Intro to Financial Accounting Exam 4 Questions & Answers

The accounting concept that suggests assets should be reported at their fair value and liabilities should be reported at the price required to settle the liability is known as the... - ANSWERSfair value principle. Resources owned by a business are referred to as... - ANSWERSassets. The purchase of an asset, such as supplies, on account... - ANSWERSincreases the purchaser's assets and liabilities. A company began the year with total assets of $200,000 and total liabilities of $160,000. During the year, the company did the following: Recognized revenues, $420,000 Incurred expenses, $220,000 Declared and paid dividends, $40,000 Issued common stock, $10,000 What is the stockholders' equity at the end of the year? - ANSWERS$210,000. Which of the following accounts is increased with a debit? - ANSWERSDividends. If a company issues common stock for $40,000 and issues a note payable for $30,000, the company's... - ANSWERStotal assets will increase by $70,000. Which of the following is the correct sequence of events in the recording process? - ANSWERSAnalyze a transaction; record it in the journal; post it to the ledger. Posting... - ANSWERStransfers journal entries to ledger accounts. On December 31, a company's prepaid insurance account had a balance of $2,700 before recording adjusting entries. The company's determined that $1,500 of the prepaid insurance had expired before year-end. The insurance expense for the year would be... - ANSWERS$1,500. A company borrowed money from a bank by signing a three-year note payable in the amount of $15,000 on July 1. The note requires the company to pay interest at an annual rate of 8%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 of the same year would include a debit to interest expense for... - ANSWERS$600. Companies prepare various types of trial balances. Which trial balance likely lists the smallest number of accounts for a given company? - ANSWERSThe post-closing trial balance. The following ratios are available for Alpha Inc. and Omega Inc. Alpha Inc. Omega Inc. Current ratio 1.2 1.5Profit margin ratio 0.30 0.20 Compared to Omega Inc., Alpha Inc. has... - ANSWERSlower liquidity. A company uses a perpetual inventory system. On December 10, the company bought inventory for $3,000. It is the only item of inventory it owns. On December 29, it sells the inventory for $5,500 on account with terms 2/10 n/30. The company's customer pays for the inventory on January 3. Which of the following is recorded by the company on December 29? - ANSWERSCredit inventory for $3,000. The journal entry to record the receipt of payment within the discount period on a sale of $900 with terms of 2/10, n/30 will include a... - ANSWERSdebit to Sales Discounts for $18. Indicate which one of the following would not appear on both a single-step income statement and a multiple-step income statement. - ANSWERSGross profit. A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate? - ANSWERSThe company began selling products with a higher markup. When terms are FOB shipping point... - ANSWERSownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. A company has the following: Sales revenue, $475,000 Beginning inventory, $80,000 Ending inventory, $110,000 Cost of goods sold, $285,000 Net income, $50,000 What is its days' sales in inventory? - ANSWERS140.9 days. A company uses the periodic inventory method. An understatement of ending inventory in one period results in... - ANSWERSan overstatement of net income of the next period. Which one of the following is not a physical control? - ANSWERSSegregation of duties. A company has the following information: Cash balance per bank, Dec. 31, $11,500 Outstanding checks, $700 Deposits in transit, $1,375 Credit memo for interest, $25 Bank service charge, $50 What is the company's adjusted cash balance on Dec. 31? - ANSWERS$12,175. If a company correctly wrote a check for $491 but it incorrectly recorded the check as $419 on its books, the appropriate treatment on the bank reconciliation would be to... - ANSWERSsubtract $72 from the cash balance per books. If a company's Allowance for Doubtful Accounts has a debit balance immediately prior to year-end adjusting entries... - ANSWERSBad Debt Expense has been underestimated. At the beginning of the year, a company had accounts receivable of $700,000 and an allowance for doubtful accounts with a credit balance of $40,000. During the current year, sales on account were $195,000 and collections on account were $170,000. Also during the current year, the company wrote off $21,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $32,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year? - ANSWERS$12,000 increase. Receivables are assets that must be reported in the order of ______? - ANSWERSLiquidity. A company accepted $60,000 of Visa credit card charges for merchandise sold on July 1. The bank that issued the Visa card charges 4% for its credit card use. The company's journal entry to record this transaction will include a debit or debits to... - ANSWERSCash for $57,600 and Service Charge Expense for $2,400. Which of the following is not a depreciable asset? - ANSWERSLand. A corporation has equipment that originally cost $90,000. Its accumulated depreciation is $36,000 after the current year's adjusting entries have been recorded. A new processing technique has rendered the equipment obsolete, so it is retired. How should the company record the retirement of the equipment? - ANSWERSDebit the Accumulated Depreciation account for $36,000 Debit the Loss on Disposal of Plant Assets account for $54,000 Credit the Equipment account for $90,000 Equipment with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated life of 4 years or 15,000 hours. It is to be depreciated using the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours? - ANSWERS$99,000. A corporation issues $100,000, 6%, 10-year bonds on January 1 for $106,000. Interest is paid annually on January 1. If the corporation uses the straight-line method to amortize bond premiums and discounts, the amount of bond interest expense in the first year is... - ANSWERS$5,400. A company has bonds with a principal value of $500,000 outstanding. The unamortized premium on the bonds is $12,600. The company redeemed the bonds at 101. What is the company's gain or loss on the redemption? - ANSWERS$7,600 gain. A corporation issues a $250,000, 10%, 30-year mortgage note. The terms provide for annual installment payments of $26,520. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment? - ANSWERS$248,480. Which of the following is considered an advantage of the corporate form of organization? - ANSWERSLimited liability of stockholders. A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited when the repurchase of the shares is journalized? - ANSWERSTreasury Stock for $1,200. A corporation's current year balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $ 600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value--Preferred stock 60,000 Paid-in capital in excess of par value--Common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 During the year, the corporation declared and paid a $100,000 cash dividend. If the company's dividends in arrears prior to the current year were $32,000, the corporation's common stockholders would receive... - ANSWERS$32,000. A corporation began business by issuing 200,000 shares of $3 par value common stock for $19 per share. During its first year, the corporation sustained a net loss of $100,000. The year-end account balances would show... - ANSWERSa $3,200,000 credit balance in Paid-in Capital in Excess of Par Value account. Materiality is a characteristic or aspect of relevance. An item is considered to be material if... - ANSWERSits size is likely to influence the decision of an investor or creditor. Which of the following is not an asset? - ANSWERSAccounts payable. Which of the following statements is true? - ANSWERSAmounts paid out as dividends are not expenses. A company had a transaction that decreased its assets by $5,000 and increased its assets by $5,000 with a net effect of no change in its assets. This transaction could have been a(n)... - ANSWERSpayment for a one-year insurance policy that will expire next year. If a company issues common stock for $40,000 and issues a note payable for $30,000, the company's... - ANSWERStotal liabilities will increase by $30,000. During its first year, a corporation earned revenues of $135,000 and incurred expenses of $87,000. The corporation also paid cash dividends of $10,000 and purchased $25,000 of equipment in exchange for cash during the first year. What is the balance in the company's retained earnings account at the end of its first year? - ANSWERSA credit balance of $38,000. Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts. - ANSWERSjournal. The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the: - ANSWERSbook value of the asset. A corporation paid employee wages on Friday, December 26. It will pay the next payroll on week later. There is one working day in the month after December 28 (i.e., Dec. 31). Employees work 5 days a week and the company pays $500 a day in wages. What will be the adjusting entry to accrue wages expense at the end of December? - ANSWERSSalaries and Wages Expense....................... 500 Salaries and Wages payable............... 500 In the closing process total revenues are determined to be $4,750 while total expenses are determined to be $3,875 and total dividends are $1,150. The retained earnings account will... - ANSWERSdecrease by $275. A corporation has accounts and balances: Accounts payable$ 40,000Investments in bonds 20,000Accounts receivable 50,000Land 130,000Accumulated depreciation 50,000Notes payable 300,000Buildings 500,000Patents 20,000Cash 100,000Prepaid insurance 30,000Common stock 690,000Retained earnings 150,000Equipment 160,000Trademarks 40,000Inventory 200,000 The land is used as a parking lot. The bonds are expected to be held long-term. What are its (i) current assets and (ii) property, plant & equipment? - ANSWERS(i) $380,000 and (ii) $740,000. Which of the following statements about a periodic inventory system is true? - ANSWERSCompanies determine cost of goods sold only at the end of the accounting period. Freight costs incurred by a seller on outgoing merchandise sold to customers are recorded as Freight Out and these costs will increase... - ANSWERSthe operating expenses of the seller. If beginning inventory is $100,000, cost of goods purchased is $500,000, sales revenue is $1,000,000 and ending inventory is $130,000, how much is cost of goods sold? - ANSWERS$470,000. A company sold merchandise for $255,000. Returns from customers totaled $3,600. If the company's gross profit rate is 30%, what is the company's cost of goods sold? - ANSWERS$175,980. Which of the following should not be included in the inventory of a company? - ANSWERSGoods held on consignment from another company. Which of the following is not an element of the fraud triangle? - ANSWERSIrresponsibility. Allowing only the treasurer to sign checks is an example of... - ANSWERSestablishment of responsibility. A company has the following: Cash balance per bank, Dec. 31, $67,300. Note receivable of $2,500 plus $250 of interest collected, $2,750. Outstanding checks, $17,100. Deposits in transit, $12,900. Bank service charges, $50. NSF check, $500. The company erroneously recorded a $560 cash payment on its books as a $650 cash payment. Also, the bank erroneously added $500 to the company's checking account. The bank should have added the money to a different customer's account. How much is the adjusted cash balance per bank on December 31? - ANSWERS$62,600. A check correctly written by a company for $312 was incorrectly recorded by that same company as $321. On the bank reconciliation... - ANSWERS$9 should be added to the cash balance per books. When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it. - ANSWERSIncreases; crediting. At the start of the year, a company's Allowance for Doubtful Accounts had a credit balance of $36,000. During the year, it had credit sales of $1,500,000. It also wrote-off $45,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 5% of the balance in receivables. If the accounts receivable balance at December 31 was $400,000, what is the bad debt expense for the year? - ANSWERS$29,000. The maturity value of a $40,000, 9%, 60-day note receivable dated July 3 is... - ANSWERS$40,600. A company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. The company's bank charges it a 5% fee. Which one of the following is part of the journal entry to record this transaction? - ANSWERSDebit to Cash for $6,650. A company purchased a truck for $27,000. The company paid $1,200 to paint the company's logo on the truck. The estimated salvage value and useful life are $1,200 and 5 years, respectively. How much is the accumulated depreciation under the straight-line method after three years? - ANSWERS$16,200. A company's average total assets are $250,000, depreciation expense is $10,000, and accumulated depreciation is $60,000. Net income is $1,200,000. Net sales total $300,000. What is the total asset turnover? - ANSWERS1.2. Which of the following is not an intangible asset? - ANSWERSResearch and development costs. A corporation issues $2,100,000 of 10-year, 8% bonds dated January 1 at 97. The journal entry to record the issuance will include... - ANSWERSa debit to Discount on Bonds Payable for $63,000. When a bond is sold at a premium, at what value is it reported on the balance sheet? - ANSWERSFace value plus any unamortized premium. A company issued $100,000 in 10-year bonds at 103. It is 10 years later and the final interest payment is being made and recorded. The journal entry that the company records for the redemption of its bonds at maturity includes... - ANSWERSa debit to Bonds Payable for $100,000. A corporation issues a $1,000,000, 10%, 20-year mortgage note. The terms provide for annual installment payments of $117,460. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment? - ANSWERS$963,334. Which of the following would not be considered an advantage of the corporate form of organization? - ANSWERSGovernment regulation. A corporation declared a cash dividend of $1.00 per share on 20,000 shares of common stock on December 15. The dividend is to be paid one month later on January 15 to stockholders of record on December 30. Which of the following summarizes the effects of the journal entry recorded on the date of declaration on December 15? - ANSWERSIt decreases stockholders' equity and increases liabilities.