Exam III - Ch 6

ACCT 2301

Specific topics to review for Exam III

M/C question formats will include, but are not limited to, the following:

Select incorrect statement regarding . . .

Which statement is true with regard to . . .

Problems in M/C format

Topics covered may include, but are not limited to, the following:

All chapters - Definitions, key concepts and principles. Know normal balances and journal entries.

Chapter 6:

Subsidiary Ledgers:
- What are subsidiary ledgers
- Why do we use subsidiary ledgers
- How do subsidiary ledgers compare to the General Ledger
- In a given scenario, would we look at the General Ledger account or the subsidiary ledger accounts
Periodic vs Perpetual Inventory Systems:
- Know the primary differences between periodic and perpetual inventory systems
- Recognize which system to use given a scenario (i.e., large company with many different products vs small company with manual accounting system)
- Know journal entries used by both periodic & perpetual inventory systems - be able to recognize correct journal entries for given scenario (i.e., sale or purchase under periodic or perpetual system)
- When is a physical inventory required for each system, and what does it tell us for each
Delivery/Transportation Costs:
- How does the purchaser account for transportation costs
- How does the seller account for transportation costs
Cash Discounts:
- Understand how cash discounts work from both purchaser's and seller's viewpoint:
  - Purchase Discounts - What are required journal entries:
    - For original purchase under both Net and Gross methods
    - For payment - if made within discount period
    - For payment - if made after discount period expires
  - Sales Discounts - What are required journal entries:
    - For original sale of merchandise
    - If account is collected within discount period
    - If account is collected after discount period expires
  - Returns and Allowances:
    - What is the difference between "returns" and "allowances"
    - How would purchaser record purchase returns? Purchase allowances?
    - How would seller record sales returns? Sales allowances?
Sales Taxes:
- What are sales taxes
- Who pays sales taxes
- How does seller record sales taxes (journal entries)
- How are sales taxes remitted, and to whom
Gross Profit
- What is gross profit, and what does it tell us
- How is gross profit calculated
- What is gross profit margin, and how can it be used
- How is gross profit margin calculated

Credit Terms:
- Be able to interpret what credit term statement means (ex. - 1/15, n/60)
- Calculate amount to be paid (or collected) in a given scenario

Chapter 7:

Cash and Cash Equivalents:
- What are they
- What is the difference between cash and cash equivalents
- How are they reported (valued) in the Financial Statements
- Be able to recognize cash equivalents, given a list of items
Internal Controls:
- Why do we need internal controls
- Recognize which M/C options are or are not examples of good internal controls
- Know basic "rules" for good internal control of cash
Line of Credit:
- What is it
- When do we recognize an asset or liability resulting from a line of credit
- How do we account for lines of credit
- Is disclosure required for a line of credit, and if so - at what point
Available-for-Sale Securities:
- What are they
- How are they accounted for
- What effect does "Mark to Market" have on them
- What is Unrealized Holding Gains or Losses
- How is Unrealized Holding Gain or Loss reported in financial statements
Restricted Cash:
- What is it
- Why do we need it
- How do we recognize it in financial statements
Uncollectible Accounts:
- What are uncollectible accounts
- What is Net Realizable Value of Accounts Receivable, and how is it calculated
- When is expense recognized under various methods:
  - Balance Sheet method
  - Aging of Accounts method
  - Income Statement method
  - Direct Write-off method
- Which of the above method(s) does GAAP prefer? Which method(s) does the IRS prefer?
- Calculate amounts of expense and/or allowance under each of the above methods
- Know journal entries
- Know effects on net assets and net income of the write-off of a specific account under various methods above
Petty Cash:
- What is petty cash
- Why do we need it
- How do we reconcile, replenish, and record Petty Cash
Bank Reconciliation:
- What is the purpose of the bank reconciliation
- When should reconciliation be performed, and by whom
- What adjusting entries result from the reconciliation (adjusting what - bank or books)
- Be able to perform simple reconciliation
- Recognize appropriate journal entries for simple reconciliation

Chapter 8:Inventory Cost Flow Assumptions - Specific ID, Average-costing, FIFO, LIFO:

Know conceptual differences between models
- How they work under both perpetual and periodic inventory systems
- Advantages vs disadvantages
- Effects on Ending Inventory, Cost of Goods Sold, Net Income, & Income Tax (compare models)
Understand effects of errors in recording inventory
- Understatements
- Overstatements
Know journal entries for recording purchases & sales under perpetual and periodic inventory systems
Inventory turnover and Average days to sell:
- Know how to calculate
- Know what they tell us (what do they measure)
- Which is better - high or low - for both
Consistency
- What does it mean
- Why do we need it
Goods in Transit:
- Who do they belong to - at what point does title change hands
  - FOB Destination
  - FOB Shipping Point
- Why does this matter? What is effect on financial statements?
Interim Statements - Methods of estimating inventory:
- Gross Profit Method
- Retail Method
  - Know basic concepts for both methods
  - Why do we need to estimate inventory
Problems:
- Be able to calculate Ending Inventory, Cost of Goods Sold & Shrinkage under four cost flow assumptions
  - Under perpetual inventory system

Chapter 9: Plant Assets

Recognize which costs should be capitalized as part of the acquisition cost of an asset. Be able to calculate cost
Recognize categories of assets (plant, intangible, & natural resource assets)
Know legal life of assets, where applicable
Know which asset categories are depreciated, amortized, or depleted
Understand capital vs. revenue expenditures. Be able to identify a given cost as either capital or revenue expenditure.

Know basic concepts regarding depreciation and accumulated depreciation. Understand how these costs are calculated and recorded for following methods:

Straight-line

Double Declining Balance

150% Declining Balance

Understand how gains/losses on disposal of an asset are calculated
Problems:
- Be able to calculate book value, gain or loss, capitalized costs and depreciation using the three methods above. Be able to calculate depreciation both with and without half year convention. You will NOT be required to switch from accelerated methods to Straight-line in the same problem.

Chapter 10: Liabilities

Understand when a liability is incurred
Know concepts behind payroll expenses - total costs, deductions, etc.
Unearned revenue - what is it & how is it recorded
Understand concepts of current vs. long-term liabilities
Review types of bonds and basic advantages/disadvantages of issuing bonds.
Review bond discounts and premiums - basic concepts & how to record journal entries
Understand amortization of a note or a bond - major concepts & how to calculate
Calculate interest on note or bond
Review measures of debt-paying ability (liquidity)
Review Time Value basic concepts (also see Supplemental Topic)
Problems:
- Be able to calculate interest, balance due, etc. for notes payable. Know year end adjusting entries for notes.
- Be able to create a brief amortization table from scratch (format will be given here - you will not have to do the entire schedule, so will NOT zero out)
NOTE: I eliminated the large bond problem, due to limited time to explore this topic. You will have only M/C theory questions on bonds, as noted above.

NOTE: The problems will be similar to those in the chapter 6 - 10 homework assignments - quiz & exercises only (see Assignment Calendar).

The M/C portion of the exam will be recorded on an 882-ES scantron, as always. The problems will be turned in separately from the M/C questions, and must have your name on each page.

Please be sure to bring your scantron, calculator (you will need it), number 2 pencils, and a good eraser with you for the exam.

Good luck! I’ve enjoyed having you in my class this semester.

K E Moffatt