Davis will record property tax expense of A) $4,000.00 B) $8,000.00 C) $12,000.00 D) $24,000.00
A) $4,000 All of January and all of February = 2/12 months that have occured at March 1. So we go 2/12 x $24,000 = $4,000 we write on March 1 as the expense
Match the terminolgy. A) Amounts owed by customers from the sale of goods and services B) A written promise to pay a specified amount on demand or at a definite time C) Emphasizes expected net realizable value of accounts receivable D) Analysis of customer account balances by length of time they have been unpaid E) Sales, using this type of credit card are usually treated the same as cash sales 1.Aging of receivables2.Bank credit card3.Promissory note4.Trade receivables5.Percentage of receivables approach
A) 4 - Trades Receivable B) 3 - Promissory note C) 5 - Percentage of receivables approach D) 1 - Aging the accounts receivables E) 2 - Bank credit card
A) Levied on employees by the federal and provincial governments B) A payroll cost designed to provide income protection for a limited period of time to employees who are temporarily laid off C) This plan provides supplementary disability, retirement, and death benefits to qualifying Canadians D) Taxes levied on sales to customers E) A potential liability that may become an actual liability in the future F) A debt that can reasonably be expected to be paid from current assets G) Payments by employers to retired employees H) A form showing employment income, CPP contributions, EI premiums, and income tax deducted for the year, in addition to other voluntary deductions I) An obligation in the form of a written promissory note J) An agreement whereby an employer provides benefits to employees after they retire 1.Current liability2.Notes payable3.Statement of remuneration paid (Form T4)4.Sales taxes5.Contingent liability6.Federal and provincial income taxes, CPP and EI7.Canadian Pension Plan (CPP)8.Employment insurance9.Post retirement benefits10.Pension plan
A) 6 B) 8 C) 7 D) 4 E) 5 F) 1 G) 10 H) 3 I) 2 J) 9
Match the items a) A symbol that identifies a particular company or product b) Must be expensed when incurred c) Long-lived assets replaceable only by an act of nature d) When carrying amount of asset is greater than the proceeds received from its sale e) Occurs if proceeds of disposal exceed the carrying amount f) Process of allocating the cost of a depreciable asset to expense over its useful life g) Can be identified only with a business as a whole h) Examples are franchises and licences 1.Gain on disposal2.Goodwill3.Loss on disposal4.Depreciation5.Trademark6.Intangible assets7.Natural resources8.Research costs
A) Trademark B) Research Cost C) Natural Resource D) Gain on disposal E) Loss on disposal F) Depreciation G) Goodwill H) Intangible assets
Internal controls are the methods put in place to ensure _________
Accuracy -We have control methods in place to eliminate mistakes and minimize theft
When accounting for the depreciation of physical assets we use the terms "Depreciation Expense --> Accumulated Depreciation". What are these equivalent to for intangible assets?
Amortization Expense --> Accumulated Amortization
What is a Long-Term (or Long-Lived) Asset?
An asset that will be used for longer than 1 year
What is a "Current" Liability?
An obligation that is expected to transfer in *less than 12 months*
Pandora Pants Company acquires a delivery truck on April 6, 2017, at a cost of $29,000. The truck is expected to have a residual value of $7,000 at the end of its four-year life. Pandora uses the nearest month method to pro-rate depreciation expense. Calculate annual depreciation expense for the second year using straight-line depreciation, assuming Pandora has a calendar year end
Annual Depreciation Expense = (Cost of Truck - Residual Value) / Useful Life = (29,000 - 7,000) / 4 years = *$5,500*
Sackville Company purchased merchandise from Amherst Company with freight terms of FOB shipping point. The freight costs will be paid by the seller. buyer. transportation company. buyer and the seller.
Ans - Buyer (Sackville company) Buyer pays the freight cost and in this particular case, Sackville company is the buyer.
All of the following are definitely determinable liabilities EXCEPT A) current maturities of long-term debt. B) operating lines of credit C) a future commitment to purchase an asset. D) accounts payable.
C
Pandora Pants Company acquires a delivery truck on April 6, 2017, at a cost of $54,000. The truck is expected to have a residual value of $1,000 at the end of its four-year life. The company has a policy of recording a half-year's depreciation in the year of acquisition and a half-year's depreciation in the year of disposal. Using the double diminishing-balance method, calculate the depreciation expense for the second year of the equipment's life.
Cost of truck: $54,000 Residual value: $1,000 Useful life = 4 years Annual Depreciation expense: $54,000 x 25% rate (i.e. 1/4 years) = $13,500 % of depreciation = 25% (i.e. 1/4) % of deprecition (double declining) = 50% 1st year: $13,250 2nd year: $54,000-13,500 = 40,500 x 50% = *$20,250*
If you somehow have more money in your pretty cash box you _______ your over and short. If you somehow have less money than expected in your petty cash box you ______ your over and short.
Credit, Debit
In an asset the ______ is positive , in a contra asset the ______ is positive
Debit , Credit
A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting entry will include a __________ to Bad Debts Expense. Debit Of $2,000 Credit Of $2,000 Debit Of $38,000 Credit Of $38,000
Debit Of $2,000 (Amount needed in Allowance is $20,000 minus the present amount of $18,000 = $2,000 additional credit needed in Allowance. The entry will therefore require a debit of $2,000 to Bad Debts Expense.)
Cuono Mining Co. purchased a mine for $9.0 million that is estimated to have 40 million tonnes of ore and a residual value of $700,000. In the first year, 7 million tonnes of ore are extracted and 2 million tonnes are sold. Record annual depletion for the first year, ended August 31, 2017
Depreciation Expense per tonne = [(Cost - Salave value) / Estimated # of units] x # of units extracted = [(9,000,000 - 700,000) / 40,000,000] x 7,000,000 = *1,452,500*
What is Employment Insurance - E.I. (in terms of the employers contribution)
Employer matches the employees contribution x 1.4 (140%) - i.e. referred to as "bulk up" So at $9.06 Employee contributes: $3.77 Employer contributes: $5.29
What are the Worker Compensation Board - WCB in terms of the employers responsibility? What is it calculated based on and the range of these payments?
Employer only expense - Calculated % based on gross pay (ranging from 0.25% - 10% of gross pay) - based on the danger of the work
Purchase price of used equipment: $100,000 Repairs to bring into operation: 50,000 Inspection: 1,000 Staff training: 8,000 Non-refundable tax: 12,000 Transportation fees: 6,000 Operating insurance: 9,000 Which of these costs would you capitalize into the cost of the equipment?
Everyone except for Staff training and Operating insurance (operating insurance is after the time of delivery so asset already brought into attended use)
True or False: A retail company and a service company have different ways of measuring profit
F Ways of measuring profit is always the same, which is Total Revenues - Total Expenses.
Warranty liabilities are estimated based on actual warranty costs incurred to date T/F
F - It is based on the estimated cost that will be incurred in future based on previous experience So it's estimating in 1 year say - there will be 5% of defected products (using past numbers to estimate future costs)
The collection period should be the same for all industries True False
False
The first journal entry to establish a petty cash fund would be to debit Cash and credit Petty Cash. True or False?
False
When a company issues a gift card, the company will record the gift card in revenue in the period in which it is sold T/F
False
Proper segregation of accounting duties eliminates the need for internal controls. True or False?
False Internal control focuses on prevention and detection of errors and fraud, physical control over fixed assets and ensure compliance with the laws and segregation of duties. Hence By segregation of accounting duties we can not eliminate internal control.
True or False: Service revenue minus operating expenses equals gross profit.
False - Gross profit = Service revenue - Direct expenses
You buy a boat for $100,000. The boat will last approximately 10 years...? Say that the boat has a salvage value of $5,000 at the end of it's life. The boat will depreciate 30% per year -Complete the depreciation table -What is the depreciation expense? -Do a depreciation expense J.E. just for year 1 and year 2 -What type of depreciation is this?
For declining balance depreciation we must remember the table format in black which will really help us solve these (see pic of the format and how we solved in red) -Year 1: Dr. Deprecition expense $30,000 & Cr. Accumulated Depreciation $30,000 -Year 2: Dr. Depreciation expense $21,000 , Cr. Accumulated Depreciation $21,000 (and so and and so fourth) -Type of depreciation: Declining Balance Depreciation (or diminishing) *See slides 25-36 because we must adjust the $5,000 at the end of it life portion of this problem so looking at these slides will make it very clear - but slide 36 is the final result*
GST is applied to __________ PST is applied to some sales
GST is applied to all sales PST is applied only to some sales
Sales tax (GST,PST,HST) is applied to the invoice price of ________________________
Goods and services purchased
A company shows the following balances: a) Sales $922,000 b) Sales Returns and Allowances $256,000 c) Cost of goods sold $583,000 d) Operating Expenses $84,000 What is the gross profit?
Gross Profit = Net Sales - COGs Net sales = Sales Revenue - Sales Returns & Allowances - Sales discounts (if any) Net Sales = 922,000 - 256,000 = 666,000 Gross Profit = 666,000 - 583,000 = *$83,000*
A company shows the following balances: Sales: $981,000 Sales Returns and Allowances: $287,000 Cost of goods sold: $451,000 Operating Expenses: $70,000 What is the gross profit margin?
Gross Profit Margin = Gross Profit / Net sales Gross Profit = Net Sales - COGs = 694,000 - 451,000 = 243,000 Net Sales = Sales - Sales Returns & Allowance = 981,000 - 287,000 = 694,000 243,000 / 694,000 = 35.01%
What is the concept of "Breakage"?
If it can be estimated that an amount of gift cards won't be redeemed because they are lost or have been discarded by the holder, it is considered "breakage". Which can be written off by using the 2nd JE (see pic)
What is an "Intangible Asset" and what are five (5) examples of intangible assets?
Intangible assets are assets that do not have physical substance 1) Patents 2) Trademarks 3) Copyrights 4) Research and Development (R&D expense) 5) Goodwill (someone buying an entire company - that company is now their asset)
Which of the following best describes accumulated depreciation? It is used to show the amount of cost expiration of intangibles It is the same as depreciation expense It is a contra asset account It is used to show the amount of cost expiration of natural resources
It is a contra asset account
Which of the following best describes expected useful life? It is calculated when the asset is sold It is estimated at the time that the asset is placed in service It is determined each year that the depreciation calculation is made It is used to calculate the depreciable amount
It is estimated at the time that the asset is placed in service
Which of the following transactions are NOT covered by the term electronic funds transfer? a) prepaid smart cards b) debit and credit card transaction c) selectronic bill payments using on-line banking d) mail-in cheques
Mail in cheques
What are the two (2) main types of merchandising business? (there's 2 subcategories of one of these what are they?)
Merchandising: (1) *Selling Goods* a) Merchandiser - Distributes ready to sell goods (doesn't really add anything to the product or create the product but they can stock items and ship them for a company etc.) [grocery store is a good example of this as they stock all the items which add value to the manufacturer] b) Manufacturer - Fabricates goods - all of these goods are considered INVENTORY (creates / modifies goods i.e. taking raw materials and combine them into a finished product) (2) Selling Services [our focus in this class is on the merchandiser]
What is the "Salaries Payable" for payroll?
Net Pay or take home pay that the Employee is going to receive
What are the Income Taxes Payable and Union Dues payable in terms of the employers responsibility?
No responsibility it is just the employees expenses only
Carla's Snack Shop has a petty cash fund of $100. On November 30, the fund contained $19 in cash and receipts for postage of $15, supplies of $4, and travel expenses of $27. What is the credit amount to cash?
Petty Cash: $100 (Less) Cash at end: $19 Cash to be paid off (credited) = $100 - $19 = $81
Lee Co. purchased merchandise on account for $5,000. The credit terms are 2/10, n/30. Lee Co. has talked with the company's banker and knows that she could earn 9% on any money invested in the company's savings account. Should Lee Co.: 1) Pay the invoice within the discount period; or, 2) Should she keep the $5,000 in the savings account and pay at the end of the credit period (i.e. at 30 days)? Support your recommendation with a calculation showing which action would be best.
Potential discount if paid ON day 10: 2% on $5,000 = $100.00 Potential interest of paid on day 30 (for 20 additional days at 9%): $5,000 x 9% x 20/365 = $24.66 Savings by taking the discount = $100-24.66 = $75.34 to pay early [it's 20 , not 30 because with BOTH options you get 10 days of 9% interest so they cancel out - you could do 10x9% THEN 5,000 x 2% for the first one then go 5,000 x 9% x 30/365 for the second but there's no point of doing the 10x9% for both so they cancel - that's why its 20 days for the second and we don't add the 10 days x 9% for the first]
What is the difference between a Salary Expense and Gross Pay?
Salary Expense: The total expense that will show up on the income statement (i.e. the total expense to the employer) Gross pay: The employer has additional expenses that make the total salary expense *greater* than the gross pay
Unit 7 - Additional practice problems folder - do question #3
See "Additional PP#3"
1) On May 31, 20??, the Cash account of Budges Crane Company (BCC) had a balance of $43,708. On that date, the bank statement indicated a balance of $54,600. 2) Outstanding cheques amounted to $13,400. 3) The May 31 cash receipts for $8,900 were deposited but were only processed by the bank after May 31. 4) A debit memorandum of $8 representing bank charges appeared on the bank statement. 5) The bank reported an EFT credit memoranda for the collection of a receivable from Frank Edgar of $6,300. 6) The bank incorrectly recorded a cheque payment of $600 as $500. Instructions: Prepare a bank reconciliation for BCC as of May 31, 20??
See ACCT - Problem 79 in notes
See Unit 7 - Additional Practice Problems Q#9 A) and B) time consuming & know how to do so just do C) until you get it 2016: AR: $270,000 Estimated uncollectible: $18,690 NRV: $251,310 2017: AR: $275,000 Estimated uncollectible: $30,950 NRV: $244,050
See APP #7
On April 22, 2016, Sandstone Enterprises purchased equipment for $129,200. The company expects to use the equipment for 12,000 working hours during its four-year life and that it will have a residual value of $14,000. Sandstone has a December 31 year end and pro-rates depreciation to the nearest month. The actual machine usage was: 1,900 hours in 2016; 2,800 hours in 2017; 3,700 hours in 2018; 2,700 hours in 2019; and 1,100 hours in 2020. Instructions (a) Prepare a depreciation schedule for the life of the asset under each of the following methods: 1. Straight-line (25% rate of depreciation), 2. Double diminishing-balance, and (single 25% - double 50%) 3. Units-of-production. Which method results in the lowest profit over the life of the asset? (c) Which method results in the least cash used for depreciation over the life of the asset?
See FC #120 Document For detailed answer
Look at PP Unit 9 - Slide 53 in payroll Create Journal Entries for each Payable item - breaking them down for what their remitted (sent) to
See FC #140
Look at Unit 9 - APP Q#7
See FC #142
Look at Unit 9 - APP Q#5
See FC #143
See Unit 6 APP # 10
See Unit 6 APP Answer
@Redo - make sure you do the JE entries as well as the T-accounts In terms of dealing with Bad Debt Expenses, method 2 is: *Percentage of Net Sales*: Where BDE is calculated based on a % of net credit sales. The $ amount is written off to bad debts and added to a Allowance of Doubtful Accounts (ADA). Create a journal entry and T-Account's for the ADA and BDE of the following situations using method 2 Percentage of net sales for the first 3 months. Then complete the year end balance if our AR ending balance is $175,000 and there is a 2.5% of AR balance is known to be uncollectable (this is the hybrid method because were going to be using both) 1) Opening Balance of ADA is $2,000 2) End of month 1: Net Credit sales = $40,000 & BDE is at 1% 3) End of month 2: Net Credit Sales $50,000 & BDE is at 1% 4) Middle of month 3: A client defaults on debt and $700 is deemed uncollectable
See Unit 7 PP slides 34-39
Do Unit 8 - APP Question #8
See Unit 8 - APP Question #8 answer
Do Question on "Unit 7 Slide #48"
See rest of slides for answer
Look at Unit 6 - Internal Control PP Slide 70 Prepare journal entries for Kris Allen Company for May 1, June 1, July 1, and July 10
See rest of slides for answer
Do Question on "Unit 7 Slide #40"
See slide #41-47
Do Unit 9 - APP Q # 9a
See solutions in Unit 9 - APP Q # 9a
Cash is: 1) Coins and paper notes 2) Cheques 3) Money orders 4) Money on deposit at bank etc... What could be an example as a "cash equivalent"?
Short-term, highly liquid investment (stock accounts)
What is the "double declining" depreciation method? - use the class 1 (4%), class 3 (5%), class 6 (10%), and class 8 (20%) of the CRA's % rate to show
So in declining depreciation - there are certain rates set out via various industries for various things. The double declining rate just refers to doubling the prescribed rate: CRA: Class 1 asset - 4% Class 3 asset - 5% Class 6 asset - 10% Class 8 asset - 20% Double declining method: Class 1 asset - 8% Class 3 asset - 10% Class 6 asset - 20% Class 8 asset - 40% --> i.e. if you had an office building that was very very well built you would likely be asset class 1 at 4% - but say your building was in a location that was in a very wet environment where water damage was common for buildings --> you would do the double declining asset method so it would be 8% depreciation [if you under depreciate your assets and sold your company you could open yourself up to lawsuits - you could also oversell your assets in say year 1 and 2 showing that your company had a loss then getting money back and in year 3 showing no depreciation for a high company value - so you can commit fraud either way - that's why CRA stepped in to list out classes of assets to minimize fraud]
A note can be used in many ways but show the journal entry look at issuing a $10,000, 9%, 1 year note to settle an accounts receivable. Let's first assume that the principal is *due at the end and* that interest is paid quarterly: (i.e. Flynn Co. owes $10,000 which is overdue)
So we're setting it up in the first column for Jan 1 how much is owed - then from Aril 1-Oct 1 it's just how much interest Flynn will have to pay us then from Oct 1-Dec31 it's 3 more months of interest he will have to pay us - then at the very bottom it's showing he must pay us the full amount in cash. So we delayed the $10,000 payment but just said he would have to pay interest quarterly (every 3 months) for a year then pay the full amount at the end of the year
You buy a boat for 100,000 Boat will last 8,000 hours Year 1 - 700 hrs of use Year 2 - 300 hrs of use Year 3 - 1,400 hrs of use Salvage value of 5,000 at end of life -What is the depreciation expense? -Create a journal entry for each year -What type of depreciation is this?
Step 1: $100,000-$5,000 = $95,000 [we need to include the salvage value first] Step 2: $95,000 / 8,000 hours = $11.875 per hour of use Step 3: Year 1: 700 hrs x 11.875 = $8,312.50 Dr. Depreciation Expense $8,312.50 Cr. Accumulated Depreciation $8,312.50 Year 2: 300 hrs x 11.875 = $3,562.50 Dr. Depreciation Expense $3,562.50 Cr. Accumulated Depreciation $3,562.50 Year 3: 1,400 hrs x 11.875 = $16,625 Dr. Depreciation Expense $16,625 Cr. Accumulated Depreciation $16,625 This is the *Units of Use Depreciation*
Why do we use the estimation method for BDE (% of receivables) ? Why don't we just write off bad debts as they occur?
The Matching principal: A sale may occur in year 1 and the bad debt may not be finalized until year 2. Estimating the BDE helps us to match the BDE to the same year of the sale.
For the Declining Balance Depreciation what is the pattern of the Asset's Value on the graph?
The asset value declines very sharply (depreciation expense at the greatest) at the beginning of it's life and keeps declining but more slowly overtime. At the very end it will decline incredibly slow compared to the beginning. Think - you buy a new car off the lot and it loses the most money in the first year. Because think if it declines 30% per year and something is $100,000 - the depreciation expense in the first year is $30,000 but in year 10 it would only be a couple thousand because it would be 30% of a much smaller number then.
"In terms of the FOB shipping point The freight cost is capitalized into the cost of inventory only when ___________
The buyer pays for the freight costs
What is the "cost of inventory?"
The cost incurred to bring the asset to its intended use [shipping cost of an item included in the cost of inventory, import fees, - all of these add up just to bring it to you so you have access to it so you can sell it]
What is the Canadian Pension Plan - CPP (in terms of the employers contribution)
The employer matches the employees contribution equally: $35.24 - CPP Payable so $17.62 is employee contribution & $17.62 is employer contribution
What is a warranty (uncertain liability)? There are two (2) methods that exist to account for the cost of warranties: 1. The expense approach 2. The revenue approach [we only cover the expense approach in this class] What are the two (2) steps to complete for the expense approach?
The promise to repair or replace a product which leads to a future cost so it's an uncertain liability *Expense Approach* Step 1: Estimate the warranty expense (see how we estimated for the $35,000) Step 2: Record the expense and the liability in the journal entry / on the books
Each of the major types of receivables should be identified in the balance sheet or in the notes to the financial statements True False
True
If insurance is incurred transporting the asset to its final position, this insurance will be added to the cost of the asset True False
True
One company might depreciate a new computer over three years while another company might depreciate the same model computer over five years, and both companies are right. True False
True
Sales on bank credit cards are typically reported as cash sales True False
True
True or False: If a company purchases goods FOB shipping point, the purchasing company will be responsible for the payment of the freight costs.
True
What are gift cards (uncertain liability)? What would be the general JE for Gift Cards (at issuing JE and at redeeming the gift card JE)
Unearned revenue in which the company receives cash in advance
@ do again - for the journal entry do TODAY (sell the coffing) and doing in the future when the customer redeems the gift card (amount for future not important just the set up for journal entry) A loyalty program provides customers with future savings. This creates a liability in the form of unearned or deferred revenue. This kind of sale can be confusing because $100 of cash may be received yet the $100 of cash represents both the product sold today and the product purchased in the future on the loyalty points accrued. Example: A company offers a free coffee once ten coffees have been purchased. Today, a customer purchases one coffee for $4.00. Record the JE What is the price of 1/10th of a coffee?
What did the customer receive for the $4.00? Well they received 1.1 coffees This means the sale price of 1 coffee is not $4.00 , it is $4.00 / 1.1 = $3.64 per coffee. So: Today's sale (Revenue) is $3.64 Unearned Revenue is $0.36 It is NOT $4.00/10 = 0.40 It is ACTUALLY $4.00/11 = 0.36 So savings per coffee = $0.36 and the cost of one coffee = $3.64 So we're giving a $3.64 coffee and giving them a $0.36 coupon x 10 to be redeemed AFTER 10 coffees have been purchased (the client is being sold 2 things) When we bring in the coupon with 10 stamps on it we're not getting a free $4.00 coffee - we're getting a free $3.64 coffee
How would you "capitalize these expenses into inventory?" Year 2020: Invoice price: $200 Freight in $100
[if you didn't capitalize say the freight cost and you just put $200 from the invoice as the inventory item then the $100 in freight cost would show up as an *expense* on your 2020 income statement which would be an error and your COGs would only show $200 as your 2021 income statement So Freight $100 lands in year 2020 and Inventory / income statement in year 2021 would be short $100.]
a) What three (3) payable items are remitted to the Receiver General of Canada? b) What is the one (1) payable item remitted to the union? c) What is the one payable item remitted to a broker or into an internal / external fund (depends on the nature of this payable item) d) What is the one (1) item remitted directly to WCB?
a) (1) CPP Payable (2) EI Payable (3) Income Taxes payable b) Union dues payable c) Pension deductions Payable d) WCB Payable
A company's Allowance for Doubtful Accounts has a credit balance of $25,000. It learns that one of its accounts receivable amounting to $1,800 is worthless and needs to be written off. a) Assuming that after the account is written off, the supplier receives full payment from the customer. Which account will not be involved in the accounting entries made at the time when the payment is received? b) Which account should be credited for $1,800 when writing off the account? c) Which account should be debited for $1,800 when writing off the account? 1. Allowance For Doubtful Accounts 2. Accounts Receivable 3. Bad Debts Expense
a) 3 b) 2 c) 1
What are some problems that arises when selling goods and services to customers when receiving: a) Cash only b) Selling by means of Acct. Receivable [What are some solutions to collecting via Acct. Receivable?]
a) Inconvenient and undesirable for customers if you just restrict to cash only sales and could reduce your volume of customers b) The time of collection is unknown and there's a percentage of people who won't pay you at all! [Solutions: -Using aging summary, converting the potential bad debt into notes payable which implies interest payments with payment plans on principal amount owed, writing off the bad debt directly, applying an allowance for doubtful account method for bad debts]
Most companies that sell on account record the collection of an accounts receivable in both the subsidiary ledger and the general ledger. the general ledger only. the subsidiary ledger only. Collections on account do not have to be recorded as all collections are deposited in the bank and will therefore be recorded on the bank statement.
both the subsidiary ledger and the general ledger
PST is a ______________ tax
cumulative
The calculation of depreciation using the diminishing-balance method a) ignores residual value in determining the amount to which a constant rate is applied. b) multiplies a constant percentage times the previous year's depreciation expense. c) yields an increasing depreciation expense each period. d) multiplies a diminishing percentage times a constant carrying amount
ignores residual value in determining the amount to which a constant rate is applied.
Purchase discounts are often stated as: 2/10, n/30 What do each of these terms mean?
n/30 = You have to have the FULL AMOUNT returned to us in 30 days times maximum 2/10 = If you pay the full amount by day 10, we're going to give you a 2% discount Could be: 2/10, n15 = if you pay day 10 you get 2% discount but must pay full amount by day 15 1/15, n40 = if you pay day 15 you get 1% discount but must pay full at day 40 etc.
@Study this seperate getting waaaaay too many wrong and don't know why Match each item with its location in the bank reconciliation A) Bank debit memorandum for a customer's NSF cheque B) EFT payment made by a customer C) Company error in recording a cheque made out for $630 as $360 D) Outstanding cheques from the previous month that are no longer outstanding E) Bank debit memorandum for service charges F) Bank error in recording a $1,779 deposit as $1,977 G) Bank credit memorandum for interest revenue H) Outstanding cheques from the current month I) Company error in recording a deposit of $160 as $1,600 J) Deposit in transit from the current month K) Outstanding cheques from the previous month that are still outstanding L) Bank error in recording a company cheque made out for $160 as $610 1.increase to the bank balance2.decrease to the bank balance3.increase to company cash balance4.decrease to company cash balance5.not included in the bank reconciliation
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