Shared Flashcard Set

Details

Accounting Final
N/A
178
Accounting
05/10/2009

Additional Accounting Flashcards

 


 

Cards

Term
Borrowing $100,000 of cash from First National Bank would
Definition
increase notes payable by a credit and increase cash by a debit.
Term

T/F

 

The duality of effects means that every transaction must affect both sides of the equation.
Definition
False
Term

T/F

 

Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.
Definition
True
Term
Downard Bank, in deciding whether to make a loan to Rodney Company, would be interested in the amount of liabilities Rodney has on its balance sheet because
Definition
if Rodney already has many other obligations, it might not be able to repay the loan.
Term
On January 1, 2006 Mammoth Corporation had retained earnings of $4,000,000. During 2006, they had net income of $750,000 and dividends of $100,000. What is the amount of Mammoth's retained earnings at the end of 2006?
Definition
$4,650,000
Term
The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the
Definition
separate entity assumption
Term
Cadet Company paid an accounts payable of $1,000. This transaction should be recorded as follows on the payment date.
Definition
Accounts payable
1,000
 
 
Cash
 
1,000
Term
The primary purpose of the balance sheet is to
Definition
report the financial position of the reporting entity at a particular point in time.
Term
On a balance sheet, assets are listed in the order of
Definition
ease of conversion to cash.
Term
Phillips Corporation has on its balance sheet the following amounts:
Assets
$6,000,000
Liabilities
3,200,000
Contributed capital
1,000,000


What is the amount of retained earnings that should appear on Phillips' balance sheet?
Definition
$1,800,000.
Term

T/F

 

A balance sheet should be dated for a period (such as "For the year ended December 31, 2006"), whereas an income statement should be dated at a point in time (such as "December 31, 2006").
Definition
False
Term
The Beta Corporation had 2007 revenues of $200,000, expenses of $140,000, and an
income tax rate of 30 percent. Net income after taxes would be
Definition
$42,000.
Term

T/F

 

The three business activities shown on the statement of cash flows are operating, investing, and producing.
 
Definition
False
Term
Chad Jones is the sole owner and manager of Jones Glass Repair Shop. In 2006, Jones purchases a truck for $30,000 to be used in the business. Which of the following fundamentals requires Jones to record the automobile at the price paid to buy it?
Definition
Cost Principle
Term
Which of the following will not result in recording a transaction?
 
Definition
Signing a contract to have an outside cleaning service clean offices nightly
Term
Which group of accounts contains only those that normally have a credit balance?
Definition
Notes payable; Wages payable; Contributed capital.
Term
T/F
The operating cycle is the time it takes for a company to purchase goods, pay for the goods, sell them to customers, and collect the cash from the customers.
Definition
True
Term
T/F
Income tax expense is recognized on the income statement when taxes are paid.
Definition
False
Term

T/F

 

A company that pays six months' rent in advance at the end of the year will report that amount as rent expense on the income statement.
Definition
False
Term
The revenue principle requires four conditions to be met. Which of the following is one of the four conditions?
Definition

Delivery of goods or performance of service has occurred.

The price is fixed or determinable.

 

Term
During the accounting period, Cooper Company had the following data:
Sales of product:
 
Cash received
$500,000
On credit (not yet collected)
60,000

 
Expenses:
 
Cash paid
$300,000
On credit (not yet paid)
20,000

This is the first year of business.

 

Sales revenues and expenses for Cooper were:
Definition
    Sales Revenues
             Expenses
$560,000
$320,000
Term
During the accounting period, Cooper Company had the following data:
Sales of product:
 
Cash received
$500,000
On credit (not yet collected)
60,000

 
Expenses:
 
Cash paid
$300,000
On credit (not yet paid)
20,000

This is the first year of business.

 

How much will appear on Cooper Company's statement of cash flow as cash flow from operating activities?
Definition
$200,000
Term
During the accounting period, Cooper Company had the following data:
Sales of product:
 
Cash received
$500,000
On credit (not yet collected)
60,000

 
Expenses:
 
Cash paid
$300,000
On credit (not yet paid)
20,000

This is the first year of business.

 

By how much will accounts receivable on the balance sheet change for Cooper Company?
Definition
It will increase by $60,000.
Term
Boone's Cleaning Service performed cleaning services during December, 2006, but had not collected any cash (or other assets) from its customers by the end of the accounting period, December 31, 2006. What effect did performing these services have on the fundamental accounting model?
Definition
Increased assets and increased stockholders' equity.
Term
On January 1, 2009 Gucci Brothers Inc. started the year with a $500,000 credit balance in retained earnings and $600,000 balance in capital stock. During 2009, the company earned net income of $100,000, declared a dividend of $15,000, and issued more stock for $25,000. What is total stockholders' equity on December 31, 2009?
Definition
$1,210,000
Term
On January 1, 2007, the ledger of Global Corporation correctly showed supplies inventory of $1,000. During 2007, supplies purchases amounted to $5,000. A count (inventory) of supplies on hand at December 31, 2007, showed $1,200. The 2007 income statement should report supplies expense amounting to
Definition
$ 4,800.
Term
T/F
Depreciation expense is an estimated allocation of the cost of long-lived assets and is recorded in a contra asset, accumulated depreciation, because it is only an estimated amount and not known with certainty.
Definition
True
Term
The primary purpose of closing entries is to
Definition
update the balance of retained earnings and prepare revenue, expense, and dividend accounts for next period's transactions.
Term
On October 1, 2006, Adams Company paid $4,000 for a two-year insurance policy on the building. The accounting period ends December 31. At the end of 2006, the financial statements should report
Definition
Balance Sheet
Prepaid insurance, $3,500
Income Statement
Insurance expense, $500.
Term
On April 1, 2007, the premium on a one-year insurance policy on equipment was paid amounting to $3,000. At the end of 2007 (end of the accounting period), the financial statements for 2007 would report
Definition
Insurance expense, $2,250; Prepaid insurance $750.
Term

T/F

 

When net profit margin is declining over a five-year period, it signals inefficient management of expenses and sales revenue.
Definition
True
Term
Which is the correct order of the steps in the accounting cycle at the end of the accounting period?
Definition
Prepare a trial balance, journalize and post adjustments, prepare financial statements, and journalize and post the closing entries
Term
Both the depreciation expense account and the accumulated depreciation account at the end of the first year of operations
Definition
appear in a trial balance prepared after the adjusting entries but before the closing entries.
Term
In an attempt to restore investor confidence, Congress passed the Public Accounting Reform and Investor Protection Act otherwise known as the
Definition
Sarbanes-Oxley Act
Term
The Securities and Exchange Commission (SEC) is empowered to do the following:
Definition

set reporting standards for firms with publicly traded debt or equity securities.

bring enforcement actions against company executives and auditors for accounting related violations.

Term
T/F
It is typical that property, plant and equipment is disclosed at cost on the balance sheet and you will then find its book value in the footnotes.
Definition
False
Term
The two sections found on every income statement are
Definition
continuing operations and earnings per share.
Term
Which of the following ratios is not considered a factor in driving return on equity (ROE) up?
 
Definition
Current Ratio
Term
Which of the following condition(s) must be met for an item to be disclosed as extraordinary on the income statement?
 
Definition

It must be unusual in nature.

Infrequent in occurrence.

Term
Which of the following is not commonly classified as a current asset?
 
Definition
Property and equipment.
Term
The Securities and Exchange Commission's (SEC) report that is required to be filed if any special event occurs that is material in amount is the
Definition
Form 8K
Term
The primary qualities of accounting information that increase the information's usefulness to the users are
Definition
relevance and reliability
Term
Boone Industries purchased a truck for $35,000 on January 1, 2009. The truck had an estimated useful life of 80,000 miles and an estimated residual value of $8,000. In the third year of ownership (2010), the car was driven 25,000 miles. Using the units of production method, the amount of depreciation expense for 2010 was
Definition
$ 8,438.
Term
Which of the following would not be included in the acquisition cost of a building?
Definition
The cost of paving the parking lot and outdoor lighting in the lot.
Term

T/F

 

Internally generated goodwill is not recorded as an intangible asset.
Definition
True
Term
Warren Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?
Definition
$58,880.
Term

T/F

 

Purchase of replacement tires for a delivery truck would be added to the cost of the truck.
Definition
False
Term
On January 1, 2009, Woodstock, Inc., purchased a machine with a cash price of $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. Assuming straight-line depreciation, the annual depreciation expense would be
Definition
$6,000
Term

T/F

 

On January 1, 2009 equipment was purchased for $80,000 and its estimated residual value is $15,000 with an 8 year useful life. In the first year, the depreciation expense under the double declining-balance method is $16,250.
Definition
False
Term
On March 1, Wright Company purchased new equipment for $50,000. Wright paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the equipment was
Definition
$56,500
Term
Houston Company is involved in a lawsuit. Footnote disclosure of the contingent liability which could arise does not have to be presented if the probability of Houston owing money as a result of the lawsuit is
Definition
remote and the amount can be reasonably estimated.
Term

T/F

 

The portion of a long-term debt that will mature within the next year (from the current balance sheet date) or operating cycle, whichever is longer, should be reported on the balance sheet as a current liability.

Definition
True
Term
If the market rate of interest is 10%, a rational person would just as soon receive $1,100 three years from now as what amount today (round to the nearest dollar)?
Definition
$826
Term
Which of the following are liabilities that are typically estimated amounts?
Definition

Environmental restoration costs.

Warranty liability.

Term
When a company is making strategic decisions about how to finance their assets, they should consider

Definition
whether they can borrow funds at a lower rate than the return they generate by use of their assets.
 
B. The relative composition of debt to equity funding that currently exists.
 
C. The proportion of current liabilities to long-term liabilities that exist.
 
D. Both A and B are considerations of the decision.
Term

T/F

 

The present value of an annuity is always less than the sum of its payments.
Definition
True
Term

T/F

 

Coca-Cola reported current assets of $12,094 million and current liabilities of $10,971 million in 2004 and in 2003, current assets of $8,396 million and current liabilities of $7,886 million. Therefore, working capital for Coca-Cola increased from 2003 to 2004.

Definition
True
Term
Bath and Body House Company had the following account balances related to payroll at the end of the period:
FICA taxes payable--employees' share
7,000
Liability for income taxes withheld
20,000
Salary and wage expense
95,000


Without considering any employer payroll taxes, Site would record Salaries Payable for the pay period amounting to
Definition
$68,000
Term

T/F

 

All contingent liabilities should be classified as either current or long-term liabilities on the balance sheet for the current period.
Definition
False
Term
Which of the following is true when using the effective interest amortization method when a bond has been issued at a discount?
Definition
The amount of interest expense recognized each period increases over time.
Term

T/F

 

Bonds often are a superior method of financing in comparison with sale and issuance of capital stock because of both the ability to borrow at a lower interest rate and invest at a higher rate of return and the tax deductibility of the interest payments.

Definition
True
Term
On the maturity date of bonds payable after interest has been paid, the issuing company will
Definition
debit Bonds Payable and credit Cash for the par value of the bonds.
Term
General Corporation sold (issued) 30 of its $1,000 bonds payable, 5% annual interest, due in ten years. The bonds were sold at 98. Assume straight-line amortization. Interest expense each year would be
Definition
$1,560
Term

T/F

 

The issuance price of a bond is the discounted present value of both the principal plus the cash interest to be received over the life of the bonds discounted by the stated or coupon rate.

Definition
False
Term

T/F

 

The times interest earned ratio is computed by dividing income before taxes by interest expense to determine sufficiency of earnings to cover the company's interest obligation.

Definition
False
Term
The amortization of bond premium by the issuer will
Definition
decrease interest expense
Term
In 2001, Yahoo! Inc. reported total liabilities of $382 million and total stockholders' equity of $1,967 million. In 2000, their total liabilities were $343 million and total stockholders' equity was $1,900 million. Which statement about their debt to equity position is true?
Definition
Yahoo! has a very low debt to equity ratio
Term
Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2006, for $102,360 on April 1, 2006. The bonds pay interest on April 1. Straight-line amortization is used by the company. What entry is needed at April 1, 2007 for the first interest payment?
Definition

Interest Expense     

             Premium on 

             Bonds Payable

 

              Cash 

11,764

    236

 

 

12,000

Term

T/F

 

A company has 5 million shares issued and 400,000 held in treasury. If the board of directors declares a $16 million cash dividend, then the dividends per share would be $3.20.

Definition
False
Term

T/F

 

Amounts received for the issuance of preferred stock should not be included in contributed capital, but should be shown on the balance sheet as a separate classification of liabilities.

Definition
False
Term
Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $50 per share when they were reacquired at a cost of $47 per share and have a $1 par value?
Definition

Cash

     Treasury Stock

     Paid in Capital,

     Treasury Stock

50,000

47,000

 

3,000

 
Term
Which of the following statements about treasury stock transactions is correct?
Definition
A stockholders' equity account is debited when treasury stock is purchased.
Term

T/F

 

Outstanding shares of stock are those shares which a corporation has the ability to issue as documented in its charter in the state where incorporated.
Definition
FALSE
Term

T/F

The most common reason a company would declare a stock split is to reduce the market price of its stock to increase the trading activity.
Definition
TRUE
Term
A company declares a 40% stock dividend when there are 4.0 million common shares outstanding with a $1 par value. Their current market price is $20 per share. Which of the following will be the effect of the stock dividend?
Definition
Retained earnings will decrease by $1.6 million and contributed capital will increase by $1.6 million
Term
On December 15, 2009, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2010 of $.80 per share on the 2,000,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 2009, Cross Corporation should
Definition
decrease retained earnings $1.6 million and increase liabilities by $1.6 million.
Term
If Hayes Corporation sells and issues 100 shares of its $1 par value common stock at $15 per share, the entry to record the sale will not include a
Definition
credit to retained earnings of $1,500.
Term

Which of the following statements is false?

1)Stock splits shuffle amounts between retained earnings and contributed capital accounts.

2)All the above are false.

3)Both stock splits and dividends increase the common shares issued and outstanding.

4)Both stock splits and dividends have the impact of reducing the market price of the stock

Definition
Stock splits shuffle amounts between retained earnings and contributed capital accounts.
Term

Which of the following are the typical rights afforded the preferred stockholders?

1)A preference to receive dividends when declared by the board of directors before common stockholders can receive their dividends

2)A preference to receive the liquidation value of the assets as stated in the stock contract before common stockholders can receive their share.

3)The right to vote on major corporate issues including electing the board of directors.

4). Only A and B are preferred stockholder rights

5)All the above are preferred stockholder rights

Definition
. Only A and B are preferred stockholder rights
Term

Which of the following statements is true?

1)An initial public offering (IPO) occurs when the company first offers their stock for sale to the public.

2)A seasoned new issue is the term used for any additional sales of new stock to the public after the IPO.

3)An underwriter, usually an investment banker, advises the corporation on matters concerning the sale of shares of stock and helps to market those shares for a fee.

4)A and B are true.

5)All of the above are true.

Definition
All of the above are true.
Term
Coca-Cola reported net income in 2004 equal to $4,847 million. They had 3,517 million shares on average that were issued and average shares held in treasury equal to 1,091 million. Their earnings per share for 2001 equals
Definition
$2.00
Term
Slick Willie, Inc., had the following shares outstanding during 2008:

(a) Preferred stock, 7%, $50 par value, cumulative, 1,000 shares with dividends in arrears for 2006 and 2007.
(b) Common stock, $100 par value, 2,000 shares.

The total dividends declared for the current year were $50,000. The total amount of dividends to which the preferred stockholders are entitled is
Definition
$10,500.
Term
In 2004, Genentech reported earnings per share of $0.74, zero dividends paid, average common shares outstanding equal to 1,055.2 million, and outstanding shares at year end of 1,047.1 million. The market price at the end of 2004 was $68.25. Calculate the dividend yield for Genentech.
Definition
0%
Term
The operating cycle of a business is best defined as
Definition
the time it takes for a company to purchase and pay for goods or services from suppliers, sell those goods or services to customers and collect cash from the customers
Term
Which of the following is not normally a condition that must be met for revenue to be recognized (recorded) under the revenue principle?
Definition
An exchange in the future has been planned.
Term
What financial statement would you look at to determine the dividends declared by a business?
Definition
statement of retained earnings.
Term
Time Corporation reported the following for 2006:
Capital stock
20,000 shares outstanding
Revenues
$500,000
Expenses
$350,000


What was the amount of earnings per share?
Definition
$ 7.50.
Term
At the beginning of 2009, Bella Company had office supplies inventory of $500. During 2009, the company purchased office supplies amounting to $2,500 (paid for in cash and debited to office supplies inventory). At December 31, 2009, the end of the accounting year, a count of office supplies still on hand reflected $800.

 

The adjusting entry Bella Company will record on December 31, 2009 to adjust the office supplies inventory account would include a
Definition
credit to office supplies inventory for $2,200.
Term
The following is an example of an error that will not be discovered on the trial balance.
Definition
An entry was journalized and posted as a debit to cash for $500 and a credit to sales revenue $500 when we collected a customer's account
Term
The difference between the equipment account balance and the accumulated depreciation, equipment account balance is called
Definition
book value
Term
Before the closing entries were made at the end of 2009, the following data were taken from the accounts of Bloomington Corporation:
Contributed Capital

$100,000

Retained earnings, beginning balance January 1, 2009

120,000

Total revenue earned during 2009

400,000

Total expenses incurred during 2009

320,000

Dividends declared and paid during 2009

15,000



The amount of total stockholders' equity that should appear on Bloomington Corporation's balance sheet dated December 31, 2009, is
Definition
$285,000
Term
Atlantic Corporation reported the following amounts at the end of the first year of operations, December 31, 2006: contributed capital $100,000; sales revenue $400,000; total assets $300,000; $20,000 dividends; and total liabilities $160,000. Retained earnings and total expenses would be
Definition
retained earnings $40,000 and expenses $340,000
Term
Accounting information developed primarily for internal decision makers is called
Definition
management accounting
Term
Select the statement which best describes the primary purpose of closing entries.
Definition
To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.

[image]

Term
The International Accounting Standards Board has worked to develop global accounting standards known as
Definition
interenational finacial reporting standards
Term
The essential difference between an unadjusted trial balance and an adjusted trial balance is that an
Definition
unadjusted trial balance is prepared before the adjusting entries are reflected, while an adjusted trial balance is prepared after the adjusting entries are reflected.
Term
The amount of insurance expense reported on the income statement is
Definition
the amount of insurance used up (incurred) in the current period to help generate revenue.
Term
During 2007, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid in January 2008. Transaction analysis of operating expenses for 2007 should reflect only the following
Definition
decrease stockholders' equity, $100,000; decrease assets, $75,000; increase liabilities, $25,000.
Term
Why do the managers of a corporation hire independent auditors?
Definition
To audit and report on the fairness of financial statement presentation.
Term
If Papa John's reports an asset turnover ratio of 2.57 for 2003 and their competitor Domino's reports 2.89 for their 2003 ratio, it means that Papa John's
Definition
has been less effective in managing the use and level of its assets
Term
Failure to make an adjusting entry to recognize rent revenue receivable would cause
Definition
an understatement of assets, net income, and stockholders' equity.
Term
Which of the following direct effects on the fundamental accounting model is not possible as a result of transaction analysis?
Definition
Increase a liability and decrease an asset.
Term
Which of the following accounts is NOT closed at the end of the year?
Definition
Interest recievable
Term
Michael Company owes you $800 on account due within 15 days. Which of the following amounts on its balance sheet would help you to determine the likelihood that you will be paid in full and on time?
Definition
cash and accounts recievable
Term
Financial analysts look to the income statement to determine
Definition
whether the company has generated income from operations
Term
Which of the following would be recorded as an expense on the current period's income statement?
Definition
Utilities costs for the electricity used this period but not yet paid for by year end.
Term
At the end of 2008, Frankel Company reported an ending balance for retained earnings of $250,000. During 2009, the company reported the following amounts: Dividends declared and paid, $20,000 and net income, $60,000. The 2009 statement of stockholders' equity should report an ending balance for retained earnings of
Definition
$290,000
Term
The operating activities section is often believed to be the most important part of a statement of cash flows because
Definition
it indicates a company's ability to generate cash from sales to meet current cash payments for goods or services
Term
On December 31, 2009, the effect of recording an adjustment for accrued wages of $2,000 would be
Definition
a decrease in stockholders' equity and an increase in liabilities.
Term
The following is the correct order for preparing the financial statements.
Definition
Income statement, statement of retained earnings, balance sheet, and statement of cash flows
Term
A company receives a $50,000 cash deposit from a customer on October 15 but will not deliver the goods until November 20. Which of the following statements is true?
Definition
A liability will be reported on the balance sheet at the end of October
Term
The revenue principle requires four conditions to be met. Which of the following is one of the four conditions?
Definition
Delivery of goods or performance of service has occurred.
 
C. The price is fixed or determinable.
Term
At the end of December, the owner of an apartment complex realized that the December rent had not been collected from one of the tenants. December 31 was the end of the accounting year; therefore, the owner made the appropriate adjusting entry at that time. When the December rent was collected in January of the following year, the entry made by the apartment owner should include
Definition
a decrease (credit) to Rent revenue receivable.
Term
At the end of 2009, the following data were taken from the accounts of Albert Company:
Contributed Capital
$ 555,000
Retained earnings, beginning balance January 1, 2009
  300,000
Total revenue earned during 2009
  900,000
Total expenses incurred during 2009
  810,000
Total cash collected during 2009
  890,000


The 2009 closing entries would include a
Definition
$90,000 credit to Retained earnings
Term
Chad Jones is the sole owner and manager of Jones Glass Repair Shop. In 2006, Jones purchases a truck for $30,000 to be used in the business. Which of the following fundamentals requires Jones to record the automobile at the price paid to buy it?
Definition
Cost Principle
Term
At the beginning of 2009, Bella Company had office supplies inventory of $500. During 2009, the company purchased office supplies amounting to $2,500 (paid for in cash and debited to office supplies inventory). At December 31, 2009, the end of the accounting year, a count of office supplies still on hand reflected $800.

After Bella Company records the adjusting entry on December 31, 2009 for the office supplies, the balance in the office supplies inventory and office supplies expense account will have the following respective balances of
Definition
$800 and $2,200
Term
In 2003, Delta Air Lines had a fixed asset turnover of 0.80 compared to United Airlines of 0.85. What is the most likely cause of United's higher ratio?
Definition
United is able to generate greater sales from its operational assets.
Term
On August 1, Red Company purchased computer equipment for $10,000 cash and also gave 100 shares of White common stock held by Red Company as an investment. The White common stock cost Red Company $5,000 and on August 1 had a market value of $4,200. Installation cost was $700 and shipping cost was $500. What amount should be the total amount debited to the computer equipment account?
Definition
$15,400
Term
KK Company bought a delivery truck for $62,000 on January 1, 2009. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, KK paid $2,400 for a one-year insurance policy and $500 for registration fees. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

 

If KK uses the straight-line method of depreciation, what is the depreciation expense and book value at the end of 2010?
Definition
$6,500 and $60,000
Term
KK Company bought a delivery truck for $62,000 on January 1, 2009. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, KK paid $2,400 for a one-year insurance policy and $500 for registration fees. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

 

If KK uses the double declining-balance method, how much is depreciation expense in 2010?
Definition
$11,680
Term
KK Company bought a delivery truck for $62,000 on January 1, 2009. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, KK paid $2,400 for a one-year insurance policy and $500 for registration fees. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

 

If KK uses the units-of-production method when they have estimated the truck will be driven 500,000 miles over its life, what is depreciation expense in 2010 when the truck is driven 60,000 miles?
Definition
$7,800
Term
Warren Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?
Definition
$58,880.
Term
On December 31, 2010, Hamilton Inc. sold a used industrial crane for $600,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31, 2010; they had been using the straight-line depreciation method. The estimated residual value was zero and its useful life was 25 years. What is the gain or loss on the equipment on December 31, 2010?
Definition
$200,000 loss
Term
On March 1, 2009, Aniston Company purchased a producing oil well at a cash cost of $1,000,000. It is estimated that 1,500,000 barrels of oil can be produced over the remaining life of the well. By December 31, 2009 (end of the accounting period), 150,000 barrels of oil were produced and sold. The amount of depletion expense for 2009 on this well would be
Definition
$100,000
Term
Which of the following is most likely to be an intangible asset with an indefinite life?
Definition
Goodwill
Term
Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,000. Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. For the truck, what amount should be debited to the asset account Vehicles?
Definition
$45,000
Term
Which of the following would most likely cause an increase in the current ratio?
 
Definition
Inventories increased significantly.
   
C. Payments to suppliers thereby reducing accounts payable
Term
Gross wages of $20,000 accrued but not paid to employees at the end of 2007 should be recorded by the employer in a journal entry that includes a
Definition
debit of $20,000 to Wages expense
Term
On January 2, 2009, Hill Company borrowed $10,000 from Bank Three. The loan was to be repaid in equal principal installments of $2,000, payable on December 31 of each year, beginning on December 31, 2009. Disregarding interest, the amount of the $10,000 loan that should be considered a current liability on the company's 2009 year-end balance sheet would be
Definition
$2,000
Term
A contingent liability that is "reasonably possible" but "cannot reasonably be estimated"
Definition
must only be disclosed as a note to the financial statements
Term
Straight Industries purchased a large piece of equipment from Curvy Company on January 2, 2006. Straight signed a note, agreeing to pay Curvy $400,000 for the equipment on December 31, 2008. The market rate of interest for similar notes was 8%. The present value of $400,000 discounted at 8% for three years is $317,520. On January 2, 2006, Straight recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520.

 

On December 31, 2006, Straight recorded an adjusting entry to account for interest that had accrued on the note. The approximate amount of interest expense that would have accrued at December 31, 2006, would be
Definition
$25,400
Term
Straight Industries purchased a large piece of equipment from Curvy Company on January 2, 2006. Straight signed a note, agreeing to pay Curvy $400,000 for the equipment on December 31, 2008. The market rate of interest for similar notes was 8%. The present value of $400,000 discounted at 8% for three years is $317,520. On January 2, 2006, Straight recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520.

 

On Straight's 2006 year-end balance sheet, the book value of the liability for notes payable related to this purchase would equal
Definition
an amount more than $317,520
Term
Straight Industries purchased a large piece of equipment from Curvy Company on January 2, 2006. Straight signed a note, agreeing to pay Curvy $400,000 for the equipment on December 31, 2008. The market rate of interest for similar notes was 8%. The present value of $400,000 discounted at 8% for three years is $317,520. On January 2, 2006, Straight recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520.

 

Accrued interest was recorded annually. On December 31, 2008, the due date of the note, Bennett paid the amount due and recorded the transaction with a
Definition
debit to notes payable $400,000.
Term
On January 1, 2006, Hopkins Company purchased a machine that had a sticker (list) price of $22,000. The seller agreed to allow Hopkins Company to pay for the machine over a three-year period at 10% interest on the unpaid balance and with equal payments of $8,444 due at the end of 2006, 2007, and 2008. The amount that should be debited to the asset account, Machinery, on the day the contract was initiated is (rounded to the nearest dollar)
Definition
$20,999
Term
Purdum Farms borrowed $10 million by signing a five year note on January 1, 2009 and repayments of the principle are payable annually in $2 million dollar installments. Purdum Farms makes the first payment December 31, 2009 and then prepares its balance sheet. What amount will be reported as current and long-term liabilities respectively in connection with the note?
Definition
$2 million in current and $6 million in long-term liabilities
Term
Houston Company is involved in a lawsuit. Footnote disclosure of the contingent liability which could arise does not have to be presented if the probability of Houston owing money as a result of the lawsuit is
Definition
remote and the amount can be reasonably estimated.
Term
Which of the following is an advantage of issuing bonds versus issuing stock to finance expansion?
 
Definition
Interest expense is tax deductible but dividends are not.
   
C. Money can usually be borrowed at a lower rate and then invested to earn a higher return on assets
Term
If a bond payable is sold (issued) at a discount, the amount of the carrying value (the long-term liability) reported on the subsequent balance sheets
 
Definition
increases each year
Term
On January 1, 2006, Allison Company sold (issued) 600, $1,000, five-year, 8% bonds at 95. The bonds were dated January 1, 2006, and interest is payable each June 30 and December 31. The company uses the straight-line method of amortization. The amount of the net liability for bonds payable that would be reported on the December 31, 2006, balance sheet is
Definition
$576,000
Term
On January 1, 2006, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, the issue price of the bonds should be? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.)
Definition
$2,686,896
Term
General Corporation sold (issued) 30 of its $1,000 bonds payable, 5% annual interest, due in ten years. The bonds were sold at 98. Assume straight-line amortization. Interest expense each year would be
Definition
$1,560
Term
On January 1, 2006, Tonika Corporation sold a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the 2006 income statement would be (to the nearest dollar)
Definition
$773
Term
Straight-line amortization of a premium related to a bond issuance would
Definition
require computing the constant amount of premium to be amortized and then deducting it from cash interest to calculate interest expense
Term
On July 1, 2011, immediately after recording interest payments, Salsa, Inc., retired one fifth of its $500,000 bonds payable for $97,500. The bonds were originally issued at par value in 2006. Which statement is correct?
Definition
An extraordinary gain of $2,500 will be reported in the income statement.
Term
In 2001, The Walt Disney Co. had total liabilities of $20,645 million and total assets of $43,699 million. In 2000, they had total liabilities of $20,918 million and total assets of $45,027 million. Calculate their debt to equity ratio for 2001 and 2000 respectively.
Definition
.90 and .87
Term
On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided to answer the subsequent questions:
Time Period
Interest
PV of $
PV of an Annuity
10
10%
.386
6.145
10
8%
.463
6.710
10
12%
.322
5.650
 

 

Calculate the issuance price if the market rate of interest is 12%.
Definition
$4,435,000
Term
On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided to answer the subsequent questions:
Time Period
Interest
PV of $
PV of an Annuity
10
10%
.386
6.145
10
8%
.463
6.710
10
12%
.322
5.650
 

 

If Jason issued the bonds at a price of 106.5, how much would the premium amortization be on December 31, 2009 under the straight-line method?
Definition
$32,500
Term
On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided to answer the subsequent questions:
Time Period
Interest
PV of $
PV of an Annuity
10
10%
.386
6.145
10
8%
.463
6.710
10
12%
.322
5.650
 

 

How much cash interest would be paid by Jason on December 31, 2009?
Definition
$500,000
Term
On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided to answer the subsequent questions:
Time Period
Interest
PV of $
PV of an Annuity
10
10%
.386
6.145
10
8%
.463
6.710
10
12%
.322
5.650
 

 

If Jason issued the bonds at a price of 106.5, what is the book value of Jason's bonds on December 31, 2009 after the interest payment assuming the straight-line method is used?
Definition
$5,292,500
Term
Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2006, for $102,360 on April 1, 2006. The bonds pay interest on April 1. Straight-line amortization is used by the company. What entry is needed at April 1, 2007 for the first interest payment?
Definition
Interest expense
11,764
 
 
Premium on bonds payable
236
 
 
    Cash
 
12,000
Term
The secondary quality-comparability-assumes that
Definition
users can compare financial data across businesses.
Term
The primary purpose of hiring a public accounting firm to examine the financial statements of the company is
Definition
to provide credibility and assurance that the financial information conforms with generally accepted accounting principles in all material respects.
Term
In addition to the four required financial statements, which of the following is a required disclosure in the annual report of a publicly traded company?
Definition
a five year summary of financial data, footnotes, and management's discussion and analysis.
Term
The Securities and Exchange Commission's (SEC) report that is required to be filed if any special even occurs that is material in amount is the
Definition
8K
Term
Polk Company suffered a loss from earthquake damage at its plant in Nebraska.  The loss meets the criteria for an extraordinary item.  Where will the company present the extraordinary item in the income statement?
Definition
Following the section for discontinued operations, but before the section for the cumulative effect of a change in accounting principles.
Term
Discontinued operations are
Definition
the result of the disposal of a major segment of the business
Term
On January 1, 2006 Story Company had $60,000 of Retained Earnings.  During 2006 Madison earned net income of $100,000 and declared and paid dividends of $15,000.  In addition, the company recieved cash of $25,000 as an additional investment by its owners.  Therefore, the ending balance of Retained Earnings at December 31, 2006 would be
Definition
$130,000
Term
Return on equity (ROE) primarily measures
Definition
the ability to earn income for the common stockholder
Term
The 2 sections found on every income statement are
Definition
continuing operations and earnings per share
Term
On a multiple step income statement, the amount of sales returns and allowances is
Definition
subtracted from gross sales to determine net sales.
Term
Express Company sold goods for $20,000 to Northwood Company on March 12 on credit.  Terms of the sale were 2/10, n/30.  At the time of the sale, Express recorded the transaction by debiting accounts recievable for $20,000 and crediting sales revenue for $20,000.  Northwood paid the balance due on March 20.  to record the March 20 transaction, Express would debit
Definition
cash for $19,600 and sales discounts for $400
Term
In 2004, Coca-Cola reported net operating revenues of $18.2 billion and cost of goods sold of $10.9 billion while PepsiCo reported revenues of $29.3 billion and cost of goods sold of $13.4 billion.  Which of the following statements is correct?
Definition
PepsiCo generated a higher gross profit percentage and PepsiCo did a better job of controlling product costs as a percentage of sales that did Coca-Cola
Term
On January 31, 2006 Klein Company wrote off an uncollectible account of $5,000.  The allowance method is used.  The write-off would cause bad debt expense to
Definition
be unchanged
Term
Which generally accepted accounting principle best supports the establishment of the account, allowance for doubtful accounts?
Definition
Matching principle
Term

Prior to the write off of a $30 customer account, Washington Company had the following account balances:

Accounts recievable               $5,600

Allowance for doubtful accounts         $400

The net relizable value of the recievables before and after the write-off was:

Definition
Before = $5,200   After = $5,200
Term
When using the allowance method for bad debts, bad debt expense should be recorded
Definition
as an adjusting entry at the end of the accounting period
Term
In 2003, Deckers Outdoor reported a receivables turnover ratio of 6.1 and their compeitor, Timberland, reported a ratio of 10.4. Whick of the following is false?
Definition
Deckers has done a better job of collecting their receivables than Timberland.
Term
In 2004, Genentech reported product sales revenue of $10,550 million and accounts receivable of $1,461 million; in 2003, the reported accounts receivable of $1007.9 million.  What was the cash flow generated by sales?
Definition
$10,069.9
Term
Linetech Company's bank statement showed an ending balance of $8,000.  Items appearing in the bank reconciliation included: outstanding checks, $500; deposits in transit, $1,000; bank service charges, $50; and Driver Company's check erraneously charged to Linetech's bank account by the bank, $250.  The correct cash balance at the end of the month should be reported as
Definition
$8,750
Term
When preparing the monthly bank reconcilation, the accountant for Marion Motors noted that a check received from a customer last month for $200 was marked NSF and returned along with the bank statement.  To correct the cash account balance, the accountant recorded an adjusting entry.  This entry required a debit to
Definition
accounts receivable
Term

Which of the following are policies and procedures of good internal control of cash?

 

Definition
approval of all disbursements by check
Term
The following information was taken from the 2007 income statement of Milburn Company; pretax income, $12,000; total operation expenses (not including income taxes), $20,000; sales revenue, $120,000; beginning inventory, $8,000; and purchases, $90,000.  Compute the amount of the ending inventory.
Definition
$10,000
Term
Toys "R" Us had cost of goods sold in 2004 of $7,506 million and $7,646 million in 2003.  Their merchandise inventory in 2004 was $1,884 million and $2,064 million in 2003.  How long were their average days to sell inventory in 2004?
Definition
96.82 days
Term
The lower of cost or markey (LCM) rule requires companies to reduce inventory values to replacement cost or net realizable value when these amounts are below actual costs during the year in which the decline in value can be estimated.  Generally accepted accounting principles allow for this departure from the cost principle.  Which of the following would apply LCM?
Definition
some high technology companies, such as Compaq Computers, have experience a declining cost of production and selling prices so LCM allows release of a "holding" loss during the period the value declined and companies that sell seasonal products, such as clothing, release the holding loss for the items whose retail value drops dramatically at the end of the season
Term
Wilmington Company reported pretax income amounts of: 2007, $25,000 and 2008, $30,000.  Later it was discovered that the ending inventory for 2007 was understated by $2,000 (and not corrected in 2008).  The correct pretax income for each year was:
Definition
2007 - $27,000 and 2008 - $28,000
Term
Alexander Company reported net income in 2006 of $250,000 and in 2007 of $285,000.  Later it was discovered that the ending inventory for 2006 was overstated by $15,000.  Disregard income taxes.  The correct amounts of net income for 2006 and 2007 were
Definition
2006 - $235,000 and 2007 - $300,000
Term
On December 31, 2009 the end of the accounting period, Cruise Company has on hand 10,000 units of a resale item which cost $40 per unit when purchase on June 15, 2009.  The selling price is $70 per unit.  On December 30, 2009 the cost had dropped to $38 per unit.  In view of the large quantity of units on hand, no purchases were anticipated in the next six to nine months.  At what inventory amount should the 10,000 units be reported?
Definition
$380,000
Term
Definition