Accounting Test 2 PDF

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Belmont University Accounting Principles 1 Exam 2 Review and Notes...

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Accounting: Test 2 Lecture Notes/Exam Review An item of merchandise that was sold for $600 cash by a business using the perpetual inventory system. The item cost $400. After the sale entry has been recorded, what additional entry would be required? A) a debit to sales and credit to inventory for $600 B) a debit to inventory and a credit to cost of goods sold for $400 C) A debit to cost of goods sold and a credit to purchases for $400 D) A debit to cost of goods sold and a credit to inventory for $400 What is NOT affected by the choice of an inventory costing method (that is, between FIFO, LIFO, and weighted average)? A) cost of goods sold B) net sales C) gross profit D) net income Mr Goeddee deposits $500 in his savings account at the end of every month for three years. The account's annual interest rate is 6%. To determine the balance in the account after three years, he should use: A) i = 0.5% B) n = 3. C) C Table B.2, Future Value of 1 D) All of the above When a firm writes off a bad debt under the allowance method of accounting for bad debts, what occurs? A) expenses will increase B) total assets remain the same C) both of the above D) neither of the above Given the following information for Potter Company, what are Net Sales? Beginning Inventory 10,000 Gross Profit 60,000 Ending Inventory 9,000 Net Purchases 45,000 A) $ 46,000 B) $ 55,000 C) $ 106,000 D) $ 105,000

Which of the following is true about the Cost of Goods Sold? A) it is a contra-asset on the balance sheet B) it is an expense C) it includes selling and administrative costs D) it includes the cost of bad debts Which accounting principle may allow a company to report an amount NOT in accordance with GAAP? A) materiality B) cost C) conservatism D) there is no such principle Which of the following would require a journal entry on Foster's books? A) outstanding checks B) deposits in transit C) customer check returned by bank as NSF D) all of the above would have required a journal entry to correct foster's books What basic principle requires the lower-of-cost-or-market rule? a) revenue recognition b) consistency c) time period d) conservatism If a merchandiser's ending inventory on December 31, 2011 is counted incorrectly, which of the following will also be incorrect for 2011? A) cost of goods sold B) sales revenue C) goods available for sale D) all of the above Ms Daly deposited $6,000 in an account that earns 4% per year, compounded quarterly. How much will she have in the account at the end of four years? a) $ 6,960.00 b) 7,019.40 c) $7,035.60 d) $ 11,238.00 Which of the following statements is true about the effects of inventory costing methods during a period of rising prices? A) FIFO results in the lowest taxes B) LIFO results in the lowest Net Income C) LIFO results in the highest inventory

In which case would Johnson Company report "Sales Discounts?" A) Johnson puts its merchandise on sale. B) Johnson's goods are reduced in price due to damage C) Johnson buys merchandise and pays promptly D) Johnson's customers buy merchandise and pays promptly Which of the following is/are true about the account "Allowance for Bad Debts?" A) it is a contra-asset account B) it appears on both the balance sheet and the income statement C) it is added to accounts receivable to report a more conservative amount D) all the above Which of the following supports the use of an allowance account for accounting for bad debts? a. Matching principle. b. Conservatism. c. Both of the above. d. Neither of the above. How should a company record freight cost on goods purchased? a. Add to inventory purchases. b. Subtract the cost of goods sold. c. Add to cash. d. Add to accounts receivable. Sales Revenue A representation of the inflow of assets Sales Returns and Allowances Contra-Revenue accounts used to record refunds to customers and reductions of their accounts. Sales Discounts A Contra-Revenue account used to record discounts given to customers for early payment of their accounts Perpetual Inventory System System in which the Inventory account is increased at the time of each purchase and decreased at the time of each sale Periodic Inventory System System in which the inventory account is updated only at the end of the period Transportation-In An adjunct account used to record freight costs paid by the buyer

Purchases An account used in a periodic inventory system to record acquisitions of merchandise Purchases Returns and Allowances A contra-purchases account used in a periodic inventory system when a refund is received from a supplier or a reduction is given in the balance owed to a supplier Purchase Discounts A Contra-purchases account used to record reductions in purchase price for early payment to a supplier FOB Destination Point Terms that require the seller to pay for the cost of shipping the merchandise to the buyer (Seller owns it until it gets to the buyer) FOB Shipping Point Terms that require the buyer to pay for the shipping costs (Buyer owns it while it is in transit) Gross Profit Ratio Gross Profit / Net Sales Specific Identification Method An inventory costing method that relies on matching unit costs with the actual units sold Weighted Average Cost Method An inventory costing method that assigns the same unit cost to all units available for sale during the period FIFO Method An inventory costing method that assigns the most recent costs to ending inventory LIFO Method An Inventory method that assigns the most recent costs to cost of goods sold LIFO Conformity Rule The IRS requirement that when LIFO is used on a tax return, it must also be used in reporting income to stockholders Inventory Turnover Ratio Cost of Goods Sold / Average Inventory Net Sales Equation Sales Revenue

- Sales R&A - Sales Discounts Net Purchases Equation Purchases -Purchases Returns and Allowances -Purchase Discounts Cost of Goods Purchased Equation Net Purchases + Transportation-In COGAS Formula Beginning Inventory + Purchases COGS Formula COGAS - Ending Inventory Deposit In Transit Deposit recorded on the books but not yet reflected on the bank statement Outstanding Check Check written by a company but not yet presented to the bank for payment Credit Memoranda Additions on a bank statement for such items as interest paid on account and notes collected by the bank for the customer Debit Memorandum Deductions on a bank statement for items such as NSF checks and various other charges Subsidiary Ledger The detail for a number of individual items that collectively make up a single general ledger account Control Account The general ledger account that is supported by a subsidiary ledger Direct Write-Off Recognition of bad debts expense at the point an account is written off as uncollectible

Allowance Method A method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period Allowance for Doubtful Accounts A contra-asset account used to reduce accounts receivable to its net realizable value Maker The party that agrees to repay the money for a promissory note at some future date Payee The party that will receive the money from a promissory note at some future date (People that originally lent the money) Principal the amount of cash received, or the fair value of the products or services received, by the maker when a promissory note is issued Maturity Date Date a promissory note is due Maturity Value amount of cash the maker is to pay the payee on the maturity date of the note Interest the difference between the principal amount of the note and its maturity date of the note Discounting The process of selling a promissory note...