GB518 Financial Accounting Principles Exam Solutions Guide

GB518 Financial Accounting Principles Exam Solutions Guide

1. Creditors claims on the assets of a company are called: Net lossesExpensesRevenuesEquityLiabilities2. Which of the following elements are found on the Balance Sheet? Service RevenueNet IncomeOperating ActivitiesUtilities ExpenseRetained Earnings3. Assets created by selling goods and services on credit are: Accounts payableAccounts receivableLiabilitiesExpenses4. The description of the relation between a companys assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity is known as the: Income statement equationAccounting equationBusiness equationReturn on equity ratioNet income5. An example of an operating activity is: Paying wagesPurchasing office equipmentBorrowing money from a bankSelling stockPaying off a loan6. Of the following accounts, the one that normally has a credit balance is: CashOffice EquipmentSales Salaries PayableDividendsSales Salaries Expense7. Reebok had income of $150 million and average assets of $1,800 million. Its return on assets is: 8.33% 83.3%12.0%120%8. If Beginning Retained Earnings was $184,300, the company distributed $46,000 in dividends and Ending Retained Earnings was $345,000, what was the net income for the period? $154,700$206,700$114,700$575,300$160,7009. Ethical behavior requires: That an auditors pay not depend on the figures in the clients reportsAuditors to invest in businesses they auditAnalysts to report information favorable to their companiesManagers to use accounting information to benefit themselvesThat an auditor provides a favorable opinion10. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchasers books at: $95,000$137,000$138,500$140,000$150,00011. Prepaid expenses are: Payments made for products and services that do not ever expireClassified as liabilities on the balance sheetDecreases in retained earningsAssets that represent prepayments of future expenses12. Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include: Assets increase by $75,000 and expenses increase by $75,000Assets increase by $75,000 and expenses decrease by $75,000Liabilities increase by $75,000 and expenses decrease by $75,000Assets decrease by $75,000 and expenses decrease by $75,000Assets increase by $75,000 and liabilities increase by $75,00013. Which of the following accounting principles dictates when expenses are recognized? Revenue recognition principleMonetary unit principleBusiness entity principleMatching principleFull disclosure principle14. Which of the following is the primary purpose of accounting? To establish a businessTo identify, record and communicate business transactionsTo deceive stockholdersTo keep from paying taxesTo establish credit for a company15. If assets are $99,000 and liabilities are $32,000, then equity equals: $32,000$67,000 $99,000$131,000$198,00016. Financial statements are typically prepared in the following order: Balance sheet, statement of retained earnings, income statementStatement of retained earnings, balance sheet, income statementIncome statement, balance sheet, statement of retained earningsIncome statement, statement of retained earnings, balance sheet17. Unearned revenue is reported on the financial statements as: A revenue on the balance sheetA liability on the balance sheetAn unearned revenue on the income statementAn asset on the balance sheetAn operating activity on the statement of cash flows18. The accrual basis of accounting: Is generally accepted for external reporting since it is more useful for most business decisionsIs flawed because it gives complete information about cash flowsRecognizes revenues when received in cashRecognizes expenses when paid in cashEliminates the need for adjusting entries at the end of each period19. On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. What is the amount that should be recorded as depreciation on December 31? $27,000$24,900 $29,100$135,00020. A 10-column spreadsheet used to draft a companys unadjusted trial balance, adjusting entries, adjusted trial balance and financial statements and which is an optional tool in the accounting process is a(n): Adjusted trial balanceWork sheetPost-closing trial balanceUnadjusted trial balanceGeneral ledger21. Which of the following identifies the proper order of the accounting cycle? Analyze, Journalize, Unadjusted Trial BalanceAnalyze, Post, Unadjusted Trial BalanceJournalize, Post, Adjusted Trial BalanceUnadjusted Trial Balance, Adjusted Trial Balance, CloseAdjusted Trial Balance, Adjustments, Financial Statements22. The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the: Income Summary accountClosing accountBalance column accountContra account23. A trial balance prepared after adjustments have been recorded is called a(n): Balance sheetAdjusted trial balanceUnadjusted trial balanceClassified balance sheetUnclassified balance sheet24. If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include: A debit to Cash and a credit to Salaries PayableA debit to Cash and a credit to Prepaid SalariesA debit to Salaries Payable and a credit to CashA debit to Salaries Payable and a credit to Salaries ExpenseNo entry would be necessary on January 525. Based on the following information, determine the current assets, assuming all accounts have a normal balance? Cash $ 6,754 Dividends $ 2,000Accounts receivable $ 13,733 Consulting fees earned $ 13,718Office supplies $ 2,625 Rent expense $ 3,673Land $ 37,153 Salaries expense $ 6,642Office equipment $ 14,535 Telephone expense $ 560Accounts payable $ 6,463 Miscellaneous expense $ 280Common stock $ 54,490 Retained Earnings ?$74,800$37,647$60,265$23,112 26. Which of the following accounts would not be on the post closing trial balance? Accounts PayableAccounts ReceivableCommon StockDividends27. A trial balance prepared after the closing entries have been journalized and posted is the: Unadjusted trial balancePost-closing trial balanceGeneral ledgerAdjusted trial balanceWork sheet28. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: Debit Prepaid Insurance, $1,800; credit Cash, $1,800Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440Debit Prepaid Insurance, $360; credit Insurance Expense, $360Debit Insurance Expense, $360; credit Prepaid Insurance, $360 Debit Insurance Expense, $360; credit Prepaid Insurance, $1,44029. On April 1, 2011, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2011? $1,350$450$1,012.50$337.50 $37.5030. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: 2%20%200%500%$8,00031. A company has sales of $1,500,000, sales discounts of $102,000, sales returns and allowances of $123,000, shipping charges of $15,000, sales commissions of $34,000,net income totaled $263,500, and cost of goods sold of $420,000. What is the net sales amount for the period? $1,500,000$1,275,000$1,725,000$1,521,000$1,479,00032. Given the following information: Petty cash balance $ 450.00 Courier receipt $ 82.50Postage receipt $ 48.00 Office Supplies receipt $ 56.22Business Meal receipt $ 102.34 Cash on hand at the end of the month $ 76.21What is the amount of cash over and short? debit $84.73 credit $84.73debit $160.94credit $160.94no cash over or short would be recorded33. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period. Its days sales uncollected is equal to: 11.7 days23.3 days31.3 days 42.5 days46.6 days34. Merchandise inventory: Is a long-term assetIs a current assetIncludes suppliesIs classified with investments on the balance sheetMust be sold within one month35. A company had expenses other than cost of goods sold of $51,000. Determine sales and gross profit given cost of goods sold was $25,000 and net income was $60,000. Sales: $136,000; Gross Profit: $111,000 Sales: $136,000; Gross Profit: $85,000Sales: $85,000; Gross Profit: $136,000Sales: $111,000; Gross Profit: $136,000Sales: $60,000; Gross Profit: $25,00036. A company had $43 missing from petty cash which was not accounted for by petty cash receipts. The correct procedure is to: Debit Cash Over and Short for $43Credit Cash Over and Short for $43Debit Petty Cash for $43Credit Petty Cash for $43Credit Cash for $4337. Which of the following is the most serious limitation of internal controls? Computer errorHuman fraud or human errorCost-benefit principleCybercrimeManagement fraud38. Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses? FIFOWeighted averageLIFOSpecific identificationFirst In Still Here39. A company had sales of $695,000 and its cost of goods sold of $278,000. Its gross margin equals: $(417,000)$695,000$278,000$417,00040. Multiple-step income statements: Are required by the FASBContain more detail than a simple listing of revenues and expensesAre required for the perpetual inventory systemList cost of goods sold as an operating expenseCan only be used in perpetual inventory systems41. Goods on consignment: Are goods shipped by the owner to the consignee who sells the goods for the ownerAre reported in the consignees books as inventoryAre goods shipped to the consignor who sells the goods for the ownerAre not reported in the consignors inventory since they do not have possession of the inventory42. A seller of goods or services, usually a manufacturer or wholesaler is known as a: VendorPayeeVendeeCreditorDebtor43. Physical inventory counts: Are not necessary under the perpetual systemAre necessary to measure and adjust for inventory shrinkageMust be taken at least once a monthRequire the use of hand-held portable computers44. A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is: $3,725.00$3,925.00$3,995.00$4,000.50 $4,075.0045. The inventory valuation method that tends to smooth out erratic changes in costs is: FIFOWeighted averageLIFOSpecific identificationWIFO46. A remittance advice is: An explanation for a payment by checkA bank statementA voucherAn EFTA cancelled check47. A merchandising company: Earns net income by buying and selling merchandiseReceives fees only in exchange for servicesEarns profit from commissions onlyEarns profit from fares onlyBuys products from consumers48. The understatement of the beginning inventory balance causes: Cost of goods sold to be understated and net income to be understatedCost of goods sold to be understated and net income to be overstatedCost of goods sold to be overstated and net income to be overstatedCost of goods sold to be overstated and net income to be understatedCost of goods sold to be overstated and net income to be correct49. Alpha Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700 and sales discounts of $3,475. Alphas net sales for this period equal: $94,275$172,550$174,250$176,025$177,72550. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale? $140$160$210 $380$590


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