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Accounting 210 > AC210 Test 2 > Flashcards

AC210 Test 2 Flashcards

1
Q

The following transactions occurred for Boober Corporation. The annual accounting period ends December 31. The books are adjusted only at year-end.
- October 1, 2014: borrowed $100,000 and signed a note providing for 8% annual interest. The principal and interest are due in one year on September 30, 2015.
- December 31, 2014: End of annual accounting period.
What adjusting entry is required on December 31 if the company adjusts its books once a year, on December 31?

A

dr interest expense 2,000

cr interest payable 2,000

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2
Q

On November 1, 2014, Fluff Busters collected 6,000 in advance for three months of service to be provided beginning on that date. Fluff properly recorder the entire amount as unearned revenue for 6,000 on November 1. The books are adjusted only at year-end. What is the adjusting entry required on December 31, 2014?

A

dr unearned revenue 4000

cr service revenue 4000

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3
Q

Golden Arch paid for the premium on a one-year insurance policy on April 1, 2015 for 3000 cash, with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2014 adjusting entry?

a. prepaid insutacne will increase 2250.
b. insurance expense will increase 750.
c. prepaid insurance will decrease 750
d. insurance expense will increase 2250.

A

insurance expense will increase 2250.

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4
Q

On January 1, 2014, the general ledger of Global Corporation included supplies (an asset account) of 1000. During 2014, supplies purchased amounted to 5000, which were added to the supplies account. A physical count of inventory on hand at December 31, 2014 determined that the amount of supplies on hand was 1,200. How much is the 2013 supplies expense?

A

4800

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5
Q

On January 1, 2014, Scooter Company paid the premium on a 3 year insurance policy in the amount of 6,000. At the time, the full amount paid was recorded as prepaid insurance. After recording the adjustment entry for the insurance policy on December 31, 2014, what would be the balance in Scooter Company’s prepaid insurance account?

A

4000

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6
Q

Which of the following transaction and events results in a decrease in both total assets and net income?

a. adjustments of the prepaid rent account for rent used during the period.
b. recognizing previously recorded unearned revenue as revenue.
c. the accrual of salaries expense at year-end.
d. collection cash from an account receivable.

A

A.

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7
Q

Why are adjustments needed?

A

Because of the accrual basis of accounting.

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8
Q

What are the 2 kinds of adjustments?

A

Differal and Accrual

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9
Q

Deferral Adjustments

A

Put off until later. Revenue/ Expense hasn’t been recorded yet, but will be in the future.

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10
Q

With a deferral adjustment, what happens to financial statements?

A

Decreases the balance sheet accounts and increases corresponding income statement.

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11
Q

With a deferral adjustment, what is paired with what?

A

asset and expense.

liability and revenue.

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12
Q

Accrual Adjustments

A

are needed when a company has earned revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period.

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13
Q

With an accrual adjustment, what is paired with what?

A

asset is paired with revenue.

liability is paired with expense.

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14
Q

Who all uses financial statements?

A

Investors, Creditors, Government, Directors, Investors.

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15
Q

Describe the Fraud Triangle.

A

Investors
Why?
Opportunity Personality
How? Who?

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16
Q

What are incentives to committing fraud?

A

Creating business opportunities (such as satisfying loan covenants, increasing equity financing, and attracting business partners). and satisfying personal greed (such as enhancing job security, increasing personal wealth, and obtaining bigger checks).

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17
Q

Internal Controls:

A
  • Used to eliminate the opportunity of fraud.
    methods that a company uses to protect against theft of assets, to enhance the reliability of accounting information, to promote efficient and effective operations, and to ensure compliance with laws and regulations.
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18
Q

Most fraudsters have a sense of what? which outweighs what?

A

personal entitlement.

other moral principles, such as fairness, honesty, and concern for others.

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19
Q

What is SOX?

A

Sarbanes- Oxley Act.
Passed in U.S. Congress.
Counteracts Incentives: stiffer fines and prison time.
Reduces Opportunity: internal controls report from many, stronger oversight by directors, and internal control audit by external auditor.
Encourages Good Character: code of ethics, while blower protection (can’t get penalized or fired for bring attention to or starting an investigation), tipline to anonymously call.

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20
Q

Comparative Financial Sheet:

A

sees how you changed over time.

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21
Q

Multistep Income Statement:

A

provides us income from operations.

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22
Q

Statement of Stockholder’s Equity:

A

has contributed capital and retained earnings. this is what people really prepare so we can have the full picture.

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23
Q

auditors:

A

CPAs who are independent of the company. Can’t have interest in the company.

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24
Q

Unqualified Audit Opinion:

A

In accordance with GAAP. “Yeah, you did a good job.”

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25
Q

Qualified Opinion:

A

Not in accordance with GAAP. “No, fix it.”

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26
Q

Preliminary releases:

A

Most companies announce quarterly and annual earnings through a press release that is sent to news agencies.

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27
Q

SEC:

A

Securities and Exchange Commission

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28
Q

What does the SEC require firms to file?

A

10-K
10-Q
8-K

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29
Q

10-K

A

Annual filing of financial information

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30
Q

10-Q

A

Quarterly filing of financial information

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31
Q

8-K

A

Reports significant business events

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32
Q

SEC does allow some firms to follow the what? but most follow what?

A

IFRS. GAAP.

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33
Q

Time-series analysis:

A

Compares results to different time periods.

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34
Q

Cross-sectional analysis:

A

How is apple doing compared to its competitors?

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35
Q

What is the debt to asset ratio? KNOW WELL! What does it tell you?

A

Total Liabilities / Total Assets.

  • %age of assets that are financed by debt
  • higher the ratio, greater the financial risk.
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36
Q

What is the asset turnover ratio? KNOW WELL! What does it tell you?

A

Total Revenue / Average Total Assets

  • – what is avg. total assets?
  • — beg. assets + end. assets / all over / 2
  • how well assets are used to generate revenue
  • higher is better
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37
Q

What is the net profit margin revenue? KNOW WELL! What does it tell you?

A

Net Income / Total Revenue

  • how much you can take home every day.
  • higher is better.
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38
Q

3 types of companies and what they are:

A

Service Company: doesn’t have much inventory, sells services.
Manufacturing Company: buys raw materials and makes finished goods to sell.
Merchandising Company: buys stuff that is already made and sells it. has only finished goods.

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39
Q

5 Common Control Principles explained.

A
  1. Establish Responsibility
    - Assign each task to only one person
  2. Segregate Duties
    - Do not make one employee responsible for all parts of a process
  3. Restrict Access
    - do not provide access to assets or information unless it is needed to fulfill assigned responsibilities
  4. Document procedures
    - provide documents to show activities that have occurred
  5. Independently Verify
    - check other’s work
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40
Q

Internal controls are never completely what? Why?

A

Full proof.
Benefits vs. Costs
Human Error vs. Fraud

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41
Q

Segregate Duties:

A

Cashier at Publix takes the money. A manager gets custody of it and counts it. Then a supervisor takes it and records it.

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42
Q

EFT

A

Electronic Funds Transfer

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43
Q

2 cash payments

A

Check and EFT

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44
Q

NFS Check?

A

Bounced Check

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45
Q

What is a bank reconciliation?

A

an internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual.

46
Q

What are reconciling differences?

A

Things that your bank may not know about and things that you may not know about.

47
Q

What are examples of reconciling differences that your bank may now know about? and that you may not know about?

A

bank:

  1. errors
  2. time lags
    - deposits that you made recently
    - checks that you wrote recently
    you:
  3. interest the bank has put into your account
  4. EFT
  5. Service charges taken out of your account
  6. customer checks you deposited but had bounces.
  7. errors made by you.
48
Q

What are bank reconciling goals?

A
  1. identify deposits in transit
  2. identify the outstanding checks
  3. record other transactions on the bank statement
  4. determine the impact of errors.
49
Q

Liquid:

A

easy to convert to cash

50
Q

Cash:

A

includes money or any instrument that banks will accept for deposit and immediate credit to a company’s account, such as checks money orders, or bank drafts.

51
Q

Cash equivalents:

A

short-term, highly liquid investments.

52
Q

Perpetual Inventory System

A

the inventory records are updated perpetually, that is, every time inventory is bought, sold, or returned. perpetual systems are often combines with bar codes and optical scanners.
– continuous tracking and can estimate shrinkage

53
Q

Periodic Inventory System

A

the inventory records are updated periodically, that is, at the end of the accounting period. to determine how much merchandise has been sold, periodic systems require that inventory be physically counted at the end of the period.
– no up-to-date records and can’t estimate shrinkage.

54
Q

shrinkage

A

stolen of lost during the period. or broken. or out of date.

55
Q

FOB

A

Free on Board

56
Q

FOB Shipping Point

A

the sale is recorded when the goods leave the sellers shipping department

57
Q

FOB destination

A

the sale is recorded when the goods reach their destination ( the customer )

58
Q

Every merchandise sale has 2 components, each of which requires an entry in a perpetual inventory system.

Assume Walmart sells two bikes for 400.00 cash. the bikes had previously been recorded in Walmart’s inventory at a total cost of 350.00.

A 
dr cash (+A) 400
cr sales revenue (+R, +SE) 400
dr cost of goods sold (+E, -SE) 350
cr inventory (-A) 350
59
Q

when goods sold to a customer arrive in damaged condition or are otherwise unsatisfactory, the customer can

A
  1. return them for a full refund.

2. keep them and ask for a reduction in the selling price, called an allowance.

60
Q

Customer returned a bike that cost him 200.00. Do a journal entry.

A 
dr sales revenue and allowances (+xR, -SE) 200
cr cash (-A) 200
dr inventory (+A) 200
cr cost of goods sold (-E, +SE)
61
Q

What is a sales on account and sales discount?

A

2/10, n/30
two ten net thirty
this is to improve your cash flow and to get cash in quicker.
give account customer a 2% discount if paid in ten days or pay the net in 30 days.

62
Q

Which of the following accounts would not appear in a closing journal entry?

a. interest revenue
b. accumulated depreciation
c. retained earnings
d. salary expense

A

b. accumulated depreciation

63
Q

Which account is least likely to appear in an adjusting journal entry?

a. cash
b. interest receivable
c. income tax expense
d. salaries payable

A

a. cash

64
Q

When a concert promotions company collects cash for ticket sales two months in advance of the show date, which of the following accounts is recorded?

a. accrued liability
b. accounts receivable
c. prepaid expense
d. unearned revenue

A

d. unearned revenue

65
Q

On Dec. 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be included in this adjusting journal entry?

  • None
  • 1
  • 2
  • 3
A

2

66
Q

An adjusting journal entry to recognize accrued salaries payable would cause which of the following?

a. a decrease in assets and stockholders’ equity
b. a decrease in assets and liabilities
c. an increase in expenses, liabilities, and stockholders’ equity.
d. an increase in expenses and liabilities, and a decrease in stockholders’ equity.

A

d. an increases in expenses and liabilities and a decrease in stockholder’s equity.

67
Q

An adjusted trial balance

a. shows the ending balances in a debit and credit format before posting the adjusting journal entries.
b. is prepared after closing entries have been posted.
c. is a tool used by financial analysts to review the performance of publicly traded companies.
d. shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format.

A

d. shows the ending balances resulting from the adjusting journal entries in a debit and credit format.

68
Q

Which of the following trial balances is used as a source for preparing the income statement?

a. unadjusted trial balance
b. pre-adjusted trial balance
c. adjusted trial balance
d. post-closing trial balance

A

c. adjusted trial balance

69
Q

Assume the balance in prepaid insurance is 2500 but it should be 1500. the adjusting journal entry should include which of the following?

a. debit to prepaid insurance for 1000
b. credit to insurance expense for 1000
c. debit to insurances expense for 1000
d. debit to insurance expense for 1500.

A

Debit to insurance expense for 1000.

70
Q

assume a company receives a bill for 10,000 for advertising done during the current year. if this bill is not yet recorded at the end of the year, what will the adjusting journal entry include?
a. credit to advertising expense 10,000
b, debit to accrued liabilities of 10,000
c. debit to advertising expense of 10,000
d. need more info.

A

debit to advertising expense of 10000

71
Q

if total assets increase but total liabilities remain the same, what is the impact on the debt to asset ratio?

A

decreases

72
Q

Costco and SAM’s Club are two companies that offer low prices for items packaged in bulk. This strategy increases total sales volume but generates less profit for each dollar of sales. Which of the following ratios is improved by this strategy?

A

asset turnover.

73
Q

which of the following would increase the net profit margin ration in the current year?

a. increase the amount of research and development in the last month of the year.
b. decrease the amount of sales in the last month of the year.
c. postpone routine maintenance work that was to be done this year.
d. all of the above.

A

c. postpone routine maintenance work.

74
Q

the asset turnover ration is directly affected by which of the following categories of business decisions?
a. operating and investing decisions
b. operating and financing decisions
c. investing and financing decisions
d, operating, investing, and financial decisions.

A

a. operating and investing decisions

75
Q

which report is filed annually with the SEC?

A

10-K

76
Q

which of the following describes a time-series analysis of your academic performance?a. counting the number of As on your transcript.

b. comparing the number of As you received this year to the number of As last year.
c. comparing the number of As you received this year to the number your friend received.
d. counting the number of As given to your class as a whole.

A

b.

77
Q

which of the following is always included in an annual report but never in a quarterly report?

a. balance sheet
b. income statement
c. management’s discussion and analysis
d. auditor’s report

A

d.

78
Q

which of the following transactions will increase the debt-to-asset ratio?

a. company issues stock to investors
b. the company uses cash to buy land
c. the company issues a note payable to buy merchandise
d. none

A

c

79
Q 
Mountain gear Inc. buys bikes, tents, and climbing supplies from rugged rock corporation for sale to consumers. What type of company is mountain gear Inc.
A. Service
B. Retail merchandiser 
C. Wholesale merchandiser 
D. Manufacturer
A

Retail merchandiser

79
Q

Mountain gear Inc. buys bikes, tents, and climbing supplies from rugged rock corporation for sale to consumers. What type of company is mountain gear Inc.

A

Retail merchandiser

80
Q

Which of the following does not enhance internal control?
A. Assigning different duties to different employees.
B. Ensuring adequate documentation is maintained
C. Allowing access only when required to complete assigned duties.
D. None of the above

A

D.

81
Q 
Which of the following internal control principles underlies the requirement that all customers be given a sales receipt?
A. Segregate duties 
B. Establish responsibility
C. Restrict access
D. Document procedures
A

D

82
Q

Upon review of your company’s bank statement, you discover that you recently deposited a check from a customer that was rejected by your bank as NSF. Which of the following describes the actions to be taken when preparing your company’s bank reconciliation?

A

You should decrease in your balance per book and not change balance per bank.

83
Q

Upon review of the most recent bank statement you discover that a check was made out to your supply for $76 but was recorded in your cash and accounts payable accounts and $67 which of the following describes the actions to be taken when preparing your bank reconciliation

A

Decrease balance per bank and increase balance per book.

84
Q

Which of the following is false regarding a perpetual inventory system?
A. Physical counts are never needed because records are maintained on a transaction by transaction basis
B. The inventory records are updated with Each inventory purchase, sale, or return transaction
C. Cost of goods sold is increased as sales are recorded
D. A perpetual inventory system can be used to detect shrinkage

A

A

85
Q

Sales discounts with term 2/10, n/30

A

2% discount for payment within 10 days or full payment due in 30 days.

86
Q

A $1000 sale is made on May 1 with terms 2/10, n/30. Adams with a $100 selling price are returned on May 3. What amount, if are saved on May 9, will be considered payment in full?

A

882

88
Q

This year your company has purchased less expensive merchandise inventory but has not changed at selling process. What effect will this change have on the company’s gross profit percentage this year, in comparison to last year?

A

Ratio will increase

89
Q

Net sales =

A

gross revenue - sales returns and allowances - sales discounts

90
Q

Gross profit =

A

net sales - cost of goods sold

91
Q

gross profit % =

A

gross profit / net sales

x 100

92
Q

Supplies at 1/1/x1 are $1000. Purchase $500 of supplies during January. Have $300 left on hand at 1/31/x1.

a. what is adjusting journal entry to make at end of month?
b. what is the amount of supplies expense recorded on the income statement?
c. what is the amount of supplies on balance sheet?

A

a. dr supplies expense 1200
cr supplies 1200
b. 1200
c. 300

93
Q

On 10/1, we pay 1200 for a one year insurance policy. assume no entry since.

a. what AJE do we record at 12/31?
b. what is the amount of expense incurred on income statement?
c. what is at the amount of asset on balance sheet?

A

a. dr insurance expense 300
cr prepaid insurance 300
b. 300
c. 900

94
Q

We sell 300 of gift cards on 2/1. 100 is used up in march.

a. AJE at end of March?

A

dr unearned revenue 100

cr sales revenue 100

95
Q

We, as a landlord, get 3 months rent for March and April on March 1 for 600.00
a. AJE at end of March?

A

dr unearned revenue 200

cr rent revenue 200

96
Q

At 12/31/x1 , i owe 100 of interest which will be paid in 20x2. AJE?

A

dr interest expense 100

cr interest payable 100

97
Q

Wage expense is 100/ day. 12/31/x1 falls on a wednesday. payment will be made on friday. 3 days expense in year one. AJE?

A

dr wage expense 300

cr wage payable 300

98
Q

What are temporary accounts?

A

Revenues
Expenses
Dividends

99
Q

What are permanent accounts?

A

assets
liabilities
retained earnings and contributed capital.

100
Q

What do you want to do with temporary accounts?

A

0 them out.

101
Q

Close out this account:
Revenue- $15,700
Expense- $15,100
Dividends- $500

A 
number one:
dr revenue 15,700
   cr expenses 15,100
   cr retained earnings 600
number two:
dr retained earnings 500
   cr dividends 500
102
Q 
Bank Balance on 6/30/x3: 10,638.40
Book Balance on 6/30/x3: 11,391.40
- bank service charge: 6
- interest earned: 20
- NSF check: 18
- company error: 9
- DIT: 1800
- outstanding checks: 1800
- EFT by customer: 100

RECONCILE

A

endings should be 11,478.40

103
Q

What is cost of goods sold?

A

cost of the stuff you sale. it is an expense account.

104
Q

Walmart sales a box of markers at $5. Cost you $2 to purchase from suppliers. AJE.

A 
a. 
dr cash 5
   cr sales revenue 5
b.
dr cost of goods sold 2
   cr inventory                2
105
Q

What are 2 contra-revenue accounts?

A

sales returns and allowances

sales account

106
Q

Corey’s Campus Store has $4,000 of inventory on hand at the beginning of the month. During the month, the company buys $41,000 of merchandise and sells merchandise that had cost $30,000. At the end of the month, $13,000 of inventory is on hand. How much shrinkage occurred during the month?

A

2000

107
Q

Give an example of establishing responsibility

A

i.e. each walmart cashier uses a different cash-drawer.

108
Q

Example of segregate duties

A

i.e. walmart cashiers, who ring up sales, do not approve price changes

109
Q

example of restricted access

A

i.e. walmart secures valuable assets such as cash and access to its computer system (passwords and firewall).

110
Q

example of document procedures

A

i.e. walmart pays suppliers using prenumbered checks.

111
Q

example of independently verify

A

i.e. walmart compares cash balances in its accounting records to the cash balances reported by its bank, and accounts for any differences.

112
Q
  1. Insurance costs paid this year, to expire next year
  2. Insurance costs expired this year.
  3. Insurance costs still owed.
  4. Cost of equipment used up this accounting year.
  5. Equipment book value (carrying value).
  6. Amounts contributed by stockholders during the year.
  7. Cost of supplies unused at the end of the year.
  8. Cost of supplies used during the accounting year.
  9. Amount of unpaid loans at end of year.
  10. Dividends declared and paid during this year.
A

guess.

Accounting 210 (4 decks)

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