FINAL EXAM ACCTING

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for:

$1,600,000.

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Common Stock for:

$100,000.

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

$180,000.

Smith Company's sales revenues for the year are $200,000 and its accounts receivable balance increased by $10,000. How much is "cash collected from customers"?

$190,000.

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

$2,000

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:

$2,000

Salaries expense for the year equals $240,000. Salaries payable at the beginning of the year were $25,000, and at the end of the year were $15,000. Calculate cash paid for salaries during the year.

$250,000.

A company has the following account balances at the end of the year: - Credit Sales = $400,000 - Accounts receivable = $80,000 - Allowance for Uncollectible Accounts = $400 debit The company estimates future uncollectible accounts to be 4% of accounts receivable. At what amount would Bad Debt Expense be reported in the current year's income statement?

$3,600.

What amount would Madison report for ending inventory using FIFO?

$3,900

A company has the following account balances at the end of the year: - Credit Sales = $400,000 - Accounts receivable = $80,000 - Allowance for Uncollectible Accounts = $400 credit The company estimates 1% of credit sales will be uncollectible. At what amount would Allowance for Uncollectible Accounts be reported in the current year's balance sheet?

$4,400

Suppose the balance of the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjustment entry. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current year's income statement?

$4,800.

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What is the amount of net revenues (total revenue minus sales discounts) as of August 12?

$4,850.

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for

$45,000.

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

$450,000

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as interest expense in the second month?

$487

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a credit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

$5,100.

At the end of its first year of operations, a company establishes an allowance for future uncollectible accounts for $5,600. At what amount would bad debt expense be reported in the current year's income statement?

$5,600.

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)?

$50,000.

Airline Accessories obtains a $100,000, three year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded for interest expense for the first full month?

$500

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

$5000.

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). On December 31, 20X1, Nelsen will accrue interest revenue of:

$6,000.

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

$6,100.

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

$60,000

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase?

$700,000.

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year?

$8000

Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:

$96,000.

Which of the following represents a characteristic of a liability?

- A probable future sacrifice of economic benefits. - Arising from present obligations to other entities. - Resulting from past transactions or events.

The Sarbanes-Oxley Act (SOX) mandates which of the following?

- Increased regulations related to auditor-client relations. - Increased regulations related to internal control. - Increased regulations related to corporate executive accountability.

Allowance Method for Uncollectible Accounts

- Reports net accounts receivable for the amount of cash expected to be collected - Allows for the possibility that some accounts will not be collected. - Is required by Generally Accepted Accounting Principles.

Fan Company sells inventory on account. The entry or entries to record this sale using a perpetual inventory system would include a:

- debit to accounts recievable - credit to sales revenue debit to cost of goods sold

An adjusted trial balance

- lists all accounts and their balances at a particular date after updating account balances for adjusting entries - is used to prepare the financial statements - includes balances for revenues, expenses and dividends

Financial accounting serves which primary function(s)? 1. Measures business activities. 2. Communicates business activities to interested parties. 3. Makes business decisions on behalf of interested parties.

1 & 2

Using a perpetual inventory system, the sale of inventory on account would be recorded as 1. Debit Cost of Goods Sold; credit Inventory. 2. Debit Inventory; credit Sales Revenue. 3. Debit Accounts Receivable; credit Sales Revenue

1 & 2

If a company has an increase in total revenues of $10,000, which of the following is possible? 1. Total assets increase by $10,000. 2. Total liabilities increase by $10,000. 3. Total stockholders' equity decreases by $10,000.

1 only

At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of goods sold?

11500

Which of the following describes the purpose(s) of closing entries? 1. Adjust the balances of asset and liability accounts for unrecorded activity during the period. 2. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. 3. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

2 and 3

What amount would Madison report for cost of goods sold using FIFO?

2,600

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy's gross profit ratio?

20%

On May 1, 2021, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in 12 months. Nees has a December 31 year-end. Calculate the amount of interest revenue Nees will report in its 2021 and 2022 income statements.

2021 = $600; 2022 = $300

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

400

Petite Fashions issued 500,000 of its 2 million shares of authorized common stock. At the end of the accounting period, 450,000 shares are outstanding. How many shares of treasury stock does Petite Fashions have?

50,000 shares

A stock dividend occurs when:

A company distributes to shareholders additional shares of its own stock.

Which of following best describes a merchandising company?

A company that purchases products that are primarily in finished form for resale to customers. Correct

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset and a credit to a liability account

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record:

A loss of $10,000.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record

A loss of $10,000.

If bonds are issued with a stated interest rate higher than the market interest rate, the bonds will be issued at

A premium.

The effect of writing off a specific account receivable is:

A reduction in the Allowance for Uncollectible Accounts.

All transactions related to a particular item over a period of time are summarized in a(n):

Account

When a company provides services on account, which of the following accounts is debited?

Accounts Receivable.

Which of the following is not a primary source of long-term debt financing?

Accounts payable.

If equipment is retired, which of the following accounts would be debited?

Accumulated depreciation

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported or included as a(n):

Addition to net income in the operating activities section.

Which of the following expenditures should be recorded as an asset?

An addition which increases future benefit

Which of the following is not a current liability?

An unused line of credit.

Which of the following represents a resource of the company?

Asset

Which of the following equations correctly represents the fundamental accounting equation?

Assets = Liabilities + Stockholders' Equity.

Accounts receivable are best described as

Assets of the company representing the amount owed by customers.

Outdoor Adventures issues bonds at a discount. On the maturity date, the bonds' carrying value will be

At face amount.

The correct order from the largest number of shares to the smallest number of shares is:

Authorized, issued, and outstanding

The financial statement that shows the financial position of a company at a specific point in time is called the:

Balance sheet

Which financial statement shows that a company's resources equal claims to those resources?

Balance sheet

The asset's cost less accumulated depreciation is called:

Book value.

Which of following companies record revenues when selling inventory?

Both manufacturing and merchandising companies.

Preferred stock

Can have features of both liabilities and stockholders' equity.

Operating cash flows include which of the following?

Cash paid for supplies.

Financing cash flows include which of the following?

Cash received from the issuance of common stock

Investing cash flows include which of the following?

Cash received from the sale of a used company truck.

The acid-test ratio is

Cash, current investments, and accounts receivable divided by current liabilities

Which of the following describes the information reported in the statement of stockholders' equity?

Change in stockholders' equity through changes in common stock and retained earnings.

A list of all account names used to record transactions of a company is referred to as a:

Chart of accounts

A sales discount is recorded by the seller as a(n):

Contra revenue.

Under a perpetual inventory system:

Cost of goods sold is recorded with each sale.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to the asset ready for use.

Expenses represent:

Costs of providing products or services to customers.

Which of the following is reported as a current liability?

Current portion of long-term debt

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5,000; Credit Notes Payable, $5,000.

On November 1, 2021, a company receives cash of $6,000 from a customer for services to be provided evenly over the next six months. Deferred revenue is recorded at that time. Which of the following adjusting entries is needed on December 31, 2021?

Debit Deferred Revenue for $2,000; Credit Service Revenue for $2,000.

Using a perpetual inventory system, the purchase of inventory on account would be recorded as

Debit Inventory; credit Accounts Payable.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?

Debit Notes Receivable, $5,000; Credit Cash, $5,000.

A company owes employee salaries of $5,000 on December 31 for work completed in the current year, but the company doesn't plan to pay those salaries until the following year. What adjusting entry, if any, is needed on December 31?

Debit Salaries Expense for $5,000; Credit Salaries Payable for $5,000.

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?

Debit Sales Discount for $10.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

Debit Treasury Stock for $32,000

The payment for utilities of the current month would be recorded as

Debit Utilities Expense; Credit Cash.

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:

Debit interest expense and credit interest payable, $4,000.

The entry to write down inventory from cost to net realizable value at the end of the year includes a:

Debit to Cost of Goods Sold.

On December 10, a company pays $500 for advertising to appear on December 20. On which date should the expense be recorded under accrual-basis accounting?

December 20

At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjustment to write down inventory to net realizable value?

Decrease in net income.

In preparing a statement of cash flows under the indirect method, an increase in accounts receivable would be reported or included as a(n):

Deduction from net income in the operating activities section.

Which of the following adjusts the bank's balance of cash in a bank reconciliation?

Deposits outstanding.

Depreciation expense is added to net income in the statement of cash flows under the indirect method because:

Depreciation expense reduced net income, but is a noncash item.

Which of the following correctly describes the nature of depreciation?

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be

Disclosed but not reported as a liability

Section 404 of the Sarbanes-Oxley Act requires companies to:

Document and assess internal controls

The disadvantages of a corporation compared to a sole proprietorship or partnership include:

Double taxation.

What is the concept behind separation of duties in establishing internal control?

Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Which of the following increases an employer's payroll costs?

Employer's FICA contribution

Which of the following generally would be considered a good internal control over cash payments?

Ensure checks are serially numbered and signed only by authorized employees.

The balance of retained earnings in the adjusted trial balance:

Equals the balance of retained earnings at the beginning of the accounting period.

Which of the following describes the cost of selling to customers?

Expenses

Which of the following is paid by both the employee and the employer?

FICA taxes

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

FIFO

The cash paid for interest on bonds payable is calculated as:

Face amount times the stated interest rate.

On January 17, Papa's Pizza signs a contract with Bug Zappers for exterminating services related to a recent sighting of cockroaches in the restaurant. Papa's pays for the extermination service on January 29, and Bug Zappers sprays for bugs on February 7. On which date should Papa's Pizza record the extermination expense?

February 7 (date of extermination service).

The Sarbanes-Oxley Act of 2002 applies to all companies that:

File reports with the Securities and Exchange Commission.

Under the allowance method for uncollectible accounts, the balance of Allowance for Uncollectible Accounts increases when:

Future bad debts are estimated.

After transactions are recorded in the journal, they are posted to the

General ledger

Which of the following intangible assets are not amortized?

Goodwill.

The revenue recognition principle states that companies typically record revenue:

In the period in which we provide goods and services to customers.

Under accrual-basis accounting, companies typically report expenses:

In the same period as the revenue they help to generate.

Which financial statement conveys a company's ability to generate profits in the current period?

Income statement

Which financial statement shows a company's revenues and expenses?

Income statement

When treasury stock is resold, total stockholders' equity:

Increases.

Which of the following adjusts the company's balance of cash in a bank reconciliation?

Interest on bank deposit.

Which of the following is not included in calculating the acid-test ratio?

Inventory

Financial accounting provides information primarily to:

Investors and creditors.

Transactions are recorded using debits and credits in a(n):

Journal

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

Last-in, first-out (LIFO).

An advantage of leasing an asset rather than purchasing the asset is:

Leases typically require less cash upfront to begin using the asset.

Which of the following represents an obligation of the company?

Liabilities

Which of the following statements regarding liabilities is not true?

Liabilities result from future transactions

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n):

Liability

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?

Long service life, high residual value, and straight-line depreciation.

We can identify investing activities from additional information and changes in:

Long-term asset accounts.

We can identify financing activities from additional information and changes in:

Long-term liability and stockholders' equity accounts.

Animal World issues ten-year bonds at their face amount of $100 million with the option to call the bonds at $102 million. Two years later, interest rates have decreased and Animal World decides to call the bonds. The company estimates that over the next eight years, they will save $16 million of cash interest. The journal entry to retire the bonds will include a:

Loss of $2 million.

What is the primary reason for declaring a stock split?

Lower the trading price of a stock into a more acceptable trading range.

Who ultimately is responsible for properly applying GAAP? The company's:

Management

Which of the following definitions describes a serial bond?

Matures in installments.

Current liabilities

May include contingent liabilities.

The primary function(s) of financial accounting is(are) to:

Measure business activities of a company and communicate information about business activities to outside users.

Which definition best describes financial accounting?

Measuring a company's business activities and communicating those measurements to external parties.

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to: 1. Decrease total assets 2. Decrease net income

Neither 1 or 2

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:

Net accounts receivable do not change.

Which of the following describes the information reported in the statement of cash flows?

Net cash flows from operating, investing, and financing activities.

A company reports the following in its income statement: Total revenues of $500,000 and total expenses of $300,000. Which of the following is true?

Net income equals $200,000.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?

No asset or gain is reported.

Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio?

No change to the current ratio and decrease the acid-test ratio

Purchasing land with cash would have what effect on the accounting equation?

No effect

On November 15, Meier Company received $3,000 cash from a customer for services that were performed on November 1. According to the Revenue Recognition Principle, on which date should the revenue be recorded?

November 1

Which of the following expenditures should be recorded as an expense?

Ordinary repairs and maintenance.

In response to widespread fraudulent reporting in the late 1990's and early 2000's, Congress:

Passed the Sarbanes-Oxley Act.

An exclusive 20-year right to manufacture a product or to use a process is a:

Patent

Which of the following transactions decreases total assets?

Pay dividends to stockholders.

Which of the following is an example of a cash outflow from a financing activity?

Payment of cash dividends.

In a classified balance sheet, long-term physical assets used in the normal course of business are known as

Property, plant, and equipment.

Convertible bonds:

Provide potential benefits to both the lender and the borrower.

Callable bonds:

Provide potential benefits to the issuer.

Which of the following transactions causes an increase in stockholders' equity?

Provide services to customers on account.

Which of the following transactions increases total assets?

Provide services to customers on account.

Which of the following is an example of an accrued revenue?

Providing services to a customer without having yet collected the cash.

Which of the following transactions increases total liabilities?

Purchase office supplies on account.

Which of the following is not a primary source of corporate debt financing?

Receivables.

Which of the following is not a characteristic of adjusting entries?

Reduce the balances of revenue, expense, and dividend accounts to zero

Which of the following transactions causes a decrease in total liabilities?

Repay amounts previously borrowed from the bank.

Which of the following is not recorded as an intangible asset in the balance sheet?

Research and development.

Which of the following accounts is listed in a post-closing trial balance?

Salaries Payable

Which of the following accounts is not listed in a post-closing trial balance?

Salaries expense

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

Sales tax payable.

A multiple-step income statement provides the advantage of:

Separating revenues and expenses based on their different types of activities.

A credit is used to increase which of the following accounts?

Service Revenue

Which of the following will result in higher depreciation expense in the first year of the asset's life?

Short service life and low residual value

What is the effect of a stock dividend on total stockholders' equity?

Stockholders' equity does not change.

When preparing a bank reconciliation, outstanding checks would be:

Subtracted from the bank's cash balance.

When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:

Subtracted from the company's cash balance.

The balance in retained earnings represents:

The amount of income earned over the company's life minus the dividends paid to shareholders over the company's life.

In each succeeding payment on an installment note:

The amount of interest expense decreases.

Who is ultimately responsible for the establishment and success of a company's internal control system?

The company's top executives.

Which of the following represents the balance of Cost of Goods Sold at the end of the year?

The cost of inventory sold during the year.

Which of the following is true in comparing the current ratio with the acid-test ratio?

The current ratio will always be at least as large as the acid-test ratio

Consistent with the COSO framework, an effective internal control system includes the control environment. The control environment refers to:

The ethical tone set by top management.

If a company issues par-value stock, the amount credited to common stock will be:

The par value per share times the number of shares issued

The amount of the gain on the sale of equipment equals:

The selling price minus the book value of the equipment.

Which of the following statements is false regarding the amortization of intangible assets?

The service life of an intangible asset is always equal to its legal life.

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time

If a company uses the allowance method of accounting for uncollectible accounts and collects cash on an account receivable previously written off:

There is no change in total assets.

The primary reason the balance of cash in the company's records will differ from the balance of cash in the bank's records includes:

Timing differences of recording cash transactions by the company and by the bank.

What is a direct purpose of internal controls?

To improve the accuracy and reliability of accounting information.

Common shareholders usually have all of the following rights except:

To participate in the day-to-day operations.

If a company has an increase in total expenses of $10,000, which of the following is possible?

Total assets decrease by $10,000.

A company reports the following in its balance sheet: Total assets of $800,000 and total liabilities of $700,000. Which of the following is true?

Total stockholders' equity equals $100,000.

Posting is the process of

Transferring the debit and credit information from the journal to individual accounts in the general ledger.

Suppose Windell Corporation understates its ending inventory amount. What effect will this have on the reported amount of net income in the year of the error?

Understate net income.

Which of the following is not deducted from an employee's salary?

Unemployment taxes

A debit is used to increase which of the following accounts?

Utilities expense

The entry to record the estimate for uncollectible accounts includes:

a debit to bad debt expense

Net income is defined as:

all revenues minus all expenses

Serial bonds are

bonds that mature in installments

Accumulated depreciation is:

contra asset account

The current ratio is:

current assets divided by current liabilities

We credit Dividends Payable on

declaration date

Operating income is defined as:

gross profit minus operating expenses

In which financial statement does a company report its revenues?

income statement

Which of the following causes the accounting equation not to balance?

increase assets; increase dividends.

Fan Company purchases inventory on account. The entry to record this purchase using a perpetual inventory system would include a debit to:

inventory

Bonds issued at a discount are:

issued below face value

Amounts owed to creditors are reported as:

liabilities

The advantages of a corporation compared to a sole proprietorship or partnership include:

limited liability

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.

one; one

Which of the following represents an external transaction?

payment of utility bill

Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits?

preparing a trial balance

Both cash dividends and stock dividends

reduce retained earnings

Sales of products or services are referred to as

revenues

Which of the following refers to the seller reducing the customer's balance owed because of some deficiency in the company's product or service?

sales allowance

Gross profit is defined as:

sales revenue minus cost of goods sold