Midterm 2

  1. Inventory costing method.
    Based on average cost of inventory during the period.
    Also called weighted average method.
    Average cost method.
  2. How do you calculate average cost?
    Dividing the cost of goods available by the number of units available.
  3. The accounting concept by which the least favorable figures are presented in the financial statements.
  4. Cost of inventory the business has sold to customers.
    Cost of goods sold.
  5. Formula that brings together all of the inventory data for the entire accounting period.
    Cost of goods sold model
  6. Cost of goods sold model equation?
    • Beginning inventory+purchases=Goods available
    • AND
    • Goods available-Ending inventory=Costs of goods sold
  7. A business's financial statements must report enough info for outsiders to make knowledgeable decisions about the business. Relvant, reliable, and comparable info about economic affairs.
    Disclosure Principle
  8. Inventory costing method.
    The first costs into inventory are the first costs out to cost of goods sold.
    Ending inventory is based on the costs of the most recent purchases.
    FIFO! (first in first out) cost method
  9. Equation for gross profit/margin?
    Sales revenue-cost of goods sold.
  10. A way to estimate inventory based on a rearrangent of the cost of goods sold model.
    Gross Profit/Margin method.
  11. Equation for gross profit/margin method?
    Beginning inventory+Net purchases=Goods available-cost of goods sold=Ending inventory.
  12. What is the gross profit/margin percentage equation?
    Gross Profit/net sales revenue
  13. Inventory turnover ratio?
    Cost of goods sold/average inventory
  14. Indicates how rapidly inventory is sold.
    Inventory turnover ratio.
  15. Inventory costing method.
    The last costs into inventory are the first costs out to cost of goods sold.
    Leaves the oldest costs, in ending inventory.
    LIFO! (last in first out) method.
  16. Requires that an asset be reported in the financial statments at whichever is lower, it's historical cost or its market value.
    Lower of cost or market (LCM) rule.
  17. An inventory system in which the business does not keep a continuous record of the inventory on hand.
    Instead, at then end of a period the business makes a phyiscal count of the inventory on hand and applies the appropriate unit costs to determine the cost of the ending inventory.
    Periodic Inventory System
  18. A decrease in the cost of purchases because the seller has granted the buyer a subtraction from the amount owed.
    Purchase Allowance
  19. A decrease in the cost of purchaces earned by making an early payment to the vendor.
    Purchase discount.
  20. A decrease in the cost of purchaces because the buyer returned the goods to the seller.
    Purchase Return.
  21. Inventory cost method.
    Based on the specific cost of particular units of inventory.
    Specific unit cost method.
  22. A depreciation method.
    Writes off a relatively large amount of the assets cost nearer the start of its useful life than the straightline method.
    Accelerated Depreciation Method.
  23. The systematic reduction of a lump sum amount.
    Expense that applies to intangible assets in teh same way depreciation applies to plant assets and depletion to natural resources.
  24. Expenditure that increases an asset's capacity or efficiency or extends it's useful life.
    Debited to an asset account.
    Capital Expenditure
  25. That portion of a natural resource's cost that is used up in a particular period.
    Computed the same way as units of production depreciation.
    Depletion Expense
  26. How do you calculate depreciable cost?
    Cost of a plant asset-estimated residual value.
  27. Accelerated depreciation method.
    Computes annual depreciation by multiplying the asset's decreasing book value by a constant percnetage.
    2 times the straight line rate.
    Double declining balance (DDB) method.
  28. Expected cash value of an asset at teh end of it's useful life.
    Residual/Scrap/Salvage Value
  29. Length of service that a business expects to get form an asset.
    Estimated useful life.
  30. What is the goodwill equation?
    Excess of the cost of an aquired company/sum of market values of it's net assets (assets-liabilites)
  31. An asset with no physical form, a special right to current and expected future benefits.
    Intangible assets.
  32. Long lived assets like land, buildings and equipment.
    Used in the opweration of the business.
    Plant or Fixed assets.
  33. Depreciation Method.
    An equal amount of depreciation expense is assigned to each year of asset use.
    Straight Line (SL) Method.
  34. Depreciation Method.
    A fixed amount of depreciation is assigned to each unit of output produced by the plant asset.
    Units of production (UOP) method
  35. An expense incurred but not yet paid in cash.
    Accrued Liability/Expense
  36. Issued to multiple lenders called bondholders.
    Bonds Payable.
  37. At a specified price whenever the issuer wants.
    Callable Bonds
  38. Lease agreement that meets one of these:
    1. Tranfers title of leased asset to lessee
    2. Contains a bargain purchase option
    3. Term is 75% or more of estimated useful life of the lease asset
    4. The present value of the lease payements is 90% or more of market value of leased asset.
    Capital Lease
  39. Bonds or notes that may be converted to the issuing company's common stock at the investor's option.
    Converible bonds/notes.
  40. The amount of the principal that is payable within one year.
    Current installment of long term debt.
  41. Unsecured bonds.
    Bonds backed only by the good faith of the borrower.
  42. Excess of a bond's face value over it's issue price.
  43. Earning more income on borrowed money than the related interest expense.
    Increases the earnings for the owners of the business.
    Leverage/Trading on the equity
  44. Interest rate that ivestors demand for loaning their money.
    Market/Effective Interest rate.
  45. Usually a short term or cancelable rental agreement.
    Operating lease.
  46. Excess of a bond's issue price over it's face/par value.
  47. Amount a person would invest now to recieve a greater amount at a future date.
    Present Value
  48. Bonds that mature in installments over a period of time
    Serial bonds
  49. Interest rate that determines the amount of cash interest the borrower pays and the investor receives each year.
    Stated Interest Rate
  50. Bonds that mature at the same time for a particular issue.
    Term bonds.
  51. Measures the number of times that operating income can cover interest expense.
    Times interest earned ratio.
  52. Times interest earned ratio equation?
    Income from operations/interest expense
  53. Operational assets that have physical substance are
    Tangible assets
  54. The amount expected to be recovered when an asset is disposed of at the end of its estimated useful life is its...
    Residual Value
  55. A portion of the cost of the asset should be allocated as an expense for the periods in which the asset helps the business to earn revenue deals with what principle?
  56. The book value at the end of an asset's useful life will be the same under all the depreciation methods allowed under GAAP...
  57. The total depreciation in the accumulated depreciation account will be the same at the end under all methods under GAAP...
  58. Failure to record amortization on a patent during the current year would cause what?
    Net income and Assets to be overstated!
  59. Depreciation can best be described as what?
    Allocating the costs of assets over their useful lives
  60. Revenue in advance
    Accrued Interest Payable
    Employeed Taxes withheld
    Current portion of long term debt

    Are all examples of...
    Current Liabilites
  61. Bonds payable are classified on the Balance Sheet as...
    Long term liabilities
  62. LIFO tends to increase taxes when costs are?
  63. Which of the depreciation methods best applies to those assets that generate greater revenue earlier in their useful lives?
  64. The cost allocation process for natural resources is similar to that of (a depreciation method):
    Units of Production
  65. Amortization of an intangible asset is similar to which depreciation method?
  66. The adjusting entry to record accrued interest on a short-term note payable includes a:
    debit to interest expense
  67. Effective Rate is also called
    Market Rate
  68. Amortizing the discount on a bond payable ________ the carrying amount of the bond.
  69. Under the effective-interest method of amortization, the cash payment on each interest payment date is calculated by multiplying the:
    face value of the bonds X the stated interest rate for the appropriate time period
  70. Under the effective-interest method of amortization, interest expense each period can be calculated by multiplying the:
    carrying value of the bonds X the effective interest rate for the appropriate time period
  71. A pension plan is said to be overfunded when:
    the fair market value of the pension plan assets exceeds the projected benefit obligation
  72. When a repair or replacement occurs within the warranty period:
    estimated warranty payable is debited
Card Set
Midterm 2