ACC 250 Final
The goal of reporting realistic figures and never overstating assets or net income applies to what principle?
Conservatism Principle
An expenditure that increases the capacity or efficiency of a plant asset that extends the asset's life is known as an
Extraordinary Repair
A pharmaceutical company testing drugs to determine possible side effects is a part of ___________________
Risk Assessment
On the record date of a dividend, no accounting transactions are recorded.
True
The trial balance is an internal document used only by employees of the company.
True
The units-of-production method is used to compute depletion expense.
True
Treasury Stock is a contra equity account with shareholder's equity.
True
A company has 7 units in inventory on December 31 which were purchased in November for $160 each. The price lists from the suppliers indicate that the same items would now cost the company $1,155. What would be the amount reported as Ending Merchandise Inventory on the balance sheet?
$1,120 because (160)(7)=1,120 >>> inventory must be recorded at sale price, or price sold
A company signed a 12%, 10 year note for $151,000. It then paid an installment of $2,200 for the first month. What portion of the first monthly payment is interest expense?
$1,510
A company had cash sales of $10,000 and the state sales tax rate is 9.8%. What amount is debited to the Cash account?
$10,980 because (10,000)(9.8%)=980+10,000=10,980
An asset was purchased for $36,000 on January 1, 2016. The asset's estimated useful life was five years, and its residual value was $4,000. The straight-line method of depreciation was used. Calculate the gain or loss if the asset is sold for $18,000 on December 31, 2016, the last day of the accounting period.
$11,600 loss because (36,000-4,000)/(5)=6,400 then 18,000-6,400=11,600
A company signed a 14%, 10 year note for $160,000 and paid an installment of $2,600 for the first month. After the first payment, what is the principal balance?
$159,267 because (160,000)(14%)(1/12)=1,867 then 2,600-1,867=733 then 160,000-733=159,267
What is the maturity value of a 3-month, 13% note for $50,000?
$51,625 because (3/12)(cost %)($ amount) = 1,625 + 50,000 = 51,625
Depreciation Expense, Straight Line Method Formula
(Cost-Residual Value)/(Estimated Useful Life)
Maturity Value Formula
(time in months/12)(cost %)($ amount) + principal value
Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in (3)
1) different amounts for cost of goods sold 2) different amounts for net income 3) same amounts for sales revenue
Under the perpetual inventory system, what is the difference between a sales return and a sales allowance?
A sales return involves an adjustment to Merchandise Inventory, but a sales allowance does not
How long is a fiscal year
12 months
*Common Stock, $1 par, 202,000 shares issued, 180,000 shares outstanding A company purchases an additional 7,000 shares of treasury stock at $15 per share, what number of shares will be shown as issued and outstanding?
202,000 issued; 173,000 outstanding
Materiality Concept
A company decides what numbers are significant or would cause someone to change a decision
Which of the following describes the risk assessment component of internal control?
A company must identify its risks and take necessary steps to minimize them
A business renders services to a customer for $26,000 on account. Which account is debited?
Accounts Receivable
For office supplies, the category of account and its normal balance is what
Assets and a debit balance
Which of the following is used by both internal and external users
Balance Sheet
A business renders services for $26,000 and collects cash from the customer. Which account is debited?
Cash
A company issued 8,000 shares of common stock on January 1, 2017 which has no par value and was issued at $22 per share. What is the journal entry for this transaction?
Debit $176,000 to Cash, Credit $176,000 to Common Stock-No Par Value
What is the journal entry for returned goods under the perpetual inventory system?
Debit Accounts Payable, Credit Merchandising Inventory
What is the correct journal entry for a vacation benefit paid?
Debit Vacation Benefits Payable, Credit Cash
What is the journal entry for cost of goods sold?
Debit cost of goods sold, credit merchandise inventory
Declaration of a Dividend Transaction
Debit retained earnings, Credit dividends payable
Cash dividends cause a _____________ in both assets and stockholders' equity of the corporation.
Decrease
Depletion expense should not be recorded for natural resources because they do not decrease in value over time.
FALSE
When a company uses the first-in, first-out (FIFO) method, the cost of goods sold correlates to the most recently purchased goods and the value of ending inventory correlates to the oldest goods in stock.
FALSE
An entry to accrued revenue would be necessary to record a receipt of cash before the revenue has been earned.
False
Debentures are bonds that mature in installments at regular intervals
False
The employee federal and state income tax and social security tax are optional payroll deductions.
False
The ending balances in the Owner, Capital and Owner, Withdrawals accounts are shown on the income statement columns of the worksheet.
False
A corporation issues 14,000 shares of its $4 stated value common shares. The issue price is $7 per share. The credit to Common Stock Account is $98,000.
False, Common Stock = (14,000)(4) = 56,000
For no-par stock there can be paid-in capital in excess of par.
False, only for stocks issued over par value
The old age, survivors, and disability insurance component of FICA tax is imposed on the entire amount of an individual employee's earnings.
False, only imposed on a given % of earnings
The permanent accounts-assets, liabilities, and stockholders' equity are closed to the Owner, Capital account.
False, permanent accounts are not closed
Which is shown on a multi-step income statement but not on a single-step income statement?
Gross Profit
On a multi-step income statement, the operating expenses are subtracted from what to arrive at operating income
Gross Profit because operating income = gross profit-operating expenses
Regarding impairment of intangible assets, which of the following statements is incorrect?
If any impairment occurs, the company records a loss in the period in which the intangible asset was acquired
In regard to corporate income tax, which of the following statements is incorrect?
Income tax expense is recorded when the federal income tax is paid
Which of the following is added to operating income to arrive at net income?
Interest Revenue
Which of the following is an attribute of the internal control component - monitoring of controls?
Internal auditors monitor the company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate
What is true of a contingent liability?
It is a potential liability that depends on a future event
Which of the following is true of the Owner's Capital Account?
It is an equity account that has a normal credit balance
What is the measurement of how quickly an item an be converted to cash?
Liquidity
What is true of the internal control component-information system?
Only authorized users have access to various parts of the information system
In the closing process, the Owner, Withdrawals account is closed to which account?
Owner, Capital
Property, plant, and equipment are categorized as what
Plant Assets
A company starts its operations and engages in buying and selling different items. What is the first step in its operating cycle?
Purchasing inventory from vendors
Closing Accounts
REID: revenues, expenses, income summary, dividend
A debt owed for renting a building currently is represented by
Rent Payable
What is an application of conservatism?
Reporting inventory at the lower of cost or market
retained earnings
Represents amount earned by profitable operations of a corporation that is not distributed by stockholders
Disclosure Principle
Requires that a company report enough information for outsiders to make knowledgeable decisions
The sales discount account is a contra account to which account?
Sales Revenue
FOB Destination
Seller normally pays for shipping costs
Which of the following accounts would appear in the income statement credit column?
Service Revenue
Which is a disadvantage of businesses accepting credit or debit cards?
The business pays a processing fee
Regarding net pay, which of the following statements is incorrect?
The net pay amount is not important for accounting purposes
If there is a remote possibility that a lawsuit will result in an actual liability then which of the following actions should be taken by the company's management?
The possible liability should not be shown in the financial statements
When the credit card processor deposits the gross proceeds from credit and debit card sales, what happens?
The processing fees are deducted from the company's bank account by the processor
Accrued revenue represents what?
The receipt of cash before the revenue is received but after it has been earned (earned but not received)
In reconciling a bank statement, the bank balance is $2,100 and the checkbook balance is $2,001. Which of the following is the most probable reason for the bank balance being larger than the book balance?
There are outstanding checks
Maintaining good controls over merchandise inventory ensures that inventory purchases are properly authorized and accounted for by the accounting system.
True
Which principle assumes that financial statements of a business can be prepared for specific periods?
Time Period Concept
A trial balance presents data in debit and credit format.
True
Accounting for stated value common stock is almost identical to accounting for par value stock.
True
Accounting is referred to as the language of business because it is the method of communicating business information to decision makers.
True
As a part of the closing process, revenues and expenses may be closed to a temporary account called Income Summary
True
Critical thinking and judgement skills are necessary for accountants.
True
Debentures are backed only by the Goodwill of the bond issuer.
True
If a contingency is only remote, the company does not need to record a liability and does not need to disclose it in the notes to financial statements.
True
If an asset is disposed of during the year, the depreciation from the beginning of the year of disposal to the date of the disposal must be calculated.
True
If purchase allowances are granted, the buyer need not return the goods to the seller.
True
In a period of rising costs, the last in, first out (LIFO) method results in higher cost of goods sold and lower net income than the first in, first out (FIFO) method.
True
Liabilities represent creditors' claims on the business's assets.
True
Preferred stockholders receive a dividend preference over common stockholders.
True
Term bonds all mature at the same specified time.
True
The declaration and payment of a cash dividend causes a decrease in both assets and stockholder's equity of the corporation .
True
The direct write-off method is only acceptable for companies that have very few uncollectible accounts.
True
Under cash basis accounting, an expense is recorded only when cash is paid.
True
Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.
True
On the income statement, a merchandising company reports the cost of merchandise inventory that has been sold to customers (sales revenue)
True, and a service company reports service revenue
Paid-in capital is externally generated capital and results from transactions with outsiders.
True.
A liability created when a business collects cash from customers in advance of providing services or delivering goods is called an ___________________
Unearned Revenue
A check was written by a business for $549 but was recorded erroneously in the Cash account as $459. How would this error be included on the bank reconciliation?
a deduction on the book side
A company sold merchandise for $4,000 on account with terms of 4/15, n/30 and uses a perpetual inventory system. Defective merchandise of $200 was returned two days later. If the payment was received after 30 days then the journal entry to record the cash receipt will include _________________________.
a debit to cash for $3,800 and a credit to accounts receivable for $3,800
Companies that follow GAAP are required to use which method for uncollectible receivables?
allowance method
A business that accepts payments by credit and debit cards _____________________________________________________
almost always pays a fee to the seller to cover the processing costs
When using the allowance method, the receipt of a payment on receivables that have been written-off requires what?
an entry to reverse the write-off to the Allowance for Bad Debts account and an entry to record the receipt of cash
How is gross profit calculated?
as the difference between net sales revenue and cost of goods sold
The economic resources of a business such as furniture, building, and land are its _________________
assets
If goods are sold on terms FOB shipping point, the ________.
buyer normally pays the transportation costs
What is the most liquid asset
cash
Treasury stock journal entry
debit treasury stock, credit cash
Treasury stock ______________ the number of shares outstanding
decreases
If a plant asset is sold for more than its book value, a ____________ is recorded
gain
What is the correct order of subtotals that appear on a multi-step income statement?
gross profit, operating income, net income
Gross Profit Percentage
gross profit/net sales revenue
Revenue Recognition Principle
guides accountants in determining when to record revenue
Amortization
is the process by which businesses spread the allocation of an intangible asset's cost over its useful life
For a company with significant uncollectible receivables, the direct write-off method is unsuitable because
it violates the matching principle
The Salaries Payable account is a _____________ account with a normal _______________ balance
liability, credit
Which of the following costs can be capitalized and depreciated?
modification for new use
The percent of sales method calculates bad debts expense based on a percentage of _____________________
net credit sales
Legal Capital
refers to the portion of stockholders' equity that cannot be used for dividends
Ordinary repairs to plant assets are referred to as what?
revenue expenditures
4 Types of bonds
secured bonds, debentures (unsecured), term bond, serial bond
The amount of cash interest the borrower pays each year is based on the ________.
stated interest rate
When using the allowance method, after a company has previously written off an account, ____________________
when a customer pays on an account that has been written off, the company needs to reverse the write-off to the allowance for bad debts account and then record the receipt of cash
