Intermediate Accounting 5-7
16 periods at 2% Divide the 8% by 4 periods per year
Bella requires $240,000 in four years to purchase a new home. She can invest cash today that would earn 8%, compounded quarterly. When determining how much money to deposit today, which factors should Bella use from the Present Value Tables?
Receivables
Claims held against customers and others for money goods or services
200+6,000=6,200
Company A received a $6,000 shipment of inventory designated free on board (FOB) shipping point on November 1. The details for the shipment include the following: • Shipment was in transit on October 31. • The shipping costs were $200. • Company A added $3,000 in direct labor to complete the finished product. How much should be included in Company A's October 31 inventory?
495,870 Accounting Rule: A note received in exchange for property is valued at its present value
Company A sells a parcel of land to Company B in exchange for a note receivable. The terms of the note require Company B to make a single payment of $600,000 in two years. Using a 10% interest rate, the implied annual interest is $600,000 × 0.10 = $60,000, and the present value of the note is $600,000 × 0.82645 = $495,870. What amount must Company A consider as proceeds from the sale of the land in order to calculate gross profit or gain/loss on the sale, and be in accordance with generally accepted accounting principles (GAAP)?
$4,950 = $5,000 - ($5,000 x 1%)
Company A sells goods for $5,000 to Company B with terms 1/10, net 45, and Company A expects that the discount will be taken. Company A uses the net method of accounting. What amount should Company A record for accounts receivable?
90,703
Company A sells land to Company B for $100,000. Company A takes a note from Company B that is due in two years. Assuming an annual interest rate of 5% is appropriate, the implied annual interest is $100,000 × 0.05 = $5,000, and the present value of the note is $100,000 × 0.90703 = $90,703. What amount should Company A record for the sale?
Product Cost
Costs of acquiring and producing a product
Current Assets/Current liabilities Inventory is an asset and AP is a liability
Current Ratio formula
Days to collect AR = (365/AR turnover)
Days to collect AR formula
Net income was correct and current assets and current liabilities were overstated.
Dolan Co. received merchandise on consignment. On March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. What is the effect of this on Dolan's March 31 financial statements?
$91,000 Debit AfDA Credit AR
During the year, Trout Enterprises made an entry to write off an $8,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $100,000 and the balance in the allowance account was $9,000. What was the net realizable value of accounts receivable before and after the write-off entry?
19048 The correct value to record equipment at is the present value of the face on a non interest bearing note
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the note is to be made in one year. The market rate of notes of similar risk is 5%. Assuming an annual interest rate of 5% is appropriate, the present value of the principal is $20,000 × 0.95238 = $19,048. Assuming that a semiannual interest rate of 2.5% is appropriate, the present value of the principal is ($20,000/2) × 1.92742 = $19,274. What is the cost that should be recorded with the purchase of this equipment?
nonmanufacturing costs Commission sales Admin Costs Advertising Rent of office space Selling Expenses
Examples of Period Costs
Cash equivalents is treasury bills, commercial paper, money market funds, money market savings certificates, certificates of deposit, and similar types of deposits with liquidity of less than 3 months (90 days).
Examples of cash equivalent (6)
Direct materials Direct Labor Manufacturing overhead Depreciation on factory equipment
Examples of product costs
May 11: Debit: Inventory 44,000 Credit AP 44,000 May 19: Debit AP 40,000 Credit Inventory 800 Credit Cash 39,200
FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, which of the following is the correct credit side of the company's entry?
Net income, current assets, and retained earnings were understated Since the merchandise was not included in inventory, assets are understated. Since the inventory asset is understated, cost of goods sold is overstated resulting in an understatement of both net income and retained earnings.
Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. What is the effect of this on its December 31 financial statements?
24 Compounding monthly for 2 years is 24 compounding periods
For an investment that earns 1% compounded monthly for two years, how many compounding periods are there?
Days= (Average inventory/COGS)*365
Formula for average days to collect inventory
Current Assets-Current Liabilities
Formula for working capital
Replacement cost
Generally, what does the the term "market" in the phrase "lower of cost or market" mean?
included in the inventory of the seller
Goods in transit which are shipped f.o.b. destination should be
Included in the inventory of the buyer
Goods in transit which are shipped f.o.b. shipping point should be
Debit Cash 500 Credit AR 490 ((500-(500*.02)) Credit Sales Discounts Forfeited 10 (500*.02) The customer failed to make the payment within 10 days the full amount (500) is due in 30 days
How is accounts receivable recorded on 6/30 for a company using the net method for the sale of $500 on 6/18, and payment made on 6/30 with payment terms 2/10, net 30?
A deduction from sales in the income statement
If a company employs the gross method of recording accounts receivable from customers, then what should sales discounts taken be reported as?
Annually Would only compound once per year and would yield the least amount of interest
If you invest $50,000 to earn 8% interest, which compounding approach would return the lowest amount after one year?
A temporary investment
If, as anticipated, the FASB eliminates the cash equivalent classification, how will a treasury bill will be classified?
LIFO
In a period when costs are rising, and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of
Not recorded at the time goods are sold.
In a periodic inventory system, the cost of inventories sold is:
debited to COGS
In a perpetual inventory system, the cost of inventory sold is:
Both Sales Revenue and Cost of Goods Sold
In a perpetual inventory system, what of the following is recorded at the time of the sale?
The middle value of replacement cost, net realizable value and net realizable value less a normal profit margin
In applying Lower-of-Cost-or-Market, what is the correct designated market value
Ceiling
In the lower of cost or market rule, what is referred to by the net realizable value?
Annuity Due
Involves a series of equal payments and the payments are received at the beginning of each period
Perpetual: Debit inventory 5,400 Credit AP 5,400 Periodic: Debit purchases 5,400 Credit AP 5,400
Journal entry for Periodic and Perpetual Inventory Systems Purchases 900 units at $6
Perpetual: Debit AR 7,200 Credit Sales Revenue 7,200 Debit COGS 3,600 (600*6) Credit Inventory 3,600 Periodic: Debit AR 7,200 Credit Sales Rev 7,20No other entries
Journal entry for Periodic and Perpetual Inventory Systems: Sale of 600 at $12
Ceiling: 30-6= 24 Replacement Cost=26 Floor= 24-(30*.40)=12 Market value is 24 Historical Cost is 27 The product is valued at 24
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% of selling price. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
All but the 180 certificate of deposit Money market is included if there are no restrictions
On December 31 A Company had the following balances at First Bank Checking account 101 CA 102 Money market account 90 day certificate of deposit 180 certificate of deposit What would be included in cash and cash equivalent
Jan 10 debit purchases for $4,950; credit accounts payable for $4,950 Jan 18 debit accounts payable for $4,950; debit purchase discounts lost $50; credit cash for $5,000
On January 10, a company purchased $5,000 of inventory on terms 1/10, net 30. Payment was made on January 30. The company uses the periodic system. What is the journal entries to record the purchase and the payment using the net method?
Debit Sales R and A300 Credit AR 300
On January 16, 2020, Max grants an allowance of $300 to Oliver because some of the hurricane glass is defective. The entry to record this transaction is as follows.
Debit Sales R and A 100 Credit Allowance for Sales R and A 100
On January 31, 2020, before preparing financial statements, Max estimates that an additional $100 in sales returns and allowances will result from the sale to Oliver on January 4, 2020. An adjusting entry to record this additional allowance is as follows.
Debit Cash 23030 Debit Sales discount 470 Credit AR 23,500
On July 22nd, a company sold $23,500 of inventory items on credit with the terms 2/15, net 30. Full payment was received on August 1st . What is the journal entry to record payment using the gross method?
280=(10,000*.02)+(4,000*.02)
On the first day of a period, $20,000 of purchases were made on an account with terms 2/10, n/30. The company uses the gross method and has the following payment history: • $10,000 was paid on day 5 • $4,000 was paid on day 9 • $6,000 was paid on day 28
Cost of goods sold is not recorded under a periodic system until the end of the period.
One difference between periodic and perpetual inventory systems is:
Cash
Recourses that consists of coin currency money orders certified checks cashier's checks personal checks and bank drafts
$6,460,000 and $432,000 understatement of inventory is overstated in COGS (6,400,000 + 60,000) Understatement of inventory at the beginning of the year increases COGS and decreases net (510,000+60,000-138,000)
Risers Inc. reported total assets of $6,400,000 and net income of $510,000 for the current year. Risers determined that inventory was understated by $138,000 at the beginning of the year and $60,000 at the end of the year. What is the corrected amount for total assets and net income for the year, respectively?
cash equivalents
Short-term, highly liquid investments that can be readily converted to a specific amount of cash and bears no risk from interest rate Typically 3 months or less
75.00
The Company uses lower-of-cost-or-market approach. The replacement cost of an inventory item is $75.00. Net realizable value is $82.50. Net realizable value less a normal profit margin is $69.00. The cost of the item is $76.50. Which value should be assigned to the inventory item?
90,000
The December 31, 2019, trial balance for a company reported a $100,000 debit balance in accounts receivable. Management estimates that 10% of accounts receivable may not be collected. Prior to year-end adjustment, there was a $1,000 credit balance in the allowance for doubtful accounts. What net realizable value of accounts receivable will be reported on this company's December 31, 2019, balance sheet?
Weighted-average
The costing of issues from inventory must be deferred until the end of the accounting period under which method of inventory valuation?
weighted average
The costing of issues from inventory must be deferred until the end of the accounting period under which method of inventory valuation?
200,000+P=350,000+50,000, and thus P=$200,000
The ending inventory of a merchandiser is $50,000. The beginning inventory was $200,000. If the income statement for the year reported cost of goods sold of $350,000, how much were purchases during the year?
5,000 When the interest stated on an interest-bearing note equals the effective (market) rate of interest, the note sells at face value.
The face value of a two-year note is $5,000. Both the market and stated interest rates are 5%. What is the present value of this note?
A debit to Sales Returns and Allowances
The journal entry to record the return of goods from a customer is
Time Value of Money (TVM)
The relationship between time and money
90.00 Use the middle value that is lower than the historical cost
The replacement cost of an inventory item is $90.00. Net realizable value is $97.50. Net realizable value less a normal profit margin is $88.50. The cost of the item is $93.00. What is the designated market value used in applying Lower-of-Cost-or-Market?
Contra revenue account
The sales returns and allowances account is
EI Understated COGS overstated GP/NI understated EI Overstated COGS understated GP/NI overstated
What happens to the COGS and the GP/NI if there is an error in Ending inventory where it is understated or overstated
Purchases Understated COGS understated GP/NI understated Purchases Overstated COGS overstated GP/NI understated
What happens to the COGS and the GP/NI if there is an error in Purchases where it is understated or overstated
Beginning Inventory Understated COGS understated GP/NI overstated BI overstated COGS overstated GP/NI understated
What happens to the COGS and the GP/NI if there is an error in beginning inventory where it is understated or overstated
The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.
What is "recourse" as it relates to selling receivables?
goods that are shipped, but title remains with the consignor.
What is consigned inventory?
Debit AR Credit AfDA
What is included in the journal entry to record the collection of accounts receivable previously written off when using the allowance method?
Gross Debit Cash 6,000 Credit AR 6,000 Net Debit Cash 6,000 Credit AR 5,880 Credit Sales discounts failed 120
What is the Gross method and the Net method of 6,000 of sales received after the discount period 2/10, n/30
Gross: Debit cash 3920 Debit Sales discounts 80 (4,000*.02) Credit AR 4,000 Net: Debit Cash 3,920 Credit AR 3,920
What is the Gross method and the Net method of Payment on 4,000 of sales received within the discount period 2/10 n/30
Beginning Inventory (+) Net Purchases1 (=) Goods Available for Sale (-) Ending Inventory (=) Cost of Goods Sold
What is the formula for COGS in inventory
Net Purchases = Purchases + Freight In- Purchase Discounts - Purchase Returns and Allowances
What is the formula for Net purchases
debit bad debt expense, credit allowance for doubtful accounts
What is the journal entry for recording bad debt expense under the allowance method?
Compensating Balances
What is the minimum cash amount that banks often require customers to maintain in their checking accounts called?
As assets but separately from other receivables
What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet?
An understatement of liabilities and an overstatement of owners' equity Understate AP and overstate NI
What is the result of the failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results?
The factor assumes the collection risk and absorbs any credit losses in collecting the receivables.
What is true when accounts receivable are factored without recourse?
Bank overdraft
When a check is written for more than the amount in the cash account
offset the overdraft against cash account.
When a company has cash available in another account in the same bank, how will a company present an overdraft?
Period Costs
When a company pays freight charges on goods sold, how should they account for the expense?
When it says FOB shipping point because the title transfers to the buyer FOB destination they remain in the sellers inventory
When do you include FOB in inventory for the buyer When do you not include it
Inventory
Which account is credited in the loss method of writing-down of inventory to its net realizable value if no allowance account is used?
A decrease in inventory
Which change in an account balance increases the inventory turnover ratio, assuming there is no change to the cost of goods sold?
Allowance for doubtful accounts
Which items should be included as part of accounts receivable reported on the balance sheet?
Implicit Rate
Which rate is used to calculate the discount on a note that equates the cash paid with the amount received in the future on a zero-interest-bearing note?
Debit AR 5,000 Credit Sales Rev 5,000
assume on January 4, 2020, Max sells $5,000 of hurricane glass to Oliver on account. Max records the sale on account as follows.
Restricted cash
cash that is not available for general use but instead is restricted for a particular purpose Certificate of deposit (restricted to maturity)
Loss method
debits a loss account for the write-down of the inventory to NRV
Cost of goods sold method
debits cost of goods sold for the write-down of the inventory to NRV The company does not report a loss in the income statement
Accounts Receivable
oral promises of the purchaser to pay for goods and services sold
2 percent if paid within 10 days, gross amount due in 30 days
what does 2/10,n/30 mean
A current liability
A bank overdraft from a different bank should be reported as
Debit Allowance for Doubtful Account Credit AR
A business realizes that collection from a customer will be impossible. The accountant needs to off the un collectible account using the allowance method What is the journal entry
600,000 NRV=720,000-30,000=690,000 NRV-NPR=690,000-80,000=610,000 Designated market/Replace Cost=620,000 600,000 is the lowest
A company determined its year-end inventory is $600,000. Information pertaining to that inventory is as follows: Selling price $720,000 Costs to sell $30,000 Norman profit margin $80,000 Replacement cost $620,000 What is the reported value of the company's inventory
Inventory is understated; net income is unaffected. Since both the purchases and ending inventory are understated, the two errors cancel each other out, and there is no effect on cost of goods sold and net income.
A company did not record the credit purchases of inventory and did not include this item in the ending inventory balance. What is the effect of this on the financial statements?
Debit NR 15,000 Credit Discount on NR 720 Credit Cash 14,280 (10,677+3,603)
A company had the following details related to a three-year note receivable on the date of issue: • face value of note: $15,000 • present value of the principal: $10,677 • present value of the interest: $3,603 What is the journal entry
10,000+1,000-3,000=8,000 The bank overdraft can be offset against the $10,000 since that cash account is in the same bank as the overdraft. Since the restricted cash is immaterial in amount, it doesn't need to be segregated from cash.
A company has cash in the bank of $10,000, restricted cash in a separate account of $1,000 deemed immaterial, and a bank overdraft of $3,000 in the same bank that houses the $10,000 in cash. What amount should this company report as cash in the balance sheet?
20,000
A company has cash in the bank of $20,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. How much should the company report in cash?
156.6 days = (365 / ($1,340,000 / (($500,000 + $650,000) / 2)))
A company has net sales of $1,340,000, beginning accounts receivable of $500,000, and ending accounts receivable of $650,000. How many days does it take the company to collect its accounts receivable, rounded to the nearest one decimal place?
12,000-200=11,800
A company has sales of $12,000 and sales returns and allowances of $200. What should the company report as net sales?
300,000=100,000+200,000+20,000-20,000
A company has the following account balances as of December 31st • trade receivables: $100,000 • current notes receivable: $200,000 • other receivables (due in six months): $20,000 • allowance for doubtful accounts: $20,000 What amount is reported as net receivables under current assets on the balance sheet?
$5,300 = $2,000 + $3,300
A company has the following balances in its accounts: • beginning inventory: $2,000 • purchases: $3,300 • ending inventory: $1,400 If the periodic system is used, what is the amount of goods available for sale for the year?
127,000+17,000+450+60000=204,450
A company has the following cash balances: Large bank $ 127,000 Small bank $ 17,000 Continental bank $ (42,000) Petty cash $ 450 3-month treasury bill $ 60,000 CD maturing in 18 months $ 100,000 What is the amount of cash and cash equivalents that should be reported?
180,000/((11,000+15,000)/2))= 13.85
A company has the following information for the period just completed: · gross sales: $200,000 · beginning accounts receivable: $11,000 · long-term notes receivables: $102,000 · ending accounts receivable: $15,000 · net sales: $180,000 What is this company's accounts receivable turnover?
$80,000 = $20,000 + $50,000 + $10,000
A company has the following information related to its ending inventory: • owned inventory on shelves: $20,000 • goods out on consignment: $50,000 • goods purchased and in transit free on board (FOB) shipping point: $10,000 • goods sold and in transit free on board (FOB) shipping point: $5,000 What amount is included as the final inventory value for this company?
18,500+500=19,000
A company has the following items at year-end: · cash in bank - checking account of $18,500 · cash on hand of $500 · post-dated checks received totaling $3,500 · certificates of deposit totaling $124,000 How much should be reported as cash in the balance sheet?
1,500
A company has the following items: Cash $ 10,000 Petty cash $ 100 Short term paper $ 1,500 Postdated customer check $ 2,000 Bank overdraft $ 50 How much should the company report as cash equivalents?
Debit notes receivable for $7,000; credit revenue for $5,557; credit discount on notes receivable for $1,443. The interest is implied at face value
A company issues a $7,000, noninterest-bearing note for the sale of inventory. The market rate at the time of the sale is of 8%. The note is due in full at the end of three years. Assuming an annual interest rate of 8% for three years is appropriate, the present value of the principal is $7,000 × 0.79383 = $5,557. Assuming an annual interest rate of 8% for eight years is appropriate, the present value of the principal is $7,000 × 0.78941 = $5,527. What is the journal entry to record this sale?
The lathe is recorded at its present value of $20,548. No calculation is required. Accounting Rule: An asset acquired in exchange for a non-bearing note if valued at the present value of the note
A company issues a five-year zero-interest-bearing note for a new lathe it purchased for $25,000. The market rate of interest at the time the note was issued is 4%. Assuming an annual interest rate of 4% for five years is appropriate, the present value of the principal is $25,000 × 0.82193 = $20,548. Assuming an annual interest rate of 5% for 4 years is appropriate, the present value of the principal is $25,000 × 0.82270 = $20,568. What amount should be recorded for the cost of the lathe?
Debit AR 25,000 Credit Sales Revenue 25,000
A company made a $25,000 sale on account with the following terms: 1/15, n/30. How much should be recorded as revenue using the gross method? What is the journal entry
Debit AR 24,500 Credit Sales 24,500
A company made a $25,000 sale on account with the following terms: 2/10, n/30. What is the journal entry to record the sale using the net method?
No effect at the end of year 2. The error counterbalances each other as net income will be understated by $25,000 in Year 1 and overstated by $25,000 in Year 2: $25,000 + ($25,000).
A company mistakenly understated ending inventory by $25,000 in a year but verified the correct ending inventory was recorded in the following year. What is the effect of this on the total net income for the two years combined?
Debit 20,000 Notes receivable Credit cash 16,500 Credit Discount on NR 3,500
A company receives a three-year, $20,000, zero-interest-bearing note that has a present value of $16,500. What is the journal entry to record this transaction?
7,843 Accounting Rule: Present value is the amount that must be invested now to produce a known future value. It is always a smaller amount than the given future value
A company requires $8,000 cash in a savings account earning 2% interest at the end of the year. Assuming an annual interest rate of 2% is appropriate, the implied annual interest is $8,000 × 0.02 = $160, and the present value of the savings is $8,000 × 0.98039 = $7,843. What amount should be deposited into the savings account at the beginning of the year?
The cost of goods sold will be overstated and gross profit/net income will be understated. The ending inventory on the balance sheet is correct according to the facts.
A company that used the periodic inventory system overstated its beginning inventory but correctly stated its ending inventory. What will be the effect of this error on the financial statements at the end of the period?
Both will be understated
A company underestimates its ending inventory for a year What happens to working capital and current ratio
BI: Not affected (+) Purchases: Understated 100 (-) EI: Not affected COGS: Understated 100 Income: Overstated 100
A company uses a periodic inventory system. A $100 purchase is not recorded in the purchase account for the year but is included in the ending inventory count. What is the effect of this error on the company's income statement?
BI: Not affected (+) Purchases: Not affected (-) EI: Understated 100 COGS: Overstated 100 Income: Understated 100
A company uses a periodic inventory system. A $100 purchase is properly recorded in the purchase account for the year but is excluded in the ending inventory count. What is the effect of this error on the company's financial statements?
BI: Not affected (+) Purchases: Overstated 100 (-) EI: Not affected COGS: Overstated 100 Income: Understated 100 Accounts Payable Overstated 100
A company uses a periodic inventory system. A $100 purchase on account is inadvertently recorded in the purchase account as $200 for the year but is correctly included in the ending inventory count as $100. What is the effect of this error on the company's financial statements?
Debit AR 4,000 Credit AfDA 4,000 Receives payment Debit Cash 4,000 Credit AR 4,000
A company uses the allowance method for uncollectible accounts. On November 10, 2020, the company wrote off a customer's $4,000 account receivable. The company received payment in full from the customer on December 1, 2020. What entry or entries does the company record on December 1st?
The number of days that a company takes to collect amounts due from customers.
A company uses the days outstanding ratio to evaluate its receivable. What does this ratio represent?
BI: Not affected Purchases: Not affected EI: Understated COGS: Overstated Income: Understated AP: Not affected Current Ratio is understated if an asset is understated it decreases the number and lowers the current ratio
A company uses the periodic inventory costing system. The company includes goods shipped to them f.o.b. shipping point in purchases, but not ending inventory. What is the effect on the current ratio?
Days to collect AR
A company wants to assess the effectiveness of a company's credit and collection policies. What ratio should it use?
Since the payments occur at the start of each year, the annuity due factor is used to determine the value of the sale which is $28,334. No calculation is required.
A company will receive payments of $10,000 at the beginning of each year for the next three years under a subscription contract. Assuming an annual interest rate of 6% is appropriate, the present value of an ordinary annuity is 2.67301 × $10,000 = $26,730, and the present value of an annuity due is 2.83339 × $10,000 = $28,334. Assuming collection is reasonably assured, what amount should the company record for this sale to be in accordance with the generally accepted accounting principles (GAAP)?
20,000 10,000+3,000+2,000+1,000+1,500+2,500
A manufacturing company has the following inventory-related costs: direct materials: $10,000 direct labor: $3,000 indirect labor: $2,000 indirect materials: $1,000 manufacturing depreciation: $1,500 manufacturing utilities: $2,500 storage costs: $1,600 purchasing department costs: $1,700 interest expense: $800 How much is included in inventory?
Present Value of an Ordinary Annuity
A series of equal rents to be withdrawn at equal intervals at the end of the period
ART = (Net Sales/Average AR)
Accounts Receivable turnover formula
Eight periods and multiply by (1 + .10)
An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for eight periods. The accountant has only one present value table which shows the present value of an annuity of $1 payable at the end of each period. To compute the present value, which present value factor in the 10% column would the accountant would use?
1,409,3 The payments are multiplied by the present value factor of an ordinary annuity to arrive at the present value of the payments that are received at the end of the year. The payments occur at the end of a period so an ordinary annuity is used
An individual recently won a lottery and has the opportunity to receive $100,000 per year at the end of the year for the next 25 years. Assuming an annual interest rate of 5% is appropriate, the present value of 1 is 0.29530 × $100,000 = $29,530, the present value of an ordinary annuity is 14.09394 × $100,000 = $1,409,394, and the present value of an annuity due is 14.79864 × $100,000 = $1,479,864. What is the fair value of the lottery payments, according to the Financial Accounting Standards Board (FASB)?
Period Costs
Any cost not related to the manufacture or acquisition of a product
Debit Allowance for doubtful accounts; credit A/R
As of December 31, a company has an uncollectible account of $10,000. The accountant uses the allowance method to account for bad debts. What is the journal entry for the write off of the account?
Debit bad debt expense; credit accounts receivable.
As of December 31, a company has an uncollectible account of $10,000. The accountant uses the direct write-off method to account for bad debts. What is the journal entry for the write off of the account?
$110,000 = $100,000 + $40,000 - $30,000
As of March 1, a company had an inventory balance of $100,000. During March, purchases were $40,000, and inventory was sold for $50,000 that had an original purchase price of $30,000. The company uses a perpetual inventory system. What is the amount in the inventory account as of March 31st?
30,000 Debit Cogs 30,000 Credit Inventory 30,000 The journal entry to record the sale on account Debit AR 50,000 Credit Sales 50,000
As of March 1, a company had an inventory balance of $100,000. During March, purchases were $40,000, and inventory was sold for $50,000 that had an original purchase price of $30,000. The company uses a perpetual inventory system. What was the amount transferred from the inventory account to the cost of goods sold account during March? What is the journal entry
