Financial Accounting Study Guide Meramec STL

The MegaHit Film Studio has a licensing right (or agreement) to distribute films produced by the Artsy Film Company. How would the MegaHit Company classify this licensing right?

Intangible asset

With respect to the audience targeted for financial accounting reports, which of the parties below is not an external user?

Managers of Companies issuing the reports (External users are: creditors, investors, directors, and government)

Earnings Per Share (EPS)

Net Income - Preferred Dividends/ Average Number of Common Shares Outstanding

Gross Profit Percentage

Net Sales Revenue - Cost of Goods Sold/ X 100 Net Sales Revenue

A company took out $665,000 of new debt this year and repaid $1,000,000 of older debt in the same year. The company also issued stock for $442,000 cash and paid dividends of $99,000 for the year. The company's financing cash flows appearing the statement of cash flows will show:

Net cash provided by financing activities of $8,000

Using the T-Account Approach:

Net income appears on the debit side of the cash account under operating activities

Sales revenue equals $367,810, sales returns & allowances are $10,000, and sales discounts total $14,180. The cost of goods sold is $216,490, operating expenses are $28,500, and the company incurs $31,640 of income tax expense. Which of the following statements is correct?

Net sales equal $343,630 and gross profit is $127,140.

(Increase) Decrease in Inventory Operating, Investing, Financing Activity?

Operating

(Increase) Decrease in other current assets. Operating, Investing, Financing Activity?

Operating

Depreciation? Operating, Investing, Financing Activity?

Operating

Net Income Operating, Investing, Financing Activity?

Operating

Current Ratio

Current Assets/Current liabilities

On September 30, ABC Co. received a bill for $1,000 for running a newspaper ad in September. The bill will be paid in October. Which of the following statements is correct for September?

Expenses are increased by $1,000

When bonds are retired at their maturity date, the balance in the Bonds Payable account is equal to the bond's

Face value

Which of the following statements about financial statements and the trial balance is correct?

Financial Statements are prepared only after the adjusted trial balance has shown that debits equal credits

Additions to long-term debt? Operating, Investing, Financing Activity?

Financing

Increase (Decrease) in notes payable. (The amount is owed to financial institutions.) Operating, Investing, Financing Activity?

Financing

Issuance of Stock Operating, Investing, Financing Activity?

Financing

Reductions in Long-Term Debt Operating, Investing, Financing Activity?

Financing

Which of the following statements about preparation of the statement of cash flows is correct?

GAAP allows either the indirect or direct method.

Which of the following is inventory?

Goods held for sale in the normal course of business

The Accounts Payable Account has a

Has a normal Credit Balance

Which of the following would not be recorded as an accounting transaction?

Hiring a new Employee

When interest is calculated for periods shorter than a year, the formula to calculate interest is: I = P × R × T

I = P × R × T, where I = interest calculated, P = principal, R = annual interest rate, and T = (number of months ÷ 12).

Which of the following statements about revenues and expenses is correct?

If revenues are less than expenses, the company has a net loss and retained Earnings decreases.

Which of the following statements about the benefits enjoyed by the owners of common stock is not correct?

If the company ceases operations, stockholders share in any assets remaining before creditors have been paid.

Which of the following is not an accounting transaction?

Ordered inventory from suppliers for $3,000.

Common control principles include all of the following except:

Outsource work to third parties (Common control principles: 1. Establish responsibility 2. Segregate Duties 3. Restrict access 4. Document Procedures 5. Independently verify

dividends are only paid on ____________ shares of stock

Outstanding

Which of the following is deducted from he bank balance on a bank reconciliation

Outstanding checks

Which of the following situations would cause the balance per bank to be more than the balance per books?

Outstanding checks

Which of the following is not an operating activity?

Paying off a loan to the bank

ABC Corp. issued $100,000 of bonds at a premium; as a result, the company:

received more than $100,000.

When you use Cash based accounting you recognized when cash is

received or spent

A corporation declared a stock dividend on November 1 and issued 9,000 shares of stock to its stockholders. Prior to the dividend, the balance in Retained Earnings was $850,000, the number of shares of $5 par value stock issued and outstanding was 60,000, and the market value of the stock was $12. This stock dividend will cause total stockholders' equity to:

remains unchanged

The purpose of a statement of retained earnings is:

report the way that net income and dividends affect the financial position of the company during the period

A cumulative dividend preference means that:

unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends.

The expense recognition principle indicates:

when costs are recognized as expenses on the income statement.

A stock dividend:

will reduce Retained Earnings like a cash dividend does.

Which account would be increased with a debit?

Accounts Receivable

G. Adjusted balance at year-end in Service Revenue accounting, $75,000

DEBIT: ???, $75,000 CREDIT: ??? , $75,000

Supplies are expensed when

Used

The Discount on Bonds Payable account is:

a contra account to Bonds Payable

An economic resource that is owned by a company and will provide future benefits is referred to as:

an asset

When a company earns net income, the company's Retained Earnings

increase

Over 100

premium

Which of the following would be reported on the income statement for Year 2?

Supplies that were purchased in Year 1, but used in Year 2

Net income $7,000 Cash dividends paid to stockholders 2,000 Cash proceeds from sale of land 3,000 Cash proceeds from bank loan 5,000 Cash payment (principal) on bank loan 1,000 Cash paid to purchase equipment 4,000 Use the information above to answer the following question. The company would report net cash provided by (used in) investing activities of:

$(1,000).

Spangle Corporation uses the unit-of-production method to estimate depreciation. The company purchased a new machine for $18,000 that will produce an estimated 100,000 units over its useful life. The estimated residual value of the machine is $2,000. What is the depreciation rate per unit?

$0.16 (Depreciation rate per unit = (Cost − Residual value) ÷ Estimated total production = ($18,000 − $2,000) ÷ 100,000 units = $0.16 per unit)

On January 1, a company lends a corporate customer $80,000 at 6% interest. The amount of interest revenue that should be recorded for the *quarter* ending March 31 equals:

$1,200

The following account balances are taken from the December 31, 2015, financial statements of ABZ Advertising Company. The company uses accrual basis accounting. Advertising Revenue $46,482 Cash 41,516 Accounts Receivable 7,296 Interest Expense 2,299 Accounts Payable 5,000 Operating Expenses 37,460 Unearned Revenue 1,178 Equipment 18,048 Income Tax Expense 2,326 The following activities occurred in 2016: 1. Performed advertising services on account, $55,000. 2. Received cash payments on account, $10,400. 3. Received deposits from customers for advertising services to be performed in 2017, $2,500. 4. Made payments to suppliers on account, $5,000. 5. Incurred $45,000 of operating expenses; $39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year. Use the information above to answer the following question. What is the balance in the Cash account at December 31, 2016?

$10,416

Perfect Pets uses the perpetual inventory system. At the beginning of the quarter, Perfect Pets has $30,000 in inventory. During the quarter the company purchases $7,900 of new inventory from a vendor, returned $700 of inventory to the vendor, and took advantage of discounts from the vendor of $200. At the end of the quarter the balance in inventory is $26,500. What is the cost of goods sold?

$10,500

A company uses $100,000 in cash to pay off $100,000 in notes payable. This would result in a:

$100,000 debit to Notes Payable and a $100,000 credit to Cash

The Ideal Corp. has the following information its payroll records: Salaries and wages earned by employees $100,000 Less: income taxes withheld from employees 15,000 Less: FICA taxes withheld from employees 5,000 Net pay to employees $80,000 The employer amount of FICA taxes that Ideal is required to pay is equal to the amount that it withholds from its employees. Assume no other payroll taxes are incurred at this time. What is Ideal's total expense with regards to this payroll?

$105,000 (Total payroll expense (relating to this transaction only) = Salaries and wages earned by employees of $100,000 + Employer amount of FICA of $5,000 = $105,000.)

On January 1, Charlie Co. purchased a truck for $50,000 which has an estimated productive life of 100,000 miles. Its residual value is $5,000. During the first full year of its useful life, the company drove the truck 25,000 miles. Its depreciation expense for the year using the units of production method is:

$11,250. Depreciation expense = (Cost − Residual value) × (Actual production this period ÷ Estimated total production) = ($50,000 − $5,000) × (25,000 ÷ 100,000) = $11,250

Tidy Limited purchased a new van on January 1, 2016. The van cost $20,000. It has an estimated life of five years and the estimated residual value is $5,000. Tidy uses the double-declining-balance method to compute depreciation. What is the adjusted balance in the Accumulated Depreciation account at the end of 2017?

$12,800 (Keep the estimated residual value of $5,000 in mind; book value cannot drop below residual value Depreciation expense = Book value × (2 ÷ Useful life) Depreciation expense = (Cost − Accumulated depreciation) × (2 ÷ Useful life) 2016: = ($20,000 − $0) × 2/5 = $8,000 2017: = ($20,000 − $8,000) × 2/5 = $4,800 Book value at end of 2017 = $20,000 − ($8,000 + $4,800) = $7,200, which is greater than the $5,000 residual value. As such, the amount calculated is the amount of depreciation that can be taken. Accumulated Depreciation at end of 2017 = 2016 Depreciation + 2017 Depreciation = $8,000 + $4,800 = $12,800)

Accounts Payable had a balance of $18,200 at the beginning of the month. During the month, three debits in the amounts of $4,700, $11,300, and $14,800 were posted to Accounts Payable, and three credits in the amounts of $3,600, $9,500, and $12,700 were posted to Accounts Payable. What is the ending balance of the Accounts Payable account?

$13,200

The statement of cash flows for a company contained the following: • Cash flows from operating activities in the amount of $29,000 • Cash flows from investing activities in the amount of $30,000 • Cash flows from (used by) financing activities in the amount of ($45,000) What was the change in cash for the period?

$14,000 increase

Flynn Company's monthly bank statement showed the ending balance of cash of $18,500. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,500, outstanding checks of $2,000, a NSF check of $700, bank service charges of $30 and the EFT from a customer in payment of the customer's account of $1,500. Use the information above to answer the following question. What is the up-to-date ending Cash balance?

$18,000 (Up-to-date ending cash balance = Balance per the bank + Deposits in transit − Outstanding checks = $18,500 + $1,500 − $2,000 = $18,000)

Net income $7,000 Cash dividends paid to stockholders 2,000 Cash proceeds from sale of land 3,000 Cash proceeds from bank loan 5,000 Cash payment (principal) on bank loan 1,000 Cash paid to purchase equipment 4,000 Use the information above to answer the following question. The company would report net cash provided by (used in) financing activities of:

$2,000.

Langston Company updates its inventory periodically. The company's cost of goods sold was $2,700 and purchases were $5,600 during the year. The company's ending inventory count was $5,000. What was the amount of beginning inventory?

$2,100 (Beginning inventory = Cost of goods sold − Purchases + Ending inventory = $2,700 − $5,600 + $5,000 = $2,100)

A company reported net income of $6 million. During the year the average number of common shares outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is noncumulative. The EPS is approximately:

$2.00. (EPS = (Net income − Preferred dividends) ÷ Average number of common shares outstanding = ($6,000,000 − $0) ÷ 3,000,000 shares = $2.00 per share)

A company purchased equipment by issuing a $200,000, one-year, 8% note payable. The transaction would be recorded in the accounting records with a credit to Notes Payable for:

$200,000.

Chino Company reported net income of $20,000 for the current year. During the year, Inventory decreased by $7,000, Accounts Payable decreased by $8,000, Depreciation Expense was $10,000, and Accounts Receivable increased by $6,500. If the indirect method is used, what is the net cash provided by operating activities?

$22,500

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The cost of goods sold is

$23,000

Consider the following information: Net income $20,000 Depreciation 3,000 Increase in accounts receivable 1,000 Decrease in prepaid rent (400) Increase in accrued liabilities 900 Cash paid to purchase office equipment 4,000 What is the net cash provided by operating activities?

$23,300

Your company buys a computer system for $3 million and pays the vendor $200,000 to install the computer system. Your company should record:

$3.2 million as equipment.

A company issued $300,000, 10-year, 10% bonds at 105.

$315,000 (300,000 x 1.05)

Melody's Piano School operations for the month of May were limited to the following transactions: • Provided $400 of piano lessons to students who paid in cash. • Provided $100 of piano lessons on account. • Collected $300 from students who took piano lessons during April. • Paid April's piano rental bill of $100. • Received May's piano rental bill of $150 and set it aside for payment in June. Use the information above to answer the following question. Assuming the company uses accrual basis accounting, what is net income for May?

$350

Mason Company gathered the following information from its accounting records and the October bank statement to prepare the October bank reconciliation: Ending cash balance per books, 10/31 $3,500 Deposits in transit 150 Interest received from bank 850 Bank service charge for check printing 30 Outstanding checks 2,000 NSF check of T. Owens 175 Use the information above to answer the following question. The up-to-date ending cash balance on October 31 is:

$4,145 (Up-to-date ending cash balance = Ending cash balance per books + Interest received from the bank − Bank service charge − NSF check of T. Owens = $3,500 + $850 − $30 − $175 = $4,145)

Able Corp. started business this year. For this year, it had revenues of $200,000, expenses of $150,000 and cash flows from operating activities of $40,000, and paid dividends of $5,000. What is the amount of Retained Earnings at the end of the company's first year of operations?

$45,000

Flynn Company uses a perpetual inventory system and reported $500,000 of inventory at the beginning of the month based on a physical count of inventory. During the month, the company bought $45,000 of inventory and sold inventory that had cost $30,000. At the end of the month, the physical count of inventory shows $510,000 on hand. How much shrinkage occurred during the month?

$5,000

The following account balances are taken from the December 31, 2015, financial statements of ABZ Advertising Company. The company uses accrual basis accounting. Advertising Revenue $46,482 Cash 41,516 Accounts Receivable 7,296 Interest Expense 2,299 Accounts Payable 5,000 Operating Expenses 37,460 Unearned Revenue 1,178 Equipment 18,048 Income Tax Expense 2,326 The following activities occurred in 2016: 1. Performed advertising services on account, $55,000. 2. Received cash payments on account, $10,400. 3. Received deposits from customers for advertising services to be performed in 2017, $2,500. 4. Made payments to suppliers on account, $5,000. 5. Incurred $45,000 of operating expenses; $39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year. Use the information above to answer the following question. What is the balance of Accounts Receivable at December 31, 2016?

$51,896

Alphabet Company, which uses the periodic inventory method, purchases different letters for resale. Alphabet had no beginning inventory. It purchased A thru G in January at $4 per letter. In February, it purchased H thru L at $6 per letter. It purchased M thru R in March at $7 per letter. It sold A, D, E, H, J and N in October. There were no additional purchases or sales during the remainder of the year. Use the information above to answer the following question. If Alphabet Company uses the LIFO method, what is the cost of its ending inventory?

$58 (LIFO - Periodic January purchase 7 units × $4 $28 February purchase 5 units × $6 30 March purchase 6 units × $7 42 Goods available for sale 100 Ending inventory (7 unit × $4) + (5 units × $6) 58 Cost of goods sold 6 × $7 $42)

A company used the aging of accounts receivable method. At December 31, management determined that the net realizable value of accounts receivable was $304,000. The balance in Accounts Receivable was $384,000 and the unadjusted credit balance in Allowance for Doubtful Accounts was $16,000. What was the amount of Bad Debt Expense for the year?

$64,000

The classified balance sheet for a company reported current assets of $1,623,850, total liabilities of $799,540, Common Stock of $1,000,000, and Retained Earnings of $130,260. The current ratio was 2.5. What is the total amount of current liabilities?

$649,540

Alphabet Company, which uses the periodic inventory method, purchases different letters for resale. Alphabet had no beginning inventory. It purchased A thru G in January at $4 per letter. In February, it purchased H thru L at $6 per letter. It purchased M thru R in March at $7 per letter. It sold A, D, E, H, J and N in October. There were no additional purchases or sales during the remainder of the year. Use the information above to answer the following question. If Alphabet Company uses the weighted average method, what is the cost of its ending inventory? (Round the per unit cost to two decimal places and then round your answer to the nearest whole dollar.)

$67 (Weighted Average - Periodic January purchase 7 units × $4 $28 February purchase 5 units × $6 30 March purchase 6 units × $7 42 Goods available for sale 18 units 100 Ending inventory 12 units × ($100 ÷ 18) 67 Cost of goods sold 6 units × $5.56 $33)

Bobby Darling is the only employee of Atlantic Records, Inc. During the first week of January, Darling earned $800 and had federal and state income tax withholdings of $40 and $15, respectively. FICA taxes are 7.65% on earnings up to $117,000. State and federal unemployment taxes for the period are $50 and $8, respectively. What would be the amount of Darling's payroll check for the first week of January?

$683.80 ($800 − [($800 × 0.0765) + ($40 + $15)] − $0 = $683.80.)

Alphabet Company, which uses the periodic inventory method, purchases different letters for resale. Alphabet had no beginning inventory. It purchased A thru G in January at $4 per letter. In February, it purchased H thru L at $6 per letter. It purchased M thru R in March at $7 per letter. It sold A, D, E, H, J and N in October. There were no additional purchases or sales during the remainder of the year. Use the information above to answer the following question. If Alphabet Company uses the specific identification method, what is the cost of its ending inventory?

$69 (Ending inventory = (4 letters × $4) + (3 letters × $6) + (5 letters × $7) = $69)

Alphabet Company, which uses the periodic inventory method, purchases different letters for resale. Alphabet had no beginning inventory. It purchased A thru G in January at $4 per letter. In February, it purchased H thru L at $6 per letter. It purchased M thru R in March at $7 per letter. It sold A, D, E, H, J and N in October. There were no additional purchases or sales during the remainder of the year. Use the information above to answer the following question. If Alphabet Company uses the FIFO method, what is the cost of its ending inventory?

$76 (FIFO - Periodic January purchase 7 units × $4 $28 February purchase 5 units × $6 30 March purchase 6 units × $7 42 Goods available for sale 100 Ending inventory (1 unit × $4) + (5 units × $6) + (6 units × $7) 76 Cost of goods sold 6 × $4 $24)

AAA Co. uses a periodic inventory system and has the following information in regard to its inventory: Beginning inventory 200 units @ 15 $3,000 Purchase on January 25 300 units @ 16 4,800 Purchase on March 15 200 units @ 17 3,400 Purchase on October 2 400 units @ 18 7,200 Goods available for sale $18,400 There are 500 units in ending inventory. What is the amount of the ending inventory using the FIFO method?

$8,900 (When the FIFO method is used, the latest costs are assigned to the ending inventory as follows: (400 units @ 18) + (100 units @ 17) = $8,900)

On January 1, Kirk Corporation had total assets of $850,000. During the month, the following activities occurred: • Kirk Corporation acquired equipment costing $6,000, promising to pay cash for it in 60 days. • Kirk Corporation purchased $3,500 of supplies for cash. • Kirk Corporation sold land which it had acquired 2 years ago. The land had cost $15,000 and it was sold for $15,000 cash. • Kirk Corporation signed an agreement to rent additional storage space next month at a charge of $1,000 per month. What is the amount of total assets of Kirk Corporation at the end of the month?

$856,000.

A company has the following paid-in capital: Preferred stock, 6%, $5 par value, 100,000 shares authorized, 20,000 shares issued and outstanding = $500,000 Common stock, $9 par value, 300,000 shares authorized, 110,000 shares issued and outstanding = $990,000 If the company pays a $15,000 dividend and the preferred stock is noncumulative, what is the amount the common stockholders will receive?

$9,000 Current preferred dividend = Number of shares outstanding × Par value × Annual dividend rate = 20,000 shares × $5 per share × 0.06 = $6,000 Amount paid to common stockholders = Total dividends declared − Amount paid to preferred stockholders = $15,000 − $6,000 = $9,000

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000, deposits in transit of $2,000, NSF check of $100, and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:

$9,910

Allsop Company had no beginning inventory. The company purchases 300 units of inventory in January at $5 each, 500 units at $4 each in August, and 200 units at $6 each in November. The company sells 150 units during the year. Allsop uses a periodic inventory system and the LIFO inventory costing method. What is the cost of goods sold?

$900 (Cost of goods sold = 150 units × $6 per unit = $900)

Brighton, Inc. uses the indirect method to determine its cash flow from operations. During the course of the year, Brighton, Inc.'s Accounts Receivable increased by $10,000 and its Accounts Payable decreased by $5,000. As a result of these two items, the net addition (or subtraction) to convert net income to cash flow from operations equals:

($15,000).

Flynn corporation had the following cash flows for the current year. The company uses the direct method in preparing the statement of cash flows: Cash paid to purchase equipment = 200,000 What is the net cash provided (used by) investing activities**?

($200,000)

The following information is taken from the financial statements of a company for the current year: Current Assets $395,000 Total Assets 890,000 Cost of Goods Sold 650,000 Gross Profit 200,000 Net Income 120,000 On a common size income statement for the year, what is the percentage that would be shown next to the dollar amount of sales revenue?

100%

Your company sells $469,300 of goods during the year that have a cost of $398,600. Inventory was $29,783 at the beginning of the year and $34,038 at the end of the year. Use the information above to answer the following question. What is the inventory turnover ratio?

12.5 times

A company reported net income of $6 million. During the year the average number of common shares outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is noncumulative. The Price/Earnings ratio is approximately:

2.50 (Price/Earnings (P/E) ratio = Current stock price (per share) ÷ EPS = $5.00 ÷ $2.00 = 2.50)

The following information is taken from the financial statements of a company for the current year: Current Assets $395,000 Total Assets 890,000 Cost of Goods Sold 650,000 Gross Profit 200,000 Net Income 120,000 The gross profit percentage for the current year rounded to the nearest whole percent is closest to:

24% (Net Sales Revenue = Gross Profit + Cost of Goods Sold = $200,000 + $650,000 = $850,000 Gross profit percentage = [(Net Sales Revenue − Cost of Goods Sold) ÷ Net Sales Revenue] × 100 = [($850,000 − $650,000) ÷ $850,000] × 100 = 24% (rounded))

A company has net sales of $612,850 and cost of goods sold of $441,252. The company's gross profit percentage is:

28%.

The financial statements of Orion Frozen Foods contained the following information: Net Sales Revenue $1,000,000 Net Accounts Receivable, beginning of year 100,000 Net Accounts Receivable, end of year 60,000 Use the information above to answer the following question. The average length of time it takes for Orion Frozen Foods to collect accounts receivable is approximately:

29 days (Receivables turnover ratio = Net Sales Revenue ÷ Average Accounts Receivable = $1,000,000 ÷ [($100,000 + $60,000) ÷ 2] = 12.50 times Days to collect = 365 ÷ Receivables turnover ratio = 365 ÷ 12.50 = 29.2 days)

Xit Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. Xit plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for straight-line depreciation purposes?

4 years

A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year. Sales revenue is $986,400, cost of goods sold is $572,700, and net income is $124,200 for the year. The inventory turnover ratio is closest to:

8.3 (Inventory turnover ratio = Cost of goods sold ÷ Average net receivables = $572,700 ÷ [($72,500 + $65,500) ÷ 2] = 8.3)

In order to calculate shrinkage:

A perpetual inventory system requires an occasional count of actual inventory

Inventory that cost $500 is sold for $700, with terms of 2/10, n/30

Accounts Receivable, Debit $700, Cash Credit $686

When Pizza Company delivers pizza to customers and bills its customer accounts, it should record a debit to ______ and a credit to ______:

Accounts Receivable; Sales Revenue

When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation Expense

When the direct method is used to determine the cash flows from operating activities, other operating expenses are converted into cash outflows by:

Adding increases in prepaid expenses and adding decreases in accrued liabilities to other expenses

Canton, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. Mr. Smart, the bookkeeper, recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to Common stock. As a result of this entry:

Additional Paid-In Capital will be understated.

Lakeview Inc. uses the allowance method. During the year, Lakeview concludes that specific customers will never pay their account balances, which total $6,844. The entry to record the write-off of these accounts receivable would debit:

Allowance for Doubtful Accounts and credit Accounts Receivable for $6,844.

Wiggly Pet Store had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not correct?

An asset should be debited for $1,000 in November.

What will be the effect on the balance sheet of issuing shares of common stock in exchange for cash

An increase in common stock

Which of the following would be shown on B. Darin's horizontal analysis when calculating percentage changes from the prior year to the current year?

An increase in gross profit

Which of the following statements about the multistep income statement is not correct?

Any revenues and/expenses from activities other than the company's main business are peripheral results and are included in Income from Operations.

During April, the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount. the company uses accrual basis accounting. The cost of fertilizer recorded

As an asset, which will later be reduced as the fertilizer is used

Which of the following financial statements does not cover a period of time but rather reports amounts at a specific point in time?

Balance Sheet

Which account would be decreased with a credit?

Cash

Your company issues $50,000 of one-year, 10% bonds at face value. The journal entry to record this transaction will include a debit to:

Cash and a credit to Bonds Payable for $50,000.

Grossing Inc. receives $10,000 in advance this month for work to be performed next month. This month, the company should record a journal entry that includes a debit to:

Cash and a credit to unearned revenue for $10,000

Which of the following would be included in cash flows from financing activities?

Cash dividends paid

Central Company sold goods for $5,000 to Western Company on March 12 on credit. Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction by debiting Accounts Receivable for $5,000 and crediting Sales Revenue for $5,000. Western paid the balance due, less the discount, on March 21. Central's journal entry on March 21 would include a debit to:

Cash for $4,900.

Which of McGraw-Hill's intangible assets gives it the legal right to prevent you from borrowing a textbook from a friend and photocopying several chapters from the book?

Copyright

The book value of equipment is equal to which of the following?

Cost of equipment less the related accumulated depreciation

When inventory is sold, the cost of the inventory is removed from inventory and reported on a multistep income statement as:

Cost of goods sold

Which of the following kinds of inventory would be the best suited for the specific identification method?

Custom made yachts

E. Service Revenue earned but not yet collected at year-end, $1000

DEBIT: (A) Accounts Receivable, $1,000 CREDIT: (M) Service Revenue, $1,000

D. Depreciation expense for year, $1000

DEBIT: (D) Depreciation Expense, $1000 CREDIT: (B) Accumulated Depreciation, $1000

C. At year-end, interest on note payable not yet recorded or paid, $220

DEBIT: (F) Interest Expense, $220 CREDIT: (G) Interest Payable, $220

A. Accrued Wages, unrecorded and unpaid at year-end, $400

DEBIT: (K)Salaries and Wages expense, $400 CREDIt: (L) Salaries and Wages Payable, $400

F. **Balance in Supplies account, $400; supplies on hand at year-end, $150

DEBIT: (O) Supplies Expense, $250 CREDIT: (N) Supplies, $250

B. Service Revenue collected in advance, $600

DEBIt: (C) Cash, $600 CREDIT: (P) Unearned* Revenue, $600

Flynn Company uses a perpetual inventory system and had the following transactions during November: • November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30. • November 8 - Returned $800 of defective units and received full credit. • November 15 - Paid the amount due.

Debit Accounts Payable and credit Inventory for $800

Carrington Company uses the allowance method for recording bad debts. On February 1, Carrington wrote off a $3,500 customer account balance when it became clear that the particular customer would never pay. On May 29, Carrington unexpectedly received a check for $3,500 from the customer. On May 29, Carrington will:

Debit Accounts Receivable and credit Allowance for Doubtful Accounts for $3,500; debit Cash and credit Accounts Receivable for $3,500.

What journal entry must be prepared when the company is notified by the bank that a customer's check that had been deposited in the amount of $776 was returned NSF?

Debit Accounts Receivable and credit Cash in the amount of $776

On October 1, Robertson Company sold inventory in the amount of $5,800 to Alberta, Inc. with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses a periodic inventory system. The journal entry (or entries) prepared by Robertson on October 1 is(are):

Debit Accounts Receivable and credit Sales Revenue for $5,800.

At the end of the period, the manager of Philly Electronics estimated that $40,000 of its accounts receivable were uncollectible. If the Allowance for Doubtful Accounts has a credit balance of $11,200, which of the following sets forth the adjusting entry to record bad debts for the period? Assume the allowance method is used.

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $28,800

Travis County Bank agrees to lend Brickyard Corporation $200,000 on January 1. Brickyard signs a $200,000, 4%, 9-month note. Interest is due at maturity on September 30. The company's fiscal year ends June 30 and adjusting entries are recorded at that time only. Use the information above to answer the following question. On January 1, which of the following journal entries will be made by Brickyard to record the issuance of the note?

Debit Cash and credit Notes Payable for $200,000

On December 31, 2016, Far Niente Winery sold a wine press for $545,000; the wine press had originally cost $900,000. Cash was paid by the buyer of the press. Accumulated Depreciation on the press, updated to the date of disposal, was $450,000. What is the journal entry to record the disposal of the asset?

Debit Cash for $545,000, debit Accumulated Depreciation for $450,000, credit Gain on Disposal for $95,000, and credit Equipment for $900,000

A company declared a $0.80 per share cash dividend. The company has 100,000 shares authorized, 45,000 shares issued, and 42,000 shares of common stock outstanding. What is the journal entry to record the dividend declaration?

Debit Dividends and credit Dividends Payable for $33,600

Which of the following ratios is used to evaluate solvency

Debt-to-assets

When a company records depreciation it debits:

Depreciation Expense and credits a contra-asset account.

An error must have been made if which of the following accounts appears on the post-closing trial balance with a balance other than zero?

Depreciation expense

Which of the following is not an expense?

Dividends

Which financial statement reports the dividends during the current accounting period?

Dividends are reported on the Statement of Retained Earnings.

Which of the following is typically not a benefit of corporations over other organizational forms?

Easier to create with few legal fees

Which of the following accounts would be classified as a current liability on a classified balance sheet

Interest Payable

Why is inventory reported as a current asset

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date

Additions to equipment Operating, Investing, Financing Activity?

Investing

Cash received from disposal of equipment Operating, Investing, Financing Activity?

Investing***

Which of the following statements about issued and outstanding stock is correct?

Issued stock equals the sum of outstanding stock and treasury stock.

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance

Transactions are first entered in the

Journal

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?

Notes Payable (long term)

The main purpose of internal controls include all of the following except

Providing more favorable financial information

Which of the following is an operating activity?

Purchasing goods to be offered for sale

Which of the following is not one of the control components that are part of the framework used when analyzing an internal control system?

Reconciliations

Which of the following would not be reported as an asset on the balance sheet?

Retained Earnings

When will Accounts Receivable be involved in an adjusting entry?

Revenues are earned but have not been collected or recorder at the end of the period

A company incurred $5,000 in wages for employees for the year. Of these wages, $4,500 was paid by the end of the year. Which of the following statements is correct?

Salaries and Wages Payable on the ***balance sheet*** will be $500.

The services provided by banks help businesses to control cash by meeting all of the following control objectives except:

Segregate Duties

Beyer Company bought inventory from Sellar Company, FOB destination. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected to arrive until January 2. Which company should include these goods in its December 31 inventory?

Sellar

Which principle of internal control states that you should not make one employee responsible for all parts of a transaction?

Seperation of Duties

Which of the following would be deducted from the ending cash balance per books when performing a bank reconciliation?

Service charges

The Publish or Perish Printing Company paid a dividend to stockholders. This will be reported

Statement of retained earnings

Which of the following statements is correct? - Bonds Payable includes cash flows that may be categorized as both operating and financing. - The Accumulated Depreciation account includes cash flows that may be categorized as both operating and investing. - Inventory includes cash flows that may be categorized as both operating and investing. - Retained Earnings includes cash flows that may be categorized as both operating and investing

The Accumulated Depreciation account includes cash flows that may be categorized as both operating and investing.

A company has long-lived tangible assets with a cost of $3.5 million; its Accumulated Depreciation account has a balance of $1.1 million. Which of the following statements is correct?

The book value of long-lived assets is $2.4 million

A company issued 10-year, 8% bonds with a face value of $200,000. Interest is paid annually. The market rate on the issue date was 7.5% and the company received $206,948 in cash proceeds. Which of the following statements is correct?

The company must pay $200,000 at maturity plus $16,000 in interest each year for 10 years.

How will a company's current ratio be affected by the purchase of equipment for cash?

The current ratio will decrease because current assets decrease

During June, the Grass is Greener Company mows 100 lawns a week; the company was paid in advance during May by those customers. The company uses the accrual basis of accounting. How will these events affect the company's financial statements?

The income statement shows the effects of the transactions in June.

Which of the following actions would likely increase the Return on Equity (ROE)?

The purchase of treasury stock

During the current accounting period, revenue from credit sales is $671,000. The Accounts Receivable balance is $51,480 at the beginning of the period and $52,200 at the end of the period. Which of the following statements is correct?

The receivables turnover ratio is 12.9. (Receivables turnover ratio = Net sales revenue ÷ Average net receivables = $671,000 ÷ [($51,480 + $52,200) ÷ 2] = 12.9 Days to collect = 365 ÷ 12.9 = 28.3)

The Fastbank Motorcycle Service Company wins a $10 Million bid to provide the repair services for a recall on a popular brand of motorcycles. No money is exchanged. The repair services are expected to be performed early next year. How will these events affect the balance sheet prepared at the end of the year?

These events will not impact the balance sheet

The Fastbank Motorcycle Service Company wins a $10 million bid to provide the repair services for a recall on a popular brand of motorcycles. No money is exchanged. The repair services are expected to be performed early next year. How will these events affect the balance sheet prepared at the end of this year?

These events will not impact the balance sheet.

What is the primary goal of internal controls for cash payments?

To ensure that payments are made only for properly authorized transactions

Why was the Sarbanes-Oxley Act (SOX) enacted?

To improve the financial reporting and restore investor confidence

What is the purpose of the closing process?

To prepare the accounting records so they are ready to track results for the following year

The Noble Corp. installs $15,000 of equipment, paying $5,000 cash and promising to pay the remaining $10,000 in 6 months. What is the impact to this transaction on the accounting equation?

Total Assets are increased by $10,000

Debt-to-Asset

Total Liabilities/Total Assets

_________________ are of special importance because they are the only activities that enter the financial accounting system.

Transactions

Adjustments ensure that ____ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

If a company receives $20,000 cash from its customers on account and uses the cash to pay $20,000 to its suppliers on accounts, the net result is that:

assets would decrease by $20,000 and liabilities would decrease by $20,000.

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality

The purpose of internal controls includes all of the following except:

completely eliminating fraud.

Multistep income statements

contain more detail than just listing revenues and expenses

After performing a physical count of inventory at the end of the accounting period, it was discovered that the amount of inventory on hand was less than the accounting records reported. The entry to record this inventory shrinkage includes:

credit to Inventory

A company pays its workforce on Fridays for a five-day workweek ending on that day. The payroll for a week is $100,000. If the accounting year-end falls on a Tuesday, the adjusting journal entry to record this will include a

debit to Salaries and Wages Expense $40,000.

Farnworth Corp. pays income tax at an average rate of 30 percent. This year its revenue is $100,000 and its expenses are $70,000. The adjusting entry to record the income tax expense will:

decrease stockholders' equity by $9,000.

When the indirect method is used to determine net cash provided by (used in) operating activities, adding an increase in Interest Payable to net income eliminates the effect of recording expenses that:

decreased net income, but did not impact cash.

In arriving at cash from operating activities, adding a decrease in Supplies to net income eliminates the effect of recording adjusts net income for transactions that:

decreased net income, but has not been paid in cash this period.

Supplies should be ______ and Supplies Expense should be ______ for supplies used up during the period.

decreased; increased

Under 100

discount

A debt-to-assets ratio of 0.50 indicates that the company has:

equal amounts of liabilities and stockholders' equity.

When using Accrual based accounting, you recognize the revenue and expense NOT when cash is _____________ but when it is _____________

exchanged; earned

The adjusting entry to record the estimated bad debts in the period credit sales occur includes a debit to an:

expense account and a credit to a contra-asset account.

The fraud triangle contains three elements that must exist for accounting fraud to occur. The elements are:

incentive, opportunity, and rationalization.

After the adjustments have been completed, the adjusted balance in the Interest Payable account represents:

interest that has accrued, but has not been paid, at the end of the period

When a company has inventory which is subject to gradually increasing prices, the use of the LIFO method of valuing inventory will result in the:

lowest amount of assets and the lowest amount of net income.

If net income is rising, but net sales revenue and the gross profit percentage remain the same, then:

operating expenses are falling.

To perform a vertical analysis of an income statement, you would divide each line item on the statement by:

sales

If your company factors its accounts receivable, it:

sells outstanding receivables to another company

The income statement reports

the amount of revenues earned and expenses incurred during the period.

Expenses are:

the cost of doing business that are necessary to earn revenue

Expenses are

the costs of doing business that are necessary to earn revenue.

The Rainbow House Painting Company has been contracted to paint a house for $3,600. One-half of that amount will be paid up front; the rest will be paid upon satisfactory completion. Rainbow should recognize the revenue when:

the work is complete

Assume the Hart Company uses the allowance method. When the company writes off a customer's account balance that has no chance of collection:

total assets do not change.

If supplies are purchased for cash

total assets will remain the same.