accounting exam 2

record cost of goods sold (before/when) the good is sold.

when. cogs records the cost of SOLD items.

sales returns and allowances is a

contra-revenue (debit when increase)

COGS =

beginning inventory worth + purchased inventory worth - ending inventory

Average cost (for inventories) =

(total cost of goods for sale)/(total units for sale)

average cost method means to:

apply the average cost per unit found to whatever units given

overstated

a value was estimated too high (subtract remainder)

understated

a value was estimated too low (add remainder)

(LIFO/FIFO) provides closest estimate of current prices.

FIFO

(LIFO/FIFO) provides most recent display of profit.

LIFO

(LIFO/FIFO) most likely reflects the real flow of goods.

FIFO

interest =

(borrow amount)(yearly rate)(active period of year)

interest revenue is cumulative, meaning

tracks interest earned over all the months it’s spanned

Any cost necessary for making the asset useable contributes to the cost of:

the asset

Paid $7,000 of accrued taxes at the time the plant site was acquired.

land

Paid $200 insurance to cover a possible accident loss on new factory machinery while the machinery was in transit.

equipment

Paid $250 to have the company name and slogan painted on the new delivery truck.

equipment

Paid $21,000 for parking lots and driveways on the new plant site.

land improvements

Paid $8,000 to install elevators in a new building.

building

1. Paid $75 motor vehicle license fee on the new truck.

license expense

Paid $900 for a 2-year accident insurance policy on the new delivery truck.

prepaid expense

for units of production: depreciation expense =

(cost - salvage value) * (year’s units)/(total estimated units)

book value

the amount a machine is worth following its accumulated depreciation

FORMULA: book value =

cost to buy equipment - accumulated depreciation of equipment

FORMULA gain/loss =

cash received for selling - book value

gain/loss on disposal means:

the comparison between what the asset was worth (book value) and what it was sold for

net sales =

sales revenue - returns - discounts

sales revenue - COGS =

gross profit

income before taxes =

gross profit - operating expenses

net income =

income before taxes - income tax expense

sales revenue - COGS - other expenses =

net income