Accounting Exam 1 review

Assets=

Liabilities + Stockholders' Equity

Dividend payment reduces your

cash, assets, and shareholders' equity

Expenses should be recognized in

the same period as the revenues associated with those expenses

Liabilities =

Accounts Payable + Notes Payable

Current ratio = Current Assets/Current Liabilities Giving you current ratio, total assets, and current liabilities, can you find noncurrent assets? •Current ratio = 0.5, total assets = 100,000, current liabilities = 30

0.5 x 30 = 15, 15= current assets, 100,000 - 15= 99,985, answer is 99,985

Cape Co's assets increased from $7,800 to $8,600, and liabilities decreased from $3,800 to $3,500. Assuming no additional stockholders' equity transactions took place, if expenses totaled $3,000, what was Cape Co's revenue for the year? A.$4,100 B.$4,600 C.$3,600 D.$1,600

A. $4,100 Change in Assets = Change in liabilities + change in Stockholders Equity 800= -300 + change in SE 1100 =Change in SE Change in SE = Change in Common Stock + Change in Retained Earnings 1100 = 0 + change in RE 1100 = change in RE Change in RE = NI - Dividends 1100 = NI - 0 NI = R - E 1100 = R - 3,000 $4,100 = Revenue

Which of the following would appear in the credit column on the unadjusted trial balance? A.Retained Earnings B.Prepaid expenses C.Accounts Receivable D.Supplies

A. Retained earnings

Power Enterprises uses accrual basis accounting. During October, the company recorded sales revenue of $150,000 from sales of goods to customers who promised to pay in November. During November, the company received payment from these customers of $135,000. No other transactions with customers took place during these two months. Which of the following statements is correct? A.The Accounts Receivable account has a balance of $15,000 at November 30. B.The Sales Revenue account will have a $135,000 balance at October 31. C. The Sales Revenue account will have a $135,000 balance at November 30. D. The Accounts Payable account has a balance of $15,000 at October 31.

A.The Accounts Receivable account has a balance of $15,000 at November 30.

The ending balance of Accounts Receivable in the ledger is calculated by adding the: A.beginning credit balance to the debits and subtracting the credits recorded during the period. B.beginning debit balance to the debits and subtracting the credits recorded during the period. C.beginning debit balance to the credits and subtracting the debits recorded during the period. D. beginning credit balance to the credits and subtracting the debits recorded during the period

B

The classified balance sheet for a company reported current assets of $1,689,116, total liabilities of $811,540, Common Stock of $1,120,000, and Retained Earnings of $142,260. The current ratio was 2.6.What is the total amount of noncurrent assets? ● A.426,856 B.384,684 C.877,576 D.649,660

B. $384,684 Total Assets = Total Liabilities + Total Stockholders' Equity= $811,540 + ($1,120,000 + $142,260) = $2,073,800 Total Assets = Total current assets + Total noncurrent assets Total noncurrent assets = Total Assets − Total current assets= $2,073,800 − $1,689,116 = $384,684

During January 2020, the first month of operations, a consulting firm had the following transactions: 1.Issued common stock to owners in exchange for $20,000 cash. 2.Purchased $5,000 of equipment, paying $1,000 cash and signing a promissory note for $4,000. 3.Received $9,000 in cash for consulting services performed in January. 4.Purchased $1,500 of supplies on account; all of the supplies were used in January. 5.Provided consulting services on account in the amount of $16,000. 6.Paid $750 on account. 7.Paid $3,000 to employees for work performed during January. 8.Received a bill for utilities for January of $3,400; the bill remains unpaid. What are the total expenses that will be reported on the income statement for the month ended January 31? A.$3,750 B.$7,900 C.$8,150 D.$4,500

B. $7,900 Expenses are costs of operating the business, incurred to generate revenues in the period covered by the income statement. Expenses are reported when the company uses something.Total expenses = Supplies Expense + Salaries and Wages Expense + Utilities Expense= $1,500 + $3,000 + $3,400 = $7,900

Which of the following is an example of an expense of this period? A.Costs of items paid for in this period but used up next period B.Costs of items used up this period but paid for next period C.Repayment of debt from a loan in a prior period D.Cost of land purchased and paid for this period

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

Retained Earnings =

Beginning balance of retained earnings + Net Income - Dividends

Which of the following would eventually cause Retained Earnings to increase? A.Incurring utilities that will be paid for next month B.Receiving cash for services provided in a prior month C.Performing services for which cash will be received next month D.Receiving cash for services to be provided next month

C. Performing services for which cash will be received next month

Oats, Incorporated, has $14,000 in Cash, $37,000 in Accounts Receivable, $2,500 in Supplies, $52,000 in Accounts Payable and $12,400 in Wages Payable. If Oats uses Cash to pay off $8,000 of the Wages Payable, which of the following statements is correct? A.The company will look more favorable to creditors. B.The company's current ratio will not change since current assets decreased by the same amount that current liabilities decreased. C.The company's current ratio will decrease. D.The company has a greater ability to pay current liabilities.

C. The company's current ratio will decrease Current ratio = Current assets ÷ Current liabilities. Before the transaction:($14,000 + $37,000 + $2,500) ÷ ($52,000 + $12,400) = $53,500 ÷ $64,400 = 0.83 After the transaction:($6,000 + $37,000 + $2,500) ÷ ($52,000 + $4,400) = 0.81 The current ratio decreased. A higher ratio means better ability to pay; a lower ratio means lesser ability to pay. In this case, the company would look less (rather than more) favorable to creditors.

Change in Assets =

Change in Liabilities + Change in Stockholders' Equity

Stockholders' Equity =

Common Stock + Retained Earnings

Which of the following statements about the debit/credit framework is correct? A.The Common Stock account is increased by debits. B.All asset accounts have a normal debit balance with the exception of cash, which has a normal credit balance. C.The total amount of asset accounts must equal the total amount of liability accounts minus the total amount of stockholders' equity accounts. D.When payment is made on a liability such as accounts payable, the liability account is decreased with a debit.

D

The following are the operational transactions related to Melody's Piano School for the month of May: ● Provided $950 of piano lessons to students who paid in cash. ● Provided $740 of piano lessons on account. ● Collected $555 from students who took piano lessons during April. ● Paid April's piano rental bill of $400. ● Received May's piano rental bill of $450 and set it aside for payment in June. Assuming that the company uses cash basis accounting, what is net income for May? A.$1,695 B.$1,240 C.$555 D.$1,105

D Cash basis accounting net income = Cash receipts − Cash payments= ($950 + $555)− $400 = $1,105

In November, Ellie Company bought supplies on account for $480, with payment due to the supplier in 90 days. The supplies were used for products made and delivered in November. In which month should Ellie Company record the cost of the supplies as an expense? A.January. B.One-third should be expensed in each month from November through the January payment date. C.December. D.November.

D. November

Buying land with bank debt, what is the entry?

Debit Cash, Credit Notes Payable

Statement of Cash Flow

Ending cash flow = beginning cash flow + Cash flow from operating activities + cash flow from financing activities + cash flow from investing activities (note they can be negative)

Difference between financial accounting/managerial accounting

External user (e.g., investors/creditors) vs. internal user (e.g., managers/employees)

Incur expense without paying cash

Increase in liabilities

Earned revenue without receiving cash

Increase in receivables

Characteristics of corporations

Separate legal entity. Shareholders have limited liability

The return to investors come from

dividends and capital gains