Acc230 midterm solutions guide (part 2) — correct w/ solutions !

Question 1 of 37

Accounts receivable is an example of which of the following?

 

Prepaid expense

An accrued expense

Unearned revenue

Accrued revenue

 

Question 2  of 37

On August 1, 2011, Xcel Auto Repair paid $6,000 for six months rent. After adjusting entries are made, what will be the balance of Prepaid Rent on December 31, 2011?

 

$4,000

$6,000

$2,000

$1,000

 

Question 3  of 37

At the end of the current year, the accountant for Navistar Graphics failed to make an adjusting entry for wages due to the company’s employees for the last week in December. The wages will be paid in January. What is one of the effects of this error?

 

Total assets are overstated.

 Net income is understated.

 Total liabilities are overstated.

 Net income is overstated.

 

Question 4 of 37

What is the effect of the adjusting entry for depreciation expense?

 

The entry increases total assets and increases total expenses.

The entry decreases total assets and increases total expenses.

The entry increases total liabilities and increases total expenses.

The entry decreases total liabilities and increases total expenses.

 

Question 5 of 37

A business pays salaries of $140,000 on the first and fifteenth days of every month. Which of the following is the adjusting entry required on December 31, 2008?

 

Debit $140,000 to Salaries Expense, credit $140,000 to Salaries Payable

Debit $140,000 to Salaries Receivable, credit $140,000 to Salaries Payable

Debit $140,000 to Salaries Expense, credit $140,000 to Salaries Receivable

No adjusting entry required

 

Question 6 of 37

What type of account is Accumulated Depreciation and what is its normal balance?

 

Expense, debit

Revenue, debit

Contra asset, credit

Liability, credit

 

Question 7 of 37

What is the term for the difference between the Equipment account and the Accumulated Depreciation Equipment account?

 

Contra asset

Market value

Cost account

Book value

 

Question 8 of 37

How do the adjusting entries differ from other journal entries?

 

Adjusting entries never affect cash.

Adjusting entries are made only at the end of the period.

Adjusting entries debit or credit at least one income statement account and at least one balance sheet account.

All of the above

 

Question 9 of 37

The adjusting process has two purposes. Which of the following represents these two purposes?

 

a) 1) Measure net income or loss and 2) Update the balance sheet

b) 1) Compute ending capital and 2) Journalize the period’s activity

c) Both A and B are correct.

d) None of the above

 

Question 10 of 37

Which of the following is TRUE of plant asset accounts and their related accumulated depreciation accounts?

 

The allocation of a plant asset’s cost to expenses is called depreciation.

Accumulated depreciation is a contra-asset account that has a normal balance of a credit amount.

Accounting for plant assets is the same as accounting for a prepaid expense.

All of the above are true.

 

Question 11 of 37

Under which of the following inventory costing methods is the cost of goods sold based on the cost of the oldest purchases?

 

Specific unit cost

Average cost

Last in first out

First in first out

 

Question 12 of 37

Under which of the following inventory costing methods is the cost of goods sold based on the average cost of the purchases during the period?

 

Specific unit cost

Average cost

Last in first out

First in first out

 

Question 13 of 37

Under which of the following inventory costing methods is ending inventory based on the cost of the oldest purchases?

 

Specific unit cost

Average cost

Last in first out

First in first out

 

Question 14 of 37

Under which of the following inventory costing methods is ending inventory based on the cost of the most recent purchases?

 

Specific unit cost

Average cost

Last in first out

First in first out

 

Question 15 of 37

A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses the LIFO inventory costing method, which of the following amounts will be the amount of inventory on the December 31 balance sheet?

 

$1,000   

$2,250

$1,500

$1,250

 

Question 16 of 37

Samson Company had the following balances and transactions during 2009.

Beginning inventory       10 units at $70

March 10             sold 8 units for $100

June 10 purchased 20 units at $80

October 30          sold 15 units for $100

What would the company’s inventory amount be on the December 31, 2009, balance sheet, if the perpetual FIFO costing method is used?

(Answers are rounded to the nearest dollar.)

 

$560

$537

$554

$490

$540

 

Question 17 of 37

Which of the following requires that financial statement should report the least favorable figures?

 

Accounting conservatism

Materiality concept

Disclosure principle

Consistency principle

 

Question 18 of 37

Which of the following are common schemes for “cooking the books” involving inventory that are used to increase net income?

 

a) Overstate ending inventory.

b) Create fictitious sales.

c) Bribe the auditing firm.

d) Both A and B are common schemes.

 

Question 19 of 37

Where does net income appear on a worksheet?

 

Net income appears only in the Balance Sheet credit column.

Net income appears in the Income Statement credit column and in the Balance Sheet debit column.

Net income appears only in the Income Statement debit column.

Net income appears in the Balance Sheet credit column and in the Income Statement debit column.

 

Question 20 of 37

Which of the following situations would indicate that an error has been made?

 

The total of the debit column of Adjustments does not equal the total of the credit column of Adjustments.

The total of the debit column of the Balance Sheet does not equal the total of the debit column of the Income Statement.

The total of the debit column of the Trial Balance does not equal the total of the debit column of the Adjusted Trial Balance.

All of these situations are the result of an error.

 

Question 21 of 37

Where can closing entries be found?

 

On a company’s worksheet

On a company’s balance sheet

In a company’s general journal

On a company’s statement of owner’s equity

 

Question 22 of 37

Which of the following accounts will be closed by debiting the Income Summary?

 

Accounts Payable

Accumulated Depreciation

Service Revenue

Depreciation Expense

 

Question 23 of 37

Which of the following accounts will be closed by crediting the Income Summary?

 

Accounts Payable

Service Revenue

Depreciation Expense

Accumulated Depreciation

 

Question 24 of 37

Which of the following accounts are temporary accounts that must be closed at the end of the year?

 

Assets, liabilities and owner’s equity

Assets, liabilities and owner’s withdrawals

Revenues, expenses and owner’s capital

Revenues, expenses and owner’s withdrawals

 

Question 25 of 37

To what account is the balance in the Income Summary closed?

 

The Income Summary is closed to the owner’s withdrawals account.

The Income Summary is closed to the owner’s capital or Retained Earnings account.

The Income Summary is closed to the net income account.

None of the above.

 

Question 26 of 37

Which of the following is considered a rule-of-thumb strong current ratio for businesses?

 

.8

.6

1.5

1.0

 

Question 27 of 37

Adkins Company has a current ratio of 1.0 and a debt ratio of .7. Wilson Company has a current ratio of 1.4 and a debt ratio of .5. Which of the following statements is true?

 

The two companies’ debt ratios and current ratios vary in different directions and the companies appear to be in similar financial shape.

Wilson appears to be in better financial shape than Adkins.

The two companies’ debt ratios and current ratios vary in different directions and these results do not make sense.

Adkins appears to be in better financial shape than Wilson.

 

Question 28 of 37

Which of the following is generally a merchandiser’s major cost?

 

Salary expense

Buildings

Cost of goods sold

Advertising

 

Question 29 of 37

A company uses the perpetual inventory method. Which of the following entries would be made to record a sale of merchandise on account?

 

a) The accounting entry would be a debit to Accounts Receivable and a credit to Sales Revenue.

b) The accounting entry would be a debit to Sales Revenue and a credit to Accounts Receivable.

c) The accounting entry would be a debit to Cost of Goods Sold and a credit to Inventory.

d) Both A and C would be necessary to record the sale.

 

Question 30 of 37

Table 5.1

Sales revenue   $460,000

Costs of goods sold         300,000

Operating expenses       85,000

Sales discounts 20,000

Sales returns and allowances      15,000

Interest Revenue            5,000

Refer to Table 5.1. What is net sales revenue?

 

$425,000

 $400,000

 $455,000

 $415,000

 

Question 31 of 37

Table 5.1

Sales revenue   $460,000

Costs of goods sold         300,000

Operating expenses       85,000

Sales discounts 20,000

Sales returns and allowances      15,000

Interest Revenue            5,000

Refer to Table 5.1. What is gross profit?

 

$160,000

$140,000

$90,000

$125,000

 

Question 32 of 37

A company uses the perpetual inventory system. The inventory account balance is $50,000. An actual count of inventory reveals that actual inventory is $43,000. Which of the following would be included in the required adjusting entry?

 

A $50,000 debit to Cost of Goods Sold would be required.

A $7,000 credit to Inventory would be required.

A $7,000 credit to Cost of Goods Sold would be required.

A $43,000 credit to Inventory would be required.

 

Question 33 of 37

Which of the following is subtracted from gross profit to arrive at operating income?

 

Operating expenses

Cost of goods sold

Sales discounts and sales returns and allowances

Cost of goods available for sale

 

Question 34 of 37

A company’s cost of goods sold is $1,000,000. Its average inventory is $100,000. Which of the following is its rate of inventory turnover?

 

100

10

.1

.01

 

Question 35 of 37

Which of the following is represented by the inventory account on the balance sheet?

 

Ending inventory

Cost of merchandise available for sale

Cost of goods sold

Beginning inventory

 

Question 36 of 37

A business makes a cash payment of rent. Which of the following occurs?

 

An asset is credited and a liability is debited.

An asset is debited and a liability is credited.

A liability is debited and an expense is credited.

An asset is credited and an expense is debited.

 

Question 37 of 37

Which of the following journal entries would be recorded if a business performed services for $400 cash and $1,000 on account?

 

Service Revenue              1,000

Cash      400

Accounts Receivable      1,400

 

Cash      400

Accounts Receivable      1,000

Service Revenue              1,400

 

Cash      1,400

Accounts Receivable      1,000

Service Revenue              400

 

Service revenue               1,400

Cash      1,000

Accounts Payable            400

 

 

 

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