Exam Review
ACCY 201 – May 2022
Principles and Assumptions Matching
E
C
H
F
A
G
D
B
Going Concern Assumption
A Transactions and events are expressed in monetary, or money, units
Revenue Recognition Principle
B The life of a company can be divided into time periods, such as months and years.
Expense Recognition Principle
C Revenue is recognized when goods or services are provided to customers
Business Entity Assumption
D A company reports the details behind financial statements that would impact users' decions
Monetary Unit Assumption
E The business is presumed to continue operating into the forseeable future
Cost Principle
F A business is accounted for separately from other business entities, including its owner.
Full Disclosure Principle
G Accounting information is based on actual cost
Time Period Assumption
H A company records its expense incurred in the same period as the revenue it generated
Application of the Accounting Formula
(each of the below are separate instances)
• Assets are 10,000, Liabilities are 5,000, Retained Earnings is $2,000.
How much is Common Stock?
$3,000
• A/R is $5,000, A/P is $1,000, Cash is $4,000, Equipment is $1,000,
Revenues are $11,000. How much do we have in Assets?
$10,000
• Beginning Retained Earnings was $200, Net Income is $50, Dividends
are $20, and Common Stock is $400. How much is our ending Equity?
$630
• A prepaid expense is:
A. An asset that results from an expense being paid for before it is
incurred
B. A liability that results from an expense being paid for before it is
incurred
C. An equity account that results from an expense being paid for
before it is incurred
D. An expense that is paid for before it becomes a liability
• Which of the following financial statements presents a company’s
assets, liabilities, and equity (financial position) as of a given point in
time?
A.
B.
C.
D.
Income Statement
Balance Sheet
Statement of Retained Earnings
Statement of Cash Flows
• Claims on a company’s assets made by creditors (external party):
A.
B.
C.
D.
Assets
Equity
Net Income
Liabilities
• XYZ Co has cash of $250,000. Which of the following financial
statements would this appear on?
A.
B.
C.
D.
Income Statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows
• Which of the following is not true?
A.
B.
C.
D.
Journal entries should never include a credit to any asset
All journal entries should have at least one debit and at least one credit
All journal entries should have equal debits and credits
Retained Earnings is increased by a credit
• Outlaw Co performed consulting services of $5,000 on credit. Which
of the following journal entries should it record?
A.
B.
C.
D.
DR: Cash, CR: Service Revenue
DR: A/R, CR: Service Revenue
DR: Cash, CR: Unearned Revenue
DR: A/R, CR: Unearned Revenue
• ABC Co. purchased supplies on account for $1000. Which of the
following was unaffected by this transaction?
A.
B.
C.
D.
Assets
Liabilities
Equity
None of the Above
• Determine the balance of the below account:
Accounts Receivable
25,000.00
12,000.00
A.
B.
C.
D.
37,000 Debit
37,000 Credit
13,000 Debit
13,000 Credit
• Revenues = $500, Prepaid Expenses = $800, Unearned Revenues =
$1,000, Expenses = $200. What is Net Income (Loss)?
A.
B.
C.
D.
($300)
$500
$300
$200
• Which account is not increased by a credit?
A.
B.
C.
D.
Account Receivable
Service Revenues
Retained Earnings
Account Payable
• What is the proper order of financial statement preparation?
A.
B.
C.
D.
Income Statement, Balance Sheet, Retained Earnings Stm.
Income Statement, Retained Earnings Stm., Balance Sheet
Balance Sheet, Income Statement, Retained Earnings Stm.
Retained Earnings Stm. Income Statement, Balance Sheet
Which of the following methods of accounting is acceptable under
GAAP?
A.
B.
C.
D.
Cash Basis
Accrual Basis
Fair Basis
Accurate Basis
• Which of the following events would increase retained earnings?
A.
B.
C.
D.
Dividends are declared and paid
A service is performed
Cash payment received on account
Cash paid on credit
• What is the journal entry for the receipt of a cash payment on credit?
A.
B.
C.
D.
DR: Cash, CR: Accounts Payable
DR: Cash, CR: Accounts Receivable
DR: Accounts Payable, CR: Cash
DR: Accounts Receivable, CR: Cash
• Which of the following accounts is not an asset?
A.
B.
C.
D.
Cash
Accounts Receivable
Unearned Revenue
Prepaid Insurance
• What is the entry to close out a revenue account?
A.
B.
C.
D.
DR: Revenue, CR: Common Stock
DR: Revenue, CR: Income Summary
DR: Common Stock, CR: Revenue
DR: Revenue, CR: Common Stock
• MNO Co has ending retained earnings of $45,000. Dividends paid
during the year were $5,000 and Net Income was $20,000. What was
beginning retained earnings?
A.
B.
C.
D.
$30,000
$60,000
$70,000
$45,000
• What is the entry to close expense accounts?
A.
B.
C.
D.
DR: Expense accounts, CR: Income Summary
DR: Income Summary, CR: Expense accounts
DR: Dividends, CR: Income Summary
DR: Dividends, CR: Expense accounts
• Before adjustment, our supplies account had a balance of $2,000.
After inspection, only $900 of supplies remain. What is the adjusting
entry?
A.
B.
C.
D.
DR: Supplies Expense $1,100, CR: Supplies $1,100
DR: Supplies $1,100, CR: Supplies Expense: $1,100
DR: Supplies Expense $2,900, Supplies $2,900
DR: Supplies $2,900, CR: Supplies Expense $2,900
• Prepaid Rent Expense Balance (pre-adjustment): $10,000
• Prepaid Rent expired during the month: $1,000
Prepare the adjusting entry for prepaid rent.
A.
B.
C.
D.
DR: Rent Expense $1,000, CR: Prepaid Rent $1,000
DR: Prepaid Rent $1,000, CR: Rent Expense $1,000
DR: Rent Revenue $1,000, CR: Prepaid Rent $1,000
DR: Rent Revenue $1,000, CR: Rent Expense $1,000
• What is the normal balance of a Revenue?
A.
B.
C.
D.
Debit
Credit
Unbalanced
Contra
• What is the normal balance of an Expense?
A.
B.
C.
D.
Debit
Credit
Unbalanced
Contra
• What is the normal balance of an Equity?
A.
B.
C.
D.
Debit
Credit
Unbalanced
Contra
• What is the normal balance of an Asset?
A.
B.
C.
D.
Debit
Credit
Unbalanced
Contra
• What is the normal balance of a Liability?
A.
B.
C.
D.
Debit
Credit
Unbalanced
Contra
• We purchased a new car on credit. What was the accounting
equation effect?
A.
B.
C.
D.
Assets increased, Liabilities decreased
Assets increased, Liabilities increased
Equity increased, Liabilities increased
Assets increased, Equity increased
• We prepaid rent in cash. What was the accounting equation effect?
A.
B.
C.
D.
Asset increased, Liabilities decreased
Asset increased, Liabilities increased
One asset increased while another decreased
One liability increased while another decreased
• Identify the following: Total Assets, Total Revenues, Total Expenses,
Net Income, Total Liabilities. Assuming the below balance in retained
earnings is from the beginning of the year, what would the new
balance be after closing entries (i.e.: what would the ending balance in
retained earnings be?)
Assets = $42,300
Revenues = $20,000
Expenses = $13,300
Net Income = $6,700
Liabilities = $13,800
Retained Earnings = $18,500
• Cost of goods sold is:
A.
B.
C.
D.
An asset
An expense
A liability
A dividend
• Determine Gross Profit (Gross Margin)
• Sales: $250
• COGS: $150
• Operating Expenses: $50
A.
B.
C.
D.
$200
$400
$100
$50
• A good is purchased at a price of $1,000 under terms 2/10, n/30.
What is the purchase price recorded in the journal at?
A.
B.
C.
D.
$980
$1,000
$1,020
$20
• We sold goods at a price of $500 on account, terms 2/10 n/30. We
originally purchased the goods for $200. Which of the following
journal entries would be to record the sale of the goods?
A.
B.
C.
D.
DR: Accounts Receivable $500, CR: Sales $500
DR: Accounts Receivable $490, CR: Sales $490
DR: COGS $500, CR: Inventory $500
DR: Sales $500, CR: Accounts Receivable $500
• We sold goods at a price of $500 on account, terms 2/10 n/30. We
originally purchased the goods for $200. Which of the following
journal entries would be to record the cost of the goods that were
sold?
A.
B.
C.
D.
DR: Accounts Payable $200, CR: Sales $200
DR: Accounts Receivable $200, CR: Sales $200
DR: COGS $200, CR: Inventory $200
DR: Inventory $200, CR: COGS $200
• The buyer in the previous transaction determined that $50 of the
purchased goods were damaged. This inventory was returned. We
originally purchased these goods for $20. The related journal entry
would include debits to which of the following. (seller side)
A.
B.
C.
D.
Sales Returns and Allowances $50, Inventory $20
Sales Returns and Allowances $20, Inventory $50
COGS $50, A/R $20
COGS $20, A/R $50
• The buyer in the previous transaction determined that $50 of the
purchased goods were damaged. This inventory was returned. We
originally purchased these goods for $20. The related journal entry
would include a credit which of the following. (seller side).
A.
B.
C.
D.
Sales Returns and Allowances $50, Inventory $20
Sales Returns and Allowances $20, Inventory $50
COGS $50, A/R $20
COGS $20, A/R $50
• The buyer from the previous question paid their remaining balance
on account within the discount period. What is the journal entry
(from the seller’s side).
A.
B.
C.
D.
DR: A/R $450, CR: Sales Discounts $9 CR: Cash $441
DR: A/R $450, CR: Cash $450
DR: Cash $441, DR: Sales Discounts $9 CR: A/R $450
DR: Cash $441, CR: A/R $441
• The journal entry for inventory shrinkage includes a debit to:
A.
B.
C.
D.
Merchandise Inventory
Sales
Gross Profit
Cost of Goods Sold
• At what point does ownership change hands when a good is
purchased under FOB Shipping Point?
A.
B.
C.
D.
When the purchaser receives the good
When the seller delivers the good to the shipper
When the purchaser reviews the shipping manifest
When the purchaser completes a purchase order
• Determine Cost of Goods Sold using FIFO:
Cost
A.
B.
C.
D.
$125
$135
$132
$120
Beginning Inv. (1/1/21)
Purchase (1/10/21)
Sale (1/15/21)
Units
$15
$20
7
3
8
• Determine Cost of Goods Sold using LIFO:
Cost
A.
B.
C.
D.
$125
$135
$132
$120
Beginning Inv. (1/1/21)
Purchase (1/10/21)
Sale (1/15/21)
Units
$15
$20
7
3
8
• Determine Cost of Goods Sold using Weighted Average Cost:
Cost
A.
B.
C.
D.
$125
$135
$132
$120
Beginning Inv. (1/1/21)
Purchase (1/10/21)
Sale (1/15/21)
Units
$15
$20
7
3
8
• Assume goods from the 1/15 sale were sold at $30 each, what is Gross
Profit under LIFO?
Cost
Beginning Inv. (1/1/21)
Purchase (1/10/21)
Sale (1/15/21)
A.
B.
C.
D.
$115
$105
$108
$125
Units
$15
$20
7
3
8
• In a period of rising prices, which of the following inventory methods
would provide the highest Net Income?
A.
B.
C.
D.
FIFO
LIFO
Weighted Average
Specific Identification
• In a period of rising prices, which of the following inventory methods
would provide the highest Ending Inventory?
A.
B.
C.
D.
FIFO
LIFO
Weighted Average
Specific Identification
• How much is in Ending Inventory?
• Cost of Goods Available for Sale = $12,000
• Cost of Goods Sold = $7,000
A.
B.
C.
D.
$19,000
$7,000
$12,000
$5,000
• Which of the following would be most likely to use the Specific
Identification method of inventory?
A.
B.
C.
D.
Mattress Store
Custom Jeweler
Hardware Store
Grocery Store
• Which inventory method matches sales with the most recent cost of
goods sold?
A.
B.
C.
D.
FIFO
LIFO
Weighted Average
Specific Identification
• What is the balance of inventory after lower of cost or market analysis
is performed on a line-by-line basis?
UNITS
10
5
A.
B.
C.
D.
$220
$200
$225
$245
COST
12
20
MARKET
10
25
• Which of the following costs should not be included in Ending
Inventory?
A.
B.
C.
D.
Purchase Price of the Inventory
Storage Costs
Costs to ship purchased items
Damaged inventory that cannot be sold
• Goods in transit are included in a purchaser's inventory:
A.
B.
C.
D.
At any time during transit.
When the goods are shipped FOB shipping point.
When the supplier is responsible for freight charges.
If the goods are shipped FOB destination.
• Consignment goods are:
A. Goods shipped by the owner to the consignee who sells the goods
for the owner.
B. Reported in the consignee's books as inventory.
C. Goods shipped to the consignor who sells the goods for the owner.
D. Not reported in the consignor's inventory since they do not have
possession of the inventory.
• Which of the following is not an element of internal control?
A.
B.
C.
D.
Control Environment
Management Procedures
Control Activities
Risk Analysis
• When reimbursing the petty cash fund:
A.
B.
C.
D.
Cash is debited.
Petty Cash is debited.
Appropriate expense accounts are debited.
No expenses are recorded.
• ABC Co. maintains a $300 petty cash fund. On January 31, the fund is replenished.
The accumulated receipts on that date represent $80 for office supplies, $160 for
merchandise inventory, and $20 for miscellaneous expenses. There is a cash
shortage of $8. The journal entry to replenish the fund on January 31 is:
A. Dr. Office Supplies, $80; Dr. Merchandise inventory, $160; Dr. Miscellaneous
expenses, $20; Dr. Cash over and short, $8; Cr. Petty cash, $268.
B. Dr. Office Supplies, $80; Dr. Merchandise inventory, $160; Dr. Miscellaneous
expenses, $20; Cr. Cash over and short, $8; Cr. Petty cash, $252.
C. Dr. Office Supplies, $80; Dr. Merchandise inventory, $160; Dr. Miscellaneous
expenses, $20; Cr. Cash over and short, $8; Cr. Cash, $252.
D. Dr. Office Supplies, $80; Dr. Merchandise inventory, $160; Dr. Miscellaneous
expenses, $20; Dr. Cash over and short, $8; Cr. Cash, $268.
• Which one of the following is not an example of an effective internal
control system?
A. All employees are well supervised
B. A single employee is responsible for comparing a receiving report to
an invoice
C. All employees must take their vacations
D. A single employee is responsible for collecting and recording cash
• Internal control systems are policies and procedures that do all of the
following, except:.
A.
B.
C.
D.
Protect Assets
Uphold company policies
Guarantee high revenues
Ensure reliable accounting
• The unadjusted bank balance is $5,000. Outstanding checks were
$800, Deposits in Transit were $1500, an NSF check was returned at
$500. What is the adjusted bank balance?
A.
B.
C.
D.
$5,700
$5,200
$4,300
$3,800
• The unadjusted book balance is $1,000. The bank collected a note for
$400, an NSF check was returned at $150, and a bank error inflated
our bank balance by $85. What is the adjusted book balance?
A.
B.
C.
D.
$1,250
$750
$665
$1,165
• On a bank reconciliation, bank fees are:
A.
B.
C.
D.
Deducted from the bank balance of cash
Deducted from the book balance of cash
Added to the bank balance of cash
Added to the book balance of cash
• We recently prepared an bank reconciliation on which we added the
collection of a $1,000 note to the book balance. The journal entry to
record this collection is:
A.
B.
C.
D.
DR: Notes Receivable; CR: Cash
DR: Accounts Payable; CR: Cash
DR: Cash; CR: Notes Receivable
DR: Cash; CR: Accounts Payable
• We recently prepared an bank reconciliation on which we subtracted
NSF check of $250 from the book balance. The journal entry to record
this NSF check is:
A.
B.
C.
D.
DR: Accounts Receivable; CR: Cash
DR: Accounts Payable; CR: Cash
DR: Cash; CR: Accounts Receivable
DR: Cash; CR: Accounts Payable
• Cash equivalents:
A.
B.
C.
D.
Are short-term, highly liquid investment assets
Include 6-month certificates of deposit
Include checking accounts
Are recorded in petty cash
• What is not included in the calculation of cash and cash equivalents?
A.
B.
C.
D.
Cash in the Bank and Petty Cash
9 – Month CDs and Post-dated checks
Money Orders and Cashier’s Checks
CDs and Treasury Bills that mature in 3 months
• The journal entry to establish petty cash is:
A.
B.
C.
D.
DR: Petty Cash, CR: Accounts Receivable
DR: Petty Cash, CR: Cash
DR: Cash, CR: Petty Cash
DR: Cash, CR: Accounts Receivable
• On Dec. 1 we issued a note with a principle of $1,000, 6% interest, 60
days. What amount would be recorded as accrued interest on Dec.
31?
A.
B.
C.
D.
$5
$30
$10
$0
• When a note receivable is paid back with interest, which of the
following accounts should be credited?
A.
B.
C.
D.
Cash
Notes Payable
Interest Payable
Notes Receivable
• Using the percent of sales method, compute bad debt expense for
the year.
• Credit Sales: $1,000,000
• BDE % Estimate: 1%
• Allowance Balance: $1,500 Credit
A.
B.
C.
D.
$8,500
$850
$10,000
$1,000
• Under the allowance method, which of the following would be
debited to write of an account receivable?
A.
B.
C.
D.
Accounts Receivable
Bad Debt Expense
Allowance for Doubtful Accounts
Sales
• Under the allowance method, which of the following would be
debited to recognize bad debt expense (end of year adjustment)?
A.
B.
C.
D.
Accounts Receivable
Bad Debt Expense
Allowance for Doubtful Accounts
Sales
• Which of the two methods impacts net income when we write off an
account receivable?
• Direct Write Off
• Allowance
• Using the percent of receivables method, compute bad debt expense
for the year.
• A/R: $1,000
• BDE % Estimate: 15%
• Allowance Balance: $50 Credit
A.
B.
C.
D.
$50
$200
$100
$150
• We’re using the Direct Write Off Method. On Jan 5, we wrote off ABC
Co’s A/R in the amount of $1,000. On Jan 15, ABC Co. paid $1,000 for
the A/R that was previously written off. Which accounts would we
debit to recognize this payment?
A.
B.
C.
D.
A/R, Bad Debt Expense
A/R, Cash
Bad Debt Expense, Cash
A/R, Allowance for Doubtful Accounts
• We’re using the Direct Write Off Method. On Jan 5, we wrote off ABC
Co’s A/R in the amount of $1,000. On Jan 15, ABC Co. paid $1,000 for
the A/R that was previously written off. Which accounts would we
credit to recognize this payment?
A.
B.
C.
D.
A/R, Bad Debt Expense
A/R, Cash
Bad Debt Expense, Cash
A/R, Allowance for Doubtful Accounts
• Which of the following companies is most likely to use the Direct
Write Off method of accounting for bad debts?
A.
B.
C.
D.
Companies following GAAP
Large companies with many receivables
Small companies with few receivables
Companies with a material amount of receivables
• On 1/1/20 AG Co. loans $1,000 for 30 days at 5% interest to TB Co.
AG’s journal entry to issue this note receivable is:
A.
B.
C.
D.
Debit Notes Receivable; Credit Interest Revenue
Debit Cash; Credit Notes Receivable
Debit Notes Receivable; Credit Cash
Debit Interest Revenue; Credit Accounts Receivable
• On 1/1/20 AG Co. loans $1,000 for 30 days at 5% interest to TB Co. On
1/31/20, this note is paid in full. The journal entry to record receipt of
payment is:
A.
B.
C.
D.
Debit Notes Receivable; Credit Interest Revenue; Credit Cash
Debit Cash; Credit Notes Receivable; Credit Interest Revenue
Debit Notes Receivable; Credit Cash
Debit Interest Revenue; Debit Notes Receivable; Credit Cash
• Which of the following is not a plant asset?
A.
B.
C.
D.
Buildings
Land
Supplies
Vehicles
• Which of the following is not true about the Allowance for Doubtful
Accounts?
A.
B.
C.
D.
It is debited when uncollectible accounts are written off.
It is used instead of reducing accounts receivable directly.
It is a liability account.
It is a contra asset account.
• We purchased a vehicle for $110 with a salvage value of $10 and a
useful life of 10 years on July 1st. What is year one depreciation
expense under straight-line?
A.
B.
C.
D.
$100
$10
$15
$5
• What is the journal entry to recognize depreciation expense?
A.
B.
C.
D.
DR: Long Term Asset, CR: Depreciation Expense
DR: Depreciation Expense, CR: Accumulated Depreciation
DR: Accumulated Depreciation, CR: Depreciation Expense
DR: Depreciation Expense, CR: Long Term Asset
• We purchased a building, land, and equipment for a lump sum of
$1,000. The appraised value of each is $500, $400, and $300,
respectively. How much would the equipment be recorded at?
A.
B.
C.
D.
$250
$300
$333
$350
• Which of the following would not be considered a revenue
expenditure for a piece of equipment?
A.
B.
C.
D.
Oil Change
Replaced small parts
Cleaning
Extraordinary engine repair (will extend life of the equipment)
• Salvage value:
A.
B.
C.
D.
Is only used in calculating depletion of natural resources
Is the time that we expect to use an asset
Can never be updated after the asset’s first use
Is the estimated value of an asset at the end of its useful life
• Which of the following categories does Accumulated Depreciation
belong in?
A.
B.
C.
D.
Assets
Liabilities
Equity
Expense
Slides 88-90 share the same facts, but are
separate scenarios.
• Gain or Loss?
•
•
•
•
A.
B.
C.
D.
Equipment Cost: $100,000
Accumulated Depreciation: $80,000
Appraised Value: $110,000
Cash Received: $25,000
Gain $10,000
Gain $5,000
Loss $5,000
Gain $10,000
• What would the journal entry be for the below sale?
•
•
•
•
Equipment Cost: $100,000
Accumulated Depreciation: $80,000
Appraised Value: $110,000
Cash Received: $25,000
DR: A/D $80,000; DR: Cash $25,000; CR: Equipment $10,000; CR: Gain $5,000
• Assume the below sale occurs on July 1st. If a full year’s depreciation is
$5,000, how much depreciation should be recorded before we record the
journal entry for the sale? What is the asset’s book value after depreciation
in the year of sale?
•
•
•
•
Equipment Cost: $100,000
Accumulated Depreciation: $80,000
Appraised Value: $110,000
Cash Received: $25,000
Depreciation expense: $2,500
Asset’s Book Value after depreciation: $17,500
Calculate Year One Depreciation Under The
Straight Line Method.
• Cost: $100,000
• Residual Value: $20,000
• Useful Life: 10 years
• Estimated Total Units: 80,000
A.
B.
C.
D.
$10,000
$8,000
$20,000
$0
91
Calculate Year One Depreciation Under The Units
of Production Method. Assume year one actual
units of 12,000.
• Cost: $100,000
• Residual Value: $20,000
• Useful Life: 10 years
• Estimated Total Units: 80,000
A.
B.
C.
D.
$12,000
$8,000
$20,000
$0
92
Calculate Year One Depreciation the Double
Declining Balance Method.
• Cost: $100,000
• Residual Value: $20,000
• Useful Life: 10 years
• Estimated Total Units: 80,000
A.
B.
C.
D.
$10,000
$8,000
$20,000
$0
93
What is the ending book value of the asset for
year one if the Double Declining Balance Method
is used?
• Cost: $100,000
• Residual Value: $20,000
• Useful Life: 10 years
• Estimated Total Units: 80,000
A.
B.
C.
D.
$100,000
$80,000
$20,000
$0
94
The employer should record deductions (withholdings) from employee
pay as:
A.
B.
C.
D.
Payroll taxes.
Employee receivables.
Wages payable.
Current liabilities.
How much would we debit Salaries Expense
for?
•
•
•
•
•
Total Salaries for March: $100,000
Federal Income Tax: $40,000
Retirement Contributions: $10,000
Federal Unemployment Taxes: $1,500
FICA Taxes (Employee Portion): $4,000
A.
B.
C.
D.
$100,000
$60,000
$46,000
$44,500
96
How much would we credit Salaries Payable
for?
•
•
•
•
•
Total Salaries for March: $100,000
Federal Income Tax: $40,000
Retirement Contributions: $10,000
Federal Unemployment Taxes: $1,500
FICA Taxes (Employee Portion): $4,000
A.
B.
C.
D.
$100,000
$60,000
$46,000
$44,500
97
• Which of the following accounts would be credited in an Employer
Payroll Tax Expense entry but not a Payroll Expense entry?
A.
B.
C.
D.
FICA – Social Security Payable
Federal Unemployment Taxes Payable
Federal Income Taxes Payable
Sales Taxes Payable
• ABC Co. has been sued for wrongful termination. The company’s
attorneys expect that ABC Co. will likely lose the case and will be
required to pay $500,000. What should be done?
A.
B.
C.
D.
Record a Liability
Disclose in Footnotes
Absolutely Nothing
File for Bankruptcy
• ABC Co. has been sued for wrongful termination. The company’s
attorneys expect that ABC Co., will likely lose the case, however they
are unable to estimate the amount to be paid. What should be done?
A.
B.
C.
D.
Record a Liability
Disclose in Footnotes
Absolutely Nothing
File for Bankruptcy
• We issued a 120 day note payable on 11/1/19 for $100,000 cash at
3% interest. What would the journal entry to issue the note be?
A.
B.
C.
D.
DR Interest Expense $500; CR Interest Payable $500
DR Interest Expense $100,000; CR Interest Payable $100,000
DR Notes Payable $100,000; CR Cash $100,000
DR Cash $100,000; CR Notes Payable $100,000
101
• We issued a 120 day note payable on 11/1/19 for $100,000 cash at
3% interest. What would the journal entry to accrue interest include
on 12/31/19?
A.
B.
C.
D.
DR Interest Expense $500
DR Interest Expense $1,000
CR Interest Expense $500
CR Interest Expense $1,000
102
• ABC Co. sold 5,000 cell phones in 2019. It expects to perform
warranty repairs on 10% of the phones at an average cost of $1 each.
What would the company credit for in the Adjusting entry for
Warranty Expense?
A.
B.
C.
D.
Warranty Expense $500
Est. Warranty Liability $500
Cash $500
Sales Returns and Allowances $500
• ABC Co. sold 5,000 cell phones in 2019. It expects to perform
warranty repairs on 10% of the phones at an average cost of $1 each.
In Jan. 2020, it repairs 50 phones at a total cost of $20 in repair parts
inventory. What would the company Debit for these repairs?
A.
B.
C.
D.
Warranty Expense $20
Est. Warranty Liability $20
Inventory $20
Sales Returns and Allowances $20
• We must pay a promissory note in 300 days. This note should be
listed on the balance sheet as:
A.
B.
C.
D.
Current Asset
Current Liability
Noncurrent Asset
Long-Term Liability
• We issued $1,000,000, 10 year, 6% Bonds at 102. The entry to record
this issuance would include credit(s) to:
A.
B.
C.
D.
Bonds Payable $1,000,000, Premium on Bonds $20,000
Bonds Payable $1,000,000
Cash $1,020,000
Bonds Payable $1,020,000
106
• We issued $1,000,000, 10 year, 6% Bonds at 102. What is the Bond’s
Carrying Value at issuance?
A.
B.
C.
D.
$1,000,000
$1,200,000
$1,020,000
$20,000
107
• We issued $1,000,000, 10 year, 6% Bonds at 102. The market rate of
interest is 4%. How much would we pay to bondholders for the first
semi-annual interest payment?
A.
B.
C.
D.
$30,600
$30,000
$60,000
$20,000
108
• We issued $1,000,000, 10 year, 6% Bonds at 102. The market rate of
interest is 4%. When this bond matures, what will it’s carrying value
be?
A.
B.
C.
D.
$1,020,000
$1,000,000
$20,000
$0
109
• The contract rate on a bond is 10% while the market rate is 12%. Was
this bond issued at a premium, discount, or at face value?
Discount
110
• A disadvantage of bonds is
A.
B.
C.
D.
They require regular interest payments
The company must relinquish some owner control
The journal entries aren’t fun
Bonds might increase our return on equity
• On 7/1/21, we issued a $1,000,000 bond, 5 years, 10% contract rate
(paid semi-annually). The bond was discounted by $45,000. The
market rate of interest was 12%. The journal entry to pay interest and
amortize this discount would include a credit to:
A.
B.
C.
D.
Interest Expense, Discount on Bonds
Discount on Bonds
Cash
Cash, Discount on Bonds
112
• Use the information from the previous slide for this problem. What is
the amount of discount amortization for the first interest payment?
A.
B.
C.
D.
$7,300
$57,300
$50,000
107,300
• Use the information from the previous slide for this problem. What is
the Bond’s Carrying amount after the first interest payment?
A.
B.
C.
D.
$1,000,000
$45,000
$962,300
$955,000
114
• The Discount on Bonds Payable:
A.
B.
C.
D.
Is increased by a credit
Is an Adjunct-Liability
Is a Contra-Liability
Is equal to the carrying value of the bond plus par value
• ABC Co declares dividends of $10 per share on 100 total shares on
Dec. 3 and pays these dividends on Dec. 7. The date of record was
Dec. 5. Which of the following accounts is debited on Dec. 3?
A.
B.
C.
D.
Retained Earnings
Dividends Payable
Cash
No Entry Made
116
• ABC Co declares dividends of $10 per share on 100 total shares on
Dec. 3 and pays these dividends on Dec. 7. The date of record was
Dec. 5. Which of the following accounts is debited on Dec. 5?
A.
B.
C.
D.
Retained Earnings
Dividends Payable
Cash
No Entry Made
117
• ABC Co declares dividends of $10 per share on 100 total shares on
Dec. 3 and pays these dividends on Dec. 7. The date of record was
Dec. 5. Which of the following accounts is debited on Dec. 7?
A.
B.
C.
D.
Retained Earnings
Dividends Payable
Cash
No Entry Made
118
• ABC Co. has authorized shares of 200, shares issued of 180, and
treasury stock of 10 shares. If ABC Co were to issue a dividend today,
how many shares would the dividend be paid to?
A.
B.
C.
D.
200
180
170
10
119
• ABC Co issues 500 shares of $5 par stock for land valued at $3,000.
What is the required journal entry?
A.
DR: Land $2,500; CR: Common Stock $2,500
B.
DR: Cash $2,500; CR: Common Stock $2,500
C.
DR: Land $3,000; CR: Common Stock $3,000
D.
DR: Land $3,000; CR: Common Stock $2,500 CR: Paid in Capital $500
120
• ABC Co issues 500 shares of $5 par stock for $2,500 cash. What is the
required journal entry?
A. DR: Cash $2,500; CR: Common Stock $2,000; CR: PIC – C. Stock
$500
B. DR: Cash $2,500; CR: Common Stock $2,500
C. DR: Cash $3,000; CR: Common Stock $3,000
D. DR: Cash $3,000; CR: Common Stock $2,500 CR: Paid in Capital
$500
• Which of the following accounts does not have a credit balance?
A.
B.
C.
D.
Treasury Stock
Common Stock
Preferred Stock
Retained Earnings
122
• ABC Co. has never had any Treasury Stock transactions prior to
1/10/21. On 1/10/21 the company repurchases 10 of it’s own shares
at $10 a piece. These shares had a par value of $5. The journal entry
for this transaction is:
A.
B.
C.
D.
Debit Cash $100; Credit Treasury Stock $100
Debit Cash $100; Credit Treasury Stock $50; Credit PIC- T. Stock $50
Debit Treasury Stock $100; Credit Cash $100
Debit Treasury Stock $50; Debit PIC- T. Stock $50; Credit Cash $100
• ABC Co. has never had any Treasury Stock transactions prior to
1/10/21. On 1/10/21 the company repurchases 10 of it’s own shares
at $10 a piece. These shares had a par value of $5. On 2/5/21 the
company sells 5 shares of treasury stock for $12 a piece. The 2/5/21
journal entry is:
A.
B.
C.
D.
Debit Cash $60; Credit Treasury Stock $60
Debit Cash $60; Credit Treasury Stock $50; Credit PIC- T. Stock $10
Debit Treasury Stock $60; Credit Cash $60
Debit Treasury Stock $50; Debit PIC- T. Stock $10; Credit Cash $60
• The total number of shares that have been sold to shareholders in the
past is called:
A.
B.
C.
D.
Authorized Stock
Issued Stock
Outstanding Stock
Beef Stock