Ch 4-6 Accounting Practice Problems

Which of the following accounts is classified as a contra revenue account? Cost of Goods Sold Purchase Discounts Sales Returns and Allowances Sales Revenue

Sales Returns and Allowances

Gross profit is calculated as: Sales-Cost of Goods Sold Sales+Cost of Goods Sold Sales-Operating Expenses Sales-Net Income

Sales-Cost of Goods Sold

Which account will have a zero balance after closing entries have been journalized and posted? Prepaid Insurance Accumulated Depreciation Service Revenue Supplies

Service Revenue

Which of the following would not result in unearned revenue? Sale of season tickets to football games Sale of two-year magazine subscriptions Rent collected in advance from tenants Services performed on account

Services performed on account

A sales invoice is used as documentation for a journal entry that requires a debit to Cash and a credit to Sales Revenue Accounts Receivable and a credit to Sales Revenue Sales Returns and Allowances and a credit to Accounts Receivable Cash and a credit to Sales Returns and Allowances

Accounts Receivable and a credit to Sales Revenue

Adjusting entries are made to ensure that: balance sheet and income statement accounts have correct balances at the end of an accounting period. expenses are recognized in the period in which they are incurred. revenues are recognized in the period in which the performance obligation is satisfied. All of the answers are correct.

All of the answers are correct.

Which of the statement below is not true? An adjusted trial balance is prepared before all transactions have been journalized An adjusted trial balance proves the mathematical equality of debits and credits in the ledger An adjusted trial balance can be used to prepare financial statements An adjusted trial balance should show ledger account balances

An adjusted trial balance is prepared before all transactions have been journalized

Inventory is what type of account and what is its normal/plus side? Liability, Credit Liability, Debit Revenue, Credit Asset, Debit

Asset, Debit

At what value are inventory items reported on the balance sheet? At the original cost to acquire At the lower of selling price or replacement cost At the lower of original cost or replacement cost At the lower of selling price or original cost

At the lower of original cost or replacement cost

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized? September 5 August 31 September 6 August 1

August 31

Unearned Rent Revenue would appear on which financial statement? Statement of Cash Flows Income Statement Statement of Retained Earnings Balance Sheet

Balance Sheet

An actual physical count of inventory is taken for which reason: Neither Both Determine the amount lost due to shoplifting, waste, or employee theft To check the accuracy of inventory records

Both

Which sales accounts normally have a DEBIT balance? Both Sales Discounts and Sales Returned and Allowances Neither Sales Discounts and Sales Returns and Allowances Sales Discounts Sales Allowances

Both Sales Discounts and Sales Returned and Allowances

Which of the following entries record the purchase of office supplies on account: Debit Office Supplies; Credit Accounts Payable Debit Office Supplies; Credit Cash Debit Cash; Credit Office Supplies Debit Accounts Receivable, Credit Office Supplies

Debit Office Supplies; Credit Accounts Payable

Bramble Corp. purchased office supplies costing $6860 and debited Supplies for the full amount. At the end of the accounting period, a physical count of officer supplies revealed $2450 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: Debit Supplies, $2450; credit Supplies Expense, $2450 Debit Supplies, $4410; credit Supplies Expense, $4410 Debit Supplies Expense, $2450; credit Supplies, $2450 Debit Supplies Expense, $4410; credit Supplies, $4410

Debit Supplies Expense, $4410; credit Supplies, $4410

A retailer sells prepaid gift cards under its own brand to customers, which are popular during the Holidays. If a company sells $200 worth of gift cards to a customer before Xmas but the same is not used to purchase goods until after the New Year's, how should the retailer record this transaction? Debit cash and credit Revenue Debit cash and credit Accounts Payable Debit cash and credit Unearned Revenue Credit cash and debit Unearned Revenue

Debit cash and credit Unearned Revenue

When a BUYER purchases inventory, the correct journal entry is: Dr Inventory; Cr Accounts Payable Dr Accounts Receivable; Cr Inventory Dr Inventory; Cr Accounts Receivable Dr Accounts Receivable; Cr Cost of Goods Sold

Dr Inventory; Cr Accounts Payable

Cost of Goods Sold is a(n) _______ account and has a ______ normal/positive side of a ______. Expense, Debit Expense, Credit Revenue, Debit Revenue, Credit

Expense, Debit

Lansing Cycles failed to record an adjusting entry for accrued expenses at the end of June. What effect does this have on the financial statements? Expenses and liabilities are understated Revenues and expenses are understated Assets are overstated and expenses are understated Expenses are overstated and revenues are understated

Expenses and liabilities are understated

True/False The specific identification method of valuing inventory would be most appropriate for low cost items such as nails, paper clips, etc.

False

True/False Under the Accrual Method of accounting, Expenses are recognized only once cash has been paid.

False

True/False With FOB Destination, the buyer pays the shipping costs

False True

What does inventory turnover measure? The average amount of time inventory sits on a company's shelves How quickly a company sells its goods The profit generated from the selling of inventory The dollar amount of funds tied up in inventory

How quickly a company sells its goods

Which of the following is a merchandiser that sells directly to consumers? Retailer Service enterprise Customer Wholesaler

Retailer

The correct order to close:

Revenues, Expenses, Income Summary, Dividends

The preparation of adjusting entries is: straightforward because the accounts that need adjustment will be out of balance optional when financial statements are prepared only required for accounts that do not have a normal balance needed to ensure that the expense recognition principle is followed

needed to ensure that the expense recognition principle is followed

If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit: unearned rent revenue cash accrued rent revenue prepaid rent

unearned rent revenue

Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies: purchased remaining used either used or remaining

used

On January 1, 2021, Ayayai Corp. purchased equipment for $23500. The company is depreciating the equipment at the rate of $940 per month. At January 31, 2022, the balance in Accumulated Depreciation is: $12220 credit $58280 debit $11280 credit $940 debit

$12220 credit

Tamarisk Automotive signed a $6200, 120-day note payable on October 1 that bears interest at an annual rate of 9%. How much will appear on Tamarisk's income statement for interest expense related to this note on December 31? $558.00 $186.00 $139.50 $5580.00

$139.50

Hasbeen Company completed its inventory count. Given the facts below, what is the correct inventory value: Preliminary inventory value: $200,000 Additional Info: INCLUDED: Goods held on consignment for Falls Co: $15,000 EXCLUDED: Purchased goods currently in transit (FOB Shipping point): $10,000 EXCLUDED: Inventory sold currently in transit (FOB Shipping point): $12,000 $200,000 $183,000 $195,000 $237,000

$195,000

Sales of $10980 on account Collected $4880 for services performed in 2022 Paid $4580 cash in salaries for 2021 Purchased airline tickets for $610 in December for a trip to take place in 2022 Calculate 2021 net income using accrual accounting. $6400 $7010 $11890 $11280

$6400

Use the following information to calculate Gross Profit: Net Sales: $400,000 Cost of Goods Sold: $310,000 Operating Expenses: $60,000 $90,000 $30,000 $340,000 $400,000

$90,000

Which one of these statements is false about the accrual basis of accounting? Companies record revenue only when they receive cash, and record expense only when they pay out cash. Companies record events that change their financial statements int he period in which events occur, even if cash was not exchanged. Companies recognize revenue in the period in which the performance obligation is satisfied. This basis is in accordance with generally accepted accounting principles.

Companies record revenue only when they receive cash, and record expense only when they pay out cash.

The lower-of-cost-or-market rule for inventory is an example of the application of: Materiality Conservatism Historical cost

Conservatism

The cost flow method that often parallels the actual physical flow of merchandise is: FIFO LIFO

FIFO

The most widely used method of inventory costing is: LIFO FIFO

FIFO

True/False A building was purchased for $75,000. Assuming annual depreciation of $5,000, the net book value (NBV) of the building two years later is $85,000.

False

True/False An adjusting journal entry must include either a Debit or Credit to Cash.

False

True/False At the end of the accounting period, all balance sheet accounts are closed out

False

True/False Closing journal entries are required at the end of each fiscal year so that a company can reset to ZERO its revenue, expense, asset and liability accounts.

False

True/False Discount term of 2/10, n/30 mean that a 10% cash discount is available if payment is made within 30 days

False

True/False Freight costs for the PURCHASER is included as an expense in their Income Statement.

False

True/False It is acceptable under GAAP to change which inventory valuation method used (FIFO, LIFO, etc.) in order to maximize net income.

False

True/False Sales Allowances are designed to encourage customers to pay early

False

True/False Sales revenue is only earned during the period cash is collected from the seller.

False

True/False Sales revenue is only earned during the period in which the cash is collected from the buyer

False

True/False Technology has increased greatly through the use of periodic inventory systems

False

True/False The CASH-BASIS of accounting is in accordance with GAAP.

False

True/False The accrued interest for a three month note payable of $10,000 dated December 1, 2022 at an interest rate of 6% is $150 on December 31, 2022

False

True/False The adjusting entry for accrued salaries required a debit to Salaries and Wages Payable

False

True/False The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique

False

True/False The cash-basis of accounting is in accordance with generally accepted accounting principles.

False

True/False The expense recognition principle requires that expenses be recognized in the same period that they are paid.

False

True/False The operating cycle of a merchandising company is ordinarily shorter than that of a service company

False

Which of the following statements is true regarding profit margin? If the profit margin has a higher value, this suggests favorable return on each dollar of sales Profit margin does not vary across industries Discount stores with high merchandise turnover generally have higher profit margins Profit margin can be improved by decreasing the gross profit rate and/or controlling operating expenses and other costs

If the profit margin has a higher value, this suggests favorable return on each dollar of sales

Which of the following describes the timing of when revenue is recognized? In the period in which the costs associated with earning the revenue are incurred and payment is received for goods sold or work performed In the period in which the related expenses are paid In the period in which the performance obligation is satisfied In the period in which payment is received for goods sold or work performed

In the period in which the performance obligation is satisfied

Assets purchased for resale are recorded in which of the following accounts? Supplies Patents Inventory Equipment

Inventory

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting: Inventory Purchases Purchase Returns Purchase Allowance

Inventory

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in which account? Freight-Out Inventory Freight Expense Freight-In

Inventory

Cash is ____. Collect ____. Pay ____. King, Quick, Slow Best, Timely, Late An Asset, Revenue, Accounts Receivable GAAP, SEC, FASB

King, Quick, Slow

In a period of INflation (rising costs), the cost flow method that results in the LOWEST income taxes is: FIFO LIFO

LIFO

Which inventory valuation method is described as "The newest goods are the first to be recognized in Cost of Goods Sold". LIFO FIFO

LIFO

Unearned Ticket Revenue for a concert or sporting event is what type of account? Liability Revenue Expense Asset OTher

Liability

In periods of rising prices, what will LIFO produce? Higher net income than average costing Lower income taxes than FIFO Higher net income than FIFO Lower cost of goods sold than FIFO

Lower income taxes than FIFO

What type of company classifies its inventory in the following categories: Raw Materials Work in Process Finished Goods Merchandising Manufacturing Service

Manufacturing

The gross profit ratio: Measure a merchandising firm's ability to earn a profit from the sale of inventory. is also called the net profit ratio. is also called the profit margin is a measure of liquidity

Measure a merchandising firm's ability to earn a profit from the sale of inventory.

Which inventory method is considered Outdated and therefore not generally used? Periodic Perpetual FIFO LIFO

Periodic

Which of the accounting steps in the accounting process below would be completed last? Journalizing. Preparing the closing entries. Posting. Preparing the financial statements.

Preparing the closing entries.

Which of the following statements is incorrect concerning the adjusted trial balance? An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. The adjusted trial balance is prepared before the adjusting journal entries are posted. The adjusted trial balance provides the primary basis for the preparation of financial statements. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.

The adjusted trial balance is prepared before the adjusting journal entries are posted.

A company uses LIFO to cost its inventory. What statement is true? The company must sell its newer inventory items before its older items One way to think about the ending inventory under LIFO is the LISH assumption The company will pay less income taxes in periods of rising prices compared to using FIFO

The company will pay less income taxes in periods of rising prices compared to using FIFO

When using a perpetual inventory system, why are discounts credited to Inventory? The discounts are debited to discount expense and thus the credit has to be made to merchandise inventory The discounts reduce the cost of the inventory The discounts are a reduction of business expenses

The discounts reduce the cost of the inventory

For what purpose does a company use LIFO, FIFO, or average cost? To determine the quantity and selling price of inventory items sold To parallel the physical flow of goods as they are sold To determine the proper valuation of each individual inventory item To determine the amount to assign to inventory items under a particular cost flow

To determine the amount to assign to inventory items under a particular cost flow

True/False Accumulated Depreciation is a contra-asset account whose normal balance is a CREDIT.

True

True/False Adjusting journal entries will always one income statement account and one balance sheet account.

True

True/False Cost of Goods Sold is considered an expense of a merchandising firm

True

True/False Freight charges are considered an expense if paid for by the seller.

True

True/False Sales Returns and Allowances is a contra-revenue account

True

True/False With credit terms of 2/10, n/30 the seller is offering the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise the full amount is due in 30 days.

True

An adjusting entry: affects two income statement accounts affects two balance sheet accounts is always a compound entry affects a balance sheet account and an income statement account

affects a balance sheet account and an income statement account

Depreciation is the process of: increasing the value of an asset over the periods in which it is used allocating the cost of an asset to the periods in which it is used writing down an asset to its real value each accounting period valuing an asset at its fair value

allocating the cost of an asset to the periods in which it is used

A multi-step income statement for a merchandising company shows each of these features, except: an investing activities section gross profit cost of goods sold a sales section

an investing activities section

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

assets will be understated and revenues will be understated

The difference between the balance of a plant asset account and the related accumulated depreciation account is termed: book value contra asset liability market value

book value

The collection of a $2800 account within the 2 percent discount period will result in a debit to Sales Discounts for $56 credit to Cash for $2744 debit to Accounts Receivable for $2744 credit to Accounts Receivable for $2744

debit to Sales Discounts for $56

If a company fails to make an adjusting entry to record supplies expense, then: expense will be understated assets will be understated stockholders' equity will be understated net income will be understated

expense will be understated