ACC 101 CHAPER 6-10 FINAL EXAM
STUDY GUIDE
Merchandise inventory - ANS-Goods a company intends to sell.
LIFO (last in, first out) - ANS-Assumes last items purchased are the first sold.
FIFO (First In, First Out): - ANS-Assumes first items purchased are the first sold.
(Chronological)
Specific Identification - ANS-Tracks each item's cost individually.
Weighted Average Cost Method: - ANS-Averages cost of goods available for sale for
cost assignment.
FOB shipping point - ANS-buyer owns goods in transit
FOB destination - ANS-Seller owns goods in transit
Multi-Step Income Statement: Gross Profit calculation - ANS-Sales revenue- Cost of
goods sold (COGS)
Inventory costing methods: Specific Identification: - ANS-For unique identifiable items.
Inventory costing method: Weighted average cost - ANS-COGAS (cost of goods
available for sale).
Inventory costing methods: FIFO - ANS-First purchased items are sold first.
Inventory costing methods: LIFO - ANS-Last purchased items are sold first.
Which method is good for Balance Sheet/Income Statement, to pay less taxes, to show
more income, etc. - ANS-Balance sheet: FIFO shows higher inventory values in
inflation.
Income Statement: LIFO shows lower net income in inflation (less taxes).
Less Taxes: LIFO during inflation.
More Income: FIFO during inflation
What are the effects on the financial statements for LIFO when prices are rising or
falling - ANS-LIFO in Rising Prices: Higher COGS, Lower Gross Profit, Lower Taxes,
Lower Balance Sheet Inventory Value. If falling, reverse.
, What are the effects on the financial statements for FIFO when prices are rising or
falling - ANS-Lower COGS, Higher Gross Profit, Higher Taxes, Higher Balance Sheet
Inventory Value. If falling, reverse.
What is the effect on net income and assets of misstating the ending merchandise
inventory in the 1st year? - ANS-1st Year: Overstated inventory leads to understated
COGS, overstated net income, and overstated assets. Understated inventory leads to
the opposite.
What is the effect on net income and assets of misstating the ending merchandise
inventory in the 2nd year? - ANS-2nd Year: The effects are reversed because the error
in beginning inventory for the year corrects the misstatement impact from the previous
year on COGS and net income, but overall financial portrayal might still be affected.
Cash equivalents definition - ANS-very liquid investments with original maturities of 3
months or less in which the company invests excess cash temporarily in order to earn
interest.
EXAMPLE:U.S. treasury bills, Notes payable issued by major corps, Money market fund
Preparing a bank reconciliation: What is added/subtracted on Bank side? - ANS-Add:
Deposits in transit
Subtract: Outstanding checks
Plus or minus: Bank errors
Preparing a bank reconciliation: What is added subtracted on Book side? - ANS-Add:
Notes receivable collected by the bank, interest earned
Subtract: Bank service charges, NSF (non-sufficient funds) checks
Plus or minus: Book errors
How do you find the adjusted cash balance per bank and books? - ANS-Per Bank: Start
with the bank statement balance, adjust for deposits in transit, outstanding checks, and
any bank errors to find the adjusted balance.
Per Books: Start with the book balance, adjust for any earnings (e.g., interest earned)
and charges (e.g., NSF checks, service fees), and book errors to find the adjusted
balance. The goal is to reconcile and ensure both adjusted balances match.
Allowance for Doubtful Accounts - ANS-Contra assets to Accounts receivable.
Has a CR (credit) balance.
subtracted from AR on the balance sheet (AR, net = AR - Allowance for Doubtful
Accounts)
It is the estimated amount of AR that the company won't be able to collect.
Accounts Receivable (AR) - ANS-Money owed to a company by its customers.
STUDY GUIDE
Merchandise inventory - ANS-Goods a company intends to sell.
LIFO (last in, first out) - ANS-Assumes last items purchased are the first sold.
FIFO (First In, First Out): - ANS-Assumes first items purchased are the first sold.
(Chronological)
Specific Identification - ANS-Tracks each item's cost individually.
Weighted Average Cost Method: - ANS-Averages cost of goods available for sale for
cost assignment.
FOB shipping point - ANS-buyer owns goods in transit
FOB destination - ANS-Seller owns goods in transit
Multi-Step Income Statement: Gross Profit calculation - ANS-Sales revenue- Cost of
goods sold (COGS)
Inventory costing methods: Specific Identification: - ANS-For unique identifiable items.
Inventory costing method: Weighted average cost - ANS-COGAS (cost of goods
available for sale).
Inventory costing methods: FIFO - ANS-First purchased items are sold first.
Inventory costing methods: LIFO - ANS-Last purchased items are sold first.
Which method is good for Balance Sheet/Income Statement, to pay less taxes, to show
more income, etc. - ANS-Balance sheet: FIFO shows higher inventory values in
inflation.
Income Statement: LIFO shows lower net income in inflation (less taxes).
Less Taxes: LIFO during inflation.
More Income: FIFO during inflation
What are the effects on the financial statements for LIFO when prices are rising or
falling - ANS-LIFO in Rising Prices: Higher COGS, Lower Gross Profit, Lower Taxes,
Lower Balance Sheet Inventory Value. If falling, reverse.
, What are the effects on the financial statements for FIFO when prices are rising or
falling - ANS-Lower COGS, Higher Gross Profit, Higher Taxes, Higher Balance Sheet
Inventory Value. If falling, reverse.
What is the effect on net income and assets of misstating the ending merchandise
inventory in the 1st year? - ANS-1st Year: Overstated inventory leads to understated
COGS, overstated net income, and overstated assets. Understated inventory leads to
the opposite.
What is the effect on net income and assets of misstating the ending merchandise
inventory in the 2nd year? - ANS-2nd Year: The effects are reversed because the error
in beginning inventory for the year corrects the misstatement impact from the previous
year on COGS and net income, but overall financial portrayal might still be affected.
Cash equivalents definition - ANS-very liquid investments with original maturities of 3
months or less in which the company invests excess cash temporarily in order to earn
interest.
EXAMPLE:U.S. treasury bills, Notes payable issued by major corps, Money market fund
Preparing a bank reconciliation: What is added/subtracted on Bank side? - ANS-Add:
Deposits in transit
Subtract: Outstanding checks
Plus or minus: Bank errors
Preparing a bank reconciliation: What is added subtracted on Book side? - ANS-Add:
Notes receivable collected by the bank, interest earned
Subtract: Bank service charges, NSF (non-sufficient funds) checks
Plus or minus: Book errors
How do you find the adjusted cash balance per bank and books? - ANS-Per Bank: Start
with the bank statement balance, adjust for deposits in transit, outstanding checks, and
any bank errors to find the adjusted balance.
Per Books: Start with the book balance, adjust for any earnings (e.g., interest earned)
and charges (e.g., NSF checks, service fees), and book errors to find the adjusted
balance. The goal is to reconcile and ensure both adjusted balances match.
Allowance for Doubtful Accounts - ANS-Contra assets to Accounts receivable.
Has a CR (credit) balance.
subtracted from AR on the balance sheet (AR, net = AR - Allowance for Doubtful
Accounts)
It is the estimated amount of AR that the company won't be able to collect.
Accounts Receivable (AR) - ANS-Money owed to a company by its customers.
