BCOR 2110 Financial accounting Test 2 Total
External users want answers to all of the following questions except:
Will the company be able to afford employee pay raises this year?
Does a post-closing trial balance account "Capital" include results from the income statement? A. Yes B. No
Yes
Q 9.31: Capital expenditures add to the utility of plant assets for ______ accounting period. a) more than one b) only one
a) more than one
Beginning inventory is $50,000, cost of goods purchased is $70,000, and cost of goods sold is $90,000. What is ending inventory?
a. $ 30,000 Solution: 50,000+70,000 - 90,000
sales discount
contra revenue account promotes payment of the balance due
A business organized as a separate legal entity is a
corporation
Sparks Company received proceeds of $634500 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $600000, pay interest annually on December 31st, and have a call price of 102. Sparks uses the straight-line method of amortization. Sparks Company decided to redeem the bonds on January 1, 2018. What amount of gain or loss would Sparks report on their 2018 income statement?
$15,600
16. Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.
F
18. Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.
F
25. The LIFO inventory method agrees with the actual physical movement of goods in most businesses.
F
25. The allowance method of handling bad debts violates the matching principle.
F
26. The allowance for doubtful accounts is similar to accumulated depreciation in that it shows the total of all accounts written off over the years.
F
6. Accounts receivable are one of a company's least liquid assets.
F
FOB shipping point means that the seller incurs the shipping costs. A. true B. False
False
Financial statements are generally prepared for a limited number of users. A. True B. False
False
For a merchandiser (CVS or Target), cost of sales includes store related costs for lighting, heat and electricity? A. True B. False
False
If prices were to never change, there would still be a need for alternative inventory methods. A. true B. false
False
If total assets are increased, there must be a corresponding increase in liabilities or a decrease in stockholders' equity.
False
Office expenses for sales and marketing employees are included in cost of goods sold. A. True B. False
False
One way of stating the accounting equation is Assets + Liabilities = Stockholders' Equity.
False
Revenue increases stockholders' equity and should be recorded whenever cash is received from customers.
False
Solvency ratios measure the ability of a company to survive over a short period of time.
False
The account "Building, Not in Uses" on the post-closing trial balance should be reported as part of property, plant and equipment. A. True B. False
False
The accounting cycle begins with the journalizing of the transactions.
False
The advantage of accounting information is that it provides exact and completely reliable measures.
False
33. When the market value of inventory is lower than its cost, the inventory is written down to its market value.
T
35. The two key parties to a note are the maker and the payee.
T
39. The LIFO reserve is the difference between ending inventory using LIFO and ending inventory if FIFO were used instead.
T
4. Goods in transit shipped FOB shipping point should be included in the buyer's ending inventory.
T
What is the periodicity assumption?
The economic life of a business can be divided into artificial time periods
Ledger
The entire group of accounts maintained by a company.
When a service has been performed but no cash has been received, which of the following statements is true?
The entry includes a debit to accounts receivable.
Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period. A. True B. False
True
Financing activities for corporations include borrowing money and selling shares of their own stock.
True
Freight charges associated with the purchase of inventory normally are included in inventory cost. A. True B. False
True
General and administrative expenses are a category of operating expense. A. True B. False
True
Inventory losses are easier to identify under the perpetual inventory system than under the periodic inventory system. A. true B. false
True
Inventory methods such as FIFO and LIFO deal more with flow of costs than with flow of goods.
True
Operating activities are the types of activities the company performs to generate profits.
True
Profit margin and gross margin measure income at different levels. A. True B. False
True
Stockholders' equity is divided into two parts: common stock and retained earnings
True
Unearned Service Revenue is classified as a liability on the balance sheet.
True
Unearned revenue is a prepayment that requires an adjusting entry when services are per-formed.
True
If total assets are increased there must be a corresponding increase in liabilities or a decrease in stockholders' equity. True False
false
Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts. True B) False
false
when the allowance method is used, the write off of an account receivable results in an expense at the time of write off. true or false?
false
When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days. True B) False
false .. divided by 12
copyrights
gives owner exclusive right to reproduce and sell artistic/published work granted for life or creator plus 70 years amortized to expense over useful life
net income/loss
gross profit-operating expenses
multiple-step income statement
highlights components of net income Three important line items: 1. gross profit 2. income from operations 3. net income small changed in gross profit can lead to a big increase/decrease in stocks
On a classified balance sheet, companies usually list current assets
in the order in which they are expected to be converted into cash.
impairments
permanent decline in fair value of an asset so not to overstate the asset on books, the company writes the asset down to its new fair value during the year in which the decline in value occurs
credit terms
permit buyer to claim cash discounts purchaser saves money seller shortens operating cycle by converting the accounts receivable into cash ealier
The relative sales value method is used throughout the: mining industry. agricultural products industry. meat-packing industry. petroleum industry.
petroleum industry.
under the allowance method, bad debt expense is recorded when...?
the company estimates it will not collect.
callable
the issuer can retire the bond at some date before the maturity date
A decrease in a liability account is recorded by a debit. A) True B) False
true
An account balance is the difference in total dollars between total decreases and total increases. A) True B) False
true
Revenues have the effect of increasing retained earnings. A) True B) False
true
Stockholders' equity is divided into two parts: common stock and retained earnings. A) True B) False
true
An estimated loss on purchase commitments is reported: as an allowance account to be offset against a related asset. as a deduction from purchases. as a valuation account. under Other Expenses and Losses.
under Other Expenses and Losses.
Faithful Representation
Information that is complete, neutral, and free from error.
Inventory turnover ratio
cost of goods sold/average inventory = # of times
Credit card sales
Sales that involve the customer, the retailer, and the credit card issuer.
Under the periodic inventory system, cost of goods sold is recorded throughout the accounting period as inventory is sold. A.Yes B.No
No
Will the profit margin of a business be higher than its gross margin? A. Yes B. No
No
The journal is:
a chronological record of the company's transactions
The interest on a $20,000, 6%, 60-day note receivable is
$200 Solution: $20,000 x .06 x 60/360 = $200 (Face val. × 6% × 60/360)
The interest on a $4,000, 10%, 1-year note receivable is A) $4,000. B) $400. C) $4,400. D) $4,040.
$400.
Historical Cost Principle
- requires that companies record plant assets at cost.
A company purchased factory equipment on April 1, 2017, for $128000. It is estimated that the equipment will have a $16000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017, is $11200. $8400. $12800. $9600.
8400
A markup of 25% on cost is equivalent to what markup on selling price? a. 20% b. 25% c. 75% d. 80%
A
Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 3? a. $0.48. b. $0.23. c. $0.72. d. $0.54.
A
Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $390,000 ($594,000), purchases during the current year at cost (retail) were $2,055,000 ($3,300,000), freight-in on these purchases totaled $129,000, sales during the current year totaled $3,000,000, and net markups (markdowns) were $72,000 ($108,000). What is the ending inventory value at cost? a. $556,842. b. $567,138. c. $580,206. d. $858,000.
A
Leary Corporation had net credit sales during the year of $900,000 and cost of goods sold of $540,000. The balance in receivables at the beginning of the year was $120,000 and at the end of the year was $180,000. What was the accounts receivable turnover? a. 6.0 b. 7.5 c. 5.0 d. 3.6
A
Lower-of-cost or net realizable value as it applies to inventory is best described as the a. drop of future utility below its original cost. b. method of determining cost of goods sold. c. assumption to determine inventory flow. d. change in inventory value to market value.
A
On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available: Sales, January 1 through April 15 $600,000 Inventory, January 1 100,000 Purchases, January 1 through April 15 500,000 Markup on cost 25% The amount of the inventory loss is estimated to be a. $120,000. b. $60,000. c. $150,000. d. $100,000.
A
Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 Assuming that the LIFO inventory method is used, that the beginning inventory is the base inventory when the index was 100, and that the index at year end is 112, the ending inventory at dollar-value LIFO retail cost is a. $321,838. b. $371,028. c. $383,600. d. $409,920.
A
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost-to-retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of a. $1,116,000 and $1,640,000. b. $1,116,000 and $1,584,000. c. $1,116,000 and $1,560,000. d. $1,092,000 and $1,560,000.
A
What condition is not necessary in order to use the retail method to provide inventory results? a. Retailer keeps a record of the total costs of products sold for the period. b. Retailer keeps a record of the total costs and retail value of goods purchased. c. Retailer keeps a record of the total costs and retail value of goods available for sale. d. Retailer keeps a record of sales for the period.
A
Q 9.21: A plant asset may be removed from the books even though it is not fully depreciated. A : True B : False
A True
Q 9.14: Companies can amortize a patent for a period that cannot exceed A : 20 years. B : 40 years. C : 50 years. D : 10 years.
A : 20 years.
Q 9.11: Companies usually show intangible assets separately under "Intangible assets." A : True B : False
A : True
record accumulated depreciation
Accumulated depreciation XXX Printing equipment XXX
The same unit cost is used to value ending inventory and cost of goods sold
Average cost method
_______ divides cost of goods available for sale by total units available for sale to determine a unit cost?
Average-cost
A company has an ending accounts receivable balance of $900,000 and it estimates that uncollectible accounts will be 2% of the receivable balance. If Allowance for Doubtful Accounts has a credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit of a. $20,000 b. $18,000 c. $17,960 d. $16,000
B
10. An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.
F
Carson Company on July 15 sells merchandise on account to Tayler Co. for $2,000, terms 2/10, n/30. On July 20 Tayler Co. returns merchandise worth $800 to Carson Company. On July 24 payment is received from Tayler Co. for the balance due. What is the amount of cash received? a. $1,200 b. $1,176 c. $1,160 d. $2,000
B
For 2017, cost of goods available for sale for Tate Corporation was $4,500,000. The gross profit rate on sales was 20%. Sales for the year were $4,000,000. What was the amount of the ending inventory? a. $0. b. $1,300,000. c. $900,000. d. $800,000.
B
In 2017, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2018 for $700,000. Before the December 31, 2017 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2017 will result in a credit that should be reported a. as a valuation account to Inventory on the balance sheet. b. as a current liability. c. as an appropriation of retained earnings. d. on the income statement.
B
In the table below the information for four companies is provided. Company Accounts Receivable Average collection period turnover Martin 13.9 26.3 Lewis 13.3 27.4 Danforth 10.4 35.1 Garner 14.5 25.2 Industry Average 13.0 28.1 If Garner's net credit sales are $290,000, what are its average net accounts receivable? a. $11,508 b. $20,000 c. $42,050 d. $73,080
B
Lexington Company sells product 1976NLC for $20 per unit. The cost of one unit of 1976NLC is $18, and the replacement cost is $17. The estimated cost to dispose of a unit is $4, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market? a. $8. b. $16. c. $17. d. $18.
B
11. In accounting for inventory, the assumed flow of costs must match the physical flow of goods.
F
On January 15, Nifty Company sells merchandise on account to Martinez Associates for $3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $600 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received? a. $2,400 b. $2,328 c. $2,310 d. $1,680
B
11. The allowance method of accounting for bad debts violates the matching principle.
F
Robertson Corporation acquired two inventory items at a lump-sum cost of $96,000. The acquisition included 3,000 units of product CF, and 7,000 units of product 3B. CF normally sells for $27 per unit, and 3B for $9 per unit. If Robertson sells 1,000 units of CF, what amount of gross profit should it recognize? a. $3,000. b. $9,000. c. $18,000. d. $24,000.
B
Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $162, a replacement cost of $155, a net realizable value of $160, and a normal profit margin of $10. What is the final lower-of-cost-or-market inventory value for product 66? a. $160. b. $155. c. $162. d. $152.
B
The 2017 financial statements of Sito Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $700,000 for the year. Sito's inventory turnover for 2017 is a. 8.8 times. b. 7.0 times. c. 5.8 times. d. 4.8 times.
B
The financial statements of the Melton Manufacturing Company reports net sales of $300,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? a. 96.1 b. 48.7 c. 36.5 d. 60.8
B
The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the a. net realizable value. b. net realizable value less normal profit margin. c. replacement cost. d. selling price less costs of completion and disposal.
B
The interest on a $10,000, 6%, 60-day note receivable is a. $680 b. $100 c. $200 d. $300
B
When calculating the cost ratio for the retail inventory method, a. if it is the conventional method, the beginning inventory is included and markdowns are deducted. b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted. c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted. d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.
B
When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value c. Historical cost d. Net realizable value reduced by a normal profit margin
B
When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because a. there may be no markdowns in a given year. b. this tends to give a better approximation of the lower of cost or market. c. markups are also ignored. d. this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
B
Which of the following is not a common disclosure for inventories? a. Inventory composition. b. Inventory location. c. Inventory financing arrangements. d. Inventory costing methods employed.
B
Which of the following statements is false regarding an assumption of inventory cost flow? a. The cost flow assumption need not correspond to the actual physical flow of goods. b. The assumption selected may be changed each accounting period. c. The FIFO assumption uses the earliest acquired prices to cost the items sold during a period. d. The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an accounting period.
B
Q 9.28: The difference between the cost of the asset and the accumulated depreciation to date is the A : market value. B : book value. C : estimated value. D : current value.
B book value.
Q 9.30: The asset turnover ratio is calculated by A : dividing net income by net sales. B : dividing net sales by average total assets. C : multiplying net income by average total assets. D : subtracting average total assets from net income.
B : dividing net sales by average total assets.
Q 9.23: An overall measure of profitability is the A : net sales ratio. B : return on assets ratio. C : average total assets. D : gross profit ratio.
B : return on assets ratio.
Human Resource Controls
Bond employees, rotate employees' duties and require vacations, conduct background checks.
Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?
Both current and future years will be affected by the revision.
An inventory method which is designed to approximate inventory valuation at the lower of cost or market is a. last-in, first-out. b. first-in, first-out. c. conventional retail method. d. specific identification.
C
At a lump-sum cost of $69,000, Pratt Company recently purchased the following items for resale: Item No. of Items Purchased Resale Price Per Unit M 4,000 $3.75 N 2,000 12.00 O 6,000 6.00 The appropriate cost per unit of inventory is: M N O a. $3.75 $12.00 $6.00 b. $3.38 $10.80 $5.40 c. $3.45 $11.04 $5.52 d. $5.75 $5.75 $5.75
C
Given the historical cost of product Dominoe is $12, the selling price of product Dominoe is $15, costs to sell product Dominoe are $2, the replacement cost for product Dominoe is $11, and the normal profit margin is 20% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method? a. $13. b. $12. c. $11. d. $10.
C
12. When using the allowance method bad debt expense is recorded when an individual customer defaults.
F
Lower-of-cost-or-market a. is most conservative if applied to the total inventory. b. is most conservative if applied to major categories of inventory. c. is most conservative if applied to individual items of inventory. d. must be applied to major categories for taxes.
C
On January 1, 2017, the merchandise inventory of Glaus, Inc. was $1,600,000. During 2017 Glaus purchased $3,200,000 of merchandise and recorded sales of $4,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2017? a. $800,000. b. $1,000,000. c. $1,800,000. d. $3,000,000.
C
13. The average cost inventory method relies on a simple average calculation.
F
On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $6,600,000. From January 1 through the time of the fire, the company made purchases of $2,732,000, incurred freight-in of $312,000, and had sales of $4,840,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed? a. $8,192,000. b. $5,944,000. c. $6,256,000. d. $9,644,000.
C
The sales price for a product provides a gross profit of 20% of sales price. What is the gross profit as a percentage of cost? a. 17%. b. 20%. c. 25%. d. Not enough information is provided to determine.
C
Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment? a. $9,000 b. $31,000 c. $40,000 d. $49,000
C
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts is $11,000 debit before adjustment what is the amount of bad debt expense for that period? a. $45,000 b. $11,000 c. $56,000 d. $34,000
C
When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by a. last year's cost ratio and this year's index. b. this year's cost ratio and this year's index. c. last year's cost ratio and last year's index. d. this year's cost ratio and last year's index.
C
When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"? a. Net realizable value b. Net realizable value less a normal profit margin c. Replacement cost, Net realizable value, or Net realizable value less a normal profit margin. d. Discounted present value
C
Which of the following is true of normal shortages? a. They do not include theft and shrinkage. b. They are deducted from both the cost and retail columns. c. These goods are no longer available for sale. d. This loss is considered in calculating cost-to-retail ratio.
C
Why are inventories stated at lower-of-cost and net realizable value? a. To report a loss when there is a decrease in the future utility. b. To keep track of the market value of the inventory. c. To report a loss when there is a decrease in the future utility below the original cost. d. To permit future profits to be recognized.
C
Windsor Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 8. What is its average collection period (days)? a. 80 b. 30 c. 46 d. 36
C
XYZ Company accepted a national credit card for a $7,500 purchase. The cost of the goods sold is $6,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income? a. Increase by $1,455 b. Increase by $1,500 c. Increase by $1,275 d. Increase by $7,275
C
Q 9.39: When the book value of a plant asset exceeds the cash received from sale proceeds the result is A : an amortization on disposal of the asset. B : a depreciation on disposal of the asset. C : a loss on disposal of the asset. D : a gain on disposal of the asset.
C a loss on disposal of the asset.
Which method(s) may be used to record a loss due to a price decline in the value of inventory? a. The cost-of-goods-sold method. b. The sales method. c. The loss method d. Both the cost-of-goods-sold method and the loss method.
D
Q 9.25: Intangible assets should be reported A : in the subsidiary plant ledger. B : under the heading Property, Plant and Equipment. C : as a separate classification on the balance sheet. D : as current assets on the balance sheet.
C : as a separate classification on the balance sheet.
Q 9.24: Which term refers to a permanent decline in the market value of an asset? A : capital expenditure B : managed earning C : impairment D : plant asset disposal
C : impairment
Q 9.15: To find the asset turnover ratio, divide A : net income by ending total assets. B : net income by average total assets. C : net sales by average total assets. D : net sales by ending total assets.
C : net sales by average total assets.
An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is
COGS Net Income Understated Overstated
April 12 Collected Cano Company note in full
Cash 12200 Note Receivable 12000 Interest Revenue 200
Which of the following would not be included in the Equipment account?
Correct Electricity used by the machine.
The book value of an asset will equal its fair value at the date of sale if
Correct no gain or loss on disposal is recorded.
Which of the following terms best describes the assumption made in applying the four inventory methods?
Cost Flow
Which of the following external groups uses accounting information to determine whether the company can pay its obligations?
Creditors
A major advantage of the retail inventory method is that it a. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. b. hides costs from competitors and customers. c. gives a more accurate statement of inventory costs than other methods. d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
D
An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true? a. The cost of sales of the following year will be understated. b. The current year's income is understated. c. The closing inventory of the current year is understated. d. Income of the following year will be understated.
D
Boxer Inc. reported inventory at the beginning of the current year of $360,000 and at the end of the current year of $411,000. If net sales for the current year are $4,429,200 and the corresponding cost of sales totaled $3,321,900, what is the inventory turnover for the current year? a. 11.49. b. 8.08. c. 10.78. d. 8.62.
D
Given the acquisition cost of product Z is $27, the net realizable value for product Z is $24, the normal profit for product Z is $2, and the market value (replacement cost) for product Z is $25, what is the proper per unit inventory value for product Z applying LCM? a. $27. b. $25. c. $22. d. $24.
D
The maturity value of a $40,000, 9%, 40-day note receivable dated July 3 is a. $40,000 b. $44,000 c. $43,600 d. $40,400
D
Which of the following accounts is credited in the loss method of writing-down of inventory to its net realizable value? a. Allowance to Reduce Inventory to NRV b. Loss Due to Decline of Inventory to NRV c. Cost of Goods Sold d. Inventory
D
Which of the following is not a basic assumption of the gross profit method? a. The beginning inventory plus the purchases equal total goods to be accounted for. b. Goods not sold must be on hand. c. If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand. d. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
D
Which of the following is not a reason the retail inventory method is used widely? a. As a control measure in determining inventory shortages b. For insurance information c. To permit the computation of net income without a physical count of inventory d. To defer income tax liability
D
Which of the following statements is incorrect regarding the lower-of-cost-or-market rule? a. It is inconsistent because losses are recognized but not gains. b. It usually understates assets. c. It can increase future income if the expected reductions do not materialize. d. It incorporates both gains and losses in value that occur during the course of business.
D
Which of the following statements regarding the recording of inventory at net realizable value is inaccurate? a. GAAP permits recording of inventory at net realizable value when there is a controlled market with a quoted price applicable to all quantities. b. GAAP permits net realizable value for inventory when there are no significant costs of disposal involved. c. GAAP permits net realizable value in cases where the product is available for immediate delivery. d. GAAP is not similar to IFRS regarding the use of net realizable values for agricultural and mineral products.
D
Which statement is true about the retail inventory method? a. It may not be used to estimate inventories for interim statements. b. It may not be used to expedite physical inventory counts. c. It may not be used by auditors. d. There are different versions of the retail inventory method.
D
Young Company lends Dobson industries $40,000 on August 1, 2014, accepting a 9month, 12% interest note. If Young accrued interest at its December 31, 2014 year-end, what entry must it make to record the collection of the note and interest at its maturity date? a. Cash 43,600 Notes Receivable 40,000 Interest Revenue 3,600 b. Cash 43,600 Notes Receivable 43,600 c. Notes Receivable 40,000 Interest Receivable 2,000 Interest Revenue 1,600 Cash 43,600 d. Cash 43,600 Notes Receivable 40,000 Interest Receivable 2,000 Interest Revenue 1,600
D
(T or F) Research and development costs are expensed when incurred except when the research and development expenditures result in a successful patent.
F
(T or F) The Accumulated Depreciation account represents a cash fund available to replace plant assets.
F
(T or F) The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.
F
(T or F) Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.
F
Q 9.18: In selecting a depreciation method, a company should choose the method that A : is easiest to apply. B : has been used most often in the past by the company. C : best measures the plan asset's market value over its useful life. D : best measures the plant asset's contribution to revenue over its useful life.
D : best measures the plant asset's contribution to revenue over its useful life.
Q 9.20: A change in the estimate of the useful life of equipment requires A : no change in the periodic depreciation. B : an increase in annual income. C : a retroactive change to the amount of periodic depreciation applied to all previous years. D : the amount of periodic depreciation be changed in the current year and in future years.
D : the amount of periodic depreciation be changed in the current year and in future years.
Segregation of Duties
Related duties should be assigned to different individuals. Record-keeping is separate from physical custody of asset. (different individuals receive cash, record cash receipts, and hold the cash)(check signers do not record disbursements)
Matching Principle
Requires recognition of expenses in the same period as related revenues
record: returns
Sales Returns and Allowances XXX Accounts Receivables XXXX
sale of plant assets
compare book value of asset with proceeds recieved from the sale if proceeds exceed the book value, gain on disposal if proceeds are less than the book value, a loss on disposal occurs
What type of assets are allowances for doubtful accounts?
contra assets with a normal balance of a credit
Book Value
cost - accumulated depreciation
Cash is a temporary account. True False
false
gross profit
sales revenue-cost of goods sold
average collection period
365/accounts rec. turnover
Deposit in transit
Add to cash balance per bank
_______ usually parallels the actual physical flow of merchandise?
FIFO
A decrease in a liability account is recorded by a debit.
True
How do you get the average collection period?
days in year/ Acct. rec. turnover
Debits:
increase assets and decrease liabilities
sales returns and allowances
"flip side" of purchase returns and allowances
Financial information is presented below: Operating expenses $ 40,000 Sales revenue 200,000 Cost of goods sold 150,000 Gross profit would be:
$ 50,000
Aber Company buys land for $145,000 on 12/31/16. As of 3/31/17, the land has appreciated in value to $151,000. On 12/31/17, the land has an appraised value of $155,400. By what amount should the Land account be increased in 2017?
$0.
Vickers Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $36,000 that will produce an estimated 110,000 units over its useful life. Estimated salvage value at the end of its useful life is $3,000. What is the depreciation cost per unit?
$0.30.
the interest charged on a $100,000 note payable, at the rate 6%, on a 60-day note would be a) $6,000 b) $3,333 c) $1,500 d) $1,000
$1,000
What is the total stockholders' equity based on the following account balances? Common Stock $950000 Paid-In Capital in Excess of Par 50000 Retained Earnings 175000 Treasury Stock 25000
$1,150,000
Alpha First Company just began business and made the following four inventory purchases in June: June 1 150 units $ 1.040 June 10 200 units 1.560 June 15 200 units 1,680 June 28 150 units 1,320 $ 5,600
$1,508
Alpha First Company just began business and made the following four inventory purchases in June: June 1 150 units $1,040 June 10 200 units 1,560 June 15 200 units 1,680 June 28 150 units 1,320 $5,600 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 is
$1,680
Alpha First Company just began business and made the following four inventory purchases in June: June 1 150 units $1,040 June 10 200 units 1,560 June 15 200 units 1,680 June 28 150 units 1,320 $5,600 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is
$1,824
Outstanding stock of the Hall Corporation included 40000 shares of $5 par common stock and 20000 shares of 5%, $10 par non-cumulative preferred stock. In 2016, Hall declared and paid dividends of $8000. In 2017, Hall declared and paid dividends of $24000. How much of the 2017 dividend was distributed to preferred shareholders?
$10,000
Danford Trucking purchased a tractor trailer for $147,000. Danford uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $21,000. If the truck is driven 80,000 miles in its first year, how much depreciation expense should Danford record?
$10,080.
A company sells a plant asset that originally cost $375000 for $125000 on December 31, 2017. The accumulated depreciation account had a balance of $150000 after the current year's depreciation of $37500 had been recorded. The company should recognize a
$100,000 loss on disposal
A company purchased factory equipment for $450,000. It is estimated that the equipment will have a $45,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
$108,000
On October 1, 2017, Hess Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2017, balance sheet assuming that Hess Company uses the double-declining-balance method of depreciation?
$108,000
A company purchased factory equipment for $450,000. It is estimated that the equipment will have a $45,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
$108,000.
Equipment costing $60000 with a salvage value of $12000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be
$12,000
M. Cornett is a corporation that sells breakfast cereal. Based on the accounts listed below, what are M. Cornett's total trade receivables? Income tax refund due $ 500 Advance due to the company from the company president 300 3-month note due from M. Cornett's main customer 2,000 Interest due this month on the above note 100 Due and unpaid from this month's sales 9,000 Due and unpaid from last month's sales 1,000
$12000
Pearson Company bought a machine on January 1, 2017. The machine cost $180000 and had an expected salvage value of $30000. The life of the machine was estimated to be 5 years. The company uses the straight-line method of depreciation. The book value of the machine at the beginning of the third year would be
$120000 ($180000 - $30000) ÷ 5 = $30000; $180000 - ($30000 × 2) = $120000 ((Cost - sal. val.) ÷ 5 yrs.) = ann. dep.; (Cost - (ann. dep. × 2))
Rains Company purchased equipment on January 1 at a list price of $125000, with credit terms 2/10, n/30. Payment was made within the discount period. Rains paid $6250 sales tax on the equipment, and paid installation charges of $2200. Prior to installation, Rains paid $5000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?
$135950 ($125000 × 0.98) + $6250 + $2200 + $5000 = $135950 (List price × (1 - .02) + sal. tax + inst. + conc. Slab)
Equipment with a cost of $640000 has an estimated salvage value of $60000 and an estimated life of 4 years or 12000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3000 hours?
$145000 ($640000 - $60000) ÷ 4 = $145000 (Cost - sal. val.) ÷ 4 yrs.
Ervay Company has $3,500,000 of bonds outstanding. The unamortized premium is $50,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
$15,400 gain
On January 1, a machine with a useful life of four years and a salvage value of $16,000 was purchased for $80,000. What is the depreciation expense for year 2 under straight-line depreciation?
$16,000.
On May 1, 2017, Irwin Company purchased the copyright to Quick Computer Tutorials for $120,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be
$16,000.
On May 1, 2017, Irwin Company purchased the copyright to Quick Computer Tutorials for $120000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be
$16000 ($120000 ÷ 5) × 8/12 = $16000 (Cost ÷ 5 yrs) × 6/12
Burke Company purchases land for $180,000 cash. Burke assumes $5,000 in property taxes due on the land. The title and attorney fees totaled $2,000. Burke has the land graded for $4,400. They paid $20,000 for paving of a parking lot. What amount does Burke record as the cost for the land?
$191,400
A machine with a cost of $640000 has an estimated salvage value of $40000 and an estimated useful life of 5 years or 15000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5000 hours?
$200,000
A machine with a cost of $640,000 has an estimated salvage value of $40,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?
$200,000.
On January 1, a machine with a useful life of 5 years and a salvage value of $25000 was purchased for $125000. What is the depreciation expense for year 2 under straight-line depreciation?
$20000 ($125000 - $25000) ÷ 5 = $20000 [(Cost - sal. val.) ÷ 5 yrs]
On July 1, 2017, Linden Company purchased the copyright to Norman Computer Tutorials for $210,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be
$21,000
A corporation issues $300000, 8%, 5-year bonds on January 1, 2017, for $312600. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized in December 31, 2017's adjusting entry is
$21,480
On July 1, 2017, Linden Company purchased the copyright to Norman Computer Tutorials for $210000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be
$21000 ($210000 ÷ 5) × 6/12 = $21000 (Cost ÷ 5 yrs) × 6/12
Hopson Company incurred $900000 of research and development costs in its laboratory to develop a new product. It spent $120000 in legal fees for a patent granted on January 2, 2017. On July 31, 2017, Hopson paid $90000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2017?
$210000. $120000 + $90000 = $210000 (Leg. fees + def. leg. fees)
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $300000 and had an expected salvage value of $50000. The life of the equipment was estimated to be 6 years. The company uses the straight-line method of depreciation. The book value of the equipment at the beginning of the third year would be
$216,666
Foyle Company purchased a new van for floral deliveries on January 1, 2017. The van cost $56000 with an estimated life of 5 years and $14000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2017?
$22,400
Ron's Quik Shop bought equipment for $140000 on January 1, 2016. Ron estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Ron decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2017?
$22,400
Ron's Quik Shop bought equipment for $140,000 on January 1, 2016. Ron estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Ron decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2017?
$22,400.
Givens Retail purchased land for a new parking lot for $125,000. The paving cost $175,000 and the lights to illuminate the new parking area cost $60,000. Which of the following statements is true with respect to these additions?
$235,000 should be debited to Land Improvements.
Givens Retail purchased land for a new parking lot for $125000. The paving cost $175000 and the lights to illuminate the new parking area cost $60000. Which of the following statements is true with respect to these additions?
$235000 should be debited to Land Improvements $175000 + $60000 = $235000 (Pav. Cost + lights)
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $300000 and had an expected salvage value of $50000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is
$250,000
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $300000 and had an expected salvage value of $50000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is
$250000 $300000 - $50000 = $250000 (Cost - sal. val.)
The following information is related to December 31, 2016 balances. -Accounts receivable $3,150,000 -Allowance for doubtful accounts (credit) (270,000) -Cash realizable value $2,880,000 During 2017 sales on account were $870,000 and collections on account were $516,000. Also during 2017 the company wrote off $48,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $324,000. The change in the cash realizable value from the balance at 12/31/16 to 12/31/17 was a
$252,000 increase.
A plant asset cost $192000 and is estimated to have a $24000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be
$27000 ($192000 - $0) × 0.25 = $48000; ($192000 - $48000) × 0.25 = $36000; ($192000 - $84000) × 0.25 = $27000 (Cost - AD) × (1/8 × 2) = end. AD; (Cost - end. A/D) × (1/8 × 2)
Equipment was purchased for $150000. Freight charges amounted to $7000 and there was a cost of $20000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30000 salvage value at the end of its 5-year useful life. Depreciation Expense each year using the straight-line method will be
$29400. ($150000 + $7000 + $20000 - $30000) ÷ 5 = $29400 (Pur. Price + freight + found. - Sal. value) ÷ 5yrs.
On January 15, Nifty Company sells merchandise on account to Martinez Associates for $5,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $1,000 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?
$3,880 Solution: [($5,000 - $1,000)] x .97 = $3,880 (Sale amount - ret.) × (1 - .03)
Pearson Company bought a machine on January 1, 2017. The machine cost $180,000 and had an expected salvage value of $30,000. The life of the machine was estimated to be 5 years. The depreciation expense using the straight-line method of depreciation is
$30,000.
Runge Company purchased machinery on January 1 at a list price of $300,000, with credit terms 2/10, n/30. Payment was made within the discount period. Runge paid $15,000 sales tax on the machinery, and paid installation charges of $5,300. Prior to installation, Runge paid $12,000 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery?
$326,300.
Equipment was purchased for $85000 on January 1, 2016. Freight charges amounted to $3500 and there was a cost of $10000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?
$33400 [($85000 + $3500 + $10000 - $15000) ÷ 5] × 2 = $33400 [(Pur. Price + freight + found. - sal. val. ) ÷ 5 yrs] × 2
An asset was purchased for $400,000. It had an estimated salvage value of $80,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $64,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
$35,200.
An asset was purchased for $400000. It had an estimated salvage value of $80000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $64000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
$35200 ($400000 - $80000) × 5/10 = $160000; [($400000 - $160000) - $64000] ÷ (10 - 5) = $35200 (Cost - sal. val.) × 5/10 = A/D: (Cost - A/D - sal. val.) ÷ (10 - 5)
On January 15, Nifty Company sells merchandise on account to Martinez Associates for $5,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $1,000 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?
$3880
Jack's Copy Shop bought equipment for $240,000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017?
$40,000
A plant asset with a cost of $600000 and accumulated depreciation of $570000 is sold for $70000. What is the amount of the gain or loss on disposal of the plant asset?
$40,000 loss.
Jack's Copy Shop bought equipment for $240,000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017?
$40,000.
Jack's Copy Shop bought equipment for $240000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017?
$40000 ($240000 - 0) ÷ 3 = $80000; ($240000 - $80000) ÷ (5 - 1) = $40000 (Cost - sal. val.) ÷ 3 yrs. = dep./yr.; (Cost - A/D) ÷ (5 - 1)
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $300,000 and had an expected salvage value of $50,000. The life of the equipment was estimated to be 6 years. The depreciation expense using the straight-line method of depreciation is
$41,667.
A company purchased land for $350000 cash. Real estate brokers' commission was $25000 and $35000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at
$410,000 $350000 + $25000 + $35000 = $410000
Whyte Clinic purchases land for $420,000 cash. The clinic assumes $4,500 in property taxes due on the land. The title and attorney fees totaled $3,000. The clinic had the land graded for $6,600. What amount does Whyte Clinic record as the cost for the land?
$434,100.
Winrow Company received proceeds of $754000 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $800000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. Winrow Company decided to redeem the bonds on January 1, 2018. What amount of gain or loss would Winrow report on its 2018 income statement?
$44,800 loss
Ryan, Inc. purchased a delivery truck with a $48,000 list price. The company was given a $4,800 cash discount by the dealer, and paid $2,400 sales tax. Annual insurance on the truck is $1,200. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?
$45,600
On October 1, 2017, Mann Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the depreciation expense for 2017 if Mann Company uses the straight-line method of depreciation?
$4500 [($120000 - $30000) ÷ 5] × 3/12 = $4500 [(Cost - sal. val.) ÷ 5 yrs] × 3/12
Bates Company purchased equipment on January 1, 2016, at a total invoice cost of $1200000. The equipment has an estimated salvage value of $30000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?
$468,000
Bates Company purchased equipment on January 1, 2016, at a total invoice cost of $1200000. The equipment has an estimated salvage value of $30000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?
$468000 [($1200000 - $30000) ÷ 5] × 2 = $468000 ((Cost - sal. val.) ÷ 5 yrs.) × 2 yrs.
Berman Inc. has 6000 shares of 6%, $50 par value, cumulative preferred stock and 50000 shares of $1 par value common stock outstanding at December 31, 2016, and December 31, 2017. The board of directors declared and paid an $12000 dividend in 2016. In 2017, $72000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2017?
$48,000
Bonds with a face value of $500000 and a quoted price of 97.25 have a selling price of
$486,250
Arnold Company purchases a new delivery truck for $45000. The sales taxes are $2500. The logo of the company is painted on the side of the truck for $1200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?
$48920 $45000 + $2500 + $1200 + $220 = $48920 (Pur price + sal. tax. + logo + test.)
Using the allowance method, the uncollectible accounts for the year are estimated to be $50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?
$50,000
At December 31, 2017 Mohling Company's inventory records indicated a balance of $632,000. Upon further investigation it was determined that this amount included the following: •$112,000 in inventory purchases made by Mohling shipped from the seller 12/27/17 terms FOB destination, but not due to be received until January 2nd •$74,000 in goods sold by Mohling with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6th. •$6,000 of goods received on consignment from Dollywood Company
$514,000
Kathy's Blooms purchased a delivery van with a $60,000 list price. The company was given a $6,000 cash discount by the dealer, and paid $3,000 sales tax. Annual insurance on the van is $1,500. As a result of the purchase, by how much will Kathy's Blooms increase its van account?
$57,000.
Rodgers Company purchased equipment and these costs were incurred: Cash price $55000 Sales taxes 3600 Insurance during transit 640 Installation and testing 860 Total costs $60100 Rodgers will record the acquisition cost of the equipment as
$60,100
The interest on a $6,000, 10%, 1-year note receivable is A) $6,000. B) $50. C) $600. D) $6,600.
$600.
Hoover Company had beginning inventory of $15,000 at March 1, 2017. During the month, the company made purchases of $65,000. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March?
$62,700
Bonds with a face value of $600000 and a quoted price of 104.25 have a selling price of
$625,500
Machinery was purchased for $340,000. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $60,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
$66,800.
Equipment with a cost of $300,000 has an estimated salvage value of $20,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?
$70,000
Equipment with a cost of $300000 has an estimated salvage value of $20000 and an estimated life of 4 years or 10000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2700 hours?
$70000 ($300000 - $20000) ÷ 4 = $70000 (Cost - sal. val.) ÷ 4 yrs
A computer company has $4,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $4,800,000. What is the amount of net income or loss before taxes after these research and development costs are accounted for?
$800,000 net income.
A company purchased factory equipment on April 1, 2017, for $128000. It is estimated that the equipment will have a $16000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017, is
$8400 [($128000 - $16000) ÷ 10] × 9/12 = $8400 [(Cost - sal. val.) ÷ 10 yrs] × 9/12
Wesley Hospital installs a new parking lot. The paving cost $60000 and the lights to illuminate the new parking area cost $24000. Which of the following statements is true with respect to these additions?
$84000 should be debited to Land Improvements. $60000 + $24000 = $84000 (Pav. Cost + lights)
At December 31, 2014 Howell Company's inventory records indicated a balance of $858,000. Upon further investigation it was determined that this amount included the following: ▪ $168,000 in inventory purchases made by Howell shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd ▪ $111,000 in goods sold by Howell with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6th ▪ $9,000 of goods received on consignment from Westwood Company What is Howell's correct ending inventory balance at December 31, 2014?
$858,000 - $168,000 - $9,000 = $681,000
A machine that was purchased on January 1 for $60,000 has an estimated salvage value of $12,000. If the machine's depreciation rate is 20%, its annual depreciation is
$9,600
Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
(200,000 *.04)-2000 = 6000 Bad Debt Expense 6,000 Allowance for Doubtful Accounts 6,000
Acid Ratio
(Cash + Net Receivables + Marketable Securities) / Current Liabilities A higher ratio means greater liquidity.
Total ROI
(Total Dividends Recived +/- Increase/Decrease in Stock Value)/Share Price Paid
cost of goods sold
(beginning inventory + purchases) - ending inventory = cost of goods sold
straight-line depreciation
(cost-salvage value) / (useful life, years)
computing interest
(face value of note) x (annual interest rate) x (times in terms of one year) = interest
gross profit rate
(net sales-cost of goods sold)/ net sales net sales-cost of goods sold= gross profit measures the margin by which selling price exceeds cost of goods sold
Per books
+ notes collected by bank - Non-sufficient funds(NSF) bounced checks - Check printing or other service chargers +/- book errors
Per Bank Statement
+deposit in Transit -outstanding checks +/- bank errors
Adjusting entries are made to ensure that:
-expenses are recognized in the period in which they are incurred. -revenues are recorded in the period in which the performance obligation is satisfied. -balance sheet and income statement accounts have correct balances at the end of an accounting period.
Both accounts receivable and notes receivable represent claims that are expected to be collected in cash. A) True B) False
...true
Financial information is presented below: Operating expenses $ 40,000 Sales revenue 200,000 Cost of goods sold 150,000 The profit margin would be:
.05
Financial information is presented below: Operating expenses $36,000 Sales revenue 150,000 Cost of goods sold 105,000 The gross profit rate would be
.30 (Gross Profit/Sales Revenue)
Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31?
1 and 4
physical inventory taken for perpetual system
1. Check accuracy of inventory records 2. Determine amount of inventory lost due to wasted raw materials, shoplifting, or employee theft
period system steps
1. Determine the cost of goods on hand at the beginning of the accounting period. 2. Add to it the cost of goods purchased. 3. Subtract the cost of goods on hand at the end of the accounting period.
physical inventory taken for periodic system
1. Determine the inventory on land 2. Determine the cost of goods sold for the period
three parties involved when credit cards are used
1. credit card issuer 2. retailer 3. customer
methods of accounting for uncollectible accounts
1. direct write-off 2. allowance method
allowance method for uncollectible accounts
1. estimate required of bad debts 2. adjusting account made (uncollectible) Bad debt expense XXX allowance for doubtful accounts (or bad debts) XXX 3. companies debit allowance for doubtful accounts credit accounts receivable when written off as uncollectible
disposing of notes receivable
1. notes may be held to their maturity date 2. maker may default and payee must make an adjustment to the account 3. holder speeds up conversion to cash by selling the note receivable called factoring the receivable
goods in transit
1. purchased goods not yet recieved 2. sold goods not yet delivered
two accounting issues
1. recognizing accounts receivable 2. valuing accounts receivable
recording sale for perpetual system
1. record selling price debit A/R or cash credit Sales Revenue 2. record cost debit cost of goods sold credit inventory
plant asset disposals
1. sale 2. retirement 3. exchange record depreciation up to the date of disposal eliminate asset by 1. debiting AD 2. crediting asset account
recording credit for returned goods
1. selling price sales returns and allowances XXX credit accounts receivable XXX 2. cost inventory XXX cost of goods sold XXX
The following information is provided for Nguyen Company and Northwest Corporation. (in $ millions) Nguyen Company Northwest Corporation Net income 2017 $165 $420 Net sales 2017 1,650 4,900 Total assets 12/31/15 1,000 2,400 Total assets 12/31/16 1,050 3,000 Total assets 12/31/17 1,150 4,000 What is Nguyen's asset turnover for 2017?
1.50 times
The interest on a $10000, 10%, 1-year note receivable is $1000. $10900. $11000. $10000.
1000
The following information was available for Bowyer Company at December 31, 2014: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $880,000; and sales $1,200,000. Bowyer's inventory turnover ratio in 2014 was
11.0 times
12. Listed below in alphabetical order are the balance sheet items of Nolan Company at December 31, 2010. . Accounts payable $ 6,000 Accounts receivable 15,000 Building 65,000 Cash 11,000 Common stock 80,000 Land 31,000 Office equipment 5,000 Retained earnings (beginning) 41,000 What is the Stockholder's equity?_________
121000
Financial information is presented below: Operating expenses $35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000
125,000$
12. Listed below in alphabetical order are the balance sheet items of Nolan Company at December 31, 2010. . Accounts payable $ 6,000 Accounts receivable 15,000 Building 65,000 Cash 11,000 Common stock 80,000 Land 31,000 Office equipment 5,000 Retained earnings (beginning) 41,000 What is the total of the Assets?___________
127000
During January 2010, its first month of operation, Osborn Enterprises earned net income of $1,900 and paid dividends to the owners of $500. At January 31, the balance in Retained Earnings will be A) $0 B) $1,900 credit C) $1,400 credit D) $500 debit
1400 credit
At September 1, 2010, Baxter Inc. reported Retained Earnings of $136,000. During the month, Baxter generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in Retained Earnings at September 31, 2010? A) $136,000 debit B) $8,000 credit C) $137,000 credit D) $142,000 credit
142000 credit
Equipment with a cost of $640000 has an estimated salvage value of $60000 and an estimated life of 4 years or 12000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3000 hours? $160000. $165000. $145000. $175000.
145000
At October 1, 2010, Metz Industries had an Accounts Payable balance of $30,000. During the month, the company made purchases on account of $25,000 and made payments on account of $40,000. At October 31, 2010, the Accounts Payable balance is A) $30,000 debit B) $10,000 credit C) $15,000 credit D) $40,000 credit
15000 credit
During 2017, Phelps Corporation reported net sales of $2,500,000, net income of $1,320,000, and depreciation expense of $80,000. Phelps also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Phelps's asset turnover is
2.0 times.
purchase discounts
2/10, n/30 2% discount if paid within 10 days, otherwise net amount due within 30 days 1/10 EOM 1% discount if paid within first 10 days of next month n/10 EOM et amount due within first 10 days of the next month
On January 1, a machine with a useful life of 5 years and a salvage value of $25000 was purchased for $125000. What is the depreciation expense for year 2 under straight-line depreciation? $20000. $60000. $15000. $75000.
20000
29. Winrow Company showed the following balances at the end of its first year: Cash $5,000 Prepaid insurance 500 Accounts receivable 2,500 Accounts payable 2,000 Notes payable 3,000 Common stock 1,000 Dividends 500 Revenues 15,000 Expenses 12,500 What did Winrow Company show as total credits on its trial balance? A) $21,500 B) $21,000 C) $20,500 D) $22,000
21000
Ron's Quik Shop bought equipment for $140000 on January 1, 2016. Ron estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Ron decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2017? $18667. $22400. $11200. $28000.
22400
Assets Liabilities Stockholders' Equity 75000 52000 (a) (b) 28000 34000 84000 (c) 55000 whats A?
23000
Assets Liabilities Stockholders' Equity 75000 52000 (a) (b) 28000 34000 84000 (c) 55000 whats c?
29000
An analysis and aging of the accounts receivable of Watts Company at December 31 reveal these data: Accounts receivable $3200000 Allowance for doubtful accounts per books before adjustment (credit) 200000 Total estimated uncollectible accounts at December 31 260000 What is the cash realizable value of the accounts receivable at December 31 after adjustment? $3000000 $2740000 $3200000 $2940000
2940000
Days Sales in Accounts Receivable
365 Days/Accounts Receivable Turnover A higher number is undesirable. The average number of days it takes a company to collect its accounts receivable. Measure of Management: Control of Accounts Receivable
Days Purchases in Accounts Payable
365/Accounts Payable Turnover Estimate of the average number of days required to pay vendors.
Days Sales in Inventory
365/Inventory Turnover A higher result is undesirable. Estimate of number of days needed to convert inventory into receivables or cash; also called days' stock on hand.
Average Collection Period
365/accounts receivable turnover
average collection period
365/accounts receivable turnover used to assess the effectiveness of credit and collection policies (# of days before collected) the collection period should not exceed credit term period
days in inventory
365/inventory turnover ratio = # of days
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $45000. If the balance of the Allowance for Doubtful Accounts is $6000 credit before adjustment, what is the amount of bad debt expense for that period? $6000 $45000 $39000 $51000
39000
The financial statements of the Melton Manufacturing Company reports net sales of $360,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days?
40.5
The financial statements of the Melton Manufacturing Company reports net sales of $360000 and accounts receivable of $50000 and $30000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? 40.6 50.7 30.4 81.1
40.6
Jack's Copy Shop bought equipment for $240000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017? $40000. $60000. $80000. $32000.
40000
Financial information is presented below: Operating expenses $28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 91,000
49,000$
A plant asset was purchased on January 1 for $75,000 with an estimated salvage value of $15,000 at the end of its useful life. The current year's depreciation expense is $5,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $35,000. The remaining useful life of the plant asset is
5 years
A plant asset was purchased on January 1 for $55000 with an estimated salvage value of $5000 at the end of its useful life. The current year's depreciation expense is $5000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $25000. The remaining useful life of the plant asset is
5 years ($55000 - $5000) ÷ $5000 = 10; 10 - ($25000 ÷ $5000) = 5 (Cost - sal. val.) ÷ dep. exp. = use. life; (Use. life - (A/D ÷ dep. exp.))
Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms 2/10, n/30. On July 20 Stuart Co. returns merchandise worth $400 to Larson Company. On July 24 payment is received from Stuart Co. for the balance due. What is the amount of cash received? A)$600 B) $588 C) $580 D) $1,000
588
the interest on a 6000, 6% 90- day not receivable is
6000 x .06 x 90/360= 90$
A company sells a plant asset that originally cost $360000 for $120000 on December 31, 2017. The accumulated depreciation account had a balance of $180000 after the current year's depreciation of $30000 had been recorded. The company should recognize a $40000 gain on disposal. $60000 loss on disposal. $120000 loss on disposal. $120000 gain on disposal.
60000 loss on disposal
Assets Liabilities Stockholders' Equity 75000 52000 (a) (b) 28000 34000 84000 (c) 55000 whats B?
62000
The financial statements of the Nelson Manufacturing Company reports net sales of $360000 and accounts receivable of $50000 and $30000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Nelson? 7.2 times 4.5 times 12 times 9 times
9
A company sells $900,000 of accounts receivable to a factor for cash less a 2% service charge. The entry to record the sale should not include a a. debit to Interest Expense for $18,000 b. debit to Cash for $882,000 c. debit to Service Charge Expense for $18,000 d. credit to Accounts Receivable for $900,000.
A
Drake Corporation had the following amounts, all at retail: Beginning inventory $ 3,600 Purchases $145,000 Purchase returns 6,000 Net markups 18,000 Abnormal shortage 4,000 Net markdowns 2,800 Sales revenue 77,000 Sales returns 1,800 Employee discounts 1,600 Normal shortage 2,600 What is Drake's ending inventory at retail? a. $74,400. b. $76,000. c. $77,600. d. $78,400
A
During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $2.0 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.6 million. What is the journal entry at the end of the current fiscal year? a. Debit Unrealized Holding Gain or Loss for $400,000 and credit Estimated Liability on Purchase Commitment for $400,000. b. Debit Estimated liability on Purchase Commitments for $400,000 and credit Unrealized Holding Gain or Loss for $400,000. c. Debit Unrealized Holding Gain or Loss for $1,600,000 and credit Estimated Liability on Purchase Commitments for $1,600,000. d. No journal entry is required.
A
Eaton Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2017: Cost Retail Inventory, 1/1/17 $ 282,000 $420,000 Net purchases 1,134,000 1,686,000 Net markups 204,000 Net markdowns 90,000 Net sales 1,590,000 Assuming that the price index was 105 at December 31, 2017 and 100 at January 1, 2017, what is the cost of Eaton's inventory at December 31, 2017 under the dollar-value-LIFO retail method? a. $401,070. b. $416,745. c. $420,915. d. $395,400.
A
Goren Corporation had the following amounts, all at retail: Beginning inventory $ 3,600 Purchases $120,000 Purchase returns 6,000 Net markups 18,000 Abnormal shortage 4,000 Net markdowns 2,800 Sales 77,000 Sales returns 1,800 Employee discounts 1,600 Normal shortage 2,600 What is Goren's ending inventory at retail? a. $49,400. b. $51,000. c. $52,600. d. $53,400
A
How is the gross profit method used as it relates to inventory valuation? a. Verify the accuracy of the perpetual inventory records. b. Verify the accuracy of the physical inventory. c. To estimate cost of goods sold. d. To provide an inventory value of LIFO inventories.
A
If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices, a. this fact must be disclosed. b. disclosure is required only if prices have declined since the date of the order. c. disclosure is required only if prices have since risen substantially. d. an appropriation of retained earnings is necessary.
A
If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is a. net realizable value. b. original cost. c. market value. d. net realizable value less a normal profit margin.
A
In hedging, the purchaser in the purchase commitment simultaneously enters into a contract in which it agrees to sell in the future: a. the same quantity of the same goods at a fixed price. b. a higher quantity of the same goods at a higher price. c. a lower quantity of the same goods at a fixed price. d. same quantity of different goods at a lower price.
A
Oslo Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows: Product #1 Product #2 Historical cost $10 $ 18 Replacement cost 11 14 Estimated cost to dispose 3 7 Estimated selling price 20 33 In pricing its ending inventory using the lower-of-cost-or-market, what unit values, rounded to the nearest dollar, should Oslo use for products #1 and #2, respectively? a. $10 and $16. b. $13 and $16. c. $13 and $15. d. $11 and $14.
A
Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 The approximate cost of the ending inventory by the conventional retail method is a. $383,600. b. $379,680. c. $392,000. d. $409,920.
A
Reyes Company had a gross profit of $620,000, total purchases of $840,000, and an ending inventory of $480,000 in its first year of operations as a retailer. Reyes's sales in its first year must have been a. $980,000. b. $1,120,000. c. $360,000. d. $1,100,000.
A
Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $79, a replacement cost of $61, a net realizable value of $70, and a normal profit margin of $3. What is the final lower-of-cost-or-market inventory value for Packit? a. $67. b. $79. c. $61. d. $70.
A
Schofield Retailers accepted $60,000 of Silver Bank MasterCard credit card charges for merchandise sold on August 1. Silver Bank charges 4% for its credit card use. The entry to record this transaction by Schofield Retailers will include a credit to Sales Revenue of $60,000 and a debit(s) to a. Cash for $57,600 and Service Charge Expense for $2,400 b. Accounts receivable for $57,600 and Service Charge Expense for $2,400 c. Cash for $60,000 d. Accounts Receivable for $60,000.
A
Simonic Retailers accepted $90,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales Revenue of $90,000 and a debit(s) to a. Cash $86,400 and Service Charge Expense $3,600 b. Accounts Receivable $86,400 and Service Charge Expense $3,600 c. Cash $86,400 and Interest Expense $3,600 d. Accounts Receivable $90,000
A
The average days to sell inventory is computed by dividing a. 365 days by the inventory turnover. b. the inventory turnover by 365 days. c. net sales by the inventory turnover. d. 365 days by cost of goods sold.
A
The designated market value a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin. b. should always be equal to net realizable value. c. may sometimes exceed net realizable value. d. should always be equal to net realizable value less a normal profit margin.
A
The financial statements of the Phelps Manufacturing Company reports net sales of $500,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Phelps? a. 8.3 times b. 12.5 times c. 6.3 times d. 4.2 times
A
The following information is available for October for Barton Company. Beginning inventory $350,000 Net purchases 1,050,000 Net sales 2,100,000 Percentage markup on cost 66.67% A fire destroyed Barton's October 31 inventory, leaving undamaged inventory with a cost of $21,000. Using the gross profit method, the estimated ending inventory destroyed by fire is a. $119,000. b. $539,000. c. $560,000. d. $700,000.
A
The following information is available for October for Norton Company. Beginning inventory $400,000 Net purchases 1,200,000 Net sales 2,400,000 Percentage markup on cost 66.67% A fire destroyed Norton's October 31 inventory, leaving undamaged inventory with a cost of $24,000. Using the gross profit method, the estimated ending inventory destroyed by fire is a. $136,000. b. $616,000. c. $640,000. d. $800,000.
A
The inventory account of Irick Company at December 31, 2017, included the following items: Inventory Amount Merchandise out on consignment at sales price (including markup of 40% on selling price) $60,000 Goods purchased, in transit (shipped f.o.b. shipping point) 48,000 Goods held on consignment by Irick 62,000 Goods out on approval (sales price $30,400, cost $25,600) 30,400 Based on the above information, the inventory account at December 31, 2017, should be reduced by a. $90,800. b. $90,400. c. $138,800. d. $102,800.
A
The maturity value of a $40,000, 12%, 3-month note receivable is a. $41,200 b. $40,480 c. $44,800 d. $40,400
A
The retail inventory method is based on the assumption that the a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. b. ratio of gross margin to sales is approximately the same each period. c. ratio of cost to retail changes at a constant rate. d. proportions of markups and markdowns to selling price are the same.
A
To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should a. include markups but not markdowns. b. include markups and markdowns. c. ignore both markups and markdowns. d. include markdowns but not markups.
A
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $30,000. If the balance of the Allowance for Doubtful Accounts is $4,000 debit before adjustment what is the balance after adjustment? a. $30,000 b. $34,000 c. $26,000 d. $4,000
A
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts is $11,000 debit before adjustment what is the balance after adjustment? a. $45,000 b. $11,000 c. $56,000 d. $34,000
A
What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method? a. Increases the cost-to-retail ratio. b. No effect on the cost-to-retail ratio. c. Depends on the amount of the net markups. d. Decreases the cost-to-retail ratio.
A
Which of the following is not an acceptable approach in applying the lower-of-cost-and net realizable value method to inventory? a. Inventory location. b. Categories of inventory items. c. Individual item. d. Total of the inventory.
A
Which of the following is not required when using the retail inventory method? a. All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price. b. A record of the total cost and retail value of the goods purchased. c. A record of the total cost and retail value of the goods available for sale. d. Total sales amount for the period.
A
Why might inventory be reported at sales prices (net realizable value or market price) rather than cost? a. When there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal. b. When there are no significant costs of disposal. c. When a non-cancellable contract exists to sell the inventory. d. When there is a controlled market with a quoted price applicable to all quantities.
A
Q 9.34: ________ is the difference between the cost of the plant asset and the accumulated depreciation to date. A : Book value B : Depreciated value C : Estimated value D : Fair market value
A Book value
Q 9.37: Capital expenditures are expenditures that increase the company's investment in A : plant assets. B : stocks. C : purchased goods. D : bonds.
A plant assets.
Q 9.36: If the estimate of the useful life of equipment changes then A : the amount of periodic depreciation must be changed in the current year and in future years. B : the annual depreciation is prorated. C : current annual income begins to fall behind previous expectations. D : a retroactive change in the amount of periodic depreciation is applied to all previous years leading up to the present.
A the amount of periodic depreciation must be changed in the current year and in future years.
Q 9.26: Which of the following is used to determine the gain or loss on disposal of a plant asset? A : the book value of the asset and the proceeds received from its sale B : the original cost of the asset and the proceeds received from its sale C : the book value of the asset and the asset's original cost D : the replacement cost of the asset and the asset's original cost
A the book value of the asset and the proceeds received from its sale
Q 9.12: Which of the following should be disclosed in the balance sheet or the notes to the financial statements? A : All of the choices are correct B : balances of the major classes of assets C : amount of depreciation and amortization expense for the period D : depreciation and amortization methods used
A : All of the choices are correct
Q 9.6: _________ are the costs incurred to increase the operating efficiency or useful life of a plant asset. A : Capital expenditures B : Ordinary repairs C : Expense expenditures D : Revenue expenditures
A : Capital expenditures
Q 9.35: Intangible assets with indefinite lives are not amortized. A : True B : False
A : True
Q 9.13: A patent that has a legal life of 20 years and a useful life of less than 20 years should A : be amortized over its useful life. B : be amortized over 20 years regardless of its useful life. C : be expensed in the year of acquisition. D : not be amortized.
A : be amortized over its useful life.
Q 9.16: To find the book value of a plant asset, you find the difference between the A : cost of the asset and the accumulated depreciation to date. B : replacement cost of the asset and its historical cost. C : cost of the asset and the amount of depreciation expense for the year. D : proceeds received from the sale of the asset and its original cost.
A : cost of the asset and the accumulated depreciation to date.
Q 9.4: When can interest be included in the acquisition cost of a plant asset? A : during the construction period of a self-constructed asset B : if the asset acquisition is financed by a long-term note payable C : if it is a part of a lump-sum purchase D : if the asset is purchased on credit
A : during the construction period of a self-constructed asset
Q 9.17: If the estimate of the useful life of equipment changes, then this change requires A : that the amount of periodic depreciation be changed in the current year and in future years. B : a retroactive change in the amount of periodic depreciation recognized in previous years. C : that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset. D : that income for the current year be increased.
A : that the amount of periodic depreciation be changed in the current year and in future years.
Q 9.19: When estimating the useful life of an asset, accountants consider all of the following EXCEPT A : the cost to replace the asset at the end of its useful life. B : expected repairs and maintenance. C : obsolescence factors. D : the intended use of the asset.
A : the cost to replace the asset at the end of its useful life.
Treasury Stock
A corporation's own stock that it has reacquired
Units-of-activity method
A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset. Expense varies based on units of activity. Depreciable cost is cost less salvage value. Companies estimate total units of activity to calculate depreciation cost per unit.
Trial Balance
A list of accounts and their balances at a given time.
Chart of Accounts
A list of all the accounts used by a company.
Accounts receivable turnover
A measure of the liquidity of receivables.
Dishonored note
A note which is not paid in full at maturity.
The cost of goods sold is determined and recorded each time a sale occurs in.
A perpetual Inventory system only.
Generally Accepted Accounting Principles (GAAP)
A set of accounting standards that has substantial authoritative support and which guide accounting professionals.
Q 9.38: Salvage value refers to which of the following? Select all that apply. A : the trade-in value of an asset at the end of its useful life B : the trade-in value of an asset before it is depreciated C : how much an asset may be worth as scrap at the end of its useful life D : the book value of an asset
A the trade-in value of an asset at the end of its useful life C how much an asset may be worth as scrap at the end of its useful life
Promissory note
A written promise to pay a specified amount on demand or at a definite time.
Under the allowance method, writing off an uncollectible account A) affects only balance sheet accounts. B) affects both balance sheet and income statement accounts. C) affects only income statement accounts. D) is not acceptable practice.
A) affects only balance sheet accounts.
Q 9.2: A company is building a new plant that will take three years to construct. Interest capitalized during the construction as part of the cost of the building. A) is B) is not
A) is
On June 12, 2014, Byrd paid the amount previously written off.
A/R 1200 A D A 1200 Cash 1200 A/R 1200
Assume PW audio supply records its may 4 sale of 3800 to Sauk Stereo on account as follows. Assume the merchandise cost PW Audio Supply 2400
A/R 3800 Sales Revenue 3800 COGS 2400 Inventory 2400
Management Discussion & Analysis section of a company's annual report presents managements views about the company's
Ability to fund operations and expansion Ability to pay near-term obligations Results of its operations
Which one of the following is deducted from both the cost and retail columns in computing the cost-to-retail ratio? Abnormal shortages. Employee discounts. Normal shortages. Sales returns.
Abnormal shortages.
Feb 26 Sold $5,200 of merchandise to Meachum Co., terms n/10.
Account Receivable 5200 Sales Revenue 5200
record purchase discounts
Accounts Payable XXX Purchase discounts XXX Cash XXX
record purchase returns and allowances
Accounts Payable XXX Purchase returns and allowances XXX
record: pay off credit card
Accounts Receivable XXX Interest Revenue XXX example of accrued interest on this receivable
extend credit to customers record credit card sales
Accounts Receivable XXX Sales Revenue XXX
record: selling merchandise on account
Accounts Receivable XXX Sales Revenue XXX
When an account becomes uncollectible and must be written off Accounts Receivable should be credited. Bad Debt Expense should be credited. Sales Revenue should be debited. Allowance for Doubtful Accounts should be credited.
Accounts Receivable should be credited.
When an account becomes uncollectible and must be written off A) Allowance for Doubtful Accounts should be credited. B) Accounts Receivable should be credited. C) Bad Debts Expense should be credited. D) Sales should be debited.
Accounts Receivable should be credited.
Which of the following is not a current asset:
Accounts receivable
record sale of merchandise (periodic)
Accounts receivable XXX Sales revenue XXX
Identify if term is an asset, liability, stockholders' equity, revenue, or expense item.
Accounts receivable- Asset Interest expense- Expense Notes payable- Liability Prepaid insurance- Assets Service revenue- Revenue Accounts payable- Liability Sales revenue- Revenue Cash- Asset Retained earnings- Equity Inventory- Asset Salaries expense- Expense Cost of goods sold- Expense
In 2017, Blanchard Corporation has plant equipment that originally cost $120,000 and has accumulated depreciation of $48,000. A new processing technique has rendered the equipment obsolete, so it is retired. Which of the following entries should Blanchard use to record the retirement of the equipment?
Accumulated Depreciation - Equipment 48,000 Loss on Disposal of Plant Assets 72,000
Actual physical flow
Actual physical flow may be impractical because many items are indistinguishable from one another. It may be inappropriate because management may be able to manipulate net income through specific identification of items sold.
Bank charged a check against the company which should have been charged to another company
Add to cash balance per bank
A check for $236 was correctly paid by the bank but was incorrectly entered in the cash payments journal for $263
Add to cash per books
Bank collects notes receivable and interest for depositer
Add to cash per books
Physical Controls
Alarms to prevent break-in, time clocks for recording time worked, computer facilities with pass key access or fingerprint or eyeball scans, locked warehouses and storage cabinets for inventories and records, safes, values, and safety deposit boxes for cash and business papers, tv monitors and garment sensors to deter theft.
The trial balance:
All of the above
On May 11, 2014, Hunt Co. determined that J. Byrd's account was uncollectible and wrote off $1,200.
Allowance for Doubtful Accounts 1200 A/R 1200
recording write-off of an uncollectible account
Allowance for doubtful accounts XXX Accounts receivable XXX
When net realizable value is lower than cost, and the loss method applying the lower-of-cost-and-net-realizable approach of recording the write-down is used, what account is credited? A loss account. Allowance to Reduce Inventory to NRV. Cost of Goods Sold. Inventory.
Allowance to Reduce Inventory to NRV.
Limited-Life Intangibles:
Amortize to expense. Credit asset account or accumulated amortization
Account
An accounting record of increases and decreases in specific assets, liabilities, and stockholders' equity items.
Under what circumstances might inventory turnover be too high—that is, what possible negative consequences might occur?
An inventory turnover that is too high may indicate that the company is losing sales opportunities because of inventory shortages. Inventory outages may also cause customer ill will and result in lost future sales.
Aging the accounts receivable
Analysis of customer account balances by length of time they have been unpaid.
Which of the following examples shows the correct flow through an accounting information system:
Analyze transaction; record in journal; post to ledger; prepare trial balance
Which one of the following represents the expanded basic accounting equation, assuming no beginning Retained Earnings? Assets = Liabilities + Common Stock + Dividends - Revenue - Expenses Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues Assets - Liabilities - Dividends = Common Stock + Revenues - Expenses Assets = Revenues + Expenses - Liabilities
Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues
Which of the following correctly expresses the "Accounting equation"?
Assets = Liabilities + Equity
What are the normal balances of these accounts? Assets Liabilities Common Stock Revenues Expenses
Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Debit
Monetary unit assumption
Assumes that the dollar is the "measuring stick" used to report financial performance
The report of independent accountants (auditors report) in the company's annual report
Assures the user that the financial statements are materially correct
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debt Expense for $4,500 b. debit to Bad Debt Expense for $6,100 c. debit to Bad Debt Expense for $2,900 d. credit to Allowance for Doubtful Accounts for $4,500.
B
Barber Company lends Monroe Company $30,000 on April 1, accepting a four-month, 6% interest note. Barber Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? a. Note Receivable 30,000 Cash 30,000 b. Interest Receivable 150 Interest Revenue 150 c. Cash 150 Interest Revenue 150 d. Interest Receivable 450 Interest Revenue 450
B
Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $796,800 ($980,700), purchases during the current year at cost (retail) were $3,205,800 ($4,158,300), freight-in on these purchases totaled $191,700, sales during the current year totaled $4,056,000, and net markups (markdowns) were $6,000 ($288,900). What is the ending inventory value at cost? a. $800,100. b. $652,082. c. $1,083,000. d. $882,645.
B
Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 1? a. $0.16. b. $0.10. c. $0.12. d. $0.23.
B
Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year: Cost Retail Beginning inventory $ 30,000 $ 45,000 Purchases 190,000 260,000 Freight-in 2,500 — Net markups — 8,500 Net markdowns — 10,000 Employee discounts — 1,000 Sales revenue — 205,000 If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio? a. $222,500 ÷ $305,000 b. $222,500 ÷ $313,500 c. $220,000 ÷ $315,000 d. $222,500 ÷ $303,500
B
Eaton Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2017: Cost Retail Inventory, 1/1/17 $ 282,000 $420,000 Net purchases 1,134,000 1,686,000 Net markups 204,000 Net markdowns 90,000 Net sales 1,590,000 Assuming stable prices (no change in the price index during 2017), what is the cost of Eaton's inventory at December 31, 2017? a. $384,300. b. $414,300. c. $408,000. d. $396,900.
B
Given the acquisition cost of product ALPHA is $21, the net realizable value for product ALPHA is $20, the normal profit for product ALPHA is $1.50, and the market value (replacement cost) for product ALPHA is $18, what is the proper per unit inventory value for product ALPHA applying LCM? a. $21.00. b. $18.50 c. $18.00. d. $20.00.
B
Given the historical cost of product Z is $20, the selling price of product Z is $25, costs to sell product Z are $3, the replacement cost for product Z is $21, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method? a. $18. b. $20. c. $21. d. $22.
B
In 2014 the Golic Co. had net credit sales of $600,000. On January 1, 2014, the Allowance for Doubtful Accounts had a credit balance of $15,000. During 2014, $24,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $160,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014? a. $16,000 b. $25,000 c. $31,000 d. $24,000
B
In no case can "market" in the lower-of-cost-or-market rule be more than a. estimated selling price in the ordinary course of business. b. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal. c. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. d. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.
B
Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 $550,000 Purchases 430,000 Purchase returns 20,000 Sales during March 750,000 The estimate of the cost of inventory at March 31 would be a. $210,000. b. $360,000. c. $397,500. d. $280,000.
B
LF Corporation, a manufacturer of Mexican foods, contracted in 2017 to purchase 2,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2018. By 12/31/17, the price per pound of the spice mixture had dropped to $4.70 per pound. In 2017, LF should recognize a a loss of $10,000. b. a loss of $600. c. no gain or loss. d. a gain of $600.
B
Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market? a. $12. b. $24. c. $26. d. $27.
B
Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment? a. Bad Debt Expense 8,000 Allowance for Doubtful Accounts 8,000 b. Bad Debt Expense 6,000 Allowance for Doubtful Accounts 6,000 c. Bad Debt Expense 6,000 Accounts Receivable 6,000 d. Bad Debt Expense 8,000 Accounts Receivable 8,000
B
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 Assuming no change in the price level if the LIFO inventory method were used in conjunction with the data, the ending inventory at cost would be a. $170,800. b. $168,000. c. $163,400. d. $172,600.
B
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $144,000 at retail, the business has a. realized a windfall gain. b. sustained a loss. c. no gain or loss as there is close coincidence of the inventories. d. sustained a deferred gain.
B
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 The ending inventory at retail should be a. $296,000. b. $240,000. c. $256,000. d. $168,000.
B
Thompson Corporation's unadjusted trial balance includes the following balances (assume normal balances): Accounts receivable $1,492,000 Allowance for doubtful accounts $ 28,400 Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record? a. $89,520 b. $61,120 c. $59,416 d. $91,224
B
Turner Corporation acquired two inventory items at a lump-sum cost of $120,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $30 per unit, and 1B for $10 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it recognize? a. $2,500 b. $7,500. c. $20,000. d. $24,500.
B
Using the allowance method, the uncollectible accounts for the year is estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the amount of bad debt expense for the period? a. $9,000 b. $31,000 c. $40,000 d. $49,000
B
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $30,000. If the balance of the Allowance for Doubtful Accounts is $4,000 credit before adjustment what is the amount of bad debt expense for that period? a. $30,000 b. $26,000 c. $34,000 d. $4,000
B
Which statement is true about the gross profit method of inventory valuation? a. It may be used to estimate inventories for annual statements. b. It may be used to estimate inventories for interim statements. c. It eliminates the need for physical inventories. d. When calculated on selling price, it will always be more than the related percentage based on cost.
B
Q 9.27: If an intangible asset has a limited life, its cost must be amortized over a period of A : 20 years B : its useful life C : 10 years D : 5 years
B its useful life
Q 9.22: Which of the following applies a constant percentage to depreciable cost in calculating depreciation? A : sum-of-year's-digits depreciation method B : straight-line depreciation method C : units-of-activity depreciation method D : declining-balance depreciation method
B : straight-line depreciation method
Q 9.1: The cost of a purchased building includes which of the following? Select all that apply. A : expenditures for repairs B : real estate broker's commission C : closing costs D : costs occurred after renovations
B : real estate broker's commission C : closing costs A : expenditures for repairs
Q 9.3: What is included in the cost of land? Select all that apply. A : parking lots B : real estate brokers' commissions C : closing costs D : accrued property taxes
B : real estate brokers' commissions C : closing costs D : accrued property taxes
If a company fails to record estimated bad debts expense, A) cash realizable value is understated. B) expenses are understated. C) revenues are understated. D) receivables are understated.
B) expenses are understated.
Q 9.10: The cost of intangible assets with _____ should not be amortized. A) limited life B) indefinite lives
B) indefinite lives
On December 31, 2013, when its Allowance for Doubtful Accounts had a debit balance of $1,400, Hunt Co. estimates that 9% of its accounts receivable balance of $90,000 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts.
Bad Debt Exp 9500 Allowance for Doubtful Accounts 9500
Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $250,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?
Bad Debt Expense 7,500 Allowance for Doubtful Accounts 7,500
Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $250,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?
Bad Debt Expense 7,500 Allowance for Doubtful Accounts 7,500 Solution: ($250,000 x .04) - $2,500 = $7,500 ((A/R bal. × 4%) − ADA bal.)
Direct write-off method
Bad debt losses are not estimated and no allowance account is used.
Which financial statement provides users the best information to answer "Does the company rely primarily on debt or equity to finance its assets?"
Balance sheet
Which of the following financial statements is prepared as of a specific date
Balance sheet
The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is
Bank service charges
ABC Company accepted a national credit card for a $7,000 purchase. The cost of the goods sold is $5,600. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income? a. Increase by $1,358 b. Increase by $1,400 c. Increase by $1,190 d. Increase by $6,790.
C
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful AccouAnts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debt Expense for $4,500 b. debit to Allowance for Doubtful Accounts for $5,700 c. debit to Bad Debt Expense for $5,700 d. credit to Allowance for Doubtful Accounts for $4,500.
C
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debt Expense for $4,500 b. debit to Allowance for Doubtful Accounts for $3,300 c. debit to Bad Debt Expense for $3,300 d. credit to Allowance for Doubtful Accounts for $4,500
C
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 credit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debt Expense for $4,500 b. debit to Allowance for Doubtful Accounts for $2,900 c. debit to Bad Debt Expense for $2,900 d. credit to Allowance for Doubtful Accounts for $4,500.
C
At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.60 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.25, how would this situation be reflected in the annual financial statements? a. Record unrealized gains of $350,000 and disclose the existence of the purchase commitment. b. No impact. c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment. d. Only disclose the existence of the purchase commitment.
C
Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $393,500 ($594,000), purchases during the current year at cost (retail) were $3,408,000 ($5,193,600), freight-in on these purchases totaled $159,500, sales during the current year totaled $4,666,000, and net markups were $414,000. What is the ending inventory value at cost? a. $1,535,600. b. $1,082,850. c. $981,248. d. $1,050,350.
C
During 2017, Larue Co., a manufacturer of chocolate candies, contracted to purchase 250,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2018. Because a record harvest is predicted for 2018, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2017. Of the following journal entries, the one which would properly reflect in 2017 the effect of the commitment of Larue Co. to purchase the 250,000 pounds of cocoa is a. Cocoa Inventory 1,000 Accounts Payable 1,000 b. Cocoa Inventory 825,000 Loss on Purchase Commitments 175,000 Accounts Payable 1,000 c. Unrealized Holding Gain or Loss-Income 175,000 Estimated Liability on Purchase Commitments 175,000 d. No entry would be necessary in 2017
C
During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $2.0 million of raw materials. Jeremiah paid the $2.0 million to acquire the raw materials when the raw materials were only worth $1.6 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase? a. Debit Inventory for $1,600,000, and credit Cash for $1,600,000. b. Debit Inventory for $1,600,000, debit Unrealized Holding Gain or Loss for $400,000, and credit Cash for $2,000,000. c. Debit Inventory for $1,600,000, debit Estimated Liability on Purchase Commitments for $400,000 and credit Cash for $2,000,000. d. Debit Inventory for $2,000,000, and credit Cash for $2,000,000.
C
East Corporation's computation of cost of goods sold is: Beginning inventory $ 60,000 Add: Cost of goods purchased 482,000 Cost of goods available for sale 542,000 Ending inventory 70,000 Cost of goods sold $472,000 The average days to sell inventory for East are a. 44.0 days. b. 47.4 days. c. 50.0 days. d. 54.0 days.
C
Fry Corporation's computation of cost of goods sold is: Beginning inventory $ 60,000 Add: Cost of goods purchased 530,000 Cost of goods available for sale 590,000 Less: Ending inventory 90,000 Cost of goods sold $500,000 The average days to sell inventory for Fry are a. 46.2 days. b. 51.4 days. c. 54.5 days. d. 65.2 days.
C
Gamma Ray Corp. has annual sales totaling $1,170,000 and an average gross profit of 20% of cost. What is the dollar amount of the gross profit? a. $234,000. b. $175,500. c. $195,000. d. $292,500.
C
Given the acquisition cost of product Dominoe is $20, the net realizable value for product Dominoe is $17, the normal profit for product Dominoe is $2, and the market value (replacement cost) for product Dominoe is $18, what is the proper per unit inventory price for product Dominoe applying LCM? a. $18. b. $15. c. $17. d. $20
C
Given the historical cost of product Z is $20, the selling price of product Z is $25, costs to sell product Z are $3, the replacement cost for product Z is $21, and the normal profit margin is 40% of sales price, what is the market value that should be used in the lower-of-cost-or-market comparison? a. $18. b. $20. c. $21. d. $22.
C
In 2014 Wilkinson Company had net credit sales of $1,500,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $36,000. During 2014, $60,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $400,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014? a. $ 40,000 b. $150,000 c. $ 64,000 d. $ 60,000
C
Kinsler Company uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 6% of accounts receivable will be uncollectible. What adjusting entry will Kinsler Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment? a. Bad Debt Expense 14,000 Allowance for Doubtful Accounts 14,000 b. Bad Debt Expense 12,000 Allowance for Doubtful Accounts 12,000 c. Bad Debt Expense 10,000 Allowance for Doubtful Accounts 10,000 d. Bad Debt Expense 8,000 Accounts Receivable 8,000
C
Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $200,000. The total selling price is $560,000, and estimated costs of disposal are $20,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet? a. $180,000. b. $200,000. c. $540,000. d. $560,000.
C
Nance Co. holds Gant Inc.'s $25,000, 120 day, 9% note. The entry made by Nance Co. when the note is collected, assuming no interest has previously been accrued is: a. Cash 25,000 Notes Receivable 25,000 b. Accounts Receivable 25,750 Notes Receivable 25,000 Interest Revenue 750 c. Cash 25,750 Notes Receivable 25,000 Interest Revenue 750 d. Accounts Receivable 25,750 Notes Revenue 25,000 Interest Revenue 700
C
On April 5 Donna's Boutique accepted a Visa card for a $600 purchase. Visa charges a 2% service fee. The entry to record this transaction would include a a. credit to Cash of $588 b. debit to Cash of $600 c. debit to Service Charge Expense of $12 d. credit to Service Charge Expense of $12
C
Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 If the ending inventory is to be valued at approximately LIFO cost, the calculation of the cost ratio should be based on cost and retail amounts of a. $1,512,000 and $2,208,000. b. $1,512,000 and $1,128,000. c. $1,200,000 and $1,640,000. d. $1,200,000 and $1,720,000.
C
RS Corporation, a manufacturer of ethnic foods, contracted in 2017 to purchase 600 pounds of a spice mixture at $3.00 per pound, delivery to be made in spring of 2018. By 12/31/17, the price per pound of the spice mixture had risen to $3.25 per pound. In 2017, RS should recognize a. a loss of $1,800. b. a loss of $150. c. no gain or loss. d. a gain of $150.
C
Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and a. the ending inventory is determined by a physical inventory count. b. a normal profit is not anticipated. c. there is a controlled market with a quoted price applicable to all quantities. d. the internal revenue service is assured that the practice is not used only to distort reported net income.
C
Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $25, a replacement cost of $23, a net realizable value of $27, and a normal profit margin of $3. What is the final lower-of-cost-or-market inventory value for Acer Top? a. $23. b. $25. c. $24. d. $27.
C
Rodriguez Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $315,000. The total selling price is $840,000, and estimated costs of disposal are $15,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet? a. $300,000. b. $315,000. c. $825,000. d. $840,000.
C
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost-to-retail ratio would a. exclude both markups and markdowns and include beginning inventory. b. include markups and exclude both markdowns and beginning inventory. c. include both markups and markdowns and exclude beginning inventory. d. exclude markups and include both markdowns and beginning inventory.
C
Young Company lends Dobson industries $40,000 on January 1, 2014, accepting a 9month, 12% interest note. If Dobson dishonors the note and does not pay it in full at maturity but Young expects that it will eventually be able to collect the debt, which of the following entries should most likely be made by Young Company? a. Cash 40,000 Notes Receivable 40,000 b. Accounts Receivable 40,000 Notes Receivable 40,000 c. Accounts Receivable 43,600 Notes Receivable 40,000 Interest Revenue 3,600 d. Accounts Receivable 43,600 Notes Receivable 40,000 Interest Receivable 3,600
C
Q 9.33: Which of the following statements is true? A : When land is acquired, expenditures for improvements made within one year can be charged to the land account. B : When land is acquired, expenditures for paving, fencing, and lighting a new company parking lot should be charged to the plant asset account. C : Land improvements such as paving, fencing, and lighting a new company parking lot should be charged to the land improvement account. D : Land improvements are not considered a subdivision of plant assets.
C Land improvements such as paving, fencing, and lighting a new company parking lot should be charged to the land improvement account.
Under the allowance method, Bad Debt Expense is recorded A) when an individual account is written off. B) when the loss amount is known. C) as an adjusting journal entry when the company estimates the amount it will not collect. D) several times during the accounting period.
C) as an adjusting journal entry when the company estimates the amount it will not collect.
Inventory Turnover
COGs/Average Inventory A high ratio implies stronger sales. Measures the number of times a company sells its average level of inventory during a year.
Nance Co. holds Gant Inc.'s $30000, 120 day, 9% note. The entry made by Nance Co. when the note is collected, assuming no interest has previously been accrued is: Cash 30000 Notes Receivable 30000 Accounts Receivable 30900 Notes Receivable 30000 Interest Revenue 900 Cash 30900 Notes Receivable 30000 Interest Revenue 900 Accounts Receivable 30900 Notes Revenue 30000 Interest Revenue 900
Cash 30900 Notes Receivable 30000 Interest Revenue 900
Five thousand bonds with a face value of $1,000 each, are sold at 102. The entry to record the issuance is
Cash 5,100,000 Premium on Bonds Payable 100,000
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is
Cash 500,000 Notes Payable 500,000
A cash register tape shows cash sales of $8000 and sales taxes of $400. The journal entry to record this information is
Cash 8400 Sales Revenue 8000 Sales Taxes Payable 400
Madson Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?
Cash 900,000 Unearned Subscription Revenue 900,000
record: receive payment for merchandise
Cash XXX Sales Dis. XXX ($$ x .02) Accounts Receivable XXX
payment of balance due within discount period
Cash XXX Sales discounts XXX Accounts Receivable XXX
record sales discounts (periodic)
Cash XXX Sales discounts XXX Accounts Receivable XXX
Which of the following statements correctly describes the reporting of cash?
Cash is listed first in the current assets section
A deferral (prepayment) occurs when:
Cash us received for a revenue item before the revenue is earned by the business
The listing of the accounts contained in the company's general ledger is called:
Chart of accounts
Alt Corp. issues 5000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to: Common Stock $50000 and Retained Earnings $20000. Common Stock $50000 and Paid-in Capital in Excess of Stated Value $20000. Common Stock $50000 and Paid-in Capital in Excess of Par Value $20000. Common Stock $70000.
Common Stock $50000 and Paid-in Capital in Excess of Par Value $20000.
Documentation Procedures
Companies should use prenumbered documents and all documents should be accounted for. (use remittance advice (mail receipts), cash register tapes, and deposit slips)
Cost Constraint
Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.
Establishment of Responsibility
Control is most effective when only one person is responsible for a given task. (only designated personnel are authorized to handle cash receipts (cashiers) and sign checks(treasurer)and approve vendors)
When the cost-of-goods-sold method is used adjust cost to "net realizable value" in the lower-of-cost-and-net-realizable-value (LCNRV) approach, what account is debited? Loss Due to Market Decline of Inventory to NRV. Inventory. Allowance to Reduce Inventory to Market Value. Cost of Goods Sold.
Cost of Goods Sold.
Cash and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle are called
Current Assets
Current Ratio
Current Assets/Current Liabilities A higher ratio means greater liquidity.
Which of the following would not be classified as a long-term liability?
Current maturities of long-term debt
At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements? a. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment. b. No impact. c. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment. d. Only disclose the existence of the purchase commitment.
D
Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 2? a. $0.23. b. $0.36. c. $0.22. d. $0.24.
D
Gipson Furniture factors $500,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 3% service charge on the amount of receivables sold. Gipson Furniture factors its receivables regularly with Kwik Factors. What journal entry does Gipson make when factoring these receivables? a. Cash 485,000 Loss on Sale of Receivables 15,000 Accounts Receivable 500,000 b. Cash 485,000 Accounts Receivable 485,000 c. Cash 500,000 Accounts Receivable 485,000 Gain on Sale of Receivables 15,000 d. Cash 485,000 Service Charge Expense 15,000 Accounts Receivable 500,000
D
Given the historical cost of product Dominoe is $12, the selling price of product Dominoe is $15, costs to sell product Dominoe are $2, the replacement cost for product Dominoe is $11, and the normal profit margin is 20% of sales price, what is the cost amount that should be used in the lower-of-cost-or-market comparison? a. $13. b. $10. c. $11. d. $12.
D
Miles Company, a wholesaler, budgeted the following sales for the indicated months: June July August Sales on account $2,700,000 $2,760,000 $2,850,000 Cash sales 270,000 300,000 390,000 Total sales $2,970,000 $3,060,000 $3,240,000 All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. Merchandise purchases for July are anticipated to be a. $2,390,625. b. $3,243,750. c. $2,550,000. d. $2,595,000.
D
Miles Company, a wholesaler, budgeted the following sales for the indicated months: June July August Sales on account $2,700,000 $2,760,000 $2,850,000 Cash sales 270,000 300,000 390,000 Total sales $2,970,000 $3,060,000 $3,240,000 All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. The cost of goods sold for the month of June is anticipated to be a. $2,109,375. b. $2,320,310. c. $2,165,625. d. $2,475,000.
D
Net realizable value is a. acquisition cost plus costs to complete and sell. b. selling price. c. selling price plus costs to complete and sell. d. selling price less costs to complete, sell, and transport
D
On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $1,920,000. Since June 30 until the time of the hurricane, the company made purchases of $510,000 and had sales of $1,500,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed? a. $1,920,000. b. $1,089,000. c. $1,230,000. d. $1,530,000.
D
On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $2,720,000. From January 1 through the time of the fire, the company made purchases of $660,000 and had sales of $1,440,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed? a. $2,720,000. b. $2,692,000. c. $1,940,000. d. $2,516,000.
D
Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 If the ending inventory is to be valued at approximately lower of average cost or market, the calculation of the cost ratio should be based on cost and retail of a. $1,200,000 and $1,720,000. b. $1,200,000 and $1,712,000. c. $1,492,000 and $2,200,000. d. $1,512,000 and $2,208,000.
D
Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 The ending inventory at retail should be a. $640,000. b. $600,000. c. $576,000. d. $560,000.
D
Rosen Company receives a $5,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note? a. Notes Receivable 5,075 Accounts Receivable 5,075 b. Notes Receivable 5,075 Accounts Receivable 5,000 Interest Revenue 75 c. Notes Receivable 5,000 Interest Receivable 75 Accounts Receivable 5,000 Interest Revenue 75 d. Notes Receivable 5,000 Accounts Receivable 5,000
D
The financial statements of the Nelson Manufacturing Company reports net sales of $300,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Nelson? a. 3.8 times b. 6 times c. 10.0 times d. 7.5 times
D
The gross profit method of inventory valuation is invalid when a. a portion of the inventory is destroyed. b. there is a substantial increase in inventory during the year. c. there is no beginning inventory because it is the first year of operation. d. applying a blanket gross profit rate to merchandise that have widely varying rates of gross profit.
D
The reason for eliminating the price change in inventory is: a. to measure the dollar increase in inventory. b. to inflate profits of a company. c. to increase the cost of inventory. d. to measure the real increase in inventory.
D
Using the allowance method, the uncollectible accounts for the year is estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 debit before adjustment, what is the amount of bad debt expense for the period? a. $9,000 b. $31,000 c. $40,000 d. $49,000
D
What is the effect of net markups on the cost-retail ratio when using the conventional retail method? a. Increases the cost-to-retail ratio. b. No effect on the cost-to-retail ratio. c. Depends on the amount of the net markdowns. d. Decreases the cost-to-retail ratio.
D
What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory? a. Prevents understatement of the inventory value. b. Allows for a normal profit to be earned. c. Allows for items to be valued at replacement cost. d. Prevents overstatement of the value of obsolete or damaged inventories.
D
When the cost-of-goods-sold method is used to record inventory at net realizable value a. there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale. b. a loss is recorded directly in the inventory account by crediting Inventory and debiting Loss on Inventory Decline. c. only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements. d. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.
D
Q 9.32: To record depreciation, taxpayers must use on their tax returns either the straight-line method or the A : double-declining-balance method. B : units-of-activity method. C : accelerated-balance method. D : Modified Accelerated Cost Recovery System (MACRS).
D Modified Accelerated Cost Recovery System (MACRS).
Q 9.40: Which of the following is computed and represented at cost less accumulated depreciation in the balance sheet? A : trademarks B : intangible assets C : goodwill D : plant assets
D plant assets
Q 9.5: What is depreciable cost? A : the cost of an asset less accumulated depreciation B : the book value of an asset less its salvage value C : the book value of an asset D : the cost of an asset less its salvage value
D : the cost of an asset less its salvage value
Q 9.29: The depreciation and amortization methods should be described in A : the capital expense report. B : the capital account sheet. C : the SEC filings. D : the notes to the financial statements.
D : the notes to the financial statements.
Q 9.9: Where are natural resources generally shown on the balance sheet? A : under owner's equity B : under investments C : under intangibles D : under property, plant, and equipment
D : under property, plant, and equipment
Sloan Company receives a $3,000, 3-month, 6% promissory note from Day Company in settlement of an open accounts receivable. What entry will Sloan Company make upon receiving the note? A) Notes Receivable 3,045 Accounts Receivable—Day Company 3,045 B) Notes Receivable 3,045 Accounts Receivable—Day Company 3,000 Interest Revenue 45 C) Notes Receivable 3,000 Interest Receivable 45 Accounts Receivable—Day Company 3,000 Interest Revenue 45 D) Notes Receivable 3,000 Accounts Receivable—Day Company 3,000
D) Notes Receivable 3,000 Accounts Receivable—Day Company 3,000
The account Allowance for Doubtful Accounts is classified as a(n) A) liability. B) contra account of Bad Debt Expense. C) expense. D) contra account to Accounts Receivable.
D) contra account to Accounts Receivable.
recovery of uncollectible accounts
Date Accounts receivable XXX Allowance for doubtful accounts XXX Cash XXX Accounts receivable XXX
Which depreciation method calculates annual depreciation expense based on book value at the beginning of each year?
Declining-balance
Credits:
Decrease assets and increase liabilities
Outstanding Checks
Deduct from cash balance per bank
Bank debits memorandum for chek printing fees
Deduct from cash balance per books
Bank returns customer deposited check marked NSF
Deduct from cash balance per books
Bank service charge
Deduct from cash balance per books
Check for $320 correctly written and paid by the bank but incorrectly entered in the cash payments journal for $230
Deduct from cash balance per books
Which one of the following is not an accounting problem (issue) associated with accounts receivable?
Depreciating accounts receivable
revising periodic depreciation
Depreciation involved several estimates and these may turn out to be too high or too low sometimes, change in estimate is required change in estimate accounted for in period of change and future periods (prospectively) not handled retrospectively a change in estimate is not considered an error
Dividend Payout Ratio
Dividend per Share/EPS
Dividend Yield
Dividends/Share Price Paid Determines the portion of ROI attributable to dividends.
Petty cash custodian has $86 in paid petty cash vouchers that have not been reimbursed
Does not affect the bank reconciliation
Times Interest Earned
EBIT/Interest Expense Measures a company's ability to meet its debt obligations. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy.. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying for its current debt to meet its debt obligations.
EPS to Market Price per Share
EPS/Market Price per Share = Expected ROI EPS = 1 Market Price = 10 ROI = 1/10 = 10%
Percentage of receivables basis
Emphasizes expected cash realizable value of accounts receivable.
How do you get cash collections?
End AR balance= Start AR balance+credit sales-cash collections
Full Disclosure Principle
Ensures that all relevant financial information is reported
source document
Evidence that a transaction has taken place.
Research and Development Costs
Expenditures that may lead to patents, copyrights, new processes, and new products. All R & D costs are expensed when incurred.
Stright line (depreciation)
Expense = (Cost - salvage)/life Entry: Depreciation expense 2,400 Accumulated depreciation 2,400
Financial accounting focuses on which type of user?
External
19. When the allowance method is used, the write-off of an account receivable results in an expense at the time of write-off.
F
30. Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.
F
35. Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.
F
51. The accounts receivable turnover ratio is computed by dividing total sales by the average net receivables during the year.
F
9. Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts.
F
(T or F) A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.
F
(T or F) In calculating depreciation, both plant asset cost and useful life are based on estimates.
F
*41. When the average cost method is applied in a perpetual inventory system, the sale of goods will change the unit cost that remains in inventory.
F
*43. An error in the ending inventory of the current period will have a similar effect on net income of the next accounting period.
F
1. Raw materials inventories are the goods that a manufacturing company has completed and are ready to be sold to customers.
F
1. Trade receivables occur when two companies trade or exchange notes receivables.
F
15. The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debt adjusting entry is recorded.
F
18. The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.
F
19. The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.
F
21. The Allowance for Doubtful Accounts is a liability account.
F
22. Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.
F
23. If bad debt losses are significant, the direct write-off method is acceptable for financial reporting purposes.
F
24. Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.
F
27. In periods of falling prices, FIFO will result in a larger net income than the LIFO method.
F
28. When using the direct write-off method year-end adjustments for bad debt expense must be made.
F
3. When the terms of sale are FOB shipping point, legal title to the goods remains with the seller until the goods reach the buyer.
F
30. The LIFO method is rarely used because most companies do not sell the last goods they purchase first.
F
32. An aging schedule is prepared only for old accounts receivables that have been past due for more than one year.
F
32. Computers has made the periodic inventory system more popular and easier to apply.
F
36. In a promissory note, the party to whom payment is to be made is called the maker.
F
36. Under the LCM basis, market is defined as selling price, not current replacement cost.
F
37. In computing the maturity date of a note, the date the note is issued is included but the due date is omitted.
F
37. The inventory turnover is calculated as cost of goods sold divided by ending inventory.
F
38. When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.
F
39. There is only one way to calculate interest correctly.
F
4. Advances to employees are referred to as accounts receivable.
F
40. The FIFO reserve is a required disclosure for companies that use FIFO.
F
42. When a note is written to settle an open account no entry is necessary.
F
44. If a promissory note is dishonored, the payee should not record interest income.
F
47. Bad debt expense and interest revenue are reported in the income statement under other revenues and expenses.
F
48. If a company has a significant concentration of credit risk, it is not required to discuss that in its notes to its financial statements as that could increase the related risk.
F
54. A major advantage of national credit cards to retailers is that there is no charge to the retailer by the credit card companies for their services.
F
55. If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.
F
6. If the ownership of merchandise passes to the buyer when the seller ships the merchandise, the terms are stated as FOB destination.
F
7. Accounts receivable are the result of cash and credit sales.
F
7. Under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item of merchandise is sold.
F
8. The two accounting problems with accounts receivable are: (1) recognizing and (2) disposing.
F
(T or F) When the book value of a piece of equipment is less than the proceeds from the sale of that equipment, the result is a loss on disposal of plant asset.
F When book value is less than the proceeds from a sale, the result is a gain on disposal of plant assets.
(T or F) Book value and market value are synonymous terms as they relate to plant assets.
F : Market value represents a value at which an asset can be sold. Book value is the net amount at which an asset appears on a company's balance sheet. It is equal to acquisition cost less accumulated depreciation.
The cost flow method that often parallels the actual physical flow of merchandise is the:
FIFO method
Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using
FIFO will have the highest ending inventory.
Title to goods transfers when the goods are delivered to the buyer
FOB destination
Title to the goods transfers when the public carrier accepts the goods from the seller
FOB shipping point
Cash Equivelent Price
Fair value of asset given or received
A company with a profit margin of 6% earns sixty cents of profit for every dollar of net sales. A. True B. False
False
A physical inventory or count is not necessary under a perpetual inventory system, since the inventory balance is known at all times. A. True B. False
False
A revenue account is closed with a credit to the revenue account and a debit to Income Summary.
False
A very small business most likely would have to use the perpetual inventory system.
False
Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.
False
Accounting information does not contain estimates, classifications, summarizations, judgments, and allocations. A. True B. False
False
Accumulated Depreciation is a liability account and has a credit normal account balance.
False
Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.
False
An account consists of only two parts: (1) a left or debit side and (2) a right or credit side.
False
Companies whose securities are sold to the general public must adhere to standards established by the Public Securities Commission (PSC). A. True B. False
False
Costs incurred in storing inventory usually are included in inventory costs. A. True B. False
False
Discounts taken by the buyer for early payment of an invoice are called sales discounts by the buyer.
False
Ending merchandise inventory for LIFO will always be the same dollar amount under a periodic inventory system as under a perpetual inventory system. A. True B. False
False
Goods in transit shipped FOB shipping point should be included in the seller's ending inventory. A. true B. False
False
Gross profit appears on both the single-step and multiple-step forms of an income statement.
False
In accounting for inventory, the assumed cost flow must match the physical goods flow. A. True B. False
False
In periods of rising inventory prices, the LIFO method will result in a higher inventory valuation than will the average-cost method. A. true B. false
False
Information in the notes to the financial statements has to be quantifiable (numeric).
False
Inventory methods such as LIFO and FIFO deal more with goods flow than with cost flow. A. True B. False
False
Investing activities involve collecting the necessary funds to support the business.
False
It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year or the normal operating
False
The allowance for doubtful accounts is recorded in the liability section of the balance sheet. A. True B. False
False
The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.
False
The current ratio is computed as current liabilities divided by current assets.
False
The current ratio takes into account the composition of current assets.
False
The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.
False
The largest shareholder of a public company can obtain internal projections and view financial records that are not available to the general public? A. True B. False
False
The normal balance of all accounts is a debit.
False
The primary accounting standard-setting body in the United States is the Securities and Exchange Commission.
False
To improve liquidity, a company needs to increase the number of days in the operating cycle. A. true B. false
False
True or False: IFRS permits the use of the LIFO cost flow assumption and specific identification where appropriate.
False
True or False: IFRS uses a floor to determine market for inventory valuation.
False
True or False: Net realizable value is defined as estimated selling price less purchase price.
False
True or False: The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period.
False
True or False: The LIFO retail method assumes that markups and markdowns apply to both beginning inventory and goods purchased during the period.
False
True or False: The conventional retail inventory method includes both net markups and net markdowns to calculate the cost-to-retail ratio.
False
True or False: The cost-of-goods-sold method of recording inventory at net realizable value under the lower-of-cost and net-realizable value (LCNRV) rule establishes a separate contra asset account and a loss account to record the write-off.
False
True or False: The gross profit method of estimating inventory is acceptable for both interim and annual financial reports.
False
Uncollectible accounts cannot be estimated because it is not possible to know which accounts will not be collected. A. True B. False
False
Under the allowance method, bad debt expense is recorded when a customer account is determined to be uncollectible. A. True B. False
False
Under the double-entry system, revenues must always equal expenses.
False
Under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item of merchandise is sold.
False
Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.
False
All business activities can be classified as:
Financing Investing Operating
Ending inventory valuation consists of the most recent inventory purchases
First-in, first-out (FIFO) method
record freight costs
Freight in XXX Cash XXX
The accounting rules that U.S. companies must follow are called:
Generally Accepted Accounting Principles
Intangible assets?
Goodwill + Trademarks
If the market rate of interest is 10%, a $10000, 12%, 10-year bond that pays interest annually would sell at an amount
Greater face value
Revenue Account
Has a credit normal balance
The control features of a bank account do not include
Having bank auditors verify the correctness of the bank balance per books
Q 9.8: Where is the loss on disposal of a plant asset reported in the financial statements? A : in the Other Revenues and Gains section of the income statement B : as a direct increase to the capital account on the balance sheet C : as a direct decrease to the capital account on the balance sheet D : in the Other Expenses and Losses section of the income statement
I GOT THIS WRONG. I DON'T KNOW THE RIGHT ANSWER. A : in the Other Revenues and Gains section of the income statement
Which of the following statements about IFRS for inventory accounting is not true? IFRS defines market value as replacement cost subject to the constraints of a ceiling and floor. IFRS prohibits the use of LIFO. IFRS allows reversals of write-downs up to the amount of the previous write-down. IFRS provide less detailed guidelines than GAAP for inventory accounting.
IFRS defines market value as replacement cost subject to the constraints of a ceiling and floor.
Which financial statement provides users the best information to answer "are the company's operations profitable?"
Income statement
ABC Company accepted a national credit card for a $9,000 purchase. The cost of the goods sold is $7,200. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?
Increase by $1,530 Solution: ($9,000 - $7,200) - ($9,000 x.03) = $1,530. [(Sale amount - COGS) - (sale amount × 3%)]
Historical Cost Principle
Indicates that fair value changes subsequent to purchase are not recorded in the accounts.
Economic Entity Assumption
Indicates that personal and business recordkeeping should be separately maintained
Young Company lends Dobson industries $40000 on August 1, 2017, accepting a 9-month, 9% interest note. If Young Company prepares its financial statements as of December 31, 2017, what adjusting entry must it make? Cash 1500 Interest Revenue 1500 Notes Receivable 1500 Interest Revenue 1500 Interest Receivable 1500 Interest Revenue 1500 Accounts Receivable 1500 Interest Receivable 1500
Interest Receivable 1500 Interest Revenue 1500
National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees.
Interest is capitalized during the construction as part of the cost of the building
National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?
Interest is capitalized during the construction as part of the cost of the building.
Measures the number of times the inventory sold during the period
Inventory turnover ratio
Going concern assumption
Is the rationale for why plant assets are not reported at liquidation value
Which statement is not true about the gross profit method of inventory valuation? It may be used to estimate inventories for interim statements. It may be used to estimate inventories for annual statements. It may be used by auditors. None of these answer choices are correct.
It may be used to estimate inventories for annual statements.
Kaplan purchased 2500 shares of its own previously issued $10 par common stock for $62500. As a result of this event, Kaplan's Common Stock account decreased $25000. Kaplan's total stockholders' equity decreased $62500. Kaplan's Paid-in Capital in Excess of Par Value account decreased $37500. All of these answer choices are correct.
Kaplan's total stockholders' equity decreased $62500.
_______ assumes that the latest units purchased are the first to be sold?
LIFO
In a period of inflation, the cost flow method that results in the lowest income taxes is the
LIFO method
The difference between inventory reported using LIFO and inventory using FIFO
LIFO reserve
Cost of goods sold consists of the most recent inventory purchases
Last-in, first-out (LIFO) method
Debit
Left side of an account.
The current ratio is a measure of a comapny's
Liquidity
Which of the following is the best definition of an internal user of accounting information?
Managers who use accounting information to plan, organize, and run a business.
P/E Ratio
Market Price/EPS
Which of the following is included in the calculation of the cost-to-retail ratio under the conventional retail inventory method? Markdowns only. Markups only. Markdowns and markdown cancellations. Markups and markup cancellations.
Markups and markup cancellations.
Liquidity ratios-
Measure short-term ability to pay debts
Solvency ratios-
Measures long-term ability to survive
Profit Margin Ratio
Measures the extent by which selling price covers all expenses (including cost of goods sold) (PMR = Net income/Net Sales.
Goods ready for sale to customers by retailers and wholesalers
Merchandise Inventory
Use the following information to calculate for the year ended December 31, 2011 the net income and ending retained earnings ? Supplies Expense $ 500 Sales Revenue $16,000 Rent expense 10,000 Cash 15,000 Accounts payable 11,000 Dividends 6,000 Accounts receivable 4,000 Notes payable 1,000 Common stock 10,000 Equipment 7,500 Retained earnings (beginning) 5,000
NI = 5500 and RE = 4500
Annual Depreciation
Net Book Value +New Salvage Value = Depreciable base / useful life remaining = annual depreciation Depreciation expense XXX Accumulated depreciation XXX
Profitability
Net Income/Sales Higher ratio indicates greater profitability. Profitability can be improved by cutting expenses or increasing prices.
Asset Turnover Ratio
Net Sales/Total Assets A higher ratio indicates greater efficiency in the use of assets. A measure of how efficiently a company uses its assets to generate sales
Free Cash Flow
Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid.
A business pays a supplier early and receives a $100 discount on its inventory purchase. The business should record the $100 discount as "other income" on its income statement below the line income from operations. A. Yes B. No
No
Are selling related costs included in cost of goods sold when calculating gross margin? A. Yes B. No
No
In a multi-step income statement, sales less cost of goods sold equals gross margin. Does a service business report cost of goods sold? A. Yes B. No
No
In periods of declining prices, the FIFO method will result in a larger gross margin than the LIFO method. A. Yes B. No
No
The LIFO inventory costing method uses the most recent prices to value ending inventory. A. Yes B. No
No
The account "Prepaid Rent" on post-closing trial balance represents a liability to pay rent in the future A. Yes B. No
No
Indefinite-Life Intangibles:
No foreseeable limit on time the asset is expected to provide cash flows. No amortization.
Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant debited this amount to the asset account, Equipment and credited Cash. Was this the correct entry and if not, why not?
No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to Cash.
Feb 12 Sold $12,000 of merchandise to Cano Company and accepted Cano's $12,000, 2-month, 10% note for the balance due
Note Receivable 12000 Sales Revenue 12000
Feb. 2 Accepted a $4,000, 4-month, 9% promissory note from Ross Company for balance due.
Note Receivable 4000 A/R 4000
Rosen Company receives a $9,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note?
Notes Receivable 9,000 Accounts Receivable—Bay Company 9,000
Rosen Company receives a $9000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note? Notes Receivable 9000 Accounts Receivable-Bay Company 9000 Notes Receivable 9135 Accounts Receivable-Bay Company 9135 Notes Receivable 9135 Accounts Receivable-Bay Company 9000 Interest Revenue 135 Notes Receivable 9000 Interest Receivable 135 Accounts Receivable-Bay Company 9000 Interest Revenue 135
Notes Receivable 9000 Accounts Receivable-Bay Company 9000
Trade receivables
Notes and accounts receivable that result from sales transactions.
Current Liabilities
Obligations that a company expects to pay within the next year or operating cycle, whichever is longer.
post-closing trial balance
Of the merchandising accounts, only Inventory will appear in the post-closing trial balance
Is the statement an Accrued or prepaid ?
Office supplies on hand that will be used in the next period.- Prepaid Expense Interest expense incurred; not yet paid. - Accured Expense A revenue for which performance obligation is satisfied; not yet collected or recorded. - Accured Revenue A revenue not yet recognized; collected in advance. - Unearned Revenues An expense incurred; not yet paid or recorded. - Accured Expense Rent not yet collected; performance obligation already satisfied. - Accured Revenues Subscription revenue collected; not yet recognized. - Unearned Revenues An expense not yet incurred; paid in advance. - Prepaid Expenses
$16,000
On November 1, 2016, Love Company places a new asset into service. The cost of the asset is $90000 with an estimated 5-year life and $10000 salvage value at the end of its useful life. What is the depreciation expense for 2017 if Love Company uses the straight-line method of depreciation?
Operating Cycle
Operating Cycle = Days Sales in Accounts Receivable + Days Sales in Inventory Comparing Operating Cycle to Days Purchases in Accounts Payable determines if financing is needed for operations.
An expenditure for which of the following items would be considered a revenue expenditure?
Ordinary repair.
If Norben Company issues 6000 shares of $5 par value common stock for $210000, the account Common Stock will be credited for $210000. Paid-in Capital in Excess of Par Value will be credited for $30000. Paid-in Capital in Excess of Par Value will be credited for $180000. Cash will be debited for $180000.
Paid-in Capital in Excess of Par Value will be credited for $180000.
Book Value (BV)
Plant Assets: Equipment-Accumulated Depreciation = Book Value
measure of profitability
Profitability is affected by gross profit 'as measured by the gross profit rate' and by management's ability to control operating expenses, as measured by the profit margin.
record purchase of merchandise
Purchases XXX Accounts Payable XXX
Accounts Payable Turnover
Purchases/Average Accounts Payable Measures how quickly vendors are paid. A high accounts payable ratio normally suggests that a company is paying its suppliers in a timely manner.
perpetual system advantages
Quantity and cost of the inventory that should be on hand at any time. Better control over inventories than a periodic system to see if amount of goods actually on hand agrees with the inventory records. Company can investigate shortages immediately Requires additional clerical work and additional cost to maintain inventory records, a computerized system can minimize this cost.
Independent Internal Verification
Records periodically verified by an employee who is independent. Discrepancies reported to management (supervisors count cash receipts daily) (compare checks to invoices: reconcile bank statement monthly)
The Sarbanes-Oxley Act of 2002 was enacted in order to:
Reduce unethical business behavior
Prepare the entry PW Audio Supply would make to record the credit for returned goods that had a 300 selling price (assume a 140 cost). assume the goods were not defective.
SRA 300 A/R 300 Inventory 140 COGS 140
record sales returns and allowances (periodic)
Sales returns and allowances XXX Accounts Receivable XXX
Accounts Receivable Turnover
Sales/Average Accounts Receivable A higher ratio indicates cash is collected more frequently. The relationship between net sales and accounts receivable; measures how frequently during the year the accounts receivable are converted to cash.
Efficiency
Sales/Total Assets Higher ratio indicates greater efficiency. Efficiency can be improved by increasing sales volume or downsizing assets.
What factors affect a company's gross profit rate—that is, what can cause the gross profit rate to increase and what can cause it to decrease?
Selling products with a higher (or lower) "markup," increased competition that results in lower selling prices, and price increases or decreases from suppliers.
Periodicity Assumption
Separates financial information into time periods for reporting purposes
All of the following statements regarding the financial statement presentation of receivables are true except:
Short-term receivables are reported above the short-term investments in the balance sheet.
Journal
Shows the debit and credit effects of specific transactions.
Verification of a business transaction is best obtained from:
Source documents
Tracks the actual physical flow for each inventory item available for sale
Specific identification method
Which financial statement provides users the best information to answer "What is the company's policy towards dividends and growth?"
Statement of Retained Earnings
Which of the following financial statements cover a period of time? (Select all that apply)
Statement of Retained Earnings Income statement Statement of Cash Flows Balance Sheet
41. The basic formula for computing interest on an interest-bearing note is face value of note x annual interest rate x time in terms of one year = interest.
T
12. Inventory methods such as FIFO and LIFO deal more with flow of costs than with flow of goods.
T
23. A company may use more than one inventory cost flow method at the same time.
T
(T or F) Recording depreciation each period is an application of the matching principle.
T
(T or F) The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.
T
(T or F) When a change in estimate is made, there is no correction of previously recorded depreciation expense.
T
*42. When the average cost method is applied to a perpetual inventory system, a moving average cost per unit is computed with each purchase.
T
*44. An error that overstates the ending inventory will also cause net income for the period to be overstated.
T
10. Goods held on consignment should be included in the consignor's ending inventory.
T
13. Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.
T
14. If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.
T
14. If prices never changed there would be no need for alternative inventory methods.
T
15. The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.
T
16. Under the accounts receivable aging method, the balance in Allowance for Doubtful Accounts must be considered carefully prior to adjusting for estimated uncollectible accounts.
T
17. The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.
T
17. Under the direct write-off method, no attempt is made to match bad debt expense to sales revenues in the same accounting period.
T
2. A manufacturer's inventory consists of raw materials, work in process, and finished goods.
T
2. Trade receivables can be an account receivable or a note receivable.
T
20. Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet.
T
20. If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions.
T
21. If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.
T
22. If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the LIFO and FIFO inventory methods.
T
24. Bad debt losses are a cost of selling on credit.
T
26. In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO.
T
27. The direct write-off method of recognizing uncollectible accounts is not in accordance with good accounting practice.
T
28. If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.
T
29. A major criticism of the FIFO inventory method is that it magnifies the effects of the business cycle on business income.
T
29. When using the allowance method year-end adjustments for bad debt expense must be made.
T
3. Other receivables include non-trade receivables such as loans to company officers.
T
31. The LIFO inventory method tends to smooth out the peaks and valleys of a business cycle.
T
31. Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.
T
33. When an account receivable that was previously written off is collected, it is first necessary to reverse the entry to reinstate the customer's account before recording the collection.
T
34. A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.
T
34. The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.
T
38. An inventory turnover that is too high may indicate that the company is losing sales opportunities because of inventory shortages.
T
40. Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 × 0.10 × 6/12.
T
43. A dishonored note is a note that is not paid in full at maturity.
T
45. The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Revenue.
T
46. Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the balance sheet.
T
49. A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company.
T
5. Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.
T
5. Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.
T
50. If a company has significant concentrations of credit risk, it must discuss this risk in the notes to its financial statements.
T
52. The average collection period is frequently used to assess the effectiveness of a company's credit and collection policies.
T
53. A factor buys receivables from businesses for a fee and collects the payment directly from customers.
T
8. Under a periodic inventory system, the merchandise on hand at the end of the period is determined by a physical count of the inventory.
T
9. Consigned goods are held for sale by one party although ownership of the goods is retained by another party.
T
Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?
The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
Solvency
The ability of a company to pay interest as it comes due and to repay the balance of a debt due at its maturity.
Liquidity
The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.
Securities and Exchange Commission (SEC)
The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.
Operating Cycle
The average time required to purchase inventory, sell it on account, and then collect cash from customers—that is, go from cash to cash.
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?
The company purchased another company.
Working Capital
The difference between the amounts of current assets and current liabilities.
Which of the following is the most appropriate definition of accounting?
The information system that identifies, records, and communicates the economic events of an organization to interested users.
As a recent graduate of State University you're aware that IFRS requires component depreciation for plant assets. A friend has asked you to succinctly explain what component depreciation means. Which of the following correctly describes component depreciation?
The method that requires that significant parts of a plant asset with different useful lives be depreciated separately.
Cash net realizable value
The net amount expected to be received in cash.
Financial Accounting Standards Board (FASB)
The primary accounting standard-setting body in the United States.
Relevance
The quality of information that indicates the information makes a difference in a decision.
Verifiable
The quality of information that occurs when independent observers, using the same methods, obtain similar results.
Normal Account Balance
The side which increases an account.
a debit balance in the allowance for doubtful accounts, what does it indicate about bad debt write offs? AKA They have exceeded or are less than what was estimated.
They have exceeded what is estimated
The header of a financial statement must include:
Time frame of the financial statement
When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory?
To check the accuracy of the perpetual inventory records
Leverage
Total Assets/Total Equity Higher ratio indicates greater leverage. Ratio changes with the financing.
Debt to Equity Ratio
Total Debt/Total Equity Leverage ratio that indicates the amount of debt per dollar of equity.
Debt Ratio
Total Liabilities/Total Assets Leverage ratio that indicates the proportion of a company's assets that it has financed with debt.
Posting
Transferring journal entries to ledger accounts. Accumulates the effects of journalized transactions in the individual accounts.
A balance sheet is a good source to measure the liquidity of a business. A. true B. false
True
A business may use the periodic or perpetual inventory systems for different types of inventory. A. true B. false
True
A company with a current ratio of 1.5 is considered more liquid than one with a current ratio of 1 A. True B. False
True
A company's acceptance of credits cards, like Visa, is an example of factoring without recourse. A. True B. False
True
A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors A. True B. False
True
A limitation of using industry norms in financial performance evaluation is that some companies in the same industry may not be comparable A. True B. False
True
A trial balance does not prove that all transactions have been recorded or that the ledger is correct.
True
Accounting communicates financial information about a business to both internal and external users.
True
All publicly traded U.S. companies must provide their stockholders with an annual report each year.
True
An adjusting entry always involves a balance sheet account and an income statement ac-count.
True
An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual inventory system. A. true B. false
True
An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.
True
An increase in an asset is recorded by a debit.
True
An inventory turnover that is too high may indicate that the company is losing sales opportunities because of inventory shortages.
True
Assets are resources owned by a business and provide future services or benefits to the business.
True
Determining the percentage change in an item from one year to the next is a type of horizontal analysis. A. True B. False
True
During periods of consistently falling prices, the LIFO inventory method will produce the highest possible amount of net income. A. True B. False
True
Economic events that require recording in the financial statements are called accounting transactions.
True
Generally accepted accounting principles are rules and practices that are recognized as a general guide for financial reporting purposes.
True
If a revenue account is credited, the revenue account is increased.
True
In a common-size income statement, each item is expressed as a percentage of net revenues A. True B. False
True
Investors can access historical and projected financial information using the SEC and company based websites? A. True B. False
True
It is possible for horizontal analysis to indicate a decrease in revenues from one year to another and an increase in net income A. True B. False
True
Providing financial information that is useful to present and potential equity investors, lenders, and other creditors in decision making is the objective of financial reporting. A. True B. False
True
Taking a physical inventory refers to making a count of all merchandise on hand at a particular time. A. true B. false
True
The accounting information needs and questions of external users vary considerably.
True
The balance sheet reports assets and claims to those assets at a specific point in time.
True
The debt to assets ratio measures the percentage of assets financed by creditors.
True
The only accounts that are closed are temporary accounts.
True
The portion of cost of goods available for sale that is not assigned to ending inventory is assigned to cost of goods sold. A. True B. False
True
The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash
True
The single-step and multistep income statements result in the same net income figures. A. True B. False
True
When the cost of inventory is written down due to a market decline, a loss must be recorded. A. True B. False
True
Without an adjusting entry for accrued interest expense, liabilities and interest expense are understated, and net income and stockholders' equity are overstated.
True
How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method?
Under the direct write-off method, bad debt losses are not estimated and no allowance account is used. When an account is determined to be uncollectible, the loss is debited to Bad Debt Expense and credited to Accounts Receivable. The direct write-off method makes no attempt to match bad debts expense to revenues or to show the cash realizable value of the receivables in the balance sheet.
What is the primary criterion by which accounting information can be judged?
Usefulness for decision making
what is the maturity date?
When the loan is due to be repaid in full.
Materiality
Whether an item is large enough to likely influence the decision of an investor or creditor. Requires that accounting standards be followed for all items of significant size
Which of the following statements is true regarding IFRS and inventories? IFRS permits the option of valuing inventories at fair value. GAAP and IFRS permit the use of the same inventory cost flow assumptions. IFRS allows inventory to be written up above its original cost. With respect to inventories, IFRS defines market as net realizable value.
With respect to inventories, IFRS defines market as net realizable value
Goods that are only partially completed in a manufacturing company
Work in process
Working Capital Calculation
Working Capital = Current Assets - Current Liabilities
The higher the inventory turnover, the lower the days' inventory on hand. A. Yes B. No
Yes
A trial balance will not balance if
a $50 cash dividend is debited to dividends for $500 and credited to cash for $50.
Independent internal verification of the physical inventory process occurs when
a second employee counts the inventory and compares the result to the count made by the first employee.
Which of the following is not an example of a source document that provides evidence of a transaction?
a trial balance
promissory note
a written promise to pay a specified amount of money on demand or at a definite time issued when: 1. individuals and companies lend or borrow money 2. when amount of transaction and credit period exceed normal limits 3. in settlement of accounts receivable
A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $290 and used FIFO costing, the gross profit for the period would be
a. $115. Solution: $290 − ($80 + $95) = $115
The average days to sell inventory is computed by dividing a. 365 days by the inventory turnover. b. the inventory turnover by 365 days. c. net sales by the inventory turnover. d. 365 days by cost of goods sold.
a. 365 days by the inventory turnover.
Which of the following is not required when using the retail inventory method? a. All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price. b. A record of the total cost and retail value of the goods purchased. c. A record of the total cost and retail value of the goods available for sale. d. Total sales amount for the period.
a. All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price.
What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method? a. Increases the cost-to-retail ratio. b. No effect on the cost-to-retail ratio. c. Depends on the amount of the net markups. d. Decreases the cost-to-retail ratio.
a. Increases the cost-to-retail ratio.
Which of the following is not an acceptable approach in applying the lower-of-cost-and net realizable value method to inventory? a. Inventory location. b. Categories of inventory items. c. Individual item. d. Total of the inventory.
a. Inventory location.
What condition is not necessary in order to use the retail method to provide inventory results? a. Retailer keeps a record of the total costs of products sold for the period. b. Retailer keeps a record of the total costs and retail value of goods purchased. c. Retailer keeps a record of the total costs and retail value of goods available for sale. d. Retailer keeps a record of sales for the period.
a. Retailer keeps a record of the total costs of products sold for the period.
How is the gross profit method used as it relates to inventory valuation? a. Verify the accuracy of the perpetual inventory records. b. Verify the accuracy of the physical inventory. c. To estimate cost of goods sold. d. To provide an inventory value of LIFO inventories.
a. Verify the accuracy of the perpetual inventory records.
Why might inventory be reported at sales prices (net realizable value or market price) rather than cost? a. When there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal. b. When there are no significant costs of disposal. c. When a non-cancellable contract exists to sell the inventory. d. When there is a controlled market with a quoted price applicable to all quantities.
a. When there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal.
Lower-of-cost or net realizable value as it applies to inventory is best described as the a. drop of future utility below its original cost. b. method of determining cost of goods sold. c. assumption to determine inventory flow. d. change in inventory value to market value.
a. drop of future utility below its original cost.
The retail inventory method is based on the assumption that the a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. b. ratio of gross margin to sales is approximately the same each period. c. ratio of cost to retail changes at a constant rate. d. proportions of markups and markdowns to selling price are the same.
a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods.
The term "FOB" denotes
a. free on board.
To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should a. include markups but not markdowns. b. include markups and markdowns. c. ignore both markups and markdowns. d. include markdowns but not markups.
a. include markups but not markdowns.
The designated market value a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin. b. should always be equal to net realizable value. c. may sometimes exceed net realizable value. d. should always be equal to net realizable value less a normal profit margin.
a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin
If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is a. net realizable value. b. original cost. c. market value. d. net realizable value less a normal profit margin.
a. net realizable value.
Goods held on consignment are
a. never owned by the consignee.
A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is
a. the FIFO method.
In hedging, the purchaser in the purchase commitment simultaneously enters into a contract in which it agrees to sell in the future: a. the same quantity of the same goods at a fixed price. b. a higher quantity of the same goods at a higher price. c. a lower quantity of the same goods at a fixed price. d. same quantity of different goods at a lower price.
a. the same quantity of the same goods at a fixed price.
If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices, a. this fact must be disclosed. b. disclosure is required only if prices have declined since the date of the order. c. disclosure is required only if prices have since risen substantially. d. an appropriation of retained earnings is necessary.
a. this fact must be disclosed.
honor of notes receivable
accepting an interest rate cash XXX notes receivable XXX interest revenue XXX ($$$) x (%) x (terms in year)
when an account becomes uncollectable and must be written off, what happens to accounts receivable? what happens to allowance?
accounts receivable is credited allowances are debited
The average collection period for receivables is computed by dividing 365 days by average accounts receivable. accounts receivable turnover. ending accounts receivable. net credit sales.
accounts receivable turnover.
accrual of interest receivable
accrued interest paid @ maturity date interest receivable XXX interest revenue XXX ($$$) x (%) x (terms in year)
specific identification
actual physical flow costing method in which items still in inventory are specifically identified and costed to arrive at the total cost of the ending inventory relatively rare use most companies make cost-flow assumptions about which units were sold
Under the allowance method, writing off an uncollectible account
affects only balance sheet accounts.
land
all necessary costs incurred in making land ready for its intended use increase the land account (debit) costs typically include: 1. cash purchase price 2. closing costs such as a title and attorney's fees 3. real estate broker's commissions 4. accrued property taxes and other liens on the land assumed by the purchaser
Current liabilities include: a. obligations to be paid within the coming year. b. accounts payable. c. wages payable. d. all of the above
all of the above
Inventory may be recorded at net realizable value if there is a controlled market with a quoted price. there are no significant costs of disposal. the inventory or products are available for immediate delivery. all of these answer choices are correct.
all of these answer choices are correct.
average cost
allocates cost of goods available for sale on the basis of weighted-average unit cost incurred applies weighted-average unit cost to the units on hand to determine cost of the ending inventory
net realizable value
amount company actually expects to collect
Under the allowance method, Bad Debt Expense is recorded for several times during the accounting period. when an individual account is written off. when the loss amount is known. for an amount that the company estimates it will not collect.
amount that company estimates it will not collect.
accounts receivable
amounts customers owe on account that result from the sale of goods and services
Inventory errors affect computation of cost of goods sold and net come in two periods
an error in inventory of the current period will have a reverse effect on net income of the next accounting period over two years, the total net income is correct because the errors offset each other (second is exact opposite) ending inventory depends entirely on the accuracy of taking and costing the inventory
In computing depreciation, salvage value is an estimate of a plant asset's value at the end of its useful life. subtracted from accumulated depreciation to determine the plant asset's depreciable cost. the fair value of a plant asset on the date of acquisition. ignored in all the depreciation methods.
an estimate of a plant asset's value at the end of its useful life.
The first step in the recording process is to
analyze the transaction in terms of its effect on the accounts.
The first step in the recording process is to A) prepare financial statements. B) analyze the transaction in terms of its effect on the accounts. C) post to a journal. D) prepare a trial balance.
analyze the transaction in terms of its effect on the accounts.
The usual sequence of steps in the transaction recording process is
analyze, journalize, post to the ledger.
Factoring arrangements
are ways to accelerate receivable collections.
The book value of an asset is equal to the
asset's cost less accumulated depreciation.
The book value of an asset is equal to the asset's fair value less its historical cost. blue book value relied on by secondary markets. asset's cost less accumulated depreciation. replacement cost of the asset.
asset's cost less accumulated depreciation.
Resources owned by a business and used in carrying out its operating activities are: a. liabilities. b. stockholders' equity. c. revenues. d. assets.
assets
ending inventory overstated, Assets ___ , liabilities ___, and stockholder's equity ___.
assets overstated, liabilities no effect stockholder's equity overstated
ending inventory understated, Assets ___ , liabilities ___, and stockholder's equity ___.
assets understated liabilities no effect stockholder's equity understated
Accounts that normally have debit balances are:
assets, dividends, and expenses
Accounts receivable are valued and reported on the balance sheet
at cash realizable value
Accounts receivable are valued and reported on the balance sheet a)in the investment section. b) at gross amounts less sales returns and allowances. c) at cash realizable value. d)only if they are not past due.
at cash realizable value
FOB shipping point
at the point of inventory, transportation ownership=when buyer accepts inventory at transportation beginning
companies most likely to use perpetual
automobile dealerships, equipment supply companies, and other companies selling products having a high unit-value. With automation, perpetual systems are becoming increasingly cost-effective.
The inventory turnover ratio is computed by dividing the cost of goods sold by number of days in the year. average inventory. ending inventory. beginning inventory.
average inventory.
Q 9.7: If a plant asset is retired before it is fully depreciated and no salvage value is received, a _____ on disposal occurs. a) gain b) loss
b) loss
Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31?
b. (1) and (4)
Many companies use just-in-time inventory methods. Which of the following is not an advantage of this method?
b. Companies may not have quantities to meet customer demand.
Which of the following inventory costing methods most often parallels the physical flow of goods?
b. FIFO
Which of the following is not a common disclosure for inventories? a. Inventory composition. b. Inventory location. c. Inventory financing arrangements. d. Inventory costing methods employed.
b. Inventory location.
Which statement is true about the gross profit method of inventory valuation? a. It may be used to estimate inventories for annual statements. b. It may be used to estimate inventories for interim statements. c. It eliminates the need for physical inventories. d. When calculated on selling price, it will always be more than the related percentage based on cost.
b. It may be used to estimate inventories for interim statements.
When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value c. Historical cost d. Net realizable value reduced by a normal profit margin
b. Net realizable value
Which of the following statements is false regarding an assumption of inventory cost flow? a. The cost flow assumption need not correspond to the actual physical flow of goods. b. The assumption selected may be changed each accounting period. c. The FIFO assumption uses the earliest acquired prices to cost the items sold during a period. d. The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an accounting period.
b. The assumption selected may be changed each accounting period.
In 2017, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2018 for $700,000. Before the December 31, 2017 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2017 will result in a credit that should be reported a. as a valuation account to Inventory on the balance sheet. b. as a current liability. c. as an appropriation of retained earnings. d. on the income statement.
b. as a current liability.
In no case can "market" in the lower-of-cost-or-market rule be more than a. estimated selling price in the ordinary course of business. b. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal. c. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. d. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.
b. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal.
When calculating the cost ratio for the retail inventory method, a. if it is the conventional method, the beginning inventory is included and markdowns are deducted. b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted. c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted. d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.
b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted.
The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the a. net realizable value. b. net realizable value less normal profit margin. c. replacement cost. d. selling price less costs of completion and disposal.
b. net realizable value less normal profit margin.
The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the a. net realizable value. b. net realizable value less the normal profit margin. c. replacement cost. d. original cost.
b. net realizable value less the normal profit margin.
When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because a. there may be no markdowns in a given year. b. this tends to give a better approximation of the lower of cost or market. c. markups are also ignored. d. this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
b. this tends to give a better approximation of the lower of cost or market.
Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value a. when it is below the net realizable value less the normal profit margin. b. when it is below the net realizable value and above the net realizable value less the normal profit margin. c. when it is above the net realizable value. d. regardless of net realizable value.
b. when it is below the net realizable value and above the net realizable value less the normal profit margin.
direct write-off method for uncollectible accounts
bad debt expense XXX accounts receivable- cust. name XXX theoretically undesirable because: no matching receivable not stated at cash realizable value not acceptable for financial reporting
preparing adjusting entry assuming xxx is the estimate of uncollectible receivables from aging schedule
bad debt expense XXX allowance for doubtful accounts XXX
The financial statement which presents a picture at a point in time of what a business owns and owes is : a. income statement. b. retained earnings statement. c. balance sheet. d. statement of cash flows
balance sheet
cost of goods available for sale
beginning inventory+cost of goods purchased
Management should select the depreciation method that
best measures the plant asset's contribution to revenue over its useful life.
Comstock Company provided consulting services and billed the client $2,500. As a result of this event A) assets remained unchanged. B) assets increased by $2,500. C) equity increased by $2,500 D) Both b and c.
both assets and equity
Powers Corporation received a cash advance of $500 from a customer. As a result of this event, A) assets increased by $500. B) equity increased by $500. C) liabilities increased by $500. D) Both a and c)
both assets and liability
In exchanged of assets in which the exchange had commercial substance
both gains and losses are recognized immediately
Cost of goods purchased is $30,000; ending inventory is$20,000, and cost of goods sold is $60,000. What is beginning inventory?
c. $50,000 Solution: 30,000 -20,000 = 10,000 60,000 - 10,000= 50,000
Net sales are $80,000, cost of goods sold is $30,000, and average inventory is $20,000. The inventory turnover ratio is:
c. 1.50 times,
Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants to maintain a high current ratio. Which inventory costing method should Ace consider using?
c. FIFO
Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic cost of goods sold. Which inventory costing method should Ace consider using?
c. LIFO because cost of goods sold represents the latest costs.
At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.60 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.25, how would this situation be reflected in the annual financial statements? a. Record unrealized gains of $350,000 and disclose the existence of the purchase commitment. b. No impact. c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment. d. Only disclose the existence of the purchase commitment.
c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment.
29. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"? a. Net realizable value b. Net realizable value less a normal profit margin c. Replacement cost, Net realizable value, or Net realizable value less a normal profit margin. d. Discounted present value
c. Replacement cost, Net realizable value, or Net realizable value less a normal profit margin.
Which of the following is true of normal shortages? a. They do not include theft and shrinkage. b. They are deducted from both the cost and retail columns. c. These goods are no longer available for sale. d. This loss is considered in calculating cost-to-retail ratio.
c. These goods are no longer available for sale.
Why are inventories stated at lower-of-cost and net realizable value? a. To report a loss when there is a decrease in the future utility. b. To keep track of the market value of the inventory. c. To report a loss when there is a decrease in the future utility below the original cost. d. To permit future profits to be recognized.
c. To report a loss when there is a decrease in the future utility below the original cost.
The consistent application of an inventory costing method enhances
c. comparability.
An inventory method which is designed to approximate inventory valuation at the lower of cost or market is a. last-in, first-out. b. first-in, first-out. c. conventional retail method. d. specific identification.
c. conventional retail method.
Lower-of-cost-or-market a. is most conservative if applied to the total inventory. b. is most conservative if applied to major categories of inventory. c. is most conservative if applied to individual items of inventory. d. must be applied to major categories for taxes.
c. is most conservative if applied to individual items of inventory.
When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by a. last year's cost ratio and this year's index. b. this year's cost ratio and this year's index. c. last year's cost ratio and last year's index. d. this year's cost ratio and last year's index.
c. last year's cost ratio and last year's index.
Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and a. the ending inventory is determined by a physical inventory count. b. a normal profit is not anticipated. c. there is a controlled market with a quoted price applicable to all quantities. d. the internal revenue service is assured that the practice is not used only to distort reported net income.
c. there is a controlled market with a quoted price applicable to all quantities.
All leases are classified as either
capital leases or operating leases
accrual of interest honoring on note on date
cash XXX notes receivable XXX interest receivable XXX interest revenue XXX
sale of receivables to a factor
cash XXX service charge expense XXX Accounts recieable XXX
national credit card sales
cash XXX service charge expense XXX sales revenue XXX
The operating cycle of a company is the average time that is required to go from cash to
cash in producing revenues.
cost
cash paid in a cash transaction or the cash equivalent price paid
The net amount expected to be received in cash from receivables is termed the
cash realizable value.
Accounts receivable are valued and reported on the balance sheet at
cash value
In the lower of cost or market rule, net realizable value is referred to as the: current market. wall. ceiling. floor.
ceiling
Receivables are
claims that are expected to be collected in cash.
flow of costs periodic system
companies do not keep detailed inventory records of the goods on hand throughout the period Cost of goods sold determined periodically, at the end of each accounting period
flow of costs perpetual system
companies maintain detailed records of the cost of each inventory purchase and sale. Cost of goods sold determined each time a good is sold
FIFO
consistent with physical flow of costs cost of earliest goods purchased are first to be recognized in determining cost of goods sold determine cost of ending inventory by taking the unit cost of the most recent purchase and working backward until all units of inventory have been costed produces higher net income, higher bonus and higher tax expenses
sales returns and allowances is a
contra revenue account
franchises
contractual agreement between franchisor and franchisee franchise/license with limited life should amortized to expense over the life of franchise franchise with an indefinite life should be carried at a cost and not amortized
factors in computing depreciation
cost useful life- estimated useful life to business salvage value- estimate @ end of useful life
Depreciation is the process of
cost allocation
capital expenditure
cost included in a plant asset account must be added to the asset account changes depreciation for future periods
inventory is accounted for at a cost because
cost includes all expenditures necessary to acquire goods and place them in a condition ready for sale
revenue expenditure
cost incurred to acquire a plant asset that are expensed immediately only benefits current period
The method of recording inventory at net realizable cost that substitutes the net realizable cost for the historical cost and reports the loss as a part of cost of goods sold is the: gross profit method. cost of goods sold method. replacement method. loss method.
cost of goods sold method.
record merchandise transactions (periodic)
cost of merchandise sold on date of sale physical inventory count determines cost of merchandise on hand and cost of merchandise sold within the period recorded in purchases account
Capital expenditures
costs included in a plant asset account.
Revenue expenditure
costs incurred to acquire a plant asset that are expensed immediately.
company pays balance due within discount period
credit A/P debit- reduced inventory (multiply amount by discount) debit- remaining cash
failed to make discount
credit A/P full amount debit cash full amount
Lantz Company issued 10000 shares of stock at a stated value of $10/share. The total issue of stock sold for $15/share. The journal entry to record this transaction would include a credit to Paid-in Capital in Excess of Par Value for $50000. debit to Cash for $100000. credit to Common Stock for $150000. credit to Common Stock for $100000.
credit to Common Stock for $100000.
a company receives $132, of which $12 is for sales tax. The journal entry to record the sale would include a a) debit to Sales Tax Expense for $12 b) credit to Sales Tax Payable for $12 c) debit to Sales for $132 d) debit to Cash for $120
credit to Sales Tax Payable for $12
A company receives $264, of which $24 is for sales tax. The journal entry to record the sale would include a
credit to Sales Taxes Payable for $24.
When there is a change in estimated depreciation
current and future years' depreciation should be revised.
What does it mean to age the accounts receivable?
customer balances are classified by the length of time they have been unpaid.
At December 31, 2014 Mohling Company's inventory records indicated a balance of $602,000. Upon further investigation it was determined that this amount included the following: $112,000 in inventory purchases made by Mohling shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd $74,000 in goods sold by Mohling with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6th. $6,000 of goods received on consignment from Dollywood Company What is Mohling's correct ending inventory balance at December 31, 2014?
d. $484,000 Solution: $602,000 - $112,000 - $6,000 = $484,000
Beginning inventory is $30,000; ending inventory is $25,000, and cost of goods purchased is $45,000. What is cost of goods sold?
d. $50,000 Solution: 30,000+45,000 - 25,000
Net sales are $200,000, cost of goods sold is $90,000, and average inventory is $30,000. Days in inventory are:
d. 121.7 (rounded).
Which method(s) may be used to record a loss due to a price decline in the value of inventory? a. The cost-of-goods-sold method. b. The sales method. c. The loss method d. Both the cost-of-goods-sold method and the loss method.
d. Both the cost-of-goods-sold method and the loss method.
What is the effect of net markups on the cost-retail ratio when using the conventional retail method? a. Increases the cost-to-retail ratio. b. No effect on the cost-to-retail ratio. c. Depends on the amount of the net markdowns. d. Decreases the cost-to-retail ratio.
d. Decreases the cost-to-retail ratio.
Which of the following statements regarding the recording of inventory at net realizable value is inaccurate? a. GAAP permits recording of inventory at net realizable value when there is a controlled market with a quoted price applicable to all quantities. b. GAAP permits net realizable value for inventory when there are no significant costs of disposal involved. c. GAAP permits net realizable value in cases where the product is available for immediate delivery. d. GAAP is not similar to IFRS regarding the use of net realizable values for agricultural and mineral products.
d. GAAP is not similar to IFRS regarding the use of net realizable values for agricultural and mineral products.
An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true? a. The cost of sales of the following year will be understated. b. The current year's income is understated. c. The closing inventory of the current year is understated. d. Income of the following year will be understated.
d. Income of the following year will be understated.
Which of the following accounts is credited in the loss method of writing-down of inventory to its net realizable value? a. Allowance to Reduce Inventory to NRV b. Loss Due to Decline of Inventory to NRV c. Cost of Goods Sold d. Inventory
d. Inventory
Which of the following statements is incorrect regarding the lower-of-cost-or-market rule? a. It is inconsistent because losses are recognized but not gains. b. It usually understates assets. c. It can increase future income if the expected reductions do not materialize. d. It incorporates both gains and losses in value that occur during the course of business.
d. It incorporates both gains and losses in value that occur during the course of business.
At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements? a. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment. b. No impact. c. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment. d. Only disclose the existence of the purchase commitment.
d. Only disclose the existence of the purchase commitment.
What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory? a. Prevents understatement of the inventory value. b. Allows for a normal profit to be earned. c. Allows for items to be valued at replacement cost. d. Prevents overstatement of the value of obsolete or damaged inventories.
d. Prevents overstatement of the value of obsolete or damaged inventories.
Which of the following is not a basic assumption of the gross profit method? a. The beginning inventory plus the purchases equal total goods to be accounted for. b. Goods not sold must be on hand. c. If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand. d. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
d. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
Which statement is true about the retail inventory method? a. It may not be used to estimate inventories for interim statements. b. It may not be used to expedite physical inventory counts. c. It may not be used by auditors. d. There are different versions of the retail inventory method.
d. There are different versions of the retail inventory method.
Which of the following is not a reason the retail inventory method is used widely? a. As a control measure in determining inventory shortages b. For insurance information c. To permit the computation of net income without a physical count of inventory d. To defer income tax liability
d. To defer income tax liability
The gross profit method of inventory valuation is invalid when a. a portion of the inventory is destroyed. b. there is a substantial increase in inventory during the year. c. there is no beginning inventory because it is the first year of operation. d. applying a blanket gross profit rate to merchandise that have widely varying rates of gross profit.
d. applying a blanket gross profit rate to merchandise that have widely varying rates of gross profit.
A major advantage of the retail inventory method is that it a. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. b. hides costs from competitors and customers. c. gives a more accurate statement of inventory costs than other methods. d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
Net realizable value is a. acquisition cost plus costs to complete and sell. b. selling price. c. selling price plus costs to complete and sell. d. selling price less costs to complete, sell, and transport
d. selling price less costs to complete, sell, and transport
When the cost-of-goods-sold method is used to record inventory at net realizable value a. there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale. b. a loss is recorded directly in the inventory account by crediting Inventory and debiting Loss on Inventory Decline. c. only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements. d. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.
d. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.
The reason for eliminating the price change in inventory is: a. to measure the dollar increase in inventory. b. to inflate profits of a company. c. to increase the cost of inventory. d. to measure the real increase in inventory.
d. to measure the real increase in inventory.
Bonds that are issued against the general credit of the borrower are called
debenture bonds
return goods accounts
debit Accounts Payable credit inventory
dishonor of a note receivable journal entries
debit accounts receivable credit notes receivable
Allowance Method Write Off
debit allowance for doubtful accounts credit accounts receivable
How do you journal a direct write off?
debit bad debt expense credit accounts receivable
What an estimated uncollectables, what do you debit and credit?
debit bad debt expense credit allowance for doubtful account
How do you journal estimated allowance method?
debit bad debt expense credit allowance for doubtful accounts
seller to pay freight charges
debit freight-out and credit cash
An aging of a company's accounts receivable indicates that $9000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $2400 debit balance, the adjustment to record bad debts for the period will require a credit to Allowance for Doubtful Accounts for $9000. debit to Bad Debt Expense for $11400. debit to Bad Debt Expense for $9000. debit to Allowance for Doubtful Accounts for $11400.
debit to Bad Debt Expense for $11400.
An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $3,200 debit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debt Expense for $12,200.
An aging of a company's accounts receivable indicates that $9000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $3200 debit balance, the adjustment to record bad debts for the period will require a debit to Bad Debt Expense for $9000. debit to Bad Debt Expense for $5800. credit to Allowance for Doubtful Accounts for $9000. debit to Bad Debt Expense for $12200.
debit to Bad Debt Expense for $12200.
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debt Expense for $3,300.
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debt Expense for $6,100.
An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $2,400 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debt Expense for $6,600. Solution: $9,000 - $2,400 = $6,600 (Est. Uncoll. accts. - ADA bal.)
Gomez Corporation issues 900, 10-year, 8%, $1,000 bonds dated January 1, 2017, at 96. The journal entry to record the issuance will show a
debit to Cash for $864,000.
The following totals for the month of April were taken from the payroll records of Metz Company. Salaries $90,000 FICA taxes withheld 6,885 Income taxes withheld 19,800 Medical insurance deductions 3,600 Federal unemployment taxes 720 State unemployment taxes 4,500 The journal entry to record the monthly payroll on April 30 would include a
debit to Salaries and Wages Expense for $90,000.
perpetual inventory system for freight charges
debits inventory and credits cash
The declining-balance method of depreciation produces a(n) increasing depreciation expense each period. constant amount of depreciation expense each period. decreasing depreciation expense each period. declining percentage rate each period
decreasing depreciation expense each period
In the balance sheet, the account Discount on Bonds Payable is
deducted from bonds payable
The term applied to the periodic expiration of a plant asset's cost is
depreciation
All of the following statements are false regarding depreciation except
depreciation does not apply to land.
Double-decline balance (DDB)
depreciation exp = (cost - accum depre)/useful life x 2 Does NOT use residual value (salvage value) but depreciation stops when residual value has been reached. * reduce EBIT, NI, Assets, Equity and decrease ROA & ROE Accelerated method. Decreasing annual depreciation expense over the asset's useful life. Double declining-balance rate is double the straight-line rate. Rate applied to book value.
The primary difference between a periodic and perpetual inventory system is that a periodic system
determines the inventory on hand only at the end of the accounting period.
LIFO reserve
difference between inventory reported using LIFO and inventory using FIFO can have significant effect on ratio analysts commonly use Ignoring a large LIFO reserve when analyzing a company can distort any comparisons that an analyst might try to make with a company's competitors that used FIFO.
What are the two methods for bad debt expense?
direct write off and allowance method.
What is the difference between the two methods?
direct write off: writes off the debt once it becomes certain the amount will not be collected & Allowance method: records an expense to bad debt using an estimate of accounts unlikely to be accounted
a cost-flow assumption does not
does not need to be consistent with the physical movement of goods
In a perpetual inventory system, cost of goods sold is recorded
each time a sale occurs.
The lower limit (floor) for inventory valuation is defined as the selling price less: a normal profit margin. estimated costs of completion and disposal. estimated costs of completion and disposal (net realizable value) less a normal profit margin. the net realizable value.
estimated costs of completion and disposal (net realizable value) less a normal profit margin.
In no case can "market" in the lower-of-cost-or-market rule be more than estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. estimated selling price in the ordinary course of business.
estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.
percentage-of-sales method
estimates bad debt expense directly allows associated allowance account to contain whatever balance results find net sales (revenue-returns) x (% industry ave)= XXX bad debt expense XXX allowance for bad debt XXX
patents
exclusive right to manufacture, sell or otherwise control an invention for a period of 20 years from the date of grant capitalize costs of purchasing a patent and amortize over its 20-year life or useful life, whichever is shorter expense any R&D costs in developing a patent legal fees incurred successfully defending a patent are capitalized to Patent account
A current asset is
expected to be converted to cash or used in the business within one year or one operating cycle, whichever is longer.
very often, failure to record a liability means the failure to record a(n) a) revenue b) asset conversion c) footnote d) expense
expense
Recording depreciation each period is necessary in accordance with the
expense recognition principle.
if a company fails to record estimated bad debt expense, are expenses understated of overstated?
expenses are understated
If a company fails to record estimated bad debts expense,
expenses are understated.
If a company fails to record estimated bad debts expense, expenses are understated. cash realizable value is understated. revenues are understated receivables are understated.
expenses are understates
How do you compute interest?
face value of note * annual interest rate * time in terms of one year = interest
computing interest
face value of note X Annual Interest Rate X time in terms of one year= interest
Inventory Errors
failure to count of price inventory correctly not properly recognizing the transfer or legal title to goods in transit effect both income statement and balance sheet
Exchange has commercial substance
fair value + cash paid
cash equivalent price
fair value of the asset given up or fair value of the asset received whichever is more clearly determinable
A company that factors its receivables will have a less favorable receivable turnover than a company that does not factor. A. true B. false
false
A debit to an account always indicates an increase in that account. True False
false
Accounts receivable are the result of cash and credit sales. A) True B) False
false
Accrued revenues are revenues that have been received but not yet earned. True False
false
Accumulated Depreciation is a liability account and has a credit normal account balance. True False
false
Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal. True False
false
All business transactions must be entered first in the general ledger. True False
false
Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible. True B) False
false
An adjusting entry always involves two balance sheet accounts. A) True B) False
false
Debit and credit can be interpreted to mean "bad" and "good" respectively. True False
false
The normal balance of all accounts is a debit. A) True B) False
false
The normal balance of the dividend account is a credit. A) True B) False
false
The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debt adjusting entry is recorded. True B) False
false
When using the allowance method bad debt expense is recorded when an individual customer defaults. True B) False
false
a current liability must be paid out of current earnings . true or false?
false
if any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liablity . true or false
false
Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales. True B) False
false from accounts receivables
The Allowance for Doubtful Accounts is a liability account. True B) False
false its a contra asset account
In computing the maturity date of a note, the date the note is issued is included but the due date is omitted. True B) False
false the date the note is issued is omitted but the due date is included
during the month , a company sells goods for a total of $106000, which includes sales tax ,of $6000, therefore the company should recognize 100000 in sales revenues and $6000 in Sales tax and expense
false... if it said payable it would be true ...
Under the allowance method, Bad Debt Expense is recorded
for an amount that the company estimates it will not collect.
The common characteristic possessed by all assets is
future economic benefit.
The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their replacement cost will be more than their net realizable value. selling price will be less than their replacement cost. future utility will be less than their cost. cost will be less than their replacement cost.
future utility will be less than their cost.
Equipment that cost $90000 and on which $50000 of accumulated depreciation has been recorded was disposed of for $45000 cash. The entry to record this event would include a
gain of $5000.
Equipment that cost $90000 and on which $50000 of accumulated depreciation has been recorded was disposed of for $45000 cash. The entry to record this event would include a credit to Accumulated Depreciation for $15000. credit to the Equipment account for $15000. gain of $5000. loss of $5000.
gain of 5000
A machine costing $176,000 was destroyed when it caught fire. At the date of the fire, the accumulated depreciation on the machine was $80,000. An insurance check for $200,000 was received based on the replacement cost of the machine. The entry to record the insurance proceeds and the disposition of the machine will include a
gain on disposal of $104,000.
secured bonds
have specific assets of the issuer pledged as collateral for the bonds
LIFO
helps us match and see matching of costs and revenue by expensing the most recent items purchased first. cost of latest goods purchased are first to be recognized in cost of goods sold seldom coincides with actual physical flow of merchandise exceptions include goods stored in piles, such as gold or clay yields lowest net income in periods of rising prices matches current costs to current revenues better, since the most recent purchases are expensed first higher cost of goods sold, and lower income relative to FIFO
The matching rule relates to Accounts Receivable by stating that bad debt expense should be recorded A) in the same period as allowed for tax purposes. B) in the period of the sale. C) for an exact amount. D) in the period of the loss.
in the period of the sale.
buildings
includes all costs directly related to purchase or construction purchase costs: purchase price, closing costs, and real estate broker's commission remodeling and replacing or repairing roof, floors electrical wiring and plumbing construction costs: contract price plus payments for architect's fees, building permits and excavation costs
equipment
includes all costs incurred in acquiring the equipment and preparing it for use costs typically include: cash purchase price sales taxes freight charges insurance during transit paid by purchaser expenditures required in assembling, installing and testing the unit
land improvements
includes all expenditures necessary to make the improvements ready for intended use i.e. driveways, parking lots, fences, landscaping, underground sprinklers limited useful lives expense/depreciate the cost of land improvements over useful lives asset separate from land
goodwill
includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products etc. only recorded when entire business is purchased goodwill is recorded as the excess of purchase price over fair market value internally-created goodwill should not be capitalized
To report the success or failure of the company's operations during the period is the purpose of the: a. income statement. b. retained earnings statement. c. balance sheet. d. statement of cash flows.
income statement
A debit to an asset account indicates a(n) A) error. B) credit was made to a liability account. C) decrease in the asset. D) increase in the asset.
increase in the asset
Lion Company purchased equipment for $45,000, paying cash of $5,000 and signing a note payable for the balance due. This transaction
increases assets and liabilities.
accounting for indefinite-life intangibles
indefinite-life intangibles no foreseeable limit on time the asset is expected to provide cash flows not amortized
return on assets
indicated amount of net income generated by each dollar of asset (net income) / (average total assets)
asset turnover
indicates how efficiently a company uses its assets to generate sales (net sales) / (average total assets)
A debit balance in the Allowance for Doubtful Accounts
indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
In a perpetual inventory system, a return of defective merchandise by ap urchaser is recorded by crediting
inventory
Allowance for Doubtful Accounts on the balance sheet appears under the heading "Other Assets." is deducted from accounts receivable. is offset against total current assets. increases the cash realizable value of accounts receivable.
is deducted from accounts receivable.
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that
is used for tax purposes.
unsecured bonds
issued against the general credit of the borrower
An advantage of the corporate form of business is that
its ownership is easily transferable via the sale of shares of stock.
When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by last year's cost ratio and last year's index. this year's cost ratio and last year's index. last year's cost ratio and this year's index. this year's cost ratio and this year's index.
last year's cost ratio and last year's index.
The purchase of an asset for cash A) increases assets and stockholders' equity. B) increases assets and liabilities. C) decreases assets and increases liabilities. D) leaves total assets unchanged.
leaves assets unchanged
The final step in the recording process is to transfer the journal information to the A) trial balance. B) financial statements. C) ledger. D) file cabinets.
ledger
Accounts that normally have credit balance are:
liabilities, equity, and revenue
The Unearned Service Revenue account is classified as a(n)
liability
The term used to describe a dollar amount to be repaid in the future are: a. creditor b. liability c. revenue. d. expense
liability
accounting for limited-life intangibles
limited-life intangibles amortize to expense (depreciate) credit asset account or accumulated depreciation
Liabilities are classified on the balance sheet as current or a) deferred b) unearned c) long-term d) accrued
long-term
A truck costing $72,000 and on which $60,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a
loss of $12,000.
allowance method
losses are estimated better matching receivable stated at net realizable value required by GAAP
An aircraft company would most likely have a
low inventory turnover.
The periodic inventory system is used most commonly by companies that sell
low-priced, high-volume merchandise.
recording purchases of merchandise perpetual system
made using cash or credit on account normally recorded when goods are recieved from the seller a purchase invoice should support each credit purchase
A decrease in the original sales price of an item is called a: markdown cancellation. markdown. markup. markup cancellation.
markdown
Under GAAP, the expense recognition principle:
matches expenses with revenues in the period when those revenues are earned
Sales revenue
may be recorded before cash is collected.
purchase allowance
may choose to keep the merchandise for reduction % of price
Gross Profit Rate
measures the margin by which selling price exceeds cost of goods sold. (GPR= Gross Profit/Net Sales)
merchandising company
merchandise inventory
The percentage markup on cost can be computed by dividing gross profit on selling price by 100%: plus markup on cost. minus markup on cost. plus gross profit on selling price. minus gross profit on selling price.
minus gross profit on selling price.
Which of the following most likely would be classified as a current liability? a a) dividends payable b) bonds payable in 5 years c) three-year notes payable d) Mortgage payable as a single payment in 10 years
mortgage payable as a single payment in 10 years
Research and development costs
must be expensed when incurred under generally accepted accounting principles.
Laurs Company uses the percentage of receivables method for recording bad debts expense. The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment? A) Bad Debts Expense 10,000 Allowance for Doubtful Accounts 10,000 B) Bad Debts Expense 8,000 Allowance for Doubtful Accounts 8,000 C) Bad Debts Expense 6,000 Allowance for Doubtful Accounts 6,000 D) Bad Debts Expense 12,000 Accounts Receivable 12,000
n/A
partial balance sheet
name date receivables notes accounts other total less: allowance for doubtful accounts =net receivables
The expense recognition
necessitates the recording of an estimated amount for bad debts.
accounts receivable turnover
net credit sales / average net accounts receivable assess liquidity of receivables measure number of times, on average, a company collects receivables during the period (# of times collected)
If the retained earnings account increases from the beginning of the year to the end of the year, then
net income is greater than dividends.
Sprague Associates sold office furniture for $48,000. The furniture had an original cost of $144,000 and accumulated depreciation of $72,000. Ignoring the tax effect, as a result of the sale
net income will decrease $24,000.
profit margin ratio
net income/net sales measures the extent by which selling price covers all expenses including cost of goods sold measures percentage of each dollar of sales that results in net income
Under the conventional retail inventory method, the cost-to-retail ratio includes the retail price of goods available and: markups only. net markups only. net markdowns only. markups and markdowns.
net markups only.
In applying the lower of cost or market rule, the floor is defined as: current replacement cost. net realizable value less a normal profit margin. net realizable value. historical cost.
net realizable value less a normal profit margin.
Inventories of certain minerals and agricultural products are valued at: cost. lower of cost or market. replacement cost. net realizable value.
net realizable value.
accounts receivable turnover
net sales/ (avg. accounts receivable)
How do you get receivable turnover?
net sales/ average account receivable
accounts recievable turnover
net sales/average accounts recievable
retirement of plant assets
no cash recieved decrease (debit) AD for the full amount of depreciation decrease (credit) asset account for original cost of asset
determine cost of goods sold under a periodic system
no running account of changes in inventory ending inventory is determined by physical count cost of goods sold is not determined until the end of the period
other receivables
non trade receivables such as interest, loans to officers, advances to employees income taxes refundable
Which of the following is not an example of an external user?
none of the above
determining maturity rate
note may be expressed in terms of months (x-/12) or days (x/365)
Interest is usually associated with
notes receivable
interest is usually associated with account receivable notes receivable doubtful accounts bad debts
notes receivable
expenditure during useful life
ordinary repairs - expenditures to maintain productive life additions and improvements- costs incurred to increase the operating efficiency, productive capacity or useful life of a plant asset debit- the plant asset effected changes depreciation for current and future periods
Stockholders' equity can be described as claims of
owners on total assets.
All of the following are characteristics of a sole proprietorship except: a. a business owned by one person. b. owner has control of the business. c. ownership evidenced by shares of stock. d. small owner-operated business.
ownership evidenced by shares of stock
All of the following are current assets except: a. accounts receivable. b. cash. c. patents. d. marketable securities.
patents
intangible assets
patents copyrights franchises or licences trademarks trade names goodwill
estimating the allowance
percentage of receivables approach, where management establishes a percentage between amount of receivables and expected losses from uncollectible accounts
depreciation
process of allocating to expense the cost of a plant asset over its useful service life in a rational and systematic manner not asset valuation applies: land improvements buildings equipment not land
Inventory errors
proper inventory measurement, especially under the periodic method, is very important because the dollar amount attached to inventory is used to determine the major expense item on the income statement for most merchandisers, the cost of goods sold error in ending inventory shows up dollar-for-dollar as error in net income
partial balance sheet of long-lived assets
property, plant and equipment land buildings and improvements machinery equipment containers other less: accumulated depreciation intangible assets trademarks w indefinite lives goodwill other intangible assets
Under U.S. GAAP
property, plant, and equipment may not be revalued. component depreciation is not required. research and development costs are expensed as incurred. (Correct) all of these answer choices are correct.
recording purchases of merchandising perpetual system
purchase invoice- indicates the total purchase price and other relevant information current asset: inventory increases inventory account decreases accounts payable
purchase returns and allowances
purchaser returns goods because of damage or defect or quality doesnt meet specifications
manufacturing company
raw materials work in progress finished goods
When a plant asset is retired, the book value of the asset is
recognized on the income statement as a loss on disposal of plant asset.
service organization
records a receivable when it performs service on account.
merchandiser
records accounts receivable at the point of sale of merchandise on account.
The term market in the phrase "lower of cost or market" generally means the: ceiling. net realizable value. replacement cost. floor.
replacement cost
valuing notes receivable
report short-term notes receivable at their cash net realizable value estimate cash realizable value and recording bad debt expense and related allowance are similar to accounts receivable
Unearned Rental Revenue is a) a contra account to Rental Revenue b) a revenue account c) reported as a current liability d) debited when rent is received in advance
reported as a current liability
historical cost principle
required that companies record plant assets at its cost cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use.
percentage-of-receivables (or aging-of-receivables) method
requires that proper balance to be estimated for the allowance account and appropriate adjusting account indirect method of computing bad debt expense
failure to record a current liability will probably a) result in an overstated net income b) result in an overstated total liabilities and owners equity c) have no effect on net income d) result in understated total assets
result in an overstated net income
What account represents the primary ownership interest of a corporation?: a. common stock. b. retained earnings. c. financing stock. d. dividend stock.
retained earnings
Net income shown on the income statement is added to the beginning balance of retained earnings in the: a. income statement. b. retained earnings statement. c. balance sheet. d. statement of cash flows.
retained earnings statement
purchase return
return goods for credit if the sale was made on credit, or cash refund if the purchase was for cash full price
The term used to describe the increase in assets that Starbucks receives in exchange for its coffee is: a. cash. b. revenue. c. inventory. d. accounts receivable.
revenue
A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:
revenues to be understated
The best interpretation of the word "credit" is the A) offset side of an account. B) increase side of an account. C) right side of an account. D) decrease side of an account.
right side of an account
Which of the following accounts is increased with a credit? A) Supplies expense B) Supplies C) Sales D) Dividends
sales
sale of merchandise recorded
sales are not reduced or debited because that would obscure importance of sales returns and allowances as a percentage of sales could distort comparisons
revenue recognition principle
sales revenues are generally considered to be recognized when the goods are transferred from the seller to the buyer; that is, when the exchange transaction occurs. The recognition of revenue is not dependent on the collection of credit sales.
Inventory becomes part of cost of goods sold when a company
sells the inventory.
recognizing accounts receivable
service organization- records a receivable when it performs service on account merchandiser- records accounts receivable at the point of sale of merchandise on account
what is a factor
someone can buy your accounts receivable from you for interest.
depreciation methods
straight line declining balance units of activity
IRS requires ______ depreciation method
straight-line method, called Modified Accelerated Cost Recovery System (MACRS) not acceptable under GAAP
single-step income statement
subtract total expenses from total revenues reasons to use: 1. company does not realize any type of profit or income until total revenues exceed total expenses 2. form is simple and easy to read
Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)
systematic and rational manner.
freight costs
terms of sale
Goods in transit should be included in the inventory of the buyer when the:
terms of sale are FOB shipping point
When goods are returned that relate to a prior cash sale
the Cash account will be credited.
two categories of expenses
the cost of goods sold and operating expenses
The right side of the T account is called:
the credit side
The left side of the T account is called:
the debit side
The LIFO inventory method assumes that the cost of the latest units purchased are
the first to be allocated to cost of goods sold.
In applying Lower-of-Cost-or-Market, the designated market value is the middle value of replacement cost, net realizable value and net realizable value less a normal profit margin. the lower of net realizable value or replacement cost. the higher of replacement cost or net realizable value less a normal profit margin. net realizable value less a normal profit margin.
the middle value of replacement cost, net realizable value and net realizable value less a normal profit margin.
what is cash net realizable value?
the net amount a company expects to receive in cash from receivables.
The normal balance of any account is the A) left side. B) right side. C) side which increases that account. D) side which decreases that account.
the side which increases that account
Which of the following is not permitted under IFRS? the use of the LIFO cost flow assumption. reversals of lower-of-cost-or-market write-downs. lower-of-cost-or-market valuation. reporting of any type of inventory at net realizable value.
the use of the LIFO cost flow assumption.
direct write-off
theoretically undesirable no matching receivable not stated at net realizable value not acceptable for financial reporting wait until customer becomes clear they won't pay (death, bankruptcy)
Expenses are recognized when:
they contribute to the production of revenue.
Plant Assets are capitalized because
they increase either the operating efficiency, productive capacity, or useful life of the asset. Capital expenditures are debited to asset accounts and then depreciated over their expected useful lives.
If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices, this fact should be disclosed. disclosure is required only if prices have since risen substantially. an appropriation of retained earnings is necessary. disclosure is required only if prices have declined since the date of the order.
this fact should be disclosed.
accepting cash receipts
three reasons: 1. size (so many receivables, need cash to pay the bills) 2. sell receivables, only reasonable source of cash good at selling, not good at collecting debts 3. billing/collecting, often time-consuming and costly
FOB destination
title passed to buyer only when goods recieved seller pays freight
Expenses are incurred
to generate revenues.
accrual of interest receivable
to reflect interest earned but not yet received
notes receivable vs notes payable
to the payee-notes receivable to the maker- note payable
All the following are needed for the computation of depreciation except
training costs of manufacturing personnel.
A liability is classified as a current liability if it is to be paid within the coming year. A) True B) False
true
Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet. True B) False
true
An adjusting entry always involves a balance sheet account and an income statement account. True False
true
Because bad debt losses are incurred to generate sales, they should be expensed at the same time sales (revenue) is recorded. A. True B. False
true
Both investors and creditors have an interest in a company's ability to generate favorable cash flows. A) True B) False
true
Cash and supplies are both classified as current assets. True False
true
Factoring with recourse permits the factor to chargeback unpaid customer accounts receivable to the seller. A. True B. False
true
Generally accepted accounting principles are rules and practices that are recognized as a general guide for financial reporting purposes. True False
true
If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts. A) True B) False
true
Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 times 0.10 times 6/12. A) True B) False
true
The account Allowance for Uncollectible Accounts is adjusted at the end of the accounting period A. true B. false
true
The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset. A) True B) False
true
The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest revenue. True B) False
true
The holder of a note receivable adjusts for accrued interest income by debiting a receivable and crediting interest income. A. True B. False
true
The lower the receivable turnover, the higher the days' sales uncollected. A. true B. false
true
The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales. A. true B. false
true
The payment of accounts payable decreases both cash and liabilities. True False
true
When using the allowance method year-end adjustments for bad debt expense must be made. True B) False
true
a $20000, 8%, 9-month note pay requires an interest payment of $1200 at maturity
true
an unsecured bond is one that is issued against the general credit of the borrower. true or false ?
true
bad debt losses are a cost of selling on credit true or false
true
if a company uses the allowance method to account for uncollectable accounts, the entry to write off an uncollectable account only involves balance sheet accounts. true or false?
true
if a retailer sells goods for a total price of $200, which includes a 5% sales tax, the amount of the sales tx is $9.52
true
trade receivables can be an account receivable or a note receivable. true or false?
true
under the direct write off method, no attempt is made to match the bad debt expense to sales revenues in the same accounting period. true or false?
true
when a business sells an item and collects a state sales tax on it, current liability arises
true
The Allowance for Doubtful Accounts is necessary because
when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay
The revenue recognition principle dictates that revenue should be recognized in the account-ing records:
when the performance obligation is satisfied.
Lower-of-Cost-or-Market
when value of inventory is lower than its cost: companies must write down the inventory to its market value in the period in which the price decline occurs market value=replacement cost LCM is an example of conservatism
A current liability is a liability that is repaid
within the operating cycle or one year, whichever is longer
trademarks and trade names
word, phrase, jingle symbol legal protection 20 year renewal periods capitalize acquisition costs no amortization
recognizing notes receivable
writing a promissory note notes receivable XXX accounts receivable XXX none with interest, no interest has accrued on the note
notes receivable
written promise for amount to be recieved also called trade receivables
What is a promissory note?
written promise to pay a specified amount of money on demand or at a definite time.
Would an increase in CGS affect gross profit rate?
yes
should discount be taken when offered?
yes! 2% for 20 day periods (365/20) annual interest is 36.5%
FIFO advanages
yields highest net income in periods of rising prices gives more accurate and up-to-date balance sheet, more in accord with physical flow of goods BUT does not match current costs with current revenues
IFRS Salem Company hired Kirk Construction to construct an office building for ₤8,000,000 on land costing ₤2,000,000, which Salem Company owned. The building was complete and ready to be used on January 1, 2017 and it has a useful life of 40 years. The price of the building included land improvements costing ₤600,000 and equipment costing ₤750,000. The useful lives of the land improvements and the equipment are 10 years and 5 years, respectively. Salem Company uses component depreciation, and the company uses straight-line depreciation for other similar assets. What is the net amount reported for the building on Salem Company's December 31, 2017 statement of financial position?
₤6,483,750