exam 1 accounting
X Company paid $2,000 cash to purchase inventory. This inventory was sold for $3,000 on account. The amount of gross marginreported on the income statement and the amount of net cash flow from operating activities reported on the statement of cash flows would be (chapter 3)
$1,000 / $(2,000).
Jason Company paid $7,200 for one year's rent in advance beginning on October 1, Year 1. Jason's Year 1 income statement would report rent expense, and its statement of cash flows would report cash outflow for rent, respectively, of (chapter 2)
$1,800; $7,200 ( only 3 months of rent was actually an expense in year one; he paid the whole year in year one so cash flow showed the whole amount)
The balance sheet of the Algonquin Company reported assets of $50,000, liabilities of $22,000 and common stock of $15,000. Based on this information only, what is the amount of retained earnings? (chapter 1, part 1)
$13,000
Yowell Company began operations on January 1, Year 1. During Year 1, the company engaged in the following cash transactions: 1) issued stock for $68,000 2) borrowed $39,000 from its bank 3) provided consulting services for $67,000 cash 4) paid back $29,000 of the bank loan 5) paid rent expense for $16,000 6) purchased equipment for $26,000 cash 7) paid $4,400 dividends to stockholders 8) paid employees' salaries of $35,000 What is Yowell's net income for Year 1? (chapter 1, part 2)
$16,000 net revenue= revenue (from services $67,000) - expenses ( to run the business i.e. rent $16,000 and salaries $35,000) net revenue ($16,000) = $67,000 - $16,000 - $35,000
Revenue on account amounted to $4,800. Cash collections of accounts receivable amounted to $2,900. Expenses for the period were $2,500. The company paid dividends of $650. What was the amount of net income for the period? (chapter 2)
$2,300 (net income = revenue - expenses)
Sheldon Company began Year 1 with $1,600 in its supplies account. During the year, the company purchased $4,700 of supplies on account. The company paid $2,500 on accounts payable by year end. At the end of Year 1, Sheldon counted $2,700 of supplies on hand. Sheldon's financial statements for Year 1 would show: (chapter 2)
$2,700 of supplies; $3,600 of supplies expense ($2,700 of supplies on hand is the supplies asset on the balance sheet... $1,600 beginning balance + $4,700 of supplies purchased - $2,700 ending balance = $3,600 supplies expense.)
Prior to closing the accounts, Syracuse Company's accounting records showed the following balances: Retained earnings $ 16,800 Service revenue $21,750 Interest revenue $1,800 Salaries expense $12,300 Operating expense $3,450 Interest expense $900 Dividends $2,700 After closing the accounts, Syracuse's retained earnings balance would be? (chapter 2)
$21,000. ( retained earnings + all revenue - all expenses including dividends since they are paid)
Sanchez Company engaged in the following transactions during Year 1: 1. Started the business by issuing $42,000 of common stock for cash. 2. The company paid cash to purchase $26,400 of inventory. 3. The company sold inventory that cost $16,000 for $30,600 cash. 4. Operating expenses incurred and paid during the year, $14,000. Sanchez Company engaged in the following transactions during Year 2: 1. The company paid cash to purchase $35,200 of inventory. 2. The company sold inventory that cost $32,800 for $57,000 cash. 3. Operating expenses incurred and paid during the year, $18,000. Sanchez uses the perpetual inventory system. What is Sanchez's gross margin for the Year 2? (chapter 3)
$24,200
The April 30 bank statement for Trimble Corporation shows an ending balance of $36,510. The unadjusted cash account balance was $30,350. The accountant for Trimble gathered the following information: There was a deposit in transit for $4,654. The bank statement reports a service charge of $89. A credit memo included in the bank statement shows interest earned of $375. Outstanding checks totaled $11,998. The bank statement included a $1,470 NSF check deposited in April. What is the true cash balance as of April 30? (chapter 4)
$29,166
Duke Company's unadjusted bank balance at March 31 is $3,740. The bank reconciliation revealed outstanding checks amounting to $560 and deposits in transit of $430. Based on this information, Duke's true cash balance is: (chapter 4)
$3,610.
If Ballard Company reported assets of $500 and liabilities of $200, Ballard's stockholders' equity equals: (chapter 1, part 1)
$300
Finn Company reported assets of $1,000 and stockholders' equity of $600. What amount will Finn report for liabilities? (chapter 1, part 1)
$400
Retained Earnings at the beginning and ending of the period were $300 and $800, respectively. If revenues were $1,100 and dividends paid to stockholders were $200, what was the amount of expenses for the period? (chapter 1, part 2)
$400
Assume the perpetual inventory method is used. 1. The company purchased $12,500 of merchandise on account under terms 2/10, n/30. 2. The company returned $1,200 of merchandise to the supplier before payment was made. 3. The liability was paid within the discount period. 4. All of the merchandise purchased was sold for $18,800 cash. What is the amount of gross margin from the four transactions? (chapter 3)
$7,726
At March 31, Cummins Company had a balance in its cash account of $10,000. At the end of March, the company determined that it had outstanding checks of $1,015, deposits in transit of $650, a bank service charge of $30, and an NSF check from a customer for $215. The true cash balance at March 31 is: (chapter 4)
$9,755
Olive Enterprises experienced the following events during Year 3: 1. Acquired cash from the issue of common stock. 2. Paid cash to reduce the principal on a bank note. 3. Sold land for cash at an amount equal to its cost. 4. Provided services to clients for cash. 5. Paid utilities expenses with cash. 6. Paid a cash dividend to the stockholders. Indicate which of the above events occur in the equation by selecting the letter "I" for increase, the letter "D" for decrease, and "I/D" for increase and decrease in a particular component. Accounting equation components that are not affected by the events should be left blank. The first event is shown as an example. 1. I = N/A + I + N/A 2. 3. 4. 5. 6. (chapter 1, part 2)
1. I = N/A + I + N/A 2. D = D + N/A + N/A 3. I/D = N/A + N/A + N/A 4. I = N/A + N/A + I 5. D = N/A + N/A + D 6. D = N/A + N/A + D
Which of the following is not a procedure to maintain internal controls over cash payments? (chapter 4)
A receipt should be provided to each cash customer.
Which of the following is an accurate definition of the term "asset?" (chapter 1, part 1)
A resource that will be used to produce revenue
Which of the following statements concerning internal controls is true? (chapter 4)
A system of internal controls is designed to prevent or detect errors and fraud.
Indicate whether each of the following statements is true or false. A. a cash discount Is extended to reward a buyer for purchasing large quantities of goods B. a purchase discount refers to a cash discount as seen form the sellers viewpoint C. a sales discount refers to a cash discount as seen from the buyers view D. in a perpetual inventory system, a sales discount is recorded as a reduction of sales revenue E. in a perpetual inventory system, a purchase discount is recorded as a reduction of merchandise inventory (chapter 3)
A. false B. false C. false D. true E. true
If total assets decrease, then which of the following statements is true? (chapter 1, part 1)
Liabilities, common stock, or retained earnings must decrease.
How will accounts payable appear on the following financial statements? (chapter 2)
Liability on the balance sheet
Which of the following would be considered as primarily a merchandising business? (chapter 3)
Martin's Supermarket
Net income percentage is equal to: (chapter 3)
Net Income divided by Net Sales
Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows? (chapter 2)
Operating activities
An audit is useful to financial statement users because it: (chapter 4)
Provides reasonable assurance that the financial statements do not have material misstatements.
Which of the following cash transactions results in an increase to one asset account and a decrease to another asset account? (chapter 1, part 1)
Purchasing land for cash
Liabilities are shown on the: (chapter 1, part 2)
balance sheet
The balance of Accounts Receivable is shown on which of the following financial statements? (chapter 2)
balance sheet
Which resource providers lend financial resources to a business with the expectation of repayment with interest? (chapter 1, part 1)
creditors
Ho Designs experienced the following events during Year 1, its first year of operation: 1. Started the business when it acquired $86,000 cash from the issue of common stock. 2. Paid $37,000 cash to purchase inventory. 3. Sold inventory costing $22,100 for $43,000 cash. 4.Physically counted inventory showing $14,700 inventory was on hand at the end of the accounting period. difference in book and actual inventory? ____ (chapter 3)
difference in book and actual inventory = $200 (purchase inventory - inventory sold = $14,900/book balance; book balance - actual count = $200)
Melbourne Company sold merchandise that it had purchased with a list price of $3,300 and subject to terms of 2/10, n/30. Assuming that Melbourne paid for the merchandise during the discount period, the cost of goods sold for this transaction would be $2,970. (chapter 3)
false
Which type of accounting information is intended to satisfy the needs of external users of accounting information? (chapter 1, part 1)
financial accounting
Which of the following is false regarding managerial accounting information? (chapter 1, part 1)
it is often used by investors
In 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) updated its framework for the assessment of internal control. That framework includes all of the following interrelated components except: (chapter 4)
separation of duties.
A company that purchases merchandise treats a cash discount as a reduction to the cost of merchandise inventory. (chapter 3)
true
The income statement is not affected by purchasing merchandise. (chapter 3)
true
The term "accrual" describes an earnings event that is recognized before cash is paid or received. T/F (chapter 2)
TRUE
What happens when a company collects cash from accounts receivable? (chapter 2)
Total assets are not affected. (both cash and accounts receivable are assets so shifting within assets does not change the assets total... like buying land for cash)
Which of the following is considered a product cost? (chapter 3)
Transportation cost on goods purchased from suppliers.
A business firm that primarily sells merchandise to other businesses is known as a: (chapter 3)
Wholesale firm
For each of the following events, indicate whether the freight terms are FOB destination or FOB shipping point. a. sold merchandise and the buyer paid the freight cost- ____ b. purchased merchandise and the seller paid the freight cost- ____ c. sold merchandise and paid the freight cost- ____ d. purchased merchandise and paid the freight cost- ____ (chapter 2)
a. FOB shipping point b. FOB destination c. FOB destination d. FOB shipping point
Lopez Sales Company had the following balances in its accounts on January 1, Year 2: Cash $63,000 Merchandise Inventory $43,000 Land $103,000 Common Stock $83,000 Retained Earnings $126,000 Lopez experienced the following events during Year 2: Sold merchandise inventory that cost $34,400 for $73,100. Sold land that cost $41,200 for $77,300. a. gross margin; ____ b. gain on sale of land; ____ (chapter 3)
a. gross margin; $38,700 b. gain on sale of land; $36,100
Bill Rose owns Rose Sporting Goods. At the beginning of the year, Rose Sporting Goods had $3,200 in inventory. During the year, Rose Sporting Goods purchased inventory that cost $13,800. At the end of the year, inventory on hand amounted to $4,400. a. total available for sale; ____ b. cost of goods sold; ____ c. ending merchandise inventory; ____ (chapter 3)
a. total available for sale; $17,000 b. cost of goods sold; $12,600 c. ending merchandise inventory; $4,400
Which of the following is (are) source(s) of assets to a business? (chapter 1, part 1)
all of the answers represent sources of assets
The Cost of Goods Sold account is classified as: (chapter 3)
an expense.
During Year 1, Chung Corporation earned $7,100 of cash revenue and accrued $4,400 of salaries expense. Based on this information alone: Prepare the December 31, Year 1, balance sheet. ACCOUNTING EQUATION: earned revenue; ____ = ____ + ____ + ____ accrued salaried; ____ = ____ + ____ + ____ REQUIRED A: assets: - _______ ; ____ - _______ ; ____ total assets: $n/a liabilities: - _______ ; ____ - _______ ; ____ total liabilities: $n/a stockholders equity: - _______ ; ____ - _______ ; ____ total stockholders equity:$n/a total liabilities and stockholders equity:$n/a REQUIRED B & C: - net income; ____ - net cash flow from operating activities; ____ (chapter 2)
ACCOUNTING EQUATION: earned revenue; $7,100 = ____ + ____ + $7,100 accrued salaried; ____ = $4,400 + ____ + (4,400) REQUIRED A: assets: - cash ; $7,100 - _______ ; ____ total assets: $n/a liabilities: - salaries payable ; $4,400 - _______ ; ____ total liabilities: $n/a stockholders equity: - retained earnings ; $2,700 (cash-salaries) - _______ ; ____ total stockholders equity:$n/a total liabilities and stockholders equity:$n/a REQUIRED B & C: - net income; $2,700 ( revenue- expenses) - net cash flow from operating activities; $7,100 (not really sure why)
Which of the following is considered a period cost? (chapter 3)
Advertising expense for the current month.
Which of the following is not a primary role of an independent auditor? (chapter 4)
Advise client on tax strategies
Which of the following statements about liabilities is true? (chapter 1, part 1)
All of the answers are characteristics of liabilities.
Which of the following is an internal control procedure used to safeguard a company's assets? (chapter 4)
All of these answer choices are correct.
How will accounts receivable appear on the following financial statements? (chapter 2)
Asset on the balance sheet
Which of the following is an accurate depiction of the accounting equation? (chapter 1, part 1)
Assets = Liabilities + Common Stock + Retained Earnings
Which of the following financial statements provides information about a company as of a specific point in time? (chapter 1, part 1)
Balance sheet
The transaction, "provided services for cash," affects which two accounts? (chapter 1, part 1)
Cash and Revenue
Which of the following items is an example of revenue? (chapter 1, part 1)
Cash received from customers at the time services were provided
Which of the following is not a common internal control activity (or procedure)? (chapter 4)
Customer service comment cards
Which term describes a distribution of the business's assets back to the owners of the business? (chapter 1, part 1)
Dividend
Salaries expense appears in the: (chapter 1, part 1)
Expense section of the income statement
Companies that use accrual accounting recognize revenues and expenses at the time that cash is paid or received. T/F (chapter 2)
FALSE
Financial accounting standards are known collectively as GAAP. What does that acronym stand for? (chapter 1, part 1)
Generally Accepted Accounting Principles
Which financial statement matches asset increases from operating a business with asset decreases from operating the business? (chapter 1, part 1)
Income statement
Greg Company recognized revenue on account. Which of the following financial statements are affected by this accounting event? (chapter 2)
Income statement and the balance sheet
Abbott Company purchased $6,500 of merchandise inventory on account. Abbott uses the perpetual inventory method. How does this transaction affect the financial statements? (chapter 3)
Increase inventory and increase accounts payable
Which of the following statements accurately describes a fidelity bond? (chapter 4)
Insurance that the company buys to protect itself from loss due to employee dishonesty
A review of the bank statement and accounting records of the Blake Company revealed the following items: 1)Three outstanding checks 2)A debit memo showing a bank service charge 3)A deposit in transit 4)An NSF check written by one of Blake's customers 5)A certified check written by Blake 6)A credit memo reflecting interest revenue earned by Blake Which of the item(s) would be subtracted from the company's unadjusted book balance to determine the true cash balance? (chapter 4)
Item numbers 2 and 4
Mijka Company was started on January 1, Year 1. During Year 1, the company experienced the following three accounting events: (1) earned cash revenues of $34,300, (2) paid cash expenses of $15,100, and (3) paid a $3,400 cash dividend to its stockholders. These were the only events that affected the company during Year 1. Required a. (A)Record the effects of each accounting event under the appropriate general ledger account headings .b. Prepare an (B1)income statement, (B2)statement of changes in stockholders' equity, and a (B3)balance sheet dated December 31, Year 1, for Mijka Company. REQUIRED A: 1. ____ = ____ + ____ + ____ 2. ____ = ____ + ____ + ____ 3. ____ = ____ + ____ + ____ REQUIRED B1 INCOME STATEMENT: _______ : ____ _______ : ____ _______ REQUIRED B2 STATEMENT OF CHANGES - beginning common stock _______ - plus: common stock issued _______ - ending common stock $N/A - beginning retained earnings _______ - _________________. _______ - _________________. _______ - ending retained earnings $N/A - total stockholder's equity $N/A REQUIRED B3 BALANCE SHEET: assets - _________________. _______ - _________________. _______ - total assets $N/A liabilities $N/A stockholder's equity - _________________. _______ - _________________. _______ total stockholder's equity $N/A total liabilities and stockholder's equity $N/A (chapter 1, part 2)
REQUIRED A: 1. $34,300 = ____ + ____ + $34,300 2. ($15,100) = ____ + ____ + ($15,100) 3. ($3,400) = ____ + ____ + ($3,400) REQUIRED B1 INCOME STATEMENT: revenue : $34,300 (how much we made) expenses : $15,100 (what it cost to run it) Net income: (auto filled) REQUIRED B2 STATEMENT OF CHANGES - beginning common stock $0 (no stock listed) - plus: common stock issued $0 ( no stock issued) - ending common stock $N/A - beginning retained earnings $0 (not sure why but it matches the math) - plus: net income. $19,200 (from B1) - less: dividends. $3,400 (paid to stockholders) - ending retained earnings $N/A - total stockholder's equity $N/A REQUIRED B3 BALANCE SHEET: assets - cash. $15,800 (ending of A) - (no other assets, left blank) - total assets $N/A liabilities $N/A stockholder's equity - common stock. $0 (no stock listed) - retained earnings. $15,800 (ending of A) total stockholder's equity $N/A total liabilities and stockholder's equity $N/A
The following account titles were drawn from the general ledger of Holt Food Supplies, Incorporated (HFSI): Computers, Operating Expenses, Rent Revenue, Building, Cash, Notes Payable, Land, Utilities Payable, Utilities Expense, Trucks, Gasoline Expense, Retained Earnings, Supplies, Accounts Payable, Office Furniture, Salaries Expense, Common Stock, Service Revenue, Interest Expense, Dividends, Supplies Expense. REQUIRED A: Assets = liabilities = stockholder's equity = REQUIRED B: will all businesses have the same number of accounts? Y/N (chapter 1, part 2)
REQUIRED A: Assets = - Computers - Building - Cash - Land - Trucks - Supplies - Office Furniture liabilities = - Notes Payable - Utilities Payable - Accounts Payable stockholder's equity = - Operating Expenses - Rent Revenue -Utilities Expense -Gasoline Expense -Retained Earnings -Salaries Expense -Common Stock -Service Revenue -Interest Expense - Dividends -Supplies Expense REQUIRED B: will all businesses have the same number of accounts? NO
Jones Enterprises was started when it acquired $6,300 cash from creditors and $14,700 from owners. The company immediately purchased land that cost $15,000. A. Record the events under an accounting equation. B. After all events have been recorded, Jones's obligations to creditors represent what percent of total assets? C. After all events have been recorded, Jones's stockholders' equity represents what percentage of total assets? D. Assume the debt is due. Given that Jones has $14,700 in stockholders' equity, can the company repay the creditors at this point? REQUIRED A: ____ + ____ = ____ + ____ ____ + ____ = ____ + ____ REQUIRED B TO D: A. After all events have been recorded, Jones's obligations to creditors represent what percent of total assets? B. After all events have been recorded, Jones's stockholders' equity represents what percentage of total assets? C. Assume the debt is due. Given that Jones has $14,700 in stockholders' equity, can the company repay the creditors at this point? A. percentage of total assets = B. percentage of total assets = C. can the company repay the creditors at this point? = (chapter 1, part 2)
REQUIRED A: ____ + ____ = ____ + ____ ____ + ____ = ____ + ____ REQUIRED B TO D: A. percentage of total assets = 30% ($6,300/$21,000=.3) B. percentage of total assets = 70% ($14,700/$21,000=.7) C. can the company repay the creditors at this point? = NO (available cash is only $6k the debt is $6.3k because assets are tied up in land)
a. Match the terms (identified as a through g) with the definitions and phrases. For example, the term "a. Assets" matches with definition, "Economic resources that will be used by a business to produce revenue." b. Calculate the missing amounts in the following table: REQUIRED A: a. assets- economic resources that will be used by a business to produce revenue b. common stock- c. creditors- d. liability- e. retained earnings- f. stockholders- g. stockholder's equity- REQUIRED B: a. _______= $49,500 + $49,000 + $37,500 b. $93,000 = ________ + $27,100 + $40,900 c. $79,000 = $16,100 + ________ + $27,150 d. $107,900 = $27,000 + $43,600 + ________ (chapter 1, part 2)
REQUIRED A: a. assets- economic resources that will be used by a business to produce revenue b. common stock: -certificates that evidence ownership in a company c. creditors: -individuals or institutions that have loaned goods or services to a business d. liability: -an obligation to pay cash in the future e. retained earnings: -assets - liability - common stock f. stockholders: -individuals or institutions that have contributed assets or services to a business in exchange for an ownership interest in the business g. stockholder's equity: -common stock + retained earnings REQUIRED B: a. $136,000 b. $25,000 c. $35,750 d. $37,300
Which of the following is not a component of the fraud triangle? (chapter 4)
Reliance
Which of the following statements about accrual accounting is true ? (chapter 2)
Revenue is recorded in the period when it is earned and expenses are recorded when they are incurred.
The following information was taken from the accounts of Green Market, a delicatessen, at December 31, Year 2. The accounts are listed in alphabetical order, and each has a normal balance. Accounts payable$615 Accounts receivable 415 Advertising expense 200 Cash 425 Common stock 215 Cost of goods sold 700 Interest expense 55 Merchandise inventory 300 Prepaid rent 55 Retained earnings, 1/1/Year 2 $650 Sales revenue 1,150 Salaries expense 280 Rent expense 100 Gain on sale of land 100 SINGLE STEP: _______; ____ expenses _______; ____ _______; ____ _______; ____ _______; ____ _______; ____ total cost and expenses; $n/a _______; ____ net income loss; ____ MULTISTEP: _______; ____ _______; ____ _______; $n/a operating expense _______; ____ _______; ____ _______; ____ total operating expense operating income (loss) non-operating items _______; ____ _______; ____ net income (loss); ____ (chapter 3)
SINGLE STEP: sales revenue; $1,150 expenses cost of goods sold; $700 advertising expense; $200 interest expense; $55 salaries expense; $280 rent expense; $100 total cost and expenses; $n/a gain on sale of land; $100 net income loss; $85 MULTISTEP: sales revenue; $1,150 cost of goods sold; $700 gross margin; $n/a operating expense salaries expense; $280 advertising expense; $200 rent expense; $100 total operating expense operating income (loss) non-operating items gain on sale of land; $100 interest expense; $55 net income (loss); $85
Which of the following accounts would not appear on a balance sheet? (chapter 2)
Service Revenue.
