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Final PHYS 204 Accounting Examination
Questions with Answer.
On June 1 of Year 1 Doe Company paid $1,800 cash for an insurance policy that would protect the company for one year. The company's fiscal closing date is December 31. Based on this information alone, the amount of prepaid insurance and insurance expense shown on the Year 2 financial statements would be - Correct Ans: ✔✔Prepaid Insurance: zero Insurance Expense: $ Which of the following shows how the event "collected cash for services to be rendered in the future" affects a company's financial statements? - Correct Ans: ✔✔+ + NA | NA NA NA | +OA Which of the following accounts would most likely need to be adjusted at the end of an accounting cycle? - Correct Ans: ✔✔Supplies On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This event is - Correct Ans: ✔✔An asset exchange transaction Paying cash to purchase inventory is - Correct Ans: ✔✔an asset exchange transaction.
Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n (2) Returned 1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1 Immediately after the three events have been recognized, the balance in the inventory account is - Correct Ans: ✔✔$3,
- ($5,000 original cost - $1,000 purchase return - $40 cash discount) Zack's, Inc. sold land that cost $85,000 for $70,000 cash. As a result of this event - Correct Ans: ✔✔Total assets decreased At the beginning of Year 2, Donald company had $5,000 of inventory on hand. During the accounting period, Donald purchased inventory costing $25,000 and sold inventory for $32,000. Operating expenses were $2,000 during the accounting period. A physical count of inventory on December 31, Year 2 revealed $4,000 of inventory on hand. Based on this information, cost of goods sold is - Correct Ans: ✔✔26, *Cost of goods sold is $26,000 ($30,000 cost of goods available for sale
- $4,000 ending inventory).
Rex Company's bank statement shows a $200 NSF check. To determine the true cash balance the - Correct Ans: ✔✔amount of the NSF check must be subtracted from the unadjusted book balance. Home Accessories' bank statement showed a $120 NSF check. Which of the following shows how recognizing this check will affect Home Accessories' financial statements? - Correct Ans: ✔✔(120) + 120 = NA NA | NA NA NA | (120) OA A strong set of internal controls is designed to minimize which of the following factors that motivate fraud? - Correct Ans: ✔✔Opportunity Which of the following is a widely recognized source of pressure to commit fraud in the business environment? - Correct Ans: ✔✔Intimidation from superiors An unqualified audit opinion suggests that all aspects financial statements are in compliance with generally accepted accounting principles (GAAP). This statement is - Correct Ans: ✔✔False Which of the following opinions is the least favorable opinion issued by an external auditor? - Correct Ans: ✔✔Adverse opinion On November 1, Year 1 Cove Company borrowed $7,000 cash to from Shelter Company. The one-year note carried a 7% rate of interest.
Which of the following shows how the loan will affect Cove's financial statements on November 1, Year 1? - Correct Ans: ✔✔7000 = 7000 + NA | NA NA NA | 7000 FA Accrued interest expense will appear on the income statement but not on the statement of cash flows. This statement is - Correct Ans: ✔✔True Clayton Company borrowed $6,000 from the State Bank on April 1, Year
- The one-year note carried a 6% rate of interest. The amount of interest expense that Clayton would report in Year 1 and Year 2, respectively would be - Correct Ans: ✔✔$270, and $ On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one- year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez's financial statements? - Correct Ans: ✔✔NA = 1000 + (1000) | NA - 1000 = (1000) | NA On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one- year note carried a 5% rate of interest. Which of the following shows how the accrual of interest expense in Year 2 will effect Gomez's financial statements? - Correct Ans: ✔✔NA = 1400 + (1400) |NA - 1400 = (1400) | NA
Monthly interest = $1,800 annual interest ÷ 12 months = $ Interest expense in Year 1 = $150 per month × 4 months = $ Since the total amount of interest will be paid on the maturity date in Year 2, the cash flow associated with interest expense in Year 1 is zero. Yang Company sold merchandise for $2,000. The event is subject to a state sales tax of 9%. Based on this information, Yang would be required to - Correct Ans: ✔✔recognize sales tax liability of $180. *($2,000 × 0.09) Yang Company sold merchandise for $2,000 cash. The event is subject to a state sales tax of 9%. Recognizing the sale will require Yang to - Correct Ans: ✔✔Increase: assets, liability, & revenue Yang Company paid $180 cash to settle its sales tax liability. This event will - Correct Ans: ✔✔decrease assets and liabilities. Wilson Company earned $2,000 of cash sales. Sales tax is 6%. Which of the following shows how this event would affect the company's financial statements (ignore the effects of cost of goods sold)? - Correct Ans: ✔✔2120 = 120 + 2000 | 2000 - NA = 2000 | 2120 OA
Which of the following shows how remitting (paying) sales tax will affect the financial statements of the company making the payment? - Correct Ans: ✔✔- - NA |NA NA NA | - OA A contingent liability is an actual obligation arising from a past event. This statement is - Correct Ans: ✔✔False Standard Company has a contingent liability that has a likelihood of actual occurrence that is classified probable. Also, the amount of the liability can be reasonably estimated. Under these circumstances, Standard is required to - Correct Ans: ✔✔recognize a liability and an expense in its financial statements. According to GAAP a contingent liability can be classified as - Correct Ans: ✔✔-probable and estimable.
- reasonably possible, or probable but not estimable.
- remote. *All of the answers describe classifications of contingent liabilities. A company is not required to recognize or disclose a contingent liability that has a remote chance of actually occurring. This statement is - Correct Ans: ✔✔True Homeland Security Systems experienced an event that had the following effects on its financial statements.
sales. Which of the following shows how the year end adjusting entry would affect the company's assets, liabilities, and stockholders' equity?
- Correct Ans: ✔✔Total Assets: NA Liabilities: 3, Stockholders' equity: (3,600) Taylor Tools, Inc. has sales of $200,000 in Year 1. Taylor warrants its products and estimates warranty expense to be 4% of sales. Which of the following shows how the year end adjusting entry would affect the company's assets, liabilities, and cash flow from operating activities? - Correct Ans: ✔✔Total Assets: NA Liabilities: 8000 Cash flow from operating activities: NA Which of the following shows how paying off a warranty obligation will affect a company's financial statements? - Correct Ans: ✔✔- - NA | NA NA NA |-OA Tom Tom Toys, Inc. has sales of $500,000 in Year 1. Tom Tom warrants its products and estimates warranty expense to be 2% of sales. Which of the following shows how the year end adjusting entry for warranty expense would affect the company's financial statements? - Correct Ans: ✔✔NA = 10,000 + (10,000) |NA - 10,000 = (10,000) |NA
When a borrower makes a payment on an installment loan, a portion of the amount paid reduces the principal balance of the note payable. This statement is - Correct Ans: ✔✔True On January 1, Year 1, Barnes Company issued a $100,000 installment note. The note had a 10-year term and an 8 percent interest rate. Barnes agreed to repay the principal and interest in 10 annual payments of $14,903 at the end of each year. The principal balance of the note on January 1, Year 2 is (round your answer to the nearest whole dollar). - Correct Ans: ✔✔$93, 097 *Interest expense for Year 1 = $100,000 × 0.08 = $8, Principal reduction for Year 1= $14,903 - $8,000 = $6, Principal balance end of Year 1 or beginning of Year 2 = $100,000 - $6,903 = $93, On January 1, Year 1, Barnes Company issued a $100,000 installment note. The note had a 10-year term and an 8 percent interest rate. Barnes agreed to repay the principal and interest in 10 annual payments of $14,903 at the end of each year. The amount of interest expense shown on the Year 2 income statement is (round your answer to two decimal places). - Correct Ans: ✔✔$ *Interest expense for Year 1 = $100,000 × 0.08 = $8, Principal reduction for Year 1= $14,903 - $8,000 = $6,
Barton Company has a line of credit with Sea View Bank. Barton can borrow up to $200,000 at any time over the course of Year 2. The following table shows the interest rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 2. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance.
- Correct Ans: ✔✔Based on this information, the amount of interest expense Barton would recognize in January is $ *Interest expense = $25,000 Principal balance × (0.06 annual rate / 12 months) = $ A line of credit normally has a fixed interest rate and a one year term to maturity. This statement is - Correct Ans: ✔✔False Barton Company has a line of credit with Sea View Bank. Barton can borrow up to $200,000 at any time over the course of Year 2. The following table shows the interest rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 2. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance.
- Correct Ans: ✔✔Based on this information, the amount of interest expense Barton would recognize in February is $
*Principal balance = $25,000 - $5,000 = $20, Interest expense = $20,000 Principal balance × (0.09 annual rate / 12 months) = $ Which of the following has a single owner? - Correct Ans: ✔✔Sole proprietorship Which of the following entities receives cash when a company borrows money through a bond issue? - Correct Ans: ✔✔Issuer If investors require more interest than the rate of interest stated in a bond, the bond must be sold at a discount in order to motivate the investor to purchase the bond. This statement is - Correct Ans: ✔✔True On January 1, Year 1 Residence Company issued bonds with a $50, face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%. Based on this information, the carrying value of the bond liability on January 1, Year 1 is - Correct Ans: ✔✔$48, *[($50,000 - ($50,000 × 0.04)]
The Redwood Company determined that its balance in its Accounts Receivable account represented 23% of total assets and that cost of goods sold represented 38% of total revenue. These findings are the result of - Correct Ans: ✔✔vertical analysis. In a business organized as a sole proprietorship, retained earnings and capital acquired from owners are combined is a single account. This statement is - Correct Ans: ✔✔True Percentage analysis sidesteps the materiality problems of comparing different size companies by measuring changes in percentages rather than absolute amounts. This statement is - Correct Ans: ✔✔true. Alpha Associates was organized on January 1, Year 1. Alpha was organized as a corporation. Alpha reported $200,000 of before tax income during Year 1 and paid a $30,000 cash dividend to its stockholders. Assuming a corporate income tax rate of 30% and a personal income tax rate of 15%, the total amount of tax collected by the government is - Correct Ans: ✔✔$64,500. Alpha Corporation was organized on January 1, Year 1. Alpha reported $200,000 of before tax income during Year 1 and paid a $30,000 cash dividend to its stockholders. Assuming a corporate income tax rate of 30% and a personal income tax rate of 15%, the after closing balance in the retained earnings account of December 31, Year 1 is - Correct Ans: ✔✔$110,000.
Horizontal analysis compares financial statement data across two or more accounting periods. This statement is - Correct Ans: ✔✔true. Partnerships are frequently managed by the owners of the business. This statement is - Correct Ans: ✔✔True Alpha Associates was organized on January 1, Year 1. Alpha was organized as a partnership. Alpha reported $200,000 of before tax income during Year 1 and the partners withdrew $30,000 from the company. Assuming a corporate income tax rate of 30% and a personal income tax rate of 15%, the total amount of tax collected by the government is - Correct Ans: ✔✔$30,000. Which of the following first required corporations to file quarterly and annual financial statements that are prepared in accordance with Generally Accepted Accounting Standards? - Correct Ans: ✔✔Securities Act of 1934 Which of the following is a disadvantage of a corporate form of business? - Correct Ans: ✔✔Double taxation Which of the following is an accurate definition of the term asset? - Correct Ans: ✔✔A resource that will be used to produce revenue
Which of the following shows how paying cash to reduce long-term liabilities will affect a company's financial statements? - Correct Ans: ✔✔- - NA | NA NA NA | - FA When a company collects cash from accounts receivable, - Correct Ans: ✔✔total assets are not affected. If a company recognizes $5,000 of accrued salary expense on December 31, Year 1, - Correct Ans: ✔✔-on January 1, Year 2 there will be a zero balance in the Accrued Salaries Expense account.
- on January 1, Year 2 there will be a $5,000 balance in the Accrued Salaries Payable account.
- the December 31, Year 1 expense recognition will not affect the cash account. *All of the answers are correct. Knoll Company started Year 2 with a $500 in cash, $500 in supplies, and $1,000 in common stock accounts. During Year 2 the company experienced the following events. (1) Paid $400 cash to purchase supplies. (2) Physical count revealed $100 of supplies on hand at the end of Year
Based on this information the amount of supplies expense reported on the Year 2 income statement is - Correct Ans: ✔✔$
