Midterm II Flashcards
To convert annual IR into Compounding Period Interest Rate, divide annual IR by ____.
Number of compounding periods per year
T or F?: All things equal, borrowers prefer to pay simple interest.
T
What is an ordinary annuity?
series of equal payments made at END of consecutive periods
What is an annuity due?
series of equal payments made at the BEGINING of consecutive periods
Does simple interest compound?
No.
What table shows the smallest value for a given #?
Present value of 1.
Process of accumulation involved determining the _____.
future value
Future value of an ordinary annuity will be greater or less than an annuity due?
Less than, since ordinary annuities compound interest at the end of the month instead of beginning.
Expected cash flow approach calls for ______ to discount cash flows.
risk-free rate of return
When compounding frequency is more than once a year, the effective-IR is always ____ than the stated rate.
exceeds
The FV of a deferred annuity is _____ as the FV of an annuity not deferred.
the same
FASB has studied whether to eliminate ______ as a cash classification.
cash equivalents
T or F: Cash can be either current or long term asset
T; depending on availability of disbursement
Does cash include postdated checks?
No
Does cash include CD’s or Tax Refunds due?
No
Are bank overdrafts offset against a cash account?
Yes
If FASB eliminates Cash Equivalents, Treasury Bills will be considered _____.
a temporary investment
Sales discounts offsets ____.
AR
Sales returns and allowances has a normal ___ balance.
debit
Non-trade receivables doesn’t include _______.
oral promises to pay
Effective annual interest rate from 1/10 n/30 =
1% / [(30d-10d)/365d]
Percent divided by fraction of year between options.
Notes receivable can be classified as _______.
Current/noncurrent and trade/nontrade
Using net method, sales discounts forfeited should be reported as _____.
other revenues and gains on IS
Why does direct write-off method violate expense recognition concept?
Fails to record expenses in same period as associated revenues
% of receivables approach presents AR at _____.
NRV
% of sales approach matches _____ on IS.
revenue and expenses
Allowance for Doubtful Accounts has a normal ____ balance.
credit
NRV of AR =
AR - Allowance Account
IR that equates cash paid with amount received in future with ‘zero interest’
Implicit rate
T or F: You only recognize interest revenue after the period end.
T; otherwise its interest receivable
Under Fair Value option, unrealized holding gains and losses on receivables are included in _______, not as part of other comprehensive income.
net income
T or F; Assignment and Factoring are both methods used to generate cash from AR
T
Companies that buy receivables from businesses are called _____.
Factors
T or F; Securitization requires purchaser to service receivable
F
AR Turnover Ratio=
Net Sales / Avg Net AR
AR Turnover Ratio measures _____.
number of times the avg balance of AR is collected during period
What is float?
$ briefly counted twice due to time gaps in transactions. Prevented with lockbox.
Do deposited check bounces reduce cash account?
no
Bank overdrafts are ____.
netted against cash balances
Merchandising firms call their unsold units _____ inventory.
Merchandise
A ‘purchases’ account only exists in a ______ inventory system.
periodic
The ‘gross method’ for recording purchase discounts does/does not use a purchase discounts account?
does not
Is interest a product cost or period cost?
period cost, not associated with inventory
What three costs are excluded from inventory under GAAP and IFRS?
Storage, admin, selling
Freight costs are a ____ cost on COGS.
period
In a repurchase agreement, the ____ retains the risk, despite physical possession.
Seller
Average cost flow assumption is good when you have ____ products.
similar
What cost flow assumption when few, costly and easily distinguishable items?
Specific Identification
Inventory method that makes net income manipulation possible.
LIFO
Ending inventory and COGS is same whether perpetual or periodic under ____ method.
FIFO
Trade discounts are deducted when?
immediately
Purchase discounts are deducted when?
within terms
In a periodic system, all inventory acquisitions are debited to a _____ account.
purchases
In a periodic system, the COGS is taken from the ____ account at the ____ of the period.
purchases account at end of period
What does a COGS JE look like in periodic system (end of period)?
Inventory (ending ct)
COGS
——-Purchases
——-Inventory (beg ct)
In a perpetual system, COGS is recorded when?
At each time of sale
In a perpetual system, inventory acquired is debited to the _____ account.
inventory
Can LIFO liquidation distort net income?
Yes
Can LIFO liquidation result in substantial additional taxes?
Yes
Most companies that use LIFO use ________ LIFO.
dollar-value
‘Allowance to reduce inventory to LIFO’ acct is reported on ____________.
BS has deduction from inventory
Dollar-value LIFO techniques protect LIFO layers from _____.
erosion
LIFO Reserve =
Internal inventory - LIFO (external method)
LIFO Inventory + LIFO Reserve =
FIFO Inventory
Under LIFO, future earnings will _____ if there are future price declines.
increase
LIFO is not appropriate when prices tend to lead to _____.
costs
LIFO is/is not appropriate when prices lag behind costs?
is appropriate
If beginning inventory is overstated, COGS is _______ and retained earnings/net income are _______.
overstated; understated
NRV= (meaning)
estimated selling price - cost of completion and disposal
The ___ method uses a contra asset account and loss account to record write-off in lower-of-cost and NRV.
loss
COGS valuation method
subs net realizable cost for historical cost, reports loss as part of COGS
Abandon historical cost principle (when valuing inventory) when _____.
future utility is less than cost
NRV= (formula)
Selling price - cost to sell - cost to complete
What accounts are debited and credited in Loss method of LCNRV?
Debit Loss due to decline of inventory
——Credit Allowance to reduce inventory to NRV
floor=
NRV - normal profit margin
or Selling - costs of completion/disposal - profit margin
ceiling=
NRV
‘market’ really means ________.
replacement cost
Both COGS and loss method credit what account?
allowance to reduce inventory
Market is middle value of ________.
replacement cost, NRV and NRV-profit margin
What does an unrealized holding loss JE look like?
Debit Unrealized Holding Gain/Loss
—Credit Estimated Liability on Purchase Commitment
Inventory can be recorded at NRV when what 3 conditions are met?
- Controlled market with quoted price
- No disposal costs
- Immediate delivery
Valuation of minerals/ag products are based on _____.
NRV
Estimated Losses on Purchase Commitments is reported as _____.
other expenses and losses
Gross profit method of estimating inventory is not acceptable for _____ financial reports.
annual
Gross Margin (profit %)=
(revenue - cogs)/revenue
Cost to Retail Ratio=
cost of goods available for sale / retail value of goods available for sale
The calculation of ‘Cost to Retail Ratio
does not include _____.
net markdowns
What is deducted from both cost and retail columns when computing cost-to-retail ratio?
Abnormal shortages
Inventory Turnover=
COGS/Avg Inventory
LIFO retail assumes markups and markdowns apply only to goods purchased ______.
during period
Dollar-Value LIFO, last years layer is multiplied by ________.
last year’s cost ratio and last year’s index
Does IFRS allow LIFO?
No
Land held for speculation is classified as ______.
An investment
Proceeds from salvaged materials on land that will be used for a building should _______.
reduce the cost of the land
Are repair costs capitalized?
No
Method for accounting for overhead costs related to self-constructed assets:
assigning pro-rata portion of all overhead to asset
Avoidable Interest=
Weighted average accumulated expenditures x interest rate
Weighted Average IR=
Total interest paid in one year / total principal
The amount of interest costs capitalized during period should not exceed ________.
The actual interest costs incurred
Exchange has commercial substance:
both gains and losses recognized immediately
Contributions received should be recorded as _____.
revenue
Donated assets should be recorded at _______.
fair value
Cash and Gain with Commercial Substance:
fair value - deferred portion of gain
If boot is more than _____% of total amount given up, transaction is monetary in nature.
25
Accelerated depreciation can offset the effect of increasing _______ costs as the asset ages.
repair and maintenance
The composite life is the _____ depreciable cost divided by ____ annual depreciation.
total; total
Impairment of assets JE:
debit loss on impairment
—credit accum depreciation
The impairment charge is the difference between_______.
book value and FMV
Restoration is only permitted on assets _______.
held for disposal
Depletion is usually a part of ____.
COGS
MACRS assumes a salvage value of __.
0
What method is not permitted under IFRS?
units-of-production
