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Account Exam 2
Quiz Questions
| Question | Answer |
|---|---|
| For a typical manufacturing company, the most common critical point for recognizing revenue is the date: | The product is delivered |
| What kind of warranty is considered an obligation? | An extended warranty |
| A contract for the sale of goods specifies that cash is collected 19 months prior to delivery. The seller is likely to do what with respect to time value of money? | Debit deferred revenue when delivery occurs |
| When a seller offers a right of return, how are sales displayed? | Sales are shown net of estimate returns in the income statement |
| What is not one of the five steps of revenue recognition? | Recognizing revenue when all performance obligations have been satisfied |
| What must a characteristic should a contract have for purposes of revenue recognition? | Commercial substance |
| How is contract price allocated for contracts with more than one performance obligation? | Contract price is allocated to each performance obligation in proportion to the obligations' stand alone selling prices |
| When do companies recognize revenue? | When control over goods have been transferred from seller to the customer |
| Equipment is delivered before payment, when delivery occurs what should the journal entry include? | Credit to sales revenue |
| For which scenarios can revenue not be recognized June 1st? I: Services performed and payment received June 1st II: Payment received June 1st for materials to be delivered in 6 months III: Cash collected June 1st for services performed May 1st | II and III only |
| An internal control system is designed to do what? | Safeguard assets, promote operational efficiency, and encourage adherence to company policies |
| If gross method is used for cash discounts and payment is made during the discount period, what journal entry is made? | Debit cash and sales discount, and credit accounts receivable |
| A transferor has surrendered control over its receivables if: | The transferee has right to pledge or exchange assets received, the transferor does not maintain effective control over assets, and the transferred assets have been isolated from the transferor |
| What happens to refund liability when a customer makes a return? | The account is debited, and refund liability is established at the end of the period for estimated future returns |
| Allowance for uncollectible accounts is what type of account? | Contra asset account |
| When are expenses recorded for a petty cash fund? | When the fund needs to be replenished |
| What can not be included in cash that is recorded as a current asset? | Restricted cash |
| What problem does the direct-write off method create? | Receivables will likely be overstated as not accruing bad debt results in receivables being stated at an amount greater than the amount expected to be collected |
| How are bad debts written off? | With a credit to accounts receivable and debit to allowance for doubtful accounts |
| What is the purpose of pledging/assigning accounts receivable? | Provide collateral for a loan |
| How are accounts receivables normally reported? | At the expected amount to be collected, and a disclosure note of the arrangement is required |
| What journal entry is made when a customer returns merchandise? | A debit to sales returns and a credit to accounts receivable |
| When creating a bank reconciliation, NSF checks are? | Subtracted from the book balance |
| When returns are material and reasonably predictable, what should be recognized? | A refund liability associated with estimated returns |
| How long of a time period can a treasury bill have to be considered a cash equivalent? | 3 months |
| When creating a bank reconciliation, deposits outstanding are? | Added to the bank balance |
| What is considered a sale of receivables? | Factoring receivables without recourse |
| When deciding if financing with receivables is a sale or secured borrowing, what is the critical element? | The extent to which the transferor surrenders control over the assets transferred |
| In a period of rising costs and inventory quantities are stable, the inventory method that would result in the highest ending inventory is? | FIFO |
| If a company that uses dollar-value LIFO reports ending inventory at its year-end cost when the cost index has increased, what is the result? | Reported ending inventory is overstated |
| Do periodic and perpetual average cost always produce the same dollar amounts for inventory? | False/No |
| A company's estimate of inventory that will be returned should be included in what? | Included in inventory at an amount equal to the cost |
| Does FOB shipping point remain in the seller's records during transit? | False/No |
| How do you calculate purchases? | Purchases + Freight ins - Discounts |
| How do you calculate cost of goods sold? | Net Purchases + Beginning Inventory - Ending Inventory |
| Why is LIFO a popular inventory method? | It currently saves income taxes |
| What is a difference in cost of goods sold between periodic and perpetual inventory? | Cost of goods sold is not recorded under a periodic system until the end of the period |
| What inventory method always produces the same amount for cost of goods sold in both periodic and perpetual? | FIFO |
| In a periodic inventory system, what is the cost of purchases debited to? | Purchases |
| What does net realizable value equal? | Estimated selling price less any estimated costs of completion, disposal and transportation |
| What is the purpose of lower of cost or net realizable value? | To avoid reporting inventory at an amount that exceeds the cash is can provide the company |
| For a method besides LIFO or retail inventory method, inventory is reported at? | Lower of cost or net realizable value |
| Can inventory written down due to lower of cost or net realizable value be written back up? | False/No |
| Is the primary motivation behind lower of cost or net realizable value rule consistency? | False/No |
| The practice of using lower of cost or market to value inventory reflects what accounting principle? | Conservatism |
| What is the effect of overstated ending inventory on cost of goods sold? | Understated cost of goods sold |
| What do you not need to know when using the gross profit method to estimate inventory? | Cost of goods sold |
| Under the retail method, what is included in determining cost-retail percentage? | Net markups |
| How do companies value inventory when using LIFO? | Lower of cost or market |
Created by:
Faith64
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