Final Exam-E2 Flashcards Preview

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Flashcards in Final Exam-E2 Deck (28):
1

companies accept credit card payment for all of the following reasons

1. the company can avoid costs of providing credit directly to consumers 2. losses from bad checks are reduced 3. customer traffic is increased

2

name three contra revenue accounts

sales discounts, credit card discounts, sales returns and allowances (allowance for doubtful accounts is a contra asset)

3

what is the most likely effect of increased effectiveness of collection methods on a company receivables turnover ration

turnover ration will increase

4

why are bank reconciliations needed

companies' bank accounts may have items known only by the bank that are needed to adjust the cash account on the books to the correct balance

5

what is the primary purpose of the LIFO reserve

to compute the differences in ending inventory costs and cost of goods sold between using LIFO and FIFO

6

which of the following statements regarding the periodic and perpetual inventory systems is correct

under the periodic method, the amount of inventory is not known until the end of the period when an inventory count is taken

7

what kind of business would not be as likely to use the specific identification method of inventory valuation

a grocery store; things like an art dealer or custom jewelry store might because their inventory is unique

8

A company sells a product FOB destination. The product is shipped on Dec 29, 2016 and the customer receives the shipment on Jan 3, 2017. When will the sale be recorded

It will be recorded when the shipment is received by the customer because title transfers when the product reaches the destination

9

which of the following statements is correct when inventory unit costs are increasing

FIFO will result in higher net income and a higher inventory valuation than will LIFO

10

cost of goods available for sale is allocated between

cost of goods sold and inventory at year end

11

what are cash equivalents and give an example

they are highly liquid debt instruments with original maturities of three months or less. They are as close to actual cash as you can get. ex. treasury bills and commercial paper

12

explain why the allowance method of accounting for bad debt expense is used in financial reporting

since we know that some credit customers will end up not paying us but we won't know who they are for a long time, we estimate the bad debts and record the adjusting entry.

13

what would be included on the income statement

insurance expense, cost of goods sold, and discontinued operations; (accumulated depreciation would not be on there)

14

FOB shipping point

ownership changes when the product ships

15

FOB destination

product belongs to the seller until it arrives

16

what is a reason to accept credit cards

can receive money faster, will not have to be concerned with NSF checks, will not have to provide accounts for customers

17

when using the allowance method for accounting for bad debts, accounts receivable is reported on the balance sheet at the expected net realizable value. when a particular receivable is determined to be uncollectible and is written off, the recording of this event will

have no effect on the net realizable value of the accounts receivable

18

describe the allowance for doubtful accounts balance

is created as a result of the adjusting entry to record bad debt expense; is a contra asset; is reported on the balance sheet as a component of current assets

19

the average cost method will result in an ending inventory balance which is

somewhere between LIFO and FIFO when inventory unit costs are changing

20

describe the lower of cost or market (LCM or net realizable value) valuation method for inventory

the journal entry to write down inventory increases cost of goods sold, decreases gross profit, and decrease current assets

21

what is the effect if an ending inventory is overstated

the net income would be overstated

22

when a company uses the periodic inventory system, what happens

cost of goods sold is computed at the end of the accounting period rather than at each sale date

23

under the LIFO cost flow assumption during a period of rising costs, what is true

income tax expense will be lower, ending inventory will be lower, and net income will be lower under LIFO than under FIFO; (cost of goods sold will NOT be lower)

24

which of the following is not a component of the gross profit calculation

allowance for doubtful accounts; (cost of sales, sales returns and allowances, and credit card discounts are all part of it)

25

what does the entry to write off a bad account look like

debit: Allowance for doubtful accounts
credit: Accounts receivable

26

what is the relationship between the income statement and the ending retained earnings balance

net income and net loss both affect the ending retained earnings balance; net income increase the balance while net loss decreases the balance

27

what is true about the balance sheet

assets are reported in order of liquidity, current liabilities are obligations to be paid with current assets, buildings and equipment are reported at book value

28

what account would not be included in the closing process at year end

additional paid in capital (sales revenue, cost of goods sold, and rent expense would all be included)