Accounting Final Exam Review

A company acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely equipped. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and equipment, respectively. At what amount would the company record the building?

$1,200,000

Equity financing refers to profits generated by operations.

False

The following information pertains to inventory for a company: March 1Beginning inventory = 28 units @ $5.90March 3Purchased 18 units @ 3.60March 9Sold 27 units @ 9.00 What is the cost of goods sold, assuming the company uses LIFO?

$118

Beginning inventory is $40,000. Purchases of inventory during the year are $200,000. Ending inventory is $100,000. What is cost of goods sold?

$140,000

Strikers, Incorporated sells soccer goals to customers over the Internet. History has shown that 3% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,400 goals and 46 have been repaired. If the estimated cost to repair a goal is $180, what would be the warranty liability at the end of the year?

$15,480

Suppose you buy lunch for $16.60 that includes a(n) 8% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much does the restaurant owe for sales tax?

$15.37 for lunch and $1.23 for sales tax

When a company provides services on account, which of the following accounts is debited?

Accounts Receivable.

A company purchased a three-acre tract of land for a building site for $350,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period after the purchase date. The total capitalized cost of the land is:

$364,650.

A company purchased a machine for $205,000 on October 1, 2024. The estimated service life is 10 years with a $21,000 residual value. The company records partial-year depreciation based on the number of months in service. Depreciation expense for the year ended December 31, 2024, using straight-line depreciation, is:

$4,600.

Kansas Enterprises purchased equipment for $74,500 on January 1, 2024. The equipment is expected to have a ten-year life, with a residual value of $8,700 at the end of ten years. Using the double-declining balance method, the book value at December 31, 2025, would be:

$47,680.

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $380,000 and in Allowance for Uncollectible Accounts of $1,420 (debit) before adjustment. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 1% of accounts receivable. Bad debt expense for the year should be:

$5,220.

The Retained Earnings account had a beginning credit balance of $26,350. During the period, the business had a net loss of $12,100, and the company paid dividends of $8,500. The ending balance in the Retained Earnings account is:

$5,750

Inventory records for Eliza Company revealed the following: DateTransactionNumber of UnitsUnit CostMarch 1Beginning Inventory1,060$ 7.23March 10Purchase5107.73March 16Purchase3978.33March 23Purchase5409.03 Eliza sold 1,830 units of inventory during the month. Ending inventory assuming FIFO would be:

$6,017. Ending inventory = (137 × $8.33) + (540 × $9.03) = $6,017.

At the beginning of 2024, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 2% of net sales. Net sales made under warranty in 2024 were $320 million. Five percent of the units sold were returned in 2024 and repaired or replaced at a cost of $5.0 million. The amount of warranty expense in Angel's 2024 income statement is:

$6.4 million.

The ending Retained Earnings balance of Juan's Mexican Restaurant chain increased by $4.2 million from the beginning of the year. The company declared a dividend of $2.3 million during the year. What was the amount of net income during the year?

$6.5 million

Inventory records for Capetown, Incorporated revealed the following: DateTransactionNumber of UnitsUnit CostApril 1Beginning Inventory530$ 2.35April 20Purchase3102.65 Capetown sold 590 units of inventory during the month. What is the amount of ending inventory assuming weighted-average cost?

$615

A company recorded credit sales of $837,000, of which $590,000 is not yet due, $170,000 is past due for up to 180 days, and $77,000 is past due for more than 180 days. Under the aging of receivables method, the company expects it will not collect 6% of the amount not yet due, 19% of the amount past due for up to 180 days, and 21% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,400 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

$83,870

Of the following six accounts, which ones have temporary balances? (1) Service Revenue (2) Dividends (3) Salaries Expense (4) Common Stock (5) Retained Earnings (6) Cash

(1), (2), and (3)

Shankar Company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 2 for $28,000 and then sells this inventory on account on March 17 for $48,000. Record transactions for (a) the purchase of inventory on account and (b) the sale of inventory on account.

1-February 02-Inventory28,000 Accounts Payable28,000 2-March 17 Accounts Receivable48,000Sales Revenue48,000 3 March 17 Cost of Goods Sold28,000 Inventory28,000

A company issues 7%, 9-year bonds with a face amount of $70,000 on January 1, 2024. The market interest rate for bonds of similar risk and maturity is also 7%. Interest is paid semiannually on June 30 and December 31.

1January 01, 2024Cash70,000Bonds Payable70,0002June 30, 2024Interest Expense2,450Cash2,450

On January 1, Hawaiian Specialty Foods purchased equipment for $32,000. Residual value at the end of an estimated four-year service life is expected to be $5,380. The company expects the machine to operate for a total of 22,000 hours. The machine operated for 3,100 hours in the first year and 3,400 hours in the second year. Record depreciation expense for the first two years using the activity-based method

1Year 1Depreciation Expense3,751Accumulated Depreciation3,7512Year 2Depreciation Expense4,114Accumulated Depreciation4,114 Year 1Depreciation Expense($32,000 − $5,380) / 22,000 hours = $1.21/hour(3,100 hours × $1.21 = $3,751) Year 2Depreciation Expense($32,000 − $5,380) / 22,000 hours = $1.21/hour(3,400 hours × $1.21 = $4,114)

Making insurance payments in advance is an example of:

A prepaid expense transaction.

Liabilities are best defined as:

Amounts owed to creditors.

Consider the following events for Sophia Incorporated: April 5Sophia purchases volleyballs for $200 on account.April 6Sophia advertises a sand volleyball camp for $20 a person.April 12Thirty people sign up for the camp paying a total of $600.April 21Sophia hosts the sand volleyball camp.April 23Sophia pays for the volleyballs purchased on April 5. Under cash-basis accounting, what is the appropriate day to record the expenses related to the sand volleyball camp?

April 23

The financial statement that represents the accounting equation is the:

Balance sheet.

At the beginning of the year, Albertson Incorporated reports inventory of $6,000. During the year, the company purchases additional inventory for $21,000. At the end of the year, the cost of inventory remaining is $8,000. Calculate cost of goods sold for the year.

Beginning inventory$6,000Add: Purchases21,000Cost of goods available for sale27,000Less: Ending inventory(8,000)Cost of goods sold$19,000

On February 3, a company provides services on account for $27,000, terms 3/10, n/30. On February 9, the company receives payment from the customer for those services on February 3. Record the service on account on February 3 and the collection of cash on February 9.

Debit - Accounts Receivable 27000 Credit-Service Revenue 27000 Additional Journal entry: Debit Cash 26190 Debit Sales Discounts 810 Credit Accounts Receivable 27000

February 2 Pay $660 for radio advertising for February.

Debit - Advertisment expense 660 Credit - Cash 660

A company purchases a building for $160,000, signing a note payable. Record the transaction.

Debit - Buildings 160000 Credit - Notes payable 160000

February 14 Provide beauty services of $2,700 to customers and receive cash.

Debit - Cash 2700 Credit - Service Revenue 2700

A company receives $6,700 cash in advance from customers for services to be provided next year. Record the transaction.

Debit - Cash 6700 Credit - Deferred revenue 6700

A company pays $3,000 in cash dividends to its stockholders. Record the transaction.

Debit - Dividends 3000 Credit - Cash 3000

The company initially records the payments of all insurance premiums as prepaid insurance. The unadjusted trial balance at year-end shows a balance of $590 in Prepaid Insurance. A review of insurance policies reveals that $190 of insurance is unexpired.

Debit - Insurance expense 400 Credit- Prepaid Insurance 400

A company purchases office supplies on account for $8,600. Record the transaction.

Debit - Office supplies 8600 Credit - Accounts payable 8600

Employees work Monday through Friday, and salaries of $3,400 per week are paid each Friday. The company's year-end falls on Tuesday.

Debit - Salaries expense 1360 Credit - Salaries payable 1360

February 15 Pay employee salaries for the current month of $860

Debit - Salaries expense 860 Credit - cash 860

February 7 Purchase beauty supplies of $1,260 on account.

Debit - Supplies 1260 Credit - Accounts Payable 1260

February 28 Pay utility bill for the current month of $260.

Debit - Utilities expense 260 Credit - Cash 260

Stylion, Incorporated performed cleaning services for its customers for cash. How should Stylion record this transaction?

Debit Cash, credit Service Revenue

Jerome purchased a building for his business by signing a note to be repaid over the next ten years. Which of the following describes how to record this transaction?

Debit assets, credit liabilities

Using a perpetual inventory system, the entry to record the return of inventory previously purchased on account includes a:

Debit to Accounts Payable.

February 25 Provide beauty services of $960 to customers on account.

Debit- Accounts Receivable 960 Credit- Service Revenue 960

A company offers a 25% trade discount when providing services of $5,000 or more to its customers. Record the transaction when the company provides services of $5,800 (not including the trade discount) on account

Debit- Accounts receivable 4350 Credit- Service Revenue 4350

At the beginning of the year, Mitchum Enterprises allows for estimated uncollectible accounts of $16,600. By the end of the year, actual bad debts total $19,000.

Debit- Allowance for Uncollectible Accounts 19000 Credit- Accounts Receivable 19000

At the end of the year, Mercy Cosmetics' balance of Allowance for Uncollectible Accounts is $410 (credit) before adjustment. The balance of Accounts Receivable is $15,500. The company estimates that 12% of accounts will not be collected over the next year.

Debit- Bad Debt Expense 1450 Credit -Allowance for Uncollectible Accounts 1450 Bad Debt Expense = $15,500 × 12% − $410 = $1,450

The Supplies account shows a balance of $570, but a count of supplies reveals only $210 on hand at year-end.

Debit- Supplies Expense 360 Credit- Supplies 360

At year-end, the company received a utility bill for December's electricity usage of $280 that will be paid in early January.

Debit- Utilities expense 280 Credit - Utilities payable 280

Assets normally carry a _______ balance and are shown in the ______________.

Debit; Balance sheet

An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________.

Debit; Credit

An increase to an expense account is shown with a ______________. An increase to a revenue account is shown with a ______________.

Debit; Credit

Incurring an expense for advertising on account would be recorded by:

Debiting an expense account.

On January 1, Californian Specialty Foods purchased equipment for $20,000. Residual value at the end of an estimated four-year service life is expected to be $2,000. The machine operated for 2,200 hours in the first year, and the company expects the machine to operate for a total of 10,000 hours. Calculate depreciation expense for the first year using each of the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3) activity-based.

Depreciation Expense(1) Straight-line$4,500(2) Double-declining-balance$10,000(3) Activity-based$3,960 (1) Straight-line Depreciation expense = $20,000 − $2,000 / 4 years = $4,500

Costs of selling products or services.

Expenses

The costs related to rent, utilities, and salaries in the current reporting period are examples of liabilities. TRUE OR FLASE

FALSE

The Sales Discounts account is an expense account.

False

Trade discounts represent a discount offered to the purchaser for quick payment.

False

A company reports the following amounts at the end of the year: Sales revenue$ 300,000Cost of goods sold200,000Net income54,000

Gross profit ratio33% Gross profit ratio = ($300,000 − $200,000) / $300,000 = 33%.

Which of the following statements accurately describes depreciation? Depreciation is used to allocate the cost of the asset over periods benefited. Depreciation is used to track the fair value of the asset. The book value of an asset is its original cost less accumulated depreciation.

I and III

In January 2024, Summit Department Store sells a gift card for $55 and receives cash. In February 2024, the customer comes back and spends $25 of the gift card to purchase a water bottle. What is the financial statement effect of the sale of the gift card in January?

Increase assets by $55 and increase liabilities by $55Correct

Revenues have what effect on the accounting equation?

Increase stockholders' equity

Using a perpetual inventory system, the purchase of inventory on account increases the balance of which of the following accounts?

Inventory

Consider the following events for Fountain Incorporated: January 1Fountain purchases gasoline for $200 on account.January 7Fountain advertises lawn mowing services for $100 per lawn.January 9Fountain signs up 8 customers who pay a total of $800 cash.January 12Fountain mows the lawns of the 8 customers and all gasoline purchased on January 1 is used.January 13Fountain pays for the gasoline purchased on January 1. Under accrual-basis accounting, what is the appropriate day to record the expenses related to the gasoline?

January 12

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

Last-in, first-out (LIFO).

Amounts owed.

Liabilities

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

Multiple-step

Which of the following items is reported on the statement of stockholders' equity?

Net income

The ending balance of Retained Earnings can best be described as the amount of:

Net income over the life of the company not paid to owners in the form of dividends.

On November 1, 2024, Dual Systems borrows $170,000 to expand operations. Dual Systems signs a six-month, 9% promissory note. Interest is payable at maturity. Dual System's year-end is December 31. Required:1., 2. & 3. Record the following transactions for the note payable by Dual Systems.

November 01, 2024Cash170,000Notes Payable170,0002December 31, 2024Interest Expense2,550Interest Payable2,5503April 30, 2025Notes Payable170,000Interest Expense5,100Interest Payable2,550Cash177,650

A company uses a perpetual inventory system. How should the company record the return of inventory previously purchased on account for $200? EventAccount TitleDebitCredit1.Inventory200 1.Accounts Payable 2002.Accounts Payable200 2.Inventory 2003.Purchase Returns200 3.Accounts Payable 2004.Accounts Payable200 4.Purchase Returns 200

Option 2

Which of the following subsequent expenditures would not be capitalized?

Ordinary repairs and maintenance

Which of the following is true concerning temporary and permanent accounts?

Permanent accounts represent activity over the entire life of the company.

An example of an adjusting entry would not include:

Recording the purchase of office supplies.

Under accrual-basis accounting:

Revenue should be recorded in the period goods and services are provided.

Sales of products or services.

Revenues

A company had the following information taken from various accounts at the end of the year:

Sales discounts$ 41,000Deferred revenues32,000Total revenues459,000Purchase discounts15,000Sales allowances35,000Accounts receivable205,000 What was the company's net revenues for the year? 383,000 Net revenues = $459,000 − $41,000 − $35,000 = $383,000

Owners' claims to resources.

Stockholders' equity

When a company pays employees' salaries for the current period, how will the basic accounting equation be affected?

Stockholders' equity decreases

Accounting is a system of maintaining records of a company's operations and communicating that information to decision makers. TRUE OR FALSE

TRUE

Retained earnings represent all net income minus all dividends over the life of the company. TRUE OR FALSE

TRUE

Which of the following represents the balance of Cost of Goods Sold at the end of the year?

The cost of inventory sold during the year.

Net income can best be described as:

The difference between revenues and expenses.

Which of the following is true about adjusting entries?

They are a necessary part of accrual-basis accounting.

The primary difference between accrual-basis and cash-basis accounting is:

Under accrual-basis accounting, an attempt is made to record economic events as they occur, regardless of when cash is received or paid.

Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later for $24,300. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $7,000 residual value. 1. What was the gain or loss on the sale?2. Record the sale.

What was the gain or loss on the sale? Loss on sale$1,300 11Cash24,300Accumulated Depreciation12,400Loss1,300Equipment38,000

Which of the following transactions is recorded with a credit to Accounts Receivable?

Writing off of bad debts

On October 1, 2024, White Corporation loans one of its employees $24,000 and accepts a 12-month, 10% note receivable. Calculate the amount of interest revenue White will recognize in 2024 and 2025.

Year Interest Revenue2024$6002025$1,800 Explanation Interest Revenue 2024: $24,000 × 10% × 3/12 = $600 2025: $24,000 × 10% × 9/12 = $1,800

Resources of a company.

assets

Distributions to stockholders.

dividends