Accounting 225

On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as follows: Cash $30,000; Supplies, $600; Equipment, $10,000; Accounts Payable, $8,500. What is the amount of equity as of August 31 of the current year? A. $49,100. B. $32,100. C. $12,100. D. $10,900. E. $30,900

B- 32,100 (30,000+600+10,000-8,500) =32,100= EQUITY

A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year? A. $75. B. $125. C. $175. D. $250. E. $325.

C $175

Which of the following does not require an adjusting entry at year-end? A. Accrued interest on notes payable. B. Supplies used during the period. C. Cash invested by stockholders. D. Accrued wages. E. Expired portion of prepaid insurance.

C - Cash invested by stockholders

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error? A. Supplies, understated $130; Fees Earned, overstated $130. B. Supplies, understated $260; Fees Earned, overstated $130. C. Supplies, overstated $130; Fees Earned, overstated $130. D. Supplies, overstated $130; Fees Earned, understated $130. E. Supplies, overstated $260; Fees Earned, understated $130.

C Supplies overstated $130 & Fees Earned overstated by $130

Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals: A. $770,000. B. $115,000. C. $390,000. D. $402,000. E. $408,000.

C. $390,000. Gross Profit (Margin) = $800,000 - $12,000 - $18,000 - $380,000 = $390,000

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the cash basis of accounting is: A. $17,000. B. $21,000. C. $13,000. D. $25,000. E. None of the above.

C. 52,000-(31,000+8,000)=13,000

Identify the accounts that would normally have balances in the credit column of a business's trial balance A. Liabilities and expenses. B. Assets and revenues. C. Revenues and expenses. D. Revenues and liabilities. E. Dividends and liabilities

D - Revenues and Liabilities would normally have a credit balance

A credit is used to record an increase in all of the following accounts except: A. Accounts Payable B. Service Revenue C. Unearned Revenue D. Wages Expense E. Common Stock

D - Wages Expense

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The amount of the cash paid on August 26 equals: A. $8,167.50 B. $9,652.50. C. $9,750.00. D. $8,250.00. E. $8,152.50.

D. $8,250.00. Cash Paid = ($9,750 - $1,500) = $8,250 No discount may be taken because the payment was not within 10 days of the purchase.

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation? A. Subtract $45 from the bank's balance. B. Add $45 to the bank's balance. C. Subtract $45 from the book balance. D. Add $45 to the book balance. E. Subtract $45 from the bank's balance and add $45 to the book's balance.

D. Add $45 to the book balance. $749 - $794 = $45 too much deducted from the company's cash account balance that must be added back to cash.

A set of procedures and approvals for verifying, approving and recording obligations for eventual cash disbursement, and for issuing checks for payment only of verified, approved, and recorded obligations is referred to as a(n): A. Internal cash system. B. Petty cash system. C. Cash disbursement system. D. Voucher system. E. Cash control system.

D. Voucher system.

The record of all accounts and their balances used by a business is called a: A. Journal. B. Book of original entry. C. General Journal. D. Balance column journal. E. Ledger (or General Ledger).

E - LEDGER (or General Ledger)

Managers place a high priority on internal control systems because the systems assist managers in all of the following except: A. Promoting efficient operations. B. Protecting assets. C. Upholding company policies. D. Ensuring reliable accounting. E. Assuring that no loss will occur.

E Assuring that no loss will occur

A company pays its employees $4,000 each Friday, which amounts to $800 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is: A. $4,000. B. $800. C. $1,600. D. $2,400. E. $3,200.

E. $3,200

If obsolete or damaged goods can be sold, they will be included in inventory at their original cost. True or False?

False

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value? A. $1,000. B. $1,400. C. $400. D. $600. E. $800.

: $600 200 units * ($16 - $13) = $600

On January 1 of the current year, Jimmy's Sandwich Company reported stockholders' equity totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year paid $20,000 in cash dividends. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $196,000, the change in total stockholders' equity during the year was: A. A decrease of $9,500. B. An increase of $9,500. C. An increase of $30,500. D. A decrease of $30,500. E. An increase of 73,500.

A Feedback: Beg. Equity + Revenues - Expenses - Dividends = End. Equity $122,500 + $96,000 - $85,500 - $20,000 = Ending Equity Ending Equity = $113,000Change in Equity = Beginning Equity - Ending Equity Change in Equity = $122,500 - $113,000 = $9,500 Decrease

Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $17,025. Clayborn's May bank statement shows $15,800 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit $5,200 Outstanding checks $4,600 Bank service fees, not yet recorded by company $25 A NSF check from a customer, not yet recorded by the company $600 The adjusted cash balance should be: A. $16,400 B. $11,200 C. $21,000 D. $16,425 E. $17,000

A. $16,400A.

A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals: A. 46.6%. B. 53.4%. C. 28.3%. D. 31.5%. E. 40.5%.

A. 46.6%. Gross Margin Ratio = (Net Sales - Cost of Goods Sold)/Net Sales Gross Margin Ratio = ($775,420 -$413,890)/$775,420 = 46.6%

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is: A. FIFO. B. Weighted average. C. LIFO. D. Specific identification. E. Lower of cost or market.

A. FIFO.

The number of days' sales uncollected: A. Is used to evaluate the liquidity of receivables. B. Is calculated by dividing accounts receivable by sales. C. Measures a company's ability to pay its bills on time. D. Measures a company's debt to income. E. Is calculated by dividing sales by accounts receivable.

A. Is used to evaluate the liquidity of receivables

On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the net method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry(ies) that Klein must make on March 15 is (are): A. Sales returns and allowances 588 Accounts receivable 588 Merchandise inventory 350 Cost of goods sold 350 B. Sales returns and allowances 588 Accounts receivable 588 Merchandise inventory 343 Cost of goods sold 343 C. Accounts receivable 600 Sales returns and allowances 600 D. Accounts receivable 600 Sales returns and allowances 600 Cost of goods sold 350

A. Sales returns and allowances 588 Accounts receivable 588 Merchandise inventory 350 Cost of goods sold 350

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what is the value of inventory after the October 4 sale? A. $3,485. B. $3,445. C. $3,500. D. $3,472. E. $3,461.

A: $3,485 Units in inventory = 8 + 20 - 11 = 17 17 units * $205 = $3,485

Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal: A. $94,275. B. $172,550. C. $174,250. D. $176,025. E. $177,725.

Answer: B : Net Sales = $94,275 + $83,450 - $1,700 - $3,475 = $172,550

Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal: A. $94,275. B. $172,550. C. $174,250. D. $176,025. E. $177,725.

B $172,550. Net Sales = $94,275 + $83,450 - $1,700 - $3,475 = $172,550

The Income Summary account is used to: A. Adjust and update asset and liability accounts. B. Close the revenue and expense accounts. C. Determine the appropriate dividend amount. D. Replace the income statement under certain circumstances. E. Replace the Retained earnings account in some businesses.

B - Close the revenue and expense accounts

At the end of the day, the cash register's record shows $2,050, but the count of cash in the cash register is $2,058. The correct entry to record the cash sales is A. Debit Cash $2,058; credit Sales $2,058. B. Debit Cash $2,058; credit Cash Over and Short $8; credit Sales $2,050. C. Debit Cash $2,050; credit Sales $2050. D. Debit Cash $2,050; debit Cash Over and Short $8; credit Sales $2,058. E. Debit Cash Over and Short $8, credit Sales $8.

B. Debit Cash $2,058; credit Cash Over and Short $8; credit Sales $2,050.

Goods in transit are included in a purchaser's inventory: A. At any time during transit. B. When the purchaser is responsible for paying freight charges. C. When the supplier is responsible for freight charges. D. If the goods are shipped FOB destination. E. After the half-way point between the buyer and seller.

B. When the purchaser is responsible for paying freight charges.

Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: August 2 10 units were purchased at $12 per unit. August 18 15 units were purchased at $14 per unit. August 29 12 units were sold. What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.) A. $148.00 B. $150.50 C. $158.40 D. $210.00 E. $330.00

C : $158.40 Average cost = [(10 * $12) + (15 * $14)]/25 units = $13.20/unit Cost of sale = 12 units * $13.20/unit = $158.40

If a company paid $38,000 of its accounts payable in cash, what was the effect on the accounting equation? A. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would decrease $38,000. B. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase $38,000. C. Assets would decrease $38,000, liabilities would decrease $38,000, and equity remains unchanged. D. There would be no effect on the accounts because the accounts are affected by the same amount. E. Assets would increase $38,000 and liabilities would decrease $38,000.

C : Assets decrease $38,000 and liabilities decrease $38,000 and equity unchanged

Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services? A. Monetary unit assumption. B. Going-concern assumption. C. Measurement (Cost) principle. D. Business entity assumption. E. Expense recognition (Matching) principle.

C Measurement (Cost) Principle

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be: A. A debit to Unearned Fees and a credit to Cash for $500. B. A debit to Fees Earned and a credit to Unearned Fees for $500. C. A debit to Unearned Fees and a credit to Fees Earned for $1,000. D. A debit to Fees Earned and a credit to Cash for $1,000. E. A debit to Fees Earned and a credit to Cash for $500.

C. A debit to Unearned Fees and a credit to Fees Earned for $1,000.

Spencer Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is: A. Debit Cash $200 and credit Petty Cash $200. B. Debit Cash $200 and credit Cash Over and Short $200. C. Debit Petty Cash $200 and credit Cash $200. D. Debit Petty Cash $200; credit Cash $175; and credit Cash Over and Short $25. E. Debit Cash $200 and credit Petty Cash Over and Short $200.

C. Debit Petty Cash $200 and credit Cash $200.

On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month. The tenant paid five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The adjusting entry needed on December 31 is: A. Debit Rent Receivable, $12,500; credit Rent Earned, $12,500. B. Debit Rent Receivable, $7,500; credit Rent Earned, $7,500. C. Debit Unearned Rent, $7,500; credit Rent Earned, $7,500. D. Debit Unearned Rent, $5,000; credit Rent Earned, $5,000. E. Debit Unearned Rent, $12,500; credit Rent Earned, $12,500.

C. Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.

Larry Bar opened a frame shop and completed these transactions: 1. Larry started the shop by investing $40,000 cash and equipment valued at $18,000 in exchange for common stock. 2. Purchased $70 of office supplies on credit. 3. Paid $1,200 cash for the receptionist's salary. 4. Sold a custom frame service and collected $1,500 cash on the sale. 5. Completed framing services and billed the client $200. What was the balance of the cash account after these transactions were posted? A. $300. B. $41,500. C. $40,300. D. $38,500. E. $38,700.

C. Ending Cash Balance = $40,000 (#1) - $1,200 (#3) + $1,500 (#4) = $40,300

A credit entry: A. Increases asset and expense accounts, and decreases liability, common stock, and revenue accounts. B. Is always a decrease in an account. C. Decreases asset and expense accounts, and increases liability, common stock, and revenue accounts. D. Is recorded on the left side of a T-account. E. Is always an increase in an account.

C: Decreases asset and expense accounts, and increases liability, common stock and revenue accounts

Another name for equity is: A. Net income. B. Expenses. C. Net assets. D. Revenue. E. Net loss.

C: Net Assets

Identify the account below that is classified as an asset account: A. Unearned Revenue B. Accounts Payable C. Supplies D. Common Stock E. Service Revenue

C: Supplies

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be: A. A debit to Rent Revenue and a credit to Cash for $2,400. B. A debit to Rent Revenue and a credit to Unearned Rent for $2,400. C. A debit to Cash and a credit to Rent Revenue for $6,400. D. A debit to Unearned Rent and a credit to Rent Revenue for $2,400. E. A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

D $6,400 * 3/8 = $2,400 earned by December 31

Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a: A. Debit to Unearned Management Fees for $60,000. B. Credit to Management Fees Earned for $60,000. C. Credit to Cash for $60,000. D. Credit to Unearned Management Fees for $60,000. E. Debit to Management Fees Earned for $60,000.

D. Credit to Unearned Mgmt Fees for $60,000

Closing the temporary accounts at the end of each accounting period does all of the following except: A. Serves to transfer the effects of these accounts to the retained earnings account on the balance sheet. B. Prepares the dividends account for use in the next period. C. Brings the revenue and expense accounts to zero balances. D. Has no effect on the retained earnings account. E. Causes retained earnings to reflect increases from revenues and decreases from expenses and dividends.

D. Has no effect on the retained earnings account.

Which of the following purposes would financial statements serve for external users? A. To find information about projected costs and revenues of proposed products. B. To assess employee performance and compensation. C. To assist in monitoring consumer needs and price concerns. D. To fulfill regulatory requirements for companies whose stock is sold to the public. E. To determine purchasing needs.

D. To fulfill regulatory requirements for companies whose stock is sold to the public

If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have: A. Decreased $105,000. B. Decreased $45,000. C. Increased $30,000. D. Increased $45,000. E. Increased $105,000.

D: Increased $45,000 (Liab. 75,000-30,000=45,000 change in asset)

Bedrock Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: ▪ The ending inventory balance of $412,000 included $72,000 of consigned inventory for which Bedrock was the consignor. ▪ The ending inventory balance of $412,000 included $22,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. Based on this information, the correct balance for ending inventory on December 31 is: A. $412,000 B. $340,000 C. $318,000 D. $362,000 E. $390,000

E $390,000 - Start with beginning inventory of $412,000. The information in the first bullet point was handled correctly since inventory should include consigned goods for which the subject company is the consignor. No adjustment. With respect to the second bullet point, inventory should not include office supplies held for use. Subtract $22,000. Ending inventory should be $412,000 - $22,000 = $390,000.

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale? A. $304 B. $296 C. $288 D. $280 E. $276

E. $276 Units available = 5 + 10 + 6 = 21 units Units in inventory = 21 - 8 units = 13 units Cost of inventory = (5 * $20) + (8 * $22) = $276

Holman Company owns equipment with an original cost of $95,000 and an estimated salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line depreciation method, and only prepares adjustments at year-end. The adjusting entry needed to record annual depreciation is: A. Debit Depreciation Expense, $15,000; credit Equipment, $15,000. B. Debit Equipment, $15,000; credit Accumulated Depreciation, $15,000. C. Debit Depreciation Expense, $10,000; credit Accumulated Depreciation, $10,000. D. Debit Depreciation Expense, $10,000; credit Equipment, $10,000. E. Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.

E. Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.

Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system? A. Merchandise Inventory B. Sales C. Sales Returns and Allowances D. Accounts Payable E. Purchases

E. Purchases

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received? A. Monetary unit assumption. B. Going-concern assumption. C. Measurement (Cost) principle. D. Business entity assumption. E. Revenue recognition principle.

E. Revenue Recognition Principle

If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point. True or False?

False