ACC

Question 1

ABC Company is a start-up company and 2020 is its first year of operations. ABC Company offers a one-year warranty on its products. Sales during 2020 were €900,000 and warranty costs are estimated to be 7% of sales. During 2020, €48,000 was paid to honor warranty claims that arose during 2020. As a result of these transactions, what is the amount of the Warranty Expense recorded in 2020?

Answer 1

900,000 * 0.07 = 63,000

Question 2

The following data is available for ABC Company at 31 December 2020:
Share Capital-Ordinary, par €10 (authorized 40,000 shares)
Treasury Shares (at cost €15 per share)
Based on the data, how many ordinary shares are outstanding?
€30,000
€9,000

Answer 2

30,000 - 600 = 29,400

Question 3

Warranty expenses should be recorded in the period:

• immediately following the period in which the product is sold.
• the product is repaired or replaced.
• the product is sold and recognized as sales revenue.
• the product is paid for by the customer.

Answer 3

• the product is sold and recognized as sales revenue.

Question 4

If ABC Company issues 8,000 ordinary shares with a €5 par value for €250,000, then:

Answer 4

8,000 * 5 = 40,000

250,000 - 40,000 = 210,000

Question 5

If a loss of €35,000 is incurred in selling (for cash) office equipment with a book value of €140,000, then the office equipment was sold (in cash) for:

Answer 5

140,000 - 35,000 = 105,000

Question 6

ABC Company is a start-up company and 2020 is its first year of operations. ABC Company offers a one-year warranty on its products. Sales during 2020 were 700,000 and warranty costs are estimated to be 5% of sales. During 2020, €27,000 was paid to honor warranty claims that arose during 2020. As a result of these transactions, what is the amount of the Warranty Liability at 31 December 2020?

Answer 6

Warranty = beginning inventory + warranty expense - settlement of claims

X = 0 + 700,000*0.05 - 27,000

X = 8000

Question 7

ABC Company reported a net loss of €12,000 for the year ended 31 December 2020. During the year 2020, Accounts Receivable increased with €28,000, Inventory decreased with €20,000, Accounts Payable decreased by €40,000, and a Depreciation Expense of €20,000 was recorded. During 2020, operating activities:

Answer 7

+/- Net income/loss + depreciation +/- Net loss of sales of PPE +/- decrease in current assets +/- increase/decrease in current liabilities = CFO

-12,000 + 20,000 + 0 + (20,000-28,000) -40,000 = -40,000

Question 8

If a company has an acid-test ratio of 1.2, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?

• Both the borrowing of cash by short-term debt and the collection of accounts receivable will decrease the ratio.
• Both the borrowing of cash by short-term debt and the collection of accounts receivable will increase the ratio.
• The borrowing of cash by short-term debt will decrease the ratio, while the collection of accounts receivable will have no effect on the ratio.
• The borrowing of cash by short-term debt will increase the ratio, while the collection of accounts receivable will have no effect on the ratio.

Answer 8

• The borrowing of cash by short-term debt will decrease the ratio, while the collection of accounts receivable will have no effect on the ratio.

Question 9

On 1 September 2021, ABC Company received a prepayment of €6,000 for services to be performed over the next six months. At 31 December 2021, after all necessary adjustment entries have been made, what is the amount in the Unearned Revenue account?

Answer 9

6000/6 = 1000 * 4 months

Question 10

On 6 June 2021, ABC Company purchased supplies on account for €80,000. On 30 June 2021, the company paid half of the outstanding amount to its supplier. The payment on 30
June 2021 will:

• decrease Cash and decrease Accounts Payable by €40,000
• decrease Cash and increase Supplies Expense by €80,000
• decrease Supplies and increase Supplies Expense by €40,000
• decrease Cash and increase Accounts Receivable by €40,000

Answer 10

• decrease Cash and decrease Accounts Payable by €40,000

Question 11

A company has net sales of €800,000, a beginning balance of net accounts receivables of €70,000, and an ending balance of net accounts receivables of €90,000.
Calculate the average collection period for the accounts receivables. Round off your answer to full days. Make sure to include your calculations in your answer.

Answer 11

Average acc. receivable = (70,000+90,000)/2 = 80,000

Acc. receivable turnover = net credit sales/average net acc. receivable = 800,000/80,000 = 10

365/10 = 36,5 => 37 days

Question 12

At the beginning of the year, Prepaid Insurance had a balance of €6,500. At the end of the year the balance in Prepaid Insurance was €7,900. Insurance Expense as reported on the income statement was €49,500. Calculate the amount of payments for insurance during the year. Make sure to include your calculations in your

Answer 12

Difference of prepaid insurance: 6,500-7,900 = 1,400 increase in prepaid insurance

Since prepaid insurance increased, this means that the company paid more than it incurred as expenses

So the payment amount to: 49,500 + 1,400 = 59,900

Question 13

ABC Company purchased equipment on 1 January 2018 for €180,000. The equipment had an estimated useful life of 10 years and an estimated residual value of €30,000. After using the equipment for 3 years, the company determined that the equipment could be used for an additional 9 years (so the total useful life will be 12 years instead of 10) and will have an estimated residual value of €9,000. Assuming ABC Company uses straight-line depreciation, compute depreciation expense for the year ending 31 December
2021. Make sure to include your calculations in your answer.

Answer 13

180,000 - 30,000/10 = 15,000

after 3 years: 15,000*3 = 45,000

180,000-45,000 - 9,000/9 = 14,000

Question 14

A company purchased factory equipment for €2,800,000 in January 2019. It is estimated that the equipment will have a €280,000 residual value at the end of its 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after the purchase is:

Answer 14

Declining method = no residual value
2/years => 2/5 = 0.4

year 1: 2,800,0000.4 = 1,120,000
2,800,000 - 1,120,000 = 1,680,000
year 2: 1,680,0000.4 = 672,000

Question 15

If a company fails to record an estimated Bad Debt Expense:
A) revenues are understated
B) expenses are understated
C) Accounts Receivables are understated
D) the realizable value of the Accounts Receivables is understated

Answer 15

No expenses recored so => B) expenses are understated

Question 16

For ABC Company, the aging-of-accounts-receivable table indicates that €7,500 are estimated to be uncollectible. If the Allowance for Doubtful Accounts has a €1,100 credit balance, the adjustment to record bad debts for the period will require a:
A) debit to Bad Debt Expense for €6,400.
B) debit to Allowance for Doubtful Accounts for €6,400.
C) credit to Allowance for Doubtful Accounts for €7,500.
D) debit to Bad Debt Expense for €7,500.

Answer 16

A) debit to Bad Debt Expense for €6,400.

Question 17

When a company determines a particular account to be uncollectible, it charges the loss to Bad Debt Expense under:
A) the direct write-off method.
B) both the allowance method and the direct write-off method.
C) the allowance method.
D) Neither the allowance method nor the direct write-off method.

Answer 17

A) the direct write-off method.

Question 18

In periods of decreasing prices, the inventory method which results in the inventory value on the statement of financial position that is closest to current cost is the:
A) average-cost method
B) FIFO method
C) specific identification method
D) LIFO method

Answer 18

B) FIFO method

Question 19

The information for preparing a trial balance on a worksheet is obtained from:
A) financial statements
B) general ledger accounts
C) general journal entries
D) business documents

Answer 19

B) general ledger accounts

Question 20

As a:
prepaid expenses expire with the passage of time, the correct adjusting entry will be: A) debit to an asset account and a credit to an expense account
B) debit to an asset account and a credit to an asset account
C) debit to an expense account and a credit to an expense account
D) debit to an expense account and a credit to an asset account

Answer 20

D) debit to an expense account and a credit to an asset account

Question 21

Adjusting entries are required:
A) yearly
B) every time financial statements are prepared
C) quarterly
D) monthly

Answer 21

B) every time financial statements are prepared

Question 22

At September 1, 2020, ABC Company reported equity of €272,000. During the month, ABC generated revenues of €40,000, incurred expenses of €24,000, purchased equipment for €10,000 and paid dividends of €4,000. What is the amount of equity at September 30, 2020?
A) €284,000
B) €274,000
C) €16,000
D) €272,000

Answer 22

B) €274,000

Question 23

ABC Company purchased supplies for €1,000. ABC paid €500 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for €1,000, a credit to a liability account for €500. Which of the following would be the correct way to complete the recording of the transaction?
A) Credit the retained earnings account for €500
B) Credit an asset account for €500
C) Credit another liability account for €500
D) Debit the retained earnings account for €500

Answer 23

B) Credit an asset account for €500

Question 24

Which of the following accounts does normally not have a credit balance?
A) Dividends
B) a liability account
C) a revenue account
D) Share Capital–Ordinary

Answer 24

A) Dividends

Question 25

Which of the following events is not a business transaction?
A) Signing a contract to deliver a good in the next month
B) Earning revenue for services provided
C) Paying rent for this month
D) Issuing of shares in exchange for cash

Answer 25

A) Signing a contract to deliver a good in the next month

Question 26

The economic entity assumption requires that the activities:
A) must be reported to the accounting regulators
B) of a sole proprietorship cannot be distinguished from the personal economic events
of its owner
C) of different entities can be combined if all the entities are corporations
D) of an entity be kept separate from the activities of its owner

Answer 26

D) of an entity be kept separate from the activities of its owner

Question 27

Which of the following never requires an outflow of cash?
* Amortization of patent
* Buyback of common shares
* Early repayment of debt
* Payment of dividends

Answer 27

• Amortization of patent

Question 28

The entry to write off an account under the allowance method for estimating uncollectible accounts:

• has no effect on net total assets or net income
• increases net income
• reduces total assets
• reduces net income

Answer 28

• has no effect on net total assets or net income

Question 29

An expense incurred in 2018 is not paid until 2019. Using the accrual basis of accounting, the expense should appear on:

• both the 2018 and 2019 income statements
• neither the 2018 nor the 2019 income statement
• the 2019 income statement
• the 2018 income statement

Answer 29

• the 2018 income statement

Question 30

Which statement is NOT true?

• Revenues are increased by a debit
• A credit increases a liability account.
• A debit increases an asset account
• Expenses are increased by a debit

Answer 30

• Revenues are increased by a debit
  FALSE CREDIT

Question 31

Which financial statement must be prepared before the others?

• Statement of Changes in Equity
• Income Statement
• Statement of Cash Flows
• Balance Sheet

Answer 31

• Income Statement

Question 32

The use of LIFO in accounting for a firm’s inventory:

• Usually provides a better match of expenses with revenues as it uses more recent inventory prices
• None of these answer choices is correct
• Usually matches the physical flow of goods through the business
• Is usually used for internal management purposes

Answer 32

• Usually provides a better match of expenses with revenues as it uses more recent inventory prices

Question 33

Double-entry accounting means that each transaction:

• is recorded in both the journal and in the ledger
• increases at least one account and decreases at least one account
• affects both an income statement account and a balance sheet account
• debits at least one account and credits at least one account

Answer 33

• debits at least one account and credits at least one account

Question 34

Assume a company’s liquidity ratios all are less than 1.0 before it purchases inventory on credit. When it makes the purchase:
- Its current ratio decreases
- Its quick ratio remains unchanged
- Its quick ratio decreases
- Its current ratio remains unchanged

Answer 34

• Its quick ratio decreases