Accounting 232 Final

Accounting Cycle Steps

1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance

Order of preparation of financial statements

1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows

In 2023, Forever Young, Inc. sold land for $120,000 cash, purchased equipment for$21,000 cash and issued bonds for $90,000 cash. The Net cash provided by investing activities is:

120,000 - $21,000 = $99,000

If the accounts payable turnover is 7.9, what is the days' payable outstanding?

365/7.9 = 46 days

Days Inventory Outstanding

365/inventory turnover

A $4,000, 6% bond is sold at 93. When the bond is issued, the Cash account will be increased by

4,000 x .93 = $3,720

Seidner Store sells expensive watches. An inventory at the beginning of the day showed 47 watches in the store. Nine new watches were added to the inventory during the day. The point-of-sale terminal recorded 5 watches sold. An inventory taken at the end of the day should show how many watches still in the store?

47 + 9 -5 = 51

summertime had the following data for the month of March: Beginning inventory March 1: 296 units at $16 per unit March 19 purchase: 234 units at $25 per unit March 27 purchase: 208 units at $26 per unit On March 31, 300 units are still on hand. Determine the cost of goods sold for March if Summertime uses the FIFO method

Beg: 296 x $16 = $4,7363/19: (234-92) x $25 = 3,550 COGS $8,286

Payments by EFT are an important internal control for all of the following reasons EXCEPT for: A. The EFTs provide a record of the payments. B. The EFT must be approved by an authorized official. C. All EFT payments are made by the cashier in the Accounting Department. D. The authorizing official should study the evidence supporting the payment before approving the EFT.

C. All EFT payments are made by the cashier in the Accounting Department.

accrual basis revenue recognition

Only report monies earned by the company even if the cash is received in advance or if cash has not been received but the work is complete (revenue has been earned)

Entity Assumption

Organization stands apart from other organizations and individuals as a separate economic unit

Williamson Company declared and distributed a 10% stock dividend when it had 400,000 shares of $1 par value common stock outstanding. The market price per share of common stock was $20 per share when the dividend was declared. The journal entry to record the stock dividend would include a credit to

Paid-in Capital in Excess of Par—Common $760,000

The statement of cash flows provides information about

a company's ability to pay interest and dividends. a company's future cash flows. decisions made by a company's management

sunk cost

a cost that has already been paid and cannot be recovered

Unearned Service Revenue relating to services to be provided in one month, is reported on the balance sheet as:

a current liability

double-entry bookkeeping

a system of recording and classifying business transactions that maintains the balance of the accounting equation, (debits and credits)

Under the indirect method of preparing a statement of cash flows, amortization expense for the current period is

added in the operating activities section

Which of the following is a possible adjusting journal entry? A. Debit Cash, credit Accounts Payable. B. Debit Service Revenue, credit Cash. C. Debit Salaries Expense, credit Salaries Payable. D. Debit Utilities Expense, credit Retained Earnings

c. Debit Salaries Expense, credit Salaries Payable.

which accounts would normally have a debit balance

cash, rent expense, accounts receivable (items not considered a liability)

A fast-food restaurant divides employee responsibilities up as follows: One person takes the order, another person accepts payment, and another person gives the customer their food. This is an example of

control procedures

double taxation

corporation pays taxes on its earnings and the shareholders pay taxes on the dividends received from the corporation

Inventory Turnover

cost of goods sold/average inventory

Current Ratio

current assets divided by current liabilities

Notes payable due in six months are reported as

current liabilities on the balance sheet

Bonds which are backed only by the good faith of the borrower are referred to as

debenture bonds

On June 1, Nicholson Company purchased inventory on account with a cost of$1,600. Credit terms were 2/10, net 30. On June 2, Nicholson Company returned 50 percent of the inventory. Nicholson Company uses the perpetual inventory system. What journal entry did Nicholson Company prepare on June 2?

debit Accounts Payable for $800 and credit Inventory for $800

Mariah Company has inventory at the end of the year with a historical cost of$73,000. Mariah Company uses the perpetual inventory system. The current net realizable value of the inventory is $70,600. The company uses FIFO. Under U.S. GAAP, the journal entry to record the write-down to LCM will

debit Cost of Goods Sold for $2,400 and credit Inventory for $2,400

Remini Company sells equipment for $20,000 cash. The equipment has a historical cost of $80,000 and accumulated depreciation of $50,000. What is the journal entry to record the sale of the equipment?

debit Loss on Sale of Equipment for $10,000, debit Cash for $20,000,debit Accumulated Depreciation - Equipment for $50,000 and credit Equipment for $80,000

Badger Corporation issued 5000 shares of its $5 par value common stock in payment for attorney services billed at $40,000. Badger Corporation's stock has been actively trading at $8 per share. The journal entry for this transaction would include a:

debit to Legal Expense $40,000.

Three factors influence business and accounting decisions

economic, legal, ethical

Merck Pharmaceutical Company has many scientists working in their labs trying to develop a new drug to treat congestive heart failure. Following U.S. Generally Accepted Accounting Principles, the cost of this research and development must be:

expensed as incurred

Which intangible asset is not amortized?

goodwill

Gross Profit Percentage

gross profit/net sales

The calculation to determine the number of outstanding shares of stock is the number of

issued shares minus number of treasury shares

According to FASB, when should a company Journalize a contingent liability?

journalize the contingent liability if it is probable that the loss will occur, and the amount of the loss can be reasonably estimated

If bonds are issued at a discount, it means that the

market interest rate is higher than the stated interest rate.

The formula for the percentage change in a financial statement line item is the current year amount

minus the base year amount divided by the base year amount

You are the CEO of Company A and you are using an industry leader (Leader Company) for benchmarking. Company A is much smaller than Leader Company in terms of total assets and total sales revenue. You should compare the

net income to net sales ratio of Company A to net income to net sales ratio of Leader Company

Gross Profit

net sales - cost of goods sold

Current liabilities are mostly for

operating activities

Fraud Triangle

opportunity, motive, rationalization

FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

FOB destination

ownership of the goods remains with the seller until the goods reach the buyer

plant assets

physical assets that will be used for a number of years in the operation of a business

Preferred stock is NOT similar to debt because

preferred dividends are not tax-deductible whereas interest expense is tax-deductible. preferred dividends do not have to be paid whereas interest expense must be paid. preferred stock does not have a maturity date whereas debt usually has a maturity date

an example of an adjusting entry would be

recording the expiration of prepaid insurance

When goods are shipped FOB destination

revenue is recognized when the goods are received by the customer.

Which of the following would be reported on a statement of cash flows as an investing activity?

sale of equipment for cash

if a company has stockholders' equity of $60,000 at the end of the year, then

the company's assets exceed liabilities by $60,000

The interest rate that investors demand for loaning their money is referred to as

the market rate of interest

For good internal control

the purchasing agent should not receive the goods or approve the invoice for payment

the primary difference between accrual-basis and cash basis accounting is

the timing of when revenues and expenses are recorded

Accumulated Depreciation

the total amount of depreciation expense that has been recorded since the purchase of a plant asset

Nicholas Company has shipped goods to one of its customer FOB destination. Nicholas company will recognize revenue when

their customer has received the goods

For retailers, a way to speed up cash collections is

to accept debit and credit card sales.

On a common-size balance sheet, each line item is expressed as a percentage of

total assets

Debt Ratio

total liabilities/total assets

Leno Company sells goods to the Fallon Company for $11,000. It offers credit terms of 2/10, n/30. If Fallon Company pays the invoice within the discount period, Leno Company will record a debit to Cash in the amount of:

$10,780

following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: :1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions?

$12,300

On January 1, 2023, plant assets, net of accumulated depreciation, are $190,000.On December 31, 2023, net plant assets, net of accumulated depreciation, are$300,000. Depreciation expense for the year is $18,000. During the year, plant assets were acquired for $147,000 with cash. There is a Gain on sale of plant asset of $12,000. What is the book value of the plant asset sold during the year

$19,000

On December 31, Mercury Corporation has the following data available: Net Income $190,000 Interest expense 30,000 Total assets at the beginning of the year 800,000 Total assets at the end of the year 790,000 Total common stockholders' equity at the beginning of the year 530,000 Total common stockholders' equity at the end of the year 480,000 What is return on equity?

$190,000/($530,000 + $480,000)/2 = 37.62%

Marie's Clothing Store had an accounts receivable balance of $410,000 at the beginning of the year and a year-end balance of $550,000. Net credit sales for the year totaled $2,200,000. The average collection period of the receivables was

$2,200,000/($410,000 + $550,000) /2 = 4.58333 365 / 4.58333 = 79.64 days, round to 80

On January 1, 2023, Chin Corporation issued $2,600,000, 12%, 5-year bonds. The bond interest is payable on January 1 and July 1. The bonds sold for $2,819,600. The market rate of interest for these bonds was 10%. Under the effective-interest method, what is the interest expense for the six months ending July 1, 2023?

$2,819,600 x (10%/2) = $140,980

Given the following data: Accounts receivable, net $200,000 Current assets 900,000 Total assets 2,000,000 Net sales 6,000,000 In vertical analysis, Accounts Receivable, net would be expressed as

$200,000 / $2,000,000 = 10%

Beck Company trades in old equipment for new equipment. The old equipment has a cost of $10,000 and accumulated depreciation of $8,000. Beck Company pays cash of $23,000. The fair value of the new equipment is $27,000. What is the gain or loss for Beck Company on the exchange of​ equipment

$2000 gain

the ending retained earnings balance of Boomer INC. increased by $1.0 Million from the beginning of the year. The company declared a dividend of $2.6 million during the year. what was the net income?

$3.6 Million

if Cost of Goods Sold is $300,000, beginning inventory is $29,000, and ending inventory is $30,000, then the purchases from suppliers (assume all on account) would be

$301,000 $29,000 + Purchases - $300,000 = $30,000; Purchases = $301,000

If Cost of Goods Sold is $303,000, ending inventory is $100,000, and beginning inventory was $80,000, what were purchases

$323,000 ($100,000-$80,000) + $303,000= $323,000

On December 31st, Datton, Inc. has cost of goods sold of $550,000, ending inventory is $117,000, beginning inventory is $126,000; and average accounts payable is $109,000. What is the Days' Inventory Outstanding?

$550,000/($117,000 + $126,000)/2 = 4.53 times 365/4.53 = 80.57 81 days

Allen Inc. took out a 1-year, 8%, $100,000 loan on March 31, 2018. Interest is due upon maturity ofthe loan. The loan and interest must be paid back on March 31, 2019. As of December 31, 2018, whatamount, if any, should Allen Inc. report for interest payable?

$6,000 $100,000 x .08 x 9/12 = $6,000

Gengler Company acquired three pieces of equipment for $1,700,000. Equipment #1 is appraised at $450,000, equipment #2 is appraised at $810,000 and equipment #3 is appraised for $540,000. The cost of equipment #2 is: (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

$765,000

Assume that Sallisaw Sideboards, Inc. had a retained earnings balance of $7,000 on April 1, and that the company had the following transactions during April. Issued common stock for cash, $5,000. Provided services to customers on account, $2,000. Provided services to customers in exchange for cash, $900. Purchased equipment and paid cash, $4,300. Paid April rent, $800. Paid employees' salaries for April, $700. What was Sallisaw's retained earnings balance at the end of April?

$8,400

An alternative form of the accounting equation is:

Assets - Liabilities = Stockholders' Equity

Fundamental Accounting Equation

Assets = Liabilities + Owner's Equity

investments by stockholders have what effect on the accounting equation

Assets increase and stockholders' equity increases

Historical Cost Principle

Assets should be recorded at their actual cost on the date of purchase

stable monetary unit assumption

Assume the dollar's purchasing power is stable over time

Madison Bank lends Neenah Paper Company $70,000 on January 1 of the current year. Neenah signs a $70,000, 9%, 6-month note. The journal entry made by Neenah on January 1 of the current year will debit

Cash for $70,000 and credit Notes Payable for $70,000

A list of all account names used to record transactions of a company is referred to as the

Chart of Accounts

Marshall Corporation has $38,000 of bonds outstanding with a carrying value of $46,400. The bonds are converted into19,000 shares of $1 par value common stock immediately after the last interest payment. The common stock had a market value of $5 per share on the date of conversion. The entry to record the conversion would include a credit to:

Common Stock for $19,000 and credit to Paid-in Capital in Excess of Par-Common for $27,400

five components of internal control

Control procedures Risk assessment Information system Control Procedures Monitoring of controls

The bookkeeper recorded a payment on account as $150 instead of the correct amount of $510. What journal entry is required?

Debit Accounts Payable for $360 and credit Cash for $360 Accts Pay (510 - 150 =) 360 Cash 360

on july 1, Corrao Company purchased $800 of inventory on account with credit terms of 3/10. net 30. Corrao Co uses the perpetual inventory system. On July 5th, Corrao Co paid the amount due. What journal did they prepare on July 5?

Debit accounts payable for $800, credit inventory for $24 and credit cash for $776

DEALOR (acronym)

Debits (Dividends Expenses Assets) Credits (Liabilities Owners Equity Revenue)

straight-line depreciation method

Divide cost of the asset by its useful life

the assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the

Economic entity assumption

Continuity (Going-Concern) Assumption

Entity will continue to operate for the foreseeable future

Statement of Cash Flows

Financial statement that reports cash receipts and disbursements related to a firm's three major activities: operations, investments, and financing.

Cash received from bank borrowing would be reported in the statement of cash flows as what type of activity

Financing

If a company has gone bankrupt, its financial statements likely violate the,

Going concern assumption

which statements pertaining to recording transactions are true I. total debits = total credits II. it is possible to have multiple debits or credits in one journal entry III. assets are always listed first in journal entries IV. some journal entries will have debits only

I. total debits = total credits II. it is possible to have multiple debits or credits in one journal entry

Cash Basis Revenue Recognition

If a company receives cash, it records it as revenues

Yummy Foods purchased a one-year hazard insurance policy on August 1 and recorded the $4,200 premium to prepaid insurance. At its December 31 year-end, Yummy Foods would record which of the following adjusting entries?

Insurance Expense 1,750 Prepaid Insurance 1,750 $4,200/12 = $350/month x 5 months = $1,750

A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer Paid the full amount in august. according to the revenue recognition principle, in which month should the company record revenue?

July (when the good is provided)

Barbarino Corporation purchased land and a building for $1,000,000. An appraisal indicates that the land's market value is $600,000 and the building's market value is $900,000. When recording this transaction Barbarino should debit: (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Land for $400,000 Land $600,000 .4 X $1,000,000 = $400,000 Building 900,000 .6 X $1,000,000 = $600,000 Total $1,500,000

During the year, Cheng Company paid salaries of $24,000. In addition, $8,000 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include which one of the following

Salaries Expense 8,000 Salaries Payable 8,000

Which law or regulation requires that public companies must maintain strong internal control systems?

Sarbanes- Oxley act

Which is not a current liability?

Service Revenue

) Perfect Catering Company's ending inventory was $116,500 at historical cost and $103,700 at net residual value. The company uses FIFO. Before consideration of the lower-of-cost-or-net realizable value rule, the company's cost of goods sold was $58,000. Following U.S. GAAP, which of the following statements reflect the correct application of the lower-of-cost-or-market rule?

The Ending Inventory balance will be $103,700, and Cost of Goods Sold will be $70,800.

The primary purpose of closing entries is to

Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions.