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Flashcards in Ch 9 To 11 Wrong Answers Deck (17):
0

3 reasons why straight line method and MACRS differ?

1 estimated useful life differs

2 MACRS doesnt use salvage value

3 half year convention used for tax purposes

1

Why is depreciation for tax purposes different from depreciation for book purposes even if the company uses the same depreciation method to compute the both 3 things?

1 half year convention used for tax purposes

2 estimated useful life and tax life different

3 tax system ignores salvage value

2

What is the COGS when sales are made at 33.3333% above cost and totaled $100,000?

33.333%/(100% + 33.333%) = 25%

COGS = 75% x $100,000 = $75,000

3

What is cost of goods sold when gross profit is 33.333% of sales of $100,000?

.66667 x $100,000 = $66,667

4

On December 31, 2014, company has outstanding noncancelable purchase commitments for 36,000 at $3.00 per gallon of raw material.
What are the journal entries for the following situation
A) assuming market price as of December 31, 2014 is $3.30, how would this matter be treated in accounts and statements

Footnote in balance sheet

Excess of market price over contracted price is gain
contingency

Can't be recognized per FASB statement no. 5 until
Recognized

5

On December 31, 2014, company has outstanding noncancelable purchase commitments for 36,000 at $3.00 per gallon of raw material.
What are the journal entries for the following situation
B) assuming the market price as of December 31, 2014 is $2.70, how would you treat this situation in accounts and statements

Drop in market price should be charged to operations
in current year
Entry:
Unrealized holding gain or loss- income
(purchase commitments). 10,800
Estimated liability on purchase
Commitments. 10,800

6

On December 31, 2014, company has outstanding noncancelable purchase commitments for 36,000 at $3.00 per gallon of raw material.
What are the journal entries for the following situation
C) give the entry in January 2015, when 36,000 gallon shipment is received, assuming the market price of $2.70 per gallon

Raw materials. 97,200
Estimated liability on purchase
Commitments. 10,800
Accounts payable. 108,000

This entry eliminates 2014 $10,800 liability, thus permitting operations to charge 10,800 for 2014 and $97,200 for 2015

7

Keeper company signed a long term noncancelable purchase commitment with a major supplier to purchase raw materials in 2015 at cost of $1,000,000. At December 31, 2014, the raw materials is to be purchased have a market value of $950,000.

Prepare any necessary December 31, 2014 entry.

Unrealized holding loss - income (purchase
Commitments). 50,000
Estimated liability on purchase commitments. 50,000

8

Keeper company signed a long term noncancelable purchase commitment with a major supplier to purchase raw materials in 2015 at cost of $1,000,000. At December 31, 2014, the raw materials is to be purchased have a market value of $950,000.
In 2015, keeper paid $1,000,000 to obtain raw materials that were worth $950,000.

Prepare the entry to record the purchase

Purchases (inventory). 950,000
Estimated liability on Purchase commitments. 50,000
Cash. 1,000,000

9

Actual interest vs. avoidable interest

Whichever form of interest is lower should be capitalized

10

Assume an asset is going to be disposed of its fair value in 2014 was $4,800,000 and an impairment loss of $3,220,000 had been taken in 2014. A year has passed and it is still on the market for sale.
What is the entry if on December 31, 2015 the equipment has a fair value of $5,300,000?

Accumulated depreciation equip. 500,000
Recovery of loss from impairment. 500,000

11

The double declining balance method...

Doesn't include salvage value

12

Kumar inc uses the perpetual inventory system. At January 1, 2014, inventory was both $214,000 at both cost and market value. At December 31, 2014, the inventory was $286,000 at cost and $265,000 at market value.

Prepare the necessary December 31 entry under a) the cost of Goods sold method and b) the loss method

Cost of goods sold. 21,000
Allowance to reduce inventory to market. 21,000

Loss due to market decline of inventory. 21,000
Allowance to reduce inventory to market. 21,000

13

Record journal entry for $19,000 reduction in inventory 2013
And $15,000 reduction in inventory for 2014 where the inventory is recorded at market and the perpetual inventory system (direct method) is used?

Cost of goods sold. 19,000
Inventory. 19,000

Cost of goods sold. 15,000
Inventory. 15,000

14

Record journal entry for $19,000 reduction in inventory 2013
And $15,000 reduction in inventory for 2014 where the inventory is recorded at cost and an allowance account is adjusted at each up year end under a perpetual system?

Loss due to market decline of inventory 19,000
Allowance to reduce inventory to market. 19,000

Allowance to reduce inventory to market. 4,000
Loss due to market decline of inventory. 4,000

15

Prepare the journal entry to record the capitalization of interest and recognition of interest expense on a building when avoidable interest = $183,000 and actual interest = $1,040,000?

Interest expense. 857,000
Buildings. 183,000
Cash. 1,040,000

16

Equipment has a list price of $10,000. Geddes paid cash for the equipment 8 days after the purchase. The vendors credit terms are 2/10, n/30.
What is the journal entry assuming the equipment purchases are initially recorded gross?

Equipment. 10,000
A/P. 10,000

A/P. 10,000
Equipment. 200
Cash. 9,800