Accounting exam 2

At December 31, 2017, Shorts Company had retained earnings of $2,184,000. During 2017, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2017 was $402,000. How much was the retained earnings balance at the beginning of 2017? $2,454,000 $1,914,000 $1,816,000 $2,552,000

$1,816,000

Conway Company purchased merchandise inventory with an invoice price of $12000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period? $12000 $11760 $11040 $10800

$11760

At September 1, 2017, Five-O Inc. reported retained earnings of $136,000. During the month, Five-O generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in retained earnings at September 30, 2017? $142,000 credit $8,000 credit $136,000 debit $137,000 credit

$142,000 credit

A buyer borrows $9000 at 6% interest to pay a $9000 invoice with terms 1/10, n/30 on the 10th day of the discount period. The loan is repaid on the 30th day of the invoice. What is the buyer's net savings for this total event? $0 $120 $60 $1

$60

At December 31, 2017, Sunrise Company's inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following: • $112,000 in inventory purchases made by Sunrise shipped from the seller December 27, 2016 terms FOB destination, but not due to be received until January 2, 2017 • $74,000 in goods sold by Sunrise with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6, 2017 • $6,000 of goods received on consignment from Wallwood Company What is Sunrise's correct ending inventory balance at December 31, 2017? $634,000 $640,000 $560,000 $746,000

$634,000

Hagger Sounds has accumulated the following cost and market data on March 31: Cost Data Market Data iPods $24,000 $20,400 Cell phones 18,000 19,000 DVDs 28,000 25,600 Using the lower-of-cost-or-market, how much is the value of the ending inventory? (Apply LCM to each category) $64,000 $70,000 $71,000 $65,000

$64,000

Nelson Corporation sells three different products. The following information is available on December 31: Inventory item Units Cost per unit Market value per unit X 300 $4 $3.5 Y 600 $2 $1.5 Z 1500 $3 $4 When applying the lower of cost or market rule to each item, what will Nelson's total ending inventory balance be? $6450 $6600 $6900 $7950

$6450

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos' days in inventory? 121.7 days 73 days 102.5 days 84.5 days

121.7 days

When credit terms of 1/15, n/60 are offered, how long is the discount period? 60 days 1 day 15 days 45 days

15 days

A company shows the following balances: Sales Revenue $940000 Sales Returns and Allowances 94000 Sales Discounts 32000 Cost of Goods Sold 560000 What is the gross profit rate? 69% 31% 60% 40%

31%

The following information came from the income statement of the Wilkens Company at December 31, 2017: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens' inventory turnover ratio for 2017? 3.75 times 6.0 times 2.5 times 3.0 times

6.0 times

Which of the following is not a liability? Unearned Service Revenue Accounts Payable Accounts Receivable Interest Payable

Accounts Receivable

An account has $300 on the debit side and $900 on the credit side. How much is the account balance? Credit of $900 Debit of $1,200 Debit of $600 Credit of $600

Credit of $600

In a classified balance sheet, how are assets usually classified? Current assets; long-term assets; property, plant, and equipment; and intangible assets Current assets; long-term investments; property, plant, and equipment; and common stock Current assets; long-term investments; property, plant, and equipment; and intangible assets Current assets; long-term investments; tangible assets; and intangible assets

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

Which of the following would not be classified as a long-term liability? Bonds payable Mortgage payable Lease liabilities Current maturities of long-term debt

Current maturities of long-term debt

Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt?

Both Jack and Jill are personally liable for the business debt.

In what order are current assets listed? Alphabetically By liquidity By longevity By importance

By liquidity

A corporation has which of the following set of characteristics?

Easier to transfer ownership and raise funds, no personal liability.

Which of the following is not an inventory account? Finished goods Work in process Equipment Raw materials

Equipment

Which is true about a wholesaler? It sells only to manufacturing companies. It conducts large sales for consumers on a recurring basis. It sells to another business, which will sell to a consuming customer. It is a company that sells to consumers at a discount.

It sells to another business, which will sell to a consuming customer.

What effects occur when an account payable is paid with cash? Decreases assets and increases stockholders' equity Decreases stockholders' equity and decreases liabilities Decreases assets and decreases liabilities Increases assets and decreases liabilities

Decreases assets and decreases liabilities

Which of these transactions would cause the inventory turnover ratio to increase the most? Decreasing the amount of inventory on hand and increasing sales Increasing the amount of inventory on hand Keeping the amount of inventory on hand constant but decreasing sales Decreasing the amount of inventory on hand and increasing sales Keeping the amount of inventory on hand constant but increasing sales

Decreasing the amount of inventory on hand and increasing sales

Which of the following is a merchandiser that sells directly to consumers? Retailer Wholesaler Customer Service enterprise

Retailer

Metlock earned a salary of $450 for the last week of October. She will be paid on November 1. The adjusting entry for Metlock's employer October 31 is: No entry is required. Salaries and Wages Payable 450 Cash 450 Salaries and Wages Expense 450 Salaries and Wages Payable 450 Salaries and Wages Expense 450 Cash 450

Salaries and Wages Expense 450 Salaries and Wages Payable 450

Jill Clown earned a salary of $500 for the last week of October. She will be paid on November 1. The adjusting entry for Jill's employer October 31 is: Salaries and Wages Payable 500 Cash 500 Salaries and Wages Expense 500 Cash 500 No entry is required. Salaries and Wages Expense 500 Salaries and Wages Payable 500

Salaries and Wages Expense 500 Salaries and Wages Payable 500

Which of the following journal entries is recorded correctly and in the basic format? Cash 1500 Salaries and Wages Expense 550 Advertising Expense 950 Salaries and Wages Expense 550 Cash 1500 Advertising Expense 950 Salaries and Wages Expense 550 Advertising Expense 950 Cash 1600 Salaries and Wages Expense 550 Advertising Expense 950 Cash 1500

Salaries and Wages Expense 550 Advertising Expense 950 Cash 1500

Which one of the following will result in gross profit? Sales revenue less operating expenses Sales revenue less cost of goods sold Operating expenses less cost of goods sold Operating expenses less net income

Sales revenue less cost of goods sold

When using a perpetual inventory system, why are discounts credited to Inventory? The discounts are debited to discount expense and thus the credit has to be made to merchandise inventory. The discounts reduce the cost of the inventory. The discounts are a reduction of business expenses. None of these answers choices are correct.

The discounts reduce the cost of the inventory

Which of the following is the most appropriate definition of accounting information? The information system that identifies, records, and communicates the economic events of an organization to interested users. Electronic collection and organization of vast amounts of financial information. A means of collecting information. The interconnected network of subsystems necessary to operate a business.

The information system that identifies, records, and communicates the economic events of an organization to interested users.

The operating cycle of a company is the average time that is required to go from cash to inventory in producing revenues. cash in producing revenues. accounts receivable in producing revenues. sales in producing revenues.

cash in producing revenues.

On July 1 the Sheridan Company paid $20160 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Sheridan Company is: debit Prepaid Rent, $3360; credit Rent Expense, $3360. debit Rent Expense, $20160; credit Prepaid Rent, $3360. debit Rent Expense, $3360; credit Prepaid Rent, $3360 debit Rent Expense, $20160; credit Prepaid Rent, $16800.

debit Rent Expense, $3360; credit Prepaid Rent, $3360

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be: debit Unearned Service Revenue and credit Prepaid Expense. debit Unearned Service Revenue and credit Service Revenue. debit Unearned Service Revenue and credit Cash. debit Unearned Service Revenue and credit Accounts Receivable.

debit Unearned Service Revenue and credit Service Revenue.

A company that receives money in advance of performing a service debits Unearned Service Revenue and credits Accounts Payable debits Cash and credits Accounts Receivable. debits Cash and credits Prepaid Insurance. debits Cash and credits Unearned Service Revenue.

debits Cash and credits Unearned Service Revenue.

Which of these would cause the inventory turnover ratio to increase the most? increasing the amount of inventory on hand. keeping the amount of inventory on hand constant but decreasing sales. decreasing the amount of inventory on hand and increasing sales. keeping the amount of inventory on hand constant but increasing sales.

decreasing the amount of inventory on hand and increasing sales.

An intangible asset is converted into a tangible asset during the operating cycle. cannot be classified on the balance sheet because it lacks physical substance. derives its value from the rights and privileges it provides the owner. is worthless because it has no physical substance.

derives its value from the rights and privileges it provides the owner.

Payments to stockholders are called

dividends.

A current asset is expected to be converted to cash or used in the business within a relatively short period of time. the last asset purchased by a business. usually found as a separate classification in the income statement. an asset which is currently being used to produce a product or service.

expected to be converted to cash or used in the business within a relatively short period of time

Issuing shares of stock in exchange for cash is an example of a(n)

financing activity.

The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the periodicity assumption. going concern assumption. economic entity assumption. monetary unit assumption.

going concern assumption.

The statement of cash flows would disclose the payment of a dividend

in the financing activities section.

Debits decrease assets and increase liabilities. decrease both assets and liabilities. increase assets and decrease liabilities. increase both assets and liabilities.

increase assets and decrease liabilities.

During the adjusting process two transactions were missed. The first is for unearned rent revenue of which $450 was earned during the period, the second was for accrued interest payable of which $275 is owed for the period. As a result of these omissions assets are overstated by $725. revenue is overstated by $725. liabilities are overstated by $725. net income is understated by $175.

net income is understated by $175.

Buying and selling products are examples of

operating activities.

Buying and selling products are examples of delivering activities. financing activities. operating activities. investing activities.

operating activities.

Prepaid expenses are: incurred but not yet paid or recorded. incurred and already paid or recorded. paid and recorded in an asset account before they are used or consumed. paid and recorded in an asset account after they are used or consumed.

paid and recorded in an asset account before they are used or consumed.

IFRS is considered to be more:

principles-based and less rules-based than GAAP

The best definition of assets is the

resources belonging to a company that have future benefit to the company.

The best interpretation of the word "credit" is the offset side of an account. decrease side of an account. increase side of an account. right side of an account.

right side of an account.

All of the following are advantages for choosing a proprietorship for a business except proprietorship receive more favorable tax treatment. transfer of ownership is easily achieved through stock sales. a proprietorship is a simple form of business to set up. a proprietorship gives the owner control of the business.

transfer of ownership is easily achieved through stock sales

An accounting record that includes a list of accounts and their balances at a given time is called a general ledger. general journal. chart of accounts. trial balance.

trial balance.

An error in the physical count of goods on hand at the end of a period resulted in a $10200 overstatement of the ending inventory. The effect of this error in the current period is Cost of Goods Sold Net Income overstated understated understated overstated understated understated overstated overstated

understated overstated

If a company determines cost of goods sold each time a sale occurs, it uses a periodic inventory system. uses a combination of the perpetual and periodic inventory systems. uses a perpetual inventory system. must have a computer accounting system.

uses a perpetual inventory system.

Tony's Market used the perpetual method to record the following events involving a recent purchase of inventory: Received goods for $80000, terms 2/10, n/30. Returned $1600 of the shipment for credit. Paid $400 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory increased by $78800. increased by $77224. increased by $77232. increased by $76832

increased by $77232.

Accrued expenses are: paid and recorded in an asset account after they are used or consumed. incurred but not yet paid or recorded. paid and recorded in an asset account before they are used or consumed. incurred and already paid or recorded.

incurred but not yet paid or recorded.

Buying assets needed to operate a business is an example of a(n) investing activity. operating activity. financing activity. delivering activity.

investing activity.

A revenue account is increased by debits. is decreased by credits. has a normal balance of a debit. is increased by credits.

is increased by credits.

If a company has overdrawn its bank balance, then its Cash account will show a credit balance. it cannot be detected by observing the balance of the Cash account. its Cash account will show a debit balance. the Cash account debits will exceed the cash account credits.

its Cash account will show a credit balance.

An item is considered material if its size is likely to influence the decision of an investor or creditor. it is of a tangible good. it doesn't cost a lot of money. the cost of reporting the item is greater than its benefits.

its size is likely to influence the decision of an investor or creditor.

Accounts with normal credit balances include assets and liabilities. revenues and expenses. liabilities and stockholders' equity. revenues and assets.

liabilities and stockholders' equity.

Debts and obligations of a business are referred to as

liabilities.

The group of users of accounting information charged with achieving the goals of the business is its

managers.

An item is ________ if it is likely to influence the decision of an investor or creditor. consistent comparable faithful representation material

material

A company can change to a new method of accounting if management can justify that the new method results in a lower net income for tax purposes. a higher net income. less likelihood of clerical errors. more meaningful financial information.

more meaningful financial information.

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system? $390,000 $420,000 $410,000 $440,000

$390,000

Based on the following data, what is the amount of current assets? Accounts payable $62000 Accounts receivable 100000 Cash 70000 Intangible assets 100000 Inventory 138000 Long-term investments 160000 Long-term liabilities 200000 Short-term investments 80000 Notes payable 56000 Property, plant, and equipment 1340000 Prepaid insurance 2000 $390000 $250000 $252000 $232000

$390000

In 2017, a company shows inventory of $250,000 using LIFO. If the company had used FIFO, its inventories would have been higher by $40,000 and $30,000 in 2017 and 2016, respectively. How much is the company's LIFO reserve in 2017? $30,000 $40,000 $70,000 $10,000

$40,000

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold? $60,000 $15,000 $40,000 $35,000

$40,000

Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31? (1) and (4) (2) and (3) (1) and (3) (2) and (4)

(1) and (4)

Financial information is presented below: Operating expenses $ 62000 Sales returns and allowances 15000 Sales discounts 6000 Sales revenue 196000 Cost of goods sold 106000 The profit margin ratio would be 0.39. 0.04. 0.16. 0.01.

0.04.

Which of the following statements is correct? A periodic inventory system provides better control over inventories than does a perpetual inventory system. A perpetual inventory system provides better control over inventories than does a periodic inventory system. A periodic inventory system computes cost of goods sold each time a sale occurs. A perpetual inventory system computes cost of goods sold only at the end of the accounting period.

A perpetual inventory system provides better control over inventories than does a periodic inventory system.

What are generally accepted accounting principles? Fundamental truths that can be derived from the laws of nature. A set of accounting rules and practices that have authoritative support. The guidelines used to resolve ethical dilemmas. Usually established by the Internal Revenue Service

A set of accounting rules and practices that have authoritative support.

Which of the following is the correct sequence of events? Analyze a transaction; record it in the journal; post it to the ledger Record a transaction in the journal; analyze the transaction; post it to the ledger None of the answer choices provides the correct sequence Analyze a transaction; post it to the ledger; record it in the journal

Analyze a transaction; record it in the journal; post it to the ledger

Which of the following is an example of an intangible asset? Accounts receivable Property, plant, and equipment Prepaid expenses Trademarks

Trademarks

Which accounts normally have debit balances? Assets, expenses, and retained earnings Assets, dividends, and expenses Assets, expenses, and revenues Assets, liabilities, and dividends

Assets, dividends, and expenses

Which one of these statements about the accrual-basis of accounting is false? Companies record events that change a company's financial statements in the periods in which the events occur. Companies record revenue only when they receive cash, and record expense only when they pay out cash. Companies recognize revenue in the period in which the performance obligation is satisfied. This basis is in accord with generally accepted accounting principles.

Companies record revenue only when they receive cash, and record expense only when they pay out cash.

What accounting concept is employed when using the lower-of-cost-or-market valuation? Revenue recognition Conservatism Expense recognition Full disclosure

Conservatism

Which of the following should not be included in the physical inventory of a company? Goods held on consignment from another company Goods in transit from another company shipped FOB shipping point Goods shipped on consignment to another company All of the answer choices are correct

Goods held on consignment from another company

Where is the first place every transaction is recorded? In the respective accounts In the basic accounting equation In the ledger In the journal

In the journal

On August 1, Luang Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be Interest Expense $4,200 Notes Payable $4,200 Interest Expense $4,200 Interest Payable $4,200 Interest Expense $1,750 Notes Payable $1,750 Interest Expense $1,750 Interest Payable $1,750

Interest Expense $1,750 Interest Payable $1,750

Which one of the following does not affect retained earnings? Net income Dividends Net loss Issuance of common stock

Issuance of common stock

Under what system is cost of goods sold determined at the end of an accounting period? Periodic inventory system Single entry inventory system Double entry inventory system Perpetual inventory system

Periodic inventory system

Which of the following is the best definition of an internal user of accounting information?

Managers who use accounting information to plan, organize, and run a business.

Which activities involve putting the resources of the business into action to generate a profit?

Operating

Which is an advantage of corporations relative to partnerships and sole proprietorships? Harder to transfer ownership. Increased difficulty of raising funds. Reduced legal liability for investors. Most common form of organization.

Reduced legal liability for investors.

In which forms of business organization are the owners personally liable for all the debts of the business? Sole proprietorships and corporations. Sole proprietorships and partnerships. Partnership and corporation. All of the answer choices are correct.

Sole proprietorships and partnerships.

Which forms of business organization are considered to be separate accounting entities? Sole proprietorships, corporations, and partnerships Partnerships and corporations only Only corporations Sole proprietorships and partnerships only

Sole proprietorships, corporations, and partnerships

Which of the following statements is true? LIFO inventory valuation requires physical flow of goods to be representative of the cost flow. FIFO inventory valuation requires physical flow of goods to be representative of the cost flow. All of these answer choices are correct. Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.

Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.

Ignatenko Company purchased office supplies costing $5,000 and debited Supplies for the full amount. Supplies on hand at the end of the accounting period were $1,300. The appropriate adjusting journal entry to be made would be: Supplies Expense $3,700 Supplies $3,700 Supplies $3,700 Supplies Expense $3,700 Supplies $1,300 Supplies Expense $4,000 Supplies Expense $1,300 Supplies $1,300

Supplies Expense $3,700 Supplies $3,700

What is the LIFO reserve? An amount used to adjust inventory to the lower-of-cost-or-market The difference between cost of goods sold under LIFO compared to FIFO An amount used to adjust the LIFO inventory to historical cost The difference between the value of the inventory under LIFO and the value under FIFO

The difference between the value of the inventory under LIFO and the value under FIFO

A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate? The ease in transferring shares of the corporation's stock. Ability to raise capital for expansion. The prestige of operating as a corporation. Desire to limit the owner's personal liability.

The prestige of operating as a corporation.

Which of the following is required as a result of SOX? Companies that go bankrupt must repay shareholders for loss investments. All shareholders now have an oversight role of the company's financial activities. Top management must certify the financial statements for their company. Public companies must present audited financial statements.

Top management must certify the financial statements for their company.

Bonita Realty Management Co. received a check for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be: Unearned Rent Revenue $22,500 Rent Revenue $22,500 Unearned Rent Revenue $7,500 Rent Revenue $7,500 Rent Revenue $22,500 Unearned Rent Revenue $22,500 Rent Revenue $2,500 Unearned Rent Revenue $2,500

Unearned Rent Revenue $7,500 Rent Revenue $7,500

Which of the following companies would most likely have the highest inventory turnover? a bakery. an art gallery. an automobile manufacturer. a piano manufacturer.

a bakery.

A T-account is a special account used instead of a trial balance. used for accounts that have both a debit and credit balance. a way of depicting the basic form of an account. a special account used instead of a journal.

a way of depicting the basic form of an account.

The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the ledger, and transfer the information to the journal. analyze each transaction, enter the transaction in the book of original entry, and transfer the information to the journal. analyze each transaction, enter the transaction in the book of accounts, and transfer the information to the journal. analyze each transaction, enter the transaction in the journal, and transfer the information to the ledger accounts.

analyze each transaction, enter the transaction in the journal, and transfer the information to the ledger accounts.

When using the periodic system the physical inventory count is used to determine both the cost of the goods in ending inventory and the sales value of goods sold during the period. both the cost of the goods sold and the cost of ending inventory. only the sales value of goods in the ending inventory. only the cost of merchandise sold during the period.

both the cost of the goods sold and the cost of ending inventory.

When applying the lower of cost or market rule to inventory valuation, market generally means original cost, less physical deterioration. current replacement cost. original cost resale value.

current replacement cost.

If a senior executive asks his or her subordinate to enagage in wilful accounting deception, the employee should follow their boss' orders and should not tell anyone. should resign from their position immediately. should not follow their superior's instructions and if possible bring the matter to the attention of the legal counsel. should follow the boss' orders but maintain a diary and list the incident for later defense if needed under a federal inquiry.

should not follow their superior's instructions and if possible bring the matter to the attention of the legal counsel.

The normal balance of any account is the side which increases that account. left side. right side. side which decreases that account.

side which increases that account.

In recording accounting transactions, evidence that a transaction has taken place is obtained from source documents. the Internal Revenue Service. the public relations department. the Securities and Exchange Commission.

source documents.

The historical cost principle requires that when assets are acquired, they be recorded at selling price. market value. list price. the amount paid for them.

the amount paid for them.