The Accounting Standards Codification was developed by:
The financial accounting standards board.
The basic purpose of bookkeeping is to:
Record the financial transactions of an economic entity.
Which of the followin
...
The Accounting Standards Codification was developed by:
The financial accounting standards board.
The basic purpose of bookkeeping is to:
Record the financial transactions of an economic entity.
Which of the following has the least impact upon the integrity of financial statements
issued by publicly owned corporations?
Audits of the financial statements by the Internal Revenue Service
In 2012 the SEC issued an extensive report regarding the use of IFRS by U.S. public
companies and listed which of the following as a major obstacle to adopting IASB
standards?
IASB's dependence on funding from the major accounting firms.
The body created by the Sarbanes Oxley Act and charged with oversight of the
accounting profession is the:
Public Company Accounting Oversight Board.
The basic purpose of audited financial statements is to:
Provide users of the financial statements with assurance that the statements
are verifiable and are presented in conformity with generally accepted
accounting principles
The auditor's report on the published financial statements of a large corporation
should be viewed as:
The opinion of independent experts as to the overall fairness of the statements.
Information is cost effective when:
The value of the information exceeds the cost of producing it.
The FASB takes on a responsibility to do the following, except:
Judge disputes between management and the CPA.
Generally accepted accounting principles are the "ground rules" used in the
preparation of:
Financial statements
Financial statements are prepared:
In either monetary of nonmonetary terms, depending upon the need of the
decision maker.
Which of the following does not describe accounting?
It is an end rather than a means to an end.
Which of the following is not a user of internal accounting information:
Creditor
Of the following objectives of financial reporting, which is the most specific?
Provide information about economic resources, claims to resources, and
changes in resources and claims.
The objectives of an accounting system include all of the following, except:
Dictate the specific types of business transactions that the enterprise may
engage in.
The total liabilities of Hogan's Company on the balance sheet are $270,000; this
amount is equal to three-fourths of the total assets. What is the amount of owners'
equity?
$90,000.
¾ Assets = $270,000
Assets = $360,000; Owners' Equity = ($360,000) Assets - ($270,000) Liabilities =
$90,000
Which of the following best defines an asset?
An economic resource owned by a business and expected to benefit future
operations.
Which of the following is the primary objective of an income statement?
Providing users outside the business organization with information about the
company's financial position and operating results.
The owner of Westhampton Fish Eatery purchased a new car for his daughter who is
away at college at a cost of $43,000 and reported this amount as Delivery Vehicle in
the restaurant's balance sheet. The reporting of this item in this manner violated the:
Business entity concept.
Which of the following is correct when a corporation uses cash to pay for an expense?
Total assets will decrease
Which business organization is recognized as a separate legal entity under the law?
Corporation.
If total assets equal $345,000 and total owners' equity equal $120,000, then total
liabilities must equal:
$225,000. ($345,000 - $120,000 = $225,000)
Which of the following activities is not a category into which cash flows are classified?
Marketing activities.
Blue Wholesale Shirt Co. sold shirts to Pink Retail Shoppe. The owner of Pink Retail
said she would pay Blue at a later date, which Blue Wholesale agreed to. Blue
Wholesale Shirt Co. is considered to be a:
creditor.
If $9,600 cash and a $31,000 note payable are given in exchange for some office
machines to be used in a business:
Total assets are increased.
A payment of a business debt not including interest:
Decreases total assets
An expense is best defined as:
Past, present, or future payments of cash required to generate revenues.
Decreases in owners' equity are caused by:
Distributions of assets to the owners and unprofitable operations
Each year, the accountant for Southern Real Estate Company adjusts the recorded
value of each asset to its market value. Using these market value figures on the
balance sheet violates:
The cost principle
If total assets equal $270,000 and total liabilities equal $202,500, the total owners'
equity must equal:
$67,500. ($270,000 - $202,500 = $67,500)
At December 31, 2014, the accounting records of Braun Corporation contain the following items:
Accounts Payable $ 20,500 Accounts Receivable $ 49,000
Land $ 249,000 Cash ?
Capital Stock ? Equipment $ 129,000
Building $ 189,000 Notes Payable $ 199,000
Retained Earnings $ 169,000
If Capital Stock is $269,000, what is the December 31, 2014 cash balance?
$41,500 (
A/P ($20,500) + N/P ($199,000) + Capital Stock ($269,000) + R.E. ($169,000) = $657,500
Cash (?) + A/R ($49,000) + Land ($249,000) + Building ($189,000) + Equipment ($129,000)
= $657,500
Cash = $41,500)
If Capital Stock is $329,000, total assets of Braun Corporation at December 31, 2014, amount to:
$717,500. (A/P ($20,500) + N/P ($199,000) + Capital Stock ($329,000) + R.E. ($169,000)
$717,500 Total Assets = $717,500)
If Cash at December 31, 2014, is $95,000, Capital Stock is:
$322,500. (
Cash ($95,000) + A/R ($49,000) + Land ($249,000) + Building ($189,000) + Equipment
($129,000) = $711,000
A/P ($20,500) + N/P ($199,000) + Capital Stock (?) + R.E. ($169,000) = $711,000
Capital Stock = $322,500)
If Cash at December 31, 2014, is $35,000, total owners' equity is:
$431,500. (
Cash ($35,000) + A/R ($49,000) + Land ($249,000) + Building ($189,000) + Equipment
($129,000) = $651,000
A/P ($20,500) + N/P ($199,000) + Capital Stock (?) + R.E. ($169,000) = $651,000
Capital Stock = ($262,500) + R. E. ($169,000) = $431,500
Total Owners' Equity = $431,500)
If Cash at December 31, 2014, is $75,000, total assets amount to:
$691,000. (Cash ($75,000) + A/R ($49,000) + Land ($249,000) + Building
($189,000) + Equipment ($129,000) = $691,000 Total Assets = $691,000)
A journal entry to record revenue could include each of the following, except:
A credit to the Capital Stock account.
The purchase of office equipment at a cost of $7,600 with an immediate payment of
$4,200 and agreement to pay the balance within 60 days is recorded by:
A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of
$3,400 to Accounts Payable.
The purchase of equipment on credit is recorded by a:
Debit to Equipment and a credit to Accounts Payable.
A trial balance consists of:
A two-column schedule listing names and balances of all ledger accounts
The agreement of the debit and credit totals of the trial balance gives assurance that:
The total debits equal the total credits.
Ben Dryden, president of Jet Glass, Inc, noticed a $8,000 debit to Accounts Payable in
the company's general ledger. This debit could correspond to:
A payment of $8,000 to a supplier to settle a balance due.
The price of the goods sold or services rendered during a given accounting period is
called:
Revenue.
Master Equipment has a $17,400 liability to Arrow Paint Co. When Master Equipment
makes a partial payment of $7,600 on this liability, which of following occurs?
The Accounts Payable account is debited $7,600.
Collection of an accounts receivable:
Does not change the total assets of a company.
Which of the following would not appear on an income statement?
Dividends.
The rules of debit and credit may be summarized as follows:
Asset accounts are increased by debits, whereas, liabilities and owners' equity
are increased by credits.
In accounting, the terms debit and credit indicate, respectively:
Left and right.
The reason that both expenses and dividends are recorded by debit entries is that:
Both expenses and dividends reduce owners' equity
If a company purchases equipment for cash:
Total assets and owners' equity will remain unchanged.
If the trial balance has a smaller debit balance than credit balance, it signifies:
An error has been made.
Land is purchased by making a cash down payment of $40,000 and signing a note
payable for the balance of $130,000. The journal entry to record this transaction in
the accounting records of the purchaser includes:
A debit to Land for $170,000.
The principle that states revenue should be recognized at the time goods are sold or
services rendered is called:
Revenue realization.
The essential point of a double-entry system of accounting is that every transaction:
Affects two or more ledger accounts and is recorded by an equal dollar amount
of debits and credits.
Double-entry accounting is characterized by which of the following?
The total dollar amount of debit entries posted to the general ledger is equal to
the dollar amount of the credit entries.
Posting is the process of:
Transferring debit and credit entries from the journal into the appropriate
ledger accounts.
Green Systems sold and delivered modems to Blue Computers for $660,000 to be paid
by Blue in three equal installments over the next three months. The journal entry
made by Blue Computers to record the last of the three installment payments will
include:
A debit of $220,000 to Accounts Payable.
The collection of an account receivable is recorded by a debit to Cash and a credit to
Accounts Payable. If this error is not corrected:
Total liabilities are overstated.
At the end of October, Flagship Marina received a bill for fuel used in October.
Payment is not due until November 30. This transaction:
Should be recorded as an expense of October, regardless of the payment date.
The statement "This business produced net income of $520,000" is unclear because it
failed to specify:
The time period.
In February of each year, the Carlton Hotel holds a very popular wine tasting event.
Tickets must be ordered and paid for in advance, and are typically sold out by
November of the preceding year. The realization principle indicates that the revenue
from these ticket sales should be recognized in the period in which the:
Wine tasting event is held.
The following transactions occurred during March, the first month of operations for Quality
Galleries, Inc.
* Capital stock was issued in exchange for $369,000 cash.
* Purchased $198,000 of equipment by making a $69,000 cash down payment and signing a
note payable for the balance.
* Made a $39,500 cash payment on the note payable from the purchase of equipment.
* Sold a piece of equipment for cash of $27,000. The equipment was sold at cost, so there is no
gain or loss on the sale.
What is the balance in the Cash account at the end of March?
$287,500.
$369,000 − $69,000 − $39,500 + $27,000 = $287,500
What are total assets of Quality Galleries at the end of March?
$458,500.
$287,500 + $198,000 − $27,000 = $458,500
What is the balance in the Note Payable account at the end of March?
$89,500.
$129,000 − $39,500 = $89,500
What is the total owners' equity at the end of March?
$369,000.
Total owners' equity = $369,000 (capital stock issued)
Depreciation expense is:
Only an estimate.
No adjusting entry should consist of:
A debit to an expense and a credit to revenue.
Which of the following is not considered an end-of-period adjusting entry?
An entry to record repayment of a bank loan and to recognize related interest
expense.
Tuna Co. purchased a building in 2015 for $650,000 and debited an asset called
"Buildings" for the entire amount. The company never depreciated the building
although it had a useful life of 15 years. At the end of 2015, this action will cause:
Net income to be overstated.
If an asset was purchased on January 1, 2012 for $140,000 with an estimated life of 5
years, what is the accumulated depreciation at December 31, 2015?
$112,000.
$140,000/5 = $28,000 × 4 = $112,000
Adjusting entries are needed:
Whenever transactions affect the revenue or expenses of more than one
accounting period.
An adjusting entry to convert an asset to expense consists of:
A debit to an expense and a credit to an asset account.
The normal balance of the Accumulated Depreciation account is:
A credit balance.
Interest that has accrued during the accounting period on a note payable requires an
adjusting entry consisting of:
A debit to Interest Expense and a credit to Interest Payable.
Colonial Systems prepares monthly financial statements. Colonial would record a
prepaid expense in each of the following situations except:
A tenant paid Colonial Systems three months' rent in advance.
Which of the following situations does not require Empire Company to record an
adjusting entry at the end of January?
At the end of January, Empire Company pays the custodian for January office
cleaning services.
The accrual of interest on a note payable will:
Increase total liabilities.
Before any month-end adjustments are made, the net income of Bennett Company is
$76,000. The following adjustments are necessary: office supplies used, $3,160;
services performed for clients but not yet recorded or collected, $3,640; interest
accrued on note payable to bank, $3,040. After adjusting entries are made for the
items listed above, Bennett Company's net income will be:
$73,440
$76,000 - $3,160 + $3,640 - $3,040 = $73,440
Which of the following accounting principles is concerned with offsetting revenue
with the expenses incurred in producing that revenue?
Matching
An example of a contra-asset account is:
Accumulated Depreciation.
On the adjusted trial balance, retained earnings is:
Stated at the period-beginning amount.
Accumulated depreciation is:
The depreciation expense recorded on an asset to date.
Which of the following statements concerning materiality is true?
Immaterial items should be handled in the most expedient manner, even if
resulting financial statements are not completely precise.
Adjusting entries
Are needed whenever revenue transactions affect more than one period.
Before any month-end adjustments are made, the net income of Russell Company is
$38,000. However, the following adjustments are necessary: office supplies used,
$3,160; services performed for clients but not yet recorded or collected, $3,040;
interest accrued on a note payable to bank, $3,640. After adjusting entries are made
for the items listed above, Russell Company's net income would be:
$34,240
$38,000 - $3,160 + $3,040 - $3,640 = $34,240
Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per
book. Each book contained a certain number of coupons for video rentals. During the
current period 500 books were sold for $20,000, and this amount was credited to
Unearned Rental Revenue. At the end of the period, it was determined that $15,000
worth of coupons had been used by customers to rent videos. The appropriate
adjusting entry at the end of the period would be:
Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000
Which of the following is not considered a basic type of adjusting entry?
An entry to convert an asset to a liability.
Unearned revenue appears:
As a liability on the balance sheet.
Hoffman, Inc. adjusts its books each month but closes its books at the end of the year. The trial
balance at March 31 before adjustments is as follows:
Debit Credit
Cash $ 11,040
Accounts Receivable 9,740
Supplies 1,420
Prepaid Insurance 3,040
Equipment 25,800
Accumulated Depreciation: Equipment $ 10,320
Unearned Service Revenue 7,100
Capital Stock 5,800
Retained Earnings 24,000
Dividends 1,680
Service Revenue Earned 16,310
Salaries Expense 8,400
Utilities Expense 510
Rent Expense 1,900
$ 63,530 $ 63,530
According to service contracts, $4,930 of the Unearned Service Revenue has been earned in
March. The amount of Service Revenue Earned to be reported in the March income statement is:
$21,240.
$16,310 + $4,930 = $21,240
On March 1, Hoffman paid in advance for four months' insurance. The necessary adjusting entry
at March 31 includes which of the following?
A credit to Prepaid Insurance for $760.
At March 31, the amount of supplies on hand is $580. What amount is reported in the March
income statement for supplies expense?
$840.
$1,420 – $580 = $840
The equipment had an estimated useful life of five years. Compute the book value of the
equipment at March 31, after the proper March adjustment is recorded.
$15,050.
$25,800/60 = $430; $10,320 + $430 = $10,750; $25,800 – $10,750 = $15,050
Employees are owed $870 for services since the last payday in March, to be paid the first week in
April. The amount to be reported in the March income statement for salaries expense is:
$9,270.
$8,400 + $870 = $9,270
Gordy's Corp. has seven employees. Each earns $860 per week for a five day work
week ending on Friday. This month, the last day of the month falls on a Thursday. The
company should make an adjusting entry:
Debiting Wage Expense for $4,816 and crediting Wages Payable for $4,816.
$860 × 4/5 × 7 = $4,816
Dolphin Co. received $2,100 in fees during 2014, 1/3 which will be earned in 2015, the rest was
earned when the amount was received. The company should report which of the following
amounts as income in 2014?
$1,400
$2,100 × 2/3 = $1,400
Before any month-end adjustments are made, the net income of Bennett Company is $75,600.
The following adjustments are necessary: office supplies used, $3,120; services performed for
clients but not yet recorded or collected, $3,600; interest accrued on note payable to bank,
$3,000. After adjusting entries are made for the items listed above, Bennett Company's net
income will be:
$73,080.
$75,600 – $3,120 + $3,600 – $3,000 = $73,080
Management accountants primarily are concerned with developing information:
Suited to the needs of decision makers within the organization.
Financial statements are designed primarily to:
Provide people outside the business organization with information about the
company's financial position and operating results.
One of the principal functions of CPAs is to:
Perform audits to determine the fairness of a company's financial statements.
Which of the following are not considered "external" users of financial statements?
Managers.
Which of the following is not an important factor in ensuring the integrity of
accounting information?
The cost of preparing the financial information.
During the current year, the assets of Wheatley's increased by $362,000, and the
liabilities increased by $260,000. The owners' equity in the business must have:
Increased by $102,000.
$362,000 - $260,000 = $102,000
According to the Sarbanes-Oxley Act, CEOs and CFOs must certify to the accuracy of
their company's financial statements:
Quarterly and Annually.
Which of the following transactions would cause a change in owners' equity?
Sale of land on credit for a price above cost.
The balance sheet item that represents the portion of owners' equity resulting from
profitable operations of the business is:
Retained earnings.
Which of the following assets would most likely be listed last on a statement of
financial position?
Land
The cash account of Grande Home Improvement Store shows the following: a debit on
June 1 for $25,000; a credit on June 5 for $10,000, a debit on June 16 for $14,000, and
a credit on June 27 for $8,000. What is the balance in the cash account at the end of
June?
$21,000 debit.
$25,000 + $14,000 - $10,000 - $8,000 = $21,000 debit
The reason that revenue is recorded by a credit entry to a revenue account is:
That revenue increases owners' equity.
The collection of accounts receivable is recorded by a:
Debit to Cash and a credit to Accounts Receivable.
The agreement of the debit and credit totals of the trial balance gives assurance that:
The total debits equal the total credits.
The sequence of accounting procedures used to record, classify, and summarize
accounting information is called the:
Accounting cycle.
Which of the following accounts normally contain a debit balance?
Asset
If a company purchases equipment for cash:
Total assets and owners' equity will remain unchanged.
Posting is the process of:
Transferring debit and credit entries from the journal into the appropriate
ledger accounts.
Before making month-end adjustments, net income of Cardinal Company was
$116,000 for March. Adjusting entries are necessary for the following items:
-Depreciation for the month of March: $2,300.
-Rental income accrued during March, tenant to pay in April: $800.
-Supplies used in March: $100.
-Fees earned in March that had been collected in advance: $2,600.
After recording these adjustments, net income for March is:
$117,000.
$116,000 - $2,300 + $800 - $100 + $2,600 = $117,000
The adjusting entry to record interest that has accrued on a note payable to the bank
will cause an immediate:
Increase in liabilities and reduction in net income.
An adjusting entry to convert an asset to expense consists of:
A debit to an expense and a credit to an asset account.
Which of the following is not considered a basic type of adjusting entry?
An entry to convert an asset to a liability.
Regal Real Estate which maintains its accounts on the basis of a fiscal year ending June
30, began the management of an office building on June 15 for an agreed annual fee
of $4,800. The first payment is due on July 15. The adjusting entry required at June 30
is:
A debit to Management Fees Receivable for $200 and a credit to a revenue
account for $200.
$4,800/12 = $400 × ½ = $200
The United Shipping Co. borrowed $25,000 at 12% interest on March 1, 2015. The
note is to be repaid, with interest, in six months. If United Shipping makes monthly
adjusting entries, which of the following is included as part of the March 31 adjusting
entry?
Debit Interest Expense $250.
$25,000 × 12% = $3,000; $3,000/12 = $250
The concept of materiality:
Justifies ignoring the matching principle or the realization principle in certain
circumstances.
Which of the following is not considered an end-of-period adjusting entry?
An entry to record repayment of a bank loan and to recognize related interest
expense.
Accumulated Depreciation is:
A contra-asset account.
Under accrual accounting, salaries earned by employees but not yet paid should be
expensed:
In the period in which they are earned.
Closing entries never involve posting a credit to the:
Accumulated Depreciation account.
The Retained Earnings statement is based upon which of the following relationships?
Retained Earnings + Net Income - Dividends.
When closing the accounts at the end of the period, which of the following is closed
directly into the Retained Earnings account?
The Income Summary account.
The December 31, 2014 worksheet for Fran's Fine Dining showed the following
amounts related to the Supplies Expense account:
(a). In the Trial Balance debit column: $745
(b). In the Adjustments debit column: $125
(c). In the Adjusted Trial Balance debit column: $870
What is the proper balance in the Supplies Expense account on January 1, 2015, after
all closing entries for 2014 have been posted, but before any 2015 transactions are
recorded?
$0.
The expense account would have been closed out for 2014; the beginning
balance for 2015 would be $0
A statement of retained earnings shows:
The changes in the Retained Earnings account occurring during the accounting
period.
The adequacy of a company's disclosure is based on:
A combination of official rules, tradition, and professional judgment.
If Income Summary has a net credit balance, it signifies:
Net income
The balance in Income Summary:
Will equal net income or net loss.
If monthly financial statements are desired by management:
Monthly financial statements can be prepared from worksheets; adjustments
and closing entries need not be entered in the accounting records.
Which of the following account titles would not be debited in the process of preparing
closing entries for Andrew's Auto Shop?
Dividends
If sales are $291,000, expenses are $234,000 and dividends are $33,500, Income Summary:
Will have a credit balance of $57,000
$291,000 − $234,000 = $57,000
If current assets are $92,500 and current liabilities are $67,000, the current ratio will be:
1.38
$92,500/$67,000 = 1.38
The following information is available:
Sales $ 300,000
Net Income $ 40,000
Retained Earnings $ 50,000
Avg. Stockholder's Equity $ 150,000
Dividends $ 5,000
What is the return on equity? (round to the nearest number)
27%.
$40,000/$150,000 = 27%
Only two adjustments appear in the adjustments column of a worksheet for Wycliff Publications:
one to record $820 depreciation of office equipment and the other to record the use of $580 of
office supplies. If the Trial Balance column totals are $15,400, what are the totals of the Adjusted
Trial Balance columns?
$16,220.
$15,400 + $820 = $16,220. The decrease in office supplies cancels the increase in supplies
expense.
Shown below is a trial balance for Novelty Toys, Inc., on December 31, after adjusting entries:
Novelty Toys, Inc.
Trial Balance
December 31, 20__
Cash $ 8,000
Accounts Receivable 6,500
Office Equipment 11,750
Accumulated Depreciation $ 3,250
Accounts Payable 4,000
Capital Stock 11,500
Retained Earnings 0
Dividends 4,000
Fees Earned 24,000
Salaries Expense 8,500
Advertising Expense 1,750
Depreciation Expense 2,250
$ 42,750 $ 42,750
47.
Award: 2 out of 2.00 points
Refer to the information above. Net income for the period equals:
$11,500.
$24,000 − $8,500 − $1,750 − $2,250 = $11,500
Refer to the information above. After closing the accounts, Retained Earnings at December 31
equals:
$7,500.
$11,500 − $4,000 = $7,500
Refer to the information above. The total debits in the After-Closing Trial Balance will equal:
$26,250.
$8,000 + $6,500 + $11,750 = $26,250
Refer to the information above. Income Summary will have what balance before it is closed?
$11,500.
$24,000 − $8,500 − $1,750 − $2,250 = $11,500
Financial assets include all of the following except:
Inventories
The direct write-off method of recognizing uncollectible accounts expense:
Records uncollectible accounts expense when individual accounts receivable are
determined to be worthless.
An NSF check returned by the bank should be entered in the depositor's accounting
records by a debit to:
Accounts Receivable
Stanley, Inc. s 2015 income statement reported net sales of $6,000,000, uncollectible
accounts expense of $160,000, and net income of $700,000. Stanley's average
accounts receivable during 2015 amounted to $1,200,000. Using 360 days to a year,
Stanley s
Average number of days to collect an account receivable is 72 days.
$6,000,000/$1,200,000 = 5; 360/5 = 72
When determining the uncollectible accounts expense in computing taxable income,
income tax regulations:
Require the direct write-off method
Which of the following items would cause cash per the bank statement to be larger
than the balance of cash shown in the accounting records?
Outstanding checks
Deegan Industries has an accounts receivable turnover rate of 8. Which of the
following statements is not true?
Deegan writes off accounts receivable as uncollectible if they are over 45 days
old.
Shrek Cyclery sells a bicycle to W. O Connor, a customer who uses Empress Charge (a
national credit card, but not issued by a bank). In recording this sale, Shrek Cyclery
should record:
An account receivable from Empress Charge.
All the following are steps included in the preparation of the bank reconciliation
except:
Deducting any debit memoranda from the balance on the bank statement.
When preparing a bank reconciliation, outstanding checks will:
Decrease the balance per the bank statement.
The _______________ department compares what was shipped with what was
ordered and prepares and mails an invoice.
Billing
Cardinal Company s bank statement showed a balance at May 31 of $180,974. The
only reconciling items consisted of a large number of outstanding checks totaling
$51,847. At May 31, what balance should Cardinal's Cash account show?
129,127
$180,974 - $51,847 = $129,127
A bank statement shows a balance of $8,445 at June 30. The bank reconciliation is
prepared and includes outstanding checks of $2,790, deposits in transit of $1,350, and
a bank service charge of $30. Among the paid checks returned by the bank was check
no. 900 in the amount of $600, which the company had erroneously recorded in the
accounting records as $60. The "adjusted cash balance" at June 30 is:
7,005
$8,445 - $2,790 + $1,350 = $7,005
The _______________ department ensures that the goods shipped match those
ordered by the customer.
Shipping
Silver Company received a two-month, 6% note for $16,000 on August 5. Which of the
following statements is true?
The maturity value of this note is $16,160.
$16,000 × 2/12 × .06 = $160 interest due; maturity value = $16,160
While preparing the bank reconciliation, an accountant discovered that a $426 check
returned with the bank statement had been recorded erroneously in the depositor's
accounting records as $462. In preparing the bank reconciliation the appropriate
action to correct this error would be to:
Add $36 to the balance per the depositor's records.
Financial assets:
Include short-term investments in marketable securities and receivables, as well
as cash.
Which of the following is not considered a cash equivalent?
Accounts receivable.
When reading a bank statement, which reference indicates an increase in the cash
balance?
Credit Memorandum
Under the allowance method, when a receivable that had been previously written off
is collected:
Net income is not affected.
Sales to customers using bank credit cards, such as Visa or MasterCard, are recorded
as:
Cash sales.
Effective internal control over accounts receivable ensures:
That credit is only extended to customers that meet the company's credit
standards.
With a line of credit, a liability arises:
As soon as any money is borrowed.
If a 15%, two-month note receivable is acquired from a customer in settlement of an
existing account receivable of $5,000, the accounting entry for acquisition of the note
will:
Include a debit to Notes Receivable for $5,000 and no entry for interest.
Correct Journal Entry
Debit, Notes Receivable $5,000
Credit, Accounts Receivable $5,000
On November 1, 2014, Salem Corporation sold land priced at $620,000 in exchange for a 3%, sixmonth note receivable.
The journal entry made by Salem to record this transaction on November 1, 2014, includes:
A debit to Notes Receivable of $620,000.
Salem's balance sheet at December 31, 2014 includes which of the following as a result of the
sale of land on November 1?
Notes Receivable of $620,000 and Interest Receivable of $3,100.
$620,000 × 0.03 × 2/12 = $3,100
On May 1, 2015 (maturity date), the note is collected in full by Salem Corporation. Assuming a
fiscal year-end of December 31, Salem recognizes which of the following in its income statement
for 2015 with regard to this note?
$6,200 interest revenue.
$620,000 × 0.03 × 4/12 = $6,200
Assuming the maker of the note defaults on May 1, 2015, Salem will record on this date:
An account receivable in the amount of $629,300, as well as interest revenue of
$6,200.
As of December 31, 2015, Valley Company has $17,120 cash in its checking account, as well as
several other items listed below:
Bank credit card slips signed by customers $1,225
Money market fund balance $20,000
Investment in U.S. Treasury bills,mature within 90 days $40,000
Checks received from customers, but not yet deposited in the bank $1,580
Investment in ATT 10% bonds, maturing June 2016 $49,000
What amount should be shown in Valley's December 31, 2015, balance sheet as "Cash and cash
equivalents"?
$79,925.
$17,120 + $1,225 + $20,000 + $40,000 + $1,580 = $79,925
A bank statement shows a balance of $9,585 at June 30. The bank reconciliation is prepared and
includes outstanding checks of $2,075, deposits in transit of $1,430, and a bank service charge of
$15. Among the paid checks returned by the bank was check no. 900 in the amount of $510,
which the company had erroneously recorded in the accounting records as $60. The "adjusted
cash balance" at June 30 is:
8,940
$9,585 − $2,075 + $1,430 = $8,940
Taylor, Inc. had accounts receivable of $270,000 and an allowance for doubtful accounts of
$20,300 just before writing off as worthless an account receivable from Burton Company of
$1,480. The net realizable value of the accounts receivable before and after the write-off were:
$249,700 before and $249,700 after
Before $270,000 − $20,300 = $249,700; After $268,520 − $18,820 = $249,700
Kennedy Company uses the balance sheet approach in estimating uncollectible accounts
expense. The company prepares an adjusting entry to recognize this expense at the end of each
month. During the month of July, the company wrote-off a $3,500 receivable and made no
recoveries of previous write-offs. Following the adjusting entry for July, the credit balance in the
Allowance for Doubtful Accounts was $3,000 larger than it was on July 1. What amount of
uncollectible account expense was recorded for July?
$6,500.
X − $3,500 = $3,000; X = $6,500
On November 1 of the current year, Garcia Company borrowed $50,000 by issuing a
9%, six-month note payable, all due at maturity date. Interest expense on this note to
be recognized during the current year amounts to:
750
$50,000 × .09 × 2/12 = $750
Pension expense is:
The present value of the estimated future pension benefits earned by
employees as a result of their services during the period.
The present value of an amount is:
Always less than the future value.
One advantage of issuing bonds instead of stock is that:
Interest is tax deductible, whereas dividends are not.
The current portion of long-term debt should be reported:
In the current liabilities section of the balance sheet.
A liability for deferred income taxes represents:
Income taxes on earnings already reported in the income statement, but that
will be taxed in future periods.
Choose the statement that correctly summarizes the tax advantage of raising money
by issuing bonds instead of common stock:
Interest payments are deductible in determining income subject to corporate
income tax; dividends are not deductible.
Which of the following payroll taxes do not stop once an employee reaches a certain
level of income
Medicare taxes
Employers are required to pay all of the following on the wages paid to each
employee except:
Health insurance benefits.
The pension expense of the current period is equal to:
The present value of the estimated future pension benefits earned by today's
workers during the current period.
On October 1, 2015, Master s Co. borrows $500,000 from its bank for five years at an
annual interest rate of 10%. According to the terms of the loan, the principal amount
will not be due for five years. Interest is to be paid monthly on the first day of each
month, beginning November 1, 2015. With respect to this borrowing, Master s
December 31, 2015, balance sheet included only a long-term note payable of
$500,000. As a result:
Liabilities are understated by $4,167 accrued interest payable.
$500,000 × 10% × 1/12 = $4,167
A company with a fully funded pension plan:
Reports no long-term liability for future pension payments.
When a corporation has a right to redeem bonds in advance of the maturity date, the
bond is considered a:
Callable bond.
Sanford Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all
due at the maturity date. After one month, the company's total liability for this loan
amounts to:
$90,900.
$90,000 + ($90,000 × 12% × 1/12) = $90,900
Suppose investors decided to sell their holdings of capital stock in order to purchase
outstanding bonds payable and as a result, the prices of bonds payable increased.
What would be the likely impact on market interest rates?
Market interest rates will fall.
In preparing an amortization table, it is necessary to include:
The original amount of the liability, the amount of periodic payments, and the
interest rate.
Amortizing a discount on bonds payable:
Increases interest expense
Which of the following payroll costs are shared equally by the employer and the
employee?
Social security.
The Social Security tax paid by an employer is:
Equal to the amount paid by the employee.
If a bond is selling at 103, it is selling at:
A premium
On November 1, Year 1, Noble Co. borrowed $120,000 from South Bank and signed a 12%, sixmonth note payable, all due at maturity. The interest on this loan is stated separately.
At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:
$122,400.
$120,000 + ($120,000 × 12% × 2/12) = $122,400
How much must Noble pay South Bank on May 1, Year 2, when the note matures?
$127,200.
$120,000 × 12% × 6/12 = $7,200 + $120,000 = $127,200
How much interest expense will Noble recognize on this note in Year 2?
$4,800.
$120,000 × 12% × 4/12 = $4,800
At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:
$122,400.
$120,000 + ($120,000 × 12% × 2/12) = $122,400
At December 31, Year 1, the adjusting entry with respect to this note includes a:
Credit to Interest Payable for $2,400.
On December 1, Year 1, Bradley Corporation incurs a 15-year $170,000 mortgage liability in
conjunction with the acquisition of an office building. This mortgage is payable in monthly
installments of $1,300, which include interest computed at the rate of 6% per year. The first
monthly payment is made on December 31, Year 1.
The total liability related to this mortgage reported in Bradley's balance sheet at December 31,
Year 1, is:
$169,550.
$170,000 − $450 = $169,550
Compute the total amount to be paid by Bradley over the 15-year life of the mortgage.
$234,000.
$1,300 × 12 × 15 = $234,000
How much of the first payment made on December 31, Year 1, represents interest expense? (Do
not round intermediate calculations.)
$850.
6% ÷ 12 × $170,000 = $850
The total liability related to this mortgage reported in Bradley's balance sheet at December 31,
Year 1, is:
$169,550.
$170,000 − $450 = $169,550
Over the 15-year life of the mortgage, the total amount Bradley will pay for interest charges is:
$64,000.
$234,000 − $170,000 = $64,000
At the beginning of the year, Saratoga Dress Co. had an inventory of $300,000. During
the year, the company purchased merchandise costing $850,000. Net sales for the
year totaled $1,200,000, and the gross profit rate was 45%. The cost of goods sold and
the ending inventory, respectively, were:
$660,000 and $490,000.
Cost of Goods Sold = (100% - 45%) = 55% × $1,200,000 = $660,000
Goods Available = $300,000 + $850,000 = $1,150,000
Ending Inventory = $1,150,000 - $660,000 = $490,000
In a periodic inventory system, the formula used in computing the cost of goods sold
may be summarized as follows:
Beginning inventory + purchases - ending inventory.
Which of the following companies would be more likely to use a perpetual inventory
system?
Home Depot.
Which of the following would not tend to make a manufacturer choose a perpetual
inventory system?
A high volume of sales transactions and a manual accounting system.
Emerald Co. uses a perpetual inventory system and records purchases of merchandise
at net cost. The company recently purchased 200 compact discs at an invoice price of
$6,000 and terms of 2/10, n/30. Half of these discs had been mislabeled and were
returned immediately to the supplier. The journal entry to record payment of this
invoice after the discount period has expired will include a:
Credit to Cash for $3,000.
(1/2 × $6,000) = $3,000
On July 1, the inventory of at Barnett Shoes was $60,000. Because of anticipated backto-school sales, the owner wants to have an inventory of $105,000 on hand at the
beginning of August. Net sales during July are expected to total $70,000, with a gross
profit rate of 45%. During July, the company should purchase merchandise costing:
$83,500
Cost of goods sold = 55% × $70,000 = $38,500
Goods available = $38,500 + $105,000 = $143,500
Purchases = $143,500 - $60,000 = $83,500
If sales discounts are shown as a separate item in financial statements, they should be
shown as a(n)
Deduction from gross sales revenue
Berg Tooling reports net sales of $325,000, gross profit of $175,000, and net income
of $15,000. The company's cost of goods sold is:
150,000
$325,000 - $175,000 = $150,000
The cost of delivering merchandise to the customer is:
An operating expense.
In a perpetual inventory system:
Merchandising transactions are recorded as they occur.
Under the perpetual inventory system which journal entry would indicate a purchase
of merchandise?
Debit, Inventory and credit, Cash.
Pet Foods Plus purchased bagged dog food at an invoice price of $6,000 and terms of
2/10, n/30. Half of the bags had been damaged in shipment and delivery was refused.
If Pet Foods Plus pays the remaining amount of the invoice within the discount period,
the amount paid should be:
$2,940.
.98 (1/2 × $6,000) = $2,940
If cost of goods sold is $360,000 and the gross profit rate is 40%, what is the gross
profit?
$240,000
$360,000/.60 = $600,000 (Sales); $600,000 × .4 = $240,000
If cost of goods sold is $480,000 and the gross profit rate is 40%, what is the gross
profit?
$320,000.
$480,000/.60 = $800,000 (Sales); $800,000 × .4 = $320,000
The basic purpose of a subsidiary ledger is to:
Provide details about the individual items comprising the balance of a general
ledger account.
In a manufacturing company, the "just-in-time" concept of inventory management is
best illustrated by:
Receiving deliveries of materials from suppliers just before the materials are
used in the production process.
On Saturday, June 30, BD Pool Supplies sold merchandise to E. Luang on account. The
sales price was $6,400, and the cost of goods sold was $5,300. The sales revenue was
recorded immediately, but the entry recording the cost of goods sold was dated
Monday, July 2. As a result, net income for June was:
Overstated by $5,300.
Kent Company has used the same inventory method for many years. This is an
example of which principle?
Consistency.
Garden World uses the retail method to estimate its monthly cost of goods sold and
month-end inventory. At May 31, the accounting records indicate the cost of goods
available for sale during the month (beginning inventory plus purchases) totaled
$540,000. These goods had been priced for resale at $900,000. Sales in May totaled
$480,000. The estimated inventory at May 31 is:
$252,000.
($900,000 - $480,000) × ($540,000/$900,000) = $252,000
Inventory:
Both consists of all goods owned and held for sale to customers and is a nonfinancial asset.
When the LIFO costing method is in use, the seller:
Assumes that the most recently acquired units are sold first.
Which of the following methods of measuring the cost of goods sold most closely
parallels the actual physical flow of the merchandise?
Specific Identification
During periods of rising prices, and being primarily concerned with tax implications,
most of the companies would select:
LIFO.
In a periodic inventory system, recording a sale on account involves crediting which of
the following accounts?
Only Sales
Which of the following will cause net income to be overstated for the following year?
Current year's ending inventory is understated.
A company with a liquid inventory will have:
A high inventory turnover and a low average number of days to sell inventory.
In a perpetual inventory system, two entries are normally made to record each sales
transaction. The purpose of these entries is best described as follows:
One entry recognizes the sales revenue and the other recognizes the cost of
goods sold.
Many companies state in their annual reports that inventory is shown at the lower of
its cost or market value. This means that the inventory:
Is valued at current replacement cost or historical cost, whichever is less.
The lower-of-cost-or-market rule:
Is used in conjunction with any inventory cost flow assumptions.
Emerald Co. uses a perpetual inventory system and records purchases of merchandise at net
cost. The company recently purchased 600 compact discs at an invoice price of $7,800 and terms
of 4/10, n/30. Half of these discs had been mislabeled and were returned immediately to the
supplier. The journal entry to record payment of this invoice after the discount period has
expired will include a:
Credit to Cash for $3,900.
(1/2 × $7,800) = $3,900
Beacon Food Stores purchased canned goods at an invoice price of $4,600 and terms of 2/10,
n/60. Half of the goods had been mislabeled and were returned immediately to the supplier. If
Beacon Food pays the remaining amount of the invoice within the discount period, the amount
paid should be:
$2,254.
0.98 (1/2 × $4,600) = $2,254
At the beginning of 2015, Midway Hardware has an inventory of $390,000. Because sales growth
was strong during 2015, the owner wants to increase inventory on hand to $450,000 at
December 31, 2015. If net sales for 2015 are expected to be $1,860,000, and the gross profit rate
is expected to be 20%, compute the cost of the merchandise the owner should expect to
purchase during 2015.
$1,548,000.
$1,860,000 × (1 − 0.20) = $1,488,000 Cost of Goods Sold
$1,488,000 + $450,000 EI − $390,000 BI = $1,548,000 Purchases
Venus Wholesale Co. started carrying a new product in December. Purchases and sales of this
product during the month were:
Dec. 20 Purchased 180 units at $88 per unit.
Dec. 26 Sold 170 units.
Dec. 28 Purchased 180 units at $96 per unit.
Assuming the LIFO flow assumption is in use, the perpetual inventory records will indicate an
ending inventory of this product of:
$18,160.
(10 × $88) + (180 × $96) = $18,160
At year-end, Venus restates the carrying value of its inventory using periodic LIFO costing
procedures. Under periodic costing procedures, the LIFO cost of the inventory is:
$16,800.
(180 × $88) + (10 × $96) = $16,800
Quiz Material
Monday, June 19, 2017 12:52 PM
The Accounting Standards Codification was developed by:
The financial accounting standards board.
The basic purpose of bookkeeping is to:
Record the financial transactions of an economic entity.
Which of the following has the least impact upon the integrity of financial statements
issued by publicly owned corporations?
Audits of the financial statements by the Internal Revenue Service
In 2012 the SEC issued an extensive report regarding the use of IFRS by U.S. public
companies and listed which of the following as a major obstacle to adopting IASB
standards?
IASB's dependence on funding from the major accounting firms.
The body created by the Sarbanes Oxley Act and charged with oversight of the
accounting profession is the:
Public Company Accounting Oversight Board.
The basic purpose of audited financial statements is to:
Provide users of the financial statements with assurance that the statements
are verifiable and are presented in conformity with generally accepted
accounting principles
The auditor's report on the published financial statements of a large corporation
should be viewed as:
The opinion of independent experts as to the overall fairness of the statements.
Information is cost effective when:
The value of the information exceeds the cost of producing it.
The FASB takes on a responsibility to do the following, except:
Judge disputes between management and the CPA.
Generally accepted accounting principles are the "ground rules" used in the
preparation of:
Financial statements
Financial statements are prepared:
In either monetary of nonmonetary terms, depending upon the need of the
decision maker.
Which of the following does not describe accounting?
It is an end rather than a means to an end.
Which of the following is not a user of internal accounting information:
Creditor
Of the following objectives of financial reporting, which is the most specific?
Provide information about economic resources, claims to resources, and
changes in resources and claims.
The objectives of an accounting system include all of the following, except:
Dictate the speci
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