Questions and Answers of Essentials Accounting

Matthew Company has the following permanent capital:Debt capital ............................................................... $ 80,000 Equity capital
Select the correct words in the following table, which shows the principal differences between debt capital and equity capital.Bonds(Debt)Stock(Equity)Annual payments are required.[Yes / No] [Yes /
A cash dividend [increases / decreases / does not change] shareholder equity. A stock dividend[increases / decreases / does not change] shareholder equity. A stock dividend [increases / decreases
Preferred shareholders usually have preference as to and also in the event of liquidation they have preference as to .
Brigham Company had 200,000 shares of stock authorized. It issued 150,000 shares. It later bought back 10,000 shares. The 10,000 shares are called stock. The total shareholder equity on the balance
The dollar amount reported for common stock on the balance sheet is the amount for the number of shares [authorized / issued]. This amount is called the amount .
The equity section of a balance sheet is as follows:Common stock (1,000 shares, no par value) ........... $10,000 Other paid-in capital ............................................... 20,000 Retained
A corporation issues 1,000 shares of $1 par value common stock in exchange for $10,000 cash.Complete the journal entry for this transaction:Dr. Cash
The two principal sources of equity capital are- from and (income not paid out as dividends).
Bonds obligate the company to make regular payments of and . Bonds are [never / sometimes / always] current liabilities.
The two principal sources of a company’s permanent capital are and .
The term working capital means the difference between and.
Fill in the missing name on the following table:Income tax expense $100,000 Income tax paid 260,000$ 40,000 The $40,000 would be reported on the balance sheet as a(n) [asset / liability].
Assume an income tax rate of 40 percent. If a company calculated its financial accounting income(before income taxes) in 2011 as $6 million and its taxable income as $4 million, what amount would it
Companies usually use accelerated depreciation in tax accounting because it [increases / reduces]taxable income and hence income tax in the early years.
As compared with straight-line depreciation, accelerated depreciation writes off [more / the same /less] depreciation in the early years of an asset’s life and [more / the same / less] in the later
In calculating its taxable income, a company tries to report its income as as it can. In calculating its financial accounting income, a company tries to report its income as as it can.
Wasting assets and intangible assets are reported on the balance sheet in a different way than building, equipment, and similar plant assets. The difference is that wasting assets are reported at the
Shell Company purchased a producing oil property for $10,000,000 on January 2, 2011. It estimated that the property contained one million barrels of oil and that the property had a service life of 20
A machine is purchased on January 2, 2011, for$50,000. It has an expected service life of 10 years and no residual value. Eleven years later it is sold for $3,000 cash.(a) There will be a [loss /
A machine is purchased on January 2, 2011, for$20,000 and it has an expected life of 5 years and no estimated residual value.(a) If the machine is still in use 6 years later, what amount of
A PPE asset is acquired in 2011 at a cost of$20,000. Its estimated service life is 10 years, and its estimated residual value is $2,000:(a) The estimated depreciable cost of the asset is $(b) If the
Ordinarily, land [is / is not] depreciated because its is indefinitely long.
A PPE asset is acquired in 2011. It is expected to be worn out at the end of 10 years and to become obsolete in 5 years. What is its service life?years
The amount at which a new property, plant, and equipment (PPE) asset is recorded in the accounts includes its purchase price plus incurred to make the asset ready for its intended use (such as
An inventory turnover of 5 is generally [better /worse] than an inventory turnover of 4 because it indicates that [more / less] capital is tied up in inventory, and there is [more / less] risk that
A given finished item requires $50 of direct materials and 5 hours of direct labor at $8 per hour. The overhead rate is $4 per direct labor hour. At what amount would the finished item be shown in
One type of overhead rate involves use of the total direct labor costs and total production overhead costs for a period. Write a ratio that shows how the overhead rate is calculated.Total costs Total
Product costs become an expense during the period in which the products were .
Period costs become an expense during the period in which they were .
In a manufacturing business, what three elements enter into the cost of a manufactured item?, , and.
A company discovers that the fair value of its inventory is $1,000 lower than its cost. What journal entry should it make?Dr.Cr.
In periods of inflation, many companies use the LIFO method in calculating their taxable income because LIFO gives a cost of sales and hence a taxable income.
Following is information about a certain product:Quantity Unit Cost Total Cost Inventory, July 1 400 $1.00 $400 Purchases, July 15 200 $1.20 240 Total goods available 600 640 Inventory, July 31 300
Write an equation that shows how the cost of sales is determined by deduction:cost of sales 5 12
When using the perpetual inventory method, a record is kept for , showing receipts, issues, and the amount on hand.
A dealer sells a television set for $800 cash. It had cost $600. Write journal entries for the four accounts affected by this transaction.Dr.Cr.Dr.Cr.
Give an equation that used the terms(a) net income(b) dividends(c) retained earnings at the beginning of the period, and(d) retained earnings at the end of the period.( ) 5 ( ) 1 ( ) 2 ( )
A distribution of earnings to shareholders is called .
The difference between revenues and expenses in an accounting period (or the amount by which equity[i.e., retained earnings] increased from operating activities during the period) is called.
Give the numerator and denominator of the gross margin percentage:
Gross margin is the difference between and .
A brand new machine owned by Lily Company was destroyed by fire in 2011. It was uninsured. It had been purchased for $10,000 with the expectation that it would be useful for 5 years. The
If Penfield Company pays rent prior to the period that the rent covers, the amount is initially reported as a credit to cash and a debit to Rent, which is a(n) [asset / liability] account. If
Expenses of a period consist of:(a) of the goods and services during that period.(b) Other that benefit of the period.(c)
The matching concept states that associated with the revenues of a period are of that period.
Productive assets are [expired / unexpired] costs.Expenses are [expired / unexpired] costs.
A certain asset was acquired in May. There was therefore an in May. At the end of May, the item was either on hand, or it was not. If it was on hand, it was an ; if it was not on hand, it was an in
An expenditure occurs in the period in which goods or services are [acquired / consumed]. An expense occurs in the period in which goods or services are [acquired / consumed].
In 2012, the $2,000 of bad debt was written off.(a) What account should be debited for this write off?(b) What account should be credited?
At the end of 2011, Timber Trails had accounts receivable of $200,000, and it estimated that $2,000 of this amount was a bad debt. Its revenue in 2011, with no allowance for the bad debts, was
Similarly, revenue is a credit entry. What is the offsetting debit when revenue is recognized in each of these periods?Account debited:(a) Revenue recognized prior to receipt of cash(b) Revenue
The receipt of cash is a debit to Cash. What is the offsetting credit and (type of account) for the following types of sales transactions?Account credited:(a) Cash received prior to delivery(a )(b)
McHugh Company manufactures a table in August and places it in its retail store in September.Jane Guyer, a customer, agrees to buy the table in October; it is delivered to her in November, and she
The realization concept states that revenues are recognized when goods or services are .
Increases in equity associated with the entity’s operations during a period are , and decreases are . The difference between them is labeled .
Cash accounting reports items that increase or decrease cash. Accrual accounting reports items that change or , even though these changes may not affect cash.
What is the length of the usual accounting period?. Financial statements prepared for shorter periods are called statements.
The materiality concept states: disregard, but disclose all.
The conservation concept states that increases in equity are recognized only when they are, while decreases in equity are recognized as soon as they are.
The reason the criticism is incorrect is because income is an increase in, not necessar.ily in . For example, the sales revenue of Harder Company in March was $15,000 and its income was $7,000 even
A critic said that the company had $25,000 cash at the beginning of March and $25,000 at the end of March, and since its cash balance was unchanged, it couldn’t be said to have any income in March.
The following journal entries will be used in Frames 6 and 7.There is no response required in this frame.Journal Transactions Dr. Cr.March 5 Inventory 6,000 Cash 6,000 March 10 Cash 6,000 Accounts
Holt Company sold $1,000 of goods on credit to Renfrew Company. This would be recorded as an account[receivable / payable] of Holt Company and as an account [receivable / payable] of Renfrew Company.
Dan Bailey claims that the inventory as of January 31 is worth $6,000, as shown by the fact that inventory costing $2,000 was actually sold for $6,000. Would you change the balance sheet?[Yes / No].
Bailey Company’s income was $4,000, but its Retained Earnings was only $3,000. Reread the first frame and choose the item (a–g) that explains the difference.
Indicate whether the following statements about the balance sheet of a corporation are true or false:(a) Assets list all the valuable things owned by the entity ............................ [T /
Stein Company operates a furniture store.On December 31, 2011, it had 30 desks that it was holding for sale. These would be reported as. The desk that is used by the president of Stein Company would
A building, an item of equipment, and an automobile may all be examples of.
An insurance policy paid in advance of the time period covered is an example of a prepaid expense.Prepaid expenses are usually.
Answer True or False:Shoes in a manufacturing company are considered inventory .............................. [T / F]The building in which the shoes are manufactured is considered inventory .... [T /
Marketable securities are [current / noncurrent]assets. Property, plant, and equipment (PPE) are[current / noncurrent] assets.
A liability is classified as “current” if it becomes due in the near future, usually within[what time period?].
An asset is classified as “current” if it is cash or is expected to be converted into cash in the near future, usually within [what time period?].
Goodwill is a favorable name or reputation by the entity.
An item can be reported as an asset if it passes three of the following tests. Select “yes” for these and “no” for the others.(a) Item is valuable. [yes / no](b) Item is located in a building
The asset-measurement concept is: If reliable information is available, accounting focuses on the of assets. Nonmonetary assets are reported at their original .
The going-concern concept is: Accounting assumes that an will continue to operate .
The entity concept states that accounts are kept for __________________ as distinguished from the _________________ who own those entities.
Rainbow Company has $10,000 cash. Dale Fish, its sole owner, withdraws $100 for his own use. Dale Fish is [better off / worse off / no better or worse off]than he was before. Rainbow Company now has
A balance sheet does not report all the facts about a business. What concept limits the amount or type of information that can be reported?__________________ - __________________ __________________
The money-measurement concept states that accounting reports only facts that can be expressed in __________________ __________________ .
The above equation is consistent with what concept? __________________ - __________________ __________________
Give the fundamental accounting equation:__________________ = __________________ + __________________.
A balance sheet reports the status of an entity [at a point in time / over a period of time].
List the two types of sources of funds; list first the type having the stronger claim on an entity’s assets:Stronger claim__________________ .Lesser claim __________________.
Give the accounting name for the following terms:(a) Things of value owned by an entity __________________(b) Money__________________ .(c) Claims of creditors__________________ .(d) Claims of
To reinforce this point, recall the journal entry that records the Depreciation Expense:The Cash account [was / was not] changed by this entry. Dr. D Cr. A E. D
The journal entry summarizing the above transaction would be(omitting 000): Dr. A Cr. R 400 400
If, in 2012, Chico Company received $400,000 cash from credit customers, Cash would increase and Accounts Receivable would decrease, as summarized in the following journal entry: Dr. Cr. 400 400
The above two entries have been posted to the accounts as shown below:As these accounts show, when the balance in Accounts Receivable does not change, the increase in cash is [more than / less than /
Consider what the account balances would have been if Chico Company had revenue of $400,000 but had received $412,000 cash from customers. Enter the $412,000 in the T-accounts shown below and find
U.S. GAAP allows parent and subsidiary to use different accounting policies. IFRS requires all a ________ p ______ used between parents and its subsidiaries be the same.
U.S. GAAP measures the minority interests portion of the subsidiary at f __ v ___ , which is a reasonable estimate of market value. IFRS accounts for minority interest either at fair value, or at the
IFRS also follows the 50 percent control rule when determining whether the parent should c ________ e its subsidiary.However, IFRS uses the 50 percent rule more loosely than U.S. GAAP.IFRS considers
Recall from Chapter 8 that many companies have subsidiaries.The economic entity is a family consisting of the parent and the subsidiaries.Consolidated financial statements are prepared for such an
When income statement items are unusual and infrequent, they often appear in a separate section of the income statement. This is so that readers of the income statement can appropriately forecast
Not only are U.S. companies regulated by GAAP, but they must also comply with rules of the Securities and Exchange Commission(SEC). Companies that follow IFRS rules must only comply with __
Capitalization of assets means that sometimes future expenses are first assets, on the balance sheet, before they can become expenses on the income statement. IFRS and U.S. GAAP do not allow the
U.S. GAAP prohibits revaluation of intangibles if they have been i ______ . IFRS allows intangible assets to be re _____ .

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