Intermediate ACCT Exam 2 review

If the beginning inventory is overstated:
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Terms in this set (25)
If the beginning inventory is overstated:
retained earnings is understated. (If beginning inventory is overstated, cost of goods sold is overstated and net income and retained earnings are understated.)
The buyer would report the inventory in its balance sheet for items:
purchased f.o.b. shipping point and in transit. (Inventory purchased f.o.b. shipping point and in transit should be included in the buyer's balance sheet.)
FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, the company should credit
inventory for $800.
$44,000 - $4,000) X 2% = $800
Freight charges on goods sold are accounted for as:
period costs.
Period costs include freight charges on goods sold.
The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its
invoice price less the purchase discount allowable whether taken or not.
A Discounts Lost account implies that the purchased inventory item is recorded at price less discount whether taken or not.
The new standard, Revenue from Contracts with Customers,
adopts an asset-liability approach for revenue recognition.
Sufjan Company has a contract to sell 200 units to a customer for $14,000. After 140 units have been delivered, Sufjan modifies the contact by promising to deliver 30 more units for an additional $60 per unit (the standalone selling price at the time of the contract modification). What is the total revenue after the modification?
$6,000
Total revenue after the modification includes a $70 price for the 60 units remaining from the original contract.
Sherman Company enters into a contract with a customer to build a warehouse for $400,000, with a performance bonus of $100,000 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Sherman has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late. What is the total transaction price for this revenue arrangement?
$486,000
The transaction price is based on the expected value of the contract. Total transaction price is $486,000 [($500,000 X 50%) + ($480,000 X 30%) + ($460,000 X 20%)].
On January 1, 2014, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Interest Revenue should Fullbright recognize in 2014?
$ 48,000
Interest Revenue is 12% times the carrying amount of the note, not the face value of the note.
Question 101 / 1 point
Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2015, and the bridge is to be completed in October 2017. The following data pertain to the construction period.What amount of gross profit should Black Bear recognize in 2016 using the percentage-of-completion method?
$245,000
[(70% X ($6,000,000 - $5,400,000)] - [25% X ($6,000,000 - $5,300,000)] = $245,000.
Image: Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2015, and the bridge is to be completed in October 2017. The following data pertain to the construction period.What amount of gross profit should Black Bear recognize in 2016 using the percentage-of-completion method?
Reedy Builders, Inc. is using the completed-contract method for a $12,400,000 contract that will take three years to complete. Data at December 31, 2015, the end of the first year, are as follows: Costs incurred to date $5,200,000 Estimated costs to complete 7,800,000 Billings to date 4,920,000 Collections to date 4,540,000 The gross profit or loss that should be recognized for 2015 isa $600,000 loss. Under both the percentage-of-completion and the completed-contract methods, the company must recognize in the current period the entire expected contract loss, not just a portion of it.Which of the following statements related to an annuity is correct?The periodic payments must always be the same amount. An annuity must have equal periodic payments and equal intervals between payments. An annuity can be classified as an ordinary annuity or an annuity due. Compounding can be annually or for periods less than a year.Avery Tag makes an investment today (January 1, 2014). Avery will receive $40,000 every December 31st for the next six years (2014 - 2019). If Avery wants to earn 12% on her investment, what is the most she should invest on January 1, 2014? Time periods Factor PV Annuity due 5, 4.03735 PV Annuity due 6, 4.60478 PV Ordinary annuity 5, 3.60478 PV Ordinary annuity 6, 4.11141$164,456. Using the present value of an ordinary annuity, 4.11141, the amount necessary is $164,456.Wendy Brown invests $50,000 at 10% annual interest. How much money has accumulated after five years, assuming simple interest?$75,000. Simple interest is [$50,000 + ($50,000 x .10 x 5)] = $75,000.Which of the following is true?Rents occur at the beginning of each period in an annuity due.Alexa Smith has saved $250,000 for her retirement. It is invested in an annuity that pays 12%. Alexa wishes to make equal semi-annual withdrawals over the next 10 years, beginning 6 months from now. How much can she withdraw each period without exhausting her initial investment? Time periods Factor PV Annuity due 12% 10 6.32825 PV Annuity due 6% 20 12.15812 PV Ordinary annuity 12% 10 5.65022 PV Ordinary annuity 6% 20 11.46992$21,796. Using the present value of an ordinary annuity, 6% for 20 periods (10 years, 2 compounding periods per year) 11.46992, the amount she can withdraw is $21,796 each period.Estimated Cash Outflows Probability Assessment $2,700 30% $3,300 50% $4,500 20% Time periods Factor PV of 1 2 .90703 PV Annuity of 1 2 1.85941 FV of 1 2 1.10250 FV Ordinary annuity 2 2.05 How much should she deposit today in an account earning 5%, compounded annually, to have sufficient cash on hand to pay for the vacation?$3,048 Expected cash outflow is [($2,700 X 30%) + ($3,300 X 50%) + ($4,500 X 20%)] $3,360; the present value of $3,360 is ($3,360 X .90703) $3,048.Short-term paper with maturities of less than 3 months should be classified ascash equivalents. Short-term paper with maturities of less than 3 months should be classified as cash equivalents.In a transfer of receivables accounted for as a secured borrowing:a finance charge is recorded. In a transfer of receivables accounted for as a borrowing, the receivables remain on the books of the borrower and a finance charge is recorded.The accounts receivable turnover ratio measures thenumber of times the average balance of accounts receivable is collected during the period. The accounts receivable turnover ratio measures the number of times the average balance of accounts receivable is collected during the period.A cash discount of 1/10, n/30 means the customer gets a:1% discount if they pay within 10 days. The discount is 1% and the discount period is 10 days.The required balance in Wheeler's Allowance for Doubtful Accounts is $36,750, based on an aging of its accounts receivable. The Allowance for Doubtful Accounts currently has a debit balance of $4,200. Wheeler's bad debt expense for the period is$40,950. The existing balance in Allowance for Doubtful Accounts is considered under the percentage-of-receivables method. Therefore, bad debt expense is $40,950 ($36,750 + $4,200).During the year, Trout Enterprises made an entry to write off a $8,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $100,000 and the balance in the allowance account was $9,000. The net realizable value of accounts receivable before and after the write-off entry was$91,000. Before: $100,000 - $9,000 = $91,000. After: ($100,000 - $8,000) - ($9,000 - $8,000) = $91,000.On March 1, 2014, Beijing Pasta Company assigns $1,400,000 of its accounts receivable to Bank of China as collateral for a $1,000,000 note. Bank of China assesses a finance charge of 1 percent of the accounts receivable and interest on the note of 12 percent. Which of the following is correct regarding this transaction?On March 1, 2014, Bank of China will credit Interest Revenue for $14,000. On March 1, 2014, Bank of China will debit Notes Receivable for $1,000,000, credit Interest Revenue for $14,000, and credit cash for $986,000. The bank has provided a loan, and the receivables are collateral for the loan.In preparing its August 31, 2014 bank reconciliation, Adel Corp. has available the following information: Balance per bank statement, 8/31/14 $21,650 Deposit in transit, 8/31/14 $3,900 Return of customer's check for insufficient funds, 8/30/14 $600 Outstanding checks, 8/31/14 $2,750 Bank service charges for August $100 At August 31, 2014, Adel's correct cash balance is$22,800. $21,650 + $3,900 - $2,750 = $22,800.