Accounting 100 Final Exam

What does the periodicity assumption state?

The economic life of a business can be divided into artificial time periods

An impairment occurs when

The fair value falls materially below the book value

Copyrights give the owner the exclusive right to reproduce and sell an artistic or publish work.

True

The carrying value of bonds is another term for

book value

Borrowed $1,000,000 via an interest-bearing note

financing

The main purpose of operating activities is to

generate revenue to increase profits.

________ is shown on a multiple-step but not on a single-step income statement.

gross profit

Analysis of an ethical case is done by

identifying all of the stakeholders and how alternatives impact each.

A bond is issued at a discount if the market interest rate is higher than the contractual interest rate

true

A bond is issued at a premium is the contractual interest rate is higher than the market interest rate.

true

A stock dividend increases the total par value (common stock)

true

A stock dividend increases total paid-in capital

true

Amounts received from issuing stock are not revenues

true

Tonelli Trucking buys a $65,000 truck on credit. Which financial statement will be affected by this transaction?

balance sheet only

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, the gross profit is

$90,000

Which accounts normally have debit balances?

Assets, dividends, and expenses

7. Which of the following are false regarding goodwill? I. It is typically the smallest intangible asset on the balance sheet II. It is a physical asset III. It occurs when there is an economic exchange for part of a business IV. Good customer relations is an example of an attribute that could be part of goodwill A. I, IV B. II, III C. I, II, III D. All of the above are false

C. I, II, III

Witte Hall Co incurs the following costs related to the purchase of the land for its new residence hall. Which of the costs would NOT be included in the cost of the land? A. Closing Costs B. Real Estate Broker Commission C. Parking Lot Costs D. Accrued Property Taxes

C. Parking Lot Costs

Which of the following statements about credits is true?

Credits decrease assets and increase liabilities.

All of the following are required steps in the accounting cycle except: A) journalizing and posting closing entries B) preparing an adjusted trial balance C) preparing a post-closing trial balance D) reversing entries

D) reversing entries

Which account will have a zero balance after closing entries have been journalized and posted? A) Prepaid Insurance B) Supplies C) Accumulated Depreciation D) Service Revenue

D) service revenue

Please explain why preferred stock dividends are subtracted from net income when calculating EPS.

EPS is meant to capture the return that a common stock shareholder would realize on a per share basis.

What does a current ratio of 1.20:1 mean?

For every dollar of current liabilities, a company has $1.20 of current assets

One difference between accounting in the United States and the European Union is that the U.S. follows ________, whereas the European Union follows

GAAP; IFRS

Ginni founded Waggstooth Manor Doggie Day Care and after a year in business, formed a partnership with her husband, Warren. Their friend, Phoebe, is a shareholder with Networth Bank. In terms of personal liability, who is at greater risk? Why?

Ginni and Warren, because both partners have unlimited personal liability, regardless of who owns a larger percentage of the company.

On September 1, Pike Products purchases $5,000 of supplies from Indigo Industries, with the understanding that Pike will provide payment within 60 days. When posting the journal entries related to this transaction, Pike's accounting staff debits Supplies for $5,000 and debits Cash for $5,000. Which of the following statements best describes the results of this posting?

In Pike's general ledger, the ending balance for the Supplies account will be correct. However, the ending balance for the Cash account will be too high, while the ending balance for the Accounts Payable account will be too low.

Investing activities

Include cash transactions that involve the purchase or disposal of investments and property, plant, and equipment and lending money and collecting the loans.

When a bond is issued at a premium...

Interest expense over the life of the bond will be lower than interest paid

Property, plant, and equipment of Barnes Corp includes office furniture, computer equipment, and buildings. Each asset has accumulated $2,000 in depreciation since purchase. How should Barnes reflect this on its classified balance sheet to provide the best disclosure?

It should itemize the assets at cost, and subtract from each the $2,000 depreciation per asset.

Miller Technology produces tablet computers. Currently, Miller has a high raw material inventory and a low finished goods inventory. Based on these inventory levels, which of the following assumptions can you make?

Miller is preparing to set up production

Explain the differences between accounts receivable and notes receivable? How do they differ in terms of the counter-party, the expected time to collection, and interest?

Notes Receivable are more formalized in the fact that they are a written promise to pay. Notes are usually outstanding for a longer period of time than Accounts Receivable. Notes Receivable always include a built-in interest rate.

Which of the following would cause the Potter Company's May 31st trial balance to not balance?

Only the credit portion of a journal was posted.

Which of the following is an example of an accrual? A) Record Rent Expense that was prepaid. B) Record Revenues that were received in cash in an earlier period. C) Record Wage Expense that is incurred and paid in the same period. D) Record Revenues that will be received in cash in a subsequent period.

Record Revenues that will be received in cash in a subsequent period.

Which accounts normally have credit balances?

Revenues, liabilities, and retained earnings

Discuss the roles of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), and the Public Company Accounting Oversight Board (PCAOB).

SEC= = oversees US markets and standard setting bodies FASB = primary standard setting body in the US IASB = the standard setting body that issues the IFRS standards PCAOB = determine auditing standards and review performance of auditing firms

If bonds are issued at a discount, how will the following change each period over the life of the bond using the effective interest method to amortize the discount: -Interest Paid -Interest Expense Recognized -Bond Carrying Value

Same; increase; increase

Bonds that have specific assets of the issuer pledge as collateral for the bonds

Secured Bonds

Which of the following is NOT a right of common stockholders -Share in assets upon liquidation before creditors -Preemptive right -Vote in the election of board of directors -Receive dividends

Share in assets upon liquidation before creditors

On January 14, Welsford Agency purchased supplies of $500 on account. The entry to record the purchase will include a debit to

Supplies and a credit to Accounts Payable.

If the credit terms on a sales invoice read "2/10, n/30", what does this mean?

The buyer should pay within the discount period and recognize a savings.

In late August, a company provided one of its customers with services worth $500; however, the company did not send the customer a bill for those services until early September. What journal entry should the company make in August to denote this delivery of services?

The company should debit Accounts Receivable for $500 and credit Service Revenue for $500.

What is the difference between the contractual interest rate and the market interest rate?

The contractual interest rate is used to determine the actual amount of cash interest the issuer pays and the investor receives, whereas the market interest rate is the general rate investors demand for loaning funds.

What is one difference between the current ratio and the times interest earned ratio?

The current ratio measures a company's ability to meet short-term obligations, and the times interest earned ratio measures a company's ability to meet long-term obligations.

Which of the following shipments was shipped FOB destination? A) The customer paid $11,390 for purchased goods with a $200 purchase discount and $120 for freight costs. B) The customer paid $32,540 for purchased goods and received a 3% purchase discount. C) The customer paid $41,720 for purchased goods and $365 for freight costs. D) The customer returned $2,800 in purchased goods with freight costs paid by the supplier. You selected D : The customer returned $2,800 in purchased goods with freight costs paid by the supplier. got it wrong the correct Answer is B : The customer paid $32,540 for purchased goods and received a 3% purchase discount.

The customer paid $32,540 for purchased goods and received a 3% purchase discount.

Which of the following describes the standard form of a journal entry?

The debit account is entered first at the extreme left margin.

Describe the differences between the direct write-off method and the allowance method for accounts receivable. Explain how the direct write-off method can be misleading. Also, what are the typical journal entries for each method?

The direct write-off method only adds a bad debt expense when the receivable actually becomes uncollectable. The allowance method estimates the amount of bad debt expense there will be based on all of the receivables a company has. The direct write-off method can be misleading because it only shows actual losses and does not provide an accurate estimation for users to see the actual amounts the company expects to receive.

When writing the title of an account, how is it formatted? Why?

The title is capitalized to indicate that it is a specific account name.

An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made

True

Wells Enterprises holds a debt that is due 20 months from now. Wells prepares a classified balance sheet and has an operating cycle of less than one year. How would classification of this debt be different if Wells used a two-year operating cycle?

With the shorter cycle it is classified as a long-term liability while with a two-year cycle it is classified as a current liability.

What is a note payable?

a written promissory note

What is a list of accounts and their balances at a given time called?

trial balance

Please state where the following expenses/losses show up on the multi-step income statement a. Advertising Expense b. Interest Expense c. Depreciation Expense d. R&D Expense e. Casualty Loss f. Income tax expense

a. Advertising Expense - Operating Expense b. Interest Expense - Other Expenses and Losses c. Depreciation Expense - Operating Expense d. R&D Expense - Operating Expense e. Casualty Loss - Other Expenses and Losses f. Income tax expense - Last line item before net income

1. What are the five components of internal control?

a. Control Environment b. Risk Assessment c. Control Activities d. Information and Communication e. Monitoring

Which of the following is an operating activity? a. Payment of cash to lenders for interest b. Receipt of cash for the sale of common stock c. Payment of cash dividends for the sale of common stock d. None of the above

a. Payment of cash to lenders for interest

Which of the following is NOT true about banks? a. They work with management to reconcile the company's accounts b. They are a significant internal control for the cash account c. The bank always provides the company with the company's bank statement d. The only way a company finds out about "not sufficient funds" is from the bank

a. They work with management to reconcile the company's accounts

When a company performs a service for which it has not been paid, it will create a(n)

account receivable

Accounting activities

always include identifying and reporting economic events.

Irregularities involve

an unethical misstatement.

Fly High Pilot Training Academy owns several planes used for instruction to new pilots. It follows accrual basis accounting. When it acquires a new plane it will record it as a(n)

asset and estimate its contribution to future operations on an annual basis.

Bufford Corporation had reported the following amounts at December 31, 2022: sales revenue $184,000, ending inventory $11,600, beginning inventory $17,200, purchases $60,400, purchase discounts $3,000, purchase returns and allowance $1,100, freight-in $600, and freight-out $900. Calculate the cost of goods available for sale. a. $69,400 b. $74,100 c. $56,900 d. $197,700

b. $74,100

Which example below is NOT a correct example of the control principle listed? a. Segregation of duties - Requiring separate people to record and have custody of cash b. Documentation procedures - Requiring a background check for new hires c. HR Controls - Forcing employees to take vacations d. Establishment of responsibility - individuals each have unique passwords e. Physical control - Safety deposit box for cash

b. Documentation procedures - Requiring a background check for new hires

Under the direct write-off method, the effect when a specific account is written off is: I. Net Income decreases II. Net Realizable Value decreases III. Cash decreases IV. Total assets decrease a. I b. I, II, IV c. I, IV d. I, II, III, IV

c. I, IV

When goods are purchased for resale by a company using a periodic inventory system: a. purchase returns are debited to Purchase Returns and allowances b. purchases on account are debited to inventory c. purchases on account are debited to Purchases d. freight costs are debited to Purchases

c. purchases on account are debited to Purchases

To record the sale of goods for cash in a perpetual inventory system: a. only one journal in necessary to record cost of goods sold and reduction of inventory b. only one journal entry is necessary to record the receipt of cash and the sales revenue c. two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory d. two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue

c. two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory

Which of the following would affect gross profit rate? (Assume sales remains constant) a.) An increase in advertising expense b.) A decrease in depreciation expense c.) An increase in cost of goods sold d.) A decrease in insurance expense

c.) An increase in cost of goods sold

Which enhancing qualities of useful financial information are similar in that they both require the use of the same accounting principles and methods?

comparability and consistency

Includes all changes in stockholders' equity during a period except those resulting from investments by stockholders and distributions to stockholders.

comprehensive income

Although the ________ refers to a company using the same accounting principles from period to period, companies may change their inventory cost flow methods.

consistency principle

Bonds that can be converted into common stock at the bondholder's option.

convertible bonds

A company receives $198, $13 of which is for sales tax. The journal entry to record the sale would include a

credit to Sales Tax Payable for $13

A company receives a discount for paying for merchandise purchased within the discount period. How will the amount of the discount be recorded in a perpetual inventory system?

credited to Inventory

From a liquidity standpoint, which is more desirable for a company to have?

current assets exceed current liabilities

Based on the key assumptions of financial reporting, which of the following should be excluded from financial reports?

customer satisfaction and complaint reports

Which of the following should be excluded from the financial statements because it would not follow the monetary unit assumption?

customer satisfaction reports

Which of the following is not an enhancing quality of useful information? a. Comparability b. Consistency c. Verifiability d. Accountability e. Timeliness f. Understandability

d. Accountability

Which of the following is NOT a basic principle of cash management? a. Increase speed of receivables collection b. Monitor payment of liabilities c. Plan timing of major expenditures d. Always invest idle cash in the company

d. Always invest idle cash in the company (cash on hand earns nothing, want to make a liquid and risk-free investment)

Assets, expenses, and dividends normally have a _________ balance

debit

Lloyd's Landscaping Service purchased $3,500 worth of landscaping supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $1,000 on hand. What adjusting entry should be made on June 30?

debit Supplies Expense $2,500; credit Supplies $2,500

Which of these would cause inventory turnover to increase the most? A) keeping the amount of inventory on hand constant but decreasing sales B) decreasing the amount of inventory on hand and increasing sales C) increasing the amount of inventory on hand D) keeping the amount of inventory on hand constant but increasing sales

decreasing the amount of inventory on hand and increasing sales

Outstanding checks

deduct from cash balance per bank

Bank service charge

deducted from cash balance per books

In 2022, Wagner Industries purchased a piece of equipment with an estimated useful life of 10 years. Each year, Wagner expenses 1/10 of the equipment's cost. This is an example of

depreciation

Economic Entity Assumption

economic entity can be separately identified and accounted for

The first step in transferring journal entry amounts to ledger accounts involves

entering in the appropriate ledger account the date and debit amount shown in the journal.

Which of the following is an example of a deferral? A) expensing a part of the cost of a building B) recording an expense in the same period in which it was paid C) expensing wages and salaries that will not be paid until the next period D) recording revenues that have been earned on account

expensing a part of the cost of a building

A Shareholder of Company ABC

external user

A bank interested in lending ABC money

external user

A customer interest in the company ABC's products

external user

A stock split decreases total retained earnings

false

A stock split increases total paid-in capital

false

Management is considering purchasing a $10,000 piece of equipment but is worried about their expenses for the year.

income statement

Debits:

increase assets and decrease liabilities

Adjustments for accrued liabilities:

increase liabilities and increase expenses.

If the trial balance has total debits equal to total credits, then

it is possible there are errors in the trial balance.

Periodicity Assumption

life of a business can be divided into artificial time periods

By computing the present value of the principal paid at maturity and all interest payments to be made over the term of the bond, you can obtain the ________ of bonds.

market price

When will the carrying value of bonds equal the market price?

on the date of issuance

When journalizing a transaction, a short explanation is written

on the line following each journal entry.

Monetary Unit Assumption

only items that can be expressed in money are included in the accounting records

Collected cash by selling goods to a customer

operating

Paid salaries of 100,000

operating

Rodgers, Inc. receives $3500 from a customer

operating activity

Which of the following errors on a firm's adjusted trial balance would cause errors in the firm's retained earnings statement but would not affect its income statement nor cause its balance sheet or its adjusted trial balance to be out of balance? A) overstatement of both the Unearned Service Revenue amount by $200 and the Dividends amount by $200 B) overstatement of the Unearned Service Revenue amount by $200 and understatement of the Dividends amount by $200 C) understatement of the Unearned Service Revenue amount by $200 and overstatement of the Dividends amount by $200 D) none of these errors would lead to the scenario described above.

overstatement of both the Unearned Service Revenue amount by $200 and the Dividends amount by $200

A ________ inventory system requires a physical count of goods on hand to compute the cost of goods sold.

periodic

The purpose of the post-closing trial balance is to:

prove the equality of the permanent account balances that are carried forward into the next accounting period.

Crawford Fishing had a net income of $35,640 in 2022. They decided to pay $3,000 in dividends and keep the rest to help expand their production line. The profit that they keep to reinvest in the business is reported as

retained earnings

Which of the following is a contra revenue account? A) Sales Discounts B) Inventory C) Sales Revenue D) Freight-out

sales discounts

Which of the following is NOT a contra revenue account? A) Sales Allowances B) Sales Returns C) Sales Discounts D) Sales Revenue

sales revenue

________ has a normal credit balance.

sales revenue

Gross profit will result if

sales revenues are greater than cost of goods sold.

Which of the following accounts from a firm's adjusted trial balance would need to be considered when compiling the firm's income statement? A)Accounts Receivable B)Service Revenue C)Accounts Payable D)Retained Earnings

service revenue

________ ratios measure the ability of a company to survive over a long period of time.

solvency

measure the ability of the company to survive over a long period of time

solvency ratio

Which of the following economic events is an accounting transaction?

the purchase of new computers

What does the freight term "FOB destination" mean?

the seller pays the freight costs

What is the primary purpose of the statement of cash flows?

to provide information about cash receipts and cash payments

Which of the following steps is NOT included in preparing a trial balance?

transferring journal amounts to ledger accounts

Determining the transaction price is the third step in the revenue recognition process

true

The contractual interest rate is the rate used to determine the amount of cash interest the borrower pays and the investor receives.

true

The face value is the amount of principal the issuing company must pay at the maturity date.

true

In April, Keller Associates carries out a two-week consulting project for Apex Industries. The total bill for the project is $25,000, and payment is due on May 31. Apex sends Keller a check for $25,000 on May 15. Keller deposits the check on May 18 and recognizes all revenue related to the Apex project as of that date. In this scenario, Keller has A

violated the revenue recognition principle because this principle requires that all revenue related to the Apex project be recognized in April.

A department store uses a perpetual inventory system. At year-end, the balance in the merchandise inventory account is $2 million. Assuming that the inventory records have been maintained properly, a year-end physical inventory

will probably indicate less than $2 million in merchandise on hand.

When recording the cost of land, companies should record more than just the land's purchase price. List some costs that should be included.

· Closing costs · Building removal - salvaged materials · Demolition costs · Attorney fees · Accrued taxes

What are the four phases of the product life cycle and what trends in cash flows are seen with each phase?

· Introductory and growth phases- negative investing and operating cash flows, and high financing cash flows · Maturity phase - cash flows from investing and operating become positive, financing cash flows begin to decrease · Decline phase - cash flows from operating begin to decrease, financing may become negative

White & Co., LLC, purchased a piece of equipment in the beginning of 2018 originally costing $120,000 with a salvage value of $15,000 and an expected useful life of 10 years. It was depreciated on the straight line basis. On January 1 2021, the company decided the remaining useful life of the equipment was 5 years. What is the new depreciation expense the company will record?

$14,700

On April 1st 2020, Heckman Co. sold a machine for $15,000 cash. The machine had been purchased on January 1, 2016 for $30,000, had a useful life of 8 years, was depreciated on a straight line basis, and had a $2,000 salvage value. What was the total amount of accumulated depreciation at the time of the sale?

$14,875

Sweet Shirley Company has $3,500,000 of bonds outstanding. The unamortized premium is $50,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

$15,400 gain

Frosty's, a new hair salon, purchased three merchandise inventory items: first purchase $115; second purchase $135; third purchase $120. Using FIFO costing, if the company sells two units for $400, what is the gross profit for the period?

$150

A corporation has 4,000 shares of 4% cumulative preferred stock with a par value of $50 issued and outstanding. The shares have a fair value of $120. The company has issued dividends for the last three years but do not issue any in the current period. If the company declares a dividend next year, how much in total will the preferred stockholders receive?

$16,000

At the beginning of January 2022, a company reported inventory of $4,000. During the month, the company made purchases at a total net cost of $17,800. On January 31, 2022, a physical count of inventory reported $4,200 on hand. Find the cost of goods sold for the month.

$17,600

The 12/31/2018 Allowance for Doubtful Account balance is a credit of $600. During the year, a customer accounts were written off for $650. The estimated uncollectible amount at 12/31/2019 is $1,800. What is bad debt expense for 2019? a. $1,800 b. $1,850 c. $2,450 d. $2,650

$1850

Keck Industries is planning to issue $7 million in bonds with a six-year maturity date and an annual rate of 5.4 percent. How much will they pay in interest over the life of the bonds?

$2,268,000

Sigma Motors has assets of $5,000,000, liabilities of $1,200,000, and retained earnings of $1,500,000. What is the amount for common stock?

$2,300,000

In 2022, Moreno Cheeses had a net income of $42,390, paid preferred dividends of $6,000, and had 18,000 shares of common stock outstanding. What was their earnings per share for 202

$2.02

In 2022, Rigby Construction had net income $32,000; net sales $200,000; and average share outstanding 12,000. There were no preferred dividends. What was the company's 2022 earnings per share?

$2.67

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.q

$215,000

Stellar Corporation produced and sold 5,200 digital recorders during 2022. It reported $250,000 cash provided by operating activities. In order to maintain production at 5,200 recorders, Stellar invested $15,300 in equipment. Stellar paid $1,100 in dividends. What is Stellar's free cash flow?

$233,600

Torres Travel's stockholders' equity at the beginning of March 2022 was $200,000. During the month, the company earned net income of $50,000 and paid dividends of $10,000. At the end of March 2022, what is the amount of stockholders' equity?

$240,000

Sheldon has the following year-end account balances: Accounts Receivable, $5,000; Supplies, $12,000; Equipment, $18,000; Accounts Payable, $17,000; Stockholders' Equity, $43,000. The Cash account balance was not available at year-end. Given the account balances listed, the balance in the Cash account should be

$25,000

Maggie Sharrer Company borrows $88,500 on September 1, 2022, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2022?

$3.540

Switzer, Inc. has 8 computers which have been part of the inventory for over two years. Each computer cost $600 and originally retailed for $900. At the statement date, each computer has a net realizable value of $400. What value should Switzer, Inc., report for the computers at the end of the year?

$3200

During the year, a company's inventory decreased by $20,000. If the company's cost of goods sold for the year was $400,000, find the amount for the cost of goods purchased.

$380,000

Brown & Co. issued 40 $1,000, 5-year bonds with a stated rate of 10% with interest due semiannually. What is the value of the bonds if the market rate is 8%?

$43,244.20

Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is

$4300

The Daily Grind sells coffee makers. Its inventory of coffee makers without timers cost $20,000 and has a net realizable value of $10,000. Its inventory of coffee makers with timers cost $35,000 and has a net realizable value of $35,000. What amount should be reported for Daily Grind's inventory?

$45,000

Pierson Industries has a beginning retained earnings balance of $42,500. An adjusted trial balance shows total expenses of $97,300 and revenue of $104,800. If dividends for the year were $3,500, determine the ending retained earnings balance for the year.

$46,500

At the beginning of the year, Tektron Company had total assets of $600,000 and total liabilities of $300,000. If the total assets increased $100,000 and the total liabilities decreased $70,000, what is the amount of stockholders' equity at the end of the year?

$470,000

A company reported $50,000 net cash provided by operating activities. It invested $1,000 in equipment and paid $1,000 in dividends. Its free cash flow was

$48000

QT Incorporated uses the accrual basis of accounting. QT purchases a piece of equipment on July 1 of the current year for $40,000. If the company expects to use the equipment consistently for four years, how much depreciation expense will QT record in its December 31 financial statements?

$5000

Last month a company had net sales revenues of $10,000; Cost of goods sold of $4,000; other operating expenses of $3,000; non-operating expenses of $1,000; no non-operating revenues, gains or losses; and income taxes of $500. The gross profit was

$6,000

Granite Monuments reported $69,000 net cash provided by its operating activities. It invested $2,000 in new equipment and paid $3,000 in dividends. What was Granite Monuments' free cash flow?

$64,000

An art gallery has two vases that have not sold for more than two years. Each vase cost $130 and originally retailed for $250. Each vase has a current net realizable value of $90. What will the art gallery report as a loss for the year?

$80

Paulson Oil account balances at January 31st include: Cash $70,000, Accounts Receivable $100,000, Common Stock $120,000 and Accounts Payable $50,000. During the month of February, the company collected $25,000 of its account receivable and paid $10,000 of its accounts payable. What is Paulson's cash balance on their February 28th trial balance?

$85,000

In the first year of operation, Joey's Catering Services recognized $105,000 in service revenue, $33,000 of which was on account and still outstanding at year-end. The company incurred operating expenses of $10,700. Of these expenses, $8500 were paid in cash; $2200 was still owed on account at year-end. In the beginning of the first year, the company prepaid $24,000 cash for the first 3 years in the company's building. In addition, the company prepaid $18,000 for two years of insurance coverage starting next year. Joey's Catering Service used the accrual method of accounting, What was the company's net income for Year 1?

$86,300

Kneiser Inc. had cash receipts for the month of March totaling $102,313.40. Kneiser Inc. is located in Tennessee where the sales tax rate is 7%. How much revenue did Kneiser Inc. recognize for its sales in March?

$95,620.00

Which of the following should not be included in the physical inventory of a company? (a) Goods held on consignment from another company. (b) Goods shipped on consignment to another company. (c) Goods in transit from another company shipped FOB shipping point. (d) All of the above should be included.

(a) Goods held on consignment from another company.

Which of the following is not a reason adjusting entries are necessary? (a) Some items may be unrecorded (b) Some events are not recorded daily due to efficiency (c) Some entries were recorded incorrect initially (d) Some costs expire with time rather than recurring daily transactions

(c) Some entries were recorded incorrect initially

In periods of rising prices, LIFO will produce: (a) higher net income than FIFO. (b) the same net income as FIFO. (c) lower net income than FIFO. (d) higher net income than average-cost.

(c) lower net income than FIFO.

What are the three components of the fraud triangle? List them and give a short description of each.

- Opportunity: The workplace environment must provide opportunities that an employee can exploit. - Financial Pressure: Personal financial issues, lead a lifestyle that they cannot afford. - Rationalization: Employees justify the fraud that they commit. For example, they may feel that they are underpaid

Ethics are the principles of conduct that are used to judge whether decisions are

-moral or immoral -right or wrong -honest or dishonest

Which of the following financial statements would be included in an annual report?

-retained earnings statement -statement of cash flows -income statement

Accounting cycle in order

1) analyse transactions 2) journalize the transactions 3) post to the ledger 4) create a trial balance 5) journalize and post adjusting entries 6)prepare an adjusted trial balance 7) prepare financial statements 8) journalize and post closing entries 9) prepare post-closing trial balance

Treasury Stock: Companies often buy back some of their stock from investors. These repurchased shares are called treasury stock. Why would a company buy back their own stock?

1. Employee stock compensation plans 2. Increase trading of the company's stock in the securities market. Buying treasury stock signals that management believes the stock is underpriced, which they hope will enhance its market value 3. Additional shares available for use in acquiring other companies 4. Reduce the number of shares outstanding, thus increasing EPS.

Explain the process that a company goes through to correctly implement the allowance method.

1. Estimate uncollectible accounts receivable you will have based on your outstanding receivables 2. Record estimated uncollectable accounts by increasing Bad Debt Expense and adding to your Allowance for Doubtful Accounts with an adjusting entry at the end of each period. 3. Remove amounts from your Allowance for Doubtful Accounts and credit your Accounts Receivable that will no longer be collected (write off as uncollectable, as they become uncollectable).

Give a few examples of when a company would issue a note. Why a note instead of just an account receivable?

1. When lending money, usually to another company who needs funds 2. In the settlement of an Accounts Receivable 3. When the transaction is such that it is out of your normal realm of business. The client may be riskier than normal or the amount larger than normal.

Justice Enterprises has current assets of $593 million and current liabilities of $316 million. What is their current ratio?

1.88:1

Corn Flake Corporation reported net income of $300,000. Interest expense was $40,000 and income taxes were $100,000. The times interest earned ratio was

11 times

The following information is available for Tye Company at December 31: Beginning inventory $80,000; Ending inventory $120,000; Cost of goods sold $1,200,000; and Sales revenue $1,600,000. Tye's inventory turnover is ________ times.

12

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. Carlos's days in inventory is ________ days.

121.7

A frozen yogurt business has current assets of $25,000 and current liabilities of $10,000. Its current ratio is

2.5:1.

Val-Tek has current assets of $1,700,000 and current liabilities of $900,000. If they pay $100,000 owed to a creditor, what will their new current ratio be?

2:1

If $400,000 bonds are issued on January 1 and pay $24,000 interest annually, what is the rate of interest?

6%

Which of the following accounting entries would you MOST expect to accompany a $9,000 decrease in cash, and why? -$9,000 increase in Unearned Service Revenue, because unearned service revenue is a liability and any decrease in a firm's assets should be offset by an equal increase in the firm's liabilities plus stockholders' equity. -A $9,000 increase in Common Stock, because common stock is part of stockholders' equity and any decrease in a firm's assets should be offset by an equal increase in the firm's liabilities plus stockholders' equity. -A $9,000 increase in Service Revenue, because service revenue is a liability and any decrease in a firm's assets should be offset by an equal increase in the firm's liabilities plus stockholders' equity. -A $9,000 increase in Equipment, because cash is an asset, so an equal but opposite change to another asset account such as Equipment will offset the increase to the Cash account.

A $9,000 increase in Equipment, because cash is an asset, so an equal but opposite change to another asset account such as Equipment will offset the increase to the Cash account.

Are there any strategic opportunities for companies when it comes to choosing a depreciation method?

A company can use different depreciation methods for tax and books. Accelerated depreciation methods help a company save on tax in the early years!

On December 1, 2019 Jackson Co. declared a 12% stock dividend on its 125,000 shares of $5 par value common stock. The fair value of the stock at the time was $20. The entry Jackson Co. made to correctly account for this dividend on the date of declaration included...

A credit to Paid in Capital in Excess of Par Value of $225,000

In which of the following scenarios would a Sales and Returns and Allowances account NOT be debited? A) A customer utilizes a prompt payment incentive. B) A customer returns goods that are not in accordance with specifications. C) A customer receives a credit for merchandise of inferior quality. D) A customer returns defective merchandise.

A customer utilizes a prompt payment incentive.

Packer Co. repurchases 3,000 shares of its own $0.50 par value common stock at its market value of $15 per share. The entry to correctly record this transaction using the cost method includes...

A debit to Treasury Stock for $45,000

Which of the following is a difference between the financial statements of a merchandising company and a service company? A) A service firm has an asset titled Supplies, but a merchandising firm does not. B) A merchandising firm has an asset titled Cost of Goods Sold, but a service firm does not. C) A merchandising firm has an expense titled Cost of Goods Sold, while a service firm does not. D) A merchandising firm uses a multiple step income statement while a service firm uses a single step income statement. You selected C : A merchandising firm has an expense titled Cost of Goods Sold, while a service firm does not. got it correct

A merchandising firm has an expense titled Cost of Goods Sold, while a service firm does not.

Which of the following is true of a partnership?

A partnership must have more than one owner

Which of the following statements are true? Select all that apply. A) An inventory count is generally more accurate when goods are not being sold or received during the counting. B) No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. C) Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. D) Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

A) An inventory count is generally more accurate when goods are not being sold or received during the counting. B) No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. C) Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.

On July 1, 2020, Grainger Co. purchased a truck for $97,000 with a fair value of $98,000. The expected useful life of this truck is 8 years with a salvage value of $5,000. What is the correct journal entry to account for the depreciation expense incurred in 2020 using the straight line method? A. Depreciation Expense 5,750 Accumulated Depreciation 5,750 B. Depreciation Expense 11,500 Accumulated Depreciation 11,500 C. Depreciation Expense 12,250 Accumulated Depreciation 12,250 D. Depreciation Expense 6,125 Accumulated Depreciation 6,125

A. Depreciation Expense 5,750 Accumulated Depreciation 5,750

Which of the following statements about accounting information is true?

Accounting communicates financial information about a business enterprise to both internal and external users.

Which of the following statements is true? -If the accounting information is neutral, it increases its materiality. -Neutral accounting information helps to compare methods of different companies. -If the accounting information is neutral, it enhances timeliness. -Accounting information should be neutral to enhance faithful representation

Accounting information should be neutral to enhance faithful representation.

Which of the following statements about accrual-basis accounting is true? A) Accrual-basis accounting is optional under generally accepted accounting principles. B) Accrual-basis accounting recognizes expenses when they are incurred. C) Accrual-basis accounting recognizes revenues when they are received in cash. D) Accrual-basis accounting follows the fiscal year assumption.

Accrual-basis accounting recognizes expenses when they are incurred.

Anders Industries currently holds two debts: an $11,000 debt due in 12 months and a $16,000 debt due in 18 months. Anders prepares a classified balance sheet using an 18-month operating cycle. How should these debts be classified?

All $27,000 in debt should be classified as current liabilities.

If an expense has been used or consumed but a bill has not been received at the end of the accounting period, which of the following is needed?

An adjusting entry should be made recognizing the expense.

Which of the following costs is capitalized to the Patent account? -Sales and marketing expenses to promote the new Patent -Unsuccessful litigation costs to defend the Patent -Application fee to obtain Patent -Research & development costs incurred to develop the Patent

Application fee paid to obtain Patent

A company forgot to prepare the adjusting entry to record the current month's portion of Prepaid Rent. What is the resulting impact on the financial statements?

Assets will be overstated and net income will be overstated.

On April 1st 2020, Heckman Co. sold a machine for $15,000 cash. The machine had been purchased on January 1, 2016 for $30,000, had a useful life of 8 years, was depreciated on a straight line basis, and had a $2,000 salvage value. What was the total amount of accumulated depreciation at the time of the sale? A. $14,000 B. $14,875 C. $17,500 D. $28,000

B. $14,875

Bascom Inc. purchased a machine on January 1, 2019 for $40,000. In addition, Bascom paid $7,000 for transportation costs and $3,000 for installation fees. The machine has a useful life of 7 years, an estimated 100,000 hours of use, and a salvage value of $2,000. What is the depreciation expense for 2019 using the Units of Activity Method. The following is the actual annual usage of the machine: 2018: 30,000 hours 2019: 45,000 hours 2020: 25,000 hours The entry to record depreciation in 2019 using the Units of Activity Method will include a: A. Debit to Accumulated Depreciation for $21,600 B. Debit to Depreciation Expense for $21,600 C. Credit to Accumulated Depreciation for $36,000 D. Credit to Depreciation Expense for $36,000

B. Debit to Depreciation Expense for $21,600

Which of the following is true about the Double Declining Balance Method of Depreciation? I. Results in higher amounts of depreciation in the earlier years of the assets life II. Requires the subtraction of salvage value from the cost of the asset in order to calculate the yearly depreciation III. Results in the same amount of accumulated depreciation as Straight-line depreciation at the end of the assets useful life IV. Results in the same amount of yearly depreciation A. I only B. I, III C. I, II, IV D. I, II, III, IV

B. I, III

The Return on Assets ratio tells us: A. How efficiently a company uses its assets to generate sales B. The amount of income generated by each dollar of assets C. How much net income each dollar of sales provides D. None of the above

B. The amount of income generated by each dollar of assets

Goldman Sachs is looking to purchase additional ownership in Facebook when it goes public, with the intent of owning the shares for many years.

Balance sheet

Bonds that the issuing company can retire at a stated dollar amount prior to maturity.

Callable bonds

How will Nantucket Law Firm record the following transaction on July 8th? Paid $320 for supplies that had been purchased on June 12th. The correct account name that should be entered in the second row of the journal entry form in order to correctly record this transaction is

Cash

On June 16th, Sanderson, Inc. declared and paid a cash dividend in the amount of $5,000. Which account name should be entered in the second row of the journal entry form shown here?

Cash

On July 1, Cooper Corporation received $20,000 from Smith Industries in exchange for services performed. What accounting entries should Cooper make to record this event, and why?

Cooper should record a $20,000 increase in revenue along with a $20,000 increase in cash, because this way the firm's retained earnings will increase by the same amount as its assets.

White & Co., LLC, purchased a piece of equipment in the beginning of 2018 originally costing $120,000 with a salvage value of $15,000 and an expected useful life of 10 years. It was depreciated on the straight line basis. On January 1 2021, the company decided the remaining useful life of the equipment was 5 years. What is the new depreciation expense the company will record? A. $10,500 B. $16,800 C. $17,700 D. $14,700

D. $14,700

Which of the following costs is capitalized to the Patent account? A. Research & development costs incurred to develop the Patent B. Unsuccessful litigation costs to defend the Patent C. Sales and marketing expenses to promote the new Patent D. Application fee paid to obtain Patent

D. Application fee paid to obtain Patent

An impairment occurs when A. The book value falls materially below the fair value B. The book value is equal to the fair value C. A temporary decline in fair value occurs D. The fair value falls materially below the book value

D. The fair value falls materially below the book value

On November 1, 2022, Cherry Industries, which uses a calendar year as its fiscal year, signs a $12,000, 7%, six-month note payable. Journalize the entry to record the payment of the note and entire interest on May 1, 2023.

Debit Notes Payable $12,000 Debit Interest Expense $280 Debit Interest Payable $140 Credit Cash $12,420

On July 1, the Fisher Shoe Store paid $18,000 to Acme Realty for 6 months' rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, which of the following is an adjusting entry that should be made by the company?

Debit Rent Expense $3,000; credit Prepaid Rent $3,000

Bascom Inc. purchased a machine on January 1, 2019 for $40,000. In addition, Bascom paid $7,000 for transportation costs and $3,000 for installation fees. The machine has a useful life of 7 years, an estimated 100,000 hours of use, and a salvage value of $2,000. What is the depreciation expense for 2019 using the Units of Activity Method. The following is the actual annual usage of the machine: 2018: 30,000 hours 2019: 45,000 hours 2020: 25,000 hours The entry to record depreciation in 2019 using the Units of Activity Method will include a:

Debit to Depreciation Expense for $21,600

What is free cash flow?

Describes the cash remaining from operations after adjustment for capital expenditures and dividends

Describe the primary irregular item that can alter net income numbers, and may cause net income to deviate from sustainable income.

Discontinued Operations: the disposal of a significant component of a business

Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:

Dr. Depreciation Expense 1,000 Cr. Accumulated Depreciation - Equipment 1,000

On July 1, 2020, Grainger Co. purchased a truck for $97,000 with a fair value of $98,000. The expected useful life of this truck is 8 years with a salvage value of $5,000. What is the correct journal entry to account for the depreciation expense incurred in 2020 using the straight line method?

Dr. Depreciation Expense 5,750 and Cr. Accumulated Depreciation 5,750

Monica Geller earned a salary of $2,800 for the last week of December. She will be paid on January 3rd of the following year. The ajusting entry for Monica's employer on December 31sr is:

Dr. Salaries and Wages Expense $28000 CR. Salaries and Wages payable $2800

A Trademark is amortized over a period of 20 years or its useful life, whichever is shorter

False

Assets-Liabilities does not always have to equal equity

False

Companies amortize the cost of a patent over a 10-year life or its useful life, whichever is longer.

False

Copyrights last for the life of the creator plus 80 years.

False

The cash-basis of accounting does not mislead investors in regards to financial performance

False

On January 1, 2019, Heckman Corp issued $500,000 of 10%, 10-year bonds with interest payable annually (due on 1/1) to Lettenberger Inc. The market interest rate was 9% on January 1, 2019, when the bonds were issued. Heckman uses the effective interest method to amortize any discounts or premiums resulting from a bond issuance. Heckman Corp issues financial statements at year end on 12/31. On December 31, 2019, after a year of amortization has been recorded, the carrying value of the bond is $529,976. On January 1, 2021, Heckman redeems the bond for 95. The gain or loss on the redemption of the bonds is...? (Round all calculations to a whole number).

Gain of 52,674

Explain where each of these items would appear on a multiple-step income statement: (ie: operating expense or revenues) Gain on disposal of plant assets Cost of goods sold Depreciation expense Sales returns and allowances

Gain on disposal of plant assets- other revenues and gains Cost of goods sold- cost of goods sold (directly after revenues) Depreciation expense- operating Expenses Sales returns and allowances-revenue section (contra revenue)

Trubisky Co. owns a quarterback academy that he operates. Lately, many of the quarterback prospects have been attending Rodgers Co. quarterback academy instead of his. Trubisky doesn't think he has enough prospects to continue operations over the next year. Which assumption is violated in this scenario?

Going Concern Assumption

All of the following can be advantages of the corporate structure, EXCEPT: -Government Regulations -Ability to acquire capital -Limited Liability of Owners -Continuous Life

Government Regulations

Hanson Technology is a computer manufacturer. For years, Hanson has relied on the JIT inventory method. However, due to numerous recent stockouts by Hanson's suppliers, Hanson's management has decided to transition to the traditional inventory method. How will Hanson's inventory levels change as a result of this switch?

Hanson's levels of finished goods, work in process, and raw materials will all increase.

David just finished compiling his firm's retained earnings statement for the month ended May 31. What should he do with the figure he calculates at the bottom of this statement?

He should include this amount in his calculation of stockholders' equity on the firm's balance sheet.

Courtney Murray, the CEO of Oreos Corp, is required to take a monthly vacation every fiscal year. Which control activity is this, and explain how this can help a company detect fraud.

Human Resource Control - The company can now rotate someone in to check Courtney's work and to make sure that fraud has not been committed.

Frieler Inc. decides to issue bonds to raise capital. Frieler Inc. is an established business and the bondholder purchased the bond due to the company's high credit rating. However, to make the bonds more enticing Frieler Inc. decides to allow bondholders to convert them to common stock if they wish. What type of bonds are these? I. Unsecured bonds II. Secured bonds III. Convertible bonds IV. Callable bonds

I and III

Which of the following items are added to accrual basis net income when using the indirect method of preparing a statement of cash flows to find net cash provided/used by operating activities? I. Amortization Expense II. Gain on Disposal of Plant Assets III. Increases in Inventory IV. Increase in Accounts Receivable V. Cash Dividends

I only

Which of the following are false regarding goodwill? I. It is typically the smallest intangible asset on the balance sheet II. It is a physical asset III. It occurs when there is an economic exchange for part of a business IV. Good customer relations is an example of an attribute that could be part of goodwill

I, II, III

In order to prepare a statement of cash flows using the indirect method, which sources of information do you need? I. Comparative Balance Sheets II. Comparative Income Statement III. Transaction data to determine how cash was provided or used during the period IV. Previous Years Statement of Cash Flows

I, III

Which of the following is true about the Double Declining Balance Method of Depreciation? I. Results in higher amounts of depreciation in the earlier years of the assets life II. Requires the subtraction of salvage value from the cost of the asset in order to calculate the yearly depreciation III. Results in the same amount of accumulated depreciation as straight-line depreciation at the end of the assets useful life IV. Results in the same amount of yearly depreciation

I, III

When an employer records an accrual entry for their portion of payroll taxes: I. Net income will decrease II. Total assets will decrease III. Debt to Asset Ratio will increase IV. Cash will remain the same

I, III, IV

Presti Corp has 300,000 shares of common stock issued and outstanding with a par value of $9. On October 1, 2019, the corporation issues a 3-1 stock split. Which of the following statements are true? I. 100,000 shares will now be issued and outstanding II. The par value of the stock will drop to $3 III. The total par value of the issued common stock will increase IV. Total stockholders equity will be unaffected

II, IV

Which of the following are true? I. Bonds redeemed at a value greater than the book value will have no effect on netincome II. Convertible bonds are bonds that can be converted into cash at any time before the maturity date III. Bond premiums are added to the book value of bonds payable on the BalanceSheet IV. Amortization of a bond discount decreases net income

III & IV only

Which of the following are classified as financing cash flow activities? I. Receiving dividends II. Selling equipment III. Issuing a bond IV. Paying dividends

III, IV

Which accounts are closed as part of the period-end financial reporting process? I. retained earnings II. unearned sales revenue III. dividends IV. interest expense V. sales revenue

III, IV, V

Martin Industries owns a parcel of land adjacent to its factory. In approximately 18 months, Martin intends to build a parking lot on this parcel. Martin prepares a classified balance sheet and has an operating cycle of less than one year. How would classification of this parcel be different if Martin had a two-year operating cycle?

In the first case, it is classified as a long-term investment, while with a two-year cycle it is classified as property, plant, and equipment.

Operating activities

Includes cash effects of transactions that create revenue and expenses. They thus enter into the determination of net income.

Financing activities

Includes obtaining cash from the issuance of debt and repayment of the amounts borrowed and obtaining cash from stockholders repurchasing shares and paying dividends

During 2012, Timberland Inc. assets decreased $50,000 and its liabilities decreased $90,000. Therefore, it's stockholders' equity:

Increased $40,000

Based on the net income of the shop, the sales staff at Francesca's Fashions receive performance bonuses. In periods of declining prices, which inventory costing method would bring the sales staff the most benefit?

LIFO

Bonuses based on the net income of the company are a part of the benefit package at McElroy's Tackle Hut. In periods of declining prices, which of the following would bring the sales staff the most benefit?

LIFO costing method

Witte Hall Co incurs the following costs related to the purchase of the land for its new residence hall. Which of the costs would NOT be included in the cost of the land? -Accrued Property Taxes -Parking Lot Costs -Closing Costs -Real Estate Broker Commission

Parking Lot Costs

Two or more individuals joining together to combine economic resources and skill sets.

Partnership

Capital Café at Grainger Hall uses internal controls. For example, at the end of the night, all cashiers must drop their cash bag in a safe. This control activity is an example of:

Physical Controls

Preferred Stock: Explain how preferred stock is different from common stock.

Preferred stock has contractual provisions that give it preference or priority over common stock in certain areas. Typically, preferred stockholders have a priority in relation to dividends and assets in the event of liquidation. Sometimes they do not have voting rights.

Indicates the level of full and transparent information provided to users of the financial statements.

Quality of Earnings

Individually owned, easy to set up, but the owner has personal liability

Sole Proprietorship

The CEO of Apple is considering handing out the company's first dividend and wants to know if they have enough cash on hand to do so.

Statement of cash flows

In 2021, Garret Market remained fully open while conducting inventory, but in 2022 Garrett closed during inventory. In 2023, Garrett remained open but sold only a small selection of items during inventory. Based on this information, in which years did Garrett have the most and least accurate inventories?

The 2022 inventory was the most accurate, while the 2021 inventory was the least accurate.

Can the Allowance for Doubtful Accounts Account ever have a debit balance? Explain why or why not.

The Allowance account can have a debit balance. This happens when you do not estimate enough uncollectable accounts and you end up writing off more than what you estimated. This happens by debiting the Allowance account for more than you had in its credit balance and thus the account is left with a debit balance. You will later need to overcompensate for this debit balance by crediting an extra amount, and recording a larger bad debt expense for the previous

The Return on Assets ratio tells us:

The amount of income generated by each dollar of assets

Jimenez Transportation purchased five new transportation vehicles in 2021. They plan to pay these vehicles off in even installments over the next 8 years. On the 2022 year-end financial statements, how would the amount Jimenez plans to pay off in 2023 differ from the amount they plan to pay off in 2024?

The amount they plan to pay off in 2023 would be classified as a current liability, and the amount they plan to pay off in 2024 would be classified as a long-term liability.

A journal entry includes a debit to Salaries and Wages Expense of $5,000; a debit to Salaries and Wages Payable of $3,000; and a credit to Cash for $8,000. Which explains this entry?

The entry reflects $5,000 payment of wages and salaries for the current period and $3,000 for wages and salaries accrued previously.

Which quality of an asset makes it more appropriate for the fair value principle rather than the historical cost principle?

The market price of the asset is readily available and reliable

All else equal, if interest is payable semi-annually compared to annually...

The present value of the lump sum will be less and the present value of the interest payments will be greater

Adaptive Practice Ch 3: The Accounting Information System Question Number Q 3.34: As of June 30, Martinez Manufacturing has the following account balances: Cash $830 Notes Payable $540 Accounts Receivable $280 Equipment $190 Service Revenue $330 Unearned Service Revenue $230 When creating a trial balance, Martinez's accounting staff accidentally enters a Cash balance of $803 and an Unearned Service Revenue balance of $203. What effect will this error have on the firm's trial balance?

The total debit balance and total credit balance will be equal, but both values will be $27 too low.

During the month of June, Arlen Inc. incurred $2,500 in expenses. What effect will these expenses have on the firm's accounts for the month if the expenses were paid with cash?

These expenses will necessitate that Arlen record a $2,500 debit to an expense account and an offsetting $2,500 credit to an asset account.

Which of the following is true about unearned revenues? A) They are earned but not yet received or recorded. B) They are received and recorded as liabilities before they are earned. C) They are earned and already received and recorded. D) They are earned and recorded as liabilities before they are received.

They are received and recorded as liabilities before they are earned.

After preparing its financial statements for February, Gordon Industries realizes that its income statement shows total revenues that are $500 too low and total expenses that are $500 too high. What, if any, effect will this discovery have on Gordon's retained earnings statement for the month?

This discovery means that Gordon's actual retained earnings as of February 28 will be $1,000 greater than the amount shown on the firm's retained earnings statement.

Which of the following is true in journalizing? -Titles of accounts must appropriately describe the content of the account. -The date of the transaction is not shown in a complete journal entry. -The credit account is entered first and indented. -The journal entry shows the new balance in the accounts affected by the transaction.

Titles of accounts must appropriately describe the content of the account.

The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

True

Trademark or trade-name is a word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product.

True

Of the companies described below, which would be said to have the highest quality of earnings for the past several years? A) Two years ago, Orange Corporation recorded a non-recurring gain of $12 million related to the sale of a subsidiary. Since that time, the company's financial statements have shown small but steady yearly earnings growth. B) Two years ago, Blue Corporation recorded a large increase in fourth-quarter revenues due to an aggressive end-of-the-year sales effort. In the first quarter of the following year, the company saw a $20 million drop in income due to an exceptionally high amount of merchandise returns. C) Three years ago, Brown Corporation recorded a one-time gain of $25 million from the sale of stock that it held as an investment. In the year immediately before the stock sale, the company's financial statements showed a $6 million drop in earnings, and in the three years since the stock sale, its financial statements have varied widely from year to year. D) Three years ago, Green Corporation recorded large spikes in quarterly revenues in relation to multi-year contract sales. The following year, Green was forced to revise these numbers because regulators determined the company was not properly spreading revenue from these sales throughout the applicable contract periods.

Two years ago, Orange Corporation recorded a non-recurring gain of $12 million related to the sale of a subsidiary. Since that time, the company's financial statements have shown small but steady yearly earnings growth.

Chandler Bind, a lawyer, recently received a cash payment to represent his client in court. The trial does not take place until next year. What type of adjusting entry is caused by this situation?

Unearned revenue

Bonds that are issued against the general credit of the borrower.

Unsecured Bonds

Discuss why financial statements need to be useful, and explain how relevance and faithful representation play a part in providing useful information.

Useful financial statements help investors and creditors make decisions, which drives the financial community and in turn the overall economy. Relevant information has predictive value and makes a difference in business decisions Faithfully represented information accurately depicts what actually happened in that time period, therefore it is complete and neutral information

Expresses each item within a financial statement as a percentage of a base amount

Vertical Analysis

Weston Industries and Riley Enterprises are manufacturing companies. Currently, Weston has a high raw materials inventory and a low finished goods inventory. Riley has a low raw materials inventory and a high finished goods inventory. Based on these inventory levels, which of the following assumptions can you make?

Weston is preparing to increase production, while Riley is preparing to decrease production.

After conducting a financial transaction, a company's accounting staff records a $1,000 decrease in a particular asset. In order for the accounting equation to balance, the accounting staff could also record which of the following things?

a $1,000 increase in a different asset

Four companies were sued by customers for injuries sustained from faulty products. All four companies settled out of court for $400,000. For which of the following companies is this event the LEAST material?

a company with assets totaling $36 billion

An owner who wants to have limited liability should form which type of business enterprise?

a corporation

Meadows Manufacturing follows the accrual basis. An accrual results when ____________ and a deferral results when

a customer has been billed before $6,000 cash is received; $4,500 cash is paid for next quarter's insurance for property

When a company borrows money from a bank on a long-term basis, this action is called

a financing activity.

Mason Corporation purchased a piece of land 5 years ago when the price of land was low. It plans to develop the land into a new facility when their current facility reaches its production limit, which it estimates will be in 4 years. On their classified balance sheet, Mason Corporation would classify this land as

a long-term investment.

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic inventory system? a) $390,000 b) $370,000 c) $330,000 d) $420,000

a) $390,000 (60,000 + 380,000 - 50,000)

List the six principles of control activities and give examples of each:

a. Establishment of Responsibility: Control is most effective when only one person is responsible for a given task. (assigning a cashier to a register) b. Segregation of Duties: The work of one employee should. Without a duplication of effort, provide a reliable basis for evaluation the work of another employee. (The person who maintains and reconciles the accounting records should not be able to obtain custody of checks). c. Documentation Procedures: Pre-numbered documents and all documents should be accounted for. (numbered checks). d. Physical Controls: Safeguarding of assets. (safe, locks, and cameras) e. Independent Internal Verification: Internal review of data prepared by employees. (internal auditor) f. Human Resource Controls: Bond employees who handle cash, rotate employees, background checks. (send and employee on vacation to check his or her work)

The control features of a bank do NOT include: a. Having bank auditors verify the correctness of the bank balance per books b. Minimizing the amount of cash that must be kept on hand c. Providing a double record of all bank transactions d. Safeguarding cash by using a bank as a depository

a. Having bank auditors verify the correctness of the bank balance per books

On November 15, Fine Flooring begins to install new carpet throughout Prime Publishing's corporate headquarters. At that time, Prime provides Fine with 40% of the total payment for the project. Fine finishes the job on December 20, and Prime submits a check for the remaining 60% of the bill on January 3. In this situation, both

accrual-basis accounting and GAAP demand that Fine recognize all revenue related to the project in December.

Lorna just finished compiling her company's income statement for the month ended March 31. Her next step in preparing the company's financial statements should be to

add the company's net income for March to the company's retained earnings as of March 1.

deposit in transit

added to cash balance per bank

Collection of note by bank

added to cash balance per books

Which of the following explains the process of depreciation? A) valuing an asset at its fair value B) writing down an asset to its fair value each accounting period C) allocating the cost of an asset to expense over its useful life in a rational and systematic manner D) increasing the value of an asset over its useful life to reflect its book value

allocating the cost of an asset to expense over its useful life in a rational and systematic manner

The first step in the recording process is to

analyze the transaction

Which of the following activities is most important for determining the nature of a transaction's effects on specific accounts? A) analyzing financial documents B) analyzing a ledger posting C) analyzing source documents D) analyzing a journal entry

analyzing source documnets

Closing entries and a post-closing trial balance are steps in the accounting cycle that occur

annually

What is the usual order of accounts in the general ledger?

assets, liabilities, revenues, and expenses

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23? a) $700 b) $686 c) $685 d) $650

b) $686 ((750-50) * .98)

What are the two main purposes of reconciling the bank account? a. Checking for errors and NSF checks b. Checking for errors and recognizing time lags c. Recognizing time lags and checking for outstanding checks d. Checking for NSF checks and outstanding checks

b. Checking for errors and recognizing time lags

When an account is written off as uncollectible under the allowance method: I. Net realizable value decrease II. The allowance for doubtful account decreases III. Only balance sheet accounts are affected IV. Bad debt expense increases a. I, II, III b. II, III c. I, II, IV d. I, IV c. I, II, IV d. I, IV

b. II, III

Which financial statement summarizes the financial position of a company?

balance sheet

Free cash flow describes the net cash provided by operating activities after adjusting for

both capital expenditure and dividends paid

Going Concern Assumption

business will remain in operation for the foreseeable future

How is the quality of earnings ratio computed?

by dividing net cash provided by operating activities by net income

How is the profit margin computed?

by dividing net income by net sales

How is the gross profit rate computed?

by dividing the amount of gross profit by net sales

Which of the following items does NOT result in an adjustment in the Inventory account under a perpetual inventory system? a) A purchase of merchandise b) A return of merchandise to the supplier c) Payment of freight costs for goods shipped to a customer d) Payment of freight costs for goods received from a supplier

c) Payment of freight costs for goods shipped to a customer

5. Which of the following is FALSE regarding the allowance for doubtful accounts? I. The normal balance is a credit II. It is used in the direct write-off method III. It is not closed at the end of the year IV. This account increases total assets a. II only b. I, II, IV c. II, IV d. I, II, III

c. II, IV

1) Regarding the handling of cash, which of the following is NOT true? a. The clerk rings up sales and sends cash to the cashier b. The supervisor checks the register and sends cash register tape to accounting department c. The cashier sends the cash to the accounting department d. The accounting department reconciles the register tape and the deposit slip

c. The cashier sends the cash to the accounting department (need to separate physical custody from record keeping!)

If a company wants to reserve the right to purchase their issued bonds back from the bondholder, they should issue ________ bonds.

callable

In their financial statements, Gordon Electronics groups all their current assets together, all their property, plant, and equipment together, all their current liabilities together, all their long-term liabilities together, and all their stockholders' equity together. This is an example of a

classified balance sheet

Tend to be large in size, ownership is easy to transfer, easy to raise capital, and owners have no personal liability

corporation

According to the historical cost principle, if an asset costs $50,000 when it was purchased, it would be reported at its ________ over the time the asset is held.

cost

In 2022, Spencer Realty considered conducting a survey of every home to determine which homes may be put on the market within the next year. This information would be included in their financial statements as a predictor of potential future revenue. The cost of the survey would be $2.6 million, and the results would not differentiate potential business for Spencer Realty compared to other realtor companies. If Spencer Realty decided to not conduct the survey, that decision is likely based on which concept?

cost constraint

If a company purchases plastic that they will melt and form into milk jugs that they will then sell to milk plants, the cost of the plastic will be categorized as what type of expense?

cost of good sold

Which of these would cause inventory turnover to increase the most? a. Increasing the amount of inventory on hand b. Keeping the amount of inventory on hand constant but increasing sales c. Keeping the amount of inventory on hand constant but decreasing sales d. Decreasing the amount of inventory on hand and increasing sales

d. Decreasing the amount of inventory on hand and increasing sales

Bent Corporation issues 500, 10-year, 6%, $4,000 bonds dated January 1, 2022, at 96. The journal entry to record the issuance will show a

debit to Cash for $1,920,000.

Jordan Corporation issues 100, 5-year, 8%, $2,000 bonds dated January 1, 2022, at 96. The journal entry to record the issuance will show a

debit to Cash for $192,000

A retailer acquires merchandise for resale. How would this be recorded in a perpetual inventory system?

debited to the Inventory account

A business ________ Accounts Receivable (asset account) and _________ Service Revenue (shareholder account) when it has performed a service but has not yet received payment

debits; credits

Companies can borrow money if they need a source of outside funds. Borrowing money is called

debt financing.

To keep the accounting equation in balance, an increase in an asset may be coupled with a(n)

decrease in another asset

Adjustments for unearned revenues:

decrease liabilities and increase revenues

The payment of a liability for supplies previously purchased

decreases both cash and accounts payable.

Amounts paid out as dividends are expenses

false

Companies following GAAP should record expenses at the time they pay out the cash

false

Periodicity assumption assumes that company will continue for many future periods

false

The adjusted trial balance does not list temporary accounts.

false

The adjusted trial balance provides the primary basis for the preparation of only the balance sheet.

false

The contractual interest rate is the rate investors demand for loaning funds.

false

The market value of a bond is equal to its maturity value.

false

Issued shares of equity for cash

financing

Adams Corp issues dividends of $3000 to its shareholders

financing activity

A company that is concerned with identifying circumstances or events that have materiality and including the relevant information in their financial documents will be successful at complying with which principle in financial reporting?

full disclosure principle

Which principle would a company be violating if it withheld information that would make a difference to users of financial statements?

full disclosure principle

A $800,000 bond was retired at 98 when the carrying value of the bond was $824,000. The entry to record the retirement would include a

gain on bond redemption of $40,000.

What is the entire group of accounts maintained by a company called?

general ledger

How must each transaction be recorded in the double-entry system?

in at least two different accounts

Meyer Media produced several screenplays that they turned into movies. Each screenplay they use has a copyright. In which section of the financial statements should they report these copyrights?

in the intangible assets section of the balance sheet

Hiller Company uses the FIFO method of inventory costing because it wants to maintain a high current ratio during periods of

inflation

The CFO at Company ABC

internal user

The production supervisor at Company ABC

internal user

Purchased two warehouses with cash

investing

Purchasing resources that a company needs in order to operate is called a(n) ________ activity.

investing

Clark LLC sells an old piece of equipment for $4000

investing activity

Jones Corp buys shares in another company for $2000

investing activity

: A company should record its monthly transactions in the _______, transfer each amount to the _______, which then becomes part of the

journal; ledger; financial statements

When a bond is issued for more than its face value, the market rate of interest is ________ the interest rate stated on the bond.

less than

Salaries and Wages Expense should have been accrued on December 31st, but the entry was not made. The result of this oversight is that

liabilities are understated.

Liabilities are classified on the balance sheet as current or

long-term

A company that has current assets of $4.37 million and current liabilities of $2.86 million has working capital that is

positive

Which of the following has an asset-expense relationship? A) accrued expense adjusting entries B) liability accounts C) prepaid expense adjusting entries D) revenue accounts

prepaid expense adjusting entries

An adjusted trial balance is created after

preparing all adjusting entries.

From an accounting standpoint, the acquisition of a long-lived asset such as a building can be thought of as a long-term

prepayment for the use of the asset.

Usually excluded items that a company thinks are unusual or non-recurring

pro forma income

Earnings per share is considered a measure of a company's

profitability

Niles Industries is a merchandising company. It currently holds $6,000 in consignment goods for Martin Corporation. In addition, it has $4,000 in FOB shipping point goods in transit to Delta Enterprises and $5,000 in FOB destination goods in transit to Troy Manufacturing. Finally, Niles has $7,000 in FOB destination goods in transit from Gregg Supply. For which group of goods does Niles hold the title?

the $5,000 in goods in transit to Troy Manufacturing

The operating cycle of a company is

the average time required to go from purchasing inventory to receiving cash from its sale.

What is a T-account?

the basic form of an account that aligns information in three parts

An investor knows the total assets and total liabilities of a company, but they are not sure how much of the assets and liabilities are current versus long-term. Based on this, the investor could calculate

the company's solvency but not their liquidity.

Net income flows into the retained earnings statement

true

The income statement lists expenses, while the cash flow statement deals only with cash flows

true

Suppose that a company did not make an adjusting entry to record revenue earned but not yet billed to customers. The result of this error would be to

understate assets, net income, and stockholders' equity.

McGinnis Construction is a cash-basis company with a fiscal year-end of June 30. McGinnis' employees earn a normal weekly wage of $12,500 during a five-day work week. June 30 falls on a Thursday for the current year. McGinnis also performed services of $40,900 during the last four days of June, but they are not paid in full until July 8. As a result of operations, there will be an ________ of McGinnis' net income for the most recent fiscal year of

understatement; $30,900.

If a company spends $12 million dollars for a warehouse, when should the cost be written off?

ver the useful life of the warehouse

Which of the enhancing qualities of useful financial information is most related to the fundamental quality of faithful representation?

verifiability