ACG final exam

For which of the following errors should the appropriate amount be subtracted from the cash balance per bank statement on a company's bank reconciliation?

A check written by the company for $300 was incorrectly recorded by the bank as $30.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation?

A check written by the company for $57 was incorrectly recorded on the company's books as $75.

A company borrowed $7,000 on July 1 by issuing a 36-month, 10% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

A company borrowed $7,000 on July 1 by issuing a 36-month, 10% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

On January 1, a company issues $500,000, 5-year, 10% bonds at 98 with interest payable on January 1. Which of the following is one part of the entry on December 31 to record accrued bond interest and the amortization of the bond discount using the straight-line method?

A credit to Discount on Bonds Payable, $2,000

Which of the following does not affect retained earnings?

Additional investments by stockholders

In the table below the information for four companies is provided. Company Accounts Receivable Turnover Alpha 16.0 Beta 13.1 Gamma 12.5 Delta 10.9 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations?

Alpha

Which financial statement is dated as of a specific point in time?

Balance sheet

Which one of the following would not result in a bank issuing a debit memorandum?

Collection of a note receivable.

A corporation issues 3,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:

Common Stock $30,000 and Paid-in Capital in Excess of Par Value $12,000. HOW The journal entry will increase the cash account for the total issue price of $42,000 (3,000 shares x $14/share), increase the common stock account for the par value per share times the number of shares issued (i.e., 3,000 shares x $10/share = $30,000), and increase paid-in capital in excess of par value for the excess received above par value (i.e., $42,000 - 30,000 = $12,000).

Which of the following statements is false with regards to internal controls?

Companies must develop a system of internal control even if they are not publicly-traded.

Which one of the following is not a physical control?

Conduct thorough background checks on job applicants

A corporation uses a perpetual inventory system. It purchased $3,000 of merchandise on August 2 on account with terms 1/10, n/30. It returned $250 of the merchandise on August 4. It pays on August 12. Which of the following is part of the journal entry it records when it pays on August 12?

Credit Inventory for $27.50

A corporation had beginning retained earnings of $2,442,000 and ending retained earnings of $2,749,000. During the year, it reported the following: Issued common stock, $141,000 Declared and paid dividends, $40,000 What was its net income for the year?

$347,000

A company's financial records report the following accounts and balances at the end of the year: Accounts payable$ 3,200Accounts receivable 3,900Cash 13,300Common stock 4,800Dividends 1,400Interest expense 17,700Notes payable 4,400Prepaid insurance 1,900Retained earnings 1,600Service revenue 24,200 What would the company show as its total credits on its trial balanc

$38,200

A company has the following: Sales revenue, $485,000. Beginning inventory, $65,000 Ending inventory, $135,000 Cost of goods sold, $315,000 Net income, $50,000 What is its days in inventory?

115.9 days

A debit is the normal balance for which account listed below?

Cash

On which dates are entries for cash dividends required?

Declaration date and the payment date

Which one of the following is not an objective of a system of internal controls?

Increase the readability of the financial statements.

Which of the following is a characteristic of partnerships?

Limited life

What term is used for bonds that have specific assets pledged as collateral?

Secured bonds

Which of the following statements regarding the amortization of discounts and premiums on bonds is false?

The amount of interest expense decreases each period over the life of a discounted bond issue when the effective interest method is used.

Which one of the statements below is true?

The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Which of the following is not an effective internal control over cash disbursements?

The person signing the checks is the person who records cash disbursements

An analysis of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance before adjustment, the adjustment to record bad debts for the period will require a

debit to Bad Debt Expense for $3,300.

An adjusting entry recording accrued interest on a note receivable collectible next year consists of a

debit to Interest Receivable and a credit to Interest Revenue.

On May 1 of the current year, a company purchased an asset for $12,000. It has a $1,500 estimated salvage value and a 6-year useful life. How much is the current year depreciation expense using the straight-line method?

$1,167

On December 31, a company's prepaid insurance account had a balance of $1,500 before recording adjusting entries. The company determined that $1,200 of the prepaid insurance had expired before year-end. The insurance expense for the year would be

$1,200. HOW When a company pays in advance for prepaid insurance, the company increases prepaid insurance and decreases cash. This transaction is an asset exchange. At the end of the accounting period, the company record an adjusting entry to reduce prepaid insurance by the portion used, consumed, or expired during the year and to write-of or expense that portion as insurance expense. The adjusting entry would reduce prepaid insurance and recognize insurance expense of $1,200.

During the current year, a company's total liabilities increased by $75,000 and total stockholders' equity increased by $25,000. How much did its total assets increase or decrease during the current year?

$100,000 increase

On January 1, a corporation issued $1,000,000, 13%, 5-year bonds. The bonds sold for $1,100,596. This price resulted in an effective interest rate of 14% on the bonds. Interest is payable annually on January 1. Use the effective-interest method to determine the amount of interest expense for the first year.

$154,083

At the start of the current year, a corporation's retained earnings account had a credit balance of $280,000. During the year, the corporation had a net loss of $60,000 and paid dividends to the stockholders of $40,000. It also borrowed $8,000 by issuing a note. At December 31, the balance in retained earnings is

$180,000 credit. HOW Ending retained earnings = Beginning retained earnings + Net income - DividendsEnding retained earnings = $280,000 - 60,000 - 40,000 = $180,000Retained earnings is an equity account; it normally has a credit balance.Certain transactions do not affect retained earnings, such as borrowing money by issuing a note.

During the year, a company did the following: Recognized revenues, $370,000 Incurred expenses, $320,000 Issued common stock, $10,000 Declared and paid dividends of $40,000 Its ending retained earnings is $400,000. What was the company beginning retained earnings?

$390,000

The maturity value of a $40,000, 9%, 40-day note receivable is

$40,400.

Based on the following year-end account balances, what amount would the company report on its balance sheet as intangible assets? Research and development$1,500,000Accounts Receivable4,000,000Trademarks1,000,000Goodwill2,500,000Equipment1,500,000Patents2,000,000

$5,500,000. HOW Intangibles = $1,000,000 + 2,500,000 + 2,000,000 = $5,500,000

At the start of the current year, a company paid for the following in cash: Copyrights, $500,000 Equipment, $25,000,000 Goodwill, $4,500,000 Inventory, $4,000,000 Land, $15,000,000 Prepaid rent, $500,000 Research and development, $2,000,000 Supplies, $1,500,000 Trademarks, $1,000,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$50,000

At the beginning of the current year, a company purchased machinery for $60,000. It has a salvage value of $6,000 and an estimated useful life of 9 years. How much is depreciation expense for the first year under the straight-line method?

$6,000

A corporation issues 10%, 10-year bonds with a face value of $100,000 for $102,000. Using the effective-interest amortization method, how much is the interest expense for the first year if the effective interest rate is 9.47%?

$9,659

A company uses the periodic inventory method. An error in the physical count of goods on hand at the end of a period resulted in a $1,000 understatement of the ending inventory. The effect of this error in the current period is that cost of goods sold is (i) _________________ and net income is (ii) __________________.

(i) overstated; (ii) understated

The following data is available for a certain corporation at December 31: Common stock, par $2 (authorized 300,000 shares), $ 250,000 Treasury stock (at cost $10 per share), $1,200Based on the data, how many shares of common stock are outstanding?

124,880

The following information is for a certain company: Net income, $850,000 Common stock dividends, $75,000 Preferred stock dividends, $40,000 Average total assets, $6,200,000 Average common stockholders' equity, $4,500,000 Average preferred stockholders' equity, $1,500,000What is the return on common stockholders' equity?

18.00% HOW Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equityReturn on common stockholders' equity = (850,000 - 40,000)/4,500,000 = 18.00%.q

A company purchased a plant asset for $74,000. It has a salvage value of $10,000 and a five year life. It calculates depreciation using the straight-line method. The balance of the company's Accumulated Depreciation account at the end of the current year after-adjusting entries is $25,600. What is the asset's remaining useful life?

3 years

The sole proprietorship form of business organization

causes the owner to have unlimited legal liability because the business is not separate from its owner.

A company accepted a customer's Visa card as payment for $900 of merchandise it sold to the customer. The bank that issued the credit card charges a 4% credit card fee. The company's journal entry to record this transaction will include

debits to Cash $864 and Service Charge Expense $36. HOW The sale revenue is $900, but the retailer incurs a 4% fee so it collects 96% of the revenue. It collects $864. It also incurs a $36 service charge fee as an expense.

A company pays the current month's rent. This transaction will immediately affect the

income statement, retained earnings statement, cash flows statement, and balance sheet.

A company issues a $200,000, 6%, 6-month note on October 1. It has a December 31 year-end. What is the year-end adjusting entry required by company?

interest Expense....................... 3,000 Interest Payable........ 3,000

Stockholders of a corporation directly elect

the board of directors.

When an uncollectible account is recovered after it has been written off, which of the following journal entries will be recorded first?

Debit Accounts Receivable and credit Allowance for Doubtful Accounts

A company holds a $10,000, 120-day, 9% note issued by a corporation. What is the journal entry recorded by the company that holds the note when it matures assuming no interest has previously been accrued?

Debit Cash for $10,300, credit Notes Receivable for $10,000, and credit Interest Revenue for $300

A company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. The company's bank charges it a 5% fee. Which one of the following is part of the journal entry to record this transaction?

Debit to Cash for $6,650

Forming a corporation does not necessarily involve

Incurring debt

For which item below might a bank issue a credit memorandum to a depositor's account?

Interest earned

Which of the following is an asset?

Inventory

In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?

LIFO method

Which of the following is considered an advantage of the corporate form of organization?

Limited liability of stockholders.

Which of the following is least likely to contribute to a company's internal control system?

Preparing an extensive marketing plan

On July 1 of the current year, a company purchased equipment. The company neglects to record the adjusting-entry for depreciation before preparing the current year's financial statements. Which of the following is correct regarding the company's financial statements for the current year?

Retained earnings is overstated.

Which one of the following is a physical control?

Safes and vaults to store cash

Which one of the following equals cost of goods sold?

Sales revenue minus gross profit

A company has a cashier who is also the accounts receivable clerk for the company. Which internal control principle is violated?

Segregation of duties

A corporation issues 10-year bonds with a maturity value of $200,000. If the bonds are issued for $198,000, what does this indicate?

The market interest rate exceeds the contractual interest rate.

Companies prepare various types of trial balances. Which trial balance likely lists the smallest number of accounts for a given company?

The post-closing trial balance

Internal control consists of all of the methods and measures adopted within an organization to do all of the following except

To deliver goods and services to customers more rapidly

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $14.00 per share. Which of the following will be recorded when the repurchase of the shares is journalized?

Treasury Stock will be debited for $1,400.

Which of the following would not appear on an income statement?

Unearned revenue

Which of the following would decrease the company's current ratio?

Using excess cash to buy long-term investments.

When is a receivable recorded by a service organization?

When service is provided on account

A company purchased supplies on account. The journal entry to record this transaction on the company's books will include

a debit to Supplies and a credit to Accounts Payable.

Bad Debt Expense is reported on the income statement as

an operating expense.

Cash received before services are performed may be recorded as a debit to a cash account and a credit to a liability account is called Correct Answer

an unearned revenue.

A company has the following information: Cash balance per bank, Dec. 31, $10,500 Deposits in transit, $915 Notes receivable and interest collected by bank, $850 Bank charge for check printing, $50 Outstanding checks, $550 NSF check, $125What is the company's adjusted cash balance on Dec. 31?

$10,865. HOW Adjusted cash balance = cash per bank - outstanding checks + deposits in transitAdjusted cash balance = 10,500 - 550 + 915 = 10,865

A company purchased equipment for $80,000 on January 1 of its first year. The equipment's original estimated useful life is 5 years and its estimated salvage value is $10,000. The company uses the straight-line method of depreciation. On December 31 of its second year, before year-end adjusting entries have been recorded, the company decides to extend the estimated useful life 1 year giving it a total life of 6 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the second year?

$11,200. HOW Original depreciation per year: ($80,000 - 10,000)/5 years = $14,000 per year.Revised depreciation per year: ($80,000 - 1 x 14,000 - 10,000)/(6-1) = $11,200 per year

At the start of the current year, a company paid for the following in cash: Copyrights, $200,000 Equipment, $25,000,000 Goodwill, $3,500,000 Inventory, $1,500,000 Land, $15,000,000 Patents, $1,000,000 Research and development, $1,500,000 Supplies, $1,500,000 Trademarks, $1,200,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

$120,000 HOW The intangibles are copyrights, trademarks, patents, and goodwill. Research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Trademarks have 20 lives, but they are renewable. Since they can be renewed, their lives are not considered to be limited and they are not amortized. Goodwill has an uncertain live, and they are not amortized. The only amortizable intangibles owned by this company are copyrights of $200,000 and patents of $1,000,000. Amortizing these intangibles over 10 years results in an annual amortization expense of $120,000 (i.e., $1,200,000/10 years = $120,000 per year).

On January 1, a corporation issued $1,000,000, 14%, 5-year bonds. The bonds sold for $1,072,096. This price resulted in an effective interest rate of 12% on the bonds. Interest is payable annually on January 1. Use the effective-interest method to determine the amount of interest expense for the first year.

$128,652 HOW Using the effective-interest method, the bond interest expense equals the effective interest rate times the bonds carrying value. The cash paid is the contractual or stated interest rate times the face amount of the bonds. Bond interest expense for the first interest date = $1,072,096 x 12% = $128,652.

A company has the following asset account balances: Buildings, $9,500,000 Accumulated depreciation, $1,500,000 Patents, $750,000 Land Improvements, $800,000 Land, $5,000,000 How much will be reported on the balance sheet under property, plant, & equipment?

$13,800,000 HOW Buildings, land improvements, land, and accumulated depreciation are included among property, plant and equipment. Accumulated depreciation is a contra asset. Plant assets = 9,500,000 + 800,000 + 5,000,000 - 1,500,000 = 13,800,000

During its first year of operations, a corporation had revenues of $65,000 and expenses of $33,000. One the last day of the first year, the corporation borrowed $8,000 and paid cash dividends of $18,000. What is the balance in retained earnings at year-end?

$14,000 credit HOW to do a problem like this? Ending retained earnings = Beginning retained earnings + Revenues - Expenses - DividendsEnding retained earnings = $0 + 65,000 - 33,000 - 18,000 = $14,000Note: This is the company's first-year so its beginning retained earnings is zero. Retained earnings is an equity account; it normally has a credit balance.Certain transactions do not affect retained earnings, such as borrowing money by issuing a note and purchasing equipment.

A corporation's December 31, 2021 balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $ 600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 The corporation declared and paid a $100,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $48,000, the corporation's common stockholders would receive

$16,000 HOW Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $48,000. Current year dividend to preferred stockholders = 12,000 x $50 x 6% = $36,000 Total paid to preferred stockholders = $48,000 + 36,000 = $84,000 Total paid to common stockholders = $100,000 - 84,000 = $16,000

The company borrowed money from a bank by signing a three-month note payable in the amount of $12,000 on November 1. The note requires the company to pay interest at an annual rate of 8%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 would include a debit to interest expense for

$160. HOW Interest = Principal x Rate x Time = $12,000 x 8% x 2/12 = $160After one month, the accrued interest is $160.Interest rates are always annual interest rates unless specifically stated otherwise. This loan charges 8% annual interest per year.The debtor records an adjusting entry to record accrued interest.Debit: Interest Expense, $160Credit: Interest Payable, $160

A company sold merchandise for $255,000. Returns from customers totaled $3,600. If the company's gross profit rate is 30%, what is the company's cost of goods sold?

$175,980 HOW Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $255,000 - 3,600 = $251,400 Gross profit rate = Gross profit/Net sales 0.30 = Gross profit/$251,400 Gross profit = 0.30 x $251,400 = $75,420 Gross profit = Net sales - cost of goods sold $75,420 = $251,400 - cost of goods sold Cost of goods sold = $251,400 - 75,420 = $175,980

A company has an ending accounts receivable balance of $900,000 and estimates that uncollectible accounts will be 2% of its accounts receivable balance. If the Allowance for Doubtful Accounts has a credit balance of $2,000 prior to year-end adjustment. What will be the balance of the Allowance for Doubtful Accounts after year-end adjusting entries have been recorded?

$18,000 credit balance HOW The Allowance for Doubtful Accounts should be adjusted so that is will have a credit balance equal to $18,000 (i.e., 2% x $900,000).

During the current year, a company's total assets decreased by $15,000 and total stockholders' equity increased by $5,000. How much did its total liabilities increase or decrease during the current year?

$20,000 decrease HOW The accounting equation: Assets = Liabilities + Stockholders' EquityIf assets decreased by $15,000 then liabilities plus stockholders' equity decreased by $15,000. Since stockholders' increased by $5,000 then liabilities must have decreased by $20,000 [i.e., ($15,000) = ($20,000) + $5,000].

A company began the year with total assets of $230,000 and total liabilities of $160,000. During the year, the company did the following: Recognized revenues, $400,000 Incurred expenses, $220,000 Declared and paid dividends, $40,000 Issued common stock, $10,000 What is the stockholders' equity at the end of the year?

$220,000 HOW The basic accounting equation is: Assets = Liabilities + Stockholders' equityAt the start of the year, stockholders' equity is $70,000 (i.e., equity = assets - liabilities = 230,000 - 160,000 = 70,000).During the year equity increased by revenues, decreased by expenses, decreased by dividends, and increased by additional stock issued. Equity increased from $70,000 to $220,000 (i.e., $70,000 + 400,000 - 220,000 - 40,000 + 10,000 = 220,000).

A company has the following inventory data: July 1 Beginning inventory 30 units at $120 per unit 5 Purchase 180 units at $112 per unit 14 Sale 120 units for $200 per unit 21 Purchase 90 units at $115 per unit 30 Sale 84 units for $200 per unit Assuming that a periodic inventory system is used, what is the cost of goods sold on a FIFO basis?

$23,088 HOW Goods available for sale = 30 units + 180 units + 90 units = 300 unitsCost of goods sold = 120 units + 84 units = 204 unitsEnding inventory = 300 units - 204 units = 96 unitsUsing FIFO & periodic, the cost of goods sold includes the oldest 204 units and ending inventory includes the 96 newest units.Cost of goods sold = 30 units at $120/unit + 174 units x $112/unit = $3,600 + 19,488 = $23,088

A company has the following data: Dec. 1 Beginning inventory 30 units at $120 per unit Dec. 5 Purchases 180 units at $112 per unit Dec. 21 Purchases 90 units at $115 per unit The company sold 204 units in December. What is the company's cost of goods sold using LIFO and a periodic inventory system?

$23,118 HOW Goods available for sale is 300 units (i.e., 30 + 180 + 90 = 300 units)The company sold 204 units (i.e., given)Ending inventory = 96 units (i.e., 300 - 204 = 96 units)Using LIFO & periodic, the cost of goods sold includes the newest 204 units and ending inventory includes the 96 oldest units.Cost of goods sold = (90 x $115) + (114 x $112) = $23,118

At December 31, Moore Company's inventory records indicated a balance of $360,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB destination, but not due to be received until January 3. (2) $24,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB shipping point, but not due to be received until January 2. (3) $8,000 in goods sold by Moore with terms FOB shipping point on December 28. The goods are not expected to reach their destination until January 5. (4) $9,000 in goods sold by Moore with terms FOB destination on December 28. The goods are not expected to reach their destination until January 4. (5) $13,000 of goods owned by Moore Company held on consignment by Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$296,000 HOW Do not include the following in inventory:1. FOB destination purchases not yet received (i.e., $56,000)2. FOB shipping point goods sold and shipped (i.e., $8,000)3. Goods held on consignment (i.e., None).Ending inventory = $360,000 - 56,000 - 8,000 = $296,000

A corporation has 4,000 shares of cumulative preferred stock with a $100 par value per share and a 5% dividend rate. The dividends are in arrears for two years. If the corporation plans to distribute $90,000 as dividends in the current year, how much will the common stockholders receive?

$30,000 HOW Preferred dividend for current year = 4,000 shares x $100/share x 5% = $20,000 Preferred dividends in arrears for two years ($20,000 × 2) = $40,000 Total dividends to preferred stockholders = $60,000 Total dividends available = $90,000 Dividends available to common stockholders = $90,000 - 60,000 = $30,000

A company's financial records report the following accounts and balances at the end of the year: Accounts payable$ 3,000Accounts receivable 3,700Cash 13,100Common stock 4,600Dividends 1,200Interest expense 17,500Notes payable 4,200Prepaid insurance 1,700Retained earnings 1,400Service revenue 24,000 What would the company show as its total credits on its trial balance?

$37,200 HOW Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $37,200 (i.e., 3,700 + 13,100 + 1,200 + 1,700 + 17,500 = 37,200).Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $37,200 (i.e., 3,000 + 4,600 + 4,200 + 1,400 + 24,000 = 37,200).Note: total debits equal total credits.

A company has the following adjusted trial balance: DebitCredit Cash 1,500 Accounts receivable2,100 Prepaid rent100 Equipment3,500 Accumulated depreciation-Equipment 1,500 Accounts payable 150 Unearned service revenue 200 Common stock 1,000 Retained earnings 4,700 Service revenue 800 Interest revenue 100 Salaries and wages expense150 Depreciation expense600 Rent expense 500 Total8,4508,450 After closing entries have been journalized and posted, the balance in the company's retained earnings account will be

$4,350. HOW Ending retained earnings = Beginning retained earnings + revenues - expenses - dividendsEnding retained earnings = 4,700 + 800 + 100 - 150 - 600 - 500 = 4,350

A corporation issues a $600,000, 7%, 20-year mortgage note. The terms provide for annual installment payments of $56,636. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$569,704 HOW Since interest accrues annually, the first year's interest would be $42,000 (i.e., 7% x $600,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $56,636 payment and the interest component ($42,000), resulting in a principal reduction of $14,636. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $14,636 from $600,000 to $585,364. The second annual payment's interest is 7% of the outstanding mortgage principal of $585,364, or $40,976. The second annual payment of $56,636 is allocated as $40,976 paid towards interest and the remaining $15,660 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $569,704.

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $315,000Treasury stock, $10,000Dividends payable, $30,000Paid-in capital in excess of par value, $55,000Common stock, $215,000 How much is total stockholders' equity?

$575,000 HOW Total stockholders' equity = Retained earnings - treasury stock + paid-in capital in excess of par value + common stock Total stockholders' equity = $315,000 - $10,000 + $55,000 + $215,000 = $575,000Note: Dividends Payable is a liability.

A corporation issues a $600,000, 6%, 20-year mortgage note. The terms provide for annual installment payments of $52,311. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$583,689 HOW Since interest accrues annually, the first year's interest would be $36,000 (i.e., 6% x $600,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $52,311 payment and the interest component ($36,000), resulting in a principal reduction of $16,311. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $16,311 from $600,000 to $583,689.

A company has bonds with a principal value of $500,000 outstanding. The unamortized premium on the bonds is $14,000. The company redeemed the bonds at 104. What is the company's gain or loss on the redemption?

$6,000 loss

A company sells a plant asset that originally cost $225,000 for $75,000 on December 31 of the current year. The accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $22,500 had been recorded. The company should recognize a

$60,000 loss on disposal. HOW Book value = Cost - Accumulated depreciation =$225,000 - $90,000 = $135,000 Since the sales price is less than the book value the company recognizes a loss, computed as follows: Loss = Book value of the asset sold - Sales proceeds from selling the asset Loss = $75,000 - 135,000 = $60,000

The following information relates to the beginning of the year: Accounts receivable, $370,000 Allowance for doubtful accounts (credit balance), $18,500During the current year, sales on account were $1,200,000 and collections on account were $1,250,000. Also during the current year, the company wrote off $17,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $16,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$64,500 decrease HOW Ending accounts receivable, $370,000 + 1,200,000 - 1,250,000 - 17,000 = 303,000Ending allowance for doubtful accounts, $16,000 (given)Ending cash realizable value, $303,000 - 16,000 = 287,000Beginning cash realizable value, $370,000 - 18,500 = $351,500Increase (decrease) in cash realizable value, $287,000 - 351,500 = ($64,500)

A company started the year with $95,000 in its common stock account and a credit balance in retained earnings of $55,000. During the year, the company earned net income of $30,000 and declared and paid $8,000 of dividends. In addition, the company sold additional common stock amounting to $37,000. As a result, the amount of its retained earnings at the end of the year would be

$77,000 HOW Ending retained earnings = Beginning Retained Earnings + Net Income - Dividends Ending retained earnings = 55,000 + 30,000 - 8,000 = $77,000

A company has the following accounts and balances: Accounts payable$40,000 Investments in bonds 20,000 Accounts receivable 70,000 Land 150,000 Accumulated depreciation 50,000 Notes payable 300,000 Buildings 500,000 Patents 10,000 Cash 100,000 Prepaid insurance 20,000 Common stock 690,000 Retained earnings 150,000 Equipment 120,000 Trademarks 40,000 Inventory 200,000 The land is used as a parking lot. The bonds are expected to be held long-term. What are its (i) current assets and (ii) property, plant & equipment?

(i) $390,000 and (ii) $720,000

A company has the following: Net sales, $2,000,000 Cost of goods sold, $960,000 Beginning inventory, $25,000 Ending inventory, $35,000 Net income, $20,000 What is its days' in inventory?

11.4 HOW Inventory turnover = cost of goods sold divided by average inventory Inventory turnover = $960,000/[(25,000 + 35,000)/2] = 32.00 Days in inventory = 365/inventory turnover Days in inventory = 365/32.00 = 11.41

A company purchased merchandise with an invoice price of $2,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

18% HOW The company buying merchandise can wait 10 days and still receive a 1% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 1% interest. An interest rate of 1% in 20 days is equivalent to an interest rate of 18% in 360 days (i.e., 1% x 360/20).Alternatively:Interest = Principal x Interest rate x Time$10 = $1,000 x Interest rate x (30-10)/360Solving for the interest rate:Interest rate = [360/(30-10)] x $10/$1,000 = 0.18

Based on the following data (in dollars), what is the current ratio? Accounts payable$ 55,000Investments in bonds 90,000Accounts receivable 50,000Land 95,000Accumulated depreciation 30,000Notes payable (due in 9 months) 10,000Buildings 115,000Prepaid insurance 40,000Cash 35,000Salaries and wages payable 10,000Common stock 210,000Trademarks 70,000Inventory 70,000

2.6 HOW Current ratio = current assets/current liabilitiesCurrent assets = cash and assets expected to be converted into cash or consumed in one year or operating cycle, whichever is longer.Current assets = Cash + Accounts receivable + inventory + prepaid insuranceCurrent assets = 35,000 + 50,000 + 70,000 + 40,000 = 195,000Current liabilities = liabilities to be paid in one year or operating cycle, whichever is longer.Current liabilities = Accounts payable + Notes payable (short-term) + Salaries & wages payableCurrent liabilities = 55,000 + 10,000 + 10,000 = 75,000Current ratio = 195,000/75,000 = 2.60

Which one of the following is not a justification for adjusting entries?

Adjusting entries are necessary to conform with the requirements of the cash basis of accounting.

In December, a company sold merchandise on account for $300 with terms 1/15, n/30. It uses the percentage of receivables basis for estimating uncollectible accounts at year-end. On May 1 of the next year, the company determines that it will not collect the amount due from the customer. Prepare the journal entry to record the write-off on May 1.

Allowance for Doubtful Accounts 300 Accounts Receivable 300

Which of the following is not an element of the fraud triangle?

Incompatible duties

Why are discounts on the acquisition of inventory credited to the inventory account when a company buys inventory under a perpetual inventory system?

The discounts reduce the cost of the inventory and the inventory account should reflect this lower cost.

Which statement is correct concerning the adjusted trial balance?

The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger after adjusting entries have been recorded.

Which of the following statements regarding the amortization of discounts and premiums on bonds is true?

When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the effective interest method.

Resources owned by a business are referred to as

assets

A company purchases office equipment in exchange for cash. This transaction will immediately affect the

balance sheet and cash flows statement only.

The year-end trial balance for Garnet & Gold Corporation appears as follows: Garnet & Gold CorporationTrial BalanceDecember 31 DebitCreditCash$ 300Accounts Receivable500Prepaid Insurance60Supplies140Equipment4,000Accumulated Depreciation, Equipment$ 800Unearned Revenues300Common Stock1,000Retained Earnings1,400Service Revenue3,000Salaries and Wages Expense1,000Rent Expense500 $ 6,500$ 6,500 If the company has not yet recorded its performance of $100 of services to a customer who had paid in advance, the company should record an adjusting entry that

debits Unearned Revenue for $100 and credits Service Revenue for $100. HOW The trial balance lists the company's accounts and their balances on a particular date before adjusting entries have been recorded. This company's trial balance shows that Unearned Revenue has a $300 balance. However, this balance does not include the effects of services performed to customers who prepaid for services. Unearned Revenues is overstated. The adjusting entry decreases Unearned Revenues and increases Service Revenue by $100. The ending balance of Unearned Revenue will become $200. Debit the Unearned Revenue account by $100 and credit the Service Revenue account by $100.

The account called Allowance for Doubtful Accounts

is deducted from accounts receivable on the balance sheet to compute cash realizable value.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $475 was earned during the period, the second was for accrued interest payable of which $315 is owed for the period. As a result of these omissions

revenue is understated by $475. HOW Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $475 and revenue is understated by $475.Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $315 and interest expense is understated by $315.The net effect of these two omissions include the following:Liabilities are overstated by $160 (i.e., 475 - 315 = 160).Revenue is understated by $475Expenses are understated by $315Net income is understated by $160Assets are not affected by these omissions.

On December 1, a corporation reported a $200 balance in its supplies accounts. During December, the company purchased additional supplies for $950 and it also consumed $700 of its supplies. If no adjusting entry is made for supplies

stockholders' equity will be overstated by $700.

Reasonable assurance rests on the premise that

the costs of establishing controls should not exceed their expected benefit.

Freight costs incurred by a seller on outgoing merchandise sold to customers are recorded as Freight Out and these costs will increase

the operating expenses of the seller.

The interest expense recorded on an interest payment date is increased

by the amortization of discount on bonds payable.

A corporation declared a cash dividend on November 15 to be paid on December 15 to stockholders owning the stock on November 30. Given these facts, the date of November 30, is referred to as the

record date.

A company has the following inventory units and costs: DateNumber of unitsCost per unit Beg. inventory, Dec. 17,000$11 Purchase, Dec. 1910,000$12 Purchase, Dec. 284,000$13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

$100,000 HOW Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory.Ending inventory = (4,000 x $13) + (4,000 x $12) = $100,000.

On January 1, a corporation sells bonds with a face value of $1,000,000 and a contractual interest rate of 9% for $800,000. The bonds will mature in 10 years. Using the straight-line method of amortization, how much interest expense will be recognized in the first year?

$110,000

At the beginning of the year, a company had accounts receivable of $700,000 and an allowance for doubtful accounts with a credit balance of $40,000. During the current year, sales on account were $195,000 and collections on account were $170,000. Also during the current year, the company wrote off $21,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $32,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$12,000 increase

A company purchased a truck for $27,000. The company paid $1,200 to paint the company's logo on the truck. The estimated salvage value and useful life are $3,200 and 4 years, respectively. How much is the accumulated depreciation under the straight-line method after two years?

$12,500

A company purchased a machine for $70,000 on January 1 of the current year and depreciated it on a straight-line basis over a 10-year life assuming no salvage value. If the company sells the machine for $29,000 on June 30 of the fourth year, what would be the company's gain or loss from the sale?

$16,500 loss

A company began the year with $109,000 in its common stock account and a debit balance in retained earnings of $14,000. During the year, the company earned net income of $33,000 and declared and paid $5,000 of dividends. In addition, the company sold additional common stock amounting to $37,000. Based on this information, what is the ending stockholders' equity?

$160,000

A company's accounting records show the following account balances: Beginning Inventory, $28,000 Ending Inventory, $10,000 Freight-In, $4,200 Freight-Out, $10,800 Purchases, $210,000 Purchase Returns and Allowances, $9,500 Purchase Discounts, $3,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold.

$219,700 HOW Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 210,000 - 3,000 - 9,500 + 4,200 = 201,700 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 28,000 + 201,700 - 10,000 = 219,700

In the current year, a corporation has a times interest earned ratio of 9.00. Its interest expense is $30,000 and its tax expense is $20,000. Its net sales were $500,000 and its cost of goods sold was $200,000. What was the company's net income?

$220,000

A company has the following: Cash balance per books on Dec. 31, $21,000 Bank charge for check printing, $120 Outstanding checks, $12,000 NSF check, $1,020 Deposits in transit, $900 Notes receivable and interest collected by bank, $5,100The adjusted cash balance per books on December 31 is

$24,960. HOW Balance per books, $21,000Add: Note collected by the bank, $5,100Less: Bank service charge, ($120)Less: Customer's NSF check, ($1,020)Adjusted cash balance per books, $24,960

A company has the following:Cash balance per books on Dec. 31, $21,000Bank charge for check printing, $120Outstanding checks, $12,000NSF check, $1,020Deposits in transit, $900Notes receivable and interest collected by bank, $5,100The adjusted cash balance per books on December 31 is

$24,960. HOW Balance per books, $21,000Add: Note collected by the bank, $5,100Less: Bank service charge, ($120)Less: Customer's NSF check, ($1,020)Adjusted cash balance per books, $24,960

A corporation issues a $250,000, 8%, 30-year mortgage note. The terms provide for annual installment payments of $22,207. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$245,410

A corporation issues a $250,000, 9%, 30-year mortgage note. The terms provide for annual installment payments of $24,334. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$246,167

On April 1, a corporation purchased a 3-year insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be a

$3,150 debit to Insurance Expense and a $3,150 credit to Prepaid Insurance.

A corporation has 8,000 shares of 5%, $50 par, non-cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. Both the common stock and the preferred stock have been outstanding since the company began last year. No dividends were paid last year. The board of directors declared a $50,000 dividend this year. What amount of the total dividend will be paid to common stockholders?

$30,000 HOW Preferred stockholder dividend = 8,000 x 5% x $50 = $20,000Total dividends available = $50,000Dividends available to common stockholders = $30,000

Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. The Allowance for Doubtful Accounts has a $9,000 credit balance before recording the year-end adjusting entries. What is the bad debt expense for the period?

$31,000

At December 31, Moore Company's inventory records indicated a balance of $360,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB shipping point, but not due to be received until January 2. (2) $24,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB destination, but not due to be received until January 3. (3) $8,000 in goods sold by Moore with terms FOB destination on December 28. The goods are not expected to reach their destination until January 4. (4) $9,000 in goods sold by Moore with terms FOB shipping point on December 28. The goods are not expected to reach their destination until January 5. (5) $13,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31?

$314,000

A plant asset with a cost of $480,000 and accumulated depreciation of $456,000 is sold for $56,000. What is the amount of the gain or loss on disposal of the plant asset?

$32,000 gain. HOW Book value = Cost - Accumulated depreciation =$480,000 - 456,000 = $24,000 Since the sales price is more than the book value the company recognizes a gain, computed as follows: Gain = Sales proceeds from selling the asset - Book value of the asset sold Gain = $56,000 - 24,000 = $32,000

A certain corporation reports the following balances and amounts. The following information is presented in random order (amounts are in dollars). Accounts payable$ 125,000Investments in bonds 80,000Accounts receivable 140,000Notes payable (due in 5 years) 200,000Accumulated depreciation 60,000Notes payable (due in 8 months) 56,000Buildings 400,000Prepaid insurance 82,000Cash 100,000Salaries and wages payable 8,000Common stock 300,000Retained earnings 193,000Inventory 200,000Trademarks 20,000 How much is its working capital?

$333,000

If 1,000 shares of $2 par common stock are reacquired by a corporation for $4 a share, by how much will total stockholders' equity change?

$4,000 decrease HOW Stockholders' equity is reduced by the cost of acquiring the treasury stock:1,000 shares x $4 per share = $4,000.

If beginning inventory is $80,000, cost of goods purchased is $400,000, sales revenue is $900,000 and ending inventory is $60,000, how much is cost of goods sold under a periodic system?

$420,000

A company has the following data: Dec. 1 Inventory 30 units for $4.00 per unit Dec. 8 Purchase 120 units for $4.30 per unit Dec. 17 Purchase 60 units for $4.20 per unit Dec. 25 Purchase 90 units for $4.40 per unit There are 100 units of ending inventory on hand at December 31. What is the company's ending inventory using LIFO and a periodic inventory system?

$421

The financial records for a corporation included the following information: Accounts receivable, $55,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $25,000 Dividends, $15,000 Sales revenue, $90,000 Salaries and wages expense, $30,000 Supplies expense, $10,000Retained earnings is not given. Based on this information, how much is its net income?

$50,000

On January 1, a company issued $8,000,000 of 4%, 9-year bonds for $5,601,901. The bonds pay interest annually on January 1. The effective interest rate on the bonds is 9%. Use the effective-interest method to determine the amount of interest expense for the first year.

$504,171 HOW Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 9% x $5,601,901 = $504,171

A company sold merchandise for $95,000. Returns from customers totaled $2,000. If the company's gross profit rate is 40%, what is the company's cost of goods sold?

$55,800 HOW Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $95,000 - 2,000 = $93,000 Gross profit rate = Gross profit/Net sales 0.40 = Gross profit/$93,000 Gross profit = 0.40 x $93,000 = $37,200 Gross profit = Net sales - cost of goods sold $37,200 = $93,000 - cost of goods sold Cost of goods sold = $93,000 - 37,200 = $55,800

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $315,000Treasury stock, $10,000Dividends payable, $30,000Paid-in capital in excess of par value, $55,000Common stock, $215,000 How much is total stockholders' equity?

$575,000

A company has the following: Units Cost per unit Dec. 1 Beginning balance 72 $90 Dec. 14 Purchase 124 $94 Dec. 21 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars)

$6,176 HOW Sales revenue = 204 units x $126/unit = $25,704Cost of goods sold using LIFO = (88 units x $98/unit) + [(204 - 88) x $94/unit] = $8,624 + 10,904 = $19,528Gross profit = Sales revenue - Cost of goods sold = $25,704 - 19,528 = $6,176

A company purchased factory equipment on April 1 of the current year, for $96,000. It is estimated that the equipment will have a $12,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31 of the current year is

$6,300. Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($96,000 - 12,000)/10 years = $8,400 per yearDepreciation expense for April 1 through December 31 = $8,400 x 9/12 = 6,300

On May 1 of the current year, a company purchases and places into service new equipment. The cost of the equipment is $115,000. The equipment has an estimated 10-year life and $15,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

$6,667 HOW Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($115,000 - 15,000)/10 years = $10,000 per yearDepreciation expense for May 1 through December 31 = $10,000 x 8/12 = $6,667

On August 1, a company purchased equipment for $8,000. The equipment's estimated salvage value is $500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a

$625 debit to Depreciation Expense and a $625 credit to Accumulated Depreciation. HOW Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (8,000 - 500)/5 = $1,500 per yearThe correct adjusting entry to record depreciation for 5 months (i.e., August 1 through December 31) is $1,500 per year x 5/12 = $625.The year-end adjusting entry to record depreciation includes a debit to Depreciation Expense and a credit to Accumulated Depreciation.

The following information is related to the beginning of the year balances. Accounts receivable, $2,100,000 Allowance for doubtful accounts (credit balance), $180,000During the current year, sales on account were $580,000 and collections from customers were $344,000. Also during the current year, the company wrote off $32,000 in uncollectible accounts. At year-end, the company's credit manager estimates that $216,000 of the outstanding accounts receivable will be uncollectible. Bad debt expense for the current year is

$68,000.

A company purchases $7,400 of merchandise on April 11, with credit terms of 2/15, n/30. If the company pays on April 27, how much does it pay?

$7,400 HOW The terms 2/15, n/30 indicate that the discount is 2% if payment is made within 15 days of the invoice date. This would permit Steve Company to take a discount of $148 (2% x $7,400) on the invoice price, but April 27 is more than 15 days after April 11. Steve Company must pay the entire invoice price of $7,400.

A company purchased machinery for $210,000 on January 1, 2021. The company also paid freight charges of $4,000 and installation costs of $6,000. It is estimated that the machinery will have a $35,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2022 if the straight-line method of depreciation is used?

$74,000 HOW Depreciation per year = ($210,000 + 4,000 + 6,000 - 35,000)/5 years = $37,000 per yearAccumulated depreciation after 2 years = $37,000 x 2 = $74,000

A corporation issues a $750,000, 13%, 15-year mortgage note. The terms provide for annual installment payments of $102,319. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$745,181

A company purchased equipment for $50,000 on January 1 of its first year. The equipment's original estimated useful life is 8 years and its estimated salvage value is $10,000. The company uses the straight-line method of depreciation. On December 31 of its second year, before year-end adjusting entries have been recorded, the company decides to shorten the estimated useful life by 3 years giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the second year?

$8,750 HOW Original depreciation per year = [($50,000 - $10,000)/8] x 1 = $5,000Revised depreciation per year = [($50,000 - 5,000) - $10,000]/(5-1) = $8,750

A corporation received a check for $36,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. The corporation increases unearned rent revenue when it collected the rent and it prepares financial statements dated December 31. The appropriate year-end adjusting journal entry that the realty company must record for the first year would be a

$9,000 debit to Unearned Rent Revenue and a $9,000 credit to Rent Revenue.

A corporation issues a $1,000,000, 10%, 20-year mortgage note. The terms provide for annual installment payments of $117,460. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$963,334

Which of these should a company include in its ending inventory?(1) Goods in transit it sold with terms FOB destination(2) Goods in transit it sold with terms FOB shipping point(3) Goods in transit it purchased with terms FOB destination(4) Goods in transit it purchased with terms FOB shipping point.Which of these should be included in its inventory?

(1) Goods in transit it sold with terms FOB destination and (4) Goods in transit it purchased with terms FOB shipping point

A corporation has accounts and balances: Accounts payable$ 40,000Investments in bonds 20,000Accounts receivable 30,000Land 130,000Accumulated depreciation 50,000Notes payable 250,000Buildings 500,000Patents 20,000Cash 100,000Prepaid insurance 10,000Common stock 710,000Retained earnings 150,000Equipment 150,000Trademarks 40,000Inventory 200,000 The land is used as a parking lot. The bonds are expected to be held long-term. What are its (i) current assets and (ii) property, plant & equipment?

(i) $340,000 and (ii) $730,000

A corporation reported net income of $250,000 and paid dividends of $10,000 on its common stock and $50,000 on its preferred stock. Common stockholders' equity was $1,200,000 at the start of the year and $1,600,000 at the end of the year. Total assets was $1,900,000 at the start of the year and $2,100,000 at the end of the year. What is the company's return on common stockholder's equity?

14.29% HOW Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equityReturn on common stockholders' equity = (250,000 - 50,000)/(1,200,000 + 1,600,000)/2) = 14.29%.

A company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

36% HOW The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 2% interest. An interest rate of 2% in 20 days is equivalent to an interest rate of 36% in 360 days

In the current year, a corporation had net income of $100,000, interest expense of $20,000, and tax expense of $30,000. Its net sales were $1,000,000 and its cost of goods sold was $400,000. What was its times interest earned for the year?

7.50 HOW Solution: ($100,000 + $20,000 + $30,000) / $20,000 = 7.50

For which of the following errors should the appropriate amount be subtracted from the cash balance per bank statement on a company's bank reconciliation?

A deposit of $470 was incorrectly recorded by the bank as a deposit of $740.

What type of account or account classification is prepaid insurance?

Asset

A corporation issued 1,200 shares of common stock at $10 per share. If the stock has a par value of $7 per share, which of the following will be part of the journal entry to record the issuance?

Credit to Paid-in Capital in Excess of Par Value for $3,600

Publicly traded U.S. companies must provide shareholders with an annual report. Which of the following is not part of the annual report provided to shareholders?

General ledger

A corporation declared a cash dividend of $1.75 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of declaration on January 15?

It decreases stockholders' equity and increases liabilities.

Which one of the following costs will not be included in the cost of equipment?

Maintenance costs

Which of the following would increase a company's current ratio?

Negotiate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years.

When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain?

One debit and two credits

Which of the following is not an intangible asset?

Research and development costs

Which of the following is not an element of the fraud triangle?

Segregation of duties

Which of the following is true with regard to the auditor's report that is included in the annual report given to shareholders?

The auditor's report states the auditor's opinion as to the fairness of the financial position and results of operations and their conformance with accounting rules.

A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate?

The company began selling products with a higher markup.

The difference between an asset's cost and its accumulated depreciation is called

book value

Which of the following describes that sequence in which financial statements are prepared?

The statement of stockholders' equity is prepared before the balance sheet.

A trial balance will not balance if

a $50 cash dividend was debited to Dividends for $500 and credited to cash for $50.

A corporation issues $1,600,000 of 20-year, 6% bonds dated January 1 at 92. The journal entry to record the issuance will include

a debit to Cash for $1,472,000.

A company borrowed money from a bank by signing a three-month note payable in the amount of $30,000 on November 1. The note requires the Company to pay interest at an annual rate of 6%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 would include

a debit to Interest Expense for $300.

If the market rate of interest is lower than the contractual interest rate, the bonds will sell at

a premium.

Posting

accumulates the effects of journalized transactions in the individual accounts.

The year-end balance of the Premium on Bonds Payable is

added to Bonds Payable on the balance sheet.

The closing entry process consists of closing

all temporary accounts.

Resources owned by a business are referred to as

assets.

A corporation issues 30,000 shares of $100 par value preferred stock for cash at $110 per share. The entry to record the transaction will include a

credit to Preferred Stock for $3,000,000 and a credit to Paid-in Capital in Excess of Par Value for $300,000. HOW Debit cash for $3,300,000 (i.e., 30,000 shares x $110 per share). Credit preferred stock for $3,000,000 (i.e., 30,000 shares x $100 per share). Credit paid-in capital in excess of par--preferred stock for $300,000 (i.e., 30,000 shares x $10 per share).

A corporation issues 50,000 shares of $75 par value preferred stock for cash at $100 per share. The entry to record the transaction will include a

credit to Preferred Stock for $3,750,000 and a credit to Paid-in Capital in Excess of Par Value for $1,250,000.

The year-end trial balance for Garnet & Gold Corporation appears as follows: Garnet & Gold CorporationTrial BalanceDecember 31 DebitCreditCash$ 300Accounts Receivable500Prepaid Insurance60Supplies140Equipment4,000Accumulated Depreciation, Equipment$ 800Unearned Revenues300Common Stock1,000Retained Earnings1,400Service Revenue3,000Salaries and Wages Expense1,000Rent Expense500 $ 6,500$ 6,500 If, at year-end, the unexpired insurance were $20, the company should record an adjusting entry that

debits Insurance Expense for $40 and credits Prepaid Insurance for $4

When an account is written off using the allowance method, accounts receivable

decreases and the allowance account decreases.

If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts, the recovery

does not affect the company's total assets in the period it is collected.

A person who wants to determine the balance of any particular account at any time should refer to the

ledger

Certain computer programs are used to limit unauthorized access to certain files. This is an example of

physical controls.

The purpose of the post-closing trial balance is to:

prove the equality of the permanent account balances.

If a company uses accrual basis accounting, accrued revenues differ from deferred revenues in that accrued revenues are

recognized as revenue earned before cash is collected from customers.

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

reduce the amount of retained earnings available for dividends to shareholders.

An accounts payable clerk also has access to the approved supplier master file which lists all of the company's suppliers from which the company makes its purchases.

segregation of duties is violated.

Which of the following would be deducted from the balance per books on a bank reconciliation?

service charges

If a company correctly writes a check for $491 but it incorrectly records it on its books as $419 then the appropriate treatment on the bank reconciliation would be to

subtract $72 from the cash balance per books.

A deposit of $270 was incorrectly recorded by the company as a deposit of $720. In the bank reconciliation, this $450 error would be

subtracted from the cash balance per books.

Corporation have certain characteristics including

their owners are not personally liable for its debts.

If employees are bonded

they have been insured against misappropriation of assets.

If a transaction affected two accounts and total liabilities decreased by $4,000, then

total assets must have decreased by $4,000 or total stockholders' equity must have increased by $4,000.

The sale or issuance of bonds for more than their face value

will cause the total cost of borrowing to be less than the bond interest paid.

If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts, the recovery

does not affect the company's income in the period it is collecte

Equipment that cost $54,000 and on which $30,000 of accumulated depreciation has been recorded was disposed of for $27,000 cash. The entry to record this event would include a

gain of $3,000. HOW Book value = Cost - Accumulated depreciation =$54,000 - 30,000 = $24,000 Since the sales price is more than the book value the company recognizes a gain, computed as follows: Gain = Sales proceeds from selling the asset- Book value of the asset sold Gain = $27,000 - 24,000 = $3,000 The company credits the gain for $3,000.

A company has the following: Units Cost per unit Dec. 1 Beginning balance 36 $45 Dec. 14 Purchase 62 $47 Dec. 21 Purchase 44 $49 The company sold 102 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

$1,696 HOW Sales = (102 units x $63 per unit) = $6,426Cost of goods sold using FIFO = (36 x $45) + (62 x $47) + (4 x $49) = $1,620 + 2,914 + 196 = $4,730Gross profit = Sales - Cost of goods sold = $6,426 + 4,730 = $1,696

If 1,000 shares of $6 par common stock are reacquired by a corporation for $10 a share, by how much will total stockholders' equity change?

$10,000 decrease HOW Stockholders' equity is reduced by the cost of acquiring the treasury stock:1,000 shares x $10 per share = $10,000.

A company issues a $8,000, 9%, 9-month note on May 1. How much accrued interest should it report on its balance sheet dated December 31 of the same year?

$480 HOW Interest = Principal x interest rate x time = $8,000 x 9% x 8/12 = $480

Which two accounts follow the rules of debit and credit in relation to increases and decreases in the opposite manner?

(i) Dividends and (ii) Retained Earnings

In periods of rising prices, what will LIFO produce?

Lower total assets than FIFO

Employees have worked for one week and have earned wages. The company does not record wages until they are paid at the end of the following week. Recording the payment of wages

decreases assets and decreases stockholders' equity.

Paying a dividend

decreases assets and stockholders' equity.

A transaction increased a company's assets by $5,000 and increased its liabilities by $5,000. This transaction could have been a(n)

purchase of supplies for on account.

At the end of the year, a company had retained earnings of $2,640,000. During the year, the company reported the following: Issued common stock, $120,000 Declared and paid dividends, $25,000 Net income, $412,000. How much was the retained earnings balance at the beginning of the same year?

$2,253,000 HOW Ending retained earnings equals beginning retained earnings plus net income minus dividends.$2,640,000 = X + $412,000 - $25,000Solve for X: Beginning retained earnings = $2,253,000.

A company purchased equipment and incurred these costs: Cash price, $26,000 Sales taxes, $1,200 Insurance during transit, $400 Annual maintenance costs, $500 What amount should be recorded as the cost of the equipment?

$27,600

On September 1, a company purchased equipment for $40,000. The equipment's estimated salvage value is $4,000. The machine will be depreciated using straight-line depreciation and a four year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a

$3,000 debit to Depreciation Expense and a $3,000 credit to Accumulated Depreciation.

A company's accounting records show the following account balances: Purchase Discounts $ 5,000 Purchases 342,000 Beginning Inventory 23,000 Ending Inventory 31,000 Sales 625,000 Using the periodic system, the cost of goods sold is

$329,000. HOW Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 23,000 + 342,000 − 5,000 - 0 - 31,000 = 329,000

At the beginning of the year, a company had accounts receivable of $700,000 and an allowance for doubtful accounts with a credit balance of $60,000. During the current year, sales on account were $195,000 and collections on account were $115,000. Also during the current year, the company wrote off $11,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $72,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$57,000 increase. HOW Ending accounts receivable = $700,000 + 195,000 - 115,000 - 11,000 = $769,000Ending allowance for doubtful accounts = $72,000 (given)Ending cash realizable value = $769,000 - 72,000 = $697,000Beginning cash realizable value = $700,000 - 60,000 = $640,000Increase (decrease) in cash realizable value = $697,000 - 640,000 = $57,000

The financial records for a corporation included the following information: Accounts receivable, $60,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $10,000 Dividends, $10,000 Insurance expense, $5,000 Salaries and wages expense, $50,000 Sales revenue, $120,000Retained earnings is not given. Based on this information, how much is its net income?

$65,000 HOW Net income = Revenue - expensesNet income = $120,000 - 50,000 - 5,000 = $65,000

A corporation reports the following: Sales revenue, $186,000 Ending inventory, $12,600 Beginning inventory, $15,000 Purchases, $65,600 Purchases discounts, $2,500 Purchase returns and allowances, $1,000 Freight-in, $600 Freight-out $800 Calculate the company's cost of goods sold.

$65,100 HOW Cost of goods sold sale equals the beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in minus ending inventory.Cost of goods sold = 15,000 + 65,600 - 2,500 - 1,000 + 600 - 12,600 = 65,100.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation?

A check written by the company for $470 was incorrectly recorded on the company's books as $740.

A company uses a perpetual inventory system. It purchased $10,000 of merchandise with terms of 2/10, n/30. It also must pay a $200 shipping charge. The company paid for both the merchandise and the shipping charge nine days after their invoice date. Which of the following is part of the journal entry the company records when it pays the shipping charge?

A debit to Inventory for $200 HOW The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $200 and a credit to cash for $200.

A trial balance would only help in detecting which one of the following errors?

For a given transaction, the account that should have been debited was debited but no account was credited

When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it.

Increases; crediting

Which of the following would appear on an income statement?

Interest expense

Which of the following describes how to compute the gross profit rate?

Net sales minus cost of goods sold, divided by net sales

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $15.00 per share. Which of the following will be recorded when the repurchase of the shares is journalized?

Treasury Stock will be debited for $1,500. HOW The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 100 shares x $15/share = $1,500. Debit the Treasury Stock account to increase it.

On January 1, a company issues $500,000, 5-year, 12% bonds at 97 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period if amortization is $3,000 per year using the straight-line amortization method?

$494,000 HOW After three interest periods, the carrying value of the bonds will have increased by three times the annual discount amortization of $3,000, or a total of $9,000. The original carrying value of $485,000 plus the three years of discount amortization amounts to $494,000 as the carrying value at the end of the third interest period.

On January 1, a company issued $2,000,000 of 10-year, 10% bonds for $1,940,000. Interest is paid annually. If the issuing corporation uses the straight-line method of amortization, the annual amortization amount is

$6,000.

Which of these should a company include in its ending inventory?(1) Goods in transit it purchased with terms FOB destination(2) Goods in transit it purchased with terms FOB shipping point.(3) Goods in transit it sold with terms FOB destination(4) Goods in transit it sold with terms FOB shipping pointWhich of these should be included in its inventory?

(2) Goods in transit it purchased with terms FOB shipping point and (3) Goods in transit it sold with terms FOB destination

A company uses the periodic inventory method. Beginning inventory is understated by $1,000 because the prior's year's ending inventory was understated by $1,000. The company's ending inventory for this period is correct. The current period's gross profit is (i) _________________ and this year's ending retained earnings is (ii) ___________________.

(i) overstated; (ii) neither overstated nor understated

A company shows the following balances: Sales Revenue $1,000,000 Sales Returns and Allowances 175,000 Sales Discounts 25,000 Cost of Goods Sold 560,000 Net income 220,000 Which of the following is closest to this company's gross profit rate?

30% HOW Sales, $1,000,000 Less: Sales returns and allowances, $175,000 Less: Sales discounts, $25,000 Net sales, $800,000 Less: Cost of goods sold, $560,000 Gross profit, $240,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $240,000/$800,000 = 0.30 or 30%

The financial statements of a company reports net credit sales of $415,000. It also reports net accounts receivable of $65,000 and $37,000 at the beginning of the year and end of year, respectively. Its average inventory is $65,000. What is the average collection period for accounts receivable in days (rounded)?

44.9 days HOW Accounts receivable turnover = Net credit sales divided by average net accounts receivableAccounts receivable turnover = 415,000/[(65,000+37,000)/2] = 8.137 Average collection period (i.e., days in receivable) = 365/Accounts receivable turnoverAverage collection period (i.e., days in receivable) = 365/8.137 = 44.855 days

A corporation declared a cash dividend of $2.00 per share on 50,000 shares of common stock on July 15. The dividend is to be paid one month later on August 15 to stockholders of record on July 31. The correct entry to be recorded on the date of record of July 31 will include a

No journal entry is required.

Which of the following accounts would have a different amount reported on a company's adjusted trial balance than the amount reported on the post-closing trial balance?

retained earnings

A company uses accrual-basis accounting. Shortly before the end of the current year, the company earned $1,000 by providing services to a customer but the customer does not pay the company until the following year. Nothing is recorded regarding these events, including year-end adjusting entries. This omission would cause the company's current year

revenues to be understated.