ACC ~ Exam 2
Format which groups revenues separately from expenses and reparts a single measure of income is called ____________
"Single-step income statement"
Which of the following duties should not be the responsibility of an employee who has access to cash?
-perform bank reconciliations -record cash collected in journal
Which accounts are credited when the journal entry to pay employees is recorded?
Cash Withheld Income Tax Payable FICA Payable
Match the description with each of the accounts that may be debited when Service Revenue is credited.
Cash - Collections occur in the same period as the services Accounts Receivable - The service is performed prior to the collections Deferred Revenue - Collections occur in advance of the performance of the service
The entry to record the issuance of 100,000 shares of $0.10 par value common stock for $10 per share is debit ______.
Cash for $1,000,000 and credit Common Stock for $10,000 and Additional Paid-in Capital for $990,000
____________ do not go on finacial statements.
Dividens
Every transaction has at least two effects on the basic accouting equation.
Duality of effects
________ events do not involve exchages with others outside the business, ut rather occur within the company itself
Internal
The ______ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations.
Internal control
The weighted average cost method uses the weighted average cost to calculate the value of ______.
Inventory cost of goods sold
____________ expect a return on their contributions to a company
Investors
Which of the following is not an accurate statement about internal control?
It guarantees the management will behave ethically.
What is occurring if a company is debiting Cash and crediting Notes Receivable?
It is collecting the principal on amounts lent earlier
A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?
It would be added to the bank balance
Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?
alpha
Bond premium is the amount by which a bond's issue price ______ its face value.
exceeds
The key factor in determining whether revenue should be recognized is whether the ______.
seller has provided the goods or services to the customer
A bond's maturity date is ______.
the date on which the bond principal will be repaid in full
Common stock + Retained Earnings =
Owners Equity
Specific identification is ______.
an inventory method that tracks which item is actually sold and debits Cost of Goods Sold for the actual cost of the item
A transaction may be recorded with an increase in an asset and a decrease in a(n) ______.
another asset
Stock options ______.
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
Accumulated Depreciation is reported on the ______.
balance sheet netted against the related long-lived asset
An increase in a company's inventory balance from a prior year is ______.
good if the inventory turnover ratio is higher
FIFO, an inventory costing method, actually describes how to calculate the cost of ______.
goods sold
In June, customers paid $3,900 for services they received in May. How much revenue should be recognized in June under accrual accounting?
no revenues are recognized in june
__________________ is a liability that represents the amount the company owes to others as a result of issuing a promissory note.
notes payable
An adjusting entry to accrue for interest earned is often needed when a company has ______.
notes receivable
FIFO uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.
oldest to newest
Sales Revenue reports the ______.
sales price times the quantity of goods sold
What are the key events with notes payable?
Recording principal paid Recording interest paid Accruing interest incurred but not paid Establishing the note
Gross Profit is ______.
a subtotal on the income statement equal to Net Sales minus Cost of Goods Sold
Bonds are financial ________ that outline the future payments a company promises to make in exchange for receiving a sum of money now.
instruments
For an investor, bonds are attractive investments because ______.
interest is higher than bank savings accounts they can be traded on established bond exchanges
The stated rate is the rate used to determine the ______.
interest payment
___________ include existing and potential stockholders
investors
The Cash T-account is increased with an entry on the __________ side of the T-account.
left
Notes receivable are used for ______.
lending money to individuals or businesses extending payment periods selling large dollar-value items
Complete the accounting equation: Assets = _________________ + Stockholders' equity.
liabilities
Which of these line items appear on a balance sheet?
liabilities stockholders' equity assets
Lenders will sometimes impose dividend restrictions to ______.
prevent the corporation from paying out too much to stockholders
Stock options are given to ______.
provide incentives for employees to work harder.
Investors earn a return on stock investments by
receiving dividends selling the stock for more than its cost
Net pay is calculated by ______.
subtracting payroll deductions from gross pay
FOB destination means that goods are owned by the buyer as soon as ______.
they arrive at the buyer's place of business
Resources owned by the __________ equal the resources owed to _______ and to ________
Company, Creditors and stockholders
T or F: A contra-account, such as Accumulated Depreciation, will have a normal debit balance.
False
T or F: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.
False
T or F: If one asset increased, it must be the case that either liabilities or stockholders' equity increased by the same amount.
False
T or F: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.
False
T or F: The unadjusted trial balance reports the increases and decreases in each account that occurred during the accounting period.
False
True or false: All payroll deductions are required by law.
False
True or false: The bond issue price is determined by the company issuing the bonds.
False
________________________ reports, called finacial statements, which are prepared periodically to provide information to peoply not employed by the buisness
Finacial accounting
The main goal of _________ and ________ is to ensure companies produce financial information that is useful
GAAP and IFRS
Why is Bad Debt Expense an estimate?
GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay.
Which of the following are reported on the income statement?
Gross Profit Cost of Goods Sold Sales Revenue
Which of the following are found on the income statement of a merchandiser?
Gross Profit Sales Revenue Cost of Goods Sold
Is a form of buisness owned and usually operated by one individual.
Sole Proprietorship
Which of the following are not required payroll deductions from an employees' gross earnings?
State unemployment tax (SUTA) Federal unemployment tax (FUTA) Charitable contributions
_______________ represents the owners claim on assets of the buisness after creditors claims have been fulfilled.
Stockholders equity
Contributed capital of $1,000,000 is found in the ______ section of the ______.
Stockholders' Equity, Balance Sheet
Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by increasing assets and increasing liabilities. Which of the following statements are correct?
Stockholders' equity will be too low Liabilities will be too high
These systems follow___________, which is repeated day after day, month after month, and year after year.
The accounting cycle
T or F: Accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment.
True
T or F: Both the periodic and perpetual systems require a credit to Accounts Payable when inventory is purchased on account.
True
T or F: Committing financial fraud can result in stiff penalties, including fines and jail sentences.
True
T or F: Operating activities are the primary sources of revenue and expenses involved in running a business.
True
T or F: 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
True or false: Companies issue bonds at a discount when the bond's stated interest rate is lower than the market interest rate.
True
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.
The journal entry to record the declaration of a dividend includes ______.
a credit to Dividends payable a debit to Dividends
The effect on the accounting equation of declaring a cash dividend includes ______.
a decrease in stockholders' equity an increase in liabilities
A $1,000 bond was issued at 107.26. The 107.26 is ______.
a percent and means the bond sold for $1,072.60
A seller records an increase to the asset account called ____________ ___________ when it sells to a customer on credit.
accounts receivable
In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is ______.
added to the book balance
Deposits in transit have already been ______.
added to your cash balance per your books and not to the bank balance
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
A prepayment that is originally recorded as an asset will be:
allocated to future accounting periods based on the cost of the asset used during the period
The adjusting entry to record the estimated amount of bad credit sales is a debit to Bad Debt Expense and a credit to _____________ _____________ ____________ _____________.
allowance for doubtful accounts
When should the total dollar value of debits equal the total dollar value of credits in a transaction?
always
A bond's stated interest rate is ______.
always expressed as an annual interest rate used to calculate interest payments
When a company lends money to employees at a rate of 4%, the company will record ______.
an asset called Notes Receivable
Wages Expense is ______, while Wages Payable is ______.
an expense on the income statement; a liability on the balance sheet
Revenue expenditures are recorded with a debit to ______.
an expense when they relate to ordinary repairs and maintenance
Common stock's par value is ______.
an insignificant amount specified in the corporate charter
If a cost is capitalized, it is recorded as a(n) _________, not an expense.
asset
The 3 categories of employee fraud are ______.
asset misappropriation financial statement fraud corruption
Miss Hap, the bookkeeper, forgot to record the depreciation for the year. This error will cause ______.
assets to be overstated stockholders' equity to be overstated
The journal entry to record the payment of salaries and wages for work performed in the current accounting period causes ______.
assets to decrease liabilities to increase stockholders' equity to decrease
Amortizing intangible assets affects the accounting equation by causing ______.
assets to decrease stockholders' equity to decrease
The entry to record the issuance of 100 bonds at their $1,000 face value causes ______.
assets to increase by $100,000 liabilities to increase by $100,000
The maximum number of shares a corporation is allowed to sell in accordance with its corporate charter are called __________ shares.
authorized
A company purchased supplies and promised to pay $200 for them next month. The increase in Accounts Payable would be recorded with a ______.
credit
An increase in Retained Earnings would be recorded with a ______.
credit
If an asset is going down (-) then it is a _____________
credit
The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a ______.
debit to Notes Receivable of $1,000 credit to Cash of $1,000
Employees' gross earnings differ from their net pay because of ______.
federal and state income taxes payroll deductions FICA taxes
The date of record is the date on which the corporation ______.
finalizes its list of stockholders who will receive dividends
Employee __________ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud.
fraud
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 last-in, first-out, the 3 goods sold are ______.
from the purchases made during the month
A check that you have written has cleared the bank when ______.
funds have been withdrawn from your bank account to cover the check
_______________ agencies look closely at companies financial statements
government
___________ equals Net Sales minus Cost of Goods Sold and is reported on the income statement.
gross profit
Outstanding checks are checks that ______.
have been written but have not yet cleared the bank
The goals of inventory managers include ______.
having enough inventory on hand to meet customer demand making sure that inventory quality meets customer expectations keeping the costs of buying and storing inventory as low as possible
If a company forgets to record the journal entry to accrue interest expense, then its net income is too ______ and its liabilities are too ______.
high to low
Fraudulent reporting by management includes
improper asset valuation recording fictitious revenues from a phantom customer mismatching revenues and expenses
The first finacial statement prepared is the ___________
income statement
Which financial statements are needed to calculate the inventory turnover ratio?
income statement balance sheet
The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its ______.
income statement and balance sheet
Depreciation Expense is reported on the ______.
income statement as an operating expense
A company paid $5,000 cash to purchase equipment. The company recorded a debit to Equipment of $5,000 and a credit to Cash of only $500. This company's accounting records are ______.
incorrect because debits do not equal credits
The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.
increase
The effect of repurchasing stock using the cost method is to ______.
increase Treasury Stock decrease assets decrease stockholders' equity
The entry to record the issuing of a note payable for cash results in a(n) ______.
increase assets and increase liabilities.
Capitalized costs differ from expenses in that only capitalized costs result in a(n) ______.
increase to long-lived assets
How do banks help businesses control cash?
independently verifying restricting access to cash documenting procedures
The Discount on Bonds Payable account ______.
is a contra account to Bonds Payable
Accounts Payable ______.
is debited when amounts owed are paid is credited for purchases made on account
When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation ______.
is not affected because the corporation is separate from its owners
A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is ______.
issued
The number of shares outstanding equals the number of shares ______.
issued minus the number of shares in treasury
Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the ______.
land at $20,000 and the building at $60,000
Assets are financed with ________ and stockholders' equity.
liabilities
If the purchase of supplies on account is not recorded then ______.
liabilities will be understated
Interest incurred, but not yet paid during an accounting period, should be recorded as an expense and a(n) ______.
liability
Dividends Payable is a(n) _________ account with a normal _________ balance and is initially recorded on the __________ date.
liability; credit; declaration
Balance sheet is written in the order of ______________
liquidity
A company may be restricted from paying dividends if it has ______.
loan covenant
Liability is _____________/_______________
loans/credit
Corporations with high sales volume, such as WalMart, usually have ______.
low gross profit percentages
A dividend date of record is the date on which the corporation ______.
makes no entry
__________ inventory consists of products acquired in a finished condition, ready for sale without further processing.
merchandise
The book (or carrying) value of equipment equals Equipment ______.
minus accumulated depreciation
Fraudulent reporting by management includes ______.
misreporting revenues and expenses
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
Internal control for cash is important because
the risk of cash-handling errors is significant of the high risk of theft cash is portable and is "owned" by whomever possesses it of the large volume of cash transactions
An objective of the expense recognition (matching) principle is to have bad debt expense debited in ______.
the same period the related credit sales are recorded
If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.
there are product quality issues
Morris Lest, Inc. purchased machinery for $10,000 cash. The effect of this transaction is to cause ______.
total assets remain the same
The journal entry to record the payment within the discount period for goods previously purchased on account causes _____.
total assets to decrease total liabilities to decrease
The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n) ______.
write-off of a specific customer's account
True or false: Land is not depreciated.
True
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
In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?
$1,000 of revenue should be recorded in May.
The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash is recorded with a ______.
$10,000 debit to Equipment and $8,000 credit to Notes Payable and $2,000 credit to Cash
Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a ______.
$10,000 increase in Treasury Stock $10,000 decrease in Cash
If a company collected $1,000 from its customers in advance and then fulfilled $800 of its obligation and incurred expenses of $700 of which it paid $300, using accrual basis accounting, it would report net income equal to:
$100
An accountant hired as an employee
Private accountant
A asset is everything of _________
Value
What type of an account is Accounts Receivable?
asset
Utilities Expense is ______.
debited when the service is received
The entry to record annual straight-line depreciation will increase a company's ______ and ______.
total expenses and accumulated depreciation
Business activities that affect the basic accounting equation and are recorded in the accounting system are called _________
transactions
Business activities that affect the basic accounting equation are called ______________
transactions
Cost-residual value) x (actual production this period/estimated total production) is the formula for calculating ______ depreciation.
units of production
Which depreciation method results in higher depreciation expense when the asset is used more?
units of production
Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?
unlimited
Internal control procedures surrounding payment of bills includes ______.
using prenumbered checks making payments only when a purchase is supported by complete voucher documentation marking the voucher "paid" to avoid duplication of payments
A(n) ______ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account.
voucher
A(n) _______ system is a process for approving and documenting all purchases and payments made on account.
voucher
The adjusting entry to record wages incurred but not yet recorded includes a credit to ______.
wages payable
Stock options are expensed ______.
when granted and are recorded at the estimated cost of the options
Buys goods and sells them to other companies that will then sell them to individuals
wholesaler
X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals
$115,000
Shenandoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized?
$7,000 in architect fees $70,000 cost of lumber to build the lodge $4,200 paid in sales tax on the lumber to build the lodge
All accounting systems ______.
-follow the accounting cycle -combine beginning balances with the activity during the accounting cycle to yield the ending balances for each account -record and summarize financial effects of transactions
Under US GAAP, a contingent liability should ______.
-not be reported if the loss is remote and unable to be estimated -be reported on the balance sheet if the loss will probably occur and can be reasonably estimated -be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated
Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's ______
-treasury stock on the balance sheet will equal $4,000 -stockholders' equity on the balance sheet will be $10,000 higher
Why are the adjustments important to the preparation of the financial statements?
-unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. -Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement. -Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes.
Long-lived assets are ______.
-used by the business -assets acquired for use over 1 or more years
The issue price of 1,000, 5%, $1,000 bonds issued at 100.00 equals ______.
1,000,000
Place the income statement line items in the proper order from the top to bottom.
1. sales revenue, gross 2. sales returns, allowances and discounts 3. sales revenue, net 4. cost of goods sold 5. gross profit
L + OE =
A
Which of the following is recorded at the end of an accounting period when accounting for receivables using the allowance method?
An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale.
Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?
Conceal fraud
Finacial statements need to have __________ and _____________
Consistency and comparability
Is a seperate entity from both legal and accounting perspectives
Corporation
The adjusting entry for supplies used during the period requires a _____________ (debit or credit) to Supplies and a __________ (debit or credit) to Supplies expense.
Cr, Dr
If L + OE is going up (+) then it is a ___________
Credit
an asset account such as Equipment has a normal debit balance, the associated contra-account should have a normal ________ balance.
Credit
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?
Credit Cash Debit Notes Receivable
When a company records the payment to its employees for the work performed during the accounting period, which of the following does it record?
Credit Cash Debit Salaries and Wages Expense
A company received $2,000 of equipment and promised to pay for it next month. The increase in equipment would be recorded with a ______ to the Equipment account.
Debit
Assets have a normal ___ balance
Debit
Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 ________ to Treasury Stock.
Debit
Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 _________ to Treasury Stock.
Debit
Expenses decrease net income and retained earnings, so expenses are recorded with a _______________, just like all decreases in stockholders' equity
Debit
If L + OE is going down (-) then it is a ______________
Debit
The owners have a claim on profits the company has earned for them through its business operations (retained earnings)
Earned capital
Given a company's accounting equation at the end of the accounting period consists of Assets of $100,000, Liabilities of $60,000 and Stockholders' Equity of $40,000, match the correct amount the following descriptions. Assets of $100000 = Lilabilities of $60000 = Stockholders' equity of $40000 =
Economic resources owned Creditors claims to the economic resources Owners claim to the economic resources
Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft
Establish responsibilities
Users are like ___________
Executives
The _________ ____________ is the financial statement that summarizes the financial impact of operating activities and reports the amount of profit earned during the accounting period
Income Statement
As of December 31 (the end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) _________ of $____________ to Income Tax Expense
Increase/dr; 3000
Check others' work
Independently verify
Which of the following transactions constitutes an accrual adjustment involving a revenue account?
Interest Revenue on a note receivable
Which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement?
Interest income Services charges Electronic funds transfers
Mattel and Goodyear are _____________
Manufacturer
Match the following methods for estimating bad debts with their Percentage of credit sales Percentage of credit sales drop zone empty. - Aging of accounts receivable -
Percentage of credit sales matches - Estimates bad debt expense based on the historical percentage of sales that lead to bad debt losses Aging of accounts receivable matches - Estimates the allowance for doubtful accounts based on the age of each account receivable
Which of the following is recorded with a debit to Notes Receivable and a credit to Cash?
The establishment of a note
T or F: A company generates Retained Earnings by operating profitably.
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: Long-lived assets (except land) are expensed over their useful lives.
True
The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______.
capitalized as part of the cost of the theater
John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record the payroll deductions?
current liabilities increase $113.90
3 types of cash flows
1. CF Operations 2. CF Investing 3. CF Financing
Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. The effect of this transaction on the accounting equation includes a(n) ______.
decrease in stockholders' equity decrease in assets
Receiving cash from a customer to pay for a previously recorded accounts receivable will:
have no effect on liabilities. have no effect on total assets. have no effect on stockholders' equity.
As inventory quality increases, its cost usually _____.
increases
Bank reconciliations are needed to reconcile for ______.
outstanding checks and deposits in transit
Revenues are recognized when ______, even when the cash is collected in a different accounting period than the obligation to the customer has been performed.
services are performed goods are delivered
If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.
shipped from the seller's place of business
A classified balance sheet ______.
shows subtotals for current assets and current liabilities
Contract accountant hired to give finacial advice
Public accountant
Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance?
$100 oil change on van $900 for cleaning the van during the year
Why might a bank statement and the company's records differ?
- Customer checks that bounced (NSF) - Deposits were made at the end of the bank statement date in an ATM - Not all checks written cleared the bank
Which of these are cash equivalents?
- Investments within 3 months to maturity - Money market funds
Place the events in proper sequence putting the first step on top for a 2-year note established in November that pays interest annually.
1. Debit Notes Receivable and credit Cash 2. Debit Interest Receivable and credit Interest Revenue 3. Debit Cash and credit Interest Receivable 4. Debit Cash and credit Notes Receivable, Interest Revenue and Interest Receivable
The term finacial statements refers to four accounting reports, typically prepared in what order?
1. Income statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of cash flows
Which ratio change provides good news about a company?
An increase in the net profit margin ratio
Balance sheet equation
Asset = Liability + OE
The entry to record the initial borrowing of cash by issuing a promissory note includes a debit to ______ and a credit to ______.
Cash Notes Payable
Risen, Inc. has beginning inventory of $16 which consists of 2 units at $8 each. It purchased 10 units at $10 each. It sold 5 units for $20 each. Which would result in the higher Gross Profit, FIFO or LIFO and why?
FIFO because the older, less expensive units are assumed to be sold first making Cost of Goods Sold lower and Gross Profit higher than LIFO
What are reasons internal controls can never completely prevent and detect errors and fraud?
Human error, collusion, and costs exceed benefits
Which of the following costs associated with long-lived assets are expensed, not capitalized?
Immaterial repairs and maintenance Ordinary repairs and maintenance
Which of the following is a long-lived asset?
Land on which to build a new store
The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.
Supplies Expense dr ## Supplies from ##
The journal entry to record the purchase of supplies on account is debit ______.
Supplies and a credit to Accounts Payable.
Which of the following is incorrect regarding the Income Tax Payable account?
The account represents tax refunds due to the company.
Which of the following statements are true?
Using a different inventory accounting method leads to reporting a different amount for cost of goods sold. Managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fits their business.
After posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased?
accounts receivable
Reporting revenues when the goods or services are provided and expenses when they are incurred is called ______________ basis accounting.
accrual
In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.
add the transportation costs to its Inventory account
The discount on a bonds payable becomes ______.
additional interest expense over the life of the bonds
A(n) _____ trial ______ is prepared immediately ______ the adjusting entries have been recorded and ______ the financial statement are prepared.
adjusted balance after before
Treasury Stock is ______ account.
contra equity
Bank 'n' Roll, Inc. pays its employees once a month and records the expense at the time of payment. On May 31, Bank 'n' Roll, Inc. paid its employees $10,000 for work performed in May. The entry to record the payment includes a ______ for $10,000.
credit to Cash debit to Wages Expense
On March 1, Scents, Inc. lent $1,000 to an employee at a rate of 6% for 3 months. Scents' entry to record the loan of $1,000 to its employee includes a ______.
credit to Cash of $1,000 debit to Notes Receivable of $1,000
The journal entry to record taking a discount when paying for goods previously purchased on account and recorded using the gross method includes a ______.
credit to two asset accounts debit to a liability account
In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______.
debit to accounts receivable credit to inventory debit to cost of goods sold credit to sales revenue
Expenses are increased with ______.
debits because they decrease shareholders' equity
Dividends Payable is recorded as a credit on the ______.
declaration date
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 adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest ____________" and a credit to "Interest ____________."
expense, payable
Stockit, Inc. issued 100,000 shares of the 1,000,000 shares authorized. Stockit has repurchased 10,000 of its shares. The number of shares authorized represents the ______.
maximum number of shares Stockit is allowed to issue
An asset's useful life ______.
may be expressed in terms of time or units of capacity
Net Sales on an income statement equals Sales Revenue ______.
minus Sales Returns, Allowances and Discounts
A bank ______ is an internal report used to compare the bank statement with the company's cash records and should be prepared by an employee whose duties are separate from recording and handling of cash.
reconciliation
The Date of ____________ is the cut-off date for determining which specific stockholders are to be paid the dividend.
record
Treasury Stock ______.
reduces total stockholders' equity is shares of stock no longer outstanding is a contra-equity account
Accruing a liability always involves recording both a(n)______ and a liability.
expense
Failing to record bad debt expense in the same period as the related revenue violates which principle?
expense recognition (matching) principle
Ordinary repairs and maintenance costs should be ______.
expensed as incurred
Adjustments help to ensure that all ______ are recorded in the period in which they are incurred.
expenses
A transaction that involves an exchange of assets, liabilities and/or stockholders' equity between the company and someone else is called a(n) ____________ exchange.
external
Among the requirements of SOX is those who willfully misrepresent financial results ______.
face stiff fines and possible jail sentence
If a bond's stated rate is 4% and the market rate is 4%, this bond will sell at ______.
face value
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's beginning Equipment account is $100,000. It purchased $10,000 of new equipment and sold $4,000 of its equipment during the period. The company's ending Equipment balance equals a _____ balance.
$106,000 debit
The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______.
$106,500
Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchased 3 more at $12 each. What is the weighted average cost per unit?
$11.20
Inventory began was $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue?
$115,000
Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.
$12.10
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 one of the diamonds that was purchased on July 9. Using a periodic specific identification, its Inventory after the December 24 sale is ______.
$2,250 Reason: Inventory equals $2,250 (=$500 + 550 + (2x$600)). Cost of Goods Sold equals $550.
Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $200. The cash register's depreciable cost equals ______.
$2,300
Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.
$20,000
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
Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______.
$302
Boron Company has Net Sales of $60,000; Beginning Inventory of $7,000; Purchases of $35,000 and Ending Inventory of $5,000. The Cost of Goods Sold is ______.
$37,000
A company's beginning Accounts Payable is $1,000. It had a $10,000 of purchases on account and paid $7,000 of the amounts owed. The Accounts Payable ending balance equals a Blank______ balance.
$4,000 credit
A company's beginning Cash is $10,000. It had a $100,000 of cash receipts and $70,000 of cash payments during the period. The company's ending Cash balance equals a _____ balance.
$40,000 debit
Delta Diamonds had 5 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. Using FIFO, its Cost of Goods Sold for the year ended is ______.
$500
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
Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts Payable balance of ______.
$6,000
Delta Diamonds had 5 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. Using LIFO periodic, its Cost of Goods Sold is ______.
$600
Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income tax $18,000 and State income tax $3,850. What is the net pay to employees?
$70,000
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
A company has a $8,000 cash balance per its books. The bank statement has a balance of $8,450. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, EFTs of $1,000 were received from customers, a $200 NSF check from a customer, and a $50 bank service charge. Given the above reconciling items, the up-to-date cash balance equals ____________.
$8,750
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
On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. The truck will be worthless at the end of the 4 years. If the truck was driven 15,000 miles in its 1st year, Depreciation Expense for the year using units-of-production is ______.
$9,000
Just In Thyme, Inc. has the following December 31 equity balances: Common Stock of $20,000; Additional Paid-in Capital of $30,000; and Retained Earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal ______.
$90,000
On January 1, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy Beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Accumulated Depreciation at December 31 of the 2nd year, using units-of-production, equals ______.
$90,000
A company's beginning Notes Payable is $100,000. It borrowed $50,000 by issuing a promissory note to the bank and repaid $60,000 of the amounts owed. The Notes Payable ending balance equals a _____ balance.
$90.000 credit
The issue price of 1,000, 5%, $1,000 bonds issued at 92.10 equals ______.
$921,000
Treasure This, Inc. had total assets of $100,000, liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 each. After this repurchase, total assets equal _____, liabilities equal ______ and stockholders' equity equals ______.
$95,000; $60,000; $35,000
What is the formula for calculating units-of-production depreciation?
(cost - residual value) x (actual production this period / estimated total production)
The formula for calculating straight-line depreciation is ______.
(cost-residual value) x (1/useful life)
Computit bought a new copier machine. Which of these costs should be expensed?
- Annual maintenance cost - Replacement of the toner for the copy machine
Identify which of the following statements are true. - Assets are on the left side of the accounting equation and have a normal debit balance. - Credits increase assets. - Credits increase liabilities. - Liabilities are on the right side of the accounting equation and have normal credit balances. - Credits increase stockholders' equity.
- Assets are on the left side of the accounting equation and have a normal debit balance. - Credits increase liabilities. - Liabilities are on the right side of the accounting equation and have normal credit balances. - Credits increase stockholders' equity.
ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?
52% (Net Sales - COGS) / Net sales
Which of the following are limitations in internal control systems?
- a control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors - collusion can exist making it impossible to completely prevent fraud
The journal entry to record $5.6 million in sales on account includes a ______.
- debit to Accounts Receivable of $5.6 million - credit to Sales Revenue of $5.6 million
The Sarbanes-Oxley (SOX) Act provides increased regulations for
- internal controls - corporate executives - auditors
Which of the following income statement line items are affected by the inventory method chosen?
- net income - income from operations - Income before income tax expense - income tax expense - gross profit
What is the effect of recording depreciation expense on the accounting equation?
- total stockholders' equity decreases - total assets decrease
Which of the following are possible effects on the accounting equation when recording a transaction that increases a liability by $100?
-An asset increases by $100 -A stockholders equity account decreases by $100
Order of liquidity
-Cash -A/R -Inv. -PPE
Revenue is recognized when:
-Cash is collected from customers if using cash basis accounting -Services are provided even if cash has not yet been collected, if using accrual basis accounting.
As of December 31, the unadjusted balance in Deferred Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?
-Deferred Revenue needs to be decreased by the amount gift cards redeemed during the month -Sales Revenue needs to be increased by the amount of gift cards redeemed during the month
Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's income statement?
-Expenses were too low -Net income was too high
Which of the following are possible effects on the accounting equation when recording a transaction that affects two accounts?
-One asset account increases and one stockholders' equity account increases -One asset account increases and one asset account decreases.
Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals ______ shares.
1,000,000
Creditors are mainly interested in assessing these two things
1. Is the company generating enough cash to pay what it owes? 2. Does the comapny have enough assets to cover its liabilities?
Place the order of the steps in documenting and controlling purchases in a voucher system with the first step listed on the top and final step at the bottom.
1. Request goods or services by submitting a purchase requisition 2. Prepare a purchase order after suppliers and prices have been approved 3. Prepare a receiving report 4. Prepare a supplier invoice and prepare the journal entry
Downsides to being a public company
1. greater public reporting of significant events affecting the company 2. increased accounting disclosures 3. greater risk of litigation for misstatements in and omissions from these reports
Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ______ times.
10
X-it Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for depreciation purposes?
4 years and 50,000 miles.
Sterling Company paid $1,200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of $__________ and a credit to Prepaid Rent in the amount of $_________. The remaining balance in the Prepaid Rent account after the adjustment was $__________.
400,400,800
Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes a ______.
90,000 credit to additional paid in capital 100,000 debit to cash 10,000 credit to common stock
AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares outstanding equals ______ shares.
90000
Which statement is false?
A trial balance is the same as a balance sheet.
Is an information system designed by an organizaton to capture the activities affecting its finacial condition and performance and then report the results to decision makers, both inside and outside the organization
Accounting
A sale on account is recorded with a debit to __________ __________ and a credit to __________ __________.
Accounts Receivable Sales Revenue
What is the effect of the December 31 adjusting entry to record $400 of revenue for which the seller has performed for its customers but not yet collected?
Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400
What is the effect of the December 31 adjusting entry to record $400 of revenue for which the seller has performed for its customers but not yet collected?
Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400.
How does the timing of adjusting entries differ from the accounting for daily transactions?
Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.
Which method of allowing for estimated uncollectible accounts is generally more accurate?
Aging of accounts receivable method
Which of the following statements is true?
Allowance for Doubtful Accounts is a permanent account.
ABC, Inc.'s unadjusted trial balance included Accounts Receivable $80,000 debit; Allowance for Doubtful Accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging of accounts receivable method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report ______.
Allowance for Doubtful Accounts of $8,000 on the balance sheet Bad Debt Expense of $7,250 on the income statement
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, the ______.
Allowance for Doubtful Accounts will have a $90,000 credit balance
Walmart sells a bike that cost $100 to a customer for $250 cash. Using a perpetual inventory system, the entry to record the sale includes a debit to _________ and credit to __________ ____________ for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to _________ for $100.
Cash, Sales, Revenue, inventory
A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?
An audit committee of independent directors oversees financial matters of the company. External auditors must test the effectiveness of the company's internal controls. Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports.
Which of the following statements are true?
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.
The accounting cycle consists of 3 steps, place the following steps in their correct order with the first step listed first.
Analyze, record, then summerize the transaction
Is a resource the company controls and expects benefit from in the future
Assets
Liability + Owners Equity =
Assets
A classified balance sheet shows subtotals for current _____________ and current _____________.
Assets - Liabilities
Which of the following is another way to express the expanded accounting equation?
Assets - Liabilities = Common Stock + Retained Earnings
What would be the effect of forgetting to record the adjusting entry for estimated bad debts?
Assets and stockholders' equity would be overstated.
A classified balance sheet shows subtotals for current _________ and current _________.
Assets, Liabilities
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
When you do not have the cash to pay bills you file for ________________
Bankrupcy
The entry to record the issuance of bonds at face value includes a debit to Cash and a credit to
Bonds payable
If Revenues is credited, then the possible debits are ______.
Cash Accounts Receivable Deferred Revenue
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
If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a debit to ______.
Cash of $100,000 and a credit to Bonds payable of $100,000
The issuance of common stock is recorded with a debit to ______ and a credit to ______
Cash, Common Stock
When Revenue is credited, the possible three debits are _________, Accounts ____________, and/or _____________ Revenue.
Cash, Receivable, and Unearned
Time out on paying bills
Chpt 11
The balance in Dividends account represents a reduction to Retained Earnings under stockholders' equity. Therefore, the Dividends account has a normal ________ balance
Debit
When a company reissues shares at a price lower than the cost to previously purchase the treasury stock, it records a ______.
Debit to additional paid-in capital
Which of the following is shown as an addition to the bank balance on a bank reconciliation?
Deposits in transit
Why is the straight-line method of depreciation called "straight-line"?
Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.
The adjusting entry to record depreciation debits _____________ and credits ______________.
Depreciation expense, Accumulated depreciation
___________ is the short title for the members of a companys Board of Directors
Directors
As of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, Salaries and Wages __________ will be debited and Salaries and Wages __________ will be credited by $700.
Expense, payable
_______________ are all cost of doing buisness that are necessary to earn revenues
Expenses
______________ are exchanges invloving assets, liabilities, and/or stockholders' equity betweeen the company and someone else.
External exchanges
Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received?
FIFO
If a company receives $100,000 cash in exchange for issuing 100 bonds at $1,000, the bonds were issued at ______.
Face value
This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?
It would be added to the book balance.
Cash is __________
King
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
Which of these inventory accounting methods are acceptable under US GAAP?
LIFO, FIFO, Weighted Average, Specific Identification
Which of these assets are not depreciated?
Land, Inventory, Cash
Are measurable amounts the company expects to give up in the future to settle what it previously owes to creditors
Liabilities
Combines characteristics of a partnership and a corporation
Limited liability company (LLC)
________________________ reports include detailed finacial plans and continually updated reports about the operating performance of the company
Managerial accounting
Makes the finished goods
Manufacturing Company
Which of the following is correct?
Measurement of net income involves estimations.
Preparers are like ___________
Mechanics
Which of the following is not a proper segregation of duties for cash received in person?
Members of the accounting department are responsible for the collection of cash and depositing the cash in the bank.
Cash flow investing is almost always ______________
Negative
CF Operations starts out __________ and eventually needs to become ____________
Negative, positive
Revenue - Expenses =
Net Income
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.
Gross profit percentage is calculated as ______.
Net sales minus Cost of Goods Sold, then divide by Net sales, and multiply by 100
____________ is a liability that represents the amount the company owes to others as a result of issuing a promissory note.
Notes payable
Select those statements below that are true about cash dividends.
On the declaration date, liabilities are increased. On the payment date, current assets are decreased.
Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building. What is the effect of this transaction on the accounting equation?
One asset increases, while another asset decreases.
The owners have a claim for amounts they contributed directly to the company in exchange for its stock (common stock)
Paid-in capital
Is similar to sole proprietorship, except that instead of profits, taxes, and legal liability are the responsibility of two or more owners instead of one
Partnership
Describes hhow profits are shared between partners and how that would change if new partners are added or existing partners leave
Partnership agreement
Which inventory system requires that the purchases of merchandise on account be debited to Purchases?
Periodic system
CF Financing is typically _______________
Positive
Which of the following would be considered merchandise inventory?
Purchased finished goods
Do not provide access to assets or information unless it is needed to fulfill the assigned task
Restrict access
Which principles of internal control are incorrectly described?
Restrict access - prepare documents that show activities that have occurred Document procedures - do not provide access to assets or information unless it is needed to fulfill the assigned task
Buys goods and sells them directly to individuals
Retailers
Profets you keep or reinvest
Retained Earnings
Retained Earnings(b) + Net Income - Dividens =
Retained Earnings (e)
The closing entry for dividends involves a debit to ______ and a credit to ______.
Retained Earnings; Dividends
______________ are earned by selling goods or services to customers
Reveneus
The income statement is the financial statement that reports the amount of __________ and _______________ during the accounting period
Revenues - Expenses
Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)?
Sales Returns Sales Discounts Sales Allowances
Which of these will require a credit to the inventory account in a perpetual inventory system?
Selling inventory for cash Selling inventory on account
What would cause a bank statement not to agree with the cash balance in the accounting records?
The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank made an error in recording a deposit made by the company.
Which statement are true?
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.
ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?
The issue price will be above the bond's face value.
In which of these situations would a merchandiser record revenue?
The obligation has been fulfilled and control of the goods has been transferred to the customer; goods were delivered FOB shipping point but have not yet arrived at the buyer's place of business
What are the two stages of accounting for a purchase discount using the gross method?
The purchase is first recorded at full cost. The inventory account is later reduced if payment is made within the discount period.
The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?
The same period as credit sales
In a perpetual inventory system, which of the following statements are true?
The seller should record freight-out as a selling expense. The purchaser should record freight-in as an asset, Inventory.
If a company has no Wages Payable on its balance sheet, then one may conclude ______.
The wages expensed in the period were paid
How does management estimate useful lives and residual values?
They use professional judgment.
Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following is true?
This entry is correct.
Why are adjustments needed at the end of an accounting period?
To ensure that all assets and liabilities are reported at appropriate amounts
What is the purpose of preparing an adjusted trial balance?
To ensure that total debits equal total credits after the adjustments have been recorded
The entry to record annual straight-line depreciation will decrease a company's ______.
Total Assets asset book value Net Income
Which of the following financial statement totals are reduced by the adjusting entry to record amortization?
Total assets on the balance sheet Net Income on the income statement Total stockholders' equity on the balance sheet
A company purchased a new cash register in exchange for a cash payment of $1,200. As a result of recording the purchase, ______.
Total assets remain the same One asset is exchanged for another
X-it Company signed a $500,000, 5-year note payable to buy a new machine. The company paid $2,000 cash for transporting and $1,000 cash for installing the machine. What is the effect of this transaction on the accounting equation?
Total liabilities increase $500,000 Machinery, an asset, increases $503,000 Total assets increase $500,000
What are the effects on the accounting equation from the adjustment for income tax expense accrued, but not paid, at the end of the accounting period?
Total liabilities will increase and total stockholders' equity will decrease.
Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry with a debit to ______.
Treasury Stock and a credit to Cash of $8,000
Refurbish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______.
Treasury stock will equal $(4,000); Additional paid-in capital will be increased by $2,000
If a new company calculates the average cost of its inventory by adding together the total cost of all purchases and then dividing it by the number of units purchased during the period, it is using the weighted ___________ cost method.
average
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
Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______.
bad debt expense to decrease sales to decrease
The accounting equation must always ________ for each transaction
balance
Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______.
balance sheet as a current asset; Cost of Goods Sold on the income statement
If an adjusting entry is required for interest owed, then the ______ will report ______.
balance sheet; Interest Payable income statement; Interest Expense balance sheet; Notes Payable
The issue price of a bond is ______.
based on what the market is willing to pay based on a present value calculation
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
The Cost of Goods Sold equation is ______.
beginning inventory + purchases - ending inventory
The entry to record the issuance of bonds at face value includes a debit to Cash and a credit to ___________
bonds payable
The difference between the Equipment account and its Accumulated Depreciation is called the ____________ value.
book
Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided
but not yet collected
Sunny Skys, Inc. bought a derelict hunting lodge, which it tore down at a cost of $45,000 and replaced with a new lodge. The demolition cost should be ______.
capitalized
All reasonable and necessary costs to acquire and prepare an asset for its intended use should be ______.
capitalized as an asset
Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?
capitalizing costs that should be expensed
A company typically receives ____ an asset, when it issues stock to its owners.
cash
If Sales Revenue is credited, then which of the following would be the corresponding debit?
cash
Reporting revenues only when cash is received and expenses only when cash is paid is called the ___________ basis of accounting.
cash
Reporting revenues only when cash is received and expenses only when cash is paid is called the ________________ basis of accounting.
cash
Which of the following poses a high risk of theft because of its high volume and ease of portability?
cash
Paying by check helps a business to control cash when the
checks are prenumbered and written sequentially, check is signed by an authorized manager, and the manager studies the documents supporting the payment before signing the check
When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have _________ the bank.
cleared
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
Which of the following should be classified as stockholders' equity?
common stock and retained earnings
_____________ Liabilities are potential liabilities that arise as a result of past transactions or events and are reported on the balance sheet if the loss will probably occur and can be reasonably estimated.
contingent
Depreciable cost equals an asset's _______.
cost minus its residual (or salvage) value
When using the specific identification inventory method, cost of goods sold equals the ______.
cost of the actual item sold
Which step must happen first when determining Cost of Goods Sold using a periodic inventory system?
count the number of units on hand
A company issued 1,000 shares of stock for $100,000. The increase in the Common Stock account would be recorded with a ______.
credit
A company paid $2,000 cash to an employee for this month's salary. The entry to record this transaction would include a ______ to Cash.
credit
A company paid $500 cash for a new printer. The entry to record this transaction would include a ______ to Cash.
credit
A company purchased land in exchange for a $25,000, 10-year note payable. The increase in the Notes Payable account would be recorded with a ______.
credit
The entry to record the payment of previous purchases made on account includes a ______.
credit cash, debit accounts payable
When a company reissues shares at higher price than the cost to previously purchase the treasury stock, it records a ______.
credit to Additional Paid-in Capital
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
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 ______.
credit to Allowance for Doubtful Accounts of $900 debit to Bad Debt Expense of $900
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
___________ include suppliers, banks, and anyone whom money is owed.
creditors
The Allowance for Doubtful Accounts is a contra-asset account. Increases to the account (to record the period's estimated bad debt expense) are recorded with ______.
credits
Inventory is reported as a(n) ______.
current asset on the balance sheet
Accounts (or trade) Payable is a ______ and increases when ______ and decreases when ______.
current liability; purchases are made on credit; bills are paid
If a asset is going up (+) then it is a ______________
debit
Which of the following entries records the adjustment to revenue for which the seller has performed its obligations but has not yet been collected or billed?
debit accounts receivable, credit sales revenue
Which of the following entries records the adjustment to revenue for which the seller has performed its obligations but has not yet been collected or billed?
debit accounts receivable, credit sales revenue-
The correct journal entry to record a transaction that involves paying cash for an expense incurred in the same period is:
debit an expense and credit cash
Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?
debit bad debt expense, credit allowance for doubtful accounts
The correct journal entry for the collection of a note receivable includes a ______. Assume the collection of interest is recorded separately.
debit cash credit notes receivable
The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a ______.
debit cash debit additional paid in capital credit treasury stock
The entry to record the sale of services for cash includes a:
debit cash, credit service revenue
The adjusting entry to record depreciation on equipment includes a ______.
debit depreciation expense, credit accumulated depreciation
Which of the following entries records the adjustment for income tax accrued, but not yet paid?
debit income tax expense credit income tax payable
Using a perpetual system, purchasing merchandise on account includes a ______.
debit inventory, credit accounts payable
The entry to record the issuance of a note receivable is ______.
debit notes receivable, credit cash
The beginning balance in Acme's Cash account was $100,000. During the month, Acme issued $25,000 of common stock for cash. The balance in Acme's Cash account is now a:
debit of $125,000
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
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. The adjusting entry to record estimated bad debts includes a ______. 2
debit to Bad Debt Expense of $1,000 credit to Allowance for Doubtful Accounts of $1,000
Using a perpetual inventory system, the journal entry to record a sale on account will include a ______.
debit to Cost of Goods Sold debit to Accounts Receivable a credit to Sales Revenue credit to Inventory
John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal Income Tax $58; and State Income Tax $10. Assuming the payroll deductions are paid in the following month, ABC would record John's pay with a journal entry that includes a ______.
debit to Salaries and Wages Expense of $600 credit to State and Federal Income Tax Payable of $68 credit to Cash of $486.10 credit to FICA (Social Security and Medicare) Payable of $45.90
The adjusting entry to record the revenue earned by the seller fulfilling its obligation results in a(n) _____________ to the Deferred Revenue account.
decrease, dr
Prepaid expenses, such as Prepaid Rent, should be ______ by the benefits that were used up during the accounting period.
decreased
The accountant recorded the adjusting entry for the depreciation of its long-lived assets with a debit to Depreciation Expense and a credit to Accumulated Depreciation. As a result of this entry, assets and stockholders' equity will be ______.
decreased
In a bank reconciliation, an outstanding check is ______.
deducted from the bank balance
Sales discounts should appear in the financial statements as a(n) ______.
deduction from sales
Outstanding checks written by the company should be a(n) ______ on the company's bank reconciliation
deduction from the bank balance
Bank reconciliations are needed to reconcile for ______.
deposits in transit outstanding checks
Matching part of the cost of a long-lived asset with the revenues generated by the asset is ______.
depreciation
_____________ Expense should be recorded to recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period.
depreciation
Which account is debited in an adjusting entry to record depreciation on machinery?
depreciation expense
If a bond's stated rate is 4% and the market rate is 6%, this bond will sell at ______.
discount
A companys prodits are accumulated in retained earnings until a decision is made to distribute themto stockholders in what is called a _______________
dividend
____________ are not an expense incurred to generate earnings
dividends
Prepare documents to show activities that have occurred
document procedures
A corporation ______ have a legal obligation to pay dividends.
does not
When a stockholder sells its shares to another person for more than its original cost, the corporation ______.
does not make a journal entry
Adjusting entries are made at the __________ of the accounting period, while daily transactions are made throughout the accounting period.
end
The trial balance is an internal report used to determine whether total debits _____________ total credits
equal
Cash ______ are short-term, highly ______ investments purchased within ______ of maturity.
equivalents; liquid; 3 months
A company's Bad Debt Expense reports the ______.
estimated amount of this period's credit sales that customers will fail to pay
________ refers to the standards of conduct for judging right from wrong, honest from dishonest and fair from unfair.
ethics
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
On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______.
net income to be overstated assets to be overstated
_________________ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales __________.
net, discounts
What is the effect on total assets when a company purchases land for a cash payment of $10,000?
no effect
What is the effect on total stockholders' equity when a company purchases a cash register for a cash payment of $1,200?
no effect
When a corporate charter does not specify a legal value per share, then the stock issued is referred to as ______.
no-par value stock
If an adjusting entry for interest owed is recorded then the company must have issued
notes payable
Collecting cash from customers for services provided is a(n) ______ activity.
operating
The adjusting entry for income taxes records income tax that is incurred and __________ by the company.
owed
A common stock's _____ value is typically set at a low amount and has little meaning today other than being used to by some states to assess fees.
par
_____ is an insignificant value per share of capital stock specified in the corporate charter.
par value
If Accounts Payable is debited and Cash is credited, then the company is recording a ______.
payment of amounts owed for purchases made on account
Employees' gross earnings differ from their net pay because of ______.
payroll deductions
In accrual basis accounting, revenue is recorded when the seller ______.
performs the work promised to the customer and thus is entitled to receive compensation
A ____________ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory (beginning) and credit to Purchases.
periodic
Allowance for Doubtful Accounts is a ______.
permanent account so its balance carries forward to the next accounting period
Cost of Goods Sold is debited and Inventory credited, when the sale occurs using the ______ inventory system.
perpetual
If Inventory is debited and Accounts Payable is credited, then the company uses the ______.
perpetual inventory system and is recording a purchase on account
Which inventory system requires that the Inventory account be updated when merchandise is purchased?
perpetual system
Which inventory system requires that the inventory account be updated at the time merchandise is sold?
perpetual system
The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ______.
remain unchanged
The stated rate ______.
remains the same throughout the life of the bonds
A receivable write-off removes a non-paying customer's account receivable and ______.
removes the same amount from Allowance for Doubtful Accounts
The straight-line depreciation method ______.
reports an equal amount of depreciation expense each year
The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the _________ value.
residual
_________ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose.
restricted
The services provided by a bank help business control cash by ______.
restricting access and providing documentation and independent verification
Walmart and costco are ____________
retailers
Revenues and expenses are subcategories of ______.
retained earnings
In accrual accounting, according to the _____________ recognition principle, revenues should be recognized when the seller performs the work promised, not necessarily when cash is received.
revenue
The net profit margin ratio is calculated by dividing net income by ______.
revenue
When a seller fulfills its performance obligation, it credits ______.
revenue
Increases to stockholders' equity are recorded on the ______________ side of the T-account.
right, credit
Another term for residual value is _________ value.
salvage
Do not make one employee responsible for all parts of a process
segregate duties
Contributed capital of $1,000,000 represents ______.
the amount stockholders have invested in exchange for stock
______ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.
segregation
Restricted cash is reported ______.
separately as an asset on the balance sheet
A multistep income statement is useful to financial statement users because it ______.
separates income statement items into meaningful components separates cost of goods sold from other operating expenses, which allows the calculation of gross profit
Will typically not have Inventory on its balance sheet or Cost of Goods Sold on its income statement
service company
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
The number of shares issued represents the number of shares ______.
sold
Which inventory method is typically used when accounting for expensive and unique inventory items?
specific identification
The _______ rate on a bond is the rate used to determine the interest payments.
stated or coupon
Among the requirements of SOX is those who commit fraud face
stiff fines of up to $5 million plus repayment of fraud proceeds possible jail time up to 20 years for each violation
When a business issues common stock, what does it give to its owners?
stock certificates
Treasury stock is reported in the ______.
stockholders' equity section of the balance sheet
The adjusting entry to record the allowance for doubtful accounts causes total ______.
stockholders' equity to decrease assets to decrease
Contributed capital of $1,000,000 is found in the ______ section of the ______.
stockholders' equity; balance sheet
(Cost - residual value) x (1/useful life) is the formula for calculating the ____________ - ______________ method of depreciation.
straight line
Bad Debt Expense is a ______.
temporary account so its balance is closed (zeroed out) at the end of the accounting period
Z Best, Inc. issued $1,000,000 of common stock for cash. By accident, Z Best recorded the transaction by increasing cash and decreasing stockholders' equity. As a result of this entry, ______.
the accounting equation is out of balance stockholders' equity is understated common stock is understated
Treasury stock represents ______.
the amount paid for stock reacquired and currently held in treasury a contra-equity account
