Details Title: Accounting Final Description: N/A Total Flash Cards: 178 Created: 05/10/2009 15:50:52		New Users: To study from this flashcard set, or to create your own your own study flash cards, REGISTER HERE. Existing Users: CLICK HERE. Additional Accounting Flashcards
Cards in this set: 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. 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