Accounting Final

At the end of the first year of an asset's life, the declining-balance depreciation:

causes an asset to be carried at a lower book value than that computed using the straight-line method.

Financing that individuals or institutions have provided to a corporation is:

classified as a liability when provided by creditors and as stockholders' equity when provided by owners.

notes payable - statement and account type

-B/S - Liability

sales revenue - statement and account type

-I/S - revenue

The employees of Solo Company employees worked during April but are not paid their wages totaling $500 until May. Which of the following best indicates how to account for this transaction in April?

A journal entry with a debit to Salaries and Wages Expense and a credit to Salaries and Wages Payable for $500 should be recorded.

Slug, Inc. purchases equipment for $1,200,000 million paying $180,000 in cash and issuing $1,020,000 in promissory notes. When the journal entry is posted to the related accounts:

$1,200,000 will be debited and $180,000 will be credited to asset accounts; $1,020,000 will be credited to liability accounts.

duality of effects

Every transaction has at least two effects on the basic accounting equation.

A company owes $200,000 on a bank loan. It will be reported by the company as Accounts Payable. (T/F)

False

Which of the following statements regarding shrinkage is not correct?

It is easier to detect shrinkage in a periodic inventory system than in a perpetual inventory system.

Statement of Retained Earnings

Reports the way that net income and the distribution of dividends affected the financial position of the company during the period

Which of the following items is reported on the income statement as an expense?

This month's utility bill

The primary goals of inventory managers are to maintain a sufficient quantity of inventory to meet customers' needs, ensure inventory quality meets customers' expectations and company standards, and minimize the cost of acquiring and carrying inventory. (T/F)

True

5. Redeemed a gift card for $680 of services.

Unearned Revenue 680 Service Revenue 680

stockholder's equity 1) paid in capita

the owners have a claim on amounts they contributed directly to the company in exchange got its stock (common stock)

stockholder's equity 2) earned capita

the owners have a claim on profits the company has earned for them through its business operations

statement of cash flows (operating)

these cash flows arise directly from running the business to earn profit

statement of cash flows (investing)

these cash flows arise from buying and selling productive resources with long lives purchasing investments and lending to others

statement of cash flows (financing)

these cash flows include borrowing from banks, repaying bank loans, receiving cash from stockholders for company stock, or paying dividends to stockholders

Unearned Revenue is reported on the balance sheet as a liability. (T/F)

true

what financial statement is assets

balance sheet

what financial statement is liabilities

balance sheet

dividends

distributions of a company's earnings to its stockholders as a return on their investment

Time Period Assumption

dividing the company's long life into shorter chunks of time such as months, quarters, and years.

retained earnings

equity earned by the company

Common stock

equity paid in by stockholders

what financial statement is expenses

income statement

what financial statement is revenues

income statement

A(n) ________ is a collection of records that summarizes the effects of multiple transactions whereas a(n) ________ is a record of each day's transactions.

ledger, journal

Inventory is reported as a(n) ________ on the ________.

current asset; balance sheet

If revenues are less than expenses, the company's Retained Earnings:

decrease

expenses

The costs of doing business necessary to earn revenues, including wages to employees, advertising, insurance, utilities, and supplies used in the office

seperate entity assumption

The financial reports of a business are assumed to include the results of only that business's activities.

accounts receivable - statement and account type

- B/S - Asset

Accounts Payable - statement and account type

- B/S - Liability

cash - statement and account type

- B/S - asset

retained earnings - statement and account type

- B/S - stockholder's equity

Income tax expense - statement and account type

- I/S - expense

common stock - type of account - normal balance

- Stockholder's equity - credit

accounts receivable - type of account - normal balance

- asset - debit

cash

- asset - debit

land - type of account - normal balance

- asset - debit

At year-end, one-half of a $2,800 advertising project had been completed for a client, but nothing had been billed or collected.

Accounts Receivable 1,400 Service Revenue 1,400

When Harmony Inc. performs $1,000 of services on account for a customer, Harmony will record a journal entry with a debit to:

Accounts Receivable and a credit to Service Revenue.

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and credit to Sales Revenue, how will this error affect net income for the current period?

Net income will be too high.

operating activies

Operating activities include buying goods and services from suppliers and employees, and selling goods and services to customers and then collecting cash from them.

Consider the following journal entry: Software . 18,000 Cash 7,200 Note Payable 10,800

The company buys $18,000 of software, pays cash of $7,200, and signs a note for $10,800.

The journal entry to record taking a discount when paying for goods previously purchased on account includes a:

credit to two asset accounts.

Under the periodic inventory system:

inventory must be counted at the end of each accounting period.

Sole Proprietorship

Business organization owned by one person. The owner is personally liable for all debts of the business.

Patnership

Business organization owned by two or more people. Each partner is personally liable for all debts of the business.

Assume a periodic inventory system is used. Which inventory costing method generally results in the cost of the first goods purchased being assigned to ending inventory?

LIFO

A company acquired property that included land, building and equipment for a total cost of $163,000. The land was appraised at $87,500, the building at $35,000, and the equipment at $52,500. What should be the allocation of the total cost in the accounting records?

Land $81,500; Building $32,600; Equipment $48,900

Receiving cash from a customer to pay for a previously recorded account receivable will:

have no effect on total assets.

retained earnings - type of account - normal balance

stockholder's equity - credit

Brighton Company has a debt-to-assets ratio of 0.45. This means that:

stockholders' equity is 55% of total assets. Explanation: The debt-to-assets ratio measures the percentage of assets financed by creditors.

A debit may increase or decrease an account, depending on the type of account. (T/F)

true

A merchandising company's operating cycle begins with the acquisition of inventory and ends with the cash collection from sales. (T/F)

true

If a merchandiser offers a sales discount of 2/10, net/30 on a sale of $2,000, the amount due in 10 days is the net amount of $1,960. (T/F)

true

If total assets decrease, then either total liabilities or total stockholders' equity must also decrease. (T/F)

true

The aging of accounts receivable method focuses on estimating the ending balance to be reported in the Allowance for Doubtful Accounts, whereas the percentage of credit sales method focuses on estimating Bad Debt Expense for the period. (T/F)

true

When cash is paid before the related expense is incurred, an asset is reported on the balance sheet.(T/F)

true

public corporations are businesses:

whose stock is bought and sold on a stock exchange.

Accrual Basis Accounting

Records revenues when they are earned and expenses in the same period as the revenues to which they relate, regardless of the timing of cash receipts or payments.

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses. (T/F)

True

Cash paid for wages is an example of an operating activity on the statement of cash flows. (T/F)

True

Under the allowance method for uncollectible accounts, the write-off of a specific account will not affect total assets. (T/F)

True

On September 1, Emil Rovey purchased a vehicle for $57,500 with a residual value of $7,500. The estimated useful life is 5 years and the company uses the straight-line method. What is the depreciation expense for the year ended December 31?

$3,333 Explanation: Partial-year depreciation = (Cost − Residual value) × (1 ÷ Useful life) × Time period in use = ($57,500 − $7,500) × (1 ÷ 5) × 4 months (September 1 - through December 31) ÷ 12 months = $3,333

On January 1, 2017, Xit Company bought a new delivery truck for $30,000. Xit plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation expense for 2020, the fourth year of use, using double-declining-balance equals:

$0

The Laurel Corporation starts the year with a beginning inventory of 600 units at $5 per unit. The company purchases 1,000 units at $4 each in February and 400 units at $6 each in October. Laurel sells 300 units during the year. Laurel has a periodic inventory system and uses the FIFO inventory costing method. What is the amount of cost of goods sold?

$1,500

Marshall Company purchases a machine for $800,000. The machine has an estimated residual value of $40,000. The company expects the machine to produce two million units. The machine is used to make 400,000 units during the current period. If the units-of-production method is used, the depreciation expense for this period is:

$152,000 Explanation: Depreciation expense = (Cost − Residual value) × (Actual production this period ÷ Estimated total production) = ($800,000 − $40,000) × (400,000 units ÷ 2,000,000 units) = $152,000

Orbit, Inc. has sales of $28,000, beginning inventory of $3,500, purchases of $17,500, and ending inventory of $4,900. The cost of goods sold is:

$16,100

Because interest rates have fallen, a company retires bonds which had been issued at their face value of $200,000. The company bought the bonds back at 97. The journal entry to record this retirement includes a debit of:

$200,000 to Bonds Payable, a credit of $6,000 to Gain on Bond Retirement, and a credit of $194,000 to Cash.

MacKenzie Manufacturing purchased equipment for $160,000. In addition, shipping charges of $2,000 were incurred to obtain the equipment. The company paid $12,500 to construct a foundation and install the equipment. The equipment is estimated to have a residual value of $15,000 at the end of its 5-year useful life. Using the straight-line method, what is the amount of depreciation expense each year?

$31,900 Explanation: Depreciation expense = (Cost − Residual value) × (1 ÷ Useful Life) = [($160,000 + $2,000 + $12,500) − $15,000] × (1 ÷ 5) = $31,900 per year

The classified balance sheet for a company reported current assets of $811,925, total liabilities of $399,770, Common Stock of $500,000, and Retained Earnings of $65,130. The current ratio was 2.5.

$324,770

Missouri Company uses a perpetual inventory system. On October 1, Missouri Company sold inventory on account in the amount of $6,500 to Montebello Company, terms 1/10, n/30. The items cost Missouri $4,200. On October 4, Montebello returns some of the inventory. This inventory had a selling price of $500 and a cost of $200. On October 8, Montebello Company paid Missouri Company the amount due on that date.

$5,940 Explanation: The customer paid within the discount period, so the amount due is 99% of the net amount purchased of $6,000 ($6,500 − $500). The cash received is $6,000 × 0.99 = $5,940

Nevada Wolf, Inc. determined at the end of the year that estimated uncollectible accounts was $50,000. If the Allowance for Doubtful Accounts currently has an unadjusted debit balance of $10,000, what is the amount of bad debts to be recorded at the end of the year?

$60,000

Spin Co. has $52,000 in its Cash account, $20,000 in its Inventory account, and $12,000 in its Notes Payable (short-term) account. If Spin's only other account is Common Stock, what is the balance of that account?

$60,000

Riley, Inc. began the year with Property and Equipment costing $1,020,000 and accumulated depreciation of $180,000. The only change affecting the long-lived assets account during the year is the $82,500 of depreciation expense that must be recorded for the year. What is the amount of Property and Equipment, net, to be reported on the balance sheet at the end of the year?

$757,500

Grayhawk Company reported net credit sales of $588,000 for the year ending December 31, 2019. On January 1, 2019, the Allowance for Doubtful Accounts had a credit balance of $14,400. During 2019, $24,000 of uncollectible accounts receivable were written off. Grayhawk has experienced bad debt losses of 3% of credit sales in prior periods. Using the percentage of credit sales method, what is the adjusted balance in the Allowance for Doubtful Accounts at December 31, 2019?

$8,040

Alvarado Company began the current month with inventory costing $18,000, then purchased inventory at a cost of $63,000. The perpetual inventory system indicates that inventory costing $54,000 was sold during the month for $72,000. If an inventory count shows that inventory costing $26,100 is actually on hand at month-end, what amount of shrinkage occurred during the month?

$900 The difference between the ending balance in the inventory account and the physical inventory count is the amount of possible shrinkage. $18,000 + $63,000 − $54,000 = $27,000 ending inventory. $27,000 − $26,100 (actual count) = $900 shrinkage.

supplies - type of account - normal balance

- asset - debit

Financial Statements

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

Notes Payable - type of account - normal balance

- liability - credit

accounts payable - type of account - normal balance

- liability - credit

income tax payable - type of account - normal balance

- liability - credit

equipment - type of account - normal balance

-asset - debit

Crystal Lodging recorded $330,000 in revenues, $247,500 in expenses, and $45,000 of dividends for the year. The company began the year with total assets of $285,000 and stockholder's equity of $130,500. What net income (loss) was reported by Crystal Lodging for the year?

82,500

On September 5, Heidi Co., purchases $87,000 of supplies; payment is not required until October 4. What action should be taken by Heidi on September 5?

A journal entry that includes a credit to Accounts Payable should be prepared.

Corporation

A separate legal entity. Owners of corporations (stockholders) are not personally liable for debts of the corporation.

Which of the following statements about a 10-year bond issued at a discount is not correct?

At the end of ten years, the total interest expense will equal the total interest paid.

Your company issues $500,000 in bonds at a price of 98. The journal entry used to record the issuance will include a debit to:

Cash for $490,000, a debit to Discount on Bonds Payable for $10,000, and a credit to Bonds Payable for $500,000 Explanation: The journal entry used to record the issuance will include a debit to Cash for $490,000 (or the face value of $500,000 × the bond price of 0.98), a debit to Discount on Bonds Payable for $10,000 (the face value of $500,000 − the issue price of $490,000), and a credit to Bonds Payable for $500,000 (the face value).

Which of the following statements about the debit/credit framework is correct?

Common Stock has a normal credit balance

Baldwin Company purchased equipment for $420,000 and planned to use it when the company expanded one of its product lines. However, six months later, the company changed its plans and sold the equipment to Stick, Inc. for $420,000. Stick signed a note for $420,000 that is due in 60 days. The journal entry prepared by Baldwin Company to record the sale of the equipment would include which of the following?

Credit to Equipment

On July 1, Darin Company sold inventory costing $5,000 to Dee Company for $6,000, terms 3/10, n/30. Both companies use the perpetual inventory system. Dee Company pays the invoice on July 8 and takes the appropriate discount. What journal entry will be recorded by Dee Company on July 8?

Debit Accounts Payable for $6,000, credit Cash for $5,820, and credit Inventory for $180

On August 1, Jackson Radiology signed a one-year note receivable of $60,000 with interest at of 15% payable every six months. Jackson properly accrued interest on the note on December 31. What journal entry would Jackson make on the following February 1 to record the interest payment received on that date?

Debit Cash for $4,500, credit Interest Receivable for $3,750, and credit Interest Revenue for $750. Explanation: The time period from August 1 through December 31 included five months; the related amount was accrued at December 31 by debiting Interest Receivable and crediting Interest Revenue for $3,750 (or $60,000 × .15 × 5/12). The final month of interest was earned during January.

Recording a Lower of Cost or Market/Net Realizable Value (LCM/NRV) adjustment involves which of the following generic journal entries?

Debit Cost of Goods Sold and credit Inventory

On July 1, Darin Company sold inventory costing $5,000 to Dee Company for $6,000, terms 3/10, n/30. Both companies use a perpetual inventory system. What journal entry will be recorded by Dee Company on July 1?

Debit Inventory and credit Accounts Payable for $6,000

If merchandise costing $500 that was sold for cash at a price of $620 is returned by the customer, how would this transaction recorded when using a perpetual inventory system?

Debit Sales Revenue and credit Cash for $620; debit Inventory and credit Cost of Goods Sold for $500. Explanation: The company will debit Sales Revenue (or Sales Returns & Allowances) and credit Cash for $620. In addition, because a perpetual inventory system updates these accounts, it will debit Inventory and credit Cost of Goods Sold for $500.

Which of the following must be paid by both the employee and the employer?

FICA taxes

If the receivables turnover ratio rises significantly, the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

False

Interest of $330 on a note receivable was earned at year-end, although collection of the interest is not due until the following year.

Interest Receivable 330 Interest Revenue 330

Which line item would be found on a merchandiser's balance sheet and not on a service firm's?

Inventory

Revenue Recognition Principle

Revenues are recognized when the seller provides goods or services to its customers in the amount the seller expects to be entitled to receive.

revenues

Sales of goods or services to customers, measured at the amount the business charges the customer

Statement of Cash Flows

Summarizes how a business's operating, investing, and financing activities caused its cash balance to change over a particular period of time.

Supplies for office use were purchased during the year for $660, of which $180 remained on hand (unused) at year-end. (adjusting journal entry)

Supplies Expense 480 Supplies 480

Which of the following statements about the Allowance for Doubtful Accounts is correct?

The Allowance for Doubtful Accounts has a normal credit balance.

Which of the following statements about organizational forms of a business is not correct?

The owners of a corporation are legally responsible for the corporation's debts and taxes.

Which of the following statements about bond terminology is correct?

The stated interest rate is expressed as an annual interest rate even if the bonds pay semiannual interest payments.

An adjustment to ending inventory under the lower of cost or market/net realizable value (LCM/NRV) rule would be least likely to be recorded by a company that sells:

a household staple like laundry detergent

If the adjusting entry to accrue interest of $1,000 on a note receivable is omitted, then

assets, net income, and stockholders' equity are understated by $1,000

ABC Corp. received a 3-month, at 8% per year, $1,500 note receivable on November 1. The adjusting entry on December 31 will include a:

credit to Interest Revenue of $20 Explanation: Interest = Principal × Interest rate × Time = $1,500 × 0.08 × 2/12 (for November and December) = $20

On January 1, your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond was $10,866. Your company used the effective-interest method of amortization. At the end of the first year, your company should:

debit Interest Expense for $543.30, debit Premium on Bonds Payable for $156.70, and credit Interest Payable for $700.

A company pays $18,000 in interest on notes, consisting of $12,000 interest that was accrued during the last accounting period and $6,000 of interest that accumulated during the current accounting period but has not yet been accrued on the books. The journal entry for the interest payment should:

debit Interest Expense for $6,000, debit Interest Payable $12,000 and credit Cash for $18,000

A company borrows money from a bank. The journal entry to record the transaction would include a:

debit to Cash and a credit to Notes Payable

Employees are paid $11,000 on Fridays for the 5-day workweek, which ends on that Friday. However, December 31, 2018 falls on a Tuesday.

dr. Salaries and Wages Expense 4,400 cr. Salaries and Wages Payable 4,400

The fixed asset turnover ratio measures the:

efficiency with which the investment in fixed assets produces revenue

A company does not need to record the receipt of a bill for utilities used during this year if the company will not pay the bill until next year.(T/F)

false

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet. (T/F)

false

Eagle Company used $50,000,000 of its cash to pay off debt, as a result, Eagle's stockholders' equity will decrease $50,000,000. (T/F)

false

Most companies report sales revenue, sales returns and allowances, and sales discounts, as well as net sales on their externally reported income statements. (T/F)

false

Accruing a liability always involves ________ expenses and ________ liabilities.

increasing; increasing

Intangible assets are:

long-lived assets with no physical substance.

A truck costing $12,000, which has Accumulated Depreciation of $9,000, was sold for $2,000 cash. The entry to record this event would include a:

loss of $1,000

what financial statement is cash flows from financing activities

statement of cash flows

what financial statement is cash flows from investing activities

statement of cash flows

what financial statement is cash flows from operating activities

statement of cash flows

what financial statement is dividends

statement of retained earnings

the income statement unit of measure assumption

states that results of business activities should be reported in an appropriate monetary unit