Accounting Final Exam Review

Times Interest Earned

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense

Return on common stockholders' equity

(net income - preferred dividends) / average common stockholders' equity

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2015. The machine was purchased for $80,000 on January 1, 2011, and was depreciated on a straight-line basis over a 10-year life assuming no salvage value. If the machine was sold for $26,000, how much is the gain or loss to be recorded at the time of the sale? a) 18,000 b) 54,000 c) 22,000 d) 46,000

A

Blinka 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 Blinka Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to: a) Cash 48,000 and service charge expense 2,000 b) A/R 48,000 and service charge expense 2,000 c) Cash 50,000 d) A/R 50,000

A

Ginter Co prepares its financial statement annually at 12/31. Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The note was issued on October 1. How much interest revenue will be accused at 12/31 when Ginter prepares its year end financial statements? a) 225 b) 300 c) 900 d) 0

A

If beginning inventory is $60,000, cost of goods purchased is $380,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

A

In the stockholder's equity section, the cost of treasury stock is deducted from: a) total paid-in capital and retained earnings b) retained earnings c) total stockholder's equity d) common stock in paid-in capital

A

Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that: a) The contractual interest rates exceeds the market interest rate b) the market interest rate exceeds the contractual interest rate c) the contractual interest rate and the market interest rate are the same d) no relationship exists between the two rates

A

Under a perpetual inventory system, when goods are purchased for resale by a company: a) purchases on account are debited to Inventory b) purchases on accounted are debited to purchases c) purchase returns are debited to Purchase Returns and Allowances d) freight costs are debited to freight-out

A

Which method is required by generally accepted accounting principles? a) Percentage-of-recievables basis b) Direct write-off method c) Cash on hand method d) Both percentage-of-reciveables basis and direct write-off method

A

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23? a) 700 b) 686 c) 685 d) 650

B

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2015. 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. a) 230,000 b) 215,000 c) 228,000 d) 193,000

B

Assume that Horizon Corp acquired 25% of the common stock of Sheboygan Corp. on January 1, 2015 for $300,000. During 2015, Sheboygan Corp. reported net income of $160,00 and paid total dividends of $60,000. If Horizon uses the equity method to account for investment, the balance in the investment account on Dec 31, 2015 will be: a) 300,000 b) 325,000 c) 400,000 d) 340,000

B

Falk's company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income are: a) understated, overstated b) overstated, understated c) overstated, overstated d) understated, understated

B

Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: a) 5,000 b) 55,000 c) 60,000 d) 65,000

B

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, the gross profit is a) 30,000 b) 90,000 c) 340,000 d) 400,000

B

Jefferson Company purchased a piece of equipment on January 1, 2014. The equipment cost $60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2015 under the double-declining-balance method? a) 6,500 b) 11,250 c) 15,000 d) 6,562

B

Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2nd, 2015. On July 31st, 2015, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31st, 2015, should be a) 150,000 b) 35,000 c) 185,000 d) 170,000

B

Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Insurance Premiums at December 31? a) 0 b) 4,500 c) 13,500 d) 18,000

B

Which is an example of a cash flow from a financing activity? a) Receipt of cash from sale of land b) Issuance of debt for cash c) Purchase of equipment for cash d) None of the above

B

ABC corporation issues 1,000 shares of $10 par value coming stock at $12 per share. In recording the transaction, credits are made to: a) Common Stock $10,000 and Paid-in Capital Excess of Stated Value $2,000 b) Common Stock $12,000 c) Common Stock $10,000 and Paid-in Capital Excess of Par $2,000 d) Common Stock $10,000 and Retained Earnings $2,000

C

Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year? a) 16,567 b) 49,700 c) 34,670 d) 346,700

C

Gross profit will result if: a. operating expenses are less than net income. b. net sales are greater than operating expenses. c. net sales are greater than cost of goods sold. d. operating expenses are greater than cost of goods sold.

C

In periods of rising prices, LIFO will produce: a) higher net income than FIFO b) the same net income as FIFO c) lower net income than FIFO d) higher net income than average-cost

C

Pryor Company receives net proceeds of $42,000 on the sale of stock investments that cost $39,500. This transaction will result in reporting in the income statement a: a) loss of $2,500 under "other expenses and losses" b) loss of $2,500 under "Operating expenses" c) gain of $2,500 under "other revenues and gains d) gain of $2,500 under "Operating revenue"

C

The total gross earnings for the week for the employees of XYZ company was $100,000. Federal Income tax withholding was $15,000 and FICA withholding was $6,000. The journal entry that XYZ would record when recording the payroll for the week would include: a) Debit to Payroll Tax Expense of $12,000 b) Credit to Cash of $100,000 c) Credit to Salaries and Wages Payable of $79,000 d) Debit to Salaries and Wages Expense of $79,000

C

When a company uses the periodic inventory system: a) The company uses period when commons are required b) The Company has better control over the quantities in inventory c) The company's does not know costs of goods sold without taking a physical inventory d) The inventory account is credited when inventory is sold

C

Which is an example of a cash flow from an investing activity? a) Receipt of cash from the issuance of bonds payable b) Payment of cash to repurchase outstanding capital stock c) Receipt of cash from the sale of equipment d) Payment of cash to suppliers for inventory

C

You are a human resource manager for ECW, Inc. You want to improve internal controls over cash disbursements and cash receipts. Therefore, you would implement the following rules: a) Require employees to work no more than 8 hours per day b) Require employees to take a one hour lunch break c) Require employees to take vacations d) Require employees to pay all invoices in $5 and $20 bills

C

Able Towing Company purchased a tow truck for $60,000 on January 1, 2012. It was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. On December 31, 2015, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years as of January 1, 2015, and the salvage value was adjusted to $2,000. How much is depreciation expense for 2014? a) 6,000 b) 4,800 c) 15,000 d) 12,100

D

Cash dividends paid to stockholders are classified on the statement of cash flows as: a) operating activities b) investing activities c) both a and b d) financing activities

D

Erin Danielle Company purchased equipment and incurred the following costs: Cash price -$24,000 Sales taxes- $1,200 Insurance during transit- $200 Installation and testing-$400 Depreciation - $100 Total costs-$25,800 What amount should be recorded as the cost of the equipment? a) 24,000 b) 25,200 c) 25,500 d) 25,800

D

Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is a) DR Cash 10,300 CR N/R 10,300 b) DR Cash 10,000 CR N/R 10,000 c) DR A/R 10,300 CR N/R 10,000 and Interest Rev 300 d) DR Cash 10,300 and CR N/R 10,000 and CR Interest Rev 300

D

M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2012. No dividends were declared in 2010 or 2011. If M-Bot wants to pay $375,000 of dividends in 2012, how much will common stockholders receive? a) 0 b) 295,000 c) 215,000 d) 135,000

D

Micah Bartlett Company purchased equipment on January 1, 2014, 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. The amount of accumulated depreciation at December 31, 2015, if the straight-line method of depreciation is used, is a) 580,000 b) 160,000 c) 78,000 d) 156,000

D

On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The entry on July 1 to record the payment of bond interest and the amortization of bond discount using the straight-line method will include a: a) debit to Interest Exp $30,000 b) debit to Interest Exp $60,000 c) credit to Discount on Bonds Payable $4,000 d) credit to discount on bonds payable $2,000

D

The use of renumbered checks in disbursing cash is an application of the principle of: a) establishment of responsibility b) segregation of duties c) physical controls d) documentation procedures

D

Use the same information as in Question 11, except that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this situation, the amount of bad debt expense that should be reported for the year is: a) 5,000 b) 55,000 c) 60,000 d) 65,000

D

You have a controlling interest if: a) you own more than 20% of a company's stock b) you are the president of the company c) you use the equity method d) you own more than 50% of the company stock

D

Inventory Turnover

cost of goods sold/average inventory

Current Ratio

current assets divided by current liabilities

Revenues - COGS

gross margin

income from operations + other gains & losses & expenses

income from continuing operations

gross margin - operating expenses

income from operations

Accounts Receivable Turnover

net credit sales/average net accounts receivable

Net Income from Continuing Operations - net income or loss from discounting operations

net income

Income from continuing operations - taxes

net income from continuing operations

Return on Assets

net income/average total assets

profit margin

net income/net sales

Asset Turnover

net sales/average total assets

debt to assets ratio

total liabilities/total assets