Accounting Final
On September 1, 2015, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2016?
$1,000 x 12% x 2/12 = $20
Allen Inc. took out a 1-year, 8%, $100,000 loan on March 31, 2015. Interest is due upon maturity of the loan. The loan and interest must be paid back on March 31, 2016. As of December 31, 2015, what amount, if any, should Allen Inc. report for interest payable?
$100,000 x 8% x 9/12 = $6,000.
Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders' equity, $25,000; dividends, $3,000; and net income, $10,000. What is the amount of Emmitt's liabilities?
$30,000
The balance sheet of Storage Solutions reports total assets of $300,000 and $350,000 at the beginning and end of the year, respectively. The cash return on assets for the year is 10%. What is Storage Solutions' net cash flows from operating activities for the year
$32,500 (300000+350000/2)(.1) = 32500
DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance?
$32,900
If total change in cash = $44,000, net operating cash flows = $22,000, and net investing cash flows = ($13,000); then net financing cash flows =
$35,000
Data Solutions reports operating expenses of $5 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $120,000 and $80,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses
$4,960,000 120000 -80000 = 40000 5000000 - 40000 = 4960000
During the year, Victory Solutions: (1) received cash of $5,000 billed to a customer in 2014; (2) earned $20,000 of net income; (3) paid interest of $6,000 on a corporate bond issued; (4) paid dividends of $8,000 to its stockholders; (5) borrowed $40,000 from a local bank; and (6) purchased its own shares of common stock for $10,000. What is Victoria Solution's cash flow from financing activities
$40,000 − $8,000 − $10,000 = $22,000
Schneider Inc. purchases its inventory from suppliers on account. During the year, its Inventory account increased by $10 million and its accounts payable to suppliers decreased by $3 million. Cost of goods sold was $440 million, its cash outflows to inventory suppliers totaled:
$453 million 440 + 10 (for increase in inventory) + 3 (decrease in accounts payable)
McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 3% of the sale. When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would
$6
Data Solutions reports cost of goods sold of $75 million. Inventory at the beginning and end of the year are $8 million and $9 million, respectively. Accounts payable at the beginning and end of the year are $5 million and $3 million, respectively. What is the amount of cash paid to suppliers?
$78 million 75+1+2 = 78
Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000.
$8,000
On March 3, Cobra Inc. purchased a desk for $450 on account. On March 22, Cobra purchased another desk for $500 also on account, and then on March 24, Cobra paid $400 on account. At the end of March, what amount should Cobra report for desks (assuming these two desks were the only desks they had)?
$950.
Consider the following transactions: Issued common stock for cash. Purchased equipment by signing a note payable. Paid rent for the current month. Collected cash from customers on account. How many of these four transactions increased the given company's total assets?
(1) Issued common stock for cash and (2) purchased equipment by signing a note payable
The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash return on assets?
175000/((750000+800000)/2) = 22.6%
The balance sheet of Computer World reports total assets of $350,000 and $450,000 at the beginning and end of the year, respectively. Sales revenues are $800,000, net income is $100,000, and net cash flows from operating activities are $150,000. What is Computer World's cash flow to sales?
18.8% 150000/800000
which of the following will be on the balance sheet accounts payable cash utility expense common stock retained earnings supplies salaries expense service revenue
Accounts Payable, Cash, Common Stock, Supplies, and Retained Earnings
Amounts owed to suppliers for supplies purchased on account are defined as:
Accounts Payable.
Common examples of cash equivalents include
Accounts Receivable
Which of the following ratios is most useful in evaluating liquidity?
Acid-test ratio
In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n)
Addition to net income in the operating activities section.
Which of the following is(are) true regarding the characteristics of adjusting entries?
Adjusting entries allow for the proper recognition of revenue and expenses
Which of the following regarding adjusting entries is correct
Adjusting entries are needed because we use accrual-basis accounting
Materiality is based upon which factor(s)?
Amount and nature of an item.
Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue?
April
The accounting equation is defined as:
Assets = Liabilities + Stockholder's Equity
When a company issues common stock for cash, what is the effect on the accounting equation for the company?
Assets increase and stockholders' equity increases
Which of the accounts are increased with a debit and decreased with a credit?
Assets, dividends, and expenses
Suppose that the balance of a company's Allowance for Uncollectible Accounts was $6,200 (credit) at the end of 2015, prior to any adjustments. The company estimated that the total of uncollectible accounts in its accounts receivable was $44,300 at the end of 2015. What amount of bad debt expense would appear in the company's 2015 income statement?
Bad Debt Expense = $44,300 - $6,200 = $38,100
Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due, 10% of receivables less than 30 days past due, and 40% of receivables greater than 30 days past due. The accounts receivable balance of $7,000 consists of $3,500 not yet due, $2,000 less than 30 days past due, and $1,500 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense? **Allowance for uncollectible accounts = $400
Bad Debt Expense = ($3,500 x 2%) + ($2,000 x 10%) + ($1,500 x 40%) − $400 = $470
Liabilities are shown in which of the following statements?
Balance Sheet
Which of the following is a positive sign that a company is selling its inventory quickly?
Both a high inventory turnover ratio and a low average days in inventory
Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the balance of Gotebo's Cash account following these six transactions?
Cash = ($15,000 − $1,200 + $14,000 − $10,000) = $17,800
A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June. What would the impact of these transactions be during May on each of the following three items?
Cash Balance: No Effect Cash Basis Net Income: No Effect Accrual Basis Net Income: Decrease
A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on each of the following three items?
Cash Balance: No Effect Cash Basis Net Income: No Effect Accrual Basis Net Income: Increase
We can separate cash return on assets into
Cash flow to sales and asset turnover
Which of the following is NOT correct regarding the reporting of cash a) Cash is reported in both the balance sheet and the statement of cash flows b) Cash flows from buying and selling investments and long-term productive assets are called operating cash flows c) Cash flows from transactions with stockholders and creditors are called financing cash flows d) Net cash flows reported in the statement of cash flows should equal the change in cash reported in the balance sheet
Cash flows from buying and selling investments and long-term productive assets are called operating cash flows
Prepayments occur when:
Cash payment (or an obligation to pay cash) occurs before the expense recognition
Which of the following items is reported in the operating section of the statement of cash flows using the direct method?
Cash received from customers
How many of these accounts have a normal debit balance? cash service revenue salaries expense accounts payable equipment retained earning utilities expense accounts receivable common stock dividends
Cash, Salaries Expense, Equipment, Utilities Expense, Accounts Receivable, Dividends
On July 1, 2015, Rents-A-Lot Inc. paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2016 financial statements for Rents-A-Lot under both cash-basis and accrual-basis accounting?
Cash-basis = $0; Accrual-basis = $24,000. **No cash is paid in 2016, so cash-basis rent expense equals $0. The monthly rent costs equal $2,000 ($72,000/36 months) per month, so the accrual-basis rent expense for 2016 equals $24,000 ($2000 * 12 months).
Which of the following is considered cash for financial reporting purposes?
Checks received from customers
The closing process includes
Closing the balances of revenue, expense and dividend accounts to zero
Which of the following is an example of vertical analysis?
Comparing income statement items as a percentage of sales
Which of the following is an example of horizontal analysis?
Comparing the growth in sales over time.
A customer purchased a $2,000 item at ApplianceWorld, paying with a credit card. ApplianceWorld is charged a 2% fee by the credit card company. When recording this sale, ApplianceWorld would:
Credit Sales Revenue for $2,000
Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records this transaction with a:
Credit to Notes Payable
After preparing a bank reconciliation, the collection of a note by the bank on a company's behalf would be recorded with a
Credit to Notes Receivable
Childers Service Company provides services to customers totaling $3,000, for which it billed the customers. How would the transaction be recorded?
Debit Accounts Receivable $3,000, credit Service Revenue $3,000
Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as:
Debit Cash, credit Service Revenue
Summer Leasing received $12,000 for 24 months rent in advance. How should Summer record this transaction?
Debit Cash; credit Unearned Revenue
Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are
Debit Prepaid Rent, credit Cash.
Daniel Dino Restaurant owes employee salaries of $15,000. This would be recorded as
Debit Salaries Expense, credit Salaries Payable
Which of the following is a possible closing entry
Debit Service Revenue, credit Retained Earnings
Sooner purchased office supplies on account. The transaction would be recorded as
Debit Supplies, Credit Accounts Payable
When a company pays utilities of $1,800 in cash, the transaction is recorded as:
Debit Utilities Expense $1,800, credit Cash $1,800
At the end of 2015, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2015, to record its estimated uncollectible accounts included a:
Debit to Bad Debt Expense of $7,500 credit to Allowance for Uncollectible Accounts of $7,500
Expenses normally carry a _______ balance and are shown in the ______________
Debit; Income statement
Which of the following ratios is most useful in evaluating solvency?
Debt to equity ratio
Liabilities are best defined as
Debts or obligations the company owes resulting from past transactions
An expense has what effect on the accounting equation?
Decrease stockholders' equity
Assuming an acid-test ratio of 1.0, how will the purchase of inventory with cash affect the ratio
Decrease the acid-test ratio.
Cash transactions that have been recorded by the company but not the bank include:
Deposits outstanding
Which of the following items is not reported in the operating section of the statement of cash flows using the direct method a) Depreciation expense b) Cash paid to suppliers c) Cash received from customers d) Cash paid for income taxes
Depreciation expense
The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the:
Economic entity assumption
Cash received from issuing common stock would be classified in which section of the Statement of Cash Flows
Financing
Net income (loss) appears in which two financial statements?
Income statement and statement of stockholders' equity
Providing services and receiving cash will
Increase assets and increase stockholders' equity
Separation of duties refers to
Individuals who have physical responsibility for assets should not also have access to accounting records
On April 1, a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance. At the end of the year, the financial statements would report:
Insurance Expense, $3,600; Prepaid Insurance $1,200. **$4,800/12 months = $400 per month. $400 × 9 months = $3,600 (Insurance Expense). Three months ($1,200 = $400 × 3 months) of Prepaid Insurance remain.
The purchase of land is classified in the statement of cash flows as a(n)
Investing activity
Consider the following items: Land Accounts Receivable Notes Payable (due in three years) Accounts Payable Retained Earnings Prepaid Rent Unearned Revenue Buildings Notes Payable (due in six months) Equipment How many of the items listed above are generally long-term assets?
Land, Buildings, and Equipment.
Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions?
Liabilities = ($12,000 + $300) = $12,300
Purchasing office equipment on account has what impact on the accounting equation?
Liabilities increase and assets increase
A trial balance represents the
List of all accounts and their balances at a particular date to ensure that debits equal credits
Which of the following statements is true a) Investment in another company's common stock is classified as a cash outflow from financing activities on the Statement of Cash Flows b) Repayment of long-term debt is classified as a cash outflow from investing activities on the Statement of Cash Flows c) Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the Statement of Cash Flows under the indirect method d) Dividends paid are classified as a cash outflow from operating activities on the Statement of Cash Flows
Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the Statement of Cash Flows under the indirect method
Under the provisions of the Sarbanes-Oxley Act, auditors must a) Provide nonaudit services for their clients b) Audit public companies whose chief executives worked for the audit firm in the preceding year c) Be hired by company management d) Maintain working papers for at least seven years following an audit
Maintain working papers for at least seven years following an audit
We calculate cash return on assets as
Net cash flows from operating activities divided by average total assets
Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000; sales discounts = $12,000; sales returns = $44,000; sales allowances = $17,000. What was the company's net revenues for the year?
Net revenues = $550,000 − $12,000 − $44,000 − $17,000 = $477,000
Assuming a current ratio of 1.0, how will the purchase of inventory with cash affect the ratio?
No change to the current ratio
Lail Inc. accounts for bad debts using the allowance method. On June 1, Lail Inc. wrote off Andrew Green's $2,500 account. Based on Lail's estimation, Andrew Green will never pay any portion of the balance in his account. What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off
No effect
Richard LLC accounts for possible bad debts using the allowance method. When an actual bad debt occurs, what effect does it have on the accounting equation
No effect on the accounting equation
Pumpkin Inc. sold $500 in pumpkins to a customer on account on January 1. On January 11 Pumpkin collected the cash from that customer. What is the impact on Pumpkin's accounting equation from the collection of cash?
No net effect to the accounting equation
A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?
November
The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows
Operating
The statement of cash flows reports cash flows from the activities of
Operating, investing, and financing
Which one of the following is correct about the statement of cash flows a) A company with a net loss will always have a cash outflow from operating activities b) Collecting interest earned from a note receivable creates a cash inflow from investing activities c) Paying dividends to investors creates a cash outflow from financing activities d) The repayment of long-term debt is a cash inflow from financing activities
Paying dividends to investors creates a cash outflow from financing activities
During the year, Next Tec Corp. had the following cash flows: receipt from customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to suppliers, $5,000; payment of dividends, $1,000, payment to workers, $2,000; and payment for machinery, $8,000. What amount would be reported for investing cash flows on the Statement of Cash Flows
Payment for machinery, $8,000
Which of the following is true concerning temporary and permanent accounts
Permanent accounts represent activity over the entire life of the company.
The conceptual framework's qualitative characteristic of relevance includes:
Predictive value.
Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits
Prepare a trial balance
Cash flows from investing activities do not include
Proceeds from the issuance of common stock
The International Accounting Standards Board:
Promotes the use of high-quality, understandable global accounting standards
Financial accounting:
Provides information primarily for external decision makers
Investing cash flows would include which of the following a) Payment of cash dividends to stockholders b) Purchase of office supplies with cash c) Purchase of a building with cash d) Cash sales to customers
Purchase of a building with cash
Which of the following is an example of a noncash activity?
Purchase of land by issuing debt
External events include
Purchasing equipment, Collecting an account receivable, Paying employees' salaries
Which of the following describes the purpose(s) of closing entries
Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period
When a company makes an end-of-period adjusting entry that includes a credit to Prepaid Rent, the debit is usually made to:
Rent Expense.
The revenue recognition principle states that:
Revenue should be recognized in the period earned.
Which of the following accounts has a debit balance
Salaries Expense.
Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flow?
Salaries Payable Increase
Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?
Salaries payable increase
When a company incurs employee salaries but does not pay them, how will the basic accounting equation be affected?
Stockholders' equity decreases.
The ending balance of Retained Earnings can best be described as
The amount of net income over the life of the company not paid to owners in the form of dividends.
If accounting information is considered to have faithful representation, then
The information represents to users what it claims to represent
A discontinued operation refers to
The sale or disposal of a significant component of a company's operations
Which one of the following statements regarding financial reports is correct? a) The balance sheet classifies all assets according to operating, investing, and financing activities. b) The income statement is used to show that a company's resources equal claims to those resources. c) The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year. d)The statement of cash flows shows cash inflows and outflows from operating activities only
The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year
Financial reporting objectives do not include providing information
To determine market values, assess profit potential, and evaluate management
When using vertical analysis, we express balance sheet accounts as a percentage of
Total assets
The meaning of total stockholders' equity?
Total stockholders' equity equals the amount of common stock plus retained earnings. Common stock is the amount of capital invested by stockholders, and retained earnings are profits retained over the life of the company
The act of collusion refers to:
Two or more people acting in coordination to circumvent internal controls
The primary purpose of closing entries is to:
Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions
Which of the following is an aggressive accounting practice?
Waiting to record a litigation loss
At the beginning of the year, Vici Ventures had accounts receivable of $220,000. At the end of the year, the company had accounts receivable of $340,000. During the year, Vici had total sales of $1,000,000, 70% of which were credit sales. What was Vici's receivables turnover ratio for the year?
[($1,000,000 x .70)/($220,000 + $340,000)/2] = 2.50
Adjusting entries are primarily needed for:
accrual based accounting
The Unearned Revenue account is shown in which statement?
balance sheet
Which of the following financial statements reports a company's retained earnings? a) income statement b) balance sheet c) statement of cash flows d) all of these
balance sheet
Which of the following items would not appear in an income statement? a) salaries expense b) advertising expense c) service revenue d) cash
cash
Cash transactions recorded by the bank but not yet recorded by the company include all of the following except a) service fees b) interest earned c) Checks outstading d) NSF checks
checks outstanding
Constraints on qualitative characteristics of accounting information include
cost effectiveness
The adjusting entry required to record accrued expenses includes
credit to liability
On July 5, Harris Company purchased supplies from the hardware store for $600 on account. On July 10, Harris receives a bill from the hardware store as a reminder about the account balance. On July 17, Harris pays the account in full. How does Harris record the transaction on July 17?
debit accounts payable, credit cash
On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on December 5. How would Flores record the collection of cash on December 5?
debit cash for $8000, credit accounts receivable for $8000 ** No sales discount is awarded because payment is not received within 10 days.
Which of the following would not typically be used as an adjusting entry?
debit cash, credit unearned revenue
On August 1, 2015, Turner Manufacturing lends cash and accepts a $6,000 note receivable that offers 8% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2015?
debit interest receivable for $200 credit interest revenue for $200
On July 1, 2015, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2015 through December 2016. What adjusting entry should Charlie Co. record on December 31, 2015
debit rent expense, credit prepaid rent
Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 23, assuming the customer made the correct payment on that date?
debit: cash $45,540 & sales discount $460 credit: accounts receivable $46,000 ** $46,000 x 1% = 460; $46,000 − 460 = $45,540
Which one of the following accounts would NOT have a balance after closing entries? a) unearned revenue b) supplies c) prepaid rent d) dividends
dividends
Cash flows from financing activities include:
dividends paid
One disadvantage of the corporate form of business is
double taxation
The costs of providing goods and services to customers are referred to as
expenses
Issuing common stock for cash is considered a(n):
financing cash flow
Receiving cash from an account receivable
increases one asset and decreases another asset
Permanent accounts would not include
interest expense
Creditors' claims to a corporation's resources are referred to as
liabilities
The accounts that represent resources owed to creditors are called:
liabilities
The owner of an office building should report rent collected in advance as a debit to Cash and a credit to:
liability
The matching principle is the principle that states:
ll costs that are used to generate revenue are recorded in the period the revenue is recognized
Which of the following is a sign that a company cannot quickly turn its receivables into cash?
low receivables turnover ratio.
Which of the following groups is not among the external users for whom financial statements are prepared? a) creditors b) regulators c) investors d) managers
managers
Which of the following accounting principles states that expenses are recognized in the same period as the revenues they help to generate
matching
Which financial accounting number impacts stock prices more than any other single piece of information?
net income
When a company pays cash for equipment, what is the effect on the accounting equation for that company?
no change
Providing services to customers on account is considered a(n):
not a cash flow
The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash flow to sales
operating cash flows = 175000 sales = 1.5 million operating cash flows / sales = cash flow to sales = 11.7%
Which element of the fraud triangle do companies have the greatest ability to eliminate?
opportunity
Which of the following is an operating activity? a) issuing common stock b) paying dividends c) borrowing cash from a bank to acquire a factory d) paying electricity bills for the month
paying electricity bills for the month
Of the following, the most important objective for financial reporting is to provide information useful for: a) Predicting cash flows b) Determining taxable income c) Providing accountability. d) Increasing future profits
predicting cash flows
Making insurance payments in advance is an example of:
prepaid expense
Giving only management the right to make purchases over a certain amount is an example of which preventive control?
proper authorization
On cash basis, expenses are
recorded the time the cash is paid
"Record revenue in the period in which it's earned" is the definition of which principle in accounting
revenue recognition
Net income can best be described as:
revenues minus expenses
Temporary accounts would not include
salaries payable
The owners' interest in a corporation is called:
stockholder's equity
Expenses are shown in
the income statement
