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Financial Accounting > Final Exam > Flashcards

Final Exam Flashcards

1
Q

Periodic Inventory Cost System

A

-Only knows balance at end of period

-Temporary Accounts

-Use end of month

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2
Q

Perpetual Inventory Cost System

A

-Company always knows the amount of inventory on hand.

-Inventory account

-Use right before sale

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3
Q

Calculating COGS in a Periodic System

A

Beginning Inventory
+Net Purchases
=COGAFS
-Ending Inventory
=COGS

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4
Q

Net Purchases =

A

Purchases + Freight-In - Purchase Discounts - Purchase Returns

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5
Q

FIFO vs LIFO

A

FIFO Use inventory at the beginning of the month

LIFO Use inventory at the end of the month

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6
Q

In times of increasing prices, LIFO vs FIFO in Cost of Good Sold and Ending Inventory.

A

FIFO: Higher Ending Inventory, Lower COGS

LIFO: Higher COGS, Lower Ending Inventory

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7
Q

Perpetual vs Periodic journal entries for items broken/stolen/lost:

A

Perpetual:
Dr. Cost of Goods Sold (-SE) X
Cr. Inventory (-A). X

Periodic:
None- ending inventory incorporates these.

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8
Q

Inventory Turnover Ratio=

A

COGS / Average Inventory

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9
Q

Net Realizable Value =

A

Selling Price - Reasonable Cost of Completion

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10
Q

What IS and ISN’T Lower of Cost-or-Net Realizable Value/Market applied to?

A

Cost or NRV: Applied to FIFO

Cost or Market: Applied to LIFO

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11
Q

Journal Entries for Lower of Cost or NRV OR Lower of cost or Market:

A

Amount = Total Cost - Calculation

Dr. COGS (-SE) XX
Cr. Inventory (-A) XX

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12
Q

Ceiling =

A

Net Realizable Value

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13
Q

Floor =

A

Net Realizable Value - Normal Profit Margin

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14
Q

Market price to be:

A

Replacement cost as long as it’s between floor and ceiling.

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15
Q

Gross Profit as a percentage of sales =

A

(Gross Profit as a percentage of cost) / (1 + Gross Profit as a percentage of cost)

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16
Q

Estimated COGS under Gross Profit Method =

A

Sales x (1 - Gross Profit as a percentage of sales)

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17
Q

Journal entry for recording a loss on a purchase commitment:

A

Dr. Estimated Loss on Purchase Commitment (-SE) XX
Cr. Estimated Liability on Purchase Commitment (+L) XX

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18
Q

What is fair value and what items are it used for?

A

What the item is worth

Investments

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19
Q

What is historical cost and what items are it used for?

A

The cost of the item, which is deprecated over time.

PPE

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20
Q

What classifies as PPE?

A
  1. Actively used in operations
  2. Long-term in nature (>1yr)
  3. Tangible
21
Q

Different accounts within PPE:

A

Land
Land Improvements
Equipment
Buildings
Construction in Process

22
Q

What PPE Accounts are exceptions to depreciation?

A

Land: not depreciated

CIP: Accumulate costs in CIP, transfer to building, equipment, etc. and then start depreciating

23
Q

4 Steps to account for exchange:

A
  1. Record the new asset at fair value
  2. Remove book value of asset given up
  3. Record any cash received or paid
  4. Plug entry to gain or loss
24
Q

Net Book Value =

A

Cost - Accumulated Depreciation

25
Q

New Asset’s Fair Value =

A

Cash paid + Fair value of old equipment

26
Q

Typical Journal Entry for exchanges:

A

Dr. Equipment (New) (+A) XX
Dr. Acc. Dep. (Old) (+A). XX
Cr. Equipment (Old) (-A). XX
Cr. Cash (-A) XX
Cr. Gain on Asset (+SE). XX

27
Q

Amount of interest to capitalize for self-constructed assets =

A

Time-weighted expenditure * Construction loan interest rate
(If no construction, multiply by blended rate)

(If amount is above construction rate, multiply other rate/blended rate by the rest)

28
Q

Blended interest rate =

A

(Annual interest of both rates) / Total of both loans

29
Q

If capitalized interest > Actual interest

A

use actual interest

30
Q

Journal entry for year of self-constructed asset:

A

Dr. CIP (+A). XX
Dr. Interest Expense (-SE). XX
Cr. Interest Payable (+L). XX

CIP = Capitalized Interest
IP = Actual interest
IE = Plug

31
Q

Actual interest=

A

Each loan times its percentage

32
Q

Interest expense =

A

Actual interest - Capitalized interest

33
Q

Expenditure at the beginning of Year 2:

A

Expenditures of year 1 + Capitalized interest

34
Q

Cost of self-constructed asset =

A

Expenditures in each year + Capitalized interest in each year

35
Q

What depreciation is and isn’t:

A

Is used to allocate expense

Isn’t used for tracking what the asset is “worth”

36
Q

Why do we credit accumulated depreciation, rather than equipment, each period?

A

Maintain the historical cost in the gross account.

37
Q

Net Book Value versus Fair Value

A

NOT THE SAME

38
Q

Straight-Line Depreciation

A

(Historical Cost - Residual value)/ Life in years = Depreciation per year

39
Q

Residual Value

A

The value of a fixed asset at the end of its lease term or useful life

40
Q

Sum of Years Digits Formula =

A

[Number of years remaining / (N*(N+1)/2)] * (Historical Cost - Residual Value)

41
Q

Carrying value is the same as

A

Net Book Value

42
Q

Double Declining Balance Rate =

A

2 * 1/N

43
Q

If Net book value is greater than both cash inflows and fair value,

A

Record impairment

44
Q

What is the difference between capitalization and expensing?

A

Total expense is the same, timing is what is different

45
Q

What to capitalize when it comes to patents

A

Capitalize cost of obtaining a patent

Don’t capitalize cots of developing the patentable technology

46
Q

Amortization Journal Entry

A

Dr. Amortization Expense (-SE)
Cr. Intangible Asset (Ex. Patent) (-A)

47
Q

Characteristics of good will:

A

-Do not amortize
-Only happens when purchasing another company.
-Don’t include Common Equity in calculation.

48
Q

Units of Production Depreciation Method

A

(NBV / Total estimated units produced) * Actual units produced each year

Financial Accounting (3 decks)

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