Exam 1 Flashcards
Eagle Eye, Inc., a corporation, received an additional investment of $6,000 cash in exchange for shares of capital stock. How does this transaction affect Eagle Eye’s accounts?
a. Increase capital stock and increase cash by $6,000 each
b. Increase capital stock and decrease retained earnings by $6,000 each
c. Increase capital stock and increase revenue by $6,000 each
d. Increase in stock expense and decrease cash by $6,000 each
a. Increase capital stock and increase cash by $6,000 each
The income statement of a corporation for the month of November indicates a net income of $90,000. During the same period, $100,000 in cash dividends were paid.
Which of the following is true?
a. The business incurred a net loss of $10,000 during the month.
b. The retained earnings was reduced by a net amount of $10,000.
c. Liabilities increased by $10,000.
d. The business realized a deferred gain of $10,000
b. The retained earnings was reduced by a net amount of $10,000.
A vacant lot acquired for $300,000, on which there is a balance owed of $120,000, is sold for $415,000 in cash. The seller pays the $120,000 owed. What is the effect of these transactions on the total amount of the seller’s (1) assets, (2) liabilities, and (3) stockholders’ equity?
1.Total assets: decreased $5000
415,000-$420,000
- Total liabilities decreased $120,000
- Stockholders’ equity
increased $115,000
$415000
Using accrual accounting, revenue is recorded and reported only:
a. when cash is received before services are rendered.
b. if cash is received after the services are rendered. c. when cash is received without regard to when the services are rendered. d. when the services are rendered without regard to when cash is received.
d. when the services are rendered without regard to when cash is received
UNI Co. received $1,000 advance from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI’s accounts if UNI recognizes a liability?
a. Cash is increased and revenue is increased.
b. Cash is increased and revenue is decreased.
c. Cash is increased and unearned revenue is increased.
d. It is not recorded
c. Cash is increased and unearned revenue is increased.
Unearned revenue is what type of an account?
a. Asset
b. Stockholders' equity c. Liability d. Revenue
c. Liability
&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M’s accounts?
a. Increase accounts receivable and cash by $1,000,000 each
b. Increase accounts receivable and revenues by $1,000,000 each c. Increase cash and decrease accounts receivable by $1,000,000 each d. Increase accounts receivable and unearned revenues by $1,000,000 each
B. Increase accounts receivable and revenues by $1,000,000 each
lectrodo Co. purchased land for $55,000 with $20,000 paid in cash and $35,000 in notes payable. What effect does this transaction have on the accounts under the accrual basis of accounting?
a. Net increase in assets of $55,000 and a net decrease in liabilities of $35,000
b. Net increase in assets and liabilities of $55,000 c. Net increase in assets of $75,000 and a net decrease in liabilities of $30,000 d. Net increase in assets of $35,000 and a net increase in liabilities of $35,000
d. Net increase in assets of $35,000 and a net increase in liabilities of $35,000
The unearned rent account has a balance of $60,000. If $4,000 of the $60,000 is unearned at the end of the accounting period, the amount of the adjusting entry is:
a. $60,000.
b. $4,000. c. $56,000. d. $64,000
c. $56,000.
Which of the following is an example of an accrued expense?
a. Supplies on hand
b. A two-year premium paid on a fire insurance policy c. Fees received but not yet earned d. Salary owed but not yet paid
d. Salary owed but not yet paid
hen cash is paid to suppliers on account, which section of the Statement of Cash Flows is affected?
a. There is no effect on the Statement of Cash Flows.
b. Cash Flow from Operating Activities. c. Cash Flow from Investing Activities. d. Cash Flow from Financing Activities.
b. Cash Flow from Operating Activities.
On June 1, Unidevo, Inc. purchased $1,700 worth of supplies on account. Prior to the purchase, the balance in the supplies account was $0. On December 31, the fiscal year-end for Unidevo, it is determined that $800 of supplies still remain. What is the balance in the supplies account after adjustment?
a. $900
b. $800 c. $0 d. $1,700
b. $800
If prepaid insurance expires over time, this asset account becomes a(n):
a. revenue.
b. liability. c. expense. d. another asset
c. expense
Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become _____ over time.
a. liabilities
b. expenses c. stockholders' equity d. assets
b. expenses
Check My Work
In October, cash is received in advance of rendering services. Assuming that half of the services have been performed by December 31, the year-end adjustment would:
a. decrease Unearned Service Revenue and decrease Cash.
b. increase Accounts Receivable and increase Service Revenue.
c. decrease Unearned Service Revenue and increase Service Revenue.
d. increase Cash and increase Service Revenue.
c. decrease Unearned Service Revenue and increase Service Revenue
or a corporation, stockholders’ equity consists of:
a. assets plus liabilities.
b. current assets plus long-term assets. c. capital stock and retained earnings. d. intangible assets.
c. capital stock and retained earnings.
ASE Company sold goods, receiving $35,000 in cash and $15,000 on credit. How much revenue should it record under the accrual basis of accounting?
a. $60,000
b. $35,000 c. $50,000 d. $15,000
c. $50,000
orking capital is calculated as _____.
a. current assets plus current liabilities
b. stockholders' equity plus current assets c. current assets less current liabilities d. current assets less stockholders' equity
c. current assets less current liabilities
The quick ratio is computed as _____.
a. current liabilities divided by current assets
b. quick assets divided by current liabilities c. current assets divided by stockholders' equity d. quick assets divided by current assets
b. quick assets divided by current liabilities
Three measures useful in assessing liquidity and the ability of a company to pay its current liabilities are _____, the current ratio, and the quick ratio.
a. debt equity ratio
b. interest coverage c. net profit d. working capital
d. working capital
From the following data for David ProElecticals, calculate the quick ratio.
Cash $ 68,500 Accounts receivable 130,000 Inventories 213,000 Prepaid expenses 25,000 Total current assets $436,500 Less current liabilities 275,000 Working capital $161,500 a. 1.5 b. 0.7 c. 0.3 d. 1.6
b. 0.7
Quick Ratio/current liabilities
Cash 68500 + AR 130,000= $198,5000/275,000 (current liabilities)
=.72
Gross profit is determined by subtracting the cost of merchandise sold from what?
a. Fees earned
b. The cost of merchandise purchased c. Net sales d. Accounts receivable
c. Net sales
net sales- cgs = gross profit
The difference between sales and cost of merchandise sold for a merchandising business is:
a. net sales.
b. gross sales. c. gross profit. d. sales.
c. gross profit.
Which of the following items is subtracted from sales to arrive at net sales?
a. Sales returns and allowances
b. Cost of after sales services c. Desired sales d. Sales commission
a. Sales returns and allowances
est, Inc. had beginning inventory of $30,000, purchases of $65,000, and ending inventory of $10,000. What is West’s cost of merchandise sold?
a. $65,000
b. $10,000 c. $85,000 d. $30,000
c. $85,000
Beginning inventory 30,000 +
Purchase 65,000 = 95,000
95,000- 10,000(ending inventory) = $85,000
alaxy, Inc. had the following merchandise transactions in October:
Purchases $80,000
Purchase returns 8,000
Purchase discounts 7,200
Transportation in 3,000
What is the total cost of merchandise purchased for Galaxy, Inc.?
a. $67,800
b. $83,000 c. $77,000 d. $80,000
a. $67,800
Purchases $80,000 -Purchase returns 8,000 -Purchase discounts 7,200 \+Transportation in 3,000 -------------------------------------- $67,800
Check My Work Which of the following accounts is a contra account to Sales? a. Accounts Receivable b. Sales Returns and Allowances c. Interest Revenue d. Accounts Payable
b. Sales Returns and Allowances
Surist, Inc.
Surist, Inc. purchased merchandise for $300,000, received credit for purchase returns of $20,000, availed purchase discounts of $5,000, and paid transportation in of $12,000.
Refer to Surist, Inc. What is the total cost of merchandise purchased?
a. $312,000
b. $263,000 c. $288,000 d. $287,000
d. $287,000
purchased merchandise for $300,000 -credit for purchase returns of $20,000 -purchase discounts of $5,000 \+ paid transportation in of $12,000 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ $287,000
urist, Inc.
Surist, Inc. purchased merchandise for $300,000, received credit for purchase returns of $20,000, availed purchase discounts of $5,000, and paid transportation in of $12,000.
Refer to Surist, Inc. If Surist, Inc. had $30,000 in beginning inventory, and sold goods costing $180,000, what is the ending inventory balance?
a. $137,000
b. $90,000 c. $150,000 d. $162,000
a. $137,000
purchased merchandise for $300,000 -credit for purchase returns of $20,000 -purchase discounts of $5,000 \+ paid transportation in of $12,000 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ $287,000 \+$30,000 in beginning inventory -$180,000 cost of good sold -------------------------------------- $137,000
Silver Co. sold merchandise to Copper Co. on account, $75,000, terms 2/10, net 30. The cost of the merchandise sold is $55,000. Silver Co. issued a credit memorandum for $10,000 for merchandise returned that originally cost $9,000. Copper Co. paid the invoice within the discount period. What is amount of net sales from the transactions?
a. $65,000
b. $63,500 c. $64,680 d. $63,700
d. $63,700
$ 75,000 on account
-$10,000 for merchandise returned
_____________
$65,000 x .98 discount = $63,700
If Johnson, Inc. sold $800,000 worth of merchandise, had $100,000 returned, and then the balance paid during the 1% discount period, how much was Johnson’s net sales?
a. $700,000
b. $692,000 c. $800,000 d. $693,000
d. $693,000
$800,000 sold
-$100,000 returned
____________
$700,000 x.99 =693,000
erchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the buyer’s accounts on November 18. The credit period begins with what date?
a. November 15
b. November 17 c. November 12 d. November 18
a. November 15
If a $50,000 sale is made on January 1, with terms of 1/10, n/30, how much would the discount be if payment is made on January 9?
a. $500
b. $5,000 c. $0 d. $1,000
a. $500
50,000 x .01 = $500
When merchandise that was sold on account is returned, which accounts are affected?
a. Cash, accounts receivable, cost of goods sold, and sales returns
b. Sales returns, accounts receivable, purchases, and merchandise inventory c. Sales returns, accounts receivable, merchandise inventory, and cost of goods sold d. Sales returns, accounts receivable, purchases, and cost of goods sold
c. Sales returns, accounts receivable, merchandise inventory, and cost of goods sol
Check My Work If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a: a. debit memorandum. b. sales invoice. c. credit memorandum. d. purchase invoice.
c. credit memorandum
Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?
a. $180, September 30
b. $90, September 25 c. $90, September 30 d. $180, September 25
c. $90, September 30
