Practice Questions Flashcards
A business collects cash deposits from customers for goods to be delivered next month.
- What happens to: Assets? Liabilities? Equity? Revenue/Gain? Expenses?
- What does the JE look like?
- *Assets INCREASE (cash is received)
*Liabilities INCREASE (the unearned revenue account increases)
*All others stay the same! - Dr. Cash (+A)
Cr. Unearned Revenue (+L)
A business provides services to customers who previously paid them a deposit.
- What happens to: Assets? Liabilities? Equity? Revenue/Gain? Expenses?
- What does the JE look like?
1.
*Liabilities DECREASE (Unearned revenue is tapped after fulfilling the obligation)
*Revenue INCREASES (Money from the Unearned Revenue is now realized as Revenue!)
*All others stay the same!
- Dr. Unearned Revenue (-L)
Cr. Revenue (+R)
A business records depreciation for the year.
- What happens to: Assets? Liabilities? Equity? Revenue/Gain? Expenses?
- What does the JE look like?
- *Expenses INCREASE (Depreciation Expense is realized)
* Assets DECREASE (Asset is depreciated by the depreciation)
*All others stay the same! - Dr. Depr Expense (+Ex)
Cr. Accumulated Depr (-A)
A company has AR balance at EOY of $72,000. Their sales are a total of $850,000, 20% of which is credit. EOY balance of Allowance for Bad Debts was $400. Their total Bad Debt estimates were the following:
Total Credit Sales: 1.5%
Aging Analysis: $11,750
- What would be done using Aging method?
- What would be done for Total Credit Sales method?
- *AR would be debited $72,000
*Then the $400 from the Allowance balance would be added to $11,350 (which is the estimated allowance) = $11,750
–> Dr. AR $72,000
–>
(Beg.) Cr. Bad Debt Allowance $400
Cr. Bad Debt Allowance $11,350
(End.) $11,750
2.
*AR debited $72,000
*Determine amount estimated to be uncollectible based on given percentage:
($850,000 * 80%) * 1.5% = $10,200
*Then, we add that to the $400 –> $10,200 + $400 = $10,600
–> Dr. AR $72,000
–>
(Beg.) Cr. Bad Debt Allowance $400
Cr. Bad Debt Allowance $10,200
(End.) $10,600
A company has the following data from inventory/sales:
Beginning inventory:
140 units at $15 per unit
Purchases:
400 units at $20 per unit
Sales:
350 units at $35 per unit
- How many units are in Ending Inventory?
- What is COGS under the FIFO method?
- What is COGS under LIFO?
- What’s their LIFO reserve?
- (Beginning + Purchases) - Sales =
(140+400) - 350 = 190 units - FIFO: Prices align with oldest purchases
(140 units * $15)
+ (210 units * $20)
= $6,300 - LIFO: Prices align with most recent purchases
350 units * $20 = $7,000 - LIFO Reserve = LIFO - FIFO
$7,000 - $6,300 = $700
Using 10 years as the estimated Useful Life of an asset of 5 years:
- Impact on Assets?
- Impact on NI?
- Assets are HIGHER (due to lower Accumulated Depreciation balance)
- NI is HIGHER (due to lower Depreciation Expense)
A repair expense was incorrectly recorded as a capital expenditure
- Impact on Assets?
- Impact on NI?
- Assets HIGHER (CapEx [+A] is debited)
- NI HIGHER (Expense deferred)
An asset impairment was appropriately recorded
- Impact on Assets?
- Impact on NI?
- Assets LOWER (Value impaired)
- NI LOWER (Impairment Loss is an expense)
An asset with an original cost of $100,000, accumulated depreciation of $50,000 is sold for $35,000
- Impact on Assets?
- Impact on NI?
- Assets LOWER (Loss incurred for sale lower than NBV)
- NI LOWER (Loss on sale is recorded as expense)
(T/F?) The “Sales Returns” account is a temporary account that gets closed at the end of each period.
True
(T/F?) The Allowance for Doubtful Accounts account always starts the period with a zero balance.
False
(T/F?) Public companies are required to use the same depreciation method for financial reporting and tax reporting.
False
(T/F?) An increase in the estimated useful life of a tangible asset (ie, Equipment) results in lower Depreciation Expense for future years.
True
