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Accounting > Accounting 1 Final Exam > Flashcards

Accounting 1 Final Exam Flashcards

1
Q

What is the “cost of goods sold?”

A

the cost to acquire the merchandise sold

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2
Q

What is “gross profit?”

A

Sales - Cost of goods sold

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3
Q

What is “net income?”

A

Gross profit - Operating Expenses - Income Tax Expense

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4
Q

What are the two approaches for Merchandise Inventories?

A

Perpetual Inventory System

Periodic Inventory System

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5
Q

How do you capture acquiring inventory?

A

Debit Inventory

Credit Accounts Payable

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6
Q

What two journal entries are necessary when merchandise is sold?

A

Recognize revenue

Recognize cost

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7
Q

What is inventory shrinkage?

A

breakage, spoilage, and theft

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8
Q

How do you capture inventory shrinkage?

A

Debit Cost of Goods Sold

Credit Inventory

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9
Q

What do the discount terms 2/10, n/30 mean?

A

2% discount, if you pay with in 10 days. But you have to pay within 30 days

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10
Q

What does net cost assume?

A

That you’re taking a discount.

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11
Q

What are types of financial assets?

A

Cash, short-term investments, receivables

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12
Q

How do you value cash on the balance sheet?

A

Face amount

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13
Q

How do you value short-term investments on the balance sheet?

A

Fair market value

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14
Q

How do you value receivables on the balance sheet?

A

Net realizable value

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15
Q

How can something qualify as a cash equivalent?

A

Very safe
stable market value
mature within 90 days
Ex: Money market funds, US Treasury Bills, High grade commercial paper

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16
Q

What is restricted cash?

A

A bank balance that is not available to meet the normal operating needs of the company

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17
Q

How should Restricted Cash be presented?

A

“Investments & Restricted Funds”

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18
Q

Why are lines of credit disclosed?

A

Increases a company’s liquidity

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19
Q

What are marketable securities?

A

Investments in bonds and in capital stocks of publicly owned corporations. They can be purchased or sold quickly and easily.

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20
Q

How are marketable securities written in the journal?

A

Debit Marketable Securities

Credit Cash

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21
Q

How is Investment Revenue recognized?

A

Debit Cash

Credit Dividend Revenue

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22
Q

How is Sales of Investments at a Gain recognized?

A

Debit Cash
Credit Marketable Securities
Credit Gain on Sale of Investment

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23
Q

How are Sales of Investments at a Loss recognized?

A

Debit Cash
Debit Loss on Sale of Investment
Credit Marketable Securities

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24
Q

How do you recognize when you need to Adjust Marketable Securities to Market Value?

A

Debit Unrealized Holding Loss on Investments

Credit Marketable Securities

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25
Q

How do you recognize Uncollectible Accounts in the Financial Statements?

A

Debit Uncollectible Accounts Expense

Credit Allowance for Doubtful Accounts

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26
Q

What is the net realizable value?

A

Amount of accounts receivable that the business expects to collect.
Accounts receivable - allowance for doubtful accounts

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27
Q

How do you write off an Uncollectible Account Receivable?

A

Debit Allowance for Doubtful Accounts

Credit Accounts Receivable

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28
Q

What are the two approaches for estimating credit losses?

A
  1. Balance sheet approach

2. Income statement approach

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29
Q

What does an aging schedule look like?

A

Age Group Total X Percentage Considered Uncollectible = Estimated uncollectible accounts

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30
Q

How do you compute interest?

A

Interest = Principal X Rate of Interest X Time

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31
Q

What is the General Journal entry for a sale of merchandise

A

Debit Cost of Goods Sold

Credit Inventory

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32
Q

Under GAAP, what are the 4 options for costing inventories?

A
  1. Specific Identification
  2. Average Cost
  3. FIFO
  4. LIFO
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33
Q

What are the tradeoffs for the FIFO method?

A

may overstate income during periods of rising prices; may increase income taxes due

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34
Q

What are the tradeoffs of the LIFO method?

A

most conservation method during periods of rising prices; often results in lower income taxes due

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35
Q

What is the primary reason for taking a physical inventory?

A

Adjust the perpetual inventory records for unrecorded shrinkage losses.

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36
Q

How is inventory valued?

A

The lower of its HISTORICAL COST or its NET REALIZABLE VALUE

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37
Q

How do you calculate net realizable value?

A

EXPECTED SELLING PRICE - COST OF COMPLETION/DISPOSAL/TRANSPORATION

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38
Q

What is FOB?

A

Free on board

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39
Q

What is FOB Shipping Point mean?

A

Goods are property of the buyer while in transit.

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40
Q

What is FOB Destination mean?

A

Goods belong to seller in transit and don’t belong to buyer until they reach the destination.

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41
Q

What is the principle of CONSISTENCY?

A

once a company has adopted a particular accounting method, it must follow it

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42
Q

What are PLANT ASSETS?

A

bundle of future services and can be thought of aslong-term prepaid expenses

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43
Q

What are the 3 groups of plant & equipment items?

A
  1. tangible plant assets
    a. property subject to depreciation
    b. Land (no depreciation)
  2. Intangible assets (patents, copyrights, amortization
  3. natural resources
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44
Q

What are the 3 accountable events for plant assets?

A
  1. Acquisition
  2. Allocation of the acquisition cost to expense (depreciation)
  3. Sale or disposal
45
Q

What is the BOOK VALUE?

A

COST - ACCUMULATED DEPRECIATION

46
Q

What is DEPRECIATION?

A

CONTRA-ASSET

Represents the portion of an asset’s cost that has already been allocated to expense?

47
Q

What is Straight-Line Depreciation?

A

Years of Useful Life

48
Q

What is the DECLINING BALANCE METHOD?

A

DEPRECIATION EXPENSE =

REMAINING BOOK VALUE X ACCELERATED DEPRECIATION RATE

49
Q

Which depreciation method do most publicly owned companies use?

A

STRAIGHT LINE

50
Q

What types of financial statements use which type of depreciation method?

A 
SL = financial statements
AD = income tax returns
51
Q

What are MACRS?

A

Modified Accelerated Cost Recovery System

Not approved by GAAP

52
Q

What is AMORTIZATION?

A

The systematic write-off to expense of the cost of an intangible asset over its useful life

53
Q

What is GOODWILL?

A

The amount that a company has paid to acquire certain favorable intangible attributes as part of an acquisition of another company.

54
Q

What are the characteristics of LIABILITIES?

A

All eventually mature
Come due + must be paid
Creditors

55
Q

What are the characteristics of OWNERS’ EQUITY?

A

Investments and retained earnings

Does not mature

56
Q

What are CURRENT LIABILITIES?

A

Paid within 1 yr or business cycle

Paid from current assets or rendering services

57
Q

What are ACCRUED LIABILITIES?

A

Recognition of expenses for which payment will be made in a future period (accrued expenses)

58
Q

What is UNEARNED REVENUE?

A

Liability when customer pays in advance

59
Q

How do you journal unearned revenue?

A

Debit Cash

Credit liability account, Unearned Revenue/Customers’ Deposits

60
Q

How do you calculate how to pay off a loan?

A
  1. Identify the unpaid principal balance
  2. Interest Expense = Unpaid Principal X Interest Rate
  3. Reduction in Unpaid Principal Balance = Installment Payment - Interest Expense
  4. Compute new unpaid principal balance
61
Q

What are the headings for an AMORTIZATION TABLE?

A
  1. Interest Period
  2. Payment Date
  3. Monthly Payment
  4. Interest Expense
  5. Reduction in Unpaid Balance
  6. Unpaid Balance
62
Q

How do you log amortization?

A

Debit Interest Expense
Debit Installment Note Payable
Credit Cash

63
Q

What is the adjusting entry for amortization?

A

Debit Interest Expense

Credit Interest Payable

64
Q

What are 3 characteristics of BONDS?

A
  1. Borrowing of large $$ called the PRINCIPAL
  2. Principal is paid back as a LUMP SUM at the end of a bond period.
  3. Bonds are often denominated with par value, or FACE VALUE of $1K
65
Q

What do you need to know about Bond Interest?

A
  1. Usually a standard rate of interest called a CONTRACT RATE
  2. Interest paid SEMIANNUALLY
  3. Interest = Principal X State Rate X Time = Interest
66
Q

What does is mean if there’s a bond fo $1,000 priced at 102.

A

It would sell for $1,020

67
Q

What are 5 types of bonds?

A
  1. Mortgage bond
  2. Debenture bond–unsecured
  3. Callable bod
  4. Convertible bond - can be exchanged for stock
  5. Junk bond - high risk
68
Q

What is the tax advantage of bond financing?

A

Adv. of raising $ by issuing bonds instead of stock is that interest payments are deductible in determining income subject to corporate income taxes.

Dividends paid to stockholders are not deductible

69
Q

What are the accountable events for Bonds Payable?

A
  1. Issuance of the bonds
  2. Semiannual interest payments
  3. Accrual of interest payable at the end of each accounting period
  4. Retirement of the bonds at maturity
70
Q

How do you record the issuance of a bond?

A

Debit Cash

Credit Bonds Payable

71
Q

How do you record bond interest?

A

Debit Bond Interest Expense

Credit Cash

72
Q

How do you record an adjusting interest for a bond?

A

Debit Bond Interest Expense
Debit Bond Interest Payable
Credit Cash

73
Q

What does it mean if the bond’s interest rate is ABOVE market rate?

A

The bond sells at a PREMIUM

74
Q

What does it mean if the bond’s interest rate is EQUAL to the market rate?

A

The bond sells at FACE AMOUNT

75
Q

What does it mean if the bond’s interest rate is BELOW the market rate?

A

The bond sells at a DISCOUNT

76
Q

How do you record a discount bond?

A

Debit Cash
Debit Discount on Bonds Payable
Credit Bonds Payable

77
Q

How do you record an interest payment for a discount bond?

A

Debit Bond Interest Expense
Credit Discount on Bonds Payable
Credit Cash

78
Q

What are the advantages of the corporate form?

A
  1. Stockholders are not personally liable for the debts of a corp.
  2. Transferability of ownership
  3. Professional management
  4. Continuity of existence
79
Q

What are the disadvantages of the corporate form?

A
  1. Heavy taxation
  2. Greater regulation
  3. Cost of formation
  4. Separation of ownership & management
80
Q

What is par value of share?

A

Represents the legal capital per share
May be regarded as a minimum cushion of equity capital
Is usually a small portion of total stockholders’ equity
Often set at nominal amounts by most large corps.

81
Q

How do you record stocks issued about par value?

A

Debit Cash
Credit Capital Stock
Credit Additional Paid-In Capital

82
Q

What happens when “no-par” stock is issued?

A

Entire price is credited to Capital Stock account and is viewed as legal capital not subject to withdrawal

83
Q

What are the rights of a common stock holder?

A

Voting
Dividends
Liquidation claims

84
Q

What are the primary sources of corporate equity?

A

Preferred Stock
Common Stock
Retained Earnings

85
Q

What is the book value of common stock?

A

The amount of net assets represented by each share of stock

Total stockholders’ Equity / Number of Shares Outstanding

86
Q

What is the market value of a stock?

A

the price shares change hands

87
Q

What influences the market price of preferred stock?

A
  1. dividend rate of shares
  2. risk of investment based on financial & economic factors
  3. Market Interest rates
    - -> rise, stock prices decline
    - -> fall, stock prices rise
88
Q

What is treasury stock?

A

shares that have been issued and later reacquired but have not been retired

89
Q

How do you record treasury stock?

A

Debit Treasury Stock

Credit Cash

90
Q

How do you record reissuance of treasury stock?

A

Debit Cash
Credit Treasury Stock
Credit Additional Paid-In Capital: Treasury Stock

91
Q

How are cash equivalents reported in financial statements?

A

Normally not shown separately in financial statements. Combined with other types of cash and reported under “Cash and Cash Equivalents.”

92
Q

How is cash for a special purpose reported?

A

Should be separated from Cash & Cash Equivalents because it can’t pay a specific liability.
List under “Investments and Restricted Funds” in the balance sheet.

93
Q

How should compensating balances be reported?

A

Listed in cash and described in notes.

94
Q

How should securities that have exceeded their cost be reported?

A

“Unrealized Holding Gain/Loss on Investments” on the balance sheet
Not shown on the income statement.

95
Q

How do you reported the Allowance for Doubtful Accounts?

A

It is a contra-asset. It reduces the amount shown for accounts receivable in the balance sheet.

96
Q

How do you report realized gains or losses on investments sold in the period?

A

Income statement

97
Q

How do you adjust doubtful accounts if they’re higher than first calculated?

A

Debit Uncollectible Accounts

Credit Allowance for Doubtful Accounts

98
Q

How do you record capital gains?

A

Debit Cash

Credit Gain on Sales of Investments

99
Q

How can financial statements reflect an increase in the market value of the company’s investments before they sell any?

A

Income Statement in Earnings
Measured at fair value
This has changed recently

100
Q

To record a sale of investments at a price above cost.

A

Debit Cash

Credit Gain on Sales of Investments

101
Q

Record PURCHASE OF MARKETABLE SECURITIES

A

DEBIT MARKETABLE SECURITIES

CREDIT CASH

102
Q

Record DIVIDEND REVENUE

A

DEBIT CASH

CREDT DIVIDEND REVENUE

103
Q

Record how to write off an uncollectible account receivable.

A

Debit Allowance for Doubtful Accounts

Credit Accounts Receivable

104
Q

What is the Balance Sheet approach?

A

approach for estimating the probable amount of uncollectible accounts based on aging the accounts receivable

105
Q

What is the Income Statement approach?

A

approach for estimating the uncollectible accounts expense to be reported in the income state for the period

106
Q

What does the income statement approach look like in the journal?

A

Debit Uncollectible Accounts Expense

Credit allowance for Doubtful Accounts

107
Q

How to you recover a receivable previously written off?

A

Debit Accounts Receivable

Credit Allowance for Doubtful Accounts

108
Q

What is factoring?

A

When a business sells its accounts receivable to a financial institution/factor.

Accounting (3 decks)

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