Review questions for exam 2

School: Purdue University - Course: ENGL 420X - Subject: Accounting

Exam 2 Review questions Chapter 5 How do trade discounts, returns, allowances, and sales discounts influence net revenue? Can you calculate net revenue? What is a contra-revenue account? Can you record sales allowances? Can you record transactions with a sales discount at the point of the sale and when the collection occurs? What is the net realizable value of a receivable? How is it different from what the customers owe the firm? Are you familiar with all the journal entries that influence the t-accounts for accounts receivable and the allowance? Can you record a sale and cash collection? bad debt expense? a write-off of an account? the reinstatement of an account? How will the financial statement accounts change by the journal entries? Can you calculate bad debt expense using the percent of receivables method? Using the aging method? What is a common assumption in the aging method? Can you compare the allowance method with the direct write-off method? Which is allowed based on GAAP? Why? How would journal entries and financial statements differ? Chapter 6 What is a multiple-step income statement? Are you familiar with the different levels of profitability: gross profit, operating income, income before taxes, net income? What is included in each level? Can you calculate ending inventory, cost of goods, gross profit, for each of the cost flow assumptions (weighted average cost, first-in first-out, last-in last-out)? What determines whether a particular method yields the highest gross profit? Why do firms use LIFO? What is LIFO conformity rule? What freight charges are included in inventory and cost of goods sold? How do sales discounts influence the cost of inventory? Do you understand the shipping terms (FOB shipping point, FOB destination)? How do the shipping terms influence the ending balance of inventory? What are the journal entries for purchasing, returning, and selling inventories? Can you apply the Lower of Cost and Net Realizable Value rule? What journal entry is necessary to adjust inventory down?

Chapter 7 What costs are included in the balance of Land? Land improvements? Buildings? Equipment? Can you determine the cost of a long-term asset that is acquired in a basket purchase? What are the different categories of intangibles discussed in class (trademark, patent, copyright, franchise, goodwill)? How does the accounting change if the intangible was internally generated or externally acquired? What is the difference in accounting treatment between routine repairs and maintenance (e.g., car oil change) and additions/improvements (expenditures that yield future benefits like overhauling the car's engine to extend its useful life)? Can you calculate the value of goodwill? Can you prepare a journal entry to record goodwill? Can you calculate depreciation expense, accumulated depreciation? Can you record depreciation using straight-line, declining balance, and activity based methods? Can you record amortization of intangible assets? Can you record depreciation for an asset purchased during the middle of the year? Can you determine the gain or loss on from the sale of a long-term asset?