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Hey everyone :)
This year, we will again be answering questions that might arise during the course. Especially in the last weeks, we will be ready to help you with exam questions on a daily basis. Furthermore, we just uploaded some slides, which we think will be useful for you to get a better overview of the most important accounts that you will be using in this course and included a brief explanation of them. Keep in mind that you did not encounter all of them yet.
Success with the start of the course and see you soon!
Your Success Formula Team
Ok guys, I went to her office to ask about the comments and I got some news:
The ICT people still have not granted her access to the comments tool yet because they are restoring it from the cyberattack. They said they will send her an Email when the comments tool is available for use again. Then she will be able to respond to the comments already made and to decide how the additional comments period looks like.
So just continue to look for comments on the exam and save them to hand them in when it’s possible again. :)
the complaints form is only meant to be used if you have questions about your personal exam sheet, not general questions.
write the comments for the general questions down and hand them in when the system is back online.
ABC Company reports an increase in Accounts Payable of €8,700 and an increase in inventory of €51,000 for the current year. Accounts Payable relates solely to the purchase of inventory. Sales on account were €529,000 and cost of goods sold was €374,000. The total purchases of inventory for the period are:
Why is B 425,000 correct?
In order to solve this question, we are looking for the total purchases of inventory over one period. If our total inventory increases by 51,000€ (cost value), it means that we increase the total inventory from one period to the following. So we know that if we now sell a product during the period we also have to buy new inventory. This lead to the calculation -> Increase in total inventory + Cost of goods sold during the year = total purchases of inventory for the period.
51,000 + 374,000 = 425,000
Hi! I thought the following
FiFO - costs of good sold will be lower and the inventory will be a higher value (first sell the products which have a lower price)
LiFO - costs of good sold will be higher and the inventory will be a lower value (first sell the products which have a higher price)
By decreasing costs, it is exactly the opposite!!
13. A tired accountant failed to record the adjusting entry to accrue the salary expenses on 31 December 2016. How does this error affect the financial statements?
A) The assets for the period will be understated
B) The net income for the period will be understated
C) The liabilities for the period will be understated
D) The net income for the period will not be affected
Why is C the correct answer?
15. To record estimated uncollectible accounts under the direct write-off method, you:
A) need to debit Allowance for Doubtful Accounts and credit Accounts Receivable
B) need to debit Accounts Receivable and credit Allowance for Doubtful Accounts
C) need to debit Bad Debt Expense and credit Allowance for Doubtful Accounts
D) do not need to recognize a journal entry
Why is D the correct answer?
@Anonymous Pile of Poo:
Yes D is the correct answer, as it asks for recording the estimated uncollectible accounts. --> as this does not exist under the direct write-off method, there is no journal entry required.
The journal entry I wrote is for writing off the account. This journal entry of course exists, but that is not what they ask for in the question. ;-)
45. On January 1 2016, ABC Company acquired equipment for €260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is €20,000. What is the balance in Accumulated Depreciation on December 31, 2016, if
ABC Company uses the double-declining-balance method of depreciation?
Why the answer is A?
ABC Company reports beginning equipment, net of depreciation, of €645,000 and an
ending amount of €732,500. The income statement shows depreciation of €48,300 and a
€5,600 loss on sale of equipment. ABC Company acquired €213,000 of equipment during the
year. The proceeds from the sale of equipment are: ...
Can someone help me with this question?
Beginning PPE + Acquisition cost – Depreciation – Book value assets sold = Ending PPE
$645,000 + $213,000 - $48,300 – Book value assets sold = $732,500
Book value asset sold = $77,200
Cash received = Book value assets sold – Loss on sale
Cash received = $77,200 - $5,600
Cash received = $71,600
a bit below, this question has already been answered: Unfortunately not, since the ones from two years ago are very different from ours due to a change in the textbook used.
3 months ago
Our course coordinator even advised us not to do the older exams to not get confused because some terms are used in different ways in the older exams, which would be wrong if we use them that way in this years exam
ABC Company reports beginning equipment, net of depreciation, of €645,000 and an ending amount of €732,500. The income statement shows depreciation of €48,300 and a €5,600 loss on sale of equipment. ABC Company acquired €213,000 of equipment during the year. The proceeds from the sale of equipment are:
What is the correct way to solve this problem? I would be very grateful since I do not get this at all!
In order to solve this questions it helps to identify the situation first. We want to know how the equipment account changed over the year and then calculate how much of the equipment we sold. For that we can use the BIDE approach:
B (Beginning balance) -> 645,000
I (Increase in the balance during the year) -> 213,000 (The amount that we bought)
D (Decrease in the balance during the year) -> [Here it is essential that you remember that our net of depreciation equipment account decreases when equipment depreciates] 48,300 + 5,600 (The equipment account decreases when we sell equipment, a loss means that we sold it for less than it was worth in the books) + ? (the proceeds from the sale)
E (Ending balance) -> 732,500
This leads to the calculation: 645,000 + 213,000 - 48,300 -5,600 - ? = 732,500
-> = 71,600 (A)
If you have any further questions feel free to ask :)
Looking at question 14: Here we would like to know the total liabilities. This means that we have to look at each transaction and see if it affects our liabilities. This is only the case for the first and last transaction. Summing up both of these liabilities leads to the total amount.
Hint: If they ask questions like this always look at each transaction and see what it does to the balance sheet equation.
For question 15: This question is similar to question 14. Here we want to know what happens to our revenue account (shareholder equity). Remember here that we only record revenue when we perform the service or sell the product (when we actually earn it) this followed the accrual accounting principle. Hence we see that we only accrue a revenue of 10,000 when we provide the services on account.
Important: It does not matter if we get paid instantly or later.
I hope I was able to help you. If you have any further questions please feel free to ask me :)
How do I calculate this?
"Apple bought a PPE for €5,500 which it seeks to depreciated using the straight-line depreciation method with a salvage value of €500 over 5 years. After two years of operations, Apple identifies that the asset can still be used for 5 more years. What is the depreciation expense in year 3?"
You first have to identify what the current book value is after two years of operations.
So, using the initial assumptions the yearly depreciation expense is (5,500 - 500)/5 = 1,000e/year:
That means at the end of year 2, my current BV is: 5,500 - 2 * 1000 = 3,500
So now they are saying that we can use the asset for 5 additional years, so we have to calculate the new depreciation expense:
(3,500 - 500)/5 = 600e/year
Hope that helps!
Your Success Formula Team
At Success Formula I learned to work with the formula B I D E. I wanted to answer the following exam question (first sit 2018/2019):
At the beginning of the year, Prepaid Insurance had a balance of €6,500. At the end of the year the balance in Prepaid Insurance was €7,900. Insurance Expense as reported on the income statement was €49,500. Cash payments for insurance during the year amounted to:
The Beginning and Ending Balance are obvious. I thought the Increase in account (I) will be the Insurance Expense and the Decrease (D) in account is what we want to know. I calculated it like this and my answer is therefore: €48,100 (answer C). The answer sheet gives answer B: so €50,900. Looking at the formula, they kind of saw the Insurance Expense as the Decrease in account, and the Increase in account the variable wanting to know. But this is wrong right? If it is right, could you explain for me?
Answer B is right because you paid 1,400 euros in advance - so the journal is then 1,400 cash (credit) and 1,400 prepaid insurance (balance). As you can see, this journal does not influence the insurance expense, but it pays insurance. Therefore, you have to add the 1,400 to the 49,500
good that you are using the BIDE formula - that is the right approach.
However, you mixed up the increase and the decrease.
The increase in this case is the cash payment, and not the insurance expense (that is the decrease of the account).
If you think about what increases the prepaid expense account, it is when I actually prepay something - you can see it like a prepaid phone: if I put more money on the phone, I increase the number of calls I can make.
What decreases my prepaid expense is if I actually use it - and that is captured by the expense.
You can also see it like this: a prepaid expense is an asset - all regular asset accounts increase with a debit. If you think about the entries you would do if you have the cash payment, it would be:
Dr. Prepaid Expense (A+)
Cr. Cash (A-)
And then if you would use the Prepaid expense for something:
Dr. Insurance Expense (SE-)
Cr. Prepaid Expense (A-)
So to summarize:
For the prepaid expense account,
--> the increase is the cash payment (as I prepay - this is the debit entry in the prepaid expense account, so increase)
--> the decrease is the actual using of the prepaid expense, so the expense
I hope that clarifies it :)
Your Success Formula Team - Lena