Accounting Theory Test 2

Front 1

What is the difference between FOB shipping point and FOB destination?

Back 1

1. FOB shipping point: Purchaser pays and down goods in transit

2. FOB destination: Seller pays and owns goods in transit

Front 2

What are consigned goods?

Back 2

Placing goods somewhere for other companies to sell, owner counts in their inventory

Front 3

What is the Specific Identification Cost?

Back 3

Unique inventory items for items of different characteristics

Front 4

How do you calculate average cost per unit, COGS and ending inventory?

Back 4

1. Average cost per unit: Cost of goods available/ number of units available

2. Cost of goods sold: Number of units sold * average cost per unit

3. Ending inventory: Number of units on hand * average cost per unit

Front 5

Which inventory method is highest and which is lowest?

Back 5

Highest: Weighted average

Lowest: FIFO

Front 6

What are the two principles related to inventory?

Back 6

1. Comparability: Consistent period to period

2. Disclosure: Relevant and faithful

Front 7

What is lower of cost and net realizable value rule?

Back 7

Inventory is reported at the lower of cost or net realizable value

Front 8

How do you determine ending inventory using the gross profit method? (6)

Back 8

Beginning inventory

Add: Purchases

Goods available for sale

=Estimated COGS

Less: Net sales revenue

Less: Estimated gross profit

Estimated cost of ending inventory lost

Front 9

What are the costs of land?

Back 9

Purchase price

Commissions

Survey and legal fees

Back property taxes paid

Grading and removing unwanted buildings

Front 10

What are the costs of building?

Back 10

Construction: Architectural fees, building permits and contractors charges, materials, labor and overhead and interest on funds borrowed

Purchased: Purchase price, brokers commission, taxes paid and costs to repair and renovate

Front 11

What are the costs of equipment?

Back 11

Purchase price ( after discounts)

Transportation

Insurance in transit

Sales and other taxes

Purchase commission

Installation and testing

Front 12

What are the costs of land improvements?

Back 12

Parking lots

Driveways

Savings

Fences

Sprinkler systems

Front 13

How do you calculate basket purchases?

Back 13

(Market value/Total market cost)*total cost of assets

Front 14

What is capital expenditures?

Back 14

Increase capacity or extend useful life, by buying overhaul

Front 15

How do you calculate the straight line method?

Back 15

(cost-residual value)/ useful life in years

Front 16

How do you calculate the straight line rate?

Back 16

1/useful life in years

Front 17

How do you calculate units or production?

Back 17

(cost-residual value)/useful life in units

Front 18

How do you calculate the double dimishing balance?

Back 18

DDB rate*carrying amount

Front 19

How do you calculate the DDB rate?

Back 19

Straight line rate *2 or 2/life in years

Front 20

How do you calculate DDB final year depreciation?

Back 20

Carrying amount at the beginning final year-residual value

Front 21

What is impairment?

Back 21

Obsolescence, physical damage and loss in market value

Front 22

What are intangible assets depreciated at?

Back 22

Straight line and recorded as amortization

Front 23

What are intangible assets?

Back 23

Patents, copyrights, trademarks, franchises and licenses and goodwill

Front 24

How is goodwill recorded?

Back 24

Assets are market value

Less: Liabilities

=Market value of net assets

Purchase price paid

Goodwill ( market value-purchase price paid)

Front 25

What is a non strategic/passive/available for sale investment?

Back 25

Investors holds less than 20%

Front 26

How to adjust non strategic investments?

Back 26

Net income approach: long term investment and unrealized gain

Other comprehensive income approach: Long term investment and other comprehensive income

Front 27

What is an equity method investment?

Back 27

Investors holds 20-50% and has a role in the investors decisions

Front 28

For equity method investment how is the t-account recorded?

Back 28

Left: Purchase and net income

Right: Dividends

Front 29

For equity method investment what revenue is recorded on the income statement?

Back 29

Revenue from net income

Front 30

What is a consolidated subsidiaries?

Back 30

Investor owns 50% or more of investees stock and can elect majority of board members

-Investor is parent company

-Combine financial statements

Front 31

For foreign currency translation what does each balance sheet use for their translation?

Back 31

Assets and liabilities: Current exchange rate

Retained earnings: When company was bought

Common shares: Average exchange rate

Front 32

How do you account for sales tax payable?

Back 32

Cash

GST/PST/HST Payable

Sales

Front 33

How do you do the journal entry for warranty expense?

Back 33

Warranty expense

Warranty payable

Warranty payable

Inventory

Front 34

What does the leverage ratio measure?

Back 34

The debt for financing assets

Front 35

What does times interest earned measure?

Back 35

Low rate: Difficulty in paying interest and high ratio

Front 36

What is the difference between operating and financing leases?

Back 36

Operating: Lessor retains risk and rewards of owing and records rent expense

Financing: Lessee assumes risk and rewards of ownership, lessee capitalizes the leased asset and records a long term liability

Front 37

What is a provision?

Back 37

Contingent liability

Front 38

What is an underwriter?

Back 38

Organization that purchases the bonds from an issuing company and resells them to its clients or sells them for a commission