Business - Accounting And Taxation, Quiz Level 2

1

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NAPierce Co. paid $40,000 cash to purchase land.Assets=Liabilities+Common Stock+Retained Earnings

2

Degeare Corporation's balance sheet and income statement appear below:Comparative Balance Sheet Ending BalanceBeginning BalanceAssets: Current assets: Cash and cash equivalents$35 $28 Accounts receivable 65 77 Inventory 47 40 Total current assets 147 145 Property, plant, and equipment 518 490 Less accumulated depreciation 233 213 Net property, plant, and equipment 285 277 Total assets$ 432 $ 422 Liabilities and stockholders' equity: Current liabilities: Accounts payable$61 $54 Accrued liabilities 15 16 Income taxes payable 36 35 Total current liabilities 112 105 Bonds payable 72 100 Total liabilities 184 205 Stockholders' equity: Common

3

A publicly traded company in the United States does not come under Securities and Exchange Commission regulations as long as it follows the rules of GAAP

4

Unlike tangible products, services have the characteristic of intangibility. This means that services cannot be seen, touched, or heard by the consumer before purchase

5

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities in the same manner as a C corporation

6

(Ignore income taxes in this problem.) Ramson Corporation is considering purchasing a machine that would cost $756,000 and have a useful life of 8 years. The machine would reduce cash operating costs by $132,632 per year. The machine would have a salvage value of $151,200 at the end of the project.Required:a. Compute the payback period for the machine.b. Compute the simple rate of return for the machine.

7

Monroe’s delivery truck is damaged in an accident. His adjusted basis for the delivery truck prior to the accident is $20,000. If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000, his adjusted basis for the delivery truck after the accident is $21,000.

8

Interest calculated on the original principal regardless of the number of time periods that have passed or the amount of interest that has been paid or accrued in the past is

9

Total fixed costs remain unchanged with levels of production

10

In the data flow diagram below, a customer order must be approved before the company checks to make sure the inventory is available

11

Intangible assets are usually reported on the balance sheet in a separate section immediately following ________

12

Fraudulent sales are occasionally recorded at year-end as a means of overstating financial results. As examples, companies may engage in inappropriate bill and hold transactions or channel stuffing.a. Describe two conditions that might indicate the recording of fraudulent sales.b. Define bill and hold transactions and describe the audit significance of such transactions.c. Define channel stuffing and describe the audit significance of this practice.

a. The following conditions may indicate the recording of fraudulent transactions:
Unusually large increases in year-end sales to a single customer or a few.
Large increases in revenue and receivables along with increases in gross profit margins that are inconsistent with the client's experience or industry averages.
Inappropriate changes in accounting principles that result in an increase in recorded revenue.
Substantial sales returns following the balance sheet date.
b. Bill and hold transactions are sales that are billed but goods are not shipped. The audit significance is that stringent accounting requirements must be met for the transaction to qualify as sales.

c. Channel stuffing involves providing large inducements to resellers to buy substantially more inventory than they can resell in a normal period of time. The audit significance is that an adequate allowance for sales returns must be established to appropriately account for the transactions.

13

No dividend can be paid unless the dividend is declared by the chief executive officer of the corporation

14

Flexible budgeting is a reporting system wherein the:

15

Conversion cost equals product cost less direct materials cost.

16

The federal government agency with the ultimate authority to determine the rules in preparing statements for companies whose stock is sold to the public is the __________________________________________________

17

Qualified dividends are given special tax treatment. Describe how they are taxed

18

Describe the factors involved in communicating useful financial information.

Answers will vary
The primary factors involved in communicating useful information include the following: understanding who the users are, knowing for what purpose the information will be used, and understanding the process by which the information is analyzed. According to the FASB, financial statement information should be understandable to a person with a reasonable knowledge or one who has the capacity and willingness to achieve a reasonable knowledge of business. Financial statements are general purpose statements, meaning they are prepared for use by a wide variety of parties rather than being aimed at one specific group. Because of this, some disclosed information may be irrelevant to some users but vital to others. Finally, because of the many categories of users, the different levels of knowledge, the varying needs of users, and the general nature of financial statements, users must be prepared to apply a wide variety of analysis techniques to fully understand the information received.

19

Indicate whether each of the following statements is true or false.Short-term plans are more specific and detailed than long-term plans.Short-term planning focuses on the operations of a business for the next two to three years.A decision to lease equipment would be part of a company's capital budgeting process.The master budget focuses on long-term objectives and goals.The master budget normally covers a period of one quarter.

20

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the first semiannual interest payment, assuming it uses the straight-line method of amortization.

21

Zenith Fashions uses standard costs for their manufacturing division

22

In a firm that has a good system of internal control, cash receipts are deposited often.

23

Anzelmo Corporation invested in Jones Manufacturing by purchasing a 10% interest in the company. Anzelmo had no significant influence in Jones. Over time, Anzelmo acquired more shares in Jones, and in 2016, Anzelmo's president became a member of the board of directors when its ownership interest reached 30% of Jones. The cost basis of their investment is $2,000,000. Under the equity method, the

24

Which of the following situations does not require Empire Company to record an adjusting entry at the end of January?

25

The total overhead cost variance is equal to the difference between

26

What are three reasons that overhead must be allocated to products?

27

Briefly define an operating system

28

Which of the following statements about property dividends is not true?

29

Trimble Graphic Design receives $1,500 from a client billed in a previous month for services provided. Which of the following general journal entries will Trimble Graphic Design make to record this transaction?

30

Sweet Treats Bakery had accounts payable of $19,400 and cost of goods sold of $308,400. The days' payable outstanding for Sweet Treats Bakery is:

31

The owners' equity of a business is equal to:

32

Statements that show the financial statements as if proposed transactions had already occurred are called:

33

Ideally, if a department has more than one cost-allocation base for overhead costs, it should ________

34

Accumulated depreciation is a/an:

35

If the inventory shows an actual count of $385 and the perpetual inventory according to the records shows $415, the adjusting entry for the $30 would:

36

For new employees, information and forms must be completed. Prepare the W-4 (ANY YEAR) and I-9 for Mary only.

37

Last year, East Corporation reported basic and diluted EPS in an amount less than basic EPS due to outstanding stock options. Those options were exercised on January 1 of the current year. During the current year, East Corporation had 2 million shares of common stock outstanding. Two thousand 10% convertible bonds, each with $1,000 face value, were issued at face amount at the beginning of the year. East reported net income of $2 million for the year. Each bond is convertible into 10 shares of common stock. The tax rate is 25%. What is diluted EPS (rounded)?

38

In which columns of a work sheet would the adjusted balance of Accumulated Depreciation appear?

39

Refer to the information above. What was the ending inventory for the month?

40

Under FMLA, the time off must be used in one uninterrupted period of time

41

Explain the difference between Prepaid Rent and Unearned Revenue.

42

Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account.Debit or CreditA.An increase in Savannah Smith, DrawingB.A decrease in Cash C.An increase in Fee Income D.A decrease in Supplies E.A decrease in Office Equipment F.An increase in Delivery Equipment G.An increase in Utilities Expense H.An increase in Prepaid Rent I.A decrease in Accounts Payable J.An increase in Savannah Smith, Capital K. An increase in Salaries Expense

43

The purpose of an A/R aging report is:

44

An auditor's analysis of specific accounts receivable and recent trends in bad debt losses as a percent of sales may cause the auditor to conclude that the allowance for doubtful accounts should be between $130,000 and $160,000. If management's recorded estimate falls within that range, the auditor ordinarily would conclude that the recorded amount is reasonable, and no difference would be aggregated. If management's recorded estimate is $110,000, how much would be aggregated as a misstatement?

45

In activity-based costing, a separate activity rate (i.e., predetermined overhead rate) is computed for each activity cost pool by dividing the estimated overhead cost in the activity cost pool by the total expected activity for the activity cost pool.

46

Bluestone Company issued bonds with a face value of $500,000 on January 1, Year 1 at 90. How would this event affect the company's financial statements?

47

The more important the decision, the more the manager will want to ensure that the assumptions made for CVP analysis are applicable.

48

Assume that a Debt Service Fund does not have nonspendable fund balance. Further assume that after restricted and committed levels of fund balance have properly identified, the remaining balance is a deficit. This deficit fund balance should

49

Which of the following intangible assets has an unlimited life?

50

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue. Current accounting practice does not strictly apply this principle to expenditures for:

51

Tucker Company shows the following transactions for the accounting period ending December 31, Year 1:1) Sold books to customers for $68,000 on account2) Collected $56,000 from customers3) Issued common stock for $16,000 cash4) Prepaid four months' rent for $8,800 on October 1, Year 15) Purchased supplies for $21,000 cash6) Physical count shows $6,500 of supplies remained on December 31, Year 17) Recorded adjustment for prepaid rent usedShow how the above transactions and year-end adjustments affect the accounting equation.<img src="https://sciemce.com/files/4/ppg__10830192013__f1q419g1.jpg" alt="" style="vertical-align: 0.0px;" height="213" width="584" />

52

All of the following statements regarding long-term liabilities are true except?

53

Alarid Inc. currently sells its product for $3.25 per unit. The variable cost per unit is $0.80 and fixed costs are $90,000. Purchasing a new machine will increase fixed costs by $6,000 but variable costs will be cut by 20%. What is the new breakeven point?

54

Which of the following is false about activity-based costing?

55

Gomez Corporation issues 800, 10-year, 8%, $1,000 bonds dated January 1, 2012, at 96. The journal entry to record the issuance will show a

56

Jones Corp. reported current assets of $199,000 and current liabilities of $140,000 on its most recent balance sheet. The working capital is:

57

The modified accrual basis evolved from the demand for accountability over public resources and is therefore closely tied to the budget function.

58

Using the information below, compute the days' sales in raw materials inventory: Raw materials used$85,500 Beginning raw materials inventory 8,000 Ending raw materials inventory 9,000

	Annual incremental cost savings	$132,632
	Annual depreciation ($756,000 − $151,200)/8	75,600
	Annual incremental net operating income	$57,032

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Business - Accounting And Taxation, Quiz Level 2

Recent Packs

		Debit or Credit
A.	An increase in Savannah Smith, Drawing	Debit
B.	A decrease in Cash	Credit
C.	An increase in Fee Income	Credit

Accounts Receivable	1,500
Unearned Design Revenue		1,500

Cash	1,500
Accounts Receivable		1,500

Accounts Receivable	1,500
Cash		1,500

Cash	1,500
Unearned Design Revenue		1,500