Financial accounting exam

Denmark Inc. is preparing a statement of stockholders' equity for 2019. On January 1, 2019, Denmark started the year with a $100,000 credit balance in its retained earnings account. During 2019, the company earned net income of $70,000 and declared dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. What is the balance in retained earnings on December 31, 2019?

$160,000.

The Tanner Company has provided the following information after year-end adjustments: • Allowance for doubtful accounts increased $19,000. • Accounts receivable increased $390,000 during the year. • Accounts written off as uncollectible totaled $20,000. • Sales totaled $2,500,000. • Sales discounts were $100,000. What was the amount of Tanner's net sales?

$2,400,000.

Superior Company has provided you with the following information before any year-end adjustments: Net credit sales are $120,000. Historical percentage of credit losses is 2%. Allowance for doubtful accounts has a credit balance of $300. Accounts receivables ending balance is $47,000. What is the estimated bad debt expense using the percentage of credit sales method?

$2,400.

On July 1, 2019, Allen Company signed a $100,000, one-year, 6 percent note payable. The principal and interest will be paid on June 30, 2020. How much interest expense should be reported on the income statement for the year ended December 31, 2019?

$3,000.

The Callie Company has provided the following information: Operating expenses were $231,000; Cost of goods sold was $376,000; Net sales were $940,000; Interest expense was $32,000; Gain on sale of investments was $76,000; Income tax expense was $151,000. What was Callie's income from operations (operating income)?

$333,000.

The following information has been provided by Hable Company: • Advertising expense $9,900 • Interest expense $3,700 • Rent expense for store $12,000 • Loss on sale of property and equipment $5,700 • Cost of goods sold $21,300 • Depreciation expense $7,100 • Prepaid insurance $1,000 How much were Hable's total expenses in calculating operating income?

$56,000.

The Callie Company has provided the following information: Operating expenses were $231,000; Cost of goods sold was $376,000; Net sales were $940,000; Interest expense was $32,000; Gain on sale of a building was $76,000; Income tax expense was $151,000. What was Callie's gross profit?

$564,000.

During the current fiscal year, a company had revenues of $400,000, cost of goods sold expense of $280,000, and an income tax rate of 30 percent on income before income taxes. What was the company's current year net income?

$84,000

The Ward Company has provided the following information: • Net sales totaled $750,000. • Beginning net accounts receivable was $65,000. • Ending net accounts receivable was $85,000. What was Ward's receivables turnover ratio?

10.0

Brimmel Corp. has provided the following information: Sales were $780,000; Cost of goods sold was $429,000; Net income was $195,000. What was Brimmel's gross profit percentage?

45%

Which of the following statements is correct?

A corporation's net income does not necessarily equal its net cash flow from operations.

Which of the following statements is false?

A loss on the sale of plant and equipment is considered a peripheral activity and is not reported on the income statement.

Which of the following accounts is not a contra-revenue account?

Allowance for doubtful accounts

Which of the following is not a component of the gross profit calculation?

Allowance for doubtful accounts.

Which of the following correctly describes the various financial statements?

An income statement covers a period of time.

Which of the following journal entries correctly records bad debt expense?

Bad debt expense xxx Allowance for doubtful accounts xxx

Accounts payable would be reported within which of the following financial statements?

Balance sheet.

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days? Correct!

Balance sheet.

In what order are current assets listed on a balance sheet?

By liquidity.

In what order would the following assets be listed on a balance sheet?

Cash, Short-term Investments, Accounts Receivable, Inventory.

Stockholders' equity, also called shareholders' equity, includes which of the following two accounts?

Common stock and Retained earnings.

Which of the following costs is most likely to be the largest expense reported on the income statement of a merchandiser, such as Walmart Stores, Inc.? Correct!

Cost of goods sold.

Which of the following is considered to be an expense on the income statement?

Cost of goods sold.

Which of the following would not be classified as a current asset?

Goodwill.

Chad Jones is the sole owner and manager of Jones Glass Repair Shop. Jones purchased a truck, to be used in the business, for its market value of $35,000. Which of the following fundamentals requires Jones to record the truck at the price paid to buy it?

Historical cost principle

Which principle requires that transactions be recorded at their original cost and shown in the financial statements at original cost?

Historical-Cost Principal

Which of the following expenses does not affect the reporting of operating income?

Income tax expense.

On April 1, 2019, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2019 adjusting entry?

Insurance expense will increase $2,250

Which of the following is not reported as an operating expense on the income statement?

Interest expense

CHS Company has just finished preparing its bank reconciliation. If CHS did everything correctly, which items would have been included as an addition to the company's cash account?

Interest received

Which of the following best describes the time period assumption?

It assumes we divide the long life of a business into a series of shorter time periods for accounting and reporting purposes.

Which of the following describes the reporting of interest expense on the income statement?

It is deducted from operating income.

Which of the following best describes operating income?

It is net sales minus cost of goods sold and operating expenses.

Which of the following is true about gross profit (gross margin)?

It is net sales minus cost of goods sold.

Which of the following best describes the operating cycle?

It is the time that elapses from the cash payment to suppliers to collection of cash from customers.

For accounting information to be useful, it must be which of the following?

It must be a faithful representation and relevant.

Which of the following best describes the balance sheet?

It provides information pertaining to a company's economic resources and the sources of financing for those resources.

Which of the following correctly describes the effects of initially recording deferred revenue when cash is received from a customer?

Net income is not affected.

Which of the following events will cause retained earnings to increase?

Net income reported for the period.

One of Hawk Company's customers returned a product that cost Hawk $300, which was sold on account for $450. Which of the following does not correctly describe the effect of the return on the financial statements?

Operating expenses increase $150

Dally Company has just finished preparing its bank reconciliation. If everything was done correctly, which of the following items would be reported as a deduction from the bank side of the reconciliation schedule?

Outstanding checks.

Which is the correct sequence of the following steps in the accounting cycle?

Post adjusting journal entries, prepare adjusted trial balance, prepare financial statements.

On October 1, 2019, Adams Company paid $4,800 for a two-year insurance policy with the insurance coverage beginning on that date. As of December 31, 2019, which of the following account balances are correct after adjusting entries have been made?

Prepaid insurance $4,200, and Insurance expense $600.

Which is the correct order of the following steps in the accounting cycle?

Prepare an unadjusted trial balance, journalize and post adjusting entries, prepare financial statements, and journalize and post the closing entries.

Which of the following would lengthen the operating cycle?

Relaxing credit terms and allowing customers more time to pay.

Which of the following accounts is not a liability on the balance sheet?

Retained earnings.

Which of the following accounts would not be reported on the balance sheet?

Revenues.

The CHS Company paid $30,000 cash to its landlord on November 1, 2019 for rent covering the six-month period from November 1, 2019 through April 30, 2020. The books are adjusted only at year-end. Which of the following does not correctly describe the effect on CHS Company's financial statements of the December 31, 2019 adjusting entry?

Stockholders' equity increases $10,000.

When preparing a bank reconciliation, which of the following would be deducted from the company's cash balance?

The bank service charges included on the bank statement.

Which of the following are primarily responsible for the information provided in a company's financial statements?

The chief executive officer (CEO) and the chief financial officer (CFO).

Which of the following does not correctly describe an adjusting journal entry that debits interest expense and credits interest payable?

The entry decreases assets and decreases stockholders' equity.

Which of the following correctly describes the following adjusting journal entry? Accounts receivable xxx Sales revenue xxx

The transaction is an example of an accrual.

Which of the following best describes assets?

They are considered to be the economic resources of the business.

Which of the following is an objective of the external audit of a company's financial statements?

To provide credibility that the financial statements are fairly presented

Which of the following describes the primary objective of financial accounting?

To provide useful financial information about a business to help external parties make informed decisions.

Which of the following describes the primary objective of the balance sheet?

To report the financial position of the reporting entity at a particular point in time

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

Total assets do not change.

Which of the following statements is incorrect concerning balance sheets prepared under IFRS and GAAP?

Under GAAP assets are usually listed in increasing order of liquidity, while under IFRS assets are usually listed in decreasing order of liquidity.

Where would changes in stockholders' equity resulting from financing provided by operations be reported?

Within the retained earnings account.