Accounting

Question 1

Asset =

Answer 1

Liabilities (L) + Equity (E)

Question 2

account receivables - asset or liability?

Answer 2

the amount due by customers to the firm - asset

Question 3

account payable - asset or liability?

Answer 3

the amount owed by the firm to supplier or services that are already charged but haven’t been delivered - liability

Question 4

Intellectual property is part of what assets?

Answer 4

a subset of intangible assets, including copyrights, patents and trademarks.

Question 5

T or F: Goodwill is subset of tangible asset

Answer 5

F - its a subset of intangible assets

Question 6

what is treasure stock?

Answer 6

the amount paid to buyback the form’s own shares from current shareholders

Question 7

What are some of the current liabilities type?

Answer 7

account payable, notes payable, tax payable

Question 8

What are some of the non-current liabilities type?

Answer 8

long-term debt, leases, bonds, deferred income taxes

Question 9

T or F: In the accrual accounting rule, you can only record sale or COGS when the service is delivered or rendered

Answer 9

T

Question 10

T or F: Revenue is recognized based on when the cash is received

Answer 10

F - revenue ≠ cash received

Question 11

Use excel to do this problem:
In Q1, Concord milk received a payment of $2,500 for the $10,000 order to be delivered. However, the company couldn’t deliver the full service until Q2, and its customer paid the remaining amount in Q3

Answer 11

Use this format:
1) Cash + Account Receivable = Account Payable + Common Stock + Retain Earnings
2) Revenue - Expense = Net Income = Retain Earnings

Question 12

Cost Flow Assumptions (CFA)

Answer 12

Assumption about which units get sold since units can be purchased with different price at different point in time

Question 13

T or F: Cost Flow Assumptions doesn’t have to math the physical flow of goods

Answer 13

T

Question 14

T or F. Firms can pick and change their CFA every now and then

Answer 14

F - they have to pick one strategy and stick with it

Question 15

What are four cost flow assumptions?

Answer 15

1) Specific Identification
2) Average Cost
3) First-in, First -out (FIFO)
4) Last-in, First-out (LIFO)

Question 16

what does the specific Identification assumption dictate?

Answer 16

the ability to identify exactly which item has been sold (demand high-tech system)

Question 17

what does the FIFO Inventory assume?

Answer 17

older costs are assigned to the goods sold, and more recent cost are assigned to ending inventory

Question 18

what does the LIFO inventory assume?

Answer 18

the more recent costs are assigned to the goods sold, while older costs are assigned to ending inventory
Note: Revere of FIFO inventory
Not allowed by IRFS

Question 19

1) In what circumstances, does a company use LIFO inventory recording?
2) What is the implication of this technique?

Answer 19

1) When a company experiences a consistent inflation to show a lower gross profit, and thus minimize the tax liability
2) When those low-cost units and inventory eventually do get sold, there will be a much higher profit realized and higher taxes to be paid.

Question 20

Where do we look for a company’s cost flow assumption?

Answer 20

footnote - we can find how sales & COGS are recognized

Question 21

What are some costs that associate with fix assets beside the purchase price of equipment?

Answer 21

Transportation Costs
Installation & set-up charges
test-runs

Question 22

What is the capitalization on the asset?

Answer 22

the process of assign more cost to the fix asset while reduce expenses on income statement

Question 23

Depreciation expense

Answer 23

Depreciation Expense is the expense allocates the total, capitalized cost of the asset to the period in which the asset is used in the business

Question 24

T or F: The straight-line depreciation is the most common

Answer 24

T

Question 25

Describe the straight-line depreciation equation

Answer 25

(Cost - Residual Value)/ Useful Life

Question 26

what is residual value?

Answer 26

an estimate of asset’s value at end of its useful life

Question 27

what is the useful life in depreciation concept?

Answer 27

an estimate by the firm’s management of how long it will use the asset

Question 28

T or F: Depreciation expense is a cash expense.

Answer 28

F - its a non -cash expense (cash was paid when the asset was purchased)

Question 29

T or F: Useful life can’t be revised if management decides to use the asset for a longer or shorter period of time

Answer 29

F - It can be revised

Question 30

How are investors certain about the value of useful life?

Answer 30

by relying on the auditor to double-check management’s assumptions to ensure they are reasonable and consistent with how the firm actually uses the assets in practice.

Question 31

T or F: Auditors can’t require management to use better and more realistic assumption when unrealistic assumptions about the useful life is made

Answer 31

F - They can

Question 32

an A company pay a $5000 down payment in October for a specialized equipment. The machine is delivered in December, at which the company pays the balance of purchase price of $8000. How much expense should company A recognize in each of the following month?

Answer 32

Trick question - Company A shouldn’t recognize these transactions as expenses but as capitalization of an asset worth $13,000