Accounting Exam 1

South Beach Apparel issued 8,000 shares of $4 par value stock for $20 per share. What is true about the journal entry to record the issuance?

$128,000

Roberto Designers was organized on January 1, 2021. The firm was authorized to issue 100,000 shares of $6 par value common stock. During 2021, Roberto had the following transactions relating to stockholders' equity:Issued 10,000 shares of common stock at $8 per share.Issued 20,000 shares of common stock at $9 per share.Reported a net income of $100,000.Paid dividends of $50,000.Purchased 4,000 shares of treasury stock at $11 (part of the 20,000 shares issued at $9).What is total stockholders' equity at the end of 2021?

$266,000 (30,000 x $6) + (10,000 x $2) + (20,000 x $3) + $100,000 - $50,000 - (4,000 x $11)

The following information was taken from a company's bank reconciliation at the end of the year: Bank balance$9,500 Checks outstanding$8,600 Note collected by the bank$2,000 Service fee$32 Deposits outstanding$4,400 NSF check$340 What is the correct cash balance that should be reported in the company's balance sheet at the end of the year?

$5,300

Clothing Emporium was organized on January 1, 2021. The firm was authorized to issue 160,000 shares of $6 par value common stock. During 2021, Clothing Emporium had the following transactions relating to stockholders' equity:Issued 48,000 shares of common stock at $8 per share.Issued 32,000 shares of common stock at $9 per share.Reported a net income of $160,000.Paid dividends of $80,000.What is total paid-in capital at the end of 2021?

$672,000 (48,000 x $8) + (32,000 x $9)

Dividends goes in which category in the Statement of Stockholders' Equity?

(Retained Earnings)

Net Income goes in which category in the Income Statement?

+ or - Retained Earnings

Of the following six accounts, which ones have temporary balances: (1) Service Revenue (2) Dividends (3) Salaries Expense (4) Common Stock (5) Retained Earnings (6) Cash

1, 2, and 3

Detective Controls

1. Reconciliations 2. Performance Reviews 3. Audits

Preventive Controls

1. Separation of duties 2. Physical Controls 3. Proper Authorization 4. Employee Management 5. E-Commerce Controls

The board of directors of Capstone Inc. declared a $0.40 per share cash dividend on its $3 par common stock. On the date of declaration, there were 52,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock.What is the entry when the dividends are declared? A.Dividends6,000 Dividends Payable 6,000 B.Dividends6,000 Cash 6,000 C.Dividends20,800 Dividends Payable 20,800 D.Dividends8,000 Cash 8,000

A

Partnership

A business in which two or more persons combine their assets and skills

Sole Proprietorship

A business owned by one person

Corporation

A company legally separate from its owners

Internal Controls

A company's plans to (1) safeguard the company's assets and (2) improve the accuracy and reliability of accounting information

Double taxation

A corporation pays income taxes on its earnings, and when dividends are distributed to stockholders, the stockholders pay taxes a second time on the corporate dividends they receive

Unearned Revenue

A liability created when a business collects cash from customers in advance of providing services or delivering goods.

Treasury Stock is normally reported as:

A reduction of total stockholders' equity.

When preparing a bank reconciliation, a deposit outstanding would be:

Added to the bank's cash balance.

Disadvantages of a corporation

Additional taxes and more paperwork

The Sarbanes-Oxley Act (SOX) mandates which of the following? Increased regulations related to auditor-client relations. Increased regulations related to internal control. Increased regulations related to corporate executive accountability. All of the other answers represent mandates of the Sarbanes-Oxley Act.

All of the other answers represent mandates of the Sarbanes-Oxley Act.

Matching Principle

An expense must be recorded in the same accounting period in which it was used to produce revenue

Liabilities on a Balance Sheet?

Anything Payable

A company received a utility bill of $680 but did not pay it. Indicate the amount of increases and decreases in the accounting equation.

Assets (0) = Liabilities $680 + Stockholders' Equity ($680)

Retained Earnings on the Balance Sheet?

Assets - Liabilities - Common Stock

The financial statement that represents the accounting equation is the:

Balance Sheet

Assets on a Balance Sheet?

Cash, Accounts Receivable, Supplies, Equipment

On a trial balance, what is on the left side

Cash, assets, and expenses (prepaid too)

Which of the following is considered cash for financial reporting purposes? Accounts receivable. Investments with maturity dates greater than three months. Checks received from customers. Accounts payable.

Checks received from customers.

Decrease in assets

Credit

Decreases an account

Credit

Increase an account

Credit

Increase in liabilities

Credit

Increase in stockholders' equity

Credit

During the year, Cheng Company paid salaries of $22,900. In addition, $8,600 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include which one of the following? Debit to salaries payable for $22,900 Credit to salaries expense of $8,600 Debit to salaries expense for $31,500 Credit to salaries payable for $8,600

Credit to salaries payable for $8,600

Liabilities normally carry a _______ balance and are shown in the ______________.

Credit; Balance sheet

In journal entries is common stock credited or debited

Credited

Makes up cash and cash equivalents

Currency, coins, balances in checking and savings accounts, checks from customers, and short-term investments that have a maturity date of no longer than 3 months from the date of purchase

Decrease in liabilities

Debit

Decrease in stockholders' equity

Debit

Increase in assets

Debit

Provide music lessons to students for $12,800 on account.

Debit Accounts Receivable $12,800; Credit Service Revenue $12,800

A company purchases a building for $120,000, signing a note payable. Record the transaction.

Debit Buildings $120,000; Credit Notes Payable $120,000

Received $10,700 cash from students in (a) above.

Debit Cash $10,700; Credit Accounts Receivable $10,700

Receive cash for services that are not completed

Debit Cash and Credit Deferred Revenue

On September 1, 2021, Gold Gaming sold 400 one-year subscriptions to its online gaming website for $90 each. The total amount received was credited to Deferred Revenue. What would be the required adjusting entry at December 31, 2021? Debit Deferred Revenue and credit Service Revenue for $36,000. Debit Service Revenue and credit Deferred Revenue for $24,000. Debit Deferred Revenue and credit Service Revenue for $24,000. Debit Deferred Revenue and credit Service Revenue for $12,000.

Debit Deferred Revenue and credit Service Revenue for $12,000.

Pay rent for the current month, $2,900.

Debit Rent Expense $2,900; Credit Cash $2,900

Suppose a company rents office space for one year, paying $39,000 ($3,250/month) in advance on September 1.

Debit Rent Expense for # of months x price; Credit Prepaid Rent for 3 of months x price

Purchase music supplies on account, $1,200.

Debit Supplies $1,200; Credit Accounts Payable $1,200

After preparing the bank reconciliation, an NSF check would result in which of the following when recording the adjustment to the company's cash balance? Debit to Service Fee Expense. Credit to Accounts Payable. Credit to Service Revenue. Debit to Accounts Receivable.

Debit to Accounts Receivable.

Journal entries to record cash dividends are made on the:

Declaration date and payment date.

Receive negative cash from services on account

Decrease Assets only

Pay utilities for current month

Decrease assets and increase stockholders' equity

An expense has what effect on the accounting equation?

Decrease stockholders' equity.

Which of the following is not a balance sheet item?

Expenses

Which accounts go on a balance sheet?

Expenses, Revenues, and Net Income

In closing entries, retained earnings goes where

For debit accounts, you debit retained earnings and for credit accounts you credit retained earnings

The statement of stockholders' equity shows:

How each equity account changed over time.

Provide services to customers on account

Increase Assets and Increase Stockholders' Equity

Receive cash from services on account

Increase Assets only

Purchase equipment using a note

Increase assets and increase liabilities

Purchasing office supplies on account will:

Increase assets and increase liabilities.

Separation of duties refers to:

Individuals who have physical responsibility for assets should not also have access to accounting records.

Common Stock goes on which side of the T-Account

Left

Service Revenue goes on which side of the T-account

Left

Advantages of a corporation

Limited liability and the ability to raise capital and transfer ownership

Primary functions for financial accounting

Measures business activity and communicates those measurements to investors and creditors so they can make decisions

Retained Earnings represent a company's:

Net income less dividends since the company first began operations.

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?

November

Keeping supplies in a locked room with access allowed only to authorized personnel is an example of which preventive control?

Physical Controls

SOX Legislation

Protects investors from accounting errors and fraudulent activity

Financial accounting does not deal with which of the following? Measuring a company's economic activity. Providing information to internal users. Preparing financial reports. Communicating financial results to investors.

Providing information to internal users.

Which of the following would increase assets and increase liabilities? Provide services to customers on account. Purchase office supplies on account. Pay dividends to stockholders. Receive a utility bill for the current month. Plan to pay bill beginning of next month.

Purchase office supplies on account.

Which of the following does not represent a major provision of the Sarbanes-Oxley Act? Nonaudit services. Quarterly financial statements. Auditor rotation. Corporate executive accountability.

Quarterly financial statements.

Accrual Accounting

Recognizing transactions and events when revenues are earned and expenses are incurred

Revenue Recognition Principle

Revenue is recognized in the period in which goods and services are provided to customers, not necessarily in the period in which we receive cash

Equipment goes on which side of the T-account

Right

Salaries goes on which side of the T-account

Right

Which of the following accounts has a debit balance? Accounts Payable. Deferred Revenue. Service Revenue. Salaries Expense.

Salaries Expense.

Limited liability means:

Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.

The stockholders' interest in a corporation is called:

Stockholders' Equity

Treasury Stock

The number of issued shares repurchased by the corporation

Outstanding Stock

The number of shares held by investors. Only these shares receive dividends

Issued Stock

The number of shares sold to investors; includes treasury shares

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

Authorized Stock

The total number of shares available to sell, stated in the company's articles of incorporation

Current liabilities are liabilities due within one year.

True

For financial reporting purposes, we typically recognize expenses in the same period as the revenues they help to generate.

True

Credits and debits on revenue

debits decrease and credits increase

Debits and credits on common stock

debits decrease and credits increase

Debits and credits on retained earnings

debits decrease and credits increase

Debits and credits on dividends

debits increase and credits decrease

credits and debits on expenses

debits increase and credits decrease

Prepaid Expenses

expenses paid in cash before they are used or consumed

Accrued Expenses

is an accounting term that refers to an expense that is recognized on the books before it has been paid

In the accounting equation, notes refer to

liabilities

Accrued Revenues

revenues for services performed but not yet received in cash or recorded

On a trial balance, what is on the right side

revenues, liabilities, retained earnings, common stock

In the accounting equation, accounts refer to

stockholders' equity