ACCT study Exam 3

Scribe Company reports net sales of $800,000, gross profit of $560,000, and net income of $230,000. What are its operating expenses

$330,000 Gross Profit - Operating Exp. = Net Income

Place a number, 1 through 7, in front of each of the following balance sheet categories to designate the order in which they are to be presented in a classified balance sheet. Long-term investments Current liabilities Stockholders equity Intangible assets Current assets Long-term liabilities PPE

2.) long-term investments 5.) Current Liabilities 7.) Stockholders Equity 4.) Intangible Assets 1.) Current Assets 6.) Long-Term Liabilities 3.) PPE (Property, Plant, Equipment)

Which of the following is not classified properly as a current asset? Short-term debt investments A fund to be used to purchase a building within the next year A receivable from the sale of an asset to be collected in two years Supplies

A receivable from the sale of an asset to be collected in two years

What accounting concept is employed by valuing the inventory at the Lower-of-cost-or-net realizable value? Conservatism Expense recognition Full disclosure Revenue recognition

A, Conservatism

Which of the following would most likely employ the specific identification method of inventory costing? Jewelry store Grocery store Hardware store Gasoline station

A, Jewelry stores use the specific identification method because of the high value and uniqueness of many of the inventory items.

Which of the following is not a legitimate business reason for taking a physical inventory? To verify the profitability of individual inventory items To check the accuracy of the perpetual inventory records To determine cost of goods sold To determine if any inventory has been lost from waste, shoplifting, or employee theft

A, to verify the profitability of individual inventory items

Indicate the account title for the other half of the entry. Depreciation Expense is Debited

Accumulated Depreciation is Credited

James Kung believes revenues from credit sales may be recorded before they are collected in cash. Do you agree? Explain.

Agree, because revenue is recognized when the good or service is provided, not when cash is collected.

Which of the following events is not recorded in the accounting records? The owner withdraws cash for personal use. Equipment is purchased on account. An employee is terminated. A cash investment is made into the business.

An employee is terminated.

Which accounts normally have debit balances?

Assets, dividends, and expenses

Which of the following should not be included in the physical inventory of a company? Goods in transit from another company shipped FOB shipping point Goods held on consignment from another company All of the answer choices are correct Goods shipped on consignment to another company

B, Goods held on consignment from another company

In periods of rising prices (inflation), what will LIFO produce? The same net income as FIFO Lower net income than FIFO Higher net income than average costing Higher net income than FIFO

B, Lower net income than FIFO

Nash's Trading Post, LLC has total assets of $3500000, common stock of $926000, and retained earnings of $570000 at December 31, 2022. What are the creditors' claims on their assets at that date? $3144000 $2004000 $1416000 $3876000

B. $2004000

Novak Corp. sold goods with a total selling price of $807,700 during the year. It purchased goods for $391,000 and had beginning inventory of $65,200. A count of its ending inventory determined that goods on hand was $53,300.What was its cost of goods sold?

Beginning inventory $65,200 Add: Purchases 391,000 Cost of goods available for sale 456,200 Less: Ending inventory 53,300 Cost of goods sold $402,900

Which of the following is generally not classified as a current liability? Bonds payable Taxes Payable Salaries and wages payable Accounts payable

Bonds payable

When is a physical inventory usually taken? When the company has its greatest amount of inventory. When goods are not being sold or received. At the end of the company's fiscal year. When a company has its greatest amount of inventory and when goods are not being sold or received.

C, At the end of the company's fiscal year.

If a company such as Leslie Fay, overstates closing inventory on its books, it will result in an increase in its cash flow. have no impact on the company's earnings. result in higher reported earnings. result in lower reported earnings.

C, result in higher reported earnings.

When the Japanese tsunami caused a disruption in the manufacturing of parts by suppliers, its effect was felt by car companies in Japan because it led to a reduction in demand for cars. it raised their cost of goods sold. they had very little inventory on hand as they followed the just-in-time inventory management practices. it resulted in a change of suppliers.

C, they had very little inventory on hand as they followed the just-in-time inventory management practices.

Which of the following is true of the FIFO inventory method? It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold. It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory. It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory. It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

C. It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

Debt securities sold to investors that must be repaid at a particular date some years in the future are called: Notes payable Taxes payable Bonds payable Accounts payable

C. bonds payable

The full disclosure principle dictates that: a.) financial statements should disclose only those events that can be measured in dollars. b.) financial statements should disclose all assets at their cost. c.) financial statements should disclose all events and circumstances that would matter to users of financial statements. d.) financial statements should not be relied on unless an auditor has expressed an unqualified opinion on them

C. financial statements should disclose all events and circumstances that would matter to users of financial statements.

Classify each item as an asset, liability, common stock, revenue, or expense. Issuance of ownership shares Amounts owed to suppliers Land purchased Cost of advertising Bonds payable Amount earned from selling a product

Common stock Liability Asset Expense Liability revenue

Costs of Collecting on Credit: Bad Debts: Once a product is consumed like food, a company cannot get it back and has no leverage to get their money back. Book-Keeping Costs: Post-it cost and database to track millions of customers Carrying Costs: Increased loan borrowing to supplement operating experiences.

Costs of Collecting on Credit: Bad Debts: Once a product is consumed like food, a company cannot get it back and has no leverage to get their money back. Book-Keeping Costs: Post-it cost and database to track millions of customers Carrying Costs: Increased loan borrowing to supplement operating experiences.

The Revenue account increases by a credit or debit?

Credit

Indicate the account title for the other half of the entry. Salaries and Wage Expenses is Debited

Credit Salaries and Wages Payable

Which of the following would not be classified as a long-term liability? Mortgage payable Lease liabilities Current maturities of long-term debt Bonds payable

Current maturities of long-term debt

On a classified balance sheet, short-term investments are classified as: a.) Long-term investments b.) Intangible assets c.) PPE's d.) Current Assets

D. Current assets

When entering a transaction in the journal, should the debit or credit be written first?

Debit

A credit sale is made on July 10 for $900, terms 1/15, n/30. On July 12, the purchaser returns $100 of goods for credit. Give the journal entry on July 19 to record the receipt of the balance due within the discount period.

Debit Sales Discounts 8 Debit Cash 792 Credit Acct Rec. 800

An intangible asset: derives its value from the rights and privileges it provides the owner. Is worthless because it has no physical substance is converted into a tangible asset during the operating cycle. cannot be classified on the balance sheet because it lacks physical substance.

Derives its value from the rights and privileges it provides the owner.

Whistler Corp. performed service for a customer but has not received payment, nor has it recorded any entry related to the work. Indicate Entry:

Dr. Accounts receivable (Asset) Cr. Service Revenue (Revenue)

A company fails to recognize an expense incurred but not paid. Indicate entry

Dr. Expense (Salaries, Utilities, Interest, etc.) Cr. Accounts Payable (Liability)

Indicates that personal and business recordkeeping should be separately maintained.

Economic entity assumption

Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?

Ending inventory plus cost of goods sold minus purchases results in beginning inventory: $20,000 + $560,000 -$540,000 = $40,000.

What kind of classification is cost of goods sold? Revenue Expense Liability Asset

Expense

Requires recognition of expenses in the same period as related revenues.

Expense recognition principle

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped

FOB Destination

A credit means that an account has been increased. T/F

False

A new account is opened for each transaction entered into by a business firm. T/F

False

A periodic inventory system provides better control over inventories than a perpetual system. T/F

False

A service company is likely to use accounts receivable but a merchandising company is not likely to do so. T/F

False

Collection on an account receivable will increase both cash and accounts receivable. T/F

False

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement. T/F

False

The operating cycle of a merchandiser is the same as that of a service company. T/F

False

Under a periodic inventory system, a company determines the cost of goods sold each time a sale occurs. T/F

False

For a merchandiser, sales less operating expenses is called gross profit. T/F

False (G.P is Sales less cost of Goods Sold is)

In a perpetual inventory system, no detailed inventory records of goods on hand are maintained. T/F

False, perpetual is very detailed

Ensures that all relevant financial information is reported.

Full disclosure principle

Is the rationale for why plant assets are not reported at liquidation value (do not use the historical cost principle)

Going concern assumption

Waymon Co. has net sales of $100,000, cost of goods sold of $70,000, and operating expenses of $18,000. What is its gross profit?

Gross Profit: $30,000 Gross Profit = Revenue - COGS

Indicates that fair value changes subsequent to purchase are not recorded in the accounts.

Historical cost principle

On a classified balance sheet, companies usually list current assets: in alphabetical order. With the largest dollar amounts first. In the order of acquisition. In the order in which they are expected to be converted into cash

In the order in which they are expected to be converted into cash

Goods costing $1,900 are purchased on account on July 15 with credit terms of 2/10, n/30. On July 18, the purchaser receives a $300 credit from the supplier for damaged goods. Give the journal entry on July 24 to record payment of the balance due within the discount period. The company uses a perpetual inventory system

July 15th Debit Inventory 1900 Cred Account's Payable 1900 Debit Accounts Payable 300 Credit Inventory Debit Acct Payable 1600 Credit Cash 1568 Credit Inventory 32

Requires that accounting standards be followed for all items of significant size

Materiality

Module 8 Question 11 review (open hw on wiley)

Module 8 Question 11 review (open hw on wiley)

Module 8 Question 12 review (open hw on wiley)

Module 8 Question 12 review (open hw on wiley)

Assumes that the dollar is the "measuring stick" used to report on financial performance.

Monetary unit assumption

Separates financial information into time periods for reporting purposes.

Periodicity assumption

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2017. This count did not take into consideration the following transactions: • 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.

The correct balance = $180,000 + $35,000 = $215,000. Inventory should include all goods owned by the company regardless of whether the company holds physical possession or not. The correct amount of inventory that should be reported by Railway should be the $180,000 cost of goods in possession plus the $35,000 of cost of the goods that are on consignment. The title to the goods in transit will transfer on January 3 and should not be reported on December 31, 2014

Three focuses for Analysts Evaluating Financial Reports: Liquidity (Ability to Pay short-term obligations) Solvency (Ability to pay long-term obligations and long-term survival), and Profitability (Operating success)

Three focuses for Analysts Evaluating Financial Reports: Liquidity (Ability to Pay short-term obligations) Solvency (Ability to pay long-term obligations and long-term survival), and Profitability (Operating success)

Expenses are incurred: To generate revenue Only on rare occasions To produce liabilities To produce assets

To generate revenue

A decrease in a liability account is recorded by a debit. T/F

True

A merchandising company reports gross profit but a service company does not. T/F

True

Adjustments are necessary to ensure all revenues and expenses are recorded. T/F

True

An account is often referred to as a T-account because of the way it is constructed. T/F

True

An increase in an asset is recorded by a debit. T/F

True

Economic Events called Transactions are the basis of the accounting system T/F

True

Economic events that require recording in the financial statements are called accounting transactions. T/F

True

Expenses are recorded when the resource is used up T/F

True

Faithful Representation includes: completeness, neutral, free from error T/F

True

For a merchandiser, the primary source of revenues is the sale of inventory. T/F

True

In a periodic inventory system, the cost of goods sold is determined only at the end of the accounting period. T/F

True

Measuring net income for a merchandiser is conceptually the same as for a service company. T/F

True

One Accounting fiscal year is one year T/F

True

Relevance includes: the quality of information makes a difference, predictive value, confirmatory value T/F

True

Sales salaries and wages is an example of an operating expense. T/F

True

The account balance is the difference in total dollars between total debit amounts and total credit amounts. T/F

True

The payment of a liability decreases both cash and accounts payable. T/F

True

Under a periodic inventory system, the cost of goods on hand at the beginning of the accounting period plus the cost of goods purchased less the cost of goods on hand at the end of the accounting period equals cost of goods sold. T/F

True

A company makes an accrued revenue adjusting entry for $780 and an accrued expense adjusting entry for $510. How much was net income understated or overstated prior to these entries?

Understated $270

On May 1, 2022, Sheffield Corp. had beginning inventory consisting of 320 units with a unit cost of $7. During May, the company purchased inventory as follows: ▪ 640 units at $7 ▪ 950 units at $8 The company sold 1590 units during the month for $13 per unit. Sheffield uses the average cost method. The average cost per unit for May is?

[(320 + $7) + (640 × $7) + (950 × $8)] ÷ 1910 = $7.5

indicate (1) the type of adjusting entry: Accrued Revenue, prepaid expense, unearned service revenue, accrued expense, or not required. (2) the related account in the adjusting entry. a.) Account receivable b.) Prepaid insurance c.) Equipment d.) Accumulated depreciation - Equipment e.) Notes payable f.) Interest payable g.) Unearned Service Revenue

a.) (1) Accrued revenues (2) Service revenue b.) (1) prepaid expense (2) insurance expense c.) (1) not required (2) not required d.) (1) prepaid expense (2) depreciation expense e.) (1) not required (2) not required f.) (1) accrued expense (2) interest expense g.) (1) unearned revenues (2) service revenue

The following independent situations require professional judgment for determining when to recognize revenue from the transactions. Identify when revenue should be recognized in each of the situations. a.) Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home in December. b.) Ultimate Electronics sells you a home theater on a "no money down and full payment in three months" promotional deal. c.) The Toronto Blue Jays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn't officially begin until April. The major league baseball season runs from April through October. d.) RBC Financial Group loans money on August 1. The loan and the interest are repayable in full in November. e.) In August, a customer orders a sweater from the Target website, paying with a Target credit card. The sweater arrives in September. Target sends a bill in October and receives payment in October

a.) December b.) At time of delivery c.) Per game basis over the season d.) Evenly over the loan term e.) September

If an expense is paid with cash: retained earnings will increase. expenses will decrease. assets will decrease. liabilities will increase.

assets will decrease.

Inventory costing methods place primary reliance on assumptions about the flow of resale prices. values. costs. goods.

c. Costs

The operating cycle of a company is the average time that is required to go from cash to: inventory in producing revenues. Accounts receivable in producing revenues. cash in producing revenues. sales in producing revenues.

cash in producing revenues

Liabilities are generally classified on a balance sheet as: Present liabilities and future liabilities. tangible liabilities and intangible liabilities. small liabilities and large liabilities. current liabilities and long-term liabilities.

current liabilities and long-term liabilities.

Retained earnings is decreased by revenues. owner's investments. assets. expenses.

expenses.

Prepare the following financial statements in the correct order: income statement retained earnings statement balance sheet statement of cash flows

income statement, retained earnings statement, and balance sheet.

The effect on the basic accounting equation of performing services for cash are to: increase assets and decrease stockholders' equity. increase liabilities and increase stockholders' equity. increase assets and increase stockholders' equity. increase assets and increase liabilities.

increase assets and increase stockholders' equity.

During 2017, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity:

increased $40,000. Assets = Liabilities + S.E (C.S - Div + Rev - Exp)

Receipt of an unearned revenue: decreases a liability; increases stockholders' equity. decreases revenue; increases stockholders' equity. increases an asset; increases a liability. increases an asset; increases a revenue.

increases an asset; increases a liability.

If cash is received in advance from a customer assets will decrease. liabilities will increase. stockholders' equity will decrease. retained earnings will increase.

liabilities will increase.