Financial Accounting Final Review

The following data are available for Allen Clapp Corporation. Net income $200,000 Depreciation expense 40,000 Dividends paid 60,000 Gain on disposal of land 10,000 Decrease in accounts receivable 20,000 Decrease in accounts payable 30,000 Net cash provided by operating activities is:

$220,000 This is because you first take your net income 200,000 + 40,000 - 60,000 -10,000 + 20,000 + 30,000 Depreciation expense is always added. Dividends paid is always subtracted. Gain on disposal of land is subtracted because you bought land so you spent money. Loss on disposal of land is always added on the other hand. Decrease in accounts receivable is is always added. Decrease in accounts payable is always added.

Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Service Revenue at December 31?

$4,500 First you do 18,000 * 9/12 = $13,500 which is your payable amount. Then you do 18,000 - 13,500 which is 4,500 which is your Premium amount.

Adjusting entries are made to ensure that:

(a) expenses are recognized in the period in which they are incurred. (b) revenues are recorded in the period in which services are performed. (c) balance sheet and income statement accounts have correct balances at the end of an accounting period. (d) All the responses above are correct. <<<<<<

What is cash outflow?

- money you pay regularly (salaries, rent, supply & utility bills) To purchase something or to make loans to other entries.

Which method is required by generally accepted accounting principles?

Allowance method (Percentage- of- receivables basis)

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2015. The machine was purchased for $80,000 on January 1, 2011, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale?

Annual depreciation expense = cost of machine / useful life 80,000/ 10 = $8,000 Accumulated depreciation expense= 2011 to 2014 (4 years) * 8,000 + 8,000 * 6/12 months for the remainder of the year 2015. 32,000 + 4,000 = 36,000 Now we must find the book value of the machine at the beginning of 2015. Cost of machine - accumulated depreciation expense up to 2011. 80,000 -36,000 = $44,000. Then you do 44,000 - 26,000 (sale price of machine) = $18,000 is the answer.

On the last day of the period, Alan Cesska Company buys a $900 machine on credit. This transaction will affect the:

Balance sheet only

What is added up when finding the cost of the equipment?

Cash price, sales taxes, insurance during transit, installation and testing. NOT depreciation

ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to:

Common stock $10,000 Paid in capital in excess of par - $2,000 You do: 1,000 shares * 12 per share = 12,000 Then: 1,000 * 10 par value = $10,000 Common stock is your shares times par value always The total cash is 12,000 Paid in capital in excess is the amount of cash minus the common stock.

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is:

Cost of goods sold = beginning inventory + costs of goods purchased - ending inventory 60,000 +380,000 - 50,000 = 390,000

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2015. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

Current inventory = Inventory balance + Goods held with consignment 180,000 + 35,000 = 215, 000 (answer)

What effect does stock dividends have on the retained earning of a company?

Decrease in retained earnings.

Rivera Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:

Depreciation Expense 1,000 Accumulated Depreciation -Equipment 1,000

Micah Bartlett Company purchased equipment onJanuary 1, 2014, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2015, if the straight-line method of depreciation is used, is

Depreciation expense per year = (Cost - salvage value) / Useful life 400,000 - 10,000 / 5 = 78,000 Since it is asking for the amount in 2015 you must add another 78,000 = 156,000.

The use of prenumbered checks in disbursing cash is an application of the principle of:

Documentation procedures

Cash dividends paid to stockholders are classified on the statement of cash flows as:

Financing Activity

Blinka Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Blinka Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to:

First you do 50,000 * 0.04 (credit charge) = 2,000. The entry would then look like: Cash. 48,000 Service Charge Expense 2,000

Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year?

First you do: 497,000 * .10 = $49700 Then you take the payment (200,000) - 49700 = 150,300 So your payment minus your interest expense is your mortgage payable is 150,300. This is for your first payment. Now you take 497,000 - mortgage payable= $346,700 which is now how much you owe. Do 346,700 * 0.10 = 34670 This is your interest expense in the second year.

Ginter Co prepares its financial statements annually at 12/31. Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The note was issued on October 1. How much interest revenue will be accrued at 12/31 when Ginter prepares its year end financial statements?

For this you must look at the date the note was issued!!! Then find the interest revenue: (10,000 * 0.09) * 90/360 You do 90 because from October 1st to december 31st that is 90 days.

What is a cash inflow?

From SALE of goods or services From INTEREST RECEIVED and DIVIDENDS received.

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, the gross profit is:

Gross profit = sales revenue - cost of goods sold 400,000 - 310,000 = 90,000

How do you find the book value of something?

Historical cost ( original cost of the item - accumulated depreciation)

What does it mean when bonds are issued at premium?

Investor pays more for the bond upfront and then just receives the face amount of the bonds when it is due. But when this happens it reduces the rate of return from the contractural rate down to the market rate.

Which is an example of a cash flow from a financing activity?

Issuance of debt for cash.

In periods of rising prices, LIFO will produce:

Lower net income than FIFO

What effect does stock split have on the retained earning of a company?

No change in retained earnings!

A Company is preparing its balance sheet as of December 31, 2022. Which of the following would NOT be classified as a Current Asset?

Patents

What is an example of a cash flow from an investing activity?

Receipt of the cash from the sale equipment.

Which of the following statements about the accrual basis of accounting is TRUE?

Recognize revenue in the accounting period in which the performance obligationis satisfied.

What does liquidity mean?

Refers to the ability to pay maturing obligations and meet unexpected needs for cash.

You are the Human Resources Manager for ECW, Inc. You want to improve internal controls over cash disbursements and cash receipts. Therefore, you would implement the following rules:

Require employees to take vacations.

Ren Company had the following transactions during 2022: Performed services of $14,400 on account. The services were performed in 2022. The customer paid Ren in 2023. Paid $750 cash for a one-year insurance policy in December 2022. The coverage began in 2023. Paid $4,875 cash in salaries for services performed by employees in 2022. What is Ren's 2022 net income (net loss) using accrual basis accounting?

Revenue = 14400 Less: Salaries 4875 Subtract them and get $9525 as net income.

Wilson Company has a weekly payroll of $100,000. The year ends on a Thursday, December 31, but Wilson Company does not pay their employees until Friday, January 1. The adjusting entry for Wilson Company at December 31 is:

Salaries and Wages Expense 80,000 Salaries and Wages Payable 80,000

An account that will have a zero balance after closing entries have been journalized and posted is:

Service Revenue

Use the same information as in Question 4, except that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this situation, the amount of bad debt expense that should be reported for the year is:

Since he had a debit balance of 5,000 this means he still owes this amount of money therefore now we must add this debit balance at the end of the year to the uncollectibles and the answer is now 60,000 + 5,000 = 65,000.

On January 1, 2022, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. The amount of interest expense that Hurley will record in 2022 related to this bond is

So first you do 500,000 * bonds at .96 with interest payable = 480,000 Then you take 500,000 -480,000 which is 20,000. Then you take 20,000 and divide by years so 5. = $4,000 Then you do 500,000 * .12 = 60,000 Now add them and the answer is $64,000.

Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is:

So to calculate Interest Revenue here you must do: (10,000 * 0.09) * 120/360 -You divide by the amount of days in a year then account for the amount of days the note is for. -Now you get $300 as interest revenue. -The entry would then look like this: Cash $10,300 Notes Receivable $10,000 Interest Revenue. $3,000

The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

Supplies Expense 750 Supplies 750

Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2015. On July 31, 2015, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2015, should be:

The 150,000 is spent on the research and development while the 35,000 is spent on legal fees. So, the total amount debited should be 35,000 only so that the patent could be obtained.

When a company uses the periodic inventory system:

The company does not know cost of goods sold without taking a physical inventory

What is critical in analyzing liquidity?

The relationship of current assets to current liabilities.

Assume that Horicon Corp acquired 25% of the common stock of Sheboygan Corp. on January 1, 2015, for $300,000. During 2015, Sheboygan Corp. reported net income of $160,000 and paid total dividends of $60,000. If Horicon uses the equity method to account for its investment, the balance in the investment account on December 31, 2015, will be:

To solve this you do: (.25 * net income) = 40000 (.25 * total dividends) = 15000 Then you do: Your initial acquired amount of the common stock - 15,000 (dividends paid) + percent of the net income (40,000) = $325,000

In the stockholders' equity section, the cost of treasury stock is deducted from:

Total paid in capital and retained earnings.

Why do we not add FOB destination to the inventory?

Under FOB, destination point the goods are property of the seller until it reaches the buyer place. Therefore the freight is the responsibility of the seller.

What is a controlling interest?

When a business owns more than 50% of a company's stock.

Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:

You do 60,000 - 5,000 because since they had the credit for 5000 before any adjustments they were able to use it at the end of the year towards the 60,000 uncollectibles.

A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is:

You start with the credit sales on June 13th which is 750. 750-50 (you were granted 50 so you take that away from what you still owe) = $700 Your new balance due is 700. Take your 700 * 0.02 = $14 Take 700- 14 = 684!

The total gross earnings for the week for the employees of XYZ Company was $100,000. Federal income tax withholding was $15,000 and FICA withholding was $6,000. (The payroll is paid on Saturday for the week ending Friday.) The journal entry that XYZ Company would record when recording the payroll for the week would include:

You take the gross earnings and subtract the federal income tax and FICA income tax. 100,000 - 6,000 - 15,000 = $79,000 So then we know to credit this to salaries and wages payable.

In a classified balance sheet, assets are usually classified using the following categories:

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

Payment of an account payable affects the components of the accounting equation in the following way

decrease assets and decrease liabilities.

Adjustments for prepaid expenses....

decrease assets and increase expenses

Adjustments for unearned revenues....

decrease liabilities and increase revenues

Pryor Company receives net proceeds of $42,000 on the sale of stock investments that cost $39,500. This transaction will result in reporting in the income statement..

gain of $2,500 under "Other revenues and gains" Im not sure why need to ask someone.

Adjustments for accrued revenues....

have an assets and revenues account relationship

Falk Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are:

overstated, understated

Under a perpetual inventory system, when goods are purchased for resale by a company:

purchases on account are debited to inventory

Gross profit will result if:

sales revenues are greater than cost of goods sold.

Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:

the contractual interest rate exceeds the market interest rate