ACCT 201 Exam Questions

The following information pertains to Lightning Inc., at the end of December: Credit Sales - $20,000 Accounts Payable - 10,000 Accounts Receivable - 9,600 Allowance for Uncollectible Accounts - 400 (credit) Cash Sales - 20,000 Lightning uses the aging method and estimates it will not collect 7% of accounts receivable not yet due, 17% of receivables up to 30 days past due, and 48% of receivables greater than 30 days past due. The accounts receivable balance of $9,600 consists of $6,000 not yet due, $2,000 up to 30 days past due, and $1,600 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense?

$1,128 ($6,000 × 7%) + ($2,000 × 17%) + ($1,600 × 48%) − $400 = $1,128

The following information pertains to Lightning Inc., at the end of the year: Credit Sales - $65,000 Accounts Payable - 13,300 Accounts Receivable - 7,400 Allowance for Uncollectible Accounts - $900 (credit) Cash Sales - 21,000 Lightning uses the percentage-of-credit-sales method and estimates 1% of sales are uncollectible. What is the ending balance of the allowance account after the year-end adjustment?

$1,550 Allowance for Uncollectible Accounts = $900 + ($65,000 × 1%) = $1,550

Inventory records for Dunbar Incorporated revealed the following: Apr.1: Beginning inventory - 460 x $2.38 Apr.20: Purchase - 310 x 2.56 Dunbar sold 650 units of inventory during the month. Cost of goods sold assuming LIFO would be:

$1,603 Cost of goods sold = (310 × $2.56) + (340 × $2.38) = $1,603

At December 31, Gill Co. reported accounts receivable of $243,000 and an allowance for uncollectible accounts of $900 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 5% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

$11,250 ($243,000 × 5%) − $900 = $11,250

On May 31, Money Corporation's Cash account showed a balance of $11,500 before the bank reconciliation was prepared. After examining the May bank statement and items included with it, the company's accountant found the following items: Checks outstanding - $2,950 Deposits outstanding - 3,600 NSF check - 140 Service fees - 70 Error: Money Corp. wrote a check for $75 but recorded it incorrectly for $750. What is the amount of cash that should be reported in the company's balance sheet as of May 31?

$11,965. Cash balance = $11,500 − $140 − $70 + $675 = $11,965.

At the beginning of 2021, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2021 were $290 million. Five percent of the units sold were returned in 2021 and repaired or replaced at a cost of $10.2 million. The amount of warranty expense in Angel's 2021 income statement is:

$11.6 million $290 million × 4% = $11.6 million

Consider the following inventory transactions for September: Beginning inventory 16 units @ $3.10 Purchase on September 1229 units @ $3.30 Purchased on September 2312 units @ $4.40 For the month of September, the company sold 33 units. What is cost of goods sold under the weighted-average cost method?

$115 Weighted-average cost = [(16 × $3.10) + (29 × $3.30) + (12 × $4.40)] / 57 = $3.4754 Cost of goods sold = 33 × $3.4754 = $115 (rounded)

A company has beginning inventory for the year of $12,000. During the year, the company purchases inventory for $140,000 and ends the year with $23,000 of inventory. The company will report cost of goods sold equal to:

$129,000 Cost of goods sold = beginning inventory ($12,000) + purchases ($140,000) − ending inventory ($23,000) = $129,000

For the past five years, Mookie Consulting Services reported the following annual net income and dividend amounts: Year / NI / Dividends 1 / 22,000 / 2,000 2 / 17,000 / 2,000 3 / 9,000 / 1,000 4 / 14,000 / 3,000 5 / 25,000 / 4,000 If Mookie had Retained Earnings of $88,000 at the end of year 5, what was the company's Retained Earnings at the beginning of Year 1?

$13,000 Beginning Retained Earnings ($13,000) = Ending Retained Earnings ($88,000) - Total Net Income ($87,000) + Total Dividends ($12,000).

Northwest Fur Co. started the year with $97,000 of merchandise inventory on hand. During the year, $420,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Northwest paid freight-in charges of $7,000. Merchandise with an invoice amount of $4,200 was returned for credit. Cost of goods sold for the year was $380,000. What is ending inventory?

$135,642 Ending Inventory = $97,000 + $420,000 + $7,000 − $4,200 − $4,158* − $380,000 = $135,642 *Purchase discounts = ($420,000 − $4,200) × 1% = $4,158

Given the information below, calculate net income in the current period. Accounts Receivable - $14,700 Rent Expense - 7,500 Insurance Expense - 2,100 Common Stock - 24,000 Service Revenue - 28,300 Supplies - 4,300 Equipment - 21,600 Income Tax Expense - 4,200

$14,500 Service Revenue ($28,300) − Rent Expense ($7,500) − Insurance Expense ($2,100) − Income Tax Expense ($4,200) = $14,500

Northern purchased the entire business of Southern including all its assets and liabilities for $631,750. Below is information related to the two companies: Fair value of assets: $1,055,000 (North) $794,000 (South) Fair value of liabilities 566,000 (North) 308,000 (South) Reported assets 801,000 (North) 630,000 (South) Reported liabilities 485,000 (North) 269,000 (South) Net Income for the year 53,000 (North) 68,000 (South) How much goodwill did Northern pay for acquiring Southern?

$145,750 $631,750 - (794,000 - 308,000) = $145,750

Suppose at the end of the year before any adjusting entries, a company has a balance in Allowance for Uncollectible Accounts of $5,000 (debit). During the year, the company reported the following amounts: Credit sales to customers = $550,000 Cash collections from customers = $540,000 Actual bad debts = $20,000 What was the balance of Allowance for Uncollectible Accounts at the beginning of the year?

$15,000 Beginning ($15,000) = Ending before adjustment (−$5,000) + Actual bad debts ($20,000).

Inventory records for Marvin Company revealed the following: Mar.1: Beginning inventory - 1,070 x $7.18 Mar.10: Purchase - 580 x 7.32 Mar.16: Purchase - 870 x 7.42 Mar.23: Purchase - 500 x 7.63 Marvin sold 2,100 units of inventory during the month. Cost of goods sold assuming weighted-average cost would be:

$15,436 Weighted-average cost = [(1,070 × $7.18) + (580 × $7.32) + (870 × $7.42) + (500 × $7.63)] / 3,020 = $7.3505.Cost of goods sold = 2,100 × $7.3505 = $15,436 (rounded).

Region Jet has a $55 million liability at December 31, 2021, of which $16 million is payable in 2022. In its December 31, 2021 balance sheet, the company reports the $55 million debt as a:

$16 million current liability and a $39 million long-term liability in the balance sheet.

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $308,000 and in Allowance for Uncollectible Accounts of $500 (credit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 6% of accounts receivable. Bad debt expense for the year should be

$17,980 ($308,000 × 6%) − $500 = $17,980

Eve's Apples opened for business on January 1, 2021, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2021?

$18,000 Prepaid liability insurance: $36,000 × 6/18 = $12,000. Prepaid crop insurance: $12,000 × 12/24 = $6,000. $12,000 + $6,000 = $18,000.

A company has beginning inventory for the year of $12,500. During the year, the company purchases inventory for $190,000 and ends the year with $21,000 of inventory. The company will report cost of goods sold equal to:

$181,500 Cost of goods sold = beginning inventory ($12,500) + purchases ($190,000) − ending inventory ($21,000) = $181,500

On May 31, Money Corporation's Cash account showed a balance of $19,500 before the bank reconciliation was prepared. After examining the May bank statement and items included with it, the company's accountant found the following items: Checks outstanding $1,650 Deposits outstanding 3,900 NSF check 220 Service fees 70 Error: Money Corp. wrote a check for $110 but recorded it incorrectly for $1,100. What is the amount of cash that should be reported in the company's balance sheet as of May 31?

$20,200 Cash balance = $19,500 − $220 − $70 + $990 = $20,200

The following amounts are reported in the ledger of Mariah Company: Assets - $76,000 Liabilities - 44,000 Retained Earnings - 9,000 What is the balance in the common stock account?

$23,000 Assets ($76,000) = Liabilities ($44,000) + Stockholders' Equity ($23,000 + 9,000)

The following amounts are reported in the ledger of Mariah Company: Assets - $78,000 Liabilities - 44,000 Retained Earnings - 9,500 What is the balance in the common stock account?

$24,500 Assets ($78,000) = Liabilities ($44,000) + Stockholders' Equity ($24,500 + 9,500)

On March 3, Cobra Inc. purchased a desk for $250 on account. On March 22, Cobra purchased another desk for $350 also on account, and then on March 24, Cobra paid $540 on account. At the end of March, what amount should Cobra report for desks (assuming these two desks were the only desks they had)?

$250 + $350 = $600

Given the information below about Thomas Corporation, what was the amount of dividends the company paid in the current period? Beginning retained earnings - $42,000 Ending retained earnings - $105,000 Decrease in cash - $9,600 Net income - $91,000 Change in stockholders' equity - $21,000

$28,000 Beginning Retained Earnings ($42,000) + Net Income ($91,000) − Dividends = Ending Retained Earnings ($105,000)

Berry Co. purchases a patent on January 1, 2021, for $49,000 and the patent has an expected useful life of five years with no residual value. Assuming Berry Co. uses the straight-line method, what is the carrying value of the patent on December 31, 2022?

$29,400 $49,000 / 5 years = $9,800 amortization per year (49,000 - 19,600 (2yrs)) = $29,400

The ending Retained Earnings balance of Boomer Inc. decreased by $1.9 million from the beginning of the year. The company declared a dividend of $4.9 million during the year. What was the net income for the year?

$3.0 million Beginning Retained Earnings ($0) + Net Income − Dividends ($4.9) = Ending Retained Earnings (−$1.9)

If the liabilities of a company increased by $55,000 during a month and the stockholders' equity decreased by $21,000 during that same month, did assets increase or decrease and by how much?

$34,000 increase Increase in Liabilities ($55,000) − Decrease in Stockholders' Equity ($21,000) = Increase in Assets ($34,000)

DW has an ending Retained Earnings balance of $52,900. If during the year DW paid dividends of $4,400 and had net income of $22,700, then what was the beginning Retained Earnings balance?

$34,600 Beginning Retained Earnings + Net Income ($22,700) − Dividends ($4,400) = Ending Retained Earnings ($52,900)

On February 1, 2021, Miter Corp. lends cash and accepts a $4,600 note receivable that offers 16% interest and is due in six months. How much interest revenue will Miter Corp. report during 2021?

$368 Interest revenue = $4,600 × 16% × 6 / 12 = $368

A company had the following information taken from various accounts at the end of the year: Sales discounts - $41,000 Deferred revenues - $32,000 Total revenues - $459,000 Purchase discounts - $15,000 Sales allowances - $35,000 Accounts receivable - $205,000 What was the company's net revenues for the year?

$383,000 Net revenues = $459,000 − $41,000 − $35,000 = $383,000

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2021, Garber provided $4,000 of plumbing services to Red Oak Inc., and $1,500 of services to Cyril Inc. Each of these customers was granted credit terms of 2/10, net 30. If both customers paid for the plumbing services within the discount period, what was the net revenues amount for these two transactions?

$4,606 Trade discount = $4,000 × 20% = $800 Sales revenue = ($4,000 − $800) + $1,500 = $4,700 Sales discount = $4,700 × 2% = $94 Net revenues = $4,700 − $94 = $4,606

On December 31, 2021, Coolwear Inc. had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $44,000 and $1,600, respectively. During 2022, Coolwear wrote off $550 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $5,900 at December 31, 2022. Bad debt expense for 2022 would be:

$4,850 Bad debt expense = $5,900 − ($1,600 − $550) = $4,850

A company purchased a commercial dishwasher by paying cash of $4,300. The dishwasher's fair value on the date of the purchase was $4,670. The company incurred $380 in transportation costs, $230 installation fees, and paid a $170 fine for illegal parking while the dishwasher was being delivered. For what amount will the company record the dishwasher?

$4,910 $4,300 + $380 + $230 = $4,910. The parking ticket should be expensed as incurred since it is not a cost necessary to get the asset ready for use

A company reported the following amounts at the end of the year: total sales revenue = $550,000; sales discounts = $12,000; sales returns = $44,000; sales allowances = $17,000. What was the company's net revenues for the year?

$477,000 Net revenues = $550,000 − $12,000 − $44,000 − $17,000 = $477,000

Kansas Enterprises purchased equipment for $75,000 on January 1, 2021. The equipment is expected to have a ten-year life, with a residual value of $8,100 at the end of ten years. Using the double-declining balance method, the book value at December 31, 2022, would be:

$48,000 Depreciation rate = 2 / 10 =0.20 $75,000 × 0.20 = $15,000 depreciation in the first year.($75,000 − 15,000) × 0.20 = $12,000 depreciation in the second year. Book value = $75,000 − $15,000 − $12,000 = $48,000.

The following information pertains to Lindsey Corp. at the end of the year: Credit Sales - $182,500 Accounts Payable - 28,000 Accounts Receivable - 36,500 Allowance for Uncollectible Accounts - 1,100 (debit) Cash Sales - 6,400 Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 3% of the credit sales are uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the year?

$5,475

The following information pertains to Lindsey Corp. at the end of the year: Credit Sales - $182,500 Accounts Payable - 28,000 Accounts Receivable - 36,500 Allowance for Uncollectible Accounts - 1,100 (debit) Cash Sales - 6,400 Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 3% of the credit sales are uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the year?

$5,475 Bad debt expense = $182,500 × 3% = $5,475

The Accounts Payable account has a beginning balance of $11,100 and the company purchased $58,000 of supplies on account during the month. The ending balance was $18,100. How much did the company pay to creditors during the month?

$51,000 Payment to Creditors = Beginning Balance ($11,100) + Purchases ($58,000) − Ending Balance ($18,100)Payment to Creditors = $51,000.

Inventory records for Dunbar Incorporated revealed the following: Apr.1: Beginning inventory 440 x $2.11 Apr.20: Purchase 440 x 2.60 Dunbar sold 630 units of inventory during the month. Ending inventory assuming LIFO would be:

$528 Ending inventory = 250 × $2.11 = $528

Inventory records for Dunbar Incorporated revealed the following: Apr.1: Beginning inventory - 440 x $2.38 Apr.20: Purchase - 340 x 2.68 Dunbar sold 580 units of inventory during the month. Ending inventory assuming FIFO would be:

$536 Ending inventory = 200 × $2.68 = $536

A company purchased a computer system at a cost of $27,000. The estimated useful life is 6 years, and the estimated residual value is $5,000. Assuming the company uses the double-declining-balance method, what is the depreciation expense for the second year?

$6,000 Depreciation rate = 2/6 = 33% $27,000 × 33% = $9,000 depreciation in the first year ($27,000 − $9,000) × 33% = $6,000 depreciation in the second year

On September 1, 2021, Middleton Corp. lends cash and accepts a $3,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2022?

$60 Interest revenue = $3,000 × 12% × 2 / 12 = $60

The following financial information is from Shovels Construction Company: Accounts payable - $14,600 Buildings - 81,000 Cash - 11,200 Accounts receivable - 9,700 Sales tax payable - 2,600 Retained earnings - 46,000 Supplies - 40,300 Notes payable (due in 18 months) - 34,000 Interest payable - 1,500 Common stock - 43,500 What is the amount of current assets, assuming the accounts above reflect normal activity?

$61,200 Cash ($11,200), Accounts Receivable ($9,700), and Supplies ($40,300) are normally current assets.

A company incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building: Purchase price of the land - $620,000 Sale of salvaged parts already on land - $23,000 Demolition of the old building - $31,000 Ground-breaking ceremony (food and supplies) - $1,800 Land preparation and leveling - $6,900 What amount should be recorded for the purchase of the land?

$634,900 $620,000 − $23,000 + $31,000 + $6,900 = $634,900. The $1,800 in costs for the ground-breaking ceremony should be expensed.

Given the information below, what is the gross profit? Sales revenue - $330,000 Accounts receivable - 57,000 Ending inventory - 118,000 Cost of goods sold - 241,000 Sales returns - 25,000

$64,000 Sales revenue ($330,000) − Sales returns ($25,000) − Cost of goods sold ($241,000) = $64,000

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and in Allowance for Uncollectible Accounts of $970 (debit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for the year should be:

$7,190 ($311,000 × 2%) + $970 = $7,190

On December 31, 2021, Larry's Used Cars had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $53,000 and $750, respectively. During 2022, Larry's wrote off $2,825 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $5,250 at December 31, 2022. Bad debt expense for 2022 would be:

$7,325 Bad debt expense = $5,250 − ($750 − $2,825) = $7,325

Given the information below, what is the gross profit? Sales revenue - $340,000 Accounts receivable - 55,000 Ending inventory - 112,000 Cost of goods sold - 241,000 Sales returns - 29,000

$70,000 Sales revenue ($340,000) − Sales returns ($29,000) − Cost of goods sold ($241,000) = $70,000

Inventory records for Dunbar Incorporated revealed the following: Apr.1: Beginning inventory - 450 x $2.47 Apr.20: Purchase - 370 x 2.80 Dunbar sold 550 units of inventory during the month. Ending inventory assuming FIFO would be:

$756 Ending inventory = 270 × $2.80 = $756.

Crimson Inc. recorded credit sales of $850,000, of which $590,000 is not yet due, $180,000 is past due for up to 180 days, and $80,000 is past due for more than 180 days. Under the aging of receivables method, Crimson Inc. expects it will not collect 5% of the amount not yet due, 17% of the amount past due for up to 180 days, and 24% of the amount past due for more than 180 days. The allowance account had a debit balance of $3,200 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

$79,300 ($590,000 × 5%) + ($180,000 × 17%) + ($80,000 × 24%) = $79,300

Inventory records for Dunbar Incorporated revealed the following: Apr.1: Beginning inventory - 570 x $2.30 Apr.20: Purchase - 330 x 2.79 Dunbar sold 580 units of inventory during the month. Ending inventory assuming weighted-average cost would be:

$793 Weighted-average cost = [(570 × $2.30) + (330 × $2.79)] / 900 = 2.4797 Ending inventory = 320 × $2.4797 = $793 (rounded)

In the first three years of operations, Lindsey Corporation reported net income(loss) of $(150,000), $100,000, and $250,000. At the end of the third year, Lindsey Corporation has a balance of $120,000 in its Retained Earnings account. What is the total amount of dividends Lindsey Corporation paid over the three years?

$80,000. Beginning Retained Earnings ($0) + Net Income(Loss) [$(150,000) + $100,000 + $250,000] − Ending Retained Earnings ($120,000) = Dividends ($80,000).

On March 3, Cobra Inc. purchased a desk for $390 on account. On March 22, Cobra purchased another desk for $505 also on account, and then on March 24, Cobra paid $480 on account. At the end of March, what amount should Cobra report for desks (assuming these two desks were the only desks they had)?

$895 $390 + $505 = $895

At December 31, Gill Co. reported accounts receivable of $248,000 and an allowance for uncollectible accounts of $700 (debit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 4% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

($248,000 × 4%) + $700 = $10,620

A company collects a customer's account within the discount period. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

(1) Decrease, (2) Decrease, (3) Decrease

A company provides services on account. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues

(1) Increase, (2) Increase (3) Increase

A company provides services on account. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

(1) Increase, (2) Increase (3) Increase

A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual basis net income?

(1) No effect, (2) No effect, (3) Increase.

Consider the following information pertaining to OldWest's inventory: Revolvers 16 $127 (cost) $151 (NRV) Spurs 25 $25 (cost) $20 (NRV) Hats 10 $55 (cost) $45 (NRV) At what amount should OldWest report its inventory?

(16 × $127) + (25 × $20) + (10 × $45) = $2,982.

A company receives a $450 utility bill for the current month but does not plan to pay the bill until early next month. Record the receipt of the utility bill using (a) accrual-basis accounting and (b) cash-basis accounting.

(a) accrual-basis accounting Debit Utilities Expense, Credit Utilities Payable (b) cash-basis accounting No journal entry recorded

Below are some of the items found in a multiple-step income statement. Place these items in the order they would appear from first to last.

1: Sales Revenue 2: Gross Profit 3: Net Income 4: Operating Income 5: Income before income taxes

Chart of Accounts

A list of all account names used to record transactions of a company.

Accounts

A summary of the effects of all transactions related to a particular item over a period of time.

Which of the following items would not appear in an income statement?

Accounts Payable

Oswego Clay Pipe Company provides services of $49,300 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 12?

Accounts Receivable 49,300 (debit) Sales Revenue 49,300 (credit)

Using a perpetual inventory system, how should a company record the sale of inventory costing $490 for $980 on account?

Accounts Receivable 980 (debit) Sales Revenue 980 (credit) Cost of Goods Sold 490 (debit) Inventory 490 (credit)

External transactions

Activities of the company conducted with separate economic entities.

LIFO reserve

Additional amount of inventory a company would report if it used FIFO instead of LIFO.

Completeness

All information necessary to describe an item is reported.

Which of the following is correct regarding a petty cash fund? A petty cash fund is used for minor purposes. All of the answers are correct regarding a petty cash fund. A petty cash fund represents cash on hand at the business for quick access. When cash from this fund is taken out, it should be replaced with a voucher.

All of the answers are correct regarding a petty cash fund.

Net income

All revenues minus all expenses.

Income before income taxes

Amount of profit after including nonoperating revenues and expenses.

Sales revenue

Amount recorded from the sale of products and services to customers.

Which of the following does not represent an asset of a company? Equipment owned and used for operations. Supplies held by the company. Land owned by the company. Amounts owed to suppliers.

Amounts owed to suppliers.

During the year, Bears Inc. recorded credit sales of $520,000. Before adjustments at year-end, Bears has accounts receivable of $330,000, of which $53,000 is past due, and the allowance account had a credit balance of $2,500. Using the aging of receivables method, what would be the adjustment assuming Bears expects it will not collect 7% of the amount not yet past due and 30% of the amount past due?

Bad Debt Expense 32,790 (debit) Allowance for Uncollectible Accounts 32,790 (credit) ($277,000 × 7%) + ($53,000 × 30%) − $2,500 = $32,790

The following information pertains to Lindsey Corp. at the end of the year: Credit Sales - $150,000 Accounts Payable - 20,000 Accounts Receivable - 30,000 Allowance for Uncollectible Accounts - 800(debit) Cash Sales - 5,500 Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 2% of the credit sales are uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the year?

Bad debt expense = $150,000 × 2% = $3,000

The following information was taken from a company's bank reconciliation at the end of the year: Bank balance - $9,400 Checks outstanding - $7,100 Note collected by the bank - $1,200 Service fee - $33 Deposits outstanding - $5,900 NSF check - $370 What is the correct cash balance that should be reported in the company's balance sheet at the end of the year?

Bank balance ($9,400) + deposits outstanding ($5,900) − checks outstanding ($7,100) = $8,200.

Aikman Company paid dividends of $2,490, $0, $1,470 and $1,080 over the first four years of the company's existence, respectively. If Retained Earnings has an ending balance of $10,400 at the end of year four, what was the average annual amount of net income (loss) over the first four years for Aikman? (Round your answer to the nearest dollar amount.)

Beginning Retained Earnings ($0) + Net Income − Dividends ($2,490 + $0 + $1,470 + $1,080) = Ending Retained Earnings ($10,400). Divide net income amount by 4 to get average. Net Income = $15,440 / 4 = $3,860

The Retained Earnings account had a beginning credit balance of $26,000. During the period, the business had a net loss $12,000, and the company paid dividends of $8,000. The ending balance in the Retained Earnings account is:

Beginning Retained Earnings ($26,000) − Net Loss ($12,000) − Dividends ($8,000) = Ending Retained Earnings ($6,000).

FIFO

Best matches cost of inventory sold with its related revenue.

Lithuanian Motors has the following balance sheet accounts: Land $170,000 Equipment 66,000 Salaries Payable ? Notes Payable 88,000 Supplies 14,000 Cash 26,000 Common Stock 100,000 Retained Earnings 40,000 Accounts Payable ? Prepaid Rent 12,000 If the company has total assets of $288,000, what is the balance of the company's Salaries Payable account?

Cannot be determined given the information provided. Total liabilities + Stockholders' equity = ($288,000) = Accounts Payable (?) + Salaries Payable (?) + Notes Payable ($88,000) + Common Stock ($100,000) + Retained Earnings ($40,000); therefore, with two unknowns there is not enough information to solve the problem.

On February 1, 2021, Sanger Corp. lends cash and accepts a $4,500 note receivable that offers 14% interest and is due in six months. What would Sanger record on August 1, 2021, when the borrower pays Sanger the correct amount owed?

Cash 4,815 (debit) Interest Revenue 315 (credit) Notes Receivable 4,500 (credit) Interest Revenue = $4,500 × 14% × 6 / 12 = $315

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 23, assuming the customer made the correct payment on that date?

Cash 45,540 (debit) Sales Discounts 460 (debit) Accounts Receivable 46,000 (credit)

Deposits outstanding

Cash receipts received by the company but not yet recorded by the bank.

Bank service fees

Charges imposed by the bank to the company for providing routine services.

Checks outstanding

Checks written by the company but not yet recorded by the bank.

NSF checks

Checks written to the company that are returned by the bank as not having adequate funds.

Journal

Chronological record of all transactions.

According to the conceptual framework, verifiability implies:

Consensus

The component of internal control that includes the policies and procedures that help ensure that management's directives are being carried out is:

Control activities.

Inventory records for Dunbar Incorporated revealed the following: Apr.1: Beginning inventory - 490 x $2.33 Apr.20: Purchase - 390 x $2.53 Dunbar sold 650 units of inventory during the month. Cost of goods sold assuming LIFO would be:

Cost of goods sold = (390 × $2.53) + (260 × $2.33) = $1,593

Cost of goods sold

Cost of inventory sold during the period.

At the end of the month, employees have made the following expenditures from the petty cash fund and with company-issued credit cards. None of these transactions has been recorded previously. Supplies (petty cash) - $50 Delivery (petty cash) - $75 Advertising (credit card) - $1,100 Equipment (credit card) - $4,200 Accounting for these employee purchases would include a:

Credit to Cash for $125.

During the year, Cheng Company paid salaries of $22,900. In addition, $8,900 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include which one of the following?

Credit to salaries payable for $8,900

Clement Company paid an account payable related to a previous utility bill of $930. This transaction should be recorded as follows on the payment date:

Debit Accounts Payable $930, credit Cash $930.

Childers Service Company provides services to customers totaling $2,100, for which it billed the customers. How would the transaction be recorded?

Debit Accounts Receivable $2,100, credit Service Revenue $2,100

A company received a bill for newspaper advertising services, $420. The bill will be paid in 10 days. How would the transaction be recorded today?

Debit Advertising Expense $420, credit Accounts Payable $420

At the end of its first year of operations, a company has accounts receivable of $250,000. The company expects to collect 90% of these accounts. The company's year-end adjusting entry for uncollectible accounts would be:

Debit Bad Debt Expense; Credit Allowance for Uncollectible Accounts for $25,000.

On July 7, Saints Incorporated received $10,900 in cash from a customer for services to be provided on October 10. Which of the following describes how the transaction should be recorded on July 7?

Debit Cash $10,900, credit Deferred Revenue $10,900

Provide services to customers for $21,500 and receive cash.

Debit Cash $21,500; Credit Service Revenue $21,500

On March 31, 2021, a company sells $1,200 of gift cards to customers. The gift cards expire one year from the date of sale. What entry should the company record on March 31, 2021?

Debit Cash, $1,200; credit Deferred Revenue, $1,200.

At the time a $300 petty cash fund is being replenished, the company's accountant finds vouchers totaling $250 and petty cash of $50. The vouchers include: postage, $60; business lunches, $90; delivery fees, $70; and office supplies, $30. Which of the following is not recorded when recognizing expenditures from the petty cash fund?

Debit Cash, $250.

In December 2020, Quebecor Printing received magazine subscriptions for 2021 from customers, who paid $330 in cash. What would be the appropriate journal entry for this event in December 2020?

Debit Cash, $330; credit Deferred Revenue, $330

At the time a $400 petty cash fund is being replenished, the company's accountant finds vouchers totaling $350 and petty cash of $50. The vouchers include: postage, $80; business lunches, $120; delivery fees, $110; and office supplies, $40. Which of the following is not recorded when recognizing expenditures from the petty cash fund?

Debit Cash, $350

Summer Leasing received $11,800 from a customer to cover 24 months of rent in advance. How should Summer record this transaction?

Debit Cash; credit Deferred Revenue

On September 1, 2021, Gold Gaming sold 400 one-year subscriptions to its online gaming website for $90 each. The total amount received was credited to Deferred Revenue. What would be the required adjusting entry at December 31, 2021?

Debit Deferred Revenue and credit Service Revenue for $12,000. $90/12 months = $7.50 per month. $7.50 × 4 months × 400 subscriptions = $12,000.

PrimeFlix sells one-year online subscriptions for viewing classic movies. Customers are required to pay for the subscription at the beginning of the subscription period. On April 1, 2021, total sales of one-year subscriptions are $12,000. What adjusting entry does PrimeFlix need to record on December 31, 2021?

Debit Deferred Revenue and credit Service Revenue for $9,000. $12,000/12 months = $1,000. $1,000 × 9 months = $9,000.

On October 1, 2021, a company purchases equipment for $72,000. The equipment is expected to be used for the next four years (48 months). What adjusting entry should the company record on December 31, 2022?

Debit Depreciation Expense and credit Accumulated Depreciation for $18,000. 2022 Depreciation Expense = ($72,000/48 months) × 12 months = $18,000.

When a company pays $2,500 dividends to its stockholders, the transaction should be recorded as:

Debit Dividends; Credit Cash.

Allen Inc. took out a one-year, 8%, $100,000 loan on March 31, 2021. Interest is due upon maturity of the loan. What adjusting entry, if any, should Allen Inc. record on December 31, 2021?

Debit Interest Expense and credit Interest Payable for $6,000. $100,000 × 8% × 9/12 = $6,000.

On November 1, 2021, New Morning Bakery signed a $207,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. New Morning Bakery should record which of the following adjusting entries at December 31, 2021?

Debit Interest Expense and credit Interest Payable, $2,070. [($207,000 × 6%) × 2/12] = $2,070

Assume that $18,400 cash is paid for insurance to cover the next year. The appropriate debit and credit would be:

Debit Prepaid Insurance $18,400, credit Cash $18,400.

On July 1, 2021, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2021 through December 2022. What adjusting entry should Charlie Co. record on December 31, 2021?

Debit Rent Expense and credit Prepaid Rent for $6,000. 2021 Rent Expense = ($18,000/18 months) × 6 months = $6,000.

Pay $5,300 in salaries to employees for work performed during the month.

Debit Salaries Expense $5,300; Credit Cash 5,300

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000 (or $3,200 per weekday). The current pay period ends on Friday, January 3. Neat Clothes is now preparing financial statements for the year ended December 31. What is the adjusting entry to record accrued salaries at the end of the year?

Debit Salaries Expense and credit Salaries Payable for $22,400. $3,200 × 7 days = $22,400.

Purchase office supplies on account for $11,500.

Debit Supplies $11,500; Credit Accounts Payable 11,500

At the beginning of December, Global Corporation had $2,000 in supplies on hand. During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800. What is the appropriate month-end adjusting entry?

Debit Supplies Expense $4,200, credit Supplies $4,200. Beginning supplies ($2,000) + purchases ($3,000) − ending supplies ($800) = $4,200.

When a company pays utilities of $1,790 in cash, the transaction is recorded as:

Debit Utilities Expense $1,790, credit Cash $1,790.

McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 2% of the sale. When a customer uses a credit card to pay McGregor $1,000 for services provided, McGregor would:

Debit service fee expense for $20.

McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 3% of the sale. When a customer uses a credit card to pay McGregor $1,500 for services provided, McGregor would:

Debit service fee expense for $45.

At the end of 2021, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2021, to record its estimated uncollectible accounts included a:

Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500. Bad Debt Expense = $12,000 − $4,500 = $7,500.

In November, a company hires three temporary employees that are scheduled to work only the month of December. Those employees work during December, and they are then paid their full salaries in January. In which month should the company record salaries expense?

December.

Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation?

Decrease assets and decrease stockholders' equity.

A company purchased a machine for $196,000 on October 1, 2021. The estimated service life is 10 years with a $19,000 residual value. The company records partial-year depreciation based on the number of months in service. Depreciation expense for the year ended December 31, 2021, using straight-line depreciation, is:

Depreciation expense = [($196,000 − $19,000) / 10 years] × 3 / 12 = $4,425.

During 2021, a company sells 300 units of inventory for $85 each. The company has the following inventory purchase transactions for 2021: Jan. 1: Beginning inventory - 60 x $71 = $4,260 May 5: Purchase - 170 x 72 = 12,240 Nov. 3: Purchase - 180 x 74 = 13,320 Total Units:410 Total Cost: $29,820 Calculate ending inventory and cost of goods sold for 2021 assuming the company uses FIFO.

Ending Inventory: Nov. 3: Purchase 110 x $74 = $8.140 Cost of Goods Sold: Jan 1: Beg. Inventory - 60 x $71 = $4,260 May 5: Purchase - 170 x 72 = 12,240 Nov 3: Purchase - 70 x 74 = 5,180 Total Units: 300 Total Cost: $21,680

Inventory records for Marvin Company revealed the following: Mar.1: Beginning inventory - 940 x $7.17 Mar.10: Purchase - 590 x 7.67 Mar.16: Purchase - 422 x 8.27 Mar.23: Purchase - 540 x 8.97 Marvin sold 1,820 units of inventory during the month. Ending inventory assuming FIFO would be:

Ending inventory = (132 × $8.27) + (540 × $8.97) = $5,935

Which of the following is NOT a design feature of effective internal controls?

Ensure the company's price advantage over competitors.

Inventory does not include: Assets intended to be sold in the normal course of business. Equipment used in the manufacturing of assets for sale. Assets currently in production for normal sales. Materials used in the production of goods to be sold.

Equipment used in the manufacturing of assets for sale.

McConnell's Bakeries had the following balances on December 31, 2021, before any adjustment: Accounts Receivable = $100,000; Allowance for Uncollectible Accounts = $4,100 (credit). McConnell's estimates uncollectible accounts based on an aging of accounts receivable as shown below: Not yet due: $50,000 x 4% 0-30: $20,000 x 8% 31-60: $18,000 x 10% More than 60: $12,000 x 40% What amount of bad debt expense did McConnell's record in its December 31, 2021, adjustment to the allowance account?

Estimated uncollectible = ($50,000 × 4%) + ($20,000 × 8%) + ($18,000 × 10%) + ($12,000 × 40%) = $10,200. Bad debt expense = $10,200 − $4,100 = $6,100

Internal transactions

Events that affect the financial position of the company but do not include an exchange with a separate economic entity.

Nonoperating expenses

Expenses arising from activities that are not part of a company's primary operations.

Operating expenses

Expenses arising from activities that are part of a company's normal operations.

Consider the following account balances of the Shattuck Law Firm at the end of the year: Accounts Payable - $4,400 Salaries Expense - 12,800 Cash - 1,700 Common Stock - 2,400 Service Revenue - 8,300 Supplies - 4,300 Retained Earnings - 1,100 Utilities Expense - 5,000 How many of these accounts would appear in Shattuck's year-end balance sheet?

Five (Accounts Payable, Cash, Common Stock, Supplies, and Retained Earnings)

Control Activities

Formal policies to evaluate internal and external threats to achieving company objectives.

Journal entry

Format used to record transactions of a company.

Accounting Cycle

Full set of procedures used to accomplish the measurement/communication process of financial accounting.

If a company has gone bankrupt, its financial statements likely violate the:

Going concern assumption

Accounting Principles

HRMF Historical Cost, Realization (Revenue Recognition), Matching, Full Disclosure

Below are the account balances for Huffman Corporation at the end of December. Cash - $8,100 Salaries expense - 3,600 Retained earnings - 2,200 Advertising expense - 1,470 Equipment - 10,000 Service revenue - 6,400 Common stock - 10,700 Accounts payable - 2,910 Use only the appropriate accounts to prepare an income statement.

Income Statement: Revenues: Service Revenues - $6,400 (credit) Expenses: Salaries Expenses - $3,600 (debit) Advertising Expenses - 1,470 (debit) Net Income: (5,070 - 6,400) = $1,330

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues - $39,500 Retained Earnings, Jan. 1 - 9,500 Cash - 8,400 Expenses - 23,400 Accounts Payable - 3,900 Dividends - 2,200 Supplies - 18,900 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Increase of $13,900 Revenues ($39,500) - Expenses ($23,400) − Dividends ($2,200) = $13,900

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues - $43,000 Retained Earnings, Jan. 1 - 9,100 Cash - 8,300 Expenses - 23,600 Accounts Payable - 2,100 Dividends - 2,600 Supplies - 19,700 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Increase of $16,800 Revenues ($43,000) - Expenses ($23,600) − Dividends ($2,600) = $16,800

Separation of duties refers to:

Individuals who have physical responsibility for assets should not also have access to accounting records.

Timeliness

Information is presented in time to make useful decisions.

Predictive value

Information is useful in helping to forecast future outcomes.

Verifiability

Information provides feedback on past activities.

Neutrality

Information that does not bias the decision maker.

On August 1, 2021, Turner Manufacturing lends cash and accepts a $23,000 note receivable that offers 6% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2021?

Interest Receivable 575 (debit) Interest Revenue 575 (credit) Interest Revenue = $23,000 × 6% × 5 / 12 = $575.

LIFO conformity rule

LIFO must be used for financial reporting if elected for tax reporting.

Debit

Left side of an account.

Emmitt had the following final balances after the first year of operations: assets, $35,100; stockholders' equity, $14,100; dividends, $3,800; and net income, $9,500. What is the amount of Emmitt's liabilities?

Liabilities = Assets ($35,100) - Stockholders' Equity ($14,100)Liabilities = $21,000.

Trial Balance

List of all accounts and their balances showing that debits equal credits.

Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?

Maintain working papers for at least seven years following an audit.

What is the primary purpose of financial accounting?

Measure business activities and communicate those measures to external users to make decisions.

Confirmatory value

Measurements that independent parties would agree upon.

Fraudulent reporting by management could include:

Mismatching revenues and expenses, Fictitious revenues from a fake customer, and Improper asset valuation.

Interest Revenue

Money earned on the average daily balance of the checking account.

Use the following appropriate amounts to calculate net income: Revenues - $12,000 Liabilities - $4,600 Expenses - $4,000 Assets - $18,900 Dividends - $1,900.

Net Income = $8,000 Net Income = Revenues ($12,000) − Expenses ($4,000)

At the end of the current period, Maltese, Inc. reports the following amounts: Assets = $47,500; Liabilities = $22,700; Dividends = $3,600; Revenues = $25,500; Expenses = $8,300. Calculate net income and stockholders' equity at the end of the period.

Net Income: (47,500 - 22,700) = $24,800 Stockholders' Equity: (25,500 - 8,300) = $17,200

The conceptual framework's qualitative characteristic of faithful representation includes:

Neutrality

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?

November.

Consistency

Once a company chooses an inventory method, it is not allowed to frequently change to another one.

How many of the following transactions would decrease total stockholders' equity in the current period? • Pay dividends to stockholders. • Delay payment on supplies purchased until the following period. • Provide services on account to customers. • Borrow cash from a local bank.

One Pay dividends to stockholders.

Control Environment

Overall attitude of the company with respect to internal controls.

Accounting Assumptions

PGME Periodicity, Going Concern, Monetary Unit, Economic Entity

Accrued expenses

Pay cash (or have an obligation to pay cash) in the current period that will be recorded as an expense in a future period.

Eve's Apples opened for business on January 1, 2021, and paid for two insurance policies effective that date. The liability policy was $41,400 for 18 months, and the crop damage policy was $19,200 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2021?

Prepaid liability insurance: $41,400 × 6/18 = $13,800. Prepaid crop insurance: $19,200 × 12/24 = $9,600. $13,800 + $9,600 = $23,400

Risk Assesment

Procedures for maintaining separation of duties.

Operating income

Profit from normal operations that is a key performance measure for predicting future profit.

Gross profit

Profit most directly related to the sale of inventory.

Accrued revenue

Receive cash in the current period that will be recorded as a revenue in a future period.

Which of the following is not an example of preventive controls? Reconciliations. Correct Separation of duties. Proper authorization. Physical controls.

Reconciliations

Deferred revenue

Record a revenue in the current period that will be collected in cash in a future period.

Prepaid expenses

Record an expense in the current period that will be paid in cash in a future period.

On November 1, $4,800 of rent on equipment for the next six months was paid and charged to Prepaid Rent. At the end of the year, the financial statements would report:

Rent Expense, $1,600; Prepaid Rent $3,200. $4,800/6 months = $800 per month. $800 × 2 months = $1,600 (Rent Expense). Four months ($3,200 = $800 × 4 months) of Prepaid Rent remain.

When a company makes an end-of-period adjusting entry that includes a credit to Prepaid Rent, the debit is usually made to:

Rent Expense.

LIFO

Results in higher ending inventory during periods of rising prices.

Credit

Right side of an account.

Indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling.

Rising Inventory Costs: Higher Total Assets - FIFO Higher Costs of Goods Sold - LIFO Higher Net Income - FIFO Falling Inventory Costs: Higher Total Assets - LIFO Higher Costs of Goods Sold - FIFO Higher Net Income - LIFO

Monitoring

Routine activities that are meant to continually observe internal control activities.

T-account

Simplified form of a general ledger account.

Which of the following is correct with respect to a bank reconciliation? Subtract NSF checks from the company's balance. Subtract interest earned from the bank's balance. Add deposits outstanding to the company's balance. Add service charge to the company's balance.

Subtract NSF checks from the company's balance.

At the beginning of the period, a company reports a balance in office supplies of $450. During the period, the company purchases an additional $3,300 of office supplies for cash. By the end of the period, only $850 of office supplies remains.

Supplies = $450 + $3,300 − $850 = $2,900. Debit Supplies Expense, Credit Supplies

Company error

The company recorded a deposit twice.

Which of the following items would cause the balance of cash in the bank statement to be greater than the balance of cash in the accounting records?

The company wrote checks that have not cleared the bank.

If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true?

The company's assets exceed liabilities by $60,000.

Consider the following account balances of the Shattuck Law Firm at the end of the year: Accounts Payable $4,400 Salaries Expense 12,800 Cash 1,700 Common Stock 2,400 Service Revenue 8,300 Supplies 4,300 Retained Earnings 1,100 Utilities Expense 5,000 How many of these accounts would appear in Shattuck's year-end income statement?

Three Salaries Expense, Service Revenue, and Utilities Expense

Consider the following account balances of the Shattuck Law Firm at the end of the year: Accounts Payable - $4,400 Salaries Expense - 12,800 Cash - 1,700 Common Stock - 2,400 Service Revenue - 8,300 Supplies - 4,300 Retained Earnings - 1,100 Utilities Expense - 5,000 How many of these accounts would appear in Shattuck's year-end income statement?

Three Salaries Expense, Service Revenue, and Utilities Expense

What best explains the meaning of total stockholders' equity?

Total stockholders' equity equals the amount of common stock plus retained earnings. Common stock is the amount of capital invested by stockholders, and retained earnings are profits retained over the life of the company.

Assets

Transactions that affect the left side of the accounting equation.

Liabilities

Transactions that affect the right side of the accounting equation not related to stockholders' equity.

Expenses

Transactions that decrease stockholders' equity related to cost of generating revenues.

Dividends

Transactions that decrease stockholders' equity related to distributions to stockholders.

Revenues

Transactions that increase stockholders' equity.

Information and communication

Transfer of data from lower managers to top executives for accurate financial reporting.

During 2021, a company sells 500 units of inventory for $90 each. The company has the following inventory purchase transactions for 2021: Jan. 1: Beginning inventory - 80 x $79 = $6,320 May 5: Purchase - 270 x 80 = 21,600 Nov. 3: Purchase - 190 x 82 = 15,580 Total Units: 540 Total Cost: $43,500 Calculate cost of goods sold and ending inventory for 2021 assuming the company uses the weighted-average cost method.

Weighted-average unit cost = $43,500 / 540 units = $80.5556 / unit. Ending inventory = 40 × $80.5556 = $3,222 (rounded). Cost of goods sold = 500 × $80.5556 = $40,278 (rounded).

On September 1, 2021, Daylight Donuts signed a $288,000, 7%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2022.Daylight Donuts should report interest payable at December 31, 2021, in the amount of:

[($288,000 × 7%) × 4/12] = $6,720

On March 17, Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10, net 20. What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials?

$0 No revenue recorded on March 25. The revenue would have been recorded on March 17