ACCY 200 Recharge of first half of LearnSmarts
liability accounts are ____ with debits
decreased
what are all of the subtotals on the income statement
gross profit, income from operations, and income before taxes
frequently called earnings from operations or operating income
income from operations
accounts receivable
represents amounts due from customers who have purchased merchandise on credit
would sales account be closed during the year-end closing process
yes
would service revenue account be closed during the year-end closing process
yes
would wages expense account be closed during the year-end closing process
yes
examples of estimates frequently made in accounting
- warranty costs - depreciation of buildings and equipment -pension expense
expense and loss accounts normally have a ____ balance
debit
losses and dividends are closed in the same way that ____ are closed
expenses
year-end adjustments are made to ensure that ____ are recognized in the year in which they are incurred
expenses
gross profit - selling, general, and administrative expenses
income from operations
year-end adjustments are made to ensure that ____ are recognized in the year in which they are earned
revenues
NSF checks are ____ from the company's book balance
subtracted
result in making both the balance sheet and income statement more accurate
adjusting entries
result in recording expenses in the period during which they were incurred
adjusting entries
all expense and loss accounts, as well as dividends, are credited for amounts equal to their year-end debit balances
closing process
for the closing process, all expense accounts are closed by ____ each account for an amount equal to the adjusted year-end ____ balance
crediting; debit
subtotal on the income statement not affected by the firm's tax rate or by amount of interest expense incurred
income from operations
which calculations are found on the income statement
income from operations, income before taxes, gross profit, and net income
means that absolute exactness is not necessary in the amounts shown in the financial statements
materiality
accrual of a revnue
occurs when a revenue has been earned but not yet received in cash
accrual of an expense
occurs when an expense has been incurred but not yet paid for in cash
retained earnings is ____ by any dividends paid to stockholders
reduced
objectivity
refers to accountants' desire to have a given transaction recorded in the same way in all situations
Velco purchased a delivery truck at the beginning of 2016 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation expense at the end of 2019 (the third year of the asset's life) under the straight-line method would be ____
$10,000 - notice this refers to the depreciation EXPENSE for the single year of 2019
assume that land, buildings, and equipment were acquired for a lump-sum purchase price of $100,000. Appraised values were: lands, $40,000; buildings, $100,000; equipment, $20,000. Equipment would be recorded for:
$12,500
Velco purchased a delivery truck at the beginning of 2016 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of 2019 (the third year of the asset's life) under the straight-line method would be ____
$30,000 - notice this refers to the depreciation ACCOUNT for the three years leading up to 2019
assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would be reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded?
$47,000
assume that land, buildings, and equipment were acquired for a lump-sum purchase price of $100,000. Appraised values were: lands, $40,000; buildings, $100,000; equipment, $20,000. Buildings would be recorded for:
$62,500 $62,500 = ($100,000 / ($40,000 + $100,000 + $20,000)) = 62.5% * $100,000
assume that Missvel, Inc. has credit sales terms of 2/10, n30. On May 5, Missvel, Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying: ____ by May 15 or paying ____ by June 5
$9,800; $10,000
Velco purchased a delivery truck at the beginning of 2016 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of 2019 (the third year of the asset's life) under the units-of-production method would be ____
($0.50 per mile * miles driven during 2016) or ($60,000 - $10,000) / $100,000 = $0.50
the entry to record the amortization of an intangible asset: - Debit: ____ - Credit: ____
- Debit: amortization expense - Credit: intangible asset
the cash amount reported as an asset on the balance sheet includes: - ____ account balances - ____ account balances - money on hand in ____ - ____ receipts including checks
- checking - savings - petty cash funds - un-deposited
Equipment that cost $16,000 new and had $12,000 of accumulated depreciation was sold at a loss of $300. The journal entry to record the sale of the equipment would include: - ____ to loss on sale of Equipment for $300 - ____ to Cash for $3,700 - credit to Equipment for $16,000
- debit - debit - credit
over the life of a capital lease, on the balance sheet of the lessee: - capital lease liability is ____ (decreased) as lease payments are made - cash is ____ (decreased) as lease payments are made - the net book value of the leased asset is ____ as Accumulated Depreciation is ____ (increased)
- debited - credited - reduced
the following occurs on the lessee's income statement: - interest expense is ____ (increased) on an annual basis - depreciation expense is ____ (increased) on an annual basis
- debited - debited
advantages of expensing rather than capitalizing: - expensing an item avoids the need of keeping ____ methods - for income tax purposes, expensing yields an ____ decision - capitalizing requires a ____ of estimates for useful life and salvage value
- depreciation - immediate - revision
disadvantages of proprietorships
- owner has limited ability to raise capital - owner has unlimited personal liability - if the business fails, owner's personal assets may be claimed by business creditors
buildings and equipment are recorded at their original cost, which includes the: - ____ price - ____ costs incurred during the construction phase of a building - ____ and shakedown costs - material, ____ and overhead costs for equipment made by a firm's own employees
- purchase - interest - installation - labor
account types reported on the income statement
- revenues - expenses - gains - losses
an expenditure should be capitalized if the acquired item will have an economic benefit to the entity that extends beyond the current fiscal year. An example of this is: - preventive maintenance costs - advertising costs - research and development costs - roof replacement costs
- roof replacement costs
when calculating depreciation expense for the first year of an asset's use, under what three methods would the asset's estimated salvage value be subtracted from the cost of the asset
- sum-of-the-years'-digits - units-of-production - straight-line
statement of changes in stockholders' equity reports
- the year-end balance of retained earnings - common stock issued during the year - net income for the year - dividends for the year - total stockholders' equity at the end of the year
factors normally considered in determining whether to capitalize or expense an expenditure
- whether the purchased item represents a material expenditure to the company - the potential income tax reduction in the current year that results from expensing the item - whether the purchased item will provide economics benefits to the entity that extend beyond the current year
Company leases a machine and agrees to make annual lease payments of $11,000 for 5 years. The present value of all of the lease payments is $40,000/ The entry to record this transaction is: Debit: ____ Credit: ____
Debit: Equipment (40,000) Credit: Capital Lease Liability (40,000)
the entry made to record the impairment of good will is: Debit: ____ Credit: ____
Debit: Goodwill impairment loss Credit: Goodwill
at the inception of a capital lease, the financial statements effects are: Debit: ____ Credit: ____
Debit: Noncurrent asset Credit: Noncurrent liability
the entry to accrue interest on short-term marketable debt securities is: Debit: ____ Credit: ____
Debit: interest receivable Credit: interest income
simplify the calculation of the useful life of assets relative to the straight-line alternative
MACRS
land is accounted for in ____ Buildings and Euipment
a separate account
in a bank reconciliation, deposits in transit are ____ to the bank's balance
added
in a bank reconciliation, interest earned is ____ to the company's book balance
added
In a bank reconciliation: - deposits in transit are ____ bank's balance
added to
In a bank reconciliation: - interest earned is ____ the company's book balance
added to
in the bank reconciliation process, errors are either ____ or ____ from the bank's balance, if the error was made by the bank
added; subtracted
in the bank reconciliation process, errors are either ____ or ____ from the company's balance, if the error was made by the company
added; subtracted
result in recording revenues in the period during which they were earned
adjusting entries
acceptable approaches to estimating bad debts include
aging of receivables method and percentage of credit sales method
MACRS rules eliminate the need to estimate ____
an asset's salvage value
the net realizable value of accounts receivable is not affected by
an entry to write-off an account receivable
internal control process objective includes: the organization's compliance with ____
applicable laws and regulations
the effects on the financial statements of accruing interest on notes receivable include increases to
assets, revenues, and net income
leasehold improvements made with respect to leased assets are recorded as ____ by the ____ for the cost of expenditures properly capitalized
assets; lessee
if debits equal credits, then the company's balance sheet equation will
be in balance
assume that a company earned $100 of service revenue from a client, but that only $30 was collected in cash at the time the services were performed. This transaction would be recorded in the horizontal model with: $30 ____ and $70 ____ in the Assets column and +$100 ____ in the Revenues column
cash; accounts receivable; service revenue
the cost principle is used in accounting for the valuation of most assets; it an be defended on the basis of its three characteristics
conservatism, reliability, and consistency
the gain or loss on the sale of a depreciable asset is, in effect a ____ of the total depreciation ____ that has been recorded over the life of the asset
correction; expense
a machine that cost $7,000 new and had a net book value of $2,000, was sold for $1,400. The journal entry to record the sale of the machine would include a:
credit to Machine for $7,000
the entry to accrue interest on notes receivable is: - debit: ____ - credit: ____
debit: interest receivable credit: interest income
Towns Co. purchased Timber, Inc. for $4,200,000 in cash. The fair value of the net acquired assets were: inventory = $700,000; land = $1,000,000; buildings = $2,000,000; notes payable = $400,000. As a result of this transaction, Towns Co. would ____ Goodwill for ____
debit; $900,000
merchants who send you a notice that they have "charged" your account are really communicating that they have ____ your account in their accounting records to ____ your account balance, which is shown as a(n) ____ from their perspective, since you owe them money
debited; increase; asset
for the closing process, all revenue accounts are closed by ____ each account for an amount equal to the adjusted year-end ____ balance
debiting; credit
the net realizable value of accounts receivable is not affected by an entry to write-off an account receivable because the ____ to an asset account is offset by a ____ to a contra asset account
decrease; decrease
the impact on the financial statements of a write-off of an account receivable include a ____ to an asset account and a ____ to a contra asset account, with ____ on net income
decrease; decrease; no effect
expense and loss accounts are ____ with credits
decreased
MACRS rules provide accelerated ____ relative to the straight-line alternative
deductions
under this depreciation method, the estimated salvage value is ignored when making the depreciation expense calculation for the first year of an asset's use
double-declining-balance
cash receipts from customers do not need an ____ because these have exact amounts
estimations
one of the effects on the financial statements of the periodic amortization of an intangible asset is that an ____ is recognized each period, which ____ net income
expense; decreases
advertising expenditures must always be ____
expensed
goodwill results from the purchase of one firm by another for a price that is ____ than the fair value of the net assets acquired
greater
collateral
identification of security pledged by the borrower to support the loan
at the inception of a capital lease, the financial statements effects are to ____ noncurrent assets and noncurrent liabilities by equal amounts with no effect on stockholders' equity
increase
debits ____ expense and loss accounts
increase
the effects on the financial statements of accruing interest on notes receivable include: - ____ assets - ____ net income - ____ revenues
increase; increase; increase
liability accounts are ____ with credits
increased
retained earnings is ____ each year by the entity's net income (if positive)
increased
the impact on the financial statements of the year-end adjustment for bad debts normally includes: - ____ contra-asset account - ____ total assets
increases; decreases
cash equivalents are short term investments readily convertible into cash with minimal risk of price change due to ____
interest rate movements
after transactions have been recorded in a journal, they are posted to a ____
ledger
a basket purchase transaction results when two or more non-current assets are purchased for a lump-sum purchase price that is ____ than the total appraised fair value of the individual assets acquired
less
are present obligations to transfer assets or provide services to other organizations
liabilities
administrative controls often involve ____ (or reasonableness) tests
limit
one of the effects on the financial statements of a goodwill impairment loss is that a ____ is recognized, which ____ net income
lose; decreases
one of the effects on the financial statements of a goodwill impairment loss is that a ____ is recognized, which ____ net income
loss; decreases
in the horizontal model, a minus sign in the expenses column means that net income is ____ as a result of expenses being ____
lower; higher
debt and equity securities that fall in the trading and available-for-sale categories are reported on the balance sheet at the ____ value of the securities, and any unrealized gains or losses are ____
market; recognized
cash managers are interested in minimizing investment risks, and thus would normally consider making investments in
money market funds U.S. Treasury securities bank certificates of deposit commercial paper
the effects on the financial statements of accruing interest on short-term marketable debt securities include an increase to
net income, revenues, and assets
would buildings account be closed during the year-end closing process
no
would cash account be closed during the year-end closing process
no
would merchandise inventory account be closed during the year-end closing process
no
would notes payable account be closed during the year-end closing process
no
would accounts payable account be closed during the year-end closing process
no; accounts payable is a liability. only income statement accounts and dividends are closed to retained earnings
once goodwill is considered to be partially impaired and has been written down to its partially impaired value ____ subsequent upward adjustments are ____ for recoveries of fair value
no; permitted
internal control process objective includes: the effectiveness and efficiency of the ____ of the organization
operations
buildings and equipment are recorded at their original cost, which includes the purchase price plus all ordinary and necessary costs incurred to get the building or equipment ____
ready for its use in the operations of the firm
internal control process objective includes: the ____ of the organization's financial reporting
reliability
in the horizontal model representation of the financial statements, the arrow going from net income to stockholders' equity means that net income affects the ____ account within stockholders' equity
retained earnings
is the second principal category of stockholders' equity
retained earnings
represents the cumulative net income of the entity that has been retained for use in the business
retained earnings
Assets = Liabilities + Paid-in capital + ____ (beginning of period) + ____ (for period) - ____ (for period)
retained earnings; revenues; expenses
financial controls are related to the concept of ____
separation of duties
most firms will almost always pay within the discount period to take advantage of the cash discounts (such as 2/10, net 30) offered by their suppliers because most credit terms represent a ____ if the discounts are not taken
significant financing cost
although revenues and expenses are reported on the income statement, they also impact ____ on the balance sheet
stockholders' equity
ownership right of the stockholders in the the assets that remain after subtracting the liabilities of the corporation
stockholders' equity
depletion is usually recognized on a ____ basis
straight-line
in a bank reconciliation, outstanding checks are ____ from the bank balance
subtracted
In a bank reconciliation: - service charges are ____ the company's book balance
subtracted from
operating cycle
the average time it takes to covert an investment in inventory back to cash
short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at
the entity's cost of the securities
transaction analysis question that is a feedback loop to ensure that the entry you recorded is consistent to your understanding of "What's going on?"
"Does my analysis make sense?"
transaction analysis question that is essentially the same question as "Do the debits equal the credits?"
"Does the balance sheet balance"
transaction analysis question that is where you identify the specific accounts affected by the transaction
"What accounts are affected?"
If assets total $15,000 and liabilities total $9,000, then stockholders' equity totals ____
$6,000
the two main components of paid-in capital
- common stock - additional paid-in capital
three activity categories in the statement of cash flows are
- investing activities - operating activities - financing activities
concepts/principles relating to transactions
- objectivity - unit of measurement - cost principle
abbreviation for credit
Cr
abbreviation for debit
Dr
A = L +SE
accounting equation
adjusting entries affect both the ____ and the ____
balance sheet; income statement
year-end adjustments are made because the cash receipt from the revenue may occur when?
before or after the event that causes revenue recognition
only income statement accounts (revenues, expenses, gains, and losses) and dividends are ____ to retained earnings
closed
most assets are not recorded at their current market values because of the limitations imposed by the ____ principle
cost
liability accounts normally have a ____ balance
credit
Account receivable are recorded for the company's gross ____
credit sales
accounts receivable are reported as ____ on the balance sheet
current assets
when a bank ____ your account for service charges incurred during the month, what they are really communicating is that they are ____ the ____ recorded in their accounting records to represent your account from their perspective
debits; decreasing, liability
debits ____ revenue and gain accounts
decrease
accounts are summarized in ____ whereas transactions are summarized in ____
financial statements; accounts
net sales - cost of goods sold
gross profit
the cost of forming a corporation is usually ____ than that of starting a proprietorship or partnership
higher
The key to using the ____ is to keep the balance sheet in balance
horizontal model
income from operations - interest expense
income before taxes
expense and loss accounts are ____ with debits
increased
in bookkeeping and accounting, debit means ____, and credit means ____, and nothing more
left; right
are amounts owed to other entities
liabilities
are claims against the firm by its creditors
liabilities
income before income taxes - income taxes
net income
misleading term because assets and liabilities are not generally "worth" the amounts reported on the balance sheet
net worth
would common stock account be closed during the year-end closing process
no
would dividends payable account be closed during the year-end closing process
no
____ is referred to as an accumulated deficit if cumulative losses and dividends exceed cumulative net income
retained earnings
cumulative net income of the business less any dividends paid to stockholders
retained earnings
cumulative net income of the entity that has been retained for use in the business
retained earnings
the investments by and distributions to owners during the period are reported on which financial statement
statement of stockholders' equity
accounting period
the period of time selected for reporting the financial statements
are the starting point in the accounting process that end with the preparation of financial statements
transactions
can be seen as the bricks that build financial statements
transactions
accounts receivable are normally due ____
within a specified period of time
would cost of goods sold account be closed during the year-end closing process
yes
would dividends account be closed during the year-end closing process
yes
would gain on the sale of land account be closed during the year-end closing process
yes
would loss on the sale of buildings be closed during the year-end closing process
yes
would rent expense account be closed during the year-end closing process
yes
