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ACC 201 Exam II Review
- 1. EXAM II -- REVIEW ACC 201 – Spring 2010
- 2. Inventory and Cost of Sales Chapter 5
- 3. Inventory Cost Costs included in inventory can include
- 4. Valuation FIFO Balance sheet is reflection of current costs if prices are rising, net income is overstated Income Statement reflection of older costs LIFO Lower net income if rising prices COGS more accurate with current costs Weighted Average Tends to smooth out erratic changes in costs
- 5. FIFO / LIFO/Weighted Average Beginning Balance (day 1) is 10 units at $10 each. Purchased 10 more unites at $15 each on day 5. On day 10, sold 14 units. COGS under FIFO? Under LIFO? Weighted Average?
- 6. Financial Statement Effects Understated Ending Inventory… Overstated ending inventory
- 7. Lower of Cost or Market Calculate the inventory value using the LCM for inventory as a whole Calculate the inventory value using LCM for each individual item
- 9. Bad Debt Expense bad debt expense can be estimated by:
- 10. % sales method A company using the %sales method has 1,000,000 sales in 2009. The allowance account had credit balance of 10,000. A/R has balance of 500,000 About 2% of sales are estimated to be uncollectible. What is the journal entry to record bad debt expense?
- 11. % A/R method A company using the %sales method has 1,000,000 sales in 2009. The allowance account had credit balance of 10,000. A/R has balance of 500,000 About 5% of A/R are estimated to be uncollectible. What is the journal entry to record bad debt expense?
- 12. Interest = Principle x InterestRate x time Time = days/360 *assume 30 days per month.
- 13. Long-Term Assets Chapter 8
- 14. Cost Recovery Different methods of allocating cost of an asset over its useful life
- 15. Capital vs Revenue Expenditures Capital Expenditures are written to the balance sheet asset account - these expenditures increase the usefulness of the asset significantly Revenue expenditures are written to the income statement – they do not significantly affect the usefulness of the asset
- 16. Asset Disposal Gains/Losses Company has building destroyed by an earthquake. Building cost $250,000, had accumulated depreciation of $120,000. Insurance company proceeds were $180,000. Calculate the gain/loss
Editor's Notes
- invoice (actual cost of items) plus shipping (freight-in), plus storage, insurance, and other costs related to obtaining inventory and making it ready to be sold.
- FIFO:14 units sold: 10 from beginning = 10 x $10 = 100 4 from 2nd purchase = 4 x $15 = 60 TOTAL = $160LIFO10 units from 2nd purchase = 10 x $15 = $1504 from beginning balance = 4 x $10 = $ 40 TOTAL = $190Weighted Average20 units total: 10 x $10 = 100 10 x $15 = 150 20 units @ $250 total = $12.5 per unit14 units sold x $12.5 = $175
- Understating ending inventory overstates COGS, and therefore understates net incomeOverstating ending inventory understates COGS and therefore overstates net incomeThe effect is opposite in year 2SEE PAGE 211 in textbook
- Whole:Product Total Cost Total MarketA $50 $60B $100 $90C $100 $110TOTAL $250 $260Inventory = $250Individually:Product A -- $50 (lower of 50 or 60)Product B -- $90 (lower of 100 or 90)Product C -- $100 (lower of 100 or 110)TOTAL $240
- Three MethodsA. The percent of sales method, -- Bad Debt Expense directly computedB. The percent of accounts receivable method – Bad Debt Expense is a plugC. The aging of accounts receivable method – Bad Debt Expense is plugged
- % of sales: Bad Debt Expense = %sales.Sales = 1,000,0000 x 2% = 20,0000Bad Debt Expense 20,000 Allowance Doubtful Accounts 20,000
- % of A/R = Total Allowance AccountBad Debt Expense = plugged.5% x A/R = .05 x 500,000 = 25,000 what should be Allowance Account10,000 is already in the Allowance, need $15,000 more.Bad Debt Expense 15,000 Allowance for Doubtful Accounts 15,000
- Depreciation – for tangible/plant assets - assets that are used in business operation and have useful life more than 1 year.-- Know for the test: Straight-Line Double-Declining Balance Units of Production Depletion – for raw material type assets (such as oil, minerals, etc)Amortization – for intangible assets (such as patents, trademarks, etc)
- Examples of Capital Expenditures: Extraordinary Repair UpgradesExample of Revenue Expenditures Ordinary repairs and maintanance
- Cost of Building -- $250,000Accumulated Depreciation $120,000 Book Value $130,000Proceeds from Insurance $180,000Gain $50,000