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What is the answer to question #3?
Why did congress pass the Sarbanes-Oxley Act?
Because of the Enron and WorldCom Scandals.
What provisions did the act include?
-public companies must issue an internal control report
-created board that oversees the work of auditors
-accounting firms cannot audit and provide consulting services to the same company
What are the penalties for violators of the SOX Act?
Stiff; 20-25 years in prison.
What is the most important goal of internal controls?
To safeguard assets.
What are outstanding checks?
Checks that have not been cashed yet.
What does ETF stand for?
Electronic Funds Transfer
What is a NSF Check?
A check that was written with non-sufficient funds.
What are the four steps taken when cash is recieved by mail?
1.) reciever compares the check with the remittance advice.
2.) reciepts sent to treasurer, cashier deposits money in bank.
3.) remittance advice sent to accounting
4.) controller compares records
- send purchase order to supplier
- recieve inventory and invoice
- prepare recieving report
- make sure all documents agree
- issue checks
What is the answer to question #17?
Evaluates credit worthiness.
What is also know as Net A/R?
Net Realizable Value
How is NRV calculated?
less Allowance for Doubtful Accounts
What are the two methods for accounting for Uncollectible Accounts?
Which method is GAAP?
1.) Allowance Method (GAAP)
2.) Direct Write-Off Method
On the exam how should October 2nd be treated?
As October 1st, in a 360 day year.
What is the income statement approach to calculate bad debt expense?
Bad Debt Expense = Net
Sales * Bad Debt %
What is the journal entry for bad debt expense?
DEBIT Bad Debt Expense
CREDIT Allowance for Doubtful Accounts
What is the balance sheet approach to calculate bad debt expense?
Calculate the desired balance for Allowance for Doubtful Accounts using buckets provided.
Determine the difference between the desired balance and actual balance to determine Bad Debt Expense.
What is the journal entry to official write off an account?
DEBIT Allowance for Doubtful Accounts
Is the direct write-off method GAAP?
What is the maturity value of a note recievable?
The sum of the principal plus interest due at maturity.
Who is the Debtor?
The entity signing the note promising to pay.
Who is the Creditor?
The entity who makes the note.
What is another name for the Acid-Test Ratio?
The Quick Ratio
How is the Quick Ratio Calculated?
Cash + Short Term Investments + Net Current Rec.
divided by Total Current Liabilities
What is the Current Ratio?
current assets / current liabilities
What does 'Day's Sales in Recievables' mean?
How is Day's Sales in Recievables Calculated?
Total Sales / 365 days = 1 day's sales
Net Avg. Acct. Rec. / 1 day's sales
Plant Assets _________.
How is the cost of an asset determined?
The price to purchase the asset plus all costs necessary to get it ready for its intended use.
How are costs assigned to assets bought in a lump sum purchase?
- determine what percent of cost each asset is
- multiply that percent by the amount paid to determine individual asset price
What is another term for Residual Value?
What are the three methods used to calculate depreciation?
3.) Double-Declining Balance
How is the depreciable value calculated?
Cost - Residual Value
How is depreciation calculated using the straight-line method?
Depreciation Exp/yr = (cost - residual value) / Useful Life
How is depreciation calculated using the units-of-production method?
Depreciation / Unit = (cost - residual value) / total units
Depreciation Ex = dep per unit * (# of units in period)
How is depreciation calculated using the double-declining-balance method?
( 1 / useful life in yrs ) * 2
Depreciation Ex = x2 dec bal rate * beg. period book value
What is done with research and development costs?
They are expensed.
What is the book value of an asset?
cost - accumulated depreciation
What method is used to calculate depletion?
What is a patent?
Exclusive 20-year right to produce and sell an invention.
- granted by the federal government
What are copyrights?
Exclusive right to reproduce/sell artistic or intellectual property
- issued by federal government
- legal life; 70 years beyond life of the creator
What are trademarks/brand names?
Represent distinctive identifications of a product or service.
What are franchises/licenses?
Priviledges granted by a private co. or government to sell goods or services.
What is Goodwill?
Excess of purchase price of company over market value.
From year to year increases of good will are not recorded
Decreases are recognized as a loss.