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I just put as many questions as I could find (ALSO I DIDNT DOUBLE CHECK ANY QUESTIONS SO IF ITS WRONG OOPS) :) GL everyone!
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A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires, which of the following is correct?
Sales discounts is debited for the amount of discounts taken by customers.
Jasper Company uses the allowance method to account for bad debts. During the year, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:
$9,000
At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?
$6,000
Explanation
$200,000 × 3% = $6,000.
The replenishment of a petty cash fund might include which of the following?
A debit to office supplies expense
Explanation: Recording expenses occurs at the time the petty cash fund is replenished.
Item 5
Alvin Electronics is in the process of reconciling its bank account for the month of November. The following information is available:
Balance per bank statement | $ 8,325 |
---|---|
Outstanding checks | 2,400 |
Deposits outstanding | 1,215 |
Bank service charges for November | 35 |
Check written by Alvin for $300 but recorded incorrectly by Alvin as a $30 disbursement. |
|
What should be the corrected cash balance at the end of November?
$7,140
Explanation: $8,325 − 2,400 + 1,215 = $7,140. The bank charges and correct amount of the Alvin check are already included in the balance per bank statement.
T/F Cash disbursements should be made by check and should always be signed by an authorized officer of the company.
True
What is the classification of restricted cash on the balance sheet?
Noncurrent assets
T/F Bank overdrafts should be reported as an increase in cash on the financial statements.
False
T/F The direct write-off method for accounting for uncollectible accounts is allowed by GAAP.
False
What is the purpose of estimating the allowance for bad debt expense?
To report receivables at their net realizable value
What is the difference between the percentage of receivables approach and the current expected credit loss (CECL) model?
The percentage of receivables approach uses historical data, while the CECL model considers present and future risks
What is the journal entry when a company assigns receivables as collateral for a loan?
Debit Cash, debit Finance Charge Expense, credit Notes Payable
What is the purpose of the Discount on Note Receivable account?
To discount the face amount of a noninterest-bearing note
How is the receivables turnover ratio calculated?
Net sales divided by average net receivables
What adjustment should be made to the book balance during bank reconciliation?
Deducting bank service charges
What is the final step after completing the corrections for both the bank and book balances in the bank reconciliation process?
Prepare journal entries for adjustments made
How does U.S. GAAP differ from IFRS regarding the treatment of overdrafts?
U.S. GAAP allows offsetting overdrafts against another cash accounts.
How does the treatment of transferring receivables differ between U.S. GAAP and IFRS?
U.S. GAAP treats transfers as secured borrowing if control is retained
Using a perpetual inventory system, the purchase of inventory on account is recorded with a:
Debit to inventory
The Hamlet Company uses the periodic inventory system. Information for the current year is as follows:
Sales $ 2,650,000
Beginning inventory 680,000
Purchases 1,200,000
Purchase returns 12,000
Ending inventory 740,000
Hamlet's cost of goods sold for the current year is:
$1,128,000.
Explanation
$680,000 (beginning balance) + $1,200,000 (purchases) − $12,000 (purchase returns) − $740,000 (ending balance).
A company purchases inventory on account for $45,000 with terms 2/10 , n/30 . Under the net method of accounting for purchases, the purchase would be recorded at:
$45,000 − ($45,000 × 2%) = $44,100.
Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows:
Date Purchases Sales
March 8 600 units
March 15 400 units @ $22 each
March 22 400 units @ $24 each
March 27 400 units
Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.
The cost of inventory at the end of March applying the average cost method is:
$12,900.
Average cost of purchases = $21.50 each = [(800 × $20) + (400 × $22) + (400 × $24)] ÷ 1,600 units. Ending inventory = 600 units @ $21.50 each.
Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows:
Date Purchases Sales
March 8 600 units
March 15 400 units @ $22 each
March 22 400 units @ $24 each
March 27 400 units
Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.
The cost of goods sold for March applying the average cost method is:
$21,500.
Average cost of purchases = $21.50 each = [(800 × $20) + (400 × $22) + (400 × $24)] ÷ 1,600 units. Cost of goods sold = 1,000 units @ $21.50 each.
What are the two primary types of inventory systems?
Perpetual and periodical
How is the cost of goods sold calculated in a periodic inventory system?
Beginning inventory plus net purchases minus ending inventory
How are purchase discounts recorded in the gross method?
Not recorded at all
Under an inflationary pricing environment, which inventory costing method will give you the highest cost of goods sold and the lowest ending inventory?
LIFO
What is the purpose of the LIFO conformity rule?
To ensure accurate reporting of inventory costs
What is the purpose of the LIFO reserve?
To compare LIFO and FIFO inventory values
What is one limitation of using LIFO inventory method?
It has a high recordkeeping cost
What is the purpose of using LIFO inventory pools?
To group inventory based on physical similarities
What is the Dollar-Value LIFO (DVL) method?
It converts each layer’s base year costs to the layer year costs using the cost index
For purposes of accounting for inventory, net realizable value is defined as:
Estimated selling price less any costs of completion, disposal, and transportation
The following information pertains to one item of inventory of the Simon Company:
| Per unit |
---|---|
Cost | $ 180 |
Replacement cost | 150 |
Selling price | 195 |
Costs to sell | 35 |
What should be the book value of Simon’s inventory if the company prepares its financial statements according to International Financial Reporting Standards?
$160
Under IFRS, inventory is reported using the lower of cost or net realizable value. NRV of $160 ($195 − $35) is lower than cost of $180.
The gross profit method can be used in all of the following situations except:
In the preparation of annual financial statements
The Toso Company uses the retail inventory method. The following information is available at the end of the year:
| Cost | Retail |
---|---|---|
Beginning inventory | $ 420,000 | $ 750,000 |
Net purchases for the year | 1,980,000 | 2,850,000 |
Net sales |
| 2,940,000 |
Applying the average cost retail inventory method, Toso's inventory at the end of the year is estimated at:
$440,000
Ending inventory at retail: $660,000 [$750,000 (beginning inventory) + $2,850,000 (net purchases) − $2,940,000 (net sales)]. Cost ratio = 66.7% [$420,000 (beginning inventory) + $1,980,000 (net purchases)] ÷ [$750,000 (beginning inventory) + $2,850,000 (net purchases)]. Ending inventory at cost: $660,000 × 66.7% = $440,000.
For the retail inventory method, normal spoilage of inventory is treated as:
Deducted in the retail column after calculating the cost-to-retail ratio.
T/F In the conventional retail method, net markdowns are used to calculate the cost to retail percentage.
False
Which method of inventory cost flow assumes that each new layer of inventory has its own unique retail price index and cost-to-retail percentage?
Dollar-value LIFO retail method
In the LIFO retail method, how is the ending inventory calculated when inventory increases over the year?
By determining the inventory layer added during the period and converting it to cost
Which method of inventory estimation is based on historical gross profit margin?
Gross profit method
Which inventory estimation method is considered more accurate and acceptable per GAAP for audited financial statements?
Retail inventory method
What is the first step in the retail inventory method?
Calculate the cost-to-retail percentage
What is the appropriate treatment for an inventory error discovered in the same accounting period?
Reverse the prior incorrect entry and record the proper entry
If an inventory error is discovered in a later accounting period, what are the steps to be followed?
All answers are correct: Retrospective restatement of prior financial statements, record entry to correct account balances, record a prior period adjustment on beginning balance of retained earnings, and a disclosure note.
Which type of inventory error is related to the misclassification or misplacement of inventory items?
Physical count errors
On January 1, 2016, Company X originally purchased inventory from Company Y for $300. On January 1, 2017, Company X estimates that it could sell the product for $320, with 15% of the price going towards shipping costs. On January 1, 2017, what should Company X value the inventory at on its books?
$272
Company X originally purchased inventory for $500 on January 1, 2018. On January 1, 2019, Company X estimates that the product could be sold for $560, with $50 of costs to sell the product. What should Company X value the inventory at on its books?
$500
Which inventory valuation method is accepted under U.S. GAAP but not under IFRS?
LIFO
Can reversals of inventory write-downs be made under IFRS when using the Lower of Cost or Net Realizable Value (LCNRV) method?
Yes, reversal are allowed
In which cases can the Lower of Cost or Net Realizable Value (LCNRV) method be applied to inventories in U.S. GAAP?
Both to individual items and inventory categories
Each of the following would be considered property, plant, and equipment or an intangible asset except
Inventories
The initial cost of land would include all of the following except
Property taxes for the current period
Goodwill is the excess of the purchase price of an acquired company over the:
Fair value of the identifiable net assets acquired
Cello Corporation purchased three patents at a total cost of $960,000. The appraised values of the individual patents were as follows:
Patent 1 | $ 600,000 |
---|---|
Patent 2 | 400,000 |
Patent 3 | 200,000 |
The costs that should be assigned to Patents 1, 2, and 3, respectively, are:
Total appraised value = $600,000 + $400,000 + $200,000 = $1,200,000.
Patent 1: $960,000 × ($600,000 ÷ $1,200,000) = $480,000
Patent 2: $960,000 × ($400,000 ÷ $1,200,000) = $320,000
Patent 3: $960,000 × ($200,000 ÷ $1,200,000) = $160,000
Wolf Computer exchanged a machine with a book value of $40,000 and a fair value of $45,000 for a very similar machine. In addition, Wolf paid $6,000 as part of the exchange. Wolf should recognize:
No gain or loss
Which of the following is an example of a tangible asset?
Building
How is the initial measurement of equipment calculated?
Purchase price plus sales tax, freight-in, and installation costs
What is the formula to calculate the present value of an Asset Retirement Obligation (ARO)?
PV = FV / (1 + i)^n
When buying assets with different characteristics in a lump-sum purchase, how is the purchase price allocated?
Based on the relative fair value of the assets
In a noncash transaction, how should an asset be recorded?
At its fair value
How is a gain or loss recognized in an asset exchange transaction?
By subtracting the fair value of the old asset from its book value.
T/F Self-constructed assets require interest capitalization during the construction period.
True
What is the purpose of using Weighted Average Accumulated Expenditures (WAAE) in interest capitalization calculations?
To determine how much interest can be capitalized.
T/F Interest capitalization reduces the net income reported on the income statement.
False
T/F Intangible assets developed internally are expensed, while tangible assets developed internally are capitalized
True
What is the significance of technological feasibility in the development of computer software?
It allows the costs to be capitalized.
When a similar group of assets is collectively depreciated, how is a gain or loss recognized when any of these assets are sold?
No gain or loss is recognized
How is the depletion per unit calculated?
Depletion base divided by the estimated extractable number of units
What type of assets have indefinite lives and are not subject to amortization?
Trademarks
What is the first step in testing for impairment of PP&E and finite-life intangibles?
Preforming a recoverability test by comparing undiscounted future cash flows with the book value of the asset
If an impairment loss is recognized, what happens to the lower book value of the asset?
It becomes a new cost for a future expense
What should a company do if an error is found in the calculation of depreciation, depletion, or amortization?
All of the above, Reverse the mistake made in the current year and fix it, Retrospectively restate financial statements if the error was found in the previous year, Look at earnings per share and write a note describing the nature of the error and its impact
What is the second step in testing for impairment of PP&E finite-life intangibles?
Calculate the impairment loss as the book value minus the asset’s fair value.
Which of the following types of expenditures should be capitalized as asset cost?
Additions should be capitalized as asset cost
When a major component of an asset is replaced with a new one, it is considered an:
Improvement
What is the calculation for the fixed asset turnover ratio (FATR)
Net sales divided by average fixed assets
Which of the following is true about the treatment of research and development under U.S. GAAP and IFRS
Development expenditures that meet specified criteria are capitalized as an intangible asset, only under IFRS
What are the three depreciation methods specifically mentioned by IFRS
Straight-line, units- of- production, and the diminishing (decreasing) balance method.
Which of the following statements is true about the valuation of intangible assets under U.S. GAAP and IFRS.
U.S. GAAP prohibits the revaluation of any intangible assets, and IFRS allows a company to report intangible assets at their fair value
Which of the following statements accurately describes depreciable base (or allocation base)?
The original cost of an asset minus its estimated residual value at the end of its service life
A delivery van that cost $40,000 has an expected service life of eight years and a residual value of $4,000. Depreciation expense for the second-year asset’s life using the double-declining-balance method is:
$7,500 = [$40,000 − (2 ÷ 8 × $40,000)] × 2 ÷ 8
A machine is purchased on September 30, Year 1, for $60,000. Useful life is estimated at four years and no residual value is anticipated. The straight-line depreciation method is used. The company’s fiscal year ends on December 31. Depreciation expense for Year 1 should be:
$3,750 = ($60,000 ÷ 4 years) × 3/12 partial year
The Cromwell Company sold equipment for #35,000. The equipment, which originally cost $120,000 and had an estimated useful life of 10 years and $20,000 residual value, was depreciated for four years using the straight-line method. Cromwell should report the following on its income statement in the year of sale:
A $45,000 loss.
Explanation
Book value at disposal date: $80,000 = [$120,000 − (4 × ($120,000 − $20,000) ÷ 10)].
Asset sold for $35,000. $35,000 − 80,000 = $45,000 loss.
On January 1, Year 1, the Holloran Corportation purchased a machine at a cost of $55,000. The machine was expected to have a service life of 10 years and a $5,000 residual value. The straight-line depreciation method was used. In Year 3, the company switched to the double-declining-balance depreciation method. Depreciation for Year 3 should be:
$11,250
Explanation
Initial straight-line depreciation is $5,000 per year = ($55,000 − 5,000) ÷ 10 years. Revised depreciation after two years is [$55,000 − (2 years × $5,000)] × 2/8. Revised depreciation is calculated based on 8 years of remaining service life.
What are the two big categories of investments?
Debt investments and equity investments.
What is Discount on bond investment?
It is a contra-asset to the investment account that reduces the carrying value of the investment to its cost at the date of purchase.
What is the effective interest method?
it is the method by which interest revenue is based on the effective interest rate that the investment earns over its lifetime
How is a debt investment classified as held to maturity?
When the company has a positive intent and ability to hold the security to maturity
How are unrealized gains and losses treated in trading securities classification?
They are included in net income regardless of whether they are realized or unrealized
What is the effect transferring a held to maturity investment to an available for sale investment?
No current income effect, report total unrealized gain or loss separate component of shareholders’ equity
T/F Under U.S. GAAP, debt investments can be classified as held to maturity (HTM), available for sale (AFS), or traded (trading)
True
Which of the following options is not an IFRS category for debt investments?
Held for sale
Which accounting standard is more restrictive in allowing firms to elect the fair value option?
IFRS
Which approach should be used to account for an equity investment when the investor has significant influence but does not control the investee?
Equity Method (EM)
How is an equity investment reported when using the Fair Value Through Net Income (FVTNI) approach?
Reported at fair value with unrealized holding gains and losses included in net income
At what percentage of voting stocks does an investor have control of the investee?
More than 50%
When an investor acquires an equity-method investment, what adjustments might be needed to approximate the effects of consolidation?
Adjustments to both the investment account and investment revenue
Where is the fair value of an investment presented under the equity method?
Notes to the financial statements
What is the purpose of “amortizing the differential” in the equity method?
To account for disparities between reported net income and consolidated procedures