final Flashcards
sell products purchased from other businesses.
merchandising business
A(n) __________ changes basic inputs into products that are sold to customers.
manufactoring business
The business entity concept is important because
it limits economic data in the accounting system to data directly related to the activities of the business.
Equipment with a sales price of $100,000 is purchased at a discount of 10% by Aaron Company. At what value should the equipment be recorded in Aaron Company’s records?
90,000
Which of the following concepts requires that economic data be recorded in dollars in the United States?
Unit of measure concept
Clayton Company purchased a new welder for $3,500. Clayton paid $1,000 cash down and will pay the remainder in 60 days. What effect does this transaction have on the accounting equation?
$2,500 net increase in assets and $2,500 increase in liabilities
Which of the following statements is not true?
None of these statements are true
Marvin Company negotiated the purchase of a new building for $250,000. Marvin paid a $100,000 cash down payment and will pay off the remainder over seven years. What effect does this transaction have on the accounting equation?
$150,000 net increase in assets and $150,000 increase in liabilities
Cool Taste Company recorded $5,000 in sales on account for the week. What effect does this transaction have on the accounting equation?
$5,000 increase in assets and $5,000 increase in owner’s equity
Clayton Company purchased a new welder for $3,500. Clayton paid $1,000 cash down and will pay the remainder in 60 days. What effect does this transaction have on the accounting equation?
$2,500 net increase in assets and $2,500 increase in liabilities
All business transactions can be stated in terms of
changes in the elements of the accounting equation
The following data were taken from Reynolds Company’s balance sheet:
Dec. 31, 20Y7 Dec. 31, 20Y6
Total liabilities $240,000 $210,000
Total owner’s equity $160,000 $150,000
Which of the following best explains the change in creditors’ risk from 20Y6 to 20Y7?
risk increased
The numerator in the calculation of the ratio of liabilities to owner’s equity is
total liabilities
The ratio of liabilities to owner’s equity is a tool used to assess a company’s ability to
pay its creditors
the statement that provides the financial position of a company as of a specific date is the
balance sheet
The statement that reports net income or loss for a certain period in time is the
income statement
The amounts needed to calculate the ratio of liabilities to owner’s equity can be found on
balance sheet
The right-hand side of a T account is called the
credit side
The chart of accounts is a
list of the accounts in the ledger.
Which of the following statements is FALSE regarding T accounts?
a. The excess of the credits of an owner’s equity account over the debits is the balance of the account.
b. A T account is not the same thing as the general ledger.
c. The excess of the credits of an asset account over the debits is the balance of the account.
d. The excess of the credits of a liability account over the debits is the balance of the account.
The excess of the credits of an asset account over the debits is the balance of the account.
The journal entry to pay creditors on account would include
a debit to Accounts Payable
The journal entry to record fees of $13,500 earned on account would include
a debit to Accounts Receivable for $13,500 and a credit to Fees Earned for $13,500
The normal balance of an asset account is
a debit
The debits and credits for each journal entry are posted to the accounts
in the order in which they occur in the journal.
Claremore Company received $7,000 cash as payment from Tulsa Company for a sale made on account in the previous month. Which of the following journal entries should the company record?
Cash7,000
Accounts Receivable7,000
The process of posting is transferring the debits and credits from the
journal to the ledger
A fee earned on account was journalized and posted in error as a debit to Fees Earned and a credit to Accounts Receivable. The correcting journal entry would include
a debit to accounts receivable
Which of the following is not an error that would cause the trial balance to become unequal?
a. Balance entered in wrong column of account
b. Debit is posted as a credit, or vice versa
c. Column incorrectly added
d. The debit part of an entry posted to the wrong account as a debit
The debit part of an entry posted to the wrong account as a debit
If a fee of $2,850 earned from a client was debited to Accounts Receivable for $2,580 and credited to Fees Earned for $2,850, which of the following statements would be true?
a. The credit total of the trial balance would be higher by $270.
b. The wrong account is credited.
c. The trial balance totals would be equal.
d. The debit total of the trial balance would be higher by $270.
The credit total of the trial balance would be higher by $270
Horizontal analysis of a balance sheet
shows changes in individual asset, liability, and equity items over time.
Using horizontal analysis, the increases and decreases are shown
as amounts and percentages for each line item.
A group of accounts for a business entity is called a
ledger
What is the ending balance of the following account on April 30?
Accounts Payable
Payments 2,000 Apr. 1 Bal. 4,250
Purchases 1,250
credit $3500
Using the following information, determine the balance of the cash account. The left side of the T account sums to $34,500, and the right side of the T account sums to $19,450.
$15,050
Which of the following is correct about T accounts?
It is the simplest form of account.
The owner, Alex Xu, invested an additional $45,000 of cash into his business. Which of the following journal entries should the company record?
Cash45,000
Alex Xu, Capital45,000
The unadjusted trial balance is prepared
after the journal entries are posted
Which of the following statements will not result in the trial balance being unequal?
A debit of $400 was incorrectly posted to Supplies instead of Supplies Expense.
A fee earned on account was journalized and posted in error as a debit to Fees Earned and a credit to Accounts Receivable. The correcting journal entry would include
a debit to Accounts Receivable
If a fee of $2,850 earned from a client was debited to Accounts Receivable for $2,580 and credited to Fees Earned for $2,850, which of the following statements would be true?
The credit total of the trial balance would be higher by $270.
The unadjusted trial balance is prepared
after the journal entries are posted
The trial balance will include
the ending balance of each account.
Recliner Company wants to verify that all of its accounts are in balance. Which of the following will be prepared for this purpose?
trial balance
Which of the following statements is true regarding the cash basis of accounting?
a. The cash basis of accounting is used by most large businesses to provide accurate financial statements for users.
b. Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out.
c. Expenses are reported in the same period as the revenues to which they relate.
d. Revenues are reported in the period in which they are earned.
Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out.
Revenue is reported on the income statement in the period earned. The accounting concept supporting this reporting is the
revenue recognition concept.
A month-end review of work performed during the month at an accounting firm for tax clients indicates there are a total of 50 tax returns completed for which customers owe $196 each. They remain unbilled at the end of the period. The adjusting journal entry should include a
credit to Tax Preparation Revenue for $9,800.
Clever Computers has a five-day work week and pays the office staff $3,050 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for
$2,440.
The cash payment for accrued revenues occurs __________ the adjusting entry to record the accrued revenue.
after
When recording an adjusting entry for a prepaid expense,
an asset account is credited
When recording an adjusting entry for unearned revenue, a(n)
liability account is debited
GreenSource Company began the period with $330 in supplies. During the month, an additional $1,500 of supplies were purchased. A physical inventory at the end of the period revealed that there were $585 of supplies on hand. The adjusting entry should include a
credit to Supplies for $1,245.
Examples of fixed assets include
land, buildings, equipment
The book value of an asset is
cost of asset – accumulated depreciation.
If the beginning balance of the Accumulated Depreciation—Equipment account is $10,000 and an adjusting journal entry is recorded for depreciation on the equipment for $2,500, the balance of the accumulated depreciation account after the entry is recorded will be
$12,500
If the following adjusting entry is omitted, what effect will it have on the financial statements?
Unearned Rent 1,900
Rent Revenue 1,900
revenues will be understated
An adjusting entry debiting Supplies Expense and crediting Supplies is an example of adjusting a(n)
prepaid expense
If an adjustment for salaries earned but not recorded or paid in the amount of $85,000 were to be omitted, how would this affect the financial statements?
a. Net income would be overstated on the income statement by $85,000.
b. Expenses would be understated on the income statement by $85,000.
c. Liabilities would be understated on the balance sheet for $85,000.
d. All of these effects would occur.
all of these effects would occur
Once the adjusted trial balance is balanced, it can be used to prepare
the income statement, the statement of owner’s equity, and the classified balance sheet.
After which of the following errors would the adjusted trial balance totals not agree?A debit to Accounts Receivable was inadvertently posted as a debit to Accounts Payable.
b. Supplies were miscounted and adjusted for the wrong amount.
c. A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.
d. The adjustment for depreciation was omitted.
A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.
The adjusted trial balance
is at a specific date
Vertical analysis can be used to analyze changes
a. on an income statement.
b. on a balance sheet.
c. over time.
d. All of these choices are correct.
all of these choices are correct
Which of the following statements is true about vertical analysis?
a. The amount of change in each line item compared to prior periods is calculated.
b. Each line item is expressed as a percentage of owner’s equity.
c. It is useful in analyzing relationships within a financial statement.
d. It cannot be used for analyzing changes in financial statements over time.
It is useful in analyzing relationships within a financial statement.
The following are line items from the vertical analysis of a balance sheet:
Amount Percent Total assets $300,000 300% Total liabilities $200,000 200% Total owner's equity 100,000 100% Total liabilities and owner's equity $300,000 300%
What needs to be changed on the statement?
a. Total assets should be expressed as 100%.
b. Total liabilities and owner’s equity should be expressed as 100%.
c. Total owner’s equity should be expressed as 33%.
d. All of these changes should be made.
all of these choices should be made
Which of the following is true regarding the end-of-period spreadsheet?
a. The difference in the totals of the Adjustments columns indicates the net income or loss for the period.
b. Closing entries are entered in the Adjustments columns.
c. The Adjustments columns need not be totaled.
d. Amounts are read across a row and added or subtracted to determine the amounts to insert in the Adjusted Trial Balance columns.
Amounts are read across a row and added or subtracted to determine the amounts to insert in the Adjusted Trial Balance columns.
Using an end-of-period spreadsheet, the flow of accounting information moves from the
adjusted trial balance to the financial statements
Which of the following will increase owner’s equity on the statement of owner’s equity?
a. Owner’s withdrawals, net loss
b. Owner’s withdrawals, net income
c. Owner’s investments, net income
d. Owner’s investments, net loss
Owner’s investments, net incom
When pulling the owner’s capital balance from the end-of-period spreadsheet into the statement of owner’s equity, why is it also important to check the detail in the owner’s capital account in the general ledger?
There may have been additional investments made during the year reflected in the balance
The following is the statement of owner’s equity for Cloud Computer Service.
Cloud Computer Service
Statement of Owner’s Equity
For the Year Ended December 31, 20Y6
S. Cloud, capital, January 1, 20Y6 $13,568
Investments during the year $3,500
Net income for the year ?
$ ?
Withdrawals 5,000
Increase (decrease) in owner’s equity ?
S. Cloud, capital, December 31, 20Y6 $18,905
Calculate the net income to complete the statement.
6837
The change in owner’s equity is calculated by solving for the missing number: $13,568 + $3,500 + X – $5,000 = $18,905.
Which of the following accounts will be closed with a credit?
depreciation expense
The account used to close the temporary accounts (revenues and expenses) before the finish of the accounting cycle is
the owner’s capital account
Which of the following accounts will be closed with a debit?
rent revenue
Which of the following is not an actual step in the accounting cycle?
a. Financial statements are prepared.
b. Transactions are analyzed and recorded in the journal.
c. Decisions are made after reviewing the financial statements.
d. Closing entries are journalized and posted to the ledger.
Decisions are made after reviewing the financial statements.
f the following steps of the accounting cycle, which step should be completed last?
a. Financial statements are prepared.
b. Adjusting entries are journalized and posted to the ledger.
c. Closing entries are journalized and posted to the ledger.
d. Transactions are posted to the ledger.
c. Closing entries are journalized and posted to the ledger.
In which of the following steps of the accounting cycle will the owner capital account be used?
a. Step 10: Preparing a post-closing trial balance
b. Step 9: Journalizing and posting closing entries
c. Step 3: Preparing an unadjusted trial balance
d. Step 5: Preparing an optional end-of-period spreadsheet
Step 9: Journalizing and posting closing entries
A company’s net income or net loss for a period is determined during which of the following steps of the accounting cycle?
when financial statements are prepared
The journal entry to record an owner withdrawal of funds for personal use includes a
c. debit to the owner’s drawing account.
Why is it favorable to select a fiscal year that ends when the operating cycle is at its lowest point?
c. The business has more time to analyze the results of operations and to prepare financial statements.
The annual accounting period (fiscal year) most commonly adopted by businesses is
January 1 to December 31
The following data were taken from the records of Menendez Company:
Current assets $5,000 Property, plant, and equipment 10,000 Current liabilities 3,500 Long-term liabilities 5,000 Owner's equity 6,500
How is Menendez Company’s current ratio calculated?
Current Assets/Current Liabilities
The following data were taken from the records of Carrington Company:
Current assets $10,000 Property, plant, and equipment 20,000 Current liabilities 5,000 Long-term liabilities 10,000 Owner's equity 15,000
What is Carrington Company’s current ratio?
2.00
The ability of a business to pay its debts is called
solvency
Merchandise inventory is reported as a(n)
current asset
Determine sales for the month using the following information. At month-end, cost of merchandise sold is $191,350 and gross profit is $167,990.
c. $359,340
The difference between a service company’s and a merchandising company’s balance sheets is that the merchandising company includes
b. merchandise inventory.
Credit terms apply
b. when the payments for merchandise are to be made.
Garden Company sold merchandise to Mamouth Industries on account for $3,450 with terms 2/10, n/30. The cost of merchandise sold was $1,850. Mamouth Industries returned merchandise with a cost of $600. Which of the following will be recorded by Garden Company in the journal entry for the return using the perpetual inventory system?
debit to merchandise inventory $660
Garden Company purchased merchandise on account from Parker Company for $88,000 with terms 1/15, net 45. Garden Company returned $12,000 of the merchandise and received full credit from Parker Company. If Garden Company pays within the discount period, what is the amount of cash required for payment?
$75,240
($88,000 – $12,000) – [($88,000 – $12,000) × 1%] = $75,240
Estimated Returns Inventory is
an asset account reported with Inventory on the balance sheet.
The two types of adjusting entries for merchandising companies include
Inventory Shrinkage and Customer Returns and Allowances.
In the multiple-step income statement, cost of merchandise sold is subtracted from
sales
Sales less cost of merchandise sold is
gross profit
The closing entry for a merchandising business will include which of the following?
debit to sales revenue
In the asset turnover ratio, the assets consist of
the average of total assets from one year prior and the current year’s balance sheets
the average of total assets from one year prior and the current year’s balance sheets
Average of total assets
The asset turnover ratio is computed as
Sales/Average Total Assets
Several controls are used to safeguard inventory, and one of those is to
hire security guards
The inventory subsidiary ledger is used
a. to keep track of inventory sold.
b. to keep track of proper inventory maximum and minimum levels.
c. to keep track of inventory purchased.
d. All of these choices are correct.
all of these choices are correct
Under the specific identification method, gross profit is determined by
identifying the unit sold with the specific cost when it was purchased.
Which cost flow method is used most frequently?
FIFO
Which of the following is a benefit of using a computerized perpetual inventory system?
a. Sales patterns can be analyzed easily when using computerized perpetual inventory systems.
b. Computerized perpetual inventory systems help managers track inventory.
c. Computerized perpetual inventory systems are helpful when recording many inventory transactions.
d. All of these choices are benefits of using a computerized perpetual inventory system.
. All of these choices are benefits of using a computerized perpetual inventory system.
Which of the following is true regarding the perpetual LIFO inventory method?
a. Unit costs for each item are averaged each time a purchase is made.
b. The cost of the units sold is the cost of the most recent purchases.
c. Costs are included in the cost of merchandise sold in the order in which units were purchased.
d. All of these choices are correct.
The cost of the units sold is the cost of the most recent purchases
Determine the cost of merchandise sold for the transaction on October 25 using the perpetual inventory system and the FIFO method.
Date Item Units Cost Total Beginning inventory 5 $10 $50 October 4 Purchase 8 11 88 October 8 Sale 6 October 20 Purchase 15 12 180 October 25 Sale 12
$137 (5 × $10) + (8 × $11) = $138, which represents the cost of the beginning inventory plus the cost of the October 4 purchase.
When using the periodic FIFO inventory cost method, which of the following statements is correct?
a. The physical count determines the inventory on hand.
b. The cost of merchandise on hand is made up of the most recent costs.
c. The cost of merchandise sold is made up of the earliest purchases.
d. All of these choices are correct.
all of these choices are correct
Determine the ending inventory using the periodic inventory system and the weighted average inventory cost flow method (round answers to the nearest cent).
Date Item Units Cost Total January 1 Beginning inventory 5 $3 $15 January 12 Purchase 10 4 40 January 18 Purchase 8 5 40 Totals 23 — $95 Sold 18
$20.65
$95/23 = $4.13 × 5 = $20.65
Determine the ending inventory using the periodic inventory system and the LIFO inventory method, assuming that 18 units were sold at a sales price of $14.
Date Item Units Cost Total June 1 Beginning inventory 6 $5 $30 June 12 Purchase 10 6 60 June 18 Purchase 8 7 56 Totals 24 — $146
$30
8 units × $7 = $56, which is the total purchase price for the June 18 purchase.
The cost method that will yield an ending inventory value that is somewhere between possible high and low prices using traditional costing methods is the
weighted average inventory cost method
The cost method that will yield the highest taxable income during times of inflation is the
FIFO inventory cost method.
Regarding consigned inventory,
d. the manufacturer is the consignor.
Merchandise inventory is found on the balance sheet as a
current asset
The cash, land, inventory, and accounts receivable accounts are shown on the balance sheet. In which order should they be listed?
Cash, Accounts Receivable, Inventory, Land
An advantage of using the retail method of inventory costing is
a. that it allows management to monitor operations more closely when the number of physical inventories is reduced.
b. that it may be used as an aid in taking a physical inventory.
c. that it provides inventory figures for preparing monthly and quarterly financial statements when the periodic system is used.
d. All of these choices are correct.
all of these choices are correct
Number of days’ sales in inventory is calculated as
Average Inventory/Average Daily Cost of Merchandise Sold.
Inventory turnover is calculated as
. Cost of Merchandise Sold/Average Inventory.
The debit balance in Cash Short and Over at the end of an accounting period is reported as
an expense on the income statement.
Which of the following should not be considered cash by an accountant?
a. Traveler’s checks
b. Money orders
c. Certificates of deposits
d. Coins
Certificates of deposits
Which one of the following would not cause a bank to debit a depositor’s account?
a. Wiring of the depositor’s funds to other locations
b. Bank service charge
c. Checks marked NSF
d. Interest earned by the account
Interest earned by the account
A bank statement
provides a summary of all checking account transactions recorded by the bank.
Journal entries based on the bank reconciliation are required in the depositor’s accounts for
NSF items
A bank reconciliation has
a bank section and a company section
Grace Company gathered the following reconciling information in preparing its July bank reconciliation:
Cash balance per books, 7/31 $4,500 Deposits in transit 150 Notes receivable and interest collected by bank 850 Bank charge for check printing 20 Outstanding checks 2,000 NSF check 170
The adjusted cash balance per the books on July 31 is
$5160
The adjusted book balance would be calculated by taking the $4,500 balance per books + $850 notes receivable collection – $20 bank service charge – $170 NSF check = $5,160.
The credit recorded in the journal to reimburse the petty cash fund is to
cash
The petty cash fund is
a. used to pay small amounts that occur often.
b. a special cash fund.
c. established by estimating payments needed.
d. All of these choices are correct.
all of these choices are correct
A $100 petty cash fund has cash of $16 and receipts of $80. The journal entry to replenish the account would include a
a. credit to Cash for $80.
b. credit to Petty Cash for $84.
c. debit to Cash Short and Over for $4.
d. debit to Cash for $84.
Feedback
Correct. The following is the entry to reimburse the petty cash account.
Miscellaneous Expense 80
Cash Short and Over 4
Cash 84
debit to Cash Short and Over for $4.
Cash equivalents include
a. U.S. Treasury bills.
b. money market funds.
c. commercial paper.
d. All of these choices are correct.
all of these choices are correct
Cash equivalents by definition
are expected to be converted to cash within three month
Given the following information for the year ended December 31, what is the ratio of cash to monthly cash expenses?
Negative cash flow from operations $(630)
Cash and cash equivalents as of year-end 525
10
Monthly Cash Expenses are calculated by dividing Negative Cash Flow from Operations by 12.
When determining the sufficiency of a company’s cash to pay its monthly expenses, it is better to have a higher ratio of cash to monthly expenses than a lower ratio.
This statement is true
All of the following statements are true with regard to the ratio of cash to monthly cash expenses except
a. it helps assess how long a company can operate without generating positive cash flows from operations.
b. it is useful to analyze companies in financial distress.
c. it helps assess how long a company can operate without additional financing.
d. it is calculated using cash at the beginning of the year.
it is calculated using cash at the beginning of the year.
Notes and accounts receivable that result from sales transactions are sometimes called
trade receivables
An account receivable due within the next 12 months is listed on the balance sheet under the caption
current assets
Companies may sell their receivables. This practice is called
factoring
An account becomes uncollectible
a. when multiple factors confirm that the account is uncollectible.
The direct write-off method records bad debt expense
only when an account is judged to be worthless.
A primary weakness of the direct write-off method is that
the expense of a bad debt is not matched to the period that generated the uncollectible sale amount.
An account receivable that has been written off against the allowance account
a. may be collected later.
b. may be reinstated by an entry that reverses the write-off.
c. may be paid in cash and recorded as a receipt on account.
d. All of these choices are correct.
all of these choices are correct
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts receivable in the customer ledger indicates doubtful accounts of $15,000. Which of the following entries records the proper provision for doubtful account
Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and uncollectible accounts expense is estimated at 2% of sales. If sales are $600,000, the amount of the adjusting entry to record the provision for doubtful accounts is
$12,000.
When comparing the direct write-off and allowance methods, which of the following statements applies to the allowance method?
the result is based on either a percentage of sales or an analysis of receivables.
Under the direct write-off method,
bad debt is recorded when specific customer accounts are determined to be uncollectible.
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account that had been written off on March 1, the entry to reinstate the account under the allowance method would include
a credit to Allowance for Doubtful Accounts of $3,650.
The maturity value of a promissory note is
the face value of the note plus the interest due to the maturity date.
A 90-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is
$10,300.
The party to whom the promissory note is payable is the
payee
Other disclosures related to receivables are reported
either on the face of the financial statements or in the financial statement notes
If accounts receivable for Fiona Industries is equal to $445,400 and the allowance for doubtful accounts is $13,700 at December 31, what is the amount of net receivables shown on Fiona’s balance sheet at December 31?
$431,700
Allowance for Doubtful Accounts is
d. subtracted from Accounts Receivable.
Problem #7 - Incorrect
Financial statement data for the year ending December 31 for Flagg Co. are as follows:
Sales $4,250,000
Accounts receivable:
Beginning of year 600,000
End of year 630,000
Determine the days’ sales in receivables for the year.
52.8
The numerator in the days’ sales in receivables calculation is
a. Accounts Receivable (beginning balance).
b. Accounts Receivable (ending balance).
c. Average Daily Sales.
d. None of these choices are correct.
none of these
Days’ sales in receivables
is an estimate of the length of time the receivables have been outstanding.
All of the following will be included in the cost of a fixed asset except
a. mistakes in installation.
b. the cost of installing equipment.
c. direct costs of new construction.
d. freight costs.
a mistake in installation
Examples of current liabilities are all of the following except
a. accounts receivable.
b. current portion of long-term debt.
c. accounts payable.
d. short-term notes payable.
accounts receivable
On July 8, Action Co. issued a $70,000, 6%, 120-day note payable to Scanlon Co. Assuming a 360-day year, what information is needed to calculate the maturity value of the note?
The face value ($70,000), interest rate (6%), and term (120 days) are needed to calculate the maturity value of the note
On January 8, Cargo Co. issued a $60,000, 6%, 120-day note payable to Roadside Co. Using a 360-day year, what is the maturity value of the note?
$61,200
Examples of items deducted to determine an employee’s net pay are
a. federal income tax withholding.
b. retirement savings deductions.
c. union dues.
d. All of these choices are correct.
all of these choices are correct
Employees’ weekly gross earnings were $5,500, and their federal income tax withholding was $1,116.50. Assuming the social security rate is 6.0% and the Medicare tax rate is 1.5%, what is the net amount to be paid to employees?
$3,971.00
Gross earnings $5,500.00
Less federal income tax withheld – 1,116.50
Less social security tax ($5,500 × 0.06) – 330.00
Less Medicare tax ($5,500 × 0.015) – 82.50
Net pay $3,971.00
An employee receives an hourly rate of $25, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 45; federal income tax withheld, $350; social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the net amount to be paid to the employee?
Social security and Medicare taxes are also deducted from an employee’s pay.
Total earnings are 40 hrs. × $25/hour $1,000.00
Add overtime: (45 – 40 hrs.) × $25 × 1.5 + 187.50
Less federal income tax withheld – 350.00
Less FICA $1,187.50 × 0.06 – 71.25
Less Medicare $1,187.50 × 0.015 – 17.81
Net pay $748.44
Major elements in a payroll system are . a payroll register. b. employees' earnings records. c. payroll checks d. all of these choices are correct
all of these choices are correct
The following totals for the month of July were taken from the payroll register of Lakeside Company.
Salaries $16,000
Social security and Medicare taxes withheld 900
Employees federal income taxes withheld 2,500
Medical insurance deductions 450
Federal unemployment taxes 32
State unemployment taxes 216
The journal entry to record the monthly payroll on July 31 would include a
debit to Salaries Expense for $16,000
The following totals for the month of June were taken from the payroll register of Xenos Company:
Salaries expense $14,000
Social security and Medicare taxes withheld 1,050
Federal income taxes withheld 2,800
Retirement savings 500
The entry to record the accrual of employer’s payroll taxes would include a
debit to Payroll Tax Expense for $1,050
The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is to
debit Vacation Pay Expense and credit Vacation Pay Payable.
Future pension liabilities are estimated based on all of the following except
a. employee life expectancy.
b. federal withholding income tax.
c. employee turnover.
d. expected employee compensation levels.
federal withholding income tax
A pension plan that promises to contribute a fixed amount on the employee’s behalf during the employee’s working years is called a(n)
defined contribution plan.
Scout Company sold $15,000 of merchandise in September with a three-month warranty. The cost to repair defects under warranty is estimated at 5% of the sales price. The journal entry to record the estimated warranty expense for the month of September will include a
debit to Product Warranty Expense for $750.
Blazer Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 2,800 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the income statement for Year 1, Blazer Company should show warranty expense of
28,000
Liabilities that arise from past transactions only if certain future conditions exist are called
contingent liabilities
Based on the following data, what is the current ratio, rounded to one decimal point?
Accounts payable $30,000 Accounts receivable 60,000 Accrued liabilities 5,000 Cash 40,000 Intangible assets 50,000 Inventory 69,000 Long-term investments 80,000 Long-term liabilities 100,000 Marketable securities 30,000 Fixed assets 670,000 Prepaid expenses 1,000
5.7
Based on the following data, what is the current ratio, rounded to one decimal point?
Accounts payable $30,000 Accounts receivable 60,000 Accrued liabilities 4,000 Cash 60,000 Intangible assets 50,000 Inventory 69,000 Long-term investments 80,000 Long-term liabilities 100,000 Marketable securities 50,000 Fixed assets 670,000 Prepaid expenses 1,000
7.1
. The current ratio is (Cash + Accounts Receivable + Marketable Securities + Prepaid Expenses + Inventory)/(Accounts Payable + Accrued Liabilities) = ($60,000 + $60,000 + $50,000 + $1,000 + $69,000)/($30,000 + $4,000) = 7.1.
Analysis that helps creditors evaluate a company’s ability to pay its current liabilities includes all of the following except
a. quick ratio.
b. ratio of cash to monthly cash expenses.
c. current ratio.
d. working capital.
ratio of cash to monthly cash expenses
Which of the following is the account that will be used to transfer the fixed asset cost to an expense?
depreciation expense
If the asset is long lived but not used in a productive manner, it will be classified as a(n)
investment
Which of the following is not one of the most common depreciation methods?
Sum-of-the-years-digits method
A copy machine was purchased for $35,000. It is estimated that the machine will have a useful life of 4 years with a residual value of $3,000. How much will be depreciated during the first full year using the straight-line method of depreciation?
$8,000
35,000 – $3,000 = $32,000; however, this does not take into account the useful life. The correct calculation is ($35,000 – $3,000)/4 = $8,000.
Which of the following is not one of the factors used to determine depreciation expense?
a. The asset’s initial cost
b. The asset’s expected useful life
c. The asset’s estimated residual value
d. All of these choices are correct.
all of these choices are correct
A copy machine was purchased for $35,000. The machine is estimated to have a useful life of four years with a residual value of $3,000. It is estimated that the machine will make 2,000,000 copies. Using the units-of-activity method to depreciate the copy machine, what information is needed to calculate the first year’s depreciation if 550,000 copies were made?
35,000 cost, 2,000,000 copies, $3,000 residual value, and 550,000 copies made
Which of the following is not true with regard to selling fixed assets for cash?
a. If the selling price is more than the book value, a gain is recorded.
b. The cash receipt is recorded.
c. The cash payment to the buyer is recorded.
d. The journal entry is similar to discarding fixed assets.
The cash payment to the buyer is recorded.
A machine was purchased at a cost of $52,000. The equipment had an estimated useful life of seven years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 6 for $14,000 cash, which of the following will be included in the journal entry? (Assume the straight-line depreciation method.)
a debit to Accumulated Depreciation—Equipment
An asset with a net book value of $1,225 was discarded, having no market value. How much will be recorded as a loss or gain on disposal?
. loss of $1,225
A fixed asset should be removed from the accounts except
a. when it is fully depreciated.
b. when it is sold.
c. when it is discarded.
d. when it is given away.
when it is fully depreciated.
The depletion rate is calculated as
Cost of Resource/Estimated Total Units of Resource
The calculation of depletion expense is
Depletion Rate × Quantity Extracted.
Depletion can be compared to which of the following depreciation methods?
units-of-production
Which of the following is not classified as an intangible asset?
a. Patent
b. Investment
c. Goodwill
d. Trademark
investment
The best definition of a copyright is
the exclusive right to publish and sell literary, artistic, or musical compositions.
All of the following will be found under the caption of “Property, Plant, and Equipment” in the balance sheet except
a. land improvements.
b. a trademark.
c. computer equipment.
d. parking lot costs.
trademark
Amortization and depreciation will be found on the income statement as
separate expenses
The more efficiently a company is using its assets
the higher the fixed asset turnover
The term boot refers to the
amount of cash paid or liability incurred when buying a new asset and trading in an old asset.
Companies with smaller fixed asset turnover ratios require
c. large fixed asset investments.
A gain or loss on the exchange of similar assets will be recorded if the transaction has
commercial substance.
Accrued revenues are revenues that
have been earned but have neither been paid for nor recorded in the books.
Black Duck Enterprises has a five-day work week and pays the warehouse staff $15 per hour for each eight-hour work day. The work week runs from Monday through Friday. If the month ends on a Wednesday and eight employees worked each day, the adjusting entry for the accrued expense will
credit wages payable $2880
the adjusting entry increases (credits) Wages Payable for three days’ pay for the eight employees ($15 × 8 hours × 8 employees × 3 days = $2,880] Monday through Wednesday.
a. are an advance payment of cash.
Prepaid expenses
If an entry to adjust unearned rent and rent revenue is not recorded at the end of the period, Rent Revenue and Net Income on the income statement will be
understated
Barry Company received $8,000 full payment in advance for services that are 60% complete at the end of the period.
The adjusting entry will
a. debit Unearned Revenue for $4,800 and credit Service Revenue for $4,800
The adjusting entry to record depreciation includes
a debit to an expense account.
Which of the following statements is true regarding adjusting entries?
a. Adjusting entries are optional with accrual basis accounting.
b. Adjusting entries are not posted to the ledger.
c. Adjusting entries are dated as of the first day of the new accounting period.
d. None of these statements are true.
none of these are true
Because collecting the adjustment data requires time, the adjusting entries are often
entered later but dated as of the last day of the period.
Adjusting entries are dated
at the end of the accounting period.
Which of the following errors would cause the adjusted trial balance to be unequal?
a. The adjustment for unearned revenue was omitted.
b. The adjustment for depreciation of $3,545 was journalized as debit to Depreciation Expense for $3,454 and a credit to Accumulated Depreciation of $3,545.
c. The adjustment for accrued fees of $16,340 was journalized as a debit to Accounts Payable for $16,340 and a credit to Fees Earned of $16,340.
d. The adjustment for prepaid insurance was omitted.
b. The adjustment for depreciation of $3,545 was journalized as debit to Depreciation Expense for $3,454 and a credit to Accumulated Depreciation of $3,545.
The adjusted trial balance is prepared
to verify the equality of total debit and credit balances
After which of the following errors would the adjusted trial balance totals not agree?
a. A debit to Accounts Receivable was inadvertently posted as a debit to Accounts Payable.
b. The adjustment for depreciation was omitted.
c. Supplies were miscounted and adjusted for the wrong amount.
d. A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.
A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.
the adjusted trial balance
is for a specific date
The following are line items from the vertical analysis of an income statement:
Amount Percent
Total revenues $600 300%
Total expenses 400 200
Net income $200 100%
What needs to be changed on the statement?
a. Total revenues should be the base expressed as 100%.
The following are line items from the vertical analysis of a balance sheet:
Amount Percent Total assets $300,000 300% Total liabilities $200,000 200% Total owner's equity 100,000 100% Total liabilities and owner's equity $300,000 300%
What needs to be changed on the statement?
a. Total liabilities and owner’s equity should be expressed as 100%.
b. Total owner’s equity should be expressed as 33%.
c. Total assets should be expressed as 100%.
d. All of these changes should be made.
all of these changes should be made
Vertical analysis can be used to analyze changes
a. on a balance sheet.
b. over time.
c. on an income statement.
d. All of these choices are correct.
all of these are correct
In the vertical analysis of a balance sheet,
\
a. each asset item is stated as a percent of total assets.
In the vertical analysis of an income statement,
a. each item is stated as a percent of total expenses.
b. each item is stated as a percent of change from the previous period’s statement.
c. total revenues are stated as a percent of owner’s equity.
d. each item is stated as a percent of revenues or fees earned.
each item is stated as a percent of revenues or fees earned.
Comparing each line of a financial statement with a total amount from the same financial statement
is referred to as vertical analysis
Which of the following statements is false about vertical analysis?
a. The dollar amount of change in each line item is calculated.
b. It is useful for analyzing relationships within a financial statement.
c. Each line item is expressed as a percentage of some total or key amount within the same statement.
d. It is useful for analyzing changes in financial statements over time
. The dollar amount of change in each line item is calculated.
The balance of the accumulated depreciation account on the adjusted trial balance of the end-of-period spreadsheet would be reported on which of the following financial statements?
balance sheet
Which of the following is not true regarding the flow of information from the adjusted trial balance on the end-of-period spreadsheet?
a. The owner’s capital and drawing account balances flow into the statement of owner’s equity.
b. The revenue and expense account balances flow into the income statement.
c. The cash account is reported on the income statement.
d. The asset and liability account balances flow into the balance sheet.
The cash account is reported on the income statement
