# Midterm 2

 The flashcards below were created by user katknight13 on FreezingBlue Flashcards. Inventory costing method. Based on average cost of inventory during the period. Also called weighted average method. Average cost method. How do you calculate average cost? Dividing the cost of goods available by the number of units available. The accounting concept by which the least favorable figures are presented in the financial statements. Conservativism Cost of inventory the business has sold to customers. Cost of goods sold. Formula that brings together all of the inventory data for the entire accounting period. Cost of goods sold model Cost of goods sold model equation? Beginning inventory+purchases=Goods availableANDGoods available-Ending inventory=Costs of goods sold A business's financial statements must report enough info for outsiders to make knowledgeable decisions about the business. Relvant, reliable, and comparable info about economic affairs. Disclosure Principle Inventory costing method. The first costs into inventory are the first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases. FIFO! (first in first out) cost method Equation for gross profit/margin? Sales revenue-cost of goods sold. A way to estimate inventory based on a rearrangent of the cost of goods sold model. Gross Profit/Margin method. Equation for gross profit/margin method? Beginning inventory+Net purchases=Goods available-cost of goods sold=Ending inventory. What is the gross profit/margin percentage equation? Gross Profit/net sales revenue Inventory turnover ratio? Cost of goods sold/average inventory Indicates how rapidly inventory is sold. Inventory turnover ratio. Inventory costing method. The last costs into inventory are the first costs out to cost of goods sold. Leaves the oldest costs, in ending inventory. LIFO! (last in first out) method. Requires that an asset be reported in the financial statments at whichever is lower, it's historical cost or its market value. Lower of cost or market (LCM) rule. An inventory system in which the business does not keep a continuous record of the inventory on hand. Instead, at then end of a period the business makes a phyiscal count of the inventory on hand and applies the appropriate unit costs to determine the cost of the ending inventory. Periodic Inventory System A decrease in the cost of purchases because the seller has granted the buyer a subtraction from the amount owed. Purchase Allowance A decrease in the cost of purchaces earned by making an early payment to the vendor. Purchase discount. A decrease in the cost of purchaces because the buyer returned the goods to the seller. Purchase Return. Inventory cost method. Based on the specific cost of particular units of inventory. Specific unit cost method. A depreciation method. Writes off a relatively large amount of the assets cost nearer the start of its useful life than the straightline method. Accelerated Depreciation Method. The systematic reduction of a lump sum amount. Expense that applies to intangible assets in teh same way depreciation applies to plant assets and depletion to natural resources. Amortization Expenditure that increases an asset's capacity or efficiency or extends it's useful life. Debited to an asset account. Capital Expenditure That portion of a natural resource's cost that is used up in a particular period. Computed the same way as units of production depreciation. Depletion Expense How do you calculate depreciable cost? Cost of a plant asset-estimated residual value. Accelerated depreciation method. Computes annual depreciation by multiplying the asset's decreasing book value by a constant percnetage. 2 times the straight line rate. Double declining balance (DDB) method. Expected cash value of an asset at teh end of it's useful life. Residual/Scrap/Salvage Value Length of service that a business expects to get form an asset. Estimated useful life. What is the goodwill equation? Excess of the cost of an aquired company/sum of market values of it's net assets (assets-liabilites) An asset with no physical form, a special right to current and expected future benefits. Intangible assets. Long lived assets like land, buildings and equipment. Used in the opweration of the business. Plant or Fixed assets. Depreciation Method. An equal amount of depreciation expense is assigned to each year of asset use. Straight Line (SL) Method. Depreciation Method. A fixed amount of depreciation is assigned to each unit of output produced by the plant asset. Units of production (UOP) method An expense incurred but not yet paid in cash. Accrued Liability/Expense Issued to multiple lenders called bondholders. Bonds Payable. At a specified price whenever the issuer wants. Callable Bonds Lease agreement that meets one of these: 1. Tranfers title of leased asset to lessee 2. Contains a bargain purchase option 3. Term is 75% or more of estimated useful life of the lease asset 4. The present value of the lease payements is 90% or more of market value of leased asset. Capital Lease Bonds or notes that may be converted to the issuing company's common stock at the investor's option. Converible bonds/notes. The amount of the principal that is payable within one year. Current installment of long term debt. Unsecured bonds. Bonds backed only by the good faith of the borrower. Debentures Excess of a bond's face value over it's issue price. Discount Earning more income on borrowed money than the related interest expense. Increases the earnings for the owners of the business. Leverage/Trading on the equity Interest rate that ivestors demand for loaning their money. Market/Effective Interest rate. Usually a short term or cancelable rental agreement. Operating lease. Excess of a bond's issue price over it's face/par value. Premium Amount a person would invest now to recieve a greater amount at a future date. Present Value Bonds that mature in installments over a period of time Serial bonds Interest rate that determines the amount of cash interest the borrower pays and the investor receives each year. Stated Interest Rate Bonds that mature at the same time for a particular issue. Term bonds. Measures the number of times that operating income can cover interest expense. Times interest earned ratio. Times interest earned ratio equation? Income from operations/interest expense Operational assets that have physical substance are Tangible assets The amount expected to be recovered when an asset is disposed of at the end of its estimated useful life is its... Residual Value A portion of the cost of the asset should be allocated as an expense for the periods in which the asset helps the business to earn revenue deals with what principle? Matching. The book value at the end of an asset's useful life will be the same under all the depreciation methods allowed under GAAP... TRUE or FALSE TRUE The total depreciation in the accumulated depreciation account will be the same at the end under all methods under GAAP... TRUE or FALSE TRUE Failure to record amortization on a patent during the current year would cause what? Net income and Assets to be overstated! Depreciation can best be described as what? Allocating the costs of assets over their useful lives Revenue in advance Accrued Interest Payable Employeed Taxes withheld Current portion of long term debt Are all examples of... Current Liabilites Bonds payable are classified on the Balance Sheet as... Long term liabilities LIFO tends to increase taxes when costs are? Decreasing. Which of the depreciation methods best applies to those assets that generate greater revenue earlier in their useful lives? DDB The cost allocation process for natural resources is similar to that of (a depreciation method): Units of Production Amortization of an intangible asset is similar to which depreciation method? Straightline The adjusting entry to record accrued interest on a short-term note payable includes a: debit to interest expense Effective Rate is also called Market Rate Amortizing the discount on a bond payable ________ the carrying amount of the bond. Increases Under the effective-interest method of amortization, the cash payment on each interest payment date is calculated by multiplying the: face value of the bonds X the stated interest rate for the appropriate time period Under the effective-interest method of amortization, interest expense each period can be calculated by multiplying the: carrying value of the bonds X the effective interest rate for the appropriate time period A pension plan is said to be overfunded when: the fair market value of the pension plan assets exceeds the projected benefit obligation When a repair or replacement occurs within the warranty period: estimated warranty payable is debited Authorkatknight13 ID44701 Card SetMidterm 2 DescriptionYuck. Updated2010-11-08T02:36:07Z Show Answers