Accounting 2 Study Guide

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For each of the following accounts, select the letter thatrepresents the best category for each item. A letter can be used more than once or not at all.

a.  CurrentAsset

b.  Long-termInvestment  g. Paid-in Capital

c.  Plant Asset  h. RetainedEarnings

d.  IntangibleAsset  i. Revenue

e.  CurrentLiability  j. Expense

f.  Long-termLiability  k. “OtherRevenue or Expense”

__a____ (ex.) Cash

_______ 1. Accumulated Depreciation

_______ 2. Allowance for Doubtful Accounts

_______ 3. Common Stock

_______ 4. Discount on Bonds Payable

_______ 5. Interest Payable

_______ 6. Interest Revenue

_______ 7. Loss on Sale of Investment

_______ 8. Payroll Tax Expense

_______ 9. Prepaid Insurance

_____10. Unearned Rent Revenue

Exercise #2

For each of the following questions, write the name of onefinancial statement that will supply the answer.    Question  FinancialStatement that Will Supply the Answer

Which Financial Statement would you find the answer?

1. How much cash does a company have?

2. What are a company’s total revenues?

3. What was the amount of dividends declared?

4. How many shares of common stock has a corporation issued?

5. What is a company’s net income?

6. How much does a company owe to its creditors?

7. What kind of expenses does the company have?

8. Does the company have preferred stock?

9. What is the current ratio?

10. What inventory method does the company use?

Exercise #3  10 points

The adjusted trial balance columns for William Company areas follows on Dec 31, 2014.

(A) Prepare an incomestatement, and a classified balance sheet, Dec 31, 2014.

(B) Prepare the closing entries.

(C) Calculate Gross Profit Rate and Profit Margin.

Debit  Credit

101  Cash  17,800

112  AccountsReceivable  14,400

126  Supplies  2,300

130  PrepaidInsurance  4,400

151  Equipment  46,000

152  AccumulatedDepreciation-Equip  18,000

200  Notes Payable  20,000  (Note:$5,000 of the notes payable become due in 2015.)

201  AccountsPayable  8,000

212  Salaries andWages Payable  2,600

230  InterestPayable  1,000

311  Common Stock  15,000

320  RetainedEarnings  9,800

332  Dividends  12,000

400  ServiceRevenue  86,200

610  AdvertisingExpense  10,000

631  SuppliesExpense  3,700

711  DepreciationExpense    6,000

722  InsuranceExpense  4,000

726  Salaries andWages Expense  39,000

905  InterestExpense  1,000

Totals  160,600  160,600

Exercise #4

On January 1, 2014, Magnus Corporation had 60,000 shares of$1 par value common stock issued and outstanding. During the year, thefollowing transactions occurred:

Mar.  1   Issued 25,000 shares of common stock for$550,000.

June  1   Declareda cash dividend of $2.00 per share to stockholders of record on June 5.

June  30   Paid the $2.00 cash dividend.

Dec.  1   Purchased 5,000 shares of common stock for thetreasury for $22 per share.

Dec.  15   Declared a cash dividend on outstanding sharesof $2.25 per share to stockholders of record on December 31.

Prepare the appropriate journal entries for the transactionsof Magnus Corporation detailed above. Omit Explanations. Please skip a linebetween each entry.

Exercise #5 – Mutiple Choice

1.  Which of the following is not reportedunder additional paid-in capital?

(a)  Paid-in capital in excess of par value.

(b)  Treasury Stock

(c)  Paid-in capital in excess of statedvalue.

(d)  Paid-in capital from treasury stock.

2.  Determine net income for the period ifbeginning stockholders’ equity is $19,000, dividends declared amount to $7,000,ending stockholders’ equity is $37,000, and the corporation issued $1,000 ofcommon stock.

a.  $10,000.00

b.  $27,000.00

c.  $24,000.00

d.  none of the above

3.  In preparing a balance sheet, which ofthe following statements is true?

a.    Currentliabilities are listed alphabetically.

b.  Long-term liabilities are listed afterStockholders’ Equity.

c.  Intangible assets are listed in orderof solvency.

d.  Current assets are listed in order oftheir liquidity.

4.  What accounting characteristic, principle,concept, or constraint allows a corporation to record the purchase of a $10wastepaper basket that is estimated to last 5 years as an expense in the yearof acquisition?

a.  full disclosure

b. materiality

c.  reliability

d.  entity

5.  A collection of $500 of an account receivablewill cause:

a.  cash to be credited for $500.

b.  accounts receivable to be credited for$500.

c.  revenuesto be debited for $500.

d.  accountsreceivable to be debited for $500.

6.  After journalizing and posting the closingentries,

a.  balance sheet accounts have zerobalances.

b.  all accounts have zero balances.

c.  retained earnings is up-to-date.

d.  permanent accounts have zero balances.

7. A company began operations andpurchased $5,000 of supplies.  Byyear-end, $2,250 was still on hand.  Theadjusting entry at year end would include a:

a.  debit to Supplies for $5,000

b.  credit to Supplies for $2,250

c.  credit to Supplies for $2,750

d.  debit to Supplies Expense for$2,250

8.  A company fails to recognize revenue it hasearned but not yet received.  Theaccounts impacted by this error are:

a.  assets and liabilities

b.  liabilities and expenses

c.  liabilities and revenues

d.  assets and revenues

9. Under the perpetual inventory system, if a purchaser returns goods thathad been purchased on account, the purchaser would:

a.  debit inventory and credit accountspayable.    b.  debitaccounts payable and credit inventory.  c.  debit inventory and credit accountsreceivable.  d.  debit accounts receivable and creditinventory.

10.  If sales revenues are $200,000, cost of goods sold is$155,000, and operating expenses are $30,000, what is the gross profit?

a.  $15,000

b.  $45,000

c.  $75,000

d.  $185,000

11.  In a periodic inventory system the quantity of endinginventory is determined by:

a.  subtracting units sold from unitspurchased.      b.  taking a physical inventory count.

c.  lookingat the balance in the inventory account.

d.  subtracting cost of goods sold from thebeginning inventory balance.

12.  Which of the following statements is generally true whenprices are rising?

a.  LIFO will result in less taxes thanFIFO.

b.  FIFO reports a lower ending inventorythan LIFO.

c.  LIFO reports a higher net income thanFIFO.

d.  FIFO produces a lower net income thanLIFO.

13.  Given the following data, if a periodic inventory system isused, what is the weighted-average cost of ending inventory rounded to thenearest whole dollar?

Salesrevenue    100units at $10 per unit

Beginninginventory  50 units at $ 8 per unit

Purchases    90 units at $9 per unit

a.  $400

b.  $346

c.  $360

d.  $1,210

14.  Outstanding checks are checks:

a.  not yet paid by the bank.

b.  not yet deducted on the books.

c.  not yet issued by the payee.

d.  that have been paid by the bank.

15.  The internal control principle related to having differentpersons authorize the purchase of goods and pay for the goods is known as:

a.  establishment of responsibility.

b.  rotation of duties.

c.  independent internal verification.

d.  segregation of duties.

16.  The balance sheet reports accountsreceivable at:

a.  lower-of-cost-or-market.

b.  historical cost.

c.  cash realizable value.

d.  market value.

17. Orion Corp. lends Maxi Inc.$20,000 on December 1, accepting a four-month, 6% note.  Orion’s annual accounting period ends onDecember 31.  Orion’s adjusting entryshould include a

a.debit to Note Receivable for $300. to Interest Revenue for $400.  c.debit to Interest Receivable for $100. to Interest Revenue for $1,200.

18.  A machine that had cost $35,000 has a book value of$21,000.  It is sold for $40,000.  The entry to record the sale should includea:

a.  gain of $19,000

b.  gain of $26,000

c.  loss of $19,000

d.  loss of $5,000

19.  Which depreciation method generally results in the largestdepreciation expense in the first full year of an asset’s life?

a.  straight-line

b.  units-of-activity

c.  double-declining-balance

d.  either straight-line ordouble-declining-balance

20.  A company borrows $5,000 on November 1,2008 giving a 10%, 180-day     note payable.  The adjusting entry on December 31, 2008would include a:

a.  credit to Interest Payable for $83

b.  credit to Interest Payable for $167

c.  debit to Interest Expense for $250

d.  credit to Cash for $83

21.  If the market rate of interest is greaterthan the contractual rate of interest, bonds will be issued at:

a.  face value.

b.  a discount.

c.  a premium.

d.  carrying value.

22.  Net pay is equal to:

a.  gross pay minus all deductions.

b.  all deductions plus all withholdings.

c.  take-home pay plus all deductions.

d.  payroll tax expense.

23.  Treasury shares plus outstanding sharesequal

a.   issuedshares.

b.  unissued shares.

c.  par value.

d.  authorized shares.

24.  On the payment date, the payment of cashdividends will

a.  decrease stockholders’ equity.

b.  increase current liabilities.

c.  decrease cash.

d.  increase common stock.

25. The Balance Sheet woulddisclose the interest owed

a.  nowhere on the Balance Sheet.

b.  in the Stockholder’s Section.

c.  in the Asset section.

d.  in the Liabilities section.

26.  When an account becomes uncollectible andmust be written off,

a.  Allowance for Doubtful Accounts shouldbe credited.    b.  AccountsReceivable should be credited.    c.  Bad Debts Expense should be credited.    d.  Sales should be debited.

27.  The collection of an account that hadbeen previously written off under the allowance method of accounting foruncollectibles

a.  will increase income in the period itis collected.

b.  will decrease income in the periodit is collected.

c.  requires a correcting entry for theperiod in which the account    was writtenoff.

d.  does not affect income in the period itis collected.

28.  A debit balance in the Allowance forDoubtful Accounts

a.  is the normal balance for that account.  b.  indicates that actual bad debtwrite-offs have exceeded previous  provisionfor bad debts.

c.  indicates that actual bad debtwrite-offs have been less than what was estimated.

d.  cannot occur if the percentage of salesmethod of estimating bad debts is used.

29.  The sale of receivables by a business

a.  indicates that the business is infinancial difficulty.    b.  isgenerally the major revenue item on its income statement.  c.  is an indication that the business isowned by a factor.  d.  can be a quick way to generate cash foroperating needs.

30.  Retailers generally consider sales fromthe use of national credit card sales such as VISA or Mastercard, as a

a.  credit sale.

b.  collection of an accounts receivable.

c.  cash sale.

d.  collection of a note receivable

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