AP Practice Problems Acct 2000 Ch 6

Under a perpetual inventory system, which account would be decreased by the purchasing company if the merchandise that had been purchased on credit was returned? Sales Revenue Accounts Receivable Inventory Purchase Returns and Allowances

Inventory

Which of the following is considered an unearned revenue? Tom purchased $500 supplies for the next 6 months of use in his bike shop. Don accrued $1,000 wage expense for the the gardener to be paid next weekend. Melissa receives $1,000 for the wedding cake delivered yesterday. Ana receives $800 for handmade bags to be delivered next month.

Ana receives $800 for handmade bags to be delivered next month.

The basic accounting equation can also be rewritten as Assets - Liabilities = Stockholders' Equity. Assets = Liabilities - Stockholders' Equity. Assets + Liabilities = Stockholders' Equity. Assets + Stockholders' Equity = Liabilities.

Assets - Liabilities = Stockholders' Equity.

Which of the following expresses the basic accounting equation? Assets + Liabilities = Stockholders' Equity Assets = Stockholders' Equity - Liabilities Assets = Liabilities + Stockholders' Equity Assets + Stockholders' Equity = Liabilities

Assets = Liabilities + Stockholders' Equity

Accumulated Depreciation is a ______ Expense Account Revenue Account Liability Account Contra Asset Account

Contra Asset Account

In a classified balance sheet, in which order are assets usually presented? Current assets; long-term investments; property, plant, and equipment; and common stocks Current assets; long-term investments; property, plant, and equipment; and intangible assets Current assets; long-term assets; property, plant, and equipment; and intangible assets Current assets; long-term investments; tangible assets; and intangible assets

Current assets; long-term investments; property, plant, and equipment; and intangible assets

A purchase invoice is created ______

by a seller who is completing an order for a buyer.

A company uses the __________ account to prepare the _____________ accumulated depreciation; income statement. unearned revenue; income statement. dividends; income statement. dividends; retained earnings statement.

dividends; retained earnings statement.

When the purchasing company keeps merchandise that is the wrong color or wrong size, the seller may grant a ________. It reduces ________ for the buyer. purchase allowance; accounts payable purchase discount; shipping costs purchase allowance; storage costs purchase return; sales revenue

purchase allowance; accounts payable

Which asset is considered a long-term investment? recently purchased land to be developed for expansion treasury bills inventory bonds expected to mature within the ensuing eleven months

recently purchased land to be developed for expansion

A company uses the __________ and ________ accounts to prepare the ______________________. asset; liability; income statement. revenue; expense; retained earnings statement. asset; liability; retained earnings statement. revenue; expense; income statement.

revenue; expense; income statement.

Electronics Galore has a year-end net income of $2.5 million and plans to re-invest $1.9 million back into the company. The remainder of the income will be distributed to managers. employees. stockholders. creditors.

stockholders

Which category of assets is primarily affected by a company's decision to allocate a portion of an asset's cost over each year of its useful life? property, plant, and equipment intangible assets current assets long-term investments

property, plant, and equipment

Which of the following amounts appears on two different financial statements? Accumulated Depreciation Unearned Rent Revenue Prepaid Rent Net Income

Net Income

Which of the following entities helps determine auditing standards and review the performance of auditing firms? Securities and Exchange Commission International Accounting Standards Board Financial Accounting Standards Board Public Company Accounting Oversight Board

Public Company Accounting Oversight Board

Dividends are subtracted from which of the following accounts? Retained Earnings Common Stock Service Revenue Accounts Receivable

Retained Earnings

Net income is added to which of the following accounts? Retained Earnings Common Stock Dividends Service Revenue

Retained Earnings

Which of the following amounts appears on two different financial statements? Common Stock Retained Earnings Dividends Interest Expense

Retained Earnings

When MaGee Industries prepares its balance sheet, if the company does not account for accrued ____________, MaGee's liabilities would be ___________________. Supplies Expense; understated. Interest; overstated. Revenues; overstated. Salaries and Wages Expense; understated.

Salaries and Wages Expense; understated.

What is the primary purpose of the statement of cash flows? To provide information about cash receipts and cash payments for a specific period of time. To compare the amount of stockholders' equity and the amount of debt. To report the company's resources and the claims to those resources. To provide detailed information about a company's financing activities.

To provide information about cash receipts and cash payments for a specific period of time.

An asset that is to be used or converted to cash within a year is a ________ asset. long-term tangible current present

current

Unlike salaries and wages payable and accounts payable, bonds payable are NOT a ________ liability. temporary long-term current future

current

A classified balance sheet focuses on operating cycles that are one year or less. All of these answer choices are correct. groups balance sheet items with similar economic characteristics. provides of a snapshot of the financial position over a period of time, such as a month or a quarter.

groups balance sheet items with similar economic characteristics.

According to which principle can a company purchase an asset for $1,000 and, despite an increase in value over time, can continue to report the asset for $1,000? materiality fair value historical cost cost constraint

historical cost

Which of the following is an example of a current asset on a classified balance sheet? land patents prepaid expenses goodwill

prepaid expenses

What are merchandising companies that sell to retailers known as? wholesalers brokers service firms corporations

wholesalers

A company's tabular summary of transactions and adjustments understates the value of its Dividends account by $1,200. This error _____ have a direct effect on the accuracy of the company's income statement. Would would not

would not

Which of the following statements is the best application of the economic entity assumption? "Make sure you compile the results of the employee satisfaction survey so we can include the relevant information in our next financial statements." "When you go on a business trip, the company will reimburse you for meals and hotel, but you will not be reimbursed for costs incurred when you go sightseeing." "The financial reports need to be completed by the end of August because our fiscal year ends on June 30." "We are a small, family-owned company, but my son plans to take over as CEO when I retire, so all our employees should still have jobs."

"When you go on a business trip, the company will reimburse you for meals and hotel, but you will not be reimbursed for costs incurred when you go sightseeing."

A company buys investment securities for $1 million on January 1, 2022. On December 31, 2022, the market value of the securities has grown to $1.5 million. What is the value of the investment securities on December 31, 2022, according to the historical cost principle? The fair value principle? $1 million; $1.5 million $1 million; $1 million $1.5 million; $1 million $1.5 million; $1.5 million

$1 million; $1.5 million

Fremont Corporation began the month of September with $0 in Retained Earnings. When prepared on September 30, the company's income statement shows a net income of $1,940. The company also has Dividends of $750. What amount should appear at the bottom of Fremont's retained earnings statement for the month ended September 30? $1,190 $2,690 $1,345 $0

$1,190

On Jan 1, 2020, GD Company purchase equipment for his new business for $150,000. The estimated life is 10 years. On Dec 1, the market value of the equipment went down to $140,000. How much depreciation expense will GD company record on Dec 31, 2020. $11,000 $14,000 $10,000 $15,000

$15,000

Gourmet Foods has three complexes that cost $150 million. The current fair value of the complexes is $350 million. The complexes are reported as assets on the balance sheet at ________ million. $50 $225 $150 $350

$150

Pippin Enterprises currently has Accounts Payable of $9,600, Bonds Payable of $8,400, Lease Liabilities of $6,200, and Income Taxes Payable of $7,500. The bonds and lease liabilities are payable in 3 years. Assuming Pippin has no other liabilities, what is the company's total current liabilities? $24,200 $31,700 $17,100 $14,600

$17,100

QP Corp. has a beginning retained earnings balance of $16,000. A tabular summary of transactions and adjustments shows total expenses of $24,000 and service revenue of $28,000. If dividends for the year were $1,800, determine the ending retained earnings balance for the year. $20,000 $14,200 $10,200 $18,200

$18,200

A company purchased 100 units for $20 per unit. The value of the inventory increased to $22 per unit within two months. According to the historical cost principle, the company would report these units at ________ on the balance sheet. $2,000 less depreciation $2,000 $2,200 $2,000 plus a separate line item for $200 appreciation

$2,000

A company purchased a building for $20 million and owned it for 5 years. During that time, the building was valued at a high of $25 million and a low of $22 million. What is the highest possible value this asset could have in the accounting records of this company? $25 million $20 million $21 million $22 million

$20 million

Torres Travel's retained earnings at the beginning of March 2022 was $200,000. During the month, the company earned net income of $50,000 and paid dividends of $10,000. At the end of March 2022, what is the amount of retained earnings? $260,000 $240,000 $150,000 $200,000

$240,000

A company purchased a factory for $25 million and owned it for 10 years, its useful life. During that time, the value of the factory was appraised for a high of $35 million and a low of $15 million. What is the highest possible value this asset could have in the accounting records of this company? $15 million $25 million $35 million $10 million

$25 million

Sheldon has the following year-end balances: Accounts Receivable, $5,000; Supplies, $12,000; Equipment, $18,000; Accounts Payable, $17,000; Stockholders' Equity, $43,000. The Cash balance was not available at year-end. Given the account balances listed, the balance in the Cash account should be $61,000. $25,000. $95,000. $43,000.

$25,000

Biggs Company purchased merchandise on account for $4,000 with terms 2/10, n/30, returned goods with a cost of $500, and paid within the discount period. The net cost of the goods is ____________ $3,430. $3,920. $4,000. $3,500.

$3,430.

At the beginning of the year, Tektron Company had total assets of $600,000 and total liabilities of $300,000. If the total assets increased $100,000 and the total liabilities decreased $70,000, what is the amount of stockholders' equity at the end of the year? $320,000 $470,000 $200,000 $30,000

$470,000

Several years ago, Darby Manufacturing purchased a new machine with an 8-year expected life for $68,400. On its current balance sheet, Darby lists accumulated depreciation on the machine at $51,300. Based on this, how much has the company expensed over the life of the asset? $17,100 $68,400 $8,550 $51,300

$51,300

A wholesaler offers credit terms of 1/10, n/30. A fabric store bought goods worth $6,500 from the wholesaler. Within the discount period, the fabric store returned defective goods worth $300 and paid the amount owed. How much did the wholesaler receive as payment? $6,138 $6,435 $6,200 $6,076

$6,138

Four years ago, Chaplin Inc. purchased a new machine with a 5-year expected life for $35,500. On its current balance sheet, Chaplin lists accumulated depreciation on the machine at $28,400. What is the machine's book value? $7,100 $35,500 $63,900 $28,400

$63,900

Kramer Fabrications retained earnings at the beginning of July 2022 was $600,000. During the month, the company earned net income of $145,000 and paid dividends of $25,000. At the end of July 2022, what is the amount of retained earnings? $720,000 $170,000 $145,000 $260,000

$720,000

If the credit terms are 2/10, n/30, the discount is ________ computed by deducting 2% of the purchase price from the purchase price. 2% of the net purchase price. 10% of the net purchase price. not applicable.

2% of the net purchase price.

If net sales are $2,000,000 and gross profit is $500,000, what is the gross profit rate? 25% 37.5% 50% 12.5%

25%

What is a purchase invoice? A document that provides evidence of credit purchases. A document that provides support for goods purchased with cash. A document that provides evidence of incurred operating expenses. A document that serves only as a customer receipt.

A document that provides evidence of credit purchases.

Altom Inc. lists $12,000 in investments in the current assets portion of its classified balance sheet. It also lists $14,000 in investments in the long-term investments portion. Based on this information, which of the following assumptions can you make about Altom's investments? Select answer from the options below Altom plans to convert $2,000 of their investments into cash in the next year. Altom plans to convert $12,000 of their investments into cash in the next year. Altom plans to convert $14,000 of their investments into cash in the next year. Altom plans to convert $26,000 of their investments into cash in the next year.

Altom plans to convert $12,000 of their investments into cash in the next year.

Crum Enterprises produces financial statements at the end of each month. Which of the following statements will be the third to be prepared? Retained Earnings Statement The statements can be prepared in any order Income Statement Balance Sheet

Balance Sheet

Which of the following statements must be prepared before the balance sheet can be prepared? The balance sheet is prepared after the income statement and before the retained earnings statement Neither the income statement nor the retained earnings statement Both the income statement and the retained earnings statement The income statement only

Both the income statement and the retained earnings statement

Arthur signed a six-month lease for his bakeshop on June 1 and prepaid $30,000. At the end of the period, on June 30, an adjustment was made to recognize the rent used for the period. Which accounts are affected by the adjustment? Increase in Rent Expense, Increase in Payable Increase in Rent Expense, Decrease in Cash Increase in Cash, Increase in Rent Expense Decrease in prepaid rent, Increase in Rent Expense

Decrease in prepaid rent, Increase in Rent Expense

When Daniel's Den prepares its income statement, if the company does not adjust for ________, Daniel's net income would be ___ Depreciation Expense; overstated. Service Revenue; overstated. Interest Expense; understated. Depreciation Expense; understated.

Depreciation Expense; overstated.

A company has a net income of $2,750,000 for 2022. They have decided to use $750,000 as dividends. What is the major difference between dividends and retained earnings?

Dividends are paid to stockholders whereas retained earnings are reinvested in the company.

If the seller pays the freight costs, the sales agreement should read ______

FOB destination.

David just finished compiling his firm's retained earnings statement for the month ended May 31. What should he do with the figure he calculates at the bottom of this statement? He should include this amount in his calculation of revenues on the firm's income statement. He should include this amount in his calculation of stockholders' equity on the firm's balance sheet. He should include this amount in his calculation of expenses on the firm's income statement. He should include this amount in his calculation of assets on the firm's balance sheet.

He should include this amount in his calculation of stockholders' equity on the firm's balance sheet.

In 2015, Ames Industries purchased a parcel of land adjacent to its factory; at that time, Ames had no intention of using the property and purchased it to prevent development. In 2022, Ames decided to construct additional office space on the parcel. How is the classification of the parcel on Ames' 2015 balance sheet different than that of 2022? In 2015 the parcel was listed under long-term investments, whereas in 2022 it was listed under property, plant, and equipment. In 2015 the parcel was listed under long-term investments, whereas in 2022 it was listed under current assets. In 2015 the parcel was listed under intangible assets, whereas in 2022 it was listed under property, plant, and equipment. In 2015 it was listed under property, plant, and equipment, whereas in 2022 it was listed under long-term investments.

In 2015 the parcel was listed under long-term investments, whereas in 2022 it was listed under property, plant, and equipment.

TUV Company uses the tabular summary of transactions and adjustments to prepare financial statements in which order? Balance Sheet, Income Statement, Retained Earnings Statement Retained Earnings Statement, Income Statement, Balance Sheet Income Statement, Retained Earnings Statement, Balance Sheet Income Statement, Balance Sheet, Retained Earnings Statement

Income Statement, Retained Earnings Statement, Balance Sheet

If a company using a perpetual inventory system purchases goods and pays the transportation costs, which account is increased? Contra Revenue Freight-Out Inventory Delivery Expense

Inventory

Financial statement users are interested in the statement of cash flows for which of the following reasons? It helps determine whether a company has a satisfactory proportion of debt and common stock financing. It helps users decide whether assets such as office equipment should be replaced. It provides information about a company's sources and uses of cash. It is the first statement that is presented to users.

It provides information about a company's sources and uses of cash.

What is one disadvantage of the perpetual inventory system? Companies can keep a detailed daily record of inventory on hand. It requires more record-keeping than a periodic inventory system. Companies can determine the cost of goods sold each time a sale occurs. It provides more control over inventories than a periodic inventory system.

It requires more record-keeping than a periodic inventory system.

On March 12th, Jones Company receives an online order from Smith Company for $2,800 of merchandise. Jones ships the order (FOB shipping point) on March 13th, and Smith receive it on March 20th. According to the revenue recognition principle, when should Jones record the revenue and related cost of goods sold? March 12th March 13th March 20th at the end of the fiscal year

March 13th

On May 2, Tiny Tim's Toys receives an online order from Kid's Toys for $4,200 of merchandise. Tiny Tim's Toys ships the order (FOB shipping point) on May 4th, and Kid's Toys receives it on May 6th. According to the revenue recognition principle, when should Tiny Tim's Toys record the revenue and related cost of goods sold? at the end of the fiscal quarter May 6th May 4th May 2nd

May 4th

On March 1, Mercury Incorporated's Retained Earnings was $0. Mercury's tabular summary of transactions and adjustments shows Dividends of $1,400. If Mercury's retained earnings statement shows Retained Earnings of $3,870 as of March 31, then which of the following statements is true? Mercury's total revenues for the month ended March 31 must have been $5,270. Mercury's net income for the month ended March 31 must have been $5,270. Mercury's net income for the month ended March 31 must have been $2,470. Mercury's total revenues for the month ended March 31 must have been $2,470.

Mercury's net income for the month ended March 31 must have been $5,270.

Under the perpetual inventory system, a company makes an entry to record the amount of sales revenue. Then what does the company do? The company increases the Cost of Goods Sold and decreases Purchases. The company increases the Cost of Goods sold and decreases Inventory. The company increases Inventory and decreases the Cost of Goods Sold. The company makes no additional entry until the end of the period.

The company increases the Cost of Goods sold and decreases Inventory.

Which of the following statements about the components of an annual report is true? Companies are not required to provide annual reports to stockholders. An auditor employed by the company must prepare the audit report. Information in the notes to the financial statement must be quantifiable, or numeric. The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.

The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.

What circumstance makes it more appropriate to use the fair value principle rather than the historical cost principle in reporting an asset? Select answer from the options below The value of the asset depends on the specific agreement between the buyer and seller. The asset never undergoes depreciation, but the seller reports a gain or loss upon sale of the asset. The asset undergoes depreciation over time. The market price of the asset is readily available and accurate.

The market price of the asset is readily available and accurate.

The payment of a $10,500 account within the 2% discount period will result in _ a decrease to Accounts Receivable for $10,290. an increase to Sales Discounts for $210. a decrease to Accounts Payable for $10,290. a decrease to Cash for $10,290.

a decrease to Cash for $10,290.

The payment of a $3,200 account within the 2% discount period will result in ______________ a decrease to Cash for $3,136. an increase to Inventory for $64. a decrease to Accounts Payable for $3,136. an increase to Accounts Payable for $3,136.

a decrease to Cash for $3,136.

McMillan Enterprises is preparing a classified balance sheet. Which of the following assets should McMillan list as a long-term investment? Select answer from the options below a patent for its production processes its factory building and equipment an inventory of raw materials a parcel of land it is not currently using in its operating activities

a parcel of land it is not currently using in its operating activities

To record a credit sale of inventory, a merchandiser would increase _____________

accounts receivable.

Lorna just finished compiling her company's income statement for the month ended March 31. Her next step in preparing the company's financial statements should be to _ subtract the company's net income for March from the company's retained earnings as of March 31. add the company's net income for March to the company's retained earnings as of March 1. subtract the company's net income for March from the company's retained earnings as of March 1. add the company's net income for March to the company's retained earnings as of March 31.

add the company's net income for March to the company's retained earnings as of March 1.

Which of the following are all publicly traded U.S. companies required to provide annually to their stockholders? dividends net income marketing strategy annual report

annual report

When preparing financial statements, Ripa Industries uses a one-year operating cycle. If Ripa pays its insurance premiums one year in advance, how should it list prepaid insurance on a classified balance sheet? as a long-term investment as stockholders' equity as an intangible asset as a current asset

as a current asset

How are liabilities usually classified on a balance sheet? as tangible liabilities and intangible liabilities as small liabilities and large liabilities as present liabilities and future liabilities as current liabilities and long-term liabilities

as current liabilities and long-term liabilities

Tonelli Trucking buys a $65,000 truck on credit. Which financial statement will be affected by this transaction? balance sheet only income statement, retained earnings statement, and balance sheet income statement and retained earnings statement only income statement only

balance sheet only

Why is accounting information relevant to business decisions? because it confirms or corrects prior expectations

because it confirms or corrects prior expectations

The auditor's report in an annual report must be prepared by a(n) accountant employed by the company. team of internal accountants. certified public accountant outside the company. certified public accountant employed by the company being audited.

certified public accountant outside the company.

According to the historical cost principle, if an asset costs $50,000 when it was purchased, it would be reported at its ________ over the time the asset is held. cost fair value market value appreciated value

cost

Based on the key assumptions of financial reporting, which of the following should be excluded from financial reports? Select answer from the options below transactions that occurred within the past year items that can be expressed in monetary units customer satisfaction and complaint reports purchase of a vehicle for a manager's work use

customer satisfaction and complaint reports

Which of the following should be excluded from the financial statements because it does not follow the monetary unit assumption? Select answer from the options below customer satisfaction reports a bank loan equipment real estate

customer satisfaction reports

A company receives a discount for paying for merchandise purchased within the discount period. How will the amount of the discount be recorded in a perpetual inventory system? increase to Accounts Payable decrease to Inventory increase to Cash decrease to Accounts Receivable

decrease to Inventory

Which of the following would NOT be found in the management discussion and analysis section of the annual report? description of the significant accounting policies and methods used management's interpretation of the company's financial position expansion financing the company's short-term paying ability

description of the significant accounting policies and methods used

A regional manager travels frequently for work, using a company credit card to pay for hotel costs. One weekend, he uses his company credit card to pay for his family to stay at a hotel on a personal vacation. However, he does not inform the company that the transaction was for personal use. This is in violation of which key assumption in financial reporting? going concern assumption monetary unit assumption economic entity assumption periodicity assumption

economic entity assumption

Mitchell Financial Services purchased some investment securities as part of their company investing activities. Each time the company prepares their financial statements, the accountant checks the market value of the securities and records their new value in the financial reports. This is an example of using the ________ principle. fair value full disclosure historical cost cost constraint

fair value

Assets that are actively traded and have readily available market value information should be reported using which measurement principle? cost constraint principle fair value principle historical cost principle full disclosure principle

fair value principle

The ________indicates that assets should be reported at the price received to sell an asset. fair value principle periodicity concept full disclosure principle economic entity assumption

fair value principle

Under which of the following circumstances would the classification of a parcel of land change from a long-term investment to property, plant, and equipment on a balance sheet? Select answer from the options below if the property was initially purchased but not used for operating activities and then later began to be used for operating activities if the property was initially used for operating activities but later stopped being used for operating activities if the property was initially used for operating activities and those activities continued on past a one-year operating cycle if the property was initially purchased but not used for operating activities and this continued on past a one-year operating cycle

if the property was initially purchased but not used for operating activities and then later began to be used for operating activities

Other revenues or expenses are added to or subtracted from income from operations to determine _____________ income from operations. net income. income before taxes. gross profit.

income before taxes.

Which of the following records a credit sale of merchandise? increase Cash and Service revenue increase Accounts Receivable and Sales returns and allowances increase Cash and Sales revenue increase Accounts Receivable and Sales Revenue

increase Accounts Receivable and Sales Revenue

Drago Company purchases merchandise on account. If Drago uses a perpetual inventory system, this transaction will __________ increase cost of goods sold and decrease accounts payable. increase cost of goods sold and increase inventory. increase inventory and increase accounts payable. increase sales revenue and increase accounts receivable.

increase inventory and increase accounts payable.

On December 1, Alturo Company purchased goods on account from Kato Company. On December 6, Alturo returned some of the goods because they did not meet specifications. On Kato's books, the December 6 return of merchandise will increase __________. cost of goods sold and decreases accounts payable. inventory and decrease accounts receivable. inventory and decrease accounts payable. increases sales returns and allowances and decreases sales revenue.

inventory and decrease accounts receivable.

Which of the following assets should be reported using the fair value principle? land office supplies equipment investment securities

investment securities

One of Kendra's roles as an accountant is to make sure that all the company's financial transactions are included in the financial statements and that none of the company's non-financial information is included in the financial statements. Kendra has been tasked with making sure the company complies with which assumption? economic entity assumption monetary unit assumption going concern assumption periodicity assumption

monetary unit assumption

The important information included in customer satisfaction reports is not included in the financial statements because it fails to support which of the following assumptions? Select answer from the options below monetary unit assumption going concern assumption periodicity assumption economic entity assumption

monetary unit assumption

Which of the following assumptions requires that only items that can be expressed in terms of money be included in the accounting records? going concern assumption economic entity assumption monetary unit assumption periodicity assumption

monetary unit assumption

The statement of cash flows is divided into which of the following major categories? purchasing, investing, and borrowing activities selling, marketing, and saving activities operating, investing, and financing activities selling, spending, and marketing activities

operating, investing, and financing activities

Nolan Grocers prepares financial statements dated December 31 of each year. This is an example of the ________ assumption. periodicity monetary unit going concern economic entity

periodicity

The time period covered by the retained earnings statement covers Select answer from the options below a specific period that is not correlated to other financial statements. the period before the income statement. the period after the income statement. the same period as the income statement.

the same period as the income statement.

What is net income? total revenues less expenses and dividends total revenues less total expenses total revenues less expenses plus dividends total revenues minus cost of goods sold

total revenues less total expenses

On a balance sheet, ________ are classified as intangible assets. buildings long-term assets trademarks long-term liabilities

trademarks