ACCT 209 Final Exam

Calculator Grove Corp. purchased equipment at a cost of $260,000 in January, 2012. As of January 1, 2016, depreciation of $88,000 had been recorded on this asset. Depreciation expense for 2016 is $22,000. After the adjustments are recorded and posted at December 31, 2016. What are the balances for the Depreciation Expense and Accumulated Depreciation? Depreciation Expense Accumulated Depreciation

$ 22,000 $110,000

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units If Roki uses the FIFO inventory method, the amount assigned to the June 30 inventory would be

$1,366.50

The Dinho Corporation identified the following data when preparing their April bank reconciliation: Bank statement balance $45,000 Dinho's book balance (before adjustments) ? Outstanding checks 4,500 NSF checks 1,400 Service charges 300 Deposits in transit 5,000 Interest earned on checking account 25 In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was recorded by the bank as $1,200. What is the net amount of the adjustment to Dinho's cash balance as a result of the bank reconciliation?

$1,475 decrease

A machine with a cost of $100,000 and accumulated depreciation of $80,000 was sold at a loss of $6,000. What amount of cash was received from the sale?

$14,000

Cuisine Company received a 6-month, 6% note for $10,000 from its president on October 1, 2016. The note is due on March 31, 2017. If Cuisine's accounting period ends on December 31, how much interest revenue should Cuisine recognize during 2016 and 2017? 2016 2017

$150 $150

In 2012, Blanton Company bought equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years. It was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined at the beginning of 2016 that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for 2016 is

$16,000

Genuine Parts received a promissory note from a customer on March 1, 2016. The face amount of the note is $8,000; the terms are 90 days and 9% interest. What is the total amount of interest that Genuine Parts will receive when the note is paid?

$180

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units If Roki uses the LIFO inventory method, the cost of goods sold for June would be:

$2,272.50

Sun City Corporation's end-of-year balance sheet consisted of the following amounts: Cash $ 25,000 Accounts receivable $ 70,000 Property, plant, and equipment 70,000 Long-term debt 40,000 Capital stock 100,000 Accounts payable 20,000 Retained earnings ? Inventory 35,000 What amount should Sun City report on its balance sheet for total assets?

$200,000

Mellon Corporation The data presented below is for Mellon Corporation for the year ended December 31, 2016: Sales (100% on credit) $1,500,000 Sales returns 60,000 Accounts Receivable (December 31, 2016) 250,000 Allowance for Doubtful Accounts [Credit Balance] (Before adjustment at December 31, 2016 ​ 3,000 Estimated amount of uncollectable accounts based on an aging analysis 31,000 If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

$219,000

Cerrato Company has assets of $350,000, liabilities of $130,000, and retained earnings of $180,000. How much is total owners' equity?

$220,000

On January 1, 2016, A-Best Company's balance in retained earnings was $80,000. At the end of the year, December 31, 2016, the balance in retained earnings was $94,000. During 2016, the company earned net income of $40,000. How much were dividends?

$26,000

The treasurer for Rahm Corp. was preparing a bank reconciliation as of September 30, 2016. The following items were identified: Rahm's book balance $32,800 Deposits in transit 4,300 Outstanding checks 2,200 Interest earned on checking account 100 Customer's NSF check returned by the bank 400 Rahm Corp.'s adjusted cash balance at September 30, 2016 is:

$32,500

Darrin Brown bought a pub. The purchase price was $695,000. An appraiser provided the following appraisal values: land $320,000: building $370,000 and equipment $60,000. What cost should be allocated to the building?

$342,867

On January 2, 2016, Hi-Tech Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. The annual cash payment (paid in semiannual payments) on the bonds is:

$40,000

Benton Corporation The data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016 $334,000 Credit sales during 2016 850,000 Collections from credit customers during 2016 725,000 Customer accounts written off as uncollectable during 2016 12,000 Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectable accounts) ​ 1,700 Estimated uncollectible accounts based on an aging analysis 13,200 What is the balance of Accounts Receivable at December 31, 2016?

$447,000

On the issuance date, the Bonds Payable account had a balance of $50,000,000 and Premium on Bonds Payable had a balance of $1,000,000. What was the issue price of the bonds?

$51,000,000

Lynx Corp. The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit) $1,000,000 Sales returns 30,000 Accounts Receivable (December 31, 2016) 170,000 Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016) 1,300 Estimated amount of uncollectible accounts based on aging analysis 14,000 If Lynx Corp. estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2016?

$9,700

George's Department Store George's Department Store is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $200,000 Purchases 90,000 Inventory (beginning) 23,000 Inventory (ending) 17,000 Purchase returns and allowances 3,000 Purchase discounts 7,000 Transportation-in 4,000 Sales discounts 8,000 Sales returns and allowances 5,000 Determine George's gross profit.

$97,000

The record used to accumulate monetary information for each individual asset, liability, stockholders' equity, revenue, and expense item is a(an)

Account

If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the company's books, then this item would be included on the bank reconciliation as a(n):

Addition to the balance per company's records

Business

All of the activities necessary to provide the members of an economic system with goods and services

A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a:

An increase in Cash for $9,400

Which one of the following financial statements reports an entity's financial position at a specific date?

Balance sheet

In order for accounting information to be useful in making informed decisions, it must be:

Both relevant and reliable

An entry made to the right side of an account is called a:

Credit

The current portion of long-term debt is a balance sheet item for Flavorful Products Company. How would it most likely be classified on the balance sheet?

Current liability

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?

Decrease

How would bank service charges be dealt with in a bank reconciliation?

Deducted from company's book balance

Deposits made by a company but not yet reflected in a bank statement are called:

Deposits in transit

A trial balance is a(an):

Document used to prove the equality of debits and credits in the general ledger.

Fall Corp. uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the company's assets?

Double-declining-balance

The system of accounting in which there are at least two accounts affected in every transaction so that the accounting equation stays in balance is a(an):

Double-entry system

Assets classified as property, plant, and equipment are reported at:

Each asset's original cost less depreciation since acquisition.

An invoice received from a supplier for $8,000 on January 1 with terms 1/15, n/30 means that the company should pay

Either $7,920 before January 16 or $8,000 before the end of the month.

GAAP require that research and development costs to develop a new product be:

Expensed in the period incurred.

The costs of doing business through the sale of goods and services are called:

Expenses

A file or book which contains a record for all accounts used by a company, including the account balance, is called a

General ledger

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Increase

Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would:

Increase Wages Expense $8,000.

With the effective interest method of amortization, the amortization of bond discount results in a(n):

Increase in interest expense.

Wagner's Bookstore acquires a 6% $12,000 certificate of deposit on September 1. The term of the CD is six months. At that time, all principal and accrued interest will be paid in cash. Indicate the effect on the financial statements at December 31.

Interest Receivable increases $240, Interest Revenue increases $240

Crouch Apartments purchased an apartment building to rent to university students on December 15, 2015. The tenants moved in on January 1, 2016. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?

It should be recorded as repair and maintenance expense.

If a company uses the allowance method of accounting for bad debts, which one of the following statements is true?

It will report accounts receivable in the balance sheet at their net realizable value

Which method assigns the cost of the most recent items purchased to cost of goods sold?

LIFO

"Claims to economic resources" are known as:

Liabilities and stockholders' equity

When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?

No effect on overall assets or equity.

What five-member body created by the Sarbanes-Oxley Act was given authority to set U.S. auditing standards?

PCAOB

Which of the following would appear on the balance sheet as a current liability?

Premium offers in cereal boxes.

On December 1, 2016, Vonn Corporation paid $8,000 rent in advance. The rent per month is $1,000. If Hazel's accounting period ends on December 31, 2016, what will be reported on the financial statements?

Prepaid Rent of $7,000 on its balance sheet at December 31, 2016

Which of the following organizations is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements?

Public Company Accounting Oversight Board (PCAOB)

Which one of the following adjustments decreases net income for the period? a. Recognition of rent as earned that had been received in advance from customers b. Recognition of depreciation on plant assets c. Recognition of interest on a note receivable d. Recognition of services that had been provided to customers but the cash has not yet been received

Recognition of depreciation on plant assets

Jones, Inc., a manufacturer of tires, has given you its most recent annual report in an effort to obtain a sizable loan. The company is very profitable and appears to have a sound financial position. Based on a report presented on prime-time television last night, you are aware that Jones is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn. The information presented on television is an example of financial information that is:

Relevant

The qualitative characteristics of accounting data include:

Reliability

Which method of inventory costing is not acceptable for financial accounting purposes?

Replacement Cost

What type of interest is calculated on the balance of the principal only?

Simple interest

The three forms of business entities are:

Sole proprietorships, partnerships, and corporations

Which financial statement would you analyze to determine if a company distributed any of its profits to its shareholders?

Statement of Retained Earnings

How will the payee of the promissory note record the note on its books?

The promissory note will be recorded as an asset.

At the end of 2016, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct?

The remaining unamortized cost must be removed from the accounting records and treated as a loss on the income statement.

Which of the following statements is true with regard to early retirement of bonds? a. Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company. b. If the carrying value of the bonds is higher than the redemption price, the issuing firm must record a loss. c. It is always advantageous to carry out early retirement for bonds issued at a premium but not for bonds issued at a discount. d. Firms always find it advantageous to retire bonds issued at lower rates with bonds issued at higher rates.

a. Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company.

Which of the following statements regarding contingencies is true? a. Contingencies that are probable and not estimable are disclosed in the notes to the financial statements. b. Contingencies that are remote but estimable are disclosed in the notes to the financial statements. c. Contingencies that are probable and not estimable appear on the balance sheet. d. Contingent assets are recorded on the balance sheet, but not in the notes to the financial statements.

a. Contingencies that are probable and not estimable are disclosed in the notes to the financial statements.

Which one of the following is an accurate description of Allowance for Doubtful Accounts? a. Contra account b. Revenue account c. Expense account d. Liability account

a. Contra account

Which one of the following accounts most likely would appear on the income statement of a merchandise company, but not on the income statement of a service company? a. Cost of Goods Sold b. Selling Expenses c. Income Tax Expense d. Administrative Expenses

a. Cost of Goods Sold

Which of the following terms best describes "Cost of goods available for sale"? a. Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year. b. Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the period. c. Cost of goods available for sale is subtracted from net sales to arrive at the gross margin. d. Cost of goods available for sale is an expense account.

a. Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year.

Which one of the following is not a generally recognized internal control procedure?

a. Internal review by the audit committee of the board of directors b. Independent verification of the work of one employee by another employee c. Independent review and appraisal by internal auditors d. Segregation of duties

Which one of the following statements regarding internal control is true? a. Large companies are able to devote a substantial amount of resources to internal control systems because these companies have the assets to justify the cost. b. A well-designed internal control system is a luxury that few companies can afford. c. Companies can design a system of internal control that is foolproof. d. It is easier to implement an effective internal control system in a small company because of the limited number of employees.

a. Large companies are able to devote a substantial amount of resources to internal control systems because these companies have the assets to justify the cost.

All of the following accounts have normal debit balances except: a. Sales b. Accounts Receivable c. Office Supplies Expense d. Dividends

a. Sales

Calhoun, Inc. purchased equipment at the beginning of 2016 for $180,000. Calhoun decided to depreciate the equipment over a 5-year period using the double-declining-balance method. Calhoun estimated the equipment's residual value at $30,000. Which of the following statements is correct concerning Rose's financial statements at December 31, 2016?

a. The book value of the equipment is $108,000.

Which of the following statements about current liabilities is true? a. The current ratio is defined as current assets divided by current liabilities. b. The current liability section never contains any portion of long-term liabilities. c. The amount of current liabilities has little implication for a company's liquidity. d. Current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet.

a. The current ratio is defined as current assets divided by current liabilities.

Summer, Inc. has been in business for 20 years. During that time the company has consistently used the LIFO inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The company has maintained the same inventory quantities over the 20-year period. Which one of the following statements is true? a. The ending inventory figure reported on the balance sheet may be significantly lower than its current value. b. Summer, Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method. c. Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules. d. Summer, Inc. will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method.

a. The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

All of the following are included in the acquisition cost of property, plant, and equipment except: a. maintenance costs b. installation costs c. taxes on the purchase d. transportation costs

a. maintenance costs

If the current ratio is 2.5 to 1, net income is $6,000, and current liabilities are $18,000, how much is working capital?

b. $ 27,000

Which of the following journal entries is required to close the Income Summary account of a company with a net loss? a. Debit Income Summary, credit Capital Stock. b. Credit Income Summary, debit Retained earnings. c. Credit Income Summary, debit Dividends. d. Debit Income Summary, credit Retained earnings.

b. Credit Income Summary, debit Retained earnings.

On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. If you assume 360 days in year, the November 30 adjusting entry will be:

b. Debit Interest Expense $550 and credit Interest Payable $550.

Selected data for Sorenta, Inc. and New World Corp., two companies in the same industry, are presented below: Sorenta, Inc. New World Corp. Sales $50,000 $80,000 Cost of goods sold 30,000 50,000 Average inventory balance 5,000 5,000 Based on this data, which statement below is true? a. Sorenta, Inc. has a lower gross profit ratio than New World Corp. b. New World Corp sells its inventory faster than Sorenta, Inc. c. New World Corp has a higher net income than Sorenta, Inc. d. Sorenta, Inc. has lower storage costs and a lower investment in inventory than New World Corp.

b. New World Corp sells its inventory faster than Sorenta, Inc.

Which of the following are generally supplementary information required by GAAP concerning the accounting treatments used by a company?

b. Notes to the Consolidated Financial Statements

Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation? a. Service charges b. Outstanding checks c. Deposit in transit d. Interest on customer note

b. Outstanding checks

Which of the following statements is correct? a. The market rate of interest has no bearing on the selling price of the bonds. b. The actual issue price of a bond represents the present value of all future cash flows related to the bond. c. If the face rate of interest on a bond is not equal to the market rate of interest, then the company desiring to issue the bonds must reprint its bond certificates. d. Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased.

b. The actual issue price of a bond represents the present value of all future cash flows related to the bond.

One effect on the accounting equation when a firm borrows money is:

b. assets increase.

*The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.* If a company wishes to accumulate $500,000 in 20 years at 5% by making equal yearly deposits into an account, calculation of the deposits is an application of the

b. future value of an annuity

The purchase of office equipment on credit has what effect on the accounting equation?

c. Assets increase and liabilities increase.

Which set of items below are current assets? a. Net income, cash, office supplies, and inventory b. Accounts receivable, net income, inventory, and dividends c. Cash, accounts receivable, inventory, and office supplies d. Cash, accounts receivable, capital stock, and sales

c. Cash, accounts receivable, inventory, and office supplies

Which of the following statements is true concerning the matching principle? a. All costs can be indirectly matched with periods in which they provide a benefit. b. The association of assets for a period with the liabilities necessary to generate the assets is known as the matching principle. c. Cost of goods sold matched with sales revenue is a classic example of direct matching under the matching principle. d. All costs can be directly matched with revenue.

c. Cost of goods sold matched with sales revenue is a classic example of direct matching under the matching principle.

Davis Corp. has three employees. Each earns $600 per week for a five day work week ending on Friday. This month the last day of the month falls on a Wednesday. The company should make which of the following adjusting entries? a. Credit Wage Expense for $360 and debit Wages Payable for $360 b. Credit Wage Expense for $1,080 and debit Wages Payable for $1,080 c. Debit Wage Expense for $1,080 and credit Wages Payable for $1,080 d. Debit Wage Expense for $360 and credit Wages Payable for $360

c. Debit Wage Expense for $1,080 and credit Wages Payable for $1,080

Under current accounting principles, how is net income on the income statement measured?

c. Excess of revenues over expenses during the period

Which one of the following statements is true? a. The movement of raw material into production is an external event. b. Every event or transaction which affects an entity is identified from a source document. c. External events (transactions) involve interactions between an entity and a party outside the entity. d. All economic events can be reliably measured.

c. External events (transactions) involve interactions between an entity and a party outside the entity.

Which one of the following is not an accurate description of Allowance for Doubtful Accounts? a. Balance sheet account b. Current asset account c. Income statement account d. Contra account

c. Income statement account

All of the following accounts have normal credit balances except: a. Common Stock (Capital Stock) b. Service Revenue c. Investments d. Accounts payable

c. Investments

As a general rule, revenue is recognized at the point of sale. Which one of the following situations illustrates this rule? a. Products are purchased for resale purposes. b. Interest is collected from amounts loaned to employees. c. Products are sold to customers on credit with payment due in 30 days. d. Employees are paid wages the week after the wages are earned.

c. Products are sold to customers on credit with payment due in 30 days.

A company forgot to record four adjustments during 2016. Which one of the following omissions of adjustments will understate net income? a. Income taxes owed but not yet paid are ignored. b. Interest on monies borrowed has not yet been recorded. c. Sales made during the last week of the period are not recorded. d. Prepaid insurance is not reduced for the portion of the policy that has expired during the period.

c. Sales made during the last week of the period are not recorded.

Hopper, Inc. Use the information from Hopper Inc. to answer the following question(s). 2017 2016 Operating revenues $1,900,000 $1,600,000 Operating expenses 1,400,000 1,100,000 Income taxes 200,000 200,000 Which of the following statements is the best answer regarding the company's profit margin?

c. The profit margin was 15.8% in 2017.

During December, Horn Inc. purchased $800 of supplies for use in its business. At the end of December, 20% of the supplies were still on hand, but only 75% had been paid. What amounts will appear on the company's balance sheet on December 31? Supplies on Hand Accounts Payable

d. $160 $200

The 2016 income statement of Seikoson shows operating revenues of $130,800, selling expenses of $37,100, general and administrative expenses of $34,900, interest expense of $900, and income tax expense of $11,430. Seikoson's stockholders' equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has 20,000 shares of stock outstanding at December 31, 2016.

d. $46,470

Which of the following would appear on a multiple-step income statement but not on a single-step income statement?

d. Income before income taxes

Which one of the following is not one of the three activities included in the definition of accounting? a. Communicating b. Identifying c. Measuring d. Operating

d. Operating

Which of the following would not be included in inventory costs? a. The cost of storing inventory before it is ready to be sold. b. The cost of insurance taken out during the time that inventory is in transit. c. Freight costs incurred by the buyer in shipping inventory to its place of business. d. Shelving to hold the inventory.

d. Shelving to hold the inventory.

Which one of the following procedures is incorrect for setting up and maintaining a petty cash fund? a. An entry is recorded to establish the fund and obtain the cash. b. A check is prepared for a fixed amount; when the check is cashed, the money is entrusted to a petty cash custodian. c. When appropriate documentation is presented, cash payments are made from the fund; the petty cash custodian retains the documentation. d. When the petty cash fund is replenished, an entry is recorded to recognize an increase in the petty cash account.

d. When the petty cash fund is replenished, an entry is recorded to recognize an increase in the petty cash account.

All of the following refer to the face rate of interest on a bond except: a. stated rate b. nominal rate c. coupon rate d. effective rate

d. effective rate

The landlord records the security deposit she collects from the tenant as a(n):

liability