ACCT 2001 Final Review

Monte Vista uses the perpetual inventory system. At the beginning of the quarter, Monte Vista has $35,000 in inventory. During the quarter the company purchases $8,650 of new inventory from a vendor, returned $1200 of inventory to the vendor, and took advantage of discounts from the vendor of $250. At the end of the quarter the balance in inventory is $29,000. What is the cost of goods sold? a) $14,650 b) $13,200 c) $6,000 d) $15,150 e) None of the above

b) $13,200 Response Feedback: Net purchases = purchases - purchase returns - purchase discounts = $8,650 - $1,200 - $250 = $7,200 Cost of goods sold = beginning inventory + net purchases - ending inventory = $35,000 + $7,200 - $29,000 = $13,200

Cash equivalents are short-term, highly investments purchases within one year of maturity. - True - False

False Response Feedback: Cash equivalents are highly liquid investments purchased within three months of maturity

In Year 2, the Denim Company bought an acre of land that cost $15,900. In Year 5, another company purchased a nearby acre of land for $28,900 and a different company purchased another nearby acre of land for $26,900. As a result, an appraiser estimated that the acre owned by Denim had increased in value to $27,900. If Denim prepares a balance sheet at the end of Year 5, the acre of land that it owns should be reported at: a) $15,900 b) $28,900 c) $26,900 d) The average of all of the amounts e) None of the above

a) $15,900 Response Feedback: Following the cost principle, assets and liabilities are first recorded at cost, which is their cash-equivalent value on the date of the transaction. Later, if an asset's value increases, the increase is generally not recorded under GAAP. Denim's balance sheet should report its land at the original cost of $15,900

A company was formed with $60,600 cash contributed by its owners in exchange for common stock. The company borrowed $30,600 from a bank. The company purchased $10,600 of inventory and paid cash for it. The company also purchased $70,600 of equipment by paying $10,000 in cash and issuing a note for the remainder. What is the amount of the total assets to be reported on the balance sheet? a) $151,800 b) $91,200 c) $80,600 d) $161,800 e) None of the above

a) $151,800 Response Feedback: Cash from owners of $60,600 + Cash from borrowing of $30,600 + Inventory purchased for $10,600 - Cash paid for inventory of $10,600 + Equipment purchased for $70,600 - cash paid for equipment of $10,000 = $151,800

On December 31, 2021, a company had assets of $16 billion and stockholders' equity of $13 billion. That same company had assets of $20 billion and stockholders' equity of $14 billion as of December 31, 2022. During 2022, the company reported total sales revenue of $16 billion and total expense of $14 billion. What is the company's debt-to-assets ratio on December 31, 2022? a) 0.30 b) 0.20 c) 0.07 d) 0.04 e) none of the above

a) 0.30 Respond Feedback: Liabilities = Assets - Stockholders' Equity =$20 billion - $14 billion = $6 billion Debt-to-assets ratio = total liabilities / total assets = $6 billion / $20 billion = 0.30

Blue Fin started the current year with assets of $718,000, liabilities of $359,000 and common stock of $218,000. During the current year, assets increased by $418,000, liabilities decreased by $59,000 and common stock increased by $293,000. There was no payment of dividends to owners during the year. What was the amount of Blue Fin's net income for the year? a) $184,000 b) $234,000 c) $477,000 d) $293,000 e) None of the above

a) $184,000 Response Feedback: Change in Assets= Change in Liabilities + Change in Stockholders' Equity Change in Stockholders' Equity = Change in Assets - Change in Liabilities = $418,000 - ($59,000) = $418,000 + $59,000 = $477,000 Change in Stockholders' Equity = Change in Common Stock + Change in Retained Earnings Change in Retained Earnings = Change in Stockholders' Equity - Change in Common Stock = $477,000 - $293,000 = $184,000 Change in Retained Earnings = Net income - Dividends Net income = Change in retained earnings - dividends = $184,000 - $0 = $184,000

Cortez Company updates its inventory records perpetually. The company's records showed a beginning inventory of $9,000, cost of goods sold of $17,000, and ending inventory of $11,000. How much inventory was purchased during the year? a) $19,000 b) $15,000 c) $13,000 d) $10,500 e) None of the above

a) $19,000 Response Feedback: Ending inventory = beginning inventory + Purchases - Cost of Goods Sold Purchases = Ending inventory + Cost of goods sold - beginning inventory = $11,000 + $17,000 - $9,000 = $19,000

Delta Diamonds uses a periodic inventory system. The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $450, two were purchased on July 9 for $550 each, and two were purchased on September 23 for $600 each. On December 24, it sold one of the diamonds that was purchased on July 9. Using the specific identification method, its ending inventory (after the December 24 sale) equals: a) $2,200 b) $2,300 c) $1,550 d) $550 e) None of the above

a) $2,200 Response Feedback: Ending inventory = Cost of one purchased June 1 + Cost of one purchased July 9 + Cost of two purchased September 23 = ($450 x 1) + ($550 x 1) + ($600 x 2) = $2,200

A machine is purchased on January 1, 2021, for $126,000. It is expected to have a useful life of eight years and a residual value of $23,000. The company closes its books on December 31. Under the double-declining balance method, what is the total amount of depreciation to be expensed during the year 2022? a) $23,625 b) $69,000 c) $31.500 d) $94,500 e) none of the above

a) $23,625 Response Feedback: Depreciation expense = Book value × (2 + Useful life) Depreciation expense = (Cost - Accumulated depreciation) × (2 + Useful life) 2021: = ($126,000 - $0) × 2 / 8 = $31,500 2022: = ($126,000 - $31,500) × 2 / 8 = $23,625 Book value at end of 2022 = $126,000 - ($31,500 + $23,625) = $70,875 The book value at the end of 2022 is greater than the residual value of $23,000. As such, the amount calculated above is the amount of depreciation that can be taken.

Creek Company uses the percentage of credit sales method in determining its bad debt expense. The following information comes from the accounting records of Creek Company: Cash sales $210,000 Credit sales $790,000 Total sales $1,000,000 Credit balance in the Allowance for Doubtful Accounts $3,500 Bad debt loss rate 3% What is the estimated bad debt expense? a) $23,700 b) $26,500 c) $27,200 d) $30,000 e) None of the above

a) $23,700 Response Feedback: Bad debt expense = credit sales x bad debt loss rate = $790,000 x 0.03 = $23,700

Character Company, which uses the perpetual inventory method, purchases different letters for resale. Character had a beginning inventory comprised of six units at $6 per unit. The company purchased three units at $8 per unit in February, sold seven units in October, and purchased three units at $9 per unit in December. If Character Company uses the LIFO method, what is the cost of goods sold for the year? a) $48 b) $39 c) $57 d) $87 e) None of the above

a) $48 Response Feedback: LIFO - Perpetual Beginning inventory 6 units x $6 = $36 February Purchase 3 units x $8 = $24 Goods Available for sale 9 units = $60 Costs of Goods Sold (3 units x $8) + (4 units x $6) = $48 Goods Available for Sale 2 units December Purchase 3 units x $9 = $27 Ending Inventory (2 units x $6) + (3 units x $9) = $39

Lenore, Incorporated gathered the following information from its accounting records and the October bank statements to prepare the October bank reconciliation: Ending cash balance per books, 10/31 $4,300 Deposits in transit $310 Interest received from bank $1,250 Bank service charge for check printing $110 Outstanding checks $2,800 NSF check of T. Owens $215 The up-to-date ending cash balance on October 31 is: a) $5,225 b) $5,010 c) $3,725 d) $3,215 e) None of the above

a) $5,225 Response Feedback: The ending cash balance per books does not reflect the interest received from the bank, the bank service charge, or the NSF check that would be included in the October bank statement. As such, the up-to-date ending cash balance on October 31 is computed as follows: Up-to-date ending cash balance = ending cash balance per books + interest received from the bank - bank service charge - NSF check of T. Owens = $4,300 + $1,250 - $110 - $215 = $5,225 The outstanding checks and deposits in transit would be adjusted on the bank side of the reconciliation and not affect the company cash balance

Deferred Revenue, which represents the company's obligation to honor gift cards previously issued to customers, totaled $7,500 at the beginning of the year and $11,500 at the end of the year. Customers purchased gift cards amounting to $62,000 during the year. What was the amount of gift cards redeemed by customers during the year? a) $58,000 b) $66,000 c) $81,000 d) $43,000 e) None of the above

a) $58,000 Response Feedback: Ending Deferred Revenue = Beginning Deferred Revenue + Gift cards sold - Gift cards redeemed Gift cards redeemed = Beginning deferred revenue + gift cards sold - ending deferred revenue = $7,500 + $62,000 - $11,500 = $58,000

A company's balance sheet contained the following information: Common Stock $12,200 Accounts Payable $64,200 Total Assets $178,000 Retained Earnings $28,200 Notes Payable is the only other item on the balance sheet. Notes Payable must equal: a) $73,400 b) $11,500 c) $9,200 d) $75,300 e) None of the above

a) $73,400 Response Feedback: Total asset = total liabilities + total stockholders' equity $178,000 = ($64,200 + Notes Payable) + ($12,200 + $28,200) Notes Payable = $178,000 - $64,200 - $12,200 - $28,200 = $73,400

Cash had a beginning balance of $70,800. During the month, Cash was credited for $16,190 and debited for $18,890. At the end of the month, the balance is: a) $73,500 debit b) $73,500 credit c) $2,700 credit d) $2,700 debit e) none of the above

a) $73,500 debit Response feedback: Cash, an asset account, has a normal debit balance Beginning debit balance of $70,800 + debit of $18,890 - credit of $16,190 = ending debit balance of $73,500

The Perry Company reported Accounts Receivable, Net of $65,000 at the beginning of the year and $73,100 at the end of the year. If the company's net sales revenue during the fourth year was $886,000, what are the days to collect during the year? a) 28.6 b) 12.1 c) 8.3 d) 30.1 e) None of the above

a) 28.6 Response Feedback: Receivables turnover ratio = net sales / average net accounts receivable = $886,000 / [($65,600 + $73,100) / 2] = 12.8 times Days to collect = 365 / Receivables turnover ratio = 365 / 12.8 = 28.6

On January 1, Melrose Manufacturing issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond was $10,986. Using the effective-interest method of amortization, the interest expense for the first year ended December 31 would be: a) $549.30. b) $769.02. c) $700.00. d) $500.00. e) None of the above.

a) 549.30 Response Feedback: Interest expense = carrying value of bonds x market interest rate = $10,986 x 0.05 = $549.30

On January 1, the Sleepy Monk Coffee Shop paid $24,000 for a full year of rent beginning on January 1. The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts. If financial statements are prepared on January 31, the journal entry to record the adjustment would be: a) Debit Rent Expense and credit Prepaid Rent for $2,000 b) Debit Rent Expense and credit Prepaid Rent for $24,000 c) Debit Prepaid Rent and credit Rent Expense for $24,000 d) Debit Prepaid Rent and credit Rent Expense for $2,000 e) None of the above

a) Debit Rent Expense and credit Prepaid Rent for $2,000 Response Feedback: When the company first made the payment, it provided an economic resource to the company (building space for twelve months), so it was initially recorded as an asset called Prepaid Rent. At January 31, one month has passed. The adjusting entry will include a debit to Rent Expense (to increase this expense account) and a credit to Prepaid Rent (to decrease the asset account) for $2,000 [or {$24,000/12 months) x 1 month]

A company started the year with $11,250 of supplies on hand. During the year the company purchased additional supplies of $6,000 and recorded them as an increase to the Supplies asset. At the end of the year the company determined that only $2,250 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period? a) Debit Supplies Expense and Credit Supplies $15,000 b) Debit Supplies and Credit Supplies Expense for $7,500 c) Debit Supplies and Credit Supplies Expense for $2,250 d) Debit Supplies Expense and Credit Supplies for $9,000 e) None of the above

a) Debit Supplies Expense and Credit Supplies for $15,000 Response Feedback: Supplies expense (used) = beginning balance + Supplies purchased - Supplies on hand at end of period = $11,250 + $6,000 - $2,250 = $15,000 The adjusting journal entry to record the use of supplies would include a debit to Supplies Expense and a credit to Supplies for $15,000, which is the amount of supplies used during the period.

On June 4, Marie Company had cash sales rung up by cashiers totaling $121,000. Cash in the drawer was counted and found to be $127,000. The journal entry to record the sales for June 4, would include: a) a credit to Cash Overage for $6,000 b) a credit to Sales Revenue for $127,000 c) a debit to cash for $121,000 d) a debit to sales revenue for $121,000 e) None of the above

a) a credit to cash overage for $6,000 Response Feedback: Debit cash for $127,000 Credit Sales Revenue for $121,000 Credit Cash Overage for $6,000

A strong system of internal ______ reduces the ______ to commit fraud. a) controls; opportunity b) audits; rationalization c) financial statements; opportunity d) loan covenants; incentive e) None of the above

a) controls; opportunity

People or organizations to whom a business owes money are considered: a) creditors of a business b) owners of a business c) customers of a business d) stockholders of a business e) some other relation

a) creditors of a business Response feedback: creditors include suppliers, banks, and anyone to whom money is owed

A company should depreciate a long-lived tangible asset to: a) match part of the cost of the asset with the revenues generated by the asset. b) record the decrease in the market value of the asset as it gets older. c) report less income and pay less income tax. d) decrease the total value of its assets, so that it can justify buying new ones. e) none of the above.

a) match part of the cost of the asset with the revenues generated by the asset. Response Feedback: Depreciation is the allocation of existing costs that were already recorded as a long-lived asset. Think of the cost of a long-lived asset as a big prepayment for future benefits. As that asset is used, those predaid benefits are used u. so the asset needs to be decreased each period. This decrease in the asset creates an expense, which is reported on the income statement and matched against the revenue generated by the asset, as required by GAAP.

The days-to-collect measures: a) the number of days it takes to collect accounts receivable b) the average number of times the firm completes the selling and collecting cycle during the year c) the average number of days for a customer's payment to clear the banking system d) the average number of days before the company receives a customer's payment and uses the cash to re-order merchandise e) None of the above

a) the number of days it takes to collect accounts receivable

McKeel Publishing had outstanding checks totaling $5,480 on its June bank reconciliation. In July, McKeel issued checks totaling $39,700. The July bank statement shows that $27,500 in checks cleared the bank in July. The amount of outstanding checks on McKeel's July bank reconciliation should be: a) $6,720 b) $17,680 c) $12,200 d) $5,480 e) None of the above

b) $17,680 Response Feedback: Remaining outstanding checks = outstanding checks + additional checks issued - checks cleared = $5,480 + $39,700 - $27,500 = $17,680

Puffin Company began the year with assets of $117,000 and liabilities of $83,500. During the year assets increased by $15,400 and liabilities decreased by $10,700. What is the amount of the change in Puffin's stockholders' equity during the year? a) $4,700 increase b) $26,100 increase c) $4,700 decrease d) $26,100 decrease e) None of the above

b) $26,100 increase Response Feedback: beginning of year: Change in Assets = Change in Liabilities + Change in Stockholders' Equity Change in Stockholders' Equity = Change in Assets - Change in Liabilities = $15,400 - ($10,700) = $15,400 + $10,700 = $26,100

The annual depreciation taken on a vehicle totals $4,000. The vehicle has been in service for three full years and the adjusting entries have been completed for the year. At the end of the third year, the balance in the Depreciation Expense account is $_____________ and the balance in the Accumulated Depreciation account is $____________ a) $4,000; $4,000 b) $4,000; $12,000 c) $12,000; $4,000 d) $12,000; $12,000 e) None of the above

b) $4,000; $12,000 Response Feedback: Accumulated Depreciation is a balance sheet account and Depreciation Expense is an income statement account. As a balance sheet account, Accumulated Depreciation will increase over time as it accumulates the depreciation of each period since the asset was purchased. At the end of the third year, that account balance will equal $12,000 (or $4,000 x 3 years). As an income statement account, Depreciation Expense will include only the depreciation of the current accounting year, which is $4,000

Wool Company makes a sale and collects a total of $567.10, which includes an 7% sales tax. What is the amount that will be credited to the Sales Revenue account? a) $528.00 b) $530.00 c) $567.10 d) $606.80 e) none of the above

b) $530.00 Response Feedack: Sales Tax = Sales revenue x sales tax rate sales revenue = sales tax/sales tax rate = $567.10 / 1.07 = $530.00

On July 1, 2021, Empire Incorporated lends $9,000 to a customer and receives a 12% note due in two year. Interest is due in full on July 1, 2023, the due date of the note. What is the amount of Interest Revenue that will be reported on Empire's income statement for the year ended December 31, 2021? a) $1,080 b) $540 c) $630 d) $2,160 e) None of the above

b) $540 Response Feedback: Interest = Principal x Interest Rate x Time = $9,000 x 0.12 x 6/12 (July 1 - Dec 31) = $540

Eagle Company reported Salaries and Wages Payable of $790 at the beginning of the year and $2,580 at the end of the year. The income statement for the year reported Salaries and Wages Expense of $57,000. How much cash was paid for salaries and wages during the year? a) $54,420 b) $55,210 c) $57,000 d) $53,630 e) None of the above

b) $55,210 Response Feedback: Ending Salaries and Wages Payable = Beginning Salaries and Wages Payable + Salaries and Wages Expense during the year - Salaries and wages paid during the year Salaries and wages paid during the year = Beginning Salaries and Wages Payable + Salaries and Wages Expense during the year - Ending Salaries and Wages Payable = $790 + $57,000 - $2,580 = $55,210

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. Accounts Payable 16,000 Accounts Receivable 28,000 Inventory 23,400 Advertising Expense 20,500 Cost of Goods Sold 157,000 Delivery Expense 7,700 Income Tax Expense 2,000 Insurance Expense 1,000 Rent Expense 18,800 Sales Revenue 330,000 Sales Discounts 9,300 Sales Returns and Allowances 44,500 Income from Operations would be: a) $72,200 b) $71,200 c) $62,950 d) $73,200 e) None of the above

b) $71,200 Response Feedback: Net sales = Sales revenue - sales discounts - sales returns and allowances = $330,000 - $9,300 - $44,500 = $276,200 Income from operations = Net sales - cost of goods sold - selling, general, and administrative expenses = $276,200 - $157,000 - ($20,500 + $7,700 + $1,000 + $18,800) = $71,200

The net income for Year 1 (the first year of operations for the company) was $21,700 and dividends of $12,850 were paid. In Year 2, the company reported net income of $35,700 and paid dividends of $5,850. At the end of Year 1, the company had total assets of $167,000. At the end of Year 2, the company has total assets of $257,000 What was the amount of retained earnings at the end of Year 1? a) $21,700 b) $8,850 c) $19,500 d) $18,100 e) None of the above

b) $8,850 Response feedback: Ending retained earnings = Beginning retained earnings + net income - dividends = $0 + $21,700 - $12,850 = $8,850

Sparks Furniture Company carries three lines of sofas. Information about the sofa inventory as of the end of its most recent fiscal year follows. If LCM/NRV is applied to each separate product line, what is the amount of the adjustment that must be made to the company's inventory? Product Line Rustic: $800 (cost per unit); $925 (market value per unit); 390 (quantity) Mediterranean: $700; $805; 500 Contemporary: $1,130; $650; 375 a) $101,250 b) ($180,000) c) ($30,000) d) ($78,750) e) None of the above

b) ($180,000) Response Feedback: The LCM/NRV write-down is calculated as follows: Rustic - Cost per Unit: $800 - Market Value per Unit: $925 - Quantity: 390 - Total Cost (a): $312,000 - Total LCM (b): $312,000 Mediterranean - Cost per Unit: $700 - Market Value per Unit: $805 - Quantity: 500 - Total Cost (a): $350,000 - Total LCM (b): $350,000 Contemporary - Cost per Unit: $1,130 - Market Value per Unit: $650 - Quantity: 375 - Total Cost (a): $423,750 - Total LCM (b): $243,750 - Write-down (a) - (b): $180,000 [423,750 - 243,750]

Your company has net sales revenue of $55 million during the year. At the beginning of the year, fixed assets are $27 million. At the end of the year, fixed assets are $29 million. What is the fixed asset turnover ratio? a) 2.04 b) 1.96 c) 0.98 d) 1.90 e) none of the above

b) 1.96 Response Feedback: Average Net Fixed Assets = (Prior EB Fixed Assets + Current EB fixed Assets) + 2 S28,000,000 = (27,000,000 + $29,000,000) + 2 Fixed Asset Turnover Ratio = Net Sales Revenue + Average Net Fixed Assets 1.96 = $55,000,000 ÷ $28,000,000

Which of the following is a set of regulations passed by Congress in 2022 in an attempt to improve financial reporting and restore investor confidence? a) Enron Act b) Federal Accounting Standards Board Act c) Sarbanes- Oxley Act d) Securities and Exchange Act e) None of the above

c) Sarbanes- Oxley Act

Certain aspects of the financial statements may have different relevance to investors and creditors. Which of the following types of information are each of these two parties MOST concerned with? a) Investors: Cash flows from investing activities; Creditors: Dividends b) Investors: Dividends; Creditors: Sufficient cash to make loan payments c) Investors: Sufficient cash to make loan payments; Creditors: Stock prices d) Investors: Sufficient cash to make loan payments; Creditors: Cash flows from investing activities e) None of these

b) Investors: Dividends; Creditors: Sufficient cash to make loan payments

If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period? a) Net income will be too low b) Net income will be too high c) Net income will never be affected by this error because assets are reported on the balance sheet d) Net income will not be affected by this error in the current period but will be too low in a later period e) None of the above

b) Net income will be too high Response Feedback: Because the company recorded an asset instead of an expense, it understated the expenses and, as a result, overstated the net income

A decrease in operating expenses would have which of the following effects on a company's profit margin? a) Net profit margin would decrease b) Net profit margin would increase c) Net profit margin would remain unchanged d) There is not enough information given to determine the effect e) None of the above

b) Net profit margin would increase Response Feedback: Net profit margin = Net Income/revenues A decrease in operating expenses would increase net income. An increase in the numerator of this formula would increase the net profit margin

Boston Enterprises declared and paid a dividend of $11,000 this year. The entry to close the Dividend at the end of the year will include a debit to: a) Dividends and a credit to Cash for $11,000 b) Retained Earnings and a credit to Dividends for $11,000 c) Dividends and a credit to Retained Earnings for $11,000 d) Dividends and a credit to Dividends Payable for $11,000 e) None of the above

b) Retained Earnings and a credit to Dividends for $11,000

How will a company's current ratio be affected when the company receives $20,000 from owners and issues common stock to them? a) The current ratio will increase because current liabilities decrease b) The current ratio will increase because current assets increase c) The current ratio will decrease because current liabilities increase d) There will be no change in the company's current ratio e) None of the above represent how a company's current ratio will be affected

b) The current ratio will increase because current assets increase Response feedback: The transaction will increase Cash, a current assets, and increase Common Stock, a stockholders' equity account. The current ratio is computed by dividing current assets by current liabilities. Since the numerator will increase, the current ratio will increase

Reporting revenues when they are earned and expenses when they are incurred is called __________ basis accounting a) cash b) accrual c) cost d) expense recognition e) other

b) accrual

How do deferral adjustments for prepaid expenses - such as rent - that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement? a) Deferral adjustments. decrease assets and decrease expenses b) Deferral adjustments decrease assets and increase expenses c) Deferral adjustments increase assets and increase expenses d) Deferral adjustments increase assets and decrease expense

b) deferral adjustments decrease assets and increase expenses

An asset is purchased on January 1 for $45,200. It is expected to have a useful life of four years after which it will have an expected residual value of $6, 100. The company uses the straight-line method. If it is sold for $32,200 exactly two years after it is purchased, the company will record a: a) gain of $6,450. b) gain of $6,550. c) loss of $6.550 d) loss of $6,450 e) none of the above

b) gain of $6,550 Response Feedback: Annual depreciation expense = (Cost - Residual value) × (1 + Useful life) = ($45,200 - $6,100) × (1 + 4) = $9,775 Accumulated depreciation = Year 1 depreciation expense + Year 2 depreciation expense = $9.775 ÷ $9.775 = $19,550 Gain (loss) on disposal = Proceeds from sale - Book value at time of sale Gain (loss) on disposal = Proceeds from sale - (Cost - Accumulated Depreciation at time of sale) = $32.200 - ($45,200 - $19,550) = $6,550

Under the periodic inventory system: a) inventory records are updated immediately after each purchase b) inventory must be counted at the end of each accounting period c) inventory does not have to be counted (it can be taken from the accounting records) d) inventory levels must be counted every day e) None of the above

b) inventory must be counted at the end of each accounting period Response Feedback: They do this in order to adjust the balance in the inventory account and to determine cost of goods sold

Carrying insufficient quantities of inventory on hand: a) would not affect the company's profitability b) may result in lost sales c) has little effect on customer satisfaction d) will increase the costs of carrying inventory e) None of the above

b) may result in lost sales

Sparkling Pools performed $2,400 of pool maintenance services during July; the customers had paid in advance for these services in June. The company performed $1,500 of pool maintenance services during July and collected payment from those customers in August. Also, during July, the company accepted an order to perform $750 of pool maintenance services in August; the customers will pay for these services in August. The company uses accrual basis accounting. The Service Revenue account should be credited for: a) $2,400 in June, $0 in July, and $2,250 in August b) $2,400 in June, $1,500 in July, and $750 in August c) $0 in June, $3,900 in July, and $750 in August d) $0 in June, $2,400 in July, and $2,250 in August e) None of the above

c) $0 in June, $3,900 in July, and $750 in August Response Feedback: The requirement under accrual basis accounting is to record revenues when the performance obligation is satisfied. This means the company has done what it promised to do. No services were performed during June and, as a result, no revenue is recorded in that month. Services totaling $3,900 or ($1,500 + $2,400) would be credited to the Service Revenue account in July and $750 would be credited to the Service Revenue account in August.

Parker, Inc. had a beginning balance in its Retained Earnings account of $385,950. During the year, the company declared and paid a $4,770 dividend and, at the end of the year, it reported Retained Earnings of $400,560. The company's net income for the year was: a) $9,840 b) $0 c) $19,380 d) $14,610 e) None of the above

c) $19,380 Response Feedback: Ending retained earnings = beginning retained earnings + Net income - Dividends Net income = ending retained earnings + dividends - beginning retained earnings = $400,560 + $4,770 - $385,950 = $19,380

The Laurel Corporation starts the year with a beginning inventory of 370 units at $12 per unit. The company purchases 535 units at $18 each in February and at $13 each in October. Laurel sells 185 units during the year. Laurel uses a periodic inventory system and the FIFO inventory costing method. What is the amount of cost of goods sold ? a) $3,330 b) $2,439 c) $2,220 d) $2,405 e) None of the above

c) $2,220 Response Feedback: First-In, First-Out (FIFO) assumes that the costs of the first goods purchased are the costs of the first goods sold. As such, since 370 units were in the beginning inventory and the company sold 185 units during the period we use the $12 per unit cost of the beginning inventory units to calculate cost of goods sold. Cost of goods sold = 185 units x $12 = $2,220

Because interest rates have fallen, a company retires bonds which had been issued at their face value of $320,000. The company bought the bonds back at 96.50. The journal entry to record this retirement includes a debit of: a) $320,000 to Bonds Payable, a credit of $11,200 to Gain on Bond Retirement, and a credit of $308,800 to Cash. b) $320,000 to Bonds Payable, a credit of $11,200 to Interest Expense, and a credit of $308,800 to Cash. c) $308,800 to Bonds Payable, a debit to Gain on Bond Retirement of $11,200 and a credit of $320,000 to Cash. d) $308,800 to Bonds Payable and a credit of $308,800 to Cash. None of the above. e) none of the above

c) $308,800 to Bonds Payable, a debit to Gain on Bond Retirement of $11,200 and a credit of $320,000 to Cash. Response Feedback: Since the bonds were issued at face value, there was no premium or discount. Since the cash paid of $308,800 (or face value of $320,000 × call price of 0.9650) is less than the carrying value of the bonds of $320,000 (face value), there is a gain of $11,200 (or $320,000 - $308,800). The journal entry to record this retirement includes a debit to Bonds Payable for $320,000 (the face value), a credit to Gain on Bond Retirement of $11,200, and a credit of $308,800 to Cash of $308,800.

Your company rents computers to local businesses and schools. You have 1,800 computers with a book value of $165,000. As a result of changing technology, your computers are more difficult to rent so you must drastically reduce your rental price, which causes a decrease in estimated future cash flows. The fair value of the computers is estimated to be $130,000 because of their outdated technology. Your company should report an asset impairment loss of: a) $165,000 b) $130,000 c) $35,000 d) $0 e) None of the above

c) $35,000 Response Feedback: Impairment Loss = Book Value - Fair Value = $165,000 - $130,000 = $35,000

If the company's accountant mistakenly recorded an $123 deposit as $77, the error would be shown on the bank reconciliation as a(n): a) $46 deduction from the book balance b) $123 deduction from the book balance c) $46 addition to the book balance d) $123 additions to the book balance e) None of the above

c) $46 addition to the book balance Response Feedback: The book balance is adjusted since the company did not know about this item until the bank reconciliation was prepared and it was a company (book) error. Think about how the item was recorded and how it should have been recorded. Recorded as deposit (check) $77 Adjustment needed $46 Actual amount of deposit (check) $123

On June 15, Oakley Inc. sells inventory on account to Sunglass Hut (SH) for $8,500, terms 1/10, n/30. On June 20, SH returns to Oakley inventory that SH had purchased for $1,800. On June 24, SH completely fulfills its obligation to Oakley by making a cash payment. What is the amount of cash paid by SH to Oakley? a) $6,700 b) $8,500 c) $6,633 d) $6,615 e) None of the above

c) $6,633 Response Feedback: Sales discount = (sale - sale return) x discount % = ($8,500 - $1,800) x 1% = $67 Cash paid by customer = sales revenue - sales return - sales discount = $8,500 - $1,800 - $67 = $6,633

Constable Company reported the following information at December 31, Y1: Accounts Payable $4,600 Accounts Receivable $9,450 Cash $24,490 Common Stock $91,000 Equipment $50,500 Inventory $32,200 Notes Payable due December 31, Y3 $2,600 Retained earnings, December 31, Y1 $14,190 Wages Payable $4,250 What is the amount of current assets on the classified balance sheet? a) $24,490 b) $38,680 c) $66,140 d) $116,640 e) None of the above

c) $66,140 Response feedback: Current assets = cash + A/R + inventory = $24,490 + $9,450 + $32,200 = $66,140

During its first year of operations, Puffin, Inc reported Sales Revenue of $388,600 but only collected $310,000 in cash from customers. At the end of the year, Accounts Receivable equals: a) $388,600 b) $698,600 c) $78,600 d) $310,000 e) None of the above

c) $78,600 Response Feedback: of the $388,600 of Sales Revenue, customers have paid the company only $310,000, which leaves a balance of Accounts Receivable of $78,600

Selected financial information presented below was obtained from the financial statements of the Napa Valley Brewery: Current Assets $49,000 Property and Equipment, Net $69,000 Current liabilities $49,500 Noncurrent Liabilities $39,500 Stockholders' Equity $21,000 Sales Revenue $60,000 Net Income $21,600 What was the net profit margin? a) 44% b) 97.22% c) 36% d) 18.31% e) None of the above

c) 36% Response Feedback: Net profit margin = Net Income/Sales Revenue = $21,600/$60,000 = 0.36 = 36%

Barron Industries has the following information: Sales Revenue $ 660,000 Ending inventory 72,000 Cost of Goods Sold 520,000 Beginning inventory 62,000 What is Barron's number of days to sell? a) 37.1 days b) 39.8 days c) 47.0 days d) 50.5 days e) None of the above

c) 47.0 days Response Feedback: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory = $520,000 / [(62,000+72,000)/2] = 7.76 times Days to Sell = 365 / Inventory Turnover Ratio = 365 / 7.76 = 47.0 days

Which of the following statements is correct? a) The separate entity assumption requires that the financial activities of the owners of a company be reported on the company's balance sheet b) A current ratio of 1.60 means the company's current assets are probably not sufficient to pay its current liabilities c) A transaction is recorded if it has a measurable financial effect on the assets, liabilities or stockholders' equity of a business d) The cost principle states that recording activities at cost will result in the balance sheet representing the true value of the company e) None of these statements are correct

c) A transaction is recorded if it has a measurable financial effect on the assets, liabilities, or stockholders' equity of a business Response feedback: A transaction is recorded if it has a measurable financial effect on the assets, liabilities or stockholders' equity of a business. A current ratio of 1.60 means that the company has $1.60 in current assets for every $1.00 of current liabilities; therefore, current assets are (rather than are not) probably sufficient to pay current liabilities. The separate entity assumption states that transaction of principle, assets and liabilities are first recorded at cost, which is their cash-equivalent value on the date of the transaction; cost does not approximate true value.

Which account is affected by recording the buying of goods on credit? a) Retained Earnings b) Cash c) Accounts Payable d) Common Stock e) None of these accounts are affected

c) Accounts Payable Response feedback: A business typically buys goods or services from others on credit, by promising to pay within 30 days of the purchase. Accounts Payable represents the amount owed to suppliers for prior credit purchases (on account)

If a company pays back money borrowed from a bank, which of the following would be included in the journal entry to record this transaction? a) Debit Cash and credit Notes Payable b) Credit Notes Payable and debit Common Stock c) Credit Cash and debit Notes Payable d) Debit Cash and credit Common Stock e) None of the above would be included in the journal entry to record this transaction

c) Credit Cash and debit Notes Payable Response feedback: Notes Payable, a liability account, decreases with a debit and Cash, an asset account, decreases with a credit

The interest earned and interest receivable on a note equals $75 for the month of March. What adjusting entry, if any, should be recorded as of March 31? a) No journal entry is needed at this time b) Debit cash $75 and credit interest revenue $75 c) Debit interest receivable $75 and credit interest revenue $75 d) Debit interest revenue $75 and credit interest receivable $75

c) Debit interest receivable $75 and credit interest revenue $75

In the US, Generally Accepted Account Principles are established by the: a) International Accounting Standards Board (IASB) b) Public Company Accounting Oversight Board (PCAOB) c) Financial Accounting Standards Board (FASB) d) American Institute of Certified Public Accountants (AICPA) e) None of the above

c) Financial Accounting Standards Board (FASB)

The failure to record an accrual adjustment relating to salaries and wages would NOT affect the: a) Income statement b) Balance Sheet c) Statement of Cash Flows d) Statement of Retained Earnings e) The failure to record an accrual adjustment relating to salaries and wages would affect all of the above

c) Statement of Cash Flows Response Feedback: The statement of cash flows is not affected since adjusting entries do not involve the Cash account. The accrual of wages affects Salaries and Wages Expense (reported on the income statement) and Salaries and Wages Payable (reported on the balance sheet). Since Salaries and Wages Expense is affected, net income is also affected and in turn, Retained Earnings (reported on the Statement of retained earnings) is affected

Your company sells $70,000 of bonds for an issue price of $72, 100. Which of the following statements is correct? a) The bond sold at a price of 103.00, implying a discount of $2,100. b) The bond sold at a price of 51.50, implying a premium of $2,100. c) The bond sold at a price of 103.00, implying a premium of $2, 100. d) The bond sold at a price of 51.50, implying a discount of $2,100. e) None of the above.

c) The bond sold at a price of 103.00, implying a premium of $2, 100. Response Feedback: Price = Issue price + Face value = $72,100 ÷ $70,000 = 1.030 or 103.00% (which is referred to as a price of 103.00) Premium = Issue price - Face value = $72.100 - $70,000 = $2,100

Current liabilities could include all of the following except: a) an accounts payable due in 30 days b) a notes payable due in 9 months c) a bank loan due in 18 months. d) any part of long-term debt due during the current period. e) none of the above

c) a bank loan due in 18 months Response Feedback: Current liabilities are defined as short-term obligations that will be paid or fulfilled within the company's current operating cycle or within one year of the balance sheet date, whichever is longer. A bank loan due in 18 months would be classified as a noncurrent or long-term liability.

Which of the following statements about extending credit is NOT correct? a) It is common for companies to sell on account to other companies b) Some companies extend credit to individual customers c) Bad debts arise from. credit sales to individual consumers, but not from credit sales to other companies d) When credit is available, customers often buy more products and services e) All of the above statements are correct

c) bad debts arise from credit sales to individual consumers, but not from credit sales to other companies

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during the current accounting period but has not yet been accrued on the books. The journal entry for the interest payment should include a: a) debit to Interest Expense for $9,000 and a credit to Cash for $9,000 b) debit to Cash for $9,000 and a credit to Interest Payable for $9,000 c) debit to Interest expense for $3,000, a debit to interest payable for $6,000, and a credit to Cash for $9,000 d) debit to interest payable for $6,000, a debit to accrued interest for $3,000, and a credit to cash for $9,000 e) none of the above

c) debit to interest expense for $3,000, a debit to interest payable for $6,000, and a credit to cash for $9,000 Response feedback: the journal entry includes a debit to interest expense for $3,000 (the amount accumulated during the current accounting period to increase the expense), a debit to interest payable for $6,000 (the amount that accrued during the last accounting period to decrease the liability), and a credit to cash for $9,000 (the total amount paid to decrease the cash)

Which line item would be found on a merchandiser's balance sheet and not on a service firm's? a) Supplies b) Cost of Goods Sold c) Inventory d) Sales Revenue e) None of the above

c) inventory Response Feedback: Service companies sell services to customers. Merchandising companies differ in that their cycle begins with buying products, which are sold to customers, which leads to collecting cash that can be used to pay operating expenses and buy more inventory. Merchandisers report inventory on their balance sheets

What is the primary goal of internal controls for cash payments? a) To ensure the lowest prices possible are paid b) To make payments as quickly as possible c) To ensure the payments are made only for properly authorized transactions d) To independently verify cash payments e) None of the above

c) to ensure the payments are made only for properly authorized transaction

An unadjusted trial balance: a) cannot be used to prepare financial statements that conform to GAAP b) is prepared after end-of-period adjustments have been made c) will not reflect up-to-date information for income taxes d) contains final amounts for assets and liabilities, but not for revenues and expenses e) None of the above

c) will not reflect up-to-date information for income taxes

Coachlight Incorporated uses a periodic inventory system. The company purchased 200 units of inventory at $17.00 per unit and 300 units at $18.00 per unit. What is the weighted average unit cost for these purchases of inventory? a) $17.00 b) $17.50 c) $17.60 d) $18.00 e) None of the above

c)$17.60 Response Feedback: Weighted Average Cost = cost of goods available for sale / number of units available for sale = [(200 x 17) + (300 x 18)] / (200+300) = $17.60 per unit

During September, By the Book Company collected $1,800 cash from a customer for services to be provided during November. Which of the following statements about this transaction is correct? a) $900 of revenue should be recorded in September and $900 in November b) $1,800 of revenue should be recorded in September c) No revenue should be recorded for these events because they relate only to the balance sheet d) $1,800 of revenue should be recorded in November e) None of the above are correct

d) $1,800 of revenue should be recorded in November Response Feedback: The revenue recognition principle is the requirement under accrual basis accounting to record revenues when the performance obligations are satisfied, not necessarily when cash is received for the. The company should record the $1,800 of revenue in November when the services are performed.

Quill Industries uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equal $28,000. The unadjusted credit balance in the Allowance for Doubtful Accounts account is $9,200. What is the estimated Bad Debt Expense for the period? a) $9,200 b) $28,000 c) $37,200 d) $18,800 e) None of the above

d) $18,800 Response Feedback: The aging of accounts receivable method focuses on estimating the ending balance to be reported in the Allowance for Doubtful Accounts. To compute the amount of the adjustment, you must determine how much to increase (credit) the Allowance for Doubtful Accounts to reach the desired adjusted balance. Ending Balance in Allowance for Doubtful Accounts = Unadjusted credit balance in Allowance for Doubtful Accounts + Bad Debt Expense = $28,000 - $9,200 = $18,800

Thomas Longbow is the only employee of Presido, Incorporated During the first week of January, Longbow earned $2,800.00 and had federal and state income tax withholdings of $140.00 and $52.50, respectively. FICA taxes are 7.65% of earnings. State and federal unemployment taxes for the period are $175.00 and $28.00, respectively. What would be the amount of Longbow's payroll check for the first week of January? a) $2.190.30 b) $2.585.80 c) $2.800.00 d) $2,393.30 e) None of the above

d) $2,393.30 Response Feedback: Net pay = Gross earnings - Withheld income taxes payable - FICA payable - Voluntary deductions = $2.800.00 - I(S2,800.00 × 0.0765) + ($140.00 + $52.50)] - $0 = $2,393.30.

Grandview, Inc. uses the allowance method. At December 31, 2021, the company's balance sheet reports Accounts Receivable, Net in the amount of $23,500. On January 2, 2022, Grandview writes off a $2,800 customer account balance when it becomes clear that the customer will never pay. What is the amount of Accounts Receivable, Net after the write-off? a) $26,300 b) $20,700 c) $2,800 d) $23,500 e) None of the above

d) $23,500 Response Feedback: When the allowance method is used and a customer account is written off, a decrease is recorded in Accounts Receivable, which is offset by a decrease in the contra-account. Allowance for Doubtful Accounts. The decrease in Accounts Receivable decreases total assets, while the decrease in the Allowance for Doubtful Accounts increases total assets. As a result, the amount reported as Accounts Receivable,, Net does not change.

During January 2020, the first month of operations, a consulting firm had the following transactions: 1. Issued common stock to owners in exchange for $20,000 cash 2. Purchased $5,500 of equipment, paying $1,650 cash and signing a promissory note for $3,850 3. Received $9,100 in cash for consulting services performed in January 4. Purchased $1,425 of supplies on account; all of the supplies were used in January 5. Provided consulting services on account in the amount of $15,400 6. Paid $750 on account 7. Paid $2,900 to employees for work performed during January 8. Received a bill for utilities for January of $3,450; the bill remains unpaid What is the amount of total revenue to be reported on the income statement for the month of January? a) $9,100 b) $29,100 c) $44,500 d) $24,500 e) None of the above

d) $24,500 Response Feedback: The income statement would report the revenues earned of ($9,100 + $15,400 = $24,500)

Willetta Company purchases inventory for $28,000 with terms 2/10, n/30. It then returns $3,800 of the inventory purchased to the supplier and also receives an allowance for defective inventory of $280. The company pays the amount due within the discount period. What is the amount of the discount that will be taken? (Round your answer to the nearest dollar amount.) a) $554 b) $380 c) $484 d) $478 e) None of the above

d) $478 Response Feedback: Purchase Discount = (Purchase - Purchase returns - purchase allowance) x discount percentage = [($28,000 - $3,800 - $280) x 0.2] = $478

During its first year of operations, a company entered into the following transactions: - Borrowed $5,180 from the bank by signing a promissory note - Issued stock to owners for $11,800 - Purchased $1,180 of supplies on account - Paid $580 to suppliers as payment on account for the supplies purchased What is the amount of total liabilities at the end of the year? a) $17,580 b) $6,360 c) $18,160 d) $5,780 e) None of the above

d) $5,780 Response feedback: total liabilities = Notes payable to the bank of $5,180 + Accounts payable to supplier of $1,180 - $580 to pay to supplier = $5,780

The following account balances are taken from the December 31 financial statements of ABZ Advertising Company. The company uses accrual basis accounting. Advertising Revenue $47,666 Cash $42,423 Accounts Receivable $7,409 Interest Expense $2,323 Accounts Payable $5,050 Operating Expenses $38,609 Deferred Revenue $1,206 Equipment $18,590 Income Tax Expense $2,383 The following activities occurred in 2021: 1. Performed advertising services on account, $56,400 2. Received cash payments on account, $10,700 3. Received deposits from customers for advertising services to be performed in 2022, $2,700 4. Made payments to suppliers on account, $5,050 5. Incurred $46,100 of operating expenses; $39,950 was paid in cash and $6,150 was on account and unpaid as of the end of the year. What is the balance of Accounts Receivable at December 31, 2021? a) $56,400 b) $45,700 c) $55,809 d) $53,109 e) None of the above

d) $53,109 Response Feedback: Ending Accounts Receivable = Beginning Accounts Receivable + Sales on account - cash collected on account = $7,409 +$56,400 - $10,700 = $53,109

Marconi Company has the following information available for the current year: Net Sales $ 1,132,500 Bad Debt Expense 90.600 Accounts Receivable, Beginning of Year 362.400 Accounts Receivable, End of Year 181,200 Allowance for Doubtful Accounts, Beginning of Year 63,420 Allowance for Doubtful Accounts, End of Year 93,620 What was the amount of write-offs during the year? a) $0 b) $181,200 c) $93.620 d) $60,400 e) none of the above

d) $60,400 Response Feedback: Ending balance in Allowance for Doubtful Accounts = Beginning balance in Allowance for Doubtful Accounts - Write-offs + Bad Debt Expense Write-offs = Beginning balance in Allowance for Doubtful Accounts + Bad Debt Expense - Ending credit balance in Allowance for Doubtful Accounts = $63,420 + $90,600 - $93,620 = $60,400

Elm Corporation is a merchandising company. The year began with inventory of $23,000. Purchases for the year were $48,000, and the Ending Inventory was $10,000. What is the Cost of Goods Sold that would be reported on the income statement? a) $81,000 b) $35,000 c) $15,000 d) $61,000 e) None of the above

d) $61,000 Response Feedback: Ending Inventory = Beginning Inventory + Purchases - Cost of goods sold Cost of Goods sold = Beginning inventory + Purchase - Ending Inventory = $23,000 + $48,000 - $10,000 = $61,000

Sheridan's beginning inventory is $482,400, goods purchased during the period cost $142,400, and the cost of goods sold for the period is $562,400. What is the amount of its ending inventory? a) $182,400 b) $82,400 c) $102,400 d) $62,400 e) None of the above

d) $62,400 Response Feedback: Cost of goods sold = Beginning inventory + Purchases - Ending Inventory Ending Inventory = Beginning inventory + purchases - cost of goods sold = $482,400 + $142,400 - $562,400 = $62,400

Tonto Company purchased property for $130,000. The property included a building, equipment and land. The building was appraised at $74,000, the land at $51,000, and the equipment at $24,000. What is the amount of cost to be allocated to the building in the accounting records? (Round your intermediate calculations to 3 decimal places.) a) $74,000 b) $0 c) $130.000 d) $64,610 e) none of the above

d) $64,610 Response Feedback: Total market value = $74,000 ÷ $51,000 + $24.000 = $149.000 Building's contribution towards property's value = Building's market value + Total market value = $74,000 ÷ $149,000 = 49.7% Building cost = Property cost × Building's contribution towards property's value = $130,000 × 0.497 = $64.610

PICK-A-PET, INCORPORATED Balance Sheet at June 30, Year 1 Assets Cash 733,700 Accounts Receivable 420,300 Supplies 58,510 Equipment 119,600 Other assets 69,510 Total Assets: 1,401,620 Liabilities Accounts Payable 348,100 Notes Payable due June 30, Year 3 268,900 Total Liabilities: 617,000 Stockholders' Equity Common Stock 661,000 Retained Earnings 123,620 Total Stockholders' Equity: 784,620 Total Liabilities and Stockholders' Equity: 1,401,620 How much financing did the stockholders of Pick-A-Pet, Incorporated, directly contribute to the company? a) $1,401,620 b) $784,620 c) $123,620 d) $661,000 e) None of the above

d) $661,000 Response feedback: Stockholders' equity includes Common Stock, which is the amount contributed by owners of $661,000

Marshall Company purchases a machine for $400,000. The machine has an estimated residual value of $20,000. The company expects the machine to produce two million units. The machine is used to make 400,000 units during the current period. If the units-of-production method is used, the depreciation expense for this period is: a) $80,000. b) $380,000. c) $400.000. d) $76,000. e) none of the above

d) $76,000 Response Feedback: Depreciation expense = (Cost - Residual value) × (Actual production this period + Estimated total production) = ($400,000 - $20,000 × (400,000 units + 2,000,000 units) = $76,000

A company reported the following: Cost of Goods Sold $200,800 General, Selling, and Administrative Expenses $52,880 Income Tax Expense $3,680 Inventory $29,000 Net Income $23,440 Sales Revenue $286,000 Sales Discounts $2,800 Sales Returns and Allowances $2,400 What is the amount of Gross Profit? a) $55,000 b) $39,700 c) $36,150 d) $80,000 e) None of the above

d) $80,000 Response Feedback: Gross Profit = Sales Revenue - Sales Discounts - Sales returns and allowances - Cost of Goods Sold = $286,000 - $2,800 - $2,400 - $200,800

Alvarado Company began the current month with inventory costing $25,000, then purchased inventory at a cost of $70,000. The perpetual inventory system indicates that inventory costing $61,000 was sold during the month for $79,000. If an inventory count shows that inventory costing $33,030 is actually on hand at month-end, what amount of shrinkage occurred during the month? a) $33,030 b) $9,700 c) $34,000 d) $970 e) None of the above

d) $970 Response Feedback: the difference between the ending balance in the inventory account and the physical inventory count is the amount of possible shrinkage $25,000 - $70,000 - $61,000 = $34,000 inventory $34,000 - $33,030 = $970 shrinkage

A company's trial balance included the following account balances: Accounts Payable $19,397 Accounts Receivable $81,526 Cash $73,514 Income Tax Payable $3,702 Inventory $26,006 Notes Payable, due in two years $1,899 Equipment $56,028 Stockholders' Equity $204,708 Supplies $5,702 Wages Payable $13,070 What is the amount of the current ratio? a) 1.96 b) 1.00 c) 4.94 d) 5.16 e) none of the above

d) 5.16 Response feedback: current assets = cash + A/R + Inventory + Supplies ($73,514 + $81,526 + $26,006 + $5,702 = $186,748) current liabilities = A/P + Wages Payable + Income Tax Payable ($19,397 + $13,070 + $3,702 = $36,169) Current ratio = current assets/current liabilities = 186,748/36,169 = 5.16

On June 12, because management knew with near certainty that it had no chance of collection, Sheave Company wrote off a customer's account balance in the amount of $350. On November 3, the customer mailed a payment for $350 to Sheave. To record the receipt of this payment from the customer, the company would debit: a) Bad Debt Expense and credit Cash b) Accounts Receivable and credit Bad Debt Expense, and then debit Cash and credit Allowance for Doubtful Accounts c) Cash and credit Accounts Receivable d) Accounts Receivable and credit Allowance for Doubtful Accounts, and then debit Cash and credit Accounts Receivable e) None of the above

d) Accounts Receivable and credit Allowance for Doubtful Accounts, then debit cash and credit accounts receivable

Cypress, Inc. sold merchandise for cash to a customer. The customer returned some of that merchandise because it was not satisfactory. What journal entry will Cypress use to record the return? a) Debit Sales Returns and Allowances and credit Inventory b) Debit Cash and credit Sales Returns and Allowances c) Debit Cost of Goods Sold and credit Inventory d) Debit Sales Returns and Allowances and credit Cash e) None of the above

d) Debit Sales Returns and Allowances and credit Cash Response Feedback: The company will do this because a perpetual inventory system updates these accounts, it will debit Inventory and credit Cost of Goods Sold for the cost of the merchandize

Faithful representation is a characteristic of external financial reporting that means: a) the financial reports of a business are assumed to include the results of only that business's activities b) financial information can be compared across businesses because similar accounting methods are applied c) the results of business activities are reported using an appropriate monetary unit d) Financial information depicts the economic substance of business activities e) None of the above

d) Financial information depicts the economic substance of business activities Response feedback: Financial information possesses the characteristic of representation faithfulness if it depicts the economic substance of business activities. The separate entity assumption means that only the activities of the business are included in its financial reports. Comparability refers to the ability of financial information to be compared across businesses because similar accounting methods have been applied. The unit of measure assumption states that the results of business activities are reported in an appropriate monetary unit.

The premium on a bond is __________ and __________ each period a) depreciated; increases b) expensed; increases c) increased; credited d) amortized; decreases e) none of the above

d) amortized; decrease Response Feedback: A premium represents the additional cash over the face value that was received at the time the bond was issued. It represents a reduced cost of borrowing, so it is amortized each period, resulting in interest expense that is less than the interest paid each period. This causes the premium to decrease each period until it reaches zero at the maturity date of the bonds.

A one-time error in the application of the lower of cost or market/net realizable value (LCM/NRV) rule in the current period distorts financial results for the current accounting period: a) and the period before b) and all periods after c) only d) and the period after e) None of the above

d) and the period after Response Feedback: The ending inventory for the current period becomes the beginning inventory for the next period. As a result, an error in ending inventory of the current period results in an error in the beginning inventory of the next period and distorts the financial results of both accounting periods.

Permanent accounts: a) are not permitted by GAAP b) have their balances zeroed-out at the end of each accounting year c) do not have their year-end balances carried into the next year d) are Balance Sheet accounts e) None of the above apply to permanent accounts

d) are balance sheet accounts Response Feedback: Because they are not closed at the end of the accounting period; their balances are carried to the next year

Beta Company recorded a loss due to impairment of some of its assets. As a result of this journal entry: a) liabilities are increase b) revenues are decreased c) stockholders' equity is increased d) assets are decreased e) none of the above

d) assets are decreased Response Feedback: A loss due to impairment is recorded as a debit to impairment loss and a credit to the asset. Thus, as a result of recording a loss, assets are decreased. Impairment Loss is classified as an operating expense and does decrease net income which decreases stockholders' equity

Collusion occurs when a) an outside party completes an independent verification b) a company assigns sequential numbers to their documents c) passcodes are required to open cash registers d) employees work together to get around internal controls e) None of the above

d) employees work together to get around internal controls

Goodwill: a) should be treated like most other intangible assets and amortized over a useful life of not more than 40 years. b) is an accounting measurement of how well a company's employees behave towards the company's customers. c) should be recorded as a negative value if a company is purchased for less than the net carrying value of its assets. d) is recorded when one company purchases another and the buyers pay more than the fair value of the assets purchased. e)None of the above apply to Goodwill

d) is recorded when one company purchases another and the buyers pay more than the fair value of the assets purchased

If a bank reconciliation included a deposit in transit of​ $680, the entry to record this reconciling item would include a: a) a debit to cash of $680 b) a credit to Accounts Receivable for $680 c) A credit to Cash of $680 d) nothing, because the deposit has already been recorded e) None of the above

d) nothing, because the deposit has already been recorded

If a bank reconciliation included a deposit in transit of $680, the company's journal entry for this reconciling item would include: a) a credit to Cash of $680 b) a credit to accounts receivable for $680 c) a debit to cash of $680 d) nothing, because the deposit has already been recorded

d) nothing, because the deposit has already been recorded Response Feedback: already recorded by the company, so no journal entry is needed

LalaGurl, Incorporated sold leggings made from a fabric that gave many of its customers a serious rash. The customers are suing the company in a class action suit. Although the verdict is not yet in LalaGurl's attorneys think it is probably that the case will cost the company $2 million. The company should: a) not include this information in its annual report b) record a liability and gain for $2 million c) only explain the situation in the notes to the financial statements d) record a liability and a loss for $2 million e) none of the above

d) record a liability and a loss for $2 million Response Feedback: since the contingent liability can be reasonably estimated and is considered probable, the company is required to record a liability and a loss for $2 million

The fixed asset turnover ratio measures: a) the useful life of long-lived assets b) the average difference between book value and disposal value of fixed assets c) the useful life of intangible assets d) the efficiency with which the investment in fixed assets produces revenue e) none of the above

d) the efficiency with which the investment in fixed assets produces revenue Response Feedback: The fixed asset turnover ratio measures the amount of net sales generated per dollar of net fixed assets