Accounting 120 Exam Reveiw
Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% of the first $118,500 earned each calendar year, and the FICA tax rate for Medicare is 1.45% of all earnings for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings?
$1,027.86 Explanation: Total Taxes = Federal Income Tax + FICA-SS Tax + FICA-Medicare Tax Total Taxes = $680.70 + $281.36* + $65.80** = $1,027.86 *FICA-SS Tax $4,538.00 * 0.062 = $281.36* *FICA-Medicare Tax $4,538.00 * 0.0145 = $65.80
Gary Marks is paid on a monthly basis. For the month of January of the current year, he earned a total of $8,288. FICA tax for Social Security is 6.2% on the first $118,500 of earnings each calendar year and the FICA tax for Medicare is 1.45% of all earnings. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $1,375.17. What is the amount of the employer's payroll taxes expenses for this employee? (Round your intermediate calculations to two decimal places.)
$1,054.04 Explanation: Payroll Taxes = FICA-SS Tax + FICA-Medicare Tax + FUTA Tax + SUTA Tax Payroll Taxes = $513.861 + $120.182 + $42.003 + $378.004 = $1,054.04 FICA—Social Security $8,288 * 0.062 = $513.86 FICA—Medicare $8,288 * 0.0145 = $120.18 FUTA $7,000 * 0.006 = $42.00 SUTA $7,000 * 0.054 = $378.00
Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Net income equals:
$115,000. Explanation Net Income = $800,000 - $12,000 - $18,000 - $380,000 - $275,000 = $115,000
Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?
$124. Explanation: (10 units * $10) + (2 * $12) = $124
Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $17,025. Clayborn's May bank statement shows $15,800 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit$5,200 Outstanding checks$4,600 Bank service fees, not yet recorded by company$25 An NSF check from a customer, not yet recorded by the company$600 The adjusted cash balance should be:
$16,400 Explanation: Bank balance $15,800 + Deposit in transit 5,200 - Outstanding checks -4,600 Adjusted bank balance $16,400 Book balance $17,025 Bank service fees -25 NSF returned -600 Adjusted book balance$16,400
Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $18,361 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following: Deposit in transit 1,450 Outstanding checks 837 Additionally, a $29 check written and recorded by the company correctly was recorded by the bank as a $92 deduction.The adjusted cash balance per the bank records should be:
$19,037 Explanation: Bank balance $18,361 + Deposit in transit 1,450 - Outstanding checks -837 + Bank error 63 Adjusted bank balance $19,037
Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is:
$2,500. Explanation Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = $60,000 * (2 * 25%) = $30,000 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = ($60,000 - $30,000) * (2 * 25%) = $15,000 (Deprec. Exp, year 2) Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = ($60,000 - $45,000) * (2 * 25%) = $7,500 (Deprec. Exp, year 3) Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = ($60,000 - $52,500) * (2 * 25%) = $3,750, but this would reduce the book value to less than salvage. Therefore, depreciation expense in year 4 is limited to $2,500.(Book value at the beginning of the year, $7,500, minus the $5,000 salvage.)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to ending inventory using LIFO. May 1 Beginning Inventory 150 units @ $10.00 5 Purchase 220 units @ $12.00 10 Sales 140 units @ $20.00 15 Purchase 100 units @ $13.00 24 Sales 90 units @ $21.00
$2,590 Explanation (150 * $10 = $1,500) + (80 * $12 = $960) + (10 * $13 = $130) = $2,590
Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the book value of the asset at the end of the first year of its useful life using the double-declining-balance method?
$2,720. Explanation: Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = $3,400 * (2 * 10%) = $680 (Year 1, depreciation) Book value = Cost - Accumulated depreciation$3,400 - $680 = $2,720
Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what is the value of inventory after the October 4 sale?
$3,445. Explanation: Units in inventory = 8 + 20 - 11 = 17 (8 units * $200) * (9 units * $205) = $3,445
McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what is the value of inventory after the October 4 sale?
$3,485. Explanation Units in inventory = 8 + 20 - 11 = 1717 units * $205 = $3,485
Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:
$4,000. Explanation: Cost-Salvage Value/Useful Life = 24,000 - 4,000 = 20,000 / 5 = 4,000
A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:
$4,000.50. Explanation: Cash Paid = [($4,000 - $275) * .98] + $350 = $4,000.50 No discount may be taken on the transportation costs.
In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information: Cash balance per company books on January 30 $4,725 Deposits in transit at month-end $1,800 Outstanding checks at month-end $520 Bank service charges $25 EFT automatically deducted monthly, not yet recorded by Maxi $380 An NSF check returned on a customer account $265 The adjusted cash balance per the books on January 31 is:
$4,055 Explanation Book balance $4,725 - bank service charges -25 - EFT -380 - NSF check returned by bank -265 Adjusted book balance $4,055
An employee earned $4,600 in February working for an employer. Cumulative earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security is 6.2% of the first $118,500 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount the employer should record as payroll taxes expense for the month of February?
$483.90 Explanation: Employer Taxes = FICA Social Security + FICA Medicare + FUTA + SUTA Employer Taxes = $285.20* + $66.70** + $13.20*** + $118.80*** = $483.90 *FICA-SS Tax $4,600 × 0.062 = $285.20* *FICA-Medicare Tax $4,600 × 0.0145 = $66.70* **Wages taxable for Unemployment = $7,000 − $4,800 = $2,200FUTA = $2,200 × 0.006 = $13.20; SUTA = $2,200 × .054 = $118.80
Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?
$544. Explanation: Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = $3,400 * (2 * 10%) = $680 (Year 1, depreciation) Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = ($3,400 - $680) * (2 * 10%) = $544 (Year 2, depreciation)
Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?
$680. Explanation: Depreciation Expense = Beginning of Year Book Value * Double Straight-line RateDepreciation Expense = $3,400 * (2 * 10%) = $680 (Year 1, depreciation)
An employee earns $5,500 per month working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The employee has $182 in federal income taxes withheld. The employee has voluntary deductions for health insurance of $150 and contributes $75 to a retirement plan each month. What is the amount the employer should record as payroll taxes expense for the employee for the month of January?
$750.75 Explanation: Payroll Tax Expense = FICA-SS Tax(1) + FICA-Medicare Tax(2) + FUTA Tax(3) + SUTA Tax(4) Payroll Tax Expense = $341 + $79.75 + $33 + $297 = $750.75 (1)FICA-SS Tax $5,500 × 0.062 = $341.00 (2)FICA-Medicare Tax $5,500 × 0.0145 = $79.75 (3)FUTA Tax $5,500 × 0.006 = $33.00 (4)SUTA Tax $5,500 × 0.054 = $297.00
A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of accumulated depreciation at the end of the second year?
$81,600. Explanation: Depreciation Expense = [(Cost - Salvage Value)/Estimated Useful Life (in units)] * Units Produced Depreciation per unit = ($190,000 - $10,000)/75,000 units = $2.40 per unit Accumulated Depreciation = $2.40 * (15,000 + 19,000) = $81,600
A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:
$9,424. Explanation: Cash Paid = $10,000 - $800 = $9,200 * .97 = $8,924 + $500 = $9,424
The formula to compute annual straight-line depreciation is:
(Cost minus salvage value) divided by the useful life in years.
The credit terms 2/10, n/30 are interpreted as:
2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
A liquidating dividend is:
A return of a portion of the original investment back to the stockholders.
On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. The journal entry or entries that Klein will make on March 12 is:
Accounts receivable 7,800 Sales 7,800 Cost of goods sold 4,500 Merchandise Inventory 4,500
Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:
Bad Debts Expense 2,000 Accounts Receivable—A. Hopkins 2,000
Gaston owns equipment that cost $90,500 with accumulated depreciation of $61,000. Gaston asks $30,000 for the equipment but sells the equipment for $26,000. Which of the following would not be part of the journal entry to record the disposal of the equipment?
Credit Gain on Disposal of Equipment $3,500. Explanation: Gain/Loss on Sale = Cash Received - Book Value Gain/Loss on Sale = $26,000 - ($90,500 - $61,000); Loss of $3,500 Cash $26,000 Accumulated Depreciation 61,000 Loss on Sale 3,500 Equipment $90,500
Spencer Co. has a $200 petty cash fund. At the end of the first month the accumulated receipts represent $43 for delivery expenses, $127 for merchandise inventory, and $12 for miscellaneous expenses. The fund has a balance of $18. The journal entry to record the reimbursement of the account includes a:
Credit to Cash for $182.
The amount of federal income taxes withheld from an employee's paycheck is determined by:
Current earnings for the pay period and number of withholding allowances the employee claims.
A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per share. The entry to record this transaction would be:
Debit Cash $27,500; credit Common Stock $27,500.
Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 7 years with a $1,000 salvage value. The journal entry to record the first year's depreciation is:
Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000. Explanation Depreciation Expense = (Cost - Salvage Value)/Estimated Useful Life Depreciation Expense = ($15,000 - $1,000)/7 = $2,000
A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, The correct journal entry to record the purchase on July 5 is:
Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the dividend declaration is:
Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100 Explanation $0.55 * (190,000 shares - 8,000 shares) = $100,100
Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record the dividend declaration is:
Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000; credit Paid-In Capital in Excess of Par Value, Common Stock $35,000. Explanation: Retained earnings: 50,000 shares * 10% × $27 = $135,000 Common Stock Dividend Distributable: 50,000 shares * 10% × $20 = $100,000 Paid-in Capital in Excess of Par Value, Common Stock: 50,000 shares * 10% * $7 = $35,000
West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is:
Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000. Explanation: $0.50 * (190,000 shares - 10,000 shares) = $90,000
On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
Deducted from the book balance of cash.
A company sells garden hoses and uses the perpetual inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during September were as follows: September 1: Beginning balance of 18 units at $13 each September 12: Purchased 30 units at $14 each September 19: Sold 24 units at $30 selling price each September 20: Purchased 24 units at $17 each September 27: Sold 27 units at $30 selling price each If the ending inventory is reported at $276, what inventory method was used?
LIFO method. Explanation: (refer to ACC120 Study guide)
On May 1, Anders Company purchased merchandise in the amount of $5,800 from Shilling, with credit terms of 2/10, n/30. Anders uses the perpetual inventory system and the gross method. The journal entry or entries that Anders will make on May 1 is:
Merchandise Inventory 5,800 Accounts payable 5,800
The rate that a state assigns reflecting a company's stability or instability in employing workers is the:
Merit rating.
All of the following statements related to U.S. GAAP and IFRS are true except:
Neither system requires separate disclosure of items when their size, nature, or frequency are important.
A debit memorandum is:
The document a buyer issues to inform the seller of a debit made to the seller's account payable in the buyer's records.
Stock that was reacquired and is still held by the issuing corporation is called:
Treasury stock.
