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42 terms

Accounting Exam 2

STUDY
PLAY
A characteristic of a plant asset is that it
is used in the production of income for a business
Depreciation
The term applied to the periodic transfer of a plant asset's cost to expense is
Revenue Expenditures
Expenditures that are periodic and routine are
Accumulated Depreciation is a
-Contra Asset Account
-Used to show the cost expiration of plant assets
Amortization
The transfer to expense resulting from a decline in the utility of an intangible
When an asset is sold for a price greater than the asset's book value a __________ is recorded on the disposal of plant assets
gain
Which of the following would be expensed rather than capitalized?
Oil change and lubrication/Major engine overhaul/ Modification for new use/Addition to storage capacity
Oil Change and Lubrication
A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?
80000+8000+500= $88,500 cost of installation and insurance is added to total asset cost for recording purposes.
Residual Value
expected cash value of an asset at the end of its useful life
When would the depletion method be appropriate? Which accounting method does it use?
Natural Resources , Units of production
The excess of the cost of an acquired company over the sum of the market value of its net assets
Capitalized as goodwill.
Trading Securities
Short-term investments in stocks held for short-term profit.
Reported at market value as current assets on the balance sheet
Operating activities
Activities that create revenues and expenses
Investing activities
Activities affecting equity accounts, Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows.
Financing Activities
Activities that obtain cash needed to launch and sustain the business , Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.
Bordner Company had operating expenses, other than salaries, wages, and depreciation, of $98,000. Prepaid expenses had a net increase during the period of $4,000. Accrued liabilities had a net increase of $7,000 during the period. How much were the cash payments for operating expenses?
$98,000 ops expenses
+$4,000 prepaid expenses
- $7,000 accrued liabilities = $95,000
Cougar Company reports the following information for 20X7.
Credit sales $599,000
Collections from customers 480,000
Interest received on investments 20,000
Dividends paid to common stockholders 11,000
Cost of goods sold 335,000
Payments to inventory suppliers 339,500
Depreciation expense 25,000
Operating expenses 70,000
Payments for operating expenses 72,500
Interest and taxes paid 12,300
What is the net cash inflow from operating activities?
$48,000 + $20,000- $339,500-$72,500-$12,300=$75,700
Collections from customers+ interest received- payment to inventory supplier - payments for operating expenses- interest and taxes paid
Lance Corporation reports beginning accounts receivable of $70,200 and ending accounts receivable of $67,900. If sales revenue on account is $950,200, how much cash must have been collected from customers during the period?
$70,200 - $67,900= $2,300 difference in ending and beginning accounts receivable
$950,200 +$2,300 = $952,500 total cash collected in period
Stmt of Cash Flows
financial statement that reports an entity's cash receipts and cash payments during the period
Stmnt o fcash flows is divided into three major categories
Operating, Investing, Financing
Assets on a consolidated balance sheet are
combined for the parent and the subsidiary
Under the indirect method, depreciation expense would be
added to net income in the operating activities section
Trevor Industries prepares its statement of cash flows using the direct method. Trevor sold equipment with a book value of $7,500 at a gain of $1,300. The amount to be reported on the statement of cash flows under "proceeds from sale of plant assets"
$8,800.
Freedom Industries prepares its statement of cash flows using the direct method. Freedom sold equipment with a book value of $7,000 at a gain of $2,500. The amount to be reported on the statement of cash flows under operating activities is
$0 NOT AN OPERATING ACTIVITY.
Company's 20X7 income statement reports depreciation expense of $25,000. On the statement of cash flows for 20X7 prepared using the direct method,would depreciation b reported?
No, would not be reported.
Current Ratio
A measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities.
Debt Ratio
Ratio of total liabilities to total assets; used to reflect risk associated with a company's debts
Acid-Test Ratio
Ratio used to assess a company's ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities.
Inventory Turnover
COGS / Average Inventory
Total Asset Turnover
Net Sales / Average Total Assets
Return on Assets
(Net Income)/ (Total Tangible Assets)
Return on Equity
Net Income / Average Shareholder's Equity
Market to Book
Market Value Per Share / Book Value Per Share
Price to Earnings
Market price per share / earnings per share
Reasons to use Financial Ratios
used as assumptions in preparing business plans, identify weaknesses, and facilitate comparisons.
- Determine incentive pay,
- Judge a suppliers financial status
- Compare divisions
Which question can financial ratios NOT answer
what action should follow from a ratio that is lower than its peers'?- NO
How quickly and satisfactorily could the firm pay its short-term debts? - YES
Are shareholders getting their money's worth? YES
What is the balance of debt and equity underlying the firm's assets? YES
Current Assets...$10,555
Account Receivables...$5,582
Cash $3,058
Inventory $1,734
Sales $36,938
COGS $30,838
Total Current Liabilities...$11,609
What is the Current Ratio?
Current Ratio =( $10,555+$5,582) /$11,609
Current Assets...$10,555
Account Receivables...$5,582
Cash $3,058
Inventory $1,734
Sales $36,938
COGS $30,838
Total Current Liabilities...$11,609
What is the Quick Ratio?
Quick Ratio=( $3,058 + $5,582)/ $11,609
Current Assets...$10,555
Account Receivables...$5,582
Cash $3,058
Inventory $1,734
Sales $36,938
COGS $30,838
Total Current Liabilities...$11,609
What is the Inventory Turnover?
Inventory Turnover = $30,838 / $1,734
Current Assets...$10,555
Account Receivables...$5,582
Cash $3,058
Inventory $1,734
Sales $36,938
COGS $30,838
Total Current Liabilities...$11,609
What is the Receivables Turnover?
Receivable Turnover = $36,938 / $5,582
Current Assets...$10,555
Account Receivables...$5,582
Cash $3,058
Inventory $1,734
Sales $36,938
COGS $30,838
Total Current Liabilities...$11,609
What is the Total Asset Turnover?
Total Asset Turnover = $36,938/$10,555
Times Interest Earned
Times Interest Earned= Operating Profit /Interest Expense