Financial Accounting: Practice Exam 2: Ch. 5,6,7,11 – Flashcards
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The order of current assets on the balance sheet
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Cash, Short term investments, accounts receivable
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The order of current assets is organized by
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Liquidity
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What item do you need to compute depreciation expense for a given asset?
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Residual Value
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The net realizable value of accounts receivable is equal to
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Ending Balance of accounts receivable minus the ending balance of the allowance for bad debts
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What is the formula for figuring out inventory turnover?
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Cost of goods sold/ (Beginning inventory + Ending inventory/2)
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High expense entails
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Low income, low tax
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LIFO
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Last in First Out
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Beginning inventory COGS (Opposite affect, Overstatement, Understatement)
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Ending Inventory Gross Profit Net Income Retained Earnings
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In a period of rising prices, what method will result in the lowest income tax expense
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LIFO
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Capital Expenditures include
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Addition of a new annex Extraordinary repairs Major Renovations
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Bad Debit Expense =
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% uncollected x credit sales
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When asking for allowance, Formula is
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Beginning allowance + BDE - write offs = Ending allowance
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What account has a normal debit balance?
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Accounts receivable
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Companies prepare classified and comparative financial statements because
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They provide statement readers with useful information about trends in financial position and operating performance
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Inventory Costing Methods (4)
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First in First Out Last in First Out Average cost specific identification
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In a period of falling prices, which inventory method is expected to report the highest ending inventory?
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LIFO
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Acquisition cost of a building, purchased to house the new corporate headquarters, includes (4)
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Title Transfer fees Purchase Price Legal fees associated with purchase Required safety renovations
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When a company ships a product to a customer with the terms "Free on board" destination, it means
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The seller will pay the shipping charges and title will not be exchanged until goods are received by the customer
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These depreciation methods depreciate(s) the acquisition cost of an asset to its residual value
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straight- line units of production double declining balance
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The net realizable value of accounts receivable is not affected by
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Write off of doubtful accounts
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The net realizable value of accounts receivable is affected by
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-Adjusting entry to record bad debt expense -Simultaneous re-instatement and cash collections from previously written off accounts -Receipt of cash on prior credit sales
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Inventory turnover ratio is a measure of
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Liquidity
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Emphasis in financial accounting is on which user groups?
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Investors and creditors
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The purpose of recording depreciation expense is to
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allocate the cost of the asset over its useful life
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A capital Expenditure example
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Major additions
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Depreciation method that ALWAYS allocates relatively more of an asset's cost in the early years of its useful life is
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Double declining balance
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Residual Value is
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The amount expected to be recovered when an asset is disposed of at the end of its estimated useful life
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Method used to compute amortization expense is
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Straight line
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Net sales is computed as
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Sales revenue less sales returns and allowances less sales discounts
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Expected useful life is
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Estimated at the time that the asset is placed in service
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Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be
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the same
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The type of account and normal balance of allowance for doubtful accounts is
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Contra asset, credit
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If ending inventory is overstated by $6,000, then
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Stockholders' equity is overstated by $6,000
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If a company capitalizes a cost that should have been expensed:
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Assets will be overstated
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At the end of an asset's useful life, the balance in accumulated depreciation will be the same as the:
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Cumulative depreciation expense
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When an asset is fully depreciated:
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The book value is equal to the salvage value, and the asset has reached the end of its estimated useful life
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Asset impairment means
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If an asset is impaired, the impairment loss is the difference between the net book value and the fair value
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The percent of sales method employs:
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The expense recognition (matching) concept
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The entry to write off an account under the allowance method for estimating uncollectible accounts has:
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No effect on total assets or net income
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Direct write off method
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May overstate accounts receivable on the balance sheet
