Accounting 2200 - Exam 1 | Accounting

Financial accounting provides:
A. budgets and forecasts of future business operations
B. detailed management reports designed to control and manage company assets
C. information to investors and creditors
D. all of the above are true
E. none of the above

C. information to investors and creditors

Which of the following financial statements reflect activity for a period of time?
A. both the income statement and the balance sheet
B. only the balance sheet
C. only the income statement
D. neither the income statement nor the balance sheet

C. only the income statement

The following information is provided at the end of the year:
Liabilities ...................................... $10,000
Retained Earnings ............................ 5,000
Contributed Capital ........................... 7,000
The amount of total assets

D. 22,000
Assets = Liabilities = Equity
= 10,000 + 5,000 + 7,000
= 22,000

Which of the following events causes a net decrease in total assets?
A. the sale of inventory to a customer at an amount larger than cost
B. payment of utilities bills not previously recorded as an obligation
C. cash purchase of equipment
D. credit purcha

B. payment of utilities bills not previously recorded as an obligation

The nature of an asset is best described as:
A. something with physical form which is valued at cost in the accounting records
B. an economic resource owned by a business and expected to benefit future operations
C. an economic resource representing cash

B. an economic resource owned by a business and expected to benefit future operations

The purchase of inventory with cash:
A. increases assets and owners' equity
B. decreases assets and owners' equity
C. increases assets and liabilities
D. has no net effect on total assets
E. none of the above are correct

D. has no net effect on total assets

If assets decreased by $12,000 during a year and owners' equity increased by $4,000, then liabilities must have:
A. increased by $8,000 during the year
B. decreased by $16,000 during the year
C. increased by $16,000 during the year
D. decreased by $12,000

B. decreased by $16,000 during the year
Assets = Liabilites + Equity
-12,000 = X + 4,000
X = -16,000

For the current accounting year, beginning and ending total liabilities were $15,000 and $31,000, respectively.
At year-end, owner's equity amounted to $29,000, and total assets were $21,000 larger than at the beginning
of the year. If the common stock so

C. $ 2,000 net income

Income Statement formula

Revenues - Expenses = Net Income

Balance Sheet formula

Assets = Liabilities + Equity

End Equity

Beginning Equity + Common Stock + Net Income - Dividends = End Equity

End Assets

End Assets = End Liabilities + End Equity

During the current year, assets increased from $11,000 to $19,000, and liabilities decreased from $9,000 to
$7,500. If no additional common stock was sold to owners during the year, dividends totaled $4,000, and
expenses totaled $21,000, the total revenue

B. $34,500

On December 30, a firm's balance sheet showed assets of $390,000, liabilities of $180,000, and owner's
equity of $210,000. On December 31 the firm (1) paid off Accounts Payable of $49,000, and (2) paid rent
of $16,000 due on their building. If a new balan

A. $325,000, $131,000, and $194,000
Assets
390,000 - 49,000 - 16,0000 = 325,000
Liabilities
180,000 - 49,000 = 131,0000
Equity
210,000 - 16,000 = 194,000

Which of the following accounts normally has a debit balance?
A. equipment
B. accounts payable
C. sales revenue
D. common stock
E. none of the above are correct

A. equipment

All of the accounts of a business entity taken together comprise the:
A. journal
B. balance sheet
C. accounting system
D. financial statements
E. ledger

E. ledger

The sale of inventory to a customer on account is recorded with debits to:
A. inventory and cost of goods sold
B. accounts receivable and inventory
C. cost of goods sold and accounts receivable
D. sales revenue and accounts receivable
E. sales revenue and

C. cost of goods sold and accounts receivable

A building owned by a business would not be classified as a current asset unless:
A. it was purchased within the last 12 months
B. management purchased the building with cash or intended to pay off any obligation incurred in the
purchase of the building w

C. management intends and reasonably expects to sell the building within 12 months

Lange Company purchased land for $60,000 in 2001. In 2003, the land is valued at $75,000. The land would
appear on the company's balance sheet in 2003 at:
A. $75,000
B. $15,000
C. $45,000
D. $60,000
E. accounting rules allow either (a) or (d) to be used

D. $60,000

Financial statements are designed primarily to:
A. provide managers with detailed information tailored to the managers' specific needs
B. indicate to investors in a particular company the current market values of their investments
C. report to the interna

D. provide people outside the business organization with financial information about the company

XYZ Company reported the following account balances at January 1, 2001:
Accounts payable ........ $ 90,000
Accounts receivable ..... $ 80,000
Cash ........................ 60,000
Land ........................ 130,000
Contributed capital ....... 350,000
Co

B. $180,000
CA = AR + Cash + Inventory

Current Assets

Cash, Account Receivable, Inventory, Supplies

Longterm Assets

Building, Land, Equipment, Copyright

Current Liabilities

Accounts Payable, Notes Payable

Hobbins debited Cash and credited Unearned Rental Revenue for $6,000 on December 1 for rent received in
advance for December, January, February, March, and April. What necessary adjustment would be made on
December 31?
A. debit unearned rental revenue 4,8

B. debit unearned rental revenue 1,200 and credit rental revenue 1,200

The adjusting entry made in question #18 above is required under:
A. the realization principle
B. the matching concept
C. cash basis accounting
D. both (a) and (b) are correct
E. both (a) and (c) are correct

A. the realization principle

At the end of the accounting period, $3,300 in accounting fees had been earned by Norm's Accounting
Services but not yet billed, recorded or received. The proper year end adjusting entry by Norm would be:
A. debit accounts receivable 3,300 and credit acco

A. debit accounts receivable 3,300 and credit accounting fee revenues 3,300

In preparing its adjusting entries at the end of this year, Sara Company neglected to record an adjusting entry
for employees' wages incurred but not yet paid. This error:
A. overstates net income, understates liabilities, and overstates owner's equity
B.

A. overstates net income, understates liabilities, and overstates owner's equity

Failure to adjust at the end of an accounting period for the portion of supplies recorded as an asset but used
up during the period has the following effect on the financial statements:
A. overstates net income
B. understates assets
C. overstates liabilit

A. overstates net income

Unearned revenue is classified as a(n):
A. expense account
B. asset account
C. equity account
D. liability account
E. revenue account

D. liability account

Revenues for the period were $43,000 and expenses totaled $34,000. Retained earnings had a $17,000
beginning balance and a $21,000 ending balance. What was the amount of dividends paid during the year?
A. $2,000
B. $3,000
C. $4,000
D. $7,000
E. none of th

E. none of the above are correct
Beg RE + Common Stock + Net Income - Dividends = End RE
43,000 - 34,000 = 9,000
17,000 + 9,000 + X = 21,000
X = 5,000

End Retained Earnings

Beg RE + Net Income - Dividends = End RE

During March, XYZ Company entered into the following transactions:
? purchased inventory for $18,000 on credit
? issued common stock for $10,000 cash
? purchased equipment for $7,950 cash
As a result of these transactions, XYZ Company's total assets would

A. increase by $28,000
18,000 + 10,000 + 7950 - 7950

The matching concept:
A. applies only to situations in which a cash payment occurs before an expense is recorded
B. is used in accrual accounting to determine the proper period to record revenues
C. applies only to situations in which a cash receipt occur

B. is used in accrual accounting to determine the proper period to record revenues

The following transactions occurred during May, the first month of operations for Voorhies Videos:
? The company issued common stock to owners for $100,000 cash
? The company purchased $50,000 of equipment by making a $20,000 cash down payment
and signing

C. $ 70,000
100,000 - 20,000 - 13,000 + 3,000 = 70,000

The following transactions occurred during May, the first month of operations for Voorhies Videos:
? The company issued common stock to owners for $100,000 cash
? The company purchased $50,000 of equipment by making a $20,000 cash down payment
and signing

D. $17,000
30,000 - 13,000

The following transactions occurred during May, the first month of operations for Voorhies Videos:
? The company issued common stock to owners for $100,000 cash
? The company purchased $50,000 of equipment by making a $20,000 cash down payment
and signing

A. $100,000

Which of the following will not cause a change in the owner's equity of a business?
A. sale of land at a profit
B. payment of dividends to owners
C. payment of a business debt
D. losses from unprofitable operations
E. all of the above cause a change in ow

C. payment of a business debt

Accounts Payable ..................................... $ 29,000
Accounts Receivable ................................. 35,000
Advertising Expense ................................. 10,000
Cash ..................................................... 29,000
Cos

C. $47,000
Gross Profit = Sales Revenue - Cost of Goods Sold
= 88,000 - 41,000
= 47,000

Accounts Payable ..................................... $ 29,000
Accounts Receivable ................................. 35,000
Advertising Expense ................................. 10,000
Cash ..................................................... 29,000
Cos

D. $18,000
Net Income = Revenue - Expenses
= 5,000 + 88,000 - 10,000 - 41,000 -
24,000
= $18,000

Generally Accepted Accounting Principles may best be described as:
A. the accounting standards and concepts used in the preparation of financial statements
B. the rules and regulations used in the preparation of tax returns
C. guidelines for establishing

A. the accounting standards and concepts used in the preparation of financial statements

ABC Company reported the following account balances at December 31, 2012:
Service revenue $3,300 Equipment $6,400
Cash 1,525 Prepaid insurance 1,225
Unearned revenue 5,320 Depreciation expense 640
Salary expense 1,050 Accum. depreciation 1,280
Common stoc

B. $10,840
Add up all credits and debits, make sure equal.
Increase assets and expenses
1525 + 1050 + 6400 + 1225 + 640 = 10,840
Increase liabilities, equity, revenue
3300 + 5320 + 390 + 1280 + 550 = 10,840

XYZ Company reported the following information at June 30, 1999:
total current assets ..................... $ 340,000
total assets .............................. 580,000
total current liabilities ................. 115,000
total liabilities ...............

A. $225,000
Working Capital = Total Current Assets - Total Current Liabilities
340,000 - 115,000 = 225,000

Working Capital

Total Current Assets - Total Current Liabilities

XYZ Company purchased supplies for $2,000 during 1998. At January 1, 1998, the supplies on hand were $400. At December 31, 1998, supplies on hand were $300. Supplies expense for 1998 is equal to:
A. $2,100
B. $2,400
C. $2,700
D. $1,900
E. $2,300

A. $2,100
400 + 2,000 - X = 300
X = 2,100

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?
A. reduced legal liability for owners
B. harder to transfer ownership
C. lower income taxes
D. most common form of business organization
E. more than

A. reduced legal liability for owners

Tom's Wear purchased plain T-shirts and printed logos on the T-shirts in January. The T-shirts were sold to
customers in February. Tom's Wear received the final cash payments in March. According to the realization
principle, when should revenue be recorde

B. February
Record revenue when earned

An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No
entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting
period and no adjusting entry is

D. revenues to be understated

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited
to the account unearned service revenue. If the legal services have been rendered at the end of the accounting
period and no adjusting entry is m

E. more than one of the above would be correct
Liabilities over, Revenues under

The statement of cash flows would disclose the payment of dividends to stockholders:
A. in the operating activities section
B. in the investing activities section
C. in the financing activities section
D. either (b) or (c) would be correct depending on th

C. in the financing activities section

Which of the following statements regarding the preparation of financial statements is correct?
A. The statement of cash flows should be prepared first because it determines the sources of cash.
That information is then used in preparing the income statem

B. Net income from the income statement flows into retained earnings on the statement of owner's

A firm presently has a working capital of $32,000 and a current ratio of 2.0. Assume the company then paid
a current liability of $7,000.
43. Calculate the company's current assets after recording the payment of the current liability
$ __________

$57,000
WC = CA - CL & CR = CA/CL
2 = CA/CL
2CL = CA
32,000 = 2CL - CL
32,000 = CL
CL = 32,000
CA = 64,000
64,000 - 7,000 = 57,000

A firm presently has a working capital of $32,000 and a current ratio of 2.0. Assume the company then paid
a current liability of $7,000.
Calculate the company's current ratio after recording the payment of the current liability
____________

2.28
CR = CA/CL
= 57,000/25,000
= 2.28

The following information was taken from the accounting records of ZZ, Inc. for the year ended
December 31, 2011:
Inventory ............................................... $71,000
Utilities Expense ...................................... 12,000
Cost of Goo

$112,000
Sales Revenue - COGS - Utilities Expense - Salaries Expense - Income Tax Expense
94,000 - 33,000 - 12,000 - 15,000 - 10,000
24,000 = Net Income
Beg RE + Net Income - Dividends = End RE
29,000 + 24,000 - 6,000 = X + Common Stock = 112,000

The following information was taken from the accounting records of ZZ, Inc. for the year ended
December 31, 2011:
Inventory ............................................... $71,000
Utilities Expense ...................................... 12,000
Cost of Goo

Assets = Liabilities + Equity
= 47,000 + 112,000
= 159,000

Inventory ............................................... $71,000
Utilities Expense ...................................... 12,000
Cost of Goods Sold ................................... 33,000
Accumulated Depreciation .......................... ?
Cash ....

18,000
159,000 - 71,000 - 16,000 - 11,000 - 79,000 = -18,000

sole propietorship

one person, owner controlled
ex. barbershop

partnership

multiple owners, broad skills
ex. doctors, lawyers

corporation

stockholders, separate legal entity
ex. majority of business

debt financing

borrowing funds

equity financing

raising funds through stock

accounting

measure and describe the economic results of a company and communicate those results to interested users.

managerial accounting

accounting information that is used by insiders,
folks that work for the company that are internal to the company

financial accounting

accounting information that's used by outsiders�the investors and the creditors

financial statement

set of accounting reports that convey information to the outside users such as creditors and investors

four main financial statements

The balance sheet, the income statement, the statement of owners' equity, and the statement of cash flows

current assets

represent assets that are expected to either be converted into cash or used up (expire) within one year from the date of the balance sheet

current assets examples

cash, accounts receivable, inventory, supplies

long-term assets

own and use for longer than one year's time

long-term assets examples

PPE - Land, building, equipment
Intangibles - trademark, copyright, patent

accumulated depreciation

contra-assets, causes decrease to PPE

current liabilities

accounts payable, short notes payable, income tax payable, anything payable

long-term liabilities

long-term notes payable, mortgage payable, bonds payable

equity

contributed capital (common stock) and retained earnings

revenues

sales revenue, anything revnue

expenses

COGS, anything expenses

Gross Profit

Sales Revenue - COGS

Income statement format

Sales Revenue - COGS = Gross Profit + other revenues - other expenses = Net Income

total equity

retained earnings + contributed capital

Lange Company purchased land for $75,000 in 2017. In 2019, the land was valued at $93,000. The land would appear on the company's December 31, 2019 balance sheet at:
a. $93,000
b. $18,000
c. $84,000
d. $75,000
e. either (a) or (d) could be correct

d. $75,000
At cost, not value

Historical Cost Concept

Assets are shown on the balance sheet at their cost (the amount paid to acquire them)

What type of account?
Account Receivable

Asset (current)

What type of account?
Dividend Revenue

Revenue

What type of account?
Mortgage Payable

Liability

What type of account?
Retained Earnings

Equity

What type of account?
Copyright

Asset (long-term)

What type of account?
Cost of Goods Sold

Expense

The following information was taken from the accounting records of ABC Company for the period ended January 31, 2019:
Cash $29,000
Retained Earnings $66,000 (at January 1, 2019)
Advertising Expense $17,000
Cost of Goods Sold $36,000
Rental Revenue $11,000

Net Income = 25,000
Net Income = Revenue - Expenses
11,000 + 93,000 - 17,000 - 36,000 - 14,000 - 12,000 = 25,000

The following information is available for Buckeye Company:
January 1, 2018 December 31, 2018
Cash $25,000 $30,000
Land 40,000 42,000
Notes payable 29,000 45,000
Retained earnings 33,000 58,000
Accumulated depreciation 4,000 7,000
Supplies 8,000 10,000
Ac

Total Current Assets = $108,000
Current Assets = Cash, Accounts Receivable, Inventory, Supplies
30,000 + 26,000 + 42,000 + 10,000 = 108,000

The following information is available for Buckeye Company:
January 1, 2018 December 31, 2018
Cash $25,000 $30,000
Land 40,000 42,000
Notes payable 29,000 45,000
Retained earnings 33,000 58,000
Accumulated depreciation 4,000 7,000
Supplies 8,000 10,000
Ac

Net Income = $34,000
Beg RE + Net Income - Dividends = End RE
33,000 + NI - 9,000 = 58,000
NI = 34,000

The following information is available for Buckeye Company:
January 1, 2018 December 31, 2018
Cash $25,000 $30,000
Land 40,000 42,000
Notes payable 29,000 45,000
Retained earnings 33,000 58,000
Accumulated depreciation 4,000 7,000
Supplies 8,000 10,000
Ac

Equipment = $17,000
Assets
30,000 + 42,000 - 7,000 + 10,000 + 26,000 + 42,000 + x = 143,000
End of year Liabilities
45,000 + 17,000 = 62,000
End of year Equity
58,000 + 40,000 = 98,000
143,000 + X = 62,000 + 98,000
X = 17,000

The following information is available for Buckeye Company:
January 1, 2018 December 31, 2018
Cash $25,000 $30,000
Land 40,000 42,000
Notes payable 29,000 45,000
Retained earnings 33,000 58,000
Accumulated depreciation 4,000 7,000
Supplies 8,000 10,000
Ac

Gross Profit = $73,000
Revenues - Expenses = Net Income
98,000 - 22,000 - 17,000 - x = 34,000
X = COGS = 25,000
Sales Revenue - COGS = Gross Profit
98,000 - 25,000 = 73,000

Solo Company borrowed $4,000 from National City Bank on June 1. On August 31, Solo Company paid off the loan plus $100 of interest. The correct journal entry to record the August 31 payment of the loan plus interest would be:
a. debit cash $4,000, debit i

e. debit notes payable $4,000, debit interest expense $100, and credit cash $4,100

For each account listed below, determine if the account is decreased by a debit or a credit.
1. accounts payable
2. patent
3. common stock
4. interest revenue
5. loss on sale of land

Accounts Payable - debit (liability)
Patent - credit (asset)
Common Stock - debit (equity)
Interest Revenue - debit (revenue)
Loss on Sale of Land - credit (expense)

Loss/Gain on sale

Loss = Expense
Gain = Revenue

Increase to asset
Decrease to asset

Debit
Credit

Increase to liability
Decrease to liability

Credit
Debit

Increase to equity
Decrease to equity

Credit
Debit

Increase to revenue
Decrease to revenue

Credit
Debit

Increase to expense
Decrease to expense

Debit
Credit

The following information relates to the supplies account of ABC Company:
January 1, 2019 December 31, 2019
Supplies 32,000 38,000
ABC Company reported supplies expense of $17,000 in its 2019 income statement.
Calculate the amount of supplies purchased by

Supplies purchased - $23,000
32,000 + X - 17,000 = 38,000

For each account listed below, indicate whether it is a nominal account or a permanent account.
1. cost of goods sold
2. retained earnings
3. accumulated depreciation
4. unearned revenue

1. cost of goods sold - nominal (expense)
2. retained earnings - permanent (equity)
3. accumulated depreciation - permanent (contra-asset)
4. unearned revenue - permanent (liability)

Nominal accounts

Revenues, expenses, dividends

Permanent accounts

Assets, liabilities, equity

Franklin Company borrowed $60,000 from a bank on June 1, 2018 and agreed to pay it back in ten months at an interest rate of 16% per year.
Calculate the amount of interest expense related to this loan reported in Franklin Company's 2019 income statement.

Interest Expense = $2,400
Principle x Rate x Time
60,000 x .16 x 3/12 = 2,4000

ABC Company began operations in May, 2018 by selling common stock to owners in exchange for $90,000 cash. During 2018, ABC Company entered into the following transactions:
1. On May 23, ABC Company purchased inventory for $50,000 cash.
2. On June 1, ABC C

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