Study Guide ACCT 101

A company purchased $1,900 of merchandise on December 5. On December 7, it returned $210 worth of merchandise. On December 8, it paid the balance in full, taking a 3% discount. The amount of the cash paid on December 8 equals:

$1,639.

Perch Company reported the following purchases and sales for its only product. Perch uses a perpetual inventory system. Determine the cost assigned to ending inventory using LIFO.

$1,860

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

$124.

A company uses the periodic inventory system and had the following activity during the current monthly period. In a periodic inventory system, using the weighted-average inventory method, the company's ending inventory would be:

$2,200

A company reported total equity of $145,000 at the beginning of the year. The company reported $210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year?

- $282,000.

Use the following information as of December 31 to determine equity. Liabilities (141,000), Cash (57,000), Equipment (206,000), Building (175,000)

- $297,000

Use the following information as of December 31 to determine equity. Liabilities (160,000), Cash (76,000), Equipment ( 225,000), Buildings (194,000)

- $335,000

During the month of February, Hoffer Company had cash receipts of $9,300 and cash disbursements of $12,200. The February 28 cash balance was $5,400. What was the January 31 beginning cash balance?

- $8,300.

On September 30, the Cash account of Value Company had a normal balance of $6,000. During September, the account was debited for a total of $13,200 and credited for a total of $12,500. What was the balance in the Cash account at the beginning of September?

- A $5,300 debit balance.

On January 1 of the current year, Bob's Lawn Care Service reported owner's capital totaling $127,500. During the current year, total revenues were $101,000 while total expenses were $90,500. Also, during the current year Bob withdrew $25,000 from the company. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $201,000, the change in owner's capital during the year was:

- A decrease of $14,500.

Assets created by selling goods and services on credit are:

- Accounts receivable.

The accounting process begins with:

- Analysis of business transactions and source documents.

Prepaid expenses are:

- Assets that represent prepayments of future expenses.

Which financial statement reports an organization's financial position at a point in time?

- Balance sheet

An account used to record the owner's investments in the business is called a(n):

- Capital account.

Inge Industries received $3,000 from a customer for services rendered and not previously recorded. Inge's general journal entry to record this transaction will be:

- Debit Cash, credit Services Revenue.

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence other than someone's belief or opinion is:

- Objectivity

An Example of a financing activity is:

- Obtaining a long-term loan

A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

- Office Equipment, overstated $130; Fees Earned, overstated $130.

Which of the following statements is correct?

- Promises of future payment by the buyer are called accounts receivable.

On December 15 of the current year, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in the following year. Which accounting principle would require Myers Legal Services to record the legal fees revenue in the following year and not the year the cash was received?

- Revenue recognition principle.

Increases in equity from a company's earning activities are

- Revenues

All of following are asset accounts except:

- Supplies expense

Revenues are:

- The increase in equity from a company's earning activities.

Which of the following statements is true?

- The trial balance is a list of all accounts from the ledger with their balances at a point in time.

The primary objective of financial accounting is:

- To provide financial statements to help external users analyze an organization's activities.

Which of the following is the formula used to calculate the debt ratio?

- Total Liabilities/Total Assets.

A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n):

Balance sheet

An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

Bank reconciliation.

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is

FIFO.

The amount recorded for merchandise inventory includes all of the following except:

Freight costs paid by the seller.

Assume that a company uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. A sales return for credit on account would be recorded in the:

General journal.

All of the following statements regarding input devices are true except:

Input devices are always reliable and no controls are needed to verify accuracy of input.

Liquidity problems are likely to exist when a company's acid-test ratio:

Is substantially lower than 1 to 1.

A debit:

Is the left-hand side of a T-account.

Cost of goods sold:

Is the term used for the cost of buying and preparing merchandise for sale.

The record in which transactions are first recorded is the:

Journal.

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

LIFO method.

Source documents include all of the following except:

Ledgers.

Beginning inventory plus net purchases is:

Merchandise available for sale.

The following statements regarding merchandise inventory are true except:

Merchandise inventory purchases are not considered part of the operating cycle for a business.

The excess of expenses over revenues for a period is -

Net loss

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

Net sales.

A company uses the perpetual inventory system and recorded the following entry: Accounts Payable (2500) Merchandise Inventory (50) Cash(2450)

Payment of the account payable and recognition of a 2% cash discount taken.

The process of transferring general journal information to the ledger is:

Posting.

The acid-test ratio differs from the current ratio in that:

Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.

Source documents:

Provide the basic information processed by an accounting system.

An account used in the periodic inventory system that is not used in the perpetual inventory system is

Purchases

A company purchased $11,200 of merchandise on credit. Identify the journal the transaction would be recorded in.

Purchases journal.

The operating cycle for a merchandiser that sells only for cash moves from:

Purchases of merchandise to inventory to cash sales.

Sales returns:

Refer to merchandise that customers return to the seller after the sale.

Enterprise-resource planning software:

Refers to programs that help manage a company's vital operations.

The accounting principle that prescribes an accounting information system to report useful, understandable, timely, and pertinent information for effective decision-making is the:

Relevance principle.

Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:

Retail method.

Effective cash management involves applying all of the following cash management principles except:

Retaining excess cash available for unexpected expenditures.

The inventory turnover ratio:

Reveals how many times a company turns over (sells) its merchandise inventory.

A company sold merchandise on credit for $5,000 (cost is $2,400). Identify the journal the transaction would be recorded in.

Sales journal.

On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses the periodic inventory system. On October 4, Carter returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Courtland must make on October 4 is:

Sales return and allowances (500) - Accounts receivable (500)

Which of the following accounts would be closed with a debit?

Sales.

A log that is used to record and post transactions of a similar type is a:

Special journal.

The control principle for accounting information systems requires that the:

System must have internal controls.

All of the following statements related to goods on consignment are true except:

The consignee reports the goods in its inventory until sold.

A debit memorandum is:

The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.

The following statements are true regarding the operating cycle of a merchandising company except:

The operating cycle is shortened by credit sales.

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

ending inventory and cost of goods sold.

All of the following statements regarding internal control procedures are true except:

nternal control procedures are not affected by the cost-benefit principle.

Viscount Company collected $42,000 cash on its accounts receivable. The effects of this transaction as reflected in the accounting equation are:

total assets, total liabilities, and equity are unchanged

Hal Smith opened Smith's Repairs on March 1 of the current year. During March, the following transactions occurred and were recorded in the company's books: 1. Smith invested $41,000 cash in the business. 2. Smith contributed $116,000 of equipment to the business. 3. The company paid $3,600 cash to rent office space for the month. 4. The company received $32,000 cash for repair services provided during March. 5. The company paid $7,800 for salaries for the month. 6. The company provided $4,600 of services to customers on account. 7. The company paid cash of $2,100 for monthly utilities. 8. The company received $4,700 cash in advance of providing repair services to a customer. 9. Smith withdrew $6,600 for his personal use from the company. Based on this information, net income for March would be:

$23,100.

Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows: Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows:

$291,000

On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?

$3,800.

On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements. The following information is available: Beginning inventory, July 1: $4,000 Net sales: $40,000 Net purchases: $41,000 The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would be:

$34,000.

If equity is $306,000 and liabilities are $198,000, then assets equal:

$504,000

Jackson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

$60,000.

On May 1 of the current year, Peck Company experienced a 500 year flood which destroyed the company's entire inventory. The company had not completed its month end reporting for April and must estimate the amount of inventory lost. At the beginning of April, the company reported beginning inventory of $215,450. Inventory purchased during April (until the date of the disaster) was $192,530. Sales for the month of April were $542,500. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.

$82,480

How would the accounting equation of Boston Company be affected by the billing of a client for $11,000 of consulting work completed?

+$11,000 accounts receivable, +$11,000 revenue.

If a parcel of land that was originally purchased for $103,000 is offered for sale at $168,000, is assessed for tax purposes at $113,000, is recognized by its purchasers as easily being worth $158,000, and is sold for $155,000, the land account transaction amount to handle the sale of the land in the seller's books is:

- $103,000 decrease.

If a parcel of land that was originally acquired for $87,000 is offered for sale at $154,000, is assessed for tax purposes at $97,000, is recognized by its purchasers as easily being worth $144,000, and is sold for $141,000, the land should be recorded in the purchaser's books at:

- $141,000.

Determine the net income of a company for which the following information is available for the month of May. Employee Salaries expense (184,000), Interest Expense (14,000), Rent Expense(24,000), Consulting revenue (416,000)

- $194,000

The credit terms 2/10, n/30 are interpreted as:

2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

Using the following year-end information for Breanna Boutique, calculate the current ratio and acid-test ratio for the boutique:

3.05 and 0.95

A company's net sales were $716,900, its cost of goods sold was $243,030 and its net income was $55,900. Its gross margin ratio equals:

66.1%.

Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory turnover of $1,965 million. Its days' sales in inventory equals:

80.9.days.

For a retailer required to collect sales taxes from customers, all of the following adaptations would be made to the sales journal except:

A Sales Taxes Payable debit column would be added.

The Accounts Payable account in the general ledger is:

A controlling account for the subsidiary accounts payable ledger.

An accounts receivable ledger is:

A subsidiary ledger that contains an account for each credit customer.

Basic bank services include:

All of the choices are basic bank services.

In reimbursing the petty cash fund:

Appropriate expense accounts are debited.

Damaged and obsolete goods that can be sold:

Are included in inventory at their net realizable value.

Physical counts of inventory:

Are necessary to adjust the Inventory account to the actual inventory available.

The quick assets are defined as:

Cash, short-term investments, and current receivables.

Multiple-step income statements:

Contain more detail than a simple listing of revenues and expenses.

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the

Cost Principle

The understatement of the ending inventory balance causes:

Cost of goods sold to be overstated and net income to be understated.

The purchases journal is used for recording:

Credit purchases.

Costs included in the Merchandise Inventory account can include all of the following except:

Damaged inventory that cannot be sold.

An accountant has debited an asset account for $6,100 and credited a liability account for $3,300. Which of the following would be an incorrect way to complete the recording of this transaction:

Debit another asset account for $2,800.

When the sales journal's column for accounts receivable and sales is totaled at the end of the month, its total is:

Debited to Accounts Receivable and credited to Sales.

Subsidiary ledgers do all of the following except:

Eliminate the need for individual postings to the customer or supplier accounts.

The debt ratio is used:

To assess the risk associated with a company's use of liabilities.

Revenue is properly recognized

Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price