Chapter 3 Test Flashcards

1
Q

Quality Assurance Warranty

A
  • Part of performance obligation to deliver products of acceptable quality
  • Not a separate Performance Obligation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Extended Warranty

A
  • Separate Performance Obligation
  • Option to purchase separately
  • Provides a service beyond quality assurance
  • Example – Car Warranty
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Principal - Performance Obligation

A
  • To provide goods and services - Vulnerable to risks associated wit holding inventory
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Principal - Recording Revenue

A
  • Total sales price paid by customer

- Also recognizes cost of goods sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Agent - Performance Obligation

A
  • To facilitate a transaction between a principal and a customer.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Agent - Recording Revenue

A
  • Only the commission it receives on the transaction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Revenue Recognition – Bill-and-Hold Sale

A
  • Revenue recognized when the delivery to the customer occurs, not when the customer purchase the goods.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Revenue Recognition – Licenses

A
  • Point in Time if the buyer isn’t dependant on seller for use and updates (Music Download)
  • Over the License Period if the buyer is dependent on the seller for use and updates (virus protection software, brand names)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Revenue Recognition - Franchises

A

Both Point in Time and Over Time recognition - Point in Time for initial set up costs, over time for franchise license and sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Consignment Arrangements

A
  • Consignor transfers goods to consignee, but retains legal title. Once the item is sold, the consignee gets a cut.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Revenue Recognition - Consignment Arrangements

A
  • Recognize Revenue once the item is sold to a third party.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Revenue Recognition - Gift Cards

A
  • When a Gift Card is redeemed or the likelihood of redemption is viewed as remote
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Variable Consideration

A
  • Portion of a transaction price depends on the outcome of future events (Construction - Incentive payments ; Entertainment - Royalties ; Manufacturing - Volume Discounts/Product Returns)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Variable Consideration - Expected Value

A
  • Use probabilities to determine the Expected Value.
  • 75% chance you get paid 100,000 - 75K Value
  • 25% chance you get paid 80,000 - 20K Value
  • Expected Value is the Sum, 95K
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Variable consideration - Most Likely Amount

A
  • Choose which option you think is most likely to occur and record that.
  • Make adjusting entries if it doesn’t happen
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Compensating Balance

A
  • An amount that compensates the bank for granting the loan
  • Balance kept in account at the bank
  • Borrower in effect is paying a higher interest rate
17
Q

Effective Interest Rate

A

(Borrowed amount * Stated Interest Rate) / (Borrowed amount - Compensating Balance

  • Borrowed amount - $10,000,000
  • Compensating Balance - $2,000,000
  • Stated Interest Rate - 12%

10,000,000 - 2,000,000 = 8,000,000
10,000,000 * .12 = 1,200,000
1,200,000 / 8,000000 = 15%

18
Q

Trade Discount

A
  • Percentage Reduction from the list price

- Quantity Discounts to Large Customers

19
Q

Sales Discounts

A
  • Reductions in the amount to be paid by a credit customer if paid within a specified period of time
  • Intended to provide incentive for quick payment
20
Q

Purchase Discounts - Gross Method

A
  • Assumes Purchaser will not take advantage of discounts
  • If paid early, Credit Accounts receivable full price and Debit Cash amount paid, then Debit Sales Discount for the difference
  • If paid on time, Debit Cash for full price and Credit AR for full price
21
Q

Purchase Discounts - Net Method

A
  • Assumes Purchaser will take advantage of discounts
  • If paid early, Debit Cash for discount price and Credit AR for discount price Credit Accounts receivable full price and Debit Cash amount paid, then Debit Sales Discount for the difference
  • If paid on time, Debit Cash for full price and Credit AR for discount rate, then Credit Sales discounts forfeited for the difference
22
Q

Setting up Allowance for Doubtful Accounts

A

AR Balance - Expected Collections = Bad Debt Expense
Debit Bad Debt expense, Credit Allowance for Doubtful Accounts

AR Balance - 240,000
Expected Collections - 200,000

240,000 - 200,000 = 40,000
Bad Debt Expense 40,000
Allowance for DA 40,000

23
Q

Factor

A
  • Financial Institution that purchased a receivable
24
Q

Sale of Receivable without Recourse

A
  • Sale of Receivable to Factor without penalty for Factor not recovering Receivable
25
Q

sale of receivable with recourse

A
  • Sale of Receivable to Factor with a set liability if Factor cannot recover receivable. Liability waived if Factor recovers
26
Q

Bank Reconciliation - Step 1

A
  • Adjust the Bank Balance
  • Add deposits outstanding
  • Deduct Checks outstanding
  • Bank Errors (Either increases or Decreases depending on the error)
27
Q

Bank Reconciliation - Step 2

A
  • Adjustments to the Book Balance
  • Add collections made by the bank
  • Deduct service and other charges
  • Deduct NSF checks
  • Company errors (Either Increases or Decreases depending on the error)
28
Q

FOB Shipping Point

A
  • Title transfers at shipping point, when the goods leave the seller
29
Q

FOB Destination

A
  • Title transfers at destination, when the buy receives the goods
30
Q

Inventory Cost Methods - Average Cost

A
  • Sum of total costs for inventory, divided by the number of units gets the average cost per unit.