Final Exam Questions

A deposit of $270 was incorrectly recorded by the bank as a deposit of $720. In the bank reconciliation, this $450 error would be

subtracted from the cash balance per bank statement. Amounts subtracted from the cash balance per bank statement include outstanding checks and bank errors that erroneously increased the bank account balance. The bank increased the company's balance by $720 when it should have increased it by $270. Correcting this error requires subtracting $450 from the cash balance per bank statement

When terms are FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. In FOB shipping point, ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.

When terms are FOB destination

ownership of the goods remains with the seller until the goods reach the buyer. In FOB destination, ownership transfers when the buyer receives the purchased goods from the public carrier rather than when the public carrier accepts them from the seller.

The book value of equipment owned by a business and used in its operations is equal to

the asset's cost minus its accumulated depreciation. The book value of an asset, such as equipment, equals the asset's cost minus accumulated.

Which financial statement reports assets, liabilities, and stockholders' equity as of a given date?

Balance sheet The balance sheet presents account balances for assets, liabilties, and equities, such that assets = liabilities + equity, as of a specific point in time.

Which one of the following is a primary component of an internal control system?

Control environment The five primary components of an internal control system are (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.

When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it.

Increases; crediting When a merchandiser sells goods, it increases Accounts Receivable by debiting it and increases Sales Revenue by crediting it. Revenues are increased with credits and expenses are increased with debits.

Which of the following is an element of the fraud triangle?

Rationalization The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high.

Which statement is correct?

The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles.

A company's accounting records show the following account balances: Beginning Inventory $125,000 Ending Inventory 96,000 Freight-In 9,500 Freight-Out 4,000 Purchases 630,000 Purchase Returns and Allowances 48,800 Purchase Discounts 8,500 The company uses the periodic inventory system. Based on the information above compute cost of goods sold.

$611,200 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 630,000 - 8,500 - 48,800 + 9,500 = 582,200 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 125,000 + 582,200 - 96,000 = 611,200

A company reports net income of $60,000 and cost of goods sold of $360,000. The company's gross profit rate is 40%. Compute its net sales.

$600,000. Gross profit rate = Gross profit/Net sales Gross profit = Net sales - Cost of goods sold Gross profit rate = (Net sales - Cost of goods sold)/Net sales 0.40 = (Net sales - $360,000)/Net sales 0.40 x Net sales = Net sales - $360,000 Net sales - 0.40 x Net sales = $360,0000.6 x Net sales = $360,000 Net sales = $360,000/0.6 = $600,000

At the start of the current year, a company's Allowance for Doubtful Accounts had a credit balance of $36,000. During the current year, it had net credit sales of $1,500,000 and it wrote-off $60,000 of accounts receivable as uncollectible. The company's accounts receivable at the end of the year is $400,000. Past experience indicates that the allowance should be 10% of the balance in receivables. What is the bad debt expense for the year?

$64,000 At the end of the period, accounts receivable has a balance of $400,000 (i.e., given). The Allowance for Doubtful Accounts should be adjusted so that is has a balance equal to 10% of the end-of-period accounts receivable balance (i.e., given). So, the Allowance for Doubtful Accounts needs a credit balance of $40,000 (i.e., 10% x $400,000 = $40,000). Prior to recording the adjusting entry, it had a debit balance of $24,000 (i.e., credit balance of $36,000 but debited by $60,000 when receivables were written-off). In order to change the balance from a $24,000 debit balance to a $40,000 credit balance, the company needs to credit the Allowance for Doubtful Accounts by $64,000.

A company sold merchandise for $114,000. Returns from customers totaled $2,400. If the company's gross profit rate is 40%, what is its cost of goods sold?

$66,960 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $114,000 - 2,400 = $111,600 Gross profit rate = Gross profit/Net sales 0.40 = Gross profit/$111,600 Gross profit = 0.40 x $111,600 = $44,640 Gross profit = Net sales - cost of goods sold $44,640 = $111,600 - cost of goods sold Cost of goods sold = $111,600 - 44,640 = $66,960

On January 1, a corporation issued $4,250,000, 17%, 8-year bonds for $4,841,455. Interest is payable annually on January 1. The effective interest rate on the bonds is 14%. Use the effective-interest method to determine the amount of interest expense for the first year.

$677,804 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 14% x $4,841,455 = $677,804

The following information is related to the beginning of the year balances. Accounts receivable, $2,100,000 Allowance for doubtful accounts (credit balance), $180,000 During the current year, sales on account were $580,000 and collections from customers were $344,000. Also during the current year, the company wrote off $32,000 in uncollectible accounts. At year-end, the company's credit manager estimates that $216,000 of the outstanding accounts receivable will be uncollectible. Bad debt expense for the current year is

$68,000 At the end of the period, accounts receivable has a balance of $2,100,000 (i.e., given). The Allowance for Doubtful Accounts should be adjusted so that is will have a balance equal to $216,000 (i.e., given). Prior to the adjusting entry, the Allowance for Doubtful Accounts has a credit balance of $148,000 (i.e., $180,000 - 32,000 = $148,000). The adjusting entry records the difference of $36,000 (i.e., $216,000 - 148,000 = $68,000). This adjustment records Bad Debt Expense and the change to the Allowance for Doubtful Accounts.

A corporation has the following information available for the current year: Item Amount (in $ millions) Issued common stock 45 Repurchase of common stock 65 Paid dividends 75 Net income 130 Beginning Common Stock balance 475 Beginning Retained Earnings balance 625 Based in this information, what is its retained earnings (in $ millions) at the end of the current year?

$680 Ending retained earnings = Beginning retained earnings + net income - dividends Ending retained earnings = $625 + 130 - 75 = $680

A corporation has the following information available for the current year: Item Amount (in $ millions) Issued common stock 45 Repurchase of common stock 65 Paid dividends 75 Net income 130 Beginning Common Stock balance 475 Beginning Retained Earnings balance 625 Based in this information, what is its retained earnings (in $ millions) at the end of the current year?

$680 Ending retained earnings = Beginning retained earnings + net income - dividends Ending retained earnings = $625 + 130 - 75 = $680

A company has bonds with a principal value of $500,000 outstanding. The unamortized premium on the bonds is $12,000. The company redeemed the bonds at 101. What is the company's gain or loss on the redemption?

$7,000 gain When a company retires bonds before maturity, it is necessary to: 1. Eliminate the carrying value of the bonds at the redemption date, 2. Record the cash paid to redeem the bonds, and 3. Recognize the gain or loss on redemption for the difference between 1 and 2. In this case, the bond was issued at a premium so the carrying value equals the bond's principal plus unamortized premium.Carrying value = Principal plus unamortized premium = $500,000 + 12,000 = $512,000The company can redeem this bond at 101 which means it can redeem this bond by paying the bondholder 101% of the bond's principal value. Cash paid to redeem the bonds = $500,000 x 1.01 = $505,000 Determining the gain or loss on the redemption of bonds: 1. Recognize gain if the cash paid to redeem bonds is less than their carrying value. 2. Recognize loss if the cash paid to redeem bonds in more than their carrying value. The cash paid to redeem the bonds is less than the carrying value of bonds redeemed so recognize a gain. The gain equals the excess of the carrying value over the cash paid (i.e., $512,000 - 505,000 = $7,000).

A corporation 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. The corporation increases unearned rent revenue when it collected the rent and it prepares financial statements dated December 31. The appropriate year-end adjusting journal entry that the realty company must record for the first year would be a

$7,500 debit to Unearned Rent Revenue and a $7,500 credit to Rent Revenue. The year-end adjusting entry reduces the liability (i.e., Unearned Revenue) and increases Revenue for the amount of revenue earned during this accounting period. Debit unearned revenue to decrease it, and credit rent revenue to increase it.Revenue earned Oct. 1 through Dec. 31 = 30,000 x 3/12 = 7,500.

A corporation issues a $750,000, 10%, 15-year mortgage note. The terms provide for annual installment payments of $82,626. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$733,985 Since interest accrues annually, the first year's interest would be $75,000 (i.e., 10% x $750,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $82,626 payment and the interest component ($75,000), resulting in a principal reduction of $7,626. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $7,626 from $750,000 to $742,374. The second annual payment's interest is 10% of the outstanding mortgage principal of $742,374, or $74,237. The second annual payment of $82,626 is allocated as $74,237 paid towards interest and the remaining $8,389 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $733,985.

A corporation issues a $750,000, 11%, 15-year mortgage note. The terms provide for annual installment payments of $89,025. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$743,475 Since interest accrues annually, the first year's interest would be $82,500 (i.e., 11% x $750,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $89,025 payment and the interest component ($82,500), resulting in a principal reduction of $6,525. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $6,525 from $750,000 to $743,475.

A corporation issues a $750,000, 12%, 15-year mortgage note. The terms provide for annual installment payments of $95,625. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$744,375 Since interest accrues annually, the first year's interest would be $90,000 (i.e., 12% x $750,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $95,625 payment and the interest component ($90,000), resulting in a principal reduction of $5,645. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $5,645 from $750,000 to $744,375.

On August 1, a company purchased equipment for $8,000. The equipment's estimated salvage value is $800. The machine will be depreciated using straight-line depreciation and a four year life. 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 a

$750 debit to Depreciation Expense and a $750 credit to Accumulated Depreciation. Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (8,000 - 800)/4 = $1,800 per year The correct adjusting entry to record depreciation for 5 months (i.e., August 1 through December 31) is $1,800 per year x 5/12 = $750. The year-end adjusting entry to record depreciation includes a debit to Depreciation Expense and a credit to Accumulated Depreciation.

A company reports net income of $50,000 and cost of goods sold of $450,000. If the company's gross profit rate was 40%, net sales were

$750,000. Gross profit rate = Gross profit/Net sales Gross profit = Net sales - Cost of goods sold Gross profit rate = (Net sales - Cost of goods sold)/Net sales0.40 = (Net sales - $450,000)/Net sales0.40 x Net sales = Net sales - $450,000 Net sales - 0.40 x Net sales = $450,0000.6 x Net sales = $450,000 Net sales = $450,000/0.6 = $750,000

A corporation's December 31, balance sheet shows the following: 8% preferred stock, $10 par value, cumulative,40,000 shares authorized; 18,000 shares issued $180,000 Common stock, $1 par value, 4,000,000 shares authorized; 2,700,000 shares issued, 2,460,000 shares outstanding, $2,700,000 Paid-in capital in excess of par value - preferred stock, $180,000 Paid-in capital in excess of par value - common stock, $51,500,000 Retained earnings, $23,000,000 Treasury stock (40,000 shares), $1,050,000 The company's total stockholders' equity is

$76,510,000. Total stockholders' equity = Preferred stock + Common stock + Paid-in capital in excess of par (for preferred stock & common stock) + Retained earnings - Treasury stock Total stockholders' equity = $180,000 + 2,700,000 + 180,000 + 51,500,000 + 23,000,000 - 1,050,000 = $76,510,000

A corporation's December 31, balance sheet shows the following: 8% preferred stock, $10 par value, cumulative,40,000 shares authorized; 20,000 shares issued $200,000 Common stock, $1 par value, 4,000,000 shares authorized; 2,600,000 shares issued, 2,560,000 shares outstanding, $2,600,000 Paid-in capital in excess of par value - preferred stock, $180,000 Paid-in capital in excess of par value - common stock, $52,000,000 Retained earnings, $23,500,000 Treasury stock (40,000 shares), $1,020,000 The company's total stockholders' equity is

$77,460,000. Total stockholders' equity = Preferred stock + Common stock + Paid-in capital in excess of par (for preferred stock & common stock) + Retained earnings - Treasury stock Total stockholders' equity = $200,000 + 2,600,000 + 180,000 + 52,000,000 + 23,500,000 - 1,020,000 = $77,460,000

On January 1, a corporation issued $800,000 of 6%, 5-year bonds at 98. Assuming straight-line amortization and annual interest payments, what is the bond's carrying value at the end of the first year?

$787,200 The bond was issued at 98 meaning it was issued at 98% of its face value. The original carrying value is $784,000 (i.e., $800,000 x 98% = $784,000) Given the bond was issued at a discount: Straight-line annual amortization of the discount =[(Face value - carrying value)/life in years = [($800,000 − $784,000)/5] = $3,200 Carrying value of the bond after one year = Original carrying value + amortization for the first year = $784,000 + $3,200 = $787,200

A company purchased equipment for $40,000 on January 1. The equipment's original estimated useful life is 8 years and its estimated salvage value is $8,000. The company uses the straight-line method of depreciation. Before recording adjusting entries in the third year, the company decreases the estimated useful life by 3 years giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the third year?

$8,000 Original depreciation per year: ($40,000 - 8,000)/8 years = $4,000 per year. Revised depreciation per year: ($40,000 - 2 x 4,000 - 8,000)/(5-2) = $8,000 per year

A company purchased equipment for $50,000 on January 1 of its first year. The equipment's original estimated useful life is 8 years and its estimated salvage value is $10,000. The company uses the straight-line method of depreciation. On December 31 of its second year, before year-end adjusting entries have been recorded, the company decides to shorten the estimated useful life by 3 years giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the second year?

$8,750 Original depreciation per year = [($50,000 - $10,000)/8] x 1 = $5,000 Revised depreciation per year = [($50,000 - 5,000) - $10,000]/(5-1) = $8,750

A company's adjusted trial balance reports the following accounts and balances: Accounts Receivable, $2,000 Accounts Payable, $200 Accumulated Depreciation-Equipment, $50 Cash, $1,800 Common Stock, $800 Equipment, $3,750 Inventory, $500 Rent Expense, $150 Retained Earnings, $6,600 Salaries and Wages Expense, $600 Service Revenue, $1,000 Unearned Service Revenue, $150 Each account has its normal balance as either a debit or credit balance. What is the total of the debit and credit columns of the adjusted trial balance?

$8,800 Accounts with debit balances include assets, expenses, and dividends (e.g., $2,000 + 1,800 + 3,750 + 500 + 150 + 600 = $8,800) Accounts with credit balances include liabilities, equities, and revenues (e.g., $200 + 50 + 800 + 6,600 + 1,000 + 150 = $8,800)

A company has three categories of inventory in stock: Category / Cost / Market value Tin / $400 / $350 Stainless steel / 200 / 150 Aluminum / 300 / 500 Apply the lower of cost or market rule to determine the company's ending inventory.

$800 LCM for Tin = $350 LCM for Stainless steel = $150 LCM for Aluminum = $300 Total LCM = $800

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $350,000 Treasury stock—common, $20,000 Paid-in capital in excess of par value—common, $75,000 Treasury stock—preferred, $30,000 Common stock, $200,000 Preferred stock, $175,000 Paid-in capital in excess of par value—preferred, $55,000 How much is total stockholders' equity?

$805,000 Total stockholders' equity = Retained earnings - treasury stock--common + paid-in capital in excess of par value--common - treasury stock--preferred + common stock + preferred stock + paid-in capital in excess of par value--preferred Total stockholders' equity = $350,000 - $20,000 + $75,000 - $30,000 + $200,000 + $175,000 + $55,000 = $805,000

A corporation has 10,000 shares of 4%, $40 par, non-cumulative preferred stock and 50,000 shares of $4 par common stock outstanding. Both the common stock and the preferred stock have been outstanding since the company began last year. No dividends were paid last year. The board of directors declared a $100,000 dividend this year. What amount of the total dividend will be paid to common stockholders?

$84,000 Before the common stockholders receive any dividends, preferred stockholders must be paid their dividends before anything can be paid to common stockholders. Also, this preferred stock is non-cumulative so dividends are never in arrears. Preferred stockholder dividend = 10,000 x 4% x $40 = $16,000 Total dividends available = $100,000 Dividends available to common stockholders = $84,000

A company started the year with $75,000 in its common stock account and a credit balance in retained earnings of $42,000. During the year, the company earned net income of $60,000 and declared and paid $17,500 of dividends. In addition, the company sold additional common stock amounting to $32,000. As a result, the amount of its retained earnings at the end of the year would be

$84,500 Ending retained earnings = $84,500 = Beginning Retained Earnings + Net Income - Dividends Ending retained earnings = 42,000 + 60,000 - 17,500

An analysis of the accounts receivable of a certain company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $900,000 Allowance for doubtful accounts (credit balance), $18,000 Amounts expected to become uncollectible, $60,000 How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?

$840,000 The net realizable value of the accounts receivable is accounts receivable less the ending balance in the Allowance for Doubtful Accounts. In this case, accounts receivable is $900,000 and the ending balance in Allowance for Doubtful Accounts will be $60,000 after the year-end adjusting entry has been recorded. This will result in cash realizable value (i.e., net realizable value) of $900,000 less $60,000, or $840,000.

The following is information is from a certain corporation's financial records for the current fiscal year. i. Cash received from customers, $230,000 ii. Revenue earned, $255,000 iii. Cash paid for wages, $110,000 iv. Wage expense incurred, $115,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $30,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $4,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the cash-basis of accounting?

$86,000 The cash-basis of accounting recognizes revenues in the year cash is collected from customers regardless of when the performance obligation is satisfied and it recognizes expenses in the year they are paid regardless of when they are incurred. Net income using the cash-basis = Cash collected from customers - cash paid for expenses incurred Net income using the cash-basis = $230,000 - 110,000 - 30,000 - 4,000 = $86,000

A company uses a periodic inventory system. Details for the inventory account for the month of January are as follows: Units / Per unit price / Total Balance, January 1 / 200 / $5.00 / $1,000 Purchase, January 15 / 100 / 5.30 / 530 Purchase, January 28 / 100 / 5.50 / 550 An end of the month inventory showed that 160 units were on hand. If the company uses FIFO, what is the value of the ending inventory?

$868 Goods available for sale is 400 units Ending inventory = 160 units Cost of goods sold = goods available for sale - ending inventory = 400 units - 160 units = 240 units Using FIFO & periodic, the cost of goods sold includes the oldest 240 units and ending inventory includes the 160 newest units. Ending inventory = 100 units at $5.50/unit + 60 units x $5.30/unit = $550 + 318 = $868

A corporation issues a $900,000, 9%, 25-year mortgage note. The terms provide for annual installment payments of $91,626. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$877,792 Since interest accrues annually, the first year's interest would be $81,000 (i.e., 9% x $900,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $91,626 payment and the interest component ($81,000), resulting in a principal reduction of $10,626. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $10,626 from $900,000 to $889,374. The second annual payment's interest is 9% of the outstanding mortgage principal of $889,374, or $80,044. The second annual payment of $91,626 is allocated as $80,044 paid towards interest and the remaining $11,582 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $877,792.

A check correctly written by a company for $312 was incorrectly recorded by that same company as $321. On the bank reconciliation

$9 should be added to the cash balance per books. The company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted.

A check correctly written by a company for $321 was incorrectly recorded by that same company as $312. On the bank reconciliation

$9 should be deducted from the cash balance per books. The company deducted too little from its cash balance. Correcting the error requires subtracting back the difference between the correct amount and the amount deducted.

A company has bonds with a principal value of $500,000 outstanding. The unamortized premium on the bonds is $14,000. The company redeemed the bonds at 101. What is the company's gain or loss on the redemption?

$9,000 gain When a company retires bonds before maturity, it is necessary to: 1. Eliminate the carrying value of the bonds at the redemption date, 2. Record the cash paid to redeem the bonds, and 3. Recognize the gain or loss on redemption for the difference between 1 and 2. In this case, the bond was issued at a premium so the carrying value equals the bond's principal plus unamortized premium. Carrying value = Principal plus unamortized premium = $500,000 + 14,000 = $514,000 The company can redeem this bond at 101 which means it can redeem this bond by paying the bondholder 101% of the bond's principal value. Cash paid to redeem the bonds = $500,000 x 1.01 = $505,000Determining the gain or loss on the redemption of bonds: 1. Recognize gain if the cash paid to redeem bonds is less than their carrying value. 2. Recognize loss if the cash paid to redeem bonds in more than their carrying value. The cash paid to redeem the bonds is less than the carrying value of bonds redeemed so recognize a gain. The gain equals the excess of the carrying value over the cash paid (i.e., $514,000 - 505,000 = $9,000).

A company's adjusted trial balance reports the following accounts and balances: Accounts Receivable, $2,000 Accounts Payable, $300 Accumulated Depreciation-Equipment, $250 Cash, $1,800 Common Stock, $1,000 Equipment, $3,750 Inventory, $1,200 Rent Expense, $150 Retained Earnings, $6,600 Salaries and Wages Expense, $600 Service Revenue, 1,200 Unearned Service Revenue, $150 Each account has its normal balance as either a debit or credit balance. What is the total of the debit and credit columns of the adjusted trial balance?

$9,500 Accounts with debit balances include assets, expenses, and dividends (e.g., $2,000 + 1,800 + 3,750 + 1,200 + 150 + 600 = $9,500) Accounts with credit balances include liabilities, equities, and revenues (e.g., $300 + 250 + 1,000 + 6,600 + 1,200 + 150 = $9,500)

A check correctly written by a company for $1,403 was incorrectly recorded on its books as $1,304. As a result, the company's next monthly bank reconciliation should include

$99 deducted from the cash balance per books. The company deducted too little (i.e., $1,403 - $1,304 = $99) from its cash balance. Correcting the error requires deducting $99.

Which of these should a company include in its ending inventory? (1) Goods in transit it purchased with terms FOB destination (2) Goods in transit it purchased with terms FOB shipping point. (3) Goods in transit it sold with terms FOB destination (4) Goods in transit it sold with terms FOB shipping point Which of these should be included in its inventory?

(2) Goods in transit it purchased with terms FOB shipping point and (3) Goods in transit it sold with terms FOB destination Ending inventory includes inventory owned at year-end. When goods are sold FOB shipping point, title (i.e., ownership) transfers from the seller to the buyer once the seller ships the goods; goods in transit are owned by the buyer. When goods are sold FOB destination point, title (i.e., ownership) transfers from the seller to the buyer when the buyer receives the goods; goods in transit are owned by the seller.

A corporation has accounts and balances: Accounts payable $40,000 Investments in bonds 20,000 Accounts receivable 50,000 Land 130,000 Accumulated depreciation 50,000 Notes payable 300,000 Buildings 500,000 Patents 20,000 Cash 100,000 Prepaid insurance 30,000 Common stock 690,000 Retained earnings 150,000 Equipment 160,000 Trademarks 40,000 Inventory 200,000 The land is used as a parking lot. The bonds are expected to be held long-term. What are its (i) current assets and (ii) property, plant & equipment?

(i) $380,000 and (ii) $740,000 Classified balance sheets partition a company's assets into four categories: (i) current assets (e.g., cash, accounts receivable, inventory), (ii) long-term investments (e.g., investments in securities other companies, such as stocks and bonds, expected to be held more than one year), (iii) property, plant, and equipment (e.g., buildings, land, equipment, delivery vehicles, and furniture minus accumulated depreciation)), and (iv) intangibles (e.g., goodwill, patents, copyrights, trademarks).Rose's current assets include accounts receivable, cash, inventory, and prepaid insurance. Current assets = 50,000 + 100,000 + 200,000 + 30,000 = 380,000 Rose's property, plant, and equipment includes buildings, equipment and land minus accumulated depreciation. Property, plant and equipment = 500,000 + 160,000 + 130,000 - 50,000 = 740,000

When equipment is sold for cash in an amount that is greater than its book value, the company debits the following

(i) Accumulated Depreciation and (ii) Cash When plant assets, such as equipment, are sold for cash in an amount that is greater than their book value, the asset is sold at a gain. When equipment is sold for more than its book value, the company debits (i) Cash and (ii) Accumulated Depreciation and it credits (i) Equipment and (ii) Gain on Disposal of Plant Assets.

When equipment is sold for cash in an amount that is less than its book value, the company debits the following

(i) Accumulated Depreciation, (ii) Cash, and (iii) Loss on Disposal of Plant Assets When plant assets, such as equipment, are sold for cash in an amount that is less than their book value, the asset is sold at a loss. When equipment is sold for less than its book value, the company debits (i) Cash, (ii) Accumulated Depreciation and (iii) Loss on Disposal of Plant Assets and it credits (i) Equipment.

In which of the following sequences are these three financial statements usually prepared?

(i) Income statement, (ii) statement of stockholders' equity, and (iii) balance sheet. The financial statements are prepared in the following order: income statement, retained earnings statement, and balance sheet. This is because net income (from the income statement) is a required input for the statement of stockholders' equity, ending retained earnings (from the statement of stockholders' equity) is a required input for the balance sheet.

A company uses the periodic inventory method. An error in the physical count of goods on hand at the end of a period resulted in a $10,000understatement of the ending inventory. The effect of this error in the current period is that (i) cost of goods sold is _________________ and (ii) net income is __________________.

(i) Overstated and (ii) Understated In the periodic inventory system, cost of goods sold is computed at the end of the period using a formula that includes ending inventory which is determined by taking a physical inventory. Sometimes, the ending inventory is mis-counted (i.e., understated or overstated). An error in ending inventory results in an error in cost of goods sold in the opposite direction. For example, understating ending inventory overstates cost of goods sold. Moreover, an error in cost of goods sold causes an error in gross profit, net income, retained earnings, and stockholders' equity. For example, overstating cost of goods sold understates gross profit, net income, and retained earnings.

A company uses straight-line depreciation. It purchased a truck for $40,000. The truck's salvage value is $4,000. The truck's annual depreciation expense is $3,000. What is the truck's useful life?

12 years The depreciable cost equals the cost minus the salvage value; it is the $40,000 purchase price less $4,000 salvage value, which is $36,000. The annual depreciation cost is $3,000 Since $36,000 will be depreciated by $3,000 per year, the useful life is 12 years (i.e., $36,000/$3,000 per year = 12 years).

A company purchased merchandise with an invoice price of $1,000 and credit terms of 1/10, n/40. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

12% The company buying merchandise can wait 10 days and still receive a 1% discount. Otherwise, it can wait an additional 30 days and pay the full invoice amount without being overdue. In other words, a 30-day difference produces 1% interest. An interest rate of 1% in 30 days is equivalent to an interest rate of 12% in 360 days (i.e., 1% x 360/30). Alternatively: The company must pay the invoice no later than 40 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 1% discount (i.e., 1% x $1,000 = $10). So, the company can save $10 if it pays 40 days before the due date.Interest = Principal x Interest rate x Time$10 = $1,000 x Interest rate x (40-10)/360 Solving for the interest rate: Interest rate = [360/(40-10)] x $10/$1,000 = 0.12 (i.e., 12%)

A corporation reported net income of $250,000 and paid dividends of $10,000 on its common stock and $50,000 on its preferred stock. Common stockholders' equity was $1,200,000 at the start of the year and $1,600,000 at the end of the year. Total assets was $1,900,000 at the start of the year and $2,100,000 at the end of the year. What is the company's return on common stockholder's equity?

14.29% Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equity Return on common stockholders' equity = (250,000 - 50,000)/(1,200,000 + 1,600,000)/2) = 14.29%.

A company purchased merchandise with an invoice price of $2,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

18% The company buying merchandise can wait 10 days and still receive a 1% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 1% interest. An interest rate of 1% in 20 days is equivalent to an interest rate of 18% in 360 days (i.e., 1% x 360/20). Alternatively: Interest = Principal x Interest rate x Time$10 = $1,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $10/$1,000 = 0.18 (i.e., 18%)

A company purchased merchandise with an invoice price of $1,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

18% The company buying merchandise can wait 10 days and still receive a 1% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 1% interest. An interest rate of 1% in 20 days is equivalent to an interest rate of 18% in 360 days (i.e., 1% x 360/20). Alternatively: The company must pay the invoice no later than 30 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 1% discount (i.e., 1% x $1,000 = $10). So, the company can save $10 if it pays 20 days before the due date.Interest = Principal x Interest rate x Time$10 = $1,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $10/$1,000 = 0.18 (i.e., 18%)

The following information is for a certain company: Net income, $850,000 Common stock dividends, $75,000 Preferred stock dividends, $40,000 Average total assets, $6,200,000 Average common stockholders' equity, $4,500,000 Average preferred stockholders' equity, $1,500,000 What is the return on common stockholders' equity?

18.00% Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equity Return on common stockholders' equity = (850,000 - 40,000)/4,500,000 = 18.00%.

Consider the following data for a corporation: Net income, $800,000 Preferred stock dividends, $50,000 Market value of common stockholders' equity, $7,500,000 Beginning common stockholders' equity, $3,800,000 Ending common stockholders' equity, $4,200,000 Common stock dividends, $20,000 What is the return on common stockholders' equity?

18.75% Return on common stockholders' equity = Net income less preferred stock dividends divided by the average common stockholders' equity Return on common stockholders' equity = ($800,000 - $50,000)/$4,000,000 = 18.75%

A company's net credit sales are $900,000, average net accounts receivables is $50,000, average inventory totals $60,000, and average cash is $5,000. How much is the average collection period (also known as the days in receivable ratio)?

20.277 days There are two steps: The accounts receivable turnover is net credit sales divided by average net accounts receivable = $900,000/$50,000 = 18 times The average collection period is 365 divided by the accounts receivable turnover ratio = 365/18 = 20.277 days.

In the current year, a corporation reported net income of $180,000, paid dividends of $40,000 on common stock, and $25,000 of dividends on preferred stock. The corporation's common stockholders' equity was $650,000 at the beginning of the year and its common stockholders' equity is $850,000 at the end of the year. The company's return on common stockholders' equity for the current year is

20.7% Return on common stockholders' equity = net income less preferred dividends divided by average common stockholders' equity. Return on common stockholders' equity = (180,000 - 25,000)/[(650,000 + 850,000)/2] = 20.7%

A company's net credit sales are $750,000, average cash is $5,000, average inventory totals $50,000, and average net account receivables is $60,000. How much is the average collection period (also known as the days in receivable ratio)?

29.2 days There are two steps: The accounts receivable turnover is net credit sales divided by average net accounts receivable = $750,000/$60,000 = 12.5 times The average collection period is 365 divided by the accounts receivable turnover ratio = 365/12.5 = 29.2 days.

A company purchased a plant asset for $45,000. It has a salvage value of $5,000 and a useful life of 8 years. It calculates depreciation using the straight-line method. The balance of the company's Accumulated Depreciation account at the end of the current year after-adjusting entries is $25,000. What is the asset's remaining useful life?

3 years Depreciation per year = (Cost - salvage value)/Useful life Solving for useful life: Useful life = ($45,000 - 5,000)/8 years = $5,000 per year Years expired = Accumulated depreciation/Depreciation per year = $25,000/$5,000 = 5 years Remaining life = Useful life - Years expired = (8 - 5) = 3 years.

The financial statements of a company reports net credit sales of $560,000. It also reports net accounts receivable of $76,000 and $52,000 at the beginning of the year and end of year, respectively. Its average inventory is $60,000. What is the average collection period for accounts receivable in days (rounded)?

41.7 days Accounts receivable turnover = Net credit sales divided by average net accounts receivable Accounts receivable turnover = 560,000/[(76,000+52,000)/2] = 8.750 Average collection period (i.e., days in receivable) = 365/Accounts receivable turnover Average collection period (i.e., days in receivable) = 365/8.750 = 41.714 days

A company has the following: 2022 2021 Ending inventory $32,650 $30,490 Cost of goods sold 255,250 261,300 Sales revenue 420,000 480,000 Net income 100,000 80,000 What is the company's days in inventory for 2022?(rounded)

45.1 days Inventory turnover = Cost of goods sold/average inventory Inventory turnover = $255,250/[($32,650 + $30,490)/2] = 8.085 Days in inventory = 365/inventory turnover Days inventory = 365/8.085 = 45.1441

A company has the following accounts balances: Sales revenue $100,000; Sales Returns and Allowances $20,000; Sales Discounts $5,000; Cost of Goods Sold $40,000; and Net Income $7,000. How much is the gross profit rate?

46.7% Net sales = Sales revenue - sales returns and allowances - sales discounts Net sales = 100,000 - 20,000 - 5,000 = 75,000 Gross profit = Net sales - cost of goods sold Gross profit = 75,000 - 40,000 = 35,000 Gross profit rate = Gross profit divided by net sales. Gross profit rate = 35,000/75,000 = 46.7%

A company purchased a plant asset for $48,000. It has a salvage value of $3,000 and an annual depreciation expense of $5,000. It calculates depreciation using the straight-line method. The balance of the company's Accumulated Depreciation account at the end of the current year after-adjusting entries is $20,000. What is the asset's remaining useful life?

5 years Since the depreciable cost is $45,000 (i.e., $48,000 purchase price less the salvage value of $3,000) and the annual depreciation is $5,000, it must have a 9-year life. The balance in Accumulated Depreciation indicates that 4 years of life have been consumed (i.e., $20,000/$5,000 per year = 4 years). Of the total 9 years of life, 5 years remain.

A corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.00. What is its average collection period (also known as the days in receivable ratio)?

52 days The average collection period is computed by dividing the number of days in the year by the accounts receivable turnover. The average collection period = 365/7 = 52 days.

A company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

54% The company buying merchandise can wait 10 days and still receive a 3% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 3% interest. An interest rate of 3% in 20 days is equivalent to an interest rate of 54% in 360 days (i.e., 3% x 360/20). Alternatively: The company must pay the invoice no later than 30 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x $2,000 = $60). So, the company can save $60 if it pays 20 days before the due date.Interest = Principal x Interest rate x Time $60 = $2,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $60/$2,000 = 0.54 (i.e., 54%)

In the current year, a corporation had sales of $500,000, net income of $200,000, interest expense of $40,000, and tax expense of $30,000. Its net sales were $1,000,000 and its cost of goods sold was $200,000. What was its times interest earned for the year?

6.75 Times interest earned is computed by dividing income before interest and taxes by interest expense. Times interest earned = ($200,000 + $40,000 + $30,000)/$40,000, or 6.75.

A corporation sells its goods on terms of 3/10, n/30. It has a receivables turnover ratio of 6.00. What is its average collection period (also known as the days in receivable ratio)?

60.83 days The average collection period is computed by dividing the number of days in the year by the accounts receivable turnover, or 365/6 = 60.83 days.

The following data is available for a certain corporation at December 31:Common stock, par $3 (authorized 250,000 shares), $300,000Treasury stock (at cost $12 per share), $1,200Based on the data, how many shares of common stock are outstanding?

99,900 The common stock account records the par value of common stock that has been issued. Given the common stock account's total is $300,000 and common stock has a $3 par value per share the company the company must have 100,000 shares of common stock issued (i.e., $300,000/$3 per share = 100,000 shares).This company has treasury stock. Treasury stock is a corporation's own stock that has been reacquired. With $1,200 of treasury stock recorded on the company's books and a $12 cost per share the company must have 100 shares of its own common stock being held as treasury stock. The number of outstanding shares equals the number of issued shares minus the number of shares reacquired (i.e., treasury shares). This company has 100,000 shares outstanding (i.e., 100,000 - 100 = 99,900).

Which of the following is not an example of a source document that provides evidence of a transaction?

A chart of accounts for the company The number and types of accounts used varies for each company. Companies maintain a chart of accounts to identify the accounts they use to record journal entries and to track in their ledger. The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. This begins with examining a source document that provides evidence of a transaction or event that needs to be recorded. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter the transaction information in the journal (i.e., journalize the transaction). Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger).

Which of the following best describes a chart of accounts

A chart of accounts is the list of the accounts in a given firm's ledger. A chart of accounts is the list of the accounts in a given firm's ledger. This includes all of the accounts used by a given firm regardless of the accounts' balances.. Also, the order of the accounts in the chart of accounts follows the order of the sections of the balance sheet and income statement, namely (1) assets, (2) liabilities, (3) stockholders' equity, (4) revenues, (5) expenses, and (6) dividends.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation?

A check written by the company for $57 was incorrectly recorded on the company's books as $75. The company decreased the company's balance by $75 when it should have decreased it by $57. Correcting this error requires adding $18 to the cash balance per books.

For which of the following errors should the appropriate amount be subtracted from the cash balance per books on a bank reconciliation?

A check written by the company for $63 was incorrectly recorded on the company's books as $36. Amounts subtracted from the cash balance per books include NSF checks, bank service charges, and company recording errors that erroneously increased the company's cash account balance. The company decreased the company's balance by $36 when it should have decreased it by $63. Correcting this error requires subtracting $27 from the cash balance per books

During its first year, a corporation earned revenues of $135,000 and incurred expenses of $87,000. The corporation also paid cash dividends of $10,000 and purchased $25,000 of equipment in exchange for cash during the first year. What is the balance in the company's retained earnings account at the end of its first year?

A credit balance of $38,000 Ending retained earnings = Beginning retained earnings + net income - dividends. Ending retained earnings = $0 + $135,000 - $87,000 - $10,000 = $38,000. Retained earnings normally has a credit balance; it occurs when revenues exceed expenses and dividends.

A corporation issues 1,000 shares of $10 par value common stock at par. Which of the following will be part of the journal entry to record the issuance?

A credit to Common Stock for $10,000 he journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 x $10 = $10,000 Credit to Common stock = 1,000 x $10 = $10,000 Credit to Paid-in capital in excess of par value = 1,000 x ($10 - $10) = $0

A corporation issues 1,000 shares of $8 par value common stock at par. Which of the following will be part of the journal entry to record the issuance?

A credit to Common Stock for $8,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 x $8 = $11,000 Credit to Common stock = 1,000 x $8 = $8,000 Credit to Paid-in capital in excess of par value = 1,000 x ($8 - $8) = $0

On January 1, a company issues $500,000, 5-year, 10% bonds at 98 with interest payable on January 1. Which of the following is one part of the entry on December 31 to record accrued bond interest and the amortization of the bond discount using the straight-line method?

A credit to Discount on Bonds Payable, $2,000 When a discount is amortized, the debit to interest expense is the sum of the cash to be paid ($500,000 x 10% = $50,000) plus the amount of discount amortization [($500,000 - ($500,000 x 98%))/5 = $2,000]. In this case, the debit to interest expense should be for $50,000 plus $2,000, or a total of $52,000. The entry to record accrued bond interest and the discount amortization includes a debit to interest expense for $52,000, a credit to discount on bond payable for $2,000 and a credit to interest payable for $50,000. Payment occurs the next day on January 1.

What journal entry is recorded as a result of performing services in exchange for cash?

A debit to Cash and a credit to Revenue Performing services in exchange for cash indicates that the company has earned the revenue so it records it as Revenue. Cash is also received so the balance in cash increases.

When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain?

A debit to Cash, a credit to Notes Receivable, and a credit to Interest Revenue

When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain?

A debit to Cash, a credit to Notes Receivable, and a credit to Interest Revenue The entry to record this transaction will have a debit to Cash, a credit to Notes Receivable and a credit to Interest Revenue.

A company uses a perpetual inventory system. It purchased $10,000 of merchandise with terms of 2/10, n/30. It also must pay a $200 shipping charge. The company paid for both the merchandise and the shipping charge nine days after their invoice date. Which of the following is part of the journal entry the company records when it pays the shipping charge?

A debit to Inventory for $200 In a perpetual inventory system, all of the cost of acquiring merchandise (including the cost of having the inventory delivered to the purchaser) is recorded as part of the cost of the inventory. The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $200 and a credit to cash for $200.

On May 1, a company receives a $4,000, 3-month, 10% note from a customer as a settlement of its accounts receivable. What journal entry will the company record on May 1?

A debit to Notes Receivable for $4,000 and a credit to Accounts Receivable for $4,000 Settling an account receivable by replacing it with a note receivable suggests that Notes Receivable will be debited for $4,000 and Accounts Receivable will be credited for $4,000.

A company sells annual magazine subscriptions and it publishes eight magazines each a year. The company sells 45,000 subscriptions in December at $10 each. What journal entry in December to record the sale of the subscriptions?

A debit to the Cash account for $450,000 and credit an unearned revenue account for $450,000. Selling 45,000 subscriptions for $10 per subscription involves collecting $450,000 of cash from customers and the creation of a $450,000 obligation to provide magazines during the subscription period. Debit cash for $450,000 and credit unearned revenue for $450,000.

Which of these statements about national credit card (e.g., Visa) sales is correct?

A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer. With a credit card sale, there is no wait for payment by the retailer. Upon notification of a credit card charge from a retailer, the bank that issued the card immediately adds the amount to the seller's bank balance. So, the retailer receives payment at the time the credit card is accepted from the customer as a form of factoring (or selling a receivable by the retailer). Also, the retailer has no concerns about the credit worthiness of the customer when the customer uses a credit card because the credit card issuer guarantees payment. It is the credit card issuer that assesses the card holder's credit worthiness, and this occurs when the issuer issues the card. In sum, the retailer records the sales revenue for the full invoice price and records a small service charge expense and cash. For example, a $100 sale with a 2% fee includes a debit to Cash for $98, a debit to Service Charge Expense for $2, and a credit to Revenue for $100.

Which of the following is true with regard to corporate formations and corporate ownership?

ALL OF THESE - A corporation can issue common stock directly to investors, and this tends to occur among closely held corporations. - A corporation can issue common stock with a par value that determines the stock's legal capital. - The New York Stock Exchange is one of the world's most well-known exchanges where corporate stock is bought and sold. - A corporation can issue common stock indirectly to investors, and this tends to occur with the help of an investment banker. These are true statements: A corporation can issue common stock directly to investors and this tends to occur among closely held corporations. A corporation can issue common stock indirectly to investors and this tends to occur with the help of an investment banker. The New York Stock Exchange is one of the world's most well-known exchanges where corporate stock is bought and sold. A corporation can issue common stock with a par value that determines the stock's legal capital; when a corporation issues stock without a par value then legal capital is determined through other means.

Which of the following is correct concerning the adjusted trial balance?

ALL OF THESE - The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries. - An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. - The adjusted trial balance provides the primary basis for the preparation of financial statements. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. The adjusted trial balance provides the primary basis for the preparation of financial statements. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

Which of the following is an effective internal control over cash disbursements?

ALL OF THESE - The separation of authorization of checks and the actual writing of the checks - The storage of blank checks in a secure place - The use of pre-numbered checks Use of pre-numbered checks, safeguarding of blank checks, and separation of check authorization from preparation of checks are elements of an effective internal control principles over disbursements.

Closing entries must be journalized and posted. Which of the following accounts will not be closed each year-end?

Accounts Receivable Closing entries transfer the balances from temporary accounts, such as revenues, expenses, and dividends, to the retained earnings account. Revenues are closed by debiting each revenue account. Expenses are closed by crediting each expense account. Some companies close revenues and expenses to an income summary account and then close the income summary account to retained earnings. Dividends are closed directly to the retained earnings account. Closing revenues increases retained earnings. Closing expenses and dividends decreases retained earnings. After closing them, revenues, expenses, and dividends have zero balances. Temporary accounts are not included on the post-closing trial balance.

Which one of the following is not a control procedure used for over-the-counter receipts?

All of these are control procedures used for over-the-counter receipts - Providing the customers with an itemized receipt - None of these are control procedures used for over-the-counter receipts - A cash register's tape is locked in the register and only a supervisor can access it - Use of a cash register where the amount rung up is clearly visible to the customer This is a technique used to control cash disbursements, not cash receipts.

What does a general ledger of a company contain?

All the asset, liability, stockholders' equity, revenue, expense, and dividend accounts A general ledger lists all of the accounts of a company. These are the asset, liability, stockholders' equity, revenue, expense, and dividend accounts.

Which of the following events is not recorded in a company's accounting records?

An employee is terminated. All of these events are transactions that affect the company's financial statements with one exception. Termination of an employee is not a recordable event in the accounting records. In the future, the company will have a lower salaries expense, but terminating one or more employees is not an event recorded among a company's accounts.

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 and any change in sales, sales returns in allowances, sales discounts, or the cost of goods sold will affect the ratio.

A company increases its prepaid rent account's balance when it pays its landlord, but the company fails to record its adjusting entries at the end of the current year. What is the effect of this omission?

Assets will be overstated, net income will be overstated, and stockholders' equity will be overstated. Paying for rent in advance of the lease period results in an increase in prepaid rent and a decrease in cash. By the end of the year, some or all of the prepaid rent has expired and the company should record an adjusting entry that decreases the balance of the prepaid rent account and increase rent expense. If the company forgot to record a prepaid rent adjusting entry, prepaid rent would be overstated and rent expense would be understated.

When is a receivable recorded by a merchandiser?

At the point of sale of the merchandise on account. A receivable is recorded at the point of sale of the merchandise (i.e., when the associated revenue is earned) regardless of when cash is received.

Which financial statement is dated as of a specific point in time?

Balance sheet The balance sheet presents information as of a specific point in time. Other financial statements are dated "for a period of time" such as for the current year.

Which of the following is not one of the main factors that contributes to fraudulent activity and is also known as part of the fraud triangle?

Bonding The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high.

Which of the following statements is true with regards to bonds?

Callable bonds can be redeemed by the issuing company at a stated dollar amount prior to maturity. Bonds are interest-bearing securities usually issued in denominations of $1,000 representing the face value or principal that is due at maturity. Bonds can have a variety of characteristics. To satisfy investors (i.e., bondholders), companies issue bonds at their present value determined using the market rate of interest (i.e., effective interest rate). Any discount or premium will be amortized over the life of the bond. A bonds is either secured or unsecured. If the bond issuer (i.e., the debtor) has specific assets that it pledges as collateral in case the bond issuer defaults on paying interest and/or repaying the principal then the bond is secured. In contrast, if the bond issuer does not pledge specific assets as collateral for the bond in case it defaults on paying interest and/or repaying the principal then the bond is unsecured. Another characteristic that some bonds have is that the bond allows the bondholder (i.e., creditor) the option to exchange the bond for shares of stock of the issuing company. Bonds with this characteristic are called convertible bonds. Another characteristic of some bonds is being callable. Callable bonds can be retired or paid off at the discretion of the issuer at a specified price prior to the maturity date.

Which of the following is not an element of the fraud triangle?

Collusion The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high. Collusion is not a component of the fraud triangle. Rather, it is an example of wrong-doing.

Which type of business is a separate legal entity from its owners such that its owners are not personally liable for the business' debts?

Corporations Corporations have one or more owners called stockholders. Stockholders are considered to be separate from the corporation; stockholders are not personally liable for the corporation's debts. Proprietorships and partnerships are not considered to be separate from their owners; their owners are personally liable for the company's debts.

What method is normally used to account for treasury stock?

Cost method Treasury stock is not an asset; it is a contra equity. However, it is recorded at cost similar to assets being recorded at cost.

Which of the following is an expense?

Cost of goods sold Accounts are classified into categories including assets, liabilities, equities, revenues, expenses, and dividends. Expenses are the cost of assets consumed or services used. Expenses occur when companies generate (or attempt to generate) revenues. Common examples of expenses include wage expenses, interest expenses, marketing expenses, etc. Most expenses have the word "expense" in their title, but cost of goods sold is an exception. Cost of goods sold is an expense that tracks the cost of inventory sold to customers.

Which of the following is not a liability?

Cost of goods sold Debts and obligations are amounts owed. These are referred to as liabilities. For example, when a company buys supplier on account it has not yet paid for the supplies. Rather, the company owes the supplier. Such a liability would be call an account payable. When a company borrows money and it issues a note as evidence of the loan it has a note payable representing the liability or the amount owed. As times passes, notes result in interest, such as interest payable. Cost of goods sold is an expense rather than a liability.

A company's net credit sales for the year are $5,000,000. On December 31, its accounts receivable balance is $180,000. The allowance is calculated as 8.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $6,000 before adjustment. How much is the balance of the allowance account after adjustment?

Credit balance of $15,300 The ending balance required in the allowance account (i.e., Allowance for Doubtful Accounts) needs to be a credit balance equal to 8.5% times $180,000, or $15,300.

A company's net credit sales for the year are $6,000,000. On December 31, its accounts receivable balance is $300,000. The allowance is calculated as 7% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $10,000 before adjustment. How much is the balance of the allowance account after adjustment?

Credit balance of $21,000 The ending balance required in the allowance account (i.e., Allowance for Doubtful Accounts) needs to be equal to 7% times $300,000, or $21,000.

On January 1, a corporation issues $200,000 of 5-year, 7% bonds at face value. Which one of the following is one effect of the entry to record the issuance of the bonds?

Credit to Bonds Payable for $200,000 The journal entry for the issuance of bonds issued at face value includes a debit to cash for the proceeds collected (i.e., $200,000) and a credit to obligation associated with the bonds (i.e., Bonds Payable for $200,000). Since the bonds were issued at face value, neither a premium nor a discount would be recorded. No interest is recognized or due on the bonds at the issue date.

A corporation uses a perpetual inventory system. It purchased $2,000 of merchandise on July 5 on account with terms 2/10, n/30. It returned $400 of the merchandise on July 9. It pays on July 21. Which of the following is part of the journal entry it records when it pays on July 21?

Credit to Cash for $1,600 The discount terms are 2/10, n/30 which indicates a 2% discount if paid within 10 days but the full amount is due otherwise. Since the bill is paid after the discount period, the full invoice amount is $2,000 minus the returned goods of $400, or $1,600. The entry to record payment will debit Accounts Payable for $1,600 and credit Cash for $1,600.

A corporation issued 2,500 shares of $6 par value common stock for $7 per share. Which of the following is included in the journal entry to record the issuance?

Credit to Common Stock for $15,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 2,500 x $7 = $17,500 Credit to Common stock = 2,500 x $6 = $15,000 Credit to Paid-in capital in excess of par value = 2,500 x ($7 - $6) = $2,500

A corporation issued 3,000 shares of $6 par value common stock for $7 per share. Which of the following is included in the journal entry to record the issuance?

Credit to Common Stock for $18,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 3,000 x $7 = $21,000 Credit to Common stock = 3,000 x $6 = $18,000 Credit to Paid-in capital in excess of par value = 3,000 x ($7 - $6) = $3,000

A corporation issued 3,000 shares of $10 par value preferred stock at $15 per share. Which of the following will be part of the journal entry to record the corporation's issuance of preferred stock?

Credit to Paid-in Capital in Excess of Par Value—Preferred Stock for $15,000 The journal entry will increase the cash account for the total issue price, increase the preferred stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for preferred stock in the amount of the excess received above par value. Debit to Cash = 3,000 x $15 = $45,000 Credit to Preferred Stock = 3,000 x $10 = $30,000 Credit to Paid-in capital in excess of par value = 3,000 x ($15 - $10) = $15,000

At the start of the current year, a company issued a $1,000,000 note to a bank. The company must pay the bank $200,000 plus interest each January 1 for the next five years starting at the beginning of next year. The company will report the note payable on its current year's balance sheet as

Current liabilities, $200,000; Long-term Debt, $800,000. At the end of the first year, the note payable is $1,000,000 with $200,000 due within one year and $800,000 due in more than one year. The $200,000 is a current liability and the remaining $800,000 is a long-term liability.

At the start of the current year, a company issued a $1,000,000 note to a bank. The company must pay the bank $250,000 plus interest each January 1 for the next four years starting at the beginning of next year. The company will report the note payable on its current year's balance sheet as

Current liabilities, $250,000; Long-term Debt, $750,000. At the end of the first year, the note payable is $1,000,000 with $250,000 due within one year and $750,000 due in more than one year. The $250,000 is a current liability and the remaining $750,000 is a long-term liability.

A corporation uses the perpetual inventory system. On April 1, it purchased merchandise on account for $15,000 with terms 1/15, n/30. It pays a shipping company $250 to transport the merchandise from the seller. It returns merchandise with an invoice price of $1,000 to the seller on April 7. On April 30, it pays for the merchandise it retains. How would it record the payment on April 30 for the merchandise it retained?

Debit accounts payable for $14,000; credit cash for $14,000. The company purchasing merchandise uses the perpetual inventory system. When it pays the balance due for the purchase of inventory after the discount period, it pays the invoice price of the inventory not returned to the seller without any purchase discount. The cash paid to the seller is $14,000 (i.e., $15,000 - 1,000 = $14,000).

A corporation uses the perpetual inventory system. It purchased merchandise on account for $15,000 with terms 1/15, n/30. It pays a shipping company $250 to transport the merchandise from the seller. How would it record its payment of the transportation charges?

Debit inventory for $250; credit cash for $250. The company purchasing merchandise uses the perpetual inventory system. When it purchases inventory and must pay shipping charges (i.e., FOB shipping point), it should debit the inventory account for the transportation charges. Since shipping is paid, cash must be credited.

A corporation has equipment that originally cost $70,000. Its accumulated depreciation is $52,000 after the current year's adjusting entries have been recorded. A new processing technique has rendered the equipment obsolete, so it is retired. How should the company record the retirement of the equipment?

Debit the Accumulated Depreciation account for $52,000 Debit the Loss on Disposal of Plant Assets account for $18,000 Credit the Equipment account for $70,000 A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. In this case, the company retires the asset without receiving any payment. Book value = Cost - Accumulated depreciation =$70,000 - 52,000 = $18,000 Since the sales price is zero and the book value is more than zero the company recognizes a loss, computed as follows: Loss = Book value of the asset sold - Sales proceeds from selling the asset Loss = $18,000 - 0 = $18,000 The company will debit the loss, and it will credit the plant asset for its cost, debit the accumulated depreciation for its balance.

Which of the following is the appropriate general journal entry to record the declaration of cash dividends?

Debit the Cash Dividends account and credit the Dividends Payable account Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration: It debits the Cash Dividend account for the amount of the dividend, and it credits Dividends Payable for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable and credits Cash for the amount of the dividend paid.

A company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $200 before receiving consulting services. Second, clients must pay $1,800 once the consulting firm finishes providing services to the client. How does the company account for the second transaction?

Debit the Cash account for $1,800, debit the Unearned Revenue account for $200, and credit the Service Revenue account for $2,000. First, record the initial payment received from the customer: Debit: Cash for $200 Credit: Unearned Revenue for $200 Second, record the remaining payment from the customer, eliminate the liability for unearned revenue, and record the full amount as earned: Debit: Cash for $1,800 Debit: Unearned Revenue for $200 Credit: Service Revenue for $2,000

A company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $250 before receiving consulting services. Second, clients must pay $750 once the consulting firm finishes providing services to the client. How does the company account for the first transaction?

Debit the Cash account for $250 and credit the Unearned Revenue account for $250. First, record the initial payment received from the customer: Debit: Cash for $250 Credit: Unearned Revenue for $250 Second, record the remaining payment from the customer, eliminate the liability for unearned revenue, and record the full amount as earned: Debit: Cash for $750 Debit: Unearned Revenue for $250 Credit: Service Revenue for $1,000

Which of the following is the appropriate general journal entry to record the payment of a previously declared cash dividend?

Debit the Dividends Payable account and credit the Cash account Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration:It debits the Cash Dividend account for the amount of the dividend, and it credits Dividends Payable for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable and credits Cash for the amount of the dividend paid.

A corporation purchases 20,000 shares of its own $10 par value common stock for $25 per share, recording it at cost. What will be the effect on total stockholders' equity?

Decrease by $500,000. When a company acquires its own stock the acquired stock becomes known as treasury stock. The company reports treasury stock as a contra equity; total stockholders' equity decreases. In this case, it reduces by $500,000 (i.e., 20,000 shares x $25/share = $500,000).

A NSF check should appear in which section of the bank reconciliation?

Deduction from the balance per books. A bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added to the bank statement balance (e.g., deposits in transit) and others are subtracted (e.g., outstanding checks). Likewise, certain items are added to the cash balance per books (e.g., collection of notes receivable and interest earned) and other items are subtracted (e.g., NSF checks and bank service charges).

Which principle dictates that efforts (i.e., expenses) be matched with results (i.e., revenues)?

Expense recognition principle The expense recognition principle requires that expenses be matched to revenues; expenses are recognized in the period when they helped generate revenues. The historical cost principle states that when assets are purchased, they should be recorded at cost, not that efforts be matched with results. The periodicity assumption states that the life of a business can be divided into artificial time periods, not that efforts be matched with results. The revenue recognition principle states that revenue should be recorded in the period in which the performance obligation is satisfied, not that efforts be matched with results.

Which principle dictates that efforts be matched or recorded with accomplishments?

Expense recognition principle. Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, is commonly called accrual basis accounting. Expenses are incurred when they contribute to the production of revenue. For example, wage expense is incurred when a company's employees perform services for the company. The timing of expense recognition is called the expense recognition principle; it is also called the matching principle (i.e., expenses are matched to revenues).

On July 1 of the current year, a company purchased equipment. The company neglects to record the adjusting-entry for depreciation before preparing the current year's financial statements. Which of the following is correct regarding the company's financial statements for the current year?

Expenses are understated. The company should have recorded an adjusting-entry for depreciation: Debit: Depreciation expense Credit: Accumulated depreciation Neglecting to record an expense understates expenses and overstates net income, retained earnings, and stockholders' equity. Neglecting to record accumulated depreciation overstates the asset's book value and total assets.

Which inventory method usually results in ending inventory being the closest to the current cost of replacing inventory?

FIFO method In order for the ending inventory value reported on the balance sheet to most closely correspond to the current cost of inventory, ending inventory should include the most recently purchased inventory. First-in, first-out (FIFO) uses the oldest inventory to compute cost of goods sold, leaving the newest inventory to compute the value of ending inventory.

Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped

FOB shipping point. Under FOB shipping point, ownership transfers when the carrier accepts the goods from the seller.

Which of the following is an element of the fraud triangle?

Financial pressure The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high.

When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be debited in these two journal entries?

First Accounts Receivable and second Cash When an uncollectible account is recovered after it has been written off, two journal entries are recorded. The first journal entry is Accounts Receivable will be debited and Allowance for Doubtful Accounts will be credited (i.e., this reverses the journal entry that wrote-off the account). The second journal entry requires and a debit to Cash and a credit to Accounts Receivable (i.e., this records the customer's payment).

In what order should financial statement be prepared?

First, the income statement. Second, the retained earnings statement. Third, the balance sheet. The financial statements are prepared in the following order: income statement, retained earnings statement, and balance sheet. This is because net income (from the income statement) is a required input for the statement of stockholders' equity, ending retained earnings (from the statement of stockholders' equity) is a required input for the balance sheet.

Which of the following items does not result in an increase or decrease in the inventory account under a perpetual inventory system?

Freight costs incurred as a seller, such as paying freight costs to deliver inventory to customers

A company lends a corporation $40,000 on August 1 accepting the corporation's 9-month, 12% interest note. If the company lending the money prepares it financial statements as of December 31, what year-end adjusting entry must it record?

Interest Receivable 2,000 Interest Revenue 2,000 A 12% $40,000 note dated August 1 will accrued five months of interest by December 31 computed as follows: Interest = Principal x Interest rate x Periods = $40,000 x 12% x 5/12 =$2,000 The creditor making the loan will debit Interest Receivable for $2,000 and credit Interest Revenue for $2,000.

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

Interest earned Because the bank considers the depositor's account balance to be a liability, a credit memo from a bank indicates that the bank increased the account balance (i.e., the bank credited its liability owed to the customer) and a debit memo causes a decrease. Interest earned increases the amount owed to the depositor; it increases liability of the bank and is accomplished with a credit memo.

Publicly traded U.S. companies must provide shareholders with an annual report. Which of the following is not part of the annual report provided to shareholders?

Internal control certificate Publicly traded companies must provide shareholders with an annual report. The annual report includes the financial statements and certain other items, including a management discussion and analysis, notes to the financial statements, and an independent auditor's report.

Which of the following two accounts are both increased with debits?

Inventory and Rent Expense The normal balance of any account is the side which increases that account. Debits increase assets, expenses, and dividends. Credits increase liabilities, equities, and revenues.

If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?

It will have the reverse effect on the net income during the next accounting period. An error in the ending inventory of the current period will have a reverse effect on net income of the next accounting period because this year's ending inventory becomes next year's beginning inventory.

A corporation uses the perpetual inventory system. It sells merchandise on account for $10,000 with terms 2/10, n/30. The merchandise had cost the corporation $6,000. How would it record the sale of this merchandise?

It would record two journal-entries. Debit accounts receivable for $10,000; credit sales revenue for $10,000. Debit cost of goods sold for $6,000; credit inventory for $6,000. When it sells inventory on account, it should debit account receivable and credit sales revenue for the invoice price. Because the company selling merchandise uses the perpetual inventory system, it also immediately decreases inventory and increases cost of goods sold by the cost of the inventory it sold.

Which of the following is the sequence of events for the recording process?

Journalize; post; prepare a trial balance The recording process does steps in a certain order and the steps are called the accounting cycle. The first step is to identify & analyze each transaction using source documents to determine its effects on the company's accounts. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter or record the transaction in the journal (i.e., journalize the transaction); the journal is also called the book-of-original entry. Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger). Fourth, after recording all of the transactions prepare a trial balance (also called an unadjusted trial balance).

In a period of falling prices, which of the following methods will give the largest net income?

LIFO The largest net income occurs with the smallest cost of goods sold. In periods with falling prices (i.e., deflation), low cost of goods sold occurs when the last units of inventory purchased are the ones assumed sold. LIFO will provide the highest net income during a period of falling prices. FIFO will not provide the highest net income during a period of falling prices. Specific identification costing will vary depending on which units are sold. Average costing will produce a net income between LIFO and FIFO.

In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?

LIFO method First-in, first-out (FIFO) considers the oldest inventory to be sold. In contrast, last-in, first-out (LIFO) considers the newest inventory to be sold. The lowest net income occurs when the most expensive inventory is considered to be sold. When prices are rising, the most expensive inventory is the newest inventory. So, LIFO produces the lowest net income when prices are rising.

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods purchased as inventory has increased during the period, then the company using

LIFO will have the lowest ending inventory. First-in, first-out (FIFO) considers the oldest inventory to be sold. In contrast, last-in, first-out (LIFO) considers the newest inventory to be sold. Increasing prices for inventory suggest that FIFO sells the oldest and cheapest inventory producing the lowest cost of goods sold, the highest net income and retained earnings, and the highest ending inventory. In contrast, increasing prices for inventory suggest that LIFO sells the newest and most expensive inventory producing the highest cost of goods sold, the lowest net income and retained earnings, and the lowest ending inventory.

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods purchased as inventory has increased during the period, then the company using

LIFO will have the lowest net income. First-in, first-out (FIFO) considers the oldest inventory to be sold. In contrast, last-in, first-out (LIFO) considers the newest inventory to be sold. Increasing prices for inventory suggest that FIFO sells the oldest and cheapest inventory producing the lowest cost of goods sold, the highest net income and retained earnings, and the highest ending inventory. In contrast, increasing prices for inventory suggest that LIFO sells the newest and most expensive inventory producing the highest cost of goods sold, the lowest net income and retained earnings, and the lowest ending inventory.

If a company fails to adjust its unearned rent revenue account at year-end, what effect will this have on that month's financial statements?

Liabilities will be overstated and revenues will be understated. Receiving rent from tenants in advance of the lease period results in an increase in cash and an in-crease in a liability called unearned rent revenue. By the end of the year, some or all of the unearned rent revenue has been earned and the company should record an adjusting entry that decreases the balance of the unearned revenue account and increase rent revenue. If the company forgot to record this adjusting entry, unearned rent revenue would be overstated and rent revenue would be understated.

What type of account or account classification is accounts payable?

Liability Accounts payable is a liability. When a company purchases assets on account, it promises to pay the supplier in the near future. Accounts payable are usually paid within 30 days.

Which of the following is a characteristic of partnerships?

Limited life Partners (and proprietorships) can lose more than their investment because the business is not considered to have a separate legal existence from its owners and the partners may be called upon to personally pay the partnership's debts. Thus, partnerships generally lack limited liability and have instead unlimited liability for owners. Two of the disadvantages of a partnership involve the transferring & expansion of ownership which tends to be challenging and difficult, especially compared to corporations where buying and selling ownership can be much easier. Corporations have unlimited lives—not limited ones. An unlimited life is an advantage allowing the business to continue beyond the death of the owners.

Which one of the following costs will not be included in the cost of equipment?

Maintenance costs Because maintenance costs are ongoing and recurring throughout the asset's useful life, maintenance costs are expensed in the year incurred rather than added to the original cost of the asset. Insurance costs incurred while the equipment is in transit can be appropriately included in the cost of the equipment. Delivery fees, including insurance costs incurred while the equipment is in transit, should be included in the cost of the equipment. The installation costs of equipment should be included in the acquisition cost of equipment because this cost is part of the cost of getting the equipment ready to use. Testing and adjustments necessary to ensure equipment is working properly (e.g., assembly costs) should be included in the acquisition cost of the equipment because this cost is part of the cost of getting the equipment ready to use. Sales taxes paid when acquiring an asset is included in the asset's cost. Freight (e.g., delivery charges) to transport equipment is a cost that is included in the acquisition cost of the equipment because this cost is part of the cost of getting the equipment ready to use.

A corporation declared a cash dividend of $1.00 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of record on January 31?

No journal entry is recorded on the date of record. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration: It debits the Cash Dividend account (i.e., it decreases stockholders' equity) for the amount of the dividend, and it credits Dividends Payable (i.e., it increases liabilities) for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable (i.e., it reduces liabilities) and credits Cash (i.e., it reduces assets) for the amount of the dividend paid.

Which of the following would not be subtracted from the balance per books on a bank reconciliation?

Outstanding checks A bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added to the bank statement balance (e.g., deposits in transit) and others are subtracted (e.g., outstanding checks). Likewise, certain items are added to the cash balance per books (e.g., collection of notes receivable and interest earned) and other items are subtracted (e.g., NSF checks and bank service charges).

Which of the following is true with regards to the forms of business organization?

Partnerships and their owners generally receive more favorable tax treatment than corporations. Owner of sole proprietorships, partnerships, and corporations are called proprietors, partners, and stockholders, respectively. While the combined number of proprietorships and partnerships is several times the number of corporations in the U.S., corporations conduct several times the business in terms of revenues generated. Corporations incur tax at the business level and stockholder level (i.e., double taxation) while proprietorships and partnerships do not incur business level taxes (i.e., single taxation). Owners of corporations are not personally liable for the corporation's debts (i.e., stockholders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partnerships' debts (i.e., unlimited liability).

Which of the following does not affect the company's current ratio?

Paying the next month's rent one month in advance. Current ratio = current assets divided by current liabilities Paying next month's rent one month in advance decreases cash and increase prepaid rent. Both cash and prepaid rent are current assets. Increasing one and decreasing the other does not affect total current assets or the current ratio.

Which one of the following is not a primary component of an internal control system?

Rationalization The five primary components of an internal control system are (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Rationalization is not a primary component of an internal control system; it is one of the three components of the fraud triangle.

Principles of internal control are an important part of a company's efforts to address risks it faces, such as fraud. Which of the following is not a principle of internal control?

Rationalization of risks Rationalization is an element of the fraud triangle; it is not a principle of internal control. Principles of internal control are the specific control activities used by a company to prevent fraud and other problems. Examples include the segregation of duties, the documentation of procedures, the establishment of responsibility, human resource controls, physical controls, and independent internal verification.

Which of the following is an inventory account?

Raw materials Equipment is not an inventory account. Equipment consists of items used in the production of income that are not held for sale. Inventory can include raw materials, work in process, and finished goods. Raw materials is an inventory account that contains the cost of materials that have not yet been started into the production process. Work in process is an inventory account that contains the cost of goods started, but not completed. Finished goods is an inventory account that contains the cost of goods completed that are ready to sell.

After a business transaction has been analyzed and recorded in the journal, the next step in the recording process is to do which of the following?

Record the information in the ledger The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. This begins with examining a source document that provides evidence of a transaction or event that needs to be recorded. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter the transaction information in the journal (i.e., journalize the transaction). Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger).

Which of the following is true with regards to bond discounts?

Reporting a bond discount on the balance sheet decreases the bond's carrying value. For bonds issued at a discount, carrying value is the bond payable (in the amount of the principle) minus the discount on the bond payable. For bonds issued at a premium, carrying value is the bond payable (in the amount of the principle) plus the premium on the bond payable.

Which of the following is not an effective internal control over cash disbursements?

Requiring personnel who authorize cash disbursements to work continuously without vacations Requiring employees (including employees who disburse cash) to take periodic vacations is a cash disbursement control. Employees can hide certain forms of embezzlement it they are always in control of cash disbursements, but leaving for vacations often leads to scams, embezzlements, thefts, etc. being uncovered by the person temporarily filling in for the person on vacation.

Which of the following statements is false?

Research and development costs are not expensed when they result to a successful patent. Research and development costs are usually expensed when incurred regardless of whether they produce a patent. The cost of intangibles with indefinite lives are not amortized. Those with definite lives are amortized. Intangibles are amortized over the asset's legal or useful life, whichever is shorter. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of an entire business.

On July 1 of the current year, a company purchased equipment. The company neglects to record the adjusting-entry for depreciation before preparing the current year's financial statements. Which of the following is correct regarding the company's financial statements for the current year?

Retained earnings is overstated. The company should have recorded an adjusting-entry for depreciation: Debit: Depreciation expense Credit: Accumulated depreciation Neglecting to record an expense understates expenses and overstates net income, retained earnings, and stockholders' equity. Neglecting to record accumulated depreciation overstates the asset's book value and total assets.

Which of the following is an equity account?

Retained earnings. Accounts are categorized into the following categories: assets, liabilities, equities, revenues, expenses, and dividends. Equities include paid-in capital accounts (e.g., common stock) and retained earnings.

A company has one bookkeeper prepare its cash deposits while another bookkeeper records the cash collections in the company's journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?

Segregation of duties. In segregation of duties, different individuals should be responsible for related activities such as handling cash deposits and recording cash receipts.

Which of the following would be deducted from the balance per books on a bank reconciliation?

Service charges A bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added to the bank statement balance (e.g., deposits in transit) and others are subtracted (e.g., outstanding checks). Likewise, certain items are added to the cash balance per books (e.g., collection of notes receivable and interest earned) and other items are subtracted (e.g., NSF checks and bank service charges).

A journal would never include a(n)

T-account showing the account's balance. Journal entries have the following features: 1. The date of the transaction 2. In the account title column, the account to be debited is listed first and flush left. The account credits is listed beneath the account debited and indented. 3. The amount debited and the amount credited recorded in the debit and credit columns, respectively. 4. A brief explanation of the transaction may accompany it. Note that the journal never reports the accounts' balances. Only the ledger reports the accounts' balances.

Which one of the following is a physical control?

Television monitors to deter theft To reduce the frequency of fraud, management will establish policies and procedures that address specific risks faced by the organization. There are six principles of control activities (i.e., principles of internal control activities): 1. Establishment of responsibility 2. Segregation of duties 3. Documentation procedures 4. Physical controls 5. Independent internal verification 6. Human resource controls Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. Examples of a physical controls include television monitors to deter theft.

Which of the following statements is true?

The amortization period of a patent is the lesser of its useful life or 20 years, whichever is shorter. Research and development costs are expensed when incurred whether they produce a patent or not. The cost of intangibles with unspecified or indeterminate lives are not amortized. Those with definite lives are amortized. Intangibles are amortized over the asset's legal or useful life, whichever is shorter. For patents, the legal life is 20 years. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of an entire business.

Which of the following statements regarding the amortization of discounts and premiums on bonds is true?

The amount of interest expense increases each period over the life of a discounted bond issue when the effective interest method is used. Two methods exist for amortizing discounts and premiums on bonds: (1) straight-line amortization and (2) effective interest amortization. GAAP require the effective interest method if it results in materially different interest expense than the straight-line method because the effective interest method adheres to the recognition principle. It computes interest as a constant percentage multiplied against the bond carrying value. As discount is amortized, carrying value increases causing periodic interest to increase.

A company borrowed $7,000 on July 1 by issuing a 36-month, 10% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

The company has $350 of interest payable that is a long-term liability. A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer. Since both the interest payable and the note payable are expected to be paid more than one year after the financial report date (i.e., this is a 36-month note), they will be considered long-term liabilities. Interest payable = $7,000 x .10 x 6/12 = $350

If a company properly reports goodwill as an intangible asset on its books, which of the following must be true?

The company purchased another company. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of an entire business and as part of the transaction the acquiring company recorded goodwill.

A company's gross profit rate increased in the current year relative to the prior year. Which of the following would be a possible explanation for this change?

The company's global sourcing efforts at the beginning of the current year resulted in a lower cost of merchandise sold. Recall that gross profit rate equals gross profit divided by net sales. An increase in the gross profit rate suggest either an increase in gross profit and/or a decrease in net sales. An increase in a company's gross profit rate may be caused by selling products with higher gross margins (i.e., higher "mark-ups"), raising prices and/or offering fewer price discounts due to less competition from other companies, or decreases in sales allowances offered to customers.

Which of the following are advantages of partnerships relative to corporations?

The ease of creating the business and low taxes. Sole proprietorships and partnerships have two characteristics that give them advantages relative to corporations. First, they are easier to form or create than corporations. Second, they do not pay income taxes. Only their owners pay income taxed. In contrast, corporations pay income taxes and their shareholders also pay income taxes on dividends from the corporation.

Which of the following statements regarding the amortization of discounts and premiums on bonds is true?

The effective interest method applies a constant percentage to the bond carrying value to compute interest expense. Two methods exist for amortizing discounts and premiums on bonds: (1) straight-line amortization and (2) effective interest amortization. GAAP require the effective interest method if it results in materially different interest expense than the straight-line method because the effective interest method adheres to the recognition principle. It computes interest as a constant percentage multiplied against the bond carrying value. As discount is amortized, carrying value increases causing periodic interest to increase.

Which of the following best defines accounting?

The information system that identifies, records, and communicates the economic events of an organization to interested users. Accounting is the information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information.

Which of the following is not an effective internal control over cash disbursements?

The person signing the checks is the person who records cash disbursements Use of pre-numbered checks, safeguarding of blank checks, and separation of check authorization from preparation of checks are elements of an effective internal control principles over disbursements. So is separation of signing checks and recording cash disbursements. Requiring employees (including employees who disburse cash) to take periodic vacations is a cash disbursement control. Employees can hide certain forms of embezzlement it they are always in control of cash disbursements, but leaving for vacations often leads to scams, embezzlements, thefts, etc. being uncovered by the person temporarily filling in for the person on vacation.

Companies prepare various types of trial balances. Which trial balance lists all of a company's permanent accounts but not its temporary accounts?

The post-closing trial balance Companies prepare three trial balances: (i) trial balance (i.e., before recording adjusting entries), (ii) the adjusted trial balance (i.e., which is prepared after recording adjusting entries), and (iii) the post-closing trial balance (i.e., which is prepared after recording closing entries). The adjusted trial balance shows the balances of all accounts, including those adjusted at the end of the accounting period. The post-closing trial balance lists only permanent accounts (i.e., balance sheet accounts) because the temporary accounts (e.g., income statement accounts) will have been closed to zero in preparation for the next year. There is no "pre-disclosure trial balance."

Companies prepare various types of trial balances. Which trial balance likely lists the smallest number of accounts for a given company?

The post-closing trial balance Companies prepare three trial balances: (i) trial balance (i.e., before recording adjusting entries), (ii) the adjusted trial balance (i.e., which is prepared after recording adjusting entries), and (iii) the post-closing trial balance (i.e., which is prepared after recording closing entries). The adjusted trial balance shows the balances of all accounts, including those adjusted at the end of the accounting period. The post-closing trial balance lists only permanent accounts (i.e., balance sheet accounts) because the temporary accounts (e.g., income statement accounts) will have been closed to zero in preparation for the next year. The trial balance prepared before recording adjusting entries likely lists most of a company's accounts but a few do not yet have balances (e.g., depreciation expense) and will not be listed. There is no "pre-disclosure trial balance."

Which statement is correct concerning the adjusted trial balance?

The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger after adjusting entries have been recorded. Companies prepare an adjusted trial balance after journalizing and posting the adjusting entries and before preparing the financial statements. In fact, the financial statement are prepared using in-formation reported on the adjusted trial balance. All trial balances, including the adjusted trial balance, is prepared to prove the equality of total debit balances and total credit balances. The adjust-ed trial balance includes all of a company's accounts.

Which of the following is a stockholder's right?

The right to share in assets upon liquidation in proportion Stockholders have certain rights, including (i) to vote in the election of the board of directors, (ii) to share in corporate earnings through receipt of dividends, (iii) to keep the same percentage ownership when new shares are issued (i.e., preemptive right), (iv) share in assets upon liquidation in proportion to their stock holdings. A stockholder does not have the right to participate in management decisions, vote for the company president, declare a dividend, or many other acts.

Which of the following is a stockholder's right?

The right to vote in the election of the board of directors Stockholders have certain rights, including (i) to vote in the election of the board of directors, (ii) to share in corporate earnings through receipt of dividends, (iii) to keep the same percentage ownership when new shares are issued (i.e., preemptive right), (iv) share in assets upon liquidation in proportion to their stock holdings. A stockholder does not have the right to participate in management decisions, vote for the company president, declare a dividend, or many other acts.

Which of the following describes that sequence in which financial statements are prepared?

The statement of stockholders' equity is prepared before the balance sheet. The financial statements are prepared in the following order: income statement, retained earnings statement, and balance sheet. This is because net income (from the income statement) is a required input for the statement of stockholders' equity, ending retained earnings (from the statement of stockholders' equity) is a required input for the balance sheet.

What is the rationale for the internal control principle known as segregation of duties?

The work of one employee should, without duplication of effort, provide a reliable basis for evaluating the work of another employee. The rationale for segregation of duties is that the work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. In contrast, making one individual responsible for related activities increases the potential for errors and irregularities (e.g., fraud). Segregation of duties does not guarantee fraud &/or theft will not occur, but it makes it less likely.

Internal control consists of all of the methods and measures adopted within an organization to do all of the following except

To attract new investors Internal control consists of all of the methods and measures adopted within an organization to safeguard assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited when the repurchase of the shares is journalized?

Treasury Stock for $1,200 The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 100 shares x $12/share = $1,200. Debit the Treasury Stock account to increase it.

A corporation issued 1,000 shares of its $1.00 par value common stock for $8.00 per share and later repurchased 200 of those shares for $3.00 per share. Which of the following will be debited when the repurchase of the shares is journalized?

Treasury Stock for $600 The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 200 shares x $3/share = $600. Debit the Treasury Stock account to increase it.

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $14.00 per share. Which of the following will be recorded when the repurchase of the shares is journalized?

Treasury Stock will be debited for $1,400. The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 100 shares x $14/share = $1,400. Debit the Treasury Stock account to increase it.

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $15.00 per share. Which of the following will be recorded when the repurchase of the shares is journalized?

Treasury Stock will be debited for $1,500. The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 100 shares x $15/share = $1,500. Debit the Treasury Stock account to increase it.

Which of the following would appear on a balance sheet?

Unearned revenue The balance sheet reports all of a company's assets (e.g., cash, accounts receivable, prepaid rent, equipment, etc.), liabilities (e.g., accounts payable, notes payable, unearned revenues, etc.) ,and equities (common stock, retained earnings, etc.).

Which of the following would decrease the company's current ratio?

Using excess cash to buy long-term investments. Current ratio = current assets divided by current liabilities Buying a long-term investment in exchange for cash decreases cash and increases long-term investments. The decrease in cash lowers total current assets and lowers the current ratio. An increase in long-term investments does not affect current assets of current liabilities.

Which of the following is not a typical example of a prepaid expense?

Wages Wages are not paid to employees until after employees perform work for the employer. In other words, wages are not prepaid. In contrast, companies pay for supplies, rent, and insurance before using or consuming them. Supplies are purchased before acquiring them and using them. Insurance is paid for before insurance coverage is received. Rent is paid at the beginning of the period.

Which of the following is an inventory account?

Work in process Equipment is not an inventory account. Equipment consists of items used in the production of income that are not held for sale. Inventory can include raw materials, work in process, and finished goods. Raw materials is an inventory account that contains the cost of materials that have not yet been started into the production process. Work in process is an inventory account that contains the cost of goods started, but not completed. Finished goods is an inventory account that contains the cost of goods completed that are ready to sell.

When is a physical inventory is taken, what is included?

Work in process Taking a physical inventory involves counting, weighing, or measuring each kind of inventory on hand. The types of inventory include finished goods inventory, work in process, and raw materials. A physical inventory count is usually taken at the end of the company's fiscal year as a step in the preparation of the company's financial statements. For example, every company must report its end-of-period inventory on its balance sheet.

A trial balance will balance even if

a $1,000 journal entry was posted twice. A trial balance lists accounts and their balances at a given point in time. A purpose of the trial balance is to confirm that the total of the debit balances equals the total of the credit balances. However, a trial balance has limits. A trial balance helps uncover certain errors, such as recording a different amount debited than the amount credited, omitting part of a journal entry or recording the entire journal entry using only debits (or using only credits). A trial balance does not prove that all transactions have been recorded nor does it proves that transactions have been recorded correctly. For example, a trial balance will confirm that total debit balances equal total credit balances even if a transaction were recorded twice or if it was not recorded even once. Both total debits and total credits would be wrong by the same amount. Another error not uncovered by a trial balance is recording a transaction in the wrong accounts.

A corporation issues $5,000,000 of 30-year, 4% bonds dated January 1 at 106. The journal entry to record the issuance will include

a credit to Premium on Bonds Payable for $300,000. Debit the Cash account for $5,300,000 Credit the Premium on Bonds Payable account for $300,000 Credit the Bonds Payable account for $5,000,000 Debit the Cash account for the amount of cash collected from issuing the bonds = Face value times 106% = $5,000,000 x 107% = $5,300,000 Credit the Bonds Payable account for the face value of the bonds, $5,000,000 These bonds were issued for a discount (i.e., issue at 106 implies a 6% premium); credit the Premium on Bonds Payable account by the difference between the face value and the amount of cash collected from issuing the bonds, $300,000 = $5,300,000 - $5,000,000; alternatively: the discount (or premium) equals the face value time the difference between 100% and the issuance percentage (i.e., $300,000 x (106% - 100%) = $300,000

A company borrowed money from a bank by signing a one-year note payable in the amount of $300,000 on April 30. The note requires the company to pay interest at an annual rate of 6%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 would include

a debit to Interest Expense for $12,000. Interest = Principal x Rate x Time = $300,000 x 6% x 8/12 = $12,000 After one month, the accrued interest is $12,000. Interest rates are always annual interest rates unless specifically stated otherwise. This loan charges 6% annual interest per year. The debtor records an adjusting entry to record accrued interest. Debit: Interest Expense, $12,000 Credit: Interest Payable, $12,000

If the market interest rate for a bond is lower than the stated interest rate, the bond will sell at

a premium. Bonds may be issued either (i) at their face value, (ii) at a discount, or (iii) at a premium. When bonds are issued at a premium, they have been issued (i.e., sold) for more than their face value. This occurs because the bond's stated interest rate is higher than the market interest rate. In contrast, when bonds are issued at a discount, they have been issued (i.e., sold) for less than their face value. This occurs because the bond's stated interest rate is lower than the market interest rate.

Under the direct write-off method of accounting for uncollectible accounts

a specific account receivable is decreased for the actual amount of bad debt at the time of write-off. To account for uncollectible accounts, companies use either (1) the direct write-off method or (2) an allowance method. Under the direct write-off method, a company records an increase to bad debt expense and a decrease to accounts receivable when the company determines that a receivable from a particular customer is uncollectible. The direct write-off method shows only actual losses from uncollectible receivables. It does not record estimated bad debts, and it does not use the allowance for uncollectible accounts.

If a company correctly writes a check for $628 but it incorrectly records it on its books as $682 then the appropriate treatment on the bank reconciliation would be to

add $54 to the cash balance per books. The company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted.

The primary basis for the preparation of the financial statements is the

adjusted trial balance. Companies prepare an adjusted trial balance after journalizing and posting the adjusting entries and before preparing the financial statements. In fact, the financial statement are prepared using information reported on the adjusted trial balance.

Financial statements can be prepared directly from the

adjusted trial balance. The adjusted trial balance can be used to prepare the financial statements. The post-closing trial balance does not contain temporary or nominal accounts, i.e. income statement and some of the stockholders' equity accounts. The adjusted trial balance can be used to prepare the financial statements. While there are reversing entries, there is not a reversing trial balance. The adjusted trial balance can be used to prepare the financial statements.

Under the accrual basis of accounting

adjusting entries are used to change account balances before financial statements are prepared. Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, is commonly called accrual basis accounting. Adjusting entries ensure that revenue recognition and expense recognition principles are followed. They are required every time a company prepares financial statements.

Under the allowance method, writing off an uncollectible account

affects two balance sheet accounts. Under the allowance method, writing off an uncollectible account the company reduces its accounts receivable and it reduces its Allowance for Doubtful Accounts. Both of these are asset accounts, but one is a contra asset. The net effect is that total assets do not change.

Accrued revenues are revenues for services performed that have not yet been recorded or collected in cash. Failure to record an adjusting entry at the end of a period to record an accrued revenue would cause

an understatement of assets and an understatement of revenues. If a company fails to record a year-end adjusting entry for accrued revenues, the company's revenue will be understated. Understating revenue understates retained earnings and stockholders' equity. Failing to accrue revenues also understates accounts receivable understating assets.

A company uses the periodic inventory method. An overstatement of ending inventory in one period results in

an understatement of net income of the next period. In the periodic inventory system, cost of goods sold is computed at the end of the period (rather than tracked day-by-day as done in a perpetual inventory system). The periodic inventory system uses a formula to compute cost of goods sold:Beginning inventory plus purchased minus ending inventory = cost of goods soldThe accuracy of cost of goods sold depends on the accuracy of the beginning and ending physical counts of inventory. Sometimes, a portion of inventory is not counted and inventory is understated. At other times, some inventory may be counted twice resulted in inventory being overstated. Regardless of over- versus under-stating inventory, errors in the amount of inventory results in errors in cost of goods sold. For example, an overstatement of ending inventory becomes an overstatement of beginning inventory in the next period, and an overstatement of beginning inventory in the next period adds too much when computing cost of goods sold, and cost of goods sold (next year) is overstated. The next effect is that too much cost of goods sold is subtracted from revenue to compute gross profit making gross profit understated (and making net income understated). However, Retained Earnings has the correct balance because it was overstated in the prior year due to overstated ending inventory in the prior year, and this year too little income was closed to retained earnings. Recall that an error in ending inventory in one year will have a reverse effect on net income in the next accounting period.

Liabilities

are debts and obligations. Liabilities represent amounts debts (i.e., owed). They are obligations. Examples include accounts payable, interest payable, salaries and wages payable, unearned revenues, etc.

If services are performed in exchange for cash, then the service provider's

assets and equity will increase. Performing services for cash indicates that assets increased (i.e., cash increased) and revenue increased. Revenue is recognized when it is earned. Increasing revenue increases net income and retained earnings. Retained earnings is a stockholders' equity account, so stockholders' equity increases when revenue is earned.

An investment by the stockholders in a company increases the company's

assets and stockholders' equity. A cash investment from stockholders indicates that assets increased (i.e., cash increased) and stockholders' equity increased (i.e., common stock increased).

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000; the ending inventory for this period is correct. The amounts reflected in the current end of the period balance sheet are

assets are correct and stockholders' equity is correct. In the periodic inventory system, cost of goods sold is computed at the end of the period (rather than tracked day-by-day as done in a perpetual inventory system). The periodic inventory system uses a formula to compute cost of goods sold:Beginning inventory plus purchased minus ending inventory = cost of goods soldThe accuracy of cost of goods sold depends on the accuracy of the beginning and ending physical counts of inventory. Sometimes, a portion of inventory is not counted and inventory is understated. At other times, some inventory may be counted twice resulted in inventory being overstated. Regardless of over- versus under-stating inventory, errors in the amount of inventory results in errors in cost of goods sold. For example, an overstatement of beginning inventory adds too much when computing cost of goods sold, and cost of goods sold becomes overstated. The next effect is that too much cost of goods sold is subtracted from revenue to compute gross profit making gross profit understated (and making net income understated). However, Retained Earnings has the correct balance because it was overstated in the prior year due to overstated ending inventory in the prior year and this year too little income was closed to retained earnings. Recall that an error in ending inventory in one year will have a reverse effect on net income in the next accounting period.

If a company pays for a one-year insurance policy that will expire next year, then

assets increase and assets decrease. Paying for a one-year insurance policy reduces the company's cash so assets decrease. In exchange for the cash, the company receives insurance coverage that will benefit the company for the next 12 months, and that coverage is an asset. So, assets increase and decrease by equal amounts, and liabilities and stockholders' equity are not affected.

Accrued revenues are revenues for services performed that have not yet been recorded. If a company fails to record a year-end adjusting entry for accrued revenues, the company's

assets will be understated asset and its revenue will be understated. If a company fails to record a year-end adjusting entry for accrued revenues, the company's revenue will be understated. Understating revenue understates retained earnings and stockholders' equity. Failing to accrue revenues also understates accounts receivable understating assets.

A company receives cash in advance from customers. This transaction will immediately affect the

balance sheet and cash flows statement only. When collecting cash in advance from customers, the company receives cash (which increases its assets) and increases its liabilities (the liability account is called unearned revenues). Thus, assets increase and liabilities increase by the same amount. Collecting cash also affects the cash flows statement. This transaction does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement.

A company purchases office equipment in exchange for cash. This transaction will immediately affect the

balance sheet and cash flows statement only. When purchasing equipment for cash, the company pays cash (which decreases its assets) and increases its equipment (which is an asset). Thus, assets increase and decrease by the same amount. This is an asset exchange affecting the balance sheet, such as affecting how much cash is reported on the balance sheet. This also affects the cash flows statement. It does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement.

Adjusting entries are required

because some costs expire with the passage of time and have not yet been journalized. Accrual-basis accounting means that transactions that change a company's financial statements are recorded in the periods in which the events occur, even if cash is not exchanged in the same period. Adjusting entries ensure that the revenue recognition and expense recognition principles are followed. Adjusting entries are required before a company prepares financial statements. Every adjusting entry will affect the balance of at least one balance sheet account and one income statement account.

Obtaining insurance protection against dishonest employees an example of

bonding Bonding is one example of insurance against dishonest employees. Documentation is the utilization of pre-numbered forms and source documents. Establishing responsibilities may inhibit dishonest employees, but it is not insurance protection against dishonest employees. Segregation of duties may inhibit dishonest employees, but it is not insurance protection against dishonest employees.

A gain or loss on disposal of a plant asset is determined by comparing the

book value of the asset with the proceeds received from its sale. A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. For example, if a plant asset cost $100,000 and it was depreciated by $20,000 then its book value would be $80,000. If the company sells the plant asset for more than its book value, it receives more in cash, etc. than it gives according to its books, and the only way debits will equal credits is for the company to recognize a gain. If it were to sell the plant asset for less than the book value then the company needs to recognize a loss to make debits equal to credits.

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

book value. Book value is cost less accumulated depreciation. Market value is the value at which the item could be sold under normal selling conditions. Fair value is the value at which the item could be sold under normal selling conditions. "Real value" does not have a specific meaning in the context of accounting.

The sole proprietorship form of business organization

causes the owner to have unlimited legal liability because the business is not separate from its owner. Owners of sole proprietorships are called proprietors. A sole proprietor has a sole owner (i.e., it has one owner). Partnerships have two or more co-owners. Corporations have one or more owners called stockholders. Corporations incur tax at the business level and stockholder level (i.e., double taxation) while proprietorships and partnerships do not incur business level taxes (i.e., single taxation) indicating that sole proprietorships and partnerships are tax-advantaged relative to corporations. Corporations can raise capital (i.e., investments) from any number of owners giving them an advantage in terms of fund-raising relative to sole proprietorships and partnership. Owners of corporations are not personally liable for the corporation's debts (i.e., stock-holders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partnerships' debts (i.e., unlimited liability).

A corporation issues $1,000,000 of 8%, 5-year bonds when bonds of similar risk are paying 9%. The 8% rate of interest is called the __________ rate.

contractual The interest rate printed on the bonds is the contractual, face, or stated rate. Yield, effective, and market rates are different terms to describe the interest rate that an investment can earn in the market.

Bonds that may be exchanged for common stock at the option of the bondholders are known as

convertible bonds. Bonds can have a variety of characteristics. One characteristic that some bonds have is that the bond allows the bondholder issuer (i.e., creditor) the option to exchange the bond for shares of stock of the issuing company. Bonds with this characteristic are called convertible bonds.

A corporation issues 50,000 shares of $75 par value preferred stock for cash at $100 per share. The entry to record the transaction will include a

credit to Preferred Stock for $3,750,000 and a credit to Paid-in Capital in Excess of Par Value for $1,250,000. Solution: When a company issues preferred stock, it debits the cash it receives from the stockholder, it credits preferred stock for the par value of the stock issued. and it credits paid-in capital in excess of par value--preferred stock for any amount received in excess of par value. Debit cash for $5,000,000 (i.e., 50,000 shares x $100 per share). Credit preferred stock for $3,750,000 (i.e., 50,000 shares x $75 per share). Credit paid-in capital in excess of par--preferred stock for $1,250,000 (i.e., 50,000 shares x $25 per share).

A check written by the company for $780 was incorrectly recorded on the company's books as $870. In the bank reconciliation, this $90 error would be

dded to the cash balance per books. Amounts added to the cash balance per books include collections of notes, interest, and company errors that erroneously decreased the company's cash account balance. The company decreased the company's balance by $870 when it should have decreased it by $780. Correcting this error requires adding $90 to the cash balance per books

A company uses the allowance method for uncollectible accounts. Last year, a customer purchased $100 of services on account from the company. In the current year, the company is notified that the customer is bankrupt and will not pay the company the amount owed. What journal entry does the company record when it is notified that the customer will not pay?

debit Allowance for Doubtful Accounts and credit Accounts Receivable. When using an allowance method for uncollectible accounts, a company records a year-end adjusting entry by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. When a specific customer's account is identified as uncollectible, the company reduces the accounts receivable by crediting that account and it reduces the Allowance for Doubtful Accounts by debiting it.

A corporation recently paid a $50,000 installment on its 20-year mortgage. Out of the $50,000 total payment, $20,000 went towards reducing the principal, and the balance went towards interest. The journal entry to record this transaction includes a

debit Mortgage Payable for $20,000. When an installment payment is made on a mortgage note, the interest is a debit to Interest Expense and the reduction in principal is a debit to Mortgage Payable. Out of the $50,000 total payment, $20,000 reduces the mortgage payable for principal paid and the balance of $50,000 (i.e., $30,000) was for interest expense. Credit cash for the $50,000 total payment.

A company purchased office supplies costing $4,000 and debited supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:

debit Supplies Expense for $2,500 and credit Supplies for $2,500. When the company bought supplies it recorded them as an asset so it debited the supplies account. Supplies is a prepaid expense; prepaid expenses are costs that expire either with the passage of time or through use. By the end of the period, a portion of the supplies had been used. An adjusting entry is necessary to reduce the supplies account so that it will report the actual amount of sup-plies on hand at the end of the period. The adjusting entry debits supplies expense and credits supplies by $2,500 (i.e., $4,000 - 1,500 = $2,500).

A company received $15,000 on December 1 from a tenant. The amount received represents a 6-month advance payment of rent paid by a tenant. The company records the transaction as an increase to its unearned rent revenue account. Prior to preparing financial statements at the end of December, the company should make the following adjusting entry:

debit Unearned Rent Revenue for $2,500 and credit Rent Revenue and $2,500. One month of 6 months of rent has been earned by the end of December. The monthly rent earned is the total rent divided by the number of months = $15,000/6 months = $2,500 per month.The adjusting entry to record one month's rent being earned: Debit: Unearned Rent for $4,000 Credit: Rent Revenue for $4,000

The basic form of a journal entry has the

debit account entered first at the extreme left margin. Journal entries have the following features: 1. The date of the transaction 2. The account to be debited is listed first and flush left. The account credits is listed beneath the account debited and indented. 3. The amount debited and the amount credited recorded in the debit and credit columns, respectively. 4. A brief explanation of the transaction may accompany it. Note that the journal never reports the accounts' balances. Only the ledger reports the accounts' balances.

The adjusting entry to record estimated uncollectible accounts receivable using the allowance method includes a

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts. When using an allowance method for uncollectible accounts, a company records a year-end adjusting entry by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts.

A truck that cost $48,000 is discarded as worthless. The truck had already been depreciated by $40,000. The entry to record this event would include a

debit to Loss on Disposal of Plant Assets for $8,000. A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. In this case, the company retires the asset without receiving any payment. Book value = Cost - Accumulated depreciation =$48,000 - 40,000 = $8,000 Since the sales price is zero and the book value is more than zero the company recognizes a loss, computed as follows: Loss = Book value of the asset sold - Sales proceeds from selling the asset Loss = $8,000 - 0 = $8,000 This loss reduces the company's income before taxes by $8,000. The company will debit the loss.

A corporation started business this year and it purchased $7,000 of office supplies and debited supplies for the full cost. Supplies on hand at the end of the accounting period were $800. The company's appropriate adjusting journal entry to be made would be a

debit to Supplies Expense for $6,200 and a credit to Supplies for $6,200. Supplies expense can be computed as beginning supplies plus the cost of supplies purchased in the current period minus the cost of supplies on hand at the end of the period. Since this company started business this year (and no beginning supplies were mentioned), beginning supplies should be determined to be zero. Thus, supplies expense = $0 + $7,000 - $800 = $6,200. The year-end adjusting journal entry to record Supplies Expense (and to decrease Supplies to the correct ending balance) would be a debit to Supplies Expense for $6,200 and a credit to Supplies for $6,200.

A corporation declared a cash dividend of $1.20 per share on 40,000 shares of common stock on April 15. The dividend is to be paid one month later on May 15 to stockholders of record on April 30. The correct entry to be recorded on the date of payment of May 15 will include a

debit to the Dividends Payable account and a credit to the Cash account. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration:It debits the Cash Dividends account for the amount of the dividend, and it credits Dividends Payable for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable and credits Cash for the amount of the dividend paid.

The year-end trial balance for Garnet & Gold Corporation appears as follows: Garnet & Gold Corporation Trial Balance December 31 Debit Credit Cash $300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Equipment 4,000 Accumulated Depreciation, Equipment $800 Unearned Revenues 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries and Wages Expense 1,000 Rent Expense 500 $6,500 $6,500 If, at year-end, the unexpired insurance were $40, the company should record an adjusting entry that

debits Insurance Expense for $20 and credits Prepaid Insurance for $20. The trial balance lists the company's accounts and their balances on a particular date before adjusting entries have been recorded. This company's trial balance shows that the Prepaid Insurance account has a balance of $60. However, unexpired insurance is only $20; the Prepaid Insurance account is overstated and it needs to be adjusted. The adjusting entry reduces Prepaid Insurance and increases Insurance Expense by $20. This results in Prepaid Insurance having an ending balance of $40. Debit the Insurance Expense account by $20 and credit the Prepaid Insurance account by $20.

If a company does not record employees' wages until it pays them, the effects of paying employees' wages on the basic accounting equation are to

decrease assets and decrease stockholders' equity. Basic accounting equation: Assets = Liabilities + Stockholders' Equity If a company does not record employees' wages until it pays them, then the company had not previously recorded salaries and wages payable. Paying the employees a wage decreases cash (i.e., decreases assets) and increases wages expense and an increase in expenses decreases retained earnings which is an equity account. Thus, assets decrease and equity decreases.

The effects of paying rent for the month on the basic accounting equation are to

decrease assets and decrease stockholders' equity. Basic accounting equation: Assets = Liabilities + Stockholders' Equity Paying rent for the month decreases cash (i.e., decreases assets) and increases the company's expenses (i.e., Rent Expense), and an increase in expenses decreases the company's retained earnings and equity. Thus, assets decrease and equity decreases.

Year-end adjusting entries for prepaid expenses

decrease assets and increase expenses. When a company pays before receiving goods or services, it records the decrease in cash and an increase in a different asset (e.g., supplies, prepaid insurance, prepaid rent). At the end of the accounting period, the company adjusts its prepaid expense accounts to reflect that the company has fully or partially consumed them through use or the passage of time (e.g., decrease prepaid insurance for the months of coverage used before the end of the accounting period). Also, the company adjusts its expenses upward by that same amount (e.g., increase insurance expense) to show it was incurred before the end of the period.

Paying a dividend

decreases assets and stockholders' equity. Paying a dividend indicates that assets decreased (i.e., cash decreased) and dividends increased. Dividends represent a distribution from stockholders. Dividends reduce retained earnings. Retained earnings is a stockholders' equity account.

All of the following bank reconciliation items would result in an adjusting entry on the company's books except

deposits in transit. A company records its cash deposits in its books (e.g., journal and ledger). Deposits in transit are added the bank statement balance to reconcile cash.

Writing-off a specific customer's accounts receivable under the allowance method

does not affect the balance of Cash. Under the allowance method for uncollectible accounts, a company estimates its bad debt expense at the end of each accounting period (e.g., year) and increases its allowance for doubtful accounts. When specific customers' accounts are identified as uncollectible, the company reduces its allowance for uncollectible accounts and reduces its accounts receivable.

If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts, the recovery

does not affect the company's total assets in the period it is collected. Under the allowance method for uncollectible accounts, a company estimates its uncollectible accounts receivable at year-end and records an adjusting journal-entry to adjust the Allowance for Doubtful Accounts to its proper balance and to record the appropriate amount of bad debt expense. In the following period when a specific customer's account becomes identified as uncollectible, the company reduces its accounts receivable by that amount (i.e., the company writes-off that customer's account receivable) and it reduces the Allowance for Doubtful Accounts by debiting that account. Occasionally, a customer whose account had been previously written-off pays the company. When such a recovery occurs, the company records two journal entries. First, it reverses the write-off of that customer's account by debiting Accounts Receivable and crediting the Allowance for Doubtful Accounts. Second, the company debits Cash by the amount collected from the customer and it credits Accounts Receivable. The net effect of these two recovery-related journal entries is to merely exchange balances between asset accounts (i.e., total assets are neither increased nor decreased). Neither of these two journal entries affects net income.

The direct write-off method of accounting for bad debts

does not require estimates of bad debt expense. To account for uncollectible accounts, companies use either (1) the direct write-off method or (2) an allowance method. Under the direct write-off method, a company records an increase to bad debt expense and a decrease to accounts receivable when the company determines that a receivable from a particular customer is uncollectible. The direct write-off method shows only actual losses from uncollectible receivables. It does not record estimated bad debts.

Equipment that cost $72,000 and on which $60,000 of accumulated depreciation has been recorded was disposed of for $18,000 cash. The entry to record this event would include a

gain of $6,000. A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. In this case, the company retires the asset without receiving any payment. Book value = Cost - Accumulated depreciation =$72,000 - 60,000 = $12,000 Since the sales price is more than the book value the company recognizes a gain, computed as follows: Gain = Sales proceeds from selling the asset - Book value of the asset sold Gain = $18,000 - 12,000 = $6,000 The company will debit the loss, and it will credit the plant asset for its cost, debit the accumulated depreciation for its balance, and debit cash for the amount of cash collected from the purchaser.

The effects of issuing a note payable in exchange for cash on the basic accounting equation are to

increase assets and increase liabilities. Basic accounting equation: Assets = Liabilities + Stockholders' Equity issuing a note payable for cash increases cash (which is an asset) and increases notes payable (which is a liability). Thus, assets increase and liabilities increase.

The effects of stockholders investing cash in exchange for additional shares of stock on the basic accounting equation are to

increase assets and increase stockholders' equity. Basic accounting equation: Assets = Liabilities + Stockholders' Equity A purchase of equipment for cash is recorded as an increase in equipment (which is an asset) and a decrease in cash (which is an asset). Thus, an asset exchange occurs with one asset increasing and another decreasing.

Issuing new shares of common stock will

increase common stock. Issuing new shares of stock to new or existing shareholders increases the company's common stock (or preferred stock. An increase in stock increases stockholders' equity. Retained earnings is increased by revenues; it is not affected by issuing stock.

The purchase of an asset, such as supplies, on account

increases the purchaser's assets and liabilities. A purchase of an asset on account indicates that assets increased (i.e., an asset is acquired) and liabilities increased (i.e., account payable increased).

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of

interest paid over the life of the bond minus the amount of premium at sale point. Bonds may be issued either (i) at their face value, (ii) at a discount, or (iii) at a premium. When bonds are issued at a premium, they have been issued (i.e., sold) for more than their face value. This occurs because the bond's stated interest rate is higher than the market interest rate. The carrying value of bonds issued at a premium equals the bond's face value plus the premium. As times passes, the premium will be amortized (and interest expense is decreased—this decreases the cost of the bonds). As it is amortized, the balance on the premium on bonds payable decreases and the carrying value of the bond decreases.

Treasury Stock

is a contra equity account. Treasury stock is a corporation's own stock, which has been reacquired and held for future use. Treasury stock is reported in the stockholders' equity section of the balance sheet as a contra equity; it is not an asset. Corporations can hold treasury stock indefinitely, and they can reissue treasury stock at any time. Corporations pay dividends on outstanding shares of stock; they do not pay dividends on treasury stock. Treasury shares do not have voting rights, liquidation rights (e.g., residual claims), or preemptive rights,

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

is less than the amount of cash to be paid for interest for the period. The effective interest method of bond discount and premium amortization computes interest expense as a constant percentage multiplied against the bond carrying value. A discount increases the interest expense and the cost of issuing the bond relative to the actual cash paid as interest. A premium reduces interest expense and the cost of issuing the bond relative to the actual cash paid as interest.

The direct write-off method of accounting for uncollectible accounts

is not generally accepted as a basis for estimating bad debts. To account for uncollectible accounts, companies use either (1) the direct write-off method or (2) an allowance method. Under the direct write-off method, a company records an increase to bad debt expense and a decrease to accounts receivable when the company determines that a receivable from a particular customer is uncollectible. The direct write-off method shows only actual losses from uncollectible receivables. Under the direct write-off method, companies often record bad debt expense in a period different from the period in which they record the revenue. No attempt is made to match bad debt expense to sales revenue, The direct write-off method is not acceptable under generally accepted accounting principles (GAAP) unless the company expects bad debt expenses to be immaterial (i.e., insignificant).

An adjusted trial balance

is prepared to prove the equality of the total debit balances and total credit balances of ledger accounts after all of the adjusting entries have been recorded. Companies prepare an adjusted trial balance after journalizing and posting the adjusting entries and before preparing the financial statements. In fact, the financial statement are prepared using in-formation reported on the adjusted trial balance. All trial balances, including the adjusted trial balance, is prepared to prove the equality of total debit balances and total credit balances. The adjust-ed trial balance includes all of a company's accounts.

The balance of Allowance for Doubtful Accounts prior to recording the end of year adjusting entry to record Bad Debt Expense

is relevant when using the percentage-of-receivables basis. The balance of Allowance for Doubtful Accounts prior to recording the end of year adjusting entry to record Bad Debt Expense is relevant when using the percentage-of-receivables basis. The purpose of the adjusting entry for bad debts is to record the bad debt expense and to adjust the balance of the Allowance for Doubtful Accounts from its unadjusted balance to a balance based on a certain percentage of outstanding accounts receivable.

Treasury Stock

is sometimes acquired in order to reissue it to company officers and employees. Treasury stock is a corporation's own stock, which has been reacquired and held for future use. Treasury stock is reported in the stockholders' equity section of the balance sheet as a contra equity; it is not an asset. Corporations can hold treasury stock indefinitely, and they can reissue treasury stock at any time. Corporations pay dividends on outstanding shares of stock; they do not pay dividends on treasury stock. Treasury shares do not have voting rights, liquidation rights (e.g., residual claims), or preemptive rights,

The partnership form of business organization

is tax advantaged in comparison to a corporation. A sole proprietor has a sole owner (i.e., it has one owner). Partnerships have two or more co-owners. Corporations have one or more owners called stockholders. Investing in a corporation has advantages, such as corporate stock is easier to transfer (i.e., stockholders can easily sell stock) than selling ownership interests of a proprietorship or partnership. Also, corporations survive even beyond the death of its stockholders whereas proprietorships and partnerships terminate when an owner dies. Corporations has a disadvantages, such as taxes. Corporations incur tax at the business level and stockholder level (i.e., double taxation) while proprietorships and partnerships do not incur business level taxes (i.e., single taxation) indicating that sole proprietorships and partnerships are tax-advantaged relative to corporations. Owners of corporations are not personally liable for the corporation's debts (i.e., stockholders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partner-ships' debts (i.e., unlimited liability).

The accounting cycle is a series of steps and their usual sequence is

journalize transactions, post transactions to the ledger, and then prepare a trial balance. The recording process does steps in a certain order and the steps are called the accounting cycle. The first step is to identify & analyze each transaction using source documents to determine its effects on the company's accounts. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter or record the transaction in the journal (i.e., journalize the transaction); the journal is also called the book-of-original entry. Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger). Fourth, after recording all of the transactions prepare a trial balance (also called an unadjusted trial balance).

During the adjusting process two transactions were neglected or omitted. 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

liabilities are overstated by $175. Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $450 and revenue is understated by $450. Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $275 and interest expense is understated by $275. The net effect of these two omissions include the following: Liabilities are overstated by $175 (i.e., 450 - 275 = 175). Revenue is understated by $450 Expenses are understated by $275 Net income is understated by $175 Assets are not affected by these omissions.

The portion of the annual report that presents management's views on the company's ability to fund operations and expansion is the

management discussion and analysis. The management discussion and analysis section addresses favorable or unfavorable trends and identifies significant events and uncertainties affecting a company's ability to pay near-term obligations, ability to fund operations and expansion, and results of operations.

A corporation purchased a one-year insurance policy on March 1 of the current year for $30,000. The insurance policy will be in effect from March 1 through February 28 of the next year. The company recorded the payment as prepaid Insurance. The company neglects to record the year-end adjusting entry at the end of the current year. As a result, the company's current year

net income and assets will be overstated by $25,000. Paying for one-year of insurance in advance of the coverage period results in an increase in prepaid insurance and a decrease in cash. By the end of the year, ten months of the prepaid insurance has expired and the company should record an adjusting entry that decreases the balance of the pre-paid insurance account and increase insurance expense by $25,000 (i.e., $30,000 x 10/12 = $25,000). If the company forgot to record a prepaid insurance adjusting entry, prepaid insurance would be overstated and insurance expense would be understated.

During the adjusting process two transactions were neglected or omitted. 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. Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $450 and revenue is understated by $450. Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $275 and interest expense is understated by $275. The net effect of these two omissions include the following: Liabilities are overstated by $175 (i.e., 450 - 275 = 175). Revenue is understated by $450 Expenses are understated by $275 Net income is understated by $175 Assets are not affected by these omissions.

A corporation sold equipment for $32,000. The equipment had an original cost of $96,000 and accumulated depreciation of $48,000. Ignoring the tax effect, as a result of the sale

net income will decrease $16,000. A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. Book value = Cost - Accumulated depreciation =$96,000 - 48,000 = $48,000 Since the sales price is less than the book value the company recognizes a loss, computed as follows: Loss = Book value of the asset sold - Sales proceeds from selling the asset Loss = $48,000 - 32,000 = $16,000 This loss reduces the company's income before taxes by $16,000. Ignoring taxes, it also reduces net income by $16,000.

When an account receivable is written off using the allowance method, the

net realizable value will stay the same. When an account receivable is written-off by a company using the allowance method, the company reduces accounts receivable (i.e, which reduces assets) and it reduces the allowance for doubtful accounts (which reduces a contra asset and increases assets). The net effect on total assets is zero. Under the allowance method of accounting for uncollectible accounts, the net realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

The custodian of a company asset should

not have access to the accounting records for that asset. The rationale for segregation of duties is that the work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. In contrast, making one individual responsible for related activities increases the potential for errors and irregularities (e.g., fraud).

Explanations of uncertainties and contingencies of a business, including various statistics and details too voluminous to be included in the financial statements, would be found in the company's

notes to the financial statements. The annual report includes a section called the notes to the financial statements. The notes to the financial statements identify the corporation's accounting methods and policies used to prepare the financial statements and provide explanation of uncertainties and contingencies.

The segment of a corporation's annual report that describes the corporation's accounting methods is the

notes to the financial statements. The annual report includes a section called the notes to the financial statements. The notes to the financial statements identify the corporation's accounting methods and policies used to prepare the financial statements and provide explanation of uncertainties and contingencies.

A corporation records a dividend-related liability

on the declaration date. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration:It debits the Cash Dividend account (i.e., it decreases stockholders' equity) for the amount of the dividend, and it credits Dividends Payable (i.e., it decreases liabilities) for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable (i.e., it reduces liabilities) and credits Cash (i.e., it reduces assets) for the amount of the dividend paid. Thus, the net effect of declaring and paying a dividend is to decrease Cash (i.e., decrease assets) and increase Cash Dividends (i.e., which reduces stockholders' equity).

A decline in a company's gross profit could be caused by all of the following except

paying lower prices to its suppliers. Recall that gross profit rate equals gross profit divided by net sales. An increase in the gross profit rate suggest either an increase in gross profit and/or a decrease in net sales. An increase in a company's gross profit rate may be caused by selling products with higher gross margins (i.e., higher "mark-ups"), raising prices and/or offering fewer price discounts due to less competition from other companies, or decreases in sales allowances offered to customers.

Certain computer programs are used to limit unauthorized access to certain files. This is an example of

physical controls. Examples of physical controls include safes/vaults, guarded warehouses and stockrooms, firewalls on computer access, television monitoring of selected areas and alarm systems. Human resource controls include bonding employees who handle cash, rotating employees' duties and requiring employees to take vacations, and conducting thorough background checks. Independent internal verification is accomplished primarily by unannounced audits, review of employee's work and reporting/documenting deficiencies and irregularities committed by an employee. Documentation procedures include pre-numbered forms and the utilization of source documents and are one of the fundamental principles of internal control.

Howard Company had a transaction that caused a $7,500 increase in both assets and liabilities. This transaction could have been a(n)

purchase of supplies for $7,500 on account. The basic accounting equation is Assets = Liabilities + Equity; it must always balance. A $7,500 increase in assets combined with a $7,500 increase in liabilities keeps the accounting equation in balance. Purchasing assets on account increases assets and liabilities. For example, purchasing equipment by issuing a note payable increases assets and liabilities.

A transaction increased a company's assets by $5,000 and increased its stockholders' equity by $5,000. This transaction could have been a(n)

receipt of cash in exchange for performing services to a customer. The basic accounting equation is Assets = Liabilities + Equity; it must always balance. A $5,000 increase in assets combined with a $5,000 increase in stockholders' equity keeps the accounting equation in balance. Receiving cash increases assets and performing services causes the company to recognize revenues which increases a stockholders' equity account called retained earnings.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $415 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

revenue is understated by $415. Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $415 and revenue is understated by $415. Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $275 and interest expense is understated by $275. The net effect of these two omissions include the following: Liabilities are overstated by $140 (i.e., 415 - 275 = 140). Revenue is understated by $415 Expenses are understated by $275 Net income is understated by $140 Assets are not affected by these omissions.

In its first year, a company performed services for a customer and billed the customer $10,000. In the second year, the customer pays the company for the services rendered in the first year. In the first year, the company incurred and paid $3,000 of wage expense. If the company uses the accrual-basis of accounting, then it will report

revenue of $10,000 and expense of $3,000 in the first year. The accrual-basis of accounting recognizes revenues when the performance obligation is satisfied regardless of when the customer pays and it records expenses when incurred regardless of when they are paid. The company performed the services in Year 1 so the company should recognize the revenue in Year 1 even though the customer did not pay the company until Year 2. The company incurred the expenses in Year 1 so the company should recognize the expenses in Year 1 regardless of when the company paid the expenses.

In its first year, a company performed services for a customer and billed the customer $10,000. In the second year, the customer pays the company for the services rendered in the first year. In the first year, the company incurred $3,000 of wage expense, but it did not pay the employees until the second year. If the company uses the cash-basis of accounting, then it will report

revenue of $10,000 and expense of $3,000 in the second year. The cash-basis of accounting recognizes revenues in the year cash is collected from customers regardless of when the performance obligation is satisfied and it recognizes expenses in the year they are paid regardless of when they are incurred. The company collected cash from the customer in Year 2 so it recognizes the revenue in Year 2. It paid the employees the wage in Year 2 so it recognizes the expense in Year 2.

In its first year, a company performed services for a customer and billed the customer $12,000. In the second year, the customer pays the company for the services rendered in the first year. In the first year, the company incurred and paid $4,000 of wage expense. If the company uses the accrual-basis of accounting, then it will report

revenue of $12,000 and expense of $4,000 in the first year. The accrual-basis of accounting recognizes revenues when the performance obligation is satisfied regardless of when the customer pays and it records expenses when incurred regardless of when they are paid. The company performed the services in Year 1 so the company should recognize the revenue in Year 1 even though the customer did not pay the company until Year 2. The company incurred the expenses in Year 1 so the company should recognize the expenses in Year 1 regardless of when the company paid the expenses.

In its first year, a company performed services for a customer and billed the customer $14,000. In the second year, the customer pays the company for the services rendered in the first year. In the first year, the company incurred $6,000 of wage expense, but it did not pay the employees until the second year. If the company uses the accrual-basis of accounting, then it will report

revenue of $14,000 and expense of $6,000 in the first year. The accrual-basis of accounting recognizes revenues when the performance obligation is satisfied regardless of when the customer pays and it records expenses when incurred regardless of when they are paid. The company performed the services in Year 1 so the company should recognize the revenue in Year 1 even though the customer did not pay the company until Year 2. The company incurred the expenses in Year 1 so the company should recognize the expenses in Year 1 regardless of when the company paid the expenses.

When an asset is sold, a gain occurs when the

sale price exceeds the book value of the asset sold. A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. For example, if a plant asset cost $100,000 and it was depreciated by $20,000 then its book value would be $80,000. If the company sells the plant asset for more than its book value, it receives more in cash, etc. than it gives according to its books, and the only way debits will equal credits is for the company to recognize a gain. If it were to sell the plant asset for less than the book value then the company needs to recognize a loss to make debits equal to credits.

A check written by the company for $650 was incorrectly recorded by the bank as $560. In the bank reconciliation, this $90 error would be

subtracted from the cash balance per bank statement. Amounts subtracted from the cash balance per bank statement include outstanding checks and bank errors that erroneously increased the bank account balance. The bank decreased the company's balance by $560 when it should have decreased it by $650. Correcting this error requires subtracting $90 to the cash balance per books

Which of the following is not a principle of internal control?

teamwork between employees Internal controls are established to preclude collusion between employees; collusion is not a principle of internal control. Segregation of duties ensures that the handling and processing of financial transactions is distributed in such a manner that no single employee controls any series of events from start to finish; it is a critical element of internal control. Documents provide evidence that transactions and events have occurred; it is a critical element of internal controls. Bonding of employees provides a degree of security regarding the handling of organizational assets; it is an element of internal control.

Stockholders of a corporation directly elect

the board of directors. A stockholder does not have the right to participate in management decisions simply because he owns stock. A stockholder has the right to maintain the same percentage of ownership as additional stock is issued, vote in the election for the board of directors, and receive dividends appropriate to their percentage of ownership.

Freight costs incurred by a seller on outgoing merchandise sold to customers are recorded as Freight Out and these costs will increase

the operating expenses of the seller.

If goods in transit are shipped FOB destination

the seller has title to the goods until they are delivered to the buyer. In FOB destination, ownership transfers when the buyer receives the purchased goods from the public carrier rather than when the public carrier accepts them from the seller.

If employees are bonded

they have been insured against misappropriation of assets. Bonding involves obtaining insurance protection against theft by employees. it means that they have been insured against misappropriation of assets.

Stockholders have all of the following rights except

to declare when a cash dividend will be paid. Stockholders (also called shareholders) have certain rights as the owners of the corporation. Stockholders have the right to (i) vote in the election of the corporation's board of directors, (ii) share the corporate earnings, (iii) keep the same percentage ownership when new shares of stock are issued (i.e., preemptive rule), and (iv) share in assets upon liquidation in proportion to their holdings (i.e., residual claim). A corporation's board of directors declares dividends; dividends are not declared by shareholders.

Under the allowance method for uncollectible accounts, when a specific account is written off

total assets will be unchanged. When an account receivable is written-off by a company using the allowance method, the company reduces accounts receivable (i.e, which reduces assets) and it reduces the allowance for doubtful accounts (which reduces a contra asset and increases assets). The net effect on total assets is zero. Under the allowance method of accounting for uncollectible accounts, the net realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

If a company issues a note payable for $40,000 and pays $30,000 of cash to purchase equipment, the company's

total assets will increase by $40,000. Issuing note payable for $40,000 increases total assets (i.e., Cash) by $40,000 and increases total liabilities (i.e., Notes Payable) by $40,000. Purchasing equipment for $30,000 decreases total assets (i.e., Cash) by $30,000 and increases total assets (i.e., Equipment) by $30,000. The net effect of these two transactions is as follows: increase total assets by $40,000 and increase total liabilities by $40,000.

If a transaction affected two accounts and total assets decreased by $4,000, then

total liabilities must have decreased by $4,000 or total stockholders' equity must have decreased by $4,000. The accounting equation: Assets = Liabilities + Equity The accounting equation must always be in balance. Every transaction has two effects on the accounting equation. If total assets decreased by $4,000 and the transaction affected only two accounts, then either (i) total liabilities decreased by $4,000 or (ii) total equity increased by $4,000.

Revenues for services performed but not yet recorded or collected in cash are accrued revenues. Failure to prepare a year-end adjusting entry to record accrued revenues would result in financial statements that

understate assets and understate revenues. If a company fails to record a year-end adjusting entry for accrued revenues, the company's revenue will be understated. Understating revenue understates retained earnings and stockholders' equity. Failing to accrue revenues also understates accounts receivable understating assets.

All of the following are examples of internal control principles or internal control procedures except

using customer satisfaction surveys. Customer satisfaction surveys may be useful to help increase sales and retain customers. However, they are not an internal control principle unlike the use of pre-numbered documents, reconciling bank statements, rotate employees (e.g., insist that employees take vacations), and bonding employees.

When a business that provides services to customers uses accrual-basis accounting , revenue is recognized

when the service is performed. Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, is commonly called accrual basis accounting. Revenues are earned when the performance obligation is satisfied. For example, revenue is earned when a company provides services to a customer.

Manufactured inventory that has begun the production process but is not yet completed is called

work in process. Inventory can include raw materials, work in process, and finished goods. Raw materials is an inventory account that contains the cost of materials that have not yet been started into the production process. Work in process is an inventory account that contains the cost of goods started, but not completed. Finished goods is an inventory account that contains the cost of goods completed that are ready to sell.

A company has the following inventory data: July 1 / Beginning inventory / 20 units at $20 / $400 7 / Purchases / 70 units at $21 / 1,470 22 / Purchases / 10 units at $22 / 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the FIFO inventory method and a periodic inventory system, the amount allocated to cost of goods sold for July is

$1,555 Goods available for sale is $2,090 (100 units) Ending inventory = 25 units Cost of goods sold = goods available for sale - ending inventory = 100 units - 25 units = 75 units Using FIFO & periodic, the cost of goods sold includes the oldest 75 units and ending inventory includes the 25 newest units. Cost of goods sold = 20 units at $20/unit + (75 units - 20 units) x $21/unit = $400 + 1,155 = $1,555

At company has the following bank information: Cash balance per bank, Dec. 31, $11,500 Outstanding checks, $1,375 Deposits in transit, $600 Notes receivable collected by bank, $250 Bank service charge, $50 NSF check, $125 What is the company's adjusted cash balance on Dec. 31?

$10,725 Cash per bank, 11,500 Add: Deposits in transit, 600 Less: Outstanding checks, (1,375) Adjusted cash balance, 10,725

For a given company, total assets are $150,000, current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings is $70,000. How much is total stockholders' equity?

$120,000 Stockholders' equity equals common stock plus retained earnings. Common stock of $50,000 plus retained earnings of $70,000 equals $120,000 in stockholders' equity. Assets equals liabilities plus stockholders' equity. $150,000 = $10,000 + $20,000 + X Solving for X: Stockholders' equity = $120,000

On January 1, a corporation issues $200,000 of 8%, 5-year bonds for $208,400. Interest is paid annually. If the corporation uses the straight-line method of amortization, the amount of bond interest expense for the first year is

$14,320.

A company has the following: Category / Cost / Market A / $55,000 / $52,000 B / 48,000 / 58,000 C / 77,000 / 65,000 If the company values its inventory using lower-of-cost-or-market, the value of the inventory reported on its balance sheet would be

$165,000. Category / Cost / Market / LCM A / $55,000 / $52,000 / $52,000 B / 48,000 / 58,000 / 48,000 C / 77,000 / 65,000 / 65,000 Total LCM = $165,000

A company started the year with $25,000 in its common stock account and a credit balance in retained earnings of $15,000. During the year, the company earned net income of $10,000 and declared and paid $1,000 of dividends. In addition, the company sold additional common stock amounting to $5,000. As a result, the amount of its retained earnings at the end of the year would be

$24,000 Ending retained earnings = Beginning Retained Earnings + Net Income - Dividends Ending retained earnings = 15,000 + 10,000 - 1,000 = $24,000

On January 1, a company issued $2,000,000 of 5-year, 10% bonds for $2,120,000. Interest is paid annually. If the issuing corporation uses the straight-line method of amortization, the annual amortization amount is

$24,000.

A company began the year with $60,000 in its common stock account and a credit balance in retained earnings of $40,000. During the year, the company earned net income of $75,000 and declared and paid $25,000 of dividends. In addition, the company sold additional common stock amounting to $100,000. Based on this information, what is the ending total of stockholders' equity?

$250,000 Stockholders' equity = common stock + retained earnings Stockholders' equity = (60,000 + 100,000) + (40,000 + 75,000 - 25,000) = $250,000

At the start of the year, a company's Allowance for Doubtful Accounts had a credit balance of $36,000. During the year, it had credit sales of $1,500,000. It also wrote-off $45,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 5% of the balance in receivables. If the accounts receivable balance at December 31 was $400,000, what is the bad debt expense for the year?

$29,000 Bad debt expense = Ending accounts receivable times percent uncollectible minus the subtotal balance in the allowanceBad debt expense = ($400,000 x 5%) - (36,000 - 45,000) = $29,000 Note: the allowance had a $36,000 credit balance that was reduced by $45,000 producing a$ 9,000 debit balance, and the allowance needs to have a $20,000 credit balance.

A company collected $10,000 on November 1 for six months of rent The revenue reported from this transaction during the current calendar year will be

$3,333 Rent earned in the current year = Prepaid rent times the portion earned = $10,000 x 2/6 = $3,333.

On January 1, a company issued $4,000,000 of 7%, 8-year bonds for $3,176,620. The bonds pay interest annually on January 1. The effective interest rate on the bonds is 11%. Use the effective-interest method to determine the amount of interest expense for the first year.

$349,428 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 11% x $3,176,620 = $349,428

On January 1, a company issued $600,000 of 10-year, 8% bonds for $565,500. The bonds pay interest annually. The bond issuer uses the straight-line method of amortization. What is the amount of interest expense for the first year?

$51,450 ($600,000 − $565,500) / 10 = $3,450; ($600,000 x .08) / $3,450 = $51,450

A company sold merchandise for $95,000. Returns from customers totaled $2,000. If the company's gross profit rate is 40%, what is the company's cost of goods sold?

$55,800 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $95,000 - 2,000 = $93,000 Gross profit rate = Gross profit/Net sales 0.40 = Gross profit/$93,000 Gross profit = 0.40 x $93,000 = $37,200 Gross profit = Net sales - cost of goods sold $37,200 = $93,000 - cost of goods sold Cost of goods sold = $93,000 - 37,200 = $55,800

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $315,000 Treasury stock, $10,000 Dividends payable, $30,000 Paid-in capital in excess of par value, $55,000 Common stock, $215,000 How much is total stockholders' equity?

$575,000 Total stockholders' equity = Retained earnings - treasury stock + paid-in capital in excess of par value + common stock Total stockholders' equity = $315,000 - $10,000 + $55,000 + $215,000 = $575,000 Note: Dividends Payable is a liability.

A company has the following: Units Cost per unit Dec. 1 Beginning balance 72 $90 Dec. 14 Purchase 124 $94 Dec. 21 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars)

$6,176 Sales revenue = 204 units x $126/unit = $25,704 Cost of goods sold using LIFO = (88 units x $98/unit) + [(204 - 88) x $94/unit] = $8,624 + 10,904 = $19,528 Gross profit = Sales revenue - Cost of goods sold = $25,704 - 19,528 = $6,176

On March 1 of the current year, a company purchases and places into service new equipment. The cost of the equipment is $55,000. The equipment has an estimated 5-year life and $10,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

$7,500 Depreciation expense per year = (Cost - salvage value)/Life Depreciation expense per year = ($55,000 - 10,000)/5 years = $9,000 per year Depreciation expense for March 1 through December 31 = $9,000 x 10/12 = $7,500

Which two accounts follow the rules of debit and credit in relation to increases and decreases in the same manner?

(i) Equipment and (ii) Selling Expense Assets, expenses, and dividends are increased by debits. Liabilities equities, and revenues are increased with credits. Equipment is an asset account, and advertising expense is an expense account; both are increased by debits.

A company uses the periodic inventory method. If beginning inventory is overstated by $10,000 because the prior's year's ending inventory was overstated by $10,000. The company's ending inventory for this period is correct. The effect of this error in the current period is that (i) cost of goods sold is _________________ and (ii) net Income is ___________________.

(i) Overstated and (ii) Understated In the periodic inventory system, cost of goods sold is computed at the end of the period using a formula that includes ending inventory which is determined by taking a physical inventory. Sometimes, the ending inventory is mis-counted (i.e., understated or overstated). An error in ending inventory results in an error in cost of goods sold in the opposite direction. For example, understating ending inventory overstates cost of goods sold. Moreover, an error in cost of goods sold causes an error in gross profit, net income, retained earnings, and stockholders' equity. For example, overstating cost of goods sold understates gross profit, net income, and retained earnings.

A company uses straight-line depreciation. It purchased a truck for $40,000. The truck's salvage value is $10,000. The truck's annual depreciation expense is $6,000. What is the truck's useful life?

5 years The depreciable cost equals the cost minus the salvage value; it is the $40,000 purchase price less $10,000 salvage value, which is $30,000. The annual depreciation cost is $6,000. Since $30,000 will be depreciated by $6,000 per year, the useful life is 5 years (i.e., $30,000/$6,000 per year = 5 years).

Which of the following is an asset?

Accounts receivable Accounts are classified into categories including assets, liabilities, equities, revenues, expenses, and dividends. Assets are the resources owned by a company. Common examples of assets include cash, accounts receivable, inventory, supplies, buildings, equipment, patents, etc.

Which of these transactions would cause the inventory turnover ratio to increase the most?

Decreasing the amount of inventory on hand and increasing sales Inventory turnover ratio = Cost of goods sold divided by average inventory. Increasing sales will increase cost of goods sold which increases the numerator of the inventory turnover ratio. A corresponding decrease in inventory decreases the denominator of the inventory turnover ratio. Thus, both an increase of sales (and cost of goods sold) and a decrease in inventory will cause the inventory turnover to increase.

Which one of the following is not one of the principles of internal control?

Financial performance measures Financial performance measures are used to evaluate, but not to enhance the accuracy and reliability of its accounting records and safeguard assets. The establishment of responsibility is one of the principles of internal control. Documentation procedures are a principle of internal control. Independent internal verification is one of the principles of internal control.

Which one of the following is a primary component of an internal control system?

Monitoring The five primary components of an internal control system are (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.

Which of the following would increase a company's current ratio?

Negotiate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years. Current ratio = current assets divided by current liabilities Changing a current liability (e.g., a note due in 3 months) into a long-term liability (i.e., a note payable due in 2 years) lowers total current liabilities. This increases the current ratio.

Which of the following describes how to compute the gross profit rate?

Net sales minus cost of goods sold, divided by net sales The formula for computing the gross profit rate is net sales minus cost of goods sold divided by net sales.

A corporation declared a cash dividend of $2.00 per share on 50,000 shares of common stock on July 15. The dividend is to be paid one month later on August 15 to stockholders of record on July 31. The correct entry to be recorded on the date of record of July 31 will include a

No journal entry is required. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration:It debits the Dividends account and it credits Dividends Payable account. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable and credits Cash.

Which one of the following is not a primary component of an internal control system?

Opportunity The five primary components of an internal control system are (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Opportunity is not a primary component of an internal control system; it is one of the three components of the fraud triangle.

Which of the following accounts would have a different amount reported on a company's adjusted trial balance than the amount reported on the post-closing trial balance?

Retained Earnings A company will report its beginning retained earnings balance on the trial balance and adjusted trial balance. However, the closing entries will increase retained earnings by the company's revenues and decrease it by the company's expenses and dividends resulting in ending retained earnings. The balance sheet reports ending retained earnings.

Which of the following is not an element of the fraud triangle?

Segregation of duties The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high.

Which statement is incorrect concerning the adjusted trial balance?

The adjusted trial balance lists the account balances sorting them in order of their dollar magnitude. Companies prepare an adjusted trial balance after journalizing and posting the adjusting entries and before preparing the financial statements. In fact, the financial statement are prepared using information reported on the adjusted trial balance. All trial balances, including the adjusted trial balance, is prepared to prove the equality of total debit balances and total credit balances. The adjusted trial balance includes all of a company's accounts.

Which of the following best defines accounting?

The information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information.

Which of the following controls would best help detect the removal of a blank check by an employee from the back of a company's checkbook for subsequent misappropriation of funds?

The use of prenumbered checks. Companies should establish procedures for documents. Documentation procedures include the use of prenumbered documents and accounting for all documents.

A professional team sells season tickets to its fans. There are 10 home games during the season. This year's season tickets sold for a total of $12,000,000 cash. What will be credited by the team after each home game is played?

Ticket Revenue for $1,200,000 Performance by the team generates revenue and decreases its obligation. Each home game generates $1,200,000 of ticket revenue. Debit the Unearned Ticket Revenue for $1,200,000 and credit Ticket Revenue for $1,200,000.

If a check correctly written by a company for $628 is incorrectly recorded on its books as $682 then the appropriate treatment on the bank reconciliation would be to

add $54 to the cash balance per books. The company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted

An annual report provided to shareholders includes all of the following except

an income tax return. Publicly traded companies must provide shareholders with an annual report. The annual report includes the financial statements and certain other items, including a management discussion and analysis, notes to the financial statements, and an independent auditor's report.

Resources owned by a business are referred to as

assets. Assets are the resources owned by the business.

A company pays employees' salaries. This transaction will immediately affect the

balance sheet, income statement, retained earnings statement, and cash flows statement. The company pays cash to its employees so the company's cash decreases. This reduces its total assets which affects the company's balance sheet. The company also records salaries expense. Expenses lower net income reported on the income statement, and expenses reduce retained earnings which affects the retained earnings statement and the balance sheet. Paying salaries is a cash outflow. It affect the cash flows statement.

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are referred to as

callable bonds. Bonds can have a variety of characteristics. One characteristic that some bonds have is that the bond are subject to retirement by the bondholder (i.e., debtor) at a stated dollar amount prior to maturity at the option. This characteristic is referred to as callable.

On January 1, a company issues $2,000,000, 5-year, 12% bonds at 96 with interest payable annually on January 1. The year-end adjusting entry to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

credit to Discount on Bonds Payable, $16,000. [$2,000,000 x (1.00 − .96)] / 5 = $16,000

Reporting net income of $95,000 will

increase both retained earnings and stockholders' equity. Net income = Revenue minus expenses Net income is computed on the income statement, and it is reported on the statement of stockholders' equity as a positive adjustment to retained earnings and stockholders' equity.

The step in the recording process following entering a transaction in the journal is to transfer the journal information to the

ledger. The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. This begins with examining a source document that provides evidence of a transaction or event that needs to be recorded. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter the transaction information in the journal (i.e., journalize the transaction). Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger).

If bonds are issued at a discount, it means that the

market interest rate is higher than the contractual interest rate. Bonds may be issued either (i) at their face value, (ii) at a discount, or (iii) at a premium depending on the stated interest rate relative to the market interest rate. When bonds are issued at a discount, they have been issued (i.e., sold) for less than their face value. This occurs because the bond's stated interest rate is lower than the market interest rate.

In the credit terms of 1/10, n/30, the "10" represents the

number of days in the discount period. The terms 1/10, n/30 indicate that the discount is 2% if payment is made within 10 days of the invoice date.

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

reduce the amount of retained earnings available for dividends to shareholders. Any portion of retained earnings may be restricted which means that portion of retained earnings cannot be used to pay dividends to shareholders. Restrictions on retained earnings can result from legal restrictions, contractual restrictions, or voluntary restrictions.

A company has an employee who is its warehouse custodian and its accountant. An assessment of this situation indicates

segregation of duties is violated. In segregation of duties, different individuals should be responsible for related activities such as physical control of assets and recording keeping regarding those assets.

Current assets divided by current liabilities is known as

the current ratio. The current ratio is computed current assets divided by current liabilities.

A bank reconciliation should be prepared

to explain any difference between the depositor's balance per books with the balance per bank.

In what denomination are bonds typically issued?

$1,000 (or multiples of $1,000) Bonds are normally issued in denominations of $1,000 (or multiples of $1,000). For example, a company seeking to borrow $5,000,000 by issuing 10-year bonds with a stated rate of 10% would issue 5,000, 10-year, 10% $1,000 bonds.

An analysis of the accounts receivable of a certain company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $1,200,000 Allowance for doubtful accounts (credit balance), $24,000 Amounts expected to become uncollectible, $115,000 How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?

$1,085,000 The net realizable value of the accounts receivable is accounts receivable less the ending balance in the Allowance for Doubtful Accounts. In this case, accounts receivable is $1,200,000 and the ending balance in Allowance for Doubtful Accounts will be $115,000 after the year-end adjusting entry has been recorded. This will result in cash realizable value (i.e., net realizable value) of $1,200,000 less $115,000, or $1,085,000.

On December 14, a company sold $2,000 of merchandise on account to a customer with terms 2/10, n/30. On December 20, the customer returned $800 of merchandise to the company. The company collects full payment from the customer on December 21. What is the amount of cash received by the company on December 21?

$1,176 The customer bought $2,000 of merchandise but returned $800 for a net purchase of $1,200. The customer paid within the 10-day discount period. With terms 2/10, n/30, the discount is 2% of the net purchase. The cash received is $2,328 computed as follows: [($2,000 - 800)] x 98% = $1,176

A company has the following inventory data: July 1 / Beginning inventory / 20 units at / $20 / $400 7 / Purchases / 70 units at $21 / 1,470 22 / Purchases / 10 units at $22 / 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the FIFO inventory method and a periodic inventory system, the amount allocated to cost of goods sold for July is

$1,555 Goods available for sale is $2,090 (100 units) Ending inventory = 25 units Cost of goods sold = goods available for sale - ending inventory = 100 units - 25 units = 75 units Using FIFO & periodic, the cost of goods sold includes the oldest 75 units and ending inventory includes the 25 newest units. Cost of goods sold = 20 units at $20/unit + (75 units - 20 units) x $21/unit = $400 + 1,155 = $1,555

A company has liabilities of $750,000, common stock of $435,000, and retained earnings of $380,000. It has assets of

$1,565,000. The basic accounting equation is: Assets = Liabilities + Equity This equation must always balance, meaning total assets must equal total liabilities plus total stockholders' equity. Equity equals paid-in capital (i.e., common stock) plus retained earnings. Equity = 435,000 + 380,000 = 815,000 Fill-in assets and equity into the accounting equation and solve for liabilities. Assets = Liabilities + Equity = $750,000 + 815,000 Assets = 1,565,000

A company has assets of $3,000,000, common stock of $780,000, and retained earnings of $475,000. It has liabilities of

$1,745,000 The basic accounting equation is: Assets = Liabilities + Equity This equation must always balance, meaning total assets must equal total liabilities plus total stockholders' equity. Equity equals paid-in capital (i.e., common stock) plus retained earnings. Equity = 780,000 + 475,000 = 1,255,000 Re-arranging the accounting equation to solve for liabilities yields the following: Liabilities = Assets - Equity Fill-in assets and equity into the accounting equation and solve for liabilities. Liabilities = Assets - Equity = 3,000,000 - 1,255,000 Liabilities = 1,745,000

On May 12, a company sold merchandise on account to a customer for $2,000 with terms 2/10, n/30. On May 18, the customer returns merchandise worth $200. On May 24, the customer pays the company the balance due. What is the amount of cash received by the company on May 24?

$1,800 The amount received on May 24 is $1,800. Because payment is not made within the discount period of 10 days, the amount received is $1,800 ($2,000 less the returned $200) with no discount.

On September 1, a company purchased equipment for $25,000. The equipment's estimated salvage value is $3,400. The machine will be depreciated using straight-line depreciation and a four year life. 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 a

$1,800 debit to Depreciation Expense and a $1,800 credit to Accumulated Depreciation. Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (25,000 - 3,400)/4 = $5,400 per year The correct adjusting entry to record depreciation for 4 months (i.e., September 1 through December 31) is $5,400 per year x 4/12 = $1,800. The year-end adjusting entry to record depreciation includes a debit to Depreciation Expense and a credit to Accumulated Depreciation.

A company has assets of $2,750,000, common stock of $435,000, and retained earnings of $380,000. It has liabilities of

$1,935,000. The basic accounting equation is: Assets = Liabilities + Equity This equation must always balance, meaning total assets must equal total liabilities plus total stockholders' equity. Equity equals paid-in capital (i.e., common stock) plus retained earnings. Equity = 435,000 + 380,000 = 815,000 Re-arranging the accounting equation to solve for liabilities yields the following: Liabilities = Assets - Equity Fill-in assets and equity into the accounting equation and solve for liabilities. Liabilities = Assets - Equity = 2,750,000 - 815,000 Liabilities = 1,935,000

A company has the following information: Cash balance per bank, Dec. 31, $9,500 Deposits in transit, $1,255 Notes receivable and interest collected by bank, $750 Bank charge for check printing, $50 Outstanding checks, $650 NSF check, $250 What is the company's adjusted cash balance on Dec. 31?

$10,105. Adjusted cash balance = cash per bank - outstanding checks + deposits in transit Adjusted cash balance = 9,500 - 650 + 1,255 = 10,105

At company has the following bank information: Cash balance per bank, Dec. 31, $11,500 Outstanding checks, $1,375 Deposits in transit, $600 Notes receivable collected by bank, $250 Bank service charge, $50 NSF check, $125 What is the company's adjusted cash balance on Dec. 31?

$10,725 Cash per bank, 11,500 Add: Deposits in transit, 600 Less: Outstanding checks, (1,375) Adjusted cash balance, 10,725

The financial records for a corporation included the following information: Accounts receivable, $60,000 Accounts payable, $5,000 Cash, $30,000 Common stock, $5,000 Dividends, $20,000 Insurance expense, $10,000 Salaries and wages expense, $40,000 Sales revenue, $150,000 Retained earnings is not given. Based on this information, how much is its net income?

$100,000 Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. Net income = Revenue - expenses Net income = $150,000 - 40,000 - 10,000 = $100,000

A company has the following inventory units and costs: Number of units / Cost per unit Beg. inventory, Jan. 1 / 7,000/ $11 Purchase, June 19 / 10,000 / $12 Purchase, Nov. 8 / 4,000 / $13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

$100,000 [FIFO periodic ending inventory] Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (4,000 x $13) + (4,000 x $12) = $100,000.

A company purchased land for $80,000. The company also assumes $16,000 of accrued taxes on the property, incurred $9,000 to remove an old building, and received $4,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

$101,000 All costs necessary to get the land ready to use should be capitalized as part of the cost of the land. The company should include the purchase price of $80,000, the assumption of accrued taxes of $16,000 (i.e., the buyer agrees to pay the property taxes that the previous owner owed), the cost of razing the old building of $9,000 less the payment received for the salvaged materials in the amount of $4,000. This results in an acquisition cost of $101,000.

A company has the following information: Cash balance per bank, Dec. 31, $10,500 Deposits in transit, $1,225 Notes receivable and interest collected by bank, $1,000 Bank charge for check printing, $50 Outstanding checks, $450 NSF check, $100 What is the company's adjusted cash balance on Dec. 31?

$11,275. Adjusted cash balance = cash per bank - outstanding checks + deposits in transit Adjusted cash balance = 10,500 - 450 + 1,225 = 11,275

A company has the following information: Cash balance per bank, Dec. 31, $11,500 Outstanding checks, $450 Deposits in transit, $1,225 Notes receivable collected by bank, $1,000 Bank service charge, $50 NSF check, $100 What is the company's adjusted cash balance on Dec. 31?

$12,275. Cash per bank, 11,500 Add: Deposits in transit, 1,225 Less: Outstanding checks, (450) Adjusted cash balance. 12,275

Based on the following year-end account balances, what amount would the company report on its balance sheet as intangible assets? Buildings and Equipment $35,000,000 Accumulated depreciation 5,000,000 Copyrights 2,400,000 Patents 10,000,000 Research and development 12,000,000

$12,400,000. For this company, intangibles include copyrights and patents. Intangibles = $2,400,000 + 10,000,000 = $12,400,000

At the start of the current year, a company paid for the following in cash: Copyrights, $200,000 Equipment, $25,000,000 Goodwill, $3,500,000 Inventory, $1,500,000 Land, $15,000,000 Patents, $1,000,000 Research and development, $1,500,000 Supplies, $1,500,000 Trademarks, $1,200,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$120,000 The intangibles are copyrights, trademarks, patents, and goodwill. Research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Trademarks have 20 lives, but they are renewable. Since they can be renewed, their lives are not considered to be limited and they are not amortized. Goodwill has an uncertain live, and they are not amortized. The only amortizable intangibles owned by this company are copyrights of $200,000 and patents of $1,000,000. Amortizing these intangibles over 10 years results in an annual amortization expense of $120,000 (i.e., $1,200,000/10 years = $120,000 per year).

A company has the following asset account balances: Buildings and equipment, $8,900,000; Accumulated depreciation, $1,800,000; Patents, $850,000; Land Improvements, $1,200,000; and Land, $5,000,000. How much will be reported on the balance sheet under property, plant, & equipment?

$13,300,000 Buildings and equipment, land improvements, and land, less accumulated depreciation are included for a total of $13,300,000. (i.e., 8,900,000+1,200,000+5,000,000-1,800,000=13,300,000).

A company has the following asset account balances: Buildings and equipment, $9,500,000; Accumulated depreciation, $1,500,000; Patents, $750,000; Land Improvements, $800,000; and Land, $5,000,000. How much will be reported on the balance sheet under property, plant, & equipment?

$13,800,000 Buildings and equipment, land improvements, and land, less accumulated depreciation are included for a total of $13,800,000. (i.e., 9,500,000+800,000+5,000,000-1,500,000=13,800,000).

During its first year of operations, a corporation had revenues of $65,000 and expenses of $33,000. One the last day of the first year, the corporation borrowed $8,000 and paid cash dividends of $18,000. What is the balance in retained earnings at year-end?

$14,000 credit Ending retained earnings = Beginning retained earnings + Revenues - Expenses - Dividends Ending retained earnings = $0 + 65,000 - 33,000 - 18,000 = $14,000 Note: This is the company's first-year so its beginning retained earnings is zero. Retained earnings is an equity account; it normally has a credit balance.Certain transactions do not affect retained earnings, such as borrowing money by issuing a note and purchasing equipment.

Based on the following accounts and year-end account balances for a certain corporation, determine the amount of intangible assets to be reported on its classified balance sheet. Accounts payable $60,000 Goodwill 140,000 Accounts receivable 100,000 Inventory 110,000 Accumulated depreciation 40,000 Land 180,000 Buildings 210,000 Prepaid insurance 60,000 Cash 130,000 Retained earnings 230,000 Common stock 600,000 The land is used as a parking lot.

$140,000 Intangible: Goodwill = 140,000

A corporation reports the following for the current year: i. Sales on account totaled $150,000 ii. Cash collected from customers totaled $120,000 iii. Wages paid to employees totaled $100,000 iv. Wage expense incurred totaled $110,000 v. Prepaid $5,000 for rent that will be incurred next yearWhat is its net income for the current year using cash-basis accounting?

$15,000 Net income using the cash-basis = Cash collected from customers - cash paid for expenses Net income using the cash-basis = $120,000 - 100,000 - 5,000 = $15,000

A company began the year with $84,000 in its common stock account and a credit balance in retained earnings of $36,000. During the year, the company earned net income of $124,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $22,000. What is its ending retained earnings?

$154,000 Ending retained earnings = Beginning retained earnings + net income - dividends Ending retained earnings = 36,000 + 124,000 - 6,000 = 154,000

A corporation's December 31, 2021 balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 The corporation declared and paid a $100,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $48,000, the corporation's common stockholders would receive

$16,000 Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $48,000. Current year dividend to preferred stockholders = 12,000 x $50 x 6% = $36,000 Total paid to preferred stockholders = $48,000 + 36,000 = $84,000 Total paid to common stockholders = $100,000 - 84,000 = $16,000

A plant asset with a cost of $240,000 and accumulated depreciation of $228,000 is sold for $28,000. What is the amount of the gain or loss on disposal of the plant asset?

$16,000 gain. A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. Book value = Cost - Accumulated depreciation =$240,000 - 228,000 = $12,000 Since the sales price is is larger than the book value the company recognizes a gain. It is computed as follows: Gain = Sales proceeds from selling the asset - Book value of the asset sold Gain = $28,000 - 12,000 = $16,000

A company purchased a truck for $27,000. The company paid $1,200 to paint the company's logo on the truck. The estimated salvage value and useful life are $1,200 and 5 years, respectively. How much is the accumulated depreciation under the straight-line method after three years?

$16,200 The purchase price includes all costs necessary to get the truck ready to use: $27,000 + $500 + $700 = $28,200. The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($28,200 - $1,200)/5 years = $5,400. Accumulated depreciation after three years = $5,400 x 3 = $16,200.

A corporation has 10,000 shares of 7%, $100 par value, cumulative preferred stock outstanding since its inception. No dividends were declared in the first two years of business. The company declares and pays $375,000 of dividends in its third year. How much of the third year's dividend will be paid to common stockholders?

$165,000 Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year. Total dividend = 10,000 x 7% x $100 = $70,000 Preferred dividends in arrears for two years ($70,000 × 2) = $140,000 Preferred for current year = $70,000 Total dividends to preferred stockholders = $210,000 Total dividends available = $375,000 Dividends available to common stockholders = $375,000 - 210,000 = $165,000

A company has the following: Category Cost Market A $55,000 $52,000 B 48,000 58,000 C 77,000 65,000 If the company values its inventory using lower-of-cost-or-market, the value of the inventory reported on its balance sheet would be

$165,000. Category / Cost / Market / LCM A / $55,000 / $52,000 / $52,000 B / 48,000 / 58,000 / 48,000 C / 77,000 / 65,000 / 65,000 Total LCM = $165,000

A company has the following:: Category / Cost / Market A / $57,000 / $50,000 B / 40,000 / 37,000 C / 80,000 / 86,000 If the company values its inventory using lower-of-cost-or-market, the value of the inventory reported on its balance sheet would be

$167,000. Category / Cost / Market / LCM A / $57,000 / $50,000 / $50,000 B / 40,000 / 37,000 / 37,000 C / 80,000 / 86,000 / 80,000 Total LCM = $167,000

At the start of the current year, a company paid for the following in cash: Equipment, $25,000,000 Patent, $1,700,000 Goodwill, $2,800,000 Inventory, $1,500,000 Land, $15,000,000 Research and development, $1,500,000 Supplies, $3,000,000 Trademarks, $500,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$170,000 The intangibles are patents, trademarks, and goodwill. Research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Trademarks have 20 year lives, but they can be renewed an unlimited number of times. Trademarks are not considered to have limited lives, and they are not amortized. Goodwill is considered to have an uncertain life, and it is not amortized. The only intangible asset that this company owns that it can amortize is patents, and its annual amortization expense is $170,000 (i.e., $1,700,000/10 years = $170,000 per year).

A company has the following information: Category / Cost / Market A / $57,000 / $60,000 B / 40,000 / 38,000 C / 80,000 / 81,000 If the company values its inventory using lower-of-cost-or-market, the value of the inventory reported on its balance sheet would be

$175,000. Category / Cost / Market / LCM A / $57,000 / $60,000 / $57,000 B / 40,000 / 38,000 / $38,000 C / 80,000 / 81,000 / $80,000 Total LCM = $175,000

A check correctly written by a company for $275 was incorrectly recorded by that same company as $257. On the bank reconciliation

$18 should be deducted from the cash balance per books. The company deducted too little from its cash balance. Correcting the error requires subtracting back the difference between the correct amount and the amount deducted.

A company purchased a machine for $80,000 on January 1 of the current year and depreciates it on a straight-line basis over a 10-year life assuming no salvage value. If the company sells the machine for $26,000 on June 30 of the fifth year, what would be the company's gain or loss from the sale?

$18,000 loss The selling price less the book value of the machine equals the gain or loss on the sale. The Book value of the machine when sold: $80,000 - [($80,000/10 years) x 4.5 years] = $44,000. The gain (loss) on the sale = sales price minus book vale = $26,000 - $44,000 = ($18,000).

At the start of the current year, a corporation's retained earnings account had a credit balance of $280,000. During the year, the corporation had a net loss of $60,000 and paid dividends to the stockholders of $40,000. It also borrowed $8,000 by issuing a note. At December 31, the balance in retained earnings is

$180,000 credit. Ending retained earnings = Beginning retained earnings + Net income - Dividends Ending retained earnings = $280,000 - 60,000 - 40,000 = $180,000 Retained earnings is an equity account; it normally has a credit balance. Certain transactions do not affect retained earnings, such as borrowing money by issuing a note.

During the current year, a company had sales on account of $528,000, cash sales of $216,000, and collections on account of $336,000. In addition, the company also collected $5,800 from a customer whose account the company had written off as uncollectible in the prior year. As a result of these transactions, the current year change in the accounts receivable balance is a

$192,000 increase. Accounts receivable increase by sales on account, decrease when cash is collected on customers' accounts, increased and decreased by equal amounts when previously written off accounts are recovered = $528,000 - 336,000 + 5,800 - 5,800 = $192,000 Cash sales do not affect accounts receivable.

The following is information from a certain corporation's financial records for the current fiscal year. i. Cash received from customers, $375,000 ii. Revenue earned, $380,000 iii. Cash paid for wages, $180,000 iv. Wages incurred, $165,000 v. Cash received from shareholders for additional shares of stock, $30,000 What is the company's net income for the current year using the cash-basis of accounting?

$195,000 Net income using the cash-basis = Cash collected from customers - cash paid for expenses incurred including prepaid expenses Net income using the cash- basis = $375,000 - 180,000 = $195,000

On January 1, a company purchased equipment for $15,000. The estimated salvage value is $3,000 and the estimated useful life is 4 years. On December 31, 2017 of the third year, and before adjusting entries have been made, the company decided to extend the estimated useful life of the equipment by one year giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. What is the depreciation expense for the third year?

$2,000 The annual depreciation for the first two years of life is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($15,000 - $3,000)/4 years = $3,000 per year. The depreciable cost that remains is $15,000 - $3,000 - (2 years x $3,000) = $6,000. This amount is allocated over the remaining useful life, and the remaining life is 3 years (i.e., 5 total years minus 2 expired years). Depreciation in the third year is $2,000 (i.e., $6,000/3 years).

A company began the year with retained earnings of $620,000. During the year, the company did the following: Issued common stock, $840,000 Declared and paid dividends, $160,000 Incurred expenses, $2,400,000 The company's ending retained earnings is $660,000. What was the company's revenue for the year?

$2,600,000 Beginning retained earnings + Net income - Dividends = Ending retained earnings Replace net income with revenue - expenses Beginning retained earnings + Revenue - Expenses - Dividends = Ending retained earnings Re-arranging this equation to solve for revenues: Revenue = Ending retained earnings - Beginning retained earnings + Expenses + Dividends Revenue = 660,000 - 620,000 + 2,400,000 + 160,000 Revenue = 2,600,000

A company has three categories of inventory in stock: Inventory Item / Cost / Market value Tin / $500 / $650 Stainless Steel / 2,000 / 1,900 Aluminum / 350 / 250 Apply the lower-of-cost-or-market rule to determine the company's ending inventory.

$2,650 LCM for Tin = $500 LCM for Stainless steel = $1,900 LCM for Aluminum = $250 Total LCM = $2,650

A company has the following adjusted trial balance: Debit Credit Cash 550 Accounts receivable 300 Prepaid rent 100 Equipment 6,000 Accumulated depreciation-Equipment 2,200 Accounts payable 300 Unearned service revenue 350 Common stock 1,400 Retained earnings 1,100 Service revenue 3,250 Interest revenue 50 Salaries and 1,200 wages expense Depreciation expense 300 Rent expense 200 Total 8,650 8,650 After closing entries have been journalized and posted, the balance in the company's retained earnings account will be

$2,700. Ending retained earnings = Beginning retained earnings + revenues - expenses - dividends Ending retained earnings = 1,100 + 3,250 + 50 - 1,200 - 300 - 200 = 2,700

The following is information from a certain corporation's financial records for the current fiscal year. i. Cash received from customers, $310,000 ii. Revenue earned, $330,000 iii. Cash paid for wages, $140,000 iv. Wages incurred, $125,000 v. Cash received from shareholders for additional shares of stock, $10,000 What is the company's net income for the current year using the accrual basis of accounting?

$205,000 Net income using the accrual basis = Revenue earned - expenses incurred including depreciation Net income using the accrual basis = $330,000 - 125,000 = $205,000

On January 1, a corporation issued $200,000 of 10%, 5-year bonds for $191,600. Interest is paid annually. If the corporation uses the straight-line method of amortization, the amount of bond interest expense for the first year is

$21,680.

The following is information from a certain corporation's financial records for the current fiscal year. i. Cash received from customers, $350,000 ii. Revenue earned, $390,000 iii. Cash paid for wages, $150,000 iv. Wages incurred, $160,000 v. Cash received from shareholders for additional shares of stock, $40,000 What is the company's net income for the current year using the accrual basis of accounting?

$230,000 Net income using the accrual basis = Revenue earned - expenses incurred including depreciation Net income using the accrual basis = $390,000 - 160,000 = $230,000

On January 1, a corporation issued $2,750,000, 10%, 4-year bonds for $2,932,167. Interest is payable annually on January 1. The effective interest rate on the bonds is 8%. Use the effective-interest method to determine the amount of interest expense for the first year.

$234,573 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 8% x $2,932,167 = $234,573

A company has bonds with a principal value of $500,000 outstanding. The unamortized discount on the bonds is $14,000. The company redeemed the bonds at 102. What is the company's gain or loss on the redemption?

$24,000 loss When a company retires bonds before maturity, it is necessary to: 1. Eliminate the carrying value of the bonds at the redemption date,2. Record the cash paid to redeem the bonds, and 3. Recognize the gain or loss on redemption for the difference between 1 and 2.In this case, the bond was issued at a discount so the carrying value equals the bond's principal minus unamortized discount. Carrying value = Principal minus unamortized discount = $500,000 - 14,000 = $486,000 The company can redeem this bond at 102 which means it can redeem this bond by paying the bondholder 102% of the bond's principal value. Cash paid to redeem the bonds = $500,000 x 1.02 = $510,000 Determining the gain or loss on the redemption of bonds: 1. Recognize gain if the cash paid to redeem bonds is less than their carrying value. 2. Recognize loss if the cash paid to redeem bonds in more than their carrying value. The cash paid to redeem the bonds is more than the carrying value of bonds redeemed so recognize a loss. The loss equals the excess of the cash paid over the carrying value (i.e., $510,000 - 486,000 = $24,000).

A company has the following: Cash balance per books on Dec. 31, $21,000 Bank charge for check printing, $120 Outstanding checks, $12,000 NSF check, $1,020 Deposits in transit, $900 Notes receivable and interest collected by bank, $5,100 The adjusted cash balance per books on December 31 is

$24,960 Balance per books, $21,000 Add: Note collected by the bank, $5,100 Less: Bank service charge, ($120) Less: Customer's NSF check, ($1,020) Adjusted cash balance per books, $24,960

A corporation issues a $250,000, 10%, 30-year mortgage note. The terms provide for annual installment payments of $26,520. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$246,808 Since interest accrues annually, the first year's interest would be $25,000 (i.e., 10% x $250,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $26,520 payment and the interest component ($25,000), resulting in a principal reduction of $1,520. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $1,520 from $250,000 to $248,480. The second annual payment's interest is 10% of the outstanding mortgage principal of $248,480, or $24,848. The second annual payment of $26,520 is allocated as $24,848 paid towards interest and the remaining $1,672 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $246,808.

A corporation issues a $250,000, 9%, 30-year mortgage note. The terms provide for annual installment payments of $24,334. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$248,166 Since interest accrues annually, the first year's interest would be $22,500 (i.e., 9% x $250,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $24,334 payment and the interest component ($22,500), resulting in a principal reduction of $1,834. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $1,834 from $250,000 to $248,166.

A company purchased equipment for $180,000 on January 1 of its first year. The equipment's original estimated useful life is 3 years and its estimated salvage value is $30,000. The company uses the straight-line method of depreciation. On December 31 of its third year, before year-end adjusting entries have been recorded, the company decides to extend the estimated useful life 1 year giving it a total life of 4 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the third year?

$25,000 Original depreciation per year: ($180,000 - 30,000)/3 years = $50,000 per year. Revised depreciation per year: ($180,000 - 2 x 50,000 - 30,000)/(4-2) = $25,000 per year

A company purchased equipment and incurred these costs: Cash price, $24,000 Sales taxes, $1,200 Insurance during transit, $200 Annual maintenance costs, $400 What amount should be recorded as the cost of the equipment?

$25,400 All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use ($24,000 + $1,200 + $200 = $25,400). The $400 annual maintenance costs are expensed as operating expenses as incurred; they are not capitalized or added to the asset's cost or depreciated.

At the start of the current year, a company paid for the following in cash: Equipment, $25,000,000 Goodwill, $4,500,000 Inventory, $1,500,000 Land, $15,000,000 Patents, $2,500,000 Research and development, $2,000,000 Supplies, $3,000,000 Trademarks, $1,000,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$250,000 The intangibles are trademarks patents and goodwill. Only patents are amortized. Amortization expense for the year equals $2,500,000/10 = $250,000. Notice that research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Goodwill is not amortized because it is considered to have an indefinite life. Trademarks are registered with the U.S. patent office and have lives of 20 years but they may be renewed indefinitely; because trademarks (and trade names) have indefinite lives, they are not amortized.

A company purchased equipment for $300,000 on January 1. The equipment's original estimated useful life is 10 years and its estimated salvage value is $60,000. The company uses the straight-line method of depreciation. Before recording adjusting entries in the asset's sixth year, the company revises the estimated salvage value to $48,000. It does not change the estimated useful life. How much depreciation expense should be recorded for the sixth year?

$26,400. Original depreciation per year: ($300,000 - 60,000)/10 years = $24,000 per year. Revised depreciation per year: ($300,000 - 5 x 24,000 - 48,000)/(10-5) = $26,400 per year

A company purchased equipment and incurred these costs: Cash price, $26,000 Sales taxes, $1,200 Insurance during transit, $400 Annual maintenance costs, $500 What amount should be recorded as the cost of the equipment?

$27,600 All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use ($26,000 + $1,200 + $400 = $27,600). The $500 annual maintenance costs are expensed as operating expenses as incurred; they are not capitalized or added to the asset's cost or depreciated.

Based on the following data (in dollars), what is the working capital? Accounts payable $64,000 Notes payable (due in 6 months) 56,000 Accounts receivable 114,000 Notes payable (due in 2 years) 200,000 Cash 60,000 Patents 100,000 Equipment 300,000 Prepaid insurance 2,000 Inventory 138,000 Short-term investments 80,000 Investments in bonds 160,000

$274,000 Working capital = current assets - current liabilities Current assets = cash and assets expected to be converted into cash or consumed in one year or operating cycle, whichever is longer. Current assets = Cash + Accounts receivable + inventory + short-term investments + prepaid insurance Current assets = 60,000 + 114,000 + 138,000 + 80,000 + 2,000 = 394,000 Current liabilities = liabilities to be paid in one year or operating cycle, whichever is longer. Current liabilities = Accounts payable + Notes payable (short-term) Current liabilities = 64,000 + 56,000 = 120,000 Working capital = 394,000 - 120,000 = 274,000

A company has bonds with a principal value of $1,000,000 outstanding. The unamortized premium on the bonds is $12,000. The company redeemed the bonds at 104. What is the company's gain or loss on the redemption?

$28,000 loss When a company retires bonds before maturity, it is necessary to: 1. Eliminate the carrying value of the bonds at the redemption date, 2. Record the cash paid to redeem the bonds, and 3. Recognize the gain or loss on redemption for the difference between 1 and 2.In this case, the bond was issued at a premium so the carrying value equals the bond's principal plus unamortized premium. Carrying value = Principal plus unamortized premium = $1,000,000 + 12,000 = $1,012,000The company can redeem this bond at 104 which means it can redeem this bond by paying the bondholder 104% of the bond's principal value. Cash paid to redeem the bonds = $1,000,000 x 1.04 = $1,040,000Determining the gain or loss on the redemption of bonds: 1. Recognize gain if the cash paid to redeem bonds is less than their carrying value. 2. Recognize loss if the cash paid to redeem bonds in more than their carrying value. The cash paid to redeem the bonds is more than the carrying value of bonds redeemed so recognize a loss. The loss equals the excess of the cash paid over the carrying value (i.e., $1,040,000 - 1,012,000 = $28,000).

At December 31, Moore Company's inventory records indicated a balance of $360,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB destination, but not due to be received until January 3. (2) $24,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB shipping point, but not due to be received until January 2. (3) $8,000 in goods sold by Moore with terms FOB shipping point on December 28. The goods are not expected to reach their destination until January 5. (4) $9,000 in goods sold by Moore with terms FOB destination on December 28. The goods are not expected to reach their destination until January 4. (5) $13,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$283,000 Do not include the following in inventory: 1. FOB destination purchases not yet received (i.e., $56,000) 2. FOB shipping point goods sold and shipped (i.e., $8,000) 3. Goods held on consignment (i.e., $13,000). Ending inventory = $360,000 - 56,000 - 8,000 - 13,000 = $283,000

A company's accounting records show the following account balances: Beginning Inventory $72,000 Ending Inventory 40,000 Freight-In 2,500 Freight-Out 7,500 Purchases 285,300 Purchase Returns and Allowances 20,200 Purchase Discounts 12,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold.

$287,600 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 285,300 - 12,000 - 20,200 + 2,500 = 255,600 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 72,000 + 255,600 - 40,000 = 287,700

At the start of the current year, a corporation's retained earnings account had a credit balance of $282,000. During the year, the corporation earned revenues of $40,000, incurred expenses of $24,000. At the end of the year, it purchased equipment for $10,000 in exchange for a $10,000 note and it paid dividends of $4,000. What is the balance in retained earnings at the end of May?

$294,000 credit Ending retained earnings = Beginning retained earnings + Revenues - Expenses - Dividends Ending retained earnings = $282,000 + 40,000 - 24,000 - 4,000 = $294,000 Retained earnings is an equity account; it normally has a credit balance. Certain transactions do not affect retained earnings, such as borrowing money by issuing a note and purchasing equipment.

At December 31, Moore Company's inventory records indicated a balance of $360,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB destination, but not due to be received until January 3. (2) $24,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB shipping point, but not due to be received until January 2. (3) $8,000 in goods sold by Moore with terms FOB shipping point on December 28. The goods are not expected to reach their destination until January 5. (4) $9,000 in goods sold by Moore with terms FOB destination on December 28. The goods are not expected to reach their destination until January 4. (5) $13,000 of goods owned by Moore Company held on consignment by Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$296,000 Do not include the following in inventory: 1. FOB destination purchases not yet received (i.e., $56,000) 2. FOB shipping point goods sold and shipped (i.e., $8,000) 3. Goods held on consignment (i.e., None). Ending inventory = $360,000 - 56,000 - 8,000 = $296,000

On September 1, a company purchased equipment for $40,000. The equipment's estimated salvage value is $4,000. The machine will be depreciated using straight-line depreciation and a four year life. 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 a

$3,000 debit to Depreciation Expense and a $3,000 credit to Accumulated Depreciation. Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (40,000 - 4,000)/4 = $9,000 per year The correct adjusting entry to record depreciation for 4 months (i.e., August 1 through December 31) is $9,000 per year x 4/12 = $3,000. The year-end adjusting entry to record depreciation includes a debit to Depreciation Expense and a credit to Accumulated Depreciation.

A company has the following: Units Cost per unit Dec. 1, Beg. Bal. 40 $42 Dec. 14, Purchase 60 $43 Dec. 21, Purchase 53 $44 The company sold 100 units at $75 each and has a tax rate of 25%. Assuming that a periodic inventory system is used and operating expenses are $2,000, what is the company's gross profit using LIFO? (rounded to whole dollars)

$3,147 Using periodic LIFO, cost of goods sold includes the last inventory purchased (i.e., the newest inventory). Sales revenue = 100 x $75 = $7,500 Cost of goods sold = (53 x $44) + [(100 - 53) x $43] = $2,332+ 2,021= $4,353 Gross profit = Sales revenue - cost of goods sold = $7,500 - 4,353 = $3,147

On December 14, a company sold $4,000 of merchandise on account to a customer with terms 1/10, n/30. On December 20, the customer returned $500 of merchandise to the company. The company received no payments from that customer in December. On December 21, the company received $2,000 from a different customer for merchandise to be delivered in January. Assuming the company has only these two customers, what is its accounts receivable on December 31?

$3,500 A customer bought $4,000 of merchandise on account but returned $500 for a net purchase of $3,500. The customer did not pay during December. Another customer paid in advance which the seller would record as an increase in cash—not accounts receivable—and an increase in unearned revenue. Accounts receivable = $4,000 - 500 = $3,500

What is the maturity value of a $30,000, 12%, 3-month note receivable dated March 1?

$30,900 The maturity value is the face value (i.e., principal) plus interest for the term of the note. Interest earned is calculated by multiplying the principal times the interest rate times the length of the note. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest.Interest = Principal x interest rate x time = $30,000 x 12% x 3/12 = $900 Remember, all interest rates are annual interest rates unless designated otherwise. Maturity value = Principal + interest = $30,000 + 900 = $30,900.

On January 1, a company's allowance for doubtful accounts had a credit balance of $18,000. During the year, it had net credit sales of $750,000 and it had $30,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the bad debt expense for the year?

$32,000 After the write-offs are recorded (but before the year-end adjusting entry), Allowance for Doubtful Accounts will have a debit balance of $12,000 (i.e., $18,000 credit beginning balance combined with a $30,000 debit for the write-offs). Using the percentage of receivables basis, the balance in the allowance account needs to be a credit balance of $20,000 (i.e., $200,000 x 10%). In order to have an ending balance of $20,000, a credit entry of $32,000 must be made to Allowance for Doubtful Accounts. Thus, the amount of the adjusting entry must be $32,000.

A corporation's December 31, 2021 balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $ 600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 The corporation declared and paid a $100,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $32,000, the corporation's common stockholders would receive

$32,000 Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $32,000. Current year dividend to preferred stockholders = 12,000 x $50 x 6% = $36,000 Total paid to preferred stockholders = $32,000 + 36,000 = $68,000 Total paid to common stockholders = $100,000 - 68,000 = $32,000

A company's accounting records show the following account balances: Purchase Discounts $5,000 Purchases 342,000 Beginning Inventory 23,000 Ending Inventory 31,000 Sales 625,000 Using the periodic system, the cost of goods sold is

$329,000. Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 23,000 + 342,000 −5,000 - 0 - 31,000 = 329,000

At the start of the year, a company's Allowance for Doubtful Accounts had a credit balance of $22,000. During the year, it had credit sales of $1,100,000. It also wrote-off $50,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 2% of the balance in receivables. If the accounts receivable balance at December 31 was $250,000, what is the bad debt expense for the year?

$33,000 Bad debt expense = Ending accounts receivable times percent uncollectible minus the subtotal balance in the allowanceBad debt expense = ($250,000 x 2%) - (22,000 - 50,000) = $33,000 Note: the allowance had a $22,000 credit balance that was reduced by $50,000 producing a $28,000 debit balance, and the allowance needs to have a $5,000 credit balance.

A corporation's December 31, 2021 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 30,000 shares authorized; 15,000 shares issued $ 300,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 The corporation declared and paid a $75,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $18,000, the corporation's common stockholders would receive

$33,000 Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $18,000. Current year dividend to preferred stockholders = 15,000 x $20 x 8% = $24,000 Total paid to preferred stockholders = $18,000 + 24,000 = $42,000 Total paid to common stockholders = $75,000 - 42,000 = $33,000

At December 31, Moore Company's inventory records indicated a balance of $400,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB destination, but not due to be received until January 2. (2) $23,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB shipping point, but not due to be received until January 3. (3) $6,000 in goods sold by Moore with terms FOB shipping point on December 27. The goods are not expected to reach their destination until January 4. (4) $8,000 in goods sold by Moore with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6. (5) $13,000 of goods owned by Moore Company held on consignment by Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$338,000 Do not include the following in a company's inventory: 1. FOB destination purchases not yet received (i.e., $56,000) 2. FOB shipping point goods sold and shipped (i.e., $6,000) 3. Goods held on consignment (i.e., None) Ending inventory = $400,000 - 56,000 - 6,000 = $338,000

A company uses the allowance method to estimate its uncollectible accounts. It estimates that $45,000 of its receivables are uncollectible at year-end. Prior to recording year-end adjusting entries, the company has an $11,000 credit balance in its Allowance for Doubtful Accounts account. What is the bad debt expense for the current year?

$34,000 After the year-end adjusting entry, the allowance for doubtful accounts will equal the estimated uncollectible accounts which is given as $45,000. It will have a credit balance because the allowance for doubtful accounts is a contra assets (and contra assets normally have credit balances). Before the adjustment, it has a $11,000 credit balance. So, the year-end adjusting entry will credit the allowance for doubtful accounts by $34,000, and it will debit the bad debt expense for $34,000.

A company has bonds with a principal value of $500,000 outstanding. The unamortized discount on the bonds is $14,000. The company redeemed the bonds at 104. What is the company's gain or loss on the redemption?

$34,000 When a company retires bonds before maturity, it is necessary to: 1. Eliminate the carrying value of the bonds at the redemption date,2. Record the cash paid to redeem the bonds, and 3. Recognize the gain or loss on redemption for the difference between 1 and 2.In this case, the bond was issued at a discount so the carrying value equals the bond's principal minus unamortized discount. Carrying value = Principal minus unamortized discount = $500,000 - 14,000 = $486,000 The company can redeem this bond at 104 which means it can redeem this bond by paying the bondholder 104% of the bond's principal value. Cash paid to redeem the bonds = $500,000 x 1.04 = $520,000 Determining the gain or loss on the redemption of bonds: 1. Recognize gain if the cash paid to redeem bonds is less than their carrying value. 2. Recognize loss if the cash paid to redeem bonds in more than their carrying value. The cash paid to redeem the bonds is more than the carrying value of bonds redeemed so recognize a loss. The loss equals the excess of the cash paid over the carrying value (i.e., $520,000 - 486,000 = $34,000).

A company's accounting records show the following account balances at the end of the year: Purchase Discounts $3,300 Freight-In 9,700 Freight-Out 7,500 Purchases 350,010 Beginning Inventory 23,700 Ending Inventory 30,800 Purchase Returns and Allowances 4,600 Using the periodic system, the cost of goods sold is

$344,710. Beginning inventory, $23,700 Purchases, $350,010 Less: Purchase returns and allowances, $4,600 Less: Purchase discounts, $3,300 Freight-In, $9,700 Less: Ending inventory, $30,800 Cost of goods sold, $344,710

At December 31, Moore Company's inventory records indicated a balance of $420,000. Upon further investigation it was determined that this amount included the following: (1) $54,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB destination, but not due to be received until January 2. (2) $25,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB shipping point, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB shipping point on December 29. The goods are not expected to reach their destination until January 4. (4) $7,000 in goods sold by Moore with terms FOB destination on December 29. The goods are not expected to reach their destination until January 5. (5) $15,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$345,000 Do not include the following in inventory: 1. FOB destination purchases not yet received (i.e., $54,000) 2. FOB shipping point goods sold and shipped (i.e., $6,000) 3. Goods held on consignment (i.e., $15,000). Ending inventory = $420,000 - 54,000 - 6,000 - 15,000 = $345,000

Based on the following accounts and year-end account balances for a certain corporation, determine the amount of property, plant, and equipment to be reported on its classified balance sheet. Accounts payable $120,000 Inventory 110,000 Accounts receivable 100,000 Land 180,000 Accumulated depreciation 40,000 Prepaid insurance 60,000 Buildings 210,000 Retained earnings 170,000 Cash 130,000 Trademarks 140,000 Common stock 600,000 The land is used as a parking lot.

$350,000 Property, plant, and equipment includes equipment plus buildings minus accumulated depreciation plus land = 210,000 - 40,000 + 180,000 = 350,000

At the start of the current year, a company paid for the following in cash: Copyrights, $2,000,000 Equipment, $25,000,000 Goodwill, $4,500,000 Inventory, $1,500,000 Land, $15,000,000 Patents, $1,500,000 Prepaid rent, $500,000 Research and development, $500,000 Supplies, $4,000,000 Trademarks, $1,000,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$350,000 The intangibles are trademarks, patents, copyrights, and goodwill. Only patents and copyrights are amortized. Amortization expense = ($1,500,000 + 2,000,000)/10 years = $350,000 per year. Research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Goodwill is not amortized because it is considered to have an indefinite life. Trademarks are registered with the U.S. patent office and have lives of 20 years but they may be renewed indefinitely; because trademarks (and trade names) have indefinite lives, they are not amortized.

A company's accounting records show the following account balances: Beginning Inventory $43,000 Ending Inventory 55,000 Freight-In 11,500 Freight-Out 15,500 Purchases 375,000 Purchase Returns and Allowances 11,000 Purchase Discounts 9,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold.

$354,500 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 375,000 - 9,000 - 11,500 + 11,500 = 366,500 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 43,000 + 366,500 - 55,000 = 354,500

A corporation's December 31, 2021 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 40,000 shares authorized; 20,000 shares issued $ 400,000 Common stock, $10 par value, 4,000,000 shares authorized; 2,600,000 shares issued, 2,560,000 shares outstanding 26,000,000 Paid-in capital in excess of par value - preferred stock 80,000 Paid-in capital in excess of par value - common stock 36,000,000 Retained earnings 10,200,000 Treasury stock (30,000 shares) 840,000 The corporation declared and paid a $100,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $32,000, the corporation's common stockholders would receive

$36,000 Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $32,000. Current year dividend to preferred stockholders = $400,000 x 8% = $32,000 Total paid to preferred stockholders = $32,000 + 32,000 = $64,000 Total paid to common stockholders = $100,000 - 64,000 = $36,000

At December 31, Moore Company's inventory records indicated a balance of $400,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB shipping point, but not due to be received until January 3. (2) $23,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB destination, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6. (4) $8,000 in goods sold by Moore with terms FOB shipping point on December 27. The goods are not expected to reach their destination until January 4. (5) $13,000 of goods owned by Moore Company held on consignment by Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$369,000 Do not include the following in a company's inventory: 1. FOB destination purchases not yet received (i.e., $23,000) 2. FOB shipping point goods sold and shipped (i.e., $8,000) 3. Goods held on consignment (i.e., None) Ending inventory = $400,000 - 23,000 - 8,000 = $369,000

A company's financial records report the following accounts and balances at the end of the year: Accounts payable $3,200 Accounts receivable 3,900 Cash 13,300 Common stock 4,800 Dividends 1,400 Interest expense 17,700 Notes payable 4,400 Prepaid insurance 1,900 Retained earnings 1,600 Service revenue 24,200 What would the company show as its total credits on its trial balance?

$38,200 Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $38,200 (i.e., 3,900 + 13,300 + 1,400 + 1,900 + 17,700 = 38,200).Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $38,200 (i.e., 3,200 + 4,800 + 4,400 + 1,600 + 24,200 = 38,200).Note: total debits equal total credits.

A company's financial records report the following accounts and balances at the end of the year: Accounts payable $3,300 Accounts receivable 4,000 Cash 14,500 Common stock 4,900 Dividends 400 Interest expense 18,000 Notes payable 4,500 Prepaid insurance 2,000 Retained earnings 1,700 Service revenue 24,500 What would the company show as its total credits on its trial balance?

$38,900 Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $38,900 (i.e., 4,000 + 14,500 + 400 + 2,000 + 18,000 = 38,900). Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $38,900 (i.e., 3,300 + 4,900 + 4,500 + 1,700 + 24,500 = 38,900). Note: total debits equal total credits.

What is the total dollar amount of property, plant, and equipment reported on the classified balance for the following company? Accounts payable $60,000 Inventory 140,000 Accounts receivable 80,000 Land 190,000 Accumulated depreciation 40,000 Prepaid insurance 30,000 Buildings 230,000 Retained earnings 150,000 Cash 90,000 Trademarks 140,000 Common stock 650,000 The land is used as a parking lot.

$380,000 Property, plant, and equipment includes equipment plus buildings minus accumulated depreciation plus land = 230,000 - 40,000 + 190,000 = 380,000

On January 1, a corporation issued $3,000,000, 14%, 5-year bonds for $3,216,288. Interest is payable annually on January 1. The effective interest rate on the bonds is 12%. Use the effective-interest method to determine the amount of interest expense for the first year.

$385,955 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 12% x $3,216,288 = $385,955

At December 31, Moore Company's inventory records indicated a balance of $420,000. Upon further investigation it was determined that this amount included the following: (1) $54,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB shipping point, but not due to be received until January 2. (2) $25,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB destination, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB destination on December 29. The goods are not expected to reach their destination until January 5. (4) $7,000 in goods sold by Moore with terms FOB shipping point on December 29. The goods are not expected to reach their destination until January 4. (5) $15,000 of goods owned by Moore Company held on consignment by Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$388,000 Do not include the following in inventory: 1. FOB destination purchases not yet received (i.e., $25,000) 2. FOB shipping point goods sold and shipped (i.e., $7,000) 3. Goods held on consignment (i.e., None). Ending inventory = $420,000 - 25,000 - 7,000 = $388,000

Based on the following data for a certain corporation, what is the amount of current assets on the company's classified balance sheet? Accounts payable $60,000 Inventory 150,000 Accounts receivable 180,000 Notes payable 80,000 Cash 50,000 Prepaid insurance 10,000 Common stock 530,000 Retained earnings 50,000 Equipment 300,000 Salaries and wages payable 70,000 Goodwill 100,000

$390,000 Current assets include accounts receivable, cash, inventory, prepaid insurance = 180,000 + 50,000 + 150,000 + 10,000 = 390,000

A company has liabilities of $2,300,000, common stock of $550,000, and retained earnings of $1,250,000. It has assets of

$4,100,000 The basic accounting equation is: Assets = Liabilities + Equity This equation must always balance, meaning total assets must equal total liabilities plus total stockholders' equity. Equity equals paid-in capital (i.e., common stock) plus retained earnings. Equity = 550,000 + 1,250,000 = 1,800,000 Fill-in assets and equity into the accounting equation and solve for liabilities. Assets = Liabilities + Equity = 2,300,000 + 1,800,000 Assets = $4,100,000

A company has the following asset account balances: Buildings and equipment, $5,800,000; Accumulated depreciation, $1,600,000; Patents, $1,050,000; Inventory, $1,000,000; and Goodwill, $4,000,000. How much will be reported on the balance sheet under property, plant & equipment?

$4,200,000 Buildings and equipment less accumulated depreciation are the only amounts included under Plant & Equipment: $5,800,000 - $1,600,000 = $4,200,000.

A company has the following adjusted trial balance: Debit Credit Cash 1,500 Accounts receivable 2,100 Prepaid rent 100 Equipment 3,500 Accumulated depreciation-Equipment 1,500 Accounts payable 150 Unearned service revenue 200 Common stock 1,000 Retained earnings 4,700 Service revenue 800 Interest revenue 100 Salaries and wages expense. 150 Depreciation expense 600 Rent expense 500 Total 8,450 8,450 After closing entries have been journalized and posted, the balance in the company's retained earnings account will be

$4,350. Ending retained earnings = Beginning retained earnings + revenues - expenses - dividends Ending retained earnings = 4,700 + 800 + 100 - 150 - 600 - 500 = 4,350

A corporation's December 31, 2021 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 40,000 shares authorized; 20,000 shares issued $ 400,000 Common stock, $10 par value, 4,000,000 shares authorized; 2,600,000 shares issued, 2,560,000 shares outstanding 26,000,000 Paid-in capital in excess of par value - preferred stock 80,000 Paid-in capital in excess of par value - common stock 36,000,000 Retained earnings 10,200,000 Treasury stock (30,000 shares) 840,000 The corporation declared and paid a $100,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $28,000, the corporation's common stockholders would receive

$40,000 Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $28,000. Current year dividend to preferred stockholders = $400,000 x 8% = $32,000 Total paid to preferred stockholders = $28,000 + 32,000 = $60,000 Total paid to common stockholders = $100,000 - 60,000 = $40,000

Financial information for Edwards Company is presented below: Operating expenses $35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 What is the company's gross profit?

$40,000 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $140,000 - 12,000 - 3,000 = $125,000 Gross profit = Net sales - cost of goods sold Gross profit = $125,000 = 85,000 = $40,000

At the start of its first year, a corporation issued 5,000 shares of 8%, $50 par value, non-cumulative preferred stock and 100,000 shares of $1 par value common stock. The corporation declared and paid dividends of $15,000 in the first year. In its second year, the corporation declared and paid dividends of $60,000. What are the dividends received by the common stockholders in the second year?

$40,000 The preferred stock is non-cumulative so there are never dividends in arrears. Dividend to preferred shareholders = 5,000 shares x(8% x $50) = $20,000 Dividends to common shareholders = $60,000 - 20,000 = $40,000

At the start of the current year, a company paid for the following in cash: Copyrights, $1,500,000 Equipment, $25,000,000 Goodwill, $4,500,000 Inventory, $1,500,000 Land, $15,000,000 Patents, $2,500,000 Research and development, $1,500,000 Supplies, $4,000,000 Trademarks, $1,200,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$400,000 The intangibles are trademarks patents, goodwill, and copyrights. Only patents and copyrights are amortized. Amortization expense for the year equals ($2,500,000 + $1,500,000)/10 = $400,000. Notice that research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Goodwill is not amortized because it is considered to have an indefinite life. Trademarks are registered with the U.S. patent office and have lives of 20 years but they may be renewed indefinitely; because trademarks (and trade names) have indefinite lives, they are not amortized.

A company's financial records report the following accounts and balances at the end of the year: Accounts payable $4,200 Accounts receivable 4,900 Cash 14,300 Common stock 5,800 Dividends 2,400 Interest expense 18,700 Notes payable 5,400 Prepaid insurance 2,900 Retained earnings 2,600 Service revenue 25,200 What would the company show as its total credits on its trial balance?

$43,200 Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $43,200 (i.e., 4,900 + 14,300 + 2,400 + 2,900 + 18,700 = 43,200). Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $43,200 (i.e., 4,200 + 5,800 + 5,400 + 2,600 + 25,200 = 43,200). Note: total debits equal total credits.

A company received proceeds of $445,000 on 10-year, 8% bonds issued on January 1, 2021. The bonds had a face value of $400,000, pay interest annually on December 31st, and have a call price of 101. The company uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2024?

$431,500 Amortization per year = ($445,000 - 400,000)/10 years = $4,500 per year Remaining premium after three years = $45,000 - (4,500 x 3) = $31,500 Carrying value of bonds = Face value of bonds + premium on bonds - discount on bonds Carrying value after three years = $400,000 + 31,500 = $431,500

The financial records for a corporation included the following information: Accounts receivable, $60,000 Accounts payable, $25,000 Cash, $15,000 Common stock, $10,000 Dividends, $5,000 Rent expense, $10,000 Sales revenue, $75,000 Salaries and wages expense, $20,000 Retained earnings is not given. Based on this information, how much is its net income?

$45,000 Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. Net income = Revenue - expenses Net income = $75,000 - 20,000 - 10,000 = $45,000

A corporation issues a $500,000, 7%, 15-year mortgage note. The terms provide for annual installment payments of $54,897. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$480,103 Since interest accrues annually, the first year's interest would be $35,000 (i.e., 7% x $500,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $54,897 payment and the interest component ($35,000), resulting in a principal reduction of $19,897. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $19,897 from $500,000 to $480,103.

Financial information about Edwards Incorporated is presented below: Operating expenses $28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 91,000 What is the company's gross profit?

$49,000 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $150,000 - 7,000 - 3,000 = $140,000 Gross profit = Net sales - cost of goods sold Gross profit = $140,000 - 91,000 = $49,000

On January 1, a company issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period if amortization is $4,000 per year using the straight-line amortization method?

$492,000 After three interest periods, the carrying value of the bonds will have increased by three times the annual discount amortization of $4,000, or a total of $12,000. The original carrying value of $480,000 plus the three years of discount amortization amounts to $492,000 as the carrying value at the end of the third interest period.

On September 1, a corporation paid $15,000 to its landlord for three months' rent beginning September 1. It debited prepaid rent when it recorded the payment. If the corporation prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be a

$5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent. The company should record rent expense for the month of September. Since the cost of three months' of rent totals $15,000, the company's monthly rent expense is $5,000 (i.e., $15,000/3 = $5,000). The month-end adjusting journal entry to record rent expense (and to decrease prepaid rent to its correct ending balance) would be a debit to Rent Expense for $5,000 and a credit to Prepaid Rent for $5,000.

Based on the following year-end account balances, what amount would the company report on its balance sheet as intangible assets? Research and development $1,500,000 Accounts Receivable 4,000,000 Trademarks 1,000,000 Goodwill 2,500,000 Equipment 1,500,000 Patents 2,000,000

$5,500,000. For this company, intangibles include trademarks, goodwill, and patents. Intangibles = $1,000,000 + 2,500,000 + 2,000,000 = $5,500,000

At the start of its first year, a corporation issued 10,000 shares of 7%, $100 par value, non-cumulative preferred stock and 40,000 shares of $1 par value common stock. There were no dividends declared in the first year. In its second year, the corporation declared and paid dividends of $120,000. What is the amount of dividends received by the common stockholders in the second year?

$50,000 The preferred stock is non-cumulative so there are never dividends in arrears. Dividend to preferred shareholders = 10,000 shares x (7% x $100) = $70,000 Dividends to common shareholders = $120,000 - 70,000 = $50,000

If total liabilities increased by $75,000 and stockholders' equity decreased by $25,000 then total assets changed by what amount and in what direction during that same period?

$50,000 increase The accounting equation is: Assets = Liabilities + Equity. The accounting equation must stay in balance (i.e., assets must equal the sum of liabilities plus stockholders' equity). If one side increases by $1 then the other side must increase by $1.If liabilities increased by $75,000 and stockholders' equity decreased by $25,000 then the net increase for liabilities and stockholders' equity is $50,000. Assets must have increased by $50,000.

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $280,000 Treasury stock, $10,000 Dividends payable, $30,000 Paid-in capital in excess of par value, $60,000 Common stock, $175,000 How much is total stockholders' equity?

$505,000 Total stockholders' equity = Retained earnings - treasury stock + paid-in capital in excess of par value + common stock Total stockholders' equity = $280,000 - $10,000 + $60,000 + $175,000 = $505,000 Note: Dividends Payable is a liability.

A company has the following data: Dec. 1 / Inventory / 30 units for $5.20 per unit Dec. 8 / Purchase / 150 units for $5.00 per unit Dec. 17 / Purchase / 70 units for $5.40 per unit Dec. 25 / Purchase / 50 units for $5.10 per unit There are 105 units of ending inventory on hand at December 31. What is the company's ending inventory using LIFO and a periodic inventory system?

$531 Goods available for sale is 300 units (i.e., 30 + 150 + 70 + 50 = 300 units) Ending inventory = 105 units Cost of goods sold = goods available for sale - ending inventory = 300 units - 105 units = 195 units Using LIFO & periodic, the cost of goods sold includes the newest 195 units and ending inventory includes the 105 oldest units. Ending inventory = (30 x $5.20) + [75 x $5.00] = $531

A company has the following inventory data: July 1 / Beginning inventory / 20 units at $20 / $400 7 / Purchases / 70 units at $21 / 1,470 22 / Purchases / 10 units at $22 / 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the FIFO inventory method and a periodic inventory system, the amount allocated to ending inventory for July is

$535 Goods available for sale is $2,090 (100 units) Ending inventory = 25 units Cost of goods sold = goods available for sale - ending inventory = 100 units - 25 units = 75 units Using FIFO & periodic, the cost of goods sold includes the oldest 68 units and ending inventory includes the 32 newest units. Ending inventory = 10 units at $22/unit + (25 units - 10 units) x $21/unit = $220 + 315 = $535

At the start of the year, a company's Allowance for Doubtful Accounts had a credit balance of $14,000. During the year, it had credit sales of $1,500,000. It also wrote-off $60,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 3% of the balance in receivables. If the accounts receivable balance at December 31 was $300,000, what is the bad debt expense for the year?

$55,000 Bad debt expense = Ending accounts receivable times percent uncollectible minus the subtotal balance in the allowance Bad debt expense = ($300,000 x 3%) - (14,000 - 60,000) = $55,000 Note: the allowance had a $14,000 credit balance that was reduced by $60,000 producing a $46,000 debit balance, and the allowance needs to have a $9,000 credit balance.

On January 1, a corporation issued $5,300,000, 13%, 6-year bonds for $6,251,015. Interest is payable annually on January 1. The effective interest rate on the bonds is 9%. Use the effective-interest method to determine the amount of interest expense for the first year.

$562,591 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 9% x $6,251,015 = $562,591

On January 1, a corporation issued $600,000 of 10-year, 8% bonds on January 1 for $560,000. The bonds pay interest annually. The bond issuer uses the straight-line method of amortization. What is the carrying value of the bonds at the end of the first year?

$564,000 Given the bond was issued at a discount: Straight-line annual amortization of the discount =[(Face value - carrying value)/life in years = [($600,000 − $560,000) / 10] = $4,000 Carrying value of the bond after one year = Original carrying value + amortization for the first year = $560,000 + $4,000 = $564,000

A corporation issues a $600,000, 6%, 20-year mortgage note. The terms provide for annual installment payments of $52,311. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$566,400 Since interest accrues annually, the first year's interest would be $36,000 (i.e., 6% x $600,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $52,311 payment and the interest component ($36,000), resulting in a principal reduction of $16,311. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $16,311 from $600,000 to $583,689. The second annual payment's interest is 6% of the outstanding mortgage principal of $583,689, or $35,021. The second annual payment of $52,310 is allocated as $35,021 paid towards interest and the remaining $17,289 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $566,400.

At the beginning of the year, a company had accounts receivable of $700,000 and an allowance for doubtful accounts with a credit balance of $60,000. During the current year, sales on account were $195,000 and collections on account were $115,000. Also during the current year, the company wrote off $11,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $72,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$57,000 increase. Ending accounts receivable = $700,000 + 195,000 - 115,000 - 11,000 = $769,000 Ending allowance for doubtful accounts = $72,000 (given) Ending cash realizable value = $769,000 - 72,000 = $697,000 Beginning cash realizable value = $700,000 - 60,000 = $640,000 Increase (decrease) in cash realizable value = $697,000 - 640,000 = $57,000

A corporation issues a $600,000, 8%, 20-year mortgage note. The terms provide for annual installment payments of $61,111. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$572,728 Since interest accrues annually, the first year's interest would be $48,000 (i.e., 8% x $600,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $61,111 payment and the interest component ($48,000), resulting in a principal reduction of $13,111. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $13,111 from $600,000 to $586,889. The second annual payment's interest is 8% of the outstanding mortgage principal of $585,364, or $46,951. The second annual payment of $61,111 is allocated as $46,951 paid towards interest and the remaining $14,160 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $572,728.

A corporation issues a $600,000, 9%, 20-year mortgage note. The terms provide for annual installment payments of $65,728. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$575,489 Since interest accrues annually, the first year's interest would be $54,000 (i.e., 9% x $600,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $65,728 payment and the interest component ($54,000), resulting in a principal reduction of $11,728. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $11,728 from $600,000 to $588,272. The second annual payment's interest is 9% of the outstanding mortgage principal of $588,272, or $52,944. The second annual payment of $65,728 is allocated as $12,783 paid towards interest and the remaining $12,783 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $575,489.

A company purchased machinery with a list price of $96,000. The seller granted the company a 10 percent discount for paying quickly and in full. The company also paid $600 for shipping and paid sales tax of $4,500 to purchase the machinery. The machinery will have a useful life of 10 years and a salvage value of $30,000. If the company uses straight-line depreciation, annual depreciation will be

$6,150 The cost of an asset includes its purchase price plus other costs to acquire the asset and prepare it for use. Add the freight charges and the foundation costs to the purchase price. Cost of the equipment = $86,400 + 600 + 4,500 = $91,500 Depreciation per year = (Cost - salvage value)/Life in year Depreciation per year = ($91,500 - 30,000)/10 years $6,150 per year

A company has the following: Units Cost per unit Dec. 1 Beginning balance 72 $90 Dec. 14 Purchase 124 $94 Dec. 21 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

$6,784 Sales revenue = 204 units x $126/unit = $25,704 Cost of goods sold using FIFO = (72 units x $90/unit) + (124 units x $94/unit) + [(204 - 72 - 124) x $98] = $6,480 + 11,656 + 784 = $18,920 Gross profit = Sales revenue - Cost of goods sold = $25,704 - 18,920 = $6,784