Accounting Final

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What group is not among the external users for whom financial statement are prepared?

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

Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders' equity, $25,000; dividends, $3,000; and net income, $10,000. What is the amount of Emmitt's liabilities?

$30,000

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

Financing activities

The accounting which represent the resources of the company are called:

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

Which of the following items would not appear in an income statement?

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

Amounts owed to suppliers for supplies purchased on account are defined as:

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.

If the liabilities of a company increased by $55,000 during a month and the stockholders' equity decreased by $21,000 during that same month, did assets increase or decrease and by how much?

$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.

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26.The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue?

April.

The following information pertains to Sooner Company:
May 1 Customer ordered an installation service to be done by Sooner Company on May 15
May 2 Customer paid cash for the installation job to be done on may 15
May 8 The Sooner Company purchased installation supplies on account for the job.
May 15 The installation job was started and completed.
May 20 Amount owed for supplies purchased on May 8 is paid
Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?

May 15.

Consider the following events for Betterment Incorporated:
January 1 Betterment purchase gasoline for $200 on account
January 7 Betterment advertises lawn mowing services for $100 per lawn
January 9 Betterment signs up 8 customers who pay a total of $800 cash
January 12 Betterment mows the lawns of the 8 customers and all gasoline purchased on January 1 is used
January 13 Betterment pays for the gasoline purchased on January 1
Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services?

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

Adjusting entries:

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).

In a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is:

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.

In a period of rising prices, which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet?

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.

Tom's Textiles shipped the wrong material to a customer, who refused to accept the order. This is an example of a:

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.

A company's adjustment for uncollectible accounts at year-end would include a:

Debit to Bad Debt Expense.

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.

The corporation's own stock that has been issued and then repurchased by the company is referred to as:

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.

Under what section of the Statement of Cash Flows would you classify dividends paid on common stock?

Financing.

The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows?

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.

Cash received from issuing common stock would be classified in which section of the Statement of Cash Flows?

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.

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