Financial Accounting BA211

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 20 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 5 quilts remained unsold. If Mountain Made uses LIFO periodic, its Cost of Goods Sold for the month is ______.

$3,780 Reason: This is LIFO Inventory, not Cost of Goods Sold. The cost of the 18 quilts sold equals 18 quilts x $210.

King Costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, King Costume purchased 40 additional masks for $12 each. At the end of the month, King counted its inventory and found that 5 masks remained unsold. If King Costume uses LIFO periodic, its Cost of Goods Sold for the month is ______.

$510 Reason: The cost of the 43 masks sold equals (40 masks x $12) + (3 masks x $10). Ending inventory equals the 5 remaining masks at $10 each or $50.

Buffy Inc., borrowed $50,000 from a bank, depositing those funds in its bank account and signing a formal agreement to repay the loan in two years. Which of the following statements is true with regards to this transaction? -The duality of effects does not apply to borrowing transactions. -Assets and liabilities increased. -Liabilities and stockholders' equity increased. -Assets, liabilities, and stockholders' equity increased.

Assets and liabilities increased.

What would be the effect of forgetting to record the adjusting entry for estimated bad debts?

Assets and stockholders' equity would be overstated.

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts

Which of the following is an example of an investing activity of a business? Issuing common stock Obtaining a loan Receiving an owner's investment of cash Purchasing office equipment

Purchasing office equipment

Which of the following reports net income relative to average common stockholders' equity?

ROE

Which of the following activities in the accounting cycle is in the correct order of occurrence?

Record a journal entry, summarize in T-accounts, prepare a trial balance

Which of the following are the steps followed by the allowance method?

Record the estimated bad debts in the period credit sales occur using an end-of-period adjustment. Write-off specific customer balances when they are known to be uncollectible.

When are revenues recorded under the accrual basis method of accounting?

When they are generated

In its first year of business, Wok 'n' Roll, Inc. provided $100,000 of goods to its customers of which $80,000 was collected. It also incurred $90,000 in expenses for which $80,000 was paid. Which of the following statements are correct?

Wok 'n' Roll should use accrual basis accounting for external reporting purposes to conform with GAAP and IFRS. and Wok 'n' Roll should report net income of $10,000 for external reporting purposes.

Prepaid expenses, such as Prepaid Rent, should be ______ by the benefits that were used up during the accounting period.

decreased

When accounting for accounts receivable, a primary objective is to ______.

not overstate assets and stockholders' equity by the estimated amount of bad debt

FIFO uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.

oldest; newest

Net Income is reported ______.

on both the income statement and statement of retained earnings

Creditors look at the balance sheet to see whether the company:

owns enough assets to pay what it owes to creditors.

Accrual adjustments are needed when the business:

pays cash after the expense has been incurred. and receives cash after the revenue has been generated.

Deferral adjustments are needed when the business:

pays cash before the expense has been incurred. or receives cash before the revenue has been generated.

Which inventory system requires that the inventory account be updated at the time merchandise is sold?

Perpetual system

Partnership

Business organization owned by two or more people. Each partner is personally liable for all debts of the business.

Left Side Decreases

Credit (Assets)

Cash on Balance Sheet equals

Ending Cash on Cash Flows

Transactions are recorded with

Journal entries

Which are 3 common misconceptions users of an income statement may have?

Net Income does not include estimates. Net Income reports all changes of value that occurred during the accounting period. Net Income equals Cash.

Which of the 2 profitability ratios come right from the common size income statement?

Net profit margin Gross profit percentage

FOB Destination

Seller pays shipping cost

Which of these will require a credit to the inventory account in a perpetual inventory system? (Check all that apply.)

Selling inventory on account Selling inventory for cash

Breyer Company bought inventory from Solar Company, FOB destination. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected to arrive until January 2. Which company should include these goods in its December 31 inventory?

Solar

Sony, Inc. uses an accelerated depreciation method while GE, Inc. uses straight-line depreciation. Which of the following is more likely to be true, if both companies invest $400 million this year in new equipment?

Sony, Inc. may show a lower times interest earned because its net income may be lower due to higher depreciation expense.

Which of the following is the source of the Retained Earnings amount that is shown on the balance sheet?

Statement of retained earnings

Stockholders' (Owner's) Capital Account Debit (+) Decrease Side (None)

Stockholders' (Owner's) Capital Account Credit (-) Increase Side Equity Retained Earnings Capital Stock Income Summary

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

The receipt of an interest payment for interest previously recorded

Which of the following are advantages of using national credit cards? (Check all that apply.)

avoid lengthy cash collection periods reduction of bad debts expense

The adjusted trial balance should be prepared ______ the financial statements are prepared to prove the ______ of the debits and credits.

before; equality

Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided

but not yet collected.

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit _______.

decreases

Transactions are analyzed and and their financial effects are entered in a _________ each day they occur

journals

A _______ is a collection of entries that summarizes, for each account, the effects of transactions entered in the journal

ledger

Profits that have accumulated in the company over time are ______ earnings.

retained

The net profit margin ratio is calculated by dividing net income by ______.

revenue

is the quantity sold times the price charged from selling goods or services to customers.

revenue or sales

_______ are earned by selling goods or services to customers.

revenues

Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______. (Check all that apply.)

sales to decrease bad debt expense to decrease

The fees charged by major credit card companies are included in ______.

selling expenses on the income statement

A multistep income statement is useful to financial statement users because it ______. (Select all that apply.)

separates income statement items into meaningful components separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

The purchaser of inventory pays for shipping if the shipping terms are FOB ______.

shipping point

A classified balance sheet ______.

shows subtotals for current assets and current liabilities

On May 1, there were 4 inventory items that cost $30 each. On May 5, 2 items were purchased for $35 each. Given one item from the beginning inventory and one from the May 5 inventory were sold, under the ___________ ___________ inventory method, cost of goods sold would equal $65.

specific identification

The ending retained earnings balance appears on the:

statement of retained earnings. balance sheet.

The costs of carrying inventory include the costs of ______. (Check all that apply.)

storage spoilage obsolescence theft

A trial balance is prepared ______.

to check that debits equal credits

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____. (Select all that apply)

total assets to decrease total liabilities to decrease

True or false: Operating activities are the primary sources of revenue and expenses involved in running a business.

true

Ending inventory errors in 2019 ______.

will affect the 2020 goods available for sale but will not affect the 2020 ending inventory

When a company sold its equipment, it recorded a $10,000 debit to Cash and $40,000 debit to Accumulated Depreciation and a $48,000 credit to Equipment and $2,000 credit to Gain on Disposal. What will be the amount reported in the investing activities section of the statement of cash flows?

$10,000 The investing activities section will report the cash received from the sale, which is a $10,000 inflow. The Gain on Disposal will be a subtracted from net income in the operating activities section if the indirect method is used.

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 7 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 2 quilts remained unsold. If Mountain Made uses periodic weighted average cost, its Cost of Goods Sold for the month is ______.

$1656 Reason: This is weighted average ending inventory, not cost of goods sold. The weighted average cost per quilt equals ((3 x $200) + (7 x $210))/10 which is then multiplied the 8 quilts sold to get cost of goods sold.

Delta Diamonds had 5 diamonds available for sale this year: June 1 - purchased 1 for $500; July 9 - purchased 2 for $550 each; and on September 23 - purchased 2 for $600 each. On December 24, it sold 1 of the diamonds. Using LIFO periodic, its ending inventory is ______.

$2,200

Harlow Industries reported net income of $24,000 for the current year. During the year, Inventory decreased by $7,700, Accounts Payable decreased by $8,350, Depreciation Expense was $10,700, and Accounts Receivable increased by $7,200. If the indirect method is used, what is the net cash provided by operating activities?

$26850 Net Income 24000 Add: Depreciation 10700 Less: Increase in AR 7200 Add: Decrease in Inventory 7700 Less: Decrease in AP 8350 ------- Cash Flow from Operating Activities26850

The Cash T-account had a beginning balance of $1,000, debits during the period totaling $10,000, and credits during the period totaling $6,000. What is the ending balance of the Cash account?

$5,000

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using periodic specific identification, its Cost of Goods Sold is ______.

$550

Dover Co.'s comparative balance sheet indicated that the Equipment account increased by $40,000. Dover purchased equipment totaling $70,000 for cash during the year and sold equipment with an original cost of $30,000 for $8,000 cash. Assuming these are the only transactions affecting the investing activities, Dover will report net cash flows from investing activities of

$62000 Cash is decreased by $70,000, but cash of $8,000 is also received for the sale of equipment.

Willette Company reported the following information at December 31, Year 1: Accounts Payable - $4,500 Accounts Receivable - 9,350 Cash - 23,490 Common Stock - 90,000 Equipment - 49,500 Inventory - 31,200 Notes Payable due December 31, Year 3 - 2,500 Retained Earnings, December 31, Year 1 - 14,090 Salaries and Wages Payable - 2,450 What is the amount of current assets on the classified balance sheet?

$64,040 Current assets = Cash + Accounts receivable + Inventory Current assets = $23,490 + $9,350 + $31,200 = $64,040

Which of the following are expected by investors? -A return on their contributions to the company -Immediate returns through dividends -Long-term returns through selling their stock certificates at a price higher than their original cost -That the company has enough assets to cover its liabilities

-A return on their contributions to the company -Immediate returns through dividends -Long-term returns through selling their stock certificates at a price higher than their original cost

Which of the following statements are true with regards to asset accounts? -Assets are on the left-side of the accounting equation. -Assets are on the right-side of the accounting equation. -Assets are increased with debits. -Assets are increased with credits. -Assets are decreased with debits. -Assets are decreased with credits.

-Assets are on the left-side of the accounting equation. -Assets are increased with debits. -Assets are decreased with credits.

Ethical conduct process

-Identify who is affected -Identify and eval courses of action -Choose most ethical

Accounting benefits which departments

-Production/operations -Human resources -finance -marketing

Which of the following statements are true with regards to journal entries? -A journal entry includes one debit and one credit. -Accounts being debited are slightly indented below the accounts being credited. -The accounts that are debited in the transaction are followed by the accounts that are credited in the transaction. -The left column for dollar amounts is used for debits. -The right column for dollar amounts is used is for debits.

-The accounts that are debited in the transaction are followed by the accounts that are credited in the transaction. -The left column for dollar amounts is used for debits.

Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock from Stockits for $5 per share. Which statements are true regarding the effect of this transaction on Stockits' financial statements?

-The financing activities section on the statement of cash flows increases -Stockholders' equity on the balance sheet increases

Indicate how each of the following transactions on June 30 affect the company's financial statements. On June 30, The Corner Café paid cash for insurance for the six-month period that covers the last two quarters of the year. On June 30, Corner Café paid in wages to employees who worked during the last week of June. On June 30, Corner Café received a bill for electricity used during June. The company will not pay the bill until shortly before its due date in July.

1. An asset (other than Cash) on the balance sheet is increased. 2. An expense on the income statement is increased. 3. A liability on the balance sheet and an expense on the income statement are both increased.

(2 of 2) Put the steps involved with accounting for business activities in order.

1. Analyze Transaction 2. Record journal entry 3. Post to ledger

Accounting Cycle (Detailed)

1. Analyze transaction: Transactions are analyzed and recorded in the journal 2. Journalize the data about transactions: Transactions are posted to the ledger 3. Post the data about transactions: A trial balance is prepared, adjusted date are assembled, and an optional worksheet is completed 4. Prepare a worksheet: Financial statements are prepared 5. Prepare financial statements: Adjusting entries are journalized and posted to the ledger 6. Journalize & post adjusting entries: Closing entries are journalized and posted to the ledger 7. Journalize & post-closing entries: A post-closing trial balance is prepared 8. Prepare a post-closing trial balance

Timing of public reporting

1. press releases 2. reports 3. SEC filings

Net sales revenue is $720,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio.

12.0 times

Based on an aging of accounts receivables, management assigned 1% to the $100,000 of receivables 0-30 days outstanding, 5% to the $10,000 receivables 31-60 days and 20% to the $1,000 of receivables over 60 days. After making the adjusting entry the balance in the Allowance for Doubtful Accounts will equal

1700

In which company would you rather invest?

A company with high gross profit percentage and high sales volume

What does the gross profit percentage tell you?

A higher ratio means that more is available to cover operating expenses.

Which of the following statements about revenues are true? A. Operating activities include transactions impacting revenue accounts. B. Revenues are the amounts a business charges its customers for services it provides or goods it sells to them. C. Revenue is reported when the company is paid by the customer. D. Revenue is reported when the company fulfills its promise to transfer control of a good or service to a customer.

A, B, D

Under accrual basis accounting, if a company delivers a product on account to the customer, which of the following is reported by the company? A. An asset on the balance sheet B. An expense on the income statement C. A liability on the balance sheet D. A revenue on the income statement

A, D

Jaworski's Ski Store is completing the accounting process for its first year ended December 31, 2021. The transactions during 2021 have been journalized and posted. The following data are available to determine adjusting journal entries: A. The unadjusted balance in Supplies was $950 at December 31, 2021. The unadjusted balance in Supplies Expense was $0 at December 31, 2021. A year-end count showed $120 of supplies on hand. B. Wages earned by employees during December 2021, unpaid and unrecorded at December 31, 2021, amounted to $4,700. The last paychecks were issued December 28; the next payments will be made on January 6, 2022. The unadjusted balance in Salaries and Wages Expense was $50,000 at December 31, 2021. C. A portion of the store's basement is now being rented for $1,200 per month to K. Frey. On November 1, 2021, the store collected six months' rent in advance from Frey in the amount of $7,200. It was credited in full to Deferred Revenue when collected. The unadjusted balance in Rent Revenue was $0 at December 31, 2021. D. The store purchased delivery equipment at the beginning of the year. The estimated depreciation for 2021 is $3,000, although none has been recorded yet. E. On December 31, 2021, the unadjusted balance in Prepaid Insurance was $3,600. This was the amount paid in the middle of the year for a two-year insurance policy with coverage beginning on July 1, 2021. The unadjusted balance in Insurance Expense was $900, which was the cost of insurance from January 1 to June 30, 2021. F. Jaworski's store did some ski repair work for Frey. At the end of December 31, 2021, Frey had not paid for work completed amounting to $850. This amount has not yet been recorded as Service Revenue. Collection is expected during January 2022.

A. Supplies Expense $830 Supplies $830 ($950-$120=$830) B. Salaries and Wages Expense $4700 Salaries and Wages Payable $4700 C. Deferred Revenue $2400 Rent Revenue $2400 ($1200*2=$2400) D. Depreciation Expense $3000 Accumulated Depreciation $3000 E. Insurance Expense $900 Prepaid Expense $900 F. Accounts Receivable $850 Service Revenue $850

Which of the following is true regarding depreciation of equipment?

Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet. Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date.

Numeric Company uses the periodic inventory method and had no beginning inventory. The company purchased 7 units of inventory at $8 per unit during January, 5 units of inventory at $10 per unit during February, and 6 units of inventory at $11.00 per unit during June. The company sold 6 units of inventory during October. There were no additional purchases or sales during the remainder of the year. If Numeric Company uses the weighted average method, what is the cost of its ending inventory?

Add up cost of inventory before sales: (7*8)+(5*10)+(6*11)= 172 Find average cost per unit before sale: 172 / (7+5+6) = 9.55 6 units were sold at avg cost of 9.55 each: 6*9.55 = 57.33 <<Cost of inventory sold Subtract cost of inventory sold from previous total inventory cost of 172: 172-57.33=114.67 round up to nearest dollar Answer: $115

Why are the adjustments important to the preparation of the financial statements?

Adjustments ensure the revenues the seller has performed of its obligation and expenses incurred are reflected in the income statement. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes.

Buffy Inc., issued shares of common stock to investors in exchange for cash contributions. Which of the following statements is true with regards to this transaction? -The duality of effects does not apply to incorporation transactions. -Assets and liabilities increased. -Assets and stockholders' equity increased. -Assets, liabilities, and stockholders' equity increased.

Assets and stockholders' equity increased.

Buffy Inc purchases and receives equipment totaling $8,000 in exchange for $8,000 cash. Which of the following statements is true with regards to this transaction? -Assets increase. -Assets and liabilities increased. -Assets and stockholders' equity increased. -Assets, liabilities, and stockholders' equity were not affected.

Assets, liabilities, and stockholders' equity were not affected.

Knelling Company reported a balance in Accounts Receivable of $50,000 and a credit balance of $3,000 in the Allowance for Doubtful Accounts. The company's aging of accounts receivable determined $12,000 to be uncollectible. Prepare the end-of-period adjusting entry to record bad debt expense.

Bad debt expense 9,000 allowance for doubtful accounts 9,000 Reason: 12000 (uncollectible) - 3000 (credit balance in the allowance for doubtful accounts) = 9000

Aircard Corporation tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period as if it uses a periodic inventory system. The following are the transactions for the month of July. Units Price per unit July 1 Beginning Inventory 2,000 45 July 5 Sold 1,000 July 13 Purchased 6,000 49 July 17 Sold 3,000 July 25 Purchased 8,000 51 July 27 Sold 5,000 Calculate the cost of goods available for sale, ending inventory, and cost of goods sold if Aircard uses (a) FIFO, (b) LIFO, or (c) weighted average cost. (Round "Cost per Unit" to 2 decimal places.)

Beginning Inventory for all: $792,000 Ending Inventory and Cost of Goods Sold: a. First-In, First-Out: Ending Inventory: (7,000 units × $51) = $357,000 Cost of Goods Sold: (2,000 units × $45) + (6,000 units × $49) + (1,000 units × $51) = $435,000 b. Last-In, First-Out: Ending Inventory: (2,000 units × $45) + (5,000 units × $49) = $335,000 Cost of Goods Sold: (8,000 units × $51) + (1,000 units × $49) = $457,000 c. Weighted Average Cost: Average Unit Cost: $792,000 ÷ 16,000 = $49.50 per unit Ending Inventory: (7,000 units × $49.50) = $346,500 Cost of Goods Sold: (9,000 units × $49.50) = $445,500

ABC Corp. sells a product for $1,000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system include a debit to ______.

Cash of $1,000 and a credit to Sales Revenue of $1,000; a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600

Examples of assets

Cash, supplies, furniture, equipment.

Which of the following should be classified as stockholders' equity? (Check all that apply.)

Common Stock, Retained Earnings

Which of the following enhance the usefulness of financial information? Absolute Comparable Representative Timely Understandable

Comparable Timely Understandable

What effect does the inventory costing method have on the income statement? The inventory methods affects the amount of the ______.

Cost of Goods Sold, Gross Profit, Income from Operations, Income before Income Tax Expense, Income Tax Expense and Net Income

Right Side Increases (Assets = Liabilities + Equity)

Credit (Liabilities, Equity)

Berry Dive Shop receives a total of $500 today from its customer for scuba diving lessons. The lessons begin in the next fiscal year. Which of the following describes how the company will account for this transaction?

Credit Deferred Revenue for $500.

Neeta Landscaping Company provides lawn care services to a customer and immediately receives $45. Which of the following describes how the company will account for this transaction?

Credit Service Revenue for $45.

Brown Company prepared a tax return for a client and sent that client a bill for $750. Which of the following describes how Brown Company will account for the fee relating to this work?

Credit Service Revenue for $750.

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?

Credit card companies charge fees that reduce profits.

Which of the following statements is true about an unadjusted trial balance? A. An unadjusted trial balance is prepared to ensure no recording errors have been made. B. Balance sheet accounts are listed after income statement accounts on an unadjusted trial balance. C. t is an internal report prepared after end-of-period adjustments. D. It lists the balance of each account to check the equality of total debits and credit.

D. It lists the balance of each account to check the equality of total debits and credit.

Right Side Decreases

Debit (Liabilities, Equity)

During May, Aldine Company advertised its products and received a bill, dated May 31, for $2,000 to be paid during the following month. Which of the following describes how Aldine will account for the receipt of the bill for advertising services?

Debit Advertising Expense for $2,000.

What is the entry a company records at the time it issues a $1,000, 6% note to one of its employees that the employee needs to repay in 6 months? (Select all that apply.)

Debit Notes Receivable Credit Cash

Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.)

Debit Rent Expense

On June 30, Manning Company wrote checks to employees, totaling $1,500 for wages related to hours worked in June to provide services to its customers. Which of the following describes how Matisse will account for the payment to employees?

Debit Salaries and Wages Expense for $1,500.

The adjusting entry to record depreciation, includes a debit to ________ _________ and a credit to ______ _______

Depreciation Expense, Accumulated Depreciation

Dividends/ Owner's Drawing Account Debit (+) Increase Side Dividends Owners Withdrawals

Dividends/ Owner's Drawing Account Credit (-) Decrease Side (None)

Which of the following questions are of primary interest to a company's creditors? Does the company have enough assets to cover its liabilities? How long has the company been operating? Is the company is generating enough cash to pay what it owes? Is the company profitable?

Does the company have enough assets to cover its liabilities? Is the company is generating enough cash to pay what it owes?

Madison Shoes manufactures athletic shoes and sports apparel. Assume the following activities occurred during a recent year. The dollar amounts in (a) and (b) are presented "in millions," and the dollar amount in (c) is per share. When reporting amounts "in millions," exclude the 000,000. Purchased $224 in equipment; paid by signing a $7 long-term note and fulfilling the rest with cash. Issued $23 in additional common stock for cash contributions made by stockholders. Several Madison Shoes investors sold their own stock to other investors on the stock exchange for $150 per share of stock. Required: For each of these events, perform transaction analysis and indicate the account, amount (in millions), and direction of the effect on the accounting equation. Check that the accounting equation remains in balance after each transaction. Which statement best describes transaction (c)? Did these transactions change the extent to which Madison Shoes relied on creditors versus stockholders for financing?

Equipment (+A) $224 Cash (-A) $217, Notes Payable Long term (+L) $7 Cash (+A) $23, Common Stock (+SE) $23

Under accrual basis accounting, which of the following is required by the expense recognition principle?

Expenses are recognized in the same period as the revenues to which they relate.

Financial reports go to...

External users such as investors, creditors, government and directors.

Which of the following is not reported on a multistep income statement? Cost of goods sold Gross profit Inventory Sales revenue

Inventory

Which of the following statements concerning inventory is correct?

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000. After the adjustment, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

Less than. Reason: The aging method specifies the desired ending balance in the Allowance account. The amount of the entry will depend on what the unadjusted balance in the Allowance is. The aging method specifies the desired ending balance in the Allowance account needs to be $90,000. The $1,000 unadjusted credit balance in the Allowance for Doubtful Accounts needs to be increased by $89,000 to get to the desired $90,000 credit Allowance for Doubtful Accounts balance on the balance sheet. The adjusting entry recorded to arrive at the desired balance requires a debit to Bad Debt Expense (+E,-SE) and credit to Allowance for Doubtful Accounts (+xA,-A) of $89,000.The expense will only be $89,000 because there is a $1,000 credit balance remaining in the Allowance account before adjustment.

If using LIFO, GAAP requires you compare inventory cost to

Market value

Which of the following is correct? Net income equals the amount of cash generated by the business during the reporting period. Net income represents the change in the market value of the company's stock during the period. Measurement of net income involves estimations.

Measurement of net income involves estimations.

If using FIFO, GAAP requires you compare inventory cost to

Net realizable value

______ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales ______

Net, Discount

Examples of liabilities

Notes payable, accounts payable

A company has 12.50 million shares of $5.50 par common stock and 2.3 million shares of $5.30 par preferred stock outstanding. The preferred stock has an 11% dividend rate. The company declares $430,000 in total dividends for the year. Which of the following is correct if the preferred stockholders only have a current dividend preference?

Preferred stockholders will receive the entire $430,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing.

Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $89,000 and Cost of Goods Sold of $458,000. A. Included in Inventory (and Accounts Payable) are $13,800 of lenses SLC is holding on consignment. B. Included in SLC's Inventory balance are $6,900 of office supplies held in SLC's warehouse. C. Excluded from SLC's Inventory balance are $9,900 of lenses in the warehouse, ready to send to customers on January 2. SLC reported these lenses as sold on December 31, at a price of $18,800. D. Included in SLC's Inventory balance are $3,950 of lenses that were damaged in December and will be scrapped in January, with zero realizable value. Required: Prepare the table showing the balances presently reported for Inventory and Cost of Goods Sold, and then displaying the adjustment(s) needed to correctly account for each of items (a)-(d), and finally determining the appropriate Inventory and Cost of Goods Sold balances. (Enter any decreases to account balances with a minus sign.)

Present Balance: $89,000, $458,000 A. (13,800), (Leave blank) B. (6,900), (Leave blank) C. 9,900, (9,900) D. 3,950, (3,950) Appropriate Balance: $74,250, $452,050

Which of the following activities is not a category reported on the Statement of Cash Flows? Investing activities Financing activities Profit activities Operating activities

Profit activities

Puffin Turnovers, Inc.'s fixed asset turnover was 0.9 while Muffin Tops, Inc.'s fixed asset turnover was 0.6. Which of the following is true about Puffin compared with Muffin?

Puffin generated more sales per dollar of fixed assets.

Which of the following is increased with a credit? Net Income Sales Revenue Rent Expense Salaries and Wages Expense

Sales Revenue

Place the income statement line items in the proper order from the top to bottom.

Sales Revenue, gross Sales Returns and Allowances Sales Revenue, net Cost of Good Sold Gross Profit

Which statement is true?

Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.

Which of the following financial statements reports changes the amount of net income and dividends declared during the period? Balance sheet Balance sheet and income statement Statement of retained earnings Balance sheet and statement of retained earnings

Statement of retained earnings

Which of the following statements about deferral adjustments are true?

They are used to decrease balance sheet accounts and increase corresponding income statement accounts. and Each deferral adjustment involves one asset and one expense account or one liability and one revenue account.

Which of the following statements about accrual adjustments are true?

They are used to increase balance sheet accounts and increase corresponding income statement accounts. AND Each accrual adjustment involves one asset and one revenue account or one liability and one expense account.

Which of the following statements about the Accumulated Depreciation account are true?

This contra-account is subtracted when determining total assets on the balance sheet. It is a balance sheet account. Its balance increases each year.

What are the effects on the financial condition of the business from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected?

Total assets will increase and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjustment for which the seller has satisfied the performance obligation to its buyers during the accounting period that had previously been recorded as a liability?

Total liabilities will decrease and total stockholders' equity will increase.

Which of the following line items would be found on a statement of stockholders' equity that would not be on the statement of retained earnings?

Treasury Stock Common Stock Additional Paid-in Capital

True or false: An income statement in comparative format means that more than one year's results are reported.

True

True or false: Both the periodic and perpetual systems require a credit to Accounts Payable when inventory is purchased on account.

True

True or false: Creditors would like a company that owes them money to have a large positive cash flow from operating activities.

True

True or false: GAAP require end-of-period adjustments for the estimated bad debts in the period of the credit sale even though the specific, non-paying customers have not yet been identified.

True

True or false: In a periodic inventory system, Cost of Goods Sold is recorded at the end of the accounting period.

True

True or false: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items.

True

True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

True

What is the best place to begin to identify accounts that need adjustments?

Unadjusted trial balance

The format of income statements that report results for more than one year is referred to as a(n) _______ format. This format allows for comparisons of income statement line items over time by providing amounts for consecutive years.

comparative

When a company issues of shares of $0.10 par value common stock for $10 per share, it will record a ___________ .

credit to Additional Paid-in Capital for the difference between the $10 price and the $0.10 par value

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ______. (Check all that apply.)

credit to Allowance for Doubtful Accounts debit to Bad Debt Expense

A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.

credit; decrease

Which of the following is a possible explanation for an increase in the fixed asset turnover from one year to the next? A significant ______ during the year.

decrease in fixed assets during the year

On September 1, Year 1, Hales Company paid its rent in advance for the months of October, November, and December. On December 31, Year 1, Hales made the required adjustment to adjust its accounts. How does this year-end adjustment impact the amounts reported on the company's financial statements?

decreases an asset, increases an expense

FOB ______ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business.

destination

____ operations result from a strategic shift, such as abandoning or selling a major business component.

discontinued

A distribution of a company's accumulated prior earnings is a(n)

dividend

Similar to a stock split, a stock _______ also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

Profits earned by a company that are paid to stockholders are called _________.

dividends

Earnings per share (EPS) may be determined by ______. (Check all that apply.)

dividing the stock price by the P/E ratio dividing net income less preferred dividends by the average common shares outstanding

_______ per share equals Net Income divided by the average shares of common stock ______

earnings, outstanding

Retained Earnings

equity earned by the company

Common Stock

equity paid in by stockholders

A company's Bad Debt Expense reports the ______.

estimated amount of this period's credit sales that customers will fail to pay

If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ______.

estimated amount of uncollectibles was greater than the amounts actually written off

Adjustments help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

Assets, on the balance sheet, provide future benefits for a company, while _________ , on the income statement, are used-up benefits.

expenses

True or false: A profitable company will record more debits than credits.

false Debits must always equal credits.

True or false: The unadjusted trial balance reports the increases and decreases in each account that occurred during the accounting period.

false A trial balance lists all the accounts with their current unadjusted balances and indicates whether the total debits equals total credits for all of the accounts.

An increase in a company's inventory balance from a prior year is ______.

good if the inventory turnover ratio is higher

Common stock's par value ______. (Check all that apply.)

has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies affects how common stock is recorded was introduced to prevent bankrupt companies from unfairly distributing company resources

Investors who acquire preferred stock ______. (Check all that apply.)

have preference as to dividends have preference over common stockholders

A ______ inventory turnover ratio may result in a reduction in storage and obsolescence costs as well as reduced borrowing.

higher

The purchase of $118,000 of equipment by issuing a note would be reported:

in a supplementary schedule.

Which financial statement reports the financial performance of the business during the current accounting period?

income statement

The line item Net Income appears on the ______.

income statement statement of retained earnings

On December 31, Year 1, Chaco made the required adjustment to adjust its accounts for services that were performed on account during the last week of the month but have not yet been recorded. How does this year-end adjustment impact the amounts reported on the company's financial statements?

increases asset and revenue

On December 31, Year 1, Chaco made the required adjustment to adjust its accounts to accrue salaries and wages expense. How does this year-end adjustment impact the amounts reported on the company's financial statements?

increases liability and expense

Events that do not involve exchanges between the company and someone else but affect assets, liabilities and/or stockholders' equity are called ______ events.

internal

A ______ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company.

multistep

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly recorded a $5,000 sale on account, but forgot to record the related cost of the sale of $3,000. As a result of this error, ______. (Check all that apply.)

net income will be too high total assets will be too high

A receivable write-off removes a non-paying customer's account receivable and ______.

removes the same amount from Allowance for Doubtful Accounts

The unit of measure assumption

results of business activities should be reported in an appropriate monetary unit

Profits earned by a company that have not been paid to stockholders at the end of an accounting period are called _______ earnings.

retained

Statement of Cash Flows

summarizes how a business is operating, investing and financing.

Bad Debt Expense is a ______.

temporary account so its balance is closed (zeroed out) at the end of the accounting period

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

In May, Pasta Disasta, Inc. pays its suppliers $1,000 for supplies received in April. The effect on the accounting equation is a ______.

$1,000 decrease in assets $1,000 decrease in liabilities

In June, Cellars, Inc. collected $1,000 from a customer in advance. In July, Cellars completed the first half of the job. In August, Cellars completed the work. If Cellars uses the cash basis of accounting, it will record revenues of ______.

$1,000 in June when the cash is collected

XYZ Co. sold equipment that originally cost $14,000 with accumulated depreciation of $11,000 for $4,000 cash, resulting in a gain of $1,000. Which of the statements below are correct regarding the treatment of this transaction on the statement of cash flows for the current period? (Check all that apply.)

$1,000 is deducted from operating activities. $4,000 is a cash inflow in investing activities.

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

Using the aging approach, management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the bad debt adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

A company bought $450,000 of equipment with an expected life of 14 years and no residual value. After 10 years the company sold the equipment for $100,500. If the company uses straight-line depreciation and the indirect method is used to determine cash flows from operating activities, which of the following reflects how the sale of the equipment would be reported in the statement of cash flows?

$100,500 is recorded as a cash inflow from investing activities and $28,071 is added to convert net income to net cash flow provided by operating activities.

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. Market values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. CurlZ should report its inventory at ______.

$1000 Reason: The lower-of-cost-or-market rule requires the DyeZ boxes be recorded at the lower market value of $8 instead of the higher cost of $10. Thus, Inventory equals $1,000 (=(200 bottles x $1) + (100 boxes x $8)).

Constable Company reported the following information at December 31, Year 1: Accounts Payable$ 4,540 Accounts Receivable 9,390 Cash 23,890 Common Stock 90,400 Equipment 49,900 Inventory 31,600 Notes Payable due December 31, Year 32,540 Retained Earnings, December 31, Year 114,130 Wages Payable 3,170 What is the total of the credit balance accounts?

$114,780

At its December 31 year-end, Accounts Receivable totaled $86,600, aged as follows: (1) 1-30 days old, $71,000; (2) 31-90 days old, $12,000; and (3) more than 90 days old, $3,600. Experience has shown that for each age group, the estimated uncollectible is (1) 12%, (2) 24%, and (3) 48%, respectively. What is the balance to which the Allowance for Doubtful Accounts will need to be adjusted at the end of the period?

$13,128 [(71000x0.12)+(12000x.24)+(3600x.48)] = 13128

The Notes Payable T-account had a beginning balance of $7,000, debits during the period totaling $5,000, and credits during the period totaling $15,000. What is the ending balance of the Notes Payable account?

$17,000

Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using first-in, first-out, Cost of Goods Sold equals ______.

$30

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

$30,000 Reason: Goods available for sale equals $30,000 (= beginning inventory of $5,000 plus purchases of $25,000).

The net income for Year 1 (the first year of operations for the company) was $20,700 and dividends of $12,350 were paid. In Year 2, the company reported net income of $34,700 and paid dividends of $5,350. At the end of Year 1, the company had total assets of $157,000. At the end of Year 2, the company had total assets of $247,000. What is the amount of retained earnings at the end of Year 2?

$37,700

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

$4,900

The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.

$80,000 The recorded value of the brick house equals $80,000 or ($100,000/($40,000 + 60,000 + 100,000)) x $160,000.

A company was formed with $61,500 cash contributed by its owners in exchange for common stock. The company borrowed $31,500 from a bank. The company purchased $11,500 of inventory and paid cash for it. The company also purchased $71,500 of equipment by paying $10,000 in cash and issuing a note for the remainder. What is the amount of the total liabilities to be reported on the balance sheet?

$93,000

Assume that a journal entry with a debit to Equipment for $8,000 and a credit to Cash for $8,000 is recorded in the journal. What should be done next?

-A debit of $8,000 should be posted to the Equipment account in the ledger. -A credit of $8,000 should be posted to the Cash account in the ledger.

Accumulated Deficit ______. (Check all that apply.)

-indicates accumulated net losses -means that retained earnings has a debit balance -is shown in parentheses on the balance sheet

Pros for going public

-keeps money from issuing shares -can raise more money by releasing more shares -can pay employees with shares -holders and given a way to sell shares -can purchase other companies with shares instead of cash

Cons for going public

-more public reporting of events affecting company -increased accounting disclosures -higher risk of litigation for misstatements and omissions

Which of the following is the typical sequence of accounting for sales made on account using the allowance method? Place in order of occurrence from top to bottom.

1. Accounts Receivable are debited 2. Bad Expense is estimated 3. Specific customer balances are written off

Suppose your company sells services for $385 cash this month. Your company also pays $190 in salaries and wages, which includes $75 that was payable at the end of the previous month and $115 for salaries and wages of this month.

1. Calculate the amount that should be reported as net cash flow from operating activities. 2. Calculate the amount that should be reported as net income. 3. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).

Match the financial statement line item with the appropriate description. 1. Inventory 2. Sales Revenue 3. Cost of goods sold 4. Gross Profit

1. Current asset on the balance sheet available for sale 2. Selling price times the quantity sold 3. Cost times the quantity sold 4. A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Revenue Recognition Principle Steps

1. Identify the contract 2. Identify the seller's performance obligation(s) 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation(s) 5. Recognize revenue when (or as) each performance obligation is satisfied

(1 of 2) Put the steps involved with accounting for business activities in order.

1. Picture the documented activity 2. Name what's exchanged 3. Analyze

List the steps in the accounting cycle in chronological order.

1. Record a journal entry 2. Summarize in the ledger (T-accounts) 3. Prepare an unadjusted trial balance 4. Adjust the accounts 5. Prepare financial statements 6. Close the books

An understatement of the 2019 ending inventory will affect ______. (Check all that apply.)

2019 Cost of Goods Sold 2020 Cost of Goods Sold 2020 Beginning Inventory

Gresham Foods Inc. reported net sales of $300,000 and cost of goods sold of $225,000. What is its gross profit percentage?

25%

On July 1, Year 1, the Barley Company loaned $50,000 to the Jackson Co. The note has a stated interest rate of 10% and will mature on June 30, Year 2. All payments for principal and interest will be received at maturity. How much interest revenue will Barley report on its income statement for the year ended December 31, Year 1?

2500 50000*0.1*(6/12)=2500

Net sales revenue is $730,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the days to collect.

30 days Reason: Days to collect=365 days/accounts receivable turnover. Days to collect equals 30 days (=365/($730,000/(($62,000+$58,000)/2)),

Percent of Organizational Types

72% - Sole Proprietorship 18% - Corp 6% - LLC 4% - Partnerships

Under accrual basis accounting, if cash is received from the customer before the product is delivered to that customer, in addition to the cash that is received, which of the following is reported by the company?

A liability on the balance sheet

Under accrual basis accounting, if cash is received from the customer when the product is delivered to that customer, in addition to the cash that is received, which of the following is reported by the company?

A revenue on the income statement

Corporation

A separate legal entity. Owners of corporations (stockholders) are not personally liable for debts of the corporation.

Which of the following statements about financial statements are true? A. The balance sheet takes stock of what exists at a point in time. B. Balance sheet accounts are considered permanent. C. Income statement accounts are considered temporary. D. Items on the income statement will continue to have a financial impact beyond the end of the current period.

A, B, C

A single-step income statement includes which of the following? (Select all that apply.) A. Expenses B. Revenues C. Net Income D. Liabilities E. Retained Earnings E. Dividends F. Assets

A. Expenses B. Revenues C. Net Income

Which of the following statements are true? A. Retained Earnings increases when owners give a company money in exchange for stock. B. Common Stock increases when a company earns a profit. C. Retained Earnings increases when a company earns and keeps its profit.

A. Retained Earnings increases when owners give a company money in exchange for stock.

A company's profits ______. (Select all that apply.) A. belong to the company's owners B. are called paid-in capital C. equal revenues minus expenses D. are called net income E. belong to the managers

A. belong to the company's owners C. equal revenues minus expenses D. are called net income

Dividends ______. A. decrease retained earnings B. decrease liabilities C. increase net income D. increase retained earnings E. decrease net income

A. decrease retained earnings

Which of the following would be classified as discontinued operations?

Abandoning a product line Closing the largest of the company's three stores

The journal entry to record the payment for merchandise previously purchased on account includes a debit to ______ and a credit to ______.

Accounts Payable; Cash

Which of the following statements about credit sales are true?

Accounts receivable arise from credit sales. Accounts receivable should be reported at net realizable value. Revenue is reported when the company fulfills its promise to transfer control of a good or service to a customer.

Which method of allowing for estimated uncollectible accounts is generally more accurate?

Aging of accounts receivable method

Which of the following are contra-asset accounts? (Check all that apply.)

Allowance for Doubtful Accounts Accumulated Depreciation

Which of the following statements is true?

Allowance for Doubtful Accounts is a permanent account.

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______. (Select all that apply.)

Allowance for Doubtful Accounts of $1,000 Bad Debt Expense of $950

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a debit balance of $1,000. After the adjustment, the ______.

Allowance for Doubtful Accounts will have a $90,000 credit balance

Bellows Company uses the allowance method to account for uncollectible accounts. After making a concerted effort, Bellows' management determined that it will not be able to collect the $1,200 owed to it by its customer Acme Inc. Prepare the appropriate journal entry to record the receivable write-off.

Allowance for doubtful accounts 1200 Accounts receivable 1200

What is the purpose of an adjusted trial balance?

An adjusted trial balance is prepared to check that the accounting records are still in balance, after having posted all adjusting entries to the T-accounts.

Which of these would explain an increase in a company's inventory turnover ratio? (Check all that apply.)

An increase in the demand for the company's products A decrease in total inventory

Which ratio change provides good news about a company?

An increase in the net profit margin ratio

Which of the following statements are true? (Check all that apply.)

An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory. An increased inventory balance is desirable if management is building up stock in anticipation of higher sales.

Asset Accounts Debit (+) Increase Side Cash Supplies Land Buildings Accounts Receivable or Accrued Revenue Prepaid Insurance Expense or Deferred Expense Merchandise Inventory Equipment

Asset Accounts Credit (-) Decrease Side Accumulated Depreciation Allowance for Doubtful Accounts

Which of the following is (are) increased with a debit? Asset accounts Liability accounts The Common Stock account The Retained Earnings account

Asset accounts

Which of the following is another way to express the expanded accounting equation?

Assets - Liabilities = Common Stock + Retained Earnings

Basic accounting equation

Assets = Liabilities + Stockholders Equity (Resources owned = resources owed to creditors + resources owed to stockholders)

Madison Inc. reported sales of $1,000,000, a debit balance in Accounts Receivable of $80,000, and a credit balance of $5,000 in the Allowance for Doubtful Accounts. Management anticipates bad debt losses of 1% of credit sales. Prepare the end-of-period adjusting entry to record bad debt expense.

Bad debt expense 10,000 Allowance for doubtful accounts 10,000

Pettygrove Company had 1,200,000 shares of $10 par value common stock outstanding. The amount of additional paid-in capital is $6,000,000, and Retained Earnings is $1,800,000. The company issues a 2-for-1 stock split. The market price of the stock is $14. What is the balance in the Common Stock account after this issuance?

Balance in common stock=number of share after split x par value of share after split 1,200,000x2x(10/2) = 12,000,000

Which financial statements are needed to calculate the inventory turnover ratio? (Check all that apply.)

Balance sheet Income statement

Which company has the higher receivables turnover ratio? Company A Company B Average Net Accounts Receivable $2,000 $5,000 Average Inventory $4,000 $20,000 Net Sales $40,000 $100,000

Both are the same Reason: Both have the same receivables turnover ratio of 20 times. Company A's equals $40,000/$2,000 and Company B's equals $100,000/$5,000.

Which transactions are recorded in the accounting system?

Both external exchanges and internal events

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory.

Sole Proprietorship

Business organization owned by one person. The owner is personally liable for all debts of the business.

Solvency Ratios

Cash coverage ratio Times interest earned Debt-to-assets ratio

What is used to increase the balances of revenue accounts?

Credits

Of the 4 companies listed below, which company is more likely to use specific identification to value its inventory and cost of goods sold?

Custom home builder

Which of these might cause the value of inventory to fall below its original cost? (Check all that apply.)

Damage Increased competition Obsolescence from going out of style

Liquidity Ratios

Days to collect Current ratio Receivables turnover Inventory turnover

Left Side Increases (Assets = Liabilities + Equity)

Debit (Assets)

Matisse Co. pays $12,000 for rent of office space that will cover the next six months. Which of the following describes how Matisse will account for the payment for rent?

Debit Prepaid Rent for $12,000.

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings? (Check all that apply.)

Depreciation Expense Bad Debt Expense Sales Revenue

Which of the following statements are true?

Depreciation Expense on the income statement reports only the current period's usefulness used. Accumulated Depreciation on the balance sheet reports the amount of usefulness used since the long-lived asset was first put into use Depreciation Expense is an operating expense on the income statement Accumulated Depreciation is netted against the related long-lived asset on the balance sheet

Accounting Standard for USA

FASB > GAAP

When costs are rising, ______ produces a larger Inventory balance (making the balance sheet appear to be stronger) and smaller Cost of Goods Sold (resulting in a larger Gross Profit) which makes the company look more profitable.

FIFO

When costs are rising, which method would result in the largest amount of income tax expense?

FIFO

Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet?

FIFO

True or false: The adjusting entry to record Bad Debt Expense includes a credit to Accounts Receivable.

False

Which group is responsible for creating the US GAAP?

Financial Accounting Standards Board (FASB)

Where do creditors and investors obtain information to make decision concerning a company?

Financial statements

Which of the following are the types of business activities that affect the balances in asset, liability, and stockholders' equity accounts? Financing activities Investing activities Operating activities Balance sheet activities Common activities

Financing activities Investing activities Operating activities

Obtaining a loan would be an example of a(n):

Financing activity

Beginning Inventory + Purchases = _____.

Goods Available for Sale

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business.

In which of these situations would a merchandiser record revenue? (Select all that apply.)

Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business. The obligation has been fulfilled and control of the goods has been transferred to the customer.

Net income from Income Statement

Helps determine ending Retained Earnings

Accounting standards for the rest of the world

IASB > IFRS

Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.)

Income from Operations Gross Profit

If you want to compute a company's net profit margin, which of the following financial statements do you need?

Income statement only

Financial Statements in order

Incomes Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows

What is the formula for calculating interest on a note receivable?

Interest = Principal × Interest Rate × Time

What accounts are included in the entry to accrue interest earned but not yet received?

Interest Receivable Interest Revenue

Managerial reports go to...

Internal users such as managers and supervisors.

If a company assumes that its inventory costs flow out in the opposite order from which the goods were purchased, it uses _______ to value its inventory. (Please respond using the acronym.)

LIFO

Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet?

LIFO

Liability Accounts Debit (+) Decrease Side (None)

Liability Accounts Credit (-) Increase Side Accounts Payable or Accrued Expenses Notes Payable Wages Payable Unearned Rent Unearned Revenue or Deferred Revenue

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?

Only the items that have market values lower than the costs will be written down.

Investing activities are concerned with acquiring long-term assets; financing activities provide the money needed to operate the business and to provide the capital for investing activities; and __________ activities are involved with providing goods and services to the customer.

Operating

Netpass Company has 950,000 shares of common stock authorized, 855,000 shares issued, and 380,000 shares of treasury stock. The company's board of directors declares a dividend of $1.30 per share of common stock. What is the total amount of the dividend that will be paid?

Outstanding shares = issued shares - treasury shares = 855000 - 380000 = 475000 shares Total amount of dividend = outstanding shares * dividend per share = 475000* $1.30 = $617,500

Stockholders' Equity

Owners' claims to the business resources

Which inventory system requires that the purchases of merchandise on account be debited to Purchases?

Periodic system

Balance Sheet

Report at a point in time: assets, liabilities, equity

Statement of Retained Earnings

Reports the way that net income and the distribution of dividends affected the financial position of the company during the period

Which of these appears on both the statement of retained earnings and the balance sheet?

Retained Earnings

Retained earnings equation

Retained earnings = beginning retained earnings + net income - dividend

When a seller fulfills its performance obligation, it credits ______.

Revenue

Retained Earnings are reporting on

The Balance Sheet

Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

The adjusting entry to record interest earned but not yet received

Which of the following is a financing activity?

The business receives $1,000 cash and in exchange gives a promissory note.

Who decides which of the many inventory accounting methods a company should use?

The company's management

Which statements are true? (Select all that apply.)

The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods. A grocery store may or may not use the Last-in, First-out inventory method.

Which statement are true? (Select all that apply.)

The inventory methods apply to both perpetual and periodic inventory systems. The inventory costing methods determine the amount of the debit to Cost of Goods Sold and credit to Inventory. Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods.

Which of the following statements about organizational forms of a business is not correct?

The owners of a corporation are legally responsible for the corporation's debts and taxes.

External Financial Reporting should be

Timely, verifiable, comparable, understandable

Why are adjustments made to the accounting records at the end of the period?

To ensure assets and liabilities are reported at appropriate amounts and To ensure the related revenues and expenses are reported in the proper period

Why are adjustments needed at the end of an accounting period?

To ensure revenues and expenses are reported in the proper period

What is the purpose of preparing an adjusted trial balance?

To ensure that total debits equal total credits after the adjustments have been recorded

Which statement best describes transaction (c)?

Transaction (c) occurs between the owners and others in the stock market, there is no effect on the business.

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

Did these transactions change the extent to which Madison Shoes relied on creditors versus stockholders for financing?

Yes - the transactions affected liabilities and stockholders' equity, and they led Madison Shoes to rely to a greater extent on stockholders (versus creditors).

What does the sales discount 2/10, n/30 mean?

You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days.

Using the following table and the equations underlying each of the four basic financial statements, show (a) that the balance sheet is in balance, (b) that net income is properly calculated, (c) what caused changes in the retained earnings account, and (d) what caused changes in the cash account. (Cash outflows should be indicated with a minus sign.)

a. Assets = Liabilities + Stockholders Equity $18400 = $13850 + $4500 b. Net Income = Revenue - Expenses $1,400 = $10,700 - $9,300 c. Ending RE = Beginning RE + Net Income - Dividends $4,500 = $3,700 + $1,400 - $600 d. Ending Cash = Beginning Cash + CF from Operating Activities + CF from Investing Activities + CF from Financing Activities $800 = $1,200 + $1,800 + $(1,200) + $(1,000)

PART ONE Business Sim Corporation (BSC) entered into the following four transactions: (a) Issued 1,000 common shares to Kelly in exchange for $15,000. (b) Borrowed $36,000 from the bank, promising to repay it in two years. (c) Bought computer equipment by signing check number 101 in the amount of $41,000 and signing a promissory note for $6,000 due in six months. This loan contains a clause ("covenant") that requires Business Sim Corporation (BSC) to maintain a ratio of current assets to current liabilities of at least 1.5. (d) Received $750 of supplies and promised to pay for them in 30 days. Analyze the accounting equation effects of each of these four transactions.

a. Cash (+A) $15000, Common Stock (+SE) $15000 b. Cash (+A) $36000, Notes Payable Long term (+L) $36000 c. Equip (+A) $47000, Notes Payable Short term (+L) $6000 c2. Cash (-A) $41000 d. Supplies (+A) $750, Accounts Payable (+A) $750

Reporting revenues when the goods or services are provided and expenses when they are incurred is called _______ basis accounting.

accrual

basis accounting is the only acceptable method for external reporting of net income.

accrual

A(n) ______ trial _____ is prepared immediately _____ the adjusting entries have been recorded and _____ the financial statement are prepared.

adjusted, balance, after, before

Without _____ entries, financial statements would present an incomplete and misleading picture of the company's financial position.

adjusting

Adjusting entries are important because ______.

adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes without them, the financial statements would be misleading.

Closing journal entries are recorded ______.

after the financial statements have been prepared

Retained Earnings are ______. (Check all that apply.)

all of the company's earnings kept rather than distributed to stockholders decreased by dividends increased by net income sometimes called earned capital

A prepayment that is originally recorded as an asset will be:

allocated to future accounting periods based on the value of the benefit used during the period.

Accounts Receivable represent ______.

amounts owed to a business by its customers

Wages Expense is ______, while Wages Payable is ______.

an expense on the income statement; a liability on the balance sheet

The entry to record the purchase of inventory on account causes ______.

an increase in assets and liabilities

Accounting is...

analyzing, recording, summarizing and reporting results of business activities

Stock options ______. (Check all that apply.)

are often given to employees as part of their compensation provide the holder with the option to purchase stock at a specified price during a specified period of time

Using the allowance method, Bad Debt Expense is recorded _____.

as an estimate in the period of the related credit sales

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the current period.

assets

Which of the following are reported on a balance sheet?

assets retained earnings stockholders' equity liabilities cash

A classified balance sheet shows subtotals for current _______ and current ________

assets liabilities

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected?

assets will increase stockholders' equity will increase

FIFO, LIFO, and weighted average inventory costing methods are based on ______.

assumptions that accountants make about the flow of inventory costs

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to ______.

bad debt expense

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______.

be split between cost of goods sold and ending inventory

Goods Available for Sale will ______ when sold.

become Cost of Goods Sold on the income statement

Reporting revenues only when cash is received and expenses only when cash is paid is called the _______ basis of accounting.

cash

When Revenue is credited, the possible three debits are _________, Accounts _______ and/or _______ revenue.

cash, receivable, deferred

A stock dividend ______. (Check all that apply.)

causes retained earnings to decrease. distributes additional shares of stock to existing stockholders on a pro rata basis.

Every company establishes a _______ of accounts which is a list that designates a name and reference number that the company will use when recording transactions.

chart

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the _______ process.

closing

Paid-in capital is called

common stock

Profits earned by a company that have not been paid to stockholders at the end of an accounting period are called ___________ ___________.

common stock

The owner(s) of a business are not taxed on the profits of the business if the business is a:

corporation

The Inventory balance on the balance sheet reports the ______.

cost of goods available for sale

Common Stock has a normal ____ balance

credit

the adjusting entry to record depreciation on equipment includes a _____

credit to Accumulated Depreciation debit to Depreciation Expense

The journal entry to record the payment for merchandise previously purchased on account includes a ______. (Select all that apply.)

credit to Cash debit to Accounts Payable

The correct journal entry for the collection of a note receivable includes a ______. Assume the collection of interest is recorded separately. (Select all that apply.)

credit to Notes Receivable debit to Cash

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a ______. (Select all that apply.)

debit to Bad Debt Expense of $1,000credit to Allowance for Doubtful Accounts of $1,000

Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

debit to Bad Debt Expense of $900 credit to Allowance for Doubtful Accounts of $900

In a perpetual system, the entry to record a purchase of merchandise on account includes a ______. (Check all that apply.)

debit to Inventory credit to Accounts Payable

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a ______. (Check all that apply.)

debit to Notes Receivable of $1,000 credit to Cash of $1,000

An employee paid a company back for amounts the company lent 3 months earlier. The company would record the collection from the employee by ______.

debiting Cash and crediting Notes Receivable

If a growing company uses an accelerated depreciation method instead of straight-line, it is likely that its ______.

debt-to-assets ratio is higher than if it had used straight-line

The adjusting entry to record the revenue earned by the seller fulfilling its obligation results in a(n) _________ to the Deferred Revenue account.

decrease

The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends.The debit to Retained Earnings causes a(n) ________ in the balance of the account.

decrease

The declaration and payment of a cash dividend ultimately causes a(n)

decrease in Cash decrease in Retained Earnings decrease in stockholders' equity

Matching part of the cost of a long-lived asset with the revenues generated by the asset is ______.

depreciation

An asset is defined as a(n) ______.

economic resource expected to benefit the company in the future

A high receivables turnover ratio is a sign of a company's ______.

effectiveness in granting and collecting credit

Merchandisers record revenue when they ______.

fulfill their performance obligations by transferring control of the goods to customers

Notes Receivable differ from Accounts Receivable in that Notes Receivable ______.

generally charge the borrowers interest from the day they are signed to the day they are collected

For long-lived assets that have been in use for more than one accounting period, Depreciation Expense on the ______ Accumulated Depreciation on the ______.

income statement will be less than; balance sheet Reason: Depreciation Expense, a temporary account, is closed into Retained Earnings at the end of each accounting period and thus reports the amount of usefulness used in the current period only. Accumulated Depreciation, a permanent account on the balance sheet, accumulates and thus will be larger than the amount on the income statement.

Net income, as opposed to a net loss, causes retained earnings to ______.

increase

Sales on account ______. (Check all that apply.)

increase assets and stockholders' equity increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement

Retained earnings are ______.

increased by net income decreased by dividends

advantages of extending credit

increased revenues

disadvantages of extending credit

increased wage costs bad debt costs delayed receipt of cash

On September 1, Year 1, a tenant of Bloomington Company business paid its rent in advance for the months of October, November, and December. On December 31, Year 1, Bloomington made the required adjustment to adjust its accounts. How does this year-end adjustment impact the amounts reported on the company's financial statements?

increases asset and liability

Boopsie Agin, the company's bookkeeper, recorded the purchase of merchandise on account with a debit to Cost of Goods Sold and a credit to Cash. As a result, ______. (Check all that apply.)

liabilities are understated assets are understated stockholders' equity is understated

A company had beginning inventory of 3 units that cost $5 each. During the month, 17 units were purchased for $6 each. The company sold 15 units during the month and had 5 remaining in ending inventory. If the company uses FIFO instead of LIFO to calculate cost of goods sold, then cost of goods sold will be ______.

lower using FIFO, leading to higher gross profit and higher income taxes

The receivables turnover ratio gives information on how ______.

many times the company sells and collects amounts on account per year

Applying the lower of cost or market rule results in inventory being reported at the ______.

market value if lower than cost

When accounting for accounts receivable and bad debts, the objectives are to ______. (Check all that apply.)

match the cost of bad debts to the accounting period in which the related credit sales are made and report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect.

Liabilities are ______.

measurable amounts that the company owes to creditors

Net Sales on an income statement equals Sales Revenue ______.

minus Sales Returns, Allowances and Discounts

If Inventory is debited and Accounts Payable is credited, then the company uses the ______.

perpetual inventory system and is recording a purchase on account

Retained Earnings represents cumulative ______ by the business.

profits retained net income kept

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.

received by the customer

The objectives of both IFRS and US GAAP objectives are to provide information that is ______.

relevant and faithfully represented

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ______.

remain unchanged

Which body determines the rules that are used in the United States for reporting accounting information and producing financial statements?

the SEC

An income statement is referred to as a single-step income statement because ______.

the format separates total revenues from expenses and reports a single measure of income

The financial reports of a business include only the results of that business's activities. This is ______.

the separate entity assumption

The inventory turnover ratio directly measures ______.

the times per period the average inventory balance is sold

Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplier gave Ace a special discount. Ace's balance sheet should report equipment of

$4000

In its first year of business, ABC, Inc. had Accounts Receivable of $8,000 and Credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad Debt Expense equals ______.

760

Which of the following would be classified as a stockholders' equity account? Accounts Payable Cash Common Stock Service Revenue Retained Earnings

Accounts Payable Cash Common Stock Service Revenue Retained Earnings

Assume that a company has prepared and posted its closing entries. Which of the following statements is true?

All revenue accounts, expense accounts, and the dividends account will have zero balances.

How do adjustments affect financial results?

All revenues and expenses will be reported in the period in which they are generated and incurred. and The financial statements will present the best picture of whether the company's business activities were profitable that period and what economic resources the company owns and owes at the end of that period.

Which of the following is a permanent account whereby the ending balance of the prior accounting period equals its beginning balance of the next.

Allowance for Doubtful Accounts

Which of the following is contra-asset account?

Allowance for Doubtful Accounts

Select all that apply An owner gives $5,000 cash to his company in exchange for stock. This will increase the company's: A. retained earnings B. total stockholders' equity C. common stock D. net income E. cash F. total liabilities

B. total stockholders' equity C. common stock E. cash

Sales Revenue and Service Revenue are two income statement accounts that relate to Accounts Receivable. Name two other accounts related to Accounts Receivable and Notes Receivable that would be reported on the income statement and indicate whether each would appear before, or after, Income from Operations.

Bad Debt Expense > Before Interest Revenue > After

Murphy's Paw, Inc. has credit sales of $100,000 for the month ended May 31. The Accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectible. This adjusting entry includes a debit to ______.

Bad Debt Expense and credit to Allowance for Doubtful Accounts for $1,000 Reason: The adjusting entry using the percentage of credit sales will be for $1,000 (=$100,000 credit sales x 1%). The debit is to Bad Debt Expense (+E,-SE) and credit to Allowance for Doubtful Accounts (+xA,-A).

Which of the following amounts are shown on the adjusted trial balance and on the statement of retained earnings?

Beginning-of-year balance for Retained Earnings

Which of the following statements regarding adjusting entries is true?

Cash is never part of an accrual or deferral adjusting journal entry. Adjusting entries affect one balance sheet account. Adjusting entries affect one income statement account.

Which of the following have normal credit balances?

Common Stock Accounts Payable Notes Payable

Which of the following are found on the income statement of a merchandiser? (Check all that apply.)

Cost of Goods Sold Sales Revenue Gross Profit

Which of the following are reported on the income statement? (Check all that apply.)

Cost of Goods Sold Sales Revenue Gross Profit

How does the inventory costing methods affect the income statement when costs tend to rise over time?

Cost of Goods Sold on the income statement differs between the methods causing Income Tax Expense to differ.

What is used to increase the account balance of the Dividends account?

Debits

What is used to increase the balances of expense accounts?

Debits

Which of the following is not a revenue account that appears on the income statement?

Deferred Revenue

Which of the following is closed into Retained Earnings by debiting Retained Earnings?

Dividends

Which of the following describe a note receivable?

More formal way of extending credit Specified interest rate Specified maturity date Stronger legal claim

Which of the following would be found on a statement of stockholders' equity? (Select all that apply.)

Net Income Additional Paid-in Capital Dividends Stock Issuances Treasury Stock

Profitability ratios?

Net profit margin Price/earnings ratio Gross profit percentage Fixed asset turnover

FOB Shipping Point

Purchaser pays shipping cost

Which of the following types of accounts are found in closing journal entries?

Revenue accounts, expense accounts, the Dividends account, and the Retained Earnings account.

Operating Expenses:

Salaries and Wages Utilities Advertising Rent Cost of delivering merchanise

In which situations does a company issue a note receivable? (Check all that apply.)

The company lends money to employees or businesses. The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest.

A company had inventory on July 1 of 5 units at a cost of $16 each. On July 2, they purchased 9 units at $28 each. On July 6 they purchased 5 units at $25 each. On July 8, 8 units were sold for $58 each. Using the LIFO periodic inventory method, what was the value of the inventory on July 8 after the sale?

The last-in, first-out (LIFO) method assumes that the newest goods (the last in to inventory) are the first ones sold (the first out of inventory). Units available for sale = 5 + 9 + 5 = 19 Units in ending inventory = Units available for sale of 19 − Units sold of 8 = 11 Cost of ending inventory = (5 units × $16 per unit) + (6 units × $28 per unit) = $248

Carryon Company sells a product and a 12-month service package for that for a combined price of $800. Separately, the product and the service sell for $450 and $550, respectively. At the time of purchase, how much of the combined sales price should be credited to deferred revenue?

The product and the service sell for $450 and $550, respectively. The regular selling price (not discounted bundle) is $1000. $450/1000 = 0.45 (45%) Now take 45% of the $800 800*0.45=360 The allocated price to the product is $360

What are the two stages of accounting for a purchase discount using the gross method? (Check all that apply.)

The purchase is first recorded at full cost. The Inventory account is later reduced if payment is made within the discount period.

In a perpetual inventory system, which of the following statements are true? (Check all that apply.)

The purchaser should record freight-in as an asset, Inventory. The seller should record freight-out as a selling expense.