Chapter 1, 2, 3, 4, 5, and 6

In order to calculate shrinkage:

a perpetual inventory system requires an occasional count of actual inventory.

A company reports Equipment on its classified balance sheet. The balance of the Accumulated Depreciation account appears on a classified balance sheet as:

a subtraction to arrive at the amount of Equipment, Net.

If Accounts Payable had a balance of $18,200 at the beginning of the month, and the six amounts shown below were posted to this account, what should be the ending balance?

$13,200

A company entered into the following transactions: - Borrowed $5,000 from the bank by signing a promissory note - Issued stock to owners for $10,000 - Purchased $1,000 of supplies, on account - Paid $400 to suppliers as payment on account for the supplies purchased What is the amount of total assets?

$15,600

A company started the current year with assets of $700,000, liabilities of $350,000 and contributed capital of $200,000. During the current year, assets increased by $400,000, liabilities decreased by $50,000 and contributed capital increased by $275,000. There was no payment of dividends to owners during the year. Based on this information, what was the amount of retained earnings at the beginning of the year?

$150,000

A company was recently formed with $60,000 cash contributed to the company by its owners. The company then borrowed $30,000 from a bank and bought $10,000 of inventory and paid cash for it. The company also purchased $70,000 of equipment by paying $10,000 in cash and issuing a note for the remainder. What is the amount of the total assets to be reported on the balance sheet?

$150,000

DigDug Corporation had outstanding checks totaling $5,400 on its June bank reconciliation. In July, DigDug issued checks totaling $38,900. The July bank statement shows that $26,300 in checks cleared the bank in July. The amount of outstanding checks on DigDug's July bank reconciliation should be:

$18,000.

A company incurred $2,000 for utilities for the last month of the year. The company has not paid this bill yet. Choose the TRUE statement.

$2,000 should be reported on the income statement as Utilities Expense.

A company began the year with assets of $100,000 and liabilities of $75,000. During the year assets increased by $12,000 and liabilities decreased by $9,000. What is the amount of the change in stockholders' equity during the year?

$21,000 increase

Inventory costing $3,000 is sold for $4,000 on terms 2/10, n/30. If the buyer pays within the discount period, what amount will be reported on the income statement as net sales?

$3,920

A company had the following assets and liabilities at the beginning and end of the current year: Stock was issued for $15,000 cash and dividends of $5,000 were paid during the year. What is the amount of net income for the year?

$34,000

Before reconciling its bank statement, Lauren Cosmetics Corporation's general ledger had a month-end balance in the cash account of $5,250. The bank reconciliation for the month contained the following items: Deposits in transit $750 Outstanding checks 465 Interest earned 20 NSF check returned to bank 100 Bank service charge 10 Given the above information, what up-to-date ending cash balance should Lauren report at month-end?

$5,160

The Tuck Shop began the current month with inventory costing $10,000, then purchased inventory at a cost of $35,000. The perpetual inventory system indicates that inventory costing $30,000 was sold during the month for $40,000. If an inventory count shows that inventory costing $14,500 is actually on hand at month-end, what amount of shrinkage occurred during the month?

$500

The following account balances appeared on the company's trial balance at year-end: Sales Returns & Allowances $500 Accounts Receivable 9,000 Sales Discounts 700 Sales Revenue 57,200 Selling, General, and Administrative Expenses 300 The amount of net sales reported on the income statement would be:

$56,000.

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Aldine Inc. as they appear on the company's adjusted trial balance. Accounts Payable $10,000 Accounts Receivable 11,000 Inventory 20,000 Advertising Expense 12,000 Cost of Goods Sold 89,000 Delivery Expense 6,000 Income Tax Expense 2,000 Insurance Expense 1,000 Rent Expense 12,000 Sales Revenue 160,000 Sales Discounts 11,000 Sales Returns & Allowances 19,000 Use the information above to answer the following question. Gross profit would be:

$71,000.

In the above statement of cash flows, what amount is represented by letter J?

($42,000)

A company has net sales of $612,850 and cost of goods sold of $441,252. The company's gross profit percentage is:

28%.

A company issues $20 million in new stock. It later uses the cash received to pay off promissory notes. How many different accounts and which account names are affected by these two transactions?

3 accounts involved: contributed capital, cash, and notes payable.

Which of the following would be listed as a current liability?

Accounts payable

Which account would be increased by a debit?

Accounts receivable

Which of the following is true about accrual basis accounting and cash basis accounting?

Accrual basis accounting provides a better measure of operating performance than does cash basis accounting

Which of the following statements about adjustments is not correct?

Adjusting entries affect the cash account.

Which one of the statements appearing below is correct regarding bank reconciliations?

After preparing a bank reconciliation, no journal entries need to be made for outstanding checks or deposits in transit.

Which of the following statements regarding the balance sheet is true?

All liabilities require that the company sacrifice resources at some time in the future.

A company borrows $2 million from its bank. It then uses this money to buy equipment. How does this transaction affect the accounting equation?

Assets and Liabilities both rise $2 million.

Which of the following statements about gross profit percentages is correct?

Because gross profit percentages are so variable across industries, they are more useful in analyzing one company over time.

Which of the following is a true statement?

Both revenue accounts and expense accounts are subsets of retained earnings.

Which of the following statements is true?

Both the income statement and the statement of cash flows show the result of a company's operating activities.

Which of the following would not appear as a possible liability on the balance sheet?

Contributed capital

Which of the following would not be reported on the Income Statement?

Cost of land, paid in cash, and purchased for future use.

Which of the following is an expense of this period?

Costs of items used up this period but paid for next period.

B. Darin Company purchased land at a cost of $15,000 and planned to se it to construct a new storage facility on the property. A short time later, the company changed its plans and sold the property to S. Dee Company for $15,000. S. Dee Company promised to pay cash in 60 days. Which of the following would be part of the journal entry by B. Darin Company to record the sale of the property?

Credit Land

Flynn Company's monthly bank statement showed the ending balance of cash of $18,500. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,500, outstanding checks of $2,000, a NSF check of $700, bank service charges of $30 and the EFT from a customer in payment of the customer's account of $1,500. Use the information above to answer the following question. What journal entry should be recorded by Flynn Company for the NSF check returned?

Debit Accounts Receivable and credit Cash for $700

BetterBuy uses a perpetual inventory system. BetterBuy sells a computer from inventory for $599 on credit. BetterBuy originally bought the computer from IBM for $395. What journal entry (entries) will BetterBuy prepare to record the sale?

Debit Accounts Receivable and credit Sales Revenue for $599; debit Cost of Goods Sold and credit Inventory for $395

On October 1, Robertson Company sold inventory in the amount of $5,800 to Alberta, Inc. with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses a periodic inventory system. Alberta pays the invoice on October 8 and takes the appropriate discount. What journal entry will be recorded by Robertson on October 8?

Debit Cash for $5,684, debit Sales Discounts for $116, and credit Accounts Receivable for $5,800

On July 1, Darin Company sold inventory costing $4,500 to Dee Company for $6,000, terms 2/10, n/30. Both companies use a perpetual inventory system. What journal entry will be recorded by Dee Company on July 1?

Debit Inventory and credit Accounts Payable for $6,000

This month, Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now. What journal entry will Grass is Greener record this month?

Debit supplies for $4,000 and credit cash for $4,000

Which of the following is not an expense?

Dividends.

Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and embezzlement.

False

General Motors (GM) signs a new labor agreement that its workers will receive a 5% wage increase next year. This is considered a transaction that affects GM's financial statements in the current year.

False

If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result.

False

If debits equal credits on the trial balance, it means that the accounting records do not contain any errors.

False

If the Retained Earnings account is debited for $4,000 in the closing process, the company had a net income of $4,000.

False

In a perpetual inventory system, only one journal entry is required to record the sale of inventory.

False

Sales discounts are discounts that consumers get from buying clearance items at a reduced price.

False

The components of an internal control system include control environment, risk assessment, control activities, information and communication, and rationalization.

False

The period of time from buying goods and services to collecting cash from customers is called the accounting cycle.

False

Which one of the following statements regarding sales discounts is correct?

If a company offers a discount to encourage prompt payment and the discount is taken, the discount reduces the amount of net sales.

Which of the following statements about a multistep income statement is not correct?

Income from operations = Income before income tax expense + Other revenues (expenses), net

In a perpetual inventory system, paying transportation charges on goods purchased FOB shipping point would have which of the following effects?

Increase Inventory

Which of the following accounts would be classified as a current liability on a classified balance sheet?

Interest Payable

An example of an account that could be included in an accrual adjustment for revenue is:

Interest Receivable.

A credit would make which of the following accounts decrease?

Inventories

Which of the following statements is true regarding accounting standards used in other countries?

More and more countries are using IFRS

Sales revenue equals $367,810, sales returns & allowances are $10,000, and sales discounts total $14,180. The cost of goods sold is $216,490, operating expenses are $28,500, and the company incurs $31,640 of income tax expense. Which of the following statements is correct?

Net sales equal $343,630 and gross profit is $127,140.

When preparing this month's bank reconciliation, you find that you failed to record a $95 deposit for a payment you received from a customer. You immediately prepare a journal entry to record the deposit. Which of the following describes the actions to be taken when preparing next month's bank reconciliation?

No further action is necessary.

A company billed a client for services performed on January 10. The customer paid one-half of the amount owed on January 20 and the other one-half on February 24. When should the company record the related Service Revenue?

On January 10

On June 30, a company purchased 1 year of insurance coverage which started immediately, paying cash of $2,400. Choose the true statement.

On the Income Statement for the year, insurance expense will be $1,200.

Which of the following is performed first at the end of each accounting period?

Prepare adjusting entries.

A company pays salaries and wages every two weeks. Salaries and wages amount to $100 a day and the company has a seven-day work week. On March 31, the company pays wages for the two weeks ending March 24 and recorded the related journal entry. The adjusting journal entry, dated March 31, to record unpaid wages and salaries owed since March 25 will include a debit to:

Salaries and Wages Expense and a credit to Salaries and Wages Payable for $700.

A company incurred $5,000 in salaries and wages for employees for the year; $4,500 of these salaries and wages had been paid by the end of the year. Which of the following statements about this situation is correct?

Salaries and Wages Payable on the balance sheet will be $500.

The cashier uses the cash register and its accompanying point-of-sale accounting system to perform three important functions. Which of the following is not one of those functions?

Segregate duties

Dividends are reported on the:

Statement of retained earnings.

Investors are often interested in the amount of net income distributed as dividends. In which section of the financial statements would investors look to find this amount?

Statement of retained earnings.

The E. Flynn Company started business by obtaining financing through debt financing and equity financing. Which of the following statements is FALSE?

The business is obligated to repay equity financing.

During June, the Grass is Greener Company mows 100 lawns a week and is paid in July by those customers. The company uses the accrual basis of accounting. How will these events affect the company's financial statements?

The income statement shows the effects of the transactions in June.

In a T-account, debits appear in what manner?

They are always listed on the left.

Which of the following represents a subtotal rather than an account?

Total Revenues.

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses.

True

If a company forgot to prepare an adjusting entry to record salaries and wages incurred but unpaid at the end of the period, Total Liabilities would be understated and Retained Earnings would be overstated on the Balance Sheet.

True

Internal controls include the policies and procedures a company implements to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.

True

The Sarbanes-Oxley Act (SOX) grants legal protection to 'whistle-blowers.'

True

The Sarbanes-Oxley Act (SOX) requires external auditors to test the company's internal control system.

True

The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks.

True

The list of names and reference numbers that the company will use when accounting for transactions is called the Chart of Accounts.

True

To evaluate a company's net profit margin, it is best to compare it to another company in the same industry.

True

When a company pays its rent in advance, an asset is reported on the balance sheet.

True

What is the minimum number of accounts that must be involved in any transaction?

Two

Which of the following accounts would be classified as a current liability on a classified balance sheet?

Unearned Revenue

Cash equivalents would include:

a 30-day bank certificate of deposit.

If an expense has been incurred but will be paid later, then:

a liability account is created or increased and an expense is recorded.

To calculate the company's income tax expense for the current period, it is necessary to know the company's:

adjusted income (before income taxes) and the company's tax rate.

When existing assets are used up in the ordinary course of business:

an expense is recorded.

Financing that individuals or institutions have provided to a company is

classified as liabilities when provided by creditors and stockholders' equity when provided by owners.

Companies that must comply with the requirements of the Sarbanes-Oxley Act (SOX) include all:

companies that trade on U.S. stock exchanges

A creditor might look at a company's financial statements to determine if the:

company is likely to have the resources to repay its debts.

The attitude that people in the organization hold regarding internal control is referred to as the:

control environment.

Assume that the custodian of a $450 petty cash fund has $62.50 in currency and coins plus $387.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include a:

credit to Cash for $387.50.

In January, a company pays for advertising space in the local paper for ads to be run during the months of January, February, and March at $1,500 a month. The payment would be recorded in January as a:

debit of $1,500 to Advertising Expense, a debit of $3,000 to Prepaid Advertising, and a credit of $4,500 to Cash.

In January, the Huntington Beach Resort (HBR) accepts your reservation and receives your $2,000 payment for a week of sun and fun in California during spring break. The $2,000 would be recorded by HBR during January as a:

debit to Cash and a credit to Unearned Revenue.

Seconds Best Retail Store receives and immediately pays a $3,500 utility bill from the City Gas & Electric Company. The entry by the City Gas & Electric Company to record receipt of this payment would include a:

debit to cash.

On a bank reconciliation, the amount of an unrecorded bank service charge is

deducted from the company's balance of cash.

All of the following bank reconciliation items would result in a journal entry on the company's books except:

deposits in transit.

Your company orders and receives supplies in January, pays for them in February, provides services that use those goods up in March and is paid by customers in April. Using the accrual basis of accounting:

expenses and revenues are recorded in March.

An investor might look at a company's financial statements to determine all of the following, except:

if the company's owners are financially sound.

If a company that uses a perpetual inventory system sold inventory which cost $1,000 for a selling price of $3,000, the accounting equation would show a net:

increase in assets and net increase in stockholders' equity.

Accounts receivable

is increased by a debit.

Financial statements are most commonly prepared:

monthly, quarterly and annually.

The three main types of business activities measured by financial statements are:

operating activities, investing activities, and financing activities.

The Whackem-Smackem Software Company sold $11 million of computer games in its first year of operations. The company received payments of $7.5 million for these computer games. The company's income statement would report:

sales revenue of $11 million.

At the end of the accounting period:

temporary accounts are closed; permanent accounts are not.

Net Income is

the amount by which revenues exceed expenses.

Every financial statement should have "who, what, and when" in its heading. These are:

the name of the company, the type of financial statement, and the time period or date from which the data were taken.

Conservatism is

the requirement that when faced with uncertainty about the numbers to report, accountants must use the least optimistic measure.

A dance studio accepts $1,500 to provide a series of dance lessons to a youth group during the month of July. The studio decides to record the revenue in July. The studio also decides to record the July expenses of rent, utilities and salaries in August, when it pays for them. One or both of these decisions:

violate the Expense Recognition (Matching) principle.

The Expense Recognition (Matching) principle indicates

when costs are recognized as expenses on the income statement.

A company buys footwear and clothing from manufacturers, which it resells to discount stores in a large urban area. This company is an example of a:

wholesale merchandising company.

A long-term liability is one that the company:

will not pay off for over one year.

Which one of the following would be listed as a long-term asset?

Buildings and equipment

Which of the following items appearing on a bank reconciliation require a journal entry to bring the Cash account up-to-date?

Check from customers returned as NSF

Stockholders are creditors of a company.

False

Accounting information systems:

capture and report the results of a business's operating, investing, and financing activities.

Each account is assigned a number and this listing of all accounts is called a

chart of accounts.