ACTG 2010 Exam 2

the inventory asset account on the balance sheet reports the

cost of goods on hand that are available for sale

cost of goods sold COGS

Beginning inv + purchases - ending inventory

Expected Ending Inventory

=beginning inventory + purchases -cogs

inventory shrinkage

= expected ending inventory - physical ending inventory

Inventory purchases is + or - on the balance sheet

+

Freight in is + or - on the balance sheet

+

Purchase returns is + or - on the balance sheet

-

purchase discounts is + or - on the balance sheet

-

When a perpetual system is used and transportation cost is incurred to obtain inventory, the transportation cost is

added to inventory

Discount is

% / period

full credit (due within)

net (full amount) / period

what is the entry for a credit sale

debit is accounts receivable credit is sales revenue

what second entry is needed for a merchandise sale

debit is cost of goods sold, credit is inventory

what account records merchandise returned by a customer

sales returns and allowances

what is the entry for a customer sales return

debit is sales returns credits are accounts recivable

what happens to inventory when merchandise is returned

debit is inventory and credit cost of goods sold

how do you calculate the dollar amount of a return

original sale x percentage returned

a $350 sale has a ¼ return. What is the return

87.50 rounded to $88 if the system requires whole dollars

How do you calculate the amount collected after a return?

Original A/R - sales return = cash collected

What is the entry when the customer pays the balance?

debit is cash credit accounts receivable

Under a perpetual system, what account is debited for purchases?

inventory

what is the entry for inventory purchases on account?

debit is inventory credi is accounts payable

what happens when inventory is returned to the supplier?

debit is accounts payable credit is inventory

what two entries are needed for a cash sale?

cash → sales revenue; COGS → inventory

Which amount is used for sales revenue?

the selling price

which amount is used for cost of goods sold?

inventory’s cost

which account records a customer sales return?

sales returns and allowances

what happens to inventory after a sales return?

inventory increases; cogs decreases

why does a sale require two journal entries?

to record revenue and the inventory cost separately

Which one of the following statements regarding sales discounts is correct?

if a company offers a discount to encourage prompt payment and the discount is taken, the discount reduces the net sales amount

Net Sales =

sales revenue - discounts - sales returns and allowances

Angus Company agreed to sell goods for Longhorn Company on consignment, but wasn't willing to take ownership of the goods in case they were difficult to sell. Which of the following statements is true?

Longhorn owns the inventory and should report it on its balance sheet.

A company's beginning inventory was $4,860 and purchases were $10,080 during the year. The company's ending inventory count was $9,000.

 

Use the COGS equation to determine the amount of its cost of goods sold.

5940

 

Goods available for sale equals:

goods available for sale equals cost of goods sold plus ending inventory

Which inventory method is typically used when accounting for expensive and unique inventory items?

specific identification

FIFO, LIFO, and weighted average inventory costing methods are based on:

assumptions that accountants make about the flow of inventory costs

Generally accepted accounting principles (GAAP) require that the inventory be reported at:

lower of cost or market/net realizable value

Which of these would you expect to have the highest inventory turnover ratio?

Mcdonalds

Which of the following would not be affected by the choice of an inventory costing method (that is, choosing between FIFO, LIFO, weighted average, and specific identification)?

sales revenue

When costs to purchase inventory are increasing over time, using FIFO leads to reporting ________ cost of goods sold and ________ net income than LIFO.

lower, higher

An objective of the expense recognition principle ("matching") is to have bad debt expense recorded in:

the same period the related credit sales are recorded

The Allowance for Doubtful Accounts will have a debit balance before adjustments when:

the company recorded write-offs that exceed previous estimates of uncollectible accounts

The adjusting entry used to record the estimated bad debts in the period credit sales occur decreases:

both net income and net accounts reveivable

In the interest formula, the interest rate is on a(n) ________ basis; therefore, the time variable must reflect how many ________ out of ________ in the interest period.

annual months 12

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. One of the disadvantages of extending credit are costs related to:

bad debt

Which of the following is not used to calculate straight-line depreciation?

The replacement cost the company will be required to incur to replace the asset

When a company records annual depreciation on equipment, the debit to Depreciation Expense, increases an expense account, which decreases stockholders' equity. Which account is credited, and how does it impact the accounting equation?

credit to accumulated depreciation

Which of the following statements is FALSE regarding how long-lived tangible assets and related depreciation are reported on the financial statements?

Accumulated Depreciation is reported as a positive amount on the balance sheet and adds to the historical cost of the asset to determine book value.

The straight-line depreciation method and the double-declining-balance depreciation method:

produce the same total depreciation over the assets useful life

Under what circumstances should a company record an asset impairment loss?

when the book value is greater than the fair value of the asset

Intangible assets are:

long lived assets with no physical substance