ACC 113 Lecture Notes - Lecture 29: Tax Deferral, Gross Profit, Balance Sheet

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amaranthjellyfish619

5 Jan 2021

School

Tunxis Community College

Department

Accounting

Course

ACC 113

Professor

Lardie

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Document Summary

Choice of inventory costing method affects both cogs and ending inventory. Must disclose inventory costing method used and should be same consistently which allows for meaningful comparisons. Lifo results in tax deferral which allows company to keep and use cash for a longer period of time. Lifo shows less profit compared to fifo and is not used as it places an out of date value for inventory. Physical count of inventory done at least once a year to match inventory balance from accounting system to actual inventory on hand (internal control). It can determine if inventory is lost due to theft, damage or errors in accounting. Errors in counting inventory affect both balance sheet and income statement which can affect next period. Baggett company has 3000 units of inventory on 1 july 2016, and purchases 34 000 units during financial year including 1000 units that ship on 29 june 2017.

Related Questions

Financial Accounting, 14th Edition

Carl S. Warren; Jim Reeve; Jonathan Duchac

Final_Multiple choice

1. The primary objectives of control over inventory are

a.safeguarding the inventory from damage and maintainingconstant observation of the inventory

b.reporting inventory in the financial statements

c.maintaining constant observation of the inventory andreporting inventory in the financial statements

d.safeguarding inventory from damage and reporting inventory inthe financial statements

2. When merchandise sold is assumed to be in the order in whichthe purchases were made, the company is using

a.first-in, last-out

b.first-in, first-out

c.last-in, first-out

d.average cost

3. Use the information below to answer the followingquestion.

The Boxwood Company sells blankets for $60 each. The following wastaken from the inventory records during May. The company had nobeginning inventory on May 1.

Date	Blankets	Units	Cost
May 3	Purchase	5	$20
10	Sale	3
17	Purchase	10	$24
20	Sale	6
23	Sale	3
30	Purchase	10	$30

Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFOinventory cost method.

a.$72

b.$108

c.$180

d.$120

4.If merchandise inventory is being valued at cost and thepurchase price is steadily falling, which method of costing willyield the largest net income?

a.FIFO

b.LIFO

c.average cost

d.weighted average

5.Stevens Company started the year with an inventory cost of$145,000. During the month of January, Stevens purchased inventorythat cost $53,000. January sales totaled $140,000. Estimated grossprofit is 35%. The estimated ending inventory as of January 31is

a.$58,000

b.$107,000

c.$69,300

d.$91,000

6. Which one of the following below is not anelement of internal control?

a.risk assessment

b.cost-benefit considerations

c.monitoring

d.information and communication

7. A check drawn by a company for $340 in payment of a liabilitywas recorded in the journal as $430. What entry is required in thecompany's accounts?

a.debit Cash; credit Accounts Receivable

b.debit Accounts Receivable; credit Cash

c.debit Accounts Payable; credit Cash

d.debit Cash; credit Accounts Payable

8. A bank reconciliation should be prepared

a.to explain any difference between the company's balance perbooks with the balance per bank

b.by the company's bank

c.whenever the bank refuses to lend the company money

d.by the person who is authorized to sign checks

Pilger Corporation has cash on hand at year-end of $201,000 anda negative cash flow from operations of $144,000. What is the ratioof cash to monthly cash expenses?

a.1.4 months

b.7.2 months

c.12.0 months

d.16.8 months

10. When does an account become uncollectible?

a.when accounts receivable is converted into notesreceivable

b.when a discount is availed on notes receivable

c.at the end of the fiscal year

d.there is no general rule for when an account becomesuncollectible

11.On the balance sheet, the amount shown for the Allowance forDoubtful Accounts is equal to the

a.total estimated uncollectible accounts as of the end of theyear

b.sum of all accounts that are past due

c.total of the accounts receivables written-off during theyear

d.uncollectible accounts expense for the year

12. Allowance for Doubtful Accounts has a debit balance of $600at the end of the year (before adjustment), and an analysis ofaccounts in the customers ledger indicates uncollectiblereceivables of $13,000. Which of the following entries records theproper adjusting entry for bad debt expense?

a.debit Allowance for Doubtful Accounts, $600; credit Bad DebtExpense, $600

b.debit Bad Debt Expense, $600; credit Allowance for DoubtfulAccounts, $600

c.debit Bad Debt Expense, $13,600; credit Allowance for DoubtfulAccounts, $13,600

d.debit Bad Debt Expense, $12,400; credit Allowance for DoubtfulAccounts, $12,400

13. When comparing the direct write-off method and the allowancemethod of accounting for uncollectible receivables, a majordifference is that the direct write-off method

a.is used primarily by small companies with few receivables

b.is used primarily by large companies with many receivables

c.uses an allowance account

d.uses a percentage of sales method to estimate uncollectibleaccounts

14. Accumulated Depreciation

a. is used to show the amount of cost expiration ofintangibles

b.is used to show the amount of cost expiration of naturalresources

c.is the same as Depreciation Expense

d.is a contra asset account

15. Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?

a.$19,000

b.$21,000

c.$30,000

d.$22,000

16. The process of transferring the cost of metal ores and otherminerals removed from the earth to an expense account is called

a.depreciation

b.depletion

c.amortization

d.deferral

17. The Bacon Company acquired new machinery with a price of$15,200 by trading in similar old machinery and paying $12,700. Theold machinery originally cost $9,000 and had accumulateddepreciation of $5,000. In recording this transaction, BaconCompany should record

a.a loss of $1,500

b.the new machinery at $12,700

c.a gain of $1,500

d.the new machinery at $16,700

18. Assuming a 360-day year, when a $50,000, 90-day, 9%interest-bearing note payable matures, total payment will be

a.$54,500

b.$4,500

c.$1,125

d.$51,125

19. Which of the following is required to be withheld fromemployee's gross pay?

a.only federal income tax

b.both federal and state unemployment compensation taxes

c.only state unemployment compensation tax

d.only federal unemployment compensation tax

20. Hall Company sells merchandise with a one-year warranty. Inthe current year, sales consisted of 4,500 units. It is estimatedthat warranty repairs will average $10 per unit sold, and 30% ofthe repairs will be made in the current year and 70% in the nextyear. In the current year's income statement, Hall should showwarranty expense of

a.$45,000

b.$0

c.$13,500

d.$31,500

21. Which of the following below is not acharacteristic of a limited liability company?

a.limited legal liability

b.unlimited life

c.taxable

d.moderate ability to raise capital

22. Seth and Beth have original investments of $50,000 and$100,000 respectively in a partnership. The articles of partnershipinclude the following provisions regarding the division of netincome: interest on original investment at 10%; salary allowancesof $27,000 and $18,000, respectively; and the remainder to bedivided equally. How much of the net income of $42,000 is allocatedto Seth?

a.$20,000

b.$23,000

c.$32,000

d.$0

23. Which of the following is not a rightpossessed by common stockholders of a corporation?

a.the right to share in assets upon liquidation

b.the right to receive a minimum amount of dividends

c.the right to sell their stock to anyone they choose

d.the right to vote in the election of the board ofdirectors

24. The charter of a corporation provides for the issuance of100,000 shares of common stock. Assume that 45,000 shares wereoriginally issued and 5,000 were subsequently reacquired. What isthe amount of cash dividends to be paid if a $2 per share dividendis declared?

a.$80,000

b.$100,00

c.$90,000

d.$10,000

25.Which statement below is not a reason for acorporation to buy back its own stock?

a.to increase the shares outstanding

b.for supporting the market price of the stock

c.resale to employees

d.bonus to employees

amethystguinea-pig915

GOOGLE: MorningstarÂ® Document Research FORM 10-K GENERAL MILLS INC - GIS Filed: June 29, 2017 (period: May 28, 2017) Annual report with a comprehensive overview of the companyâ FOR THE ANNUAL REPORT

Instructions: Use the financial statements from the annual report for the year ended 5/28/2017 for General Mills. The Annual Report is on MOODLE. Answer the questions after each question. Use a different font to distinguish your answer from the question. All answers should be in your own words. Do not cut and paste from the annual report. Answers will be graded for content and written communication skills. Use complete sentences.

*****MAKE A NOTATION HERE IF THE DOLLAR AMOUNTS ARE STATED IN MILLIONS.

1. Who are the external auditors for General Mills? What does their Report of Independent Registered Public Accounting firm indicate about the amounts represented in the companyâs financial statements?

2. What specific title does General Mills use for its income statement? What type of income
statement does General Mills issue? (multi-step, singleâstep, or condensed multi-step)
Explain.

3. Did they disclose EPS as discussed in class? Explain. What about the EPS presentation
did we not discuss in ACC 3100?

4. How does General Mills define Cash Equivalents? Is this consistent with the textbook?

5. What is the amount of cash and cash equivalents reported for the year ended at May 28, 2017 and for the year ended at May 29, 2016. By how much has cash and cash equivalents increased/decreased? Show calculations.

6. Create a table illustrating the amount General Mills reports for net cash flows from operating, investing, and financing activities in its statement of cash flow for the year ended May 28, 2017. (Note: Include any effect of exchange rates on cash.) Show calculations. Compare your answers to question 5.

7. What amount is the balance in the Allowance for Doubtful Accounts at 5/28/2017? How is the estimate for Allowance for Doubtful Accounts determined?

8. What was the gross balance of trade receivables at 5/28/2017? What was the dollar amount of bad debt expense for the year ended 5/28/2017? How many accounts were written off (Dollar amount)?

9. What inventory method is used to value inventory in and out of the US?

10. What is the balance of their LIFO reserve account 5/28/2017?

11. What impact (dollar amount and increase or decrease) did the LIFO Reserve adjustment have on Cost of Goods Sold?

12. Which depreciation method(s) is used for PP& E? What estimates are made for the useful life of the different categories of assets?

13. What was total depreciation and amortization expense fiscal year ended 5/28/2017? Where were these amounts reported in the financial statements?

14. What was the major component of total PP&E? What was its amount and what percentage was it of the total for the year ended 5/28/2017?

15. What percentage of total PP&E has been depreciated as of 5/28/2017?

16. Did General Mills capitalize any interest in the fiscal year ended 5/28/2017? If so, what was the amount?

17. Did General Mills dispose of any property and equipment during the year ended 5/28/2017? If so, what was the cash proceeds?

18. Did General Mills issue more new long term debt than they paid in long term debt payments for the year ended 5/28/2017? Explain, show amounts.

19. Create a table to show the components of Comprehensive Income that was attributable to General Mills for the year ending 5/28/2107?

20. Create a table to show the components and amounts of General Millsâ Accumulated Other Comprehensive income(loss) for the year ending 5/28/2017 and 5/29/2016?

21. When does General Mills review impairment for long-lived assets? What is their measurement of an impairment loss based on for long-lived assets?

22. What is the amount of General Mills goodwill? Did General Mills have an impairment loss on Goodwill during fiscal year ended 5/28/2017? What are the standards for testing goodwill(How often and how is it tested)?

23. List any other indefinite life intangibles? How much was the impairment loss General Mills recorded for fiscal year ending 5/31/2015 and why was impairment indicated?

24. The Financial Accounting Standards Board (FASB) issued two new accounting requirements in 2017 that were mentioned in General Millsâ annual report? What are the standards and what is the expected impact of these new standards to the financial statements?

25. General Mills uses the three-level fair value hierarchy for disclosure. What level are the majority of their assets and liabilities measured at 5/28/2017? According to your textbook, how is this level defined?

26. When does General Mills recognize revenue? Do they handle consistently with the material presented in ACC 3100?

27. What was General Millsâ current ratio and working capital as of 5/28/2017? Show calculations.

28. Is the Statement of Changes in Stockholderâs Equity (Consolidated Statements of Total Equity, and Redeemable Interest) consistent with what we learned in class? Explain-indicate similarities and differences.

29. According to the MD&A (begins on p. 15) did General Millsâ Selling, general, and
administration expenses increase or decrease in fiscal year ended 5/28/2017? What was
the primary reason for the change?

30. In two detailed paragraphs, indicate a couple of interesting items you learned while
reading this annual report.

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ACC 113 Lecture Notes - Lecture 29: Tax Deferral, Gross Profit, Balance Sheet

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