Acct 311 Exam 1

Retained Earnings Statement

A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period.

selling receivables with recourse

A purchaser advances cash in return for receivables but retains the right to collect from the seller if debtors fail to make payments when due

Moon Inc. factors $3,000,000 of its accounts receivables without recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Moon estimates the fair value of the recourse liability at $300,000. What would be the debit to Cash in the journal entry to record this transaction? a. $3,000,000. b. $2,880,000. c. $2,640,000. d. $2,340,000

= 3000000 - [ (3000000 * 4 %) + (3000000 * 8 %) ] = 3000000 - [ 120000 + 240000 ] = 3000000 - 360000 = $ 2640000 (Option C) Conclusion:- Debit to Cash = 2,640,000. (Option C)

Ledger

A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place.

For Grimmett Company, the following information is available: Capitalized leases $600,000 Trademarks 275,000 Long-term receivables 225,000 In Grimmett's balance sheet, intangible assets should be reported at a. $275,000. b. $500,000. c. $825,000. d. $875,000.

A. Trademarks 275000 Per GAAP trademarks are classified as intangible assets. Capitalized leases and long-term receivables are examples of non-current assets

AG Inc. made a $25,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue? a. $24,500. b. $24,750. c. $25,000. d. $25,250.

B. 24750

Retained Earnings Equation

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

Leonard Corporation reports the following information: Correction of overstatement of depreciation expense in prior years, net of tax $ 645,000 Dividends declared 480,000 Net income 1,500,000 Retained earnings, 1/1/20, as reported 6,000,000 Leonard should report retained earnings, 1/1/20, as adjusted at a. $5,355,000. b. $6,000,000. c. $6,645,000. d. $7,665,000.

C. Report beginning retained earnings: 6000000 Add: Overstatement of D.E.: 645000 = 6645000

Norling Corporation reports the following information: Net income $750,000 Dividends on common stock $210,000 Dividends on preferred stock $ 90,000 Weighted average common shares outstanding 200,000 Norling should report earnings per share of a. $2.25. b. $2.70 c. $3.30. d. $3.75.

C. $3.30NI - PS (Dividends)/ CS outstanding = EPS(750,000-90,000)/200,000 = 3.30

Olsen Company paid or collected during 2020 the following items: Insurance premiums paid $ 30,800 Interest collected 69,800 Salaries paid 280,400 The following balances have been excerpted from Olsen's balance sheets: December 31, 2020 December 31, 2019 Prepaid insurance $ 2,400 $ 3,000 Interest receivable 7,400 5,800 Salaries and wages payable 24,600 21,200 The insurance expense on the income statement for 2020 was: a. $25,400. b. $30,200. c. $31,400. d. $36,200.

C. 31400 Prepaid Insurance Beginning balance: 3000 Add: Insurance paid during the year: 30800 Total 33800 Less: Prepaid insurance ending balance 2400 Insurance expense 31400

8. Olsen Company paid or collected during 2020 the following items: Insurance premiums paid $ 30,800 Interest collected 69,800 Salaries paid 280,400 The following balances have been excerpted from Olsen's balance sheets: December 31, 2020 December 31, 2019 Prepaid insurance $ 2,400 $ 3,000 Interest receivable 7,400 5,800 Salaries and wages payable 24,600 21,200 The interest revenue on the income statement for 2020 was a. $56,600. b. $68,200. c. $71,400. d. $83,000.

C. 71400 Interest collected beginning balance: 69800 Add: Interest revenue during the year: 1600 Total 71400

Current assets include

Cash, other assets to be converted to cash, or sold or consumed in business operations, within one year of the balance sheet date.

Percentage-of-receivables method

Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected

net method

Method of recording purchases at the full invoice price less any cash discounts.

gross method

Method of recording purchases at the full invoice price without deducting any cash discounts.

Balance sheet report form

The report form of the classified balance sheet lists the sections one above the other on the same page.

multiple-step income statement

an income statement that reports multiple levels of income (or profitability)

AG Inc. made a $25,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,500. b. Debit Accounts Receivable for $24,500 and Sales Discounts for $500. c. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $500.

a. Debit Accounts Receivable for $24,500.

What is "recourse" as it relates to selling receivables? a. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay. b. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay. c. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale. d. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.

a. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to: a. beginning retained earnings of the earliest period presented. b. net income of the period in which the change occurred. c. comprehensive income for the earliest period presented. d. stockholders' equity of the period in which the change occurred.

a. beginning retained earnings of the earliest period presented.

An accounting record into which the essential facts and figures in connection with all transactions are first recorded is called the a. ledger b. account c. trial balance . none of these answers are correct

a. ledger

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will: a. offset the overdraft against cash account. b. report the same in the notes to the financial statements. c. report the bank overdraft amount as account payable. d. classify the bank overdraft as compensating balance.

a. offset the overdraft against cash account.

For Mortenson Company, the following information is available: Cost of goods sold $390,000 Dividend revenue 15,000 Income tax expense 36,000 Operating expenses 138,000 Sales revenue 600,000 In Mortenson's single-step income statement, gross profit a. should not be reported. b. should be reported at $51,000. c. should be reported at $210,000. d. should be reported at $225,000.

a. should not be reported.

An unearned revenue can best be described as an amount: a. collected and currently matched with expenses b. collected and not currently matched with expenses c. not collected and currently matched with expenses d. not collected and not currently matched with expenses

b) collected and not currently marched with expenses

The single-step income statement emphasizes a. the gross profit figure. b. total revenues and total expenses. c. operating and non-operating expenses. d. the various components of income from continuing operations.

b. total revenues and total expenses.

Before year-end adjusting entries, Dunn Company's account balances at December 31, 2020, for accounts receivable and the related allowance for uncollectible accounts were $1,500,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The accounts receivable amount expected to be collected after adjustment is a. $1,465,000. b. $1,375,000. c. $1,285,000. d. $1,410,000

b. 13,750,000 Total Accounts receivable 1500000 Less: Accounts receivable expected to be uncollected: 125000 Total Accounts to be collected: 13,750,000

Which of the following is included in comprehensive income? a. Investments by owners. b. Unrealized gains on available-for-sale debt securities. c. Distributions to owners. d. Changes in accounting principles

b. Unrealized gains on available-for-sale debt securities.

Balance sheet information is useful for all of the following except to a. compute rates of return b. analyze cash inflows and outflows for the period c. evaluate capital structure d. assess future cash flows

b. analyze cash inflows and outflows for the period

A prepaid expense can best described as an amount: a) paid and currently matched with revenues b) paid and not currently matched with revenues c) not paid and currently matched with revenues d) not paid and not currently matched with revenues

b. paid and not currently matched with revenue

9. Olsen Company paid or collected during 2020 the following items: Insurance premiums paid $ 30,800 Interest collected 69,800 Salaries and wages paid 280,400 The following balances have been excerpted from Olsen's balance sheets: December 31, 2020 December 31, 2019 Prepaid insurance $ 2,400 $ 3,000 Interest receivable 7,400 5,800 Salaries and wages payable 24,600 21,200 Salaries and wages expense on the income statement for 2020 was a. $234,600. b. $277,000. c. $283,800. d. $326,200.

c. 283800 Beginning salaries and wages paid: 280400 Add: Salaries and wages paid during the year: 3400 Total: 283800

For the year ended December 31, 2020, Transformers Inc. reported the following: Net income $300,000 Preferred dividends declared 50,000 Common dividend declared 10,000 Unrealized holding loss, net of tax 5,000 Retained earnings, beginning balance 400,000 Common stock 200,000 Accumulated Other Comprehensive Income, Beginning Balance 25,000 What would Transformers report as the ending balance of Retained Earnings? a. $695,000 b. $665,000 c. $640,000 d. $635,000

c. 640000 BRE 400000 + NI: 300000 - PDE: 50000 -CSD: 10000 = 640000

Which of the following is true of accounting for changes in estimates? a. A company recognizes a change in estimate by making a retrospective adjustment to the financial statements. b. A company accounts for changes in estimates only in the period of change, even though it affects the future periods. c. Changes in estimates are not carried back to adjust prior years. d. Changes in estimates are considered as errors.

c. Changes in estimates are not carried back to adjust prior years.

AG Inc. made a $25,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,750. b. Debit Accounts Receivable for $24,750 and Sales Discounts for $250. c. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $250.

c. Debit Accounts Receivable for $25,000.

An accrued revenue can best be described as an amount: a. collected and currently matched with expenses b. collected and not currently matched with expenses c. not collected and currently matched with expenses d. not collected and not currently matched with expenses

c. not collected and currently matched with an expense

Current assets are presented in the balance sheet in a. ascending order of their balances. b. descending order of their balances. c. order of their liquidity. d. reverse order of their liquidity.

c. order of their liquidity.

Debit always means a. the right side of an account. b. an increase. c. a decrease. d. None of these answer choices are correct.

d. none

In 2020, Benfer Corporation reported net income of $210,000. It declared and paid common stock dividends of $24,000 and had a weighted average of 100,000 common shares outstanding. Compute the earnings per share to the nearest cent. a. $2.34 b. $0.48 c. $1.86 d. $2.10

d. 2.10 EPS=NI-Preferred dividends/weighted average of common shares outstanding = 210,000 / 100,000 = 2.10

Which of the following is an advantage of the single-step income statement over the multiple-step income statement? a. It reports gross profit for the year. b. Expenses are classified by function. c. It matches costs and expenses with related revenues. d. It does not imply that one type of revenue or expense has priority over another

d. It does not imply that one type of revenue or expense has priority over another

A trial balance a. provides that debits and credits are equal in the ledger b. supplies a listing of open accounts and their balances that are used in preparing financial statements c. is normally prepared three times in the accounting cycle d. all of these answers are correct

d. all are correct

12. Gibson Company paid $24,000 on June 1, 2020 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2020 adjusting entry is a. debit Insurance Expense and credit Prepaid Insurance, $7,000. b. debit Insurance Expense and credit Prepaid Insurance, $17,000. c. debit Prepaid Insurance and credit Insurance Expense, $7,000 d. debit Prepaid Insurance and credit Insurance Expense, $17,000.

d. debit Prepaid Insurance and credit Insurance Expense, $17,000.24000 x 17/24

Balance sheet information is useful for all of the following except a. assessing a company's risk b. evaluating a company's liquidity c. evaluating a company's financial flexibility d. determining free cash flows.

d. determining free cash flows.

A limitation of the balance sheet that is not also a limitation of the income statement is a. the use of judgments and estimates b. omitted items c. the numbers are affected by the accounting methods employed d. valuation of items at historical cost

d. valuation of items at historical cost

Garcia Corporation received cash of $60,000 on August 1, 2020 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2020 adjusting entry is a. debit Rent Revenue and credit Unearned Rent Revenue, $25,000. b. debit Rent Revenue and credit Unearned Rent Revenue, $35,000. c. debit Unearned Rent Revenue and credit Rent Revenue, $25,000. d. debit Cash and credit Unearned Rent Revenue, $35,000.

debit Rent Revenue and credit Unearned Rent Revenue, $35000.love by: 7/12 x $60000 = $35000.

Lopez Company received $18,000 on April 1, 2020 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2020 adjusting entry is a. debit Rent Revenue and credit Unearned Rent Revenue, $4,500. b. debit Rent Revenue and credit Unearned Rent Revenue, $13,500. c. debit Unearned Rent Revenue and credit Rent Revenue, $4,500. d. debit Unearned Rent Revenue and credit Rent Revenue, $13,500.

debit Rent Revenue and credit Unearned Rent Revenue, $4,500.

Current liabilities include

notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest.