Accounting Basics Merchandising and Special Topics Flashcards

24 sample cards from the Merchandising and Special Topics deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. State the formula for computing interest on a note receivable.

   $$\text{Interest} = \text{Face Value (Principal)} \times \text{Annual Rate} \times \text{Time}$$ where Time is expressed as a fraction of a year (e.g., $\frac{90}{360}$).

2. Calculate the interest on a $\$6{,}000$, $8\%$, 90-day note (using a 360-day year).

   $$\text{Interest} = 6{,}000 \times 0.08 \times \frac{90}{360} = \$120$$

3. What is the maturity value of a note receivable?

   $$\text{Maturity Value} = \text{Principal (Face Value)} + \text{Interest}$$ It is the total amount due at the note's due date.

4. What entry does the payee make to record accrued interest on a note at year-end (before maturity)?

   Debit Interest Receivable and credit Interest Revenue for the interest earned from the note's issue date through the balance sheet date. This satisfies the revenue recognition and matching principles.

5. Define accounts payable and current liabilities.

   Accounts payable are amounts owed to suppliers for goods/services purchased on credit. Current liabilities are obligations expected to be paid within one year or the operating cycle (whichever is longer) from existing current assets or by creating other current liabilities.

6. When a company borrows via a note payable, how is the interest portion handled at year-end if unpaid?

   Accrue it: debit Interest Expense and credit Interest Payable for interest incurred but not yet paid, computed as $\text{Principal} \times \text{Rate} \times \text{Time}$. This records the expense in the period incurred.

7. How is sales tax collected from customers recorded by the seller, and why is it a liability?

   At the sale, debit Cash (or A/R) for the total, credit Sales Revenue for the selling price, and credit Sales Taxes Payable for the tax. The tax is a current liability because it is collected on behalf of the government and later remitted, not revenue to the seller.

8. How is the current portion of long-term debt reported?

   The portion of long-term debt (principal) due within the next year is reclassified from long-term liabilities to current liabilities as 'Current portion of long-term debt' on the balance sheet.

9. What costs are included in the cost of a plant asset (the cost principle)?

   All expenditures necessary to acquire the asset and make it ready for its intended use — e.g., purchase price, freight, installation, sales taxes, and site preparation. Recurring costs like ordinary repairs and insurance after use begins are expensed.

10. Define depreciation. Is it a process of valuation or of cost allocation?

    Depreciation is the systematic allocation of the cost of a plant asset (less salvage value) to expense over its useful life. It is a process of cost allocation, NOT a process of valuing the asset at market.

11. State the straight-line depreciation formula.

    $$\text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life (years)}}$$

12. State the units-of-activity (units-of-production) depreciation formula.

    First, $$\text{Depreciable Cost per Unit} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Total Estimated Units}}$$ Then $$\text{Depreciation Expense} = \text{Cost per Unit} \times \text{Units of Activity this period}$$

13. How is the double-declining-balance depreciation rate and expense determined?

    The rate is twice the straight-line rate: $$\text{Rate} = 2 \times \frac{1}{\text{Useful Life}}$$ Expense $=$ Rate $\times$ beginning book value. Salvage value is ignored in the calculation, but the asset is not depreciated below salvage value.

14. Define book value (carrying value) of a plant asset.

    $$\text{Book Value} = \text{Cost} - \text{Accumulated Depreciation}$$ It is the asset's undepreciated cost, not its market value.

15. Which depreciation method produces the highest expense in the early years of an asset's life?

    Double-declining-balance (an accelerated method) produces the highest depreciation expense in the early years and lower expense in later years, though total depreciation over the life equals that of straight-line.

16. Distinguish a capital expenditure from a revenue expenditure for plant assets.

    A capital expenditure increases the asset's capacity or useful life (an addition/improvement) and is debited to the asset account (capitalized). A revenue expenditure maintains the asset in operating condition (ordinary repairs) and is expensed immediately.

17. What is the first step required before recording any disposal of a plant asset?

    Update (record) depreciation up to the date of disposal, so that Accumulated Depreciation and book value are current. Only then is the gain or loss on disposal computed.

18. How is a gain or loss on the sale of a plant asset determined?

    Compare cash proceeds to book value: if proceeds > book value, record a gain; if proceeds < book value, record a loss. $$\text{Gain/Loss} = \text{Proceeds} - \text{Book Value}$$

19. What is the journal entry to retire (discard) a fully depreciated plant asset with no salvage value?

    Debit Accumulated Depreciation and credit the asset account for its full cost. No gain or loss results because book value is zero.

20. When a plant asset is discarded before it is fully depreciated (scrapped for nothing), what is recorded?

    Debit Accumulated Depreciation for the amount recorded, debit Loss on Disposal for the remaining book value, and credit the asset account for its cost. The loss equals the book value at disposal.

21. Distinguish gross pay from net pay in payroll accounting.

    Gross pay (gross earnings) is total compensation earned before deductions (regular + overtime). Net pay is the amount actually paid to the employee: $$\text{Net Pay} = \text{Gross Pay} - \text{Total Deductions}$$

22. Distinguish employee payroll deductions from employer payroll taxes.

    Employee deductions (withheld from gross pay) include federal/state income tax withholding, the employee share of FICA (Social Security and Medicare), and voluntary deductions. Employer payroll taxes are additional expenses to the employer: the employer's matching FICA, plus federal (FUTA) and state (SUTA) unemployment taxes.

23. How is overtime pay generally calculated for hourly employees under standard rules?

    Hours worked beyond 40 in a week are paid at 1.5 times the regular rate. $$\text{Overtime Pay} = \text{Overtime Hours} \times (1.5 \times \text{Regular Rate})$$

24. What is the journal entry to record an employer's payroll (recognizing wages owed)?

    Debit Salaries and Wages Expense for gross pay; credit the withholding liabilities (FICA Taxes Payable, Federal/State Income Taxes Payable, other deductions) and credit Salaries and Wages Payable for net pay.

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