Exam 2
Gordy's Corp. has seven employees. Each earns $800 per week for a five day work week ending on Friday. This month, the last day of the month falls on a Thursday. The company should make an adjusting entry: A.Debiting Wage Expense for $4,480 and crediting Wages Payable for $4,480. B.Debiting Wage Expense for $640 and crediting Wages Payable for $640. C.Crediting Wage Expense for $4,480 and debiting Wages Payable for $4,480. D.Crediting Wage Expense for $640 and debiting Wages Payable for $640.
A.Debiting Wage Expense for $4,480 and crediting Wages Payable for $4,480.
Closing entries should be made: A.Every year. B.Only when an entity goes out of business. C.Only if there is a profit. D.Only if there is a loss.
A.Every year.
In a perpetual inventory system: A.Merchandising transactions are recorded as they occur. B.No effort is made to record the Cost of Goods Sold until year-end. C.Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold. D.The need for ever taking physical inventory is eliminated.
A.Merchandising transactions are recorded as they occur.
In a perpetual inventory system, two entries usually are made to record each sales transaction. The purposes of these entries are best described as follows: A.One entry recognizes the sales revenue, and the other recognizes the cost of goods sold. B.One entry records the purchase of the merchandise, and the other records the sale. C.One entry records the cost of goods sold, and the other reduces the balance in the Inventory account. D.One entry updates the general ledger, and the other updates the subsidiary ledgers.
A.One entry recognizes the sales revenue, and the other recognizes the cost of goods sold.
The purpose of making closing entries is to: A.Prepare revenue and expense accounts for the recording of the next period's revenue and expenses. B.Enable the accountant to transfer the balances from all permanent accounts to the Income Summary account. C.Establish new balances in the balance sheet accounts. D.Reduce the number of expense accounts.
A.Prepare revenue and expense accounts for the recording of the next period's revenue and expenses.
Refer to the information above. The entry to close the Fees Earned account will: A.Produce a zero balance in that account when posted. B.Include a debit to Income Summary. C.Include a credit to Fees Earned. D.Include a debit to Capital Stock.
A.Produce a zero balance in that account when posted.
Sales discounts and allowances: A.When properly recorded will reduce net profit. B.When properly recorded will increase net profit. C.Will not affect net profit. D.Are always immaterial and need not be recorded.
A.When properly recorded will reduce net profit.
Beacon Food Stores purchased canned goods at an invoice price of $4,000 and terms of 2/10, n/30. Half of the goods had been mislabeled and were returned immediately to the supplier. If Beacon Food pays the remaining amount of the invoice within the discount period, the amount paid should be: A.$1,920. B.$1,960. C.$3,920. D.$4,000.
B.$1,960.
Refer to the information above. Net income for the period equals: A.$18,375. B.$11,000. C.$5,800. D.$11,250.
B.$11,000
The Cash account in the ledger of Clear Windows shows a balance of $12,596 at September 30. The bank statement, however, shows a balance of $16,253 at the same date. The only reconciling items consist of a bank service charge of $16, a large number of outstanding checks totaling $6,740, and a deposit in transit. Refer to the information above. What is the adjusted cash balance in the September 30 bank reconciliation? A.$16,237. B.$12,580. C.$9,513. D.$5,856.
B.$12,580.
Cardinal Company's bank statement showed a balance at May 31 of $180,974. The only reconciling items consisted of a large number of outstanding checks totaling $51,847. At May 31, what balance should Cardinal's Cash account show? A.$232,821. B.$129,127. C.$77,280. D.$180,794.
B.$129,127.
Shown below is a trial balance for Cornell Products Inc., on December 31, after adjusting entries: Refer to the information above. After closing the accounts, Retained Earnings at December 31 equals: A.zero. B.$14,500. C.$22,000. D.$22,500.
B.$14,500.
Refer to the information above. According to service contracts, $4,810 of the Unearned Service Revenue has been earned in March. The amount of Service Revenue Earned to be reported in the March income statement is: A.$16,510. B.$21,320. C.$11,700. D.$20,410.
B.$21,320.
The Cash account in the ledger of Hensley, Inc. showed a balance of $3,100 at June 30. The bank statement, however, showed a balance of $3,900 at the same date. The only reconciling items consisted of a $700 deposit in transit, a bank service charge of $7, and a large number of outstanding checks. Refer to the information above. What is the "adjusted cash balance" at June 30? A.$3,900. B.$3,093. C.$7,600. D. $2,400
B.$3,093.
Refer to the information above. On March 1, Hoffman paid in advance for four months' insurance. The necessary adjusting entry at March 31 includes which of the following? A.A credit to Prepaid Insurance for $2,340. B.A credit to Prepaid Insurance for $780. C.A debit to Prepaid Insurance for $2,340. D.A debit to Prepaid Insurance for $780.
B.A credit to Prepaid Insurance for $780.
In a periodic inventory system, the cost of goods sold is: A.Recorded as sales transactions occur. B.Determined by a computation which is performed at year-end, after the taking of a complete physical inventory. C.Equal to the beginning inventory, plus purchases made during the period, less sales revenue for the period. D.Determined by subtracting the balance in the Gross Profit account from the amount of net sales.
B.Determined by a computation which is performed at year-end, after the taking of a complete physical inventory.
Which of the following is not considered an acceptable inventory cost method according to GAAP? A.First-in, first-out. B.First-in, last-out. C.Last-in, first-out. D.Average cost.
B.First-in, last-out.
Refer to the information above. The entry to close Salaries Expense account will: A.Transfer the total of Salaries Expense directly to Retained Earnings. B.Include a debit to Income Summary. C.Include a debit to Salaries Expense. D.Include a credit to Capital Stock.
B.Include a debit to Income Summary.
In a periodic inventory system, which of the following accounts may be closed by debiting Cost of Goods Sold? A.Sales, Inventory (beginning), and Gross Profit. B.Inventory (beginning) and Purchases. C.Purchases and Inventory (ending). D.Sales, Inventory (beginning), and Cost of Goods Available for Sale.
B.Inventory (beginning) and Purchases.
Which of the following factors would suggest the use of a perpetual inventory system? A.A small company. B.Inventory items with a high per-unit cost. C.A desire to minimize record-keeping requirements. D.Only annual reporting is required.
B.Inventory items with a high per-unit cost.
When prices are increasing, which inventory method will produce the highest cost of goods sold? A.FIFO. B.LIFO. C.Average cost. D.Cost of goods sold will not change.
B.LIFO.
Tuna Co. purchased a building in 2015 for $650,000 and debited an asset called "Buildings" for the entire amount. The company never depreciated the building although it had a useful life of 15 years. At the end of 2015, this action will cause: A.Net income to be understated. B.Net income to be overstated. C.Net income will not be affected. D.Total assets will be understated.
B.Net income to be overstated.
If Income Summary has a net credit balance, it signifies: A.A net loss. B.Net income. C.A reduction of net worth. D.Dividends have been declared.
B.Net income.
Which account will appear on an After-Closing Trial Balance? A.Dividends. B.Prepaid Expenses. C.Retained Earnings, at the beginning of the period. D.Sales.
B.Prepaid Expenses.
On June 1, Norma Company signed a 12-month lease for warehouse space. The lease requires monthly rent of $550, with 4 months paid in advance. Norma Company records the payment by debiting Prepaid Rent $2,200 and crediting Cash $2,200. At the end of June, what should be the balance of Norma's Prepaid Rent account? A.$0 B.$2,200 C.$1,650 D.$550
C.$1,650
The accounting records of Golden Company showed cash of $15,250 at June 30. The balance per the bank statement at June 30 was $15,125. The only reconciling items were deposits in transit of $3,200, outstanding checks totaling $4,100, an NSF check for $1,000 returned by the bank which Golden had not yet charged back to the customer, and a bank service charge of $25. The preparation of the bank reconciliation should indicate that Golden's adjusted cash balance at June 30 is: A.$14,475. B.$15,375. C.$14,225. D.$15,525.
C.$14,225.
The Cash account in the ledger of Clear Windows shows a balance of $12,596 at September 30. The bank statement, however, shows a balance of $16,253 at the same date. The only reconciling items consist of a bank service charge of $16, a large number of outstanding checks totaling $6,740, and a deposit in transit. Refer to the information above. What is the amount of the deposits in transit? A.$5,856. B.$9,513. C.$3,067. D.$3,083.
C.$3,067.
Gamma Company adjusts its accounts at the end of each month. The following information has been assembled in order to prepare the required adjusting entries at December 31:(1) A one-year bank loan of $720,000 at an annual interest rate of 6% had been obtained on December 1.(2) The company's pays all employees up-to-date each Friday. Since December 31 fell on Tuesday, there was a liability to employees at December 31 for two day's pay. Employees earn a total of $12,800 per week.(3) On December 1, rent on the office building had been paid for three months. The monthly rent is $7,000.(4) Depreciation of office equipment is based on an estimated useful life of five years. The balance in the Office Equipment account is $12,360; no change has occurred in the account during the year.(5) All fees totaling $19,800 were earned during the month Refer to the information above. How much is owed the employees for their wages? A.$0 B.$2,560 C.$5,120 D.$12,800
C.$5,120
Shown below is a trial balance for Cornell Products Inc., on December 31, after adjusting entries: Refer to the information above. The total debits in the After-Closing Trial Balance will equal: A.$23,500. B.$31,000. C.$50,750. D.$58,250.
C.$50,750.
A bank statement shows a balance of $8,445 at June 30. The bank reconciliation is prepared and includes outstanding checks of $2,790, deposits in transit of $1,350, and a bank service charge of $30. Among the paid checks returned by the bank was check no. 900 in the amount of $600, which the company had erroneously recorded in the accounting records as $60. The "adjusted cash balance" at June 30 is: A.$6,975. B.$6,465. C.$7,005. D.$7,575.
C.$7,005.
A debit balance in the income summary account indicates: A.An error was made. B.A Net Profit. C.A Net Loss. D.That revenues were greater than expenses.
C.A Net Loss.
Which of the following would not tend to make a manufacturer choose a perpetual inventory system? A.Management wants information about quantities of specific products. B.A low volume of sales transactions and a computerized accounting system. C.A high volume of sales transactions and a manual accounting system. D.Items in inventory with high per unit costs.
C.A high volume of sales transactions and a manual accounting system.
The bookkeeper prepared a check for $68 but accidentally recorded it as $86. When preparing the bank reconciliation, this should be corrected by: A.Adding $18 to the bank balance. B.Subtracting $18 from the bank balance. C.Adding $18 to the book balance. D.Subtracting $18 from the book balance.
C.Adding $18 to the book balance.
When the LIFO costing method is in use, the seller: A.Must sell the most recently acquired units first. B.Must sell the oldest unit in inventory first. C.Assumes that the most recently acquired units are sold first. D.Assumes that the oldest units in inventory are sold first.
C.Assumes that the most recently acquired units are sold first.
Inventory: A.Consists of all goods owned and held for sale to customers. B.Is a non-financial asset. C.Both consists of all goods owned and held for sale to customers and is a non-financial asset. D.Both consists of all goods owned and held for sale to customers and is a financial asset.
C.Both consists of all goods owned and held for sale to customers and is a non-financial asset.
Which of the following would not be considered an adjusting entry? A.A Above. B.B Above. C.C Above D.D Above.
C.C Above
The Cost of Goods Sold account is closed by: A.Debiting Cost of Goods Sold and crediting Income Summary. B.Debiting Cost of Goods Sold and crediting Retained Earnings. C.Debiting Income Summary and crediting Cost of Goods Sold. D.Debiting Retained Earnings and crediting Cost of Goods Sold.
C.Debiting Income Summary and crediting Cost of Goods Sold.
After preparing a bank reconciliation, a journal entry would be required for which of the following: A.A deposit in transit. B.A check for $48 given to a supplier but not yet recorded by the company's bank. C.Interest earned on the company's checking account. D.A deposit made by a company with a similar name and credited to your account.
C.Interest earned on the company's checking account.
Which of the following statements is not a characteristic of the LIFO method of pricing inventory? A.During a period of rising prices, LIFO tends to minimize the amounts of income taxes owed. B.The cost of goods sold is measured in relatively current costs. C.Inventory is valued at relatively current costs. D.During a period of falling prices, LIFO tends to maximize the amounts of income taxes owed.
C.Inventory is valued at relatively current costs.
The credit term 2/10, n/30 means: A.That after 10 days 2% interest is charged. B.That there is a 10% discount if payment is received within 30 days. C.That there is a 2% discount if payment is received within 10 days, otherwise, full payment is due within 30 days. D.There is a 10% discount if paid immediately and 2% if paid within 30 days.
C.That there is a 2% discount if payment is received within 10 days, otherwise, full payment is due within 30 days.
A bank reconciliation explains the differences between: A.Cash receipts and cash disbursements for the period. B.The balance of cash in the bank and the budgeted expenditures for the upcoming accounting period. C.The balance per bank statement and the cash balance per the accounting records of the depositor. D.The balance per bank statement and cash expected to be on hand according to the cash forecast.
C.The balance per bank statement and the cash balance per the accounting records of the depositor.
If Bounder Dog Supplies, Inc. purchased inventory at $2,200 list price and the terms were 3/10, n/30, what would be the value associated with the inventory if payment was made within 10 days? A.$2,268. B.$2,334. C.$2,200. D.$2,134.
D.$2,134.
During the closing process: A.All income statement accounts are credited to income summary. B.All income statement accounts are debited to income summary. C.All revenue accounts are credited and expense accounts are debited. D.All revenue accounts are debited and expense accounts are credited.
D.All revenue accounts are debited and expense accounts are credited.
Which of the following items on a bank reconciliation may not have been known to the depositor until the bank statement had arrived? A.Bank service charges. B.An NSF check. C.A credit for interest earned. D.All three of these.
D.All three of these.
Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per book. Each book contained a certain number of coupons for video rentals. During the current period 500 books were sold for $20,000, and this amount was credited to Unearned Rental Revenue. At the end of the period, it was determined that $15,000 worth of coupons had been used by customers to rent videos. The appropriate adjusting entry at the end of the period would be: A.Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000. B.Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000. C.Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000. D.Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.
D.Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.
When preparing a bank reconciliation, outstanding checks will: A.Increase the balance per depositor's records. B.Decrease the balance per depositor's records. C.Increase the balance per the bank statement. D.Decrease the balance per the bank statement.
D.Decrease the balance per the bank statement.
Hicksville's Department Store uses a perpetual inventory system. At year-end, the balance in the Inventory control account is $1,200,000. Assuming that the inventory records have been maintained properly, a year-end physical inventory: A.Is unnecessary. B.Is needed to establish the ending inventory, as the $1,200,000 balance in the Inventory control account represents the beginning inventory. C.Probably will indicate more than $1,200,000 in merchandise on hand. D.Probably will indicate less than $1,200,000 in merchandise on hand.
D.Probably will indicate less than $1,200,000 in merchandise on hand.
Which of the four inventory approaches is best suited to inventories of high-priced, low-volume items? A.LIFO. B.FIFO. C.Average cost. D.Specific identification.
D.Specific identification.
The term cash equivalent refers to: A.An item such as a money order, travelers' check, or check from a customer. B.An account receivable from a reliable customer who has always paid bills within the discount period. C.A guaranteed line of credit at the company's bank. D.Very liquid short-term investments such as U.S. Treasury Bills and commercial paper.
D.Very liquid short-term investments such as U.S. Treasury Bills and commercial paper.
The balance in Income Summary: A.Should equal retained earnings. B.Will always be equal to the increase in retained earnings. C.Will equal net income less dividends. D.Will equal net income or net loss.
D.Will equal net income or net loss.
