Midterm 1

The 'Sales Returns and Allowances' account is classified as a:

contra revenue account.

A minor amount of cash kept on hand to pay for small purchases is referred to as a:

Petty cash fund

Consider the following transactions: 1. The company uses supplies purchased in the previous period, $1,500. 2. The company pays cash for rent in advance, $6,000. 3. The company repays a loan to the bank, $10,000 (ignore any interest cost). The amount of accrual-basis expense is _____ while the amount of cash-basis expense is _____.

$1,500; $6,000

The balance in the Colt Company's Cash account on August 31 was $19,700, before the bank reconciliation was prepared. After examining the August bank statement and items included with it, the company's accountant found: Checks outstanding $4,300 NSF check $140 Note collected by bank for the Colt Company $1,200 Deposits outstanding $1,800 Bank service fees $60 What is the amount of cash that should be reported in the balance sheet as of August 31?

$20,700

Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders' equity, $25,000; dividends, $3,000; and net income, $10,000. What is the amount of Emmitt's liabilities?

$30,000.

Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000; sales discounts = $12,000; sales returns = $44,000; sales allowances = $17,000; bad debt expense = $5,000. What was the company's net revenues for the year?

$477,000

The following information was taken from the bank reconciliation for Purdue Inc. at the end of the year: Bank balance: $8,000 Checks outstanding: $5,800 Note collected by the bank: $1,500 Service fee: $20 Deposits outstanding: $4,000 NSF check (bad check) returned for $300 What is the correct cash balance that should be reported in Purdue Inc.'s balance sheet at the end of the year?

$6,200.

22. On December 31, 2018, Andy Inc. has a debit balance of $1,500 for the Allowance for Uncollectible Accounts before any year-end adjustment. Andy Inc. also has the following information for its accounts receivable and the estimated percentages of bad debts for different past-due amounts: Age Group Accounts Receivable Estimated Percent Uncollectible 0-30 $50,000 5% 31-60 $20,000 10% 61-90 $10,000 20% What is the amount of bad debt expense to be reported on Andy Inc.'s financial statements for 2018 using the aging method?

$8,000

Which one of the following statements regarding financial reports is correct? 1) The statement of cash flows shows cash inflows and outflows from operating activities only. 2) The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year. 3) The balance sheet classifies all assets according to operating, investing, and financing activities. 4) The income statement is used to show that a company's resources equal claims to those resources.

2) The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year.

Which of the following statements is NOT correct about the financial statements? 1) The statement of cash flows shows cash inflows and outflows from operating, financing, and investing activities. 2) The statement of stockholders' equity presents common stock, dividends, and retained earnings information. 3) A balance sheet reports assets, liabilities, and expenses. 4) An income statement reports revenues, expenses, and net income information.

3) A balance sheet reports assets, liabilities, and expenses.

The owner of an office building should report rent collected in advance as a debit to Cash and a credit to:

A liability.

Which of the following is NOT a liability account? Accounts Payable Notes Payable Accounts Receivable Deferred Revenue

Accounts Receivable

When preparing a bank reconciliation, a deposit outstanding would be:

Added to the bank's cash balance

Which of the following does not represent an asset of a company? 1) Supplies held by the company. 2) Amounts owed to suppliers. 3) Equipment owned and used for operations. 4) Amounts receivable from customers.

Amounts owed to suppliers.

Which of the following transactions would not require a journal entry using accrual-basis accounting? 1) Buying supplies on account 2) Providing a good or service to a customer in exchange for cash 3) Collecting cash from a sale made in a previous period 4) Anticipating greater demand for the firm's services in the following year

Anticipating greater demand for the firm's services in the following year

Accounting Equation

Assets = Liabilities + Stockholders' Equity

How are assets affected by debts and credits

Assets are increased by debt and decreased by credit

Which of the accounts are increased with a debit and decreased with a credit?

Assets, dividends, and expenses

The financial statement that represents the accounting equation is the:

Balance sheet

On July 1, 2018, Rents-A-Lot Inc. paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2019 financial statements for Rents-A-Lot under both cash-basis and accrual-basis accounting?

Cash-basis = $0; Accrual-basis = $24,000.

Cash and cash equivalents may NOT include: 1) Undeposited customer checks 2) Certificates of deposits with maturity dates greater than three months 3) Foreign currency 4) Money market deposit accounts

Certificates of deposits with maturity dates greater than three months

Which of the following would NOT need to be accounted for in a bank reconciliation? 1) NSF checks recorded by the bank but not by the company 2) Checks written by the company and recorded by the bank 3) Deposits outstanding recorded by the company but not the bank 4) Interest earned recorded by the bank but not the company

Checks written by the company and recorded by the bank

The closing process includes which of the following? 1) Closing the balance of the retained earnings account to zero. 2) Closing the balance of only the dividends account to zero. 3) Closing the balances of only revenue and expense accounts to zero. 4) Closing the balances of revenue, expense and dividend accounts to zero.

Closing the balances of revenue, expense and dividend accounts to zero.

On July 7, Saints Inc. received $10,000 in cash from a customer for services to be provided on October 10. Which of the following describes how the transaction should be recorded on July 7?

Debit Cash $10,000, credit Deferred Revenue $10,000

Which of the following is a possible closing entry? 1) Debit Cash, credit Service Revenue. 2) Debit Cash, credit Retained Earnings. 3) Debit Service Revenue, credit Retained Earnings. 4) Debit Dividends, credit Retained Earnings.

Debit Service Revenue, credit Retained Earnings

After preparing the bank reconciliation, an NSF check would result in which of the following when recording the adjustment to the company's cash balance? 1) Credit to Accounts Payable 2) Debit to Accounts Receivable 3) Credit to Service Revenue 4) Debit to Service Fee Expense

Debit to Accounts Receivable

Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation?

Decrease assets and decrease stockholders' equity

How are dividends affected by debts and credits

Dividends are increased by debt and decreased by credit

How are expenses affected by debts and credits

Expenses are increased by debt and decreased by credit

Investing activities include cash transactions involving revenue and expense events during the period.

False

Financial accounting and reporting standards in the United States are established primarily by the:

Financial Accounting Standards Board

Accountants are responsible for measuring various operating, investing and financing activities. Which of the following correctly matches the activity with its type? 1) Investing - paying utilities for the month 2) Financing - receipt of cash from bank borrowing 3) Investing - purchasing office supplies 4) Operating - paying dividends to stockholders

Financing - receipt of cash from bank borrowing

Net income (loss) appears in which two financial statements?

Income statement and statement of stockholders' equity.

Accountants are responsible for measuring various operating, investing and financing activities. Which of the following correctly matches the activity with its type?

Investing - purchasing land

How are liabilities affected by debts and credits

Liabilities are increased by credit and decreased by debt

Under the provisions of the Sarbanes-Oxley Act, corporate executives: 1) Must personally certify the company's financial statements 2) Have limited responsibility for financial statements 3) Are not allowed to view the company's financial statements 4) Must personally prepare the company's financial statements

Must personally certify the company's financial statements

If a company incorrectly records a payment as an expense instead of an asset, how will this error affect net income in the current period?

Net income will be too low

On January 1, Brad Inc. sold $30,000 in products to a customer on account. Then on January 10, Brad collected the cash on that account. What is the impact on Brad's accounting equation from the collection of cash on January 10?

No net effect to the accounting equation

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered a week later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction under accrual-basis accounting?

November.

When a company pays cash in advance for rent that is to be used over the next 2 years, the company records a debit to ______ and a credit to ______.

Prepaid Rent; Cash

Income Statement

Reports the net income or net loss of the business for a specific period.

How are revenues affected by debts and credits

Revenues are increased by credit and decreased by debt

Which of the following accounts is listed in a post-closing trial balance? 1) Salaries Payable. 2) Advertising Expense. 3) Dividends. 4) Service Revenue.

Salaries Payable.

Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:

Sales allowance

Which of the following is a nominal account? 1) Deferred Revenue 2) Accounts Receivable 3) Service Revenue 4) Prepaid expenses

Service Revenue

Cash equivalents refer to:

Short-term investments that have a maturity date no longer than three months from the date of purchase

statement of stockholders' equity

Summarizes the changes in the balance in each stockholders' equity account over a period of time

A company has the following transactions: - Pay workers' salaries for the current period.• Pay next year's rent in advance. - Pay dividends to stockholders in the current period. - Receive (but do not pay) a current period utility bill. - Use supplies previously purchased. How many of these transactions result in an expense being reported in the current period using accrual-basis accounting?

Three

What is the primary purpose of a bank reconciliation? 1) To ensure the bank balance per reconciliation is equal to the company balance per reconciliation 2) To ensure that for all cash transactions debits equal credits 3) To ensure that customers are paying amounts owed on a timely basis 4) To ensure cash receipts are greater than cash disbursements

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation

What is a direct purpose of internal controls? 1) To assist top executives in planning employment capacity 2) To minimize tax payments to the Internal Revenue Service (IRS) 3) To improve the accuracy and reliability of accounting information 4) To help managers determine which projects are likely to be more profitable

To improve the accuracy and reliability of accounting information

If a company records cash received for services to be provided in the future with a debit to Cash and a credit to Service Revenue, how will this error affect total assets for the current period?

Total assets will be correct.

Which of the following best describes the purpose of closing entries? 1) Adjusting liability accounts for changes due to the passage of time 2) Adjusting asset accounts for changes due to the passage of time 3) Recording a transaction with an external party 4) Transfer balance of all temporary accounts to the balance of retained earnings

Transfer balance of all temporary accounts to the balance of retained earnings

A classified balance sheet separates assets into current and long-term, and separates liabilities into current and long-term.

True

. Consider the following cash flow items: Pay amount owed to bank for previous borrowing. Pay utility costs. Purchase equipment to be used in operations. Purchase office supplies. Purchase one year of rent in advance. Pay workers' salaries. Pay for research and development costs. Pay taxes to the IRS. Sell common stock to investors. How many of these cash flow items involve financing activities?

Two (Sell common stock to investors & Pay amount owed to the bank for previous borrowing)

Adjusting entries are primarily needed for:

accrual basis accounting

Revenues will ______ retained earnings, and dividends will ______ retained earnings.

increase; decrease

Financial Accounting

information provided for external users

Managerial Accounting:

information provided for internal users

Statement of Cash Flows

measures activities involving cash receipts and cash payments over an interval of time

How are owners equity affected by debts and credits

owners equity is increased by credit and decreased by debt

Balance Sheet

reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time

The account unearned revenue (or deferred revenue) is used to record

revenues received in advance from customers.

Investing Activities

transactions involving the purchase and sale of resources that provide benefit for several years

Operating Activities

transactions that relate to the primary operations of the company

Financial Activities

transactions the company has with investors and creditors