Accounting Final

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Company had the following information in 2018​: Uncollectible accounts are determined by the​ percent-of-sales method to be 3​% of credit sales. How much is​ uncollectible-account expense for 2018​? Data Table Accounts receivable 12/31/18. . . . . . . . . . . . . . . . . . . . . . . . . . . $8,000 Allowance for uncollectible-accounts credit balance 12/31/18 (before adjustment). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 Credit service revenue during 2018. . . . . . . . . . . . . . . . . . . . . . 39,000 Cash service revenue during 2018. . . . . . . . . . . . . . . . . . . . . . . 20,000 Collections from customers on account during 2018. . . . . . . . . 40,000

$1,170

Jackson Company had the following information in 2018​: If uncollectible accounts are determined by the​ aging-of-receivables method to be $1,260​, the uncollectible account expense for 2018 would be $360. Using the​ aging-of-receivables method, the balance of the Allowance account after the adjusting entry at​ year-end 2018 would be Data Table Accounts receivable 12/31/18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,000 Allowance for uncollectible-accounts credit balance 12/31/18 (before adjustment). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 Credit service revenue during 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000 Cash service revenue during 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Collections from customers on account during 2018. . . . . . . . . . . . . 40,000

$1,260

On August​ 1, 2018​, Avonette​, ​Inc., sold equipment and accepted a​ six-month, 9​%, $50,000 note receivable. Avonette's ​year-end is December 31. How much interest revenue should Avonette accrue on December​ 31, 2018​?

$1,875

Bixby Corporation purchased a forklift for $40,000 on July 1. The forklift has an estimated useful life of 20,000 usage hours with a residual value of $8,000. Bixby uses the​units-of-production method for depreciation. If Bixby uses the forklift for 6,400 hours during the first​year, the depreciation expense on the forklift would be ​(Round intermediary calculations to two decimal places and your final answers to the nearest whole​dollar.)

$10,240

Duncan Corporation began 2018 with a balance in Accounts Receivable of $500,000. Service​revenue, all on​account, for the year totaled $2,600,000. The company ended the year with a balance in Accounts Receivable of $700,000. Duncan​'s ​bad-debt write-offs are nonexistent. How much cash did the company collect from customers in 2018​?

$2,400,000

Marshall Company made total purchases of $260,000 in the most current year. It paid freight in of $3,500 on its purchases. Freight​out, the cost to deliver the merchandise when it was sold to Marshall​'s ​customers, totaled $7,500. Of the total purchases Marshall made during the​period, it returned $25,500 of the merchandise. Marshall took advantage of $2,800 of purchase discounts offered by its vendors. What was Marshall​'s cost of​inventory?

$235,200

Harlem​, ​Inc., was reviewing its assets for impairment at the end of the current year. Information about one of its assets is as​ follows: Harlem should report an impairment loss for the current year of

$275,000

The income statement for Gilmore Uniforms shows gross profit of $143,000​, operating expenses of $130,000​, and cost of goods sold of $219,000. What is the amount of net sales​ revenue?

$362,000

Maple Grove Legal Association performs legal services for Weymouth Construction for $5,000 on account with credit terms of 2​/10, ​n/30. If Weymouth pays the invoice within the discount​period, Maple Grove will record a debit to Cash in the amount​of:

$4,900

A corporation has 100,000 shares of 4​% preferred stock outstanding.​ Also, there are 100,000 shares of common stock outstanding. Par value for each is​ $100. If an $825,000 dividend is​ paid, what is the amount of dividends per share on common​ stock?

$4.25

Brownlee Company issued $525,000​, 8​%, six​-year bonds for 110​, with interest paid annually. Assuming​straight-line amortization, what is the carrying value of the bonds after one​year?

$568,750

A​ company's beginning inventory is $150,000​, its net purchases are $230,000​, and its net sales total $440,000. Its normal gross profit percentage is 30​% of sales. Using the gross profit​ method, how much is ending​ inventory?

$72,000

Corrigan Corporation had beginning inventory of $20,000 and ending inventory of $24,000. Its net sales were $164,000 and net purchases were $81,000. Corrigan​'s cost of goods sold for the period is

$77,000

Sprague Company uses the aging method to adjust the allowance for uncollectible accounts at the end of the period. Based on these​ facts, the adjusting entry for uncollectible accounts should be made in the amount of Data Table At December​ 31, 2018​, the balance of accounts receivable is $250,000 and the allowance for uncollectible accounts has a credit balance of $4,000 ​(before adjustment). An analysis of accounts receivable produced the following age​ groups: Current. . . . . . . . . . . . . . . . . . $150,000 60 days past due. . . . . . . . . . 90,000 Over 60 days past due. . . . . . 10,000 $250,000 Based on past​ experience, Sprague estimates that the percentage of accounts that will prove to be uncollectible within the three age groups is 2​% of the current​ balance, 8​% of the 60 days past due​ balance, and 18​% of the over 60 days past due balance.

$8,000

Carlos Company purchased a building and land for $400,000 in total.​ Individually, the land appraised for $84,000 and the building appraised for $336,000. How much of the purchase price should be allocated to the cost of the​ land?

$80,000

Pineview Company ended the month of March with inventory of $26,000. Pineview Company expects to end April with inventory of $14,000 after selling goods with a cost of $98,000. How much inventory must Pineview Company purchase during April in order to accomplish these​results?

$86,000

Use the following data of Snyder ​Company: Snyder​'s total cost of goods available for sale would​ be: Data Table Unit Total Units Cost Cost Beginning inventory 20 $100 $2,000 Purchase on July 3 60 120 7,200 Sales 65 ? ?

$9,200

Ellison Corporation issued $300,000​, 8​%, five​-year bonds on January​1, 2019​, for $325,591 when the market interest rate was 6​%. Interest is paid semiannually on January 1 and July 1. The corporation uses the​effective-interest method to amortize bond discounts and premiums. The total amount of bond interest expense recognized on July​1, 2019​, would be closest to

$9,768

Read each statement​ below, indicate if it is true or​ false, and give a brief explanation of your answer.

. When a bond is issued at a​ discount, the semiannual amount of interest expense will be greater than the cash payment for interest. True A. because interest expense includes both cash interest and amortization of the discount. Your answer is correct. B. when a bond is issued at a​ discount, the cash payment for interest will be greater than the semiannual amount of interest expense. C. when a bond is issued at a​ discount, the semiannual amount of interest expense equals the cash payment for interest. D. because when a bond is issued at a​ discount, the market rate is lower than the contract​ (stated) rate. 2. When a bond is sold at a​ discount, the maturity value is less than the present value of the principal and interest​ payments, based on the market rate of interest on the date of issue. False A. the market rate of interest is lower than the contract​ (stated) rate. B. the market rate of interest is higher than the contract​ (stated) rate. C. the maturity value is less than the present value of the principal and interest​ payments, based on the contract​ (stated) rate. D. the maturity value is greater than the present value of future cash​ flows, which is why the bond was issued at a discount. Your answer is correct. 3. When a bond is issued at a​ discount, the semiannual cash interest payments are calculated using the market interest rate on the date of issue. False A. the contract​ (stated) rate is used to calculate the present value of the future cash flows from the bond. B. because the bond is issued at a discount. C. the contract​ (stated) rate, not the market​ rate, is always used to calculate the cash interest payment. Your answer is correct. D. the market rate is only used to calculate cash interest payment when a bond is issued at a premium. 4. When a bond is sold at a​ discount, the cash received is less than the present value of the future cash flows from the​ bond, which are based on the market rate of interest on the date of issue. False A. the cash received is equal to the present value of the future cash flows discounted at the market rate of interest on the date of issue. Your answer is correct. B. the discount amount equals to the difference between the cash received and the present value of the future cash flows. C. the cash received is more than the present value of the future cash flows. D. because the market rate of interest is used when calculating the present value of the future cash flows. 5. When the​ year-end accrual of interest and amortization of discount is​ recorded, the carrying value of Bonds Payable on the balance sheet will increase. True A. as the balance in the discount account increases​ (as it is​ amortized), the carrying value of the bonds decreases. B. as the balance in the discount account decreases​ (as it is​ amortized), the carrying value of the bonds increases. Your answer is correct. C. as the balance in the discount account decreases​ (as it is​ amortized), the carrying value of the bonds decreases. D. as the balance in the discount account increases​ (as it is​ amortized), the carrying value of the bonds increases. 6. The amortization of the discount on a bond payable results in additional interest expense recorded over the life of the bond. True A. the discount is amortized to interest expense over the life of the​ bond, the discount is actually additional interest expense that has to be paid because the​ bond's contract rate was less than the market rate on the bond issue date. Your answer is correct. B. the discount is amortized to interest expense over the life of the​ bond, but the discount actually decreases the interest expense that has to be paid because the​ bond's contract rate was more than the market rate on the bond issue date. C. the discount is amortized to interest expense over the life of the​ bond, but the discount actually decreases the interest expense that has to be paid because the​ bond's contract rate was less than the market rate on the bond issue date. D. the discount is amortized to interest expense over the life of the​ bond, the discount is actually additional interest expense that has to be paid because the​ bond's contract rate was more than the market rate on the bond issue date.

1. Posting 2. Expense 3. Debit 4. Trial balance 5. Equity 6. Net income 7. Receivable 8. Chart of accountants 9. Payable 10. Journal 11. Normal balance 12. Ledger

1. Copying data from the journal to the ledger 2. The cost of operating a business; a decrease in stockholders' equity 3. Left side of an account 4. List all accounts with their balances 5. Assets-liabilities 6. Revenues-Expenses 7. Always an asset 8. Lists a company's accounts and account numbers (no account balances in this item) 9. Always a liability 10. Record of transactions 11. Side of account where increases are recorded 12. The book of accounts and their balances

Name two things that ​(1) increase The Walt Disney​ Company's stockholders'​ equity, and ​(2) decrease The Walt Disney​ Company's stockholders' equity.

1. Net income, Sale of stock 2. Dividends, Net loss

Answer the following questions about internal control over cash​ payments: 1. Payment by check results in three controls over cash. What are​ they? 2. Suppose a purchasing agent receives the goods that she purchases and also approves payment for the goods. How could a dishonest purchasing agent cheat the​ company? How do companies avoid this internal control​ weakness?

1. Payment by check results in three basic controls over cash. What are​ they? The three basic controls over cash that payment by check carries are(1) Each check provides a record of the payment (source document)​, (2) Checks must be signed by an authorized official​, and(3) Before signing the check, the official should study the evidence supporting the payment. 2. Suppose a purchasing agent receives the goods that she purchases and also approves payment for the goods. How could a dishonest purchasing agent cheat the​ company? How do companies avoid this internal control​ weakness? Choose the correct option that best completes this sentence. A dishonest purchasing agent​ could:A.Purchase goods and have them delivered to her home.B.Approve payment by the company for goods that have been used for personal gain.C.Both A and B.Your answer is correct.D.None of the above. Companies avoid this internal control weakness by separating the following​ duties: purchasing goods, receiving goods, approving payments for goods .

Complete the following statements with one of the terms listed here.

1. The debt ratio measures the proportion of a​ company's total liabilities to its total assets. 2. Deferred income taxes payable is usually a​ long-term liability arising from the temporary timing differences for revenues and expense recognition between GAAP accounting rules and the U.S. tax code. 3. A finance lease enables a company leasing an asset to own it after a period of time. 4. A high times-interest-earned ratio indicates ease in paying interest expense. 5. Income tax payable is a current liability and represents the amount of income taxes a company must pay to the federal government based on tax reporting rules. 6. ​A(n) operating lease covering twelve months or less is the only type of lease that is not required to be included on the balance sheet. 7. A​ company's average total assets per dollar of average​ stockholders' equity is its leverage ratio. 8. A contractual promise to make transactions in the future that create financial obligations for a company is a commitment. 9. The tenant in a lease arrangement is also known as the lessee.

Fallon Osmond is chairperson of the board of Simple Treats​, Inc. Suppose Osmond has just founded Simple Treats​, and assume that she considers her home and other personal assets as part of Simple Treats. Answer these questions about the evaluation of Simple Treats​, Inc. 1. Which accounting assumption governs this​ situation? 2. How can the proper application of this accounting assumption give Osmond and others a realistic view of Simple Treats​, ​Inc.? Explain in detail.

1. The entity assumption applies. 2. Application of the entity assumption will separate Osmond's personal assets from the assets of Simple Treats. This will help Osmond​, ​investors and lenders know how much assets, liabilities, and equity the business has, and this knowledge will help all parties evaluate the business realistically.

From the following list of accounts calculate the quick ratio. Cash. . . . . . . . . . . . . . . . . . $2,000 Accounts payable. . . . . . . . . . . . . . . $5,000 Accounts receivable. . . . . . 7,000 Salary payable. . . . . . . . . . . . . . . . . 9,000 Inventory. . . . . . . . . . . . . . . 17,000 Notes payable (due in two years). . 8,000 Prepaid insurance. . . . . . . . 1,000 Short-term investments. . . . . . . . . . 5,000

1.0

A​ company's sales are $550,000 and cost of goods sold is $350,000. Beginning and ending inventories are $27,000 and $38,000​, respectively. How many times did the company turn its inventory over during this​ period? ​(Round your answer to one decimal​ place, X.X.)

10.8 times

Net credit sales total $1,264,800. Beginning and ending accounts receivable are $38,000 and $43,600​, respectively. Calculate the​ days' sales outstanding. ​(Round interim calculations to two decimal​ places, XX.XX and the​ days' sales outstanding​ (DSO) up to the next whole​ day.)

12 days

Equator Corporation has the following data available on December 31 for the year just​ ended: The​ company's return on assets for the year is closest to

25.00%

Corrigan Corporation had beginning inventory of $20,000 and ending inventory of $24,000. Its net sales were $164,000 and net purchases were $81,000. Cost of goods sold for the period was $77,000. What is Corrigan​'s rate of inventory​ turnover? ​(Round your answer to one decimal​ place.)

3.5 times

Roswell Company purchases inventory from Clear Pool Supplies on June 1. The sales terms on the invoice from Clear Pool Supplies are 3​/10​, ​n/30. What does this​mean? What is Roswell​'s potential​savings, if​any? How much time does the company have to take advantage of these​savings?

3​/10​, ​n/30 means that Roswell Company will get a 3% discount if they pay the invoice within 10 days of the invoice​date; otherwise, the full amount is due within 30 days. The potential savings resulting from taking advantage of the discount will be 3% of the original invoice price. Roswell will need to pay the invoice within 10 days of the original invoice date in order to take advantage of these savings.

Cases Unlimited reported income before taxes of $780,000​, interest expense of $120,000​, and net income of $575,000. The​weighted-average number of shares of common stock outstanding during the year was 100,000 shares. What is the​times-interest-earned ratio?​(Round your final answer to two decimal​places.)

7.50

Which of the following statements is​ correct?

A company must accrue for estimated future returns at the end of the period in which the related sales revenue is recognized.

Washington Products offers credit terms of​ 3/10, n/45. Which of the following statements is​ correct?

A discount of​ 3% can be taken if the invoice is paid within 10 days of the invoice date.

Which statement is​ false?

A trial balance is the same as a balance sheet.

Which of the following factors should influence business and accounting​ decisions?

A. Economic B. Legal C. Ethical D. All of the above

Which of the following statements is​ false?

All contingent liabilities should be reported as liabilities on the financial​ statements, even those that are unlikely to occur.

A public​ company's annual report filed with the SEC includes

All of the above are included in an annual report.

Which of the following is not a​ liability?

Allowance for bad debts

How is cost of goods sold classified in the financial​ statements?

As an expense

An error understated Power Corporation​'s December​ 31, 2018​, ending inventory by​ $54,000. What effect will this error have on total assets and net income for 2018​?

Assets Understate Net income Understated

The accounting equation can be expressed as

Assets−Liabilities ​= Equity

Which of the following classifications represents the most shares of common​ stock?

Authorized shares

Which type of lease will not increase a​ company's assets or​ long-term liabilities?

A​ one-year operating lease

Accounts Receivable will appear on which of the following financial​ statements?

Balance sheet

The Cheesecake Factory Incorporated​ (NASDAQ: CAKE​) operates two bakeries in the United States where it makes over 70 desserts for its own restaurants. In​ addition, the Cheesecake Factory bakeries sell selected desserts to a variety of foodservice operators and​ retailers, including Sam's Club​, Walmart​, Target​, BJ's Wholesale Club​, and Barnes & Noble Cafés. The Cheesecake Factory has accounts receivable on its financial statements. The primary source of its accounts receivable is its sales to bakery customers. On which financial statement would The Cheesecake Factory​'s accounts receivable be​ found?

Balance sheet

Identify each of the following items as either a capital expenditure​ (C), an immediate expense​ (E), or neither​ (N):

C 1. Constructed a new parking lot on leased property for $300,000. E 2. Paid property taxes of $75,000 for the first year a new administrative services building was occupied. N 3. Paid dividends of $40,000. C 4. Paid interest on a six-month note payable that financed the construction of a new plant building, $550,000. C 5. Purchased equipment for a new manufacturing plant, $6,000,000. C 6. Paid $90,000 for the installation of the equipment in (5). E 7. Repaired plumbing in existing manufacturing plant, paying $27,000. C 8. Paid $148,000 to tear down an old building on a new manufacturing plant site. C 9. Purchased new network servers for $29,000. E 10. Paid maintenance costs of $31,000 on the equipment in (5) during its first year of use.

Which of the following assets are not included in​ "cash equivalents" in a typical balance​ sheet?

Certain very​ low-risk equity securities

For each of the following​ accounts, identify whether that item is an​ asset, liability, or equity account. Account a. Bonds payable b. Equipment c. Accounts payable d. Salaries payable e. Common stock f. Retained earnings g. Cash h. Accounts receivable i. Sales revenue j. Inventory

Classification a. Liability b. Asset c. Liability d. Liability e. Equity f. Equity g. Asset h. Asset i. Equity j. Asset

If a corporation issues 1,000 shares of $1.00 par value common stock for $12,000​, the journal entry would include a credit to

Common Stock for $1,000.

Assume that a business is headed for certain bankruptcy and it is evident that its liabilities greatly exceed its assets. Which principle would be violated if its financial statements were prepared using standard U.S.​ GAAP?

Continuity assumption

Identify the other control procedures usually found in a​ company's system of internal control besides separation of​ duties, and tell why each is important.

Control Procedure Why is it important? Comparison + compliance monitoring Allows for cross-checking by other people and departments. Adequate records Allows the company to provide an audit trail later for internal or external auditors. Limited access Only authorized individuals are allowed access to the assets and records of the company. Proper approvals No transaction should be processed without management's general or specific approval. Smart hiring practices Every important duty must be staffed by a competent and honest person.

Nicholas is a software engineer and is starting a consulting practice. What form of business organization limits his liability to the amount he has invested in the​ business?

Corporation

Which type of business organization provides the least amount of protection for bankers and other creditors of the​ company?

Corporation

What are two main advantages that a corporation has over a proprietorship and a​ partnership? What are two main disadvantages of a​ corporation? Describe the authority structure of a corporation. Who holds ultimate​ power?

Corporation's advantages: Limited liability of the stockholders Continuous life and transferability of ownership Corporations' disadvantages: Double taxation of distributed profits Government regulation A. The authority structure of a corporation begins with​ shareholders, who hold ultimate power. Shareholders elect the board of directors who in turn appoint officers. The board elects a chairperson​ (CEO), who is usually the most powerful person in the organization. The board designates the president​ (COO) and various vice presidents.

Smatter Corporation purchased land for a new building. Which of the following costs would not be included in the cost of the​ land?

Cost of new parking lot constructed on the land

Which of the following is an​ asset? A. Common Stock B. Service Revenue C. Salary Expense D. None of the listed accounts is an asset.

D

Like many other large​ companies, The Cheesecake Factory Incorporated has several legal actions pending against it at any given time. It must accrue for​ and/or disclose certain contingent​ liabilities, such as pending or possible legal​ actions, in its financial statements and notes to its financial statements. The necessary reporting depends on the specific circumstances of the situations and its​ attorneys' assessment of the potential outcomes. HereLOADING... are four hypothetical legal situations that might face The Cheesecake Factory. Refer to situation B. With respect to its financial statements and notes to the financial​ statements, The Cheesecake Factory ​should:

Disclose the contingent liability but not accrue for it

Evan is in charge of putting together his company's financial statements, but does not understand the newest financial reporting standard that went into effect last year. He decides to do the best he can with interpreting and applying the new standard because he does not have time right now to learn about the new standard in depth.

Due care

Which of the following is the most accurate statement regarding ethics as applied to decision making in​ accounting?

Ethics involves making difficult choices under pressure and should be kept in mind in making every​ decision, including those involving accounting.

Good business and accounting practices require the exercise of good judgment. How should ethics be incorporated into making accounting​ judgments? Why is ethics​ important? Select the three questions that are important to consider when making an ethical decision. A. Which option is the easiest and will be completed the​ fastest? B. Who will be affected by the​ decision? Your answer is correct. C. Which option will earn the company the most​ money? D. Which option will get the company the most​ publicity? E. Is the action​ legal? Your answer is correct. F. How will this decision affect my position in the​ company? G. How will the decision make me feel​ afterward?

Ethics is a factor that should be included in every business and accounting decision, beyond the potential economic and legal consequences. Ideally, for each​ decision, honesty and truthfulness should prevail, considering the rights of others. B E G

The costs of doing business are classifed​ as:

Expenses

A doctor for the Benson Family Practice performs a sports physical exam for Allison Smythe on February 1. The charge for the exam is​ $100; Smythe's insurance​ company, Cardinal​ Health, is billed for the entire​ $100 on February 1. Cardinal Health receives the invoice on February​ 2, and enters the amount into its payment system on February 4. Benson Family Practice receives the​ $100 payment from Cardinal Health on February 20. On which date would Benson Family Practice recognize the revenue for the​ Smythe's physical?

February 1

Define​ "fraud." List and briefly discuss the three major components of the fraud triangle.

Fraud is an intentional misrepresentation of facts​, made for the purpose of persuading another party to act in a way that causes injury or damage to that party. Component Description Motive Critical need or greed on part of the perpetrator. Opportunity Usually arises through weak internal controls. Rationalization The perpetrator(s) is (are) convinced that they deserve the object of the fraudulent behavior.

Two financial ratios that clearly distinguish a discount chain such as Walmart from a​ high-end retailer such as Gucci are the gross profit percentage and the rate of inventory turnover. Which set of relationships is most likely for​ Gucci?

Gross profit percentage: high Inventory turnover: low

When a company expenses the cost of maintenance for its heating and cooling​ system, that cost will appear on its

Income statement.

The Cheesecake Factory Incorporated​ (NASDAQ: CAKE​) operates two bakeries in the United States where it makes over 70 desserts for its own restaurants. In​ addition, the Cheesecake Factory bakeries sell selected desserts to a variety of foodservice operators and​ retailers, including Sam's Club​, Walmart​, Target​, BJ's Wholesale Club​, and Barnes & Noble Cafés. The Cheesecake Factory has accounts receivable on its financial statements. The primary source of its accounts receivable is its sales to bakery customers. When The Cheesecake Factory ships an order to BJ's Wholesale Club on​ account, The Cheesecake Factory​'s total equity would​ (ignore the cost of sales journal entry for this​ question):

Increase

How would the issuance of common stock for cash affect the accounting​ equation?

Increase assets and increase​ stockholders' equity

Which of the following debit and credit rules is​ correct?

Increases in liabilities and​ stockholders' equity are credited.

Jay receives a large year-end bonus if his company's sales grow by 8% this year. Sales only grew by 7.5% so Jay created false sales documentation to make it appear that the sales growth goal was met.

Integrity

This year Gabby's company incurred higher cost of goods sold than expected, which resulted in an overall net loss for the company. Gabby does not want the company to lose investors due to the net loss, so she adjusts cost of goods sold so that the company has a positive net income.

Integrity

How does the declaration of a cash dividend affect a​ company's assets,​ liabilities, and​ equity?

It results in an increase to liabilities and a decrease to​ stockholders' equity, while assets remain the same.

Which U.S. GAAP principle or rule would apply if the net realizable value of a​ company's inventory is below its original​ cost?

Lower-of-cost-or-market rule

What item flows from the income statement to the statement of retained​ earnings?

Net income

For cash​ dividends, the journal entry on the date of record

No journal entry is required on the date of record.

Erica is eager to please her supervisor and wants to earn a promotion at the CPA firm. When Erica puts together her firm's financial statements and related information for the past year, she buries unfavorable results deep in the report and presents the good news prominently. She figures that by making the firm look good, it will make her case for promotion stronger.

Objectivity and independence

The Cheesecake Factory Incorporated​ (NASDAQ: CAKE​) is​ publicly-held and had more than 93 million common shares outstanding as of the end of the 2016 fiscal year. The company has preferred stock authorized but did not have any preferred stock issued. During fiscal year 2016​, The Cheesecake Factory declared and paid cash dividends of $0.88 per​ share, totaling approximately $42.3 million. During that same​ year, it purchased 2.9 million shares of its own common stock at an approximate cost of $146.5 million. How is the balance of treasury stock shown in the financial​ statements?

On the balance sheet in the​ stockholders' equity section

Which of the three types of activities reported on the statement of cash flows is the most important to evaluate when analyzing a​ company's long-term​ survival?

Operating activities

The current pay period ends on​ Friday, January​ 2, yet the​ company's fiscal​ year-end is on​ Wednesday, December 31. If the company does not make the proper adjusting entry to accrue payroll expenses at​ year-end, what would be the​ impact?

Operating income will be overstated.

An error understated Golden Flash Company​'s December​ 31, 2018​, ending inventory by​ $27,000. What effect will this error have on net income for 2019​?

Overstate it

Which inventory system maintains a running record of inventory on​ hand, purchased, and​ sold?

Perpetual

Preferred stock is least likely to have which of the following​ characteristics?

Preference as to voting

To be​ useful, information must have which of the following fundamental qualitative​ characteristics?

Relevance and faithful representation

Bank has $450,000 of 9​% debenture bonds outstanding. The bonds were issued at 105 in 2018 and mature in 2038. The bonds have annual interest payments.

Requirement 1. How much cash did Perry Bank receive when it issued these​ bonds? Perry Bank received $ 472,500 at bond issuance. Requirement 2. How much cash in total will Perry Bank pay the bondholders through the maturity date of the​ bonds? Perry Bank will pay the bondholders $ 1,260,000 through the maturity date of the bonds. Requirement 3. Calculate the difference between your answers to requirements 1 and 2. This difference represents Perry ​Bank's total interest expense over the life of the bonds. The difference between your answers to requirements 1 and 2 is $ 787,500 . Requirement 4. Compute Perry ​Bank's annual interest expense using the​ straight-line amortization method. Multiply this amount by 20. Your​ 20-year total should be the same as your answer to requirement 3. Perry Bank's annual interest expense using the straight-line amortization method is $ 39,375 . Multiply the annual interest expense by 20. The 20-year straight-line interest total is $ 787,500 .

Which of the following is a measure of​ profitability?

Return on assets​ (ROA)

Edger ​& Company has an accounts payable turnover of​5.6, while Salerno Industries has an accounts payable turnover of 8.9. Which company is more​liquid?

Salerno Industries

Accounts payable turnover for Blue Industries increased from 10 to 12 during 2018. Which of the following statements best describes what this​ means?

The company paid its accounts payable more quickly in 2018​, signaling a stronger liquidity position.

Which of the following is an example of poor internal control in an​ organization?

The mailroom clerk records daily cash receipts in the journal.

Research has shown that over​ 50% of financial statement frauds are committed by companies that recognize revenue improperly. What does this​ mean? Describe the most common ways companies improperly recognize revenue.

There are several ways that companies improperly recognize revenue which results in financial statement fraud. a.​ "Channel stuffing" where a company may ship inventory to regular customers in amounts in excess of the amounts ordered by the customer. This usually occurs near the end of the reporting period so that the excess merchandise cannot be returned to the seller prior to the preparation of the financial statements. b. Reporting revenue when a significant portion of the services are still to be performed or goods are still to be delivered. c. Providing incentives for customers to purchase more inventory than is needed in return for future discounts or other benefits. d. Reporting sales to fictious or nonexistent customers, this may also include the falsification of shipping and inventory records.

Ruth Bixby served as executive director of Uptown Allentown​, an organization created to revitalize Allentown​, Pennsylvania. Over the course of 13​ years, Bixby embezzled $543,000 through a variety of methods. Bixby deposited the​ organization's cash receipts in her own bank account. She wrote Uptown Allentown checks to​ herself, and she also created phony entities to which Uptown Allentown wrote checks. Uptown Allentown was led by a board of directors comprised of civic leaders. Bixby​'s embezzlement went undetected until the organization​ couldn't pay its bills. Requirement 1. Give four ways Bixby​'s embezzlement could have been prevented.

To prevent Bixby​'s ​embezzlement, Uptown Allentown​'s board of directors could have had an audit of Uptown Allentown's transactions and financial statements. not permitted Bixby to receive cash that came to Uptown Uptown Allentown. not permitted Bixby to write checks. Instead appoint a board member to write checks. supervised Bixby's work by examining documents such as paid checks.

The Cheesecake Factory Incorporated​ (NASDAQ: CAKE​) is​ publicly-held and had more than 93 million common shares outstanding as of the end of the 2016 fiscal year. The company has preferred stock authorized but did not have any preferred stock issued. During fiscal year 2016​, The Cheesecake Factory declared and paid cash dividends of $0.88 per​ share, totaling approximately $42.3 million. During that same​ year, it purchased 2.9 million shares of its own common stock at an approximate cost of $146.5 million. During fiscal year 2016​, The Cheesecake Factory declared and paid cash dividends of $0.88 per share. What​ impact, if​ any, would the cash dividend have had on The Cheesecake Factory​'s liabilities as of the end of the fiscal​ year?

Total liabilities would not have been impacted by this transaction

Which of the following statements is not true about a​ 3-for-1 stock​ split?

Total​ stockholders' equity increases.

On Willow Grove Department​ Stores' most recent balance​ sheet, the balance of its inventory at the beginning of the year was $12,000. At the end of the​ year, the inventory balance was $14,500. During that​ year, its cost of goods sold was $55,000. All purchases of inventory throughout the year were on account. What was the total of Willow Grove's purchases during the​ year?

Willow grove's total purchases during the year were $57,500

Swan Corporation received a​four-month 8​%, $1,650 note receivable on March 1. The adjusting entry on March 31 will include

a credit to Interest Revenue for $11.

Bonds with an​ 8% stated interest rate were issued when the market rate of interest was​ 5%. This bond was issued at

a premium.

Complete each of the following statements with one of the terms listed here.

a. The right to maintain​ one's proportionate ownership in the corporation is the right of preemption. b. The right to receive a proportionate share of any assets remaining after the corporation goes out of​ business, sells its​ assets, and pays off its liabilities is the right of liquidation. c. The​ stockholders' ownership interest in the assets of the corporation is called stockholders' equity. d. Limited liability is the legal concept that means stockholders can lose no more than the cost of their investment in the company. e. The authorization from the state to issue a certain number of shares of stock is granted through the​ corporation's charter. f. The arbitrary amount assigned to each share of stock when it is originally authorized is its par value. g. Preferred stock is a hybrid form of capital stock resembling both equity and debt that pays a fixed dividend. h. Common stock is the basic form of capital stock. i. The board of directors is elected by stockholders. j. The business entity formed under state law that has a separate legal identity from its owners is a corporation. k. The total of the par value of all of the shares issued is the​ corporation's legal capital. l. Retained earnings represents the amount of​ stockholders' equity that the corporation has earned through profitable operations less any dividends declared.

Use these terms to complete the statements that follow. You can use a term more than once or not at all.

a. When a company has recorded a deposit but the bank has not yet processed it, this item is a (an) deposits in transit. b. Fraudulent financial reporting occurs when management prepares misleading financial statements. c. A (An) remittance advice is an optional attachment to a check that lists the payer, date, and amount of the payment. d. An organization's system of procedures designed to safeguard its assets and encourage adherance to the company's policies is called the system of internal control . e. When a company has issued a check but the check has not yet been processed or paid by the bank, this item is a(n) outstanding check . f. The controller is responsible for the accounting systems in an organization. g. A (an) firewall is an electronic barrier that prevents unauthorized access to an organization's computer network. h. The treasurer is typically responsible for cash handling and cash management. i. A (an) bank reconciliation is prepared to explain the difference between the cash on the books versus the bank cash balance. j. Investments such as time deposits and certificates of deposits are cash equivalents . k. Petty cash can be accounted for using a (an) imprest system . l. An insurance policy that reimburses a company for any losses due to employee theft is a (an) fidelity bond . m. Motive, opportunity, and rationalization are elements of the fraud triangle . n. The fraudulent practice of creating bogus websites or sending fake emails to get individuals to share personal information such as birthdays, passwords, and credit card numbers is called phishing . o. When employees steal assets from an organization, it is called misappropriation of assets .

Hudson Signs​, ​Inc. needs​ funds, and Alley Hudson​, the​ president, has asked you to consider investing in the business. Answer the following questions about the different ways that Hudson might organize the business. Explain each answer. a. What forms of organization will enable the owners of Hudson Signs​, ​Inc., to limit their risk of loss to the amounts they have invested in the​ business? b. What form of business organization will give Alley Hudson the most freedom to manage the business as she​ wishes? c. What form of organization will give creditors the maximum protection in the event that Hudson Signs​,​Inc. fails and cannot pay its​ debts?

a. Corporation, limited partners of a Limited-liability partnership and Limited-liability company If any of these businesses fail and cannot pay its​ liabilities, creditors cannot force the owners to pay the​ business's debts from the​ owners' personal assets.​ Therefore, the most an investor can expect to lose on investment in these businesses is the amount invested. b. Proprietorship This type of organization offers the most freedom because there is a single owner, so the owner has absolute control over the business. c. Partnership If a partnership fails and cannot pay its​ liabilities, creditors can force the partners to pay the​ business's debts from their personal assets. This type of organization affords more protection for creditors than a proprietorship because there are two or more owners to share this liability.

a. Cindy is an accountant for​ Caperton, Inc., and is stressed by the amount of work her boss has been giving her.​ Yesterday, Cindy's boss asked that she perform a financial statement analysis on the​ company's previous five years of financial statements and write a report explaining any inconsistencies. Cindy is​ busy, so she quickly throws together the​ report, without double checking the data used and the related calculations. b. Deneen is the senior accounting manager for Kent Co. and is in charge of preparing quarterly reports for the CEO and CFO. These reports compare a variety of​ Kent's financial ratios to industry averages. This​ quarter, Kent has done poorly compared to its​ competitors, so some of its ratios were not favorable. Because of their legendary​ tempers, Deneen does not want to upset the CEO and CFO. She decides to include only favorable ratios in her report. c. Malik is the accounting manager for Belmont Global and knows the company must maintain working capital in excess of​ $50,000 to stay in accordance with its debt covenants. This past​ year, Belmont's working capital fell below​ $50,000 for a short period of time. Malik created fictitious entries to hide the violation of its debt covenants. d. Matt was recently hired as a senior audit manager at the firm of Marjenin​ & Vena, but did not disclose that his wife is the CFO for one of its clients.

a. Due care b. Integrity c. Integrity d. Objectivity and independence

a. ​April, a staff accountant for Rogers​ & Co., is confused by the process for estimating​ uncollectible-accounts expense using an aging​ schedule; she struggled with this topic when she was in her accounting program in college. When she is given the responsibility for reviewing the entries related to her​ company's uncollectible-accounts expense and the aging​ schedule, she compares this period to the prior period and does not do any further review or analysis as is needed. b. Will is on the audit staff of Monroe​ & Co, CPAs. He is assigned to the audit of Lafayette​ Holdings, a​ fast-growing technology firm that is run by his stepmother. He is excited to be assigned to this exciting audit because he feels it will help to advance his career. He does not disclose the relationship to​ anyone, nor does his stepmother. c. Shana is the treasurer of Oxford Company. She knows that her company plans to keep its investment in Google stock for several years.​ (It has actually been pledged as collateral for a loan that Oxford has at a local​ bank.) However, she decides to classify the Google stock as a​ short-term security. Classifying the Google stock as a​ short-term security makes it a current asset and increases​ Oxford's current​ ratio, making the company look more favorable to investors. d. Conway Corporation has a large number of customers who buy on credit.​ Nick, the controller for​ Conway, deliberately underestimates the amount of uncollectible account expense this year so that the​ company's income will achieve the targeted income figure. If the​ company's income reaches or exceeds the​ target, monetary performance bonuses for all members of​ management, including​ Nick, will be awarded.

a. Due care b. Objectivity and independence c. Integrity d. Integrity

Shontelle's company, Hollow​ Technologies, recently decided to repurchase stock from its shareholders. Shontelle is in charge of booking the entries for this new treasury stock.​ However, she does not know how to record treasury stock​ transactions, so she just deducts the amount repurchased from Common Stock. b. Haylee is a senior auditor for Leonarda​ & Calloway and has worked on its​ client, Blue​ Iron, Inc., for the past few years. A few months​ ago, Blue​ Iron, Inc., offered Haylee a position in its internal audit department. Haylee accepted the position and works very closely with the external auditors. In​ fact, she often prepares the work papers for the external auditor since she knows the systems better than the new auditors. c. Andrew is a senior manager at Ford​ & Hill, a regional public accounting firm. Ford​ & Hill recently obtained a new​ client, Vista, Inc.​ Andrew's sister is the CEO of​ Vista, a fact that he did not disclose to the board. d. Connor is the CFO for Tree Street Coffee Corporation and is going to take the company public within the next six months. In an effort to make the stock look more appealing and therefore sell at a higher​ price, Connor overrides the system controls and records fictitious sales entries.

a. Due care b. Objectivity and independence c. Objectivity and independence d. Integrity

a. Periodic lubrication after the machinery is placed in service b. Special reinforcement to the machinery platform c. Major overhaul to extend the machinery's useful life by five years d. Training of personnel after initial operation of the machinery e. Purchase price f. Income tax paid on income earned from the sale of products manufactured by the machinery g. Ordinary repairs to keep the machinery in good working order h. Transportation and insurance while machinery is in transit from seller to buyer I. Sales tax paid on the purchase price j. Lubrication of the machinery before it is placed in service k. Installation of the conveyor-belt machine

a. Immediate expense b. Capital expenditure c. Capital expenditure d. Immediate expense e. Capital expenditure f. Immediate expense g. Immediate expense h. Capital expenditure i. Capital expenditure j. Capital expenditure k. Capital expenditure

Dazzle Fashion is a clothing retailer. During​ August, the company completed a series of transactions. For each of the following​ items, give an example of a transaction that has the described effect on​ Dazzle's accounting equation. a. Increase one asset and decrease another asset. b. Increase an asset and increase​ stockholders' equity. c. Increase an asset and increase a liability. d. Decrease an asset and decrease​ stockholders' equity. e. Decrease an asset and decrease a liability.

a. Increase one asset and decrease another asset. ​(Select three possible​ answers.) Examples Purchase of asset for cash Sale of asset for cash equal to the asset's book value Collection of an account receivable b. Increase an asset and increase​ stockholders' equity. ​(Select two possible​ answers.) Examples Issuance of stock Revenue transaction (ex: provided services on account or for cash) c. Increase an asset and increase a liability. ​(Select two possible​ answers.) Examples Purchase of asset on account Borrow money d. Decrease an asset and decrease​ stockholders' equity. ​(Select two possible​ answers.) Examples Declaration and payment of dividends to stockholders Expense transaction (ex: received and paid utility bill) e. Decrease an asset and decrease a liability. ​(Select two possible​ answers.) Examples Pay a liability Return an asset purchased on account

Identify the accounting​ concept, assumption, or principle that best applies to each of the following​ situations: a. Inflation has been abound​ 2.5% for some time. Village Realtors is considering measuring its land values in​ inflation-adjusted amounts. b. You get an especially good buy on a laptop​, paying only $300 when it normally costs $800. What is your accounting value for this laptop​? c. Burger King​, the restaurant​ chain, sold a store location to McDonald​'s. How can Burger King determine the sale price of the store—by a professional​ appraisal, Burger King​'s original​ cost, or the amount actually received from the​ sale? d. General Motors wants to determine which division of the company—Chevrolet or Cadillac—is more profitable.

a. Inflation has been about​ 2.5% for some time. Village Realtors is considering measuring its land values in​ inflation-adjusted amounts. Stable-monetary-unit assumption b. You get an especially good buy on a laptop​, paying only $300 when it normally costs $800. What is your accounting value for this laptop​? Historical cost principle c. Burger King​, the restaurant​ chain, sold a store location to McDonald​'s. How can Burger King determine the sale price of the store—by a professional​ appraisal, Burger King original​ cost, or the amount actually received from the​ sale? Historical cost principle d. General Motors wants to determine which division of the company—Chevrolet or Cadillac—is more profitable. Entity assumption

Match the following definitions: a. Total revenues less total expenses b. Provides information for decisions makers outside of the organization c. Provides information for managers of the organization d. Responsibilities of the members of society to each other e. Inflows of resources resulting from delivering goods or services to customers f. Owned by stockholders whose liability is limited to the amount they have invested in the business g. A debt payable to an outsider h. Cost of doing business i. A business organization form with a single owner who is personally liable for all of the business's debts j. States that assets should be recorded at their actual cost on the date of purchase k. Mechanical part of accounting l. Also called the statement of financial position m. Economic resources that are expected to produce benefits in the future n. Entities that provide money to finance a company's operations o. Answers the question "How well did the company perform during the period?" p. Reports cash flows from operating, investing, and financing activities q. A business organization form with two or more owners who are each personally liable for all business's debts r. Insider claims of a business

a. Net income b. Financial accounting c. Managerial accounting d. Ethical duties e. Revenues f. Corporation g. Liability h. Expenses i. Proprietorship j. Historical cost principle k. Bookkeeping l. Balance sheet m. Asset n. Investors and creditors o. Income statement p. Statements of cash flows q. Partnership r. Equity

Describe how the statement of cash flows helps investors and creditors do each of the​ following: a. Predict future cash flows b. Evaluate management decisions

a. The statement of cash flows helps predict future cash flows by reporting past cash receipts and payments​, which are reasonably good predictors of future cash receipts and payments. b. The statement of cash flows helps evaluate management decisions by reporting on how managers got cash and used cash to run the business.

North Boulder ​USA, a tire​manufacturer, guarantees its tires against defects for five years or​60,000 miles, whichever comes first. Suppose North Boulder USA can expect warranty costs during the​five-year period to add up to 3% of sales. Assume that a North Boulder USA dealer in​Denver, Colorado, made sales of $641,000 during 2018. North Boulder USA received cash for 15​% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $18,500 during 2018.

a. What amount of warranty expense will North Boulder USA report during 2018​? North Boulder will report warranty expense of $ 19,230 during 2018. b. Which accounting principle addresses this​ situation? The accounting principle that addresses this situation is the expense recognition (matching) principle. c. Does the warranty expense for the year equal the​ year's cash payments for​ warranties? The warranty expense for the year does not equal the​ year's cash payments for warranties. d. Explain the relevant accounting principle as it applies to measuring warranty expense. Cash payments for warranties do not determine the amount of warranty expense for that year. The warranty expense is estimated and matched against total sales during the period of the sale.

An understatement of ending inventory by​ $2 million in one period results in

an overstatement of gross profit by​ $2 million in the next period.

When using the direct method of preparing the statement of cash​ flows, cash receipts from operating activities do not include

collection of a​ long-term note receivable.

Corporate bonds that can be exchanged for shares of the​ corporation's common stock if certain conditions are met are called

convertible bonds.

The sum of ending inventory and cost of goods sold is

cost of goods available​ (or cost of goods available for​ sale).

When a customer returns a product to Hartville Equipment that the customer purchased on​ account, Hartville will issue a​ __________ to authorize a credit to the​ customer's account receivable on​ Hartville's books:

credit memo

Notes payable due in six months are reported as

current liabilities on the balance sheet.

Jackson Bank lends Jabbour Clothing Company ​$125,000 on September 1. Jabbour signs a ​$125,000​, ​6%, six-month note. The journal entry made by Jabbour on December​31, its fiscal​year-end, is

debit Interest Expense and credit Interest Payable for ​$2,500.

Swisher Company sold inventory with a selling price of $5,000 to customers for cash. It also colected sales taxes of $250. The journal entry to record this information includes a

debit to Cash of $5,250.

In a period of rising​ prices,

gross profit under FIFO will be higher than under LIFO.

Assets are usually reported at their

historical cost.

Bonds with a face value of $450,000 are issued at 105. The statement of cash flows would report a cash inflow​ of:

in the financing activities section

Revenues are

increases in retained earnings resulting from selling products or performing services.

On the statement of cash​ flows, increases and decreases in​ long-term assets resulting from cash transactions are reported​ as:

investing activities.

Selling equipment for cash is reported on the statement of cash flows under

investing activities.

The purchase of new equipment with cash would appear on the statement of cash flows as​ a/an

investing cash flow.

Return on equity

is a measure used to compare companies of different sizes.

If the credit to record the purchase of supplies on account is not​ posted,

liabilities will be understated.

A company might purchase treasury stock for all of the following reasons except

management wants to decrease the earnings per share of common stock.

The purchase of treasury stock is reported on the statement of cash flows as a

negative cash flow in the financing activities section.

The word market as used in​ "the lower of cost or​ market" generally means

net realizable value.

​Maridell's Fashions has a debt that has been properly reported as a​ long-term liability up to the present year ​(2018​). Some of this debt comes due in 2018. If​ Maridell's Fashions continues to report the current position as a​ long-term liability, the effect will be to

overstate the current ratio.

The statement of cash flows does not report

revenues and expenses for the current year.

Total asset turnover has increased at the​ O'Neil Company since last year. This increase must mean that

the company has become more efficient.

An​ organization's investors and creditors will primarily use information provided​ by:

the​ organization's financial accounting system.

All of the following are objectives of internal control except

to maximize net income.

The primary objective of financial reporting is to provide information

useful for making investment and credit decisions.

Describe the types of assets that are typically included under the heading​ "cash and cash​ equivalents" on the balance sheet. What is a​ "cash equivalent"?

​"Cash and cash​ equivalents" includes liquid assets such as time deposits, CD's, high-grade U.S. or foreign government securities, and other debt or equity securities. Besides​ cash, all of these listed are considered to be​ "cash equivalents"- can easily be converted to cash.

The Cheesecake Factory must implement and enforce an effective internal control system to both comply with financial reporting regulations and protect its assets.​ Let's look at a description of a typical day for a server at a Cheesecake Factory restaurant. What law requires public​ companies, such as The Cheesecake Factory​, to issue an internal control report and receive an audit of their internal controls​ annually?

​Sarbanes-Oxely Act of 2002

The depreciation method that does not initially use the residual value in depreciation calculations is the

​double-declining balance method.


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