Acct 209 Exam 1 Review Questions
On December 31, the Hill Company had $800,000 in total assets and owed $230,000 to creditors. If the corporation's common stock amounted to $400,000, what amount of retained earnings should appear on its December 31 balance sheet?
170,000
On December 31, the Milers Company had $800,000 in total assets and owed $300,000 to creditors. If the corporation's common stock amounted to $250,000, what amount of retained earnings should appear on the company's December 31 balance sheet?
250,000
Mack Corp. reported annual cost of goods sold of $30,000 and average inventory on hand during the year of $3,750. What was Mack's inventory turnover?
8%
What is a T-account and how is it used?
A T-account is a general ledger account that has the shape of the letter T. A T-account is used to accumulate debit and credit entries to any of a company's various accounts.
Define temporary account. Provide an example.
A temporary account is one that is closed out at the end of the period. Ex) Revenue, expenses, dividends
Explain how it is possible for a trial balance to be in balance but still be in error.
A trial balance may be in balance but still in error because of recording errors in the ledger accounts. For example, a cash sale in the amount of $1,000 may have been erroneously entered in the ledger as an increase of $100 in cash and sales. The trial balance would still balance because the entered debit and credit were of the same amount.
Define accounting. What is the basic purpose of accounting?
Accounting is the process of measuring the economic activity of an enterprise in monetary terms and communicating the results to interested parties. The basic purpose of accounting is to provide financial information that is useful in making economic decisions
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Accounts Receivable
Asset - debit increases
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Cash
Asset - debit increases
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Supplies
Asset - debits increase
Define permanent account. Provide an example
Balance sheet accounts/accounts that are not closed at the end of a period Ex) Cash
Being relatively more difficult to establish is associated with which organizational forms?
Corporation
Easier to raise funds is associated with which organizational forms?
Corporation
What is the normal balance (debit or credit) of accounts payable
Credit
What is the normal balance (debit or credit) of common stock?
Credit
What is the normal balance (debit or credit) of Professional Fees Earned
Credit (revenue)
What is the normal balance (debit or credit) of accounts receivable
Debit
What is the normal balance (debit or credit) of advertising expense?
Debit
What is the normal balance (debit or credit) of cash
Debit
What is the normal balance (debit or credit) of dividends?
Debit
What is the normal balance (debit or credit) of supplies?
Debit
How would this impact stockholders equity: Paid salaries
Decrease SHE (decrease RE)
indicate the accounting effects on the assets, liabilities, and stockholders' equity Paid for desk purchased on account
Decrease liabilities (Accounts Payable) Decrease assets (Cash)
indicate the accounting effects on the assets, liabilities, and stockholders' equity The company paid a dividend.
Decrease stockholders' equity (increase Dividends) Decrease assets (Cash)
indicate the accounting effects on the assets, liabilities, and stockholders' equity Paid rent for the month.
Decrease stockholders' equity (increase Rent Expense) Decrease assets (Cash)
indicate the accounting effects on the assets, liabilities, and stockholders' equity Paid employees' salaries for the month.
Decrease stockholders' equity (increase Salaries Expense) Decrease assets (Cash)
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Dividends
Dividend - debit increases
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Advertising expense
Expense - debit increases
Which inventory costing method results in the highest net income during a period of rising unit prices?
FIFO
Which inventory costing method results in the highest-valued ending inventory during a period of rising unit costs?
FIFO
What are generally accepted accounting principles and what organization has primary responsibility for their formulation in the United States?
Generally-accepted accounting principles (GAAP) are standards that accountants have developed to guide the accumulation of financial accounting data and the preparation of financial statements. Many principles have evolved over time and have become entrenched through general acceptance. Although the SEC has the power to set the accounting principles, the agency has largely delegated that principle-setting responsibility. The primary non-governmental body whose pronouncements are authoritative concerning such principles is the Financial Accounting Standards Board (FASB).
Who are some of the outside groups that may be interested in a company's financial data and what are their particular interests?
In addition to stockholders and creditors, the following outside groups may be interested in a company's financial data: prospective investors and creditors, financial analysts, taxing agencies, regulatory agencies, labor unions, and economic planners. Prospective investors and financial analysts desire to evaluate the relative attractiveness of various investments, while creditors are primarily interested in a firm's financial strength. Taxing and regulatory agencies are concerned with whether a firm has met its reporting or other legal requirements. Labor unions are interested in the firm's relations with employees, especially with regard to wages. Economic planners use reliable financial data in their planning and forecasting activities
How would this impact stockholders equity: Rendered services to customers, for cash
Increase SHE (Increase Revenue)
How would this impact stockholders equity: Invested cash in business
Increase SHE (increase CS)
indicate the accounting effects on the assets, liabilities, and stockholders' equity: Rendered services and billed the client.
Increase assets (Accounts Receivable) Increase stockholders' equity (increase Sales Revenue)
indicate the accounting effects on the assets, liabilities, and stockholders' equity Received amount due from a client for previous services rendered
Increase assets (Cash) Decrease assets (Accounts Receivable)
indicate the accounting effects on the assets, liabilities, and stockholders' equity Rendered services to a client for cash
Increase assets (Cash) Increase stockholders' equity (increase Sales Revenue)
indicate the accounting effects on the assets, liabilities, and stockholders' equity Purchased an office desk on account.
Increase assets (Office Furniture) Increase liabilities (Accounts Payable
How would this impact stockholders equity: Rendered service to customers, on account
Increased SHE (Increase Revenue)
Is it possible for an accounting transaction to only affect the left side of the accounting equation and still leave the equation in balance? If so, provide an example
It is possible for a transaction to only impact the left side of the basic accounting equation. An example is the collection of accounts receivable, which increases Cash (debits Cash) and decreases Accounts Receivable (credits Accounts Receivable).
Which inventory costing method assumes that the most recently purchased merchandise is sold first?
LIFO
Which inventory costing method results in the lowest net income during a period of rising unit prices?
LIFO
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Accounts Payable
Liability - credit increases
How would this impact stockholders equity: Paid an account payable
No effect
How would this impact stockholders equity: Purchase supplies for cash
No effect
How would this impact stockholders equity: Purchased equipment for cash
No effect
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Professional Fees Earned
Revenue - credit increases
What are revenues and expenses?
Revenues are an inflow of assets that a firm earns when it provides goods or services to its customers. Sales revenue is measured by the value of the assets received in exchange for the goods or services. Expenses are the outflow of assets that a firm incurs in the process of earning revenues. Expenses are measured by the value of the assets that are used up as a result of a firm's operating activities.
Full control is associated with which organizational forms?
Sole proprietorship
Business income being combined with owners income for tax purposes is associated with which organizational forms?
Sole proprietorship and partnerships
Unlimited liability is associated with which organizational forms?
Sole proprietorship and partnerships
What type of account—asset, liability, stockholders' equity, dividend, revenue, or expense—is the account? Does a debit or credit entry increase the value of the account? Common Stock
Stockholders equity - credit increases
How is the normal side of an account determined?
The normal side of any account is always the side on which increases are recorded. Assets and expenses have normal debit balances. Liabilities, revenues, and stockholders' equity accounts (owner's capital accounts in a sole proprietorship and in partnerships, and common stock and retained earnings accounts in a corporation) have normal credit balances
What is the purpose of The balance sheet?
The purpose of a balance sheet is to present a firm's assets, liabilities, and stockholders' equity on a given date.
What is the purpose of The statement of cash flows?
The purpose of a statement of cash flows is to report information about cash inflows and cash outflows during a period of time. The cash flows are grouped into three categories: operating activities, investing activities, and financing activities
What is the purpose of The statement of stockholders' equity?
The purpose of a statement of stockholders' equity is to report the events causing a change in stockholders' equity for a period. These events include owner investments and dividends and the earning of net income or net loss.
What is the purpose of an income statement?
The purpose of an income statement is to report the results of operations for a period. It does this by listing a firm's revenues and expenses for the period.
What does the term debit mean? What does the term credit mean?
The term debit refers to the left side of an account. The term credit refers to the right side of an account.
What is the accounting equation? Define assets, liabilities, and stockholders' equity.
is Assets = Liabilities + Stockholders' Equity. Assets are the economic resources of an enterprise that can be expressed in monetary terms. Liabilities are the obligations, or debts, that an enterprise must pay in cash or services at some time in the future because of past transactions or events. Stockholders' equity is the interest of the owners in the assets of the enterprise and is represented as the difference between the enterprise's assets and liabilities.
