Revenues
What is the revenue recognition principle?
Revenue is to be recognized when the company transfers promised goods or services to the customer in the amount it expects to be entitled to receive.
*Broad definition*
What is the Allowance Method for accounting for bad debts?
The allowance method bases bad debt expense on an estimate of uncollectible accounts.
Two parts:
1. Making the end-of-period adjusting entry to record estimated bad debt expense
2. Writing off specific accounts determined to be uncollectible during the period
Under *blank*, ending inventory consists of the oldest goods, and cost of goods sold consists of the newest goods
and
Under *blank*, ending inventory consists of the newest goods, and cost of goods sold consists of the oldest goods.
LIFO
and
FIFO
Long-lived assets are recorded at cost, which includes what?
1. The purchase price
2. All expenditures necessary to prepare the asset for initial use.
What are product costs, and what are period costs?
Product Costs: Costs that are first capitalized as inventory on the balance sheet, then expensed as cost of goods sold on the income statement when sold.
Period Costs: Costs that are expensed on the income statement when incurred (e.g., selling, general, and administrative expenses)
Hawkeye Co. sells merchandise for $2,000 to a customer who pays with a credit card. The credit card company charges a 3% fee. What journal entry would Tippie record to recognize revenue associated with this transaction?
DR Cash 1,940
DR. SG&A Expense 60
CR Sales Revenue 2000
During the period, Hawkeye Co. wrote off accounts determined to be uncollectible for $5,000. They also had credit sales totaling $1,200,000. Based on prior experience, Hawkeye Co. estimates 5% of its credit sales to be uncollectible.
Record the journal entries for the account write-offs and the estimated bad debt expense.
To write off accounts determined to be uncollectible:
DR Allowance for Doubtful Accounts 5,000
CR Accounts Receivable 5,000
To record bad debt expense:
DR Bad Debt Expense 60,000
CR Allowance for Doubtful Accounts 60,000
Under which inventory costing method will your cost of goods sold tend to be higher and ending inventory tend to be lower compared to the other, and why?
LIFO
Costs tend to increase over time, and since cost of goods sold consists of the newest goods under LIFO, it will be higher
Hawkeye Co. acquires machinery for $10,000. Paying $6,000 cash and signing a $4,000 note payable.
Record the journal entry.
DR Equipment 10,000
CR Cash 6,000
CR Note Payable 4,000
What tangible long-lived asset is NEVER depreciated?
LAND
Hawkeye Co. sells a shipment of goods to a customer for $100,000 on credit, with payment terms of 3/10, n/30. What journal entries would Hawkeye Co. record to recognize revenue associated with this transaction? Assume the customer paid within the discount period.
DR Cash 97,000
DR Sales Discount 3000
CR Accounts Receivable 100,000
Hawkeye Co. uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows:
(1) not yet due, $16,800;
(2) up to 120 days past due, $7,000;
(3) more than 120 days past due, $2,900.
Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is:
(1) 3 percent;
(2) 14 percent;
(3) 35 percent, respectively.
At the end of the current year, the Allowance for Doubtful Accounts balance is $1,000 (credit) before the end-of-period adjusting entry is made.
What amount should be recorded as bad debt expense for the current year?
$1,499
Hawkeye Co. had beginning inventory of $450,000. An end-of-period count showed a balance of $300,000. Cost of goods sold was $1,800,000. How much were Hawkeye Co.’s purchases?
$1,650,000
Depreciation for the period was $50,000.
Record the journal entry.
DR Depreciation Expense 50,000
CR Accumulated Depreciation 50,000
True or False?
If a company uses LIFO to value its inventory, they are actually selling the newest goods first.
False
Hawkeye Company sold merchandise to customers for $5,000. Customers then returned $2,400 worth of merchandise. Record the journal entry related to the customers returning goods.
*Ignore entries related to inventory*
DR Sales Returns & Allowances 2,400
CR Cash or Accounts Receivable 2,400
The beginning balance in allowance for doubtful accounts was $4,500. During the period, $2,000 of accounts were deemed uncollectible and were written off.
Hawkeye Co. had the following information about its current accounts receivable.
Accounts <45 days old totaled $50,000, 4% estimated to be uncollectible
Accounts >45 days old totaled $10,000, 10% estimated to be uncollectible
What is the bad debt expense recorded for the period?
$500
Which of the following are examples of product costs and which are examples of period costs?
Selling costs
Freight costs
Utilities for the factory used to manufacture the products
Marketing expenses
Salaries of workers who are direct laborers on the products being made
Executive’s salaries
Selling costs: period
Freight costs: product
Factory utilities: product
Marketing expenses: period
Direct laborers: product
Executive's salaries: period
Hawkeye Co. bought a machine for $100,000 with a residual value of $10,000. The machine's estimated useful life is 15 years. What is the yearly depreciation expense?
The beginning balance in accumulated depreciation was $50,000, and the ending balance was $75,000.
If accumulated depreciation was debited for $10,000 during the period when equipment was sold, what was the depreciation expense during the period?
$35,000
Credit Sales $10,000 2/10 n/30
Twenty percent of sales on account were returned. The remaining sales on account were paid within the discount period. What are net sales?
$7,840
Returned sales = $2,000 = $10,000*0.2
Remaining sales = $8,000
$8,000*(1-0.02) = $7,840
What would the journal entry be to reverse the effect of an account write-off?
DR Accounts Receivable
CR Allowance for Doubtful Accounts
When paid:
DR Cash
CR Accounts Receivable
Beginning Inventory: 4 units @ $10
Purchase 1: 3 units @ $12
Purchase 2: 3 units @ $14
Sold: 7 units
Required:
Compute COGS and Ending Inventory using FIFO and LIFO
FIFO:
Ending Inventory = $42
Cost of Goods Sold = $76
LIFO:
Ending Inventory = $30
Cost of Goods Sold = $88
Hawkeye Co. purchased a building in 2020 for $2,000,000 with a residual value of $10,000. The estimated useful life of the building is 50 years. What will the building's net book value be in the year 2035?
Assume the building was not subject to any capitalized improvements or impairment.
$1,403,000
On Nov 1, 20X1, Cyclone Co. received $100,000 cash for consulting services to start on Jan 1, 20X2, and be performed for two years ending Dec 31, 20X3. Their accountant fraudulently recorded revenue when they shouldn't have.
Specify the effects on the financial statements as Overstated, Understated, or N/A, and for what amount.
20X1 Net Income, 20X1 Liabilities, 20X1 Assets
20X2 Liabilities
20X3 Retained Earnings
20X1 Liabilities: U/S 100,000
20X1 Assets: N/A
20X2 Liabilities: U/S 50,000
20X3 Retained Earnings: N/A