Act 210 Final Exam Flashcards

Terms Definitions
A business organized as a separate legal entity owned by stockholders is a partnership. True or False
False
Corporate stockholders generally pay higher taxes but have no personal liability. True or False
True
The liability of corporate stockholders is limited to the amount of their investment. True or False
True
Owners of business firms are the only people who need accounting information. True or False
False
Management of a business enterprise is the major external user of information. True or False
False
External users of accounting information are managers who plan, organize, and run a business. True or false
False
The purchase of equipment is an example of a financing activity. True or False
False
Payments to owners are operating activities. True or False
False
Net income for the period is determined by subtracting total expenses and dividends from revenues. True or False
False
A different set of financial statements usually is prepared for each user. True or False
False
A liability is classified as a current liability if it is to be paid within the coming year. True or False
True
Profitability means having enough funds on hand to pay debts when they fall due. True or False
False
Revenues have the effect of increasing retained earnings. True or False
True
Solvency ratios measure the short-term ability of the company to pay its maturing obligations. True or False
False
Revenue increases stockholders' equity and should be recorded whenever cash is received from customers. True or False
False
Collection on an account receivable will increase both cash and accounts receivable. True or False
False
The payment of a liability decreases both cash and accounts payable. True or False
True
A debit to an account always indicates an increase in that account. True or False
False
If a revenue account is credited, the revenue account is increased. True or False
True
Debit and credit can be interpreted to mean "bad" and "good", respectively. True or False
False
A decrease in a liability account is recorded by a debit. True or False
True
Prepaid expenses are assets. True or False
True
Wages payable is a type of expense. True or False
False
The time period assumption states that the economic life of a business entity can be divided into artificial time periods. True or False
True
The time period assumption is often referred to as the matching principle. True or False
False
The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned. True or False
True
The revenue recognition principle and the matching principle are helpful guides used in determining net income or net loss for a period. True or False
True
The matching principle requires that efforts be related to accomplishments. True or False
True
Income will always be greater under the cash basis of accounting than under the accrual basis of accounting. True or False
False
Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal. True or False
False
An adjusting entry to a prepaid expense is required to recognize expired expenses. True or False
True
Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities. True or False
False
Revenue received before it is earned and expenses used or consumed before being paid are both initially recorded as liabilities. True or False
True
Accrued revenues are revenues that have been received but not yet earned. True or False
False
Accrued revenues are revenues that have been earned but not yet received. True or False
True
The difference between unearned revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and unearned revenue has never been recorded. True or False
False
If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future. True or False
False
The operating cycle of a merchandising company ordinarily is shorter than that of a service company. True or False
False
Sales minus operating expenses equals gross profit. True or False
False
Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs. True or False
True
The periodic inventory system provides an up to date amount of inventory on hand. True or False
False
Cost of Goods Sold is considered an expense of a merchandising firm. True or False
True
Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Merchandise Inventory account. True or False
True
The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period. True or False
True
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 20 days after the invoice date to take advantage of the cash discount. True or False
False
Inventory methods such as FIFO and LIFO deal more with flow of costs than with flow of goods. True or False
True
The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale. True or False
True
Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company. True or False
False
The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost. True or False
True
If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method. True or False
True
The LIFO inventory method agrees with the actual physical movement of goods in most businesses. True or False
False
In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO. True or False
True
In periods of falling prices, FIFO will result in a larger net income than the LIFO method. True or False
False
Segregation of duties among employees eliminates the possibility of collusion. True or False
False
For efficiency of operations and better control over cash, a company should maintain only one bank account. True or False
False
Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check. True or False
False
Control over cash disbursements is improved if major expenditures are paid by check. True or False
True
An example of segregation of duties is having a check signer recording cash disbursements. True or False
False
To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks. True or False
False
Cash equivalents include money market accounts, commercial paper, and U.S. treasury bills held for ninety days or less. True or False
True
Sound internal control activities dictate that the amount of cash on hand should be kept to a maximum. True or False
False
An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected. True or False
False
The allowance method of accounting for bad debts violates the matching principle. True or False
False
When using the allowance method bad debt expense is recorded when an individual customer defaults. True or False
False
Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected. True or False
True
If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts. True or False
True
Under the direct write-off method, no attempt is made to match bad debt expense to sales revenues in the same accounting period. True or False
True
Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible. True or False
False
Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet. True or False
True
The Allowance for Doubtful Accounts is a liability account. True or False
False
When an account receivable that was previously written off is collected, it is first necessary to reverse the entry to reinstate the customer's account before recording the collection. True or False
True
Recording depreciation each period is an application of the matching principle.
True
The Accumulated Depreciation account represents a cash fund available to replace plant assets. True or False
False
In calculating depreciation, both plant asset cost and useful life are based on estimates. True or False
False
The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements. True or False
True
A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation. True or False
False
Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred. True or False
False
If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs. True or False
True
A plant asset must be fully depreciated before it can be removed from the books. True or False
False
Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer. True or False
True
A company whose current liabilities exceed its current assets may have a liquidity problem. True or False
True
Notes payable usually require the borrower to pay interest. True or False
True
A $20,000, 8%, 9-month note payable requires an interest payment of $1,200 at maturity. True or False
True
If the market rate of interest at the date of issuance of a bond is greater than the stated interest rate, the bond will be issued at a premium. True or False
False
If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating. True or False
False
If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date.True or False
False
If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date. True or False
True
If the market rate of interest is greater than the contractual rate of interest, bonds will sell at a discount. True or False
True
If $180,000, 9%, bonds are issued on January 1, and pay interest annually, the amount of interest paid will be $16,200. True or False
True
A corporation is not an entity that is separate and distinct from its owners. True or False
False
The liability of a stockholder is usually limited to the stockholder's investment in the corporation. True or False
True
The tax laws can be a significant disadvantage of the corporate form of business. True or False
True
A corporation can be organized for the purpose of making a profit or it may be nonprofit. True or False
True
The par value of common stock must always be equal to its market value on the date the stock is issued. True or False
False
For accounting purposes, stated value is treated the same way as par value. True or False
True
Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership. True or False
True
Treasury stock should not be classified as a current asset. True or False
True
Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold. True or False
False
Treasury stock is a contra stockholders' equity account. True or False
True
The cost of treasury stock is deducted from total paid-in capital and retained earnings in determining total stockholders' equity. True or False
True
A business organized as a separate legal entity is a
Corporation
A corporation has which of the following set of characteristics?
Easier to transfer ownership and raise funds, no personal liability
The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)
account payable
Borrowing money is an example of a(n)
financing activity
Issuing shares of stock in exchange for cash is an example of a(n)
financing activity
In a classified balance sheet, assets are usually classified as:
current assets; long-term investments; property, plant, and equipment; and intangible assets.
An intangible asset
derives its value from the rights and privileges it provides the owner.
Land held for investment
 
Trademark
 
Land held for investment
 
Trademark
 
Land held for investment
 
Trademark
 
Land held for investment
 
Trademark
 
Land held for investment
 
Trademark
 
The purchase of an asset for cash
leaves total assets unchanged
The payment of a liability
decreases assets and liabilities.
A revenue generally
increases assets and stockholders' equity.
Tritan Corporation received a cash advance of $500 from a customer. As a result of this event,
assets increased by $500
Anderson Company purchased equipment for $1,800 cash. As a result of this event,
assets remained unchanged.
Franklin Company provided consulting services and billed the client $2,500. As a result of this event
assets increased by $2,500, equity increased by $2,500.
Felix Corporation paid dividends of $5,000. As a result of this event,
The dividends account was debited for $5,000.
If a company pays dividends of $10,000,
Equity will be reduced by $10,000, Retained earnings will be reduced by $10,000.
If a company issues common stock for $25,000 and uses $20,000 of the cash to purchase a truck,
Assets will be increased by $25,000.
Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?
No, revenue cannot be recognized until the work is performed.
The normal balance of any account is the
side which increases that account.
The double-entry system requires that each transaction must be recorded
in at least two different accounts.
A credit is not the normal balance for which account listed below?
Dividends account
The time period assumption states that
the economic life of a business can be divided into artificial time periods.
An accounting time period that is one year in length is called
a fiscal year.
The revenue recognition principle dictates that revenue should be recognized in the accounting records
when it is earned.
The matching principle matches
expenses with revenues.
Javier's Tune-Up Shop follows the revenue recognition principle. Javier services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Javier on September 5. Javier receives the check in the mail on September 6. Whe
August 31
A company spends $20 million dollars for an office building. Over what period should the cost be written off?
Over the useful life of the building
The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
efforts should be matched with accomplishments.
Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
Matching principle.
A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to
November 30
Under the accrual basis of accounting
events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
Using accrual accounting, expenses are recorded and reported only
when they are incurred whether or not cash is paid.
A small company may be able to justify using a cash basis of accounting if they have
few receivables and payables.
An adjusting entry can include a
debit to a liability and a credit to a revenue.
Goods purchased for future use in the business, such as supplies, are called
prepaid expenses.
As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
debit to an expense account and a credit to an asset account.
Which statement is correct?As long as management is ethical, there are no problems with using the cash basis of accounting. The use of the cash basis of accounting violates both the revenue recognition and matching principles. As long as a company consist
The use of the cash basis of accounting violates both the revenue recognition and matching principles.
The primary difference between accrued revenues and unearned revenues is that accrued revenues have
not been recorded and unearned revenues have.
At March 1, 2007, CookieTime Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $1,900 and used supplies of $1,800. The March 31 balance sheet should report what balance in the supplies account?
$1,600
Dorting Company purchased a computer system for $3,600 on January 1, 2006. The company expects to use the computer system for 3 years. It has no salvage value. Monthly depreciation expense on the asset is:
$100
Fleet Services Company purchased equipment for $5,000 on January 1, 2007. The company expects to use the equipment for 5 years. It has no salvage value. What balance would be reported on the December 21, 2007 balance sheet for Accumulated Depreciation?
$1,000
Gross profit equals the difference between
net sales revenues and cost of goods sold.
Net income will result if gross profit exceeds
operating expenses.
A merchandiser will earn an operating income of exactly $0 when
gross profit equals operating expenses.
Under a perpetual inventory system
accounting records continuously disclose the amount of inventory.
The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit
Merchandise Inventory.
Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system?
Payment of freight costs for goods shipped to a customer
A company using a perpetual inventory system that returns goods previously purchased on credit would
debit Accounts Payable and credit Merchandise Inventory.
 
 
 
 
 
 
 
 
 
 
Assume a company uses the periodic inventory system and has a beginning merchandise inventory balance of $5,000, purchases of $75,000, and sales of $125,000. The company closes its records once a year on December 31. In the accounting records, the merchan
equal to $5,000.
The gross profit rate is computed by dividing gross profit by
net sales.
If goods in transit are shipped FOB destination
the seller has legal title to the goods until they are delivered.
Internal controls are concerned with
safeguarding assets.
Internal control is defined, in part, as a plan that safeguards
assets
The custodian of a company asset should
not have access to the accounting records for that asset.
An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of
separation of duties is violated.
Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates
segregation of duties is violated.
Each of the following would be subtracted from the balance per books on a bank reconciliation?
Outstanding checks
Which of the following would be added to the balance per bank on a bank reconciliation?
Deposits in transit
If a check correctly written and paid by the bank for $626 is incorrectly recorded on the company's books for $662, the appropriate treatment on the bank reconciliation would be to
add $36 to the book's balance.
A check for $167 is incorrectly recorded by a company as $176. On the bank recon-ciliation, the $9 error should be
added to the balance per books.
For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?
Deposit of $500 recorded by bank as $50
For which of the following errors should the appropriate amount be subtracted from the balance per bank on a bank reconciliation?
A returned $200 check recorded by bank as $20
For which of the following errors should the appropriate amount be subtracted from the balance per book on a bank reconciliation?
Check for $43 recorded as $34
An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debts Expense for $2,800.
An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debt Expense for $4,200.
An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debts Expense for $1,800.
Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment what is the amount of bad debt expense for th
$33,000
Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $10,000. If the balance of the Allowance for Doubtful Accounts is $2,000 credit before adjustment what is the amount of bad debt expense for t
$8,000
Net credit sales for the month are $600,000. The accounts receivable balance is $120,000. The allowance is calculated as 5% of the receivables balance using the percentage of receivables basis. If the Allowance for Doubtful Accounts has a credit balance o
$6000
In 2007 Carpenter Company had net credit sales of 1,125,000. On January 1, 2007, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2007 , $45,000 of uncollectible accounts receivable were written off. Past experience indicates that t
$ 48,000
The Land account would include all of the following costs except
the cost of building a fence.
Brown Clinic purchases land for $120,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Brown Clinic record as the cost for the lan
$124,700
Elway Company purchases land for $85,000 cash. Elway assumes $2,500 in property taxes due on the land. The title and attorney fees totaled $1,000. Elway has the land graded for $2,200. They paid $10,000 for paving of a parking lot. What amount does Elway
$90,700
Bale Company buys land for $100,000 on 12/31/06. As of 3/31/07, the land has appreciated in value to $101,000. On 12/31/07, the land has an appraised value of $103,600. By what amount should the Land account be increased in 2007?
$0
Wynn, Inc. purchased a delivery truck for $24,000. The company was given a $2,400 cash discount by the dealer, and paid $1,200 sales tax. Annual insurance on the truck is $600. As a result of the purchase, by how much will Wynn, Inc. increase its truck ac
$22,800
Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year us
$11,760.
Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end
$6,680.
Equipment with a cost of $192,000 has an estimated salvage value of $18,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the
$43,500
Equipment with a cost of $150,000 has an estimated salvage value of $10,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the
$35,000
On January 1, a machine with a useful life of five years and a residual value of $5,000 was purchased for $25,000. What is the depreciation expense for year 2 under straight-line depreciation?
$4,000
A truck that cost $36,000 and on which $30,000 of accumulated depreciation has been recorded was disposed of for $9,000 cash. The entry to record this event would include a
gain of $3,000.
On July 1, 2007, Walters Kennels sells equipment for $44,000. The equipment originally cost $120,000, had an estimated 5-year life and an expected salvage value of $20,000. The Accumulated Depreciation account had a balance of $70,000 on January 1, 2007,
$4,000 gain
A plant asset with a cost of $90,000 and accumulated depreciation of $85,500 is sold for $10,500. What is the amount of the gain or loss on disposal of the plant asset?
$6,000 gain
Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note.The entry made by Allenson Brick Company on January 1 to record the proceeds and issuance of the note is
Cash 200,000 Notes Payable 200,000
Interest Expense
6,000
 
 
Cash
600,000
 
 
Which of the following would not be true of a privately held corporation?
Its shares are regularly traded on the New York Stock Exchange.
Which of the following is not true of a corporation?
The acts of its owners bind the corporation.
Allen Sutton has invested $600,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Sutton stand to lose?
Up to his total investment of $600,000
Which of the following statements is not considered a disadvantage of the corporate form of organization?
Limited liability of stockholders
A disadvantage of the corporate form of organization is
tax treatment
New Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.
If Kiner Company issues 1,000 shares of $5 par value common stock for $70,000, the account
Common Stock will be credited for $5,000.
The number of shares of issued stock equals
outstanding shares plus treasury shares.
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Term:
Definition:
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