Accounting Exams 1-4

On September 1, Year 1, West Company borrowed $58,000 from Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. West Company has a calendar year-end. What is the amount of interest expense that will be reported on West's income statement for Year 1?

$1,160 Interest expense (September 1 through December 31) = $58,000 × 6% × (4 ÷ 12) = $1,160 The fact that it was an 18-month note does not affect the Year 1 interest expense.

On January 1, Year 2 Grande Company had a $19,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $74,000 of service on account. The company collected $70,500 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. What is the amount of uncollectible accounts expense recognized on the Year 2 income statement?

$1,480 Uncollectible accounts expense = Sales on account of $74,000 × 2% = $1,480

Retained earnings at the beginning and ending of the accounting period were $900 and $1,900, respectively. Revenues of $3,500 and dividends paid to stockholders of $800 were reported during the period. What was the amount of expenses reported for the period?

$1,700

Anton Co. uses the perpetual inventory system and FIFO cost flow method. During the year, Anton purchased 1,000 units of inventory that cost $8 each and then purchased an additional 1,050 units of inventory that cost $10 each. If Anton sells 1,450 units of inventory, what is the amount of cost of goods sold?

$12,500 Cost of goods sold = (1,000 × $8) + (450 × $10) = $12,500

The following account balances were drawn from the Year 1 financial statements of Grayson Company:

$15,400

Owen Company's unadjusted book balance at June 30 is $16,300. The company's bank statement reveals bank service charges of $145. Two credit memos are included in the bank statement: one for $1,680, which represents a collection that the bank made for Owen, and one for $250, which represents the amount of interest that Owen had earned on its interest-bearing account in June. What is the true cash balance?

$18,085

Revenue on account amounted to $5,000. Cash collections of accounts receivable amounted to $2,300. Expenses for the period were $2,100. The company paid dividends of $450. What was net income for the period?

$2,900

On January 1, Year 1, Mahoney Company borrowed $181,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $41,050. What is the amount of principal repayment included in the payment made on December 31, Year 1?

$26,570 Year 1 Interest expense = Principal balance on January 1 of $181,000 × 8% = $14,480 Year 1 Principal repayment = Payment of $41,050 − Interest portion of $14,480 = $26,570

Domino Company ages its accounts receivable to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $39,210 and $2,990, respectively. During Year 2, the company wrote off $2,370 in uncollectible accounts. In preparation for the company's estimate of uncollectible accounts expense for Year 2, Domino prepared the following aging schedule: Current $55,000 1% 0-30 23,200 5% 31-60 5,260 10% 61-90 2,420 25% Over 90 2,100 50% Total $87,980 What amount will be reported as uncollectible accounts expense on the Year 2 income statement?

$3,271 Estimated ending allowance balance = ($55,000 × 1%) + ($23,200 × 5%) + ($5,260 × 10%) + ($2,420 × 25%) + ($2,100 × 50%) = $3,891. Ending allowance for doubtful accounts of $3,891 = Beginning allowance for doubtful accounts of $2,990 + Uncollectible accounts expense (the unknown) − Write-offs of $2,370. Uncollectible accounts expense = $3,891 − $2,990 + $2,370 = $3,271

During the current year, Gomez Co. had beginning inventory of $1,500 and ending inventory of $1,100. The cost of goods sold was $3,900. What is the amount of inventory purchased during the year?

$3,500 Beginning inventory + Purchases − Cost of goods sold = Ending inventory$1,500 + Purchases − $3,900 = $1,100Purchases = $1,100 + $3,900 − $1,500 = $3,500

Madison Company issued an interest-bearing note payable with a face value of $30,000 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, what is the amount of total liabilities appearing on Madison's balance sheet as of December 31, Year 1?

$31,000 Interest payable = $30,000 × 8% × (5 ÷ 12) = $1,000 Total liabilities = Note payable of $30,000 + Interest payable of $1,000 = $31,000

The April 30 bank statement for Trimble Corporation shows an ending balance of $40,262. The unadjusted cash account balance was $33,750. The accountant for Trimble gathered the following information: There was a deposit in transit for $5,356. The bank statement reports a service charge of $174. A credit memo included in the bank statement shows interest earned of $815. Outstanding checks totaled $13,797. The bank statement included a $2,570 NSF check deposited in April. What is the true cash balance as of April 30?

$31,821 True cash balance = Unadjusted bank balance of $40,262 + Deposits in transit of $5,356 − Outstanding checks of $13,797 = $31,821. Alternatively:True cash balance = Unadjusted book balance of $33,750 − Service charge of $174 + Interest revenue of $815 − NSF check of $2,570 = $31,821.

Blair Scott started a sole proprietorship by depositing $34,000 cash in a business checking account. During the accounting period, the business borrowed $16,000 from a bank, earned $4,600 of net income, and Scott withdrew $5,800 cash from the business. Based on this information, what is the balance in Scott's capital account at the end of the accounting period?

$32,800 Ending capital = Beginning capital + Contributions − Withdrawals + Net income Ending capital = $0 + $34,000 − $5,800 + $4,600 = $32,800

Greer Company pays Jamal Perry a salary of $2,800 per week. How much FICA tax must Greer pay with regards to this employee (including both the employee and employer portions)? (Assume a Social Security rate of 6 percent on the first $110,000 of income and a Medicare rate of 1.5 percent on all earnings.)

$420 Employee's portion of FICA = $2,800 × 7.5% = $210, which is withheld from Jamal's gross pay. The company matches that amount and, as such, is responsible for a total of $420 (or $210 + $210).

The inventory records for Radford Co. reflected the following: Beginning inventory. May 1:1,600 units @ $4.80 First Purchase 7: 1,700 units @ $5.00 Second purchase May 17: 1,900 units @ $5.10 Third purchase May 23: 1,500 units @ $5.20 Sales May 31: 5,100 units @ $6.70 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$5.03 Average cost per unit = Total cost of the inventory available ÷ Total number of units available. Average cost per unit = [7,680(1,600 × $4.80) + 8,500 (1,700 × $5.00) + 9,690 (1,900 × $5.10) + 7,800(1,500 × $5.20)] ÷ 6,700 units = $5.03 per unit

Seattle Company issued a $30,000 face value discount note payable to First Federal Bank on September 1, Year 1. The note had a 5% discount rate and a one-year term. What is the amount of interest expense appearing on the Year 1 income statement?

$500 Discount = $30,000 × 0.05 × 1 = $1,500 Four months (Sept. 1-Dec. 31) have passed. Year 1 interest expense = Amortization of discount = Discount of $1,500 × (4 ÷ 12) = $500

Baird Company reported depreciation expense of $22,700 and net income of $38,900 on its Year 1 income statement. During Year 1, the company's accounts receivable balance decreased by $10,100. Based on this information alone, what was the amount of cash flow from operating activities?

$71,700 Net cash flow from operating activities = Net income of $38,900 + Deprecation expense of $22,700 + Decrease in accounts receivable of $10,100 = $71,700

Glasgow Enterprises started the period with 60 units in beginning inventory that cost $2.00 each. During the period, the company purchased inventory items as follows: Purchase 1: 390 items, cost $2.50 Purchase 2: 105 items, cost 2$.60 Purchase 3: 55 items, cost $3.00 What is Glasgow's cost of goods sold under FIFO?

$720 Cost of goods sold = (60 × $2.00) + (240 × $2.50) = $720

If cash from operating activities was $30,000, cash used for investing activities was ($50,000) and the net change in cash was $56,800, what was cash from/used for financing activities?

$76,800 Net change in cash of $56,800 = Cash flow from operating activities of $30,000 Cash used in investing activities of $50,000 + Cash flow from financing activities (the unknown) Cash flow from financing activities = $56,800 − $30,000 + $50,000 = $76,800

On January 1, Year 1, Missouri Co. purchased a truck that cost $56,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. Missouri uses the double declining-balance method. What is the amount of depreciation expense recognized in Year 2?

$8,960 Double-declining-balance rate = (1 ÷ 10) × 2 = 20% Depreciation expense = (Cost − Accumulated depreciation) × Double-declining-balance rate Year 1: $56,000 × 20% = $11,200 Year 2: ($56,000 − $11,200) × 20% = $8,960

Anchor Company purchased a manufacturing machine with a list price of $86,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and transportation costs amounted to $2,400. Anchor paid $3,300 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $4,200 for the first year of operations. What is the cost of the machine?

$89,980 Cost of machine = List price of $86,000 − Cash discount of $1,720 ($86,000 × 2% discount) + Freight costs of $2,400 + Installation and testing costs of $3,300 = $89,980. The insurance cost is not included in the cost of the machine; it is expensed.

Warren Company began the accounting period with a $32,000 debit balance in its accounts receivable account. During the accounting period, the company recorded revenue on account amounting to $76,000. The accounts receivable account at the end of the accounting period contained a $16,000 debit balance. Based on this information, what is the amount of cash collected from customers during the period?

$92,000

The following data is from the income statement of Ralston Company: Revenue$2,000 Cost of goods sold (1,200) Operating expenses (550) Net income$250

40.000%

What is an outstanding check?

A check that has been issued by the company but has not been presented to the bank for payment.

Which of the following entities would have a "Paid-in Capital in Excess" account in the equity section of the balance sheet?

A corporation

Assuming the entries used to record the disbursements and to replenish the fund are combined, which of the following is included in the entry to replenish a petty cash fund?

A credit to Cash

The adjusting entry to record expense related to the use of a delivery van would involve which of the following?

A debit to Depreciation Expense

What do the credit terms, 2/15, n/30 mean?

A two percent discount can be deducted if the invoice is paid before the fifteenth day following the date of the sale.

A company's chart of accounts includes, in part, the following account numbers and corresponding account titles: Account No.Account Title(1)Cash(2)Merchandise inventory(3)Cost of goods sold(4)Transportation-out(5)Dividends(6)Common stock(7)Selling expense(8)Loss on the sale of land(9)Sales

Account numbers 1, 2, and 6

The $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method and $60,000 would be reported as a cash inflow from investing activities.

Add depreciation to net income.

In the reconciliation of the June bank statement, a deposit made on June 30 did not appear on the June bank statement. How is this deposit in transit shown on the bank reconciliation?

Added to the unadjusted bank balance.

Which of the following is considered a period cost?

Advertising expense for the current month

Which of the following terms is used to identify the expense recognition associated with intangible assets?

Amortization

Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $12,700 of merchandise on account under terms 4/10, n/30. 2) The company returned $2,200 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $19,400 cash.

Assets and liabilities decrease by $2,200.

Hazeltine Company issued common stock for $200,000 cash. What happened as a result of this event?

Assets, claims, and equity all increased.

Which of the following financial statements provides information about a company as of a specific point in time?

Balance sheet

Which of the following describes a callable bond?

Can be called for early retirement at the option of the issuer

Chico Company borrowed $40,000 on a four-year, 8% installment note. How will Chico record the issuance of this note?

Cash 40,000 Notes payable 40,000 debit ti cash credit to notes payable

How is the cash paid to purchase land reported in the statement of cash flows?

Cash outflow from investing activities

Which of the following is an example of revenue?

Cash received from customers at the time services were provided

Which of the following entities would report income tax expense on its income statement?

Corporation

What is the term used to describe the right side of a T-account?

Credit side

What is the term used to describe the left side of a T-account?

Debit side

How does the year-end adjusting entry to recognize uncollectible accounts expense affect the elements of the financial statements?

Decrease total assets and decrease stockholders' equity.

Which of the following terms is used to describe the process of expense recognition for property, plant and equipment?

Depreciation

Which of the following are "matched" under the matching concept?

Expenses and revenues

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

FIFO

Which of the following is not an item deducted from salary expense to arrive at net pay?

Federal unemployment tax

Which type of accounting information is intended to satisfy the needs of external users of accounting information?

Financial accounting

Financial accounting standards are known collectively as GAAP. What does that acronym stand for?

Generally Accepted Accounting Principles

Which of the following is not a common feature of an internal control system?

Implementing the most effective marketing plan

Faust Company uses the perpetual inventory system. Faust sold goods that cost $5,600 for $9,200. The sale was made on account. What is the net effect of the sale on the company's financial statements? (Consider the effects of both parts of this event.)

Increase total assets by $3,600

Which method of reporting cash flows from operating activities is used by most businesses in preparing the statement of cash flows?

Indirect method

Which of the following terms is used to describe long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

Intangible assets

Abbott Company purchased $7,800 of merchandise inventory on account. Abbott uses the perpetual inventory system. Which of the following entries would be required to record this transaction?

Inventory 7,800 Accounts Payable 7,800

Fixit Corporation issued 36,000 shares of $10 par value common stock at its current market price of $31. How does this event affect total stockholders' equity?

It increases by $1,116,000. The event increases assets and stockholders' equity by $1,116,000 (or $31 per share × 36,000 shares). The increase in stockholders' equity is divided into two parts, $360,000 of par value (or $10 per share × 36,000 shares) and $756,000 ($1,116,000 − $360,000) received in excess of par value.

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

LIFO

Which of the following would be classified as a tangible asset?

Land

How are bonds payable usually classified on the balance sheet?

Long-term liabilities

What is the term used to describe the amount of accounts receivable that is actually expected to be collected?

Net realizable value

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?

Noncash financing and investing activity

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

Number of shares authorized

Which section of the statement of cash flows is prepared using either the direct or indirect method?

Operating activities

Which of the following is the correct sequence of the three sections that are presented on the statement of cash flows?

Operating, Investing, Financing

Which of the following is a disadvantage of a sole proprietorship?

Personal liability

Which of the following accounts normally has a debit balance?

Prepaid insurance

Which of the following cash transactions would not affect total assets?

Purchasing land for cash

What is the purpose of the accrual basis of accounting?

Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands.

Which of the following would not be considered as primarily a merchandising business?

Regal Cinemas

Which of the following types of accounts is not closed at the end of an accounting cycle?

Retained earnings

Which of the following statements is true regarding accrual accounting?

Revenue is recorded in the period when it is earned and expenses are recorded when they are incurred.

Which of the following is the term used to describe bonds that mature at specified intervals throughout the life of the issuance?

Serial bonds

Which method of depreciation is used by most U.S. companies for financial reporting purposes?

Straight-line

Which of the following is one of the main advantages of using long-term debt financing instead of equity financing?

Tax-deductibility of interest

Valdez Co. sold land that had cost $48,000 for $60,000 cash. Which of the following statements is true about this transaction?

The $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method and $60,000 would be reported as a cash inflow from investing activities.

On January 2, Year 1, Torres Corporation issued 15,000 shares of $10 par-value common stock for $15 per share. Which of the following statements is true?

The Paid-in Capital in Excess of Par Value account will increase by $75,000. The cash account will increase by $225,000 (15,000 x $15), the common stock account will increase by $150,000 (15,000 x $10 par value), and the paid-in capital in excess of par value account will increase by $75,000 (15,000 x $5).

What is meant by "market" in the lower-of-cost-or-market rule?

The amount that would have to be paid to replace the merchandise.

Which of the following statement year, Valley Packaging Company's adjusted trial balance showed a zero balance in retained earnings. Which of the following is the most likely explanation for this?

The current year was Valley's first year in business.

Which of the following statements about the entry to record depreciation is true?

The entry involves a credit to a contra-asset account.

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

The outcome is probable and can be reasonably estimated.

Which of the following is not an advantage of accepting credit cards from retail customers?

There are fees charged for the privilege of accepting credit cards.

Which of the following general journal entries would be used to recognize $7,500 of uncollectible accounts expense under the direct write-off method?

Uncollectible accounts expenses 7,500 Accounts receivable 7,500 debit to expenses credit to receivable

Which of the following accounts appear in the liabilities section of the balance sheet?

Warranties payable, discount on notes payable, accounts payable