ACCT 5312- Exam 1

When a firm purchases supplies for its business:

an adjustment will probably be required as supplies are used

If the rate of return on an investment was 10 percent _______.

and $500 was invested for one year, then the return on the investment would have been $50

Which of the following is NOT a transaction to be recorded in the accounting records of an entity?

Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive.

A debit entry will:

increase the balance of an expense account

Revenues are:

increases in net assets from selling a product.

A firm's liquidity refers to

its ability to meet its current obligations as they become due

The accounting concept/principle being applied when an adjustment is made is usually:

matching revenue and expense

A concept or principle that relates to transactions is:

original cost

Normal account balances for:

expense and loss accounts are on the debit side, and the balances for revenue and gain accounts are on the credit side.

In the seller's records, the sale of merchandise on account would:

increase assets and increase expenses

If debits equal credits, then:

the company's balance sheet equation will be in balance.

The three concepts/principles that relate to transactions are:

unit of measurement, cost principle, and objectivity

If debits equal credits, what will be shown on the balance sheet?

Assets will equal the sum of liabilities and stockholders' equity.

Consolidated financial statements report financial position results of operations, and cash flows for:

a parent corporation and its subsidaries

The balance in the Accounts Receivable account decreased from $18,000 at the beginning of the month to $15,000 at the end of the month. Sales on account during the month totaled $130,000. No accounts receivable were written off as uncollectible during the month. Cash collections of accounts receivable during the month totaled:

$133,000 Beginning Accounts Receivable ($18,000) + Sales total ($130,000) − Ending Accounts Receivable ($15,000) = Cash Collections ($133,000)

On January 31, an entity's balance sheet showed net assets of $3,075 and liabilities of $675. Stockholders' equity on January 31 was:

$3,075 Net Assets = Stockholders' Equity

Calculate working capital, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000.

$40,000 Working Capital= current assets - current liabilities

Unquiet Hands, Inc. borrowed $30,000 on October 1, 2019 at 6% interest with both principal and interest due on September 30, 2020. How much should be in Unquiet Hands, Inc.'s interest payable account at December 31, 2019?

$450 Interest Payable = borrowed <30,000>* interest <0.06> * (mo/12)<3/12>

Which statements are true of liability accounts? (Select all that apply)

- They increase with credit entries. - They normally have a credit balance. - They decrease with debit entries.

Which statements are true of expense accounts? (Select all that apply)

- They increase with debit entries. - They normally have a debit balance. - They decrease with credit entries.

Select all that apply Transactions:

- are summarized in accounts, and accounts are further summarized in financial statements - can be seen as the bricks that build financial statements - are economic interchanges between entities - are the starting point in the accounting process that ends with the preparation of financial statements

Assets = Liabilities + Paid-in capital + Retained earnings ____________ + _____________ - ______________________.

- beginning - Revenues - Expenses

In the horizontal model, a minus sign next to an expense amount means that net income is _____________ (reduced/increased) because of expenses being ______________ (lower/higher).

- reduced - higher

What do you need to know to calculate the amount of interest earned on an investment? (Choose every correct answer.)

-The principle amt invested -The length of time the funds are invested -The interest rate per year

The current ratio is calculated as current assets _____ ( + - x / ) current liabilities.

/ divide

Calculate the acid-test ratio, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000. (Round your answer to one decimal place, if necessary.)

2.5 $50,000 / $20,000

Around Square, Inc. had an ROI of 12.5%, turnover of 5.0, and sales of $8 million for the year. Around Square's margin for the year was:

2.5% 12.5% = ? × 5.0Solve for missing number: 12.5% divided by 5.0 = 2.5%

If net income = $20,000 and average stockholders' equity = $80,000, then ROE = __________ percent.

25 ROE= Net Income/Avg Stockholders' equity

If margin is 4 percent and ROI is 12 percent, then turnover is ______ times per year.

3 Turnover= ROI/Margin

Calculate the current ratio, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000. (Round your answer to one decimal place, if necessary.)

3.0 Current Ratio= Current Assets / Current Liabilities ($50,000+$10,000) / $20,000

The annual rate of return on a two-year investment of $1,000 that earns a total return of $100 is ______.

5% ROR= ($100/$1000)/2

If turnover is 1.5 times per year and ROI is 9 percent, then margin is ________ percent.

6

Which of the following are qualified to express an auditor's opinion about an entity's financial statements?

A Certified Public Accountant

Identify a correct statement regarding the usage of plus or minus signs along with the dollar amounts in the horizontal model of financial statements.

A minus sign for expenses indicates that net income is reduced because expenses are higher.

Which of the following is NOT usually considered a measure of an entity's liquidity?

Cash ratio

Limiting a firm's ability to switch back and forth between alternative generally accepted accounting methods is driven by which of the following concepts/principles?

Consistency

Unquiet Hands, Inc. borrowed $30,000 on October 1, 2019 at 6% interest with both principal and interest due on September 30, 2020. Which of the following journal entries should the firm use to accrue interest at the end of each month?

Dr. Interest Expense Cr. Interest Payable

Which entry can be recorded as an accrual adjusting entry?

Dr. Interest Receivable 200 Cr. Interest Income 200 Dr. Wages Expense 100 Cr. Wages Payable 100

Which entry can be recorded as a reclassification adjusting entry?

Dr. Supplies 300 Cr. Supplies Expense 300

When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required:

Dr. Supplies expense Cr. Supplies

The officer of a corporation responsible for the firm's published financial statements would be most concerned about pronouncements of the:

FASB

The authoritative financial accounting standards-setting body in the United States is presently the:

Financial Accounting Standards Board (FASB)

Which of the following is an objective of financial reporting by business enterprises?

Financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and changes in those resources and claims to them

Which group of accounts would be closed in the year-end closing process?

Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales

Cost accounting is a subset of which of the following?

Managerial Accounting

Which of the following accounts is part of working capital?

Merchandise Inventory

Which of the following is not an example of a decision or informed judgment that a potential employee could make from accounting information?

Personnel turnover statistics (i.e., hiring and terminations)

In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account into which all those accounts are closed?

Retained Earnings

Another term for return on investment is:

Return on assets

If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be:

The Same

Accounting can be defined as:

The process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgments.

The balance in the Wages Payable account increased from $13,000 at the beginning of the month to $20,000 at the end of the month. Wages accrued during the month totaled $82,000.

Wages paid during the month totaled $75,000$13,000 +82,000-$20,000=$75000

Indicate the category and financial statement(s) for each caption: a>Cash b>Accounts Payable c>Common Stock d>Depreciation Expense e>Net Sales f>Income Tax Expense g>Short-Term Investments h>Gain on Sale of Land i>Retained Earnings j>Dividends Payable k>Accounts Receivable l>Short-Term Debt

a> Asset ; BS b> Liability; BS c> Stockholders' Equity; BS d> Expense; IS e> Revenue; IS f> Expense; IS g> Asset; BS h> Gain; IS i> Stockholders; Equity; BS j> Liability; BS k> Asset; BS l> Liability; BS

A(n) _____________ (accrual/reclassification) period-end adjustment is required when an expense has been incurred but not yet paid in cash.

accrual

A(n) ______________ (accrual/reclassification) period-end adjustment is required when a revenue has been earned but not yet received in cash.

accrual

Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom's books at the end of every month that the loan is outstanding to record the:

accrued interest expense for the month

Matching revenues and expenses refers to:

accurately reflecting the results of operations for a fiscal period.

When a bank ____________ (debits/credits) your account for the interest earned during the month, what it is really communicating is that it is _________________ (increasing/decreasing) the __________________(asset/liability) recorded in its accounting records to represent your account from its perspective.

credits increasing liability

A current ratio of 6.0 is usually an indication that the firm:

has not made the most productive use of its assets.

In the DuPont model for ROI, margin is calculated as net ___________ divided by _________________.

income sales

When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the ______.

income statement effect on stockholders' equity is considered

In the buyer's records, the purchase of merchandise on account would:

increase assets and increase liabilities

A journal:

is where transactions are initially recorded

Transactions are initially recorded in a _________(journal/ledger/chart of accounts).

journal

A chart of accounts serves as an index to a company's ____________.

ledger

Rotablade's net income was $600,000 on sales of $24 million for the year. Average assets for the year were $8 million. For the year:

margin was 2.5%, turnover was 3.0, and ROI was 7.5%

Return on equity:

relates net income and stockholders' equity

The effect of an adjustment is:

to increase the accuracy of the financial statements.

The DuPont model for ROI expresses _____.

turnover as sales / average total assets

With a semilogarithmic graph, the _______ scale is logarithmic.

vertical

Working capital refers to the excess of a firm's ______.

current assets over its current liabilities

A chart of accounts:

serves as an index to a company's ledger.

A chart of accounts:

serves as an index to the ledger, with each account numbered to facilitate frequent references that are made to it.

Financial statement ratios support informed judgments and decision making most effectively:

when the trend of entity data is compared to the trend of industry data.

Which statement about trend analysis is correct?

It generally leads to a more meaningful analysis when conducted over several years than does the observation of a single year's ratio result.

Which classification of accounting is most concerned with the use of economic and financial information to plan and control many of the activities of the entity?

Managerial accounting

If sales = $500,000, turnover = 1.5, and net income = $75,000, then _______.

ROI = 22.5% and margin = 15% >>Margin = $75,000 / $500,000 = 15% ROI = 15% x 1.5 = 22.5%<<

If margin = 5 percent, net income = $100,000, and turnover = 4.0, then ______.

ROI= (Net Income/Sales) x (Sales/Avg Total Assets) >> ROI = 20%, average total assets = $500,000, and sales = $2,000,000 *Net Income/Sales=Margin *Sales/Avg Total Assets=Turnover

The annual rate of return on a six-month investment of $1,000 that earns a return of $100 is ______.

Rate of return= (Amt of Return/Amt Invested)/(Time in Yrs) 20%

Although revenues and expenses are reported on the income statement, they also:

impact stockholders' equity on the balance sheet.

Debit entries:

increase expense and loss accounts and decrease revenue and gain accounts.

When a bank credits your account for the interest earned during the month, what it is really communicating is that it is:

increasing your account balance, which is shown as a liability from its perspective.

Trend analysis of ratios ______.

is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios

After transactions have been recorded in a journal, they are posted to a ___________________(roster/ledger/log).

ledger

In a horizontal financial statement, the arrow from net income to stockholders' equity indicates that _________.

net income affects retained earnings, which is a component of stockholders' equity

The report format of the balance sheet ______.

presents assets above liabilities and stockholders' equity items

The account format of the balance sheet:

presents assets on the left and liabilities and stockholders' equity items on the right.

A(n) ____________ (accrual/reclassification) period-end adjustment is required when the cash related to a revenue has been received but the revenue has not yet been recognized.

reclassification

In a balance sheet, net income from the income statement is added to the beginning balance of ___________.

retained earnings in the statement of changes in retained earnings

In the DuPont model for analyzing ROI, turnover is calculated as _______ divided by average total _______.

sales assets

In the United States, the dollar is the _______ of ________ for all transactions.

unit; measurement

Which of the following would represent a correct calculation of interest earned on a six month, $100 investment?

$100 principal x 10% rate x 6/12 = $5 interest

The income statement shows amounts for:

revenues, gains, expenses and losses.

Sales on account during the month totaled $78,000. Cash collections of accounts receivable during the month totaled $72,000. The balance in the Accounts Receivable account at the end of the month was $31,000. No accounts receivable were written off as uncollectible during the month. The balance in the Accounts Receivable account at the beginning of the month was:

$25,000 Beginning balance + $78,000 − $72,000 = $31,000 ending balance Solve for the missing amount: Beginning balance + $6,000 = $31,000 ending balance Beginning balance = $25,000

Calculate working capital, assuming that cash = $6,000, land = $105,000, accounts receivable = $19,000, merchandise inventory = $20,000, accounts payable = $15,000, long-term debt = $80,000, and retained earnings = $55,000.

$30,000 Working Capital = current assets - current liabilities ($6,000+$19,000+$20,000) - $15,000

Which of the following statements are true regarding the current ratio? (Choose every correct answer.)

- Accounts payable are included in the denominator. - Cash is included in the numerator.

What are the 4 main reports?

- Balance Sheet(BS) - Income Statement(IS) - Retained Earnings Statement(RE))Change of equity statement) - Cash Flows Statement

Which of the following statements are true regarding the matching concept?

- Expenses are recorded in the period in which they are incurred. - Revenues are recorded in the period in which they are earned.

Which statements about working capital are correct? (Choose every correct answer.)

- It is the excess of a firm's current assets over its current liabilities. - It is expressed as a dollar amount, rather than as a financial ratio.

Which statements regarding the closing process are true? (select all that apply)

- Losses and dividends are closed in the same way that expenses are closed. - All revenue accounts are closed by debiting each account for an amount equal to the adjusted year-end credit balance. - All expense accounts are closed by crediting each account for an amount equal to the adjusted year-end debit balance.

The numerator of the acid-test ratio includes most current assets but specifically excludes _________ __________.

- Merchandise - Inventory or Inventories

Which of the following statements are true regarding the working capital calculation? (Choose every correct answer.)

- Merchandise inventory is part of current assets. - Cash is part of current assets.

Which of the following are reported in the statement of changes in stockholders' equity?

- Net income for the year - Total stockholders' equity at the end of the year - Year-end balance of retained earnings - Dividends for the year - Common stock issued during the year

Which transactions would require a reclassification adjusting entry? (Check all that apply).

- Prepaid insurance - Rent received in advance

Which accounts would be closed during the year-end closing process? (select all that apply)

- Sales - Rent Expense - Wages Expense - Loss on Sale of Buildings - Dividends

Which of the following statements are true regarding a semilogarithmic graph? (Choose every correct answer.)

- Semilogarithmic graphs are frequently used to plot data that is expected to change significantly over time, such as a company's sales data. - If the data increases at a constant rate over the period of time shown on the horizontal scale, the plot will be a straight line.

Which of the following statements are true regarding the acid-test ratio? (Choose every correct answer.)

- The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. - The acid-test ratio is sometimes called the quick ratio. - Temporary cash investments are included in the numerator of the acid-test ratio.

Which of the following is not a characteristic or limitation of the kind of information that financial reporting by business enterprises can provide?

- The information results in approximate, rather than exact, measures. - The information largely reflects the financial effects of transactions that have already taken place. - The information is provided and used at a cost. >>All of the answers are characteristics or limitations of the kind of information that financial reporting by business enterprises can provide.

Financial ratios:

- provide for a more meaningful analysis when the trends of financial ratios for a company are compared to the industry average trends over a period of time. - help financial statement users to evaluate the financial characteristics of companies by putting the large dollar amounts reported in financial statements into relative terms for comparison purposes.

Accounts are summarized in financial ________,whereas ________ are summarized in accounts.

- statements - transactions

Mechforce Manufacturing's net income was $420,000 on sales of $14 million. Average assets for the year were $10 million. Margin for the year was:

3.0% Margin = Net income / Sales = $420,000 / $14,000,000 = 3.0%

Which of the following entities would not require accounting information pertaining to their economic activities?

All of the entities require accounting information (social clubs, not-for-profit entities, state governments)

Which group of accounts would ALL be closed in the year-end closing process?

Interest Income, Supplies Expense, Dividends, and Gain on Sale of Land

How is the amount of interest earned on an investment calculated?

Interest= Principle($) x Rate(%) x Time(Yrs)

Which of the following is not a principle form of business organization?

Limited Unregistered Business

Assets = Liabilities + Paid-in capital + ______.

Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)

Which of the following is a universally accepted measure of profitability?

Return on investment

Which of the following statements about the Financial Accounting Standards Board is correct?

The FASB follows a due process procedure that permits input from interested parties before an Accounting Standards Update (ASU) is issued.

Additional paid-in capital represents:

The difference between the total amounts invested by the stockholders and the par or stated value of the stock.

Which of the following was not one of the reasons for the FASB's decision to undertake the Conceptual Framework project?

To provide detailed, industry-specific authoritative guidance for the accounting and financial reporting of complex business transactions

Normal account balances __________.

are on the debit side for assets and on the credit side for liability and stockholders' equity accounts

The ethical concept of integrity means that an individual must:

attempt to be honest and forthright in dealings and communications with others.

If stockholders' equity at the beginning of the year = $50,000, stockholders' equity at the end of the year = $70,000, and ROE = 25 percent, then _______.

average stockholders' equity = $60,000 and net income = $15,000 >>Average stockholders' equity = ($50,000 + $70,000) / 2 = $60,000 Net income = $60,000 x 25% = $15,000<<

When a bank ________ (debits/credits) , your account for the service charges incurred during the month, what it is really communicating is that it is ___________ (increasing/decreasing), the_________ (asset/liability) recorded in its accounting records to represent your account from its perspective.

debits decreasing liability

Credit entries

decrease expense and loss accounts and increase revenue and gain accounts.

The objectives of financial reporting for nonbusiness enterprises:

focus on providing information for resource providers, rather than investors.

With a semilogarithmic graph, the ___ scale is arithmetic.

horizontal

The accountant at WooSah! USA made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to:

increase ROI for February

A credit entry will:

increase a liability account.

A newspaper ad submitted and published this week, with the agreement to get paid for it next week would, in the newspaper's records:

increase assets and increase revenues

In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would:

increase liabilities and increase expenses

Accrual accounting:

is designed to match revenues and expenses.

The return on investment measure of performance:

is used by individuals to compare investment performance.

An advantage of the DuPont model for calculating ROI is that:

it focuses on asset utilization as well as net income

When comparing entity financial ratios with industry ratios:

it should be assumed that the data result from the consistent application of alternative accounting methods

The Statement of Changes in Stockholders' Equity shows:

net income and dividends for the period

The provisions of the Sarbanes-Oxley Act of 2002 had the following components:

quality control, attestation, and enforce auditing

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is:

raises the current ratio

Assume that in the current year a company collected $70 in cash from a customer for services that were performed in a prior period. This transaction would be recorded in the horizontal model with:

+70 Cash and -70 Accounts Receivable in the Assets column.

Identify the statements that are correct about reclassification year-end adjustments. (select all that apply)

- A reclassification year-end adjustment is required when cash has been paid for an expense but the expense has not been incurred yet. - A reclassification year-end adjustment is required when cash for a revenue has been received but the revenue has not been recognized yet.

Which statement is true regarding the closing process?

- All expense and loss accounts, as well as dividends, are credited for amounts equal to their year-end debit balances. - All revenue and gain accounts are debited for amounts equal to their year-end credit balances.

Which of the following statements are true regarding the current ratio and the acid-test ratio? (Choose every correct answer.)

- Both the current ratio and the acid-test ratio use current liabilities as the denominator. - The acid-test ratio is a more conservative measure of a firm's liquidity.

Which of the following statements is true regarding the statement of cash flows?

- Cash received from the sale of buildings or equipment is an investing activity, and the activity is a source of cash. - Depreciation expense is added back to net income in the operating activities section. - The increase in accounts payable for the year is a source of cash and is shown as an operating activity. - Cash received from the sale of long-term debt is a financing activity, and the activity is a source of cash.

Which statements correctly describe liquidity? (Choose every correct answer.)

- It is a firm's ability to meet its current obligations as they become due. - It is measured by relating current assets and current liabilities as reported on the balance sheet.

Which of the following statements are true regarding the acid-test ratio? (Choose every correct answer.)

- The acid-test ratio excludes merchandise inventory from the numerator. - The acid-test ratio uses the same denominator as does the current ratio. - The acid-test ratio is a more conservative measure of liquidity than the current ratio.

Under accrual accounting, year-end adjustments are made: (Select all that apply).

- because the cash disbursement for expenses may occur before or after the event that causes expense recognition. - to ensure that revenues are recognized in the year in which they are earned. - because revenue receipts may occur before or after the event that causes revenue recognition. - to ensure that expenses are recognized in the year in which they are incurred.

Merchants who send you a notice that they have "charged" your account are really communicating that they have ______________ (debited/credited) your account in their accounting records to ____________ (increase/decrease) your account balance, which is shown as a(n) ______________ (asset/liability) from their perspective, since you owe them money.

- debited - increase - asset or assets

Assume that in the current year a company paid $50 in cash for advertising services that were availed in a prior period. This amount was recorded as an expense at the time of availing the services. This transaction would be recorded in the horizontal model with:

-50 Cash in the Assets column and -50 Accounts Payable in the Liabilities column.

Calculate the acid-test ratio, assuming that cash = $6,000, land = $105,000, accounts receivable = $19,000, merchandise inventory = $20,000, accounts payable = $15,000, long-term debt = $80,000, and retained earnings = $55,000. (Round your answer to one decimal place, if necessary.)

1.7 Acid-test Ratio= (cash + accts rcv) / current liabilities ($6,000+$19,000) / $15,000

In bookkeeping and accounting, _____________ means ____________ and credit means right.

debit left

Major classifications of accounting activity would not include:

financial accounting, national accounting, cost accounting