Accounting for Decision Making
Which of the following accounts is increased by a credit entry? a. salary expense b. capital stock c. dividends declared d. cash
b. capital stock
A balance sheet approach to estimating bad debt expense is not permitted under GAAP (generally accepted accounting principles). True False
False
A debit entry increases assets and revenue accounts. True False
False
Closing entries are necessary to ensure that the company's net income for an accounting period is accurately determined. True False
False
Collections of accounts receivable are considered to be cash equivalents. True False
False
GAAP has established a universal chart of accounts that is applicable to all businesses in the United States. True False
False
If a company accepts a major credit card such as Visa from a customer, then the company is responsible for the amount of the sale in case of nonpayment from a cardholder. True False
False
If a company estimates its bad debt expense on the basis of a receivables aging, the balance in the Allowance for Doubtful Accounts account will not affect the amount of the end-of-period adjusting entry for bad debts. True False
False
A primary advantage of the allowance method to account for bad debts is that it supports the matching principle. True False
True
A trial balance is the listing of each active account and its corresponding debit or credit balance at a particular point in time. True False
True
Accounts receivable are shown on the balance sheet at their net realizable value. True False
True
Accumulated depreciation is a contra asset account. True False
True
Adjusting entries must be made prior to the preparation of financial statements. True False
True
An accounting transaction may impact only one financial statement or multiple statements. True False
True
As part of a sound system of internal controls, all disbursements (with the exception of petty cash) should be made by check. True False
True
Accent Flooring The company received a promissory note from a customer on March 1 of the current year. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest. What is the total amount of interest the company will receive when the note is collected? a. $ 450 b. $ 150 c. $ 300 d. $1,800
a. $ 450
Balance sheet accounts are also known as a. permanent accounts. b. nominal accounts. c. temporary accounts. d. closing accounts.
a. permanent accounts.
A company had beginning accounts receivable of $175,000. All sales were on account and totaled $550,000. Cash collected from customers totaled $650,000. Calculate the ending accounts receivable balance. a. $275,000 b. $ 75,000 c. $725,000 d. $175,000
b. $ 75,000
A company's unadjusted bank balance is $3,000. Outstanding checks amount to $500 and deposits in transit total $300. Based on this information alone, what is the company's adjusted cash balance for the purpose of preparing a bank reconciliation? a. $2,700 b. $3,200 c. $2,800 d. $3,300
c. $2,800
If a company has revenues of $10,500,000, declares and pays $550,000 in dividends, and has net income of $1,600,000, how much were expenses for the year? a. $1,050,000 b. $2,150,000 c. $8,900,000 d. $9,950,000
c. $8,900,000
The higher the accounts receivable turnover the better because it indicates that the company is more quickly collecting cash (through sales). True False
True
The lender of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement. True False
True
The length of the operating cycle affects the amount of capital a business needs. True False
True
The key to being classified as a cash equivalent is that the amount must be available to pay debts within a year's time or less. True False
False
The lender of a note recognizes a note payable on the balance sheet and interest expense on its income statement. True False
False
The term used to refer to an asset's original cost is book value. True False
False
The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place. True False
True
Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur. True False
True
When revenue is earned after the earlier receipt of cash, an adjustment that increases a revenue account and decreases a liability account is recorded. True False
True
If a company uses the allowance method to account for doubtful accounts, when will the company's stockholders' equity decrease? a. At the date a customer's account is written off b. When the accounts receivable amount becomes past due c. At the end of the accounting period when an adjusting entry for bad debts is recorded d. At the date a customer's account is determined to be uncollected
c. At the end of the accounting period when an adjusting entry for bad debts is recorded
The balance in the account, Rent Collected in Advance, is reported as a liability on the balance sheet of the landlord. True False
True
The going concern assumption infers that a company will continue to operate into the future. True False
True
The accountant must make adjusting journal entries for all items in the book section of the bank reconciliation. True False
True
The accounting equation must balance before and after every accounting transaction. True False
True
The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts receivable. True False
True
If a company has an internal audit function, it does not need to have external auditors. True False
False
In a worksheet, the first set of columns immediately following the account titles is for the Adjusted Trial Balance. True False
False
Net Sales = Total credit sales - Sales Discounts - Sales Returns and Allowances True False
False
No special internal control procedures are necessary with a petty cash fund because the amount is so small. True False
False
The best response to an employee caught stealing from the company is to say "Don't ever let me catch you doing that again! True False
False
The general ledger is often used for the initial recording of repetitive transactions. True False
False
The longer a customer's account balance remains outstanding, the greater the likelihood that it will be collected in the near future. True False
False
Three months before its year-end, a company signed a $250,000, 12%, 8-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures. True False
False
When a bank collects a note on behalf of a company, the bank is likely to issue a debit memo. True False
False
The operating cycle is the elapsed time between the a. purchase of goods from suppliers and the performance of the related service for customers. b. sale of goods or services to customers and the payment to suppliers for those goods. c. sale of goods and the delivery of those goods to customers. d. purchase of goods or services and the ultimate collection of cash from customers related to the sale of those goods.
d. purchase of goods or services and the ultimate collection of cash from customers related to the sale of those goods.
The principle of conservatism is concerned with a. the minimization of costs associated with providing financial information. b. the company's procedures for recording activities at their initial exchange price. c. the company's ability to carry out its existing commitments. d. the avoidance of overstating assets or income in the preparation of financial statements.
d. the avoidance of overstating assets or income in the preparation of financial statements.
Assets become expenses when _____. a. they are delivered. b. they are purchased for cash or on credit. c. they are paid for in cash. d. their economic benefits expire.
d. their economic benefits expire.
Income Statement accounts are closed to Retained Earnings. True False
True
The amount of interest paid is a function of three variables: the amount borrowed, the interest rate, and the length of the loan period. True False
True
The expense recognition principle requires that expenses be recorded and reported in the same period as the revenue that it helped to generate. True False
True
Even though a trial balance reveals that the debits equal the credits, there still may be errors in the company's books. True False
True
The qualitative characteristics of accounting information include a. cash flow information. b. faithful representation. c. assets reported on the Balance Sheet. d. all accounting information.
b. faithful representation.
In order for an event to be recorded, or recognized, in the accounting system, the items making up the event must be a faithful representation of the event. True False
True
Most companies use the accrual basis of accounting because it is required under generally accepted accounting principles. True False
True
Petty Cash is NOT considered to be a cash equivalent. True False
True
The company reported the following information for the year ended December 31: Net income $100,000 Dividends 6,000 Retained earnings at December 31, current year 120,000 What was the economic effect of the dividend payment? a. The dividend reduced total retained earnings. b. The dividends reduced income from operations. c. The dividend would have been added to net income if the company's accounting equation were in balance. d. The dividend reduced net income for the current year.
a. The dividend reduced total retained earnings.
Which pair of accounts has the same set of rules for debit and credit entries? a. common stock and accounts payable b. sales revenue and accounts receivable c. cash and notes payable d. salary expense and retained earnings
a. common stock and accounts payable
A nonclassified balance sheet typically does not have a distinction between which of the following items? a. current and noncurrent items b. liabilities and stockholders' equity c. assets and liabilities d. resources invested by the owners and amounts borrowed from creditors
a. current and noncurrent items
When the amount for a debit entry in a journal is transferred to a specific account in the general ledger, it must be posted as a a. debit to the account in the general ledger. b. total amount, without regard to debit or credit, since the general ledger accounts do not have spaces for debit and credit entries. c. credit to the account in the general ledger. d. decrease to the account in the general ledger.
a. debit to the account in the general ledger.
On December 1, Anson's Drug Store concluded that a customer's $325 account receivable was uncollected and that the account should be written off. What effect will this write-off have on the company's net income and balance sheet totals assuming the direct write-off method is used to account for bad debts? a. decrease in net income; decrease in total assets b. no effect on net income; decrease in total assets c. increase in net income; no effect on total assets d. no effect on net income; no effect on total assets
a. decrease in net income; decrease in total assets
Identify the category of the statement of cash flows that reports the cash flows related to obtaining capital for a company. a. financing activities b. operating activities c. noncurrent activities d. investing activities
a. financing activities
"Revenues" are best described as a. increases in net assets resulting from the sale of products or services. b. decreases in net assets resulting from the sale of goods or services. c. assets used or consumed in the sale of products or services. d. an increase in the financing activities.
a. increases in net assets resulting from the sale of products or services.
The following balances were taken from the company's records: Inventory $380,000 Accounts Receivable $190,000 Land 290,000 Accounts Payable 180,000 Cash 129,000 Unearned Revenue 110,000 Prepaid Rent 33,000 Common Stock 312,000 Retained Earnings 220,000 Long-term Notes Payable 200,000 Calculate the total current assets. a. $842,000 b. $842,000 c. $732,000 d. $1,022,000
c. $732,000
While preparing the April 30 bank reconciliation, the accountant identified the following items: Company's balance according to the general ledger $15,000 Outstanding checks 2,500 Bank service charge 15 A customer's NSF check returned by the bank 100 What is the company's adjusted cash balance at April 30? a. $17,385 b. $14,885 c. $12,385 d. $12,500
b. $14,885
Internal control systems provide assurance in each of the following areas except a. reliability of financial reporting. b. consolidation of departments within the accounting function. c. effectiveness and efficiency of the company's operations. d. compliance with applicable laws and regulations.
b. consolidation of departments within the accounting function.
High Point Furniture Company manufactures furniture. The company has applied for a sizeable loan to expand its operations. Based on the company's annual report, the loan officer concludes that High Point is very profitable and appears to have a strong financial position. However, watching the nightly news on television that evening, the banker discovers that High Point is a defendant in a class action lawsuit related to defective products. Serious injuries were allegedly caused by the company's infant high chairs overturning. The television news report is an example of financial information that is a. predictable. b. relevant. c. conservative. d. comparable.
b. relevant.
AT&U CompanyData for the year ended December 31 are presented below: Sales (credit) $2,500,000 Sales returns and allowances 50,000 Accounts Receivable (December 31) 640,000 Allowance for Doubtful Accounts (Before adjustment at December 31) 20,000 Estimated amount of uncollected accounts based on aging analysis 45,000 If the company estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense? a. $45,000 b. $44,500 c. $24,500 d. $25,000
c. $24,500
A Better Mousetrap The company sold merchandise to a customer on December 1 of the current year for $100,000. The customer paid with a promissory note that has a term of 6 months and an annual interest rate of 9%. The company's accounting period ends on December 31. What amount should the company recognize as interest revenue on the maturity date of the note? a. $ -0- b. $ 750 c. $3,750 d. $9,000
c. $3,750
The following information is available for All Care Nursing Supply for the fiscal year ending December 31 of current year. Calculate the accounts receivable turnover ratio: Net Sales$450,000Accounts Receivable, December 31 of previous year$175,000Operating Income$120,000Accounts Receivable, December 31 of current year$125,000Net Income$100,000 a. 3.6 b. 2.57 c. 3 d. 0.8
c. 3
Allatoona Landing reported net credit sales of $1,250,000 and cost of goods sold of $900,000 during the current year. Its beginning balance of Accounts Receivable was $175,000. The accounts receivable balance decreased by $25,000 during the year. Rounded to two decimal places, what is the company's accounts receivable turnover rate for the current year? a. 8.33 b. 7.14 c. 7.69 d. 12.50
c. 7.69
Which of the following transactions affects total liabilities? a. Services are provided to a customer for credit b. Common stock is issued. c. Payment is made on a bank loan. d. Equipment is purchased for cash.
c. Payment is made on a bank loan.
If a company erroneously records a $50 check received from a customer as $500 in its records, which of the following must occur when reconciling its bank statement? a. The company must increase the balance per its records by $450. b. The company must increase the balance per its records by $500. c. The company must decrease the balance per its records by $450. d. The company must decrease the balance per its records by $500.
c. The company must decrease the balance per its records by $450.
Abbot Safe & LockThe following information was obtained from the company's records for the year ended December 31: Credit sales during the year $3,200,000 Accounts receivable--December 31 325,000 Allowance for doubtful accounts--December 31 (After adjustment) 35,000 Bad debt expense for the year 20,000 What is the effect on liquidity when the company records its estimate for bad debt expense using the allowance method? a. Liquidity stays the same. b. Liquidity increases. c. Liquidity both increases and decreases. d. Liquidity decreases.
d. Liquidity decreases.
Camper City started business on January 1, current year. Stanton performed services for customers totaling $250,000, of which 40% remained uncollected at the end of December, current year. Under the accrual basis, what amounts would appear on the company's financial statements for the current year? (Assume that the beginning balance of Accounts Receivable was zero.) Income statement/ Balance Sheet a. $100,000 $250,000 b. $100,000 $100,000 c. $250,000 $250,000 d. $250,000 $100,000
d. $250,000 $100,000
Liquidity a. measures the ability of the firm to pay financial obligations as they become due. b. can be measured in terms of working capital. c. can be assessed by the current ratio. d. All of these.
d. All of these.
Canterbury Cycles sells Harleys and pays each salesperson a commission of $800 for each cycle sold. During the month of December, a salesperson sold 3 cycles. The company pays commissions on the 5th day of the month following the sale. Which of the following statements is true? a. The salesperson will recognize revenue in the same month that the cycle dealer recognizes expense. b. The salesperson will recognize commission expense in the amount of $2,400 in January. c. The salesperson will recognize commission revenue earned in the amount of $2,400 in December. d. The company will recognize commission expense in the amount of $2,400 in December.
d. The company will recognize commission expense in the amount of $2,400 in December.
Each of the following documents is used in the reconciliation of cash receipts except a. bank credit memos. b. NSF checks. c. bank deposit slips. d. outstanding checks.
d. outstanding checks.
Calculate total sales for a company that reported a net loss of $1,500,000 and total expenses of $2,900,000. a. $1,400,000 b. $2,400,000 c. $1,600,000 d. $4,400,000
a. $1,400,000
Because the allowance method results in better matching, GAAP requires its use rather than the direct write-off method, unless bad debts are immaterial. True False
True
A&B FoodsData for the year ended December 31 are presented below. Sales (100% on credit) $2,100,000 Sales returns 150,000 Accounts Receivable (December 31) 420,000 Allowance for Doubtful Accounts (Before adjustment at December 31) 25,000 Estimated amount of uncollected accounts based on an aging analysis 75,000 If the company uses the aging of accounts receivable method to estimate its bad debts, what amount will be reported as bad debt expense? a. $ 50,000 b. $100,000 c. $ 75,000 d. $ 75,000
a. $ 50,000
Carver Memorial Gardens purchased supplies for $14,500 during the year. On January 1, the supplies on hand were $1,000. On December 31, the supplies on hand were $3,500. Determine the amount of supplies expense for the year. a. $12,000 b. $17,000 c. $14,500 d. $13,500
a. $12,000
All Star Auto has an accounts receivable balance after posting net collections from customers for 2013 of $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts receivable and estimate for uncollected account percentages as follows: $90,000Current at 2%$50,0001-30 days past due at 5%$30,00031-60 days past due at 10%$10,00060+ days past due at 25% The net realizable value of the accounts receivable is a. $172,700. b. $185,200. c. $180,000. d. $170,200.
a. $172,700
AT&U CompanyData for the year ended December 31 are presented below: Sales (credit) $2,500,000 Sales returns and allowances 50,000 Accounts Receivable (December 31) 640,000 Allowance for Doubtful Accounts (Before adjustment at December 31) 20,000 Estimated amount of uncollected accounts based on aging analysis 45,000 If the company estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense? a. $24,500 b. $25,000 c. $44,500 d. $45,000
a. $24,500
AT&U CompanyData for the year ended December 31 are presented below: Sales (credit) $2,500,000 Sales returns and allowances 50,000 Accounts Receivable (December 31) 640,000 Allowance for Doubtful Accounts (Before adjustment at December 31) 20,000 Estimated amount of uncollected accounts based on aging analysis 45,000 If the company uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense?. a. $25,000 b. $45,000 c. $65,000 d. $20,000
a. $25,000
Been There Used Furniture began operations on January 1, current year, with an initial investment of $100,000 from each of its five stockholders. During the year, the company had net income of $200,000 and paid dividends of $50,000. If the company's revenues were $500,000 for the year ended December 31, current year, how much were total expenses? a. $300,000 b. $250,000 c. $350,000 d. $800,000
a. $300,000
Carolina Truck Lines purchased a truck at a cost of $22,000 five years ago. As of January 1, the current year, a total accumulated depreciation of $18,000 had been recorded on this asset. The depreciation expense for the current year is $2,000. Before the adjustments are recorded and posted on December 31, the current year, what is the truck's book value? a. $4,000 b. $22,000 c. $2,000 d. $18,000
a. $4,000
A tax service prepared tax returns for twenty clients at $200 each. By the end of June, the service had collected from eight clients. What amount will be reported on the income statement for June, if it is prepared under the accrual basis of accounting and if it is prepared under the cash basis of accounting? Accrual Basis/Cash Basis a. $4,000 $1,600 b. $4,000 $4,000 c. $1,600 $1,600 d. $2,400 $2,400
a. $4,000 $1,600
Accelerated SolutionsThe following data are from the company's records for the year ended December 31: Accounts receivable--January 1 $ 350,000 Credit sales during the year 1,200,000 Collections from credit customers during the year 850,000 Customer accounts written off as uncollected during the year 10,000 Allowance for doubtful accounts--January 1 35,000 Estimated uncollected accounts based on an aging analysis 50,000 If the aging approach is used to estimate bad debts, find the balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment. a. $50,000 b. $75,000 c. $25,000 d. $15,000
a. $50,000
A company has current assets of $100,000, total assets of $250,000, current liabilities of $20,000, and long-term liabilities of $50,000. How much of its existing cash can the company use to acquire equipment without allowing its current ratio to decline below 2 to 1? a. $60,000 b. $150,000 c. $40,000 d. $180,000
a. $60,000
Which one of the following steps in the accounting cycle is completed only at the end of an accounting period? a. Adjustments are recorded. b. Business transactions are recorded. c. Transactions are journalized. d. Journal entries are posted to the ledger.
a. Adjustments are recorded.
What effect does the purchase of office equipment on credit have on the accounting equation? a. Assets and liabilities increase b. Assets and stockholders' equity decrease c. Assets and liabilities decrease d. Liabilities increase and stockholders' equity decreases
a. Assets and liabilities increase
The following information relates to the company's November bank reconciliation: Bank statement balance $10,700 Unadjusted cash balance from the company's records ? Deposit in transit 2,100 Outstanding checks 1,200 Bank service charges 300 Interest earned on the bank account 100 Customer's NSF check returned by the bank 400 What was the company's unadjusted cash balance on November 30 before the bank reconciliation process was undertaken? a. $11,300 b. $12,200 c. $10,700 d. $11,600
b. $12,200
A-One ConstructionThe following data are from the company's records for the year ended December 31: Accounts Receivable--January 1 $455,000 Credit sales during the year 900,000 Collections from credit customers during the year 825,000 Customer accounts written off as uncollected during the year 15,000 Allowance for Doubtful Accounts (After write-off of uncollected accounts) 2,100 Estimated uncollected accounts based on an aging analysis 29,200 If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts adjustment? a. $31,100 b. $29,200 c. $ 2,100 d. $27,100
b. $29,200
On October 1, the current year, a company paid $9,000 rent in advance. The rent per month is $1,000. Assuming the company's accounting period ends on December 31, the current year, what will be reported on the financial statements? a. Rent Revenue of $6,000 on its current year income statement b. Prepaid Rent of $6,000 on its balance sheet on December 31, the current year c. Rent Expense of $9,000 on its current year income statement d. Prepaid Rent of $9,000 on its balance sheet on December 31, the current year
b. Prepaid Rent of $6,000 on its balance sheet on December 31, the current year
HVAC ServiceThe following transactions occurred during November: Nov. 1 Sent bills to clients for services provided in August in the amount of $12,000. Nov. 9 Purchased office equipment of $4,000 and office supplies of $150 from Office Depot, receiving an invoice for $4,150. None of the office supplies were used during November. Nov. 15 Paid for the office furniture and supplies purchased from Office Depot. Nov. 23 Received a $350 bill from WKRP Radio for advertising. The bill will be paid next month. Nov. 30 Paid salaries of $2,500 to employees. The journal entry to record the purchase of office equipment and supplies includes a credit to a. furniture & supplies. b. accounts payable. c. delivery expense. d. cash.
b. accounts payable.
In the reconciliation of a bank statement, deposits in transit should be a. added to the unadjusted balance per the company's records. b. added to the unadjusted bank statement balance. c. subtracted from the unadjusted balance per the company's records. d. subtracted from the unadjusted bank statement balance.
b. added to the unadjusted bank statement balance.
The process of transferring amounts from the book of original entry into specific account records is referred to as a. journalizing. b. posting. c. classifying. d. analyzing.
b. posting.
Which of the following documents is used as a control measure to check cash receipts? a. cancelled checks b. bank debit memos c. bank deposit slips d. outstanding checks
c. bank deposit slips
While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the bank statement? a. deposits in transit b. bank service charges c. outstanding checks d. interest earned on the bank account
c. outstanding checks
Which one of the following is not a proper method of recognizing assets as expenses in a particular accounting period? a. A building is depreciated and its cost is assigned to the current and future accounting periods in which the building is expected to be used. b. Merchandise inventory is assigned to cost of goods sold in the period the goods are sold. c. Prepaid insurance is assigned to expense as the insurance expires. d. Customers' account balances in accounts receivable are assigned to expense in the period in which each customer pays.
d. Customers' account balances in accounts receivable are assigned to expense in the period in which each customer pays.