Exam #1

If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

$137,000

Jasper Company, Inc. is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper's total purchase price per unit will be:

$357

Tara Westmont, the stockholder of Tiptoe Shoes, Inc., had annual revenues of $185,000, expenses of $103,700, and the company paid $18,000 cash in dividends to the owner (sole stockholder). The retained earnings account before closing had a balance of $297,000. The ending retained earnings balance after closing is:

$360,300

A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

$417,000

Tara Westmont, the stockholder of Tiptoe Shoes, Inc., had annual revenues of $185,000, expenses of $103,700, and the company paid $18,000 cash in dividends to the owner (sole shareholder). The retained earnings account before closing had a balance of $297,000. The Net Income for the year is:

$81,300

Mega Skateboard Supplier, Inc. had net sales of $2.8 million, its cost of goods sold was $1.6 million, and its net income was $0.9 million. Its gross margin ratio equals:

43%.

A corporation is:

A business legally separate from its owners.

When closing entries are made:

All temporary accounts are closed but permanent accounts are not closed.

Prepaid expenses are generally:

Assets that represent prepayments of future expenses.

To include the personal assets and transactions of a business's stockholders in the records and reports of the business would be in conflict with the:

Business entity assumption.

An account used to record the stockholders' investments in a business is called a(n):

Common stock account.

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

Cost Principle

The right side of a T-account is a(n

Credit

Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:

Credit to Unearned Management Fees for $60,000

Richard Redden contributed $70,000 in cash and land worth $130,000 to open a new business, RR Consulting, Inc. Which of the following general journal entries will RR Consulting, Inc. make to record this transaction?

Debit Cash $70,000; debit Land $130,000; credit Common Stock, $200,000.

K. Canopy, the stockholder of Canopy Services, Inc., The company paid $5,700 cash in dividends to the owner (sole stockholder). The entry to close the dividends account at the end of the year is:

Debit Retained Earnings $5,700; credit Dividends $5,700

A merchandiser:

Earns net income by buying and selling merchandise.

Accounting is an information and measurement system that does all of the following except:

Eliminates the need for interpreting financial data.

The closing process is necessary in order to:

Ensure that net income or net loss and dividends for the period are closed into the retained earnings account.

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

FASB

The following statements regarding gross profit are true except:

Gross profit is not calculated on the multiple-step income statement.

Closing the temporary accounts at the end of each accounting period does all of the following except:

Has no effect on the retained earnings account.

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

Income Summary account.

Merchandise inventory:

Is a current asset.

Liquidity problems are likely to exist when a company's acid-test ratio:

Is substantially lower than 1.

Cost of goods sold:

Is the term used for the expense of buying and preparing merchandise for sale.

The current ratio:

Is used to help assess a company's ability to pay its debts in the near future.

Unearned revenues are generally:

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

The following statements regarding merchandise inventory are true except:

Merchandise inventory appears on the balance sheet of a service company.

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Objectivity Principle

If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,300 and another asset decreases $1,300, causing no effect.

A classified balance sheet:

Organizes assets and liabilities into important subgroups that provide more information.

J. Brown Consulting paid $2,500 cash for a 5-month insurance policy which begins on December 1. Given the choices below, determine the general journal entry that J. Brown Consulting will make to record this transaction.

Prepaid Insurance 2,500 Cash 2,500

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

A business's source documents:

Provide objective evidence that a transaction has taken place

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Revenue recognition principle.

Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:

The common stock account.

The current period's ending inventory is:

The next period's beginning inventory.

A credit is used to record an increase in all of the following accounts except:

Wages Expense

It is obvious that an error occurred in the preparation and/or posting of closing entries if:

all balance sheet accounts have zero balances.