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AC 210 Exam 3 Study Guide

by: Kristen Marie

AC 210 Exam 3 Study Guide AC 210

Kristen Marie
GPA 3.5
Intro to Accounting
Jordan Rippy

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About this Document

Study guide for Exam 3- Chapter 7-9
Intro to Accounting
Jordan Rippy
Study Guide
AC210, Exam 3, Study Guide, Rippy
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This 4 page Study Guide was uploaded by Kristen Marie on Thursday June 11, 2015. The Study Guide belongs to AC 210 at University of Alabama - Tuscaloosa taught by Jordan Rippy in Summer 2015. Since its upload, it has received 551 views. For similar materials see Intro to Accounting in Accounting at University of Alabama - Tuscaloosa.

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Date Created: 06/11/15
AC 210 Exam 3 Study Guide Chapter 7 Inventory Management Decisions The primary goals of inventory managers are to 1 Maintain a sufficient quality to meet customers needs 2 Ensure quality meets customers expectations and company standards 3 Minimize the costs of acquiring and carrying the inventory Types of Inventory Merchandisers Manufactures 0 Buy finished goods 0 Buy raw materials 0 Sell finished goods 0 Produce and sell finished goods Becomes Becomes Balance Sheet and Income Statement Reporting 9 Balance Sheet 9 Income Statement Cost of Goods Sold Equation Beginning Inventory Purchases Cost of Goods Sold Ending Inventory COGAS BI P Inventory Costing Methods Accounting policy election How your inventory is reported This is considered when deciding on income tax and income reporting Goal Calculate cost of Goods Sold expense on US and Ending Inventory Asset on BS Individual items identified as sold First In First Out Inventory that is purchased first is sold first Last In First Out Inventory that is purchased most recently is sold first Total Cost Total of Units Must be able to identify the follow for Inventory Costing Methods 0 What is COGS o Ending Inventory Inventory Cost Flow Computations Must know the following for each method 0 What is the Cost of Goods Available for Sale 0 What is the of units in Ending Inventory 0 What is the Cost of Goods Sold 0 What is the Cost of Ending Inventory Advantages of Inventory Methods Weighted Average Smooths out price changes FIFO Ending inventory approximates current replacement cost LIFO Better matches current costs in cost of goods sold with revenues Lower Cost of Market When the value of inventory falls below its recorded cost the amount recorded for inventory is written down to its lower market value 2 price per unit is usually in between FIFO and LIFO Recording Inventory Transactions Recording the purchase of inventory on credit Recording costs associated with the inventory added to cost of asset Recording the return of some inventory to supplier Sales discount offered by supplier 210 11 30 less any return difference is reduction in inventory Inventory Turnover Analysis The number of times inventory turns over in the period higher number is better gtl Average BI EI 2 Average number of days from purchase to sale smaller number is better Chapter 8 Pros and Cons of Extending Credit Advantages Disadvantages l Increases the seller s revenues 1 Increased wage costs 2 Bad debt costs 3 Delayed receipt of cash Accounts Receivable and Bad Debts Jun 1 Jun H Bad debt known I Record sales on account Record estimate of bad debts III HHIHI39Ht u ivul t I39 39 l l l l l xlquotquotquotquot3939l i ll U I vamnw II Allnwunrulnv DunlnltlltHlllH39oxA A dr Allowance for Doubtful Accounts xA cr Accounts Receivable A Balance Sheet duh Accounts Receivable Less Allowance for Doubtful Accounts Accounts Receivable Net lnmnlnty Allowance Method Follows a twostep process 1 Make an endofperiod adjustment to record the estimated bad debts in the period creditsales occur 2 Remove writeoffquot specific customer balances when they are known to be uncollectable Methods for Estimating Bad Debts Estimates bad debt expense by multiplying the historical percentage of bad debt losses by the current period s credit sales Estimates the ending balance in the Allowance for Doubtful Accounts Account Recoveries Collection of a previously written off account Accounted for in two parts 1 Put the receivable back on the books by recording the opposite of the writeoff 2 Record the collection of the account Notes Receivable and Interest Revenue A company reports Notes Receivable if it uses a promissory note to document its right to collect money from another party Notes Receivable charge interest from the day they are created to they day they are due maturity date 1 Sign notepay out cash 2 Accrue interest revenue at year end 3 Receive payment of all principal and interest Calculating Interest Interest Principal X Interest Rate X Time Chapter 9 Longlived Assets Something you can physically touch Exists but cannot physically touch Patent Trademark etc Acquisition of Tangible Assets Acquisition cost includes 1 Purchase price 2 All expenditures needed to prepare the assets for its intended use Land Buildings Equipment 0 Purchase cost 0 Purchaseconstruction cost 0 Purchaseconstruction cost 0 Legal fees 0 Legal fees 0 Sales taxes 0 Surveying fees 0 Appraisal fees 0 Transportation costs 0 Broker s commission 0 Architectural fees 0 Installation costs The total cost of a combined purchase of land and building is allocated in proportion to their relative market values Ex Building and Land purchased for 400000 Appraised value for building 325000 and Land 175000 Total Appraised value is 500000 325000 175000 065 500000 500000 Maintenance Costs Incurred during Use Ordinary Expense Extraordinary Capitalize Depreciation Expense A cost allocation process that matches costs of operational assets With periods benefited by their use 035 Land 140000 Building 260000 contraasset account permanent account Depreciation calculations require three amounts for each asset 1 Acquisition cost purchase price costs 2 Estimated useful life 3 Estimated residual value leftover value salvage value Depreciation Methods 1 Straightline 2 Unitsofproduction 3 DoubleDecliningBalance StraightLine Formula UnitsofProduction Methods DoubleDecliningBalance Method Asset Impairment Loss Impairment is when the estimated future cash ows from a longlived asset falls below its book value by 0 Casualty 0 Obsolescence equipment is no longer vaW 0 Lack of demand for the asset s services Disposal of Tangible Assets 1 Update depreciation to date of disposal 2 Record the disposal I if cash received is greater than asset s book value if cash received is less than asset s book value Intangible Assets Patent trademark copyright etc same as depreciation Amortization Expense directly credits assets Impact of Depreciation Differences o Accelerated depreciation in the early years of an asset s useful life results in higher depreciation expense lower net income and than would result in using straightline depreciation 0 Setting an asset with a resulting from accelerated depreciation might result in a 0 Selling the same asset with a resulting from straightline depreciation might result ina


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