Principles of Accounting Final Exam

Determine the new income of a company for which the following information is available for the month of July.

$190,000

If assets are $365,000 and equity is $120,000, then liabilities are:

$245,000

At the beginning of January of the current year, Little Mikey's Catering ledger reflected a normal balance of $52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500. Additionally, during January one customer paid Mikey $5,000 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be:

$49,700

Rico's Taqueria had cash inflows from operating activities of $27,000; cash outflows from investing activities of $22,000 and cash outflows from financing activities of $12,000. Calculate the net increase or decrease in cash.

$7,000 decrease

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals):

1.25

On November 1, Jovel Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is:

100,000 * 6% * 2/12 = $1000

the interest accrued on 7500 at 6% for 90 days is:

112.5

On January 1, Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscriptions Revenue. The issues of the magazine are mailed to subscribers quarterly. What amount of subscriptions revenue should the magazine recognize on March 31 when the first issue is sent in March?

15000/4 = $3,750

On May 1, a two-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

18000/24 * 8 = $6000

the chief executive officer earns 20000 per month. as of may 31, her gross pay was 100000. the tax rate for social security is 6.2% of the first 118500 earned each calendar year and the fica tax rate for medicare is 1.45% of all earnings. the current futa tax rate is .6% and the suta tax rate is 5.4%. both unemployment taxes are applied to hte first 7000 of an employee's pay. what is the amount of fica-social security withheld from this employee for the month of june?

290

the current futa tax rate is 0.6% and the suta tax rate is 5.4%. both taxes are applied to the first 7000 of an employees's pay. assume that an employee earned total wages of 9900. what is the amount of total unemployment taxes the employer must pay on this employee's wages?

420

Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:

54000

on december 1, watson enterprises signed a 24000, 60-day, 4% note payable as replacement of an account payable with erikson company. what amount of interest expense is accrued at december 31 on the note?

80

Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days' sales in inventory equals:

80.9 days

on july 9 , mifflin company receives an 8500, 90-day, 8% note from a customer payton summers as payment on account. compute the amount due at maturity for the note.

8670

an employee earned 128500 working for an employer in the current year. the current rate for fica social security is 6.2% payable on earnings up to 118500 maximum per year and the rate for fica medicare 1.45% of all earnings. the employer's total fica payroll tax for this employee is:

9210.25

A business uses a credit to record:

A decrease in an asset account or an increase in a liability or equity account

The description of the relation between a company' assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the:

Accounting Equation

Saddleback Company paid off $30,000 of its accounting payable in cash. What would be the effects of this transaction on the accounting equation?

Assets, $30,000 decrease, Liabilities, $30,000 decrease, Equity, no effect.

If a company paid $38,000 of its accounting payable in cash, what was the effect on the accounting equation?

Assets, $38,000 decrease, Liabilities, $38,000 decrease, Equity, no effect.

In a business decision where there are ethical concerns, the preferred course of action should be one that :

Avoids casting doubt on the decision maker and upholds trust

The financial statement that identifies a company's cash receipts and cash payments over a period of time is the:

Cash flow statements

Which of the following accounting principles require that all goods and services purchased be recorded at actual cost?

Cost Principle

Consignment goods are:

Goods shipped by the owner to the consignee who sells the goods for the owner

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:

Income statement

a change in an accounting estimate is:

Reflected in current and future years' financial statements, not in prior statements.

Jay's Limo Services paid $300 cash to employees for work performed in the current period. Which of the following general journal entries will Jay's Limo Services make to record this transaction?

Salaries expense $300 cash $300

plant assets are defined as:

Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business.

a bond traded at 102 1/2 means that:

The bond traded at 102.5% of its par value.

A balance sheet lists:

The types and amounts of assets, liabilities, and equity of a business as of a specific date.

a remittance advise is a(n):

a company file utilized by the financier to inform the merchant of the items compensated

a credit sale of $5275 to a customer would result in which of the following?

a debit to the accounts receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger

a promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

a note receivable

a pension plan:

a plan for setting aside money to be spent after retirement

the depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(n):

accelerated depreciation method

ryan company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June Bank statement shows $18,361 on deposit in the bank. Ryan's comparison of the bank statements to its cash account revealed the following

adjusted bank balance $19037

in the process of reconciling its bank statement for January, maxi's clothing's accountant compiles the following information:

adjusted cash balance per the book on january 31 $4055

the full disclosure principle:

all material information has to be disclosed in financial statements

revenue expenditures:

an amount that is expensed immediately

a credit memorandum on a bank statement indicates:

an increase in a bank's liability account

Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

assuring that no loss will occur

An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

bank reconciliation

the contract between the bond issuer and the bondholders identifying the right and obligations of the parties, is called a(n):

bond indenture

the understatement of the ending inventory balance causes:

cost of goods sold to be overstated and net income to be understated

the inventory turnover ratio is calculated as

cost of goods sold/average inventory

Costs included in the Merchandise Inventory account can include all of the following except:

damaged inventory that cannot be sold

What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250?

debit insurance expense 4500 and credit prepaid insurance 4500

marks consulting purchased equipment costing 45000 on january 1, year 1. the equipment is estimated to have a salvage value of 5000 and an estimated useful life of 8 years. straight-line depreciation is used. if the equipment is sold on july 1 year 5 for 20000, the journal entry to record the sale will include a :

debit to accumulated depreciation for 22500

On May 1, Shilling company sold merchandise in the amount of $5,800 to Anders, with credit terms 2/10, n/30. the cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method. The journal entry or entries that Shilling will make on May 1 is:

debit: accounts receivable 5800 credit: sales revenue 5800 debit: cost of goods sold 4000 credit: merchandise inventory 4000

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

debit: bad debts expense 15,750 credit: allowance for doubtful accounts 375 credit: accounts receivable 15,375

Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

debit: bad debts expense 2000 credit: accounts receivable 2000

Martinez owns machinery that cost $87,000 with accumulated depreciation of $40,000. The company sells the machinery for cash of $42,000. The journal entry to record the sale would include:

debit: cash 42000 debit: accumulated depreciation 40000 debit: loss on sale of machinery 5000 credit: to machiner 87000

On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms 2/10, n/30. the cost of the items sold is $4000. Ryan uses the periodic inventory system and net method of accounting for sales. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

debit: cash 5684 debit: sales discount 116 credit: accounts receivable 5800

On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

debit: cash 5684 debit: discount 116 credit: accounts receivable 5800

Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $8,000 of cash sales that are subject to an 8% sales tax, what is the journal entry to record the cash sales?

debit: cash 8640 credit: sales 8000 credit: sales tax payable 640

Springfield Company offers a bonus plan to its employees and the amount of the employee bonuses for the current year is estimated to be $32,500 to be paid during January of the following year. The journal entry on December 31 to record the bonuses is:

debit: employee bonus expense 32500 credit: bonus payable 32500

On May 1, Anders Company purchased merchandise in the amount of $5,800 from Shilling, with credit terms of 2/10, n/30. Anders uses the perpetual inventory system and gross method. the journal entry or entries that Anders would make on May 1 is:

debit: merchandise inventory 5800 credit: accounts payable 5800

On October 12 of the current year, a company determined that a customer's account receivable was collectible and that the account should be written off. Assuming that the direct write-off method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

decrease in net income and total assets

the principles of internal control include:

establish responsibilities, maintain adequate records, insure assets, separate recordkeeping from custody of assets, perform regular and independent interviews

internal control policies and procedures have limitations not including:

establishing responsibilites

a finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

factor

all of the following are employer payroll taxes except:

federal income tax equal to that withheld from employees

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

fifo

An annual reporting period consisting of any twelve consecutive months is known as:

fiscal year

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

gross profit = 417,000

A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio equals:

gross profit/net sales = 24.1%

Financial statements are typically prepared in the following order:

income statement, statement of retained earning's and balance sheet

the inventory turnover ratio:

indicates how many times during the year inventory is sold and restocked

a disadvantage of bond financing is:

interest rate risk, prepayment risk, credit risk, reinvestment risk, liquidity risk

All of the following statements regarding inventory shrinkage is true except:

inventory shrinkage is recognized by debiting an operating expense

the voucher system of control:

is designed to control cash disbursements and the acceptance of obligations

Which of the following assets is not depreciated?

land

Unearned revenue is reported in the financial statement as:

liability

the inventory valuation method that results in the lowest taxable income in a period of inflation is:

lifo

A company discarded a computer system originally purchased for $18,000. The accumulated depreciation was $17,200. The company should recognize a(an):

loss of 800

The relevant factors in computing depreciation do not include:

market value

Beginning inventory plus net purchases is:

merchandise available for sale

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

net purchases during the period and ending inventory

a company uses the percent of sales method to determine its bad debt expense. at the end of the current year, the company's unadjusted trial balance reported the following selected amounts

net sales * .6% = 4800

Peavy enterprises purchased a depreciable asset for $22,000 on april 1, year 1. the asset will be depreciated using the straight line method over its four year useful life. assuming the asset's salvage value is $2,000, peavey enterprises should recognize depreciation expenses in year 2 in the amount of:

original cost- salvage value/ useful life = 5000

Preparing a bank reconciliation on a monthly basis is an example of:

protecting assets by providing accuracy of cash records

A business's source documents:

provide objective evidence that a transaction has taken place.

An example of an investing activity is:

purchase of land

the document that the purchasing department prepares and sends to the vendor to place an order is called the:

purchase order

KLM Corporation's quick assets are $5,888,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:

quick assets/current liabilities = .74

The revenue recognition principle:

requires that revenue must be recorded at the time the duties are performed, regardless of when the cash is received.

If a company records prepayment of expenses in an asset account, the adjusting entry when all or part of the prepaid asset is used or expired would:

result in a debit to an expense and a credit to an asset account

Two accounting principles central to accrual accounting basis that are relied on in the adjusting process are:

revenue recognition principle and the matching principle

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the

specific identification

if a check correctly written and paid by the bank for $272 is incorrectly recorded in the company's books for $227, how should this error be treated on the bank reconciliation?

subtract $45 from book balance to make it equal to actual bank balance

Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000 and $275,000 in operating expenses. Net income equals:

subtract everything = 115,000

Identify the account below that is classified as an asset account:

supplies

the three parties involved with a check are:

the maker, the payee and the bank

the carrying value of bonds at maturity always equals:

the par value of the bond

the allowance method based on the idea that a given percent of a company's credit sales for the period is collectible is:

the percent of sales method

the carrying value of a long-term note payable is computed as:

the present value of all remaining future payments discounted using the market rate of interest at the time of issuance

one characteristic of plant assets is that they are:

they are long term investment natural resources

A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

trial balance

Select the amount below that normally has a credit balance.

wages payable

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

when the purchaser is responsible for paying for freight charges