Financial Accounting Libby PDF

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Financial Accounting Libby with some practical tasks...

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1. Atlantic Corporation reported the following amounts at the end of the1st year of operations: Common stock

200,000

Sales revenue

800,000

Total assets

600,000

Dividends declared

40,000

Total liabilities

320,000

What are the retained earnings of Atlantic at the end of the year, and what amounts of expenses were incurred during the year? A. Retained earnings are 80,000 and expenses incurred totaled 680,00 B. retained earnings are 280,000 and expenses incurred totaled 520,000 C. retained earnings are 80,000 and expenses incurred totaled 720,000 D. retained earnings are 280,000 and expenses incurred totaled 480,000 Assets = Liabilities + Stockholders' Equity $ 600,000 = $ 320,000 + Stockholders' equity Revenue - Expenses = Net Income $ 800,000 - Expenses = $ 280,000 $ 800,000 - $ 280,000 = 520,000 2. Indicate how the accounts normally should be categorized on a classified balance sheet Accounts payable: Current liabilities Unearned revenue: Current liabilities Long-term Debt: Noncurrent liabilities Cash: Current assets Common stock: Stockholders equity PPE: Noncurrent assets Retained earnings: Stockholders equity Inventories: Current assets Intangibles: Noncurrent assets 3. Which of the following is included within current assets on a classified balance sheet? A. Intangible assets B. A truck C. Inventory D. Land 4. Which of the following accounts is used to initially recorded a deferral? A. Interest revenue B. Suppliers C. Suppliers expense D. Interest payable 5. Compute the missing amount. Assume that it's the end of the 1st full year of operations for the company (Loss amounts should be indicated with - sign)

Revenues

Expenses

Net income (Loss)

228

123

?

answer: 105 228-123=105 6. Compute the missing amount . assume that it is the end of the 1st full year of operations for the company. Assets

Liabilities

SE

222

144

?

Answer: 78 222=144+SE 7. Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance? A. Net income increases the ending balance of retained earnings. B. Net income and net loss both affect the ending retained earnings balance C. A net income decreases the ending retained earnings balance D. A net loss doesn’t affect the ending retained earnings balance 8. In what order would the following assets be listed on a balance sheet? A. Cash, inventory, intangible assets, accounts receivable B. Cash, accounts receivable, property and equipment, inventory C. Cash, short-term investments, accounts receivable, inventory D. Cash, intangible assets, accounts receivable, property and equipment 9. Lantz Company has provided the following information: ● Cash sales totaled 255,000 ● Credit sales totaled 479,000 ● Cash collections from customers for services yet to be provided totaled 88,000 ● A 22,000 loss from the sale of property and equipment occurred ● Interest income was 7,700 ● Interest expense was 19,900 ● Suppliers expense was 336,000 ● Rent expense for the store was 49,000 ● Other operating expenses totaled 79,000 ● Unearned revenue was 4,400 What is the amount of Lantz's operating revenues? A. 833,700 B. 822,000 C. 734,000 D. 826,000 Total cash sales + Total credit sales = $255,000 + $479,000 = $734,000 10. During the fiscal year ended 2016, a company had revenues of 400,000 cost of goods sold of 280,000 and an income tax rate of 30 percent on income before income taxes. What was the company`s 2016 net income? A. 400,000 B. 36,000

C. 120,000 D. 84,000 Revenue - Expenses = Net Income 400,000 - 280,000 = 120,000 income before taxes 120,000 (1-0,3) = 84,000 profit after taxes 11. Which of the following statements is false? A. The income statement covers a period of time B. Interest expense is not a component of operating income C. A loss on the sale of plant and equipment is considered a peripheral activity and is not reported on the income statement D. Rent expense is a component of operating income 12. Total assets are 37,500 total liabilities are 20,000, common stock is 10,000, therefore, retained earnings are 7,500 A. True B. False 13. The financial statement that shows an entity's economic resources and claims against those resources is the balance sheet. A. true B. False 14. Stockholders` equity on the balance sheet includes common stock and retained earnings A. True B. False 15. Business managers utilize managerial accounting reports to plan and manage the daily operations A. true B. False 16. A business entity`s accounting system creates financial accounting reports which are provided to external decision makers A. True B. False 17. The balance sheet includes assets, liabilities and SE as of a point in time A. True B. False 18. For the current year net income of Coral Company is 20,000 and dividends declared are 6,000; therefore, retained earnings have increased 26,000 during the year A. True B. False 19. During 2016, Sigma Company earned service amounting to 139,156 of which 82,235 was collected in cash; the balance will be collected in January 2017. Also in 2016 there were collections of cash prior to the delivery of goods/services totaling 39050. What amount should be the 2016 income statement report for service revenue? Answer: 139156 20. Blaine air transport service INC, providing air delivery services for business has been in operation for 3 years. the following 1. February 10, paid 175 for an advertisement in the local paper to run on February 19 2. February 25, purchased on account 2,500 inventories for the planes Prepare the required journal entry for transactions (1) and (2)

1. Dr _____ADVERTISING EXPENSE_________ 175 Cr_____ CASH_______________________ 175 2. Dr______INVENTORY____________ 2,500 Cr______ACCOUNTS PAYABLE_______ 2,500 21. Colby Corporation has provided the following information ● Operating revenues from customers were 129932 ● Operating expenses for the store were 42881 ● Interest expense was 17824 ● Dividend payments to Colby`s stockholders were 5481 ● Income tax expense was 9168 ● Prepaid rent expense was 1476 How much was Colby`s net income? 12993-42881-17824-9168=60059 Answer: 60059 22. Toby toy Store noticed the following items that need to be considered for its income statement for the year ended December 31, 2016 ● Commissions of 15094 for salespeople who made sales in December will be paid January 3, 2017 ● The phone bill of 695 for December was received and will be paid JANUARY 20, 2017 ● The store rent of 12123 for January, 2017 was paid on december 28, 2016 ● At the beginning of November, Toby paid 1,500 for advertising in a monthly magazine that is distributed in november and December of 2016, and January of 2017 What is the proper amount of expenses to be included in the income statement for the year? Commission 15094+ phone bill 695+1500*2/3 = 16789 Answer: 16789 23. Lay perfect Pillow Company sells specialty pillows and accessories to customers. Its fiscal year ends on December 31. The following transactions occurred in the current year a. Purchased 250,000 of new pillow inventory on account b. paid employees 180,300 in wages for work during the month a. Dr________INVENTORY_________250,000 Cr__________ACCOUNTS PAYABLE___250,000 b. Dr_______ WAGES EXPENSE_______180,300 Cr__________СASH________________180,300 24. On July 1, 2016, Allen Company signed a $150,000, one-year, 6 percent note payable. The principal and interest will be paid on June 30, 2017. How much interest expense should be reported on the income statement for the year ended December 31, 2016?

Correct answer is D, $4,500 $150,000 x 6% = $9,000 (Annual expense) $9,000 x 6/12 = $4,500 (interest from July 1, 2016 to December 1, 2016 25. Which of the following adjusting journal entries is created as the result of an accrual? A. Wages expense

XXX

Wages payable

XXX

B. Prepaid Rent

XXX

Rent expense

XXX

C. Accounts receivable

XXX

Unearned revenue

XXX

D. Depreciation expense Accumulated depreciation

XXX XXX

27. On october 1, 2019. Donna equipment signed a one-year, 8% interest-bearing note payable for 63082. assuming that Donna /// books on a calendar year basis, how much interest expense should be reported in the 2020 income statement. Anser: 63082*0,08*9=45419,09 28. Which of the following statements is incorrect? A. Cost of goods available for sale will always be equal to or greater than cost of goods sold B. Ending inventory is greater than beginning inventory when purchases are less than cost of goods sold C. Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory D. Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold 29. Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was 14627 and year-end balance was 17132 The additional paid-in capital account balance increased 1331 during the year The retained earnings balance at the beginning of the year was 24104 and the year-end balance was 26485

Net income 7670 How much were Superior`s dividend declarations during its recent year of operations? Answer: 24104+7670-26485=5289 30. Which of the following statements is correct? A. LIFO reports the same amount of net income as FIFO when unit costs are increasing B. LIFO reports a higher net income amount than FIFO when unit costs are decreasing C. LIFO reports a higher net income amount than FIFO when unit costs are increasing D. FIFO reports lower net income amounts than LIFO when unit costs are increasing 31. The CHS Company has provided the following information: Accounts receivable written-off as uncollectible during the year amounted to 11549 The accounts receivable balance at the beginning of the year was 153052 The accounts receivable balance at the end of the year was 216218 The allowance for doubtful accounts balance at the beginning of the year was 14613 The allowance for doubtful accounts balance at the end of the year after the recording of bad debt expense was 12661 Credit sales during the year totaled 868995 How much was CHS Company's bad debt expense? Answer: 12661=14613-11549+Bad debt expense 12661=3064+BDE BDE=9597 32. Which of the following describes the effect of recording depreciation expense at year-end? A. Net income decreases and total assets decrease B. Net income decreases and total assets increase C. Total assets decrease and stockholders' equity is not affected D. Stockholders' equity is not affected and net income decreases 33. Which of the following journal entries correctly records the collection of an account receivable for which a 1% sales discount was recorded at the time of collection? A. Cash

xxx

Sales discounts

xxx

Accounts receivable

xxx

B. Cash

xxx

Bad debt expense

xxx

Accounts receivable C.

xxx

Cash

xxx

Gross profit

xxx

Accounts receivable

xxx

D. Cash

xxx

Sales discounts

xxx

Accounts receivable

xxx

34. Tigers company’s total stockholder’s equity at the beginning of the year was $21674. During the year Tiger reported the following: Net Income of $15908 Dividend declarations totaling $2792 Issued stock to stockholders in exchange for $16398 Borrowed $14212 from a stockholder What is Tiger’s total stockholder’s equity at the end of the year? 21674+15908-2792+16398=51188 35. During 2016, Sigma Company earned service revenue amounting to $140451, of which $71394 was collected in cash; the balance will be collected in January, 2017. Also in 2016 there were collections of cash prior to the delivery of goods/services totaling $40530. What amount should the 2016 income statement report for service revenue? $140451 Since the total service revenue earned is $140451 and the same is to be shown in the income statement as it records all the cash and credit sales or service revenue Therefore, the total amount i.e $140451 is reported on the income statement 36. Lantz Company has provided the following information: ● ●

cash sales totaled $164479 credit sales totaled $86290

●

cash collections from customers for services yet to be provided totaled $22219

●

interest income was $16290

●

interest expense was $12098

●

supplies expense was $22879

●

rent expense for the store was $31248

● ●

wages expense was $51964 other operating expenses totaled $23101

●

unearned revenue was $25778

What is the amount of Lantz’s income before income taxes? operating revenues=164479+86290=250769 operating expenses=22879+31248+51964+23101=129192 operating income=250769-129192=121577 income before taxes=121577+16290-12098=125769

37. Nittany Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 1: Inventory, December 31, prior year 317 units 6$ each For the current year: Purchase, March 12 508 units 10$ each Purchase, August 18 536 units 13$ each Inventory, December 31, current year 178 units Required: Compute cost of goods sold for the current year under LIFO costing method. Ending inventory: 178*6=1068, Cost of available goods: 317*6+508*10+536*13=13950, Cost of goods sold: 13950-1068=12882 40. A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-line basis of $2,700 per year. The residual value was estimated to be 10% of cost. The estimated useful life is A.6 years. B.5 years. C.3 years. D.4 years. Residual value=15000*0.1=1500, 2700=(15000-1500)/life, life=5 41. On January 1, 2019, Woodstock, Inc. purchased a machine costing $40825. Woodstock also paid $1067 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5733. What is the December 31, 2020 book value, if Woodstock uses the straight-line depreciation method? Round your final answer to the nearest whole dollar amount. Depreciation=(40825+1067-5733)/6=6026.5, accumulated depreciation = 6026.5*2=12053, net book value=40825+1067-5733-12053=24106 42. On October 1, 2019, Donna Equipment signed a one-year, 8% interest-bearing note payable for $50,000. Assuming that Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2020 income statement? Answer: Interest expense should be reported in the 2020 income statement $3,000 Explanation: Notes payable amount $ 50,000.00 1 year interest 8% (50000 x 8%) $ 4,000.00 Less: Interest for 2019 for 3 months (4000/12*3) $ 1,000.00 Interest expense for 2020 $ 3,000.00 42. 1. Dodie Company completed its first year of operations on December 31. All of the year's entries have been recorded except for the following: a. At year-end, employees earned wages of $4,000, which will be paid on the next payroll date in January of next year. b. At year-end, the company had earned interest revenue of $1,500. The cash will be collected March 1 of the next year.

2. A+T Williamson Company is making adjusting entries for the year ended December 31 of the current year. In developing information for the adjusting entries, the accountant learned the following: a. A two-year insurance premium of $4,800 was paid on October 1 of the current year for coverage beginning on that date. The bookkeeper debited the full amount to Prepaid Insurance on October 1. b. At December 31 of the current year, the following data relating to Shipping Supplies were obtained from the records and supporting documents. Shipping supplies on hand, January 1 of the current year $ 13,000 Purchases of shipping supplies during the current year 75.000 Shipping supplies on hand, counted on December 31 of the current year 20,000 Required: For each of the transactions in Dodie Company and A+T Williamson Company, indicate the amount and the direction of effects of the adjusting entry on the elements of the balance sheet and income statement. (Enter negative amounts with a minus sign.) Answer :

(2a). Insurance expense for 3 months = 4,800 x 3/24 = $600 (2b). Supplies expense = Beginning supplies + Supplies purchased - Ending supplies = 13,000 + 75,000 - 20,000 = $68,000 43. The income statement is a measure of an entity's economic performance for a period of time. TRUE 44. Equipment held for use are depreciated annually to reflect its market value in the balance sheet. FALSE 45. An audit examines the financial statements provided by management to ensure that they represent what they claim and to make sure that they are in compliance with Generally Accepted Accounting Principles TRUE 46. Borrowing money is an investing activity. FALSE

47. Revenue is recognized within the income statement during the period in which cash is collected. FALSE 48. The accounting equation states that Assets = Liabilities + Stockholders' Equity. TRUE 49. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because these disclosures provide useful supplemental information. TRUE 50. The financial statement that shows an entity's economic resources and claims against those resources is the balance sheet. TRUE 51. The amount of cash paid by a business for dividends would be reported as an operating activity cash flow on the statement of cash flows. FALSE 52. A company's retained earnings balance increased $50,000 last year; therefore, net income last year must have been $50,000. FALSE 53. Due to the relationships among financial statements, the statement of stockholders' equity links the income statement to the balance sheet. TRUE 54. The statement of stockholders' equity explains the change in the retained earnings balance caused by stockholder investments and dividend declarations. FALSE 55. The Financial Accounting Standards Board (FASB) has been given the authority by the Securities and Exchange Commission (SEC) to develop generally accepted accounting principles. TRUE 56. If a U.S. domestic company does business in a foreign country, the Securities and Exchange Commission (SEC) requires the use of International Financial Reporting Standards (IFRS) for the company's financial reporting in the U.S. FALSE 57. In the United States, generally accepted accounting principles are published in the FASB Accounting Standards Codification. TRUE 58. The primary responsibility for the content of the financial statements lies with the external auditor. FALSE 59. An audit is an examination of the financial statements to ensure that they represent what they claim and to make sure that they are in compliance with generally accepted accounting principles. TRUE 60. The auditor can be held liable for malpractice in situations where the investors suffered losses while relying on the financial statements. TRUE 61. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners. TRUE

62. Which of the following statements is correct: A. Balance sheet accounts are permanent accounts and do not retained their balances from one period to the next B. Balance sheet accounts are temporary accounts and do retained their balances from one period to the next C. Income statements accounts are temporary accounts and do not retained their balances from one period to the next D. Income statements accounts are permanent accounts and do retained their balances from one period to the next 63. Which of the following doesn’t correctly describe the following journal ...