Accounting Final
Goethe Corporation redeems its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. The entry to record the redemption will include a:
debit of $3,745 to Premium on Bonds Payable. (103745-100000)
Entries for cash dividends are required on the:
declaration date and the payment date.
Adjustments for prepaid expenses:
decrease assets and increase expenses.
Adjustments for unearned revenues:
decrease liabilities and increase revenues.
The use of prenumbered checks in disbursing cash is an application of the principle of:
documentation procedures.
The following ratios are available for Bachus Inc. and Newton Inc. Current Ratio Debt to Assets Ratio Earnings per Share Bachus Inc. 2:1 75% $3.50 Newton Inc. 1.5:1 40% $2.75 Compared to Newton Inc., Bachus Inc. has:
higher liquidity and lower solvency, but profitability cannot be compared based on information provided.
Thomas is nearing retirement and would like to invest in a stock that will provide a good steady income. Thomas should choose a stock with a:
high dividend payout.
To record the sale of goods for cash in a perpetual inventory system:
two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.
Each of the following is a major type (or category) of adjusting entry except:
unearned expenses.
A company can accelerate its cash receipts by all of the following except:
writing off receivables.
Genesis Company buys a $900 machine on credit. This transaction will affect the:
balance sheet only.
JD Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31:
both the note payable and the interest payable are current liabilities.
Current assets are listed:
by order of expected conversion to cash. Liquidity
When goods are purchased for resale by a company using a periodic inventory system:
purchases on account are debited to Purchases.
Ottman Company borrows $88,500 on September 1, 2014, from Farley State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2014?
$3,540. (88500*.12*(4/12)
From the data in Question 4, what is the cost of the ending inventory under LIFO?
$100,000. ((8000X11) + (1000X12)
Kam Company has the following units and costs. Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Dec. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO?
$113,000. ((5000X13) + (4000X12))
Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage-of-receivables basis. If Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment, what is the balance after adjustment?
$12,000. (160000X.075)
Able Towing Company purchased a tow truck for $60,000 on January 1, 2014. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2016, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2016) and the salvage value to $2,000. What was the depreciation expense for 2016?
$12,100. ((60000-12000)/10)*2=96000:(60000-9600-2000)/4
The following are data concerning cash received or paid from various transactions for Orange Peels Corporation. Sale of land $100,000 Sale of equipment 50,000 Issuance of common stock 70,000 Purchase of equipment 30,000 Payment of cash dividends 60,000 Net cash provided by investing activities is:
$120,000. (100000+50000-30000)
On January 1, Nicholas Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for:
$128,652. (1072096x.12)
The beginning balance in accounts receivable is $44,000, the ending balance is $42,000, and sales during the period are $129,000. What are cash receipts from customers?
$131,000. (129000+(44000-42000)
U-Bet Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2014. No dividends were declared in 2012 or 2013. If U-Bet wants to pay $375,000 of dividends in 2014, common stockholders will receive:
$135,000. 375000-(100X10000X.08X3)
Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect method, what is net cash provided by operating activities?
$136,000. (132000+10000+6000-12000)
Cuso Company purchased equipment on January 1, 2013, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line method of depreciation is used?
$156,000. ((400000-10000)/5)X2
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2014. The machine was purchased for $80,000 on January 1, 2010, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale?
$18,000 loss.
As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2014. This count did not take into consideration the following facts. Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.
$215,000. (180,000+35000)
The following data are available for Bill Mack Corporation. Net income $200,000 Depreciation expense 40,000 Dividends paid 60,000 Gain on sale of land 10,000 Decrease in accounts receivable 20,000 Decrease in accounts payable 30,000 Net cash provided by operating activities is:
$220,000. (200000+40000-10000+20000-30000)
In 2014, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to Allowance for Doubtful Accounts at December 31, 2014?
$32,000. (200000X.10)+(30000-18000)
If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system?
$390,000.
Alexis Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, what is the amount to be credited to Sales Revenue?
$4,300. (4515/1.05)
No Fault Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should No Fault report as a current liability for Unearned Insurance Premiums at December 31?
$4,500. (18000*(3/12)
For the bonds issued in Question *16, what is the carrying value of the bonds at the end of the third interest period?
$492,000. (500000-(20000-(3X4000)))
On January 1, Holly Ester Inc. issued $1,000,000, 10-year, 9% bonds for $938,554. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Holly Ester uses the effective-interest method of amortizing bond discount. At the end of the first year, Holly Ester should report unamortized bond discount of:
$57,591. (938554X.10)-(1000000X.09)=3855;(1000000-938554)-3855
For 2014, Ganos Corporation reported net income $26,000; net sales $400,000; and average shares outstanding 4,000. There were preferred dividends of $2,000. What was the 2014 earnings per share?
$6.00.
A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23?
$686.
Kersee Company on June 15 sells merchandise on account to Soo Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received?
$686. (1000-300)X(100%-2%)
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal these data: Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment (credit) 50,000 Amounts expected to become uncollectible 65,000 What is the cash realizable value of the accounts receivable at December 31, after adjustment?
$735,000. (800000-65000)
Bufford Corporation had reported the following amounts at December 31, 2014: sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchase discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.
$74,100.
Davidson Electronics has the following: Units Unit Cost Inventory, Jan. 1 5,000 $ 8 Purchase, April 2 15,000 10 Purchase, Aug. 28 20,000 12 If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is:
$75,250. ((5000X8)+(15000X10)+(20000X12))/40000=10.75; 10.75X7000
Sampson Corp. purchased a piece of equipment by issuing a $20,000, 6% installment note payable. Quarterly payments on the note are $1,165. What will be the reduction in the principal portion of the note payable that results from the first payment?
$865. (1165-(20000X.015)
If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit?
$90,000.
Kant Enterprises purchased a truck for $11,000 on January 1, 2013. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the balance in accumulated depreciation at December 31, 2014, can be computed by the following formula:
(10000/Total estimated activity)*Units of activity for 2013 and 2014
Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover?
0.72 (180000/((200000+3000)/2
Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Carlos's days in inventory is:
121.7 days. (285,000)/ ((80000+110000/2)=3;365/3)
The following data are available for Retique! Increase in bonds payable $100,000 Sale of investment 50,000 Issuance of common stock 60,000 Payment of cash dividends 30,000 Net cash provided by financing activities is:
130000 (100000+60000-30000)
During the year ended December 31, 2014, Bjornstad Corporation had the following results: sales revenue $267,000; cost of good sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating activities $108,950. What was the company's profit margin?
34.6%.
As of December 31, 2014, Stoneland Corporation has assets of $3,500 and stockholders' equity of $1,500. What are the liabilities for Stoneland Corporation as of December 31, 2014?
3500-1500=$2,000.
Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2014. On July 31, 2014, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2014?
35000 (20000+15000)
Prall Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 7. What is its average collection period (days)?
52 (365/7)
Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. What was the accounts receivable turnover?
6.4 800000/((100000+150000)/2)
In a recent year, Derek Corporation had net income of $150,000, interest expense of $30,000, and income tax expense of $20,000. What was Derek Corporation's times interest earned for the year?
6.67. (150000+30000+20000)/30000
Jackson Inc. reported net income of $186,000 during 2014 and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders' equity was $1,200,000 on January 1, 2014, and $1,600,000 on December 31, 2014. The company's return on common stockholders' equity for 2014 is:
9.0%. (186000-60000)/((1200000+1600000)/2
A company would minimize its depreciation expense in the first year of owning an asset if it used:
A company would minimize its depreciation expense in the first year of owning an asset if it used:
Which of the following items in a cash drawer at November 30 is not cash?
A customer check dated December 1.
Which of these statements about promissory notes is incorrect?
A promissory note is not a negotiable instrument.
Which of these statements about stock dividends is true?
A stock dividend has no effect on total stockholders' equity.
Which is not one of the three primary business activities?
Advertising
Adjusting entries are made to ensure that:
All of the above.
Companies can use free cash flow to:
All of the above.
Preferred stock may have which of the following features?
All of the above.
Which one of these statements about the accrual basis of accounting is false?
Companies record revenue only when they receive cash, and record expense only when they pay out cash.
The multiple-step income statement for a merchandising company shows each of these features except
All of these are present.
Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system?
All of these control activities are relevant to a computerized system.
Which statement about an account is true?
An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items.
Which of the following events is not recorded in the accounting records?
An employee is terminated.
Which of the following would affect the gross profit rate? (Assume sales remains constant.)
An increase in cost of goods sold.
Which of the following measures provides an indication of how efficient a company is in employing its assets?
Asset turnover.
Which accounts normally have debit balances?
Assets, dividends, and expenses.
Which financial statement reports assets, liabilities, and stockholders' equity?
Balance sheet.
Which statement presents information as of a specific point in time?
Balance sheet.
Which sales accounts normally have a debit balance?
Both (a) and (b).
Free cash flow provides an indication of a company's ability to:
Both (b) and (c).
When is a physical inventory usually taken?
Both (b) and (c).
Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Good Stuff Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to:
Cash $48,000 and Service Charge Expense $2,000.
A check is written to replenish a $100 petty cash fund when the fund contains receipts of $94 and $2 in cash. In recording the check:
Cash Over and Short should be debited for $4. (100-(94+2))
Which of the following is not one of the sections of a cash budget?
Cash from operations section.
Which statement correctly describes the reporting of cash?
Cash is listed first in the current assets section.
Which of the following items is reported on a statement of cash flows prepared by the direct method?
Cash payments to suppliers.
ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to:
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000.
Which of the following statements about a periodic inventory system is true?
Companies determine cost of goods sold only at the end of the accounting period.
Which of the following was not a result of the Sarbanes-Oxley Act?
Companies must file financial statements with the Internal Revenue Service.
Which is not one of the three forms of business organization?
Creditorship.
Which of these measures is an evaluation of a company's ability to pay current liabilities?
Current ratio.
Which of the following is not a measure of liquidity?
Debt to assets ratio.
Paying an account payable with cash affects the components of the accounting equation in the following way:
Decreases assets and decreases liabilities.
Which of these would cause inventory turnover to increase the most?
Decreasing the amount of inventory on hand and increasing sales.
Which is an indicator of profitability?
Earnings per share.
To be classified as a current liability, a debt must be expected to be paid:
Either (a) or (b)
Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
Expense recognition principle.
In a perpetual inventory system,
FIFO cost of goods sold will be the same as in a periodic inventory system.
Neutrality is an ingredient of:
Faithful representation- Yes Relevance- No
What organization issues U.S. accounting standards?
Financial Accounting Standards Board.
Which of the following should not be included in the physical inventory of a company?
Goods held on consignment from another company.
Which of these is not a major advantage of a corporation?
Government regulations.
Which of the following would not be an example of good cash management?
Invest temporary excess cash in stock of a small company.
Which is an example of a cash flow from a financing activity?
Issuance of debt for cash.
Which of the following is an example of a financing activity?
Issuing shares of common stock.
Which of these statements about a journal is false?
It contains only revenue and expense accounts.
Which of the following is incorrect about the statement of cash flows?
It reconciles the ending cash account balance to the balance per the bank statement.
In a bank reconciliation, deposits in transit are:
added to the bank balance.
Which of these statements is false?
Legal capital is intended to protect stockholders.
The characteristic of information that evaluates whether it is large enough to impact a decision.
Materiality.
Treasury stock may be repurchased:
More than one of the above.
Which is an example of a cash flow from an operating activity?
Payment of cash to lenders for interest.
Which of the following items does not result in an adjustment in the Inventory account under a perpetual system?
Payment of freight costs for goods shipped to a customer.
Which types of accounts will appear in the post-closing trial balance?
Permanent accounts.
Which is not part of the recording process?
Preparing a trial balance.
Which is an example of a cash flow from an investing activity?
Receipt of cash from the sale of equipment.
Which is an advantage of corporations relative to partnerships and sole proprietorship's?
Reduced legal liability for investors.
Which statement about users of accounting information is incorrect?
Regulatory authorities are considered internal users.
Which of the following statements is false?
Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.
What term is used for bonds that have specific assets pledged as collateral?
Secured bonds.
Which of the following is not an element of the fraud triangle?
Segregation of duties.
Which account will have a zero balance after a company has journalized and posted closing entries?
Service Revenue.
A major disadvantage of a corporation is:
additional taxes.
Which of the following did not result from the Sarbanes-Oxley Act?
Tax rates on corporations increased.
Which statement is incorrect concerning the adjusted trial balance?
The adjusted trial balance does not list temporary accounts.
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?
The company purchased another company.
What is the periodicity assumption?
The economic life of a business can be divided into artificial time periods.
What section of a statement of cash flows indicates the cash spent on new equipment during the past accounting period?
The investing activities section.
Which of the following will not be reported in the statement of cash flows?
The net change in plant assets during the year.
Which of the following is incorrect about the statement of cash flows?
The operating activities section is the last section of the statement.
Which of these statements about Visa credit card sales is incorrect?
The retailer must wait to receive payment from the issuer.
Indicate which one of these statements is true.
Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.
What is the primary criterion by which accounting information can be judged?
Usefulness for decision-making.
A trial balance will not balance if:
a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.
A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as:
a long-term investment.
The cash debt coverage is:
a measure of solvency.
A receivable that is evidenced by a formal instrument and that normally requires the payment of interest is:
a note receivable.
Generally accepted accounting principles are:
a set of standards and rules that are recognized as a general guide for financial reporting.
Items that are added back to net income in determining net cash provided by operating activities under the indirect method do not include:
an increase in inventory.
The return on common stockholders' equity is usually increased by all of the following, except:
an increase in the company's stock price.
Additions to plant assets:
are capital expenditures.
The element of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is the:
auditor's opinion.
Accounts and notes receivable are reported in the current assets section of the balance sheet at:
cash (net) realizable value
The correct order of presentation in a classified balance sheet for the following current assets is:
cash, accounts receivable, inventory, prepaid insurance.
Stockholders' equity represents:
claims of owners.
Depreciation is a process of:
cost allocation.
On January 1, 2014, Kelly Corp. issues $200,000, 5-year, 7% bonds at face value. The entry to record the issuance of the bonds would include a:
credit to Bonds Payable for $200,000.
On January 1, Xiang Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a:
credit to Discount on Bonds Payable, $4,000. ((500000*.04)/5
Prescher Corporation issued bonds that pay interest every July 1 and January 1. The entry to accrue bond interest at December 31 includes a:
credit to Interest Payable.
When there is a change in estimated depreciation:
current and future years' depreciation should be revised.
In a classified balance sheet, assets are usually classified as:
current assets; long-term investments; property, plant, and equipment; and intangible assets.
Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:
establishment of responsibility.
The principles of internal control do not include:
financial performance measures.
Cash dividends paid to stockholders are classified on the statement of cash flows as:
financing activities.
The control features of a bank account do not include:
having bank auditors verify the correctness of the bank balance per books.
Debits:
increase assets and decrease liabilities.
Adjustments for accrued revenues:
increase assets and increase revenues.
The effects on the basic accounting equation of performing services for cash are to:
increase assets and increase stockholders' equity.
During 2014, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity therefore:
increased $40,000.
Physical controls do not include:
independent bank reconciliations.
A ledger:
is a collection of the entire group of accounts maintained by a company.
A trial balance:
is a list of accounts with their balances at a given time.
A revenue account:
is increased by credits.
In the stockholders' equity section of the balance sheet, common stock:
is part of paid-in capital.
The market interest rate:
is the rate investors demand for loaning funds.
The balance in retained earnings is not affected by:
issuance of common stock.
The time period for classifying a liability as current is one year or the operating cycle, whichever is:
longer.
In periods of rising prices, LIFO will produce:
lower net income than FIFO.
During the introductory phase of a company's life cycle, one would normally expect to see:
negative cash from operations, negative cash from investing, and positive cash from financing.
The gross profit rate is equal to:
net sales minus cost of goods sold, divided by net sales.
The element of a corporation's annual report that describes the corporation's accounting methods is/are the:
notes to the financial statements.
Harrington Corporation recently leased a number of trucks from Andre Corporation. In inspecting the books of Harrington Corporation, you notice that the trucks have not been recorded as assets on its balance sheet. From this, you can conclude that Harrington is accounting for this transaction as a/an:
operating lease.
The statement of cash flows classifies cash receipts and cash payments by these activities:
operating, investing, and financing.
Fran Company's ending inventory is understated by $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are:
overstated and understated.
Harold Company overstated its inventory by $15,000 at December 31, 2014. It did not correct the error in 2014 or 2015. As a result, Harold's stockholders' equity was:
overstated at December 31, 2014, and properly stated at December 31, 2015.
When recording payroll:
payroll deductions are recorded as liabilities.
Considerations that affect the selection of an inventory costing method do not include:
perpetual versus periodic inventory system.
If a company is concerned about extending credit to a risky customer, it could do any of the following except:
provide the customer a lengthy payment period to increase the chance of paying.
Zealot Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Zealot declares a 10% stock dividend on its common stock:
retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000. (100000X30X.10)
Net income will result during a time period when:
revenues exceed expenses.
All of the following are required steps in the accounting cycle except:
reversing entries.
Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to:
safeguard its assets.
Gross profit will result if:
sales revenues are greater than cost of goods sold.
A quality of earnings ratio:
that is less than 1 indicates that a company might be using aggressive accounting tactics.
The lower-of-cost-or-market rule for inventory is an example of the application of:
the conservatism convention.
Laurel Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:
the contractual interest rate exceeds the market interest rate.
The LIFO reserve is:
the difference between the value of the inventory under LIFO and the value under FIFO.
If everything else is held constant, earnings per share is increased by:
the purchase of treasury stock.
In the stockholders' equity section, the cost of treasury stock is deducted from:
total paid-in capital and retained earnings.