Exam 1

The unearned revenue of $15,000 was received June 1, 2015 to be earned evenly over the course of the year.

Dr. Unearned Revenue 8,750 Cr. Revenue 8,750

Accounting information is a ____________________ if it is complete, neutral, and free from error.

faithful representation

Unexpired insurance at 12/31/15 is $22,500

Dr. Prepaid Insurance 22,500 Cr. Insurance Expense 22,500

The rent payment of $90,000 covered the six months from November 30, 2015 through May 31, 2016.

Dr. Rent Expense ($90,000/6) 15,000 Cr. Prepaid Rent 15,000

Salaries and wages earned but unpaid at 12/31/15, $42,600

Dr. Salaries Expense 42,600 Cr. Salaries Payable 42,600

Below is a list of account balances for Fraggle Company Cash $123,500 COGS $767,500 Interest expense 14,700 Interest revenue 5,600 Inventory 113,460 Net Income ? Unearned revenue 70,020 Number of Common Shares 150,000 Operating expenses 265,000 Property, plant, and equipment (net) 255,000 Receivables (net) 96,000 Sales (net) 1,275,000 Prepaid expense 55,000 What is Fraggle Company's net income, assuming a 30% tax rate? A. $163,380 B. $233,400 C. $242,500 D. None of these are correct.

A. $163,380

On May 1, 2015, Alang Corporation borrowed $3,600 on a two-year, 6% note payable. Interest is due and payable at the end of each six months. Alang makes all interest payments on schedule. The correct December 31, 2016 adjusting entry would be A. Interest Expense 36 Interest Payable 36 B. Interest Payable 144 Cash 144 C. Interest Expense 108 Cash 108 D. Interest Expense 36 Notes Payable 36

A. Interest Expense 36 Interest Payable 36

The balance sheet reports the financial position of a company at a specific date in time whereas all other financial statements report changes in the financial position of the company over a period of time. A. True B. False

A. True

Which of the following events would be classified as an operating activity in a statement fo cash flows? A. receipt of a cash dividend from an equity investment B. sale of a long-term investment C. issuing notes payable D. payment of cash dividends

A. receipt of a cash dividend from an equity investment

The Churchill Pharmaceutical Company included a note in its financial statements that described a pending lawsuit against the company.

Agree. The company is conforming to the full disclosure principle.

On June 1, 2016, Molser Company acquired a new machine by agreeing to pay five equal annual payments of $20,000, with the first payment due that day. Assuming an interest rate of 14% compounded annually, Molser should record the acquisition cost of the machine as A. $68,662 B. $78,274 C. $87,719 D. $100,000

B. $78,274

Marco needs $175,000 six years form today. How much should Marco deposit today into an investment account that provides a 12% annual return in order to accomplish his goals? A. $89,523 B. $88,660 C. $85,487 D. $62,500

B. $88,660

Which of the following is a permanent account? A. Dividend Revenue B. Allowance for Doubtful Accounts C. Interest Expense D. Sales Revenue

B. Allowance for Doubtful Accounts

What is the ultimate objective of accounting information? A. faithful representation B. decision usefulness C. relevance D. predictive value

B. Decision usefulness

The primary purpose of financial reporting is to provide useful and relevant information to the internal stakeholder's of the company A. True B. False

B. False

Which of the following organizations has legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets? A.Accounting Principles Board B. Securities and Exchange Commission C. Financial Accounting Standards Board D. Committee on Accounting Procedure

B. Securities and Exchange Commission

On May 1, Basil loaned $3,400 to another company on a 12%, one-year note

Dr. Interest Receivable 272 Cr. Interest Revenue (3,400*12%*8/12) 272

Which of the following statements is not true with regard to the benefits derived from the FASB's conceptual framework of accounting? A. It serves as a guide in establishing standards for the FASB. B. The Statements of Financial Accounting Concepts is the primary source of GAAP for accountants. C. It establishes the objectives of financial reporting. It enhances comparability between different company's financial statements.

B. The Statements of Financial Accounting Concepts is the primary source of GAAP for accountants.

Current liabilities are defined as obligations that will be paid A. by refinancing through issuing new long-term liabilities B. by using existing resources properly classified as current assets C. out of a fund classified as a long-term investment D. by using existing resources, regardless of their classification

B. by using existing resources properly classified as current assets

Accrual accounting relates the financial effects of a company's transactions A. so that the costs of nonoperational events are matched to the balance sheet in the period impacted B. to the period in which they occur rather than to when cash receipts or payment occurs C. so that the revenue impact of every transaction in a period is properly reflected in the income statement D. so that the impact of every transaction is reflected in the statement of cash flows

B. to the period in which they occur rather than to when the cash receipts or payment occurs

Currently (in August 2017), Abby wants to have $20,000 available in August 2021 to make a college tuition payment. To be able to have this amount available, Abby will make equal annual deposits in an investment account earning 12% annually in August 2017, 2018, 2019, 2020, and 2021. What is the annual amount to be deposited? A. $5,548 B. $4,000 C. $3,148 D. $2,270

C. $3,148

All of the following items would appear on the balance sheet except A. an investment in another company's bonds B. an investment in marketable securities C. a realized gain on the sale of a equipment D. the premium related to a bond liability that is still two years from maturity

C. a realized gain on the sale of a equipment

You would like to deposit a sum of money today that would enable you to withdraw $2,000 a year for ten years. If the interest paid on the amount deposited is 10% compounded annually and if the first withdrawal is made one year from today, the formula you would use to determine the amount of the initial request is the A. present value of a deferred annuity B. present value of an annuity due C. present value of an ordinary annuity D. future value of an ordinary annuity

C. present value of an ordinary annuity

Which of the following adjusting entries involves the recognition of an accrued expense? A. recording depreciation on a long-lived asset B. writing off the portion of an insurance policy that has expired C. recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period D. recognition of bad debt losses that are expected to result from making sales on credit terms

C. recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period

_______________ of accounting information enables users to identify similarities and differences between two sets of facts, while __________________ means that accounting methods are applied in the same way from period to period.

Comparability, consistency

Which of the following is not a component of the income statement? A. unusual gains and losses B. net income C. income taxes D. accumulated other comprehensive income

D. accumulated other comprehensive income

Nelly Company sold its cattle ranching component on June 30, 2016, for a gain of $1,000,000. From January through June, the component had sustained operating income of $300,000. The income tax rate is 35%. How should Nelly report the income and the sale on its income statement? A. as $300,000 operating income and a $1,000,000 gain on sale of component B. as a $1,300,000 gain in operating income C. as a net of tax gain of $845,000 after income from continuing operations D. as $195,000 operating income and a $650,000 gain on sale of the component

D. as $195,000 operating income and a $650,000 gain on sale of the component

On August 1, 2015, Yellow Company paid $6,320 for a three-year insurance policy. On that date, an expense account was charged. In the adjusting entry on December 31, 2015, there would be a A. debit to Insurance Expense for $175 B. credit to Prepaid Insurance for $2,107 C. credit to Prepaid Insurance for $527 D. credit to Insurance Expense for $5,442

D. credit to Insurance Expense for $5,442

At the end of its 2018 fiscal year, Dower, Inc., received an order from a customer for $60,000. The merchandise will ship early in 2019. Because the sale was made to a long-time customer and the invoice was paid in 2018, the controller recorded the sale in 2018.

Disagree. The seller has not satisfied its obligation to deliver goods.

In the middle of its 2018 fiscal year, Sanguinetti, Inc. paid $12,000 to its insurance company for a one-year comprehensive insurance coverage. Sanguinetti recorded the entire expenditure as an expense in 2018.

Disagree. This is a violation of matching.

Stanton Corporation paid for the personal travel of its chief financial officer and charged travel expense.

Disagree. This is a violation of the economic entity assumption.

Cantor Corporation's accountant increased the book value of a patent from its original cost of $1 million to its recently appraised value of $6 million.

Disagree. This is a violation of the historical cost (original transaction value) principle.

On January 31, 2016, Manning Company acquired a new machine by paying $40,000 cash and agreeing to pay $20,000 annually for four years, beginning on January 31, 2017. Assuming an interest rate of 10%, Manning should record the acquisition cost of the machine on January 31, 2016, at A. $120,000 B. $109,737 C. $103,397 D. $102,092

c. $103,397

The equipment has a useful life of 15 years with $10,000 salvage value. (Straight-line method)

d. Depreciation Expense [($950,000-$10,000)/15] 62,667 Cr. Accumulated Depreciation - Equipment 62,667

The conceptual framework establishes ______________________ of financial reporting.

objectives

A specific objective of financial reporting is to provide information about a company's economic _________________ and _________________ against the company.

resources, claims

Financial reporting should, above all, provide information that is _______________ to external decision makers.

useful