Accounting 101 Final with Prof. Magnall at Wartburg College
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| The left side of an account | is the debit side.
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| GAAP stands for | Generally Accepted Accounting Principles.
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| The basic accounting equation may be expressed as | Assets = Liabilities + Owner's Equity.
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| The first step required in the accounting cycle is | analyzing transactions.
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| A balance sheet shows | assets, liabilities, and owner's equity.
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| 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.
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| The Merchandise Inventory account balance appearing in an adjusted trial balance represents the | ending inventory.
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| The book value of an asset is equal to the | asset's cost less accumulated depreciation.
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| An objective of financial reporting is to provide information that is mainly useful to | investors and creditors.
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| An income statement | presents the revenues and expenses for a specific period of time.
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| 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.
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| 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)
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| If expenses are paid in cash, then | assets will increase.
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| A trial balance is a listing of | transactions in a journal.
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| The matching principle matches | expenses with revenues.
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| Under a consignment arrangement, the | consigned goods are included in the inventory of the consignee (aka the original owner).
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| From an internal control standpoint, the asset most susceptible to improper diversion and misuse is | cash.
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| Under a perpetual inventory system, acquisition of merchandise for resale is debited to the | Merchandise Inventory account.
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| Recording depreciation each period is necessary in accordance with the | matching principle.
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| If a company fails to record estimated bad debts expense, | expenses are understated.
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| Trade accounts receivable are valued and reported on the balance sheet | at net realizable value.
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| Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs will be paid by the | buyer.
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| When an account becomes uncollectible and must be written off, | Allowance for Doubtful Accounts should be debited and Accounts Receivable should be credited.
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| When an owner makes a withdrawl | it doesn't have to be cash, it could be another asset. - Sole proprietorship
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| 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.
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| 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.
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| Which of the following assets would be depreciated? | Building
(as opposed to inventory, land, or patents)
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| 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.
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| Bad Debts Expense is considered | a necessary risk of doing business on a credit basis.
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| Closing entries are | journalized in the general journal.
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| Correcting entries are journalized in | the general journal.
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| The economic entity assumption states that economic events | can be identified with a particular unit of accountability.
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| Unearned revenues are | received and recorded as liabilities before they're earned.
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| Advances from customers are classified as | a current liability.
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| A petty cash fund is generally established in order to | pay relatively small expenditures.
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| When adjusting entries to accrue expenses at the end of the accounting period NEVER | change the balance in Cash.
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| The maturity value of a $30,000, 9%, 36-day note receivable dated July 3 is | $30,270.
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| 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.
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| 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%.
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| 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
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| A 60-day note receivable dated March 13 has a maturity date of | May 12.
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| 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
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| 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.
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| 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.
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| 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)
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| A check returned by the bank marked "NSF" means | non sufficient funds.
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| The African celebration of Kwanzaa starts this year on | December 26th.
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| The coupon rate determines | the cash payment (interest).
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| The market rate determines | the discount/premium of the payment (value).
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| When the coupon rate equals the market rate, | you purchase the bond at PAR.
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| When the coupon rate is less than the market rate, | you purchase the bond at Discount.
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| When the coupon rate is greater than the market rate, | you purchase the bond at Premium.
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| What is accounting? | An information and measurement system that identifies, records, and communicates relevant, reliable, and comparable info about an organization's business activities.
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| What type of accounting are we studying this semester? Describe it. | Financial Accounting - serves external users by providing general-purpose financial statements.
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| What is the extended accounting question? | Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses.
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| What is a dividend? How does it affect the accounting equation? | distribution of assets to stockholders - reduces retained earnings.
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| Company accountants must follow GAAP. What is this and what does it do? | Generally Accepted Accounting Principles. - keeps things comparable and consistant
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| 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.
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| What type of transactions would increase equity? Decrease Equity? | increase - common stock, revenues. decrease - pay equity in dividends, expenses.
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| 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.
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| True or False? Adjusting entries never include cash. | True
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| What two types of accounts do we use most in adjusting entries (where do they come from?) | Balance Sheet - Income Statement
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| How do you find the profit margin? | net income divided by net sales. Sales - Sales Returns and Allowances - Sales Discounts = Net Sales
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| What is the expense of buying and preparing merchandise to be sold? | Cost of Goods Sold
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| 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)
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| What do 'FOB shipping point' and 'FOB destination' mean? | FOB Shipping Point - Buyer pays shipping. FOB Destination - Seller is in charge of shipping
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| What's the difference between a periodic and perpetual system? | perpetual - continually updated. periodic -updated @ end of the period
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| Name the four inventory costing methods we learned this term. | FIFO, LIFO, Weighted Average, Moving Average, Specific Identification
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| 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
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| 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
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| 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.]
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| What do we call a fund that is set up to make small payments, such as postage or minor repairs? | Petty Cash Fund
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| What is the purpose of a bank reconciliation? | to see the differences between the two balances and compare
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| In what account are sales on credit recorded in? | Accounts receivable
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| What do we call uncollectable accounts? | Bad Debts
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| How do you calculate interest on a note? | Principle x Interest Rate x [Time in days / Time in 365 days] = Interest
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| 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
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| Name a plant asset, an intangible asset, and natural resource. | Machinery, equipment, buildings, land / patent, copyright, trademark / cutting wood, mining diamonds, coal, minerals
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| 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]
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| What's the difference between current and long-term liabilities? | Current = within a year. Long-term = over a year
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| 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.
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| Give an example of an estimated liability. | Warranty, health & pension, benefits (vacation etc)
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| What does it mean to purchase a bond at a premium? | Coupon rate (current rate) > current market rate
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| 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
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| The amount of income earned per share after deducting preferred dividends is a company's...? | Basic earnings per share
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| Preferred stock that requires payment of dividends in arrears before paying dividends to common stockholders is called...? | cumulative preferred stock
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| Prior period adjustments (corrections of material errors) are recorded in which financial statement? | retained earnings
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| 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.
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| What are the three dates, in order, that are important in the process of paying dividends? | declaration, record, payment
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| 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
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