Accy 201 Final
The balance in Discount on Bonds Payable that is applicable to bonds due in 3 years would be reported on the balance sheet in the section entitled
"Long-term liabilities"
Zennia Company provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation cost is $135,000. On December 31, the end of the current year, the current month's accrued vacation pay is
$11,250 135,000 ÷ 12 = $11,250
Bonds Payable has a balance of $1,000,000, and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?
$3,000 loss Loss on Redemption of Bonds = Redemption Value of Bonds - Balance of Bonds Payable - Balance of Premium on Bonds Payable = ($1,000,000 × 1.01) - $1,000,000 - $7,000 = $3,000
A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately
$30 Market Value After Split = Current Market Value ÷ Ratio of Stock Split = $150 ÷ 5 = $30
Nebraska Inc. issues 3,850 shares of common stock for $123,200. The stock has a stated value of $11 per share. The entry to journalize the stock issuance would include a credit to Common Stock for
$42,350 Common Stock = Shares Issued × Stated Value = 3,850 × $11 = $42,350
Bonds Payable has a balance of $966,000 and Discount on Bonds Payable has a balance of $11,592. If the issuing corporation redeems the bonds at 98, what is the amount of gain or loss on redemption?
$7,728 gain Gain on redemption of bonds = Balance of Bonds Payable - Redemption value of bonds - Balance of Discount on Bonds Payable = $966,000 - ($966,000 × 0.98) - $11,592 = $966,000 - $946,680 - $11,592 = $7,728
The times interest earned ratio is computed as
(Income Before Income Tax Expense + Interest Expense) ÷ Interest Expense
Which of the following is a legal entity, separate from the people who create and operate it?
- public corporation -nonpublic corporation -private corporation
Which of the following are included in the employer's payroll taxes?
-FUTA taxes -SUTA taxes -social security taxes
If $1,155,000 of 10% bonds are issued at 102 1/2, the amount of cash received from the sale is
1,183,875 Proceeds = Face Value × Bond Quote = $1,155,000 × 1.0250 = $1,183,875
Assuming a 360-day year, when a $16,800, 90-day, 12% interest-bearing note payable matures, the total payment will be
17,304 Total Payment = $16,800 + ($16,800 × 12% × 90 ÷ 360) = $17,304
On October 1, Black Company receives a 10% interest-bearing note from Reese Company to settle a $17,800 account receivable. The note is due in 6 months. On December 31, Black should record interest revenue of
445 Interest Revenue = $17,800 × 10% × 3/12 = $445
Assume that the total inventory counted at the end of the year was $75,000. Excluded from the count were purchases of $5,000 in transit under FOB destination terms. What is the cost of inventory reported on the balance sheet?
75,000
Assuming a 360-day year, proceeds of $39,818 were received from discounting a $40,685, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was
8.52% Discount Amount = $40,685 - $39,818 = $867 Discount Rate = ($867 ÷ $40,685) × (360 ÷ 90) = 8.52%
A $9,600, 60-day, 10% note, dated April 15, is received from a customer on account. The face value of the note is
9,600
Proper payroll accounting methods are important for a business for all but which of the following reasons?
A business can help cash flow problems by delaying payments of payroll taxes to federal and state agencies.
Which of the following statements regarding a horizontal analysis is not true?
A horizontal analysis can be performed on a balance sheet and income statement, but not on a statement of cash flows.
A building with an appraisal value of $139,779 is made available at an offer price of $156,137. The purchaser acquires the property for $33,814 in cash, a 90-day note payable for $30,093, and a mortgage amounting to $50,717. The cost of the building to be reported on the balance sheet is
ANS $114,624 $33,814 + $30,093 + $50,717 = $114,624
The acquisition of a used machine with a purchase price of $36,033, requiring an overhaul costing $8,124, installation costs of $6,766, and special acquisition fees of $17,453, would be journalized with a debit to the asset account for
ANS $68,376 $36,033 + $8,124 + $6,766 + $17,453 = $68,376
The acquisition of a new machine with a purchase price of $80,829, transportation costs of $8,523, installation costs of $6,005, and special acquisition fees of $2,230, would be journalized with a debit to the asset account for
ANS 97,587 $80,829 + $8,523 + $6,005 + $2,230 = $97,587
Which of the following is the BEST description of accountings role in business
Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company.
When merchandise purchased on account is returned under the perpetual inventory system, the buyer will debit
Accounts Payable
If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?
Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
The cost of insurance during the construction of a new office building would be debited to which of the following accounts?
Buildings
The cost of modifying a building purchased for a new business location would be debited to which of the following accounts?
Buildings
Which of the following asset accounts is increased when a receivable is collected?
Cash
Which type of accountant typically practices as an individual or as a member of a public accounting firm?
Certified Public Accountant
The entry to journalize the conversion of a $6,300 account payable to a note payable would be
D : Accounts Payable 6,300 C: Notes Payable 6,300
Paper Company receives a $3,807, 3-month, 6% promissory note from Dame Company in settlement of an open account receivable. What entry will Paper Company make upon receiving the note?
D : Notes Receivable—Dame Company$3,807 C: Accounts Receivable—Dame Company $3,807
Tanning Company analyzes its receivables to estimate uncollectible accounts. The accounts receivable balance is $398,000 and credit sales are $1,000,000. An aging of accounts receivable estimates that $15,920 of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if Allowance for Doubtful Accounts has a credit balance of $2,400 before adjustment?
D: Bad Debt Expense 13,520 C : Allowance for Doubtful Accounts 13,520
If a fixed asset, such as a computer, were purchased on January 1 for $1,624 with an estimated life of 5 years and a salvage or residual value of $223, the journal entry for monthly expense under straight-line depreciation is
D: Depreciation Expense23.35 C: Accumulated Depreciation 23.35 Monthly Depreciation Expense = (Cost - Residual Value) ÷ Useful Life = [($1,624 - $223) ÷ 5] ÷ 12 = $23.35
Harper Company lends Hewell Company $20,400 on March 1, accepting a 4-month, 5% interest note. Harper Company prepares financial statements on March 31. What related adjusting entry should be made before the financial statements can be prepared?
D: interest Receivable 85 C: Interest Revenue 85
Which of the following is not a useful step in finding errors on the trial balance?
Determine the difference between debits and credits and change any account to make the trial balance correct.
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
FOB destination
Many countries outside the United States use financial accounting standards issued by the
IASB
Which of the following statements regarding vertical analysis is not true?
In a vertical analysis of an income statement, each item is stated as a percent of total expenses.
Which of the following pairs of accounts could not appear in the same adjusting entry?
Interest Income and Interest Expense
Under the perpetual inventory system, all purchases of merchandise are debited to
Inventory
Which of the following statements regarding liabilities is not true?
Liabilities include accumulated depreciation.
If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect its bottom line?
Net income will be overstated.
The excess of sales price of treasury stock over its cost should be credited to
Paid-In Capital from Sale of Treasury Stock
Which of the following statements regarding depreciation is true?
Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same.
Which of the following statements is true of the accrual basis of accounting?
Revenues are recorded when earned.
On May 18, Rodriguez Co. issued an $84,000, 6%, 120-day note payable on an overdue account payable to Wilson Company. Assume that the fiscal year of Rodriguez ends on June 30. Which of the following relationships is true?
Rodriguez is the borrower and debits Accounts Payable.
Generally, the revenue account for a retail business is entitled
Sales
Which of the following accounts has a normal credit balance?
Sales
Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
The amount of annual interest paid to bondholders remains the same over the life of the bonds.
Which of the following statements is true?
The balance of Retained Earnings after closing agrees with the amount reported on the statement of stockholders' equity and the balance sheet.
Which of the following statements regarding T accounts is true?
The left side of a T account is called the debit side.
On the bank reconciliation, outstanding checks are
a bank statement adjustment
A legal document that indicates the name of the issuer, the face value of the bond, the interest rate, interest payment dates, and the maturity date is called
a bond indenture
A bond indenture is
a contract between the corporation issuing the bonds and the bondholders
An aid in internal control over payroll that indicates employee attendance is
a time card
Sneed Corporation issues 9,800 shares of $51 par preferred stock for cash at $69 per share. The entry to journalize the transaction will consist of a debit to Cash for $676,200 and a credit or credits to
a. Preferred Stock for $499,800 and Paid-In Capital in Excess of Par−Preferred Stock for $176,400 Preferred Stock = Shares Issued × Par Value = 9,800 × $51 = $499,800 Paid-In Capital in Excess of Par−Preferred Stock = $676,200 − $499,800 = $176,400
Which of the following will be reported as a long-term liability on the balance sheet?
a. accrued liabilities b. accounts payable c. notes payable (due in 11 months) d. none of these choices none of these choices is the answer
Office supplies purchased by Janer's Cleaning Service on account were returned. The office supplies had not yet been paid for. Which of the following entries for Janer's Cleaning Service journalizes this transaction?
a. debit Accounts Payable; credit Office Supplies
The debt created by a business when it makes a purchase on account is called an
account payable
Under a perpetual inventory system,
accounting records continuously disclose the amount of inventory
Generally accepted accounting principles require that companies use the ____ of accounting.
accrual basis
The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is
accrued
A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This item would be included on the bank reconciliation as a(n)
addition to the balance per the company's records
An end-of-period spreadsheet includes columns for
adjusting entries
The statement of stockholders' equity should be prepared
after the income statement and before the balance sheet
Installing a new air conditioning system in an old building would be classified as
asset improvements
The type of account and normal balance of Prepaid Insurance is
asset, debit
In which of the following types of accounts are decreases recorded by credits?
assets
Fixed assets are ordinarily presented on the balance sheet
at cost less accumulated depreciation
Adjusting entries always include
at least one income statement account and one balance sheet account
Which of the following financial statements reports information as of a specific date?
balance sheet
Unearned fees appear on the
balance sheet as a current liability
Bonds that are subject to retirement prior to maturity at the option of the issuer are called
callable bonds
What is the first account that should be listed in the post-closing trial balance?
cash
What is the type of account and normal balance of Allowance for Doubtful Accounts?
contra asset, credit
Accumulated Depreciation and Depreciation Expense are classified, respectively, as
contra asset, expense
the rate of interest printed on the bond certificate is the
contract rate
On January 1, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The entry to journalize the issuance of the installment note for cash on January 1 would include a
credit to Notes Payable for $165,000
A business pays biweekly salaries of $20,000 every other Friday for a 10-day work period ending on that day. The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a
credit to Salaries Payable of $16,000
The result of a business's current assets divided by its current liabilities is its
current ratio
The date when dividends are actually distributed to stockholders is the
date of payment
When a company discards machinery that is fully depreciated, this transaction would be journalized with which entry?
debit Accumulated Depreciation and credit Machinery
Allowance for Doubtful Accounts has a credit balance of $1,300 at the end of the year (before adjustment). The company prepares an analysis of the receivables and estimates the amount of uncollectible accounts to be $41,900. Which of the following adjusting entries would be made to journalize the bad debt expense for the year?
debit Bad Debt Expense for $40,600; credit Allowance for Doubtful Accounts for $40,600
In recording the cost of goods sold for cash, based on data available from perpetual inventory records, the journal entry would
debit Cost of Goods Sold and credit Inventory
Smokey Company purchases a 1-year insurance policy on July 1 for $13,584. The adjusting entry on December 31 is
debit Insurance Expense, $6,792; credit Prepaid Insurance, $6,792
The entry used to journalize the payment of a discounted note is
debit Notes Payable and credit Cash
The entry a company uses to journalize fully funded pension rights for its salaried employees at the end of the year is
debit Pension Expense and credit Cash
The journal entry a company uses for the interest payment and amortization of bond premium would include a
debit to Interest Expense and Premium on Bonds Payable and a credit to Cash
The adjusting entry to journalize the amortization of a discount on bonds payable includes a
debit to Interest Expense and a credit to Discount on Bonds Payable
A corporation purchases 6,876 shares of its own $8 par common stock for $27 per share, recording it at cost. What will be the effect on total stockholders' equity?
decrease by $185,652 Decrease in Stockholders' Equity = 6,876 × $27 = $185,652
A credit may signify a
decrease in assets
The payment of cash to a creditor on account has what effect on the accounting equation?
decreases assets; decreases liabilities
Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is a(n)
deduction from the balance per company's records
If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n)
deferral
If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a(n)
deferral
The revenue recognition principle
determines when revenue is credited to a revenue account
When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at
discount
If the maker of a promissory note fails to pay the note on the due date, the note is said to be
dishonored
The collection of an account that was previously written off under the allowance method of accounting for uncollectible receivables
does not affect net income in the period it is collected
One of the main disadvantages of the corporate form is the
double taxation of dividends
The depreciation method that does not use residual value in computing the first year's depreciation expense is the
double-declining-balance method
The return required by the market on the day of bond issuance is called the
effective rate
The ability of a corporation to obtain capital is
enhanced because of limited liability and ease of share transferability
Which of the following would appear as a prior period adjustment?
error in the computation of depreciation expense in the preceding year
Which of the following is applied to a specified maximum and is paid by the employer only?
federal unemployment compensation tax (FUTA)
When merchandise is assumed to be sold in the order in which the purchases were made, the company is using the
first-in, first-out method
Research and Development Costs would usually appear on the financial statements as a(n)
fixed asset on the balance sheet
The price at which a stock can be sold depends upon a number of factors. Which of the following is not one of those factors?
how high the par value is
On September 1, the company pays rent for 12 months in advance and debits an asset account. At year-end, the adjusting entry on the end-of-period spreadsheet would
increase an expense account
The authorized stock of a corporation
is indicated in its charter
The direct write-off method of accounting for uncollectible accounts
is often used by small companies and companies with few receivables
When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method
is used primarily by small companies with few receivables
How does receiving a bill to be paid next month for services received affect the accounting equation?
liabilities increase; stockholders' equity decreases
The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n)
liability
Which of the following is not a business transaction?
make a sales offer
When goods are shipped FOB destination and the seller pays the freight charges, the buyer
makes no journal entry for the freight
All of the following are examples of external users of accounting information except
managers
Which of the following is not a prerequisite to paying a cash dividend?
market value in excess of par value per share
Cash equivalents include
money market accounts and commercial paper
When a firm uses internal auditors, it is adhering to which of the following internal control elements?
monitoring
Damaged merchandise that can be sold only at prices below cost should be valued at
net realizable value
The exclusive right to produce and sell a new kitchen gadget is secured through
patent
In credit terms of 3/15, n/45, the "3" represents the
percent of the purchases discount
The process of transferring debits and credits from journal entries to the accounts is called
posting
Which of the following errors could cause the trial balance totals to be unequal?
posting the debit portion of a journal entry incorrectly when the credit portion of the entry is correctly posted
The face amount of a bond is called the
principal
Control procedures
provide reasonable assurance that business goals will be achieved
Which of the following is not an example of safeguarding inventory?
returning inventory that is defective or broken
Net income will result when
revenues (credits) > expenses (debits)
Which of the following is an example of an accrued expense?
salary owed but not yet paid
Gross profit is equal to
sales less cost of goods sold
When the maturities of a bond issue are spread over several dates, the bonds are called
serial bonds
Taking a physical count of inventory
should be done near year-end
Credit memos from the bank
show the bank has collected a note receivable for the customer
A bank statement
shows the activity that increased or decreased the company's account balance
Transactions affecting stockholders' equity include
stockholder investments, dividends, earning of revenues, and incurrence of expenses
Treasury stock that was purchased for $2,241 is sold for $3,542. As a result of these two transactions combined,
stockholders' equity will be increased by $1,301. Increase in Stockholders' Equity = Sales Price of Treasury Stock - Purchase Price of Treasury Stock = $3,542 - $2,241 = $1,301
The amount of cash to be reported on the balance sheet at June 30 is
the adjusted balance appearing on the bank reconciliation for June 30
The first item appearing on the statement of stockholders' equity is
the beginning balances of equity accounts
The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include
the list price plus the sales tax
When referring to a note receivable or promissory note
the note may be used to settle an account receivable
The assets section of the balance sheet normally presents assets in
the order in which they will be converted into cash or used in operations
Which of the following is not a purpose for the journal?
to help locate errors
Which of the following is not a role of accounting in business?
to personally guarantee loans of the business
A journal with a Debit and Credit column for recording transactions is known as a
two-column journal
A chart of accounts is
usually a listing of accounts in financial statement order
A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n)
voucher
In which inventory cost flow method is the cost of the units sold and in ending inventory a weighted average of the purchase costs?
weighted average cost
Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited
when an account is determined to be worthless
Using accrual accounting, expenses are recorded and reported only
when they are incurred, whether or not cash is paid
Which of the following would be used to compute the federal income taxes to be withheld from an employee's earnings?
withholding table