ACCT 2301 Test 1 Questions

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported for net operating cash flow on the statement of cash flows?

$(4,000) Only Event 3 affects cash flow $5,000 original cost − $1,000 purchase return

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $50 of the inventory purchased in Event 1. (3) Sold the inventory for $6,000 cash. Based on this information, which of the following shows how the recognition of the return will affect the company's financial statements?

$(50) $(50) NANA-NA=NANA Assets - Liabilites -

Escrow Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to

$(8,000). $12,000 − $20,000

Jefferson Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash flow from operating activities that Jefferson would report in Year 1 and Year 2, respectively would be

$0, and $360. Total annual interest = $6,000 × 0.06 = $360 Since the total amount of interest is collected on the maturity date in Year 2, there would be zero cash inflow in Year 1 and $360 in Year 2.

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

$1,000 The cost of the inventory is $4,000 ($5,000 original cost − $1,000 purchase return). (Sales $5,000 − Cost of Goods Sold $4,000).

On September 1, Year 1, Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's Year 2 financial statements would be

$1,200 interest revenue and $1,800 cash inflow from operating activities. Total annual interest = $36,000 × 0.05 = $1,800 Monthly interest = $1,800 annual interest ÷ 12 months = $150 Interest earned in Year 2 = $150 per month × 8 months = $1,200 Four months of interest was accrued in Year 1. The remaining 8 months is earned in Year 2.

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of depreciation expense recognized on the Year 2 income statement is

$10,000. ($48,000 Cost − $8,000 Salvage) ÷ 4 Years = $10,000 Depreciation expense per year = (Cost of the asset − Salvage value) ÷ Useful life

Walter Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to

$102,000. $60,000 cost of goods sold + $42,000 gross margin

During Year 2, Omark Company sold merchandise costing $120,000 for $160,000. Customers returned 10% of the merchandise and a 2% cash discount was provided on $90,000 of the sales. Based on this information the amount of net sales is

$142,200. The amount of net sales is $142,200 [$160,000 gross sales - ($160,000 gross sales × 10% sales returns) - ($90,000 × 2% cash discount)].

Corazon Company purchased an asset with a list price of $14,000. Corazon paid $500 of transportation-in cost, $800 to train an employee to operate the equipment, and $200 to insure the asset against theft after it has been set up in the factory. The asset was purchased under terms 1/20, n/30 and Corazon paid for the asset within the discount period. Based on this information, Corazon would capitalize the asset on its books at:

$15,160 Cost of Asset: List price $ 14,000 Plus: Transportation-in 500 Plus: Training 800 Less: Cash discount ($14,000 list price × 0.01 discount) (140) Total cost capitalized $ 15,160 Note that the $200 of insurance was not included because it applied to coverage after the asset had been acquired and set up for use.

On January 1, Year 1, Raven Limo Service, Incorporated paid $64,000 cash to purchase a limousine. The limo was expected to have a six-year useful life and a $10,000 salvage value. On January 1, Year 5 the limo was sold for $30,000 cash. Assuming Raven uses straight-line depreciation, the company would recognize a

$2,000 gain. Depreciation expense per year = ($64,000 Cost − $10,000 Salvage) ÷ 6 Years = $9,000 Accumulated depreciation on January 1, Year 5 = $9,000 per year × 4 years = $36,000 Book value = $64,000 Cost − $36,000 Accumulated depreciation = $28,000 Gain on sale = $30,000 Sales price − $28,000 Book value = $2,000

On January 1, Year 1, Raven Limo Service, Incorporated paid $64,000 cash to purchase a limousine. The limo was expected to have a six-year useful life and a $10,000 salvage value. On January 1, Year 5 the limo was sold for $26,000 cash. Assuming Raven uses straight-line depreciation, the company would recognize a

$2,000 loss. Depreciation expense per year = ($64,000 Cost − $10,000 Salvage) ÷ 6 Years = $9,000 Accumulated depreciation on January 1, Year 5 = $9,000 per year × 4 years = $36,000 Book value = $64,000 Cost − $36,000 Accumulated depreciation = $28,000 Loss on sale = $26,000 Sales price − $28,000 Book value = $(2,000)

An analysis of the inventory owned by Owens Company as of the company's fiscal closing date is shown in the following table. Item Quantity Cost per Unit Market Value per Unit A 200 $ 20 $ 17 B 190 $ 50 $ 52 C 400 $ 34 $ 30 D 320 $ 25 $ 29 Assuming Owens applies the lower-of-cost-or-market rule on an individual basis, the company would be required to recognize an expense amounting to

$2,200. A and C are below their cost A 200×($20 − $17)=$ 600 C 400×($34 − $30)=1,600 Total$ 2,200

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of accumulated depreciation shown on the Year 2 balance sheet is

$20,000. Depreciation expense per year = ($48,000 Cost − $8,000 Salvage) ÷ 4 Years = $10,000 Depreciation expense per year = (Cost of the asset − Salvage value) ÷ Useful life (Permanent Contra asset) Year 1 $20,000 Year 2 $30,000 Year 3 $40,000 Year 4 $40,000

DeKalb Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that DeKalb would report in Year 1 and Year 2, respectively, would be

$270, and $90. Total annual interest = $6,000 × 0.06 = $360 Monthly interest = $360 annual interest ÷ 12 months = $30 Interest earned in Year 1 = $30 per month × 9 months = $270 Interest earned in Year 2 = $30 per month × 3 months = $90 Nine months of interest was accrued in Year 1. The remaining 3 months is earned in Year 2.

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 balance sheet is

$28,000. ($48,000 Cost − $20,000 Accumulated depreciation) = $28,000 Depreciation expense per year = ($48,000 Cost − $8,000 Salvage) ÷ 4 Years = $10,000 Depreciation expense per year = (Cost of the asset − Salvage value) ÷ Useful life

The following information was drawn from the inventory records of Alpha Company as of December, Year 2. Beginning inventory (purchased in Year 1) 200 units @ $5 each Purchases made in Year 2 800 units @ $8 each Units sold 900 units @ $12 each Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a LIFO cost flow method?

$3,900 The gross margin is $3,900 ($10,800 Sales revenue − $6,900 Cost of goods sold). The amount of sales revenue is $10,800 (900 units × $12 per unit). The cost of goods sold is $6,900. ($6,400 Y2 + $500 Y1) 100 units (900 − 800) are drawn from the units in beginning inventory. 100 units @ $5 each = 500

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The company sold one of the items for $40. If the company uses the LIFO cost flow method, the balance in the inventory account after the sales transaction will be

$30. If the company is using LIFO, it would have recognized $32 of cost of goods sold (last item purchased) and there would be $30 left in inventory.

Sales on account amounted to $80,000. Sales returns were $2,000 and sales discounts were $1,000. Cost of goods sold amounted to $45,000. Based on this information the amount of gross margin was

$32,000. Net sales = $80,000 Sales revenue − $2,000 Sales returns − $1,000 Sales discounts = $77,000. Gross Margin = $77,000 Net sales − $45,000 Cost of goods sold = $32,000.

An analysis of the inventory owned by Owens Company as of the company's fiscal closing date is shown in the following table. Item Quantity Cost per Unit Market Value per Unit A 200 $ 20 $ 17 B 190 $ 50 $ 52 C 400 $ 34 $ 30 D 320 $ 25 $ 29 Assuming Owens applies the lower-of-cost-or-market rule on an individual basis the amount of inventory shown on the balance sheet would be

$32,900. A 200×$ 17=$ 3,400 B 190×$ 50=9,500 C 400×$ 30=12,000 D 320×$ 25=8,000 Total$ 32,900

On January 1, Year 1, East Company purchased West Company. East Company paid $600,000 cash and assumed all of West Company's liabilities. West's books showed tangible assets of $550,000, liabilities of $40,000, and equity of $590,000. An appraiser assessed the fair market value of the tangible assets at $580,000 at the date of acquisition. On December 31, Year 4 East determines that the goodwill suffered a $25,000 permanent impairment. However, on December 31, Year 6 East estimated that it had recovered $5,000 of the impairment that had previously been considered to be a permanent impairment. Based on this information, the book value of the goodwill shown on the December 31, Year 6 balance sheet is

$35,000. Cash paid $ 600,000 Plus: Liabilities assumed 40,000 Less: Market value (580,000) Goodwill purchased $ 60,000 The book value of the goodwill is $35,000 ($60,000 goodwill purchased − $25,000 impairment).

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is

$4,000 $5,000 original cost − $1,000 purchase return

At the end of the accounting period Anderson Company had $4,500 in accounts receivable and $500 in its allowance for doubtful accounts account. Based on this information the net realizable value of accounts receivable is

$4,000. $4,500 − $500 = $4,000

The following information was drawn from the inventory records of Alpha Company as of December, Year 2. Beginning inventory (purchased in Year 1) 200 units @ $5 each Purchases made in Year 2 800 units @ $8 each Units sold 900 units @ $12 each Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a weighted average cost flow method?

$4,140 The amount of sales revenue is $10,800 (900 units × $12 per unit). (Y1 + Y2) = Costs of goods available for sale Weighted average cost per unit is $7.40 ($7,400 Cost of goods available for sale ÷ 1,000 units). Cost of goods sold is $6,660 ($7.40 per unit × 900 units sold). The gross margin is $4,140 ($10,800 Sales revenue − $6,660 Cost of goods sold).

The following information was drawn from the inventory records of Alpha Company as of December 31, Year 2. Beginning inventory (purchased in Year 1) 200 units @ $5 each Purchases made in Year 2 800 units @ $8 each Units sold 900 units @ $12 each Which of the following is the amount of the gross margin assuming Alpha uses a FIFO cost flow method?

$4,200 The gross margin is $4,200 ($10,800 Sales revenue − $6,600 Cost of goods sold). The amount of sales revenue is $10,800 (900 units × $12 per unit). The cost of goods sold is $6,600. ($1000 Y1 + $5,600 Y2) 700 units (900 sold − 200 from beginning inventory) 700 units @ $8 = 5,600

Keisha Dress Shops experienced the following events during its third accounting period. (1) Sold merchandise that cost $92,000 for $140,000 cash. (2) Paid $30,000 of operating expenses. (3) Paid a $4,000 cash dividend. Based on this information, the amount of the gross margin is

$48,000 $140,000 sales revenue - $92,000 cost of goods sold

The following information was drawn from the inventory records of Preston Company. Beginning inventory (purchased in Year 1) 100 units @ $10 each First purchase made in Year 2 400 units @ $12 each Second purchase made in Year 2 500 units @ $14 each Units sold 950 units @ $15 each Based on this information, which of the following represents the amount of ending inventory appearing on the balance sheet assuming a LIFO cost flow?

$500 1) Calculate cost of goods available for sale: 100 units @ $10 each =$ 1,000 400 units @ $12 each =4,800 500 units @ $14 each =7,000 =$ 12,800 2)Calculate cost of goods sold: LIFO = 950 - 900 units (500 + 400) = 50 500 units @ $14 each =$ 7,000 400 units @ $12 each =4,800 50 units @ $10 each =500 = $ 12,300 3)Calculate ending inventory: $ 12,800 - 12,300 = $500

On September 1, Year 1, Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1, financial statements would be

$600 interest revenue and zero cash flow from operating activities. Total annual interest = $36,000 × 0.05 = $1,800 Monthly interest = $1,800 annual interest ÷ 12 months = $150 Interest earned in Year 1 = $150 per month × 4 months = $600 Since the total amount of interest will be collected on the maturity date in Year 2, the cash flow associated with interest revenue in Year 1 is zero.

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The company sold one of the items for $40. If the company uses the weighted average cost flow method, the amount of gross margin shown on the income statement will be

$9. In this case the weighted average cost of inventory is $31 per unit [($30 + $32) ÷ 2] Therefore, the amount of gross margin is $9 ($40 sales revenue − $31 cost of goods sold).

On August 1, Year 1, Hernandez Company loaned $48,000 cash to Acosta Company. The one-year note carried a 5% rate of interest. Which of the following shows how the accrual of interest revenue in Year 2 will affect Hernandez's financial statements?

-A.1,400=NA+1,4001,400−NA=1,400NA B.1,400=NA+1,4001,400−NA=1,4001,400 OA C.1,000=NA+1,0001,000−NA=1,000NA D.1,000=NA+1,0001,000−NA=1,0002,400 OA Total annual interest = $48,000 × 0.05 = $2,400 Monthly interest = $2,400 annual interest ÷ 12 months = $200 Five months of interest was accrued in Year 1. The remaining 7 months is earned in Year 2. Interest earned in Year 2 = $200 per month × 7 months = $1,400 Recognizing the accrued interest revenue increases assets (interest receivable) and revenue. The increase in revenue increases net income and ultimately stockholder's equity. Accrued interest means that the company has earned the interest but has not yet collected cash.

On January 1, Year 5, Raven Limo Service, Incorporated sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $30,000 cash. Which of the following shows how the sale of the limo would affect Raven's financial statements?

-A.30,000+(28,000)=NA+2,0002,000−NA=2,00030,000 IA B.30,000+(28,000)=NA+2,0002,000−NA=2,0002,000 IA C.30,000+(28,000)=NA+2,00030,000−NA=30,0002,000 OA D.30,000+(28,000)=NA+2,00030,000−28,000=2,00030,000 OA Book value = $64,000 Cost − $36,000 Accumulated depreciation = $28,000 Gain on sale = $30,000 Sales price − $28,000 Book value = $2,000 Cash +30,000 Book Value -28,000 Equity +2,000 Gain +2,000 Net Income +2,000 Cash Flow Statement +30,000 IA

Baltimore Company accepts a credit card as payment for $950 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the event would affect Baltimore's financial statements

-A.912=NA+912950−38=912NA B.912=38+874912−NA=912NA C.912=38+874912−NA=912912 OA D.950=NA+950950−NA=950950 OA Sales revenue = $950 Credit card expense = $38 ($950 sales revenue × 0.04 credit card fee) The account receivable from the credit card company = $912 ($950 revenue − $38 expense) Revenue +950 Expense -38 Equity +912 NA Since the sale was on account, assets (accounts receivable from the credit card company) increases.

Contours, Incorporated sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Customers returned merchandise that had been sold for $1,000. This merchandise had originally cost Contours $700. The remaining receivables were collected within the discount period. Which of the following shows how recognizing the collection of the receivables will affect the company's financial statements?

-A.NA+(160)+NA=NA+(160)(160)−NA=(160)NA 7,840+(7,840)+NA=NA+NANA−NA=NA7,840 Operating B.NA+(160)+NA=NA+(160)(160)−NA=(160)(160) Operating 7,840+(7,840)+NA=NA+NANA−NA=NA7,840 Operating C.NA+(160)+NA=NA+(160)160−NA=160NA 7,840+(7,840)+NA=NA+NANA−NA=NANA D.NA+(160)+NA=NA+(160)(160)−NA=(160)NA 7,840+(7,840)+NA=NA+NA8,000−NA=(8,000)7,840 Operating The sales discount is $160 ($8,000 × 0.02). The discount will decrease the amount of accounts receivable and the amount of revenue. The decrease in revenue decreases net income and equity (retained earnings). After the discount the remaining balance in accounts receivable is $7,840 ($8,000 receivable balance − $160 discount). The collection of the receivable balance is an asset exchange transaction. One asset account (cash) increases and another asset account (accounts receivable) decreases.

On November 1, Year 1, Shelter Company loaned $7,000 cash to Cove Company. The one-year note carried a 7% rate of interest. Which of the following shows how the loan will affect Shelter's financial statements on November 1, Year 1?

-A.NA=NA+NANA−NA=NA(7,000) IA B.NA=NA+NANA−NA=NA(7,000) FA C.7,000=7,000+NANA−NA=NA7,000 FA D.(7,000)=(7,000)+NANA−NA=NA(7,000) IA The event is an asset exchange. Since no interest has been earned, there is not impact on the income statement. The cash outflow is an investing activity.

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods sold of $200,000. Based on this information, the accounts receivable turnover is

12 times per year. $240,000 net credit sales ÷ $20,000 average accounts receivable = 12 times

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods sold of $200,000. Based on this information, the number of days to collect accounts receivable is (treat any partial day as a whole day)

31 days. $240,000 net credit sales ÷ $20,000 average accounts receivable = 12 times 365 days in year ÷ 12 accounts receivable turnover = 30.41 days

Westover Company accepts a credit card as payment for $1,000 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the event would affect Westover's financial statements. Total Assets Net Income Cash Flow from OA A. $1,000 $960 NA B. $960 $960 NA C. $960 $1,000 $1,000 OA D. $960 $960 $960 OA

A. $1,000 $960 NA -B. $960 $960 NA C. $960 $1,000 $1,000 OA D. $960 $960 $960 OA Sales revenue = $1,000 Credit card expense = $40 ($1,000 sales revenue × 0.04 credit card fee) The account receivable from the credit card company = $960 ($1,000 revenue − $40 expense) Net income = $960 ($1,000 revenue − $40 expense)

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize $5,470 of uncollectible accounts expense. Which of the following shows how this entry will affect Kardashian's financial statements?

A.$(5,470)=NA+$(5,470)NA−$5,470=$(5,470)$(5,470) OA -B.$(5,470)=NA+$(5,470)NA−$5,470=$(5,470) NA C.$(5,470)=NA+$(5,470)NA−$5,470=$(5,470)$(5,470) FA D.$(5,470)=$(5,470)+NANA−$5,470=$(5,470) NA Assets - Equity - Expenses + Net Income - NA

On January 1, Year 1, Martin Manufacturing Company paid $55,000 to obtain a patent. Martin expected the patent to have a 25-year useful life and a $5,000 salvage value. The patent's legal life is 20 years. Which of the following shows how the recognition of amortization expense will affect the Year 3 financial statements?

A.(2,000)=++(2,000)NA−2,000=(2,000)2,000 OA -B.(2,500)=++(2,500)NA−2,500=(2,500)NA C.(2,500)=++(2,500)NA−2,500=(2,500)(2,500) OA D.(2,000)=++(2,000)NA−2,000=(2,000)NA Since the legal life is shorter than the useful life, the patent will be amortized over 20 years Amortization expense = ($55,000 Cost of patent − $5,000 Salvage value) ÷ 20 Years = $2,500 per year. Assets - 2,500 Equity -2,500 Expenses +2,500 Net income -2,500 NA There is no cash flow associated with the recognition of amortization expense. Therefore, the statement of cash flows is not affected.

South Company purchased North Company. South Company paid $550,000 cash and assumed all of North Company's liabilities. On the date of purchase, North's books showed tangible assets of $500,000, liabilities of $20,000, and equity of $480,000. An appraiser assessed the fair market value of the tangible assets at $530,000 on the acquisition date. Which of the following statements models shows how this event will affect South Company's financial statements?

A.(550,000)+530,000+40,000=20,000+NANA-NA=NA(550,000) FA B.(550,000)+530,000+40,000=20,000+NA20,000-NA=20,000(550,000) IA C.(550,000)+530,000+20,000=NA+NANA-NA=NA(550,000) IA -D.(550,000)+530,000+40,000=20,000+NANA-NA=NA(550,000) IA Cash paid $550,000 Plus: liabilities assumed 20,000 Less: Market value of assets (530,000) Goodwill purchased $40,000 Cash -550,000 Assets +530,000 Goodwill +40,000 Liabilities +20,000 Cash Flow Statement -550,000 FA

Which of the following shows the effects of purchasing inventory on account?

A.+=++NANA-+=-NA B.+=NA++NA-NA=NA+ Operating -C.+=++NANA-NA=NANA D.+=++NANA-NA=NA+ Operating Assets + Liabilities +

Harbor Company made a basket purchase. Specifically, the Company paid cash to purchase land, a building and equipment. The appraised market value of the individual items was greater than the purchase price. Which of the following shows how this purchase will affect a company's financial statements?

A.+=NA++NA−NA=NA+ IA B.+=NA+++−NA=++ OA C.+/-=NA+NANA−NA=NA− OA -D.+/-=NA+NANA−NA=NA− IA The purchase is an asset exchange transaction The fact that the market value of the assets is greater than their cost is ignored. Since the cash outflow occurred to purchase long-term assets, the cash outflow is an investing activity.

On August 1, Year 1, Hernandez Company loaned $48,000 cash to Acosta Company. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1, recognition of accrued interest will affect Hernandez's financial statements?

A.1,400=NA+1,4001,400−NA=1,4001,400 OA B.1,400=NA+1,4001,400−NA=1,400NA C.1,000=NA+1,0001,000−NA=1,0001,000 OA -D.1,000=NA+1,0001,000−NA=1,000NA Total annual interest = $48,000 × 0.05 = $2,400 Monthly interest = $2,400 annual interest ÷ 12 months = $200 Interest earned in Year 1 = $200 per month × 5 months = $1,000 Recognizing the accrued interest revenue increases assets (interest receivable) and revenue. The increase in revenue increases net income and ultimately stockholder's equity. Accrued interest means that the company has earned the interest but has not yet collected cash.

On January 1, Year 5, Raven Limo Service, Incorporated sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $26,000 cash. Which of the following shows how the sale of the limo would affect Raven's financial statements?

A.26,000+(28,000)=NA+(2,000)2,000−NA=(2,000)26,000 IA B.26,000+(28,000)=NA+2,0002,000−NA=2,0002,000 IA C.26,000+(28,000)=NA+(2,000)NA−2,000=(2,000)NA -D.26,000+(28,000)=NA+(2,000)NA−2,000=(2,000)26,000 IA Book value = $64,000 Cost − $36,000 Accumulated depreciation = $28,000 Loss on sale = $26,000 Sales price − $28,000 Book value = $(2,000) Cash +26,000 Book Value -28,000 Equity -2,000 Loss +2,000 Net income -2,000 Cash Flow Statement +26,000 IA

Beachwood Clothing Company operates a chain of high-end men's clothing stores. Recently the company closed one of its stores and sold the equipment that was used in the store. The equipment had cost $5,000 and was sold for $6,000. Which of the following shows how the recognition of this event would affect the company's financial statements?

A.6,000+(5,000)=NA+1,000NA+1,000-NA=1,0001,000 Investing B.5,000+(5,000)=NA+NANA+1,000-NA=1,0006,000 Operating -C.6,000+(5,000)=NA+1,000NA+1,000-NA=1,0006,000 Investing D.6,000+(6,000)=NA+NANA+NA-NA=NA6,000 Operating

Contours, Incorporated sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Customers returned merchandise that had been sold for $1,000. This merchandise had originally cost Contours $700. The remaining receivables were collected after the discount period had expired. Which of the following shows how recognizing the collection of the receivables will affect the company's financial statements?

A.8,000+(8,000)+NA=NA+NA8,000-NA=8,0008,000 Operating B.8,000+(8,000)+NA=NA+NANA-NA=NANA C.7,840+(7,840)+NA=NA+NANA-NA=NA7,840 Operating -D.8,000+(8,000)+NA=NA+NANA-NA=Na8,000 Operating The amount of accounts receivable after the sales return is $8,000 ($9,000 − $1,000)

Contours, Incorporated sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Customers returned merchandise that had been sold for $1,000. This merchandise had originally cost Contours $700. Which of the following shows how the sales return will affect the company's financial statements?

A.NA+(1,000)+NA=NA+(1,000)(1,000)−NA=(1,000)NA NA+NA+(700)=NA+(700)NA−(700)=700NA -B.NA+(1,000)+NA=NA+(1,000)(1,000)−NA=(1,000)NA NA+NA+700=NA+700NA−(700)=700NA C.NA+(1,000)+NA=NA+(1,000)(1,000)−NA=(1,000)(1,000) Operating NA+NA+700=NA+700NA−(700)=700NAD.NA+1,000+NA=NA+1,0001,000−NA=1,000NA NA+NA+700=NA+700NA−(700)=700NA When a customer returns sales items, Contours must decrease its accounts receivable because it no longer has the right to collect this cash from the customer. Likewise, the amount of revenue decreases due to the sales return. The decrease in revenue reduces the amount of net income and in turn equity (retained earnings).

Contours, Incorporated sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Which of the following shows how this event will affect the company's financial statements?

A.NA+9,000+NA=NA+9,0009,000−NA=9,000NA NA+NA+(180)=NA+(180)NA−180=(180)NA B.9,000++NA=NA+9,0009,000−NA=9,0009,000 Operating NA+NA+(6,000)=NA+(6,000)NA−6,000=(6,000)NA -C. NA+9,000+NA=NA+9,0009,000−NA=9,000NA NA+NA+(6,000)=NA+(6,000)NA−6,000=(6,000)NA D.NA+8,820+NA=NA+8,8208,820−NA=8,820NA NA+NA+(6,000)=NA+(6,000)NA−6,000=(6,000)NA Sales revenue is recorded at $9,000. The discount is not recognized until the receivable is collected. Sales revenue acts to increase net income which in turn increases equity (retained earnings)

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the company's financial statements?

A.NA+NA−$30,000=NA+$30,000NA−$30,000=$(30,000)NA B.NA+NA−$30,000=NA+$10,000NA−$10,000=$(10,000)NA C.NA+NA−$10,000=NA+$10,000NA−$10,000=$(10,000)$(10,000) OA -D.NA+NA−$10,000=NA+$(10,000)NA−$10,000=$(10,000)NA ($48,000 Cost − $8,000 Salvage) ÷ 4 Years = $10,000 Accumulated Deprecation +10,000 Equity -10,000 Expenses +10,000 Net income -10,000 There is no impact on the statement of cash flows because the associated cash outflow would have been recognized previously when the truck was purchased.

Hope Company determined that an $8,000 account receivable was uncollectible. Which of the following shows how the write-off of this receivable will affect Hope's financial statements?

A.NA=NA+NANA−8,000=(8,000)(8,000) OA B.(8,000)=NA+(8,000)NA−8,000=(8,000)NA -C.NA=NA+NANA−NA=NANA D.(8,000)=(8,000)+NANA−8,000=(8,000)NA The write-off is an asset exchange transaction.

Beacon Company accepts a credit card as payment for $2,000 of services provided to a customer. The credit card company charges a 3% handling charge for its collection services. Select the answer that shows how the collection of cash from the credit card company will affect Beacon's financial statements.

A.NA=NA+NANA−NA=NA1,940 FA -B.NA=NA+NANA−NA=NA1,940 OA C.2,000=NA+2,000NA−NA=NA2,000 OA D.1,960=NA+1,960NA−NA=NA1,960 OA Sales revenue = $2,000 Credit card expense = $60 ($2,000 sales revenue × 0.03 credit card fee) The account receivable from the credit card company = $1,940 ($2,000 revenue − $60 fee) Asset exchange Since the $1,940 cash inflow is associated with the collection of accounts receivable, it is classified as an operating activity.

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following shows how the recognition of the cost of goods sold will affect the Company's financial statement? (Ignore the effects of the associated revenue recognition.)

A.−=NA+−NA-+=−− Operating B.−=NA+−NA-NA=NANA C.+=NA+++-NA=++ Operating -D.−=NA+−NA-+=−NA Assets - Equity - Income -

Barron Company accepts a credit card as payment for $1,200 of services provided to a customer. The credit card company charges a 5% handling fee for its collection services. Select the answer that shows how the entry to recognize the event would affect Barron's financial statements.

Assets will increase by $1,140. Revenue will increase by $1,200. Expenses will increase by $60. -All of the answers describe effects that will occur as a result of recognizing this event.

On January 1, Year 1, McGraw Company paid $1,000,000 to obtain a copyright. McGraw expected the copyright to have a 10-year useful life. Which of the following shows the amount of the book value of the copyright, the amortization expense, and the cash flow from operating activities on the Year 3 financial statements? Book Value Amortization Cash Flow A. $ 700,000 $ 300,000 Zero B. $ 700,000 $ 100,000 Zero C. $ 700,000 $ 300,000 $ (300,000) OA D. $ 700,000 $ 100,000 $ (100,000) OA

B. $ 700,000 $ 100,000 Zero Amortization expense = ($1,000,000 Cost − Zero salvage) ÷ 10 years = $100,000 per year The book value would have decreased by $100,000 per year for three years resulting in a book value of $700,000 in Y3 There is no cash flow associated with the recognition of amortization expense.

Which of the following financial statements will be affected by a sales return? Assume the original sale and the sales return were cash transactions.

Balance sheet Income statement Statement of cash flows -All of these statements would be affected by the sales return.

The following table shows the operating cycle of four companies. Company Name Smith Jones Brown Green Operating Cycle 48 days 42 days 51 days 46 days All other things being equal, the cost of borrowing money to purchase and hold inventory will be greater for

Brown.

Forest Beach Company experienced an event that had the following effects on its financial statements. −/+=NA+NANA−NA=NA+ IA Which of the following events could have caused these effects?

Collected cash for the principal balance of a note receivable. Collecting the principal balance of a note receivable causes one asset account (cash) to increase and another asset (notes receivable) to decrease. Total assets are not affected. This is an asset exchange transaction that does not affect the income statement. The cash inflow from the collection of the note receivable would be classified as an investing activity.

Which of the following is not a tangible asset?

Copyright

Which of the following conveys an exclusive right to produce and sell the content contained in a textbook?

Copyright.

Assume a company paid $800 for a computer that it plans to sell to its customers. Suppose that because of new technology the company could buy the same computer today for $600. How would the lower-of-cost-or-market rule affect the financial statements?

Decrease net income on the income statement Writing down the inventory reduces the amount of total assets and increases expenses which decreases net income and stockholders' equity.

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. When the company sold one of the items for $40, it expensed $30 to its cost of goods sold account. Based on this information which of the following cost flow methods is the company using?

FIFO In this case the first item the business purchased cost $30. Since cost of goods sold is $30, the business must be using the FIFO method.

All training costs associated with the purchase and continuing use of an asset should be capitalized in the asset account. This statement is

False

GAAP requires that inventory be shown on the balance sheet at its cost (the price paid) regardless of its current value. This statement is

False

When the total estimated market value of assets acquired in a basket purchase is greater than the cost of the purchase, the company making the purchase must recognize a gain.

False

Which of the following intangible assets has an indefinite useful life?

Goodwill.

The amount of net sales is determined by which of the following formulas?

Gross sales - Sales Returns and Allowances - Sales discounts

Which of the following events experienced by a department store would be presented in the operating section of a multistep income statement?

Inventory sold for less than its cost

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment?

LIFO

Sable Company paid $400,000 for a purchase that included land, a building, and equipment. An appraiser estimated the market value of the land to be $100,000, the building to be $350,000, and the equipment to be $50,000. Based on this information the cost that would be allocated to each of the assets is

Land Building Equipment -A.$ 80,000 $ 280,000 $ 40,000 B.$ 100,000 $ 350,000 $ 50,000 C.$ 80,000 $ 240,000 $ 50,000 D.$ 100,000 $ 280,000 $ 40,000 Land: $100,000 ÷ ($100,000 + $350,000 + $50,000) = 20% Building: $350,000 ÷ ($100,000 + $350,000 + $50,000) = 70% Equipment: $50,000 ÷ ($100,000 + $350,000 + $50,000) = 10% Land: $400,000 × 20% = $80,000 Building: $400,000 × 70% = $280,000 Equipment: $400,000 × 10% = $40,000

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory for cash. (2) Returned $100 of the inventory purchased in Event 1. Based on this information, which of the following shows how the recognition of the return will affect the company's financial statements?

NA NA NANA NA NA$100 Operating The return increases operating cash flow by $100

Which of the following is an intangible asset?

Patent Copyright Trademark -All of the answers are names of intangible assets.

Which of the following normally has an associated contra account?

Tangible long-term assets

A company will earn more profit from a cash sale than from a credit card sale.

True

Accrued interest revenue will appear on the income statement but not on the statement of cash flows.

True

An operating cycle is the length of time it takes to convert inventory to accounts receivable plus the time it takes to convert the account receivable back to cash. This statement is

True

Cash revenue generated from notes receivable appears in the operating activities section of the statement of cash flows but as a non-operating item on the income statement.

True

Land is different from other tangible assets in that its utility is not diminished by its use. This statement is

True

The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method. This statement is

True

Which of the following is a cost of selling merchandise on account?

Uncollectible accounts expense Determining customers credit worthiness Recording keeping and collection costs -All of the answers describe reasons companies accept credit cards from their customers.

Zane Enterprises accepts a credit card as payment for $500 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Based on this information

Zane will collect $480 cash from the credit card company. $500 − $20 The fee charged by the credit card company is $20 ($500 × 0.04)

AmRon Company sold land that had cost $25,000 for $26,500. Based on this information, the company's year-end financial statements would show

a cash inflow from investing activities of $26,500 on the statement of cash flows.

Inventory is

an asset account that appears on the balance sheet.

Capitalizing the cash cost of a piece of equipment is

an asset exchange event Capitalizing the cost of equipment means to record its cost in an asset account

Paying cash to purchase inventory is

an asset exchange transaction.

Gains and losses are reported

as nonoperating items on the income statement.

The accounts receivable turnover ratio is calculated by

dividing the amount of credit sales by the average balance of accounts receivable.

In the video, uncollectible accounts expense is

estimated and recognized at the end of the accounting period.

Product costs are expensed when they are incurred. This statement is

false

McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses. This statement is

false.

Most companies expect to collect the full balance of all of their accounts receivable. This statement is

false.

Recognizing a sales discount will cause the amount of net sales to increase. This statement is

false.

The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step income statement. This statement is

false.

The book value of most intangible assets is normally greater than the market value. This statement is

false.

The adjusting entry to recognize the write down of inventory based on the lower-of-cost-or-market rule will

increase the amount of expenses. Writing down inventory decreases the amount of assets and increases the amount of expenses which decreases net income and ultimately stockholders' equity

The following income statements were drawn from the annual report of The Western Sales Company. Year 2Year 1 Sales$ 40,000$40,000 Cost of Goods Sold (25,000)(25,000) Gross Margin 15,00015,000 Operating Expenses (7,000)(9,000) Operating Income 8,0006,000 Gain on the Sale of Land 0 5,000 Net Income $8,000$11,000 If the trends continue, investors can expect the company's net income for Year 3 to

increase.

The gross margin appears on a

multistep income statement.

Guac Company paid $350,000 for a purchase that included land, a building, and equipment. An appraiser estimated the market value of the land to be $80,000, the building to be $300,000, and the equipment to be $20,000. Based on this information recording the basket purchase in the accounting records would cause

no effect on total assets or total equity. A basket purchase is an asset exchange transaction. The total amount of assets and equity is not affected.

The recovery and collection of an account receivable that had previously been written off will

not affect total assets.

Tangier Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)

over the useful life of the asset.

When a merchandising company sells inventory it will

recognize revenue and expense.

When a merchandising company pays cash to purchase inventory

the amount of total assets increases. the amount of expenses increases. the amount of total assets decreases. -None of the answers is correct.

Which of the following statements regarding the opportunity cost of lost income is true? All other things being equal

the higher the number of days to collect receivables, the higher the opportunity cost of lost income.

Zack's, Incorporated sold land that cost $85,000 for $70,000 cash. As a result of this event

total assets decreased.

Goodwill is recognized only when it is purchased. This statement is

true.

Goodwill is the mix of variables that are unique to a particular company that enables it to produce above average profits. This statement is

true.

Many retail companies are motivated to incur credit costs because many customers are emotional buyers and offering credit generally leads to increases in sales revenue. This statement is

true.

The balance in the allowance for doubtful accounts provides an estimate of the amount of accounts receivable that is expected to be uncollectible. This statement is

true.

The net realizable value of accounts receivable represents an estimate of the amount of the accounts receivable that a company realistically expects to collect. This statement is

true.

The term amortization is used to identify the expense recognition for intangible assets. This statement is

true.

In the video, recognizing the write-off of an uncollectible account receivable will

will not affect the total amount of the net realizable value of receivables.