Financial Accounting Final
Each transaction entered in a general journal must have equal dollar amounts of debuts and credits. A) True B) False
A) True
Maxwell Industries recorded and paid $1,400 advertising for the current month. Which occurred? A) Current liabilities decrease B) Net income decrease C) Retained earnings increases D) current assets increase
B) Net income decreases (assets (cash) decrease and Advertising Expense (an operating expense) increases, causing operating income to decrease.)
Which of the following is included in current assets? A) Automobiles B) Common Stock C) Accounts receivable D) Taxes payable
C) Accounts Payable
The assumption that an entity will continue to operate indefinitely and will NOT be sold or liquidated is called:
Going Concern Concept
Marvin's Mechanical Repair Shop started the year with total assets of $60,000, total liabilities of $40,000, and retained earnings of $18,000. During the year, the business recorded $100,000 in auto repair revenues, $70,000 in expenses, and the company paid dividends of $15,000. The net income reported by Marvin's Mechanical Repair Shop for the year was:
$30,000 (100,000 - 70,000 = $30,000)
What is the definition of sales revenue? A) increase to a company's resources that result when goods or services are provided to customers B) the obligations that an entity must pay at some time in the future because of past transactions or events C) decrease in stockholders' equity that a firm incurs in the process of earning revenues. D) the economic resources of an entity that can be usefully expressed in monetary terms. E) None of the above
A) Increase to a company's resources that result when goods or services are provided to customers
Assets are recorded in the balance sheet in order of: A) Liquidity B) Market value C) Maturity D) Historic value
A) Liquidity
On July 1 SABONI PAID $48,000 for a two years insurance policy, debuting Prepaid Insurance for the full amount. If the adjusting entry is not made at December 31, the end of the account period, how does the error affect this year's financial statement. A) Overstates Assets B) Overstates Revenue C) Overstates Expenses D) Understates common stock
A) Overstates Assets (the adjusting entry would increase expenses and decrease assets, therefore assets are overstated and expenses are understated)
The normal balance in a revenue account is a credit balance A) True B) False
A) True (The normal balance of an account is the side on which increases are recorded. This is because increases in an account are usually greater than, or equal to, the decrease to an account. Assets, dividend, and expense accounts normally have debit balances, whereas liabilities, common stock, and revenue accounts normally have credit balances.)
Regardless of the business activity recorded, the left side of an account is the debt side and the right side is the credit side. A) True B) False
A) True (The terms debut and credit are used to refer to the left side and the right side, respectively)
On August 1, Nevling Brothers bought goods with a list price of $14,400, terms 2/10, n/30. The firm records purchases at invoice price, using the periodic inventory system. On August 5, Nevling Brothers returned goods with a list price of $1,800 for credit. If Nevling Brother's paid the supplier the amount due on August 9, the appropriate entry would be:
Accounts Payable. 12,600 Purchases Discounts. 252 Cash. 12,348
Lite Company records purchases at invoice price, using the periodic inventory system. On July 5, Lite returned $18,000 of goods purchases on account to the seller. How would Life record this transfer?
Accounts Payable. 18,000 Purchases Returns and Allowances 18,000
During the current accounting period, Montana Ridge Company paid $2,000 for advertising services in advance of receiving them. Prepaid Advertising was debuted and Cash was credited for $2,000. At the end of the accounting period, three-fourths of the services paid for had yet to be received. The proper adjustment entry is:
Advertising Expense. 500 Prepaid Advertising. 500 (Transfer 1/4 x $2,000 = 500 from Prepaid Advertising to Advertising Expense)
As supplies and PPE assets on the balance sheet are consumed, they are reflected: A) as common stock on the balance sheet. B) As an expense on the income statement C) As a revenue on the income statement. D) Assets are never consumed.
B) As an expense on the income statement. (As assets are consumed (used up), their cost is transferred into the income statement as an expense)
Which of the following is a poor internal accounting control feature? A) Rotation of personnel B) Combining authorization with custodianship C) Segregation of duties D) Internal auditing
B) Combining authorization with custodianship
Assume the following unadjusted account balances at the end of the accounting period for Margarete Company: Accounts Receivable, $100,000; Allowance for Doubtful Accounts, $1,400(debit balance); and Net sales, $1,200,000 If Margarete's last experience indicates credit losses of 1% of net sales, adjusting entry to estimate doubtful accounts is:
Bad Debts Expense. 12,000 Allowance for Doubtful Accounts. 12,000
On which financial statement and at what amount are accounts receivable reported? A) Balance sheet at the amount owed by customers B) Income statement at the amount written off C) Income statement at the net uncollectible amount D) Balance sheet at the net realizable value
Balance sheet at the net realizable value (Accounts receivable are reported on the balance sheets at the amount expected to be collected which is accounts receivable less allowance for doubtful accounts, also known as net realizable value.)
Gulliver's Groceries purchases milk cartons at an invoice price of $9,000 and terms of 2/10, n/30. On arrival of the goods, Gulliver's realized that half of the milk was past expiration date, and returned them immediately to the supplier. If Gulliver's pays the remaining amount of the invoice within the discount period, the amount laid should be: A) $9,000 B) $4,320 C) $4,410 D) $8,820
C) $4,410 $9,000(purchases)-$4,500(returns)=$4,500 (balance) X .098=$4,410
Using a perpetual inventory system, the buyer's journal entry to record the return of merchandise purchased on account includes a: A) Credit to Cost of Goods Sold B) Credit to Accounts Payable C) Credit to Inventory D) Credit to Purchase Returns
C) Credit to Inventory
Using a periodic inventory system, the buyer's journal entry to record the return of merchandise purchases on account includes a: A) Debit to Cost of Goods Sold B) Credit to Accounts Payable C) Credit to Purchase Returns D) Debit to Inventory
C) Credit to Purchase Returns
What is the definition of expenses? A) increase in stockholders' equity that a firm earns by providing goods or services for its customers B) the obligations that an entity must pay at some time in the future because of past transactions or events C) Decreases in a company's resources that a firm incurs in the process of earning revenues D) the economic resources of an entity that can be usefully expressed in money terms E) None of the above
C) Decreases in a company's resources that a firm incurs in the process of earning revenues
Which of the following does NOT occur when a company receives additional information that requires it to increase its expectations of uncollectible accounts receivable? A) Accounts receivable (net) is reduced B) Net income is reduced C) The allowance account is decreased D) Bad debts expense is increased
C) The allowance account is decreased
On December 31, 2019 before entries, Accounts Receivable for California Company had a debit balance of $200,000, and the Allowance for Doubtful Accounts had a credit balance of $6,000. Credit sales for the year were $1,600,000 If credit losses are estimated at 1% of credit sales: A) The balance of the Allowance for Doubtful Accounts will be $10,000 after adjustment B) Bad Debts Expense for the year will be $22,000 C) The balance of the Allowance for Doubtful Accounts will be $16,000 after adjustment D) The balance of Allowance for Doubtful Accounts will be $16,000 after adjustment
C) The balance of the Allowance for Doubtful Accounts will be $22,000 after adjustment (Ending balance in Allowance for Doubtful Accounts=6,000+(1,600,000x1%)=22,000)
The primary components of the stockholders' equity section of a balance sheet for a corporation are; A) Net income and retained earnings B) A capital amount for each stockholder in the corporation C) Common Stock and dividends D) Common stock and retained earnings
D) Common Stock and retained earnings
Which of the following is NOT a current liability? A) Accounts payable B) Wages payable C) Taxes Payable D) Wage Expense
D) Wage Expense
For a firm that uses the perpetual inventory system, the Sales Returns and Allowances account Select One A) Is not a contra account B) Has a normal credit balance C) Is not used D) Is debited by the firm receiving returned good from a customer
D) is debited by the firm receiving returned goods From a customer
The lower-cost-or-net realizable value method provides for the recognition of inventory losses from price declines in the period the inventory is sold True/False
False (The lower-cost-or-net realizable value method provides for the recognition of an inventory write-down loss when the inventory's net realizable value declines below its recorded acquisition cost. Under lower-of-cost-or-net realizable value, a loss is reported in the period when the inventory's net realizable value declines, rather than during a subsequent period when the actual sale of the inventory takes place)
Inventory costs are all cost necessary to acquire and self the merchandise True/False
False (All necessary costs incurred to acquire merchandise inventory and deliver it to the buyer's place of business are included in the buyer's cost of inventory. This includes the purchase price of the merchandise, plus any transportation of freight-in cost, less any purchase returns and allowances and any purchase discounts
On September 1, Tree Company began a contract to provide services to Willow Company for six months, with the total $21,600 payment to be made at the end of the six-month period. Equal services are provided each month. The firm uses the account Fees Receivable to reflect amounts due but not yet billed. What proper adjusting entry would Tree Company make on December 31, the end of the accounting period (no previous adjustment has been made)
Fees Receivable. 14,400 Service Fees Earned. 14,400 (Accrue 4/6 x $21,600 = $14,400 of Service Fees earned)
Huntley Company paid $52,800 for a four year insurance policy on September 1 and recorded the $52,800 as debit on Prepaid Insurance and a Credit to Cash What adjusting entry should Huntley make on December 31, the end of the accounting period (no previous adjustment has been made)
Insurance Expense . 4,400 Prepaid Insurance . 4,400 (Transfer 4/48 x $52,800 = $4,400 from Prepaid Insurance to Insurance Expense)
The Green Grape Company's Office Supplies account had a beginning balance of $16,000. During the month, purchases of office supplies totaling $4,000 were devoted to the Office Supplies account. If $6,000 worth of supplies is still on hand at month-end, what is the proper adjusting entry?
Office Supplies Expense. 14,000 Office Supplies. 14,000 (Transfer $16,000 + $4,000 - $6,000 = $14,000 from Office Supplies Expense)
Champaign Company signed a one-year lease on April 1 2019, and paid the $22,800 total year's rent in advance. Champaign recorded the transaction as a debit to Prepaid Rent and a credit to Cash. What adjusting entry should Champaign make on December 31, 2019 (no previous adjustment has been made)
Rent Expense. 17,100 Prepaid Rent. 17,100 (Transfer 9/12 x $22,800 = $17,100 from Prepaid Rent to Rent Expense)
If merchandise is shipped F.O.B destination, the seller ultimately bears the expense of transporting it. True/False
True
The Allowance for Doubtful Accounts normally has a credit balance. True/False
True
The current ratio of a company is its current assets divided by its current liabilities True/False
True
The net accounts receivable reported in the current assets section of a company's balance sheet represents all receivable expected to be collected within the next year. True/False
True
Under periodic FIFO method of inventory costing, the ending inventory amount reflects the most recent acquisition costs True/False
True
The accounting equation states that the economic resources of an entity are equal to the claims on those resources A) True B) False
True (the accounting equation: Assets=Liabilities + Stockholder's Equity, states that a firm's assets equal the sum of its liabilities plus its stockholders equity. Throughout the accounting process, the accounting equation must always remain in balance)
Sue Baker received $5,000 from a tenant on December 1 for five months' rent of an office. This rent was for December, January, February, March, and April. If Sue debuted Cash and credited Unearned Rental Income for $5,000 on December 1, what necessary adjustments would be made on December 31?
Underwear Rental Income. 1,000 Rental Income. 1,000 (Transfer 1/5 x $5,000=$1,000 from Unearned Rental Income to Rental Income)
The transaction carried out by the Melon Corporation during the year caused an increase in total assets of $50,000 and a decrease in total liabilities of $20,000. If no additional investment was made by the investors during the year and dividends of $14,000 were paid, what was the net income for the year?
$84,000 (changes in assets = changes in liabilities + stockholders' equity. 50,000 = (-20,000) + (X-14,000) X= 84,000)
Ivey Company began operations on January 1, 2019, with an investment of $186,000 by each of its two stockholders, or a total of $372,000. Net income for its first year of business was $654,000. During the year, the company paid dividends of $90,000 each to its two stockholders. How much is the company's ending Stockholders' Equity on December 31, 2019?
$846,000 (Ending stockholders' equity = Beginning stockholders' equity + Contributed capital + Net income - Dividends X = $0 + $372,000 + $654,000 - ($90,000x2) X= $846,000
The normal balance of an account is: A) The side on which increases are recorded B) The debut side C) The side on which decreases are recorded D) the credit side
A) the side on which increases are recorded
Requiring employees to take vacations is an example of a good I get all accounting control feature True/False
True
The basic purpose of accounting is to provide useful financial information A) True B) False
True
The accounting equation for Lupin Dog Enterprises is as follows: $240,000=$120,000+$120,000 If the company now performed $30,000 of services and received a payment in the amount of $20,000 cash with the remaining $10,000 to be paid by customers within 60 days, the accounting equation will change to: A) 270,000=120,000+150,000 B) 240,000=90,000+150,000 C) 240,000=150,000+90,000 D) 270,000=150,000+120,000
A) 270,000=120,000+150,000
The accounting equation for Mickey Enterprises is as follows: $360,000(Assets) = $180,000(Liabilities)+$18,000(Stockholders' Equity) If the company now purchases a truck on account for $30,000, the account equation will change to: A) 360,000=180,000+180,000 B) 390,000=180,000+210,000 C)390,000=198,000+192,000 D)390,000=210,000+180,000
D) 390,000=210,000+180,000
A decline in gross profit can be caused by selling fewer units to customers True/False
False (Gross profit percentage is the percentage of gross profit to sales. It indicates the cents that are available from each dollar of sales to cover operating costs and contribute to profits. A change in the number of units sold does not change the percentage, unless the selling price or cost of goods sold changes.)
Which of the following is NOT an inventory account for manufacturing companies? A) Finished goods B) Cost of goods sold C) Work-in-process D) Raw materials
B) Cost of goods sold
Under the double entry accounting system, no more than two accounts can be affected by each transaction A) True B) False
B) False (Each transaction recorded under the double entry accounting system must affect at least two accounts. It can affect more than two)
Outstanding checks are checks a company has written and recorded as cash disbursements that have not yet been presented to the bank for payment. True/False
True
The Purchase account normally has a debit balance. True/False
True
Great Landscapes Company estimates it's doubtful accounts by aging its accounts receivable and applying percentage to various ages categories of accounts. The Great Landscapes Company computes a total of $3,600 in estimated doubtful accounts as of December 31, 2019. Its Accounts Receivable account has a balance of $112,800 and its Allowance for Doubtful Accounts has a credit balance of $600 before adjustments at December 31, 2019. How much bad debts expense will Great Landscapes report in 2019? A) $3,000 B) $3,360 C) $3,840 D) $480
A) $3,000 (To bring the allowance to the desired balance of $3,600, the Great Landscapes Company will need time increase the allowance accounts by $3,000, resulting in bed debts expense of that same amount.)
Which of the following is desirable in a good system of internal accounting control? A) appropriate forms, such as checks and sales invoices, should have preprinted control numbers B) All accounting personnel in a firm should be bonded C) To obtain the benefit of the specialization, employees should not be rotated among similar jobs. D) Responsibility and authority for a given function should be shared among several employees
A) Appropriate forms, such as checks and sales invoices, should have preprinted control numbers
The double-entry system of debuts and credits means that: A) At least two entries, a debit and a credit, must be made for each transaction B) Debits will he recorded twice as often as credits C) two pieces of information must be recorded for each transaction—the debt and the dollar amount D) each debit and credit will be recorded two times, once in the general ledger and once in the trail balance
A) At least two entries, a debit and a credit, must be made for each transaction
The area of accounting dealing with the preparation of financial statements showing a business's results operations, financial position, and cash flow is referred to as: A) Financial accounting B) Managerial accounting C) Tax accounting D) Regulatory accounting E) None if the above
A) Financial Accounting
Which of the following will properly record the payment of a two-year insurance policy A) Increase and decrease assets B) Increase assets and increase retained earnings C) Increase liabilities and decrease retained earnings D) Decrease assets and decrease liabilities
A) Increase and decrease assets
An income statement A) Reports the results of operations for a period B) Reports on the events causing a change in stockholders' equity during a period C) Presents a firm's assets, liabilities, and stockholders' equity on a given date D) Reports cash inflows and outflows during a period E) None of the above
A) Reports the results of operations for a period
A trail balance is a list of account titles in general ledger with their respective debit and credit balances. A) True B) False
A) True
Which of the following forms of business organizations exists as a legal entity for tax purposes. A) a corporation B) a partnership C) a sole proprietorship D) a labor union
A) a corporation
Bosworth Company purchases $12,000 worth of merchandise, FOB shipping point. Transportation costs were an additional $1,050. The company later returned $2,250 worth of merchandise and paid the invoice within 2% cash discount period The total amount paid for this merchandise is: A) $10,584 B) $10,605 C) $12,789 D) $10,560
B) $10,560 Purchase. $128,000 Freight. 1,050 Returns (2,250) Discount. (195) Total. $10,605
Boulder Beaver Company has a $150,000 beginning balance in Accounts Receivable and a $6,000 credit balance in the Allowance for Doubtful Accounts. During the year, credit sales were $600,000 and customers' collected were $590,000. Also $4,000 in worthless accounts were written off. What was the net amount of receivables included in the current assets at the end of the year, before any provision was made for doubtful accounts? A) $126,000 B) $154,000 C) $120,000 D) $130,000
B) $154,000 (Year-end Allowance for Doubtful Accounts=$6,000-$4,000=$2,000 Year-end Accounts receivable=$150,000+$600,000-$590,000-$4,000=$156,000 Net Accounts Receivable = $156,000-$2,000=$154,000)
Dells Company uses periodic inventory system. Sales for 2019 were $1,410,000 while operating expenses were $525,000. Beginning and ending inventories for 2019 were $210,000 and $180,000, respectively. Net purchases were $540,000 while freight in was $45,000 The net income or loss for 2019 was: A) $90,000 net income B) $270,000 net income C) $90,000 net loss D) $30,000 net income
B) $270,000 net income (Cost of Goods Sold - Operating Expenses = Net Income $1,410,000-$615,000-$525,000=X X=$270,000=Net Income
The first two steps of the accounting cycle, in proper sequence, are: A) Record transactions in a journal and post journal entries to general ledger accounts B) Analyze transactions from source documents and record transactions in a journal C) Analyze transactions from source documents and post journal eateries to general ledger accounts D) Record transactions in a journal and prepare a trial balance
B) Analyze transactions from source documents and record transactions in a journal
When money is borrowed, both an asset account and a revenue account are increased. A) True B) False
B) False. (Both am asset account and a liability account are increased when money is borrowed)
An accrual of wages expense would produce what effect on the balance sheet? A) Decrease liabilities and increase equity B) Increase liabilities and decrease equity C) Increase assets and increase liabilities D) Decrease assets and decrease liabilities
B) Increase liabilities and decrease equity. (an accrual of wages expense produces an increase in wages payable (liability) and a decrease in retained earnings (stockholders' equity), resulting in a decrease of profit)
Internal auditing is a company function that: A) Audits the firm's financial statements and expresses an opinion on them B) Provides independent appraisals of the company's financial statements, its internal control, and its operations C) Prepares the firms income tax returns D) All of the above
B) Provides independent appraisals of the company's financial statements, its internal control, and its operations
Which of the following is NOT contained in the heading for a balance sheet? A) The name of the company B) The time period (for example, a month, quarter, or year) covered by the balance sheet. C) The title of the financial statement (that is, balance sheet) D) The date (a single day) of the balance sheet E) None of the above.
B) The time period covered by the balance sheet
During 2019, Wayneright Company's total assets increased $75,000, and total liabilities decreased $45,000. During the same year, the company's investors invested an additional $90,000 and the company paid dividends of $45,000. What must have been the company's net income for 2019? A) $30,000 B) $60,000 C) $75,000 D) $45,000
C) $75,000 Change in Assets = Change in Owner's Equity + Change in Liabilities $75,000 = X - $45,000 X = 120,000 = Change in Owners Equity Change in Owner's Equity = Change in owner's investments + Net income - Dividends $120,000 = $90,000 + X - $45,000 X = $120,000 - $90,000 + $45,000 X= 75,000
The branch of accounting which is involved in criminal investigations related to areas such as financial statement fraud, money laundering, or investment fraud is called: A) Internal auditing B) Cost accounting C) Forensic accounting D) All of the above E) None of the above
C) Forensic accounting
Net sales less cost of goods sold equals: A) Select profit margins B) Net Income C) Gross profit D) Gross profit percentage
C) Gross profit (Net sales - Cost of goods sold = Gross profit The gross profit percentage is gross profit divided by sales)
A company incurred $60,000 (to be paid next year) for the current year's advertising activities. When would the effect of this transaction on the current year's accounting equation? A) $60,000 increase in Assets; No effect on Liabilities; $60,000 increases in Stockholders' Equity B) No effect on Assets; $60,000 decrease in Liabilities; $60,000 increase in Stockholders' Equity C) No effect on Assets; $60,000 increase In Liabilities; $60,000 decrease in Stockholders' Equity D) $60,000 increase in Assets; $60,000 increase in Liabilities; No effect on Stockholders' Equity
C) No effect on Assets; $60,000 increase in Liabilities; $60,000 decrease in Stockholders' Equity
On which financial statements would you look to find the total costs of merchandise that remains and the total that has been sold? A) Statement OG cash flows and balance sheet B) Statement of stockholders' equity and balance sheet C) Balance sheet and statement of cash flows D) balance sheet and income statement
D) Balance sheet and income statement (When inventories are used up in production or are sold, their costs are transferred from the balance sheet (inventory account) to the income statement as cost of goods sold.)
Cash collected on accounts receivable would produce what effect on the balance sheet? A) Increase liabilities and decrease equity B) Decrease assets and decrease liabilities C) Decrease liabilities and increase equity D) Increase assets and decrease assets
D) Increase assets and decrease assets
From the viewpoint of good internal accounting control, which of the following individuals would be the proper person to prepare bank reconciliations for a company that receives cash payments both through the mail and from customers in person? A) The individual who opens the company's mail and lists the payments received B) The individual who works in the customer service department and receives payments from customers who pay in person C) the individual who deposits the daily cash receipts in the bank D) none of the above
D) None of the above (Internal audit is an independent department; it has no recurring custody, recording, or authorization duties related to accounting transactions and therefore should prepare the monthly bank reconciliation and create any needed journal entities)
The accounting entity: A) Is a fundamental concept in accounting B) May be a sole proprietorship, a partnership, or a corporation C) is an economic unit with identifiable boundaries for which financial information is accumulated and reported D) maintains a record of activities separate from the economic and personal activities of its owners E) All of the above
E) All of the above
Companies should recognize inventory as an expense when purchased. True/False
False (Companies capitalize inventories when purchased, and expense inventories when sold)
The average cost used in the weight-average inventory pricing method is calculated by dividing the total units available for sale into the period's net cost of purchases. True/False
False (The average unit cost used in the weight-average inventory pricing method is calculated by dividing the total units available for sale into the period's costs of goods available for sale.)
The three elements that are almost always present when a fraud occurs are pressure, rationalization and concealment. True/False
False (These elements are often referred to as the fraud triangle and include (1) a perceived pressure, (2) some way to rationalize the fraudulent act, and (3) a perceived opportunity)
In specifying credit terms, 2/10, n/30 means that one-half of the invoice must be paid in 10 days, with the net balance due in 30 days. True/False
False (2/10, n/30 represents a cash discount of two percent of paid within ten days of the sale with a total credit period of 30 days following the date of the sale.)
Retained earnings are present on both the income statement and the statement of stockholders' equity. A) True B) False
False (Retained earnings are present in the statement of retained earnings and the balance sheet. The income statement represents current period earnings)
Accrual accounting recognizes revenues only when cash is received and expenses only when cash is paid. A) True B) False
False (accrual accounting refers to the recognition of revenue when earned and the matching of expenses when incurred. The recognition of revenues and expenses does not always relate to the receipt or payment of cash)
In a merchandising firm, sales minus cost of goods sold equals income before income taxes True/False
False. (For a merchandising company, the cost of goods sold is subtracted from the firm's net sales to determine its gross profit on sales.)
Art Company calculates that interest of $1,800 has accrued at December 31 on outstanding notes payable. How should Art record this on December 31?
Interest Expense. 1,800 Interest Payable. 1,800 (Interest expense for the month of December must be recognized as expense. A liability (payable) must be recorded since the amount has not yet been paid.)
Early in the accounting period, Ms. Client paid $3,000 for services in advance of receiving them; Cash was devoted and Unearned Service Fees was credited for $3,000. At the end of the accounting period, two-thirds of the services paid for had yet to be performed. The proper adjusting entry is:
Unearned Service Fees. 1,000 Service Fees Earned. 1,000 (Transfer 1/3x$3,000=1,000 from Unearned Service Fees to Service Fees Earned)
