For each of the following accounts, select the letter that represents the best category for each item. A letter can be used more than once or not at all.
a. Current Asset
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b. Long-term Investment g. Paid-in Capital
c. Plant Asset h. Retained Earnings
d. Intangible Asset i. Revenue
e. Current Liability j. Expense
f. Long-term Liability k. “Other Revenue or Expense”
__a____ (ex.) Cash
_______ 1. Accumulated Depreciation
_______ 2. Allowance for Doubtful Accounts
_______ 3. Common Stock
_______ 4. Discount on Bonds Payable
_______ 5. Interest Payable
_______ 6. Interest Revenue
_______ 7. Loss on Sale of Investment
_______ 8. Payroll Tax Expense
_______ 9. Prepaid Insurance
_____10. Unearned Rent Revenue
For each of the following questions, write the name of one financial statement that will supply the answer. Question Financial Statement that Will Supply the Answer
Which Financial Statement would you find the answer?
1. How much cash does a company have?
2. What are a company’s total revenues?
3. What was the amount of dividends declared?
4. How many shares of common stock has a corporation issued?
5. What is a company’s net income?
6. How much does a company owe to its creditors?
7. What kind of expenses does the company have?
8. Does the company have preferred stock?
9. What is the current ratio?
10. What inventory method does the company use?
Exercise #3 10 points
The adjusted trial balance columns for William Company are as follows on Dec 31, 2014.
(A) Prepare an income statement, and a classified balance sheet, Dec 31, 2014.
(B) Prepare the closing entries.
(C) Calculate Gross Profit Rate and Profit Margin.
101 Cash 17,800
112 Accounts Receivable 14,400
126 Supplies 2,300
130 Prepaid Insurance 4,400
151 Equipment 46,000
152 Accumulated Depreciation-Equip 18,000
200 Notes Payable 20,000 (Note: $5,000 of the notes payable become due in 2015.)
201 Accounts Payable 8,000
212 Salaries and Wages Payable 2,600
230 Interest Payable 1,000
311 Common Stock 15,000
320 Retained Earnings 9,800
332 Dividends 12,000
400 Service Revenue 86,200
610 Advertising Expense 10,000
631 Supplies Expense 3,700
711 Depreciation Expense 6,000
722 Insurance Expense 4,000
726 Salaries and Wages Expense 39,000
905 Interest Expense 1,000
Totals 160,600 160,600
On January 1, 2014, Magnus Corporation had 60,000 shares of $1 par value common stock issued and outstanding. During the year, the following transactions occurred:
Mar. 1 Issued 25,000 shares of common stock for $550,000.
June 1 Declared a cash dividend of $2.00 per share to stockholders of record on June 5.
June 30 Paid the $2.00 cash dividend.
Dec. 1 Purchased 5,000 shares of common stock for the treasury for $22 per share.
Dec. 15 Declared a cash dividend on outstanding shares of $2.25 per share to stockholders of record on December 31.
Prepare the appropriate journal entries for the transactions of Magnus Corporation detailed above. Omit Explanations. Please skip a line between each entry.
Exercise #5 – Mutiple Choice
1. Which of the following is not reported under additional paid-in capital?
(a) Paid-in capital in excess of par value.
(b) Treasury Stock
(c) Paid-in capital in excess of stated value.
(d) Paid-in capital from treasury stock.
2. Determine net income for the period if beginning stockholders’ equity is $19,000, dividends declared amount to $7,000, ending stockholders’ equity is $37,000, and the corporation issued $1,000 of common stock.
d. none of the above
3. In preparing a balance sheet, which of the following statements is true?
a. Current liabilities are listed alphabetically.
b. Long-term liabilities are listed after Stockholders’ Equity.
c. Intangible assets are listed in order of solvency.
d. Current assets are listed in order of their liquidity.
4. What accounting characteristic, principle, concept, or constraint allows a corporation to record the purchase of a $10 wastepaper basket that is estimated to last 5 years as an expense in the year of acquisition?
a. full disclosure
5. A collection of $500 of an account receivable will cause:
a. cash to be credited for $500.
b. accounts receivable to be credited for $500.
c. revenues to be debited for $500.
d. accounts receivable to be debited for $500.
6. After journalizing and posting the closing entries,
a. balance sheet accounts have zero balances.
b. all accounts have zero balances.
c. retained earnings is up-to-date.
d. permanent accounts have zero balances.
7. A company began operations and purchased $5,000 of supplies. By year-end, $2,250 was still on hand. The adjusting entry at year end would include a:
a. debit to Supplies for $5,000
b. credit to Supplies for $2,250
c. credit to Supplies for $2,750
d. debit to Supplies Expense for $2,250
8. A company fails to recognize revenue it has earned but not yet received. The accounts impacted by this error are:
a. assets and liabilities
b. liabilities and expenses
c. liabilities and revenues
d. assets and revenues
9. Under the perpetual inventory system, if a purchaser returns goods that had been purchased on account, the purchaser would:
a. debit inventory and credit accounts payable. b. debit accounts payable and credit inventory. c. debit inventory and credit accounts receivable. d. debit accounts receivable and credit inventory.
10. If sales revenues are $200,000, cost of goods sold is $155,000, and operating expenses are $30,000, what is the gross profit?
11. In a periodic inventory system the quantity of ending inventory is determined by:
a. subtracting units sold from units purchased. b. taking a physical inventory count.
c. looking at the balance in the inventory account.
d. subtracting cost of goods sold from the beginning inventory balance.
12. Which of the following statements is generally true when prices are rising?
a. LIFO will result in less taxes than FIFO.
b. FIFO reports a lower ending inventory than LIFO.
c. LIFO reports a higher net income than FIFO.
d. FIFO produces a lower net income than LIFO.
13. Given the following data, if a periodic inventory system is used, what is the weighted-average cost of ending inventory rounded to the nearest whole dollar?
Sales revenue 100 units at $10 per unit
Beginning inventory 50 units at $ 8 per unit
Purchases 90 units at $9 per unit
14. Outstanding checks are checks:
a. not yet paid by the bank.
b. not yet deducted on the books.
c. not yet issued by the payee.
d. that have been paid by the bank.
15. The internal control principle related to having different persons authorize the purchase of goods and pay for the goods is known as:
a. establishment of responsibility.
b. rotation of duties.
c. independent internal verification.
d. segregation of duties.
16. The balance sheet reports accounts receivable at:
b. historical cost.
c. cash realizable value.
d. market value.
17. Orion Corp. lends Maxi Inc. $20,000 on December 1, accepting a four-month, 6% note. Orion’s annual accounting period ends on December 31. Orion’s adjusting entry should include a
a. debit to Note Receivable for $300.
b. credit to Interest Revenue for $400. c. debit to Interest Receivable for $100. d. credit to Interest Revenue for $1,200.
18. A machine that had cost $35,000 has a book value of $21,000. It is sold for $40,000. The entry to record the sale should include a:
a. gain of $19,000
b. gain of $26,000
c. loss of $19,000
d. loss of $5,000
19. Which depreciation method generally results in the largest depreciation expense in the first full year of an asset’s life?
d. either straight-line or double-declining-balance
20. A company borrows $5,000 on November 1, 2008 giving a 10%, 180-day note payable. The adjusting entry on December 31, 2008 would include a:
a. credit to Interest Payable for $83
b. credit to Interest Payable for $167
c. debit to Interest Expense for $250
d. credit to Cash for $83
21. If the market rate of interest is greater than the contractual rate of interest, bonds will be issued at:
a. face value.
b. a discount.
c. a premium.
d. carrying value.
22. Net pay is equal to:
a. gross pay minus all deductions.
b. all deductions plus all withholdings.
c. take-home pay plus all deductions.
d. payroll tax expense.
23. Treasury shares plus outstanding shares equal
a. issued shares.
b. unissued shares.
c. par value.
d. authorized shares.
24. On the payment date, the payment of cash dividends will
a. decrease stockholders’ equity.
b. increase current liabilities.
c. decrease cash.
d. increase common stock.
25. The Balance Sheet would disclose the interest owed
a. nowhere on the Balance Sheet.
b. in the Stockholder’s Section.
c. in the Asset section.
d. in the Liabilities section.
26. When an account becomes uncollectible and must be written off,
a. Allowance for Doubtful Accounts should be credited. b. Accounts Receivable should be credited. c. Bad Debts Expense should be credited. d. Sales should be debited.
27. The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles
a. will increase income in the period it is collected.
b. will decrease income in the period it is collected.
c. requires a correcting entry for the period in which the account was written off.
d. does not affect income in the period it is collected.
28. A debit balance in the Allowance for Doubtful Accounts
a. is the normal balance for that account. b. indicates that actual bad debt write-offs have exceeded previous provision for bad debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of sales method of estimating bad debts is used.
29. The sale of receivables by a business
a. indicates that the business is in financial difficulty. b. is generally the major revenue item on its income statement. c. is an indication that the business is owned by a factor. d. can be a quick way to generate cash for operating needs.
30. Retailers generally consider sales from the use of national credit card sales such as VISA or Mastercard, as a
a. credit sale.
b. collection of an accounts receivable.
c. cash sale.
d. collection of a note receivable