ACTG 2010 Unit 2 Study Guide
X-it Company, signed a $500,000, 5-year note payable to buy a new industrial machine. The company paid $2,000 cash for transportation of the machine and $1,000 cash for installation costs. The journal entry to record this transaction will include a ______.
$500,000 credit to Note Payable $3,000 credit to Cash $503,000 debit to Machinery
King Costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, King Costume purchased 40 additional masks for $12 each. At the end of the month, King counted its inventory and found that 5 masks remained unsold. If King Costume uses LIFO periodic, its Cost of Goods Sold for the month is ______.
$510
Accountants say costs have been _________ when they are recorded as assets rather than as expenses
Capitalized/Deferred
What is found on the income statement of a merchandiser?
Cost of Goods Sold Sales Revenue Gross Profit
Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using first-in, first-out, the 3 goods sold are assumed to be ______.
From the beginning inventory
Companies generally report their accounting method for inventory in the ______
Notes to the financial statements
To find a description of the inventory accounting method used by a company, you need to look at the ______.
Notes to the financial statements
On October 25, Yacht Doc received $200,000 for a yacht valued at $180,000 and a 4-month service contract. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. In what month should the $180,000 for the yacht be recognized as revenue?
November
Which of the following would be considered merchandise inventory? Purchased finished goods Raw materials Work in process Cost of goods sold
Purchased finished goods
If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.
Shipped from the seller's place of business
The purchaser of inventory pays for shipping if the shipping terms are FOB ______
Shipping point
When costs to purchase inventory are falling over time, using LIFO leads to reporting ______ cost of goods sold and ______ net income than FIFO.
Lower; Higher
What two things will require a credit to the inventory account in a perpetual inventory system?
Selling inventory for cash Selling inventory on account
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 differs between the methods causing Income Tax Expense to differ.
The seller of inventory pays for shipping if the shipping terms are FOB ______.
Destination
To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______.
Detect shrinkage Detect theft Detect bookkeeping errors
Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. Ending inventory was ______.
$10,000
Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.
$20,000
Shenandoah Skies bought land to be used for a new ski resort. Which of the following of expenditures made by Shenandoah Skies should be capitalized? $7,500 paid for a party to celebrate the grand opening $50,000 paid to cut down timber to make way for ski runs $6,000 for the 1st year's real estate taxes $5,000,000 to purchase the land $3,000 paid to advertise the new ski resort $5,000 paid to Jack Mogul for a title search
$50,000 paid to cut down timber to make way for ski runs $5,000,000 to purchase the land $5,000 paid to Jack Mogul for a title search
The journal entry to record the payment for merchandise previously purchased on account includes a debit to ______ and a credit to ______.
Accounts Payable; Cash
The adjusting entry to record the estimated amount of bad credit sales is a debit to Bad Debt Expense and a credit to
Allowance for Doubtful Accounts
Construction in progress is reported as a(n) ______
Asset on the balance sheet
The allowance method requires that ______.
Bad Debt Expense be recorded in the same period as the related credit sales Allowance for Doubtful Accounts be netted against Accounts Receivable
Land improvements include items such as sidewalks, landscaping, fencing and are reported on the ______.
Balance sheet
Accumulated Depreciation is reported on the ______.
Balance sheet netted against the related long-lived asset
When using the specific identification inventory method, cost of goods sold equals the ______.
Cost of the actual item sold
Inventory consists of all ______.
Costs needed to get the inventory ready for sale
Sunny Sky paid $30,000 cash for a piece of land to be used for a new corporate headquarters building. The journal entry to record this transaction will include a $30,000 ______.
Credit to Cash Debit to Land
On October 25, Yacht Doc received $200,000 for a yacht valued at $180,000 and a 4-month service contract. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. What is the entry Yacht Doc should record on October 25?
Debit Cash; Credit Deferred Revenue
The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a ______
Debit to Inventory Credit to Cash
In a perpetual system, the entry to record a purchase of merchandise on account includes a
Debit to inventory Credit to Accounts Payable
_______ is classified as a(n) _________ asset and reports the amount of merchandise available to sell
Inventory; current
Accounts Payable ______.
Is debited when amounts owed are paid Is credited for purchases made on account
Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet? Weighted average LIFO Specific identifcation FIFO
LIFO
Which of these inventory accounting methods are acceptable under US GAAP? FIDO LIFO Count and carry LUDO FIFO Weighted average Specific identification
LIFO FIFO Weighted average Specific identification
Another term for long-lived tangible assets is _______ assets and is found on the financial statement called the ______ _____
Productive; Balance sheet
The costs of carrying inventory include the costs of ______
Spoilage Storage Theft Obsolescence
For billing and collection purposes, companies keep a separate accounts receivable account for each customer called a ______ account.
Subsidiary
Select all of the items below in determining the cost of purchased equipment. Subtract the purchase discount Add the sales tax Add the list price Subtract the sales tax Add the installation costs Add the purchase discount Add the delivery costs
Subtract the purchase discount Add the sales tax Add the list price Add the installation costs Add the delivery costs
Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?
The customer received a damaged product and returned it.
Why should a company divide up the cost of a "basket purchase" among the different assets purchased?
The different assets might be depreciated over different useful lives.
True or false: Accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment
True
True or false: GAAP require end-of-period adjustments for the estimated bad debts in the period of the credit sale even though the specific, non-paying customers have not yet been identified.
True
Removing an uncollectible account and its corresponding allowance from the accounting records is called ______.
a write-off
Tangible assets are first recorded at ______.
all costs to acquire them and prepare them for use
An asset's useful life ______.
can be expressed in either years or units is the asset's expected economic life to its owner
IFRS ______.
divides the cost of an asset among its significant component parts and depreciates the components separately over their useful lives
Sales on account ______.
increase assets and stockholders' equity increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement
Capitalized costs differ from expenses in that only capitalized costs result in a(n) ______.
increase to long-lived assets
The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.
$80,000
A purchaser is offered a 2% discount if the bill is paid within 7 days, otherwise the full amount is due in 30. This purchase discount is expressed on the invoice as follows:
2/7,n/30
In which company would you rather invest?
A company with high gross profit percentage and high sales volume
To be in accordance with GAAP, companies are required to estimate the amount of uncollectible receivables and make an adjusting entry. The effect of the adjusting entry is to ______.
reduce Net Income by debiting Bad Debt Expense and reduce net accounts receivable by crediting Allowance for Doubtful Accounts
In the case of a basket purchase, the cost of the land and building is ______.
split among the assets purchased in proportion to the market value of the assets as a whole
ABC Corp. sells a product for $1,000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system include a debit to ______.
Cash of $1,000 and a credit to Sales Revenue of $1,000 Debit to Cost of Goods Sold of $600 and a credit to Inventory of $600
Gross Profit
Equal to Net Sales minus Cost of Goods Sold A subtotal on the income statement
Ordinary repairs and maintenance costs should be ______.
Expensed as incurred
The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its ______.
Income statement; Balance sheet
Miss Hap, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following is true?
Stockholders' equity will be overstated. Assets will be overstated.
In which situations would a merchandiser record revenue?
The obligation has been fulfilled and control of the goods has been transferred to the customer. Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business.
True or false: The inventory method selected by management does not have to correspond to the physical flow of goods to be in accordance with GAAP.
True
True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.
True
X Company, which uses the gross method and a perpetual inventory system, sold $2,000 of merchandise on account with credit terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, X will record a journal entry that includes ______.
a debit to Cash of $1,960 a debit to Sales Revenue of $40 a credit to Accounts Receivable of $2,000
Revenue expenditures are recorded with a debit to ______.
an expense when they relate to ordinary repairs and maintenance
The cost of a new building that is currently under construction, not for sale but for a company's own use, is reported on the balance sheet ______.
as an asset, Construction in Progress
Using the allowance method, Bad Debt Expense is recorded _____
as an estimate in the period of the related credit sales
Long-lived assets are ______.
assets acquired for use over 1 or more years used by the business
The effect of capitalizing a cost that should have been expensed causes ______.
assets to be overstated on the balance sheet and expenses to be understated on the income statement
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
A company should depreciate a long-lived tangible asset to _____
match part of the cost of the asset with the revenues generated by the asset
Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should? Recording costs as Construction in Progress even though the asset is completed. Expensing costs that should be capitalized. Capitalizing costs that should be expensed. Recording the costs of merchandise purchased on account.
Capitalizing costs that should be expensed.
Inventory
Current asset on the balance sheet available for sale
What line items are found on a multi-step but not on a single-step income statement.
Gross Profit Income from Operations
How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?
Only the items that have market values lower than the costs will be written down.
When a seller fulfills its performance obligation, it credits ______.
Revenue
The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______.
capitalized as part of the cost of the theater
Accounts Receivable represent ______.
amounts owed to a business by its customers
The difference between the Equipment account and its Accumulated Depreciation is called the _________ value
book
Which account is credited in an adjusting entry to record depreciation on machinery?
Accumulated Depreciation
Which of the following are contra-asset accounts? Common Stock Accumulated Depreciation Allowance for Doubtful Accounts Deferred Revenue
Accumulated Depreciation Allowance for Doubtful Accounts
Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.
Contra-revenue; Debited
Allowance for Doubtful Accounts is a(n) _________ -asset account and has a normal ________ balance
Contra; credit
Of the 4 companies listed below, which company is more likely to use specific identification to value its inventory and cost of goods sold? Bulk candy merchandiser Fast food restaurant Custom home builder Dog biscuit manufacturer
Custom home builder
Which of these might cause the value of inventory to fall below its original cost? Decrease in gross profit Damage Obsolescence from going out of style Increased competition
Damage Obsolescence from going out of style Increased competition
If the inventory cost is $20,000 and the market value is $18,000, then the company should ______.
Debit Cost of Goods Sold and credit Inventory for $2,000
The journal entry to record $5.6 million in sales on account includes a _____
Debit to Accounts Receivable of $5.6 million Credit to Sales Revenue of $5.6 million
The entry to record the revenue recognized from the service portion of a bundle sale that was collected in advance is recorded with a debit to ______ and a credit to ______.
Deferred Revenue; Service Revenue
__________ repairs to long-lived assets are capitalized because they are large expenditures and increase the useful life of the asset.
Extraordinary
True or false: In accordance with US Generally Accepted Accounting Principles, a company will always capitalize the cost of a long-lived asset.
False
Which of the following are advantages to extending credit to customers? Increased demand Increased wage costs Increased bad debt costs Increased sales Delayed receipts of cash
Increased demand Increased sales
When a company capitalizes a cost, its ______ increase.
Long-lived assets
Which account is used to reduce assets for the amount of estimated bad debts?
The contra-asset account called Allowance for Doubtful Accounts
The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?
The same period as credit sales
True or false: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items.
True
What does the sales discount 2/10, n/30 mean?
You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days.
Walmart sells a bike that cost $100 to a customer for $250 cash. Using a perpetual inventory system, the entry to record the sale includes a debit to ______ and credit to _______ ___________ for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to __________ for $100
cash; sales revenue; inventory
Bad Debt Expense is a ______
temporary account so its balance is closed (zeroed out) at the end of the accounting period
The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n) ______.
write-off of a specific customer's account
In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.
Add the transportation costs to its Inventory Account
Which of these are tangible assets? copyright accounts receivable furniture computers delivery equipment
Furniture Computers Delivery Equipment
The purchaser's entry to record the payment for transportation costs on the purchase of merchandise sold FOB shipping point is debited to ______.
Inventory
Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased? Specific identification Perpetual FIFO Weighted average LIFO Periodic
LIFO
A company bought land and a building for $128,000. The building has a useful life of 20 years. Why should the company split the $128,000 cost between the land and the building?
Land is not depreciated, while the building will be depreciated over its 20-year useful life.
Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory ______.
Only in a perpetual system
Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using FIFO, its Inventory at December 31 is ______.
$2,300
In a perpetual inventory system, what is true?
The seller should record freight-out as a selling expense. The purchaser should record freight-in as an asset, Inventory.
Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using last-in, first-out, the 3 goods sold are ______.
From the purchases made during the month
When costs to purchase inventory are falling over time, using LIFO leads to reporting ______ than FIFO.
Higher Inventory on the balance sheet
If a company uses LIFO for tax reporting purposes, then it ______
Most likely has been experiencing rising inventory costs Must have used LIFO for financial reporting purposes
Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building. What is the effect of this transaction on the accounting equation?
One asset increases, while another asset decreases.
Ima Broke is a customer that owes the company for credit sales and has declared bankruptcy. As a result, Ima Broke's subsidiary account receivable will be eliminated when ______.
a write off is recorded by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable
Lux Company started the month with 20 lamps in its beginning inventory that cost $30 each. During the month, Lux purchased 80 additional lamps for $31 each. At the end of the month, Lux counted its inventory and found that 25 lamps remained unsold. If Lux uses periodic weighted average cost, its Cost of Goods Sold for the month is ______.
$2,310
Bijoux Company has Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sold equals ______.
$23,000
An asset's book value or carrying value is its ______.
Cost minus accumulated depreciation
In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation
Liabilities will decrease Assets will decrease
If the purchaser of merchandise debited Inventory and credited Cash for transportation costs, ______.
The terms of sale were FOB shipping point
A company's Bad Debt Expense reports the ______.
estimated amount of this period's credit sales that customers will fail to pay
The Accumulated Depreciation balance will be ______.
large relative to the asset's cost in the latter years of the asset's life
The goals of inventory managers include ______
Having enough inventory on hand to meet customer demand Keeping the costs of buying and storing inventory as low as possible Making sure that inventory quality meets customer expectations
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 the period will ______.
Be split between cost of goods sold and ending inventory
An understatement of the 2019 ending inventory will affect ______
2020 Cost of Goods Sold 2019 Cost of Goods Sold 2020 Beginning Inventory
________ Receivable arise from making sales to customers on account and are non-interest bearing. ______ Receivable are formal written contracts that are interest bearing
Accounts; Notes
Which of the following statements are true about a perpetual inventory system? - After inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense. - Until inventory is sold, it is an asset reported at its cost on the balance sheet. - Cost of goods sold is recognized as soon as inventory is purchased.
After inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense. Until inventory is sold, it is an asset reported at its cost on the balance sheet.
Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?
Alpha
What would be the effect of forgetting to record the adjusting entry for estimated bad debts?
Assets and stockholders' equity would be overstated.
The adjusting entry to record the allowance for doubtful accounts causes total ______.
stockholders' equity to decrease assets to decrease
When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is ______.
the company would lose track of which customers still owe money the amounts are estimates and no one knows which particular customers will not pay
Land improvements reported on a company's balance sheet might include ______.
the fence around a factory parking lot trees planted to provide shade for the customer parking lot sidewalks outside the corporate headquarters
An objective of the expense recognition (matching) principle is to have bad debt expense debited in ______.
the same period the related credit sales are recorded
What should be debited to Inventory?
Purchases of merchandise on account Freight-in if shipped FOB shipping point
______ inventory will enter the production process and become ______ inventory. Once complete, the goods will become ______ inventory.
Raw materials; Works in process; Finished goods
An adjusting entry for expected returns requires a debit to ______.
Sales Revenue and credit Refund Liability and a debit to Inventory-Estimated for Returns and credit to Cost of Goods Sold
A multistep income statement is useful to financial statement users because it ______.
Separates cost of goods sold from other operating expenses, which allows the calculation of gross profit Separates income statement items into meaningful components
Which line item would be found on a service firm's income sheet and typically not on a merchandiser's? Cost of Goods Sold Inventory Supplies Service Revenue Sales Revenue Depreciation Expense
Service Revenue
At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. Market values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. CurlZ should report its inventory at ______.
$1,000
Gotit Inc. paid an invoice for $1,000 of merchandise plus shipping of $100. If the terms were 2/10, n/30, and the bill was paid within one week of receipt, how much cash was paid?
$1,080
Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory. At the end of the month, ending inventory was $10,000. Cost of Goods sold equals ______.
$20,000
Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance? $40,000 cost of the van $2,000 paid to install shelves inside the van $900 for cleaning the van during the year $100 oil change on van
$900 for cleaning the van during the year $100 oil change on van
What effect does the inventory costing method have on the income statement? The inventory methods affects the amount of the ______.
Cost of Goods Sold, Gross Profit, Income from Operations, Income before Income Tax Expense, Income Tax Expense and Net Income
Oops, Inc. overstated its ending inventory, during its physical inventory count, by $1,000 in Year 1. Which of the following will also be misstated in Year 1? Gross profit will be overstated by $1,000. Purchases will be overstated by $1,000. Cost of goods sold will be understated by $1,000. Net income will be understated by $1,000.
Gross profit will be overstated by $1,000. Cost of goods sold will be understated by $1,000.
Which of these might cause the value of inventory to fall below its original cost? Increased competition Decrease in gross profit Obsolescence from going out of style Damage
Increased competition Obsolescence from going out of style Damage
Corporations with high sales volume, such as WalMart, usually have ______.
Low gross profit percentages
Which statement is true? Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods. The inventory costing methods must mirror the physical flow of goods. The inventory costing methods reflect the amount paid for the purchases of inventory.
Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.
A major drawback to the periodic inventory system is ______.
The amount of inventory on hand and sold is unavailable during the accounting period
Who decides which of the many inventory accounting methods a company should use?
The company's management
If ending inventory in Year 1 is misstated, then Year 1's ______ also must be misstated.
cost of goods sold
A productive asset ______
is used to produce goods or services that will be sold to customers
Which of the following is recorded at the end of an accounting period when accounting for receivables using the allowance method? - An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale. - The write off of specific customer accounts is recorded by debiting Allowance for Doubtful Accounts and crediting Bad Debt Expense. - The write off of specific customer accounts is recorded by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts. - The write off of specific customer accounts is recorded by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable.
An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale.
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
When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______.
Credit to Cash for the amount paid Debit to Accounts Payable for the original cost Credit to Inventory for the discount amount
Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.
$12.10
Which of the following 2019 financial statement line items will be affected if the 2019 ending inventory is overstated? Cost of goods sold will be overstated. Cost of goods sold will be understated. Current assets will be overstated. Current liabilities will be overstated. Net income will be overstated. Net income will be understated.
Cost of goods sold will be understated. Current assets will be overstated. Net income will be overstated.
Using a perpetual inventory system, the journal entry to record a sale on account will include a ______
Debit to Accounts Receivable Credit to Sales Revenue Debit to Cost of Goods Sold Credit to Inventory
When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ______.
Debit to Bad Debt Expense Credit to Allowance for Doubtful Accounts
In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a _____
Debit to Cost of Goods Sold Credit Sales Revenue Debit to Accounts Receivable Credit to Inventory
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
FIFO, an inventory costing method, actually describes how to calculate the cost of ______. Goods available for sale Beginning inventory Goods sold
Goods sold
The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to ______.
bad debt expense
A subsidiary account ______.
is kept for each customer's accounts receivable and the total of all customers' accounts receivable is reported on the balance sheet
Under the _______ inventory system, inventory records are updated only at the end of the accounting period
Periodic
FIFO, LIFO, and weighted average inventory costing methods are based on ______.
Assumptions that accountants make about the flow of inventory costs
Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______.
Balance sheet as a current asset; Cost of Goods Sold on the income statement
All reasonable and necessary costs to acquire and prepare an asset for its intended use should be ______.
Capitalized as an expense
The weighted average cost method uses the weighted average cost to calculate the value of ______.
Cost of Goods Sold Inventory
If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO?
Cost of Goods Sold will be higher Gross Profit will be lower Income Tax Expense will be lower
In times of rising prices, why would a company choose LIFO over FIFO? LIFO would result in a higher Cost of Goods Sold making the Income Tax Expense lower than FIFO. LIFO would result in a higher Inventory balance making the company's current assets look more favorable than FIFO. LIFO would result in a lower Cost of Goods Sold making the company look more profitable than FIFO.
LIFO would result in a higher Cost of Goods Sold making the Income Tax Expense lower than FIFO.
Acme Company's balance sheet shows three inventory accounts—raw materials, work in process, and finished goods. Acme Company must be a ______.
Manufacturer
If Inventory is on the balance sheet under current assets and Cost of Goods Sold is on the income statement, then this company is most likely a ______.
Merchandiser
Iris, Inc. uses FIFO for financial reporting purposes and LIFO for its income tax return. Iris' accounting treatment of its inventory is ______.
Not in accordance with the LIFO Conformity Rule
If the inventory cost is $18,000 and the market value is $20,000, then the company should ______.
Not record any entry because the cost is lower than the market value
The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash is recorded with a ______.
$10,000 debit to Equipment $8,000 credit to Notes Payable $2,000 credit to Cash
Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was $10,000. On May 3, Ace purchased $3,000 of inventory and sold $1,500 of inventory for $5,000. At the end of business on May 3, the balance in Ace's Inventory account was ______.
$11,500
If a cost is capitalized, it is recorded as a(n) ___________, not an expense.
Asset
Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit
Decreases
Sales discounts should appear in the financial statements as a(n) ______.
Deduction from sales
Which of the following entries result in a decrease in total assets and stockholders' equity? The adjusting entry to record the depreciation of long-live assets Recording a purchase as a capital expenditure The adjusting entry to record the interest owed on a note issued when purchasing a long-lived asset Payment of extraordinary repairs that significantly improves the effectiveness of a long-lived asset
The adjusting entry to record the depreciation of long-live assets
If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.
There are product quality issues
Ice Queen bought a new refrigerated delivery truck. The engine has a useful life of 3 years, the refrigeration unit has a useful life of 2 years, and the body of the truck has a useful life of 10 years. Under IFRS, how many assets should Ice Queen record?
Three
Which financial statements will be misstated if the Year 1 ending inventory balance is understated? Year 2 income statement Year 2 balance sheet Year 1 income statement Year 1 balance sheet
Year 2 income statement Year 1 income statement Year 1 balance sheet
The accountant recorded the adjusting entry for the depreciation of its long-lived assets with a debit to Depreciation Expense and a credit to Accumulated Depreciation. As a result of this entry, assets and stockholders' equity will be ______.
decreased
Service companies sell services rather than
goods
Allowance for Doubtful Accounts is a _____
permanent account so its balance carries forward to the next accounting period
The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______.
$106,500
Inventory began was $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue?
$115,000
Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______.
$302
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
When a company provides $1,000 of services to a customer on account with payment terms of 2/10, n/30, the entry to record the sale using the gross method includes a debit to ______ and a credit to ______.
Accounts Receivable for $1,000; Service Revenue for $1,000
Sales on account will cause an increase in ______
Accounts Receivable on the balance sheet Sales Revenue on the income statement
The assumption that a company makes about its inventory cost flow has ______.
An effect on the company's income statement An effect on the company's balance sheet
Extraordinary repairs to long-lived assets are _________ because they are large expenditures and increase the useful life of the asset.
Capitalized
Under a perpetual inventory system, the entry to record the return of goods you had previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is ______.
Correct
In a perpetual inventory system, Inventory is initially recorded at ______
Cost
Cost of Goods Sold on the income statement reports the ______
Cost times the quantity of goods sold during the period
Cost of Good Sold
Cost times the quantity sold
Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ______
Credit to Inventory Debits to Accounts Payable
A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.
Credit; Decrease
Inventory is reported as a(n) ______.
Current asset on the balance sheet
The entry to record a sales return that results in the issuing of a gift card is recorded with a debit to Sales Revenue and a credit to_________ ________ and also a debit to _______ and a credit to Cost of Goods Sold.
Deferred Revenue; Inventory
Which of the following are disadvantages to extending credit to customers? Delayed receipts of cash Increased wage costs Increased bad debt costs Increased sales Increased credit ratings
Delayed receipts of cash Increased wage costs Increased bad debt costs
Which of these are long-lived productive assets? Retained earnings Delivery equipment Machinery Inventory Cash
Delivery equipment Machinery
Depreciation allocates the cost of a long-lived asset to _____.
Depreciation Expense over the periods the asset is used to generate revenue
The adjusting entry to record depreciation debits ___________ ___________ and credits ________ ____________
Depreciation expense; accumulated depreciation
If you had 1 unit that cost $3 in beginning inventory, purchased 1 more at $2 and then later another at $1, which method would result in the higher Cost of Goods Sold and lower Gross Profit if you sold 2 of the units? They would be the same for both methods It would depend on the price the goods were sold for FIFO LIFO
FIFO
Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received? Weighted average LIFO FIFO
FIFO
When costs to purchase inventory are rising, using LIFO leads to reporting ______ cost of goods sold and ______ net income than FIFO.
Higher; Lower
Inventory costing methods allowed by US GAAP include:1) specific _______; 2) ______ average; 3) last in, ________ out; and 4) first in, ________ out
Identification; Weighted; First; First
Sales Returns and Allowances are reported on the _____
Income statement
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
Applying the lower of cost or market rule results in inventory being reported at the ______.
Market value if lower than cost
FIFO uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.
Oldest; Newest
The ________ cycle is a series of activities that the company undertakes to generate sales and ultimately cash
Operating
Sales Revenue
Selling price times the quantity sold
Acme Enterprises just bought a new manufacturing machine. Which of these costs should be capitalized? The $15,000 freight bill to deliver the machine to Acme's factory The $200 annual increase in The $100 increase in monthly utility bills to operate the machine The $8,000 cost of tearing down Acme's factory wall to get the machine inside The $500 annual increase in insurance premiums, based on the cost of the machine The $500,000 invoice price of the machine
The $15,000 freight bill to deliver the machine to Acme's factory The $8,000 cost of tearing down Acme's factory wall to get the machine inside The $500,000 invoice price of the machine
Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?
The customer received a damaged product, but kept the product and asked for a reduction in the price.
True or false: Long-lived assets (except land) are expensed over their useful lives. True false question.
True
Which of the following are similarities between a 6-month note receivable and an account receivable? They both ______ are interest bearing are revenues are current liabilities have the risk of not being collected are current assets are formal written contracts
have the risk of not being collected are current assets
Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the ______.
land at $20,000 and the building at $60,000
When may expenditures for repairs be capitalized? When the expenditure is ______.
large and significantly enhances the asset's usefulness
The objectives when accounting for accounts receivable and bad debts are to ______. - increase both accounts receivable and net income by the amount of credit sales that are unlikely to be collected as cash - match the cost of bad debts to the accounting period in which the related credit sales are made - report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect.
match the cost of bad debts to the accounting period in which the related credit sales are made report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect.
The operating cycle is a series of activities that the company undertakes to generate ________ and, ultimately, cash
revenues
Ending inventory errors in 2019 ______.
will affect the 2020 goods available for sale but will not affect the 2020 ending inventory
X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals
$115,000
Delta Diamonds had 5 diamonds available for sale this year: June 1 - purchased 1 for $500; July 9 - purchased 2 for $550 each; and on September 23 - purchased 2 for $600 each. On December 24, it sold 1 of the diamonds. Using LIFO periodic, its ending inventory is ______.
$2,200
Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using periodic weighted average cost, its inventory after the December 24 sale is ______.
$2,240
Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold one of the diamonds that was purchased on July 9. Using a periodic specific identification, its Inventory after the December 24 sale is ______.
$2,250
Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.
$3,000
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
Boron Company has Net Sales of $60,000; Beginning Inventory of $7,000; Purchases of $35,000 and Ending Inventory of $5,000. The Cost of Goods Sold is ______.
$37,000
Alpha Company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. Alpha's weighted average cost per unit is ______.
$4.25
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, $600, $1600
Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10. It purchased 3 more at $12. It sold 4 units during the period. What is the Cost of Goods Sold using the weighted average cost method?
$44.80
FOB ______ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business.
Destination
Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet? Weighted average LIFO FIFO Specific identificaiton
FIFO
Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet? Weighted average LIFO FIFO Specific identification
FIFO
Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs?
FIFO and LIFO
True or false: Notes receivable have the same characteristics as accounts receivable and are interchangeable.
False
True or false: The adjusting entry to record Bad Debt Expense includes a credit to Accounts Receivable.
False
What inventory accounts would one expect to see in the accounting records of a company that makes furniture?
Finished goods inventory Work in process inventory Raw materials inventory
The LIFO Conformity Rule requires that LIFO be used ______. For both IFRS and GAAP For financial reporting if it is used on the company's income tax return Every accounting period even when prices are rising
For financial reporting if it is used on the company's income tax return
What should be added to the buyer's Inventory account?
Freight-in with terms FOB shipping point
Merchandisers record revenue when they ______
Fulfill their performance obligations by transferring control of the goods to customers
Why is Bad Debt Expense an estimate?
GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay.
The operating cycle involves ______.
Generating revenues and collecting from customers
Beginning Inventory + Purchases = _____.
Goods Available for Sale
Beginning Inventory + Purchases = _____
Goods available for sale
Which of the following is merchandise inventory? Office supplies that a company plans to use in the next few months Raw materials and work in process Goods held for sale in the normal course of business Equipment used to manufacture products which will be sold later
Goods held for sale in the normal course of business
When the allowance method is used, the entry to record the write-off of an uncollectible account ______.
Has no effect on net income
A company had beginning inventory of 3 units that cost $5 each. During the month, 17 units were purchased for $6 each. The company sold 15 units during the month and had 5 remaining in ending inventory. If the company uses FIFO instead of LIFO to calculate cost of goods sold, then cost of goods sold will be ______.
Lower using FIFO, leading to higher gross profit and higher income taxes
On May 1, Doormart 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
A company may make an exception to the accounting rules and not capitalize a long-lived asset if its cost is
Negligible
_____ Sales on an income statement equals Sales Revenue, gross minus Sales Returns and Allowances minus Sales _______
Net; Discounts
The purchase discount term
Of 2% if paid within 10 days of the purchase date
A benefit of the ___________ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.
Perpetual
If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.
Received by the customer
Sales returns and allowances _____
Reduce the amount the seller expects to receive from customers Are typically recorded after the initial sale when the actual return or allowance occurs Are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months
Thermal, Inc. bought a new computer system for $50,000 cash. What is the effect of this purchase on the company's total assets? Total assets ______.
Remain the same
The expenditure incurred for changing the oil in the company's fleet of trucks is debited to ______.
Repairs and Maintenance Expense
Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's balance sheet?
Retained earnings were too high. Total assets were too high.
A sales allowance that results in issuing store credit rather than a cash refund is recorded with a debit to ______.
Sales Revenue and a credit to Deferred Revenue
To determine cost of goods sold for the period requires ______
Subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases
Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchases 3 more at $12 each. It sold 2 units. Using the ______ ________ cost inventory method, Cost of Goods Sold equals $22.40
Weighted average
What is the inventory costing method that adds together the total cost of all goods available for sale during the period, and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory? Specific identification FIFO LIFO Weighted average cost
Weighted average cost
