MGT 6201 EVALUATION EXAMS ANSWERS AND
QUESTIONS SET A+
✔✔Accounts Receivable (classification & what is it) - ✔✔Current Asset, funds owed by
customers from credit sales reported at Net Realizable Value (NRV)
✔✔Net Realizable Value Equation - ✔✔NRV = Gross A/R - Allowance for Uncollectibles
- Returns
✔✔Allowance Method (Matching Principle) - ✔✔We estimate that bad debt expense in
the same period the revenue is recorded rather than waiting for customer to actually
default
✔✔Inventory (classification & what is it) - ✔✔Current Asset, Goods held for resale
with/without alteration
✔✔Merchandising - ✔✔Goods held for resale without alteration. Cost includes:
Purchase price + freight + taxes + storage + insurance
✔✔Manufacturing - ✔✔Goods altered prior to sale (raw materials, work-in-progress
(WIP))
Cost includes: Raw materials + direct labor + manufacturing overhead
✔✔FIFO - ✔✔(First-in, Last-Out): Oldest costs go to COGS, newest costs stay in
Ending Inventory (mimics flow of milk at grocery store)
✔✔LIFO - ✔✔(Last-in, First-Out): Newest costs go to COGS, oldest stay in Ending
Inventory (mimics a bucket of screws)
✔✔Investments (classification & what is it) - ✔✔Current Asset, Equity and Debt
Investments
✔✔Equity Investments - ✔✔(Buying Stock):
Control (>50%): Consolidation (combine financial Statements)
, Significant Influence (20-50%): Equity method
Passive (<20%): Fair Value Method (adjust to market value periodically
✔✔Debt Investments - ✔✔(Buying Bonds):
Held-to-Maturity: Intent to hold until due
Trading: Intent to sell short-term for profit
Available-for-Sale: Everything else
✔✔Property Plant and Equipment (PPE) (classification & how to measure) - ✔✔Current
Asset, Include all costs necessary to acquire the asset and make it ready for use
(purchase price, installation, testing, legal fees, transportation)
✔✔Measurement of PPE equation - ✔✔Book Value = Historical Cost - Accumulated
Depreciation
✔✔Depreciation & 3 methods - ✔✔Process of allocation, not valuation. Allocates cost to
expense over useful life to match revenue
Straight-line (most common), accelerated (double declining), activity based
✔✔Intangible Assets (classification & what is it) - ✔✔Asset, no physical substance
(patents, copyrights, trademarks)
✔✔Goodwill - ✔✔only recorded when acquiring another company
Goodwill = Purchase Price - Fair Value of Net Assets
✔✔Current Liability - ✔✔Liability due within one year (Accounts Payable, unearned
revenue)
✔✔Unearned Revenue - ✔✔Cash received BEFORE service performed
✔✔Long-Term Debt - ✔✔(bonds)
Reported at Present Value of future Cash flows
✔✔Stated Rate - ✔✔(Coupon): Determines the cash payment (stated amount * stated
rate)
✔✔Market Rate - ✔✔(Effective): Determines the Interest Expense (Carrying Value *
Market Rate)
✔✔Effective Interest Method - ✔✔Typically record interest expense even if you pay zero
cash interest (zero-coupon bonds)
QUESTIONS SET A+
✔✔Accounts Receivable (classification & what is it) - ✔✔Current Asset, funds owed by
customers from credit sales reported at Net Realizable Value (NRV)
✔✔Net Realizable Value Equation - ✔✔NRV = Gross A/R - Allowance for Uncollectibles
- Returns
✔✔Allowance Method (Matching Principle) - ✔✔We estimate that bad debt expense in
the same period the revenue is recorded rather than waiting for customer to actually
default
✔✔Inventory (classification & what is it) - ✔✔Current Asset, Goods held for resale
with/without alteration
✔✔Merchandising - ✔✔Goods held for resale without alteration. Cost includes:
Purchase price + freight + taxes + storage + insurance
✔✔Manufacturing - ✔✔Goods altered prior to sale (raw materials, work-in-progress
(WIP))
Cost includes: Raw materials + direct labor + manufacturing overhead
✔✔FIFO - ✔✔(First-in, Last-Out): Oldest costs go to COGS, newest costs stay in
Ending Inventory (mimics flow of milk at grocery store)
✔✔LIFO - ✔✔(Last-in, First-Out): Newest costs go to COGS, oldest stay in Ending
Inventory (mimics a bucket of screws)
✔✔Investments (classification & what is it) - ✔✔Current Asset, Equity and Debt
Investments
✔✔Equity Investments - ✔✔(Buying Stock):
Control (>50%): Consolidation (combine financial Statements)
, Significant Influence (20-50%): Equity method
Passive (<20%): Fair Value Method (adjust to market value periodically
✔✔Debt Investments - ✔✔(Buying Bonds):
Held-to-Maturity: Intent to hold until due
Trading: Intent to sell short-term for profit
Available-for-Sale: Everything else
✔✔Property Plant and Equipment (PPE) (classification & how to measure) - ✔✔Current
Asset, Include all costs necessary to acquire the asset and make it ready for use
(purchase price, installation, testing, legal fees, transportation)
✔✔Measurement of PPE equation - ✔✔Book Value = Historical Cost - Accumulated
Depreciation
✔✔Depreciation & 3 methods - ✔✔Process of allocation, not valuation. Allocates cost to
expense over useful life to match revenue
Straight-line (most common), accelerated (double declining), activity based
✔✔Intangible Assets (classification & what is it) - ✔✔Asset, no physical substance
(patents, copyrights, trademarks)
✔✔Goodwill - ✔✔only recorded when acquiring another company
Goodwill = Purchase Price - Fair Value of Net Assets
✔✔Current Liability - ✔✔Liability due within one year (Accounts Payable, unearned
revenue)
✔✔Unearned Revenue - ✔✔Cash received BEFORE service performed
✔✔Long-Term Debt - ✔✔(bonds)
Reported at Present Value of future Cash flows
✔✔Stated Rate - ✔✔(Coupon): Determines the cash payment (stated amount * stated
rate)
✔✔Market Rate - ✔✔(Effective): Determines the Interest Expense (Carrying Value *
Market Rate)
✔✔Effective Interest Method - ✔✔Typically record interest expense even if you pay zero
cash interest (zero-coupon bonds)
