Accounting 1 Final Exam Flashcards
(108 cards)
1
Q
What is the “cost of goods sold?”
A
the cost to acquire the merchandise sold
2
Q
What is “gross profit?”
A
Sales - Cost of goods sold
3
Q
What is “net income?”
A
Gross profit - Operating Expenses - Income Tax Expense
4
Q
What are the two approaches for Merchandise Inventories?
A
Perpetual Inventory System
Periodic Inventory System
5
Q
How do you capture acquiring inventory?
A
Debit Inventory
Credit Accounts Payable
6
Q
What two journal entries are necessary when merchandise is sold?
A
Recognize revenue
Recognize cost
7
Q
What is inventory shrinkage?
A
breakage, spoilage, and theft
8
Q
How do you capture inventory shrinkage?
A
Debit Cost of Goods Sold
Credit Inventory
9
Q
What do the discount terms 2/10, n/30 mean?
A
2% discount, if you pay with in 10 days. But you have to pay within 30 days
10
Q
What does net cost assume?
A
That you’re taking a discount.
11
Q
What are types of financial assets?
A
Cash, short-term investments, receivables
12
Q
How do you value cash on the balance sheet?
A
Face amount
13
Q
How do you value short-term investments on the balance sheet?
A
Fair market value
14
Q
How do you value receivables on the balance sheet?
A
Net realizable value
15
Q
How can something qualify as a cash equivalent?
A
Very safe
stable market value
mature within 90 days
Ex: Money market funds, US Treasury Bills, High grade commercial paper
16
Q
What is restricted cash?
A
A bank balance that is not available to meet the normal operating needs of the company
17
Q
How should Restricted Cash be presented?
A
“Investments & Restricted Funds”
18
Q
Why are lines of credit disclosed?
A
Increases a company’s liquidity
19
Q
What are marketable securities?
A
Investments in bonds and in capital stocks of publicly owned corporations. They can be purchased or sold quickly and easily.
20
Q
How are marketable securities written in the journal?
A
Debit Marketable Securities
Credit Cash
21
Q
How is Investment Revenue recognized?
A
Debit Cash
Credit Dividend Revenue
22
Q
How is Sales of Investments at a Gain recognized?
A
Debit Cash
Credit Marketable Securities
Credit Gain on Sale of Investment
23
Q
How are Sales of Investments at a Loss recognized?
A
Debit Cash
Debit Loss on Sale of Investment
Credit Marketable Securities
24
Q
How do you recognize when you need to Adjust Marketable Securities to Market Value?
A
Debit Unrealized Holding Loss on Investments
Credit Marketable Securities
25
How do you recognize Uncollectible Accounts in the Financial Statements?
Debit Uncollectible Accounts Expense
| Credit Allowance for Doubtful Accounts
26
What is the net realizable value?
Amount of accounts receivable that the business expects to collect.
Accounts receivable - allowance for doubtful accounts
27
How do you write off an Uncollectible Account Receivable?
Debit Allowance for Doubtful Accounts
| Credit Accounts Receivable
28
What are the two approaches for estimating credit losses?
1. Balance sheet approach
| 2. Income statement approach
29
What does an aging schedule look like?
Age Group Total X Percentage Considered Uncollectible = Estimated uncollectible accounts
30
How do you compute interest?
Interest = Principal X Rate of Interest X Time
31
What is the General Journal entry for a sale of merchandise
Debit Cost of Goods Sold
| Credit Inventory
32
Under GAAP, what are the 4 options for costing inventories?
1. Specific Identification
2. Average Cost
3. FIFO
4. LIFO
33
What are the tradeoffs for the FIFO method?
may overstate income during periods of rising prices; may increase income taxes due
34
What are the tradeoffs of the LIFO method?
most conservation method during periods of rising prices; often results in lower income taxes due
35
What is the primary reason for taking a physical inventory?
Adjust the perpetual inventory records for unrecorded shrinkage losses.
36
How is inventory valued?
The lower of its HISTORICAL COST or its NET REALIZABLE VALUE
37
How do you calculate net realizable value?
EXPECTED SELLING PRICE - COST OF COMPLETION/DISPOSAL/TRANSPORATION
38
What is FOB?
Free on board
39
What is FOB Shipping Point mean?
Goods are property of the buyer while in transit.
40
What is FOB Destination mean?
Goods belong to seller in transit and don't belong to buyer until they reach the destination.
41
What is the principle of CONSISTENCY?
once a company has adopted a particular accounting method, it must follow it
42
What are PLANT ASSETS?
bundle of future services and can be thought of aslong-term prepaid expenses
43
What are the 3 groups of plant & equipment items?
1. tangible plant assets
a. property subject to depreciation
b. Land (no depreciation)
2. Intangible assets (patents, copyrights, amortization
3. natural resources
44
What are the 3 accountable events for plant assets?
1. Acquisition
2. Allocation of the acquisition cost to expense (depreciation)
3. Sale or disposal
45
What is the BOOK VALUE?
COST - ACCUMULATED DEPRECIATION
46
What is DEPRECIATION?
CONTRA-ASSET
| Represents the portion of an asset's cost that has already been allocated to expense?
47
What is Straight-Line Depreciation?
Cost -- Residual Value
---------------------------------
Years of Useful Life
48
What is the DECLINING BALANCE METHOD?
DEPRECIATION EXPENSE =
| REMAINING BOOK VALUE X ACCELERATED DEPRECIATION RATE
49
Which depreciation method do most publicly owned companies use?
STRAIGHT LINE
50
What types of financial statements use which type of depreciation method?
```
SL = financial statements
AD = income tax returns
```
51
What are MACRS?
Modified Accelerated Cost Recovery System
| Not approved by GAAP
52
What is AMORTIZATION?
The systematic write-off to expense of the cost of an intangible asset over its useful life
53
What is GOODWILL?
The amount that a company has paid to acquire certain favorable intangible attributes as part of an acquisition of another company.
54
What are the characteristics of LIABILITIES?
All eventually mature
Come due + must be paid
Creditors
55
What are the characteristics of OWNERS' EQUITY?
Investments and retained earnings
| Does not mature
56
What are CURRENT LIABILITIES?
Paid within 1 yr or business cycle
| Paid from current assets or rendering services
57
What are ACCRUED LIABILITIES?
Recognition of expenses for which payment will be made in a future period (accrued expenses)
58
What is UNEARNED REVENUE?
Liability when customer pays in advance
59
How do you journal unearned revenue?
Debit Cash
| Credit liability account, Unearned Revenue/Customers' Deposits
60
How do you calculate how to pay off a loan?
1. Identify the unpaid principal balance
2. Interest Expense = Unpaid Principal X Interest Rate
3. Reduction in Unpaid Principal Balance = Installment Payment - Interest Expense
4. Compute new unpaid principal balance
61
What are the headings for an AMORTIZATION TABLE?
1. Interest Period
2. Payment Date
3. Monthly Payment
4. Interest Expense
5. Reduction in Unpaid Balance
6. Unpaid Balance
62
How do you log amortization?
Debit Interest Expense
Debit Installment Note Payable
Credit Cash
63
What is the adjusting entry for amortization?
Debit Interest Expense
| Credit Interest Payable
64
What are 3 characteristics of BONDS?
1. Borrowing of large $$ called the PRINCIPAL
2. Principal is paid back as a LUMP SUM at the end of a bond period.
3. Bonds are often denominated with par value, or FACE VALUE of $1K
65
What do you need to know about Bond Interest?
1. Usually a standard rate of interest called a CONTRACT RATE
2. Interest paid SEMIANNUALLY
3. Interest = Principal X State Rate X Time = Interest
66
What does is mean if there's a bond fo $1,000 priced at 102.
It would sell for $1,020
67
What are 5 types of bonds?
1. Mortgage bond
2. Debenture bond--unsecured
3. Callable bod
4. Convertible bond - can be exchanged for stock
5. Junk bond - high risk
68
What is the tax advantage of bond financing?
Adv. of raising $ by issuing bonds instead of stock is that interest payments are deductible in determining income subject to corporate income taxes.
Dividends paid to stockholders are not deductible
69
What are the accountable events for Bonds Payable?
1. Issuance of the bonds
2. Semiannual interest payments
3. Accrual of interest payable at the end of each accounting period
4. Retirement of the bonds at maturity
70
How do you record the issuance of a bond?
Debit Cash
| Credit Bonds Payable
71
How do you record bond interest?
Debit Bond Interest Expense
| Credit Cash
72
How do you record an adjusting interest for a bond?
Debit Bond Interest Expense
Debit Bond Interest Payable
Credit Cash
73
What does it mean if the bond's interest rate is ABOVE market rate?
The bond sells at a PREMIUM
74
What does it mean if the bond's interest rate is EQUAL to the market rate?
The bond sells at FACE AMOUNT
75
What does it mean if the bond's interest rate is BELOW the market rate?
The bond sells at a DISCOUNT
76
How do you record a discount bond?
Debit Cash
Debit Discount on Bonds Payable
Credit Bonds Payable
77
How do you record an interest payment for a discount bond?
Debit Bond Interest Expense
Credit Discount on Bonds Payable
Credit Cash
78
What are the advantages of the corporate form?
1. Stockholders are not personally liable for the debts of a corp.
2. Transferability of ownership
3. Professional management
4. Continuity of existence
79
What are the disadvantages of the corporate form?
1. Heavy taxation
2. Greater regulation
3. Cost of formation
4. Separation of ownership & management
80
What is par value of share?
Represents the legal capital per share
May be regarded as a minimum cushion of equity capital
Is usually a small portion of total stockholders' equity
Often set at nominal amounts by most large corps.
81
How do you record stocks issued about par value?
Debit Cash
Credit Capital Stock
Credit Additional Paid-In Capital
82
What happens when "no-par" stock is issued?
Entire price is credited to Capital Stock account and is viewed as legal capital not subject to withdrawal
83
What are the rights of a common stock holder?
Voting
Dividends
Liquidation claims
84
What are the primary sources of corporate equity?
Preferred Stock
Common Stock
Retained Earnings
85
What is the book value of common stock?
The amount of net assets represented by each share of stock
Total stockholders' Equity / Number of Shares Outstanding
86
What is the market value of a stock?
the price shares change hands
87
What influences the market price of preferred stock?
1. dividend rate of shares
2. risk of investment based on financial & economic factors
3. Market Interest rates
- -> rise, stock prices decline
- -> fall, stock prices rise
88
What is treasury stock?
shares that have been issued and later reacquired but have not been retired
89
How do you record treasury stock?
Debit Treasury Stock
| Credit Cash
90
How do you record reissuance of treasury stock?
Debit Cash
Credit Treasury Stock
Credit Additional Paid-In Capital: Treasury Stock
91
How are cash equivalents reported in financial statements?
Normally not shown separately in financial statements. Combined with other types of cash and reported under "Cash and Cash Equivalents."
92
How is cash for a special purpose reported?
Should be separated from Cash & Cash Equivalents because it can't pay a specific liability.
List under "Investments and Restricted Funds" in the balance sheet.
93
How should compensating balances be reported?
Listed in cash and described in notes.
94
How should securities that have exceeded their cost be reported?
"Unrealized Holding Gain/Loss on Investments" on the balance sheet
Not shown on the income statement.
95
How do you reported the Allowance for Doubtful Accounts?
It is a contra-asset. It reduces the amount shown for accounts receivable in the balance sheet.
96
How do you report realized gains or losses on investments sold in the period?
Income statement
97
How do you adjust doubtful accounts if they're higher than first calculated?
Debit Uncollectible Accounts
| Credit Allowance for Doubtful Accounts
98
How do you record capital gains?
Debit Cash
| Credit Gain on Sales of Investments
99
How can financial statements reflect an increase in the market value of the company's investments before they sell any?
Income Statement in Earnings
Measured at fair value
This has changed recently
100
To record a sale of investments at a price above cost.
Debit Cash
| Credit Gain on Sales of Investments
101
Record PURCHASE OF MARKETABLE SECURITIES
DEBIT MARKETABLE SECURITIES
| CREDIT CASH
102
Record DIVIDEND REVENUE
DEBIT CASH
| CREDT DIVIDEND REVENUE
103
Record how to write off an uncollectible account receivable.
Debit Allowance for Doubtful Accounts
| Credit Accounts Receivable
104
What is the Balance Sheet approach?
approach for estimating the probable amount of uncollectible accounts based on aging the accounts receivable
105
What is the Income Statement approach?
approach for estimating the uncollectible accounts expense to be reported in the income state for the period
106
What does the income statement approach look like in the journal?
Debit Uncollectible Accounts Expense
| Credit allowance for Doubtful Accounts
107
How to you recover a receivable previously written off?
Debit Accounts Receivable
| Credit Allowance for Doubtful Accounts
108
What is factoring?
When a business sells its accounts receivable to a financial institution/factor.
