ACC 250 Final

The goal of reporting realistic figures and never overstating assets or net income applies to what principle?

Conservatism Principle

An expenditure that increases the capacity or efficiency of a plant asset that extends the asset's life is known as an

Extraordinary Repair

A pharmaceutical company testing drugs to determine possible side effects is a part of ___________________

Risk Assessment

On the record date of a dividend, no accounting transactions are recorded.

True

The trial balance is an internal document used only by employees of the company.

True

The units-of-production method is used to compute depletion expense.

True

Treasury Stock is a contra equity account with shareholder's equity.

True

A company has 7 units in inventory on December 31 which were purchased in November for $160 each. The price lists from the suppliers indicate that the same items would now cost the company $1,155. What would be the amount reported as Ending Merchandise Inventory on the balance sheet?

$1,120 because (160)(7)=1,120 >>> inventory must be recorded at sale price, or price sold

A company signed a 12%, 10 year note for $151,000. It then paid an installment of $2,200 for the first month. What portion of the first monthly payment is interest expense?

$1,510

A company had cash sales of $10,000 and the state sales tax rate is 9.8%. What amount is debited to the Cash account?

$10,980 because (10,000)(9.8%)=980+10,000=10,980

An asset was purchased for $36,000 on January 1, 2016. The asset's estimated useful life was five years, and its residual value was $4,000. The straight-line method of depreciation was used. Calculate the gain or loss if the asset is sold for $18,000 on December 31, 2016, the last day of the accounting period.

$11,600 loss because (36,000-4,000)/(5)=6,400 then 18,000-6,400=11,600

A company signed a 14%, 10 year note for $160,000 and paid an installment of $2,600 for the first month. After the first payment, what is the principal balance?

$159,267 because (160,000)(14%)(1/12)=1,867 then 2,600-1,867=733 then 160,000-733=159,267

What is the maturity value of a 3-month, 13% note for $50,000?

$51,625 because (3/12)(cost %)($ amount) = 1,625 + 50,000 = 51,625

Depreciation Expense, Straight Line Method Formula

(Cost-Residual Value)/(Estimated Useful Life)

Maturity Value Formula

(time in months/12)(cost %)($ amount) + principal value

Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in (3)

1) different amounts for cost of goods sold 2) different amounts for net income 3) same amounts for sales revenue

Under the perpetual inventory system, what is the difference between a sales return and a sales allowance?

A sales return involves an adjustment to Merchandise Inventory, but a sales allowance does not

How long is a fiscal year

12 months

*Common Stock, $1 par, 202,000 shares issued, 180,000 shares outstanding A company purchases an additional 7,000 shares of treasury stock at $15 per share, what number of shares will be shown as issued and outstanding?

202,000 issued; 173,000 outstanding

Materiality Concept

A company decides what numbers are significant or would cause someone to change a decision

Which of the following describes the risk assessment component of internal control?

A company must identify its risks and take necessary steps to minimize them

A business renders services to a customer for $26,000 on account. Which account is debited?

Accounts Receivable

For office supplies, the category of account and its normal balance is what

Assets and a debit balance

Which of the following is used by both internal and external users

Balance Sheet

A business renders services for $26,000 and collects cash from the customer. Which account is debited?

Cash

A company issued 8,000 shares of common stock on January 1, 2017 which has no par value and was issued at $22 per share. What is the journal entry for this transaction?

Debit $176,000 to Cash, Credit $176,000 to Common Stock-No Par Value

What is the journal entry for returned goods under the perpetual inventory system?

Debit Accounts Payable, Credit Merchandising Inventory

What is the correct journal entry for a vacation benefit paid?

Debit Vacation Benefits Payable, Credit Cash

What is the journal entry for cost of goods sold?

Debit cost of goods sold, credit merchandise inventory

Declaration of a Dividend Transaction

Debit retained earnings, Credit dividends payable

Cash dividends cause a _____________ in both assets and stockholders' equity of the corporation.

Decrease

Depletion expense should not be recorded for natural resources because they do not decrease in value over time.

FALSE

When a company uses the first-in, first-out (FIFO) method, the cost of goods sold correlates to the most recently purchased goods and the value of ending inventory correlates to the oldest goods in stock.

FALSE

An entry to accrued revenue would be necessary to record a receipt of cash before the revenue has been earned.

False

Debentures are bonds that mature in installments at regular intervals

False

The employee federal and state income tax and social security tax are optional payroll deductions.

False

The ending balances in the Owner, Capital and Owner, Withdrawals accounts are shown on the income statement columns of the worksheet.

False

A corporation issues 14,000 shares of its $4 stated value common shares. The issue price is $7 per share. The credit to Common Stock Account is $98,000.

False, Common Stock = (14,000)(4) = 56,000

For no-par stock there can be paid-in capital in excess of par.

False, only for stocks issued over par value

The old age, survivors, and disability insurance component of FICA tax is imposed on the entire amount of an individual employee's earnings.

False, only imposed on a given % of earnings

The permanent accounts-assets, liabilities, and stockholders' equity are closed to the Owner, Capital account.

False, permanent accounts are not closed

Which is shown on a multi-step income statement but not on a single-step income statement?

Gross Profit

On a multi-step income statement, the operating expenses are subtracted from what to arrive at operating income

Gross Profit because operating income = gross profit-operating expenses

Regarding impairment of intangible assets, which of the following statements is incorrect?

If any impairment occurs, the company records a loss in the period in which the intangible asset was acquired

In regard to corporate income tax, which of the following statements is incorrect?

Income tax expense is recorded when the federal income tax is paid

Which of the following is added to operating income to arrive at net income?

Interest Revenue

Which of the following is an attribute of the internal control component - monitoring of controls?

Internal auditors monitor the company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate

What is true of a contingent liability?

It is a potential liability that depends on a future event

Which of the following is true of the Owner's Capital Account?

It is an equity account that has a normal credit balance

What is the measurement of how quickly an item an be converted to cash?

Liquidity

What is true of the internal control component-information system?

Only authorized users have access to various parts of the information system

In the closing process, the Owner, Withdrawals account is closed to which account?

Owner, Capital

Property, plant, and equipment are categorized as what

Plant Assets

A company starts its operations and engages in buying and selling different items. What is the first step in its operating cycle?

Purchasing inventory from vendors

Closing Accounts

REID: revenues, expenses, income summary, dividend

A debt owed for renting a building currently is represented by

Rent Payable

What is an application of conservatism?

Reporting inventory at the lower of cost or market

retained earnings

Represents amount earned by profitable operations of a corporation that is not distributed by stockholders

Disclosure Principle

Requires that a company report enough information for outsiders to make knowledgeable decisions

The sales discount account is a contra account to which account?

Sales Revenue

FOB Destination

Seller normally pays for shipping costs

Which of the following accounts would appear in the income statement credit column?

Service Revenue

Which is a disadvantage of businesses accepting credit or debit cards?

The business pays a processing fee

Regarding net pay, which of the following statements is incorrect?

The net pay amount is not important for accounting purposes

If there is a remote possibility that a lawsuit will result in an actual liability then which of the following actions should be taken by the company's management?

The possible liability should not be shown in the financial statements

When the credit card processor deposits the gross proceeds from credit and debit card sales, what happens?

The processing fees are deducted from the company's bank account by the processor

Accrued revenue represents what?

The receipt of cash before the revenue is received but after it has been earned (earned but not received)

In reconciling a bank statement, the bank balance is $2,100 and the checkbook balance is $2,001. Which of the following is the most probable reason for the bank balance being larger than the book balance?

There are outstanding checks

Maintaining good controls over merchandise inventory ensures that inventory purchases are properly authorized and accounted for by the accounting system.

True

Which principle assumes that financial statements of a business can be prepared for specific periods?

Time Period Concept

A trial balance presents data in debit and credit format.

True

Accounting for stated value common stock is almost identical to accounting for par value stock.

True

Accounting is referred to as the language of business because it is the method of communicating business information to decision makers.

True

As a part of the closing process, revenues and expenses may be closed to a temporary account called Income Summary

True

Critical thinking and judgement skills are necessary for accountants.

True

Debentures are backed only by the Goodwill of the bond issuer.

True

If a contingency is only remote, the company does not need to record a liability and does not need to disclose it in the notes to financial statements.

True

If an asset is disposed of during the year, the depreciation from the beginning of the year of disposal to the date of the disposal must be calculated.

True

If purchase allowances are granted, the buyer need not return the goods to the seller.

True

In a period of rising costs, the last in, first out (LIFO) method results in higher cost of goods sold and lower net income than the first in, first out (FIFO) method.

True

Liabilities represent creditors' claims on the business's assets.

True

Preferred stockholders receive a dividend preference over common stockholders.

True

Term bonds all mature at the same specified time.

True

The declaration and payment of a cash dividend causes a decrease in both assets and stockholder's equity of the corporation .

True

The direct write-off method is only acceptable for companies that have very few uncollectible accounts.

True

Under cash basis accounting, an expense is recorded only when cash is paid.

True

Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.

True

On the income statement, a merchandising company reports the cost of merchandise inventory that has been sold to customers (sales revenue)

True, and a service company reports service revenue

Paid-in capital is externally generated capital and results from transactions with outsiders.

True.

A liability created when a business collects cash from customers in advance of providing services or delivering goods is called an ___________________

Unearned Revenue

A check was written by a business for $549 but was recorded erroneously in the Cash account as $459. How would this error be included on the bank reconciliation?

a deduction on the book side

A company sold merchandise for $4,000 on account with terms of 4/15, n/30 and uses a perpetual inventory system. Defective merchandise of $200 was returned two days later. If the payment was received after 30 days then the journal entry to record the cash receipt will include _________________________.

a debit to cash for $3,800 and a credit to accounts receivable for $3,800

Companies that follow GAAP are required to use which method for uncollectible receivables?

allowance method

A business that accepts payments by credit and debit cards _____________________________________________________

almost always pays a fee to the seller to cover the processing costs

When using the allowance method, the receipt of a payment on receivables that have been written-off requires what?

an entry to reverse the write-off to the Allowance for Bad Debts account and an entry to record the receipt of cash

How is gross profit calculated?

as the difference between net sales revenue and cost of goods sold

The economic resources of a business such as furniture, building, and land are its _________________

assets

If goods are sold on terms FOB shipping point, the ________.

buyer normally pays the transportation costs

What is the most liquid asset

cash

Treasury stock journal entry

debit treasury stock, credit cash

Treasury stock ______________ the number of shares outstanding

decreases

If a plant asset is sold for more than its book value, a ____________ is recorded

gain

What is the correct order of subtotals that appear on a multi-step income statement?

gross profit, operating income, net income

Gross Profit Percentage

gross profit/net sales revenue

Revenue Recognition Principle

guides accountants in determining when to record revenue

Amortization

is the process by which businesses spread the allocation of an intangible asset's cost over its useful life

For a company with significant uncollectible receivables, the direct write-off method is unsuitable because

it violates the matching principle

The Salaries Payable account is a _____________ account with a normal _______________ balance

liability, credit

Which of the following costs can be capitalized and depreciated?

modification for new use

The percent of sales method calculates bad debts expense based on a percentage of _____________________

net credit sales

Legal Capital

refers to the portion of stockholders' equity that cannot be used for dividends

Ordinary repairs to plant assets are referred to as what?

revenue expenditures

4 Types of bonds

secured bonds, debentures (unsecured), term bond, serial bond

The amount of cash interest the borrower pays each year is based on the​ ________.

stated interest rate

When using the allowance method, after a company has previously written off an account, ____________________

when a customer pays on an account that has been written off, the company needs to reverse the write-off to the allowance for bad debts account and then record the receipt of cash