Financial Accounting

Which of the following assets does not decline in service potential over the course of its useful life?

Land

Which of the following journal entries is recorded correctly and in the standard format?

Salaries and Wages Expense 500 Advertising Expense 1,000 Cash 1,500

A dividend is

a distribution of the company's earnings to its stockholders.

Sources of increases to stockholder's equity are

additional investments by owners.

If a company fails to make an adjusting entry to record supplies expense, then

expense will be understated.

Stockholders' equity is decreased by all of the following except.

sales of stock. Decreased by: expenses. dividends. net losses

The income statement for the year 2015 of Fugazi Co. contains the following information: Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) At January 1, 2015, Fugazi reported retained earnings of $50,000. Dividends for the year totalled $10,000. At December 31, 2015, the company will report retained earnings of

$32,500. $50,000 - $10,000 - $7,500 = $32,500

Electrelane Company showed the following balances at the end of its first year: Cash $ 4,000 Prepaid insurance 7,000 Accounts receivable 5,000 Accounts payable 4,000 Notes payable 6,000 Common stock 2,000 Dividends 1,000 Revenues 32,000 Expenses 25,000 What did Electrelene Company show as total credits on its trial balance?

$44,000 Accounts payable $ 4,000 Notes payable 6,000 Common stock 2,000 Revenues 32,000 Total credits $44,000

Employees at Tengo Corporation are paid $15,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salaries and wages expense should be recorded two days later on January 2?

$6,000 $15,000 × 2/5 = $6,000

Tomko Company purchased machinery with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be

$6,150. ($96,000 × .90) + $600 + $4,500 - $30,000] ÷ 10 = $6,150

Engler Company purchases a new delivery truck for $55,000. The sales taxes are $4,000. The logo of the company is painted on the side of the truck for $1,600. The truck license is $160. The truck undergoes safety testing for $290. What does Engler record as the cost of the new truck?

$60,890 $55,000 + $4,000 + $1,600 + $290 = $60,890

Mather Company purchased equipment on January 1, 2015 at a total invoice cost of $336,000; additional costs of $6,000 for freight and $30,000 for installation were incurred. The equipment has an estimated salvage value of $12,000 and an estimated useful life of five years. The amount of accumulated depreciation at December 31, 2016 if the straight-line method of depreciation is used is:

144,000 Solution: ($336,000 + $6,000 + $30,000 - $12,000) ¸ 5] = $72,000; $72,000 × 2 = $144,000

A trial balance would only help in detecting which one of the following errors?

A transposition error when transferring the debit side of journal entry to the ledger

Which of the following statements is correct?

If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a credit to the retained earnings account.

Buffalo Tom Cruises purchased a five-year insurance policy for its ships on April 1, 2015 for $60,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2015 is

Insurance Expense 9,000 Prepaid Insurance 9,000 ($60,000 ÷ 5) × 9/12 = $9,000

On January 1, 2015, Cat Power Company reported stockholders' equity of $705,000. During the year, the company paid dividends of $30,000. At December 31, 2015, the amount of stockholders' equity was $825,000. What amount of net income or net loss would the company report for 2015?

Net income of $150,000 $705,000 + X - $30,000 = $825,000; X = $150,000

Pixies Inc. pays its rent of $54,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true? A. Failure to make the adjustment does not affect the February financial statements. B. Expenses will be overstated by $4,500 and net income and stockholders' equity will be understated by $4,500. C. Assets will be overstated by $9,000 and net income and stockholders' equity will be understated by $9,000. D. Assets will be overstated by $4,500 and net income and stockholders' equity will be overstated by $4,500.

Only D is correct Solution: $54,000 ¸ 12 = $4,500

Which of the following statements is false?

Revenues decrease retained earnings but increase stockholder's equity TRUE: Revenues increase retained earnings and increase stockholder's equity Revenues increase stockholders' equity. Revenues have normal credit balances. Revenues are a positive factor in the computation of net income.

Ryan Adams, an employee of Heartbreaker Corp., will not receive his paycheck until April 2. Based on services performed from March 15 to March 31, his salary was $1,000. The adjusting entry for Heartbreaker Corp. on March 31 is

Salaries and Wages Expense 1,000 Salaries and Wages Payable 1,000

Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for $47,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages Expense of $27,000 had been accrued at year end on December 31. The correcting entry is

Salaries and Wages Payable 27,000 Salaries and Wages Expense 27,000

Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

Salaries and Wages Payable.

Which of the following statements is correct?

Stockholders' equity can be described as ownership claim on total assets

Which of the following statements is correct?

The balance in the income summary account before it is closed will be equal to the net income or loss on the income statement.

If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit

Unearned Rent Revenue.

An adjusting entry

affects a balance sheet account and an income statement account.

If total liabilities increased by $8,000, then

assets must have increased by $8,000, or stockholders' equity must have decreased by $8,000.

The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 100 Insurance Expense Total expenses 5,700 Net income $1,300 The entry to close the expense accounts includes a

credit to Rent Expense for $1,500.

TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and

credited a liability account for $2,100. Equipment $2,500 Notes Payable $2,100* Cash $ 400 *$2,500 - $2,100

The income statement for the year 2015 of Fugazi Co. contains the following information: Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) The entry to close the revenue account includes a

debit to Revenues for $70,000.

Sonic Youth Corporation purchased a one-year insurance policy in January 2015 for $49,500. The insurance policy is in effect from March 2015 through February 2016. If the company neglects to make the proper year-end adjustment for the expired insurance

net income and assets will be overstated by $41,250. Solution: $49,500 ´ 10/12 = $41,250 overstated

The normal balance of any account is the

side which increases that account.

Fugazi City College sold season tickets for the 2015 football season for $240,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30

will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $90,000. $240,000 × 3/8 = $90,000

Mott Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $48,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $4,000. What is the depreciation cost per unit?

$.44 ($48,000 - 4,000) ÷ 100,000 = $.44

Carey Company buys land for $50,000 on 12/31/14. As of 3/31/15, the land has appreciated in value to $50,700. On 12/31/15, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2015?

$0

During 2015, Zuma Company had $150,000 in cash sales and $1,240,000 in credit sales. The accounts receivable balances were $180,000 and $215,000 at December 31, 2014 and 2015, respectively. Using the direct method of reporting cash flows from operating activities, what was the total cash collected from all customers during 2015?

$1,355,000 $1,240,000 - ($180,000 - $215,000) + $150,000 = $1,355,000

At October 1, Arcade Fire Enterprises reported stockholders' equity of $70,000. During October, no stock was issued and the company earned net income of $18,000. If stockholders' equity at October 31 totals $78,000, what amount of dividends were paid during the month?

$10,000 $70,000 + $18,000 - X = $78,000; X = $10,000

If total liabilities decreased by $30,000 and stockholders' equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?

$10,000 decrease $20,000 - $30,000 = ($10,000)

Soundgarden Company collected $18,200 in May of 2015 for 5 months of service which would take place from October of 2015 through February of 2016. The revenue reported from this transaction during 2015 would be

$10,920 $18,200 × 3/5 = $10,920

Wilson Company reported net income of $105,000 for the year ended December 31, 2014. During the year, inventories decreased by $15,000, accounts payable decreased by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2014 using the indirect method was

$109,000 $105,000 + $15,000 - $20,000 + $18,000 - $9,000 = $109,000

Yocum Company purchased equipment on January 1 at a list price of $120,000, with credit terms 2/10, n/30. Payment was made within the discount period and Yocum was given a $2,400 cash discount. Yocum paid $6,000 sales tax on the equipment, and paid installation charges of $1,760. Prior to installation, Yocum paid $4,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?

$129,360 $120,000 - $2,400 + $6,000 + $1,760 + $4,000 = $129,360

Kennedy Company issued stock to Ed Kennedy in exchange for his investment of $75,000 cash in the business. The company recorded revenues of $555,000, expenses of $420,000, and had paid dividends of $30,000. What was Kennedy's net income for the year?

$135,000. $555,000 - $420,000 = $135,000.

Ultramega Company collected $19,600 in May of 2015 for 4 months of service which would take place from October of 2015 through January of 2016. The revenue reported from this transaction during 2015 would be

$14,700. $19,600 × 3/4 = $14,700

A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

$150,000 ($480,000 - $30,000) ÷ 15,000 = $30; $30 × 5,000 = $150,000

Ale Company reports a $16,000 increase in inventory and a $8,000 increase in accounts payable during the year. Cost of Goods Sold for the year was $150,000. The cash payments made to suppliers were

$158,000. $150,000 + $16,000 - $8,000 = $158,000

Eckman Company purchased equipment for $120,000 on January 1, 2014, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 5-year life and a $6,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2016 will be

$17,280 ($120,000 - $0) × .40 = $48,000; ($120,000 - $48,000) × .40 = $28,800; ($120,000 - $76,800) × .40 = $17,280

At September 1, 2015, Promise Ring Co. reported stockholders' equity of $156,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of stockholders' equity at September 30, 2015?

$171,000 $156,000+ $38,000 - $21,000 - $2,000 = $171,000

The following information is for Sunny Day Real Estate: Sunny Day Real Estate Balance Sheet December 31, 2015 Cash $ 25,000 Accounts Payable $ 60,000 Prepaid Insurance 30,000 Salaries and Wages Payable 15,000 Accounts Receivable 50,000 Mortgage Payable 85,000 Inventory 70,000 Total Liabilities 160,000 Land Held for Investment 85,000 Land 120,000 Buildings $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 370,000 Depreciation (20,000) 80,000 Trademark 70,000 Total Assets $530,000 Total Liabilities and Stockholders' Equity $530,000 The total dollar amount of assets to be classified as current assets is

$175,000. $25,000 + $30,000 + $50,000 + $70,000 = $175,000

A company had net income of $210,000. Depreciation expense is $27,000. During the year, Accounts Receivable and Inventory increased $17,000 and $42,000, respectively. Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000, respectively. There was also a loss on the sale of equipment of $2,000. How much cash was provided by operating activities?

$179,000 $210,000 + $27,000 - $17,000 - $42,000 + $5,000 - $6,000 + $2,000 = $179,000$210,000 + $27,000 - $17,000 - $42,000 + $5,000 - $6,000 + $2,000 = $179,000

The cost of goods sold during the year was $183,000. Merchandise inventory decreased by $8,000 during the year and accounts payable decreased by $4,000 during the year. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total

$179,000 Explanation: $183,000 - $8,000 + $4,000 = $179,000

Gagner Clinic purchases land for $175,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

$179,700 $175,000 + $1,500 + $1,000 + $2,200 = $179,700

The following information is for Bright Eyes Auto Supplies: Bright Eyes Auto Supplies Balance Sheet December 31, 2015 Cash $ 40,000 Accounts Payable $ 130,000 Prepaid Insurance 80,000 Salaries and Wages Payable 50,000 Accounts Receivable 100,000 Mortgage Payable 150,000 Inventory 140,000 Total Liabilities 330,000 Land Held for Investment 180,000 Land 250,000 Buildings $200,000 Common Stock $400,000 Less Accumulated Retained Earnings 340,000 740,000 Depreciation (60,000) 140,000 Trademark 140,000 Total Assets $1,070,000 Total Liabilities and Stockholders' Equity $1,070,000 The total dollar amount of liabilities to be classified as current liabilities is

$180,000. $130,000 + $50,000 = $180,000

Mary Chain Investments purchased an 18-month insurance policy on May 31, 2015 for $3,600. The December 31, 2015 balance sheet would report Prepaid Insurance of

$2,200. ($3,600 ÷ 18) × (18 - 7) = $2,200

On January 1, 2014, Doolittle Company purchased furniture for $7,560. The company expects to use the furniture for 3 years. The asset has no salvage value. The book value of the furniture at December 31, 2015 is

$2,520 Solution: $7,560 × 1/3 = $2,520

The following information is for Sunny Day Real Estate: Sunny Day Real Estate Balance Sheet December 31, 2015 Cash $ 25,000 Accounts Payable $ 60,000 Prepaid Insurance 30,000 Salaries and Wages Payable 15,000 Accounts Receivable 50,000 Mortgage Payable 85,000 Inventory 70,000 Total Liabilities 160,000 Land Held for Investment 85,000 Land 120,000 Buildings $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 370,000 Depreciation (20,000) 80,000 Trademark 70,000 Total Assets $530,000 Total Liabilities and Stockholders' Equity $530,000 The total dollar amount of assets to be classified as property, plant, and equipment is

$200,000. $120,000 + $80,000 = $200,000

Jean's Vegetable Market had the following transactions during 2014: 1. Issued $50,000 of par value common stock for cash. 2. Repaid a 6 year note payable in the amount of $22,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $7,000. 5. Sold a long-term investment (cost $3,000) for cash of $6,000. 6. Acquired an investment in IBM stock for cash of $10,000. What is the net cash provided by financing activities?

$21,000 $50,000 - $22,000 - $7,000 = $21,000

Yanik Company's delivery truck, which originally cost $84,000, was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $57,000. The company received $48,000 reimbursement from its insurance company. The gain or loss as a result of the fire was

$21,000 gain. $48,000 - ($84,000 - 57,000) = $21,000

Misra Company compiled the following financial information as of December 31, 2015: Revenues $340,000 Retained earnings (1/1/15) 60,000 Equipment 80,000 Expenses 250,000 Cash 90,000 Dividends 20,000 Supplies 10,000 Accounts payable 40,000 Accounts receivable 70,000 Common stock 80,000 Misra's stockholders' equity on December 31, 2015 is

$210,000. $140,000 + ($340,000 - $250,000) - $20,000 = $210,000

As of December 31, 2015, Calexico Company has assets of $42,000 and stockholders' equity of $20,000. What are the liabilities for Calexico Company as of December 31, 2015?

$22,000. $42,000 - $20,000 = $22,000

The net income reported on the income statement for the current year was $220,000. Depreciation recorded on plant assets was $35,000. Accounts receivable and inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and accounts payable decreased by $2,000 and $12,000 respectively. How much cash was provided by operating activities?

$235,000 $220,000 + $35,000 - $2,000 - $8,000 + $2,000 - $12,000 = $235,000

Fat Possum's Service Shop started the year with total assets of $330,000 and total liabilities of $240,000. During the year, the business recorded $630,000 in revenues, $420,000 in expenses, and paid dividends of $60,000. Stockholders' equity at the end of the year was:

$240,000 ($330,000 - $240,000) + ($630,000 - $420,000) - $60,000 = $240,000

Phair and Associates is a financial planning service. The account balances at December 31, 2015 are shown below: Accounts Payable $ 5,000 Accounts Receivable 19,000 Buildings 140,000 Cash 11,700 Common Stock 143,400 Equipment 15,400 Land 42,000 Notes Payable 95,000 Notes Receivable 8,100 Prepaid Insurance 6,400 Supplies 800 What amount are shown as the total debits on its trial balance?

$243,400 Cash...............................................................$ 11,700 Accounts Receivable.......................................... 19,000 Prepaid Insurance..........................................6,400 Supplies....................................................................800 Notes Receivable...................................................8,100 Equipment........................................................... 15,400 Buildings............................................................. 140,000 Land.......................................................................42,000 Total debits $243,400

ABC company is a financial planning service. The account balances at December 31, 2015 are shown below: Accounts Payable $ 5,000 Accounts Receivable 19,000 Buildings 140,000 Cash 11,700 Common Stock 143,400 Equipment 15,400 Land 42,000 Notes Payable 95,000 Dividend 3,000 Notes Receivable 8,100 Prepaid Insurance 6,400 Supplies 800 Salary Expenses 1,000 Prepaid Rent 1,200 What amount are shown as the total debits on its trial balance?

$248,600 Cash...............................................................$ 11,700 Accounts Receivable.......................................... 19,000 Prepaid Insurance..........................................6,400 Prepaid Rent..................................................1,200 Supplies....................................................................800 Notes Receivable...................................................8,100 Equipment........................................................... 15,400 Buildings.............................................................140,000 Land......................................................................42,000 Dividend..........................................................3,000 Salary Expenses.............................................1,000 Total debits $248,600

At October 1, 2015, Padilla Industries had an accounts payable balance of $40,000. During the month, the company made purchases on account of $33,000 and made payments on account of $48,000. At October 31, 2015, the accounts payable balance is

$25,000. $40,000 + $33,000 - $48,000 = $25,000

The income statement and balance sheet columns of Iron and Wine Company's worksheet reflect the following totals: Income Statement Balance Sheet Dr. Cr. Dr. Cr. Totals $72,000 $44,000 $60,000 $88,000 The net income (or loss) for the period is

$28,000 loss.

The following data are available for Alamo Corporation. Sale of land $225,000 Sale of equipment $130,000 Issuance of common stock 140,000 Purchase of equipment 70,000 Payment of cash dividends 120,000 Net cash provided by investing activities is:

$285,000. $225,000 + $130,000 - $70,000 = $285,000

Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

$299,000. $290,000 + ($86,000 - $77,000) = $299,000

Crue Company had the following transactions during 2015: Sales of $4,800 on account Collected $2,000 for services to be performed in 2016 Paid $1,625 cash in salaries Purchased airline tickets for $250 in December for a trip to take place in 2016 What is Crue's 2015 net income using accrual accounting?

$3,175. $4,800 - $1,625 = $3,175

A factory machine was purchased for $375,000 on January 1, 2015. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2015. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2015 would be

$30,000. [($375,000 - $75,000) ÷ 40,000] × 4,000 = $30,000

In the Papyrus Corporation, cash receipts from customers were $136,000, cash payments for operating expenses were $102,000, and one-third of the company's $9,300 income taxes were paid during the year. Net cash provided by operating activities is:

$30,900. $136,000 - $102,000 - ($9,300/3) = $30,900

Equipment was purchased for $85,000 on January 1, 2015. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2016, if the straight-line method of depreciation is used?

$33,400 $85,000 + $3,500 + $10,000 = $98,500; [($98,500 - $15,000) ÷ 5] × 2 = $33,400

The net income reported on the income statement for the current year was $245,000. Depreciation was $40,000. Account receivable and inventories decreased by $12,000 and $35,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $1,000 and $8,000. How much cash was provided by operating activities?

$339,000 $245,000 + $40,000 + $12,000 + $35,000 - $1,000 + $8,000 = $339,000

During the year 2015, Dilego Company earned revenues of $90,000, had expenses of $56,000, purchased assets with a cost of $10,000 and paid dividends of $6,000. Net income for the year is

$34,000. $90,000 - $56,000 = $34,000

Black Keys Company began the year with stockholders' equity of $280,000. During the year, the company recorded revenues of $375,000, expenses of $285,000, and paid dividends of $30,000. What was Black Keys' stockholders' equity at the end of the year?

$340,000. $280,000 + ($375,000 - $285,000) - $30,000 = $340,000

The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015: Accounts payable $ 18,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 15,000 Common stock 42,000 Dividends 14,000 Depreciation expense 12,000 Insurance expense 3,000 Note payable, due 6/30/16 70,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/15) 60,000 Salaries and wages expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What are total current assets at December 31, 2015?

$36,000 $11,000 + $15,000 + $6,000 + $4,000 = $36,000

The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 At June 1, 2015, Camera Obscura reported retained earnings of $35,000. The company had no dividends during June. At June 30, 2015, the company will report retained earnings of

$36,300. $35,000 + $1,300 = $36,300

The following information is for Bright Eyes Auto Supplies: Bright Eyes Auto Supplies Balance Sheet December 31, 2015 Cash $ 40,000 Accounts Payable $ 130,000 Prepaid Insurance 80,000 Salaries and Wages Payable 50,000 Accounts Receivable 100,000 Mortgage Payable 150,000 Inventory 140,000 Total Liabilities 330,000 Land Held for Investment 180,000 Land 250,000 Buildings $200,000 Common Stock $400,000 Less Accumulated Retained Earnings 340,000 740,000 Depreciation (60,000) 140,000 Trademark 140,000 Total Assets $1,070,000 Total Liabilities and Stockholders' Equity $1,070,000 The total dollar amount of assets to be classified as current assets is

$360,000. $40,000 + $80,000 + $100,000 + $140,000 = $360,000

The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015: Accounts payable $ 18,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 15,000 Common stock 42,000 Dividends 14,000 Depreciation expense 12,000 Insurance expense 3,000 Note payable, due 6/30/16 70,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/15) 60,000 Salaries and wages expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What is the company's net income for the year ending December 31, 2015?

$42,000 $133,000 - $21,000 - $12,000 - $3,000 - $17,000 - $32,000 - $6,000 = $42,000

On May 1, 2015, Pinkley Company sells office furniture for $300,000 cash. The office furniture originally cost $750,000 when purchased on January 1, 2008. Depreciation is recorded by the straight-line method over 10 years with a salvage value of $75,000. What gain should be recognized on the sale?

$45,000 Solution: [($750,000 - $75,000) ¸ 10] × 7⅓ = $495,000; ($750,000 - $495,000) - $300,000 = $45,000

Jubilee Corp. purchased a new van for food deliveries on January 1, 2016. The van cost $75,000 with an estimated life of 5 years and $8,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the balance of the Accumulated Depreciation account at the end of 2017?

$48,000 Depreciation 2016 = ($75,000 - 0) × .40 = $30,000; Depreciation 2017 = ($75,000 - $30,000) × .40 = $18,000 ; Accumulated Depreciation at the end of 2017 = $18,000 + $30,000 = $48,000

Barsuk Company began the year with stockholders' equity of $108,000. During the year, Barsuk issued stock for $147,000, recorded expenses of $420,000, and paid dividends of $28,000. If Barsuk's ending stockholders' equity was $290,000, what was the company's revenue for the year?

$483,000. $108,000 + $147,000 + (X - $420,000) - $28,000 = $290,000; X = $483,000

Sargent Corporation bought equipment on January 1, 2015. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The depreciation expense using the straight-line method of depreciation is

$50,000. ($360,000 - $60,000) ÷ 6 = $50,000

LRRP Company had credit sales of $650,000. The beginning accounts receivable balance was $15,000 and the ending accounts receivable balance was $140,000. What were the cash collections from customers during the period?

$525,000 $650,000 - ($140,000 - $15,000) = $525,000

Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000. During the year, the business recorded $48,000 in catering revenues and $30,000 in expenses. Stahl issued stock of $9,000 and paid dividends of $15,000 during the year. The stockholders' equity at the end of the year was

$57,000. ($60,000 - $15,000) + ($48,000 - $30,000) + $9,000 - $15,000 = $57,000

Sharon Foods, Inc. reported the following transactions for September 2016. The business received $22,000 cash and issued common stock. It was credited to Common Stock. The business purchased office equipment for $9,000 for which $2,500 cash was paid and the balance was put on a note payable. Paid insurance expense of $1,500 cash. Paid the September utility bill for $900 cash. Paid $1,500 cash for September rent. The business had sales of $11,000 in September. Of these sales, 60% were cash sales, and the balance was credit sales. The business paid $8,000 cash for office furniture. What are the total liabilities at the end of September, 2016?

$6,500 Liability = Note Payable = 9000 - 2500 = 6500

Wesley Hospital installs a new parking lot. The paving cost $40,000 and the lights to illuminate the new parking area cost $25,000. Which of the following statements is true with respect to these additions?

$65,000 should be debited to Land Improvements. $40,000 + $25,000 = $65,000

Presto Company purchased equipment and these costs were incurred: Cash price $65,000 Sales taxes 3,600 Insurance during transit 640 Installation and testing 860 Total costs $70,100 Presto will record the acquisition cost of the equipment as

$70,100. $65,000 + $3,600 + $640 + $860 = $70,100

The following information is for Sunny Day Real Estate: Sunny Day Real Estate Balance Sheet December 31, 2015 Cash $ 25,000 Accounts Payable $ 60,000 Prepaid Insurance 30,000 Salaries and Wages Payable 15,000 Accounts Receivable 50,000 Mortgage Payable 85,000 Inventory 70,000 Total Liabilities 160,000 Land Held for Investment 85,000 Land 120,000 Buildings $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 370,000 Depreciation (20,000) 80,000 Trademark 70,000 Total Assets $530,000 Total Liabilities and Stockholders' Equity $530,000 The total dollar amount of liabilities to be classified as current liabilities is

$75,000. $60,000 + $15,000 = $75,000

Equipment with a cost of $400,000 has an estimated salvage value of $25,000 and an estimated life of 4 years or 15,000 hours. It is to be depreciated using the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?

$82,500 ($400,000 - $25,000) ÷ 15,000 = $25; $3,300 × $25 = $82,500

The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015: Accounts payable $ 18,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 15,000 Common stock 42,000 Dividends 14,000 Depreciation expense 12,000 Insurance expense 3,000 Note payable, due 6/30/16 70,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/15) 60,000 Salaries and wages expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What are total current liabilities at December 31, 2015?

$88,000 $18,000 + $70,000 = $88,000

In Jude Company, land decreased $150,000 because of a cash sale for $150,000, the equipment account increased $60,000 as a result of a cash purchase, and Bonds Payable increased $120,000 from issuance for cash at face value. The net cash provided by investing activities is

$90,000. $150,000 - $60,000 = $90,000

A company sells a plant asset which originally cost $360,000 for $120,000 on December 31, 2015. The Accumulated Depreciation account had a balance of $144,000 after the current year's depreciation of $36,000 had been recorded. The company should recognize a

$96,000 loss on disposal. $120,000 - ($360,000 - $144,000) = ($96,000)

These are selected account balances on December 31, 2015. Land (location of the office building) $100,000 Land (held for future use) 150,000 Office Building 700,000 Inventory 200,000 Equipment 450,000 Office Furniture 150,000 Accumulated Depreciation 425,000 What is the total amount of property, plant, and equipment that will appear on the balance sheet?

$975,000 $100,000 + $700,000 + $450,000 + $150,000 - $425,000 = $975,000

Jean's Vegetable Market had the following transactions during 2014: 1. Issued $50,000 of par value common stock for cash. 2. Repaid a 6 year note payable in the amount of $22,000. 3. Acquired land by issuing common stock of par value $100,000. 4. Declared and paid a cash dividend of $2,000. 5. Sold a long-term investment (cost $3,000) for cash of $8,000. 6. Acquired an investment in IBM stock for cash of $15,000. What is the net cash provided (used) by investing activities?

($7,000) $8,000 - $15,000 = ($7,000)

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the statement of cash flows?1. Declaration and payment of a cash dividend during the period. 2. Net income for the period.

1

Which of the following is classified as operating activities? Choose the best answer. 1) Interest received from bond investment 2) Dividends paid to stockholders 3) Interest paid to lenders 4) Dividends received

1, 3, and 4 Dividends paid to stockholders is cash outflows in financing activities

A plant asset was purchased on January 1 for $100,000 with an estimated salvage value of $20,000 at the end of its useful life. The current year's Depreciation Expense is $10,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $50,000. The remaining useful life of the plant asset is

3 years. ($100,000 - $20,000) ÷ $10,000 = 8; 8 - ($50,000 ÷ $10,000) = 3

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

40%. (1 ÷ 5) × 2 = .40

Which of the following statements is correct?

A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale

Jawbreaker Company paid $940 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable, $490. The correcting entry is

Accounts Receivable 490 Accounts Payable 940 Cash 1,430 $940 + $490 = $1,430

The basic accounting equation may be expressed as

All of these answers are correct. Assets = Liabilities + Stockholders' Equity Assets - Liabilities = Stockholders' Equity Liabilities = Assets - Stockholders' Equity

which of the following statements is not true?

An increase in accounts payable would be subtracted from net income using the indirect method TRUE Using the indirect method, patent amortization expense for the period is added to net income In developing the cash flows from operating activities, most companies in the U. S. use the indirect method In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is deducted from net income

Which of the following adjustments to convert net income to net cash provided by operating activities is incorrect? Add to Net Income Deduct from Net Income A. Accounts Receivable decrease increase B. Prepaid Expenses increase decrease C. Inventory decrease increase D. Accounts Payable increase decrease

B

which of the following statements is correct? A. Unearned revenues are revenue for services performed but not yet received in cash or recorded. B. A liability—revenue relationship exists with unearned revenue adjusting entries. C. An asset—expense relationship exists with accrued expense adjusting entries. D. Depreciation expense for a period is the original cost of an asset - accumulated depreciation.

B is correct

The accounting equation for Doug Corp. is as follows: Assets Liabilities Stockholders' Equity $90,000 = $50,000 + $40,000 If Doug Corp. purchases office equipment on account for $10,000, the accounting equation will change to Assets Liabilties Stockholders' Equity $90,000 = $60,000 + $30,000 $100,000 = $60,000 + $40,000 $100,000 = $50,000 + $50,000 $95,000 = $55,000 + $40,000

Choice #2 Explanation: Increase assets by $10,000 to $100,000 because the purchase of $10,000 worth of equipment (an asset) increases assets. Increase liabilities by $10,000 to $60,000 because Doug Corp. purchased the $10,000 of equipment on account which means Doug Corp. increases their Accounts Payable (liability account) by $10,000, which thus increases liabilities.

An accountant has debited an asset account for $1,200 and credited a liability account for $500. What can be done to complete the recording of the transaction?

Credit a different asset account for $700. $1,200 (debit) = $500 (credit) + X; X = $700 Credit

Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction?

Credit an asset account for $400. Supplies or Asset $1,000 Notes Payable or Liability $ 600 Cash or Asset $ 400

Which of the following statements is correct? A. The revenue recognition principle dictates that revenue should be recognized in the accounting records in the period that income taxes are paid. B. If an adjusting entry is not made for an accrued expense, net income will be understated. C. The adjusted trial balance is prepared after financial statements are prepared. D. If an adjusting entry is not made for an accrued revenue, stockholders' equity will be understated. E. The adjusted trial balance is prepared before all transactions have been journalized.

D is correct

Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Debit Depreciation Expense, $150; Credit Accumulated Depreciation, $150. $1,800 ÷ 12 = $150

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $18,500, and unexpired amounts per analysis of policies of $6,000?

Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500. $18,500 - $6,000 = $12,500

On July 1, Runner's Sports Store paid $14,000 to Corona Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is

Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500. $14,000 ÷ 4 = $3,500

Lake of Fire Company purchased supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1,900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

Debit Supplies Expense, $5,100; Credit Supplies, $5,100.

Dreamtime Laundry purchased $7,000 worth of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is

Debit Supplies Expense, $6,000; Credit Supplies, $6,000. $7,000 - $1,000 = $6,000

REM Real Estate received a check for $27,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $27,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31:

Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500. $27,000 ÷ 6 = $4,500

An accountant has debited an asset account for $1,300 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?

Debit a Stockholders' account for $800. $1,300 (debit) = $500 (credit) + X; X = $800 Credit, not Debit

Which of the following statements is not correct?

Double-declining-balance depreciation method is most frequently used deprecation method in businesses today TRUE The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is straight-line. The calculation of depreciation using the declining balance method ignores salvage value in determining the amount to which a constant rate is applied. Units-of-activity is an appropriate depreciation method to use when the productivity of the asset varies significantly from one period to another.

The following transactions took place for Xiu Xiu Company during the month of June: (a) Purchased equipment on account for $9,000. (b) Billed customers $5,000 for services performed. (c) Made payment of $2,300 on account for equipment purchased earlier in month. (d) Collected $2,900 on customer accounts for the services performed earlier in the month Based on the information given, which of the statements is correct regarding the ending balance at June 30?

Ending balance for account payable is $6,700

On August 13, 2015, Swell Maps Enterprises purchased equipment for $1,300 and supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format?

Equipment 1,300 Supplies 200 Accounts Payable 1,500

Which of the following statements is true about expenses?

Expenses decrease stockholders' equity, so an expense account's normal balance is a debit balance

Which of the following statements is not correct?

In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will appear as a subtraction from net incom TRUE An increase in Land would not be an adjustment to net income using the indirect method Using the indirect method, if equipment is sold at a gain, the amount of the gain is deducted in the operating activities section Depreciation expense would be added to net income using the indirect method

Which of the following statements is correct?

In preparing closing entries, each expense account will be credited.

Which of the following statements is correct?

Issuance of common stock issued for cash is classified as a financing activity on the statement of cash flows

A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered to be recognized?

November 30.

Stone Roses Candies paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $1,500 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

Salaries and Wages Expense 4,500 Salaries and Wages Payable 4,500

Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transactio?

The appointment of a new CPA firm to perform an audit.

which of the following statements is not correct?

The indirect and direct methods of preparing the statement of cash flows are identical except for the financing activities section TRUE The acquisition of land by issuing common stock is a noncash transaction which is not reported in the body of a statement of cash flows When equipment is sold for cash, the amount received is reflected as a cash inflow in the investing section Purchase of a long-term investment in bonds would not be classified as a financing activity

The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 After the revenue and expense accounts have been closed, the balance in Income Summary will be

a credit balance of $1,300. $7,000 - $5,700 = $1,300

The income statement for the year 2015 of Fugazi Co. contains the following information: Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) The entry to close Income Summary to Retained Earnings includes

a credit to Income Summary for $7,500.

The income statement for the year 2015 of Fugazi Co. contains the following information: Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) After the revenue and expense accounts have been closed, the balance in Income Summary will be

a debit balance of $7,500.

On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include

a debit to Supplies and a credit to Accounts Payable. Supplies $700 Accounts Payable $ 700

Each of the following is added to net income in computing net cash provided by operating activities except

a gain on sale of equipment.

Unearned revenue is classified as

a liability account.

If a plant asset is retired before it is fully depreciated and no salvage value is received,

a loss on disposal occurs

The balance in the Accumulated Depreciation account represents the

amount charged to expense since the acquisition of the plant asset.

If a resource has been consumed but a bill has not been received at the end of the accounting period, then

an adjusting entry should be made recognizing the expense.

The book value of an asset is equal to the

asset's cost less accumulated depreciation.

Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,

assets and stockholders' equity both increased by $3,100

If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, the failure to make an adjusting entry will cause

assets to be understated

If expenses are paid in cash, then

assets will decrease.

On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a

credit to Accounts Payable.

The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 The entry to close the revenue account includes a

credit to Income Summary for $7,000.

Liabilities of a company are owed to

creditors

The accounting equation for Quattro Enterprises is as follows: Assets Liabilities Stockholders' Equity $120,000 = $60,000 + $60,000 If Quattro purchases office equipment on account for $25,000, the accounting equation will change to Assets Liabilties Stockholders' Equity a. $120,000 = $60,000 + $60,000 b. $145,000 = $60,000 + $85,000 c. $145,000 = $72,500 + $72,500 d. $145,000 = $85,000 + $60,000

d. $120,000 + $25,000 = $145,000; $60,000 + $25,000 = $85,000

Income Summary has a credit balance of $17,000 in S. Sufjan Co. after closing revenues and expenses. The entry to close Income Summary is

debit Income Summary $17,000, credit Retained Earnings $17,000.

The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is to

debit Rent Expense, $7,000; credit Prepaid Rent, $7,000. $21,000 ÷ 3 = $7,000

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be

debit Unearned Service Revenue and credit Service Revenue.

Under accrual-basis accounting

events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

expensed when incurred

If the adjusting entry for depreciation is not made,

expenses will be understated.

A truck that cost $72,000 and on which $60,000 of accumulated depreciation has been recorded was disposed of for $18,000 cash. The entry to record this event would include a

gain of $6,000. $18,000 - ($72,000 - $60,000) = $6,000

A trial balance is a listing of

general ledger accounts and their balances

A credit to a liability account

indicates an increase in the amount owed to creditors.

Orr Corporation sold equipment for $30,000. The equipment had an original cost of $90,000 and accumulated depreciation of $45,000. As a result of the sale,

net income will decrease $15,000. $30,000 - ($90,000 - $45,000) = ($15,000)

Matador Company purchases $1,300 of equipment from Danger Mouse Inc. for cash. The effect on the components of the basic accounting equation of Matador Company is

no change in total assets.

An income statement

presents the revenues and expenses for a specific period of time.

Pare Company reported a net loss of $30,000 for the year ended December 31, 2014. During the year, accounts receivable decreased $15,000, merchandise inventory increased $25,000, accounts payable increased by $30,000, and depreciation expense of $20,000 was recorded. During 2014, operating activities

provided net cash of $10,000. ($30,000) + $15,000 + ($25,000) + $30,000 + $20,000 = $10,000

If accounts receivable have increased during the period,

revenues on an accrual basis are greater than revenues on a cash basis.

The following transactions took place for Xiu Xiu Company during the month of June: (a) Purchased equipment on account for $9,000. (b) Billed customers $5,000 for services performed (c) Made payment of $2,300 on account for equipment purchased earlier in the month. (d) Collected $2,900 on customer accounts for the services performed earlier in the month. Based on the information given, which of the statements is correct?

stockholders' equity increased by $5,000

If a corporation distributes cash to its stockholders, then

stockholders' equity will decrease.

The following transactions took place for Xiu Xiu Company during the month of June: (a) Purchased equipment on account for $9,000. (b) Billed customers $5,000 for services performed (c) Made payment of $2,300 on account for equipment purchased earlier in the month. (d) Collected $2,900 on customer accounts for the services performed earlier in the month. Based on the information given, which of the statements is correct about ending balance of cash at the end of June assuming the balance of cash at the beginning of June is a debited amount of $2,800?

the balance in cash account is a debit balance for $3,400 at the end of June

An error has occurred in the closing entry process if

the balance sheet accounts have zero balances.

Camper Van Company purchased equipment for $2,600 cash. As a result of this event,

total assets remained unchanged. Dr Equipment $2,600 Cr Cash $2,600

Adama Company reported a net loss of $6,000 for the year ended December 31, 2014. During the year, accounts receivable increased $15,000, merchandise inventory decreased $12,000, accounts payable decreased by $20,000, and depreciation expense of $12,000 was recorded. During 2014, operating activities

used net cash of $17,000. ($6,000) + ($15,000) + $12,000 +($20,000) + $12,000 = ($17,000)