Acc101 Final Test

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Monthly and quarterly time periods are called:

Interim Periods

The time period assumption states that

The economic life of a business can be divided into artificial time periods

Adjustments would not be necessary if financial statements were prepared to reflect net income from

lifetime operations

The fiscal year of a business is usually determined by

The business

The revenue recognition principle dictates that revenue should be recognized in the accounting records

when it is earned

The expense recognition principle matches

Expenses with revenues

Ron's Hot Rod Shop follows the revenue recognition principle. Ron services a car on July 31st. The customer picks up the vehicle on August 1, and mails the payment to Ron on August 5. Ro receives the check in the mail on August 6. When should Ron show that the revenue was earned?

July 31st

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

Efforts should be matched with accomplishments

A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. Th flower shop follows GAAP ad applies the revenue recognition principle. When is the $1,000 considered to be earned?

November 30.

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

Adjusting entries are required

Every time financial Statements are prepared

An adjusting entry

Affects a balance sheet account and a income statement account

Expenses incurred but not yet reported are called

Accrued expenses

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

revenues to be understated

Adjusting entries can be classified as

accruals and deferrals

Prepaid expenses are

paid and recorded in an asset account before they are used or consumed

Accrued expenses are

incurred but not yet paid or recorded

Bee-In-The-Bonnet Company purchased office supplies costing $8,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $3,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

Debit Office Supplies Expense, $4,800; Credit Office Supplies $4,800

Accumulated Depreciation is

a contra asset account

Hercules Company purchased a computer for $3,600 on Dec 1. It is estimated that annual depreciation on the computer will be $720. If financial statements are to be prepared on December 31, the company should make the following adjusting entry

Debit Depreciation Expense $60; Credit Accumulated Depreciation $60

Action Real Estate received a check for $18k on Jul 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credit for the full $18k. Financial statements will be prepared on Jul 31. Action Real Estate should make the following adjusting entry on Jul 31

Debit Unearned Rent $3k; Credit Rental Revenue $3k

At Dec 31, 2011, before an year-end adjustments, Cable Car Company's Insurance Expenses account had a balance of $1,450 and its Prepaid Insurance had expired. The adjusted balance for insurance Expense for the year would be

$4,450

Speedy Clean laundry Purchased $6,500 worth of laundry supplies on Jun 2 and recorded the purchase as an asset. On Jun 30, an inventory of the laundry supplies indicated only $1,500 on hand. The adjusting entry that should be made by the company on Jun 30 is

Debit Laundry Supplies Expenses $5k; Credit Laundry Supplies $5k

Southwestern City College sol season tickets for the 2011 football season for $180k. A total of 8 games will be played during Sept, Oct and Nov. In Sept, three games were payed. The Adjusting journal entry at Sept 30

Will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $67,500

At Mar 31, 2011, Jupiter Corp. had supplies on hand of $500. During the month Jupiter purchased supplies of $1,200 and used of $1,500. he Mar 31 adjusting journal entry should include a

credit to the supplies account for $1,500

On Jan 1, 2011, P.T. Scope Company purchased a computer system for $3,240. The company expects to use the system for 3 years. The asset has no salvage value. The book value of the system at Dec 31, 2012 is

$1,080

On Jan 1, 2011, Grills and Grates Inc. purchased equipement for $45,000. The company is depreciating the equipment at the rate of $600 per month. At Jan 31, 2012, the balance in Accumulated Depreciation is

$6,500

Betty Carson has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Betty make?

Debit Accounts Receivable and credit Services Revenue

Joyce's Gift signs a three-month note payable to help finance increase in inventory for the Christmas Shopping season. The note is signed on Nov 1 in the amount of $50k with annual interest 12%. What is the adjusting entry to be made on Dec 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

Interest expense $1,000
Interest Payable $1,000

A company shows a balance in Salary Payable of $40k at the end of the month. The next payroll amounting to $$45k is to be paid in the following month. What will be then entry to record the payment salary?

Salaries Expense $5k
Salaries Payable $40
Cash $45k

Becki Jean Corporation issued a one-year, 6%, $200k note on Apr 30, 2011. Interest expense for the year ended Dec 31, 2011 was

$8k

Preparing a work sheet involves

five steps

The information for preparing a trial balance on a work sheet is obtained from

general ledger accounts

An adjusted trial balance

proves the equality of the debits and the credits of the ledger accounts

A work sheet is a multiple column form that facilitates the

preparation of financial statements

When using a work sheet, adjusting entries are journalizes

after the work sheet is completed and after financial statements have been prepared

If the total debits exceed total credits in the balance sheet columns o the work sheet, retained earnings

will increase because net income has occurred

Closing entries are made

in order to transfer net income (or loss) and dividend to retained earnings

After closing entries are posted, the balance in the Retained Earnings account in the ledger will be equal to

the amount of the Retained Earnings reported on the balance sheet

Which one of the following is an optional step in the accounting cycle of a business enterprise?

Prepare a work sheet

A post-closing trial balance is prepared

After closing entries have been journalized and posted

A post-closing trial balance should be prepared

After closing entries are posted to the ledger accounts

Which of the following is usually prepared only at the end of a company's annual accounting period?

Journalizing and posting closing entries

The step in the accounting cycle that is performed on a periodic basis (monthly, quarterly) is

Prepared a trial balance, prepare a adjusting entries, prepare financial statements

Cole Company paid weekly payroll on Jan 2 by debiting Wages Expense for $40k. The accountant preparing the payroll entry overlooked the fact that Wages Expense of $24k had been accrued at year end on Dec 31. The correcting entry is

Wages Payable $24k
Wages Expenses $24k

A lawyer collected $860 of legal fees in advance. He erroneously debited Cash for $680 and credit Accounts Receivable for $860. The correcting entry is

Cash $180
Accounts Receivable $680
Unearned Revenue $860

A credit memorandum is prepared when

goods that were sold on credit are returned

In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the period is credit to

Merchandise inventory

The credit terms offered by Neutron Enterprise are 2/10, n/30. Neutron sold goods on account to James Company on Jun 14 for $300. If James Company pays the bill on Jun 27, Neutron's journal entry to record the collection on account will include

A debit to cash for $300

Which of the following would not be classified as a contra account

Sales

The respective normal account balance of Sales, Sales Returns and Allowances, And Sales Discounts are

credit, debit, debit

In preparing closing entries for a merchandise, the Income Summary account will be credit for the balance of

sales

The gross profit rate is computed by dividing gross profit by

net sales

Baden Shoe Store has a beginning merchandise inventory of $15k. During the period, purchases were $70k; purchase return $2k; and freight-in $5k. A physical count of inventory at the end if the period revealed that $10k was still on hand. The Cost of goods available for sales are

$88,000

In a periodic inventory system, a return of defective merchandise by a customer is recorded by crediting

Purchase Returns and Allowances

Which of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system

Cash received on account with a discount

The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be

Accounts Payable
Purchase Return and Allowances

Under a periodic inventory system, acquisition of merchandise is debited to the

Purchases account

The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are

debit, credit, debit

Klugg Company made a purchase of merchandise on credit from Claude Corporation on Aug 3, for $4k, terms 2/10 n/45. On Aug 10, Klugg makes the appropriate payment to Claude. The entry on Aug 10 for Klugg Company is

Accounts payable $4k
Merchandise Inventory $80
Cash $3,920

Merchandise Inventory is

reported as a current asset on the balance sheet

The factor which determines whether or not goods should be included in a physical count of inventory is

legal title

A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure?

Segregation of duties

Which items should be included in Westcoe's inventory at Dec 31?

FOB destination / FOB shipping point

Under a consignment arrangement, the

consignor has ownership until goods are sold to a customer

Farley Company had beginning inventory of $15k Mar 1, 2006. During the month, the company made purchases of $40k. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March?

$37,700

A Company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be

$65

The LIFO inventory method assumes that the cost of the latest units purchased are

the first to be allocated to cost of goods sold

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Hardware Store

Which if the following is not a common cost flow assumption used in costing inventory?

Middle-in, First-Out

The cost of goods available for sale is allocated to the cost of goods sold and the

ending inventory

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is current cost is the

FIFO method

In periods of inflation, phantom or paper profits may be reported as a result using the

FIFO costing assumption

The accountant ad Kline Company is figuring out the difference in income taxes company will pay depending on the choice of wither FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $3,640. The LIFO method will result in income taxes of $3,290. What is the difference in tax that would be paid between the two methods?

$105

Which costing method cannot be used to determine the cost of inventory items before lower of cost or market is applied?

Specific identification, FIFO and LIFO can be used

The lower of cost or market basis of valuing inventories is an example of

conservatism

An error in the physical count of goods on hand at the end of a period resulted in a $10k overstatement of the ending inventory. The effect of this error in the current period is

Asset= Understated / Stockholders' equity=overstated

A company uses the periodic inventory method and the beginning inventory is overstated by $4k because the ending inventory in the previous period was overstated by $4k. The amounts reflected in the current end of the period balance sheet are

Asset= correct / Stockholders' equity=correct

Overstating ending inventory will overstate all of the following except

cost of goods sold

The relationship between current assets and liabilities is important in evaluating

liquidity

Income from operations is gross profit less

operating expenses

An enterprise which sells goods to consumers is known as a

retailer

Sales revenue less cost of goods sold is called

gross profit

In a periodic inventory system, the cost of goods sold is determined

at the end of the accounting period

A purchaser, dissatisfied with merchandise received, may return goods to seller for credit. From the standpoint of the seller, this transaction is known as a

sales return

Meyer Company. uses a perpetual inventory system. Meyer purchased inventory on account for $1k. The credit terms are 2/10, n/60. the purchase will be recorded with the following journal entry

debit Merchandise inventory $1k / credit Accounts payable $1k

Freight costs paid by seller on merchandise sold to customers will cause an increase

in operating expenses for the seller

Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs will be paid by the

buyer

Morton Company uses a perpetual inventory system. On Dec 1, 2006, the company purchased inventory on account for $9k. the credit terms are 2/10, n/30. If Morton pays the bill on Dec 29, 2006, what amount of discount will be taken?

$0

Sales revenues are usually considered earned when

goods have been transferred from the seller to the buyer

The Freight-in account

increased the cost of merchandise purchased

The conceptual framework includes all of the following except

statement presentation and analysis

Operating guidelines that are part of FASB's conceptual framework would best be described as

principles

All of the following are objectives of financial reporting except

maximize social welfare

Determining the objectives of financial reporting requires answer to each of the following except

how should financial information be recorded in the accounting records

An objective of financial reporting is to provide information that is mainly useful to

investors and creditors

Accounting information is relevant if it

has either predictive or feedback value

An overriding criterion in evaluating the accounting information to be presented is

decision usefulness

Which of the following is not an element of financial statements?

Cash flow

Qualitative characteristics associated with relevant accounting information are

predictive value, feedback value, and timeliness

Reliability means that

the information is a faithful representation of what it purports to be

Te assumption that states that the activities of each company be kept separate from the activities of its owners and all other companies is the

economic entity assumption

The economic entity assumption states that

economic events can be identified with a particular entity

The going concern assumption assumes that the business

will continue in operation long enough to carry out its existing objectives and commitments

It is assumed that the activities o Daimler Chrysler Corporation can be distinguished from those of General Motors because of the

economic entity assumption

The basic principle of accounting include each of the following except the

going concern principle

The revenue recognition principle

requires that revenue be recognize in the accounting period when it is earned

The principle that dictates that expense be matched with revenues in the period in which efforts are made to generate revenues is the

matching principle

In a merchandising enterprise, revenue should be recognized

at the point of sale

The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is

earned

All of the following costs are operating expenses except

loss on the sale of plants assets

To determine the materiality of an account, an accountant would compare it with any of the following except

total employees

A common application of the conservatism constraint is the use of the

Lower of cost or market method for inventories

A classified income statements typically includes all of the following except

capital investments

On the balance sheet of a proprietorship, invested capital is referred to as

owner's equity

Zendejas Company purchased a ruler for $2.00. The ruler is expected to last for ten years. Tony, the accountant, expensed the cost of the ruler in the year of the purchase. Which constraint has Tony taken into the account when making his accounting decision?

Materiality

Conservatism in accounting means to

choose the method that will be least likely to overstate assets and income

Multinational corporations

are firms that conduct their operations in more than one country through subsidiaries divisions, or branches in foreign countries

The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is

earned

All of the following costs are operating expenses except

loss on the sale of plant assets

The cost principle has been criticized for being

irrelevant

The full disclosure principle requires that

circumstances and events that make a difference to financial statements users should be disclosed in the financial statements

The matching principle states that

expenses should be matched against the revenues they help generate

The practice of "letting the expense follow the revenue" is referred to as the

matching principle

Overstating ending inventory will overstate all of the following except

cost of goods sold

The following information was available for Hover Company at Dec 31, 2011; beginning inventory $110k; ending inventory $70k; cost of goods sold $660k; and sales $900k. Hoover's days in inventory in 2011 was

50.0 days

Which one of the following is primarily interested in the liquidity of a company?

Short-term creditors

A technique for evaluating financial statements that express the relationship among selected items of financial statement data is

ratio analysis

Horizontal analysis is also called

trend analysis

Long-term creditors are usually most interested in evaluating

profitability and solvency

Assume the following sales data for a company
2013 $1.2mil / 2012 $960k / 2011 $840k / 2010 $600k
If 2010 is the base year, what is the percentage increase in sales from 2010 to 2011?

60%

Comparative balance sheets are usually prepared for

two years

Assume the following sales data for a company
2012 - $945k
2011 - $845k
2010 - $650k
If 2010 is the base year, what is the percentage increase in sales from 2010 to 2011?

30%

Vertical analysis is also called

common size analysis

Each of the following is a liquidity ration except the

debt to total assets ratio

The current ration is

used to evaluate a company's liquidity and short-term debt paying ability

The acid-test (quick) ratio

relates cash, short-term investments, and net receivables to current liabilities

Waters Department Store had net credit ales of $16mil and cost of goods sold of $12mil for the year. The average inventory for the year amounted to $2mil. inventory turnover for the year is

6 times

Walker Clothing Store has a balance in the Accounts Receivable account of $390k at the beginning of the year and a balance of $410k at the end of the year. Net credit sales during the year amounted $2mil. The average collection period of the receivables in terms of days was

73 days

Parr Hardware Store had net credit sales of $6.5mil and cost of goods sold of $5mil for the year. The Accounts Receivable balances at the beginning and end of the year were $600k and $700k, respectively. The receivables turnover was

10 times

Water Departments Store had a net credit sales of $16mil and a cost of goods sold of $12k for the year. the average inventory for the year amounted to $2mil. The average number of days in inventory during the year was

61 days

The current assets of Kile Company are $150k. The current liability are $100k. The current ratio expressed as a proportion is

1.5:1

Baden Company had $375k of current assets and $150k of current liabilities before borrowing $75k from the bank with 3-month note payable. What effect did the borrowing transaction have on the amount of Baden Company's working capital?

No effect

A company has an average inventory on hand of $40k and the days in inventory is 73 days. What is the cost of goods sold?

$200k

Which of the following is not a profitability ratio?

Times interest earned

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