Income Statement
What is the "expanded" basic accounting equation for the Income Statement, and what is the specific term used when expenses exceed revenues?
Revenue - Expenses = Net Income. If expenses are higher than revenues, the result is a Net Loss.
Which of the following represents the fundamental accounting equation that must always be in balance on the Balance Sheet?
Assets = Liability + Equity
Under which inventory cost flow assumption are the costs of the earliest goods purchased the first ones assigned to the Cost of Goods Sold (COGS)?
FIFO
A company purchases a delivery truck for $40,000. It has an estimated salvage value of $5,000 and a useful life of 7 years. Calculate the annual depreciation expense using the Straight-Line method.
5000= (40,000 - 5,000)/ 7
Formula (Cost - Salvage Value)/ Useful Life
According to the DEALER acronym, which three categories of accounts have a Normal Debit Balance (meaning a debit increases the account)?
Dividends, Expenses, and Assets.
Greenery Co. reported the following for the month of June:
Sales Revenue: $50,000
Cost of Goods Sold (COGS): $22,000
Rent Expense: $5,000
Salaries Expense: $8,000 Calculate the Gross Profit and the Net Income.
Gross Profit: $28,000 ($50,000 - $22,000).
Net Income: $15,000 ($28,000 - $5,000 - $8,000).
A company has the following account balances:
Cash: $5,000
Accounts Payable: $2,000
Inventory: $3,000
Notes Payable: $4,000
What is the total amount of Liabilities reported on the Balance Sheet?
$6,000 ( 2,000 + 4,000)
A company has the following inventory data for January:
Jan 1: Beginning Inventory (10 units at $10 each)
Jan 15: Purchase (20 units at $12$each)
Jan 25: Purchase (10 units at $15 each)
What is the Weighted Average cost per unit for the month?
$12.25 (490/40)
Using the truck from Question 1 ($40,000 cost, $5,000 salvage, 7-year life), what is the Accumulated Depreciation and the Book Value at the end of Year 3?
Acc. Dep: $15,000 ($5,000/year $\times$ 3 years).
Book Value: $25,000 ($40,000 cost - $15,000 Acc. Dep).
A student is looking at the following accounts. Identify which ones fall under the "DEA" (Debit) side of the acronym and which fall under the "LER" (Credit) side:
Accounts Receivable
Service Revenue
Unearned Revenue
Advertising Expense
Common Stock
DEA (Debit): Accounts Receivable (Asset), Advertising Expense (Expense).
LER (Credit): Service Revenue (Revenue), Unearned Revenue (Liability), Common Stock (Equity).
From the following list of accounts, identify which ones appear on the Income Statement and calculate the Total Expenses:
Accounts Payable: $2,000
Depreciation Expense: $1,500
Prepaid Insurance: $1,200
Interest Expense: $500
Dividends Paid: $3,000
Utilities Expense: $900
Items on IS: Depreciation Expense, Interest Expense, Utilities Expense.
Total Expenses: $2,900.
At the end of the year, 'TechCo' has total Assets of $150,000 and total Liabilities of $95,000. What is total Equity?
55,000 ( 150,000 - 95,000)
Using the same data:
Jan 1: 10 units at $10
Jan 15: 20 units at $12
Jan 25: 10 units at $15
If the company sells 25 units during January, what is the Cost of Goods Sold (COGS) using the FIFO method?
$280 ( 10*10 + 15* 12)
On October 1, "Bright Lights Co." purchased equipment for $12,000 with a salvage value of $0 and a useful life of 5 years. If the company uses the Straight-Line method and has a fiscal year ending December 31, how much depreciation expense should be recorded for the first year only?
$600.
Annual Dep: $12,000 / 5 = $2,400.
Partial Year: $2,400 X 3 Months/ 12 Months = $600
A company pays $2,000 cash to settle an Accounts Payable balance. What is the Journal Entry for this transaction?
Dr. Accounts Payable 2,000
Cr. Cash 2,000
In a Multi-Step Income Statement, what is COGS?
Beginning Inventory + Net Purchases
COGAFS
COGAFS - Ending inventory = COGS
Which of the following accounts is considered a Current Asset and why is it classified as such?
Accounts Receivable
Equipment
Land
Unearned Revenue
Accounts Receivable
Using the same data again:
Jan 1: 10 units at $10
Jan 15: 20 units at $12
Jan 25: 10 units at $15
If 25 units were sold, what is the value of the Ending Inventory (the 15 remaining units) using the LIFO method?
Ending Inventory = 5*12 + 10*10 = 160
COGS = 10* 15 + 15*12 = 330
A manufacturing machine costs $100,000 with a salvage value of $10,000. It is expected to produce 450,000 units over its life. In the first year, it produces 60,000 units. Calculate the depreciation expense for Year 1 using the Units-of-Activity (Units-of-Production) method.
$12,000.
Rate per Unit: (100,000 - 10,000)/ 450,000 = 0.20 per unit
Expense= 60,000 Units X $0.20 = $12,000.
Which "E" on DEALER is Equity, and which "E" is Expenses?
The first "E" is Expense since it has a Debit balance and the second "E" is Equity since it has a Credit balance.
On December 31, "TechFlow Inc." earned $10,000 in revenue. However, $3,000 of that was received in cash in advance back in November (Unearned Revenue), and $2,000 was performed on account and hasn't been paid yet. If the company uses both Accrual Basis of Accounting and uses Cash Basis, what is revenue for Cash and Accrual Basis?
Accrual Basis (Correct): 7,000 (10,000 - 3,000)
Cash Basis: Reports 8,000 (10,000 - 2,000)
Calculate the ending Retained Earnings balance for a company given the following data:
Beginning Retained Earnings: $20,000
Net Income for the year: $15,000
Dividends paid: $4,000
31,000 ( 20,000 + 15,000 - 4000)
In a period of consistently rising prices (inflation), which statement correctly describes the financial impact of choosing LIFO over FIFO?
A. LIFO will result in a higher Ending Inventory balance on the Balance Sheet.
B. The choice of method has no impact on taxes, only on reported profit.
C. LIFO will result in a lower Net Income and lower Income Taxes.
D. FIFO will result in a lower Net Income because it uses older costs.
C.
A computer server is purchased for $10,000. It has a 4-year useful life and a $1,000 salvage value. Calculate the depreciation expense for Year 2 using the Double-Declining Balance (DDB) method.
$2,500
Year 1 = (10,000 - 0)/ 4 X 2 = 5,000
Year 2 = (10,000 - 5,000)/ 4 * 2 = 2,500
Kee Inc pays $2,000 at the end of each week on Friday to its employees. The Year ended on a Wednesday, so what is the JE for this transaction? Accrued expense.
Dr. Wages Expense 1,200
Cr. Wages Payable 1,200
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Dr. Wages Payable 1,200
Dr. Wages Expense 800
Cr. Cash 2,000