final

Question 1

sell products purchased from other businesses.

Answer 1

merchandising business

Question 2

A(n) __________ changes basic inputs into products that are sold to customers.

Answer 2

manufactoring business

Question 3

The business entity concept is important because

Answer 3

it limits economic data in the accounting system to data directly related to the activities of the business.

Question 4

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?

Answer 4

90,000

Question 5

Which of the following concepts requires that economic data be recorded in dollars in the United States?

Answer 5

Unit of measure concept

Question 6

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?

Answer 6

$2,500 net increase in assets and $2,500 increase in liabilities

Question 7

Which of the following statements is not true?

Answer 7

None of these statements are true

Question 8

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?

Answer 8

$150,000 net increase in assets and $150,000 increase in liabilities

Question 9

Cool Taste Company recorded $5,000 in sales on account for the week. What effect does this transaction have on the accounting equation?

Answer 9

$5,000 increase in assets and $5,000 increase in owner’s equity

Question 10

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?

Answer 10

$2,500 net increase in assets and $2,500 increase in liabilities

Question 11

All business transactions can be stated in terms of

Answer 11

changes in the elements of the accounting equation

Question 12

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?

Answer 12

risk increased

Question 13

The numerator in the calculation of the ratio of liabilities to owner’s equity is

Answer 13

total liabilities

Question 14

The ratio of liabilities to owner’s equity is a tool used to assess a company’s ability to

Answer 14

pay its creditors

Question 15

the statement that provides the financial position of a company as of a specific date is the

Answer 15

balance sheet

Question 16

The statement that reports net income or loss for a certain period in time is the

Answer 16

income statement

Question 17

The amounts needed to calculate the ratio of liabilities to owner’s equity can be found on

Answer 17

balance sheet

Question 18

The right-hand side of a T account is called the

Answer 18

credit side

Question 19

The chart of accounts is a

Answer 19

list of the accounts in the ledger.

Question 20

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.

Answer 20

The excess of the credits of an asset account over the debits is the balance of the account.

Question 21

The journal entry to pay creditors on account would include

Answer 21

a debit to Accounts Payable

Question 22

The journal entry to record fees of $13,500 earned on account would include

Answer 22

a debit to Accounts Receivable for $13,500 and a credit to Fees Earned for $13,500

Question 23

The normal balance of an asset account is

Answer 23

a debit

Question 24

The debits and credits for each journal entry are posted to the accounts

Answer 24

in the order in which they occur in the journal.

Question 25

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?

Answer 25

Cash7,000

Accounts Receivable7,000

Question 26

The process of posting is transferring the debits and credits from the

Answer 26

journal to the ledger

Question 27

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

Answer 27

a debit to accounts receivable

Question 28

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

Answer 28

The debit part of an entry posted to the wrong account as a debit

Question 29

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.

Answer 29

The credit total of the trial balance would be higher by $270

Question 30

Horizontal analysis of a balance sheet

Answer 30

shows changes in individual asset, liability, and equity items over time.

Question 31

Using horizontal analysis, the increases and decreases are shown

Answer 31

as amounts and percentages for each line item.

Question 32

A group of accounts for a business entity is called a

Answer 32

ledger

Question 33

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

Answer 33

credit $3500

Question 34

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.

Answer 34

$15,050

Question 35

Which of the following is correct about T accounts?

Answer 35

It is the simplest form of account.

Question 36

The owner, Alex Xu, invested an additional $45,000 of cash into his business. Which of the following journal entries should the company record?

Answer 36

Cash45,000

Alex Xu, Capital45,000

Question 37

The unadjusted trial balance is prepared

Answer 37

after the journal entries are posted

Question 38

Which of the following statements will not result in the trial balance being unequal?

Answer 38

A debit of $400 was incorrectly posted to Supplies instead of Supplies Expense.

Question 39

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

Answer 39

a debit to Accounts Receivable

Question 40

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?

Answer 40

The credit total of the trial balance would be higher by $270.

Question 41

The unadjusted trial balance is prepared

Answer 41

after the journal entries are posted

Question 42

The trial balance will include

Answer 42

the ending balance of each account.

Question 43

Recliner Company wants to verify that all of its accounts are in balance. Which of the following will be prepared for this purpose?

Answer 43

trial balance

Question 44

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.

Answer 44

Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out.

Question 45

Revenue is reported on the income statement in the period earned. The accounting concept supporting this reporting is the

Answer 45

revenue recognition concept.

Question 46

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

Answer 46

credit to Tax Preparation Revenue for $9,800.

Question 47

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

Answer 47

$2,440.

Question 48

The cash payment for accrued revenues occurs __________ the adjusting entry to record the accrued revenue.

Answer 48

after

Question 49

When recording an adjusting entry for a prepaid expense,

Answer 49

an asset account is credited

Question 50

When recording an adjusting entry for unearned revenue, a(n)

Answer 50

liability account is debited

Question 51

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

Answer 51

credit to Supplies for $1,245.

Question 52

Examples of fixed assets include

Answer 52

land, buildings, equipment

Question 53

The book value of an asset is

Answer 53

cost of asset – accumulated depreciation.

Question 54

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

Answer 54

$12,500

Question 55

If the following adjusting entry is omitted, what effect will it have on the financial statements?

Unearned Rent 1,900
Rent Revenue 1,900

Answer 55

revenues will be understated

Question 56

An adjusting entry debiting Supplies Expense and crediting Supplies is an example of adjusting a(n)

Answer 56

prepaid expense

Question 57

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.

Answer 57

all of these effects would occur

Question 58

Once the adjusted trial balance is balanced, it can be used to prepare

Answer 58

the income statement, the statement of owner’s equity, and the classified balance sheet.

Question 59

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.

Answer 59

A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.

Question 60

The adjusted trial balance

Answer 60

is at a specific date

Question 61

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.

Answer 61

all of these choices are correct

Question 62

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.

Answer 62

It is useful in analyzing relationships within a financial statement.

Question 63

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.

Answer 63

all of these choices should be made

Question 64

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.

Answer 64

Amounts are read across a row and added or subtracted to determine the amounts to insert in the Adjusted Trial Balance columns.

Question 65

Using an end-of-period spreadsheet, the flow of accounting information moves from the

Answer 65

adjusted trial balance to the financial statements

Question 66

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

Answer 66

Owner’s investments, net incom

Question 67

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?

Answer 67

There may have been additional investments made during the year reflected in the balance

Question 68

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.

Answer 68

6837

The change in owner’s equity is calculated by solving for the missing number: $13,568 + $3,500 + X – $5,000 = $18,905.

Question 69

Which of the following accounts will be closed with a credit?

Answer 69

depreciation expense

Question 70

The account used to close the temporary accounts (revenues and expenses) before the finish of the accounting cycle is

Answer 70

the owner’s capital account

Question 71

Which of the following accounts will be closed with a debit?

Answer 71

rent revenue

Question 72

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.

Answer 72

Decisions are made after reviewing the financial statements.

Question 73

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.

Answer 73

c. Closing entries are journalized and posted to the ledger.

Question 74

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

Answer 74

Step 9: Journalizing and posting closing entries

Question 75

A company’s net income or net loss for a period is determined during which of the following steps of the accounting cycle?

Answer 75

when financial statements are prepared

Question 76

The journal entry to record an owner withdrawal of funds for personal use includes a

Answer 76

c. debit to the owner’s drawing account.

Question 77

Why is it favorable to select a fiscal year that ends when the operating cycle is at its lowest point?

Answer 77

c. The business has more time to analyze the results of operations and to prepare financial statements.

Question 78

The annual accounting period (fiscal year) most commonly adopted by businesses is

Answer 78

January 1 to December 31

Question 79

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?

Answer 79

Current Assets/Current Liabilities

Question 80

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?

Answer 80

2.00

Question 81

The ability of a business to pay its debts is called

Answer 81

solvency

Question 82

Merchandise inventory is reported as a(n)

Answer 82

current asset

Question 83

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.

Answer 83

c. $359,340

Question 84

The difference between a service company’s and a merchandising company’s balance sheets is that the merchandising company includes

Answer 84

b. merchandise inventory.

Question 85

Credit terms apply

Answer 85

b. when the payments for merchandise are to be made.

Question 86

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?

Answer 86

debit to merchandise inventory $660

Question 87

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?

Answer 87

$75,240

($88,000 – $12,000) – [($88,000 – $12,000) × 1%] = $75,240

Question 88

Estimated Returns Inventory is

Answer 88

an asset account reported with Inventory on the balance sheet.

Question 89

The two types of adjusting entries for merchandising companies include

Answer 89

Inventory Shrinkage and Customer Returns and Allowances.

Question 90

In the multiple-step income statement, cost of merchandise sold is subtracted from

Answer 90

sales

Question 91

Sales less cost of merchandise sold is

Answer 91

gross profit

Question 92

The closing entry for a merchandising business will include which of the following?

Answer 92

debit to sales revenue

Question 93

In the asset turnover ratio, the assets consist of

Answer 93

the average of total assets from one year prior and the current year’s balance sheets

Question 94

the average of total assets from one year prior and the current year’s balance sheets

Answer 94

Average of total assets

Question 95

The asset turnover ratio is computed as

Answer 95

Sales/Average Total Assets

Question 96

Several controls are used to safeguard inventory, and one of those is to

Answer 96

hire security guards

Question 97

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.

Answer 97

all of these choices are correct

Question 98

Under the specific identification method, gross profit is determined by

Answer 98

identifying the unit sold with the specific cost when it was purchased.

Question 99

Which cost flow method is used most frequently?

Answer 99

FIFO

Question 100

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.

Answer 100

. All of these choices are benefits of using a computerized perpetual inventory system.

Question 101

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.

Answer 101

The cost of the units sold is the cost of the most recent purchases

Question 102

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

Answer 102

$137 (5 × $10) + (8 × $11) = $138, which represents the cost of the beginning inventory plus the cost of the October 4 purchase.

Question 103

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.

Answer 103

all of these choices are correct

Question 104

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

Answer 104

$20.65

$95/23 = $4.13 × 5 = $20.65

Question 105

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

Answer 105

$30

8 units × $7 = $56, which is the total purchase price for the June 18 purchase.

Question 106

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

Answer 106

weighted average inventory cost method

Question 107

The cost method that will yield the highest taxable income during times of inflation is the

Answer 107

FIFO inventory cost method.

Question 108

Regarding consigned inventory,

Answer 108

d. the manufacturer is the consignor.

Question 109

Merchandise inventory is found on the balance sheet as a

Answer 109

current asset

Question 110

The cash, land, inventory, and accounts receivable accounts are shown on the balance sheet. In which order should they be listed?

Answer 110

Cash, Accounts Receivable, Inventory, Land

Question 111

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.

Answer 111

all of these choices are correct

Question 112

Number of days’ sales in inventory is calculated as

Answer 112

Average Inventory/Average Daily Cost of Merchandise Sold.

Question 113

Inventory turnover is calculated as

Answer 113

. Cost of Merchandise Sold/Average Inventory.

Question 114

The debit balance in Cash Short and Over at the end of an accounting period is reported as

Answer 114

an expense on the income statement.

Question 115

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

Answer 115

Certificates of deposits

Question 116

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

Answer 116

Interest earned by the account

Question 117

A bank statement

Answer 117

provides a summary of all checking account transactions recorded by the bank.

Question 118

Journal entries based on the bank reconciliation are required in the depositor’s accounts for

Answer 118

NSF items

Question 119

A bank reconciliation has

Answer 119

a bank section and a company section

Question 120

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

Answer 120

$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.

Question 121

The credit recorded in the journal to reimburse the petty cash fund is to

Answer 121

cash

Question 122

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.

Answer 122

all of these choices are correct

Question 123

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

Answer 123

debit to Cash Short and Over for $4.

Question 124

Cash equivalents include

a. U.S. Treasury bills.
b. money market funds.
c. commercial paper.
d. All of these choices are correct.

Answer 124

all of these choices are correct

Question 125

Cash equivalents by definition

Answer 125

are expected to be converted to cash within three month

Question 126

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

Answer 126

10

Monthly Cash Expenses are calculated by dividing Negative Cash Flow from Operations by 12.

Question 127

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.

Answer 127

This statement is true

Question 128

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.

Answer 128

it is calculated using cash at the beginning of the year.

Question 129

Notes and accounts receivable that result from sales transactions are sometimes called

Answer 129

trade receivables

Question 130

An account receivable due within the next 12 months is listed on the balance sheet under the caption

Answer 130

current assets

Question 131

Companies may sell their receivables. This practice is called

Answer 131

factoring

Question 132

An account becomes uncollectible

Answer 132

a. when multiple factors confirm that the account is uncollectible.

Question 133

The direct write-off method records bad debt expense

Answer 133

only when an account is judged to be worthless.

Question 134

A primary weakness of the direct write-off method is that

Answer 134

the expense of a bad debt is not matched to the period that generated the uncollectible sale amount.

Question 135

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.

Answer 135

all of these choices are correct

Question 136

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

Answer 136

Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500

Question 137

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

Answer 137

$12,000.

Question 138

When comparing the direct write-off and allowance methods, which of the following statements applies to the allowance method?

Answer 138

the result is based on either a percentage of sales or an analysis of receivables.

Question 139

Under the direct write-off method,

Answer 139

bad debt is recorded when specific customer accounts are determined to be uncollectible.

Question 140

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

Answer 140

a credit to Allowance for Doubtful Accounts of $3,650.

Question 141

The maturity value of a promissory note is

Answer 141

the face value of the note plus the interest due to the maturity date.

Question 142

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

Answer 142

$10,300.

Question 143

The party to whom the promissory note is payable is the

Answer 143

payee

Question 144

Other disclosures related to receivables are reported

Answer 144

either on the face of the financial statements or in the financial statement notes

Question 145

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?

Answer 145

$431,700

Question 146

Allowance for Doubtful Accounts is

Answer 146

d. subtracted from Accounts Receivable.

Question 147

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.

Answer 147

52.8

Question 148

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.

Answer 148

none of these

Question 149

Days’ sales in receivables

Answer 149

is an estimate of the length of time the receivables have been outstanding.

Question 150

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.

Answer 150

a mistake in installation

Question 151

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.

Answer 151

accounts receivable

Question 152

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?

Answer 152

The face value ($70,000), interest rate (6%), and term (120 days) are needed to calculate the maturity value of the note

Question 153

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?

Answer 153

$61,200

Question 154

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.

Answer 154

all of these choices are correct

Question 155

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?

Answer 155

$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

Question 156

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?

Answer 156

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

Question 157

Major elements in a payroll system are
. a payroll register.
b. employees' earnings records.
c. payroll checks
d. all of these choices are correct

Answer 157

all of these choices are correct

Question 158

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

Answer 158

debit to Salaries Expense for $16,000

Question 159

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

Answer 159

debit to Payroll Tax Expense for $1,050

Question 160

The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is to

Answer 160

debit Vacation Pay Expense and credit Vacation Pay Payable.

Question 161

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.

Answer 161

federal withholding income tax

Question 162

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)

Answer 162

defined contribution plan.

Question 163

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

Answer 163

debit to Product Warranty Expense for $750.

Question 164

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

Answer 164

28,000

Question 165

Liabilities that arise from past transactions only if certain future conditions exist are called

Answer 165

contingent liabilities

Question 166

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

Answer 166

5.7

Question 167

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

Answer 167

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.

Question 168

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.

Answer 168

ratio of cash to monthly cash expenses

Question 169

Which of the following is the account that will be used to transfer the fixed asset cost to an expense?

Answer 169

depreciation expense

Question 170

If the asset is long lived but not used in a productive manner, it will be classified as a(n)

Answer 170

investment

Question 171

Which of the following is not one of the most common depreciation methods?

Answer 171

Sum-of-the-years-digits method

Question 172

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?

Answer 172

$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.

Question 173

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.

Answer 173

all of these choices are correct

Question 174

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?

Answer 174

35,000 cost, 2,000,000 copies, $3,000 residual value, and 550,000 copies made

Question 175

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.

Answer 175

The cash payment to the buyer is recorded.

Question 176

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.)

Answer 176

a debit to Accumulated Depreciation—Equipment

Question 177

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?

Answer 177

. loss of $1,225

Question 178

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.

Answer 178

when it is fully depreciated.

Question 179

The depletion rate is calculated as

Answer 179

Cost of Resource/Estimated Total Units of Resource

Question 180

The calculation of depletion expense is

Answer 180

Depletion Rate × Quantity Extracted.

Question 181

Depletion can be compared to which of the following depreciation methods?

Answer 181

units-of-production

Question 182

Which of the following is not classified as an intangible asset?

a. Patent
b. Investment
c. Goodwill
d. Trademark

Answer 182

investment

Question 183

The best definition of a copyright is

Answer 183

the exclusive right to publish and sell literary, artistic, or musical compositions.

Question 184

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.

Answer 184

trademark

Question 185

Amortization and depreciation will be found on the income statement as

Answer 185

separate expenses

Question 186

The more efficiently a company is using its assets

Answer 186

the higher the fixed asset turnover

Question 187

The term boot refers to the

Answer 187

amount of cash paid or liability incurred when buying a new asset and trading in an old asset.

Question 188

Companies with smaller fixed asset turnover ratios require

Answer 188

c. large fixed asset investments.

Question 189

A gain or loss on the exchange of similar assets will be recorded if the transaction has

Answer 189

commercial substance.

Question 190

Accrued revenues are revenues that

Answer 190

have been earned but have neither been paid for nor recorded in the books.

Question 191

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

Answer 191

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.

Question 192

a. are an advance payment of cash.

Answer 192

Prepaid expenses

Question 193

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

Answer 193

understated

Question 194

Barry Company received $8,000 full payment in advance for services that are 60% complete at the end of the period.

Answer 194

The adjusting entry will

a. debit Unearned Revenue for $4,800 and credit Service Revenue for $4,800

Question 195

The adjusting entry to record depreciation includes

Answer 195

a debit to an expense account.

Question 196

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.

Answer 196

none of these are true

Question 197

Because collecting the adjustment data requires time, the adjusting entries are often

Answer 197

entered later but dated as of the last day of the period.

Question 198

Adjusting entries are dated

Answer 198

at the end of the accounting period.

Question 199

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.

Answer 199

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.

Question 200

The adjusted trial balance is prepared

Answer 200

to verify the equality of total debit and credit balances

Question 201

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.

Answer 201

A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.

Question 202

the adjusted trial balance

Answer 202

is for a specific date

Question 203

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?

Answer 203

a. Total revenues should be the base expressed as 100%.

Question 204

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.

Answer 204

all of these changes should be made

Question 205

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.

Answer 205

all of these are correct

Question 206

In the vertical analysis of a balance sheet,

\

Answer 206

a. each asset item is stated as a percent of total assets.

Question 207

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.

Answer 207

each item is stated as a percent of revenues or fees earned.

Question 208

Comparing each line of a financial statement with a total amount from the same financial statement

Answer 208

is referred to as vertical analysis

Question 209

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

Answer 209

. The dollar amount of change in each line item is calculated.

Question 210

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?

Answer 210

balance sheet

Question 211

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.

Answer 211

The cash account is reported on the income statement