MC #2

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The accounting equation can be stated as:

D. A-L-OE = 0.

Examples of external transactions include all of the following except:

C. Depreciating equipment.

Examples of internal transactions include all of the following except:

D. Paying wages to company employees

XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:
A. Debit to investments.

C. Credit to capital stock.

Incurring an expense for advertising on account would be recorded by:

C. Debiting an expense.

A sale on account would be recorded by:

D. Debiting assets

Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:

A. Debit to investments.

Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

C. Debit to note receivable.

Somerset Leasing received $12,000 for 24 months rent in advance. How should Somerset record this transaction?

B. Option B (Dr: pre pd rent/ Cr: Rent exp)

Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620, and sold for $960 on account?

B. Option B (Dr: A/R 960/ Cr: Sales Rev 960

Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase?

A. Option A (Inventory/ COGS--> 2,000)

A. Option A

D. Bad debt expense.

An example of a contra account is:

D. Accumulated depreciation.

Making insurance payments in advance is an example of:

D. A prepaid expense transaction.

Recording revenue earned from a customer, but not yet collected, is an example of:

D. An accrued receivable transaction.

When a magazine sells subscriptions to customers, it is an example of:

D. An unearned revenue transaction.

On December 31, 2011, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2011, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2011 would be:

D. $2,100.

Adjusting entries are primarily needed for:

B. Accrual accounting.

Prepayments occur when:

A. Cash flow precedes expense recognition.

Accruals occur when cash flows

B. Occur after revenue or expense recognition.

On December 31, 2011, the end of Larry's Used Cars first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2011 balance sheet will be valued at:
A. $53,600.

C. $52,400.

Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?

B. $1,800,000.

Which of the following would not be an adjusting entry?

B. Option B (Cash/ Unearned Rev)

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

A. A debit to a liability.

Which of the following accounts has a credit balance?

B. Accrued income taxes payable.

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

B. (S)he usually debits an expense account.

When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:

B. Supplies.

The adjusting entry required to record accrued expenses includes:

D. A credit to liability.

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?

C. $260,000.

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2011, and charged the $4,200 premium to Insurance expense. At its December 31, 2011, year-end, Yummy Foods would record which of the following adjusting entries?

D. Option D (pre pd 3325/ ins exp 3325)

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June?

D. Option D (salaries exp 22,400/ sal payable 22,400)

On September 1, 2011, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to unearned subscriptions revenue. What would be the required adjusting entry at December 31, 2011?

B. Option B (unearned rev 16,200/ rev 16,200)

Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2011, with principal and interest due on October 31, 2012. The company's fiscal year ends June 30, 2011. What adjusting entry would the company record on June 30, 2011?

C. Option C (int exp 120/ int payable 120)

On September 15, 2011, Oliver's Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry would the company record on December 31, 2011?

A. Option A (int. recievable/ int rev)

In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What would be the balance in income tax payable at the end of the year?

C. $10,000 credit.

Eve's Apples opened business on January 1, 2011, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's prepaid insurance as of December 31, 2011?

B. $18,000.

Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the unearned premiums account increased from $6 million to $8 million dollars during the year. What was Fink's revenue from earned insurance premiums for the current year?

B. $16,000,000.

On November 1, 2011, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2011?

C. $450,000.

A future economic benefit owned or controlled by an entity is:

B. An asset.

Cost of goods sold is:

C. An expense account.

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

C. Plus net income minus dividends.

In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?

C. $300,000.

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave purchased during the year?

C. $2,200,000.

Permanent accounts would not include:

A. Interest expense.

Permanent accounts would not include:

A. Cost of goods sold.

The purpose of closing entries is to transfer:

B. Balances in temporary accounts to a permanent account.

Temporary accounts would not include:

A. Salaries payable.

When converting an income statement from a cash basis to an accrual basis, expenses:

D. May exceed or be less than cash payments to suppliers.

When the amount of revenue collected in advance decreases during an accounting period:

A. Accrual-basis revenues exceed cash collections from customers.

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

B. An adjustment for bad debts increases the net income.

Molly's Auto Detailers maintains its records on the cash basis. During 2011, Molly's collected $72,000 from customers and paid $21,000 in expenses. Depreciation expense of $5,000 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,000, prepaid expenses decreased $2,000, and accrued liabilities decreased $1,000. Molly's accrual basis net income would be:

C. $49,000.

Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual basis net income would be:

D. $29,000.

The Hamada Company sales for 2011 totaled $150,000 and purchases totaled $95,000. Selected January 1, 2011, balances were: accounts receivable, $18,000; inventory, $14,000; and accounts payable, $12,000. December 31, 2011, balances were: accounts receivable, $16,000; inventory, $15,000; and accounts payable, $13,000. Net cash flows from these activities were:
A. $45,000.

C. $58,000.

When the amount of interest receivable decreases during an accounting period:

C. Accrual-basis interest revenues are less than cash collections from borrowers.

When converting an income statement from a cash basis to an accrual basis, cash received for services:
A. Exceed service

B. May exceed or be less than service revenue.

Compared to the accrual basis of accounting, the cash basis of accounting produces a higher amount of income by the net decrease during the accounting period of

A. Option A (A/R: yes Accrued Liab: No)

On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting?

C. Option C (cash: 6,400/ Accrual: 3,400)

When Castle Corporation pays insurance premiums, the transaction is recorded as a debit to prepaid insurance. Additional information for the year ended December 31 is as follows:
-Pre paid insurance Jan 1 : 52,500
-Insurance expense recognized during the year: 218,750
-PrePaid Insurance at Dec 31: 61,250
What was the total amount cash paid by Castle for insurance premiums during the year?

D. $227,500

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