ACC 201 Mid term

Mott Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $36,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $3,000. What is the depreciation cost per unit?

$ 0.33

Interest on a $100,000 note payable, at the rate of 6%, on a 60-day note would be

$ 1,000

A company just starting business made the following four inventory purchases in June: Ending inventory on June 30 was 200 units. Using the FIFO method, the value allocated to cost of goods sold

$ 1,447

A company purchased inventory as follows: •50 units @ $10 •350 units @ $12 The average unit cost for inventory is:

$ 11.75

Double Nickels Company purchased a computer system for $4,500 on January 1, 2013. The company expects to use the computer system for 3 years. It has no salvage value. Monthly depreciation expense on the asset is

$ 125

A Partial Trial Balance showed these accounts with normal balances. What is the total dollar amount of the entry to close expenses to income summary. •Accounts Payable ... balance = $ 4,000 •Utility Expense ... balance = $ 6,000 •Insurance Expense ... balance = $ 10,000 •Supplies ... balance = $ 2,000

$ 16,000

Crue Company had the following transactions during 2013: •Sales of $4,500 on account •Collected $2,000 for services to be performed in 2014 •Paid $1,625 cash in salaries •Purchased airline tickets for $250 in DEC for a trip to take place in 2014 What is Crue's 2013 net income using accrual accounting?

$ 2,875

On October 1, 2013, Holt Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the depreciation expense for 2013 if Holt Company uses the straight-line method of depreciation?

$ 3,000

On November 1, Gentle Company received a $3,000, 10%, three-month note receivable. The cash to be received by Gentle Company when the note becomes due is:

$ 3,075

If the month-end bank statement shows a balance of $36,000, outstanding checks are $10,000, a deposit of $4,000 was in transit at month end, and a check for $600 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

$ 30,600

The interest on a $5,000, 6%, 60-day note receivable is

$ 50

A company just starting business made the following four inventory purchases in June Ending inventory on June 30 was 200 units. Using the LIFO method, the value of ending inventory is

$ 536

A Partial Trial Balance showed these accounts with normal balances. What is the total dollar amount of the entry to close revenues to income summary •Cash ... balance = $ 4,000 •Service Revenue ... balance = $ 6,000 •Accounts Receivable ... balance = $ 10,000

$ 6,000

On October 1, 2013, Holt Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2013, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation?

$ 72,000

A company purchased land for $80,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

$ 92,000

A $1,000 face value bond with a quoted price of 97 is selling for

$ 970

On June 1, 2014, Portugal Inc. reported a cash balance of $12,000. During June, Portugal made deposits of $3,000 and made disbursements totalling $14,000. What is the cash balance at the end of June?

$1,000 debit balance

The Duce Company has five plants nationwide that cost a total of $100 million. The current fair value of the plants is $500 million. The plants will be recorded and reported as assets at

$100 million.

At January 31, 2014, the balance in Aislers Inc.'s supplies account was $250. During February, Aislers purchased supplies of $300 and used supplies of $375. At the end of February, the balance in the supplies account should be

$175 debit.

If total assets equal $345,000 and total stockholders' equity equal $120,000, then total liabilities must equal

$225,000

Xeris, Inc. has 1,000 shares of 5%, $10 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013. What is the annual dividend on the preferred stock?

$500 in total

The trial balance of Houston Inc. includes the following balances: Common Stock, $28,000; Paid-in Capital in Excess of Par, $64,000; Treasury Stock, $6,000; Preferred Stock, $30,000. Capital stock totals

$58,000

Wesley Hospital installs a new parking lot. The paving cost $40,000 and the lights to illuminate the new parking area cost $20,000. Which of the following statements is true with respect to these additions?

$60,000 should be debited to Land Improvements.

In JAN - 2010, Corp. issued cumulative preferred stock with an annual dividend of $200,000. Corp. did not pay any dividends in 2010, 2011 and 2012. On DEC 31, 2013, Corp. paid its first dividend. What dividends are the preferred stockholders entitled to receive in 2103 before any distribution is made to common stockholders?

$800,000

Stockholders' equity is increased by ____(1)____ and decreased by ____(2)____

(1) revenues ... (2) expenses

Assume that 500 umits of inventory remain at year end. The current replacement cost of this inventory is $10,000. The calculated cost of the inventory (using FIFO) is $11,000. The cost of Goods Sold to the customer was $18,000. The inventory is insured with GEICO for $7,000. What amount should be reported for INVENTORY on the financial statement?

10,000

Which one of the following events would not require a formal journal entry on a corporation's books?

2 for 1 stock split

A truck was purchased for $120,000 and it was estimated to have a $24,000 salvage value at the end of its useful life. Monthly depreciation expense of $2,000 was recorded using the straight-line method. The annual depreciation rate is

25%

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 4-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

50%

Company X sells $600 of merchandise on account to Company Y with credit terms of 2/10, n/30. If Company Y sends payment, taking advantage of any discounts, what is the amount of Company Y's check?

588

If a loss of $20,000 is incurred in selling (for cash) office equipment having a book value of $80,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

60,000

Winston Company reported net income of $50,000 for the year. During the year, accounts receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is

65,000

Sales taxes collected by a retailer are recorded as

A credit to SALES TAX PAYABLE.

An asset which costs $29,800 and has accumulated depreciation of $8,000 is sold for $21,600. What amount of gain of loss will be recognized when the asset is sold?

A loss of $200.

Select ALL of the accounts that should be classified as "liability".

Accounts Payable

Management could determine the amounts due from customers by examining which ledger account?

Accounts Receivable

Select ALL of the accounts that should be classified as "assets

Accounts Receivable Machinery

Identify ALL of the following accounts that would be reported ONLY on the Balance Sheet and NOT on the Income Statement.

Accounts Receivable Supplies Dividends (Withdrawals)

On February 1, 2013, Fugit Company sells merchandise on account to Armen Company for $6,500. The entry to record this transaction by Fugit Company is

Accounts receivable 6,500 sales revenue 6,500

Ethics are the standards of conduct by which one's actions are judged as

All of the above. Right or Wrong, Honest or Dishonest, Fair or Unfair

The account, Supplies, will appear in the following debit columns of the worksheet.

All of these

Writing off an uncollectible account under the allowance method requires a debit to

Allowance for Doubtful Accounts.

Which of the following would be subtracted from net income using the indirect method?

An increase in accounts receivable

The board of directors of a corporation:

Are responsible for and have final authority for managing corporate activities

For the point - You must indicate ALL of the following accounts that are increased by a debit

Assets Expenses Dividends (Withdrawals)

Which one of the following represents the expanded basic accounting equation

Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues.

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

CH 10 True

A corporation is an entity which is separate and distinct from its owners

CH 11 TRUE

1.For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.

CH 13 FALSE

Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

CH 14 False

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale

CH5&6 True

Jeff Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Jeff Retailers will include a credit to Sales of $75,000 and a debit(s) to

Cash $72,000 and Service Charge Expense $3,000.

On JAN 01, BobCo borrows $100,000 from a bank by signing a $100,000, 8%, 6-month note. On JAN 01 BobCo records this transaction as:

Cash 100,000 notes payable 100,000

DCorp issued 10,000 shares of $10 par stock at $17. The correct entry is:

Cash 170,000 Common Stock 100,000 Paid in Capital in Excess of Par 70,000

A cash register tape shows cash sales of $2,500 and sales taxes of $150. The journal entry to record this information is

Cash 2,650 Sales Revenue 2,500 Sales Tax Payable 150

A $100 petty cash fund has cash of $13 and receipts of $84. The journal entry to replenish the account would include a credit to

Cash for $87.

A highly automated computerized system of accounting eliminates the need for internal control

Chapter 7 False

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Chapter 8 TRUE

Which one of the following is not a tool in financial statement analysis?

Circular analysis

Bonds that may be exchanged for common stock at the option of the bondholders are called

Convertible Bonds

An accountant has debited an asset account for $1,200 and credited a liability account for $500. What can be done to complete the recording of the transaction?

Credit a different asset account for $700.

From a liquidity standpoint, it is more desirable for a company to have their

Current assets exceed current liabilities.

Which of the following would not be classified a long-term liability?

Current maturities of long-term debt

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:

Debit Depreciation Expense, $100 ... and ... Credit Accumulated Depreciation, $100.

Which of the following journal entries is required to close the Income Summary account of a profitable company?

Debit INCOME SUMMARY ... and ... credit CAPITAL.

Lake of Fire Company purchased supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $2,400 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

Debit Supplies Expense, $4,600 ... and ... Credit Supplies, $4,600.

REM Real Estate received a check for $24,000 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 $24,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31:

Debit Unearned Rent, $4,000 ... and ... Credit Rent Revenue, $4,000.

The left side of an "T" account is

Debit side

Which one of the following is not a primary problem associated with accounts receivable

Depreciating accounts receivable

Which of the following would be added to net income using the indirect method?

Depreciation expense

Indicate where the event purchased land and a building with a mortgage would appear, if at all, on the indirect statement of cash flows.

Does not represent a cash flow

Allowance for Doubtful Accounts is a contra revenue account

FALSE

If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

FALSE

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the

FIFO method.

A company's calendar year and fiscal year are always the same

False

A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet

False

Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal

False

An aging of accounts receivable is based on the premise that the older the account the more likely that it will eventually be collected

False

Correcting entries are made are only made at the end of the accounting period, immediately before adjusting entries are made

False

Current assets are listed in alphabetical order.

False

Debit and credit can be interpreted to mean increase and decrease, respectively

False

Each bondholder may vote for the board of directors in proportion to the number of bonds held

False

If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance.

False

In a partnership or sole proprietorship, Retained Earnings is a part of owners' equity

False

Inventories are reported in the long-term assets section of the balance sheet

False

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

False

On a classified balance sheet, INVENTORY is classified as a long-term asset (also called plant and equipment).

False

Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.

False

Only large companies need to be concerned with a system of internal control

False

Sales minus operating expenses equals gross profit.

False

The Accumulated Depreciation account represents a cash fund available to replace plant assets

False

The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.

False

The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods

False

The current ratio is a measure of all the ratios calculated for the current year

False

The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

False

The private sector organization involved in developing accounting principles is the Financial Auditors' Standards Body

False

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items

False

The trial balance will not balance when incorrect account titles are used in journalizing or posting

False

Transactions are entered in the ledger accounts and then transferred to journals

False

Transactions are recorded in alphabetic order in a journal

False

Under the double-entry system, revenues must always equal expenses.

False

When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired

False

Which one of these payroll taxes is not a payroll tax expense of the employer?

Federal Income Tax

Indicate where the event common stock issued for cash would appear, if at all, on the indirect statement of cash flows.

Financing activities section

GAAP stands for

Generally Accepted Accounting Principles.

Which one of the following would not be considered an advantage of the corporate form of organization?

Government regulation

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Hardware store

Which of these is NOT a "Payroll Tax Expense" for businesses ?consists of FICA tax, federal unemployment tax, and state unemployment tax.

Health Insurance

The effect of the declaration of a cash dividend by the board of directors is to

Increase Liabilities ... AND ... Decrease Stockholders Equity

After preparing a bank reconciliation, which one of the these situations would require a journal entry

Interest earned on the company's checking account.

Each of the following is included in computing the acid-test ratio except

Inventory

For the point - you must indicate ALL of the following accounts that are increased by a credit

Liabilities Revenues Capital (Common Stock)

Reck Company receives a $10,000, 3-month, 8% promissory note from Fey Company in settlement of an open accounts receivable. What entry will Reck Company make upon receiving the note?

Notes receivable 10,000 Accounts Receivable 10,000

A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered recognized?

November 30.

If common stock is issued for an amount greater than par value, the excess should be credited to

Paid-in Capital in Excess of Par.

Which of the following steps in the accounting cycle would not generally be performed daily?

Prepare adjusting entries

Which of the following transactions would not be classified as a financing activity?

Purchase of a long-term investment in bonds

ZCorp has no preferred shares of stock. ZCorp declares a $100,000 cash dividend to its shareholders. Prepare the entry, on the date of declaration date, for the dividend. (Note: the dividend will actually be paid out next month).

Retained Earnings 100,000 Dividends Payable 100,000

Which of the following is a true statement about closing the books of a corporation?

Revenues and expenses are closed to the Income Summary account.

Identify ALL of the following accounts that would be reported ONLY on the Income Statement and NOT on the Balance Sheet.

Sales Revenue Rent Expense Interest Revenue

Which of the following would not result in unearned revenue?

Services performed on account

Which depreciation method is most frequently used in businesses today?

Straight-Line

A successful corporation can have a continuous and perpetual life

TRUE

If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.

TRUE

In the stockholders' equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified

TRUE

Notes payable usually require the borrower to pay interest

TRUE

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset

TRUE

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.

TRUE

The CAPITAL (Common Stock) account has a normal balance of $100,000. What is the correct journal entry to close this account during the normal closing process.

The capital (common stock) is not closed during the normal closing process. CH4

On AUG 4, Corp bought 10,000 shares of it's own stock. Market price On AUG 4 is $63 per share. The issue price of the stock 3 years prior was $20 per share while the original par value of the stock was $5 per share. Prepare the entry buying the stock.

Treasury Stock 630,000 Cash 630,000

A company whose current liabilities exceed its current assets may have a liquidity problem

True

A contra asset account is subtracted from a related account in the balance sheet

True

A current ratio of 1.2 to 1 indicates that a company's current assets exceed its current liabilities

True

A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the balance sheet accounts

True

A liability is classified as a current liability if the company is to pay it within the forthcoming year

True

A ratio can be expressed as a percentage, a rate, or a proportion

True

A statement of cash flows indicates the sources and uses of cash during a period.

True

Accountants refer to an economic event as a "transaction".

True

Accrued expenses are expenses incurred but not yet paid or recorded at the statement date

True

After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

True

Cash registers are an important internal control device used in controlling over-the-counter receipts

True

Closing entries are journalized after adjusting entries have been journalized.

True

Common size analysis expresses each item within a financial statement in terms of a percent of a base amount

True

Companies report cash in both the balance sheet and the statement of cash flows

True

Comparisons of company data with industry averages can provide some insight into the company's relative position in the industry.

True

Electronic funds transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another

True

Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs

True

Financial statements are the major means of communicating accounting information to interested parties

True

Free cash flow equals cash provided by operations less capital expenditures and cash dividends.

True

Goodwill is the excess of cost over the fair value of the net assets acquired.

True

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

True

If the purchase prices of inventory items are unchanging for multiple years, both LIFO and FIFO would deliver the same result in valuing Ending Inventory AND in determining Cost of Goods Sold.

True

If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income

True

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

True

Inventory turnover measures the number of times on the average the inventory was sold during the period

True

Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business

True

Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness

True

Recording depreciation on plant assets affects the balance sheet and the income statement

True

The book value of a depreciable asset is equal to the assets costs less its' accumulated depreciation

True

The expense recognition principle requires that expenses be matched with revenues.

True

The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost

True

The information in a statement of cash flows helps investors and creditors assess the company's ability to pay dividends and meet obligations

True

The number of common shares outstanding can never be greater than the number of shares issued.

True

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

True

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals

True

Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period

True

Vertical analysis is useful in making comparisons of companies of different sizes

True

Which of the following statements is correct with respect to inventories?

Under FIFO, the ending inventory is based on the latest units purchased.

If business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit

Unearned Rent Revenue

Par value of a stock refers to the

Value assigned to a share of stock by the corporate charter

On July 7, 2014, Hidden Camera Enterprises performed cash services of $1,700. The entry to record this transaction would include

a debit to Cash of $1,700.

Replenishing the petty cash fund requires

a debit to various expense accounts

Each of the following is added to net income in computing net cash provided by operating activities except

a gain on sale of equipment.

A successful grocery store would probably have

a high inventory turnover.

A proxy is:

a legal document that gives a designated agent of a stockholder the power to vote the stock

If a plant asset is retired before it is fully depreciated and no salvage value is received,

a loss on disposal occurs.

An aircraft company would most likely have

a low inventory turnover.

Bad Debts Expense is considered

a necessary risk of doing business on a credit basis

An account consists of

a title, a debit side, and a credit side.

On a bank reconciliation, deposits in transit are

added to the bank balance

In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will appear as a(n)

addition to net income.

After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the

adjusted trial balance.

An adjusting entry

affects a balance sheet account and an income statement account.

A stockholder is interested in the ability of a firm to

all of these.

Depreciation is the process of

allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

Cost allocation of an intangible asset is referred to as

amortization.

Using the indirect method, if equipment is sold at a gain, the

amount of the gain is deducted in the operating activities section.

A current asset is

an asset that a company expects to convert to cash or use up within one year.

The contractual interest rate is always stated as a(n)

annual rate

Liabilities

are existing debts and obligations

The book value of an asset is equal to the

asset's cost less accumulated depreciation

A balance sheet shows

assets, liabilities, and stockholders' equity.

Trade accounts receivable are valued and reported on the balance sheet

at net realizable value

The allowance method of accounting for uncollectible accounts is required if

bad debts are significant in amount

All of the financial statements are for a period of time except the

balance sheet.

Management should select the depreciation method that

best measures the plant asset's contribution to revenue over its useful life.

Preferred stockholders have a priority over common stockholders as to

both dividends and assets in the event of liquidation.

Inventories affect

both the balance sheet and the income statement.

The sale of receivables by a business

can be a quick way to generate cash for operating needs.

An employee authorized to sign checks should not record

cash disbursement transactions

Investing activities include

collecting cash on loans made.

Vertical analysis is also known as

common size analysis.

If a corporation has only one class of stock, it is referred to as

common stock.

Depreciation expense for a period is computed by taking the

cost of the asset ÷ useful life.

At March 1, 2013, Minutemen Corp. had supplies on hand of $500. During the month, Minutemen purchased supplies of $1,200 and used supplies of $1,400. The March 31 adjusting journal entry should include a

credit to the supplies account for $1,400.

TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and

credited a liability account for $2,100.

An account will have a credit balance if the

credits exceed the debits.

Any balance in an unearned revenue account is reported as a(n)

current liability

A supplier to a company would be most interested in the company's

current ratio.

Under the lower-of-cost-or-market basis in valuing inventory, market is defined as

current replacement cost.

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

debit CASH ... $ 360 debit SERVICE REVENUE ... $ 480 credit ACCOUNTS RECEIVABLE ... $ 840.

A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts for $94. The entry to replenish the fund would

debit Cash Over and Short for $2.

Income Summary has a credit balance of $17,000 after closing revenues and expenses. The entry to close Income Summary is

debit INCOME SUMMARY ... $17,000 credit CAPITAL ... $17,000

The entry to record an installment payment on a long-term note payable is

debit NOTE PAYABLE debit INTERET EXPENSE ... AND ... credit CASH

An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $700 debit balance, the adjustment to record bad debts for the period will require a

debit to Bad Debts Expense for $3,700.

On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include both

debit to SUPPLIES and ... a credit ACCOUNTS PAYABLE

Each of the following is a liquidity ratio except the

debt to total assets ratio.

The date a cash dividend becomes a binding legal obligation to a corporation is the

declartation date

The purchase of treasury stock

decreases common stock outstanding.

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

deducted from net income.

In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is

deducted from net income.

In preparing a bank reconciliation, outstanding checks are

deducted from the balance per bank.

Two methods of accounting for uncollectible accounts are the

direct write-off method and the allowance method

The use of cash register tapes is an example of

documentation procedures

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

does not affect income in the period it is collected.

An intangible asset

does not have physical substance, yet often is very valuable.

The percentage of sales basis of estimating expected uncollectibles

emphasizes the matching of expenses with revenues.

An unacceptable way to make a correcting entry is to

erase the incorrect entry.

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

expensed when incurred.

A net loss will result during a time period when

expenses exceed revenues.

If the adjusting entry for depreciation is not made,

expenses will be understated

A small company may be able to justify using a cash basis of accounting if they have

few receivables and payables.

The term "FOB" denotes

free on board

A truck that cost $48,000 and on which $40,000 of accumulated depreciation has been recorded was disposed of for $12,000 cash. The entry to record this event would include a

gain of $4,000.

Deposits in transit

have been recorded on the company's books but not yet by the bank.

The declaration and distribution of a stock dividend will

have no effect on total assets.

Secured bonds are bonds that

have specific assets of the issuer pledged as collateral.

Asset turnover measures

how efficiently a company uses its assets to generate sales.

The double-entry system requires that each transaction must be recorded

in at least two different accounts.

When the allowance method of accounting for uncollectible accounts is used, Bad Debts Expense is recorded

in the same year as the credit sale.

The revenue recognition principle dictates that revenue be recognized in the accounting period

in which the services are performed.

Collection of a $1,000 Accounts Receivable

increases an asset $1,000; decreases an asset $1,000

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

interest must be paid on a periodic basis regardless of earnings.

Each payment on a mortgage note payable consists of

interest on the unpaid balance of the loan and reduction of loan principal.

Monthly and quarterly time periods are called

interim periods.

Lending money and collecting the loans are

investing activities.

Using the indirect method, patent amortization expense for the period

is added to net income.

The net income (or loss) for the period

is found by computing the difference between the income statement columns of the worksheet.

Allowance for Doubtful Accounts on the balance sheet

is offset against accounts receivable

A business organized as a corporation

is owned by its stockholders.

Financing activities involve

issuing debt.

A general rule to use in assessing the average collection period is that

it should not greatly exceed the credit term period.

If a company has overdrawn its bank balance, then

its cash account will show a credit balance.

The name given to entering transaction data in the journal is

journalizing.

Equipment that cost $210,000 and on which $100,000 of accumulated depreciation has been recorded was disposed of for $90,000 cash. The entry to record this event would include a

loss of $20,000.

If bonds are issued at a discount, it means that the

market interest rate is higher than the contractual interest rate.

When a note receivable is honored, Cash is debited for the note's

maturity value.

If a company reports a net loss, it

may still have a net increase in cash.

A credit balance in Cash Over and Short is reported as a(n)

miscellaneous revenue.

Orr Corporation sold equipment for $18,000. The equipment had an original cost of $54,000 and accumulated depreciation of $27,000. As a result of the sale,

net income will decrease $9,000.

After gross profit is calculated, operating expenses are deducted to determine

net income.

A check returned by the bank marked "NSF" means

not sufficient funds.

Sales taxes collected from a customer by Wal-Mart are expenses

of the customer.

Generally, the most important category on the statement of cash flows is cash flows from

operating activities.

The cash effects of transactions that create revenues and expenses are

operating activities.

The order of presentation of activities on the statement of cash flows is

operating, investing, and financing.

Most companies pay current liabilities

out of current assets.

An adjusting entry is not required for

outstanding checks.

Stockholders' equity can be described as

ownership claim on total assets.

Prepaid expenses are

paid and recorded in an asset account before they are used or consumed.

According to GAAP, Amazon.com should recognize SALES REVENUE when

payment is received from customer.

Cash equivalents include each of the following except

petty cash.

An income statement

presents the revenues and expenses for a specific period of time.

A measure of the percentage of each dollar of sales that results in net income is

profit margin.

Long-term creditors are usually most interested in evaluating

profitability and solvency.

Unearned revenues are

received and recorded as liabilities before they are earned.

The most important information needed to determine if companies can pay their current obligations is the

relationship between current assets and current liabilities.

Unearned Rent Revenue is

reported as a current liability.

The control principle related to not having the same person authorize and pay for goods is known as

segregation of duties.

The direct write-off method

shows only actual losses from uncollectible accounts receivable.

A bank statement

shows the activity which increased or decreased the depositor's account balance

The normal balance of any account is the

side which increases that account.

A weakness of the current ratio is

that it doesn't take into account the composition of the current assets

A change in the estimated useful life of equipment requires

that the amount of periodic depreciation be changed in the current year and in future years.

In recording an accounting transaction in a double-entry system

the amount of the debits must equal the amount of the credits.

Accountants do not attempt to measure the change in a plant asset's market value during ownership because

the assets are not held for resale

Stockholders of a corporation directly elect

the board of directors.

Andre Dickinson, owner of Andre's Fine Wines, also owns a personal residence that costs $475,000. The market value of his residence is $625,000. During preparation of the financial statements for Andre's Fine Wines, the accounting concept most relevant to the presentation of Andre's home is

the economic entity assumption.

Auditing is

the examination of financial statements by a CPA in order to express an opinion on their fairness.

The LIFO inventory method assumes that the cost of the latest units purchased are

the first to be allocated to cost of goods sold.

Inventory is reported in the financial statements at

the lower-of-cost-or-market.

The debt to total assets ratio measures

the percentage of the total assets provided by creditors.

A prior period adjustment that corrects income of a prior period requires that an entry be made to

the retained earnings account.

If a business has several types of long-term assets such as equipment, buildings, and trucks,

there should be separate accumulated depreciation accounts for each type of asset.

If employees are bonded

they have been insured against misappropriation of assets.

Horizontal analysis is also called

trend analysis.

The current ratio is

used to evaluate a company's liquidity and short-term debt paying ability.

The relationship between current liabilities and current assets is

useful in evaluating a company's liquidity.

The interest rate specified on any note is for a

year