Describe in words the journal entries that are made in a perpetual inventory system when inventory is sold on credit.
> Describe the relationship between the expense recognition (“matching”) principle and accounting for long-lived assets
> Distinguish between ordinary repairs and extraordinary repairs. How is each accounted for?
> Waste Management, Inc., regularly incurs costs (e.g., salaries, legal fees, travel) to find new locations for landfill sites. What reasons support capitalizing these costs? What reasons support expensing these costs?
> What is the term for recording costs as assets rather than as expenses? Describe how the decision to record costs as assets, rather than expenses, affects the balance sheet and income statement
> Over what period should an addition to an existing long-lived asset be depreciated? Explain.
> Under the cost principle, what amounts should be recorded as a cost of a long-lived asset?
> How does depletion affect the balance sheet and income statement? Why is depletion accounted for in a manner that differs from depreciation and amortization?
> Johnson & Johnson, the maker of Tylenol, uses GAAP. Bayer, the maker of aspirin, uses IFRS. Explain what complications might arise when comparing the long-lived assets of these two companies.
> How is the fixed asset turnover ratio computed? Explain its meaning.
> Describe the equation that provides the structure for the statement of retained earnings. Explain the four major items reported on the statement of retained earnings
> FedEx Corporation reports the cost of its aircraft in a single category called Flight Equipment. What impact would adopting IFRS have on this aspect of FedEx’s accounting?
> Define goodwill. When is it appropriate to record goodwill as an intangible asset? When is its value decreased?
> Distinguish between depreciation and amortization.
> What is book value? When equipment is sold for more than book value, how is the transaction recorded? How is it recorded when the selling price is less than book value?
> What is an asset impairment? How is it accounted for?
> A local politician claimed, “to reduce the government’s deficit, it’s time we require companies to start paying their deferred income tax liabilities.” Explain to the politician what deferred income taxes represent and why they should not be viewed as ac
> After merging with Northwest Airlines, Delta Airlines increased the estimated useful life and increased the estimated residual value of its flight equipment. All else equal, how will each of these changes affect Delta’s Depreciation Expense and Net Incom
> Define long-lived assets. What are the two common categories of long-lived assets? Describe each.
> What are the three components of the interest formula? Explain how this formula adjusts for interest periods that are less than a full year.
> What is the primary difference between accounts receivable and notes receivable
> Describe the equation that provides the structure for the income statement. Explain the three major items reported on the income statement.
> A local phone company had a customer who rang up $300 in charges during September 2018 but did not pay. Despite reminding the customer of this balance, the company was unable to collect in October, November, or December. In March 2019, the company finall
> How does the use of calculated estimates differ between the aging of accounts receivable method and the percentage of credit sales method?
> What is the effect of the write-off of uncollectible accounts (using the allowance method) on (a) net income and (b) net accounts receivable?
> Using the allowance method, is Bad Debt Expense recognized in the period in which (a) sales related to the uncollectible account were made or (b) the seller learns that the customer is unable to pay?
> Which basic accounting principles does the allowance method of accounting for bad debts satisfy?
> In March 2015, Target Corporation decided to discontinue its Target credit card operations. What factors would this company have considered prior to making this decision?
> Refer to question 7. What amounts would be reported if the direct write-off method were used? Which method (allowance or direct write-off) more accurately reports the financial results?
> Describe how (and when) the direct write-off method accounts for uncollectible accounts. What are the disadvantages of this method?
> When customers experience economic difficulties, companies consider extending longer credit periods. What are the possible consequences of longer credit periods on Sales, Accounts Receivable, Allowance for Doubtful Accounts, Net Income, and the receivabl
> What two approaches discussed in this chapter can managers take to speed up sluggish collections of receivables? List one advantage and disadvantage for each approach.
> Describe the basic accounting equation that provides the structure for the balance sheet. Define the three major components reported on the balance sheet
> Does an increase in the receivables turnover ratio generally indicate faster or slower collection of receivables? Explain.
> As of May 1, 2016, Krispy Kreme Doughnuts had $1,170,000 of Notes Receivable due within one year, $29,039,000 of Accounts Receivable, and $346,000 in its Allowance for Doubtful Accounts (assume all related to accounts receivable). How should these accoun
> What are the advantages and disadvantages of extending credit to customers?
> Explain briefly the application of the LCM/NRV rule to ending inventory. Describe its effect on the balance sheet and income statement when inventory value is lower than cost.
> Several managers in your company are experiencing personal financial problems and have asked that your company switch from LIFO to FIFO so that they can receive bigger bonuses, which are tied to the company’s net income. How would you respond to this req
> Contrast the income statement effect of LIFO versus FIFO (on Cost of Goods Sold and Gross Profit) when (a) costs are rising and (b) costs are falling.
> Contrast the effects of LIFO versus FIFO on ending inventory when (a) costs are rising and (b) costs are falliv
> Where possible, the inventory costing method should mimic actual product flows.” Do you agree? Explain.
> Which inventory cost flow method is most similar to the flow of products involving (a) a gumball machine, (b) bricks off a stack, and (c) gasoline out of a tank?v
> The chapter discussed four inventory costing methods. List the four methods and briefly explain each.
> Briefly explain the difference between net income and net loss.
> Describe the specific types of inventory reported by merchandisers and manufacturers.
> Explain why an error in ending inventory in one period affects the following period
> Distinguish perpetual inventory systems from periodic inventory systems by describing when and how cost of goods sold is calculated when using LIFO.
> You work for a made-to-order clothing company, whose reputation is based on its fast turnaround from order to delivery. The owner of your company is considering outsourcing much of the clothing production because she thinks this will improve inventory tu
> As a sales representative for a publicly traded pharmaceutical company, you become aware of new evidence that one of your company’s main drugs has significant life-threatening side effects that were not previously reported. Your company has a significant
> What are three goals of inventory management?
> What is the difference between FOB shipping point and FOB destination? How do these terms relate to the revenue principle?
> Why is a physical count of inventory necessary in a periodic inventory system? Why is it still necessary in a perpetual inventory system?
> What is the main distinction between perpetual and periodic inventory systems? Which type of system provides better internal control over inventory? Explain why
> Explain why the income statement, statement of retained earnings, and statement of cash flows would be dated “For the Year Ended December 31, 2018,” whereas the balance sheet would be dated “At December 31, 2018.”
> Describe how transportation costs to obtain inventory (freight-in) are accounted for by a merchandising company using a perpetual inventory system. Explain the reasoning behind this accounting treatment.
> How do the accounting methods used for investments involving a significant influence and investments involving control differ?
> How do the accounting methods used for passive investments and investments involving a significant influence differ?
> When is it appropriate to use acquisition/consolidation, equity, or fair value methods for an investment in another corporation?
> What are the two sources of return for passive investments?
> Under the equity method, dividends received from the affiliated company are not recorded as revenue. Recording these dividends as revenue would involve double-counting. Explain.
> Define beginning inventory and ending inventory.
> What are consolidated financial statements and what do they attempt to accomplish?
> Use the information in C6-1 to complete the following requirements. Required: 1. Prepare journal entries for the transactions described in events (a) through (j), using the date of each transaction as its reference. Assume BSS uses perpetual inventory
> Run Heavy Corporation (RHC) is a corporation that manages a local band. RHC was formed with an investment of $10,000 cash, paid in by the leader of the band on January 3 in exchange for common stock. On January 4, RHC purchased music equipment by paying
> One Product Corp. (OPC) incorporated at the beginning of last year. The balances on its postclosing trial balance prepared on December 31, at the end of its first year of operations, wer The following information is relevant to the first month of operat
> American Laser, Inc., reported the following account balances on January 1. The company entered into the following transactions during the year. Required: 1. Analyze the effects of each transaction on total assets, liabilities, and stockholdersâ
> One Trick Pony (OTP) incorporated and began operations near the end of the year, resulting in the following post-closing balances at December 31: The following information is relevant to the first month of operations in the following year: â€
> WorldBiz operates divisions around the world. Its European division—EuroBiz (EB)—has recently reported the following information to you at WorldBiz’s head office. You are trying to decide whether to d
> Okay Optical, Inc. (OOI), began operations in January, selling inexpensive sunglasses to large retailers like Walgreens and other smaller stores. Assume the following transactions occurred during its first six months of operations Required: 1. Complete
> Tracer Advance Corporation (TAC) sells a tracking implant that veterinarians surgically insert into pets. TAC began January with an inventory of 400 tags purchased from its supplier in November last year at a cost of $24 per tag, plus 200 tags purchased
> College Coasters is a San Diego–based merchandiser specializing in logo-adorned drink coasters. The company reported the following balances in its unadjusted trial balance at December 1. The company buys coasters from one supplier. All
> Define goods available for sale. How does it differ from cost of goods sold?
> You have been given responsibility for overseeing a bank’s small business loans division. The bank has included loan covenants requiring a minimum current ratio of 1.80 in all small business loans. When you ask which inventory costing m
> Complete C7-9 but assume Stolte Trimble Corporation (STC) uses LIFO in its perpetual inventory system. Data from C7-9: Stolte Trimble Corporation (STC) uses a perpetual inventory system. At the beginning of May, STC had 30 units of inventory, of which
> Complete C7-9 but assume Stolte Trimble Corporation (STC) uses weighted average cost in its perpetual inventory system. Data from C7-9: Stolte Trimble Corporation (STC) uses a perpetual inventory system. At the beginning of May, STC had 30 units of inv
> Stolte Trimble Corporation (STC) uses a perpetual inventory system. At the beginning of May, STC had 30 units of inventory, of which 10 units were purchased in March for $60 per unit and 20 units were purchased in April for $66 per unit. STC uses its per
> Complete C7-6Â but assume Chipolo uses LIFO in its perpetual inventory system. Data from C7-6: Chipolo sells a coin-sized tracking tag that attaches to keys, wallets, and other personal items. Chipolo began January with an inventory of 200 t
> Complete C7-6Â but assume Chipolo uses weighted average cost in its perpetual inventory system Data from C7-6: Chipolo sells a coin-sized tracking tag that attaches to keys, wallets, and other personal items. Chipolo began January with an in
> Chipolo sells a coin-sized tracking tag that attaches to keys, wallets, and other personal items. Chipolo began January with an inventory of 200 tags purchased from its supplier in November last year at a cost of $12 per tag, plus 100 tags purchased in D
> Complete C7-3Â but assume Tracer Advance Corporation (TAC) uses LIFO in its perpetual inventory system. Data from C7-3: Tracer Advance Corporation (TAC) sells a tracking implant that veterinarians surgically insert into pets. TAC began Janua
> Complete C7-3Â but assume Tracer Advance Corporation (TAC) uses weighted average cost in its perpetual inventory system. Data from C7-3: Tracer Advance Corporation (TAC) sells a tracking implant that veterinarians surgically insert into pets
> (a) On October 1, the Business Students’ Society (BSS) placed an order for 100 golf shirts at a unit cost of $20, under terms 2/10, n/30. (b) The order was received on October 10, but some golf shirts differed from what had been ordered. Uncertain whethe
> If a Chicago-based company ships goods on September 30 to a customer in Hawaii with sales terms FOB destination, does the Chicago-based company include the inventory or the sale in its September financial statements?
> Vanishing Games Corporation (VGC) operates a massively multiplayer online game, charging players a monthly subscription of $15. At the start of January 2018, VGC’s income statement accounts had zero balances and its balance sheet accoun
> Fit for Life (FFL) operates a fitness center and snack lounge. The following is a partial list of FFL transactions during its year ended December 31. FFL adjusts its records only at year-end. Required: 1. Calculate the cost of goods sold on January 8,
> Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the current year to provide personal training for athletes aspiring to play college football. The following transactions occurred during the month ended January 31. a. GIPI issue
> On January 1, Pulse Recording Studio (PRS) had the following account balances. The following transactions occurred during January. a. Received $2,500 cash on 1/1 from customers on account for recording services completed in December. b. Wrote checks o
> Nicole’s Getaway Spa (NGS) continues to grow and develop. Nicole is now evaluating a computerized accounting system and needs your help in understanding how source documents inform accounting processes. She also needs some help reconcil
> Assume it is now December 31, 2018, and Nicole has just completed her first year of operations at Nicole’s Getaway Spa. After looking through her trial balance, she noticed that there are some items that have either not been recorded or are no longer up-
> Starting in May, Nicole has decided that she has everything she needs to open her doors to customers. To keep up with competition, Nicole has added gift certificates and has started to advertise her company more to keep her business going in the long ter
> CC2-1 Accounting for the Establishment of a Business Nicole has decided that she is going to start her business, Nicole’s Getaway Spa (NGS). A lot has to be done when starting a new business. Here are some transactions that have occurred prior to April 3
> Nicole Mackisey is thinking of forming her own spa business, Nicole’s Getaway Spa (NGS). Nicole expects that she and two family members will each contribute $10,000 to the business and receive 1,000 shares each. Nicole forecasts the following amounts for
> Looking back over the last few years, it is clear that Nicole Mackisey has accomplished a lot running her business, Nicole’s Getaway Spa (NGS). Nicole is curious about her company’s performance as she compares its fina
> What is gross profit? How is the gross profit percentage computed? Illustrate its calculation and interpretation assuming Net Sales is $100,000 and Cost of Goods Sold is $60,000.
> During a recent year, Nicole’s Getaway Spa (NGS) reported net income of $2,300. The company reported the following activities: a. Increase in inventory of $400. b. Depreciation of $3,000. c. Increase of $2,170 in prepaid expenses. d. Payments of $4,600 o
> CC11-1 Accounting for Equity Financing Nicole has been financing Nicole’s Getaway Spa (NGS) using equity financing. Currently NGS has authorized 100,000 no-par preferred shares and 200,000 $2 par common shares. Outstanding shares include 50,000 preferred
> Nicole thinks that her business, Nicole’s Getaway Spa (NGS), is doing really well and she is planning a large expansion. With such a large expansion, Nicole will need to finance some of it using debt. She signed a one-year note payable with the bank for
> Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $7,000. The estimated useful life was five years and the residual value was $500. A
> The following transactions occurred over the months of September to December at Nicole’s Getaway Spa (NGS). Required: 1. Prepare journal entries for each of the transactions. Assume a perpetual inventory system. 2. Estimate the Allow
> In October, Nicole eliminated all existing inventory of cosmetic items. The trouble of ordering and tracking each product line had exceeded the profits earned. In December, a supplier asked her to sell a prepackaged spa kit. Feeling she could manage a si
> Nicole’s Getaway Spa (NGS) has been so successful that Nicole has decided to expand her spa by selling merchandise. She sells things such as nail polish, at-home spa kits, cosmetics, and aromatherapy items. Nicole uses a perpetual inven
