Acct 209 Final Exam

The premium on bonds payable account is shown on the balance sheet as

An addition to the long term liability

The second step in the ethical decision making model is to

Analyze the key elements in the situation

T/F: If a company has internal auditors, it does not need to have external auditors

False

T/F: The direct write off method estimates the amount of bad debts before they occur

False

Factoring or negotiating a promissory note a. slows the collections process b. is the process of selling or transferring ownership of a promissory note c. is the process of lending money d. requires using an account called discount on notes receivable

b. is the process of selling or transferring ownership of a promissory note

Expenses originate from a. collecting cash from customers b. paying off liabilities c. incurring liabilities or providing services to customers d. using an asset or recognizing liabilities

using an asset or recognizing liabilities

The 2016 income statement of Seikoson shows operating revenues of $130,800, selling expenses of $37,100, general and administrative expenses of $34,900, interest expense of $900, and income tax epense of $11,430. Seikoson's stockholders' equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has 20,000 shares of stock outstanding at December 31, 2016. What is Seikoson's net income?

$46,470

What are the two subtotals that distinguish the multistep income statement from the single step income statement

- Income from operations - income before taxes

On January 1, 2016 Sharpsburg issued $400,000, 10 year, 10% bonds for $345, 200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2016?

355,452

What happens to the accounting equation when the adjustment that recognizes accrued interest revenue is recorded? a. assets increase and SHE inteases b. SHE increases and decreases by the same amount c. assets decrease and liabilities decrease d. assets increase and liabilities increase

A. Assets increase and SHE increases

You are comparing three companies that use different depreciation methods. Which of the following would help you the most in making a comparison of the companies a. Disclosure of accounting policies b. Prospective cash receipts c. Claims to resources d. The average earnings per share for the quarter

A. Disclosure of accounting policies

Which of the following items is added to net income to determine cash flows from operating activities when the indirect method is used to prepare the operating activities category of the statement of cash flows a. depreciation expense b. cost of plant assets acquired during the year c. cash from notes payable related to truck acquired d. accumulated depreciation

A. depreciation expense

On jan 1, 2016, the long term liability section of eden company's balance sheet showed a balance of $35,000 in the bonds payable account. On December 31, 2016, the balance in the same account was $20,000. This change would appear on the statement of cash flows as

An outflow of $15,000 in the financing activities

Which of the following documents is used in the control of cash receipts? a. Canceled checks from customers b. Bank deposit slips c. Receiving reports d. Purchase requisitions

B. Bank deposit slips

The amount in the subscriptions sold in advance account should be carried over from the adjusted trial balance of the 10-column work sheet to which of the following columns? a. Balance sheet as a debit b. Income statement as a credit c. Balance sheet as a credit d. Income statement as a debit

C. Balance sheet as a credit

DEALER

Debit = Dividends, Expenses, Assets Credit = Liabilities, Equity, Revenue Dividends, Expenses, Assets (Debited increase, credited decrease) Liabilities, Equity, Revenue (Credited Increase, Debited decrease)

A debit entry increases/decreases liabilities

Decreases

A debit entry increases/decreases stockholders' equity

Decreases

T/F: Actual issue price of a bond represents the present value of all future cash flows related to the bond

FALSE

T/F: When a company uses coupon or premium offers in conjunction with the sale of its products, there is no need to record any contingent liability

False

T/f: SHE is composed of three parts: contributed capital, earnings retained in the business, and dividends paid

False - Contributed capital, retained earnings, and treasury stock

The record in which transactions are initially recorded in chronological order as they occur is a(n)

General Journal

The declaration of dividends increases/decreases the amount of income taxes the corporation must pay

INCREASES

The threshold for recording items as liabilities is a lower/higher under US GAAP than under IFRS

LOWER

When using allowance method, what are the effects on the accounting equation when a company writes off a bad debt? a. assets and SHE decrease b. no effect on overall assets or equity c. assets and SHE increase d. assets increase and SHE decrease

No effect on overall assets or equity

Which financial statement reports the sources and uses of an entity's cash resources?

Statement of Cash Flows

Park Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016. Park uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense?

The date the merchandise is sold

To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years, you your use which type of time value of money calculation?

The present value of an annuity

How are cash equivalents reported or disclosed in the financial statements?

They are included with cash under current assets on the balance sheet

T/F: Book value indicated the rights that stockholders have, based on recorded values, to the net assets in the event of a liquidation

True

T/F: In an operating lease, the lessee acquires the right to use an asset for only a limited period of time

True

T/F: The current maturity of long-term debt is a current liability

True

When a company declares a stock dividend, which of the following occurs? a. retained earnings is reduced b. SHE decreases c. liability is created d. the financing section of the statement of cash flows is decreased

a. retained earnings is reduced

Depreciation

an effort to achieve proper matching of the cost of operating assets

A credit means that a. the event is unfavorable b. the event has an effect on the left side of an account c. none of these choices d. the event is favorable

c. none of these choices

Which of the following is reported as a financing activiity? a. declaration of cash dividends b. stock split c. payment of cash dividends d. stock dividend

c. payment of cash dividends

Income taxes payable is a balance sheet item for Iowa Products Company. How would it most likely be classified on the balance sheet a. contra liability b. expense c. owners equity d. current liability

d. current liability

Current liabilities are defined as those liabilities which will be satisfied a. by the end of the operating cycle b. within 1 year or within the operating cycle, whichever is first c. within 1 year d. within 1 year or within the operating cycle, whichever one is longer

d. within 1 year or within the operating cycle, whichever one is longer

Bluebird Inc issued a 9-month, 6% interest bearing note for $49,000 to the bank. The issuance of this note would include a

debit to discount for $2,205

Using different depreciation methods for book purposes versus tax purposes for the same asset, if allowed, will result in

direct resulting of the differing goals of financial and tax accounting

If a company wishes to accumulate $500,000 in 20 years at 5% by making equal yearly deposits into an account, calculation of the deposits is an application of the

future value of annuity

Measurement is concerned with _______

how economic effects should be quantified

On May 1, the Chris Company borrowed $30,000 from the third street bank on a 1-year 6% note. If the company keeps its records on a calendar year, an entry is needed on december 31 to increase a. interest expense $1800 b. interest payable $1200 c. interest expense $600 d. interest payable $900

interest payable, $1200

If a company has both common and preferred shares outstanding and wishes to calculate book value per share

net assets, less the redemption value of the preferred stock must be divided by the number of shares of common stock outstanding

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should

not be amortized

Business entities generally carry on

operating, investing, and financing activities

Which internal control procedure is followed when management authorizes the purchasing department to order goods and services for the company?

proper authorization

Cash interest is computed at the coupon interest rate when a bond is issues for par. For a bond issued for a premium, how will the cash interest component change

remain constant

Comparability

the characteristic of accounting information that is used to analyze two or more companies and look for similarities or differences

What is the effect of a stock dividend on SHE

total SHE stays the same

T/F: When inventory is sold by a wholesaler or retailer, it is recorded in a different account on the income statement than a manufacturer would use

False

T/F: When stock is issued for a noncash asset, the par value of the stock is the best indicator of the value of the asset

False

T/F: On a bank reconciliation, bank charges for the month are added to the cash balance per the books

False

Endeavor Company issued 20-year bonds with coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

At a discount

T/F: Depreciation has no effect on income taxes, since it only reduces a plant asset's book value

False

T/F: Funds raised from operation activities should be invested in assets that can be used to carry on business operations

False

T/F: If an investor has the right to retire the bond, they are referred to as callable

False

T/F: In an operating lease, the lessee has acquired sufficient rights of ownership and control of the property to be considered its owner

False

T/F: The issuance of stock decreases a company's assets and increases its stockholder's equity

False

T/F: There is a standard threshold for materiality set by the Financial Accounting Standards Board for all companies

False

T/F: US Standards require a classified balance sheet with liabilities classified as either current or long term

False

T/F: Under the accrual method, expenses are recognized when revenue is earned

False

T/F: Dividends declared and paid reduce a company's retained earnings balance

True

T/F: The key to the classification of an amount as cash is that it be readily available to pay debts

True

T/F: When treasury stock is reissued and the cost is less than the reissue price, the difference increases additional paid-in capital

True

Domenico Enterprises purchased land for $2,000,000 in 1999. In 2016, an independent appraiser addressed the value at $4,400,000. What amount should appear on the financial statements in 2016 with respect to the land?

$2,000,000

T/F: A company using the period inventory system must total the selling prices of the units on hand at the end of the period to value the ending inventory

False

Wexford Co purchased a new delivery truck at the beginning of 2016. The truck has a cost of $37,000, an estimated life of 5 years and an estimated residual value of $7000. A full year's depreciation expense is to be recorded in 2016. The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017. The number of expected miles over 5 years is 100,000. Wexford Co. wants to use the depreciation method that will result in the highest depreciation expense for 2016. Which method should be used?

double declining balance

Interest is capitalized when incurred in connection with the construction of plant assets because a. the decision to purchase a plant asset is a business decision separate from the financing decision b. many plant assets last longer than 20 years c. interest is considered an expense of the period d. interest is considered a part of the acquisition cost of the related plant asset

interest is considered a part of the acquisition cost of the related plant asset

T/F: Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

False

T/F: Adjustments are recorded for all transactions involving outside entities

False

T/F: As part of good internal control, disbursements can be made either by check or cash

False

If a company uses the allowance method of accounting for bad debts, which one of the following statements is true? a. it violates the matching principle b. it will record bad debts only when an account is determined to be uncollectible c. it will report accounts receivable in the balance sheet at their net realizable value d. it will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts

C. It will report accounts receivable in the balance sheet at their net realizable value

What is the correct method for calculating working capital?

Current Assets - Current Liabilities

GAAP stands for

Generally Accepted Accounting Principles

A debit entry increases/decreases assets

Increases

Operating assets with NO physical properties are called

Intangible assets

What effect does "recognizing an accrued liability for utilities at the end of the accounting period" have on the accounting period

Liabilities increase and stockholders' equity decreases

A 10 year lease obligation appears on the balance sheet of Generic Products Company. How would it most likely be classified on the balance sheet?

Long term liability

Most annual reports now include a report of management to the stakeholders. In this report, which group has the primary responsibility for the preparation and integrity of the financial statements?

Management

T/F: A high accounts receivable turnover ratio could mean that the company's credit policies may be too stringent

True

T/F: Because of its objective nature, historical cost is the attribute used to measure many of the assets recognized on the balance sheet

True

T/F: Bondholders are external users of company's accounting information

True

Which internal control procedure is followed when storage areas are secured with limited access a. safeguarding assets and records b. independent verifications c. proper authorizations d. segregation duties

a. Safeguarding assets and records

The debit balance in cash short over temporary accounts at the end of an accounting period will result in AJE and is reported as

an expense on the income statement

What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded? a. stockholders equity decreases and liabilities increase b. assets and stockholders equity increase c. assets and stockholders equity decrease d. assets decrease and liabilities increase

c. assets and stockholders equity decrease

Your bookkeeper is off for the day and you are trying to figure out what her las entry in the journal could be for. Unfortunately, she only recorded the debit side of the transaction as $4,400 to Accounts Payable. It is possible that this debit could correspond to a. A $4,400 issuance of the company's capital stock b. A payment of $4,400 to a supplier to settle a balance due c. A $4,400 sale to a customer d. A purchase of equipment costing $4,400 on credit

B. A payment of $4,400 to a supplier to settle a balance due

Which pair of accounts has the same rule for debit and credit entries a. Accounts Receivable and Accounts Payable b. Equipment and Salaries Expense c. Dividends and Retained Earnings d. Service Revenue and Rent Expense

B. Equipment and Salaries Expense

Which one of the following is a financing activity of a business? a. Paying for purchases of inventory b. Issuing stock for cash c. Purchasing a manufacturing plant d. Paying salaries

B. Issuing stock for cash

A bank loaned $62 million to Apex Corporation to finance the construction of a new distribution warehouse. In which section of Apex's statement of cash flows would you be able to determine whether the company repaid any portion of the debt during the year? a. investing activities b. operating activities c. financing activities d. profit activities

C. financing activities

A debit memorandum appeared on Cinco Inc.'s May bank statement. How will Cinco treat this amount on its May bank reconciliation

Deduct from the bank balance

If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of

Comparability

Harvest Catering is a local catering service. Conceptually, when should Harvest recognize revenue from its catering service? a. At the date the customer's payment is received b. At the date the invoice is mailed to the customer c. At the date the customer places the order d. At the date the meals are served

D. At the date the meals are served

What effect does "recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for an insurance company? a. SHE increases and liabilities increase b. assets increase and SHE increases c. assets decrease and liabilities decrease d. liabilities decrease and SHE increases

D. Liabilities decrease and SHE increases

Which of the following adjustments will increase assets? a. Interest incurred on money borrowed during the period but not yet paid to the bank is accrued b. Depreciation for the period is recorded c. The use of supplies is recorded d. Rent revenue is recorded for amounts owed by a tenant but not yet paid

D. Rent revenue is recorded for amounts owed by a tenant but not yet paid

Tavella Company applies the consistency convention. What does this mean? a. Tavella Co. applies the same accounting principles as its competitors b. Tavella Co. has selected certain accounting principles that can never be changed c. Tavella Co. uses the same names for all its expenses as its competitors d. Tavella Co applies the same accounting principles each accounting period

D. Tavella Co applies the same accounting principles each accounting period

On October 31, Michael Corporation signed a one year contract to provide services to Love Company for $80,000. Love will pay for the services on November 1. Using the accrual basis for accounting, when should Michael corporation recognize revenue? a. On October 31 of the next year when all services have been provided b. At December 31 of the current year and October 31 of the next year c. November 1 of the current year when the cash is received from Harris d. Throughout the year as the revenue is earned

D. Throughout the year as the revenue is earned

In preparing financial statements, accounts should consider all of the following except: a. the characteristics that make accounting info useful b. the most useful way to display the information found on the financial statements c. the objectives of financial reporting d. the presentation of the value of a company

D. the presentation of the value of a company

On Jan 1, 2016 Grove City purchased a ship for 200000. It has a ten year useful life and a residual value of 50,000. The company uses the double declining balance method. If Grove City Corp continues to use the ship in its 11th year, what is the correct accounting procedure?

No longer depreciate it but leave it on the records as its book value at the end of its useful life

Oakland Corp purchased land and a building for a combined cost of $500,000. Oakland must a. allocate the $500,000 acquisition cost to separate Land and Buildings accounts based on their respective fair market values b. because part of the purchase involved land, record all of the cost in the land account c. record the $500,000 acquisition cost in an account called Land and Buildings d. depreciate the $500,000 acquisition cost, less any residual value, over the expected useful life of the building

a. allocate the $500,000 acquisition cost to separate Land and Buildings accounts based on their respective fair market values

All of the following are intangible assets EXCEPT: a. franchises b. accounts receivable c. patents d. goodwill

accounts receivable

On July 1, 2016, Overlin Corp purchased $10,000 of 8% bonds at face value. Interest is paid annually on June 30. If the accounting year for Overlin ends at December 31,2016 what will be reported with respect to the bonds on that date? a. the cash received in interest will be $8000 b. interest income in the amount of $4000 will be accrued c. the carrying carrying value of the bonds will be $108,000 d. a loss on the bonds will be reported in the other income and expense section of the 2016 income statement until the entire amount of interest is paid on June 30, 2017

b. Interest income in the amount of $4000 will be accrued

One effect on the accounting equation when a firm borrows money is a. assets decrease b. assets increase c. SHE decreases d. liabilities decrease

b. assets increase

Which of the following statements regarding the inclusion of liabilities on the statement of cash flows is true? a. a decrease in a current liability from the beginning to the end of the year is accompanies by an inflow of cash b. a decrease in a current liability from the beginning to the end of the year is accompanied by a derease of cash c. all current liabilities affect the operating activities section d. long term liabilities generally affect the investing activities section

b. decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash

Which one of the following would NOT appear on a bank statement for a checking account? a. interest earned b. deposits c. outstanding checks d. service charge

c. outstanding checks

If the amount assigned to ending inventory is incorrect

both the balance sheet and the income statement are affected

The documentation with the bank statement shows a debit memo for bank service charges. Based on this, what possible entry would be made in the company's accounts? a. debit cash; credit accounts payable b. debit cash; credit accounts payable c. debit misc. admin expense, credit cash d. debit accounts payable; credit cash

c. debit miscellaneous administrative expense; credit cash

The effect of recording depreciation for the year is a(n) a. decrease in net income and no change in assets b. decrease in net income and no change in assets c. decrease in assets and a decrease in net income d. increase in assets and an increase in net income

c. decrease in assets and a decrease in net income

Which of the following items is NOT included as an element of net income on the multiple step income statement a. gain on the sale of fixed assets b. loss on sale of investments c. unrealized holding gains or losses on investments d. amortization of bond discounts

c. unrealized holding gains or losses on investments

Which of the following is an example of a credit memorandum? a. outstanding check b. service charge notice c. company error in recording a $600 deposit as $500 c. company error in recording a $600 deposit as $500 d. collection of a note receivable by the bank

d. Collection of a note receivable by the bank

Which of the following journal entries is required to close the income statement summary account of a company with a net loss? a. Debit income summary, debit RE b. Debit income summary, credit RE c. Debit income summary, credit capital stock d. Credit income summary, debit RE

d. Credit Income Summary, Debit RE

A voucher is usually supported by a. a suppliers invoice b. a purchase order c. receiving report d. all of the above

d. all of the above

In a periodic inventory system, the cost of purchases is recognized as a. an increase in the inventory account b. an increase in an asset account c. the only part of the calculation of cost of goods sold d. an integral part of the calculation of cost of goods sold

d. an integral part of the calculation of cost of goods sold

How would NFS checks be dealt with in a bank reconciliation a. deducted from bank statement balance b. added to bank statement balance c. added to company's book balance d. deducted from company's book balance

d. deducted from company's book balance

Which one of the following rations is a common analytical tool used by merchandise corporations, but NOT by service corporations? a. earnings per share b. profit margin c. current ratio d. gross profit ratio

d. gross profit ratio

Items should be reported as part of the company's "inventory" at the year end, if they are a. held in anticipation of an increase in market value b. held in anticipation of an increase in market value c. determined to be part of COGS d. purchased from a creditor, available for sale, and paid for the following year

d. purchased from a creditor, available for sale, and paid for the following year

Chamberlain Company buys designer clothing to sell in its retailer stores. Since much of the merchandise comes from Dallas and Europe, Chamberlain company must pay freight charges to get the merchandise shipped in. Which statement is true? a. transportation in paid by chamberlain company, is added to the inventory account under the periodic system b. freight charges are only paid by a buyer in a periodic system c. transportation in paid by chamberlain company is subtracted from purchases under the periodic system d. transportation in is added to net purchases to determine cost of goods purchased in a periodic system

d. transportation is in added to net purchases to determine cost of goods in a aperiodic system

When selecting the best alternatives regarding an ethical dilemma in accounting, which should NOT be considered

which alternative provides the most profitable information