# Accounting Final

## 97 terms

Managers

### The primary purpose(s) of financial accounting is (are) to:

Measure and record business transactions and communicate financial results to investors and creditors

### The accounting equation is defined as:

Assets = Liabilities + Stockholders' Equity

\$30,000

### Transactions of a company involving external sources of funding are referred to as:

Financing activities

Assets

### Net income can best be described as:

Revenues minus expenses

### Liabilities are best defined as:

Debts or obligations the company owes resulting from past transactions

### Which of the following best describes a revenue?

Amounts earned from providing goods and services to a customer

### Sooner Company has had a net income of \$8,000, \$5,000, \$12,000, and \$10,000 over the first four years of the company's existence. If the average annual amount of dividends paid over the last four years is \$3,000, what is the ending retained earnings balance?

Beginning Retained Earnings (\$0) + Net Income (\$8,000 + \$5,000 +\$12,000 + \$10,000) - Dividends (\$3,000 *4) = \$23,000

### On January 1, 2012 Gucci Brothers Inc. stated the year with a \$492,000 balance in Retained Earnings and a \$605,000 balance in Common Stock. During 2012, the company earned net income of \$92,000, paid a dividend of \$15,200 and issued more common stock for \$27,500. What is total stockholders' equity on December 31, 2012?

Common Stock (\$605,000 + \$27,500) + Retained Earnings (\$492,000 + \$92,000 - \$15,200) = \$1,201,300

Cash

### Retained earnings at the end of the year is calculated using:

Beginning retained earnings, net income, and dividends

### For each transaction recorded in an accounting system, the basic equation that must be maintained at all times is:

Assets = Liabilities + Stockholders' Equity.

### Receiving assets from customers before services are performed results in

Unearned Revenues

Accounts Payable

### Purchasing office supplies on account will

Increase assets and increase liabilities

### Assume that Sallisaw Sideboards, Inc. had a retained earnings balance of \$10,000 on April 1, and that the company had the following transactions during April. Issued common stock for cash, \$5,000. Provided services to customers on account, \$2,000. Provided services to customers in exchange for cash, \$900. Purchased equipment and paid cash, \$4,300. Paid April rent, \$800. Paid workers salaries for April, \$700. What was Sallisaw's retained earnings balance at the end of April?

Beginning retained earnings \$10,000 + Net income \$1,400 − Dividends \$0 = Ending retained earnings \$11,400.
Net Income = Revenue (\$2,000 + \$900) − Expenses (\$800 + \$700) = \$1,400.

### Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for \$15,000 cash. 2. Purchased land for \$12,000, signing a note payable for the full amount. 3. Purchased office equipment for \$1,200 cash. 4. Received cash of \$14,000 for services provided to customers during the month. 5. Purchased \$300 of office supplies on account. 6. Paid employees \$10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions?

Liabilities = (\$12,000 + \$300) = \$12,300.

\$34,000 increase

### Which of the accounts are decreased on the debit side and increased on the credit side?

Liabilities, stockholders' equity, and revenues.

### Expenses normally carry a _______ balance and are shown in the _________.

Debit; Income statement

### Which of the following accounts would normally have a credit balance?

Accounts Payable, Service Revenue, Common Stock.

### Which of the accounts are increased with a debit and decreased with a credit?

Assets, dividends, and expenses.

### Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are:

Debit Prepaid Rent, credit Cash.

### Clement Company paid an account payable related to a previous utility bill of \$1,000. This transaction should be recorded as follows on the payment date:

Debit Accounts Payable \$1,000, credit Cash \$1,000.

### Posting is the process of:

Transferring the debit and credit information from the journal to individual accounts in the general ledger.

### Posting transactions to the T-accounts involve:

Transferring debit and credit information from the journal to the accounts in the general ledger.

April.

May 15.

January 12

### The following events pertain to Bills Company: December 28, 2012 - Bills was contacted by a customer for possible accounting and tax services December 30, 2012 - Bills signed a formal agreement with the customer to provide accounting and tax services in 2013 January 4, 2013 - The customer paid \$1,000 in advance for the services to be provided by Bills Company. January 11, 2013 - Bills provided accounting and tax service to the customer Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

January 11, 2013.

### Which of the following would not typically be used as an adjusting entry? A) Prepaid Rent/ Rent Expense B) Cash/Unearned Revenue C) Interest Expense/Interest Payable D) Unearned Revenue/Service Revenue

B) Cash/Unearned Revenue

Always involve at least one income statement account and one balance sheet account

### At the beginning of December, Global Corporation had \$2,000 in supplies on hand. During the month, supplies purchased amounted to \$3,000, but by the end of the month the supplies balance was only \$800. What is the appropriate month-end adjusting entry?

Debit Supplies Expense \$4,200, credit Supplies \$4,200.

### On July 1, 2012, Charlie Co. paid \$18,000 to Rent-An-Office for rent covering 18 months from July 2012 through December 2013. What adjusting entry should Charlie Co. record on December 31, 2012?

Rent Expense 6,000/Prepaid Rent 6,000

### The following financial information is from Shovels Construction Company for 2012: Accounts Payable \$15,000 Buildings \$80,000 Cash \$10,500 Accounts Receivable \$9,500 Sales Tax Payable \$4,500 Retained Earnings \$47,500 Supplies \$40,000 Notes Payable *due 18months \$35,000 Interest Payable \$3,000 Common Stock \$35,000 What is the amount of current assets, assuming the accounts above reflect normal activity?

Cash (\$10,500), Accounts Receivable (\$9,500), and Supplies (\$40,000) are normally current assets. \$60,000

### The following financial information is from Bronco Company. All debt is due within one year unless stated otherwise. Retained Earnings \$52,000 Supplies \$37,000 Equipment \$72,000 Accounts Receivable \$8,600 Unearned Revenue \$6,000 Accounts Payable \$15,000 Common Stock \$25,000 Notes Payable *due 18months \$35,000 Interest Payable \$7,000 Cash \$22,400 What is the amount of current liabilities?

Unearned Revenue (\$6,000), Accounts Payable (\$15,000), and Interest Payable (\$7,000) are normally current liabilities. \$28,000

### The following table contains financial information for Trumpeter Inc. before closing entries: Cash \$12,000 Supplies \$4,500 Prepaid Rent \$2,000 Salary Expense \$4,500 Equipment \$65,000 Service Revenue \$30,000 Misc. Expenses \$20,000 Dividends \$3,000 Accounts Payable \$5,000 Common Stock \$68,000 Retained Earnings \$8,000 What is Trumpeter's net income?

Revenues (\$30,000) − Expenses (\$4,500 + \$20,000) = \$5,500.

### The primary purpose of closing entries is to:

pdate the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions.

### Which of the following is a possible closing entry?

Debit Service Revenue, credit Retained Earnings.

### Inventory records for Marvin Company revealed the following: March 1 Beg Inventory 1,000 \$7.20 March 10 Purchase 600 \$7.25 March 16 Purchase 800 \$7.30 March 23 Purchase 600 \$7.35 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be:

Ending inventory = 700 x \$7.20 = \$5,040.

### Inventory records for Marvin Company revealed the following: March 1 Beg Inventory 1,000 \$7.20 March 10 Purchase 600 \$7.25 March 16 Purchase 800 \$7.30 March 23 Purchase 600 \$7.35 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be:

Ending inventory = (100 x \$7.30) + (600 x \$7.35) = \$5,140.

### Inventory records for Marvin Company revealed the following: March 1 Beg Inventory 1,000 \$7.20 March 10 Purchase 600 \$7.25 March 16 Purchase 800 \$7.30 March 23 Purchase 600 \$7.35 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

Weighted-average cost = [(1,000 x \$7.20) + (600 x \$7.25) + (800 x \$7.30) + (600 x \$7.35)]/3,000 = \$7.2667. Ending inventory = 700 x \$7.2667 = \$5,087 (rounded).

### Inventory records for Marvin Company revealed the following: March 1 Beg Inventory 1,000 \$7.20 March 10 Purchase 600 \$7.25 March 16 Purchase 800 \$7.30 March 23 Purchase 600 \$7.35 Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming LIFO would be:

Cost of goods sold = (600 x \$7.35) + (800 x \$7.30) + (600 x \$7.25) + (300 x \$7.20) = \$16,760.

### Inventory records for Marvin Company revealed the following: March 1 Beg Inventory 1,000 \$7.20 March 10 Purchase 600 \$7.25 March 16 Purchase 800 \$7.30 March 23 Purchase 600 \$7.35 Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming FIFO would be:

Cost of goods sold = (1,000 x \$7.20) + (600 x \$7.25) + (700 x \$7.30) = \$16,660.

### Inventory records for Marvin Company revealed the following: March 1 Beg Inventory 1,000 \$7.20 March 10 Purchase 600 \$7.25 March 16 Purchase 800 \$7.30 March 23 Purchase 600 \$7.35 Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

Weighted-average cost = [(1,000 x \$7.20) + (600 x \$7.25) + (800 x \$7.30) + (600 x \$7.35)]/3,000 = \$7.2667. Cost of goods sold = 2,300 x \$7.2667 = \$16,713 (rounded).

FIFO

### Which of the following is true regarding LIFO and FIFO?

In a period of rising costs, LIFO results in lower net income than FIFO.

FIFO

### Merchandise sold FOB destination indicates that:

The seller holds title until the merchandise is received at the buyer's location.

### On May 1, Ace Bonding Company purchased inventory costing \$2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a perpetual inventory system?

Accounts Payable 2,000
Inventory 40/Cash 1,960
Purchase discount = \$2,000 × 2% = \$40.

### Given the information in the table below, what is the company's gross profit? Sales Revenue \$350,000 Accounts Receivable \$280,000 Ending Inventory \$230,000 Cost of Goods Sold \$180,000 Sales Returns \$50,000 Sales Discount \$20,000

Net sales = \$350,000 − \$50,000 − \$20,000 = \$280,000. Gross profit = \$280,000 − \$180,000 = \$100,000.

### Nu Company reported the following data for its first year of operations: Net Sales \$2,800 Cost of Goods Sold \$1,680 Operating Expenses \$880 Ending Inventory \$820 What is Nu's gross profit ratio?

[Net sales (\$2,800) − cost of goods sold (\$1,680)]/net sales (\$2,800) = 0.40.
40%

### Anthony Corporation reported the following amounts for the year: Net Sales \$296,000 Cost of goods sold \$138,000 Average Inventory \$50,000 Anthony's inventory turnover ratio is:

Inventory turnover ratio = cost of goods sold (\$138,000)/average inventory (\$50,000) = 2.76.

### On November 10 of the current year, Flores Mills provides services to a customer for \$8,000 with credit terms 2/10, n/30. The customer made the correct payment on November 17. How would Flores record the collection of cash on November 17?

Cash 7,840/Sales Discounts 160
Accounts Receivable 8,000
Sales discount = \$8,000 x 2% = 160.

### Eric Company has the following information: Total Revenues \$860,000 Sales Returns and Allowances \$50,000 Sales Discounts \$30,000 Ending Inventory \$100,000 What is the amount of net revenues for Eric Company?

Net revenues = \$860,000 − \$50,000 − \$30,000 = \$780,000.

Sales return.

### At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of \$311,000 and \$970 (credit) in Allowance for Uncollectible Accounts. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for the year should be:

(\$311,000 x 2%) − \$970 = \$5,250.

### Allowance for Uncollectible Accounts is:

A contra asset account.

### When \$2,500 of accounts receivable are determined to be uncollectible, which of the following should the company record to write off the accounts using the allowance method?

A debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable.

### When using an aging method for estimating uncollectible accounts:

Older accounts are considered less likely to be collected.

### On December 31, 2012, Andy Inc. has a debit balance of \$1,500 for the Allowance for Uncollectible Accounts before any year-end adjustment. Andy Inc. also has the following information for its accounts receivable and the estimated percentages of bad debts for different past-due amounts: 0-30 \$50,000 5% 31-60 \$20,000 10% 61-90 \$10,000 20% What is the amount of bad debt expense to be reported on Andy Inc.'s financial statements for 2012?

Estimated uncollectible = (\$50,000 × 5%) + (\$20,000 × 10%) + (\$10,000 × 20%) = \$6,500. Bad Debt Expense = \$6,500 + \$1,500 = \$8,000.

### The primary difference between a note receivable and an account receivable is:

A note receivable is evidenced by a written debt instrument

### On February 1, 2012, Sanger Corp. lends cash and accepts a \$2,000 note receivable that offers 10% interest and is due in six months. What would Sanger record on August 1, 2012, when the borrower pays Sanger the correct amount owed?

Cash 2,100
Interest Revenue 100/Notes Receivable 2,000
Interest revenue = \$2,000 x 10% x 6/12 = \$100

### On August 1, 2012, Turner Manufacturing lends cash and accepts a \$6,000 note receivable that offers 8% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2012?

Interest Receivable 200/Interest Revenue 200
Interest revenue = \$6,000 x 8% x 5/12 = \$200.

### Sandburg Veterinarian reports the following information for the year: Net Credit Sale \$120,000 Average Accounts Receivable \$20,000 Cash Collections on Credit Sales \$100,000 What is Sandburg's receivables turnover ratio?

Receivables turnover ratio = net credits sales (\$120,000)/average accounts receivable (\$20,000) = 6.0.

### Common examples of cash equivalents include all of the following except:

Accounts Receivable

### On May 31, Money Corporation's Cash account showed a balance of \$10,000 before the bank reconciliation was prepared. After examining the May bank statement and items included with it, the company's accountant found the following items: Checks outstanding \$2,250 Deposits Outstanding \$1,900 NSF Check 100 Service Fees 40 Error: Money Corp wrote a check for \$30 but recorded it incorrectly for \$300 What is the amount of cash that should be reported in the company's balance sheet as of May 31?

Cash balance = \$10,000 − \$100 − \$40 + \$270 = \$10,130.

### Cost of Goods Sold is:

An expense account

### Baker Fine Foods has beginning inventory for the year of \$12,000. During the year, Baker purchases inventory for \$150,000 and ends the year with \$20,000 of inventory. Baker will report cost of goods sold equal to:

Cost of goods sold = beginning inventory (\$12,000) + purchases (\$150,000) − ending inventory (\$20,000) = \$142,000.

### Outstanding common stock refers to the total number of shares:

Issued less treasury stock.

### Authorized common stock refers to the total number of shares:

That can be issued.

### Outstanding common stock is:

Stock in the hands of stockholders.

### The par value of shares issued is normally recorded in the:

Common Stock account.

### When a company issues 25,000 shares of \$1 par value common stock for \$10 per share, the journal entry for this issuance would include:

A credit to Additional Paid-in Capital for \$225,000.
Cash 250,000
Common Stock 25,000/Add. Paid-in Cap. 225,000

### Treasury Stock is normally reported as:

A reduction of total stockholders' equity.

Treasury Stock.

### Retained Earnings represent a company's:

Net income less dividends since the company first started.

### Journal entries to record cash dividends are made on the:

declaration date and payment date.

### The Common Stock account on a company's balance sheet is measured as:

The number of common shares issued x the stock's par value per share.

### Roberto Corporation was organized on January 1, 2012. The firm was authorized to issue 100,000 shares of \$5 par value common stock. During 2012, Roberto had the following transactions relating to stockholders' equity: Issued 10,000 shares of common stock at \$7 per share. Issued 20,000 shares of common stock at \$8 per share. Reported a net income of \$100,000. Paid dividends of \$50,000. Purchased 3,000 shares of treasury stock at \$10 (part of the 20,000 shares issued at \$8). What is total stockholders' equity at the end of 2012?

Issue of stock (10,000 x \$7) \$70,000
Issue of stock (20,000 x \$8) 160,000
Net Income 100,000
Dividends (50,000)
Treasury Stock (3,000 x \$10) (30,000)
Total = \$250,000

### The Statement of Cash Flows:

shows that the change in total cash from one year to the next is equal to the net operating, investing, and financing cash flows.

### The issuance of notes payable for borrowing is classified in the statement of cash flows as a(n):

Financing activity.

Financing.

Operating

### The indirect and direct methods:

are two allowable methods to present operating activities in the statement of cash flows.

### In the operating activities section of the statement of cash flows, we start with net income when using:

the indirect method.

### In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n):

Addition to net income in the operating activities section.

### In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported as a(n):

Addition to net income in the operating activities section.

### Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?

Subtract depreciation expense.

### Assume net income was \$100,000, depreciation expense was \$8,000, accounts receivable decreased by \$7,500, and accounts payable decreased by \$2,500. The amount of cash flows from operating activities is:

\$100,000 + \$8,000 + \$7,500 - \$2,500 = \$113,000.

### Which of the following is an example of a cash outflow from an investing activity?

Payment of cash for the purchase of land.

### Cash flows from investing activities do not include:

Proceeds from the issuance of common stock.

Financing

### Which of the following items is not reported in the operating section of the statement of cash flows using the direct method?

Depreciation expense.