ACCT 200 Exam 2 (Multiple Choice Practice)

Springer Company listed outstanding checks totaling $4,500 on its September bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer's customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total

$10,400

A company lends $15,000 at 8% interest for 3 months on June 1. If adjusting entries are recorded on June 30, how much will be credited to Interest Revenue?

$100; The formula is Principal x Rate x Time or $15,000 x 8% x (1/12) since interest is stated in an annual rate yielding a value of $100

Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?

$120,000 and $85,000; Sales Revenue - Sales Returns and Allowances - COGS = Gross profit Net income - Gross profit = operating expenses

Beginning inventory is $12,000: purchases are $34,000: sales revenue are $60,000: and cost of goods sold is $31,000. How much is ending inventory?

$15,000; Beg inventory + purchases - COGS = ending inventory

At December 31, 2017, before any year-end adjustments, Macarty Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be

$1500 The adjusting entry would recognize insurance expense of $1500

Employees at the Waco Waffle House were paid on Friday, December 27 for the five days ending on December 27. The next payday is Friday, January 3. Employees work 5 days a week. The weekly payroll amounts to $3,800. The appropriate adjusting journal entry on December 31 would be to credit Salaries and Wages Payable for

$1520

Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?

$35,000; Beg Inventory + Cost of Goods Purchased - Ending Inventory = COGS

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

$390,000 $60,000 + $380,000 - $50,000 = $390,000

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold?

$40,000; Sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Working backwards, net income ($15,000) plus operating expenses ($20,000) results in a gross profit of $35,000. Subtracting gross profit ($35,000) from net sales ($75,000) results in cost of goods sold of $40,000.

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

$4074; Since it was paid within the discount period, a 3% discount was applied to the payment which is ($4200 x .97)

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?

$686; [($750 - $50 (return)) x .98]

Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000: ending inventory $11,600: beginning inventory $17,200: purchases $60,400: purchases discounts $3,000: purchase returns and allowances $1,100: freight-in $600: freight-out $900. Calculate the cost of goods available for sale.

$74,100; Cost of Goods Available for sale = Beg Inventory + purchases - purchase discounts - purchases returns and allowances + freight in

Sales revenue total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

$8500; Net sales = sales revenue ($10,000) - both sales returns and allowances ($500) and sales discounts ($1000)

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

$90,000; Sales revenue - COGS = gross profit

The worksheet, used as an aid in the preparation of adjusting entries and the financial statements, consists of how many debit/credit columns?

10

A company has the following balances: Sales revenue $312,000: Sales Returns and Allowances $2,000: Sales Discounts $4,000: Cost of Goods Sold $184,000: Operating Expenses $84,000. How much is the profit margin?

12.4% Net income divided by net sales results in the profit margin. Net sales = $312,000 ‒ $2,000 ‒ $4,000 = $306,000 Net income = $306,000 ‒ $184,000 ‒ $84,000 = $38,000 Profit margin = $38,000/$306,000 or a profit margin ratio of 12.4%

When credit terms of 1/15, n/60 are offered, how long is the discount period?

15 days

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

20%; Net income / net sales = profit margin

A company has the following account balances: Sales revenue $2,000,000: Sales Returns and Allowances $250,000: Sales Discounts $50,000: and Cost of Goods Sold $1,275,000. How much is the gross profit rate?

25%; Gross profit divided by net sales results in a gross profit rate of 25%. Net sales = $2,000,000 ‒ $250,000 ‒ $50,000 = $1,700,000 Gross profit = $1,700,000 ‒ $1,275,000 = $425,000 Gross profit rate = $425,000/$1,700,000 = 25%

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is the gross profit rate?

46.7%; Net income + operating expenses = gross profit gross profit/net sales = gross profit ratio

Which one of the following statements is correct?

A company which uses a perpetual inventory system needs two journal entries when it sells merchandise.

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?

A debit to Inventory for $200; The cost of having merchandise delivered to the store is part of the cost of getting the inventory ready to sell. All costs incurred to get inventory ready to sell are included as part of Inventory account with a debit.

Which of the following statements is correct?

A perpetual inventory system provides better control over inventories than does a periodic inventory system

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?

Accounts receivable and COGS

Which one of the following is not a justification for adjusting entries?

Adjusting entries are necessary to bring the general ledger accounts in line with the budget

Which of the following would affect the gross profit rate if sales remain constant?

An increase in cost of goods sold; Gross profit rate is computed by dividing gross profit by net sales. Any changes in sales, sales return and allowances, sales discounts, or the cost of goods sold will affect the ratio.

Which factor would NOT affect the gross profit rate?

An increase in the cost of heating the store; This increase causes total expenses to increase. However, electricity is an operating expense and does not affect gross profit

A net loss will appear in which column of the worksheet?

Balance sheet - debit

Which of these accounts normally have a debit balance?

Both Sales Discounts and Sales Returns and Allowances

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment?

Cash $1274 Sales Discount $ 26 Accounts Receivable Cr. 1300 ($1800 - $500) - [($1800 - $500) x 2%] = $1274

Which is the adjusting entry Max Company would prepare when the bank collects a $200 note receivable from one of Max's customers?

Cash $200 Notes Receivable $200

Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts

Which of the following would appear on both a single-step and multiple-step income statement?

Cost of Good Sold

Which of the following will NOT require an adjusting entry?

Deposits in transit; Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will be posted in the next accounting period. No adjusting entry is needed.

Which of the following is NOT a typical example of an accrued expense?

Depreciation

On August 1 the Darius Co. purchased a photocopy machine for $8,000. The estimated annual depreciation on the machine is $1,680. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be

Depreciation Exp $700 Acc. Depreciation $700 This entry correctly adjusts the accounts and amount to be charged for the 5 months between Aug 1 and Dec 31 for $700 or ($1680/12x5)

Which of the following is not a type of adjusting entry?

Earned revenues

Saira works for a sports franchise, which pays wages and salaries earned on a monthly basis. A new accountant was hired by the sports franchise in late May. Due to inexperience, the new accountant failed to accrue Saira's salary for May. What is the impact on the May 31 financial statements of the sports franchise?

Expenses are understated; net income is overstated; The failure to accrue salaries and wages expense and a liability for salaries and wages payable results in understating expenses and liabilities and overstating net income and retained earnings; there is no impact on assets

The operating cycle of a merchandising company is ordinarily shorter than that of a service company.

False; A service company's operating cycle is ordinarily shorter than that of a merchandising company

At the end of the accounting period, all balance sheet accounts are closed out.

False; Balance sheet accounts are permanent accounts which carry a balance from one period to the next. Only temporary accounts (revenues, expenses, dividends) are closed out at the end of the account period.

Deposits in transit are added to the cash balance per books on the bank reconciliation.

False; Deposit in transit are deposits the business knows are in route to the financial institution, but are not yet processed by the bank. They need to be added to the bank's reconciliation process.

Sales discount is a contra asset account.

False; It is a contra account to sales revenue. Reported on income statement as deduction from Sales Revenue

The worksheet is part of the permanent record of the company as it documents how the company prepared its financial statement

False; It is neither a journal nor part of the general ledger. It is merely a supplemental device used by accountants to make it easier to prepare adjusting entries and the financial statements

An adjusted trial balance is prepared after the books of a company are closed at the end of the accounting period.

False; The adjusted trial balance is used to prepare the company's financial statements. The final step in the accounting cycle is the closing process

Discount term of 2/10, n/30 means that a 10% cash discount is available is payment is made within 30 days.

False; This discount term means a 2% discount may be taken if paid within 10 days of the invoice date, and the entire invoice is due in 30 days.

The accounting cycle requires the closing entries be prepared on a monthly basis.

False; Closing entries usually take place only at the end of a company's annual accounting period

Accrued expenses are expenses that have already been paid.

False; accrued expenses are expenses that have been incurred in the period but have not been paid yet.

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?

Freight-out accounts; Freight-out is an operating expense, while freight-in is inventoriable.

Which of the following will be shown on the income statement for a merchandising company?

Gross profit, cost of goods sold, a sales revenue section

On July 1, Mesa Verde, Inc. purchased a 6-month insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. The adjusting entries to recognize the expired cost were made each month. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be

Insurance Expense $2100 Prepaid Insurance $2100 This entry correctly adjusts the accounts to recognize for the 6-month policy. Insurance expense needs to be debited to recognize the expense and Prepaid Insurance needs to be credited to reduce the asset accordingly for $2100 ($12,600/6)

On August 1, Luang Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be

Interest Expense $1750 Interest Payable $1750

For which item below might a bank issue a credit memorandum to a depositor's account?

Interest earned

Which of the following is classified in an income statement as a non-operating activity?

Interest expense

On what amount is a sales discount based?

Invoice price less returns and allowances; The buyer is permitted to take the discount on the invoice price less any returns and allowances, because this amount represents the buyers current obligation.

Which is true about a wholesaler?

It sells to another business, which will sell to a consuming customer

Which is the correct order of steps in the accounting cycle?

Journalize and post transactions, journalize and post adjusting entries, journalized and post closing entries

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?

Liabilities at the end of the year are understated; The adjusting entry would debit (increase) salaries and wages expense and credit (increase) salaries and wages payable, a liability. Not recording this entry would understate expenses and liabilities

The operating cycle of a merchandising company is ordinarily _____________ that of a service firm.

Longer than; due to the turnover time of inventory

Which of the following is the correct adjusting entry for the account holder when the bank submits a debit memorandum for a monthly service charge of $30?

Misc Expense $30 Cash $30

For which of the following might a bank issue a debit memorandum to a depositor's account?

Monthly service charge; Because the bank considers the depositor's account balance to be a liability, a credit memo causes an increase in the account and a debit memo causes a decrease. Monthly service charges would decrease the liability of the bank and be processed with a debit memo

For which of the following will an adjusting entry be required as the result of a bank reconciliation?

NSF Checks

During the adjusting process two transactions were missed. The first is for unearned rent revenue of which $450 was earned during the period, the second was for accrued interest payable of which $275 is owed for the period. As a result of these omissions

Net income is understated by $175;

Which of the following correctly describes the closing process?

Net income or net loss is transferred to Retained Earnings

To what is the gross profit rate equal?

Net sales minus cost of goods sold, divided by net sales

Which of the following items does NOT result in an entry to the Inventory account under a perpetual system?

Payment of freight costs for goods shipped to a customer; This entry requires a debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory.

Under what system is cost of goods sold determined at the end of an accounting period?

Periodic Inventory System; END OF AN ACCOUNTING PERIOD COGS is calculated at the end of the fiscal period if the company has not kept records to track the changes in each inventory item as it is sold or purchased.

Which types of accounts will appear in the post-closing trial balance?

Permanent accounts

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system

All of the following are required in the accounting cycle EXCEPT:

Preparing a worksheet

Which of the following is classified in an income statement as a non-operating activity?

Receiving dividend revenue from an investment; Dividends are not related to the company's normal business operations

On September 1 the Petite-Sizes Store paid $12,000 to the Mega-Mall Co. for 3-month rent beginning September 1. Prepaid Rent was debited for the payment. If Petite-Sizes Store prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be

Rent Expense $4000 Prepaid Rent $4000 This entry will correctly reduce the Prepaid Rent account by one month's rent and correctly record one month of Rent Expense of $4000 or ($12,000/3)

Which of the following is a merchandiser that sells directly to consumers?

Retailer (walmart)

With the adjusted trial balance in hand, you see that the debit totals of the real accounts is $18,250 and the credit totals of the real accounts is $14,550. The debit total of the nominal or temporary accounts is $3,475 while the credit total of the nominal or temporary accounts is $7,175. From this you know that

Retained earnings will increase by $3700 through the closing process; The difference of nominal or temporary account debits and credits of a debit of $3700 ($18250 - $14550) indicates growth in the company for the fiscal period - an increase in retained earnings, not net income or less since you don't know revenue and expense of dividend issues

Which of the following will result in gross profit?

Sales revenue less cost of goods sold

Which account will have a zero balance after a company has journalized and posted closing entries?

Service revenue

Ignatenko Company purchased office supplies costing $5000 and debited Supplies for the full amount. Supplies on hand at the end of the accounting period were $1300. The appropriate adjusting journal entry to be made would be

Supplies Expense $3700 Supplies $3700 The entry correctly adjusts supplies to a balance of $1300 and records the expense for the period of $3700 ($5000 - $1300)

Which statement is true for the seller?

The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

Which statement is INCORRECT concerning the adjusted trial balance?

The adjusted trial balance lists the account balances segregated by assets and liabilities

Which one of the statements below is true?

The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Gross profit is the difference between net sales and COGS

True

Prior to an accrual adjustment, the revenue account (and the related asset account) or the expense account (and the related liability account) is understated

True

Sales Returns and Allowances is a contra-revenue account.

True; It is reported on the income statement as a deduction from Sales Revenue

If the profit margin is 5% and total expenses are $1,330,000, the net sales are $1,400,000.

True; Net income divided by net sales = profit margin ($1,400,000 - $1,330,000)/$1,400,000 = 5%

Book value is equal to cost minus accumulated depreciation

True; the formula for computing book value is cost minus accumulated depreciation

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the COGS and to reduce inventory

Bonita Realty Management Co. received a check for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be

Unearned Rent Rev $7500 Rent Revenue $7500 This entry correctly reduces the liability and recognized the revenue earned in the period by $7500 or (($30,000/12)x3)

Which of the following is NOT a typical example of a prepaid expense

Wages

The final step in the accounting cycle is to prepare

a post-closing trial balance

Financial statements can be prepared directly from the

adjusted trial balance

The closing entry process consists of closing

all temporary accounts

Cash received before services are performed which is recorded as a debit to a cash account and a credit to a liability account is called

an unearned revenue

The difference between an asset's cost and its accumulated depreciation is called

book value

Adjustments for prepaid expenses

decrease assets and increase expenses

Adjustments for unearned revenues

decrease liabilities and increase revenues

Adjusting entries are made to ensure that

expenses are recognized in the period in which they are incurred; revenues are recorded in the period in which the performance obligation is satisfied; balance sheet and income statement accounts have correct balances at the end of an accounting period. ALL ARE CORRECT

Adjustments for accrued revenues

increase assets and increase revenues

In the closing process total revenues are determined to be $4,750 while total expenses are determined to be $3,875 and total dividends are $1,150. The retained earnings account will:

increase by $875 due to net income; retained earnings will increase by revenues of $4750 less expenses $3875, or $875. Dividends do not affect net income.

Cash received before services are performed are recorded as

liabilities

If the adjusting entry is NOT made for unearned revenues, then the result will be to

overstate liabilities and understate revenues