Accounting Midterm study guide 1

On June 1, 2016, Savoy Landscaping Services received cash of $1,800 in advance for an agreement to provide service to a client for three months, starting that day. As of June 30, 2016, the company

would have recognized $600 revenue under accrual accounting, and would have recognized $1,800 revenue under cash-basis accounting

Van Le Corporation's end-of-year balance sheet consisted of the following amounts: Cash $ 15,000 Accounts receivable $ 50,000 Property, plant, and equipment 70,000 Long-term debt 40,000 Capital stock 100,000 Accounts payable 20,000 Retained earnings ? Inventory 35,000

$10,000

On August 1, 2016, Kahn Company purchased a one-year comprehensive insurance policy and paid the annual premium of $12,000. Which of the following could not result from the insurance policy?

$12,000 of Insurance Expense on December 31, 2016

Sherman Company correctly counted its ending inventory as $178,000 at year-end on January 31, 2016. Upon review of the records, it was noted that the following items were in transit during the count: A. $2,000 of goods shipped by a supplier to Sherman sent FOB destination on January 31 were received February 5, and were not counted by Sherman. B. $5,000 of goods shipped by a supplier to Sherman sent FOB shipping point on January 30 were received February 2, and were not counted by Sherman. C. $6,000 of goods shipped by Sherman to a customer FOB shipping point on January 31 were received by the customer February 3, and were counted by Sherman. Determine the cost of inventory to be reported on Sherman Company's Balance Sheet on January 31, 2016.

$177,000

Brian Corp. sold merchandise for $3,500 to Michael Company on December 28, 2015, with credit terms 3/10, n30. On December 30, 2015, Michael Company returned $700 of defective merchandise to Brian, and received a credit memorandum for the amount. If Michael Company paid the amount due on January 1, 2016, determine the cash paid by Michael Company to Brian Company.

$2,716

Phillips Company's Multiple Step Income Statement reported the following items (in random order): Net Sales Revenue $67,500 Income from Operations $14,700 Administrative Expenses $27,900 Determine the Cost of Goods Sold.

$24,900

Alayna Company had net income for 2016 of $24,000. It declared and paid a $13,000 cash dividend in 2016. If the company's retained earnings for the end of the year were $39,600, what was the company's retained earnings balance at the beginning of 2016?

$28,600

Dubell Company's Total Assets on January 1, 2016 were $290,000, and on December 31, 2016, were $334,000. Its total liabilities on January 1, 2016 were $105,000, and on December 31, 2016, were $128,000. During the year 2016, sales revenues were $83,000, and cash dividends paid were $10,000, and additional capital investments were $12,000. What were the total expenses for 2016?

$64,000

Nikky Company collected $59,700 from its credit customers during 2016. The company's accounts receivable balance on January 1, 2016 was $35,400, and $42,800 on December 31, 2016. Determine the sales on account reported on the 2016 income statement?

$67,100

Alayna Company recorded the following transactions during the year 2014: 1. On January 1, they sold $8,000 worth of merchandise to a customer on account with the terms 2/10, n/30. 2. On January 5, the customer returned $400 worth of damaged goods, which were thrown away. 3. On January 8, the customer paid for the goods. Based on the transactions, what are the net sales for this period?

$7,448

Celia Company reported the following balances before preparing the trial balance. Accounts Payable $8,000 Dividends 2,000 Revenue 10,000 Cash 5,000 Expenses 1,750 Furniture 12,000 Accounts Receivable 14,000 Capital Stock ??? Notes Payable 6,500 What amount should be shown for Capital Stock on the trial balance?

10,250

Frey Enterprises had the following events during 2016: 1. The business issued $40,000 of common stock to its stockholders. 2. The business purchased land for $24,000 cash. 3. Services were provided to customers for $32,000 cash. 4. Services were provided to customers for $15,000 on account. 5. The company borrowed $4,000 from the bank. 6. Operating expenses of $24,000 were incurred and paid in cash. 7. Salary expense of $6,000 was accrued, but not paid. 8. A dividend of $3,000 was paid to the stockholders of Frey Enterprises. Assuming the company began operations during 2016, the amount of retained earnings on December 31, 2016

14,000

On January 1, 2016, the ledger of Van Le Corp. correctly showed supplies inventory of $1,000. During 2016, supplies purchases amounted to $5,000. A count of supplies on hand at December 31, 2016, showed $1,200. The 2016 income statement should report supplies expense amounting to

4,800.

If retained earnings decreased during the year, and no dividends were paid, which of the following must be true? A. Expenses for the year exceeded revenues B. The company did not have enough cash to pay its expenses C. Total equity decreased D. Liabilities increased during the year

A

If the physical count of inventory revealed $158,000 of inventory on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shrinkage? A. debit Cost of Goods Sold, $5,000; credit Inventory, $5,000 B. debit Inventory, $5,000; credit Cost of Goods Sold, $5,000 C. debit Cost of Goods Sold, $163,000; credit Inventory, $158,000 D. debit Inventory, $158,000; credit Cost of Goods Sold, $158,000

A

If the two totals of a trial balance are not equal, it could be due to A. an error in computing a ledger balance B. recording the same transaction more than once C. failure to record a transaction D. recording the same erroneous amount for both the debit and the credit parts of a transaction

A

Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from Crystal Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The transaction of the $6,000 contribution should be recorded on the accounting records of which of the following entities? A. Karen Meyer's personal records and the American Red Cross B. Karen Meyer's personal records, Crystal Cleaning, and the American Red Cross C. Crystal Cleaning and the American Red Cross D. Karen Meyer's personal records and Crystal Cleaning

A

Making insurance payments in advance is an example of: A. A deferred expense transaction. B. An accrued expense transaction. C. A deferred revenue transaction. D. An accrued revenue transaction.

A

Nikky Company failed to record the following four adjusting entries during 2014. Which one of the following omissions will understate net income? A. Consulting service provided during the last week of the year are not recorded. B. Interest on amounts borrowed has not yet been recorded. C. Prepaid insurance is not reduced for the portion of the policy that has expired during the period. D. Income taxes owed but not yet paid, are ignored.

A

On December 31 of the current year, Jessica Martins Company made an entry debiting Supplies Expense and crediting Supplies for $12,600. The Supplies account had a $15,300 balance on January 1, and a balance of $11,400 on December 31. Only one purchase of supplies was made during the month, on account. The journal entry for that purchase was A. debit Supplies 8,700 and credit Accounts Payable, $8,700. B. debit Supplies Expense, $8,700 and credit Accounts Payable, $8,700. C. debit Supplies $8,700 and credit Cash, $8,700. D. debit Supplies $16,500 and credit Accounts Payable, $16,500.

A

When does accounts receivable balance decrease from the beginning to the end of an accounting period? A. If accrual-basis sales revenues are less than cash collections from customers. B. If accrual-basis net income exceeds cash-basis net income. C. If accrual-basis sales revenues exceed cash collections from customers. D. If accrual-basis net income is less than cash-basis net income.

A

Which of the following accounts follows the same debit and credit rules as unearned revenues? A. Common stock and Retained Earnings B. Supplies and Common Stock C. Notes Payable and Dividends D. Fees Earned and Cost of Goods Sold

A

Which of the following would be included in Simran Monga Company's sales revenue in 2016? A. Goods shipped to customers in 2015 with terms of FOB destination. The customer received the goods in 2016. B. Goods shipped to customers in 2016 with terms of FOB destination. The customer received the goods in 2017. C. Goods shipped from a supplier in 2016 with terms of FOB shipping point. Simran Monga Company received the goods in 2016. D. Goods shipped to customers in 2015 with terms of FOB shipping point. The customer received the goods in 2016.

A

Within the United States, the dominant body in the primary development of generally accepted accounting principles is the A. Financial Accounting Standards Board (FASB) B. Institute of Management Accountants (IMA) C. American Institute of Certified Public Accountants (AICPA) D. American Accounting Association (AAA)

A

A company forgot to record the following four adjusting entries during 2014. Which one of the following omissions will understate net income? A. Prepaid insurance is not reduced for the portion of the policy that has expired during the period. B. Consulting service provided during the last week of the year are not recorded. C. Income taxes owed but not yet paid are ignored. D. Interest on amounts borrowed has not yet been recorded.

B

Abbey Co. sold merchandise to Gomez Co. on account for $35,000, terms 2/15, net 45, with terms of fob destination. The cost of the merchandise sold is $24,500, and Abbey Co. paid $450 for shipping cost. Abbey Co. issued a credit memo for $3,600 for defective merchandise that was returned by Gomez Co. Assuming Gomez Co. paid the invoice within the discount period, determine the amount of gross profit earned by Abbey Co. based on the above transactions. A. $10,290 B. $6,272 C. $6,200 D. $5,822

B

Gabe Company purchased an equipment costing $20,000 by making a down payment of $8,000, and signing a promissory note for the balance. What will be the resulting journal entry? A. Cash is credited for $8,000; Equipment is credited for $20,000; and Notes Payable is debited for $12,000 B. Cash is credited for $8,000; Equipment is debited for $20,000; and Notes Payable is credited for $12,000. C. Cash is debited for $8,000; Equipment is debited for $12,000; and Notes Payable is credited for $20,000. D. Cash is debited for $8,000; Equipment is credited for $12,000; and Notes Payable is debited for $4,000.

B

Janae Company purchased land for $2,000,000 in 1999. In 2016, an independent appraiser assessed the value at $4,400,000. Which accounting assumption/principle determines the amount that should appear on the financial statements in 2016 with respect to the land? A. Monetary Unit B. Historical Cost C. Going Concern D. Business Entity

B

The _____ is the government agency that enforces the securities laws of the U.S., including those that apply to financial reporting. A. Financial Accounting Standards Board (FASB) B. Securities and Exchange Commission (SEC) C. International Accounting Standards Board (IASB) D. Government Accountability Office (GAO

B

The manager of a retail store purchased several cash registers for the business on June 10, but at the end of the year does not remember whether he paid cash for the full price of the registers or recorded a liability to the vendor. Where is the best place for the manager to get information about this transaction? A. A trial balance prepared at the end of June. B. The general journal. C. A balance sheet prepared at the end of June. D. The ledger account for equipment.

B

Which is the correct sequence of the following steps in the accounting cycle? A. Prepare journal entries, analyze transactions, prepare adjusted trial balance. B. Post adjusting journal entries, prepare adjusted trial balance, prepare financial statements. C. Prepare adjusted trial balance, post adjusting entries, and prepare financial statements. D. Prepare adjusting entries, prepare financial statements, prepare adjusted trial balance.

B

Which two statements report changes in financial conditions over a period of time, similar to a motion picture? A. balance sheet and income statement B. income statement and statement of cash flows C. balance sheet and statement of cash flows D. balance sheet and statement of stockholders' equity

B

At the end of the fiscal year, the usual adjusting entry to record expired insurance was not made. As a result, which of the following statements is true? A. stockholders' equity at the end of the year will be understated. B. net income for the year will be overstated. C. total assets at the end of the year will be understated. D. insurance expense will be overstated

B.

The balance in the Accumulated Depreciation account on the adjusted trial balance: A. is generally equal to the balance on the unadjusted trial balance. B. is generally greater than the balance on the unadjusted trial balance. C. is generally less than the balance on the unadjusted trial balance. D. has no relationship to the balance on the unadjusted trial balance.

B.

Which of the following is not a characteristic of the accrual basis of accounting? A. revenues are reported on the income statement in the period in which they are earned B. revenues and expenses are reported in the period in which cash is received or paid C. accrual basis of accounting supports the matching concept D. expenses are reported in the same period as the revenues to which they relate

B.

Best Purchase Company sold a tablet computer to a customer in Maryland, and collected a 6% sales tax. The journal entry debited Accounts Receivable for $636. What must be included in the same journal entry? A. Credit Sales Revenue for $636 B. Credit Sales Tax Payable for $38.16 C. Credit Sales Tax Payable for $36 D. Credit Sales Revenue for $564

C

Failure to make an adjusting entry to recognize wages accrued for employees would cause an A. understatement of expenses, liabilities and stockholders' equity. B. overstatement of expenses and liabilities. C. understatement of liabilities and an overstatement of stockholders' equity. D. understatement of assets and stockholders' equity

C

Jonathan Chang Company reported total assets of $20,000 (including cash of $9,000), total liabilities of $8,000, common stock of $7,000, and retained earnings of $5,000. Based on this information, what can be concluded? A. $5,000 is the maximum dividend that can be paid to shareholders. B. 40% of the company's assets are the result of borrowing from creditors. C. 25% of the company's assets are the result of prior earnings. D. 60% of the company's assets were contributed by stockholders.

C

On February 24, 2017, Menaza Company purchased inventory for $10,000 with terms 2/10, n/30. On February 28, 2017, it returned $2,000 of the inventory purchased to the supplier (not defective) and also received an allowance for defective inventory of $500. On March 1, 2017, Menaza Company paid the amount due. Determine the amount of the cash paid by Menaza Company. A. $7,310 B. $7,340 C. $7,350 D. $8,000

C

On November 1, 2016, Bradley Patrick Company borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2016? A. $ 225,000. B. $ 112,500. C. $ 450,000. D. $1,350,000.

C

Sara Company pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The last payday of December is Friday, December 27. Assume the next pay period begins on Monday, December 30, and the proper adjusting entry is journalized at the end of the fiscal period (December 31). The entry for the payment of the payroll on Friday, January 10, will include a A. credit to Salaries Payable of $16,000 B. credit to Salaries Payable of $4,000 C. debit to Salary Expense of $16,000 D. debit to Salary Expense of $4,000

C

Sara Company received a bill for phone services for the month of February to be paid in the month of March. How does receiving the bill affect the accounting equation for February? A. assets decrease; stockholders' equity decreases B. assets increase; liabilities increase C. liabilities increase; stockholders' equity decrease D. liabilities increase; stockholders' equity increases

C

The ending balance of the retained earnings account appears in A. both the retained earnings statement and the income statement B. only the retained earnings statement C. both the retained earnings statement and the balance sheet D. both the retained earnings statement and the statement of cash flows

C

What is the effect on the financial statements when a company fails to record depreciation expense at year-end? A. Net income is overstated and stockholders' equity is understated. B. Expenses are understated and stockholders' equity is understated. C. Net income is overstated and assets are overstated. D. Expenses are understated and liabilities are overstated.

C

Which of the following statements is inaccurate with respect to the asset turnover ratio? A. A high ratio indicates efficient management of assets. B. The ratio is decreased when additional plant and equipment is purchased. C. The ratio is calculated as sales revenues divided by total assets at year-end. D. The ratio is decreased when additional inventory is purchased

C

Which of the following is the correct date format for the financial statement heading? A. Balance sheet for the year ended June 30, 2016 B. Income statement at December 31, 2016 C. Balance sheet at December 31, 2016 D. Statement of retained earnings at December 31, 2016

C.

Celia Company uses the perpetual inventory system, and purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in. The company then sold the whole lot to a supermarket chain for $12,000 on account. Which of the following will NOT be included in the journal entry to record the sale?

Credit Merchandise Inventory for $7,000

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry? A. increases the balance of an asset account B. decreases the balance of an stockholders' equity account C. increases the balance of a contra asset account D. increases the balance of an expense account

D

If total liabilities decreased by $46,000 during a period of time and stockholders' equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a A. $106,000 decrease B. $106,000 increase C. $14,000 decrease D. $14,000 increase

D

Jessica Martins Company paid $30,000 cash to its landlord on November 1, 2016 for rent covering the six-month period from November 1, 2016 through April 30, 2017. Which of the following does NOT correctly describe the effect on the company's financial statements of the December 31, 2016 adjusting entry? A. Net income decreases $10,000. B. Prepaid rent decreases $10,000. C. Rent expense increases $10,000. D. Stockholders' equity increases $10,000.

D

Randomly listed below are the steps for preparing an unadjusted trial balance: (1) Verify that the total of the Debit column equals the total of the Credit column. (2) List the accounts from the ledgers and enter their debit or credit balances in the Debit or Credit columns of the trial balance. (3) List the name of the company, the title of the trial balance, and the date the trial balance is prepared. (4) Total the Debit and Credit columns of the trial balance. What is the proper order of these steps? A. (2), (3), (4), (1) B. (4), (3), (2), (1) C. (3), (2), (1), (4) D. (3), (2), (4), (1)

D

The transactions carried out by Christina O'Connell Corporation during the year caused an increase in total assets of $25,000 and a decrease in total liabilities of $10,000. If an additional investment of $12,000 was made by the investors during the year and dividends of $7,000 were paid, what was the net income for the year? A. $53,000 B. $42,000 C. $21,000 D. $30,000

D

Which of the following statements is incorrect? A. Stockholders' equity accounts normally have credit balances. B. Asset accounts are increased by debits. C. Stockholders' equity accounts are increased by credits D. Liability accounts are decreased by credits.

D

On August 1, 2016, Scrub and Clean Company signed a 9-month contract to provide janitorial services for a customer. The contract price of $14,850 was collected on the date the contract was signed. The services will be provided evenly over the next 9 months, starting on August 1. The adjusting entry on December 31, 2016 will:

Debit Unearned Revenue for $8,250

The natural progression in the preparation of financial statements is best represented by the following order:

Income statement > statement of retained earnings > balance sheet and statement of cash flows

In a perpetual inventory system, paying transportation charges on goods purchased FOB shipping point would have which of the following effects?

Increase Inventory