ACTG 2010 Exam 2 part A

If a company were to ignore the fact that the market value of its inventory is lower than its cost, then _______.

its assets and stockholders' equity would be overstated

Inventory costing methods allowed by US GAAP include:

specific identification; weighted average; last in first out; fist in first out

The costs of carrying inventory include the costs of ________.

spoilage; theft; storage; obsolescence

If a company's inventory costs are rising, ______ inventory costing method(s) typically results in a higher income tax expense.

the FIFO

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit.

Decreases

The adjusting entry to record depreciation debits _____________ _______________ and credits ____________ _____________.

Depreciation Expense; Accumulated Depreciation

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______.

Detect bookkeeping errors; Detect theft; Detect shrinkage

If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ________.

Estimated amount of uncollectable was greater than the amounts actually written off.

Intangible Assets

Examples: Trademarks, Patents, Copyrights, Technology, Licensing Rights, Franchises, Goodwill

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Expense (matching) recognition principle

Ordinary repairs and maintenance costs should be___________.

Expensed as incurred

Which accounting methods are acceptable under US GAAP?

FIFO,LIFO, Specific Identification, Weighted Average

Another term for long lived tangible assets is _____________ assets and is found on the financial statement called the _____________ ________________.

Fixed;balance sheet

Beginning Inventory + Purchases =________.

Goods Available for Sale

Using the aging of receivables method, an unadjusted Allowance for Doubtful Accounts will have a debit balance when the amount of write offs recorded during the period is ____ the amount estimated to uncollectible in the prior accounting period.

Greater than

A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Gross Profit

The complexity that arises from a bundle sale of a product and service contract together for a single price is the seller _______.

Has to determine how to split the price; Fulfills its performance obligations at different times

A benefit of the __________ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.

Perpetual

An intangible asset may be recorded only if __________.

Purchased

Cost of goods sold equals beginning inventory plus _________minus ending inventory.

Purchases

An intangible asset may be recorded when a company ______.

Purchases a trademark;Pays more than the net assets of the company purchased

Whether purchase discounts are recorded using the gross or net method, ultimately purchase discounts taken are _________.

Reductions to Inventory

The objectives when accounting for accounts receivable and bad debts are to _________.

Report accounts receivable net of the amount the company does not expect to collect (I.E. at the net realizable value) ;Match the cost of bad debts to the accounting period in which the related credit sales are made.

At the end of a depreciable asset's useful life, its book value equals its ______________.

Residual value

Purchase ________ and allowances are accounted for with a credit to inventory and a debit to Cash or Accounts Payable.

Returns

Selling price times the quantity sold

Sales Revenue

What line items would be found on a merchandiser's income sheet and not on a service firm's?

Sales Revenue, Cost of Goods Sold

Which of the following are found on the income statement of a merchandiser? Options: Deferred Revenue;Gross Profit;Inventory;Sales Revenue;Cost of Goods Sold;Accounts Receivable;Cash

Sales Revenue;Cost of Goods Sold;Gross Profit

A gain on the disposal of an asset occurs when the _______.

Selling price is greater than the asset's book value

Type of company that sells services rather than Physical goods

Service Companies

For billing and collection purposes, companies keep a separate accounts receivable account for each customer called a _______account.

Subsidiary

In what situations would a merchandiser record revenue?

The obligation has been fulfilled and control of the goods has been transferred to the customer; Goods were delivered FOB Shipping Point but have not yet arrived at the buyer's place of business.

If the purchaser of merchandise debited inventory and credited cash for transportation costs, ___________.

The terms of sale were FOB shipping point

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation?

Total assets increase $315,000;Machinery, an asset, increases $320,750;Total liabilities increase $315,000.

Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods; True or False?

True

The inventory costing methods determine the amount of the debit to Cost of Goods Sold and Credit to Inventory; True or False?

True

The inventory methods apply to both perpetual and periodic inventory systems; True or False?

True

The asset's book value (or cost minus accumulated depreciation) must equal its residual (salvage) value at the end of its useful life using which depreciation method?

Units-of-production;Straight-line;Double-declining-balance

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals _______.

$30,000 (Beginning Inventory + Purchases=Goods available for sale)

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000 and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 (Net Sales = Cost of Goods Sold + Gross Profit)

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive______.

$4,900

Acme, Inc. had cost of goods sold of $2,000. If beginning inventory was $2,100 and ending inventory was $500, Acme's purchases must have been $__________.

$400 (Purchases=Ending Inventory+Cost of Goods Sold-Beginning Inventory=$500+$2,000-$2100=$400)

Put the 5-step revenue model for a bundle sale in its proper order by placing the 1st step at the top.

1.Identify the contract 2. Identify the seller's performance obligation 3.Determine the transaction price 4.Allocate the transaction price to each performance obligation in the bundle sale 5.Recognize revenue when or as each performance obligation is satisfied

Order of line items on Income Statement

1.Sales Revenue Gross 2.Sales Returns, Allowances and Discounts 3. Sales Revenue Net 4.Cost of Goods Sold 5.Gross Profit

Match the description for each part of the purchase discount 2/10,n/30.

2 the discount percentage;10 the discount period;30 the timeframe the full amount is due

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record ______.

A decrease in its inventory;Cost of Goods Sold, which will be reported on the income statement

When will a bankrupt customer's accounts receivable be eliminated? When the company records ____________.

A write-off

Shenandoah Skies bought land to be used for a new ski resort. Which of the following expenditures made by Shenandoah Skies should be capitalized? Title search, real estate taxes, purchase of land, party to celebrate the grand opening, amount paid to cut down timber to make way for ski runs, amount paid to advertise the new ski resort

Amount paid for title search; Amount paid to purchase land; Amount paid to cut down timber to make way for ski runs

On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes__________.

Assets to be overstated;net income to be overstated

Amortizing intangible assets affects the accounting equation by causing ______.

Assets to decrease; Stockholders' equity to decrease

Which financial statement shows tangible assets? Balance sheet;Income statement;Statement of retained earnings

Balance Sheet

Ending Inventory Equation

Beginning Inventory + Net Purchases- Cost of Goods Sold=Ending Inventory

Cost of Goods Sold Equation

Beginning Inventory + Purchases-Ending Inventory = Cost of Goods Sold

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, Including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 Inventory?

Breyer Company should include the $4,000 in its inventory

Sunny Skys, Inc. bought a derelict hunting lodge, which it tore down at a cost of $45,000 and replaced with a new lodge. The demolition cost should be ________.

Capitalized

Which of the following will result in the recording of goodwill?

Company A purchases Company B and pays more than fair value of Company B's assets and liabilities.

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to:

Compare one company with another; Make comparisons over time.

Beginning Inventory + Purchases - Ending Inventory=____________

Cost of Goods Sold

Cost times the quantity sold

Cost of Goods Sold

How does the inventory costing methods affect the income statement when costs tend to rise over time?

Cost of Goods Sold on the income statement differ between the methods causing Income Tax Expense to differ.

Cost of Goods Sold on the income statement reports the _______.

Cost times the quantity of goods sold during the period

The journal entry to record depreciation include which of the following?

Credit Accumulated Depreciation;Debit Depreciation Expense

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ________.

Credit Sales Revenue;Debit to Accounts Receivable;Credit to Inventory;Debit to Cost Goods Sold

The entry to record the write-off of a specific customer's account requires a _________.

Credit to Accounts Receivable and Debit to Allowance for Doubtful Accounts

Inventory is reported as an _________ on the ___________.

Current Asset;Balance Sheet only

What might cause the value of inventory to fall below its original cost?

Damage, Increased competition, Obsolescence from going out of style

The journal entry to record the amortization of an intangible asset includes a ________.

Debit to Amortization Expense

The Allowance for Doubtful Accounts, a contra-asset account, is ____ when specific uncollectible accounts are written-off.

Debited

Probes Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a(n) ________.

Decrease in assets; Decrease in stockholders' equity

Lox, Stock and Bagel, Inc. buys Cream Cheesery, Inc. for $1,000,000 cash. Cream Cheesery's net assets are valued at $800,000 at the time of the sale. Lox, Stock and Bagel, Inc. should record an __________.

Decrease to Cash of $1,000,000; Increase to Goodwill of $200,000

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in an ________.

Decrease to net income on the income statement; Decrease to assets on the balance sheet

If cost of acquiring inventory is rising, LIFO will result in what compared to FIFO?

Income Tax Expense will be lower, Gross profit will be lower, Cost of Goods Sold will be higher.

The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash total assets _________.

Increase by $8,000

The amount of interest earned but not yet collected

Interest Receivable

Includes all of the interest earned, not just the interest collected:

Interest Revenue

Current asset on the balance sheet available for sale

Inventory

In a perpetual system, the _________ account is debited when a company purchases merchandise on account.

Inventory

Goods in transit are _______.

Inventory items being transported from a seller to a buyer.

Accounts Payable _______.

Is debited when amounts owed are paid; Is credited for purchases made on account

If a company is debiting Interest Receivable and crediting Interest Revenue, what must be the case?

It is the end of the accounting period and it is adjusting entry for interest generated but not yet collected.

Corporations with high sales volume, such as Walmart, usually have _________.

Low gross profit percentages

Type of company that sells goods that they have made themselves

Manufacturing Companies

On May 1, Doormat received an order from a customer. The goods were shipped FOB shipping point on May 3. The customer received the goods on May 5 and paid for the merchandise on June 1. When should Doormart record the sale?

May 3

Type of company that sells goods that have been obtained from a supplier

Merchandising Companies

A _______ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and seperates other items that are not core to the operations of the company.

Multistep

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly recorded a $5,000 sale on account, but forgot to record the related cost of the sale of $3,000. As a result of this error, _______________.

Net income will be too high; Total assets will be too high

If companies are required to adopt IFRS, companies will _________.

No longer be able to use LIFO

When accounting for accounts receivable, a primary objective is to ____________.

Not overstate assets and stockholders' equity by the estimated amount of bad debt.

The principle amount owed on credit with legal contract.

Notes Payable

To find a description of the inventory accounting method used by a company, you need to look at the _____________.

Notes to financial statement

Asset Impairment

Occurs when the carrying value of a long-term asset exceeds its fair value. Causing the asset to be written down to fair value.

Under the _________ inventory system, inventory records are updated only at the end of the accounting period.

Periodic

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record Interest Revenue? It will record_______.

an adjusting entry on December 31 with a debit to Interest Receivable and credit to Interest Revenue for the interest generated in December.

The weighted average cost method uses the ______cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.

average;average

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for period will________.

be split between cost of goods sold and ending inventory.

Which of these are long-lived assets? a.Cash, b.Retained earnings c.Delivery equipment, d.Inventory e.Machinery

c.Delivery equipment;e.Machinery

The entry to record the write-off of a specific customer's account _____ when using the allowance method.

has no net effect on total assets, liabilities or stockholders' equity