AC Final Prep

T/F: Tax accounting and financial accounting use the same depreciation calculations and there are no differences in the results between the two accounting systems.

False

T/F: The useful life of an asset is always measured in units of time, such as years or months.

False

True or false: All payroll deductions are required by law.

False: Some payroll deductions such as retirement savings are voluntary.

Purchase Tesla stock for investments (F)(I)(O)

I

Purchase of equipment.(F)(I)(O)

I

T/F: A liability for dividends is recorded on the declaration date.

True

T/F: Issuing stock to obtain financing is called equity financing.

True

T/F: Major investing and financing activities that do not involve cash do not have to be reported as part of the statement of cash flows.

True

T/F: The payment of salaries and wages would be reported as an operating activity on the statement of cash flows.

True

T/F: The principal of a loan does not include any interest charges.

True

T/F: When assets are purchased as a group, the total cost must be divided up and allocated to each asset in proportion to the market value of the assets as a whole.

True

True or false: No gain or loss is reported when treasury stock is reissued because GAAP does not consider transactions between a corporation and its owners to be profit-making activities.

True

The debt-to-assets ratio best answers which financial question?

What is the percentage of assets financed by debt?

The journal entry to record the amortization of an intangible asset includes a:

a debit to amortization expense.

The debt-to-asset ratio indicates _____.

a higher ratio means greater financing risk the percentage of assets financed by debt

Miss Hap, the bookkeeper, forgot to record the depreciation for the year. This error will cause ______.

assets to be overstated stockholders' equity to be overstated

The entry to record the issuance of a note for cash was recorded with a debit to Cash and a credit to Notes Receivable instead of Notes Payable. The effect of recording this entry causes ______.

assets to be understated liabilities to be understated

The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.

80,000 The recorded value of the brick house equals $80,000 or ($100,000/($40,000 + 60,000 + 100,000)) x $160,000.

The following 12%, $1,000 notes have varying periods to maturity but all were issued on December 1. Which of the following are the correct calculations of interest for these notes on December 31 of this same year?

A 4-month note's interest equals $1,000 x 12% x 1/12 A 2-year note's interest equals $1,000 x 12% x 1/12 A 3-month note's interest equals $1,000 x 12% x 1/12

Which account is credited in an adjusting entry to record depreciation on machinery?

Accumulated Depreciation

Accounts payable (decrease).(F)(I)(O)

O

Depreciation.(F)(I)(O)

O

Inventory (increase).(F)(I)(O)

O

Repay loan interest(F)(I)(O)

O

Which of the following entries result in a decrease in total assets and stockholders' equity?

The adjusting entry to record the depreciation of long-live assets

Retained Earnings are ______.

all of the company's earnings kept rather than distributed to stockholders sometimes called earned capital decreased by dividends increased by net income

For the employee, net pay is equal to gross earnings minus:

all payroll deductions.

Revenue expenditures are recorded with a debit to ______.

an expense when they relate to ordinary repairs and maintenance

The declaration of a dividend results in ______.

an increase in liabilities; a decrease in retained earnings after temporary accounts are closed; an increase in dividends

Employer payroll taxes:

are an added payroll expense beyond the wages and salaries earned by employees.

Interest on an obligation is recorded:

as time passes

The entry to record annual straight-line depreciation will decrease a company's ______.

asset book value Total Assets Net Income

The entry to record the payment of 6-months of interest on a note in which 2 months of interest was recorded as an adjusting entry in the prior accounting period includes ______.

debit Interest Payable for 2 months of interest; debit Interest Expense for 4 months of interest; credit Cash for 6 month's of interest

When a company reissues shares at a price lower than the cost to previously purchase the treasury stock, it records a ______.

debit to APIC

____________ is the allocation of the cost of a long-lived, tangible asset over its useful life creating an expense on the income statement that is matched against the revenue generated by using the asset.

depreciation

A stock dividend ______.

distributes additional shares of stock to existing stockholders on a pro rata basis. causes retained earnings to decrease.

T/F: The gross earnings for all employees is credited to Salaries and Wages Payable.

false

Preferred stock generally ______ preference as to dividends.

has

Earnings per share (EPS) appears on the ______.

income statement

Depreciation Expense is reported on the ______.

income statement as an operating expense

For long-lived assets that have been in use for more than one accounting period, Depreciation Expense on the ______ Accumulated Depreciation on the ______.

income statement will be less than; balance sheet

The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash causes total assets to ______.

increase by $8,000

The entry to record the issuing of a note payable for cash results in a(n) ______.

increase in assets increase in liabilities

Issuing a note payable for cash immediately results in a(n) ______.

increase in assets and an increase in liabilities

For an investor, bonds are attractive investments because ______.

interest is higher than bank savings accounts; they can be traded on established bond exchanges

Treasury Stock ______.

is a contra-equity account; is shares of stock no longer outstanding; reduces total stockholders' equity

A productive asset ______.

is used to produce goods or services that will be sold to customers

Cash flows from financing activities can include:

issuing long-term debt.

The journal entry to record employer payroll taxes affects ______.

liabilities and stockholders' equity

On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______.

net income to be overstated, assets to be overstated

If an adjusting entry for interest owed is recorded then the company must have issued ___________

notes payable

A stock ______________, typically given to employees as part of their compensation that gives them the opportunity to buy the company's stock at a predetermined price, is recorded as an expense at the time it is granted.

option

__________ shares equals the number of shares __________ minus the number of shares repurchased by the company.

outstanding issued

Double Vision, Inc. had 10,000 shares issued and outstanding of its $1 par value common stock. At December 31, Common stock equaled $10,000, Retained Earnings equaled $20,000 and Total stockholders' equity equaled $50,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, ______.

par value equals $0.50.

Employees' gross earnings differ from their net pay because of ______.

payroll deductions FICA taxes federal and state income taxes

Stock options ______.

provide the holder with the option to purchase stock at a specified price during a specified period of time; are often given to employees as part of their compensation

Another term for residual value is _________ value.

salvage

In the case of a basket purchase, the cost of the land and building is ______.

split among the assets purchased in proportion to the market value of the assets as a whole

Amortizing intangible assets affects the accounting equation by causing ______.

stockholders' equity to decrease assets to decrease

Contributed capital is found in the ________ section of the ________.

stockholders' equity; balance sheet

Treasury Stock on the balance sheet is ______.

subtracted from total stockholders' equity

An asset's residual value is ______.

the estimated amount it can be sold for at the end of its useful life

On November 30, Burrows, Inc. issued 2 notes payable at 6% per year for $10,000 each. One is a 3-month, 6%, note and the other is a 6-month, 6% note. The amount of interest owed at December 31 will be ______.

the same amount for both notes

Which depreciation method results in higher depreciation expense when the asset is used more?

units of production

(Cost-residual value) x (actual production this period/estimated total production) is the formula for calculating ______ depreciation.

units-of-production

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a ______.

$10,000 decrease in Cash; $10,000 increase in Treasury Stock

The entry to record the cash sale of a $100 pair of jeans in a state that requires charging a 5% sales tax will include a ______.

$100 credit to Sales Revenue $105 debit to Cash $5 credit to Sales Tax Payable

X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals

$115,000

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a ___________.

$50,000 increase in total assets; $50,000 increase in total stockholders' equity.

On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. The truck will be worthless at the end of the 4 years. If the truck was driven 15,000 miles in its 1st year, Depreciation Expense for the year using units-of-production is ______.

$9,000 ($30,000 x 15,000 miles/50,000 miles)

Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?

Capitalizing costs that should be expensed.

Which of the following are not required payroll deductions from an employees' gross earnings?

Charitable contributions Federal unemployment tax (FUTA) State unemployment tax (SUTA)

Which account is debited in an adjusting entry to record depreciation on machinery?

Depreciation Expense

When a company reissues shares at higher price than the cost to previously purchase the treasury stock, it records a ______.

credit to APIC

Proceeds from issuance of stock (F)(I)(O)

F

Repay loan principal (F)(I)(O)

F

Which payroll taxes are paid only by the employer?

FUTA and SUTA

Vicious Cycle built a new building. Which of the following costs should be expensed?

Party to celebrate grand opening

Ashley Company uses the direct method in calculating its cash flow from operations. Which of the following items will not have an effect on cash flow from operating activities?

Payment of dividends to stockholders.

Which of the following line items would be found on a statement of stockholders' equity that would not be on the statement of retained earnings?

Treasury Stock Additional Paid-in Capital Common Stock

An asset's cost minus accumulated depreciation is its ______ value.

book

On January 1, Busy Beaver, Inc., signed a $315,000, 5-year note payable to buy a new industrial veneer cutter. Busy Beaver plans to use the machine for 10 years and then sell it for its scrap value of $5,000. Using straight-line depreciation, Depreciation Expense for the 1st year ended December 31 equals ______.

$31,000 ($315,000 - 5,000 x 1)/10 years)

Accumulated Depreciation

A contra asset account representing the total depreciation taken to date. Permanent Account

Computit bought a new copier machine. Which of these costs should be expensed?

Annual maintenance cost Replacement of the toner for the copy machine

If management was to unethically capitalize costs that should not have been, which of the following would be misstated?

Assets would be overstated and Stockholders Equity would be overstated

In an IPO, Ima Rich purchased 1,000 shares of BMI, Inc. for $5,000. Five years later, Ima Rick sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of this sale?

BMI, Inc., will not be directly affected by this transaction.

Why is the straight-line method of depreciation called "straight-line"?

Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.

Which of the following line item amounts would be under the Retained Earnings column of a Statement of Stockholders' Equity?

Net Income

The adjusting entry to record interest accrued on a note payable is debit ______.

Interest Expense and credit Interest Payable

If an entry is recorded that debits Interest Payable and Interest Expense and credits Cash, what must be the case?

Interest incurred from the current and prior period is being paid.

Which of the following is an advantage of debt financing?

Interest is tax deductible.

What is the purpose of the statement of cash flows?

It is intended to provide a cash-based view of a company.

How is the change in cash classified on the statement of cash flows?

It is the sum of the investing, operating, and financing activities sections.

Which of the following would be classified as a long-lived asset?

Land on which a new store is located

On November 1, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31 of the following year. Assuming the November 1 transaction was properly recorded, how would the December 31, year-end adjusting entry affect the accounting equation?

Liabilities increase and stockholders' equity decreases. The year-end adjusting entry to accrue the interest owed requires a debit to Interest Expense (+E, -SE) and a credit to Interest Payable (+L).

What kind of account is Deferred Revenue?

Liability

Which of these are long-lived productive assets? (Check all that apply.) Machinery Cash Retained Earnings Delivery Equipment Inventory

Machinery and Delivery Equipment

Which of the following is not the same as book value?

Market Value

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record his gross pay?

Salaries and Wages Expense increases $600

Sales taxes are recorded by the retailer as ______.

Sales Tax Payable

What effect does the residual value have on a long-lived asset's depreciable cost?

The greater the residual value the smaller the depreciable cost.

Depreciation Expense

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life. Temporary Account

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation?

Total assets increase $315,000 Machinery, an asset, increases $320,750 Total liabilities increase $315,000

Refurbish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______.

Treasury Stock will equal $4,000; Additional Paid-in Capital will be increased by $2,000

If an adjusting entry is required for interest owed, then the ______ will report ______.

balance sheet; Interest Payable balance sheet; Notes Payable income statement; Interest Expense

The difference between the Equipment account and its Accumulated Depreciation is called the _________ value.

book

Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ______ amount each year.

constant

Treasures, Inc. repurchased 1,000 shares of its $1 par value common stock for $100,000. The journal entry to record this transaction includes a ______.

credit cash debit treasury stock

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, ABC's adjusting entry at December 31 would include a ______.

debit to Interest Expense of $1,000

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity when the note is repaid, assuming adjusting entries were made correctly at December 31 but have not been made since then, would include a(n) ______.

debit to Interest Expense of $1,250; debit to Interest Payable of $1,000; debit to Notes Payable of $50,000; credit to Cash of $52,250

On November 1, ABC Corp. borrowed $100,000 cash on an 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31 in the following year. The last adjusting journal entry was made on December 31, ABC's year end. The entry to record the payment on October 31 would include a ______.

debit to Interest Expense of $5,000; debit to Interest Payable of $1,000; credit to Cash of $106,000; debit to Note Payable of $100,000

On the declaration date, the company:

debits Dividends and credits Dividends Payable for the amount of the dividend.

Dividends Payable is recorded as a credit on the ______.

declaration date

The declaration and payment of a cash dividend ultimately causes a(n) ______.

decrease in Retained Earnings decrease in stockholders' equity decrease in Cash

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n) ______.

decrease in additional paid-in capital of $1,000; increase in total assets of $10,000

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. The effect of this transaction on the accounting equation includes a(n) ______.

decrease in assets; decrease in stockholders' equity

The effect of repurchasing stock using the cost method is to ______.

decrease stockholders' equity; increase Treasury Stock; decrease assets

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______.

decrease to assets on the balance sheet decrease to net income on the income statement

A company's debt-to-assets ratio is 0.7 or 70%. If the company issues common stock for cash, then the debt-to-assets ratio will ______.

decrease; The increase in cash will increase the denominator, causing the ratio to decrease. The increase in common stock, a stockholders' equity account, will not affect the ratio.

The accountant recorded the adjusting entry for the depreciation of its long-lived assets with a debit to Depreciation Expense and a credit to Accumulated Depreciation. As a result of this entry, assets and stockholders' equity will be ______.

decreased