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Accounting Quiz

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Part One: Balance Sheet and Income Statement Classifications.
Specify on the answer sheet the letter of the financial statement classification the account would appear in. Use only the classifications shown.

Balance Sheet Income and Retained Earnings Statement
a. Current Assets j. Sales Revenue
b. Investments k. Cost of Goods Sold
c. Property, Plant, and Equipment l. Operating Expenses
d. Intangible Assets m. Other Revenues and Gains
e. Other Assets n. Other Expenses and Losses
f. Current Liabilities o. Extraordinary Item
g. Long-term Debt p. Retained Earnings Section
h. Capital Stock q. Not on the Statements
i. Retained Earnings

Account balances taken from the ledger of Morin Company on December 31, 2005 follow:

1. Capital Stock, $10 par

2. Loss on Sale of Equipment

3. Land

4. Notes Payable?Short Term

5. Accum. Depreciation?Buildings

6. Mortgage Payable due 2007

7. Sales

8. Dividends Declared and Paid

9. Merchandise Inventory

10. Salaries and Wages Expense

11. Merchandise on order with supplier

12 Interest Revenue

13. Accounts Payable

14. Long-Term Investments

15. Accounts Receivable

16. Error made in computing 2003 depreciation expense

Part Two ? Key Conceptual Terms.
Various accounting assumptions, principles, constraints, and characteristics are listed below. Select those which best justify the following accounting procedures and indicate the corresponding letter(s) in the answer sheet provided. A letter may be used more than once or not at all.
a. Historical cost f. Economic entity k. Revenue recognition
b. Relevance g. Materiality l. Full disclosure
c. Monetary unit h. Conservatism m. Substance over form
d. Going concern i. Periodicity n. Industry practices
e. Consistency j. Matching o. Reliability

1. Using the lower of cost or market approach in valuing inventories.
2. Describing the depreciation methods used in the financial statements.
3. Applying the same accounting treatment to similar accounting events.
4. The quality which helps users make predictions about present, past, and future events.
5. Recording a transaction when goods or services are exchanged for cash or claims to cash.
6. Expensing, when acquired, metal office wastebaskets having a life of ten years.
7. Provides the figure at which to record a liability.
8. The preparation of timely reports on continuing operations.
9. Not reporting assets at liquidation prices (do not use "historical cost").
10. Reporting information which is faithfully representative of economic events.

Part Three ? Multiple Choice Questions. Specify on the answer sheet the best choice.

1. Which of the following transactions would be considered a financing activity in preparing a statement of cash flows?
a. Amortizing a discount on bonds payable
b. Recording net income from operations
c. Selling common stock
d. Purchasing inventory

2. The net income for the year ended December 31, 2004, for Ryan Company was $720,000. Additional information is as follows:

Capital expenditures $1,200,000
Depreciation on plant assets 450,000
Cash dividends paid on common stock 180,000
Increase in noncurrent deferred tax liability 45,000
Amortization of patents 21,000

Based on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2004?
a. $1,056,000.
b. $1,146,000.
c. $1,191,000.
d. $1,236,000.

3. Information concerning the debt of Dickey Company is as follows:
Short-term borrowings:
Balance at December 31, 2004 $525,000
Proceeds from borrowings in 2005 325,000
Payments made in 2005 (450,000)
Balance at December 31, 2005 $400,000
Current portion of long-term debt:
Balance at December 31, 2004 $1,625,000
Transfers from caption "Long-Term Debt" 500,000
Payments made in 2005 (1,225,000)
Balance at December 31, 2005 $ 900,000
Long-term debt:
Balance at December 31, 2004 $9,000,000
Proceeds from borrowings in 2005 2,250,000
Transfers to caption "Current Portion of Long-Term Debt" (500,000)
Payments made in 2005 (1,500,000)
Balance at December 31, 2005 $9,250,000

In preparing a statement of cash flows for the year ended December 31, 2005, for Dickey Company, cash flows from financing activities would reflect
Inflow Outflow
a. $2,000,000 $2,000,000
b. $2,250,000 $2,250,000
c. $2,650,000 $2,575,000
d. $2,575,000 $3,175,000

4. How does failure to record accrued revenue distort the financial reports?
a. It understates revenue, net income, and current assets.
b. It understates net income, stockholders' equity, and current liabilities.
c. It overstates revenue, stockholders' equity, and current liabilities.
d. It understates current assets and overstates stockholders' equity.

5. On June 15, 2004 Greer Corporation accepted delivery of merchandise which it purchased on account. As of June 30 Greer had not recorded the transaction or included the merchandise in its inventory. The effect of this error on its balance sheet for June 30, 2004 would be
a. assets and stockholders' equity were overstated but liabilities were not affected.
b. stockholders' equity was the only item affected by the omission.
c. assets and liabilities were understated but stockholders' equity was not affected.
d. assets and stockholders' equity were understated but liabilities were not affected.

6. Notes to financial statements should not be used to
a. describe the nature and effect of a change in accounting principles.
b. identify substantial differences between book and tax income.
c. correct an improper financial statement presentation.
d. indicate basis for asset valuation.

7. The occurrence which most likely would have no effect on 2004 net income (assuming that all amounts involved are material) is the
a. sale in 2004 of an office building contributed by a stockholder in 1980.
b. collection in 2004 of a receivable from a customer whose account was written off in 2003 by a charge to the allowance account.
c. settlement based on litigation in 2004 of previously unrecognized damages from a serious accident which occurred in 2002.
d. worthlessness determined in 2004 of stock purchased on a speculative basis in 2000.

8. Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes?
a. Only if floods in the geographical area are unusual in nature and occur infrequently.
b. Only if the flood damage is material in amount and could have been reduced by prudent management.
c. Under any circumstances as an extraordinary item.
d. Flood damage should never be classified as an extraordinary item.

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Solution Preview

Part One: Balance Sheet and Income Statement Classifications.
Specify on the answer sheet the letter of the financial statement classification the account would appear in. Use only the classifications shown.

Balance Sheet Income and Retained Earnings Statement
a. Current Assets j. Sales Revenue
b. Investments k. Cost of Goods Sold
c. Property, Plant, and Equipment l. Operating Expenses
d. Intangible Assets m. Other Revenues and Gains
e. Other Assets n. Other Expenses and Losses
f. Current Liabilities o. Extraordinary Item
g. Long-term Debt p. Retained Earnings Section
h. Capital Stock q. Not on the Statements
i. Retained Earnings

Account balances taken from the ledger of Morin Company on December 31, 2005 follow:

1. Capital Stock, $10 par (h)

2. Loss on Sale of Equipment (n)

3. Land (c)

4. Notes Payable?Short Term (f)

5. Accum. Depreciation?Buildings (c)

6. Mortgage Payable due 2007 (g)

7. Sales (j)

8. Dividends Declared and Paid (p)

9. Merchandise Inventory (a)

10. Salaries and Wages Expense (l)

11. Merchandise on order with supplier (q)

12 Interest Revenue (m)

13. Accounts Payable (f)

14. Long-Term Investments (b)

15. Accounts Receivable (a)

16. Error made in computing 2003 depreciation expense (o)

Part Two ? Key Conceptual Terms.
Various accounting assumptions, principles, constraints, and characteristics are listed below. Select those which best justify the following accounting procedures and indicate the corresponding letter(s) in the answer sheet provided. A letter may be used more than once or not at all.
a. Historical cost f. Economic entity k. Revenue recognition
b. Relevance g. Materiality l. Full disclosure
c. Monetary unit h. Conservatism m. Substance over form
d. Going concern i. Periodicity n. Industry practices
e. Consistency j. Matching o. Reliability

n 1. Using the lower of cost or market approach in valuing inventories.
l 2. Describing the depreciation methods used in the financial statements.
e 3. Applying the same accounting treatment to similar accounting events.
CONSISTENCY is using the same accounting procedures by an accounting entity from period to period.
b 4. The quality which helps users make predictions about present, past, and future events.
RELEVANCE CONCEPT refers to the capacity of ...

Solution Summary

This solution is comprised of a detailed explanation to specify on the answer sheet the letter of the financial statement classification the account would appear in and select those which best justify the following accounting procedures and indicate the corresponding letter(s) in the answer sheet provided.

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Accounting Practice Quiz

At March 31, 2010, the end of the first year of operations at Jaryd, Inc., the firm's accountant neglected to accrue payroll taxes of $2,737 that were applicable to payrolls for the year then ended.

1.

Requirement 1:
(a) Prepare the horizontal model to show the effect of the accrual that should have been made as of March 31, 2010. (+ for increase, - for decrease and NE for no effect).

Balance Sheet Income Statement
________________________________________ ________________________________________
Assets = Liabilities + Owners' Equity ← Net income = Revenues - Expenses

________________________________________
check my workeBook Link references
Worksheet Difficulty: Easy

2.

(b) Record the journal entry to show the effect of the accrual that should have been made as of March 31, 2010.(Omit the "$" sign in your response.)

Date General Journal Debit Credit
3/31/10

________________________________________
check my workeBook Link references
Worksheet Difficulty: Easy

3.

Requirement 2:
Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2010.

Effect on expense

Effect on net income

Effect on current liabilities

Effect on retained earnings

________________________________________

check my workeBook Link references
Worksheet Difficulty: Easy

4.

Requirement 3:
Assume that when the payroll taxes were paid in April 2010, the payroll tax expense account was charged. Assume that at March 31, 2011, the accountant again neglected to accrue the payroll tax liability, which was $3,167 at that date. Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2011. (Omit the "$" sign in your response.)

(a) Effect on net income for year ended 3/31/11:

Net effect is that expense this year is $ too , and profits this year are
$ too .

(b) Effect on the 3/31/11 balance sheet:

Current liabilities are $ , and retained earnings is $
.

Manco Co. issued $4 million face amount of 9%, 10-year bonds on June 1, 2010. The bonds pay interest on an annual basis on May 31 each year.

5.

Required:
(a) Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount?

The bonds will sell for less than their face amount.

The bonds will sell for more than their face amount.

The bonds will sell for equal to their face amount.

9.

On March 1, 2005, Joe purchased $60,000 of White Co.'s 6%, 17-year bonds at face value. White Co. has paid the annual interest due on the bonds regularly. On March 1, 2010, market interest rates had risen to 10%, and Joe is considering selling the bonds.

Required:
Using the present value tables (Table 6-4 and Table 6-5), calculate the market value of Joe's bonds on March 1, 2010. (Round pv factor to 4 decimal places and the final answer to 2 decimal places. Omit the "$" sign in your response.)

Market value $

Use the following transactions.

a. Income tax expense of $897 for the current period is accrued. Of the accrual, $255 represents deferred income taxes.

b. Bonds payable with a face amount of $7,400 are issued at a price of 97.
c. Of the proceeds from the bonds in part b, $5,650 is used to purchase land for future expansion.
d. Because of warranty claims, finished goods inventory costing $139 is sent to customers to replace defective products.

e. A three-month, 11% note payable with a face amount of $16,500 was signed. The bank made the loan on a discount basis.
f. The next installment of a long-term serial bond requiring an annual principal repayment of $31,000 will become due within the current year.

10.

Required:
(a) Show the effect, if any, of each transaction/adjustment on the appropriate balance sheet category or on net income by entering for each category affected the account name and amount, and indicating whether it is an addition (+) or a subtraction (-) or no effect (NE). Items that affect net income should not also be shown as affecting owners' equity.

Transaction/ Adjustment Current Assets Noncurrent Assets Current Liabilities Noncurrent Liabilities Owners' Equity Net Income
a.

b.

c.

d.

e.

f.

________________________________________

11.

(b) Record the journal entries to show each transaction/adjustment. (Omit the "$" sign in your response.)

Events General Journal Debit Credit

a.

b.

c.

d.

e.

f.

________________________________________
On November 1, 2010, Gordon Co. collected $6,540 in cash from its tenant as an advance rent payment on its store location. The six-month lease period ends on April 30, 2011, at which time the contract may be renewed.

12.

Requirement 1:
(a) Prepare the horizontal model to record the effect of the six months rent collected in advance on November 1, 2010 for Gordon Co. (+ for increase, - for decrease and NE for no effect).

Balance Sheet Income Statement
________________________________________ ________________________________________
Assets = Liabilities + Owners' Equity ← Net income = Revenues - Expenses

________________________________________

(b) Prepare the horizontal model to record the effect of the adjustment that will be made at the end of every month to show the amount of rent "earned" during the month for Gordon Co. (+ for increase, - for decrease and NE for no effect).

Balance Sheet Income Statement

________________________________________ ________________________________________
Assets = Liabilities + Owners' Equity ← Net income = Revenues - Expenses

________________________________________
13.

(c) Record the journal entry to show the effect of the six months rent collected in advance on November 1, 2010 for Gordon Co. (Omit the "$" sign in your response.)

General Journal Debit Credit

________________________________________

(d) Record the journal entry to show the effect of the adjustment that will be made at the end of every month to show the amount of rent "earned" during the month for Gordon Co. (Omit the "$" sign in your response.)

General Journal Debit Credit

________________________________________

14.

Requirement 2:
Calculate the amount of unearned rent that should be shown on the December 31, 2010, balance sheet with respect to this lease. (Omit the "$" sign in your response.)

Unearned rent $

15.

Requirement 3:
Suppose the advance collection received on November 1, 2010, covered an 30-month lease period at the same amount of rent per month. How should Gordon Co. report the unearned rent amount on its December 31, 2010, balance sheet? (Omit the "$" sign in your response.)

Current liability $

Noncurrent liability $

________________________________________

On January 1, 2010, Taught Inc., issued $12 million face amount of 20-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay interest semiannually each June 30 and December 31 and mature on December 31, 2029.

16.

Required:
(a) Using the present value tables (Table 6-4 and Table 6-5), calculate the proceeds (issue price) of Taught Inc.'s, bonds on January 1, 2010, assuming that the bonds were sold to provide a market rate of return to the investor. (Round pv factor to 4 decimal places and the final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Proceeds $

17.

(b) Assume instead that the proceeds were $12,453,000. Prepare the horizontal model to record the payment of semiannual interest and the related premium amortization on June 30, 2010, assuming that the premium of $453,000 is amortized on a straight-line basis. (+ for increase, - for decrease and NE for no effect).

Balance Sheet Income Statement

________________________________________ ________________________________________
Assets = Liabilities + Owners' Equity ← Net income = Revenues - Expenses

________________________________________

18.

(c) Assume instead that the proceeds were $12,453,000. Record the journal entry to show the payment of semiannual interest and the related premium amortization on June 30, 2010, assuming that the premium of $453,000 is amortized on a straight-line basis. (Omit the "$" sign in your response.)

General Journal Debit Credit

________________________________________

check my workeBook Link references
Worksheet Difficulty: Hard

19.

(d) If the premium in part (b) were amortized using the compound interest method, would interest expense for the year ended December 31, 2010, be more than, less than, or equal to the interest expense reported using the straight-line method of premium amortization?

Interest expense will be the same.

Interest expense will be less.

Interest expense will be more.

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