Final Review Part 4/5

Question 1

A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as:

Answer 1

a long-term investment.

Question 2

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23?

Answer 2

$686

Question 3

Adjusting entries are made to ensure that:

Answer 3

expenses are recognized in the period in which they are incurred.

revenues are recorded in the period in which the performance obligation is satisfied.

balance sheet and income statement accounts have correct balances at the end of an accounting period.

Question 4

Adjustments for accrued revenues:

Answer 4

increase assets and increase revenues.

Question 5

Adjustments for prepaid expenses:

Answer 5

decrease assets and increase expenses.

Question 6

Adjustments for unearned revenues:

Answer 6

decrease liabilities and increase revenues.

Question 7

A ledger:

Answer 7

is a record of all accounts maintained by a company and their amounts.

Question 8

All of the following are required steps in the accounting cycle except:
A. journalizing and posting closing entries.
B. preparing an adjusted trial balance.
C. preparing a post-closing trial balance.
D. prepare financial statements from the unadjusted trial balance.

Answer 8

D. prepare financial statements from the unadjusted trial balance.

Question 9

A revenue account:

Answer 9

is increased by credits.

Question 10

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2022. This count did not take into consideration the following facts. Rogers Consignment Store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

Answer 10

180000 + 35000

$215,000.

Question 11

As of December 31, 2022, Rockford Corporation has assets of $3,500 and stockholders’ equity of $1,500. What are the liabilities for Rockford as of December 31, 2022?

Answer 11

3500-1500

$2,000

Question 12

A trial balance:

Answer 12

is a list of accounts with their balances at a given time.

Question 13

Bufford Corporation had reported the following amounts at December 31, 2022: sales revenue $184,000, ending inventory $11,600, beginning inventory $17,200, purchases $60,400, purchase discounts $3,000, purchase returns and allowances $1,100, freight-in $600, and freight-out $900. Calculate the cost of goods available for sale.

Answer 13

$17,200 + $60,400 - $3,000 + $600 - $1,100

$74,100

Question 14

Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen’s employer at September 30 is:

Answer 14

Salaries and Wages Expense 400

    Salaries and Wages Payable 400

Question 15

Companies can use free cash flow to:

Answer 15

pay additional dividends
acquire more property, plant, and equipment.
pay off debts.

Question 16

Considerations that affect the selection of an inventory costing method do not include:

Answer 16

perpetual versus periodic inventory system.

Question 17

Cost of goods available for sale consists of two elements: beginning inventory and:

Answer 17

cost of goods purchased.

Question 18

Current assets are listed:

Answer 18

by order of expected conversion to cash.

Question 19

Davidson Electronics has the following:
Units Unit Cost
Inventory, Jan. 1     5,000    $ 8
Purchase, April 2 15,000   10
Purchase, Aug. 28 20,000   12
If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is:

Answer 19

Total Cost (430000) Total Units (40000) = 10.75

10.75 x 7000 =

$75,250.

Question 20

Debits:

Answer 20

increase assets and decrease liabilities.

Question 21

During 2022, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders’ equity therefore:

Answer 21

increased $40,000.

Question 22

During the year ended December 31, 2022, Bjornstad Corporation had the following results: net sales $267,000, cost of goods sold $107,000, net income $92,400, operating expenses $55,400, and net cash provided by operating activities $108,950. What was the company’s profit margin?

Answer 22

92,400/267000 = 0.346

34.6%.

Question 23

Each of the following is a major type (or category) of adjusting entry except:
A. prepaid expenses. 
B. accrued revenues. 
C. accrued expenses. 
D. unearned expenses.

Answer 23

D. unearned expenses.

Question 24

What financial statements shows the financial position of the company at a point in time?

Answer 24

Balance sheet

Question 25

For 2022, Spanos Corporation reported net income $26,000, net sales $400,000, and weighted-average common shares outstanding 4,000. There were preferred dividends of $2,000. What was the 2022 earnings per share?

Answer 25

= (26,000-2,000)/4,000

= 24,000/4,000

= $6.00

Question 26

Generally accepted accounting principles are:

Answer 26

a set of standards and rules that are recognized as a general guide for financial reporting.

Question 27

Genesis Company buys a $900 machine on credit. This transaction will affect the:

Answer 27

balance sheet only.

Question 28

Gross profit will result if:

Answer 28

net sales are greater than cost of goods sold.

Question 29

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system?

Answer 29

60000-50000 = 10000
380000+ 10000
$390,000

Question 30

If net sales are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit?

Answer 30

400000 - 310000 =

$90,000

Question 31

In a classified balance sheet, assets are usually classified as:

Answer 31

current assets; long-term investments; property, plant, and equipment; and intangible assets.

Question 32

In periods of rising prices, LIFO will produce:

Answer 32

lower net income than FIFO.

Question 33

Net income will result during a time period when:

Answer 33

revenues exceed expenses.

Question 34

Neutrality is an ingredient of:

Answer 34

Faithful Representation: Yes Relevance: No

Question 35

Norton Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a net realizable value of $80 each. The ending inventory under lower-of-cost-or-net realizable value is:

Answer 35

200 x 80 = 16000

$16000

Question 36

Paying an account payable with cash affects the components of the accounting equation in the following way:

Answer 36

Decreases assets and decreases liabilities.

Question 37

Posting:

Answer 37

transfers journal entries to ledger accounts.

Question 38

Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:

Answer 38

Depreciation Expense 1,000    

 Accumulated Depreciation-Equipment 1,000

Question 39

Accounts and notes receivable are reported in the current assets section of the balance sheet at:

Answer 39

cash (net) realizable value

Question 40

Additions to plant assets are:

Answer 40

capital expenditures

Question 41

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:

Answer 41

bank service charges.

Question 42

Stockholders’ equity represents:

Answer 42

claims of owners.

Question 43

The balance in retained earnings is not affected by:

Answer 43

issuance of common stock.

Question 44

The characteristic of information that evaluates whether it is large enough to impact a decision.

Answer 44

Materiality.

Question 45

Able Towing Company purchased a tow truck for $60,000 on January 1, 2022. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2024, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2024) and the salvage value to $2,000. What was the depreciation expense for 2024?

Answer 45

Depreciation per Year = (Cost – Salvage Value) / Useful Life
Depreciation per Year = (60,000 – 12,000) / 10
Depreciation per Year = $4,800

Accumulated Depreciation on the date of Change = Depreciation per year * 2
Accumulated Depreciation on the date of Change = $4,800 * 2 = $9,600

Book Value on the date of Change = $60,000 - $9,600
Book Value on the date of Change = $50,400

Revised Depreciation = (50,400 – 2,000) / 4
Revised Depreciation = 48,400 / 4
Revised Depreciation = $12,100

Question 46

Norton Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a net realizable value of $80 each. The ending inventory under lower-of-cost-or-net realizable value is:

Answer 46

$16,000

Question 47

Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 $12
Purchase, Nov. 8 5,000 $13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO?

Answer 47

5000 * 13 = 65,000
4000 * 12 = 48000

$113,000.

Question 48

Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 $12
Purchase, Nov. 8 5,000 $13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO?

Answer 48

1000 units * $12 = $12,000

8000 units * $11 = $88,000

Total ending inventory = $100,000 ($12,000 + $88,000)

Question 49

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2022. The machine was purchased for $80,000 on January 1, 2018, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale?

Answer 49

Annual deprecation = Cost of machine/ Estimated useful life
= 80,000/10
= $8,000
Accumulated depreciation expense for 4.5 years = Annual deprecation x 4.5
= 8,000 x 4.5
= $36,000
= 80,000-36,000
= $44,000
Sale price of machine = $26,000
= 26,000- 44,000
= $18,000 loss

Question 50

Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:

Answer 50

establishment of responsibility.

Question 51

A check written this month to City Utilities and cleared the bank at the correct amount of $1,790, but was recorded at $1,870.

Answer 51

The $80 difference should be treated as an addition to the balance per books.

Question 52

The deposit in transit on February 28 of $1,800 should be treated as:

Answer 52

An addition of $1,800 to the balance per bank.

Question 53

Days of Slumber sells mattress for cash and on credit. At the end of 2014, the following appeared in the company’s balance sheet:
Accounts receivable, net of $2,460 allowance……………………$166,200
Which one of the following statements for Days of Slumber is correct?

Answer 53

Customers owe $168,660 to Days of Slumber

Question 54

Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:

Answer 54

$65,000.

Question 55

In Jackson Jones Company, land decreased $270,000 because of a cash sale for $270,000, the equipment account increased $90,000 as a result of a cash purchase, and bonds payable increased $300,000 from issuance for cash at face value. The net cash provided by investing activities is
$270,000

Answer 55

270000 - 90000

$180,000

Question 56

Justice Corporation’s net income for the current year was $510,000. Depreciation recorded on plant assets was $76,000. Accounts receivable and inventories increased by $40,000 and $16,000, respectively. Supplies and accounts payable decreased by $2,000 and $32,000, respectively. A $500,000 convertible bond was retired through the issuance of common stock. How much cash was provided by operating activities?

Answer 56

$500,000

Question 57

Generally, the most important category on the statement of cash flows is cash flows from

Answer 57

operating activities

Question 58

Financing activities involve

Answer 58

issuing debt

Question 59

The effects on the basic accounting equation of performing services for cash are to:

Answer 59

increase assets and increase stockholders’ equity.

Question 60

The element of a corporation’s annual report that describes the corporation’s accounting methods is:

Answer 60

notes to the financial statements.

Question 61

The element of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is the:

Answer 61

auditor’s opinion.

Question 62

The financial statements for Macias Corporation contained the following information: Accounts receivable $5,000, Sales Revenue $75,000, Cash $15,000, Sales and Wages Expense $20,000, Rent expense $10,000. What was the company net income?

Answer 62

Sales revenue 75,000

Salaries and wages expense -$20,000

Rent expense -$10,000

Net income=$45,000.

Question 63

The gross profit rate is equal to:

Answer 63

net sales minus cost of goods sold, divided by net sales

Question 64

The lower-of-cost-or-net realizable value rule for inventory is an example of the application of:

Answer 64

the conservatism convention.

Question 65

The lower-of-cost-or-net realizable value rule for inventory is an example of the application of:

Answer 65

the conservatism convention.

Question 66

The multiple-step income statement for a merchandising company shows each of these features except:
A. gross profit.
B. cost of goods sold.
C. a sales section.
D. an investing activities section.

Answer 66

D. an investing activities section.

Question 67

The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

Answer 67

Supplies Expense 750

    Supplies 750

Question 68

To record the sale of goods for cash in a perpetual inventory system:

Answer 68

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Question 69

Under a perpetual inventory system, when goods are purchased for resale by a company:

Answer 69

purchases on account are debited to Inventory.

Question 70

What are the first step and the final step in the revenue recognition process?

Answer 70

The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied.

Question 71

What is the periodicity assumption?

Answer 71

The economic life of a business can be divided into artificial time periods.

Question 72

What is the primary criterion by which accounting information can be judged?

Answer 72

Usefulness for decision-making.

Question 73

What organization issues U.S. accounting standards?

Answer 73

Financial Accounting Standards Board.

Question 74

What section of a statement of cash flows indicates the cash spent on new equipment during the past accounting period?

Answer 74

The investing activities section.

Question 75

When is a physical inventory usually taken?

(a) When the company has its greatest amount of inventory.
(b) When a limited number of goods are being sold or received.
(c) At the end of the company’s fiscal year.
(d) Both (b) and (c).

Answer 75

(d) Both (b) and (c).

Question 76

When there is a change in estimated depreciation:

Answer 76

current and future years’ depreciation should be revised.

Question 77

Which accounts normally have debit balances?

Answer 77

Assets, dividends, and expenses.

Question 78

Which account will have a zero balance after a company has journalized and posted closing entries?

Answer 78

Service Revenue.

Question 79

Which financial statement reports assets, liabilities, and stockholders’ equity?

Answer 79

Balance sheet.

Question 80

Which is an advantage of corporations relative to partnerships and sole proprietorships?

Answer 80

Reduced legal liability for investors.

Question 81

Which is an indicator of profitability?

Answer 81

Earnings per share.

Question 82

Which is not one of the three forms of business organization?

Answer 82

Creditorship

Question 83

Which is not one of the three primary business activities?
A. Advertising.
B. Financing.
C. Investing.
D. Operating.

Answer 83

A. Advertising.

Question 84

Which is not part of the recording process?

Answer 84

Preparing an income statement.

Question 85

Which of the following did not result from the Sarbanes-Oxley Act?
A. Penalties for fraudulent activity increased.
B. Tax rates on corporations increased.
C. Top management must now certify the accuracy of financial information.
D. Independence of auditors increased.

Answer 85

B. Tax rates on corporations increased.

Question 86

What event is not recorded in the accounting records?

Answer 86

An employee is terminated.

Question 87

What is an example of a financing activity?

Answer 87

Issuing shares of common stock.

Question 88

What should not be included in the physical inventory of a company?

Answer 88

Goods held on consignment from another company.

Question 89

What statement about a periodic inventory system is true?

Answer 89

Companies determine cost of goods sold only at the end of the accounting period.

Question 90

What would affect the gross profit rate? (Assume sales remains constant.)

Answer 90

An increase in cost of goods sold.

Question 91

Which of these statements about a journal is false?
A. It contains only revenue and expense accounts.
B. It provides a chronological record of transactions.
C. It helps to locate errors because the debit and credit amounts for each entry can be readily compared.
D. It discloses in one place the complete effect of a transaction.

Answer 91

A. It contains only revenue and expense accounts.

Question 92

Which one of these statements about the accrual basis of accounting is false?
A. Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged.
B. Companies recognize revenue in the period in which the performance obligation is satisfied.
C. This basis is in accordance with generally accepted accounting principles.
D. Companies record revenue only when they receive cash and record expense only when they pay out cash.

Answer 92

D. Companies record revenue only when they receive cash and record expense only when they pay out cash.

Question 93

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?

Answer 93

Expense recognition principle

Question 94

Which sales accounts normally have a debit balance?
A. Sales Discounts
B. Sales Returns and Allowances.
C. Both (a) and (b)
D. Neither (a) nor (b).

Answer 94

C. Both (a) and (b)

Question 95

Which statement about an account is true?
A. An account consists of a title, a debit side, and a ledger side.
B. An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders’ equity items.
C. There are separate accounts for specific assets and liabilities but only one account for stockholders’ equity items.
D. The left side of an account is the credit, or decrease, side.

Answer 95

B. An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders’ equity items.

Question 96

Which statement about users of accounting information is incorrect?
A. Management is considered an internal user.
B. Regulatory authorities are considered internal users.
C. Present creditors are considered external users.
D. Taxing authorities are considered external users.

Answer 96

B. Regulatory authorities are considered internal users.

Question 97

Which statement is incorrect concerning the adjusted trial balance?
A. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
B. The adjusted trial balance provides the primary basis for the preparation of financial statements.
C. The adjusted trial balance does not list temporary accounts.
D. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

Answer 97

C. The adjusted trial balance does not list temporary accounts.

Question 98

Which statement presents information as of a specific point in time?
A. Balance sheet.
B. Income statement.
C. Retained earnings statement.
D. Statement of cash flows.

Answer 98

A. Balance sheet.

Question 99

Which types of accounts will appear in the post-closing trial balance?

Answer 99

Permanent accounts.