exam 2

Question 1

What is the formula for ending inventory

Answer 1

Beginning Inventory + Purchases – Cost of Goods Sold

Question 2

formula for Cost of Goods Sold

Answer 2

Beginning Inventory + Purchases – Ending Inventory

Question 3

What effect does depreciation have on assets? increase, decrease, no effect

Answer 3

decrease

Question 4

What effect does depreciation have on liabilities? increase, decrease, no effect

Answer 4

no effect

Question 5

What effect does depreciation have on stockholders equity? increase, decrease, no effect

Answer 5

decrease

Question 6

land improvement

Answer 6

any permanent change or addition to land that increases its value, usefulness, or appearance. These improvements are typically distinct from
the land itself a

Question 7

what is Goodwill

Answer 7

an intangible asset that appears on a company’s balance sheet when one company buys another for more than the fair value of its identifiable assets-liabilities (basically extra money paid above the company’s actual fair market value)

Question 8

why would someone pay extra (goodwill)

Answer 8

they are paying for the other valuable things that are intangible such as
Brand reputation
Customer loyalty
Strong relationships with suppliers
Good employee workforce
Intellectual property not separately valued
Business location advantages

Question 9

book value

Answer 9

he value of an asset according to the company’s accounting records (balance sheet).

Question 10

formula for book value

Answer 10

what the company paid for the asset - depreciation

Question 11

fair value

Answer 11

the current market value, the price the asset would sell for today in an open market.

Question 12

formula for goodwill

Answer 12

The money paid for the company - its fair value.

Question 13

What are the advantages of extending credit?

Answer 13

Increased Sales and Customer Loyalty, Competitive Advantage,
Customer Convenience

Question 14

What are the disadvantages of extending credit?

Answer 14

Risk of Nonpayment (Bad Debts), Delayed Cash Inflows,
Administrative Costs

Question 15

what is extending credit

Answer 15

to allow someone to buy something now and pay later. For example A company needs $5,000 worth of goods.
Instead of forcing them to pay up front, you extend credit, meaning they can pay in 30 days.

Question 16

What effect does providing services on account have on assets? increase, decrease, no effect

Answer 16

increase

Question 17

What effect does providing services on account have on Stockholders Equity? increase, decrease, no effect

Answer 17

increase

Question 18

What effect does providing services on account have on revenue? increase, decrease, no effect

Answer 18

increase

Question 19

what is providing service on account

Answer 19

extending credit, service performed now, pay later.

Question 20

The straight line depreciation method formula

Answer 20

(Cost – Residual Value) / Estimated Useful Life

Question 21

Under U.S. Generally Accepted Accounting Principles (GAAP), research and development (R&D) costs are _________ as incurred.

Answer 21

expensed

Question 22

Clown Incorporated received cash for services to be performed in the future. What effect does this transaction have on assets? increase, decrease, no effect

Answer 22

increase

Question 23

Clown Incorporated received cash for services to be performed in the future. What effect does this transaction have on Liabilities? increase, decrease, no effect

Answer 23

increase

Question 24

Clown Incorporated received cash for services to be performed in the future. What effect does this transaction have on stockholders equity? increase, decrease, no effect

Answer 24

no effect

Question 25

when should companies record revenue?

Answer 25

when it is earned not when the order is received or when cash is collected `

Question 26

What is the journal entry to write off an actual bad debt?

Answer 26

Dr. Allowance for Uncollectible Accounts (decrease) THEN Cr. Accounts Receivable (decrease)

Question 27

formula for net sales

Answer 27

= Gross Sales - Sales Returns − Sales Allowances − Sales Discounts

Question 28

formula for gross profit

Answer 28

= Net Sales – Cost of Goods Sold

Question 29

When you purchase an asset, ike equipment, machinery, vehicles, or property— the costs necessary to acquire the asset and prepare it for use are _______? capitalized or expensed

Answer 29

capitalized

Question 30

A company sells an asset. When does it report a gain?

Answer 30

if the company sold the asset for more than its book value.

Question 31

A company sells an asset. When does it report a loss?

Answer 31

if the company sold the asset for less than its book value.

Question 32

The LONGER an account receivable is outstanding the MORE OR LESS LIKELY it will be that the account is uncollectible

Answer 32

more likely

Question 33

The cost of goods sold is an ____ that is reported on the _______ statement

Answer 33

expense, income

Question 34

A company signs a one-year contract on July 1st to provide cleaning services to a customer for one year. The customer pays the company $1200 at the time they sign the contract. How much revenue should the company record on December 31?

Answer 34

$1200 / 12 months = $100 per month x 6 months = $600

Question 35

Assets with an __________________are those that are expected to provide economic benefit for the foreseeable future, with no predictable limit to their useful life. Examples include: a. Goodwill b. Trademarks c. Trade Names

Answer 35

indefinite useful life

Question 36

.The primary benefit of using the allowance method is

Answer 36

that it follows the matching principle in accrual accounting

Question 37

what is the matching principle

Answer 37

matching bad debt expense to the period in which the related sales occur.

Question 38

The primary reason companies use LIFO is to

Answer 38

minimize income taxes during periods of rising prices (inflation).

Question 39

Assets

Answer 39

are the resources of the company that will benefit future operations.

Question 40

Deferred revenue is a...

Answer 40

liability

Question 41

What are some examples of asset accounts?

Answer 41

cash, accounts receivable, supplies, inventory, buildings, land, and investments

Question 42

contra-asset

Answer 42

An account is a general ledger account that reduces the balance of a related asset account, effectively lowering the overall value of the asset on the balance sheet. It's a way to track and reflect the reduced value of an asset, often due to factors like depreciation or bad debts.

Question 43

What are some examples of contra-asset accounts?

Answer 43

Accumulated Depreciation, Allowance for Doubtful Accounts (or Allowance for Bad Debts), Reserve for Obsolete Inventory, Discount on Notes Receivable.