accounting exam 2: multiple choice prep

return on assets ratio

net income/average total assets

asset turnover ratio

net sales/total assets

Consider the following information: beginning inventory, 10 units @ $20 per unit; first purchase, 35 units @ $22 per unit; second purchase, 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the FIFO method of inventory costing? a. 1090 b. 1060 c. 1180 d. 1200

a. 1090

net income was $850,000. beginning and ending assets were 8,500,000 and 9,600,000, respectively, what was the return on assets (ROA)?

a. 9.39% calculation: 850,000 (net income)/9,050,000 -9,050,000 average bw beg. and endings assets: (8,500,000+9,600,000)/2= 9,050,000

which of the following is NOT a component of the cost of inventory? a. administrative overhead b. direct labor c. raw materials d. factory overhead

a. administrative overhead is NOT a component of cost of inventory

which account is least likely to appear in an adjusting journal entry? a. cash b. interest receivable c. property tax expense d. salaries payable

a. cash

If the ending balance in accounts payable decreases from one period to the next, which of the following is true?; a. cash payments to suppliers exceeded current period purchases b. cash payments to suppliers were less than current period purchases c. cash receipts from customers exceeded cash payments to suppliers d. cash receipts from customers exceed current period purchases

a. cash payments to supplies exceeded current period purchases

according to GAAP, what ratio must be reported on financial statements or in notes to the statements? a. earnings per share b. return on equity ratio c. net profit margin ratio d. current ratio

a. earnings per share must be reported in financial statements or in the notes

Which of the following is false regarding a perpetual inventory system?: a. physical counts not needed since records are maintained on transaction by transaction basis b. balance in inventory account is update w each inventory purchase and sale transaction c. cost of goods sold is increased as sales are recorded d. account Purchases is not used as inventory is acquired

a. physical counts not needed since reports are maintained on transaction by transaction basis

failue to make an adjusting entry to recognize accrued salaries payble would cause which of the following? a. understatement of expenses, liabilities, stock. equity b. understatement of expenses/liabilities and overstatement of stock. equity c. overstatement of assets/stock.. equity d. overstatement of assets/liabilities

b. adj. entry: debit: salaries expense credit: salaries payable expenses understated, liabilities understated, and stock. equity (net income/retained earnings) overstated

on october 1, 2017, the $12000 premium on a one year insurance policy for the building was paid and recorded as prepaid insurance. on december 31, 2017 (end of accounting period), what adjusting entry is needed

b. debit: prepared insurance for 3000 credit: prepaid insurance for 3000

pg 537: sales discounts w terms 2/10, n/30 mean: a. 10% discount for payment within 30 days b. 2 percent discount for payment within 10 days, or full amount (less returns) due within 30 days c. two-tenths of a percent discount for payment within 30 days d. none of the above

b. 2% discount for payment within 10 days, or full amount (less returns) due within 30 days

which of the following reports is filed annually w the SEC?

b. Form 10-K

If a company plans to differentiate its products by offering low prices and discounts for items packaged in bulk (like a discount retailer that requires memberships for its customers), which component in the ROA profit driver analysis is the company attempting to boost? a. net profit margin b. asset turnover c. financial leverage d. all of the above

b. asset turnover

pg 486: if average total assets increase, but net income, net sales, and average stockholders' equity remain the same, what is the impact on the return on assets ratio? a. increased b. decreases c. remains the same d. cannot be determined

b. decreases return on assets ratio: net income/average total assets

which of the following is one of the possible nonrecurring items that must be shown in a separate line BELOW the income from continuing operations subtotal in income statement: a. gains and losses from sale of fixed assets b. discontinued operations c. extraordinary items d. both a and b

b. discontinued operations

which of the following is NOT a normal function of a financial analyst? a. issue earnings forecasts b. examine records underlying financials to certify accordance w GAAP c. make buy, hold, and sell recommendations on a company''s stock d. advise institutional investors on their securities holdings

b. financial analysts DO NOT examine records underlying financials to certify accordance w GAAP

A company has been successful in reducing the amount of sales returns and allowances. At the same time, a credit card company reduced the credit card discount from 3 percent to 2 percent. What effect will these changes have on the company's net sales, all other things equal? a. net sales will not change b. net sales will increase c. net sales will decrease d. either b or c

b. net sales will increase

when using the allowance method, as bad debt expense is recorded,: a. total assets/total stock. equity remains same b. total assets decrease/stock. equity decreases c. assets increases, stock. equity decreases d. liabilities increases, stock. equity decreases

b. total assets decreases and total. stock. equity decreases

an adjusted trial balance: a. shows ending account balances in debit and credit format before adjusting journal entries b. is prepared after closing entries have been posted c. shows ending account balance resulting from adjusting entries in debit and credit format d. is a tool used by financial analysts to review performance of publicly traded companies

c. adjusted trial balance: shows ending account balances resulting from adjusting entries in debit and credit format

Consider the following information: beginning inventory, 10 units @ $20 per unit; first purchase, 35 units @ $22 per unit; second purchase, 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the LIFO method of inventory costing? a. 1090 b. 1060 c. 1180 d. 1200

c. 1180

Which of the following regarding the lower of cost or market rule for inventory are true? (1) The lower of cost or market rule is an example of the historical cost principle. (2) When the net realizable value of inventory drops below the cost shown in the financial records, net income is reduced. (3) When the net realizable value of inventory drops below the cost shown in the financial records, total assets are reduced. a. 1 b. 2 c. 2 and 3 d. all of the above

c. 2 and 3

You have determined that Company X estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis equals $250. The beginning balance in the allowance for doubtful accounts was $220. Write-offs of bad debts during the period were $180. What amount would be recorded as bad debt expense for the current period? a. 180 b. 250 c. 210 d. 220

c. 210 calculation: 250 (estimated uncollectible receivables) + 180 (write offs for bad debits during period) - 220 (beginning balance in allowance for doubt. acc.)= 210

Gross sales total $300,000, one-half of which were credit sales. Sales returns and allowances of $15,000 apply to the credit sales, sales discounts of 2 percent were taken on all of the net credit sales, and credit card sales of $100,000 were subject to a credit card discount of 3 percent. What is the dollar amount of net sales? a. 227,000 b. 229,800 c. 279,300 d. 240,000

c. 279,300

If a company reported the following items on its income statement (cost of goods sold $6,000, income tax expense $2,000, interest expense $500, operating expenses $3,500, sales revenue $14,000), what amount would be reported for the subtotal "income from operations"? a. 8000 b. 2000 c. 4500 d. 4000

c. 4500 calculation: sales revenue-cost of goods sold=gross margin-operating expenses=operating income =14000-6000-3500=4500

pg 591: Consider the following information: ending inventory, $24,000; sales, $250,000; beginning inventory, $30,000; selling and administrative expenses, $70,000; and purchases, $90,000. What is cost of goods sold? a. 86000 b. 94000 c. 96000 d. 84000

c. 96000 calculation: beg. inventory +purchases =cost of goods available -ending inventory =cost of goods sold

Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdated values for inventory on the balance sheet?: a. FIFO b. average cost c. LIFO d. specific identification

c. LIFO

pg. 422 (answers on all sections): which of the following accounts would not appear in a closing entry? a. salary expense b. interest income c. accumulated depreciation d. retained earnings

c. accumulated depreciation would NOT appear in a closing entry

when a company issues stock w a par value, what columns are typically presented in the statement of stockholder's equity?

c. common stock, additional paid in capital, and retained earnings

which of the following is NOT component of net sales? a. sales returns and allowances b. sales discounts c. cost of goods sold d. credit card discounts

c. cost of goods sold is NOT a component of net sales

At the beginning of the current year, Donna Company had $1,000 of supplies on hand. During the current year, the company purchased supplies amounting to $6,400 (paid for in cash and debited to Supplies). At the end of the current year, a count of supplies reflected $2,000. The adjusting entry Donna Company would record at the end of the current year to adjust the Supplies account would include a: a. debit to supplies for 2000 b. credit to supplies expense for 5400 c. credit to supplies for 5400 d. debit to supplies expense for 4400

c. credit to supplies for 5400 calculation: 1,000 (on hand at beginning of year) + 6400 (supplies purchased during year)-2000 (year end count of supplies)

Upon review of the most recent bank statement, you discover that you recently received an "insufficient funds check" from a customer. Which of the following describes the actions to be taken when preparing your bank reconciliation? a. no change in balance per books, decrease in balance per bank statement b. decrease in balance per books, increase in balance per bank statement c. decrease in balance per books, no change in balance per bank statement d. increase in balance per books, decrease in balance per bank statement

c. decrease in balance per books, no change in balance per bank statement

an increasing inventory turnover ratio: a. indicates longer time span bw ordering and receiving inventory b. indicates shorter time span bw ordering and receiving inventory c. indicates shorter time span bw purchase and sale of inventory d. indicates longer time span bw purchase and sale of inventory

c. increasing inventory turnover ratio: indicates shorter time span bw purchase and sale of inventory inventory turnover ratio: sales/average inventory

if a company is successful in acquiring several large buildings at end of year, what is the effect on total asset turnover ratio?

c. the ratio will decrease equation for asset turnover ratio: total sales/average total assets

the classified balance sheet format allows one to ascertain quickly which of the following? a. most valuable asset of company b. specific due date for all liabilities of the company c. what liabilities must be paid within the upcoming year d. none of the above

c. what liabilities must be paid within the upcoming year (aka current liabilities)

inventory turnover ratio

cost of goods sold/average inventory

jj company owns a building. which of the following statements regarding depreciation as used by accountants is false? a. as depreciation is recorded, stock. equity is reduced b. depreciation is an estimated expense to be recovered over asset's estimated useful life c. as depreciation is recorded, net book value of asset is reduced d. as value of building decreases over time, it "depreciates"

d. as value of building decreases over time, it "depreciates" is false

on June 1, 2016, company signed 3 year, $110,000 note payable w 9% interest. interest is due on june 1 of each year beginning in 2017. what amount of interest expense should be reported on income statement for year ended Dec. 31, 2016

d. interest expense- $5,775 calculation: 111,000 x 9%= 9,900 9900/12= 825 (monthly interest) 825 x 7 months= 5775

When a company using the allowance method writes off a specific customer's $100,000 account receivable from the accounting system, which of the following statements are true? 1. total stock. equity remains same 2. total assets remain same c. total expenses remain same a. 2 b. 1 and 3 c. 1 and 2 d. 1, 2, and 3

d. 1, 2, and 3

inventory costing method selected by company will affect: a. balance sheet b. income statement c. statement of retained earnings d. all of the above

d. all of the above

Which of the following is not a step toward effective internal control over cash? a. require signatures from a manager and one financial officer on all checks b. require that cash be deposited daily at bank c. require the person responsible for removing cash from register to have no access to accounting records d. all of the above are effective internal control steps

d. all of the above are effective internal control steps

which of the following would normally NOT be found in notes to financial statements? a. accounting rules applied to company's financials b. additional detail supporting numbers reported in company's financials c. relevant financial info not presented in company's financials d. all over the above would be found in notes

d. all of the above would be found in the notes

Which of the following best describes the proper presentation of accounts receivable in the financial statements? a. gross accounts receivable plus allowance for doubtful accounts in asset section of balance sheet b. Gross accounts receivable in the asset section of the balance sheet and the allowance for doubtful accounts in the expense section of the income statement. c. gross a/r less bad debt expense in asset section of balance sheet d. gross a/r less allowance for doubtful accounts in asset section of balance sheet

d. gross a/r less allowance for doubtful accounts in asset section of balance sheet