Solved by verified expert :Week 8 Final Exam

1. Debt and obligations of a business are
referred to as
a. assets.
b. equities.
c. liabilities.
d. expenses.

2. Which financial statement shows the
assets and liabilities of a business as of a given date?
a. balance
b. income
c. statement of
cash flows.
d. statement of
retained earnings.

Use the following information for questions 3 and 4.

Johnny’s Detailing Shop started the year with total assets
of $60,000 and total liabilities of $40,000.
During the year the business recorded $105,000 in revenues, $55,000 in
expenses, and dividends of $10,000.

3. Stockholders’ equity at the end of the
year was
a. $60,000.
b. $50,000.
c. $40,000.
d. $45,000.

4. The net income reported by Johnny’s
Detailing Shop for the year was
a. $40,000.
b. $50,000.
c. $30,000.
d. $95,000.

5. Which of the
following is NOT classified properly as a current asset?
a. Supplies
b. Short-term
c. Accounts
d. Equipment

6. Which of the following is a measure of
a. Current
b. Profit
c. Earnings per
d. Debt to
equity ratio

7. Which one of the following is NOT a
qualitative characteristic of useful accounting information?
a. Relevance
b. Reliability
c. Cash-basis
d. Comparability

8. Which of the following is NOT
considered an asset?
a. Equipment
b. Dividends
c. Accounts receivable
d. Inventory

9. An income statement
a. summarizes the changes in cash for a
specific period of time.
b. reports all of the transactions with
stockholders during a specific period of time.
c. reports the assets, liabilities, and
stockholders’ equity at a specific date.
d. reports the revenues and expenses for a
specific period of time.

10. A debit to an asset account indicates
a. error.
b. credit was made to a liability account.
c. decrease in the asset.
d. increase in the asset.

11. Posting
a. transfers ledger transaction data to
the journal.
b. normally occurs before journalizing.
c. transfers journal entries to the ledger
d. enters transaction data in the journal.

12. Which of the following correctly
identifies normal balances of accounts?
a. Assets Debit
Liabilities Credit
Stock Credit
Revenues Debit
Expenses Credit

b. Assets Debit
Liabilities Credit
Stock Credit
Revenues Credit
Expenses Credit

c. Assets Credit
Liabilities Debit
Stock Debit
Revenues Credit
Expenses Debit

d. Assets Debit
Liabilities Credit
Stock Credit
Revenues Credit
Expenses Debit

13. A post-closing trial balance will show
a. zero balances for all accounts.
b. zero balances for all balance sheet
c. zero balances for all income statement
d. There’s no such thing as a post-closing
trial balance.

14. Which of the following would NOT result
in unearned revenue?
a. Rent collected in advance from tenants
b. Services performed on account
c. Sale of season tickets to football
d. Sale of two-year magazine subscriptions

15. Snell Tables paid employee wages on and
through Sunday, January 26, and the next payroll will be paid in February.
There are three more working days in January (29-31), and the company pays $800
a day in wages. What will be the adjusting entry to accrue wages expense at the
end of January?
a. Wages Payable 800
Expense 800
b. Wages Expense 2,400
c. Wages Expense 2,400
Payable 2,400
d. No adjusting
entry is required.

16. If service for $125 had been performed
but not billed, the adjusting entry to record this would include a
a. debit to
Service Revenue for $125.
b. credit to
Unearned Revenue for $125.
c. credit to
Service Revenue for $125.
d. debit to
Unearned Revenue for $125.

17. The Village Laundry Company purchased
$6,500 worth of laundry supplies on June 2 and recorded the purchase as an
asset. It had zero supplies on hand on June 1.
On June 30, a count of the laundry supplies indicated only $2,000 of
supplies on hand. The adjusting entry
that should be made by the company on June 30 is
a. Debit Laundry Supplies Expense, $2,000;
Credit Laundry Supplies, $2,000.
b. Debit Laundry Supplies Expense, $4,500;
Credit Laundry Supplies, $2,000.
c. Debit Laundry Supplies, $4,500; Credit
Laundry Supplies Expense, $4,500.
d. Debit Laundry Supplies Expense, $4,500;
Credit Laundry Supplies, $4,500.

18. Grey Co. has the following financial
information for the year ended December 31, 2004:
Expenses $ 45,000
Returns and Allowances 13,000
(cash) Discount 6,000
Sales 150,000
of Goods Sold 77,000

amount of net sales on Grey Co.’s 2004 income statement would be
a. $131,000.
b. $137,000.
c. $144,000.
d. $169,000.

19. As an incentive for customers to pay
their accounts promptly, a business may offer its customers
a. a sales (cash) discount.
b. zero percent interest for 90 days.
c. a sales allowance.
d. a sales return.

20. Net sales revenue less cost of goods sold
is called
a. gross profit.
b. net profit.
c. net income.
d. marginal income.

21. 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?
a. $4,000
b. $3,920
c. $3,600
d. $3,680

22. A company reports its 2004 cost of goods
sold at $20.0 billion. Its ending
inventory for 2004 is $1.8 billion and its beginning inventory was $1.5
billion. How much inventory did the
company purchase during 2004?
a. $20.3
b. $19.7
c. $21.8
d. $18.5

23. Which of the following items on a bank
reconciliation would require an adjusting entry on the company’s books?
a. An error by
the bank
b. Outstanding
c. A bank
service charge
d. A deposit in

Use the following information for questions 24-26.

A company just starting business made the following four
inventory purchases in June:
June 1 150
units $6.60/unit cost $
June 10 200
units $6.30/unit cost 1,260
June 15 200
units $5.85/unit cost 1,170
June 28 150
units $5.20/unit cost

A physical count of merchandise inventory on June 30 reveals
that there are 250 units on hand.

24. Using the periodic LIFO inventory method,
the value of the ending inventory on June 30 is
a. $1,365.
b. $1,620.
c. $2,580.
d. $2,835.

25. Using the periodic FIFO inventory method,
the amount allocated to cost of goods sold for June is
a. $1,620.
b. $2,290.
c. $2,580.
d. $2,835.

26. The inventory method which results in the
highest gross profit for June is
a. the FIFO method.
b. the LIFO method.
c. the aging method.
d. not determinable.

27. Jansen Company gathered the following
reconciling information in preparing its April bank reconciliation:

balance per books, 4/30 $2,200
in transit 300
receivable and interest collected by bank 740
charge for check printing 25
checks 1,500
check 140
adjusted cash balance per books on April 31 is
a. $3,075.
b. $2,940.
c. $2,775.
d. $3,055.

28. Deposits in transit
a. have been recorded on the company’s
books but not yet by the bank.
b. have been recorded by the bank but not
yet by the company.
c. have not been recorded by either the
bank or the company.
d. are customers’ checks that have not yet
been received by the company.

29. Green Company lends New Company $10,000
on December 1, 2004, accepting a five-month, 12% interest note. Green Company
prepares its annual financial statements on December 31, 2004. How much interest revenue should Green
Company recognize in its 2004 income statement for this note receivable?
a. $100
b. $500
c. $1,200
d. $10,000

30. Which of the following statements is NOT
true about net (cash) realizable value of accounts receivable?
a. Net (cash)
realizable value equals accounts receivable less allowance for doubtful
b. Net (cash)
realizable value is the amount of cash that the company expects to collect from
its accounts receivable customers.
c. Net (cash)
realizable value is the amount due to the company from its credit customers.
d. Net (cash)
realizable value is often determined based on an aging analysis of accounts

31. Using the allowance method, an aging
analysis of accounts receivable resulted in an estimate of uncollectible
accounts of $28,000. If the balance for
the Allowance for Doubtful Accounts is a $7,000 credit before the adjustment
for bad debt expense, what is the amount of bad debt expense for the period?
a. $7,000
b. $21,000
c. $28,000
d. $35,000

32. Under the allowance method, writing off a
specific customer’s uncollectible account
a. affects only balance sheet accounts.
b. affects both balance sheet and income
statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.

33. A company purchased office equipment for
$10,000 and estimated a salvage value of $2,000 at the end of its 5-year useful
life. The constant percentage to be applied against book value each year if the
double-declining-balance method is used is
a. 20%.
b. 25%.
c. 50%.
d. 40%.

34. A machine, acquired for a cash cost of
$6,000, is being depreciated using the straight-line method. The estimated useful life is 6 years, and the
salvage or residual value is estimated to be $600. The annual depreciation expense for the
machine is

a. $900.
b. $1,000.
c. $1,100.
d. $2,000.

35. The net book value of a plant asset is
equal to the
a. asset’s market value less its
historical cost.
b. asset’s current market value.
c. replacement cost of the asset.
d. asset’s historical cost less
accumulated depreciation.

36. Kovacic Company purchased a computer that
cost $10,000. It had an estimated useful life of five years and salvage or
residual value of $0. The computer was depreciated by the straight-line method
and was sold at the end of the fourth year of use for $3,000 cash. Kovacic
should record
a. a gain of
b. a loss of
c. a gain of
d. a loss of

37. If a bond payable is sold (issued) at a
premium, the amount of the carrying or book value reported on the balance
sheets between issue date and maturity date
a. remains
b. increases
each year.
c. decreases
each year.
d. changes from
year to year depending upon the market rate of interest each year.

38. If a bond is sold at 98, its stated rate
of interest would be
a. higher than
the market rate.
b. lower than
the market rate.
c. equal to the
market rate.
d. unrelated to
the market rate.

39. On January 1, 2004, Winston Corporation
sold a four-year, $10,000 face value, 7% bond. The interest (coupon) payment is
due annually each December 31. The issue price was $9,668 based on an 8%
effective or market interest rate. Assuming effective-interest amortization is
used, the interest expense on the 2004 income statement would be (to the
nearest dollar)
a. $ 1,547.
b. $ 883.
c. $ 773.
d. $ 700.

40. On June 30, 20A, Reagan Corporation sold
(issued) a $10,000 face value bond that matures in 10 years, has a coupon or
stated interest rate of 8%, and requires annual interest or coupon
payments. When the bond was issued, the
market interest rate was 6%. The
proceeds Reagan received when it issued this bond were:
a. $ 10,000.
b. $ 8,338.
c. $ 10,051.
d. $ 11,472.

41. A disadvantage of the corporate form of
business is
a. its status
as a separate legal entity.
b. continuous
c. separation
of ownership and management.
d. ease of
transfer of ownership.

42. The maximum amount of stock that may be
issued according to the corporation’s charter is referred to as the
a. authorized
b. issued
c. unissued
d. outstanding

43. If common stock is issued for an amount
greater than par value, the excess should be credited to
a. Cash.
b. Retained Earnings.
c. Paid-in Capital in Excess of Par Value.
d. Legal Capital.

44. The acquisition of treasury stock by a
a. increases its total assets and total
stockholders’ equity.
b. decreases its total assets and total
stockholders’ equity.
c. has no effect on total assets and total
stockholders’ equity.
d. requires
that a gain or loss be recognized on the income statement.

45. What is the total stockholders’ equity
based on the following account balances?

Stock ………………………………………………… $500,000
Capital in Excess of Par ……………………………… 40,000
Earnings ……………………………………………… 190,000
Stock …………………………………………………. 20,000
a. $630,000
b. $710,000
c. $750,000
d. $460,000

46. The primary purpose of the statement of
cash flows is to
a. provide information about the investing
and financing activities during a period.
b. prove that revenues exceed expenses if
there is a net income.
c. provide information about the cash
receipts and cash payments during a period.
d. facilitate banking relationships.

47. If a company purchased treasury stock
with cash, this would be reported on the statement of cash flows as
a. An operating cash outflow
b. An investing cash outflow
c. A financing cash outflow
d. A financing cash inflow

48. Bilton Company reported net income of
$35,000 for the year. During the year,
accounts receivable increased by $7,000, accounts payable decreased by $3,000
and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for
the year is
a. $30,000.
b. $50,000.
c. $34,000.
d. $35,000.

49. The method for presenting Net cash
provided by operating activities that starts with net income and adjusts it for
items that affected reported net income but that did not affect cash is called
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.

50. When equipment is sold for cash, the
amount received is reflected as a cash
a. inflow in the operating section.
b. inflow in the financing section.
c. inflow in the investing section.
d. outflow in the operating section.

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