Intro Financial Final Exam

Statement Presentation: Depreciation

(a) Accumulated Depreciation is a contra asset account (credit). (b) Appears just after the account it offsets (Equipment) on the balance sheet. (c) Book value is the difference between the cost of any depreciable asset and its accumulated depreciation.

Depreciation

(a) Buildings, equipment, and motor vehicles (assets that provide service for many years) are recorded as assets, rather than an expense, on the date acquired. (b) Depreciation is the process of allocating the cost of an asset to expense over its useful life. (c) Depreciation does not attempt to report the actual change in the value of the asset.

Prepaid expenses

(a) Costs that expire either with the passage of time or through use. (b) Adjusting entries (1) to record the expenses that apply to the current accounting period, and (2) to show the unexpired costs in the asset accounts. (c) Before adjustments: assets are overstated and expenses are understated (d) Adjusting entry: debit expenses, credit assets or contra account

Double-entry system

(a) Each transaction must affect two or more accounts to keep the basic accounting equation in balance. (b) Recording done by debiting at least one account and crediting another. (c) DEBITS must equal CREDITS.

Adjusting Entries

(a) Ensure that the revenue recognition and expense recognition principles are followed. (b) Necessary because the trial balance may not contain up-to-date and complete data. (c) Required every time a company prepares financial statements. (d) Will include one income statement account and one balance sheet account.

Preparing the Adjusted Trial Balance

(a) Prepared after all adjusting entries are journalized and posted. (b) Purpose is to prove the equality of debit balances and credit balances in the ledger. (c) Is the primary basis for the preparation of financial statements.

Unearned Revenues

(a) Receipt of cash that is recorded as a liability because the service has not been performed. Ex. rent, airline tickets, magazine subscriptions, customer deposits. (b) Adjusting entry is made to record the revenue for services performed during the period and to show the liability that remains at the end of the accounting period. (c) Results in a decrease (debit) to a liability account and an increase (credit) to a revenue account. (d) Before adjustments: assets are understated and expenses are overstated (e) Adjusting entry: debit liabilities, credit revenues

Cash-Basis Accounting

(a) Revenues are recorded when cash is received. (b) Expenses are recorded when cash is paid. (c) Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).

Each transaction must be analyzed in terms of its effect on

(a) The three components of the basic accounting equation (b) Specific types (kinds) of items within each component

The Historical Cost Principle is also called ______, and it dictates that ______. This happen when ______ and also ____. Cost is ______, whereas market-value is _____. Trade-offs between _____ and ______.

(cost principle) companies record assets at their cost. purchased and also over the time the asset is held (e.g. land). ]easily verified, whereas market value is often subjective. relevance and faithful representation.

Define Liabilities, who are they owed to, and give some examples

1. Claims against assets (debts and obligations). 2. Creditors 3. Accounts payable, Notes payable, salaries and wages payable, etc.

How does the journal contribute to the recording process?

1. Discloses the complete effects of a transaction. 2. Provides a chronological record of transactions. 3. Helps to prevent or locate errors because the debit and credit amounts can be easily compared.

Stockholders Equity is ____ claim on total assets, referred to as _______. It's made up of ______ and ______.

1. Ownership claim on total assets. 2. Referred to as residual equity (Total Assets-Total Liabilities). 3. Common stock (Investments)and retained earnings (Revenues-Expenses-Dividends).

Corporation

1. Ownership divided into shares of stock 2. Separate legal entity organized under state corporation law 3. Limited liability

Prepayments often occur in regard to:

1. insurance 2. supplies 3. advertising 4. rent 5. equipment 6. buildings

A trial balance will not balance if: (a) a correct journal entry is posted twice. (b) the purchase of supplies on account is debited to Supplies and credited to Cash. (c) a $100 cash drawing by the owner is debited to Owner's Drawing for $1,000 and credited to Cash for $100. (d) a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

A $100 cash drawing by the owner is debited to Owner's Drawing for $1,000 and credited to Cash for $100.

Give examples of business documents and their purpose

A sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.

What are examples and accrual adjusting entries?

Accrued revenues(revenues for services performed but not yet received in cash or recorded) and accrued expenses(expenses incurred but not yet paid in cash or recorded)

Which of the following is not a step in the accounting process? a. identification b. recording c. verification d. communication

Communication

What is the purpose of earning revenues?

To benefit stockholders

The primary accounting standard-setting body in the United States is the Financial Accounting Standards Board (FASB).

True

Transactions are ____, they may be ______ or ______, however not _______ represent transactions. Each transaction has a ____ effect on the accounting equation.

a business's economic events recorded by accountants 1. May be external or internal. 2. Not all activities represent transactions. 3. Each transaction has a dual effect on the accounting equation.

Chart of Accounts contain ____ and _____, they are arranged in sequence in which ________. The number of accounts _______ from company to company. Helps to ______. Its gaps include________

accounts and account numbers, they are presented in the financial statements changes identify account location future expansion

The Fair value principle states that _______. Only used in situations where assets are _______, such as _______.

assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability). actively traded, such as investment securities

The ending balance in retained earnings is needed in preparing the

balance sheet

Most large companies must prepare: (a) just monthly statements (b) just quarterly statements (c) neither monthly or quarterly statements (d) both monthly and quarterly statements

both monthly and quarterly statements

A business organized as a separate legal entity under state law having ownership divided into shares of stock is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship.

corporation

An account will have a credit balance if

credits exceed debits

An account will have a debit balance if

debits exceeds credits

Combining the activities of Kellogg and General Mills would violate the: a. cost principle. b. economic entity assumption. d. monetary unit assumption. e. ethics principle.

economic entity assumption

The two sides of the equation must always be

equal

Debits: (a) increase both assets and liabilities. (b)decrease both assets and liabilities. (c) increase assets and decrease liabilities. (d) decrease assets and increase liabilities.

increase assets and decrease liabilities.

Economic Entity Assumption

requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

Net income will result during a time period when

revenues exceed expenses

Common sources of expenses

salaries expense, rent expense, utilities expense, tax expense

Common sources of revenue

sales, fees, services, commissions, interest, dividends, royalties, and rent

For liabilities, debits

should not exceed liabilities

Effective financial reporting depends on...

sound ethical behavior

Expenses are

the cost of assets consumed or services used in the process of earning revenue

What is the purpose of preparing the post-closing trial balance?

To prove the equality of the permanent account balances carried forward into the next accounting period

How do you determine the Book value per share

Total stockholders' equity/number of common shares outstanding

Complete the Adjusted Trial Balance Columns

Total the adjusted trial balance and check for equality

Preparing Adjusting Entries from a Worksheet

(a) Adjusting entries are prepared from the adjustments columns of the worksheet. (b) Journalizing and posting of adjusting entries follows the preparation of financial statements when a worksheet is used.

What accounts are PERMANENT accounts?

(a) All asset accounts (b) All liability accounts (c) Stockholder's Equity

What accounts are TEMPORARY accounts?

(a) All revenue accounts (b) All expense accounts (c) Dividends

Characteristics of Adjusting Entries

(a) Generally the same as adjusting entries (b) One additional adjustment to make the records agree with the actual inventory on hand (c) Involves adjusting Inventory and Cost of Goods Sold

Prepare a trial balance on the worksheet

(a) Include all accounts with balances (b) Trial balance amounts come directly from ledger accounts

The Corporate Form of Organization

An entity separate and disinct

Define Promissory note

a written promise to pay a specified amount of money on demand or at a definite time

Miller Company purchased treasury stock with a cost of $15,000 during 2011. During the year, the company paid dividends of $20,000 and issued bonds payable for proceeds of $866,000. Cash flows from financing activities for 2011 total a) $831,000 net cash inflow. b) $846,000 net cash inflow. c) $866,000 net cash outflow. d) $861,000 net cash inflow.

a) $831,000 net cash inflow.

First National Bank agrees to lend $100,000 on September 1, 2015, if Cole Williams Co. signs a $100,000, 12%, four-month note maturing on January 1. (a) Prepare the entry on September 1st. (b) Prepare the adjusting entry on December 31st, assuming monthly adjusting entries have not been made. (c) Prepare the entry required on January 1, 2016, the maturity date.

a) Debit Cash 100,000 Credit Notes Payable 100,000 b) Debit Interest Expense 4,000 Credit Interest Payable 4,000 100,000*.12*(4/12)=4,000 c) Debit Notes Payable 100,000 Debit Interest Payable 4,000 Credit Cash 104,000

Superior University sells 10,000 season football tickets at $50 each for its five-game home schedule. (a) The entry for the sale of season tickets is: (b) As each game is completed, Superior records the recognition of revenue with the following entry.

a) Debit Cash 500,000 Credit Unearned Ticket Rev 500,000 b) Debit Unearned Ticket Revenue 100,000 Credit Ticket Revenue 100,000

Hanna Company borrows $82,600 on July 1 from the bank by signing a $82,600, 10%, one-year note payable. (a) Prepare the journal entry to record the proceeds of the note. (b) Prepare the journal entry to record accrued interest at December 31, assuming adjusting entries are made only at the end of the year.

a) Debit Cash 82,600 Credit Notes Payable 82,600 b) Debit Interest Expense 4,130 Credit Interest Payable 4,130

Whats the difference between convertible and callable bonds?

Convertible: can be converted into common stock at the bondholder's option. Callable: can be retired by the issuing company prior to maturity.

Separate legal entity

Corporation acts under its own name rather than in the name of its stockholders

Ability to acquire capital

Corporation can obtain capital through the issuance of stock

Additional taxes

Corporations pay income taxes as a separate legal entity and in addition, stockholders pay taxes on cash dividends.

What is the weighted average unit cost equation?

Cost of goods available for sale/Total units available for sale

What are freight costs and how is it determined who pays them?

Costs to transport goods the terms of sale states whether the buyer or seller pays

What is a purchase discount and its advantages?

Credit terms may permit buyer to claim a cash discount for prompt payment. The advantages are the purchaser saves money and the seller shortens the operating cycle by converting the accounts receivable into cash earlier.

Current Assets/Current Liabilities=

Current Ratio

What is accounts receivable valued as?

Current asset

Regardless of classification, companies report all inventories under ______ on the ________.

Current assets balance sheet

Which of the following is not a long-term liability? (a) Bonds payable (b) Current maturities of long-term obligations (c) Long-term notes payable (d) Mortgages payable

Current maturities of long-term obligations

Market=

Current replacement cost

To record the returned goods received from Sauk Stereo on May 8, PW Audio Supply records the $300 sales return as follows. (periodic)

Debit Sales Returns and Allowances 30 Credit Accounts Receivables 300

Medland Corporation declares a 10% stock dividend on its 50,000 shares of $10 par value common stock. The current fair market value of its stock is $15 per share. Record the entry on the declaration date: Record the journal entry when Medland issues the dividend shares.

Debit Stock Dividends (50,000 x 10% x $15) 75,000 Credit Common Stock Dividends Distributable 50,000 Credit Paid-in Capital in Excess of Par 25,000 Debit Common Stock Dividends Distributable 50,000 Credit Common Stock 50,000

On July 1, 2015, Sanchez Corporation acquires 1,000 shares (10% ownership) of Beal Corporation common stock. Sanchez pays $40 per share. The entry for the purchase is:

Debit Stock Investments 40,000 Credit Cash 40,000

On February 1, 2015, Mead acquires 4,000 shares of its stock at $8 per share. Prepare the journal entry

Debit Treasury Stock 32,000 Credit Cash 32,000

Difference between honor and dishonor of notes receivable

Honor: maker pays it in full dishonor: not paid in full at maturity and no longer negotiable

Consolidated statements indicate the ____ and ______ of the companies under common control.

magnitude scope of operations

Define fraud

Dishonest act by an employee that results in personal benefit to the employee at a cost to the employer

Which cost flow methods are acceptable for use?

Each are acceptable for use

Amy is the proprietor (owner) of Amy's, a retailer of golf apparel. When recording the financial transactions of Amy's, Amy does not record an entry for a car she purchased for personal use. Amy took out a personal loan to pay for the car. What accounting concept guides Amy's behavior in this situation?

Economic Entity Assumption

Define journalizing

Entering transaction data in a journal

Patents are

Exclusive right to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant

What kind of account is Cost of Goods Sold?

Expense

Extend Amounts to financial statement columns

Extend trial balance amounts to appropriate financial statement columns

The cost flow method that often parallels the actual physical flow of merchandise is the:

FIFO method

If the Bond Contractual Interest Rate 10% and is issued when the market interest rate is 10%, the bonds sell at...

Face Value

What is the Interest formula

Face value of note*annual interest rate*time in terms of one year = interest

Faithful representation

Faithful representation means that information accurately depicts what really happened. To provide a faithful representation, information must be complete (nothing important has been omitted), neutral (is not biased toward one position or another), and free from error.

Employer payroll taxes do not include: (a) Federal unemployment taxes. (b) State unemployment taxes. (c) Federal income taxes. (d) FICA taxes.

Federal income taxes

Classify each of these transactions by type of cash flow activity. 1. Issued 100,000 shares of $5 par value common stock for $800,000 cash. 2. Borrowed $200,000 from Castle Bank, signing a 5-year note bearing 8% interest. 3. Purchased two semi-trailer trucks for $170,000 cash. 4. Paid employees $12,000 for salaries and wages. 5. Collected $20,000 cash for services performed.

Financing Financing Investing Operating Operating

What does free cash flow describe and what is the equation?

Free cash flow describes the cash remaining from operations after adjustment for capital expenditures and dividends. free cash flow-net cash provided by operating activities-capital expenditures-cash dividends

What does trading mean? Securities are held by companies with intention of ________. They are reported at _______, and changes are reported from _____ as part of _______. Unrealized gain (loss) is reported under _______ on the _______.

Frequent buying and selling selling in a short period fair value cost net income Other revenues and gains (other expenses and losses) income statement

What are consigned goods and give some examples?

Goods held for sale by one party, when ownership of the goods is retained by another party EX used cars, art work, books

Why might a purchaser be dissatisfied?

Goods may be damaged or defective, of inferior quality, or do not meet specifications.

What a large stock dividend?

Greater than 20-25% of issued stock, recorded at par value

What is lower when companies use LIFO in a period of inflation?

Income Taxes(because of lower net income)

Which financial statements are prepared directly from the adjusted trial balance?

Income statement Retained earnings statement Balance sheet

Gain on sale of investments in stock goes on which financial statement under what category?

Income statement other revenues and gains

Net income is shown on a worksheet in the: (a) income statement debit column only. (b) balance sheet debit column only. (c) income statement credit column and balance sheet debit column. (d) income statement debit column and balance sheet credit column.

Income statement debit column and balance sheet credit column.

Companies prepare what four financial statements?

Income statement, retained earnings statement, balance sheet, and statement of cash flows

ABC Company accepted a national credit card for a $5,000 purchase. The cost of the goods sold is $4,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

Increase by $850

What effect does stock dividends have?

Increases Paid-in Capital Increases Outstanding Shares Decreases Decreases Retained Earnings No effect on total stockholders equity

What method do companies prefer using when recording the operating activities section of the statement of cash flows and why?

Indirect- 1. easier/cheaper 2. focuses on differences between net income and net cash flow from operating activities

Patents and copyrights are:

Intangible assets

How does a merchandising company classify inventory?

Inventory

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting

Inventory

What is higher what companies use FIFO in a period of inflation?

Inventory and net income

Expense Recognition Principle

Match expenses with revenues in the period when the company makes efforts to generate those revenues. "Let the expenses follow the revenues."

What is matched when one estimates the allowance as a percentage of receivables? What is the emphasis on?

Matches accounts receivable with allowance for doubtful accounts

What is matched when one estimates the allowance as a percentage of sales? What is the emphasis on?

Matches sales and bad debts expense emphasis on income statement relationships

What account is used for correcting prior period mistakes?

Prior period adjustment-what its adjusting for

______ is net income that a company retains in the business

Retained earnings

Define purchase return

Return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash.

Realized and Unrealized Gain or Loss goes under what section of the income statement?

The Non-operating activities section of the Income Statement under either other revenue and gains or other expenses and losses

Debit Treasury stock for the __________

price paid to reacquire the shares

Distribution of cash or stock to stockholders is on a ________ basis.

pro rata(proportional to ownership)

Monetary Unit Assumption

requires that companies include in the accounting records only transaction data that can be expressed in terms of money.

Interest payments are usually made...

semiannually

Define posting

the process of transferring amounts from the journal to the ledger accounts

The only cost and intangible asset has is

the purchase price(other costs are expensed)

market interest rate

the rate investors demand for loaning funds

FOB destination freight costs are considered...

an operating expense

Dividends

are the distribution of cash or other assets to stockholders

Charters are often referred to as the

articles of incorporation

When an investor has between 50-100% ownership, _____ usually exists, and the investment is value using _______.

control Cost Method or Equity Method (investment eliminated in Consolidation)

Understating ending inventory with overstate

cost of goods sold

Define Notes Receivable

Written promise for amounts to be received. Normally requires te collection of interest

Companies report a loss on disposal in the _______ section of the income statement.

"Other expenses and losses"

How are the credit terms of 2/10, n/30 read?

"Two-ten, net thirty." 2% cash discount if payment is made within 10 days. Otherwise the net payment is due within 30 days

What's the difference between term and serial bonds?

Term: mature at a single specified future date Serial: mature in installments

Bond certificates typically have a ________ face value.

$1,000

Joe's Copy Shop bought equipment for $60,000 on January 1, 2011. Joe estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2012, Joe decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2012?

$10,000

Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

$11,760

A company has net credit sales of $700,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment, its balance after adjustment will be a credit of:

$15,000

Barb's Florists purchased a small delivery truck on January 1, 2015. Cost $13,000 Expected salvage value $1,000 Estimated useful life in years 5 Estimated useful life in miles 100,000 Compute depreciation using the following. Straight-Line. Units-of-Activity. Declining Balance.

(a) 13,000-1,000=12,000/5= $2,4000 (b) 12,000/100,000=$0.12* 15,000=$1,800 (c) 13,000*.4=$5,200

In 2012, the Dugan Co. had net credit sales of $375,000. On January 1, 2012 Allowance for Doubtful Accounts had a credit balance of $8,000. During 2012, $15,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $100,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2012?

$17,000

Bryce Company has $500,000 of bonds outstanding. The unamortized premium is $7,200. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

$2,200 gain

Bledel Company had accounts receivable of $126,700 on January 1, 2012. The only transactions that affected accounts receivable during 2012 were net credit sales of $1,074,100, cash collections of $936,800, and accounts written off of $29,600. 1) Compute the ending balance of accounts receivable. _____ 2) Compute the accounts receivable turnover ratio for 2012. _____ times 3) Compute the average collection period in days. _____ days

$234.400 5.95 61.3

Net sales for the month are $800,000, and bad debts are expected to be 1.5% of net sales. The company uses the percentage-of-sales basis. If the Allowance for Doubtful Accounts has a credit balance of $15,000 before adjustment, what is the balance after adjustment?

$27,000

Mehrzad Company showed the following balances at the end of its first year: Cash $ 3,000 Prepaid insurance 4,700 Accounts receivable 3,500 Accounts payable 2,800 Notes payable 4,200 Common stock 1,400 Dividends 700 Revenues 22,000 Expenses 17,500 What did Mehrzad Company show as total credits on its trial balance? A. $31,100 B. $25,700 C. $35,100 D. $30,400

$30,400

Neeley Company incurs the following expenditures in purchasing a truck: cash price $30,628, accident insurance $2,686, sales taxes $2,305, motor vehicle license $124, and painting and lettering $369. What is the cost of the truck

$33,302

Putnam Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively. An aging of accounts receivable indicated that $108,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is:

$38,000

During 2012, Hitchcock Inc. had sales on account of $132,000, cash sales of $54,000, and collections on account of $84,000. In addition, they collected $1,450 which had been written off as uncollectible in 2011. As a result of these transactions, the balance in the accounts receivable is:

$46,550

Wendy Construction issues a five-year, interest-bearing $25,000 note on January 1, 2014. This note specifies that each January 1, starting January 1, 2015, Wendy should pay $5,000 of the note. When the company prepares financial statements on December 31, 2014. 1. What amount should be reported as a current liability? 2. What amount should be reported as a long-term liability?

$5,000 $20,000

Lane Coal Company invests $5 million in a mine estimated to have 10 million tons of coal and no salvage value. In the first year, Lane extracts and sells 800,000 tons of coal. Lane computes the depletion expense and prepares the journal entry as follows

$5,000,000 ÷ 10,000,000 = $0.50 depletion cost per ton $0.50 x 800,000 = $400,000 annual depletion expense debit Depletion Expense 400,000 Credit Accum Dep 400,000

On February 1, Platt Company received a $5,000, 10%, four-month note receivable. The cash to be received by Platt Company when the note becomes due is:

$5,167

Eckman Company purchased equipment for $40,000 on January 1, 2010, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 5-year life and a $2,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2012 will be:

$5,760

Colson Inc. converts $600,000 of bonds sold at face value into 10,000 shares of common stock, par value $1. Both the bonds and the stock have a market value of $760,000. What amount should be credited to Paid-in Capital in Excess of Par as a result of the conversion?

$590,000

A retail store did not ring up sales tax separately. If the sales tax rate is 5% and the total receipts amounted to $126,000, what is the amount of the sales taxes owed to the taxing agency?

$6,300

Equipment was purchased for $800,000 on January 1, 2010. It has an estimated useful life of 8 years and a residual value of $120,000. Depreciation is being computed using the straight-line method. What amount should be shown for the Equipment, net of accumulated depreciation, in the company's 2011 balance sheet?

$630,000

Common stock, $5 par value; 1,100,000 shares issued and 1,000,000 shares outstanding 5,500,000 Additional paid-in capital 1,400,000 Retained Earnings 1,500,000 Treasury Stock (100,000 shares) (700,000) Total Stockholders' Equity 7,700,000 The book value per share of common stock is $8.40 $7.00 $7.70 $7.20

$7.70

Scientific Leasing has 5,000 shares of 7%, $100 par value, cumulative preferred stock outstanding. Each $100 share pays a $7 dividend (.07 x $100). The annual dividend is $35,000 (5,000 x $7 per share). If dividends are two years in arrears, preferred stockholders are entitled to receive the following dividends in the current year.$70,

$70,000 (dividends in arrears)+35,000(current year dividends)=$105,000

A coal company invests $16 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year?

$800,000

If Delta Robotics has a balance of $800,000 in common stock and $130,000 in retained earnings at the end of its first year, its stockholders' equity section is...

$930,000

Kellogg Company reported total liabilities of $8,925 million, total assets of $11,200 million, interest expense of $295 million, income taxes of $476 million, and net income of $1,208 million. What is the times interest earned?

(Net income+interest expense+income tax expense)/interest expense= times interest earned (1,208+295+476)/Interest Expense=6.71 times

Characteristics of Sales Returns and Allowances

(a) "Flip-side" of purchase returns and allowances (b) Contra-revenue account to sales revenue (debit) (c) SALES DO NOT GET REDUCED 1. would obscure importance of sales returns as a percentage of sales 2. could distort comparisons between sales in different periods

Enter adjustments in the Adjustments columns

(a) Add additional accounts as needed (b) Enter adjustment amounts, total adjustments columns, and check for equality

Characteristics of the Average Cost costing method

(a) Allocates cost of goods available for sale on the basis of weighted-average unit cost incurred. (b) Applies weighted-average unit cost to the units on hand to determine cost of the ending inventory. (c) Assumes goods are similar in nature.

Characteristics of the Sarbanes-Oxley Act

(a) Applies to publicly traded U.S. corporations. (b) Required to maintain a system of internal control. (c) Corporate executives and boards of directors must ensure that these controls are reliable and effective. (d) Independent outside auditors must attest to the adequacy of the internal control system. (e) SOX created the Public Company Accounting Oversight Board (PCAOB)

Current Assets

(a) Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer. (b) Operating cycle is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers. (c) Important in assessing the company's short term debt paying ability (d) Usually listed in the order they expect to convert them into cash.

Standard Classifications

(a) Assets: 1. current assets 2. long-term investments 3. property, plant, and equipment 4. intangible assets (b) Liabilities: 1. current liabilities 2. long-term liabilities 3. stockholder's equity

Susan Elbe is preparing a worksheet. Explain to Susan how she should extend the following adjusted trial balance accounts to the financial statement columns of the worksheet. (a) Cash (b) Accumulated Depreciation (c) Accounts Payable (d) Dividends (e) Service Revenue (f) Salaries and Wages expense

(a) Balance (debit) (b) Balance (credit) (c) Balance (credit) (d) Balance (debit) (e) Income (credit) (f) Income (debit)

Characteristics of Human resource controls

(a) Bond employees who handle cash: insurance protection against employee theft. (b) Rotate employees' duties and require vacations. (c) Conduct background checks.

Characteristics of Documentation Procedures

(a) Companies should use prenumbered documents, and all documents should be accounted for. (b) Employees should promptly forward source documents for accounting entries to the accounting department.

Enhancing qualities of information

(a) Comparability: across companies (b) Consistency: same accounting principles over time (c) Verifiability: ability to prove it's free from error (d) Timeliness (e) Understandability: clear and concise way

Characteristics of Establishment of Responsibility

(a) Control is most effective when only one person is responsible for a given task. (b) Establishing responsibility often requires limiting access only to authorized personnel, and then identifying those personnel.

Characteristics of the First-in, First-out (FIFO) costing method

(a) Costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold. (b) Often parallels actual physical flow of merchandise. (c) Generally good business practice to sell oldest units first. (d) Companies determine the cost of the ending inventory by taking the unit cost of the most recent purchase and working backward until all units of inventory have been costed.

Characteristics of the Last-in, First-out (LIFO) costing method

(a) Costs of the latest goods purchased are the first to be recognized in determining cost of goods sold. (b) Seldom coincides with actual physical flow of merchandise. (c) Exceptions include goods stored in piles, such as coal or hay. (d) To calculate ending inventory, take the unit cost of the earliest goods purchased and move forward until all units of ending inventory are costed

Assume that Hydro-Slide Inc. issues 1,000 shares of $1 par value common stock. Prepare Hydro-Slide's journal entry if (a) 1,000 shares are issued for $1 per share, and (b) 1,000 shares are issued for $5 per share.

(a) Debit Cash 1,000 Credit Common Stock 1,000 (b) Debit Cash 5,000 Credit Common Stock 1,000 Paid in capital in Excess of Par 4,000

Characteristics of Segregation of Duties

(a) Different individuals should be responsible for related activities. (b) The responsibility for record-keeping for an asset should be separate from the physical custody of that asset.

Characteristics of a Periodic Inventory System

(a) Do not keep detailed records of the goods on hand. (b) A physical inventory count is made to determine the cost of goods on hand.

What are common causes of inventory errors?

(a) Failure to count or price inventory correctly. (b) Not properly recognizing the transfer of legal title to goods in transit.

What does FOB stand for?

(a) Free on Board (b) If goods are FOB shipping point, the buyer pays freight and ownership of the goods transfers from seller to buyer when the shipping company receives the goods (c) If goods are FOB destination, the seller pays freight and ownership of the goods transfers from seller to buyer when the buyer receives the goods

Preparing Financial Statements from a Worksheet

(a) Income statement is prepared from the income statement columns. (b) Balance sheet and retained earnings statement are prepared from the balance sheet columns. (c) Companies can prepare financial statements before they journalize and post adjusting entries.

Long-Term Investments

(a) Investments in stocks and bonds of other companies. (b) Investments in long-term assets such as land or buildings that is not currently being used in operating activities. (c) Long-term notes receivable.

Reversing Entries

(a) It is often helpful to reverse some of the adjusting entries before recording the regular transactions of the next period. (b) Companies make a reversing entry at the beginning of the next accounting period. (c) Each reversing entry is the exact opposite of the adjusting entry made in the previous period. (d) The use of reversing entries does not change the amounts reported in the financial statements.

Property, Plant and Equipment

(a) Long useful lives. (b) Currently used in operations. (c) Depreciation - allocating the cost of assets to a number of years. (d) Accumulated depreciation - total amount of depreciation expensed thus far in the asset's life. (e) Assets reported at cost less acc. dep (f) Property, plant and equipment is sometimes called fixed assets or plant assets

Characteristics of the Purchasing Inventory

(a) Made using cash or credit (on account). (b) Normally record when goods are received from the seller. (c) Purchase invoice should support each credit purchase.

Characteristics of a Perpetual Inventory system

(a) Maintain detailed records of the cost of each inventory purchase and sale. (b) Records continuously show inventory that should be on hand for every item. (c) Company determines cost of goods sold each time a sale occurs. (d) For control purposes, companies take a physic inventory count, even though it is unnecessary

Long-term liabilities

(a) Obligations a company expects to pay after one year (b) Examples include long-term debt, deferred income taxes, other non-current liabilities

Current liabilities

(a) Obligations the company is to pay within the coming year or its operating cycle, whichever is longer. (b) Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude. (c) Common examples are accounts payable, salaries and wages payable, notes payable, interest payable, income taxes payable current maturities of long-term obligations. (d) Liquidity - ability to pay obligations expected to be due within the next year.

Characteristics of sales discounts

(a) Offered to customers for the prompt payment of the balance (b) "Flip-side" of purchase discount (c) Contra-revenue account (debit) to sales revenue

The Classified Balance Sheet

(a) Presents a snapshot at a point in time. (b) To improve understanding, companies group similar assets and similar liabilities together.

Stockholder's (Owner's) Equity

(a) Proprietorship - one capital account. (b) Partnership - capital account for each partner. (c) Corporation - Common Stock and Retained Earnings.

What are Goods in Transit?

(a) Purchases goods not yet received (b) Sold goods not yet delivered

What are the limitations of Internal control?

(a) Reasonable assurance (b) Costs should not exceed benefit (e.g. searching every customer leaving the shop). (c) Human element: carelessness, negligence, fatigue, collusion. (d) Size of the business: small companies may not be able to implement SoD measure or IA.

How to Determine Cost of Goods Sold Under a Periodic Inventory System

(a) Record revenues when sales are made (b) Do not record cost of goods sold on the date of sale (c) Physical inventory count determines the cost of merchandise on hand and cost of goods sold during the period (d) Record purchases in purchases account (e) Purchase returns and allowances, purchase discounts, and freight costs are recorded in separate accounts

Characteristics of Independent Internal Verification

(a) Records periodically verified by an employee who is independent. (b) Discrepancies reported to management. e.g. reconciliation of a company's cash balance per books with the cash balance per bank

Characteristics of a Multiple-Step Income Statement

(a) Shows several steps in determining net income (b) Two steps relate to principal operating activities (c) Distinguishes between operating and non-operating activities (d) Highlights intermediate components

Characteristics of a Single-Step Income Statement

(a) Subtract total expenses fro total revenues (b) Used when a company does not realize any profit until total revenues exceed total profits and because the format is simpler and easier to read

Promissory notes may be used

1. when individuals and companies lend or borrow money 2. when amount of transaction and credit period exceed normal limits 3. in settlement of accounts receivable

Advantages of the Perpetual Inventory System

(a) Traditionally used for merchandise with high unit values. (b) Shows the quantity and cost of the inventory that should be on hand at any time. (c) Provides better control over inventories than a periodic system. (d) However, it requires additional clerical work and additional cost to maintain inventory records.

Correcting Entries

(a) Unnecessary if accounting records are free of errors. (b) Made whenever an error is discovered. (c) Must be posted before closing entries. Instead of preparing a correcting entry, it is possible to reverse the incorrect entry and then prepare the correct entry.

The dividends account is closed directly to _________ and not to ___________ because dividends are not ___________.

(a) retained earnings (b) income summary (c) an expense

When do companies often take inventory?

(a) when a business is closed or business is slow (b) at the end of the accounting period

Example of conservatism

(best alternative that is least likely to overestimate assets & net income)

In the stockholders' equity section, Common Stock Dividends Distributable is reported as a(n): (a) deduction from total paid-in capital and retained earnings. (b) current liability. (c) deduction from retained earnings. (d) addition to capital stock.

(d) addition to capital stock.

Revising Periodic Depreciation

-Accounted for in the period of change and future periods (Change in Estimate) -No change in depreciation reported for prior years -Not considered an error

What are the disadvantages of corporations over proprietorships and partnerships?

-Corporate management -Government regulations -Additional taxes

_______ is reported on the income statement. ________ is reported on the balance sheet as a ___________.

-Depreciation expense -Accumulated depreciation -deduction from plant assets

What are the 2 methods of accounting for uncollectible accounts?

-Direct Write-Off -Allowance Method

What are the cash receipt controls?

-Establishment of Responsibility: Only designated personnel are authorized to handle cash -Documentation Procedures: Use remittance advice, cash register tapes or computer records, and deposit slips -Segregation of Duties: Different individuals receive cash, record cash receipts, and hold the cash -Human Resource Controls: Bond personnel who handle cash; require employees to take vacations; conduct background checks -Independent Internal Verification: Supervisors count cash daily; assistance treasurer compares total receipts to bank deposits daily -Physical Controls: Store cash in safes and bank vaults; limit access to storage areas; use cash registers

How are natural resources presented in the balance sheet?

-Extracted resources that have not been sold are reported as inventory in the current assets section. -Many companies do not use an accumulated depletion account.

Characteristics of a Factor

-Finance company or bank -Buys receivables from businesses and then collects the payments directly from the customers -Typically charges a commission to the company that is selling the receivables -Fee ranges from 1-3% of the receivables purchased

How does one present receivables on the balance sheet?

-Identify in the balance sheet or in the notes each major type of receivable -Report short-term receivables as current assets -Report both gross amount of receivables and allowance for doubtful account

Characteristics of the Allowance Method

-Losses are estimated -Better matching -Receivable stated at cash realizable value -Required by GAAP

Years ago, par value determine ______ per share that a company must retain in the business for the ______. Today many state do not require par value as it could be ______. __________ is fairly common today. In many states, the board of directors assigns _____ to no-par shares.

-legal capital -protection of corporate creditors -immaterial -No-par value stock -stated value

Research and Development costs are expenditures that _________________.

-may lead to patents, copyrights, new processes, and new products.

Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2015 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time. (a) What is the journal entry to correct the prior years' depreciation? (b) Calculate the depreciation expense for 2015.

-NO JOURNAL ENTRY IS NECESSARY -$510,000(equipment cost)-10,000(salvage value)= 500,000(depreciable base) /10 years(useful life)= 50,000(annual depreciation)* 7 years=$350,000 510,000-350,000=160,000(net book value) 160,000(net book value)-5,000(new salvage value)= 155,000(new depreciable base)/8 years(useful life remaining)=$19,375(annual dep)

_____ is received in the retirement of plant assets. __________ for the original cost in the asset. ___________ for the full amount of depreciation taken over the life of the asset. Record....

-No cash -Decrease(credit) the asset -Decrease(debit) Accumulated Depreciation -any difference as gain or loss on disposal

Common types of intangibles

-Patents -Copyrights -Goodwill -Trademarks and Trade Names -Franchises

Current Maturities of Long-Term Debt are a _________ that come due ___________, _____ adjusting entry required.

-Portion of long-term debt -in the current year -no

Characteristics of Credit Card Sales

-Recorded the same as cash sales -Retailer pays card issuer a fee of 2 to 6% for processing the transactions -National credit cards

How does one present receivables on the income statement?

-Report bad debts expense and service charge expense as selling expenses -Report interest revenue under "Other revenues and gains"

What are the advantages of corporations over proprietorships and partnerships?

-Separate legal entity -Limited liability of stockholder's -Transferable ownership of rights Ability to acquire capital -Continuous life -Corporate management

What other instances may corporations issue stock for>

-Services(attorneys or consultants) -Noncash assets(land, buildings, and equipment)

Transferable ownership rights

-Shareholders may sell their stock -Does not require partners' consent -Company is not directly involved

Government regulations

-State laws -SEC laws -Stock exchange requirements -Federal regulations

Characteristics of a Direct Write-Off

-Theoretically undesirable -No matching -Receivable not stated at cash realizable vaule -Not acceptable for financial reporting

The declining-balance method is the ____ method. ______ annual depreciation expense over the asset's useful life. ____ the straight-line rate with _____-Declining-Balance. Rate is applied to _______.

-accelerated -decreasing -twice -Double -book value Book value at beginning of year*declining-balance rate=annual depreciation expense

Estimation of __________ and _________ are done similarly to ________. _____________ is used

-cash realizable value -bad debts expense -accounts receivable -allowance for doubtful accounts

Where do cash receipts come from?

-cash sales -collections on account from customers -receipt of interest, rent, and dividends -investments by owners -bank loans -proceeds from the sale of non-current assets

Franchises are a ________. Franchises (or ____) with a(n) ______ should be amortized to ___________. Franchises with a(n) ______ should be carried _____ and not ______. Annual payments under a franchise are recorded as ______.

-contractual arrangement between a franchisor and a franchisee -licenses -limited life -expense over its useful life -indefinite life -at cost -amortized -operating expenses

State laws grant ______ the power to issue bonds, however the ______ and _______ must approve bond issues. Board of directors must stipulate ______ to be authorized, _____, and ________.Normally the number of bonds authorized _____ the number issued. These bond terms are set forth in legal document known as a ______.

-corporations -board of directors -stockholders -number of bonds -total face value -contractual interest rate -exceeds -bond indenture

When counting days for the interest equation, omit the ________ but include the _______.

-date the note was issued -due date

Companies estimate total units of activity to calculate ________. Expense varies based on _______. Depreciable cost is __________. Another terms also used is the______.

-depreciation cost per unit -units of activity -cost less salvage value -units of production method Depreciable cost/total units of activity=depreciable cost per unit*units of activity during the year=annual depreciation expense

Goodwill includes ___________. Only recorded when an __________. Goodwill is recorded as the excess of ____________ acquired. Goodwill is ________.

-exceptional management, desirable location, good customer relations, skilled employees, etc -entire business is purchased -purchase price over the fair value of the net assets -not amortized

Cost is either the fair market value of the consideration ____, or the fair market value of the consideration ________, whichever is more _________.

-given up -received -clearly determinable

Corporation records bond transactions when it

-issues (sells) -redeems (buys back) bonds -when bondholders convert bonds into common stock.

Long-Term Notes Payable ay be secured by a ______ that pledges title to specific assets as security for a loan. Typically, the terms require the borrower to make installment payments over the term of the loan. Each payment consists of Companies initially record mortgage notes payable at

-mortgage -interest on the unpaid balance of the loan and -a reduction of loan principal. -face value

If bondholders sell their bond investments to other investors, the issuing company receives ________ nor does the issuing company __________.

-no further money on the transaction, -journalize the transaction

Stock of publicly held companies is traded on ________. Interaction between _____ and _______ determines prices per share. Prices tend to follow the trend of ________ and _______. Factors beyond a company's control may cause _______ in market prices.

-organized exchanges -buyers -sellers -a company's earnings -dividends -day-to-day fluctuations

Sales taxes are expressed as a stated ______ of the ______.

-percentage -sales price

Plant assets are resources that have

-physical substance (a definite size and shape) -are used in operations of a business -are not intended for sale to customers -are expected to be of use to the company for a number of years

IRS does not require taxpayer to use the same depreciation method on the tax return that is used in ___________ Taxpayers must use the _____ method or a ______ depreciation method called the ___________ MACRS ______ acceptable under GAAP.

-preparing financial statements -straight-line -special accelerated -Modified Accelerated Cost Recovery System (MARCS) -is not

A bond represents a _____ to pay a sum of money at a designated __________ plus periodic interest at a __________ on the maturity amount (face value)

-promise -maturity date -contractual (stated) rate

What are plant assets referred to as?

-property, plant, and equipment -plant and equipment -fixed assets

Copyrights give the owner the exclusive right to ____________. Extend the life of the creator plus _______. The cost of the copyright is ________. Amortized to expense over ______. (________)

-reproduce and sell an artistic or published work -70 years -cost of acquiring and defending it -useful life -usually shorter than the legal life

Selling company (____) collects tax from the _____, enters tax ______ in cash register or ______ in total receipts, and remits the collections to the ________ department of revenue.

-retailer -customer -separately -includes -state's

In straight-line depreciation, expense is the _________ for each year. And depreciable cost =

-same amount -cost less salvage value Cost-Salvage Value=Depreciable Cost/ Useful Life(in years)=Annual Depreciation Expense

Land improvements are _______ made to land. Cost includes...

-structural additions -all expenditures necessary to make the improvements ready for their intended use

_______, the bondholder receives interest on the bond. ______, the bonds sell at a higher price and pay a lower rate of interest than comparable debt securities without the conversion option. ________, the company transfers the carrying value of the bonds to paid-in capital accounts. No gain or loss is recognized.

-until conversion -for the issuer -upon conversion

All R&D costs are expensed ____________. -It is difficult to _______ cost to specific periods -It is difficult to ________ associated revenures

-when incurred -assign -identify

Trademarks and Trade Names are _________. They have legal protection for indefinite number of _______. TMs capitalize _________ costs. They have no ______. (______)

-words, phrases, jingles, or symbols that identifies a particular enterprise or product -20 year renewal periods -acquisition -amortization -indefinite life

Notes payable is a ________, frequently issued to meet _________, requires the borrower to pay _______ and is issued for ________ periods.

-written promissory note -short-term financing needs -interest -varying

The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013: Accounts payable $ 19,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 11,000 Common stock 40,000 Dividends 14,000 Depreciation expense 12,000 Insurance expense 3,000 Note payable, due 6/30/14 70,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/13) 65,000 Salaries and wages expense 32,000 Service revenue 125,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What are total long-term liabilities at December 31, 2013? A. $19,000 B. $89,000 C. $0 D. $70,000

0

How are the credit terms of 1/10 EOM read?

1% discount if paid within first 10 days of next month.

Summary of the Accounting Cycle

1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance

What types of dividends are there?

1. Cash 2. Property 3. Stock 4. Scrip (promissory note)

What do costs typically include?

1. Cash purchase price 2. Closing costs such as title and attorney's fees 3. Real estate brokers' commissions 4. accrued property taxes and other liens on the land assumed by the purchaser 5. cleaning, leveling, draining, demolition of existing structures

Why is a physical inventory taken in a perpetual inventory system?

1. Check accuracy of inventory records. 2. Determine amount of inventory lost due to wasted raw materials, shoplifting, or employee theft.

Steps to Preparing Closing Entries

1. Close revenues to income summary 2. Close expenses to income summary 3. Close income summary to retained earnings 4. Close dividends to retained earnings

What is the process under the Allowance Method for recording uncollectible accounts?

1. Companies estimate uncollectible accounts receivable 2. To record estimated uncollectibles: Debit Bad Debts Expense and Credit Allowance for Doubtful Accounts 3. To write off uncollectible accounts: Debit Allowance for Doubtful Accounts and Credit Accounts Receivable

Factors in setting price for a new issue of stock

1. Company's anticipated future earnings. 2. Expected dividend rate per share. 3. Current financial position. 4. Current state of the economy. 5. Current state of the securities market.

The computation of book value per share involves the following steps.

1. Compute the preferred stock equity. This equity is equal to the sum of the call price of preferred stock plus any cumulative dividends in arrears. If the preferred stock does not have a call price, the par value of the stock is used. 2. Determine the common stock equity. Subtract the preferred stock equity from total stockholders' equity. 3. Determine book value per share. Divide common stock equity by shares of common stock outstanding.

What are the 5 internal control components?

1. Control environment: sets the tone of the company (integrity, ethical values, management's philosophy and operating style) 2. Risk assessment: identification and analysis of risks relevant to achievements of the company's objectives 3. Control activities: policies and procedures that help ensure management directives are carried out 4. Information and communication 5. Monitoring: ongoing during operations, periodic - to evaluate their adequacy

For what 3 reason do corporations purchase investments in debt or stock securities?

1. Corporations may have excess cash (fluctuation, booming economy) 2. To generate earnings from investment income (banks) 3. For strategic reasons (customers, suppliers, industry of interest)

What are Prior Period Adjustments? What do they result from? Where is the adjustment made?

1. Correction of an error in previously issued financial statements 2. Result from mathematical mistakes, mistakes in application of accounting principles, oversight or misuse of facts 3. To the beginning balance of retained earnings

How does one record the sale of bonds?

1. Credit the investment account for the cost of the bonds 2. Sale is recorded as a gain or loss any difference between net proceeds from the sale (sale price less brokerage fees) and the cost of the bonds

PW Audio Supply records the sale of $3,800 on May 4 to Sauk Stereo on account as follows (assume the merchandise cost PW Audio Supply $2,400).

1. Debit Accounts Receivable 3800 Credit Sales Revenue 3800 2. Debit Cost of Goods Sold 2400 Credit Inventory 2400

Prepare the entry PW Audio Supply would make to record the credit for returned goods that had a $300 selling price (assume a $140 cost). Assume the goods were not defective.

1. Debit Sales Returns and Allowances 300 Credit Accounts receivables 300 2. Debit Inventory 140 Credit Cost of Goods Sold 140

Assume the returned goods were defective and had a scrap value of $50, PW Audio would make the following entries:

1. Debit Sales Returns and Allowances 300 Credit Accounts receivables 300 2. Debit Inventory 50 Credit Cost of Goods Sold 50

What change is made to the journals when merchandise is sold under a perpetual system?

1. Debit either Cash or Accounts Receivable Credit Sales Revenue 2. Debit Cost of Goods Sold Credit Inventory

Two ratios that provide information long-run solvency and the ability to meet interest payments as they come due are:

1. Debt to Assets Ratio 2. Times Interest Earned

What 3 dates are important in the process of issuing dividends?

1. Declaration date: Board authorizes dividends 2. Record date: Registered shareholders are eligible for dividend 3. Payment date: The company issues dividend checks

What are the reconciling items and which are time lags?

1. Deposits in transit. (deposits recorded by the depositor that have not been recorded by the bank). 2. Outstanding checks. (Issued checks recorded by the company but not yet paid by the bank). 3. Bank memoranda. (bank service charges, interest earned, etc.) 4. Errors. (any errors discovered during bank reconciliation). All but errors

What are the 3 steps in preparing the statement of cash flows?

1. Determine net cash provided/used by operating activities by converting net income from accrual basis to cash basis. Involves analyzing this year income statement and comparative balance sheets and selected additional data 2. Analyze changes in non-current asset and liability accounts and record as investing and financing activities, or disclose as non-cash transactions. Involves analyzing comparative balance sheet data and selected additional information. 3. Compare the net change in cash on the statement of cash flows with the change in cash account reported on the balance sheet to make sure the amounts agree. The difference is computed from comparative balance sheets

Why is a physical inventory taken in a periodic inventory system?

1. Determine the amount of inventory on hand. 2. Determine the cost of goods sold for the period.

What are 4 significant non-cash activities?

1. Direct issuance of common stock to purchase assets 2. Conversion of bonds into common stock 3. Issuance of debt to purchase assets 4. Exchanges of plant assets

Typically preferred stockholders have a priority as to ______ and ______. But they generally do not have _______.

1. Distributions of earnings(dividends) 2. Assets in event of liquidation 3. Voting rights

The statement of cash flows provides information to help assess...

1. Entity's ability to generate future cash flows 2. Entity's ability to pay dividends and meet obligations 3. Reasons for difference between net income and net cash provided (used) by operating activities 4. Cash investing and financing transactions during the period

The six principles of controls activities include

1. Establishment of responsibility 2. Segregation of duties 3. Documentation procedures 4. Physical controls 5. Independent internal verification 6. Human resource controls

Initial steps in forming a corporation

1. File application with the Secretary of State 2. State grants a charter 3. Corporation develops by-laws

Proprietorship

1. Generally owned by one person. 2. Often small service-type businesses 3. Owner receives any profits, suffers any losses, and is personally liable for all debts.

Hasbeen Company completed its inventory count. It arrived at a total inventory value of $200,000. You have been given the information listed below. Discuss how this information affects the reported cost of inventory. 1. Hasbeen included in the inventory goods held on consignment for Falls Co., costing $15,000. 2. The company did not include in the count purchased goods of $10,000, which were in transit (terms: FOB shipping point). 3. The company did not include in the count inventory that had been sold with a cost of $12,000, which was in transit (terms: FOB shipping point).

1. Goods of $15,000 held on consignment should be deducted from the inventory count. 2. The goods of $10,000 purchased FOB shipping point should be added to the inventory count. 3. Item 3 was treated correctly.

Why is inventory management a double-edged sword?

1. High Inventory Levels - may incur high carrying costs (e.g., investment, storage, insurance, obsolescence, and damage). 2. Low Inventory Levels - may lead to stock-outs and lost sales.

When a corporation decides to issue stock, it must resolve a number of basic questions:

1. How many shares it authorizes for sale? 2. How should it issue the stock? 3. What value should the corporation assign to the stock?

The primary objectives of accounting for common stock are

1. Identify specific sources of paid-in capital 2. Maintain the distinction between paid-in capital and retained earnings

Why would one credit retained earnings?

1. Net income 2. Prior period adjustments for understatement of net income

Why would one debit retained earnings?

1. Net loss 2. Prior period adjustments for overstatement of net income 3. Cash dividends and stock dividends 4. Some disposals of treasury stock

What 3 things can cause Retained Earnings restrictions?

1. Legal restrictions 2. Contractual restrictions 3. Voluntary restrictions

Process of disposing of notes receivable

1. Notes may be held to their maturity date (face value+accrued interest) 2. Holder may speed up conversion to cash by selling the note receivable 3. Maker may default and payee must make an adjustment to the account

Worksheet

1. Multiple-column form used in preparing financial statements. 2. Not a permanent accounting record. 3. May be a computerized worksheet using an electronic spreadsheet program such as Excel. 4. Prepared using a five step process. 5. Use of worksheet is optional.

What are the classifications of cash flows?

1. Operating Activities-income statement items 2. Investing Activities-changes in investments and long-term asset items 3. Financing Activities-changes in long-term liabilities and stockholder's equity

Order of presentation of the statement of cash flows is...

1. Operating activities (either direct or indirect method) 2. Investing activities 3. Financing activities

Partnership

1. Owned by two or more persons. 2. Often retail and service-type businesses 3. Generally unlimited personal liability 4. Partnership agreement

Steps in Preparing a Worksheet

1. Prepare a trial balance on the worksheet. 2. Enter adjustment data 3. Enter adjusted balances 4. Extend adjusted balances to appropriate statement columns 5. Total the statement columns, compute net income (or loss), and complete worksheet

What are the 3 internal control categories?

1. Preventive controls: Aim to prevent errors and unwanted events from occurring -Stop processing a transaction once an error has occurred or an exception has been identified 2. Detective controls: Aim to detect errors and exceptions after they have occurred -include the use of suspense files, computer based edits such as limit checks -Suspense files involve the computer processing of incomplete transactions 3. Corrective controls: Aim to investigate and correct detected errors and exceptions -E.g. backup process for key files, the use of Uninterruptible Power Sources (UPS), and discrepancy reports

Forms of Business Ownership

1. Proprietorship 2. Partnership 3. Corporation

For what 2 reasons do companies sell receivables?

1. Receivables may be the only reasonable source of cash 2. Billing and collection are often time-consuming and sotly

What 3 accounting issues are related to accounts receivable

1. Recognizing accounts receivable 2. Valuing accounts receivable 3. Disposing of accounts receivable

Assets

1. Resources a business owns. 2. Provide future services or benefits. 3. Cash, Supplies, Equipment, etc.

For a corporation to pay a cash dividend, it must have:

1. Retained earnings(payment of cash dividends from retained earnings is legal) 2. Adequate cash 3. A declaration of dividends(by the Board of Directors)

Why are internal control methods adopted?

1. Safeguard assets. 2. Enhance the reliability of accounting records. 3. Increase efficiency of operations. 4. Ensure compliance with laws and regulations.

What are the 3 reasons as to why corporations issue stock dividends?

1. Satisfy stockholders' dividend expectations with spending cash 2. Increase marketability of the corporations stock 3. Emphasize a portion of stockholders' equity has been permanently reinvested in the business

What are the 4 types of bonds?

1. Secured and Unsecured bonds 2. Term and Serial bonds 3. Registered and Bearer (or coupon) bonds 4. Convertible and Callable bonds

Organizations involved with standard setting

1. Securities and Exchange Commission (SEC) 2. Public Company Accounting Oversight Board (PCAOB) 3. Financial Accounting Standards Board (FASB) 4. International Accounting Standards Board (IASB)

Three advantages of bonds over common stock

1. Stockholder control is not affected (no voting rights) 2. Tax savings result (cost of bond interest is tax-deductible) 3. Earnings per share may be higher (usually EPS is higher)

Examples of Physical Controls

1. Television monitors and garment sensors to deter theft 2. Safes, vaults, and safety deposit boxes for cash and business papers 3. Alarms to prevent break-ins 4. Computer facilities with pass key access or fingerprint or eyeball scans 5. Time clocks for recording time worked 6. Locked warehouses and storage cabinets for inventories and records

Why do corporations acquire treasury stock?

1. To reissue the shares to officers and employees under bonus and stock compensation plans 2. To enhance the stocks market value 3. To have additional shares available for use in the acquisition of other companies 4. To increase earnings per share 5. Possible eliminate hostile shareholders (buy them out)

What are the rights of stockholders>

1. Vote in election of board of directors and on actions that require stockholder approval. 2. Share the corporate earnings through receipt of dividends. 3. Keep the same percentage ownership when new shares of stock are issued (preemptive right). However some companies have eliminated this right 4. Share in assets upon liquidation in proportion to their holdings. This is called a residual claim.

What is the Flow of Costs equation for merchandising companies?

Beginning Inventory+Cost of Goods Purchases=Cost of Goods Available for Sale-Cost of Goods Sold=Ending Inventory

Current market price (present value) is a function of the three factors:

1. dollar amounts to be received, 2. length of time until the amounts are received, and 3. market rate of interest.

When bonds are redeemed before maturity, it is necessary to:

1. eliminate carrying value of bonds at redemption date; 2. record cash paid; and 3. recognize gain or loss on redemption.

The petty cash fund involves:

1. establishing the fund: employee responsible and fund size 2. making payments from the fund: according to management's policies , documented on prenumbered petty cash receipt, no journal entry from petty cash payments. 3. replenishing the fund: when it reaches a minimum level, custodian requests reimbursement and sends it to treasurer treasurer reviews and approves issues check to replenish the fund.

On financial statements, companies should disclose

1. major inventory classifications 2. basis of accounting (cost or LCM) 3. costing method (FIFO, LIFO, or average-cost).

Intangible assets

Long-lived assets that do not have physical substance

The Basic Accounting Equation provides the underlying framework for ___. ______ must equal ______. ____ vs. _____. Claims of ____ must be paid before claims of ______.

1. recording and summarizing economic events. 2. Assets must equal the sum of liabilities and stockholders' equity. 3. Owns vs. owes. 5. Claims of creditors (liabilities) must be paid before ownership claims (stockholders' equity).

In 2012, Drew Gooden Company has net credit sales of $1,600,000 for the year. It had a beginning accounts receivable (net) balance of $101,000 and an ending accounts receivable (net) balance of $107,000. 1) Compute Drew Gooden Company's accounts receivable turnover. 2) Compute Drew Gooden Company's average collection period in days.

15.4 times 23.7 days

Inventory errors affect the computation of cost of goods sold and net income in how many periods?

2

Is a journal entry recorded for a stock split?

No

National Labs purchases a patent at a cost of $60,000 on June 30. National estimates the useful life of the patent to be eight years. Prepare the journal entry to record the amortization for the six-month period ended December 31.

60,000(cost)/8(useful life)=7,500(annual expense)*0.5 years=3,750(amortization) Debit amortization expense 3,750 Credit Patent 3,750

Accumulated Depreciation is called a

A contra asset account and all contra accounts have increases, decreases, and normal balances opposite to the account to which they relate.

What is a journal and how is it organized?

A journal is a book of the original entry and is organized in chronological order

Define Voucher System Controls

A network of approvals by authorized individuals, acting independently, to ensure all disbursements by check are proper

The cost of goods sold is determined and recorded each time a sale occurs in

A perpetual system only

What business document should support credit card sales?

A sales invoice

What is another name for Specific Identification?

Actual physical flow costing method

What is the Time Period Assumption?

Accountants divide the economic life of a business into artificial time periods, often into months, quarters, or years. Also called the periodicity assumption.

Relevance

Accounting information has relevance if it would make a difference in a business decision. Information is considered relevant if it provides information that has predictive value, that is, helps provide accurate expectations about the future, and has confirmatory value, that is, confirms or corrects prior expectations. Materiality is a company-specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor.

What is the cash realizable value equation?

Accounts receivable less Allowance for Doubtful Accounts

What are common adjustments companies make to net income(loss) when preparing the operating activities section of the statement of cash flows?

Add back non-cash expenses (depreciation, amortization, or depletion expense). Deduct gains and add losses from financing & investing (e.g. loss/gain on sale of plant asset). Add/Subtract Changes in non-cash current asset and current liability accounts.

What does cost consist of?

All expenditures necessary to acquire an asset and make it ready for its intended use

When inventory is accounted for, what does cost include?

All expenditures necessary to acquire goods and place them in a condition ready for sale.

Retained earnings increased $116,000 during the year. This increase can be explained by two factors: (1) Net income of $145,000 increased retained earnings, and (2) Dividends of $29,000 decreased retained earnings. What is recorded on the statement of cash flows?

Amount for cash dividends is subtracted

Valuation(cash realizable value or net realizable value)

Amount the company expects to collect

Define receivables and what are the types?

Amounts due from individuals and other companies that are expected to be collected in cash. -accounts receivable -notes receivable -other receivable

Define Accounts Receivable

Amounts owed by customers on account that result from the sale of goods and sercives

What accounts have a normal debit balance?

Asset and expense accounts

What is the extended accounting equation?

Assets + Dividends + Expenses = Liabilities + Common Stock + Retained Earnings + Revenues

How is inventory accounted for?

At cost

A 60-day note receivable dated June 13 has a maturity date of:

August 12

What is the cost of goods sold equation?

Beginning inventory+Purchases-Ending inventory=Cost of goods sold

What is the Bond Discount Amortization equation?

BDA= Bond discount/number of interest periods

Companies record credit losses as debits to

Bad Debt Expense Uncollectible accounts expense

Which of the following financial statements is prepared as of a specific date? (a) Balance sheet. (b) Income statement. (c) Retained earnings statement. (d)Statement of cash flows.

Balance sheet

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:

Bank service charge

What is the difference between book and market value?

Book value is based on cost records, where market value is based on current and prospective investors.

What does a merchandising company do? What is a merchandising company's primary source of income called?

Buys and sells goods sales or sales revenue

How are corporations classified?

By purpose: not-for-profit or for profit By Ownership: publicly held or privately held

Which of the following statements correctly describes the reporting of cash? (a)Cash cannot be combined with cash equivalents. (b)Restricted cash fund may be combined with Cash. (c)Cash is listed first in the current assets section. (d)Restricted cash funds cannot be reported as a current asset.

C

Using the stockholders' equity section of Graber Inc. shown in Illustration 11-26. Graber's preferred stock is callable at $120 per share and is cumulative. Assume that dividends on Graber's preferred stock were in arrears for one year, $54,000 (6,000 x $9). The computation of preferred stock equity (Step 1 in the preceding list) is:

Call price (6,000*$120)=720,000 Dividends in arrears (6,000*$9)= 54,000 Preferred stock equity=774,000

Preferred stock has what type of value?

Can have par or no-par value

Is valuation easy or difficult

Cant be difficult if the uncollectible amount is unknown

Lenard Company purchases a delivery truck at a cash price of $22,000. Related expenditures are sales taxes $1,320, painting and lettering $500, motor vehicle license $80, and a three-year accident insurance policy $1,600. Compute the cost of the delivery truck.

Cash price $22,000 + Sales taxes $1,320 + Painting and lettering $500 = $23,820

Hayes Company acquires real estate at a cash cost of $100,000. The property contains an old warehouse that is razed at a net cost of $6,000 ($7,500 in costs less $1,500 proceeds from salvaged materials). Additional expenditures are the attorney's fee, $1,000, and the real estate broker's commission, $8,000. Determine the amount to be reported as the cost of the land.

Cash price of property ($100,000) + Net removal cost of warehouse ($7,500-$1,500)= 6,000 + Attorney's fees ($1,000) + Real estate broker's commission ($8,000) = $115,000

What is restricted cash?

Cash that is not available for general use but rather is restricted for a special purpose

Generally, internal control over cash disbursements is more effective when companies pay by ______ rather than by ___________. One exception is __________ that are paid out of __________.

Check or electronic funds transfer cash payments for incidental amount petty cash

What does cash consist of?

Coins, currency, checks, money orders, and money on hand or on deposit in a bank.

Accounting for preferred stock at issuance is similar to that of _______.

Common stock

What is a major disadvantage of specific identification?

Companies can manipulate net income buy selling items of lower or higher cost

When the value of inventory is lower than its cost

Companies value the inventory at the lower-of-cost-or-market in the period in which the price decline occurs.

The information for the Statement of Cash Flows comes from what 3 sources?

Comparative balance sheets: shows the amount of changes in A, L, & SE from beginning to end of period Current income statement: shows amounts of cash provided or used by operations during that period Additional information: transaction data showing how cash was used or provided during that period

In the sale of plant assets, one should

Compare the book value of the asset with the proceeds received from the sale. -If proceeds exceed the book value, a gain on disposal occurs. -If proceeds are less than the book value, a loss on disposal occurs.

Continuous life

Continuance as a going concern is not affected by the withdrawal, death, or incapacity of a stockholder, employee, or officer

If the Bond Contractual Interest Rate 10% and is issued when the market interest rate is 8%, the bonds sell at...

Premium

Sauk Stereo pays the balance due of $3,500 on May 14, the last day of the discount period. Sauk Stereo makes the following entry on May 14 to record the payment.

Debit Accounts Payable $3,500 Credit Cash $3,430 (disc 3500*2%) Credit Inventory $70

Assume Sauk Stereo returned goods costing $300 to PW Audio Supply on May 8. The following entry is made by Sauk Stereo is

Debit Accounts Payable $300 Credit Inventory $300

Sauk Stereo returns $300 of goods to PW Audio Supply and prepares the following entry to recognize the return. (periodic)

Debit Accounts Payable 300 Credit Purchase Ret and Allowances 300 PERPETUAL Debit Accounts Payable 300 Credit Inventory 300

On May 14 Sauk Stereo pays the balance due on account to PW Audio Supply, taking the 2% cash discount allowed by PW Audio for payment within 10 days. Sauk Stereo records the payment and discount as follows.(periodic)

Debit Accounts Payable 3500 Credit Purchase Discounts 70 Credit Cash 3430

Assume that Jordache Co. on July 1, 2015, sells merchandise on account to Polo Company for $1,000 term 2/10, n/30. Prepare the journal entry to record this transaction on the books of Jordache Co.

Debit Accounts Receivable 1000 Credit Sales Revenue 1000

PW Audio Supply, records the sale of $3,800 of merchandise to Sauk Stereo on May 4 as follows. (periodic)

Debit Accounts Receivable 3800 Credit Sales Revenue 3800 No entry for cost of goods sold

Sunset Company discards delivery equipment that cost $18,000 and has accumulated depreciation of $14,000. The journal entry is?

Debit Accumulated Depreciation 14,000 Debit Loss on Disposal of Plant Assets 4,000 Credit Equipment 18,000

Hobart Enterprises retires its computer printers, which cost $32,000. The accumulated depreciation on these printers is $32,000. Prepare the entry to record this retirement.

Debit Accumulated Depreciation 32,000 Credit Equipment 32,000

Assume the Warden Co. writes off M. E. Doran's @200 balance as uncollectible on December 12. Warden's entry is

Debit Bad Debt Expense 200 Credit Accounts Receivable 200

Assume that Gonzalez Company elects to use the percentage-of-sales basis. It concludes that 1% of net credit sales will become uncollectible. If net credit sales for 2015 are $800,000, the adjusting entry is:

Debit Bad Debt Expense 8000 Credit Allowance for Doubtful Accounts 8000

Hampson Furniture has credit sales of $1,200,000 in 2015, of which $200,000 remains uncollected at December 31. The credit manager estimates that $12,000 of these sales will prove uncollectible. What is the journal entry?

Debit Bad Debts Expense 12000 Credit Allowance for Doubtful Accounts 12000

Assume the unadjusted trial balance shows Allowance for Doubtful Accounts with a credit balance of $528. Prepare the adjusting entry assuming $2,228 is the estimate of uncollectible receivables from the aging schedule.

Debit Bad Debts Expense 1700 Credit Allowance for Doubtful Accounts 1700

Assuming that the company pays and records separately the interest for the last interest period, Candlestick records the redemption of its bonds at maturity as follows:

Debit Bonds Payable 100,000 Credit Cash 100,000

On July 1, Saunders Associates converts $100,000 bonds sold at face value into 2,000 shares of $10 par value common stock. Both the bonds and the common stock have a market value of $130,000. Saunders makes the following entry to record the conversion:

Debit Bonds Payable 100,000 Credit Common Stock (2,000 x $10) 20,000 Credit Paid-in Capital in Excess of Par 80,000

Assume Candlestick, Inc. has sold its bonds at a premium. At the end of the eighth period, Candlestick retires these bonds at 103 after paying the semiannual interest. The carrying value of the bonds at the redemption date is $101,623. Candlestick makes the following entry to record the redemption at the end of the eighth interest period (January 1, 2019):

Debit Bonds Payable 100,000 Debit Premium on Bonds Payable 1,623 Debit Loss on Bond Redemption 1,377 Credit Cash 103,000

What happens when no-par stock does not have a stated value?

Debit Cash Credit Common Stock

Randy Corporations trading Portfolio at the end of the year is as follows: Security-Common Stock A, Cost-10,000, Fair Value-12,000 Security-Common Stock B, Cost-9,000, Fair Value-5,000 Randy sells Stock B for $10,000. What is the entry?

Debit Cash 10,000 Credit Stock Investments 9,000 Credit Gain on Sale of Stock Investments 1,000

On July 1, Mead sells for $10 per share 1,000 shares of its treasury stock previously acquired at $8 per share and makes the following entry.

Debit Cash 10,000 Credit Treasury Stock 8,000 Credit Paid-in Capital from Treasury Stock 2,000

Wolder Co. lends Higley Co. $10,000 on June 1, accepting a five-month, 9% interest note. If Wolder presents the note to Higley Co. on November 1, the maturity date, Wolder's entry to record the collection is: Suppose instead that Wolder Co. prepares financial statements as of September 30. The adjusting entry by Wolder is for four months ending Sept. 30. Prepare the entry Wolder's would make to record the honoring of the Higley note on November 1. Assume that Higley Co. on November 1 indicates that it cannot pay at the present time. If Wolder Co. does expect eventual collection, it would make the following entry at the time the note is dishonored (assuming no previous accrual of interest).

Debit Cash 10,375 Credit Notes Receivable 10000 Credit Interest Revenue 375 Debit Interest Receivable 300 Credit Interest Revenue 300 Debit Cash 10375 Credit Notes Receivable 10000 Credit Interest Receivable 300 Credit Interest Revenue 75 Debit Accounts Receivable 10375 Credit Notes Receivable 10000 Credit Interest Revenue 375 Debit Allow for Doubt Acc 10000 Credit Notes Receivable 10000 (if no hope of collecting at all)

Paid in capital in excess of par is also called...

Premium on Stock

Sometimes companies do not enter sales taxes separately in the cash register. Cooley Grocery enters total receipts of $10,600. Because the amount received from the sale is equal to the sales price 100% plus 6% of sales, (sales tax rate of 6%), the journal entry is:

Debit Cash 10,600 Credit Sales Revenue 10,000 Credit Sales Tax Payable 600

The March 25 cash register reading for Cooley Grocery shows sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is:

Debit Cash 10,600 Credit Sales Revenue 10,000 Credit Sales Tax Payable 600 WHEN THE REMIT IT TO THE TAXING AGENCY Debit Sales Tax Payable 600 Credit Cash 600

On January 1, 2015, Candlestick, Inc. issues $100,000, five-year, 10% bonds at 100 (100% of face value). The entry to record the sale is:

Debit Cash 100,000 Credit Bonds Payable 100,000

On January 1, 2015, Candlestick, Inc. sells $100,000, five-year, 10% bonds for $108,111 (108.111% of face value). Interest is payable on July 1 and January 1. The entry to record the issuance is:

Debit Cash 108,111 Credit Bonds Payable 100,000 Credit Premium on Bonds Payable 8,111

Stine Corporation issues 10,000 shares of $10 par value preferred stock for $12 cash per share. The journal entry to record the issuance is:

Debit Cash 120,000 Credit Preferred Stock (10,000 x $10) 100,000 Credit Paid-in Capital in Excess of Par 20,000

On Dec. 1, assume that Mead, Inc. sells its remaining 2,200 shares at $7 per share and makes the following entry.

Debit Cash 15,400 Debit Paid-in Capital from Treasury Stock 1,200 Debit Retained Earnings 1,000 Credit Treasury Stock 17,600

During the time Sanchez owns the stock it makes entries for any cash dividends received. If Sanchez receives a $2 per share dividend on December 31, the entry is:

Debit Cash 2,000 Credit Dividend Revenue 2,000

Kuhl Corporation acquires 50 Doan Inc. 8%, 10-year, $1,000 bonds on January 1, 2015, for $50,000. The bonds pay interest semiannually on July 1 and January 1. The entry for the receipt of interest on July 1 is:

Debit Cash 2,000 Credit Interest Revenue 2,000 * ($50,000 x 8% x ½ = $2,000)

On May 14, PW Audio Supply receives payment of $3,430 on account from Sauk Stereo. PW Audio honors the 2% cash discount and records the payment of Sauk's account receivable in full as follows. (periodic)

Debit Cash 3430 Debit Sales Discounts 70 Credit Accounts Receivables 3500

Assume Sauk Stereo pays the balance due of $3,500 (gross invoice price of $3,800 less purchase returns and allowances of $300) on May 14, the last day of the discount period. Prepare the journal entry PW Audio Supply makes to record the receipt on May 14.

Debit Cash 3430 Debit Sales discounts 70 Credit Accounts Receivables 3500 Discount=(3800-300)*2%

Assume that Sanchez Corporation receives net proceeds of $39,000 on the sale of its Beal stock on February 10, 2016. Because the stock cost $40,000, Sanchez incurred a loss of $1,000. The entry to record the sale is:

Debit Cash 39,000 Debit Loss on Sale of Stock Investments 1,000 Credit Stock Investments 40,000

The additional information explains that the equipment increase resulted from two transactions: (1) a purchase of equipment of $25,000, and (2) the sale for $4,000 of equipment costing $8,000. What is the journal entry?

Debit Cash 4,000 Debit Accumulated Depreciation 1,000 Debit Loss on Disposal of Equipment 3,000 Credit Equipment 8,000

Four thousand bonds with a face value of $1,000 each, are sold at 103. The entry to record the issuance is

Debit Cash 4,120,000 Credit Premium on Bonds Payable 120,000 Credit Bonds Payable 4,000,000

Assume that instead of $1 par value stock, Hydro-Slide Inc. has $5 stated value no-par stock and the company issues 5,000 shares at $8 per share for cash.Prepare the journal entry

Debit Cash 40,000 (5000*8) Credit Common stock (stated value) 25,000 Credit Paid in Capital in Excess of Stated Value 15,000

On Oct. 1, Mead sells an additional 800 shares of treasury stock at $7 per share and makes the following entry.

Debit Cash 5,600 Debit Paid-in Capital from Treasury Stock 800 Credit Treasury Stock 6,400

Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, 2015. The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). Prepare the entries to record the mortgage and first payment.

Debit Cash 500,000 Credit Mortgage Payable 500,000 Debit Interest Expense 30,000 Debit Mortgage Payable 3,231 Credit Cash 33,231

Assume that Kuhl corporation receives net proceeds of $54,000 on the sale of the Doan Inc. bonds on January 1, 2016, after receiving the interest due. Prepare the entry to record the sale of the bonds.

Debit Cash 54,000 Credit Debt Investments 50,000 Credit Gain on Sale of Debt Investments 4,000

Assume that Hendredon Furniture factors $600,000 of receivables to Federal Factors. Federal Factors assesses a service charge of 2% of the amount of receivables sold. The journal entry to record the sale by Hendredon Furniture is as follows.

Debit Cash 588,000 (600000*.02) Debit Service Charge Expense 12000 Credit Accounts Receivable 600000

Pickett Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 60,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?

Debit Cash 900,000 Credit Unearned Subscription Revenue 900,000

On January 1, 2015, Candlestick, Inc. sells $100,000, five-year, 10% bonds for $92,639 (92.639% of face value). Interest is payable on July 1 and January 1. The entry to record the issuance is:

Debit Cash 92,639 Debit Discount on Bonds Payable 7,361 Credit Bonds Payable 100,000

Anita Ferreri purchases $1,000 of compact discs for her restaurant from Karen Kerr Music Co., using her Visa First Bank Card. First Bank charges a service fee of 3%. The entry to record this transaction by Karen Kerr Music is as follows.

Debit Cash 970 Debit Service Charge Expense 30 Credit Sales Revenue 1000

At December 31, 2016, IBR declares a $50,000 cash dividend. Prepare the entry to record the declaration of the dividend.

Debit Cash Dividends 50,000 Credit Dividends Payable 50,000

Suppose that PW Audio Supply has an unadjusted balance of $40,500 in Merchandise Inventory. Through a physical count, PW Audio determines that its actual merchandise inventory at year-end is $40,000. The company would make an adjusting entry as follows.

Debit Cost of Goods Sold 500 Credit Inventory 500

Kuhl Corporation acquires 50 Doan Inc. 8%, 10-year, $1,000 bonds on January 1, 2015, for $50,000. The entry to record the investment is:

Debit Debt Investments 50,000 Credit Cash 50,000

On July 1, 2015, Wright Company sells office furniture for $16,000 cash. The office furniture originally cost $60,000. As of January 1, 2015, it had accumulated depreciation of $41,000. Depreciation for the first six months of 2015 is $8,000. Prepare the journal entry to record depreciation expense up to the date of sale.

Debit Depreciation Expense 8,000 Credit Accumulated Depreciation 8,000

Lenard Company purchases a delivery truck at a cash price of $22,000. Related expenditures are sales taxes $1,320, painting and lettering $500, motor vehicle license $80, and a three-year accident insurance policy $1,600. Prepare the journal entry to record these costs.

Debit Equipment $23,820 Debit License Expense $80 Debit Prepaid Insurance $1,600 Credit Cash $25,500

If Sauk pays Public Freight Company $150 for freight charges on its purchase from PW Audio Supply on May 6, the entry on Sauk's books is: (periodic systion

Debit Freight-in (Transportation-in) 150 Credit Cast 150 PERPETUAL Debit Inventory 150 Credit Cast 150

Assume the freight terms on the invoice had required PW Audio Supply to pay the freight charges. What is the FOB and what is the entry on PW Audio Supply's books?

Debit Freight-out or delivery expense $150 Credit Cash $150 PAID WHEN GOODS ARE SHIPPED

Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2015, for $108,111 (premium of $8,111). Interest is payable on July 1 and January 1. Journal entry on July 1, 2015, to record the interest payment and amortization of discount is as follows:

Debit Interest Expense 4,189 Debit Premium on Bonds Payable 811 Credit Cash 5,000

On January 1, 2015, Candlestick, Inc. issues $100,000, five-year, 10% bonds at 100 (100% of face value). Assume that interest is payable semiannually on January 1 and July 1. Prepare the entry to record the accrual of interest on December 31, 2015, assume no previous accrual.

Debit Interest Expense 5,000 Credit Interest Payable 5,000

Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2015, for $92,639 (discount of $7,361). Interest is payable on July 1 and January 1. The bond discount amortization for each interest period is $736 ($7,361÷10). Journal entry on July 1, 2015, to record the interest payment and amortization of discount is as follows:

Debit Interest Expense 5,736 Credit Discount on Bonds Payable 736 Credit Cash 5,000

If Kuhl Corporation's fiscal year ends on December 31, prepare the entry to accrue interest since July 1. Kuhl reports receipt of the interest on January 1 as follows.

Debit Interest Receivable 2,000 Credit Interest Revenue 2,000 Debit Cash 2,000 Credit Interest Receivable 2,000

Rodgers Company lends Lanier Company $40,000 on April 1, accepting a four-month, 9% interest note. Rodgers Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?

Debit Interest Receivable 300 Credit Interest Revenue 300

On January 1, 2015, Candlestick, Inc. issues $100,000, five-year, 10% bonds at 100 (100% of face value). Assume that interest is payable semiannually on January 1 and July 1. Prepare the entry to record the payment of interest on July 1, 2015, assume no previous accrual.

Debit Interest expense 5000 Credit Cash 5000

Sauk Stereo (the buyer) buys product from PW Audio Supply, Inc. (the seller). Sauk Stereo makes the following journal entry to record its purchase on account from PW Audio Supply.

Debit Inventory Credit Accounts Payables

Assume upon delivery of the goods on May 6, Sauk Stereo(the buyer) pays Public Carrier Company $150 for freight charges. What is the FOB and what is the entry on Sauk Stereo's books?

Debit Inventory $150 Credit Cash $150 PAID WHEN GOODS ARE RECIEVED

Athletic Research Inc. is an existing publicly held corporation. Its $5 par value stock is actively traded at $8 per share. The company issues 10,000 shares of stock to acquire land recently advertised for sale at $90,000. Prepare the journal entry for this transaction.

Debit Land 80,000 Credit Common Stock 50,000 Credit Paid-in Capital in Excess of Par 30,000

Calhoun Company wrote a $1,000, two-month, 12% promissory note dated May 1, to settle an open account. Prepare entry would Wilma Company makes for the receipt of the note.

Debit Notes Receivable 1000 Credit Accounts Receivable 1000

Attorneys have helped Jordan Company incorporate. They have billed the company, $5,000 for their services. They agree to accept 4,000 shares of $1 par value common stock in payment of their bill. At the time of the exchange there is no established market price for the stock. Prepare the journal entry.

Debit Organizational Expense Credit Common Stock 4,000 Credit Paid-in Capital in Excess of Par 1,000

If Laird Company decides to establish a $100 fund on March 1, the journal entry is:

Debit Petty Cash 100 Credit Cash 100

On March 15 Laird's petty cash custodian requests a check for $87. The fund contains $13 cash and petty cash receipts for postage $44, freight-out $38, and miscellaneous expenses $5. The journal entry is:

Debit Postage Expense 44 Debit Freight-out 38 Debit Miscellaneous Expense 5 Credit Cash 87

Assume in the preceding example that the custodian had only $12 in cash in the fund plus the receipts as listed. The request for reimbursement would therefore be for $88, and Laird would make the following entry.

Debit Postage Expense 44 Debit Freight-out 38 Debit Miscellaneous Expense 5 Debit Cash Short and Over 1 Credit Cash 88

Assume Cargo Corporation records its payroll for the week of March 7 as follows: -Salaries and Wages Expense 100,000 -FICA Taxes Payable 7,650 -Federal Income Taxes Payable 21,864 -State Income Taxes Payable 2,922 -Salaries and Wages Payable 67,564 Record the payment of this payroll on March 7.

Debit Salaries and Wages Payable 67,564 Credit Cash 67,564

Assume that Ingrao Corporation has two securities that it classifies as available-for-sale. Between the investments, there is an unrealized loss. The adjusting entry is

Debit Unrealized Gain or Loss-Equity Credit Fair Value Adjustment--AFS

On the basis of the receipt of the merchandise ordered from PW Audio Supply, Sauk Stereo records the $3,800 purchase as follows. (periodic system)

Debit purchases 3800 Credit Accounts Payable 3800

Cost and fair values for investments of Pace Corporation classified as trading securities on December 31, 2015. They have an Unrealized Gain. The adjusting entry for Pace Corporation is:

Debit to Fair Value adjustment-Trading Credit Unrealized Gain---Income

On December 31, 2015, IBR Inc. has 1,000 shares of 8%, $100 par value cumulative preferred stock. It also has 50,000 shares of $10 par value common stock outstanding. At December 31, 2015, the directors declare a $6,000 cash dividend. Prepare the entry to record the declaration of the dividend.

DebitCash Dividends 6,000 Credit Dividends Payable 6,000 Preferred Dividends: 1,000 shares x $100 par x 8% = $8,000

What are the 2 categories of securities or classification of debt and stock investments? What do they classify? These guidelines apply to all debt securities and all stock investments in which the holdings are less than ______.

Debt Investments-Trading, Available-for sale, Held-to-maturity Equity Investments-Trading, Available-for-sale 20%

On Dec. 1, the directors of Media General declare a 50 cents per share cash dividend on 100,000 shares of $10 par value common stock. The dividend is payable on Jan. 20 to shareholders of record on Dec. 22.

Dec 1-Declaration Date Debit Cash Dividends 50,000 Credit Dividends Payable 50,000 Dec 22-Date of Record No entry Jan 20-Payment Date Debit Dividends Payable 50,000 Credit Cash 50,000

Debit balance in Retained earnings is identified as a _____

Deficit

What are the 3 basic activities of accounting?

Identifies, records, and communicates the economic events of an organization to interested users. Includes the bookeeping function

What is a major advantage of the FIFO method?

In a period of inflation, the costs allocated to ending inventory will approximate their current cost.

What are examples of deferral adjusting entries?

Prepaid expenses(expenses paid in cash before they are used or consumed) and unearned revenues(cash received before services are performed)

What is the equity method? When should the equity method be discontinued>

Investor records the investment at cost and subsequently adjust the amount each period for their proportionate share of the earnings (losses) and dividends received. If investor's share of investee's losses exceeds the carrying amount of the investment, the investor ordinarily should discontinue applying the equity method.

Examples of external users

Investors and creditors

What does taking a physical inventory involve?

It involves counting, weighing, or measuring each kind of inventory on hand.

Milar Corporation acquires 30% of the common shares of Beck Company for $120,000 on January 1, 2015. For 2015, Beck reports net income of $100,000 and paid dividends of $40,000. Prepare the entries for these transactions.

Jan 1 Debit Stock Investments 120,000 (at cost) Credit Cash 120,000 Dec 31 Debit Stock Investments ($100,000 x 30%) 30,000 Credit Revenue from Stock Investments 30,000 Dec 31 Debit Cash ($40,000 x 30%) 12,000 Credit Stock Investments 12,000

Calendar year

January 1 to December 31

In a period of inflation, the cost flow method that results in the lowest income taxes is the

LIFO method

All necessary costs incurred in making the land ready for its intended use increase (debit) the ____ account.

Land

Goods in transit should be included in the inventory of the company that has _______. Legal title is determined by the __________.

Legal title Terms of sale

What is a small stock dividend?

Less than 20-25% of the corporations issued stock, recorded at fair market value(accounting is based on the assumption that a small stock dividend will have little affect on the market price of the outstanding shares)

What accounts have a normal credit balance?

Liability, stockholders equity, and revenue accounts

Limited liability of stockholders

Limited to their investment

Define purchase allowance

May choose to keep the merchandise if the seller will grant a deduction from the purchase price.

Promissory notes are expressed in terms of ____ or _____ when determining the maturity date

Months Days

The equity a common stockholder has in the net assets of the corporation

NA=TA-TL

To illustrate, Walt Disney Company's beginning-of-the-year and end-of-the-year common stockholders' equity were $31,820 and $30,753 million, respectively. Its net income was $4,687 million, and no preferred stock was outstanding. What is the Return on Common Stockholders' Equity %?

Net Income minus Preferred Dividends/Average Common Stockholders' Equity=Return on Common Stockholders' Equity (4687-0)/[(31,820+30,753)/2] =15.0%

Total Columns, Compute Net Income (Loss)

Net Income= Rev-Exp

n/10 EOM

Net amount due within the first 10 days of the next month.

In February 2011, Paula King invested an additional $10,000 in Hardy Company. Hardy's accountant, Lance Jones, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate? Why or why not?

No, because an investment is not a revenue(not from business activity).

Define Other Receivables

Non-trade receivables such as interest, loans to officers, advances to employees, and income taxes

What 3 factors contribute to fraudulent activity?

Opportunity, financial pressure, and rationalization

What are the two primary sources of equity?

Paid-in capital Retained earnings

Legal fees incurred successfully defending a patent are capitalized to the ________

Patent account

____________ results from additional taxes that governmental agencies levy on employers. These taxes are....

Payroll tax expense -employer's share of social security (FICA) taxes -federal unemployment taxes -state unemployment taxes

What 2 systems do companies use to account for inventory?

Perpetual and periodic

Is specific identification common?

Practice is relatively rare

What is a cumulative dividend?

Preferred stockholders must be paid both current-year dividends and any unpaid prior-year dividends before common stockholders receive dividends.

Define depreciation

Process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner -Process of cost allocation, not asset valuation -Applies to land improvements, buildings, and equipment, NOT LAND -Depreciable because the revenue-producing ability of an asset will decline over the asset's useful life

What does liquidation preferences do for a preferred stockholder?

Provides security

Expense any ______ in developing a patent

R&D costs

How does a manufacturing company classify inventory?

Raw Materials Work in Progress Finished Goods

How does a service organization recognizing accounts receivable?

Records a receivable when it performs service on account

How does a merchandiser recognize accounts receivable?

Records accounts receivable at the point of sale of merchandise on account

Materiality Constraint

Relates to a financial statement item's impact on a company's overall financial condition and operations. (a) An item is material when its size makes it likely to influence the decision of an investor or creditor. (b) It is immaterial if it is too small to impact a decision maker. If the item is immaterial, the company does not have to follow GAAP

Cost Constraint

Relates to the fact that providing information is costly. In deciding whether companies should be required to provide a certain type of information, accounting standard-setters weigh the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.

The correlation between book value and the annual range of a company's market value per share is often ______.

Remote

Full disclosure principle

Requires that companies disclose all circumstances and events that would make a difference to financial statement users.

How do merchandising companies measure income?

Revenue-Cost of Goods Sold=Gross Profit-Operating Expenses=Net Income(Loss)

Accrued revenues

Revenues for services performed but not yet received in cash or recorded. Ex. rent, interest, services performed. Adjusting entry records the receivable that exists and records the revenues for services performed. Assets are understated and revenues are understated. Adjusting entry: (a) Increases (debits) an asset account and (b) Increases (credits) a revenue account.

Whats the difference between secured and unsecured bonds?

Secured: specific assets of issuer are pledged as collateral Unsecured: issued against credit of the borrower

Corporate management

Separation of ownership and management often reduces an owner's ability to actively manage the company

The use of a bank contributes __________ internal control over cash.

Significantly to good -Minimizes the amount of currency on hand. -Creates a double record of bank transactions.

Unit costs are applied to quantities to compute the total cost of the inventory and the cost of goods sold using the following costing methods:

Specific identification First-in, first-out Last-in, first-out Average cost

What is the process for determining retained earnings?

Start with: Balance on Jan 1 Credit(debit) for Correction for understatement(overstatement) of net income in prior period. Credit(debit) for Net Income(loss) Debit for Total Cash+Stock Dividends Total is Balance on Dec 31

Economic Entity Assumotion

States that every economic entity can be separately identified and accounted for.

Which of the following statements is incorrect concerning the adjusted trial balance? (a) An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. (b) The adjusted trial balance provides the primary basis for the preparation of financial statements. (c) The adjusted trial balance lists the account balances segregated by assets and liabilities. (d) The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.

The adjusted trial balance lists the account balances segregated by assets and liabilities.

Define Depletion

The allocation of the cost to expense in a rational and systematic manner over the resource's useful life -Companies generally use units-of-activity method -Depletion generally is a function of the units extracted -Depletion is to natural resources as depreciation is to plant assets Total Cost-Salvage Value/Total Estimated Units=Depletion Cost per Unit*Number of Units Extracted and Sold=Annual Depletion Expense

Going concern assumption

The business will remain in operation for the foreseeable future.

Examples of internal users

The finance, marketing, management, and HR departments of a company

Where is preferred stock recorded?

The first item in the stockholders equity section of the balance sheet

Which side is the normal balance on?

The increase side

What is the relationship between the operating cycles of merchandising and service companies?

The operating cycle for merchandising is normally longer

What is the petty cash fund used for?

To pay small amounts

______ gains or losses on available-for-sale securities are reported as ________ of stockholders' equity.

Unrealized a separate component

What is controlling interest? The investor is referred to as the ____. The investee is referred to as the ______. Investment in the company goes on the controlling company's books as a ________. The controlling company generally prepares ________.

When one corporation acquires a voting interest of more than 50% in another company parent subsidiary long-term investment consolidated financial statements

How is specific identification possible?

With high-unit-cost items

Current Assets- Current Liabilities=

Working Capital

Before issuing the report for the year ended December 31, 2015, you discover a $50,000 error (net of tax) that caused the 2014 inventory to be overstated (overstated inventory caused COGS to be lower and thus net income to be higher in 2014. Would this discovery have any impact on the reporting of the Statement of Retained Earnings for 2015?

Yes, because COGS affects the New Income which is needed to correctly report retained earnings

20. The first item listed under current liabilities is usually A. notes payable. B. taxes payable. C. accounts payable. D. salaries and wages payable.

a

A correcting entry A. may involve any combination of accounts. B. is a required step in the accounting cycle. C. is another name for a closing entry. D. must involve one balance sheet account and one income statement account.

a

After transaction information has been recorded in the journal, it is transferred to the A. ledger. B. trial balance. C. income statement. D. book of original entry

a

Meat Puppets Company purchased a computer for $4,800 on December 1. It is estimated that annual depreciation on the computer will be $1,200. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: A. Debit Depreciation Expense, $100; Credit Accumulated Depreciation, $100. B. Debit Depreciation Expense, $3,600; Credit Accumulated Depreciation, $3,600. C. Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800. D. Debit Depreciation Expense, $1,200; Credit Accumulated Depreciation, $1,200.

a

On January 1, 2012, Hussein Inc. purchased equipment for $30,000. The company is depreciating the equipment at the rate of $500 per month. At January 31, 2013, the balance in Accumulated Depreciation is A. $6,500. B. $500. C. $23,500. D. $6,000

a

The control features of a bank account do not include: (a) having bank auditors verify the correctness of the bank balance per books. (b) minimizing the amount of cash that must be kept on hand. (c) providing a double record of all bank transactions. (d) safeguarding cash by using a bank as a depository.

a

The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013: Accounts payable $ 19,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 11,000 Common stock 40,000 Dividends 14,000 Depreciation expense 12,000 Equipment 190,000 Insurance expense 3,000 Note payable, due 6/30/14 70,000 Patents20,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/13) 65,000 Salaries and wages expense 32,000 Service revenue 125,000 Supplies 4,000 Supplies expense 6,000 What is the book value of the equipment at December 31, 2013? A. $162,000 B. $190,000 C. $150,000 D. $178,000

a

Define treasury stock

a corporations own stock that is has reacquired from shareholder's but not retired

Occasionally the Allowance Account will have ________ prior to adjustment when...

a debit balance when write-off during the year exceeded previous provisions for bad debts

For preferred stockholders, per share dividend amount is stated as...

a percentage of the preferred stock's par value or as a specified amount

Rancho Corporation sold 200 shares of treasury stock for $40 per share. The cost for the shares was $30. The entry to record the sale will include a a) credit to Paid-in Capital from Treasury Stock for $2,000. b) debit to Paid-in Capital in Excess of Par Value for $2,000. c) credit to Treasury Stock for $8,000. d) credit to Gain on Sale of Treasury Stock for $6,000.

a) credit to Paid-in Capital from Treasury Stock for $2,000.

(a) Sale of bonds above face value (premium) = (b) Reason:

a) total cost of borrowing < interest paid. b) Borrower is not required to pay the bond premium at the maturity date of the bonds. Therefore, the bond premium is considered to be a reduction in the cost of borrowing.

(a) Sale of bonds below face value (discount) = (b) Reason:

a) total cost of borrowing > interest paid b) Borrower is required to pay the bond discount at the maturity date. Therefore, the bond discount is considered to be an increase in the cost of borrowing.

Nadia Corp. has common stock of $5,500,000, retained earnings of $3,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on non-trading securities of $200,000. What is the total amount of its stockholders' equity? a. $8,300,000 b. $8,500,000 c. $8,400,000 d. $8,600,000

a. $8,300,000

If a company acquires a 40% common stock interest in another company: a. the equity method is usually applicable. b. all influence is classified as controlling. c. the cost method is usually applicable. d. the ability to exert significant influence over the activities of the investee does not exist.

a. the equity method is usually applicable.

Fiscal year

accounting time period that is 1 year in length

Sales on account raise the possibility of ______

accounts not being collected

Entries are made to record the ______, ________, and ______ of investments in government and corporation bonds.

acquisition, interest revenue, sale

The increase in common stock resulted from the issuance of new shares is _____ to the statement of cash flows.

added

Equipment costs include....

all costs incurred in acquiring the equipment and preparing it for use -cash purchase price -sales taxes -freight charges -insurance during transit paid by the purchaser -expenditures required in assembling, installing, and testing the unit -DMV licensing and accident insurance are NOT included(recurring expenses)

The cost of buildings includes...

all costs related directly to purchase or construction. Purchase costs: -purchase price, closing costs (attorney's fees, title insurance, etc.) and real estate brokers commission -remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing Construction costs: -contract price plus payments for architects' fees, building permits, and excavation costs

Cost of investments includes...

all expenditures necessary to acquire these investments, including the price paid plus brokerage fees (commissions) if any

Ethics are the standards of conduct by which one's actions are judged as: a. right or wrong. b. honest or dishonest. c. fair or not fair. d. all of these options.

all of these options

Limited-life intangibles _____ to expense and ____ asset accounts.

amortize credit

What is a voucher

an authorization form prepared for each expenditure

Dividends are not

an expense

Bonds

are a form of interest-bearing notes payable

The charter indicates the amount of stock that a corporation is ______ to sell. Number of authorized shares is often reported in the _______ section. There is ________ accounting entry

authorized stockholders equity no formal

Amy Company assembled the following information in completing its July bank reconciliation: balance per bank $15,280; outstanding checks $3,100; deposits in transit $5,000; NSF check $320; bank service charge $100; cash balance per books $17,600. As a result of this reconciliation, Amy will a) reduce its cash account by $1,900. b)reduce its cash account by $420. c)reduce its cash account by $100. d)increase its cash account by $220.

b

At October 1, Arcade Fire Enterprises reported stockholders' equity of $35,000. During October, common stock of $5,000 was issued and the company posted a net loss of $2,000. If stockholders' equity at October 31 totals $35,000, what amount of dividends were paid during the month? A. $2,000 B. $3,000 C. $5,000 D. $0

b

If Vickers Company issues 4,000 shares of $5 par value common stock for $140,000, a) Common Stock will be credited for $140,000. b) Paid-In Capital in Excess of Par Value will be credited for $120,000. c) Paid-In Capital in Excess of Par Value will be credited for $20,000. d) Cash will be debited for $120,000

b

Jierong Inc. pays its employees twice a month, on the 7th and the 21st. On June 21, Jierong Inc. paid employee salaries of $5,000. This transaction would: A. decrease the balance in Salaries and Wages Expense by $5,000. B. decrease net income for the month by $5,000. C. be recorded by a $5,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and Wages Expense. D. increase stockholders' equity by $5,000.

b

On August 13, 2014, Swell Maps Enterprises purchased equipment for $1,300 and supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format? A. Accounts Payable 1,500 Equipment 1,300 Supplies 200 B. Equipment 1,300 Supplies 200 Account Payable 1,500 C. Equipment 1,300 Supplies 200 Account Payable 1,500 D. Equipment 1,300 Account Payable 1,500 Supplies 200

b

On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should: A. debit Accounts Receivable $650 and credit Service Revenue $650. B. debit Accounts Receivable $650 and credit Unearned Service Revenue $650. C. debit Cash $650 and credit Unearned Service Revenue $650. D. debit Accounts Receivable $650 and credit Cash $650.

b

Pixies Inc. pays its rent of $90,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true? A. Assets will be overstated by $15,000 and net income and stockholders' equity will be understated by $15,000. B. Assets will be overstated by $7,500 and net income and stockholders' equity will be overstated by $7,500. C. Expenses will be overstated by $7,500 and net income and stockholders' equity will be understated by $7,500. D. Failure to make the adjustment does not affect the February financial statements.

b

Stahl Consulting started the year with total assets of $20,000 and total liabilities of $5,000. During the year, the business recorded $16,000 in catering revenues and $10,000 in expenses. Stahl issued stock of $3,000 and paid dividends of $5,000 during the year. Stockholders' equity changed by what amount from the beginning of the year to the end of the year? A. $3,000. B. $4,000. C. $15,000. D. $1,000

b

The following is selected information from Issa Corporation for the fiscal year ending October 31, 2013. - Cash received from customers $300,000 - Revenue earned 350,000 - Cash paid for expenses 180,000 - Cash paid for computers on November 1, 2012 that will be used for 3 years (annual depreciation is $16,000) 48,000 - Expenses incurred, not including any depreciation 220,000 - Proceeds from a bank loan, part of which was used to pay for the computers 100,000 Based on the accrual basis of accounting, what is Issa Corporation's net income for the year ending October 31, 2013? A. $130,000. B. $114,000. C. $62,000. D. $104,000

b

The income statement for the month of June, 2013 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salries and Wages Expense $3,000 Rent Expense 1,000 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,200 Net income $1,800 At June 1, 2013, Camera Obscura reported retained earnings of $35,000. The company paid no dividends during June. At June 30, 2013, the company will report retained earnings of A. $42,000. B. $36,800. C. $29,800. D. $35,000.

b

Which of the following statements is incorrect? A. Expenses decrease stockholders' equity. B. Expenses increase stockholders' equity. C. Expenses are a negative factor in the computation of net income. D. Expenses have normal debit balances.

b

ABC, Inc. sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for the sale should include credits to: a) Treasury Stock $500 and Paid-in Capital from Treasury Stock $800. b) Treasury Stock $1,000 and Paid-in Capital from Treasury Stock $300. c) Treasury Stock $500 and Paid-in Capital in Excess of Par Value $800. d) Treasury Stock $1,000 and Retained Earnings $300.

b) Treasury Stock $1,000 and Paid-in Capital from Treasury Stock $300.

Andrews, Inc. paid $45,000 to buy back 9,000 shares of its $1 par value common stock. This stock was sold later at a selling price of $6 per share. The entry to record the sale includes a a) debit to Paid-in Capital from Treasury Stock for $45,000. b) credit to Paid-in Capital from Treasury Stock for $9,000. c) credit to Retained Earnings for $9,000. d) debit to Retained Earnings for $45,000.

b) credit to Paid-in Capital from Treasury Stock for $9,000.

Which is an example of a cash flow from an operating activity? a. Payment of cash to lenders for interest. b. Receipt of cash from the sale of capital stock. c. Payment of cash dividends to the company's stockholders. d. None of the above.

b. Receipt of cash from the sale of capital stock.

Pension funds and banks regularly invest in debt and stock securities to: a. house excess cash until needed. b. generate earnings. c. meet strategic goals. d. avoid a takeover by disgruntled investors.

b. generate earnings.

When bonds are sold, the gain or loss on sale is the difference between the: a. sales price and the cost of the bonds. b. net proceeds and the cost of the bonds. c. sales price and the market value of the bonds. d. net proceeds and the market value of the bonds.

b. net proceeds and the cost of the bonds.

Fair value adjustment--non-trading goes on which financial statement under what category?

balance sheet investments

Unrealized loss on non-trading securities goes on which financial statement under what category?

balance sheet stockholders' equity

The Write-Off affects only...

balance sheet accounts

Unearned revenue is revenues received _____ the company delivers goods or provides services 1. Debit ____, and Credit a _______ 2. When the company earns the revenue, Debit __________, and Credit a ___________.

before 1. cash, current liability account (unearned revenue) 2. Unearned Revenue, revenue account

Percentage-of-receivables basis will normally result in ________ the better approximation of cash realizable value.

better

What are registered and bearer bonds?

bonds issued in the name of the owner(bearer)

Errors affect

both the income statement and balance sheet

Amy's Photography Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Amy made no additional capital contributions during the year, but paid dividends of $60,000. What is the amount of owner's equity at the end of the year? A. $70,000 B. $120,000 C. $30,000 D. $60,000

c

If errors occur in the recording process, they A. should be corrected when preparing closing entries. B. cannot be corrected until the next accounting period. C. should be corrected as soon as they are discovered. D. should be corrected as adjustments at the end of the period

c

Martin Corporation purchased land in 2007 for $290,000. In 2013, it purchased a nearly identical parcel of land for $460,000. In its 2013 balance sheet, Martin valued these two parcels of land at a combined value of $920,000. By reporting the land in this manner, Martin Corp. has violated the A. convergence B. monetary unit assumption C. cost principle D. economic entity assumption

c

On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a A. credit to Notes Payable. B. debit to Accounts Receivable. C. credit to Accounts Payable. D. credit to Retained Earnings.

c

Gentry Company's land account decreased $120,000 because of a cash sale for $120,000, its equipment account increased $40,000 as a result of a cash purchase, and its bonds payable account increased $130,000 from issuance of bonds for cash at face value. The net cash provided by financing activities is a) $80,000. b) $90,000. c) $130,000. d) $210,000.

c) $130,000. land account=investing equipment account=investing

In Wallace Company, net income is $460,000. If accounts receivable increased $140,000 and accounts payable decreased $40,000, net cash provided by operating activities using the indirect method is: a) $360,000. b) $420,000. c) $280,000. d) $560,000.

c) $280,000.

On January 2, 2008, Riley Corporation issued 20,000 shares of 6% cumulative preferred stock at $100 par value. On December 31, 2011, Riley Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common stockholders? a) $120,000. b) $360,000. c) $480,000. d) $0.

c) $480,000.

An unrealized loss on available-for-sale securities is: a. reported under Other Expenses and Losses in the income statement. b. closed-out at the end of the accounting period. c. reported as a separate component of stockholders' equity. d. deducted from the cost of the investment.

c. reported as a separate component of stockholders' equity.

Treasury stock transactions are classified as _______. As in the case when stock is issue, the _____ is not involved

capital stock transactions income statement

One calculates and records bond interest revenue based upon the...

carrying value of the bond, times the interest rate, times the portion of the year the bond is outstanding

Report short-term notes receivable at there ___________

cash (net) realizable value

The correct order of presentation in a classified balance sheet for the following current assets is: (a) accounts receivable, cash, prepaid insurance, inventory. (b) cash, inventory, accounts receivable, prepaid insurance. (c) cash, accounts receivable, inventory, prepaid insurance. (d) inventory, cash, accounts receivable, prepaid insurance.

cash, accounts receivable, inventory, prepaid insurance.

Privately held corporations are also referred to as ________corporations

closely held

Companies generally use the ____ method

cost

The entries for investments in ____ also apply to investments in ______

common stock preferred stock.

A current liability is debt that a

company expects to pay within one year or the operating cycle, whichever is longer

Disadvantage of bonds

company has to pay back full amount plus interest

General ledger

contains the entire group of accounts maintained by a company

Additions and Improvements are ...

costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset -debit the plant asset affected -referred to as capital expenditures

In a corporation, common stock has a normal

credit balance

In a corporation, retained earnings has a normal

credit balance

In a proprietorship, owners capital has a normal

credit balance

Plant assets are ________ to a company's success

critical

Holders of _____ preferred stock must be paid any unpaid prior-year dividends and their current year's dividend before common stockholders receive dividends

cumulative

Cash, and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle, are called

current assets

On the balance sheet, inventory is classified as

current assets

Working capital is calculated as

current assets minus current liabilities.

Companies report the current maturities of long-term debt under _______ if they are to be paid within one year or the operating cycle, whichever is longer.

current liabilities

Usually ______ declines following the decline in current replacement cost.

current selling price

Aging the accounts receivable (% of Receivables)

customer balances are classified by the length of time they have been unpaid

At September 1, 2014, Promise Ring Co. reported stockholders' equity of $136,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of stockholders' equity at September 30, 2014? A. $153,000 B. $146,000 C. $156,000 D. $151,000

d

If total liabilities increased by $8,000, then A. stockholders' equity must have increased by $8,000. B. assets and stockholders' equity each increased by $4,000. C. assets must have decreased by $8,000. D. assets must have increased by $8,000, or stockholders' equity must have decreased by $8,000

d

Journal entries are required by the depositor for all of the following except: a) collection of a note receivable. b) an NSF check. c) bank service charges. d) bank errors.

d

The income statement for the year 2013 of Fugazi Co. contains the following information: Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 8,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 75,500 Net income (loss) $(5,500) The entry to close Income Summary to Retained Earning includes A. a credit to Retained Earning for $5,500. B. a debit to Revenue for $70,000. C. credits to Expenses totalling $75,500. D. a credit to Income Summary for $5,500.

d

Which one of the following is usually prepared only at the end of a company's annual accounting period? A. Preparing an adjusted trial balance B. Preparing financial statements C. Journalizing and posting adjusting entries D. Journalizing and posting closing entries

d

Beckham Company has 1,000 shares of 6%, $100 par cumulative preferred stock outstanding at December 31, 2011. No dividends have been paid on this stock for 2010 or 2011. Dividends in arrears at December 31, 2011 total a) $6,000. b) $0. c) $600. d) $12,000.

d) $12,000.

Joy Elle's Vegetable Market had the following transactions during 2011: - Issued $50,000 of par value common stock for cash. -Repaid a 6 year note payable in the amount of $22,000. -Acquired land by issuing common stock of par value $100,000. -Declared and paid a cash dividend of $2,000. -Sold a long-term investment (cost $63,000) for cash of $6,000. -Acquired an investment in IBM stock for cash of $12,000. What is the net cash provided/used by investing activities? a) $6,000 b) $12,000 c) $32,000 d) ($6,000)

d) ($6,000) - Issued $50,000 of par value common stock for cash. F -Repaid a 6 year note payable in the amount of $22,000. F -Acquired land by issuing common stock of par value $100,000. -Declared and paid a cash dividend of $2,000.F -Sold a long-term investment (cost $63,000) for cash of $6,000. I -Acquired an investment in IBM stock for cash of $12,000. I

Under the equity method, the investor records dividends received by crediting: a. Dividend Revenue. b. Investment Income. c. Revenue from Investment. d. Stock Investments.

d. Stock Investments.

Marketable securities bought and held primarily for sale in the near term are classified as: a. Held-to-collection securities. b. held-to-maturity securities. c. stock securities. d. trading securities

d. trading securities

What is the days in inventory equation?

days in inventory=days in a year(365)/inventory turnover

Mehrzad received a $840 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $480 and a credit to Service Revenue $480. The correcting entry is

debit Cash, $360 and Service Revenue, $480; credit Accounts Receivable, $840.

Lahey Corporation retires its $800,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $829,960. The entry to record the redemption will include a

debit of $10,040 to Loss on Bond Redemption

Deerhoof Company purchases equipment for $1,700 and supplies for $400 from Milkman Co. for $2,100 cash. The entry for this transaction will include a

debit to Equipment $1,700 and a debit to Supplies $400 for Deerhoof

Eliminate assets by

debiting accumulated depreciation and crediting the asset account

Companies issue common stock ______ to investors or ______ through an investment banking firm.

directly indirectly

If the Bond Contractual Interest Rate 10% and is issued when the market interest rate is 12%, the bonds sell at...

discount

Treasury shares do not have ______ or ________.

dividend rights voting rights

The use of pre-numbered checks in disbursing cash is an application of the principle of:

documentation procedures

Cost flow assumptions do or do not need to be consistent with physical movement of the goods

does not

Examples of land improvements

driveways, parking lots, fences, landscaping and underground sprinklers

All depreciation methods end with _____ depreciation expenses

equal

Permitting only designated personnel to handle cash receipts is an application of the principle of:

establishment of responsibilities

Define salvage value

estimate of the assets's value at the end of its useful life

Define useful life

estimate of the expected life based on need for repair, service life, and vulnerability to obsolescence

When the Inventory balance increases, the cost of merchandise purchased _____ the cost of goods sold. Cost of goods sold does not reflect ____ made for merchandise. The company deducts (adds) from net income this inventory _____ (_____).

exceeds cash payments increase decrease

Closing entries

formally recognize in the ledger the transfer of; (a) net income (or net loss) and (b) Dividends to Retained Earnings. 1. Companies generally journalize and post closing entries only at the end of the annual accounting period. 2. Closing entries produce a zero balance in each temporary account.

The bank reconciliation should be prepared by an employee who

has no other responsibilities pertaining to cash

When the Prepaid Expense balance increases, cash paid for expenses is _____ than ____. The company deducts the ____ (add the ___) from net income to arrive at net cash provided by operating activities. If prepaid expenses decrease, reported expenses are _____ than the expenses paid.

higher expenses reported on an accrual basis increase decrease higher

When the Accounts Receivable balance decreases, cash receipts are _______ than ______ under the accrual basis. Company adds (deducts) to net income the amount of the ____ (______) in accounts receivable.

higher revenue earned decrease increase

The return on common stockholders' equity percentage shows...

how many dollars of net income the company earned for each dollar invested by the common stockholders

For Accrual-Basis Accounting transactions are recorded ______. Companies recognize revenues when ______. Expenses are recognized when _______.

in the periods in which the events occur. they perform services (rather than when they receive cash). incurred (rather than when paid).

Interest earned on investments goes on which financial statement under what category?

income statement other revenues and gains

Unrealized gain on trading securities goes on which financial statement under what category?

income statement other revenues and gains

Stock splits cause a _____ in the marketability of the shares

increase

Stock splits cause a _____ in the number of shares outstanding

increase

Consolidated Balance Sheet is prepared from the _________. They do not prepare consolidated statements from _________. Transactions between the affiliated companies are ______. Intercompany eliminations are important to avoid ________ Assets, Liabilities, & SE in the consolidated BS.

individual balance sheets of their affiliated companies ledger accounts kept by the consolidated entity eliminated overstating

Cash inflows and outflows from financing activities include...

inflows: sale of common stock, issuance of debt (bonds and notes) outflows: to stockholders as dividends, to redeem long-term debt or reacquire capital stock (treasury stock)

Cash inflows and outflows from operating activities include...

inflows: sale of goods or services and interest received and dividends received outflows: to suppliers for inventory, to employees for services, to government for taxes, to lenders for interest, and to others for expenses

Cash inflows and outflows from investing activities include...

inflows: sale of property, plant, and equipment, sale of investments in debt or equity securities of other entities, collection of principal on loans to other entities outflows: to purchase property, plant, and equipment, purchase of investments in debt or equity securities of other entities, to make loans to other entities

The accounting depends on the extent of the ________ over the operating and financial affairs of the issuing corporation (____)

investor's influence investee

Available for Sale Securities are held with _______, classified as ____ or as ______, depending on the ______. They are reported at ______. Procedure for determining fair value and the unrealized gain or loss for these securities is ________. Changes from cost are reported in ______ as ________.

intent of selling sometime in the future current assets, long-term assets, intent of the management fair value the same as for trading securities. stockholders' equity unrealized gains or losses.

What is the inventory turnover equation?

inventory turnover=cost of goods sold/average inventory

The multiple-step income statement for a merchandiser shows each of the following features except: (a) gross profit. (b) cost of goods sold. (c) a sales revenue section. (d) investing activities section.

investing activities section

From the additional information, the company acquired an office building for $120,000 cash. This is a cash outflow reported in the ______.

investing section.

Discount on Bonds Payable:

is a contra account

What is a major shortcoming of the LIFO method?

is that in a period of inflation, the costs allocated to endin.g inventory may be significantly understated in terms of current cost

A reversing entry

is the exact opposite of an entry made in a previous period

Both the number of shares _______ and _____ are disclosed.

issued held as treasury

Define Specific Identification

items still in inventory are specifically costed to arrive at the total cost of the ending inventory

A corporation does not realize a gain or suffer a loss from stock transactions with _______. Gain on sales occur when _______ are sold. Companies record Paid-in Capital from treasury stock in the _________.

its own stockholders assets balance sheet

Intangible assets include each of the following except A. patents. B. land improvements. C. copyrights. D. goodwill.

land improvements

Inventory errors have no effects on

liabilities

Corporation engaged in interstate commerce must obtain a...

license from each state in which they do business

Intangible assets have either ____ life or _______ life.

limited indefinite

Land improvements have _____ useful lives.

limited because of depreciation

Companies report as a source of cash in the investing activities section the actual amount of cash received from the sale. Any ____ on disposal is added to net income in the operating section. Any ____ on disposal is deducted from net income in the operating section.

loss gain

Short-term investments are also called _____, and are ______ and ______. Investments that do not meet both criteria are classified as _________ (reported in a separate section on the _____ immediately after _____. Trading securities are always classified as _____. Available-for-sale securities can be either_______

marketable securities readily marketable intended to be converted into cash within the next year or operating cycle, whichever is longer long-term investments balance sheet current assets short-term short-term or long-term.

Define days in inventory

measures the average number of days inventory is held.

Define inventory turnover

measures the number of times on average the inventory is sold during the period.

Interim periods

monthly and quarterly time periods

When Accounts Payable increases, the company received ____. The increase is ___ (decrease ___) to net income to determine net cash provided by operating activities. When Income Tax Payable decreases, the income tax expense reported on the income statement was ___ than the amount of taxes paid during the period. The decrease is ___ (increase ___) from net income to determine net cash provided by operating activities.

more in goods than it actually paid for added subtracted less subtracted added

Current ratio

permits us to compare the liquidity of different-sized companies and of a single company at different times

In 2011 Cisco Systems had net sales of $34,526 million for the year. It had a beginning accounts receivable (net) balance of $4,929 million and an ending accounts receivable (net) balance of $4,698 million. Assuming that Cisco's sales were all on credit, its accounts receivable turnover is computed as follows. Variant of the accounts receivable turnover ratio is average collection period in terms of days.

net credit sales/average net accounts receivable = accounts receivable turnover (34,526)/[(4929+4698)/2] = 7.2 days in a year/accounts receivable turnover= average collection period in days 365/7.2 = 51 days

Although depreciation expense reduces ______, it does not reduce ____. The company must add it back to _______.

net income cash net income

_______ increases retained earnings, and a _______ decreases retained earnings.

net income net loss

Retained earnings

net income that a corporation retains for future use

Stock splits cause a _____ on total paid in capital, RE, and SE

no effect

Indefinite-life intangibles have _______ on time the asset is expected to provide cash flows and has ______

no foreseeable limit no amortization

When an investor has between 0-20% ownership, _____ usually exists, and the investment is value using _______. Revenue is recognized only when __________. Cost includes _______ necessary to acquire these investments, such as...

no significant influence cost method cash dividends are received all expenditures price paid and brokerage fees

To the maker, the promissory note is a

note payable

To the payee, the promissory note is a

note receivable

Examples of current liabilities

notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes payable, salaries and wages payable, and interest payable

Sales are made either...

on credit or for cash

Amortization expense is a(n) _______ expense

operating

When an inventory error overstates beginning inventory, assets are ________ and stockholder's equity is________.

overstated overstated

When an inventory error overstates beginning inventory, cost of goods sold is ________ and net income is________.

overstated understated

When an inventory error understates ending inventory, cost of goods sold is ________ and net income is________.

overstated understated

Other than consideration received, the issuance of common stock only affects

paid in capital accounts

Preference to assets may be for the _____ of the shares or for a __________.

par value specified liquidating amount

Retained earnings is _______ on the total assets of the corporation.

part of the stockholders' clain

Bondholders can sell their bonds on national exchanges, and the prices are quoted as a...

percentage of the face value

The amortization of bond discount or bond premium results in

periodic interest expense of the same amount in each interest period

Dividends are generally reported ______ as a _____________.

quarterly dollar amount per share

Stock splits cause a _____ in the market value of shares

reduction

Stock splits cause a _____ in the par or stated value per share

reduction

Liquidity

refers to the ability to pay maturing obligations and meet unexpected needs for cash

Investments by stockholders

represent the total amount paid in by stockholders for the shares they purchase.

Another term for salvage value is...

residual value

Revenues result from

result from business activities entered into for the purpose of earning income.

Dividends reduce

retained earnings

Net income is needed to determine the ending balance in

retained earnings

Companies dispose of plant assets in three ways--

retirement, sale, or exchange ***record depreciation up to the date of disposal***

An error in ending inventory of the current period will

reverse effect on net income of the next accounting period.

Intangible assets are

rights, privileges, and competitive advantages that result from ownership of long-lived assets that do not possess physical substance

Companies report non-cash activities in either a ______ or _______.

separate schedule (bottom of the statement) separate note to the financial statements

The sale and purchase of the equipment should be recorded ______ on the statement of cash flows.

separatly

What is a cash equivalent?

short-term, highly liquid investments that are both: 1. Readily convertible to known amounts of cash 2. So near their maturity that their market value is relatively insensitive to changes in interest rates.

For assets, debits

should exceed credits

When an investor has between 20-50% ownership, _____ usually exists, and the investment is value using _______.

significant influence equity method

Natural resources consist of.... Distinguishing Characteristics:

standing timber and underground deposits of oil, gas, and minerals -Physically extracted in operations -Replaceable only by an act of nature

Balance sheet and income statement are needed to prepare statement of

statement of cash flows

What part of the accounting equation reduce?

stockholder's equity

On the income statement, cost of goods sold is

subtracted from sales

Ending inventory depends entirely on the accuracy of

taking and costing the inventory

Goods in transit should be included in the inventory of the buyer when the:

terms of sale are FOB shipping point.

Historical cost principle requires...

that company's record plant assets at cost

Under any depreciation method, depreciation stops when...

the assets book value equals expected salvage value

Times interest earned indicates

the company's ability to meet interest payments as they come due.

Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:

the contractual interest rate exceeds the market interest rate

Over the two years, the total net income is correct because

the errors offset each other

The adjusting entry to record bad debts disregards...

the existing balance in allowance for doubtful accounts

Carrying value

the face value of the bonds less any remaining bond discount or plus any remaining bond premium at the redemption date.

Performance obligation is satisfied when...

the goods are transferred from the buyer to the seller

The higher the percentage of debt to assets,

the greater the risk that the company may be unable to meet its maturing obligations.

If Market value is greater than book value, it does not mean that _________

the stock is overpriced

Issuance of additional shares to stockholders' via stock splits is done by...

their percentage ownership

Companies require vouchers for all types of cash disbursements except

those from petty cash

Ordinary repairs are expenditures...

to maintain the operating efficiency and productive life of the unit -debit to maintenance and repair expense -referred to as revenue expenditures

Paid-in capital

total amount of cash and other assets paid to the corporation by stockholders in exchange for capital stock

The sale of treasury stock increases both ______ and _______.

total assets and stockholders equity

Kellogg Company reported total liabilities of $8,925 million, total assets of $11,200 million, interest expense of $295 million, income taxes of $476 million, and net income of $1,208 million. What is the debt to assets ratio?

total liabilities/total assets= debts to assets ratio 8,925/11,200=79.7%

Posting: (a) normally occurs before journalizing. (b) transfers ledger transaction data to the journal. (c) is an optional step in the recording process. (d) transfers journal entries to ledger accounts.

transfers journal entries to ledger accounts

When an inventory error overstates ending inventory, cost of goods sold is ________ and net income is________.

understated overstated

When an inventory error understates beginning inventory, cost of goods sold is ________ and net income is________.

understated overstated

When an inventory error understates beginning inventory, assets are ________ and stockholder's equity is________.

understated understated

Sales revenue, like performance revenue, is recorded...

when the performance obligation is satisfied

Companies generally incorporate in a state...

whose laws are favorable to the corporate form of business(Delaware, New Jersey)

At October 1, Smithson Enterprises reported stockholders' equity of $70,000. During October, common stock of $10,000 was issued and the company posted a net loss of $6,000. If stockholders' equity at October 31 totals $70,000, what amount of dividends were paid during the month?

$4000

Lamb Company had the following transactions during 2014: (a) Sales of $9,000 on account (b) Collected $4,000 for services to be performed in 2015 (c) Paid $1,250 cash in salaries (d) Purchased airline tickets for $500 in December for a trip to take place in 2015 What is Lamb's 2014 net income using accrual accounting? $11,750 $11,250 $7,750 $7,250

$7,750

An Account is a record of

(a) A record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. (b) Debit = "Left" (c) Credit = "Right"

Action Real Estate received a check for $18,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $18,000. Financial statements will be prepared on July 31. Action Real Estate should make the following adjusting entry on July 31: (a) Debit Unearned Rent, $18,000; Credit Rent Revenue, $18,000. (b) Debit Unearned Rent, $3,000; Credit Rent Revenue, $3,000. (c) Debit Cash, $18,000; Credit Rent Revenue, $18,000. (d) Debit Rent Revenue, $3,000; Credit Unearned Rent, $3,000.

Debit Unearned Rent, $3,000; Credit Rent Revenue, $3,000

How do dividends and expenses affect stockholders equity?

Decrease with a debit

What are the two types of adjusting entries?

Deferrals and accruals

Accrued expenses

Expenses incurred but not yet paid in cash or recorded. Ex. interest, taxes, salaries, rent. Adjusting entry records the obligation and recognizes the expense. Expenses and liabilities are understated. Adjusting entry: (a) Increase (debit) an expense account and (b) Increase (credit) a liability account.

How do owner's investments and revenues affect stockholders' equity?

Increase with a credit

What is the Sarbanes Oxley Act of 2002?

Law that mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.

Revenue Recognition Principle

Recognize revenue in the accounting period in which the performance obligation is satisfied.

Which of the following statements about users of accounting information is FALSE: a. Management is an internal user. b. Taxing authorities are external users. c. Present creditors are external users. d. Regulatory authorities are internal users.

Regulatory authorities are internal users.

Useful information should possess what 2 fundamental qualities?

Relevance and faithful representation

One of the following statements about the accrual basis of accounting is FALSE? That statement is: (a) Events that change a company's financial statements are recorded in the periods in which the events occur. (b) Revenue is recognized in the period in which the performance obligation is satisfied. (c) The accrual basis of accounting is in accordance with generally accepted accounting principles. (d) Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid.

Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid.

An account can be illustrated by use of a

T-chart

Major areas of accounting

Tax, managerial, financial

Generally Accepted Accounting Principles(GAAP)

The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced.

What is the trial balance and what is it used for?

The trial balance is a list of accounts and their balances at a given time (in the order they appear in Ledger). The purpose is to prove that debits equal credits, help detect errors and in the preparation of financial statements.

What are the limitations of a trial balance? (5)

The trial balance may balance even when: 1. A transaction is not journalized. 2. A correct journal entry is not posted. 3. A journal entry is posted twice. 4. Incorrect accounts are used in journalizing or posting. 5. Offsetting errors are made in recording the amount of a transaction.

How does the effect of debits and credits on revenue accounts compare to their effect on stockholders' equity?

They're equal