ACCT 5301 Compiled Quiz Questions

Wall Outlets, Inc. has $600,000 of goodwill on the balance sheet from The Plug Company which was purchased 5 years ago. The goodwill amoritization this year should be

$0

Given the following data, what is cost of goods sold? Sales revenue $10,000 Beginning inventory 3,000 Ending inventory 7,000 Purchases of inventory 5,000

$1,000

Altoon Manufacturing's records were partially destroyed in a flood. The company does not know what sales have been for the year, but it does know all sales were on account. Also, the beginning accounts receivable balance was $19,000, and its accounts receivable balance at the time of the flood was $25,000. From the beginning of the year until the flood, cash collections from credit customers were $158,000. Given this information, what are Altoon Manufacturing's sales for the year until the flood?

$164,000

Income taxes owed to the federal government would be classified as a(n)

Liability on the balance sheet

Which balance sheet accounts are most affected by investing activities?

Long term assets

Gambet Labs entered into a lease agreement on January 1, 20X3, to use an x-ray machine. The machine has a useful life of 6 years. Gambet Labs will make annual lease payments of $13,000 for 6 years, beginning on December 31, 20X3. Assume a 14% interest rate. Using the present value tables, what journal entry will Gambet Labs make on January 1, 20X3?

Machine leasehold 50,553 Capital Lease liability 50,553

The replacement costs have increased from $5.60 per unit to $6.20 per unit from the time 200 units of inventory were purchased . The year-end audit found 120 units remaining in stock. What entry is required?

Make no entry

The recording of expenses in the same time period as the related revenues are recognized is known as

Matching

Cash flows

May precede or follow adjusting entries

Which of the following accounts is increased with debt?

Merchandise inventory

An increase in stockholders' equity can be calculated as

New issuance of stock plus net income less cash dividends declared

Cartell Paper Products supplies in 2012

$2,700

Mason Manufacturing had 2012 earnings of $850,000. Cash dividends per share were $1.25. The company had an average of 350,000 shares of common stock outstanding. The market price of the stock at the end of the year was $30 per share. What are the earnings per share for 2012?

$2.43

Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine is estimated to have a useful life of 8 years, and a residual value of $4,000. For units of production depreciation purposes, the machine is expected to produce 400,000 units. If Compatibility Services uses double declining balance depreciation, what is the depreciation expense in 20X3?

$20,000

Biscuit Bakery had the following activity in its inventory account during August 20X3. August 1 Beginning inventory 100 Units $3.00/Unit $300 Total August 3 Purchase 40 Units 3.10/Unit 124 Total August 7 Sale 50 Units August 12 Purchase 50 Units 3.20/Unit 160 Total August 16 Sale 70 Units August 23 Sale 40 Units August 30 Purchase 60 Units 3.30/Unit 198 Total What is the ending inventory balance at August 31, 20X3, for Biscuit Bakery if the company uses perpetual FIFO as its inventory valuation method?

$294.00

Fortune Company had sales during July 20X3 of $29,000. During the month, the company had purchases of $17,000. At July 1, 20X3, the company had inventory of $4,500. Assuming the company has a gross profit percentage of 40%, what is the estimated ending inventory for Fortune Company at July 31, 20X3?

$4,100

Dugger Excavating bought a machine for $24,000 on January 1, 20X3, with a useful life of 5 years and a salvage value of $4,000. At the beginning of 20X4, Dugger finds the residual value will be zero. Assuming Dugger employs straight line depreciation, what will be the depreciation expense in 20X4?

$5,000

Pandey Company's capital stock is currently selling for $25 per share. Pandey Company has the following accounts included within the owner's equity section of the balance sheet: Capital stock, $1,00 par value, $10,000 shares issued: $10,000. Additional paid-in capital: $60,000. Assuming that the only transaction affecting these accounts was the sale of the company's capital stock, Pandey Company originally sold its capital stock for

$7.00 per share

Given the following complete list of balances, what will be the total credits in the trial balance, assuming no errors exist in the accounts? Note: The accounts payable records were damaged by a flood, and the company is not certain what the correct balance should be. 1. Retained earnings $28,000 2. Merchandise inventory 9,000 3. Accumulated depreciation 5,000 4. Sales 42,000 5. Selling expenses 11,000 6. Accounts receivable $7,000 7. Cost of goods sold 22,000 8. Accounts payable ? 9. Cash 5,000 10. Equipment 33,000

$87,000

Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine is estimated to have a useful life of 8 years, and a residual value of $4,000. For units of production depreciation purposes, the machine is expected to produce 400,000 units. If Compatibility Services uses straight line depreciation, what is the depreciation expense in 20X4?

$9,500

If sales amount to $150,000, rent expense is $2,000, utilities expense is $3,000, and net income is $55,000, how much is Cost of Goods Sold?

$90,000

Consider the following information: Cash sales $59,000 Credit sales 510,000 Beginning Cash 18,000 Ending Cash 11,500 Beginning Retained Earnings 32,300 Ending Retained Earnings 41,700 Beginning Accounts Receivable 40,000 Ending Accounts Receivable 50,000 Net Income 64,000 What is the accounts receivable turnover?

11.33

Mason Manufacturing had 2012 earnings of $850,000. Cash dividends per share were $1.25. The company had an average of 350,000 shares of common stock outstanding. The market price of the stock at the end of the year was $30 per share. What was the price-earnings ratio for Mason Manufacturing?

12.35

If ending inventory is understated by $7,000 in 20X3, and assuming a constant 30% tax rate, then what will be the effect on gross profit in 20X3?

20X3 gross profit will be understated by $7,000

Neslund Ornamentals offered a 2% trade discount to Parsons Retail Outlet for all purchases over $200,000. Parsons Retail Outlet purchased $300,000 from Neslund Ornamentals on account. Neslund uses the periodic inventory system. Which of the following is the journal entry made by Neslund Ornamentals on account. Neslund uses the periodic inventory system. Which of the following is the journal entry made by Neslund Ornamentals to recognize the 2% trade discount?

Accounts Receivable $294,000 Sales $294,000

Assume the periodic inventory system is used. Karton Company sold inventory to Rabell Company for $3,400 with agreement from Rabell that payment will be made at the end of the month. Which of the following is the journal entry to be made by Karton Company?

Accounts Receivable 3,400 Sales 3,400

Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume there is no beginning inventory. May 2 Inventory was purchased on account for $5,000, terms 2/10, n/30. May 3 Inventory costing $1,000 was returned. May 9 Paid for the inventory. May 15 Inventory costing $2,200 was sold on account for $3,800, terms 3/10, n/45. May 31 Closing entries are prepared for the month-end financial statements. If Queen Mattresses, Inc. were using the periodic inventory system, what is the journal entry on May 3?

Accounts payable 1,000 Purchase returns and allowances 1,000

Which of the following is an example of an accrual of unrecorded revenues?

An attorney had performed work for a client, but has not billed the client yet

Cash and cash equivalents include all of the following except

An investment purchased in March, 2012 with a maturity of March, 2014

Which of the following statements is true?

Assets are always the sum of liabilities and owners' equities

What gives value to an audit?

Audits have value because they add credibility to a company's financial statements. Provided that auditors have the expertise to assess the accuracy of financial statements and the integrity to report any problems they discover, the investing public can put more faith in statements that are audited.

Depreciation expense computed under double declining balance will decrease each year because the

Book value used in the computation each year decreases

Master Printers, Inc. has a temporary shortfall of cash, but needs to pay its employees tomorrow. What will Master Printers, Inc., most likely do to obtain the cash?

Borrow money from their line of credit

Why is the timing of revenue recognition important?

Both A & B (revenues increase net income, revenues reduce net income by triggering the recognition of certain expenses)

A transaction

Both A and B (affects the financial position of an entity, maintains the equality of the balance sheet equation)

When an increase in cash occurs, it ensues from

Both B and C (increases in liabilities and increases in paid-in-capital)

A deferred income tax liability

Can arise when a firm uses special accelerated depreciation for tax purposes while using straight line depreciation for financial reporting

Westerfelt Shops issued 3,000 debentures on January 1, 20X9. The debentures were 12-year, 7% debt, which paid interest semi-annually, every June 30 and December 31. The face value of each debenture is $1,000. If the market rate of interest is 7% on January 1, 20X9, what is the journal entry to record the issuance of the bonds?

Cash 3,000,000 Bonds payable 3,000,000

If a company would like to repay a bank loan of $7,000, the bookkeeper would

Debit Notes Payable and credit Cash for $7,000

Equipment costing $20,000 with $17,800 of accumulated depreciation is sold for $2,500 cash. The journal entry will involve a

Debit to accumulated depreciation for $17,800

Which of the following items will NOT appear in the operating activities section of the statement of cash flows when using the direct method?

Depreciation expense

All of the following would be included in a company's operating activities except

Dividend payments

Palladia Publishing paid $450 for an advertisement that will appear in today's newspaper. Which of the following is the journal entry to record this transaction?

Dr Cr Advertising Expense 450 Cash 450

Wilham Roofing acquired merchandise inventory for $12,000, paying one-fourth in cash and the remainder on open account. Which of the following is the journal entry necessary to record this transaction?

Dr Cr Merchandise Inventory 12,000 Cash 3,000 Accounts Payable 9,000

Which financial ratio is required to be reported on the face of the income statement of publicly-held corporations?

Earnings per share

Accountants analyze and record

Economic events

Depreciation expense generates cash

False

Depreciation is a noncash expense and therefore not tax deductible

False

The issuance of stock for cash would be classified as a(n)

Financing activity on the statement of cash flows

Early extinguishment of debt

Occurs when the issuer redeems its own bonds by purchases on the open market or by exercising their rights to redeem callable bonds

When inventory prices are rising, the FIFO method will generally yield a gross profit that is

Higher than the LIFO method

With inflation, a LIFO liquidation will

Increase gross profit

The adjusting entry to record the accrual of interest expense has what effect on the basic accounting equation?

Increase liabilities, decrease stockholders' equity

Mexland Company, acquired land costing $25,000. Mexland Company paid $10,000 in cash and issued a short-term note for the balance. The effect of this transaction on Mexland Company, would be to

Increase the land account by $25,000, decrease the cash account by $10,000, and increase the balance in the notes payable account by $15,000.

Posting is the process of transferring information from the

Journal to the ledger

The removal of an old building to make land suitable for its intended use is charged to

Land

Failure to record depreciation at year-end will

Overstate assets

Treating a capital expenditure as repairs and maintenance expense

Overstates expenses and understates net income

Explain how Microsoft's revenue recognition policy meets the criteria of being earned and realized

Persuasive evidence of an arrangement existing and delivery occurring relate to revenue being earned. The fee fixed and determinable and collectibility probable refer to revenue being realized. Microsoft deems revenue as being earned when the products are shipped to the OEMs (instead of waiting until the product is delivered to customers), which accelerates Microsoft's recognition of revenues.

Examples of a current liability include all of the following except:

Prepaid rent

Which financial ratio measures how much the investing public is willing to pay for a chance to share the company's potential earnings?

Price-earnings ratio

A policy that requires organizations to use procedures manuals to specify the flow of documents and provide information and instructions to facilitate adequate record - keeping is an example of

Proper procedures

If a company uses a perpetual inventory system, it will maintain all the following accounts except:

Purchases

On March 1, 20X3, Environmental Impacts acquired inventory on account. The cost of the inventory was $85,000. The terms of the purchase were 2/10 n/30. Upon inspection of the inventory on March 2, $4,800 worth of inventory was returned. Environmental Impacts paid for the inventory on March 8. The company uses a periodic inventory system. What journal entry will Environmental Impacts make on March 1, 20X3?

Purchases 85,000 Accounts Payable 85,000

An example of an explicit transaction is

Purchasing inventory on account

An example of an adjusting entry is

Recognizing rent expense by reducing Prepaid Rent

Which of the following are synonyms for unearned revenue?

Revenue received in advance or deferred revenue

Discuss the accounting for revenue related to games published by third parties.

Revenue related to games published by third parties is recognized when the games are MANUFACTURED. Microsoft must believe that it SELLS the right to manufacture the games, and as soon as the MANUFACTURING process is complete its revenue-earning process is complete.

Gross profit is defined as

Sales minus cost of goods sold

When preparing the statement of cash flows under the indirect method, an appropriate procedure would be to

Subtract an increase in accounts receivable

A corporation is an organization

That is an "artificial being" created by individual state laws.

An example of an adjusting entry is

The accruing of interest expense

Annual reports include all, but which of the following?

The company's handbook for new employees

Net income is

The difference between revenues and expenses

In a defined contribution pension plan,

The employer makes annual contributions into a fund belonging to employees and the retirement benefit depends on the amount in the fund at retirement

Which of the following circumstances would result in a decrease in income under the accrual basis but would not result in a decrease in income under the cash basis?

The expiration of prepaid rent

Companies must include a net long term liability on its balance sheet for pensions if

The fair value of the pension fund assets are less than the pension obligations

What is the role of the Income Summary account when closing the books?

The income summary account is used to transfer the balance in revenue and expense accounts to retained earnings

Reliability is defined as

The quality of information that allows decision makers to depend on it to represent the conditions or events that it purports to represent

Which of the following is not a procedure used to safeguard cash?

The serial numbers on the money are recorded and maintained

An investor's newsletter had the following item: "The company expects increased cash flow in 2013 because depreciation charges will be substantially greater than they were in 2012." Comment.

The statement is false and reinforces the widely held erroneous impression that depreciation provides cash. While depreciation is added to net income to determine cash flow from operations, it is a noncash expense, not a current cash outlay. It is added to net income when using the indirect method only to offset its deduction in computing net income

Convertible bonds are attractive to investors because

They can be converted into stock at the holder's option

The primary goal of the separation of duties is

To make sure that one person, acting alone, cannot defraud the company

The recording process has a sequence of five steps. What is the specific order of the steps?

Transaction documentation, journal, ledger, trial balance, financial statements

Accountants generally do not use the specific write-off method because it violates the matching principle

True

The U.S. Congress has charged the SEC with ultimate responsibility for specifying GAAP for publicly traded companies

True

The allowance method has two basic elements: (1) an estimate of the amount of accounts receivable that will ultimately to be uncolletible and (2) a contra account that contains the estimate and is deducted from the accounts receivable

True

The party who has the right to use leased property and makes lease payments to the lessor is called a lessee

True

The adjustment for revenue received in advance that has not been earned involves a debit to

Unearned Revenue and a credit to Revenue

Internal controls are often implemented to guard against theft of cash. To conceal the theft of $1,500 cash, which journal entry might an accountant perform to best conceal the theft?

Wage and Salary Expenses $1,500 Cash $1,500

At March 31, Getze Family Automotive owes $5,400 for wages to be paid on April 8. What adjusting entry is necessary on March 31?

Wage expense 5,400 Accrued wages payable 5,400

Discuss the accounting for multiyear licensing arrangements

When cash is received, Microsoft records A LIABILITY. The revenue is NOT EARNED UNTIL THE CUSTOMER USES THE SOFTWARE FOR WHICH IT HAS A LICENSING AGREEMENT. Therefore, revenue recognition IS SPREAD OVER THE LIFE OF THE LICENSE.