Exam 2 Study Guide
Exam 2 Study Guide ACCT 225 001
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ACCT 324 002
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This 19 page Study Guide was uploaded by Katie Rosen on Monday October 19, 2015. The Study Guide belongs to ACCT 225 001 at University of South Carolina taught by Tuttle in Summer 2015. Since its upload, it has received 647 views. For similar materials see Introduction to Financial Accounting in Accounting at University of South Carolina.
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Date Created: 10/19/15
Accounting 225 Exam 2 Study Guide 1 On March 17 FOX Lumber sells materials tO Whitney Construction for 12000 terms 2 10 n30 Whitney pays for the materials on March 23 What is the amount Of net revenues sales minus sales discounts as Of March 23 a 0 b 12240 C 12000 1 11760 2 A sales discount is recorded by the seller as a a contra asset b a contra revenue c an expense d a liability 3 On March 17 FOX Lumber sells materials tO Whitney Construction for 12000 terms 2 10 n30 Whitney pays for the materials on March 23 What amount would FOX record as revenue on March 17 a 11760 b 12240 c 12400 d 12000 4 At the beginning Of the year Bennett Supply has inventory Of 3500 During the year the company purchases an additional 12000 Of inventory An inventory count at the end Of the year reveals remaining inventory Of 4000 What amount will Bennett report for cost Of gOOd sold a 12500 b 11000 c 11500 d 12000 5 Which Of the following companies earn revenues by selling inventory a service companies b merchandising companies c manufacturing companies d both manufacturing and merchandising companies 6 Using a perpetual inventory system the purchase Of inventory on account would be recorded as a Debit Cost Of GOOds Sold credit Inventory b Debit Inventory credit Sales Revenue c Debit Inventory credit Accounts Payable d Debit Purchases credit Accounts Payable 7 Using a periodic inventory system the purchase Of inventory on account would be recorded as a Debit Inventory credit Sales Revenue b Debit Inventory credit Accounts Payable c Debit Cost Of GOOds Sold credit Inventory d Debit Purchases credit accounts Payable 8 Which Of the following represents the balance Of Cost Of GOOds SOld at the end Of the year a The cost Of inventory not yet sold by the end Of the year b the cost Of inventory sold during the year c the cost Of inventory at the beginning Of the year d the cost of inventory purchased during the year 9 Fan Company sells inventory on account The entry to record this sale using a perpetual inventory system would include a a debit to accounts receivable b credit to service revenue c debit to cost of goods sold d debits to accounts receivable and cost of goods sold and a credit to service revenue USE THIS TABLE FOR QUESTIONS 10 amp 11 this is a company s inventory transactions for the year DATE TRANSACTION OF UNITS UNIT COST Jan 1 Beginning inventory 200 4 Apr 20 Purchase 800 425 Sep 8 Purchase 400 450 10 Assuming this company sells 1000 units calculate COGS under LIFO a 4350 b 4200 c 1650 d 1800 11 Assuming this company sells 1000 units calculate ending inventory under FIFO a 1800 b 4350 c 1650 d 4200 12 Which cost ow assumption generally results in the highest reported amount of net income in periods of rising inventory costs a LIFO b Weightedaverage c FIFO d Income will be the same under each assumption 13 The entry to record the write down of inventory to market under the lowerofcostormarket method includes a a Credit to Sales Revenue b Debit to Cost of Goods Sold c Debit to Inventory d Credit to Accounts Payable 14 At the end of the year Marline Corporation determines that its ending inventory has a cost of 2000 and a market value of 1900 What would be the effect of the adjustment to writedown inventory to market value a Decrease in net income b No effect on net income or ending inventory c Increase in net income d Increase in cost of ending inventory 15 What does the Inventory Turnover Ratio measure a The company s ability to collect accounts b The company s liquidity c The company s inventory purchased vs inventory on hand d The company s ability to sell inventory 16 We normally record a longterm asset at the a Cost of the asset plus all costs necessary to get the asset ready for use b Cost of the asset but subsequently adjust it up or down to appraised value c Cost of the asset only d Appraised value 17 Which of the following eXpenditures should be recorded as an asset a Depreciation during the first year of an eXisting building b Property taxes incurred on an eXisting building c Interest costs during the construction period of a new building d Repair of a machine 18 Accumulated depreciation is a A contraasset b A liability c An asset d An eXpense account 19 Which of the following correctly describes the nature of depreciation a Depreciation represent the valuation of an intangible asset over its service life b Depreciation represents the allocation of the cost of property plant and equipment over its service life c Depreciation represents the valuation of property plant and equipment over its service life d Depreciation represents the allocation of the cost of an intangible asset over its service life 20 The original cost of a piece of equipment was 100000 The equipment was depreciated using the straightline method with annual depreciation of 20000 After two years the fair value of the equipment is 82000 How much is the book value of the equipment at the end of the second year a 60000 b 100000 c 80000 d 82000 21 Over the entire service life of an asset which depreciation method records the highest total depreciation a The double declining method b The straightline method c All the methods result in the same total depreciation d The activitybased method 22 The book value of an asset is equal to the a Asset s fair value less its historical cost b Replacement cost c Asset s cost less accumulated depreciation d Historical cost plus accumulated depreciation 23 Which of the following depreciation methods typically results in the highest depreciation eXpense during the first year of an asset39s life a Straightline method b activitybased method c each method will result in the same depreciation during the first year d double declining balance method 24 If equipment is retired which of the following accounts would be debited a Equipment b Depreciation eXpense c Cash d Accumulated depreciation 25 Equipment originally costing 95000 has accumulated depreciation of 30000 If it sells the equipment for 55000 the company should record a A loss of 10000 b A gain of 10000 c A loss of 40000 d No gain or loss 26 Equipment originally costing 100000 has accumulated depreciation of 65000 If it is sold for 40000 the company should record a A loss of 5000 b A loss of 70000 c A gain of 70000 d A gain of 5000 27 The return on assets is equal to the a Profit margin plus asset turnover b Profit margin divided by asset turnover c Profit margin minus asset turnover d Profit margin times asset turnover 28 Which of the following is properly recorded as an intangible asset a An internally developed trademark b A piece of land c An internally developed copyright d A purchased patent 29 Which of the following statements is true regarding the amortization of intangible assets a The eXpected residual value of most intangible assets is zero b In recording amortization Accumulated Amortization is always credited c Intangible assets with a limited useful life are not amortized d The service life of an intangible asset is always equal to its legal life 30 Which of the following statements is correct a Goodwill is created when one company pays more than fair market value to purchase another company s products b Goodwill is amortized c Goodwill is evaluated annually for possible impairment d Goodwill is created when one company pays less than the value of the net assets to buy another company 31 The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as a Sales taX receivable b Sales taX revenue c Sales taX eXpense d Sales taX payable 32 Current Liabilities a May include contingent liabilities b Include obligations payable within one year or one operating cycle whichever is shorter c Are preferred by most companies over longterm liabilities d Can be satisfied only with the payment of cash 33 Which of the following is not deducted from an employee39s salary a Income taxes b FICA taxes c Unemployment taxes d Employee portion of insurance and retirement payments 34 A contingent liability that is probable and can be reasonably estimated must be a Paid b Disclosed c Not disclosed d Recorded 35 If bonds are issued with a stated interest rate higher than the market interest rate the bonds will be issued at A premium A discount or premium depending on the maturity date A discount d Face amount 99 36 Which of the following leases is essentially the purchase of an asset with debt financing a A capital lease b An operating lease c Both an operating lease and a capital lease d Neither an operating lease nor a capital lease 37 Assume that Airline Accessories39 current ratio is greater than 1 Which of the following will decrease its current ratio a Purchasing inventory on account b Purchasing equipment signing a longterm note c Issuing common stock for cash d Collecting an accounts receivable 38 Under the direct writeoff method uncollectible accounts are recorded a In the period following the account being actually uncollectible b Never c In the period the account is determine actually uncollectible d In the period the account is estimated to be uncollectible 39 The direct writeoff method is generally not permitted for financial reporting purposes because a Expenses bad debts are not properly matched with the revenues credit sales they help to generate b This method is primarily used for taX purposes c Compared to the allowance method it would allow greater exibility to managers in manipulating reported net income d It is too difficult to accurately estimate future bad debts 40 On December 31 the Accounts Receivable ending balance is 80000 Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a credit of 500 and that the company estimates 7 of the accounts receivable will not be collected The amount of bad debt eXpense recorded on December 31 will be a 6100 b 5100 c 5600 d 5000 41 On December 31 the Accounts Receivable ending balance is 80000 Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of 500 and that the company estimates 7 of the accounts receivable will not be collected The amount of bad debt eXpense recorded on December 31 will be a 5000 b 6100 C 5100 d 5600 42 Schmidt Company39s Accounts Receivable balance is 100000 its adjusted balance in Allowance for Uncollectible Accounts is 4000 and its bad debt eXpense is 3800 The net realizable value of accounts receivable is a 104000 b 96000 c 96200 d 100000 43 At the beginning of 2012 Clay Ventures has total accounts receivable of 100000 By the end of 2012 Clay reports net credit sales of 900000 and total accounts receivables of 200000 What is the receivables turnover ratio for Clay Ventures a 90 b 45 c 20 d 60 45 On January 1 2012 Roberson Supply borrows 10000 from Nees Manufacturing by signing a 9 note due in eight months Calculate the amount of interest revenue Nees will record on September 1 2012 the date that the note is due a 600 b 900 c 300 d 1000 46 On April 1 2015 Nelsen Inc accepts a 100000 8 note The note receivable and interest are due on March 31 2016 On December 31 2015 Nelsen will accrue interest revenue of a 2000 b 8000 c 6000 d 0 47 On April 1 2015 Nelsen Inc accepts a 100000 8 note The note receivable and interest are due on March 31 2016 On March 31 2016 Nelson Inc will record interest revenue of a 6000 b 0 c 8000 d 2000 48 Accounts receivable are best described as a Liabilities of the company that represent the amount owed to suppliers b Amounts that have previously been received from customers c Assets of the company representing the amount owed by customers d Amounts that have previously been paid to suppliers 49 Suppose the balance of Allowance for Uncollectible Accounts at the end of the current year is 400 credit before any adjustment The company estimates future uncollectible accounts to be 3200 At what amount would bad debt eXpense be reported in the current year s income statement a 400 b 2800 C 3200 d 3600 50 Using the allowance method the entry to record a writeoff of accounts receivable will include a A debit to bad debt eXpense b A debit to allowance for uncollectible accounts c No entry because an allowance for uncollectible accounts was established in an earlier period d A debit to service revenue 51 Which of the following levels of profitability in a multiplestep income statement represents revenues from the sale of inventory less the cost of that inventory a Gross profit b Operating income c Income before income taxes d Net income 52 Suppose Aj aX corporation overstates its ending inventory amount What effect will this have on the reported amount of cost of goods sold in the year of the error a Overstate cost of goods sold b Understate cost of goods sold c Have no effect on cost of goods sold d Not possible to determine with information given 53 Research and development costs generated internally a Are recorded as research and development assets b Are capitalized and then amortized c Should be included in the cost of the patent they relate to d Should be eXpensed 54 Which of the following expenditures should be recorded as an expense a Repairs and maintenance that maintain current benefits b Adding a major new component to an existing asset c Replacing a major component of an eXisting asset d Successful legal defense of an intangible asset 55 Which of the following will maXimize net income by minimizing depreciation eXpense in the first year of the asset s life a Short service life high residual value and straightline depreciation b Long service life high residual value and straightline depreciation c Short service life low residual value and doubledecliningbalance depreciation d Long service life high residual value and doubledecliningbalance depreciation 56 The balance in the accumulated depreciation account represents a The amount charged to eXpense in the current period b A contra eXpense account c A cash fund to be used to replace plant assets d The amount charged to depreciation eXpense since the acquisition of the plant asset 57 Which of the following statements regarding liabilities is not true a Liabilities can be for services rather than cash b Liabilities are reported in the balance sheet for almost every business c Liabilities result from future transactions d Liabilities represent probable future sacrifices of benefits 58 We record interest eXpense on a note payable in the period in which a We pay cash for interest b We incur interest c We pay cash and incur interest d We pay cash or incur interest 59 Management can estimate the amount of loss that will occur due to litigation against the company If the likelihood of loss is reasonably possible a contingent liability should be a Disclosed but not reported as a liability b Disclosed and reported as a liability c Neither disclosed nor reported as a liability d Reported as a liability but not disclosed 60 The acid test ratio is a Current assets divided by current liabilities b Cash and current investments divided by current liabilities c Cash current investments and accounts receivable divided by current liabilities d Cash current investments accounts receivable and inventory divided by current liabilities MATCH THE FOLLOWING TERMS WITH THE DEFINITIONS 1 Accounts receivable aContra asset account representing the amount of accounts receivable that we do not eXpect to collect 2 Aging method b An account with a balance that is opposite or contra to that of its related revenue account 3 Allowance for uncollectible accounts c Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts The adjustment has the effects of reducing assets and increasing eXpenses 4 Allowance method d The amount of cash owed to the company by its customers from the sale of products or service on account 5 Average collection period e Recording bad debt eXpense at the time we know the account is uncollectible 6 Bad debt eXpense f Approximate number of days the average accounts receivable balance is outstanding It equals 365 divided by the receivables turnover ratio 7 Contra 1396V6Illl6 account g Using a higher percentage for old accounts than for new accounts when estimating uncollectible accounts 8 Credit sales h Transfer of products and services to a customer today while hearing the risk of collecting payment from that customer in the future Also known as sales on account or service on account 9 Direct writeoff method i The amount of the adjustment to the allowance for uncollectible accounts representing the cost of estimated future bad debts charge to the current period 10 Net accounts receivable j The amount of ash the firm eXpects to collect 11 Net realizable value k Method of estimating uncollectible accounts based on the percentage of accounts receivable eXpected not to be collected 12 Net revenues 1 Seller reduces the customer s balance owed or provides at least a partial refund because of some deficiency in the company s product or service 13 Notes receivable m A company s total revenues less any discounts returns and allowances l4 Percentageof receivables method n Number of times during a year that the average accounts receivable balance is collected It equals net credit sales divided by average accounts receivable 15 Receivables turnover ratio 0 Formal credit arrangements evidenced by a written debt instrument or note 16 Sales allowance p The difference between total accounts receivable and the allowance for uncollectible accounts 17 Sales discount q Customer returns a product 18 Sales return r Approximate number of days the average inventory is held It equals 365 days divided by the inventory turnover ratio 19 Trade discount s Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time 20 Uncollectible accounts t Cost to transport inventory to the company which is included as part of inventory cost 21 Average days in inventory u Customers accounts that no longer are considered collectible 22 Cost of goods sold v Inventory costing method that assumes the first units purchase and the first ones sold 23 First in first out method FIFO w Reduction in the listed price of a product or service 24 Freightin X Cost of the inventory that was sold during the period 25 Freightout y Operating income plus nonoperating revenues less nonoperating eXpenses 26 Gross profit z The number of times a firm sells its average inventory balance during a reporting period It equals cost of goods sold divided by average inventory 27 Gross profit ratio aa Items a company intends for sale to customers 28 Income before income taxes bb An adjustment used to convert a company s own inventory records maintained on a FIFO basis to LIFO basis for preparing financial statements 29 Inventory cc Cost of freight on shipments to customers which is included in the income statement either as part of cost of goods sold or as a selling expense 30 Inventory turnover ratio dd Measure of the amount by which the sale price of inventory exceeds its cost per dollar of sales It equals gross profit divided by net sales 31 Last in first out method LIFO ee IRS rule requiring a company that uses LIFO for taX reporting to also use LIFO for financial reporting 32 LIFO adjustment ff Method where companies report inventory in the balance sheet at the lower of cost or market value where market value equals replacement cost 33 LIFO conformity rules gg Inventory costing method that assumes the last units purchased are the first ones sold 34 Lowerofcostormarket LCM method hh The difference between net sales and cost of goods sold 35 Multiplestep income statement ii Difference between all revenues an all eXpenses for the period 36 Net income jj Inventory costing method that matches or identifies each unit of inventory with its actual cost 37 Operating income kk Profitability from normal operation that equals gross profit less operating eXpenses 38 Periodic inventory system 11 Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the good available for sale 39 Perpetual inventory system mm An income statement that reports multiple levels of income 40 Replacement cost nn Allocates a higher depreciation in the earlier years of the asset s life and lower depreciation in later years 41 Specific identification method 00 The cost to replace an inventory item in its identical form 42 Weightedaverage cost method pp A contra asset account representing the total depreciation taken to date 43 Accelerated depreciation method qq Occurs when a new major component is added to an existing asset 44 Accumulated depreciation rr Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand 45 Activitybased method ss Recording all losses in one year to make a bad year even worse 46 Addition tt Net sales divided by average total assets which measures the sales per dollar of assets invested 47 Amortization uu Equal to the original cost of the asset minus the current balance in Accumulated depreciation 48 Asset turnover vv Allocation of the cost of an intangible asset over its service life 49 Basket purchase ww Inventory system that maintains a continual record of inventory purchased and sold 50 Big bath XX Record an expenditure as an asset 51 Book value yy Allocates an asset s cost based on its use 52 Capitalize zz An exclusive right of protection given to the creator of a published work such as a song film painting photograph book or computer software 53 Copyright aaa Purchase of more than one asset at the same time for one purchase price 54 Decliningbalance method bbb Allocation of the cost of a tangible asset over its service life 55 Depletion ccc Longterm assets that lack physical substance and whose existence is often based on a legal contract 56 Depreciation ddd An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years 57 Franchise eee Local outlets that pay for the exclusive right to use the franchisor company s name and to sell its products within a specified geographical area 58 Goodwill fff Improvements to land such as paving lighting and landscaping that unlike land itself are subject to depreciation 59 Impairment ggg Occurs when the future cash ows generated for a long term asset fall below its book value 60 Improvement hhh Large enough to in uence a decision 61 Intangible assets iii The value of a company as a whole over and above the value of its identifiable net assets Equals the purchased price less the fair value of the net assets acquired 62 Land improvements jjj Assets like oil natural gas and timber that we can physically use up or deplete 63 Material kkk The cost of replacing a major component of an asset 64 Natural resources lll Allocation of the cost of a natural resource over its service life 65 Patent mmm Net income divided by net sales indicates the earning per dollar of sales 66 Profit margin nnn How long the company eXpects to receive benefits from the asset before disposing of it also referred to as useful life 67 Repairs and maintenance ooo EXpenses that maintain a given level of benefits in the period incurred 68 Residual value ppp An exclusive right to manufacture a product or use a process 69 Return on assets qqq Cash current investments and accounts receivable divided by current liabilities measures the availability of liquid current assets to pay current liabilities 70 Service life rrr A word slogan or symbol that distinctively identifies a company product or service 71 Straightline method sssBorrowing from another company rather than from a bank 72 Trademark ttt The amount the company eXpects to receive from selling the asset at the end of its service life also referred to as salvage value 73 Acidtest ratio uuu Allocates an equal amount of depreciation to each year of the assets service life 74 Commercial paper vvv Net income divided by average total assets measures the amount of net income generated for each dollar invested in assets 75 Contingencies WWW Uncertain situations that can result in a gain or a loss for a company 76 Contingent gain XXX Debts that in most cases are due Within one year However when a company has an operating cycle of longer than a year its current liabilities are defined by the length of the operating cycle rather than by the length of one year 77 Contingent liability yyy An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt 78 Current liabilities ZZZ Debt that will be paid Within the neXt year 79 Current portion of longterm debt aaaa An eXisting uncertain situation that might result in a loss 80 Current ratio bbbb Current assets divided by current liabilities measures the availability of current assets to pay current liabilities 81 Debt covenant cccc An eXisting uncertain situation that might result in a gain 82 FICA taXes dddd A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past 83 Fringe benefits eeee Having sufficient cash to pay currently maturing debts 84 Liability ffff An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork 85 Line of credit gggg Includes only cash current investments and accounts receivable 86 Liquidity hhhh Sales taX collected from customers by the seller representing current liabilities payable to the government 87 Notes payable iiii Based on the federal insurance contributions act taX withheld from employees paychecks and matched by employers for social security and medicare 88 Quick assets jjjj A taX to cover federal and state unemployment costs paid by the employed on behalf of its employees 89 Sales taX payable kkkk Written promises to repay amounts borrowed plus interest 90 Uneamed revenue 1111 The difference between current assets and current liabilities 91 Unemployment taxes mmmm A liability account used to record cash received in advance of the sale or service 92 Working capital nnnn Additional employee benefits paid for by the employer multiple choice 1D 2B 3D 4C 5D 6C 7D 8B 9D 10A 11A 12C 13B 14A 15D ANSWERS 16A 17C 18A 19B 20A 21C 22C 23D 24D 25A 26D 27D 28D 29A 30A 31D 32A 33C 34D 35A 36A 37A 38C 39A 40B 41B 42B 43D 45A 46C 47D 48C 49B 50 B 51A 52B 53D 54A 55B 56D 57C 58B 59A 60C matching 1d 2g 321 4c 5f 6i 7n 8h 96 10p 11j 12m 130 14k 15n 161 173 18q 19w 20u 211 22x 23V 24t 25cc 26hh 27dd 28y 292121 302 31gg 32bb 3366 34ff 35mm 36ii 37kk 3811 39ww 4000 41jj 4211 43nn 44pp 45yy 46qq 47VV 48tt 49212121 50ss 51uu 52XX 5322 54ddd 55111 56bbb 57666 58iii 59ggg 60k1ltk 61666 62fff 63hhh 64jjj 65131313 66mmm 67000 68ttt 69VVV 70nnn 71uuu 72rrr 73qqq 74sss 75www 766666 7721212121 78XXX 79Zzz 80bbbb 81yyy 82iiii 83nnnn 84dddd 85ffff 866666 87kk1ltk 88gggg 89hhhh 90mmmm 91kk1ltk 921111
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