Acct 201 Test Questions

Laurels Company records show the following information on December 31. -Accounts Receivable $1,600,000 -AFDA before adjustment (credit) $100,000 -Amount expected to become uncollectible $130,000 What is the cash realizable value of the accounts receivable at December 31 after adjustment?

$1,470,000

Mist Company closes its books on a monthly basis. At January 31, 2016, Mist Company had retained earnings of $2,184,000. During January 2016, the company issued stock for $98,000 and paid dividends of $34,000. The company recorded $402,000 of net income during January 2016. Mist Company's retained earnings balance at January 1, 2016 was:

$1,816,000

Dalton's Company uses a perpetual inventory system. On January 1, 2016, Dalton Company purchases $700 of goods for resale with terms of 2/10 n/30. If Dalton pays for the goods on January 11, 2016, the company's required journal entry on January 11, 2016, includes a ...

$14 credit to inventory

Higgins Company gathered the following reconciling information in preparing its March bank reconciliation: Unadjusted cash balance per books 3/31 $12,600 Deposits in transit $450 Notes receivable and interest collected by bank $2,550 Bank charge for check printing $60 Outstanding checks $6,000 NSF check $510 The adjusted cash balance per bank records on March 31 is

$14,580

The following information shows the December 31, 2015, balances -Accounts Receivable $525,000 -Allowance for Doubtful Accounts (credit) ($45,000) -Cash realizable value $480,000 During 2016, sales on account were $145,000 and collections on account were $86,000. Also, during 2016 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivables accounts at year-end indicated that bad debts should be estimated at $54,000. At the end of 2016, the company's adjusting entry will show a debit to bad debt expense of...

$17,000

Sampson Company uses a periodic inventory system. The company's accounting records show the following balances for the current accounting period. Purchase Discounts $5,600 Freight-in $7,800 Purchases $200,010 Beginning Inventory $23,500 Ending Inventory $28,800 Purchase Returns $6,400 Based on the account balances shown above, Sampson's Cost of Goods Sold is...

$190,510

Wilton Company closes its books every December 31. The company had the following transactions during 2015: Sales of $5,400 on account Collected $2,400 cash from customers for services to be performed in 2016 Paid 1,250 cash for salaries Purchased airline tickets for $300 cash for a trip to take place in 2016 What is wilton's 2015 net income using accrual accounting?

$4,150

At January 1, 2016, Stevens Company's Accounts Receivable balance was $1,200. During January 2016, Stevens purchased $500 of supplies on account, billed customers $4,000 for services provided during the month, and collected $1,000 in accounts receivable from customers paying outstanding accounts. At January 31, 2016, Steven's Company's Accounts Receivable balance is a...

$4,200 Debit

DeNova Real Estate Company uses accrual accounting and closes its books every month. On September 1 2015, DeNova borrowed $8,000 and signed a note. The note required interest at an annual rate of 6%. The amount of interest that DeNova will accrue at September 30, 2015 is...

$40

Fredson Company began the current year with $32,000 in its Common Stock account and a credit balance in Retained Earnings of $18,000. During the year, the company earned net income of $9,000, declared and paid $3,000 of dividends and issued $11,000 of common stock. Based on this information, what is the total amount of stockholders equity at the end of the year?

$67,000

If total liabilities increased by $14,000 during a period of time and stockholders' equity decreased by $6,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

$8,000 increase

Conway Company purchased merchandise inventory with an invoice price of $9,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

$8,820

Morton Company closes its books every December 31. The company compiles the following information at December 31, 2015: Revenues $140,000 Common Stock $30,000 Equipment $40,000 Expenses $125,000 Cash $35,000 Dividends $10,000 Supplies $5,000 Unearned Revenue $20,000 Prepaid Insurance $15,000 Retained Earnings, 1/1/15 $75,000 On December 31, 2015, Morton's retained earnings has a balance of

$80,000

Trent Company closes its books every December 31. On December 31, 2015, the company's goods in transit included sales made (1) FOB Destination (2) FOB Shipping Point and purchases made (3) FOB Destination (4) FOB Shipping Point Which items should be included in Trent Company's inventory at December 31, 2015?

(1) and (4)

Financial information is presented below: Operating expenses $28,000 Sales returns and allowances $7,000 Sales discount $3,000 Sales revenue $150,000 Cost of goods sold $91,000 The gross profit rate would be

.35

Before paying dividends, Lawson Corporation has current assets of $1,250,000 and current liabilities of $750,000. If Lawson pays $250,000 in cash dividends, what is the company's current ratio (rounded) after paying the cash dividends?

1.3:1

Simon Company uses accrual accounting. The company receives a $25,000 cash advance from a customer for services that will be provided during the next accounting period. At the time Simon receives the cash, the company should record

A prepaid expense and a liability

Simon Company does not prepare monthly bank reconciliations. Instead, Simon Company prepares bank reconciliations every other month. this is an example of...

A weak internal control system since the company should prepare monthly bank reconciliations

Under the allowance method, writing off an uncollectible account

Affects both balance sheet and income statement accounts

Under the direct write off method, writing off an uncollectible account affects...

Affects both balance sheet and income statement accounts

What is the expanded version of the basic accounting question?

Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues

If a company fails to adjust for accrued revenues... -liabilities/assets will be overstated/understated and revenues will be understated

Assets will be understated and revenues will be understated

Tom's Appliance Repair Shop uses accrual accounting and closes its books on a monthly basis. The shop repairs a television on August 31. The customer picks up the television on September 1 and mails the payment to the repair shop on September 5. Tom's appliance repair shop receives the check in the mail on September 6. When should the shop record revenue?

August 31

Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the AFDA has a credit balance of $2,000 before adjustment?

Bad Debt Expense 6,000 AFDA 6,000

If a company receives cash for services that will be provided during the next accounting period, this affects the

Balance sheet only

Which item should be listed in a debit memo issued by a bank?

Bank Service Fee

Best Company's unadjusted cash balance per bank records is larger than its unadjusted cash balance per book records. What is one possible explanation for this discrepancy?

Bank error, company error, and best company wrote a check to its supplier and the supplier never cashed the check

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $290 and used FIFO costing, the gross profit for the period would be...

$115

If ending in the current period is understated by $10,000, the effect of this error in the current period is... -COGS=Understated/overstated and Net Income=Understated/overstated

COGS=Overstated Net Income=Understated

Best Company collects a $1,000 notes receivable and receives $10 of interest on the note. Best Company's required adjusting entry to adjust its cash balance is:

Cash 1,010 Accounts Receivable 1,000 Interest Revenue 10

Young Company lends Dobson industries $30,000 on August 1, 2015, accepting a 9-month, 12% interest note. If Young accrued interest at its December 31, 2015, year-end, what entry must it make to record the collection of the note and interest at the maturity date of the note?

Cash 32,700 Notes Recievable 30,000 Interest Receivable 1,500 Interest Revenue 1,200

Calvin Coat Company factors $400,000 of receivables to Kwik Factors, Incorporated. Kwik assesses a 3% service charge on the amount of receivables sold by Calvin. What journal entry does Calvin make when factoring these receivables?

Cash 388,000 Service Charge Expense 12,000 Accounts Receivable 400,000

If First Company incorrectly records a $500 deposit in its cash receipts journal as $50, the required adjusting entry to correct for this error is:

Cash 450 Accounts Receivable 450

Which of the following errors, each considered individually, would cause the trial balance to be out of balance?

A payment of $148 to a creditor was posted as a debit of $148 to Accounts Payable and a debit of $148 to cash

On January 1, 2016, Piper Company sold merchandise on account for $1,500 to Morton Company with credit terms 2/10 n/30. The cost of the goods sold was $500. Morton's Company returned $500 of merchandise on January 2, 2016. Piper's cost of the returned goods was $100. Morton Company paid for the goods on January 11, 2016. What entry does Piper Company prepare on January 11, 2016?

Cash 980 Sales Discount 20 Accounts Receivable 1,000

The right to receive money in the future is called a(n)...

Account receivable

Under a perpetual inventory system...

Accounting records continually disclose the amount of inventory

Davidson Company's ledger showed the following account balances at the end of its first year: Cash $5,000 Prepaid Insurance $500 Building $2,500 Accumulated Depreciation $2,000 Unearned Revenue $3,000 Common Stock $1,000 Dividends $500 Service Revenue $15,000 Cost of Goods Sold $12,000 Depreciation Expense $500 Which accounts have a debit balance?

Cash, Prepaid Insurance, Building, Dividends, Cost of Goods Sold, Depreciation Expense

River Ridge Music School prepares financial statements every December 31. On November 1, 2015, the school borrowed $30,000 from the bank by signing a 10% six-month note. The music school's required adjusting entry at December 31, 2015, is...

An accrued expense entry

Accumulated Depreciation is a(n)...

Contra asset account

The account AFDA is a...

Contra-asset account

Which account will have a zero balance after closing entries have been journalized and posted?

Cost of Goods Sold

Under the allowance method, Bad Debts Expense is recorded...

For an amount that the company estimates it will not collect

A merchandiser will earn an operating income of exactly $0, when...

Gross profit equals operating expenses

Accrued Expense adjusting entries...

Increase expenses and liabilities

The reconciliation of the cash register tape with the cash in the register is an example of...

Independent internal verification

In the Koss Corporation case...

Internal controls were compromised due to collusion

Which of the following is an example of a bank reconciliation item that requires an adjusting entry?

NSF Check

Gross Profit

Net sales - cost of goods sold

What illustrates weak internal control over cash?

One person receives cash, records cash receipts and holds the cash

At Foss Company, blank checks are locked in a safe. Which of the following internal control principles is the best explanation of this type of internal control?

Physical Controls

Schwinn Company assembled the following information in completing its March bank reconciliation: Unadjusted cash balance per bank $15,280 Outstanding Checks $3,100 Deposits in transit $5,000 NSF check $320 Bank Service Charge $100 Unadjusted cash balance per books $17,600 As a result of this reconciliation, Schwinn will...

Reduce its cash account by $420

Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n)...

Revenue

Which account is classified as a contra asset account?

Sales Returns and Allowances

A credit balance in the AFDA is...

The normal balance for that account

Laurel Company uses a perpetual inventory system. On January 1, 2016, Laurel sells $100,000 of goods to Tom with terms 4/10, n/30.

Tom will receive a four percent discount if he pays on January 11, 2016

Posting

Transfers journal entries to ledger accounts

Which of the following items requires a subtraction from the unadjusted cash balance per bank records on Trent Compony's bank reconciliation?

Trent Company paid its supplier by writing a check for $1,000. The bank incorrectly recorded Trent Company's check as $100 on the bank statement

Which accounts will be listed on a post-closing trial balance?

Unearned Rent Revenue, Accumulated Depreciation, Common Stock

Adjusting Entries

Update the trial balance

Rick's Music Shop sells $400 in merchandise and accepts a U.S. Bank Visa card as payment. Visa charges a 2% service fee. The shop's entry to record the transaction includes a...

Debit to Service Charge Expense of $8

An aging of a company's accounts receivable indicates that $4,000 is estimated to be uncollectible. If AFDA has a $1,200 debit balance, the adjustment to record bad debts for the period will require a

Debit to bad debt expanse for $5,200

When a Ross Company performs a service and sends the customer a bill, the entry is...

Debits Accounts Receivable and Credits Service Revinue

The payment of a liability

Decreases assets and liabilities

A paid dividend...

Decreases assets and stockholders equity

In preparing a bank reconciliation, outstanding checks are

Deducted from the balance per bank

First Company incorrectly records a $275 check as $257 in its cash payments journal. On First Company's bank reconciliation, the $18 error should be...

Deducted from the cash balance per bank

Davis Company prepares a bank reconciliation. Which item requires an addition to the unadjusted cash balance per bank records?

Deposits in transit (outstanding deposits)

Harris Company purchased a computer for 3,000 on December 1. It is estimated that annual depreciation on the computer will be $600. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Depreciation Expense $50 Acccumulated Depreciation $50

Davis Company pays its obligations in cash and does not pay by check. This policy violates the internal control principle of...

Documentations

If a company using accrual accounting fails to prepare a prepaid expense adjusting entry, how will expenses and assets be different?

Expenses will be understated and assets will be overstated

What should an investor review to determine whether financial statements comply with generally accepted accounting principles?

External Auditor's Report

Mrs. Smith has worked for Bosco Inc. for 20 years without taking a vacation. An internal control feature that would address this situation would be...

Human Resource Control

Voss Corporation uses accrual accounting and closes its books every month. The corporation provides a $2,000 of services on account during the current period. If Voss does not bill its customers until the following accounting period and all customers pay after receiving their bills, Voss Corporation's required adjusting entry in the current period...

Includes a debit to an asset and a credit to a revenue account

West company has $1,000 in its checking account at First Bank. If West Company deposits an additional $500 in its checking account, this will...

Increase Fist Bank's Liabilities

Tony's Market closes its books every month and uses a perpetual inventory system. The company recorded the following events. January 1, 2016 Purchased goods for $40,000 terms 2/10 n/30 January 3, 2016 Returned $800 of the shipment for credit January 4, 2016 Paid $200 cash for freight on the purchased goods January 10, 2016 Paid the invoice within the discount period After recording the events described above, Tony's Market's inventory account...

Increased by $38,616

Random Corporation issues $25,000 in common stock. The stock issuance...

Increases Random's assets and stockholders equity by $25,000

During the accounting period, Foster Company collects $1,000 of its $5,000 Accounts Receivable balance. The collection of the accounts receivable... -Increases/decreases one asset/liability by $1,000 and increases/decreases a asset/liability/stockholders equity by $1,000

Increases one asset by $1,000 and decreases another asset by $1,000

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them...

Increases the potential for errors and fraud

Best Company purchases goods for resale using a perpetual inventory system. Best's required journal entry to record the purchase of the goods include a debit to...

Inventory

The LIFO reserve...

Is positive during a period of inflation

A post-closing trial balance...

Is used to determine beginning balances for the next accounting period

An adjusting trial balance...

Is used to prepare financial statements

Crest Corporation engages in the following activities 1. Sells Equipment for cash 2. Sells inventory for cash 3. Issues common stock 4. Pays cash dividends Which of involve financing activities?

Items 3 and 4

The managers of Harris Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?

LIFO

In a period of increasing prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?

LIFO method

The current ratio measures

Liquidity

The three main factors that contributed to embezzlement in the Koss Corporation case are factors that compromise the fraud triangle and include

Motivation/financial pressure; opportunity and rationalization

Rosen Company receives a $5,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note?

Notes Receivable 5,000 A/R - Bay Company 5,000

Joyce Company purchased office supplies costing $5,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,400 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

Office Supplies Expense $3,600 Office Supplies $3,600

Which concept allows a company to issue financial statements every month?

Periodicity Assumption

Blackbird Company owns a local sports team. The company uses accrual accounting and prepares financial statements on a monthly basis. On September 1, 2015, Blackbird Company paid $90,000 cash to Lawrence City as adventure rent for use of a city owned stadium for September 2015 through February 2016. -Required Journal Entry at September 1, 2015 and September 30, 2015 which is a(n)...:

Prepaid Rent $90,000 Cash $90,000 Rent Expense $15,000 Prepaid Rent $15,000 *a prepaid expense adjusting entry

A law firm using accrual accounting received $2,000 cash for legal survives to be performed in the future. Upon receiving the cash, the firm's journal entry included a $2,000 debit to cash and a $2,000 credit to unearned service revenue. If the legal survives have been performed at the end of the accounting period and no adjusting entry is made, this would cause: -Expenses/net income/liabilities/revenues to be understated/overstated

Revenues to be understated

Snelling Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January. Employees work 5 days a week and the company pays $900 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

Salaries and Wages Expense 2,700 Salaries and Wages Payable 2,700

At Emerson Company, one bookkeeper prepares the cash deposits while the other bookkeeper enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?

Segregation of Duties

Which account is not relevant when calculating a company's current ratio?

Service Revenue

The classification and normal balance of the Dividend account is...

Stockholders' Equity with a debit balance

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

The auditing experience of company personnel

Mist Company prepares the following adjusting entry based on its bank reconciliation. Miscellaneous Expense 100 Cash 100 What statements is a correct explanation for Mist's adjusting entry?

The bank statement shows a service charge that was assessed by the bank

The Saranes-Oxley Act (SOX)

requires management to attest to whether any material weakness exists in the company's internal control over financial reporting and requires that an external CPA firm provide an opinion on a company's internal control over financial reporting