Exam 3 Review

Question 1

Bad Debt Expense

Answer 1

(Net Credit Sales for Period) x (Historical Bad Debt Loss Rate)

Question 2

Percentage of Credit Sales Equation

Answer 2

(Net Credit Sales) x (% Estimate Uncollectible)

Question 3

Interest Equation

Answer 3

Principal(P) x Interest Rate(I) x Time(t)

Question 4

Write Off Journal Entry:

Answer 4

dr. Allowance for Doubtful Accounts

cr. Accounts Receivable

Question 5

Reverse Write Off Journal Entry:

Answer 5

dr. Accounts Receivable

cr. Allowance for Doubtful Accounts

Question 6

Receipt of Cash Journal Entry:

Answer 6

dr. Cash

cr. Accounts Receivable

Question 7

Bad Debt Journal Entry:

Answer 7

dr. Bad Debt Expense

cr. Allowance for Doubtful Accounts

Question 8

Loan to Employees Journal Entry:

Answer 8

dr. Notes Receivable

cr. Cash

Question 9

Interest Accrued Journal Entry:

Answer 9

dr. Interest Receivable

cr. Interest Revenue

Question 10

Receipt of Interest on Note’s Maturity Date Journal Entry:

Answer 10

dr. Cash
cr. Interest Revenue
cr. Interest Receivable

Question 11

Payment for Full Principal of Note:

Answer 11

dr. Cash

cr. Notes Receivable

Question 12

Average Net Receivable

Answer 12

(Beginning Net Receivable + End Net Receivable) /2

Question 13

Receivable Turnover Ratio

Answer 13

(Net Sales) / (Average Net Receivables)

Question 14

Days to Collect

Answer 14

365 / (Receivable Turnover Ratio)

Question 15

Company Interested in Minimizing Income Taxes:

Answer 15

Declining Costs - FIFO

Rising Costs - LIFO

Question 16

Manager’s Goals for Inventory

Answer 16

(1) Maintaining sufficient quantity
(2) Ensuring quality
(3) Minimizing acquisition and carrying costs

Question 17

Inventory Turnover Ratio

Answer 17

COGS / (Average Inventory)

Question 18

Average Inventory

Answer 18

(Beginning Inventory + Ending Inventory) / 2

Question 19

Days to Sell

Answer 19

365 / (Inventory Turnover Ratio)

Question 20

Oldest price sold first.

Answer 20

FIFO

Question 21

Most recent purchase price sold first.

Answer 21

LIFO

Question 22

Gross Profit Equation

Answer 22

Net Sales - COGS

Question 23

Current asset on balance sheet.

Answer 23

Inventory

Question 24

Expense on income statement

Answer 24

COGS

Question 25

Reasons Inventory Falls Below Cost:

Answer 25

(1) Easily replaced by identical goods at lower cost

(2) Becomes outdated or damaged.

Question 26

Periodic Updating Equation

Answer 26

Beginning Inventory + Purchases - Ending Inventory = COGS

Question 27

Perpetual Updating Equation

Answer 27

Beginning Inventory + Purchases - CCOGS = Ending Inventory

Question 28

Effects of Increasing Costs on Financial Statements

Answer 28

FIFO:
Inventory - higher
COGS - lower
Highest Gross Profit

LIFO:
Inventory - lower
COGS - higher

Question 29

Effects of Decreasing Costs on Financial Statements

Answer 29

FIFO:
Inventory - lower
COGS - higher

LIFO:
Inventory - higher
COGS - lower
** Highest Gross Profit**

Question 30

Advantages of Extending Credit

Answer 30

(1) Increases the sellers revenue

Question 31

Disadvantages of Extending Credit

Answer 31

(1) Increased Wage Costs
(2) Bad Debt Costs
(3) Delayed Receipt of Cash

Question 32

Number of Days to Sell

Answer 32

Average Inventory / (Daily Average COGS)

Question 33

Average Inventory

Answer 33

(Beginning Inventory + Ending Inventory) / 2

Question 34

Daily Average COGS

Answer 34

COGS / 365

Question 35

Bad Debt Expense

Answer 35

Before income operations

Question 36

Interest Revenue

Answer 36

After income operations

Question 37

Allowance for Doubtful Accounts if a contra-account that offsets

Answer 37

Accounts Receivable

Question 38

If inventory costs have been falling during the year, which cost method results in the highest gross profit?

Answer 38

LIFO

Question 39

Costing method that approximates closely the current cost of each of the following

Answer 39

Ending Inventory - FIFO

COGS - LIFO