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ACC 131 Seipp Exam 3 Study Guide

by: Daniel Hemenway

ACC 131 Seipp Exam 3 Study Guide ACC 131

Marketplace > Illinois State University > Accounting > ACC 131 > ACC 131 Seipp Exam 3 Study Guide
Daniel Hemenway
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This is the study guide for the third exam for ACC 131 with Seipp. Weekly notes can be accessed by visiting my profile. I believe this can help you perform better on the exam.
Financial Accounting
Edward Seipp
Study Guide
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This 5 page Study Guide was uploaded by Daniel Hemenway on Sunday November 8, 2015. The Study Guide belongs to ACC 131 at Illinois State University taught by Edward Seipp in Summer 2015. Since its upload, it has received 80 views. For similar materials see Financial Accounting in Accounting at Illinois State University.


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Date Created: 11/08/15
ACC 131 Seipp 3rd Exam Study Guide Chapter 6 (10 conceptual multiple choice and 4 multiple choice problems) • Be able to identify what type of inventory account is used by a retailer or wholesaler and what types of inventory accounts are used by a manufacturer Merchandise Inventory: The inventory held by merchandisers Retailers: Merchandisers that sell directly to consumers Wholesalers: Merchandisers that sell to other retailers Manufacturers: Companies that buy and transform raw materials into a finished product which is then sold • How is cost of goods sold calculated
 Beginning Inventory + Purchases = Cost of Goods Available for Sale (COGAS) – Ending Inventory = Cost of Goods Sold • When merchandise is returned to the seller and the seller uses a perpetual inventory system, what account decreases
 Purchase Return: The cost of merchandise returned to supplies • Be able to interpret shipping terms (2/10,n /30; n/15; 1/15, n/45, etc.) 
 The credit terms specify the amount and timing of payments Same as sales: “2/10, n/30” Discount Period: A period when prompt payment is rewarded by offering a discount • Be able to identify what type of merchandise would be costed using the specific identification method
 Determines the cost of ending inventory and the cost of goods sold based on the identification of the actual units sold and in inventory It requires that detailed records of each purchase and sale be maintained so that a company knows exactly which items were sold and the cost of those items ACC 131 Seipp 3rd Exam Study Guide • Be able to calculate ending inventory and cost of goods sold using FIFO, LIFO and moving average methods (perpetual inventory system only)
 Based on the assumption that costs move through inventory in an unbroken stream, with the costs entering and leaving the inventory The earliest purchases (the first in) are assumed to be the first sold (the first out), and the more recent purchases are in ending inventory Allocates the cost of goods available for sale between ending inventory and cost of goods sold based on the assumption that the most recent purchases (the last in) are the first to be sold (the first out). Under the LIFO method, the most recent purchases (newest costs) are allocated to the cost of goods sold and the earliest purchases (oldest costs) are allocated to inventory The average cost method allocates the cost of goods available for sale between ending inventory and cost of goods sold based on a weighted average cost per unit This weighted average cost per unit is calculated after each purchase of inventory as follows Weighted Average Cost per Unit = Cost of Goods Available for Sale / Units Available for Sale • What are the acceptable methods of inventory costing
 Fifo, Lifo, Specific Identification and weighted average • Be able to identify which inventory costing methods result in highest inventory balance, highest cost of goods sold and/or highest net income in periods of rising or lowering prices
 Use an example Bought CM EI COGS 7 (Inc. Prices) FIFO 8 7 8 LIFO 7 8 10 (Dec Prices) FIFO 8 10 8 LIFO 10 8 ACC 131 Seipp 3rd Exam Study Guide • Know what lower of cost or market is
 Under LCM, if the market value (replacement cost) of a company’s inventory is lower than its cost, the company reduces the amount recorded inventory to its market value • Know that under a perpetual inventory system the inventory account is updated after each merchandise purchase and/or sale • Know the formula for the inventory turnover ratio Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Chapter 7 (12 conceptual multiple choice, 5 multiple choice problems) • What is the definition of accumulated depreciation 
 o Accumulated Depreciation: Represents the total amount of depreciation expense that has been recorded for an asset since the asset was acquired, is reported on the balance sheet as a contra-asset • What is the definition of an intangible asset
 o Intangible assets do not have physical substance. They include patents, copyrights, trademarks, licenses, and goodwill • What is the definition of depreciation
 o Depreciation: the process of allocating, in a systematic and rational manner, the cost of a tangible fixed asset (other than land) to expense over the asset’s useful life • What information do you need to know in order to calculate depreciation o Original value, salvage value and estimated useful life • How are assets that are classified as property plant and equipment reported on the balance sheet
 o Long term or noncurrent asset ACC 131 Seipp 3rd Exam Study Guide • Be able to tell the difference between items classified as property, plant and equipment; intangible assets; and natural resources
 o Fixed Assets: Land, buildings, machines, automobiles o Intangible: Copyrights, patents, trademarks, licenses, and goodwill o Natural Resources: naturally occurring materials. Timberlands, coal, oil, gravel • Be able to identify what costs get included in the total cost of an asset 
 o The assets cost, plus any additional costs required to prepare the asset for use • What is the definition of the book value of an asset
 o The cost of the asset minus any depreciation • What is salvage value (also called residual value)
 o The amount of cash or trade-in consideration that the company expects to receive when an asset is retired from service • Be able to calculate straight line depreciation, double declining balance depreciation and units of activity (units of production) depreciation
 o Straight-Line Depreciation= (Cost – Residual Value)/ Expected Useful Life o Straight-Line Rate= 1/useful life o Double Declining Balance Method= 2 x straight-line rate o Previous rate x book value= accumulated depreciation o Units of Production Method o Depreciation Cost per Unit = (Cost- Residual Value)/ Expected Usage of the Asset • Be able to calculate the percentage to be applied to an asset when using double declining balance depreciation
 o 2 x Straight-Line Rate (1/useful life) • What is the most common methods used for calculation of depletion and amortization • Know the difference between depreciation, amortization, and depletion o Depreciation: Fixed assets o Amortization: Intangible Assets o Depletion: Natural Resource ACC 131 Seipp 3rd Exam Study Guide Chapter 8 ( 6 conceptual multiple choice, 3 multiple choice problems) • What is the definition of a current liability
 o An obligation that is expected to be retired with existing current assets or creation of new current liabilities and due within one year or one operating cycle, whichever is longer • What affect does the recording the incurrence of payment of a liability have on assets, liabilities and stockholders equity
 o • Be able to calculate and make journal entries for wages payable, interest payable and warranty payable
 • When do contingent liabilities get recorded
 o The event on which it is contingent is probable and a reasonable estimate of the loss can be made • What type of account is affected when a landlord r eceives a security deposit from a tenant o Unearned Revenue


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