accounting final exam

benito company began the year with equity of 525,000. during the year, the company recorded revenues of 750,000 expenses of 570,000 and paid dividends of 60,000. what was bento equity at the end of the year

645,000

the trial balance

can be used to uncover error in journalizing and posting

the lessee essentially buys an asset and borrows the money through a lease to pay for the asset

capital lease

the component of internal control that includes the policies, procedures that help ensure that management directives are being carried out is

control activities

taylor industries purchased supplies for 1,000. they paid 500 in cash and agreed to pay the balance in 30 days. the journal entry to record this transaction would include a debit to an asset account for 1,000, a credit to a liability account for 500. which of the following would be the correct way to complete the recording of the transaction

credit an asset account for 500

the effect on total assets when estimating future bad debts

decrease

the issue price is below its face amount

discount

accrued revenues are

earned but not yet received or recorded

what is the concept behind separation of duties in establishing internal controls

employee fraud is less likely to occur when access to assets and access to accounting records are separated

the effect on total expenses when estimating future bad debts

increase

the entry to record a monthly payment on an installment note such as a car loan

increase expense, decrease liabilities, and decrease assets

a company plans to minimize theft and enhance the accuracy of accounting information is referred to as

internal controls

relevant accounting information

is information capable of making a difference in a business decision

which of the following is not a reason why some companies lease rather than buy

leasing transfers the title to the lessee at the beginning of the lease

the true interest rate used by investors to value a bond

market interest rate

the idea that all expenses incurred in generating revenues should be recognized in the same period as those revenues is called the

matching principle

which of the following definitions describes a term bond

matures on a single date

the three elements of the fraud triangle are

motive, opportunity, rationalization

the difference between total accounts receivable and the estimate of future bad debts

net realizable value

the effect on total liabilities when estimating future bad debts

no effect

under the soax act, management is responsible for

the reliability of financial statements

a company must make adjusting entries every time it prepares an income stamen and a balance sheet

true

accounts receivable represent the amount of cash owed to the company by its customers fro the sale of products or services on account

true

adjusting entries involve recording events that have occurred but that have not been recorded by the end of the period

true

depreciation in accounting is the process of allocating to expense the cost of an asset over its service life

true

during periods of rising costs, lifo generally result in a higher cost of goods sold

true

external transactions are transactions the firm conducts with a separate economic entity, such as selling products to a customer, purchasing supplies from vendor, paying salaries to an employee, and borrowing money from a bank

true

for inventory that is shipped fob shipping point, title transfers from the seller to the buyer once the seller ships the inventory

true

if the likelihood of a loss is reasobale possible rather than probable, we record no entry, but make full disclosure in a footnote to the financial stamens to describe the contingency

true

monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance

true

the amount reported on the balance sheet for bonds payable is equal to the carrying value at the balance sheet date

true

the economic entity assumption requires that all activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities

true

the soax is known as generally accepted accounting principles

true

the two components of stockholders equity are retained earnings and common stock

true

if total liabilities increased by 35,000 and equity increased by 10,000 during a period of time, then total assets must change by what amount and direction that same period

45,000 increase

sales tax collected by a company on behalf of the state and local government are recorded by

a credit to a revenue account

common examples of cash equivalents include all of the following except

accounts receivable

the account used to record sales on account to customers

accounts receivable

using a perpetual inventory system, the sale of inventory on the account is recorded with a

all of the other answers are recorded with the sale of inventory on account

the account to credit when estimating future bad debts

allowance for uncollectible accounts

the procedure required for financial reporting purposed to account for uncollectible accounts

allowance method

provides a summary of the cash interest payments, interest expense, and changes in carrying value for debt instruments

amortization schedule

what does borrowing 100,000 have on the accounting equation

assets increase and liabilities increase

which of the following represents the expanded basic accounting equation

assets+ dividends+ expenses= liabilities+ stockholders equity + retained earnings+ revenues

the account to debit when estimating future bad debts

bad debt expense

fontaine fox company buys a 12,000 van on credit. this transaction will affect the

balance sheet only

a sale on account for 1,000 offered with terms 2/10, n/30 that the customers will get a 2 discount if payment is made within 10 days otherwise full payment is due within 30

false

closing entries are unessary if the business plans to continue operating in the future and issue financial statments each year

false

fica taxes are paid only by the employee

false

for bonds issued at a premium, the difference between interest expense and the cash paid increases the carrying value of the bonds

false

most of the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet

false

net income for the period is determined by subtracting total expenses and dividends from total revenues

false

operating leases occur when the lessee essentially buys an asset and borrows the money through a lease to pay for the asset

false

sales revenue minus cost of goods sold is referred to as operating income

false

straight line deprecation produces a lower net income than accelerated methods in the earlier years of an assets life

false

the adjustment to account for future bad debts had the effect of (1) reducing assets and (2) increasing liabilities

false

the amount of cash reported in a company balance sheet includes the balance of accounts receivable if cash collection is highly likely in the near future

false

the final step in reconciling the banks cash balance and the company cash balance is to update the company cash balance for the items used to reconcile the banks cash balance

false

understating ending inventory in the current year causes cost of goods sold in the current year to be understated

false

we record interest expense in the period in which we pay it, rather than in the period we incur it

false

when a company receives cash for future services, it debits unearned revenue on the income statement and credits cash on the balance sheet

false

which of the following is not an employer payroll cost

federal and state income taxes

in a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is

fifo

recognition of impairment for long term assets is required if book value exceeds

future cash flows

in most cases, current liabilities are payable within _ years and long term liabilities are payable more then _ years from now

one,one

the lessor owns the asset and the lessee simply uses the asset temporarily

operating leases

the issue price is above its face amount

premium

which of the following depicts the proper sequence of steps in the accounting cycle

prepare a trial balance, prepare adjusting entries, prepare financial statements

young company is involved in a lawsuit. the liability that could arise as a result of this lawsuit should be recorded on the books if the probability of young owning money as a result of the lawsuit is

probable and the amount is reasonably estimable

the temporary account balances ultimately wind up in what account

retained earnings

supported by specific assets pledged as collateral by the issuer

secured bonds

a 500,000 bond issued sold for 490.000 therefore the bonds

sold at a discount because the market interest rate was higher than the stated rate

the rate quoted in the bond contract used to calculate the cash payment for interest

stated interest rate

if the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has

suffered a net loss for the period

which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction

the appointment of a new accounting firm to perform an audit

the carrying value using the effective interest method, would increase each year

the bonds were sold at a discount

the revenue recognition principle dictates that revenue should be recognized in the accounting records

when the performance obligation is satisfied