Accounting for managers Midterm Study guide

Jason Company paid $4,500 for one year's rent in advance beginning on October 1, Year 1. Jason's Year 1 income statement would report rent expense, and its statement of cash flows would report cash outflow for rent, respectively, of

$1,125; $4,500

Sheldon Company began Year 1 with $1,200 in its supplies account. During the year, the company purchased $3,500 of supplies on account. The company paid $2,100 on accounts payable by year end. At the end of Year 1, Sheldon counted $1,900 of supplies on hand. Sheldon's financial statements for Year 1 would show:

$1,900 of supplies; $2,800 of supplies expense

Assume the perpetual inventory method is used. 1) The company purchased $14,000 of merchandise on account under terms 2/10, n/30. 2) The company returned $3,500 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $22,000 cash. The net cash flow from operating activities as a result of the four transactions is:

$11,710.

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $81,000 of revenue on account during Year 1. During Year 1, Hancock collected $64,800 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, Year 1 balance sheet would be:

$16,038.

On January 1, Year 1 XYZ Company paid $66,000 cash to purchase a truck. The truck has a $4,000 salvage value and a 4 year useful life. XYZ uses double declining balance depreciation. How much depreciation expense would XYZ report on its Year 2 income statement?

$16,500

Owen Company's unadjusted book balance at June 30 is $15,200. The company's bank statement reveals bank service charges of $130. Two credit memos are included in the bank statement: one for $1,570, which represents a collection that the bank made for Owen, and one for $220, which represents the amount of interest that Owen had earned on its interest-bearing account in June. Based on this information, Owen's true cash balance is:

$16,860.

Vargas Company uses the perpetual inventory method. Vargas purchased 1,300 units of inventory that cost $14.00 each. At a later date the company purchased an additional 1,700 units of inventory that cost $15.00 each. Vargas sold 1,400 units of inventory for $18.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be:

$19,700.

Warren Enterprises had the following events during Year 1: The business issued $38,000 of common stock to its stockholders. The business purchased land for $30,000 cash. Services were provided to customers for $34,000 cash. Services were provided to customers for $23,000 on account. The company borrowed $34,000 from the bank. Operating expenses of $30,000 were incurred and paid in cash. Salary expense of $2,600 was accrued. A dividend of $22,000 was paid to the stockholders of Warren Enterprises. Assuming the company began operations during Year 1, the amount of retained earnings as of December 31, Year 1 would be:

$2,400

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 775,000 shares of $15 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances:

$223,200

Nelson Company experienced the following transactions during Year 1, its first year in operation. Issued $9,800 of common stock to stockholders. Provided $6,100 of services on account. Paid $2,550 cash for operating expenses. Collected $3,800 of cash from accounts receivable. Paid a $290 cash dividend to stockholders. The amount of net income recognized on Nelson Company's Year 1 income statement is:

$3,550.

The Miller Company earned $113,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $77,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The net realizable value of Miller's receivables at the end of Year 2 was:

$32,610.

Revenue on account amounted to $7,000. Cash collections of accounts receivable amounted to $4,550. Expenses for the period were $3,600. The company paid dividends of $1,200. Net income for the period was

$3400

On January 1, Year 1, Friedman Company purchased a truck that cost $50,000. The truck had an expected useful life of 8 years and an $9,000 salvage value. The book value of the truck at the end of Year 1, assuming that Friedman uses the double-declining-balance method, is:

$37,500

Parker Company purchased an asset costing $30,000 on January 1, Year 1. The asset had an expected five year life and a $10,000 salvage value. Based on this information, the amount of depreciation expense and accumulated depreciation appearing on the Year 2 financial statements would be (assume straight-line depreciation):

$4,000 and $8,000, respectively.

Rosewood Company made a loan of $10,800 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:

$486 and $162

Prior to closing, Syracuse Company's accounting records showed the following balances: Retained earnings - $5,750 Service revenue- 7,350 Interest revenue - 650 Salaries expense - 4,200 Operating expense - 1,200 Interest expense - 350 Dividends - 950 After closing, Syracuse's retained earnings balance would be

$7,050.

Anton Co. uses the perpetual inventory method. Anton purchased 520 units of inventory that cost $8 each. At a later date the company purchased an additional 690 units of inventory that cost $10 each. If Anton uses the FIFO cost flow method and sells 850 units of inventory, the amount of cost of goods sold will be:

$7,460.

Gomez Company collected $23,400 on September 1, Year 1 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would it report as cash flows from operating activities for Year 1?

$7,800; $23,400

West Company borrowed $36,000 on September 1, Year 1 from the Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's Year 1 income statement would be:

$720.

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $15,300,000. It is estimated that the oil well contains 1,000,000 barrels of oil, of which only 900,000 can be profitably extracted. By December 31, Year 1, 45,000 barrels of oil were produced and sold. The amount of depletion expense for Year 1 on this well would be: (Do not round intermediate calculations.)

$765,000.

On September 1, Year 1, Orville Corporation has unrestricted Retained Earnings of $8,300,000, Appropriated Retained Earnings of $5,300,000, Cash of $9,800,000, and Accounts Payable of $1,800,000. What is the maximum amount that can be used for cash dividends?

$8,300,000

On January 1, Year 1, Friedman Company purchased a truck that cost $33,000. The truck had an expected useful life of 100,000 miles over 8 years and an $7,000 salvage value. During Year 2, Friedman drove the truck 34,000 miles. The amount of depreciation expense recognized in Year 2 assuming that Friedman uses the units-of-production method is: (Do not round intermediate calculations.)

$8,840.

Assume the perpetual inventory method is used. 1) The company purchased $12,600 of merchandise on account under terms 2/10, n/30. 2) The company returned $2,100 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $19,200 cash. The amount of gross margin from the four transactions is:

$8,910.

Anchor Company purchased a manufacturing machine with a list price of $92,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $3,600. Anchor paid $5,100 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $6,600 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:

$98,860.

Flagler Corporation shows a total of $700,000 in its common stock account and $700,000 in its paid-in capital in excess of par value - common stock account. The par value of Flagler's common stock is $7. How many shares of Flagler stock have been issued?

100,000.

Montana Company was authorized to issue 130,000 shares of common stock. The company had issued 57,000 shares of stock when it purchased 9,000 shares of treasury stock. The number of outstanding shares of common stock was:

48,000.

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,235,000. Harding paid $280,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $296,000; Building, $880,000 and Equipment, $584,000. What value will be recorded for the building?

617,500

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet?

A corporation.

Which of the following entities would report income tax expense on its income statement?

A corporation.

Which of the following would most likely not be expensed using the straight-line method?

A timber reserve.

Which of the following is considered a period cost?

Advertising expense for the current month.

Which of the following terms is used to identify the expense recognition for intangible assets?

Amortization.

Which of the following statements best describes the term "par value?"

An amount used in determining a corporation's legal capital.

Which of the following represents the impact of a taxable cash sale of $1,200 on the accounting equation if the sales tax rate is 5%?

An increase to cash for $1,260, an increase to sales tax payable for $60, and an increase to sales revenue for $1,200.

Where is treasury stock reported on a corporation's balance sheet?

As a deduction from total stockholders' equity, following retained earnings

Assume the perpetual inventory method is used. 1) The company purchased $13,500 of merchandise on account under terms 2/10, n/30. 2) The company returned $3,000 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $21,000 cash. What effect will the return of merchandise to the supplier have on the accounting equation?

Assets and liabilities are reduced by $3,000.

The amount of accumulated depreciation is shown on the:

Balance sheet

Which of the following statements is a reason why a company would buy treasury stock?

Because management believes the market price of stock is undervalued. To have stock available to issue to employees in stock option plans. To avoid a hostile takeover.

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

Bonds Payable.

On January 1, Year 1, Burton Corporation recorded an event that increased its cash account by $196,000, increased its discount on bonds payable account by $4,000, and increased its bonds payable account by $200,000. Which of the following correctly describes that event?

Burton issued bonds at 98.

Which of the following businesses is most likely to use a specific identification cost flow method?

Car dealership

Butte Company recognized $24,000 of revenue on the cash sale of merchandise that cost $11,000. How will the sale be reported on the statement of cash flows?

Cash inflow from operating activities

Which form of business organization is established as a legal entity separate from its owners?

Corporation

The term "double taxation" refers to which of the following?

Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on their dividends.

Which of the following is not a generally recognized internal control procedure?

Customer service comment cards

Which of the following is considered an accelerated depreciation method?

Double-declining-balance

Which of the following statements is correct regarding accounting treatment of goodwill?

Goodwill is recorded as an asset and is not written off as an expense unless its value decreases.

Ogilvie Corp. issued 24,000 shares of no-par stock for $30 per share. Ogilvie was authorized to issue 47,000 shares. What effect will this event have on the company's financial statements?

Increase assets by $720,000, increase equity by $720,000.

Abbott Company purchased $7,800 of merchandise inventory on account. Abbott uses the perpetual inventory method. How does this transaction affect the financial statements?

Increase inventory and increase accounts payable.

Which of the following statements accurately describes a fidelity bond?

Insurance that the company buys to protect itself from loss due to employee dishonesty

Which of the following terms is applied to long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

Intangible assets

Policies and procedures designed to reduce the opportunities for fraud are often called:

Internal controls.

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

LIFO

Which of the following is not considered an advantage of the corporate form of business organization?

Lack of government regulation.

Which of the following would be classified as a tangible asset?

Land.

Which of the following would be considered as primarily a merchandising business?

Martin's Supermarket

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

Number of shares authorized

Which of the following items is not classified as a current asset?

Office equipment.

An audit is useful to financial statement users because it:

Provides reasonable assurance that the financial statements do not have material misstatements.

Which of the following correctly states the proper order of the accounting cycle?

Record transactions, adjust accounts, prepare statements, close temporary accounts.

Which of the following would not be considered as primarily a merchandising business?

Regal Cinemas

Which of the following is not a component of the fraud triangle?

Reliance

Which internal control procedure addresses the idea that the likelihood of employee fraud or theft is reduced if collusion is required to accomplish it?

Separation of duties

Which of the following accounts would not appear on a balance sheet?

Service Revenue.

Which method of depreciation is used by most U. S. companies for financial reporting purposes?

Straight-line

Middleton Company uses the perpetual inventory method. The company purchased an item of inventory for $140 and sold the item to a customer for $250. What effect will the sale have on the company's inventory account?

The account will decrease by $140.

Which of the following is not a reason why a corporation may choose to not pay dividends?

The board and management prefer to reinvest all net income for future growth. The corporation does not have adequate cash. The corporation does not have adequate retained earnings.

The term "FOB Shipping Point" means:

The buyer pays the shipping cost.

Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?

The outcome is probable and can be reasonably estimated.

Which of the following is not normally a preference given to the holders of preferred stock?

The right to vote before the common stockholders at the corporation's annual meeting.

A five-year, $500,000 bond was issued on January 1, Year 1. The stated rate of interest was 8%, and the effective rate of interest was 10%. The interest is paid semiannually. Which of the following statements is correct?

This bond was issued at a discount, and each semiannual cash payment is $20,000.

How does the purchase of inventory on account under the perpetual inventory method affect the financial statements?

Total assets and total liabilities both increase

When do the effects of product warranties appear on the statement of cash flows?

When there is a settlement of a warranty claim made by a customer.

In the reconciliation of the June bank statement, a deposit made on June 30 did not appear on the June bank statement. In preparing the bank reconciliation, this deposit in transit should be:

added to the unadjusted bank balance.

The cost of goods sold account is classified as:

an expense.

The party that issues a promissory note is known as the:

borrower and maker.

The year-end adjusting entry to recognize uncollectible accounts expense will:

decrease assets and decrease equity.

Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect assets, liabilities, equity, net income, and cash flow.

decrease assets and equity, decrease net income, no affect to cash flow

On December 31, Year 1, Gaskins Co. owed $4,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, Year 1, what will be the effect of this accrual on the following items for Gaskins?

decrease income, no effect on cash flow

The recognition of depletion expense:

decreases assets and equity, and does not affect cash flow.

In a bank reconciliation, a customer's NSF check included with the bank statement is:

deducted from the company's cash balance to get the true cash balance.

The matching concept refers to the "matching" of:

expenses and revenues.

In a company's bank reconciliation, an outstanding check is a check that:

has been issued by the company but has not been presented to the bank for payment.

The par value of a company's stock:

has little connection to the market value of the stock.

The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300. The entry to record the customer's NSF check will:

increase the Accounts Receivable balance and decrease the Cash account balance.

Bonds payable are usually classified on the balance sheet as:

long-term liabilities.

The amount of accounts receivable that is actually expected to be collected is known as the:

net realizable value.

What effect will the declaration and distribution of a stock dividend have on net income and cash flows?

no effect on net income or cash flows

At the end of the current accounting period, Ringgold Co. recorded depreciation of $15,000 on its equipment. The effect of this entry on the company's balance sheet is to decrease:

owners' equity and decrease assets.

Issuing bonds payable when the market rate of interest is less than the stated interest rate:

results in bonds being issued at a premium.

The reason bonds are sometimes issued at a discount is:

the stated rate of interest is lower than the rate being paid on investments in the securities market with comparable risk.

The credit terms, 2/15, n/30, indicate that a:

two percent discount can be deducted if the invoice is paid before the fifteenth day following the date of the sale.

The most favorable audit opinion that a company can receive is a(n):

unqualified opinion.

The balance in a revenue account at the beginning of an accounting period will always be

zero