ACG 201.801 Final Exam

Which of the following is not an internal control that should be applied when a business takes a physical count of inventory?

Counters of inventory should be those who are responsible for the inventory.

A company purchased $3,300 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $900 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

Debit Accounts Payable $2,400; credit Merchandise Inventory $72; credit Cash $2,328.

A company's current LIFO inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000. 5,000 units × ($6 − $5) = $5,000

On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. The adjusting entry needed on December 31 of the first year is:

Debit Depreciation Expense, $18,000; credit Accumulated Depreciation, $18,000. ($95,000 − $5,000)/5 = $18,000

Which of the following is an external user of accounting information?

lender

Creditors' claims on assets are called:

liabilities

A company has the following per unit original costs and market values for its inventory. Lower of cost or market is applied to individual items. Part A: 50 units with a cost of $5, and replacement cost of $4.50 Part B: 75 units with a cost of $6, and replacement cost of $6.50 Part C: 160 units with a cost of $3, and replacement cost of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory is:

$1,075.00.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

$1,600. Cash Paid = ($1,800 − $200) = $1,600

Rushing had net income of $163 million and average total assets of $1,850 million. Its return on assets (ROA) is:

8.8% Return on Assets = Net Income/Average Total Assets Return on Assets = $163 million/$1,850 million = 0.088 = 8.8%

Cushman Company had $846,000 in sales, sales discounts of $12,690, sales returns and allowances of $19,035, cost of goods sold of $401,850, and $291,025 in operating expenses. Net income equals:

$121,400. Net Income = $846,000 − $12,690 − $19,035 − $401,850 − $291,025 = $121,400

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

$137,000.

Garza Company had sales of $143,000, sales discounts of $2,150, and sales returns of $3,430. Garza Company's net sales equals:

$137,420. Net Sales = $143,000 − $2,150 − $3,430 = $137,420

The following information is available for Cubic Company before closing the accounts. After all closing entries are made, what will be the balance in the Retained earnings account? Net income$ 119,600 Retained earnings 114,000 Dividends 43,000

$190,600. Ending Retained earnings Balance = Beginning Retained earnings Balance + Net Income − Dividends Ending Retained earnings Balance = $114,000 + $119,600 − $43,000 = $190,600

A company had no office supplies available at the beginning of the year. During the year, the company purchased $290 worth of office supplies. On December 31, $85 worth of office supplies remained. How much should the company report as office supplies expense for the year?

$205 $290 − $85 = $205

Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $20,162. Franklin's August bank statement shows $19,837 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit $6,600 Outstanding checks $5,300 Bank service fees, not yet recorded by company $120 The bank collected on a note receivable, not yet recorded by the company $1,095 The adjusted cash balance should be:

$21,137 bank balance + deposit in transit - outstanding checks = adjusted bank balance book balance - bank service fees + note collected = adjusted book balance

Interim financial statements:

Are financial statements prepared for periods of less than one year.

A company purchased $4,100 worth of merchandise. Transportation costs were an additional $360. The company returned $280 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

$4,103.60. Cash Paid = [($4,100 − $280) × 0.98] + $360 = $4,103.60

A company purchased new furniture at a cost of $25,000 on January 1. The furniture is estimated to have a useful life of 5 years and a salvage value of $3,100. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the furniture for the first year ended December 31?

$4,380 ($25,000 − $3,100)/5 years = $4,380 per year.

In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information: Cash balance per company books on January 30$ 5,125 Deposits in transit at month-end$ 1,880 Outstanding checks at month-end$ 560 Bank service charges$ 29 EFT automatically deducted monthly, not yet recorded by Maxi$ 460 An NSF check returned on a customer account$ 305 The adjusted cash balance per the books on January 31 is:

$4331 book balance - bank service charges - EFT - NSF check returned by bank = adjusted book balance

Physical counts of inventory:

Are necessary to adjust the Inventory account to the actual inventory available.

Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to ending inventory using LIFO. May 1 Beginning Inventory 220 units @ $17 May 5 Purchase 255 units @ $19 May 10 Sales 175 units @ $27 May 15 Purchase 135 units @ $20 May 24 Sales 125 units @ $28

$5,450 (220 × $17 = $3,740) + (90 × $19 = $1,710) = $5,450

Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to the ending inventory using FIFO. May 1 Beginning Inventory 210 units @ $16 May 5 Purchase 250 units @ $18 May 10 Sales 170 units @ $26 May 15 Purchase 130 units @ $19 May 24 Sales

$5,530 (170 × $18 = $3,060) + (130 × $19 = $2,470) = $5,530

Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to cost of goods sold using FIFO. May 1 Beginning Inventory 230 units @ $18 May 5 Purchase 260 units @ $20 May 10 Sales 180 units @ $28 May 15 Purchase 140 units @ $21 May 24 Sales

$5,740 (230 × $18 = $4,140) + (80 × $20 = $1,600) = $5,740

If equity is $368,000 and liabilities are $186,000, then assets equal:

$554,000 Assets = Liabilities + Equity Assets = $186,000 + $368,000 = $554,000.

Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: August 2 12 units were purchased at $3 per unit. August 18 17 units were purchased at $5 per unit. August 29 14 units were sold. What is the amount of the cost of goods sold for this sale?

$58.38 Average cost = [(12 × $3) + (17 × $5)]/29 units = $4.17 per unit Cost of sale = 14 units × $4.17 per unit = $58.38

Salmone Company reported the following purchases and sales for its only product. Salmone uses a periodic inventory system. Determine the cost assigned to cost of goods sold using LIFO. May 1 Beginning Inventory 230 units @ $18 May 5 Purchase 260 units @ $20 May 10 Sales 180 units @ $28 May 15 Purchase 140 units @ $21 May 24 Sales

$6,340 (140 × $21 = $2,940) + (170 × $20 = $3,400) = $6,340

Easton Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on June 30, its Cash account shows a debit balance of $61,209. Easton's June bank statement shows $59,149 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit$ 4,100 Outstanding checks$ 2,025 Check printing fee, not yet recorded by company$ 17 Interest earned on account, not yet recorded by the company$ 32 The adjusted cash balance should be:

$61,224 bank balance + deposit in transit - outstanding checks = adjusted bank balance book balance + interest earned - check printing = adjusted book balance

A company purchased $8,500 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $425 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

$7,833. Cash Paid = ($8,500 − $425) × 0.97 = $7,833

The Income Summary account is used to:

Close the revenue and expense accounts.

Jennings Company has total assets of $449.0 million. Its total liabilities are $122.5 million. Its equity is $326 million. Calculate the debt ratio.

27.3% Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $122.5 million/$449.0 million; Debt Ratio = 0.2728 = 27.3%

Use the following information for Shafer Company to compute inventory turnover for year 2. year 1: net sales 584100 cost of goods sold 360960 ending inventory 80580 year 2: net sales 653500 cost of goods sold 389700 ending inventory 78900

4.89 Inventory Turnover = Cost of Goods Sold/Average Inventory Inventory Turnover = $389,700/[($78,900 + $80,580)/2] Inventory Turnover = $389,700/$79,740 = 4.89

A company had $6,900,000 in net income for the year. Its net sales were $14,290,000 for the same period. Calculate its profit margin.

48.3 %. Profit Margin = Net Income/Net Sales Profit Margin = $6,900,000/$14,290,000 = 0.483 = 48.3%

A company had net sales of $29,800 and accounts receivable of $4,400 for the current period. Its days' sales uncollected equals:

53.89 days Days' Sales Uncollected Ratio = Accounts Receivable/Net Sales × 365 Days' Sales Uncollected Ratio = ($4,400/$29,800) × 365 = 53.89 days

A company's net sales were $735,000, its cost of goods sold was $245,490 and its net income was $66,550. Its gross margin ratio equals:

66.6% Gross Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Margin Ratio = ($735,000 − $245,490)/$735,000 = 66.6%

On May 31, the Cash account of Tesla had a normal balance of $5,100. During May, the account was debited for a total of $12,300 and credited for a total of $11,600. What was the balance in the Cash account at the beginning of May?

A $4,400 debit balance. Beginning Cash Balance + Debits − Credits = Ending Cash Balance Beginning Cash Balance + $12,300 − $11,600 = $5,100 Beginning Cash Balance + $700 = $5,100; Beginning Balance = $4,400 debit balance

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 of the current year to April 30 of the following year. The Cash receipt was recorded as unearned revenue and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be:

A debit to Unearned Revenue and a credit to Revenue for $1,000.

If a company purchases equipment costing $4,700 on credit, the effect on the accounting equation would be:

Assets increase $4,700 and liabilities increase $4,700.

Resources a company owns or controls that are expected to yield future benefits are:

Assets.

On January 1, a company purchased a five-year insurance policy for $2,000 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, $400; credit Prepaid Insurance, $400. $2,000 × 1/5 = $400 per year

On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. The company's annual accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

Debit Interest Expense, $250; credit Interest Payable, $250. $50,000 × .06 × 30/360 = $250

A company paid Jen Rogers, its sole stockholder, a total of $27,000 in dividends during the current year. The entry needed to close the dividends account is:

Debit Retained earnings and credit Dividends for $27,000.

The Retained earnings account has a credit balance of $49,000 before closing entries are made. Total revenues for the period are $67,200, total expenses are $45,800, and dividends are $13,800. What is the correct closing entry for the revenue accounts?

Debit Revenue accounts $67,200; credit Income Summary $67,200.

Chase Company has 10 employees, who earn a total of $3,200 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that year ended on December 31, which is a Wednesday, and all employees will be paid salaries for five full days on the following Monday. The adjusting entry needed on December 31 is:

Debit Salaries Expense, $9,600; credit Salaries Payable, $9,600. $3,200 × 3 = $9,600

A physical count of supplies on hand at the end of May for Masters, Incorporated indicated $1,259 of supplies on hand. The general ledger balance before any adjustment is $2,190. What is the adjusting entry for office supplies that should be recorded on May 31?

Debit Supplies Expense $931 and credit Supplies $931. General Ledger balance − Supplies on hand = Supplies used $2,190 − $1,259 = $931

On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:

Debit Utilities Expense $215; credit Accounts Payable $215.

During the month of July, Clanton Industries issued a check in the amount of $934 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

Deduct the check amount from the bank balance.

Which of the following is a temporary account?

Depreciation Expense.

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

Expense recognition (Matching) principle.

The inventory costing method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also follows the actual flow of goods for most businesses is:

FIFO

Which of the following procedures would weaken control over cash receipts that arrive through the mail?

For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.

Which of the following is not included in the cost of merchandise inventory?

Freight costs paid by the seller.

Financial statements are typically prepared in the following order:

Income statement, statement of retained earnings, balance sheet.

Rent expense appears on which of the following statements?

Income statement.

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:

Income statement.

Purchasing insurance against theft by employees who frequently handle cash follows which principle of internal control?

Insure assets and bond key employees.

The contra account that includes total depreciation expense for all prior periods for which an asset was used:

Is referred to as accumulated depreciation.

a debit:

Is the left side of a T-account.

The inventory costing method that results in the lowest taxable income in a period of rising costs is:

LIFO method

Unearned revenues are:

Liabilities recorded when a customer pays in advance for products or services.

Which internal control principle prescribes the use of pre-numbered sales slips?

Maintain adequate records.

The area of accounting aimed at serving the decision-making needs of internal users is:

Managerial accounting.

The business entity assumption:

Means that a business is accounted for separately from other business entities, including its owner.

If a company uses $1,370 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,370 and another asset decreases $1,370, causing no effect.

The time period assumption:

Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

The statement of retained earnings:

Reports changes in equity due to net income, net losses and dividends.

The LIFO conformity rule:

Requires when LIFO is used for tax reporting, it must also be used for financial reporting.

Which of the following accounts is not included in the asset section of the balance sheet?

Services revenue.

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Single-step income statement.

Closing entries are required:

So that revenue, expense, and dividends accounts begin each period with zero balances.

The financial statement that identifies a company's cash inflows (receipts) and cash outflows (payments) over a period of time is the:

Statement of cash flows.

Identify the account below that is classified as an asset in a company's chart of accounts:

accounts receivable

Which of the following accounts would be included in a post-closing trial balance?

accounts receivable

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

add the deposit to the bank statement balance

A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n):

balance sheet

Accounts payable appear on which of the following statements?

balance sheet

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

bank reconciliation

An adjusting entry is not made for which of the following?

cash

Journal entries that transfer the end-of-period balances in revenue, expense, and dividends accounts to the permanent Retained Earnings account are known as:

closing entries

On July 1, Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetualinventory system and the gross method. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is (are):

debit Sales Returns and Allowances (500) credit Accounts Receivable (500) debit Merchandise Inventory (350) credit Cost of Goods Sold (350)

On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method. The journal entry or entries that Shilling will make on May 1 is (are):

debit accounts receivable (5800) credit sales (5800) debit cost of goods sold (4000) credit merchandise inventory (4000)

On February 3, Smart Company sold merchandise in the amount of $2,700 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $1,865. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

debit cash (2673) debit sales discounts (27) credit accounts receivable (2700) Sales Discounts = $2,700 × 0.01 = $27 Cash = $2,700 − $27 = $2,673

Jay's Limo Services paid cash dividends of $100. Which of the following general journal entries will Jay's Limo Services make to record this transaction?

debit dividends (100), credit cash (100)

The allocation of the costs of plant assets over their expected useful lives is known as:

depreciation

Two clerks sharing the same cash register is a violation of which internal control principle?

establish responsibilities

Decreases in equity from costs of providing products or services to customers are called:

expenses

Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

false

A company borrows $125,000 from the Northern Bank and receives the loan proceeds in cash. This represents a(n):

financing activity

An annual reporting period consisting of any twelve consecutive months or 52 weeks is known as:

fiscal year

Which of the following is not an inventory costing method?

gross margin method

A company purchases equipment for $75,000 cash. This represents a(n):

investing activity

The itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale is called the:

invoice

Which of the following is not a source document? ledgers, sales receipts, purchase orders, bills from suppliers, bank statements

ledgers

Which of the following is classified as a plant asset? patent, office equipment, merchandise inventory, cash, office supplies

office equipment

A list of all permanent accounts and their balances after all closing entries have been made is a(n):

post closing trial balance

The process of transferring journal entry information to the ledger is called:

posting

Which of the following is classified as a current asset?

prepaid expenses

In applying the lower of cost or market method to LIFO inventory costing, market is defined as:

replacement cost

The rule that requires revenue to be recognized (1) when goods or services are provided to customers and (2) at the amount expected to be received from the customer is called the:

revenue recognition principle

true or false Owners of a corporation are called shareholders or stockholders.

true

Select the account below that normally has a credit balance.

wages payable