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100 Cards in this Set

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On a multiple-step income statement, “Income from Operations” is computed as follows:
deducting operating expenses from gross profit.

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a:


A. multi step income statement


B. single step income statement


C. merchandising business


D. statement of cash flow

B.single-step income statement
The following information was taken from Smith Corporation’s accounting records:
Operating Expenses
$45,000
Sales Returns and Allowances
13,000
Sales Discount
6,000
Sales
150,000
Costs of Goods Sold
77,000

What is Smith Corporation’s gross profit?
73000

Subtract cost of goods sold from net sales to determine gross profit.

Merchandising companies that sell to retailers are known as:
Wholesalers
Assume a company uses the periodic inventory system and has a beginning merchandise inventory balance of $5,000, inventory purchases for the year of $75,000, and sales for the year of $125,000. What is the amount of the company’s Cost of Goods Available for Sale for the year?
80,000.

Beginning inventory plus the cost of goods purchased is the cost of goods available for sale.

Which of the following items does not affect the merchandise inventory account under a perpetual system?

A. A purchase of merchandise


B. Return of merchandise inventory to the supplier.


C. Payment of freight costs for goods shipped to a customer.


D. payment of freight costs for goods received from a supplier

C.

Which of the following inventory costing methods depends upon an inventory count to determine cost of goods sold?


A. FIFO


B. LIFO


C. periodic system


D. average cost system




C. Periodic System
The accountant at Kramer Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $4,370. The LIFO method will result in income before taxes of $3,950. What is the difference in tax that would be paid between the two methods?
4370 x 30% = 1311 3950 x 30% = 1185

1185 - 1311 =




$126

The lower of cost or market basis of valuing inventories is an example of:

A. comparability.


B. the cost principle.


C. conservatism.


D. consistency.

C. conservatism
The use of the LIFO inventory costing method every year complies with the accounting principle of:
consistency
Which of the following statements is not correct with respect to inventories?

A. Goods held on consignment from another company


B. Goods shipped on consignment to another company


C. Goods in transit from another company shipped FOB shipping point


D. All of the above should be included.



A.

If goods in transit are shipped FOB destination:


a. the seller has legal title to the goods until they are delivered.
b. the buyer has legal title to the goods until they are delivered.
c. the transportation company has legal title to the goods while the goods are in transit.
d. no one has legal title to the goods until they are delivered.


A.

Which inventory method usually gives higher net income when prices are rising?


In a period of increasing prices, the inventory system that will yield the highest net income is:



A specific identification.
B FIFO.
C LIFO.
D weighted average.


C. FIFO

Cost of goods sold is not known until after the taking of a physical count of the inventory at the end of the year under which of the following inventory methods?


A. average cost system


B. periodic system


C. perpetual system


D. independent system

B. Periodic System
Which one of the following is not an objective of a system of internal controls?

A. establishment and responsibility


B. documentation procedures


C. financial performance methods


D. independent internal verification.

C.
At Harley Davidson, the motorcycles on the assembly line are classified as
Work in Progress


Which of the following promotes good internal control except?


A. establishment of responsibility.

B.

segregation of duties.

C.

generally accepted accounting principles.

D

documentation procedures.



A.
For which of the following errors should the appropriate amount be added to the balance per books on a bank reconciliation?

A. Deposit in Transit of $576


B. NSF check


C. Bank listed check for $159 as $195


D. Company listed check for $159 as $195

D.
With respect to a bank reconciliation, a journal entry is required for which of the following?

A. Deposits


B. Outstanding Checks


C. Book Balance


D. NSF Checks



D.

Collections of notes and interest, NSF checks, Service Charges, and Errors recording checks or deposits require journal entries.

The maturity value of a $2,000, 6%, 60-day note receivable dated February 10th is
2000 x 6% x 60/360 = 2020

When an account is written off using the allowance method, accounts receivable:


A. Cr Accounts Receivable Dr Allowance for doubtful accounts


B. Dr Allowance for doubtful accounts Cr for Accounts Receivable


C. Dr Bad Debts Cr for Accounts Receivable


D. Cr Accounts Receivable Dr Bad Debts




B.
The gross profit rate is computed by dividing:
the amount of gross profit by net sales.
Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the amount of bad debt expense for the period?
21000. If the unadjusted trial balance shows Allowance for Doubtful Accounts with a credit balance of 528 then an adjusted entry for 1700 is necessary if 2228 is the expected amount uncollected. 2228-528 = 1700.

The Allowance for Doubtful Accounts account is:


A. Contra Revenue Account


B. Contra Asset Account


C. Bad Debt Account


D. Cash

B. a contra asset account

Matrix Company makes an 8% loan on November 1, 2008. The loan is due in 90 days. What is the due date of this loan?



November 30-1=29

December 31


January 30




omit the date the note is issued but include the due date.

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit


A. Inventory


B. Accounts Payable


C. Allowance for Uncollectible Accounts


D. Cash

A. Inventory

Dr Accounts Payable


Cr Inventory

If a purchaser using a perpetual inventory system pays the transportation costs, then the


a. delivery expense account is increased.
b. merchandise inventory account is increased.
c. purchases account is increased.
d. freight-out account is increased.

B.

Hunter Company purchased merchandise inventory with an invoice price of $4,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
3930

4000 x 2% = 80


4000 - 80 = 3930

The Sales Returns and Allowances account is classified as a(n)


A. An Asset Account


B. An Expense Account


C. A Revenue Account


D. A Contra Revenue Account



D. Contra Revenue Account

The journal entry to record a $100 credit sale is


untitled


a. Cash


Sales


b. Cash Service


Revenue


c. Accounts Receivable


Service Revenue


d. Accounts Receivable


Sales

D. Dr Accounts Receivable 100

Cr Sales 100





In the credit terms of 1/10, n/30, the “1” represents the
1% discount
A company just starting business made the following four inventory purchases in June:

June 1 150 Units $780


June 10 200 units 1170


June 15 200 units 1260


June 28 150 units 990




$4,200


A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is
June 1 780/150 = 5.20

June 10 1170/200 = 5.85


June 15 1260/200 = 6.30


June 28 990/150 = 6.60




LIFO = 150 x 5.20 = 780 June 1


100 x 5.85 = 585 June 10


= 1365

A company just starting business made the following four inventory purchases in June:


June 1 150 Units $780


June 10 200 units 1170


June 15 200 units 1260


June 28 150 units 990


$4,200



A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is
June 1 780/150 = 5.20

June 10 1170/200 = 5.85


June 15 1260/200 = 6.30


June 28 990/150 = 6.60




FIFO = 150 x 6.60 = 990 June 28


100 x 6.30 = 630 June 15


= 1620

A company just starting business made the following four inventory purchases in June:

June 1 150 Units $780


June 10 200 units 1170


June 15 200 units 1260


June 28 150 units 990


$4,200


A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 is


June 1 780/150 = 5.20

June 10 1170/200 = 5.85


June 15 1260/200 = 6.30


June 28 990/150 = 6.60





Weighted Average Unit Cost 4200/700(total cost of units) = 6.00


Ending Inventory = 250x6.00= $1500.

Freight costs incurred by a seller on merchandise sold to customers will cause an increase


A. in the selling expenses of the buyer


B. In operating expenses for the seller


C. to the cost of goods sold of the seller


D. to a discount received account of the seller.

B.
Ellis Company sells merchandise on account for $1,200 to Thomas Company with credit terms of 2/10, n/30. Thomas Company returns $400 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Ellis Company (i.e., the selling company) make upon receipt of the check?
1200-400=800x2%=16

800-16=784


Dr Cash 784


Dr Sales Discounts 16


Cr Accounts Receivable 800

Consigned goods held by Smith Company (consignee) for Jones Company (consignor) should be included in the physical inventory count of:


A. Both Companies


B. Jones Company


C. Smith Company


D. None of the Above

B.


In consignment the person who owns the merchandise keeps the items in their inventory not the person trying to sell it.

Which of the following would be deducted from the balance per bank on a bank reconciliation?

A. Deposits in Transit


B. NSF Charge


C. Service Charge


D. Outstanding Checks

D. Outstanding Checks

(NSF and service charges would be deducted from Cash balance per books.)

Jones Company had checks outstanding totaling $5,400 on its June bank reconciliation. In July, Jones Company issued checks totaling $38,900. The July bank statement shows that $26,300 in checks cleared the bank in July. The amount of outstanding checks on Jones Company's July bank reconciliation should be:
38900+5400= 44300-26300 = 18000
Wilson Company gathered the following reconciling information in preparing its August bank reconciliation:
Cash balance per books, 8/31
$3,500
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 books on August 31 is
Cash Balance per books = 3500

Note Receivable and Interest = 850


NSF check = 170


Bank Charge for Checks = 20




3500+850=4350-170=4180-20=4160




(Outstanding Checks and Deposits in Transit are added/deducted in cash balance per bank section).



The following information was taken from Bounders Company cash budget for the month of July:
Beginning cash balance
$25,000
Cash receipts
24,000
Cash disbursements
34,000

If the company has a policy of maintaining an end of the month cash balance of $25,000, the amount the company would have to borrow is
Beginning 25000

Add Cash Receipts 24000


Total Available Cash 49000


Less Cash Disbursements 34000


Ending Cash 15000




25000-15000= 10000 will need to be borrowed.

Which of the following would be added to the balance per books on a bank reconciliation?

A. Deposits in transit


B. Collection of note Receivable


C. Error in Check Recording


D. Both B&C

D.
Which of the following does not appear as a separate section on the cash budget?

A. Cash Receipts


B. Financing


C. Cash Disbursements


D. Inventory



D. Cash receipts financing and Cash disbursements are the 3 separate sections on a cash budget.
Which of the following would be subtracted from the balance per books on a bank reconciliation?

A. Outstanding Checks


B. Collection of note receivable


C. NSF check


D. Error in check recording

C.
The sale or transfer of accounts receivable in order to raise funds is called

a. pledging.


b. factoring.


c. leasing.


d. collateralizing.

B. Factoring
Which of the following is the most liquid asset?

A. Land


B. Receivables


C. Building


D. Inventory



B.
Which methods of accounting for bad debts uses a contra-asset account?

A. Allowance Method


B. Write Off Method


C. Accounts Payable


D. Bad Debt Method

A.
Garber Company lends Newell Company $20,000 on April 1, accepting a four-month,6% interest note. Garber Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?

Sloan Company receives a $3,000, 3-month, 6% promissory note from Day Company in settlement of an open accounts receivable. What entry will Sloan Company make upon receiving the note?
Dr Notes Receivable 3000

Cr Accounts Receivable 3000




The company records the note at its face value. No interest revenue is reported when the company accepts the note because the revenue recognition principle does not recognize the revenue until earned.

Wilson Furniture sells $400,000 of receivables to Fair Isaac, Inc. Fair Isaac assesses a 3% service charge on the amount of receivables sold. Wilson Furniture sells its receivables regularly with Fair Isaac. What journal entry does Wilson make when it sells these receivables?
400000x3%=12000

Dr Cash 388000


Dr Service Charge Expense 12000


Dr Accounts Receivable 400000

The retained earnings statement does not show:


A. Net Income


B. Dividends


C. Revenues


D. Both A and B

C.
The correct adjusting entry for recording the depreciation of office equipment would be:

A. debit Depreciation Expense and credit Office Equipment


B. debit Office Equipment and credit Accumulated Depreciation


C. debit Depreciation Expense and credit Accumulated Depreciation


D. debit Office Equipment and credit Depreciation Expense

B.

Liabilities of a company represent money owed to:
Creditors
If the book value of an asset is $12,500 and the accumulated depreciation is $3,500, the original cost of the asset is
12500 + 3500 = 16000
Net income will result during a time period when:

a. Assets > Liabilities.


b. Revenues = Expenses.


c. Revenues > Expenses.


d. Revenues < Expenses.

C. revenues exceed expenses

Which of the following accounts is not closed out (i.e., reduced to zero) at year end?


a. Income Summary


b. Dividends


c. Revenue


d. Capital Stock

D.
Trademarks would appear in which balance sheet section?
Intangible Assets

Which of the following accounts would be closed at the end of the year?


A. Dividends


B. Cash


C. Common Stock


D. Rent Expense



D. The most common types of temporary accounts are for revenue, expenses, gains, and losses - essentially any account that appears in the income statement. (Expenses and Revenues)
Which of the following would have a debit normal balance?

A. contra revenue account


B. Wages Account


C. Loss of Sale Account


D. All of the Above

D.
Rent Expense is increased with a:
Credit.

The following information was taken from the year-end balance sheet of Able Auto Supplies, Inc.:


Cash$ 50,000


Accounts Payable65,000


Prepaid Insurance30,000


Salaries Payable10,000


Accounts Receivable60,000


Mortgage Payable90,000Mortgage Payable is due is 5 years


Inventory 70000


Land held for future use 80000


Land95,000


Building 100,000


Accummulated Depr. (20,000)


Trademark 70,000


Common Stock 120,000


Retained Earnings 250,000


Able Auto Supplies, Inc.’s working capital is


a. $155,000.
b. $145,000.
c. $60,000.
d. $150,000

B.

Reporting a net income of $95,000 will:


a. increase retained earnings.
b. decrease retained earnings.
c. increase common stock.
d. decrease common stock

A.

Which of the following types of accounts are listed in a chart of accounts?


A. Assets


B. Liabilities


C. Revenues


D. All of the Above

D.
If expenses are paid in cash, then

A. stockholders' equity will increase.


B. assets will decrease.


C. assets will increase.


D. liabilities will decrease.

B.
What is the correct account classification and normal balance of the unearned revenue account?

a. Asset, debit


b. Liability, credit


c. Revenues, credit


d. Expense, debit B

B.

Evidence that would not be a “source document”?


A. sales slip


B. check


C. cash register tape


D. Manufacturer Use Book

D.
The process of transferring the debits and credits from the General Journal to the General Ledger accounts is known as”
Posting
A trial balance proves:

a. proves that debits and credits are equal in the ledger.


b. supplies a listing of open accounts and their balances that are used in preparing financial statements.


c. is normally prepared three times in the accounting cycle.


d. all of these.

D.
A chart of accounts for a business:

a. is a graph.


b. indicates the amount of profit or loss for the period.


c. lists the accounts and account numbers that identify their location in the ledger.


d. shows the balance of each account in the general ledger

C.
The normal balance of Inventory is:

A. credit


B. debit


C. both a and b are correct


D. none of the above are correct

B. Debit
When a corporation distributes a dividend

a. increase assets.


b. increase expenses.


c. decrease revenues.


d. decrease retained earnings

D.
Receiving a payment on account for a portion of an Accounts Receivable will:

A. not affect total assets.


B. increase liabilities.


C. increase stockholders' equity.


D. decrease net income

A.
A customer’s immediate payment of cash for services rendered would have which of the following affects on the company’s accounts?

A. increase assets and liabilities.


B. increases assets and stockholders' equity .


C. increases assets and decreases stockholders' equity.


D. leaves total assets unchanged.

B.
Which of the following accounts is considered a contra account?

A. Cash


B. Accounts


C. Sales Revenue


D. Accumulated Depreciation

D.

On a statement of cash flows, cash received from a customer would be classified as:




a) operating activities.


b) investing activities.


c) a combination of a) andb).


d) financing activities.



A

On a statement of cash flows, cash dividends paid to shareholders would be classified as:




a) operating activities.


b) investing activities.


c) a combination of a) andb).


d) financing activities.



D.
On a statement of cash flows, cash paid to purchase a building would be classified as:

a) operating activities.


b) investing activities.


c) a combination of a) andb).


d) financing activities.

B.
On a statement of cash flows, cash paid on the principal of a loan would be classified as:

a) operating activities.


b) investing activities.


c) a combination of a) andb).


d) financing activities.

D.

Common Stock would appear on which of the following financial statement?


A. Income Statement


B. Retained Earnings Statement


C. Statement of Cash Flows


D. Balance Sheet

D

Inventory would appear on which of the following financial statement?


A. Income Statement


B. Retained Earnings Statement


C. Statement of Cash Flows


D. Balance Sheet

D

Accumulated Depreciation would appear on which of the following financial statement?


A. Income Statement


B. Retained Earnings Statement


C. Statement of Cash Flows


D. Balance Sheet

D.

Cost of Goods Sold would appear on which of the following financial statement?


A. Income Statement


B. Retained Earnings Statement


C. Statement of Cash Flows


D. Balance Sheet

A.
The corporation’s board of directors declared a dividend; which financial statement would show this dividend?

a. income statement.


b. retained earnings statement.


c. balance sheet.


d. income statement and balance sheet

B.
Which entity is simple to set up and has only one owner?
sole proprietorship
Bonds payable are
debt securities sold to investors that must be repaid at a particular date some years in the future.
What entity is a separate legal entity (i.e., separate from its owners)?
Corporation
Accounts Payable would appear in which balance sheet section?

A. Assets


B. Shareholder Equity


C. Liabilities


D. Net Income



C.
Merchandise would appear in which balance sheet section?

A. Assets


B. Shareholder Equity


C. Liabilities


D. Net Income

A.
A building would appear in which balance sheet section?

A. Assets


B. Shareholder Equity


C. Liabilities


D. Net Income

A.

Using the same accounting methods every year is an example of which of the following accounting principles?


a. timeliness.
b. consistency.
c. full disclosure.
d. materiality

B.

Generally Accepted Accounting Principles are issued by the:



A.Financial Accounting Standards Board.
B.International Accounting Standards Committee.

C. American Accounting Association.


D. Securities and Exchange Commission



A.

The current ratio is:


solvency ratio.


profitability ratio.


liquidity ratio.


none of the above.

C.
As used in accounting “Credit” means
decrease or liability
If a business fails to make an adjusting journal entry for the expiration of prepaid insurance:

Which of the following describes the matching principle of accounting?

The amount of supplies consumed (i.e., used up) during the month should be recognized by making the following journal entry:

Which of the following would have a credit normal balance?

Which of the following would be found on the income statement?

Fill in the blank: The owners of a _________________ are not liable for the debts of the business.
corporation