ACCT 2301 - Final Review (draft)

Using the information below from the accounting records of Thomas Corporation, stockholders' claims to the company's resources amount to: Assets - $1,200,000 Liabilities - $800,000 Net income - $100,000 Retained earnings - $250,000 $800,000. $250,000. $1,200,000. $400,000.

$400,000. Stockholders' claims (Stockholders' Equity) = Assets ($1,200,000) − Liabilities ($800,000)

Which financial statement presents the financial position of a company on a particular date?

Balance sheet

True of False Adjustments ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

FALSE Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefits remaining in the account

A debit to an account balance always results in the balance increasing. True False

False

A post-closing trial balance is a list of all accounts and their balances after we have updated account balances for adjusting entries. True False

False

The disclosure that shows the difference in the cost inventory between LIFO and FIFO is referred to as the FIFO reserve LIFO reserve Inventory reserve

LIFO reserve

After preparing a bank reconciliation, a check outstanding for the payment of advertising would be recorded with a: Debit to Cash. Credit to Advertising Expense. No entry is needed. Debit to Advertising Expense.

No entry is needed.

Two other types of information in addition to the financial statements that must be reported in the annual reports include

Notes disclosures to the financial statements Management discussion and analysis

Which of the following would increase assets and increase liabilities? Receive a utility bill but do not pay it immediately. Provide services to customers on account. Purchase office supplies on account. Pay dividends to stockholders.

Purchase office supplies on account.

Which statement below best describes the accounting equation? The change in retained earnings equals net income less dividends. Equality of revenue and expense transactions over time. Financing activities equal investing and operating activities. Resources of the company equal creditors' and owners' claims to those resources.

Resources of the company equal creditors' and owners' claims to those resources. Assets = Liabilities + Stockholders' Equity.

Which of the following are stockholder equity accounts? Select all that apply Accounts receivable Retained earnings Inventory Common Stock Notes Payable

Retained Earnings Common Stock

Adjusting entries involve recording events that have occurred but that have not yet been recorded by the end of the period. True False

True

The formula for inventory turnover is

cost of goods sold divided by average inventory

For every journal entry, total ____________________ must be equal to total credits.

debits

What does a P/E ratio of 12 mean?

investors are willing to pay 12 times the current year's earnings per share of stock

Which of the following accounts will NOT be involved in closing entries? Service Revenue. Prepaid Insurance. Retained Earnings. Utilities Expense.

Prepaid Insurance.

If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000. True False

True

Limited liability means the stockholders are not held personally responsible for the financial obligations of the corporation. True False

True

On December 31, 2018, employees who earn $500 per day have worked eight days and will be paid on January 6, 2019. The adjusting entry on December 31, 2018, includes a debit to Salaries Expense for $4,000. True False

True

Paying for one year of rent in advance does not affect the accounting equation. True False

True

The Sarbanes-Oxley Act is also known as Generally Accepted Accounting Principles. True False

False

The balance sheet is a financial statement that reports the company's revenues and expenses over an interval of time. True False

False

The net realizable value of accounts receivable is the full amount owed by customers. True False

False

A(n) ____________ is a resource, such as cash, land, or buildings, that is owned by the company

asset

The effect of a large stock dividend on the accounting equation includes a ________________________ in retained earnings a decrease no change an increase

a decrease

What transaction is the most common type of property dividend?

a distribution of shares of stock held as an investment to stockholders of the corporation

how should cash dividends be reported on the statement of shareholders' equity?

as a reduction of retained earnings

The three elements of the fraud triangle are: Motive. Rationalization. Opportunity. All of the other answers are elements of the fraud triangle.

All of the other answers are elements of the fraud triangle.

A list of all accounts and their balances after updating account balances for adjusting entries is referred to as: An adjusted trial balance. An accounting trial balance. A post-closing trial balance. A trial balance.

An adjusted trial balance.

After closing entries are posted to the accounts in the general ledger, all asset and liability accounts have a balance of zero. True False

False

Allowing the employee who authorizes purchases to also prepare the check is an example of good internal control. True False

False

Cash, inventory, supplies, and buildings are examples of liabilities. True False

False

Revenues have what effect on the accounting equation? No effect. Decrease assets. Increase stockholders' equity. Increase liabilities.

Increase stockholders' equity.

Receiving cash from an account receivable: Increases revenue and decreases an asset. Decreases a liability and increases an asset. Increases an asset and increases revenue. Increases one asset and decreases another asset.

Increases one asset and decreases another asset.

A minor amount of cash kept on hand to pay for small purchases is referred to as a: Cookie jar fund. Cash payments fund. Petty cash fund. Cash receipts fund.

Petty cash fund.

Which of the following accounts has a debit balance? Salaries Expense. Deferred Revenue. Accounts Payable. Service Revenue.

Salaries Expense.

Consider the following list of accounts: Cash Retained Earnings Service Revenue Utilities Expense Salaries Expense Accounts Receivable Accounts Payable Common Stock Equipment Dividends How many of these accounts have a normal debit balance? Seven. Five. Six. Four.

Six Cash, Salaries Expense, Equipment, Utilities Expense, Accounts Receivable, Dividends.

For each transaction, the total debit amounts must equal the total credit amounts. True False

True

The direct write-off method is used for tax purposes but is generally not permitted for financial reporting. True False

True

A ____________ is the exclusive right to manufacture a product or use a process granted for a period of ____________ years.

patent; twenty

which of the following is an investing activity receiving cash from customers paying cash to buy equipment borrowing from the bank paying for utilities

paying cash to buy equipment

when a contingent event that may give rise to a future loss is likely to occur, it is said to be _________________

probable

Undistributed profits that have accumulated in the company over time are called ___________________ earnings

retained

Kick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Kick: paid dividends to its stockholders purchased shares from investors sold shares to stockholders

sold shares to stockholders

Liabilities can be best described as? The amount owed to creditors. The amount of services provided to customers during the year. The amount of expenses over the past year. The amount expected to be distributed to stockholders.

The amount owed to creditors.

Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and credit are: Debit Prepaid Insurance $18,000, credit Insurance Expense $18,000. Debit Insurance Expense $18,000, credit Prepaid Insurance $18,000. Debit Cash $18,000, credit Prepaid Insurance $18,000. Debit Prepaid Insurance $18,000, credit Cash $18,000.

Debit Prepaid Insurance $18,000, credit Cash $18,000.

Assets normally carry a _______ balance and are shown in the ______________. Debit; Income statement Debit; Balance sheet Credit; Balance sheet Debit; Statement of stockholders' equity

Debit; Balance sheet

Expenses normally carry a _______ balance and are shown in the ______________. Debit; Income statement Debit; Balance sheet Credit; Balance sheet Debit; Statement of stockholders' equity

Debit; Income statement

Suppose Simeon Company begins the year with $1,000 in supplies, purchases an additional $5,500 of supplies during the year, and ends the year with $700 in supplies. The year-end adjusting entry includes Supplies Expense of $7,200. True False

False

Consider the following account balances of the Shattuck Law Firm at the end of the year: Accounts Payable - $4,400 Salaries Expense - $12,800 Cash - $1,700 Common Stock - $2,400 Service Revenue - $8,300 Supplies - $4,300 Retained Earnings - $1,100 Utilities Expense - $5,000 How many of these accounts would appear in Shattuck's year-end balance sheet? Five. Three. Four. Two.

Five Accounts Payable, Cash, Common Stock, Supplies, and Retained Earnings.

Expenses are shown in which of the following statements? Statement of stockholders' equity. Balance sheet. Income statement. Statement of cash flows.

Income statement.

The two roles of financial accounting are to

measure business activities of the company communicate information to external parties for decision making purposes

One disadvantage of the allowance method (over the direct write-off method) for recording uncollectible accounts is that it generally matches bad debt expense with the revenue it helped to generate. True False

False

The Sales Returns account is an expense account. True False

False

The term "dividends in arrears" refers to preferred stock dividends that are: declared but not yet paid declared and already paid not paid in a given year

not paid in a given year

Childers Service Company provides services to customers totaling $3,000, for which it billed the customers. How would the transaction be recorded? Debit Cash $3,000, credit Service Revenue $3,000. Debit Accounts Receivable $3,000, credit Service Revenue $3,000. Debit Service Revenue $3,000, credit Accounts Receivable $3,000. Debit Accounts Receivable $3,000, credit Cash $3,000.

Debit Accounts Receivable $3,000, credit Service Revenue $3,000.

Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as: Debit Cash, credit Service Revenue. Debit Service Revenue, credit Cash. Debit Accounts Receivable, credit Service Revenue. Debit Cash, credit Accounts Receivable.

Debit Cash, credit Service Revenue.

At the time a $400 petty cash fund is being replenished, the company's accountant finds vouchers totaling $350 and petty cash of $50. The vouchers include: postage, $100; business lunches, $150; delivery fees, $75; and office supplies, $25. Which of the following is not recorded when recognizing expenditures from the petty cash fund? Debit Petty Cash, $350. Credit Petty Cash, $350. Debit Postage Expense, $100. Debit Supplies, $25.

Debit Petty Cash, $350.

The classification on the statement of cash flows are cash flows from Select all that apply operating activities investing activities business activities financing activities discontinued activities

operating activities investing activities financing activities

Daniel Dino Restaurant owes employees' salaries of $15,000. This would be recorded as: Debit Salaries Payable, credit Cash. Debit Salaries Expense, credit Cash. Debit Salaries Payable, credit Salaries Expense. Debit Salaries Expense, credit Salaries Payable.

Debit Salaries Expense, credit Salaries Payable.

Separation of duties refers to: Keeping functions across different departments separate. Preventing top management and lower-level employees from interacting. Making each manager personally responsible for his/her department. Individuals who have physical responsibility for assets should not also have access to accounting records.

Individuals who have physical responsibility for assets should not also have access to accounting records.

At the end of 2018, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2018, to record its estimated uncollectible accounts included a: Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500. Credit to Allowance for Uncollectible Accounts of $7,500. Debit to Bad Debt Expense of $7,500. Credit to Allowance for Uncollectible Accounts of $12,000.

Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500. Bad Debt Expense = $12,000 − $4,500 = $7,500.

After preparing a bank reconciliation, the service fee charged by the bank would be recorded with a: Credit to Service Fees Revenue. Debit to Service Fees Expense. Credit to Service Fees Expense. Debit to Cash.

Debit to Service Fees Expense.

Adjusting Entries What accounts are affected? 1. Prepaid Expense 2. Deferred Revenue 3. Accrued Expense 4. Accred Revenue

1. Prepaid Expense - Expense increases, Assets decreases 2. Deferred Revenue - Liability decreases, Revenue increases 3. Accrued Expense - Expense increases, Liability increases 4. Accred Revenue - Assets increases, Revenue increases

Sales = $120,000 Cost of goods sold = $80,000 Tax expense = $5,000 Operating expenses = $20,000 Total assets = $500,000 Accounts Receivable = $25,000 What is the profit margin? 25% 12.5% 16.7% 33.3%

12.5% Profit martin is net income divided by net sales. Net income is $120,000 - $80,000 - $20,000 - $5,000 = $15,000. Profit margin is $15,000/$120,000 = 12.5%

At the beginning of the year, Vici Ventures had accounts receivable of $220,000. At the end of the year, the company had accounts receivable of $340,000. During the year, Vici had total sales of $1,000,000, 70% of which were credit sales. What was Vici's receivables turnover ratio for the year? 2.50. 2.94. 146 days. 3.57.

2.50 [($1,000,000 × .70)/($220,000 + $340,000)/2] = 2.50.

Green company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

40.6 days 365 days / Receivable turnover (9) = 40.6 days

Beverage International reports net credit sales for the year of $240,000. The company's accounts receivable balance at the beginning of the year equaled $20,000 and the balance at the end of the year equaled $30,000. What is Beverage International's receivables turnover ratio? 12.0. 1.5. 8.0. 9.6.

9.6 Receivables turnover ratio = net credit sales ($240,000)/average accounts receivable [($20,000 + $30,000)/2] = 9.6.

Retained earnings at the end of the year is calculated using: Common stock and dividends. Net income and dividends. Beginning retained earnings, net income, and dividends. Stockholders' equity, net income, and dividends.

Beginning retained earnings, net income, and dividends.

Which of the following services may be provided by public accounting firms? Select all that apply Ethics Consulting Tax Audit

Consulting Tax Audit

Liabilities normally carry a _______ balance and are shown in the ______________. Debit; Income statement Debit; Statement of stockholders' equity Credit; Balance sheet Debit; Balance sheet

Credit; Balance sheet

The normal balance of the account "Allowance for Uncollectible Accounts" is a _______ because _______. Credit; it is a contra account to Bad Debt Expense (a debit account) Credit; it is a contra account to Accounts Receivable (a debit account) Debit; it is an expense in the income statement Debit; it is a contra account to Revenue (a credit account)

Credit; it is a contra account to Accounts Receivable (a debit account)

The journal entry to record bad debt expense includes a:

Debit to bad debt expense Credit to allowance for uncollectible accounts

Closing entries transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the Common Stock account. True False

False

On April 1, a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance. At the end of the year, the financial statements would report: Insurance Expense, $3,650; Prepaid Insurance $4,800. Insurance Expense, $4,800; Prepaid Insurance $0. Insurance Expense, $1,200; Prepaid Insurance $3,600. Insurance Expense, $3,600; Prepaid Insurance $1,200.

Insurance Expense, $3,600; Prepaid Insurance $1,200. $4,800/12 months = $400 per month. $400 × 9 months = $3,600 (Insurance Expense). Three months ($1,200 = $400 × 3 months) of Prepaid Insurance remain.

Which of the following is an external transaction? Purchasing supplies from a vendor Using supplies on hand Earning revenues after cash is received

Purchasing supplies from a vendor

Which of the following reports net income relative to average stockholders equity in dollars? ROE Debit/equity ratio EPS P/E ratio ROA

ROE

Which of the following items would cause the balance of cash in the bank statement to be greater than the balance of cash in the accounting records? The company purchased supplies using a debit card. The company wrote checks that have not cleared the bank. The company has cash receipts that have not been deposited in the bank. The company deposited a customer check that was found by the bank to have insufficient funds.

The company wrote checks that have not cleared the bank.

The act of collusion refers to: Management working with an auditor to prevent occupational fraud. Two or more people acting in coordination to circumvent internal controls. Middle-level managers taking full responsibility for effective internal controls. Top management and lower-level employees working together to share information necessary for effective internal controls.

Two or more people acting in coordination to circumvent internal controls.

The primary purpose of closing entries is to: Assure that adjusting entries balance. Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions. Ensure that all assets and liabilities are recognized in the appropriate period. Prove the equality of the debit and credit entries in the general journal.

Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions.

The normal balance of notes receivable is: a credit either a debit or a credit a debit

a debit

Attorney fees and other costs necessary to secure a patent should be included in a contra account to the patent added to the patent account recorded as an extraordinary loss expensed in the period incurred

added to the patent account

Accountants' primary information-related roles are to: Select all that apply communicate measurements of companies' activities to others assess the accuracy of companies' transactions measure companies' activities manage companies' day to day activities

communicate measurements of companies' activities to others measure companies' activities

A(n) ___________ _____________ is an existing uncertainty that might result in a gain

contingent gain

Notes payable is classified as a liability that has which of the following effects? creates revenue on the income statement creates an asset on the balance sheet creates interest expense on the income statement creates deferred revenue on the income statement

creates interest expense on the income statement

The journal entry to recognize the signing of an installment notes payable includes: Select all that apply credit cash debit notes payable debit cash credit notes payable

debit cash credit notes payable

The entry to record lending $1,000 to an employee at a rate of 6% for 3 months includes a: Select all that apply credit to interest income of $1,000 debit to cash of $1,000 credit to notes receivable of $1,000 debit to notes receivable of $1,000 credit to cash of $1,000

debit to notes receivable of $1,000 credit to cash of $1,000

Larkin company pays $300 for utilites for hte month. Which of the following is used to record this transaction? debit cash; credit accounts payable debit cash; credit utilities expense debit utilities expense; credit cash debit accounts payable; credit utility expanse

debit utilities expense; credit cash

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n): Select all that apply increase in stockholders' equity increase in assets decrease in stockholders' equity decrease in liabilities increase in liabilities decrease in assets

decrease in stockholders' equity increase in liabilities

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):

decrease in stockholders' equity increase in liabilities

A ____________ is a distribution of net income to the stockholders of a corporation.

dividend

A(n) ____________ is a cost of doing business that is necessary to produce ____________.

expense; revenue

When an asset has a significant decline in value and is written down, this is called ____________________.

impairment

When should supplies be recorded as an expense?

in the period the supplies are used, regardless of when they weer purchases

Financial information that may impact investors' and creditors' decisions is referred to as ____________ and must be ____________ under GAAP

material; reported