Weeks 1 - 4
What expense account represents the cost of inventory for the products that are sold?
Cost of goods sold
During the month of April, a company earns revenues of $12,500 from selling products. The cost of goods sold for those products is $6,000, rent expense is $3,000 and utilities expense is $500. What is the company's gross profit for April?
Gross profit = Revenue - COGS = 12,500 - 6,000 = 6,500
What are the three elements of the fraud triangle?
Opportunity, rationalization, and incentive (pressure)
How do you calculate the net book value of PPE?
Net book value = Cost - Accumulated Depreciation
What three things you find on the very top of the financial statements (such as Income Statement and Balance Sheet)
Company's name, Date, the name of the financial statement (i.e., Income Statement and Balance Sheet)
Revenues minus cost of goods sold is equal to what?
Gross profit
Under which inventory system COGS is computed and recorded every time the firm sells products from inventory?
Perpetual
What happens when CD matures?
The bank will pay you the principal (your original investment) and interest
Why might a company revise an estimated useful life of a truck?
One reason could be they have been using it for more than they were expecting
What does GAAP stand for?
Generally Accepted Accounting Principles
A company has non-cash assets of $9,000; total liabilities of $8,000; and total owners' equity of $5,000. How much cash must this company have?
Cash + all other assets = liabilities + owners’ equity
9,000 + X = 8,000 + 5,000
X = 4,000
Beginning inventory + Purchases = ?
Cost of goods available for sale
"I really need this money in order to pay my bills." Which side of the fraud triangle does this sentence belong?
Incentive/Pressure
When a company's original estimate of useful life for PP&E requires a revision, this means that...?
The company must revise depreciation expense for future periods only.
What professional organization is responsible for the creation of GAAP?
FASB - Financial Accounting Standards Board
A distribution to investors from retained earnings is called what?
Dividends
A company's beginning inventory is 100 units at $5 each.
It purchases 50 units at $5.25 each on April 2 and 70 units at $5.35 each on April 15.
Ending inventory on April 30 is 60 units. What is the value of ending inventory using periodic FIFO?
FIFO EI = 60 x $5.35 = $321
What differentiates the fraud from an error?
An intention to deceive
A company bought a truck on Feb 1, 2023 for $12,000. Useful life is 5 years. The company prepares financial statements quarterly. What is the depreciation expense the company should record for quarter 1?
Annual depreciation = 12,000 / 5 = 2,400
Monthly depreciation = 2,400 / 12 = 200
Quarter 1: Jan, Feb, March
Company bought the truck on Feb 1 and used it for 2 month in Q1, so --> 200 + 200 = 400 is the depreciation expense.
Beginning Inventory + Purchases - Cost of Goods Sold = ?
Ending Inventory
What are the two defining features of an adjusting journal entry?
1) It does not involve cash
2) It affects income statement
When prices are decreasing, which inventory valuation method produces the highest value of ending inventory?
LIFO, since you sell the cheapest inventory first and what remains in the end. inventory is more expensive inventory.
On March 1, SCE invests $10,000 in 6-months CD that pays 3% interest.
How much interest income will the SCE earn form this CD in the 3rd quarter.
3rd quarter: July, August, September
CD matures at the end of August.
3rd quarter interest income = 10,000 x 0.03 x 2/12 = 50
Building additional storage space onto a warehouse is an example of what type of expenditure and what is its accounting treatment?
It is capital expenditure.
The book value of warehouse increases by the amount of the storage space cost by debiting warehouse.
When prices are increasing, which inventory valuation method provides the highest tax benefits? Explain how.
LIFO
Under LIFO, we use the latest (the more expensive) inventory to calculate COGS. Higher COGS will reduce our gross profit and net income. Thus, we pay lower taxes.