acct multiple choice

recorded in the accounting records

Equipment is purchased on account. Company pays dividend to stockholders. A cash investment is made into the business.

issues US accounting standards

FASB

element of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the:

auditor's opinion

buying a machine on credit

balance sheet

presents information as of a specific point in time?

balance sheet

statement that reports assets, liabilities, and stockholders' equity?

balance sheet

current assets are listed by

by order of expected conversion to cash.

preffered stock

can be par or no par

order of presentation in a classified balance sheet for the following current assets is:

cash, accounts receivable, inventory, prepaid insurance

performing services for cash

increase assets increase stockholder equity

Adjustments for accrued revenues:

increase assets and increase revenues

revenue account

increased by credit normal credit account

three primary business activities

investing, operating, financing

an account

is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items.

In the stockholders' equity section of the balance sheet, common stock:

is part of paid in capital listed after preferred stock not added to total capital stock is part of capital stock, not additional paid-in capital.

The balance in retained earnings is not affected by:

issuance of common stock.

trial balance CANNOT balance when

journal entry posted twice

debit

left increase assets and decrease liability assets dividends expenses Sales Discounts Sales Returns and Allowances

account payable

liability

Trial Balance

list of accounts with their balances at a given time

stock dividends

moves amount from retained earnings to paid-in capital and has no effect on stockholders' equity or cash

cash dividends

record date = no entry declaration= cash dividend dividend payable payment= dividends payable cash

ledger

record of all accounts maintained by a company and their amounts listed in the order of asset, liability, and stockholders' equity accounts and then revenues and expense

Net income will result during a time period when:

revenues exceed expenses.`

Which account will have a zero balance after a company has journalized and posted closing entries?

service revenue

3 forms of business organization

sole proprietorship, partnership, corporation

Companies that can support higher debt to assets ratios have

stable earnings

periodicity assumption

states that the economic life of a business can be divided into artificial time periods.

shares outstanding

stock dividend: increase stock split: increase

par value per share

stock dividend: no change stock split: decrease

paid in capital

the amount stockholders have invested in the company

If everything else is held constant, earnings per share is increased by:

the purchase of treasury stock.

Which of these statements about Visa credit card sales is incorrect?

there is no wait for payment

Treasury stock may be repurchased:

to reissue the shares as part of bonus and stock compensation plans, to signal to the stock market that the stock is underpriced, and to have additional shares available for use in the acquisition of other companies

In the stockholders' equity section, the cost of treasury stock is deducted from:

total paid-in capital and retained earnings.

Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage-of-receivables basis. If Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment, what is the balance after adjustment?

$12,000.

In 2025, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2025, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2025, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to Allowance for Doubtful Accounts at December 31, 2025?

$32,000.

Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:

$55,000.

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23

$686 is paid within 10 days of the purchase

Revenue Recognition Process

(1) Identify the contract with customers, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations, and (5) recognize revenue when each performance obligation is satisfied.

Financing Activity

-includes changes in notes payable, long-term debt, and -equity accounts, as well as dividends Issuing shares of common stock

Accounting Cycle

1. analyze transactions 2. journalize 3. post 4. prepare unadjusted trial balance 5. adjust 6. prepare adjusted trial balance 7. prepare statements 8. close 9. prepare post-closing trial balance 10. reverse (optional)

Zealot Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Zealot declares a 10% stock dividend on its common stock:

10% stock dividend on the company's common stock will increase the number of shares issued by 10,000 (100,000 × 10%). At a market price of $30 per share, total paid-in capital will increase by $300,000 (10,000 shares × $30/share) and retained earnings will decrease by that same amount.

Gross profit rate

= Gross profit ÷ Net sales.

If a company is concerned about extending credit to a risky customer, it could do any of the following except: require the customer to pay cash in advance. require the customer to provide a letter of credit or a bank guarantee. contact references provided by the customer, such as banks and other suppliers. provide the customer a lengthy payment period to increase the chance of paying.

A longer payment period will increase the chances the customer will not pay.

cash realizable value of accounts recievable

Accounts Receivable ($800,000) less the expected ending balance in Allowance for Doubtful Accounts after adjustments ($65,000) =

Accounts and notes receivable are reported in the current assets section of the balance sheet at:

Accounts and notes receivable are reported in the current assets section of the balance sheet at cash (net) realizable value,

Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. What was the accounts receivable turnover and average collection period in days?

Accounts receivable turnover = Net credit sales ($800,000) ÷ Average net accounts receivable [($100,000 + $150,000)/2] = 6.4. The average collection period in days = (365 ÷ 6.4) = 57 days

recording process

Analyzing transactions. Entering transactions in a journal. Posting journal entries.

Prall Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 7. What is its average collection period (days)?

Average collection period = Number of days in the year (365) ÷ Accounts receivable turnover (7) = 52 days,

Kersee Company on June 15 sells merchandise on account to Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received?

Because payment is made within the discount period of 10 days, the amount received is $700 ($1,000 - $300 return) minus the discount of $14 ($700 × 2%), for a cash amount of $686,

cost of goods available for sale

Beginning inventory + Purchases − Purchases discounts − Purchase returns and allowances + Freight-in = Cost of goods available for sale

Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Good Stuff Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to:

Cash $48,000 and Service Charge Expense $2,000.

ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to:

Common Stock should be credited for $10,000 and Paid-in Capital in Excess of Par should be credited for $2,000.

accrual basis

Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged. Companies recognize revenue in the period in which the performance obligation is satisfied. This basis is in accordance with generally accepted accounting principles.

Revenue regonition principle

Companies should recognize revenue in the accounting period in which services are performed.

evaluation of a company's ability to pay current liabilities?

Current ratio.

journal statements

It provides a chronological record of transactions. It helps to locate errors because the debit and credit amounts for each entry can be readily compared. It discloses in one place the complete effect of a transaction.

statements about users of accounting information

Management is considered an internal user. Taxing authorities are considered external users. Present creditors are considered external users.

Michael Co. accepts a $1,000, 3-month, 12% promissory note in settlement of an account with Tani Co. The entry to record this transaction is:

On the date Michael accepts the note, Notes Receivable is debited for $1,000 and Accounts Receivable is credited for $1,000. Interest is accrued only with the passage of time

Which is an advantage of corporations relative to partnerships and sole proprietorships?

Reduced legal liability for investors.

stock dividends

Results in decrease in retained earnings and increase in paid-in capital

Jackson Inc. reported net income of $186,000 during 2025 and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders' equity was $1,200,000 on January 1, 2025, and $1,600,000 on December 31, 2025. The company's return on common stockholders' equity for 2025 is:

Return on common stockholders' equity is net income available to common stockholders divided by average common stockholders' equity. Net income available to common stockholders is net income less preferred dividends = $126,000 [$186,000 − (10,000 × .06 × $100)]. The company's return on common stockholders' equity for the year is therefore 9.0% [$126,000/($1,200,000 + $1,600,000)/2)]

net income

Sales revenue − Salaries and wages expense − Rent expense =

major advantages of corporations

Separate legal existence. Continuous life. Transferable ownership rights. limited liability of stockholders. Ownership of common stock gives the owner a voting right. The stockholders' equity section begins with paid-in capital. The authorization of capital stock does not result in a formal accounting entry.

total stockholders equity

Stock Dividend: no change Stock Split: no change

total retained earnings

Stock dividend- decrease Stock split- no change

Total par value (common stock)

Stock dividend- increase Stock split- no change

total paid in capital

Stock dividend- increase Stock split- no change

indicates the cash spent on new equipment during the past accounting period?

The investing activities section

promissory notes

The party making the promise to pay is called the maker. The party to whom payment is to be made is called the payee. A promissory note is more liquid than an account receivable.

U-Bet Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2025. No dividends were declared in 2023 or 2024. If U-Bet wants to pay $375,000 of dividends in 2025, common stockholders will receive:

The preferred stockholders will receive a total of $240,000 of dividends [dividends in arrears ($80,000 × 2 years) + current-year dividends ($80,000)]. If U-Bet wants to pay a total of $375,000 in 2025, then common stockholders will receive $135,000 ($375,000 − $240,000),

results from the Sarbanes-Oxley Act

Top management must now certify the accuracy of financial information. Penalties for fraudulent activity increased. Independence of auditors increased.

Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. The entry made by Schleis Co. when the note is collected, assuming no interest has previously been accrued, is:

When Schleis receives payment, it will increase cash, reduce the notes receivable account, and recognize interest earned for the term of the note. Interest = $10,000 × 9% × 120/360 = $300. Total cash received = $10,000 + $300 = $10,300.

Liabilities

assets-stockholders equity

land with a production plant in construction

a long term investment

Generally accepted accounting principles are:

a set of standards and rules that are recognized as a general guide for financial reporting. GAAP

The return on common stockholders' equity is usually increased by

an increase in the return on assets ratio. an increase in the use of debt financing. an increase in the company's net income

Paying an account payable with cash

asset cash decreases. Accounts payable, a liability, decreases

purchased on credit

assets are increased and liabilities are increased

Stockholders' Equity represents

claims of owners

periodic inventory system

cost of goods sold is determined only at the end of the accounting period. Beginning inventory + Cost of goods purchased -Ending inventory = Cost of goods sold Purchases for resale are debited to the Purchases account

debit assets

credit liabilities and stockholders equity

Working Capital

current assets - current liabilities

current ratio

current assets/current liabilities (liquidity)

In a classified balance sheet, assets are usually classified as:

current assets; long-term investments; property, plant, and equipment; and intangible assets

adjusted entry To record depreciation

debit Depreciation Expense and credit Accumulation Depreciation—Equipment.

Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen's employer at September 30

debit Salaries and Wages Expense $400 and credit Salaries and Wages Payable for $400

Entries for cash dividends are required on the:

declaration date and payment date

Adjustments for prepaid expenses

decrease assets and increase expenses.

Adjustments for unearned revenues

decrease liabilities and increase revenues.

Expense Recognition Principle

dictates that efforts (expenses) be recorded with accomplishments (revenues)

common stock

directly to investors always par or stock

indicator of profitability?

earnings per share

measure of a firm's profitability

earnings per share

not recorded in the accounting records

employee termination

materiality

evaluates whether omitting or misstating an item could influence the decision of a financial statement user

Adjusting entries are made to ensure that:

expenses are recognized in the period in which they are incurred, that revenues are recorded in the period in which the performance obligation is satisfied, balance sheet and income statement accounts have correct balances at the end of an accounting period

neutrality is an ingredient of

faithful representation

profitability can be compared by earnings per share

false

disadvantage of corporations

government regulations taxed twice Legal capital is intended to protect creditors, not stockholders

low solvency

high debt to assets ratio

Thomas is nearing retirement and would like to invest in a stock that will provide a good steady income. Thomas should choose a stock with a:

high dividend payout

high current ratio

higher liquidity

shipping point

in inventory from shipping

destination

in inventory when arrive at destination

adjusted trial balance

n adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. The adjusted trial balance provides the primary basis for the preparation of financial statements. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

quality of earnings ratio:

net cash provided by operating activities/net income <1 aggresive

earnings per share

net income - preferred dividends / weighted average common shares outstanding

profit margina

net income/net sales

Gross profit will result if:

net sales are greater than cost of goods sold.

A receivable that is evidenced by a formal instrument and that normally requires the payment of interest is:

note receivable represent claims for which formal instruments of credit are issued

element of a corporation's annual report that describes the corporation's accounting methods is/are the:

notes to the financial statements.

Which types of accounts will appear in the post-closing trial balance?

permanent accounts

major categories of adjusting entries

prepaid expenses. accrued revenues. accrued expenses.

not apart of recording

preparing income statement

perpetual inventory system

purchases on account are debited to the Inventory account no Purchases and Purchase Returns and Allowances purchased goods are debited to the Inventory account,

To record the sale of goods for cash in a perpetual inventory system:

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Treasury Stock

u Generally accounted for by the cost method. u Treasury Stock will be debited for the price paid. u Treasury Stock is a contra stockholders' equity account, not an asset. u Purchase of treasury stock reduce stockholders' equity.

stock split

u Par value will decrease and number of shares will increase

primary quality accounting can be judged by

usefulness

Preferred stock may have priority over common stock except in:

voting.

physical inventory usually taken?

when a limited number of goods are being sold or received, and at the end of the company's fiscal year

A company can accelerate its cash receipts by all of the following except:

writing off receivables.