Chapter 4
When are adjusting journal entries usually prepared?
At the end of an accounting period
What are the 3 components of the fraud triangle?
Incentive, Opportunity, Rationalization
Net sales are 18300 and Cost of Goods Sold is 11700, what is gross profit?
6600
Which inventory method (ex. FIFO, Weighted Average, etc.) identifies and records the cost of each item sold as a part of Cost of Goods Sold?
Specific Identification
Radio Company A sells a radio packaged with a one-year subscription for a total of $180. Sold alone, the radio would be worth $110 and the subscription would be worth $95. The radio cost the company $50.
How much revenue from the sale is allocated to each performance obligation?
Radio: $97
Subcription: $83
Would recording the purchase of inventory be an adjusting journal entry?
No
What are 3 types of fraud?
Asset misappropriation, Financial Statement Fraud, Corruption
Inventory records are updated every time inventory is bought, sold, and returned in what kind of inventory system?
Perpetual Inventory System
What are the 3 goals of inventory managers?
Maintain sufficient quantity to maintain customer needs
Ensure quality meets customer expectations and company standards
Minimize the cost of aquiring and carrying inventory
Radio Company A sells a radio packaged with a one-year subscription for a total of $180. Sold alone, the radio would be worth $110 and the subscription would be worth $95. The radio cost the company $50.
Record the journal entry (or entries) on the day the customer pays for the bundle in cash and receives the radio.
Cash 180
Sales Revenue 97
Deferred Revenue 83
COGS 50
Inventory 50
Which accounts are the "temporary accounts"?
Revenues, expenses, dividends
What is an internal report made to check the accuracy of the bank statement & cash accounts of a business?
Bank Reconciliation
Walmart bought 100 bikes for a total of $3000. 5 of the bikes were damaged in transit and returned to the supplier. What journal entry does Walmart record for the return.
Cash 150
Inventory 150
Calculate the Cost of Goods Available for Sale.
$3574
What is the gross profit from that sale?
Cash 180
Sales Revenue 97
Deferred Revenue 83
COGS 50
Inventory 50
$47
A company estimates that a month of equipment use had an estimated expense of $650. What would the adjusting journal entry be?
Depreciation Expense 450
Accumulated Depreciation 450
Do internal controls guarantee that management will behave effectively?
No, managers could still work together to override internal controls and high level managers may be able to bypass controls
Walmart sold 5 televisions on account for $400 per television. Each television costs Walmart $80. What journal entry (or entries) do they record for the sale?
Accounts Receivable 2000
Sales Revenue 2000
Cost of Goods Sold 400
Inventory 400
What is the Cost of Goods Solds and Ending Inventory under the LIFO method?
COGS: $2152
EI: $1422
Then, what is the gross profit % of the sale?
Cash 180
Sales Revenue 97
Deferred Revenue 83
COGS 50
Inventory 50
48.45%
As of October 31st, Netflix had delivered 90% of the services for customers who had prepaid $8000 earlier in the period. What is the adjusting journal entry?
Deferred Revenue 7200
Service Revenue 7200
What are some ways to limit fraud?
Encourage honesty, strong internal controls, establish responsibility, restrict access, separate duties, document procedures, independently verify, counteract incentives (fines and prison), etc.
Walmart sold 5 televisions on account for $400 per television. Each television costs Walmart $80.
2 weeks later, a customer returned 1 of the televisions. What journal entry does Walmart record for the sales return?
Sales Returns and Allowances 400
Accounts Receivable 400
Inventory 80
Cost of Goods Sold 80
What is Cost of Goods Sold and Ending Invenory under the Weighted Average Method?
WA Cost: $32.2
COGS: 2093
EI:1481
Radio Company A sells a radio packaged with a one-year subscription for a total of $180. Sold alone, the radio would be worth $110 and the subscription would be worth $95. The radio cost the company $50.
Record the adjusting journal entry to recognize the revenue after three months have passed (round to the nearest whole number).
Deferred Revenue 21
Service Revenue 21