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Spring Semester 23 > ACCT 3001 Test 2 > Flashcards

ACCT 3001 Test 2 Flashcards

1
Q

A dollar received today is worth ______ than a dollar promised at some time in the future

A

more

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2
Q

Fair value can be estimated based on expected future______ related to the asset or liability

A

cash flows

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3
Q

8 present value based accounting measurements

A
  1. notes
  2. leases
  3. pensions and other post retirement benefits
  4. long- term assets
  5. stock- based compensation
  6. business combinations
  7. disclosures
  8. environemntal liabilities
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4
Q

______ the amount borrowed, lent or invested

A

principal

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5
Q

________ the payment for the use of money

A

interest

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6
Q

simple interest formula:`

A

interest= P times i times n
P (principal): the amount borrowed or invested
i (rate of interest for a single period): a percentage of the outstanding principal
n (number of periods): years, or portion thereof that the principal is outstanding

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7
Q

future value of 1 table

A

contains the amount to which 1 will accumulate if deposited now at a specified rate and left for a specified number of periods

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8
Q

present value of 1 table

A

contains the amounts that must be deposited now at a specified rate of interest to equal 1 at the end of a specified number of periods

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9
Q

future value of an ordinary of 1 table

A

contains the amounts to which periodic rents of 1 will accumulate if the payments (rents) are invested at the end of each period at a specified rate of interest for a specified number of periods

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10
Q

present value of an ordinary annuity of 1 table

A

contains the amounts that must be deposited now at a specified rate of interest to permit withdrawals of 1 at the end of regular periodic intervals for the specified number of periods

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11
Q

present value of an annuity due of 1 table

A

contains the amounts that must be deposited now at a specified rate of interest to permit withdrawals of 1 at the beginning of regular periodic intervals for the specified number or periods

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12
Q

formula for interest rate per compounding period

A

= annual interest rate/ # of compounding periods

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13
Q

number of compounding periods=

A

of years times # of compounding periods

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14
Q

an annuity requires:

A

1) periodic payments or receipts (called rents) of the SAMe amount,
2) same length interval between such rents, and
3) compounding of interest once each interval

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15
Q

ordinary annuity:

A

rents occur at the END of the period

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16
Q

annuity due:

A

rents occur at the BEGINNING of each period

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17
Q

present value of an annuity:

A

the present value of series of equal rents, to be withdrawn at equal intervals at the END of the period

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18
Q

cash is:

A

1) the most liquid of assets
2) standard medium of exchange
3) basis for measuring and accounting for all items
4) generally, classify cash as a current asset

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19
Q

cash- equivalents:

A

short- term, highly liquid investments that are both:
1) readily convertible to known amounts of cash
2) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates

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20
Q

examples of cash- equivalents

A

treasury bills, certificates of deposit, commercial paper and money market funds

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21
Q

short- term investments in current assets:

A

short- term paper investments with maturities 3 to 12 months

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22
Q

restricted cash

A

cash set aside for a specific purpose
-examples: petty cash, payroll and dividend funds

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23
Q

bank overdrafts:

A

occur when a company writes a check for more than the amount in its cash account; reported as a current liability; added to amount reported as accounts payable

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24
Q

accounts receivable:

A

oral promises to pay for goods and services sold

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25
Q

notes receivable:

A

written promises to pay a sum of money on a specified future date

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26
Q

non-trade receivables:

A

arise from a variety of transaction; generally classified and reported as separate items
- ex: dividends and interest receivable; advances to officers and employees, and subsidiaries

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27
Q

revenue recognition principle:

A

indicates that a company should recognize revenue with it satisfies its performance obligation by transferring the good or service to the customer

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28
Q

transaction price:

A

the amount of consideration that a company expects to receive from a customer in exchange for transferring goods/ services

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29
Q

4 items that may affect the transaction price and the A/R balance are

A

1) trade discounts
2) cash discounts
3) sales returns and allowances
4) time value of money

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30
Q

trade discounts:

A

reductions from list price that are not recognized in the accounting records; commonly quotes in percentages

31
Q

cash discounts (sales discounts):

A

offered to induce prompt payment

32
Q

2 methods for recording sales discounts

A

1) gross method
2) net method

33
Q

gross method:

A

receivable and related revenues are recognized at the invoice price

34
Q

net method:

A

receivable and related revenues are recognized at the invoice price less discount. this method attempts to value accounts receivable at its net realizable value

35
Q

recording sales under the gross method

A

debit sales discounts a contra revenue account to sales revenue is debited when payment is received with discount period

36
Q

recording sales under the net method

A

sales discount forfeited account is used if a customer fails to take the discount

37
Q

returned inventory account

A

is used to separate returned inventory from regular inventory

38
Q

time value of money

A

a company should measure accounts receivable in terms of their present value
- present value is the discounted value of cash expected to be received in the future

39
Q

direct write-off method:

A

records bad debt expense at the time a specific customer account is deemed uncollectible. Often used for tax purposes but is not allowed under GAAP unless the amount uncollectible is immaterial

40
Q

allowance method:

A

acceptable under GAAP and is the method. Focus of our discussion

41
Q

net realizable value

A

amount the company expects to receive in cash at each financial statement due

42
Q

under the allowance method what is always debited

A

allowance account

43
Q

journal entries required when a company collects from a customer after their account has been written off

A

1) reverse the entry made in writing off the account. Reinstates the customer’s account
2) it journalizes the collection in the usual manner

44
Q

what does a credit balance in the allowance account mean

A

the company overestimated and did not write off as many accounts as expected

45
Q

what does a debit balance in the allowance account mean

A

the company underestimated and wrote-off more accounts than expected

46
Q

a note receivable is a written promise to pay a _____________ certain sum of money at a specified _____________

A

certain sum of $; future date

47
Q

interest- bearing note has a _________ rate of interest

A

stated

48
Q

a zero interest bearing note has interest ________________

A

included in the face amount

49
Q

reasons companies accept notes from customers

A

customers who need to extend payment period of an outstanding receivable; require notes from high risk new customer; use notes in loans to employees and subsidaries; sales of PPE; lending transactions

50
Q

issues for notes receivables

A

recognition, valuation, disposition

51
Q

stated/ nominal interest rate:

A

rate written into the notes receivable contract. Represents the cash rate of interest paid by the borrower

52
Q

effective- interest rate (market rate or effective yield):

A

rate used in the market to determine the value of the note. Also referred to as the discount rate used to determine present value

53
Q

when the stated interest rate equal the effective rate, the note sells at_______

A

face value

54
Q

When the stated and market rates differ, the cash exchanged (present value) differs from the face value of the note resulting in a __________ or ____________

A

discount; premium

55
Q

premium and discounts are amortized over the life of the note to approximate the _________

A

effective (market) interest rate

56
Q

when the present value exceeds the face value, which means the stated rate is greater than the effective rate, the note is exchanged at a ________

A

premium

57
Q

a premium is recorded as a _______ and is amortized over the life of the note as annual _______ in the amount of interest revenue recognizes

A

debit; reductions

58
Q

in a bargained transaction entered into at arm’s length, the stated interest rate is presumed to be fair unless:

A

1) no interest rate is stated, or
2) the stated rate is unreasonable, or
3) the face amount of the note is materially different from the current cash sales price for the same or similar items or from the current fair value of the debit instrument

59
Q

companies record and report short-term notes receivable at the net amount expected to be collected- that is, at _______

A

the face amount less all necessary allowances

60
Q

2 additional special issues for accounting and reporting of receivables relate to the following

A

1) disposition of receivables
2) presentation and analysis

61
Q

sales of receivables (factoring)

A

sell to a factor (finance companies or banks that buy receivables for a fee); sold wither without recourse or with recourse

62
Q

sale without recourse

A

purchaser assumes risk of collection; transfer is outright sale of receivable; seller records a loss on sale

63
Q

sale with recourse

A

seller guarantees payment to purchaser; financial components approach is used to record transfer

64
Q

what are the three inventory accounts that merchandising companies have

A

raw materials, work in process, finished goods

65
Q

cost of goods available for sale/ use

A

the sum of 1) the cost of the goods on hand at the beginning of the period, and 2) the cost of the goods acquired or produced during the period

66
Q

cost of goods sold

A

the difference between 1) the cost of goods available for sale during the period, and 2) the cost of goods on hand at the end of the period

67
Q

perpetual inventory system:

A

continuously tracks all changes in the inventory account

68
Q

4 parts to perpetual inventory system

A

1) purchases of merchandise are debited to inventory
2) freight- in is debited to inventory. purchase returns and allowances and purchase discounts are credited
3) COGS is debited and and inventory is credited for each sale
4) subsidiary records show quantity and cost of each type of inventory on hand

69
Q

periodic inventory system:

A

determines the quantity of inventory on hand only periodically

70
Q

3 parts to the periodic inventory system

A

1) purchases of merchandise are debited to purchase account
2) ending inventory is determined by a physical count
3) calculation of COGS is made by the formula

71
Q

goods in transit:

A

control usually determined by who has legal title by applying the passage of title rules

72
Q

consigned goods:

A

goods out on consignment remain the property of the consignor (owner). The consignee makes no entry to the inventory account for goods received

73
Q

The periodic inventory system consists of 3 steps:

A

(1) It records all acquisitions of inventory during the accounting period by debiting the Purchases account.
(2) A company then adds the total in the Purchases account at the end of the accounting period to the cost of the inventory on hand at the beginning of the period. This sum determines the total cost of the goods available for sale during the period.
(3) To compute the cost of goods sold, the company then subtracts the ending inventory from the cost of goods available for sale.

Spring Semester 23 (17 decks)

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