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AC101 Prof Magnall

Accounting 101 Final with Prof. Magnall at Wartburg College

The left side of an account is the debit side.
GAAP stands for Generally Accepted Accounting Principles.
The basic accounting equation may be expressed as Assets = Liabilities + Owner's Equity.
The first step required in the accounting cycle is analyzing transactions.
A balance sheet shows assets, liabilities, and owner's equity.
Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause an understatement of assets and an understatement of revenues.
The Merchandise Inventory account balance appearing in an adjusted trial balance represents the ending inventory.
The book value of an asset is equal to the asset's cost less accumulated depreciation.
An objective of financial reporting is to provide information that is mainly useful to investors and creditors.
An income statement presents the revenues and expenses for a specific period of time.
If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause assets to be understated.
If goods in transit are shipped FOB destination the seller has legal title to the goods until they are delivered. (FOB shipping point - title transfers when given from seller to shipper)
If expenses are paid in cash, then assets will increase.
A trial balance is a listing of transactions in a journal.
The matching principle matches expenses with revenues.
Under a consignment arrangement, the consigned goods are included in the inventory of the consignee (aka the original owner).
From an internal control standpoint, the asset most susceptible to improper diversion and misuse is cash.
Under a perpetual inventory system, acquisition of merchandise for resale is debited to the Merchandise Inventory account.
Recording depreciation each period is necessary in accordance with the matching principle.
If a company fails to record estimated bad debts expense, expenses are understated.
Trade accounts receivable are valued and reported on the balance sheet at net realizable value.
Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs will be paid by the buyer.
When an account becomes uncollectible and must be written off, Allowance for Doubtful Accounts should be debited and Accounts Receivable should be credited.
When an owner makes a withdrawl it doesn't have to be cash, it could be another asset. - Sole proprietorship
Under the accrual basis of accounting events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates segregation of duties is violated.
Which of the following assets would be depreciated? Building (as opposed to inventory, land, or patents)
An awareness of the normal balances of accounts would help you spot which of the following as an error in recording? A credit balance in an expense account.
Bad Debts Expense is considered a necessary risk of doing business on a credit basis.
Closing entries are journalized in the general journal.
Correcting entries are journalized in the general journal.
The economic entity assumption states that economic events can be identified with a particular unit of accountability.
Unearned revenues are received and recorded as liabilities before they're earned.
Advances from customers are classified as a current liability.
A petty cash fund is generally established in order to pay relatively small expenditures.
When adjusting entries to accrue expenses at the end of the accounting period NEVER change the balance in Cash.
The maturity value of a $30,000, 9%, 36-day note receivable dated July 3 is $30,270.
Company A sells $300 of merchandise on account to Company B with credit terms of 2/10, n/30. If Company B remits a check taking advantage of the discount offered, what is the amount of Company B's check? $294.
A company shows the following balances: Sales - $1,000,000 Sales Returns and Allowances - $175,000 Sales Discounts - $25,000 Costs of Goods Sold - $600,000 What is the gross profit percentage? 25%.
A company purchased land for $60,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Cost of land recorded by cost principle method? $72,000
A 60-day note receivable dated March 13 has a maturity date of May 12.
A company just starting business purchased 3 merchandise inventory items at the following prices. 1st $80, 2nd $95, & 3rd $85. If the company sold two units for a total of $210 and used FIFO costing, the gross profit for the period would be $35
For the year just ended, a company reports net income of $2,500,000. There are 1,800,00 shares authorized, 1,200,000 shares issued, and 1,000,000 outstanding. What is the earnings per share? $2.50.
An investor purchased 400 shares of common stock, $25 par, for $17,400. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale? $600 gain.
Which of the following is NOT one of the Primary Financial Statements? Statement of Retained Earnings (Statement of Financial Position, Profit and Loss Statement, Statement of Cash Flows)
A check returned by the bank marked "NSF" means non sufficient funds.
The African celebration of Kwanzaa starts this year on December 26th.
The coupon rate determines the cash payment (interest).
The market rate determines the discount/premium of the payment (value).
When the coupon rate equals the market rate, you purchase the bond at PAR.
When the coupon rate is less than the market rate, you purchase the bond at Discount.
When the coupon rate is greater than the market rate, you purchase the bond at Premium.
What is accounting? An information and measurement system that identifies, records, and communicates relevant, reliable, and comparable info about an organization's business activities.
What type of accounting are we studying this semester? Describe it. Financial Accounting - serves external users by providing general-purpose financial statements.
What is the extended accounting question? Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses.
What is a dividend? How does it affect the accounting equation? distribution of assets to stockholders - reduces retained earnings.
Company accountants must follow GAAP. What is this and what does it do? Generally Accepted Accounting Principles. - keeps things comparable and consistant
Name two accounts that would increase with a debit. Name two increased with a credit. Debit - cash, equipment, Accounts Receivable, Expenses. Credit - Accounts Payable, Notes Payable, Revenues.
What type of transactions would increase equity? Decrease Equity? increase - common stock, revenues. decrease - pay equity in dividends, expenses.
Do we use cash basis accounting or accrual basis accounting? What does this mean? Accrual Basis - adjusting process to recognize revenues and expenses when they happen rather than when cash is received.
True or False? Adjusting entries never include cash. True
What two types of accounts do we use most in adjusting entries (where do they come from?) Balance Sheet - Income Statement
How do you find the profit margin? net income divided by net sales. Sales - Sales Returns and Allowances - Sales Discounts = Net Sales
What is the expense of buying and preparing merchandise to be sold? Cost of Goods Sold
When looking at a purchase made on credit, what do the terms [2/15, n/65] mean? 2% Discount within 15 days, net amount due in 65 days (if not paid in time, take out note payable if not paid in time)
What do 'FOB shipping point' and 'FOB destination' mean? FOB Shipping Point - Buyer pays shipping. FOB Destination - Seller is in charge of shipping
What's the difference between a periodic and perpetual system? perpetual - continually updated. periodic -updated @ end of the period
Name the four inventory costing methods we learned this term. FIFO, LIFO, Weighted Average, Moving Average, Specific Identification
When prices regularly rise, which costing method results in the highest income? FIFO - recognizes cost of goods sold for cheaper price, less expense, higher net income
A company has inventory of 10 units at a cost of $10 each on April 1. On April 3, it purchases 20 units at $12 each. 12 units are then sold on April 5. Using FIFO, what is the cost of the 12 units sold? $124
Why are there principles of internal control? Name one. To protect assets and ensure reliable accounting, promote efficient operations, urge adherence to company policies. [maintaining adequate records, separation of responsibilities.]
What do we call a fund that is set up to make small payments, such as postage or minor repairs? Petty Cash Fund
What is the purpose of a bank reconciliation? to see the differences between the two balances and compare
In what account are sales on credit recorded in? Accounts receivable
What do we call uncollectable accounts? Bad Debts
How do you calculate interest on a note? Principle x Interest Rate x [Time in days / Time in 365 days] = Interest
Ivy purchases $7,000 of merchandise from McGregor's on Dec 16, 2009. McGregor's accepts a $7,000 90-day, 12% note as payment. A)Prepare the entries McGregor's must make on the date of sale and at the end of the period -Dec31,09 B)On what day will Ivy pay Dec16- D-Notes Receivable 7,000 C-Sales 7,000 ---7,000 x 12 x 15/365 = 34.52--- Dec31- D-Interest Revenue 34.52 C-Interest Revenue 34.52 --- B)March 16
Name a plant asset, an intangible asset, and natural resource. Machinery, equipment, buildings, land / patent, copyright, trademark / cutting wood, mining diamonds, coal, minerals
What are the depreciation methods we learned other than straight-line? Double Declining Balance, Sum of the Year's Digits, Cost of Production [MACRS for the IRS]
What's the difference between current and long-term liabilities? Current = within a year. Long-term = over a year
True or False? A liability can be recorded if payment is probable and the amount is unknown. False. - amount is reasonably estimable. -if not, report in footnotes.
Give an example of an estimated liability. Warranty, health & pension, benefits (vacation etc)
What does it mean to purchase a bond at a premium? Coupon rate (current rate) > current market rate
A company issues 9%, 20-year bonds with par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is...? 750,000 x 9% x 1/2 = $33,750
The amount of income earned per share after deducting preferred dividends is a company's...? Basic earnings per share
Preferred stock that requires payment of dividends in arrears before paying dividends to common stockholders is called...? cumulative preferred stock
Prior period adjustments (corrections of material errors) are recorded in which financial statement? retained earnings
A company issues 30,000 shares of $2 par value common stock for $7 per share. Record this journal entry. D- Cash 210,000 C- Paid in Capital in Excess of Par 150,000 Common Stock 60,000.
What are the three dates, in order, that are important in the process of paying dividends? declaration, record, payment
On May 1, Coco Corp purchased 6,000 shares of it's own stock from $36,000 cash. On Dec 15, Coco reissued 1,500 shared of this treasury stock from $10,500. Prepare the May 1 and Dec 15 journal entries. May1 D- Treasury Stock 36,000 C- 36,000 --- Dec 15 D- Cash 10,500 C- Treasury Stock 9,000 Paid in Capital in Excess of Treasury Stock 1,500
Created by: 1180860093