A201 Exam 2

Front 1

primary difference between periodic and perpetual inventory system

Back 1

a periodic system determines the inventory balance only at the end of the accounting period when the inventory is counted

Front 2

"tractors" and "office equipment" would be classified in...

Back 2

tractors - inventory

office equipment - property, plant & equipment

Front 3

a problem with specific identification inventory cost flow method is that...

Back 3

management can manipulate net income

Front 4

when deciding whether or not to sell inventory to customers on account, analysts look at...

Back 4

solvency

Front 5

under the equity method, the long term investment account is increased when...

Back 5

the investee company reports net income

Front 6

true or false?

unrealized gain on trading securities would be reported on the income statement under "other revenues and gains"

Back 6

true

Front 7

true or false?

dividend revenue/income would be reported on the income statement under "other revenues and gains"

Back 7

true

Front 8

true or false?

income from long term equity securities would be reported on the income statement under "other revenues and gains"

Back 8

true

Front 9

true or false?

realized gain on sale of available-for-sale securities would be reported on the income statement under "other revenues and gains"

Back 9

true

Front 10

true or false?

companies that sell products with expiration dates will always use FIFO to account for inventory costs to prevent spoiling

Back 10

false

Front 11

true or false?

FIFO inventory cost flow assumption will result in lower net income than LIFO when prices are falling

Back 11

true

Front 12

true or false?

in periods of rising costs LIFO will result in lower ending inventory balances than other cost flow assumptions

Back 12

true

Front 13

true or false?

LIFO liquidation can be avoided by purchasing more inventory than the amount sold

Back 13

true

Front 14

under the allowance method of accounting for bad debts, the write-off of a specific customer accounts receivable balance determined to be uncollectible __________ the current ratio

Back 14

has no effect

Front 15

the inventory method that best adheres to the matching principle is...

Back 15

LIFO

Front 16

in order to know which accounting method will result in the biggest CoGS being expensed in a period, one must know if the costs...

Back 16

are increasing or decreasing

Front 17

under the periodic inventory method, CoGS is recorded...

Back 17

at the end of each accounting period

Front 18

for AfS, which of the following should be included in the company's calculation of net income?

unrealized price increases and decreases
realized gains and losses
dividends received from investment

Back 18

realized gains and losses
dividends received from investment

Front 19

should 25% ownership of common stock in a company be adjusted to market value at the balance sheet date? why?

Back 19

no, equity method

Front 20

should 1,000 shares of common stock in Microsoft expected to be sold in 10 days be adjusted to market value at the balance sheet date? why?

Back 20

yes, trading

Front 21

should 2,500 shares of common stock in Google expected to be held for at least 2 years be adjusted to market value at the balance sheet date? why?

Back 21

yes, AfS

Front 22

should 5 shares of stock in a privately owned corporation be adjusted to market value at the balance sheet date? why?

Back 22

no, privately owned companies are not readily available at market value

Front 23

unrealized price increase/decrease on AfS securities is a _____ account and _________ closed out to retained earnings at the end of the accounting period

Back 23

permanent, is NOT

Front 24

which ratio is most important to a supplier looking to extend credit to a company (customer)?

Back 24

current ratio

Front 25

the "take a bath" earnings management strategy allows companies to...

Back 25

show lower net income for the earlier year and higher net income for the newer year

Front 26

true or false?

inventory is valued at the lower of cost or market on the balance sheet

Back 26

true

Front 27

true or false?

equipment is valued at cost less accumulated depreciation on the balance sheet

Back 27

true

Front 28

true or false?

long term equity investments are adjusted to market value on the balance sheet when the ownership % is greater than or equal to 20%

Back 28

false

Front 29

assets and liabilities acquired through the purchase of 100% stock (consolidation) are recorded in the purchaser's accounting records at fair market value as of the date of purchase

Back 29

true

Front 30

when measuring and recording ending inventory on the balance sheet, net realizable value less profit margin if _____ than net realizable value and ______ than replacement cost and _____ than historical cost

Back 30

lower, higher, lower

Front 31

true or false?

when using the perpetual method of accounting for inventory the CoGS is calculated using closing entries made at the end of the period

Back 31

false

Front 32

true or false?

when using the perpetual method of accounting for inventory the inventory account is debited for each purchase and credited for each sale

Back 32

true

Front 33

true or false?

when using the perpetual method of accounting the purchases account is used instead of the inventory account during the period

Back 33

false

Front 34

true or false?

companies cannot determine ending inventory without a physical inventory count when using the perpetual method of accounting

Back 34

false

Front 35

if inventory is valued at cost and the costs are steadily rising, the cost flow assumption that will yield the highest net income is...

Back 35

FIFO

Front 36

the penis company owns equity securities classified as AfS. after owning the securities for a few years the company resells the securities for a gain. how would the company calculate the realized gain on the sale?

Back 36

calculate the difference between the original purchase price and the sale price of the security

Front 37

true or false? trading securities and AfS securities

when either is sold, a realized gain or loss is recognized on the income statement

Back 37

true

Front 38

true or false? trading securities and AfS securities

dividends received are recognized as dividend income but only effect net income for trading securities

Back 38

false

Front 39

true or false? trading securities and AfS securities

an increase in the market value of trading securities is recognized as an unrealized gain on the income statement

Back 39

true

Front 40

true or false? trading securities and AfS securities

a decrease in market value of AfS securities is recognized in the AOCI section of stockholder's equity on the balance sheet

Back 40

true

Front 41

**** off Inc. owns less than 2% of the common stock of Titties Inc. **** off intends to sell the stock within the next month. The investment in Titties Inc. account should be recorded at cost if ________

Back 41

market value is not available

Front 42

true or false?

retained earnings is shown on the balance sheet

Back 42

true

Front 43

true or false?

common stock is shown on the balance sheet

Back 43

true

Front 44

true or false?

accumulated other comprehensive income (AOCI) is shown on the balance sheet

Back 44

true

Front 45

true or false?

unrealized gain on sale of trading securities is shown on the balance sheet

Back 45

false

Front 46

solvency/liquidity ratios used in financial statement analysis measure...

Back 46

ability to pay off debts

Front 47

when a company records additional losses in a year that already has poor results, this is called...

Back 47

taking a bath

Front 48

the cash discounts account is a _____ account on the ________

Back 48

contra-revenue, income statement

Front 49

LIFO reserve =

Back 49

FIFO end inv. - LIFO end inv.

Front 50

never mark securities (price per share) to market when using the ______ method

Back 50

equity

Front 51

gross method records A/R assuming cash discount ______ be taken by customer

Back 51

will NOT

Front 52

allowance for bad debt is a _______ account

Back 52

contra-asset

Front 53

allowance for bad debt accounts must always have a _________

Back 53

credit balance

Front 54

entry to create (and increase) the allowance for bad debt account

Back 54

bad debt exp. $56
allowance for bad debt $56

Front 55

beginning inv. - _______ + _______ = end inv.

Back 55

CoGS, purchases

Front 56

perpetual method -

Back 56

inventory is tracked through the accounting system

Front 57

periodic method -

Back 57

relies on a physical count to determine inventory account

Front 58

true or false?

the accounting cost flow assumption must be the same as the actual sale of goods

Back 58

false

Front 59

if you are in a period of rising costs and the same units of inventory are sold, then FIFO means (3 things):

Back 59

lower costs expensed first

higher net income

bigger ending inventory balance

Front 60

if you are in a period of rising costs and the same units of inventory are sold, then LIFO means (3 things):

Back 60

higher costs expensed first

lower net income

smaller ending inventory balance

Front 61

journal entry for inventory write-downs

Back 61

loss $40
inventory $40

Front 62

what are the three market values?

Back 62

replacement cost
net realizable value
NRV less normal profit margin

Front 63

LIFO reserve is used to (2 things)...

Back 63

compute FIFO ending inv.

compute tax benefit from using LIFO

Front 64

less than 20% ownership means a _______ on the balance sheet and ______ for the accounting method

Back 64

short term investment (or long term), report at market value if applicable

Front 65

between 20% and 50% ownership means a _______ on the balance sheet and ______ for the accounting method

Back 65

long term investment, equity method

Front 66

bigger than 50% ownership means a _______ on the balance sheet and ______ for the accounting method

Back 66

consolidated financial statement, consolidation

Front 67

for less than 20% ownership trading securities

adjustments to market value affect _______

Back 67

net income

Front 68

for less than 20% ownership AfS securities

adjustments to market value affect ______ but not _______

Back 68

equity, net income

Front 69

the unrealized price increase/decrease account is a ______ account

Back 69

permanent

Front 70

the unrealized price increase/decrease account is not closed out to _______ at the end of the accounting period

Back 70

retained earnings

Front 71

when the AfS security is sold the previous mark to market adjustment must be ______ and then the _________ is recorded

Back 71

reversed, recorded gain/loss

Front 72

goodwill is a...

Back 72

premium paid for acquisition of subsidiary

Front 73

goodwill =

Back 73

purchase price - FMV of net assets

Front 74

goodwill is always a ______ and ______ asset

Back 74

non-current, intangible

Front 75

under the allowance method of accounting for bad debts, writing off an accounts receivable balance determined to be uncollectible __________ the current ratio

Back 75

has no effect on

Front 76

which of the following is NOT on the balance sheet?

retained earnings
common stock
accumulated other comprehensive income (AOCI)
unrealized gain on sale of trading securities

Back 76

unrealized gain on sale of trading securities

Front 77

how does one calculate the ending balance of Allowance for Doubtful Accounts when using the Aging method?

Back 77

AR ending balance * % AR uncollectible