Accounting: Chapter 6 Vocab

Three ingredients of Faithful Representation – Completeness
Neutrality
Free from error
Contra Account – deducted from the related asset account on balance sheet
Income purpose test – Must be an expense for the purpose of gaining
impressive – hatásos(megnyerÅ‘)
Other Long Term Assets – assets held for more than one year that do not fit into other asset categories; ie long term assets that are not currently being used and the cash value of life insurance policies
True or False:

The S.E.C designates that all coman – False. The IRS does.

Questions 26 and 27 are based on the following information. Since year 1, Luck Company has replaced all of its major manufacturing equipment and now has the following equipment recorded in the appropriate accounts. Luck uses a calendar year as its fiscal year. A forge purchased January 1, year 1 for $100,000. Installation costs were $20,000, and the forge has an estimated 5-year life with a salvage value of $10,000. A grinding machine costing $45,000 purchased January 1, year 2. The machine has an estimated 5-year life with a salvage value of $5,000. A lathe purchased January 1, year 4 for $60,000. The lathe has an estimated 5-year life with a salvage value of $7,000. Using the double-declining-balance method, Luck's year 4 depreciation expense is
Debt-to-Assets Ratio – total liabilities/total asset (at the end of the year)
Monetary Concept – Record transactions in terms of money
*general-purpose financial statements* – A type of financial accounting report that is distributed to external users. The term "general purpose" refers to the wide range of decision-making needs that the reports are designed to serve.
When cash is spent in the acquisition of an asset the net worth of a business is – Not affected
Dollar first. Action later. – Deferral
prepaid expenses – current asset
Questiоns 26 аnd 27 аre bаsed оn the fоllowing information. Since year 1, Luck Company has replaced all of its major manufacturing equipment and now has the following equipment recorded in the appropriate accounts. Luck uses a calendar year as its fiscal year. A forge purchased January 1, year 1 for $100,000. Installation costs were $20,000, and the forge has an estimated 5-year life with a salvage value of $10,000. A grinding machine costing $45,000 purchased January 1, year 2. The machine has an estimated 5-year life with a salvage value of $5,000. A lathe purchased January 1, year 4 for $60,000. The lathe has an estimated 5-year life with a salvage value of $7,000. Using the double-declining-balance method, Luck's year 4 depreciation expense is
An unfavorable variance indicates that:
a. actual costs are less than budgeted costs
b. actual revenues exceed budgeted revenues
c. the actual amount decreased operating income relative to the budgeted amount
d. All of these answers are correct. – c. the actual amount decreased operating income relative to the budgeted amount

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