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Midterm

ACC 131 Study Guide - Midterm Guide: Perpetual Inventory, Intangible Asset, Inventory Turnover


Department
Accounting
Course Code
ACC 131
Professor
Seipp
Study Guide
Midterm

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Accounting 131-005
Exam 3 Study (Chapters 6-7-8)
Please note that the exam may include some or all of the following topics. Although this study covers the majority of the exam, it
may not be all inclusive
Chapter 6 (10 conceptual multiple choice and 4 multiple choice problems)
Be able to identify what type of inventory account is used by a retailer or wholesaler and what types of inventory accounts
are used by a manufacturer
o Retailers/Wholesaler use Merchandise Inventories
o Manufacturers use Raw Materials Inventory, Work-In-Process Inventory, and Finished Goods Inventory
How is cost of goods sold calculated?
o Beginning Inventory + Purchases = Cost of Goods Available for Sale Ending Inventory = Cost of Goods Sold
When merchandise is returned to the seller and the seller uses a perpetual inventory system, what account decreases?
o Perpetual Cost of goods Sold updated with each sale (usually use).
o Decrease cash  ota eeue aout alled “ales Retus & Alloae; deease ost of goods sold;
increase inventory
Be able to interpret shipping terms (2/10, n /30; n/15; 1/15, n/45, etc.)
o 2% discount if payment is made in 10 days, otherwise full invoice is due within 30 days/ 15 days/45-days period.
Be able to identify what type of merchandise would be costed using the specific identification method
o The specific identification method determines the cost of ending inventory and the cost of goods sold based on the
identification of the actual units sold and in inventory.
o Merchandise would be items of rarity that would have a separate serial number; to be able to identify it- ex.
automobile
Be able to calculate ending inventory and cost of goods sold using FIFO, LIFO and moving average methods (perpetual
inventory system only)
What are the acceptable methods of inventory costing?
o Specific Identification
o FIFO (First in, First Out)
o LIFO (Last in, First Out)
o Average Cost
Be able to identify which inventory costing methods result in highest inventory balance, highest cost of goods sold and/or
highest net income in periods of rising or lowering prices
o Rising Purchase Prices
FIFO produces: Highest ending inventory; Highest income
LIFO produces: Highest cost of goods sold
o Falling Purchase Prices
FIFO produces: Highest cost of goods sold
LIFO produces: Highest ending inventory; Highest income
Know what lower of cost or market is
o LCM = if the market value (replacement cost) of a opa’s inventory is lower than its cost, the company reduces
the amount recorded inventory to its market value.
Know that under a perpetual inventory system the inventory account is updated after each merchandise purchase and/or
sale
Know the formula for the inventory turnover ratio
o Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Chapter 7 (12 conceptual multiple choice, 5 multiple choice problems)
What is the definition of accumulated depreciation?
o represents the total amount of depreciation expense that has been recorded for an asset since the asset was
acquired, is reported on the balance sheet as a contra-asset.
What is the definition of an intangible asset?√√√
o Tangible assets lack physical substance.
o Patents, copyrights, trademarks, leaseholds, organization costs, franchises, and goodwill are all examples of
intangible assets.
What is the definition of depreciation?
o the process of allocating, in a systematic and rational manner, the cost of a tangible fixed asset (other than land) to
epese oe the asset’s useful life.
find more resources at oneclass.com
find more resources at oneclass.com
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