Accounting Final Exam 2
Accounting Equation
Assets = Liabilities + Stockholder's Equity
The account that shows the amount of accounts receivable that the business does not expect to collect is:
Allowance for Doubtful Accounts
Which one of the following is a correct fundamental accounting equation?
Assets = Liabilities + Stockholder's Equity
The Sales Discounts account is a:
Contra-Revenue Account
Accumulated depreciation is classified as a:
Contra-asset account
Cash Overage
Cr.
The issuance of no-par common stock requires a:
Credit to Common Stock
AJE: Accrued Revenue when finished the object, and received the promised revenue
Debit: Cash Credit: Accounts Receivable Credit: Revenue
Using a perpetual inventory system, which of the following entries would record the cost of the merchandise sold on credit?
Debit: Cost of Goods Sold Credit: Inventory
Which of the following is the appropriate entry to record the declaration of cash dividends?
Debit: Dividends Credit: Dividends Payable
JE: Close Dividends to Retained Earnings
Debit: Retained Earnings Credit: Dividends
JE: Close Revenues to Income Summary
Debit: Revenues Credit: Income Summary
AJE: Accrued Expense for salaries of workers
Debit: Salaries Expense Credit: Salaries Payable
AJE: Accrued Expense for how much is owed and earned for workers
Debit: Salaries Payable Debit: Salaries Expense Credit: Cash
Accrued interest on a short-term note payable is recorded by:
Debiting interest expense and crediting interest payable
Cash collected and recorded by a company but not yet reflected in a bank statement are known as:
Deposits in Transit
Which internal control activity is violated when the cashier at a cash register in a retail store also records the daily receipts in a journal?
Segregation of duties
A repair to an appliance under warranty occurs within the warranty period. What adjustment is made on the seller's accounting records?
Warranty liability credited
The account called "Accounts Receivable" is used:
When money is due the company from another business or individual generally from selling to a customer on credit
An accrual refers to an event:
Where the expense or revenue is recorded before the cash settlement
A $10,000 bond quoted at 103 1/2 is selling for:
$10,350
Petry Corporation issues 20,000 shares of $.50 per common stock per share. The account for additional paid-in capital will increase by:
$110,000
The interest on a $50,000 note at 12% for 2 months is:
$1,000
Find the Cost of Goods Sold: Sales Revenue $1,850,000 Beginning Inventory $390,000 Ending Inventory $310,000 Purchases made $1,100,000
$1,180,000
A company purchases a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2012, and was used 27,000 hours in 2012 and 26,000 hours in 2013. If the company uses the straight-line method of depreciation, what is the amount of depreciation expense for 2012?
$2,000
In 2010, ABC Plumbing Co. sold 400 water heaters at $375 each. The water heaters carry a two-year warranty for repairs. ABC estimates that repair costs will average 2% of the total selling price. How much is ABC's warranty expense for 2010?
$3,000
The stockholder's equity accounts of Jamison Corporation include $7,500 shares of common stock with a stated value of $.50, and 5,000 shares of treasury stock with a total cost of $25,000. The total number of shares outstanding for Jamison Corporation is:
$32,500
Deferred (Prepaid) Expense
- Assets overstated - Expenses understated
The normal balance of an expense account is a ___ while the normal balance of revenue account is a ____
- Debit - Credit
The three transactions that will affect retained earnings:
- Expenses incurred - Dividends declared and paid - Revenues by owners
What is withheld from an employee's paycheck?
- Federal Unemployment Tax Expense - State Unemployment Tax Expense
Differed (Unearned) Revenue
- Liabilities overstated - Revenues understated
Accounts which are closed at the end of an accounting period include:
- Revenue Expenses - Dividends
Which internal control activity is followed when inventory storage areas are secured with limited access?
- Safeguard of Assets and Records
Net realizable account receivable is calculated as:
Accounts receivable less allowance for doubtful accounts
Blurry Corp. issued 10-year, 9%, $100,000 bonds paying interest on an annual basis, at a $6,200 premium. What will happen?
Blurry's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year
Outstanding Checks
Checks included in the Balance, but not in the Account Statement
What does not a require a journal entry for a bank reconciliation?
Collection by the bank of a note receivable
Lincoln Corporation issued $10,000,000 in bonds. The bonds were sold at a price of $97. The journal entry to record the issuance is:
Debit Cash: $9,700,000 Debit Discount on Bonds Payable: $300,000 Credit Bonds Payable: $10,000,000
Receiving a check from a customer on account would include a:
Debit to Cash and a credit to Accounts Receivable
Journal Entry: Ballpark Construction Co. bought $1,000 of office supplies for cash from Supply Lot. The journal entry record this transaction is:
Debit: Supplies $1,000 Credit: Cash $1,000
AJE: Deferred (Prepaid) Expense of a count of supplies inventory showed $200 worth of supplies remaining on hand
Debit: Supplies Expense $800 Credit: Supplies $800
AJE: Differed (Unearned) Revenue for percentage of work they have completed
Debit: Unearned Revenue Credit: Revenue
Journal Entry: upon completion of the work
Debit: Unearned Revenue Credit: Revenue
What account has a normal debit balance?
Dividends
Which inventory cost flow method assigns the cost of the most recent items purchased to cost of goods sold?
LIFO
What asset is not subject to depreciation?
Land
What account is decreased with a debit?
Notes Payable
The adjustment for the expiration of prepaid insurance originally recorded asset, consists of a debt to:
Insurance expense and a credit prepaid insurance
What is an example of an accrual?
Interest earned but not yet received
On October 1st, Hillsmith Company borrowed $60,000 from Eight National Bank on a 1-year 7% note. IF the company's fiscal year ends on December 31st, Hillsmith should make a year-end adjusting entry to increase:
Interest payable $1,050
What will not affect retained earnings?
Investments by owners
Market conditions may force a company to issue its bonds at less than the face value of the bonds. The Discount on Bonds Payable account is used in this situation. This account:
Is a contra asset account
Total Assets
Total Assets = Total Current Assets + Total Property, Plants, and Equipment + Total Intangible Assets
Total Current Assets
Total Current Assets = Cash + Accounts Receivable + Inventories
Total Current Liabilities
Total Current Liabilities = Accounts Payable + Salaries Payable
Total Intangible Assets
Total Intangible Assets = Patent + Trademark + Copyright
Total Liabilities
Total Liabilities = Total Current Liabilities + Long Term Notes Payable
Total Liabilities and Stockholder's Equity
Total Liabilities and Stockholder's Equity = Total Liabilities + Stockholder's Equity
Total Property, Plants, and Equipment
Total Property, Plants, and Equipment = Land and Buildings + Machinery - Accumulated Depreciation
Total Stockholder's Equity
Total Stockholder's Equity = Common Stock + Retained Earnings
AJE: Accrued Revenue upon completion of an object, but only completed a fraction of the object
Debit: Accounts Receivable Credit: Revenue
Journal Entry: Earn cash for work they have not finished yet
Debit: Cash Credit: Unearned Revenue
Accrued Revenue
Assets and Revenues understated
The carrying value of bonds issued at a premium is calculated by:
Adding the remaining balance of Premium on Bonds Payable to Bonds Payable
Preferred Stock: $30,000 Common Stock: $60,000 Additional Paid-In Capital Preferred Stock $7,000 Additional Paid-In Capital Common Stock $18,000 Retained Earnings $40,000 1. A balance sheet prepared on December 31, 2011 would report total paid-in capital (also called contributed capital) of: 2. A balance sheet on December 31, 2011 would report a total stockholder's equity of:
1. $115,000 2. $155,000
Wilsonwear uses a perpetual inventory system and the FIFO costing method. The following information is available for the month of March. Mar. 1 On hand, 10 units at $2 each $20 4 Sold 8 units for sales price of $10 each $80 22 Purchased 50 units at $4 each $200 26 Sold 48 units for sales price of $10 each $480 1. How much is the cost of goods sold for March? 2. How much is ending inventory at March 31st?
1. 560 2. 16
Single Step Income Statement
1. Add up Revenues: - Sales - Interest Income 2. Add up Expenses - Cost of Goods Sold - Selling, General and Administrative Expense - Research and Development Expense - Depreciation Expense - Income Tax Expense 3. Net Income = Revenues - Expenses
Account Classification
1. Assets - Machinery - Cash - Inventories - Patent - Accumulated Depreciation (Subtract) - Land and Buildings - Accounts Receivable - Trademark 2. Liabilities - Long Term Notes Payable - Salaries Payable - Accounts Payable 3. Stockholder's Equity - Retained Earnings - Common Stock
Bank Reconciliation
1. Balance per Bank (New Balance on Statement) 2. Add Deposit in Transit 3. Add up Outstanding Checks; then subtract from Balance per Bank + Deposit in Transit 4. Adjusted Cash Balance = Balance per Bank + Deposit in Transit - Outstanding Checks 5. Balance per Books (Ending Balance) 6. Add Interest (Last date in Deposits, Dividends, and other Credits on Statement) 7. Add up Check Reorder Fee, NSF Check, Debit Memo-Insurance, and Service Charge; then subtract from Balance per Books + Interest 8. Adjusted Cash Balance = Balance per Books + Interest - Check Reorder Fee, NSF Check, Debit Memo-Insurance, and Service Charge
Journal Entry: Cash Basis Accounting vs. Accrual Basis Accounting 1. Performed $1,000 of services for Company B with an agreement to receive payment in 30 days 2. Received $1,000 for work performed in part 1 3. Paid for 6 months of rent in advance for $6,000
1. Cash: No Entry Needed Accrual: Debit Accounts Receivable Credit Revenue 2. Cash: Debit Cash Credit Revenue Accrual: Debit Cash Credit Accounts Receivable 3. Cash: Debit Rent Expense Credit Cash Accrual: Debit Pre-Paid Rent Credit Cash
Cash Management Principles
1. Delay paying supplies as long as possible - Don't incur late fees 2. Speed up collections from customers 3. Don't tie up money in excess inventory 4. Invest excess cash
Statement of Retained Earnings
1. Find out beginning balance of Retained Earnings 2. Add Net Income 3. Subtract Dividends 4. Retained Earnings = Net Income - Dividends
AJE: On 10/1/16, Ballpark Construction Co. purchased a new machine to help with installing stadium seats. Ballpark Construction Co. paid $2,000 cash for the machine. Because the machine helped to generate revenue in this accounting period, part of the cost must be expensed (matching principle). Ballpark Construction Co. takes $20 of depreciation per month
12/31/16: Debit: Depreciation Expense $60 (20 X 3) Credit: Accumulated Depreciation $60
A company has a discount policy, which states that, if a customer pays within ten days of the invoice, the customer can take a 2% discount; otherwise the full amount is due in 30 days from the date of the invoice. Which of the following abbreviations are used in business to reflect this discount policy?
2/10, n/30
Cash Shortage
Dr.
If ABC Corp. has 120,000 shares of common stock authorized, has 75,000 shares of common stock issued and holds 6,000 shares of common stock as treasury stock, the total number of outstanding shares of ABC Corp. amounts to:
69,000
Lock Corporation sold $2,000,000, 65, 10-year bonds on January 1, 2010. The bonds were dated January 1, 2010, and pay interest on January 1. Lark uses the straight-line method to amortize bond premium or discount. The journal entry record the issuance of the bonds, assuming that the bonds sold at 103, would include:
A credit to cash for 2,060,000
The closing entry for utilities expense would include:
A debit to Income Summary and a credit to Utilities Expense
What account is not involved in closing entries?
Accumulated Depreciation - Equipment
The process of allocating a property, plant and equipment asset's cost to expense over the period the asset is used is called:
Amortization
The ending balance in Retained Earnings appears on the:
Balance sheet and statement of retained earnings
Accrued Expense
Expenses and Liabilities understated
The issuance of common stock above par value requires a:
Credit to Additional Paid-In Capital (APIC)
The entry to record the issuance of 8,000 shares of $5 par value common stock at $9 per share includes:
Credit to common stock for $40,000
Jensen Distribution Company's sales for the day totaled $10,552. jenkins collected an additional 7.50% in sales tax. The entry to record the day's sales includes a:
Credit to sales tax payable
Under the allowance method, the entry to record the bad debts estimate includes a:
Debit to bad debt expense
JE: Close Income Summary to Retained Earnings
Debit: Income Summary Credit: Retained Earnings
JE: Close Expenses to Income Summary
Debit: Income Summary Credit: Salaries Expense Credit: Supplies Expense Credit: Depreciation Expense
Journal Entry to record the purchase of new equipment
Debit: Machinery Credit: Cash
There are some liabilities, such as income taxes payable and the estimated warranty liability, for which the amounts must be estimated so they can be recorded in the same period as the related revenues. Failure to record these amounts in the same period as the related revenues is a violation of the:
Matching Principle
A check returned by a bank because the issuer's cash account balance could not cover the check is called:
NSF Check
All amounts paid to acquire a property, plant and equipment asset and to get it ready for its intended use are referred to as:
Operating Expenses
The book value of a depreciable asset equals:
Original cost minus accumulated depreciation
Treasury stock causes a:
Outstanding shares to be less than issued shares
Under the perpetual inventory system, in addition to making the entry to record a sale, a company would:
Record a decrease in inventory and an increase in cost of goods sold for the cost of the merchandise sold
The best definition of assets is the:
Resources belonging to a company having future benefit to the company
The adjusting entry to record salaries owed to employees but not paid until the next accounting period involves a credit to:
Salaries Payable
A gain is recorded on the sale of property, plant and equipment asset when:
The asset is sold for a price greater than the asset's book value
Which of the following best describes the term "expenses"?
The cost of assets used, or the liabilities created, in the operations of a business
