In a classified balance sheet, how are assets usually classified?
-Current Assets
-Long Term Investments
-PP&E
-Intangible Assetts
How are current assets listed?
by liquidity
The correct order of presentation in a classified balance sheet for the following current assets is...?
cash, accounts receivable, inventories, and then prepaid insurance
A company purchased a tract of land on which it expects to build a production plant on in approximately five years. During the five years before construction, the land will be idle. In what classification should the land be reported?
Long-term investment
Which of the following is an example of an intangible asset?
trademarks
Which of the following is considered property, plant, and equipment on a classified balance sheet?
land
Current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings totals $70,000. How much is total stockholders' equity?
$120,000
Which is an indicator of profitability?
earnings per share
For 2014, Stoneland Corporation reported net income, $24,000; net sales, $400,000; and average shares outstanding, 6,000. There were no preferred stock dividends. How much was the 2014 earnings per share?
-$4.00
- Net income ($24,000) divided by average shares outstanding (6,000) = $4.00/share.
At December 31, 2014, Shorts Company had retained earnings of $2,184,000. During 2014, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2014 was $402,000. How much was the retained earnings balance at the beginning of 20
-$1,816,000
-The beginning balance of retained earnings is the ending balance minus net income plus dividends.
-Working backwards, $X + $402,000 - $34,000 = $2,184,000.
-Therefore, beginning retained earnings = $1,816,000.
Issuing new shares of common stock will
increase the common stock account
Which statement is used by most corporations instead of the retained earnings statement?
Statement of stockholders' equity
Which one of the following does not affect retained earnings?
issuance of common stock
Which of these measures is an evaluation of a company's ability to pay current liabilities?
-Current ratio
-The current ratio measures liquidity.
-Higher current ratios indicate higher liquidity
Current ratio
total current assets / total current liabilities
Which of the following ratios measures the ability of the company to survive over a long period of time?
-solvency ratios
If a company has the ability to pay obligations that are expected to become due within the next year or operating cycle whichever is longer, what is the term that describes this measure?
Liquidity
working capital
current assets - current liabilities
debt to total assets
total liabilities/total assets
What are generally accepted accounting principles?
- A set of accounting rules and practices that have authoritative support
-GAAP
What is the primary accounting standard-setting body in the United States?
-Financial Accounting Standards Board
-FASB
Which of the following is not a characteristic of relevance?
Verifiability
An item is ________ if it is likely to influence the decision of an investor or creditor.
material
What is the primary criterion by which accounting information can be judged?
usefulness for decision making
Which of the following statements about a periodic inventory system is true?
Companies determine cost of goods sold only at the end of the accounting period.
The operating cycle of a merchandising company is ordinarily ___________________ that of a service firm.
longer than
Which inventory system will likely be used by a company with merchandise that has a high unit value?
perpetual inventory system
Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?
A debit to Inventory for $200
Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill
- Credit to Cash for $1,600
-Since the bill is paid after the discount period, the balance due is $2,000 less the returned goods of $400, or $1,600. The entry will debit Accounts Payable and credit Cash.
When credit terms of 1/15, n/60 are offered, how long is the discount period?
-15 days
-The 1% discount can be taken if the invoice is paid within 15 days.
Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?
- $4,074
-The terms of 3% if paid within 10 days on the $4,200 invoice permits the buyer to take a discount of $126 on the invoice, $4,200 - (3% � $4,200) = $4,074
Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?
-Freight-out account
On what amount is a sales discount based?
Invoice price less returns and allowances
In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?
Accounts Receivable and Cost of Goods Sold
The normal balance of the Sales Returns and Allowances account is a debit.
The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.
A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?
- $686
Which statement is true when recording the sale of goods for cash in a perpetual inventory system?
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 to reduce inventory.
What type of accounts are Sales Returns and Allowances and Sales Discounts?
Contra revenue accounts
Sales revenue total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?
-$8,500
-Net sales is sales revenue ($10,000) less both sales returns and allowances ($500) and sales discounts ($1,000), for a net sales total of $8,500
Which of the following is classified in an income statement as a nonoperating activity?
Interest expense`
Which of the following is classified in an income statement as a nonoperating activity?
Receiving dividend revenue from an investment
Which of the following would appear on both a single-step and a multiple-step income statement?
Cost of goods sold
If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit?
-$90,000
-Gross profit is equal to sales revenue minus cost of goods sold($400,000 ? $310,000 = $90,000)
If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?
-$390,000
-Cost of goods sold is computed by adding beginning inventory and cost of goods purchased and then subtracting ending inventory, or $60,000 + $380,000 - $50,000 = $390,000.
Beginning inventory is $12,000; purchases are $34,000; sales revenue are $60,000; and cost of goods sold is $31,000. How much is ending inventory?
-$15,000
-Beginning inventory plus purchases less equals ending inventory ($12,000 + $34,000 - $31,000 = $15,000).
A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?
-25%
-Gross profit divided by net sales results in a gross profit rate of 25%.
-Net sales = $2,000,000 ? $250,000 ? $50,000 = $1,700,000
Gross profit = $1,700,000 ? $1,275,000 = $425,000
Gross profit rate = $425,000/$1,700,000 = 25%
Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?
-20%
-Net income ($15,000) divided by net sales ($75,000) equals profit margin of 20%
When is a physical inventory usually taken?
At the end of the company's fiscal year
Which of the following should not be included in the physical inventory of a company?
Goods held on consignment from another company
Which of the following is not a legitimate business reason for taking a physical inventory?
To verify the profitability of individual inventory items
Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped
Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped
Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?
-Cecil
Ownership remains with Cecil, so Cecil reports the goods as assets.
Inventory costing methods place primary reliance on assumptions about the flow of
costs
Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?
- $40,000
-Ending inventory plus cost of goods sold minus purchases results in beginning inventory: $20,000 + $560,000 -$540,000 = $40,000.
Which of the following is true of the FIFO inventory method?
It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.
Which of the following would most likely employ the specific identification method of inventory costing?
Jewelry store
Which of the following statements is true?
Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.
Which of the following statements is true?
Company management selects the method of inventory costing method a company will use.
In periods of rising prices, what will LIFO produce?
Lower net income than FIFO
Which one of the following is not a consideration that affects the selection of an inventory costing method?
Perpetual versus periodic inventory system
In a period of rising prices which inventory method will result in the greatest amount of income tax expense?
fifo
With the assumption of costs and prices generally rising, which of the following is correct?
LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.
Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true?
The company using FIFO will have the highest ending inventory.
Which situation requires a departure from the cost basis of accounting to the lower-of-cost-or-market basis in valuing inventory?
A decline in the value of the inventory
What is the underlying rationale for the lower-of-cost-or-market rule?
The conservatism constraint
Carlos Comany had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos' days in inventory?
-121.7 days
- Days in inventory equals 365 days � inventory turnover (cost of goods sold � average inventory).365 � ($285,000 � [($80,000 + $110,000) � 2]) = 121.7 days
When is a receivable recorded by a service organization?
When service is provided on account
At what value are accounts receivable reported on the balance sheet?
Cash (net) realizable value
Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts ha
- $12,000
- Because the estimate is based on a percentage of receivables, the $800 balance in the Allowance accounts must be considered. The ending balance required in the allowance account is 7.5% times $160,000, or $12,000. Since there is already a bala
During 2014, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience ind
- $32,000
-After the write-offs are recorded, Allowance for Doubtful Accounts will have a debit balance of $12,000 ($18,000 credit beginning balance combined with a $30,000 debit for the write-offs). The desired balance, using the percentage of receivable
Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?
- Allowance for Doubtful Accounts is debited.
At what amount is a short-term notes receivable recorded on the issue date?
-face value
How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1?
-$233
- Interest earned is calculated by multiplying the principal times the interest rate times the portion of the year that has passed since the note was issued ($5,000 � 8% � 7/12 = $233).
Danta Company has a March 31 fiscal year end. What is the maturity value of a $25,000, 12%, 3-month note receivable dated March 1?
-$25,750
- The maturity value is the face value plus interest for the term of the note. Interest earned is calculated by multiplying the principal times the interest rate times the length of the note.
-Interest = $25,000 � 12% � 3/12 = $750. Maturity valu
What is the maturity value of a $25,000, 9%, 4-month note receivable issued on December 1 if the company has a fiscal year end on December 31?
- $25,750
-The maturity value is the face value plus interest for the term of the note. Interest earned is calculated by multiplying the principal times the interest rate times the length of the note. Interest = $25,000 � 9% � 4/12 = $750. Maturity value
On the date a 90-day note is honored, how much cash will the payee receive?
Face value plus 90 days of interest
Which statement is true about reporting receivables on the balance sheet?
Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.
If a company is concerned about lending money to a risky customer, which one of the following would it not want to do?
Provide the customer a lengthy payment period to increase the chance of paying
What is often the most critical part of managing receivables?
Determining who gets credit and who doesn't
Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. How much is the accounts receivables turnov
-6.4
-The accounts receivable turnover is computed by dividing net credit sales by average net accounts receivable. $800,000/[($100,000 + $150,000)/2] = 6.4.
Prall Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.00. What is its average collection period (days)?
-52 days
- The average collection period is computed by dividing the number of days in the year by the accounts receivable turnover or 365/7 = 52 days
Net credit sales are $800,000, average net receivables total $150,000, average inventory totals $200,000, and the allowance for doubtful accounts totals $8,000. How much is the average collection period?
-68.5 days
-The accounts receivable turnover is net credit sales ($800,000) divided by average net accounts receivable ($150,000), or 5.33 times. The average collection period is 365 divided by the accounts receivable turnover, which is 365/5.33 = 68.5 da