Accounting 2 Study Guide

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 ;

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” ;

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__a____ (ex.) Cash ;

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_______ 1. Accumulated Depreciation ;

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_______ 2. Allowance for Doubtful Accounts ;

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_______ 3. Common Stock ;

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_______ 4. Discount on Bonds Payable ;

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_______ 5. Interest Payable ;

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_______ 6. Interest Revenue ;

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_______ 7. Loss on Sale of Investment ;

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_______ 8. Payroll Tax Expense ;

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_______ 9. Prepaid Insurance ;

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_____10. Unearned Rent Revenue ;

Exercise #2 ;

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. ; ;

; Debit ; Credit ; ;

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 ; ;

Exercise #4 ;

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. ;

; a. ; $10,000.00 ;

; b. ; $27,000.00 ;

; c. ; $24,000.00 ;

; 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 ;

; b. ; materiality ;

; c. ; reliability

; d. ; entity ;

;

; 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? ;

; a. ; $15,000 ;

; b. ; $45,000 ;

; c. ; $75,000 ;

; d. ; $185,000 ;

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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 ;

;

; a. ; $400 ;

; b. ; $346 ;

; c. ; $360 ;

; d. ; $1,210 ;

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; 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. ;

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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: ;

; a. ; lower-of-cost-or-market. ;

; b. ; historical cost. ;

; c. ; cash realizable value. ;

; d. ; market value. ;

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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 ;

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19. ; Which depreciation method generally results in the largest depreciation expense in the first full year of an asset’s life? ;

; a. ; straight-line ;

; b. ; units-of-activity ;

; c. ; double-declining-balance ;

; 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 ; ; ;

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