ACCTG 4A - CH 1-8

A company had no office supplies available at the beginning of the year. During the year, the company purchased $440 worth of office supplies. On December 31, $160 worth of office supplies remained. How much should the company report as office supplies expense for the year?

$440 - $160 = $280

A company's Office Supplies account shows a beginning balance of $790 and an ending balance of $780. If office supplies expense for the year is $4,050, what amount of office supplies was purchased during the period?

$790 + Supplies Purchased - $4,050 = $780 Supplies Purchased -$3,260 = $780 Supplies Purchased = $4,040

On July 1, a company paid the $960 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

$960 × 6/12 = $480

A company's current assets are $17,980, its quick assets are $11,420 and its current liabilities are $12,190. Its quick ratio equals:

Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $11,420/$12,190 = 0.94

Adjusting entries:

Affect both income statement and balance sheet accounts.

A company recorded 2 days of accrued salaries of $1,800 for its employees on January 31. On February 9, it paid its employees $7,800 for these accrued salaries and for other salaries earned through February 9. Assuming the company does not prepare reversing entries, the January 31 and February 9 journal entries are:

1/31 Salaries Expense 1,800 Salaries Payable 1,800 2/9 Salaries Expense 6,000 Salaries Payable 1,800 Cash 7,800

The accounting process begins with:

Analysis of business transactions and source documents.

If equity is $298,000 and liabilities are $191,000, then assets equal:

Assets = Liabilities + Equity Assets = $191,000 + $298,000 = $489,000.

A company reported total equity of $149,000 at the beginning of the year. The company reported $214,000 in revenues and $167,000 in expenses for the year. There were no stockholder investments or dividends during the year. Liabilities at the end of the year totaled $94,000. What are the total assets of the company at the end of the year?

Assets = Liabilities + Equity Assets = $94,000 + (Beginning Equity + Revenues - Expenses) Assets = $94,000 + ($149,000 + $214,000 - $167,000) Assets = $94,000 + $196,000 Assets = $290,000

On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $15,800; Accounts Receivable, $7,000; Supplies, $600; Equipment, $11,650; Accounts Payable, $8,950. What is the amount of equity as of May 31 of the current year?

Assets = Liabilities + Equity Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Equity $15,800 + $7,000 + $600 + $11,650 = $8,950 + Equity $35,050 = $8,950 + Equity Equity = $26,100

If the liabilities of a business increased $103,000 during a period of time and the equity in the business decreased $44,000 during the same period, the assets of the business must have:

Assets = Liabilities + Equity Change in Assets = Change in Liabilities + Change in Equity Change in Assets = +$103,000 - $44,000 Change in Assets = Increase of $59,000

If a company receives $13,700 from its sole stockholder to establish a corporation, the effect on the accounting equation would be:

Assets increase $13,700 and equity increases $13,700.

If a company purchases equipment costing $5,100 on credit, the effect on the accounting equation would be:

Assets increase $5,100 and liabilities increase $5,100.

Saddleback Company paid off $48,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

Assets, $48,000 decrease; liabilities, $48,000 decrease.

Accrued revenues:

At the end of one accounting period result in cash receipts in a future period.

Ethical behavior requires that:

Auditors' pay not depend on the success of the client's business.

A company pays its employees $1,900 each Friday, which amounts to $380 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:

4 days * $380/ day = $1,520

Prior to recording adjusting entries, the Office Supplies account had a $380 debit balance. A physical count of the supplies showed $103 of unused supplies available. The required adjusting entry is:

Debit Office Supplies Expense $277 and credit Office Supplies $277.

Unearned revenues are generally:

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

Paul's Landscaping purchased $650 of office supplies on credit. The company's policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general journal entries will Paul's Landscaping make to record this transaction?

Debit Office supplies, $650; credit Accounts payable, $650.

After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $39,000. The entry to close the income summary account will be:

Debit Retained earnings $39,000; credit Income Summary $39,000.

Canopy Services paid K. Canopy, the sole shareholder of Canopy Services, $5,700 in dividends during the current year. The entry to close the dividends account at the end of the year is:

Debit Retained earnings $5,700; credit Dividends $5,700

A company pays each of its two office employees each Friday at the rate of $220 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

Debit Salaries Expense $880 and credit Salaries Payable $880. 2 employees * 2 days * $220/employee/day = $880

J. Brown Consulting immediately paid $740 cash for utilities for the current month. Given the choices below, determine the general journal entry that J. Brown Consulting will make to record this transaction.

Debit Utilities Expense 740 Credit Cash 740

Richard Redden, the sole stockholder, contributed $92,000 in cash and land worth $174,000 in exchange for common stock to open a new business, RR Consulting. Which of the following general journal entries will RR Consulting make to record this transaction?

Debit cash $92,000; debit land $174,000; Credit Common Stock, $266,000.

Revenue is properly recognized:

Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.

On January 1, Eastern College received $1,400,000 from its students for the spring semester that it recorded in Unearned Tuition and Fees. The term spans four months beginning on January 2 and the college spreads the revenue evenly over the months of the term. Assuming the college prepares adjustments monthly, what amount of tuition revenue should the college recognize on February 28?

$1,400,000/4 = $350,000

A corporation is:

A business legally separate from its owners.

A debit is used to record an increase in all of the following accounts except: Supplies Cash Accounts Payable Dividends Prepaid Insurance

Accounts Payable

If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

$137,000.

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,275. Fragmental collected the entire $10,200 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

A debit to Unearned Rent and a credit to Rent Revenue for $3,825. $10,200 * 3/8 = $10,200 earned by December 31

On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

A debit to a prepaid expense and a credit to Cash for $7,500.

A business uses a credit to record:

A decrease in an asset account.

Which of the following statements is not true: Accounts receivable are held by a seller. Accounts receivable arise from credit sales. Accounts receivable are increased by customer payments. Accounts receivable are classified as assets. Accounts receivable are increased by billings to customers.

Accounts receivable are increased by customer payments.

The assets of a company total $720,000; the liabilities, $210,000. What are the net assets?

Assets = Liabilities + Equity $720,000 = $210,000 + Equity Equity = $510,000

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Business entity assumption.

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Cash basis accounting.

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the cash basis of accounting is:

Cash received, $52,000, minus cash paid for expenses, $39,000 ($31,000 + $8,000), equals cash-basis income, $13,000.

A company's list of accounts and the identification numbers assigned to each account is called a:

Chart of accounts.

An account used to record stockholders' investments in a business is called a(n):

Common stock account.

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

Contra account.

The right side of a T-account is a(n):

Credit.

A merchandiser:

Earns net income by buying and selling merchandise.

Zapper has beginning equity of $269,000, net income of $57,000, dividends of $46,000 and stockholder investments of $12,000. Its ending equity is:

Ending Equity = Beginning Equity + Investments by Stockholders + Net Income - Dividends Ending Equity = $269,000 +$12,000 + $57,000 - $46,000 Ending Equity = $292,000

The acid-test ratio:

Is also called the quick ratio.

The accrual basis of accounting:

Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.

Net Income:

Is the excess of revenues over expenses.

A debit:

Is the left-hand side of a T-account.

Cost of goods sold:

Is the term used for the expense of buying and preparing merchandise for sale.

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

Items that require adjusting entries.

The record of all accounts and their balances used by a business is called a:

Ledger (or General Ledger).

A business's source documents may include all of the following except: Sales tickets. Ledgers. Checks. Purchase orders. Bank statements.

Ledgers.

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

Measurement (Cost) principle.

Beginning inventory plus net purchases is:

Merchandise (goods) available for sale.

A company's formal promise to pay (in the form of a promissory note) a future amount is a(n):

Note payable.

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

Profit Margin = Net Income/Net Sales Profit Margin = $7,000,000/$15,200,000 = .461 = 46.1%

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

A business's source documents:

Provide objective evidence that a transaction has taken place.

External users of accounting information include all of the following except: Shareholders. Customers. Purchasing managers. Government regulators. Creditors.

Purchasing managers.

The main purpose of adjusting entries is to:

Record internal transactions and events.

A simple tool that is widely used in accounting to represent a ledger account and to understand how debits and credits affect an account balance is called a:

T-account.

Identify the item below that would cause the trial balance to not balance. A $1,300 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash. The purchase of office supplies on account for $3,270 was erroneously recorded in the journal as $2,370 debit to Office Supplies and $2,370 credit to Accounts Payable. A $200 cash receipt for the performance of a service was not recorded at all. The purchase of office equipment for $1,950 was posted as a debit to Office Supplies and a credit to Cash for $1,950. The cash payment of a $1,050 account payable was posted as a debit to Accounts Payable and a debit to Cash for $1,050.

The cash payment of a $1,050 account payable was posted as a debit to Accounts Payable and a debit to Cash for $1,050.

An account balance is:

The difference between the total debits and total credits for an account including the beginning balance.

Identify the account used by businesses to record the transfer of assets from a business to its stockholders:

The dividends account.

On July 1 of the current calendar year, Plum Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:

A debit to an expense and a credit to a prepaid expense for $1,875. $7,500/24 months = $312.50 per month. $312.50 per month x 6 months = $1,875.

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Accrual basis accounting.

At the beginning of January of the current year, Little Mikey's Catering ledger reflected a normal balance of $53,000 for accounts receivable. During January, the company collected $15,000 from customers on account and provided additional services to customers on account totaling $12,600. Additionally, during January one customer paid Mikey $5,100 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be:

Beginning Accounts Receivable Balance + Services on Account - Collections from Customers = Ending Accounts Receivable Balance $53,000 + $12,600 - $15,000 = Ending Accounts Receivable Balance Ending Accounts Receivable = $50,600

During the month of February, Victor Services had cash receipts of $7,800 and cash disbursements of $9,200. The February 28 cash balance was $2,400. What was the February 1 beginning cash balance?

Beginning Cash Balance + Cash Receipts - Cash Disbursements = Ending Cash Balance Beginning Cash Balance + $7,800 - $9,200 = $2,400 Beginning Cash Balance - $1,400 = $2,400 Beginning Cash Balance = $3,800

On January 1 of the current year, Jimmy's Sandwich Company reported stockholders' equity totaling $133,000. During the current year, total revenues were $116,000 while total expenses were $105,500. Also, during the current year paid $40,000 in cash dividends. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $216,000, the change in total stockholders' equity during the year was:

Beginning Equity + Revenues - Expenses - Dividends = Ending Equity $133,000 + $116,000 - $105,500 - $40,000 = Ending Equity Ending Equity = $103,500 Change in Equity = Beginning Equity - Ending Equity Change in Equity = $133,000 - $103,500 = $29,500 Decrease

Quick assets are defined as:

Cash, short-term investments, and current receivables.

A law firm collected $2,400 on account for work performed in the previous month. Which of the following general journal entries will the firm make to record this transaction?

Debit Cash, $2,400; credit Accounts Receivable, $2,400.

Tiptoe Shoes had annual revenues of $191,000, expenses of $106,700, and dividends of $20,400 during the current year. The retained earnings account before closing had a balance of $303,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is:

Debit Income Summary $84,300, credit Retained earnings $84,300

On January 1, a company purchased a five-year insurance policy for $2,400 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Debit Insurance Expense, $480; credit Prepaid Insurance, $480. $2,400 × 1/5 = $480 per year

Which of the following statements is incorrect? A. Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities. B. Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded. C. Adjusting entries can be used to record both accrued expenses and accrued revenues. D. Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. E. Adjusting entries affect only balance sheet accounts.

E

Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1. Andrea invested $14,900 cash in the business in exchange for common stock. 2. Andrea contributed $34,000 of photography equipment to the business. 3. The company paid $3,500 cash for an insurance policy covering the next 24 months. 4. The company received $7,100 cash for services provided during January. 5. The company purchased $7,600 of office equipment on credit. 6. The company provided $4,150 of services to customers on account. 7. The company paid cash of $2,900 for monthly rent. 8. The company paid $4,500 on the office equipment purchased in transaction #5 above. 9. Paid $415 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be:

Ending Cash Balance = $14,900 (#1) - $3,500 (#3) + $7,100 (#4) - $2,900 (#7) - $4,500(#8) - $415 (#9) = $10,685

Larry Bar opened a frame shop and completed these transactions: 1. Larry started the shop by investing $40,800 cash and equipment valued at $18,800 in exchange for common stock. 2. Purchased $150 of office supplies on credit. 3. Paid $2,000 cash for the receptionist's salary. 4. Sold a custom frame service and collected $5,300 cash on the sale. 5. Completed framing services and billed the client $280. What was the balance of the cash account after these transactions were posted?

Ending Cash Balance = $40,800 (#1) - $2,000 (#3) + $5,300 (#4) = $44,100

Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1. Andrea invested $15,500 cash in the business in exchange for common stock. 2. Andrea contributed $40,000 of photography equipment to the business in exchange for common stock. 3. The company paid $4,100 cash for an insurance policy covering the next 24 months. 4. The company received $7,700 cash for services provided during January. 5. The company purchased $8,200 of office equipment on credit. 6. The company provided $4,750 of services to customers on account. 7. The company paid cash of $3,500 for monthly rent. 8. The company paid $5,100 on the office equipment purchased in transaction #5 above. 9. Paid $475 cash for January utilities. Based on this information, the amount of total stockholders' equity-reported on the Balance Sheet at the end of the month would be:

Ending Equity = $15,500 (#1) + $40,000 (#2) + $7,700 (#4) + $4,750 (#6) - $3,500 (#7) - $475 (#9) = $63,975

The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

Expense recognition (Matching) principle.

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition (Matching) principle.

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

FASB.

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

Gross Margin = Sales - Cost of Goods Sold Cost of Goods Sold = $375,000 - $157,500 = $217,500

A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

Gross Margin = Sales - Cost of Goods Sold Gross Margin = $695,000 - $278,000 = $417,000

The following statements regarding gross profit are true except: Gross profit is also called gross margin. Gross profit less other operating expenses equals income from operations. Gross profit is not calculated on the multiple-step income statement. Gross profit must cover all operating expenses to yield a return for the owner(s) of the business. Gross profit equals net sales less cost of goods sold.

Gross profit is not calculated on the multiple-step income statement.

The International Accounting Standards Board (IASB):

Hopes to create harmony among accounting practices of different countries to improve comparability.

The independent group that is attempting to harmonize accounting practices of different countries is the:

IASB.

The following statements regarding merchandise inventory are true except: Merchandise inventory is reported on the balance sheet as a current asset. Merchandise inventory refers to products a company owns and intends to sell. Merchandise inventory may include the costs of freight in and making them ready for sale. Merchandise inventory appears on the balance sheet of a service company. Purchasing merchandise inventory is part of the operating cycle for a business.

Merchandise inventory appears on the balance sheet of a service company.

Zippy had cash inflows from operations $69,500; cash outflows from investing activities of $54,000; and cash inflows from financing of $32,000. The net change in cash was:

Net Change in Cash = Cash Flows from Operating Activities + Cash Flows from Investing Activities + Cash Flows from Financing Activities Net Change in Cash = $69,500 + ($54,000) + $32,000 Net Change in Cash = $47,500

Determine the net income of a company for which the following information is available for the month of July. Employee salaries expense $193,000 Interest expense 23,000 Rent expense 33,000 Consulting revenue 452,000

Net Income = Revenues - Expenses Net Income = Consulting Revenue - Employee Salaries Expense - Interest Expense - Rent Expense Net Income = $452,000 - $193,000 - $23,000 - $33,000 Net Income = $203,000

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Objectivity principle.

If a company uses $1,390 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,390 and another asset decreases $1,390, causing no effect.

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

Overstate net income by $28,000.

Technology:

Reduces the time, effort and cost of recordkeeping.

Rushing had income of $195 million and average invested assets of $1,960 million. Its return on assets is:

Return on Assets = Net Income/Average Assets Return on Assets = $195 million/$1,960 million = 0.099 = 9.9%

Cage Company had income of $357 million and average invested assets of $2,020 million. Its return on assets (ROA) is:

Return on Assets = Net Income/Average Assets Return on Assets = $357 million/$2,020 million = 0.177 = 17.7%

The following transactions occurred during July: 1. Received $1,090 cash for services provided to a customer during July. 2. Received $5,800 cash investment from Bob Johnson, the owner of the business 3. Received $940 from a customer in partial payment of his account receivable which arose from sales in June. 4. Provided services to a customer on credit, $565. 5. Borrowed $7,900 from the bank by signing a promissory note. 6. Received $1,440 cash from a customer for services to be rendered next year. What was the amount of revenue for July?

Revenues = $1,090 (from #1) + $565 (from #4) = $1,655

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

Revenues, $60,000, minus expenses, $35,000, equals accrual-basis income, $25,000.

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,600. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,800 payment of salaries in January of the following year?

Salaries Payable 1,600 Salaries Expense 2,200 Cash 3,800

The current period's ending inventory is:

The next period's beginning inventory

A company purchased a new delivery van at a cost of $54,000 on July 1. The delivery van is estimated to have a useful life of 6 years and a salvage value of $4,200. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

[($54,000 - $4,200)/6 years] * 6/12 months = $4,150