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Financial Accounting Exam 2

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Question;Financial;Accounting Exam 2;1) The;fundamental accounting equation is a reflection of the;Money;measurement concept;Conservatism;concept;Dual-aspect;concept;Historical;cost concept;2);The;historical cost concept reflects the fact that financial accounting practice;favors;Reliability over relevance;Management's;best guess over historical financial information;Relevance;over reliability;Consensus;market values over historical financial information;3);Jon;Sports' inventory account increased from $25,000 on December 31, 2003 to;$30,000 on December 31, 2004. Which one of the following items would be;included in the operating section of its 2004 indirect method statement of cash;flows?;Add;increase in inventory $5,000;Subtract;increase in inventory ($5,000);Add;inventory balance $20,000;Subtract;inventory balance ($20,000);4);Turnkey;Systems, Inc. began the month of June, 2004 with a prepaid expenses balance of;$240,000. During the month, debits totaling $110,000 and credits totaling;$80,000 were made to the prepaid expenses account. What was the June, 2004;ending balance of prepaid expenses?;A debit;balance of $210,000;A;credit balance of $210,000;A debit;balance of $270,000;A;credit balance of $270,000;5);Pentex;and Marbro, small companies in the stationery business, each had a dollar gross;margin of $20,000 during September 2004. Pentex's September sales were twice;that of Marbro's. If Pentex's gross margin as a percentage of sales for;September was 10%, Marbro's gross margin as a percentage of sales for the same;period was;10%;5%;20%;Cannot;be calculated;6);When an;entity recognizes revenue before it has received cash for the sale, it records;an increase in a(n);Liability;such as 'Advances from customers;Accounts;payable;Accounts;receivable;Prepaid;expense;7);Juan;Foods pays off a long-term debt in full. Which one of the following statements;describes the effect of the sale on Juan Foods?;Current;ratio increases, total debt to equity ratio decreases;Current;ratio decreases, total debt to equity ratio decreases;Current;ratio decreases, total debt to equity ratio increases;Current;ratio increases, total debt to equity ratio increases;8) On;January 1, 2005, Mansfield Company has a retained earnings balance of $256,000.;During 2005, its net income is $44,000 and it announces and pays $12,000 in;dividends. There is no other dividend-related activity during the year. Its;December 31, 2005 retained earnings balance is;$2,12,000;$2,88,000;$3,00,000;$2,24,000;9);Juan;Foods makes a cash sale with a positive gross margin. Which one of the;following statements describes the effect of the sale on Juan Foods?;Current;ratio increases;Current;ratio decreases;No;change to Juan Foods' current ratio;Insufficient;information to judge effect on current ratio;10);Juan;Foods pays off a long-term debt in full. Which one of the following statements;best describes the appropriate book-keeping for this transaction?;Debit;cash, credit long-term debt;Debit;long-term debt, credit owners' equity;Debit;owners' equity, credit long-term debt;Debit;long-term debt, credit cash;11);On;March 31, 2005, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000;for previous purchases. During April 2005, Preston sells Cars devices with a;sales price of $10,000 and a cost to Preston of $8,000. During April Cars pays;Preston $12,000 against the amount owed to Preston. What is the effect of these;April transactions on Preston's balance sheet?;Cash;increased by $12,000, accounts receivable decreased by $2,000, inventory;decreased by $8,000, retained earnings increased by $2,000.;Accounts;receivable increased by $2,000, inventory decreased by $8,000, cash increased;by $12,000, retained earnings increased by $12,000.;Cash;increased by $12,000, retained earnings decreased by $2,000, inventory;decreased by $10,000, accounts receivable decreased by $12,000.;Cash;increased by $2,000, accounts receivable decreased by $2,000, inventory;decreased by $8,000, retained earnings decreased by $12,000.;12);Consider;the same scenario as in the previous question: On March 31, 2005, Cars, Inc.;owes Preston Devices, one of its suppliers, $25,000 for previous purchases.;During April 2005, Preston sells Cars devices with a sales price of $10,000 and;a cost to Preston of $8,000. During April Cars pays Preston $12,000 against the;amount owed to Preston. If Preston had no other sales and records no other;collections from customers during the month of April, the operating section of;Preston's indirect method statement of cash flows for April will show the;following de-accrual adjustments to net income;Subtract;change in accounts receivable, add change in inventory.;Add;change in accounts receivable, subtract change in inventory;Add;change in accounts receivable, add change in inventory.;Subtract;change in accounts receivable, subtract change in inventory.;13);Planet;Music buys all of its inventory on credit. During 2005, Planet Music's;inventory account increased by $10,000. Which of the following statements must;be true for Planet Music during 2005?;It made;payments of less than $10,000 to suppliers.;It made;cash payments of $10,000 to suppliers.;It made;more cash payments to its suppliers than it recorded as cost of goods sold.;It paid;less cash to suppliers than it recorded as cost of goods sold.;14) On;December 31, 2005, Juan Foods purchases a van for $12,000. How does the;purchase of the van affect Juan Foods' 2005 income statement?;Decreases;sales by $12,000;Increases;operating expenses by $12,000;No;material effect;Increases;cost of goods sold by $12,000;15);To be;recorded as a liability, an item must meet three specific conditions. Two of;them are: it must involve probable future sacrifice of economic resources by;the entity, and it must be a present obligation that arose as a result of a;past transaction. Which one of the following is the third condition?;The;item must reduce the market value of the recording entity;It must;involve a transfer of resources to another entity;It must;involve the expenditure of cash now or in the future;It must;not cause total liabilities to exceed total assets;16) The next 9;questions are based on Patnode Inc.'s balance sheets at year end 2004 and 2005.;During;2005, Patnode announced and paid dividends of $1,000, the only dividend-related;activity during the year. What was its 2005 net income?;$5,600;$3,600;$4,600;Cannot;be estimated;17);During;2005, Patnode had a cash outflow of $15,000 for investing activities and a cash;inflow of $7,000 from financing activities. Its 2005 cash flow from operations;was;Outflow;of $15,000;Inflow;of $15,000;Outflow;of $8,000;Inflow;of $8,000;18);Patnode's;2005 statement of cash flows contains four items in the financing section.;Three of them are: Short-term debt issued, $15,000, Short-term debt paid;($10,000) and Dividends paid, ($1,000). What is the fourth item in the;financing section?;Retained;earnings, $4,600;Common;stock issued, $3,000;Long-term;debt paid, ($3,000);Cash;from financing, $3,000;19);How;much total depreciation and amortization expense did Patnode record during;2005?;$10,000;$6,000;$3,000;$5,000;20);During;2005, Patnode recorded sales of $17,000. How much cash did it collect from its;customers?;$17,000;$14,000;$3,000;Cannot;be estimated;21);Which;one of the following items will not appear in the operating section of;Patnode's 2005 indirect method cash flow statement?;Deduct;increase in accounts receivable $3,000;Add;decrease in accounts payable $1,000;Add;increase in taxes payable $2,400;Add;decrease inventories $6,000;22);What is;Patnode's current ratio at the end of 2004?;2.46;0.41;1.12;0.89;23);What is;Patnode's total debt to equity ratio at the end of 2004 (rounded to two decimal;places)?;5.3;0.19;0.25;4.04;The;correct answer is 0.57, which is not available in the options (30,000 / 53,000);24);Patnode;recorded a 2005 tax expense of $3,000. What amount did it pay to the tax;authorities during 2005?;$2,400;$7,000;$600;$5,400;25);Kirby;Inc. records a sale with a gross margin of $1,400. Which one of the following;statements correctly describes the effect of such a sale on its balance sheet?;Common;stock increases by $1,400;The;sales revenue account increases by $1,400;The;gross margin account increases by $1,400;The;retained earnings account increases by $1,400;26);Sandy;Robbins is the sole owner of a hair salon. He often takes small amounts of;lunch money" from the cash register, figuring that "it is my;business anyway." His accountant, however, insists that Sandy make a note;of the cash he takes, and at the end of the each accounting period, she debits;owners' equity and credits the cash account for the total amount that Sandy has;taken during the period.;In recording;the cash withdrawals even though Sandy is sole proprietor, the accountant is;correctly applying the;Matching;concept;Entity;concept;Materiality;concept;Conservatism;concept;27);Anderson;Electronics' 2005 return on sales percentage is 20%. Its 2005 net income is;$40,000. What is its 2005 sales?;$4,00,000;$80,000;$2,00,000;$1,00,000;28);Anderson;Electronics' 2005 return on sales percentage is 20%. Its 2005 net income is;$40,000. What is its 2005 sales?;$4,00,000;$80,000;$2,00,000;$1,00,000;29);During;June 2005, Bextra Inc. recorded sales of $55,000 but only $20,000 was collected;in cash from customers. Cost of goods sold of $38,000. What was the effect of;these sales on Bextra's current ratio?;Current;ratio increases;Current;ratio decreases;Current;ratio remains unchanged;Insufficient;information provided to judge effect on current ratio;30);Which;one of the following statements is not true about statements of cash;flows prepared according to U.S. GAAP?;The;operating section of the indirect method starts with the net income of the;period;In the;indirect method statement, the period's depreciation is added to net income;because it is a source of cash;Interest;payments are included in the operating section of the direct method statement;The;investing section of the direct method statement for a period is identical to;the investing section of the indirect method statement for the same period;31);A;company raised $50,000 in cash by taking a one-year loan of $10,000 and a;5-year loan of $40,000. Which of the following is the correct journal entry to;record this transaction?;Debit;short-term debt $40,000, debit retained earnings $10,000, credit cash $50,000;Debit;short-term debt $50,000, credit cash $50,000;Debit;cash $50,000, credit long-term debt $50,000;Debit;cash $50,000, credit short-term debt $10,000, credit long-term debt $40,000;32);Which;one of the following statements describes the rules about posting transactions;into T-accounts in the ledger?;For;assets, debits are entered on the left, for liabilities, credits are entered on;the left;For;assets, credits are entered on the left, for liabilities, debits are entered on;the left;Debits;on the left, credits on the right;Credits;on the left, debits on the right;33);Baxtra;Inc. pays $20,000 in cash as interest to its lenders during 2005. According to;U.S. GAAP, in which section of the statement of cash flows would this payment;be included?;The;operating section;The;financing section;The;investing section;Depends;on whether cash flow statement is direct or indirect method.;34);Taylor;Company had a salaries payable balance of $18,000 on December 31, 2004. During;2005, it paid $50,000 in cash as salaries, and recorded a salary expense of;$50,000. Its December 31, 2005 salaries payable balance is;$50,000;$18,000;$1,00,000;Cannot;be determined from the information provided;35);On;April 30, 2005, Zono Electronics, Inc. made a payment of $3,500 to Imperial;Distributors, a supplier. Choose the statement that best describes the;recording of this financial transaction by Imperial Distributors.;Debit;cash $3,500, credit accounts payable $3,500;Debit;accounts receivable $3,500, credit cash $3,500;Debit;accounts payable $3,500, credit cash $3,500;Debit;cash $3,500, credit accounts receivable $3,500;36);Sardi;Company estimates its 2005 tax expense to be $80,000. It makes a cash payment;of $20,000 to the tax authorities on December 31, 2005. How should this;transaction be recorded by Sardi?;Debit;tax expense $80,000, credit cash $60,000, credit taxes payable $20,000;Debit;tax expense $80,000, credit cash $20,000, credit taxes payable $60,000;Debit;tax expense $80,000, credit cash $20,000;Debit;tax expense $80,000, credit cash $20,000, credit accounts payable $60,000;37);On June;1, 2005, Planet Music has accounts payable of $45,000. During the month, debits;of $3,000 and credits of $11,000 were made to the account. At the end of June;2005, what was the accounts payable balance?;A;credit balance of $53,000;A debit;balance of $42,000;A;credit balance of $56,000;A debit;balance of $53,000;38);Barnaby;Sons receives a large shipment of goods from its supplier. It pays;$58,000 at the time of delivery and promises to pay the remaining $42,000;within the next two months. What is appropriate journal entry for this;transaction?;Debit;cash $42,000, debit inventory $16,000, credit accounts payable $58,000;Debit;inventory $100,000, credit cash $58,000, credit accounts payable $42,000;Debit;accounts payable $58,000, credit cash $42,000, credit inventory $16,000;Debit;accounts payable $58,000, debit cash $42,000, credit inventory $100,000;39);Annie's;Fitness sells a set of free weights to a customer for $1,000. The customer pays;$600 in cash and puts the rest on her store credit account. Which one of the;following statements describes the most appropriate accounting for the;transaction?;Debit;cash $600, debit accounts receivable $400, credit cost of good sold $1000;Debit;cash $600, debit accounts receivable $400, credit revenues $1,000;Debit;revenues $1,000, credit cash $600, credit accounts receivable $400;Debit;cash $600, debit accounts receivable $400, credit inventory $1,000;40);Annie's;Fitness sells a set of free weights to a customer for which Annie's had paid;$750. Which one of the following statements describes the most appropriate;accounting for the transaction?;Debit;cost of goods sold expense $750, credit cash $750;Debit;inventory $750, credit cost of goods sold expense $750;Debit;cost of goods sold expense $750, credit inventory $750;Debit;inventory $750, credit accounts payable $750

 

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