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ACCT 229 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

How do you calculate the Gross Profit Ratio?

A

Gross Profit/Net Sales

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2
Q

How to do you calculate the Current Ratio?

A

Current Assets/Current Liabilities

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3
Q

How do you calculate Working Capital?

A

Current Assets - Current Liabilities

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4
Q

What are the two methods of accounting for inventory?

A

Perpetual Method
-updates inventory after every sale
Periodic Method
-updates inventory at the end of a period

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5
Q

What are the two entries made upon each sale when a company is using the Perpetual Inventory Method?

A
  • record the sale

- update the inventory

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6
Q

Where is “Freight-In” included? Where is “Freight-Out” included?

A

Freight-In part of NET PURCHASES

Freight-Out part of Operating Expenses

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7
Q

Explain the title transfer process with FOB Shipping

A
  • BUYER pays for shipping (Freight-In)

- Title transfers to buyer as soon as the goods leave companies property

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8
Q

Explain the title transfer process with FOB Destination

A
  • Title transfers from seller to buy whenever the goods are delivered
  • Seller pays for shipping cost (Freight-Out)
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9
Q

Explain the title transfer process with Consigned Goods

A

Seller transfers the physical product over to Buyer without forfeiting the legal title(title)

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10
Q

What are the are Inventory Costing Methods associated with the Periodic System?

A
  • Specific-Identification Method
  • FIFO
  • LIFO
  • Avg Cost Method
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11
Q

How do you find the average cost when using the Average Cost Method?

A

COGS / Total # of units (GAS units)

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12
Q

Which inventory costing method of the Periodic System is the most used in the U.S.?

A

LIFO

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13
Q

Which inventory costing method of the Periodic System is not allowed by the IASB?

A

LIFO

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14
Q

What does the Inventory Turnover Ratio show?

A

Tells how many times a company buys inventory and then sells it during the year

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15
Q

How is the Inventory Turnover Ratio calculated?

A

COGS / AVG Inventory

*Avg Inventory = (BI+EI) / 2

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16
Q

What does the LIFO Conformity Rule say?

A

Says if a company uses LIFO to report COGS on it’s tax return, then it must also use LIFO on it’s Income Statement

17
Q

How does Inventory Profit occur?

A

Happens when a company is using FIFO during a time of rising prices
-current prices (high) go on the balance sheet causing the inventory to appreciate

18
Q

What is Lower-of-Cost-or-Market Rule (LCM)?

A

says that if a the FMV (fair market value) of inventory decreases lower than what a company paid for it. . . then the company must depreciate it’s inventory on the balance sheet

-follows conservatism

19
Q

What are the 2 methods to writing off Bad Debt Expense

A

Direct Write-Off Method

  • specifically identifies each customer’s accounts receivable and writes them off
  • ** only works for accounts receivable that are immaterial

-Allowance Method

20
Q

Do the Direct Write-Off Method and the Allowance Method follow the Matching principle?

A

Allowance Methods follows Matching Principle

Direct Write-Off Method DOES not follow Matching Principle

21
Q

Maturity Value = ___ + ___

A

Principal + Interest

22
Q

Acquisition Costs

A

All money spent to get the asset

23
Q

3 things that you don’t include in Acquisition Costs?

A
  • money spent to repair damaged asset (if it was damaged)
  • money spent on asset after it was installed
  • interest expense if you bought the asset with borrowed money
24
Q

Acquisition costs of Land?

A
  • purchase price
  • sales commission
  • title fees
  • title insurance
  • legal fees
  • land preparation costs
  • (proceeds from salvage)
25
Q

Acquisition costs of Buldings

A
  • purchase price
  • closing costs
  • broker fees
  • commissions
  • remodeling costs
26
Q

Acquisition costs of Equipment?

A
  • invoice price - (discounts)
  • freight-in
  • installation costs
  • trial runs
  • sales tax
  • material
  • labor
  • Insurance on shipping
27
Q

Is insurance on equipment in case it breaks bought before the sale included in acquisition costs of Equipment?

A

No

28
Q

Give an example of Land Improvements

Are they included in acquisition costs of Land?

A

Driveways, Fences, Parking Lots

No

29
Q

Which inventory costing method is the most conservative?

A

Average Cost Inventory

30
Q

True or False: The gross profit method may not be used to estimate ending inventory when preparing year-end financial statements

A

True

31
Q

True or False: If collection of accounts receivable is assured, then accounts receivable are considered to be cash equivalents

A

False

32
Q

True or False: Because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial

A

True

33
Q

True or False: The main purpose of recording depreciation is to report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date

A

False

ACCT 229 (2 decks)

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