mba510 - accounting - exam 1

Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

$129,800

which financial statement reports an organizations financial position at a single point in time?

balance sheet

the difference between the cost of an asset and the accumulated depreciation for that asset is called

book value

acceptable methods of assigning specific costs of inventory and cost of goods sold include all of the following except: a. LIFO method b. FIFO method c. specific identification method d. weighted average e. retail method

d. retail method

the gross margin ratio

indicated the percent of sales revenue remaining after covering the cost of the goods sold

if a company is considering the purchase of parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is considered by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchasers books at

$137,000

a compant has sales of $695,000 and cost of goods sold of $278,000. its gross profit equals

$417,000

if equity is $300,000 and liabilities are $192,000, then assets equal

$492,000

4 steps of processing transactions

1. identify transactions and source documents 2. analyze transactions using the accounting equation 3. record journal entry 4. post entry to ledger

the credit terms 2/10, n/30 are interpreted as

2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

a companys gross profit (or gross margin) was $83,750 and its net sales were $347,800. its gross margin ratio is

24.1%

internal controls that should be applied when a business takes a physical count of inventory should include all of the following EXCEPT: a. pre-numbered inventory tickets 2. a manager confirms that all inventories are ticketed only once 3. counters confirm the validity of inventory existence, amounts and quality 4. second counts by a different counter 5. counters of inventory should be those who are responsible for the inventory

5. counters of inventory should be those who are responsible for the inventory

goods in transit are included in a purchasers inventory when the goods are shipped

FOB shipping point

A corporation is

a business legally separate from its owners

is repeated each reporting period and refers to the steps taken in preparing financial statements

accounting cycle

assets created by selling goods and services on credit are

accounts receivable

promises of future payment by the customer are called

accounts receivable

the approach to preparing financial statements based on recognizing when they are earned and matching expenses to those revenues is

accrual basis accounting

what is a shareholder?

an owner of a corporation

physical counts of inventory

are necessary to adjust the inventory account to the actual inventory available

Merchandise inventory that is still available for sale is considered a(n) _________ , and is reported on the _________ and merchandise that is sold during the period is considered a(n) ________ and reported on the _________.

asset balance sheet expense income statement

which of the following lists contains only temporary accounts? a. supplies, land, unearned rent b. wages expense, income summary, dividends c. retained earnings, income summary, dividends d. supplies, wages expense, retained earnings

b. wages expense, income summary, dividends

a financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n)

balance sheet

recording transactions and events is known as

bookkeeping or recordkeeping

the accounting assumption related to separating business transactions from the owners transactions is called the

business entity

the accounting concept that requires every business to be accounted for separately from other businesses entities including its owner or owners is known as the

business entity program

choose the one that contains ONLY assets a. supplies, common stock, cash, accounts receivable b. building, accounts payable, equipment c. cash, building, supplies, accounts receivable d. cash, building, accounts payable, land

c. cash, building, supplies, accounts receivable

which of the following assets is NOT depreciated? a. store fixtures b. computers c. land d. buildings e. equipment

c. land

if a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except: a. cost of goods sold b. gross profit c. net sales d. current assets e. net income

c. net sales

which of the following only contains temporary accounts? a. supplies, land, unearned rent b. supplies, wages expense, retained earnings c. wages expense, income summary, dividends d. retained earnings, income summary, dividends

c. wages expense, income summary, dividends

it is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account

chart of accounts

the dodd-frank act has two notable provisions

clawback and whistleblower

in addition to cost-benefit constraint, two other constraints include

conservatism, materiality

an account with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n)

contra account

gross profit on an income statement is computed as

cost of goods sold - net sales

merchandise inventory is a

current asset

cash and other resources that are expected to be sold, collected or used within one year

current assets

the usual order for the asset subgroups of a classified balance sheet is

current assets, long-term investments, plant assets, intangible assets

given the following lists of accounts, choose the one that contains only liabilities a. cash, building, supplies, accounts receivable b. equipment, accounts payable, mortgage payable c. accounts payable, dividends, mortgage payable d. taxes payable, accounts payable, wages payable

d. taxes payable, accounts payable, wages payable

a business paid $40 in dividends. dividends would be ______ on the _____ side of the t-account and cash would be ______ on the ______ side of the t-account.

debited left credited right

the closing process takes place at the _____ of an accounting period, after the ______ trial balance is prepared and _____ the financial statements are prepared

end adjusted after

on a classified balance sheet where would retained earnings appear?

equity

sales returns and allowances, sales discounts, & cost of goods sold are closed with the ____ accounts

expense

GAAP wants information to have

faithful representation, relevance

the principle that states that a company should report the details behind the financial statements which would impact users decisions is called the

full disclosure principle

expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called

general and administrative expenses

it is a collection of all accounts with their activity and balances that exist in a business

general ledger

consignment goods are

goods shipped to the owner to the consignee who sells the goods for the owner

the financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the

income statement

financial statements are typically prepared in the following order

income statement, statement of retained earnings, balance sheet

what are the financial statements of a merchandiser?

income statement, statement of retained earnings, balance sheet

statements prepared for period of less than one year

interim financial statements

users of accounting information can be divided into two main groups. these groups include

internal and external

the total amount of depreciation recorded against an asset over the entire time the asset has been owned

is referred to as accumulated depreciation

complete record of each transaction in one place and includes the debit and credit of each transaction

journal

The LIFO cost flow assumption assumes that the cost of items purchased ______ are the costs that will be transferred first to cost of goods sold on the ______ ______.

latest, income statement

creditors claims on the assets of a company are called

liabilities

the area of accounting that serves the decision-making needs of internal users is referred to as _________ accounting

managerial

identify the broad opportunity areas of accounting (select all that apply) sales managerial public financial taxation

managerial, financial, taxation

another name for the expense recognition principle is

matching principle

the principle which states that accounting information is based on actual cost is called the

measurement principle

beginning inventory plus net purchases is

merchandise (goods) available for sale

asset reported on the balance sheet and contains the cost of products purchased for sale

merchandise inventory

earns net income by buying and selling merchandise

merchandiser

profit margin =

net income / net sales

Sparky's incorrectly included inventory that was on consignment in its ending inventory count. Consequently, the ending inventory was overstated on the balance sheet. Explain how this error will affect this year's income statement.

net income too high, cost of goods sold too low

which equation identifies the cost flow of a merchandising company?

net purchases + beginning inventory = merchandise available for sale

how to compute net income for a merchandiser

net sales - cost of goods sold - other expenses

if a company uses $1,300 of its cash to purchase supplies the effect on the accounting equation would be

one asset increases $1,300 and another asset decreases $1,300, causing no effect

a company made no adjusting entry for accrued and unpaid employee wages of $28,000 on december 31. this oversight would

overstate net income by $28,000

the majority of accounting opportunities are in the area of ____ accounting

private

the majority of accounting opportunities are in the area of

private accounting

the primary objective of financial accounting is to

provide accounting information that serves external users

refers to merchandise a buyer purchased, but then returns to the seller for a refund of the purchase price or reduction in the amount owed

purchase return

current assets & current liabilities are listed in order of how ______ they will be converted to, or paid in, cash

quickly

dividends account is closed with to

retained earnings

sales is closed as a ______ account

revenue

the accounting principle that requires revenue to be recorded when earned is the

revenue recognition principle

the principle which says that revenue is recognized when goods or services are provided to customers at an amount expected to be received from the customer is known as the

revenue recognition principle

identifies and describes transactions and is the basis for entering an event into the accounting system

source document

represents a ledger account and is a tool used to understand the effects of one or more transactions

t-account

the assumption that assumes that an organizations activities may be divided into specific reporting time periods including months, quarters, fiscal years, calendar years.

time period assumption

what does "closing" mean

to bring an account balance to zero

it is a list of each account and its balance at any given time and is used to verify that debits=credits

trial balance

sheet is one whose items are broadly grouped into assets, liabilities, and equity

unclassified

at end of accounting period we forgot to record: 1. $4,100 of insurance coverage that had expired (this $4,100 cost had been initially debited to the Prepaid Insurance account). 2. $2,450 of accrued salaries expense. as a result, the financial statements for the reporting period will:

understate expenses by $6,550

purpose of a post-closing trial balance

verify that total debits equal total credit for permanent accounts verify that all temporary accounts have zero balances