MGT120 – Review

The tutorial is a review only and not an indication of what will be on the
test.

Net sales represents the __________________ of merchandise sold to customers during the period,
less _______________. COGS is a(n) ___________________ and is shown on the
_____________________________________________________________________________.

The difference between net sales and COGS is ____________. It is a useful means of measuring the
profitability of _____________________, but it does not represent the overall profitability of the
business.

2 approaches used in accounting for merchandising transactions:

1.___________________________________________________________________________
2.___________________________________________________________________________

Assuming a company uses the perpetual inventory system, record the JE (a) when the goods are
bought and (b) when the goods are sold:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Assume instead the company uses the periodic inventory system, repeat the requirements from
above:
___________________________________________________________________________
___________________________________________________________________________

In a periodic inventory system, COGS is a computation. Show the calculations:

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Four cost flow assumptions that could be used are:

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

1
Example: At the end of June, ABC Company reports the following for the month:
Date Explanation Units Unit Cost Total Cost
June 1 Inventory 200 $5 $1,000
12 Purchase 300 6 1,800
23 Purchase 500 7 3,500
30 Inventory 180

Calculate the cost of ending inventory and the COGS using the periodic inventory system under (i)
FIFO; (ii) LIFO (iii) Average cost

Inventory should be reported on the balance sheet at the lower of its

____________________________________________________________________________.

An error in the valuation of inventory will affect several balance sheet measurements such as
___________________________
___________________________________________. It also affects some income statement items
such as___________________________________________. Since ending inventory of one year
becomes the __________ balance of the next year, an error in inventory valuation will
____________
into the ___________________ of the following year.

If ending inventory is overstated, then net income is ___________________________________.

If ending inventory is understated, then net income is ______________________________.
If beginning inventory is overstated, then net income is
_______________. If beginning inventory is understated, then net income is __________________.

Gross profit = _____________________________________

It evaluates the profitability of _________________________and does not consider the
_____________________________________________________________________________

Two ratios directly related to inventory are the gross profit percentage and the inventory turnover.
The gross profit percentage is an indicator of the company’s ability to sell inventory and is
calculated as____________________________________________________________________
______________________________________________________________________________.

The inventory turnover indicates how rapidly inventory is sold. The calculation
is:____________________________________________________________________________

The CICA uses the general term capital assets to encompass three groups of long-term assets:
1.__________________________________ 2._______________________________________
3.__________________________________________________

________________________ describes long-lived capital assets acquired for use in business

operations rather than for resale.

2
Two examples of tangible capital assets are:
1._____________________________________ 2.___________________________________

Two examples of intangible capital assets are:

1._____________________________________ 2.____________________________________

For all categories of plant assets, there are three basic events that must be captured in the company’s
records:
1._____________________________________ 2.____________________________________
3._____________________________________

The cost of plant assets includes all costs necessary to place the asset in use. Some examples
include:
______________________________________________________________________________

__________________ is a term used to allocate the cost of a plant asset to expense over the periods
it was used to generate revenue. This satisfies the ________________ principle.

Three methods used (including formulas) to estimate the allocation of this cost are:
1.____________________________________________________________________________
2.____________________________________________________________________________
3.____________________________________________________________________________

The adjusting journal entry to record this allocation is:

___________________________________________________________________________
___________________________________________________________________________

When a plant asset is disposed of, the journal entry(ies) to record this is:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Example:
The Centennial Company acquired a $40,000 machine on January 2, 2005. The machine is
estimated to have a useful life of 5 years, and a residual (salvage) value of $4,000. For units of
production purposes, the machine is expected to produce 500,000 units. In 2005, the company
produced 80,000 units.

Use the above information to calculate amortization expense for all 3 amortization methods.

3
An intangible asset whose life is determined to be finite should be ______________ over its useful
life. The journal entry is:
_____________________________________________________________________________
_____________________________________________________________________________

Mining properties, oil and gas reserves, and tracts of standing timber are examples of
________________________.

Liabilities are ________ and normally have a __________ balance. They can be classified as either
_________________ or __________________ on the balance sheet. Four examples of current
liabilities are
________________________________________________________________________________
________________________________________________________________________________

Current liabilities that must be estimated are called ______________________________________.

Contingent liabilities are a potential liability that depends on a
________________________ arising out of past events. A company can finance operations either
through issuing ____________________ or _______________________.

Two ratios used to determine how much credit risk the company is taking
are:_____________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

A corporation may be _____________ owned or ______________

owned. The shareholders’ equity in a corporation include two basic sources of
equity:__________________________________________________________________________
________________________________________________________________________________

When no par value shares are issued, the JE is:

________________________________________________________________________________
________________________________________________________________________________

A class of capital stock that has preferences to dividends and distribution of assets in the event of
liquidation is called:
________________________________________________________________________________

Other characteristics of this class of stock are:

________________________________________________________________________________
________________________________________________________________________________

4
If all or any part of the regular dividend on a cumulative preferred stock is omitted in a year, the
amount is said to be in _______________.
Eg.

Retained earnings includes:_______________________________________________________

_____________________________________________________________________________
_____________________________________________________________________________

When a cash dividend is declared, the JE is:

_____________________________________________________________________________
______________________________________________________________________________

A distribution of additional shares of capital stock is called a

__________________________________. The JE to record this
is:____________________________________________________________________________
______________________________________________________________________________

The value used as the amount in the JE is_____________________________________________

and is determined at the date of _____________________________________________________

A ______________________ is used by companies to reduce the market price of the common stock,
with the intent of making the stock more affordable to investors. The transaction may be recorded
by _________________________. It does not change
___________________________________________________.

Book value per share of common stock is computed by

______________________________________________________________________________
______________________________________________________________________________

When a company repurchases their own shares, the JE is:

______________________________________________________________________________
______________________________________________________________________________

The ratio that measures a company’s ability to generate profits from the use of its assets is:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

The ratio that measures income earned on shareholders’ investment is called

____________________________________________________________________________

5
95 cm
Hermes
Croc Leather
Gold Hammered…
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