Module 4 (Adjusting Journal Entries) Flashcards
What are product costs?
Those that a business incurs to buy, manufacture, and deliver a good or service to a customer
Ex. Raw materials, direct labor, overhead, packaging, manufacturing utilities, equipment maintenance
What are period costs?
All non-product costs a company incurs while doing business
Ex. Sales Salaries, Ad. Expenses, Admin Office Supplies, R&D cost
A. The business recognizes $475,000 of Tax Expense for the year.
B. The business recognizes $500,000 of Tax Expense but pays less as a temporary timing difference reverses.
C. The business accrues $25,000 of Tax Expense.
B! $500,000 is being recognized here, but only $475,000 is being paid in cash, while $25,000 is a Deferred Tax Asset being eliminated as a temporary timing difference reverses.
A - The business purchased a used machine.
B - The business disposed of a used production machine and realized a gain of $50,000.
C - The business disposed of a used production machine and realized a loss of $50,000.
B! The journal entry shows that a machine was sold for cash and realized a gain of $50,000.
Quench, a bottled water supplier, has 5,496 bottles of water in their warehouse at the end of April. One third of the bottles were purchased in February at a cost of $1.00 per bottle. Another third were purchased in the month of March at a cost of $1.25 per bottle. The remaining third were purchased in April at a cost of $1.75 per bottle. The warehouse sold and shipped 4,925 bottles during May. Quench uses FIFO to value their inventory.
What was the Cost of Sales related to the bottles shipped in May?
$6,328.75
The correct answer is $6,328.75. Under FIFO, the oldest purchased are expensed first as Cost of Sales. In this case, the 4,925 bottles of water sold in May include 1,832 bottles expensed at a cost of $1.00 per bottle (related to February), 1,832 bottles expensed at a cost of $1.25 (related to March) and 1,261 bottles expensed at a cost of $1.75 per bottle (related to April).
Chrissie’s Cooking Supply Company has 5,000 skillets in their warehouse at the end of July. One quarter of these skillets were held over from the month of June at a cost of $12 per skillet. The remaining skillets were purchased in July at a cost of $15 per skillet. At the beginning of August they received another 2,000 skillets at a cost of $17 per skillet. The warehouse sold and shipped 2,198 skillets during August. Chrissie’s Cooking Supply Company uses LIFO to value their inventory.
What would be the remaining balance of skillets in the inventory account at the end of August?
$68,280
The correct answer is $68,280. Under LIFO, the most recent purchases are expensed first as cost of sales. In this case, the 2,198 skillets sold at the end of August include 2,000 expensed at a cost of $17 per skillet (related to August) and 198 expensed at a cost of $15 per skillet (related to July). This means that the remaining balance of inventory is related to the skillets purchased in July and June. (3,552 * $15 per skillet) + (1,250 * $12 per skillet) = 68,280
Luster Consulting Company purchased a new heating and cooling system for their office building in March, 2014. After installing and testing the equipment, it was put into service on April 1, 2014. The total cost to put the equipment into service was $45,000; it is expected to have a useful life of 10 years and a salvage value of $5,000.
Assuming Luster Consulting Company uses straight-line depreciation, what will the accumulated depreciation be at the end of September, 2015?
$6,000
The correct answer is $6,000. The depreciable value of the equipment is $40,000 ($45,000 cost - $5,000 salvage value) and the number of years to be depreciated is 10 years. So the depreciation for 12 months is $4,000 ($40,000 / 10 years). The amount of accumulated depreciation at the end of September, 2015 will be $6,000, which includes $3,000 for the nine months of depreciation in 2014 and $3,000 for the nine months of depreciation in 2015.
A company purchased a building for $850,000 on January 1, 2010. As of December 31, 2014, $200,000 of accumulated depreciation had been recorded related to this building. The building was sold to another party for $1,250,000 on January 1, 2015.
On the sale of this building, the company should recognize:
A gain of $600K.
At the sale date, the building’s net book value was $650,000 ($850,000 original cost less $200,000 accumulated depreciation). Since it was sold for $1,250,000, which is more than the net book value, the company should recognize a gain of $600,000.
$11 million
