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Accounting Concepts Level 100 200 300 400 500 Answer Earned and realized or realizable are the criteria for this principle Recording expenses in the period in which they help to generate revenue Predictive value and feedback value are characteristics of this The lower of cost or market rule for valuing inventory is an example of this constraint to the basic principles Using the completed contract method to account for long-term contracts does not provides information that is high on this qualitative characteristic of information Question What is the revenue recognition principle? What is the matching principle? What is relevance? What is conservatism? What is relevance? Nothing but Numbers Level 100 200 300 400 500 Answer Profit margin if net income is $10,000, sales are $100,000 and assets are $80,000 Amount of prepaid insurance at December 31st if a one-year $15,000 insurance policy is paid in advance on April 30th. The present value of $121 discounted for two periods at 10% Cost of goods sold using LIFO if Cost of Goods sold using FIFO is $100,000 and the LIFO reserve decreases by $8,000 Bad debt expense, if the allowance for doubtful accounts increased by $10,000 and write-offs for the year were $5,000 Question What is 10%? What is $5,000? What is $100? What is $92,000? What is $15,000? Cause & Effect Level Answer 100 The effect on total cash flows of recording extended warranty contracts using the full deferral method vs. the partial recognition method The effect on net income at the point of a sale if the sale is recorded using the installment method of revenue recognition The effect on total assets of writing off specific accounts receivable using the allowance method The effect on future income of overestimating the percent of uncollectible accounts receivable in the current year The effect on cash flows of using a FIFO cost flow assumption vs. a LIFO cost flow assumption in periods of rising prices 200 300 400 500 Question What is no effect? What is no effect? What is no effect? What is increase? What is decrease? Accounting Terminology Level 100 200 300 400 500 Answer Assigning the most recent inventory purchases to cost of goods sold The difference between the current cost of ending inventory and ending inventory under the last-in, first-out cost flow assumption Selling price less disposal costs and costs to complete Otherwise known as SPEs Allowance for doubtful accounts, warranty reserves, deferred revenue, and restructuring reserves are potential examples of this, a term coined by Arthur Levitt, former chairman of the SEC Question What is LIFO (last-in, first-out)? What is the LIFO reserve? What is net realizable value? What are Special Purpose Entities? What are “cookie jar reserves”? Potpourri Level 100 200 300 400 500 Answer Selling more inventory than you purchased in a given year results in this (when using the LIFO assumption) This is used to define “market” when applying the lower of cost or market rule under IFRS Using the full deferral method to record extended warranty contracts rather than the partial recognition method will result in lower net income as long as the amount of contract sales is this Return on assets equals profit margin times asset turnover Originally under EITF 00-21, this was required to be known about the undelivered element in order for the delivered element to be considered a separate unit of accounting Question What is a LIFO liquidation? What is net realizable value? What is growing? What is the Dupont formula? What is the fair value? Case Specific Level Answer 200 Company who reported the largest profit in corporate history The accounting firm who audited WorldCom’s financial statements The method for accounting for extended warranty contracts outlined in FTB 90-1 (or 605-20-25-3 of the codification) Because of SFAS No. 2 (or 730-10-25-1 of the codification), Chemalite was required to expense the cost of these as incurred. The name of the WorldCom accounting manager who subsequently went to work for a Kentucky Fried Chicken franchise 400 600 800 1000 Question Who is Exxon? Who is Arthur Andersen? What is the full deferral method? The Chemalite prototypes Who is Betty Vinson? Debits & Credits Level 200 400 600 800 1000 Answer Entry made to Retained Earnings at year-end if total revenues is $550,000 and total expenses are $620,000 Entry made to Allowance for Doubtful Accounts if Accounts Receivables are $100,000, Sales are $500,000, the estimated percent uncollectible is 3% and the percentage of sales method is used Entry made to Inventory if ending inventory at cost is $56,000, replacement cost is $48,000, net realizable value is $60,000 and net realizable value less a normal profit margin is $46,000 Entry made to LIFO Reserve if ending inventory under LIFO is $20,000, ending inventory under FIFO is $26,000 and the beginning LIFO reserve is a credit of $8,000 Entry made to Cost of Goods Sold in year 1 of a long-term contract if costs incurred in year 1 are $100,000, remaining costs to complete are estimated at $150,000, and the contract price is $200,000 Question What is debit $70,000 What is credit $15,000 What is credit $8,000? What is debit $2,000? What is debit $130,000 More Nothing But Numbers Level 200 400 600 800 1000 Answer Cumulative taxes saved from using LIFO if the LIFO reserve is credited $10,000 in the current year, has an ending balance of $40,000, and the tax rate is 35% Interest revenue on a non-interest bearing note receivable with a $10,000 face value, an unamortized discount of $2,000 and an effective rate of 7% Bad debt expense using the percentage of receivables method if the beginning allowance for doubtful accounts balance is $10,000, write-offs during the year are $8,000, the ending accounts receivable balance is $180,000 and 5% of receivables are estimated to be uncollectible Gross profit recognized in year 2 of a long-term contract if costs incurred to date are $100,000, remaining costs to complete are estimated at $50,000, contract price is $210,000 and profit recognized in year 1 was $15,000 Ending inventory under dollar-value LIFO if beginning inventory under dollar-value LIFO is $20,000, beginning inventory at base year prices is $17,000, ending inventory at current cost is $24,000 and the price index is 1.2. Question What is $14,000? What is $560? What is $7,000? What is $25,000? What is $23,600? More Cause & Effect Level 200 400 600 800 1000 Answer The effect on net income of paying rent in advance The effect of rising prices on the LIFO reserve The effect on next year’s net income of overstating ending inventory in the current year The effect on assets of recording a progress billing on a long-term contract The effect on the debt-to-equity ratio of treating a transfer of rights on Accounts Receivable as a financing arrangement Question What is no effect? What is increase? What is decrease? What is no effect? What is increase? Hawaii Trivia Level Answer 200 Hawaii has the highest per capita consumption of this canned meat product “Mele Kalikimaka” is the Hawaiian version of this holiday greeting A portion of this island was a former leper colony Famous (and very large) Hawaiian singer who recorded a popular rendition of “Somewhere Over the Rainbow” The state fish of Hawaii 400 600 800 1000 Question What is Spam? What is Merry Christmas? What is Molokai? Who is Israel Kamakawiwaole? What is Humuhumunukunukuapua’a?