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accounting Reviews

The chart of accounts is a special ledger used in accounting systems.
True
In the first month of operations, the total of the debit entries to the Cash account amounted to $1,000 and the total of the credit entries to the Cash account amounted to $600. The Cash account has a
400 Debit Balance
The normal balance of all accounts is a debit.
False
Transactions are entered in the ledger accounts and then transferred to journals.
False
The Unearned Service Revenue account is classified as a(n)
Liability
Posting
accumulates the effects of journalized transactions in the individual accounts.
The account titles used in journalizing transactions need not be identical to the account titles in the ledger.
False
Revenue increases stockholders’ equity and should be recorded whenever cash is received from customers.
False
Barnes Company showed the following balances at the end of its first year:

Cash $14,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 5,400
Dividends 700
Revenues 24,000
Expenses 17,500

What did Barnes Company show as total credits on its trial balance?

36400
At September 1, 2014, Kern Enterprises reported a cash balance of $70,000. During the month, Kern collected cash of $30,000 and made disbursements of $50,000. At September 30, 2014, the cash balance is
50,000 Debit
Entering transactions into the journal is called posting.
False
The purchase or sale of long-lived assets used in operating the business is
investing activity
During 2014, its first year of operations, Jane’s Bakery had revenues of $65,000 and expenses of $33,000. The business paid cash dividends of $18,000. What is the balance in Retained Earnings at December 31, 2014?
14000 Credit
If a monthly cash budget is prepared properly, there will never be a cash deficiency at the end of any month.
False
Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?
only one individual
The following credit sales are budgeted by Gonzalez Company:

January $102,000
February 150,000
March 210,000

The company’s past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of March i

198,000
Which of the following items on a bank reconciliation would require an adjusting entry on the company’s books?
A bank service charge.
All of the following are true regarding the management and monitoring of cash except
the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company.
Management of cash is the responsibility of the company
Treasurer
The most important element of the fraud triangle is rationalization.
False
In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.
False
Which of the following is an appropriate internal control activity for cash?
The amount of cash on hand should be kept to a minimum.
Which of the following is not an internal control activity for cash?
The functions of record keeping and maintaining custody of cash should be combined.
Karlin Company gathered the following reconciling information in preparing its April bank reconciliation:

Cash balance per books, 4/30 $13,200
Deposits in transit 1,800
Notes receivable and interest collected by bank 4,440
Bank charge for check printing 150
Outstanding checks 9,000
NSF check 840

The adjusted cash balance per books on April 30 is

$13,200 + $4,440 – $150 – $840 = $16,650
Which one of the following sections would not appear on a cash budget?
Investing
The following information was taken from Mitchell Company cash budget for the month of July:

Beginning cash balance $100,000
Cash receipts 96,000
Cash disbursements 136,000

If the company has a policy of maintaining end of the month cash balance of $100,000, the amount the company would have to borrow is

40000
Which of the following would be added to the balance per books on a bank reconciliation?
Notes collected by the bank.
Adler Company developed the following reconciling information in preparing its December bank reconciliation:

Cash balance per bank, 12/31 $20,000
Note receivable collected by bank 10,000
Outstanding checks 15,000
Deposits in transit 7,500
Bank service charge 125
NSF check 2,000

Using the above information, determine the cash balance per books (before adjustments) for the Adler Company.

($20,000 – $15,000 + $7,500) – $10,000 + $125 + 2,000 = $4,625
Wilton sells softball equipment. On November 14, they shipped $3,000 worth of softball uniforms to Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Douglas High School for $1,800 worth of custom printed bats to be produced in December. On November 30, Paola Middle School returned $300 of defective merchandise. Wilton has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30?
2700
In 2014 Wilkinson Company had net credit sales of $1,500,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $36,000. During 2014, $60,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $400,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014?
64000
If a company fails to record estimated bad debts expense,
expenses are understated.
Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?
40000
Which of the following would probably be the most significant type of a claim held by a company?
Accounts receivable
When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.
False
Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts.
False
The term “receivables” refers to
amounts due from individuals or companies.
The return on assets ratio can be computed from the profit margin ratio and the asset turnover ratio.
True
A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.
False
Capital expenditures are expenditures that increase the company’s investment in productive facilities.
True
If an acquired franchise or license is for an indefinite time period, then the cost of the asset should not be amortized.
True
A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way as a gain on disposal.
True
A company purchased land for $84,000 cash. Real estate brokers’ commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the historical principle, the cost of land would be recorded at
94,800
Ryan, Inc. purchased a delivery truck with a $42,000 list price. The company was given a $4,200 cash discount by the dealer, and paid $2,100 sales tax. Annual insurance on the truck is $1,050. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?
39,900
In calculating depreciation, both plant asset cost and useful life are based on estimates.
False
Expenditures that add to the utility of plant assets for more than one accounting period are
capital expenditures.
Depreciation is a process of
Cost Allocation
Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)
Systematic and rational manner
On November 1, 2013, Love Company places a new asset into service. The cost of the asset is $45,000 with an estimated 5-year life and $5,000 salvage value at the end of its useful life. What is the depreciation expense for 2014 if Love Company uses the straight-line method of depreciation?
8,000
Mitchell Corporation bought equipment on January 1, 2014 .The equipment cost $180,000 and had an expected salvage value of $30,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is
150,000
The book value of a plant asset is the difference between the
cost of the asset and the accumulated depreciation to date.
An expenditure for which of the following items would be considered a revenue expenditure?
Ordinary repair
In computing depreciation, salvage value is
an estimate of a plant asset’s value at the end of its useful life.
Equipment that cost $54,000 and on which $30,000 of accumulated depreciation has been recorded was disposed of for $27,000 cash. The entry to record this event would include a
Gain of 3,000
Pearson Company bought a machine on January 1, 2014. The machine cost $144,000 and had an expected salvage value of $24,000. The life of the machine was estimated to be 5 years. The book value of the machine at the beginning of the third year would be
96,000
Each bondholder may vote for the board of directors in proportion to the number of bonds held.
False
Notes payable usually require the borrower to pay interest.
True
Unearned revenues are received before goods are delivered or services are rendered.
True
A company receives $176, of which $16 is for sales tax. The journal entry to record the sale would include a
credit to Sales Taxes Payable for $16.
Gomez Corporation issues 600, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 96. The journal entry to record the issuance will show a
debit to Cash for $576,000.
The interest charged on a $250,000 note payable, at the rate of 6%, on a 90-day note would be
3,750
The following totals for the month of April were taken from the payroll records of Metz Company.
debit to Salaries and Wages Payable for $19,905.
The following totals for the month of April were taken from the payroll records of Noll Company.

Salaries $60,000
FICA taxes withheld 4,590
Income taxes withheld 12,500
Medical insurance deductions 2,250
Federal unemployment taxes 160
State unemployment taxes 1,080
The journal entry to record the monthly payroll on April 30 would include a

debit to Salaries and Wages Expense for $60,000.
The following totals for the month of April were taken from the payroll records of Noll Company.

Salaries $60,000
FICA taxes withheld 4,590
Income taxes withheld 12,500
Medical insurance deductions 2,250
Federal unemployment taxes 160
State unemployment taxes 1,080
The entry to record accrual of employer’s payroll taxes would include a

debit to Payroll Tax Expense for $5,830.
Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February’s sales taxes?
1440
Sales taxes collected by a retailer from a customer are expenses
of the customers
Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of
$291,750.
Moss County Bank agrees to lend the Sadowski Brick Company $300,000 on January 1. Sadowski Brick Company signs a $300,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is
Cash 300,000
Notes Payable 300,000
Moss County Bank agrees to lend the Sadowski Brick Company $300,000 on January 1. Sadowski Brick Company signs a $300,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?
Interest Expense 9,000
Interest Payable 9,000
Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?
Cash
Unearned Service Revenue
If bonds sell at a premium, the interest expense recognized each year will be greater than the bond interest paid.
False
Very often, failure to record a liability means failure to record a(n)
Expense
What is the total stockholders’ equity based on the following account balances?

Common Stock

$1,800,000

Paid-In Capital in Excess of Par

120,000

Retained Earnings

570,000

Treasury Stock

60,000

2,430,000
All of the following statements regarding retained earnings are true except
retained earnings represents a claim on cash.
Which of the following statements is not true about a 2-for-1 split?
Total contributed capital increases.
The net effects on the corporation of the declaration and payment of a cash dividend are to
decrease assets and decrease stockholders’ equity.
Which of the following is the appropriate general journal entry to record the declaration of cash dividends?
Cash Dividends

Dividends Payable

Logan Corporation issues 50,000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $3,000,000 and a credit or credits to
Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for $500,000.
Which of the following is not a right or preference associated with preferred stock?
The right to vote.
The number of shares of issued stock equals
outstanding shares plus treasury shares.
Treasury Stock is a(n)
contra stockholders’ equity account.
Which of the following statements about treasury stock is true?
Purchasing treasury stock is done to eliminate hostile shareholder buyouts.
Which of the following represents the largest number of common shares?
Authorized shares.
If common stock is issued for an amount greater than par value, the excess should be credited to
Paid-in Capital in Excess of Par Value.
If Norben Company issues 4,000 shares of $5 par value common stock for $140,000, the account
Paid-in Capital in Excess of Par Value will be credited for $120,000.
Par value
is the value assigned per share in the corporate charter.
Which of the following statements reflects the transferability of ownership rights in a corporation?
A stockholder may dispose of part or all of his shares.
The two ways that a corporation can be classified by ownership are
publicly held and privately held.
The two ways that a corporation can be classified by purpose are
profit and not-for-profit.
Under the corporate form of business organization
the corporation’s life is stipulated in its charter.
Zoum Corporation had the following transactions during 2014:

1. Issued $125,000 of par value common stock for cash.

2. Recorded and paid wages expense of $60,000.

3. Acquired land by issuing common stock of par value $50,000.

4. Declared and paid a cash dividend of $10,000.

5. Sold a long-term investment (cost $3,000) for cash of $3,000.

6. Recorded cash sales of $400,000.

7. Bought inventory for cash of $160,000.

8. Acquired an investment in Zynga stock for cash of $21,000.

9. Converted bonds payable to common stock in the amount of $500,000.

10. Repaid a 6 year note payable in the amount of $220,000.

What is the net cash provided by operating activities?

$305,000.

$180,000.

$290,000.

$240,000.

$180,000.
(Solution: $400,000 – $160,000 – $60,000 = $180,000)
The primary purpose of the statement of cash flows is to
provide information about the cash receipts and cash payments during a period.
Generally, the most important category on the statement of cash flows is cash flows from
Operating Activities
Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, interest paid on note would be classified on the statement of cash flows.
Operating Activities Section
Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, stock issued for equipment would be classified on the statement of cash flows.
Does not represent a cash flow.
Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate where, if at all, common stock issued for cash would be classified.
Financing activities section
On the statement of cash flows, the cash flows from operating activities section would include
cash receipts from sales activities.
Zoum Corporation had the following transactions during 2014:
1. Issued $125,000 of par value common stock for cash.
2. Recorded and paid wages expense of $60,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $10,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $400,000.
7. Bought inventory for cash of $160,000.
8. Acquired an investment in Zynga stock for cash of $21,000.
9. Converted bonds payable to common stock in the amount of $500,000.
10. Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by operating activities?
180,000
Zoum Corporation had the following transactions during 2014:
1. Issued $125,000 of par value common stock for cash.
2. Recorded and paid wages expense of $60,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $10,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $400,000.
7. Bought inventory for cash of $160,000.
8. Acquired an investment in Zynga stock for cash of $21,000.
9. Converted bonds payable to common stock in the amount of $500,000.
10. Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by financing activities?
$<105,000>.
(Solution: $125,000 – $10,000 – $220,000 = ($105,000))
Zoum Corporation had the following transactions during 2014:
1. Issued $125,000 of par value common stock for cash.
2. Recorded and paid wages expense of $60,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $10,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $400,000.
7. Bought inventory for cash of $160,000.
8. Acquired an investment in Zynga stock for cash of $21,000.
9. Converted bonds payable to common stock in the amount of $500,000.
10. Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by investing activities?
($18,000).
(Solution: $3,000 – $21,000 = ($18,000))
Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $212,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is
$222,000.
If accounts payable have increased during a period
expenses on an accrual basis are greater than expenses on a cash basis.
Which of the following would be subtracted from net income using the indirect method?
An increase in accounts receivable.
In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of
a comparative balance sheet.
The current cash debt coverage is used to evaluate
liquidity
Lake Norman Company reported net income of $225,000 for the current year. Depreciation recorded on buildings and equipment amounted to $75,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year
Cash
$20,000 $15,000
Accounts receivable
22,000 32,000
Inventory
50,000 60,000
Accounts payable 12,000 18,000

314000

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