MBA 510 Accounting Exam 1

On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What amount of insurance expense will be reported on the annual income statement for the first year ended December 31?

$1,350/36= 37.50/month 37.5(9 months) = $337.50

In its first year of operations, Grace Company reports the following: Revenue of $60,000 ($52,000 cash received from customers); Expenses of $35,000 ($31,000 cash paid toward expenses). Net income under the cash basis of accounting is:

$21,000

Jacob's Chocolates had beginning retained earnings of $4,00 0; net income of $10,000; and dividends of $300, calculate the ending balance in the retained earnings account.

$4,000 beginning balance + $10,000 net income - $300 dividends. $13,700

Describe the order in which a company prepares financial statements.

- Income Statement - Statement of Retained Earnings - Balance Sheet - Statement of Cash Flows

All of the following are part of the FASB conceptual framework: (Select all that apply).

- Objectives - Recognition and measurement - Elements - Qualitative characteristics

Given the accounts, choose all of the ones that would affect equity

- common stock - dividends - revenues - expenses

The general ledger can be used to determine which of the following

- increases and decreases in all accounts in a business. - which accounts are being used by a company and their balances at any given time. - common and unique accounts used by a business.

Which of the following would be considered a source document in an accounting system?

- payroll records - checks - purchase order - sales receipt

Identify the correct definition of an asset:

An asset is a resource that a business owns or controls

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies. (Check all that apply.)

Any unused prepaids existing at end of period are transferred to asset accounts. Record all prepaid expenses with debits to expense accounts.

Physical counts of inventory:

Are used to adjust the Inventory account balance to the actual inventory available.

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Book value

Which list of accounts below, identifies only accounts that would appear on a balance sheet.

Common stock, equipment, accounts payable

The usual order for the asset subgroups of a classified balance sheet is:

Current assets, long-term investments, plant assets, intangible assets.

Which of the following statements describes the effect of expenses on equity?

Expenses cause equity to decrease

Which of the following assets is not depreciated?

Land

On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available: Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000. Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000. Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.) Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:

Plunkett beginning inventory of $215,000. The information in the 1st point was handled correctly, although the explanation for why is incorrect. No adjustment is required for that. For the 2nd point, the $44,000 of goods should not have been included in ending inventory, since the goods were shipped FOB destination. Subtract $44,000 from the ending inventory. For the 3rd point, the ending inventory should not include goods held on consignment from another company. Subtract $15,000from the ending inventory. The information in the 4th point was handled correctly. No adjustment required. Hence, $215,000 - $44,000 - $15,000 = $156,000

An employee that is having trouble paying his personal bills might exhibit the following fraud factor:

Pressure

Boaz Company had beginning of year assets of $100 million and end of year assets of $120 million. Boaz's net income is $5 million. Calculate Boaz Company's return on assets. Round your answer to 1 decimal place.

Reason: $5 million/[($100 million + $120 million/)2] = 4.5%

What are Generally Accepted Accounting Principles?

The concepts and rules that govern financial accounting practice.

The time period assumption presumes that an organization's activities can be divided into specific time periods such as a month, a three-month quarter, a six-month interval, or a year.

True

The approach to preparing financial statements based on recording revenues when products and services are delivered and recording expenses when incurred is:

accrual basis accounting

Interim financial statements

are financial statements prepared for a period of less than one year

Prepaid accounts are ___ that represent prepayments of future expenses and are increased with a +____

assets, debits

Jackson's Programming paid its June rent of $500 cash. Demonstrate how to use the accounting equation to record the transaction by completing the following sentence. Jackson would decrease _____ and increase ________ in the accounting equation

cash, expenses

The FASB conceptual framework consists of all of the following except:

concepts

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

contra account

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

counters of inventory should be those who are responsible for the inventory

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

debit insurance expense, $360; credit Prepaid Insurance, $360

Goods on consignment are:

goods sent by the owner to the consignee who sells the goods for the owner

Sally Smith decided to start a sea shell business organized as a corporation. Her initial investment in the business consisted of $10,000 in cash in exchange for common stock. Record this transaction in the accounting equation of the new business by:

increasing Cash; increasing Common Stock

Jackson's Catering Company provided cookies worth $3,000 to the local college. The college paid immediately. Record this transaction in Jackson's accounting equation by:

increasing Cash; increasing Revenues

On 8/1, supplies costing $500 were purchased on credit. Record this transaction in the accounting equation by:

increasing Supplies, and increasing Accounts Payable

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

is referred to as accumulated depreciation

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

net sales

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

overstate net income by $28,000

Which of the following is correct regarding posting a transaction?

posting means to transfer journal information to a ledger

Equity is composed of contributed capital and ______

retained earnings

Which of the accounts below would appear in the equity section of a classified balance sheet?

retained earnings

The ______ recognition principle states that revenue is recognized when goods or services are provided to customers and at an amount expected to be received.

revenue

The accounting principle that requires revenue to be recorded when goods or services are provided customers and at an amount expected to be received from customers is the

revenue recognition principle

A graphical presentation of data to help in understanding their significance is called data ______

visualization

Goods in transit are included in a purchaser's inventory:

when the goods are shipped FOB shipping point