ACCT201 DEBOSKEY EXAM 2
EXAM 1 TOP 20: A company reports the following balances before closing entries: - Cash: $12,000 - Supplies: $4,500 - Prepaid Rent: $2,000 - Salary Expense: $4,500 - Equipment: $65,000 - Service Revenue: $30,000 - Miscellaneous - Expenses: $20,000 - Dividends: $3,000 - Accounts Payable: $5,000 - Common Stock: $68,000 - Retained Earnings: $8,000 What amount will be reported for total assets? a. $83,500. b. $82,500. c. $77,000 d. $68,500. e. $81,500.
$83,500 $12,000 (cash) + $4,500 (supplies) + $2,000 (prepaid rent) + $65,000 (equipment) Assets: Resources owned by a company EX: Cash, accounts receivable, prepaid expenses, land, property, inventory, supplies, and equipment.
Accumulated Depreciation
A contra asset account representing the total depreciation taken to date.
Trademark
A word, slogan, or symbol that distinctively identifies a company, product, or service.
Baker Fine Foods has the following information: Beginning Inventory: $12,000 Purchase Inventory:$150,000 Ending Inventory:$20,000 Baker will report cost of goods sold equal to: A. $142,000 B. $158,000 C. $150,000 D. $170,000
A. $142,000
BACK EXAM: White Inc. decided to purchase a new sign to attract more customers to its location. The following costs were incurred in relation to the purchase of the sign: At what amount should the sign be recorded? Cost of the sign: $9,000 Cost of installation: $5,000 Cost of transportation: $2,000 Office party to celebrate new sign: $500 Utilities in first month to operate the sign: $100 A. $16,000 B. $16,500 C. $16,100 D. $14,000 E. $16,600
A. $16,000
BACK EXAM: Vikings Inc. reports the following amounts: How much goodwill would be recorded if Torretta Holdings purchases Vikings for $635,000? BV: Book Value FV: Fair Value Assets BV: $400,000 FV: $500,000 Liabilities BV: $45,000 FV: $45,000 Net income BV: $25,000 A. $180,000 B. $280,000 C. $255,000 D. $100,000 E. $155,000
A. $180,000
BACK EXAM: Leinart Co. had the following inventory transactions for the period. Calculate gross profit using the FIFO cost flow assumptions. BI: Beginning Inventory PC: Purchase Cost SP: Selling Price July 1 BI: 350 PC: $1 July 10 Sale: 150 SP: $5 July 14 Purchase: 400 PC: $2 July 17 Sale: 300 SP: $6 July 28 Purchase: 200 PC: $4 A. $2,000 B. $1,400 C. $2,550 D. $550 E. $1,250
A. $2,000
BACK EXAM: Crouch Company purchased a delivery truck on January 1, 2012, for $65,000. The truck has an estimated life of 10 years and an estimated residual value of $5,000. If Crouch Co. uses straight-line depreciation, what would be the book value after 4 years? A. $41,000 B. $36,000 C. $60,000 D. $24,000 E. None of the Above
A. $41,000
BACK EXAM: On October 1, 2012, Ingram Inc. borrows $50,000 from the bank by signing a 9-month note payable at 6% interest. The adjusting entry on December 31, 2012, includes a debit to Interest Expense for: A. $750 B. $2,250 C. $0 D. $1,500 E.$3,000
A. $750
Eric Company has the following information: Total Revenues: $860,000 Sales returns and Allowances: $50,000 Sales Discounts: $30,000 Ending Inventory: $100,000 What is the amount of net revenues for Eric Company? A. $780,000 B. $230,000 C. $680,000 D. $330,000
A. $780,000
BACK EXAM: How many of the following transactions would be capitalized? a. Purchase building by signing a long-term note b. Purchase three-year insurance policy in advance c. Pay dividends to stockholders d. Pay utilities for operating a building A. 2 B. 0 C. 1 D. 3 E. 4
A. 2 Capitalize: Record an expenditure as an asset We capitalize to land all expenditures necessary to get the land ready for its intended use. Capitalize an asset if the expenditure increases future benefits (add to asset). EX. Purchase price as well as closing costs such as attorney fees, real estate agent commissions, title, title search, and recording fees in addition to any additional expenditure such as clearing, filling, leveling the land, and removing existing buildings to prepare the land for its intended use.
BACK EXAM: Tim creates the following accounts receivable aging report at the end of the year. Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance of $500. The year-end adjustment would include a: Amount EU: Estimated uncollectible Less than 30 days Amount: $6,000 EU: 5% 31-60 days Amount: $4,000 EU: 10% 61+ days Amount: $2,000 EU: 25% A. Debit to Bad Debt Expense for $1,700 B. Debit to Bad Debt Expense for $700 C. Debit to Bad Debt Expense for $1,200 D. Credit to Allowance for Uncollectible Accounts for $1,400 E. Credit to Accounts Receivable for $500
A. Debit to Bad Debt Expense for $1,700
BACK EXAM: Bradford & Co. receives $3,000 cash for services to be performed next month. The collection of cash would be recorded with a: A. Debit to Cash; Credit to Unearned Revenue B. Debit to Cash; Credit to Accounts Payable C. Debit to Service Revenue; Credit to Unearned Revenue D. Debit to Cash; Credit to Service Revenue E. No entry since no services have been performed
A. Debit to Cash; Credit to Unearned Revenue
BACK EXAM: The collection of sales tax by a company when selling goods to customers would be recorded as a (an): A. Liability B. Expense C. Dividend D. Contra asset E. Sales taxes collected are not recognized by the company
A. Liability
BACK EXAM: Which of the following causes an increase in stockholders' equity? A. Sell a long-term asset for more than its book value B. Receive cash from customers for services previously provided C. Pay dividends to stockholders D. Receive cash from bank borrowing E. Receive cash in advance from customers
A. Sell a long-term asset for more than its book value. Book value: The cost of the asset minus accumulated depreciation up to the date of the sale.
BACK EXAM: Which of the following best explains the meaning of stockholders' equity? A. The amount of capital invested by stockholders plus profits retained over the life of the company B. All revenues, expenses, and dividends over the life of the company C. Total assets plus total liabilities of the company D. The amount of common stock less dividends of the life of the company E. The difference between total revenues and total expenses, less dividends for the year
A. The amount of capital invested by stockholders plus profits retained over the life of the company. For a corporation, the owners' claims to the resources of a company. The two sources of stockholders' equity are amounts: Paid in from shareholders AND earned by the corporation. The resources owned by the company minus the amounts owed.
At the time of a credit sale, a company would record an increase in assets and an increase in revenues. A. True B. False
A. True
Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life. A. True B. False
A. True
Using the first-in, first-out method (FIFO), the first units purchased are assumed to be the first ones sold. A. True B. False
A. True
When inventory costs are declining, LIFO generally results in a higher amount of reported net income. A. True B. False
A. True
When a company sells $100 worth of services with a 20% discount, $80 of revenue is recognized. A.True B. False
A.True
Straight-line method
Allocates an equal amount of depreciation to each year of the asset's service life.
Depreciation
Allocating the cost of a long-term asset to an expense over its service life
Amortization
Allocation of the cost of an intangible asset over its service life.
Calculate amortization of intangible assets
Amortization is a process, similar to depreciation, in which we allocate the cost of intangible assets over their estimated service life. Intangible assets with an indefinite useful life (goodwill and most trademarks) are not amortized.
Book value
An asset's original cost less accumulated depreciation.
Copyright
An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.
Patent
An exclusive right to manufacture a product or to use a process.
BACK EXAM: The current year"s beginning and ending balances for Allowance for Uncollectible Accounts is $23,000 and $27,000, respectively. If the amount of Bad Debt Expense for the year is $18,000, what is the amount of actual bad debts for the year? A. $10,000 B. $14,000 C. $20,000 D. $18,000 E. $22,000
B. $14,000
Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building, what amount should be recorded for the purchase of the land? Sale Price of Land: $400,000 Sale of Salvaged Parts Already on Land: $20,000 Demolition of the Old Building: $30,000 Ground Breaking Ceremony (Food/Supplies): $1,500 Land Preparation and Leveling: $7,500 A. $419,000 B. $417,500 C. $439,000 D. $437,500
B. $417,500
BACK EXAM: Rent Expense of $42,000 is paid with cash during one month, and Inventory of $85,000 was purchased on account during the same month. Did stockholders' equity increase or decrease and by how much? A. No change B. $42,000 decrease C. $43,000 increase D. $85,000 increase E. $127,000 increase
B. $42,000 decrease
Kansas Enterprises purchased equipment for $60,000 on 1/1/15. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of 5 years. Using the straight-line method, the book value at December 31, 2015 would be: A. $60,000 B. $49,000 C. $55,000 D. $44,000
B. $49,000
BACK EXAM: When preparing a bank reconciliation, a deposit outstanding would be _______ while a check outstanding would be ________: A. Subtracted from the bank"s cash balance; Added to the bank"s cash balance. B. Added to the bank"s cash balance; Subtracted from the bank"s cash balance. C. Added to the company"s cash balance; Subtracted from the company"s cash balance. D. Excluded from all reconciliation as this is a non-cash transaction. E. Subtracted from the company"s cash balance; Added to the company"s cash balance.
B. Added to the bank's cash balance; Subtracted from the bank"s cash balance. The bank does not know about checks outstanding. Add outstanding deposits (have not reached the bank yet). Deposits outstanding: Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank. Bank reconciliation: Report that explains the difference between the book balance of cash and the cash balance reported on the bank statement.
BACK EXAM: Which of the following is an example of a closing entry? A. Debit Supplies; Credit Accounts Payable B. Debit to Service Revenue; Credit to Retained Earnings C. Debit to Service Expense; Credit to Retained Earnings D. Debit to Retained Earnings; Credit to Prepaid Insurance E. Debit Dividends; Credit Cash
B. Debit to Service Revenue; Credit to Retained Earnings NO ASSETS OR LIABILITIES IN CLOSING ENTRIES.
BACK EXAM: Suppose a company spends $100,000 on research and development in 2012. As a result of the products developed, additional revenue is earned over the next five years totalling $600,000. When is the cost of the research and development in 2012 recognized as an expense? A. Full amount in 2017 B. Full amount in 2012 C. Evenly over the period 2013-2017 D. Evenly over the period 2012-2017 E. Full amount in 2013
B. Full amount in 2012
BACK EXAM: Which depreciation method will result in the greatest amount of depreciation expense in the last year of the asset's life? A. FIFO B. Straight-line C. Lower-of-cost-or-market D. Double-declining balance E. LIFO
B. Straight-line Creates equal amount of depreciation each year. Higher net income
BACK EXAM: Consider the following transactions: 1. The company uses supplies purchased in the previous period, $1,500. 2. The company pays cash for inventory, $6,000. 3. The company repays a loan to the bank, $10,000 (ignore any interest cost). The amount of accrual-basis expense is _____ while the amount of cash-basis expense is _____. A. $6,000; $16,000 B. $7,500; $17,500 C. $1,500; $6,000 D. $6,000; 11,500 E. $1,500; 16,000
C. $1,500; $6,000
BACK EXAM: The bank shows a cash balance of $17,300 while the company has a cash balance of $9,000. Using the following information, calculate the reconciled balance of cash: Bank service fees = $2,400 Deposits outstanding = $11,000 Note receivable collected by the bank = $8,000 Checks outstanding = $15,000 Non-sufficient funds (NSF) checks = $1,300 A. $28,600 B. $34,600 C. $13,300 D. $28,300 E. $9,300
C. $13,300 Beginning cash balance of $9,000 + notes receivable collected of $11,000 - bank fee of $2,400 - NSF of $1,300 = $13,300 how do you know whether to use the bank or company bb??
BACK EXAM: On January 1, 2012, Woodson Inc. purchased a machine that cost $500,000 and had a residual value of $50,000. The machine is expected to produce 360,000 units of cheese and is estimated to last 10 years. If 25,000 units were produced in 2012 and 35,000 were produced in 2013, what amount of Accumulated Depreciation is reported at the end of 2013 using the activity-based method (rounded to the nearest whole dollar if necessary)? A. $90,000 B. $31,250 C. $75,000 D. $83,333 E. $43,750
C. $75,000
A company provides services on account. Indicate how this transaction would affect the following five financial statement items: A. Asset = Increase Liabilities = No Effect Equity = Increase Revenue = Increase Expenses = Decrease B. Asset = No Effect Liabilities = No Effect Equity = No Effect Revenue = No Effect Expenses = No Effect C. Asset = Increase Liabilities = No Effect Equity = Increase Revenue = Increase Expenses = No Effect D. Asset = Increase Liabilities = Decrease Equity = Increase Revenue = Decrease Expenses = No Effect
C. Asset = Increase Liabilities = No Effect Equity = Increase Revenue = Increase Expenses = No Effect
BACK EXAM: Lower-of-cost-or-market inventory accounting is an example of: A. Fair value accounting B. Cost accounting C. Conservatism D. Revenue recognition principle E. Historical cost principle
C. Conservatism
BACK EXAM: The adjusting entry to estimate future bad debts includes a: A. Debit to Sales Revenue B. Credit to Accounts Receivable C. Credit to Allowance for Uncollectible Accounts D. Debit to Accounts Receivable E. Two of the above are correct
C. Credit to Allowance for Uncollectible Accounts Debit Bad Debt Expense
BACK EXAM: What journal entry is necessary to record the return of inventory previously purchased on account? A. Debit Inventory; Credit Accounts Payable B. Debit Accounts Payable; Credit Sales Revenue C. Debit Accounts Payable; Credit Inventory D. Debit Sales Revenue; Credit Accounts Payable E. Debit Cash; Credit Inventory
C. Debit Accounts Payable; Credit Inventory
BACK EXAM: Tim creates the following accounts receivable aging report at the end of the year. Prior to adjusting entries, the Allowance for Uncollectible Accounts has a credit balance of $500. The year-end adjustment would include a: EU: Estimated Uncollectible Less than 30 days Amount: $6,000 EU:5% 31-60 days Amount: $4,000 EU: 10% 61+ days Amount: $2,000 EU: 25% A. Credit to Accounts Receivable for $500 B. Credit to Allowance for Uncollectible Accounts for $1,400 C. Debit to Bad Debt Expense for $700 D. Debit to Bad Debt Expense for $1,700 E. Debit to Bad Debt Expense for $1,200
C. Debit to Bad Debt Expense for $700
BACK EXAM: In 2012, Tony estimates that warranty costs in the following year will be $25,000. Actual warranty costs in 2013 are only $20,000. What is the effect on the accounting equation when recording actual warranty costs in 2013? A. Stockholders' equity increases B. Assets increase C. Liabilities decrease D. Liabilities increase E. Stockholders" equity decreases
C. Liabilities decrease
BACK EXAM: While providing services to Palmer Co., Raider Group caused damages of $125,000. As of the end of the year, both parties agree that it is probable that Raider will pay Palmer the full amount of the damages within the next two months. How would Raider and Palmer record the lawsuit at the end of the year? A. Raider records nothing; Palmer records nothing B. Raider records contingent gain; Palmer records contingent gain C. Raider records contingent loss; Palmer records nothing D. Raider records nothing; Palmer records contingent gain E. Raider records contingent loss; Palmer records contingent gain
C. Raider records contingent loss; Palmer records nothing A contingent liability is recorded only if a loss is probable and the amount is reasonably estimable.
BACK EXAM: Net Sales Revenue includes Total Sales Revenue less: A. Depreciation Expense B. Bad Debt Expense C. Sales Returns and Allowances D. Total expenses E. Total liabilities
C. Sales Returns and Allowances
BACK EXAM: Ward Inc. reports a gain on the sale of an asset. Which of the following is always true? A. The company sold the asset for more than it was worth. B. The company sold the asset for more than fair value. C. The company sold the asset for more than book value. D. The company sold the asset before the useful life was over. E. None of the above are true.
C. The company sold the asset for more than book value. The gain is the difference between the sale amount and the book value of the asset. A gain on sale indicates the fair value is more than recorded book value.
Acid-test ratio
Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.
Recognize accounts receivable
Companies record an asset (accounts receivable) and revenue when they sell products and services to their customers on account, expecting payment in the future.
Allowance for uncollectible accounts
Contra asset account representing the amount of accounts receivable that we do not expect to collect. Increases with a credit and decreases with a debit. Estimate
Cost of Goods Sold
Cost of the inventory that was sold during the period.
Uncollectible accounts
Customers' accounts that no longer are considered collectible.
BACK EXAM: Tony estimates that 5% of all inventory units sold will result in warranty work. If Tony sells 200 units for the current year and estimates the average future warranty repair to cost $100 per unit, what amount of Warranty Expense is recorded for the current year? A. $2,000 B. $800 C. $200 D. $1,000 E. $0
D. $1,000 200 units x 5% x $100
Lewis Inc. had the following information taken from various accounts for 2015: Sales Discounts: $41,000 Unearned Revenue: $32,000 Total Sales: $459,000 Purchase Discounts: $15,000 Sales Allowances: $35,000 Accounts Receivable: $205,000 What was Lewis Inc.'s net revenues in 2015? A. $368,000 B. $437,000 C. $434,000 D. $383,000
D. $383,000
BACK EXAM: Detmer & Co. has the following inventory remaining at the end of the year: The year-end adjustment to Cost of Goods Sold would be: Item A Quantity: 100 Cost: 5 Market: 8 Item B Quantity: 200 Cost: 6 Market: 4 A. $200 B. $100 C. $300 D. $400 E. $0
D. $400
BACK EXAM: Leinart Co. had the following inventory transactions for the period. Calculate the balance of ending inventory using the LIFO cost flow assumption. BI: Beginning Inventory PC: Purchase Cost SP: Selling Price July 1 BI: 350 PC:$1 July 10 Sale: 150 SP: $5 July 14 Purchase: 400 PC: $2 July 17 Sale: 300 SP: $6 July 28 Purchase: 200 SP: $4 A. $550 B. $1,000 C. $1,200 D. $650 E. $1,400
D. $650
BACK EXAM: Leinart Co. had the following inventory transactions for the period. Calculate the cost of goods sold using the average costs method (Do not round until final answer). BI: Beginning Inventory PC: Purchase Cost SP: Selling Price July 1 BI: 350 PC: $1 July 10 Sale: 150 SP: $5 July 14 Purchase: 400 PC: 2 July 17 Sale: 300 SP: $6 July 28 Purchase: 200 PC: $4 A. $1,123.69 B. $845.13 C. $1,026.32 D. $923.68 E. $1,050.00
D. $923.68
BACK EXAM: How many of the following transactions increase a company's liquidity? a. Provide services on account b. Pay workers' salaries in the current period c. Purchase office supplies with cash d. Pay dividends to stockholders A. 0 B. 4 C. 2 D. 1 E. 3
D. 1 Liquidity refers to having sufficient cash to pay currently maturing debts.
BACK EXAM: Which of the following is true concerning inventory? A. LIFO produces lower net income than FIFO in a period of rising prices B. FIFO is a balance sheet focus, while LIFO is an income statement focus C. If LIFO is used for tax reporting, it must also be used for financial reporting. D. All of the above are true E. None of the above are true
D. All of the above are true If inventory costs are rising, FIFO produces higher net income and higher total assets. If inventory prices are falling, LIFO produces higher net income and higher total assets. FIFO is a balance sheet focus (better measure of assets) since the amount reported for cogs is based on recent inventory prices. LIFO is an income statement focus (better matching of current revenues with current expense of inventory) since amount reported for cogs is based on recent inventory prices. LIFO results in lower net income if costs are rising. Lower net income allows the company to pay fewer taxes to the IRS. If LIFO is used for tax purposes, then it must also be used to financial reporting purposes.
BACK EXAM: On June 8, Dayne Corp. purchased inventory on account for $15,000 with terms of 3/15. On June 10, Dayne Corp. returned $1,000 worth of inventory, and then paid the remaining balance on June 20. How would Dayne record the payment on June 20? A. Debit Accounts Payable $14,000; Credit Cash $14,000 B. Debit Accounts Payable $13,580; Debit Inventory $420; Credit Cash $14,000 C. Debit Accounts Payable $14,550; Debit Inventory $450; Credit Cash $15,000 D. Debit Accounts Payable $14,000; Credit Inventory $420; Credit Cash $13,580 E. Debit Accounts Payable $15,000; Credit Inventory $450; Credit Cash $14,550
D. Debit Accounts Payable $14,000; Credit Inventory $420; Credit Cash $13,580
At the end of 2015, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (debit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2015, to record its estimated uncollectible accounts included a: A. Debit to Bad Debt Expense of $16,500 B. Credit to Allowance for Uncollectible Accounts of $16,500 C. Credit to Allowance for Uncollectible Accounts of $12,000 D. Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500
D. Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500
BACK EXAM: Suppose a company uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts. What is the impact on the accounting equation of an actual bad debt? A. Increase liabilities B. Decrease revenues C. No effect D. Decrease assets E. Decrease liabilities
D. Decrease assets Direct write-off: Reduces accounts receivable and records bad debt at the time the account receivable proves uncollectible. Not typically acceptable for financial reporting under GAAP.. It is primarily used for tax reporting. There is no attempt to estimate future bad debts. Allowance: Future bad debts are estimated.
Which inventory method is better described as having an income statement focus and why is it considered as such? A. FIFO; better approximates the value of ending inventory B. LIFO; better approximates the value of ending inventory C. FIFO; better approximates inventory cost necessary to generate revenue D. LIFO; better approximates inventory cost necessary to generate revenue
D. LIFO; better approximates inventory cost necessary to generate revenue
BACK EXAM: On July 31, 2012, Smith Co. borrows from RavenBank by signing a note for $80,000. This transaction would be recorded by Smith Co. with a credit to: A. Interest Expense B. Loan Revenue C. Cash D. Notes Payable E. Accounts Payable
D. Notes Payable Debit cash
The LIFO conformity rule states that if LIFO is used for: A. One class of inventory, it must be used for all classes of inventory B. Domestic companies, it must be used by foreign partners C. One company in an affiliated group, it must be used by all companies in an affiliated group D. Tax purposes, it must be used for financial reporting
D. Tax purposes, it must be used for financial reporting
BACK EXAM: Which of the following statements accurately describes depreciation? A. Depreciation is used to track the fair value of the asset B. Depreciation is used to allocate the cost of the asset over periods benefited C. The book value of an asset is its original cost less accumulated depreciation D. Two of the above are correct E. All of the above are correct
D. Two of the above are correct Allocating the cost of an asset to an expense over its service life.
BACK EXAM: Which of the following is included in the sale of inventory on account? A. Debit to Cost of Goods Sold B. Credit to Sales Revenue C. Debit to Inventory D. Two of the above are included E. All of the above are included
D. Two of the above are included
Calculate depreciation of property, plant, and equipment
Depreciation refers to the allocation of an asset's original cost to an expense during the periods benefited. Depreciation does not refer to the change in value or selling price. Straight-line, declining-balance, and activity-based depreciation all are acceptable depreciation methods for financial reporting. Most companies use straight-line depreciation for financial reporting and an accelerated method called MACRS for tax reporting.
BACK EXAM: Based on the information below, what amount of impairment loss would be reported? FV: Fair value ECF: Estimated cash flows BV: Book value Building FV: $135,000 ECF: $138,000 BV: $140,000 Equipment FV: $25,000 ECF: $36,000 BV: $30,000 Truck FV: $34,000 ECF: $45,000 BV: $42,000 A. $37,000 B. $23,000 C. $13,000 D. $18,000 E. $5,000
E. $5,000
BACK EXAM: How many of the following would decrease net income? a. Estimated future uncollectible accounts receivable b. Probable future warranty costs c. Estimated selling price of inventory falling below its original cost d. Impairment of an asset e. Actual bad debt A. 1 B. 2 C. 5 D. 3 E. 4
E. 4
BACK EXAM: Which of the following would be recorded as an adjusting entry at the end of the year? A. Impairment of long-term assets B. Lower-of-cost-or-market inventory valuation C. Contingent liabilities D. Allowance for uncollectible accounts E. All of the above are included in adjusting entries at the end of the year
E. All of the above are included in adjusting entries at the end of the year
BACK EXAM: Panthers Inc. receives services on account from Newton Inc. on September 29. Panthers Inc. pays for the services on October 5. How would Panthers Inc. record the payment on October 5? A. Credit to Service Expense B. Debit to Cash C. Credit to Accounts Receivable D. Credit to Service Revenue E. Debit to Accounts Payable
E. Debit to Accounts Payable
BACK EXAM: Current liabilities are best described as: A. A small amount of debt B. A large amount of debt C. Debt due in more than one year D. Debt likely to be repaid E. Debt due within one year
E. Debt due within one year
BACK EXAM: What is the effect on the accounting equation when inventory is purchased on account? A. Decrease in liabilities B. Increase equities C. No change D. Decrease in assets E. Increase in liabilities
E. Increase in liabilities Assets increase from obtaining inventory. Liabilities increase from purchasing on account.
BACK EXAM: Using the allowance method, what impact does writing off an actual bad debt have on the accounting equation? A. Decrease assets B. Decrease stockholders" equity C. Decrease revenues D. Two of the above are correct E. No effect
E. No effect
When paying for services in advance, which of the following would be recorded using cash-basis accounting on the day the services are received? A. Debit to Prepaid Services B. Debit to Service Expense C. Credit Cash D. Credit to Prepaid Services E. None of the above
E. None of the above There is no effect on the cash balance since the service was reported when cash was given.
BACK EXAM: A trade discount results in: A. Additional bad debt expense B. Customers delaying cash payment C. A contra asset being recorded D. A contra revenue account being recorded E. Revenue being recorded for the discounted price
E. Revenue being recorded for the discounted price
BACK EXAM: Which of the following accounts is considered to have a permanent balance? A. Sales Revenue B. Cost of Goods Sold C. Retained Earnings D. Prepaid Rent E. Two of the above have permanent balances
E. Two of the above have permanent balances Asset: Prepaid rent
Account for employee and employer payroll liabilities.
Employee salaries are reduced by withholdings for federal and state income taxes, FICA taxes, and the employee portion of insurance and retirement contributions. The employer, too, incurs additional payroll expenses for unemployment taxes, the employer portion of FICA taxes, and employer insurance and retirement contributions.
Net realizable value
Estimated selling price of the inventory in the ordinary course of business less any costs of completion, disposal, and transportation. The amount of cash the firm expects to collect. "market value"
Repairs and maintenance
Expenses that maintain a given level of benefits in the period incurred.
Notes receivable
Formal credit arrangements evidenced by a written debt instrument Generally longer term Includes interest
Explain the financial statement effects and tax effects of inventory cost methods.
Generally, FIFO more closely resembles the actual physical flow of inventory. When inventory costs are rising, FIFO results in higher reported inventory in the balance sheet and higher reported income in the income statement. Conversely, LIFO results in a lower reported inventory and net income, reducing the company's income tax obligation.
Goodwill
Goodwill equals the purchase price less the fair value of the net assets acquired.
Liquidity
Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts.
Account for the disposal of long-term assets
If we dispose of an asset for more than book value, we record a gain. If we dispose of an asset for less than book value, we record a loss.
Weighted-average cost method
Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.
First-in, first-out method (FIFO)
Inventory costing method that assumes the first units purchased (the first in) are the first ones sold (the first out).
Last-in, first-out method (LIFO)
Inventory costing method that assumes the last units purchased (the last in) are the first ones sold (the first out).
Return on assets
Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.
Gross profit
Net sales- COGS
Account for notes receivable and interest revenue.
Notes receivable are similar to accounts receivable except that notes receivable are formal credit arrangements made with a written debt instrument, or note. We calculate interest as the face value of the note multiplied by the stated annual interest rate multiplied by the appropriate fraction of the year that the note is outstanding. We record interest earned on notes receivable but not yet collected by the end of the year as interest receivable and interest revenue.
Impairment
Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).
BACK EXAM: Which of the following transactions would cause an increase in both the assets and liabilities of a company? A. Pay for inventory purchased 90 days ago B. Prepaying for next year"s rent C. Purchase of a factory by issuing a note payable D. Collection of accounts receivable that was written off last year E. Services received on account
Purchase of a factory by issuing a note payable Asset: Factory Liability: Note payable
Capitalize
Record an expenditure as an asset.
Allowance method
Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses.
Direct write-off method
Recording bad debt expense at the time we know the account is actually uncollectible.
Sales discount
Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time. EX. 2/10: Pay within 10 days, 2% discount applies. n/30: Payment due in 30 days.
Trade discount
Reduction in the listed price of a product or service.
Calculate net revenues using discounts, returns, and allowances
Sales discounts, returns, and allowances are contra revenue accounts. We subtract the balances in these accounts from total revenues when calculating net revenues.
Sales allowance
Seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service.
Trace the flow of inventory costs from manufacturing companies to merchandising companies
Service companies record revenues when providing services to customers. Merchandising and manufacturing companies record revenues when selling inventory to customers.
Identify the major types of property, plant, and equipment
Tangible assets such as land, land improvements, buildings, equipment, and natural resources are recorded at cost plus all costs necessary to get the asset ready for its intended use.
Accounts receivable
The amount of cash owed to the company by its customers from the sale of products or services on account. Does not include interest. Company expects to receive money.
Bad debt expense
The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.
Residual value
The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.
Net accounts receivable
The difference between total accounts receivable and the allowance for uncollectible accounts.
Contrast the allowance method and direct write-off method when accounting for uncollectible accounts.
The direct write-off method reduces accounts receivable and records bad debt expense at the time the account receivable proves uncollectible. If the credit sale occurs in a prior reporting period, bad debt expense is not properly matched with revenues (credit sales). Also, accounts receivable will be overstated in the prior period. The direct write-off method typically is not acceptable for financial reporting.
Analyze management of inventory using the inventory turnover ratio and gross profit ratio
The inventory turnover ratio indicates the number of times the firm sells, or turns over, its average inventory balance during a reporting period. The gross profit ratio measures the amount by which the sale of inventory exceeds its cost per dollar of sales.
Inventory turnover ratio
The number of times a firm sells its average inventory balance during a reporting period. It equals cost of goods sold divided by average inventory.
Calculate key ratios investors use to monitor a company's effectiveness in managing receivables.
The receivables turnover ratio and average collection period can provide an indication of management's ability to collect cash from customers in a timely manner.
Contingencies
Uncertain situations that can result in a gain or a loss for a company. A contingent liability is recorded only if a loss is probable and the amount is reasonably estimatable. Unlike contingent liabilities, contingent gains are not recorded until the gain is certain and no longer a contingency.
Use the aging method to estimate future uncollectible accounts
Using the aging method to estimate uncollectible accounts is more accurate than applying a single percentage to all accounts receivable. The aging method recognizes that the longer accounts are past due, the less likely they are to be collected.
Describe the accounting treatment of expenditures after acquisition
We capitalize (record as an asset) expenditures that benefit future periods. We expense items that benefit only the current period.
Record an allowance for future uncollectible accounts
We recognize accounts receivable as assets in the balance sheet and record them at their net realizable values, that is, the amount of cash we expect to collect. Under the allowance method, companies are required to estimate future uncollectible accounts and record those estimates in the current year. Estimated uncollectible accounts reduce assets and increase expenses. Adjusting for estimates of future uncollectible accounts matches expenses (bad debts) in the same period as the revenues (credit sales) they help to generate. Recording an allowance for uncollectible accounts correctly reports accounts receivable at their net realizable value.
Account for notes payable and interest expense.
We record interest expense in the period we incur it, rather than in the period in which we pay it. Many short-term loans are arranged under an existing line of credit with a bank, or for larger corporations in the form of commercial paper, a loan from one company to another.
Identify the major types of intangible assets
We record purchased intangibles as long-term assets at their purchase price plus all costs necessary to get the asset ready for use. We expense internally generated intangibles, such as R&D and advertising costs, as we incur those costs. Intangible assets include patents, copyrights, trademarks, franchises, and goodwill
Assess liquidity using current liability ratios.
Working capital is the difference between current assets and current liabilities. The current ratio is equal to current assets divided by current liabilities. The acid-test ratio is equal to quick assets (cash, short-term investments, and accounts receivable) divided by current liabilities. Each measures a company's liquidity, its ability to pay currently maturing debts.
Apply the procedure to write off accounts receivable as uncollectible
Writing off a customer's account as uncollectible reduces the balance of accounts receivable but also reduces the contra asset—allowance for uncollectible accounts. The net effect is that there is no change in the net receivable (accounts receivable less the allowance) or in total assets. We recorded the decrease to assets as a result of the bad debt when we established the allowance for uncollectible accounts in a prior year. The year-end adjustment for future uncollectible accounts is affected by the current balance of Allowance for Uncollectible Accounts before adjustment. The current balance before adjustment equals the estimate of uncollectible accounts at the beginning of the year (or end of last year) less actual write-offs in the current year.
EXAM 1 TOP 20: For the past three years, a company reported the following annual net income and dividend amounts: Net Income: NI Dividends: D - Year 1 NI: $130,000 D: $80,000 - Year 2 NI: $140,000 D: $80,000 - Year 3 NI: $150,000 D: $90,000 If the company had Retained Earnings of $200,000 at the end of Year 3, what was the company's Retained Earnings at the beginning of Year 1? a. $30,000. b. $60,000. c. $40,000. d. $70,000 e. $50,000.
a. $30,000. Year 1: $130,000 - $80,000 = $50,000 Year 2: $140,000 - $80,000 = $60,000 Year 3: $130,000 - $80,000 = $60,000 $50,000 + $60,000 + $60,000 = $170,000 $200,000 - $170,000 = $30,000 Retained earnings represent the total net income earned over the life of the company that has not been distributed as dividends. beginning balance + net income - dividends = retained earnings
EXAM 1 TOP 20: The adjusting entry to record the expiration of rent over the year would include: a. A credit to Prepaid Rent. b. A debit to Prepaid Rent. c. A credit to Rent Payable. d. A credit to Cash e. A credit to Rent Expense.
a. A credit to Prepaid Rent (asset) A debit to Rent Expense (liability) If it involves an asset that is used/unused, debit an expense and credit an asset
EXAM 1 TOP 20: Which account measures amounts owed to suppliers? a. Accounts Payable b. Supplies Expense c. Retained Earnings d. Cash e. Supplies
a. Accounts Payable Current liability
EXAM 1 TOP 20: The Common Stock account records: a. Cash received by the company from its stockholders. b. The amounts owed to creditors. c. Total profits less dividends. d. The resources owned by the company. e. Cash payments by the company to its stockholders.
a. Cash received by the company from its stockholders.
EXAM 1 TOP 20: A credit to an asset account: a. Decreases its balance b. Has no effect on its balance c. Increases its balance d. Also increases stockholders' equity e. Two of the other answers are correct
a. Decreases its balance DEALOR Increase account with a credit: Liabilities, Stockholders' Equity, and Revenues. Increase account with a debit: Dividends, Expenses, and Assets
EXAM 1 TOP 20: Consider the following items: - Land - Accounts Receivable - Notes Payable (due in three years) - Accounts Payable - Retained Earnings - Supplies - Unearned Revenue - Buildings - Notes Payable (due in six months) - Equipment How many of the items listed above are generally reported as current assets? a. Two. b. Four. c. Five. d. Three.
a. Two. Accounts receivable (Cash's best friend) and notes payable due in 6 month.
EXAM 1 TOP 20: A company has the following balance sheet accounts: - Cash: $20,000 - Accounts Receivable: ? - Accounts Payable: $2,000 - Common Stock: $20,000 - Retained Earnings: $10,000 - Notes Payable: $5,000 What is the balance of Accounts Receivable? a. $7,000 b. $17,000 c. $22,000. d. Cannot be determined given the information provided. e. $15,000.
b. $17,000 Assets = Liabilities + Stockholders' Equity Assets: Cash and accounts receivable. Liabilities: Accounts payable and notes payable. SE: Common stock and retained earnings $20,000 + x = $2,000(L) + $5,000 (L) + $20,000 (SE) + $10,000 (SE)
EXAM 1 TOP 20: The beginning balance of the Cash account is $10,000. The following transactions occur during the year: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. What was the balance of the company's Cash account following these six transactions? a. $23,800 b. $37,800. c. $25,800. d. $22,800. e. $25,500.
b. $37,800 beginning balance ($10,000) + common stock issued ($15,000) - office equipment ($1,200) + cash service revenue ($14,000).
EXAM 1 TOP 20: Which of the following financial statements reports a company's retained earnings? a. Income statement. b. Balance sheet. c. Statement of cash flows. d. All of the other answers are correct. e. Statement of resources
b. Balance sheet. Retained earnings: All revenues, expenses, and dividends over the life of the company. The statement of stockholders' equity reports the ending balance retained earnings. Information contained on the balance sheet: Assets, liabilities, and stockholders equity.
EXAM 1 TOP 20: The closing process includes which of the following? a. Two of the other answers are correct. b. Closing the balances of revenue, expense and dividend accounts to zero. c. Closing the balances of asset and liability accounts to zero. d. Closing the balance of the retained earnings account to zero.
b. Closing the balances of revenue, expense and dividend accounts to zero. Purpose: To transfer the balance of temporary accounts to Retained Earnings.
EXAM 1 TOP 20: Which of the following is a possible closing entry? a. Debit Cash;, credit Service Revenue. b. Debit Service Revenue; credit Retained Earnings. c. Debit Cash; credit Retained Earnings. d. Debit Dividends; credit Retained Earnings.
b. Debit Service Revenue; credit Retained Earnings. Expenses and dividends are zeroed out by crediting each account and revenues are zeroed out by debiting each account. Assets and liabilities are permanent accounts so they will never be "closed". EX: Debit Retained Earnings; Credit Supplies Expense
EXAM 1 TOP 20: Providing services on account would be recorded with a: a. Debit to Service Revenue. b. Debit to Accounts Receivable. c. Debit to Accounts Payable d. Credit to Accounts Payable. e. Credit to Cash.
b. Debit to Accounts Receivable. Increase equities Also increases assets Revenues earned but no cash, so use cash's "best friend" of accounts receivable. Accounts receivable goes up, revenue account goes up meaning stockholders' equity goes up.
EXAM 1 TOP 20: Consider the following list of accounts: - Cash - Salaries Expense - Common Stock - Utilities Expense - Accounts Receivable - Accounts Payable - Service Revenue - Buildings How many of these accounts will increase with a debit? a. Three b. Five c. Four d. Six e. Seven
b. Five 1. Cash 2. Salaries Expense 3. Utilities Expense 4. Accounts receivable 5. Buildings Increase with a debit: Dividends, Expenses, and Assets Increase with a credit: Liabilities, owners' equity, and revenues.
EXAM 1 TOP 20: The sale of land for cash is considered a(n): a. Financing cash flow. b. Investing cash flow. c. Not a cash flow. d. Operating cash flow.
b. Investing cash flow. Involves the buying and selling of land, buildings, and equipment used in the business. EX: Transactions involving the purchase and sale of productive assets, long term asset, selling equipment for cash, and purchasing a delivery truck.
EXAM 1 TOP 20: When a company incurs a cost used in current operations but has not yet paid cash for that cost in the current period, the accounting equation would be affected as follows: a. Assets decrease and liabilities increase. b. Liabilities increase and stockholders' equity decreases. c. The accounting equation would not be affected. d. Assets decrease and liabilities decrease. e. Liabilities decrease and stockholders' equity increases.
b. Liabilities increase and stockholders' equity decreases. Balance out the accounting equation. Accrued expense: Incurred but not yet paid.
EXAM 1 TOP 20: Given the information below, what was the amount of dividends the company paid in the current period? Beginning Retained Earnings = $120,000 Decrease in Cash = $10,000 Ending Retained Earnings = $140,000 Net Income = $50,000 a. $80,000. b. $10,000 c. $30,000. d. $140,000. e. $20,000.
c. $30,000 (Beginning Retained Earnings) $120,000 - (Decrease in Cash) $10,000 + (Dividends) x = (Ending Retained Earnings) $140,000
EXAM 1 TOP 20: A company's balance of cash in its own records is $10,000. The following information is determined after comparing the company's cash records with the bank statement: - Bank's balance: $13,000 - Notes collected: $1,600 - Deposits Outstanding: $1,000 - Checks Outstanding: $3,000 - Bank service fees: $100 - NSF checks: $500 What is the company's correct amount of cash? a. $12,000 b. $10,100 c. $12,500 d. $11,000 e. $11,600
d. $12,000 Beginning cash balance of $13,000 + notes receivable collected of $1,600 - bank fee of $100 - NSF of $500 = $ Note receivable collected by the bank (Co knows) Checks outstanding: BANK KNOWS Bank service fees (Co knows) Non-sufficient funds (NSF) checks (Co knows) Deposits Outstanding: Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank
EXAM 1 TOP 20: Payment of cash dividends to stockholders is considered a(n): a. Not a cash flow. b. Operating cash flow. c. Investing cash flow. d. Financing cash flow.
d. Financing cash flow. Includes cash transactions resulting from the external financing of a business. Effecting stockholders' equity/liabilities EX: Notes payable, borrowing money from the bank, selling stock to an investor, and paying dividends
EXAM 1 TOP 20: An example of an adjusting entry would not include: a. Recording the interest cost incurred during the year. b. Recording the expiration of prepaid insurance over the year. c. Recording the salaries owed at the end of the year. d. Recording supplies used during the year. e. Recording the cash received in advance from customers during the year.
e. Recording the cash received in advance from customers during the year. Adjusting: Never have CASH in debit/credit adjusting entries. Prepayments (deferred revenue prepaid expenses) and accruals (accrued revenue and accrued expenses). Generally adjust revenue or expenses that have not been recorded yet, OR adjust deferred revenue that was earned/ that was previously a liability, OR adjust an unused asset (future economic benefit).
