Accounting 230 exam 1
$9,000 $39,000 inflow from consulting services − $9,000 outflow for rent expense − $21,000 outflow for salaries expense = $9,000 inflow
1) issued stock for $40,000 2) borrowed $25,000 from its bank 3) provided consulting services for $39,000 4) paid back $15,000 of the bank loan 5) paid rent expense for $9,000 6) purchased equipment costing $12,000 7) paid $3,000 dividends to stockholders 8) paid employees' salaries for work completed during the year, $21,000 What is Yowell's net cash flow from operating activities?
Total assets increased by 20,100 $17,000 (cash) + $8,500 (accounts receivable) + $6,000 (cash) − $6,000 (accounts receivable) − $5,400 (cash) = $20,100 increase
Bledsoe Company acquired $17,000 cash by issuing common stock on January 1, Year 1. During Year 1, Bledsoe earned $8,500 of revenue on account. The company collected $6,000 cash from customers in partial settlement of its accounts receivable and paid $5,400 cash for operating expenses. Based on this information alone, what was the impact on total assets during Year 1?
Paying cash to purchase supplies is an asset exchange transaction. One asset (Cash) decreases and another asset (Supplies) increases. The income statement is not affected at the time supplies are purchased. Instead, the income statement will be affected at the time the amount of supplies used is determined at the end of the accounting period. Since cash was paid to purchase the supplies, there will be a cash outflow from operating activities shown on the statement of cash flows.
Paying cash to purchase supplies does what
$3540 $1,860 beginning balance in accounts payable + $3,860 expenses on account − $2,180 paid off a portion of accounts payable = $3,540 ending balance in accounts payable. (cash dividend does not affect accounts payable)
Sheldon Company began Year 2 with $1,860 in accounts payable. During the year, the company incurred utility expense of $3,860 on account. The company paid $2,180 on accounts payable by year end. The company also paid a cash dividend of $680. At the end of Year 2, what is the balance in Sheldon's accounts payable?
Transportation In In a periodic inventory system, freight costs on purchases are recorded in the account Transportation-in.
Under a periodic system, the account that is increased for freight costs on goods received from the vendor is called:
Sarbanes-oxley act (sox)
What action did the U.S. Congress take because of the audit failures at Enron, WorldCom and other companies?
Cash discount, sales discount by the seller, purchase discount by the buyer The same cash discount is treated as a sales discount by the seller and as a purchase discount by the buyer
What is (are) the term(s) used to describe a discount given to encourage prompt payment?
Assets on balance sheet
Which of the following correctly describes how accounts receivable will appear on the financial statements?
Before recognizing the associated revenue
A deferral exists when a company receives cash
$1050 Net cash flow from operating activities = Cash collections of $3,400 − Cash payments for expenses of $2,350 = $1,050 The cash paid for dividends would be reported as a financing activity.
Acquired $9,000 cash by issuing common stock. Provided $5,300 of services on account. Paid $2,350 cash for operating expenses. Collected $3,400 of cash from customers in partial settlement of its accounts receivable. Paid a $250 cash dividend to stockholders. What is the amount of net cash flows from operating activities that will be reported on the Year 1 statement of cash flows?
13,820 Note that the cost of inventory sold is the list price less any purchase returns and allowances and purchase discounts, plus transportation-in costs. Cost of goods sold = List price of purchase − Purchase discount + Transportation-in Cost of goods sold = $16,000 − ($16,000 × 0.02) + $500 = $16,180 Gross margin = Net sales − Cost of goods sold Gross margin = $30,000 − $16,180 = $13,820
Ballard Company uses the perpetual inventory system. The company purchased $16,000 of merchandise from Andes Company under the terms 2/10, net/30. Ballard paid for the merchandise within 10 days and also paid $500 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $30,000 cash. What is the amount of gross margin that resulted from these business events?
income statement
Expenses are reported on which of the following financial statement(s)?
24000 Year 2 Changes in Accounts Payable: Beginning accounts payable balance + Increases due to expenses incurred on account − Decreases due to payment of accounts payable = Ending accounts payable balance. X +$72,000 − $90,000 = $6,000. X= $24,000.
Fancy Foods Incorporated had an ending balance in accounts payable of $6,000. The company incurred $72,000 of operating expenses on account and paid $90,000 cash to settle accounts payable. Determine the beginning balance in accounts payable.
Assets, claims, and equity increases Issuing common stock increases both assets (Cash) and stockholders' equity (Common Stock). Stockholders' equity and liabilities collectively make up claims in the accounting equation.
Hazeltine Company issued common stock for $200,000 cash. What happened as a result of this event?
Accrued interest means that the company has incurred the interest expense but has not paid cash. Since no cash was paid, cash flow is not affected.
How does accrued interest affect cash flow?
c) decreases the amount of liabilities shown on the year 2 balance sheet Recognizing accrued salary expense in Year 1 caused liabilities (salaries payable) to increase. In Year 2 when cash is paid to settle the obligation, assets (cash) and liabilities (salaries payable) decrease. The expense recognition occurs in Year 1. Paying off the liability in Year 2 does not affect the recognition of salary expense.
On December 31, Year 1, Adam Company incurred $3,380 of accrued salary expense. The Year 2 recognition of the cash payment for these expenses a) decreases the amount of salary expense recognized in Year 2. b) increases the amount of liabilities shown on the Year 2 balance sheet. c) decreases the amount of liabilities shown on the Year 2 balance sheet. d) increases the amount of salary expense recognized in Year 2.
13500 Depreciation expense per year = (Cost of the asset − Salvage value) ÷ Useful life Depreciation expense per year = ($35,000 Cost − $8,000 Salvage) ÷ 4 Year life = $6,750 The accumulated depreciation account is a contra asset account. As its name implies, the balance accumulates each year. In this case, the ending balance in the accumulated depreciation account will be $6,750 in Year 1, $13,500 in Year 2, $20,250 in Year 3, and $27,000 in Year 4.
On January 1, Year 1 Marrow Moving Company paid $35,000 to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marrow uses the straight-line method, the amount of accumulated depreciation shown on the Year 2 balance sheet is
20,650 Depreciation expense per year = (Cost of the asset − Salvage value) ÷ Useful life Depreciation expense per year = ($50,600 Cost − $9,300 Salvage) ÷ 4 Years = $10,325 The accumulated depreciation account is a permanent contra asset account. As its name implies, the balance accumulates each year. In this case the after-closing (ending) balance in the accumulated depreciation account will be $10,325 in Year 1, $20,650 in Year 2, $30,975 in Year 3, and $41,300 in Year 4.
On January 1, Year 1, Marino Moving Company paid $50,600 cash to purchase a truck. The truck was expected to have a four-year useful life and a $9,300 salvage value. If Marino uses the straight-line method, the amount of accumulated depreciation shown on the Year 2 balance sheet is
16,000 Depreciation expense per year = (Cost of the asset − Salvage value) ÷ Useful life Depreciation expense per year = ($60,000 Cost − $5,000 Salvage) ÷ 5 Year life = $11,000 The book value is the amount of the cost of the asset minus the accumulated depreciation. At the end of Year 4, the book value is $16,000 ($60,000 Cost − $44,000 Accumulated depreciation).
On January 1, Year 1, Melon Moving Company paid $60,000 to purchase a truck. The truck was expected to have a five-year useful life and a $5,000 salvage value. If Melon uses the straight-line method, the amount of book value shown on the Year 4 balance sheet is
$6,000; $24,000 Monthly revenue = Receipt of $24,000 ÷ 12 months = $2,000 per month Revenue (on the income statement) = $2,000 per month × 3 months (October through December) = $6,000 The company will recognize the $24,000 received as a cash inflow from operating activities in Year 1.
On October 1, Year 1, Gomez Company collected $24,000 in advance from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would the company report as net cash flows from operating activities for Year 1?
Operating Activities Since the cash was paid for salaries of employees that operate the business, the cash outflow is classified as an operating activity
Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows?
$3500 Net income = Revenue of $7,200 − Expenses of $3,700 = $3,500; dividends decrease retained earnings but do not affect net income.
Revenue on account amounted to $7,200. Cash collections of accounts receivable amounted to $4,700. Expenses for the period were $3,700. The company paid dividends of $1,250. What was net income for the period?
Stockholders equity and operating expenses decreased
Robertson Company paid $1,850 cash for rent expense. What happened as a result of this business event?
cash 1940, acc receivable (1940) The full amount of revenue earned on account ($2,280) is placed in the accounts receivable account at the time revenue is recognized. Later when cash is collected ($1,940), the amount of the cash collected is removed from the accounts receivable account and placed in the cash account.
Stannous Company earns $2,280 of revenue on account in Year 1. Cash collections of receivables amount to $1,940 in Year 1 with the remainder being collected in Year 2. Which of the following shows how these events will affect the company's ledger accounts when cash is collected in Year 1?
d) 32000 = 32000 + NA + NA Borrowing cash increases assets (Cash) and increases liabilities (Notes Payable).
Tandem Company borrowed $32,000 of cash from a local bank. Which of the following choices accurately reflects how this event affects the accounting equation? Assets = Liabilities + Common Stock + Retained Earnings a) NA = 32000 + NA + 32000 b) 32000 = NA + 32000 + NA c) 32000 = NA + NA + 32000 d) 32000 = 32000 + NA + NA
recognize revenue and expense When a merchandising company sells inventory, it will recognize sales revenue for the amount of the sales price. The company will also recognize a cost of goods sold expense for the amount of the cost of the goods that were sold.
When a merchandising company sells inventory, it will...
Advancements in technology Advancements in technology, specifically bar coding, has removed most of the practical limitations associated with use of the perpetual inventory system.
Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?
Transportation-in, purchases, purchase returns and allowances
Which of the following account titles is normally used in a periodic inventory system?
Service Revenue Service Revenue is an income statement account and, as such, it does not appear on the balance sheet. Unearned Revenue, despite having the word "revenue" in its title, is a liability account that appears on the balance sheet. Supplies and prepaid rent are both assets that appear on the balance sheet.
Which of the following accounts would not appear on a balance sheet?
a) +/- = NA + NA
Which of the following could describe the effects of an asset exchange transaction on a company's total assets, liabilities, and stockholders equity? Assets = Liabilities + Stockholders Equity a) +/- = NA + NA b) + = NA + + c) - = NA + - d) +/- = NA + +/-
Purchasing supplies for cash during the year
Which of the following events would require a year-end adjusting entry?
Internal controls
Which of the following is not a principle of the AICPA Code of Professional Conduct? a) Responsibilities b) Public Interest c) Integrity d) Objectivity and Independence e) Due Care f) Scope and Nature of Services. g) Internal controls
d) Paying cash to purchase land
Which of the following is not an example of an asset use transaction? a) paying cash dividends b) paying cash expenses c) paying off the principal of a loan d) paying cash to purchase land
When a company collects cash for services before they are provided, the company recognizes an obligation to provide the services in the future (Unearned Revenue). When the company settles its obligation by providing services, the liability account (Unearned Revenue) decreases and stockholders' equity (Retained Earnings) increases. This is a claims exchange transaction. On the income statement, the increase in revenue causes net income to increase. There is no effect on the statement of cash flows because the cash flow was previously recognized at the time the cash was collected from the client.
Which of the following shows how the adjusting entry to recognize services provided to a client who paid for the services prior to the work being performed?
d) - = NA + - A cash dividend decreases the asset account Cash and decreases the stockholders' equity account Retained Earnings.
Which of the following shows the effects of paying a cash dividend on the accounting equation? Assets = Liabilities + Stockholders Equity a) - = + + NA b) +/- = NA + NA c) - = NA + + d) - = NA + -
cash dividends Dividends are reported as a deduction from retained earnings on the Statement of Changes in Stockholders' Equity. The other transactions listed (borrowing cash from the bank, purchasing land for cash and paying off a portion of a note payable) do not affect stockholders' equity.
Which of the following transactions would be reported on the statement of changes in stockholders' equity?
Paid cash to settle accounts payable Return-on-assets ratio = Net income ÷ Total assets Increasing net income (the numerator) and/or decreasing total assets (the denominator) increases the company's return-on-assets ratio. Paying cash to settle accounts payable decreases assets, but has no effect on net income; this transaction increases the return-on-assets ratio.
Which of the following transactions would increase a company's return-on-assets ratio?
Purchased supplies for cash Purchasing supplies for cash is a cash outflow from operating activities, but will not be reported as an expense until the supplies are used. Purchasing land is a cash outflow from investing activities and does not affect net income. Paying rent expense causes equal decreases in net income and cash flows from operating activities. Paying dividends to stockholders is a cash outflow from financing activities and does not affect net income.
Which of the following would cause net income on the accrual basis to be different from (either higher or lower than) "cash provided by operating activities" on the statement of cash flows?
d) +/- = NA + NA + NA An asset source transaction is any transaction that results in a net increase in assets. It could be accompanied by an increase in liabilities (as in the case of borrowing cash), an increase in common stock (as in the case of issuing common stock), or an increase in retained earnings (as in the case of earning revenue).
Which of the following would not describe the effects of an asset source transaction on the accounting equation? Assets = Liabilities + Common Stock + Retained Earnings a) + = + + NA + NA b) + = NA + NA + + c) + = NA + + + NA d) +/- = NA + NA + NA
Gross margin = Net sales − Cost of goods sold Gross margin = $2,000 − $1,200 = $800 Gross margin percentage = $800/$2,000 = 40.000%
what is the companies gross margin Revenue: 2000 Cost of goods sold: (1200) Operating expenses (550)