Accounting Review Sheet

Mayfair Company uses an allowance method to account for bad debts. They estimate that 5% of the outstanding Accounts Receivable will be uncollectible. At the end of the year, Mayfair has outstanding accounts receivable of $750,000, and a credit balance in the Allowance for Doubtful Accounts of $9,000. Mayfair should record bad debt expense of: a. $28,500 b. $37,500 c. $46,500 d. $55,500

a. $28,500

83 units were sold from Somerton Industries. Using the LIFO method of inventory costing, what is the value assigned to COGS? a. $993 b. $968 c. $962 d. $941

a. $993

Which of the following is not found on the Balance Sheet under Stockholders' Equity? a. Dividends Payable b. Capital Stock c. Retained Earnings d. Net Income

a. Dividends Payable

Which of the following is true when Ending Inventory is understated? a. Gross Profit is understated b. Net Income is overstated c. Cost of Goods Sold is understated d. Beginning inventory for next year is overstated

a. Gross Profit is understated

The recognition of Cost of Goods Sold in the same period that Sales Revenue is recognized from the sale of merchandise is an example of the a. Matching Principle b. Full Disclosure Principle c. Revenue Realization Principle d. Historical Cost Principle

a. Matching Principle

Overbrook Transportation purchases pieces of office furniture with an individual cost below $100 each. They choose to account for these expenditures as expenses when acquired rather than reporting them as fixed assets on its Balance Sheet. The company's accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Overbrook to expense the furniture? a. Materiality b. Matching c. Conservatism d. Verifiability

a. Materiality

Which of the following accounts is not classified as a current liability? a. Mortgage Payable b. Accounts Payable c. Salaries Payable d. Income Taxes Payable

a. Mortgage Payable

Which of the following is an effect of failing to accrue an expense? a. Net Income is overstated b. Cash is overstated c. Liabilities are overstated d. Gross Profit is overstated

a. Net Income is overstated

Which of the following is considered to be an accrued revenue/expense? a. Rent Payable b. Prepaid Insurance c. Prepaid Taxes d. Unearned Revenue

a. Rent Payable

Depreciation is a process by which a. The cost of plant and equipment is allocated to expense over the time periods that benefit from the use of the asset. b. Replacement funds are accumulated for plant and equipment. c. The decline in market value of plant and equipment is determined and recorded. d. The current market value of plant and equipment is determined and reported in the balance sheet.

a. The cost of plant and equipment is allocated to expense over the time periods that benefit from the use of the asset.

Which of the following concepts is important to accrual accounting? a. Time period, because accrual accounting divides earnings into time periods b. Monetary unit, because inflation is a big factor in the environment c. Cash basis, because if cash is not received, revenue is not accrued d. Entity concept, because personal transactions must be separated from business transactions

a. Time period, because accrual accounting divides earnings into time periods

What is the purpose of financial accounting? a. To provide information for decision-making b. To provide information to internal users of statements c. To help management plan for the future d. To determine profits of a company in the past

a. To provide information for decision-making

Beginning Accounts Receivable were $10,000. All sales were on account and totaled $900,000. Cash collected from customers totaled $750,000, and $60,000 of accounts were written off. Calculate the ending Accounts Receivable balance. a. $220,000 b. $100,000 c. $80,000 d. Unable to be determined

b. $100,000

On January 1st, Kensington Industrial pays $36,000 for insurance to cover them for two years. What is the balance in their Prepaid Insurance account on October 31st of the same year? a. $6,000 b. $21,000 c. $22,500 d. $9,000

b. $21,000

Winchester Warehouse purchases $3,200 worth of inventory with terms of 2/10, n/30 on July 28th. How much money does Winchester pay to the seller if they pay on August 1st? a. $3,150 b. $3,136 c. $3,168 d. $3,200

b. $3,136

Olney-Mart has Credit Sales of $180,000. Customers return $12,000 worth of the merchandise they purchased on account. Olney-Mart uses a bad debt loss rate of 3%. What will Bad Debt Expense be recorded as? a. $5,400 b. $5,040 c. $5,760 d. Unable to be determined

b. $5,040

Overbrook Books has Sales Revenue of $950,000 and reports the following expenses: Cost of Goods Sold $300,000 Interest Expense $2,000 Rent Expense $10,000 General & Admin. Expenses $14,000 Selling Expense $11,000 Tax Rate 30% ____ 50. What is Overbrook's Net Operating Income? a. $613,000 b. $615,000 c. $429,100 d. $430,500

b. $615,000

83 units were sold from Somerton Industries. Using the Weighted Average method of inventory costing, what is the value assigned to Cost of Goods Sold? a. $993 b. $969 c. $962 d. $941

b. $969

Fox Chase Foods has $2,000 in Cash, $5,000 in Accounts Receivable, and $7,000 in Inventory on January 1st, 2014. They owe $4,000 on a note due December 31st, and $3,000 on a note due January 31st, 2015. What is their quick ratio? a. 1.1 to 1 b. 1.75 to 1 c. 2 to 1 d. 3.5 to 1

b. 1.75 to 1

34. An asset with an estimated 5 year useful life and an estimated residual value of $5,000 was purchased for $22,000 cash plus a $500 delivery fee on the first day of the fiscal year. Using the straight line method, determine the depreciation expense for the second fiscal year? a. 3,400 b. 3,500 c. 4,500 d. 4,800

b. 3,500

Equipment that cost $100,000 and has a Book Value of $40,000 is sold for $50,000. Which of the following would not be seen in the entries to record the sale? a. Debit Accumulated Depreciation $60,000 b. Credit Loss on Sale of Asset of $10,000 c. Credit Equipment $100,000 d. Debit Cash $50,000

b. Credit Loss on Sale of Asset of $10,000

Torresdale Pizza borrowed $5,000 from the bank on October 1, 2012. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Torresdale's books to record accrued interest expense on December 31, 2012 is: a. Debit to Interest Expense and credit to Interest Payable for $600 b. Debit to Interest Expense and credit to Interest Payable for $150 c. Debit to Interest Expense and credit to Cash for $150 d. Debit to Interest Expense $600 and credit to Interest Payable for $150

b. Debit to Interest Expense and credit to Interest Payable for $150

Which of the following statements is false about debits and credits? a. Liabilities are decreased by debits b. Debits increase accounts and credits decrease them c. Credits increase some items listed under assets d. Credits always increase Net Income

b. Debits increase accounts and credits decrease them

The sale of a building would be reported on the Statement of Cash Flows as what kind of activity? a. Financing b. Investing c. Operating d. Not reported on the Statement of Cash Flows

b. Investing

Which financial statement would you analyze to determine if a company distributed any of its profits to its shareholders? a. Balance Sheet b. Statements of Retained Earnings c. Income Statement d. Both a. and b.

b. Statements of Retained Earnings

Which of the following activities would have decreased Working Capital? a. Selling a machine for cash b. Writing off Accounts Receivable c. Issuing stock for cash d. Paying off Salaries Payable

b. Writing off Accounts Receivable

Tacony Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $500,000 Operating Expenses $148,000 Purchases $225,000 Income Tax Expense $10,000 Inventory (beginning) $16,000 Retained Earnings (beginning) $53,000 Inventory (ending) $30,000 Dividends $15,000 Assume that Tacony's Gross Margin is $300,000. What is Net Income? a. $27,000 b. $42,000 c. $142,000 d. Unable to be determined

c. $142,000

Use the following information for questions 23 and 24. Richmond Corp. is a merchandising company that uses the periodic inventory system. Select account balances are listed below: Sales $175,000 Purchase Returns and Allowances $3,000 Purchases $90,000 Purchase Discounts $7,000 Inventory (beginning) $23,000 Sales Discounts $8,000 Inventory (ending) $17,000 Sales Returns and Allowances $5,000 ____ Calculate Richmond's Net Sales. a. $162,000 b. $175,000 c. $170,000 d. $167,000

c. $170,000

Grant & Krewstown Inc. sells 12,000 shares of stock with par value of $1.10. They receive $18,000 for the shares. How much will be recorded in the Common Stock account? a. $18,000 c. $13,200 b. $4,800 d. $22,800

c. $23,200

Hadron Company incurred $40,000 to ship 19,000 pounds and $34,000 to ship 16,000 pounds. If the company ships 18,000 pounds, what is its expected shipping expense rounded to the nearest thousand? a. $37,000 b. $37,895 c. $38,000 d. $38,250

c. $38,000

Morrell Enterprises purchased a building for $400,000 in 1985. At the end of November, 2005, when the building's book value was $200,000, it was appraised for $1,300,000. A potential buyer offered Morrell $1,000,000 during the last week of December, 2005. Morrell rejected the offer and did not sell. At what amount should the cost of the building be in the Building account at the end of 2005? a. $1,300,000 b. $1,200,000 c. $400,000 d. $200,000

c. $400,000

If change in cash is $12,000, cash flow from operating activities is $90,000, and cash flow from investing activities is ($85,000), which of the following could be true? a. Dividends of $7,000 were paid b. A loan of $7,000 was paid back to the bank c. Stock was issued for $7,000 d. Stock in another company was sold for $7,000

c. Stock was issued for $7,000

Which one of the following statements is false? a. The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system. b. The inventory account is updated only at the end of the accounting period under the periodic inventory system. c. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system. d. A purchases account is used only under the periodic inventory system.

c. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system

A sunk cost is: a. A cost that may be saved by not adopting an alternative b. A cost that may be shifted to the future with little or no effect on current operations c. A cost that cannot be avoided because it has already been incurred d. A cost which does not entail any dollar outlay by which is relevant to the decision-making process

c. A cost that cannot be avoided because it has already been incurred

Which asset is considered to have the highest liquidity? a. Accounts Receivable b. Inventory c. Cash d. Short-term Investments

c. Cash

Welsh Company sells $6,000 worth of merchandise to a customer on March 16th with terms 2/10, n/30. Which of the following would be included in the journal entry on March 28th when the customer pays back Welsh Company? a. Credit - Sales Revenue $6,000 b. Debit - Cash $5,880 c. Credit - Accounts Receivable $6,000 d. Debit - Sales Discounts $120

c. Credit - Accounts Receivable $6,000

48. Which of the following is not needed to compute Net Operating Income? a. Cost of Goods Sold b. Depreciation Expense c. Interest Revenue d. Sales Revenue

c. Interest Revenue

Which of the following is not an underlying assumption under GAAP? a. Economic entity b. Monetary unit c. Materiality d. Periodicity

c. Materiality

Bustleton Corp.'s current ratio is 2 to 1. Bustleton acquired a patent from an inventor in exchange for shares of Bustleton Corp. stock. What effect does this transaction have on Bustleton's current ratio? a. Increase b. Decrease c. No effect d. Unable to be determined

c. No effect

A restaurant collects $12,000 from selling gift cards that will be given as Christmas gifts. From December 26th to 30th, the restaurant records $2,000 of revenue from receivers of the gift cards. Which of the following will be recorded as a balance after year-end adjustments on December 31st? a. Revenue of $12,000 b. Accounts Receivable of $10,000 c. Unearned Revenue of $10,000 d. Cash of $2,000

c. Unearned Revenue of $10,000

Which pair of accounts both cause Stockholders' Equity to decrease? a. Capital Stock & Accounts Payable b. Salaries Expense & Retained Earnings c. Utilities Expense and Dividends d. Sales Revenue and Accounts Receivable

c. Utilities Expense and Dividends

Frankford Company has $14,000 worth of inventory at the end of 2012. In 2013, the company purchases $120,000 worth of inventory and records Cost of Goods Sold of $93,000. What is the inventory balance at the end of 2013? a. $27,000 b. $13,000 c. $14,000 d. $41,000

d. $41,000

Pollock Corp. had Net Credit Sales of $1,400,000 in 2013. Customers had taken advantage of sales discounts of $19,000. Accounts Receivable had a $580,000 debit balance at the end of the year. There was a credit balance in the Allowance for Doubtful Accounts of $15,500, and Pollock expects that 2% of the outstanding Credit Sales will be uncollectible under the Net Credit Sales method. What is the Net Realizable Value of Pollock's Accounts Receivable? a. $564,500 b. $568,400 c. $536,880 d. $536,500

d. $536,500

Pennypack Shoes sells 500 pairs of school shoes and for $40 each. Customers received $150 in discounts. Each pair of shoes cost Pennypack $18. What is Gross Profit as a percentage of Net Sales? a. 55% b. 53.9% c. 53.5% d. 54.66%

d. 54.66%

The Sarbanes-Oxley Act (SOX) mandates which of the following? a. Increased regulations related to auditor-client relations b. Increased regulations related to internal controls c. Increased regulations related to corporate executive accountability d. All of the above

d. All of the above

Depreciation expense is recorded so that a. A company can better estimate the market value of the depreciated assets. b. The balance sheet value of plant assets will more accurately reflect the replacement cost of the assets. c. Cash will be available at the end of the asset's useful life in order to replace it. d. Expenses are matched against revenues using a reasonable allocation method.

d. Expenses are matched against revenues using a reasonable allocation method

Which pair of transactions cause assets to increase? a. Sale of a company's stock and collections of Accounts Receivable b. Borrowing from the bank and payment of Accounts Payable c. Collection of cash from customers and payment of Notes Payable d. Sales of products to customers and acquisition of supplies on account

d. Sales of products to customers and acquisition of supplies on account

20. During periods of rising prices, which of the following is true? a. The use of FIFO will result in smaller net income than LIFO. b. The use of FIFO will result in a larger cost of goods sold than LIFO. c. The use of LIFO will result in a smaller cost of goods sold than FIFO. d. The use of FIFO will result in a higher ending inventory than LIFO.

d. The use of FIFO will result in a higher ending inventory than LIFO.