Week 5 Flashcards
Perpetual Systems
an inventory system that continuously updates the inventory
Periodic System
an inventory system that updates the inventory account on specific intervals
3 methods of inventory costing
FIFO ( First In First Out), LIFO (Last In First Out), Cost Average
What is Merchandising Inventory
The goods held by a business with the intent to sell
Define Raw Materials
any substance or material used in the production of a good
Inventory can be
an item the business purchases with the intent of reselling, Raw material, finished goods
When raw material are purchased ___ to raw and ___ to cash/accounts payable
Debit, Credit
Cost Of Goods Sold Equation
Beginning Inventory+ Goods Purchased-Ending Inventory= Cost Of Goods Sold
Inventory is reported on the balance sheet as selling price, not cost . T or F
False, inventory is reported with its cost price on the balance sheet
Name 3 things you should do when correcting entries
Create a reverse entry, create new financial documents, make a disclaimer
True or false. PP&E and expenses are treated the same when it comes to taxes.
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 3
Which assets would be considered PP&E?
Land, buildings, equipment
Straight Line Depreciation ?
The same amount of Deprecation Expense is recorded each accounting period during an assets service life
What are some ways of determining service life
how often and item will be used and how long similar items last
Name 2 other methods of depreciation
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
A depreciation schedule
is a table that shows the depreciation amount over the span of the assets life
Salvage Value ?
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
Dispositon
Removing the asset from the books
When using QBO software, depreciation expense must be entered as a:
Journal Entry
Question 4
If an asset has a salvage value of $300, that means:
It could be sold for $300 at the end of its useful life.
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
8,000
Question 1
True or false: Depreciation is spreading out the expense of an asset over time.
True
Leasing describe
an agreement to pay rent over a specific period of time for the right to use an asset
Operating Leases
Is a kind of lease in which transfer of ownership of the asset is not intended
Capital Lease
Is a kind of lease in which transfer of ownership of the asset is intended at the end of the lease
Name 2 types of leases
Operating Lease, Capital Lease
Lessee is ?
Person who is renting it
Lessor is ?
Owner
Capital Lease what is the key criteria
Ownership at the end
Capital Lease gives Risks and Benefits to the lessee what does that mean
Renter needs to pay for taxes, maintenance
Capital lease is considered an ?
An asset
Capital Lessees can claim what on taxes
Depreciation
Operating Lease doesn’t have what ?
Risk or Benefits, and consider an operating expense
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 ___________________.
Lessee, Lessor
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 _______________________.
Owns the equipment himself, but may have a buy-out fee.
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
$7,142.86 ($50,000/7years)
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)
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.
PP&E are considered what type of asset ?
Non-current Assets
True or False: In order to adhere to the matching principle, depreciation expense is shown on the income statement.
True
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)
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 9
Under an operating lease, the monthly payments are considered a(n)
Under an operating lease, monthly payments are considered an operating expense.
True or False: Some assets return value after their service life.
Some assets can have some return value at the end of their service life, such as a vehicle trade-in.
.
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)
$4,437.50
