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Exam

information and communication

A necessary element of internal control is

separation of the Purchasing Department and Accounting Department personnel

An example of a preventive control is

incurring

Under the voucher system, every transaction is recorded at the time of

a promissory note left for collection

A debit or credit memorandum describing entries in the depositor's bank account may be enclosed with the bank statement. An example of a credit memorandum is

book errors

Journal entries based on the bank reconciliation are required in the depositor's accounts for

debit Cash; credit Notes Receivable

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer. What entry is required in the depositor's accounts?

debit Accounts Receivable; credit Cash

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. What entry is required in the depositor's accounts?

Outstanding checks

Which of the following would be subtracted from the balance per bank on a bank reconciliation?
of the following would be subtracted from the balance per bank on a bank reconciliation?
a. Outstanding checks
b. Deposits in transit
c. Notes collected by the bank
d. Service charges

$1,775

Marcus Company developed the following reconciling information in preparing its September bank reconciliation:

Cash balance per bank, 9/30 $11,000
Note receivable collected by bank 6,000
Outstanding checks 9,000
Deposits-in-transit 4,500
Bank service charge 75
NSF 1,200

Using the above information, determine the cash balance per books (before adjustments) for the Marcus Company.

debit to Cash Short and Over for $1.50

A $100 petty cash fund contains $92 in petty cash receipts, and $6.50 in currency and coins. The journal entry to record the replenishment of the fund would include a

subtract both values from balance according to books

In the normal operation of business you receive a check from a customer and deposit it into your checking account. With your bank statement you are advised that this check for $450 is "NSF". The bank also informs you that due to the amount of activity on your business account the monthly service charge is $40.
During a bank reconciliation:

note receivable

The receivable that is usually evidenced by a formal instrument of credit is a(n)

contra asset, credit

The type of account and normal balance of Allowance for Doubtful Accounts is

Accounts Receivable

If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?

$780

. An estimate based on an analysis of receivables shows that $780 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. After preparing the adjusting entry at the end of the year, the balance in the Allowance for Doubtful Accounts is

Accounts Receivable

If the allowance method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?

estimate based on an analysis of receivables

The balance in Allowance for Doubtful Accounts must be carefully considered prior to the end of the year adjustment when applying which method?

debit to Bad Debts Expense for $1,800

An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a

$8,000

A 60-day, 10% note for $8,000, dated April 15, is received from a customer on account. The face value of the note is

debit Notes Receivable; credit Accounts Receivable

The journal entry to record a note received from a customer to apply on account is

Notes Receivable
debit 30000 Accounts Receivable—Dag Company credit 3,000

Pane Company receives a $3,000, 3-month, 6% promissory note from Dag Company in settlement of an open accounts receivable. What entry will Pane Company make upon receiving the note?

$10,030

A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. If the note is discounted on May 21 at 15%, the proceeds are

investment

Land acquired so it can be resold in the future is listed in the balance sheet as a(n)

$92,000

A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of

lessor

In a lease contract, the party who legally owns the asset is the

$30,000

Equipment with a cost of $160,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?

$11,000

Equipment with a cost of $80,000, an estimated residual value of $5,000, and an estimated life of 15 years was depreciated by the straight-line method for 5 years. Due to obsolescence, it was determined that the useful life should be shortened by 5 years and the residual value changed to zero. The depreciation expense for the current and future years is

Jan 2 Office Office Equipment debit 1,250.00
Accounts Payable credit 1,250.00

The proper journal entry to purchase a computer on account to be utilized within the business would be:

(depreciable cost / estimated output) * the actual yearly output

The calculation for annual depreciation using the units-of-production method is

$58,500

A fixed asset with a cost of $42,000 and accumulated depreciation of $38,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is

a loss of $1,500

The Brock Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Brock Company should record

Equipment Cr. $225,000

On December 31, Reach It Batting Cages Company has decided to discard one of its batting cages. The initial cost of the equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal.

patents

Which intangible assets are amortized over their useful life?

Still is the borrower and credits Accounts Payable

On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable on an overdue account payable to Still Co. Assume that the fiscal year of Acme Co. ends June 30. Which of the following relationships is true?
a. Acme is the creditor and credits Accounts Receivable
b. Still is the creditor and debits Accounts Receivable
c. Still is the borrower and credits Accounts Payable
d. Acme is the borrower and debits Accounts Payable

$40,600

The maturity value of a $40,000, 90-day, 6% note payable is

debit Cash; credit Notes Payable

The journal entry a company uses to record the payment of a discounted note is

Notes Payable debit 100,000
debit Interest Payable 6,750
credit Cash 106,750

Gray County Bank agrees to lend the Starkwood Building Company $100,000 on January 1. Starkwood Building Company signs a $100,000, 9%, 9-month note. What entry will Starkwood Building Company make to pay off the note and interest at maturity assuming that interest has been accrued to September

businesses find it difficult to develop and maintain good internal controls on the payroll system

The total payroll of a business is usually significant for all the reasons below except:
a. employees are sensitive to payroll errors and irregularities
b. payroll is subject to various federal and state regulations
c. businesses find it difficult to develop and maintain good internal controls on the payroll system
d. payroll and related payroll taxes have a significant effect on the net income of most businesses

$115.50

Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subject to social security tax at 6% is $100,000. All earnings are subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?

$10,875

Manning Company has the following information for the pay period of December 15 - 31, 20xx.
Gross payroll $15,000 Federal income tax withheld $3,000
Social security rate 6% Federal unemployment tax rate .8%
Medicare rate 1.5% State unemployment tax rate 5.4%
Salaries Payable would be recorded for

debit to Payroll Taxes Expense for $1,223

The following totals for the month of June were taken from the payroll register of ABC Company:

Salaries expense $13,000
Social security and Medicare Taxes withheld 975
Income Taxes withheld 2,600
Retirement Savings
500
Salaries subject to federal and state unemployment
taxes of 6.2 percent 4,000
The entry to record the accrual of employer's payroll taxes would include a

"clock card"

An aid in internal control over payrolls that indicates employee attendance is

debit Pension Expense; credit Unfunded Pension Liability

The journal entry a company uses to record pension rights that have not been funded for its salaried employees, at the end of the year is

$2,000

During June, CircuitSound sold 800 portable CD players for $50 each. Each CD player cost CircuitSound $25 to purchase and carried a one-year warranty. If 10 percent typically need to be replaced over the warranty period, what amount should CircuitSound debit Product Warranty Expense for in June?

ownership rights are easily transferred.

Under the corporate form of business organization
a. ownership rights are easily transferred.
b. a stockholder is personally liable for the debts of the corporation.
c. stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
d. stockholders wishing to sell their corporation shares must get the approval of other stockholders.

for profit or not-for-profit.

The two ways that a corporation can be classified by ownership are

Common Stock

The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees for organizing the corporation includes a credit to

Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.

Alliance Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:

Jan 2 Cash debit 6,250,000
Common Stock credit 5,000,000
credit
Paid-In Capital in Excess of Par - C/S 1,250,000

The journal entry to issue 1,000,000 shares of $5 par common stock for $6.25 per share on January 2nd would be:

market value in excess of par value per share

Which of the following is not a prerequisite to paying a cash dividend?
a. formal action by the board of directors
b. market value in excess of par value per share
c. sufficient cash
d. sufficient retained earnings

decrease, $250,000

A corporation purchases 10,000 shares of its own $10 par common stock for $25 per share, recording it at cost. What will be the effect on total stockholders' equity?

Retained earnings

changes are summarized in the retained earnings statement

d. b and c

When a corporation completes a 3-for-1 stock split
a. the ownership interest of current stockholders is decreased
b. the market price per share of the stock is decreased
c. the par value per share is decreased
d. b and c

b. reduce the amount of retained earnings available for dividend declarations.

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
a. decrease total assets and total stockholders' equity.
b. reduce the amount of retained earnings available for dividend declarations.
c. increase stockholders' equity and to decrease total liabilities.
d. decrease total retained earnings and increase total liabilities.

b. using the straight-line depreciation method for income statement reporting and MACRS depreciation for taxable income

55. Which of the following is an example of a temporary difference between taxable income and reported income?
a. using the installment method of determining revenue for taxable income and for income statement reporting
b. using the straight-line depreciation method for income statement reporting and MACRS depreciation for taxable income
c. using the straight-line depreciation method for some assets and MACRS depreciation for other assets
d. including tax-exempt municipal bond interest in net income and not including any tax-exempt municipal bond interest in taxable income

Matching

Income tax allocation procedures are justified by what concept?

Dec 31
debit
Income Tax Expense 500,000
credit
Income Tax Payable - Current 300,000
credit
Income Tax Payable - Non Current 200,000

ABC Company has incurred a period income tax expense of $500,000. The tax accountants inform the financial accountants that 60% of this value will be paid on March 15th, 2 1/2 months away, while the balance will be paid in 14 1/2 months. The journal entry to recognize these obligations is:

Gain from land condemned for public use

Which of the following items should be classified as an extraordinary item on a corporate income statement?
a. Gain on the retirement of a bond payable
b. Gain from land condemned for public use
c. Loss due to an discontinued operation
d. Selling treasury stock for more than the company paid for it

$6.40

For the year that just ended, a company reports net income of $3,200,000. There are 750,000 shares authorized, 600,000 shares issued, and 500,000 shares of common stock outstanding. What is the earnings per share?

$3.05

The Lange Company has a simple capital structure. The company has 20,000 shares of common stock outstanding. Net income for the year was $65,000. Lange declared and paid a preferred stock dividends of $4,000 during the year. Earnings per share for the year is:

d. meet current cash needs

Long-term investments are held for all of the listed reasons below except
a. their income
b. long-term gain potential
c. influence over another business entity
d. meet current cash needs

debit Investment in Williams Corporation; credit Income of Williams Corporation

Bean Corporation purchased 35% of the outstanding shares of common stock of Williams Corporation as a long-term investment. Subsequently, Williams Corporation reported net income and declared and paid cash dividends. What journal entry would Bean Corporation use to record its share of the earnings of Williams Corporation?

8.0

For 2008, net income is $240,000, shares outstanding are 80,000, and the market price is $24. What is the price-earnings ratio on common stock (round to one decimal point?)

the extent of an investor's influence over the operating and financial affairs of the investee.

For accounting purposes, the method used to account for investments in common stock is determined by

issuing common stock

A corporation would not be successfully trading on equity if it gathered funds by

a discount

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

$2,910,000

If $3,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is

$1,052,310

When the market rate of interest was 11%, Waverly Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was

at a discount.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

Cash debit 970,000
Discount on Bonds Payable
debit 30,000
credit
Bonds Payable 1,000,000

Bonds with a face amount $1,000,000, are sold at 97. The entry to record the issuance is

$5,500 loss

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 99, what is the amount of gain or loss on redemption?

long-term liabilities

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

$7,032

The Raymore Company issued 10-year bonds on January 1, 2007. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Raymore uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2007, Raymore should record interest expense (round to the nearest dollar) of

the cash flows from investing activities section

Cash paid to purchase long-term investments would be reported in the statement of cash flows in

financing activities

Cash paid for preferred stock dividends should be shown on the statement of cash flows under

collecting cash on loans made.

Investing activities include
a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.

$98,000

Accounts receivable arising from trade transactions amounted to $45,000 and $52,000 at the beginning and end of the year, respectively. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is

increase by $23,000

Equipment with an original cost of $50,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would

a decrease in inventory

Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?

$3,000

Mega Sales sells some used store fixtures. The acquisition cost of the fixtures is $12,500, the accumulated depreciation on these fixtures is $9,750 at the time of sale. The fixtures are sold for $3,000. The value of this transaction in the Investing section of the statement of cash flows

dividends and cash for fixed assets needed to maintain productivity

Free cash flow is cash from operations, less cash for

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