Week 5

Question 1

Perpetual Systems

Answer 1

an inventory system that continuously updates the inventory

Question 2

Periodic System

Answer 2

an inventory system that updates the inventory account on specific intervals

Question 3

3 methods of inventory costing

Answer 3

FIFO ( First In First Out), LIFO (Last In First Out), Cost Average

Question 4

What is Merchandising Inventory

Answer 4

The goods held by a business with the intent to sell

Question 5

Define Raw Materials

Answer 5

any substance or material used in the production of a good

Question 6

Inventory can be

Answer 6

an item the business purchases with the intent of reselling, Raw material, finished goods

Question 7

When raw material are purchased ___ to raw and ___ to cash/accounts payable

Answer 7

Debit, Credit

Question 8

Cost Of Goods Sold Equation

Answer 8

Beginning Inventory+ Goods Purchased-Ending Inventory= Cost Of Goods Sold

Question 9

Inventory is reported on the balance sheet as selling price, not cost . T or F

Answer 9

False, inventory is reported with its cost price on the balance sheet

Question 10

Name 3 things you should do when correcting entries

Answer 10

Create a reverse entry, create new financial documents, make a disclaimer

Question 11

True or false. PP&E and expenses are treated the same when it comes to taxes.

Answer 11

False. Expenses directly reduce taxable income as it is incurred. Assets are written over a certain period of time, usually a number of years

Question 12

Question 3
Which assets would be considered PP&E?

Answer 12

Land, buildings, equipment

Question 13

Straight Line Depreciation ?

Answer 13

The same amount of Deprecation Expense is recorded each accounting period during an assets service life

Question 14

What are some ways of determining service life

Answer 14

how often and item will be used and how long similar items last

Question 15

Name 2 other methods of depreciation

Answer 15

United of Production - 30,000 dollar van will last 150 000 miles example Accelerated depreciation- The asset is used more earlier in its life so you would depreciate more in year 2 than 4

Question 16

A depreciation schedule

Answer 16

is a table that shows the depreciation amount over the span of the assets life

Question 17

Salvage Value ?

Answer 17

What a company expects to return on a fully depreciated. Example expected the van to last 7 years but after 7 years on the book the van is 0 but you sell it and make money

Question 18

Dispositon

Answer 18

Removing the asset from the books

Question 19

When using QBO software, depreciation expense must be entered as a:

Answer 19

Journal Entry

Question 20

Question 4
If an asset has a salvage value of $300, that means:

Answer 20

It could be sold for $300 at the end of its useful life.

Question 21

Question 3
What will the accumulated depreciation of the Float Tank be after 4 years? (Format your answer as $x,xxx)

Reminder:

Original price: $17,000

$2,000 annual depreciation

Answer 21

8,000

Question 22

Question 1
True or false: Depreciation is spreading out the expense of an asset over time.

Answer 22

True

Question 23

Leasing describe

Answer 23

an agreement to pay rent over a specific period of time for the right to use an asset

Question 24

Operating Leases

Answer 24

Is a kind of lease in which transfer of ownership of the asset is not intended

Question 25

Capital Lease

Answer 25

Is a kind of lease in which transfer of ownership of the asset is intended at the end of the lease

Question 26

Name 2 types of leases

Answer 26

Operating Lease, Capital Lease

Question 27

Lessee is ?

Answer 27

Person who is renting it

Question 28

Lessor is ?

Answer 28

Owner

Question 29

Capital Lease what is the key criteria

Answer 29

Ownership at the end

Question 30

Capital Lease gives Risks and Benefits to the lessee what does that mean

Answer 30

Renter needs to pay for taxes, maintenance

Question 31

Capital lease is considered an ?

Answer 31

An asset

Question 32

Capital Lessees can claim what on taxes

Answer 32

Depreciation

Question 33

Operating Lease doesn’t have what ?

Answer 33

Risk or Benefits, and consider an operating expense

Question 34

Question 1
Bill is so excited about opening up his BBQ joint, “Sop ‘n Mop Rib Shack”. He only has a few things left to do before opening day. One task is to sign the lease for his 3 BBQ Smokers that just arrived. He is leasing them from the best BBQ Smoker supplier in town, Smokey’s Pit Boss. The lease is a capital lease with a term of 6 years with 10% interest.

In this example, Bill is considered the _________________ on the lease, and Smokey’s PitBoss is considered the ___________________.

Answer 34

Lessee, Lessor

Question 35

Bill is so excited about opening up his BBQ joint, “Sop ‘n Mop Rib Shack”. He only has a few things left to do before opening day. One task is to sign the lease for his 3 BBQ Smokers that just arrived. He is leasing them from the best BBQ Smoker supplier in town, Smokey’s Pit Boss. The lease is a capital lease with a term of 6 years with 10% interest.

Since Bill’s lease is a capital lease, this means at the end of the 6 years he _______________________.

Answer 35

Owns the equipment himself, but may have a buy-out fee.

Question 36

Larry Smith purchased equipment for $50,000 on January 1, 2020. Its useful life will be 7 years. What will his yearly Depreciation Expense be assuming straight-line depreciation? (Format your answer as $x,xxx.xx

Answer 36

$7,142.86 ($50,000/7years)

Question 37

On January 1, 2020, Marcy acquired a small bass boat for $10,000 to use as a business expansion for her fishing shop, “Bass and Brim”. Her goal is to offer charters for tourists and new anglers. The boat’s useful life is expected to be 10 years, and the salvage value is expected to be $0. After 4 years of use, it was determined that the boat would be useful for only three more years, meaning that the total useful life of the boat will be 7 years instead of 10. Marcy uses the straight-line method of depreciation.

Based on this information what amount should Marcy list as the Depreciation Expense for 2025? (Format your answer as $x,xxx)

Answer 37

The amount to be depreciated is $10,000 divided by 10 years. That means that for first four years, the boat will depreciate by $1,000 per year.

After 4 years, however, the book value of $6,000 will have to be depreciated
over the remaining life of 3 years. Meaning that the depreciation expense for 2025 will be $2,000.

Question 38

PP&E are considered what type of asset ?

Answer 38

Non-current Assets

Question 39

True or False: In order to adhere to the matching principle, depreciation expense is shown on the income statement.

Answer 39

T​rue

Question 40

Question 8
Gavin is the owner of ‘Single Track’, a mountain and dirt biking park. He has decided to try and get more riders in the winter snow season and has purchased 10 fat-tire bikes. He paid $14,345 for the bikes themselves, 7% sales tax, $1,200 delivery fee, and $500 delivery insurance coverage.

When setting up his fixed asset account for these new rental bikes, what is Gavin’s original cost? (Format your answer as $xx,xxx.xx)

Answer 40

Correct! To calculate the original cost of a fixed asset, taxes, insurance, and delivery fees should all be included. In this case: $14,345 (bikes) + $1,004.15 (7% sales tax) + $1,200 (delivery fee) + $500 (insurance) = $17,049.15

Question 41

Question 9
Under an operating lease, the monthly payments are considered a(n)

Answer 41

Under an operating lease, monthly payments are considered an operating expense.

Question 42

True or False: Some assets return value after their service life.

Answer 42

Some assets can have some return value at the end of their service life, such as a vehicle trade-in.

Question 43

.
Question 17
Sanjay has a food truck, “Pakora”, that specializes in his culture’s cuisine. He is leasing the truck through a capital lease. His original cost was $35,500 and the expected useful life of this vehicle is 8 years.

What is Sanjay’s annual depreciation on his food truck? (Format your answer as $x,xxx.xx)

Answer 43

$4,437.50