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COMMERCE 1AA3 Midterm: 1AA3 Exam Review

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1AA3: Exam Review
Chapter 6
Inventory Errors, Effect in Taxes cancel out if error considered over two year
period, effect on net income, and what happens if taxes are involved, error over a 2
year period, corrects itself
FIFO and Periodic WAC, perpetual is tedious, just know periodic
In class problems on inventory estimations using constant gross-profit percent. If
periodic system, what are the balances in books at time of estimation? Trick
question in class, using the periodic method, no matter when you look at the account
balance, what amount is recorded under the inventory account under the periodic
system, ending balance from the previous period or beginning balance of current.
Classified income statement (Lots on Net sales COGS = Gross Profit Operating
Expenses = Operating Income) (EBIT = Interest Expense Income Tax = Net
Income) (Net Sales = Sales SR and A Sales Discount) (COGA= BI = Cost of goods
purchased Ending Inv.) (Gross Purchases Purchases R&A Purchase Dis +
Freight In = Net Purchases)
o Freight out = operating expenses, Dividends = shareholders’ equity this it
would not be there, Insurance going in operating expenses.
o And calculations Net Sales, Net purchases, cogp, cogas, cogs, operating
income, ebit, and gross purchases.
ABC Co. paid $100,000 within the discount period to settle its A/C purchases that
were 5/10, N/45, What was the discount? $5263, 95% discount
o 100,000 = 95% (5% Discount), 100% = 100,000/95% - 105263.
Calculations of sales discounts - in class problems
Counting inventory using FOB Terms see past exams written question 2008M2
Chapter 7
Revision of useful life and calculations of depreciation, tutorial questions! If you are
changing a useful life during the year, it doesn’t matter when you find out, you apply
it to the whole year.
Purpose and definition of depreciation: cost of the asset and spreading it over the
useful life. It is not a method to value and asset: how the asset is to be used, or cash
flow! How to choose different methods (4), the different methods available, their
characteristics and appropriateness to situations (accelerated methods) Which one
will give you more depreciation, more income, taxes, accumulated depreciation,
trends, differences. Double Declining, Sum of Years.
What is accumulated amortization, carrying value, amortizable cost.
Basket purchase entries using the relative fair or market values method.
Difference between capital and operating expenditures and their effects on financial
statements including income and taxes.
Recording sales of assets and journal entries related and how to calculate gains and
Use of shortcut in double declining method, to calculate depreciation expense or cv
in a future year, does not use amortizable cost!
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