ACG Final

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Clawson Corporation has current assets of $3,150,000 and current liabilities of $2,250,000. If Clawson Corporation pays $500,000 of its accounts payable what will its new current ratio be? 1.40 1.45 1.80 1.51 2.10

1.51 Current ratio equals current assets divided by current liabilities. Accounts payable is a current liability. Paying accounts payable reduces cash (i.e., current assets) and reduces accounts payable (i.e., current liabilities). Current ratio = ($3,150,000 − $500,000) ÷ ($2,250,000 − $500,000) Current ratio = 1.514 (i.e., 1.51 to 1 or 1.51:1)

The following information is for Hutchinson Company: Net income, $850,000 Preferred stock dividends, $75,000 Common stock dividends, $40,000 Beginning common stockholders' equity, $4,000,000 Ending common stockholder's equity, $5,000,000 Average market price of common stockholders' equity, $6,000,000 What is the return on common stockholders' equity? 16.33% 15.50% 17.22% 12.92% 18.00%

17.22 Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equity Return on common stockholders' equity = (850,000 - 75,000)/(4,000,000 + 5,000,000)/2) = 17.22%.

Jose Inc. reports the following balances and amounts. The following information is presented in random order (amounts are in dollars). Accounts payable, 35,000 Cash provided by operations, 90,000 Accounts receivable, 37,500 Net income, 36,000 Average common shares, 20,000 Salaries and wages payable, 8,000 Average current liabilities, 110,000 Stockholders' equity, 240,000 Average and total assets, 600,000 Total current assets, 300,000 Average total liabilities, 320,000 Total current liabilities, 120,000 Cash, 100,000 How much is its working capital? $280,000 $250,000 $180,000 $200,000 $300,000

180,000 Working capital is current assets minus current liabilities. Working capital = $300,000 - $120,000 = $180,000

Ramona, Inc. has 2,500 shares of 6%, $100 par, cumulative preferred stock and 80,000 shares of $4 par common stock outstanding. Last year the board of directors declared and paid a $5,000 dividend. This year the dividend declared and paid was $30,000. What amount of this dividend will be paid to the preferred stockholders? $24,000 $25,000 $18,000 $5,000 $15,000

25,000 Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the prior year and the current year. Total dividend = 2,500 x 6% x $100 = $15,000 Preferred dividends in arrears for prior year ($15,000 - $5,000) = $10,000 Preferred dividends for current year = 15,000 Total dividends to preferred stockholders = $25,000

At April 30, Mendoza Company has the following bank information: Cash balance per bank, $7,200 Outstanding checks, $560 Deposits in transit, $1,100 Credit memo for interest, $20 Bank service charge, $40 What is Mendoza's adjusted cash balance on April 30? $7,720. $7,760. $7,780. $6,660. $7,740.

7,740 Cash per bank, 7,200 Add: Deposits in transit, 1,100 Less: Outstanding checks, (560) Adjusted cash balance, 7,740

Cost of goods purchased is $480,000, beginning inventory is $40,000, and cost of goods sold is $440,000. How much is ending inventory? $80,000 $40,000 $0 $100,000 $60,000

80,000 Beginning inventory + Purchases - Ending inventory = Cost of goods sold 40,000 + 480,000 - Ending inventory = 440,000 Ending inventory = 40,000 + 480,000 + 440,000 = 80,000

Lance Company has the following inventory units and costs: Units Unit Cost Inventory, Jan. 1 5,000 $11 Purchase, June 19 11,000 12 Purchase, Nov. 8 7,000 13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system? $113,000 $96,000 $91,000 $104,000 $100,000

91,000 [LIFO periodic ending inventory] Ending inventory under LIFO uses the oldest (i.e., earliest) costs of inventory to compute ending inventory. Ending inventory = (5,000 x $11) + (3,000 x $12) = $91,000

A company should report an issuance of common stock on its statement of cash flows as a budgeting activity. a marketing activity. an investing activity. an operating activity. a financing activity.

A financing activity The cash flows statement has three sections: (i) operating, (ii) investing, and (iii) financing. On the statement of cash flows, the issuance of common stock is reported as a financing activity.

Which one of the following would not result in a bank issuing a debit memorandum? All of these result in a bank issuing a debt memorandum. Checks marked NSF. Wiring of funds to other locations. Collection of a note receivable. Bank service charge.

Collection of a note receivable Because the bank considers the depositor's account balance to be a liability, a credit memo from a bank indicates that the bank increased the account balance (i.e., the bank credited its liability owed to the customer) and a debit memo causes a decrease. Collection of a note receivable increases the amount owed to the depositor; it increases the liability of the bank and is accomplished with a credit memo.

The effects of paying a dividend on the basic accounting equation are to increase assets and decrease assets by the same amount. Total assets do not change. decrease assets and decrease liabilities. increase assets and increase liabilities. decrease assets and decrease stockholders' equity. increase liabilities and increase stockholders' equity.

Decrease assets and decrease stockholders' equity Basic accounting equation: Assets = Liabilities + Stockholders' Equity Paying a dividend decreases cash (i.e., decreases assets) and decreases retained earnings which is an equity account. Thus, asset decrease and equity decreases.

A company sold a plant asset for $3,000. It had a cost $10,000 and its accumulated depreciation is $7,500. What gain or loss did the company experience? Gain of $500 Loss of $750 Gain of $3,000 Loss of $7,000 Loss of $500

Gain of $500 Book value is $2,500 ($10,000 - $7,500). Since the proceeds ($3,000) exceed the book value ($2,500) by $500, there is a gain.

Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts. T-account register ledger journal trial balance

Journal The transaction is first recorded in a journal, and then posted to a ledger. By the way, the journal is sometimes referred to as "the book of original entry."

Which one of the following is a physical control? Time clocks for recording time worked Segregation of duties All of these are physical controls Conduct thorough background checks on job applicants Bonding employees

Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. Examples of a physical controls include time clocks for recording time worked.

Amounts earned on the sale of products or services to customers is known as revenue. equity. liabilities. assets. expenses.

Revenue Revenues are amounts earned on the sale of products or services to customers. Common examples of revenues include sales revenue, service revenue, and interest revenue. Expenses are the cost of assets consumed or services used in the process of generating revenues. Common examples of expenses include wage expense, depreciation expense, interest expense, marketing expense, etc. Expenses are incurred by business when they generate (or attempt to generate) revenues.

Which account will have a zero balance after a company has journalized and posted closing entries? Supplies None of these Accumulated Depreciation Service Revenue All of these

Service Revenue Supplies and Prepaid Insurance are assets; they are permanent accounts and will not be closed at the end of the year. Accumulated Depreciation is a contra-asset account. Contra-asset accounts are permanent accounts and are not closed at the end of the year.

Which statement about stock dividends is true? Stock dividends reduce a company's cash balance. Stock dividends do not change total stockholders' equity. Stock dividends do not require a journal entry. All of these are true. Stock dividends increase total stockholders' equity by the par value of the stock distributed.

Stock dividends do not change total stockholders' equity A stock dividend moves amounts from retained earnings to paid-in capital and does not affect the total stockholders' equity amount. Total stockholders' equity stays the same as a result of stock dividends. A stock dividend has no effect on total stockholders' equity. Cash dividends require journal entries on the declaration date and date of payment, but not the record date. Cash dividends decrease stockholders' equity on the declaration date.

Which of the explicitly requires that all publicly traded companies must maintain adequate internal controls? The Affordable Care Act The Tax Reform Act of 1986 The Sarbanes-Oxley Act The General Agreement on Tariffs and Trade The Securities Exchange Act of 1934

The Sarbanes-Oxley Act The Sarbanes-Oxley Act requires all publicly traded U.S. companies to maintain an adequate system of internal controls. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Companies that fail to comply are subject to fines and company officers can be imprisoned. The Sarbanes-Oxley Act does not address issues related to reporting to the IRS. In addition this Act created the Public Company Accounting Oversight Board to establish auditing standards and regulate auditor activity.

A check correctly written by the company for $257 was incorrectly recorded by that same company as $275. On the bank reconciliation None of these $18 should be added to the cash balance per bank statement. $18 should be added to the cash balance per books. $18 should be deducted from the cash balance per bank statement. $18 should be deducted from the cash balance per books.

$18 should be added to the cash balance per books. The company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted.

A check correctly written by a company for $275 was incorrectly recorded by that same company as $257. On the bank reconciliation None of these $18 should be added to the cash balance per books. $18 should be deducted from the cash balance per books. $18 should be added to the cash balance per bank statement. $18 should be deducted from the cash balance per bank statement.

$18 should be deducted from the cash balance per books The company deducted too little from its cash balance. Correcting the error requires subtracting back the difference between the correct amount and the amount deducted.

Bonds with a face value of $250,000 and a quoted price of 101¼ have a selling price of $250,125. $250,000. $250,125. $251,250. $253,125.

$253,125 Proceeds from the sale of bonds with a face value of $250,000 at 101¼ equals $250,000 x 1.0125 or $253,125. Equivalently, $250,000 x 101.25% = $253,125.

Big Time Widgets has the following inventory data: December 1 Beginning inventory of 15 units at $6.00 per unit December 7 Purchases 60 units at $6.75 per unit December 12 Sold 35 units December 20 Purchased 30 units at $7.75 per unit December 29 Sold 10 units Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual? $333.75 using perpetual, and $313.75 using periodic $292.5 using perpetual, and $313.75 using periodic $313.75 using perpetual, and $333.75 using periodic $333.75 using perpetual, and $423 using periodic $309.50 using perpetual, and $323 using periodic

$313.75 using perpetual, and $333.75 using periodic When using perpetual LIFO, cost of goods sold includes the last inventory acquired that was on hand at the date of sale; it does not include inventory acquired after the sale occurred. On Dec. 12, the company sold 35 units from the Dec. 7 layer of inventory. On Dec. 29, the company sold 10 units from the Dec. 20 layer of inventory. Cost of goods sold = (35 x $6.75) + (10 x $7.75) = 236.25 + 77.50 = $313.75 When using periodic LIFO, cost of goods sold includes the last inventory acquired regardless of whether it was on hand at the date of sale; it can include inventory acquired after the sale occurred. On Dec. 12, the company sold 35 units. On Dec. 29, the company sold 10 units. Cost of goods sold is based on the last 45 units of inventory acquired = (30 x $7.75) + (15 x $6.75) = 232.50 + 101.25 = $333.75

Big Time Widgets has the following inventory data: December 1 Beginning inventory of 15 units at $6.00 per unit December 7 Purchased 50 units at $6.60 per unit December 12 Sold 45 units December 20 Purchased 30 units at $7.50 per unit December 29 Sold 15 units Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual? $408 using perpetual, and $414 using periodic $423 using perpetual, and $409.50 using periodic $409.50 using perpetual, and $423 using periodic $387 using perpetual, and $387 using periodic $423 using perpetual, and $423 using periodic

$409.50 using perpetual, and $423 using periodic When using perpetual LIFO, cost of goods sold includes the last inventory acquired that was on hand at the date of sale; it does not include inventory acquired after the sale occurred. On Dec. 12, the company sold 45 units from the Dec. 7 layer of inventory. On Dec. 29, the company sold 15 units from the Dec. 20 layer of inventory. Cost of goods sold = (45 x $6.60) + (15 x $7.50) = 297 + 112.50 = $409.50 When using periodic LIFO, cost of goods sold includes the last inventory acquired regardless of whether it was on hand at the date of sale; it can include inventory acquired after the sale occurred. On Dec. 12, the company sold 45 units. On Dec. 29, the company sold 15 units. Cost of goods sold is based on the last 60 units of inventory acquired = (30 x $7.50) + (30 x $6.60) = 225 + 198 = $423

Omega Company gathered the following reconciling information in preparing its June bank reconciliation: Cash balance per books, Jun. 30, $5,400 Deposits in transit, $550 Outstanding checks, $2,500 NSF check, $320 Notes receivable and interest collected by bank, $950 Bank charge for check printing, $65 The adjusted cash balance per books on June 30 is $3,385. $7,015. $5,965. $6,515. $6,605.

$5,965 Balance per books on October 31, $5,400 Add: Note collected by the bank, $950 Less: Bank service charge, ($65) Less: Customer's NSF check, ($320) Adjusted cash balance per books on October 31, $5,965

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $280,000 Treasury stock, $10,000 Dividends payable, $30,000 Paid-in capital in excess of par value, $60,000 Common stock, $175,000 How much is total stockholders' equity? $525,000 $505,000 $545,000 $565,000 $555,000

$505,000 Total stockholders' equity = Retained earnings - treasury stock + paid-in capital in excess of par value + common stock Total stockholders' equity = $280,000 - $10,000 + $60,000 + $175,000 = $505,000 Note: Dividends Payable is a liability.

Adams Trucking Inc. purchased a new semi-truck on January 1 of the current year for $250,000. Its useful life is expected to be 5 years and its salvage value is estimated at $20,000. What is the depreciation expense for the second year using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)? $72,500 $48,000 $60,000 $87,500 $50,000

$60,000 The depreciation expense for the first year would be ($250,000 - 0) x (2 x 1/5) = $100,000. The asset's book value becomes $150,000 (i.e., $250,000 - 100,000). The depreciation expense for the second year would be based on the book value at the start of the second year: $150,000 x (2 x 1/5) = $60,000. Alternatively, the depreciation expense for the second year = ($250,000 - 100,000) x 2/5 = $60,000

If 1,000 shares of $5 par common stock are reacquired by a corporation for $9 a share, by how much will total stockholders' equity change? $4,000 decrease $9,000 increase $9,000 decrease $4,000 increase $0

$9,000 decrease Stockholders' equity is reduced by the cost of acquiring the treasury stock: 1,000 shares x $9 per share = $9,000.

Brown Box Inc. issues a $1,000,000, 11%, 20-year mortgage note. The terms provide for annual installment payments of $125,576. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment? $992,680 $970,577 $984,957 $985,929 $967,135

$967,135 Since interest accrues annually, the first year's interest would be $110,000 (i.e., 11% x $1,000,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $125,576 payment and the interest component ($110,000), resulting in a principal reduction of $15,576. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $15,576 from $1,000,000 to $984,424. The second annual payment's interest is 11% of the outstanding mortgage principal of $984,424, or $108,287. The second annual payment of $125,576 is allocated as $108,287 paid towards interest and the remaining $17,289 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $967,135 (i.e., $984,424 - $17,289 = $967,135).

Black Tires Inc. issues a $1,000,000, 11%, 20-year mortgage note. The terms provide for semiannual installment payments of $62,320. What is the remaining unpaid principal balance of the mortgage payable account after the second semiannual payment? $950,000 $985,360 $992,680 $985,929 $984,957

$984,957 The first semiannual interest would be 5.5% (i.e., 11% ÷ 2) times $1,000,000 (i.e., the outstanding mortgage principal as of the beginning of the semiannual period (5.5% x $1,000,000 = $55,000). The mortgage principal is reduced by the difference between the $62,320 payment and the interest component ($55,000), resulting in a principal reduction of $6,462 (i.e., $62,320 - $55,000 = $7,320). Thus, the first semiannual mortgage payment reduces the outstanding mortgage principal balance by $7,320 from $1,000,000 to $992,680. The second semiannual payment's interest is 5.5% of the outstanding mortgage principal of $992,680, or $54,597. The second semiannual payment of $62,320 is allocated as $54,597 paid towards interest and the remaining $7,723 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second semiannual payment is $984,957 (i.e., $992,680 - $7,723 = $984,957).

Rose Corporation has accounts and balances: Accounts payable............................. $ 40,000 Accounts receivable............................. 30,000 Accumulated depreciation.................. 50,000 Buildings................................................. 500,000 Cash........................................................ 100,000 Common stock..................................... 710,000 Equipment......................................... 150,000 Inventory................................................ 200,000 Investments in securities (long-term). 20,000 Land......................................................... 130,000 Notes payable..................................... 250,000 Patents................................................ 20,000 Prepaid insurance................................. 10,000 Retained earnings................................. 150,000 Trademarks........................................... 40,000 What is Rose Corporation's (i) current assets and (ii) property, plant & equipment? (i) $340,000 and (ii) $730,000 (i) $380,000 and (ii) $740,000 None of these (i) $400,000 and (ii) $760,000 (i) $390,000 and (ii) $790,000

(i) $340,000 and (ii) $730,000 Classified balance sheets partition a company's assets into four categories: (i) current assets (e.g., cash, accounts receivable, inventory), (ii) long-term investments (e.g., investments in securities other companies, such as stocks and bonds, expected to be held more than one year), (iii) property, plant, and equipment (e.g., buildings, land, equipment, delivery vehicles, and furniture minus accumulated depreciation)), and (iv) intangibles (e.g., goodwill, patents, copyrights, trademarks). Rose's current assets include accounts receivable, cash, inventory, and prepaid insurance. Current assets = 30,000 + 100,000 + 200,000 + 10,000 = 340,000 Rose's property, plant, and equipment includes buildings, equipment and land minus accumulated depreciation. Property, plant and equipment = 500,000 + 150,000 + 130,000 - 50,000 = 730,000

An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $1,200,000; Allowance for doubtful accounts balance before adjustment (credit balance), $24,000; Amounts expected to become uncollectible, $115,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries? $1,200,000 $1,109,000 $1,176,000 $1,061,000 $1,085,000

1,085,000 The net realizable value of the accounts receivable is accounts receivable less the ending balance in the Allowance for Doubtful Accounts. In this case, accounts receivable is $1,200,000 and the ending balance in Allowance for Doubtful Accounts will be $115,000 after the year-end adjusting entry has been recorded. This will result in cash realizable value (i.e., net realizable value) of $1,200,000 less $115,000, or $1,085,000.

Green Tree Inc. sells 10%, 10-year bonds with a face value of $100,000 for $104,000. Using the effective-interest amortization method, how much is the interest expense for the first year if the effective interest rate is 9.72%? $10,000 $10,123 $10,109 $9,720 $9,470

10,109 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 9.72% x $104,000 = $10,108.80.

Kappa Company gathered the following reconciling information in preparing its September bank reconciliation: Cash balance per books, Sep. 30, $10,400 Deposits in transit, $900 Outstanding checks, $2,000 NSF check, $280 Notes receivable and interest collected by bank, $480 Bank charge for check printing, $50 The adjusted cash balance per books on September 30 is $11,450. $12,070. $10,830. $9,250. $10,550.

10,550 Balance per books on October 31, $10,400 Add: Note collected by the bank, $480 Less: Bank service charge, ($50) Less: Customer's NSF check, ($280) Adjusted cash balance per books on October 31, $10,550

Cost of goods purchased is $480,000, ending inventory is $40,000, and cost of goods sold is $540,000. How much is beginning inventory? $60,000 $40,000 $80,000 $0 $100,000

100,000 Beginning inventory + Purchases - Ending inventory = Cost of goods sold Beginning inventory + 480,000 - 40,000 = 540,000 Beginning inventory = 540,000 - 480,000 + 40,000 = 100,000

Parrish Company has the following inventory units and costs: Units Unit Cost Inventory, Jan. 1 7,000 $11 Purchase, June 19 10,000 12 Purchase, Nov. 8 4,000 13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system? $104,000 $113,000 $100,000 $89,000 $138,000

100,000 [FIFO periodic ending inventory] Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (4,000 x $13) + (4,000 x $12) = $100,000.

The following is information is from Clark Corporation's financial records for the current fiscal year. i. Cash received from customers, $255,000 ii. Revenue earned, $230,000 iii. Cash paid for wages, $115,000 iv. Wage expense incurred, $110,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $30,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $2,000 x. Supplies expense incurred, $4,000 What is the company's net income for the current year using the cash-basis of accounting? $108,000 $136,000 $110,000 $125,000 $86,000

108,000 The cash-basis of accounting recognizes revenues in the year cash is collected from customers regardless of when the performance obligation is satisfied and it recognizes expenses in the year they are paid regardless of when they are incurred. Net income using the cash-basis = Cash collected from customers - cash paid for expenses incurred Net income using the cash-basis = $255,000 - 115,000 - 30,000 - 2,000 = $108,000

On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $21,000. During the year, it had net credit sales of $900,000 and it had $20,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 6% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31? $20,000 $19,000 No credit adjustment needed $12,000 $11,000

11,000 After the write-offs are recorded (but before the year-end adjusting entry), Allowance for Doubtful Accounts will have a credit balance of $1,000 ($21,000 credit beginning balance combined with a $20,000 debit for the write-offs). Using the percentage of receivables basis, the balance in the allowance account needs to be a credit balance of $12,000 (i.e., $200,000 x 6%). In order to have an ending balance of $12,000, a credit entry of $11,000 must be made to Allowance for Doubtful Accounts. Thus, the amount of the adjusting entry must be $11,000.

At April 30, Key Company has the following information: Cash balance per bank, $10,500 Outstanding checks, $550 Deposits in transit, $1,375 Notes receivable collected by bank, $500 Bank service charge, $50 NSF check, $200 What is the company's adjusted cash balance at the end of the month? $11,825. $11,325. $12,425. $9,675. $11,125.

11,325 Cash per bank, 10,500 Add: Deposits in transit, 1,375 Less: Outstanding checks, (550) Adjusted cash balance. 11,325

For a given company, total assets are $160,000, current liabilities are $10,000, long-term liabilities are $40,000, common stock is $50,000, and retained earnings is $60,000. How much is total stockholders' equity? $120,000 $190,000 $150,000 $140,000 $110,000

110,000 Stockholders' equity equals common stock plus retained earnings. Common stock of $50,000 plus retained earnings of $60,000 equals $110,000 in stockholders' equity. Assets equals liabilities plus stockholders' equity. $160,000 = $10,000 + $40,000 + X Solving for X: Stockholders' equity = $110,000

Paul Company purchased a dump truck for $27,000. In addition, Paul Company paid freight charges of $500, and $700 to paint the company's logo on the truck. The estimated salvage value and useful life are $3,200 and 4 years, respectively. How much is the accumulated depreciation under the straight-line method after two years? $8,500 $6,250 $12,500 $13,500 $4,500

12,500 The purchase price includes all costs necessary to get the truck ready to use: $27,000 + $500 + $700 = $28,200. The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($28,200 - $3,200)/4 years = $6,250. Accumulated depreciation after three years = $6,250 x 2 = $12,500.

Clarence Trucking Inc. purchased a new truck on January 1 of the current year for $200,000. Its useful life is expected to be 10 years and its salvage value is estimated at $40,000. The company uses the double-declining balance method. What is the truck's book value at the end of December 31 of the second year? $133,333 $128,000 $187,500 $132,000 $160,000

128,000 The depreciation expense for the first year would be ($200,000 - 0) x (2 x 1/10) = $40,000 which produces a book value of $160,000 at the end of the first year (i.e., $200,000 - 40,000). The depreciation expense for the second year would be based on the book value at the start of the second year: $160,000 x (2 x 1/10) = $32,000. The book value at the end of the second year equals the asset's cost minus its accumulated depreciation = $200,000 - 40,000 - 32,000 = $128,000.

Maker-Bot Corporation has 10,000 shares of 10%, $90 par value, cumulative preferred stock outstanding since its inception. No dividends were declared in the first two years. If the company pays $400,000 of dividends in the third year, how much will common stockholders receive? $355,000 $270,000 $0 $130,000 $140,000

130,000 Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year. Total dividend = 10,000 x 10% x $90 = $90,000 Preferred dividends in arrears for two years ($90,000 × 2) = $180,000 Preferred for current year = $90,000 Total dividends to preferred stockholders = $270,000 Total dividends available = $400,000 Dividends available to common stockholders = $130,000

An asset purchased on January 1 for $60,000 has an estimated salvage value of $3,000. The current useful life is 8 years. How much is total accumulated depreciation using the straight-line method at the end of the second year of life? $15,000 $14,250 $7,125 $7,500 $9,725

14,250 The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($60,000 - $3,000)/8 years = $7,125. At the end of the second year, there will be two years of accumulated depreciation for a total of $14,250.

Maker-Bot Corporation has 10,000 shares of 7%, $100 par value, cumulative preferred stock outstanding since its inception. No dividends were declared in the first two years. If the company pays $350,000 of dividends in the third year, how much will common stockholders receive? $295,000 $215,000 $0 $140,000 $135,000

140,000 Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year. Total dividend = 10,000 x 7% x $100 = $70,000 Preferred dividends in arrears for two years ($70,000 × 2) = $140,000 Preferred for current year = $70,000 Total dividends to preferred stockholders = $210,000 Total dividends available = $350,000 Dividends available to common stockholders = $140,000

Jarrell Company began the year with $112,000 in its Common Stock account and a debit balance in Retained Earnings of $20,000. During the year, the company earned net income of $43,000 and declared and paid $8,000 of dividends. In addition, the company sold additional common stock amounting to $35,000. Based on this information, what is the ending Retained Earnings? $162,000 $15,000 $147,000 $160,000 $23,000

15,000 Note: Retained earnings begins with a debit balance indicating the company has had a history of losses rather than profits. A debit balance rarely occurs except with new companies experiencing a slow start. This year's income eliminates is enough to eliminate the debit balance in retained earnings and change it to a credit balance. Ending retained earnings = Beginning retained earnings + net income - dividends. Ending retained earnings = $20,000 (debit balance) + $43,000 (i.e., credit Retained Earnings because of net income) - 8,000 (i.e., debit Retained Earnings because of dividends) = $15,000 (i.e., the $15,000 ending balance in Retained Earnings account is a credit balance).

On January 1, Anthony Corporation issued $1,000,000, 13%, 5-year bonds. The bonds sold for $1,100,596. This price resulted in an effective interest rate of 14% on the bonds. Interest is payable annually on January 1. Use the effective-interest method to determine the amount of interest expense for the first year. $154,083 $140,000 $152,048 $125,581 $143,077

154,083 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bonds carrying value. The cash paid is the contractual or stated interest rate times the face amount of the bonds. Bond interest expense for the first interest date = $1,100,596 x 14% = $154,083.

Rawlings Company purchased a machine for $70,000 on January 1 of the current year and depreciated it on a straight-line basis over a 10-year life assuming no salvage value. If the company sells the machine for $29,000 on June 30 of the fourth year, what would be the company's gain or loss from the sale? $54,000 gain $18,000 loss $27,000 loss $16,500 loss $12,000 gain

16,500 loss The selling price less the book value of the machine equals the gain or loss on the sale. The Book value of the machine when sold: $70,000 - [($70,000/10 years) x 3.5 years] = $45,500. The gain (loss) on the sale = sales price minus book vale = $29,000 - $45,500 = ($16,500).

Jarrell Company began the year with $109,000 in its Common Stock account and a debit balance in Retained Earnings of $14,000. During the year, the company earned net income of $33,000 and declared and paid $5,000 of dividends. In addition, the company sold additional common stock amounting to $37,000. Based on this information, what is the ending stockholders' equity? $132,000 $158,000 $146,000 $9,000 $160,000

160,000 Note: Retained earnings begins with a debit balance indicating the company has had a history of losses rather than profits. A debit balance rarely occurs except with new companies experiencing a slow start. This year's income eliminates is enough to eliminate the debit balance in retained earnings and change it to a credit balance. Ending retained earnings = Beginning retained earnings + net income - dividends. Ending retained earnings = $14,000 (debit balance) + $33,000 (i.e., credit Retained Earnings because of net income) - 5,000 (i.e., debit Retained Earnings because of dividends) = $14,000 (i.e., the $15,000 ending balance in Retained Earnings account is a credit balance). Ending common stock = beginning common stock + additional common stock issued Ending common stock = $109,000 + 37,000 = $146,000 Ending stockholders' equity = ending common stock + ending retained earnings. Ending stockholders' equity = $146,000 + $14,000 = $160,000

Carlyle Corporation reported net income of $360,000 and paid dividends of $125,000 on its common stock and $50,000 on its preferred stock. Common stockholders' equity was $1,600,000 at the start of the year and $2,000,000 at the end of the year. Total assets was $2,200,000 at the start of the year and $2,600,000 at the end of the year. What is the company's return on common stockholder's equity? 15.50% 10.28% 12.92% 17.22% 13.06%

17.22 Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equity Return on common stockholders' equity = (360,000 - 50,000)/(1,600,000 + 2,000,000)/2) = 17.22%.

How much accrued interest should be reported on the payee's December 31 balance sheet on a $6,000, 7%, 9-month note receivable issued on August 1? $400 $420 $315 $350 $175

175 Interest earned is calculated by multiplying the face value (i.e., principal) times the interest rate times the portion of the year that has passed since the note was issued. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $6,000 x 7% x 5/12 = $175 Remember, all interest rates are annual interest rates unless designated otherwise.

Suarez Corporation issued 10-year bonds with a face value of $300,000 and a contractual rate of interest of 6% at 101 on July 1. What is the total cost of borrowing for Suarez Corporation? $177,000 $180,000 $300,000 $480,000 $155,000

177,000 The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds. Principal at maturity = $300,000 Interest payments = $300,000 × 6% × 10 years = $180,000 Total cash paid to bondholders = $480,000 Cash received from bondholders (101% × $300,000) = $303,000 Total cost of borrowing = $480,000 - 303,000 = $177,000

On January 1, Jamaica Company purchased equipment for $15,000. The estimated salvage value is $3,000 and the estimated useful life is 4 years. On December 31, 2017 of the third year, and before adjusting entries have been made, the company decided to extend the estimated useful life of the equipment by one year giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. What is the depreciation expense for the third year? $2,500 $3,500 $2,000 $4,000 $2,250

2,000 The annual depreciation for the first two years of life is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($15,000 - $3,000)/4 years = $3,000 per year. The depreciable cost that remains is $15,000 - $3,000 - (2 years x $3,000) = $6,000. This amount is allocated over the remaining useful life, and the remaining life is 3 years (i.e., 5 total years minus 2 expired years). Depreciation in the third year is $2,000 (i.e., $6,000/3 years).

On July 1, Mesa Verde, Inc. purchased a 3-year insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be a $2,100 debit to Prepaid Insurance and a $2,100 credit to Insurance Expense. No adjusting entry is necessary. $2,100 debit to Insurance Expense and a $2,100 credit to Prepaid Insurance. $10,500 debit to Prepaid Insurance and a $10,500 credit to Insurance Expense. $10,500 debit to Insurance Expense and a $10,500 credit to Prepaid Insurance.

2,100 debit to Insurance Expense and a 2,100 credit to Prepaid Insurance This entry correctly adjusts the accounts to recognize that six months of the 36 month policy have expired and are recorded as expense. Monthly rate = $12,600/36 = $350 per month. Expense the amount for Jul. 1 through Dec. 31: $350 x 6 = $2,100.

On January 1, Jamaica Company purchased equipment for $18,000. The estimated salvage value is $2,000 and the estimated useful life is 5 years. On December 31 of the third year, before adjusting entries have been made, the company decided to extend the estimated useful life of the equipment by one year giving it a total life of 6 years. The company did not change the salvage value and continues to use the straight-line method. What is the depreciation expense for the third year? $2,800 $3,500 $2,400 $3,200 $2,500

2,400 The annual depreciation for the first two years of life is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($18,000 - $2,000)/5 years = $3,200 per year. The depreciable cost that remains is $18,000 - $2,000 - (2 years x $3,200) = $9,600. This amount is allocated over the remaining useful life, and the remaining useful life is 4 years (i.e., 6 total years - 2 expired years). Depreciation in the third year is $2,400 (i.e., $9,600/4 years).

At the end of the year, Blue Company had retained earnings of $2,840,000. During the year, the company issued stock for $108,000 and paid dividends of $43,000. Net income for the year was $402,000. How much was the retained earnings balance at the beginning of the same year? $2,154,000 $1,816,000 $2,253,000 $1,914,000 $2,481,000

2,481,000 Ending retained earnings equals beginning retained earnings plus net income minus dividends. $2,840,000 = X + $402,000 - $43,000 Solve for X: Beginning retained earnings = $2,481,000.

In its first month of operations, a company's cash account has total debit entries amounting to $27,500 and total credit entries amounting to $24,900. At the end of the month, the cash account has a $2,600 credit balance. $2,600 debit balance. $52,400 debit balance. $$27,500 debit balance. $0 balance.

2,600 debit balance When a company begins, all of its accounts have a zero balance. This company has debit entries for cash of $27,500 and credits of $24,900 in its cash account during its first month. Debits increase asset accounts' balances, such as cash, and credits decrease assets' accounts balances. The balance in the cash account at the end of the period will be $2,600 debit balance (i.e., $27,500 dr. − $24,900 cr. = $2,600 dr.; when an account's debits exceed its credits, the account has a debit balance).

2.50 The current ratio is total current assets divided by total current liabilities; Current ratio = $300,000/$120,000 = 2.5 (i.e., 2.5 to 1 or 2.5:1).

Barker Company collected the following information to prepare its November bank reconciliation: Cash balance per bank, November 30, $21,000. Note receivable of $8,500 plus $500 of interest collected, $9,000. Outstanding checks, $6,000. Deposits in transit, $5,400. Bank service charges, $85. NSF check, $2,100. How much is the adjusted cash balance per bank on November 30? $21,600 $29,915 $14,100 $29,315 $20,400

20,400 Balance per bank on November 30, $21,000 Add: Deposits in transit, $5,400 Less: Outstanding checks, ($6,000) Adjusted cash balance per bank, $20,400

The following information is for Hutchinson Company: Net income, $920,000 Common stock dividends, $100,000 Preferred stock dividends, $50,000 Average total assets, $6,600,000 Average common stockholders' equity, $4,000,000 Average preferred stockholders' equity, $1,000,000 What is the return on common stockholders' equity? 34.80% 20.50% 19.25% 21.75% 13.18%

21.75 Return on common stockholders' equity = (Net income - preferred stock dividends) / by the average common stockholders' equity Return on common stockholders' equity = (920,000 - 50,000)/4,000,000 = 21.75%.

Big Time Widgets has the following inventory data: December 1 Beginning inventory of 50 units at $6.00 per unit December 7 Purchased 10 units at $6.25 per unit December 12 Sold 30 units December 20 Purchased 30 units at $7.50 per unit December 29 Sold 20 units Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual? $291 using perpetual, and $255 using periodic $255 using perpetual, and $240 using periodic $220 using perpetual, and $223 using periodic $255 using perpetual, and $291 using periodic $244 using perpetual, and $240 using periodic

255 using perpetual, and 240 using periodic When using perpetual LIFO, cost of goods sold includes the last inventory acquired that was on hand at the date of sale; it does not include inventory acquired after the sale occurred. For each sale date, determine the inventory sold using LIFO for each sale of inventory; the inventory not sold during the period belongs in ending inventory. On December 12, sold 10 of the units acquired on Dec. 7 and 20 units of beginning inventory. On December 29, sold 20 of the units acquired on Dec. 20 Ending inventory includes 40 units, including 30 units of beginning inventory, none of the units of inventory acquired on Dec. 7, and 10 units of inventory acquired on Dec. 29. Ending inventory = (30 x $6.00) + (10 x $7.50) = 180 + 75 = $255 When using periodic LIFO, cost of goods sold includes the last inventory acquired regardless of whether it was on hand at the date of sale; it can include inventory acquired after the sale occurred. For each sale date, determine the inventory sold using LIFO for each sale of inventory; the inventory not sold during the period belongs in ending inventory. On Dec. 12, the company sold 30 units. On Dec. 29, the company sold 20 units. Cost of goods sold is based on the last 50 units of inventory acquired; ending inventory includes the oldest 40 units of inventory = (40 x $6.00) = $240

Caruso Company purchased equipment on January 1 at a total invoice cost of $400,000. The equipment has an estimated salvage value of $50,000 and an estimated useful life of 4 years. What is the amount of accumulated depreciation at December 31 of the third year if the straight-line method of depreciation is used? $175,000 $215,000 $87,500 $262,500 $156,000

262,500 Since the asset has been in use for three full years, the accumulated depreciation at December 31 of the third year is equal to three times the annual depreciation expense: (i.e., $400,000 - $50,000)/4 = $87,500 per year.

Net credit sales are $750,000, average inventory totals $50,000, average net receivables total $60,000, and the allowance for doubtful accounts totals $5,000. How much is the average collection period (also known as the days in receivable ratio)? 29.2 days 20.277 days 24.333 days 4.8 days 26.766 days

29.2 The accounts receivable turnover is net credit sales divided by average net accounts receivable = $750,000/$60,000 = 12.5 times The average collection period is 365 divided by the accounts receivable turnover ratio = 365/12.5 = 29.2 days.

Big Time Widgets has the following inventory data: December 1 Beginning inventory of 15 units at $6.00 per unit December 7 Purchased 60 units at $6.60 per unit December 12 Sold 35 units December 20 Purchases 30 units at $7.20 per unit December 29 Sold 25 units Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual? $288 using perpetual, and $423 using periodic $313.75 using perpetual, and $291 using periodic $309.50 using perpetual, and $323 using periodic $292.50 using perpetual, and $313.75 using periodic $291 using perpetual, and $288 using periodic

291 using perpetual, and 288 using periodic When using perpetual LIFO, cost of goods sold includes the last inventory acquired that was on hand at the date of sale; it does not include inventory acquired after the sale occurred. For each sale date, determine the inventory sold using LIFO for each sale of inventory; the inventory not sold during the period belongs in ending inventory. On December 12, sold 35 of the units acquired on Dec. 7 On December 29, sold 25 of the units acquired on Dec. 20 Ending inventory includes the 45 units, including 15 units of beginning inventory, 25 units of inventory acquired on Dec. 7, and 5 units of inventory acquired on Dec. 29. Ending inventory = (15 x $6.00) + (25 x $6.60) + (5 x $7.20) = 90 + 165 + 36 = $291 When using periodic LIFO, cost of goods sold includes the last inventory acquired regardless of whether it was on hand at the date of sale; it can include inventory acquired after the sale occurred. For each sale date, determine the inventory sold using LIFO for each sale of inventory; the inventory not sold during the period belongs in ending inventory. On Dec. 12, the company sold 35 units. On Dec. 29, the company sold 25 units. Cost of goods sold is based on the last 60 units of inventory acquired; ending inventory includes the oldest 45 units of inventory = (15 x $6.00) + (30 x $6.60) = 90 + 198 = $288

Irwin Industries had the following inventory transactions occur during the current year: Units Cost/unit Feb. 1 Purchase 40 $42 Mar. 14 Purchase 60 $43 May 1 Purchase 45 $44 The company sold 100 units at $80 each and has a tax rate of 25%. Assuming that a periodic inventory system is used and operating expenses are $1,000, what is the company's gross profit using LIFO? (rounded to whole dollars) $4,355 $3,655 $3,885 $1,716 $3,145

3,655 Using periodic LIFO, cost of goods sold includes the last inventory purchased (i.e., the newest inventory). Sales revenue = 100 x $80 = $8,000 Cost of goods sold = (45 x $44) + [(100 - 45) x $43] = $1,980+ 2,365= $4,345 Gross profit = Sales revenue - cost of goods sold = $8,000 - 4,345 = $3,655

On August 1 of the current year, Moreno Company purchased a patent from another company for $90,000. The estimated useful life of the patent is 10 years, and its remaining legal life is 15 years . How much is Moreno's amortization expense for the current year? $3,000 $3,750 $8,000 $7,500 $5,000

3,750 Amortization is calculated using the straight-line method over the shorter of the useful life or the remaining legal life. In this case, the shorter is 10 years. Amortization expense for the current year = $90,000/10 years x 5/12 = $3,750.

What is the maturity value of a $30,000, 12%, 3-month note receivable dated March 1? $26,400 $30,000 $30,900 $33,600 $30,300

30,900 The maturity value is the face value (i.e., principal) plus interest for the term of the note. Interest earned is calculated by multiplying the principal times the interest rate times the length of the note. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $30,000 x 12% x 3/12 = $900 Remember, all interest rates are annual interest rates unless designated otherwise. Maturity value = Principal + interest = $30,000 + 900 = $30,900.

On January 1, Forever Ceramics issued $1,000,000, 9% bonds for $960,000. This price resulted in an effective interest rate of 10% on the bonds. Interest is payable annually on January 1. The company uses the effective-interest method of amortizing bond discount. At the end of the first year, how much should Forever Ceramics report as unamortized bond discount? $90,000 $34,000 $36,500 $6,000 $40,000

34,000 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bonds' carrying value. The cash paid is the coupon or stated interest rate times the face amount of the bonds. The difference is the amount amortized for one year. The original discount is $40,000 ($1,000,000 - $960,000). The amortization for the first year is equal to the difference between the cash interest to be paid ($1,000,000 x 9% = $90,000) and interest expense ($960,000 x 10% = $96,000), or $6,000. The amortization of $6,000 is subtracted from the original discount of $40,000 to arrive at the unamortized bond discount at the end of the first year of $34,000.

Vista, Inc. has 250,000 shares of common stock outstanding. A 40% stock dividend was declared and issued. How many shares are outstanding after the stock dividend? 390,000 300,000 350,000 310,000 309,000

350,000 The number of outstanding shares is multiplied by the percentage of the stock dividend to get the total new shares to be issued. The new shares plus the original shares outstanding are then added together: 250,000 + (250,000 x 40%) = 350,000 shares.

Bubba's Trucking Company purchased a new truck on January 1 of the current year for $200,000. Its useful life is expected to be 8 years and its salvage value is estimated at $30,000. What is the depreciation expense for the second year using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)? $45,000 $33,333 $46,667 $40,000 $37,500

37,500 The depreciation expense for the first year would be ($200,000 - 0) x (2 x 1/8) = $50,000. This produces a book value of $150,000 (i.e., $200,000 - 50,000) at the end of the first year. The depreciation expense for the second year would be based on the book value at the start of the second year: $150,000 x (2 x 1/8) = $37,500.

At December 31, Moore Company's inventory records indicated a balance of $420,000. Upon further investigation it was determined that this amount included the following: (1) $54,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB shipping point, but not due to be received until January 2. (2) $25,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB destination, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB destination on December 29. The goods are not expected to reach their destination until January 5. (4) $7,000 in goods sold by Moore with terms FOB shipping point on December 29. The goods are not expected to reach their destination until January 4. (5) $15,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31? $351,000 $373,000 $334,000 $392,000 $365,000

373,000 Do not include the following in inventory: --FOB destination purchases not yet received (i.e., $25,000) --FOB shipping point goods sold and shipped (i.e., $7,000) --Goods held on consignment (i.e., $15,000). Ending inventory = $420,000 - 25,000 - 7,000 - 15,000 = $373,000

At the end of the year, Stoneland Corporation has assets of $6,500 and liabilities of $2,000. How much is the company's equity at the end of the year? $8,500 $4,500 $1,000 $2,000 $4,000

4,500 Assets = Liabilities + Equity Using the accounting equation, equity can be computed by subtracting liabilities from assets. Equity = $6,500 - 2,000 = $4,500.

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold? $15,000 $35,000 $40,000 $60,000 $55,000

40,000 Gross profit - operating expenses = net income. Alternatively: Net income + operating expenses = gross profit. $15,000 + 20,000 = $35,000 Net sales - cost of goods sold = gross profit Alternatively: Net sales - gross profit = cost of goods sold $75,000 - 35,000 = $40,000. Chapter 5, Learning objective 4, Pool 2

Suarez Corporation issued 10-year bonds with a face value of $600,000 and a contractual rate of interest of 7% at 98 on July 1. What is the total cost of borrowing for Suarez Corporation? $1,040,000 $500,000 $432,000 $600,000 $420,000

432,000 The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds. Principal at maturity = $600,000 Interest payments = $600,000 × 7% × 10 years = $420,000 Total cash paid to bondholders = $1,020,000 Cash received from bondholders (98% × $600,000) = $588,000 Total cost of borrowing = $1,020,000 - 588,000 = $432,000

A company has the following accounts balances: Sales revenue $100,000; Sales Returns and Allowances $20,000; Sales Discounts $5,000; Cost of Goods Sold $40,000; and Net Income $7,000. How much is the gross profit rate? 46.7% 26.7% 75.0% 25% 20.0%

46.7 Net sales = Sales revenue - sales returns and allowances - sales discounts Net sales = 100,000 - 20,000 - 5,000 = 75,000 Gross profit = Net sales - cost of goods sold Gross profit = 75,000 - 40,000 = 35,000 Gross profit rate = Gross profit divided by net sales. Gross profit rate = 35,000/75,000 = 46.7%

A company uses straight-line depreciation. It purchased a truck for $40,000. The truck's salvage value is $4,000. The truck's monthly depreciation expense is $600. What is the truck's useful life? 5 years 6 years 7.2 years 5.56 years 4 years

5 years The depreciable cost equals the cost minus the salvage value; it is the $40,000 purchase price less $4,000 salvage value, which is $36,000. The annual depreciation cost is $600 per month or $7,200 per year. Since $36,000 will be depreciated by $7,200 per year, the useful life is 5 years (i.e., $36,000/$7,200 per year = 5 years).

On January 1, $500,000, 5-year, 6% bonds, were issued for $475,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discounts and premiums on bonds payable, the annual amortization amount is $3,000 $5,000 $2,500 $250 $300

5,000 Straight-line amortization of bond premiums and/or bond discounts allocate the initial premium or discount over a period of time. This bond was issued (or sold) for less than its face value so it was issued at a discount of $25,000 (i.e., $500,000 - $475,000). Compared to issuing a bond at its face value, issuing a bond at a discount increases the issuer's cost. Straight-line amortization spreads this cost equally over the life of the bond. Annual amortization of bond discount equals the discount divided by the life of the bond ($25,000/5 years = $5,000 per year). By the time the bond reaches maturity in 20 years, the discount will have been fully amortized (i.e., it will have been reduced to zero) and the bond's carrying value will equal its face value.

On May 1, Mesa Verde, Inc. purchased a 2-year insurance policy for $15,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be a No adjusting entry is necessary. $10,400 debit to Insurance Expense and a $10,400 credit to Prepaid Insurance. $5,200 debit to Insurance Expense and a $5,200 credit to Prepaid Insurance. $5,200 debit to Prepaid Insurance and a $5,200 credit to Insurance Expense. $10,400 debit to Prepaid Insurance and a $10,400 credit to Insurance Expense.

5,200 debit to Insurance Expense and a 5,200 credit to Prepaid Insurance This entry correctly adjusts the accounts to recognize that six months of the 36 month policy have expired and are recorded as expense. Monthly rate = $15,600/24 = $650 per month. Expense the amount for May. 1 through Dec. 31: $650 x 8 = $5,200

Jones Company collected the following information to prepare its May bank reconciliation: Cash balance per books, May 31, $5,300. Deposits in transit, $510. Notes receivable with interest collected by bank, $580. Bank service charges, $30. Outstanding checks, $180. NSF check, $150. How much is the adjusted cash balance per books on May 31? $5,660 $6,210 $5,810 $7,030 $5,700

5,700 The book side of the cash reconciliation begins with $5,300 to which amounts collected by the bank are added (e.g., the note receivable of $580) and amounts the bank deducted from the account are subtracted (e.g., the bank service charges of $30 and the NSF check of $150) to arrive at the adjusted cash balance per books of $5,700. Outstanding check and deposits in transit affect the bank side of the reconciliation. Alternatively: Balance per books on May 31, $5,300 Add: Note collected by the bank, $580 Less: Bank service charge, $30 Less: customer's NSF check, $150 Adjusted cash balance per books on May 31, $5,700

Given the following account balances at year end, how much are total intangible assets on the balance sheet of Alisha Enterprises? Sales revenue, $45,000,000; Copyrights, $200,000; Cash, $1,500,000; Accounts receivable, $3,000,000; Patents, $1,000,000; Land, $15,000,000; Equipment, $25,000,000; Trademarks, $1,200,000; and Goodwill, $3,500,000. The company also paid $1,500,000 for research & development during the current year. $4,700,000 $6,000,000 $5,700,000 $5,900,000 $7,400,000

5,900,000 The intangibles are copyrights of $200,000, trademarks of $1,200,000, patents of $1,000,000, and goodwill of $3,500,000 totaling $5,900,000. Notice that research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights.

The financial records for Harold Corporation included the following information: Accounts receivable, $55,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $25,000 Dividends, $15,000 Sales revenue, $90,000 Salaries and wages expense, $30,000 Supplies expense, $10,000 Based on this information, how much was its net income? $80,000 $50,000 $55,000 $65,000 $35,000

50,000 Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. Net income = Revenue - expenses Net income = $90,000 - 30,000 - 10,000 = $50,000

Edward Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The net accounts receivable at the beginning of the year was $100,000 and at the end of the year was $150,000. The balance of total assets at the beginning of the year was $1,000,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover? 8.0 6.4 5.3 4.0 6.0

6.4 The accounts receivable turnover ratio measures the liquidity of receivables. This ratio measures the number of times a company collects its net accounts receivable average balance. The accounts receivables turnover is computed by dividing net credit sales by average net accounts receivable. Accounts receivable turnover = $800,000/[($100,000 + $150,000)/2] = 6.4. The company's average accounts receivable for the year is $125,000. Its net credit sales are 6.4 times its average balance suggesting the company collected the equivalent of its average accounts receivable 6.4 times during the year.

60,000 The depreciation expense for the first year would be ($250,000 - 0) x (2 x 1/5) = $100,000. The asset's book value becomes $150,000 (i.e., $250,000 - 100,000). The depreciation expense for the second year would be based on the book value at the start of the second year: $150,000 x (2 x 1/5) = $60,000. Alternatively, the depreciation expense for the second year = ($250,000 - 100,000) x 2/5 = $60,000

Star Corporation sells its goods on terms of 3/10, n/30. It has a receivables turnover ratio of 6.00. What is its average collection period (also known as the days in receivable ratio)? 30 days 60.83 days 48.67 days 2,190 days 3 days

60.83 days The average collection period is computed by dividing the number of days in the year by the accounts receivable turnover, or 365/6 = 60.83 days.

Arbor Corporation reports the following: Sales revenue $183,000; ending inventory $12,600; beginning inventory $15,600; purchases $64,000; purchases discounts $4,000; purchase returns and allowances $1,500; freight-in $1,000; freight-out $500. Calculate the company's cost of goods sold. $62,500 $59,500 $68,000 $63,000 $56,500

62,500 Cost of goods sold = beginning inventory + purchases - purchases discounts and purchases returns and allowances + freight-in - ending inventory. Cost of goods sold = 15,600 + 64,000 - 4,000 - 1,500 + 1,000 - 12,600 = 62,500.

Chester Company collected the following information to prepare its November bank reconciliation: Cash balance per bank, November 30, $66,200. Note receivable of $2,500 plus $250 of interest collected, $2,750. Outstanding checks, $14,700. Deposits in transit, $12,900. Bank service charges, $50. NSF check, $1,500. The company erroneously recorded a $560 cash payment on its books as a $650 cash payment. Also, the bank erroneously deducted $200 from the company's checking account. The bank should have deducted the money from a different customer's account. How much is the adjusted cash balance per bank on November 30? $62,600 $63,100 $64,600 $62,750 $64,200

64,600 Balance per bank on Nov. 30, $66,200 Add: Deposits in transit, $12,900 Less: Outstanding checks, ($14,700) Add: Bank error (see note below), $200 Adjusted cash balance per banks, $64,600

Chester Company collected the following information to prepare its April bank reconciliation: Cash balance per bank, April 30, $71,600. Note receivable of $1,900 plus $200 of interest collected, $2,100. Outstanding checks, $6,400. Deposits in transit, $1,500. Bank service charges, $10. NSF check, $500. The company erroneously recorded a $1,200 cash payment on its books as a $2,100 cash payment. Also, the bank erroneously added $1,000 to the company's checking account. The bank should have added the money to a different customer's account. How much is the adjusted cash balance per bank on April 30? $65,700 $62,600 $67,700 $70,550 $64,800

65,700 Balance per bank on Apr. 30, $71,600 Add: Deposits in transit, $1,500 Less: Outstanding checks, ($6,400) Less: Bank error (see note below), ($1,000) Adjusted cash balance per banks, $65,700

The following information relates to the beginning of the year: Accounts receivable, $150,000 Allowance for doubtful accounts (credit balance), $7,500 During the current year, sales on account were $850,000 and collections on account were $775,000. Also during the current year, the company wrote off $6,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have an $8,500 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year? $68,000 increase $1,000 increase $74,000 increase $1,000 decrease $64,000 increase

68,000 increase Ending accounts receivable, $150,000 + 850,000 - 775,000 - 6,000 = 219,000 Ending allowance for doubtful accounts, $8,500 (given) Ending cash realizable value, $219,000 - 8,500 = 210,500 Beginning cash realizable value, $150,000 - 7,500 = $142,500 Increase (decrease) in cash realizable value, $210,500 - 142,500 = $68,000

Vetter Corporation reports the following: Sales revenue, $400,000; sales discounts, $5,000; sales returns and allowances, $15,000; operating expenses, $25,000; cost of goods sold, $310,000; income tax expense, $10,000. How much are gross profit and income from operations, respectively? $90,000 and $35,000 $70,000 and $45,000 $70,000 and $35,000 $90,000 and $45,000 $380,000 and $35,000

70,000 and 45,000 Gross profit = Sales revenue - sales discounts - sales returns and allowances - cost of goods sold Gross profit =- $400,000 - 5,000 - 15,000 - 310,000 = $70,000 Income from operations = Gross profit - operating expenses Income from operations = $70,000 - 25,000 = $45,000

Arbor Corporation reports the following: Sales revenue $182,000; ending inventory $11,600; beginning inventory $21,700; purchases $64,000; purchases discounts $2,000; purchase returns and allowances $2,100; freight-in $900; freight-out $600. Calculate the company's cost of goods sold. $70,900 $69,400 $82,500 $50,700 $70,300

70,900 Cost of goods sold = beginning inventory + purchases - purchases discounts and purchases returns and allowances + freight-in - ending inventory. Cost of goods sold = 21,700 + 64,000 - 2,000 - 2,100 + 900 - 11,600 = 70,900.

Massey Corporation purchased a piece of land for $60,000. Massey paid attorney's fees of $5,000 and brokers' commissions of $4,000 in connection with the purchase. An old building on the land was torn down at a cost of $3,000, and proceeds from the scrap were $700. Massey also assumes $5,000 of property taxes on the land owed by the previous owner. How much is the total cost of the land? $78,000 $55,000 $76,300 $75,500 $69,500

76,300 All costs necessary to get the land ready to use should be capitalized as part of the cost of the land. The total to be debited to the land account is the cost of the land of $50,000 plus the attorney's fees of $6,000, the brokers' commissions of $4,000, plus the cost of tearing down the old building, $3,000. The proceeds from the scrap sale totaling $700 should be subtracted and the assumption of $5,000 of accrued taxes added results in a total cost of the land of $76,300.

The following data is available for Red Carpet Corporation at December 31: Common stock, par $5 (authorized 250,000 shares) $400,000 Treasury stock (at cost $15 per share) $ 3,000 Based on the data, how many shares of common stock are outstanding? 400,000 249,800 77,000 250,000 79,800

79,800 The common stock account records the par value of common stock that has been issued. Given the common stock account's total is $400,000 and common stock has a $5 par value per share the company the company must have 80,000 shares of common stock issued (i.e., $400,000/$5 per share = 80,000 shares). This company has treasury stock. Treasury stock is a corporation's own stock that has been reacquired. With $3,000 of treasury stock recorded on the company's books and a $15 cost per share the company must have 200 shares of its own common stock being held as treasury stock. The number of outstanding shares equals the number of issued shares minus the number of shares reacquired (i.e., treasury shares). This company has 79,800 shares outstanding (i.e., 80,000 - 200 = 79,800).

On May 1 of the current year, Moreno Company purchased a patent from another company for $96,000. The estimated useful life of the patent is 8 years, and its remaining legal life is 12 years. How much is Moreno's amortization expense for the current year? $8,000 $7,500 $6,000 $10,000 $12,000

8,000 Amortization is calculated using the straight-line method over the shorter of the useful life or the remaining legal life. In this case, the shorter is 8 years. Amortization expense for the current year = $96,000/8 years x 8/12 = $8,000.

Pilgrim Corporation reports the following on its financial statements. Cash paid for new equipment, $35,000 Cash collected from customers, $120,000 Paid a note payable, $10,000 Cash collected in exchange for issuing additional shares of Pilgrim stock to stockholders, $15,000 Cash dividends paid, $5,000 The company reports $75,000 of net income for the year and it has $80,000 of cash at year-end. What is the company's free cash flow? $80,000 $35,000 $15,000 $45,000 $5,000

80,000 Free cash flow is computed by subtracting capital expenditures and cash dividends from cash provided by operations. The company has only one cash inflow or outflow from operating activities (i.e., cash collected from customers) and it has only one capital expenditure (cash paid for new equipment). Free cash flow = $120,000 - $35,000 - $5,000 = $80,000. The payment of the note payable is not an operating activity cash flow. It is a financing activity cash flow, and it is neither a capital expenditure nor a payment of a dividend so it is not used to compute free cash flow. Similarly, the cash collected from stockholders who paid for additional shares of stock is a financing activity inflow for the company, but it does not affect free cash flow.

Chester Company collected the following information to prepare its December bank reconciliation: Cash balance per books, December 31, $82,600. Note receivable of $1,750 plus $250 of interest collected, $2,000. Outstanding checks, $4,900. Deposits in transit, $2,500. Bank service charges, $50. NSF check, $650. The company erroneously recorded a $1,000 cash payment on its books as a $100 cash payment. Also, the bank erroneously deducted $300 from the company's checking account. The bank should have taken the money from a different customer's account. How much is the adjusted cash balance per books on December 31? $92,550 $81,500 $83,000 $83,900 $80,600

83,000 Balance per books on Dec. 31, $82,600 Add: Note collected by the bank including interest, $2,000 Less: Bank service charge, ($50) Less: NSC check, ($650) Less: Book error (see note below), ($900) Adjusted cash balance per books, $83,000 Note: The company paid $1,000 but subtracted only $100 on its books. It needs to subtract the remaining $900

Danielle Inc. has 10,000 shares of 4%, $40 par, non-cumulative preferred stock and 50,000 shares of $4 par common stock outstanding. Both the common stock and the preferred stock have been outstanding since the company began last year. No dividends were paid last year. The board of directors declared a $100,000 dividend this year. What amount of the total dividend will be paid to common stockholders? $100,000 $55,000 $68,000 $84,000 $18,000

84,000 Before the common stockholders receive any dividends, preferred stockholders must be paid their dividends before anything can be paid to common stockholders. Also, this preferred stock is non-cumulative so dividends are never in arrears. Preferred stockholder dividend = 10,000 x 4% x $40 = $16,000 Total dividends available = $100,000 Dividends available to common stockholders = $84,000

Green Tree Inc. sells 10%, 10-year bonds with a face value of $100,000 for $102,000. Using the effective-interest amortization method, how much is the interest expense for the first year if the effective interest rate is 9.47%? $9,659 $9,667 $9,470 $12,000 $10,201

9,659 Using the effective-interest method, the bond interest expense equals the effective interest rate times the bond's carrying value: 9.47% x $102,000 = $9,659.40.

In its first year, Raydine Inc. reported sales revenue of $1,300,000, net income of $200,000, and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders' equity was $1,200,000 at the start of the year and $1,800,000 at the end of the year. How much is the company's return on common stockholders' equity in its first year? 9.0% 13.3% 11.11% 7.1% 9.33%

9.33% The return on common stockholders' equity is calculated by dividing the net income less the preferred stockholders' dividends by the average common stockholders' equity: [$200,000 - (10,000 shares x $100/share x 6%)] ÷ [($1,200,000 + $1,800,000) ÷ 2] = 9.33%.

The net cash inflow from operating activities is $200,000; cash received from issuing stock is $150,000; cash paid for capital expenditures is $90,000; cash paid for bonds held as an investment is $50,000; and cash paid for dividends is $20,000. How much is free cash flow? $90,000 $180,000 $40,000 $110,000

90,000 Free cash flow is cash provided by operating activities minus cash paid for capital expenditures and dividends paid. Free cash flow = $200,000 - 90,000 - 20,000 = $90,000.

At December 31, but before any year-end adjustments, McCarthy Company's Prepaid Insurance account had a balance of $2,400. It was determined that $900 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be $3,300. $2,400. $1,900. $900. $1,200.

900 When a company pays in advance for prepaid insurance, the company increases prepaid insurance and decreases cash. This transaction is an asset exchange. At the end of the accounting period, the company record an adjusting entry to reduce prepaid insurance by the portion used, consumed, or expired during the year and to write-of or expense that portion as insurance expense. The adjusting entry would reduce prepaid insurance and recognize insurance expense of $900.

967,135 Since interest accrues annually, the first year's interest would be $110,000 (i.e., 11% x $1,000,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $125,576 payment and the interest component ($110,000), resulting in a principal reduction of $15,576. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $15,576 from $1,000,000 to $984,424. The second annual payment's interest is 11% of the outstanding mortgage principal of $984,424, or $108,287. The second annual payment of $125,576 is allocated as $108,287 paid towards interest and the remaining $17,289 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $967,135 (i.e., $984,424 - $17,289 = $967,135).

Brown Box Inc. issues a $1,000,000, 11%, 20-year mortgage note. The terms provide for annual installment payments of $125,576. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment? $967,135 $982,540 $984,424 $970,577 $986,121

984,424 Since interest accrues annually, the first year's interest would be $110,000 (i.e., 11% x $1,000,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $125,576 payment and the interest component ($110,000), resulting in a principal reduction of $15,576. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $15,576 from $1,000,000 to $984,424.

Which of the following requires an adjusting entry on the company's books as the result of a bank reconciliation? An outstanding checks A bank service charges A deposit in transit All of these An error by the bank

A bank service charge

Which of the following best describes a chart of accounts A chart of accounts is the list of a firm's accounts that have non-zero balances at a particular point in time. A chart of accounts is the list of accounts allowed by the Financial Accounting Standards Board. A chart of accounts is the list of accounts deemed suitable for firms belonging to a particular industry. A chart of accounts is the list of the accounts in a given firm's ledger. A chart of accounts is the list of a firm's accounts that have zero balances at a particular point in time.

A chart of accounts is the list of the accounts in a given firm's ledger. A chart of accounts is the list of the accounts in a given firm's ledger. This includes all of the accounts used by a given firm regardless of the accounts' balances.. Also, the order of the accounts in the chart of accounts follows the order of the sections of the balance sheet and income statement, namely (1) assets, (2) liabilities, (3) stockholders' equity, (4) revenues, (5) expenses, and (6) dividends.

For which of the following errors should the appropriate amount be subtracted from the cash balance per books on a company's bank reconciliation? A check written by the company for $110 was incorrectly recorded on the company's books as $101. None of these A check written by the company for $1,200 was incorrectly recorded by the bank as $120. A check written by the company for $470 was incorrectly recorded on the company's books as $740. A check written by the company for $890 was incorrectly recorded by the bank as $980.

A check written by the company for $110 was incorrectly recorded on the company's books as $101 Amounts subtracted from the cash balance per books include bank service charges, NSF checks, and company errors that erroneously increased the company's cash account balance. The bank decreased the company's balance by $101 when it should have decreased it by $110. Correcting this error requires subtracting $9 from the cash balance per bank statement.

For which of the following errors should the appropriate amount be subtracted from the cash balance per bank statement on a company's bank reconciliation? None of these A check written by the company for $63 was incorrectly recorded on the company's books as $36. A check written by the company for $300 was incorrectly recorded by the bank as $30. A check written by the company for $57 was incorrectly recorded on the company's books as $75. A check written by the company for $60 was incorrectly recorded by the bank as $600.

A check written by the company for $300 was incorrectly recorded by the bank as $30. Amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the company's bank account balance. The bank decreased the company's balance by $30 when it should have decreased it by $300. Correcting this error requires subtracting $270 from the cash balance per bank statement.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation? None of these A check written by the company for $95 was incorrectly recorded on the company's books as $59. A check written by the company for $200 was incorrectly recorded by the bank as $20. A check written by the company for $57 was incorrectly recorded on the company's books as $75. A check written by the company for $35 was incorrectly recorded by the bank as $350.

A check written by the company for $57 was incorrectly recorded on the company's books as $75 Amounts added to the cash balance per books include notes collected, interest earned and company recording errors that erroneously lowered the company's cash account balance. The company decreased the company's balance by $75 when it should have decreased it by $57. Correcting this error requires adding $18 to the cash balance per books.

For which of the following errors should the appropriate amount be added to the cash balance per bank statement on a company's bank reconciliation? A check written by the company for $300 was incorrectly recorded by bank as $30. A check written by the company for $60 was incorrectly recorded by the bank as $600. None of these A check written by the company for $63 was incorrectly recorded on the company's books as $36. A check written by the company for $57 was incorrectly recorded on the company's books as $75.

A check written by the company for $60 was incorrectly recorded by the bank as $600. Amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the company's bank account balance. The bank decreased the company's balance by $600 when it should have decreased it by $60. Correcting this error requires adding $510 to the cash balance per bank statement.

For which of the following errors should the appropriate amount be subtracted from the cash balance per books on a bank reconciliation? None of these A check written by the company for $300 was incorrectly recorded by bank as $30. A check written by the company for $63 was incorrectly recorded on the company's books as $36. A check written by the company for $36 was incorrectly recorded on the company's books as $63. A check written by the company for $35 was incorrectly recorded by bank as $350.

A check written by the company for $63 was incorrectly recorded on the company's books as $36. Amounts subtracted from the cash balance per books include NSF checks, bank service charges, and company recording errors that erroneously increased the company's cash account balance. The company decreased the company's balance by $36 when it should have decreased it by $63. Correcting this error requires subtracting $27 from the cash balance per books.

For which of the following errors should the appropriate amount be subtracted from the cash balance per bank statement on a company's bank reconciliation? A check written by the company for $63 was incorrectly recorded on the company's books as $36. A check written by the company for $57 was incorrectly recorded on the company's books as $75. A check written by the company for $300 was incorrectly recorded by the bank as $30. None of these A check written by the company for $60 was incorrectly recorded by the bank as $600.

A check written by the company for 300 was incorrectly recorded by the bank as 30 Amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the company's bank account balance. The bank decreased the company's balance by $30 when it should have decreased it by $300. Correcting this error requires subtracting $270 from the cash balance per bank statement.

Handel Enterprises issued 2,500 bonds with a face value of $1,000 each at 103. The journal entry to record the issuance includes a debit to Interest Expense for $75,000. a debit to Premiums on Bonds Payable for $75,000. a credit to Discount on Bonds Payable for $75,000. a credit to Bonds Payable for $2,500,000. a credit to Cash for $2,500,000.

A credit to Bonds Payable for $2,500,000. The company issuing bonds is borrowing money and it is issuing bonds as evidence of the loan. The company that issues the bonds will debit Cash for the amount of cash received in exchange for issuing the bonds (i.e., 2,500 bonds x $1,000 face value per bond x 103% = $2,575,000). The issuing company will also credit Bonds Payable for the face value of the bonds issued (i.e., 2,500 bonds with a face value of $1,000 per bond equals $2,500,000). Note that the company issued $2,000,000 face value of bonds but it received more cash than this amount when it issued the bonds. The company issued these bonds at a premium, so the issuing company will need to credit the Premium on Bonds Payable account for the difference between the face value of the bonds issued and the cash collected from issuing them (i.e., Premium = $2,575,000 - $2,500,000 = $75,000). Increase the Premium on Bonds Payable account by crediting it. The issuer credits Premium on Bonds Payable by $75,000.

What journal entry is recorded as a result of performing services in exchange for cash? A debit to Cash and a debit to Unearned Revenue A debit to Cash and a credit to Revenue A debit to Cash and a credit to Unearned Revenue A debit to Cash and a credit to Retained Earnings A debit to Revenue and a credit to Cash

A debit to Cash and a credit to Revenue Performing services in exchange for cash indicates that the company has earned the revenue so it records it as Revenue. Cash is also received so the balance in cash increases.

Jackson Company uses a perpetual inventory system. On November 30, it purchased $10,000 of merchandise and it must pay the $200 shipping charges. The credit terms for the merchandise were 2/10, n/30. The company paid for both the merchandise and the shipping charges nine days after their invoice dates. Which of the following is part of the required journal entry when Jackson pays the shipping charges of $200? A credit to Accounts Payable for $200 A debit to Freight-out for $200 A debit to Freight-in for $200 A debit to Cash for $200 A debit to Inventory for $200

A debit to Inventory for $200 In a perpetual inventory system, all of the cost of acquiring merchandise (including the cost of having the inventory delivered to the purchaser) is recorded as part of the cost of the inventory. The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $200 and a credit to cash for $200.

Which of the following events is not recorded in a company's accounting records? Equipment is purchased on account. The owner withdraws cash for personal use. A collection of cash in advance from a customer. A company prepays one year's insurance. A decision to offer a company's services in a new geographic area.

A decision to offer a company's services in a new geographic area All of these events are transactions that affect the company's financial statements with one exception. A decision to offer a company's products or services in a new geographic area is not a recordable event in the company's accounting records. Future revenues and expenses may be affected by the decision, but those items will be recorded in the future as they occur.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation? A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120. A deposit of $110 was incorrectly recorded by the bank as a deposit of $101. A deposit of $890 was incorrectly recorded by the company as a deposit of $980. None of these A deposit of $470 was incorrectly recorded by the bank as a deposit of $740.

A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120 Amounts added to the cash balance per books include collections of notes, interest, and company errors that erroneously decreased the company's cash account balance. The company increased the company's balance by $120 when it should have increased it by $1,200. Correcting this error requires adding $1,080 to the cash balance per books.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation? A deposit of $890 was incorrectly recorded by the company as a deposit of $980. A deposit of $110 was incorrectly recorded by the bank as a deposit of $101. A deposit of $470 was incorrectly recorded by the bank as a deposit of $740. A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120. None of these

A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120. Amounts added to the cash balance per books include collections of notes, interest, and company errors that erroneously decreased the company's cash account balance. The company increased the company's balance by $120 when it should have increased it by $1,200. Correcting this error requires adding $1,080 to the cash balance per books.

For which of the following errors should the appropriate amount be added to the cash balance per bank statement on a company's bank reconciliation? A deposit of $890 was incorrectly recorded by the company as a deposit of $980. A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120. A deposit of $470 was incorrectly recorded by the bank as a deposit of $740. None of these A deposit of $110 was incorrectly recorded by the bank as a deposit of $101.

A deposit of $110 was incorrectly recorded by the bank as a deposit of $101. Amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the company's bank account balance. The bank increased the company's balance by $101 when it should have increased it by $110. Correcting this error requires adding $9 to the cash balance per bank statement.

For which of the following errors should the appropriate amount be subtracted from the cash balance per books on a company's bank reconciliation? A deposit of $470 was incorrectly recorded by the bank as a deposit of $740. A deposit of $110 was incorrectly recorded by the bank as a deposit of $101. A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120. A deposit of $890 was incorrectly recorded by the company as a deposit of $980. None of these

A deposit of $890 was incorrectly recorded by the company as a deposit of $980 Amounts subtracted from the cash balance per books include bank service charges, NSF checks, and company errors that erroneously increased the company's cash account balance. The company increased the company's balance by $980 when it should have increased it by $890. Correcting this error requires subtracting $90 from the cash balance per books.

For which of the following errors should the appropriate amount be added to the cash balance per books on a company's bank reconciliation? A deposit of $110 was incorrectly recorded by the bank as a deposit of $101. A deposit of $1,200 was incorrectly recorded by the company as a deposit of $120. None of these A deposit of $890 was incorrectly recorded by the company as a deposit of $980. A deposit of $470 was incorrectly recorded by the bank as a deposit of $740.

A deposit of 1,200 was incorrectly recorded by the company as a deposit of 120 Amounts added to the cash balance per books include collections of notes, interest, and company errors that erroneously decreased the company's cash account balance. The company increased the company's balance by $120 when it should have increased it by $1,200. Correcting this error requires adding $1,080 to the cash balance per books.

Which one of the following statements is true? None of these A service company will normally have work in process as an inventory account classification. A manufacturing company will normally have raw materials, work in process, and finished goods as inventory account classifications. A merchandising company will normally have raw materials as an inventory account classification. All of these

A manufacturing company will normally have raw materials, work in process, and finished goods as inventory account classifications. A manufacturing operation utilizes raw materials, work in process, and finished goods as inventory account classifications. A merchandising company buys goods that are ready to sell and does not manufacture them.

Which of the following statements about inventory systems is correct? A perpetual inventory system provides better control over inventories than does a periodic inventory system. None of these A periodic inventory system provides better control over inventories than does a perpetual inventory system. A periodic inventory system computes cost of goods sold each time a sale occurs. A perpetual inventory system computes cost of goods sold only at the end of the accounting period.

A perpetual inventory system provides better control over inventories than does a periodic inventory system Under periodic inventory, details about the cost of goods on hand is not available until the end of the accounting period. In contrast, perpetual inventory requires cost of goods sold to be recognized at the time of sale so it contains more accurate values of goods on hand at any time.

Which of the following statements about inventory systems is correct? None of these A periodic inventory system provides better control over inventories than does a perpetual inventory system. A periodic inventory system computes cost of goods sold each time a sale occurs. A perpetual inventory system computes cost of goods sold only at the end of the accounting period. A perpetual inventory system provides better control over inventories than does a periodic inventory system.

A perpetual inventory system provides better control over inventories than does a periodic inventory system. Under periodic inventory, details about the cost of goods on hand is not available until the end of the accounting period. In contrast, perpetual inventory requires cost of goods sold to be recognized at the time of sale so it contains more accurate values of goods on hand at any time.

Which of these statements about national credit card (e.g., Visa) sales is correct? A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer. The issuer must assess the customer's credit worthiness when the customer uses a national credit card to make a purchase. The retailer waits at least 24 hours to receive payment from the customer who used the credit card at a retailer. The retailer considers sales involving the use of a national credit card to be sales on account.

A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer. With a credit card sale, there is no wait for payment by the retailer. Upon notification of a credit card charge from a retailer, the bank that issued the card immediately adds the amount to the seller's bank balance. So, the retailer receives payment at the time the credit card is accepted from the customer as a form of factoring (or selling a receivable by the retailer). Also, the retailer has no concerns about the credit worthiness of the customer when the customer uses a credit card because the credit card issuer guarantees payment. It is the credit card issuer that assesses the card holder's credit worthiness, and this occurs when the issuer issues the card. In sum, the retailer records the sales revenue for the full invoice price and records a small service charge expense and cash. For example, a $100 sale with a 2% fee includes a debit to Cash for $98, a debit to Service Charge Expense for $2, and a credit to Revenue for $100.

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? Bad Debts Expense is credited. Accounts Receivable is credited. Retained Earnings is credited. Allowance for Doubtful Accounts is credited. Cash is credited.

Accounts Receivable is credited Under the allowance method, a write-off of a specific customer's account (or customers' accounts will require a journal-entry that reduce the company's Accounts Receivable and reduce the Allowance for Doubtful Accounts. Debit the Allowance for Doubtful Accounts and credit Accounts Receivable. No expense is recorded at this time because the expense is estimated and recognized as an adjusting entry. Chapter 8, Learning objective 3: Describe the methods used to account for bad debts.

Which of the following would appear on a balance sheet? Interest expense Accounts receivable Dividends Net income Service revenue

Accounts receivable The balance sheet reports all of a company's assets (e.g., cash, accounts receivable, prepaid rent, equipment, etc.), liabilities (e.g., accounts payable, notes payable, unearned revenues, etc.) ,and equities (common stock, retained earnings, etc.).

Which one of the following is not an advantage of corporations? Limited liability All of these Additional taxes Unlimited life Transferable ownership rights

Additional taxes Corporations must pay additional taxes relative to other forms of business and this is a disadvantage that corporations face. Corporations pay income taxes on its profits, and then when distributed, the stockholders pay income taxes on the amounts received as dividends. Limited liability of stockholders is a major advantage, not a disadvantage of corporations. The liability of stockholders is normally limited to their investment. Transferable ownership rights are a major advantage, not a disadvantage of corporations. Owners of corporations can more easily transfer (e.g., buy & sell) their shares than owners of other forms of business. A corporation has an unlimited life; it continues even beyond the death of its owners making this an advantage compared to partnerships and proprietorships.

What does a general ledger of a company contain? Asset and liability accounts only All the asset, liability, stockholders' equity, revenue, expense, and dividend accounts Revenue and expense accounts only Asset, and stockholders' equity accounts only None of these

Al the asset, liability, stockholders' equity, revenue, expense, and dividend accounts A general ledger lists all of the accounts of a company. These are the asset, liability, stockholders' equity, revenue, expense, and dividend accounts.

Which one of the following is a physical control? All of these are physical controls Documentation procedures Rotate employees' duties and require employees to take vacations Alarms to prevent break-ins Bonding employees

Alarms to prevent break-ins Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. Examples of a physical controls include alarms to prevent break-ins.

Which of the following is a legitimate business reason for taking a physical inventory? To determine if any inventory has been lost from waste, shoplifting, or employee theft None of these To check the accuracy of the perpetual inventory records To determine cost of goods sold All of these

All of these Taking a physical inventory involves counting, weighing, or measuring each kind of inventory on hand. Reasons to take a physical inventory include: (i) to check the accuracy of the perpetual inventory records, (ii) to determine cost of goods sold, and (iii) to determine if any inventory has been lost from waste, shoplifting, or employee theft.

Which of the following is an effective internal control over cash disbursements? None of these The separation of 'authorization of checks' and the 'actual writing of the checks' All of these The use of pre-numbered checks The storage of blank checks in a secure place

All of these Use of pre-numbered checks, safeguarding of blank checks, and separation of check authorization from preparation of checks are elements of an effective internal control principles over disbursements.

Which one of the following is not a control procedure used for over-the-counter receipts? A cash register's tape is locked in the register and only a supervisor can access it Use of a cash register where the amount rung up is clearly visible to the customer All of these are control procedures used for over-the-counter receipts Providing the customers with an itemized receipt None of these are control procedures used for over-the-counter receipts

All of these are control procedures used for over-the-counter receipts This is a technique used to control cash disbursements, not cash receipts.

Which factor would not affect the gross profit rate? An increase in the sale of luxury items An increase in the use of "discount pricing" to sell merchandise None of these would affect the gross profit rate An increase in the cost of heating the store An increase in the price of inventory items

An increase in the cost of heating the store An increase in the cost of heat (electricity) causes total expenses to increase. However, electricity is an operating expense and does not affect gross profit.

If the ending inventory is overstated, what occurs? Stockholders' equity will not be affected. Assets are overstated and the liabilities are understated. Assets are overstated and stockholders' equity is overstated. Assets are overstated and the cost of goods sold is overstated. Assets are overstated and the net income is understated.

Assets are overstated and stockholders' equity is overstated. If the ending inventory is overstated, assets, net income, and stockholders' equity will be overstated, while the cost of goods sold will be understated.

Which of the following is the correct order for listing assets on the balance sheet? Cash, patents, land, and short-term investments Short-term investments, patents, cash, equipment Cash, short-term investments, land, and patents Cash, short-term investments, inventories, patents, and land Short-term investments, cash, equipment, patents

Cash, short-term investments, land, and patents The presentation of assets is (i) current assets, (ii) long-term investments, (iii) property, plant, and equipment (such as equipment), and (iv) intangibles (such as patents). Within current assets, items are listed in the order of liquidity or the order in which the company expects to convert them into cash (or use them to generate cash). Cash is always listed first among current assets. Short-term investments are extremely liquid; they can be sold almost immediately if necessary.

Which one of the following is a primary component of an internal control system? Control environment Bonding Physical controls Rationalization Fraud

Control environment The five primary components of an internal control system are (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Opportunity is not a primary component of an internal control system; it is one of the three components of the fraud triangle.

Easy transfer of ownership is a characteristic of which form of business organization? Partnership Sole proprietorship Partnerships and corporations Corporation Sole proprietorships and partnerships

Corporation Corporations issues shares of stock to their owners. Stock ownership of corporations facilitates the easy transfer of ownership. Shares of stock can be easily bought and sold.

The operating cycle of a merchandising company has an extra expense account compared to a service company. What is that extra expense account? Income Summary Revenue Accounts Receivable Operating Expense Cost of Goods Sold

Cost of Goods Sold The operating cycle of a service company involves performing services for customers and collecting (i.e., receiving) cash from customers. The operating cycle of a merchandising company includes these two steps and two additional two steps, including buying of inventory and delivering inventory. These extra steps create a need for two accounts not used by service companies: (i) inventory and (ii) cost of goods sold. Inventory is reported on the balance sheet, and cost of goods sold is reported on the income statement.

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21? Debit to inventory for $2,000 Debit to Cash for $1,600 Credit to Cash for $1,600 Credit to Accounts Payable for $1,600 Debit to Accounts Payable for $2,000

Credit to Cash for 1,600 The discount terms are 2/10, n/30 which indicates a 2% discount if paid within 10 days but the full amount is due otherwise. Since the bill is paid after the discount period, the full invoice amount is $2,000 minus the returned goods of $400, or $1,600. The entry to record payment will debit Accounts Payable for $1,600 and credit Cash for $1,600.

A company's monthly bank statement shows a collection of a note receivable by the bank in the amount of $500. Which of the following is one part of the journal entry needed to record the note collection by the company? Credit to Cash for $500 Credit to Revenue for $500 Credit to Notes Receivable for $500 Credit to Accounts Payable for $500 Debit to Notes Receivable for $500

Credit to Notes Receivable for $500 Cash will be debited for the $500 because cash is being increased (i.e., collected). Also, Notes Receivable will be credited for $500 because it is an asset that is being reduced. This transaction is merely an asset exchange of one asset for another.

On January 1, Slick Corp. issues $1,000,000 of 10-year, 6% bonds at face value. Which one of the following is one effect of the entry to record the issuance of the bonds? Debit to Cash for $1,000,000 Credit to Cash for $1,000,000 Credit to Cash for $60,000 Credit to Bond Interest Expense of $60,000 Debit to Premium on Bonds Payable for $60,000

Debit to Cash for 1,000,000 The journal entry for the issuance of bonds issued at face value includes a debit to cash for the proceeds collected (i.e., $1,000,000) and a credit to obligation associated with the bonds (i.e., Bonds Payable for $1,000,000). Since the bonds were issued at face value, neither a premium nor a discount would be recorded. No interest is recognized or due on the bonds at the issue date.

In preparing a bank reconciliation, outstanding checks are deducted from the balance per books. deducted from the balance per bank. added to the balance per books. None of these added to the balance per bank.

Deducted from the balance per bank A bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added to the bank statement balance (e.g., deposits in transit) and others are subtracted (e.g., outstanding checks). Likewise, certain items are added to the cash balance per books (e.g., collection of notes receivable and interest earned) and other items are subtracted (e.g., NSF checks and bank service charges).

Which of the following will not require an adjusting entry on the company's books as a result of a bank reconciliation? NSF checks Book errors Deposits in transit Bank service charges All of these require an adjusting entry as a result of a bank reconciliation

Deposits in transit Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will be posted in the next accounting period. No adjusting entry is needed. NSF checks are deductions made by the bank from the company's account. The company must deduct this amount from the company's accounting records with an adjusting entry that credits Cash and debits Accounts Receivable. Book errors are amounts for which the company made an error that must be corrected in the company's accounting records. An adjusting entry is needed to increase or decrease the cash account and recognize the effect of the change in the respective account. Bank service charges are deductions made by the bank from the company's bank account that have not yet been entered into the accounting records. An adjusting entry is needed to decrease the cash account and debit Miscellaneous Expense account for the bank service charge.

Which of the following statements is false with regards to record-keeping for bank reconciliations? All of these are true Outstanding checks do not require a journal-entry once the bank reconciliation is completed. NSF checks do require a journal-entry once the bank reconciliation is completed. Bank errors do not require a journal-entry once the bank reconciliation is completed. Deposits in transit do require a journal-entry once the bank reconciliation is completed.

Deposits in transit do require a journal-entry once the bank reconciliation is completed NSF checks are deductions made by the bank from the company's account that must be removed from the company's accounting records with an adjusting entry that credits Cash and debits Accounts Receivable. Outstanding checks are checks written by the company that have already been recorded in the accounting records but have not yet been posted on the bank statement. They will clear the bank in future periods. No adjusting entry is needed. Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will clear in the future periods. No adjusting entry is needed. Bank errors are amounts for which the bank made an error. They are handled with correspondence with the bank. Upon resolution, the bank will issue a correction. No adjusting entry is needed.

Which one of the following is not one of the five basic issues in accounting for notes receivable? Valuing notes receivable Computing the present value of notes receivable Recognizing notes receivable Determining the recipient Disposing of notes receivable

Determining the recipient The five basic issues in accounting for notes receivable are 1) determining the maturity date, 2) computing interest, 3) recognizing notes receivable, 4) valuing notes receivable, and 5) disposing of notes receivable.

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the opposite manner? Salaries Expense and Dividends Supplies and Salaries Expense Accounts Payable and Common Stock Dividends and Retained Earnings Advertising Expense and Cash

Dividends and Retained Earnings Assets, expenses, and dividends are increased by dividends, and liabilities equities, and revenues are increased with credits. Dividends are increased with debits, and retained earnings are increased with credits.

The use of prenumbered checks is an example of segregation of duties. documentation procedures. consistency principle. independent internal verification. establishment of responsibility.

Documentation procedures Companies should establish procedures for documents. Documentation procedures include the use of prenumbered documents and accounting for all documents.

Internal controls are methods and measures adopted to do all of the following except: Safeguard assets. Increase efficiency of operations. Eliminate liabilities associated with product-related lawsuits. Enhance accuracy and reliability of accounting records. Ensure compliance with laws and regulations

Eliminate liabilities associated with product-related lawsuits Internal control consists of all the related methods and measures adopted within an organization to (1) safeguard its assets, (2) enhance the reliability of its accounting records, (3) increase efficiency of operations, and (4) ensure compliance with laws and regulations.

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner? Service Revenue and Accounts Receivable Retained Earnings and Supplies Rent Expense and Accounts Payable Dividends and Service Revenue Equipment and Selling Expense

Equipment and Selling Expense Assets, expenses, and dividends are increased by dividends, and liabilities equities, and revenues are increased with credits. Equipment is an asset account, and advertising expense is an expense account; both are increased by debits. Chapter 3, Learning objective 3, Pool 5

Allowing only the treasurer to sign checks is an example of resource controls. segregaion of duties. poor internal controls. documentation procedures. establishment of responsibility.

Establishment of responsibility An essential principle of internal control is to assign responsibility to specific employees. Control is most effective when only one person is responsible for a given task.

Allowing only the treasurer to sign checks is an example of poor internal controls. resource controls. documentation procedures. establishment of responsibility. segregaion of duties.

Handy Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied? Independent internal verification Rotation of employees None of these Segregation of duties Establishment of responsibility

Establishment of responsibility Control is most effective when only one person is responsible for a given task. Segregation of duties occurs when different individuals are responsible for related activities, and the responsibility for record-keeping is separated from the physical custody of the asset. Independent internal verification occurs when data prepared by employees is verified. Rotation of employees deter employees from attempting thefts since they will not be able to conceal the actions while they are away.

Accounts with normal debit balances include expenses and liabilities. assets and liabilities. liabilities and expenses. expenses and assets. stockholders' equity and revenues.

Expenses and assets Certain accounts normally have debit balances, including assets, expenses, and dividends. Liabilities, equities, and revenues normally have credit balances.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $540 was earned during the period, the second was for accrued interest payable of which $225 is owed for the period. As a result of these omissions net income is understated by $225. liabilities are understated by $225. expenses are understated by $225. These omissions would not affect the financial statements; the financial statements will be correct. revenue is overstated by $225.

Expenses are understated by 225 Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $540 and revenue is understated by $540. Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $225 and interest expense is understated by $225. The net effect of these two omissions include the following: Liabilities are overstated by $315 (i.e., 540 - 225 = 315). Revenue is understated by $540 Expenses are understated by $225 Net income is understated by $315 Assets are not affected by these omissions.

Principles of internal control are an important part of a company's efforts to address risks it faces, such as fraud. Which of the following is not a principle of internal control? Independent internal verification Establishment of responsibility Segregation of duties Physical controls Exploitation of opportunities

Exploitation of opportunities Rationalization is an element of the fraud triangle; it is not a principle of internal control. Principles of internal control are the specific control activities used by a company to prevent fraud and other problems. Examples include the segregation of duties, the documentation of procedures, the establishment of responsibility, human resource controls, physical controls, and independent internal verification.

When a bond is sold at a premium, at what value is it reported on the balance sheet? Face value plus any unamortized premium Redeemable value Face value minus any unamortized premium Face value plus any amortized premium Face value minus any amortized premium

Face value plus any unamortized premium The face value, which is the principal of the bond, is netted with any unamortized discount or premium. Discount reduces carrying value and premium increases it. Discount reduces carrying value and premium increases it.

When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be debited in these two journal entries? First Accounts Receivable and second Cash First Cash and second Accounts Receivable First Bad Debts Expense and second Cash First the Allowance for Doubtful Accounts and second Bad Debt Expense First the Allowance for Doubtful Accounts and second Accounts Receivable

First Accounts Receivable and second Cash When an uncollectible account is recovered after it has been written off, two journal entries are recorded. The first journal entry is Accounts Receivable will be debited and Allowance for Doubtful Accounts will be credited (i.e., this reverses the journal entry that wrote-off the account). The second journal entry requires and a debit to Cash and a credit to Accounts Receivable (i.e., this records the customer's payment).

Marsh, Inc. uses the perpetual inventory system. It paid for freight costs to ship merchandise to a customer. Besides the cash account, what account will Marsh record? Revenue Freight-in Inventory Freight-out Cost of goods sold

Freight-out The entry to record the payment of freight costs for goods shipped to a customer requires a debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory; it is a delivery expense and appears among the operating expenses on the income statement. In contrast, freight-in is used to record the shipping costs associated with acquiring inventory (note: when using a perpetual inventory system, the shipping cost associated with acquiring inventory is debited to Inventory).

Which of the following is an example of an intangible asset? Prepaid expenses Land Goodwill Cash Accounts receivable

Goodwill Intangible assets include goodwill, patents, copyrights, and trademarks or trade names.

Which of these is a disadvantage of corporations? Continuous life Government regulations All of these are advantages of corporations Ability to raise capital Transferable ownership rights

Government regulations Corporations are more heavily regulated than other types of businesses, and the added government regulation is a disadvantage that is costly to corporations. Separate legal existence is a major advantage of a corporation. A continuous life is a major advantage of a corporation; corporations do not terminate even when its owners die. Transferable ownership rights is a major advantage of a corporation; stock of a corporation is bought and sold more easily that ownership interests of partnerships or proprietorships. Ability to acquire capital is an advantage of corporations; corporations can more easily acquire capital (i.e., financing from new or existing owners) more easily than partnerships and proprietorships.

The effects of purchasing supplies on account on the basic accounting equation are to decrease assets and decrease stockholders' equity. decrease assets and decrease liabilities. increase assets and increase liabilities. increase assets and decrease assets by the same amount. Total assets do not change. increase liabilities and increase stockholders' equity.

Increase assets and increase liabilities Basic accounting equation: Assets = Liabilities + Stockholders' Equity Purchasing supplies on account increases supplies (i.e., increases assets) and increases a liability account called accounts payable. Thus, asset increase and liabilities increase.

Which of the following is the adjusting entry that Max Company would journalize when Max Company's bank statement indicates that the bank collected a $1,000 non-interest bearing note receivable from one of Max's customers on Max Company's behalf? Increase the Cash account by $1,000 and increase the Retained Earnings account by $1,000. Increase the Cash account by $1,000 and decrease the Unearned Revenue account by $1,000. Increase the Cash account by $1,000 and decrease the Notes Receivable account by $1,000. Decrease the Accounts Payable account by $1,000 and decrease the Cash account by $1,000. Increase the Cash account by $1,000 and increase the Sales Revenues account by $1,000.

Increase the Cash account by $1,000 and decrease the Notes Receivable account by $1,000. The cash account increases and notes receivable decreases. This is the same transaction that would be recorded if a company directly receives a check in the mail from a customer.

For which item below might a bank issue a credit memorandum to a depositor's account? Interest earned An NSF check Outstanding checks Deposits in transit Monthly service charges

Interest earned Because the bank considers the depositor's account balance to be a liability, a credit memo from a bank indicates that the bank increased the account balance (i.e., the bank credited its liability owed to the customer) and a debit memo causes a decrease. Interest earned increases the amount owed to the depositor; it increases liability of the bank and is accomplished with a credit memo.

Which of the following would not be classified as an operating expense on a multi-step income statement? Depreciation expense Freight-out Salaries and wages expense Interest expense Advertising expense

Interest expense Multi-step income statements report the following: Revenues minus cost of goods sold equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages, advertising, utilities, depreciation, freight-out, insurance) equals income from operations, and income from operations minus non-operating income &/or expenses (e.g., interest revenue, interest expense, gain from sales of plant assets, losses from sales of plant assets) equals income before income taxes, and income before income taxes minus income taxes equals net income.

During a given year, several parties examine the financial records of ABC Company. These parties include internal auditors, independent auditors, and Internal Revenue Service agents. Which of these parties are considered employees of ABC Company? All of these None of these Independent auditors Internal Revenue Service agents Internal auditors

Internal auditors Internal auditors evaluate the system of internal controls for the companies that employ them. Independent auditors work for accounting firms and they are hired by companies to provide audit services but they are not employees of the companies they audit.

Which of the following would not be reported among property, plant, and equipment on a classified balance sheet? Delivery vehicles Buildings Inventory Accumulated depreciation Land

Inventory Classified balance sheets partition a company's assets into four categories: (i) current assets (e.g., inventory), (ii) long-term investments, (iii) property, plant, and equipment (e.g., buildings, land, equipment, and accumulated depreciation which is the total amount of depreciation that the company has expensed thus far on its property, plant and equipment), and (iv) intangibles.

The operating cycle of a merchandising company has an extra asset account compared to a service company. What is that extra asset account? Accounts Receivable Inventory Income Summary Revenue Operating Expense

Inventory The operating cycle of a service company involves performing services for customers and collecting (i.e., receiving) cash from customers. The operating cycle of a merchandising company includes these two steps and two additional two steps, including buying of inventory and delivering inventory. These extra steps create a need for two accounts not used by service companies: (i) inventory and (ii) cost of goods sold. Inventory is reported on the balance sheet, and cost of goods sold is reported on the income statement.

On what amount is a sales discount based? Invoice less discount Invoice price plus freight-out Invoice price plus returns and allowances. Invoice price less returns and allowances Invoice price plus freight-in

Invoice less discount The buyer is permitted to take the discount on the invoice price less any returns and allowances, because this amount represents the buyer's obligation without a discount.

Which of the following is not an element of the fraud triangle? Rationalization Financial pressure Irresponsibility Opportunity All of these are elements of the fraud triangle.

Irresponsibility The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high. Collusion is not a component of the fraud triangle. Rather, it is an example of wrong-doing.

Addison Corporation declared a cash dividend of $1.75 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of declaration on January 15? No journal entry is recorded when dividends are declared. It decreases stockholders' equity and increases liabilities. It decreases stockholders' equity and decreases assets. It increases stockholders' equity and increases liabilities. It decreases liabilities and decreases assets.

It decreases stockholders' equity and increases liabilities. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration: It debits the Cash Dividend account (i.e., it decreases stockholders' equity) for the amount of the dividend, and it credits Dividends Payable (i.e., it increases liabilities) for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable (i.e., it reduces liabilities) and credits Cash (i.e., it reduces assets) for the amount of the dividend paid.

What is the effect of amortizing a bond premium? It increases the carrying value of the bonds. It increases interest expense. Its effect on the carrying value of bonds cannot be determined without knowing the maturity date of the bond. It does not affect the carrying value of the bonds. It decreases the carrying value of the bonds.

It decreases the carrying value of the bonds For bonds issued at a premium, carrying value is the bond payable (in the amount of the principle) plus the premium on the bond payable. The amortization of a bond premium reduces the premium so amortization of a premium decreases the carrying value of the bond.

If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period? It will have the reverse effect on the net income during the next accounting period. If net income was overstated in the current period, it will be overstated in the next period. It will have no effect on the net income of the next accounting period. Cannot be determined from the information given.

It will have the reverse effect on the net income during the next accounting period. An error in the ending inventory of the current period will have a reverse effect on net income of the next accounting period because this year's ending inventory becomes next year's beginning inventory.

Which of the following is the sequence of events for the recording process? Prepare a trial balance; journalize; post Post; journalize; prepare a trial balance Journalize; post; prepare a trial balance Prepare a trial balance; post; journalize Post; prepare a trial balance; journalize

Journalize; post; prepare a trial balance The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. The second step is to enter the transaction information in the journal (i.e., journalize the transaction). Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger). Fourth, the company prepares a trial balance to confirm the equality of debits and credits. Other steps follow and are described in the next chapter. Collectively, these steps are sometimes called "the accounting cycle."

In a period of falling prices, which of the following methods will give the largest net income? All of these produce the same net income Average-cost LIFO Specific identification FIFO

LIFO The largest net income occurs with the smallest cost of goods sold. In periods with falling prices (i.e., deflation), low cost of goods sold occurs when the last units of inventory purchased are the ones assumed sold. LIFO will provide the highest net income during a period of falling prices. FIFO will not provide the highest net income during a period of falling prices. Specific identification costing will vary depending on which units are sold. Average costing will produce a net income between LIFO and FIFO.

With the assumption of costs and prices generally rising, which of the following is correct? Specific identification method provides the closest cost of goods sold to replacement cost on the income statement. FIFO provides the closest cost of goods sold to replacement cost. LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold. None of these LIFO provides the closest valuation of inventory on the balance sheet to replacement cost.

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold. LIFO assumes that the most recently purchased inventory is sold first. The cost to replace inventory that has been sold in likely closest to the cost of the most recently purchased inventory. Thus, LIFO provides the closest relationship of replacement cost to cost of goods sold on the income statement. In contrast, FIFO provides the closest valuation of inventory on the balance sheet to replacement cost. The specific goods to be sold may come from early purchases or inventory just acquired, so it is not possible to know which cost will become an expense.

Payments from customers received before performing services for the customers are recorded as equity. liabilities. expenses. dividends. revenues.

Liabilities A company receiving cash from customers records the increase in cash as an increase in assets. The reason why customers paid the company cash before the company performs services is because the company promises to perform services for the customer in the future. This is an obligation and the company records the obligation as a liability. Revenues will be recorded when the performance obligation is satisfied which occurs after cash was received whenever customers paid in advance.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $475 was earned during the period, the second was for accrued interest payable of which $315 is owed for the period. As a result of these omissions assets are overstated by $475. net income is overstated by $315. These omissions would not affect the financial statements; the financial statements will be correct. liabilities are overstated by $160. revenue is overstated by $790.

Liabilities are overstated by 160 Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $475 and revenue is understated by $475. Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $315 and interest expense is understated by $315. The net effect of these two omissions include the following: Liabilities are overstated by $160 (i.e., 475 - 315 = 160). Revenue is understated by $475 Expenses are understated by $315 Net income is understated by $160

A company sold a plant asset for $3,000. It had cost $12,000 and its accumulated depreciation is $8,500. What gain or loss did the company experience? Gain of $3,000 Loss of $750 Loss of $500 Loss of $7,000 Gain of $500

Loss of $500 Book value is $3,500 ($12,000 - $8,500). Since the book value ($3,500) exceed the proceeds ($3,000) by $500, there is a loss.

Which of the following is the correct adjusting journal entry for the bank account holder when notified of a bank debit memorandum for a monthly service charge of $50? Loss on Bank Transactions 50 Cash 50 None of these Cash 50 Account Revenues 50 Cash 50 Bank Service Fee 50 Miscellaneous Expense 50 Cash 50

Miscellaneous Expense 50 Cash 50 To depositors or account holders, account balances are assets but to the bank they are liabilities because banks owe their depositors these amounts. Decreases in bank accounts, such as charging depositors bank service charges, reduce these liabilities. Bank often refer to these declines in terms of debit memoranda. The journal entry that the depositor records when charged a bank service charge would include a reduction to cash (i.e., debit cash) and an increase to an expense account (e.g., miscellaneous expense).

Which is true if the ending inventory is overstated? Net income will be overstated and the stockholders' equity will be understated. Net income will be understated and the stockholders' equity will be understated. Net income will be overstated and the stockholders' equity will be overstated. None of these Net income will be understated and the stockholders' equity will be overstated.

Net income will be overstated and the stockholders' equity will be overstated Cost of goods sold = Beginning inventory + Purchases - Ending inventory. If the ending inventory is overstated, cost of goods sold will be understated which causes net income to be overstated. Whenever net income is overstated, stockholders' equity will be overstated.

Which of the following would be added to the balance per books on a bank reconciliation? All of these NSF check Outstanding checks Deposits in transit Notes collected by the bank

Notes collected by the bank A bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added to the bank statement balance (e.g., deposits in transit) and others are subtracted (e.g., outstanding checks). Likewise, certain items are added to the cash balance per books (e.g., collection of notes receivable and interest earned) and other items are subtracted (e.g., NSF checks and bank service charges).

Harold Company overstated its ending inventory by $15,000 at the end of the first year. It never noticed the error. As a result, what was the effect on Harold's stockholders equity at the end of the first year and at the end of the second year, respectively? Understated and understated, respectively Overstated and properly stated, respectively Overstated and overstated, respectively Overstated and understated, respectively None of these

Overstated and properly stated, respectively If the first year's ending inventory is overstated, that same year's cost of goods sold will be understated and stockholders' equity and net income will be overstated (i.e., reported as being higher than it should be reported). If the error is not corrected, the next year's beginning inventory has the error. The second year's net income will be understated by the same amount it was overstated in the first year. The combined total net income for the two periods will be correct (but one is too high and the other is too low) which causes stockholders' equity at the end of the two periods to be correct.

A decline in a company's gross profit rate could be caused by all of the following except paying lower prices to its suppliers. selling products with a lower markup. clearance of discontinued inventory. all of these could cause a decline in gross profit. increasing competition resulting in a lower selling price.

Paying lower prices to its supplies Recall that gross profit rate equals gross profit divided by net sales. An increase in the gross profit rate suggest either an increase in gross profit and/or a decrease in net sales. An increase in a company's gross profit rate may be caused by selling products with higher gross margins (i.e., higher "mark-ups"), raising prices and/or offering fewer price discounts due to less competition from other companies, or decreases in sales allowances offered to customers.

Under what inventory system is cost of goods sold determined at the end of an accounting period? All inventory systems Perpetual inventory system Double entry inventory system Single entry inventory system Periodic inventory system

Periodic inventory system Under the periodic inventory system, cost of goods sold for the period is calculated by adding purchases for the period to the beginning inventory balance and subtracting the ending inventory balance.

Which of the following is an element of the fraud triangle? Independence Collusion Rationalization Segregation of duties All of these are elements of the fraud triangle.

Rationalization The three components of the fraud triangle are (1) opportunity, (2) financial pressure, and (3) rationalization. When these three occur, the possibility of fraud is high.

When a plant asset is retired, the difference between the plant asset's cost and the accumulated depreciation of the same plant asset is None of these debited to the Sale of Plant Assets account. recognized on the income statement as a loss on disposal of plant asset. an increase to cash. subtracted from the Accumulated Depreciation account.

Recognized on the income statement as a loss on disposal of plant asset When plant assets are retired, the company retiring the asset (i) credits the plant asset's account in the amount of its cost, (ii) debits the Accumulated Depreciation account for the entire amount of the plant asset's depreciation, and (iii) recognizes a loss for the difference. Note that when a company retires a plant asset there is no cash or other consideration received because the plant asset is not sold or exchanged. Also, accumulated depreciation never exceeds an asset's cost, so the retirement of a plant asset never produces a gain. Rather, they produce losses (unless the cost equals the accumulated depreciation and neither gain nor loss is produced).

Which one of these statements is true? Goodwill should be reported as a contra account in the stockholders' equity section. Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements. All of these are true. Research and development costs are expensed in the year incurred. Intangible assets are typically combined with plant assets and natural resources and then shown in the property, plant, and equipment section.

Research and development costs are expensed in the year incurred. Research and development costs are expensed in the year incurred.rather than reported as assets. GAAP allows details on assets to be disclosed in the notes to the financial statements. Even though intangible assets lack substance, they should still be reported in the balance sheet. Goodwill should be reported as an intangible asset, not as a contra account in the stockholders' equity section. Intangible assets are not combined with plant assets and natural resources and reported in the property, plant, and equipment section.

Which of the following statements is false? Research and development costs are not expensed when they result to a successful patent. The amortization period of an intangible life can exceed 20 years. Goodwill is recorded only when an entire business is purchased. None of these statements are false. If an intangible asset has a finite life, it should be amortized.

Research and development costs are not expensed when they result to a successful patent. Research and development costs are usually expensed when incurred regardless of whether they produce a patent. The cost of intangibles with indefinite lives are not amortized. Those with definite lives are amortized. Intangibles are amortized over the asset's legal or useful life, whichever is shorter. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of an entire business.

A company's closing entries can be described as follows: The first closing entry closes revenues and credits the Income Summary account for $11,125. The second closing entry closes expenses and debits the Income Summary account for $5,775. The third closing entry closes the Income Summary account. Prior to the fourth closing entry, the Dividends account has a $1,125 balance. The fourth closing entry closes the Dividends account. What was the company's net change in Retained Earnings for the current period? Retained Earnings decreased by $5,350 during this period. Retained Earnings increased by $5,350 during this period. Retained Earnings decreased by $4,225 during this period. Retained earnings does not change during this period. Retained Earnings increased by $4,225 during this period.

Retained Earnings increased by 4,225 during this period. Retained Earnings is increased by revenues, $11,125, and decreased by expenses and dividends, $5,775 and $1,125, so the increase in Retained Earnings is $4,225.

Which of the following will not be shown on the income statement for a merchandising company? Gross profit Revenue Retained earnings Cost of goods sold Sales discounts

Retained earnings The sales section appears first followed by cost of goods sold. The difference between sales and cost of goods sold is gross profit.

Black Raptor Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. What will occur if Black Raptor declares a 10% stock dividend on its common stock? Retained earnings will decrease by $300,000 and total stockholders' equity will increase by $300,000. Net income will decrease by $80,000. Retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000. Retained earnings will decrease by $120,000 and total stockholders' equity will increase by $120,000. Retained earnings will decrease by $80,000 and total stockholders' equity will increase by $80,000.

Retained earnings will decrease by 300,000 and total paid-in capital will increase by 300,000 A 10% stock dividend will increase the number of shares issued by 10,000 shares (100,000 shares x 10%). At a market price of $30 per share, total paid-in capital will increase by $300,000 (10,000 shares x $30/share) and retained earnings will decrease by that same amount.

Which of the following is not an asset? Inventory Cash Accounts receivable Supplies Revenue

Revenue Accounts are classified into categories including assets, liabilities, equities, revenues, expenses, and dividends. Assets are the resources owned by a company. Common examples of assets include cash, accounts receivable, inventory, supplies, buildings, equipment, patents, etc.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $415 was earned during the period, the second was for accrued interest payable of which $275 is owed for the period. As a result of these omissions These omissions would not affect the financial statements; the financial statements will be correct. expenses are overstated by $415. liabilities are overstated by $690. revenue is understated by $415. net income is overstated by $140.

Revenue is understated by 415 Omitting the year-end adjusting entry for unearned revenue and revenue fails to reduce unearned revenue and it fails to increase revenue. Liabilities are overstated by $415 and revenue is understated by $415. Omitting the year-end adjusting entry for accrued interest payable fails to increase interest payable and it fails to increase interest expense. Liabilities are understated by $275 and interest expense is understated by $275. The net effect of these two omissions include the following: Liabilities are overstated by $140 (i.e., 415 - 275 = 140). Revenue is understated by $415 Expenses are understated by $275 Net income is understated by $140 Assets are not affected by these omissions.

Which one of the following is a primary component of an internal control system? Bonding Physical controls Risk assessment Fraud Opportunity

Risk assessment The five primary components of an internal control system are (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.

Which of the following would be classified as an operating expense on a multi-step income statement? Sales discounts Gain on disposal of plant assets Income tax expense Interest expense Salaries and wages expense

Salaries and wages expense Multi-step income statements report the following: Revenues minus cost of goods sold equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages, advertising, utilities, depreciation, freight-out, insurance) equals income from operations, and income from operations minus non-operating income &/or expenses (e.g., interest revenue, interest expense, gain from sales of plant assets, losses from sales of plant assets) equals income before income taxes, and income before income taxes minus income taxes equals net income.

Which one of the following is not a physical control? Segregation of duties Safes and vaults to store cash Alarms to prevent break-ins Bank safety deposit boxes for important papers All of these are physical controls

Segregation of duties Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. Examples include (i) safes, vaults, and safety deposit boxes for cash and business papers, (ii) locked warehouses and storage cabinets for inventories and records, (iii) computer facilities with pass key access or fingerprint or eyeball scans, (iv) alarms to prevent break-ins, (v) television monitors and garment sensors to deter theft, and (vii) time clocks for recording time worked. In contrast, conducting background checks on job applicants is a human resource control—not a physical control.

Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates establishment of responsibility is violated. segregation of duties is violated. documentation procedures are violated. bonding of employees is violated. independent internal verification is violated.

Segregation of duties is violated In segregation of duties, different individuals should be responsible for related activities such as physical control of assets and recording keeping regarding those assets.

Which of the following statements is false with regards to internal controls? Corporate executives and boards of directors must ensure that their company's internal controls are reliable and effective. Companies and their internal auditors must monitor the effectiveness of the company's internal controls. Independent outside auditors must attest to the internal control system. Companies must develop a system of internal control. Stockholders are subject to fines and can be imprisoned if their company's fail to comply with internal control rules internal controls.

Stockholders are subject to fines and can be imprisoned if their company's fail to comply with internal control rules internal controls. The Sarbanes-Oxley Act (SOX) requires publicly-traded U.S. corporations to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Independent auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines and company officers can be imprisoned.

Which of the following statements is false with regards to internal controls? Independent outside auditors must attest to the internal control system. Corporate executives and boards of directors must ensure that their company's internal controls are reliable and effective. Companies and their internal auditors must monitor the effectiveness of the company's internal controls. Stockholders are subject to fines and can be imprisoned if their company's fail to comply with internal control rules internal controls. Companies must develop a system of internal control.

Which of the following statements is false with regards to internal controls? Publicly-traded companies internal control system must be evaluated by the company's independent auditor. Publicly-traded companies must ensure that their internal controls are reliable and effective. None of these is false. Stockholders of publicly-traded companies can be imprisoned if their companies fail to comply with internal control rules.

Stockholders of publicly-traded companies can be imprisoned if their companies fail to comply with internal control rules. The Sarbanes-Oxley Act (SOX) requires publicly-traded U.S. corporations to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Independent auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines and company officers can be imprisoned.

If a company correctly wrote a check for $491 but it incorrectly recorded the check as $419 on its books, the appropriate treatment on the bank reconciliation would be to deduct $72 from the cash balance per bank statement. add $72 to the cash balance per bank statement. None of these subtract $72 from the cash balance per books. add $72 to the cash balance per books.

Subtract $72 from the cash balance per books. The company deducted too little from its cash balance. Correcting the error requires subtracting back the difference between the correct amount and the amount deducted.

A check written by the company for $650 was incorrectly recorded on the bank as $560. In the bank reconciliation, this $90 error would be subtracted from the cash balance per bank statement. subtracted from the cash balance per books. added to the cash balance per books. added to the cash balance per bank statement. None of these

Subtracted from the cash balance per bank statement Amounts subtracted from the cash balance per bank statement include outstanding checks and bank errors that erroneously increased the bank account balance. The bank decreased the company's balance by $560 when it should have decreased it by $650. Correcting this error requires subtracting $90 to the cash balance per books.

A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate? All of the above would explain the decline in Bolton's gross profit rate. The company began paying higher prices to suppliers without passing these costs on to customers. The company offered more sales discounts to customers in order to sell as many units of inventory as the prior year. The company's average margin between selling price and inventory cost decreased. The company began selling products with a higher markup.

The company began selling products with a higher markup Recall that gross profit rate equals gross profit divided by net sales. A decline in the gross profit rate suggest either a decline in gross profit and/or an increase in net sales. A decline in a company's gross profit rate may be caused by selling products with smaller gross margins (i.e., lower "mark-ups"), lowering prices and/or offering more price discounts due to increases in competition, or increases in sales allowances offered to customers.

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true? The company using LIFO will have the lowest cost of goods sold. The company using FIFO will have the highest ending inventory. The company using LIFO will have the highest ending inventory. None of these The company using FIFO will have the highest cost of goods sold.

The company using FIFO will have the highest ending inventory. During periods with rising prices, LIFO assumes the most expensive inventory was sold and this produces the highest cost of goods sold, the lowest net income, and the lowest ending inventory. In contrast, the company using FIFO will have the most current costs in inventory, and it will have the highest inventory value on the balance sheet during periods of rising prices.

Low Flow Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued for $204,000, what does this indicate? The bonds are callable. The contractual interest rate and the market interest rate are the same. The contractual interest rate exceeds the market interest rate. No relationship exists between the market and contractual rates. The market interest rate exceeds the contractual interest rate.

The contractual interest rate exceeds the market interest rate. Issuing bonds for more than their face value (i.e., $204,000 issue price is larger than $200,000 face value or principal) indicates that the bonds were issued for a premium. When bonds have a contractual interest rate that is higher than the market interest rate, investors are willing to pay a premium because the bond's relatively high contractual rate promises more interest will be paid to the bondholder in the form of periodic cash payments than current market rates otherwise require.

Reasonable assurance rests on the premise that bonding will prevent employees from stealing. the costs of establishing controls should not exceed their expected benefit. employees are basically honest people. guarantees are provided against errors. a system of internal controls will prevent errors.

The costs of establishing controls should not exceed their expected benefit Reasonable assurance states that the costs of establishing control procedures should not exceed their expected benefit. As an extension of the cost/benefit concept, spending $100 to protect a $50 asset is not logical and should not be supported. The process of bonding an employee may not deter the individual from stealing. When detected, it will allow the organization to minimize the impact. While an organization must put a high degree of faith in all of its employees, the concept of reasonable assurance states that the costs of establishing control procedures should not exceed their expected benefit. While a system of internal controls will reduce errors and inhibit collusion, it will not prevent errors.

What is the periodicity assumption? A principle that a company's fiscal year-end should correspond with the calendar year. Companies should match expenses with revenues. The economic life of a business can be divided into artificial time periods. None of these Companies should recognize revenue in the accounting period in which the performance obligation is satisfied.

The economic life of a business can be divided into artificial time periods. The periodicity assumption states that the life of a business can be divided into artificial time periods such as a year.

What section of a cash flows statement shows the amount of cash collected from customers during the most recent accounting period? The investing section The operating section The property section The expense section The financing section

The operating section The cash flows statement has three sections: (i) operating, (ii) investing, and (iii) financing. Cash collected from a customer is an operating activity.

Which of the following is not an effective internal control over cash disbursements? Requiring personnel who authorize cash disbursements to take vacation Using pre-numbered checks Bonding employees who handle cash Preparing bank reconciliations The person signing the checks is the person who records cash disbursements

The person signing the checks is the person who records cash disbursements Use of pre-numbered checks, safeguarding of blank checks, and separation of check authorization from preparation of checks are elements of an effective internal control principles over disbursements. So is separation of signing checks and recording cash disbursements. Requiring employees (including employees who disburse cash) to take periodic vacations is a cash disbursement control. Employees can hide certain forms of embezzlement it they are always in control of cash disbursements, but leaving for vacations often leads to scams, embezzlements, thefts, etc. being uncovered by the person temporarily filling in for the person on vacation.

Which of the following statements is correct regarding internal controls? Control is most effective when two or three people are given responsibility for the same task. The independent auditor is the party responsible for a company's internal control policies and procedures. All of these. Independent internal verification is unnecessary if a company has internal control procedures in place. The person who has custody of assets should not perform the record keeping for the assets.

The person who has custody of assets should not perform the record keeping for the assets. The person who has custody of assets should not perform the record keeping for the assets. When two or more people are responsible for one task, it may be difficult to identify the one person who performed a particular transaction. When the same person has custody of assets and performs record keeping for that asset, it is easy to cover up a misappropriation of assets. Employees performing independent internal verification protects the company's assets and is beneficial to the company. Company management—not auditors—are responsible for a company's internal control policies and procedures.

Which of these statements about national credit card (e.g., Visa) sales is false? The retailer pays the credit card issuer a fee based on a percentage of the invoice price charged the customer. The retailer conducts the credit investigation of the customer. A retailer's acceptance of a national credit card is a form of factoring or selling of a receivable by a retailer. Upon notification of a credit card charge from a retailer, the bank that issued the card adds the amount to the seller's bank balance. The card issuer bears the risk of the customer never paying for his or her purchases.

The retailer conducts the credit investigation of the customer With a credit card sale, there is no wait for payment by the retailer. Upon notification of a credit card charge from a retailer, the bank that issued the card immediately adds the amount to the seller's bank balance. So, the retailer receives payment at the time the credit card is accepted from the customer as a form of factoring (or selling a receivable by the retailer). Also, the retailer has no concerns about the credit worthiness of the customer when the customer uses a credit card because the credit card issuer guarantees payment. It is the credit card issuer that assesses the card holder's credit worthiness, and this occurs when the issuer issues the card. In sum, the retailer records the sales revenue for the full invoice price and records a small service charge expense and cash. For example, a $100 sale with a 2% fee includes a debit to Cash for $98, a debit to Service Charge Expense for $2, and a credit to Revenue for $100.

Which of the following is a stockholder's right? The right to participate in management decisions The right to declare a dividend The right to share in assets upon liquidation in proportion The right to vote in the election of the company president None of these

The right to share in assets upon liquidation in proportion Stockholders have certain rights, including (i) to vote in the election of the board of directors, (ii) to share in corporate earnings through receipt of dividends, (iii) to keep the same percentage ownership when new shares are issued (i.e., preemptive right), (iv) share in assets upon liquidation in proportion to their stock holdings. A stockholder does not have the right to participate in management decisions, vote for the company president, declare a dividend, or many other acts.

Which of the following is a stockholder's right? The right to vote in the election of the company president None of these The right to declare a dividend The right to vote in the election of the board of directors The right to participate in management decisions

The right to vote in the election of the board of directors Stockholders have certain rights, including (i) to vote in the election of the board of directors, (ii) to share in corporate earnings through receipt of dividends, (iii) to keep the same percentage ownership when new shares are issued (i.e., preemptive right), (iv) share in assets upon liquidation in proportion to their stock holdings. A stockholder does not have the right to participate in management decisions, vote for the company president, declare a dividend, or many other acts.

Which of the following is not a good internal control procedure for cash? Surprise audits of cash on hand should be made occasionally. Preparing bank reconciliations. Bonding employees who handle cash. The same individual counts the amount of cash received and records the amount of cash deposited. Only designated personnel are authorized to handle cash.

The same individual counts the amount of cash received and records the amount of cash deposited. Good internal procedures for handling cash include preparing bank reconciliations, bonding of employees who handle cash, independent internal verification (e.g., surprise audits), segregate certain duties (such as handling and recording cash), establishing responsibilities (e.g., only designated personnel are authorized to handle cash).

Which statement is correct? The cash-basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use. The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles. As long as management is ethical, a company is allowed to use the cash-basis of accounting. All of these are true

The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles. The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles.

A consequence of segregation of duties is that operations become extremely inefficient because of constant training of employees. theft by employees becomes impossible. more employees will need to be bonded. theft is still possible when several employees are involved. profits decline.

Theft is still possible when several employees are involved. The rationale for segregation of duties is that the work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. In contrast, making one individual responsible for related activities increases the potential for errors and irregularities (e.g., fraud). Segregation of duties does not guarantee fraud &/or theft will not occur, but it makes it less likely. However, it can be costly because it requires more individuals be involved in the company's processes and employees should be bonded (i.e., insured).

If employees are bonded it means that they have signed a pledge to be honest. it means that they are not allowed to handle cash. they have been insured against misappropriation of assets. they have worked for the company for at least 10 years. it is impossible for them to steal from the company.

They have been insured against the misappropriation of assets Bonding involves obtaining insurance protection against theft by employees. it means that they have been insured against misappropriation of assets.

Internal control consists of all of the methods and measures adopted within an organization to do all of the following except To enhance the reliability of accounting records To ensure compliance with laws and regulations To attract new investors To safeguard assets To increase efficiency of operations

To attract new investors Internal control consists of all of the methods and measures adopted within an organization to safeguard assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

Internal control consists of all of the methods and measures adopted within an organization to do all of the following except To deliver goods and services to customers more rapidly To increase efficiency of operations To ensure compliance with laws and regulations To enhance the reliability of accounting records To safeguard assets

To deliver goods and services to customers more rapidly Internal control consists of all of the methods and measures adopted within an organization to safeguard assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

Which of the following is not a reason why an organization establishes a system for internal control? To ensure compliance with laws and regulations To eliminate the need for an independent audit To enhance the reliability of its accounting records To safeguard its assets Increase the efficiency of operations

To eliminate the need for an independent audit Internal control consists of all the related methods and measures adopted within an organization to (1) safeguard its assets, (2) enhance the reliability of its accounting records, (3) increase efficiency of operations, and (4) ensure compliance with laws and regulations.

A bank reconciliation should be prepared to make sure the cash is being paid to employees in a timely manner. when the bank refuses to lend money to the company. by the person who is authorized to sign the company's checks. when a company issues stock. to explain any difference between the depositor's balance per books and the balance per bank

To explain any difference between the depositor's balance per books and the balance per bank Bank reconciliations should be prepared periodically to explain any difference between the depositor's balance per books with the balance per bank.

Why should a bank reconciliation be prepared? To explain any difference between the bank deposits and the checks written To make sure the company has not paid the wrong vendor for inventory purchased To make sure outstanding checks are deposited in a timely manner To make sure the cash is being collected from customers at the point of sale To identify errors by either the bank or the company in recording transactions

To identify errors by either the bank or the company in recording transactions Bank reconciliations should be prepared periodically to explain any difference between the depositor's balance per books with the balance per bank. The bank reconciliation also helps the company identify recording errors made either by the bank or the company.

Internal control consists of all of the methods and measures adopted within an organization to do all of the following except To enhance the reliability of accounting records To ensure compliance with laws and regulations To safeguard assets To increase efficiency of operations To maximize revenues

To maximize revenues Internal control consists of all of the methods and measures adopted within an organization to safeguard assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

A corporation issued 1,000 shares of its $3.00 par value common stock for $12.00 per share and later repurchased 50 of those shares for $9.00 per share. Which of the following will be debited when the repurchase of the shares is journalized? Treasury Stock for $450 Treasury Stock for $150 Common Stock for $450 Retained Earnings for $450 Retained Earnings for $150

Treasury stock for 450 The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 50 shares x $9/share = $450. Debit the Treasury Stock account to increase it.

Which of the following would not appear on an income statement? Unearned revenue Salaries and wages expense Cost of goods sold Net income Service revenue

Unearned revenue The income statement reports all of a company's revenues and expenses. It also net income which is revenues minus expenses. The income statement does not report the accounts shown on the balance sheet (e.g., assets, liabilities, and equities). Unearned revenue is a liability representing the amount the company received from its customers in advance of performing.

Which of the following is not a characteristic of corporations? Ability to acquire capital easily Separate legal existence Unlimited life Unlimited liability for owners Easy transfer of ownership interests

Unlimited liability for owners Stockholders can lose only their investment in a corporation. Stockholders are not liable for the corporation's debts so shareholders have limited liability (rather than unlimited liability). In contrast, owners of proprietorships and partnerships can lose more than their investments; they are also liable for their companies' debts.

Which of the following is an inventory account? Accounts payable Equipment Accounts receivable All of these are inventory accounts Work in process

Work in process Equipment is not an inventory account. Equipment consists of items used in the production of income that are not held for sale. Inventory can include raw materials, work in process, and finished goods. Raw materials is an inventory account that contains the cost of materials that have not yet been started into the production process. Work in process is an inventory account that contains the cost of goods started, but not completed. Finished goods is an inventory account that contains the cost of goods completed that are ready to sell.

Handel Enterprises issued 2,500 bonds with a face value of $1,000 each at 103. The journal entry to record the issuance includes a credit to Cash for $2,500,000. a credit to Discount on Bonds Payable for $75,000. a credit to Bonds Payable for $2,500,000. a debit to Premiums on Bonds Payable for $75,000. a debit to Interest Expense for $75,000.

a credit to Bonds Payable for $2,500,000. The company issuing bonds is borrowing money and it is issuing bonds as evidence of the loan. The company that issues the bonds will debit Cash for the amount of cash received in exchange for issuing the bonds (i.e., 2,500 bonds x $1,000 face value per bond x 103% = $2,575,000). The issuing company will also credit Bonds Payable for the face value of the bonds issued (i.e., 2,500 bonds with a face value of $1,000 per bond equals $2,500,000). Note that the company issued $2,000,000 face value of bonds but it received more cash than this amount when it issued the bonds. The company issued these bonds at a premium, so the issuing company will need to credit the Premium on Bonds Payable account for the difference between the face value of the bonds issued and the cash collected from issuing them (i.e., Premium = $2,575,000 - $2,500,000 = $75,000). Increase the Premium on Bonds Payable account by crediting it. The issuer credits Premium on Bonds Payable by $75,000.

If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer's $800 account includes a debit to Bad Debts Expense for $800 and a credit to Allowance for Doubtful Accounts for $800. a debit to Accounts Receivable for $800 and a credit to Allowance for Doubtful Accounts for $800. a debit to Bad Debts Expense for $800 and a credit to Accounts Receivable for $800. a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800. a debit to Accounts Receivable for $800 and a credit to Bad Debts Expense for $800.

a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800. Under the allowance method, a write-off of a specific customer's account (or customers' accounts will require a journal-entry that reduce the company's Accounts Receivable and reduce the Allowance for Doubtful Accounts. Debit the Allowance for Doubtful Accounts and credit Accounts Receivable. No expense is recorded at this time because the expense is estimated and recognized as an adjusting entry.

If a check correctly written by East Company for $628 is incorrectly recorded on East Company's books as $682, the appropriate treatment on the bank reconciliation would be to subtract $54 from the cash balance per books. deduct $628 from the cash balance per books. add $628 to the cash balance per books. add $54 to the cash balance per books. deduct $54 from the cash balance per bank statement.

add $54 to the cash balance per books. The company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted.

A check written by the company for $780 was incorrectly recorded on the bank as $870. In the bank reconciliation, this $90 error would be subtracted from the cash balance per books. subtracted from the cash balance per bank statement. None of these added to the cash balance per bank statement. added to the cash balance per books.

added to the cash balance per bank statement. Amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the bank account balance. The bank decreased the company's balance by $870 when it should have decreased it by $780. Correcting this error requires adding $90 to the cash balance per books.

Carpenter Company pays employees' salaries. This transaction will immediately affect the balance sheet, income statement, retained earnings statement, and cash flows statement. retained earnings statement, cash flows statement, and balance sheet only. income statement and retained earnings statement only. retained earnings statement and cash flows statement only. income statement and cash flows statement only.

balance sheet, income statement, retained earnings statement, and cash flows statement. The company pays cash to its employees so the company's cash decreases. This reduces its total assets which affects the company's balance sheet. The company also records salaries expense. Expenses lower net income reported on the income statement, and expenses reduce retained earnings which affects the retained earnings statement and the balance sheet. Paying salaries is a cash outflow. It affect the cash flows statement.

Carpenter Company performs services for cash. This transaction will immediately affect the income statement, retained earnings statement, cash flows statement, and balance sheet. balance sheet and retained earnings statement only. income statement only. income statement and cash flows statement only. income statement, balance sheet, and retained earnings statement only.

income statement, retained earnings statement, cash flows statement, and balance sheet When a company performs services it recognizes revenue as earned. This affects the income statement, and it also affects net income which appears on the retained earnings statement. So, earning revenue has an indirect effect on the retained earnings statement. Collecting cash from customers increases its assets which affects the balance sheet. Collecting cash also affects the cash flows statement. This transaction does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement.

Carpenter Company declares and pays a dividend to shareholders. This transaction will immediately affect the income statement, retained earnings statement, and cash flows statement only. income statement and cash flows statement only balance sheet and cash flows statement only balance sheet and cash flows statement only retained earnings statement, balance sheet, and cash flows statement only.

retained earnings statement, balance sheet, and cash flows statement only When declaring and paying a dividend, the company pays cash so its assets decrease which affects the balance sheet. Paying a dividend will also appear on the cash flows statement as a cash outflow for financing activities. Also, it increases the amount recorded in its dividends account and this will reduce retained earnings and appear on the retained earnings statement. Dividends are not expenses; the income statement will not be affected. Chapter 3, Learning objective 1, pool 2

A check written by the company for $530 was incorrectly recorded on the company's books as $350. In the bank reconciliation, this $180 error would be subtracted from the cash balance per bank statement. added to the cash balance per books. None of these added to the cash balance per bank statement. subtracted from the cash balance per books.

subtracted from the cash balance per books Amounts subtracted from the cash balance per books include bank service charges, NSF checks, and company errors that erroneously increased the company's cash account balance. The company increased the company's balance by $350 when it should have decreased it by $530. Correcting this error requires subtracting $180 from the cash balance per books.

Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense? Allowance for Doubtful Accounts 2,900 Bad Debts Expense 2,900 Bad Debts Expense 2,700 Allowance for Doubtful Accounts 2,700 Bad Debts Expense 2,900 Allowance for Doubtful Accounts 2,900 Allowance for Doubtful Accounts 2,800 Bad Debt Expense 2,800 Bad Debts Expense 2,800 Allowance for Doubtful Accounts 2,800

Bad Debts Expense 2,900 Allowance for Doubtful Accounts 2,900 The Allowance for Doubtful Accounts needs an ending credit balance of 3.5% of $80,000 or $2,800. Since the pre-adjusted debit balance is $100, a credit of $2,900 is necessary to increase it to $2,800. The journal entry will record a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $2,900.

Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment? Bad Debts Expense 3,200 Accounts Receivable 3,200 Allowance for Doubtful Accounts 4,000 Bad Debt Expense 4,000 Bad Debts Expense 4,000 Allowance for Doubtful Accounts 4,000 Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 Allowance for Doubtful Accounts 3,200 Bad Debt Expense 3,200

Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 Allowance for Doubtful Accounts needs an ending credit balance of 4% of $100,000 or $4,000. To increase the current credit balance of $800 to the required amount of $4,000, the account requires a credit of $3,200. The entry to estimate bad debts is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $3,200.

In what order are current assets listed on a classified balance sheet? Alphabetically By importance By their size measured in dollars By liquidity By longevity

By liquidity Current assets are listed in order of liquidity which is the order of how quickly they are expected to be converted into cash.

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