Inventory Methods
What inventory method assumes the first items purchased are the first sold?
FIFO (First In, First Out)
What is the entry to record direct materials $3,251 and indirect $567?
Debit WIP $3,251, Debit FOH $567, Credit Materials $3,818
What is the straight-line depreciation formula?
(Cost − Salvage Value) ÷ Useful Life
Break-even sales (dollars)?
Fixed Costs ÷ Contribution Margin Ratio
Entry to issue 100 shares of $60 par stock at $70
Debit Cash $7,000; Credit Capital Stock $6,000, PIC Excess of Par $1,000
What inventory method assumes the last items purchased are the first sold?
LIFO (Last In, First Out)
What is the entry to close $75,000 net income to Retained Earnings?
Debit Income Summary $75,000; Credit Retained Earnings $75,000
DDB: $10,000 cost, 5-year life, Year 2 depreciation?
$2,400
$12,000 fixed, 20% CM ratio, $15,000 profit?
$135,000
Reversing entry for unearned rent on Jan 1
Debit Unearned Rent; Credit Rent Income
What inventory method averages all unit costs together?
Weighted Average
What is the entry to declare an $80,000 dividend (with preferred and common)?
Debit Dividends-Common $52,000, Dividends-Preferred $28,000; Credit Dividends Payable $80,000
Entry for discarding asset: $1,000 cost, $800 depreciation
Debit Accum. Depreciation $800, Loss $200; Credit Equipment $1,000
Quick ratio formula?
(Current Assets − Inventory) ÷ Current Liabilities
Entry for bond sinking fund deposit of $10,000
Debit Bond Sinking Fund; Credit Cash
Which method is best for matching recent costs to current revenues?
LIFO
What is the adjusting entry if prepaid insurance of $3,500 has $2,200 unexpired?
Debit Prepaid Insurance $1,300; Credit Insurance Expense $1,300
Effect of a gain on sale of an asset on the income statement?
Increases income (reported as other revenue/gain)
$75 price, 25% CM ratio, $150,000 fixed costs — units to break even?
8,000 units
Entry to pay $15,000 bond interest
Debit Interest Expense; Credit Cash
Which method is most conservative when market price drops?
Lower of Cost or Market
What is the entry to record the sale of an asset with cost $25,000, accumulated depreciation $18,000, sold for $6,000?
Debit Cash $6,000, Accumulated Depreciation $18,000, Loss $1,000; Credit Equipment $25,000
Entry for sale of asset: $15,000 cost, $13,000 depreciation, $4,000 sale price
Debit Cash $4,000, Accum. Depreciation $13,000; Credit Furniture $15,000, Gain $2,000
Meaning of a high debt ratio?
Greater financial risk compared to the industry
What kind of audit opinion is issued when GAAP is not followed?
Adverse Opinion