Final Exam Accounting
Cash ratio formula
(cash + marketable securities)/Current liabilities
operating cash flow ratio formula
(cash flows from operating activities)/Current liabilities
Quick ratio formula
(cash+ marketable securities +Accounts receivable)/current liabilities
Gatsby, Inc. owed $500,000 on account for inventory purchased on November 1, 2020. The company's fiscal year ends on December 31. Gatsby was unable to pay the amount owed by February 1, 2021 due date because of financial difficulties experienced in early 2021. On February 1, 2021, it signed a $500,000, 10% interest-bearing note. This note was repaid with interest on September 1, 2021. How much interest should Gatsby recognize on September 1, 2021?
(principal* adjusted interest rate* period)= adjusted interest rate = .10/12months=.0083333, period = 7 months from February 1-September 1. .008333*7=.0583331, 500,000*.05833= 29,167
ON JANUARY 1, 2020 YOU BORROW $1,000,000 ON A SHORT-TERM NOTE PAYABLE, DUE IN FULL ON AUGUST 31ST, 2020. THE LOAN CARRIES AN INTEREST RATE OF 10%. YOU WILL NOT MAKE ANY PAYMENTS UNTIL THE SINGLE AUGUST 31STPAYMENT.•ASSUMING YOU PAY THE LOAN IN FULL (SINGLE PAYMENT) ON AUGUST 31ST, WHAT AMOUNT OF INTEREST WILL YOU PAY?
1)ADJUST THE RATE TO REPRESENT A MONTHLY RATE INSTEAD OF ANNUAL. .10/12 = .00833333333 (MONTHLY RATE). NOW ADJUST THIS RATE FOR THE ACTUAL NUMBER OF MONTHS. .00833333333 X 8 = .06666667 (REPRESENTS 8 MONTHS). 2)TAKE YOUR RATE REPRESENTING 8 MONTHS AND MULTIPLY IT BY THE PRINCIPLE DUE ($1,000,000). $1,000,000 X .06666667 = $66,666.67 IS THE TOTAL AMOUNT OF INTEREST BEING PAID. 3)MAKE PAYMENT OF $1,066,666.67 ON AUGUST 31STTO ELIMINATE THE LOAN.
Yo u d e c i d e t o b o r r o w $ 2 0 , 0 0 0 w i t h a n interest rate of 6%. You will pay off this loan over 48 installment payments. Your monthly payment is $469.70 (same amount every month). 1.What is the total amount of your 48 payments? 2.In total, how much interest will you pay on this debt? 3.Of your firstpayment of $469.70, what amount will go towards the principal on your loan and what amount will be considered interest? 4.Of your secondpayment of $469.70, what amount will go towards the principal on your loan and what amount will be considered interest?
1.At the end of your 48 payments, you will have paid $22,545.60 ($469.70 x 48)2.Total Payments ($22, 545.60) = Pr incipal ($20,000) + Interest ($2,545.60)3.Of the first payment of $469.70, $100 will go towards interest and the remainder will go towards the principal balance. $20,000 x .005 (annualinterest rate of 6% broken down monthly) =$100 in interest for the first month. 4.Of the second payment of $469.70, $98.15 will go towards interest and the remainder will go towards the principal balance. $19,630.30x .005 (annual interest rate of 6% broken down monthly) =$98.15 in interest for the second month.
ARISES WHEN A BUSINESS PURCHASES GOODS (INVENTORY) OR SERVICES ON CREDIT.
AN ACCOUNT PAYABLE
GENERALLY DO NOT REQUIRE A FORMAL AGREEMENT OR CONTRACT
Account payable
A normal job order costing system uses:
Actual costs for direct materials and direct labor; estimated costs for overhead.
Period Costs are:
All costs that aren't product costs
Retained earnings function to: -Tracks the company's cumulative net income and losses, and dividends paid or declared -is decreased by dividends to shareholders -is increased be the company's net income -is decreased by the company's losses -All of the are correct -None of these are correct
All of these are correct
Which of the following statements regarding accounting for leases is true? -If the lease term is one year or longer, a liability must be recognized -Lease accounting rules will results in more assets and liabilities being recognized on the balance sheet. - Leasing will likely remain popular because leases do not require a large initial outlay of cash. -All the the above are correct - None of the above are correct
All of these are correct
Predetermined Overhead Rate x Actual Activity Level
Applied Overhead
LAWSUITS FILED AGAINST A BUSINESS ARE CLASSIC EXAMPLE OF THIS
CONTINGENT LIABILITIES
is the amount owners have invested in the corporation (when they invested it). It is generally subdivided into two parts: capital stock and additional paid-in capital.
Contributed Capital (CC)
Current ratio formula
Current assets/current liabilities
How is interest calculated?
Current value * interest rate*time(in years)
Jackson Corporation's balance sheet showed the following amounts: current liabilities of $2800, bonds payable of $6,000, lease obligations of $2,000. Total stockholders equity was $7200. The debt to equity ratio is:
Debt to Equity= Total Liabilities/Total Equity. Total liabilities = current liabilities of $2800+ bonds payable of $6,000+ lease obligations of $2,000= 10800. Total Equity= 7200. 10800/7200= 1.5
Axle Corporation's balance sheet showed the following amounts: total assets of $225,000, current liabilities of $45,000, total liabilities of $80,000. What is the debt to equity ratio?
Debt to equity=total liab/total equity. $45,000+$80,000/225000=.55
When the board of directors approves a dividend be paid to its shareholders in 30 days, the company should: -Decrease net income by recording dividends expense and decrease cash -decrease net income by recording dividend expense and increase dividends payable. -decrease retained earnings and decrease cash -decrease retained earnings and increase dividends payable.
Decrease retained earnings and increase dividends payable.
Conversion cost is the sum of:
Direct labor cost and overhead cost
During September 2020, Ruth's Chris Steakhouse sold $2.3 million in gift cards. Ruth's should adjust its financial statements by doing the following:
Increase its cash and increase its liability for unearned revenue to record the sales of gift cards.
Bonds, long term notes, debentures and leases belong to this category
Long term debt
Outstanding stock represents the:
Number of shares that are currently held by stockholders.
ON SEPTEMBER 1, 2020, EKS2WAS PAID $100,000 BY A CLIENT FOR 1,000 HOURS OF SERVICE TO BE COMPLETED OVER THE NEXT 6 MONTHS. BY DECEMBER 31, 2020, EKS2 HAD COMPLETED 600 HOURS OF SERVICE.•YOU ARE EKS2. ON SEPT 1, WHICH ACCOUNTS (AND FOR HOW MUCH) DO YOU NEED TO RECORD THE ABOVE TRANSACTION? WHAT DO YOU NEED TO RECORD ON DECEMBER 31ST?
ON SEPTEMBER 1, WHICH ACCOUNTS (AND FOR HOW MUCH) DOES EKS2NEED TO RECORD THE ABOVE TRANSACTION?-CASH WILL INCREASE BY $100,000-UNEARNED REVENUE WILL INCREASE BY $100,000WHAT DOES EKS2NEED TO RECORD ON DECEMBER 31ST?-UNEARNED REVENUE WILL DECREASEBY $60,000-REVENUE WILL INCREASEBY $60,000
On July 18, Sexton industries purchased 1,000 surround sound speakers to sell in its stores. The speakers cost $50 each. On September 1, Sexton paid its supplier for the speakers. Sexton should adjust its financial statement as follows:
On July 18, sexton should increase inventory and increase accounts payable to record the receipt of the speakers
On July 18, Sexton industries purchased 1,000 surround sound speakers to sell in its stores. The speakers cost $50 each. On September 1, Sexton paid its supplier for the speakers. Sexton should adjust its financial statements as:
On September 1, Sexton should decrease cash and decrease accounts payable to record the payment made to its supplier.
Actual Overhead -Applied Overhead
Overhead Variance
If output increases
Per-unit fixed costs will decrease
Estimated Annual Overhead / Estimated Annual Activity Level
Predetermined Overhead Rate
Direct materials are a(n):
Product cost
ACCRUED LIABILITIES
RECOGNIZED BY ADJUSTING ENTRIES.
Dark Thunder offers 1-year warranties to its' customers on products that it sells in case there is a defect in the manufacturing process. When Dark Thunder sells the product, it should adjust its financial statement as follows:
Record an expense in the income statement and a liability in the balance sheet for the anticipated amount of future claims customers may make on the sale recorded in the current period.
is the amount of all the earnings of the firm (Net Income and Net Loss) - since its beginning - that have not been distributed to the stockholders (dividends).
Retained Earnings (RE):
WHEN YOU OWE MONEY YOU TYPICALLY PAY INTEREST, BASED ON THE THE FOLLOWING EQUATION:
TOTAL PAYMENT = PRINCIPAL + (PRINCIPAL X INTEREST RATE (ADJUSTED) X PERIOD). REMEMBER THAT YOU MUST ADJUST THE INTEREST RATE TO REPRESENT THAT ACTUAL AMOUNT OF TIME. FOR EXAMPLE, INTEREST RATES ARE NORMALLY GIVEN TO YOU AS AN ANNUAL RATE, BUT YOU MIGHT NEED IT BROKEN DOWN INTO MONTHLY INCREMENTS, ETC...
Daenerys Dragons purchased a building on January 1 by signing a long-term (20 years) $600,000 mortgage with monthly payments of $3,300. The mortgage carries an interest rate of 5% per year. How much of the first payment, which is due on January 31, is interest and how much is principal?
The interest expense amount for payment 1 is: $600,000 x 5% x 1/12 = $2,500. If the total payment is $3,300 the principal reduction is the remaining $800. Again, this is for payment 1 only. 2.For payment 2, how much of the payment is interest and how much goes to principal? $599,200 x 5% x 1/12 = $2,497. If the total payment is $3,300 the principal reduction is the remaining $803. Again, this is for payment 2 only.
the number of shares actually sold to stockholders.
The number of issued shares
the number of issued shares actually in the hands of stockholders.
The number of outstanding shares
Actual Direct Materials + Actual Direct Labor + Applied Overhead
Total Normal Product Costs
Current liabilities are amounts that the entity owes to creditors that will be paid (settled) within the next 12 months. True or false?
True
Debt with creditors is categorized between current and long term-liabilities based on when the amount will be paid to the creditor. Ture or False?
True
WHEN YOU PAY THE VENDOR,
YOU DECREASE CASH AND DECREASE ACCOUNTS PAYABLE.
WHEN YOU PURCHASE PRODUCT FROM A VENDOR (THEY DELIVER IT TO YOU),
YOU IMMEDIATELY INCREASE INVENTORY AND ACCOUNTS PAYABLE.
A specific type of note that requires the issuing entity (the firm borrowing money) to pay the face value(also known as the par value or principle) is called:
a bond
When a company borrows from a bank, the formal agreement is called:
a note
The payment of accounts payable results in a(n):
decrease in both liabilities and assets
Gatsby, Inc owed $500,000 on account for inventory purchases on November 1, 2020. The company's fiscal year ends on December 31. Gatsby was unable to pay the amount owned by February 1, 2021 due date because of financial difficulties experienced in early 2021. On February 1, 2021, it signed a $500,000, 10% interested-bearing note. This note was repaid with interest on September 1, 2021. What should Gatsby do in its financial statements on February 1, 2021?
increase notes payable and decrease accounts payable.
A variable cost in total:
increases as output increases an decreases as output deceases
the interest payments
interest
On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year, 7% note. If the company's fiscal year ends on December 31st, a year-end adjusting entry is required to increase:
interest payable by $1,050
the unit cost:
is the total product cost divided by the number of units produced
the cash received when the bonds are issued
issuance
What is the typical cost system used by companies that make unique o special-order products, such as customized publications, built in cabinets or made-to-order jewelery?
job order costing
A landlord records the collection of a tenant's security deposit as a(n):
liability
The provision of accounting information for internal users is known as
managerial accounting
Formula contracts
notes payable
Long-term debt generally includes:
obligations that extend beyond one year
A committed fixed cost
often involves a long-term contract
If the actual overhead is less than applied overhead, then the variance
overapplied overhead.
Keeping the same percentage of ownership if new stock is issued
preemptive right
Per-unit variable costs
remain constant within the relevant range
the repayment of the principle
repayment
This document authorizes the creation of the corporation, sets forth its name, purpose and names of incorporators.
the articles of incorporation or corporate charter
The maximum number of shares the business may issue in each class of stock is referred to as
the number of authorized shares.
As a result of a stock split
the par value of the stock is changed in reverse proportion as the stock split.
If output increases by 50% and is still within the relevant range
total variable costs will increase by 50%
When firms reacquire their own stock
treasury stock,
If actual overhead is greater than applied overhead, then the variance
underapplied overhead.
IS ALSO REFERRED TO AS DEFERRED REVENUE.
unearned revenue
IS THE LIABILITY CREATED WHEN CUSTOMERS PAY YOU FOR GOODS OR SERVICES IN ADVANCE OF YOU DOING ANY OF THE WORK.
unearned revenue
LET'S SAY THAT SNOWCAT SKI RESORT "CLOSES THEIR BOOKS" ON DECEMBER 31ST. THE RESORT HAD WAGES EARNED(BY THEIR EMPLOYEES) FROM DECEMBER 1 -DECEMBER 31, 2019 TOTALING $256,000. WAGES OF $128,000 THAT WERE EARNED BETWEEN DECEMBER 15THAND DECEMBER 31STWILL NOT BE PAID UNTIL AFTER THE FIRST OF THE YEAR. THE REST WILL BE PAID ON THE 31ST. THESE WAGES HAVE YET TO BE RECORDED.FOR THE MONTH OF DECEMBER:•WHAT AMOUNT WILL YOU CALL WAGE EXPENSE?•WHAT AMOUNT WILL YOU CALL WAGES PAYABLE?
•WHAT AMOUNT WILL YOU CALL WAGE EXPENSE? $256,000. THIS IS THE AMOUNT THAT WAS EARNED (BY EMPLOYEES)DURING THE MONTH. •WHAT AMOUNT WILL YOU CALL WAGES PAYABLE? $128,000. THIS IS THE AMOUNT NOT BEING PAID AS OF DECEMBER 31.