Final Exam

Question 1

Periodic Inventory Cost System

Answer 1

-Only knows balance at end of period

-Temporary Accounts

-Use end of month

Question 2

Perpetual Inventory Cost System

Answer 2

-Company always knows the amount of inventory on hand.

-Inventory account

-Use right before sale

Question 3

Calculating COGS in a Periodic System

Answer 3

Beginning Inventory
+Net Purchases
=COGAFS
-Ending Inventory
=COGS

Question 4

Net Purchases =

Answer 4

Purchases + Freight-In - Purchase Discounts - Purchase Returns

Question 5

FIFO vs LIFO

Answer 5

FIFO Use inventory at the beginning of the month

LIFO Use inventory at the end of the month

Question 6

In times of increasing prices, LIFO vs FIFO in Cost of Good Sold and Ending Inventory.

Answer 6

FIFO: Higher Ending Inventory, Lower COGS

LIFO: Higher COGS, Lower Ending Inventory

Question 7

Perpetual vs Periodic journal entries for items broken/stolen/lost:

Answer 7

Perpetual:
Dr. Cost of Goods Sold (-SE) X
Cr. Inventory (-A). X

Periodic:
None- ending inventory incorporates these.

Question 8

Inventory Turnover Ratio=

Answer 8

COGS / Average Inventory

Question 9

Net Realizable Value =

Answer 9

Selling Price - Reasonable Cost of Completion

Question 10

What IS and ISN’T Lower of Cost-or-Net Realizable Value/Market applied to?

Answer 10

Cost or NRV: Applied to FIFO

Cost or Market: Applied to LIFO

Question 11

Journal Entries for Lower of Cost or NRV OR Lower of cost or Market:

Answer 11

Amount = Total Cost - Calculation

Dr. COGS (-SE) XX
Cr. Inventory (-A) XX

Question 12

Ceiling =

Answer 12

Net Realizable Value

Question 13

Floor =

Answer 13

Net Realizable Value - Normal Profit Margin

Question 14

Market price to be:

Answer 14

Replacement cost as long as it’s between floor and ceiling.

Question 15

Gross Profit as a percentage of sales =

Answer 15

(Gross Profit as a percentage of cost) / (1 + Gross Profit as a percentage of cost)

Question 16

Estimated COGS under Gross Profit Method =

Answer 16

Sales x (1 - Gross Profit as a percentage of sales)

Question 17

Journal entry for recording a loss on a purchase commitment:

Answer 17

Dr. Estimated Loss on Purchase Commitment (-SE) XX
Cr. Estimated Liability on Purchase Commitment (+L) XX

Question 18

What is fair value and what items are it used for?

Answer 18

What the item is worth

Investments

Question 19

What is historical cost and what items are it used for?

Answer 19

The cost of the item, which is deprecated over time.

PPE

Question 20

What classifies as PPE?

Answer 20

1. Actively used in operations
2. Long-term in nature (>1yr)
3. Tangible

Question 21

Different accounts within PPE:

Answer 21

Land
Land Improvements
Equipment
Buildings
Construction in Process

Question 22

What PPE Accounts are exceptions to depreciation?

Answer 22

Land: not depreciated

CIP: Accumulate costs in CIP, transfer to building, equipment, etc. and then start depreciating

Question 23

4 Steps to account for exchange:

Answer 23

1. Record the new asset at fair value
2. Remove book value of asset given up
3. Record any cash received or paid
4. Plug entry to gain or loss

Question 24

Net Book Value =

Answer 24

Cost - Accumulated Depreciation

Question 25

New Asset's Fair Value =

Answer 25

Cash paid + Fair value of old equipment

Question 26

Typical Journal Entry for exchanges:

Answer 26

Dr. Equipment (New) (+A) XX Dr. Acc. Dep. (Old) (+A). XX Cr. Equipment (Old) (-A). XX Cr. Cash (-A) XX Cr. Gain on Asset (+SE). XX

Question 27

Amount of interest to capitalize for self-constructed assets =

Answer 27

Time-weighted expenditure * Construction loan interest rate (If no construction, multiply by blended rate) (If amount is above construction rate, multiply other rate/blended rate by the rest)

Question 28

Blended interest rate =

Answer 28

(Annual interest of both rates) / Total of both loans

Question 29

If capitalized interest > Actual interest

Answer 29

use actual interest

Question 30

Journal entry for year of self-constructed asset:

Answer 30

Dr. CIP (+A). XX Dr. Interest Expense (-SE). XX Cr. Interest Payable (+L). XX CIP = Capitalized Interest IP = Actual interest IE = Plug

Question 31

Actual interest=

Answer 31

Each loan times its percentage

Question 32

Interest expense =

Answer 32

Actual interest - Capitalized interest

Question 33

Expenditure at the beginning of Year 2:

Answer 33

Expenditures of year 1 + Capitalized interest

Question 34

Cost of self-constructed asset =

Answer 34

Expenditures in each year + Capitalized interest in each year

Question 35

What depreciation is and isn't:

Answer 35

Is used to allocate expense Isn't used for tracking what the asset is "worth"

Question 36

Why do we credit accumulated depreciation, rather than equipment, each period?

Answer 36

Maintain the historical cost in the gross account.

Question 37

Net Book Value versus Fair Value

Answer 37

*NOT THE SAME*

Question 38

Straight-Line Depreciation

Answer 38

(Historical Cost - Residual value)/ Life in years = Depreciation per year

Question 39

Residual Value

Answer 39

The value of a fixed asset at the end of its lease term or useful life

Question 40

Sum of Years Digits Formula =

Answer 40

[Number of years remaining / (N*(N+1)/2)] * (Historical Cost - Residual Value)

Question 41

Carrying value is the same as

Answer 41

Net Book Value

Question 42

Double Declining Balance Rate =

Answer 42

2 * 1/N

Question 43

If Net book value is greater than both cash inflows and fair value,

Answer 43

Record impairment

Question 44

What is the difference between capitalization and expensing?

Answer 44

Total expense is the same, timing is what is different

Question 45

What to capitalize when it comes to patents

Answer 45

Capitalize cost of obtaining a patent Don't capitalize cots of developing the patentable technology

Question 46

Amortization Journal Entry

Answer 46

Dr. Amortization Expense (-SE) Cr. Intangible Asset (Ex. Patent) (-A)

Question 47

Characteristics of good will:

Answer 47

-Do not amortize -Only happens when purchasing another company. -Don't include Common Equity in calculation.

Question 48

Units of Production Depreciation Method

Answer 48

(NBV / Total estimated units produced) * Actual units produced each year