Accounting Test 1

Lena Company has provided the following data: 2016 revenues were $99,000. 2016 expenses were $47,800. Dividends paid during 2016 totaled $9,500. Total assets at December 31, 2016 were $177,000. Total liabilities at December 31, 2016 were $89,000. Common stock at December 31, 2016 was $28,000. 31) Compute 2016 net income. 32) Compute retained earnings as of Dec.31, 2016. 33) Compute retained earnings as of Jan.1., 2016.

31) 99,000 revenue - 47,800 expense = 51,200 32) E=A-L E=177-89= 88 then E=CS+RE 88=28+RE RE=60,000 33) beginning RE + 51,200 - 9,500 = 60,000 beginning RE = 18,300

Consider these 5 events. 1) Provided services to various customers and sent bills to them, the total is $35,000. 2) employees worked and they were paid $7000 3) Received various bills for (I.T. services, electricity, membership dues, maintenance, advertising), the total is $14,000. 4) Collected $26,000 from customers...the customers were paying us amounts already owed. 5) Paid a dividend of $1000 to owners. 47 Which items affect net income? 48 Which items affect equity? 49 Which items affect liabilities?

47. 1,2,3 48. 1,2,3,5 49. 3

If the accounts payable account is decreased, the cash account is always decreased at the same moment. a. true b. false

A

The following selected account balances were drawn from the financial statements of the XYZ Company: Cash $ 33,000 Accounts Receivable $ 38,000 Payroll Expense $ 30,000 Service Revenue $ 64,000 Dividends $ 6,800 Advertising Expense $ 4,800 Payroll Payable $ 27,000 Based on this information, the amount of net income is: A) $29,200. B) $31,200. C) $26,000. D) $64,000. E) $34,000

A (64000-30000-4800) (note: "service revenue" is essentially the same thing as revenue...just means you provided a service).

Roerig Company was started on January 2, 2013. During its first year of operations, Roerig Company provided $96,000 in consulting services to its clients on account and collected $79,000 of this amount. Which of the following statements is incorrect. A) Total assets increased by $79,000. B) Net income is $96,000. C) Retained earnings increased by $96,000. D) Cash increased by $79,000.

A (cash = $79k and AR = $16k)

Atlantic Corporation reported the following amounts at the end of the first year of operations: Common stock $200,000 Total assets $600,000 Total liabilities $320,000 Also: Revenue for the year = $800,000 Dividends paid during the year = $40,000 What are the retained earnings of Atlantic at the end of the year, and what amount of expenses were incurred during the year? A. Retained earnings are $80,000 and expenses incurred totaled $680,000. B. Retained earnings are $80,000 and expenses incurred totaled $720,000. C. Retained earnings are $280,000 and expenses incurred totaled $480,000. D. Retained earnings are $280,000 and expenses incurred totaled $520,000.

A . Equity=600-320=280. RE=280 equity -200 CS =80. 800 revenue- (expenses)-40 dividends=80. Expenses must equal 680

Which of the following accounts should not appear on a balance sheet? a. Maintenance Expense b. Wages and Salaries Payable c. Unearned revenue d. Prepaid Insurance e. Two of the above should not appear on a balance sheet

A B and C are liabilities, D is an asset

Which of the following lead to an increase in both assets and liabilities. Circle all that apply. A. borrow money from bank B. purchase supplies for cash C. receive telecom bill without paying it yet D. purchase supplies on account

A and D

During 2016, Canton Company's assets increased $95,500 and the liabilities decreased $17,300. Canton Company's stockholders' equity at December 31, 2016 was $211,500. What amount was stockholders' equity at January 1, 2016? A. $98,700. B. $324,300. C. $133,300. D. $289,700.

A equity increased by 112,800 during the year (95.5+17.3). You are solving for January 1.

Which of the following is reset to zero (closed) at the end of every year? A) revenues, expenses, and dividends B) retained earnings C) both A and B

A revenues and expenses start each year at zero....the same is true for dividends

The entry made when physically counting supplies leads to: A. decrease assets and decrease equity B. increase assets and increase equity C. increase liabilities and decrease equity D. decrease assets and decrease liabilities E. increase assets and increase liabilities

A. This is the December 31 entry, when the company counts supplies on December 31, and then solves for supplies used (supplies expense) by subtraction.

On December 31, a company counts supplies to determine the $ amount of supplies that has been used during the year. Which of the following does not correctly describe the impact on the financial statements? A. Total assets will remain unchanged. B. Total liabilities will be unaffected. C. There will be an expense. D. Net income will decrease.

A. assets (supplies) go down and retained earnings goes down.

A customer paid money that they already owed us from a previous transaction. This leads to: A. an increase in accounts receivable B. a decrease in accounts receivable C. an increase in accounts payable D. a decrease in accounts payable

B

On which of the following financial statements would you expect to find financing, operating, and investing activities? A) Balance sheet B) Statement of cash flows C) both of the above

B

Supplies Expense is computed in this class as: A) December 31 supplies minus supplies purchased during the year. B) Supplies purchased during the year minus December 31 supplies. C) December 31 supplies plus supplies purchased during the year.

B

Unearned Revenue and Payroll (Wages/Salaries) Payable a. are both assets b. are both liabilities c. neither A nor B is correct

B

Williams Company received $48,000 cash in advance for services to be performed over the 6 month period from September 1, 2012 through February 28, 2013. What amount of unearned revenue will Williams Company report on its December 31, 2012 balance sheet, assuming the work is performed evenly throughout the 6 month period? A) $0 B) $16,000 C) $32,000 D) $48,000 E) $24,000

B $8000 per month x 2 remaining months. $32,000 of the revenue has been earned. Notice that this contract is a 6 month contract, not a 1 year contract.

Lamont Company was started on January 1, 2013. During its first year (among other things) Lamont Company paid $42,000 to employees for wages/salaries. Also, employees are owed an additional $4,000 for wages/salaries, but the $4000 has not been paid yet. Which is true for 2013 as a result of these transactions? A. Total assets decrease by $46,000. B. Retained earnings decreases by $46,000. C. both are true D. neither are true

B (assets only decrease by $42,000 because there is a liability/payable of $4000)

Weaver company is a new company with the following account balances: Assets: $90 Notes Payable: $50 (Common) Stock: $40 What percentage of "the company" was funded by investors (owners)? A) 55.5% B) 44.4% C) 100% D) 0%

B 55.5% (50/90) was funded by the bank, 44.5% (40/90) by owners

As of December 31, 2013, Jamar Company had total cash of $150,000, notes payable of $85,000, and common stock of $53,000. During 2014, Jamar earned $40,000 of cash revenue, paid $20,000 for cash expenses, and paid a $3,000 cash dividend to the stockholders. Assuming no change in notes payable and common stock, determine the amount of retained earnings as of December 31, 2014. Hint: you must use the first sentence in some way. A) $17,000 B) $29,000 C) $20,000 D) $32,000

B You first have to solve for beginning RE, which is (150 = 85 + 53 + RE) so RE = 12 , then add 17.

On September 1, Marley Company paid $18,000 to rent office space for one year. On its financial statements prepared on December 31, Marley would show: Rent Expense Prepaid Rent a. $18,000 $18,000 b. $ 6,000 $12,000 c. $0 $18,000 d. $18,000 $0 e. $4,500 $13,500

B expense = $1500 per month x 4 months

If the supplies account is increased, the cash account is always decreased at the same moment. a. true b. false

B if supplies are purchased on account, then accounts payable increases and cash is not involved

Account payable and expense are never involved/utilized in the same transaction a. true b. false

B if you receive a bill for services (like electricity or advertising), you have AP and an expense

Assume December 31 is a Wednesday, and the pay period started Monday December 29. Weekly payroll (for five days, Monday through Friday) amounts to $5,500, or $1,100 per day. The company should make the following entry on December 31: a. Wages/Salaries Payable $5,500 and Wages/Salaries Expense $5,500 b. Wages/Salaries Payable $3,300 and Wages/Salaries Expense $3,300 c. Cash is reduced by $5,500 and Wages/Salaries Expense $5,500 d. no entry is necessary because the payroll has not been paid yet

B note: this one uses the language "wages/salaries", the same thing as "payroll")

If there is a revenue of $20 on March 10, 2017, and a revenue of $40 on October 6, 2017, then the company will begin 2018 with $60 of revenue. a. true b. false

B revenue is zeroed out every December 31...it becomes retained earnings. Revenue is zero to start 2018. Same with expenses and dividends. At the start of each year, total revenues, total expenses, and total dividends all begin at zero.

Consider a 3 year period, 2012,2013,2014 -Retained earnings at the end of each year can be 55,64,80 (gradually increasing) -Retained earnings at the end of each year can be 80,64,55 (gradually decreasing) -both are possible

Both are possible

KMR Company began the accounting period with $6,000 in its accounts receivable account. During the accounting period KMR provided services (on account) amounting to $19,000. The accounts receivable account at the end of the accounting period contained had an $8,000 balance. Based on this information alone, the cash collected from accounts receivable during the period is: a. $19,000 b. $5,000 c. $17,000 d. $8,000 e. cannot be determined

C

Which of the following errors causes net income to be overstated (too high)? a. Failure to record services provided on account to a customer b. Failure to record collection of an account receivable c. Failure to record advertising expense paid with cash d. Failure to record supplies purchased with cash e. None of the above

C

During the year 2010, we purchased $4000 of supplies. We had $1000 of supplies already on January 1, 2010. There are $800 of supplies in our possession on December 31, 2010. What is supplies expense for 2010? A. $800 B. $3200 C. $4200 D. $200 E. none of the above

C . $3200 seems like a good answer, but you have to remember that $1000+$4000 = $5000 of supplies. Then, you subtract $800 to get $4200 supplies expense

Our company borrowed $60,000 from a bank on February 1. Interest on the loan was $1000. On September 30, we repaid the principal and also paid the interest. On September 30: A. cash decreases by a total of $60,000. B. There is $61,000 of expense. C. liabilities are decreased D. all of the above are true.

C 61,000 of cash is paid, liabilities decrease by 60,000, there is interest expense of 1000. You could argue that, if we are keeping monthly records, the prior sentence is not quite right. But either way, C is the only answer choice that works out.

What financial statement would show you the amount of dividends paid during the last year? A. Income statement. B. Balance sheet. C. neither

C The income statement (revenues-expenses) just tells you the performance for one single year.

The land that Blake Company purchased on April 15, 2013, for $120,000 cash had an appraised market value of $125,000 on December 31, 2013. How does this change in the market value of the land affect the accounting equation? A) Assets increase and liabilities increase by $5,000 B) Assets increase and equity increases by $5,000 C) Assets increase by $5,000 D) The accounting equation is not affected

D

Zane Company paid $14,000 cash in advance for a one year insurance policy on October 1, 2011. Assume that the company originally recorded this purchase as prepaid insurance. The appropriate adjusting entry on December 31, 2011 will have what effect? A) Decrease assets by $3,500 \ increase liabilities by $3,500. B) Increase net income by $3,500. C) Increase liabilities by $14,000 \ decrease equity by $14,000. D) Decrease assets by $3,500 \ decrease equity by $3,500.

D ($1167 per month x 3 months) or ($14000 x 3/12)

Indicate whether the following event would increase, decrease, or have no effect on TOTAL LIABILITIES -Paid an account payable of $600.

Decrease

On January 1, accounts payable = $30,000. On December 31, accounts payable = $25,000. During the year, at various times, payments of $110,000 were made. These payments all relate to accounts payable. What else must be true?

During the year, accounts payable increased by $105,000. This means that we received bills totaling $105,000. (The bills were either for services or supplies).

James Company had a net decrease in cash from operating activities of $15,500 and a net increase in cash from investing activities of $17,100. If the beginning and ending cash balances for the company were $22,400 and $31,700, then net cash change from financing activities was: A) an outflow or decrease of $1,600. B) an inflow or increase of $7,800. C) an outflow or decrease of $7,700. D) an inflow or increase of $1,600. E) an inflow or increase of $7,700.

E

Assume that Adelle Company has $7200 cash. Adelle Company pays the $7,200 cash to rent office space for a one-year period beginning on August 1, 2013. On December 31, 2013, Adelle Company would have: A) Total assets of $0 B) Total assets of $7200 C) Liabilities of $4200 D) Liabilities of $3000 E) none of the above

E There would be 4200 ($600 per month x 7 months) of prepaid rent remaining, so assets would equal 4200.

Which of the following accounts should not appear on a balance sheet? a. Retained earnings b. Dividends c. Common Stock d. Utilities expense e. Two of the above would not appear

E. Dividends and Utilities expense would not appear on a balance sheet. They are both retained earnings; they are both negative retained earnings to be specific. The balance sheet shows common stock and retained earnings.

Solve for accounts receivable: Cash 21 Accounts payable 5 Common stock (or, owner investments) 14 Land 20 Retained earnings 30 Notes payable 12 Supplies 10 Accounts Receivable ???

E=44, L =17, thus A=61. Accounts Receivable must be 10.

Received $5000 from customers who were paying amounts already owed (paying their accounts). Circle all items that are affected by this: A. net income B. expenses C. accounts receivable D. revenues

Just C. Cash goes up and AR goes down

Indicate whether the following event would increase, decrease, or have no effect on TOTAL ASSETS -Received electricity bill without paying it yet

No effect

Which of the following is presented on the income statement? -Assets -Revenues -Dividends -Two of the above. -All of the above (a,b,and c)

Revenues. Rev-Expenses=Net Income

Which of the following is not one of the primary Financial Statements? -Statement of merger activity -Balance Sheet -Statements of stakeholder's Equity -Statements of Cash Flow

Statement of merger activity

true or false: An income statement covers a period of time, specifically, one year.

True The income statement (revenues-expenses) just tells you the performance for one single year.

(is several questions) Is cash an asset? Is notes payable an asset? Is retained earnings a type of liability? Is common stock an equity account? Is revenue the same thing as common stock/owner investments? Is revenue the same thing as retained earnings?

Yes No, liability No, equity account Yes No Yes, revenue is pretty much the same thing as retained earnings, it's positive retained earnings from business operations.

At the end of a year, on December 31: Cash = 55 Notes Payable = 14 Land = 22 Retained Earnings = 32 From just the (incomplete) information above: What is the total amount of assets? What is the total amount of liabilities? What is the amount in the common stock/owner investments account?

assets = 55 +22 = 77 liabilities = 14 equity = 77 -14 = 63 E = CS + RE (equity has 2 categories). 63 = CS + 32. CS = 31

Jan 1: Retained Earnings = $42,000 Dec 31: Equity = $122,000 Dec 31: Retained Earnings = $69,000 (Common) stock of $10,000 was issued during the year No dividends were paid during the year What was (common) stock on January 1? _______________

ending (dec 31) stock= $53,000, thus beginning stock was $10,000 lower, or $43,000

A company had 50,000 of cash revenues, purchased land for 20,000 cash, paid 10,000 cash for advertising costs, and paid a dividend of 5,000. What are cash flows from financing activities?

operating: 40,000 (50,000-10,000), investing -20,000, financing -5000. Note that the answer is a negative number.