Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price.

Distinguish between gross profit as a percentage of cost and gross profit as a percentage of the sales price. Gross profit as a percentage of sales...

What are the major uses of the gross profit method?

What are the major uses of the gross profit method? The major uses of the gross profit method are: (1) it provides an approximation of the ending...

Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?

Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory? Relative sales value is an...

What approaches may be employed in applying the LCNRV procedure? Which approach is normally used and why?

What approaches may be employed in applying the LCNRV procedure? Which approach is normally used and why? The lower-of-cost-and-net realizable value...

Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?

Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing...

Why will the traditional LIFO inventory costing method and the dollar-value LIFO inventory costing method produce different inventory valuations if the composition of the inventory base changes?

Why will the traditional LIFO inventory costing method and the dollar-value LIFO inventory costing method produce different inventory valuations if...

What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation?

What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? The principal advantage is that it...

What is the dollar-value method of LIFO inventory valuation?

What is the dollar-value method of LIFO inventory valuation? The dollar-value method uses dollars instead of units to measure increments, or reductions...

FIFO, average-cost, and LIFO methods are often used instead of specific identification for inventory valuation purposes. Compare these methods with the specific identification method, discussing the theoretical propriety of each method in the determination of income and asset valuation.

FIFO, average-cost, and LIFO methods are often used instead of specific identification for inventory valuation purposes. Compare these methods with...

Distinguish between product costs and period costs as they relate to inventory.

Distinguish between product costs and period costs as they relate to inventory. By their nature, product costs "attach" to the inventory and are recorded...

Define "cost" as applied to the valuation of inventories.

Define "cost" as applied to the valuation of inventories. Cost, which has been defined generally as the price paid or consideration is given to acquire...

Where, if at all, should the following items be classified on a balance sheet?

Where, if at all, should the following items be classified on a balance sheet? (a) Goods out on approval to customers. (b) Goods in transit that were...

What is a repurchase agreement (product financing) arrangement? How should a product repurchase agreement be reported in the financial statements?

What is a repurchase agreement (product financing) arrangement? How should a product repurchase agreement be reported in the financial statements? Repurchase...

What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory at any date be equal to the amount indicated by the perpetual inventory records? Why?

What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory...

In what ways are the inventory accounts of a retailing company different from those of a manufacturing company?

In what ways are the inventory accounts of a retailing company different from those of a manufacturing company? In a retailing concern, inventory...

What is the fair value option? Where do companies that elect the fair value option report unrealized holding gains and losses?

What is the fair value option? Where do companies that elect the fair value option report unrealized holding gains and losses? The fair value option...

Indicate how the percentage-of-receivables method, based on an ageing schedule, accomplishes the objectives of the allowance method of accounting for bad debts. What other methods, besides an ageing analysis, can be used for estimating uncollectible accounts?

Indicate how the percentage-of-receivables method, based on an ageing schedule, accomplishes the objectives of the allowance method of accounting for...

What is the theoretical justification of the allowance method as contrasted with the direct write-off method of accounting for bad debts?

What is the theoretical justification of the allowance method as contrasted with the direct write-off method of accounting for bad debts? The theoretical...

What are the basic problems that occur in the valuation of accounts receivable?

What are the basic problems that occur in the valuation of accounts receivable? The basic problems that relate to the valuation of receivables are...

What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct? Which is used in practice more of the time? Why?

What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct?...

What are the reasons that a company gives trade discounts? Why are trade discounts not recorded in accounts like cash discounts?

What are the reasons that a company gives trade discounts? Why are trade discounts not recorded in accounts like cash discounts? The seller normally...

What may be included under the heading of "cash"?

What may be included under the heading of "cash"? Cash normally consists of coins and currency on hand, bank deposits, and various kinds of orders...

State the generally accepted accounting principle applicable to balance sheet valuation of each of the following assets.

State the generally accepted accounting principle applicable to balance sheet valuation of each of the following assets. (a) Trade accounts receivable. (b)...

Where should the following items be shown on the balance sheet, if shown at all?

Where should the following items be shown on the balance sheet, if shown at all? (a) Allowance for doubtful accounts. (b) Merchandise held on consignment. (c)...

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use? (a) Treasury stock (recorded...

Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are some reasons why these items are not recorded in the balance sheet?

Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are...

What are the major limitations of the balance sheet as a source of information?

What are the major limitations of the balance sheet as a source of information? The major limitations of the balance sheet are: (a) The values stated...

What is meant by liquidity?

What is meant by liquidity? Liquidity describes the amount of time that is expected to elapse until an asset is converted into cash or until liability...

Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet.

Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet. Some situations in which estimates...

How does information from the balance sheet help users of the financial statements?

How does information from the balance sheet help users of the financial statements? The balance sheet provides information about the nature and amounts...

What are some forms of off-balance-sheet financing?

What are some forms of off-balance-sheet financing? Forms of off-balance-sheet financing include (1) investments in non-consolidated subsidiaries...

What is off-balance-sheet financing? Why might a company be interested in using off-balance-sheet financing?

What is off-balance-sheet financing? Why might a company be interested in using off-balance-sheet financing? Off-balance-sheet financing is an attempt...

What is the fair value option? Briefly describe the controversy of applying the fair value option to financial liabilities.

What is the fair value option? Briefly describe the controversy of applying the fair value option to financial liabilities. A fair value option is...

What is done to record properly a transaction involving the issuance of a non-interest-bearing long-term note in exchange for property?

What is done to record properly a transaction involving the issuance of a non-interest-bearing long-term note in exchange for a property? The entire...

Why would a company wish to reduce its bond indebtedness before its bonds reach maturity?

Why would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting...

What is the "call" feature of a bond issue? How does the call feature affect the amortization of bond premium or discount?

What is the "call" feature of a bond issue? How does the call feature affect the amortization of bond premium or discount? The call feature of a bond...

Will the amortization of Discount on Bonds Payable increase or decrease Bond Interest Expense?

Will the amortization of Discount on Bonds Payable increase or decrease Bond Interest Expense? Increas...

Briggs and Stratton recently issued debt with issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?

Briggs and Stratton recently issued debt with issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified...

Zopf Company sells its bonds at a premium and applies the effective-interest method in amortizing the premium. Will the annual interest expense increase or decrease over the life of the bonds?

Zopf Company sells its bonds at a premium and applies the effective-interest method in amortizing the premium. Will the annual interest expense increase...

How should a discount on bonds payable be reported on the financial statements? The premium on bonds payable?

How should a discount on bonds payable be reported on the financial statements? The premium on bonds payable? Discount (premium) on bonds payable...

Under what conditions of bond issuance do a discount on bonds payable arise? Under what conditions of bond issuance does a premium on bonds payable arise?

Under what conditions of bond issuance do a discount on bonds payable arise? Under what conditions of bond issuance does a premium on bonds payable...

Distinguish between the following values relative to bonds payable:

Distinguish between the following values relative to bonds payable: (a) Maturity value. (b) Face value. (c) Market (fair) value. (d) Par value. (a)...

Distinguish between the following interest rates for bonds payable:

Distinguish between the following interest rates for bonds payable: (a) Yield rate. (b) Nominal rate. (c) Stated rate. (d) Market rate. (e) Effective...

Melissa Etheridge Inc. had a manufacturing plant in Sudan, which was destroyed in the civil war. It is not certain who will compensate Etheridge for this destruction, but Etheridge has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be less than the fair value of the plant, but more than its book value. How should the contingency be reported in the financial statements of Etheridge Inc.?

Melissa Etheridge Inc. had a manufacturing plant in Sudan, which was destroyed in the civil war. It is not certain who will compensate Etheridge for...

On October 1, 2017, Alan Jackson Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Jackson's management along with its counsel have concluded that it is probable that Jackson will be responsible for damages, and a reasonable estimate of these damages is $5,000,000. Jackson's insurance policy of $9,000,000 has a deductible clause of $500,000. How should Alan Jackson Chemical report this information in its financial statements at December 31, 2017?

On October 1, 2017, Alan Jackson Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Jackson's management...

During 2017, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa's attorneys have indicated that they believe it is probable that Salt-n-Pepa will lose this dispute. They also believe that Salt-n-Pepa will have to pay the IRS between $900,000 and $1,400,000. After the 2017 financial statements were issued, the case was settled with the IRS for $1,200,000. What amount, if any, should be reported as a liability for this contingency as of December 31, 2017?

During 2017, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa's attorneys have indicated that they believe it is probable...

When should liabilities for each of the following items be recorded on the books of an ordinary business corporation?

When should liabilities for each of the following items be recorded on the books of an ordinary business corporation? (a) Acquisition of goods by purchase...

When must a company recognize an asset retirement obligation?

When must a company recognize an asset retirement obligation? An asset retirement obligation must be recognized when a company has an existing legal...

Explain the accounting for a service-type warranty.

Explain the accounting for a service-type warranty. Companies record a service-type warranty as a separate performance obligation. For example, in...

Explain the accounting for an assurance-type warranty.

Explain the accounting for an assurance-type warranty. Companies do not record a separate performance obligation for assurance-type warranties. This...

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type. A determinable current liability...

Under what conditions should a contingent liability be recorded?

Under what conditions should a contingent liability be recorded? A contingent liability should be recorded and a charge accrued to expense only if: (a)...

Define (a) a contingency and (b) a contingent liability.

Define (a) a contingency and (b) a contingent liability. (a) A contingency is defined as an existing condition, situation, or set of circumstances...

How does unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result in unearned revenues.

How does unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result...

What is the nature of a "discount" on notes payable?

What is the nature of a "discount" on notes payable? A discount on notes payable represents the difference between the present value and the face...

How is the present value related to the concept of a liability?

How is the present value related to the concept of a liability? Payables and receivables generally involve an interesting element. Recognition of...

How are current liabilities related by definition to current assets? How are current liabilities related to a company's operating cycle?

How are current liabilities related by definition to current assets? How are current liabilities related to a company's operating cycle? Current liabilities...

Distinguish between a current liability and a long-term debt.

Distinguish between a current liability and a long-term debt. Current liabilities are obligations whose liquidation is reasonably expected to require...

Megan Hoffman invests in a "jumbo" $200,000, 3-year certificate of deposit at First Wisconsin Bank. What table would be used to determine the amount accumulated at the end of 3 years?

Megan Hoffman invests in a "jumbo" $200,000, 3-year certificate of deposit at First Wisconsin Bank. What table would be used to determine the amount...

Costner Inc. wishes to know how much money it will have available in 5 years if five equal amounts of $35,000 are invested, with the first amount invested immediately. What interest table is appropriate for this situation?

Costner Inc. wishes to know how much money it will have available in 5 years if five equal amounts of $35,000 are invested, with the first amount invested...

On June 1, 2017, Seymour Inc. purchased a new machine that it does not have to pay for until June 1, 2019. The total payment on June 1, 2019, will include both principal and interest. Assuming interest at a 12% rate, the cost of the machine would be the total payment multiplied by what time value of money concept?

On June 1, 2017, Seymour Inc. purchased a new machine that it does not have to pay for until June 1, 2019. The total payment on June 1, 2019, will include...

On May 1, 2017, Goldberg Company sold some machinery to Newlin Company on an instalment contract basis. The contract required five equal annual payments, with the first payment due on May 1, 2017. What present value concept is appropriate for this situation?

On May 1, 2017, Goldberg Company sold some machinery to Newlin Company on an instalment contract basis. The contract required five equal annual payments,...

In a book named Treasure, the reader has to figure out where a 2.2 pound, 24 kt gold horse has been buried. If the horse is found, a prize of $25,000 a year for 20 years is provided. The actual cost to the publisher to purchase an annuity to pay for the prize is $245,000. What interest rate (to the nearest per cent) was used to determine the amount of the annuity? (Assume end-of-year payments.)

In a book named Treasure, the reader has to figure out where a 2.2 pound, 24 kt gold horse has been buried. If the horse is found, a prize of $25,000...

The Kellys are planning for a retirement home. They estimate they will need $200,000 4 years from now to purchase this home. Assuming an interest rate of 10%, what amount must be deposited at the end of each of the 4 years to fund the home price?

The Kellys are planning for a retirement home. They estimate they will need $200,000 4 years from now to purchase this home. Assuming an interest rate...

What are the primary characteristics of an annuity? Differentiate between an "ordinary annuity" and an "annuity due."

What are the primary characteristics of an annuity? Differentiate between an "ordinary annuity" and an "annuity due." An annuity involves (1) periodic...

Regina Henry deposited $20,000 in a money market certificate that provides the interest of 10% compounded quarterly if the amount is maintained for 3 years. How much will Regina Henry have at the end of 3 years?

Regina Henry deposited $20,000 in a money market certificate that provides the interest of 10% compounded quarterly if the amount is maintained for...

Jose Oliva is considering two investment options for a $1,500 gift he received for graduation. Both investments have 8% annual interest rates. One offers quarterly compounding; the other compounds on a semiannual basis. Which investment should he choose?

Jose Oliva is considering two investment options for a $1,500 gift he received for graduation. Both investments have 8% annual interest rates. One offers...

What are the components of an interest rate? Why is it important for accountants to understand these components?

What are the components of an interest rate? Why is it important for accountants to understand these components? The interest rate generally has...

What is the nature of interest? Distinguish between "simple interest" and "compound interest."

What is the nature of interest? Distinguish between "simple interest" and "compound interest." Interest is the payment for the use of money. It may...

Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities, or both single sums and annuities? Explain.

Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities,...

What is the time value of money? Why should accountants have an understanding of compound interest, annuities, and present value concepts?

What is the time value of money? Why should accountants have an understanding of compound interest, annuities, and present value concepts? Money has...

What is meant by the elements and items of the terms as they relate to the income statement? Why might items have to be disclosed in the income statement?

What is meant by the elements and items of the terms as they relate to the income statement? Why might items have to be disclosed in the income statement? Elements...

State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do as a practical alternative.

State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do...

What is meant by "tax allocation within a period"? What is the justification for such practice?

What is meant by "tax allocation within a period"? What is the justification for such practice? Tax allocation within a period is the practice of...

What is the basis for distinguishing between operating and nonoperating items?

What is the basis for distinguishing between operating and nonoperating items? Operating items are the expenses and revenues which relate directly...

A Wall Street Journal article noted that Apple reported higher income than its competitors by using a more aggressive policy for recognizing revenue on future upgrades to its products. Some contend that Apple's quality of earnings is low. What does the term "quality of earnings" mean?

A Wall Street Journal article noted that Apple reported higher income than its competitors by using a more aggressive policy for recognizing revenue...

What is earnings management?

What is earnings management? Earnings management is often defined as the planned timing of revenues, expenses, gains and losses to smooth out bumps...

How can information base on past transactions be used to predict future cash flows?

How can information base on past transactions be used to predict future cash flows? Information on past transactions can be used to identify important...

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement? The income...

What are closing entries and why are they necessary?

What are closing entries and why are they necessary? Closing entries are prepared to transfer the balances of nominal accounts to capital (retained...

What are adjusting entries and why are they necessary?

What are adjusting entries and why are they necessary? Adjusting entries are prepared prior to the preparation of financial statements in order to...

What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts?

What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) ...

Why are revenue and expense accounts called temporary or nominal accounts?

Why are revenue and expense accounts called temporary or nominal accounts? Revenue and expense accounts are referred to as temporary or nominal accounts...

Describe the major constraint inherent in the presentation of accounting information.

Describe the major constraint inherent in the presentation of accounting information. Accounting information is subject to the cost constraint. Information...

Mogilny Company paid $135,000 for a machine. The Accumulated Depreciation—Equipment account has a balance of $46,500 at the present time. The company could sell the machine today for $150,000. The company president believes that the company has a "right to this gain." What does the president mean by this statement?

Mogilny Company paid $135,000 for a machine. The Accumulated Depreciation—Equipment account has a balance of $46,500 at the present time. The company...

What is a performance obligation, and how is it used to determine when revenue should be recognized?

What is a performance obligation, and how is it used to determine when revenue should be recognized? A performance obligation is a promise to deliver...

What is the fair value option? Explain how the use of the fair value option reflects the application of the fair value principle.

What is the fair value option? Explain how the use of the fair value option reflects the application of the fair value principle. The fair value option...

Revenues, gains, and investments by owners are all increases in net assets. What are the distinctions among them?

Revenues, gains, and investments by owners are all increases in net assets. What are the distinctions among them? Investments by owners differ from...

Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them?

Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them? Distributions to owners differ...

What is the distinction between comparability and consistency?

What is the distinction between comparability and consistency? Comparability facilitates comparisons between information about two different enterprises...

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in...

Briefly describe the two fundamental qualities of useful accounting information.

Briefly describe the two fundamental qualities of useful accounting information. Relevance and faithful representation are the two primary qualities...

What is the primary objective of financial reporting?

What is the primary objective of financial reporting? The basic objective is to provide financial information about the reporting entity that is useful...

The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation?

The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation? The following...

What is the "expectations gap"? What is the profession doing to try to close this gap?

What is the "expectations gap"? What is the profession doing to try to close this gap? The expectations gap is the difference between what people...

What are the sources of pressure that change and influence the development of GAAP?

What are the sources of pressure that change and influence the development of GAAP? The sources of pressure are innumerable, but the most intense...

In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles and standards?

In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles and standards? The SEC has the power...

What is the likely limitation of "general-purpose financial statements"?

What is the likely limitation of "general-purpose financial statements"? General-purpose financial statements are not likely to satisfy the specific...

Of what value is a common set of standards in financial accounting and reporting?

Of what value is a common set of standards in financial accounting and reporting? A common set of standards applied by all businesses and entities...

How does accounting help the capital allocation process?

How does accounting help the capital allocation process? If a company's financial performance is measured accurately, fairly, and on a timely basis,...

Differentiate between "financial statements" and "financial reporting."

Differentiate between "financial statements" and "financial reporting." Financial statements generally refer to the four basic financial statements:...

Differentiate broadly between financial accounting and managerial accounting.

Differentiate broadly between financial accounting and managerial accounting. Financial accounting measures, classifies, and summarizes in report...

Understand Why Companies Select Given Inventory Methods.

Understand Why Companies Select Given Inventory Methods. Companies ordinarily prefer LIFO in the following circumstances: (1) if selling prices and...

Identify the Major Advantages and Disadvantages of Lifo.

Identify the Major Advantages and Disadvantages of Lifo. The major advantages of LIFO are the following: (1) It matches recent costs against current...

Explain the Dollar-value Lifo Method.

Explain the Dollar-value Lifo Method. Explain the Dollar-value Lifo Method. For the dollar-value LIFO method, companies determine and measure increases...

Understand the Effect of Lifo Liquidations.

Understand the Effect of Lifo Liquidations. Understand the Effect of Lifo Liquidations. LIFO liquidations match costs from preceding periods against...

Explain the Significance and Use of a Lifo Reserve.

Explain the Significance and Use of a Lifo Reserve. Explain the Significance and Use of a Lifo Reserve. The difference between the inventory method...