Chapter 4
These are the three elements of the "Fraud Triangle" that are generally necessary for fraud to occur.
What are opportunity, motivation, and rationalization
Unlike Trade Discounts which reduce revenue directly, these three contra-revenue accounts have normal debit balances and are subtracted from gross revenue to calculate "Net Revenue" on the income statement.
What are Sales Returns, Sales Allowances, and Sales Discounts?
These are the three inventory accounts reported by a manufacturing company like Intel.
What are Raw Materials, Work in Process, and Finished Goods?
Unlike buildings or equipment, this specific tangible asset is never depreciated because its service life never ends.
What is land?
This 2002 Act, passed by Congress in response to major accounting scandals like Enron and WorldCom, established new guidelines for internal control procedures and auditor-client relations.
What is the Sarbanes-Oxley Act
When a specific customer's account is determined to be uncollectible and is "written off," this is the net effect on the company's total assets and net income.
What is Zero (or no effect)? (Because the write-off reduces both the Asset and the Contra Asset equally)
This inventory cost flow assumption matches the actual physical flow of goods for most companies, such as supermarkets or electronics stores
What is FIFO (First-In, First-Out)?
An asset with a book value of $20,000 has its remaining life changed from 5 years to 4 years, and its residual value changed from $2,000 to $0. What is the new annual depreciation expense?
What is $5,000? (New depreciable cost of $20,000 divided by 4 years = $5,000 .)
To be classified as this on a balance sheet, an investment must mature within three months from the date of purchase.
What are cash equivalents?
A customer pays a $2,000 invoice within the discount period (2/10, n/30). This is the three-line journal entry the seller records upon receiving the payment.
What is a Debit to Cash ($1,960), a Debit to Sales Discounts ($40), and a Credit to Accounts Receivable ($2,000)?
A company starts the month with 10 units at $5 each. On the 15th, they buy 10 units at $8 each. If they sell 12 units on the 30th using LIFO, this is the total Cost of Goods Sold.
What is $90? (10 units @ $8 + 2 units @ $5)
If a company using straight-line depreciation purchases a $10,000 asset (zero residual value, 10-year life) on July 1st, this is the amount of depreciation expense recorded for that first calendar year.
What is $500? ($1,000 annual expense × 6/12 months)
Given a bank statement balance of $26,400, outstanding deposits of $8,500, and outstanding checks of $5,400, this is the final reconciled cash balance that should appear on the balance sheet.
What is $29,500?
A company has Net Credit Sales of $800,000. The beginning Accounts Receivable balance was $90,000 and the ending balance was $110,000. This is the company's Receivables Turnover Ratio
What is 8.0?
A company has 100 units at $10 each and 200 units at $13 each. This is the weighted-average cost per unit (rounded to the nearest cent).
What is $12.00?
($1,000 + $2,600 = $3,600 total cost)
($3,600 / 300 total units = $12.00)
A truck costs $40,000, has a $5,000 residual value, and an estimated life of 100,000 miles. If it is driven 15,000 miles in its first year, what is the depreciation expense for Year 1?
What is $5,250? (Calculation: [$40,000 - $5,000] / 100,000 miles = $0.35 per mile. $0.35 × 15,000 miles = $5,250) .
A company has a bank balance of $20,000 with $4,000 in deposits outstanding and $2,500 in checks outstanding. To reconcile, the company's book balance of $21,650 must be adjusted by this net amount.
What is minus $150?
After a $1,000 account was previously written off, the customer unexpectedly pays the full amount in cash. These are the two separate entries required to record this event. (Account titles and Dr/Cr)
1. What is a Debit to Accounts Receivable and a Credit to Allowance for Uncollectible Accounts (to reverse the write-off)?
2. What is a Debit to Cash and a Credit to Accounts Receivable (to record the payment)?
A store starts with 20 units at $50. They buy 30 more at $60. If they sell 25 units, this is the total Cost of Goods Sold using the weighted-average method.
What is $1,400?
Total Cost: (20 × $50) + (30 × $60) = $2,800
Average Cost: $2,800 / 50 units = $56 per unit
COGS: 25 units × $56 = $1,400
Given a delivery truck with a $30,000 cost, a 6-year life, and a $6,000 residual value, this is the depreciation expense recorded for the first year using DDB.
What is $10,000? (The 6-year straight-line rate is 16.666...%, doubled is 33.33%. $30,000 × 33.33% = $10,000)