Final Exam Financial Accounting Professor Burnett

A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the equipment was $40,000. The company should recognize a:

$0 gain or loss.

Mayan Company had net income of $132,000. The weighted-average common shares outstanding were 80,000. The company sold 3,000 shares before the end of the year. There were no other stock transactions. The company's earnings per share is:

$1.65.

Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

$129,800.

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

$2,255.

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the book value of the asset at the end of the first year of its useful life using the double-declining-balance method?

$2,720.

During the month of February, Victor Services had cash receipts of $7,500 and cash disbursements of $8,600. The February 28 cash balance was $1,800. What was the February 1 beginning cash balance?

$2,900.

Monarch Company uses a weighted-average perpetual inventory system, and has the following purchases and sales: January 120 units were purchased at $10 per unit. January 1212 units were sold. January 2018 units were purchased at $11 per unit. What is the value of ending inventory? (Round average cost per unit to 2 decimal places, and final answer to the nearest dollar.)

$278.

A company issued 10-year, 7% bonds with a par value of $100,000. The company received $96,526 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

$3,673.70.

On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of equity as of May 31 of the current year?

$31,100.

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

$417,000.

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $9,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

$420.00.

A company had a beginning balance in retained earnings of $430,000. It had net income of $60,000 and paid out cash dividends of $56,250 in the current period. The ending balance in retained earnings equals:

$433,750.

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

$50,000.

A company purchased a mineral deposit for $800,000. It expects this property to produce 120,000 tons of minerals and to have a salvage value of $50,000. In the current year, the company mined and sold 9,000 tons of minerals. Its depletion expense for the current period equals:

$56,250.

Triston Vale is paid on a monthly basis. For the month of January of the current year, he earned a total of $5,210. FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $885.70. What is the amount of the employer's payroll taxes expenses for this employee?

$711.17

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1?

$9,240

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income $85,300 Depreciation expense 12,000 Gain on sale of land 7,500 Increase in merchandise inventory 2,050 Increase in accounts payable 6,150

$93,900.

Refer to the following selected financial information from Dodge Company. Compute the company's acid-test ratio. Cash $42,250 Short-term investments 60,000 Accounts receivable, net 79,500 Merchandise inventory 115,000 Prepaid expenses 9,700 Accounts payable 111,400

1.63.

Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales: January 120 units were purchased at $10 per unit. January 1212 units were sold. January 2018 units were purchased at $11 per unit. What is the value of cost of goods sold?

120

Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?

124

Powers Company reported Net sales of $1,200,000 and average Accounts Receivable, net of $78,500. The accounts receivable turnover ratio is:

15.3 times.

The credit terms 2/10, n/30 are interpreted as:

2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

Zhang Company reported Cost of goods sold of $835,000 and average Inventory of $41,750. The Inventory turnover ratio is:

20 times.

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machines' first year depreciation under the straight-line method.

24,000

Carducci Corporation reported Net sales of $3.6 million and average Total assets of $1.1 million. The Total asset turnover is:

3.27 times.

At the end of its first month of operations, Michael's Consulting Services reported net income of $25,000. They also had account balances of: Cash, $18,000; Office Supplies, $2,000 and Accounts Receivable $10,000. The sole stockholder's total investment in exchange for common stock for this first month was $5,000. There were no dividends in the first month. Calculate the amount of total equity to be reported on the balance sheet at the end of the month.

30,000

Clairmont Industries reported Net income of $283,000 and average Total assets of $637,000. The Return on total assets is:

44.4%.

A company had beginning inventory of 10 units at a cost of $20 each on March 1. On March 2, it purchased 10 units at $22 each. On March 6 it purchased 6 units at $25 each. On March 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

470

Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:

5000

Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:

54,000

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?

680

On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note?

75

A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

A credit to Common Stock for $14,000.

A corporation issued 6,000 shares of its $2 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include:

A credit to Paid-in Capital in Excess of Par Value, Common Stock for $72,000.

A company had a tractor destroyed by fire. The tractor originally cost $85,000 with accumulated depreciation of $60,000. The proceeds from the insurance company were $20,000. The company should recognize:

A loss of $5,000.

A contingent liability is:

A potential obligation that depends on a future event arising from a past transaction or event.

A company's ledger is:

A record containing all accounts and their balances used by the company.

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

Accrual basis accounting.

Adonis Corporation issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adonis received $206,948 in cash proceeds. Which of the following statements is true?

Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each.

Merchandise inventory includes:

All goods owned by a company and held for sale.

A credit memorandum on a bank statement indicates: -A decrease in the bank's liability account. -An increase in the bank's liability account. -A decrease in the bank's asset account. -An increase in the bank's expense account. -An increase in the bank's asset account.

An increase in the bank's liability account.

Physical counts of inventory:

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

If a company receives $12,000 from its sole stockholder to establish a corporation, the effect on the accounting equation would be:

Assets increase $12,000 and equity increases $12,000.

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Assets increase $4,500 and liabilities increase $4,500.

Alpha Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

Assets increase by $75,000 and liabilities increase by $75,000.

The number of shares that a corporation's charter allows it to sell is referred to as:

Authorized stock.

An advantage of bonds is:

Bonds do not affect owner control.

A disadvantage of bond financing is:

Bonds pay periodic interest and the repayment of par value at maturity.

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

Common stock account.

Natural resources are:

Consumable assets such standing timber, mineral deposits, and oil and gas fields.

Costs included in the Merchandise Inventory account can include all of the following except: -Transportation-in. -Insurance. -Invoice price minus any discount. -Storage. -Damaged inventory that cannot be sold.

Damaged inventory that cannot be sold.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 28 is:

Debit Accounts Payable $1,600; credit Cash $1,600.

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is:

Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.

On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. The adjusting entry needed on December 31 is:

Debit Insurance Expense $3,000; credit Prepaid Insurance $3,000.

What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250?

Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Debit Legal Fees Earned and credit Unearned Legal Fees.

On a bank reconciliation, an unrecorded debit memorandum for printing checks is:

Deducted from the book balance of cash.

The accounting equation for Long Company shows an increase in its assets and an increase in its liabilities. Which of the following transactions could have caused that effect?

Equipment was purchased on credit.

Which of the following is not one of the policies and procedures that make up an internal control system?

Guarantee a return to investors.

The adjusting entry to record an accrued expense is:

Increase an expense; decrease a liability.

If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:

Increased $22,000.

The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:

Investing activities.

Merchandise inventory: -Must be sold within one month. -Is classified with investments on the balance sheet. -Is a long-term asset. -Includes supplies the company will use in future periods. -Is a current asset.

Is a current asset.

Depreciation:

Is the process of allocating the cost of a plant asset to expense.

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

LIFO method.

Obligations not expected to be paid within the longer of one year or the company's operating cycle are reported as:

Long-term liabilities.

A liability for dividends exists:

On the date of declaration.

The appropriate section in the statement of cash flows for reporting the cash payment of wages is:

Operating activities.

Stockholders' equity consists of which of the following?

Paid-in capital and retained earnings.

Which of the following items is reported on the statement of cash flows under financing activities? Stock split. Payment of a stock dividend. Payment of a cash dividend. Declaration of a stock dividend. Declaration of a cash dividend.

Payment of a cash dividend.

The consistency concept:

Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting.

Which one of the following is representative of typical cash flows from operating activities? -Proceeds from collecting the principal amounts of loans. -Repayment of principals on loans. -Receipts of cash sales. -Payments by a merchandiser to acquire equity securities of other companies. -Proceeds from the issuance of bonds and notes payable.

Receipts of cash sales.

Sales returns: -Represent trade discounts. -Represent cash discounts. -Refer to merchandise that customers return to the seller after the sale. -Refer to reductions in the selling price of merchandise sold to customers.

Refer to merchandise that customers return to the seller after the sale.

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

Referred to as paid-in capital.

If a company records prepayment of expenses in an asset account, the adjusting entry when all or part of the prepaid asset is used or expired would:

Result in a debit to an expense and a credit to an asset account.

Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except: -Retail method. -Specific identification method. -FIFO method. -Weighted average method.

Retail Method

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

Revenue recognition principle.

Identify the accounts that would normally have balances in the credit column of a business's trial balance.

Revenues and liabilities.

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

Specific identification method.

A bond traded at 102½ means that:

The bond traded at 102.5% of its par value.

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

The dividends account.

The statement of cash flows reports all but which of the following: -Cash flows from operating activities. -Cash flows from financing activities. -Significant noncash financing and investing activities. -The financial position of the company at the end of the accounting period. -Cash flows from investing activities.

The financial position of the company at the end of the accounting period.

Revenues are:

The increase in equity from a company's sales of products and services.

Identify the statement below that is incorrect. -The normal balance of the common stock account is a credit. -The normal balance of dividends is a debit. -The normal balance of unearned revenues is a credit. -The normal balance of accounts receivable is a debit. -The normal balance of an expense account is a credit.

The normal balance of an expense account is a credit.

A bondholder that owns a $1,000, 10%, 10-year bond has:

The right to receive $1,000 at maturity.

Identify the statement below that is true. -The trial balance is a list of all accounts from the ledger with their balances at a point in time. -The trial balance is a book of original entry. -The trial balance is another name for the balance sheet as long as debits balance with credits. -Another name for the trial balance is the chart of accounts. - If the trial balance is in balance, it proves that no errors have been made in recording and posting transactions.

The trial balance is a list of all accounts from the ledger with their balances at a point in time.

One characteristic of plant assets is that they are:

Used in operations.

Par value of a stock refers to the:

Value assigned per share by the corporate charter.

All of the following statements related to recording warranty expense are true except: -Warranty expense should be recorded in the period when the warranty service is performed. -Recording estimated warranty expense complies with the full disclosure principle. -The seller reports a warranty obligation as a liability. -Warranty costs are probable and the amount can be estimated. -Recording estimated warranty expense complies with the matching principle.

Warranty expense should be recorded in the period when the warranty service is performed.

The inventory valuation method that tends to smooth out erratic changes in costs is:

Weighted average.

Outstanding checks refer to checks that have been:

Written, recorded on the company books, sent to the payee, but not yet paid by the bank.

Which of the following accounts is not included in the calculation of net income? Rent expense. Services revenue. Rent revenue. Cash. Wages expense.

cash

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

credit

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between -ending inventory and beginning inventory. -beginning inventory and net purchases during the period. -beginning inventory and cost of goods sold. -net purchases during the period and ending inventory. -ending inventory and cost of goods sold.

ending inventory and cost of goods sold.

The chronological record of each complete transaction that has occurred in a business is called the:

journal

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

ledgers

The three parties involved with a check are:

maker, the payee, and the bank.

The relevant factors in computing depreciation do not include: Cost. Salvage value. Useful life. Depreciation method. Market value.

market value

Which of the following are not classified as plant assets? Machinery and equipment. Land improvements. Land. Patent. Buildings.

patent

Which of the following does not affect the equity of a business? wages expense, unearned revenue, dividends, common stock, services revenue

unearned revenue